tv Bloomberg Surveillance Bloomberg February 16, 2018 4:00am-7:00am EST
mark: welcome to "surveillance," i'm mark barton in london. the stoxx 600 is up by 0.9%, rising for the fourth day in five, contract for the best week since december, 2016. the european gains surging 2.8%. year, coming.s. 10 down today, breaking below 2.9%, % is where we are today. we closed above 2.9 percent yesterday, the highest level since december 2014. today, export and import data. spot indexrg dollar is lower today by about 0.25%. sincee lowest level december 2014. a growing number of economists forecast the fed will step up
the pace of rate increases. the u.s. twin deficit becoming a likely catalyst for a new wave of dollars selling after a brief respite, i say a brief respite in february. this is coming up on "surveillance" today. we talk with the chief executive of metro bank. withr, we talk the 10 year ylagos. mateos taylor riggs joins us from new york. reporter: the u.s. senate has blocked four immigration proposals, leaving a bitter impasse over how to protect 1.8 million young immigrants from deportation. this would provide $25 billion for border security and a path to citizenship for the end immigrants. following harsh criticism by president trump, the white house
expressed they would veto the .easure this would help maintain the competitiveness of some of the u.k.'s sea industries while also allowing the government to form an independent trade policy. u.s. secretary of state rex tillerson has met with the turkish president to ease tension over american-kurdish forces in syria. this was the last of his five nation stop tour through the middle east. , totaling more than $21 million. bridgewater associates turned bearish on europe against last month and started shorting japan stocks the same time. the u.s. stock has long u.s.
equities, despite what dalio says is a risk with the u.s. recession. the world's top exporter is expecting to sell more than 36.5 million metric tons overseas. that is according to the institute for agricultural market studies. russia soil has allowed to grab market share for major exporters, like the u.s. and canada. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. manus: taylor, thanks. beenofficial, kuroda has nominated by shinzo abe to lead the bank of japan for another five years. this will provide a stability for the world's biggest economy and means aggressive monetary
stimulus will continue for now. what does more of the same mean for the boj, for the yen? joinging us now, henry, give us the details here. henry: well, what it means in the nearterm is we can expect the boj to stay the course. it's been on cruise control for more than a year now. governor kuroda has said repeatedly, every opportunity, that they will charge forward with what they have been doing. it was not that long ago, a few weeks ago, that people were speculating about the first step towards policy normalization. the yen now has gained more than 6% since the start of the year. the conversation has actually turned to, is the boj going to be forced to do something about it? it is a quick reversal there, but for now, we can expect them to keep going with what they have been doing. mark: is today's news evidence
that the government, henry, is becoming uncomfortable with the yen's strength, the highest level against the dollar since 2016? economists, some were saying it is likely governor abe was finally convinced by the recent market turbulence and the surging yen to go with governor kuroda and to go with him now, not to a any longer. theknow, this afternoon, think of japan and the ministry of japan and the finance regulator met to talk about international markets and the yen. so, it's definitely a concern. achieving 2% inflation has obviously been a struggle. if the yen keeps going as it is, it will be them a charter. thank youy hoenig,
for joining us, bringing us news out of the boj. guy, the head of research at societe generale. guy: i think, as your colleague mentioned just a few minutes ago, it's a vote for continuation, in terms of the policy. if anything, it means we are probably less likely to see steps towards normalization, not just because of the fact that strong, but also because kuroda, i think is very cautious in terms of the way he approaches policy. mark: as you say, "unlikely to see steps towards normalization," that does not even take into account normalization. it is just laying the groundwork. this is not even opening the door to the possibility of normalization. much more than issue for 2018 and 2019 at the moment. mark: inflation is moving in the
right direction, guy, but it's part of what the boj wants it to be. guy: the other issue is currency; the boj is very sensitive to what other central banks are doing. it wants to be -- it is perceived as being the third mover in terms of global central banks and i think it wants to be the third mover. mark: what can japan, the boj, the finance industry do then to ensure, beyond intervening, which is not always proven to be successful? yen'sp the descent? guy: part of it could be the threat of intervention, in order to put a floor, or ceiling, in terms of the yen, and have a turnaround there. guy: so, if yield curve control stays, 0% remains the target, nothing changes there, what does
that mean for the japanese bond market? questioninteresting for the japanese bond market is, what will happen within the context of everything else? if you are managing a global pool of fixed income assets and you are bearish about treasuries where you'll continue to go up and you are concerned that european yields will continue to go up, from that standpoint jgb's, with the stability is incredible, look like an incredible option, though they do not pay much. mark: and the boj might have to spend more to ensure the yield remains around 0%. guy: i think that is true, also money is flowing into the jgb market because people are flowing out, looking for a refuge. that of course, is having its impact in terms of currency markets, too. i think capital flows is something the boj is thinking on at the moment. mark: what do we think about the change -- the boj right now is
unchanged, that is fine. kuroda remains. china could be changing, too. a number of changes in key central bank positions. what does that mean in the global sense of things? guy: you haven't mentioned the fact that there is a lot of uncertainty about who will be running the ecb. which is a big question. i mean, i think these conversations are very interesting. the most important thing is, how will the data move in terms of economic growth and inflation. what we've seen this year is relatively strong data and a lot more concern about inflation, particularly around february, which is responsible for the turmoil in the markets. i think that will continue and s tay with us. generally, the economic data will look quite strong and of central bankers will feel they have to normalize policy sooner rather than later. and i think whoever we have in terms of running the central bank, that is going to be the issue they will face.
mark: i want to talk about what has been going on over the last couple weeks. guy stear stays with us. plenty coming up today. including, saving the city has written is ready to lay out its post-brexit vision for financial services. we speak with vernon hill. that is in 30 minutes. this is bloomberg. ♪
mark: economics, finance, politics. this is "bloomberg surveillance ," and i'm mark barton in london. taylor riggs is in new york. taylor: europe's biggest insurer is raising the dividend and a sticking with the plan to return cash to shareholders. alliance will increase the dividend in the car nearby 5.3%. the company reported decreased earnings of 1.4 billion euros in the quarter, partly affected by the u.s. tax changes. lianzompany's cfo said al is interested in making but notions, with life insurance. >> we are interested in looking into acquisitions, but we want to look at the cultural fit. thesenot tick all
boxes, if we cannot, we will go back to pay with dividends or with buybacks. but for the moment, nothing has changed with our philosophy and approach to capital management. spoken air france's ceo exclusively to bloomberg television after reporting full year operating revenue up 42%. arecfo said that the loads increasing. the company plans a major hike in capacity with a boost of as much as 4% this year. he downplayed the prospect of investment. >> we cannot be totally uninterested by what is happening in airitalia. if they are ready to be a partner, it could be great. ,hat means we are interested but that does not mean we are choosing the company. taylor: and one of the top
stopholders wants to rob of age of selling a stake in the company. that is a gordon to three people familiar with the matter. they are seeking an injunction in a london court against whiteleave holdings. -- thissiders favorit shows the return of the conflict. that's your bloomberg business flash. mark: let's get back to the markets, the s&p counting the best five-day run since 2011. ten-year on u.s. treasuries hovering around 2%. are we back to calm in the markets? a couple of weeks. how are you feeling about 2018? how are you feeling about february? guy: right, well i think we have gone through a period of
turmoil and we are back to a period of calm. my rather disappointing take on that is the calm will not last. we have moved into a higher volatility regime. people are a lot more concerned about inflation generally in central bank policy. and i think they have more uncertainty about flows. we have seen some data suggesting that money is coming out. i would say the riskier assets -- this week we have data showing that figures are definitely coming out of the u.s. high-yield market, for example. i think money flow is one big issue. the second big issue is supply. everybody is waking up to the fact that governments appl suppt of settling for justice will be much bigger this year. there is the feeling that the riskless supply will crowd out the money for riskier assets. mark: you are a corporate credit guy.
what does this mean for you? guy: and corporate credit, i think volatility is always a bad thing. the strongest relationship between corporate spreads and anything is corporate spreads and implied volatility. if realized volatility rises, implied volatility rises as well and corporate credit spreads will have a tendency to move wider. i think that will be the theme this year. mark: on inflation, clearly there is a perception that inflation is picking up. you look at expectations, various indicators, do you buy into it? why is this time different? guy: it's not so much inflation that is the key for people, it is rather the central bank reaction to a normalizing level of inflation. i mean, if we were talking about the levels of inflation that were forecast, what people were or eight, seven years ago, people would have lost because the levels of inflation are much lower.
but we also have unbelievably low interest rates and a central banks have been very involved in the markets, as we just talked about in terms of the bank of japan. and it is that normalization that is worrying people a lot. u.s. ten-year year, we would have said, that is like dow, 25,000. what is that mean, guy? is it just a number, or does it have a wider, ripple effect? guy: in and of itself it does not have a wider impact, but people will see that the yield keep going up, and we will look at the returns and see that the negative returns that have been generated within the asset class so far this year have the tendency to accelerate the flows, make the flows continue out of government. so again, it gets into a problem here because we will have more supply and people are going to be more nervous about the asset class because returns are nothing very good. how is that supply going to be met? and what impact will it have if yield continued to increase on risky assets? mark: guy, stay with us.
$6 billion from u.s. junk bonds, bringing the total to $15 ks.lion over two weee guy stear is still with us from socgen. is this the evidence of the equity market volatility spillover, guy, into the high-yield market, but other asset classes? guy: i think so. i think that is exactly -- there is a very close relationship between equities and high-yield bonds. they are joined at the hip, particularly between high-yield bonds and volatility. the flow of coming out for two reaasons. people are getting more nervous about risky assets, but also because the yield on treasuries rise. they begin to look more attractive relative to some of these other asset classes. i'm afraid that trend is likely to continue. mark: yes, it has been the worst period for high yields since oil slumped two years ago.
we like to compare and contrast. should you compare and contrast period when it comes to high-yield? guy: i think it makes sense. the reasons are quite different. with the oil slump, it was linked to the oil companies, and there were a lot of them. a lot of oil companies had borrowed a lot of money and in 2004 they were in much bigger part of the investment than they had been historically. we are talking about something more generalized, where it comes to weakness in the equity market and higher levels of implied volatility. money generally flowing out of the asset class. it is a much more generalized issue. the other factor, which i am sure you are aware of, is the growth of etf. and the fact that people have put money into the asset class without really a clear sense of where it is going into, or which sections they like and which areas they do not like. it's just an investment generally into the asset class. now they are making the opposite trade. so, everything is suffering. mark: in the remaining 40
seconds, you said it is going to be a tough time for corporate credit. your area. how do we make money? guy: the zero some pockets of value. you want to be down in the front of the credit curves, so, short dated maturities. faults this you're not going to be high. things with a short maturity will roll off money for you. other areas which should do reasonably well is pure european credits because particularly as we get into the second half of the year there will be more concerned about the u.s. mark: guy stear from socgen. up next, yes, it is our brexit show. stay with us. ♪
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near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ show me the olympic winter games ♪ leaving every competitor, threat and challenge outmaneuvered. ♪ like i've never seen before. ♪ ♪ xfinity x1, yeah, i always know the scor♪. ♪ triple corks in 4k... lookin' so sick. ♪ ♪ stream live on every screen, every win, every trick. ♪ ♪ 2000 hours of coverage, get your mind blown. ♪ 50 olympic channels, yup, you're in the zone. ♪ ♪ and if there's something that you want to see, ♪ pick up that voice remote and just say "show me..." ♪ experience nbcuniversal's coverage of the olympic winter games like never before with xfinity. proud partner of team usa. mark: welcome to our weekly brexit show. i'm mark barton. let's get the bloomberg brexit flash. taylor: the institute of directors says britain should
aim for a partial customs union with the e.u.. d says it would help maintain the competitiveness of some of the u.k.'s key industries while allowing the government to forge independent trade policies. theresa may has said the country plans to leave the e.u. customs union. bank of england policymakers are uniting behind the message of last week's inflation report, telling investors the rate hikes will come quicker than expected. ian mccafferty says it is likely borrowing costs will rise to a greater extent than anticipated. the bank of england reiterated that a range of outcomes are still possible. those developments remain the most significant influence on and source of uncertainty about the economic outlook. u.k. foreign secretary boris johnson set out his personal vision for brexit in a speech
that contained enough mischief to challenge her authority. during a colorful performance, johnson laid out his own red lines for negotiations, reinforcing pressure on the prime minister. he also cautioned against holding a second referendum. brexit people voted for then have ever voted for anything in the history of this country. if there were to be a second vote, i think it would be another year of turmoil and wrangling in which the whole country would be the loser. let's not go there. taylor: in an interview with bloomberg, the billionaire founder of virgin group says he's still helpful the u.k. will change its mind about brexit. >> i'm still hopeful that when
all the facts are on the table in the house of commons and people realize how damaging it is going to be for great britain , that britain does what ireland did, and they change their mind at the last minute. taylor: that is your weekly brexit bulletin. mark: getting some headlines from michel barnier, the chief brexit negotiator. we've secured city gains -- citizens rights until brexit day, he's saying. he says brexit talks are not headed towards a disorderly exit. orderlyn the way to an withdrawal. we will talk to our guest in just a second. he says the majority of u.k. politicians want an orderly exit. interesting given the comments we heard from boris johnson. not suggesting he doesn't, but it is good to discuss it in the context of boris johnson's speech. he says brexit negotiations
can't be done in secret. just want to tell you about some retail sales data. retail sales here in the u.k. barely growing in january. more evidence consumers are reluctant to splash out. , far increased by 0.1% below the 0.5% gains forecast by economists from a year earlier. 1.6%, which was the weakest for a january in four years. there were bright spots. one was sales of sports equipment, suggesting the usual new year enthusiasm. food sales fell 0.4% on the month. the brexit referendum has pushed sterling lower, triggering a spike in inflation. the bank of england sees wade growth improving, but it does say it will need to raise rates.
sterling marginally up against the dollar, roughly one 20th of 1%. britain is ready to set out its vision for financial services after brexit. ,hat is according to the ft citing three unidentified senior figures who were briefed in the cabinet. the government is said to favor a reciprocal model with mutual recognition of regulations that would preserve london's access to the e.u. that comes after the bundesbank warned that brexit could be a watershed moment for the financial hub with new york set to reap the rewards. vernon with us, chairman of metro bank. the report says that britain is set to lay out its position on financial services. it wants mutual recognition of regulations to preserve the city of london's access to the e.u. i guess what financial services
wants is certainty. will this provide certainty? vernon: certainty in the financial markets is never something that we see. i'm a long way from the expert on how this is going to end, but my personal opinion is, no matter what, relationships are going to remain pretty much the same. mark: does london lose its allure? does new york get a lot of the business? -- some are saying warsaw, dublin, frankfurt. who is going to win when it comes to financial services? vernon: london is not going to lose. i see new york and london as being the financial centers. mark: why are you so confident when banks clearly are taking to prepare measures for the worst case scenario? vernon: you are only talking
about a narrow sliver of the market. you are not talking about consumer banks, commercial banks. you are talking about commercial banks. our bank takes deposits and makes loans. whether britain leaves or not is not going to affect that. mark: let's say it is a hard brexit. does metro bank get his at all? vernon: it has to have some effect, but our model is about taking market share. is it going to affect our ability to take market share? mark: are you taking market share? vernon: every day. mark: what are the stats? vernon: in a country where the press has said brits won't switch banks, i say they've had no choice. 1.2 million people have switched banks, have switched to us, and the numbers keep growing. we recently got a report that
our brand recognition in greater 89%.n is that thes saying is business customer and the consumer was dying for a change, dying for a choice. mark: how do you get people to switch banks? i have a bank account. i've had the same one for 20, 25 years. how does one get a customer? you don't spend a lot of advertising. is it word-of-mouth? vernon: our business model is about building fans. they join your brand. they remain loyal. they bring their friends. ratesbank is growing at no one has ever seen in america or britain. you have to be unhappy with your current bank and looking to make a choice. we do it with press, with store openings, with happy clients. we get tremendously high growth
rates with very little ads. press likes tohe talk about the retail side, but you lend to businesses. what can you tell us about lending to businesses? is there demand for loans? what does that tell us about the general backdrop of the u.k. economy? bank is as much a business bank as a consumer bank. the numbers are about half and half. what a commercial customer wants is an old-fashioned banker who knows him, who knows his business, can handle his loans, can handle his mortgage. that is what the metro bank model is. banks mistreat the business clients worse than they mistreat the consumer clients. opening anks admit to
new current account for a business takes six to eight weeks. it takes us an hour. mark: why does it take so long? vernon: you have to ask them. mark: coming back to brexit, you are an outsider given that you stem from another nation, another world. ont is your general overview the process, how it is going, where it is going to end? the brexit process, and where it is leading -- are you worried at all? we are a year away. vernon: i'm not worried. but i do see the brexit election two sides of the same coin. it is a popular revolt against the establishment. you know where this is going to end. mark: where will it end? vernon: i have no clue.
mark: how do you view the trump administration one year or so in? vernon: he's done amazing things. make a list of things that would never happen, one would trump never elected, and america cutting the corporate tax rate in half. we've seen results in the growth rates, the jobless claims. to, given theeed economy is doing pretty well without the tax cuts? cut taxes when the economy is on its knees. vernon: lower taxes are always better. mark: you don't worry about higher deficits? vernon: obama ran up $10 trillion more in new debt and got no growth for it. mark: good way of ending it. always good to see you. haven't seen you for a while.
mark: welcome back to our brexit show. a partial customs union with the e.u. after brexit, that is according to the institute of directors. the group says the deal would help maintain competitiveness while allowing the government to forge independent trade policies. theresa may has said she wants to leave the single market and customs union, but the details remain hazy. what do businesses on the other side of the channel want to see? joining us from paris is bernard, president of the french insurance federation. mr. spitz, thank you for joining us today. this idea of a partial customs down, is it going to go well in brussels? do you think that is palatable or not? bernard: hello, mark.
i would like to have a more detailed from the u.k. government, to answer your question. the problem is a problem of uncertainty. we know that there are very strong relationships in the business between france and the u.k. we have 30,000 french companies exporting to the u.k. we have french companies in the u.k. we have the best relationship. the question is what is going to happen tomorrow. we have not clear answers to that. now,ow that one year from the appointment at the end of march, but then what is going to happen? to be honest, we don't know. that is why we are worried. we are obliged to prepare every kind of situation, and
eventually the worst one, which is no deal. mark: we just heard from the shell barnier, who says in munich, the brexit talks currently aren't headed toward a disorderly exit. do you share the sentiments? what advice are you giving to your members to prepare for the worst case scenario? bernard: as you know, it is a little bit difficult. on the one side, we didn't want that to happen. we were supporting our british colleagues. what we want at the end is to take the best solutions. but we don't want uncertainty. do you know how many french trucks go to the u.k. every day without control? 8000. can you imagine the problem for
the people who hire these trucks? so it is one concrete problem. we have thousands of them and we have no idea what the british government is going to do. companies,he french we have to prepare all the scenarios. we are going to work and support the best accommodation, but we cannot afford a wait and see situation. we have to be prepared to everything, including no deal at the end. idea could you give us an how damaging a hard brexit would be to your side, to french business? often, in the u.k., we look at the potential damage to business from our point of view. spell out for us the damage that it would mean for french business if a hard brexit was to ensue in march, 2019?
bernard: it is a classic lose-lose situation. it will be bad for you, that for us, bad for europe, but if we have to face it, we will face it. complicatehis would the circulation of goods and people between two countries. we have a surplus of commercial trade with u.k. we have the largest visitors tourists in france which are coming from the u.k. maintainmportant is to the level playing field. this is what is at stake. this is what we want to push. mark: clearly, the imperative is to attain some sort of transition deal. are you confident that one can
be reached maybe by the end of next month, so that talks can move on to the meeting part of discussions, the actual trade deal itself? what could and should a transition deal look like from the e.u. side of the equation? barnier would answer more correctly because he has more information than i have. i am not optimistic. not pessimistic either. , we we hear the information have one truth one day, another one another day. it is hard to really make any provisions of that. mark: thank you for joining us today. bernard spitz, resident of the french insurance federation.
mark: german chancellor angela merkel will urge theresa may to present concrete plans for britain's post-brexit relationship with the e.u. when the two meet in berlin. it is the start of a busy weekend. she will have a munich security conference where michel barnier speaks today. joining us now, bloomberg's brexit editor. we are on the way to an orderly u.k. withdrawal. that should have been encouraging for those that are behind that. >> that's right. he said most politicians in the u.k. are not looking for a chaotic, disorderly exit. audiencened for the what the issue is with the irish border. he described the situation as
volatile and fragile. it is the u.k.'s responsibility to sort out. does a partial customs union solve the island problem? >> it would go some way to solving it. regulation is also one of the issues. probably northern ireland is also around the cabinet table. it is one of the issues holding back the decision. in boris johnson's speech, he didn't mention ireland once. mark: tricky, isn't it? >> everything comes back to the irish border. not only within the u.k. side, but between the e.u. and the u.k. mark: on the boris johnson thing, he said theresa may is the right woman to lead, he's relaxed about a transition, he's not worried about numbers. talk about more optimistic.
what was the big takeaway from johnson's speech? >> one of the takeaways is the reaction to it. the reaction overall was not as positive as he might have liked. mp's, you getto the sense that perhaps boris has had his day, that he's not the candidate to replace may. he also -- i thought it was interesting that he appeared to be saying there no problem with transition. the u.k. is objecting to some of the conditions the e.u. is laying down on transition. one wonders if it is a phony war over transition, that we will end up with some kind of deal despite the noise. mark: may versus merkel, two leaders that were once stronger than they are now for various reasons. details onve merkel
the exit or not? >> that is what merkel wants. remember what came out of devils, merkel laughing at how may was throwing the question back at her. they will have to put that behind them. may probably isn't in a position to give her a huge amount of detail, because the cabinet hasn't decided. my colleague reported last week that they are coming towards an agreement. that is quite interesting. mark: great to see you, our brexit editor. tom keene joins nejra cehic out of new york today. we will be talking to blackrock. this is bloomberg. ♪ retail.
under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store
yen shows tremendous strength against the dollar. will be interest rates break higher? they say inflation increases. economic growth in this hour of "surveillance" today make for lesser economic growth? tom sterling,? what does it say? it says nejra's london, let's thrive. nejra, let's get right to that. london is doing pretty well, isn't it? certainly sterling is doing really well today. i thought it go to 1.41. it is a big question, how much of that is down to dollar weakness? we have seen quite a bit across the spectrum and in terms of brexit, this week we are still waiting for the u.k. to claim a clear position of what it wants from brexit. we are watching that as well. tom: i see cranes outside of our
headquarters in london, which shows a poignant london as welll. here's taylor riggs. taylor: the u.s. senate has deepened the impasse over how to protect 1.8 million young undocumented immigrants facing deportation. urw makers lost for proposals over the extension of protection for the dreamers. the 17 people killed at a florida high school were remembered at a candlelight vigil. the names of the victims were read out loud and there were signs asking for action to fight school violence. meanwhile, a judge ordered the suspect in the shooting held without bond. according to an arrest report, nikolas cruz confessed to the police. he arrived at the school in an uber, and then begin shooting with a semi automatic rifle. the u.k. is ready to sell its vision of how financial services should work after brexit. according to the financial times, they would be mutual
recognition of regulation to preserve the city of london's access to the eu. be aays there would dispute resolution process that could propose solutions of one-sided breaking the spirit of the agreement. it might have been the worst kept secret in japan. shinzo abe has nominated corroded to leave the country's central bank for another five years. thata's appointment seems japan will keep the aggressive monetary stimulus in place. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: equities, bonds, currencies and commodities. it is all about the weak dollar. futures are still green on the screen. we will see that expressed in the vix. look at the euro, 1.25. a stronger euro, against the weaker dollar. oil, rebounding. the vix, 18.66. stability there, but
nevertheless, what a rebound with the dow over point 5000. over 25,000.ow nejra? nejra: yeah, tom, that dynamic andeen the dollar i yield is really interesting. tracking what is happening in the treasury market. european equities are heading for their best week since 2016. we have seen a rebounding global equities. i put cable there. we are flat now, but we are at 1.41 on sterling. we got the retail sales data out of the u.k. earlier as well in a l becauseuro up as wel we are near a three-year high on the currency. tom: i think we need to do a subtle chart, a gentle chart. this is dollar-yen. to january,in
there is a linear feel where sleop ope matters. this is very interesting, this curve down shows a little bit of acceleration to ever stronger yen. i would watch, nejra, very much the second and first derivatives of yen in the coming days. nejra: second and first riveted and first- second derivativs of yen, i love it. not sublet enough? investors questioned the value of asian equities over bonds and so, this chart is interesting to keep and eye on. certainly int h europe the dividend yield holds an allure. not so much in the u.s.
speaking of the u.s., u.s. equity futures are pointing to a positive open, and this is after the s&p 500 capped its best five-day run since 2011, the the u.s. treasury yield hovering near 2%. crude oil steady to a one-week high on a slumping u.s. dollar. joining us now is isabelle mateos y lago, chief multi-asset strategist from blackrock. we have seen a rebound in equities this week. your view ate all on risk assets? isabelle: no, it confirms our view on risk assets, which is that we are in an environment characterized by strong growth, not just with the global economy , but also corporate earnings. we have had a bump, in terms of earnings reports and the forecast from analysts incorporate. that is important for all risk assets, and in particular, equity. clearly, we had a bit of a technical correction earlier in
the month, but we are now back on track, and this remains a very good environment for equities. nejra: and the fact that we have seen equities game, despite that print earlier in the week, what does that tell you about the investor's views of equity for the remainder of the year? markets: see that inflation is higher in a healthier way. we are getting back to full capacity, not any threat of overshooting, which would cause the fed to step on the brakes. it remains a very supportive environment. probably not as much as last year, but still a very constructive environment. tom: to get you ready for the weekend, folks, we go into a long weekend in the u.s. -- i know that is not the case, isabelle in london, when monday beckons far too soon. the removable force is the
dollar weakness. let's bring up this spectacularly gorgeous chart. i'm not going to mark on it, but zoom in on where we are. i will get this out on twitter for radio london. you can see how elegant is collapse in the dollar is. isabelle, what does that signal to portfolio managers, that their 2018, reality is a persistent elegant decline in the dollar? it'slle: i mean, look, very important to not lose sight of where you start from. if you start from january 1 of this year, the dollar is lower and if you start from six months ago, the dollar is lower. the important thing here is the longer cycle. years,. economy, fo rr was performing well above the others. the dollar was quite a bit stronger and now the other markets have good news, better
than they have been in years. so, assets are reallocating to these other economies, and pushing their currencies up in the dollar down. that is a rebalancing phenomenon. i think it is fleeting to start from the last three-month, where dollar has been showing a steady decline. tom: i am in the masayoshi amamiya -- i am in the isabelle mateos y lago timeout chair. you can see dollar weakness over dollarleft with big, big strength and now we have moved over to the more normal times of 2014. what will a strong yen mean for japan? i want to do this in the next section, but let's go there right now with 105 yen. what does that mean for the government of japan? well, i am not sure it is an issue for the government. they remain committed to the g7 consensus, letting currencies do what they do and only intervene in cases of excessive
volatility. i do not think we can talk about that. it is the same point i was making about the dollar. the japanese is one of the cheapest currencies around. if you look at where it stands compared to the long-term average, it is still very cheap and frankly, at that level we do not think it is a meaningful headwind for japanese growth or for japanese equities. obviously, it all depends on where it goes from here, but at the current level we do not think it is a major worry and that is why what we have heard from the japanese finance minister was some pretty relaxed commentary. nejra: isabel, is there a risk that the drop we saw in equities did not go far enough to actually really classify as a healthy correction, and recalibrate portfolios and risk in a way that could make for a healthier and more resilient market for the rest of the year, for 2019? ways to: there are two look at this question. if you are asking, where are we
in relation to fair value and everyone has their favorite indicator, it is clear that u.s. markets and european markets need a bigger correction right now. another way to look at it is, how well is the economy performing? how much earnings strength do we have coming through the pipe? that is very strong. and then the question becomes, what happens to interest rates? what would derail the constructive picture we see right now is, were we to see a rapid further increase in interest rates, we've already seen more than 50 basis points since the start of the year. that is quite a lot and more than we had anticipated. if it stays around those levels or it increases gradually, it would be fine. if we were to see an overshot in the term premium, that could be destabilizing for equities. nejra: for the impact of rates on equities, is it more about the speed of the move, rather than the level of 3.5% or 4%. isabelle: the speed of the movie
is key. nejra: thank you so much, isabelle mateos y lago. she stays with us. and german chancellor angela merkel and italian prime minister paolo gentle ohlone, holding a joint news conference in berlin. tom? tom: very good. important press conference there to say the least, with elections coming up. we will touch on that in a bit. for our next hour, do love you get ready for our reading for posen will, adam join us for the 6:00 hour, for the entire hour. stay with us. this is bloomberg. ♪
taylor: this is bloomberg surveillance and i am taylor riggs. a record year for national disaster claims is not keeping allianz from raising its dividend. europe's biggest insurer will stick with the bigger by that plant. -- with the biggest buyback plan . in france, renault has extended of ghosn. renault named him second in command to eventually take over, the country's chief competitive
officer. that is your bloomberg business flash. nejra: thank you, taylor. i have got a chart here, just showing treasury attraction boosted by positive real yields. we still have isabelle mateos y lago of blackrock investment institute with us. belle, because isa they were talking about real yield in general. what is the positive real yield in the u.s., versus the u.k. and germany, say about the relative value of stocks and bonds in the u.s. versus europe? isbelle: i would say, this not quite how we look at it. we see stocks as offering better value than bonds in this environment, pre-much in every geography, u.s. and europe. equally. as i was saying, we've been surprised by the speed of the speed of the increase in interest rates, but what is surprising us is the extent to which markets seem to
be pricing in -- or, the inflation coming through, in europe and japan, onn a parallel path with the u.s.. we do not think that is appropriate. we think markets are beginning to prices more appropriately, but there might be a further way to go there, where in uropeeurod japan, we see the levels as being sluggish and far from targets. we think the rates have gotten a little bit ahead of themselves there. so, you know, i'm not sure this has much of an impact in relation to the relative attractiveness. we see rates going up for here, and we have prepared for short duration positioning. but we see the pricing of inflation in europe and japan being too aggressive. nejra: you were talking about breakevens, then? in terms of ten-year yields, we have nothing quite as aggressive
yields, at least where i have been looking on my screen? isabelle: that is right, right. tom: i look at this debate and a look at where we have come. it is february and i believe one year ago or 11 months ago everybody got the dollar call wrong. what is the thing that keeps you up at night right now? everybody looked for strong dollar last year. boy, were we wrong. what will be the surprise of the next six months? isabelle: if i were able to tell you that -- tom: give me a guess. isabelle: -- that would be incredible. the thing about the dollar, there is a lot of consternation about the ever weakening dollar because people expected the yield differential would drive it higher. to reality is, if we were see the dollar shoe through the roof, it would not be good news for global markets. it would imply a very significant tightening of global financial conditions. it would be a headwind for global trade growth. so, the fact that the dollar is either stable or slightly
weakening, it's good news for global growth and global markets. the surprised -- i mean, i do not know if it is a surprise. we do think that it probably comes close to -- i do not want to call the end of the dollar weakening, but clearly, this rebalancing from u.s. assets to global assets will run its course eventually. so, as markets reprice the monetary policy expectations on both sides, we should see more support for the dollar and the yield differential eventually reasserting itself. but what i think nobody is expecting is for the dollar to go through the roof and if that were to happen, that would be pretty bad, frankly. tom: very quickly, i know you and jeff rosenberg are on speaking terms when you on a conference call. but that said, can you and jeff rosenberg agree that may be financial repression will end here for our viewers and listeners in a year or two? isabelle: um, well, yes, jeff
daily.peak i am not sure why we would disagree on that. if by financial repression you mean central bank still longer buying massive amounts of government bonds, i do not think so. i think the central bank, definitely the ecb and bank of japan, will be in the market for some time to come. even if it no longer adds to existing purchases, it is not going to get out of the market anytime soon. and look, we remain in an environment where you have global access savings. to speak where you have somewhere around $22 trillion worth of global savings that needs to be invested in safe 'ssets year after year, that not financial repression, but something keeping interest n, and keep them
lower than a decade ago. nejra: all right, isabelle mateos y lago, blackrock chief multi-asset strategist with us. german chancellor angela merkel and italian prime minister paolo gentiloni holding a joint news conference in berlin. we are also keeping you up to date on the latest lines of brexit. barnier saying they are open to a security agreement with the u.k. this is bloomberg. ♪
nejra: this is "bloomberg surveillance," an did i'm nejra cehic with tom keene in new york. u.s. inflation is picking up and investors are increasingly speculating that the fed could hike rates more than the three times they penciled in for the year. still with us is isabelle mateos y lago of blackrock investment institute. isabelle, are you pricing in, expecting a steeper hiking path? fed?lle: for the nejra: yes. isabelle: we have been exciting for some time that they would do at least three rate hikes, possibly four. we do not think the latest inflation trend would change the way they look at it. we have beengain, saying for some time that we expect the fed to meet the inflation target by the end of this quarter. so, fairly soon. from that standpoint, they are on the right. having said that, we will have a
new fed chaif, we will have a chair andcej another new three members. nejra: why do we get the sense that markets are just waking up to higher inflation? it feels to me that even if it is a surprise this year it is one of the most will flag surprises we have had. isabelle: people were protecting higher inflation for quite some time now and in 2017 we saw the opposite. so, there's been a pattern of saying, "i will believe it when i see it." and now we are beginning to see this higher inflation in the data, so the market is catching up. but already we have seen quite a bit of repricing of fed hike probabilities. this morning, i believe the probably of four rate hikes or more is up to 40% from just below 20% at the start of the year. this is happening without causing accidents on the market. nejra: thank you, isabelle mateos y lago, blackrock
all going on next week. with your first news update, here's taylor riggs. taylor: according to an arrest report, a 19-year-old former student confessed to the deadly school shooting in florida. school cruz was in the for just six minutes and is accused of killing 17 people. he was ordered held without bond . about 1000 people turned out for a candlelight vigil last night where the names of the victims were red. -- read. the white house joined u.s. allies in blaming russia for a massive cyber attack last year. merck and maersk were among those hit. the attack shutdown computers for days and cost as much as $300 million. it is a sign that demand for american debt remains resilient. china increased its holdings of u.s. treasuries by the most since 2010 and now holds a little less than $1.2 trillion
in u.s. debt, the largest non-american holder. regulators have killed a proposed chinese linked takeover of the chicago stock exchange. transaction would've been relatively small, and would have given 29% to a china-based shareholder. resolvecould not concerns about the proposed ownership structure. 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. tom: thank you so much. thrilled you are with us this morning on this friday, as we try to bring together the threads of the last few days. volatility unfolded into market and economic analysis. we do that with isabelle mateos y lago. sri-kumar. us, komal adam posen will join us next
hour to give a tapestry of thought. buys for been -- you do not 3% trump growth? and wei do not buy that, are starting to see signs of that happen with the retail sales numbers we saw, sharply down, in yesterday's industrial production number. it was expected to rise. withu had the situation the fed continuing to increase interest rates, i do not think the economy can stand 3%, let alone 4%, and you are talking about slower economic growth. tom: do you agree, or d you take a more optimistic look? isabelle: perhaps we lack imagination, but we are quite bullish about u.s. growth, in large part thanks to the fiscal stimulus, the combination of tax cuts and higher spending. growthct both u.s. gdp
-- a boost in u.s. gdp growth as much as 1% this year, which is quite significant. the indicators, we are tracking their real-time date -- the real-time data. they are suggesting we are on a path for that, and stronger momentum on the consumer side, on the corporate side, for the first time. if you listen to corporate corporateall, the q4 earnings call, talking about higher spending more frequently and aggressively that has been the case in years. if we are looking at a 12 to 24 month horizon, we are quite positive on the u.s. economy. nejra: what about inflation? are you convinced we will see inflation coming through? komal: i do not think so, despite what we saw with wages in january and the recent inflation numbers. i still do not see a pickup in inflation, and here are the reasons.
even though average hourly earnings increased 2.9% year on year, average earnings during the week and during the month of january what action -- where actually lower in january than december. that is disinflationary. second, he saw that in the inflation numbers the market got spooked about the 0.3% month on month that they saw on core cpi inflation rates in january. up from .2%, but if you saw what happened a year ago, from december 2016 january 2017, it was the same increased from .2% to .3%. by march of 2017, we were down to -0.1%. the problem is seeing a single month in isolation. if you look at three to four months together, you see inflation does not pick up. nejra: let me take you to a
chart, g #btv 6394, 10 year treasury yields could be making it a range. it sounds to me as if you do not think the risk to higher yields comes from inflation. where does it come from? komal: the risk in terms of the bond yield does not come from inflation, you are right. .hat is my view it comes still from government policy. we saw the u.s. treasury secretary talked down the dollar in davos on january 24. that hurts the bond yield. that hurts the whole thing, and we have not recovered from that situation yet. we still do not have a global trade treaty. nafta is hanging by a thread as to whether it will go on or not, and if nafta is canceled, some u.s. negotiators have suggested it will be further negative for u.s. bond yields. sri's answer, so i
want to go to you. if we look at any economy as a domestic component and foreign component, call it net-net export dynamics with dollar dynamics, is 2018 setting up for every economy as a pretty good domestic economy, and the foreign component of each commodity does not get it done? isabelle: no, what we are seeing is a picture where you have for every region both a domestic economy and a global picture powering ahead at an elevated level. in some cases, higher than last year which was already high. that is why we are so confident for the outlook for risk assets and equities in particular. tom: this is why we have to kill -- keep them an atlantic ocean apart. i love this disagreement. this is your arch worry, and we observed it in the last gdp resort -- report.
of international component european growth will not be there? komal: it well if there is a change in policy, if we have global trade treaties going. focusesp administration on opening foreign markets to u.s. exports. if the focus is on import reduction, which is the case to improve the trade deficit, that will not cut it. that is my major concern. following up on what isabelle said, things are good at the moment, but you are talking about a lot of the year yet to come, and what the administration does with respect to trade is still an open question. nejra: another open question as well is china. how does that feed into your goal of global growth? isabelle: china is doing well. china will probably experience a bit of a slower patch ahead,
because they have done an aggressive job of cutting credit growth, which is good from the long-term sustainability standpoint. we expect this is starting to bite a little bit on real activity. the central bank is already responding, has are ready to its guidance to indicate a more accommodative stance, so we think may be a slower patch and then a real acceleration in the second half of the year, so we do not expect a sharp slowdown. these are not easy to fine-tune, and there is a risk we could see a more aggressive slowdown that would spook markets. washe trade policy that sri talking about, i would agree that if we were to see a protectionist shift, and actual shift in policy, not just rhetoric coming from the u.s., that would be a serious risk for the global growth outlook. that is our top geopolitical risk that we are looking at right now. i have to say in recent weeks,
have been a little more reassured that the really bad scenarios such as u.s. withdrawing of nafta or withdrawing of wto or taking aggressive measures, we think that has become less likely based on what we are hearing come out of the white house. there is no question that the global trade framework that we have right now has been a very strong contributor to global growth. the global economy now is more integrated than ever, and if there were a pullback that would be a very important drag on global growth prospects. tom: very quickly, what does the speed of the dollar truck, the brutal -- dollar drop? komal: it signals to me there is a lot of nervousness in the globe, and that is reflecting in terms of currency volatility as you have seen in yields and equity prices. the second thing it is showing -- and this is my big worry --
the dollar always used to be a safe haven currency. it would appreciate as it did in late 2008 and 2009. tom: dollar up. komal: that is not happening, and the dollar is weakening. it is losing its safe haven status of the past year, ever since president trump his interest in a weak dollar. that again is a major concern of mine. once it stops dropping for global investors, why should they hold u.s. equities are bonds when the president and treasury secretary say the dollar will be weaker? tom: thrilled you are both with us. love a collegial disagreement. we get you ready for your weekend reading. adam posen ready to join us in the next hour and then michael howland will join us on radio later on this morning. what do you need to do if you are across america coast-to-coast? you are captive in your car.
it stake in deutsche bank after reducing the holding in the past two weeks. it has poured aliens of dollars into way debt field acquisition spree, including becoming deutsche bank's larger -- largest shareholder. .oining us is stephen erin it has been quite a big week for hna. can you bring us up to speed? stephen: you are right. deutsche's -- they are still deutsche bank's biggest shareholder, but they have been selling down there stake, probably because of financing troubles. they first sold a stake about a week ago, and came down from point 2%, ande again yesterday to 8.8%. almost 10% of the entire stake is now gone. they say this is it, they have come to the end of their reductions, and we will see if that is true.
nejra: what about the impact on deutsche bank? the shares have risen off the back of it. steven: that is correct. i think that was the fact that hna said it is over now and investors seem to put faith in that statement. there were worries swirling that maybe hna would have to sell even more than it sold now, so it has been a positive for deutsche bank's share price today. all the speculation about hna over the past month or two months has not helped deutsche bank. if this now puts a little bit of calm on hna, that would be a little bit of a boost for deutsche bank going forward. tom: this is probably an unfair question, since you are not in china, but i'm going to give you a china watch question and maybe you can help with the reporting you see in the german press. his hna hna, or nothing more
than a proxy for the chinese government? steven: i wish i could answer that question and say something really good, but i can't. tom: you could fake it. surveillance."g if you cannot say anything smart, just take it. that is what we do every day. steven: there is a lot of scrutiny of hna in europe, in germany. we just heard that the regulator, the ecb are considering launching a so-called ownership control procedure against hna, which automatically kicks in if the investor crosses the 10% threshold in a bank. the ecb can launch it if it is below that, deems the investor has significant influence. the probability of that triggering has now fallen. that is actually good news, because it is so burdensome on the investor and can actually
lead to them having to sell their share in deutsche bank. nejra: thank you so much to bloomberg's german banks reporter. let's get back to isabelle mateos y lago from blackrock. i want to get your perspective on this in a broader sense, rather than about the individual names. kind of alluding to the point tom was making, does this raise concerns about china and conglomerates? isabelle: i think this is an issue that indeed the chinese government is going to be facing, and this is not protectionism perhaps on the part of western countries, but certainly in europe there is greater awareness that this is not just traditional fdi and often the government is behind some of these moves. probably it is overdue to review the policy applicable in these cases. i think what is important to not lose in the process is this idea that openness to global capital
flows is in principle a good thing, so you do not want to throw the baby with the bathwater and rate reduce hidden protectionism behind these reviews of foreign ownership hear it i think it would be detrimental to europe for that matter to end with the regime that is far more restrictive to global investors. it is a fine line, a fine balance, and politics is never very far from the surface. this is definitely something i would be looking at. is this a true cleanup of the policy regime, or is this a protectionist turn, which not -- which would not be as good? nejra: does this raise red flags for you? komal: it does not. i think it is part of the development of a country. if you look at history of different countries went especially when there has been political differences in the past, when you have had big economic gulfs between the two
countries, there is a tendency to prevent the expansion of one country's investment in another. that took place going back as far as the american revolution, to english investments in the in theond united states early part of the 19th century. things change. you need to have changes in the attitude of the chinese, which i think will calm. one i started looking at china in 93 -- 1993 and 1994, there were no property rights. the fear was it would go back to intense communism and it did not happen. the transformation that is taking place, i think the move is likely to be in the positive direction on china's integration with the global economy and capital flows. .ejra: we love a history lesson thank you so much, delighted to have come all three kumar with us and isabelle mateos y lago.
both stay with us. let's take a look at tv , something you can keep an eye on as you watch the show and when we come off air. you can go through it and watch the bits you may have missed, pick up any of the great charts that tom and sometimes myself show on surveillance, and look at the bios of our guests, and keep across all the headlines as well. this is bloomberg. ♪
nejra: this is bloomberg "surveillance," i am nejra cehic in london with tom keene in new york. a morning must-read from the editors of bloomberg. banks now the european policy of quantitative easing fragility,italy's but the ecb is likely to stop buying bonds in the fall and when that happens, the deep-seated problems will return e."the for , the tightening we have been seeing in peripheral spreads is winding down a little bit. the general trend has been
tightening. will that continue beyond the election? isabelle: there has been so much tightening and spreads have compressed so much, we do not expect to see a great deal more from now on. it is possible there is a little bit of risk remy him and that it in the current prices -- risk premium embedded in the current prices, that we do not see anybody worried about the italian election. perhaps they should be more so. having said that, current spreads are very low. italy can make progress in improving its debt sustainability. if it's debts remain at the current level, they do not need lower rates going forward, and it has managed to lincoln -- lengthen significantly the debts. when the ecb cuts the new purchases, asset purchases, it is perfectly manageable for italy at this point, unless
there are new policy developments which put that into question. , your view on political risk in europe, is italy the main thing you are watching or something else like brexit? komal: the italian risk has been exaggerated in the past and i continue to believe that italy has been doing quite well. that is why the italy-german spread, about 175 basis points earlier this year is now down to about 100 early, even as the march 4 elections are coming close by. the 10 year italian yield was below 2% for a long time and it is just below -- just above 2% right now. one major reason is that even if you have no party getting a majority early next rick -- month, you have the five start movement -- five star movement leader saying he is no longer thinking about the eurozone as a
primary partner and he may be inclined to join a coalition government. these are boosting italy ahead of the election. the risk i see is still brexit you'd you have a week ago she a position as the u.k. is concerned. prime minister theresa may has problems within her cabinet, within her party, with northern ireland and the relationship with ireland. it is going to be a big issue. tom: some help i think we will do a little bit on the united kingdom on monday with our coverage worldwide out of london . isabelle mateos y lago, thank you. we continue. stay with us. this is bloomberg. ♪
the japanese yen shows tremendous strength against the dollar. if and when will interest rates rate higher? expect the unexpected, consensus says inflation increases economic growth. the case for a lesser tepid economic growth. on president trump, in a post-american and alone world, adam posen on your america. this is bloomberg "surveillance," live from new york with nejra cehic in new york that in london. -- in london. i thought a quiet brexit friday in london. he why have that right? nejra: it is a pretty quiet brexit friday. we have some reports that we are getting some sort of a position from the u.k. on financial services, and the big question this week has been what position the u.k. will put forward to work toward that transition deal by the end of march with the e.u. not a lot of movement but
sterling has been on the move. tom: maybe it will fire up again on monday. a holiday in america will have full coverage on error london global -- on our london global desk. taylor: the 17 people killed at a florida high school were remembered at a candlelight vigil. the names of the victims were read out loud and there were signs asking for action to fight school violence. a judge ordered the suspect held without bond. according to the arrest report, nikolas cruz confessed to the police. there were reports he arrived to the school in an uber and began shooting with a semiautomatic rifle. the u.s. senate deep in the impasse over how to protect 1.8 million undocumented immigrants facing deportation. republican senators are floating the idea of a temporary extension of protection for the dreamers. the u.k. is ready to set out its vision of how financial services
should work after brexit. there would be mutual recognition of regulations to preserve the city of london's access to the e.u. the ft says there would be a dispute resolution process which could deal with this agreement. it may be the worst kept secret in japan. prime minister shinzo abe has nominated kuroda to lead the bank of japan for another five years. it will likely keep its aggressive global monetary stimulus and process. 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. tom: let's get through the data ports quick and get to our two esteemed guests. equities up seven, dow futures up 55. s&p futures up seven, i should say. spread, little bit of dynamics. euro is 1.25.
dollar weakness is the main story. the vix, what a story, from 10 to 50. inm posen loaded the vote the equity markets in a vix of 50. can i see the next screen? six below the average level, with yen at 105. nejra: i have got cable up year. we saw cable go above 1.41 earlier and we are weaker on sterling, down 2/10 of 1%. retail sales data in the u.k. a bit weaker than expected. european stocks continue their march higher, up 8/10 of 1%. the 10 year bund yield is tracking what is happening in the treasury market, down two basis point. tom: it was a thrill to have isabelle mateos y lago's with us
in the last hour to frame up where we are after the last 10, 11, 12 days. the theme today is to continue that conversation. sri-kumar,th komal one of our most popular guests because many of our viewers agree with us. different than lawrence summers, street kumar has said it -- sri-kuma has saidr economic growth, maybe. adam posen joins us, thinking about america's leadership and its linkage to other allies worldwide. he has an important article in foreign affairs magazine this month that we will get to and a moment. gentlemen, wonderful to have you with us. posen, do you believe we can get to a sustained 3% gdp? komal: not systemic -- adam: not sustained.
i think we can continue it for the next two years, but some of the arguments made for why the fed could hold off are still valid. i think you could have two plus years, but you should not fully yourself, like my colleague jason furman has written. tom: wasn't that a great essay? adam: i thought it was terrifically done. tom: what was great about the essay was it showed how variable we are in guessing our economic growth. we go nonfarm payrolls, 185,000. we really have no clue about the mix of gdp until we see it. komal: that is correct. there is a lot of doubt in terms of what the composition will be, and i would agree with dr. pozen in terms of not reaching the 3% eventually. a difference if any and the timing. the tax plan, if it gives a stimulus, it will probably be for one to two quarters. there are other storm clouds showing up.
the big problem is in terms of what is happening to consumption spending, 70% of gdp in the united states. you have a case where wages still are not increasing. we have had wages go down in january compared with december for the month. there is no indication that will change. tom: let's bring in nejra cehic in london. nejra: i just wanted to ask about the dollar. we have been talking about the weaker dollar and what it is being attributed to, given yields are moving higher. is this about the u.s.' twin deficits, the current account and looming budget deficit? adam: it is hard to think what else it could be. everybody is expecting a fed hike, which normally would be bullish for the dollar except it has been priced in. the big news in the headlines this morning is just how big a fiscal blowout is coming over the next two years.
now we are talking from omb director mulvaney who did say something accurate, it is going to be closer to $2.2 trillion over 10 years rather than $1.5 trillion. that is a huge difference and that is why i disagree a little bit. i think the economics are broadly in line, but in terms of the forecast, this is not a morality play. it may be a bad or immoral stimulus, but i do not doubt that there will be a sustained one to two-year range growth. nejra: if we get these rising yields in the u.s., where is the demand going to come from for treasuries? will it come globally? komal: it will come globally, provided we continue to maintain a strong dollar, which we have not in the last year and a half. if that changes, and we have an administration which talks up the dollar and repeatedly says, and of president trump were to
come out and say he will not interfere with chairman powell's ability to set the interest rate , there is not going to be any job owning, and we are not going to see something that happened in the nixon administration with fed chairman burns or g william miller in the president carter administration. you need to avoid those, and if you do that, that will translate into greater foreign demand for u.s. treasuries. right now, those conditions do not exist. tom: we have a packed our. sorry. am if i was teaching this to a posen class, i would say this is an elegant chart. that is a brutal move in a weak dollar. if we reach -- have we reached a trichet of brutal moves? komal: -- adam: i do not buy it. if you were to extend the chart out for a couple years, if you
look at the level and not the delta it is not that big. one of the economic fundamentals that i know you track is how broad the global recovery is. this is not about the dollar frankly it isl -- more even, more sustainable, to use that word again. tom: this is really good, because much of this was done at the peterson interesting -- institute, the study done over many decades. , let'sgoing to continue talk about including touching osen's important article on the future of america brought. on radio, we continue the briefing on equity markets. he is not in cash, michael howland. this is bloomberg. ♪
taylor: this is bloomberg "surveillance." i am taylor riggs. a record year for natural disaster gains -- retro disasters is not keeping allianz back. they had to contend with one of the worst atlantic hurricane seasons in history, plus california's wildfires in the fourth quarter. in france, renault extended the 10 year of the ceo for four years to focus on the longtime partnership with nissan. renault named the second in command to eventually take over. it is the chief competitive officer. the struggling chinese conglomerate hna reduced at stake in deutsche bank and now owns about 8% -- 8.8% of the
german lender, down from almost 10%. spree, made them deutsche bank's are just shareholder. tom: thank you so much. , and itdull moment never is with their a chief washington correspondent kevin cirilli. there is so much to talk about, the tragedy in florida, what we see in immigration, but breaking this morning off of "the new yorker" magazine is an article that will transfix the white house about mr. trump, about a past allegation and a blunt interview from a woman from pre-election. how will that fix the house, the white house today? kevin: i think it will fixate the national media. i do not like to predict, but i do not think this will -- all of these allegations in the past,
the president has seemed to survive and keep going, so if you look at that, right, wrong, or indifferent, into the president's day weekend it gives the chattering class something to chatter about. tom: this is a ronan farrow article. kevin: great reporter. tom: that is the latest zeitgeist and it will transfix this weekend. let me go to an essay that i thought was really good in "the post."ton john deere is breaking, a proxy for our international might. "a vicious vortex of irrationality, while paranoid days have always existed, never have the days -- since the days of greinke is him have they occupied such a central place in our politics." toadies she doesn't seamlessly shift their arguments but never waver in their
demotion to end all encompassing conspiracy theory." this really struck home with me, because i remember the jfk conspiracies. media, how does it change and a white house in the first year and three months of this song and dance? kevin: how the president uses it has really changed the dynamic for american politicians across the country, regardless of their political beliefs. that has set our political discourse and driven news cycles. the second point i would make is the more policy-based argument and that is how outside groups, whether businesses or foreign governments such as russia or china or north korea, have trolled and used silicon valley companies to magnify and divide differences within the united states. i think from a policy-based argument, that is why you are
seeing facebook under such fire now on capitol hill. i think lawmakers in both parties are catching up to the fact of the role that tech giants like facebook have to play. we have said this before, but if the ceo of a financial institution got away with what mark zuckerberg and sheryl sandberg got away with, they would be on capitol hill testifying. i do not think i have really woken up to the political reality of people paying in rubles for political ads. tom: jump in, please. nejra: i just want to ask about the chances for a broad immigration deal now, are they dead? kevin: yesterday on the senate floor, the senate majority leader mcconnell taking up four amendments on immigration. they failed. the white house had come out and said they would veto the bipartisan legislation. a second,t that for 20 two senators, both parties in the senate yesterday coming together, putting forward an
immigration plan. the department of homeland security releases a statement and says, this is not good enough and they would veto it, so they are back to the drawing board. the have to get this done, democrats say by march 5. the republican party says the court system will buy them a little more time, but the issue with daca a driving political issue in washington. tom: kevin cirilli, our chief washington correspondent. we need a perspective on it. 1750 massachusetts avenue and w, adam posen with us. is the social media, the news flow, what mr. bezos is doing to "the washington post," has it changed how you do business? adam: sure, it has. the competitive model for think tanks is totally changing because of this, that also
because of the anti-elite, anti-technocratic attacks. tom: anti-expert. just we had a model, not us, that was essentially you show up at the commission, brief the secretary of treasury -- tom: it is gone. it is not gone, but in washington it is almost gone. out for a while. tom: we have to stop the show. adam posen and teen vogue? adam: no, my authors in teen vogue. i cannot make it in. tom: vanessa friedman will be with us in a minute for fashion. we could do a makeover. komal: at 17 -- adam: and 1750 mass avenue becomes the cakewalk. we are trying to get ahead of this.
one of the great things which bloomberg does, and which others are trying to do and we are trying to do, is get charts out and have links behind them to explain why they are important, how they work. this has been really big. whether it is about nafta, cheese, rules of origin, how the exchange rate moves when trump talks against nafta. one of the things i am hopeful for, i think we have a more data literate generation coming up. they are more numerate and data literate. tom: we are going to continue, adam posen with us. we will touch upon secular stagnation as a theme today, and we must speak of adam posen's important article on globalization, and we do that with komal sri-kumar. another important conversation coming up with the basketball player and owner are cuban, and
jobs at harvard. i love this, going back to the giant elven hansen, secular period inn, a long which satisfactory growth can only be achieved by unsustainable financial , may be the defining macro economic challenge of our times. the concept originally formulated by depression era alvin hansen." you and larry, it is not that you -- you do disagree, but there are some nuances in this debate, a key distinction about lawrence summers. adam: i think there is two, and not so much criticizing as debating. this was a huge conservation and everybody values that -- contribution and everybody values it. the summer's secular stagnation ursus the gordon technological
slump. tom: america is ending. adam: everybody is ending. the is a legitimate case to be made that when we have had a simultaneous lowdown across the western world, across the rich countries including japan, and in some of the emerging markets that has persisted this long, it may indeed be some kind of technological shock. in the other words, supply-side whereas larry summers and hansen are demand-side. that is one distinction you want to make, and it is less hopeful if you buy the gordon view, because we are buying lottery tickets until the next tech comes along. tom: is year caution on growth tinged by professor summers' view? komal: my caution is every time you have had an acceleration in growth in the united states, going back to 1870's if you look at the coming of the railroad system, the industrial
revolution in the u.k. earlier in the century, something structural that changed. the structural change that i think we should be looking for is more in the line of training apprentices ine terms of work-related education. that is what we learned from germany from 2003 onward when the sick man of europe suddenly became an economic giant. that is the reason why i would look for secular stagnation. tom: thank you so much for being with us today. ringing up germany, we will talk about it in a moment. this is bloomberg. ♪ we use our phones and computers the same way these days.
a 19-year-old former student confessed to the deadly shooting in florida. school cruz was in the for six minutes, accused of killing 17 people. people turned out for the candlelight vigil. at one point, the crowd started chanting "no more guns." marc and such as shutdownys an attack their computers for days and cost as much as $300 million. demand for american debt remains resilient. china increased its holdings by the most since 2010. they hold less than one point trillion dollars in u.s. debt. u.s. regulators have blocked a
stock exchange. could not resolve concerns about the proposed ownership structure. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. tom: it is the time of year we look at luxury. buying the stuff, being told to buy it, or perhaps they would like to own a little gucci. a wonderful annual visit we do with robert, the chairman and chief executive officer of his company. would say is the most
important woman in fashion, writing fordman, the new york times about everything and luxury. lawnsa, you will go to mow -- to milan. effects of thehe me too movement and everyone wearing black. how will you write about it? by how littleised was on the new york runways. i would have asked acted more of her response. no one looked at it. i would expect in europe that will be more of the case, despite the fact that at the bafta's there was a call for the actresses to wear black.
is the theme right now? you are going to tell me it is athleisure. >> i cannot answer that question until paris is over. out of new york, we did not see a lot of movement. rings are twirling in circles. tom: is that what you see in merchandising? >> it was sporadic and all over the place. the reason behind it is the customers change. there was a time when the customer was more predictable dress and ball gowns and cocktail dresses. it is different today. streetwear, they are looking at things differently. the me too movement has had a great effect and how women want to portray themselves. seamlesswant to make a
transition from streetwear to the fact that cardi b stole the show at new york fashion show. how relevant are these institutionalized fashion weeks, in the instagram age with stars rihannadi b and inspiring them on what to buy? stars ofthey are the the next generation. so much inent fashion and beyond fashion. they are feeding into what we loweringg as the inclination to buy stuff. lowering inclination to buy stuff. what does that mean, robert, for the fashion world, if people
don't want to buy as much? how is spending changing? theyt: brands realize cannot have a traditional fashion show and touch the customer twice, once every six months with a show. it is about connecting with the is these and if it superstars or whatever it is, it has to be constant communication. tom: the millennial, this is so important. does bergdorf goodman adjust to this new world? robert: you have to -- you cannot play to the existing customer base. tastes are customer changing at a rapid pace. if you look at gucci, they have made the customer feel as if
they are getting unique product with frequent drops. it is what the customer wants, they get bored otherwise. tom: who was the next gucci? everyone is chasing 49% revenue. i get that. can you pick the next gucci, or is it pixie dust, like the music business? vanessa: i think gucci would claim it is the next gucci. absolutely pixie dust. it is throwing spaghetti at the wall. that is why you see so much turnover. they try one thing and immediately they switch things up and try another creative director. the timeline, you don't do a three or five year plan, do you? you have to be nimble. the window has become quicker
because of social media. tom: instagram is profound. when you look ahead, we have been talking about what is coming out of the next few seasons, what are the trends and themes and spending you will see over the next five years? robert: i agree with the nasa that -- with vanessa that athleisure is over. some from that, being comfortable. we did see a relaxed, overt, sexy not an look. to be about luxurious fabrics, good tailoring, a relaxed appeal. we see iconic names change.
bf and herabout d daughter, alexander weighing and others, shifting in dynamic. wang and others, shifting in dynamic. vanessa: we have an aging force. the names that defined new york fashion are past their retirement age. are attempting to hand over power, but it is complicated. tom: what does madison avenue look like? it is the luxury avenue. out, what is the real estate? robert: it is slow on madison avenue. retailers even though botega megastore, the trend in
general for smaller stores, as opposed to the big flagship. vanessa: you can keep all of your stuff online. tom: instagram has been much of a change. vanessa, to follow from the instagram point, how much more will we see smaller designers in luxury being able to forge their careers through social media? vanessa: it is a bit of a myth. to keep your technology up to date and immediately satisfying, it takes a huge investment. small companies to grow through digital is actually hard. look and feelthey in three or five years? robert: they will go through big
changes. because the online transactions have gone through big changes with the department stores and for independent retailers just online, we are starting to see you do not have to have everything on the floor. what does that mean and what is it going to be, we will see? customers are shopping in a different way. tom: burberry, do they have a future? vanessa: a big deal is happening this weekend. finalchristopher bailey's show, they will announce a new designer and we will see. tom: thank you so much. we have more to consider here, much more of a discussion. about an important essay in foreign affairs. daybreak.oomberg we say good morning, radio london. ♪
taylor: let's get the bloomberg business flash. concern is mounting that turmoil in equity markets will spread. it marks a fifth straight week and brought the total to over more than $15 billion. filmnder woman proves goers of all ages will go see a flick, black panther is posed to do the same. it could generate about $205 million in its debut over the president's day we can. that is according to box office
pro. is predicting a $150 million, still enough to ensure it will be one of the top grossing domestic releases of the year. thank you, taylor. economists are slow to predict the interest rate hike in a decade less -- last year expect the next one to come in may. it is on a knife edge. it is being seen as just over 50% in a survey. .till with us is adam pozen he sat on the monetary committee from 2009 to 2012. what would be worse for u.k. consumers? for the bank of england to let inflation run higher, or for them to increase the pace of rate hikes.
that might take mortgage rates up with it. adam says they are worried about adam: they are- worried about deanchoring. if they are not aggressive, inflation will keep going up. they have to set policy with an on thee currency or inflation rate and not on the real is the cycle. the bank has no good choices now. as a forecast matter, they will have to raise. nejra: what makes it difficult forecast isthe
predicated on a smooth brexit. a lot of the forecast is based on the u.k. and eu getting this deal by the end of march. if we do not get it, could we see a significant shift in boe policy? adam: you have a lot of things than shift in boe policy. they will have a worse version of the same hard choice. if there is a break down the brexit transition, they say it will do negative things to the economy, let's cut rates, then deflationan upward surge, or they have to anchor expectations, be the source of stability, so we cannot cut rates because the pound is crashing. tell me the degrees of
freedom governor carney has. right.ve is going to the if they walked away from austerity in the united kingdom, they don't have that option. adam: they have cut back on the austerity. do as much as solid a in the household sector as the u.s. did. because of brexit, their prospects are getting worse. fiscaley have less degrees of freedom. does that mean you have less monetary degrees of freedom? crucial point.he with the inflation of the targeting regime in 1992, you could do both at once. you could do fiscal expansion because the monetary anchor was there. once you lose the monetary , you have to be worried
about the feedback from fiscal policy. nejra: we were talking about circular stagnation. our central banks at a point where it seems things take a turn for the worst in the global economy? adam: there is quantitative easing you can do, there are political barriers, but note technical or economic barriers. youe is the issue that if cannot have growth without of sessa financial stimulus, it is not that central banks don't have tools, it is that there is a worse trade offer the tools. i hope we can get away from that. he: adam posen, this is why is here. we are going to talk about his article in this issue of foreign affairs magazine.
nastier, less fair. this is ugly. adam: not happy to have to write it. us agrateful to you giving hearing about it. the u.s. has been withdrawing, long before trump. the working title, i came up .ith withdrawal pains they retitled it the post-american global economy. tom: this is important. this is not the world we are in. the world written about 10 years ago. adam: it is much different. tore were threads leading this economy before now. it did not have to be where it is. there is plenty of time for trump to reverse it. chart todaygle best is a blunt instrument.
in global trade, since time began, world war ii, for the world. here is the lethargy of the 1980's and the new lafarge a -- the new lafarge he -- lethargy. adam: there is going to be some boost because we are getting global growth. people are tentative about it. you will get something. one of the things i write about, people are trying to look beyond the trump administration, beyond the u.s.. you have things like the eu making deals with mexico and canada. , together,countries without the u.s., going forward. trade, despite plateau on the tort, it is more resilient other things than the u.s.
withdraw. could we have a new world order and in what time frame? adam: it is more of a disorder than a new order. it depends on what the eu and china do. in trade, it will take a while. ae trump, if they escalate to trade war with china or blows up nafta, it would have direct effects. data, andent of honesty about the way we look at the world economy, the belief in the fed ability to firefight for the rest of the world, the ability of the rest of the world to count on interventions in a crisis coordinated by the u.s., the ability of emerging markets to be able to get what they need in terms of investment and investment help, meaning china,
india, it goes away. you get a more unstable world. tom: we are out of time. i want to suggest to our viewers to read this essay from adam posen. to writeimportant time on germany. posen is want to do that. he is with the pearson institute for international economics. we will continue this discussion on bloomberg radio. you need a foreign exchange report, you can go down to the bottom. 106.15 on yen. this is bloomberg. ♪
world with the u.s. regaining all the ground lost, with europe having a way to go. fly out of dollars bond funds. >> the motion is not agreed to. dreamers on the brink. the senate fails to find a way for them to stay. they are less than three weeks away from possible deportation. welcome. i am david westin. alix steel is off today. it has -- lisa: it has been a great week for equity risk. s&p futures up, not that much. the u.s. seller gaining after weakening to the lowest in three years.