tv Bloomberg Surveillance Bloomberg January 30, 2019 4:00am-7:00am EST
♪ -- >> tech jumps, but china revenue plunges 7% in the quarter. showingr beats, reports topping highest estimates. their ceo says investors are relaxed. >> the vote came after a diligent process the conclusion that the amount santander would have to assume for his buyout was something that was not right for us as a retail commercial.
-- commercial bank. begins a newwell era of news conferences after rate decisions. we are on the lookout for signs of further dovish miss. nejra: welcome to surveillance, i'm nejra cehic in london. into the trading session, we are really struggling for direction on the stoxx 600. you are seeing a mixed picture in terms of industry groups. we have just had italy, manufacturing confidence falling for months, the lowest since 2060. we are building a picture of global growth and lack thereof. meanwhile, as an fee futures edging higher by .2%. it was really the nasdaq futures you wanted to see them, we are seeing more of a umpire. apple -- bump higher. are investors buying the messaging that it is not all
about the iphone? the 10 year yield up just one basis point. of the fed, it will be key messaging from jay powell in terms of how he talks about patient, but also around the balance sheet. markets, a bit of a recovery. they plunged yesterday as perhaps the prospect comes to the forefront. they are really being pitched in the turmoil, the market being pitched in the turmoil after the supply disruption. let's get the first word news from new york. brexit chaos continues as parliament wreps up a key part of theresa may's brexit deal. the prime minister on the scene negotiates the irish backstop proposal. this follows voting against the amendment would have given us the ability to the late britain's exit.
european leaders already say the deal is quote not up for renegotiation. sterling taking a leg lower. >> there is limited appetite for such a change and negotiating it -- order! contrast, the house has made it clear what it needs to approve the agreement. france's unexpectedly keeping pace, gdp increasing .3%, driven by a surgeon export spirit all of this despite -- surge in exports. all of this is despite italy. italy, spain, and the euro area are due out tomorrow. looksonsumer confidence high, but a billionaire investors suggests the underlying data shows a recession is coming. he tweeted the most recessionary signal is the gap between
current consumer sentiment and expectations. since march widest of 2001, the first since the u.s. recession. he says consumer expectations were quote flashing yellow. and don't miss our special coverage of the fed's latest rate decision followed by jerome powell's news conference. that is live on bloomberg tv and radio. the u.s. is signaling a way to end a trade war with china. steve mnuchin says that if china gives enough concessions during this week's talks, the administration may lift all tariffs. he is set to meet with prime officials in washington and tomorrow. , mnuchin tells foxbusiness that quote everything is on the table. from the u.s., later today, speak with massachusetts senator elizabeth wharton, that conversation after 9:30 p.m. london time.
news, powered by more than 2700 journalists and analysts. this is bloomberg. back to you in london. nejra: thanks so much. earnings report since tim cook let investors know apple was cutting its forecast without after hours, shares are up in extended trading as apple reported revenue that is slightly higher than expected. all major products other than the iphone sock revenue increases, giving hope to investors. our customers are holding on to their older iphones a little bit longer than in the past when you pair this with the macroeconomic factors, particularly in emerging markets, it resulted in iphone revenue down 15% from last year. our iphone results accounted for significantly more than our entire year revenue decline. us now is bloomberg
intelligence senior technology and media analyst matthew. actually tothis was do with the numbers or to do with the low expectations going into the numbers? >> i think it was really the latter. very much a relief that we did not see more bad news. when we look at the market outlook, consensus is positioned at the top end of the range. there is still something for them to do to make sure they don't disappoint again. overall, no big surprises and the company really trying to push the opportunity in that services business as a way to compensate for the inevitable slowdown in iphone shipments. >> and we see the relief rally in after-hours today. are investors really going to buy this story that apple is actually trying to sell? that it is not about the iphone, it is about services. >> the jury is still out.
the iphone is still more than 60% on revenue. it is only 12 or 13% of revenue now it needs to really ramp up growth and to get more service revenue government you need to continue to grow the active base of iphone users, and there is probably not that much more opportunity. are about 900 million active iphones out there today, about 75 million year on year. there has to be a limit to how many people in the world are going to take an apple phone. nejra: thank you very much. let's keep the conversation on the tech sector. joining us now is the multi-asset strategist at hsbc. great to see you. when you look at this as a global investor with a multi-asset portfolio, i was reminded how much apple matters. whether it is through the supply chain or elsewhere. do you look at this and think
this is peak iphone? or this is peak smartphone? which has a different set of conclusions. >> i look at it in a different way. i look at it in the way i am saying that expectations are so low. that is actually the caution this morning season. away from only one sector. the earnings season in general, that is the sort of thing that i care as a multi-asset guy and a portfolio got. -- guy. expectations seven lowered so much, but the bar is so low you can literally almost walkabout. -- walk above it. so that is the caution. people have been expecting the worst already, so they are already happy if it is not the actual worst. they are already happy and rewarding the shares.
that is the caution i'm looking out for. interestingly enough, if we look at the start of the earnings season, we had a couple of companies mentioning the affects from fx. the year-over-year affect are on the dollar and are peaking in january. in our we factor stronger dollar, those year over will probably decline. we'll probably see a trough in earnings revisions across all sectors. from alls you that look, multi-asset perspective, it is much less the case for credit. they're probably getting slashed if they miss earnings. isra: i think your point that that drawdown almost provide a cushion as we went into this earnings season, but if you are positive on equities, that particular industry that you like, particularly as we
look to read for signs around the effect of china, or do we thinkok at industries and that we are going to look at the indices, because it is up and up. >> i look more on a region level. e.m. probably still make sense. not only in the equity space, but also the rate spaces. it still makes sense given that rate expectations are still subdued. as long as they say where they are, e.m. can conform -- perform. 12 months, i'm not so sure. equities goes in little bit further, 5-10% higher, we will have a mix between qt and 50 billion ,eduction in the balance sheet more than one-being priced, if that is the case, i want to get out of here. market sentiment is
still fairly subdued. that is the time i want to be in e.m.. to be the fed.nt nejra: looking regionally. up next, the u.k. parliament rips up the script for theresa may's brexit. she promises to go back to brussels to renegotiate. we are live in westminster, brussels, and dublin. this is bloomberg. ♪
of commons shows dispatch the prime minister with a mission to change the irish back subsection of her brexit deal. meanwhile, the pound fell after lawmakers rejected a plan to delay brexit. they are holding firm with the agreements, including that the backdrop is not open for renegotiation. let's get more from westminster and brussels. great to have you both. what is the message to take away from last night's vote? >> it was a victory of sorts for theresa may, fairly strange. she managed to persuade parliament to back her, to renegotiate her own exit agreement, specifically, the backstroke part of it. brussels, back to will she be able to find some legally binding changes? will she be able to find those changes that would be satisfactory to brussels, to sellable towould be
hurt party? -- her party? a recently reunited party, it seems. one thing she has to do is promised the comments that there will be another occasion on which they can vote against no deal. it could be that we just tread water a little bit and wait to see what she rates back and do it all again with amendments on the laying things and blocking no deal. a nice sort of valentines gift. nejra. nejra: what a deadline. beia, any signs the eu would inclined to reopen the negotiations? >> just a follow-up on anna's may claimtheresa may she has the strong mandates to return back and open up the but theegotiation
impression in brussels is very different. this 18 months in the making and the irish backdrop is crucial, more than ever. but european leaders will tell you to go forward. that technology simply does not exist in 2019. the question moving forward is whether dublin will botch under pressure. inra: anna edwards westminster, maria tadeo in brussels. belichick the view from dublin, joining us is irish senator new richmond, chair of the senate brexit committee. thank you for joining us. will ireland have to botch if the threat takes negotiations to the edge? >> no, i don't think so. is not a responsibility for island -- ireland. this is a british decision and it lies to the british parliament if they are deal .egotiated
commitments will allow them to move on to future negotiations where we can get that really close regulatory relationship. it means that this important backstop will never have to come into play. nejra: but does no deal necessarily mean a hard border? i am struggling to see how any reworking around this backdrop could hit me pretty hard. >> they said alternative arrangements, the withdrawal agreement does allow for alternative arrangements. some of these have ever been presented. as we have the united kingdom leaving the european union as is their wish in a controlled and orderly manner. as you were keeping that border in place, what -- if we don't have that guarantee, we
completely lose control. they would lose control in what happens to response that he to the single market and equally, they have a responsibility to the wto. by the which is a big responsibility, because both the irish and british governments are co-guarantors of the agreement. both governments have a responsibility to keep this border open, and we can do that through this withdrawal agreement with the backdrop for now. -- backstop for now. agreementrenegotiate after march 29, it would allow us to achieve that. it remains that the withdrawal agreement is one that is causing a lot of from this year. -- of fracas here. feel 100%s, do you confident that the eu will stand by your side is mark -- your
side? the risk of a no deal brexit is a risk for all. absolutely, and ireland will be a member states most exposed economically to a no deal scenario. however, the solidarity from eu 27 has been total. brexit is an existential crisis. must be afforded the best possible terms more so than a departing member state. that is what it comes to. this is not a negotiation between the u.k. and ireland, it is a negotiation between the eu and the u.k.. the union needs to understandably protect the single market, but also, they historically have played a massive role economically and socially and bring about peace. , and bear innd mind, they are causing quite a bit of battles. however, we do respect the
british decision. decisions tohose leave come with responsibilities and they simply cannot walk away from those possibilities. nejra: where do you think this will all end? i know it is a difficult call to ,ake, but from your insight where the negotiations go from here and where is the endpoint? is very important storm ever that negotiations ended. they ended in november and were endorsed by the european council. now is we approach march 29, we have a deal on the table, it cannot be reopened and the backstop is a vital part of that deal. we need to see the parliament live up to responsibility, past now is we approach march 29, we have a deal on the the deal, and that embrace the relationship of negotiations after march 29 to make sure the withdrawal agreement and the back stop are just a stepping stone of what we hope is a future relationship that is prosperous, but bear in mind, nothing will be as good as we
"bloomberg:is surveillance." let's take a look at the big movers . lvmh, who needs an iphone when you have a celine back? -- selene bag? there are seeing strong demand in china abroad and on the mainland. he is also saying consumers in new york and l.a. are still shopping. tinto also up to the upside, as iron ore surges. looking to cut production as that them collapsed. outander, when you strip that affect, they are actually higher and beat earnings. nejra: thank you so much, we will have more on santander next. coming up, her interview with santander's executive chairman and their outlook for 2019. we hear about the strategy.
movers, andot of there's a lot going on under the surface. but look at the broader benchmark and you are not seeing a lot at all, pretty much dead flat. the euro is the same, you will the wti struggling for direction, up just one basis point. there is a lot of micro news, investors trying to extrapolate the macro picture from all of that. we look ahead to u.s.-china trade talks as well, but the fed is the big macro story today, as well as apple. this is bloomberg. ♪
shortly. nejra: really looking forward to that. let's get the bloomberg first word news. viviana: brexit chaos continues as parliament ripped a key part of theresa may's brexit deal. the prime minister promised to have back to brussels. this follows parliament voting against the amendment. it would have given the ability to delay brexit. eu leaders say it is not up to negotiation. >> even negotiating it will not be easy. but in contrast to a fortnight ago, this house has made it clear what it needs to approve a withdrawal agreement. viviana: u.s. consumer confidence still looks relatively high, but a billionaire investors as the underlying data suggest a recession is coming.
earlier this month, he said consumer expectation was flashing yellow for a recession. don't miss our special coverage of the fed's latest decision. you don't want to miss it. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. bloomberg. francine: santander says it will push ahead to the new strategic plan after reporting better-than-expected fourth-quarter earnings. profits had jumped more than a third, but a decline in ut earnings any slowing growth in brazil -- u.k. earnings and
slowing growth in brazil have affected. >> it has been an excellent year. we have grown profitably, we have strengthened the balance sheet. the great news is that spain has done a great job, not just on integration, but also the numbers. brazil and mexico have been 22 and 14. with the u.s. is up 42% on an underlying basis. it is really showing it is really showing really good underlying trend in all our businesses. francine: you have come at the end of a three-year plan, what's next? we're going to show to the market in april. we will continue on the same strategy and we are very focused on digital transformation, building global platforms. santander has 144 million customers.
the whole focus is going to be on building these horizontal platforms, on different areas like trade and operational platforms. this is going to be very transformational. francine: how much we focus on cost cuts? ana: it is more about revenues, but also building things together. this morning, we were saying building operational platforms, we can say between 15%-20 5%. -- 25%. it is all about the customers. 2.5 customers this year and we have doubled digital. with his appointment, there was a lot of talk about the change in direction. you?do investors ask ana: investors are happy with
our performance. over the three-year plan, we have organically generated $25 billion in capital. we are above our target of $11.3 billion. santander comes out as the best bank in europe in terms of destroying capital in a stress test. are investors want us to continue on this one and continue generating all these advantages of our scale. we have one of the best cost 47%.e among banks at that is super important in the digital competition age where we have to be offering the best price for customers, but also being very efficient ourselves. francine: what made you believe that there was a commitment from the ups side? ana: andrea is a great
professional. the board came after a very diligent process to the conclusion that the amount that santander would have to assume for his buyout was something that was not right for us. because of the requirements, we had to announce early. unfortunately, that is where we ended up, but we believe this is the right decision for all of our stakeholders. francine: do you think this has changed your relationship with ubs? ana: we have a great relationship with ubs. we are going to continue working with who has the best device and respect their decision. a positive sign for the european economy front. gdp increased 0.3% in the fourth quarter driven by insurgent next. all of this while italy
currently having slipped into a recession. data for italy, spain and the euro area are due tomorrow. when you look at europe, we worry about the european parliament elections, the wave of populists, have countries speak to each other. what does it actually mean for economic fundamentals in the eurozone? max: good morning to you. i think it is quite funny you ask that because it looks like everything we're talking about right now is politics. i'm afraid i have to be the boring guy and talk about fundamentals. that is really what it boils down to. economicrom an perspective, it looks like the middle from 2016 until 2017 was the abnormal growth rate in the
euro. this cyclical element in the eurozone ticking higher and taking us to a higher gear. that has been an illusion. i think a lot of people are still in this camp and that makes europe vulnerable normally from an economic perspective, but also from a market perspective. mildly why we are still bullish and cautious on european equities. francine: do you worry that sentiment can turn lower if we don't have -- first of all if we have a no deal brexit, but if we don't have some kind of compromise in the u.s.-china relationship? is thes like europe third person in this relationship and they suffer more than others. i'm with regard to trade, not going to speculate where the trade tensions are going.
if you look at ian trade data, they already started -- em trade data, they already started disappointing in late 2017, way before they are behind all of those trade tensions. from a fundamental perspective, it looks like this uptick that we had in 2017 and then in 2018, synchronized growth. that seems to have been an illusion and we are trending towards this normal growth partly have been before. that is despite all the political models we have. francine: if you look at euro-dollar, how much does the ecb have control over it? the dollar today, i think risk is skewed to the downside. when you look at what the market
is expecting, you look at the very short end of the curve, that is very far right now in contrast to what we saw a couple of weeks ago. if you look at fed funds futures, there is a close to nothing price. the market seems to be firmly believing in a dovish message. from my perspective, if they just go ahead and say there is gradual increases and rates, there could be a lot of people caught on the foot. i think today there is a little bit of upside treasure just pressure. -- pressure. for the ecb, that could mean a little bit of leeway in terms of having a lower euro, perhaps giving evidence of boost to the eurozone economy. you were sentiment is going and i wouldn'tnfidence, be overly optimistic on eurozone assets in the coming months. francine: thank you so much.
china's economy may be slowing, but earnings from lbmh shows that consumers thirst for luxury goods is up. for many years now, we are in a very strong economic trend due mainly to the low interest rates, the vulnerability of and priceswhere of many assets. forever.ot continue i'm not so much worried for 2019, but i think within the next two or three years, there will be readjustment. strong, be quite especially when that will happen, the interest rates in
europe stopped going up. marie: how do you prepare for you think is maybe less spending from consumers, globally? bernard: there will be what we call a blip in the economy. , since'm running lvmh several of them. we are ready to do this. , there are lots of opportunities because price assets can go down. you can make good investments. it is good to make good investments because of price. every prices good whether it is for stock or if you want to buy paintings. exaggeration. when it will be more normal, i think it will give more
opportunities. annmarie: you are getting into the hotel business. at?e else are you looking any other acquisitions in mind? we try to be opportunistic. when we see a good opportunity, when we see a brand that wants us, when i see families that want to be working with us, we can invest, but we are not looking especially. we are waiting for the good opportunities. annmarie: any specific sector? bernard: i don't know. it depends on the opportunity that comes. annmarie with the lvmh chief executive. max, i was going to ask you what
your favorite louis vuitton handbag, but talk to me about the chinese economy. is it is slow down that can be managed? max: i think if you look at growth figures over the last couple of years, we are talking and pretending like this is always falling off the cliff. , a reality is, it is managed measured slow down of growth. it is still growing above 6% which is the majority of global growth. that perspective, i'm not overly worried about china. i'm only worried about china if there are massive outflows, which we don't see at all at the moment. lucy further stimulus coming from both the monetary side and fiscal side over the next couple of months. china for me really isn't up on the list. francine: this is what we are asking.
which asset will fall the most in trade talks disappoint? disappoint,e talks p.m. equities might perform relatively well because probably and treasuries, you don't have that many fed hikes priced. fed funds futures might just --y where they are or yields i think dm equities might be the which doesn'ter, really seem to be the case if you look at it from the surface. you would think it is chinese equities, asian equities, em equities that would be been, but i would be cautious. i would say the main losers would probably be dm equities. francine: how do i read the luxury space?
we started the year with pretty stern warnings from apple and their sales in china. vmh that hear from l they are fine in china. max: i think it boils down to expectations for the earnings season, not in one specific sector, but across the board in the u.s. earnings season. also the european earnings season. it boils down to expectations having been lowered to such an extent that we do see positive surprises now. those positive surprises, even if they are only marginal, they reassure the market that there is still growth and growth is still find. we are not off to a recession in six months. that, i think is the key message. i'm not the sector expert. from a macro perspective, i think that is the main message. growth is still fine.
francine: economics, finance, politics. this is "bloomberg surveillance." i am francine lacqua in madrid. telenor has reported fourth-quarter earnings that mr. the lowest analyst estimates -- that missed the lowest analyst estimates. joining us now is the telenor chief financial officer. thank you for giving a little bit of your time to bloomberg tv this morning. are we in a new low growth environment for your industry, and is there anything telenor can do to get profitability up?
>> we are in the shipping environments industry and society at large. digitalization is probably the headline for that. what we are trying to do in telenor is to run a lean company, to modernize it along a digital path, and also within the networks in particular. how do we meet our customers and create a good customer journey, and how do we modernize our network. the last announcement was made on that is that we are now sub setting a 100-year-old copper network in our way over the next 3-4 years. we are replacing that fully with fiber and wireless access. the times are changing, but lots of opportunities. francine: talk to me a little bit about china and huawei.
jorgen: we have for a long time had a multivendor strategy within networks and i.t.. them, ericsson, nokia and the rest. we have all of these players in our networks globally. we have already one find the pilot going with huawei. yesterday, we announced the next one with ericsson. our plan is to have several 5g pilots before we go into a more operational and commercial phase, probably after 2020. it is exciting and we need to work with several in order to get the innovation up and the right fit. francine: will you work less
with huawei in the future, and if you do, are you worried about possible repercussions? are you possibly worried about some of the equipment that they make going up? : i think we are facing a big issue and a complex situation. what we do is try to listen to experts, listen to governments. we will obviously comply with whatever decisions are made, but and we a vast portfolio, are also very focused on the innovation part here and motivated to keep relationships as long and as good as we can with several lenders. talk to me about your relationship with the activist investor. do you know what they want from telenor? jorgen: we obviously talked to stakeholders, including
shareholders as much as we can. the board has been very explicit several times. today, we announced a one thing and we had formed one thing. we announced that that we would have a leverage range on the balance sheet, which will enable increase shareholder enumeration going forward in a structured and good way. analso talked about initiative we have had on towers for some time. francine: thank you so much for your time. that is the telenor chief financial officer.
apple shares jump in premarket trade. china revenue plunging 27% in the quarter. it is said day. fedpowell begins -- it is day. lenderer, the spanish reports that income that topped highest analyst estimates. investors are relaxed despite the botched hiring of andrea. this is "bloomberg surveillance." madrid,ncine lacqua in tom keene in new york. an interview to try to figure out if there would be repercussions or even take commitment to be some of the salary of andrea. the chair was very tightlipped about that and wanted to just tell investors, let's focus on the results.
you see spain doing better than expected. santanderonder where sits in the coming months as well. brexit it has been an extraordinary 24 hours for the united kingdom. we must go to anna edwards on the green in westminster. of the eight amendments, i only got to two. anna: that is ok. you are forgiven. all you needed to know is that most of them with the government's way. sorts.shevictory of doesn't have to brussels to try to renegotiate the backstop. brussels has said no and keep saying no. we wait to see what can possibly be achieved in two weeks that has not been achieved over the last two years.
could we be back here on valentine's day looking at amendments once again? ministerirish prime asked the european union to hold their nerve. i believe somebody over in brussels at some point said, nothing is up for renegotiation. what is prime minister may trying to accomplish in brussels, given that immediate response? anna: the immediate response has been very negative. have been passing the language and trying to work out if there is any room between the two to find some sort of compromise. the eu has been no change to the withdrawal agreement. by theresa may yesterday was that she was looking for legally binding changes. she didn't say she wanted to actually replace the backstop. c that quote for can we -- ode for can we write on a
different piece of paper to satisfy both sides? far that satisfy the brexiteer side? they have come together over the last 24 hours in an active unity, and aren't sending her back to brussels to try to seek something. whenever she comes back with, would it be satisfactory to them? we could be doing all of this again looking at amendments around article 50 extensions and blocking no deal. we could still be talking about those things. in alle: where is labour of this? : one of the interesting things happened last night in the commons when theresa may stood up to speak after the results of all of these amendments were voted on. labour, and the shape of jeremy corbyn did say, i will come and meet you. he had refused to do that for some time.
it seems he is at least willing to go and speak to theresa may. he will be at that of a bystander for the next two weeks because he is t -- she is the one that is going to go back and see what she can come back with in terms of rewriting the backstop, but he is at least going to meet her, which is progress. francine: thank you so much. anna edwards there for us in westminster. we will have plenty more on brexit throughout the day. federal reserve chairman jerome powell is expected to emphasize patients today in raising interest rates. fed policymakers wrap up their two-day meeting. 'how they view the central banks new communication strategy? the fed statement may alter a commitment to further gradual hikes. in italy, the deputy prime minister is under pressure to force an early election this year.
several senior members of the lead party want him to ditch the five-star movement as an unruly coalition partner, hampering their efforts to deliver on election promises. apple convincing investors, life after the iphone won't be so bad. revenue from the iphone falling 15%, but apple executives focused on a growing services business and rising sales of other devices. shares are higher in premarket trading. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you so much. let's do a data check. a lot moving around. futures up seven. curve going nowhere over the last couple of days. fed meeting today. well the last two days, i'm way
to collect iron. a solid 18.90. gold. the recent leg up still within the five-year range. sterling, 13116. i'm going to fall that -- call that fraction weaker. apple, that is the close, 154.68. i also focused on gold this morning. if you look at what it has been doing, climbing to an eight-month high, that underscores the lingering investor concerns over trade. run in the advancing to their highest. stocks across the world holding firm. you can see europe kind of moving sideways. apple's first earnings report
since tim cook let investors know that apple was cutting its forecast is out. shares are up in premarket trading as apple reported revenue that was slightly higher than expected at $84 billion. all major products saw a revenue increases, also getting investors hope. what is the strategy here? do we worry that when you look at iphones, sales have peaked and they are focusing on services? kathy another day, they still need to keep selling iphones because they become that jhhub for all of those other things they want to sell. the other hardware areas such as the watch are doing very well. they have overtaken ipad. that is very important. other than that, they have other services, video, streaming music. they need to keep selling
iphones, but i think what are shared by, tim cook did manage and say it is more than we thought. there also cheered by the fact that apple is focusing on non-iphone revenues. francine: how bad is the china problem? we kept talking about china and the slow down there, meaning that people didn't believe want to buy a new iphone. and the chinese are buying luxury goods. does apple have a china problem? tim: everybody has a china problem when it comes to smartphones. 15%-20%et itself fell in shipments. a lot of companies were struggling there. it is not really just a couple problem.
they do have an issue in terms of falling market shares. they do need to work very hard to keep up with huawei. all of those names they are competing against. yes they dothat have a china problem, but if they can bring out iphones that me just the right sales specs and sales prices, they do have a chance. they're not out of it yet and i think tim cook and his team will find strategies that can try and make them relevant again in china. tom: maybe they have gotten blue-chippy in the last few years, but are we now going to a utility structure, where they see a flatline single-digit growth etc., but they throw off a ton of cash. is there any evidence in the call that their cash ability is at risk? i don't think anyone is
really concerned about cash being a problem for them. if more of these services are i don't think that is a real concern. if that is the case, probably people will be looking at free cash flow. it is still a solid company in the multiple. i see you can at all the sell side and there's a lot of forms today. is this different of other pullbacks over the years? does it truly have different character? tim: i think it does, that it is the same but different. it is a cliche response, but we are at the end of that growth product.ithis major is a revolutionary product , but we have seen this at apple and other businesses where the market moves on. what is really key is what is going to drive it next.
are they want to push back into tv and make tv something or cars or whatever else. at the end of the day, there still a hardware company. tom: thank you so much. don't forget, it is fed day. scarlet fu will lead our fed.age of the it is different this year, press conferences every meeting. this is bloomberg. ♪
according to reuters, apple pay mini fracturing partner may scale back or abandon plans to make cutting-edge tv screens at the facility in wisconsin. that could undermine promises to create 14,000 jobs there. president trump hailing the project for bringing jobs that america. santander is putting aside the botched hiring of the ceo. francine lacqua speaking to santander chairman ana bortiz. >> andrea is a great professional. processd came after a that the amount they would have to assume for his buyout was something that was not right for us as a commercial bank. because of this process and requirements, we had to announce early.
unfortunately, that is where we ended up. we believe this is the right decision for lower stakeholders. santander reported fourth-quarter earnings that were better than expected. china's buyers may be cooling off, but the latest earnings report says they still like luxury goods. last quarter was going faster in china. i think the main reason is the ability of our products. lvmh saw strong demand for wine immigrant china, but it's fashion and leather goods division was the standout performer. sales rising 17%. that is the bloomberg business flash. tom: thank you so much. important comments by santander. right now, we are thrilled to
bring you kit jukes. let's do a little conversation with you. what do you expect out of this meeting? kit: he can't endorse the whole market shift, the fed can't turn around and indicate a 180 degree change in direction, but he can stress patience, the data watching, prudence, risk. that can be lots of language that makes it clear that they are in no hurry to do anything right now and they will be flexible. tom: right now, i want to show a chart. that summer day in 2016 with the blue circle, down we go. weakness, recovery. are you brave enough to do a call on sterling this morning or do you have to renegotiate that with yourself? kit: i always have to renegotiate myself.
there is vastly more upside to sterling then there is downside. price?ere is the fair kit: if we cancel brexit, it is way the other side of 150. it is probably 140 if we can get a sensible deal. if we get no deal, we will be lower. evenif we get to 140, 142, 145, i understand the export dynamics, but what is that do to wealth creation in the united kingdom? that is an extraordinary level for a feel-good delete for the elite kingdom -- for the united kingdom. the sterling dollar exchange rate is also a function of the euro dollar exchange rate. a good brexit is good for all of europe. it does make everybody feel better.
we feel rubbish at the moment in this country about this. this is a mess. francine: not everyone feels rubbish about it. if you look at pound, it was a little bit of a leg lower yesterday because the possibility of a note of brexit is still increasing. is that 25%? 40%? kit: it is still significantly unlikely because no deal only happens if we come back and the prime minister can't get a deal, and then parliament can't force another vote through. if she gets nowhere with , we haven't finished this game in parliament yet. it is very unlikely we get no deal. it is more likely than it was this time yesterday. if the eu does not renegotiate on the backstop, because if they were to negotiate, they would be
throwing ireland under a bus. where does that leave us in the renegotiation? kit: so far, the conservative government is effectively rallying with itself. theresa may is making a move to bring the hard brexit parts of the conservative party with her into a negotiation. that takes it further. that is a choice between doing that and getting more of a compromise with the labour party or the no brexit, soft brexit side of parliament. if this fails, that is where we will end up doing our next piece of dealing and parliament will take control again, possibly in two weeks time. they will still try to come out of his saying fine, we will push for an extension because that is the right thing to do. we are not done with that as a backstop of this current set of negotiations.
surveillance." this is "bloomberg surveillance." -- this is "bloomberg surveillance." we will have plenty more on brexit throughout the day. the house of commons it chose to dispatch the u.k. prime minister with a mission to change the irish backstop section of her eu withdrawal deal. the eu so far has held firm saying the backstop is not open for renegotiation. joining us now is the u.k. house of lords member and director who was also a prolific campaigner for brexit. thank you for joining us. what happens next? are we going to see the eu renegotiate on the backstop? no deal is not off the table. british business does not want to know deal, nor does german business or french business. at this moment, berlin and paris
will be incredibly worried if there is no deal and it will hurt them just like it would hurt us. tonight the of members of parliament last night -- the naivety of members of parliament last night saying they don't want no deal, i would challenge any of them, have ever done a negotiation? it was naive in the extreme. i would say that this will not be a no deal situation in the end because berlin doesn't want it. and germany doesn't want a deal, there will be no deal. in terms of what happens next with the privacy conducted brussels -- the prime minister is wen to go back to brussels with a majority in the commons to say, we are now armed, but we have got to take out of the agreement a
little bit that says the eu can stop britain coming out. that is inside the withdrawal agreement, it is inside the backstop, the insurance policy the border to happen without there being a horrible, nasty border check. we need to stop the eu stopping the right of britain coming out. as ifreement is worded they will only stop you if it has something to do with the border. you and i know that macron will say, i'm not letting you go emma slater a fishing. they will use it as a lever. francine: let me just jump in here. for our international audience, does the eu have a choice? you are speaking up for the backstop and ireland. do they need to abandon ireland and get rid of the backstop to
of a no deal brexit? digby: this isn't a polemic toys. choice.ic the eu can dictate when britain leaves. those are polemic choices and neither are helpful, normal they happen. britain and ireland are very good friends. it is ireland's biggest by a mile trading partner. it is in every british citizens interest that ireland is looked after. i won't have it that this is about brussels championing little ireland against horrible, nasty britain. that is rubbish. what this is about is making sure brussels can't believe the united kingdom into positions which hurt the united kingdom. inncine: we spoke at length
davos 20 minutes to the irish tee shot, and he basically told us that at the end of the day, the backstop is his only insurance policy. why would he allow that to be taken away from him? digby: that responses predictable. your reaction to it is, if i may 615 last night. out on thee sorted 29th of march. why? because that is how they do it. i don't blame the irish. there has to be a way that dublin, london and berlin, because that is who is running this, the three of those can say you can withdrawal from the eu without the eu saying you can't withdrawal. that is what is in the backstop.
looking after the island of ireland to ensure that we don't regret from the good friday agreement and we don't in any way hurt any irish person, be they north or south of the border. it is not beyond. it is nott polemic. is not thef this limit, wire we renegotiating two -- polemic, why are we renegotiating two months from the deadline? why was this not negotiated a year digby: anybody involved in negotiations, be it wage disputes, they do not get more major and international than this, everybody knows it happens at the end.
thatf the protagonists comes six months ago and say, let's have a meeting to sort this out, they would've had a meeting about the meeting and about the size of the table, but nobody would have been talking about anything substantive. the pressure of a deadline is forcing this. does it frustrate us? yes. that is the way it is. britain sorts out rings at five to midnight -- things at five to midnight. i do not blame bernier and acker for saying, -- barnier nd juncker for saying, we will not move. nothing wrong with that. we must not hurt our friends on the island of ireland and we must stay good friends with your
because it is our biggest trading market -- europe, because it is our biggest trading market. we want to sell them a lot of stuff and they want to sell us a lot of stuff. germany cannot afford that right now. this is as important to berlin as it is to lyndon. -- london. , ancine: lord digby jones member of the u.k. house of lords. more with kit juckes on brexit, and the market reaction. now to our interview with ana botin. she says the bank will push ahead with a new strategic plan after better-than-expected fourth-quarter earnings. we asked what the rest of the year would look like. ana: we are proud of our results. it has been an excellent year. we have grown profitably,
strengthened the balance sheet. spain has done a great job not just on integration but also the numbers. brazil and mexico have done pretty well with profits up 22% and 14%. the u.s. is up 42% on an underlying basis. it is showing really good underlying trends in our businesses. francine: when is your next business plan? ana: we will say in a few minutes, we will show it to the market in april. we will continue on the same strategy as we said and we are focused on digital transformation and building global platform so we can take advantage of our scale. santander has 144 million customers and really the whole focus is going to be on building this horizontal platforms on different areas like trade and operational platforms.
this will be transformational. francine: how much will you focus on cost cuts? ana: it is more about revenues but also about building things together. in our results this morning, i building operational platforms, we can save 15% to 25%. we have robots already in some of their countries and that gives us 10% savings. it is all about the customers. doubled digital customers in our three-year plan. appointmentth the initially, there was a lot of talk about the change in direction. do investors ask you? , veryhey are very relaxed happy with our performance. over the three-year plan, we originated -- organically generated 25 billion in capital.
we are above our target at 11. santander comes out as the best bank in europe in terms of the strong capital. this is our model which delivers growing results unpredictable results for the cycle -- and predictable results for the cycle. if investors want to continue generating advantages of our scale, we have the best cost income among our. banks at42% -- peer 42%. not just offering the best price for customers, but the -- but being consistent. francine: -- ana: on drat is a great professional. --andrea is a great professional. the board came to the conclusion
that for his buyout, it was not right for us as a commercial bank. sohad to announce early unfortunately, that is where we ended up. this is the right decision for stakeholders. francine: does it change your relationship with ubs? ana: we have a great relationship with ubs and we will continue working with whoever gives us good advice. francine: that was our interview with santander's executive chair ana botin earlier today. whether there was a contract and whether santander was willing to pay some of the pay that basically under him was due, and she was very careful. she was very tightlipped and says she hopes investors will focus on the figures and not get distracted with this botched retempt to higher -- hire and
orcel. tom: he will go after santander legally in spain? francine: at the moment, she says she cannot comment. we just need to give it a little bit of time. it is clear there is a proxy war which we do not know what will happen. if you look at exactly what happened, there could have been an agreement chewing ubs and santander, that they would help him out and santander thought it was too much money to pay for the incoming chief executive. i have never seen anything like it. it is getting a lot of media attention from the anglo-saxon press. let's get straight to the bloomberg first word news in new york city. viviana: british prime minister renegotiatea set to
her brexit deal with the european union. the e.u. says not so fast. the house of commons backed her proposal to reopen the divorce provision. warnsu. is digging in and that will not consider her demands. the u.s. and china resume high-level talks on a trade agreement in washington but a deal does not appear likely. the two sides are far apart on key issues. unveiling criminal charges against huawei. the interim president of democrats do not want to give president trump an endorsement for military intervention. he is calling for more protests today and the mass march on the weekend. it is being called the most extreme cold and a generation.
the u.s. midwest gripped by a deep arctic freeze. the u.s. postal service has taken the rare step of suspending mail service, blaming the brutal cold on a polar vortex. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: kit juckes with us on keen -- queen victoria street. there is about a two-hour conversation in the interest of the fed. one is economic growth, the movement of gdp. we have a weaker first-quarter. wet does socgen believe that can bounce back and have a decent 2019? the global, but
economic cycle is turning and the u.s. economic cycle is turning. u.s. growth will be significantly weaker in 2019. growth is confused by a weak first-quarter. is me, the focal piece president trump has put the cycle back into the u.s. economy. the cycle will give us a call for of negative growth at least by the middle of next year. we are going that way. the little gyrations we get because of shutdowns on the weather and so on, that is details. we have put the cycle back for the first time since the financial crisis. tom: i want to bring up a chart of davos, the germany two-year and 10 year. the german ten-year has single-handedly come in lower yield. the german two-year is flatlining negative. that screens a disinflation call
by the market. kit: firstly, bearing in mind the european central bank is pulling away from the business of buying bonds, so there support is fading. the safety of government bonds and particularly german government bonds. i have no fear of inflation, cannot see much growth, and they are not seeing good economic news. the best you can say is this is as bad as the short-term economic data will get. there is gloom in europe about that. certainly, no inflation in sight. francine: is there an assumption benefits fromthat monetary tightening in 2019? kit: i think the market is prepared to discuss tightening. i talked to a lot of investors who like to put on trades, like
to question what will happen next, but they are looking through that. the sense that the global economic cycle has rolled over get some looking at bullish trade. i was in the far east last week. more people are long chinese bonds then you can almost count, it is such a consensus trade, on the consensus that policymakers will ease monetary policy. this is a global phenomenon, that the minutia of the last few bits of the tightening cycles almost do not matter to people. , there is an adjustment in raising rates back to zero, but if it is happening at the same time as the ecb providing credit easing, this is technical adjustment. we will not get appreciable monetary tightening in europe anytime soon. francine: what do people
misunderstand about the ecb? i have not heard the markets' position for the end at the mario draghi era. do you have any insight of who it could be, or does the market assume that whoever replaces him will not change monetary policy much? kit: the market is assuming it is a northern european head of the european central bank. understanding that means steady as you go, slightly fearful that mario draghi has been a fantastic central banker, but possibly with study monetary policy going forward. workingsding the inner of the money market and the banking system might be what we need. the plumbing might be the most important bit for the next few years, given we cannot get a monetary policy cycling -- monetary policy tightening cycle
dynamics, yen dynamics? what is the tool of choice? , if i'm trying to position for the idea that the fed is turning a corner towards an easing cycle in the market got a bit ahead of itself, i want to be selling the dollar. i will be looking at where i can withoutnst the dollar much liking any of the major currencies. i certainly do not want to buy the euro. i may want to continue to buy the yen because there is so much turmoil. i have sympathy, which is rare for me, with all the gold enthusiasts in that backdrop. the interest rate market, you can bet there will be -- use the rate market to bet there will be one more rate hike in the middle of the year that is not completely priced in.
that is a sideshow in markets. there are interest rate trades that could do the job as well. in fx it is looking through this meeting. tom: there has to be a play. is it in em where you can get delta going quicker? is there an opportunity on your weak dollar call for emerging markets? kit: quite a lot of them have done well this month. i am nervous of trading emerging markets from the bullish side at this stage in the economic slowdown. you do that when you have a weaker dollar, falling u.s. interest rates, and the global economy is about to turn around. when you have an improvement, em is rallying and you are too late. this is too early. finessing the em call is tricky. this is still too early, hence
my preference for buying the yen which is undervalued and will move if we get more turmoil. are we overestimating or underestimating the economic slowdown? kit: i think we are underestimating. we are overestimating how much we are slowing down now. we have had such a long time without an economic cycle, where tohave had many slowdowns one point something percent growth year over year for the lows, we are not prepared for a normal economic cycle. that is because we have not had one in this whole period with no wage growth and nothing happening. even as we get those back in, in a relatively mild cycle like in the u.s., it is devastating for financial markets. i am nervous we are not good with knowing how deep economic
downturns can get and we are sort of blase about, it is slowing but we will be fine. francine: reassure me. our central banks on top of it? kit: yes, but when you put the cycle back together, events overtake you. you have to remember, the u.s. economy is showing signs of topping out. europe is showing signs of not getting going. china is showing signs of slowing. countries with a monstrous, cheap money party, perhaps turkey at the top of the list, or having a horrible hangover. this is a pretty synchronized global downturn coming through of a kind we have not seen for a while. tom: kit juckes, appreciate that. gerard cassidy on the banks and the fed, this will be a lengthy conversation.
♪ viviana: this is bloomberg "surveillance." societe generale is planning job cuts after fourth-quarter trading slumped. they want to cut expenses by at least 114 million. they will focus on global banking and investor solutions. perks of being ceo of a sports apparel company is hanging around a lot of athletes. david rubenstein bringing that up with the subject of the latest david rubenstein show. david: you have so many great athletes you sponsor. take stephen curry, great basketball player.
you pay him a fair amount of money to where your shoes and he likes them. if he comes to your house and wants to play horse, does he let you win? >> i would be troubled if i won a game of force against a full -- stephen curry. >> what about swimming with michael phelps? >> i do not know i would try that. >> what about tom brady? does he throw the ball soft? >> he only has one speed. viviana: you can watch that at 9:00 p.m. on bloomberg tv. that is the bloomberg business flash. tom: it is always an important --versation about lewis v to louis vuitton. it is about celine and fendi. it must be luxury. bernard: i think the u.s. market is good.
veryconomy in the u.s. is growing. us, we have had that trend in 2018, continue in the beginning of this year for louis vuitton, for our products like burberry and many of our brands. and now joining us anne-marie horton. what is the state of luxury? anne-marie: he is completely shrugging off this slowdown. he says the first from the chinese consumer is still there and not just on the mainland but also when they are globetrotting in milan and paris. was organicber
growth, 17% for fashion and leather. why we are seeing ldm a, all higher. they are still buying fendi bags but night -- might not be buying iphones. tom: thank you so much. coming up next, we drive forward to the fed meeting. stanley, truly excellent, teaching economic growth. ira jersey will stop by on yields and price, and gerard cassidy on the linkage to the banks and the yield curve. this is bloomberg. ♪
zero. in chicago, 42 degrees below zero. hl between president trump and chairman -- a chill between president trump and chairman powell. prime minister may will go to brussels bearing alternative ideas. the irish prime minister asks europe to "hold our nerve." tim cook says let it go. iphone sales are frozen. a freeze across america. i am tom keene in new york. francine lacqua shaking her head in madrid at my opening. an important conversation with ana botin. did she talk about the state of e.u. banking or mentioned deutsche bank? francine: no, she did not mention deutsche bank.
she was at pains to explain they are skewed toward latin america, where she sees things getting better, especially brazil. this bank does 15% of their revenue in the u.k. and they lend to small and medium enterprises. i asked about the possibility of a no deal brexit and whether that meant they have to take provisions on bad loans. away from earnings and european banking, they have to explain what happened with andrea o rchel. we heard he was going to be the chief executive and they pulled the plug. there may be legal battles. there may be more speculation about what happens next and she was at pains and saying, let's focus on the revenue because she does not want to talk about that. tom: in new york city, here is viviana hurtado. viviana: theresa may heads back to brussels to renegotiate the
most contentious part of her deal. the house of commons voted for her to change the irish backstop . she spent 18 months putting it together and is promising to bring a deal to parliament life february 13. the e.u. warns it will not consider her demands. jerome powell is expected to emphasize patients in raising interest rates as they wrap up their two-day meeting. he will convey the central bank's new communication strategy, a press conference eight times a year. the deputy prime minister is under pressure to force an early election this year. several senior members of his party want-- league him to ditch the five-star movement which they view as an unruly coalition partner hampering their ability to deliver. apple convinced there is life
after the iphone. their first holiday quarter sales declined since 2001, revenue for the iphone falling 15%, but apple executives focused on other services. shares are higher in premarket trading. the most extreme cold in a generation, the u.s. midwest is gripped by a deep freeze. the u.s. postal service has suspended mail delivery to a large part of the region and blaming the brutal cold on the polar vortex. sending it back to you. tom: i am glad to hear that they will suspend the postal service. or 1920. 1882 make some common sense today across a brutal midwest. francine has important germany news.
euro, 1.1426 -- 114.26. gold, 1318 per ounce. what is the news? francine: first of all, let's look at european stocks and whether they are reacting to the german data. german economic growth is set to according toaken the new government forecast and employment is arriving at a record level. forecast, thee german economy expected to grow 1% compared with 1.8% october prediction. we are seeing gold new and concern about what brexit form takes place. pound at 1.30. tom: stunning news out of
germany, that is a 2019 estimate for gdp. we must address washington and kevin cirilli, we do this with the president tweedy. he makes -- with the president tweeting. he makes it clear he wants americans out of venezuela. kevin: they are very much at risk in terms of what the administration said. they want to get all non--- all emergency officials out. it is being targeted by the venezuelan supreme court. protestsrotested -- today. americans should not travel to venezuela until further notice. nancy pelosi has come out in support against nicolas maduro. analysis ofhave our
the legal system. harry litman at the washington post on mr. mueller -- is mueller's report close to being reported -- completed? he is investigating possible crimes regarding the inauguration and possible illegal foreign conduct, especially inauguration donations. why would the special counsel bring false statement cases stone that cohen and give the president's older son a pass? what is the public filing? kevin: he also operates on a timetable. bob mueller's team has been doing their work at their own pace with their own investigations. i think people need to wait until this report is released to see what happens. the honest truth is, whether it is whitaker or the washington post, no one really knows when
that completed report will come out. francine: talk to me a little about the talks. ,ongress is restarting talks formal talks on border security to avert a shutdown for february 15. what will they focus on? it is not only about the wall but increasing the u.s. debt limit. kevin: raising the debt limit is just around the corner, and a lot of folks in terms of people watching the volatility out of washington are may be more concerned about political theater then about the border wall. i said this on friday and i will say it again. friday was just a pause button on these negotiations. speaker pelosi outmaneuvered republicans in terms of what happened on friday. the president is set to declare a national emergency if he does not get a deal he likes. he managed to ruffle feathers
among the 37% of his base that backs him on the wall. that is a good percentage of americans he is listening to. the state of the union address just a week away, so expect more increased negotiation and heightened awareness. tom: kevin cirilli, eric chief washington correspondent. stephen stanley with amherst pierpont. economics talking about -- now we have a 2019 massive shift from germany from 1.8% to 1%. this is serious. can the same thing happen in the united states where we go, first quarter snow, cold in toledo, and boom, there is a readjustment of economic growth? stephen: i think the
fundamentals are different. we are past some deeply seated structural problems the u.s. does not necessarily have and the momentum is good. we are flying through a fog bank with no data but when we emerge we will see the u.s. is doing well. tom: what is your call on gdp this year? stephen: i think we will still be well above trend. in my view, closer to 3% in 2%. tom: that is headline news. richard clarida talks about solid gdp and yet there is a market called distant from the dots. does the market catch-up up to the stanley enthusiasm? stephen: eventually. it will take some time. it feels like the last one. tom: what do you mean the last one? stephen: 2004 to 2006 when the fed tightened 17 times in a row.
when we got to four or five the market was talking about this would be the last one, until we eventually got 5% rates. i do not think the rate hike cycle is over and the economy has a lot of momentum. the fed will have to tighten further to bring it under control. francine: what does that mean for dollar? where does dollar end? stephen: i would say, i am not the dollar is a little stronger in the sense the u.s. economy is doing better than others. the fed, to the extent it tightens, will be the only game in town. i do not think the other central banks will be moving strongly in that direction. ,om: stephen stanley with us looking forward to the next half-hour as we dive into a discussion on fed theory. 2:00 p.m. this afternoon, scarlet fu pumped for chairman
♪ this is bloomberg "surveillance." foxconn reportedly is having second thoughts about the $10 billion factory can the u.s. apple's main manufacturing partner may scale back or abandon plans to make cutting .dge tv screens in wisconsin that could undermine promises to create 13,000 jobs. you remember president trump
hailing the plan. santander is putting aside the botched hiring of a ceo. they tried to higher the former u.s. -- ubs executive but the deal fell apart. andrea is a great professional. the board came after a diligent process, that the amounts and would have to achieve for his buyout was not right for us as a retail commercial bank. because of this, we had to announce early and unfortunately that is where we ended up. it is the right decision for all stakeholders. viviana: santander reported fourth-quarter earnings that were better than expected. tom: thank you so much. it is one thing to talk to the sell side about point estimates of any given company.
it is another thing to bundle them in and see the trend versus any given stock. lee droge and is the founder and ceo and he has some interesting combinations. stephen stanley still with us. how bad did this sell side miss? how off the mark was the sell side? lee: it was not that they were necessarily off the mark, they were just super low to getting there. because of the nature of the platform, we keep the estimates moving well before the sell side so they all got there. apple came basically right in line with the estimate, but the issue is for fy 19, we are seeing estimates drop much quicker than the sell side. we are no single digits negative on the revenue side. tom: within all of this, the buy
side and sell side, are they looking at revenue growth and the income statement, or do they weigh in on cash development, free cash flow sustainability? leigh: it is still a revenue story, honestly, and still an iphone story. there is a lot of debate around, is this a services company now? the services revenue is growing 19% year over year. the problem i have in reevaluating the multiple, it is reliant on the installed hardware. if you start losing that apple iphone growth, you will lose the growth in the services as well because it is part of one ecosystem. if you look at china, where we are down 20% year over year, we chat, we pay has become more important than the os. if something happens in the u.s.
like that, you will have serious problems. francine: what exactly happened in china? is it the chinese consumer no longer wants apple products or they find them too expensive? thing the buy the side has to figure out if they want to trade the stock, is this , chineserder issue consumer issue, or fundamental issue with the technology with the applications themselves becoming more important than the hardware, which is kind of all the same at this point, or even ledos where apple has android for some time. to ask me, it is an issue with the fundamental aspect of what is the consumer using? the applications are becoming more important than the hardware which is all the same. that could cause real issues. i think if apple does not get their act together on the ai
side, which it is coming eventually. there will be ai from one of these os that comes out. if they are late to that, the cycle of having the installed handset based taken away from them will not be quick, but will be severe if they get this wrong. they have to get ahead of that. francine: how do they get ahead of that? is it in the pricing point, a significantly better offering? leigh: it has to be something in there os that is a significantly better offer. unless they are cooking something very special to differentiate them from xiaomi or other handset providers, i do not think the price point they will be able to charge especially internationally will be able to keep the installed handset based where it needs to
be -- base where it needs to be. in the u.s., there is more pricing power but we are concerned the consumer is overcooked and we will be on the backside of that hill in fy 2019. we would not bet on the pricing power that tim cook has here or internationally, being stable. you have got to figure something out. tom: thank you so much. conversation, we have an important roundtable coming up in this hour. jonathan ferro and i will speak with the former fed governor. the perfect time to speak about the choice set chairman powell has. this is bloomberg. ♪
♪ tom: bloomberg "surveillance tom: from new york -- "surveillance," from new york. stephen stanley with us from pierpont. nx is on the backside. the export dynamics, germany with a 1% statistic. so much seems to be an adjustment in trade. his general world trade down? stephen: yes. i think the biggest flow in terms of trade is the fact that companies are trying to get
ahead of the tariffs toward the end of last year. tom: a frontloaded the growth. stephen: that led to a significant deterioration in our trade balance because imports were rushing in, in the second half of last year. depending on how things play out, there is a chance the export piece is positive in 2019. tom: give us the scope and scale percentage point. is it 2.4 or 2.0? what is the dynamic? stephen: net exports can be a be determinant but it can plus or minus a half percent pretty easily. francine: i know you are pushing back against market consensus that the fed can act once or twice. if there was something in the u.s. economy that would turn
ugly, where would you see it in the data? stephen: i would be most worried about business investment. amount of tremendous policy with the shutdown in trade talks, and it feels like businesses are spitting on their hands a little bit, which is a familiar dynamic. we saw that in prior years. that is a key place to watch. the consumer feels like they are rocksolid, so if there will be a crack it is likely to be on the business side. interesting,s is because we used to talk -- and tom had a chart looking at animal spirits of the u.s.. what takes hold of animal spirits? worrya lack because they about trade tensions with china or something else? stephen: you have the market volatility at the end of the year that may have spooked some folks. the government shutdown is not a good vibe.
the trade talks, which could go in any number of directions. there is a lot of uncertainty and that kind of feeds into the fed discussion on what you want to sit back for a while. tom: stephen stanley with us. with us and the next half hour, gerard cassidy, rbc capital markets. we will fold that into a discussion with ira jersey as well. it is fed day. at 2:00 p.m., the fed decides. scarlet fu in charge of that, in chicago. it is a windy city. be careful. ♪
says germany will use all means to avoid a no deal scenario. the european commissioner is urging the u.k. government to clarify its intentions as soon as possible. let's get back to westminster green where anna edwards is joined by a guest. by mr. cable.ned very good to have you with us. i want to start by asking, what do you expect the next two weeks to achieve? >> we are basically in limbo. the prime minister has to persuade the european union to change its position. it is unlikely. i think it will be difficult for them to accept the reopening of that they, to accept have had a technological miracle discovered in the u.k.
no one can understand how this actually works, but it is possible. in relation to the small house compromise? vince: i think it is unlikely. i think we are watching and waiting. there are problems not just for theresa may and holding her trips together. the labour party is under a lot of pressure and they are starting to flake at the edges. on the other side, they are furious that corbyn has not gotten behind the people's vote. there will be tensions. two weeks when we assemble on valentine's day or thereabouts, do we see a version of the cooper bowles amendment coming back? the commons will be voting on whether to block a no deal brexit and it will be hard for
theresa may to argue as she did last night, you will get another chance to block it. it could go another way. i think she is unlikely to have very much to offer. there will be a desperate need to avoid a no deal and a large majority and cons -- commons say this is not acceptable. how do you postpone the exit day? the issue my party has been pursuing, the people's vote that comes back into the discussions that are currently on one side. we will be going around the circle all over again. anna: why were there no amendments? if the proponents are so convinced there is a majority, there was not a straightforward vote yesterday. vince: there is not a majority in the commons. this is a last resort.
it could well happen if the government decides the only way to get there deal forward is to put it to the country, whether to have a 50/50 chance of winning a referendum. the house of commons will have no turn it of. -- alternative. anna: what is jeremy corbyn's role? as the leader of the labour party that you see in limbo. vince: he isn -- in an embarrassingly bad position. supporters were sitting in silence. had it not been for the childish behavior of tory mps shouting at him, he would have been humiliated. anna: the way he was ignoring attempts? vince: he is holding the labour party together because they are flaking at the edges. he has been on the fence for two
years and will not be able to sit on the fence for much longer. anna: in terms of the proposal theresa may goes to brussels will we hear today that it send a message to brussels, u.k., tell us what you want. the e.u. wants more detail. what will she be able to take? well it formed the basis of what she asks for? vince: it is a confused message. the house compromise which had ,ever been put the parliament the one thing she has is a commons majority behind renegotiation. she has not got a great deal to offer in that renegotiation. anna: how difficult do you think a no deal brexit would be?
of reportsa lot about shortages of shelves and drugs stockpiling? vince: i think it would be damaging, not necessarily in the hyper dramatic way. drain awayhave to the effects on the u.k. in some years time. anna: thank you so much for joining us, vince cable, the leader of the labour democrat party. tom: thank you so much. coming up, an important voice. the former head of the richmond said, this is well-timed. we look forward to speaking to him. we will continue a fed discussion as well but with francine in madrid, the stock exchange started in 1881. the balsa, 1883.
♪ francine: this is bloomberg "surveillance," tom and francine from new york and madrid. we need to look at brexit after the amendments yesterday. theresa may goes to brussels to renegotiate. let's get straight to the bloomberg first word news. british prime minister theresa may is set to renegotiate her deal with the european union. the house of commons said not so fast.
in and. is digging warning that will not consider her demand's. the u.s. and china resume high-level talks in washington but deal does not appear likely. they are far apart on key issues. of chargesunveiling against huawei is not helping. recognizing the interim president of venezuela is stalling. they do not want to give president trump a reason for endorsement. this follows clashes. carlos ghosn says he is the victim of a plot line nissan executives. he has been in a tokyo jail so since november. he said nissan executives are trying to prevent the car
maker's deeper integration with renault. nissan refuted the notion there was a coup. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. otto -- vienna her to viviana her to otto. hurtado.a tom: gerard cassidy, inc. analystwith rbc -- bank with rbc capital management and ira jersey. let's bring up a chart. this is simply the did fed funds target rate -- adjusted fed funds target rate. we were ultimate -- altra accommodative and we come up again. where do they want the fed funds
target rate to be? >> traditionally, the equilibrium real funds rate is in the neighborhood of real gdp growth. being after the crisis, there is no consensus that it is quite about lower. i am skeptical. that is why so many people are thinking now that we have finally poked our nose above zero that maybe we are done. we will see. tom: steve stanley has an optimism on the economy. there is the chart that tells the details. does that shaped the fed's view? ira: it has to continue to do that. , whatou are near neutral is this magical rate? nobody knows. it is a moving target. not a lot of funding goes on in the front end of the market. it used to be that tanks and credit cards and other funding
happened overnight with rates. most of the funding for the consumer sector is in the five and 10 year space. does the real fed funds rate matter or do five and 10 year rates matter? that has changed. francine: how should we look at the fed's balance sheet? ira: the balance sheet has gotten a lot of attention and blame for market volatility over the last six weeks. it is not obvious to me how the balance sheet, a reduction has impacted markets in a real sense. ands more from an emotional quite frankly, just being the scapegoat for everything because when you look at the fed funds market, there is not higher volumes. the interest rates are not going up. -- not a lot of demand for bank reserves. it is not clear what the flow
through and how it flows through the overall economy. tom: what is clear is american banking is a success. the theme at davos is e.u. banking is flat on the back because of negative interest rates. the basic idea here is the real fed funds rate, where does that need to be so jamie dimon and others can say all clear? gerard: i think they are there. the all clear signal is for the banks. they are showing they have great amounts of liquidity and great capital levels. they are in great shape and if the rates were to stop going up, that would be a positive for the banks. they are being forced to pass on more of a rate increase to their depositors, so once the fed funds rate stops going higher, the beta will stop going higher. stephen stanley, back
to the balance sheet, do you think the balance sheet is being misunderstood by the market? stephen: yes. 1.8 tot think going from $1.5 trillion in excess reserves is the main reason that stocks went down in november and december. i think the fed is effectively humoring the market, saying, we are listening, we will revisit if we need to. i would expect the fed will continue to do what they have been doing, as they like to say, watching the paint dry. things ine of the think about the balance sheet that is a little bit misunderstood, we keep hearing about the $600 billion. the balance sheet is shrinking much slower than that. $350 actually closer to billion to $400 billion, still a
lot, but not quite as fast as thate get this narrative we are not going to have any excess reserves in two years. that is not true. tom: francine? francine: i just want to ask whether the link to the equity market and balance sheet is understood or whether there are still a lot of doubts and how long that will last? gerard: that perception is definitely there but there is a link. i am not convinced it will remain there forever. especially if the fed comes out with their discussions today and disclose they will not be reducing the balance sheet as aggressively, that could help the equity markets. i would be surprised if they go through with that original plan by shrinking the balance sheet $2 trillion. i think it will be less than that and they will and its sooner -- end it sooner. fed have you ever seen the
this far from the market? it is remarkable the disjoint moment we have. ira: i would actually flip that question 180 degrees. tom: we do that. periodere was a brief last year where the fed and markets were close to an imap -- alignment, and that was an outlier. the markets have been way behind the fed from the very beginning. tom: what will happen at 2:01 this afternoon? what will be price down, yield up? gerard: my guess is yields will thep on the optimism that fed will not make a policy mistake and growth will rebound in the future. there is one little phrase about continued gradual increases in interest rates. , that willerate that
be the key to what kind of reaction you see after the headlines come out. does a fed policy mistake look like? ira: i think a policy mistake would be they continue to be on this path like in december and are going to keep hiking interest rates. that single best chart that tom showed, that keeps going higher. that is something risk assets will not like an rate markets will like. rate yields going down to 2.5%. it winds up being a classic, we hiked when we shouldn't have and we are thinking about hiking even more when we should. -- shouldn't. francine: do you agree with that? because you are expecting more fed hikes, do you believe a policy mistake would be not to hike enough? stephen: iraq encapsulated the market view that is afraid the
market -- ira encapsulated the market view that they are afraid. either too much inflation or excessive financial market volatility. tom: stanley n jersey have an opinion. nobody cares. we will dubai, hold, sell with gerard cassidy. gerard: the large-cap banks are a good place to be. tom: what happened last year? gerard: the selloff was pretty hard. when the banks came into the beginning of 2018, we just had the tax reform act and regulatory measures put into place. the stoxx struggled last year -- stocks struggled last year. fed willstocks see the end raising rates this year. francine: we are just getting
some breaking news out of alibaba. i believe revenue is up some 41% , the slowest growth in two years. what investors want to know is looking at the cloud and other relatively nascent areas, whether those will pick up from the slack over the longer-term. alibaba is huge. if you look at the strength in numbers, we did not see it with apple. this is a good litmus test of consumer sentiment. tom: thank you so much. we thank the gentleman today for this conversation. andjersey, gerard cassidy, mr. stanley holds court at amherst pierpont as well. we are optimistic that joe weisenthal have an important interview with the senator of
♪ "surveillance," thrilled you are with us. stephen stanley on a quiet story buried in the headlines over the last number of days, the congressional budget office with a vengeance lowers their economic growth number and fold that into debt and deficit analysis. this is a huge issue. how much does the deficit expand out if we get a new cbo growth number? stephen: this is a real interesting question. this is the time in the economic cycle when the deficit should be going down. you can think about the tax cut that was passed a little over a year ago as essentially a gamble
saying, we can make the expansion longer and stronger bypassing tax cuts at the short-term cost of rates and the deficit, but in the long term we get that back in growth. the markets are having none of that. we are talking about a recession this or next year. tom: you are so good at plugging numbers into the fancy equations. this is the twin deficits of the debt and the trade deficit. this is the vanilla fiscal deficit. up here, the clinton surplus. down we go. there is a vector here and we are looking at a chronic trillion dollar deficit. if we do not get stephen stanley growth at 3%, this goes back to reagan. stephen: as things stand now, if we do not get strong growth, we are looking at rising deficit. the structure of the budget is
so much different than it was 30, 40, 50 years ago because entitlements makeup so much more of the budget, and they are on automatic pilot. reformed -- unless congress reforms the major entitlement programs, there is nothing to be done for this. francine: overall in 2019, what do you think economists and markets will get wrong? stephen: i think the pessimism right now, this view that the economy is on the verge of a recession, people are paying a lot of attention to what is going on overseas. while that is important and certainly feeds back into the u.s., the underlying strong dynamic of the u.s. consumer is going to lead to a healthier outcome. tom: stephen stanley, thank you so much for running through our economic equations towards the fed meeting this afternoon. he is with amherst pierpont.
we will continue with jonathan ferro on radio. the cold, be very careful. carefulngton, be very between the cold and the house democrats as that story drives forward this morning. it is a beautiful washington. thank you to our team in madrid helping francine lacqua. anna edwards on the green at westminster. much more from britain through the day as the prime minister attends brussels. worldwide, this is bloomberg. ♪
iphones. -- 53% margin its in its service business. jay powell must balance slow and global growth -- slowing global growth against the u.s. economy. u.s. trade representative robert lighthizer and the chinese mice premier meat -- vice premier meet in d.c. david: it's all about earnings. alix: check out alibaba. they had a 41% rise in quarterly revenue. they had a slowing online retail business. it was them expanding into cloud computing entertainment. the retail segment not as good. at&t: i can relate that to earnings. their landline busin g