tv Bloomberg Surveillance Bloomberg February 19, 2019 4:00am-7:00am EST
francine: jean-claude juncker express his frustration over brexit talks at u.k. tries to renegotiate the irish backstop. hit first half but concern over oil prices. .sbc takes a hit the chief executive rounds off his first year with -- with worse than expected results. is cfo tells bloomberg he more concerned about the u.k. then china. >> we are hoping to grow our u.k. business. we are cautious on the outlook for credit given the lack of certainty on the direction of the uk's economy.
francine: welcome to "bloomberg surveillance." i'm francine lacqua in london. we are seeing optimism, at least we did in asia. that is petering out on the stoxx 600 in europe. pretty much flat. for news are waiting on possible tariffs on automakers and the u.s.-china trade rift. had aooking at yen, we couple of lines from governor kuroda in japan. 1.2924 as pound up theresa may goes to the eu. we hear mr. jean-claude juncker saying brexit is in god's plan's. terminalstory on the yesterday saying the eu is willing to give clarification, but for the moment, they will not renegotiate on the brexit deal. next on "bloomberg surveillance cfo, we will hear
what he had to say after full-year earnings lack of behind estimates. in new york city, here is the jan hurtado. to thes the biggest blow german audit -- british auto industry. honda planning to close its factory. the plant is the nation's fourth-largest auto factory and employs 3500 workers and will close in 2021. the move isn't because of brexit, says the cfo. president trump upping the rhetoric against venezuela's regime. in miami, he called for the army to switch support to the opposition. he says the days of socialism are numbered. nicolas maduro, hitting back. >> you can choose to accept president guaido's offer of amnesty to live your life in peace with your families and countrymen. does not seekdo retribution against you and neither do we. maduro'sust not follow
orders. >> donald trump was giving orders. listen up, military officers of the homeland. donald trump was giving orders to the national armed forces. who is commander in chief of the armed forces? is it donald trump from miami? : elizabethtado warren will unveil a universal childcare plan designed to limit family expenses to top 7% of income no matter how many children. warren would play with the plan for revenues from a supposed that proposed wealth tax. california and other states are taking aim at president trump's. billy porter wall. they have filed suit, saying the plan to divert funds is unconstitutional. they claim the president is using the pretext of a manufactured crisis to get the money. 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'm viviana hurtado. this is bloomberg. francine: thank you so much. trade dominates markets has the u.s. and china try to reach a deal by march 1. negotiations resume in washington this week. the tension is heating up on europe with brussels vowing prompt retaliation to auto tariffs. companies and governments have warned president trump duties on car imports would hurt the american economy and disrupt the global auto industry. joining us now is mike bell, global market strategist at jpmorgan asset management. great to have you on the program. give me a sense of what the market is pricing in when it comes to the u.s.-china trade, but also the auto tariffs? mike: i think the market has a lot more optimistic on the outlook of this and i'm not sure why. it seems the u.s., china, there are policy headlines coming out
from the u.s. side, perhaps there is some deal there, but as soon as it starts to look like a deal might be done between the u.s. and china, there are rumblings of discontent when it comes to auto tariffs on europe. i wouldn't say that is being priced into earnings in europe. ,n earnings for the eurozone over the next two years, aggregate earnings growth is expected by the end of 2020 to be about 15% for europe. that seems higher than is likely at the moment, given the weakness you are seeing in the survey. francine: has it not changed, because investors in markets have convinced themselves this is hitting the u.s. economy. they believe the trump administration actually want a deal. mike: possibly, and maybe they are right but the thing i think of when i look at markets is there is big uncertainty out of what will come out of the u.s. administration on trade, on
chado and auto tariffs globally, which would impact germany in particular. deal on bothget a sides, no tariffs, market goes higher, growth picks up but if that is the case, the other theg the market priced that fed won't put rates up the cycle. that seems wrong. if growth picks up on the back of a trade deal, the fed will probably hike further. francine: does it pick up on the back of a trade deal because we have concerns about the chinese domestic economy and trade is an excuse? china ist is clear is stimulating significantly. you are seeing cuts to requirement ratio, infrastructure spend pick up, global bond issuance picks up. the domestic side of the economy will stabilize. you won't see the ramp up in credit growth you saw in 2015 and 2016. the parallel is not accurate and some people are making it. francine: at the time, it was a
much deeper -- we have concerns about a deeper recession because of what happened to the house price and real estate. mike: that is part of it. the other thing is the chinese don't want to go back to the boom in shadow banking that took place between 2015 and 2016. they purposely squashed that. part of the slowdown in china the past couple of years has been a regulatory clampdown on the shadow banking sector. they don't want that to pick up again. they are happy for the banks to lend a little more, which is why they are cutting the result i meant. -- requirement -- reserve requirement. it won't lead to a material pickup in growth. francine: mike bell from j.p. morgan asset management stays with us. next, we talk commodities as the world's biggest miner this is estimates. details on bhp next. this is bloomberg. ♪
francine: economics, finance, politics. this is "bloomberg surveillance ." let's get to the bloomberg business flash in new york city with viviana hurtado. posting full-year sales growth beat estimates. than in posted stronger demand for its evian water. the company is the world's largest yogurt maker. sounding an upbeat note despite a bruising fourth-quarter. plans to meet financial targets after they reported worse than expected results due to the global market meltdown. says the bank is more
concerned about u.k. than china. >> we are able to grow our u.k. business. we are just cautious on the outlook for credit given the lack of certainty on the direction of the u.k. economy. viviana: huawei's founder said there is no way the u.s. can crush us. they deny the company helped spy for beijing and says huawei may reallocate investment to the u.k. as britain looks set to resist the trump administration warning and allow huawei technology to be used by telecom operators. francine: thank you, viviana. surge couldrice help bhp after it reported half-year results that missed estimates. remained a top performing unit accounting for the highest share of revenue. joining us, the executive editor for combined energy and
equities. mike bell is still with us. copper was the company's biggest problem in the fiscal first half. is that linked to china? should we worry more about chinese weakness? >> the short answer is a bit because a lot of the problems were operational. a couple of their mines had operational issues, but a good chunk of the problem was in the price. year on year, i think we were something like 20% lower. that does speak to the china story. the company was reasonably cautious on the outlook for china. they are not super bullish or bearish, but it has to be a major concern going forward and i wouldn't dismiss copper result as purely a bhp problem. francine: so we will see that across the board? stuart: yeah, certainly on the price side. if you managed to increase your output, maybe you can compensate. it is a pretty calamitous drop in the price year on year. francine: let me ask about iron
ore. iron ore was positive. what are they saying going forward? stuart: good news and bad news. from an investment point of view, no one expects the price to collapse anytime soon and it is not clear yet how much supply they will have to take out of the market. between 50 and 70 million tons, we think. bhp was pretty firm on the fact they have maxed out capacity. they can't produce a lot more volume, but they will benefit from the price and everyone is pretty bullish on the iron ore price. francine: what does that mean for your investment strategy when it comes to minors? mike: we are not taking big overweight in miners at the moment. when we look at the commodity complex with the exception of the precious metals, is the global growth outlook. over the next couple of years, the risks to that global growth outlook are rising as we are in the late stage of the economic cycle.
a lot of the commodity story over the last few years has been driven by the supply story. now when i look at commodities, i think more about demand than i think about supply, and i have some rising concerns that has global growth slows, that will start to impact demand for commodity prices and put downward pressure there. francine: what do we know about the dam disaster? stuart: they have come out because they were in some ways -- the whole industry's links to it. it is clear it is becoming a question and investors note a new focus on what potential risks are attacked to these -- attached to these. withsay they did a review 400 recommendations. it speaks to an ongoing trend across the industry that they do need to address these problems because investors are aware that if you get it wrong, the penalty
you have to pay is enormous. francine: does that mean they will have to do more safety checks? is that concretely more money aside? stuart: ultimately, it means a higher operating cost because you are double and triple checking everything. when it goes wrong, it goes really badly wrong. francine: this is our mliv question of the day, our markets blog. and we are asking why be bullish on gold right now? stuart: tactically, there is an argument for gold. andhave a more dovish fed as the risks to the global economy starts to rise, given that we are in the late stage of the economic cycle, it becomes more likely that there is more downside to rates than there is upside from here over the next couple of years. if you think gold is essentially a zero yielding asset as the
yield on dollar-denominated cash falls as rates come down during the next downturn, on a relative basis, gold becomes less unattractive. the other thing is if we head into a situation where we see a downturn at some point in the next few years, central banks are likely to restart the printing presses. for tends to be bullish gold, particularly if a slowdown in global growth feeds through into a eurozone slowdown. it restarts concerns about the sovereign debt crisis. people will be concerned about holding euro and that could boost gold. francine: we were speaking yesterday about palladium. what is exciting in your space is you manage all of our commodities? stuart: what is most exciting? palladium is a pretty good one to choose. it is exciting for different reasons, but it appears a repeat of what happened 20 years ago where you saw the kind makers --
carmakers sustained supply and billion dollar write-downs years later as the price collapsed. the palladium price has gone absolutely nuts. i don't think we are necessarily in a complete shortage globally, but it is clear the mining projects haven't kept up and there is no incentive for any of the miners to increase production because they have to do platinum along with the palladium. we will see who loses a lot of money this time around. , editor: stuart wallace of commodities and mike bell from j.p. morgan stays with us. jean-claude juncker says we are in god's plan's as a exit deadline moves. seven mps set up their own independent group. the latest on the brexit drama next. this is bloomberg. ♪
francine: this is "bloomberg surveillance." i'm francine lacqua in london. a beautiful day in the u.k. as breads it negotiators work on a legal text for the most controversial part of the deal, the irish backstop. cabinetof theresa may's are trying to force her to take the threat of no deal off the table. this has led the european commission the prospect of delaying brexit. joining us, reporter from
bloomberg news and still with us, mike bell from j.p. morgan asset management. what happens on february 27? it is an amendment that could take no deal off the table. >> what the european union is saying is we want to see something from the u.k. parliament. we know what they don't want from brexit. we know a couple of weeks ago they voted for amendment saying they wanted changes to the backstop. theresa may is meeting with jean-claude juncker this week where we know they are working on the language around a to the backstop that could provide reassurances .o the brexiteers next week, they will be voting on what ever theresa may manages to agree this weekend see if they can take something back to the eu and say yes, this is what the u.k. wants from brexit. francine: will we have a sense
of what they want or what they don't want? i guess what i am talking about is what theresa may is hoping for. we haven't got what she wants, so this is a tactic. she is trying. whether or not it will work -- what we have seen with the labour party members yesterday, there is a lot of moving. francine: five sundays until march 29. how should markets see this? mike: what seems clear to me is markets and particularly companies and consumers are too worried about the prospect of a note of brexit. the likelihood of a no deal brexit happening is very low. there isn't a mandate for it. there is no support in parliament. there is not a majority parliament. francine: do you worry there is not a legal procedure to avoid it? mike: they have ruled u.k.
parliament has by two revoke article 50. francine: is it parliament or government? it is the government that invoked article 50. jess: it is parliament, but government could revoke it. it is a very technical issue. when i was talking about this yesterday, i hear you say you don't think no deal will happen, no one thought brexit what happened and no one thought donald trump would be elected and there is a risk of markets are assuming everything will be ok and as you say, no deal could well happen by accident because it just wasn't stopped. francine: do you have a day where you start taking positions on the other side as a hedge? mike: ultimately, it will always come down to the last minute but if it is march 28 and there is still no resolution, all that will happen is there will be a vote in parliament and there will be a majority that says we don't want a no deal brexit, at
which point -- it depends at what point it happens. if we ask for an extension, which is probably what will happen, the eu have to allow us an extension. there are questions as to how that plays out. francine: do they? you say they would give an extension. jess: what i read this morning was discussions around a technical extension, so officially, we would be leaving, but it would allow extra time for the eu to sort out legislation before the european parliament election in may. francine: that would be if we know what kind of deal we want. mike: that is key. an extension that allows u.k. politicians to not make a few months is better than a no deal brexit, but not great. an extension that allows them to pass legislation to enact a decision that has been made is a different kettle of fish and that is what i hope we end up
with if not, we revoke article 50 because a no deal brexit puts a hard border in ireland and probably tips the u.k. economy into a recession and parliament doesn't want that. the people who voted for brexit didn't want that. 48% of people who voted didn't want to leave at all. jess: maybe. mike: half of the people who did vote didn't want to leave without a deal. francine: mike bell from j.p. morgan stays with us. next, we hear what the hsbc chief financial officer had to say about earnings that missed estimates. downs getting hit today, more than 4% in today's trading session. this is bloomberg. ♪ the latest innovation from xfinity
u.k. we will see it on the board as soon as the data actually comes out. this is employment change. we will be able to see exactly what happens next with the british pound. jess and miketo about the implications of theresa may on her tour across europe. three monthngs, year on year for december. a little bit backward looking. a touch below estimates. i don't think employment change is moving pound. at some of the data points, we actually have encouraging news, and then
inflation that is a little bit iffy. what does it mean for the bank of england? ate: if you just looked which growth, you would think low.est rates are too you have a huge cloud of uncertainty that his predecessor and what is doing to various parts of the economy. business sentiment has fallen quite meaningfully over the last six months or so as businesses start to worry about a no deal brexit. i think you are worrying too much. consumer confidence has fallen quite sharply. you are seeing that in terms of the housing market. this huge fog of uncertainty just waiting on the shoulders of the u.k. economy. the unemployment rate remains low, wage growth continues to be pretty strong. the bank of england i don't think and do anything intelligent clarity on the brexit outcome. hopefully, we will see that in the next few weeks or so.
francine: we will get back to mike bell. in the meantime, let's get to the bloomberg first word news. viviana: today, that you without prompt retaliation if the u.s. follows through with auto tariffs. the u.s. is using the same national security justification for part duties as it used for prior steel and aluminum tariffs. discussions moved to washington following beijing meetings president trump called productive. china's vice premier will meet with top u.s. trade teams later this week. the deadline for higher tariffs on chinese goods is coming up march 1. brexit negotiators are working on a new legal tech for the most controversial part of the deal, the irish backstop. members of theresa may's own are
trying to get her to take the threat of no deal off the table. the ecb's chief economist says the bank status could change if the outlook worsens. he is adding to the growing concern around the eu area economy. his turn at the central bank is set to end in may. china announcing a sweeping plan .o link hong kong and macau hsbc saying the region will have 67 million residents and a trillion dollar economy. it would also eclipsed japan as the fourth-largest text order. -- exporter. 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. francine: thank you so much. the market isn't as upbeat as hsbc after its fourth-quarter results. earnings fell short of estimates. this is the bank saying it will meet its key targets. i'm not going to give you actual numbers, but john and i really like the discipline. i think underlying cost of at the moment, it is important to remember we are in the middle of the very substantial is investment program. we intend to grow again this year. a big investment into growth and interdigital transformation. continue to and commit to achieving positive jaw s. >> to achieve that, you might have to readjust the commitment
invest you made last summer. is that safe, is that in tact? there is no reduction in the? -- that? >> i think we are already being cautious as we look forward to the year. we have slowed some of the investment down. i think we will continue to be cautious until his the how the environment plays out this year. it is a particularly volatile revenue outlook as we look at the year, particularly around the u.k. >> which of those worries you the most? you are the gateway into this soul of china. china slowdown manifest itself in your numbers? it's very hard to see that in 2018 numbers.
we had revenue growth here in 2018 and home -- in hong kong at 14%. international customer revenues were up 14%. where we are seeking credit softness is in the u.k. i think the u.k. is the market i would be more concerned about at than hong ho -- kong and china. revenues were up last year 7% in the u.k. we had mortgage growth of 10%. thee certainly able to take share we want to take up the moment in your certainly able to grow our u.k. business. i think we are just cautious on the outlook for credit given the lack of certainty on the direction of the u.k. economy. >> what have you in the board
discussed on the preparedness for a hard brexit? you should assume we have been working on this for years now. we have the benefit of a big operation in france that we have had for a long time. for us, it is easier than some of our domestic u.k. deals to prepare for brexit. on my side, capital funding, liquidity ratios all very strong. you would have seen in today's results that we have taken some additional provision for the uncertain economic outlook in the u.k. hsbcine: that was the chief financial officer. joining us now is jonathan tice and mike bell. hsbc, areook at
investors mark right the outlook and the fact that they say is a bit murky, uncertain than actual earnings for the quarter? jonathan: he put it perfectly there. the market has become fixated on operating jaws because they gave us that target. the problem you have is, where is revenue going? they don't know and we don't know. it is a little bit like what we are seeing with the french banks. it isg at consensus, pricing at about 6%, 7% revenue growth for the year. loan growth is about 4%-5%. the problem you have is that net interest margin is also weak. francine: they seem dave blaney it on global tensions. because of that, it seems we're going to have -- how true is that and how is it actually their fault? fourthn: if you look at
q, they probably have half of the selloff back already. the issue they have is a very competitive u.k. market. you have hong kong and singapore refunding costs, because of the retail competition is getting a lot tougher. rates have stopped going up. as of the loan growth needs to go to come down. can they afford to give back capital to shareholders? jonathan: absolutely. the buyback is purely used to manage the number of shares. francine: what does it mean for the chief executives? jonathan: think he needs to address what jaws actually means and how important is the investment phase because they
are looking at $4.5 billion this year. are they going to suddenly say we will deliver -- different the $1 billion of investment? they need to start demonstrating. we need granularity on not. francine: and i can't talk but are youcks, optimistic on the sector or do you need consolidation to go back in? think of television would be helpful in the european banking sector as a whole. it growth outlook wheere is in europe -- i don't see interest rates in the eurozone going above zero in the cycle. i think we're going to be stuck in a low rate environment. is not to say that is credit growth continues to pick up that you couldn't see positive news lookhe banks, but when i at the outlook for the global economy over the next couple of years, i see more downside risk
then significant upside risk. i would therefore be a little bit more cautious. francine: how does hsbc look at brexit? jonathan: it is just a bit of credit cushion in case things get softer. the growth won't change for them. is just a question of incrementally, this credit costs go up as the in the u.k.? francine: do you make a difference between swiss banks, french banks, u.k. banks? them less in at terms of where they are based and more in terms of the individual companies. there are things we like and banks we don't. if we look globally, we prefer u.s. banks to european banks as a generalization. particularly, when you look at it in the investment banking space, but also in terms of retail banks.
with think there are some u.k. banks that offer decent value and are buying back shares with a decent return to shareholders. francine: europe started the cleanup of the banks so much later than the u.s. will we ever catch up? no.than: k -- the u.s. remain miles ahead. francine: thank you both. coming up, coat designers made their way down the catwalk. that is coming up next. this is bloomberg. ♪
francine: good morning, everyone. good afternoon if you're watching from asia. let's get straight to the bloomberg business flash. or's price sort could help bolster reports after the world's biggest miner report in half year results missed estimates. underlying earnings fell 8%. production outages dented profit but iron ore remains a top profit. despite a bruising fourth quarter, a just ec does it still says it still aims to keep financial targets. the cfo saying the bank is more concerned about the market in china. >> we are certainly able to grow our u.k. business. theink we are cautious on outlook of credit given the lack of certainty on the direction of
the u.k. economy. saysna: huawei's founder there is no way the u.k. can crush us -- u.s. can crush us. says it may allocate investments as britain looks set to resist the trump administration's warning and technology-- huawei to be used by telecom operators. francine: today, london's fashion week wraps up after six days of featuring the newest collections. u.k. retailers are preparing for a nasty shock from the eu divorce as a potential no deal brexit actually raises concern. we are pleased to welcome the chair of the british fashion council. thank you so much. you have had a crazy four days. how is fashion and the retail of
fashion, how has it changed over the last few years? stephanie: the pace has changed in so much of it is due to digital disruption. the awareness around fashion as a business has increased around the consumer, but also with government.government realizes that fashion is a big business that contributes $32 billion to the u.k. economy. peopleloys up to 900,000 which is in line with the financial industry. it really is a business to be taken seriously. what you see on the catwalks is just a creative expression of it, but underneath, there is a huge operation. francine: is it easier to be an emerging designer now than 10 years ago or is it more difficult? how tough is it? stephanie: it's always tough and always has been. in a way, social media has helped give designers a voice record to their consumers. we are encouraging that because
it directs them to their consumers. the investment ecosystem is not necessarily there are two fund the designer to scale, but in thought of what we're trying to boost. francine: does the industry worry about brexit? stephanie: it worries a lot about brexit. it has seen a phenomenally creative fashion week and has been full of talent, but looming under that is brexit. the industry overwhelmingly voted for remain when we pulled pre-and post-referendum in 2016. of our designers voted to remain because the fashion industry is extremely complex. is about free movement of people. you design a product in many faction in a broad and bring it back to put the components together and then exploit it again.
ip is very specific to the fashion industry. all of these aspects are at stake with the prospect of a no deal situation. francine: is the government giving you any assurances of how they would deal with this? i don't know whether you are seeing it in the numbers. if you're at wholesale, why would you buy from a british designer now when you don't know where the level of pound is in six months or the level of tariffs? stephanie: the british some -- fashion council has been working with government since 2016 looking at these aspects. i don't think any industry has been given any assurances on what the outcome could be. if you think about what it takes to manufacture goods, it is estimated ukfp is that there are 70% of europe roles. it is an industry that relies on
a relatively long lead time. back to your question about whether someone would buy, the creativity and power of british fashion abroad is still an extremely visible industry and one that really flies the flag for brand britain. how long cannot support a negative economic headwind? francine: do people care about sustainability? consumers actually care. another have been loads of incentives from designers. but does it make a difference to the end consumer? stephanie: i think it has changed. it has really been gaining momentum. the british fashion council inlly pushed the envelope 2006 and found a positive fashion in 2013. in the last year or so, we have seen a real switch from the consumer asking for more of this. sustainable fabrics and many fracturing or the secular
more about thinking how customers can be mindful consumers, the british fashion council hosted a partnership to really push that agenda india customers to think more mindfully when they shop. francine: thank you so much. hits back atdura trump after the u.s. president asked the venezuelan military to leader.r support of the we will discuss the future of the south american country next. this is bloomberg. ♪
francine: the venezuelan president hit back at president trump telling the nation's monetary to reject trump's orders saying the u.s. president leaves he has the power to issue commands. earlier in the week, he had called on the venezuelan military to drop support of maduro. his this noise or this feels like something more significant. justin: i think partly noise.
we have to remember that trump was speaking in miami with a very sizable black community, probably had half and i on the upcoming election next year. the same time, this is characteristic retaliation by maduro saying stop interfering in my country. my military is my military. the take away here is that both men are quite clearly revealing that the military is the key piece on this chessboard, in this puzzle. that is why as long as the military remains with mindoro, uro, he can it -- madru keep them enjoying all the favors they do under his regime, and nothing much is going to change. that is why we probably continue to be in this phony pattern in venezuela at the moment. francine: thank you so much for the update. justin heads our emerging markets.
we continue in the next hour. tom keene joins me out of new york. we will talk about some of the politicking in the u.s. he also has a new book out which we will discuss on india. emerging markets and focus. i'm looking at dollar rising. stocks are struggling to find direction amid this trade news. 20 look at some of the things we're also watching out for, its central bank easing helped lift topics. this is bloomberg. ♪
frustration over brexit talks as the u.k. tries to renegotiate the irish backstop. .hp silver lining production hsbc takes a hit the chief executive. rounds of his first year with worse than expected results, telling bloomberg is more concerned about the u.k. then china. >> i think we are just cautious on the outlook for credit given the lack of certainty on the direction of the u.k. economy. francine: good morning, everyone. good afternoon if you are watching from asia. this is "blooomberg surveillance." tom keene back from his european holiday. stocks really struggled to find direction. of the markets are trying to figure out what happens with trade. not much is happening which is why we're seeing a bit of a mixed bag in europe. tom: huge moves in the european 10 year yield.
yields, thatn-year is the one thing i am watching. the german ten-year yield is saying something this february. francine: you remember we talked he was saying that very thing about seven months ago. i'm also looking at the german figure for the month of february. investor expectation a little bit better than it active. -- expected. let's get straight; to the bloomberg first word news in new york city. time is running out for british prime minister theresa may to get parliament support her brexit plan. negotiators from the u.k. and european union are working on new legal text for the most contentious part of the deal, the backstop plan for a board -- avoiding a hard order for the you can ireland. hasadvisors believe she
until february 27 to get a better deal before lawmakers to take control of the process. president trump calling on venezuela's military to drop support for maduro. he warned that the u.s. knows where they stashed billions of dollars they say they have stolen. the speech was a broad attack on osha listen and maybe a preview of the 2020 presidential campaign. today, trade talks between the u.s. and china resume, this time washington. president trump describing last week's negotiations in beijing as very productive. bloomberg has learned there are still key differences between the two sides. the u.s. is threatening to boost tariffs on chinese goods if there is no deal by march 1. president trump has said he is open to pushing back the deadline. viviana has the francine lacqua disease. she is going to have a lovely
beverage from the east river and clear her throat. this is going around. you gave it to her and she is going to give it to me. francine: i sent it on the plane, british airways. tom: that is not funny. when in doubt, when it on british air. just kidding with the good people that fly us around every day. futures flat. current is flat. 15.14. euro, i'm watching carefully to see if it breaks. oil not part of the story. big equities. look at the dow on the friday close. that is a take move. we were off yesterday as francine slaved away in london. 30 year bonds talks, all about that global rate target. key can take this out to four digits on the german ten-year,
rather three digits. that should be read on the screen a lower yield on the germany 10 year. francine: of looking at a very similar data point. i'm looking at european stocks slipping and choppy trading. if you look at what we saw in asia, definitely mixed session. investors trying to expect or waiting for a fresh guidelines on the outlook or global trade. dollar nudging higher. treasuries three much study. theresa may is trying to renegotiate the backstop was not much help. the pound at 1.2918. day, i would say. this is with france going out with an offering after everybody wants paper which means lower yields, higher note rice. -- price.
this is the collapse of the german ten-year yield getting down near negative. the duration of negative yields in germany have extended out past nine years. here is the two-year yield which has just been negative. great, now i've got it. francine, please famous. -- save us. francine: i will still blame an airline. and looking at the emergency markets trade. nfci -- msci, the it is up. the bloomberg barclays e.m. u.s. dollar of internal -- aggregate is up. tom: we say good morning to all of you worldwide. us.t now, nicola is with
we are thrilled to bring you this morning for the entire hour, in celebration of his new , rashear. he has simply change the dialogue and how i look at the world. will cover his new book later in the hour. with is the signal to pimco? nicola: what we are seeing in europe is a significant slowdown. i think much steeper than most were expecting. we have been surprised by the slow down and i think we have to recognize that there is factors in europe disturbing the data like droughts in germany and protest in france. i think there is a deeper underlying slow down which has
led to global trade being weaker. in this environment with inflation still very low, i think we have to expect the ecb to remain very patient. with think in march, they will push the forward guidance out. the rate hikes will be pushed out. it's not even clear the icy -- ecb will hike at all. in this environment, bunds at 10% -- 10 basis points look pretty reasonable. francine: how distorted is the bond market right now and when this that distortion end? nicola: i don't think there a massive distortions. the cd will be on hold for a long time. the term premium on the long end of the current is quite compressed. the country is running a budget surplus. i don't see it as particularly distorted. with evaluations are fairly
decent at this level. francine: where do you see value in europe, is anywhere? nicola: we don't see a huge amount of value in risk assets. assets, wees to risk are quite careful because of the micro outlook and political risk. the situation in italy remains fairly risky. modest in our portfolios. generally speaking, we do see values in financials. therenk in some countries is value in some financial bonds, but generally speaking, we are cautious. tom: we're going to separate you and your morgan stanley services from your wonderful book. let me talk about your morgan stanley life right now. we are seeing is sexier of disinflation and global slowdown
-- do you think the u.s. can be different in coming quarters? >> i think one of the big themes of the coming year is going to be one of big america. one of the themes we are outlying is the fact that the performance of the american stock market today is close to him 100 year high, which is relative to the rest of the world. market.ust the stock is practically all assets. you take all of the u.s. assets together and this is about as expensive as they have been and the relative performance is as stressed as it has ever been in practically the entire history of investing. i think at some point in time, this is going to's not back.
for me, that is going to be the big trade for the coming few years. china in overall, due japanese investors like treasuries? ruchir: i'm talking about changing the margin. one of the big themes we have worked with is the fact that every decade, there is something which captures the imagination of the investing world. last decade, it was all about bricks and commodities. the decade before that, it was about nasdaq and technology. in terms of the fact that this decade has been all about america. this has been america's decade. this has all been about american stock -- outperformance. the stock market and the rest of the world has done nothing. it is a role reversal from what we saw last decade. an investor here as
is the fact that the next decade is going to be about a role reversal in the way that we have always seen. whenever you get one big trend, it tends to snap back in the subsequent decade without exception. we will talk about the relationship between the u.s. and china next. nicola and ruchir staying with us. coming up in the next hour, jpmorgan asset management strategist. that is at 6:00 a.m. in new york. this is bloomberg. ♪
the biggest blow yet to a struggling british auto industry. honda confirming it plans to close its factory in swindon, about 80 miles west of london. this plant is the nation's fourth largest auto factory. it will close in 2021. honda says it is making the move as it speeds up commitment to electrify cars. the chinese telecom equipment maker huawei says there is no way the u.s. can crush the company. the founder telling the bbc the world cannot leave us because we are more advanced. the trump administration has been pushing other countries to avoid using their equipment in certain cases. the white house alleging they care could be used to share intelligence with aging. istokyo, carlos gohn probably not seeking a plea deal. the former chairman of nissan overhauled his team of lawyers last week.he could get up to 10 years in prison if convicted of financial
misconduct. his new team is led by a lawyer known for his aggressive legal tactic. that is the bloomberg business flash. francine: thank you so much. still with us is ruchir nd nicola. you said something that was time ofis that the america for the last 10 years where they have over -- outperformed. who will take the place? chir: i feel there is a case being built for emerging markets in general. if you look at it in terms of relative underperformance, it is what i call the anti-bubbles. there are segments out there where the tech sector, for example which has looked bubbly for the last couple of years. and have the bulls have been neglected over the past decade or so.
maybe not china, but some of the other emerging market are cleaning up the balance sheet from indonesia to brazil. i think these countries could you relatively well over the coming decade. so far, it has also been a gift from the fed helping these emerging-market. ruchir: i'm not sure how much it has helped because emerging markets have romantically underperformed. it has not had an endearing impact. benefit. things i think emerging markets need a weaker dollar, so they can do with an easier said that -- fed, but we will be getting that in the next couple of years anyway. also the fact that the dollar is at the top industries historic trading range.
i still see in the next two or three years, the dollar will be weaker, and that is something which should help this asset class. tom: there is an uproar over eu trade. really front and center are german auto tariffs. how much does euro play into that? their just mentioned dollar. nicola: i would say that when it comes to auto tariffs, there is certainly a risk to the outlook. i would caution that it is hard to have a clear prediction at this point. i think trump is realizing the trade war is also impacting micro markets. usually take cautious approach is going forward. when it comes to euro valuation, i wouldn't necessarily attribute it to trade tariffs outlook. i think the relatively low
valuation is due to political risk in europe and the relative growth under performance have witnessed against the u.s. in the last couple of years. tom: you wonder where it would be on a street german market valuation. ourill come back with esteemed guests here. don't forget, much more coming up this morning on bloomberg. francine lacqua in london. on tom keene in new york. worldwide, this is bloomberg. ♪
>> we are certainly able to grow of u.k. business. i think we are just cautious on the outlook for credit given the direction of the u.k. economy. particularly in the greater bay area of china, we are seeing continuing to good economic growth. we are going to be cautious on buybacks in the very near term until we have a better sense of direction of travel in the u.k. and a better sense of direction in terms of china-u.s. discussions. the hsbc that was chief financial officer. let's get on to these earnings that missed estimates, but also
visibility is quite low. joining us is jonathan tyce. did people at hsbc, wearing more about missed estimates or do they just worried because there was very little that was positive about the future? jonathan: i think it is the outlook.i think the biggest problem is you look at consensus youu look at loan growth, look at the margin and that means that revenues need to come back a little bit. within the, hsbc has given themselves this target. it's a shame they made it public acause they need to make this $2 million investment that revenues are falling away. francine: the chief executive has been in charge for over a year. what can he do to make things better? jonathan: i think the first thing they have to do is make it less clear.
the market needs to understand what discretionary element they have to fund growth. you can find growth and it doesn't turn out entirely possible. the obvious thing they need to do is be a little bit more clear about where exactly they want to grow. is it retail? he talked about the u.k.. they're trying to grow mortgages here, so why is he sending the credit along? i look at my numbers and think i don't understand that. i want to revisit your wonderful interview with us after we spoke to the cfo of commerz. i want to show you the pro-screen. this is switzerland. this is everything to do with their short rate market. over here is the john tyce column. 10 year yield, negative. 15 year yield is almost negative. this is the reality in the
commerzbank. the ceo said we cannot make money with negative rates. is hsbc going to be all of europe in the next quarter? jonathan: hsbc was a hong kong u.s. rate story. competition steps up. rates for them, they were supposed to be the most immune. if they are struggling with all of the excess liquidity they have got, you can imagine why europe is in such a mess. john, if europe is in such a mess, what is the prognosis? what institution gets europe going towards clearing markets? the prognosis have to be at some point the regulators continue to backpedal and make it a little bit softer. you need changes to liquidity and capital. in revenues, going nowhere.
you have to much tossed in the system. lows.at multi-year germany.shipping in there are plenty of places we can start worrying about. francine: thank you so much for the debrief on banks. howod's hands that is brexit is warned as the prospect of a delay is raised once again. the divorce deadline looms. we talk brexit next. this is bloomberg. ♪ i'm a veteran
the road. right now our democracy says you must listen to our first word news. viviana: no sign transatlantic tensions are easing. it will retaliate if the u.s. follows through on a threat to impose tariffs on imported vehicles. president trump receiving a commerce department report on the national security implications posed by auto imports will stop those recommendations this morning are not known. china reveals a long-awaited plan to build a high-tech metropolis that would rival silicon valley. it is a blueprint for another greater bay area, not the one in san francisco but in china. it would link china's southern coastal cities with hong kong and macau. one question is whether hong kong would be allowed to maintain separate legal systems from communist china. california and more than a dozen which have filed suit says president trump's intention to divert funds from the federal budget to build a border wall is unconstitutional. the states claim the president
is using what they call the pretext of a manufactured crisis to get money. we want to draw your attention to this picture, one of the best-known pictures from world war ii. that is a shot of a sailor tipping a young woman in a nurses uniform -- kissing a young woman in anderson's uniform. japan has just announced it was surrendering. the sailor in the picture died over the weekend in rhode island. a member of the greatest generation. he was 95 years old. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more 120 countries. this is bloomberg. thank you. brexit negotiators are working on a new legal tax for the most controversial part of the deal, the irish backstop. time is running out for theresa may to get our limit buying her deal. there are rumors of more defections after seven mps split
from the opposition labor party. now, to guests. tim wrote a great book in the last election of the conservative party. when you look at the various factions come how do you read the fact we had seven quite prominent labor mps deciding to quit? does it change? is it a 1981 moment? >> it is a bit too early to tell how the impact of that will play out. although there were only seven of them, that number could grow in the speculation is more labor mps will step out and protested join this new grouping. strong and warning that was a possibility. as well as potentially some members of theresa may's conservative already. we know there are a number of pro-european union members of the tory governing party who are
not happy with the direction of travel and are set to be weighing their own decisions. francine: where are we in the negotiations with the eu? is anything that gets the cap parliament and hind it? >> the difficulty for theresa may is she is running out of time. week, februarye 27, parliament will have another series of votes at which the house of commons could take control of the process out of theresa may's hands. she has about a week to get a decent deal together. and likeness on the balance enlighten ust -- on the balance between brexit and income is so much as him. give us the global perspective on how anti-semitic someplace into these labor decisions. those two things really have led to the decision of the seven and gets to jump ship
out of the party. they cannot reconcile themselves to what they see the labor party has become. they think it is racist and anti-semitic and persona wrong policy on brexit. it is all of those things wrapped in together. and i think in this sense, the one person they blame most of all for the decision is the leader himself, jeremy corbyn. tom: how much farther does this have to go? these are very sensitive issues in the united states and other countries as well. is it labor-specific? is it across labour and tory? is it just jeremy corbyn or does it go beyond that? splits overhe brexit have cracked open the political structures that have defined u.k. politics for decades. no one is quite clear how that is going to play out. in terms of the rate of a testament to his him, that has been an argument to the labor
party, much more than the conservative party, in recent times. we will see how it pans out. francine: how does it play out on the market? >> the breakup of the party is just a sign of the lack of the u.k. political structures about brexit. the way we think it will play out is either we go toward some kind of revised deal, but more likely i think we are not going to have a decision by the deadline, which is march 29. i think the point we would make is a no deal hard brexit remains very likely, in our view. francine: does it make you nervous the market is positioned toward a no deal brexit? i know we have mechanisms, but something could always go wrong. butomething could go wrong, it is quite easy to extend and revoke. it does not take much to do so. we think avoiding that should be
relatively -- it could happen last-minute. francine: even if there was a no , it would not be systemic -- or what it? >> i think the world has basically moved on. in fact, somebody asked latest question -- asked me this question, how does brexit matter? thatrt of take away was britain may not be the most important country in the world, but certainly the most self-reported. the rest of the world i think has moved on. it is not really caring about this issue much more. the thing with a systematic risk was there for a few weeks back now it/july of 2016, but is such a local issue that you just cannot get a conversation going for this outside of the u.k.
tomko jim ross, what is the calendar right now -- tom: jim ross, what is the calendar right now? francine: the 27th. tom: to kick the can down the road. give me my travel plans. happening next week. we want to see you next week. the 27th is the next big showdown in parliament. there is a real sense now some of those ministers in theresa may's government will not let a -- not let it go beyond the 27th. she will have to convince parliament at that point she has enough on the table to keep her own government together. tom: i look at this and i guess it goes within the global backdrop am a tim ross, let me ask you a question. for you, what is the symbolism of honda, nissan, dyson back and cleaners to singapore?
-- vacuum cleaners to singapore? is this what we will see, this chain of events? >> it is clearly the timing is pretty terrible for the u.k. government right now. politically, it sends out a signal the u.k. wants to remain open for business and claiming to look for to a future outside the eu, where it can strike trade bills throughout the world. -- trade deals throughout the world. the wrong message. also, you have to bear in mind that some of these decisions are not linked to brexit and are not because of the brexit outcome. it is important to not overstate that as a factor. francine: i'm going to push back a little bit from what ruchir said. chief executives wanting to know about brexit because they can't figure it out. they look at it like a fault line. how should we be looking at the eurozone or european companies if we do see a no deal brexit? what does that do to german
bonds? >> i would agree with my colleagues assessment, it is mostly a u.k. phenomenon. the impact of a hard brexit would be significant. in the near term, it could plunge the economy into a mild recession. when it comes to europe, it would be a headwind. it would be something that knocks something often already growth.weak the share is about 12%. exports going to europe are more than 40%. it is a very different -- a very a semester -- a very asymmetric outlook. tom: i look forward to seeing you on the 27th. here's what we're going to do. we're going to continue to talk to ruchir sharma about his new book "democracy on the road." coming up, how he changed the
tom: "bloomberg surveillance." francine lacqua in london, i am in new york. if you are lucky, you publish a book which changes the dialogue. ruchir sharma hopes his book "democracy on the road" will change the dialogue. we will discuss that in a moment. we know you won an update on what sharma thinks about the commodity super cycle. his book if you years ago had a thederous impact across
area. if you wrote that book today, how would it be different? >> very different. nations", "breakout came out in early 2012. the basic p6 -- pieces were the bricks were overhyped. may be the true emerging market, given what was happening in america from technology to shale. i think we have almost come full circle, which is i think the emerging markets have been badly beaten down. top of, as i said at the the show, as were a lot of the hype and the confidence is. if i were to write 2.0 "breakout nation," i would be looking at a major role reversal from what i stated at the start of the decade. market cycles, which is that every decade you -- 1980's,ally big 1970's about commodities. by the time the decade ends, it
flips and it dramatically underperforms. what was said at the beginning of the decade should be different from what you said at the end of a decade. tom: what do you say of the decade ending for venezuela? ruchir sharma, i'm venezuela, canoe be a commodity optimist on venezuela? >> it is very hard. in terms of the fact that, like insignificant from investment perspective, it does not matter that much but i think the whole issue here being that despite the price of oil i think has been relatively well behaved, the supply that has come out of the market due to the destruction in venezuela -- i think it just tells you about the fact even how those dynamics ago shifted that a decade if we had gotten the news about what happened in venezuela, the amount of oil supply disrupted,
you would've had much larger price spikes from what we're seeing today. this is how much the energy equations have changed with the rise of the u.s. as the energy superpower. fran cinco if you look at -- francine: what makes the difference of winning and losing market? is it structural reform or demographics? very subtly, the demographics is necessary but the single most differentiating factor emerging markets over time has been which emerging our cats are good at manufacturing -- which emerging markets are good at manufacturing. i think emerging markets which importers commodity and focus more on building a manufacturing base have done well. even though that has become more , the few emerging
markets which have kept their focus on manufacturing, particularly in southeast asia from places like vietnam or even cambodia, those are the new tiger economies emerging. the big difference has to do with manufacturing. other factors like structural reforms, broad sounding term, but those emerging markets were able -- which were able to give people more economic freedom over time typically do better. it is a host of factors, but demographics and manufacturing would be the main reasons. francine: if we have a chinese 6%, is thisis below not symptomatic of a huge economy that is shifting and changing almost in what the west wants it to be, or would you be worried about that? >> it depends. so far what is happening with china, which the world has learned to live with because economic growth in china and because the entire -- we have not seen a big disruption in terms of the massive debt
buildup in china. i think as long as the glide have continues, growth in china is bound to slow down even further from here. that is a most inevitable. the issue is, what is the glide path? if we're doing it in a gradual way, the global economy could handle that. if he gets a big debt disruption, that is when the world panics. francine: ruchir sharma stays with us. coming up, national elections. our guest ruchir sharma has just public and then -- published in intermittent view. a discussion about his book "the marquis it on the road." democracy is retreating him and parts of the world, but thriving in india. this is "bloomberg." ♪
largest maker of yogurt. filed for bankruptcy protection. the company plans to close its 2500 north american stores by the end of may. payless joining a number of other u.s. retailers that are not surviving changing consumer habits. this includes a shift to online shopping. in malaysia, prosecutors are trying to get the corruption trial of former prime minister back on track. his trial overcharges linked to the scandal has been postponed. malaysia's foreign minister telling bloomberg he is pleased with international cooperation in this case. that far i can only see known the countries that or is said to be involved have an cooperating. viviana: that is the bloomberg business flash. tom: thank you. finally, there is the one volume on india you need to read.
as we all try to understand india, ruchir sharma has done a public service by writing a wonderful one volume book of his childhood in india's future, a fabulous exercise "democracy on the road." you begin in the middle of nowhere. tell us about your childhood. the fancy pants child of a naval officer, naval attache, whatever, and you go see your grandmother -- grandfather in the middle of india nowhere. what was that like? >> this is a personal memoir. capture with it, what was childhood like back in india growing up in the 1970's and 1980's. mentioned, 160 metal or -- 160 kilometers from delhi.
we would go beyond town and we had no choice. it is not as if our parents asked us, would you want to go on summer vacation? you were taken to your grandparents. place,go out to this there was hardly any electricity. you did not have running water all of the time. you had the sort of discrimination that you would think up in america a century system isthe caste very deep. that is what we got to see as kids. modi fighting for his political life and i want you to do that across the arc of the book in your wonderful quote "let me first do my colgate." it is about in india we don't know. tell us about the india right now that mr. modi confront. >> talking about regional leader
from the largest state of india. that is what he confronts. here in the international media, we like to think of india in a single narrative, which is modi was the opposition. but the real challenge to modi is coming from a host of regional leaders. that is what i try to capture in this book. this is a country of many sort of states. it is one of the european union that is like a homogeneous entity and each state has its own narrative. to be modi versus a bunch of regional leaders. india, some national identities are much stronger than and national identity. each state believes in their own language, in their own culture. that is something i don't think we appreciate as we try to look at india as a model entity. francine: it is a complex
society. on? will the election focus is it economics, terrorism, is it something else? >> a bunch of factors. to win an election in india is a massive secret into one of help to win an election in india. one thing i mentioned in the book, there's a curious term popularized in india. it suggests most leaders tend to lose their election. this is very different even from the u.s. or the u.k. where most politicians tend to get reelected when they try for it. in india, two thirds of governments have lost their election ever since india become a multiparty democracy. that tells you there is a deep frustration amongst the people about what their leaders in-depth delivering. because the state is so broken. that is the challenge that modi faces, how to buck the trend. how to deal with these regional leaders.
how to deal with the fact that when you go to the south of india -- and that is something we don't cover enough -- the language he speaks is not understood or even just tested by many parts of india. i capture that if you go to places like in the south of india and you speak to them in hindi, is likely to the french countryside in speaking to the french and english. it is considered to be offensive. tom: ruchir sharma, "democracy on the road" i cannot say enough about it. we continue with david kelly of jpmorgan. stay with us. ♪
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exit due to brexit gekko it is the first honda closing in decades. this morning, emergency, emergency, everyone, there is a national emergency. various state attorney general's sake, stay call. -- stay calm. good morning, this is "bloomberg surveillance." francine lacqua in london. francine, i am fascinated by the fracturing of the british labour party. do they want to go back to tony blair? francine: these are seven mps that took issue with the way brexit was being talked about in labour party with the way that anti-semitic comments were dealt with by jeremy corbyn. yesterday when it happened, they talked about what happened in
1981 with a gang of four. insiders you speak to, they say you will have to wait a couple of months to see if this fractures the labour party. it will probably lead to more afections if it does have rupture, and many will see if it impacts policies, including brexit. tom: fascinating. right now our big issues to get a briefing. time is running out for british prime minister theresa may to get parliament to support her brexit plan. negotiators from the u.k. and european union are working on a new legal text for the most contentious part of the deal, the backstop plan for avoiding a hard border between the u.k. and ireland. heard visors believe she has until february 27 to get a better deal before lawmakers take a vote to take control of the process. president trump calling on venezuela military to drop his support for nicolas maduro, warning that country's top
officers the u.s. knows where they have stashed billions of dollars he says they have stolen. it was a broad attack on socialism and may be preview of the 2020 presidential campaign. republicans are describing various proposals on health care and climate change as socialists. trade talks between the u.s. and china resumed today, this time in washington. president trump describing last week's negotiations in beijing as very productive. bloomberg has learned there are key differences between the two sides. the u.s. is threatening to boost tariffs on chinese goods. president trump has said he is open to pushing back the deadline. investors itng will still meet financial targets despite a tough fourth quarter. the bank's profit and revenue coming up short in the final three months of the year. the ceo promising revenue will grow faster. he says the bank will not have to make major job cuts. global news 24 hours a day, on
air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more 120 countries. this is bloomberg. tom: thank you so much. a big friday. futures come back negative six. i am watching video carefully. next screen, please. the vix not where it should be. look at the dow. i noticed the german 10 year yield has my full attention, a lower yield this morning. francine: i am looking at stocks. they are a little bit lower than where they were hours ago. i'm looking at european stocks. they are kind of worried they're not getting an update on trade. dollar nudging higher. treasury, study. i'm looking at some of the
italian bonds. they are falling while most european notes climb. and pound. we're seeing a little game of chicken. rumors about renegotiating some of the text to deal with the irish backstop. nothing concrete yet. tom: i mentioned in the opening, kreiner -- curled minor. reiner. kevin cirilli joins us right now. kevin, i know it has remained calm. the attorneys general are acting on cue. when does this get to the supreme court? kevin: i would argue it is going to move probably over the next couple of months. frankly, politically speaking, democrats are hoping it gets to the supreme court and republicans are hoping against to the supreme court because it
mobilizes both of their bases. of the policy of this providing volatility for several months to come simply because you have the president headed over to vietnam, -- to southeast asia. you have the chinese this week negotiating with the u.s. in terms of the u.s.-china trade relations. do not forget about the debt limit. tom: can this get fixed? you go through it on a tuesday or a wednesday, they get a ruling, they get another and another and then at the supreme court where we can find out if this is for real sooner than later? kevin: what everyone is missing, behind-the-scenes, the administration is working with outside groups on comprehensive immigration reform. they are fully preparing to have a comprehensive immigration reform and policy argument over the next couple of months while
this is making its way through the courts. so as i reported earlier when they were performed -- pursuing officiallythey're trying to do another in the sense they are not abandoning me immigration reform and overhauling the immigration system at all. francine: how does this all play out in the popularity of the president? >> for his base, this presents him an opportunity to make his case that he is trying to build the wall as he campaigned originally to do. but while also pursuing an avenue of comprehensive immigration reform, it also is an effort to win over moderates. the question becomes whether or ,ot in this political climate francine, whether or not citrus in either party -- centrists neither party will pass at all. kevin, thank you so much. joining us now, david kelly of
jpmorgan, asset management. dr. kelly, a long-term perspective on linking our politics into our economics and possibly telling us the kitchen table -- at the kitchen table what to do with our money. there is a political angle as well. if you overlay u.s. gdp slowed out of some form, what does that do to the markets? david: i think it will build bit rough -- it will be a bit rough. the economy is slowing down. third --growth for the i'm sorry, fourth quarter, but only 1% growth for the first. you come down averaging below 2%. things should pick up in the second a little bit. the problem is, the caffeine rush from the tax cuts is gone. the uncertainty by these trade negotiations are dampening global growth all over the world. i know it is hurting the rest of the world more than the u.s.,
but it is also hurting the united states, too. david, what if it all goes wrong? talk to me about worst-case scenario and best case scenario for the u.s. david co first of all, the fed has good reason to pause anyway because i don't think we will see significant increase in inflation this year. it will be until january 2020 before the consumption comes back up to 2% year over year. if that is the case, then the fed can take its time. worst-case scenario, just continued conflict for imposition of tariffs on china or a bigger fistfight or maybe a fistfight the second front on trade. all of that slows down the global economy and impacts the u.s. economy. those are the worst parts of this. there's political recognition that we need to come to a deal on trade to allow the u.s. economy to grow.
if you do see a deal on trade, which recent -- i think the rest of the world will bounce back and will help the u.s. stock market also. francine: how can we be so sure if there's a deal it is a deal that holds? at this point, what can the china give the u.s. that will make a material difference apart from a truce? >> the material difference in the long run is something that reduces the u.s. trade deficit. the problem is, in order to do that, you need to reduce the u.s. budget deficit, which is $900 billion. we are not doing anything to do that. our trade deficits will be higher with malaysia or vietnam or mexico. we are not going to fix things isthat way, but i think this really more about perception than reality. the reality is china is looking towards its own technological future.
it will make it on its own. i think anyway we cut it, china's when a leapfrog ahead in terms of tech knowledge he. that is a real challenge to the u.s. whatever don't come up with. headlines, no deal brexit and inignificant costs brussels, to meet with the prime minister of the united kingdom. he will do that tomorrow in brussels. coming up with david kelly, conversation with harm bandholz. we will speak on the american economy. this is "bloomberg." ♪
viviana: let's get the bloomberg business flash. twitter is expanding its policy on political ads to include the e.u., india, and australia. it is aimed at making it clear who is paying for the ads. plans for other markets this year. the biggest blow yet to a struggling british auto industry, honda plans to close its factory that 80 miles west of london. the plant is the fourth-largest auto factory and employs about 3500 workers. it will close in 2021. honda says it is speeding up its commitment to electrified cars. the chinese telecom a comment maker huawei says there is no way the u.s. can crash the company. the founder telling the bbc "the world cannot leave us because we
are more advanced." the trump administration is been pushing other countries to avoid using huawei's equipment in certain cases. the white house alleging it can be used to share intelligence with beijing. denying this allegation. that is the bloomberg business flash. tom: thank you. four-day workweek in america. we like that. we have harm bandholz and david kelly with us. , let me cut to the chase. carolinas,s in the are they german jobs or are they an american jobs? >> i do think they are american jobs. you probably have some german but i think most of the folks employed there are americans. i think bmw is the biggest american car exporter that we have. the whole debate about security -- tom: the simplistic debate is
off, right? >> the gdp identity that you cannot change your countries current account balance by pushing one country to change its behavior, it cannot be emphasized enough. people say tariffs are good. trade is very good for economies. we know everybody gets richer, people get more efficient and you end up with bmw jobs in the carolinas and more jobs in europe, too. it is truly a win-win. francine: harm, let us break it down a little bit. maybe we are oversimplifying it. if you look at trades, and the standoff between u.s. and china, who is losing more? >> probably china because they are more trade-dependent. was sendingnt trump out his infamous tweets that
trade wars are good and easy to win, if you define a win by saying we lose less than the others, yes, then the u.s. will almost certainly when the full thing. i don't think that is how most americans who support that part of or part of americans that support the trade war see it. they think they're doing better in absolute terms. that is a must impossible to achieve. tom: does jpmorgan assume the trade war? i get it is part of our heritage. it goes back to san francisco and some really serious issues in our history. do we have the same thing? >> no, we don't. whon't know any economists think trade wars are good. they are bad. it is a matter -- a race to the bottom. right now there is a political , china represents 60% of our trade deficit so you can see
why china is the bad guy in this. but longer term, when you think about not just be a administration but also congress and elections and less than two years, we don't really think we are going to in less trade war. tom: francine, i think this is so important, this dialogue. china, as david kelly mentions, the mass involved in china versus europe. i 100% agree, but there's something the u.s. stands with the eu on when it comes to china, and this is ip theft, or intellectual property. if you are to have a trade war that would give us guarantees that the chinese change some of the things that allegedly they have been doing, would that not be worth it? it is not always about a race to the bottom, or is it? >> there are other ways of pressuring china. this is something we should've done many years ago. it is not so much their
technological advance. there's nothing wrong with china becoming more technologically advanced. areust need to make sure we advancing, too. i think our immigration are part of that. -- immigration policies are part of that. it won't make us more wealthy in america. but also recognizing china is getting more advanced on their own. at this stage, they don't need american technology as much as they used to. i am kind of worried with the expense of american technology and the chief of china, they may be seeing themselves as the new walmart. close to her at the margin germany and other eu industrial companies don't invest for jobs in america, harm? i think particularly european countries, they have been
spreading around quite nicely. that depends -- i mean, there are big investments in china and in eastern europe. there are investments in the u.s. but again, most of the time it is not a question of an administration pressuring you into doing investments you're there, it is a decision about being locally, about value chains and all this. it is a decision really made on the corporate level. politics can change a bit the environment, and i think what you need are two things. one, you need certainty with regard to trade rules. that is terribly important. and secondly, you want to make sure the u.s. dollar does not get too high. one thing the administration talked about early on and backed away from is the idea maybe the dollar was too high in would be ok if it came down a bit. i would like more discussion about that. francine: that is coming up.
dollar dynamics. david kelly and harm bandholz both stay with us. in the meantime, we're hearing from the eu site on brexit. you 27 will not accept the time limit on the backstop and will not reopen the withdrawal agreement. may, thes theresa prime minister of the u.k., is trying to get a backstop breakthrough. the deadline looms march 29. this is "bloomberg." ♪
tom: "bloomberg surveillance." francine lacqua in london, i'm tom keene in new york. the euro moving off the e.u. headlines which are pretty much the can down the road. they said they are not going to budge. down we go. here's the number of days of charts. down we go from the 113 recovery to a weaker level this morning. francine: we just have breaking news, which is not on the economy but of interest to our viewers. , women's wearww daily, the chanel designer an icon in the fashion world carl lagerfeld has died at age 85. that is news that will take a lot of the passion people and the business of fashion by surprise. tom: it is a huge sea change for
fashion. this digresses from what we have been talking about on trade, but carl lagerfeld was worldwide, to say the least. what i was a just this is a gentleman who persisted -- i would say is this is a german who persisted. there was never a single moment where he retired. i've a recollection of carl lagerfeld in the hm store below our world headquarters here, and it was chaos. i think the stuff state on the hangers for the affinity of somewhere of 10 minutes. francine: he was in fashion for about 50 years. fendi and being with his own brand. tom, it probably will change the fashion world. it certainly will change chanel. what is surprising is he is not the only one that has a lot of fashion houses and continues into a late age. he was german and one of the germanmous and -- famous
mines. tom: car longer field, dead at 85. we will have much more. , dead at 85.feld we will have much more. we're going to continue. much more to talk about, the drive for the conversation. i want to get to a discussion on the major surprise out the first two months of the year, and that is the resiliency of the dollar. looking,ch every house walking through a weaker dollar. david kelly with us with jpmorgan and harm bandholz with unicredit. we will look at dollar dynamics as well. it is a lovely full moon over new york city.
cvs will have an important interview -- cbs will have important interview this one. mr.king now, the idea that sanders will run for president. to give you an idea, senator harris of california has now parsing that she is "not a democratic-socialist." mr. sanders going after some of the socialism out there within on the road to 2020. we will have further headlines of mr. congress -- mr. sanders conversation with our global audience as they break. right now, first word news. tradea: transatlantic tensions are easing this morning. the european union is warning it will retaliate if the u.s. follows through on a threat to impose tariffs on imported vehicles. president trump has received a report on the national security implications posed by auto
imports, but it is not known what it recommends. china has come out with a long-awaited plan to build a high-tech megalopolis that would rival silicon valley in the san francisco area. the blueprint for this would link china southern coastal cities with hong kong and macau. one big question is whether hong kong would be allowed to maintain separate legal monetary and political systems from communist china. california and more than a dozen other states are taking aim at president trump's plan to build a border wall. they are filed suit saying his intent to divert funds is unconstitutional. the states claim the president is using what they call the pretext of a manufactured crisis to get the money. students and faculty at massachusetts institute of technology are unhappy about a new computer center name. they want the school to cancel a celebration. the ceo of the blackstone group donating $350 million to m.i.t..
protesters are criticizing him trump andrk with mohammed bin salman. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more 120 countries. this is bloomberg. francine: thank you. let's get to the latest on brexit. not accepting the time limit on the irish backstop. jean-claude juncker is meeting with theresa may tomorrow. he said on monday and brexit richter is "in god's hands." more, we're joined by our guest in brussels. there seems to be a believe in the market that at the 11th hour, the eu will give into something and we'll make it easier for theresa may to go with the new deal, slightly different deal to parliament. what are the chances of that happening? >> the music in brussels sounds
similar. you have jean-claude juncker saying god only knows how this ins, but on the ground things are moving. we have the prime minister in town, the entire u.k. delegation in brussels. isorrow, the men to watch the u.k. attorney general. -- the man to watch is the u.k. attorney general. maybe the deal can get through the u.k. parliament. in the eyes of the eu, this will go down to the wire. this week, the attention is not just on brexit, it is trade. that is a much bigger story in brussels at the minute. maria, where does ireland and the prime minister of ireland stand on the backstop? clearly, he is a hardliner and will say there is no backstop, then no deal. the european parliament has given me a guarantee they will
reject the deal if there is no backstop included. the eu27 strongly behind him. it isks on the idea that much more likely to get a deal that a no deal and therefore he can kind of continue to push the idea. the reality is, there is no public pressure for the time being on the eu side to force him to ditch the backstop. everyone will tell you, at least publicly, if the irish want it, they will get it. maria, thank you. cacophony of news. bernie sanders running for president. karl lagerfeld dying. harm bandholz is with us from unicredit, giving us perspective on german terrorists. and we are fortunate to have dr. david kelly with us. he is with jpmorgan. what a conversation with the hours prime minister. ireland is in the most unique place on this brexit debate.
how do they do anything but not budge? >> first of all, i would hardly describe him as being a hardliner. he is very middle-of-the-road. irish politics, they had an agreement in 1996 which settled the conflict which essentially had gone on for 600 years. it was that you have a border which people can drive across. you could say northern ireland is part of britain. but the fact of for the nationalist community, they could drive back and forth across the border and see themselves as irish. a brilliant solution to an honest impossible problem, and to walk away from that is something no irish politician would deliberately do. i certainly do not believe the irish government will walk away from the backstop. tom: does the irish government have any sense of brussels could vacillate as we moved to february 27? >> i suppose they are a little worried about that but the truth is, the whole problem -- there's
no way for britain to actually maintain free-flowing across the border and also exit the european union at the same time. that is really the problem. it is hard to see what the solution would work. , there seems to be in optimism in the markets that, first, there is always no chance of a no deal brexit. this seems to be a believe, given what euro did after the headlines from the european union, that at some point ireland will be concerned about a no deal brexit and will give something on the backstop. is it erroneous? >> i think ireland is worried about implications for ireland on brexit, but it is not clear that any removal of the backstop or any other arrangement would help ireland anyway. i expect irish politics will say, we might as well just play it tough. europe is going to back as here. britain got us into this mess.
britain did not realize the relationships and what the implications were, and britain will have to get out of this mess. i think that is what ireland's position is going to be. the irish government is also a minority government supported by a party which has got a more nationalist background. they don't want to get outflanked by the nationalist wing in ireland. i think they're going to be pretty reluctant to give on the backstop. francine: david, i just don't see the solution. we are five weeks away from it. how does the u.k., the government, and the parliament deal with this? >> i suppose the best thing to do is to postpone article 50 to allow the british people to think about it again, maybe have a general election at some stage. i do not see a good deal that could become to by the end of march. tom: harm bandholz and david
kelly with us. we are also advantaged to bring you bernie sanders seeking the nomination of the democratic -- redoto review 2016 2016. took 34 contest, sanders to 23. and the voting was roughly 17 million versus 13 million. i was suggest mr. sanders did a lot better in the democratic primary than our memory recollects. bernie sanders in 2020. stay with us. this is "bloomberg." ♪
thank you for joining us worldwide. tons of breaking news. right now single best chart, david kelly with us from jpmorgan and harm bandholz has been more than patient on single best chart. we showed this chart earlier. euro down today, no news out of brussels. they are not going to budge, etc. harm bandholz, this goes to the major call of the year, which has been dollar stability and dollar strength as well. if you had to adjust your dollar -- have you had to adjust your dollar call? >> until recently, we thought we would get two rate hikes, so we doubt it back a bit. one hike leftave in our forecast for this year. anything onon't see the ecb side in terms of tightening, if you want, so we think this euro-dollar could go towards 110 before the middle of the year, but then it begins to weaken because as we talked last
time, we think the u.s. economy will it some point -- tom: everybody else. >> will be the leader. ever watch the appropriate number for germany? have you figured out where the euro would appropriately lead for surplus trade germany? dr. kelly right now. can you give me a more clear answer than the wiseguy from unicredit? obviously, italy would be one place and germany would be another place. they do have a single currency. on the dollar, i agree that at some stage, the u.s. is going to slow down. the u.s. has had unusual stimulus. nobody else did that. that allowed us to move ahead from the pack and allow the federal reserve to be more aggressive in terms of tightening. but that lead is going to be
diminished in 2019 and 2020. and the fed. slows stops raising rates -- and i think they may not raise rates at all this year -- i think the dollar will begin to weaken. it is very hard to make a short-term call, but over the next three years i think the dollar will come down. francine: david, what is the most distorted asset in the markets right now? it doesn't have to be bubble territory. many things in bubble territory. long-term rates are not too far from where they should be. i think there are probably some financial stocks which are too low given the stability in the financial system. whatever happens going ford, it is unlikely to be repeated. -- whatever happens going forward, it is unlikely to be repeated. i do not see things far out
of whack. francine: is there something we are misreading and the economy? are we miss pricing the fed? >> i think the market probably a little bit ahead of itself by pricing things out. i think there is a chance of one hike. overall, i am a bit concerned that because of the business cycle we are in, the fed went all in. we got fiscal stimulus on the low-quality assets, prices are little too low. as long as the music plays model. in december, markets were frozen, basically. of the fed, things are better again, then he saw a reversal in january. rn of the fed, things are better again, then we saw a reversal in january. tom: i'm like, wait a minute,
this matters. >> it does matter. the fed needs to clarify. tom: is there a leap year this year? i can do the math. i think the key thing and the march meeting is the balance sheets. the federal reserve opened a can of worms by talking about it. it is a complicated subject. tom: we do not do it on "surveillance." it is too complicated. >> the fed meant it when it pivoted. i think this is a flexible pragmatic federal reserve, and they've seen the economy slowdown, markets come off their highs. they've also seen inflation come down. with all of those things, i think the fed is on pause. i think they may redirect that in march. >> one thing we must not forget, because of low energy prices, deflation rates have come down.
cpi, it hasat the accelerated quite a bit, even as energy happen this energy has come down. i think there is something boiling below the surface which keeps a small tightening -- think overall -- the other thing is, you will have this overlay of slower growth. up ast might be pushed bit, but if years of growth could knock the wind out of us. important to understand if you are a strategist and economist and have to move while know,eak -- i mean you peter fisher of blackstone was the same way. francine: dancing. tom: your hands move. david kelly with us, jpmorgan. withbandholz doing this
tom: "bloomberg surveillance." francine lacqua and london, surrounded by democratic-socialist in new york, we have marty schenker and harm bandholz of unicredit. everyone now is a democratic-socialist. this editor from california, miss harris, as a democratic-socialist. everyone is a democratic-socialist except bernie sanders. this is the beginning of the campaign, isn't it? >> it is. it is very interesting. he talks about continuing the revolution, which just plays into the gop socialist theme. tom: defined for us the flavor of the left -- define for us the
flavor of the left of mr. sanders versus the left of others who are tagged with this new phrase "democratic socialist." >> bernie sanders have never been afraid of calling himself a ofialist, so he is not only front about it, but has been running for 20 years on that basis. tom: warlock of the other democratic-socialist? >> i would say that is a accurate statement. he makes no apologies for it. francine: what are his advantages? i know one thing last time when he ran was a proven track record of small dollar funding. is it different this time? that is one of his clear advantages. he is not going to take any pac money and showed an unbelievable ability to raise funds from small donors. plus, he has an anime a list of supporters that is the envy of all of the candidates -- an that isst of supporters
the envy of all of the other candidates. he starts out with some advantages. but it is a very crowded field. we will have to see whether others get in the race. francine: could he split the democrats? the democrats are split. it won't be because of bernie sanders. there are the more moderate candidates like amy klobuchar wing thatrnie sanders are already dividing the democrats. tom: or would you go to germany and look at the experience of germany. we could do that with harm bandholz. it was the party of your father and great grandfather and they went mainstream as well. is that the expense of socialism? over given time, given the responsibility you move to the center? >> that is a big advantage of a multiparty system. tom: parliment terry system. >> there's a lot of the talk
about the afd, or the right party and the left party. the centrist party them a they see that part of that works and they took over in a less aggressive way, less extreme way. ite voters away, and then becomes mainstream politics. i think that is how it should be. tom: that is how you think it should be, but here it is not. not a parliamentary system and that is the distinction. >> two-party system. if the republicans turn sharply right in the democrats turned sharply left, that is the government you're going to get. comei think it was reagan on cue, moved from right to center. clinton, left to center. i see no indication of that here "bloomberg surveillance." it is hard to see when you have the electorate as divided as it is in the united states for their a coming together in the middle, which is the real issue of whether moderates can even have a voice in this election
cycle. francine: all right, thank you on the breaking news. marty schenker and harm bandholz of unicredit. there is other breaking news, multiple reports from france that designer karl lagerfeld has died. he was 85, fashion icon, longtime artistic director at chanel. he is said to have been ill for weeks. we will have much more on that story coming up. tom: extraordinary, folks. we have to remember to what he did, particularly with the chanel outfit. the two c's together. design and the design for it. reallye, national suit, defines success across a lot of fashion, doesn't it? francine: it does in certain countries in europe, tom. but if you cast yourself back to karl lagerfeld, how he started, he began as an assistant back in
1955. he joined chanel in 1983. he was prolific in his design, having worked at cindy. he also had a collaboration with h&m, one of the first to do so. we have a great bloomberg story from a couple of weeks ago, the first time in many years he missed the catwalk. that is because of a bad cold. now we think that could have been something else. tom, if we do not have a replacement -- there are a number of creator directors that are being touted, but as we went to press two weeks ago, there was no name that could immediately replace karl lagerfeld. karl lagerfeld, dead at 85. we will continue. let me give you a market briefing. u.s. off yesterday for the brca a president washington and i believe president lincoln for a little in there on president's day as well. the celebration was a huge
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angela merkel delivers a passionate speech. easing off the pedal. central banks in japan to turkey to europe take baby steps toward easing as global growth slows. walmart versus retail sales. how will the numbers match up with the unprecedented slump in december retail sales? david: welcome to "bloomberg daybreak." we have senator bernie sanders saying he is going to run for president after all. we are awaiting walmart earnings, which should be out any moment now. from very scathing words an interview with bernie sanders. really scathing against president trump. david: he said the first reason he's running is the following of the president of the united states -- xenophobic,