overine: frexit fears plans to take france out of the euro. llon says he is into win. b.n.p. paribas this is fourth-quarter earnings and lays out a multiyear cost-cutting plan to save the large bank. penarations for a le victory. >> if something is changing in our environment, we adapt to serve our client. and, not in my house.

the u.k. commons speaker says he will not allow donald trump to visit parliament -- to address parliament. racism andon to sexism, and our support for equality before the law and an independent judiciary, are hugely important in the house of commons. morning, good everyone. this is "bloomberg surveillance." we will have plenty more of your top stories. we will go into politics, foreign policy, and what breaks it means as the bill is being debated. but first, let's check in on your markets. this is the dollar strengthening. gold halting a three-day rally as investors tried to ease off moves toward haven assets. european equities largely on the up. afterp paribas slumped missing estimates. i want to bring you to the bloomberg dollar spot index.

the falling after a three-day rally. i want to show you gold down 0.3%. this of course is a haven. the offshore -- definitely need to look out. china's foreign currency reserves fell below $3 trillion for the first time since 2011. you can see the vix index pretty much flat. we will get plenty more on your markets, but first, here is nejra cehic. the trump administration will return to court today to argue it has broad authority and national security demand reinstatement of a travel ban on seven muslim-majority entries. will appear before an applet panel in san francisco to seek reversal of a lower court ruling that with the executive order on hold. stranded refugees, triggered protests, and handed the new government its first crucial test. the u.k. house of commons speaker says trump must not be

allowed to address parliament during a state visit to britain, after protests and a petition signed by almost 2 million people. voiced opposition to the president stands yesterday in a strongly worded address to mp's. >> as far as this place is concerned, i feel very strongly that our opposition to racism and to sexism, and our support for equality before the law and an independent judiciary, are hugely important considerations in the house of commons. bnp paribas has posted a fourth-quarter profit that missed estimates. net income doubled to 1.40 4 billion euros from a year earlier, but fell short of the 1.633 billion analysts -- billion analysts expected.

the cfo said the bank will take a wait and see approach to donald trump's review of the dodd-frank regulatory framework. >> we will have to see, because -- twoo back to pay 20 may 20, they said any new regulation should have no material impact. so we will have to see how that unfolds. if it remains within that framework -- nejra: china's foreign reserves have edged just below $3 trillion after the u.n. cap -- after the yuan cap it steepest decline in two decades. reserves decreased by $12.3 billion in january. further erosion may prompt tighten measures controlling outflows, and on transferring money to other countries. jersey iss super bowl missing and may be worth half $1 million. after leading new england to an overtime victory in the nfl championships on sunday, grady

reported his number 12 game jersey was nowhere to be found. if it were placed on the market, it could fetch $500,000 according to an auction or in new jersey. day, byws 24 hours a journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: francois fillon has said his bid -- has tried to save his bid for the french presidency with a press conference where he insisted victory was possible. francois: working with my wife and children, i prioritize a trust relationship that today is met with defiance. that was a mistake. i deeply regret it and want to present my apologies to the french people. the latesteanwhile, polling gives marine le pen a five point lead in the first round of voting, ahead of fillon and macron.

apology, has fillon's rescued his candidacy? caroline: many in french media called the apology "operation survival." i want to call it operation transparency. francois fillon spent 45 minutes disclosing every bank account, every real estate he owns with his wife. he says his wife has been working for him for 15 years, and her pay was perfectly justified, regarding the job of his children, he said nothing was to simulated or illegal. we will have to see, and the next 48 hours will be crucial to see if this "operation transparency" is having an impact on francois fillon's rating in full. he has been dropping over the past 10 days. according to the latest poll on

monday, there is a chance he is, 20%.e first round, below that could still change. as you can see, you also have the winner of the socialist primaries coming back in the polls. candidate, left wing hon, is open to an alliance. a lot of surprises ahead could change the opinion polls. francine: there is also news about sarkozy under investigation this morning. caroline: kerley, this is a reminder that the french people take the ethical issue more and more seriously. this is why francois fillon wanted to apologize, because he understood the ethical question. the allegations against nicholas sarkozy date back a few months. it is the big affair. nicholas sarkozy is allegedly accused of exceeding the limits

he declared during the 2012 campaign. adjusteddly could have some fake bills to this company that was organizing all nicholas or cozy's rallies during the 2012 campaign. francine: thank you so much. caroline is in paris. as investors take stock of increased political risk, the spread between french and near the whitest of 2013. a huge spike the past couple of days. mario draghi said he will do whatever it takes. but if you look at the premium it takes to hold french bonds, it has increased. it hasn't had much impact on the euro. but it has really been played out here on the terminal. you can go to this chart if you are a bloomberg user. 15. go to g #btv

a portfolio manager is joining us. when you look at premium, or they risk out there, politics seem to be at the forefront. is there a danger the markets get it wrong like brexit or trump? but thethere is danger, markets of the lesson that it is not so much the outcome but the journey that you take. looking at the french 30 year, you could argue that, given the likelihood of a second round versus macron, it is more likely to be a macron victory by a large margin. but the market is focused on the uncertainty. in the french election, first it was going to be le pen versus juppe. now it is le pen versus macron. i see the circle around 85. 80 is an important level,

psychologically, for the market. adjusted basis, -- that is actually higher than that. we see 80 as an inflection point. francine: the second circle -- the first circle, under 140 for the spread, before mario draghi spoke. if we had no ecb action, where would this be? daniel: significantly ahead. we could be talking 140, 120. francine: back at these levels. daniel: remember, the important thing here is, in the previous crisis, that was driven by the market. the market was forcing the ecb and the politicians' hand. here, it is driven by the politicians. that is a much more dangerous dynamic. it will take further hold as we see elections in italy and holland. francine: are you concerned? i know you are mentioning

macron, if he got to the second round with le pen, could beat her. i will get the pulse of in a second. you can do that on the bloomberg terminal. people do not really know macron. he has only been finance minister for a couple of years, just like there are big unknowns surrounding le pen. it goes down to whether voters decide on security or jobs in the economy. this is looking at implied probabilities of the french election. daniel: correct. as i mentioned earlier, it is the journey. people can kind of see a clear potential outcome, particularly versus 33olling, 67% percent, but it is this uncertainty about the individuals involved. there are some he twists and turns for the markets -- there are so many twists and turns for the markets, french politics taking over from trump, and it is driving treasuries as well. focus is uncertainty,

exciting, and the markets are going to get even more concerned if le pen continues to make sure she is ahead in the polls in the first round. daniel,: thank you, portfolio manager. stay with us. if you are a bloomberg customer, you can watch the show on your terminal, tv go. you can see gain of talking to me about the future of france. if you look for ib at the bottom of your screen, this goes to the widening spread between french and german yields. you can directly message us with any suggestions or any charts that you may like. let's get straight to the bloomberg business flash with nejra cehic. has reported fourth-quarter earnings that missed analyst estimates. items adjusted one-time and inventory changes more than doubled from a year earlier, to $400 million, but fell short of $567.7 million expected by analysts, after higher oil prices failed to compensate for

lower income from reclining. meanwhile, an unexpected loss in in fourth quarter after deep write-downs on u.s. shale assets. the adjusted net loss was $40 million. president has criticized the trump administration for moving to dismantle the dodd frank act, saying that rolling back financial rules would be very worrisome. speaking at the european parliament hearing in brussels, mario draghi hit back at u.s. claims that germany is taking advantage of an undervalued euro. : the european central bank has not intervened in the foreign currency market since 2011. you saw then, as part of a g7 intervention to stabilize the yen, following japan's tsunami, a cooperation with u.s. authorities. nejra: that is the bloomberg business flash. francine: let's turn our attention to brexit.

theresa may has seen off early efforts to end the bill before parliament to give her negotiations. sitting until after midnight, mp's voted down opposition amendments that would have required ministers to give parliament regular updates. they shut down attempts to make the premise to work with wales, and northern ireland. north of the border, scotland is taking its protest to the next level. lawmakers in edinburgh voting on whether to trigger an exit. the scottish parliament will debate the motion. the bill currently making its way through parliament should not perceive without regional consideration. the portfolio manager is still with us. what does this mean for portfolio managers? daniel: on a personal note, when we had to look at how it would resolve, we always thought take some time, that the u.k. authorities were going to play a long game. the longer they waited, they

believe their negotiating hand will be much stronger. that is playing out as we expected. we think the evolution of how the server to party and theresa may has approached the brexit timeline in parliament is very much in line with that. it is also consistent with how the market thinks it is going to pan out. i do not think brexit is having a major impact on guilt -- gilt. it has been were dominated by europe. -- more dominated by europe. francine: this is the inflation outlook, underlying inflation, two axes. when we start hurting, what do we see in terms of earnings? daniel: it will start to hurt in june. remember, the u.k. economy is when we start hurting, what do wedriven by the consumer, consur driving activity, and they are sensitive to this. headline inflation is going to 3%, and peak around that is when it will start to hurt the consumer.

we are looking through it as the bank of england is looking through it. they said they will look at the headline inflation, how that impacts average earnings, how that impacts the consumer. the likelihood is, it acts as a headwind on demand. the consumer will turn somewhat. down the line six or 12 months, we will start to see that inflation number start to taper and activity started taper as well. hence why the bank of england is on hold. francine: what happens to the pound? daniel: the pound is likely to weaken, but it has done a lot already. the heavy lifting has been done. we expect the pound to trade neutrally sideways and to lower relative to the dollar, sideways to the euro. francine: thank you so much. daniel stays with us. higher crude prices, low profit, as bp and statoil miss profits. the earnings from the oil majors. ♪

francine: this is "bloomberg surveillance." bp's fourth-quarter earnings have missed estimates after rising oil incomes failed to compensate for a fall in refining. statoil faced deepening write-downs on u.s. shale assets. we spoke to them exclusively this morning. >> we had impairments this quarter of $2.3 billion, net. the main reason for that is related to the fact that we have adjusted downward our long-term

price assumptions, mainly for oil. so now we are looking at an oil price which is at $75 per barrel. francine: let's get analysis from bloomberg's chief energy correspondent. javier, great to have you on the program. oils rally makes little money in refining. javier: there has been a similar trend across everyone who has reported so far, particularly caps on, shell, and bp -- exxon, shell, and bp. the increase in profitability has been more than offset by lower profits in refining, because higher crude usually leads to lower margins in refining. ,ou can see that at the moment the worst time for big oil.

the prices are not rising enough to bring high profits for the upstream units, while downstream was a money generator in 2016, when prices were low. they are really coming to pressure. francine: with refining, are there any companies managing better? total: we have yet to see results. they come in on thursday. i think total has a good track record on the refining units. total where to tell -- can deliver well. so far, everyone is stumbling on the same problem, and that is the refining environment. francine: the price of oil has stayed between $53 and $54. opec is sticking to production cuts for the moment, and stockpiles are rising in the u.s. javier: stockpiles are increasing. there is a big concern, increasing stockpiles in gasoline, but particularly

demand being weaker than expected in the united states. overall, you can see opec so far has had about 40 days of the agreement. a delivery cut led by saudi arabia is cutting even deeper. they said they will reach the agreement with the rest of opec in november, and russia in december. have we had any more news on what shale producers mean under donald trump? javier: show producers will have an easier time. some regulations will be eased. the main factor for shale in the united states is not trump, but people wanting the higher oil price of about $55 a barrel. increasing gains these companies have done over the last two years. you can see that the shale industry in the united states is -- iscenter and faster today fitter and faster and emerged from the downturn

stronger. opec will have a stronger rival than it had in 2013, 2014. francine: daniel, what is your take away from the price of oil? the price of oil has historically determined the inflation targets. the problem is that now we are worried about trade tariffs, trade wars. does that mean you look less at oil to determine inflation? inflation,erlying definitely. headline inflation has a big driver behind that. but i take your point. protectionism has been one of these things that has been within the trump campaign. it is a lot to talk about. it is not something the market has priced in. it is pricing in potentially positive news from fiscal policy. but it seems to have ignored these negatives, protectionism which is really bad for trade and growth. francine: one of the positives is that opec, after eight years of not doing much, is sticking to cuts, right? that should be taken by the

market as a positive. forcine: it should be elevating the oil price, yes. but it is preempting trump in the sense that shale gas and pipelines -- the supplies coming on stream from the u.s. they also have issues with iran. they are having to react and force the price. they know the supply is coming. francine: talk to me about iran. how does that play into this? tension between the u.s. and iran -- does that impact the price of oil? javier: it could be an increase. on one hand, you have higher tension. that usually translates to higher prices, because traders are demanding a premium for what if something happens and you there isne morning and bombing between iran and the united states. i think that is far away from what we have today. on the other hand, it could also beenthat iran, which has

able to increase production significantly over the past year, after the nuclear sanctions were lifted -- that could be rolled back if the u.s. changes sanctions. the key point here is the last time we had tensions with iran, it was an international consensus. russia was involved. more importantly, some of the key consumers in asia -- china, japan, south korea -- and in --ope, france, spain, italy the consumers of oil were alongside the united states. i do not think with unilateral sanctions that european oil is not going to be there. francine: they do so much for joining us. this is bloomberg. --♪

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overs brought authority national security and demand reinstatement of a travel ban on sovereign -- seven muslim-majority countries. a lower court ruling put the executive order on hold. stranded refugees, triggered protests and handed that for -- new government its first test. meanwhile, the u.k. house of commons speaker says trump must not be allowed to address parliament during a state visit. it comes after a petition to stop it signed by almost 2 million people. he voiced his opposition to the president's staff in a strongly worded address. >> as far as this place is concerned, i feel very strongly that our opposition to racism and to sexism and our support for equality before the law and an independent judiciary are

hugely important considerations in the house of commons. nejra: the u.s. senate votes today on the president's pick for education secretary. 'contentiousvos election will probably require mike pence. would produce a 50-50 tie that pens would need to break. missed profits. 6.3 billionlow the analysts expected. the lender laid out a multitier plan to lower costs and boost investment in technology. at the same time, the cfo said the bank will take a wait-and-see approach to donald trump's review of the dodd frank framework. will have to see because if you go back to the g-20, the ones who gave guidance for

central banking regulation, they said any new regulation should have no material impact. so we will have to see. normally, if one remains within the framework, it should be manageable. nejra: china's foreign reserves have edged beneath her trillion dollars after it the yen cap its steepest decline in decades. for the erosion of the world's largest stockpile may prompt policymakers to again tighten measures for controlling outpost and on companies transferring money. jersey iss super bowl missing and it may be worth as much as half $1 million dollars. brady reported his number 12 ginger zee was nowhere to be found. if it were any place legitimately on the market, it could catch as much as $500,000. global news 24 hours a day, powered by more than 2600 journalists and analysts in more

.han 120 countries this is bloomberg. francine: thank you. let's get your market check with mark barton. mark: some charts may tell us all is not well in markets. let's start with this chart. the white line is that bank of america merrill lynch market risk index. essentially, a volatility gige covering commodities, currencies, bonds. see, -.37. lower than a was few years. signs of volatility across the main market gauges. the blue line is the global economic policy uncertainty index, which is at a record high. while volatility remains low, economic policy and -- uncertainty is at record levels. a lot of political risk out there as we talk about day in, day out on bloomberg television.

donald trump's new administration, european elections, big button issues. the u.s. volatility gauge has been muted. this is the white line on this chart. the blue line on this chart, rather. this goes back a year. why is it muted? stocks are essentially moving different directions under donald trump, suppressing real-life volatility and that is where the index volatility. the index is the white line, buying protection against more dramatic moves in the snp. you can see, investors seemed to be concerned about tail risks. hedge, being used as a money has been pouring into exchange traded funds, that is the white line. tracking the precious metal, those inflows haven't been matched by movements in the blue line, which is the fix and the

gap has opened up once again between the two measures. some charts showing us maybe not all is so well in markets. francine: i love those charge. thank you so much, they can marry in the coal mine. -- canary in the coal mine. joining us from our moscow bureau, thank you, mark. always a great pleasure to speak with you. charts sense of the mark was talking about. anything that makes you feel uneasy about the next 12 months? mark: i think there is certainly always reason to be an easy if you want to look at the risk. what i think those charts are really very important because they highlight this dichotomy between the wide range of potential political outcomes and something we have tried to focus on, which is earnings growth, theal gdp growth and

continued central bank support, which we believe is probably more important in the medium term and long-term for determining outcomes. and wes the case in 2016 think that is going to be the case for 2017, as well. francine: mark, how do you had yourself? hedged yourself -- yourself? you take the stance that, it would be better downfall from a political repercussion? mark: i think the most important kind of hedge out there is diversification across political economic regimes. ofle the aggregate amount central bank stimulus in the system is high and that helps portfolios globally, individual countries are making very disparate that's -- bets. japan guaranteeing a zero rate out to 10 years.

it is important for our clients that global diversification. francine: how do you diversify? what do you buy? mark: so, one of the ways we are we are overweight in u.s. equities and u.s. high yields. we also believe that the euro can move higher versus the dollar because there has been too much bullishness about the dollar priced in. that is one of the ways we are hedging in our portfolio context. francine: what is your take on the possibility of a trade war? if there is a trade war, some kind of barriers or tariffs going up to between china and the u.s., does it change your base case scenario that earnings are still to grow? i think that of course, it would change things but in many ways, the insular nature of the u.s. economy could make the prospects for the u.s. then and

u.s. companies improve somewhat, relative to the rest of the world. in absolute terms, maybe , but idy is a bit poorer think that it is going to be interesting to see how these developments around these trade wars play out because i think as the trump administration tries the supply some of chains in the united states or some of these trade relationships, it will be very thatcult to find policies are as simple as the ones we are seeing in the headlines today. francine: what is your biggest risk out there? away from this political risk that we are talking about, which is quite difficult to quantify, which is why you are seeing the markets the way they are. there is more and more pressure yuan. on --

this china have difficulty this year? mark: you are right to point to china. the tremendous growth of this economy, the growth of the fixed investment makes everyone think longer-term, this is not completely resolved itself. we are certainly watching it and the property market very closely, as well as the fx reserves. we do think that there are sufficient -- sufficient will and capacity to smooth out some of the bumps in china. at least through the party congress in the fall. therefore, on a tactical basis, we think that china is not going to be the deciding factor for global risk assets in the next six months, but it is absolutely something everybody has to have on their radar, both for the opportunities and potential risks. francine: what is your take on inflation globally? little with oil,

exports, imports and possible terrorists. we concerned there is too much central-bank action when we see inflation's creeping up? the good thing about inflation is you can change your definition of inflation. you can change from core inflation and exclude more of the energy and food costs if you are a central bank that wants to remain on the dovish side. we have seen some language around that. of the most one important factors for inflation is, wage growth in the united states. there is reason to be hopeful as growth in wages and the pressure that wages are putting on inflation, at least what we saw last week, was not as high as people expected. so i think we don't see inflation getting carried away as there are many forces. i was in silicon valley this week and inflationary forces

around some of the changes in the outlook for jobs and things like that are still out there and will help mute inflation pressures going forward. mark, thank you so much. mark sticks around. we will get back and ask about technology stocks. stay with surveillance. up next, concrete plans for europe's exit. marine le pen's advisor tells bloomberg quite pulling out of the block is a priority. more from that interview. plus, the u.s. consumer bank misses estimates. seniorgoldman sachs equity strategist joins surveillance for half an hour. that and much more to come. this is bloomberg. for more, tune in to radio's daybreak europe monday. ♪

♪ bloombergshis is surveillance. with talk about the fight for the french presidency. marine le pen's campaign court nader told us that pulling out of the euro is a priority. the single currency is still overvalued. >> regarding germany, germany is an orthodox monetary policy country and you can see the euro has been framework exactly on the deutsche market. regarding french interests, because we are polarized on our french national interest, euro is of course still over evaluated, especially regarding germany and we are suffering from a lack of compatibility

regarding this distortion in monetary value. francine: let's get back to mark, the global chief executive -- investment officer. he is on his trip to russia in joins us from our moscow bureau chief. risk? you view the russia we touched a little globally, the effect vladimir putin could if wen europe, especially have the threat of marine le pen there. think that russia, with the devaluation in the currency that it saw, they have taken a lot of hard knocks and with inflation falling and the chance of potential ratings upgrades and things, russia looks relatively interesting and the kerry on the ruble is still very strong. we would point to the underlying economics. obviously, mr. putin is able to

to his world stage have much larger impact than the economics of russia alone might lead you to believe. francine: what are the other areas -- one of the other areas is equities. you are talking about technology to clients. what are your takes on u.s. technology is to mark is it your concern that they will not be able to attract talent down the road and does that put pressure on them to give dividend inch -- insured buybacks in the next few quarters? mark: i think his visa issue, if fores to come to the could have a longer-term impact and that is something we don't know. although i would say that many of these technology companies -- when we talk about technology, we're looking at the broader s&p 500 sector where you get a mix

of old tech and new tech and many of the older technology companies are globally diversified and able to source talent around the globe. assets there remains attractive. we think it is going to do well highly tech is actually valued -- overvalued compared to indexes and now there is somewhat under valuation relative to indexes. there is a lot of cash on hand and i have to say that it is something you must have picked up as well as when we were during thedavos break. the u.s. ceos are very excited and the confidence has come back to a degree. to your point, i think that does point more broadly to more acquisitions in that excitement. francine: how much of that is priced in? until we have concrete economic

policies from president trump, can it only go downward from here? mark: we don't think so. if you look at the broader markets, some of this will be due to oil. coming back to price. at we see earnings growth 10% this year for the s&p 500 as a whole. environment,n we're not looking for a lot of multiple change, we are looking for the u.s. market to do well, mostly on improved earnings. francine: thank you so much, always a pleasure. you will have to come to our london studio. local chief it -- officer for ubs. mrs. and cuts out a -- we're told he is prepared for the possibility of a le pen

victory. us is bloomberg. ♪

♪ francine: this is bloomberg: surveillance. i'm francine lacqua, let's get to the business flash. nejra: bp has reported fourth-quarter earnings that missed estimates. more than doubled from a year early to 400 million dollars, but fell short of the 567 point $7 million expected by analysts. that is after higher oil prices failed to compensate for lower income from refining. statoil has reported an unexpected loss in the fourth quarter after write-downs on its u.s. shale assets. with 14 million dollars, bloomberg spoke exclusively to statoil's ceo. >> in terms of impairment, we have impairment is quarter of 2.3 billion u.s. dollars that. the main reason for that is the fact we have

adjusted downward our long-term price assumption, mainly for oil . now we are looking at an oil price in 2020 at the $75 u.s. per barrel. the ecb president has criticized the trump administration for moving to dismantle the dodd frank act saying rolling back as would be worrisome. speaking at a european parliament hearing in brussels, mario draghi hit back at u.s. claims germany is taking advantage of an undervalued euro. european central bank has not intervened in the foreign andency markets since 2011 then, as part of the g7 intervention to subsidize the yen following japan's earthquake and tsunami in ordination with u.s. authorities. nejra: that is the bloomberg business flash. missede: bnp paribas has earnings and the net income

doubled to 1.4 billion euros from a year before but fell short of the 1.60 3 billion euros that analysts expected. >> we will have to see, because if you go back to the g-20, which are basically the ones that gave guidance with regulation. they said any new regulation should have no material impact. we will have to see. normally, if one remains within the framework, it should be manageable. repealing dodd-frank putting banks at a disadvantage? >> the world is bigger than just europe and the u.s.. there are 20 states that have to come up with an environment that makes it comparable for banks to operate. >> so you don't see any impact? >> it is too early. these things -- processes take a lot of time.

coming isng that is the triggering supposedly of article 50. are you planning to move to paris? >> our headquarters are there, so we don't have to move the headquarters. we have to stay close to our clients to serve our clients and that is typically what we will see once we know more details. ofwill you take a big piece clearing business? >> the big question on the moving comes from people who have their headquarter activities in the u k and who might be needing to pull those people out of london and into other areas. for us, we are a european bank. we have activities in paris, belgium, benevolence. -- netherlands, that is where we are doing business. we will have to see how things evolve but it should be on the fringe how things evolve. francine: here are some

highlights for your day a in. earnings from general motors, walt disney at 1:30 p.m. u.k. hour later, john kelly is here to testify over monitoring -- tightening america's borders. tom keene joints me out of new york. we will be talking to a lot of people about currency. we will go through what peter levar, the trade advisor to donald trump has been saying about germany. this is your markets, dollar strengthening a touch. a three-day rally, but investors are worried about politics. this is bloomberg. ♪

♪ francine: european political wrangling high on the radar as

she won't quit the presidential rates and the ims looks into greece. another roadblock as speaker of the house of commons says president trump must not be allowed to address permanent as the trump and goes to court again. china's foreign currency reserves edge below $3 trillion, the lowest levels since early 2011. further erosion could leave to calls for stricter outflows control. this is bloomberg: surveillance. tom keene is in new york. tom, the most interesting day because europe has been dominated by politics. the widening of the spread between german and french yields. then you look to russia and donald trump, and some market signs that all is not well and you look at equities versus bonds. tom: i'm glad you put the elephant in the room of china reserves under 3 trillion. we have some great guests today to drive the conversation forward. francine: a set of things maybe investors should start looking

at. let's get to the first word news. francine, tom. the trump administration returns to a federal appeals court today to try and get its controversial immigration policy reinstated. lawyers will argue the white house has broad authority over national security. they will maintain the u.s. faces great peril. dispel any wants to misunderstandings about its free trade agreement with the u.s.. president trump has dropped out of a broader deal involving the pacific rim and has criticized japan and china for their free trade policies. that has raised concern that the south korean agreement with the u.s. could be the next target. scotland taking protests over brexit to the next level. the scottish parliament will debate the proposal that the brexit trigger bill being debated by british lawmakers shouldn't proceed without scotland, wales and northern ireland being consulted. the scots oppose what the prime

minister says is a hard precedent. theresa may will try to ease planning rules for people trying to ease out of the house market. urban areas that are closer to public transportation. the average home in the u.k. costs to record a times average earnings. global news, 24 hours a day powered by more than 126 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: equities, bonds, currencies, commodities. let's go through it. the first screen sort of boring. dollar stronger. curves flattening slightly. not a big deal. what a risk on trade. 20,000 showing, doubt -- dow 20,000. stronger the end, we could euro. much of that node off -- no

doubt on mr. druggies comments. francine: i think we need to look at havens. gold holding a three-day rally. investors are easing up on haven assets for the moment. european equities up, even as bp parable both slump. i want to put the chinese offshore yuan, gaining a touch and that is one of our main stories. my chart of the day when you look at the reserves. tom: the 3 trillion mark broken is a big deal. let's go to the bloomberg. i have been shown this chart in ages. the pros look at this a lot. dollar-yen,lar, dollar-euro-yen. this is the long-term yen strength, euro weakness. here are excessive yen strengths. not a big deal yet, but you have rollover, the spas and this is tiny rollover here.

interesting to see if this breakthrough. i would extrapolate this out, francine to something in the vicinity under 119 is a big deal. francine: great chart. this is what i did. a weaker yuan, capital outflows chart. i am looking at china. this is where we see outflows. we have inverted the yuan see you can see the movement. tom: that is good, that is good. francine: the main story of the day is that china for the first time off of federal reserves, under 3 trillion. the lowest since 2011. we talk about this, you have weaker yuan capital outflows and reserves twiddling, how do you stabilize that? it is almost impossible. markets looking for some kind of direction. we can go spread between the french and german 10 year yield. joining us, sharon, great to have you. give us a sense of what markets are doing. we also have some charts that nottracing, showing us that

all is well on the market and we may be mispricing things. >> in terms of markets have rallied a lot? francine: welcome of the fix index not doing much, but when you look at the fear index, in washington it is high. >> i agree. you have an environment where implied volatility affects all other industries. it is incredibly go. if you looked only at those indicators, you would think everything is calm in the world. the risk at all. look at other indicators like policy uncertainty, political risk, they seem incredibly high. the opposite of implied volatility indicators which are low. -- part ofem to us the problem is that investors find it difficult to know which assets to invest in at the moment. normally, if things are risky,

you go into bonds. if the risk is partly how much inflation is created, do you really want to go into bonds? if you are worried about risks with in equities, perhaps you would like to go more defensive into high-yielding accents. but if you were worried that a ,isk is perhaps overheating more growth, inflation, -- >> what are the main risks, sharon? sharon: there are several large risks. you mentioned one of them with the china and the outflow data, that is currently one risk that has been ongoing for some time. it is perhaps not a risk which is on a short timescale. but that is clearly a risk. i mention politics, that is another large risk. ,n both sides of the atlantic there is a lot of political uncertainty in the u.s. over how much reforms and proposed agendas by trump, the republican hearty will passed through this year. the impact of that will have on the markets.

and then europe, elect oriole risk in almost all of the big countries this year. plenty of risk. yesterday, for the first time in a long time, the first time, a bloomberg exclusive on the french-german spread. equities,t your cash it must also mean there is a real risk that marine le pen becomes president. tiny asthat spread was opposed to italy and germany, or spain and germany. but it is true, it has moved a lot. you are not quite up to where those folks were, but if you were up to those levels, people would be genuinely worried about a breakup of the euro. but looking at the chart, you probably retraced half back up to where we were during the crisis. . clearly, people see it as a large risk. don't expect the pen the truly in the second round. but the risks are there. sharon, help me here with

the reality of a four or 5% dividend in europe. tell me about fat dividends in europe. is that a good thing or a crutch for european equities? thatn: well, you could say although the dividend yield is much lower in the u.s., they get money back by share buybacks. whether share buybacks in the u.s. or dividends in europe is the better way to pay that money is questionable. of which you are paying those dividends are the factors that most people in europe would say are vulnerable to maintain those dividends. traps banks, oil stocks, etc.. if you are paying four percent, , it means market is still concerned about volatility of that yield. i wouldn't be too bearish on oil at the moment because i think opec cuts have been well adhered to, but when they offer with no

free cash flow yield, is that really safe? tom: what we are seeing with president trump and the idea of multinationals in the united states as a proxy for global investment, are multinationals in europe a proxy for global investment? you mean the fact that multinationals are giving back in dividends and share buybacks rather than doing investment both sides in the atlantic. i think there is a problem with investment growth, it has been week. the one thing that has picked up in terms of cash usage this year has been m&a activity. using your cash to gain growth not organically by purchasing rather than doing your own investment. i think it is a bit like the capital outflows in china. decade, where we

have had an ongoing problem where companies are unwilling to invest. sharon bell with us from goldman sachs to get us started this morning. coming up in this hour, hour interview of the day. of perspective and history the former european central bank chief economist on mr. trump's allegations of an exploiting germany. this is bloomberg. ♪

♪ bloomberg: surveillance. let's get straight to the business flash. here is taylor riggs. taylor: fourth-quarter earnings missed estimates at bp. higher oil prices failed to offset lower income from refining. the has shut down partially its

largest u.s. provider. gas and oil were down 5% from a year ago. the imf is warning a fiscal server -- surplus set by its eurozone predecessor. it will rise one point 5% over the long run. about half of the forecast from european creditors. the imf said it would consider making a new loan to greece only if the debt reduction plans are credible. that is a bloomberg business flash. francine: thank you, taylor. european political risk is not just in the french bond market, but also increase. the greek 10 year yield has moved higher since last year as an impasse with the imf over participation, the bailout shows no signs of abating. sharon bell is with us. we talked about politics, but you do have these flaring up of concern in countries like france and greece, you buy into equities or do you stay away

from them? think the political risk is a reflection of the economic problems in europe. you don't have political risk in a vacuum. the problem in europe is still profound. a lack of growth in europe, only growing around 1% on the trend basis, maybe less. more similar to japan's growth rate. and lack of growth, a lack of core inflation, a lack of wage growth, lack of employment growth and that has created in theal risks we see sovereigns. risk for investors in european equities is large. -- aer, european equities lot of companies we discussed before our multi-national companies and not strictly europe. idea that people need ethoslo-saxon mindset or to make money.

if those europeans would only be more like them in the united kingdom and then in america. a newre a shift to capitalism? in eufinance, a new investment among european corporate leaders? i don't think the anglo-saxon model is the only one possible. you haveas done well, had improvements in returns. their unemployment rate is low like in the u k and u.s.. see think europe needs to more labor market reform, more flexibility, he needs to try and improve its trend growth rate and you alluded to more investment to help to do that. tom: within that, the sentence are in place. you agree -- incentives are in place. you agree that currency is a disincentive to making good labor and capital allocations? sharon: do i think the euro weakness in the last year is

providing a crutch to europe? think, perhaps two things are helping europe. but you need to see reforms on top of them. that is, the qe, easy financial conditions, a weaker currency. those things should help boost europe growth at a time it needs to push there's these reforms. it is not really doing the latter. spoke with theso chief officer. he spoke with him about his concern over over deregulation on wall street. >> we will have to see because it be go back to the g-20, they said that any new regulation should have no material impact. so we will have to see how that unfolds. if one remains within that framework, it should be manageable.

francine: how do you view, if you look at industries away from countries where some of the financial engineering tom was talking about -- industries that maybe not on a level playing field because what is happening in the u.s., do you sell them at this point? sharon: what do you mean, not on the level question mark -- level question mark francine: because they are repealing dodd-frank. sharon: i do think financials in europe have headaches whole string of regulations like financials have had in the u.s.. i think the most important thing for financials, the political stability, the lack of fear in the market and big blowout in sovereign spreads. initial's our big owners of sovereign debt as well. i think it is also growth. those are the big things that help financials. you have seen lending growth in europe pick up in recent years. the burdens they have taken off having prevented improvement, but boosted economics to pick

up. damnfrancine is too polite. do any mergers and acquisitions in europe? -- we need mergers and acquisitions in europe? sharon: i think consolidation would help. companies are prepared to take a bit of risk with their cash. the other thing is, markets have rewarded a lot of companies that haveannounced acquisitions outperformed a tiny bit. it has not been hugely penalized . interest rates have been low, there are a few sectors were consolidations would be good to see. in sumer second is, for example. maybe the retail sector, the banking industry. although some regulation is against that as companies can become too big to fail.

consolidation is part of the answer, but not entirely. here has tont, t be some sort of government level reform. tom: sharon bell as we look at the differences and distinctions with the united states. speaking of united states academics, bloomberg markets this morning. siegelsiegel, professor has been right, right, right. 10:00 this morning. you must watch. this is bloomberg. ♪

♪ as far as this place is concerned, i feel very strongly that our opposition to racism and sexism and our support for equality before the law and an independent judiciary are hugely important considerations in the house of commons. francine: that was the house of commons speaker john barco yesterday. saying the u.s. president must not be allowed to dress the u.k. parliament. house erected into cheers. i have rarely seen trump's predecessor barack obama, other world leaders were invited to speak in the very place where john barco said he thinks donald trump should not be allowed to.

tom: i was stunned. this positioning goes back to 1300. in my right that he is nonpartisan. why does he make these comments? this is something i would suggest from a tory or a labor. what is the story of this most unusual statement in independent speaker? certainly most unusual. this is something we have never had in the past. we understand he felt the need to say something because of the u.k. represents. he is bipartisan. he is actually not allowed in the rules to express judgments, but he argues -- let u.k. repre. me remind you, this is a huge controversy at the moment. he argues this was on international affairs and is allowed to express an opinion around domestic affairs. we will see how it ends. he may be wrong on this. we don't know. but that is his position. we are back with sharon bell from goldman sachs and away from this controversy, it goes back to print it, what the u.k. is going through. it --: i think on you

u.k. equities overall, i wouldn't be that negative. that is largely because i think exit over the next few years has -- as it evolves, will push the pound down further. we think the u.k. economy will weaken, not going to recession, but we can. looking for 1.5% growth this year. we could than the last couple of years. a weaker pound -- and ftse 100 companies are very international. they have overseas earnings and if they translate that back to sterling, ftse 100 can still do well. what i wouldn't like is domestic u.k. focused. domestic intake is largely that point. weaker pound. they don't benefit from the -- because they don't have overseas earnings but they see the negatives because they bring in a lot of imported goods. francine: thank you so much. that was sharon bell from goldman sachs. coming back, we speak with

blackrock global macro strategist. we will talk about this data. this is a picture for dollar. all are jump probably the biggest story of the day. gold falling a touch. one thing we are seeing is demand for haven ending. one thing i would point to is china. i did and offshore you on their -- yuan there. they have outflows increasing. that is one of our main stories for the rest of surveillance. we also get geopolitics, finance and macro economics. this is bloomberg. ♪

♪ tom: out there somewhere across new york city is sitting the stolen football jersey. tom brady's jersey stolen. it is a crime. probably already in new york

to be flown out of the country to francine lacqua's house. or something like that. francine: a christmas present to me. thank you so much. tom: tom brady's jersey lost, extraordinary scandal. this has been a lot of fun. francine: it could go for half a million, right? tom: the highlight to me last night was a viral video of the end of the super bowl with celine dion singing the song from titanic. you know, "wherever you go." it was a quick duo. a viral youtube thing that i'm sure made roger goodell h. but anyways, it has been a lot of fun. damn about give a football, but first word news. taylor: vice president mike pence prepared to break a tie with -- expected today on devos.ry nominee betsy

two of the 52 republican senators have said they will vote against her. that is expected to lead to a 50-50 vote. there has never been a tie-breaking vote on the cap and eating -- cabinet nomination. tom donohue says the president should build upon, rather than hinder the movement of goods and people between the u.s., mexico and canada. the trump administration has complained about the large trade deficit with met -- mexico. rex tillerson is in place as the u.s. secretary of state, but remain vacant.ts many u.s. allies and advertising -- adversities looking for clarity on trump's: -- foreign policy will have to wait a while longer. tillerson have will have to name an assistant secretary. theresa may has easily fended amende first attempt to the brexit trigger bill.

the house of commons voted down two commitments from the main opposition party that require ministers to give regular updates. lawmakers also shot down -- and south korea wants to sell -- settle any misunderstandings on its free trade agreement with the u.s.. president trump has already dropped out of a broader deal involving the pacific rim and has criticized japan and china for their free-trade policies. that has raised concern the south korean agreement with the u.s. could be a target. global news 24 hours a day, powered by more than 2600 journalists and analysts in more , i'm taylorntries riggs. this is bloomberg. francine: thank you so much. seven months after downgrading european stocks, heightened political uncertainty, blackett -- blackrock is calling the asset class. thank you for coming in. ,nd you look at your by rating

is this on the evaluation, is it because it is cheaper are there fundamentals to go from here? >> several elements, valuation is part of it. earnings prospects for european corporate's have improved significantly. the growth momentum for europe is better than it has been for many years. you mentioned political instability. that may be a strange call. there is a lot of political hasability in europe but it peaked. we are confident about the future, particularly given current rising levels that there is room to grow. that mean the wave for populism will be stopped? there is a way politicians can reconnect with their citizens and europe? we are seeing good prospect of that. we can't be sure until elections

are over but we are looking confidently at these upcoming elections. tom: i look at the valuation of euro stocks versus the standard 500. frankly, i was stunned. if we normalize. as is u.s. stocks versus europe stocks. back to the beginning of the crisis. i was flabbergasted by this. this gap here. that 500 is two expensive or europe too cheap? a bit of both. the s&p 500 has started growing earlier and faster than european markets. you could say it is a more advanced stage in the cycle in the u.s. and europe is playing catch-up now so it is a good time to invest in that market. tom: what is the catalyst to get europe going? isabelle: i think europe is going. --on't think we have seen the ecb accommodating policy has been playing a very strong part

and it is finally paying off. definitely the weaker euro has helped, as well. very important driver has been consumption and that has been boosted by falling unemployment, higher earnings for households and we are waiting to see if we see higher. this is beginning to appear in some of the eurozone countries. tom: this issee higher. this is beginning to appear in some of on the bloomberg and i just converted it to euro so you can do it easily on the bloomberg. the idea is the s&p 500 up 28%. year today, 28% for the s&p 500 and the euro stocks 50 up. all of third team percent. -- 13%. all in all, an underperformance in europe. francine: underperformance, but you have to ask the underlying questions on why. is it because earnings will be

difficult to growth because we don't have growth prospects? a touch, but how much is it down to ecb policy? unemployment is stubbornly high in europe. you forget when you look at this data apart from germany. isabelle: unemployment is all overignificantly europe and that is making a difference. you also have to remember, unemployment is in touch elated in the same way in europe as the u.s.. a gap isn't as spectacular as you might think. we should definitely -- this is why consumption has been a driver. credit growth has also been very supportive. for many years, we had fiscal policy being a headwind and that is no longer the case. in a few cases, fiscal policy flowing in the right direction. youth unemployment in italy 38%. still seems a high number. isabelle: still a problem, but falling. peripherysome of the

bond yields. this is what the ecb has been doing. you can see a creeping up a touch. 4.2 percent. spain up 1.7%. when do these start creeping up because we are concerned that the ecb won't be there much longer? this seems to be a move on political risk. isabelle: this seems to be a move on political risk and of anns about a win anti-euro candidate in france, which would have major implications, obviously. the risk of ecb pulling out if you take them at their word would be closer to the end of the year. then it wouldn't be surprising to see rates creep up. tom: where is the most efficient spot for the euro? you were on the watch for the international monetary fund for a number of years. there is the right price for the euro? isabelle: there is no magic number i don't think. it depends on the cyclical position of where the eurozone is compared to other parts of

the world. certainly right now, you could say to an extent the eurozone has a current account surplus, the euro would need to appreciate from here to bring back into equilibrium. this is a long-term matter. in a now, the eurozone is cyclically more depressed position than the united states. in the near term, the current valuation is probably about right. tom: where are the shareholder activists in europe? do we just got here about them? isabelle: that is a good question. that is definitely less of culture in the europe compared to the u.s.. talking about dollar, the dollar has fluctuated quite a lot. where do you see it going from here question mark it goes back to tom's chart. they be europe is a little undervalued. because of the currency. we have to see what the fed does. that will be a key driver of the dollar this year.

if the fed tightens monetary policy as expected, whether two or even, or four rate hikes. we will see differential with most other currency areas and that should drive the dollar up. the dollar is ready expensive already. , so welong-term basis think that will anchor it down. we don't see it going through the roof. we see it appreciating moderately over the years. from blackrock so you are away from the fray of southside. what will happen with the banks? this credit suisse get put out of its misery? does deutsche bank merge? it is interesting because financials in the u.s. have really been boosted in recent months since it has become clear we have this reflationary trend going on and to some extent, european banks have benefited as well.

we see the outlook for them still much more challenged. there are structural problems, deep concerns about profitability, about business model. we do expect some more pain ahead and consolidation in the european banking system. ande is also still unaddressed npl is you, asset quality issue in a number of country, particular and small banks. this is not getting resolved quickly enough for the prospects of the sector as a whole to improve dramatically. tom: much to talk about including china reserves. we do that here in a moment. in a moment, the conversation of the day. the former european central bank on the trumpst administration's statement of and exploiting -- and exploitation by germany. this is bloomberg. ♪

♪ >> this is bloomberg: surveillance. let's get to the bloomberg is this flash. statoil posted an unexpected loss in the fourth quarter because it is writing down more value on its u.s. shale assets. .il has been cutting costs pioneers inween two the tracker business. a criminal investigation for stealing trade secrets. those claims are part of a lawsuit claiming that proprietary information had been sold. by thealready rejected international trade commission. the company said it is cooperating in the criminal probe. that is your bloomberg business flash. tom: now joining us, but

his contribution to german economics in the advent and birth of the euro. he was chief economist of the ecb in an exceptional and it acute -- time. wonderful to speak to you, doctor. thatme here with the idea germany is exploiting the euro. the trump administration would like us to believe that germany has an artificially weak euro boosting exports. how should chancellor merkel respond? otmar: i am not chancellor merkel goal so i can be blunt and direct. over the many years i am in this profession, many accusations atlantic,m across the but this is the most absurd one.

economist, white people take such -- with no economic basis whatsoever. thatbly they have ignored is not anymore its own currency, but the euro. weakness of the euro is certainly not to any influence by germany of what kind soever. look at an end of tapering, rather a beginning of tapering by mr. draghi, there seems to be an idea of an instability in europe. is this a new bout of instability when we see italian, greek and french spreads widen? say this isld not

alarming, but this is indicating that a delay, especially, is still lacking in delivering on ,eforms which are badly needed in the interest of italy itself. not in the interest of the euro area or germany. it is italy's interest and in france, it is the uncertainty about the outcome of the presidential election. it is not surprising that bond uncertaintyal some increasing in financial markets. francine: the rhetoric we heard from marine le pen is euro reversible and will it be tested this year? >> i would not expect that, he cuts over the -- because over the years, we should not forget the exchange rate is relative of one currency in relation to

others, mainly what is in the focus of interest is the relation between the u.s. dollar and the euro and the development during last year and continuing to this year's mainly the diversions in monetary policy -- ivergence in monetary policy. quantitative easing has increased and the interest rate. the european bank is continuing its policy of zero interest rate and quantitative easing, also as a lower pace. francine: i want to go back to .he trump trade team peter navarro, who on this program a few months ago, not only accused germany, but japan and china of purpose -- purposely devaluing currencies.

you see any currency manipulators out the right now? otmar: certainly not in europe. not for the euro. the ecb is not intervening in the markets, floating exchange rate, not influenced anything on the side of the europeans. in china, the chinese central bank in the past certainly has contributed to weakening begin -- the yen, but in a while they have lost more than one billion exchange reserves to stabilize the yen. sorry, the yuan. -- the the opposite actions of the people's bank of china are going in the other direction, so one should really argumentsin bringing

which are related and based on sound facts and not on fantasy. tom: as you know, the european financial system has late to the party of restructuring out of the financial crisis. we are going to get a cash call from unicredit. we are going to get a massive capital rates in dilution from deutsche bank. what will occur in deutsche bank when they dilute shares? what will occur to deutsche bank when they bring in this needed cash? otmar: i would like to comment on deutsche bank and unicredit. what is true on the one hand, europe has done relatively a bad job in comparison to the u.s. when they immediately after the financial crisis in 2008, capitalized banks. ought to be done in

europe. by the zero interest rate policy of the ecb. taking profit along the yield curve when long-term interest rates are suppressed by policy actions of the central bank will -- more time or even francine: is the imf being unreasonable with its greece demands? in what it is asking of greece? otmar: i think this is a delicate issue and relatively disturbing. many different views on that. the big question is, can greece deliver on a primary surplus of 3.5% as demanded over so many years. paper, this is possible. but politically, it is almost not feasible to expect that.

but the sustainability is an issue which would come only after many years because for the time being, greece is paying lower interest rates than but on the issue of bonds in germany. germany is paying higher interest rates than greece. this is mostly forgotten. this is an issue which should come later. much.ne: thank you so we will be back with isabel of blackrock. we will be focusing on china and some of the reserves we have seen dwindle for the first time below 3 trillion. first time since 2011. you can follow all of our guest comments.

questions thatk we will ask. this is bloomberg. ♪

♪

francine: the world's largest foreign exchange's stockpile getting smaller. china's reserves under $3 trillion in january after the one club decline for more than two decades. isabel, if you bring over my going down is yuan and the reserves, an unholy trinity they cannot stabilize all at once. ,tmar: it is worth pointing out the euro against the dollar. the dollar has been appreciating. the one has been stable against the basket of currencies. it is easy to forget that. in terms of the reserve outflow and the drop in reserves. there was asting -- lot of speculation in the market that tree trillion was a magic number. now we know that it doesn't care and is happy to let reserves fall below. that is good. it is also worth remembering that there has been so much reserve outflow is record

outward fdi from china in 2016 and that is a good sign. it is a sign of economic health. we are bullish on outlook for china. not worried. tom: thank you so much for being with us today. isabelle: thank you. on ourrticularly conversation earlier. coming up on the american economy, president trump's american economy. kevin cirilli will be here and then james glassman will join us from jpmorgan. from london, from new york, stay with us. this is bloomberg. ♪

tom: this morning, the raging debate over the likelihood of a successful trump reflation. can the president proposed and

the legislature dispose to make america growing at? -- to make america grow again? the battle over the president's power. and the harvard endowment. they say hedge funds are so and 20 game is it, so done. this is "bloomberg surveillance ," live from new york. francine, you mentioned the china reserves dipping under 3 trillion whatever. that is a big deal. francine: $3 trillion, tom. we thought psychologically the pbs city would not let the reserves go under that. , butderstand that they do it is a trilemma. they have goodling reserves, twinkling- they have reserves, outflows increasing, and the pound going down. you know what, you are right on

the spreads, but bp and bnp paribas are kind of bellwethers for the economy. i do not think anything is really rosie. tom: our conversation with the bp -- the bnp executive. here is taylor riggs. taylor: the trump administration returns to federal appeals court today to get its controversial immigration policy reinstated. just up -- justice department lawyers will argue that the president has brought authority. scotland it's taking its protest over brexit to the next level. the scottish parliament -- should not proceed without scotland, wales, and northern ireland being consulted first. the first minister, nicola sturgeon, -- the imf is warning that greece

will not meet the fit -- the fiscal start -- the fiscal target. about half of the forecast from european creditors who took part in the bailout. the imf has said it would loanser making the new agree, but only if debt reduction plans are credible. theresa may will try to ease planning rolls to help people price out of the housing market. her government wants to help developers -- the average home in the u.k. now costs a record eight times average earnings. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom: thanks so much. let's get through the data check. equities, bonds, currencies, commodities, a turn to the market right now. futures up 5, the euro weaker. on to the next screen. showing a buoyant equity

market, 11.17. francine: a weaker euro is helping european stocks advancing. falling a touch, and i wanted to put in what we are vix.g -- we kept the the chinese currency is up a touch. the vix is unchanged. whoa,his is euro-yen -- let me get that back there. i was not doing that right. there we go, euro-yen stronger. down we go to massive yen strength twice over the last 30 years. this roll over again, just now we are seeing a whisper of stronger yen, weaker euro. that bears watching. francine: it does bear watching. what also bears watching, the chinese reserves edging below

three dollars, $3 trillion because of strong pressure. let me bring you over to my chart so that you can see the chart clearly. this is in yellow. you can see outflows increasing. this means we see a capping of the annual decline. that is pushing a lot of pressure on reserves. tom: we are doing this on a daily basis in the news flow from the trump administration, and it is so vast, we need to speak with kevin cirilli. the world stops for the president and all in washington tonight at 6:00 p.m. there will be a telephone appeals cohort -- appeals court ruling for one hour. what is mr. trump's best outcome from the ninth circuit court phone call? kevin: the best outcome is that they uphold his executive orders. the worst case is that they go against him, which sets up a battle with the white house and

the supreme court. mind you, not all the judges are on the supreme court. mr. trump's worst outcome, when does it get to the supreme court? is it the same rapid timeline, or does the supreme court wait months for a decision. it is not going to be this week or tomorrow, but i do think over the next couple of weeks it is going to get there. again, this is reaching far beyond politics at this point. you have companies, everyone from apple to google. silicon valley has really activated itself on this particular issue. this is really gripping the pulse of the country right now. the senate votes to day on donald trump's pick for education secretary. it will be a very close call. if he does not get confirmed, this will be the first time this happened since 1989. kevin: it is also coming on the back of his major court -- of

this major court ruling. mike pence might have to go to capitol hill to cast the deciding vote. you already have two republican senators who have come out against his pick. i have to be honest. offices are being flooded from teachers unions, urging their senators to oppose the pic. they are focusing on pat toomey allennsylvania because of these major teachers unions that are so very much against this pick. francine: what is the likelihood that she does not get confirmed? kevin: they are saying that they are going to be able to get this anyugh, but if there are last-minute surprises, that would be a devastating blow for this white house, coupled on the same day when he could face a ruling against him. tom: we treasure the idea that you have been with mr. trump from the get go.

it is amazing how long you have been out with the president from candidate to elected to now president. in the last few days there has been a lot of talk about the president's exhaustion, his methodology of getting through his new day. is he any different now than he was six months ago or, for that matter, six years ago? kevin: no. i have to be honest. watching the first two, 2.5 weeks of the administration, it really is the same pace that he kept on the campaign trail, everywhere from scotland to mexico to all over the country. in the last final days he was in five or six states a day. the pace that he is keeping, everyone says he cannot keep it. you so much.hank our chief washington correspondent working through the evening with that federal court decision. look for that into the u.s. evening and late-night.

our guest usually joins us on jobs day. he was busy getting super bowl tickets lined up. was that a great game, or what? >> oh, my gosh. jpmorgan's optimism about where the economy is going to ring up the chart, anthony, if you would. this is the jim glassman chart. call it fortress optimism moving up to a higher interest rate level. what is your conviction that mr. trump will get the economy he wants? jim: the economy is doing quite well. we are kind of out of the woods, frankly, and there is a lot of hope that the between tax ,eform, infrastructure spending and regulatory review, we are going to get more growth out of it. the stock market is more optimistic. it has generated more than $2 trillion of wealth since

election day. so there is a believe, and rightly so, that we will get more focused on the economy in more of an effort to speed things up. tom: we are getting all sorts of different opinions. three kumar with -- sri-kumar with a very cautious view. what do they get most wrong about a better than good american economy? jim: a lot of people are worried , that here the u.s. is back to full employment. if we are not careful, we could end up with more inflation than more growth. what we are learning is that even though the economy feels like we have been growing for eight years, we are getting steady job growth month after month. that tells you there are still pockets of people who are unemployed. there is plenty of capacity to accommodate more stimulus, i think. between getting businesses refocused on capex, getting them less worried about regulatory issues is generating new animal

spirits, which will create more productivity. that is where the missing piece is. i think people assume that productivity is stuck in a rut and we cannot get it out. that will be a limit on how much the economy can grow. i think the economy has the capacity to do much better. we see innovation all over the place. we do not see it in our numbers, but you see it all over the place. that is the fuel that will allow the economy to do better. francine: when you look at animal spirits, how much of it is on the hope of this economic spending by donald trump? i do not know what the effect is of all this divisive talk within the white house. does that impact ceo's and their thinking, -- does that impact co's and their thinking? jim: we are worried about distraction and we like to see more focus on tax reform and those kinds of issues. look at volatility in the market. the market, with all this

distraction, is pretty steady. we have not seen what the program is going to look like. does feel like animal spirits are coming back, because when you look at surveys of capex, surveys have jumped a lot. that is motivate sentiment indicators -- that is more of a sentiment indicator. there is a believe and they hope that we are going to get something out of washington that is going to be reenergizing the economy. offsetting some of the slow growth that we have had is really more about demographics. i think there is a believe that altogether, when you put all the pieces together, we will get more economic activity. francine: jim, thank you so much per jim glassman stays with us. coming up tomorrow, we speak with jeffrey sachs, author of

the new book "building the american economy." this is bloomberg. ♪

taylor: this is "bloomberg surveillance." you are looking at live photos of new york city, a gorgeous new york morning, to steal words out of the tom keene playbook. let's get to your "bloomberg business flash." earnings missed estimates at bp. bp had to shut down part of its largest u.s. refiner, hurting sales. production was down 5% from a year ago print bnp paribas reported fourth-quarter earnings

that missed estimates. at the consumer banking business. we spoke with the cfo. >> during the year we have improved our lending rates. we have increased the lending rate in the last quarter, improving by 4.2% compared to the year before. that is a positive thing. however, the low interest rate environment will most likely remain for the year to come, so i think next year will remain difficult. one of the things we will have to see is how the commission evolves. taylor: bnp paribas has been hurt by low interest rates and sluggish economic growth. tom: we have been looking at three vectors of interest rates. you can bring these ideas over from interest rates to inflation, even for an exchange. how about over to your paycheck? let's bring up this chart with jim glassman. the idea here is really simple

-- the same three hope lines. here is the audacity of real wage growth. this is wages and benefits, a stable 3% inflation. this is not one jim glassman or some fancy economist inks. this is what we think -- of what some fancy economist thinks. this is what we think. down we go to wages and benefit growth, less 3% inflation, subpar. we are not making it, and there is this id here are it what is the confidence that we get wage growth to return even if we do get higher interest rates? i do not buy the certitude that we get wage growth. jim: if the job market continues to improve and companies continue to hire at the pace they have, it is a matter of time before we see better wage trends. that you were going to the super bowl, i get that.

you are on the 30 yard line. jim: those guys are getting good pay raises. tom: we do not see it in the jobs report. jim: these wage numbers are very volatile month-to-month, so i would not make too much out of one month. it is getting harder to find workers. companies will be paying more. we will see that. the silver lining in this story , as well as the economy is doing, we are not stretching our capacity. that means there is not much risk that the fed has fallen behind the curve, even though it is a years into recovery. it means we have more to go to reach our potential. that is a bullet story. francine: isn't the trump presidency a reset? we talk about unemployment and sticking on trent. could we see a vastly different america with trade wars and tariffs? jim: i do not think that is the way to solve the problem.

the way to solve the problem is to get america back up to full unemployment. clients tell us they do not have enough people with the right skills. that tells me there is great opportunity. i think people are figuring it out when and they look at what is going on with community colleges and state programs. everyone is figuring out that pouring money into job training and getting skills wrapped up is the best way to solve the problem for people. thingne: what is the one donald trump should do to make sure he creates quality jobs? jim: the economy is going to do that. the president cannot create quality jobs. there are all kinds of jobs out there. it is getting people aware of where the opportunities are. i do not know if you remember -- 15 years ago, we were worried about a shortage in nursing. what happened? the pay came up and people figured out there were new opportunities. we do not hear about that

problem anymore. that is what we will see going on with manufacturing. tom: you bring up a concept. here is capacity utilization with recession. this is back to lbj and early xon. and -- and early ni help me here. does this matter now versus its heyday in the 1970's? do you really care about our capacity? jim: capacity has gone global, so to some extent, a lot of manufacturing is done in other places. the capacity that usually is the constraint on us is the availability of workers. that is the focus. tom: we have two economies. we have one that is fully employed, looking for workers, and another that is not part of the game. jim: well, i would not say the u.s. is fully employed yet. there are hidden pockets of

unemployment -- young people who dropped out, young people working part-time and voluntarily. the official numbers look like we are close to full unemployment. but there is somebody out there who wants a job. i think that is telling us we still have more to go. francine: jim, thank you so much. jim glassman of jpmorgan stays with us. coming up on "bloomberg markets," a conversation with lockhart. ♪

francine: live pictures from hong kong. youing at the landscape, probably talk about fancy hotels. i will talk about currencies. -- currency reserve just below $3 trillion in january. this is part of my chart of the day, if not the week. outflows are quite significant, and they have increased the touch. you can really see the decline. in fact, it is the biggest decline in two decades. let's get back to jim glassman of jpmorgan. has to do with his trilemma, reserves falling, outflows increasing, and the yuan steepening. is this unknown for 2017? jim: it is.

but china has a lot of control over the capital flows. just because they see reserves coming down does not mean there is a rush of money out of china. they have a lot of control over how you can move money there. way we in think the the u.s. ought to view this -- china's living standard is 10% to 20% of our living standard. what that tells you is we have a lot to gain by helping china to get on their feet. so i think the mayor potential that -- the mere potential that china holds for the u.s. -- a lot of businesses are aware of this, which is why they are there -- they see vast new consumer markets developing. china and us have a lot to gain from it. francine: but the trump administration may not see i to eye with your assessment. chinaappens if they label a currency manipulator? do, china has

control of their currency. china has a lot of leverage as well. wei think we will learn that both have leverage, we both have benefits to come from this. i really doubt that, you know -- the folks who went to washington, this is a business crowd. they understand the global economy. they understand the opportunity there. so i really doubt that we are going to see a major disruption in that business. tom: jim glassman with us. we will continue. he is with jpmorgan. on bloomberg radio today, entree, philip verleger. from london, from new york, stay with us. this is bloomberg. ♪

francine: the live shot of the brandenburg gate overlooking berlin. 1.0665.see euro-dollar

let's get to "first word news" with taylor riggs. taylor: mike pence is prepared to break a tie as expected today when the senate votes on betsy devos for education secretary nominee. two republican senators have said they would vote against her. that is expected to lead to a 50/50 vote. the secretary of commerce is urging president trump to play nice when it comes to the north american free trade agreement. the trump administration has complained about the large trade deficit with mexico. in place asn is u.s. secretary of state, that many other senior posts remain vacant. as a result, many adversaries are looking for clarity on trump's foreign policy and will have to wait longer.

british prime minister theresa may has easily fended off the first attempts to amend the brexit trigger bill. two amendments were voted down by the main opposition party, requiring ministers to give parliament regular updates. lawmakers shot down attempts to with wales, work and northern ireland. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine? tom? while, ay once in a guest is on looking for something to do and we nail it with the new cycle. we do it this morning with liam dalton. in the news, hedge fund is dead. bring up the quote here.

that is a big deal. do you agree with seth klarman? >> i do not agree that it is over, but it is changing. it is beginning to look less attractive to the investment community. you are seeing a lot of hedge funds that are changing the dynamics and the architecture of how they are building out. they are getting more geared toward new areas of investment such as computerized trading and other strategies that are quantitatively based. tom: you did this at bear stearns, the idea that there is a fancy equation for investment. at the end, there is a greek letter epsilon, which, we don't know. is there a cacophony out there

of financial distortion that they cannot play the game like they used to? liam: i think that has been true. while we have had a period of very strong activity by central banks around the world, that whole qe move that we saw a created tremendously strong correlations, but that recently is beginning to break down. as a result, we are breaking down in correlations as qe fades , and i think you will get back to a more normal pricing mechanism. that helps hedge funds. francine: i have been reading up quantumental. talk about investment strategies that hedge funds are using. is it different if you are a hedge fund based in the u.s. and europe? --m: the way it looks to me and i talk to guys running different strategies -- the changes have been driven mainly

by people who are using very similar inputs, and so if you are a programmer and you are writing something for a hedge fund, they all went to the same schools. they are writing similar programs. so they gather data and look at data in similar ways, and they are trying to look at this information and say what creates the informational data on a timing basis. any are looking at electronic piece of information that a machine sees that a human will not see at least moments later. and the machines work more quickly. hedge funds are trying to take advantage of the fact that human beings cannot factor in as much information as a machine can, and the human element if something they have not quite figured out how to put in. going back to the flash crash, those were early signs of different activity in the

markets. but it is becoming more smooth now, and the biggest hedge funds of the world are ramping it up. francine: how much do you pay for that? you also see a lot of politicians -- donald trump and the way that he was using data -- you see that being translated on political fronts. i wonder if there is a parallel between what hedge funds are doing, and politicians. liam: since the trumpet election, we have had a lot of very interesting price activity around the world in many markets, so it would be no coincidence that the political influence or the attentions of whatever political platforms are out there would affect prices. the real data itself is shifting . it began shifting last july. matter is,t of the some of the trends that were occurring are in place already, and the trump election seemed to accelerate it. all of this data is finding its

way in faster and faster. tom: you have been part of this. julian robertson and the tigers -- bring up the chart right here. this is the dow chart back to when time began. liam made a big deal about the 1960's, and here is jfk, and maybe we are about the idea of the boom here. harvard endowment said no to fancy investment. -- we going back to almost a to almost lower fees and buying with institutional money? liam: i don't think so. correlations are broken down, and that should be a testing ground of whether a hedge fund is working or has a chance to work. this past six or seven-year period, where we have had this incredible intervention by central banks, has been very tough. tom: what does harvard endowment

see about private equity? am i right that they are saying no to that? liam: there is an article today in your publication that shows all of the money they took in, that was gifted, they lost in markets. so it is a frustrating experience for them. tom: for everyone. liam: i do not think that we go back. you mentioned julian robertson. these are some of the best historical stock pickers historically. when they lose money, it tells you that peter fundamental stockpicking is a difficult thing to do when signals are blocking out pricing. in the world of jpmorgan, fixed income, john norman's world, there is the idea of the risk-free rate. risk-freew where the rate is so that liam dalton can figure out where to in test? -- where to invest? jim: we do not.

where do you see inflation going, jim? jim: moving higher, we hope. we have been through a period of commodity prices fading off. the central banks will keep rates easing until we get that. overine: let me bring you to my chart because this is something you are mentioning. this is the widening spread between the u.s. 10-year yield and the real rate, which is what we are seeing. when does the spread stop widening? jim: i think we are getting closer to the day when the central banks are going to be backing away from a lot of these asset purchases in japan and europe because the economy is doing better. the fed tells you that down the road here, maybe at the end of this year, they will think about bringing their balance sheet act down. i think we are getting closer to

that moment. global economy is doing better. the u.s. economy is doing better. when our economies get back to full employment, we will see the end of that. liam: a fairly recent development is that we are seeing spreads blowout between certain countries in europe. that is a sign of stress that is developing. at then early look possibility of a breakout. tom: which hedge fund marketing sector is the one to put money in now? is it soros-like? is a blackrock? it a blackbox? your best bet is, do they have a balanced component of technology driven strategies alongside smart humans. paul jones says nothing beats a

smart human and a smart computer. tom: liam dalton, thank you so much, with axiom capital. jim glassman will continue with us as well. on "bloomberg daybreak," an important conversation from washington. kevin brady. look for that this morning. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. it is a sign that europe's largest economy is not immune to increase global uncertainty. german industrial output unexpectedly fell in december by the most in eight years. the economy ministry says there

has been a rise in industrial and construction orders, which should mean production will rise in the coming months. norway oil is writing down more of the value of its -- that oil has been cutting costing capital spending. that is your "bloomberg business flash." has done moreman in market economics on the demographics of america. our cultural and demographic economics, and how it for gin our labor economy. the single best chart is a classic glassman chart this morning. 20- to 24-year-old kids. something changed in the year 2000, and down we have gone with weaker and weaker labor participation, and there is a little bit of optimism here with a leg up for a, you were decades

in front of people on the underemployment of youth. why are the kids finally getting jobs? jim: the job market is doing better, there are opportunities, parents are getting tired of maybe folks living in the house. i think that is why this phenomenon is happening. when i got out of college, i knew that i could not count on my parents. i could not even ask them for help to go back to school. today, families are better off than our parents were, than their parents were, so we are better able to help kids when times are tough. they cannot find a job, and a lot of them have gone back to school. in the recession, 2008, 3 million young people went out -- 3 million on people dropped out and went back to school. talk to higher education folks and they tell you, it is very countercyclical. tom: but we celebrate. when we look at someone is internet you, a grandfather with

newly minted -- when we look at someone as ancient as you, a grandfather with newly minted twins -- dust technology supersede labor participation? the worldroblem is, is changing very rapidly. there is a lot of competition around the world, and it is hard , where should i be investing in, in a job, to get an opportunity down the road? it is a more difficult environment, but it is no different than what we all face. i remember my parents about -- i remember my parents talking about how the world is changing. technology and globalization is -- vast vast new tech new opportunities for people. is very different, what we found on the east coast,

the west coast, and middle america. over thee clients all country, and it is very visible to me. people living in the industrial economy have more challenges than those of us living on the coasts. we do not do have a manufacturing in new york or california. we have the same number of jobs a decadead available ago, but it is not true in manufacturing. that is what you see in the middle part of the country. that is why there is a feeling that we are different americas. the answer is not to try to wrap theeconomy -- to ramp economy's grows up. the answer is to get people aware of where the opportunities are, what they need to do to train for those skills and improve those skills. that is the best way to handle the situation. francine: jim, thank you so much. jim glassman of jpmorgan. follow along our program.

type tv go to access charts and graphics. you can also get in touch with tom and myself. we will have plenty more on the euro. this is bloomberg. ♪

tom: "bloomberg surveillance." a busy day for the president of the united states. on the back, back burner, tax reform. here is david westin. david: the markets are pricing in that tax reform. we are talking to the member of congress who is argued with the most important person with this, kevin brady, congressman representing houston. he is responsible for figuring out how to do this, expecting opposition from industry, retail, some refiners, and members of congress, and also from perhaps the president of the united states itself. francine: thank you so much, david westin. i am looking forward to your program. the germany economy expanded,

but industrial output fell the most in eight years. german -- now is a s associationporter president. president trump is saying germany is cheating the u.s. because of weak euro policy. your thoughts? >> well, that is completely wrong because we do not have any influence on european currency. we are a big member of the european system, and it is the european central bank that makes a low interest policy, and the euro is very weak. southerny for the european countries and for france, i admit that we are making a windfall profit on this. but it is not an issue of the and we arernment,

very near to the customer. we have excellent products, good services. there are customers that buy german products. can you give us a sense of how much exporters are euro?g from a weak every time the euro falls by two -- howoints, how much to much of an impact does that have on profits with your association? anton: it is true that the weak currency is helping us the successful of the markets, but , the same- what i say criticism i am going to face, they say the same thing. become better do

in your manufacturing world. be more competitive, and then we will see what is going on. francine: do you worry about possible retaliation from the u.s.? what would a trade war between the u.s. and europe -- how would that affect german exports? anton: it is not an issue between germany and the u.s., it is an issue with trade. the same would harm the u.s. economy. what we need is free trade worldwide. if a big player like the u.s. is customs,on rising especially as i see it, verse -- versus east asia or china, then the economy will really drop into a deep recession, and that is where we will lose all of the players worldwide -- all of the players worldwide will lose the

game. there will be no winner, no creation of huge jobs, not in the u.s., not in europe. it is a losing game. today,ank you so much from berlin. we finish with jim glassman of jpmorgan, they head economist for commercial banking. here is the morning must-read, along the lines of what anton boerner was talking about. the sainted -- as the sainted dana patrick moynihan once -- rved, processor that professor summers goes on to say, "does america want to wall off products and people?" jim: it is easy to see a job that might have moved from

flint, michigan, to beijing. what you do not see is the many jobs created by an impoverished world around us finally getting to the feet and rising. we have a modest deficit, but when you look at u.s. exports, they are several trillion dollars higher than they were decades ago. tom: in congress fight back against the trump theology on zero-some america -- on zero-sum american? jim: most people understand the benefits of globalization. most congressmen have no interest in trade protectionism. they understand there are tremendous benefits. there are trade abuses, but those can be addressed specifically. but the globalization -- there are 6 billion people who do not enjoy the living standards we do. if we can help them get on their feet, we will be there. tom: jim glassman, thank you so much, with j.p. morgan. francine mentioning that the -- all in allope

choir than yesterday. let's go to foreign exchange, where you see affected some of the spreads right now. on the foreign exchange market, you see euro-yen, 1.20 tom: 1.2021.: -- through the day today, a discussion. the ninth circuit court. there is the gorgeousity of the sun rising. francine's left, is united kingdom. this is bloomberg. ♪

jon: it is the calm amongst the

chaos. we are not currency manipulators. ecbo draghi defending policy. march is life. the philadelphia fed president joins a hawkish course next meeting. welcome to "bloomberg daybreak." in the market, stocks go nowhere. 62 days without a one percentage point move. futures positive on the session. the dollar is stronger, the euro .75%.in once again down alix: lower against the yen. yesterday, it was bonds in europe. now, it is the euro. not a lot of safe haven movement. cold hovering around those three-month highs and oil down .3%.