francine: china steps in. after a $590 billion cello. -- seelll off as oil continues this decline. regrets. iran expresses her more sober the attack on the saudi arabian embassy. -- to "the pulse" live in london. i'm francine lacqua. let's get straight to some

unemployment figures. from germany. much better than expected. [inaudible] francine: i think we are having a couple of difficulties, technical difficulties but mark was saying in terms of what we are seeing on the ftse, the cac .3% afterx -- gaining china intervened. it still remains to be seen if analysts are convinced china can do enough. gold is up. copper up a little bit. a little bit more optimistic than yesterday. let's get to the bloomberg business flash. french telecom companies have confirmed they are in talks on a deal. not definedons are

by any timeline. they signed a confidentiality agreement. the u.s. justice department is suing volkswagen. in to chartt filed is the first case against the company by the justice department. strong contender to buy a swiss travel company. it received winner approaches from third parties. there is no certainty and offer will be made. its restructuring plan remains unchanged. francine: thank you. 7% slump in equities triggered a halted trading, china's shanghai composite has ended the day down .25%. meanwhile, china central bank

has moved to ease borrowing billionth a $20 cash injection. we were talking yesterday about the rout and the sell off. today, china seems to have restored some kind of stability. what price have they paid for it? tom: i think you are to imagine a couple of the measures they have introduced. i think it is fairly clear that once again a semi's of stability has been restored but at a price. the biggest liquidity injection since september. reports that state own funds ding into thed market. the chinese security regulator has extended the ban on major investors selling their stocks. all of that together seems to

have been sufficient to stabilize the market on tuesday. the question stepping back from the day-to-day market fluctuations is what kind of market are we left with in the wake of so much substantial government intervention? francine: yesterday you really it the nail on the head, brought the message home to me that although we had a massive rout, it did not mean there was something fundamentally problematic with the chinese economy. it was market movement. what can you tell us today about the outlook for growth? nothing has really changed. : i think that story remains pretty much intact. china's government has introduced massive stimulus over the course of 2015. the stimulus has now gained traction. it has not boosted growth but it has prevented growth from falling any further. what's happening on the stock market is really being driven by

some idiosyncratic market specific factors in 2015. it was very much a story about margin finance on the way up and the unwinding of those margin trades on the way down. 2016, it is a story about fears about the expiry of some of the measures that government introduced. is what happened -- it is happening on the market is generating a lot of headlines, but is not telling us much about the fundamental growth picture in china, which remains a story of stabilization. francine: thank you so much. our chief asia economist. let's get more on this with our next guest. he is a chief investment officer of rng wealth management. great to have you on the program. give us a sense of how worried are not you are about china.

it seems that 2016 will be a year of many uncertainties and ofna will play a big part stabilizing or exacerbating those uncertainties. >> the of the recent put in place a number of measures in the last year to try and improve the situation. over that same time, we saw a in equity up markets. from august last year, a more accelerated declining currencies. there are two different stories. the deterioration in the economy which they parted to stabilize. they let the market become a more free force. francine: but they are intervening. year always told 2016, the of reform. does it comfort you as an investor, because alisa p-- at least the pboc is taking it seriously?

or are you worried it is a step back from market liberalization. stewart: there are two or three big moving parts. the economy trying to stabilize of will of -- with a lot intervention. to increase bad debts in the banking system. we are seeing that come to the surface now. the authorities are doing their best to try to swap some debt around. thirdly, we have got the big push against fraud. on the having its impact state sector and the private sector were certain high-profile ceo's have been detained for questioning. factors are all starting to coalesce in terms of what is going to happen in 2016. of growth, official number will be somewhere near where the 30's want. the number will be a lot lower. the markets.on

something similar to last summer. the biggest worry should be what is happening with the currency. if we see consistent weakening in the renminbi, that will have to flay shery impulses spreading around the world and that is bad news in terms of economic growth -- that will have inflationary impulses. the longer-term concern will be what happens with monetary policy. the currency is the bigger thing for us to watch. francine: thank you for that analysis. he stays with us and we will talk about the u.s. next because could we see a recession in the u.s. in 2016? stuart richardson warns it is a possibility as fed officials shrug off yesterday's u.s. stock rout. ♪

francine: welcome back to "the pulse" live on bloomberg tv and radio and streaming on your tablet and bloomberg.com. federal reserve bank presents have shrugged off yesterday's stock sell off. saysleveland fed underlying fundamentals of the u.s. economy remains sound. we will bring in our chief economic correspondent. guys, thank you for joining us. when you look at the fed, and it

seems like when he to start with the market sees it. ofy actually see less tightening or interest rate rises that what we were led to believe by janet yellen. simon: if you look at the dot plot the fed is thinking for hikes this year in the market is thinking about two. we are more right than the fed is. the fed officials are trying to play down a bit of those market jitters. contrariane have a in the student appeared you believe the u.s. economy is not as strong as people are led to believe. stewart: that has been the case at for a number of years in terms of the economy undershooting the optimistic fed's forecast. as we look at what happened towards the end of last year, the second half of last year was disappointed for most economists. yesterday.coming in the economy is not doing as well as most people thought.

privately, fed governors would admit that. the manufacturing sector probably in recession. the services sector doing ok, boosted by increases in health care costs. if you look at one side, there is bound to be a recession. the other, we can still muddle through. francine: muddle through does not lead to interest rate rises. stewart: we also have the fed, they've done a lot of work on their communication policies. but we have seen from the two fed governors as they are trying to build a narrative around the proposed policy of four rate rises. they have to be optimistic on the economy and go out and say the u.s. economy is doing fine. any problems that come from aerseas, not too much of concern. europe is doing well. so, they are going to try and paint and optimistic u.s. to mastic economy scenario but there's a long way to go. 1 wehe data comes in for q.

will see more in thef market assumption as opposed to the -- the fed's assumption. the biggest indicator will be what happens with the u.s. stock market. losses, risk of recession. francine: we need to look at what china does. we have to look at stock markets but i also the fed is now contrary to maybe what they the monetaryet policy for the world. has been a great deal of talk about how much the fed cares about the rest of the world. wobbles last summer and the fed said we are going to hold off for a little bit. and now you see china wobbling

again. u.s. putting on a report saying that china is in for a hard landing. hike much less than expected. all eyes on china get is the new year starts. francine: and on commodities. we are in the second trading day of 2016 and we have been writing pieces on predictions and the black swans and concerns we should be looking out for. simon: on commodity, you look at oil yesterday , it bounced. the glut ofuns into supply. francine: we still have notes. are you concerned that that filters through to what the ecb uses as inflation expectations? stewart: i heard your earlier commentary saying the ecb wants

to look through the headline numbers and look at the core numbers. no one forecast these massive declines in the second half at one of 14. there has been a price shock, and they are still feeding through -- no one forecast these massive declines in the second half of 2014. central banks remain extraordinarily loose around the world. towardsas we look 2016, there is a better chance now we'll see the market looking to get into some sort of supply and demand balance. that assumes the u.s. economy remains in the growth phase. t goes into recession, that will be a global recession and that means demand will not be sufficient to meet supply. maybe we try to base any optimistic scenario in this current area of $30 to $40, which is a big decline from the $100 we saw 18 months ago.

francine: but it is amazing that actually a standup between saudi arabia and iran isn't giving oil a leg up. if you look at central banks around the world, let's take the pboc, the fed, the ecb and boj, who has the toughest job? simon: crikey. pboc, a lot of this instance are blondes. it is using a variety of instruments to manage its economy, which again pboc is not as necessarily independent. grindj and the ecb it's a there. talking about tweaks to their ratios. ecb, they kind of know the playbook. you just do more. and the question now we are starting to see for both of them and they are both alert to this, is doing more -- does doing

more have an effect? the feeling was mario draghi did not do enough. they know the playbooks. for them, it is an easier job. draghi a year ago, was only just entering this q.e. period. now you know you can push rates more negative and you can buy more assets. the pboc has a harder job. francine: a lot of this is actually priced in? so, what does it mean from an investment point of view? terms of fixed income markets, the core -- is in our opinion insanity. o curtail whate t

they are doing now because they see better growth coming through, you could see another rout in the bunds. cpihey don't do enough, the undershoot, we could see a problem there. we look at european government bonds as being almost a no-win situation. they stick with positive return some european bonds because they are already in negative territory. that is all price in. of equities, we have seen in the last two or three quarters, this belief that ecb e.e. or japanese q.e. will b equity markets changing, moving slightly away from european and japanese equities because of that. because european and japanese equities are beginning to dance to the same tune.

francine: what about the boe? if you look upon movement sluggish onound is the fact and investors are starting to doubt what the boe will do next. simon: a lot of people have been expecting the boe to shadow the fed. blown outkind of got of the water late last year when mark carney came out and said maybe we do not raise rates until 2017. the chief andy -- economist has been dovish as well. year.d for most of this day, growthf the has been muddled through. there may be no need for the bank of england to be in a hurry to raise rates. i think they would enjoy a bit of currency weakness. francine: we had a little bit of manufacturing being subdued in the u.k., but the main unknown

is brexit. so, the boe needs to make sure they cannot raise rates to quickly. simon: if they want to raise rates they should do so more quickly before entering the political period. of economistse voice wouldously is that brexit be bad for the u.k. economy, and therefore, by assumption, if the bank of england does not hike, they don't want to hike around the vote. by davidis dictated cameron. whether we look towards a june referendum or one at the end of the year. regardless it is boiling way under the surface. francine: 2016, an interesting year. guys, thanks so much. another bump in the row for volkswagen. the german carmaker is being sued by the u.s. over the emissions scandal. ♪

francine: welcome back to "the pulse" live from bloomberg tv and radio and streaming on your phone and tablet and bloomberg.com. are down. shares the carmaker is facing further problems with the u.s. justice department filing a lawsuit, accusing it of installing illegal devices to cheat emission tests.

hans nichols joins us now from berlin. is this just the beginning or could this lawsuit snowball? hans: in some ways, we have a because whenlanche you add up all the different claims, the department of justice at the behest of the epa is filing for, it can get to 80 billion u.s. dollars. earlier the estimates were billion on the high-end. volkswagen has only set aside 6.7 billiones to cover this. was the department of justice nepa doing together, they are hitting each vehicle with four different fines. it is very clear they want to send a message not just a volkswagen but the entire auto industry about the cost of deceiving the epa. here's what the department of justice said. "car manufacturers failed to properly certify their cars and systems inns control

danger health and disadvantage competitors." what you have when you break down the case, for some of the 580,0007,500, you have cars the department of justice going after. that number is important because before volkswagen admitted to installing defeat devices in 482,000, the difference is what the epa says is that three liter engine, one other important note, the epa and volkswagen have not reached an agreement on how our what they are going to do to fix those cars that are going to need to be recalled. in germany, they are awfully close to a technical solution. they seem quite far away in the states. francine: now, china state the government is said to have intervened to help

it sinking stock market. we will bring you the details coming up next. you can follow me on twitter. i'll see you in just a couple minutes. ♪

welcome to "the pulse" live in london. i'm francine lacqua. let's get the first word with caroline hyde. joblessnessrman fell more than economists anticipated in december and assign the economic momentum will continue to be underpinned by household spending. the number of people out of work declined by 14,000. a survey predicted a drop of 8000. state controlled funds of intervened to support chinese stocks. after yesterday's market slide caused a massive -- circuit

breaker to halt trading. the shanghai composite closed down. china's central bank has conducted its biggest reverse repo. the pboc has suspended operations at the end of 2015 and ending a six-month run of cash injections. francine: now, it is the first time the chinese authorities have taken steps to calm markets but do their interventions work? let's get more from our guest. our chief china strategist from hong kong. first of all, let's take a step back and give us a sense of how worried you are about the fallout yesterday we had and the subsequent intervention? is this a sign that the chinese have a firm

handle or that to a year of volatility? i think are trading in the first two days of the year, clearly the introduction of the circuit breaker -- has increased market volatility. yesterday, the chinese market actually experienced a trading halt after a half day of trading. and after the introduction of circuit breaker. the magnitude of the lunch in the chinese market is more than double of the other major markets. so, i would just say that with yesterday in today's action, it is basically a confirmation that we are not getting a good read of what the market and where the market is heading. francine: what do you mean by that? we are not getting an idea of where the market is heading or you think there will be a correction? hao: yeah, well, i think to know -- today, they try to use

national money to prop up the market. then we have a very volatile session was again today. simply by introducing the circuit breaker, they are increasing the market volatility. and i think they can just say we got it wrong and we can basically -- abandon the circuit breaker and go back to a normal state. abandon, a boston -- the plan to buy more shares. francine: what is the formal -- a normal state? where the chinese markets are cap stable by intervening -- intervening but keeps it as level which means they take the pressure off, or does it mean free-floating? hao: i think at the moment, and is clearly not normal. at the moment we have the circuit breaker on top of the limits of trading. we have a limitation on futures

limitation on market lending and program trading as well. we are actually with all these policies in place, we are experiencing more volatility, not less. more volatility than what we experienced in the past and we just had one of the worst "the" worst opening day for the year. so, i would say that now we are actually not normal. and i think for things to get back to normal, probably we would need to let the marketplace more important role here. francine: we made a chart for you. this shows some of china's intervention in the last 12 months. we had an interest rate hike at the end of june. then a series of support measures at july. a crackdown on a trading violation was announced in august. did any of these have the desired effect? think, you know

with where we are right now with the markets is where it is right now i'll i would say many of these measures have failed to prop up the market. these interventions, what happened is we have a iceket that failed to rprce in negativities. the market valuation is being elevated at a high level. the shanghai median p.e. is st ill 40 plus times. and chinex is 100 plus times. it is still very expensive. we have a market that failed to price in -- and becomes more unpredictable. and i would say many of these measures have failed. francine: overall, a lot of economists and investors are telling us that actually they do not want to focus too much on

the stock market but they really want to focus on the currency. where dcf fluctuating in the next 12-18 months? ithere doy ou see fluctuating? hao: currency rate interest-rate or to sides of the same coin. i understand where they are coming from. we had a currency reform last august and then introduced volatility into the chinese markets and also onto the global market as well. allink at the moment with indications, i think the chinese yuan is more likely than not going to weaken much further from here. and i think we probably create a liquidity loosening effect for the domestic market. --the same time, if you,

your currency too fast, it can be misconstrued by your neighbors as a competitive devaluation. once everybody joins a game, nobody wins at the end. francine: now must taken on a markets -- check in on the markets. the calm after the storm. attempted to soothe investors about -- what a day, yesterday. fort first day of the year japanese market -- the chinese market and the european market. for the s&p 500 since 2001. let's look at the chart over the last 24 hours. 300 rebounded. this is the five-day chart. that's when trading was halted yesterday. and here's today's session.

it rose 1.4%. it fell 2.6%. valueillion of disappeared yesterday. lling ban will remain according to people familiar with the matter. the central bank pumping $19.9 billion into the system. have a look of the situation in the commodities market. yesterday notnk only because of the chinese equities plunged but because of the reason we had to manufacturing survey showing a contraction was again. copper sold off once again, fell by 2%. days.own by 1% of the two

china seeking to calm investors. copper sank 25% last year. have a look of the yen -- the dollar against all as major peers. what interests me is the best performing currency for a second day, the japanese yen. the big decliners yesterday where the aussie dollar, the canadian dollar, the new zealand dollar. the canadian dollar is rising today but most currencies falling against the u.s. dollar for a second day. calmer than it was yesterday. francine: thank you so much. as we head to break, you are looking at live pictures of the french president ordering those killed at the french supermarket

and the charlie hebdo attack -- the commemoration happened today. up next, the phone bill as talks.confirms we will take a look at france's mobile market. ♪

francine: welcome back to "the pulse" live from bloomberg's london headquarters. areline: shares in next

lower this morning after the christmas season sales missed estimates. the company blames the unusually warm weather. .4% againsty just an estimate of a 5.8% increase. the retailer says it did not -- gross margins were maintained. manhattan home prices surged to a record in the fourth quarter. the median price of all $1.15ses jumped 17% to million. the figure is the highest in 27 years. of ops the previous peak set in 2008. the obama administration will unveil a package of new measures aimed at tightening rules on firearm sales in the u.s. the bundle of executive actions are certain to draw challenge. smith & wesson and other

gunmakers rose the most in three weeks yesterday. after president barack obama says he will use his executive authority to introduce the restrictions. saying,: as caroline as 1.8%s in orange rose following confirmation it is an early talks with bouygues telecom. the third biggest mobile carrier and france. live from paris, francois what could a deal between orange and bouygues look like? >> we didn't get more details from the company's this morning but when bloomberg broke the news last months that orange and bouygues telecom were in talks to combine assets, our understanding was that bouygues its telecom assets in

exchange for shares of orange a llowing bouygues to keep a foot in the market. only this weekend, a newspaper here reported that indeed bouygues was seeking to get about a 15% stake in orange. cash billion euros in which would value bouygues at 10 billion. at this stage, the companies have not confirm the details of sayingl, and they are the talks are at a pulmonary stage. -- a pulmonary stage. francine -- a preliminary stage. francine: why are they willing to consolidate? an internet when service provider entered the market, the mobile phone market, and started a very aggressive price war, this price war has

totally wiped out the profit of bouygues telecom which was formally the cash cow of the gr french media company. since then, the company has been buthing -- shedding jobs, has not managed to turn around yet the bouygues telecom, the phone assets. same thing for orange. the price war has heard earnings and in fact, the industry has been trying to consolidate several times in hthe past year. last year, bouygues actually tried to buy -- a company owned by vivendi. table,15 euros on the only to be beaten by the cable asset owned by a billionaire. $10 june, they offered

billion to buy bouygues telecom but bouygues decided to reject that offered. it said at the time that there was too many hurdles, regulatory hurdles, antitrust hurdles and job losses. but it seems now that bouygues is willing to be part of the consolidation. francine: thank you so much. in paris, with the latest. this is a story will will keep an eye on. german inflation missed estimates slowing in december. the result is a sign that price growth in the euro area may be weaker. the cpi is due at 10:00 a.m. u.k. time. hans, why do we spend so much time on inflation? this is the only mandate the ecb has. hans: this is a one metric we have on whether or not draghi is

meeting his targets. and he has missed for three years and it looks like he will miss for four. belowthey are going to be 2%. there is a raging academic debate on whether or not quantitative easing actually has the firepower to go ahead and increase inflation. you look at what they have done, for half a year, they increased it back in december for another 360 billion in assets purchases. we will see if that will move the needle. it hasn't in germany. .2%.ation came in at before that, the expectations for the entire eurozone .4$%. we are now expecting .3%. we are still so far below that 2% target. it is raising serious questions about the ecb's ability to meet its mandate. francine: hans nichols in berlin. mostxt, as opec's two

important members caught double medic ties, we are asking why the oil market is shrugging off any supplies? ♪

francine: welcome back to "the pulse." now let's talk about the

escalating diplomatic conflict between saudi arabia and iran. first, let's discuss the implications for the oil price. in the past, middle east tensions would have sent prices of significantly. this is just not the case anymore. >> this is the worst diplomatic crisis in 30 years. l prices went down yesterday and today. that is an indication of how much oversupply is in the oil market. the situation in the middle east and focus what is happening on the flows. keepcountries pumping record numbers. in iran, it is about to come back to the market to 1 million barrels a day was soon as the nuclear sanchez have lifted. have lifted.s

it makes any production cut from opec less likely this year. that is why the oil prices coming down. francine: in terms of the tensions between saudi arabia and iran, they have been going on for some while. why has ve they stirred up now? >> the timing is interesting. was executed. it came as a shot. i do not think iran was expected it. it has been an issue that has been ongoing since he was convicted. the timing is interesting considering the fact that the implementation of the iran nuclear deal comes up in a couple weeks. francine: we saw tensions escalate. we had the sheik being executed then you have the saudi embassy attacked and we had a little bit of remorse, from the u.n. ambassador and mr. rouhani has

taken to twitter. >> we have expressions of regret at the united nations. was quick to criticize the people that attacked the embassy. 50 people have been arrested. in the last few minutes, rouhani again oncized saudi twitter saying that saudi arabia cannot cover up its crimes by severing relations. the response, or the adequate response to criticism is not to capitation. -- decapitation. francine: that is the english feed. we also have the feed in arabic. >> those comments were made in a meeting with the danish foreign minister this morning. francine: what does that mean for opec? the oil is not price -- flared

up too much? andhen opec meeting, iran saudi arabia sit close by on the table, and the secretary-general building. we have been in situations previously were opec members have no relationship whatsoever. were at war. what is different is that saudi arabia and iran are the two most important countries within opec. with both of them not having diplomatic relations but the uae reducing the diplomatic representation. kuwait potentially following. their news agency announcing they are calling iranian diplomat for discussions. we come by a situation where two countireries are

talking. it will be key to find a country that will be a mediator between the two. algeria is close at the moment to the iranian position so that is very unlikely. what it leads to his paralysis and not any commitment for reducing supply any time soon. francine: you talk about a mediator. why have we not heard from russia? >> we heard unofficially and moscow that russia has come out and said they are prepared to mediate but it is interesting that their response does seem, given the amount of dialogue tehrann putin and recently, the strong relationship between this country, it is interesting they seem to be muted at this tstage. francine: thank you so much. now for those listening on bloomberg radio, the first word is up next. for our viewers, it is

"surveillance". we will not only look at currencies. we'll look at commodities to we have great gust coming on. the head of eurasia -- we have on. great guests coming you can follow us on twitter in the meantime. ♪

>> china intervenes. $590 billion selloff. we have new inflation figures, the 2% targets may be increasingly hard to achieve. the euro declines against the dollar. and more on the saudi attack in tehran. good morning, this is "bloomberg surveillance? -- this is "bloomberg surveillance."