francine: asian and european tocks rebounds. oil that is below $30 for the first time in 12 years. the u.s. president rebukes those who question u.s. values after obama warms of fear -- warns of fear and cynicism. we break down the state of the union address. welcome to "the pulse" live here in london. i'm francine lacqua.

let's get straight to the markets because we have had a lot of volatility. that is the understatement of the year. we have had a lot of volatility over the last 10 days. this is the picture as we speak. the euro stoxx 50 hundred gaining 1.6%. stocks advancing for a second day. buoyed by demanded commodities. you can see crude oil yesterday below $30. and then we wonder whether that $30 market is a floor for now. a couple of movements we saw in the yuan and the rand. currently at 16.43. let's get straight to the bloomberg first word. nejra: china's trade surplus widened and exports recover last months. the world's second-largest economy trade plus -- trade surplus increased. that offered support for the weakening yuan. has bounced back after

tumbling below $30 a barrel for the first time in 12 years. the oversupply of crude means prices have not staved off the threat of further declines. meanwhile, the bloomberg commodity index has tumbled to the lowest levels since at least 1991. iran's revolutionary guard are to question 10 u.s. sailors taken into custody after their ship ventured into iranian wat ers. one women wered taken to a nearby island in the gulf. and that's your bloomberg first word news. francine: thank you so much. let's introduce our guest for the first part of the program. he is global head of equity trading strategy at citigroup. great to have you on the program. we were expecting or hoping a quiet start to the year and we

have had anything but that because we had so much volatility, so much concern about geopolitics. then we had oil with all these calls going lower. how worried are you about china? there are concerns around. they are not new. some big questions are being raised and we are not going to get answers just yet. probably the reason why we feel there has been dollars -- been volatility, we had a andral bank, doing q.e. supporting assets. and a lot of that has been put into questions when ecb announce nothing in december, boj announced nothing and the pboc seem to be allowing the yuan to devalue. it is raising questions about chinese growth. it is raising questions around inflation and deflation.

so many peopleve saying that growth than what we are seeing on the markets is completely different. it is not a mature market. the worry starts not only we see stocks in the bubble burst but whether it touches debt. antonin: the link is around the have a big impact on u.s. credit. all of that is not painting a rosy picture for credit. yes, we have had a decoupling of gdp versus growth but that was explained by the q.e. done by the central bank. if we are asking the question are the central banks still there? that is becoming more scary. i do not want to underplay what happened in the last 10 days, but investors were not backing in their chairs on the desks. liquidity was very low. people are think

concerned because we still do not really know what the exact policy for yuan is. and we do not know how much of a grapple chinese policymakers have on the economy. have you learned anything in the last 10 days on their thinking? antonin: on the margin what we learned is negative on the yuan. instead of looking at the dollar benchmark, they are looking at a positive currency. that would make it easier for them to devalue. that was then new negative over the course of the last 10 days. the rest, whether it is the size of the foreign reserves. everything is going to be looked at extremely closely. but we are not going to get a -- the ecb on the 21st, the fed on the 27th, boj on the 29th. then the release of the foreign reserves early february. these are questions which will be answered and to allow risk appetite to come back.

values earnings is the other pillar of the equity markets. we just started the earnings season in the u.s. expectations have collapsed in the last three months. therefore, that could be underpin to the market. u.s. and closely followed by europe. francine: what is your take on oil? a lot of calls for almost $20 and it goes lower. what are we going to reach that point? antonin: i am not brave enough to pick the most. we'll talk about 40 and 50, now obviously sub 30. or oil weakness is creating triggering recession. it would be the first recession ever triggered by low oil price. these are the positives. we saw in the short term because of the link with the credit markets. the amount of companies including oil companies which have been paying dividends have not cut capex as much as they

could have are all basing a lot of their bets on $60 oil. if we stay lower for longer, that will change the shape of the industry, change the shape of credit. francine: is there also a concern that we are putting so little investment now at these levels that then the price shoots up in six, seven, maybe eight months to $60 or $70. that chokes the recovery. antonin: we are calling for a weaker first half and a stronger second half. $60 or $70, back to like the movies, we are not talking about 100%. can oil re-stabilized to 45 because the positioning is so short? yes. do we think that above 50 -- yes, as well. thank you so much to he stays with us and we will talk more about his main concerns for the next 12 months

and how he plays it on the markets. stay with "the pulse," plenty co obamap, including campaigns for his legacy. we break down his state of the union. oil touches 30 before rebounding. and we discuss what is next for crude and what the former neco ceo. some pictures from spain where the country's 11th parliament sits today. the election was on the 20th. it left a deadlock over who will form the next government. theofficial installment of parliament today kick starts the process for the nomination of a prime minister. so, we'll continue keeping a very close eye on that as well. ♪

francine: welcome back to "the pulse." barack obama has delivered a purposely up the state of the union address. using the speech to highlight economic achievements under his 10 year. -- tenure. than 14t obama: more million new jobs, the strongest two years of job growth since the 1990's, and on a planet rate cut in half. our auto industry just had its best year ever. -- an unemployment rate cut in half. jus part oft the

manufacturing surged that has created 900,000 new jobs in the past six years. and we've done all of this while cutting our deficits by almost 3/4. francine: the speech was at risk of being overshadowed by the detention of u.s. navy sailors by iran which obama chose not to mention. hans nichols was watching. this is of course barack obama's last state of the union address. how does it set the tone for the 2016 presidential election? trying to present his assessment of where not just the economy as but overall where the country is. if he is trying to create a contrast between the republicans who are very clearly talking about a lot of pessimistic outcomes, a lot of pessimistic views on where the u.s. is, whether or not that is internationally or domestically, the poverty rates. it president obama did knowledge he had not done one of his main goals coming into

office and that is reducing the level of partisanship, reducing the tension. here is how he put the tension and the conversation between the two parties. president obama: a better politics does not mean we have to agree on everything. this is a big country. different regions, different attitudes, different interest. that is one of our strengths, too. our founders distributed power between states and branches of government and expected us to argue. just as they did. fiercely. over the size and shape of government. over commerce and foreign relations. over the meaning of liberty and the imperatives of security. hans: state of the union addresses are almost always glass half full speeches. this one was a glass bubbling over. he tries to temper his optimism with an it knowledge meant of what he has not done. this is a president that did not send specifics to congress. this was a tone tone more than a

specific policy speech. francine: of course, what is the situation with iran? what do we know on that yet? associated press is reporting out of washington, out of the pentagon that the authorities have agreed to release the sailor sometimes wednesday morning. we have reporting from bloomberg state tv out of iran is that they want to hold these 10 sailors for questioning and question them before they release them. the faster they release, and this goes without saying, the easier it is going to be for president obama to get some sort of echo affect on his speech. until they are released, i suspect this storyline about the iranians and what they are doing to american sailors may overshadow his state of the union address. francine: think is so much. hans nichols in berlin. let's get more on the headwinds facing us. let's get more with the global head of equity trading at

citigroup. it seemsthat we have a lot of things that could possibly go wrong this year. we mentioned china. very low commodities, including oil. then we have all these geopolitics risks. 15% chance of someone, far right left emerging.ight how do you trade these? do you just ignore them? antonin: we can't do that. no. the geopolitical ones of the hardest ones to grasp at the moment. oft is why the all conduit globalizing issues on the geopolitical level was oil. political worries are clearly there. it is something we have written about. call it vox populi. it is not always easy. you mentioned brexit.

they would have a big impact on the pound. a big impact on the ftse 100. events being quite morey -- is a lot difficult. in the context of equities, cap, becausehe big vc of the domestic angle, japan will be a better play. overall conclusion is it is still a bull market. a tight bull market because credit is going wider. it means you do not need to chase it and you can buy the debts and sell the strengths. we are going to keep going with a likely have been using -- francine: so, you're not expecting a correction in some of the major indices? antonin: we are short-term potential because of the volatility conditions. longer-term -- less growth. it means no eps recession and no downside to the equity

markets. the direction should be still a positive one. nithin that, though, alig yourself with liquidity. it is japan, europe versus the u.s. there is most likely going to be a -- on the central banks. and japan are the two regions we look at versus the u.s. francine: what about playing japan versus europe? it seems the diversions between europe's central bank policy and the federal reserve has been already overplayed. so, does it have further left to go, or du play japan-- or do you play japan-europe? antonin: moore, located in europe, refugee crisis and so on. -- more complicated in your. but then some of the headwinds are not playing in japan. for now, i had myself and go for both.

the last pillar we want to look at where we look at markets as we see that, especially as the world is trying to, um, rotate in quality versus value. still make sense versus value being more risky. we are trying to -- create a hybrid screening. we think the companies that generate a lot of free cash flow will be supported on the way balancestrong that wa sheets. it will be leveraged into potentially m&a. it is a strategy which over the last 14 years has only underperformed twice. so, it's a strategy which we think is the right way to look at it. getting this are quality aspects coming from the balance sheet but at this -- but this cyclical aspect -- francine: on m&a, how much does

all this volatility, how much does the fact that we worry a lot about the oil price going for the down, how much has it impact co's appetite to do m&a? oil sector ite should. and there are some big votes coming on deals about to be approved by the end of this month. it will drive m&a causation. in the specific case of oil to 20-30?tle at 40-50 or away from the energy point of view, we have seen ongoing m&a. a bit on the high side. but would not call it bubble territory yet. we think there are more those -- more of those. francine: we have a lot of headlines from the russian economy minister saying they have to balance the budget, because they are hugely impacted by oil. there are markets that are less exposed to commodities. markets havethese

been outperforming significantly. the harder question is with em underweight, india versus some of the others. unsung emerging markets were come from what happens in china. goes down, it will be bad for asia, korea and taiwan and so on. more so than ever, we are keeping a close eye on macro. the outperformance of last year are not the one, eithers. russia doing a lot better than expected. we think there are relative we will stick with liquidity and slightly lower volatility which brings us more to a d.m. world. if we see a recession next year, a 40% chance on a global basis -- francine: a 40% is a high probability. it is still a recession. antonin: e.m. recession with d.m. staying positive, bringing

in a recession. even in this context with more focus on -- d.m. versus e.m. francine: what are you expecting from the earnings season? did fine on monday. is there anything you're looking out for in terms of margins or anything else, cost cuts? antonin: in the u.s., the last season was ok. i think there will be a focus this time on sales as well as eps. expectations came in so much. -6%.t q.4 at low hurdle. if anything, we would expect equity drive -- it into markets. correlation should come down as well. historically at high levels as we are entering earnings season. it's ernie season should drive correlation. francine: thank you very much for all of that. the global head of equity trading at citigroup it up next, debt talks reboot.

singer's negotiations with argentina get a new lease on life. we discussed that next. ♪

francine: welcome back to "the pulse" live on bloomberg tv. let's get straight to the bloomberg business flash. nejra: the california air resources board rejected the

proposed -- volkswagen's proposed engine fakes and put more pressure on the ceo who's scheduled to meet u.s. regulators later today. venezuela supreme court ordered three opposition lawmakers to stand down and declared all positions by congress null and void. a week after the opposition took control of the national assembly for the first time in 16 years. the lawmakers under investigation and should not have taken their seats, the court says. vowed to usen has a super majority to free political prisoners, unravel a decade of economic controls and seek the removal of president maduro. argentina's newly erected president is restarting the negotiations with creditors. the finance secretary is meeting representative of the creditors in new york on wednesday to restart talks that ended in july 2014. that was when then president refused to abide by u.s. court

ruling that argentina pay investors and faltered her decision pushed argentina into default for the second time in 13 years. francine: thank you so much. let's check in on the markets with mark barton. rising for a second day after a six-day losing streak. exports in china rising 2.3% in yuan termsn ending tha five-month losing stretch. devaluation isst helping trade. imports fell but not as much as anticipated. i want to start with the msci asia-pacific index, which is rising. it is joining the 2016 party. for the year, the msci asia-pacific index is down by 6%. the big currency move in the last five days has been the offshore yuan, which has made its biggest five-day gain. we have had intervention, china

fixing the reference rate at a stable level for four consecutive days. peace reigns for now. coming up, crude dips below 30 and rebounds. we will discuss that next. ♪ the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20.

it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. francine: welcome back to "the pulse." live from bloomberg's european headquarters. , paolontroduce our guest scaroni. also joining us is bloomberg's chief energy correspondence, javier blas. thank you for joining us. give us a sense of psychologically, we have these calls of oil going to $20, and then to $15. this today we talked 29.3 in 20

years. psychologically, does that have an impact? are you expecting it to go further down. thee." -- javier: next year. francine: you get more sophisticated context, what do they tell us? overpriced.emains we see physical oil from canada. low oil trading at $50. they look at the financial side,

but far out on the calendar. looking for an example at how oil inket is pricing five years time. oil companies get that. -- oil companies look at that. the directors of the company's when the ceo is coming with a new project, there would be the market ising telling me we are not good to be above $50 in five years. paolo, you are one of the experts. actions the take on ceos are thinking? pietro: i would cut down and -- paolo i would cut down

-- it is the right time to think about it because it is impossible to keep evidence and cash flows with the oil price. francine: is that for oil majors across the board? : these are doing well in the europe. if you're big in the sector, you can sustain some cash flow. still, their dividend level in general is too high. francine: when you talk about dividends, it means it will change the structure of what we'll see oil majors doing.

javier: we are so expecting more bankruptcy. we are beginning to see more companies going down. are we going to see a consolidation jackal they are quite bake. you think about exxon and mobile. there not going to see consolidation that we saw in 1998 when the super majors were created. another thing we are going to see is the oil companies are cutting investments. 2018 there is going to be very little growth. for investors who are investing in companies looking for growth, the perspective of this company is going to be very bleak. francine: paolo, what is going to be your take? think it will spur a lot of bankruptcies? paolo: i don't think we are in -- the only hope

they have is the oil price will rebound in the second half of the year. francine: so what? $35? paolo: we will not see oil prices above $50 for many years. production will drop much more than people are expecting because at this level of price, there is no interest. francine: you're talking about shell gas? i am talking about shell oil. production will continue to go down. maybe in the second part of the year, we might see prices around $40 again.

it can go down to $20, no doubt. we saw the name foot -- we saw the same phenomenon in 1998. no surprise about that. is the price will $40 $45.round francine: when you look at the psychology behind this hobby or -- javier. how much is the correlation between negative news and the javier: the dollar is a big part of this. the dollar has appreciated significantly. economy is playing a big part. more investors -- through the

options market. when we get closer to those options, the banks have sold those options into sale futures -- need to sell futures. paolo: the same banks which are forecasting is now $15. .he market is quite skeptical they have been wrong so many times you cannot trust them. javier: i was a geneva. there is a mood in the oil capital. it was very negative. traders seeing downside for prices.

the winter demand has been very low. the other significant point for me was a sentiment across the board among traders that not only prices could go down, lower than they are today, but they are going to stay at current levels. still, very low prices. change the-- it may difference between a small company in the u.s. filing for chapter 11. , therms of the dividend tightening of the major better.s, $40 is it is not going to make a big difference. francine: paolo, one final question, why have we not seen more of an impact on the global economy because of the price of

oil going down? i know this is hurting emerging markets. this should be a benefit. is it because we take so many taxes from oil companies? paolo: i believe the euro will be in a much worse shape. certainly there is some benefit. there is not enough and if it, because we are also in europe and exporting economy. countries which are suffering from oil prices being low are importing less. then there is the term situation which is of course very important. in total, europe is doing reasonably well. this is due to oil prices. francine: guys, thanks so much. will be talking about some of the reforms that europe needs. we will talk about geopolitics in the middle east. up next, we'll get the very

latest on that developing situation in iran where 10 american sailors are being detained. a look at the wider picture for tensions and what it means for the oil market. that is coming up next. ♪

francine: welcome back to "the pulse." i am francine lacqua. let's get straight to the bloomberg's first word.

nejra: china's trade circus widened and experts recovered less month. the world's second-largest economy increased to $60 billion, taking the tally -- that offers support for the weakening yuan. oil has bounced back after tumbling below $30 a barrel the first time in 12 years. the oversupply of crude means prices have not staved off the threat of a decline. have doubled to the lowest level since 1991. parliament has officially installed today. it ended a four-year majority for mariano malloy -- mariano roy. bloomberg first word news. francine? francine: iran's revolutionary guard says 10 sailors are in custody.

they are likely to be released soon. it is the most recent incident highlighting geopolitical risks. elliott, how exactly did this -- did thisl alico happen? elliott: they were trotting down bahrain.coast to at some point, the iranians, they ended up in iranian waters. they were detained and taken to farsi island. there have been conflicting reports, some saying they are going to be interrogated. .here could be problems one news agency accused them of snooping. other reports coming out of enron saying they would be -- coming out of iran saying they would be released soon. detention, butin

that is the situation as far as we know. francine: this is a situation today. if we take a step back and try to get the broader picture. -- january 13, how would you qualify the geopolitical tensions in the middle east? elliott: there are risks in the middle east, not just the spat between saudi arabia and iran. the saudi embassy was torched in tehran. the saudi's with true their ambassadors and encourage their allies to do likewise. there is the war going on in yemen. you still have syria going on. as this issue between iran and the u.s. sailors, i that it is highly unlikely

it is going to escalate into anything major. any day now, sanctions against iran as a result of the nuclear deal are said to be lifted. it seems unlikely that iran is going to do something this drastic to jeopardize it. it is propaganda for the iranians. iran.s coming from i think it is unlikely this is going to escalate. not to say there is not geopolitical risks in this region. francine: elliott gotkine there in tel aviv. let's get more on this. published our own he is debbie scaroni is paolo deputy chairman. when you look at tensions in the middle east, what has been the most surprising thing?

we saw the huge spat between saudi arabia and iran. the timing is crucial because it has an impact on the iranian nuclear deal and the alliance. competition between saudi and iran will continue for all of 2016. there are several reasons. we should never forget iran which is a republic, which is shia, is the archrival of saudi arabia, which is sunni, which is monarchy. this conflict will continue. saudi'sssion is the losing the battle. saudi arabia is losing. the saudi regime looks like a slowly sinking ship in my view. events.some major

you asked me about what has been the major event. it has been egypt which have proved russian intervention in favor of a sod in syria -- of assad in syria. alliancesle system of of saudi arabia in the region is not solid. francine: what the -- what does that mean in the war against i.s.? what does that mean for stability in the region? saudi is the only country which is the only country -- saudi is the only country which has not seen a rise in arab spring. paolo: 80 billion dollars of securities in 2015. sustained the deficit of the budget. this year they will have to sell

more. saudi has huge reserves. still the amount of money they spread around to finance pakistan, egypt, other countries is going to diminish. their power in the region will be much lower. that is a major element. for many reasons, including oil price. saudi arabia is producing 12% of oil all over the world. --n: if you pick one country francine: if you pick one country that would be ideal -- we don't know who the next president of the u.s. is. is there someone who could bring people closer together? paolo: the best scenario is things will get worse until there is a new president in the united states.

it has always been for the last few years. the position of a ram is -- of iran is pretty strong. [indiscernible] this is bad news for saudi arabia. francine: talk to me about saudi aramco. how surprised were you about the timing? ipoing.e looking at is this asperation? country that wants to open up? is this a country trying to survive? paolo: there have been rumors around that. i would be surprised if this project would move ahead anytime soon because it is so complex to buy shares in a company which is

part of the whole system of saudi arabia. to have so many guarantees about oil prices, about costs, it would take a long time. ipo for thisn year. francine: is there any reason why investors -- it is the most valuable company in the world. they have so many reserved. it seems like it would be the ipo that would be the most oversubscribed. paolo: not today and not with this oil price. .rancine: talk to me about iran we're looking at the lifting of sanctions. oil companiesat looking to go into iran. other oil companies that are in a position to benefit from this? paolo: iran oil is very cheap

oil. two dollars to three dollars a barrel. everyone wants to be there. what international oil companies are doing, everyone is going there. everyone is expecting the new comfort which will be presented here on the 22nd of february. then there is the real start for the race. be on oil fields already producing. grow production rather than greenfields. areas in which you have to years.for six or seven francine: away from all of those

geopolitics in oil. how do you think europe is going? you speak to ceos on a daily basis. what is the mood like? are people holding back because they are fearful of china and what may come next? they aresaying confident? islo: the european economy recovering slowly. 2016 will be a good year for the italian economy. consumption will grow. the consumers become more confident and they can start to spend again. in 2016.cting progress there's already been progress for every country in europe, including italy. francine: what is your main concern about shock? we talk about oil prices, terrorist threats. is there something you are concerned about echo a much higher euro or something going

wrong? paolo: i am expecting the euro not to be higher, but rather lower. oil prices will continue to be low. interest rates will be extremely low. iss is an environment which positive for investments and consumers. in total, 2016 will be a year of stronger recovery than 2015 for european economy. francine: your biggest concern is emerging markets. it is difficult because it is difficult to see what could go wrong until it goes wrong. then there is the risk of brexit. risk is theiggest middle east situation which is deteriorating. i do not see frankly how the situation can be solved in syria.

also this major conflict between sunni and shia in the region. in total, the situation in the middle east is the worst situation that we have seen for many years. francine: paolo, always great to have you on air with us. up, stay with bloomberg because we have 20 more coming your way. don't miss bloomberg's interview with robert kaplan. we continued the conversation on geopolitics. conversation is tomorrow. we have both the finance minister and the foreign minister and the economy minister. stay with us. we will be hearing from several voices within the fed. outlook.ngren gives an we hear from charles evans. go, let's have a quick

as that check. mark: quite a day is it? stocks rising for the second day of 2016. ending a six-day losing streak. let's start with asian stocks, that is where the heart of the action is. asia-pacific index rising for the first time in 2016, ending its seven-day losing streak after chinese exports unexpectedly rose 2.3%. in you want terms. haveffshore yuan moves been astonishing. it has been a record amount, risen -- risen by 2%. government officials jawboning, talking up. we had china setting the yuan reference rate. yuan -- as is the bloomberg commodity index which is rebounding from the lowest

level since 1991. francine: mark barton. for those listening on bloomberg radio, bloomberg first word is next. tom keene will bring you all of the economic announcements. that is coming up. ♪ we live in a pick and choose world.

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♪ >> shaking off the selloff, asian and european stocks rebound as china exports rise. below $30 a barrel for the first time in years, then bouncing back. rebukes president those who criticize american values. good morning. this is blan "bloomberg surveil" .