francine: explosions in jakarta. three blasts tear through the capitol as the terrorism threat escalates again. european stocks fall again after a selloff in the u.s. and china. brent crude closed below $30 for an 11 year low. the terror threats and low inflation complicate the policy decisions of central banks, as the bank of england repairs for its decision. good morning, this is "surveillance." tom keene joins us. it's all about risk, tom, and what you buy in this gloomy

outlook. tom: it is a change to gloom, and it is amazing getting to thursday from where we were on monday. whatever is happening, we have to get to noon in new york to really find out what the market believes as we go overnight. exceptionally fragile. that interview earlier captured it. francine: and when you look at u.s. stocks yesterday, it really framed it. there is a fear that investors -- tom: i haven't even looked at the morning newspaper, i've been so busy at the terminal. francine: and the bloomberg terminal puts it in perspective. this may because by that dovish hike by the fed. tom: there you go, blaming the u.s. banks. that's the way it is here. we are blaming janet yellen. [laughter] francine: let's get first to the bloomberg first word. nejra: good morning.

the capital of indonesia is rocked by explosions and gunfire, and while police are comparing it to the paris terror attacks, at least two people were killed along with five attackers. it happened in a busy shopping area in jakarta. police say it is due to the islamic state, and that in late november they had received a warning from the terrorist group. meanwhile, australia has rejected a u.s. proposal to increase its military commitment against the islamic state. the u.s. defense secretary ashton carter wants a coalition of 40 nations making a bigger contribution. australia says commitment will continue. has been no let up in the refugee crisis in europe. three times as many refugees arrived in europe. the european commission vice monthent said that next will be dedicated to regaining control of national borders.

predictbritish polls david cameron's reelection? it's the decision of the british polling council after cameron won majority. pollsters were better at finding the class and working-class voters. and the world health organization today declared the end of an epidemic that puts more than 11,000 lives -- that took more than 11,000 lives. africa is finally free of ebola cases. eierra leone and guinea wer only at three of the end of last year. the scourge lasted two years. global news, 24 hours a day, powered by hundreds of journalists and bureaus around the world. tom: let's get started with the data check. it's important when you look at foreign-exchange with the

government of the united kingdom. i have no idea where we will be in eight hours and neither do you. let's look at green. yields commitment is important. it has really come in with a vengeance in the last 24 hours. , a bit see a 199 stronger in the last 24 hours? oil has a life of its own, as you have already across all the media. everybody changing their views, adjusting their terminal value. go on to the second screen, if you would. we will get to francine's. dow will seend the a 15,000 at sometime today. more than anything -- i will feature this chart later -- the 210 spread is in the big oil index at the bottom. francine: tom, if you look at my board, i put in oil -- i wanted

to check on these european markets. this really follows some big losses in asia, following through the correction we are seeing a lot of markets. a 10% fall from the high of last year. i want to show you a pound, ahead of the boe decision. then we also had some pretty dire reports, not only production declining but also manufacturing. there it is. a data check. we will have many more across all of bloomberg radio and tv through the day. extra data checks as we look at unusual markets. francine: we begin with those explosions that hit central jakarta this morning. three blasts in the indonesian capitol, killing several. we are joined from a senior at aout -- we are joined by senior adviser. what is the imminent threat to asia?

>> well, there are two kinds. the first is one that is much more difficult to find out, the fear that indonesians, relations, even in the southern philippines, have come back for organizations that were independently in organization, mounting the attacks after seeing the effect in paris. the second fear is that these are simply copycats. want groups, militants who to attract the same kind of attention in mount the same kinds of attacks. it's difficult to tell which is which, because even indonesia doesn't have any strong data on how many indonesians have gone to the middle east and come back. francine: what can you tell us about what you have seen on these attacks? we have seen unconfirmed reports that the capital could have been hit by as many as seven explosions. this is amateur. i know it is terrible to say

because there has been the loss of life, but what does that tell us about security in jakarta, or how the officials will deal with terrorism threats going forward? >> jakarta has a pretty decent history of dealing with the tax. big crackdown -- they cracked down hard on the organization that did those horrific bombings in bali. they are now going to take a they were apparently done by motorcycles who threw grenades at several targets. some of them were shot. there was a running gunbattle. authorities are going to find out, again, are these connected to the middle east or are these copycats wanting to make a statement and name for themselves? once they find out, they will go hard against them. tom: you are in manila, and there is a polarity now. what is the polarity in indonesia?

is jakarta a center for great disagreement within islam in indonesia? >> no, cannot really. -- no, not really. indonesia, because it is a large nation, has a good western presence, and to some sense the borders are really forced, whether it is philippines or indonesia. i you want to -- if you want to do something bad in jakarta, it is not easy, but it is not as difficult as kuala lumpur or singapore. singapore would be really difficult, the jakarta, some parts of the southern philippines, you can move around relatively freely if you have small arms or explosives. tom: wonderful. great briefing. thank you. francine: now our guest host for the hour, the goldman sachs asset managemeer.

thank you so much for joining us. it seems that every day we have stories from every front -- if it is not volatility, it is geopolitics. see emerging as 2016? in the first 10 to 15 days we distilled all the fears, that terrorism will be one of the biggest threats. i guess global growth and safety. >> yes. there are so many things that have happened over the first few weeks of this year. the reaction of financial markets -- it is not primarily to political factors, it is primarily to what is happening in china, which i think is the big thing. obviously, the fight against terrorism goes on. it will take years. it can't be won overnight. but what is happening in china is i think something of a mystery, and i think is potentially alarming. we've had unexpected behavior

with the exchange rate, the depreciation of the currency seems to because thai capital slide. and if the chinese do not want to keep their money in china, that goes quite a long way. we don't know how solid the banking system is in china. but this is all what is spreading considerable dismay. when we come to the oil price, of course it is very overrepresented in indices like the ftse 100, and i think one can get the wrong effective comparing with happening in the market and the real economy. i think we are going to see a period of negative inflation for longer than we expect, but the positive effects of the deflation will also comfort. i'm not so pessimistic. francine: if we take a step back and say that 2016 so far has been gloomy on all fronts, be it oil, be at china, be it terrorism, what does it mean from investment point of view?

does it send money into europe? >> typically, this kind of volatility would get into the risk-free assets. ryan: tom: tom: we see the treasuries haven't moved that much. we have been in this area for quite some time. we have this sort of irony, where the fed potentially continuing to raise interest rates. that is one of the big debates that comes out of this volatility -- what does that look like for the fed? it gives them reasonable clarity of moving through the course of 2016. it is now being called into question, because of the oil prices, and because of the consequences of poor inflation. it'ss only last week -- still the labor market. francine: quickly, are the markets even ready for a cycle

where we are seeing tightening from the fed? >> certainly they have only priced in a couple more hikes. so there is some tighteng already priced in. they are not ready for what the fed has said they wod do. so the market is not price for that, and increasingly looks like it will be difficult to deliver for hikes. francine: thank you so much. westarted very nicely, and have plenty more of our guests coming up. we will be joined by former policymakers, an economic adviser. we will look ahead to the boe on super thursday. this is "surveillance," where the conversation focuses on macroeconomics, finance, and economics. ♪

francine: this is bloomberg's "surveillance." let's get straight to the business flash. salaries have been frozen at the world's second-largest mining company. the pay freeze of rio tinto starts with the ceo. in an e-mail to staff, he says will also limit travel expenses and look at spending on consultants and contractors. he says he no end the commodity rout. british home prices rose for their 12th straight month in december, and property services say if the current rate continues, the average price may be the equivalent of $433,000. home values in the u.k. rose almost 7% in 2015. and goldman sachs may cut more than 5% of its fixed income traders, according to a person with knowledge of the matter. goldman is contending with an industrywide slump.

the bank will make a decision after evaluating client activity. much.ne: thank you so we are back with goldman sachs asset management ceo, chandra wilson, and norman lamont. we have been talking about currencies, and how you can protect yourself in this kind of environment. how do you see the fed tightening cycle? we were talking before the break about the fact that there is something that the markets are seeing, and then there is the fed saying that they will still hike four times. this seems very dubious, and very fragile. >> well, if i had to guess, i would think that the fed would be proven wrong in the markets will be proven right, and the fed will not be able to do what it expects to do. normally, the fed judges simply on the basis of u.s. conditions, particularly the u.s. labor market, but of course some back janet yellen referred rather obliquely to the world outside

the united states, and if they had to take that into account a few months ago, i think they will certainly have to take into account now. with things going the way they are, i think the market will be proved right rather than the fed's anticipated rises. --: let's bring up a shot this is my chart of the year from last year, which has gotten grimmer. this is the old cci commodity index, one of the cruelest series off the bloomberg index. the long-term commodity disinflation, price adjusted, the china boom, the lehman low. then up we go again. all of a sudden, you guys are best in class at this. what do you see in correlation? >> i think we have seen a very strong correlation between the oil prices and equity markets, which is kind of unusual. it started to break down over the course of the last few days. i think some of that will be a result of people coming in and

being surprised by the speed of the moves. who knows exactly where oil will bottom out, but we would say at these kind of levels, the market has priced in a pretty glum outlook for 2016. we -- tom: i know abby was on with us earlier. goldman sachs has taken a more optimistic construct. when do you amend? what will it take for you to join consensus, grammar, more cautious? want to make some news here this morning? [laughter] -- you have got to divide the u.s. economy to a look, wely solid -- talk about oil prices coming but $30n they were 180, is not terrible news. it is good for the consumer but bad for oil producers. lamont, i'm honored to

have you on with your history of foreign exchange. when you look at sterling, 143, do you have to be medicated this morning? do you have a tip point where sterling becomes germane for governor carney and for your nation? >> well, i think they were obviously be looking -- i think they will obviously be looking at the effects on prices, but they will not be worried about it for the moment. i think they will probably adopt -- francine: but this is not bad for exports, right? even at 140 -- tom: i'm looking at the new bentley, it's great. >> and he referred earlier to the core manufacturing, core industrial production figures. british manufacturing has not well, and i think that has partly been the strength of sterling against the euro. this will be quite welcome to a lot of manufacturers. i wouldn't have thought that the bank would be concerned about

this. francine: they will probably be concerned about brexit, which is what we will get to next. mcfarlane is one of the big voices that we have heard today about the risks to the city if this country decides to leave the eu. that is coming up on "surveillance." ♪

francine: welcome back. i'm francine lacqua in london with tom keene, as we await the boe rate decision.

the pound is touching and 11 month low versus the euro. it's time for the morning must listen. i sat down with the barclays chairman in an exclusive interview, and he talked brexit. >> several years of markets being the dominant growth engine of the world as a whole with the developed world relatively subdued, particularly europe, all of that has just changed with china and the weakness of the emerging markets. we are dealing with a very different world now. i might have argued some time ago, had that maintained itself, that real threats to london or singapore or hong kong -- i'm not so sure anymore. francine: lord lamont, when i sat down with him, it was clear that he doesn't want to know the consequences of the u.k. leaving the eu, because we just don't know. is there a taste that the city would thrive outside the eu? , i think for the city

and the british economy to thrive outside the eu, you probably have to have a massive program of deregulation. you have to cut your tariffs, you have to decide to pursue very radical free-market policies. would any government really be prepared to do that? but yes, there is a case for saying that. what is difficult to discern is how much of the overregulation of the financial sector is due to the eu, and how much is by our own authority. it's not easy to know that. francine: andrew, it's difficult to know, but it seems that a lot of our guests say if the u.k. itre to leave the eu, is towns negative or is it supportive of the pound? >> i think the short-term it is probably negative for sterling, because of the foreign direct investment and the benefit the u.k. manufacturing enjoys with unfettered access to the rest of europe. i think the short-term reaction

is a weaker pound, but there is speculation that with so much uncertainty, i think it is hard to be definitive. i think it would probably be the first view. sterling had a tough start this year, and it already looks relatively cheap to us versus the euro and the dollar. you could argue that some of this is already getting factored in. >> i think one of the issues as we keep saying, well, if we are outside we don't have an influence on financial regulations, but we lost so many battles. tom: i want to talk about those battles, and particularly the history going back to the early 1990's. coming up, jpmorgan and their first earnings. stay with us. ♪

tom: in london and new york, wherever you are, it is never dull. here is a data check that will change in the next five seconds. yields come in at 2.06.

them euro strength, -- some euro strength, which i guest is good for optimists. crude oil is at $30 per barrel. it's the most challenging data check across equities bonds, currencies come in commodities. let's get our first word. vonnie: thank you. a jakarta, indonesia, shopping area was rocked by explosions and gunfire. police are comparing it to the paris terror attacks. at least seven people were killed, including five attackers. it took place near a starbucks in the central business district. the bomb was handmade in the attackers were probably linked to the islamic state. in late november they had received warnings from the terrorist group. pakistan is trying to make sure that india is ready to go ahead. authorities detained members of the terrorist group speculated on an attack in an indian airbase.

talks are expected to resume earlier next week. southeast asian economies boomed in the last decade or so, and so did their pollution. according to the asian development bank, carbon dioxide rose more rapidly during 2010 than in any other part of the world. the increase was 20 times that of north america. doctors say the former is really president shimon peres is ok after suffering a cardiac arrest. he is 92 and is expected to be released within days. he at least three when tickets were sold in last night's record $1.5 billion powerball jackpot. tickets with the winning, nation were bought in california, tennessee come in florida. the identities haven't yet been revealed. news 12 four hours a day powered by 2400 journalists and 100 news bureaus around the world. francine: thank you so much.

let's get back to the markets to see what's going on. the president of goldman sachs global market told bloomberg earlier that the u.s. stock market is underpriced. >> we don't see a recession coming in the united states, we see economic growth, whether it is 2.25% or 2.5%. we see the economy continuing to expand. we also see corporate profits continuing to grow. if those assumptions are correct, moderate improvement in the economy and profits, the u.s. stock market is underpriced. we can't say the same for bonds. we do not think they are underpriced. francine: abby joseph cohen, saying that the markets the perspective. she went on to say that investors have really shown emotional response. we are back with our guests for the hour. lamont, when you look at psychology in the market, how much does volatility have to do with psychology and the fear of

the deflationary spiral? and how much does it have to do with the fact that we don't know what's going on in china. >> well, i think it is both. i think we are living in unprecedented times, and there is a sharp division of opinion andt qe and unwinding it what is appropriate for the ecb to be doing, whether the bank of england should be unwinding. a lot of people are very critical, and you know the arguments for and against. butink that is part of it, volatility in itself is also deeply, deeply scary. i think it is the unknown in china. we don't really know what is going on in china. i think a lot of the announcements being made by the chinese authorities have not instilled great confidence the way they have discouraged journalists from reporting things, the way they have handled suspending trading in the market. all of this i think has undermined the credibility of

the chinese authorities. tom: you have lived the need for institutions to act. october, 1989 -- i remember, 2.95 which works to the pound. over erm. over you when i look at the institutional requirements, lord lamont, what are those institutions to do to to build up, and private debt worldwide? >> i think it terms of foreign exchange markets, i don't think you can go back to something like the accord. i think the institutional framework doesn't exist. even with the plaza accord, you had to get the timing right -- tom: a flock to say the least. -- a flaw to say the least. >> yes, but you get a floor that is sustainable. but i don't think those conditions exist in the world today. tom: i agree. oni think every businessman

to have a banner and their boardroom saying "there is no such thing as absolute stability." tom: do you have that goldman sachs? >> we don't. thatts are volatile, and placed our strength in terms of being inactive manager and taking advantage of these opportunities. the last couple weeks it started to throw up some opportunity. francine: what have we learned, andrew, about the way china is try to manage its currency? it' still unclear what their exact policy is, or if there is a difference between what they wanted to be and what they can stomach. characterize 2016 as a combination of continuing the reform process in china, moving the economy to a more consumer orientated economy, and also requiring more economic stability. at times, those things will be at odds. we are seeing some of that play out. it is certainly more volatile than we would have expected, and the chinese authorities would have expected, but i think that

is the tension that we are going to live with through 2016. tom: to the point, lord lamont, about what you said -- the description of the chinese government in their institutions to help their economy, they don't have the advantages of institutional rigidity. they are working in a wide open, immediate speed, floating environment. what is your prescription for the chinese should do? >> i think to move from being an export led, investment led economy to being a consumption one is an immensely difficult thing to do. one can't be over critical of the chinese, that they have run into problems. i think the obvious areas where they ought to be doing more is the state sector, seeing that the state sector is not so privileged, seeing that the access to loans is equally available to all sorts of businesses, that there is not favoring of the state enterprises. these are the sorts of things that need to -- tom: but do you assume a

currency depreciation in china? literally whether it is one day or 100 days, a devaluation of the renminbi? >> well, if there is a devaluation, that will be in one sense very bad news for the west. we will see deflation going on for longer, and although that is not the end of the world, it undermines confidence and is difficult for businesses, difficult for borrowers. i think we are going to see that. but this is happening because of capital slide. i don't think it is because they wish to go back to having an export led boom. it is because of capital slide, and they don't have watertight capital controls. obviously they have moved to liberalizing. francine: we worry about the currency, but it could give so much worse if this asset bubble we saw happens on the debt markets. >> yeah. look, any event volatility -- and i think you would agree --

there will be modest appreciation of the renminbi over 2016, but it is unlikely, i think, for a broader contagion. we would view the first couple weeks as being an overreaction. some of it is driven by the weaker economic numbers coming out of china. not just china -- if you look at manufacturing sectors in the u.k. or u.s., they are disappointed. some of it is just a reflection that the growth trajectory is not quite as strong, that we have got to cope with this volatility. yourwithin your world, and former colleague in crime jim o'neill, you have to deal with, are we'll prepared for a true bear market, because of our focus take by take on global markets? >> i don't think we are unprepared. as abby joseph cohen said, we have to stand back, look at the screen every day and see stock markets going down -- tom: and look at bloomberg everyday. [laughter] >> of course.

they go down, and i think that builds on the sentiment. so we have to look at the areas where things are going well. not everywhere is going down. it looks reasonably good. the sentiment can certainly build on itself, and that comes through the business sector and the decision to invest, and with this kind of volatility it is not unreasonable to think people might slow down. but certainly there are good things happening in the world, in the consumer in the u.s., in the consumer in the u.k., things are not so bad. lower energy prices are good for the consumer. tom: can we go another six hours? i am never going back to new york. francine: [laughter] tom: lord lamont. when the pound hits 1.39 -- into theue to discuss next hour. adam parker will join us.

then, a conversation with bill bowder. stay with us. ♪

tom: good morning, wherever you are. in new york city, markets on the move. we will keep you abreast into the afternoon. right now, flat. futures down one, down futures down six. solutelyto keep up -- ab brilliant on the strong yen call. what has changed in the air in the last three days question mark we seem to get to 12, and the bottom falls out -- why is

that? >> i think it is interesting, tom. the foreign markets have been relatively calm, which would suggest that a lot of what is going on here is domestically based rather than cross-border based. in that context, it is a little perplexing for us here in the u.s., because normally we see a lot of volatility in the morning, when we overlap with europe. the activity has really been in the afternoon, when the u.s. has the markets to itself. that also supports the notion that this is domestically based. part of it here in the u.s. is tax driven. some profit taking in the early part of the year. but really, no reason for other investors to buy against that profit taking. francine: bob -- will it

continue to be the case? >> well, i don't know if they are a haven in the sense that, no, there is not a lot of volatility, but it is not like anybody is making tremendous returns in currency markets. suggests is that divergence and monetary policies, or expectations of divergence, are not getting any greater. if anything, they are noodling. the expectations about future fed tightening are coming in, u.s. rates are coming down, which suggests that there is less divergence expectation and fewer moves in the fx market. but it doesn't help in the sense of generating positive confidence. tom: one thing i am looking at is the curve flattening going on through the world. the united states difference between the two-year and 10 year

yield. i will suggest that it is not a recession call, but we need to.be sobered by a flatter yield curve discuss -- we need to be sewer by the flatter yield curve. >> absolutely. one of the better economic indicators before the fed became heavily involved was the shape of the yield curve. a steep yield curve would tend to suggest that the fed is keeping short-term rates low, whereas higher long-term rates would be a function of rising inflation expectations. we have the opposite now. longer-term inflation expectations are coming down, just the expectations are still there that the fed would like to normalize rates. that creates a flattening yield curve, but it is also sobering with respect to the future economic outlook, that flatter curve does often precede slowdowns in the economy. francine: bob, thank you so much.

andrew, you are also inexpert in fixed income. what is your take? >> i think that lower, long-term inflation expectation as you see oil prices come down, the fed is on that tightening track. that is what keeps the two-year pins where it is. when you see inflation remain low and oil price come lower, people sort of project that out and lower inflation 10 year yields don't need to rise as much. there is also a flight to quality bed, and typically that is further out of the curb. i think those things are causing the curve to flatten, and the economic story is moderating. it is not as good as we thought it would be three months ago and that is reflected. francine: andrew wilson, thank you so much. we will get back to him on oil and the boe as we talk about mark carney and the right decision at noon london time. young up in the next hour, will be joined by the former boe policymaker andrew sentance. we're keeping and i on the town

-- keeping an eye on the pound and what it means for governor carney. ♪

francine: this --

vonnie: this is "surveillance." christmas sales fell at cartier jewelry. they say fiscal third-quarter revenue was down 4%. demand is weak for luxury watches in asia. swiss watch exports to hong kong fell 28% in november. the news network al jazeera america is pulling the plug. the network says it will stop operating at the end of april, two and a half years after it launched. it blames what it caused the economic landscape of the environment. controlled was by qatar's royal family has struggled to build an audience in the u.s. you won't notice it if you were headed to dallas for the upcoming world economics forum , but apartment prices and the swiss resort town ve fallen. prices for holiday homes or down as much as 15% in the last three years, due to a building boom. there are anywhere from

five to seven times the normal rate, and that is our bloomberg business flash. it would make good business sense to buy a holiday home. tom: it's amazing how we go there and i have no sense of recreation in davos. it's such a grind. francine: but maybe one day we will. the bloomberg surveillance chalet. icy cold this year at davos . we are absolutely honored, particularly in the market turmoil, to bring you andrew williams and the former chancellor norman lamont serving the united kingdom. let's go to the chart. this shows the superiority of the colonies. for years, the redline showing dollar strength. bottom is the lamont

decision where he single-handedly drove it higher, churn,n, a wonderful and here we are back down again at a critical level for sterling. how does the bank of england -- how do they adapt and adjust to where the united kingdom i? >> i didn't think the bank of england are going to be alarmed that what is happening to sterling. many manufacturers have thought it was overvalued, and that is probably why manufacturing has not been doing so well recently. inflation is nonexistent in the u.k. at the moment. this anxiety about whether you will get back to the 2% target, as there is with many banks. i think they will be relaxed. tom: how have they reacted to real estate prices? the plutocracy of london, all

the people at goldman sachs buying zillion dollar properties, driving up real --ate crisis >> i think she would have been slightly conflied. she would have liked the fact that london is an international hub of global capital. on the other hand, she would think it is absurd, the level of house prices. what she would be concentrating on is increasing the supply. she would see the fundamental point, planning a lack of building enough houses. andrew, mark carney has been labeled many times an unreliable boyfriend, and interest rate hikes keep being pushed back. when will we have a sense of what he's going to do? you can't be seen as playing on the fx markets at a very critical time. >> i think they have a difficult set of decisions this year.

as thomas pointed out, the fall in sterling themay alter expectations, but it is coming in softer than they had been forecasting. we have seen a bit of a slowdown, and so they are going to be on hold the longer the markets don't have a hike priced in until may of 2017. more than a year away. by the middle of this year, we had a hike priced in. i think the markets have pushed out that hike because of the slowdown activity. lord lamont referred to the lack of inflation -- no reason for the boe to need to move preemptively. i think they will be on hold for quite some period of time. francine: how should they look at the falling oil price? >> i think they will look at it, as we have been discussing here this morning -- on the one hand, it is good for the consumer and it gives you more power, but of course it brings down headline inflation. the bank has been a little more transparent than many central

banks, that fall in the oil price. but with zero inflation -- i think we will stay on hold. tom: are you managing money, obviously within a single digit world, but to find that single digit world. are you bringing it down for rom an assumption --. >> we are a low yield world everywhere. yields have gotten higher, particularly in corporate spaces, but still -- we would look at the fining the parameters of a u.k. orientated pension plan with returns somewhere in the low single digits. i think those are achievable. but it is slowly ratcheting down. they will stay low for a pretty prolonged period of time. >> i agree with that analysis. francine: all right, we have consensus. tom -- brexit -- i am getting a

little more warmed up to it. as your counsel for prime minister cameron? what should be his to do list as he gets to the referendum? >> in order to win the referendum, it has got to be real change. tom: you mentioned earlier the deregulation. >> no, no. it has to be a real change in our relationship between britain and the eu. there has got to be -- something has to happen on borders. we have to have some greater control over our borders. we have to get some concession on welfare payments. tom: we are going to have to go -- thank you so much. coming up, bank of england announcement. stay with us. ♪ .

tom: the collapse in oil and commodities, it widens to other markets.

attacks.a, new terror goldman sachs catches up with deutsche bank and morgan stanley , fixed income trading and sales will be shown the door. jpmorgan reports revenues and earnings this hour. we are live from london this thursday, january 14. i am tom keene. with me francine lagarde. francine: we just had breaking news. if we can, let's get the share price because they are dropping significantly on reports on the back that there is a probe on their emission tests. we do not know whether these two were linked with volkswagen. we are getting news saying french fraud investigators have seized computers from the

automaker as part of a wider investigation into these admissions testings. they have had a tough time of late but the share price is down 12% as we speak. tom: something to pay attention to. especially with their linkage to vw. officials in indonesia say seven people were killed during an attack in its capital. explosions and gunfire broke out in a busy shopping area of jakarta. two civilians and five attackers were killed and at least 20 others were hurt. five suspects are in custody. the city's police chief says the bomb was homemade and contain nails and bolts. five unexploded bombs were found and the attackers might be linked to the islamic state. the world health organization declaring the end of an epidemic that took 11,000 lives. liberia is finally free of ebola

cases. two prevents -- two attempts to prevent the disease ended when new cases emerged. the ebola skirts in west africa lasted two years. the michigan city where the water supply is poisoned has a new health crisis, state officials say legionnaires disease is fighting in flint, michigan, it has killed 10 residents since they started taking water from the flint river at high levels of lead were found in the water. bottled water is still being handed out. president obama saying -- he is using $70 million from the congressional fun to resettle refugees in the u.s. the money will help go to war-torn regions and central america. raised the number of refugees the u.s. will accept by 15,000 here in 24 hours a day --

tom: thank you. the data check, equities, bonds, currencies. the euro rebounds and oil with a 29 print, a headline but the real news is we are sustained below $31 a barrel on west texas intermediate. a fragile market waiting for the new afternoon. the dow, can we see a 15,000 per on dow today? 2/10 spread in the last hour, further flattening. the difference in yield between the 10 year and two year. francine: treasuries and important story. european stocks, 2.8%, lower. there is so much market here. you wonder where investors are

putting their money. onset, andrew sentance 140 366 and a look at the jakarta cop is it, now closed but quite some losses and a parody some losses after falling sharply after several people were killed. tom: we will give you more data checks throughout the day and touch upon -- it is nice to bring in a voice of saturday, michael holland has seen this before. the values preaching of adjusting one's portfolio. i own 30 stocks, what is my to do list when i see the carnage we have? chooseyou manipulate and and make choices as you move lower in equity prices? michael: there is an old adage, do not just do something, stand there, that is where we are, in the shipping stage of a little bit of a panic.

you do not have to go back decades, go back to august, it is similar, the shanghai exchange down 17% year to date, last year was three times worse than the world index. last year was the best-performing market of -- up 9%. that will influence our markets here, the craziness over there. at the end of the day, the fact that oil is going down or china is -- there central bank is not as supportive as people want. it is all about negative can get worseit until it stops getting worse. tom: you are the only one i know who still reads printed annual reports. when i look at the work that needs to be done, do we have confidence that corporations will develop free cash flow and sustained dividend growth and share buybacks?

michael: far more important is what you put into question. chief buyer was corporations themselves and this year with the negative wealth effect going on you probably expect after the quiet time of earnings that they would end up with some more purchasing activity but not as much as before. right now, starting earning seasons with jpmorgan and intel in the afternoon, looking at -4.7% earnings estimate overall. for the quarter. we probably have a reduced fundamental picture. more important is the negative sentiment, psychology is really awful. francine: someone from goldman marketaid that prospective investors have shown emotional response, this goes back to what you are saying, it is all about psychology, what needs to ship for markets to be

relieved? michael: sox need to get to a point where the selling has teetered out. joseph cohen has been through these markets before and at the end of the day the only thing that will stop the selling is when the selling stopped. that may sound like an inverted position but since it is irrational at this point, it can get more rational and that is why i started out saying do not just do something, stand there because you are not talking about rationality. francine: we had the breaking news about renault, the biggest french carmaker. they make -- tom: i did not know what you are talking about. dropped, downes as much as 16% after -- a huge move -- the front office has

visited their sites here this was on january -- thursday. standards with the testing, and emission test and this brings us back to what happened with volkswagen. it is something so large, we do not know yet, but it could be as large as what we saw with volkswagen. markets going back to the fundamentals of economics, finance, and investment. part of the international debate on the central banks is the ramifications on supermarket is with andrew sentance, a former bank of england policymakers now with pwc. he is -- has carried a certain economic porch on inflation -- torch on inflation, where is the inflation? andrew: i do not think there is

rampant inflation coming up, the main message of the moment is the factors that have pushed inflation down to about zero in the u.k. and other countries, they will be temporary. central banks near to be geared up for -- need to be geared up for wendy inflation goes up to the 2% target, when it is brought out by falling oil and commodity prices, those effects do not last. central banks should be looking through that and should be moreing of trying to get policy on a better medium-term footing. appalachian has taken some of the pressure off consumers. the cleveland cpi, has shown a more elevated price change, within that the idea of lower for longer. in economics, the time continuum is the toughest thing to guest. what you see commodities" as they have any market turmoil we are in, does that suggest that governor carney, chair yellen and others will have a yard -- longer deflation?

intow: the way it plays monetary policy strategy should be different from where we were back in the mid to thousands. taken monetary policy settings to extort every levels. there is a strategic challenge in front of central banks to try and normalize on a gradual basis. , very lowallenge inflation is quite helpful. it means that consumers are doing ok. what you are gradually moving interest rates up, consumers are cushioned by the impact. paradoxically, this is quite a good environment to central banks to be gradually moving up interest rates. if they wait until the inflation signals a flashing red, they will have to move interest rates up more rapidly and therefore not able to get the gradual rise a want. -- they want. -- breakingnault

news from chrysler. after falling 10%, that stock was halted. we seem to understand that the front office is trying to coordinate investigations into .missions testing across europe this does not mean they found anything wrong. we are waiting to see investors being on the cautious and selling off stocks. renault is down. this is clearly not linked to market turmoil but when you have moments like this you never shocksat the endogenous are going to be to the market. francine: when we heard about the mission shooting at volkswagen, a lot of people are asking whether it would have an impact on europe and the german economy that it did for a short

time. it -- as this widens it could have a huge impact. printing 18, aso stunning statistic. away from the topic but another weight to the market when you see these big automakers troubles. francine: a lot going on. terrorism threat. currencies. breaking news and we will be back. tom: can we talk to andrew sentance about david boeing -- bowie. ♪

francine: welcome back. breaking news out of a lot of carmakers in europe.

, this is at expert probe that started with renault and you are sharing skis -- of fiat. >> these are vehicles are more prevalent in the fiat. shares of renault have dropped 20% the last time i checked on reports initially by afp and followed up and confirmed by bloomberg from a union official that their offices have been rated. -- raided. about a diesel type commission issued. we do not want to go too much further and we are seeing a big movement in the price of the stock. when you saw the initial reports out of volkswagen that happened after the market closed on a friday night. at that point it was very firm, from the epa.

we also heard from volkswagen that they kind of admitted to it. this seems to me as being different from the volkswagen scandal and we do not know what is going on at renault in terms of their diesel fleet. it is not a big diesel fleet. they did not make the same investment that volkswagen did. autowhy are the u.s. involved in the same song and dance? hans: european authorities made a big bet on diesel. they made a big investment in diesel and they are much more prevalent, 50% of some fleets across europe. a big investment in diesel and volkswagen tried to transplant that diesel strategy that is popular in europe and convince american consumers and regulators that it was less polluting because it's co2 omission was much lower, that was their green claim and volkswagen got into trouble

because they try to export the technology from europe to the states and tried to get market shares in the states. francine: you are right, we cannot jump to conclusions, afp reporting they spoke to one of the main union guys and said that he was left with the impression that the raid was about omission standards. we need to be very -- emission standards. -- basing thisin on what a union official thinks the probe is about, we do not have confirmation. francine: there was also a huge market sell. could you remind us -- we did brokehen the vw scandal and it was a european probe -- in my right? hans: there was a european wide probe, the reason the volkswagen scandal was bigger because it had to do with software, they were actively trying to lower

their emissions of nitrogen oxide. it was a device that drove a lot of the downward stock movements on volkswagen. for a wild, a lot of independent companies started doing tests on what a company wrote emissions were and what their test emissions were and we saw some crazy fluctuations based on -- a newspaper in germany would report someone's test did not meet what they were doing and a lot of back-and-forth on that. in terms of what regulators here have say, they have not given anyone a clean bill of health but a lot of auto companies have said and include a do not have the software on their. all or any auto companies have been slightly, i do not want to see cheating, giving us the upper limits of the mileage they get and emissions they turn out, that is they -- that is a different question because there is a difference between testing them in a lap and the road test.

-- lab and the roads as. test.- road .om: futures flat we continue our, to -- conversation with andrew sentance. ♪

francine: welcome back. renault shares plunging as much as 20% after a union, a french union saying that the french

fraud investigators are seizing computers from the automaker as part of a probe into emissions testing. probe, we doparent not know what is going on because both the renault office were not commenting. it is having an impact on most european cars. tom: it did affect global and u.s. bleachers which were flat and now negative for a negative and -6.4 vonnie: components down -- it has to be as today's exclusive interview with robert to hassan brought to us by michael mckee. markets came up. have a listen to what he had to say between the relationship

between markets and monetary policy. >> as a monetary policy maker you have to watch these markets. you have to realize they may or may not reflect what is going on in the economy in the united states. vonnie: he does not seem to be too concerned. he thinks markets and monetary policy can be distinct things in terms of movement. >> he took comfort from the fact we had a strong jobs report in december. one of the ways we see the economy impacted is through the strong dollar but he says the trade is a small part of the u.s. economy that a big part of the s&p 500 profits so investors are worried more about what is .oing on than policy makers where there could be a problem is if we see this equality that pushes down interest rate the fed may not have control over the long term. tom: you made a global headline with mr. kaplan with the idea of

larry summers secular stagnation, andrew sentance knows something about that. i thought mr. kaplan was kind to mr. summers about the worry about a permanent stagnation, do you see that? can you agree with any form of what larry summers is saying? andrew: i think secular stagnation is an extreme statement. i have been talking about a nor -- new normal for economic growth. the economies that have done the best, average growth over six years in the u.s. and the u.k. has only been about 2%. that is not stagnation, that is growth and unemployment has come down. there has not been good enough growth to create new jobs but when they talk about stagnation it is almost as if we will get no growth and i think that is to extreme. tom: what did you learn yesterday? ofand anti-inflation kind

central bank, and now you have what is a self-described centrist in charge, kaplan says he is not a hawk or a dove and he changes his mind as the economic data changed. it will not be a one-way boat now. , -- a brilliant idea congratulations on that interview. we have more to talk about and so much of that is the perspective, andrew sentance as we look at global march it -- markets. ♪ 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. breaking news. -- picture,pressure 21% lower for renault.

fiat chrysler down 9%. this is after there have been a probe. renault shares dropped after a union was saying that the french fraud investigators had seized computers from the -- in an apparent probe about emissions testing. we have to get to the bottom of this. and youcalled renault fraud they have not called us back. the markets have been a little bit spooked by what we heard. let's get to the first reviews. vonnie: following breaking news, from indonesia, the islamic state is claiming responsibility for an attack in the capital. officials say seven people died when explosions and gunfire you rubbed it in jakarta. five killed were attackers. it started at a starbucks in a busy shopping area and 20 others were hurt.

i've suspects in custody and the city's police chief says the bomb was homemade and contain nuts and bolts. five unexploded bombs were found . the islamic state says it targeted foreign nationals and security forces. the more let's get straight to our reporter in jakarta. do we know any more? is the city on lockdown? >> it is not but it is jumpy. a team of islamic state suicide a decentook over stretch of central jakarta that killed five people -- that killed two people, five of the attackers were also killed. a reminder of the threat posed by the islamic state outside of syria and the rack -- and iraq. vonnie: thank you, he will be keeping us informed throughout the day. , tom? news

tom: thank you. this is the beginning of our davos coverage, global events always taking over. forum.ld economic us senior economist is with with the release of the risks report. every year it is interesting but this year -- i want to go right to the scale issue of the moment. motion wetudy the have seen, particularly in cologne over new year's eve, how is the world economic forum changed their view on migration? > >> it is about putting people first. what we see in europe is the tip of the iceberg. it is a global issue.

we have to pay more attention to it. we have seen 60 million migrates. what is happening in the middle east, africa, and other regions, much worse. francine: it is incredible to see the broad range of risks and you highlight environment, geopolitics, economics. do you think this overall -- we are seeing so many risks from all over the place, this is a more uncertain world that it was 13, 14 months ago? >> definitely,. there are different types of risks. that are particularly impactful. it has some elements of a perfect storm that could be happening, we look at a 10 year time frame. one of the leaders that will not be there is angela merkel.

within the perimeter of all these risks, what are you going to try to listen for from global leaders at the world economic forum? >> what we would like to hear is that they are thinking about resilience and how to build resilience in government and as society as a whole. putting in place measures to strengthen societies. risksne: we see so many over the next 18 months and you have the longer-term, the next 10 years, are you concerned, how concerned are you because we are seeing some new problems in the next 18 months that we could exacerbate the problem in the next 10 years, food prices, and profound social instability. typically something that creeps up on government without them realizing it. >> everything is highly interconnected and we have seen it with the arab spring where a food crisis has led to social instability. one of the contribute factors. easilyre risks that can

reach a tipping point. tom: andrew sentance with us. with the bank of england. as you know, what they worry about is the rate of change, whether the ice in the streets, but the pegs on your feet and you learn to do that after you fall down the third time. you go down to the promenade and part of it is stability, do we have financial stability? andrew: we have more financial stability at the heart of the system with the repair that has been done in the banking system but we have a degree of structural nervousness in the financial markets. in the world economy at the moment, we have different economies in different places. a number of the emerging market economies have slowed down a likesome in recession

russia and brazil and the western economies, the u.s. and better performing european economies have been improving and he markets tend to focus on the negative side. when we see some of the negatives emerging that makes them nervous and that is what we have seen. he: he can come back because did not say the media focuses on the negative side. francine: not yet. a proverb, the men who is worn -- when you highlight the biggest risks, if you are a world leader or a minister or a ceo, you need to take action, do you believe we have the right people in charge to take these risks seriously and address them? >> some were addressed recently. .e have seen the positive side, we had a sustainable development and there are pockets of progress over the past year which makes us optimistic than we were sometime ago. francine: thank you or joining

us. we have so much to go through. tom: a lot of wonderful guests. we just heard from ken wrote off and he will join us -- rogoff, and he will join us. we will be in zürich on tuesday, monday in london. we will continue our discussion with andrew sentance of pwc. stay with us from london. ♪

♪ francine: welcome back. a little bit of an update. 40 minutes ago you saw the renault share price fall as much

as 20% after we understand the probe has been happening, not sure what is is related to. we have been trying to call the press offices for the carmakers because we are seeing a cell over -- selloff. spokesperson saying that his french offices have not been searched by authorities. difficult to know what it is related to. we spoke to a union leader in france saying he thought it might be linked to emissions. we will try to get to the bottom of this, investors selling off the carmakers just in case. if this willer have an effect on the united states this morning as well as europe. andrew sentance, the turmoil in futures, negative five. i want to talk about the battle between the sentance and recruitment crew -- paul krugman crew.

summerslawrence criticizes mr. krugman. can we look at economic models or do we have to have a new thinking in our economics? andrew: the difference between myself and paul krugman is he puts too much emphasis on the demand side of the economy, he sees public demand into the economy as the solution to almost all problems while i am more of a supply-side economics . economies that have sensible labor markets like the u.s. and the u.k.. tom: jamie dimon does not want you to speak today. we have jpmorgan's earnings getting in the way of the brilliance of andrew sentance. vonnie: i dollar 32 per order earnings and net income came in billion. $5.4

the legal expenses affected earnings to the tune of three cents per share in relations to the credit default swap conspiracy that went on and the resolution for the allegations that there was a conflict of interest at the wealth management unit. of25 million in terms provision for credit losses. -- billion dollars. in terms of investment baking, billion.at $7.07 we will bring you more on that. the shares are trading in the premarket, unchanged. at the press release and you and i have talked many times about the beauty of the jpmorgan clarity. what i mostly see besides the fact they are selling their

darn, i get that, they are good gross relative to other banks. so much is not just about doing good but the comparison in the coming days versus the other banks. vonnie: the first to report and interested in this because the challenges this quarter including oil prices sinking and high-yield credit spreads widening and bond issues and slowing the market turmoil. it will be interesting to see how the changes -- 44 compensation expense, six point 6.6 -- $6.69n -- billion. tom: let me turn to the bloomberg terminal, $40.13 unpublished book and one of the biggest issue is this is a bank that really trades at a better premium to some of the total banks.

i did that chart on noise on u.k. or bank of america in the united states, they are not jpmorgan. francine: it seems that they slightly beat -- the stock is flat in premarket, what investors are looking for is how aggressive jpmorgan would be on cost. when you look at legal costs, they are lower. we will come back and begin our discussion of the earnings season on american banking, william cowan will join us, a brilliant books on bear stearns and goldman sachs. we will talk to him about jpmorgan. with us as well andrew sentance. ♪

♪ tom: incredibly busy morning. a nuanced morning and for exchange. of 18 solid through the show, at the bottom, a weaker peso, 17.98 and a 1.4 for any is ismaginable -- looney unimaginable.

it is about money and power, that would be wall street. maybe it is about the hill short. , i havecohan is with us to go to a better than good jpmorgan report and the backdrop is rightsizing and rationalizations come at deutsche bank, morgan stanley, and the wall street journal talking about goldman sachs. is it going to be around of layoffs so guys like jamie dimon and make their number? william: with regard to goldman sachs, every year they call out 10% of their workforce -- the big european banks and retreat, yes, that is interesting, a major macro story. an interesting development leaving the jpmorgans and wells fargo's in a solid position. tom: relate for us where these banks should trade to book.

are they supposed to return to the book values of a previous time or does william cohan have a new book value for too big to fail banking? william: the days of three times 24 times book along -- to four they barely- now trade at book, most likely under book. i am afraid that is the new reality. i think they can be profitable. they make a lot of money and are powerful. they continue to make money especially as the economy improves. in terms of trading in higher multiples, i do not see it and that is the new reality. that does not mean a smart trader cannot make a lot of money trading the stocks. francine: the you think u.s. banks are in a much stronger position than anyone else? the asian banks, european banks? we are not seeing a strong investment bank and europe, we

all want to be asset managers. william: i personally believe that this is the new golden age or wall street banking because their cost of goods sold is basically zero, relatively nothing. the cash they get from the fed or from depositors is for free and they have very little competition thanks to the financial crisis which wiped out lehman and bear stearns and other big competitors. the european and asian banks are in total retreat when it comes to investment banking. tom: greatly appreciate your perspective. i think we will be speaking him through the 10 days of banking we have in the united states. how about a single best chart with andrew sentance who has a phd in patients as there have been distractions. this is the way the public lives, specifically retiree and savers. is the financial

crisis and andrew, he financial repression on. this is the price to savers is monetary policy in the fixed income market tries to adjust to the new normal. andrew: it has certainly been one of the big consequences of the financial crosses, the .eturn to savings has come down at the moment, about at the line because inflation has come down. -- those of us who are on forward monetary policy at the time, when we cut and just rates dramatically, my feeling was this was dealing with a temporary situation. to get economies growing and now they are going. we really need to have on the agenda of gradually moving -- tom: do you agree with the professor at dartmouth that we need a little more oompgh to get

nominal gdp going in the united kingdom? andrew: the growth we have had in the u.k. is in this new respectable, 2% growth with unemployment coming down in the u.k. from 8% to over 5%. that shows the economy is growing ok and what central banks should be doing in this environment is trying to gradually get the balance a bit more into kilter between the interest and borrows and savers. the risk of carrying on at the low interest rates is you get another way of borrowing. gearing up on low interest rates and building up even bigger problems for the future. francine: what do you say to some analysts and fund managers who say the turbulence we have seen on the markets over the last 10 days is going back to what the fed did in december, the fact that they are embarking on monetary tightening when they are not ready for it. 2016 may not be the right time

to continue to tighten monetary policy. andrew: i do not see that as underpinning this nervousness in the financial markets, it is driven by people's views on -- whatndia middle east is going on in the middle east. response ofs, the them should be to give a stronger lead and communicate much more clearly about their strategy. the fed has started to do that and we need to see that in the u.k. francine: the u.k. facing more uncertainty guys we had week economicdata -- weak data and facing a referendum and it is impossible to quantify that. thing we cannly see is what the impact of the referendum is going to be, we are in a limbo land waiting for the terms of the referendum to be really clear. that could be a source of uncertainty but i do not think it is the real preoccupation at the moment and the u.k. economy has been growing quite well, our

growth has been led by investment in exports not just by consumer bending -- bending. -- bending -- spending. ph?: does it need the oom andrew: it is not for central banks to dictate the nominal gdp. i think the economy finds its own equilibrium and you have to look at the real aggregates in the economy of growth and unemployment to see how it is performing. in the u.s. and u.k., unemployment has been coming down, growth has not been spectacular but good for this new normal world. the bank of england should be looking much more seriously at following the lead of the fed and living -- staying we are going to gradually raise interest rates and not be intimidated by what is going on in financial markets. if financial markets seat that they can buffett central bankers around it is encouraging them to

be more nervous. tom: we will continue this on bloomberg radio. francine: an important conversation. a lot of breaking news over the last two hours, the renault shares are plunging. carmakers, down 80% after french fraud investigators seized computers from the automaker. that triggered selloffs of other stocks and we do not think they were in any probe. there is a lot of nervousness out there, we understand this is part of a probe into emissions testing but we have to be very careful because this has not been confirmed. we are trying to figure it out as we look at the sullivan carmakers. tom: jpmorgan often earnings. -- off in earnings. question,ve without what we see is lower yields over

the last two hours come a little bit of weight to the equity markets and maybe the headline item in markets is oil as it tries to hold within the $30 mark. sirrrow, from london, howard davies will join us and the rbs chairman will join us. measure -- with his low yield call. morningh us through the on bloomberg television and radio, this is "bloomberg surveillance." ♪ we live in a pick and choose world.

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report they are being investigated for emissions testing. falling as we are moments away from the bank of england's first policy decision of 2016. ♪ stephanie: good morning, you are watching bloomberg . i am watching stefan -- i am stephanie ruhle. i am david weston. let's go right to london. we have the latest bank of england decision. >> they are keeping rates unchanged, no surprises. voting for a rate hike for