francine: the shanghai there. benchmark -- european stocks are down. crude finds its latest victim. bhp will take $5 billion on his shell operation. wti and brent fall below $30. and sterling loses as people rush to downgrade forecasts. deutsche bank season taking the 1985 low. good morning, this is "surveillance." piece of we have a news which is not as great as we were hoping for, and markets

tank. tom: we make new lows. we could do a one-hour data check today. canadian dollar here, german two-year there, there is a lot to talk about. the correlations between these markets. francine: i'm looking at the norwegian krone. we also had some pretty disturbing news from the government saying they were worried about the slide in oil. let's get to the first word news. vonnie: good morning. for the second time in seven months, chinese stocks have fallen into a bear market. the shanghai composite is to sell more than 3%. since the december high it has fallen 20%. we will have more coming up. meanwhile, oil headed for its third weekly loss, down more than 8%. it is trading at around $30 per barrel. in any nation have arrested three men suspected of the terrorist attack.

others were killed in bomb explosions. it was the first attack in southeast asia to be fired by islamic state. tour busl japan, a flipped over a guard rail on a mountain road in the middle of the night. at least 14 people were killed, 27 were injured. many of the victims were in their 20's. there was no snow or ice on the road. the british chancellor says the majority of britons want to stay in the eu. he gave the clearest indication yet that he intends to campaign for a yes vote. he says he believes the u.k. will stay once david cameron renegotiate's. as china's biggest acquisition ever -- general electric has agreed to sell its science business to china for $5.4 billion in cash. last month, the agreement to sell the unit fell apart.

the deal is the highest global ambition of those who want to expand in the u.s., and the ge ceos reshaping it. 150ally, 24 hours a day, news bureaus around the world. i'm vonnie quinn. a far cry from the days when you have a small refrigerator in your dorm room, tom. tom: you really gain some traction in the last couple years. a lot of this is emotional for america, remembering industrial and consumer ge. francine: it is emotional, but when you take a step back and look at the appetite for china to get into these companies -- days ago, we had been trying to buy legendary entertainment. i wonder if this is because they want to diversify or if there is an appetite that they want to -- a lot of people have put him as ceo of the year for 2015.

they move their headquarters to boston yesterday. we won't do a one-hour data check. we have an esteemed guest for you today. -30 is the low, very near weakness for the day. down futures get you to 16,000, and that gets my attention. yields come in and stephen major will join us later with his house call. much.ollar not doing nymex crude will under $30. without question that is the line item of the day. i want to give francine the third screen -- the dow will be is why the and that dollar index hasn't done all that much. maybe that is the next shoe that

drops. yep.ine: that is also having an impact on a lot of these european stocks. you were mentioning futures at a low today -- it is the same thing for a lot of european stocks. i want to show you the shanghai composite, now in a bear market. it is often 20% down from 3.5% today. crude, you have done a great job covering that, so let's move on. if you look at the repercussions -- tom: tell me about norway francine: norway. if we have a look at what the government has been saying, they are concerned, and they have admitted for the first time that the oil industry -- because they have so much skin in the game, it's sliding. effects --a knock on this is a knock on effect, the qatar challenge over oil as well. that is one of our themes on this friday -- trying to get futures off the bloomberg terminal. we begin -- what you bring in

the doctor? francine: i'm very excited to research --ead of tom: inventor of research -- francine: thank you so much for joining us. it's a pleasure to get your thoughts when we have a lot of these volatile markets. you see it with a cool head. this is like august, except we have a rate hike, and we also have the u.s. election. >> precisely. we have had four episodes of volatility spikes -- and if you look through the fundamental threat, this whole period fundamentally has been gradually improved. look at the u.s. payroll numbers, the europeans are about to let go of fiscal austerity. have spending going on. you put all this together and

then you look at the sources of the risks -- oil, for instance. i bank to differ with your assessment. oil, energy, makes up 50 basis points -- that is it. it is not something you would expect. but it is a lot of fluff, a lot of talk, and it creates a lot of nervousness. but fundamentally, the equity valuations we have seen are beginning to be very, very good. view, looking of through this volatility, we see above the fundamentals. we are very positive on fundamentals, particularly since we are now be on the first rate increase in the u.s.. tom: in your study of economics and finance and investment, when you work at harvard and

princeton, do you need a catharsis to clear a market? will you begin to apply capital here waiting for fundamentals to turn around for the optimism? >> it is not that hard to see the strong connection when there is one between finance and fundamentals. during the 2007-2008 crisis, there had been an enormous credit expansion. clearly if you look at those numbers -- as the crisis unfolded and banks and lenders pulled back, you saw an immediate impact on credit supply. tom: your outlier on sterling -- francine: shall we go to sterling? you have a great chart -- tom: let's bring up this chart. you have an optimistic tone, and yet here is the deutsche bank with the rest of the street catching up. -- whatll on sterling does that do to the united kingdom economy? that harkens back to the time of margaret thatcher.

>> the one thing the u.k. has going for it since the eu crisis began was the exchange rate. portugal didn't, spain didn't, france didn't, italy didn't. that is why it performed reasonably well, and that has adjusted to internal competitiveness. we put all that together and we realize -- strength,ly implies but it is driven by sterling, not by the dollar. as an economist, this is what you would want. you want prices in the large markets. tom: is this what executives want to clear balance sheets? bhp -- another $7 billion? >> it depends on which side of the trade you are on, what side of the business it's on. but from an overall economics point of view, to adjust the

local development is a good thing. francine: right. but taking it back to the chinese currency, there is so much concerned that this will have to be devalued it fullyntly, that to deflationary pressures, and this is the biggest risk of a possible recession. are we going to avoid? >> all>> of that is true but the word recession is not appropriate. there is no question that the chinese will depreciate, but certainly that top single digit number -- it's driven by capital outflow. that capital outflow is not because of china's lack of confidence in our economy. it is because of the diversification issues. if you are a chinese manufacturer, $50 million in the bank, you want to put half of that outside china. it has gone through stability and it will do so again. diversification is not a vote of lack of confidence. large body of our viewers

don't agree with your assessment, i think you know that. there is real fear out there. there is a structure of recession of some form globally -- you aggressively push against that. you do have a history and heritage of deutsche bank. explain how capital flows will make a resilient global economy. >> capital flows react to opportunity, and i would think that the u.s. is probably the most responsive to flows, which shows up in the dollar. foreign direct investment in the u.s., in the manufacturing sector and all around the u.s. economy, is really phenomenal. we see the u.s. being a significant attractor of capital from china, and particularly from europe. francine: can china ever become what the u.s. was?

10, 15 years ago? the yuan being used more as a currency for trade, but also becoming a consuming economy? >> well, those are two separate items. currency, it will take a very long time before the currency will rise to the dollar or the euro as an accounting currency, simply because the central bank doesn't have the long-term history of management. but in terms of the economy, we're quite optimistic, and that optimism the rest of the performance of the sector. they are shifting to a consumer-based economy and with exports not quite picking up the slack. the devaluation is quite good. tom: we are going to come back. up, we continue our

dialogue and give you insight on the market turmoil. sir howard davies will join us. hsbc, with major of his outlier call on a 150 yield. stay with us. ♪

tom: good morning, everyone. extra data check today. we are near lows on futures, oil at $29.55. thetice that russian ruble has broken to new weakness. that has been resilient the last few days but it gives away this morning. right now, we give way to vonnie quinn with our business flash.

vonnie: than thank you. vw's market share in europe fell for the first time since 2007 by about one percentage point to 25%. the automaker recently revealed that scandal. pay one pointwill $5 billion to settle a u.s. investigation into its handling of mortgage backed securities. it will cut into their profits by $1.5 billion. it has to do with creating and selling subprime mortgage bonds. areplunging oil prices hampering the biggest overseas investor in u.s. shale. it expects toays take a write-down of $4.9 billion on its american shale oil assets. company has been cutting capital expenditures and looking for other savings. bhp may end up abandoning his pledge to maintain or raise dividends. that is the latest bloomberg

business flash. tom: thanks so much. to always keeped scale of the signs of a write-down versus the sheet. is it a big deal? yes. it's a sign of things to come. francine: and a lot of investors are now concerned that they pledged to maintain their dividend, and now it is coming into question. we spoke to the previous ceo of the biggest italian oil company, and he told us on the show that -- or should -- abandon oil makers. we are back with the deutsche bank chief economist, also head of research there. when you look at a lot of these commodity producers -- miners and oil makers -- the pledge to keep dividends, and i have tracked investors for so long, it makes little sense at the moment. >> this is a matter of managing financials. it in terms of the future,

is clearly going to be a stress sector. despite the fact that fundamentals are gradually improving, i don't see a strong rebound in the commodities space, certainly not for that sector, given the supply that is out there with iran and other places. it's -- it will be a stressed sector for some time to come. francine: will it take years of underinvestment for it to come back? >> it goes through investment cycles, obviously. commodities do that. expect this underinvestment now for the next 18 months, two years. then it will pick up rather quickly. that is the typical cycle. tom: what is different now from 1998? other commodity implosions, what is the distinction? that everything is floating, so we have mechanisms to adjust as we go? >> the important difference is

that we really have a supply surplus now. -- when you go back to these conversations we have had the last couple decades, it has always been running out of oil. now it is the other way around. optimismou have an that we can diminish supply in a controlled and orderly manner? >> i think that is the wrong way of thinking about it. you don't want to interfere those market forces. you want it to work out through the pricing mechanism. make sure you don't obstruct in any way the supply coming downstream. let the market sorted out. there is no reason to think it will be mispriced. futures are at new lows this morning, -32. a smart conversation on value investment. howard barnes. joining us on "surveillance," on radio in boston, in new york,

san francisco, 99.1 fm. good morning. ♪

francine: three degrees in avos.n, -6 inn d pack your long jump. with more banks joining the ranks headed for major restructuring, it is unclear what the future holds for wall

street in the city of london. the chief economist at deutsche bank is still with us. thank you so much for sticking around. we just heard from jean-claude juncker in the last hour saying he is quite sure there will be a solution between britain and the rest of the european union to make sure they stay in. risking?we exactly are we risking the city, or can the city still thrive outside the eu? >> we are not risking the city or the u.k. it will definitely have a negative impact, but what is also forgotten in this conversation is that the negative impact on the euro outside the u.k. will be very substantial, very fundamental. london is a cosmopolitan part of europe. it has been so for the last 300, 400 years. to take that out of europe, from a global point of view, makes europe much less significant. that has not quite settled in yet. if you look at the concessions,

it seems like a very small price to pay to keep the u.k. in. i expect that conversation to start turning over the next few months as it becomes apparent to merkel and the french that there is a real risk. tom: you are in the trenches on this. there is somebody you really, really, really want now for russian economics or industrials in germany and switzerland. what is the dynamic of talking young turks on wall street, about where they want to live? they want to live in london, right? >> and brexit is not a big issue as far as hiring is concerned. the competition of silicon valley is much more interesting. it's not on the radar at all. tom: when you look at the dynamics we are facing right now, some of it does play with currency. if you get your 1.27 sterling, what does that do to the dynamics of city to city competition in europe? >> not very much. is concentrated

by the ecb about shifting certain euro denominated trading areas into frankfurt. i think that is much more severe. that there is a general question that if you are outside the currency zone, the central bank , so icertain activities would expect that to happen. that is more of an issue of having the currency. francine: thank you so much. he stays with us. coming up, we will speak to the rbs chairman. we will be talking about the swiss and other currencies around the world. ♪ we live in a pick and choose world.

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so your sleep goes from good to great to wow! save $1100 on the i8 mattress with purchase of sleepiq technology and flexfit3 adjustable base. ends monday. know better sleep with sleep number. tom: the data board is challenging futures at new lows. 109.07, and crude oil -- i have $28 framed in my

mind. the russian ruble is an exceptionally complex look across equities. right now, our first were news -- here is vonnie quinn. vonnie: thank you. in china, stocks fell into a bear market for the second time in seven months. the shanghai composite fell more than 3% today since it's december high. it's now below the low point it hit during august. we will have more coming up in the moment. oil is headed for its third weekly loss, going down more than 8% this week. it is trading around $30 a barrel below even. the european parliament has delayed a vote on water down plans for tests on car pollution. lawmakers want to go easy on the auto industry and are trying to line up or support. european governments are concerned about the added cost for automakers. in somalia, militants backed by al qaeda killed 63 kenyan soldiers in an attack on the

african union military base. the group is called al-shater laa. it was driven out of somalia's capital. cruz in donald trump went head-to-head last night in the republican presidential debate. at ones broadcast -- point, cruz accused trump of having new york values. >> most people know exactly when new york values are. >> i am from new york. >> you might not. [laughter] >> but in south carolina, they do. everyone understands that the value in new york are socially liberal, pro-abortion, pro-gay marriage, focused around money in the media. he responded by saying that conservatives do come out of manhattan. global news 24 hours a day,

powered by more than 150 news bureaus around the world. i'm vonnie quinn. i know couple conservatives here, tom. some were falling off their chairs at the republican race. this is a special moment for the markets, which took crisis futures to new lows. talking about a 28 handle on brent -- it is wonderful to have our guests with us. and we welcome back sir howard davies, rbs chairman among other things. i want to give a moment of silence for the best call i have seen on bloomberg on the economy. this was yours, thomas. a million years ago in this building, so far out front on the euro challenge of the entire system. do you maintain a your optimism? >> for currency level, no.

for the euro's existence, yes. it is a political issue. i believe the principal players have shown a political will to keep it intact and are prepared to make sacrifices to make it work. but in terms of the euro itself, it is here to stay. we have forecast -- tom: it takes it down to parity, and part of it is the shock of a year ago, when there was that change in the swiss national bank. bring up the chart, if you would. francine, explain this moment. i was not on the set. you and guy johnson did a fabulous job of dropping your double espresso when the swiss adjusted. francine: it was down from 30% in a minute and a half. --dropped its cap of 120 that was a year ago. they basically have this twin intervention, to try and control

the currency, and also -- tom: so there was a history, she lived in that time. when does this end? when does the shock and alwe of markets and macroeconomics end? >> i don't think it will end soon, because there are some faultlines of the economy which have not been corrected, the biggest one being the amount of debt. that has been shifted around in the private sector, to the public sector, but it hasn't been removed, and not much deleveraging has occurred. while there is that large debt overhang, you find that what happened in financial markets is amplified, if you like, because of the shared volume of debt. i think until we work some of that off, we will continue to find that we will be vulnerable to this volatility. francine: if we look at the

swiss franc last year, it finished 10% stronger against the euro. what does it teach us on how central banks should be looking at this new world order? some --wiss franc -- has to follow up, there been an important structural change. institutions that would normally step in do not have the wherewithal to do that. i have been sitting on the risk committee for the last 18 years, and in 2003-2004, there was much more of an appetite when you saw dislocation. aware of are all o

dislocation. we no longer, because of other circumstances, want to step in. we no longer want to finance those hedge funds. you will see these episodes of volatility that we have seen. until it is done. i think the deleveraging is a very important component. francine: someone argued that this is a much healthier place to be. careful it's -- it's a what you wish for. in principle, it is a healthier place. much better capitalized banks, focusing on customers. this is all good stuff and i'm sure david would not disagree. the problem is we are in a wherey transition phase we need different kinds of institutions to come in and play the shock absorber role the banks have played in the past. that is not yet in place. i think we are newmont transitional period. tom: you mentioned faultlines.

of the reserve bank of india will join us for an important conversation. what are the fault lines you are most focused on? the media is focused on $29 brent. there is the media drama of this day and the next day. what if howard davies focused on the fault line that would end on catharsis to clear the market? >> one is clearly the adjusted to china. talked about the idea that the chinese economy can't carry on growing a double-digit growth rates, and that it will end. but actually adjusting to a lower level of growth -- tom: is currently the only -- >> currency is one, but also their overseas investments will be another. we will see much less of that for a while. we are adjusting to that changed role of the chinese economy, of the changed growth rate, in the

peripheral economies around china which will be affected in the same way. i think that is one thing that we are adjusted to. i come back to my deleveraging -- i think that is something that we still are suffering. the third one is this change in the financial sector. with banks having to be much more stronger capitalized, being much more constrained in the bets they can take. tom: do we get a share offering news on the royal bank of scotland? [laughter] francine: that is in the next block. you are a little more optimistic that china would find its way, that we have to give it time. the main concern is how to deal with inflation and whether central banks even have the utensils to fight it if we have a downturn, which i know is not your scenario. >> it is a nexus dental question. -- it is an existential question.

think that this is an issue for europe. i think that the ecb has all the necessary tools to keep us away from that. but clearly, the chinese further devaluation we expect is going to help with deflationary issues. tom: thank you so much for coming by. greatly appreciate it. don't walk in one of the camera like last time. [laughter] tom: he will go behind camera one. we will continue with howard davies. on the american banking system, good news from jpmorgan. what you will see from citigroup and wells fargo. -42 in portland maine -- we will talk to gerard cassidy later. stay with us. ♪

francine: breaking news here on bloomberg "surveillance," $4.75,d earnings at missing estimates by five cents. 5% boost in its quarterly dividend. assets under management -- $4.65 trillion. we will bring you more as the headlines come out. francine: thank you, vonnie. this goes back to the volatility we saw in the market. brent, had that ati and both below $30. that was just around an hour ago. i'd like to show you the shanghai composite -- from december, it is a 20% correction. theso want to show you

norwegian krone. this is on the back of the norwegian petroleum directorate, saying that the oil industry is in a crisis that has a huge impact on how much money they collect, so of course there is a political crisis on the back of it. tom: it is a sport to say the least. 77.42 after able, number of quiet days. we continue with the former director of the london school of economics -- are you enjoying your new job? >> [laughter] it's one endless meeting with lawyers and analysts. it's a very interesting challenge, rbs. 70% owned by the government, still in the recovery phase. the challenges are immense. it is a huge public policy issue as well. you reorient the bank, so it is fascinating. enjoyable is a big word, but it

is fascinating. francine: rbs has been restructuring for years. of losses, various rounds firing and restructuring -- are we now at the end of it? do you feel like you are in a more comfortable place? >> to quite, no. -- not quite, no. it is hard to achieve it. we are downsizing the investment bank rapidly and that is going well, but it is still quite a lot to go. early cost cutting is the easiest, so that is still a challenge. and we still have the overhang of a number of issues of legal and conduct, particularly in the united states on subprime mortgage selling. those things are still clouds on the horizon. francine: is it touch oand go with the share buyback? >> well, we are not expecting to do that during the course of this year. we have said that this would be

a 2017 event at the earliest, and we are still hopeful of that, but we need to get some of these. we have some would to chop before we can be firm. tom: someone like madame lagarde -- the idea of finance across work,lantic, with your do you have an optimism about european and united kingdom banking? one of the themes last year was you can't compete with the american banks. i don't hear howard davies saying that. >> well, i did think that the future for european investment banking is not so great. of the new course, refinancing rule which will require us to re-fence away from the investment bank, and that inevitably has a cost for capital in the investment bank, because that can be supported by the parent bank and will be supported by the central bank.

tom: what leadership would you like to see from prime minster cameron to allow for investment banking to thrive? >> i think that is not going to change. they have decided on that legislation. it has gone through parliament and is a decision made. i think we are done with that. that is what is going to happen. that is causing all the u.k. banks, including rbs, to have to rethink what kind of investment banking we can offer. i think it is difficult for us to be all things to all men. i am a little pessimistic about u.k. investment banking at the moment. francine: sir howard, what is your relationship like with the government at the moment? one of the things a lot of investors are trying to figure out is when the government can get its money back from rbs. >> well, when the government owns a 70% of you, you have to say your relationship is excellent. that is my answer to you. i think there is at the moment a great degree of convergence of

views between the government and the regulator and the bank about where we are going, what kind of bank we want to be in the future. we are not engaged in any kind of strategic dispute, and that has been the case in the past as we all know. so i think the relationship now is very straightforward and professional. they have a shareholder responsibility, and in that respect we treat them like other shareholders in terms of what they know and don't know. the government's intention to sell is very clear over a period, and the timing of that will depend on all kinds of things, not just the rehabilitation of the bank. but there is a great degree of consensus about where this bank is going to end up. francine: when you talk about timing -- we cover it on the show day in and out -- what is the main delay with that timeline on when to get the money back? >> well, of course, it is a large amount of stock to sell to the market. they sold some in the second half of last year, and that was

making it a good start on the process. that i would say that there are a whole range of issues to consider. they have other things to sell -- lloyds bank, and they need to think about the relationship between the two, and we need to resolve these outstanding conflict in litigation issues. of course there is the state of the markets and the amount of appetite there is. there is a lot of uncertainty. i think they are wise to give a medium-term perspective. tom: we will come back with sir howard davies. too much to talk about. we talked about the markets, his bank, the royal bank of scotland, and now we have to go back to the markets of new lows for the day. , you can do that later this morning only on bloomberg. -- you can do that later this morning, only on bloomberg. stay with us. ♪

tom: whether you are on global wall street or not, we give you the most sophisticated data check. this morning, they are very sophisticated in a southern way. futures and morning was. we will see where we are at 9:30 in new york.

we are getting you that 199 level. oil, oil, oil is the story. you start to think about a $28 handle on oil, and the one item i know to this morning is that the ruble has been resilient, no doubt with support for mr. putin and company. it gives weight this morning -- it gives way this morning. i and trying to figure out what that does to the domestic economy. here is vonnie quinn. vonnie: the world's largest money manager gave up earnings per share after an explosive fourth quarter. it came in with $2.86 billion worth of revenue. and the company also said that long-term inflows from the fourth quarter amounted to $54 billion. not too shabby. toela merkel is being urged tell the head of the european central bank end record low

interest rates. she meets today with mario draghi. both her party and the head of germany's central bank want her to come up with an exit strategy. critics say the low interest rates are hurting germans and retail investors. the album david belli release of days before his death is set to become number one. it is set to knock adele out of the billboard. sales rose tenfold after he died. it would be his first number one album in the u.s. our latest bloomberg business flash. tom: thanks so much. such a privilege to be in the united kingdom on the death of david bowie. francine: it is different, and it reminds you how much the u.k. ended citizens have contributed. of course, we have as one of the biggest concerns for 2016, brexit, grexit, the refugee

crisis, and what that means to the european border. howard davies is still with us. sir howard, thank you for sticking around. when you look at the main risks for this year -- when you are sitting in the u.k., you don't realize that this is the main thing that europe is fretting about. what are the chances of it, and what does it mean for financial services? >> i hope you are going to ask me about my lunch in east berlin with david bowie 40 years ago. perhaps that is for another day. the answer to your question -- the rbs does a review of all the polls and produces a probability assessment. the probability is 35%. in other words, 65% at the moment that we will stay. that is looking at the way the polls have devolved, the way previous referendums have changed on the way in. it's a bit of a black box

analysis. that is what our economists think. i think that is probably a reasonable point. you cannot be sure how a referendum like this will go. the polls currently will tell you there is a small majority in favor, but it is a volatile environment. what the polls also tell you is that the thing people most worried about is immigration in some form. and if you had a referendum at a time when integration was in the bulletins wereng full of boats across the atlantic as though it was a terrorist attack, this could affect public opinion a lot. there are all kinds of things that will play into that decision when it comes, which will not be fully rational taste on an analysis of the impact of london. tom: francine and i put our heads together and said -- yes, we want to hear about that lunch with david bowie. what was it like? >> well, it was a fascinating

day. david bowie was in berlin, and he wanted to go to east berlin. he was worried about traveling around east berlin, as he was. and so he approached the british authorities, and as it happened, a friend of mine was in the british embassy, and i was staying there for the weekend. tom: so you escorted him around. >> we escorted him around in a diplomatic car and had lunch in -- tom: we will continue this discussion with sir howard davies. you never know what you're going to see on bloomberg's "surveillance." state with us. -- stay with us. ♪

tom: it's friday morning. china equities fall beneath

august lows, and global markets adjust with $29 oil. to 1.5% 10-year. too-big-to-fail banks -- will they right size the right way? it is friday, january 15. i am tom keene. with me, francine lacqua. we always try not to be hysterical. francine: just look at the charts. the story, if you look at wti, if you look at brent, you have someone like norway saying oil is in a crisis -- thatthese are the shocks you pointed out. the russian ruble is substantially weaker in the last two hours, and that is where we get to a most interesting friday. we have guests to give you

insight. york, with first word news, here is vonnie quinn. time infor the second seven months, china stocks are in a bear market. 21%,hanghai fell more than now below the low point it hit below the cell -- below the selloff in august. general electric is selling its appliance business to the higher group -- to the haier group. haier wants to expand in the wants to be focused on manufacturing. chicago activists are calling for a protest after the release another video -- after the release of another video of a fatal shooting by police. it shows a white officer killing a black teenager, suspected of carjacking in 2013.

he was unarmed and the officer was not charged. another chicago officer is accused of murder in a 2014 killing that was also videotaped . michigan's governor wants a federal emergency declaration for the town where the water supply was poisoned. flint's tapwater was contaminated with lead. with the start of voting 17 days away and the polls tightening, the front runner hogg the spotlight last night in the gop presidential debate. donald trump is trying to fend off ted cruz, in part by raising questions about his allegations -- about his -- donald trump: the democrats are going to bring a lawsuit, and you have to have certain the. you cannot have a question. i can agree with you or not, but you cannot have a question over your head. says trump isuz

pushing the issue only because they are now at that in the polls. i'm vonnie quinn. tom? tom: thank you so much. simply, markets on the move this friday morning. we did not exaggerate. -37, below for the day. dow futures, under 16,000, 295 points.ing, texas, 29.53. you begin to think about a 28 handle, but i am not there yet. i want to get to francine's screen as well, and i would suggest the dollar index has not moved. have not seen that, francine. you wonder whether a lot of these falls are indicative of a wider fear, and

it seems like that. that we have accelerated our declines a little bit. this on the back of a bear market in china. crude oil, at 29.5. we need to ask ourselves whether that is indicative of something bigger, and then the impact on ruble. on to the terminal right now. we show you a different charts today, wonderful usage of the terminal. we show you oil. this is the beginning of the year, down 20% now. these are the brutal moves you see in oil. that is a long chart with a huge curve at the beginning of the year, and some stability. we have some new joy on oil. you wonder about financial stability when you see the rate of change of commodities this morning. david a sarah.y -- by davide serra.

steve major, are we at the point where the markets start to tell janet yellen what to do? steve: these oil markets and equity markets are telling us that the global economy is quite that the double set will speak in the next few weeks. and sure everything is fine we should not listen to the doomsayers, but facts are facts. the oil prices are down here for a reason. clearly there has been a big supply, but there is something else. there is a real malaise in the global economy, and for me, fourth -- the fault line that people are focusing on. and the oil price is a symptom of the underlying problem. tom: you are the second persian -- you are the second person line."o mention "fault

davide, one thing that we learned is that things clear. when does the clearing start? mergerss -- when new adjust? to get you out of an implosion like this? e: this is a characteristic market correction. people are being used, central banks, the fed has decided to take away a bit of a drug. default,as not given a and the boj said let's stay put. and there is a reason. ino not think it is as bad the real economy, which is one reason why central banks have decided to pause. the good news -- it is bad news. when you have all-time high employment in the states, there

is market selloff. as a result, the real world is doing fine. -- my viewal markets is -- if you think about it, let's go back in 2008, 2009. the real economy was a disaster. 2009, the situation was not good. markets were anticipating. now we are more in a market correction rather than seeing a 2011 or 2009 crisis again. being on the side, which i is due to geopolitical reasons, let's be clear -- someone has decided to bring the oil price down. francine: and you talk about malaise, the markets have not been able to get a handle on the

inflationary concern. stephen: the disconnect -- stephen co -- you have risky asset markets, equities that have been a p or. really high up, and then the economy, nominal gdp a bit less. it does not mean to say that the bond yield is too low. this is the mistake it is making. the convergence can happen from above or below. what is happening to commodities is validating where bond yields are going. so maybe something else has to adjust. maybe it is the risky financial markets, and to some extent nominal gdp. francine: so you're talking about stocks worldwide. are we in for a long correction? nobody can seriously claim that china was connected to nominal gdp. why are we surprised that it can fall 7% in one day when the sixnal gdp for the year is

or seven? joined us onman "surveillance" recently, and he spoke about the challenges in the business. they are exploring their options, something very important to know, iconic for new york viewers and listeners. show those options. effects. knock-on francine: if you look at the commodities super cycle, we forget that it is linked to everything, but it is a very different point. david talking today with holdridge landau. -- with david full kurtz landau. davide: let's be clear. to the world, the oil price is a

good thing. this is a tax we have been paying to a commodity producer. you think about a combined number of people, less than 400 million people, the benefits would be that 6 billion would pay the tax. swap it, 5.5 billion people have more money than before. this is critical within that constructive statement. there is a deflationary impulse that has got to happen balance sheet and wealth reduction. steve: historical comparisons are not valid. a lot of people are looking at the supply side effect and how consumers benefit at all this kind of thing. you cannot compare previous cycles in the last 30, 40 years with what is going to happen next because we have this big debt overhang. so actually, the surface in this

case for the consumer, he has some spare cash. maybe he saves it rather than spends it. that is different. steel has anes outlier call on gold. do you agree with your colleague that there will be oil and see within this crisis, for demand with india and china? i have had trouble understanding any bullish view on gold for a long time. we might be getting to the point where, as i diversification trait, it makes sense. his argument is that we are getting into a very dangerous heironment, and so i think has some arguments there. hsbc, andn major with davide serra as well. gerard cassidy of rbc capital markets will join us. with futures at -33 from london, this is "bloomberg surveillance

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francine: welcome back. this is "bloomberg surveillance ." moment we are enjoying the warm weather in london. let's get to the bloomberg business flash with vonnie quinn. vonnie: revlon, the majority holder -- the company owned by ron perelman -- it has a 77.6% stake in revlon. it is exploring options for the company. ron perelman exploring options through his company for a 77% stake in revlon. last quarter earnings were not

so hot for revlon. in other news, an order is expected today from the obama administration that would stop new coal leases on federal land. the government wants to make sure that a fair return on fees is being paid by mining companies. shares fell in the european market for the first time since 2007, down one percentage point to 25%. the government is helping to bankroll the shift to self -driving cars. money is being set aside to use as grants for pilot projects. new guys are being worked out for testing and rollout. wells fargo is among banks this thisthat are reporting morning. jpmorgan was out yesterday. joining us on the phone from rbc capital markets, managing director of research for the banking industry -- it should

have been a better quarter for wells fargo. popular, given that we knew that fed rate hikes were going to come. what are you anticipating? we are not really anticipating a great quarter. jpmorganhat we saw was was some interesting trends in the commercial banking business. vonnie: i'm saying wells fargo. gerard: i understand. jpmorgan had 60% core loan growth. for the others big banks, we are expecting good core loan growth. -wise, what then citi are you looking for? gerard: there are going to be a number of one-time items. they have preannounced a large and they large game are taking those gains to build off reserves.

it will be a tough one to figure out, and bottom line, the core number will be ok but it will be tough to figure out. tom: where are these two fail banks?o- how many bodies will move out the door when you adding retail and all the branches? gerard: it is an interesting question. in the next two years, assuming we do not have a recession, we are expecting higher interest rates, and in rising rates there will be more profit. that being said, the return on equity's for these companies is not -- some tough decisions may have to metropolitan life two years from now. francine: what are you expecting from these u.s. earnings? quarter --rth jpmorgan said if you look at the consumer credit, it has never

been as good in history as it could be. i think actually when people look in the back mirror, a really badtakes employment number before you see the number changing. it will be data depending. to a number of people, it is obvious -- technologies impacting finance. certainly more than any other industry. tom: that goes to gerard cassidy's wheelhouse. gerard, give us an update on the digital success of american banking. gerard: tom, what is fascinating to me is that for the first time , 2015, more banking customers interacted with there through their mobile phone than they did through their branch. this is a revolution that is going on in american banking. we have over 85,000 branches in

america, and in the next 10 years i expect about a third of those will go away, and the remaining ones are going to be smaller because most people do their day to day traction's -- their day to day transactions -- tom: 20,000 branches out the of those are at the corner of broadway and 42nd street. withg up, a conversation -- coming up, a conversation with howard marks of oaktree capital. -30 one. dow futures, -256. ♪

francine: welcome back. these are live pictures from hong kong. we are seeing great scenery from hong kong, but today we did see a 20% fall from december on the chinese market, so it is in a bear market technically. it is time for the "morning must-read." vonnie: from "the financial " --

vonnie: this whole editorial and op-ed goes to a steven major is saying about the malays. malaise.the she goes through the different reasons, including real growth in emerging markets, currency volatility, and a section on government implementing multiple lateral trade deals. perhaps, steven major, you would theond -- will trade resume boom of the years up to the crisis, the 7% growth, or at -- or are we at a new normal for trade, too? steven: the one number i took away from the quote on the screen was 1985. it was 1985. 1985 is just over 30 years ago, so we are at the lowest level since 1985 when this thing started.

if anyone is trying to frame this analysis over the last 30 years of data, they are missing the point. i think that the only sort of historical question that we can look at, going back to the 1930's, maybe japan in more recent times, and this is what we are failing to do. i do not know whether it is just some vain hope that people have, but there is a basic idea that what must go down must go up. i think it has to convert on time before we get through this. toncine: a lot of references 1985, because we have a chart that we will get up for you later. let's leave 1985 to one side. answer me this -- are you confident that in 10 or 15 years, or 20, china will be a reliable trading partner, that it will become the kind of consumer that the u.s. is? steven: and the longer term we are going to get through this.

it would be strange to have any other view because the world is evolving and globalization will continue. we are seeing an interruption at the moment. looking 10 years out is very difficult, but the idea of 10 years out is quite useful because we have had already seven or eight years of this unconventional monetary policy to deleverage. but the deleveraging did not happen, so we have to deleverage even more. tom: we are coming back with steven major and davide serra as well. stay with us. from london, "bloomberg surveillance." ♪ 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. this is your market check. to the lowestling level in almost five months.

investors more and more concerned about global growth. gloomberg?s francine: you can see your stocks 1.8% lower. at 29.5. are that happened a half hour ago. and look at the pound. quinnet's get to vonnie and our first word news. vonnie: police in indonesia are saying that islam and state-funded the deadly attack in jakarta. three men suspected of being linked to the attack are under arrest. were killed yesterday by explosions and gunfire. it was the first attack in indonesia to be directed by islamic state. france is looking to crack down on extremists and losing patience with the european union. said thece minister you was dragging its feet and cutting off financing to terrorists. after the paris and charlie

hebdo attacks, france wants to currencies rules on -- virtual currencies. investigators are trying to determine what caused an explosion in a fireworks factory in china. china is less than a month away new year's celebrations when revelers set off fireworks. a woman could become taiwan's president for the first time ever. expected to win, and her opposition party could unify power for the first time if she wins a majority in the legislature. global news 24 hours a day, powered by 2400 journalists in bureaus around the world, i am vonnie quinn. tom: some lead, others follow come at least when you get the call right. global wall street was stunned five or six months ago with a call for lower rates.

the single best chart is a regression from 20 years ago. then we zoom the chart in, with the yellow line being financials. steven major says we will see 1.50-ish 10 year yield as well. why are we getting the correct steven major call? hike wethe fed rate have had is not going to stick. the fed is probably going to capitulate at some point. how they got back from talking about three or four points. i think the hubris currently sits with the fed. the idea that they can hike four times is just crazy. tom: what is critical is the idea about a culturally america and american wall street protected by oceans and by borders. we are not part of the global and that davide serra

steven major had to play with every day. is it still there? steven: i think it is still there. since bernanke, the number of words in each fed statement is going up, but the proportion of words allocated to the international global backdrop is not rising at the same rate. they are talking about the economy but not amount -- but not about other stuff. thates not seem to me there is enough focus on the global backdrop. that backdrop includes the debt overhang, the inter-linkages between markets and regions, and that quantitative easing around the world is exhausted and not having any impact. francine: do you agree with that, or are they trying to increase their treasure trove? if you had to believe the fed or the markets -- four hikes, two

hikes, maybe no hikes? they can only control their rates and their currency. there are two bank many people too many people -- i look at my domestic mandates, i look at my employment number, and i think what is right for the u.s., currency will have to adjust. probably think we'll -- what i can tell is that we will have all-time unemployment in the u.s. keeping rates zero will create more damage than hiking them. you cannot think about what is happening with the rate in china. francine: but where is the wage growth? to do: wage growth has

more with technological issues. you have at the same time massive technological adjustments, and you cannot think about wage growth by tweaking interest rates. it is like they are a part of part of the-- migrants and the integration you have, england has low rates. tom: on a friday morning where things are collegially unraveling a bit on the bloomberg terminal, what are the correlations you observe? what you do best is look at fixed income and take it out to other markets. how tightly are we run -- how tightly are we wound within the conversation? between june and september of last year, many of these correlations between markets were going into reverse. because of qe and central-bank largess around the world, everything was supposed to be correlated. everything was going up. then it snapped, and it snapped around september. the fed did not hike in

september last year because they focused on china. but they hiked in december because they said they were going to. i think these breakdowns are telling you that it is over. the only reason valuation -- tom: what do you mean, "it is over"? steven: i completely buy the argument that we frontloaded global return. now it is payback time. risky asset markets are adjusting to the reality. central-bank largess is largely over. vonnie: we are seeing the front end of the u.s. curve rise, but not so much with the likes of germany. does that go lower? does german yield go lower, and where do you see recession hitting? eurozone yields can keep going down. by the time we get to march, april, the ecb will have to face the fact that they have headline

inflation in negative territory again, and they can have another bond squeeze. net issuance goes negative. meanwhile, in the u.s., the focus on the front end is listening to what the fed is saying. there is this financial stability mandate. the fed may hike because it wants to avoid blowing up future bubbles. by definition, you do not know what these bubbles are until afterwards. the risk they take by taking the financial stability mandate seriously this year, they have to cut. if you hike this year and have to cut next year, do not bother hiking. it is quite simple. francine: i want to get your take -- davide: to be honest, what difference does it make, 25 or 50 bids, more or less? i would say irrelevant. i fully agree.

in europei think within migrant crisis, we might see it eventually a change in policy response. so far the only game has been the ecb, three or four years after the fed. i would not be surprised to see america plan. we have the marshall plan after the second world war. you had one million people come into europe, and you might as well see -- you might will see fiscal stimulus in europe. financing portugal at 1% 10-year is better off. the u.s., growing at 2%, 3%, with full-time unemployment, what difference is it going to make? in equity, we have to sample the price book of asia,

at all-time low. if we look at europe, pre-crisis -- francine: based on commodity. davide: we are 35% below. the currency is 35% below. up s&p is 30% or 40% precrisis. tom: we are going to continue this discussion. steven major of hsbc, and davide serra is with us as well. we begin strong on radio. in the next hour, david alpert will join us. he has talked about this for months and months and months. we will do that on bloomberg radio. worldwide, and coast-to-coast. stay with us. ♪

tom: let me first state i am a citizen of the united states. that was one of the themes last night at the debate, really something to see. vonnie quinn has some nice coverage on that. quick data check for you, and important data check. russian ruble has moved. that is what is most interesting to me. the bigger view, the vanilla check. speaking of ice cream, crude sinking. we are a little bit off the lows of west texas, but still ugly. let's get to the bloomberg business flash from new york city with vonnie quinn. vonnie: we begin with fourth-quarter earnings rising almost sick percent at black rock.

-- at almost 6% at black rock. the firm is raising its courtly dividend by 5%. eps missed estimates. sierra nevada corporation is joining spacex and orbital hek on the list. chaser will hold cargo. would you believe wikipedia was launched 15 years ago today? that is the latest "bloomberg business flash." tom: a shout out to one james wales. i can state that for bloomberg on the economy and "bloomberg changedance," wikipedia what we do and how we do it. we really stumbled into it. we did not see it coming. vonnie: it was the beginning of

citizens adding to the outcome. after that, it took off. tom: there has been a real debate about it, that it is making smart interviews. are we having smart interviews today? francine: we are. you have to contribute because they are funded by us. there you go. let's get on to the banks. we are talking about u.s. banks. certain banks may face a lot more tough capital requirements on other securities they intend to trade. get the take of davide ven major. stec v when you look at the european banking environment, who will lose the most out of this? davide: the results first of all

our as expected. -- the tradingr books, capital requirements are going up by an average of four to five times. how much risky assets they had in the balance sheets, by underestimating the risks. -- the good news, ,nd the most important is that mario draghi repeated, that the day of people increasing capital requirements, no matter what, are over. that is about implementation. you can see in the fed what happened is, when the g-20 came out with a total loss of capacity numbers, in america, morgan stanley and goldman sachs were already ahead of capital requirements by 2019. this was unheard of. capital than more

they need in four years time. -- is it deutsche bank barclays or the french banks that they have the most to lose? davide: in the case of deutsche outsized,d income is on the balance sheet and the franchise. theye case of barclays, have turned themselves in an investment bank, and they cannot compete with the u.s. houses because there is a much bigger domestic market. they are more profitable in a subscale. francine: this is one of the themes that we have been talking about and we are speaking with the barclays chairman. tom: they have to go back to making money. steven major, i know you do not banking because

you will be put in the timeout chair, but you can discuss the yield curve. is that curve going to be there? steven: there is this assumption that the rate increases will come through. some of the bullishness on banks that i am hearing is based on the margins and rate increases, but actually is that right? haven't things changed the echo are we sure that banks profit? they may have done in the past, but a lot of things have changed . to actually do that, they have to be in a position to express -- tom: this was the inside of michael spence six years ago. the some sins are dangerous. arecine: and i love that we questioning that, but when we go back to european banks, we saw at deutsche bank the lowest since 2009. how much does this have to do with qe, and how much does it have to do with european banks? davide: one, it is capital,

second is profitability. on capital, it is 99% of that. when the asset quality review said that european banks can save two times 2008, 2009 shocks -- capital, there is no issue. it is called cost-cutting. the yield curve is not going to go anywhere. tom: absolutely fabulous discussion. we will continue with davide serra and steven major with more data check this morning. we will do that on "bloomberg surveillance e." ♪

thisall the boards matter morning, but particularly foreign exchange. 1.45 moments was ago, including mexican peso well out over 18. the backstory is australian dollar working down to recent record weakness. it is stunning to see australia that far from a .70.

francine: coming up shortly is "bloomberg go" with david rutin and stephanie hle. signed hisare just most recent investor letter, talking about the psychology of these in perfect human institutions called markets. steve will tell us what investors should look for in this tumultuous time. and we will break down c earnings onit -- and we will break down earnings on citi and wells fargo. always, strong, with ken rogoff. this is a 12-year tradition with me, to begin coverage with ken rogoff. laura tyson is always enthused about her analysis on the

american economy. we talked to nouriel roubini recently. this is a first year that i do the weather check because dabbles it -- because. posts is very cold -- because davos is very cold. notre keeping it quiet, to give it away to the competition. editorial -- the survivor's guide to davos. stanley fischer on the edge of frostbite. somebody said to me the other day, is the shot real? yeah, it is. when it is 10 degrees, it is real. francine: what are the 10 things you bring to davos? davide: a warm hat. tom: i am going to take a black

velvet that i discovered. i am going to have a flask of guinness. guinness and champagne pie. tom: whatever it is, i am going to bring that. francine: steven major, when you look at -- when you look at swissie and you aboutt i want to talk guilt because i know we have a swissie board. banks,u look at central this was a very tough decision. steven: this was the start of many big shocks last year, and if you look back at 2015, this was only the first one. the pboc's move in august was the start of something quite similar. in many ways, people will say it because rates went extremely negative.

in the case of the pboc, they are trying to weaken the currency and they have a major imbalance to try to deal with. i think it is more similar than others are pointing out. youhad the ecb surprises, had the fed disappointing, you had all these shocks which caused spikes and volatility -- spikes in volatility. i think the ecb was key in starting this change. 10-year breakeven rate was the lowest since 2000 not. what does that tell us? steven: one interesting year term development is that the break-evens have been moving down with the oil price. so maybe we will get some time of longer-term low for break evens, but we basically like g ilts overall. it is unlikely that we will see the bank rate going up any time soon. this is important for the fed to look at.

they talk about rate hikes but never do it. you soeven major, thank much, with hsbc. davide, thank you particularly for the comments on banking. we want to leave you with a data check as i go off to "surveillance" on radio. futures at -30. dow futures negative 2.49. emerging-market currencies hammered. we will be in london on monday. zurich on tuesday. then on to davos. stay with us throughout the week. "bloomberg surveillance." ♪

david: number one and rising. the world's largest money manager takes in more cash from clients. we have first-quarter earnings from blackrock. chinese stocks enter a bear

market. what will this mean for u.s. equities? we will ask howard marks. he sees faultlines in the global economy. we will hear from royal bank chairman howard davies. it is a bloomberg exclusive. -- we will hear from royal bank of scotland chairman howard davies. it is a bloomberg exclusive. welcome to "bloomberg ." i'm david westin. stephanie: i am stephanie ruhle. helping us with the red is jonathan ferro. closing out a wild week of trading, and it is not just an exclusive with howard davies. it is a howard exclusive day. ,oward marks, oaktree capital the cochairman, cofounder with us. welcome. howard: thank you, stephanie.