been 26 years since china has seen such slow economic growth. the trent this morning is in the wrong direction. markets find a business this morning. oil hovers below three dollars a barrel and on bloomberg surveillance, gary shilling on the continued repression. ind morning, i am tom keene zurich, switzerland. with us in new york is vonnie quinn and in london, caroline

hyde. we see volatility this morning. yes, this is bad news being good news. playing into this we have breaking news from the imf to download global growth outlook. we have the global growth is 3.4 percent for 2016. that is down. they are also altering the 2017 outlook. but there is some strength from germany. tom: that is the conundrum. we see good economic data but at 3.4%, it really underscores her theme from two years ago, her new mediocre. caroline: commodities are the key area.

get our first word newsflash. vonnie: good morning. china's economy has an crohn's in 25 years. last year, they crew the least since last year. the fourth quarter was the weakest time since the recession. they're blaming production sales and retail investment. china is searching its role in the middle east. the they are making a trip. he is trying to protect chinese influence that have built up. and taking a more hands-on role in the syrian war. in baghdad, three americans missing since the weekend were kidnapped city cash kidnapped by

militiamen. the area they lived was controlled by shiite ministries. muslim woman can be banned from wearing veils. david cameron announced those measures as he tries to prevent british citizens from becoming radicalized. glenn frey from the eagles has died. four consecutive number one albums and five number one singles. 1994got back together in and became one of the most successful touring acts ever. he died from complications. news 24 hours a day powered by our 2400 journalists. i never managed to see them live. tom: thank you so much.

let's look at a data check. a better data check then thursday and friday. futures.k at the s&p they are up very nice. this is one of my secrets. here, theerg terminal futures are up nicely. the 10 year yield is at 2.05. one texas intermediate and watching closely is print crude. let's go on to the second screen at 27.dea of the vix last was a horrific friday week. and print crude is lower than texas intermediary. it was steeper this morning, but

it has gotten flatter. tweak from what we have seen in the beginning of 2016. caroline: you are multiplatform. we have the imf showing that global growth will be restrained. . capped at the lowest since 1990. for more, let's get out to enda curran. we are still below 7%, clearly there is hope for more stimulus. enda: good morning. you are right. peoples will see that the end result is there around the government's 7% target.

but it was the slowest annual growth. the slowest quarterly growth since the global financial crisis. all of that came after the biggest stimulus growth. we do have a plethora of measures from the government. and yet now there are fears that it is not gaining traction. and now there are skeptics of these numbers. so over a negative story. chart endaup the gdp curran. this is off the terminal. it has a three-year moving average. is the need to know moving average is below where it was in 1990. so it is not just about one data point. this is about the sequence and the trend. it gives cause for concern.

it does. and another concern is, how do they rev of the economy. of course, there are nations with a bigger debt ratio but the pace and the buildup in china is limiting responses. forward, it will continue to be painful. consumption isn't filling the gap as quickly as they are fading away. -- said that it doesn't pose a greater risk to the rest of the global economy. will be paid but it is crucial what they are doing. enda curran, thank you very much. our guest host is paul donovan.

the is a global economist. talk to us about the global economy. we have a downgrade from the imf. is it behind the times? paul: you can automatically assume they are 6-12 months behind the times. .2 is the shift. i don't think any economist on the planet believes economic data is accurate enough to give a .5 range for gdp. this is largely nonsensical. a riskas china, there is that the economy is overheating. the trend of freight growth in china is somewhere between 5% -five .5%. we will sit here for the next five years to say that we will

be having a new low end we must because it must go down from where it is today. it is too high today. 5.5%.ds to come down to caroline: are they making the right transition? or do they need to ramp up the change? but they are doing is changing the consumer range of gdp. they want to expand the consumer sector. if you look at an economy that has a relatively standard -- relatively same standard of living, you are talking about the consumer being 65% of the economy. that is where china needs to get to. it is a process of evolution. i like your analysis and

their ability to get to their new trend growth. but if you apply their trend trend as 5%, where is growth for europe and america? paul: it hasn't come down as much as it has in china because china is being hit on both sides. the demographics have toppled over. china is thing is that now a middle income economy. if we look at the united states, trends are 2.75%. in the united states we are operating at a failed trend growth. you would expect europe to be above trend growth at the moment that it will settle back down to 1.5%.

tom: the solution is currency depreciation or outright evaluation but after looking at these gdp numbers is this the only pass? paul: it will do any good at all. currencies is that don't work the way they worked 40 years ago. the appreciate your currency, exports got cheaper. but that isn't the world today. we have a more complicated supply chain. you now don't end up with lower export prices or an increase in export share. the movement so far absolutely is not a competitive devaluation because it is not being reflected in export prices. there is no competitive advantage.

paul donovan just said how important it is. that was a beautiful summary of those thoughts. i urge you to read this, about the limitations of currency depreciation. we have a wonderful show for you. the caution onat world and economic growth. gary shilling will join us and komal sri-kumar will join us as well. from london, new york and zurich, stay with us. ♪

back, i amelcome

caroline hyde in a cold city of london. you are currently seeing a gain in the pound. and a gain in the ftse 100. andave tom keene in zurich vonnie quinn in new york. vonnie: millions of twitter users have trouble using the service. it has lasted more than an hour and a company says it is partially resolved. my tweets haven't been able to send. the french automaker will recover 15,000 vehicles after an investigation shows there pollution filtering system needed adjustments. capitalists invested $30 billion in chinese startups last year. twice as much as 2014. they are seeing that china is a

legitimate challenge to the u.s. for leadership in the technology industry. caroline: thank you. let's look at the u.k.. u.k. inflation edged higher in the month of december. 0.2%. at noon, we will hear from mark carney. let's bring in richard jones. and of course, paul donovan remains with us. these numbers are slightly higher than expected. but richard, should the pound be gathering steam? richard: part of what we are seeing this morning is a little bit of a slight trend reversal to the large trend we saw this year. not only in the pound but also in the u.k. rate space. 10 year guilds are still outperforming 10 year treasuries.

we have seen a big outperformance. caroline: what do you take from the fact that we are at 0.2%? see oiloing to start to prices helped to be factored in? will inflation take back up? paul: it will. as a rule of thumb, headline inflation will go near core inflation. in mind, as we have seen with the airfares, they are going up because of oil base affect and they are a part of core inflation. you will get a slight upward stick there. a supermarket price war last year. those effects will last a little longer.

that is one reason why u.k. inflation isn't performing as rapidly as we would like to see. but there will be upwards pressure. carneye: and will reference that? richard: he will maintain a cautious tone. the latest addition last night standard cautious -- night sounded cautious. he cited disappointing growth figures and the ongoing problem of low unemployment but sticky wages. and he didn't see like -- he ben't seem like he would rushing to vote for a rate hike at any point soon. any rate will we see hike in 2016? paul: we will. the unknown factor that we have to take into account is the timing of the referendum on the

into 2017.uld see us we think it is unlikely that the bank will move in the three months before it referendum. if they go for a june referendum, that delays rate hikes in till the second half of the year. it bank of england is trying to control inflation in 2018. there is a two-year lag. so policy decisions need to be seen in context of where pressures are going. richard jones is with us and paul donovan. we have caroline hyde in london and i am on my way to double dose. francine lacqua is already there. conversation with ian bremmer.

, we are "bloomberg surveillance,"

tom: good morning, this is "bloomberg surveillance." we are on our way to the world economics forum. we begin with cap rogoff in our trip and we are looking forward to that. they have a wonderful set of guests lined up. paul donovan is with us and our

morning must-read is a chiseled gem from paul donovan. 2016, toill change in paraphrase, markets can remain --g, longer than markets can longer than investors can remain solvent. the only solution i can see is to employ more economists as quickly as possible. what to the markets get wrong right out? paul: one of the really big problems that we have been noticing over the last couple of years is that economic data is being revised more frequently in the revisions -- and the revisions have been bigger. marketsook at financial , they don't react to the revisions. so economists are using the

latest data available and markets are not. markets are just reacting to what they have. so you have a divorce between economists and markets. as i remind my colleagues, central banks are run by trading -- run by economists. policy is going the way i say and not the way market say. here,hat is so important are you stating that to see a major risk guess on economic productivity worldwide? paul: i think so. the bias to economic data revisions has been more positive. i think that is a function in part of the structure of the recovery at the moment. a lot of the economic growth in the moment is coming from the small business sector. that is from the mom and pop

stores. that is the group that is driving the economic upswing. so even if large companies are meandering along and not doing it is not today. caroline: we have also got, coming up, taking in more as we .re joined by kevin norrish he is head of barclays commodity research. brent oil is having his best day since october 2008. stick with us on "bloomberg surveillance." ♪

when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call, a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. so your business can get back to business. sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. caroline: this is "bloomberg i am caroline hyde. this is a look at the river thames.

we see inflation creep a little bit higher this morning. let's take it to vonnie quinn who is live in new york. cast a the imf has global economic forecast. 3.6% ins year, down october. something oil prices and a stronger u.s. dollar. china has made it official, the economy grew the slowest rate in a generation. that was in line with government expectations but still the worst since 1990. industrial production and retail sales all slowed. services became the biggest part of the economy. of parliamentbers debated over whether donald trump should be banned from the u.k.. lawmakers decided they had no power to do so. it was brought up because of his

comments that muslims should be stopped from entering the u.s.. searchers still haven't found any sign of the marines missing off the coast of hawaii. they have recovered life that -- recovered lifeboats. its 113thonths before birthday, the world's oldest man died in japan. he said his secrets to life were not smoking or drinking. oldest woman lives in brooklyn at 116 years old. i am vonnie quinn. tom: thank you. center, what ad debate over the last week over the future of oil. we're going to catch up with kevin norrish from our cleat. andad your note carefully

even you, with your humility, you are trying to determine the low on oil -- what are you looking at? demand dynamics? are you looking at new supply from iran? all of those things. it has been a dreadful start to the year for oil. we have had warmer weather that unusual. a quick return from iran. and this morning, -- said that we are drowning in oil. nobody at these prices cap invest in oil. atlooks to be the worst there are signs that the market is rebalancing rather quickly. tom: what signs do you see right now? i see a normal drift function

with the technical analysis. how can you say you see signs they? kevin: first of all, look at opec. it has increased productions by one million barrels a day. ofn is the only source growth and supply and there are risks. venezuela and algeria, decline rates are accelerating because they can't afford to invest. negative yearst on year figure and that is because of diminishing u.s. production and top of that, the potential increase in inventories. this year, our forecast is similar with an increase of

285,000 barrels of oil. i think there are signs that the market is rebalancing and by the second half of the year, things looked tighter. at the moment, we can -- taking to the french airways talking about how he sees a return to the french growth -- where does this go? when do we start to see this be priced? kevin: it will certainly be higher, our forecast is that we $45 for brent. we have incredibly large short positions in the oil market. i think you asked, what are you

watching? the spreads, are they getting wider? becoming tooces big to store? demand indications? u.s. oil? all of those things could turn more positive. if they do, a $10 or $15 increase is within the realms of possibility. caroline: you have been talking about the supply side. what about the demand side? more positive. update,do, awe have had the imf where do you see demand play into this? kevin: demand will be slower 2is year, last year we had million barrels a day of growth. mainly because of the massive klein in prices. i think we have been taking a close look at u.s. and chinese demand and it is looking on the weak side. .here will be a slowdown

china is certainly slowing down. but gasoline demand is strong on is 1.2l basis and growth million barrels a day and be enough by the second half to start is opening -- to start absorbing. we live in the spot market, the present value of oil. you live in the forward market. what do you clean from the dynamics of the forward market with oil at $29 a barrel it now? kevin: one of the things to look at is the spread between the front of the market and four months out. the there is too much oil,

spread should widen. round, it hasn't happened. theight now, the shape of forward curve is not telling us that we are running out of oil storage or it will do at any point soon. and at the back end of the curve, $45 of the barrel, it is weak. there is less liquidity out there. a lot of oil producers have been forced to sell over the last few months. so the back end of the curve is giving a misleadingly flow indication of where prices are likely to end up in the medium-term. gets cut off,ent the higher the prices will need to go. tom: kevin norrish from berkeley. arclay. berkel

uric -- in zero -- in zero, switzerland. we have here in preparation for the world economic forum. shilling.eak to gary stay with us from london, new york and switzerland. ♪

caroline: this is "bloomberg surveillance." but for our morning news, i want to get into the european embassies because we are having a strong day.

we have every single industry group charging higher. here is the stoxx 600 close to 2%. he also have the dax pushing up. you are seeing executive taking to the airwaves today, talking about the fact that we see dividend remaining despite the selloff in oil prices. paul donovan is still with us, a global economist. markets getting the right idea? we are in a more volatile market. i think that will continue. aboutis greater concern political outlook. markets may be misreading the signal. you have more volatility. we have to distinguish, if we look at a market like china, he moved we see in china isn't fundamental.

selling off.ble in other words, it is a good move for the market. markets reflect what economist say. caroline: the market is picking it is good, because it could mean more stimulus. there will be stimulus from china but we have already got it. , datat think it is weak is in line with what the government wants to see. an economy that is supposed to be slowing to a new trend of growth, i don't think we have weak economic data. it is only week if you believe it should grow at 10%. i don't know of any economist that believes that china should be growing at 10%. tom: paul, let me look at my movers. it must be foreign exchange. we see that the way from the

majors, the dollar yen is a little bit abenomics friendly. sterling, what a shock to say it is stronger at 1.43. that shows you the adjustment we have seen over the last couple of weeks. donovan, do you just assumed dollar strength eventually? or will the new flows out there, do you begin to adjust the outlook on foreign exchange? does not have a strong dollar in the forecast as we go through this year. we are not looking for collapse but we believe the dollar is likely to weaken against the euro. i -- i wish interest rate differentials did drive the currency but they don't.

think about where we are with the low oil prices. we know that oil funds in the middle east are pulling money back because it is needed. central banks are disproportionately invested in dollars. think again about its oil does fall around $30 a barrel, you need fewer dollars to buy your monthly quota of oil so you don't buy as many dollars because you are not buying such an expensive barrel of oil. so the demand for the dollar is having. it has nothing to do with the growth interest rate. tom: paul donovan, one of the distinctions we have seen is bution about market events an optimism that we will get through this without recession and without hysterics. do you agree? that we can move forward after the tumult with stability? paul: absolutely.

financial markets aren't nearly as important as they think they are. if we look at the large list of companies in the united states, the broadest equities, they account for maybe 20% of the u.s. economy. i am looking at the other 80% and is saying, maybe things are ok. ,f we look at wealth affects more americans own a cat then own equity directly. 70% of americans own their own home. so i am far more interested in where the house equities are going. i think we need to be cautious about this. markets are having a volatile episode, they will get over it in time. as long as people have a job and withoutle income

outrageous inflation, economic data will be ok. tom: in our next hour we will look at two people who have been so right about tempered economic growth, gary shilling will join us and komal sri-kumar with his update. outrageous inflation,from zero,, "bloomberg surveillance."

tom: i have a spy in new york who tells me there is a dusting of snow, that is a good thing to know. switzerland, much cold. economic forum. temperatures will be cold this year. andline hyde is in london now to new york city with the business flash, vonnie quinn. cut thethe imf has growth for saudi arabia because of slumping oil prices. it was revised to 1.2%. this blessed him with a budget

deficit last year and it has led the government to cut spending. in the meantime, stay on warns that the oil clot make it worse. global markets could drown in oversupply, sending prices lower. -- is confirming the sale of three dozen regional banks. it could be valued at $19 billion. will drop the subscription fee and it won't give third-party advertisements. instead, it will allow businesses to communicate with them directly. at is our bloomberg business flash. donovan, back to paul we were just speaking about the , how many interest rate increases will the economy be

able to take this year? paul: we are forecasting four rate hikes. no major shocks. more than what the market is expecting but it is with the fed is telling us they are intending to do. they're in mind, if we have four rate hikes, -- will not be going up. it will barely be standing still. the beer question is not how many rate hikes we get, it is what they do with quantitative policy. are we going to see more quantitative tightening this year or are they going to carry on with the slow pace of quantitative adjustment? vonnie: quantitative adjustment -- is itike increases any risk that it will affect the industry more? paul: i don't think so. the manufacturer sector is doing

all right. you have it going along perfectly ok. he cost of capital is not a limiting factor. there is a lot of cash on balance sheets. the profit share on gdp is close to record high. this isn't an environment where a small great hike increases going to cause the sector to panic. and bear in mind, it is indicative of a degree of pricing power emerging in the manufacturing sector. they are passing on the cost of higher labor costs. annette -- when i look at , let's gor yields back six decades with the great inflation, where we broke the back of inflation and down we go. the trend ofat

disinflation, have we broken that? or are we still involved in a long-term, great moderation, towards lower interest rates? both if we consider nominal and particular interest rates, they should be bigger. because we have removed a lot of the higher inflation and we have also removed inflation uncertainty. isple aren't asking if there a risk if economists are wrong. of course, economists are never wrong. that is gone. so yes, i think we are in a structurally lower interest rate environment but i don't think we see continued disinflation because you can't get continued disinflation. if it keeps falling, you end up with deflation. tom: nicely said. but if we have interest rates,

as an interest rate -- as an it indicate tos you that we have too much supply? too much service sector? paul: no. i don't agree with this. the idea that we have too much supply is counter because supply creates his own demand. you can get relative price and sometimes you do but we don't have an aggregate excess supply. never underestimate the hedonism of the american consumer. caroline: if we have cointreau have four -- if we hikes coming does that mean the ecb can do the same? paul: european inflation does pick up this year. we will end up with inflation 1.25%-1.5% by the end

of the year. it is a more difficult situation. i think that is more currency focused and it is more political. done acs really hasn't great deal in terms of reform. he may feel that he is to japan tothe bank of increase to be seen as doing something. on balance, we don't expect them to go down that route. caroline: we only have one minute left but one central bank u.s.?after the paul: difficult question. probably the bank of england would be the next one. caroline: mark carney takes the stage at midday.

caroline hyde, thank you so much. paul donovan, thank you, a most interesting conversation. again, we are on the way to the world economic forum. we need to brief you more on the american economy, you're doing that with jerry schilling. he has been that on about the decline in oil. komal sri-kumar will join us as well. from new york, london and zurich, stay with us, another hour of "bloomberg surveillance." ♪

it has been 26 years since china has seen such slow economic growth. the trend is in the wrong

direction. this morning, beijing -- they and we have a problem. markets find a bid this morning. oil hovers below $30 a barrel. in this hour, gary shilling and sri-kumar. good morning, everyone. ," fromerg surveillance our newsroom in zurich, on the way to davos. york, vonnie quinn. caroline hyde joins us from london. what a recovery we have seen from friday. caroline: gaining almost 2%. we have every industry group grinding high on a day when you have the iea saying we are drowning in an oversupply of oil. on the day the imf slashes its growth forecast. that news once again is good news when it comes to china. will we see more stimulus? we have to get our first word in

new york with vonnie quinn. vonnie: thanks so much, caroline. gdp grew 6.9 percent last year. still the weakest figure since 1990. they had their 3 -- they had the biggest three-month. since the recession. officials in pakistan say police were the target of a suicide bomber today. at least 11 people were killed and 17 hurt in the explosion. it happened at a checkpoint outside pressure what -- factions in libya say they have resolved differences. libya has been torn apart by violence since the ousting of muammar gaddafi four years ago.

michigan's governor is the target of an angry demonstration . >> [chanting] protesters chanted outside rick snyder's home. they say he should have done nor -- they say her should have done more and sooner after the flint water crisis. just two month before his 113th birthday, the world's oldest man has died in japan. current oldest woman is 116 years old, and she is from brooklyn. i'm vonnie quinn. tom, something in the water in brooklyn? tom: it is a big deal. it has made headlines in europe as well. let's get through a data check.

three screens. i have two. caroline hyde has a lovely data check in london. futures rebound after the three-day holiday, martin luther king day in the united states, and futures up a good amount of points. the yield curve unable to figure out what to do this morning. better, currency markets indicating risk off. oil just below $30 a barrel. under 16,000.ng what a benchmark it is. the bear market for the dow is about 15,100, depending on how you mention it. we mentioned oil again. texas -- below west brent crude, below west texas intermediate. that is something new. caroline? caroline: we are managing to cool out of our bear market when it comes to the stoxx 600, 19% down from previous peaks in

2015. every industry group is climbing. even though chinese stakes have forecast, we have expectations of funds buying up equities in china. the cac up 2.3%. todit agricole up looking sell. 5100, up 1.8%. we have mark carney talking a just an hour's time. going to be very interesting, to hear what mark carney says about central banks adjusting to inflation. we are on our way to davos, folks. we thought from zurich, with the news flow in particular, with the market carnage of last week,

we needed an american perspective for you. some of our most popular guests -- komal sri-kumar is with us, which is called for economic growth. and gary shilling, truly one of our most popular guests. i really cannot say enough about his long-term call for lowell -- for lower interest rates. dr. shilling, that may begin with you. you have written for "bloomberg view" many times on china. good enough for china, or could it drive lower over the coming course? is lower thaner reality. if you look at factory production, things are a lot harder to fudge. the economy is a lot weaker. but the whole idea, the whole reality is that china is slowing. china was driven by exports. exports went to north america.

in europe there was slow growth there. and spending on infrastructure, and the result was a lot of sost cities and so on, debt, china is definitely slowing. my view is that china is -- well, we just put out a special report called chinese sunset. i think china is going the way of japan. that the shock and awe everybody had over japan in the 1980's. it ended with the big blowup in stocks and housing, and two decades of deflationary depression. i am not saying china is going to be that week, but the heyday of china and the feeling it is going to take over the world and lead the world is over. me have youar, let follow on from dr. shilling's comments. let's bring up the china gdp chart.

the trend that you see on the right side of the chart, the three year moving average -- i did not realize it is a three-year moving average indicating weaker growth than of 1990. sayingar: i have been for a while that china matters. china has a big impact on u.s. and global economic growth, especially keeping in mind that in recent years, even though china is the second largest economy in the world. 30% of the global growth, the most of any country. so that change is utterly taking place. talkingnd point is that about the comparison with japan, japan had a demographic transition in the late 1980's, and the beginning of the 1990's.

what we are finding out in china today, the working age population in china peaked in 2012. the population is great. average chinese is 36 years old, but the average indian is 26 years old. vonnie: you seem to agree on this and probably will agree on most things. isn't china getting ahead of this particular problem? it has already done away with its one-child policy. it is putting structural reforms into the system and is passed getting there sooner than japan. two children, but that will be good in about 15 or 20 years. you're absolutely right. 15 tonow, if you look at 24-year-olds in china, they are declining because of the one child per couple policy.

china is not going away. globalization, which is what made china so important, is over. the manufacturing that shifted from north america and europe is gone. there is very little that can move. there are shifts now. some of it is moving out of china to cheaper areas -- pakistan, bangladesh, the anon -- but in terms of shifting out of the western countries, that process is over. sri-kumar: the change in the one child policy has done wonders and some consumer products have taken off in the last you must. vonnie: we're not looking at deflation down the road, our wait? had 46 monthshave of deflation, so almost four years taking place in china. the question is, how do you boost demand? there is always one way, the

tough way, and that is structural reform. you need more immigration. you need more education, and that is the only way you can change it. that is always the tough part. japan does not allow free immigration. therefore, you have 25% of the population, over 65 years old. when you have those issues, you are not going to be able to change it very quickly. is trying tohina devalue. they do not want to do it explicitly and have it result in a lot of flight capital, so they are doing what greece did, internal devaluation. assets tonocking down make internal prices cheaper. vonnie: caroline? caroline: i want to pick up on the china theme. you say china would shrivel up and die, but it will become less important. and who isportant,

at the helm? who do we look to? gary: i think we look to india. they have a lot of advantages. they have no limitations on population, they speak english, they are very good technically. they have private companies that are state-owned in china. they inherited from the british a legal system. there are a lot of subsidies in rural areas. there is a lot of corruption. but i think india as a big winner. sri-kumar: yes, india is looking good, but i do not think they are going to come forward and replace china anytime soon for a couple of reasons. one is the gdp of india is much smaller than that of china, so you cannot make up for that loss in terms of global economic growth. the second is the extent of bureaucracy to get over that is going to take a while. tom: this is the problem, folks.

you have three kumar and gary shilling on the same set. they will not shut up. that is a "surveillance" exclusive for you. we are coming back with gary shilling and sri-kumar, lots to talk about. francine lacqua taking sikorsky up the valley to davos. we are looking forward to speaking with the ian bremmer as well. stay with us. from new york, london, and zurich, it is "bloomberg surveillance." ♪

caroline: this is "bloomberg surveillance."

i'm caroline hyde in london, tom keene in zurich, and vonnie quinn in new york. every industry group is higher. this one is for you, tom, the vstoxx, the fear factor in europe, down 9%. meanwhile, the pound is surging up half a percentage point. as jonathan ferro leaves new onk, the pound is up inflation data being that much stronger than being anticipated. let's get to new york and vonnie quinn for the "business flash." debte: puerto rico's problem is $2.5 billion worse than previously estimated. it will reach 16 billion within five years. already defaulted on payments. tax refunds are delayed. twitter is working to fix a glitch that cut service to

millions worldwide. many users are being greeted by a page that says twitter is looking to a resolution. renault is issuing a -- because pollution control in 15,000 suv's must be fixed. that is the latest "bloomberg business flash." bank of america and morgan stanley are reporting earnings in about 45 minutes or so. paul miller joins us on the phone to talk about bank of america and other regional banks. many issues to watch. some charges and expenses and so forth. what will be the first thing you go to any earnings statement? paul: the first thing we look the net interest margin do, the money they make

off their loan portfolio? we always look for that. the net interest margin has been low, mainly because of the low interest rate environment we are sitting in. areother issue people concerned about today is nonperforming assets are bad assets. what have they been doing? i guess you could say they have , but a lot of people are concerned about the energy books in these banks. to the that brings us wider issue of trading equities and bond trading revenue. what are you looking for there? paul: the fourth quarter is always a seasonally slow quarter. we have seen jpmorgan report a week quarter in those areas. -- we have seen jpmorgan report a weak quarter in those areas. there is no surprise that that will be a weak quarter for

trading revenues. to: paul miller, we head davos. so does brian moynihan. he will be on a panel here in a few days. give us the state of governance of bank of america with mr. moynahan. recentllenges of the quarter stash is that all behind you? paul: what he had to manage unbelievable. a lot of people felt bank of america should have been closed down through the crisis, but he has been able to maneuver through that. his biggest issue is growing the bank, growing the earnings. the earnings have been flat. his are a wii's are in these -- oe."rle -- his r s are in the single digits. it is notconomy, if growing, it is difficult for a

bank the size of bank of america to grow. tom: from paul miller, in 2016 of banku buy the value of america and other beleaguered aboardor do you climb those that are outperforming? paul: we think bank of america has continued to do a lot of blocking and tackling. the issue with all u.s. banks is that they are all trading as if they are one stock. so a lot of people are just buying the baskets of these institutions, and they are rising or falling relative to the interest rate or what the fed is going to do. i am bearish on rates. i do not think the fed will take rates up much farther than they have already done. it will be tough for these banks to grow in that environment. tom: paul miller, thank you so much. stay with bloomberg. all of our media today, as bank earnings move out. bank of america coming out

within the hour. we are on the way to davos in zurich. we was big with michael spence of nyu. that is an important discussion. adam posen will join us as well, and robert schilling. in new york, from our news bureau in london, and direct, this is "bloomberg surveillance ." ♪

vonnie: welcome back to "bloomberg surveillance."

looking at beautiful live pictures of new york city right there. time for my morning must-read. it is by former world bank president robert zoellick writing in "the financial times." monetary stimulus is the theme. the perfect guests to discuss this. gary shilling is with us, and komal sri-kumar. gary, let's start with you. we talk about structural change, but it is very difficult to governments and congress and so forth, and

acting structural change. that we are in the age of the leveraging. i wrote a book in 2010 saying that. , in the 1980's and 1990's -- that process takes 10 years. at the rate we are going, it will take even longer. during that time, we are stuck with slow growth. i do not think that is the end of the world. it will resume rapid growth driven by productivity improvement because of technologies. but that is down the road. vonnie: how long is it going to take? sri-kumar: i do not think it is an automatic change, once there is a new precedent -- once there is a new president, and the crowd or republican. you need structural reforms. so nothing is going to happen in 2016. you are going to have slow to

negative growth taking place in the united states. you are not going to have any change to positive policies ahead of the elections, so you are looking at 2017 at the theiest area but then weeding away from monetary excess is going to be very painful. vonnie: we are going to continue the conversation in just a moment. coming up, we will turn back to sri-kumar's recession call, also more with gary shilling of gary shilling and company. right here on "bloomberg surveillance." ♪

when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call, a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. so your business can get back to business. sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. tom: after a three-day weekend in america, we get a better look at global data with american markets for dissipating. future is better than good this morning.

-- with american markets participating. futures better than good this morning. the mexican peso and rubel are doing a little bit better this morning. oil proxy still under $30 a barrel as well. andt now to new york city, our first word. here is vonnie quinn. vonnie: the imf has cut its global economic forecast today. the global economy is expected downpand 3.4% this year, 3.6% -- down from 3.6% in october. china makes it official. the economy grew last year at the slowest rate in a generation. at a 6.9% base in 2015, in line with government targets but still the worst performance since 1990. manufacturing and retail sales slowed in the last three months of the year, but services became the biggest part of the economy.

the united nations is documenting the deadly toll caused by islamic state in iraq. they report just released says nearly 19,000 civilians have been killed there in less than two years. havethan 36,000 others been wounded. yesterday another mass grave was discovered. u.n. study thee period from october 2014 until last year. sinces have been missing two helicopters collided last week during nighttime maneuvers. there is no sign that anyone used the rafts. istralia's prime minister president obama first overseas visitor of the year. first visitll's since last september. global news 24 hours a day powered by 2400 journalists and around the world.

i am vonnie quinn. tom? tom: we are thrilled to have gary shilling with us. three kumar is with us as well. thomas three kumar, as we look at the american economy -- comb -- as we look at the american economy. at what point do the rate increases damage, dampen, or slow american economic growth yet? are we there right now? -kumar: having done that, i look for a rate cut sometime during 2016. it is just a matter of whether they raise it one more time. but there is no room here for continued increases in interest rates when you have a problem with oil.

the inflation rate is coming down. the imported prices for the united states are negative, and i do not see any prospect for continued increase in rates. tom: gary, when we look at the analysis of the american economy, and when i look at the atlanta fed, gdp analysis, can gary shilling separate domestic economic growth from net exports? if world trade is messed up, can we ignore that in our calculation of america? gary: to a large degree, our exports are only 13% of gdp. in canada it is 30%, in germany it is 50%. domesticsically a economy. most of the companies all of us think about in investments are global in nature, multinationals. but there is a lot of activity. haircuts -- of course, i do not need one with my dome -- but a lot of domestic services have nothing to do with the international economy.

so the stronger dollar and the weakness abroad affect u.s. exports, and it has some effect on gdp, but only a minor amount. caroline: what on earth does the ecb do? we have an ecb meeting coming up this week. is therio draghi quantitative easing on this side of the atlantic? sri-kumar: i am looking for monthly purchases of 60 billion euros of bonds to be increased. and the termination that extended further into 2017. the negative deposit rate, as -.2recall, was lowered from to -.3. i think we are going down even more negative.

the bank of england side does not want to repeat the error of the federal reserve and increase rates prematurely. so you are talking about easing at the bank of england, much further easing in the european central bank not that it is going to do much good in terms of overall economic rose, but that is where they are headed. you were talking about structural reforms. are we seeing in europe the right amount of structural reforms coming fast enough from italy and spain? your survey is very slow on structural reform. you look at labor markets and the way they are running europe -- the u.s. is no paragon of virtue, but we are way ahead of europe and japan. these issues continue. in terms of interest rates, i agree. i think the fed's next move may be to cut rates rather than

raise them. they painted themselves into a corner. they have been yelling and screaming about racket growth -- about rapid growth, just like the imf. they were crying wolf so much, i think they had to in december. vonnie: both of you are saying the exact same thing right there. not 20 minutes ago, we had another guest saying there were going to be four rate hikes this year. he is more interested to see if there is going to be any kind of quantitative tightening. what is the basic difference? he says the consumer will come back in america and that the manufacturing sector is fine, doing not so badly. how can he be possibly for rate increases? gary: we are growing at 2.2% real gdp in this recovery, about half of what you would expect from the most serious recession since the 1930's. the labor markets are not all that good. if you did not have a row body

-- if you did not have everybody rateing out, the inflation would not be 5%, it would be 13%. .e are in deflation you have a very different picture here, and suggesting that the economy is -- that is what the consensus have been saying for five years. we have been saying 2% real growth. the bulls are always hoping it will pick up, and it has not yet. sri-kumar: i think a hope and a prayer is all that you have in terms of four rate hikes. people have talked about rate hikes in 2014, the 10-year yield going to 3.5%. i am looking at the 10-year yield going to 1.5%. gary: i think 1%. vonnie: we've found a place where you disagree! tom, we have a disagreement. sri-kumar: i think we are going down again. i agree with gary, when you have the employment rate coming down,

only because the labor participation rate is at historic lows. slip-de-wrist the forlit-the-wrist hours bloomberg surveillance. it is gloomy. gary: in our portfolios, we own some but they are defensive. it is based on the idea that we have continued slow growth. effect has china been way overblown. it does not mean it will have further ripple effects on commodity prices, but i think china is -- it has been more shock and awe. i think it has been way overblown. sri-kumar: if i were to answer your question, i would say on the u.s. equities side, be defensive, look at utilities and health care. do not be aggressive in terms of the presence.

the high grade, fixed income, especially yields, willonds, all give you good returns. the other end, there is going to be a lot of disaster to invest in, particularly at the other end of the curve, the bell curve . i would look at emerging markets, which i think are going to bottom out sometime in the next three to six months and are going to be a great buy. kumal, it is great to have you on today. the gnomes of xeric are right out on the street. zurich arees of right out on the street. we are going to continue with dr. shilling and dr. kumar as well. on bloomberg radio, i am thrilled to speak with robert albertson of sandler o'neill. he writes a spectacular note on

the linkage of economics into investment. from new york and from london ich from our zur bureau, stay with us. "bloomberg surveillance." ♪

caroline: welcome back. a quick check of the markets for you. the stoxx 600 having its best day since september 23. volatility is coming down. by 9%toxx coming down this morning. in 15 minutes we will see mark carney taking to the stage. will he talk about a potential rate hike or lack thereof?

i want to focus in on how the turkish lira is doing. we get that again in less than 20 minutes. the turkish central bank, great decision -- will they once again keep rates on hold? be kept atte will 7.5%. that is your data check. let's head to new york for vonnie quinn's business flash. vonnie: there can soon be a new number one on wall street. morgan stanley is expected to overtake merrill lynch in terms of revenue. whenll lynch could lose retention packages expire this month. the oil glut could get worse. global crude markets could push prices lower. he lives problem, increased exports from iran. now that sanctions have been lifted. facebook's messaging service will drop its subtraction fee.

-- it's subscription fee. i want to point out that goldman has just released a note on apple, as the stock is up 2.2% in premarket trading. -- man says the premarket supply not issues but on the idea that supply is not as necessary and suppliers are outputting less. goldman does say expect to reach guidance, and many analysts are saying that revenue will increase, but eps will not blow away targets at this point. goldman is saying there is an opportunity to buy. tom: no question about it. it shows the trends that are out there with some of these stocks pulling back. people are making the best of it, not the carnage, but just the emotional damage that we have seen in 15 or 16 days of the year. you really wonder about the

confidence you can have to get a bid on the market. time will tell as we march through january. the single best chart -- let's do that for you right now, from , the single best chart speaking to all sorts of issues that we have, the single best chart on economics and finance as well. it is about switzerland. an ferro and i were in zurich year ago when we saw the swiss adjust to what was around. this speaks to the idea that when the facts change, i change. the two spikes down are the strong space -- are the strong swiss franc. the central bank is really trying to add. , it isumar -- sri-kumar: really about the knock on

effects of the global crisis, isn't it? sri-kumar: it is. what is happening, they have a safe haven play the same way you have had in the case of money coming to the u.s. dollar, the japanese yen. the swiss franc is even more of a safe haven. is adition to that, it much smaller economy compared with japan or the united states, so the foreign-exchange gets overwhelmed by the amount of safe haven money that is coming in. given my expectation of the way in which the global outlook will turn out in 2016, i cannot see any change in that relationship as far as the swiss franc is concerned. vonnie: speaking of places where people like to buy expensive things, tiffany's is saying that its 2016 -- that 5% and 10% between lower. the only place tiffany's is

doing well is japan. sales are up 10%, tom. tom: one of the small and announcements about retail -- you really wonder well -- you really wonder where retail will be in a year. what the swiss national bank had to do. can you envision a u.s. central bank that in some way will mimic switzerland, and weaken the dollar? can we get back to that plaza accord-like effect needed to weaken the u.s. dollar? ?ary: how can we devalue everybody else is playing off the dollar. it simply does not work that way. uisse were tired of picking it to 120. but the u.s. dollar, the whole world is devalued against the dollar per why? because the economies are week. they do not have domestic strength in their economies, so they say, how do we get more

strength? they do it through cheaper exports, and that means cheaper currencies. you look at the commodity , they are all the valuing and their central banks want them even cheaper. the ecb, bank of japan, deliberately devaluing. .hen we get the me, toos look at china. they want to devalue. they are doing it explicitly and internally. they are doing it in a sneaky way, shifting to a dollar, a basket of currencies, so they can say we are riding with the tide. we have some early trading with johnson & johnson, up 1.5%. it is working on a medical device unit, which makes up 35% of revenues at johnson & johnson. pretax charges between 2.4 -- between $2 billion and $2.4

billion. tom: at least it is confirming its guidance. sri-kumar, guys like you, whether you are right or wrong, you're looking at the view from 35,000 feet. our audience is living the micro decisions like the tiffany's announcement and others. what do you foresee to be the corporate news coming up in the next quarter that will amend our central bank decisions? sri-kumar: two things. one, domestically with the u.s. economy slowing down. as you mentioned, tom, about the isanta fed, the expectations at 0.6% growth, very low. the first quarter will increasingly reflect the slowing economy. the second is a strengthening dollar, and the s&p 100 countries have such a big dependence in terms of their

foreign earnings that translation losses will be significant due to a strengthening dollar. theink the overall news in first quarter, continuing in the second and third, are going to be much lower in quality, tom. gary: corporate earnings have really grown through cost-cutting. you have not had revenue growth, power increase, and cost-cutting has driven profits. that has ceased in the last couple of years. profit margins have jumped, leveled off. whether they pick the low-hanging fruit or they are scraping the bottom of the barrel remains to be seen. americawe have bank of earnings out, one of the banks we have been watching out for this morning. 19.5 billion dollars in revenue, the bank is reporting. of $3.34 billion.

that in fact is a drop -- no, it is an increase from $3.05 billion in the previous quarter. net interest margin -- this is what paul miller was saying earlier. -- that is lower than some of the ones we have seen so far. tom: in the heart of the analysis of bank of america, we will get to glencore news in a moment. the basic idea is single digit return on equity. that is absolutely unacceptable for any bank. it is not about brian moynihan and bank of america. those are the challenges that we see, and i would hearken back to henry kaufman, who predicted all of this eight or even nine years ago. you wonder if bank of america will become a utility bank. vonnie: yes, you do. a couple more headlines from the

earnings release. bank of america is saying that the value per share increased 6% to 22.54. we are seeing the stock move around slightly, 1.5% higher right now on pretty low volume. --: what we have seen here and paul miller alluded to it as well -- there are a number of ways they could play. you wonder about the energy debt, the increases we are beginning to see in credit and accounting. but what i am really looking at is the expense side and particularly what brian monahan andjames dimon at jpmorgan, the regional banks as well that we do not talk enough about -- what are they going to do about the retail banking in a digital world? seminarr at davos, my at davos for the economic forum

was the -- was on the future of digital banking. that is where we are going, and we are going there quickly. vonnie: glencore has been halted in london trading after an extraordinary rise early on at 11.7% gain. there was so much volatility that the shares were halted. they were going to keep an eye on that for you and what is going on there. caroline: we are seeing anglo american up by a similar amount. it has been batted in the commodity rout. an upsurge today as miners lead the charge. up in this moment of trading. vonnie: you have to wonder if the china data did not have something to do with these gains as well, or could there be a short squeeze? caroline: exactly.

copper is currently rallying. did actuallyerall disappoint, but will we see more stimulus? will we see more stimulus coming from china? tom: the linkage of international events here, summarizing again -- china with news on economic growth or lack thereof earlier this morning, and then onto a slew of corporate news as well. gary shilling, when i synthesize all of this in and look at the carnage of the last 15 days, the emotion within the market, how do we get to stability? is there some point where we have a catharsis and clear out the markets, or can institutional leaders maintain control of that linkage between economics, finance, and investment? i think we have a lot of working down of these excesses to go. you remember a year ago when oil was over 60 bucks a barrel. i said on your show that i

thought we were going to see $10 to $20 a barrel and we are closing in on that. commodities are declining and everybody is running for the dollar. you have deflation threats. i think there is a lot more to go in terms of working this out. to say there is some big policy move or corporate move that is going to turn this around, i do not think that is realistic. these forces are much greater. market forces, economic forces simply overwhelms what policy makers hoped they could do. tom: gary shilling and sri-kumar, thank you so much. the news flow continues. couple ofming out a minutes earlier than we were expecting, morgan stanley is my bloomberg terminal will show me, that the full-year forecast is -- sorry, the net revenue is $7.74 billion. more on this for

you in them at, but basically the headlines, net revenue is 7.9 billion dollars, and earnings per share, $.39. tom: i have never seen vonnie quinn do so much corporate news flow as she has done in the last 20 minutes. absolutely extraordinary. again, thank you to gary shilling and sri-kumar as well. we continue from bloomberg radio in zurich and new york. tomorrow, francine lacqua and i will report for you from davos in the economic forum meeting. from zurich, good morning. ♪

breaking news. bank of america and morgan stanley are out with earnings. world,are up around the

green around the world. china's economy taps the brakes. new data is weaker than speculated. good morning. ♪ brendan: welcome, i am brendan greeley. david and stephanie are on assignment. >> and i am cory johnson. matt miller has the latest. matt: bank of america and morgan stanley are out with their estimates. the ehes