francine: four hikes -- we get the first statement of 2015, setting the tone for the rates ahead. apple forecasts its first sales drop since 2003. and a miss and santander. botin tells me exclusively they will not raise capital. good morning, this is "surveillance." tom, it'excitings -- we hear -- it's exciting. we hear more about the fed but markets don't look good. tom: it will be interesting.

we have our special programming on the backdrop. it really is a market looking for a bid. it wasn't a good day yesterday, but you really wonder where the markets will be when we hear the statement from the fed this afternoon. francine: it will be interesting to see whether they link the markets to the real economy, but first let's get to the first word news. vonnie: thank you. the leaders of an armed group in oregon have been arrested in a violent traffic stop. among those now in custody, the leader ayman bundy. -- amon bundy.they were stopped by fbi agents . shooting broke out in one of the protesters was killed, another wounded. iran's president hassan rouhani goes to france after a two-day business trip to italy. he is expected to meet with francois hollande and sign a deal to buy more than 100 planes from airbus. italy and the european commission has agreed on a plan

to help banks unload bad debt. italy will work with european regulators, but some are concerned it could constitute illegal state aide. john kerry faced a hard sell in beijing today, getting china to agree to tougher sanctions on north korea. as been opposed to any moves that may destabilize the regime of kim jong-un. it wants to restart ties with north korea. republican front-runner donald trump will skip tonight's debate in iowa. trump says he has been treated unfairly by fox news, which is holding the debate, and its anchor megyn kelly. he says he will be at a fundraiser for veterans. global news 24 hours a day. i'm vonnie quinn. tom: thank you. hopefully it is just a mixed futures -- deteriorating further after the

big day yesterday. i think the 10 year yield will have a round number. nymex screwed at $30, oil churning. i don't want to be too hysterical -- i have seen too much hysteria and i don't agree with that. oil churning nicely at this point. on to our second screen, if you would. is myrman two-year headline number. china equities are weaker but the german two-year -.46% continues to drive toward deflation. francine: i think you are right. we also have to look at the u.s. 10 year. this is my vote -- quite a lot of volatility. let's not focus on the hysteria, but there is more evidence of a global glut. 118.r-yen at we are expecting the boj on friday. tom: let's go over to the bloomberg terminal. where are we?

where are we? the answer is up we go, down correction. we're sort of in between. vonnie: absolutely. investors were paralyzed yesterday. that didn't mean now is the time to jump in. tom: they have a pretty good about taking a breather, but what did he say -- did he say loads about? vonnie: he said keep things, and don't be paralyzed. tom: it's an in betweeny january. francine? francine: we have to focus on the fed. the fomc meets for the first time this year later today. let's bring in the bank of japan mitsubishi's head. great to have you on. when you look at the fed, how are you expecting them to handle it? >> of course, they have to would knowledge what is happened. that is the crucial element. three weeks of volatility and turmoil, and perhaps a reference

to monitoring developments abroad, which was something that was in september fomc statement. i think the other big change we have seen from lots of declines in certain asset prices, inflation expectations have come down by between 20 and 25 basis points. what the fed told us is that they are monitoring three elements -- actual and expected inflation and the labor market, in the context of their official mandate. the inflation expectation component is certainly a worry. i think actual inflation, we have had cpi. that has shown a pickup. of course the labor market has been performing very strongly. francine: are you expecting them to stick to those for hur hikes? >> well, our expectation was three. i have to admit, sitting here

now, after what has happened, given the fact that we could see some mixed economic data, we could see march becoming a tougher call. but i still wouldn't move away for the potential for three in rate increases. tom: derek, the first 15 days of january were wild, and the last 10 days w, did we find any stability? >> well, what's interesting -- crude is looked at as a proxy of sentiment globally, and everyone looks at that as the first port of call when they check their screens in the morning. of course, we still have volatility today, but there is some similarities with what happened in the summer of last year in terms of the short squeeze we had in the markets to the end of last week. we had a very similar price action at the end of august of last year. crude a 25% bounce in

that marked the beginning of nearly three months of relative stability in crude oil. perhaps after this 15% squeeze we have had in recent days, it could be the start of better stability. certainly speculators may be a little more cautious in regards to running short positions. tom: derek, i have been on the road for over two weeks. i spent too much money on the road, too much money in london, too much money in davos. i have got to make some money. where do i do it in foreign exchange? what is the trade right now? majors, in terms of the there is not a whole lot going on. one of the stories i am selling customers is that there is not much conviction in the relative monetary policy trade. we've seen it come down in the key currency, euro-dollar. in terms of getting opportunity,

i think you need to move away from the core g10 and look perhaps at the commodities space, or even in em. the acknowledgment tonight from the fed, just a simple acknowledgment of the facts of the last three weeks, is probably going to get the markets overreacting, as they always do. we see some risk on appetite in emerging market currencies. tom: i took away from that -- i have to look at the russians and bob lacrosse rate. -- the russian zimbabwe cross rate. [laughter] francine: derek, are you concerned about china? how should we read a china? everything we have talked about depends on how one looks at china. is china stable, but going down, or are we going to see it hurt world growth to a point where it slows down? >> i would probably go back to the similarities of what

happened last year. we had this turmoil over the first three weeks of the year, similar to the turmoil in august and september last year. but then it faded. i think logic in terms of the fundamental linkages in the global economy, that makes sense. the equity market in china and how it correlates with the rest of the world is actually very low. the best we have ever had, looking at 30%-60%, were correlations between daily valuations in the shanghai and u.s. markets. the best we got to was .4% for a period last year, and it is falling again quite sharply. i don't expect that kind of complete focus on what is happening in chinese equity markets, to fix a broader financial conditions. francine: derek calpine he stays with us. coming up, i spoke to anna botin for a bloomberg exclusive. we will have that and much more, next. this is bloomberg

"surveillance," where the conversation focuses on macroeconomics. ♪

tom: we do economics, finance, and investment, and we will do that this afternoon. special coverage of what should be a boring fed meeting. i don't buy it for a minute. join us at 2:00 p.m., i am really looking forward to that. get to our bloomberg business flash with vonnie quinn. vonnie: thanks so much. fourth-quarter earnings missed estimates at novartis, plunging due to its eye unit. the stronger u.s. dollar is hurting the value of

international sales. expectedell more than at the world's largest chemical maker. basf was heard by the big drop in oil prices. says he is focusing more on oil and gas production. it's the end of an era for apple, projecting sales will fall for the first time since 2003, reinforcing concerns that apple has reached the limits of iphone growth. apple is also being hurt by the slowdown in china and by the strong dollar. that is our bloomberg business flash. over to you. francine: thank you. the eurozone's largest lender, santander, missed markets. concerns over its second-largest market has weighed on company shares, which have dropped more than one third in the past 12 months. i spoke exclusively to the chairman anna bontin about the outlook for china and the emerging markets. >> there is a bit of a disconnect between the financial -- and what they call the real

economy. i don't like to separate that, a bank is very much a real economy. the world is more complex, right? there are a lot of issues in the middle east, china's transformation, politics. this uncertainty, this complexity -- i think it will get more volatility. we see that. but if you look at the underlying numbers, our spanish business, 18% up. consumer lending, the number one consumer lender in europe. people forget that 87% of our group is in europe and north america. europe is doing really well. portuguese economy is improving. the bank of portugal is making 60% more than last year. north america, not doing so well on the bank side, but on

the consumer lending cited is doing well. , think europe and the americas let's say the slower growth environment vis-a-vis asia, it's going to be hard. it's going to be more difficult, more challenging, but i think we can do well. francine: the next 12 months be more of a challenge than the previous? >> the next 12 months, i think the world will grow at a slower rate. there's also taxes. we have said there is an extra 100 million pounds in the u.k., higher taxes in brazil. we are still going to have to pay for hundreds of millions of projects and regulatory cost increases next year. the same as this year, a strong performance, and numbers show topline growth, good performance cost, cost of credit going down something like 40 basis points.

a challengewill be of cost because we have to invest in a lot of projects. so the guidance we gave in september we maintain, and the guidance we gave is next year we will be growing our earnings-per-share, but not at high rates. that is what we said and that is what we maintain. by 2018 we will be growing at double digits. has been inm, anna charge for 18 months. extremely oppressive, but she has a lot of concerns. -- extremely impressive, but she has a lot of concerns. there is the political situation in spain -- that will weigh on investors mind. tom: she carries a lot of weight with her experience. i'm afraid to ask but i'm sure you did -- did you ask her about brexit? francine: i asked her about brexit, and she said it would be up to the u.k. people to decide. she was very diplomatic, budgie

said if the u.k. can stay within the eu with a reformed eu, that would be the best outcome. i did try and press her. when you listen to her, derek -- it's impossible for these companies that are so exposed to take a medium view that as optimistic. the economy in brazil is practically in freefall. >> it's very difficult, given we have gone through over the last 18 months. it's been horrendous, particularly in brazil. we've got to look -- if you look to the future in terms of the year ahead, it's very, very unlikely that we will get anything like the scale of the moves in financial markets like we got last year. up over 50% in 2015. we're expecting further depreciation, but much more modest than last year. that would be a big help, for starters. commodities wise, as well.

the scale of drops in the middle of 2014, obviously they were much closer to the bottom. the outlook going forward will be an important development. francine: thank you. derek halpenny stays with us. coming up, we speak to the ericsson ceo, a first on bloomberg. this is bloomberg "surveillance." ♪

tom: good morning, everyone. bloomberg "surveillance." francine lacqua, an interview with anna botin. we will have more of that through the day. right now, we speak to another ceo challenged by technological progress. erickson has been a winner relative to so many others. its chief executive officer is hans vesper. he joins us now. the stock chart is challenging, and i mean that with no disrespect to you. it is a war out there. what is your strategic plan for this year, to differentiate yourself in the time of the cloud? a great question. i think we have a strategy that we laid out some five years ago and we are in the middle of execution. three things -- one, the mobile infrastructure, the core pieces that we have. a a lot of markets are going from 3g to 4g and we want to

capture that. then, refining 5g. we will be the number one on that. technically, we are into some new territory. we are now world leader -- those numbers are growing at over 20%, and they will no increase our bottom line. thirdly, a cost program of 9 billion swedish krona in 2017. those are the three things we're focusing on. tom: i understand you can work with expense control. are you going to be forced into financial engineering to jumpstart the stock? it is a bad phrase now, whether it is ibm financial engineering or what john chambers did at cisco. are you going to become john chambers and a ploy cash back to shareholders -- and deploy cash back to shareholders? today, aounced

proposed dividends to our shareholders, an increase of 9%. course, to shareholders will approve it, but clearly we have increased our return to shareholders mainly because we are producing a good cash flow, a really good cash flow in the fourth quarter. yes, we are doing that, but we are continuing to be the world leader. francine: mr. vesperg, you put your pitch out there, you have gone through the three things you want to get right. what do you think you're doing wrong? going back to tom's chart about the share price, it has really moved in eight years. /investors believe you and continue with ericsson? -- why should investors believe you and continue with ericsson? >> it's been an industry of tremendous consternation, and 10 years ago we had 50 competitors in the mobile infrastructure but we are down to three. it's a tough industry, and we

will continue to develop. fairly lowe had a developmental share price. on the other hand, we have a good dividend, and i think that is what's most important in these times. it's more about seeing that we continue as the world leader. that is the main part. francine: when will telecom capex spending come back? in accounts for about 25% of your sales. our business in north america is a piece of that, but we sell services and buildings as well. while we have seen in the last three quarters is the devastation in north america, when 4g was covering u.s. soil. now it is much more inter-capacity, which means more software. there's more stabilization and it will grow. tom: 30 seconds. is jeff bezos your friend or your enemy?

think all clouds in the future will be connected to our networks. i think that all cloud computing will build a network that will be programmable with all clouds in order to give superior services to consumers. i think any cloud will be extremely important. tom: you can come out anytime. i love how you don't have any talking points. hans vestberg is a ceo talks to us. thank you so much. coming up later today, a special edition of bloomberg "markets." stay with us from london and new york. ♪

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you've got the power, to turn on the light shape the best sleep of your life. sleep number beds with sleepiq technology adjust any way you want it. the bed that moves you. only at a sleep number store. francine: this is bloomberg "surveillance." a lovely picture of london. it was much warmer in madrid. i flew back after interviewing anna botin. it's not were more sunny in

london. let's get to the first word. vonnie: thank you. stocks are falling around the globe today, disappointing earnings have investors concerned. the stoxx 600 is heading for its biggest monthly decline since august. china's stock southbound again. new dispute between israel and the european union. they are paving the roads using funds from the eu, but israel says the work is illegal and . to work is in a west bank zone under full is reali control. denmark is criticizing for allowing them to seize valuables from refugees to help pay for their housing and food. a un spokesmen say they should be treated with compassion and respect. hey seizedizens say seized morethey

than $50,000. the leader of an armed occupation in for it on are now under arrest. the fbi stopped the militant leader in several followers while they were on a trip to a community meeting. they fired and one of the supporters was killed. bund oncey the rent -- number one, beating out harvard and annual donations. they received a record $1.6 billion, harvard second with $1.1 billion. donations account for 25% of total revenue. i'm vonnie quinn. it's what they do with the money that counts, right? tom: the top ones really give it back in tuition but that is about where it ends. no wonder the tuitions go up, up, up.

futures are negative. let me do a morning must-read -- this was a pleasure. martin wolf is always interesting. davos, and he kills it today. this is a spectacular essay on the fears of the elites. economic losers are in revolt. tom: that is only one part of this essay. derek, how does this full didn't to christine lagarde's new mediocre? the quickest way to get away from this polarity in society is to get some economic growth. when will it happen? >> that's a good question.

if you look at the actual fundamentals for the u.s., the domestic situation does point to a big improvement. what i would highlight in particular from a domestic buildingve is the evidence that wages in the united states are finally beginning to pick up. we've had a catastrophic recession, the great financial crisis which pushed unemployment to 10%. we are only just getting to the point of reaching full employment again. timing,line with that there is building evidence that wages are picking up. the latest was the national association of business economists, which was released yesterday. its component on wages was the highest since the year 2000. everything we look at on the survey side, the actual data is beginning to point to a picked

up in wages across the u.s. economy. in terms ofpective the commentary. that would be a big plus domestically in the united states. tom: what are we going to see within the united kingdom? to bring it back to europe, and for that matter francine's interview with anna botin the the super how do elites of europe reattached to a greater public? >> well, it's definitely more complicated in europe. i do have sympathy to the idea that the democratic process has fragmented in terms of the political establishment in brussels, and therein lies the danger in terms of what you mentioned. a very big issue, not just for the u.k. but for europe in general. although i side on the side of

of the vote to being to stay, i think there is very, very high risks that things could go wrong in the run-up to the referendum and+++ referendum that really feels significant volatility for the u.k. and perhaps europe as well. francine: is any of this new? i loved what tom picked up this morning, the economic losers revolt, but we have had that in the past. we had it in greece, with the election of jeremy corbyn, in france, in italy. there's nothing new, we are just terrified by the fact that it donald trump becomes president, he has the nuclear codes. >> i suppose when you look at the consequences of the financial crisis, what has

become evident is that the wealth has become a lot more focused at the top end of the spectrum of the income spectrum. personally, i think quantitative easing has a lot to answer for, , the fact that we have this ludicrous amount of share buybacks continuing to take place, i think in part that is related to the uncertainty. what is fair value in financial markets anymore? the fact that we have had this constant manipulation of markets since the financial crisis, i think we know potentially have the costs. the benefits were at the initial stage, and now perhaps we are getting the costs in terms of reluctance to invest in the future. francine: are we underestimating this? we saw the arab spring three years ago -- where we looking at a possible end of social confusion in europe? >> in the long run, i think certainly if we continue down the road of european people having the perception that they in theave a say political direction in which europe goes, then i think things

could get worse. certainly, the situation in greece, there'uncertainty in portugal agains with the new government, it's very likely at some point in the next couple years that we will get a return to some form of crisis. tom: we go to the euro chart, which really shows a stasis that we are in right now. the call is to parity. within the broader political discussion, can europe export its way to growth with a weaker euro? first, you have to get there. is your call below parity? >> my call is about parity. 102 is my forecast. reallyautious, but it's more about the united states rather than europe. quantitative easing is having an impact, when you look at the portfolio rebalancing. there is a substantial net portfolio outflow taking place in europe, putting downward

pressure on the euro. to bring it back to your tradeon, we've had a big rated devaluation of the euro, and that only came after the actions of the ecb were taken. it's verynlit -- unlikely we will get more action coming forward. i that sensen, i think it will be very difficult to depend on the euro as the solution to growth in europe. tom: francine, that anna botin talk about this at all? the focus is always on germany in the auto industry and siemens, but what does a weaker euro mean for spain, for italy? francine: of course, she was talking about relative value. in brazil, she was saying that it isn't so bad because you can translate into euro. i guess it is a little bit less of an impact for banks. but she did talk a little bit about currency -- when we see

angst in the market, look at the currencies involved to some it up. tom: but then you see that -- bring the chart above more time -- just so we can take a quick look -- the churning here is a headline story. we will continue with derek halpenny. we do want to speak about the japanese yen. we have a killer chart. coming up in our next hour, we are thrilled to bring you ambassador robert hormats working at kissinger associates. hormats on the new world order. stay with us. ♪

tom: good morning, everyone. the mystery of commodities for january into february, one of

the major themes in hong kong. it will be interesting to see if iron ore can hold up on the shanghai index. right now, an update on the business world with the business flash. vonnie: thanks, tom. for the fourth year in a row, toyota is the only company to sell more than 10 million vehicles in the year. vw fell back to second because of the diesel emissions scandal. general motors was third. almostrter profitsr was wiped -- fourth quarter were almost wiped out for the bank of spain. much of it was to compensate those who were wrongly sold payment protection insurance. and the royal bank of scotland is incurring additional charges in the fourth quarter, setting aside $2.2 billion for mortgage backed securities in the u.s. ae bank also has plugged

deficit -- francine, i know you have more on rbs. francine: think you so much. rbs is extremely important, because it is still owned by the bank, and a pivotal year for prosecutors and. -- for ross mcewan. his number one thing is trying to return rbs to dividends. this would be -- it is a 45.5 billion pound bailout that happened at the death of the global financial turmoil. he's trying to find out when they will go back to the markets, and dividend is of importance. what you have to do this year, there's still the settlement over u.s. authorities of claims of misconduct. tone is very familiar, but it is extremely important, tom, because taxpayers will start losing patience. tom: interesting. vonnie: my morning mover would have to be apple, down 3% in the morning market after reporting earnings last night. they had set expectations so

low, even a disappointing performance -- tom: really. if i use my iphone to take a picture of you, when do you need a new iphone? vonnie: exactly. the market is saturated now, and analysts are looking for fewer iphones being sold. 75 million was the projection, 74.8 million got sold. number,is not a huge but it's the idea that the trend is reversing. i5 is not doing so well. tom: did this include christmas? vonnie: this included christmas, but the next quarter will be the quarter that is important. margins shrank, and we will see more -- tom: yeah, in cash building. vonnie: we will be talking with an analyst about this in the next hour. tom: we are? great. vonnie: earnings the tune of $8 billion.

finally, a quick look at the bank of america. tom: rbs. vonnie: more news that montag chief operating officer is urging debbie's to lower expenses, saying the training division is the priority. tom: this was the backdrop. francine, don't you think this was the backdrop and have a conversation with thinking davos? forget about the 35,000 feet garbage. where will the cut costs? francine: yes. i would say that this is the main challenge for the bank. they're going nowhere. we were hoping this was when central banks would start to normalize. it's not. they need to cut costs, but i would argue that this is something every company, bottom down, needs to do. tom: yeah. again, low nominal gdp being the overarching backdrop. that low nominal gdp will be

part of the calculus for janet yellen and the fed. looked at the 2:00 p.m. this afternoon. the fed decides. we will give you a perspective on the american economy. stay with us. ♪

francine: welcome back, this is the picture for oil, resuming declines amidst further evidence of a global oil glut. it is dragging european stocks lower, and the fed leaks their first statement this year, european bonds gaining. this is what we are watching this week, 2:00 p.m. in new york, the u.s. federal reserve will update us, announcing its first rate decision of 2016. will get you the gdp numbers. stay tuned for coverage of the fed's decision. still with us to discuss the fed meeting and the prevailing bank of tokyo mitsubishi's european head of global market research, derek halpenny. we touched on the fed at the

beginning of the program -- if you look around the world, boj probably has the toughest decision to take. governoror kuroda -- he has one chance to get it right. growth and inflation is not on their side. >> no, it's a monumental task anyway, but in terms of what is happening globally since crude oil has started to fall in the middle of 2014, it's an even larger monumental task. it is extremely difficult. given all of that, we must say the underlying inflation that the boj, the fresh food and energy, is at 1.2% of expected to take up on friday. i have some sympathy for kuroda's argument, that there is evidence there. the problem is going forward, and i think the massive

devaluation has obviously started to reverse. that we seere is a further reversal, and that feeds into a lack of wage growth which could push the underlying inflation rate lower as we move through this year. they are under pressure to act. francine: i spoke to governor kuroda, and it was clear that he said he is not seeing a direct impact on capital spending, because he is watching it closely. when do you expect to act? does it have to be friday? it seems less likely than two weeks ago. >> it does. i listen to the interview, and he spoke earlier this week. there was no sense of shift in is thinking. -- in his thinking. ultimately, i think there is a lot to be said for a wait and see approach, which is perhaps what the message will be from the fed. sometimes, i think central banks are guilty of under emphasizing

the importance of the signaling impact of their policy decision. by that i mean this kind of jumping to and fro based on 3, 4 weeks of financial movements -- like the ecb -- what the ecb has done is quite damaging to their credibility. you need to instill confidence in the market. for friday, the approach has to be let's wait and see. tom: derek, what you are so good at is moving away from the convenient pairs like dollar-yen, euro-dollar -- let's bring up a chart we have never brought up before. we are only doing this for derek halpenny. yen-room in the. enmimbi. there is that massive devaluation, and appreciation of the chinese yuan. 20 years, for our five standard

deviations. how does asia respond? >> given the scale of the room, i think it is likely that we will see reversal. there has been a huge benefit of that devaluation. the last time i was in tokyo, there were droves of chinese people coming to the country to take advantage of cheap shopping. it's in the data as well, if you look at the currency count in terms of tourism. there was a big impact from that. i think from here, there is certainly a good chance we see some reversal. isorts to china from japan about 20%. e intooes it defaulvolv political protests like what we saw a week ago in taiwan? there has to be a political response. >> i don't think at this point, in terms of tensions

between tokyo and beijing, i don't think so. if anything, the fundamentals dictate that cmy should be weakening. there is no justification for cmy, which was pegged to the dollar for the first year of the dollar rally. i think it is justifiable to see some reversal of that. tom: ok. ijust to wrap up, we have to ask about sterling. what a move. what does the bank of tokyo mitsubishi call? >> we have noticed a very large divergence in are short-term valuation models that begin in the middle of december. fair value for the pound, where it is today, we're estimating the pound is about 5%, 6% undervalued. there is a clear brexit risk premium that has been established since cameron stood up in the middle of december and gave the first strong signal

that a referendum and a deal could be done in the first half of this year. the answer to your question, i think, for obvious reasons, yo u've got to expect continued pound underperformance. we are expecting it to be done in february. pound versus the dollar, we could see the post-lehman low's around 135. then we do expect a strong recovery in the second half of the year on the premise that the vote is to remain and the bank of england raises rates. 155 as the year-end forecast. a a lot of volatility for the pound. francine: what happens if we don't get a convincing renegotiation in february? >> that's a good question. if he still goes for the vote, and is not convincing, to me that means even more volatility. the polls are likely to be much closer, and will make investors more nervous. francine: we have a great story on the terminal that looks at the football or soccer matches

and when it takes place. tom: i like that. we could work that in. we could get the denver broncos into brexit analysis. derek halpenny, thank you so much. very informative in an important time as we go into a said meeting. in the next hour, international relations. robert hormats joins us, working with the obama administration. we will talk to him about iran and particularly about a new western order. francine lacqua is in london, i'm nein new york. stay with us. ♪

marketsll this january,

cannot find good footing this morning. china closes lower. we consider the new mediocre as nations and companies adjust to the new mediocre of oil. is so 2014.ic pivot in this hour, robert hormats. this is "bloomberg surveillance ," wednesday, january 27. where did the month go? she is back in london after dashing off to spain. how was the train ride, francine? francine: for once i got here on time. i have to say, heathrow, great. it is a rare occasion. there is a lot of uneasiness in the market. last week was pretty brutal, but today european shares are falling because earnings are not as good as we are expecting. schoen as with -- the churn as well.

with first word news, here is ambassador quinn. vonnie: stocks are falling around the world today. european stocks are down as disappointing earnings worry investors. stocks in china lost ground again. futures indicate u.s. stocks will be lower at the open. market share models complicating things for the federal reserve. central-bank policy makers are wrapping up their two-day meeting today. investors think they will raise rates again. six weeks ago was the first increase in nearly a decade. special edition of "bloomberg markets" this afternoon that you can catch on bloomberg tv and bloomberg radio. one protester was killed and ate arrested as the protests in oregon were broken up. his followersd were stopped by fbi meeting -- by fbi agents.

killedbelieve two people were targeted. two persons of interest are being sought. there are no arrests. protest isse believed to be the longest in history is dead. in 1981,ed her protest protesting for peace and nuclear disarmament. i am vonnie quinn. you have to think it is a huge coincidence that there has to be a deal with iran, and then -- tom: i do not know if it happened yesterday or today, but mark feels of ford motor -- mark fields of ford motor -- congratulations to all at ibm and ford.

let's do a brilliant data check for you. equities, bonds, currencies, commodities. the euro has done nothing for eight weeks. nymex crude weak, but nevertheless, holding above 30 this morning. second screen, quickly. we want to get to bob hormats. a big deal on china, a soggy one, francine, this morning. francine: they are deepening their monthly rout. reignitingports are investor concern about global growth prospects. really -- not tom: let me bring up the terminal view here. well, this is not working. forget about the terminal. it is kind of like my throat -- sort of dead this morning, or whatever.

it was the dow, the bear, the correction. we are in the middle of a correction in a bear market. this is a great pleasure. it is always great to bring in bob hormats with kissinger associates, for years linking economics to global finance at global's -- at goldman sachs. linkinging -- and global economics with the state department. do we have a foreign policy right now in america? not have a comprehensive foreign policy at all. we have a lot of little foreign policies in various regions, but we have not really made progress in developing a new order that gives the united states preeminence but also engages, to a greater degree, a number of emerging countries like china and others to make sure there is stability. tom: i knew where you were going on that. can i say instead of foreign

policy, monetary policy? do we have a monetary policy in this country? bob: i think it is confusing in part because the fed messages contain -- because the fed messages are confusing. it is difficult to figure out what is going on in currency markets and china and other parts of the world that have an influence on said policy decisions. tom: i will speak with chairman fisher on the council of foreign relations in a few days. what is your number one question for stan fischer? think they have to figure out the implications of a rising dollar on the american economy. it is contractionary. do they want to add to the contractionary impact of a dollar by the fed monetary policy? also looms large. it is not as huge as many people notk, but it plays a role just in the united states but in the markets that we sell to. tom: francine, ellen zentner with that important note from

morgan stanley, the idea of the contraction going on right now, even as monetary policymakers are frozen. francine: one of the things we have not been exploring is here in the u k we talk about brexit and the be a wii's hands being tied. -- andin u.s. election the boe's hands being tied. we are in u.s. elections this year. this could have an impact on growth. bob: there are a lot of things abroad that will have an impact on u.s. growth -- the rising dollar weakening, economic performance around the world, and there is a lot of geopolitical instability. of course, the energy sector has been a major negative factor in the united states, particularly with respect to jobs. it yet.y have not seen

it would be stimulative. but for the most part, the markets 10 to look at this as negative -- the markets tend to look at this as negative. in the medium-term, it is not because a lot of people have more spending power. but that is the way the markets look at it. people predicted four increases by the fed this year. when i looked at it, i said they are dreaming. if you look at the world, the world is going to tell you there are a lot of contractionary forces that are beyond the control of the federal reserve. francine: because of the china volatility, people have been pushing back expectations of a rate increase by a couple of months. but because there is a u.s. presidential election, does that have an impact on the window of opportunity for the fed to hike? bob: i think the fed tries to stay out of domestic politics and probably will not be as influenced as something as the presidential elections. it is more the economic forces at home and particularly the

headwinds from offshore and from the stronger dollar that will have a bigger effect on the fomc's decision. vonnie: will janet yellen and the members make mention of what is going on abroad? to what extent will they be kicking over a line? bob: they have to make mention of that. one of the issues they have to consider is the dollar and international economic committee -- and international economic activity. in part because of a lot of americans selling abroad and because earnings are dependent on what is going on abroad. that is not the fed's key decision. vonnie: and they have to be careful because they cannot signal they are going to react necessarily, but they have to mention it. bob: the thing they will have to talk about is the contractionary effect of the dollar. the fed early on thought that the dollar's rise would be subdued going forward.

it turns out that has not been the case, not only against the r&b, the chinese currency, which has gone down, but against a lot of emerging-market currencies, and printing commodity producing currencies. moreover, a lot of them have dollar debt, so not only do they have a lot of dollar debt which and servicing costs as rates go up, but they have their currencies go down, so they owe more dollars per unit of their local currency. they do not earn as much because commodities are going down. that presents a challenge to the global system. tom: within the global system, to it --stine regard does christine lagarde deserve a second term? bob: i am a great fan of christine's. i hope she stays pure she understands what is going on and she is quite assertive. tom: she has been assertive. that economic club of new york

speech she gave was something. bob: she is a class act and she does not pull punches. she does not play politics. ,om: i love your word "assertive." we have been speaking with bob hormats about fed policy. afternoon, scarlet fu will descend out the ceiling of our studio here, with michael mckee and we will give you some perspective with good guests on the fed. stay with us. ♪

francine: welcome back. this is "bloomberg surveillance ."

these are live pictures of the city of london. u.k. prices have been rising for a seventh month. let's get straight to the bloomberg business flash with vonnie quinn. automaker's fourth-quarter earnings boomed. gm is set on a new restructuring plan. is set oniat chrysler a new restructuring plan. there is concern that apple has reached the limits of iphone growth. chase customers will soon be able to withdraw money from atm's with their smartphones. j.p. morgan chase is upgrading its atm's, which will eventually dispense cash with the touch of the phone. that is our latest bloomberg business flash.

tom: thanks so much. futures at -11 on the s&p. even our greatest detractors will suggest secretary clinton move economics for america forward within her foreign policy at the state department. the leadership for that came from robert hormats, formerly from goldman sachs international, and he is here to speak on the latest emerging-market. i did a panel in davos on emerging markets, so we opened it on the newest emerging-market, tehran. germany wants to play, ireland wants to play, china wants to play. bob: the u.s. really is not going to have much additional opportunity to do business with iran. it depends on where you are selling and where you want to invest. diagnostics, the health care industry has been able to do business with iran for quite some time.

foodstuffs and humanitarian goods have been able to be sold in iran for a number of years. under the change sanctions, aviation will be able to be sold. tom: can boeing compete with airbus there? bob: it can. there are obviously issues. some of the sanctions will go, but others will remain. other sanctions, secondary sanctions on certain european companies if they do business with what we call sdn." sdn."t we call s -- a lot of american company's will still be off-limits under the treasury rules. tom: under all about politics, the fear that we all have was that the right-hand column of "the wall street journal, the ink was still dry on the agreement. what is the yeah, but for you?

for is the yeah, but america on the disagreement in terms of doing business with iran? but" essentially onlyou can do business but a few companies and a few sectors will be eligible to do business. the rest of the sanctions on ballistic missiles, human rights, support for terrorism, those sanctions are going to remain, and a lot of american companies will simply not be able to sell goods or invest in iran under the sanctions that will remain. the nuclear sanctions will go, but a lot of sanctions related to things under american law or executive orders or other issues -- they will stay. francine: how much do france and italy have an advantage on all of this? has remained friends with them. they need washing machines.

his italy going to be the first beneficiary? bob: yes, italy, a number of other companies have opportunities there are european oil companies have opportunities. oil in iran is relatively cheap, almost as cheap in -- almost as cheap as in saudi arabia. american companies have been understood sanctions since the clinton administration. -- have been under strict sanctions since the clinton administration. they cannot do business for fear of american sanctions with these individuals with designated names, if they are involved in corporate terrorism like has a lot or if they are engaged in allegedly terrorist activity. the other thing is, they cannot clear dollars through the

american banking system. so if they are going to do business, they have to use other currencies or find ways of avoiding clearance through the american banking system. since american subs will be able to do business, again, they have to be careful of the names list, penalties, and careful not to do business with american banks to the extent it involves dollars, or dollars to the extent that it involves american banks. where do you see iran playing a role in geopolitics? it was the first time that president rouhani met with the pope. the pope was trying to get the message across that they need to lay a crucial role to instability in the middle east. -- to play a crucial role to instability in the middle east. engaged, or want to be engaged, in the talks on syria, but they are of course supporting since -- they are of

course supporting a side -- supporting bashar al-assad. we are against bashar al-assad. ,hey need support for hezbollah because that is their voice and their proxy in western syria and in lebanon as well. they are playing a geopolitical role in syria and lebanon and iraq, and in yemen. so they now see themselves as playing a bigger role. this that they were doing even before the nuclear agreement, they will be in a less strong position because they will not have nuclear weapons. but they still will be playing an active role. tom: i want to get to china with u.s. well. we have an important chart showing when bob hormats expected the unexpected. coming up later this morning on "bloomberg ," a conversation with barry diller. this is interesting.

there is so much going on in the barry diller world. transactions from last year that have come to roost in 2016. join us as well on bloomberg radio and sirius xm. stay with us. ♪

francine: welcome back. i am francine lacqua in london. tom keene in new york. i just got back from madrid. annake to and a putin --

boutin. what we talked about was brazil, capital raising, and she said there will not be any. i also asked her about brexit. this is what she had to say about the u.k. referendum. >> europe is stronger with the part and i think u.k. as of a reformed europe is also stronger. we have millions of s&p customers throughout the u.k. i believe they create and will continue to create more jobs in europe but i think has -- but i think europe has to be more competitive. francine: how should global investors look at the issue of brexit. at the moment there is a feeling 50% there is really a chance, especially if they do not negotiate the things the u.k. people want.

bob: they are not so much about the issue but about the way people think about their government or the situation they are in, and they sometimes expressed frustrations about other things through the referendum process. predicting is awfully difficult to do. but the one thing i can predict is that europe will be weaker with britain out, although britain is not playing a constructive role recently in some aspects of european financial activities. and britain will be a lot weaker if it is not in europe. so if you look at the foramentals, it is not good either side, but a lot of work has to be done to convince the brits we are going to vote on there will have to be a way to figure out how to keep written in. tom: where is the alternative to london and europe? bob: there is no financial alternative.

it is not london. if you asked me what would happen if britain left, london would still play a financial role, but britain would be a lot weaker because it would not have a continental market. with a second market, it is frankfurt, chicago, in a way. frankfurt could play some role, but not nearly as expensive and global as london. tom: coming up on apple, we need to make you smarter on buy, hold, sell. the challenges of mr. cook. say with us. " inomberg surveillance london and in new york. ♪

tom: "bloomberg surveillance," and 2:00 p.m. this afternoon the fed will speak. a lot going on this morning. here is vonnie quinn. vonnie: futures pointing to a lower open for u.s. stocks this

morning. the downturn follows a slump in major world indexes. down.stocks are stocks in china lost ground again. secretary of state john kerry faced a hard sell today in beijing. he could not get china to impose tougher sanctions on north korea. the u.s. wants to put more pressure on the north after its latest nuclear weapons test your john kerry: whether or not he achieved an explosion of hydrogen weapons is not what makes the difference. it is that he is trying, that he wants to do that, and made the attempt. vonnie: china has been opposed to any moves that may destabilize the regime of kim jong-un. being fired for their role in a shooting that killed two unarmed black men. 100 37 shots were fired after a

high-speed chase. one of the fired officers will be acquitted of manslaughter in the case. donald trump says he will sit out the republican presidential debate tomorrow on fox. he says he has been treated unfairly by fox anchor megyn kelly. he will appear at a fundraiser for veterans instead. i am vonnie quinn. tom: we like to show important research notes. deutsche bank with an important note on weaker oil. what is critical here, the nuance is weaker demand. it is less about supply dynamics. ,his is something to see deutsche bank saying demand growth has been weaker. vonnie: there has been forecast for even weaker demand. inventories are going up, up, up. theave selectable talking price going up to sub 20.

with jpmorgan,s a global market strategist, joins us. what is the distinction in your call. every house has a view, there is a sender -- a center tendency, an outlier tendency. what is the distinction of a jpmorgan equity call? gabriela: we think pessimism has gone too far. our call remains for positive earnings growth. the earnings recession call was a bit last year. we expect earnings to come back this year, and barring any sort of weakness in u.s. data, which we do not see, we expect a much better year for u.s. earnings. vonnie: when do you anticipate that starting? will job cuts make that happen through the next couple of quarters? co we personally look at the standard that comes

directly from the index. us, the earnings growth begins in the fourth quarter. single digit, positive 7% so far. tom: is at all from expenses? : we want to see earnings come back, but we also want to see sales come back. you say the pessimism has been overdone. what are investors latching onto got go when you speak to co's, they say the real economy is much better than earnings or stocks are saying. but what is wrong here? how do you explain investor angst? understand that the market is demanding a higher premium because of the uncertainties. but we really think short-term

it is about sentiment, and sentiment has been quite negative. but mediaman longer-term it is going to be about the continuation of positive earnings and data in the u.s., and the market will focus back on that. tom: excuse me, francine, that was my fault. i interrupted. francine: what our markets testing? are the testing central banks or the price of oil? gabriela: the correlation between the market and oil has been so high. but what i think they are testing, less than central banks, is the data. any central-bank action now is going to be short lived in nature. one needs to continue coming in solid is the data itself. that is what we think is going to get us to a better place. vonnie: i still do not see where the revenue growth is going to come from.

what we have been seeing across the plethora of s&p industries is that they are barely meeting or missing estimates. the real a coke it is going to have -- gabriela: we are not depending on it coming from the external revenues. vonnie: are you seeing wage was or what? if the fed increases interest rates even a little bit more, that is going to hurt. we fundamentally do not believe it will hurt consumers, given where we are raising rates from. that has been a key piece of our research, that when you are raising rates from such a low level, they can be stimulated for the consumer and the economy in the short term. where revenues are going to come from his better growth domestically. is with us asts well. do we have a new multinational, a new transnational american company that is going to battle within gabriela's world?

bob: we do. more american companies, especially the larger ones, are very sensitive to what happens abroad. they are very dollar sensitive as well. but jeff immelt's ge is not -- bob: one of the things that can be helpful is that companies that are not quite as dependent on the global economy serve -- on the global economy -- service companies in the united states, for example -- can do better. do i play that with regard to the new mediocre? we have an issue with the may of factoring sector in the u.s., but not in the services industry, which is really the largest part of the economy. bob: and therefore i think consumer spending that they are able to do because oil prices are lower, they will not spend

so much on manufactured goods but on services. gabriela: to your question about christine lagarde's new mediocre, this positive view -- let's say there is a caveat here, that we do not expect the growth to bounce back to 3% even. the new 2% -- it is enough to start bringing revenue and earnings back. jpmorganare with wealth management and they have a pot of money. how much do they put a broad? this used to be an easy question. it was buried in chapter three, line 12. now it is on the first page. what do you do, given the complexity of where we are? gabriela: this positive view for u.s. equities is with us for the next couple of years. we are approaching the scenario where the u.s. is naturally going to slow to a lower potential growth rate because of productivity, the labor force, all of that. you do need to have a sizable portion of your investments

abroad because that is where growth is going to come from. and i would say it is europe for the next cyclical next few years, and i believe that emerging markets will come back. that is another area of opportunity further down the line as well. vonnie: emerging markets will 2, 3 years, or is it going to take longer? we are looking at brazil, and there is no end in sight. gabriela: i think brazil is a very idiosyncratic story. with other emerging markets, those that have been making substantial changes in their economic models -- india, mexico, even argentina -- i think you will get that cyclical bounce back. it is very tough to call the bottom, and that is why we are not going to try to do that. tom: we are going to continue with gabriela santos of jpmorgan and robert hormats. it is a good day on economics.

scarlet fu leading our coverage. the fed decides. michael mckee and i will parachute in for perspective. stay with us. "bloomberg surveillance." ♪

francine: welcome back. this is your data board. you can see futures over the u.s. down to 0.5%. we are seeing weakness in europe with stocks deepening with this monthly rout. disappointing earnings are concerning investors. let's get to the bloomberg business flash. here's vonnie quinn. vonnie: toyota is the world's best-selling automaker for the fourth straight year, the only company to sell more than 10 million vehicles last year.

general motors is third. volkswagen is second. a record $1.6n billion. harvard took in 1.1 billion. for cost-cutting at bank of america, chief operating officer is pressuring deputies to lower expenses in both trading and investment units. sources say there could be job cuts in march. that is our latest "bloomberg business flash." i would say every quarter look for job cuts. tom: that is something that we heard, and from gabriela santos from jpmorgan as well. let's get right to this victory lap. robert hormats -- this is china gdp. the blue box is when bob hormats

said expect the unexpected. he nailed it. this is china gdp with the three-year moving average. we are below economic growth of the 1990's. up we go, bob. little more china love, and it has just been ugly. you absolutely nailed this in my book 10 years ago. what is the new unexpected for china? bob: the new unexpected is probably that growth will decline further because they are in the middle of a major transition. they are trying to make a transition from heavy dependence on exports, and heavy dependence on capital investment. they have a lot of overcapacity. they are trying to move toward more consumption and more services. they are not moving rapidly enough for the decline in these other areas. tom: but the uproar over george soros' comments continues.

i know you do not agree with agencies to playoff a better china than the gloom itself right now? that is something to come back, the asia story -- even in the beginning of this year, if you do get some trade, some stabilization in chinese data, that is key for e.m. asia area bob. bob: the chinese can find ways of keeping the employment rate up.

i think the chinese will figure out a way of dealing with these things, and they are continuing to make a number of market oriented reforms. the difficulty is the markets told confidence that the chinese could keep the market and the economy up by sort of magic. it has turned out that for the chinese itself, it is more complicated to manage markets and manage growth than they anticipated. they are very talented, skilled people, but it is hard to keep stock markets going in the right direction. vonnie: the guardian is reporting today about george soros. tom: francine, jump in as well. francine: gabriela, there is hope when you look at services and consumption in china, they are not as bad as expected. but they will have to devalue one. what does that mean for global -- devalue the yuan, so what

does that mean for global growth? us, it is much more a part of the shift in regime and a shift to much more market forces for the currency. so we do not expect some sort of export- 10%, 15% -- to themselves out of this. that is not in their interest domestically. bob: i agree with gabriella. if they wanted to use this to boost growth, depreciation would have been a lot greater. they are using a lot of their reserves. they do not want it to go down in part for domestic inflationary reasons, and they do not want it to go down capitalit feeds exports. --y do not want it to allow they do not want to allow it to drop precipitously. tom: i do not know how i make

irni -- i do not know how make money in emerging markets. robert hormats, he will stay with us. coming up, we will look at apple computer, an important earnings release. i noticed the cash build. us,el ives will join talking about financial engineering in cupertino. this is "bloomberg surveillance." good morning. ♪

on: we welcome you economics, finance, investment, and international relations, all of that sewn into foreign exchange. derek halpenny talked earlier about the weight to sterling. the dollar index, 99.03. it has some umph to it, elevated dollar strength relative to the quiet that we see out there. it is never quiet on "bloomberg ." david westin's back. he beat me back from davos.

david: we will be talking with david diller about -- about -- with barry diller. we will be talking up the fed about what it should be doing, what it all means. a strongnings -- it is company, but some strong words about the future, and what it says about apple and the global economy. and we will be joined by carson block, shortselling. that is all coming up on "bloomberg ." tom: now we have to turn to apple. vonnie quinn is really on top of this. what struck you? vonnie: they lowered expectations to the expansion -- to the extent that when they miss estimates they did not miss by that much and it was not that bad. what i want to focus on is this transition to services from hardware rejoining us is dan ives from sbr capital markets.

the sentiment around the stock is extremely positive. talk to us about services and what apple can do to move from hardware to services. dan: with some of the dark clouds in the near-term, when you look at the software services, that is really the jewel in their portfolio. i think that is one where that as they tapped, into the chinese and their ticket system, that could be affecting their high-margin system. but in the near-term, the focus is on iphones. a big deal. the street was expecting 75 million. they ended up with 74.8. dan: that takes a backseat. i would call that a ho-hum type quarter. the new york city cab driver knew that it was going to be a weeak margin.

that is high-octane fuel could potentially be 35% or 40% of revenue. that was the big worry in terms of some of the softer commentary on china. tom: they did a cash build. when will they make some drama and deployed cash to shareholders? they are up to their i hold -- they are up to their eyeballs in cash. am i wrong? dan: the big question is, the streets will not give them credit for that cash. is it a big m&a? is it a 70 $500 billion m&a? it is a -- is it a 70 $500 billion -- the question is them using cash to put more growth into the story. vonnie: the smartphone space is saturated. maybe it has come a little bit

sooner than analysts were expecting. can they fill the gap with other products, with other launches? that is almost a seminal question here. good, a little bit of a renaissance this quarter, but it really comes down to, as we pick up the services piece, a potential game changer in streaming. that is what they need to get into on the consumer side. that is really -- that has really hit a speed bump. do they go after some of their time warner assets? do they potentially make a big acquisition like netflix? these are all things that you have to put on the whiteboard, given some of the pressure that apple is seeing. tom: bob hormats, the whiteboard here is the idea that apple is now the iconic exporter within america. how do we find the next apple? with all that is going on, how does washington help us find our next great exporter? dan: you do need -- do need to keep

funding the export/import bank. apple is representative of u.s. technology, especially in china, where you see apple all over. a very, veryly strong representation of the quality american product and the innovative american product, and people like it. people like to use it, people like to be seen with it. i have a lot of confidence in apple, but they have to get over some of the speed bumps. that is an issue in the near-term, but in the medium-term, they have this fabulous brand and fabulous products. tom: i always go back to the underlying engineering. the a-line ship is sort of the new new. some still have to be moved. that is going to happen this year, too. dan: and now the big focus, it

all comes down -- the drumroll -- it is the iphone 7. iphonecan believe in the 7 products, that is really the growth. tom: dan ives, thank you. bob hormats, thank you, as always. francine, you have to recover from the davos plague. i will do that after our fed special. we will do that at 2:00 p.m. today. scarlet fu, michael mckee, and myself will give you perspective on what janet yellen does. maybe a quieter fed meeting. stay with us. "bloomberg " is with us on television. ♪

david: the end of an era at apple. they're forecasting their first sales declined in over a decade. will the fed follow the market?

see how the turmoil affects policymakers. and come up at the cumberland l. of europe's largest banks is looking to south america for profit. ♪ david: welcome to "bloomberg ." stephanie: i want to have a positive morning, but i'm looking suntan there and apple down. if to kick it up with some special guests. the hour, alsoor david kirkpatrick. we have to talk apple earnings. we have to put that in perspective, apple.