>> failing factories. china's pmi signals its six straight month of deterioration. february's long wait. the shortest month may prove the longest as investors navigate world markets. the battle for iowa. pulls open for clinton and -- polls open for donald trump and clinton. ♪ francine: welcome to "the pulse." i am francine lacqua.

we're getting aching news as the pmi figures out of the euro area for the month of january in line with expectations. they fell to 52.3%. breakdown of the the various countries, it germany, that pmi dropping to 52.3%. we were expecting a slightly worse figure. that is interesting. let's get straight to the bloomberg's word news with nejra cehic. nejra: china's official factory gains slow to a three-year low hitting a six month of contraction. the pmi fell to 49.4 in january. the official services index fell while the private pmi surveys signals the industry fell. extended -- since

2008. presidential hopefuls in iowa today. -- donald trump taking a five-point lead over ted cruz. in the democrat race, hillary clinton is at 45%, three points ahead of bernie sanders. syria haveof war in been clouded by triple bombing news and him asterisk -- bombing news in damascus good government negotiate indirectly. the president donald trump left the meeting with david cameron saying there is no deal over the -- aotiation of the uk's cover my plan. global news, 24 hours a day. wordthe bloombergs first

desk, i am nejra cehic. francine: nejra cehic with the top stories we need to know. let's check in on the markets. we have that pmi figure out. we will around the love individually. the stoxx 600, we have had a volatile day. 02% --e gaining 0.26% -- 0.2%. it goes back to investors. hand, they have more stimulus from the bank of japan. indication from the ecb they may reconsider. it plays out across the board. i'm to show you gold as it is a haven at 11.22. at 122.28.yen digitalding for a settlement -- providing for a

potential settlement in the u.s.. cranny spoke to manus about imminent -- what negative interest rates mean. >> we believe the market will continue to consolidate. our industry will be producing m&a opportunities. working some reserve for that. we are seeing that investors are continuing to like dividends. -- we have with the new target in guidance, and even payouts, ratio guidance. i think it is something the market wanted to hear. that is taking into account the opportunities that may surface and the m&a space. manus: that stock about the opportunities you have. here domestically, what kind of deal you like to do

domestically? institution?ind of >> ideally, in the perfect world, we will look at the portfolio diversified. the client base comes from different areas which is compatible. south asia, middle east, europe, switzerland. something of large size that would move the needle for us. today if we make it acquisition million, asn to $10 we know it becomes a rounding something that will change the size of the firm. something that has gone through regularization. lessig of the negative interest rate world. -- let's talk about the negative interest rate world. how negative of feedback is that to

the clients? >> clients to think about keeping money with their financial institution. they need to pay you for that. what we have seen of the last 12 months, that is a new world. client.engage the you can talk to them. you can try and mitigate that negative interest rate by increased activity. francine: let's cross over to zurich where manus cranny is standing by. what did -- what is that he have to say? -- what else he have to say? manus: switzerland doesn't go anywhere negative. when you get to the capitulation point, where is it? on our poll is that switzerland will go to negative one. they are lending the money to the clients. sell like he was ready to slap it on to the clients can we talk what china, it is a key

story. --many ways, what he is done a quarter of assets arrived there. try and at least engage with the clients. try to manage their risks. it doesn't bring it through in terms of transactions. it does bring it through in terms of engagement. when i said to him do you think everyone else is going to jump on you? about the japanese going into more negative rates? are you going to see the rest of asia join in echo he said no -- join in? he said no. they've got a new dividend policy. they upped the dividend by 10%. francine: great interview. manus cranny there here let's introduce our guest. he is patrick armstrong. $2 billion in

assets. kathy, great to have you on the program. are you uneasy about -- patrick, great to have you on the program or it you uneasy about negative rates? what they are doing is not much. -- patrice: -- patrick: ecb, draghi is indicating there is going to be policy action in march. what the boj has done is make that more of a certain case. the marks hiking it is on effect. that is why your seen asset prices react when you have. francine: what is the endgame in this the central banks will because it'sg more a race to the bottom. patrick:

it is a race to the bottom. providing risk assets. there is a lot of debates about this. how effective is this. the thrust might be much more effective. there it is much more question there. a lot of investors were seeing -- have used all of their toolkit. it is showing there is still more they can do. francine: uses that you're not expect much from the fed. are you expecting a cut? patrick: i am not expecting a cut. it is too early for that. 2.3% oron pace to go at 2.4%. we think they will be hiking still. francine: how do you play the divergence. is it fed versus ecb? patrick: the ecb has the most to do. it will be cutting the deposit rate.

francine: what is it helping on? it is not filtering through the real economy. petco it is hard to say. i don't think anyone can -- patrick: i don't think anyone can say this can come from this. you look at the u.s. where it was if he is ago. economy is growing at 2.5%. to say it is doing nothing is a bit too confident. i think it is providing liquidity and risk taking. hopefully that is increased -- hopefully that is taking -- that is creating investment. -- anytime negative interest for 10apan has been 0% years. bubble, i don't know if it is the right word. it is extreme interest. creating top investments. francine: give me your two favorite place in europe -- two

favorite plays in europe. petco last year's dividend was one of 15. it is trading around 90 right now. we don't think dividends going to be cut significantly. very industrial companies, siemens, phillips. francine: exposed? patrick: because that is where the real selloff has happened. everyone loves nestle because it is safe. that is where the evaluation is. it is not that they are positions incredibly well. -- they are positioned incredibly well. francine: we will be talking about his advice for this year. stay with "the pulse." macrie new president

bring argentina back to the bond markets? the government is in talk for loans as the oil price takes its toll. the battle for iowa. presidential candidates make their final play for party nomination in this year's presidential election. that and much more coming up. ♪

♪ francine: welcome back. this "the pulse." a lot of volatility, that is despite the disappointing china earlier today. mark, it seems they open higher. now they are a touch higher. mark: china once again setting the tone for a trade after manufacturing contracted for a sixth month. falling to a three-year low. 49 point below the estimate. official services index also fell. a private survey signal the industry fell. makers -- to stimulate growth? put more pressure on the yuan. this is the shanghai comp sinew

to date. it fell today. in 2016.n by 23% january was its worst month since 2008. it remains the world's worst performing from every stock market. isant to show you what happening to the bloomberg commodity index. this is a gauge of 22 materials, it is falling today. all industrial metals are falling today. 1.1% inex fell by january. 1.7%, excuse me. fell to the0, it lowest level in 25 years. it rebounded somewhat since then from the likes of ecb, the fed and the boj. .hina dictating the mood today

francine: mark, thank you so much. let's get more with patrick armstrong. he oversees $2 billion in assets. patrick, we were talking about you like some of the industrials because they are fairly priced. when you listen to mark barton and what the marks are saying, they do not know where to look for central-bank action. they don't know how to view china. you haven't changed since i spoke to you. patrick: if you're a bear, you are seeing this is contracting. my view is they're going through structural reforms. manufacturing will contract in that kind of environment. february, are weak manufacturing numbers in china anyway. i don't think the numbers will change anyone's view.

it is a much-needed rebalancing. francine: are you concerned about liquidity when you look the markets? they are so volatile and lots of people say because we have not found a floor on oil yet. half the people i speak to say this is a liquidity problem. we are good to see volatility for the next 12 months. patrick: i've agree with what you say on oil. you see equities selloff right away. people are looking at oil for a few more yards. i think that is misreading everything. than theys are higher have ever been. 96 million barrels of oil being produced every day. supply.too much there is overcapacity. francine: why are we seeing some is volatility? there is investor angst.

it is definitely not demand that is flowing? patrick: i am not sure why they are not the hearing about. clearly, the numbers are there. francine: and then you have that volatility index. patrick: they are shipping overcapacity. the oil price is very low doesn't cost much to ship things. you are going to be selling it at cash costs. it is an oversupply issue rather than a lack the demand -- lack of demand. francine: when are we going to see more normal markets. we haven't had normal markets for seven or eight years. we can't find a floor on oil. patrick: about- a week and a half ago, we are not in a state of complacency.

moving strongly on negative information. , andve seen the boj similar rates from draghi. we have seen reasonable manufacturing out of europe. i like we're going to get to a point of extreme comments. francine: patrick armstrong, thank you so much. we will be talking about some of his top picks next. we will be talking to ryanair. it will return 800 million euros to shareholders. ♪

francine: welcome back to "the pulse. let's get straight to the bloomberg business flash would never change. nejra: hsbc will impose a hiring and pay freeze as a part of a stride to cut costs by the end of 2017. in june, the ceo outlined a three-year plan to pare back a global network by illuminating -- by eliminating jobs. ryanair has announced 800 million euros share buyback.

at the same time, the budget airline said profit increased to 103 million euros. that was below analyst estimates. back -- tohave given the extent that we continue to be profitable and have a significant cash, we will look at doing more buyback. beat estimates. it rose to 1.6 one billion pounds here it that is after the uk's biggest rock band provider which is pushing into broadband. that is your bloomberg's is this flash francine. francine: let's get more with patrick armstrong. patrick, you like industrials here in europe. this is because they look cheap. what else do you like?

there are quite attractive audi relations. .- white attractive valuations patrick: you can support valuations where the are. i don't think they are externally cheap. given there is growth, equities move higher. it is a cyclical affects. cyclical exposure in early january, providing dividends. there is potential to beat their. the consumer staples were short in europe. we are short utilities in america. that is where the packers put their money -- that is where the kers put their money. they have a regulated asset base. the defensive sector is overly bought. francine: is it european?

u.s.? or both? patrick: the u.s. biotech's. the large cup tech, trading in a market multiple. my salt earnings. out of that, another reasonable multiple. francine: apple, that is expensive, isn't it? patrick: we added up last week but we have held out. we have fallen with apple as well. i don't think it is an expensive company. it is not an innovative company the way it used to be. francine: passer, thank you so much. he stays with us. -- hat trick, thank you so much. he stays with us. we will be talking about

emerging markets next. that is coming up next. ♪

francine: welcome to "the pulse." i am francine lacqua. let's get first to the bloomberg first word news. china's official factory gauge signals a record six months in a row of contraction. pmi sells to 49.4 in january. the industry shrank for an 11th month. the services index fell. presidential candidates make their last pitch before the

iowa caucuses. donald trump has a five-point lead over ted cruz for the republican nomination. hillary clinton is leading bernie sanders. aria has been clouded by triple bombing in damascus that killed at least 45 people. discussions will start in geneva for negotiations. eu president left a meeting with david cameron, saying there is over the membership of the u.k. in the european union. global news 24 hours a day powered by our 2400 journalists and 150 news bureaus around the world. guy: thank you so much -- francine: thank you so much, narrow. -- nejra.

january manufacturing pmi rising to 22.9, little bit better than expected. it it is boe day on thursday. we also have the specter of the referendum on break a little bit later on. the window of opportunity for the boe is quite small. to emerging markets. argentina's president is expected to present a settlement offer for the country's defaulted debt to clear the way for its return to the capital markets. the president spoke to bloomberg's editor in chief and devils last month. --avos lasts d month. york and the new

first 15 days of our government to start talking. >> have you run into paul singer? >> i have not had the chance but now we asked for a meeting in new york. he postponed it from the 25th two the first of february. the first of february, we will find a settlement in the new york courts. a realistic, reasonable settlement with the holdouts. francine: the confidence of the president of argentine. patrick armstrong, ceo is also still with us. you, you so much both of for you sticking around. argentina seems to be turning a

corner, appealing much more to investors. at one point do investors actually think, this is a new dawn, but this government will hold. they change governments so often it is difficult to have that confidence. >> i think the key issue to solve the debt holdout issue, which has been dragging for a long time, we know the main constraint is the visitors and argentina are following. basically to restore the confidence and to solve the debt in fdiwill help bring and investments to the country, boosting reserves. default in technical argentina, but in economical default. francine: you are certain that this will come, so we have some graphics. we got some charts made on agentina's reserves, quite

busy chart but it really does show you that they need money quite quickly. do you think they will get it and turn a corner? regis: i think they need to have an agreement. it is a necessity for argentina. they are running out of reserves. the same time, this is a necessity for the creditors because basically, if you look at the previous government, they preferred to default, have technical defaults. so it does not go anywhere. they have to do something about it. patrick, are you buying anything in argentina or is it too risky? if you look at the stock price since the president was elected, it has gone up. patrick: you need to have such a bottom-up edge. playing it from the top down is difficult. if they do solve the default,

does that provoke more investment outside of bonds and will encourage other types of investment as well? regis: i would think so. there is the public debt issue. default, butnical i think what has been holding investment is basically all the distortions of macro economic policy. i think with the new president is doing is the right thing to do. scratch, and i think it is a good start. regis, when we are looking at the trade they have, their neighbor brazil is in a freefall and they have something like 45% of trade with brazil, so even if they start with scratch, the brazil overhang will be huge. i agree. i think in the short-term it will be a relief because they have to have access to international debt.

the current account is negative so they need to get access to the debt market but at the same time, there is still the concern about the longer-term prospects because you still have the commodity environment, and argentina is still heavily dependent on commodities. if we look at the dependence on the rest of the world, actually exports are a relatively small portion of the gdp. they have fallen in terms of contributions to reserves. francine: patrick, are you involved in any emergency -- emerging markets? when you look at commodity exposure, all of these emerging markets are getting lambasted. isrick: i still think there another leg down for the commodities of emerging markets. you have credit issues, current account issues, and the economic growth issues with commodity prices so i think it is too

early. i would prefer the asian emerging markets. francine: india, or is it too soon? the reforms that were promised or slow. patrick: i think you see some good economic growth there, what i do not see the equities being incredibly attractive just because of evaluation. francine: what about you, regis? still a think there is good prospect for external debt. but for the rest of the assets, i think it is going to be still difficult. fx is going to be under pressure, still very sensitive to growth numbers and as quantities have gone down it will be difficult. as far as the external debt is concerned, i think it will be far more resilient to the extent donning moreso assets. francine: this is a five gazillion trillion dollar

question, when do you see commodities picking up? , that will beoil a turning point for all emerging markets. regis: something is expecting economies to bounce back at some point, but it is difficult to gauge the timing. everybody was surprised about such a dramatic fall in oil. no one was expecting that, or at least to such a degree, but it is difficult as far as the oil market is concerned to sustain that kind of level. very few countries are making money with oil below $40 so at some point they have to adjust, but the question is when and how. patrick: i think the world will increase demand but we need to see production come off the market. francine: let's see if opec and russia can agree. both stay with us, we will be

talking about russia and opec next. we take a bigger look at the emerging markets, most at risk, coming up next. ♪

francine: welcome back to "the pulse," live from bloomberg's london headquarters. let's get to the business flash. hsbc will impose a hiring

and pay freeze as part of its drive to cut as much as $5 billion in cost by the end of 2017. they outlined a three-year plan prepared by a sprawling global aswork by eliminating jobs he pushes to improve earnings amid surging compliance costs. has announced a buyback as a double its earnings in the third quarter share. >> after this buyback program, we have given almost 4.1 billion back. to the extent that we continue to be profitable and have a significant cash and the business, we will look to do more buybacks. bt has topped earnings estimates for the last quarter, u.k.a rose after the

biggest drawback provider one more customers for its internet product. ubs has hired former reverend howard ceo for its team. he is tasked with investment recommendations for the unit, which oversees $1.9 trillion in assets. that is your bloomberg business flash. plentyenty -- francine: of emerging markets stories for today. patrick armstrong, ceo. we are talking with patrick , and the price of oil patrick is a firm believer that this only has to do with the supply side, that it is not demand-side that is waning.

do you agree with that assessment? yes, oil has been the major driver by far and if you look at historically how the u.s. treasury was a much bigger driver, and fed policy. if you look at the credit markets, the spreads have been very low related to treasuries. if you look at oil markets, it has been a major driver in us -- not just for currencies but for -- there is a chance they could have some sort of agreement, it would be positive but i'm not sure if this would happen. historically, russia and syria -- francine: we actually spoke on friday with the energy minister dorussia and they said, we not have anything scheduled, it would be his story russia set down with opec. if they sat down

together, who is going to be cheating on the deal? i do not think that immediately signals we will have supply cut. francine: why are they not discussing it? is is about market shares or they need to make sure they have enough money? patrick: saudi arabia is such a .ow-cost producer you get production off the --ket that way so i donate so i do not see saudia arabia incentivized to agree to cuts. francine: what does this mean for russia and russian credit? regis: for russia, we have two problems, oil and sanctions. i think there is a decent chance that sanctions could be lifted overall. sometime this year possibly. there is no real plan b for russia. the bigger plan is to have a diversification of the russian economy. without this, i am skeptical that russia would have --

francine: potential. sanctions,u look at the sanctions would be lifted because we need russia in syria, right? come to aasically you deal on ukraine and start working together in syria. there is obviously a lot of incentive for everyone to get together on those issues and because of that mutual need, i think we will probably get there . it does not mean that i will want to be buying much now but i will not be shorting much. francine: what would you be looking at in russia? you might get a ruble kicker if the sanctions are lifted. regis: looking positive on local debt and russia, external debt, the upside is so high simply because the spreads have rallied so much and they have bought back a lot of debt.

a lot of bonds are trading above par so it will be more difficult to have these kind of connections. francine: regis, what would be your smartest plays this year in emerging markets? regis: to be honest, it may surprise you but probably brazil and external debt is my favorite. francine: brave. patrick: it is a very high yield and you are generally rewarded if you are doing something against the trend. regis: there is definitely some domestic problems and fiscal, and real adjustments to make that i'm not concerned about it simply because, the level of external debt is relatively moderate and they have still a lot of reserves. you have a deficit but you still have some room to maneuver. i am more concerned about the , the hugeprospect

necessity for brazil to reform inflationy, to find and attract investment. brazil, icapacity for think it is a by this year. francine: thank you so much for sticking around, regis chateau you a, and patrick armstrong. hillary clinton battles against vermont senator bernie sanders, as donald trump pulls ahead of ted cruz in the republican race. we break down the fight for iowa come a coming up next. ♪

francine: welcome back to "the pulse" live on bloomberg television and bloomberg.com. the race to become u.s. president really gets underway later today as the state of iowa holds its caucuses. hans nichols has been following hans has been a white house correspondent for more than a decade. it gives away your age, but let's move on. polls,ook, the latest the gold standard of polling and iowa is the des moines register bloomberg poll. here's what they are telling us. on the republican side, it looks like donald trump is in the pole position. just below him you have ted cruz

a few points back, but really it is that third-place, marco rubio all the way up at 15%. think of the republican race as trumpces, crews and fighting it out, and then everybody else hopes to be a person to take them on. there are actually two primaries taking place. it is a good litmus test if you are optimistic about the party may be putting forward someone that many party leaders think stands a better chance against hillary clinton. there are three tickets out of iowa, per the old saying. we will see if that is true. the democrats vote a little differently in iowa, and let me walk you through this. what you do in the democratic caucus is you go to someone's living room, a precinct, and you have to publicly say who you are for any start a conversation.

on the republican side, it is a simple secret ballot, like a traditional voting. on the democratic side you get into the standoff because there are only two tickets. if someone is below 15%, or supporters are up for grabs. this is where it gets interesting because if you take a look at people's second and third choices. if you clear the 15% threshold it does not matter who your choices but if you will not clear the threshold, martin o'malley supporters will be forced to caucus with either clinton or sanders. it could be an early night, a late-night. it does not look like it will be a cold night and that means turnout will be high, and no one has to shovel anyone's driveway to make sure they make it out. we are going to do shoveling in iowa on the republican side and democratic side, it will be a

great time. we just have to wait for years. francine: let's do it. on the republican side, a lot of investors will be looking to iowa because donald trump is pushing ahead. hans: the last few winners of the iowa caucuses have not gone on to be their party's nominee. iowa picks corn, new hampshire picks presidents is not true. in 2012 rick santorum one iowa. we thought it was mitt romney but it was, the results were delayed. tells you on the republican side is who is appealing to the core conservative base of the republican party. that may mean you are the winner in iowa but it by no means indicates that you are going to be the party's nominee. francine: we discussed this in down andause i sat

picked your brain. someone who loses both iowa and new hampshire never went on to be presidential nominee? hans: that is true, with a couple of caveats. 1992t to say clinton in did not compete in iowa because of the time, it was tom harkin running for the presidency. clinton actually did better than expected in new hampshire, although he did not win it. another crucial part of this is the expectations game, and most people in washington think ted cruz has already lost the expectations game. rubio could, in a distant third but there will be a lot of headlines talking about how rubio in some ways one iowa. francine: cons -- hans, thank you so much. stay with bloomberg,

"surveillance" is up next. check, gold climbed after data showed a further contraction in china's manufacturing. safe assets, and you can see dollar-yen. ♪

francine: china signals its six-month of deterioration. equity markets fall on the davos. february's long wait, the shortest month may prove the shortest. iowa, polls put hillary clinton and donald trump ahead to win party nominations. this is bloomberg "surveillance". i am francine lacq w