francine: yellen delays. the fed chair warns the volatility could push back rate rises. slipping oil. crude trades below $27 a barrel. gives bloomberg and outlook for 2016. riksbank cuts rates further. this is bloomberg surveillance. i am francine lacqua. tom, when you look at investors trying to assess the risk.

you look at yen and you realize this is a haven. do you think of government -- it is theuroda? tom: litmus paper of the morning. later on surveillance, maybe that is the entity of the day. it is a central bank war between the sweden and mario draghi as we begin a mulch was thursday. francine: there are very different assets to that. what do we know about negative rates in the impact? tom: exactly. francine:s get -- let's get to bloomberg first word news with sunny. >> russia rejects the argument consensus --s are are insensitive. john kerry is starting to get -- --trying to get the stalled

meets with other foreign u.s. leavesd -- moscow once enough time for forces to crush monarch groups. the biggest u.k. lobby in the u.k., the uk's economy could be thrown off track a referendum on whether to stay in the european union. the cbi cut its forecast by 20%. -- by .3%. the last four armed occupy us say they will turn themselves in today. the fbi seems to be closing in last night. that led to a panicked phone conversation. the cheerleader has been arrested -- the jail leader has been arrested. new jersey governor chris christie and carly fiorina have dropped out.

global news 24 hours a day, -- i am vonnie quinn. tom coburn will do more data checks throughout the day. futures ugly -- tom: we will do more data checks throughout the day. futures ugly. yen strength. dollar weakness. -- yield story alone francine, you're going to look about the gilt. i am guilty of not putting on oil. francine: it is remarkable, tom. i do not know what is happening apart from investors are taking a step back, trying to reassess risks. you can really see the decline. have yen.m, you

this really brings it home here at konstantinos: i will do the second board quickly. -- tom: i will do the second board quickly. the is shocking. i put up euro crone so that i could get to francine. --are going to talk about we're going to talk to the swedish central bank governor today. francine: out to get a sense of whether he is worried about some of the banks. this is my data board. i wanted to show you stocks down on the 600. $111.34 when you look at government bonds in germany, they are pushing to record lows. people are concerned about the market. whatdeutsche bank testing

we saw two days ago. we're not there yet. .eutsche bank here is the snapshot of japan. i was with jim o'neill of aldman sachs where he made weekend call. i never have seen this vonnie. what you see about stronger yen vonnie: it quinn -- is not working. there was a time back in october. strategist saying the japanese may not intervene. they may let this continue. tom: we are doing a lot more digital with twitter and facebook. francine? bbncine: how were reach of about fx -- how worried should we be about fx? .et's get inside from our guest

we are joined by mohammed months your --hammed months -- mohamed:ths our ishans: what you have here text on banks. when you look at housing markets , there is this correlation between the nikkei --

negative when you say rates are not since a good idea, are this because of what we learned two weeks ago echo -- two weeks ago? hans: the cross ratio of interest rates -- negative interest rates is the most effective tool to take currency under selling pressure. cost of that is increasing over time because you make those banks to pay deposits. that costs the nikkei to break and the decline in the decline this in the nikkei -- in the nikkei. tom: they need to bring it over from the banking system to consumers. weaker west texas intermediate. does janet yellen need to rip up

the script and address these international events? hans: it is problematic for the united states. it is not inside the united states. on the balance sheet, their strong wages are rising. the social income is good. there are negative factors to mention. the u.s. dollar which is becoming more expensive. he said there is dollar weakness. i would be more moderate of that. what you do see is yen strength, euro strength and the dollar strength. the dollar is strong today against the australian and canadian dollars. these three currencies are rallying up. the yen is outpacing. abroad whichrom

you are importing. what you have in a ship is demand sufficiency. you have overcapacity. yet declining return on assets. that is causing the leverage. that causes a bunch of savings. the u.s. is used as a reference currency. he was dollar is benefiting from it. tom: i nicely explained a terrific lesson. we are seeing a forced global tightening. when you look at the global tightening going on, what should be the response of chair yellen and mario draghi? hans: we are in an environment where sentiments have to learn a message. negative interest rates are not desirable. would look into the next step of monetary toolbox. we need to find efficiency.

that means the systemax have to think about buying private assets. sounds,utionary as it negative interest rates are not desirable. francine: how frustrating is it -- we would have you on the program and then the markets takes over? the fx market is extremely unpredictable. how tough is it for you to do business? mohamed: the way we look at it is any challenge is an opportunity for us here at when the markets are down in some areas, our group has become global and we are located in 106 companies. with -- 106 countries. echoine: with currencies

-- currencies? mohamed: currencies have been hit. we are in russia, we are in africa. we look at changes to buy into this market. we're thinking long-term and whether it is in the countries that we are in. emerging markets. when there is a challenge, we see it as an opportunity. the thing is we think is a family office, long-term, we do not have any exits that says we have to be out in a certain period. in just awill be back couple of minutes. coming up, we speak to sweden's central banks governor. we will be trying to concern -- try to figure out how concerned he is on going into negative rates echo and the effect that could have. ♪

tom: where are my glasses? to look at the data board. what you need to know is it is a correlated move in markets. at the mark -- at the bottom, swedish historic move. francine look want will lead our interview with swedish central bank in a moment. two cents spread made headlines yesterday afternoon, blowing through 100 basis points. latter yield curve -- flatter yield curve. let's get to bloomberg business flash here is bonnie. vonnie: the company says this year it cut its dividend by half.

rio tinto reduced spending by $3 billion. i'll just societe generale came up short. they set aside monday for -- set aside money for legal expenses. fix revenue and operating profits will rise by double digits. the company reported earnings that beat estimates. tom: very good. let's look at a soap opera known as deutsche bank. charta five day intraday showing the back-and-forth. down we go, getting ready to retest that 13 level -- that level 13.03. showing attention. what i want to know is the german deal.

our hans nichols is in berlin. how is this story adapted in the last three days? up and down, up and down. it is hedging on whether investors saying investors -- saying deutsche bank has enough to pay these bonds. onther it is triggered is and of secure provision on how you define a certain accounting metric. it is under german commercial law. investors are try to figure out whether deutsche bank can pay them. it is going back-and-forth. a lot of today's volatility .oming up negative earnings one quick thing of a soap opera, across the street from deutsche bank headquarters in frankfurt is the frank for upper house. we are going to make that walk. excellent copper there. there.llent copper

ofncine: maybe another type opera is where he may end up. saying an amazing piece the terminal that hit deutsche bank's shares was never about the bank. it was 80% about the bank, because we knew this bank was in trouble somehow. it may strike again in other markets and quite soon. went to keep a close eye on it. we have to keep a close eye on it. there was talk about the german government being a shareholder. is this fiction echo -- fiction? hans: i know there is another hans onset. a stakernment does have in commerce bank, right? about havingnts

confidence in deutsche bank. they are more independent than commerce bank. does the european central bank try to weigh in and clarify on these new rules? the 69 banks of that they supervise. is the ecb going to try and calm the market? are they going back-and-forth with deutsche bank on how they can offer more clarity? guys? francine: coming up later on bloomberg surveillance, we speak , closingf director maria manaus -- closing maria von niles. we focus on that next. ♪

♪ look at: let's take a what we are watching for the rest of the week. will today, the fed chair appear before the u.s. senate banking committee and a meeting of euro area finance meetings -- finance ministers. withg out of negotiations the u.k. on brexit. john kerry and russian foreign minister will be among those meeting for the annual munich security conference. they are expected to discuss iran, syria. the global round is continuing. oil traded near a 12 year low. ise to discuss the impact

moment months or -- is mohamed mansour our -- mohamed mansour. has that affected your operations? mohamed: 2015 was a record year for us. the largest dealer in the world. we are top five worldwide. we did a lot of work for caterpillar in the canal business being built in egypt. there was a lot of product. it has affected other countries. commodity prices have been affected very much in nigeria. russia, we have covered west siberia which is the size of the europe. a huge area. the sanctions that have been put in. the oil prices. francine: when you look at caterpillar distribution, are

you worried about the commodity producers in africa? mohamed: we are rolling a sleeves and cutting down costs. the turnover was about $170 million. $1.5urnover today is about billion. there is a growth, because countries balance each other. some come down and others come up. it is very much tied to mining. yourine: do you cut investments and that echoed how do you deal with it? mohamed: investors, we think long-term. so we have to invest. we have in avco many locations in-- we have many locations

nigeria, ghana did many of these ghana.es -- many of these countries are high risk but we know how to operate in high-risk areas. francine: what is high risk? five years? 10 years ago -- 10 years? commodities could be under pressure? mohamed: oil could be under pressure for two years. for the next coming two years, it will be a challenge. really lets sharpen our pencils and be prudent and how we operate. francine: hans, when you look at oil, are we going to see this oil price for the next two years under a stream pressure -- under extreme pressure? people are talking about -- hans: people are talking about correlations.

the effort to work out one thing, that is the oil .arket has volatility the emerging market will operate under the same premise. the return of investment. if this doesn't trigger this you cannot invest locally, he goes into the u.s. dollar. if it is a dollar shortage, it is a problem. nextine: coming up in the hour, we speak to sweden's central banks governor. we will be talking about the impact and intervention on the currency. that is coming up next on surveillance. ♪

tom: good morning worldwide. challenge markets new lows on futures negative. down futures, -285. just below 300 points. yields are in across the boards

with currency dynamics. stronger. you yen just heard hans redeker with comments on negative rates. we'll have vonnie quinn on that. thee oil in america is -- vicks not showing what we've got. the swedish central banks acting this morning to get out in front of draghi and the central bank wars. this get to our bloomberg first world news. this is vonnie quinn. a day after the south said it is pulling its companies out of the manufacturing hub. the biggest sources of hard currency for kim jong-un. the u.s. senate has voted to impose a new sanctions on north korea. the move comes days after north korea launched a long-range rocket.

the house has passed similar sanctions. international -- the head of the international monetary fund is putting -- ukrainian officials overall the thatmands a new government is more transparent. five states will go ahead of efforts to curb emissions from power plants despite the supreme planet plan to court -- to block the plan. california, new york, virginia, washington and colorado say they will step ahead. presidential candidate bernie sanders says his campaign had a record-breaking day of fundraising. send his campaign to more than $7 million yesterday. hillary clinton is picking up a key endorsement.

the congressional black caucus will announce today. global news, 24 hours a day. i am vonnie quinn. tom: thank you so much. we're thrilled to have hans redeker from morgan stanley. he writes deep, entrenched ines, making it -- linking -- i want to link in dollar strength. up who works for us. this is a law chart showing rubin dollar, the late 1990's dollar. the red arrow says percent change. -- we arehere near getting back to 2002 strength. can janet yellen manage the dollar? exorbitantve such an privilege that she can get out in front of dollar strength? hans: it'd -- it depends on the

time frame we are talking about. in short-term circumstances. the central bank has an impact on its currency. we differentiate between repatriation dollar which we are currently having. the u.s. dollar is not a strong. he was seeking investment opportunities in the united states of america. the dollar sum because of repatriation coming out of emerging markets. that means the dollar is a muster of an by the return of investment you find in an emerging market and what we do see is this return of investment is not there. you have a re-penetration dollar developing. for ms. yellen to change the dean, she has to change direction of the central bank. that means she could turn out and say our implicit invasion target should be 3%. we could assume you're getting

.uch more money when compared tom: because of time, these are very important comments. idea ofuinn pick up the the hong kong good of negative rates. harm or-- the idea of good of negative rates. vonnie: why you are so convinced there don't -- why they do not work. that haveropean banks adopted negative you can banks, as opposed to abandoning that plan? is a safe to say the plan is not working? hans: what we have seen on friday is the central bank went into negative interest rates, this is a bank itself was not considering what made the yen strength. we have pointed out that the yen is going to rally. we look at particular into the pension funds and let me know

they had to risk their descant increase their risk profile. -- had to increase their risk profile. there is huge risk exposure. is nowu have a currency trading at the lowest end of 40 years, then you wonder is it the right strategy? now what comes on top of that, when you wants started to do that and the currency starts to move, that could trigger that because of our enhanced and unprotected portfolios, you could have further losses coming up. it is going to take more risk out of groups. you have days like today where dollar yen is trading into the 110 handle. francine: hans, is monetary

policy turning from a solution to a problem? hans: i think monetary policy is needed in this environment. we're coming out of llc recessions. -- out of balance sheet recessions. what we really need to do is take the real yields to a level at which we can control the necessary deleveraging process. that is applying primarily for asia, but as well you have to think about what does it mean for countries in europe, between switzerland and within the ecb we have to recognize in europe at the problematic is much deeper in asia than the problematic is here in europe. if we are in an environment where we have rates not expanding and we impose ourselves with monetary policy strategy which is designed to weaken the exchange rate, then

we are taking trade away from somebody who needs trade more than we do. that is adding to the problematic. tom: i want to jump in here. i do not realize this, francine. here is a two-year yield. readings of fed 2015 with the migration in a higher to year yield. we are all clear. it is stunning, francine, to give back to the u.s. two-year yield back to where the that we haveend seen in a year and four months. it is it stunning reversal for the central bankers of america and in particular, yellen and draghi good francine: market participants are trying to understand when that reversal desk when does that trend reversed? hans: we are living in an environment of open capital.

the united states has to do a little bit better and the rest of the world is not doing so good. you have a current impact and intourrency is importing the united states. you have an impact on yields in the united states. it will impact the federal reserve and its activities. long -- to get no move from the fed and a move from the ecb. even yesterday from janet yellen's testimony. how will the dynamic change? hans: talking about since bank, you have to think about what type of activities are we going to get? ith a recent development, and would even include sweden, look at the shot of your sweet. did they do a lot to the currency? you have that significant money terry impulse.

euro sweden goes up and down. what we have seen on the other friday in japan, dollar yen went up and down. what is the next thing central bank's can do in this environment? the have really to step up and think about buying private assets. francine: a word of warning from hans redeker. this is bloomberg surveillance on bloomberg tv, streaming on your tablet, phone and bloomberg.com. we're looking at the market. ♪

♪ back.ne: welcome this is bloomberg surveillance. tom keene is in new york. we

talked about turmoil. we talked about what this means for the central banks. how they should do it. now with a unique insight to his credit and financial market is jose maria vinals. theing his outlook on outlook -- sharing his outlook on the banks. we to have you on the program. i want to understand how you see this new world. it seems come january 4 of this year, it is mayhem, turmoil. how do you explain it? jose maria: i think this turmoil reflects concerns. these concerns are concerning because they reflect on the one market doubts about the strength of the global economic recovery. concerns on the profitability of the banks.

it reflects concerns on legacy issues. it reflects concerns about growth in china. impact of very low commodity prices and oil prices in emerging markets, and in the energy and commodity sector in general. there are a number of concerns which are behind the market turmoil. markets sometimes exaggerate. we need to wait a little bit ise to see to what extent there an element of overshooting. -- francine: how worried are you about the banks? is it something we should worry about more? doesn't go back to

the financial stability of the eurozone? -- does it go back to the financial stability of the eurozone? observed in the equity prices of banks and the increase we have seen in the spreads, all of these are concerning. i think this is reflecting the .oubts that markets have how europe can be affected, the global operation of some of these banks. it is reflecting the concerns about bank ability. -- bank profitability. profitability is very important for banks to generate earnings which are needed to build future capital and provide the lending which a growing economy for buyers. it reflects legacy issues.

legacy issues in terms of numbers. -- in terms of nonperforming loans. they are nearly 900 billion euros. although euro area banks have increased significantly their capitalization following the european central bank assessment , it is still the case that these are nonperforming loans. they need to be cleaned up as the strength of the banking sector -- for the recovery in europe. harvardr out of llc and , if there is a taylor rule, fine. i've got to give you credit for madame lagarde for nailing the mediocre call. what are the new rules for emerging markets? what is the rulebook for the filipina central bank? what is the rulebook for chill a

chile? emerging-market group is a very different group. you have commodity exporters, --orters good countries importers. countries which have bigger and smaller policy buffers. there is something it's is coming across many emerging markets, which is the corporate sector in many emerging markets has increased tremendously their indebtedness. tom: i've got interrupt. this is so important. this is the money question of the morning. that emerging-market corporate adeptness, will that rebound back on deutsche bank and other

developed banking systems? do we go back to a crisis that francine does not even in remember? do we go back to a good all-american emerging-market crisis? -- jose: think the situation is different now, compared to the time of the last important crisis. if you look at emerging markets, it is true that they are challenged now by a low commodity in oil prices. those which are exporters are challenged now by increasing leverage" sector. it is also the case that many emerging markets have much better policy frameworks than those that existed at the time of the crisis. since a banks have become more end up -- central banks have become much more independent. they have much better tools.

you have fiscal policy frameworks which are in much better shape. yet five -- you have high foreign-exchange reserves. it is the first line of defense. you have many more buffers in many emerging markets that make them be in a better position. that doesn't mean we aren't not without challenges. we have to make sure they know the position. this corporate debt has increased from $4 trillion 10 years ago to $18 trillion. we estimate the reason of oral -- $3 trillion. that is something that will lead del the leverage -- to a everage overtime.

sure that happens without jeopardizing the banks. sovereigns that the are not put in trouble by the liabilities of the corpus which are -- of the corporate's. whicha delicate balance ways way beyond central banking. francine: thank you so much for now it we will be talking about negative rates. we speak to sweden's central bank governor. .his is bloomberg surveillance we are focusing on the impact of that negative rate. ♪

♪ tom: he is the good news pit we do not have the urgency of an hour ago. the markets are really fragile. futures -31. the euro stronger. the yen stronger. redeker of morgan stanley with the observation the dollar stronger.

the next screen, oil is a shocking in america as up to our eyeballs. let's get to our bloomberg business flash. here's a vonnie quinn. vonnie: investors do not think much about that acquisition by my line. the company has agreed to buy meda. ever, a drugghest company deal. general motors german brand will introduce its first fully electric brand -- electric car next year. the new opel will challenge to volkswagen alledge cars they came out in 2014. expedia is rising in free-market good its earnings will grow as much as 45% this year. travel, orbitz, and

homeaway. that is business flash, francine? francine: if you look at the stock's market and the ftse, is down 4.5%. ubi banker down 15.3%. is jose maria vinals. he takes care of the credit and monetary markets. thank you for sticking around. when you look at the impact -- when you look at the impact of you disagree?, do jose: i think negative rates are not there because central banks want to impose a negative rate on central bankers.

-- this is part of the overall monetary observation. it is true that negative rates may have consequences for bank profitability. let's ask ourselves what would be the situation if we had not gone so far into negative interest rates. where would the economy be? we would be in a very difficult situation. francine: negative rates go lower than this. are the side effects too difficult to handle? jose: we are in a situation where we have countries at different levels. we have countries which have negative interest rates which are way lower than those in the euro area and japan. magical.othing they could go lower indeed. not gotten to that point yet. the important thing is each central bank in this country or

region assess the cost. if that is case, -- francine: thank you very much. banks,en you look the these italian banks are getting crushed. down 10%. tom: unicredit down. we will continue this discussion. william lee joining us in the studio. we'll bring you lewis alexander of nomura. but the fed can do. stay with us. bloomberg surveillance. ♪

♪ markets unravel. oil plunges. .he yen surges in strength

the currency war is now a war of central banks. this morning, deutsche bank attempts to find a bid in a forward business plan for growth. should we consider u.s. recession? this is bloomberg "surveillance." are live from our world headquarters in new york on thursday, february 11. an extraordinary morning from markets. francine: the thing that sticks out is the selloff mode. when you look at the banking stocks, they are getting slaughtered. the earnings weren't bad and credit down 8%. it is about pricing risk and how investors are trying to reprice for a global growth recession. tom: given what we have seen, i wonder how chair yellen will handle that in testimony on the hill. the u.s. and russia are

disagreeing about a cease-fire in syria. russia wants a truce. the u.s. wants it now. they want more time to crush rebel groups. with food rolled into syria from turkey to help those suffering from starvation. a report on the death toll in the civil war doubled previous estimates. syrian researchers say 470,000 people have died in five years of fighting. ordered a military takeover of the complex that was run jointly with the south after south korea suspended operations at the site. drug scaring workers and equipment to the south. north korea froze all assets. debris believed to be from the rocket test. the launch was the latest propagation of a breakdown of

relations on the peninsula. scandal at a federal reserve in oregon could end. the occupiers will surrender. the jailed leader is under arrest. they occupied a building at the wildlife refuge to protest federal ownership of western land. relieved cruiseship passengers are on dry land. the anthem of the seas. after weathering a storm. the royal caribbean says four passengers were slightly injured and a ship sustained some damage. global news, 24-hours a day, powered by our 2400 journalists around the world. let's go to a data check. futures are -32, dow futures negative. euro strength and dollar redeker, hans

suggesting dollar strength of relative to an emerging market. crude oil, west texas as brand holds on pretty well. 30.48. i know that francine has 2 screens. is flat out stunning. i notice the curve, the spread, the differential is .299 percentage points. that is an ever flatter curve. isncine: my industry check not been a lot. let's focus on an industry group. banks are getting crushed. you can see the indexes 5.7% lower. this is on concerns of securities units. also on concern of what it does with securities, deutsche bank down. i wanted to show you, the main thing is investors are looking for safer assets. tom: look at the 10-year. wow.

francine: that yield in the u.k. at a record low. germany yields are at a record low. that encapsulates everything. investors are shunning risk. snapshot. look at one we could have picked 14. , the japanesemics want to move the yen weaker for a set of reasons. they don't get to intervene as we saw on january 28. instead of moving here, we saw a reaction here -- a brutal move through the 115 level. francine: down to 1.11. sweden -- and norway might be next. tom: we put that on social media. this is fun. is the chiefer

economist at numeral. william lee works at citibank. we are honored to have both of them. i don't know where to begin. let me begin with something that was said -- none of this matters unless we lose our financial stability. are we losing our financial stability? william: we lost it with seven years of zero rates. market could no longer allocate risk. you don't know where to allocate capital. everyone is running to safety and away from risky investment. tom: chairman fisher is out front in his comments and mentioned the question of allocation of resources. how do central banks insist to get to a more proper allocation? think we are in a mode where markets are trying to adjust to lower global growth. you see that in the u.s. sane voice.

i've seen so much garbage on twitter it is good to have a voice like alexander. i think -- i think the talent for central banks is how can they be relevant? chair yellen was asked what would she do if things got worse in the united states? she got part of the way into her answer, but wasn't allowed to give the full answer. -- it today is the senate will ber -- she able to give a more effective message. she was asked, what would you do in a recession? they didn't allow her to answer. i think there are answers, but it is a tough environment. francine: what is driving market reaction? the yield curve in the u.s., the yield in the year in? is it position squaring? lewis: i don't know exactly.

. don't have a complete answer i think it starts with global growth. you see that around. the u.s. and china are slowing. we see lower potential growth everywhere but india. that is something that will take markets -- have two economist with different views. i think it is china, emerging markets, then maybe the u.s. -- but that is a big maybe. the fear of recession in the u.s. is ridiculous. tom: francine, your view from london? francine: i look at the yield, and it may be ridiculous, but this is what the markets are pricing. are they wrong or right? german yields dropping to a low. what does that tell us? rulesm: one of the first we learned was that markets

panic first and think later. that is what the market is doing . i estimated the probability of a 0% to 18%.anges from a slowdown is a different story. defend dr.ne, i will alexander and say that he is not predicting a recession, but the central bank has to respond to politicians and voters' fears. that is different. francine: i agree with you in part. mark --maybe while the why the market is so jittery. we aren't hearing one voice. markets sometimes react and think later. what they are seeing our policy mistakes. no matter what a central bank does, markets are policymakers. william: that is where we go to

china. it is a crisis of leadership without a framework to tell us what they are doing and where they are going. that blows out into the rest of the world and everyone is saying, what is your policy and work? janet yellen says we are trying to normalize interest rates. u.s. you have 2 economies. central goods and economy in energy that is getting crushed. non-trading goods is doing ok. tom: responding to the idea of a recession in the u.s., that is not your model? lewis: i don't think we are facing a recession, but we had five years were the unemployment rate has been always. the fed will transition the u.s. economy to growing at potential. the potential rate of growth is low. when i talk about the u.s. as part of it, that is what i mean -- not that we are going into recession.

everyone should realize it is the new normal of 1.5% potential. witnesst is critical, the politics, no politician is ready for 1.5 percent potential growth or real gdp growth. coming up, the conversation of the day. francine lacqua leading the swedishtion with the central bank. stay with us. bloomberg "surveillance." ♪

♪ back.ne: welcome this is bloomberg "surveillance." in londonine lacqua with tom keene in new york.

more stimulus and lowering the interest rates below zero. we are joined by the governor, stefan in glass -- stefan engraved. -- stefan ingves. how far can you go before the side effects outweigh the benefits? do negative rates hurt banks? , in this economy, these things have worked the way one would expect. this level, that doesn't seem to be an issue. in terms of impact from the monetary policy side, interest rates have come down. the system seems to work. francine: do you have a model or benchmark at which point you can not go more negative because it start hurting banks? no.an:

that is way too early to tell. when it comes the swedish banks, their profit level is very good. at this level, that is not an issue. the potentialn upward pressure on your currency, how much does further easing from the ecb factor into your decision of lowering interest rates today? stefan: what matters here is that we need to be careful so the currency does not appreciate too quickly. that would make it harder for us to get in inflation up. and a small open economy like ours we have to keep an eye on what is going on in the rest of the world. francine: you have felt pressure from the ecb? is it a race of the currencies? stefan: no. that is not the issue. i'm sure that on the ecb side they do they have to to get

in europe.p given that we are small, open innomy matters happens europe in terms of the inflation rate -- there is is low, ours was too low, it is time for us to ask. curious about a central bank war. we are critical of brazil about managing capital flows. are your actions presumed to be getting out front of mario draghi and a new bout of major staunchbank battles to deflation fears? centrali can't tell if -- i can tell what central banks are likely to do in the future. inflation came in lower. inflation is on the low side in other places as well.

that causes an issue for us. it would be more than issue if our exchange rate depreciated rapidly. for these reasons, we felt it was time to act. tom: what would you like to hear from janet? if we need a coordinated banking global aggregate demand, what do you need to hear from chair yellen? stefan: it is very hard for me to comment on that. i'm pretty sure that all central bankers in different parts of the world are doing their utmost so we can get to a situation where growth is good and inflation is where it is supposed to be. tom: i was being rude, excuse me. francine: no, it's not route. the problem is that it is so tough being a central banker. you don't do enough, people say they aren't doing enough. you do too much, and they say

they are looking at bad fundamentals. that investors seem to now look at policy mistakes as a bigger risk than two months ago? that you are doing too much? stefan: that is not the issue. the issue is to get inflation up. we can't change the world. we try to do our best to manage the situation within that. and do the best that we can. tom: thank you. greatly appreciated. the swedish central bank took dramatic action driving to new low or negative rates as they disinflationish and inflation. william lee.er and an historic moment for global

banks. futures, -34. stay with us. ♪

♪ tom: if you're just waking up, markets are on the move. curve is flattening indicating real movement in the fixed income market. the year and is stronger, we call that the global witness paper -- the global litmus paper of the morning. vonnie: ambrose evans pritchard is optimistic.

having to liquidate stocks, , and property. he writes what happened during the commodity them. this is a stock market route we should celebrate. is a multi-punch combination that is impacting markets. he is not too worried, which is contrary to what ambrose evans pritchard says regularly. tom: it's which is from a plutocracy back over to clear markets. are we clearing markets? got to happen. this is one of those reactions that is, after a time when markets have done well. we are adjusting to a new reality. the question is how long will it take? it has gone on longer than i would have expected. vonnie: is this shaking confidence, or is it new

fundamentals of merging? fact the oil markets haven't cleared is shaking everyone's confidence. when you look at the prices of oil, everyone says there isn't enough demand. that is the shift in attention away from fundamentals. tom: give us the update. need to have low prices to clear out the supply conditions. we need to have low prices to stop production. that is the missing ingredient. excess production is coming on. there's so much put into storage. the weighing down of prices in is causing period distress. with the markets are saying is not so much suppliers are doing this, but we aren't consuming enough. therefore, demand must be weak and that senses us into a global and u.s. recession. that connection represents the

fear of the markets rather than understanding fundamentals. if you look at how much we are consuming, this could also mean china is in a recession. i have people saying china is growing at 3.5%, nowhere near the 6.5% they are saying. william: we believe the rest of the world, especially of emerging markets and china come it is hard to see where the demand is. when you look at advanced economies, the demand is with the consumers and the service non-trading good sectors. when you look at the data and andip and next, mining utilities have crashed. standard manufacturing and industrial production is flat. despite the fact the dollar has appreciated 20%, with that pressure the fact that

manufacturing employment has ticked up, that says a lot of good stuff. francine: would you agree? lewis: the strengthen manufacturing, autos is its own story and is a positive sign. i think the collapse in oil investment has been filtering through the industrial sector. an inventory problem we are working through that is related to that. one thing that affects the u.s. is investment in oil in canada. if you look at where u.s. exports has been weak, it is capital goods to canada. that is part of the oil story. that will be with us for a while. william: all of us economists have underestimated how much of a shock oil production is in the united states. 75% of our conception is

domestic. we hurt ourselves on the production side. consumers are saving by can filming. lee is driving the price of oil down, single-handedly. $.95 on west texas intermediary. what you will see on twitter, what a shock. thought the new york times was dead on about twitter's importance in the new system. you learn more on bloomberg "west." will explain all in twitter's future. bloomberg "surveillance." ♪

♪ tom: it is gorgeous in washington. jerry yellen and her team at the fed, what movement we are seeing in markets this morning.

let me do a data check to bring you up to speed. -34 in futures. negative 279. at a low. year-yield steve major of hsbc's outlier call of 18-months ago. let's go to bloomberg first word games. ash carter expects international support for the u.s. plan to fight the islamic state. new u.s. strategies will be outlined at nato headquarters in brussels. he expects other countries to increase military or financial aid. 2000 countries are battling the militants in iraq and syria. industrial park apart run jointly with the south.

toy voted unanimously impose sanctions on north korea , andople, countries businesses that help the north's missile program. five states will go ahead on a plan to curb emissions. accord put president obama's power plan on hold. two dozen states have sued saying the government has overstepped its authority. bernie sanders says that his presidential campaign had a record-breaking day of fundraising after the new hampshire primary, taking in $7 million. the republican field has narrowed. governor chris christie and carly fiorina are dropping out. the next primary is in nine days in south carolina. global news, 24-hours a day, powered by our 2400 journalists round the world.

stock out withp earnings. pepsi with a 1.06. not much going on with struggles over my ability to keep it down to seven pepsi's a day. i'm trying to get down to five yard we continue our discussion on the markets. lewis alexander of norma and william lee of citigroup. questions.n will get the humanizing of the market is what i have trouble with. the bottom line is they are markets. there is the phrase "currency war." what is currency war? thes: people have used phrase to suggest central banks are working at cross purposes. the idea that exchange rates are an important channel for how monetary policy works, but you have to think of the objectives. what we need is domestic demand

in many parts of the global economy. you're seeing central banks promote domestic demand. what sweden did was designed to produce to mastic demand. tom: his comments were very swedish-based. lewis: there are consequences in markets in exchange rate. in the 1930's you saw a different process to balance payment problems. you try to take demand from abroad to suppress your domestic demand. that is not what we've got today. it is a misnomer to think of this as a currency war. on mercantilism, is this a mercantile world? lewis: the interest rate channel is short-circuited because everyone is rushing to the long and and keeping it down. that means the transmission of monetary policies is through the exchange rate.

lewis is right when he says central banks are adjusting domestic policy, and the unintended consequence is they are stealing growth from the rest of the world. tom: it is a zero-sum world? william: it has to be. the exchange rate means you have to take away from whoever is appreciating. the dollar is appreciating. everyone who is depreciating is taking away u.s. growth, the only source of growth around. tom: let's get to reactions. francine: breaking news. in december, a heard about aramco ipo. we understand the chinese government is pitching so that when and if the aramco ipo happens it will be in hong kong. this is telling. this is a china that wants a bigger marketplace and wants to be taken seriously. when we talk about currency wars, can we even have an agreement that this is a race to

the bottom -- if china isn't part of it. when it is clear they will have to devalue the yuan? of aam: that is a lack policy mechanism and framework in china that tells us where they are going. unless you get the rmb on board in some sort of and exchange rate regime that gives us a clear path of where it is going -- it is clear everyone has to depreciate. the question is, how much and how fast. francine: when you look at the race to the bottom, is monetary policy turning from solution to problem child? lewis: i don't agree with that. i think the rmb will depreciate going forward. i think there is reason to see it go down 5%. me, the issue in china is transparency and understanding what is going on in the policy

process. we don't understand china, the economy, because the data is a -- is an adequate. -- is inadequate. i would push back on the notion that we need global courted nation of currency. to be frank, i spent most of my career in international economics and think ordination is overrated. the process is where central banks are making decisions in their own context. it is largely working. i think the notion that it would be enhanced if there were greater courted nation is overrated. tom: the idea that china will act unilaterally and by themselves -- what are the global events that will force or depreciate or devalue the renminbi? policy: creating a

framework into their judges. the mechanism by which they will do this, we need growth and the rest of the world. to fact we want the renminbi depreciate is china needs growth from the rest of the world. they have of tools to generate domestic demand. where is the fiscal policy tool they could use? that we are soon indebted we can not effective budget fiscal policy? lewis: china is trying to do a bunch of different things at once. one thing it is trying to deal with is a tremendous booming theit they have seen over last 10 years. the mechanism they have used to boost growth that is credit-dependent they are pulling back from. they're trying to shift growth from exports to domestic demand. another reason not to expect them to use the exchange rate aggressively to deal with their problem. i think the objectives that china is trying to pursue make sense.

the problem is, we don't understand the process, we don't understand what is going on with the economy. that is the greatest risk to the global economy. not the absence of fiscal stimulus in china. ofncine: it is lack transparency. we try to understand their every move. this is a screen that says that we understand chinese officials from aramco in exchange for anchor investments from chinese fun. is this playing dirty from china, or them wanting to become a world superpower? lewis: i think china is a big part of the global economy, and is becoming a bigger part. one thing will have to accommodate ourselves to is that they do things differently. when i was working in washington 15-years ago and we talked about international architecture, our model was the rest of the world

to be rich by being more like the west. the rest of the world has gotten rich in a different way. one thing the international system has to accommodate is recognizing that china plays by different rules. getting the global economy to accommodate itself to that is part of the policy challenge we face. deal withlike how you an ipo for aramco, i think it is important that we have greater clarity on where the international investment rules are, and the fact that china needs to be integrated in that is an important challenge. bill lee driving the oil market down, it isn't the case. it is important to note that on this chart four-days in a row, shockingly elegant, breaking through the low of the 20th. we will come back. we have a bloomberg's newsweek

cover. thes on oil, and it is challenge of clearing the markets. lewis alexander and bill lee on bloomberg "surveillance."

tom: west texas intermediate, 26.37. a remarkable decline for oil in 48-hours. stopped. bill is the senate is expected to pass the seven day to oppose internet access taxes. general motors' german brand will introduce a fully electric

car. they are expected to have greater range than most battery-powered cars. online travel booking company expedia is rising in premarket trading forecasting earnings to grow by 4.5%. they are integrating orbits and home rental website home away. we have to look at some of the banking stocks. there is rising concern about the financial stability. a lot of concern around the european banks. it is a risk off a, and that may be- that exacerbating some of the moves. we have been talking about british banks. according to, people familiar with the matter, is canceling a global a freeze following backlash from employees.

that means he is trying to retain talent. it is crucial. we hear of more people leaving u.k. banks to the u.s. because people pay better. tom: stephen morris and alfred says -- all i can tell you is it is the global must-read. this is what we hear from john cryan from deutsche bank that he will make a roll block on compensation. guys like lewis alexander and bill lee go "bailey?" "really?"o the -- go let's go to the spread. this is the instability in banks . bill lee of citigroup and lewis alexander of norma will squirm a it is depreciating on

fellow bank. i do want to talk about the year -- about the european banking system to clear like the u.s. or other nations. william: europe is a bank-based economy. you have to find people who want to borrow with credit worthy standards. that is where they are failing. they can't find the borrowers who want to borrow at the banks. the banks have been loaded with nonperforming loans. book has put up the imf on financial stability. what will it look like? is there stability? lewis: i think we aren't facing systemic risk. if you look in the core europe or the u.s., other major areas, if that is a problem it is more likely to come in emerging markets. the point i would make is the industry is restructuring. the industry is in flux. always difficult

adjustments. the europeans have been slower the we have in to make adjustments on the regulatory side and that has made it more difficult. part of the problem that we face a lack of banks is transparency. one thing we have to work on is improving the way financial reporting works to have a sense of what is going on. one issue that is raised with deutsche bank in this recent episode is questions about their derivatives. i don't follow banks -- the challenges is getting a reporting regime where you can get a sense of what the exposures are directly. william: when i was one of the authors of the green book at imf, a problem is why europe can't get capital markets to come in. it is because of a lack of transparency in the firms. there is a saying in germany that the closest a manufacturer .as is his priest and banker

those are the only ones who know what his banks look like. tom: so bill lee doesn't know what deutsche bank is doing. francine: this is not a systemic risk, but you worry about the health of european banks. the ceo of deutsche bank told us the balance sheet is rock solid. what needs to happen so investors gain more confidence in the european ranks, deutsche bank in particular? better standards on financial reporting like getting global standards on how we report individual transactions so you can look into these institutions to understand the exposures. their issues like these going forward in a variety of boys. a new standard -- in a variety of ways. a new standard requires takes to do a better job on how they report risk. onhave a new mobile standard

identifiers getting into the issue of how we report exposures of how to track things. these things take time. those are the things that we need to get a better window into what these institutions really look like. the 10-year yield seven basis points, 1.5995. note higher yields lower. that will be on the mind of chair yellen as she continues .er testimony as lewis alexander says, possibly more sane questions from the senate will give a full answer. stay with us. ♪

♪ tom: stay with us on bloomberg television and radio all morning as markets are on the move and deteriorate. -3.15.ures, in the foreign exchange's basic, the yen 11133 -- 111.33. dollar/peso, the mexican peso cannot get a bid.

imaginables barely to those who keep track with the goings on of the mexican economy. let's go to david westin. take a hard look at the markets as they are in turmoil. we will be joined by oppenheimer about what janet yellen is saying. we also have an interview coming out with new rules about derivatives in the united states and europe. we will have the ceo of td ameritrade to see how investors are dealing with markets. .om: thank you our single best chart is on one of the movers with an abrupt move. this is oil. chart showing a change in the 30-day moving average. elegant.l contained,

let's start with you with the good work of your team. beast.a microeconomic it is supply and demand. our entire conversation has to be about global demand. is that a valid analysis? analysis is the production side is enormous. supplyt get the contained. production takes time to turn off. the demand creation from the lower prices takes time because people aren't certain they are permanent decreases. they say, we have it great and now, but what am i going to do with that disposable income? i will save it and pay down my debt. tom: the responsiveness of all of these commodity ideas. is it one part clearing the market, or is it also balance

sheet write-down, or both? the issues with respect to production the united states is what will happen to the independent producers. how are they being effected? they're being constrained for resources and will have to cut back on drilling, and that will bring down production. the balance sheet stuff matters for help production will come down in the u.s. tom: this is very much an american mood. the spread has widened $4 between american oil and brent holding nicely above $30 a barrel. francine: we've talked about oil so much i'm trying to find the model still the tells me if we stay at 25 or 28 so many companies will go bust. we're talking about defaults. i'm wondering if bill or lewis

have an indication on this? in russia, if some companies go bust, you will call saudi arabia and say we are ready to cut production. am i wrong? productione new model for oil is it takes three-years or four-years for the new oil to run out. their financing these productions with leveraged loans. that is the issue. when they stop financing, they takesrilling, but it three-years for the wells to run dry. it takes a long response time before we see a cut back in production with low prices. tom: this has been fabulous. thank you. up what, let's wrap we've got on the markets. we are deteriorating, dow futures -3.24.

as you pointed out an hour ago or two hours ago, the yield implosion is with u.k. guilt leading the way earlier. brutale: the move for so and fast, it goes back to german yields. pre-pricing. investors are trying to reprice risks on the market on global growth. tom: we will do this on .loomberg go coming up we will continue the conversation on equities, bonds, currencies, and commodities -- to a chair yellen that will rip up the script at 10:30. stay with us, all day. ♪

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i've never felt so alive. make your business phone mobile with voice mobility. comcast business. built for business. david: a global selloff with stocks falling in europe and asia. a rough day on wall street. ,nother bank takes a dive

following the most in four years after earnings plunge. markets are not giving investors much to say "cheers" about. what does that mean the for luxury brands? we talked to the ceo of ramy martin. ♪ stephanie: you are watching bloomberg "." i am stephanie ruhle. david: i am david weston. stephanie: janet yellen giving no clear signs of a recovering economy. the u.s. markets, european markets, and asian markets are feeling it. oppenheimer funds cio krishna memani