guy: the market says the recent rally has gone far enough. fed fears. the latest minutes already signaling how they might scale back on their rate high projections. the brexit battle. david cameron had to brussels in search of an e.u. deal he can put to britain. welcome to "the pulse" live here in london. i'm guy johnson.

let's check in on equity markets and mark barton. we are seeing a little bit of a rollover. ftse 100 down .7%. it is thursday, a bunch of stocks with dividends. the other big one. it is underperforming. equity markets have rolled over a little bit. word let's get the first new spirit 28 people have been killed in an explosion in the turkish capital ankara. it targeted a convoy of military vehicles. 61 people were wounded. condemned thegan attack as beyond all moral and humane boundaries. the lira is weakening against the dollar. china's consumer price inflation pickup and gender -- in

january. 1.8% from a year earlier compared with 1.6% in december. however the producer price idndex fell. china's central bank took another step to guide interest rates lower, offering to reduce the medium-term borrowing costs for the second time this year. the people's bank of china told banks it can provide cash through medium-term lending facilities, 2.8% for a six-month loan. the one year borrowing rate would be 3%. global news 24 hours a day powered by our 240-journalists -- 2400 journalists. guy: thank you very much. the next guest, says

volatility exaggerates the risk. good morning. let's deal tactically. we have a decent run in equities. should you take that and run away for the time being? >> i think we are going to see more volatility over the course of this year. i've talked about this quite a lot. i think the investors have not tuned into the implications of lower global growth. i don't think it's stag-flation, but i think it is very definitely more subdued growth. that means less returns a lot of the stock markets, total returns are not going to be as good. guy: giving idea of what kind of return i should be expecting from some of these companies? richard: in terms of the total market, the answer to that is the income you get from the dividends. in the u.k. something over 3%. plus the nominal growth rate of

western economies which a lot of companies are linked to. 4% less. a total return of 7%. it is a sort of gain in index terms. you will see a lot of volatility through the year. at the end of the year, we will be in positive territory. better than bonds. over the course of this year, people will see core inflation rates beginning to tick up. the federal reserve will still be on watch in terms of policy. we do not how many times they are going to raise interest rates but i think the progression and policy is still going to be towards interest rates rising. i think will be -- we will be talking more about that in the u.k. bond yields are likely to end the year higher than they are at the moment. guy: is it easier or harder time in the market this year? the swings are enormous. you get a good idea when you are

down 20% markets are stretched on valuations. hard: i think there will be a lot of people trying to trade the swings in the market. other hand if we suddenly saw a surge in the market and we saw 10% on prices, i think people would try to protect those gains. a lot of relatively. guy: for major markets, the correlation between what happened with dollar-yen, what happens with gold and oil and equities seems tightening. what are we going to see those teasing apart? richard: it could be another year in which for some markets the currency move dominates the market move. it's an interesting look in terms of sterling. and u.k. markets. sterling has dipped. that should be beneficial to corporate earnings in the u.k. a lot of dividends are paid in dollars. pleasure help the markets.

you do tend to see this correlation between currency moves -- that should help the markets. guy: let's talk brexit now. it is a big day, huge day. david cameron is heading to brussels. he hopes to come away with a deal he keeps britain in the e.u. angela merkel hopes a deal is reached as well. am convinced that it is in our national interests for britain to remain an active part of a strong and successful european union. a government always made clear that we work for results that not only britain but germany and all of europe profits from. guy: ryan chilcote joins us now from outside the commission building in brussels. we know migration is going to be a factor but what are the other sticking points? sitting here in london, how never should i be about negotiations taking place? ryan: you should definitely be

interested. one bone of contention is to what extent the countries within the european union that use the euro will be able to dictate what happens in the countries inside the european union that do not use the euro. banks, it isns for the same way of asking the banks will have to comply with a kind of rules again imposed in brussels on the other e.u. countries. the british prime minister is seeking to shield the british banking system from e.u. regulation but france, for one, and other countries, have expressed concerned that the u.k. could get unfair competitive advantage out of the seeking. cameron is in addition to that, they are concerned that the whole single market aspect of the european union could be eroded when it comes to the banks. they expressed their concern about it. one of the things that obviously

bothers downing street is things bonuses.cap on remember how george osborne bristles when the e.u. imposed new rules. that kind of thing might be acceptable but it is going to get into the detail of exactly what the u.k. can accept it -- exempt itself from and what it cannot. guy: what is interesting, is the brits see it as a brexit summit. the germans see it as a migration summit. can those two things be compatible? ryan: yeah, no. the answer is they are not very compatible today. i think the germans may -- guy: you do not often see that. ryan chilcote caught frozen. enjoy it while it lasts. whilel be back with ryan it lasts. that is the big story. we will get back to hear what he

has to say. the migration story versus the brexit story is fascinating. the front pages of european nations today, very different spins. plenty more coming up on today's show. we will bring you with interview with a foreign affairs spokesman of spain. we will ask him why spain -- whether spain can finally get a government. then we will talk oil producers after the story that iran has kind of support of the saudi-rus sian pact. as europeang day leaders gather in brussels. we will consider whether the u.k. prime minister will get 27 countries to agree to his proposals. ♪

guy: nearly two months after an inconclusive general election, spain is yet to form a government.

i'm pleased to say we can now speak to the parties foreign affairs spokesman. who joins us now from a trade. good morning. thank you for taking the time to talk to us. the question everybody is asking themselves is what would it take for the party to join the government and why would it want to considering the fact that polls point to the fact he would do better if we will see another general election? >> good morning. we are not thinking about the polls right now. we think our country is going through an emergency situation. there are millions of families thedepend on a change ofin orientation of our economic and social policies. if we were to make an offer to form a coalition government with the socialists that could implement such a turn in the economic and social policy that has been employed so far. to put an end to austerity and form a government as soon as possible. we are basically waiting for the socialist party to decide if they want to go to their right and form a government, try to form a government with the centrist party or if they want to join our effort to put an end to austerity policy and basically open a new way for the south of europe. guy: do you think you have

compromised me offer you have made to them? well, basically, every political negotiation and every conversation in the public sphere implies the need to find some common ground. so, of course, there needs to be flexibility but the acer and suppose that more than 5 million people, 20% of the electorate chose in the last electric, are there. it is very clear with a kind of orientation that they want to give to this new government. and we are basically working every day to make that possible. within the possibilities and the dire situation that our economy is still going through. a governmentld that involved podemos mean for investors? pablo: could you repeat the question? the sound is not very good.

guy: if he were to be part of a government, how do you think investors would react? what would a government with podemis in it mean for investors. think they would react with normality because we are a democratic country within a democratic europe. and basically, that means the rule of law is reserved and maintained. i think actually it would be very good for our country to find a new scenario where actually people would recover trust in the economy and trust in the political and social process of our country. i think investors have been very worried about the situation of instability, of financial chaos, of social exclusion that has been affecting my country in the last eight years. that is the kind of instability that is a threat for everybody. guy: ok. two more quick questions.

the first one is, how do you think investors, how do you think the world would react if we were to see a referendum, catalonia, that part of spain exiting spain? think everybody, not just investors, but everybody would react in the same way they have reacted previously when there have been democratic referenda in processes like the the canadian one for the province of québec. political problems demand political solutions. a democratic society solves those problems through democratic means. what we are advocating for his common sense, basically putting the weight of the decision of such a crucial important decision in the hands of the people of catalonia. we would campaign for catalonia to remain in spain and we are confident we would win that referendum.

iat i think is risky, what think is dangerous and difficult to understand is basically not even to sit down, not even to enter the same room with the people who are advocating for a different situation. we have a government that has been blocking every possible solution to the problem. it is becoming worse and worse and more difficult to solve. let's provided democratic solution for our political problem. guy: how far should the e.u. go to keep britain within it? the previous answer stance for this one as well. i think that whether britain remains in the european union or not is a decision, a choice of the british people to make. i think it is a good thing they are making a referendum. what i think is not a very good idea is basically to change the rules concerning the social rights, concerning the core of the project of peace for

solidarity of nations at the union only european for internal political reasons in one country. i think the two points that are more critical about this deal they are closing today, one, the protection of the city of london. who's consequences? the consequences of the problems in the city of london are felt through the whole european not havingnot -- but any possibility for those affected by what happens there to say what -- in what happens there. it is a problem for sure. it is setting a precedent of discrimination for workers depending on their country of origin. let me tell something to your british audience. there are 200,000 spaniards working in the u.k. only 2000 are receiving subsidies. it is a problem of solidarity. guy: let's talk about solidarity and migration.

should europe shut its borders to migrants that are trying to enter? should schengen be looked at again? how would you deal with a crisis that is gripping europe right now? pablo: first of all, i would say of migrants. union we are talking about refugees. that has legal implications. in human rights law, there are implications you are obliged to comply with. our continent and our country produced hundreds of thousands of refugees not that long ago. and a is a matter of law matter of basic human principles arettend to those who fleeing war, misery, death and violence. it is paradoxical that today at the european council that what is urgent is to decide in the british question but the refugee crisis will not be the object of decisions. 8 people are dying every single

day within the european union. our leaders are discussing the financial interests of the city of london. ordinary, working people do not understand this. there onill leave it that know. thank you very much for taking so much time to talk with us this morning. the head of foreign affairs for podemos. quick check on the equity markets. bit. have firmed a it is starting to push some of the european indices into the green. a lot of the market is still softer. we have a whole bunch of stocks going to dividend today. the stoxx 600 banks are in positive territory. the stoxx 600 is flat after being negative. next, the prospects for emerging markets. fed tightening looks unlikely in the short-term. ♪

guy: let's go to business flash. mark: apple has rejected a court order to help investigators unlocking iphone. in a letter published on apple's website tim cook said the fbi was seeking a new version of apple's operating system that would circumvent security features and give law enforcement access to private data. he called the order a dangerous

precedent and a chilling attack on civil liberties. nestle reported the smallest gain in six years. at company's forecast growth a similar pace this year after 2015 total organic sales rose 4.2%. sales reached 88.8 alien swiss franc's missing -- billion swiss francs missing expectations. vodafone plans to raise two point 9 million pounds. securities will have maturities of 80 months or three years. the bonds will be convertible stock,dfafone representing 5% of the company's share capital. guy: thanks very much, indeed just what we get to talking about emerging markets, europe is moving out of its financial crisis and european banks are in better shape.

this is the story right now. the markets fairly flat. has been in ara run following the explosion, the bombing of a military bus close to parliament killing 28 people. let's talk about the prospects for emerging markets. fed timing looks unlikely. we know the fed is unlikely to raise rates aggressively. the markets priced 2016 out. that has only happened. is that why the emerging markets, i was thinking malaysia this morning, round-tripped on the year. richard: there is really factor in emerging markets. the case -- the case against them was not as compelling as it was. a deep sigh of relief. i would be quite wary of the more commodity driven markets. i still think the recovering commodity prices is probably somewhere off. there is going to be construction and supplied, less investment in supply first.

but for asian manufacturers, maybe there will be some areas in which they have been oversold. maybe some opportunities. but i do not think this is going to be a huge swing. guy: some people are talking about you start switching your portfolio over to be much more aggressively overweight yen. has not been driven by the supply-side economies. they are struggling, they are competing very heavily. there is overcapacity and supply of manufacturing products. that is not good for pricing power. i think there are quite a lot of problems. it possibly get oversold. guy: you're hiding out in the developed world. like bond dontn't markets. it has been painful at times. what i think is interesting in the west as if you look at headline inflation versus core

inflation is the fact that energy prices drop so much should have brought core inflation rates down and western economies. and it hasn't. i think that is a warning to bond investors. guy: richard jeffrey stays with us. ♪

a quick look at european equity markets. we have been hour and a half. a tough session thus far. absolutely flat no. london is lower. now.bsolutely flat extrasithkline, shell, on i go, that is the ftse 100 flirting with that 6000 level. 5,999. we are down by half of 1%. banks have certainly been

returning to form over the last half an hour, seen a spike in the banking index. the me show you the other indices. correlations. this is brent up. earlier on, brent wen negative. the yen is higher. the dollar is lower. safety trade. it is interesting to see that that is trading higher. 38.o-dollar trading 1.11 here's the first word news. mark: 28 people have been killed in an explosion in the turkish capital ankara. the attack targeted a convoy of military vehicle stopped at a traffic light. 61 people were wounded. president erdogan condemned the attack. he said turkey will find those hesponsible and step up t

fight against terrorism. china central bank took another step to guide interest rates lower. to reduce the medium-term borrowing costs it charges letters for the second time this year. the people's bank of china told banks it can provide cash for its medium-term lending facility at 2.8% for six-month loans. yea borrowingr rate would be eased to 3% from 3.25%. venezuela hikes gasoline prices for the first time in almost two decades, and devalued its currency. the president is attempting to adjust triple digit inflation and the economy steepest recession in over a decade. the primary exchange rate used 6.3.mports will be -- from global news powered by our 2400 journalists in more than 150 news bureaus around the world. guy: thank you very much.

me take you to the european parliament. -- let me take you to the european parliament. answering questions from parliamentarians. a couple of things he said in the last few minutes worth noting. first of all, he says he wants return -- investors to return to greece. getting banks open is key to recovery. he is talking about the european banking sector which i think is quite interesting. he he says europe's banks are in better shape. is not sure what metrics he using to determine whether or not these banks are in better shape. i'm not sure all equity investors or credit holders would agree with that. i suspect he is looking at the tier one ratio stood we can talk about that a little bit later on the program. now, saudi arabia has been hit oil by the collapse in prices. it had its current rating downgraded by standard & poor's. one of four countries producing oil that has suffered ratings cuts. elliott goggins has details. the agreement to freeze oil

output has not seem to have swayed s&p. elliott: it doesn't. it's downgraded the credit rating of saudi arabia, oman and kazakstan. it has been downgraded to a-. standard saying that the impact l prices will have a lasting impact on the saudi economy. it is set to post another double-digit budget deficit this year after last year's 16% budget deficit. on the plus side, saudi arabia remains investment-grade. because saudi arabia is taking measures, taking steps to mitigate the impact of collapsing oil prices. the outlook is stable. s&p was impressed with other members. what do they say about that? elliott: particularly with

akhstan, thekaz impact of lower oil prices is having a strong impact. it is worried about slowing growth and rising inflations and monetary policy in kazakhstan. bahrain has had its credit rating downgraded to junk. and standard & poor's saying the impact on government revenues in bahrain is acute. these are just for oil-producing nations. all of the oil-producing nations are suffering as a result of collapsing oil prices. one can only imagine where the next downgrade is going to come from. guy: thank you very much. let's get more from richard jeffrey. expectations for the oil price? oilard: i don't think the price will be quite as low as it is at the moment at the end of the year but on the other hand we will see a sustained -- i

don't think we will see a sustained recovery. the agreement we are looking at is unlikely to hold. as oil prices fall, that a lot of producers who run a enormous fiscal risk, countries like venezuela and russia, are presse d into trying to pump more to compensate for the fall on the price. i can't see this agreement holding. although i think oil prices will be slightly higher at the end of the year. guy: implications for the global economy should be positive. why are turningn ' -- why aren't they turning out to be positive? is evidence that western consumers who have benefited from cheaper energy costs, that has supported consumption. but people are just expecting too much growth out of the west.t of west is in a phase longer-term growth. we'll see averages of 2%. i think what people are expected to see is a return to the

environment we had fun during prior to the recession. that gave a completely different tone to the world economy. a situation where the lower oil prices are compensated for the lack of wage growth? you look at the u.s. in the consumer does seem to be in ok shape. we are not getting wage growth but we are getting the oil price benefits. i'm wondering if one is offsetting the other. if we were to see oil prices going higher, we would have to be worried. tohard: there is an extent which fairly low nominal wage growth has been boosted in real terms by falling prices of energy, oil. but there is evidence that nominal wage growth is beginning to pick up. labor markets are tight in some countries. you look at the united states, the united kingdom, you look at germany.

those labor markets are tight. we can expect that to lead to faster wage inflation. guy: it should've happened ages ago. evidence it isis already happening in the states. it is in the data int h-- in the states. it seems to be coming in the middle part of last year in britain. guy: 1.9, sub 2%. sector, in the private above 2%. what we will see later on this year's wage inflation picking up in the u.k. this is something we have got to watch. it is normally things you think are not going to happen that you ignore. you look at what is happening with the economy broadly, you should expect inflation to pick up sharply once that starts to happen. poor.d: volatility is there is a big debate. it could be the shell shocked

reaction of companies not want to long-term investment plans. it could be something deeper within the economic system which is depressing productivity. was two or than it three years ago but still not up to the normal rates of productivity growth of 2%. but that is why employment growth has been so strong. we have seen a lack of productivity. that will feed back into costs. eventually we find we have more inflation and central banks anticipate. guy: the top line growth for many corporate is not happening. as result, in order to cute the bottom line, they have to do something in the middle of the pnl. what they could do is start to reverse some of the job gains we have seen. can i extrapolate, and we're in the middle of earning season and it is clear that topline growth is a worry, is there a case to be made that we could be near the peak in employment? chard: i do not think we are

near the peak of employment by the employment growth is going to be slow because we are approaching full employment. when we look at the labor market data coming out of the united states and we see a smaller gain, we should not say that is evidence of reduced demand for labor. no. other data is telling us there is strong demand. it is evidence of the fact that as you get towards full employment it is difficult to get more people out of unemployment. that is, of course, was then leads to more wage inflation because employers have to compete for people. now, so far as companies are concerned, in the topline, the always is the analysts set the bar too high. they start the year with forecasts of 10% for earnings growth and they have to ratchet that down. because of slower growth around the world. it is the expectations mechanism which is going wrong here. people have to start with much, much reduced expectations, and added to that, we are past the

point of peak margins in the cycle. if we are going to see labor costs pick up, that will bite into corporate margins. guy: thank you joining us. a great pleasure. we are going to take a break. more on the markets, more on what is going on ahead of the brexit conversation in brussels. we will be back there talking about what happens next. can he getty deal -- can he get a deal for the u.k. to vote to stay in the e.u.? ♪

"uy: welcome back to "the pulse live from london. here is our bloomberg business flash. rejected a court order to help investigators on mocon iphone used in the san bernardino attacks. n apple's website tim cook said the fbi was seeking a new version of apple's operating system that would circumvent security features and give law enforcement access to private data. he called the order a dangerous precedent and a chilling attack on civil liberties. reported the smallest annual sales gain in six years led by a product recall in india. at aompany forecast growth

similar pace this year after total organic sales rose 4.2% in 2015. sales reached 88.8 billion swis francs. operating profit came in at 30.4 . billion china's central bank is moving to daily market operation. the people's bank of china will conduct the operation every working day starting today. previously open market operations were held twice a week on tuesdays and thursdays. guy: thanks, mark. david cameron heads to brussels today to wrap up months of negotiation on a new european deal. a potential british exit. open europe posted simulated e.u.-u.k. negotiations earlier this year. for more on the foundi -- more on the findings, we speak to the cofounder of the simulation. sessions we did

negotiations taking place now and in the afternoon we looked at what might happened if the public did vote to leave. the u.k. saw a post brexit deal. guy: let's deal with the now. what were the key sticking points? >> all of the areas were difficult. the two most difficult ones which are being forne in the -- the talks is the relationship between the eurozone country and non-eurozone countries and regulatory situations for those countries. in the issue of immigration and access to u.k. welfare system. guy: what about domestic politics and all this? every single actor in the room has a domestic constituency he or she has to be responsible to. >> the u.k. has not negotiated with a homogenous e.u. every member state comes to the table with their own constraints and their own desires for future e.u. development. european states want to see

the eurozone develop much more. there is more conversation about more integration. and germany who evan i and national elections next year are much less keen to tackle the big questions. the case much harder for the u.k. because it is harder to define yourself against what the eurozone might be because we do not know what the eurozone is going to become. guy: after lunch, what happens? >> then it got very emotional. there was lots of talk about divorce and breakup. wh became cleara ist the u.k. cannot simply escape the e.u. if you want a free-trade agreement, you have to talk to them. and i think what came through and it is clear is that in the u.k., in the first session, while the rest of the e.u. feels like they are doing the u.k. a favor. in the second session, they feel like the u.k. has walked out, the dynamic changes and they look towards their own interest.

while they recognize that some deal has to be done, there is no interest in making life easy for the u.k. guy: what kind of relationship to we end up with? >> that is a huge question. it is a question that has to be formulated better to convince people to vote for the exit option. you have got two types of arrangements. one which seeks to keep things as similar as they are now. but in the single markets that means accepting the regulations and free movement of people, which is a contentious issue. or you go for a free-trade agreement area which would be a bilateral agreement, which had to be negotiated each thing. that could get very complicated. guy: if you were to pick a relationship that would post again you have, which one is it? norway, canada? what's the model we can look towards? >> i think it does depend on the analysis of the results. if you feel people have voted because they concern -- they are

concerned about immigration, the minority option becomes difficult because that entails the same levels we have now. a bilateral agreement might give you more flexibility. switzerland has a bilateral agreement. there are no easy options. i first i think that if we want more control over our more affairs, that tatian down the bilateral route -- that takes you down the bilateral route. guy: if the vote goes for the e.u., how does the e.u. evolved? how does evolve if that were to happen? if we stay in? >> the big question. the stay in option -- has some uncertainty. i think that does depend. on the eurozone more than the u.k. is the eurozone going to take a more fundamental step towards" economic and fiscal integration?

the southern europeans are up for it. it is not clear that germany is up for it. is there going to be a step towards integration? u.k.does give th3e leverage. there is a new treaty and that could be another opportunity to seek more reform. and further make clear the u.k. is not -- and further detach ourselves from core integration project. guy: interesting stuff. sounds like a lot of fun. the director of open europe. up next, the report from the latest ecb meeting drops today. how will the european outlook compared with the fed minutes yesterday? ♪

european equity markets have an open two hours. let's show you what is happening. a little greener than they were around half an hour ago. the stock 600 is on the flatline. the banking sector has come back. london is down. the. bloomberg dividend function check it out because it is important on a thursday for the ftse 100. shell's down 2%. the reason why you're

seeing the ftse 100 lower. bbdb. let's show you what is happening in terms of the other asset classes. they are breaking down a little bit. 30.78.l trading dollar-yen trading 1.11379. the yen is up. to be honest it is fairly flat. euro-dollar, 1.1137. reports published later today when investors will look for clues about the central banks action. how much insight is this going to give us about march? >> very good day to be at it would take the comments by president mario draghi at face value after that meeting on january 21. we should see in this summary

are united concern over the economic outlook, and a unanimous agreement it is time to look again at the stimulus package. not necessarily it is time to boost it but to reviewer it. we will see the concern coming through in the economics presentation. and possibly in the market section as well. but the rest of that we will look for signs of dissent, that policymakers are not named. this is a summary. the full minutes remain under wraps for 30 years. time to look at the packers again but not at this point to discuss individual potential -- the view was to look at this package. guy: what data are going to be watch? words have been pretty strong over the last few weeks that should conditions deteriorate, either because oil

prices speed through -- and stick there or inflation expectations, or because the market tumult derails the price stability, then the ecb would act. we have consumer confidence data tomorrow. that will be important. february inflation data coming out next week. we will have fourth-quarter gdp numbers two days before the decision. u.so worth noting is the e. council meeting today and tomorrow, which brexit brexit will be discussed -- to keep the u.k. in the e.u. that has the potential to erode confidence. although the ecb would not want to link stimulus to that debate, it is concerned about the possible consequences. guy: great stuff. thank you very much, indeed. . paul gordon joining us on a

friday for it those -- out of frankfut. we will watch very carefully what comes out of brussels. stay with us. bloomberg "surveillance" is up next. ♪

tom: the prime minister travels to brussels in search of change. cameron says there still is no guarantee on a non--brexit. nestle, they turn out for datable cash flow. they turn out butterfingers. thisll speak to nestle in hour. it is bloomberg "surveillance," live from