equities close flat. credit crackdown. the people's bank of china hikes reserve requirements for banks as it seeks to stem a lending surge. u.k. prime minister david cameron's negotiations with fellow eu leaders builds into a second day. welcome to "the pulse." let's see how things are shaping

up on the equities front. we are one hour into the friday session. on the day. higher headed for its biggest weekly advance in four years. ftse is on track for its best week since october. the dax is also on track for its best week since october. the cac 40 on track for its best 20 11.nce december, let's look at some of the other markets today. the yield on the u.k. 10-year is dipping to 1.4%. last thursday, it hit 1.3%. it is up a little since then. the euro is up against sterling today as david cameron tries to thrash out a deal with his counterparts in brussels for a second day. the dollar is falling. the japanese currency is proving its safe haven status in the month of february, on track for

its best month since february, 2008. brent crude is rising. it is up 2.4% this week after two weeks of declines. the big data yesterday was u.s. stocks rising to the highest level in decades. the bloomberg first word news. china's yuan is headed for the biggest weekly advance in a year. bears say the rally shouldn't be taken of a sign of great reversal finished. goldman sachs is warning any further shock depreciation will accelerate it. the bank had billions in outflows last year. the $9 billion fund manager is pessimistic about the outlook for markets. beat 90% ofuglas

its peers over the last five years and now has almost 60% of its fund in cash. with all the recent turmoil, douglas says he has no plans to buy shares. former treasury secretary larry summers says the biggest challenge for the u.s. economy is getting inflation to move towards the goal. speaking to bloomberg, mr. summers said the fed should hold off on further rate hikes. are in a new world where the challenge is not excessive inflation. the challenge is getting inflation up to 2%. markets are saying that is not going to happen over the next decade. global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. the people's bank of china determining some banks increased

lending too fast and raised the required amount of reserves. that is according to people familiar with the matter. let's get over to hong kong. enda curran for more. how do we interpret this move? enda: it is something of a slap on the wrist. warned that china is opening the spigot again, falling back on the playbook of pumping debt into the economy. not quite what the authorities want to do. they are targeting regional lenders who may suspect they've doled out to many loans. that is where a lot of these loans ultimately turn sour and inefficient. the backdrop is that bad loans in china are at a 10-year high. the central bank is not tightening liquidity.

it is not taking money out of the system. it is stopping the smaller banks and saying, don't be doling out loans to inefficient sectors. mark: what does this tell us about the pboc's priorities right now? enda: obviously, the have a balancing act going on. the wider economic backdrop is one of slowing growth and perhaps a bit of a struggle for policy. at the same time, they don't want to out right cut interest rates, because it would put pressure on the yuan and further accelerate capital outflows. threat to china's economy. what they are trying to do is juice the system without cutting rates out right. we see them pumping money into other channels to make sure that banks are going to lend that money to sectors that want it most without getting into funding those areas that are

suffering from overcapacity. mark: good to see you. thanks for joining us. investment officer at some global, juicing the system, is it going to work? sanjiv: i think the backdrop is this date on lending which you can see on the bloomberg chinese lending function. a spectacular increase. higher than the lending we saw in 2008-2013, when the chinese authorities told the banks to open their wallets and lend. people were worried about that. a huge amount of lending took place then. debts are only becoming apparent in the last few years. the chinese are worried there's going to be a huge debt burden, increase in bad debts, in the

next few years. clearly, they worry about it. the companies are really struggling. mark: the yuan has stabilized, set for its biggest weekly gain in a year. the pboc governor came out and basically said, i wouldn't short the yuan right now. have we seen, for the moment, the weakness in the yuan end? sanjiv: i think that would be the success of the jawboning he did. the capital outflows are very large. this may be a temporary victory for the pboc. mark: how low and how fast? inve come from 6.2% back august before the devaluation to about 6.5%. how low and how fast can it go? sanjiv: i think we are looking at 6% or 7% by the end of the year. mark: are you confident that the job owning we've seen by the

chinese premier, by the pboc lmed markets? ca it has been a volatile start to 2016. luckily we had the lunar new year holiday, which stopped the news flow out of china. markets have rebounded since the holiday. is it going to be a calmer china? sanjiv: while they were away, we did see shorting in hong kong. i the time they came back, the markets were recovering a little bit. on the longer term, i think they are going to be tested again. the economy is slowing. people want to get money out of the country. they are fearing a devaluation or depreciation. mark: thanks very much, for the moment, sanjiv shah. he will stay with us.

sleep deprived eu leaders have begun arriving for their second day of negotiations over britain's eu relationship. ryan chilcote has been following developments in brussels. how close are we to a deal? ryan: it's nubber cakewalk that perhaps the british prime minister expected. it a complete disaster. the sticking point appears to be the length of time that migrants have to wait until they can get in work benefits. in the draft deal the eu president distributed at the beginning of february, it said they would have to wait for four years. most of the eastern european countries were on board with that. yesterday, the british prime minister said, that didn't go down well at home. we want 13 years. he said, we want an original period of seven years with the possibility of extending it.

that didn't go down well with the eastern european countries. they are offering five. in a way, it kind of opened a pandora's box. that became not the only issue they were quibbling over in just the first couple hours of discussions yesterday that went right into the night. one thing is clear, the british prime minister won't be getting back to london by early afternoon. mark: ryan, thanks a lot. .yan will be in brussels stay with "the pulse." economists surveyed by bloomberg say subzero rates won't work. and, brexit in the city. caseal sever and makes his for why britain is better off outside the eu. u.k. retail sales give us a read on whether britain is shopping again.

turnaround.ts a ♪

mark: welcome back to "the pulse ." three weeks ago, the boj surprised markets by joining the euro area in reducing rates below zero. how effective is a negative interest rate policy? bloomberg asked 63 economists

their views. paul gordon joins us to talk us through what they said. you found that negative rates worked better for some banks than others. please elaborate. paul: a lot depends on what you are trying to do. economists we surveyed gave a 90% approval rating to the negativeank's rate. switzerland is still defending its currency. these are small, open currencies. if you are trying to reinvigorate your economy, boost inflation, the general review is that is not going to work. that is pretty bad news for the ecb and the bank of japan. mark: they were also asked how much lower rates could go and for how much longer. paul: what did you discover? economists feel

that negative going to work, central bankers have pinned their hopes on them. the view was, they are going to be around for a wild. the key is that the negative devalue your currency for a while. but if you are in a take economy, you end up sparking a currency war. the euro and the yen have both risen against the dollar this year. what happens? we have negative rates for a long time. we don't get the boost in growth. you might get unintended consequences. that is worrying some economists and policymakers as well. mark: bloomberg's paul gordon. great story. sanjiv shah, cio at some global investors, you described low rates as a war against savers. do you worry about the unintended consequences? sanjiv: i don't understand

negative rates. when i did economics, the textbooks said the rate couldn't go below zero. i don't understand what it means, borrowers have to pay lenders? but you have to see it as part of a war against savers. we had low interest rates for a long time. you had qe trying to depress bond yields. when all those things failed, central banks are trying to put negative interest rates. mark: so it shows a lack of ammunition? sanjiv: yes, they've been involved in an ill thought out, wrongheaded war, and they run out of ammunition because it hasn't worked out. this is the final strategy. against savers. central banks seem to hate savers. they think that people should not save, but go out there and borrow and spend or invest in risky assets, in a belief that

will lead to economic expansion. it might in the short term, but in the end, it will lead to an asset bubble and crashes. mark: what do banks do then? they are stuck in this trap of extraordinary measures. sanjiv: i would propose, the barton-shah rule, if you like, that rates should never be below zero. what you will see, you are really encouraging savings and people will start saving and the money is loaned to the banking system. the banks will lend the money and we will have a normal, working system. the central banks can't resist meddling and they will try and boost growth the moment there is a sign markets are weakening or economic growth is faltering. they will try and use monetary instruments like negative rates

to try to boost the economy artificially. it simply doesn't work. mark: seeing some pictures of president hollande, the french president, writing in brussels. the fed, talking about meddling, they raised rates in december. they are raising rates again this year. square one when it comes to u.s. monetary policy? sanjiv: the markets are obviously hoping and expecting the fed won't do much. fed futures are trading at a level that suggests there is no rate increase until june and only one in 2016. i think that is going to happen. what should the fed do? they should perhaps raise rates rton-shahith the bas rule that i expressed earlier.

rule,going back to that they are going lower and lower, aren't they? some say the deposit rate could go to -0.4, -0.5. bond yields are very low, at record lows. across the curve in the euro area, growth, fragile. he wouldn't say the ecb's actions have had a great impact. got 2.3, and the deposits held by the banks has gone up. they will probably try again and in this wrongheaded war that i described. i think einstein said stupidity is doing something over and over again and expecting different results. i think they will do it again but get the same results. mark: how are you hearing about the markets?

best week for europe in four years. 600 was languishing. have we seen the lows? what would you describe this reground we've witnessed? sanjiv: it was a terrible start to 2016. i think there was a bit of short covering and reassessment. now, we are looking at some sectors like the european banks, some of the miners. mark: you are braving the banks. valuation? sanjiv: we're looking at them. if you look at some of the european banks, like deutsche suggests that the markets have become over pessimistic. nobody knows what is in their. at some point, markets will overshoot on the downside and look at reasonable values. one way to play it is buying out

of the money puts, so if they go lower, we could get it on our paths, but we pay a juicy premium for waiting. mark: sanjiv shah, chief investment officer at sun global investment. and, catastrophe claimed allianz in the fourth quarter. ♪

mark: let's get to the bloomberg business flash. apple is getting more time to argue against a court order that would force it to break into the iphone of one of the san bernardino shooters. the standoff is pitting the company's push to protect customers' privacy against the government's struggle to attack grime. -- crime. a lender boosted profit and passed the fed and you will stress test. a reversal from its failure a year earlier. cuturce says citadel has investment professionals from one of its trading units after its main hedge fund lost 6.5% in the first six weeks of the year. reported a 16% rise in

fourth-quarter profit today. that was a mess. miss what was behind that on net income? hans: good morning, mark. claims on natural catastrophe. they also had to write down a goodwill charge. focusingny, they are on net profit. here's what the cfo had to say to manus cranny earlier today. some have written down goodwill for asian life as mrs. and thisurth quarter created a little dip in our net income. however, we are increasing dividends to 7.30 euros per share. note, theya quick are going to 7.30 a share, but the expectations from analysts, 7.40.

the stock is down 3.85%. a couple notes on the interview, they are not expanding their bonus pool. there's also talk about share buybacks. no indication from allianz they are going to have a share buyback. on this outflow question, allianz, the. company of pimco, bill gross was there. no longer is. they had 8 billion in outflows. the year before, they had 131 billion in outflows. that looks like it has stanched a little bit. mark: good job. hans nichols in berlin. up next, is britain shopping again and is a brexit bad for the city? our next guest says britain is better off outside the eu. for retail sales data january. that is coming up on bloomberg television. stay with us. ♪

mark: welcome back to "the pulse " live from bloomberg's european headquarters in london. just getting some breaking news. , excluding sales autos, excluding fuel, up 2.3% on the month. that beat estimates of 0.7%. that is up from the previous month decline, which has been revised lower to 1.3 percent. if you include fuel, a gain of

two point 3%. looking like u.k. retail sales is looking pretty strong in the last month. according to our report, boosted by demand for clothing and computers. 2.3% jump and the volume of sales was almost three times the pace of growth forecast by economists. growth was helped by post-christmas price-cutting. the increase more than reverses the drop we saw in december, when mild weather curbed spending on clothing and reinforces the picture of an economy largely driven by domestic demand. hostingployment consumer spending. let's get the bloomberg first word news. the people's bank of china has raised reserve requirements for some banks after determining they increased lending too quickly. regional lenders are affected by the increase. sources tell bloomberg the move comes after data showed the country's banks extended a record 2.5 trillion yuan of new

loans in january. a $9 million fund manager is pessimistic. douglas, whose equity fund beat 99% of peers over the last five years, now has almost 60% of its funding cash. douglas says he has no immediate plans to buy shares. former u.s. treasury secretary larry summers says the biggest challenge for the u.s. economy is getting inflation to move towards the fed's goals. mr. summers also said the fed should hold off on further rate hikes. are in a world where the challenge is not excessive inflation. the challenge is getting inflation up to 2% and markets are saying that is not going to happen in any major place over the next decade. mark: global news 24 hours a day powered by our 2400 journalists in more than 100 50 news bureaus around the world.

the eu's brexit talks continue today. britain is weighing in on the debate over whether britain is better off inside or outside the eu. earlier today, ba systems' chairman spoke to guy johnson. >> being part of europe is much more than an economic story. we have strong defense relationships with europe. by being together, we can come it to schemes and developments and important article things that make the defense argument a better argument. i think we have to recognize that our security is much more than the physical security. cyber security is something we are all under threat four. guy: do the general public find that easy to understand?

blackjacks flying across our skies from russia, that is something you see on the front page of the newspaper. >> i think we all understand that. there is a strong group to be in in an increasingly difficult world. the security argument is one that i think is made. leave europe, there is indeed a possibility that the scottish discussion may reemerge. if scotland were two separate from the rest of the united kingdom, that itself would put our submarine position at risk by the possible rejection of submarines from scottish waters. that would reduce our position in the world, nato, and the security council. this is not something we can ignore. there is a potential domino effect that would weaken our position in europe and the world and our strength as a peacekeeper. roger carr making the case for britain inside the eu. our next guest has the opposite view. let's bring in chief economist

--who we haven't seen for far too long. great piece today on bloomberg, what would brexit mean for the city, waning influence, market shares, specifically in fx trading and derivatives. you aren't worried, are you? >> there isn't a city that could possibly rival london. the idea of a move to frankfurt or paris as a center is absurd. it is not a well constructed argument that somehow there would be mass migration from london. hsbc has gained -- mark: 1000 jobs could move. >> last year, french national guard given citizenship in the u.k.. the direction of travel is from france into the u.k. the revolving door is always going to swing, but the move will be toward the u.k., not from the u.k.

mark: this article talks about passport rights. if you are a u.k. business, you get rights to the single market. we may lose those rights if we leave the eu. savvas: we could be good levers. this is not some sort of ukip agenda. we are not isolationists. you just reported on strong retail sales. we had strong labor data. the u.k. is the poster economy of the european union. they should be following our lead, not making demands on us. this country has fantastic infrastructure. my first year in commercial finance was 1991. within a year of joining my first investment bank, we had the shock of leaving the rm. it was deemed at the time to be a black day. we now know that it was the best hing for the u.k.

we maintained autonomy of interest rates. we've already been here. we've left the european structure. mark: but leaving the eu is different, isn't it? savvas: you can pretend it is different. mark: no one has done it. where is the precedent? savvas: just because there is no precedent doesn't mean you don't do it. the u.k. can create strong trade links with the european union, ukraine, canada, all deep and extensive trade agreements. mark: they take years to forge, don't they? savvas: the u.k. is far too big to be bullied. we have a trade deficit with the european union. the second market for cars after our own domestic market is china. we are engaging much more with china and asia. let's be frank. in a very deep hole.

the ecb have told us that is deepening. the eurozone is japan. mark: what about a norway agreement? what about a middle scenario where you give the eu control over financial regulation, but we keep control over all other measures, like immigration? is there a middle ground? norway has its own currency. union isean politically, socially, economically suffering. it is going to worsen. the u.k. has provided a valuable template for how economies should be run. the ecb is woefully behind. they should be following our leaders. each passing year, you will see more and more governments across the eu shifting from pro-european union support parties to skeptic parties,

poland being the most recent. the economic and political backdrop you say isn't good. look at sterling. look what has happened in the last few days. inside volatility. savvas: the currency is a shock absorber. rm, the poundhe fell sharply. within four years, it had gone back. currencies do that. they go up and down. mark: ginny murray on bloomberg intelligence talks about confidence, credit, currency. what about the current account? europe is helping fund our current account. do we want a credit shock? savvas: if you think about a capital account, i think the measures aren't terribly good. i think we need to update our measurements. gdp is understated.

advance payment is understated. this economy is one of the healthiest in the developed world. it looks demographically like an emergent economy. you report day by day strong economic data in the u.k. people want to live here. migration data is an endorsement of how strong this economy is. mark: this is a nation that has fears about the amount of migrants that are coming ashore. savvas: migration has been blocked. flourishing aren't because students are paying large fees. economic greg rentz -- migrants are adding value. i think i would refer you to angela merkel's complete abject policy on that. the u.k. can survive alone. -- thethink about it as

european union needs us more than we need it. mark: the bank of england, would it stop a rate hike? savvas: inflation is stopping a rate hike. maybe a currency will give us weaker inflation so we don't go into deflation. mark: let it fall? savvas: the bank of japan has been trying to get the yen down for how many years? currencies do that. they are basically a mechanism. we've already seen this country face a number of uncertainties. the election last year, the referendum before. every economic indicator remained strong. i have no doubt that retail sales and job creation remain strong through the debate. mark: please come back. don't leave another 12 years. especially if the referendum happens in june. savvas: it will happen and

brexit will be a good thing. mark: good to see you. savvas savouri, thanks for joining us again. for more on the brexit conversation, tune into our bloomberg radio. our colleagues will speak to the head of the institute of directors, as well as the confederation of british industry's campaign director. up next, we take a look at how the french luxury goods maker pulled a surprise out of one of its own bags this morning. stay with us. ♪

mark: welcome back to "the pulse " live from bloomberg's london headquarters. fourth-quarterg revenue growth that beat estimates. we are joined by andrea, a columnist at bloomberg. are we seeing the first glimpse of a turnaround in gucci? >> does look likely. sales have been better than expected and they said a couple really interesting things. the new gucci customer is younger and local to the stores rather than relying on tourist trade. alessandra, gucci creative director, has been there a year or so. a lot has been put on his shoulders. are the fruits of his magic starting to their? >> it seems so.

the estimate 30% of sales came from his new collection. that is going up to about half in this quarter and should be all the sales by the end of the year. it is coming through slowly. we have to see whether it is maintained. mark: what is the message so far, andrea? we talked last week. if you had to say, this is what the fashion industry is telling us over the last three months of the year, what would be the message? >> there's not much growth left in the market. we are not going to grow at the levels we've seen in the past because of that chinese consumer. it is a bit like being on the high street. if you are on the high street, you've got no growth. you've got to take sales from your neighbor. you need a hot new designer. you need a great digital strategy. mark: like burberry is doing. >> exactly. you've got to fight with your

neighbor for sales. mark: who will win? will burberry win even though there are doubts? you can look at the catwalk, buy it off the catwalk. who are the winners? >> the contrast with burberry and gucci is gucci is getting that younger, local customer. that is not happening with burberry. i think that is a big weakness for burberry. mark: is it all huff and puff? is it all pr? >> there's a little bit of that, but i think it genuinely needs to find a way to get new, younger, local customers into its doors, rather than just relying on the traveling luxury customer. gucci seems to be doing that. london fashion week kicks off today.

alexander mcqueen is going to show for the first time in 10 years. that is big. >> it is, but the biggest thing is to move to the clickable catwalk. the move from showing the clothes six months before you see them in stores. mark: that is a real shakeup in the industry. >> that's right. alluse the weather has been over the place. you've got customers in all parts of the world. have different climates in different parts of the world. it is really about instagram. fashion is very suited to instagram. mark: the ceo spoke to me about fashion week. his label promotes emerging talent across the world. he said the industry is complacent, relies too much on the big fashion houses, doesn't promote young talent. the young talent he says is going abroad to l.a., greece, brazil, athens.

is that fair? is the industry keeping up with the times? >> to some extent. the british fashion council has done a pretty good job trying to promote younger designers, but it is down to the financials, having the financial backing to make it work. mark: andrea, always good to see you. up next, we are going live to brussels. european leaders arrive for their second day of brexit negotiations. stay with us. ♪

mark: welcome back to "the pulse " live on bloomberg television and radio. eu leaders have been arriving for their second day of negotiations to avert a brexit. we've seen angela merkel and francois hollande. ryan chilcote is still there. migrant benefits have been a sticking point. what else? hans: another -- ryan: another big sticking point is financial regulation. the british prime minister wants to make sure the eurozone countries, the nine countries in the european union -- 19 i should say, that use the euro, can't dictate what happens in the nine countries inside the european union that don't use the euro, namely britain. he wants to shield british banks and the financial system from

some of the rules imposed in brussels. we just heard the french president walk into the building. he said he's not happy with what the brits have discussed thus far. he wants to make sure the rules are fair for all as he put it. we thought that spat was over. apparently it's not. the big issue, i think for france, is they want to make sure british banks don't get any unfair and edited over french banks or german banks as well if he's thinking of eu terms. that is one big issue. the other big issue is demand from belgium, saying, look if there's going to be a deal, that needs to include language that makes it final. preclude a second referendum in the u.k. they want language that would preclude a second referendum to be part of this deal. they want to make sure there aren't any referendums in the other eu countries.

mark: which way is the wind blowing? is there going to be a deal or not? ryan: if i had to put my money on it, i would say there is going to be a deal. we are seeing a lot of theater. it looked like the deal was going to be easier yesterday than it does today. all the countries want britain to stay in the union. they just have to make it look like they are putting up a good fight. they have to go home and say, i did the best thing for my country. mark: let's ask another man. ryan chilcote there. let's stay with the brexit negotiations between david cameron and his fellow eu leaders. fx strategist for bloomberg first word, richard jones. deal today? richard: i think something has to happen. if wetically, it's -- don't get a deal, where does that leave the united kingdom?

he said he's going to have a referendum. he's locked into that. if he doesn't get a deal, what happens in that referendum? mark: how much of the move in sterling is down to pure brexit fear? we talked about applied volatility yesterday. highestnd, volatility since 2011. how much is down to the brexit? how much is other factors? richard: in volatility, a lot of it is down to brexit. we could get a lot of different things happening. mark: what about the daily move? richard: i don't think there's a lot priced into the currency. realistically, interest rate differentials have been driving the pound very much. i think brexit, the whole idea has been put on the back burner, but it is becoming real now. going forward, it's going to be a bigger driver. the value of the pound will fluctuate.

up until now, i would argue there's been very little focus on brexit. mark: the pound moved just before the scottish referendum. will that happen this time? if it's june, are we going to have march, april, may, june, months of volatility? richard: i think it depends how much volatility we get in the polls. mark: we don't need the polls. polls are nonsense, aren't they? richard: that is another issue. i think you are right. it's one of those things. the polls tightened up just before the vote in scotland. i think the polls will fluctuate a lot between when we get a deal and a date. campaign could see a lot of fluctuation in the polls and the currency and even into equities. up until now, the ftse has outperformed. mark: many are saying the mid-cap companies maybe aren't reflecting brexit fears. richard: i would argue that we haven't seen any brexit risk

premium built in. that is bound to change. mark: richard jones from bloomberg first word. that is it for "the pulse." there is david cameron. he is arriving at the summit. ♪ . .

tom: it is friday. a flight to quality in the bond market. he german tests record lows. abenomics. asian challenges. a global slowdown. brexit, it is here. england and scotland and brussels consider the ghost of 1703. this is "surveillance" live from our world headquarters in new york and london this friday, february 19. with me, caroline hyde.