francine: germany's finance minister says stimulus options have been exhausted and reform is the only option. finance ministers and governors heather at the g-20 in shanghai. says chinaor zhou still has room for more easing. apple versus the fbi. the tech giant laser out the argument against unlocking the iphone used by terrorists as facebook, twitter, and microsoft prepared to back their arrival.

welcome to "the pulse" live from bloomberg's european headquarters in london. let's get straight to the markets. we are seeing pressure on rbs. that is putting pressure on the bank stocks. what a day in europe. trading hour into the session, the stoxx 600 gaining some 1.5%. the pound, we've seen a huge fall in sterling since the beginning of the week, but it is now above 1.40. this is the week for pound and euro-dollar. seven pointoil gain one percent. let's get to the bloomberg first word news with nejra cehic. nejra: iranians are voting today in the first election since the nuclear deal. president assad rouhani is seeking to bolster parliament, where rivals have hampered his efforts to revive the economy. voters also go to the polls in

ireland today to choose who will run the country for the first time since exiting a bailout in 2013. the prime minister is seeking to become the first leader of his party to win a second consecutive term. the set of -- the threat of brexit is hitting the u.k. some say the upcoming eu referendum will curb housing activity. the measure of optimism has plunged to the lowest in almost three years. the pound has fallen against the dollar. global news 24 hours a day, powered by 24 hundred journalists in more than 150 news bureaus around the world. francine: thank you so much. as the world finance ministers gather in shanghai, all eyes are on china. the central bank has made a monetary policy stance. the governor highlighting the possibility of further action if

needed. >> china still has some monetary policy space and some monetary policy tools to address potential downside risks. china is also improving its monetary policy framework. francine: joining us for the first part of the program, kevin daly, senior economist at goldman sachs. we are also getting some breaking news out of the u.s. treasury secretary, saying the world is suffering from a shortage of demand and the g-20 should use all policy levers to combat this. the markets want some reassurance. everything seems to be pessimistic. there's not anything fundamentally wrong yet, but what kind of message should the g-20 deliver? kevin: i think there is a lot more that policymakers can do.

we've changed our call on the ecb. we expect them to introduce measures to cut deposit rates by 10 basis points, to introduce a tiered system, to accelerate the pace of purchases, and to expand the asset purchase program by an additional six months. if they do carry out those measures as we anticipate, i think that will be a positive. i wouldn't agree with the idea that policymakers are out of ammunition. francine: one of the things we talk about the most, something we cover on bloomberg, is the negative rates. not only negative rates, but the fact that the ecb was probably going to do more. if you look at inflation, this is the one big thing that certain thinkers -- not only economists, but certain people

out there saying, they can't really fight inflation. so much limited scope that even if the ecb delivers, he won't really be able to do anything on cpi? yesterday, we produced our quarterly forecast. it will be interesting to talk about growth first. on growth, our views haven't changed much. francine: they have on inflation? kevin: they have on inflation. on growth, we think that oil prices, the boost from lower oil prices will offset the drag from weaker equities and a stronger europe, so growth, we continue to expect to average around 1.5% going forward. we acknowledge the downside risk. what has changed is the inflation outlook. the fall in oil prices, the rising the euro. we expect inflation in the euro area to return negative.

we expected to reach a trough of -0.6% around the end of the year. the near-term inflation outlook is clearly a lot weaker, not just in the euro area, but across the world. in the euro area, core inflation remains relatively stable. francine: should i be more worried than the markets? they are volatile because they latch on to the price of oil. a shocknk there's or a crisis. kevin: at the start of the year, we thought there was a disconnect between what market behavior and what was happening with the economy. not just for the euro area, but across the world, a lot of the data we are looking at for growth continues to be reasonably good. that is not true for the industrial sector. there's big divisions between

what is happening to industrial production and what is happening to surplus output. overall, growth seems to be relatively ok. i think part of it is some of the flows you're talking about. sovereign wealth funds, the petrodollar is being taken out of the market. i think those flows are an important factor. we think the market is too pessimistic and we think some of this extreme fear recently is overdone. francine: what is mario draghi planning on? you think he will put these measures in place march 10. will it move euro? does it spur inflation? does it go back to the real economy or is there a disconnect between qe and what we see on the ground? kevin: after the g-20, there will be something about not -- noturrencies to

manipulating currencies. it will be difficult for mario draghi to come out with decisive comments that are designed to push the euro lower. we think the euro will fall to some degree. that will provide benefit to the euro area economy and help unwind some of the strength we've recently seen. we think some of the other measures will also be beneficial. francine: we will talk more about euro. that may also be linked to brexit. kevin daly, senior european economist for goldman sachs. stay with "the pulse." zero-sum game, bank of england governor are carney weighs in on negative rates. apple brings out the big guns as it continues to battle a quarter from the fbi to unlock the iphone used by the san bernardino terrorists. facebook and microsoft prepared to back their tech rival. fifa votes for a new president. we are live from zurich. ♪

francine: let's get straight to the bloomberg business flash with nejra cehic. nejra: royal bank of scotland shares have fallen sharply in london this morning after britain's largest taxpayer-owned lender said it would take longer to resume shareholder payouts. rbs posted a net loss for 2015

of 1.98 billion pounds, its eighth consecutive annual loss. the london stock exchange has released more details about a potential merger. would haved headquarters in london and frankfurt. group iag reported full-year operating profit rising 68% to 2.34 billion euros, matching analyst estimates. the owner of british airways which tapped transatlantic traffic and bought aer lingus said it expects it will grow by a similar amount this year. iag to clear a $.20 per share dividend. francine: thank you so much. denmark, sweden, switzerland, the euro area, and now japan. the list of countries adopting

negative interest rate strategies keep lengthening. our negative rates a zero-sum game? that is the fear of bank of england governor mark carney. >> nonetheless, when negative rates are implemented in ways that insulate retail customers, shutting off channels that affect domestic demand while allowing wholesale rates to adjust, their main effect can be through the exchange rate. from an individual country's perspective, this may be a way to boost activity. for the world as a whole, this is ultimately a zero-sum game. carneye: that was mark talking at the g-20. there has been a lot more concern about competitive devaluation in the last five to six months. kevin daly is with us today. you were telling us that you've changed your forecast on what the ecb is going to do march 10,

but also changed your forecast on inflation. are you more uneasy about this competitive devaluation game that seems to be going on? kevin: certainly, the marginal benefits -- i'm not sure i agree that it is entirely a zero-sum game, but the marginal benefits of increased reductions become smaller the lower you get. we are at the point with the soponse of bank stocks and forth with credit spreads, where markets are beginning to question whether there are benefits. our view is that there are benefits. we not quite as concerned as others. the benefits are clearly smaller. for the u.k., given the structural, its banking system, given the existence of mortgages in the u.k., the u.k.'s ability to cut rates is as low as other countries. it certainly can cut if need be

from the level of the bank rate currently. their scope to cut rates is more limited. francine: they can't go negative. are negative rates really bad? we are hearing that more and more. saw comments from the fed about this within the last month. the flow ofto cut rates is a lot lower than was anticipated only a couple years ago. even the u.k., it was clear previously than the base and great was 0.5%. now they are clear that they can cut it below that level. probably not as low as the euro area, certainly not as low as denmark and switzerland, but lower than it is currently. francine: theoretically, are you uneasy with the side effects of negative rates? people are saying this could happen in the u.s.

how much more policy can we get around the world? kevin: the zero bound hasn't gone away. we've just discover that it is not a zero. it is somewhat below zero. because of the cost of storing money and so forth. but you will reach a point -- we haven't reached it yet -- introducing a tiered system will allow the ecb in our view to cut the deposit rate even further if need be. closenly, we are reaching to the floor now, which we in our minds put somewhere between one have to -1%. francine: is there a danger that this market angst actually filters through the real economy? kevin: the three risks we would identify, one is that the industrial, global industrial cycle, is weaker than we

previously thought. francine: but no hard landing from china. kevin: at least in our forecast, no hard landing from china, but that is a risk. the second risk is the feedthrough from higher credit spreads, particularly on european financials. if that derails the credit easing currently underway, that would be a material development. riskhird risk is political from the threat of brexit, from the refugee crisis. these are the three risks we are watching most closely. francine: what about a policy mistake from the pboc? butn: it is a possibility, from a euro area perspective, not the risk we would identify most highly. talk morewe will about brexit and sterling in a couple minutes. kevin daly, senior european economist for goldman sachs.

the pound heading for its worst week in almost six years. with irish elections, we will talk european political risk. as we go to break, let's leave you with a chart which illustrates the slowdown in china's economy. seamen fell for more than two decades as construction should load. you can see that chart by typing your bloomberg. china's production last year alone was the equivalent of half the u.s. total during the entire 20th century. ♪

francine: the pound heading for its worst week in almost six years as investors worry about the risk of u.k. voting to leave the european union. kevin daly is still with us. i'm not sure how we model brexit. i'm not sure what polls we believe. i'm not even sure what happens to the pound because it is so the big unknown. kevin: there's a few things. there's a huge amount of uncertainty. be careful of the polls. there is a reporting bias in the polls. the polls suggest that the u.k. is going to leave. they are reported much more prominently than the ones that don't. it is a much better news story.

the poll of polls that we follow shows a pretty consistent majority in favor of staying in. francine: have they changed since boris came out? kevin: so far, they don't appear to have. we don't think the u.k. will leave. but if it does and we are wrong, the risks are pretty severe. the uncertainty shock, u.k. companies will not know on what base they can trade with the eu, with the rest of the world. francine: a recession out right in the next few quarters? kevin: it is difficult to be precise about what the uncertainty shock, to precisely say how big a risk that is. u.k.'smpanies, all the existing trade arrangements are via the eu. it will not only have to renegotiate trade deals with the eu, but with every other country in the world.

companies will not know on what basis they will be able to trade with customers abroad. say, let'skely to wait. let's pause on investment spending plans. if a mother of companies pause on their plans, that will be very damaging for u.k. growth. whatever about the long-term implications of brexit that we think are negative, it is those short-term implications from the uncertainty shock that worry us most. francine: what happens to pound from now until june 1? kevin: it depends on what happens to the polls. in one scenario, you can continue to see a majority in favor of staying in. the pound has fallen a lot on those risks. in another scenario, perhaps the polls swing in favor of a brexit. then you won't get more weakness

on sterling. it is in part because of that think ultimately the probability of the u.k. voting to leave his smaller than other people suppose. in a sense, that panic would be the neck and is him which would force people or persuade people to vote to stay in. francine: overall, a slightly weaker pound is not bad for this country and mark carney. kevin: it depends why the pound is weakening. francine: that is fair. kevin: i'm not sure how positive that is. francine: what happens to be only policies? are we stuck in this campaigning for referendum so they can't do anything either way? kevin: i wouldn't say they are stuck. if the economy slowed significantly, there is scope for them to cut rates. i think the likelihood of raising rates before the referendum is very limited. that theast is still

bank of england will begin to raise rates toward the end of this year. that presupposes that the referendum votes to stay in, then there's a confidence boost in the aftermath of that. and that wages begin to tighten. at the moment, i think the risks in the near term are more toward a rate cut. francine: gdp growth at 7%, ireland, falling unemployment, surging bond market. that is the sort of landscape european countries would dream of. , it is anland important day for ireland given the general election today. francine: is there angst in ireland? kevin: ireland is interesting. the last time, five years ago, the election, there was an awful lot of economic uncertainty. you had this decisive majority

in favor of labor coalition. now we are in the reverse situation. the economy is doing well, but there's a lot of political uncertainty. i wouldn't exaggerate that uncertainty. who,u take the parties together, broadly support the existing economic plans, they together collectively represent about 60% of the population. there's a clear majority in favor of maintaining the same course. not quite what the competition -- what the composition of that coalition will be, but i don't foresee a significant change in direction. francine: kevin daly, european economist for goldman sachs. a quick level on euro-dollar. kevin: we think the euro will weaken. certainly if the ecb is decisive. francine: kevin, thank you.

kevin is coming back very shortly. shares in rbs have fallen after it reported its eighth annual loss. more on rbs coming up next. ♪

"rancine: welcome to "the pulse live from bloomberg's european headquarters in london. let's get to the bloomberg first word news with nejra cehic. nejra: iranians are voting today in the first election as the nuclear deal. president rossano honey -- president assad romney is seeking to bolster parliament. voters also go to the polls in ireland to choose who will run the country for the first time since exiting international bailout in 2013. the prime minister who leads the

coalition government is seeking to become the first leader of his party to win a second consecutive term. the threat of brexit is heating sentiment in the u.k. it is said the upcoming eu housingum will curb activity. the measure of consumer economic optimism has plunged. the pound has also fallen against the dollar. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world. francine: thank you. european stocks are on the rise on it speculation about further stimulus from central banks. let's head to mark barton. mark: global stocks set for a second week of gains. this is the msci over the last two weeks. we've got a gain of almost 5%. we fell for the first two weeks of the month. we rose for the second two

weeks. as you said, the chinese central bank governor setting the tone for the day earlier when he said that he still has monetary policy tools at his disposal and there's no reason for yuan depreciation. have a look at this chart. a wonderful chart averaging out the 10-year yields of germany, the u.s., and japan. g3 yield, the average as it is known fell to a record low. even though we are seeing an appetite for risk, we are seeing an appetite for safe haven assets as well. five weeks of gains for u.s. treasuries. sincet winning stretch january 2015. according to citigroup, chances of a global recession are high. the that continue to boost allure of fixed-income assets? rbs, big stock story.

falling as much as 11.5%, the biggest drop since september 2011. it posted its eighth straight annual loss since taking a bailout at the height of the financial crisis. this is going to prove a challenge for the ceo to reinstate a dividend. shares are below the government price. as ireland goes to the election, look at the key metrics. unemployment has dropped. borrowing costs have dropped. the property market has risen and growth has risen as well. big election in ireland today. francine: thank you so much. to west, all eyes were on shanghai this morning as g-20 finance ministers met. furtherp warned of market turmoil. germany's finance minister made clear before the meeting that that was not an option. later today, the focus shifts

west for u.s. gdp. goldman sachs president gary cohen spoke to us exclusively in shanghai about the u.s. outlook for growth, the fed, and the outlook for china. >> my view is the u.s. is better feel.eople may the u.s. consumer is still very strong. the fact that we've had this dramatic price cut in oil, from $140 to $30, which transfers directly to the pump in the united states, and consumers are seeing that -- we talked about it. disposable income. consumers are pretty good at spending disposable income. numbers,ok at sales when you look at the durable goods sales numbers, we've seen the retail consumer spending which isectively, strong enough to keep the economy going. i'm not expecting runaway

growth, but i'm not expecting recession. when i look at growth, i'm in the 1.5% to 2% range. i think a lot of it depends on the strength of the dollar. the u.s. has been one of the few countries willing to have a relatively strong currency. i think that will take growth to the lower end of the spectrum. if our currency falls more into line with other currencies, we could be at the higher end. >> police on the dollar really drive up last year. it has tapered off a little bit. do you think these are sustainable levels? >> it is all going to depend on monetary policy. there's a lot going on with central-bank policy. the g-20 meaning in shanghai, one of the big topics i would be talking about, is more coordination of global monetary policy. we've got global problems with growth. we can't fix these with local

monetary policy. we have to talk about monetary policy today more globally than we ever have. worked,it still monetary policy? all guns blazing with the exception of the fed. we have the boj, the ecb, 6, 7 years of rates being at these levels. what have we achieved? >> that is a little bit of my point. we've been five to seven years, even longer in places like japan, of low interest rates with very little growth to prove for it and almost no inflation. that leaves one to question, how effective has this monetary policy been? what this monetary policy has been more effective at initially is countries trying to lose their lower interest rate to lower their currency, to grow --ir economy at the a spence the expense of another economy. every other central bank has

been lowered their interest rates to not allow their economy to the beat it to them -- to be the victim of someone else's growth. we have lower interest rates across the board and we don't have higher growth and inflation. if you take that scenario, now you say, our historic policies aren't working. why is that? i think it's relatively simple. if you look at what happened over the last couple decades, the amount of transparency we have in markets, the amount of fund ability in markets, is extraordinary. almost every investor in the world, on their mobile device, can real-time see the price of every asset in the world and trade every asset in the world. the extent that one currency is high relative to another country , they can trade. they can arbitrage that out.

the market has become so ng theive at arbitragi slight difference is in the world, that it has taken away the local effectiveness of monetary policy. we need a global approach. >> what does that do for the fed? we can talk about the effectiveness of monetary policy , but at the moment, people have started to talk about this. does the fed need to counter this aggressive policy from all the other central banks? is that too early a conversation to have? china, more or less, are the two countries left that have allowed their currency to be relatively strong versus the other countries. that is a tough position to be in. currency is your being dictated by the actions of others, not by your actions. i think that is something the chinese are contemplating and

the fed has to contemplate. are they in a position where they have a currency at the right level for the economic growth and potential economic growth of the united states? that is something the pboc is looking at as well. francine: dallas goldman president gary cohen speaking with david ingles in shanghai. next, apples's battle against the fbi heats up as the titans of tech lineup. ♪

to thee: let's get bloomberg business flash with nejra cehic. nejra: royal bank of scotland shares have fallen in london after britain's largest taxpayer-owned lender said it would take longer to resume shareholder payouts. rbs posted a net loss for 2015 of 1.98 billion pounds, its eighth consecutive annual loss. haslondon stock exchange released more details of a potential merger. the combined group would have headquarters in both london and frankfurt. the deal would see xavier rolet stepping down. that is not the only prospective merger in the sector. southeast asia's biggest operator is seeking to buy london's baltic exchange.

has made a nonbinding bid for baltic. that is your bloomberg business flash. francine: thank you so much. apple's fight to stop the u.s. government unlocking a phone used by one of the san bernardino shooters is said to reach congress or the supreme court. google and facebook are backing apple. they claim a court order endangers privacy. we are joined by lawrence lundy. great to have you on the program. where did you stand on this? are you taking sides? lawrence: i think the important thing is broader context. you can get bogged down in the specifics of the legal case or technical case. what we have at stake is privacy versus security. it is a spectrum and always will be. we've seen this everywhere. whether it is a fight between

privacy campaigners versus security. francine: so i'm apple. there must be poles on this. where do people stand on the issue. is privacy versus security. if i believe my security is more important, do i boycott apple? lawrence: what the fbi and arguably the government have done is take this specific case, which terrorism ignites passion and interest broadly, so they've to setis as an argument a precedent here. apple have felt this is taking it too far. they are not trying to do anything they've ever done before. they are asking apple to create a custom piece of software which is going to make all the phones globally less secure. that is a massive problem for apple. it used to be blackberry. the most secure. iphone and apple wanted to

identify themselves in that market. francine: what are the chances -- the argument, we understand, is that this puts undue burden on them to create the software and create a unit where they monitor requests like this. will have to decide whether security is more important than privacy. and we will have to decide what is more important to us. lawrence: i would say that apple has already won here. apple and every other tech but he realized this is crossing the rubicon. they know this is the length the government in the u.s., or across the world, will go to get access to that data. as ave identified this case that is public knowledge now. what apple will do is encrypt and ins data on devices the servers in the cloud. so you have a case now where maybe it is possible apple might

lose, but the broader war around encryption of data, apple has probably already won. francine: then it is going to be more difficult to get through security. it would be almost impossible to make them do software. lawrence: the key point here is that apple and every other tech company don't want to be put in this position again. for them, that is encryption. they want to say, we would love to help you, but we don't have the keys to unlock this. that will happen in the next update, to the point at which they simply can't help. francine: you don't think there will be a major backlash from consumers? this was a horrific case, a small case compared to some of the recent terrorist attacks that we've seen. if fits gets bigger, is there a public backlash? lawrence: it is that balance. there will always be people on believingersus those

that privacy is tantamount. specific occasion, the privacy is in the interest of apple, the business model. that just happens to be aligned with privacy activists. that won't always be the case. i don't think there's one single answer. i do think this is moving the balance slightly towards privacy. francine: i have to ask you because you are an expert on artificial intelligence, what is the one thing we should be watching out for this year? is there anything exciting, a month where we are finding out how artificial intelligence impacts our daily lives? torence: the key thing remember is we are on exponential growth. we are at the stage that they are doubling power, network bandwidth, all the things that make the robots and the tools around us more intelligent. each doubling is going to provide us with new tools that

we weren't thinking about. you've seen the atlas by boston dynamics, the robot walking in the snow. we're going to start to see robots. i think the more important thing, we will start to see our phones and devices be more context aware. so they don't seem so dumb anymore. for example, why am i getting updates on google maps? i don't drive. just tiny details that will make our lives easier. it is the small details that will make our lives easier. francine: great to have you on the program, lawrence monday. , five fight for the fifa presidency. zurich with aom preview. as we had to break, let's look at one of the big movers in europe. u.k.is the to-day chart of

bank rbs. rbs told investors a resumption of the dividends will take longer than previously forecast. it is the biggest fall or in today's market. rbs down as much as 9%. we are back in a couple of minutes. ♪

francine: fifa officials will

vote for a new president today in zurich. ahead of the meeting, some of the candidates laid out their plans. >> fifa is the broken heart. football is not broken. i've been with fifa for 11 years. we need to repair the damage done to the brand. >> i hope i win votes from all across the world. i'm a candidate running to represent the world. to nodependent, beholden one. i think that is what the future needs. a democracy. i will try to convince the federation. i will discuss with them. i can offer experience. francine: let's get out to zurich and bloomberg's hugo miller. what is today about exactly in what is the order of play? >> well, we have a new

development just coming in from behind me. secretary-general marcus just gave a rather grim outlook for fee for's finances. you can add financial problems as well as image and governance problems. is $550 million behind where it would like to be in the current revenue cycle. it is going to struggle, he said, or may have problems meeting its $5 billion target. if not yete, leaving, certainly expressing doubts about their willingness to commit to feifa given the scandals of the last six months. francine: when we look at the front runners, is there something we think may get it? -- someone we think may get it? >> the front runners are the sheik.s and the bahraini

both have problems in a sense. ik has been dogged with allegations that he had a role in the torture of bahraini protesters during the arab spring. on the other hand, gianni i nfanti is seen as ano clean candidate, but he is a swiss. he was the number two man behind the other man and he happens to come from the same valley as disgraced president sepp blatter. you have people saying neither man represents a clean break with the past, but they are the front runners likely to emerge if there is a second round of voting this afternoon. francine: is there anyone really offering the kind of brand reform that fifa clearly needs?

sorry, there was a bit of noise in the background. can you repeat the question? francine: is there anyone that will do the reforms and cleanup fifa like it needs to be cleaned up? >> that is a tough call. there was the candidate, prince ali, who came second to sepp blatter six months ago. he is not seen as a front runner now for political horse trading reasons i won't go into. i think he was the ideal candidate of the reformers, but he's expected, if things go as planned, to perhaps fall out in the first round of voting. antino will come through in the second round. prince ali was seen as the reformers favorite, but doesn't

seem to be in the running to emerge victorious. francine: thanks so much, hugo miller standing by to bring us any breaking news throughout the day. coming up later, we will get eurozone data including economic confidence and consumer confidence. later in the u.s., a reading on fourth-quarter gdp. we will watch as world leaders meet in shanghai for g-20. they could agree to controls for monetary easing and stimulus. let's look at where the markets are. we've seen quite a lot of volatility. european stocks gaining some 1.9%, on track for their second straight weekly gain. we've had up and downs throughout the session. crude gaining some 1.6%. .n the week, it was gaining i want to spend time on pound. currently at 1.431. for a long time, it was below 1.39.

what people are concerned about is brexit. we will have plenty more on brexit and g-20 and a potential a court or not on currencies. stay with bloomberg. "surveillance" with tom keene is next. ♪

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francine: takes a stand. stimulus has been -- finance ministers gather in shanghai. china's not done yet as they say china still has room for more easing. and apple versus the federal bureau of investigation. the tech giant lays down the argument that -- as microsoft and -- begin to back their rival. i'm