i am jonathan ferro alongside alix steel. david westin is in washington d c as they prepare for the inauguration of donald trump should here is how -- donald trump should here is how the market -- donald trump. here's how the markets are looking this morning. about 0.1%. we're seeing a real squeeze on shorts on treasuries. right now, the yields are up three basis points. your yield on the u.s. 10 year. a stronger dollar story today with a cable rate of 12234. brexit aftershocks just one day after theresa may lays out her strategy for leaving the european union. they plan to generate 20% of

revenue being generated in london now being moved to paris. janet yellen will be speaking with donald trump in san francisco before his inauguration. this follows the biggest rebound on the dollar since its decline in jim. reports say that deutsche bank scrapped bonuses for senior bankers for 2016 because of the lenders' performance. let's get a check on what is going on outside the business news with emma chandra. former president george bush has been taken to the hospital due to shortage of breath. tohas been responding well treatment. he should be returning home soon. president obama made the decision to commute the sentence of chelsea manning was sentenced

for leaking military documents. paul ryan said the decision was ridiculous. in germany, chancellor angela merkel's government has suggested holding the next policy hearing on september 24. 11 has been in office for years, and she is seeking her fourth term. global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am emma chandra. jonathan: we are getting some breaking news on the bloomberg. alix: getting some news that holiday comm sales fell. this is a decline from what they saw earlier by about $.25. the stock is now down by about 5% in the premarket. another sign that certain retailers cannot hold up to amazon. jonathan: another one to watch

before the market opened -- deutsche bank. they are seeing some cutbacks. we are joined by a bloomberg analyst from bloomberg tello -- bloomberg surveillance. >> i think this is no surprise. it came up several times in the third quarter conference call. if you look at what was ,appening with the decrease they said at the time that they would take into consideration that they have when considering the bonuses. it has been a difficult year for deutsche bank. isx: is this the worst it going to get for those bankers over there? >> with deutsche bank, there are a lot of legal issues. the ones with the department of justice were the biggest. it was finalized yesterday -- the settlement was finalized yesterday.

from the time they took the charge and announced the settlement to when it was final, there are more to come. i think that was one of the biggest. it was one of the ones the ceo wanted to get behind them. the ceo has said that he wanted 2016 to be the year of getting the worst behind him. they had a lot of restructuring. on changes to the division and moving forward. we will see how that comes to bear in 2017. jonathan: after the financial crisis, there was a way for packages to, fixed come out with more variable amounts. now, deutsche bank is switching from variable to fixed. how significant is that? >> i think it is a sign of how the conversation has changed post crisis. got a the crisis, people very small salary and a big bonus. there was a huge backlash to that.

there was a lot of difficulties with the lack of cash. around the time of the crisis, ranks started paying more in more in cash. some of the banks that were really troubled at the time were going up to 75% or 80% cash. coming out of the crisis, what started was many banks increasing that fixed portion to a larger amount in reducing the bonus -- and reducing the bonus portion based on the reports coming out. the way the accounting work is that -- when you pay someone with a diapered cost, it is less of a charge in that year. cash is 100%. deferred is different depending on the term. of the of pushed some payment into later use. that was part of the struggle a few years ago. what you have are banks that say

we will stop this and clean the slate. we are going to start paying more in cash. we will make more fixed. however, you do want to keep a portion of it in the divert stock. now goingped banks into tougher years. alix: good stuff. allison williams, senior financial analyst for bloomberg television, thank you. davos want to turn it to where erik schatzker is standing by with a special guest. erik: we are standing here with the ceo of at&t. he is in the news a lot these days because he is trying to buy time warner. randall, it is good to see you. simple question -- what is your confidence level? >> in general? erik: the time warner deal. >> the confidence is very high. it is a vertical merger which

means we do not compete with them. .his merger closes the day after it closes, the telecom industry looks exactly like it does today along with the media entertainment industry. by the letter of the law, this deal should be approved. erik: what about the spirit of the law? think this pure of the law and the letter of the law should be the same. erik: they are not always. >> in this case, i think the facts will show that this is a procompetitive merger. erik: you would like to clearly believe that this deal will get judged on its merits. i would just put this out here that nafta that would protect it, but look what happened. >> i'm not sure how you would compare the two. erik: the idea that the president can insert himself into a situation that is, in

theory, governed by law and multinational agreements. yes, ford is moving production back to a u.s. plant from mexico. it is being attributed to the president-elect. >> is there a question? , is therequestion is an analogy between the two? >> no, this is a deal filed with the department of justice. they have a clear mandate that is this procompetitive or anti-competitive? precedentdecades of that these deals get confirmed. our expectation is, judging it according to the law that the deal will get approved. why then you understand market remains so skeptical? >> can i understand? well, there is a spread on every deal we had ever entered into. this one is no different.

as you get closer to approval, the spread comes in. they are what they are. i do not spend my day worrying about those. i spend my day worrying about the department of justice to get it approved. erik: you've had a chance to meet with the resident elect. people that president-elect. people -- president-elect. people are dubious about the top. what did you discuss -- the t alk? what did you discuss? did you have a chance to find out what his reservations are? not sure why people would question if we did or did not talk about it. review byl is under an independent agency, it is prudent to not have a talk about the deal with the incoming president. but we didn't talk about are some things on his mind. what are things that are going to increase investment and naturally increase jobs?

we spent a lot of time on that. he asked my opinion on that. heopinion was that what proposes on tax reform is a big deal. we have said consistently that the difference between u.s. economic growth of 2% and 3% is tax reform. we fundamentally leave that. i am very encouraged the residence conviction and commitment -- president's conviction and commitment to tax reform. erik: so, we have a rough outline of what tax reform might look like. based on that in some of the numbers you have run, what is bottom linen at&t's with time warner? heavytom line, we are a u.s. centric company.

to us, it is the most exciting aspect of tax reform. second, if there is tax reform and tax rates in the united states come down to levels that are comparable to the rest of the world, that has a significant impact on at&t's cash flows. doesn't nothing but trigger additional capital investment. we are very enthusiastic about this. our equation is very simple -- every additional billion dollars we invest in our network is in additional 7000 jobs. these are people wearing hard hats. the are good jobs. erik: if i understand what you are saying, money that at&t saves will be reinvested -- >> i'm saying it will cause you to act more about spending aggressively in the united states. we have a number of initiatives in the united states we are pursuing.

the generation of wireless technology. this is a big deal. we think the implementation of that has huge economic effects. if you have tax reform, the ability to accelerate the investment is significant. erik: let's go back to time warner. for better or worse, cnn has attracted a lot of attention. people ask whether there might be some divestiture requirement for cnn. what you think of the business? >> it is a good business. it is a great brand. from our standpoint coming it is a business week -- standpoint, it is a business that we think works well in a mobile environment. can we think about how we might incorporate social media into that type of content? cnn is unique. they have a lot of content with

time warner that we think can be innovated in be used to change the business model in the media entertainment business. that is what this deal is about. erik: you want to keep it? >> sure, why not? erik: the relationship between the president-elect has struck up with cnn and other news media? >> this has been an interesting one for me. ,he question i have to ask is has the media been prepared for the disruption they have experienced by virtue of this presidential election? we have a man running for the office of president who has disrupted your industry. he has found a way to go directly to the voter and consumer. i do not know if i am prepared to adapt or not, but it will be interesting to see if the media can adapt. erik: as a respective media

owner, how do you think the media should adapt? >> i am not sure yet. i'm anxious to get into it. i am new to it. it is an industry that i have had an enjoyable time watching as the president has come in to shake things up. it has a lot of things running through my mind. how should media adapt to this? excitedon we are so about this at time warner is that we want to change how content is delivered to the customer. we think it is very important. it is a world of mobility. consumers are using more and more content on mobile devices. we need to think about how we can curate and develop that content and how we can deliver that content to the customers. the news media is not exempt from this either. erik: let's talk about that for a moment. you have probably run the numbers a number of different ways. how much additional revenue do

you think you can generate? how much of your proposal is just keeping your dashboard time warner's existing customers that time warner'se -- existing customers that might gravitate to other platforms? >> here is what we believe strongly -- if you innovate and bring different capabilities to the consumer, the reaction is profound. we recently launched an over the top product that is live streaming of additional, premium content to a mobile device. the customer receptivity to this has been over the top, very strong. that has given us more conviction that if you can take premium content in innovate around it while delivering in these formats -- you can have that same kind of impact. that is what time warner is about. 10 we innovate with the content differently to deliver it to the

company -- can we innovate with the content differently and deliver it to the consumer? erik: how big of a business you think you can build over the top with a nonsports product? >> we have a non-inconsequential amount of numbers that prefer a bundle of content that does not want sports. erik: can you put a number on it? numberwe do not have the . however, it is non-consequential -- non-inconsequential. we think there is a big market there. a bundle of content that is $35 a month. that's what we launched in december. we have shown there is a huge market. people have opted out of the traditional bundle of content. to $35, the price point

and they will start opting back in. that is what we are excited about. erik: randall, thank you. we love having you on bloomberg television. that was the ceo of at&t. back to you in new york city. you. erik, thank the focus may now be shifting from president-elect to janet yellen before inauguration day. will be a panel being held at san francisco today. this will follow speech from john williams who said that in the context of a strong economy with our maximum employment goal, it makes sense that the fomc has undertaken a process to raise interest rates. further ahead, increased rates may be appropriate. we continue to look forward to that correspondence. following donald trump's

commentary about the dollar being too strong, they have been able to stop and reverse that slide. what can we expect with this? >> probably something generic. they do not know what is going to happen in washington starting on monday. they are operating under their forecast for the economy as it is now which would suggest another couple of increases this year. three in total. that is the way she would frame it. going forward, we are looking at three rate increases -- that is what we deem appropriate. however, we will be very cognizant of what goes on with growth and inflation. jonathan: i am wondering if she is happy because monetary policy is a whole a boring now than it was this time last year? >> well, it is. the markets are already accepting the three rate increases. haslast few years, the fed talked about raising rates, and the markets have pushed back. now, they are willing to accept

the fact that the fed is going to have to move more in 2017. also, you have the rise of populism in the elections. that is really going to change the calculation. we move from the fed headquarters to capitol hill or various capitals in europe this year. chiefan: here's what the had to say about britain. >> i think populism is the most important issue globally. protectionism is part of that mix. , before it used to be central banks, and now they do not matter as much. now, the number one issue economically as a market participant is how optimism minute -- populism manifests itself over the next year or two. jonathan: i imagine at some

point it will matter again. pulismpopulism -- but po last year was not a negative to the markets. it was not as much of a shock as people thought it would be. why is it still such a risk? >> it has not taken hold yet. donald is not president until friday. and united kingdom, we are only now just starting to see some of the effects. the question is will it continue to be a difficult situation for great britain with foreign direct investment? we will see how that happened. look at the calendar for politics in europe. you have elections in the netherlands in march. the idea there is that the people who want to pull out of the euro -- they believe they are not going to win, but they are making a very strong statement. you have the french elections coming up, and you have the

german election at the end of the year. somewhere in there, we are going to get an election in italy. all of those countries have a strong populist movement going on. if you get another donald trump or brexit surprise, it should really affect the market. jonathan: we are now headed back to davos with erik schatzker. here by are joined mitch julis. he is a credit hedge fund manager. good to see you. >> good to see you, erik. erik: we have an unconventional resident taking office on friday. kinky extended the credit cycle to extra innings? extendhat is a -- can we the credit cycle to extra innings? >> that is a great question.

certainly, donald trump is generating a great deal of uncertainty. that is a book out discusses the founding of the behavioral finance and how people deal with uncertainty. they quote all tear the beginning of the book. he says that doubt is an uncomfortable condition, but certainty is an absurd one. ok, how do you apply all tear to the credit market? tear -- voltaire to the credit market? >> the answer is that we do not fully know. erik: it sounds like you thrive on volatility. uncertainty, and uncertainty plays out in price this location, what is the trump trade?

>> first, you have to be prepared with what comes up. we're dealing with a lot of policy uncertainty we are doing cyclehe late stage credit . we are dealing with the late stage economically. the way you look at this is -- what areas are going to be the set by disruption, technology or policy disruption? the areas are clear. media, health care, finance, and so those are where you see opportunities. sectors that are really right for up -- ripe for opportunity. alone, whether it is the yahoo! deal or the at&t and time warner deal, the previous administration created a lot of regulatory uncertainty as to which mergers can occur.

the spread were very wide for that reason. donald trump comes in, and he creates a different kind of uncertainty. on the one hand, he wants to on the business, but other he has pontificated a lot about what deals he thinks or not.go for -- through so, our spread is that this is an area where you can lay back. credit is another one. -- lay bets. credit is another one. if you look at the spread, credit looks quite tight. however, the markets are not uniform. so, a lot of credit does not fit into traditional etf's. 5% of the buyers control 20% of the market. -- of the buyers control 40% of the market.

that they need a certain type of product in high-yield. there is a lot other product that does not fit into those owes -- areas. erik: give me in idea of how you are investing right now. >> in the area of real estate, developers face no lending or stages -- very late lending for a project they are doing. we have a fund that just began where you provide developers with great projects and cities the opportunity to get their projects started. after a few years, a traditional lender comes in and instead of the 12% or 15% that we charge, it will be 4%. erik: is there anything out there you would call "stupidly expensive" right now? >> the equity market is priced

that way. however, there is opportunity but most of it is in fixed income. precisely because the markets , and thererogeneous are so many cracks to fill. erik: mitch, it is great to have you. mitch julis, the cofounder and co-ceo of canyon. back to you. alix: goldman sachs reported its biggest decline on tuesday. earnings are coming out at this moment. this is bloomberg. ♪

♪ jonathan: from new york city, this is bloomberg. i am a jonathan ferro. let me give you a look at how the markets are performing. largely flat over the year after drop.

equities are trading dead flat ahead of that fed share speech a little bit later. in the fx market, a stronger dollar story. $1.06.o at about the squeeze on treasuries have accelerated the past few days. up three basis points. tenure. the u.s. alix: brexit aftershock. after laying out the plan for the exit of the eu, there is a state 20% of revenue generation in london may be moved to paris. donald trump will speak with janet yellen in san francisco 24 hours before his inauguration. this follows the biggest dollar rebound after the decline in jim. bankts say that deutsche

scrapped bonuses for senior bankers for 2016 because of the lenders' performance. jonathan: goldman sachs earnings are imminent. joining us now is alex and lisa. biggest one of the shocks we have seen is the performance in fixed income trading. can we expect to see that from goldman as well? >> the percentage is set to outpace. compared to what you had a year ago -- what is important among goldman is that they are among the highest on fixed income trading. they also learned that earn more from trading than their overall peers. i think investors are going to see the overall run rate for goldman heading into 2017. as well as their equity performance. alix: lisa, the question is can

that continue? >> in the fourth quarter, you had a person elected as president of the u.s. who caught a lot of turmoil in the market. that is president-elect donald trump. that is one of the reasons we have seen so much uncertainty in trading especially in treasuries. you've seen a lot of trading in corporate debt. this is not just because of trump. this is also because of inflation expectations and the fed raising rates. more uncertainty as to the direction of rates creating more volatility. jonathan: the earnings reports, out, and they are good -- reports come out, but people say they do not matter because we have not yet seen the full effects after the election. >> i think managers for doing the best they have -- they can

with what we have. they have some answers to some of the biggest questions -- what is going to happen with tax policy? there are a lot of questions around that. a lot of the comments are going to be that we have to wait and see what the answers are before we make decisions. >> i think goldman sachs is going to be held to a higher standard because of it debt trading results, because they had made a vocal push. people are going to be looking for even better results from them. jonathan: allison, we talked about who is moving from something defensive to a more offensive move. maybe bank of america is set up to do that. what about goldman and j.p. morgan? tiedcause goldman is most to transactional type businesses, they may have the cyclicaleverage over a

boost. the other thing we have heard this quarter is jamie dimon saying that they have seen a secular bottom. we have seen eight six alert bottom following comments from morgan stanley's comments earlier. in general, i think that is what investors are waiting for. quarterl be the third in a row of outperformance. this will be the first year in several years we see in increased overall revenue. that is obviously important for altman and the industry. -- goldman in the industry. of theirf the focus business, they really have a ceo'siew into the ceos -- in the conversations they have with their clients. they are -- and the conversations they have with their clients. they are going to measure goldman by those conversations.

in 2017, are we in a bond there market? the tension is playing out in a positive way for goldman sachs. >> for several banks right now. they are saying it is a matter of time before we get to 3% on the 10 year yield. other analysts are saying we are headed back to 1.5%. goldman sachs is out with earnings right now. earnings coming in at $5.08 a share. that is well above expectations. trading revenues coming in at $2 billion. that is above estimates and of the will we saw from them in the third quarter. again, sales coming in at about $2 billion above estimate over third quarter. the numbers are beginning to trickle out right now. i was in, it does in line with what you were expecting? allison, is this in line with

what you were expecting? >> that almost looks right in line with expectations. i think i would next look to the investing-lending line. that is typically where we get the surprises. it tends to be a little more volatile. when of the key questions about that this quarter is going to be in regard to risk management under the new administration. alix: earnings-per-share coming in at $5.08. fixed sales coming in at $2 billion. trading revenue at $1.59 billion. overall trading revenue coming in at $3.6 billion. estimate slightly below what we saw in the third quarter. however, the headcount is down

by about 2%. forsche bank, no bonuses senior bankers could this follows the headcount theme. jonathan: yes, how is that going to continue to develop? if you reduce bonuses, then there is a concern that others will come into take your best talents. now that there is about a 500,000 -- 5000 person decrease, a cut likely came through the first half. they made it significant cuts in the first half in response to the environment. ,he fourth quarter tends to be seasonally, a quarter where we see declines. we are going to want to hear more about that. one interesting thing happening at goldman and all the banks are not just the overall levels. a lot of the increases they have had over the past couple of years have been what they referred to as "the federation."

there is a lot of compliance building. under the new administration, the question is will we see a change in that ship going forward? a move away from this support and compliance staffing. more the front office and less the back office. lisa, this is your area of expertise. fix results of 70% at goldman. -- 78 percent at goldman. put that into perspective for us. morgan,of america, j.p. they have had a 40% combined increase yesterday. increase considerable over the other banks that we saw in the fourth quarter. it pretty amazing quarter for fixed income. tox: allison, what is going be the biggest question as you look at some of these numbers? you see a slight increase in equities trading. what is the biggest question

mark for you? howe want to see sustainable the earnings are. what is the outlook? what are the pipelines? we want to hear more about brexit. exercises itsdman technology prowess, how much are you focusing on what they have to say about the tech advancement?

do you agree with that and have investments adjusted to that new reality? banks, it for all the is going to be a little bit different depending on what you can't get to. or that is going to be your business mix, and the other part will be capital requirements. j.p. morgan has in making those adjustments. bank of america has been doing it this quarter. they want to see a higher r.o.e.. the other part of it is going to be it business mix that depends on what the overall profitability potential is across the different distances. overall, i think that is why evaluation to down after the crisis. fromhan: allison williams limerick intelligence, we always appreciate your time. lisa, thank you for joining us as well. 0.9% in theabout premarket. coming up in this program, south

african inflation jumps to eight 10 month high. this -- to a 10 month high. we are going to have an interview from davos coming up. this is bloomberg. ♪

♪ abigail: -- emma: this is "bloomberg daybreak." coming up, we have the chair of the presidential inaugural committee. ♪ jonathan: from new york, this is

bloomberg. theave more coverage from summit at davos. we are joined now by francine lacqua. fencing: -- francine: we are joined now by the finance minister in south africa. thank you for speaking with us about risk, populism, and global trade. what you see is the biggest obstacle to renewed growth in south africa? >> brexit in the u.s. elections andnd the u.s. elections, the european elections coming up , it all provides another six months of uncertainty. confidence is a factor.

trade in financing is a factor. at the same time, emerging markets are being called the growth markets. so, we are back to the interesting narrative where there is greater appreciation for the emerging markets as they contribute two thirds or three quarters. they will continue to do so. they saw sources of demand and commodity prices being better. francine: do you expend the trend to continue this year? >> that is the general expectation. be demand sector would in 2016.n 2017 than in our own case, south africa is undergoing structural changes. we transformed our economy so that people who were excluded

can now be included. either through employment or enterprise creation. the last time we were with gdp growth on south africa was back in october. are there now more risks? is the horizon more clear than it was back in october? >> i think they are giving us a better number in 2017. imf gives us 1%. we are likely to stay slyly higher. -- slightly higher. these numbers are not yet finalized. situation where i believe the positive factors are still driving some level of optimism. we have ae time, global situation where uncertainty is going to be the key word for some time to come. with that uncertainty, there is

possibility of volatility as well. as the fed increases interest rates, i think growth in emerging markets is going to be very concerned about outflows. whether that will create another form of instability in our environment. if some of the trade initiatives become a reality, that is going to upset the trading environment . we used to talk about currency wars, and we might start talking about trade wars. we are hoping we do not get there. that we are going to have a responsible leadership. it was at 13% under the dollars last year. are you comfortable with that level? >> we accept that what we want is less volatility. the other sectors we have mentioned -- factors we have

mentioned could lead to greater volatility as well. it helped our exports to some extent as well. on the flipside, it begins to increase the cost of inputs. far has been on the favorable side. trend?e: what kind of >> and improving trend in terms of growth. i think the key issue for us in the developing and developed .orld is greater facility more jobs for more people. the impact of technology. i think we are all excited by , butological development we have to start planning for negative impacts where you are going to have more joblessness and people under the ages of 40 years old and 45 years old not

knowing what their future is going to look like. young people who have to be trained for new jobs in a new economy. francine: can you hold on to your investment rates again this year? towe have worked very hard hold on to that investment grading. francine: you were confident that you were spared a downgrade in december. >> i think we have earned the positive trend to it. when it does is provide us with an opportunity -- what the economic -- world economic forum does is allow us the opportunity to compare ourselves to other foreign markets. we seem to be in a better position than many. you do not have as many geopolitical tensions as other countries find themselves in. we offer a much more stable environment. increased political

noise in south africa as we go through some of the processes with the ruling party organization. subsided?has it >> it has subsided, but we have a new choice for leadership in the south african congress. this is something you must expect as you would expect in any other democracy. our institutions are strong, and we will keep a steady fiscal ship going forward. francine: just so i understand, you are expecting a slightly higher rent -- rand? volatility, but trending higher? >> i think it is hard to predict where our currency will go, because there is a lot of volatility. a lot of unpredictable factors

that could impact us. we learned our lessons in 2008 and 2009. , long came the great recession and it upset the apple cart. francine: how does a donald trump presidency affect how you look at your forecast for growth? >> it affects us in that there is this cloud of uncertainty. in all fairness, we need to give the president-elect six to eight weeks to settle down and see what decisions emerge. see what the negotiations at the brexit level will result in. leaders in the bigger countries, both developed and developing, are able to find each other. you so much for giving me some of your time. i know you have a busy schedule. that was the south african finance minister.

we will have plenty more exclusive interviews coming for you coming up. francine lacqua, thank you so much. coming up, shares are plunging after the retailer had its forecast released. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." retail reports are battered after disappointing customer sales. it is taking the rest of the retail sector along with it. is lindsay, bloomberg's specialty retail analyst. lindsay, what happened to target? text their online sales were strong, but their stores were less so. if your online sales are going

-- growing very well, it does not make up for the declining for traffic in stores. companiesng these think they have to rationalize their store fleet. they have to find the right number of stores that make up for this online growth. alix: why is there still so much negativity to be run out of the stocks? >> people keep thinking we have hit the bottom. people really want value right now. people expected target to have a good holiday. they also have other things going on for them. they have more groceries in their stores. there is still a lot of optimism. retail will never really go away. the stores will be with us for a long time, but it is just a question of who will get the formula most right most quickly. will macy's sell their real estate holdings? >> they are under pressure from

investors to monetize their real estate holdings. they are selling parts of their store fleet. they are selling off his face over top some of their stores. i think retailers are going to get more creative. not many own as much of their real estate portfolio as macy's does. jonathan: stock down 4% in the premarket. coming up, we will have the executive chairman coming up. we're counting down to the market opened in new york. yesterday was a down day. today, futures up about 0.1%. this is bloomberg. ♪

jon: welcome to "bloomberg

daybreak: europe co i'm jonathan ferro alongside alix steel. david westin in d.c. we have breaking news from you. the earnings out from citi. income trading coming in at $3 billion. investment banking revenue also better than estimates coming in at $1.1 billion. equitiestake a look at , a similar story from goldman. trading revenue coming in a little bit lighter at $694 million. that is higher than the third quarter. a little bit of disappointment on the equity side. overall, in terms of earnings, a beat for the company. jonathan: breaking news from deutsche bank. deutsche bank told senior employees that most of them would not get an individual bonus because of last year because of the lenders'

performance. it will be vice presidents, directors, managing directors, and members of the management board will forgo their variable compensation. we are joined by allison williams. let's begin with the deutsche bank and the bonus story which has been confirmed by deutsche bank themselves as they told the senior employees that most of them would not get a bonus. what's the spillover? , do i say,man sachs there are going to be unhappy people that i want or do we replicate this? allison: i would say, for deutsche bank, it is not a surprise. they have had a tough year. they have been broadcasting. the third quarter conference call, they talked about it.

perhaps moving more towards deferred. they will push payout to the out years. as far as goldman, everything is supply and demand. for fixed income trading, it is a good quarter. that is helpful. in general, we did see a headcount decline at goldman. 7% year-over-year. in the fourth quarter, we did see a 1% decline. that is a bit more than we saw in the fourth quarter last year. the questions are going to be, what is the mix of that? is this compliance coming off line? they looked at the staffing for dodd-frank, they compared it to y2k comparing it with the bulking up.

perhaps there would be a little bit of a reprieve when things went into place. alix: jp and morgan stanley are hiring people. we were waiting for city to see if they had any headcount information. does that say anything to us? alison: i think the trend speaks a lot to technology, especially for bank of america. we heard from morgan stanley yesterday and we will hear a lot more about their digital strategy and wealth this coming year. bank of america is bringing down overall employees, but beefing up sales staff. have seen.rend we let's reduce the number of branches. , itou look at those costs is cents on the dollar to pick up the phone to your branch. bank planseutsche

special long-term incentives for crucial staff. if you came into the office and you got the news and you were significantly unhappy, how does this involve from here? i go back to that question. do they look at the situation of deutsche bank? , youn: for deutsche bank are probably not surprised as an employee. if you think about the performance of the bank over the years and you think about morale, john cryan coming in a year ago and delivering on his promises is probably best thing he could do for more out. they did make the agreement with department of justice. they finalize that yesterday. there are other issues. there is more work to be done. they areeutsche bank, sending this message to senior employees. these are employees that must be invested for the long haul.

you are probably not surprised, based on the three comments. alix: if you read the call. alison: it is going to be a tough year and you can't get blood from a stone. that is probably why you are moving more toward a deferred program. they will want employees there for the long haul to improve the bank. alix: joining us for moore is jeffrey solomon. i want to reiterate some of the citi headlines. fixed income trading is the big number. it is up 36%. trouncing estimates. better?7 be 2016 had some real issues. this much acrimony in a presidential year, it is hard to

say you will have any more uncertainty. if we get a twitter storm here or there, you will see a little bit of intermittent volatility. there will be more certainty as things evolve over the year. that generally bodes well for markets. people can try to get their feet and understand how to make longer-term investments. i think 2016 was about holding serve before figuring how things would shake out. alix: is there anything surprising that we have seen from the rest of the big banks? alison: from the numbers i've seen so far, equities slightly light his right in line with what we have seen from all the banks. , they're fixed income is the bigger part of their business. equities is something they have been building. they have an meaning to make progress over the past year. in line withg in estimates is positive for them.

the other thing is cost. costs down 9% year-over-year, it looked a little bit better than expected. that is better than important. ratioere targeting a 58% for the core business. we will want to see if they deliver that on a core basis. for the guidance going forward, they said it would be higher. jpmorgan also investing in similar businesses, also raising cost for that bank. what is going to be the outlook for next year? what is the return on assets outlook. alix: to that point, if you look at the banks' consumer business, they are making more loans at the end of the day. talking about the trump reflation, that is feeding through. jonathan: topline growth is going to be a big thing for 2017. i wonder when these basic facts in, in -- base effects kick

wonder they become less favorable to some of these banks? alison: i think investors are hoping for the base effects to become more favorable. interest rates is something we have been waiting for a long time. revenue filters right down to the bottom line when that happens. a lot of the pressures on cost have been capital markets revenue, ceos are calling for the bottom. also, in interest rates, the basic business, that lift is going to improve expense ratios across the board. alix: which areas are best poised to take advantage of the trump reflation stimulus theme? the balance sheets are just going to get better. i think the fed raising rates is also going to help. i also think we are going to see growth in the emerging sectors. i do think we had the worst year

we ever had in ipo's in 10 years. as we look out at our backlog of the things we are doing, we will continue to see strong m&a trends and trends to raise capital. that was something that was put on hold for most of 2016 and we can expect that is the dust settles, we will understand more of the fiscal and monetary policy and you will see companies coming back. alix: thank you for coming back. we appreciate it. let's get an update on what is making headlines outside the business world. opec says its oil output fell for the first time in seven months and it is forecasting a drop in production from russia which partnered with russia to clear the global crude surplus. saudi arabia reduce production last month ahead of the agreement. german chancellor angela merkel says avoiding a european union division on brexit is of utmost

importance. she held a news conference today with the italian prime minister, who said the eu needs to be relaunched to tackle a number of challenges. several top republicans are criticizing president obama's decision to commute chelsea .anning's 35-year prison term house speaker paul ryan called the move outrageous. former president george h.w. bush has been hospitalized in houston. a spokesman says he was taken to the hospital on saturday for shortness of breath. he is responding well to treatment and hopes to go home soon. he is 92. global news 24 hours per day in more than 120 countries. this is bloomberg. jonathan: thank you. coming up on the program, the

countdown to the inauguration. we will speak to the chairman of the presidential inaugural committee. that is next. this is bloomberg. ♪

we are around 48 hours away from president-elect donald trump's inauguration. david weston is in washington with a guest instrumental to that day. david: we have a busy man with us today. tom barrack, the founder of colony capital. more important this week, he is the chair of the presidential inauguration. thanks for taking time to be with us. tom: thanks for having me. david: you got started last night with your first official event. it was a striking event.

tell us about that dinner. tom: the president-elect, he did such an amazing job, when he set out this week, he wanted the first chapter to be a little bit about his sensitivity and his interest in foreign policy. he said what do we do for foreign diplomats? i said, there is not much that is ever done for foreign diplomats. he said, i want that to be my first fingerprint on the global canvas. he said, i want to introduce to them what my cultural sense is an attribute to the domestic foreign diplomatic course. he picked a venue which was pretty amazing, the mellon building, the site in 1949 of where nato was signed. david: that is where nato originated on constitution avenue. tom: absolutely. anytime much different. the marshall plan, the dismay around the world.

12 nations came together in that place to create a different kind of tapestry in 1949. the idea was come a let's make to createe beginning this new global tapestry. david: it is fascinating we started with diplomats and the site were nato is signed three or four days after he gave an interview to the "wall street journal" saying nato is obsolete. you have known donald trump for a good long time. how do we interpret the signals that seem to be contradictory? tom: that is a great question. the switch from candidate to president. the soundbites, which are brilliantly displayed in 144 characters. he can communicate instantly to the world in 144 characters. those now have to be gauged with some prediction.

he is not saying get rid of nato, he is saying you have a treaty and agreement that was cast based on foreign policy, not based on economics. we had to bring europe back to security, back to relevance in 1949. now, he is saying, don't worry, i'm not saying we don't want to have alliances with europe, i'm saying what we have to do is we have to put the varnish on top of the furniture. ,he furnisher was beautiful created a long time ago, but we need to redo it. think of technology. in 1949, to send a cable if you were a foreigner for approval, it would take three weeks. no, you tweet. david: it is around the world in an instant. at the same time, he is taking some positions and i wonder whether the presidential donald trump understands that it has to

be different from the candidate and the transition donald trump. over the weekend, he gave interviews going after angela merkel, the head of germany, suggesting maybe the eu would largely dissolved. does donald trump understand he has to change the way he communicates? tom: i don't think he is viewing the world as him having to change how he communicates. what he has to do -- he is the president-elect, his team is not yet there, which is disappointing, right? you would hope that congress would say, let's get his team in place, let's be america, then with let him play this out rex tillerson and general mattis and mike flynn and his team. the team is beyond experienced. you are going to see the president play out these chapters with much more lucidity than people think. he is not careless, he is not abrupt, he is very thoughtful.

by the way, saying that europe is threatened is not a new thought. of course europe is threatened economically and they need our help and everybody needs to focus. you can see much more depth, but he is not yet president. i tell everybody, get their -- give everybody a chance. rex tillerson, there is no better secretary of state that could have been picked, and my humble opinion. he understands the hardware, the foreign policy, the foreign policy team will be epic. however, the president will draw hard lines were they need to be drawn and he will stick with them. david: trying to opus understand this new president, we have rex tillerson, we have wilbur ross's confirmation hearings beginning today. should we listen to rex tillerson, wilbur ross, steven mnuchin? will donald trump take a step back and let some of his cabinet officers speak for him? tom: i think what you are going to do is see donald trump take a

step forward and say, i will help you create the architecture of the vision and the structure, which the 535 congressional and senatorial partners will help with. we don't have a dictatorship. the vice president-elect is one of the best conciliator's known to mankind. this partnership of saying, what is doable, what is practical, what is needed, what is my economic plan for the first 100 days will be specific. he will delegate responsibility and accountability to his team 100%. david: he is, first and foremost a businessman. what are his expectations for success in that first 100 days? how will he measure himself? we all have to have metrics in order to manage. how will you measure himself? tom: my opinion, just as a friend, you have to ask him how he will measure himself, he is a lock and load person.

he does not confuse efforts with results. he has a yellow pad and says, these are the things i'm going to accomplish in partnership with a congressional environment that has to come onside, knowing that he has to win constituencies who are doubtful. he realizes that. just like the foreign expectations. but the man is brilliant. what he did last night, the foreign community had no idea who this man is. last night, the cables were flying, saying this president-elect is so much better, so much more thoughtful, so much more culturally adept than anybody thought and is the first president in recent intory that has reached out that way. it is brilliant. you are going to see that across every level. they were going to see what rex tillerson and wilbur ross and steven mnuchin and michael flynn and every one of the

secretaries. tom price. everybody takes heat in the transition process. when that microscope goes on every tiny detail of what your life has been an all these men and women have been living in life that was not based on saying i'm going to go into political structure, these are all outsiders that have been using the hardware. it is under that microscope, everything is examined with a different light. they are going to be the most formidable group of people coming to washington because they have to work the bureaucracy and that is where the frustration lies. great vision, a great idea, then they come to washington and smile and say, oh yes? david: first, you have an inauguration to put on. very good of you to spend time with us. is the founder of colony capital and the chairman of colony northstar and is the chairman of the presidential inauguration committee. alix: thank you so much. turning our attention back to

the other big event of the week, the world economic forum in davos, switzerland. erik schatzker and francine lacqua are joining us now with a special guest. francine: always a treat. no one understands foreign policy and the intricacies of diplomacy as much as you. when you talk about diplomacy and when you listen to the speech of theresa may, you decided to continue investing in the u.k. after you were given assurances by the government. does her implicit nature of the about the single market, does it change your decision? >> not at all. it does not change the decision. concern was not about brexit. problem andlitical something that concerns the country. our concern was the competitiveness of the brand.

in order for us to continue to invest and grow these facilities, we need to make sure that we are as focused on of theseveness facilities as we are. i'd long as we agree on that, which means that no matter what happens with brexit, no matter --t there will be something all of this will wash out, all of this will be possible or positive to our competitiveness. francine: do you not automatically assume that the plan becomes less competitive if there is not access to the single market? what assurances were you given in the letter from the u.k. government? carlos: i don't assume. at the moment, we continue to produce and export. when things will happen, which is going to take some time, then

when things will happen, we will make an evaluation about our competitiveness. we have anident that agreement with the british government that the competitiveness -- and the car industry has been mentioned by the prime minister as one of the focuses she has in mind, which is reassuring, that the competitiveness of these facilities are going to be preserved. that does not mean that there may be one measure against competitiveness, but as long as there is another measure compensating for that reform. erik: let's talk about that. what is the measure that might compensate? carlos: i'm going to give you an example. obviously, the strengths of the currency goes against your competitiveness when you are an exporter. the weakness of the currency goes toward your competitiveness. existence of tariff is against your competitiveness. you have many things to take into consideration. wascannot just say, there one single thing that is negative so i can't build more cars. you have to look at the whole

afternment that will come the specifics of the negotiation has been set. erik: of the assurances you are already provided for by the u.k. government, is there flexibility ? is there contingency, such that they may have to make it more attractive to continue with their current plan? carlos: you cannot go to specifics before the specifics of the agreement have been made. we are talking about concepts, policies, strategies. when the negotiation is finished, then you can talk about specifics. francine: what was in that letter? i've never seen the u.k. press talk so much about a letter that the u.k. press gave to you to make you change your mind. carlos: i don't think the letter made us change our mind. francine: what was in the letter? carlos: it came as a confirmation of the discussion that we had. it was the discussion with the u.k. government that made us

firm in our willingness to invest in the u.k. you have to ask the u.k. government to unveil the letter, not us. francine: we will. erik: nissan makes a lot of cars in canada and in mexico. have you had conversations with the incoming trump administration? carlos: we didn't. erik: none yet? carlos: no. the message is very clear. the message that the president-elect has conveyed very clearly is america first and jobs in the united states. that is it. it is very clear. all of the carmakers have got this message. some of them have already made decisions in consequence. others will. this being said, administration will take place in a few days. policies and specifics are going to be decided very soon. hasn bet that after this been made, you are going to see

a lot of decisions made by carmakers to adapt to this policy. francine: including your carmaker? how do you protect yourself from a trump tweet? carlos: i cannot protect myself from something that did not happen. francine: you can prevent. carlos: let me put it this way. for the roles -- moment, the rules have been done. all carmakers adapted to nafta. that is what you have the position we have today. when there is a new rule, we will adapt to the new rules. it is very simple. we deal with many countries and many economies. we do with changes of president and administration everywhere. our business is to adapt to new situations and we do that. erik: just hang on a moment, if i may. i take that at face value. if that is the case, why did for do what it did, why did gm do what it did?

if you were mary barra, mark fields, sergio marchionne, would you do the same thing? carlos: i've been accused of having many jobs. [laughter] carlos: that is not fair. what i'm telling you is we are following clearly what the new administration is saying and we are adapting our strategy and our investment in response to specifics. erik: are you prepared to move jobs from canada or mexico to the u.s.? carlos: we are prepared to do everything to maintain competitiveness in north america. francine: are you nervous about tweets? is single tweet could make your market cap drop in literally seconds. carlos: we are more focused on long-term than on short-term evolutions. obviously, short-term evolutions are always a bit unpleasant, but

you have to overcome them. what is here at stake is the long-term of our competitiveness in north america and the united states. that is why i think we need to make sure we avoid short-term considerations. francine: understood. erik: let's go back to the praise francine gave you for being a master of foreign policy and diplomacy. with the advice of your lawyers, can the president ignore or bypass trade agreements like nafta and unilaterally impose an import tariff the way he has threatened? carlos: we did not get there. we did not get there. is we willtell you be listening very carefully to the for statement made by the new administration and then, what is legal, what is not legal, what is feasible, what is not feasible, and we are adapting in consequence. i don't think we should act in a hurry or preempt things that are

not safe. there are so many uncertainties around it. let's make sure we make a decision with the maximum level of certainty. the certainty comes when the administration starts to really put rules and guide by priorities. erik: now, you are giving me an opening to go back to mark fields. act withed to certainty, why would you do anything before you see the rules? carlos: well, you have to ask them the question. [laughter] francine: this is why you are a master. , 34% stake in mitsubishi. what can mitsubishi due to get back on track? carlos: a lot of things. the management of mitsubishi, the ceo, the executive committee are working very hard on the specific expert -- efforts they have to do to get back on track, but also the support. hopefully, within the next month's, you will see that there is a lot of potential in this

company and a lot of potential within the alliance. francine: thank you so much. that was a very spirited conversation. erik: always. francine: for now, back to new york. jonathan: thank you very much. some breaking inflation data. month, bang inon line with what we were expecting on the bloomberg survey. if you exclude food and energy, it comes in 0.2%. year.nline you're on no big surprises here. alix: but that number on 2% means we are looking at the highest since july of 2014. what is going to mean more for yields? what trump says or the actual numbers? the fed chairwhat janet yellen says and we will be bringing you. or try here on bloomberg coming

up. coming up, more from the world economic forum in davos, switzerland. the outlook on the state of global banking is next. this is bloomberg. ♪

alix: this is "bloomberg daybreak." let's go back to erik schatzker with another big guest. erik: the hits just keep on coming. is the founder of a london-based hedge fund specializing in financials. we have to talk about goldman sachs, morgan stanley. this morning.ed you have been a big-time fan of morgan stanley.

why is goldman still so much more profitable? it is 2017. the crisis is ancient history. goldman sachs is so much more profitable than morgan stanley. in the fourth quarter, 11.4% r.o.e. davide: it is called interest rates. goldman sachs basically has been a massive beneficiary out of the quantum -- quantitative easing program. people have been buying bonds for the last four years as rates one from 12% to numeral -1%. as the head of one of the highest market shares, it could have benefited. morgan stanley, the time, interest rates will normalize in america to around 2% or 3% normally and will make on return. they have $2 trillion of client savings, but they are not making money right now.

tomorrow, they will be very profitable. i think morgan stanley will be as profitable as goldman. in the long-term, morgan stanley is more stable because it is last dependent on -- less dependent on client activity and more dependent on the wealth of the economy. talent, amains pure technology firm. it is a great firm. i have nothing against it. i think the day you see a bear market in fixed income securities, they will suffer too. erik: that bear market may be around the corner. davide: mathematically, it is going up. erik: how soon and how quickly? davide: and how hard? and how disorderly it will be. the world has been thinking that inflation was dead and inflation cannot be dead. we are 6 billion people on the planet. we were less than 2 billion at

the beginning of the century. either way, you were going to get inflation back. all the people have been waiting all the fixed income assets, they will feel the pain. a question orswer resolve a doubt hanging over morgan stanley as a firm. they have had an on-again off-again commitment to fixed income. that is not what you would hear from the firm, but that is maybe with the clients feel. this past quarter, morgan stanley generates $1.5 billion of fixed income revenue relative to $2 billion for goldman sachs. can morgan stanley catch up? stanleyi think morgan has a really fun balance. you have a fixed income whereby you serve your clients, you try to commit less to balance sheets . you say, we are here to help you. they don't feel on the other side, clients, they have an

intermediation. because fixed income markets of not been at what ties, it will happen. -- trust morgan stanley. in the case of goldman, you have both. to be honest, i think morgan stanley is striking a fine balance. m&a, one of the highest. wealth management, it is the number one house for u.s. wealth. erik: what about the possibility of a dodd-frank rollback? you would have gary cohn in the white house, steven mnuchin in the white house. could what is now called investing and lending with able to rollback -- local rule rollback turned back to what used to be? davide: i think there will not be a full rollback. income, inbout fixed

fixed income, in order to serve pensioners, mutual funds, pension funds, people that need to match assets and liabilities, you need people that have inventory to buy and sell securities. dodd-frank went to a point where financial firms were not allowed to have inventories. erik: or make profits. davide: the issue is, of course anyone with an inventory is taking some risk. that is no different from the grocery store. you keep cherries, so when you go and buy them. if you can't sell the cherries, they will perish and you are going to take a loss. i think you need to be pragmatic in a way that facilitates so the cost of society is optimized. that does not mean going back to the lehman brothers days and the bear stearns days where those were proprietary shop hedge funds. that will never happen again

because there will be no government that can allow that. ?rik: but what will happen if there is going to be a regulatory rollback, what happens and who benefits? davide: who benefits are the alternative sectors. no leverage? davide: no leverage. the result is 121. if you take it from like goldman sachs, they are on balance sheet , their one-time equity, 12 times leverage. they have much smaller room for error if you are one-to -one. one two 12m 40 to 21. if there were to be a rollback, they would still be the winner. they are operating on a no

leverage faces. they have a higher return on assets. they can invest. i think the alternative sector will keep winning. if you are staying in the middle, even in banking, you will get squeezed. erik: even with these teams having more room for lending, they have had to head over to the shadow banks. it is not going to be the lending which they lost. would you look at the sensitivity of short interest rates? without doing anything, you are going to print each.

swing of theig pendulum, it is going to be the biggest of the three. ,rik: of the big three lenders who stands to do best? davide: i think it is a combination between j.p. morgan and wells fargo. , the bank of america is a different animal in my view. the j.p. morgan asset mix is unique. i think they learned a lesson along the way. the sheer profitability between the car business and the hasstment bank, wells fargo been a key beneficiary out of gdp growth. bank of america interest rates matter more.

it is more on the asset side, less on the visibility side. it is the incumbent with the chief deposit base of american citizens. erik: let's turn our attention to this continent or this part of the world. i want to ask you a question about barclays. barclays wants investors to believe that it will become the dominant investment bank in europe. is that going to happen the way they say. it is unclear. they are not taking an institution. barclays has never been strong in europe. lehman in the u.s. had troubles. i think it is a work in progress.

across europe with a hard brexit, barclays will be at a massive competitive advantage because in europe, they will have to set up an operation in europe. erik: they don't do that much business year. davide: really. barclays is a u.s. investment bank. they can be successful in europe. erik: who is going to give them a run for the money? look at what is happening at credit suiise. look at what is happening at deutsche bank. is it going to be ubs? davide: i think ubs in europe is the clear winner. they were the one, they were the first one to shrink fixed income, focus on the client to read wealthy clients, institution, we focus on retail banking, asset management, investment banking. morgan stanley followed suit pretty quickly and see what they have achieved? i think ubs will keep on being the winner in europe. erik: let's talk about the

universal banks. stuart gulliver was talking to john mikel's weight. he said a 10% return on equity is as good as a universal bank can deliver. really? with the current interest rates environment, the answer is yes. , they were built over the last 30-40 years with shortened interest rates. about half of the stability of the institution, that was coming from the liability. longere liability is not , ranches lose money in getting deposits. the capital structure had to double in terms of capital needing to lend money. levelk 10%, the capital has gone up five times.

there is multiple expansion. actually investing in financials over three years is the right thing to do. we have interest rates that will normalize and people are not taking this into consideration. erik: not in europe? davide: not in europe. erik: good having you here. it is davide serra at the world economic forum. alix: coming up, two of the biggest names in finance discuss the pros and cons of populism in davos. the impact of the middle class. this is bloomberg. ♪

this is "bloomberg daybreak." i'm jonathan ferro. futures up on the dow and the s&p 500. a reflation theme in the u.s.

bond market. inflation climbing for a fifth straight month. ,ou're on your, prices of 2.1% the most since june 2014. that is fueling a trend with yields climbing across the curve. in the fx market, a stronger dollar story. the euro at 1.06. today, francine lacqua hosted the crisis of the at the worldpanel economic forum in davos. >> the people who will be the victims of populist policies are the lower income and middle-class people in whose name the policy is offered. let me give just one example. yes, our president-elect has

made for her five phone calls to four or five companies, largely suspending the rule of law, and extorting them into relocating dozens or perhaps even a few hundred jobs in two plants in the united states. at the same time, the consequence of his rhetoric and announced policies has been a 15% decline in the value of the mexican peso relative to the dollar. that decline in the peso is a dagger at ohio, it is a major change in the relative attractiveness of locating production activity in mexico versus locating it in the american heartland. the consequence of that is measured not in the dozens or

hundreds, but in the thousands or tens thousands or even hundreds of thousands of jobs. the same can be said about a variety of other aspects of populist policies, whether it is tax cuts that are in the name of populism somehow ending up going in vast disproportion to those 0.1% of the% or top population. or whether when you take a classic, broad national objective like strengthening public investment, like responding to the fact that americans pay the equivalent of a $.75 gasoline tax every year because of extra potholes in our ,oads and you respond to that not by fixing the roads directly, but by offering and 82% tax credit, the highest in

history, to private contractors who build pipelines that they were going to build anyway. so, it is the experience in argentina, it is the experience of populist leaders all around the world that, while the argument is made in the political season in favor of the middle class, they are ultimately the ones who pay the policiesrice for the that are pursued. francine: agree or disagree? >> larry and i have liked each other a long time. and larry is prone to see things in that way. [laughter] >> it is more complicated than larry makes it. for example, if you create a pro-business environment, in

other words, an environment in which it is hospitable to make money, make things happen, you are creating an environment in which you are actually attracting capital in a lot of places. if you think of how capital moves, just the slightest inclination of something going bad in a place, being anti-wealth or in favor of moveh will move money to strongly between countries and you create an environment in which making money and making and its is a good thing changes the nature of capital flows. the united states is unique in many ways. if it is a favorable environment for making money, property protections, rule of law, i know entities that consider, should i be better off in china or should i be better off in the united states? money moves in that way.

there is such a thing as animal spirits. it is one you deregulate some things. cons.lation has i'm not arguing that. it also has pros in terms of getting things going. the sense that you can take cash when there is a lot of cash around, a lot of cheap money and the sense that you can make things happen can actually invigorate the economy. that was francine lacqua hosting the crisis of the middle class panel in davos. you have a platform in the middle of davos with ray dalio. jonathan: you have the elite talking about davos. davos -- the problem with -- a long times is getting it is great at getting people together, but it is in negative

chamber and is terrible at predicting risks. the joke that can rogoff made is a joke he has told a thousand people in a month since leaving davos last year. the conventional wisdom of davos is wrong every year. the lesson that will be learned this year. or actually needs real debate, not just an echo chamber and the need to get better at identifying rest to make this more worthwhile. alix: the survey was done, the weather was ranked as the number one risk. political risk did not even enter into it. it was the weather, the disruption in storms. jonathan: now that we are talking about the risks of populism, the outcome last year was yes, we had brexit and president-elect donald trump and those things had not happened yet, but these guys would have told me that if we got those two things, there would have been an aggressive selloff globally.

they have got to get better at identifying risks. alix: it is interesting to see ray dalio's perspective. how do you quantify populism when you have to invest money? it gets easier and easier to rebound. jonathan: ray dalio wrote a very comprehensive piece on what --ald trump's piece presidency would look like. coming up, we head back to the world economic forum in doubt davos. down posts -- ♪

♪ from new york city, for our viewers worldwide, welcome to "bloomberg daybreak."

d.c. as we count to down to donald trump's presidential inauguration on friday. is hit you to your market open this morning. , justump train, back on of about 33 points on the dow. up about four points on the s&p 500. switching up the board, yields are higher, inflations are spiking on the u.s. 10 year and it's a stronger dollar dominating the g 10 space. but the market wrap, three things you need to know at this hour, inks in focus, citigroup recording earnings this morning. deutsche bank scrapping individual bonuses in 2016 because of the lender's performance. missing the target, big box retail cutting its fourth-quarter earnings forecast after sales were hit by disappointing customer traffic with shares moving lower in the retail market. janet yellen speaking later today in san francisco.

the than 48 hours before inauguration of donald trump as the u.s. dollar rebounds following its biggest decline since june. that's all you need to know right now as we count you down to the open. futures are higher, let's get your movers with alix steel. alix: oil is on the downside, off by 2%, a big spike earlier in the morning. the iea director coming out and saying that they have seen a significant increase in u.s. shale as opec makes some cuts. a lot of it making sense around $57 per barrel. couldcoming out that opec end the cuts by june because they are actually working, however the market, it's looking for the cuts to end in june with a potential negative. an increase in shale production for 2017. individual names that we are watching, john just mentioned target at it is dragging down .he rest of the retail sector

kohl's is off by over 1% as well. you have a holiday sales miss at target. for plus 1%e it was growth. cutting fourth-quarter profit as well. you have other retailers, like jcpenney and kohl's, cutting to underperform, saying that both of these chains are lagging their peers in the real estate transformation but they do expect continued traffic weakness and continued catch up investment will hamper returns going forward. john will dig deeper into retail later in the hour. jonathan: the stocks to watch over the last week, the last few months, u.s. banks are out with quarterly earnings today, wrapping up earnings, shares headed in different directions ahead of the open. citigroup is moving and by the sake magnitude, in the opposite direction. joining us now, a senior u.s. bank analyst.

one of the lessons we have learned over the last week is that the intraday moves don't really count for much. beyond that, be on the middle of this move, taking stock, steady as she goes, what needs to happen through 2017? cyclically and regulatory early -- regulatory? >> we need to look at the factors driving the optimism. had a big movewe in the shares and the facts have been all over the place around earnings. it is that people are not just looking at the earnings, but they are also looking at what's happening in terms of tax policy and interest rates. with the stock that they are trading, not just on the earnings, likely, but other factors are coming to bear. hasact, certain tax policy a bigger implication for citigroup as they have a relatively large deferred tax assets. mathtors have been given

behind different scenarios, but at the end of the day the investors are going to want to know the ultimate scenario and how that is going to impact them. what happened to equity trading? alison: as part of the game of comparisons, if we look at equity trading, in general -- >> its low client activity. >> in general a we heard from the banks was equity derivatives are the source of strength in this quarter and overall, four to five banks, the aggregate number, missing modestly, but the only company that did better was morgan stanley. and in terms of beating the theer and still being global leader, basically, they are the leader in the u.s. and likely globally with goldman sachs coming in second in terms of the overall dollars. no big upside or

downside surprises regarding q4. the bleed through and the guidance from the sea suite, what does it look like? >> it's tough because investors and analysts will always ask. jpmorgan said something like so far, so good. we will want to hear more from goldman sachs, especially as they have an eye on clients that have more ongoing m&a, businesses like equity underwriting, what are they hearing from clients, what is the tone of the pipeline next year? for citigroup we will want to hear more about the roa guidance that came in where they wanted to be this year, but what are the targets for next year? where the banks have been spending it's been a very profitable business, but are banks going to continue to invest and what will the impact be? the u.k. supreme court handed down a brexit judgment on the fourth. this was the case, whether she

would need parliamentary approval to trigger article 50, saying that they will hand down a brexit judgment. we will get that supreme court decision on whether the prime minister does need to go to parliament to trigger article 50 . that will happen on january 24. back to the banks, looking at how we are set up, who is going to be best positioned to take advantage of what could happen if we do get a cyclical upturn from here? a steeper yield curve with a corresponding reaction from the fed that is favorable to the banks? alison: those are a couple of different questions there. the fed may hold the key to base sources of revenue for the banks. one, interest income, the other is fixed income trading. that will come as rates rise and short-term interest rates, based on sensitivity disclosures, bank of america may have the most uplift, but keep in mind for the increase that we have to keep track of things in terms of what's happening with deposits

and how much of that is filtering through. morgan stanley talked about their wealth business yesterday, saying that they have seen deposit data lower-than-expected for the last couple of hikes. on fixed income trading what we want is volatility. volatility was obviously very helpful in this quarter. in general banks across the board except for banks of america had an aggregate heat of 9%. connect continue into next year? alix: still a lot of ifs, john. jonathan: but i think we are out of here to see what we have. alix: great to see you, allison williams, of "bloomberg intelligence." arewith more coverage, we joined by erik schatzker, from davos, switzerland. schatzker: i'm honored to be sitting here with the chairman of india's largest state bank. madame chairman, thank you very much. the big story in india

from the perspective of an outsider in these last few months and from you inside of the banking industry has been the prime minister's re-monetization, however you prefer to describe it. it has been good to your bank. i would like you to evaluate the experiment more broadly. impact hase initial been very difficult. one cannot deny that. having said that, i continue to feel that if we take this up in it will have aer lot of benefit. >> what still needs to be done? arundhati: that our digital initiatives still get the same kind of focus. if you slide back to the ways that we had before, the monetization, you really won't

get the benefits. the benefits will only accrue when most of the people who were or wereing included escaping the revenue, when it comes into the financial system, the official financial system, only there do we get the benefits. you are liking it, and i want the words in your mouth, to a one-time hit. feels good, but when the drug starts to dissipate you realize that you either need to do it again or you come up with another plan. arundhati: and maybe you don't need to do it again, it may not have that impact, but you need to be sure that you give the follow-up in order to ensure that it is a lasting impact and not something that sort of fades away. one of theerik: short-term impacts has been benefits to your bank. how stickier those deposits? arundhati: these are all low-cost deposits.

to that extent, it doesn't improve the cost funds for the bank. believe that anything around 15% to 40% of these deposits will stay put. of course, we have to see that. it's impossible to really give a very clear prediction because we haven't done this kind of thing before. erik: why is retention so poor? much of the money that came in came in cayman because it was money being used in business. if that is the case, much of it will be taken out. erik: go back into circulation. arundhati: that's right. but if much of this money is from savings of people that was sitting in their cupboards or wherever, it obviously could go out and once it was in the bank it would stay in the bank. we have a wide range. erik: what kind of commitment to you discern to the digital

initiatives that you describe it, from the prime minister? it's true that if you find a way to make money digitally, it's easier to track and they won't run into this problem of undeclared earnings and perhaps ill-gotten gains. arundhati: that's right. it's ultimately not that one piece, you know? going back to the 2011 census in india, 94% of small businesses were front -- funded by unofficial channels. meaning that 95 -- 94% of the businesses were not really rooting their transactions to everything inng cash. that made it difficult for them to access the banking system for funds when they wanted to scale up. when these businesses started transacting in the bank, it will make it easier for them to take loans from the bank and thereby make it easier for them to skim. to that extent it is not only people who are escaping the net, but also people who will now get included.

the financial inclusion that we talked about will actually happen. yes, it will actually happen where people are able to leverage. erik: what happens in india as interest rates in this country rise? be united states appears to the only country, major economy in the western world, to be in a position where he can confidently raise interest rates . we are seeing the bond market moving ahead of the overnight rate. arundhati: that's right. some amount of money will obviously go back. the amount of interest that was there in the emerging markets. but if you look at the availability across the globe, the emerging markets in countries like india still have a very good story and therefore we don't believe you know, that it will be so much as to cause us and norma's pain. i still think the india story is a good story. people are going to make good returns if they put money into

india so i think that this is something that may cause temporary problems, but it will not the a very lasting feature. thank you very much for spending time with me here. alex, that was arundhati bhattacharya, chairwoman of the state bank of india's largest lender. alix: thank you so much, erik. coming up, crude realities. oil suffering after the head of the iea predicted a rebound in u.s. supply. oil and crisis, next. this is numbered. ♪

♪ alix: oil, taking it on the chin today, down by 2%. here's why. higher prices mean higher u.s. shale production.

all -- shale oil production reacts strongly. we see all of the first indications, the number of linking activities are increasing. last year we saw a decline in shale oil production and this year i believe that that will be reversing. it's an increase of u.s. shale oil in the market. alix: the other hit to oil came supply rising this year. with me now is chris kelly, focusing on energy and utility. good to see you, chris. how much of this extra supply is factored into the market? chris: some of it is factored in, but we really have to see what is going to transpire in the second half of the year. it really is the tale of two stories. the first half of the year is

opec. the second half is u.s. shale response to what opec does. a little bit is factored in, but not all of it. is the downside potential as we look to the second half? kris: i think what we are probably going to see is a little bit of a lift in oil prices in the first half of the year as we get some of the animal spirits coming back. the trump administration, the opec cuts really taking hold, but it's possible on the back half of the year that maybe we see a bit of a slide, probably back down somewhere where we are at, in the low 50's. but we have seen over the last couple of days is the merger starting to happen. in the basin,ets talk about the competing money that will be in the basin, whether it is private equity, big oil, or the independence. kris: there's a lot of money in the premium basin, for sure, where most of u.s. shale growth

is going to come from for the next 2, 3, sure year -- four years. but one thing that we have to think about is -- what's going to happen to service cost inflation in that basin? frackingonly so many crews to go around. only so much sand to go around. we are already starting to see a bit of service inflation, putting a bit of a floor under , you know?ce probably helping to lift that over the next year or two, regular inflationary forces in the service industry. in the short-term, what kind of volatility are we contending with in the markets? well, it's really hard to say. there are so many different factors going on between the strong dollar, opec, non-opec,

u.s. shale response, a lot of different things. but i think it's very reasonable to see five dollar moves, roughly 10% in either direction over the short-term. and it could be a little bit wider than that over the next 12 , probably with risk to the upside if you ask me. alix: can the dollar and oil finally moved together? kris: hard to say. it's hard enough to predict the oil price, it's harder even to predict movements and currencies, i think. alix: all right, thank you very much, kris. more uncertainty for oil in 20 17. coming up, consensus. for all the talk of the end of the bull market and bonds, it's the biggest since the financial crisis. next on "-- next. this is bloomberg. ♪

jonathan: new york city, inflation on the rise. compute -- consumer prices climbing year on year at 2.1%.

the reaction in the bond market is clear to be seen. treasuries on offer remain up, for basis points on the 10 year. is jerome now schneider, pimco's head of short-term management. just a look at what's happening on the short-term side of things, the federal reserve responding to that, what do you think it will look like this year? on the mend a been for the past few years, although the numbers of the past month are at 156 and in that comfort zone for the fed. inflation has been percolating point tos continue to that continuing of inflation trends with cpi above 2%, ppi edging higher. that aren't too inflationary, they are sort of percolating higher on a gentle upward slope, meaning ultimately that the fed is going to have to respond to that, being within their dual mandate in the near

term, ultimately. if you look at the latest jpmorgan survey, some of those positions have been washed out. are all the shorts short, so to speak, to clear the deck again? people have to think about the response function of the fed. prior to the election very few people thought that there was a reason to be short and as a result very few fed hikes were priced and quickly we saw that there was a response to these two fed hikes that were currently in the market over the next year or so. what we have seen is right quickly, calibration of the short site. now we are sort of seeing recalibration, if you will, of those expectations. how long will it take for fed policy to adjust and edge higher? how will policy from the new administration be incremented in the timeframe question mark

those are becoming questions in variables that we have to equate to. term,an: in the shorter the issue is invest in sailing. in the medium-term the prospect is getting longer issue with more duration. it all means less supply, right? jerome: in the near term, obviously. theart of this year and in first quarter, we basically have a reduction of supply. 200 billion in t-bills will have to be reduced, that's a pretty sizable amount. as a result, those people are looking for safety in a money market account with them structurally subdued. that's a profound factor that even in prior debt ceiling circumstances haven't been much of an issue. as we move forward we will have to think about ways to provide the safety, ultimately finding ways outside the honey market reverse, something that investors are going to have to

maintain with short-term strategies. in terms of issuance there's discussion policy on how to trigger debt, we will have to see how the treasury responds and a lot of that will have to do with the culmination and articulation of tax policy and what the administration pursues over the next six to 12 months. talk to me about the front-end benchmarks this year. the most important is to understand it we are moving on a gentle trend towards higher rates and in order to adapt to that and embrace that, you really have to have strategies that help to encompass higher rates, meaning floating-rate notes and rate strategies in taking a little bit of interest rate duration and minimizing exposure is key to success. not only just outperforming benchmarks but to produce positive returns. fixed income becomes a valuable component to portfolio

positioning as we continue on this sequence in 2017. you --n: great to have great to have you with us, jerome. janet yellen will be speaking in san francisco at 3 p.m. eastern today. we have live coverage of her remarks. from new york city as we count to down to the cache open, equities, futures are positive three on the s&p 500. in the bond market we are higher, switching up the board to 237 and the fx market, stronger dollar with the euro and a cable rate of 120 291. this is bloomberg. ♪

♪ jonathan: from new york city, this is "number daybreak." -- bloomberg daybreak." the dow is positive and that stage is set as you are about to

hear the opening bell ring in new york city. switching on the as it -- other asset classes for you. [opening bell] jonathan: you're on your, cpi ,he fastest in today's session up four basis points. the dollar-yen is up and coming into today's session we had a bit of a streak, seven straight days down for the first time since june of 2016. it was a stronger yen story and dollar story, the handle reclaimed on cross with crude rolling over something that alex is looking at. 51 39, anticipating more supply out of the u.s. as prices rise, alex -- alix. 1%,: the dow jones, down by trying to snap a three-game losing streak, now looking at a losing streak that is the

longest since the election. by 1/10 of 1%up with oil weighing on equities and you have retailers weighing on equities today as well. we are getting a lot of earnings coming out, so let's see how we are stacking up. goldman and citigroup are off. goldman initially fell even more on the equity trading that was yeard and down by about 9% on year with citigroup equity trading up 15%, but it was a on ther the red flags numbers. united also coming in, down by 1% profit, down 40% in the fourth quarter, expecting a drop in revenue per passenger mile. csx faring no better, the worst of the bunch, missing earnings by a penny. labor costs climbing to tie it back in to the inflation thesis .arlier with the better cpi the other sector getting

hammered today is retail, target cutting fourth-quarter earnings forecasts for this year, they now expects sales to be down by about 1% to one .5%. princeton, aw from member of "bloomberg intelligence." why is it getting hit so hard today? betterere hoping for strength, but it seems that even with the gain it's not enough to offset the week store traffic that they have. alix: we also hear from credit suisse, the downgrade, saying that they are well behind the transition. much more needs to be closed in the foot traffic stores? a lot. jcpenney's and kohl's have too many stores. in the malls in the u.s. there

are maybe 400 to 500 good malls. you are looking at them almost cutting their store base by 50% if they want to be in the top locations. for target they are put our -- predominantly off mall, but they are still struggling to drive traffic into the stores and you can blame that on amazon, in growing online, or on the lower food presents, which doesn't drive the repeat trips like it does for competitors, walmart. alix: if we do get some kind of , whenus with wages rising does that factor through to the bottom line of retailers? -- poonam: it will take some time. those stimulus efforts are still struggling. checks take time to rise and when they see an immediate increase, target isn't really a low income attraction consumer. that's not target, they are a bit higher.

you are looking more at walmart and dollar store to benefit. alix: who is the worst of the bunch? the hartman stores have actually been doing terrible. all six of the reporters reported declines for the holiday season. then you had macy's, jcpenney, bond time, everyone there is ton,g terrible -- bond everyone is doing terrible. alix: thank you ray much, poonam. jonathan: the biggest one-day drop potentially into august of last year with an eight year low election day. coming back to life for others, , the.s. dollar rebounding biggest decline in nearly two weeks after inflation data rises for a fifth straight month, coming again at a june 2014 hi in the year on your number. mark chandler, the global head

of currency strategy joins us on the table. dollar, thenger function on the bloomberg. year to date, looking at major currencies, i see the only two currencies the dollar is up against and stronger against is the domestic peso and sterling. is this more than just a squeeze? >> the dollar gold trend is in place and all we have seen is a modest correction and it doesn't blitz -- begin at the beginning of the year, like you show here. the unwinding of the trump trade didn't begin with what trump is saying, it began with the federal reserve raising interest sell to buy the rumors and the effect afterwards. it's not just a dollar. treasury of is lower, stock market is lower. and thenbig move in q4 we unwound a little bit and i'm thinking we are at the tail end of that unwinding. within a couple of days going back to the stronger dollar.

alix: i'm trying to figure out the correlation between that and equities. dxy versus s&p over the past six , you can see a positive correlation that was negative for much of those years, so walk us through that. lookmetimes i think if you at the dollar rally in the early clinton administration, it was a bubble where foreigners were buying u.s. stocks and americans were keeping their money at home . then we had decoupling that is coming back because foreigners know that if they buy u.s. stocks they get a dollar is a kicker. even mildly so, a couple of percentage points, you add that and what we are seeing is foreign investors bringing money into the u.s. and later today at 4:00 we will get the tick data. the international capital flow, we will see what foreigners were doing to portfolio assets, bonds and stocks in what americans were doing abroad.

foreign markets might look cheap on a valuation basis, the dollar component makes people keep more in the states. jonathan: the bond market had been in the driving seat, but if you look at asset classes right now, who is in the driving seat? >> i still think it's the bonds, higher u.s. interest rates. multiyear highs with some levels on a 10 year bond yield differential that we haven't seen since the late 80's. for me the bonds have a 10 year yield, yesterday or the day before at 2.3%. as long as that holds, i think that everything is still intact and we will get the kind of stimulus that we get, higher inflation, it helps to lift u.s. yields and lift the dollar. alix: do we need trump to do that? or is the output gap enough? >> since the election we have seen the trump component as people price in fiscal stimulus,

deregulation, things that help corporate america. alix: great to see you, as always. who talks faster, me, mark, or you? >> me. [laughter] alix: coming up, the blackstone vice-chairman joins us for our continued coverage from the world economic coverage in davos. this is bloomberg. ♪

emma: coming up, jpmorgan ceo jamie dimon, live from davos,

switzerland, at 11 a.m. eastern time. jonathan: from new york city, this is bloomberg. 10 minutes, 11 minutes into the session. on how we trade this morning, equities in the u.s., up to the downside and in terms of a port move, the biggest weighing factor on that, despite a decent set of earnings, the rally we've had in bank stocks has meant that a lot of the q4 earnings from the five major banks on wall street, the stocks have rolled over after the numbers came out. london, 3100, up one quarter of 1% in the biggest loser there is pearson, forecasting years of textbook glue. doesn't sound good, does it? down 27 point 66%, it's getting battered in the equity market at the moment. switching up at the board for you asset classes

in 2017 with aggressive shorts on treasuries and the squeeze follows. the yield is up for basis points on the u.s. 10 year to date, that has not been the theme throughout 2017 so far. it has been bad, bad, bad, with inflation data coming in, cpi rising for a fifth straight month. the most since june 2014. looking at treasuries now, we are on offer, fx markets have been the theme so far, a weaker dollar, now stronger. at $1.06. the stronger dollar in the fx space after a week session yesterday. that's the market, but let's get to the action in davos, switzerland with erik schatzker. erik: thanks very much. headlines for you from davos, what does brexit really mean? in the bloomberg exclusive, hsbc ceo saying that banking revenue experts may have to leave london for where?

harris. nonetheless, he plans to appraise the handling of the justthus far -- brexit far. "i want to be loud and clear, populism scares me." christine lagarde says the solution is greater wealth distribution. the long shadow over davos. market hast the discounts with the positives of the trump area and none of the negatives. -- era and of the negatives. more from davos right now, me with lacqua joins john. francine: you spend one million hours saying hello to people just walking around here. john [inaudible]

erik: that's why people come. john: for a long time -- erik: for a long time, being invited was a badge of honor. is it a scarlet letter? francine: did you ask -- john: did you actually read that book? [laughter] erik: we aren't getting into that debate. francine: best answer. erik: should the people coming to this event to be wary of the risk attached to being labeled an elite? -- john: this is is a question for what, the 1% of the 1%? francine: we are having technical difficulties. we have to get your microphone on. look at this, this is live television. erik: taking a short break from davos, switzerland, and when we come back, more with john. ♪

erik: back to our coverage of the world annual economic dollars meeting forum and we are here with our guest, john studzinski, ready to go. john, we were talking about whether coming to davos is a risk. what do you say? john: it's never a risk to be part of a discussion. come on, you know that. dealing with people one on one, face to face. at what point -- why are you worrying about your reputation, why is francine? people are here engaging in conversation. you are right, the 99% is not here. erik: should they be? john: some subset of them. plus close created this wonderful group of young global leaders. i would love to see more of them active on a number of the big panels and things, because i would like to get their perspective. it was a wonderful panel today

and it would have been nice to get a young economist on their who might have had a different perspective on these issues. the person that comes to davos that believes in anti-regulation, does that person need to change? what will globalization look like in five years from now? john: the world order is changing very quickly. it has changed a lot in the last six months and even the year before the election. [lists worldve got with strong, personality driven, policy driven based on domestic populism leaders. this new what i call powerful political order that hasn't yet -- all the players haven't really started to configure in terms of meeting one-on-one, it hasn't really fallen into place but it will. that's the new order. davos will fall into line with

respect to that. erik: john, you care about these things. share with us some of the insights you are offering your clients. what is the world order we are talking about going to look like a year from now? john: the world that you have been discussing for the last couple of days is characterized by an enormous amount of volatility. certain people will say that volatility is a great opportunity to make money. if you are very clever at certain types of credit or hedge fund vehicles, you could make a lot of money. is large thing sovereign wealth funds with big fools -- pools of family capital, they want ongoing perspectives on the different markets in the world. starting with the united states as the biggest pool of capital and what's happening there with the election of donald trump, the u.s. economy, as well as several other emerging markets around the world.

to thee: we spoke kuwaiti investment authorities said that you need to be taking risks all the time. i don't know if he felt comfortable with it or not, but he said this was the name of the game in a zero-sum world. john: i'm not getting into where alfred. it's like where's waldo. wears out for? if you had to place your money in something secure, i think we are all very comfortable with u.s. commercial real estate. erik: big business or blackstone. not trying to talk my brief, but as an asset classes not as big as the stock market. one other thing he told us this morning is that he wanted to bring more money in-house and it farms out 98% of its assets now, he wants to manage 7%, 8% on its own. is that trend playing out across >> if you lookh

carefully at all the big sovereign wealth players, they'll manage a large percentage of their money in-house. the people you have talked about are probably the exceptions. they are all interested in remaining in different types of investment partnerships. having said that, they all have expert internal groups in hedge funds, real estate, so they are -- this has been going on for 5, but our space is evolving and we have to evolve with our clients, which is becoming more partners with them on different types of investment vehicles. you live inncine: london. theresa may yesterday's was very clear, she said chu is there to preserve lawmaking and cut down on immigration. and i are waving the banner on global britain and bannerng to support her

of global britain. it's the fifth largest economy in the world. london is going to remain a very important place as a city. i know what stuart gulliver said today, but i think that london as a place to live, a place for culture and business and capital we will get back to, and she will have to get to in the negotiation, is going to remain important for the u.k.. francine komen she said she wants a better deal than they have now. so many ceos are saying -- i'm sure it's out there, but at the moment i can't even conceptualize it. all, i think i have said this to eric before, there are several things you don't do in public. make peace, make love, and negotiate. we are going to do any of those in public. although the media would love it. may fornown theresa

several years. she's very disciplined, very hands-on. you probably know this, she's got a tight control on the process. even though she has delegated it to different pockets of expertise, don't be fooled. when she ran the home office, it was her baby. brexit is her baby. to decide, she gets whether it is softer hard. looks like it's going to be hard . but when it comes down to negotiation, what cards that she have to play question are you know chancellor merkel very well. how accommodating his chancellor merkel going to be to the demand that theresa may is presumably of theo make? john: one things that your question has to keep in mind is that we have had a bit of a theater here in davos and i think we are going to have the beginning of a very fine -- very long, five act shakespearean play. once the german election takes place, once the german leadership is either reconfirmed

-- probably in a different coalition -- those relationships andeen merkel and may french leadership and may will be reconfirmed. but you have 28 countries in europe. she is also expecting, from beforehand, to have a fairly strong trade agreement with the united states. erik: do you support -- john: i'm trying to avoid your question. the key question, what is your trump card question mark bad pun. [laughter] i think the trump card is her large economies with a strong relationship with a number of industries. erik: quick follow up there, does it serve her interest in the election to take a hard-line stance against easy brexit? john: first of all, i'm not an expert on brexit. francine: who is, john. john: nobody is. , mezzanine brexit,

breakfast brexit -- [laughter] the reality is that hard means decisive and definitive. what is soft brexit? party, you'rery being a wimp or something? you're going to redefine your relationship with european economies and the united states and the global economic order? is very straightforward. erik: john, thank you for joining us. john studzinski, vice-chairman of the blackstone group. jonathan: looking forward to the rest of the coverage throughout the morning and the day. a lot of news coming out of the world economic forum. a lot of things making noise in the world economic forum. stuart gulliver, listen to what he had to say about brexit and his bank. >> activities covered by european legislation, at the end

numbers, that's 20% of revenue. jonathan: thinking about putting a number on things. alix: saying specifically that that would translate into 1000 jobs. yes, looking to move people away. the corporate tax rate, though, will that play ball? just the beginning. 26 minutes into the session, let's wrap things up for you. equities are open lower on the dow. in a bond market, treasuries are off with yields higher and a stronger dollar. from the bloomberg team, thank you. up next, bloomberg markets. ♪

vonnie: 10:00 p.m. in new york, 3:00 p.m. in london. i'm vonnie quinn. barton.m mark welcome to bloomberg markets. ♪

vonnie: from washington dc to devils, switzerland. s switzerland. erik schatzker is standing by with top headlines. erik: we will begin with this. what does brags it really mean? saysh stuart gulliver investment bankers and up in paris. he praised theresa may's handling of the uk's exit. populism scares me. daliaare the words of ray as he predicted the potential end of globalization. christine lagarde says the solution is greater wealth distribution. overong shadow