♪ >> navigating the unknown. the president prepares for the first rate decision. what will it make of trump's first 12 days in office. bloomberg is told the old days are over and many have got it wrong on globalization. -- globalization from 30,000 feet at a resort or townhouse or think tank don't know a thing about how globalization works. it is country by country, deal by deal. i wish it was all like, free trade and all of that other

stuff. that is just not where we are. francine: and small dilemma. and many torn about whether to follow their head or their heart. this is bloomberg surveillance. i am francine lacqua in london. we are getting breaking news in the manufacturing pmi for the eurozone for the month of january actually rising 52 points. anything above 50 means an expansion. a little bit better than in economists had expected. let's quickly check on euro and see if there is a little movement. certainly a lot of global shares breakingng before the news, still rising. dollar stabilizing a little before the fed. --o-dollar 107 -- 1.07 107.98. we need to focus on india a little later on. the government unveiled its annual budget. -- oillar rising after

staying around $53 a barrel. that manufacturing pmi fury -- figure out of the euro area a little better than estimated. let's get straight to the first word news. nejra: president donald trump h forade judge neil gorsuc the supreme court. it is trickling a -- triggering a showdown with democrats. he would be the youngest justice since clarence thomas joined the court in 1991. a billionaire is concerned that trump's policies would overwhelm benefits of his pro-business agenda. for theks a change founder of the world's biggest hedge fund, who was bullish on trump's ability to stimulate economy.

in a letter to fed chair janet yellen, files -- house financial vice-chairman wrote, the federal reserve must cease all attempts to negotiate binding standards burgeoning american business until president trump has had an opportunity to nominate officials who prioritize america's best interest. general electric chairman and ceo is warning the time of unbridled global trade is over. the 260 million dollar industrial giant spoke exclusively to bloomberg news editor in chief. on trump's travel ban. context,erstand the safety. but we think there are better ways to do it. we are not opposed to speaking out on that, but yesterday, the president sent out an executive order that said two regulations have been canceled for everyone added, i am all for that. sticking on all of the negatives without standing back

and saying, there are directions he is going in that will be made for business. u.k. lawmakers will vote on whether to allow the government to initiate britain's departure from the eu. there was heated debate in the house of commons with the brexit secretary urging mps to back the will of the people. >> there must be no attempts to remain inside of the eu. no attempts to rejoin through the back door, and no second referendum. the country voted to leave the european union, and it is the duty of the government to make sure we do that. nejra: apple rose in extended quarterafter a record topping analyst projections. it was fueled by demand for the latest iphones. sales rose 3.3% to 78 point $4 billion. sales in china dropped 12%, the only region to see a decline. global news 24 hours a day, powered by more than 2600 journalists and analysts in more

am nejracountries, i cehic, this is bloomberg. afterne: shares are lower profits that missed estimates. maker issh stove appointing a new head for its appliance business in latin america as it looks to tackle the drag on profits in the region. we are joined on the phone for his first interview since the results. the key for joining us here on bloomberg. the appliance industry in the by. has long been affected competition issues. do you see protectionist measures from donald trump hurting you? test: we don't know what measures are going to be in place, but we do know that the vast majority of products we sell in the u.s. are produced in and with a strong frigid air brand. we are confident we have a strong position in the u.s.

regardless of the development. francine: what about pricing and promotion activity in the u.s.? what are you doing? hasn't been a promotional environment in the fourth quarter, especially around black friday. as for us, we are taking continued top measures to continue to reduce costs and increase in efficiency. francine: i want to go back to the competition or the trade issue with donald trump. how do you model what we understand from the president so far and its impact on your business? jonas: it is important to look at our business in the context of competition. we have a high share of our sales in the u.s. and produced in the u.s.. we are confident we are in a good situation regardless of what happens. i don't want to speculate on what type of regulation would be detrimental. francine: i totally understand that. a court verdict recently showed that lg and samsung engaged in

price dumping of washers in the u.s.. what is the significance on electrolux? jonas: we don't think we are disadvantaged. this is a specific case related areashers and we feel we competitive and able to compete in the current environment. francine: latin america continued to be week, you said and you demanded that brazil and argentina to be argumentative. right we are seeing the policies being implemented in both countries and with more stable government, and growth -friendly policies being implemented. we expect markets to recover this year, but we still see some remaining weakness in the first half. francine: and then you are expecting growth, or are you concerned about currency swings? this goes back to protection or he measures around the world.

jonas: we are heavily impacted by changes in currency. both the brazilian and argentinian currencies have been more stable, which has been positive for us. we are hopeful that will continue, also given the better economic policies being implemented. francine: how has the brexit vote affecting your queue -- your u.k. business question jonas: business -- business? jonas: it is only marginally down, the pound impacted our cost structure. francine: does it mean you have to increase prices? jonas: yes, and we have done that. francine: is there a chance that if the pound falls further, you have to increase prices more and what kind of range are you talking about? 3% or a 7% increase question mark -- increase? to look atl is have profitability. as the currency weakens, we will

adjust correspondingly. there is some concern that you will have more costs when it comes to raw materials, how can you hedge that? costs for raw materials are going up and will go up. this year, we indicated that will happen. we have also indicated we have to efficiency measures that more than offset those headwinds. we expect that in total, continued positive profitability in 2017. francine: thank you so much for your time. the ceo of the electrolux joining us this mirror -- morning. plenty more on surveillance. the ge boss speaks to bloomberg about the new world order. that conversation is next. plus, back brexit. the message from the government at the article -- triggering of article 50. and navigating the unknown. the fed prepares for its first policy decision of 2017 as it

faces the uncertainty of the new administration. this is bloomberg. ♪

♪ francine: this is bloomberg/surveillance. his career while -- riding the wave of globalization. but he is learning the time of globalized trade is ending. i think that philosophically, we believe in trade. we believe in the free flow of goods. inherently, we don't things like walls are good ideas. that's the backdrop.

i would say, there is nothing wrong with president trump wanting to a.c.t. manufacturing job in the united states. the president of china wants to add, the president of mexico wants to add manufacturing jobs, the chancellor of germany wants to add manufacturing jobs. i think his thrust on how do we help exporters? how do we find ways to help exporters, i think that is a good thing. said heision manager was doing something that would cause problems. >> i am for trade. what i'm trying to do, look -- >> you agree with the means. >> the media wants to drag every negative down to the ground. step back. that -- what is his goal? his goal is to drive manufacturing jobs in the country. i think it is good for people like me to listen to that, to try and understand that. it is not a bad thing. good for you, the

symbol of american manufacturing. no economist thanks this will help you. when you stand back, being able to have trade is a positive thing. >> you're being very diplomatic. >> for the last 20 years or so, it is not like chancellor merkel -- who is amazing, why like -- it is not like she and the president of china don't also want to create manufacturing jobs in their country. i think it is unfair to just --get some of the actions some of the comments president trump has made. that said, we believe in trade. in mexico, we sold $3 billion of product to mexico and from mexico. we think that is a good thing for the people of the united states and mexico. we want to continue to articulate that. but i think that somehow, the role of people like me is to try and navigate

between the two and hope to bring them together, rather just joining one side of the argument. >> you have a role. you are on his manufacturing counsel. >> i was also on president obama's job counsel. me, i didn't agree with everything president obama did either. >> what about the relationship with china? the prospect of any kind of trade dispute with china, does that were you? -- were you? ry you?he -- wor >> i think that relationship, a bilateral relationship between the u.s. and china is significantly important. for the whole world. so that is one i would be very strong on. >> you have very good contacts in china. you sense an element of the administration not entirely

estimating how much pressure the chinese are under? >> i think they need to. the chinese are good, they have a worldview just like we do. the presidentat is smart enough to understand that ultimately, china finds -- even though we will disagree on things -- having some kind of bilateral a in and day out relationship between the u.s. and china is critical. a smart guy. he is going to see that. francine: later today, president trump's nominee for the supreme uch will meetors for what promises to be a contentious fight in the court. mattis secretary james is set to head to east asia for the first overseas trip by a trump cabinet member. allies they can still rely on the u.s.. joining us is stephanie baker. let's welcome patrick armstrong.

thank you both for joining us. stephanie, first of all, let's focus on the supreme court. what does this tell us about donald trump's vision for america? he is confirmed, he would restore the previous balance that existed before the death of justice scalia. a 5-4ld give the court split between conservatives and liberals with justice kennedy as the crucial swing vote on social issues like abortion. kennedy is really the figure we need to watch here. his influence on the court should not be underestimated. he is 80 years old, there has been some speculation he is thinking of retiring and that trump's pick, who is not a divisive fixture -- figure, cut from the cloth of scalia, would be reassuring to kennedy that the court would be in good hands if he does try to retire. so, i think democrats are

andsed to his nomination some have vowed to filibuster his appointment. francine: what we know about the cabinet? mattis going to asia. when is the rest of the cabinet confirmed? stephanie: democrats have followed a showdown approach to the nominations. they boycotted a couple of senate panels that were due to chin and tomve mnu price. so they are following an obstructionist policy. they can't block these nominations, that they can certainly delay and cause a lot of problems for trump. francine: what do you make from an investment point of view? about thewe learned

trump administration, about how markets react and about the conflict in the u.s. over the last 12 days? patrick: i think we have learned he is about the more focused on protectionism, bringing jobs to america, pro-business expanding the economy, tax cuts, infrastructure, and i think that is what i was expecting in his first 100 days. focus on bringing people together and i think he's being pulled in directions he didn't even anticipate. he gets criticism, sometimes he fights back and gets off base a little bit. i think his story isn't as clean as he wanted to be right now. will be theat secretary of state's role in going to asia? he flies today? stephanie: the defense secretary. it sends the message that asia is incredibly important, a message they want to be ensure their allies. he is going to south korea and japan, which have about 80,000 troops stationed there. a bit ofstill quite

degree of concern about north korea's efforts to develop its weapons program. the issue of china will loom large over that visit. i think it will send a message that the u.s. will continue with plans to deploy an anti-missile defense program in south korea, which china has opposed. given trump's noise over china, his out to label china a currency manipulator and slapped tariffs on chinese imports, i think that will loom large over that visit. francine: is it more likely that we have some kind of a, skirmish, trade ward, currency war with china and the u.s.? patrick: i think coming into the area, it is more likely now. the rhetoric has increased a bit, words have been stronger than you would if anticipated. is moving soump far away from trade that he is destabilizing europe and bilateral trades with everybody,

rather negotiate -- the negotiating with groups of countries which gives the u.s. bargaining power. francine: patrick, thank you so much. with us.rmstrong stays and stephanie baker, global business correspondent. if you are a bloomberg customer, you can watch the show on your terminal. you can also follow our charts and functions, what our guests are saying and messages directly at the bottom of the screen. the you k's draft law for triggering brexit faced its first hurdle with a vote in the house of commons this evening. david davies kicked off an 11 hour debate by appealing to lawmakers to trust people and back article 15. -- article 50. >> there must remain no attempts , and noinside of the eu second referendum.

the country voted to leave the eu and it is the duty of the government to make sure we do just that. >> the british people did not vote to make themselves porter my pulling ourselves of the greatest free trading single market world has ever seen. >> what is it about having power back in the parliament that they cannot stand? and's --er, the once once and future sovereign parliament of the united tandem loads to make it sovereign again. that is what the people challenge you to do. ,> our membership of the eu gave us politically a role in the world as a leading member of the union, which made us more valuable to our allies. >> i think a new modern 21st-century economic, liberal democratic structure, which would give us that democracy and peace, that is why i hope everyone in this house will vote for triggering article 50. francine: that debate will

continue in the you k's -- u.k.'s parliament. let's get more with patrick armstrong. patrick, how is brexit going? patrick: she is still on track the march 30 two grain of article 50. there will be some discussion, people getting things off their chest. this will largely go through. it would be shocking if something derailed being able to put article 50 in place by the end of this quarter. months,: for many theresa may was arguing it would be better not to go through parliament because it gets messy. he saw that yesterday. 12 hours. patrick: some more today. it would be cleaner without the soundbites that everyone wants to have their moment of catharsis where they get to make your points. it does basically create the wall between the two people who have already decided. it brings up those things,

rather than unifying and working towards what we can do to make brexit a success. with no parliament, she could have done that. you still have to go through the house of lords, still some amendments added, as well. it is not a certainty, that it is looking likely we are on track. francine: if you bring it back, this is when the supreme court decided we had to go through parliament. chart up a pound little bit. is there still hope in the markets that brexit that's watered down? is still hope. i think a transition period is the best you can hope for for the pound. you don't want a cliff edge, you would like a two year period were a lot of things get resolved. a white paper says we are open to a transitory. , that would be good news for the pound. francine: do you think we will get it? 50-50.: it is

it is a binary decision almost and very difficult to tell where things are going to go. francine: you were thinking if we don't get a transition very agreement, does the u.k. fall back into a recession? patrick: very close. i would bet on yes. is important and financial services, very important. the jobs they create, flowing out of the u.k., if you don't have the transitory period, it is not like the u.k. is in growing incredibly strongly. francine: have you position yourself? patrick: we stay away from the currency. we are short the ftse 250. it is the most exposed. they don't have the multinational revenues and they import a lot of goods. their costs go up with a weaker sterling. you can't create higher prices right now. the u.k. consumer to buy more for goods.

francine: do you buy fix? patrick: we don't own vix because it is a punitive role cost. when it is flat, you lose 9%. francine: thank you so much for all the insight. patrick armstrong stays with us. up next, it is decision day for the fed. the first decision of 2017. how will yellen respond to the uncertainty created by the u.s. administration. we also have a full roundup of new markets. moment, little movement. a lot of it will be on donald trump's policies and this is what european politicians want to know about. this is bloomberg. ♪

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francine: i am francine lacqua in london. but get to the first word news. >> donald trump has named neil gorsuch as his fate for the

supreme court, the nomination is seems to trigger a showdown with democrats in the senate, he would become the youngest justice since clarence thomas joined in 1991. a billionaire says he is concerned that the damaging effect of the donald trump populism policies may overwhelm the pro-business agenda, a change for the founder of the world against hedge fund who in november was bullish on the incoming president's ability to stimulate the economy. electric chairman is warning the time of unbridled global trade is over, the chief of the 206 -- the industrial giant spoke exclusively to john mickelthwait and weighed in on the travel then -- ban. >> we understand the context but think there is better ways to do it, we are not opposed to speaking out on that. said any, the president

executive order that set to regulations need to be canceled. we are sticking all of the negatives without saying, there are directions he is going in that will be good for business. tou.k. lawmakers will vote give the government formal departure from the european union, yesterday debates in the house of commons with the brexit secretary urging members of parliament to back the will of the people. apple rose and extended -- in extended trade after a record quarter with revenue topping analysts rejections. fueled by demand for the latest and most expensive iphone's, sales rose 3.3% to $78.4 billion, sales in china dropped 12%. global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. this is bloomberg.

francine: thank you. for manufacturing data, january, in line with estimates, anything above 50 is an 49, expecting55 i am looking at pound, little movement on pound. the u.s. federal reserve delivered its first policy decision of 2017 later and it faces wide unknowns generated by the presidency of donald trump, they include the possibility of changes in the tax code and the widespread government deregulation for the potential of stringent restriction of immigration and trade. each pose challenges for central banks which want maximum employment and stable prices when short-term interest rates

controls -- and the head of teaching effects research of eib london and patrick armstrong. thank you for coming on. will we see dollar strength or will it stabilize and some of the policies are taking -- are confusing? >> the dollar rally we see may todelayed by a month or so get more clarity on what a donald trump wants, the confusion not helping the dollar but i'll review is longer-term bullish the dollar. -- our view is longer-term bullish the dollar. we -- if youand listen to what janet yellen said in january, terry interesting points, she gave three years verbal guidance and she said a few hikes which is more than a couple which i think means

three. it isnald trump policies, the fed will drive -- that will drive the dollar and if we have a continuation of we got -- francine: expecting three times? may havesk is the fed to deliver a bit more in line with their own projections. francine: why are the markets shy about this? the main difference between dotsry 2017 and 2016, the and the fed fund futures were aligned but not anymore. >> this time last year the fed was -- talking three and four times and the markets did not buy that. francine: the market was right. >> the difference is global backdrop, china manufactured from 48 to 53. -- the u.s.ackdrop

is in slightly better positioned than last year and the fed governor, you have inflation of 2% and wage growth at 3% and unemployment, the potential for fiscal stimulus adding to that, that makes an easy decision to hike. >> inflation could also make all the difference, what is quite different from last year is inflation expectation gauges in line with what the fed. breakeveni've year was close to 1.5%, are in a reflationary world, may not last for too long but for the fed it means that the next move will be up. the more persistent high inflation expectations, the closer the next rate hike and today's fed statement may highlight precisely that. going into the meeting, there is statement,nt and the

used to highlight in december the fact that inflation expectation gauges were relatively low. in terms -- that has to be adjusted, i am not for the market is looking that closely. francine: if we take a step back, since the inauguration, uncertainty about the outlook for the u.s. and what the fed needs is some kind of -- i don't know if it is an indicator that investment spending will continue and hiring will continue and the compensation will continue. a hikeo not expect today, those things will come, it would be inconsistent for any policy to come out of trump camp , those are coming and even without them, the economy is going quite well, you look at economic growth at 2.2% to 2.5% without fiscal stimulus so you may get a boost on top of that.

francine: how would a fed reacts to a trade war with china? risk, the usual reaction will be going to the equity markets to the extent that any global headwinds to growth or risk aversion tends to weaken the u.s. stock market and that will reduce my application the hasork effect that qe created, by application the fed was going into a more dovish mode and this may not happen just yet, because the domestic economy is in a better shape than last year. much more able to withstand global headwinds. i want to highlight the fact that the changing prospects for the further buildup in the consumer network by the ability to extend the future shocks, much more but lying on house --

from that point of view, the fed will be more confident that irrespective of any future global shocks, the u.s. economy recovery. >> the reaction will depend on the trade war, that means very strong dollar versus chinese currency, we expect that to happen in a trade war. and allows capital outflows gives china a competitive advantage on the currency which may impact the fed but if you're talking about terrorists from -- tarifs from trump -- apple surge in after-hours trade with a return to revenue growth and beating estimates on the fiscal sales, even the company surprised by the strength of the latest iphone model and caroline hyde has the beatles from san francisco. climbed seeing revenue

and earnings-per-share growth, a surprise to the market. iphone 7 plus was the killer product for this season, demand outstripping supply for the new camera that was offered on this piece, the cfo showing they surpassed even internal expectations for the iphone 7 plus. sell, slowcts they down which took some by surprise , theding ipods, apple tv displaced they sell and maybe a slowdown. that was brushed off by investors and shares moved higher after-hours trading, the services side of the business waiting the appetite of the investor based -- the company saying they will double the side of the services business in the next four years and the unit alone -- you can have apple pay

which is included, the music part of the business and the apples for which saw 40% growth in this fiscal quarter, they said this is now a standalone basis as big as the fortune 100 company. services is an area of focus for the business. if you are looking at one area of concern, the cloud amidst the , it missedng forecast but the reason is fx we sawds, the cfo saying a significant ramp up in the u.s. dollar likely to be a big problem for apple, they say a significant headwind but one that is faced by many tech giants in the united states. caroline hyde, bloomberg news, san francisco. francine: plenty coming up, president trump accuses japan and china of devaluing the yen ,nd yuan at american express and planning for the

unpredictable, looking ahead to the fed decision that first -- the first since trump took office and we took desktop banks, brexit with howard davies, he joins us later. for more, tune into radio daybreak. this is bloomberg. ♪

♪ francine: i am francine lacqua in london. mark barton has been following the action on the terminal. mark: european stocks rising. we are waiting the fed a little later, a wonderful chart, the

dollar against its major peers since the start of -- one major currency has fallen against the dollar, all the others have risen and the mexican peso barely changed which is some performance given the comments by donald trump about the wall. from -- the words trump from trump on the euro, he says he do not matter for three reasons, they are to be expected, trump is protectionist, his policies for the fed did not look like they will support the case for a weaker dollar for now and the -- that place members to stay out of the fx markets and will not encourage competitive devaluation. euro, he said germany's excessive surplus is a sign the euro is grossly undervalued. this is the euro-dollar, up by

2.7%, it comes after it slumped 6.4% in the fourth quarter, the worst performance since the first quarter of 2015. measures thefour euro is undervalued between 9% and 25%, purchasing power showing the euro remains the most undervalued among its eat-in peers but analysts say headwinds for the euro include the benign inflation outlook and dovish central bank, and rising political risk, the biggest gainer in europe is although -- 7.7%, 10% morep truck orders in the fourth quarter, european demand increasing, a market drop in north america using adjusted operating profit in the quarter rose by 24% with the margin widening to 649% of sales versus -- 5.7% and a

forecast for north american truck market to 215,000 vehicles. francine: as he was saying, germany and japan has struck back about currency claims by the donald administration, he said japan and china cap the yen and you want the value -- yuan devalued. merkelabe and angela denied the charges, this comes as the u.s. currency tumbles more than 2.5% in january, the worst monthly performance since last march. thank you, patrick, we had an exclusive interview with heater navarro -- feature navarro -- peter navarro, he says anyone

with a surplus is cheating america, what does that mean he will tell the president to do? >> highlighting germany is peculiar because you look at the eurozone as a whole, not germany's currency but the eurozone currency, it is true that germany is benefiting from the weaker euro, and the zero interest policies and the it is notve easing -- fair to say germany is manipulating the currency. it is appropriate for the eurozone and trade surplus he will view as a negative, the trump cabinet ministers are all doing it that way but when the u.s. is importing it is a side of strength for the economy, 70% of the u.s. gdp comes from consumption and when the u.s. is firing on all cylinders consumption goes up and some will come from foreign goods so i do not think focusing on surplus and deficit is the way to go. francine: will he label china a currency manipulator's and if he does it in a way that confronts

them, how do they retaliate? >> labeling china or germany eight currency manipulator, yesterday, it may be difficult to use the criteria that the previous treasury has proposed to evaluate the currency -- devaluate the currency, none of the main trading partners are close to breaching any rules, if they were to use -- it is unlikely china or germany or anyone else will be labeled a currency manipulator, rules could change and that is the big risk at the moment, the central case is that donald trump will be fairly elected to go down that route, especially against china given the consequences this could have for the global economy by implication and the reaction through the u.s. risk

but it may be an optimistic assumption. trying to adjust our strategy as we speak and the more we learn about trump, the more helpful it will be. increasingly growing risk that the u.s. at some point will label china currency manipulators and retaliate by imposing tariffs which could have negative applications for global growth as a whole. francine: do you agree? navarro.ted peter the peculiar thing with this, if china was to float its currency, it would not strengthen, it would weaken, billions of capital outflows on take ofhey kept a soft their currency to the u.s. dollars which has led to some appreciation of the dollar but on a trade weighted basis, china appreciated versus the euro and the yen over that time. it is many bleeding its currency

in a way that supports the currency -- it is manipulating its currency in a way that supports the currency. francine: patrick armstrong, thank you for staying. up next, the first skepticism of the trump era, rates are expected to stay put but what effect will the president's action have on the fed future policy? we will discuss that more from washington. this is bloomberg. ♪

francine: i am francine lacqua in london. defers decision under donald trump -- the first decision we have ald trump, preview, we are expecting some kind -- clue but expecting a the fed motivation may be to stay out of the way given donald trump and the way he has talked about the fed, now they do not think they know enough to make a forecast for what the economy will be in the next six or 12

months because they do not know economic policy, they may have to raise rates fast or cut rates depending on how the markets and the economy reacts, the best guess is they will knowledge the economy's strength but not say what they will do next. announcesdonald trump supreme court nominee yesterday, give us some of the details. nominee,orsuch is the he has a sterling resume, donald trump suggested he is a columbia university graduate and that he went to harvard law, the same class as barack obama, then on to oxford. very well educated and a very good writer, reliably conservative although not too far right wing. the kind of take that should provoke a fight from democrats and should get through the congress very easily. in these times, it is hard to say, democrats promising a big fight, angry over what happened to their nominee last year,

merrick garland. this opened a wound and a debate in washington going forward. francine: donald trump has been in charge since the inauguration, 12 days ago, how does the fed outlook get impacted by the policies we have heard so far? >> there is a question about how the fed will think about donald if not himcially -- directly, others in his administration have suggested that janet yellen will be replaced at the end of the year. do they try to accommodate what the administration is trying to do or push hard against it, particularly if it is inflationary. a lot read into what janet yellen and stan fischer, the vice-chairman, do and say over the next couple of months and in two weeks we will hear from the , and yellen, her testimony markets are going to be twitchy around that because no indication of what trump wants

to do and how the fed will get along with the new president. tom: thank you very -- francine: thank you very much michael mckee from our washington bureau and he will follow the fed through us -- for us with the day.- with us for the the dollar stabilizing on the back of what michael mckee was saying on the fed. this is overall what we are seeing in europe, european stocks climbing and s&p 500 futures rising, the tokyo stocks erasing an earlier loss and indian equities after the government unveiled its annual budget and next we speak to the rbs chairman, howard davies. ♪

♪ president trump's supreme court nominee neil gorsuch should -- could face a

challenging confirmation fight. , no fedfor clarity press conference today, investors coming through the policy statements on the timing of the next rate hike. building brexit, the house of commons votes on the draft law to trigger article 50 as u.k. factories feel the pain with costs rising at a record pace. good morning, this is bloomberg "surveillance." i am francine lacqua and tom keene is in new york. more on the fed and politics and policies. tom: let's go to the -- we will go to the fed coverage at 2:00 p.m., more than any other fed meeting, there is so many other stories wrapped around the actions we will hear from chair yellen. francine: the secretary of defense traveling to asia which is a pivotal moment for maybe a reset and foreign relations. let's get to the first word

bloomberg news. taylor: donald trump nominated neil gorsuch for the opening on the supreme court, he is expected to have a conservative voting pattern of antonin scalia. he was introduced last night at the white house. >> i pledge that if confirmed i will do all my powers permit to be a faithful servant of the constitution and laws of this great country. he faces asuch vote, confirmation charles schumer calls him an ideologue and is skeptical he can be independent and the federal reserve expected to keep interest rates on hold when policymakers wrap up their meeting today, officials looking to see whether the economy shifting out of its low-inflation 2% growth mode into a higher gear. since the election of donald, household and business sentiment indicators have jumped. on brexity's law

faces its first asked in parliament, the house of commons scheduled to vote on whether to trigger the formal start of negotiations with the european union, almost certain to pass. her own conservative party demanding more power over how talks are conducted and next week lawmakers will propose more than 100 amendments to the law. in india, the prime minister is looking to shore up support before state elections, operate tax cuts and boosts and spending of some of india's poorest citizens and plans to spend $59 billion to build and modernize airports and railways, and roads. global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: a data check, three days in a row, not that much going on, equities have pulled back and greater correlation yesterday but when you look at the data, not much changed, euro stronger a little bit over the last

couple of days. francine: this is my data check, similar to yours, looking for big movements. dollar stabilizing before the fed and global shares rising with european stocks picking up. 113.4. teachy, nonot get clinic on moving averages, they are a great way to lose money but this bloomberg chart is two,d moving averages, nine and 30. ,ll you have to know on the dow francine, moving averages have converged to a single point, that is how boring this is, deciding which way to break, maybe that shows some indecision we will see from the fed today. francine: i like your chart but i did something different, i charted the spread between

france and german yields, i brought this back to 2012. july, i circled were mario draghi said i will do whatever it takes to defend the currency but you can see the spread widening. and two seconds, this is a marine le pen risk, if you have a flawed candidates and -- of employing his sons, if you have a runoff, maybe it gives marine le pen a bigger chance so watch out for that spread because risk is being calculated. the interview of the week, sir ,oward davies, the rbs chairman we can talk about the elections, donald trump, the markets, what have we learned about the kind of america the president will create? mr. davies: well, we are

learning, as we go on, a new day, the bigery issue is a run-up in the dollar and stock market with what you mp-flation the tru trade, but the latest noise from the white house, the protectionist impulse of the trump administration looked strong. people have criticized the germans for current see monopoly -- currency minted galatian and people are starting -- currently manipulation and people are asking is this serious, will we get some species of trade war, always the potential offset, the short run impact of this go relaxation was likely to be positive but the long run impact was likely to be negative. at the moment, we are at the point where people are starting to pause and say is this serious? we cannot say because we have just heard a bit of rhetoric, no

executive orders written in this area. -- let's does it mean say the u.s. moves to a more protectionist stance, does it put in jeopardy the reflationary and bring jobs back to america, the infrastructure spending, or can you have both? if you have both, does it almost managed each other out? mr. davies: i do not think it invalidates the former but i think it would be, from a market perspective and growth perspective, an offset if we got into tit-for-tat with china most likely, that would be an offset because trade, net exports would decline which would offset the economic boost of the fiscal relaxation. tom: howard, good morning. 101, if you lse were lecturing today at the london school of economics, how would you speak about mercantilism and a zero-sum society, is that where we are

headed? mr. davies: one would teach that is a dangerous place to go. a rather peculiar way of thinking about trade, 19th-century they were thinking wouldit and that -- one begin by talking about series of competitive advantage and how trade can benefit both sides. but ife bit idealistic you cannot beat idealistic at the london school of economics, where can you be? this way of thinking about trade is old-fashioned way of thinking about trade and not one which reflects contemporary economic thinking. tom: how do you drag the theories we cap into the 21st have into the 21st century? mr. davies: a difficult question. francine: and 20 seconds, please -- in 20 seconds, please.

mr. davies: people need to be shown what the potential risk of going down that track are. for a quick education process -- the new administration you have to hope for a quick education process for the new administration. francine: a good one bilateral trade deals because it gives more power to the u.s., is a completely far-fetched to think we could have some accord without the u.s.? mr. davies: one has to accept the discussions over the last transpacificut the for ave shown a need more stable economic and trading framework. i do not think trump is playing to an empty arena, there are arele who believe there things wrong with the trade

relationships we have at the moment, the issue is to approach that from a multilateral angle, saying let's talk about this multilaterally but we have our interest, which every country does, or do talk about it like, we have our interest, if the rest of the world wants to talk to us, that is fine but we will protect our interest in a bilateral way. one hope would -- one would turn this the other way to use the multilateral frameworks to argue the latter, some of these deals have been a disadvantage to the u.s. francine: are we getting confused with the advancement of technology which can displaced workers, with income and wealth distribution, is everything being mashed together? mr. davies: yes, and you may add corporate taxation, corporations have chosen where they paid their tax which will annoy people. mixhave to add that to the because the narrative to the states this people are moving

production offshore, holding their money offshore, have not been paying tax, and all of that is a toxic mix. tom: let's continue with sir howard through the hour, a lot of good guests. all of the driving to two :00 p.m. this afternoon washington and wall street tom, our federal reserve coverage -- 2:00 p.m. this afternoon washington and wall street time, our federal reserve coverage. this is bloomberg. ♪

francine: figures of washington,

d.c. and capitol hill and we will hear more news from the supreme court later on and where we turn to the fed, the decision at 7:00 p.m. london time, 2:00 p.m. in new york. let's get to the bloomberg business last. -- flash. >> jeffrey immelt says it is just not the rise of president trump but a confluence of forces, he spoke to our editor in chief. >> people see globalization from 30,000 feet, at a resort or in a townhouse, or a think tank, they do not know a dam thing about how globalization works, they go country by country, deal by deal , i wish it was all like free trade and all of that other stuff but that is not where we are. >> he says he would place emphasis on having strong ties with china, general electric

relies on international markets for more than half of its sales. apple attracted new iphone fans over the holidays and the quarterly sales and profit beat estimates, the company sold more than 3.5 million more phones in the quarter than the year before , indicates growth is driven by new customers. stay with a bloomberg "surveillance" for more on apple. that is your bloomberg business flash. francine: thank you so much. john will drop -- donald trump's supreme court nominee will meet with senators, that comes after more sturdy about presidential power. anding us is michael mckee with us is sir howard davies the rbs german. what are we expecting, the supreme court nomination does not come as a huge surprise.

many people this is what the election was all about, antonin scalia, who died last year, was a reliable conservative and reliably pro-life and neil gorsuch, republicans feel they got the same kind of jurists. gorsuch is someone with a sterling resume, as good as it gets, columbia, ivy league, harvard law, classmate of barack obama, went to oxford. connection is yearsrate, kennedy is 80 old and thinking of resigning and if he is happy that gorsuch is someone like him, he may go on and quit and give donald trump another nomination. tom: when i look at this, i look at the beautiful graphic in the new york times today, a bet on the part of democrats over how much of a stink do they put off,

they say the careful what you wish for and go with gorsuch as someone who can lean to the chief justice's theories. is all about strategy, the usual kinds of reactions we are hearing, democrats say he is out of the mainstream, an unusual time because of donald trump and because the democrats blocked merrick garland for an entire year, a feeling it may be a time for payback and democrats to take a stand against trump. the other side is, if someone as qualified as gorsuch goes through, it does not tilt the balance because he is not different than scalia, maybe then they hold their fire and try to hold off another nominee should one of the justices over 80 leave. tom: full disclosure, mr. gorsuch probably roots for michael mckee's denver broncos.

the delicate question, how many more selections will a one term president trump have? do you want to gain that optionally for senator schumer? for thosehat question on the court because of the lifetime appointments, questions about how longer lifetimes are, you have three justices 80 years or older and a good chance of more retirements. the more liberal justices like ruth bader ginsburg may want to hold out as long as they can but it gets back to the anthony kennedy question -- does he want to retire feeling that his seat is in good hands because neil gorsuch is there? francine: thank you. we will go back to michael throughout the day from washington, d.c. let's get back to howard davies. how do you view the policies for wall street? talking about the regulation --

deregulation. sir howard: it depends on which way the european banks go, the question is whether the proposals produced by jeb , which would change the approach to banking regulations so you would have to have a more higher leverage ratio but if you had that you could forget about a lot of the details of resolutions and all of that. that is an interesting trade-off, a different approach, not a straightforward deregulatory approach because the banks would have to increase capital but it would take off detailed pressure. if the u.s. goes in that direction, that poses a challenge to the global framework goes that is not where basil is an european banks could of a leveragehigh

ratio at this point and we could be facing a situation where we could have a parting of the ways in global banking regulation with the u.s. going in one direction and the europe -- and europe going in another direction and equal recognition and how far are we prepared to allow thank you operate in each other's jurisdiction. francine: does the firing of the district attorney, sally yates, probe? impact, on the sir howard: i have no idea. have amoment, we different attorney general every day. i think it would be unlikely it would have a huge impact. are -- if those cases hard to tell. tom: when president trump visits europe, the g7 meeting, when he

visits england, how will he be greeted? sir howard: it will be next because there aren't -- mixed because there are a lot of people here upset about the travel ban. there will be quite a bit of opposition. the main mood will be curiosity. what is he really trying to achieve and what will his attitude to europe and nato be? line up mored to with his defense secretary and perhaps secretary of state, or pursue his own line on that, that will be the most decisive thing. tom: quite important, that is what i am focusing on, secretary tillerson -- secretary designate tillerson and secretary mattis as well. on bloomberg radio, important interview, barry eichengreen of berkeley on the dollar and on

the president. look for that later today, a conversation. ♪

♪ -- pictureasers, use quit as written -- britain's ambassador to the eu. saidwith howard davies, he

he never said renegotiations would take 10 years, are we closer to finding out what brexit will look like? sir howard: it depends on what kind, we are in one's sense, the prime minister's speech said we will not be in a single market or in the customs union, we know we will not have a reorganization and the passport will continue. in the city, we realize that for some time but if you draw lines around immigration, you cannot have the full single -- moved on withthat her speech as far as the city is concerned, explicit reference to the importance of transitional elements which we had not heard before, which is crucial. for the city, that is the most important thing, it can cope with changes, some people will move as a result of what you cannot cope with is the discontinuity in contracts which will be very disruptive. francine: will rbs move people?

sir howard: we do not have a big problem because we do have a eurozone bank in dublin which is regulated by the european central bank and is a sizable bank. we have a eurozone base if we want to use that and small operations in the netherlands and germany and elsewhere. we would probably have to move some people but tens of people, not numbers other banks are talking about. tom: we will -- francine: we will talk about french politics ad also coming up conversation. this is bloomberg. ♪

tom: bloomberg "surveillance." we are focused on much more of a transatlantic field with all of the news. francine lacqua and howard davies in london and i am tom

keene in new york. let's get to the first word news. taylor: dollar drop's -- donald trump's supreme court nomination will likely see a fight, he announced the nomination of the federal appeals court judge last night. neil gorsuch says he thinks the court should interpret law and not make them. >> the united states is the greatest deliberative body in the world. fact that in our legal order, is for congress and not the courts to write laws. tolor: democrats promising put up a fight, charles schumer called gorsuch and ideological and is skeptical he can be a strong, independent justice. shinzo abe plans to discuss creating jobs in the u.s. during his meeting with president trump next week. he told parliament it is not

enough to look at the difference between exports and imports, the president has called the imbalance with japan on cars and trucks unfair. a report says the new u.k. trade agreement with non-european union countries will not come close to offsetting the impact of leaving the eu, the national institute of economic and social research critics leaving the single markets to lead a long-term reduction of british trade to up to 30% and increased trade from new deals would boost trade less than 3%. global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: i want to squeeze in this chart, the current events of economics, sir howard, peter navarro said germany exploits the euro to lead to a large trade surplus and an unfair advantage of exports from germany. there is a lot of pushback.

some rights it is an illegal currency racket for germany, i do not buy that. bring in this chart. here is german trade balance throughout the euro, a big up and a massive surplus from italy along italy was turning with a modest deficit and italy goes to a surplus, how can germany be a next order of the of the eurooiter given the loss of the european union? sir howard: i do not think it is an exploiter of the euro, the germans joined the euro at what many of them perceived to be an uncompetitive rate, and they thought they had been manipulated by the french who agreed to rates that were too high for the door to mark -- deutsche mark. focused onns

productivity increases and wage unions, unions in germany worried about the impact of competitiveness, agreed to very tight wage deals and german competitiveness improved radically. other countries in the eurozone took the view that having joined the eurozone, they could not have a balance of payments problem and competitiveness was not a problem and wage rates rose in greece and spain and italy, also in france and they became less competitive. if you call that manipulation, that is a difficult word to use about it, it does mean however that germans are operating with a currency that is an average currency for germany, italy, greece, spain, etc., certainly lower than it would be if it was just germany, austria, and the netherlands, that is true. yearshen you look back 20 and 30 years, with greenspan, rubin, summers, is the u.s. the ultimate manipulator of their exorbitant privilege?

sir howard: i think these loaded words like manipulation and even l are not alega healthy way to look at this. the traditional phrase, the dollar is our currency but your problem is typically what the fed treasury secretaries have said but i think that is a fact, it is the global reserve currency which gives you certain youdoms in terms of the way handle your own monetary policy, people do not have a choice but to own dollar assets which creates a underpinning. to turn that around and use words like manipulation, people are doing this deliberately, i do not think that is how policymakers think about it. francine: how problematic will presidentcy --

presidency before europe? sir howard: they do perceive more so than here as a threat. more pressure for common european positions being taken, whether that will read across into the individual elections, there are a lot more national things going on. francine: do you worry about marine le pen winning? the independent who used to be win and goister may to the second round. what happens if we get a standoff? sir howard: until recently, i fillon would win and appeal to blue-collar people flirting with marine le pen. but nowe have wells wife risk

risk which has unsettled things. never been elected to anything and i think the idea of him in the second round versus marine le pen is a roll of the dice because he has no party to back him except his small organization. he does not have tradition, how would he behave in a big .ampaign what happens if marine president? elected i don't know a 10% chance or 50% chance in your eyes? sir howard: it is here is serious indeed for the euro ,roject in total, because although she has been cautious about saying she wants to come out of the european union, she wants to come out of the euro, i

think the european project would be in big trouble. i cannot see mrs. merkel standing there in a press conference with marine le pen talking about how the franco german alliance will be reestablished. tot is an existential threat the european project in total in the way brexit is. tom: when we look at all we are talking about, of populism and a political turmoil, i go to john times, in the financial our markets betting on the advantages of a trump reflation or does that -- is that a money illusion? sir howard: i think probably there will be a trump reflation in the form of lower corporate taxation and infrastructure spending, whether there are enough shovel ready projects for that to be a big factor in the short run, i don't know.

i do not think it is a complete money illusion but maybe at the moment people are putting too much emphasis on that side of the trump presidency and too little on the trade risk. tom: i look, sir howard, at all that is going on and the idea of a trump reflation, help me with what janet yellen should do. i have never seen this where we have ignored a fed decision as we do at 2:00 p.m. today, help me with the response of a leading economist in chair yellen to all that is going on in washington. sir howard: i think the fed will be asking itself whether the trump reflation will really occur and whether there will be a corresponding pressing offset on economic growth from worries about trade policy. were the fed, i

to cause me to hold my fire for the time being, and not take it for granted that we will see the economy growing more rapidly and therefore they could raise rates quickly. to adoptxpect the fed a wait and see posture for the moment and i think those factors will be in their mind. tom: here is the trump reflation, the day after the election, up we go, here is this indeterminate churn that chair yellen faces this afternoon. francine: going back to what you dot aying, sir howard, the plot. tom: outdoing me. francine: you see that? feds are saying 3-4. sir howard: that is not surprising because what i have been saying is that people are

now starting to try to weigh up the totality of a trump presidency. in the first week, they said it would be about reflation and the dollar would rise and now they are saying that maybe there are serious threats on the horizon on the trade policy front and a grinding of gears and eventually if there is more of a rational outcome that it could be disrupted in the short run. much,ne: thank you very rbs a great interview with the -- a great interview with the rbs chairman. this is bloomberg. ♪

francine: this is bloomberg

"surveillance." after its stabilized first month since march as investors assess the impact of a donald trump residency a set of a federal reserve policy decision this afternoon. us -- thank you for joining us, we want to talk about the economy, we spent a lot of time, we had a great chart on what the policies mean, if you are a central bank, how do you view the power forward because there is a lot of uncertainty about possible trump policies? >> i would wait and see. the only way we can deal with the policy uncertainty right now. the presumption in financial markets was that trump would bring fiscal stimulus and that accounted for the dollar appreciation and the initial markets reactions. twohe meantime, i think

things have sunk in, his policies on the trade front and international policies are bringing significant risks that may have offset -- francine: risks of what -- trade wars? we have been trying to figure out, does it imply a recessionary environment globally? >> it would have a negative impact on global output, specifically u.s. global output which is a risk. the other risk is that the fiscal stimulus may not materialize in a way that was initially expected because the president will have to deal with congress on possible offsetting cuts and so forth. you did your phd at the massachusetts institute of technology but i believe you are up to speed on the economic .heology of germany

if you see any variance or change and what i hear from axel the germanic conservatives, is there an adoption or change of tone in the recent months of all of economic europe? >> well, i do not think there is a change in underlying philosophy. the conservatives in the german government still want to balance the budget. they are not into activist policies and do not want to engage in extensive euro area reform, they think these things bring big risks and that reforms are generally prone to being exploited and end up hurting german interest. in that sense there is a negative. what has changed is that the general environment, those in the eu and now with the election of president trump has become

much more risky and that forces the german government into greater pragmatism. the germans were pragmatic when it came to the treatment of portugal and spain and the stability and growth pact, in spite of the dire -- violations, the germans did not make a big fuss, they went along with the decision of the european commission not to punish and the germans have laid low on how to do with banking system problems in italy. evenit comes to trump, before the election, the noises coming out of the u.s. led the german government to want to increase defense spending. in that sense, yes, a change but it from -- pragmatic change. tom: within the pragmatic change, bring up the chart again , we have the german surplus, a ,assive, pernicious surplus

someone called it an illegal currency racket but i will not go there. is, is germany a currency exploiter or can we dare say a currency manipulator? >> absolutely not. we have to distinguish between arrodimensions of what nav claims, one claim not a new claim. you can read more detail in his comment of economic policy published at the end of september. he said nothing new yesterday, compared to what he already wrote. his main claim is that, if germany were to exit the euro, its currency would appreciate, exports would become less competitive, particularly in the u.s., which would reduce the surplus which is true. most economists would agree with that, where i disagree with him,

two points, this would reduce the surplus and not eliminate it. he has this idea that any sort of surplus or deficit is the result of currencies not floating freely and anyone in financial markets, any economist knows this is nonsense. we have large persistent deviations from trade balance and current account balance for one simple reason, exchange rates are determined by investment flows as much as trade flows. the other sense and which mr. navarro is wrong, the choice of germany to be part of the euro does not reflect the desire to keep its currency undervalued. it was a political choice taken 20 years ago. initially, it may be german currency less competitive and not more competitive, we are seeing a reflection of the euro crisis, nothing structurally about the euro that makes germany more competitive. francine: thank you and we will be back.

we will talk more about some of these surpluses and peter navarro accusing china of keeping america. it -- cheating america. if you are a bloomberg customer, you can get great chart tom has been putting up, and give the show directors thoughts. we will have a look at it. but the more coming up, including euro market -- plenty more coming up, including euro markets. this is bloomberg. ♪

francine: that is the uk's rate secretary speaking to the parliament trade committee in london and we are following anything he says. we heard from the brexit minister yesterday. he has come on the show to talk about his trade thinking, said the approach means no option of increasing tariffs. the brexit conversation is ongoing in parliament. yesterday a 12 hour session. support for germany's social democrats has jumped to the highest level since 2013 after the party picked a challenger to

angela merkel. you have great insight into german politics, how would you view it as a global investor? you now have a real challenger to angela merkel. he is no different or would not be vastly different if elected in terms of policy. >> as an international investor -- it basically means two things his predecessor as chair of the social democrats is an experienced politician and my former boss, would be better at the polls, a stabilizing force for the social democrats. he raised them by a few points and has centrist -- left of center, pro-european policies,

conceivable as a chancellor and a partner. there is a strength in the program international and pro-european moderate forces in germany. francine: do you think the president wants -- president of the united states want stay strong or weak europe -- the ? >> estate delete weaker because he views international relations as a zero sum game -- essentially weaker because he views international relations as a zero sum game. he may regret this. tom: when i look at the fed today, what is your thoughts on the balance sheets? your institute has done research on this, should mario draghi bring in the balance sheet overtime, should chair yellen bring in the balance sheet over time?

>> on the speed of tapering? tom: yes. >> i would say that uncertainty has gone up a lot. in moments of uncertainty central banks are well advised to lay off. essentially to slow the speed of any change on underlying structural change that may be in the pipeline. francine: sorry, fighting for politens, it must be wednesday. spreadspens to overall? does political risk come to the forefront, the ecb could taper quicker than we thought and political risk on all sides coming to the forefront. >> the export anything about financial market indicators in

important thing about financial market indicators in general, risk is not apparent, even though a general sense that political risk has gone way up. the chart you have on the screen -- francine: a spread between german -- >> it has gone up that proceeding -- but proceeding, a statement about the italian banks. much.hank you so with the peterson institute. in the next hour, we look at apple's financials. ♪

holiday chair order. this afternoon, chair yellen executive order

on inflation and jobs. will she signal a path to a read increase -- to a rate increase? will president trump's pick for the supreme court tilt toward justice kennedy or scalia? good morning, everyone. this is "bloomberg surveillance ," live from our world headquarters in new york. i am tom keene in new york. francine lacqua eisen london. cookad that you put tim atop for another quarter. there is a little bit of news, including -- don't forget our full coverage of the fed. at 2:00 p.m. this afternoon, you will be home with the cherubs, and scarlet fu and i will be inng it with michael mckee

washington. let's get to first word news with taylor riggs. taylor: president trump has nominated federal appeals court judge neil gorsuch to fill the opening on the supreme court. gorsuch is expected to attract -- two track the conservative record of antonin scalia. he was introduced last night at the white house. i am confirmed, i will do all my powers commit to be a faithful servant of the constitution of loss of this great country. taylor: gorsuch now faces a senate vote. british prime minister theresa may's draft of the law embrace it -- on brexit faces its first draft in parliament today. is almost certain to pass. still, her own conservative party is demanding more power over how talks are conducted.

lawmakers will propose more than 100 amendments to the law. in france, far right candidate -- leads pen leaves the polls in first-round voting. she has 27%. and francois%, fillon has 20%. marine le pen says she dropped bringing back the death penalty from her platform. in india, the prime minister is looking to shore up elections. he is offering tax cuts and reducing spending. he also plans to spend $59 billion to build and modernize airports, railways, and roads. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. francine? tom? tom: francine, equities, bonds, currencies, commodities.

the curve is sort of there. curve flattening, trump reflation. 53.03 on american oil. francine? francine: this is similar to what i have. threatthe u.k. inflation . that is mounting. overall, french bonds are under pressure. equities are up, oil at $53. tom: let's get to the chart to show how trend-static we are. here is the dow, here is the trump reflation. the elections are right here. these are three moving averages. be careful with moving averages -- they are a great way technically to lose a lot of money. the purple, green, and yellow lines are altogether. that is how range bound we are. this is one of our themes this hour. theme.e: i like that

the other theme is rising risk in political europe. this is the french-german 10 year spread. you can see that there is another french election poll, bad news for francois fillon. he risks getting eliminated in the first round. couldeans that macron beat le pen. --: some of the dynamics listen for sir howard davies. we will have done on our itunes podcast, i hope, later this morning. he was magnificent. professor navarro, with president trump, on currency, and exploitation. trying to get back to normalcy from the political dialogue. managementgan asset amended or adjusted a given

portfolio because of the trump presidency. >> we are really going off how the economy was looking at the end of last year. as you recall, it is in the middle of last year when economic data started picking up in the u.s. and around the world. to us, it really started this inflation trade. these movements in the equity market -- that is what we are focusing on, the incoming economic data that remains very strong. that is how we are focusing our till to risk. tom: with the till to risk -- with the tilt to risk, you look to send spread. cents spread. could we get further steepening? gabriel we could get -- gabriela: we could get further steepening.

endk of the 10-year by the of this year, much closer to 3%, 3.5%. as you are pricing in higher inflation and higher growth, bigger deficit kind of world we think we are in. francine: that is under the assumption there are no trade wars or currency wars? gabriela: when we say we are focusing on the economy we have, that is not to say that we are thinking about policy. both from the upside, coming loweress regulation and taxes, but also to the downside, the potential for more trade wars or more restrictive immigration, both of which we negative.d be francine: the morning must-read us from mohamed el-erian, talking about the markets. he says -- francine: this goes back to what

you were just saying, the fact that at the moment, the working assumption is on the economy that we have. when are you expecting the president to unveil more in the economy? the inflationary purse that he wants to make sure he gets? gabriela: i think we got a good indication of that last week. not the executive orders necessarily, but the republican retreat that we got at the end of last week. that was a good indication of the kind of priorities we are likely to see over the coming months. what was interesting is, first of all, the priority is on the repeal-replace of the affordable care act second, comprehensive corporate tax reform. the goal is to get to by the artist recess, and then tertiary, comes the conversation about infrastructure spending. the details are likely to take another few months. oure are basing

expectations of inflation and growth on infrastructure spending, we can be disappointed. tom: i want to quiz you further on this. it is outrageous on a wednesday we had this much optimism on "bloomberg surveillance." bring up the chart, the 10-year yield. a -- here are the three outcomes. i want to make clear that ms. santos is way up here in the land of the optimistic, which is 3.75% yield. get does the gloom crew wrong with the red oval circle? gabriela: if we think about the 10-year, we should think about where nominal gdp should be or is in the u.s.. we have a scenario where we are growing at consistently 2%. we have a scenario where inflation is normalizing above 2%. 10-yearues for 4%

treasury yield. we are past the peak of when the fed is driving the bond market. tom: and that drives that into earnings. gabriela: you can expect interest rates to go up for companies, but if you have a good nominal growth backdrop, you can still have strong revenue growth. tom: this is a big deal, folks. this is a decidedly optimistic tact this morning. we will migrate to 2:00 p.m. this afternoon with our federal reserve coverage. this is not a normal show. we have richard clarida, among others, to talk about the tumult of the time. scarlet fu and myself and michael mckee in washington. this is bloomberg. ♪

tom: 100 days and counting -- where are we? like 97, 96 days. our supreme court expert, at least for today, kevin cirilli, is in washington. right now, our "bloomberg business flash." taylor: jeff immelt warns that the time of unbridled trade is over. he says there is a confluence of withs -- in an interview john micklethwait. jeff: people can see globalization from 30,000 feet townhouse --t, a do not know how globalization really works. it is country by country, deal by deal.

i wish it was free trade and all that other stuff. that is just not where we are. taylor: he says there is a particular influence -- a particular focus on a strong tie with china. apple's quarterly sales and profits beat estimates. the company sold 3.5 million more phones in the quarter than it year before -- than the year before, driven by new customers. gene munster will join us this york,t 6:40 a.m. in new 11:40 a.m. in london. that is your "bloomberg business flash." tom: it is real simple. they have the new portrait mode. come on, it is about taylor, it is about toys. 7, or have an iphone whatever? a 4.r: know, i have like

tom: has enough on apple. apple. is enough on gene munster will be here. also, kevin cirilli in washington, corresponded to the supreme court at least for today. what did you learn last night about the push back the president will get from democrats on judge gorsuch? kevin: two things. they are going to try to portray him as a social conservative, noting his ruling on hobby lobby , the religious liberty case. the other point that i think is interesting was the post of senator elizabeth warren. the democrat from massachusetts. she posted to her facebook page about an hour after the nomination. 'se took issue with gorsuch rulings regarding financial ties to some of the financial industry. and she portrayed him as someone who is out of touch with the middle class and only in line

with big business. courtelp me with supreme 101. the last guy was no good to team a. .his guy is no good to team b do they have the votes to block this guy? kevin: first and foremost, the democrats technically do have the power to filibuster. but -- and this is a key, key element -- republicans can do a rules change that model what happened in 2013 when democrats were in control of the senate. as a result, they can move this to a simple majority vote, known as the nuclear option. whether or not that is going to happen, that is the story in washington today. where we arewith with attorney general sessions. is he attorney general yet? kevin: not yet. another delay. i am hearing that later today sessions will be back on capitol hill. the democrats are delaying many

of these hearings, many of the process. steven mnuchin's hearing was boycotted by all of the democrats. leahy, aewed senator democrat from vermont yesterday, and he told me essentially that they want more answers. they do not want to allow republicans to jam through all these nominees. republicans are saying this is obstructionism. francine: we also have the first overseas trip by a member of the trump administration. james mattis is heading to asia. what can we expect? kevin: you will hear a lot about two things -- cyber security as well as trade policy. all of this is coming on the backdrop of the taiwan discussions that the administration had during the , and china wasod not too thrilled about that. francine: i think the markets want to at least figure out when the secretary of state, the

treasury secretary will be confirmed. do you have any idea on how soon or how late those could come? kevin: we will be hearing, i anticipate, about trade manipulation. there are some threats that china would be labeled a currency manipulator. in terms of the timeline for people like rex tillerson, you will be seeing this week committees moving votes, but everything should be finalized, according to tillerson, within the next week or two. tom: kevin, thank you so much. kevin cirilli is our chief washington correspondent. gabriela santos, you were mentioning earlier the idea of linking optimism into budget process. when do we see infrastructure? political people of jpmorgan saying? it is not a 2017 issue, is it? there is the

conversation about what kind of infrastructure spending we are getting. is it primarily driven by government spending, or do we see some kind of public-private partnership? we do not know. we have very little information. this is more of a 2018 kind of story, if we do get there. francine: where do you see the dollar going? is it on the back of donald trump policies, or the fed? the dollar, the tremendous pace of appreciation was already seen for the past two years, driving the dollar to become an expensive currency. without calculations, it is close to 15% expensive compared to its 10-year kind of range. we think the peak of dollar it -- a lot of it is behind us, and we will see much more stability --the currency, and various and very idiosyncratic stories. tom: gene munster will join us

from apple in a bit. maybe our interview of the day -- so how would davies was wonderful and the -- sir howard davies was wonderful in the last hour. barry eichengreen, a few days and he will be back on "surveillance" later today. ♪

francine: those are live pictures from the treasury select committee, where william fox, the trade secretary of the u.k., is answering questions

about the relationship between the u.k. and the u.s. bill is still being debated and will be voted on. prime minister theresa may's draft faces its first hurdle today. anna edwards joins us from westminster. great to have you on the program. we will get to what liam fox is saying in a second. what did you make of yesterday's debate in parliament? it was 12 hours, and it seemed like a nightmare for theresa may. this is what she wanted to avoid. and i go she did not -- trickle --anted to to trigger article 50 on her own, or at least she wanted the government to. the supreme court says it has to go to parliament, and that is what it is doing at the moment. after yesterday's cathartic outpouring of emotion around

brexit for u.k. mp's, look for more of that today, and then we get a vote. that is not the end of the story. it then goes to a committee stage and house of lords, where she does not have a majority. it looks like it will pass this hurdle. other hurdles are still to be crossed. francine: we also had a report from the institute of research in the u.k., and they say the new u.k. free trade agreement with non-european nations will not be able to make up the loss if trade is not kept with e.u. talking very confidently that they can start the process of getting an agreement with the u.s. in the next couple of weeks. there has been plenty of reporting over whether the u.k. has enough trade negotiators to get these things started. as you say, he wants to get

things started in the next few weeks. he is very optimistic on trade. on the other hand, we heard from kenneth clark yesterday, who is channeling lewis carroll from "alice in wonderland," saying yesterday that, "you apparently follow the rabbit down the hole, where countries are --" a great analogy. anna edwards in westminster. gabriella, the way that this has been playing out, does it automatically mean we will see more volatility on the pound? gabriela: we do think so. we have seen remarkable resiliency with the u.k. economy so far. but that is with a vote for brexit and not yet brexit itself. we believe article 50 will be triggered sometime in march.

once the negotiations start, then there is the potential for further depreciation in the pound. depending on how trade negotiations go and the sentiment back home. francine: thank you so much. we will be back with gabriela santos. coming up on bloomberg tv and radio, a conversation with dave icks after his meeting yesterday with president trump on pharmaceutical companies. p.m. -- andne: 40 5 1:45 p.m. in london, a: 40 5 a.m. in new york. this is bloomberg. ♪ [ alarm clock beeping ]

weather. ♪ [ laughter ] cartoons. wait for it. [ cat screech ] [ laughter ] ♪ [ screaming ] [ laughter ] make everyday awesome with the power of xfinity x1...

hi grandma! and the fastest internet. [ girl screaming ] [ laughter ] tom: francine lacqua in london. i am tom keene in new york. we say good morning to all of you worldwide. sometime there are little moments, francine, which means something within the

administration. i would suggest general mattis getting on an airplane this morning and going off to asia is a big deal. as hes general mattis travels out of washington, a tumult to us washington. washington.ous he has been very much in the news. francine: by visiting japan and south korea on his first official overseas trip, some are saying they are trying to reinforce key alliances after donald trump has been complaining that these defense treaties disadvantage the united states. i think it is a very powerful message if that is what he is indeed doing. right now to first word news, here is taylor riggs. taylor: president trump's choice for the supreme court begins what is likely to be a contentious confirmation

proceeding. he announced the nomination of neil gorsuch last night. gorsuch made it clear that he think the high court should interpret laws, not make them. >> i consider the united states senate the greatest deliberative body in the world, and i consider it important to him of our judges. i respect that our legal order is for the congress and not the courts to write new laws. taylor: senate democratic leader charles schumer calls gorsuch and ideologue and a skeptical he can be a strong independent justice. abe told parliament it is not enough to look at the difference between exports and imports. thepresident called imbalance with japan on cars and trucks unfair. a report says the u.k. trade

agreement with non-european countries will not come close to offsetting the impact of leaving the e.u. the national institute of economic and social research that -- predicts that production and trade could be reduced by 30%. and that -- global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. francine? tom? tom: francine, thank you so much. he is the nobel laureate of -- what is important is eric maskin of harvard has applied his mechanism design theory to our politics in our electoral college. he joins us this morning. professor, wonderful to speak to you. let me get right to the rules. you say the rules are deeply flawed. they worked in the revolution of 1800 when john adams and thomas jefferson -- with john adams and

thomas jefferson. why can't adams and jefferson rules work for trump-clinton? the problem with the rules is vote splitting. the best illustration is the republican primaries from last year. we had a number of mainstream candidates like marco rubio, ted cruz, and then we had an outsider like donald trump. rubio orone on one, would haver cruz defeated trump. but because they were running together, they split the vote. they split what we might call the mainstream vote. that allowed trump to win, even though he got very far from a majority. this vote splitting problem comes up over and over again in our politics. onave collaborated

correcting the problem. tom: within correcting that problem, do you presume to take power away from the great middle of america and the agricultural and southern america, and would it coalesce power on our seaboard's? eric: absolutely not. if anything, the rules that we forose will allow a polarizedetween electorate that we have at the moment. one of the great difficulties that we face in elections is that we have -- we end up with candidates of two extremes. and candidates in the middle decline to run precisely because they are worried about vote

splitting. think of michael bloomberg, for example. he might have made a good compromise, but he knew that if he ran, he would probably be taking votes mostly away from hillary clinton, so he declined to run in the end. bloomberg's majority owner of bloomberg television and bloomberg radio worldwide. i have to bring that up. --n we i look at all of this when i look at all of this, one thate great thoughts is old people vote, young people do not. tell me about age and your adjustment to our electoral process. how do you get the young kids to vote? eric: i think you get them to vote by getting them candidates that can -- that they can get excited about. when bernie sanders was running, young people were out in force.

sanders was someone else who, when it came to the general election, bowed out, again because of vote splitting. with the electoral system that we are proposing, you could have sanders in there, bloomberg in there, as many candidates as wanted to run in there without this vote splitting problem. francine: is there a country outside the u.s. that has it right? i am italian. we are reforming the electoral law. we are worried about the french electoral system with marine le pen going up. it is the same with the u.k. who has it better than most? eric: i think the best current example is australia. house, they use a system -- it is not ideal, but it is a lot better than anything used in europe or the u.s.

called preferential voting , and voters have the -- you can say i like candidate a the best, but if that candidate does not win, b, i likeand if not c. if no one gets a majority, then you eliminate the candidate who gets the fewest first-place votes, and you proceed until someone has a majority. tom: we are going to have to leave it there bank. -- we are going to have to leave it there. ?his is a jumble, isn't it within the polarity of america, this just keeps moving forward. we saw that with apple, and we will get to gene munster.

do you just assume that your world of looking at corporations and their actions is removed from our politics? gabriela: yes, we do, and this speaks to the conversations that we have with our clients. we have a very polarized country when it comes to political opinions. sometimes that can get in the way of investing. the main point that we try to get across is, do not let politics influence your investing because regardless, corporations will be profitable. tom: we get mixed opinions. said yesterday, this is a bull market. is it an opportunity act go gabriela: -- is it an opportunity? is anla: we do think it opportunity, yes. it is not necessarily predicated on policy coming out of washington, and that is a crucial distinction to make. francine: the risks seem bigger than in previous years. there is a bull market, but with

tariffs and the supply chain, a corporates could be hurt. gabriela: i think there is a risk to the downside and to the upside. if we think of to the upside, there is a global acceleration in place. it is not just the u.s. growing anymore. there is a rebound in japan in emerging markets, so finally you have a good global environment. yes, there is some risk to the downside, but i think the risk could come from both sides. tom: we will continue with gabriela santos, of jpmorgan. we have been looking forward to wes great gene munster -- have been looking forward to this. gene munster on apple. forget about the product. gene munster on the financials and the cash of tim cook's apple. this is bloomberg. ♪

francine: coming up later today, stay with bloomberg for special coverage of the fed's first monetary policy meeting of the year. tom keene will bring you that, p.m.scarlet fu, at 2:00 new york time. coming up shortly, it is "bloomberg daybreak: americas." jon, what are you most excited for today? today to ag forward conversation with our guest. world's currency of the political risk. we will discuss that with troy guy ascii -- with troy gayeski.

we will be catching up with walter piecyk a little bit later, tom. tom: walter has been all over the idea of a cash billed as well. jon:. he has. -- ie end of the day, would doubt, have they already in the bondcapital market instead of bringing the money home? tom: we will also look at apple from a financial standpoint, and how the results. they folded to the results of mr. cook. here is the apple mediocrity. i have to get the little thingy on there. i just flunked super bowl 101. there it is. up we go. in 2003, it is the death of apple. we are all going to die.

no one has followed this more acutely than gene munster, .conic, of piper jaffray what is the biggest headache of running your own shop? gene: legal. and they are not cheap. tom: let's get to it. i really take issue with the product centric thing. but this time around, it is true that the premium product for apple is delivered in spades. what is the partial differential of the iphone 7 and iphone 7+ to the margin? gene: there is a 30.5% gross margin. it is a small increase, but it is important that that is moving in the right direction. that is one of the positives last night or the gross margin was good, and also the unit is good. that is a sigh of relief when

you contrast that to a year ago, when street numbers were coming down to 15%. francine: what can apple do better? gene: i think they are doing everything right for now. what they can do better is make a phone that looks a little bit more futuristic. i think we will see that with the iphone 10, which will come out next fall. i think consumers need to feel -- need to look and feel at a phone that is slightly different. longer-term, what they can do better is the whole concept about augmented reality, which we will hear about with the iphone 10. that is a new way that we will interact with our phones and technology in the future. francine: is that the new generation of products? that much 7 is not different from the iphone 6. gene: the iphone 10 will be substantively different. there is a mapping chip that will allow the concept of a platform for augmented reality.

in the grand scheme of things, it will be a significant change from the current iphone. it will not be as big of a jump as from an iphone 5 two an iphone 6. this is one of the original functions. i know it is hard to read. i want to come in and circle down here, 9.78% three-year dividend growth rate. they are up to a million trillion dollars in cash. they had to get to a double-digit growth rate on dividends? gene: that's right. they will be pushing an increased dividend and an increased by that. the repatriation, which tim cook talked about last night that he is optimistic that is going to topen -- that alone can add share buyback. tom: gene munster on in an apple

-- gene munster on an analysis of apple. here is the jargon. we increase our target price 140 two 130. tom: i get all that. that confidence that you have into a little itty-bitty chip in this phone? how do they get from this chip to those fabulous numbers? gene: the chip as part of the experience. part of it is that the experience is a high-performance chip. -- whennd is that the you think about the growth margins and the cash that is generated, they can do it cheaper. gabriela, what are corporate people going to do with cash this year?

is it the same old, same old, are -- or are they going to deploy more cash? gabriela: that is a crucial question, with the idea of repatriation, allowing companies not only to use the moneys for buybacks, it actually use it for capex and to invest it. helicopter pad on your new office, called the munster pad. francine? of oure: a million people watching have a million questions for gene munster and gabriela santos. we will get back to them, but in the meantime, you can get ideas. graphs.t our cool this is bloomberg. ♪

francine: -- taylor: this is "bloomberg surveillance." ms. two airlines unveiled plans to establish a new partnership

that covers aircraft maintenance, and in-flight catering. eddie had -- ceo's said they can cooperate with lufthansa. >> are teams met today. there are a range of opportunities in cargo systems, how we work with our other equity partners. we are very keen to continue the dialogue. taylor: for years, lufthansa argued that etihad and other airlines could only do so with illegal government aid. that is your "bloomberg business flash." ceo'sne: silicon valley some of the most outspoken leaders on president trump's integration policy platform. now we're back with gene munster and gabriela santos. reporting, a lot of

looking at executive orders draft, discussing overhaul, work visa programs. what i hear over and over is needs tocon valley speak out, otherwise they will stop attracting main talent. how much damage will is due to tech companies echo gene: think about the engineering workforce of these companies. employeesof those potentially could be impacted. if you assume that is going to get shut down, think of 10% of the immigration -- think of 10% goes away. it is critical that companies speak out against this because it is part of what makes having these great products. francine: does this actually hurt the bottom line, or can you move operations out of the u.s. ? gene: they could do that.

part of the beauty of r&d is to be around people working on these projects. it is good for them to be the center of these companies, but eventually that would be the response from these larger companies, that they will build bigger offices outside the u.s. tom: what is your enthusiasm for apple? enthusiasm is high. we continue to be optimistic about this story. tom: facebook is out with earnings tonight. would use plain to me why i am supposed to buy -- would you explain to me why i am supposed to buy facebook at 29 times cash flow? help me with that. unfortunately, we cannot talk about specific companies. tom: but he -- gabriela: we would really think about it as growth potential. we would much rather have a company that is more fairly valued and has a higher growth potential. thinking about the importance of valuation, that is how i would

characterize it, without speaking of specific companies. if you look at something like driverless cars, developch companies them, or would it be car companies? gene: car companies are going to be driven over, pun intended, with driverless cars. tom: how do you respond to critics who say that mr. cook has stumbled, is not doing it right? trends move in a series of years, not in quarters. if you look at what apple is going to do in the next few years, whether it is in auto, youreality or will see a good leader in cook. tom: barry eichengreen will join

us this morning, on the exorbitant thing that is the dollar. that gets us right to the foreign exchange report. 113.26.en, 2:00 p.m. this afternoon, scarlet fu and myself, with michael mckee and washington. the fed decides. a great panel of guests. richard clarida giving us wisdom. it is a beautiful new york. i have to leave. i have to go to the apple store. ♪

jonathan: the will consider what

a trump presidency means to monetary policy. a fragmented d.c. engages in another confirmation. putting it is biggest profit ever come apple beats the street with a record quarter. welcome to "bloomberg daybreak." rally get back on track after a four-day skid on the s&p 500? futures are positive. the dollar index the worst since march of last year. looking at political risk also filtering into europe. take a look at the french yield. you have a selloff in the french bond market as you see political risk. sitting on the 100 day moving average. crude from the dollar. gold flat. david: president trump