francine: waiting and watching. the fed wants for clarity as it keeps policy unchanged. brexit clears its first hurdle and gives theresa may the green light for article 50. good morning, everyone. this is bloomberg "surveillance." i'm francine lacqua here in london. we'll get on to foreign policy, the economy and monetary things we heard from the fed but first let's get

straight to your markets. a lot of it has been from what we did or didn't hear from janet yellen yesterday. dollar front and center. slumping a little bit. that is picture for a lot of the equities here in europe. they are down to 0.1%. shell, daimler missed estimates. it may be a tough day for some of these european blue chip companies and crude oil at 53.81. sebastian: fourth quarter trading revenue missed estimates. revenue from debt trading rose 11% from a year earlier. short of the 1.68 billion

euro. they have been cutting bonuses and thousands of jobs. later today, we'll talk to their c.f.o. rex tillerson has won confirmation as secretary of state. he was confirmed in a vote of 56-43. republicans overcame a demand y temperatures to delay. president trump in a resettlement deal with australia. he tweeted do you believe it? the obama administration agreed to take thousands of imgrants. they abruptly ended their

hone call on january 28. passed bill to -- has its first test in parliament. the approval should not be mistaken from unconditional support. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much, sebastian. deutsche bank came out with figures this morning. they are talking to investors over in frankfurt. just a reminder of what we heard from deutsche bank this morning. hitting trading, some of the discouraging news we heard a couple of months ago. a lot of the fines have been settled in the u.s.

they will continue to be on top of it. i don't know whether he has talked about profitability yet or north. as soon as -- or not. deutsche bank that share price down 6.4% as we speak. a gauge of the dollar has dropped to its lowest level in 11 weeks after the fed signaled it is in no hurry to raise u.s. interest rates. inflation will rise to its 2% target even with gradual adjustments. bill gross cold bloomberg the u.s. economy needs a weak dollar to keep the system going. >> when he talks about specific companies and industries and bringing gothetro the u.s., that is very much a positive for those individual companies and industries but it is not a positive if it results in a very strong dollar. we need a weak dollar with

global financial markets and global economy needs a weak dollar in order to keep the system going. francine: let's bring in our guest, dale winter. great to have you on the program. what do you make of what we heard from the fed yesterday? they are a little bit more cautious. dale: yes. very much in line. we were not expecting a rate increase but we have to put things in context. there is a massive divergeance of central bank policy around the world. he fed has already tightened twice two times last year and probably two times this year. we're seeing expansion balance sheets. the e.c.b. and bank of japan increase by a trillion dollars in q.e. francine: does it make you feel a little bit uncomfortable? we went to the year.

largely plotted by the markets, what the fed was telling us and what the market was pricing in were converging. this brings us back to the beginning of 2016. >> yes, it is very data dependent. we have to see what happens. the change that did happen yesterday in the statement with the business confidence and consumer confidence is improving and we believe this is not just due to trumpnomics r inflation. francine: let's bring in lawrence. is this data dependency? >> as much as you just said actually, i think the economy has a momentum of its own. the fed is waiting to see confirmation of the improvement in growth and of the rise in inflation and the

falling unemployment or strengthening of the labor market. that was a new fans in the statement. the statement -- nuance in the statement. we think they have the luxury of waiting for the data. inflation is still below target even though it is get there go. anticipation.is francine: how do they deal with the trump whirlwind or the unpredictability or the fact that we haven't heard much about the economy yet. this could come at any moment but if you're a central bank, you need more certainty. i would look at it this way. from the bond market, we have to remember where we came from. extremely low yield levels because of quantitative easing, all the things we know about. in a way, let's think about if

-- if there had been a clinton victory at the election, would bond yields be lower or higher than they are now? i think they would still be rising, around 2.5% on their way to 3%. that tells you the market is actually not pricing in really anything for the fiscal package which is as of yet pretty obscure. francine: i have had a number of commentators saying it is priced in. >> yes. that's what the market does. it discounts too early. we had the trump bump on the promise of reflation from infrastructure spending, from deregulation and tax cuts. perhaps we're getting the trump slump now. focusing on the negatives. bottom line, the fed will not be politically motivated. they are daily dependent. there will be rate hikes this

year. francine: higher dollar or not? >> yeah, i think of course the dollar is already strong. we -- our economists have a bit of a higher dollar going forward. i would like to -- in a way, the market didn't just respond to the trump election victory. if you look at purchasing managers that we saw yesterday or the day before, if you look at where payroll is going to come in tomorrow, we have got very strong subindices. the economy is justifying the change already for the bond yields and the prospects of the fed. >> i would disagree slightly and say what is good for the u.s. economy is not good for the u.s. stock market. wages online for the first time in nine years. that is pressure on profit

margins close to all time highs and you have evaluation at extended levels. we're cautious on the u.s. stock market. we think the way to play to u.s. economic strength is international. >> i'm not really a stock market guy. francine: you think the market trend lawrence will come back -- you think it would have been there anyway whereas you think a lot of it is priced in because of the trump hope of replacing. -- reflation nair. >> what happens to stock markets when fed funds are going up. it is always the same thing. they shop around. the discount rate on the future cash flows is going up. it is difficult for stocks to have a good advance during a period of rising rates.

it doesn't mean there is a problem with the economy or rates rising. francine: maybe the markets are not really -- in the past there was a clear correlation between stock market, fx and bonds. maybe we lost a little bit of that. we'll get back with dale and lawrence. we were having a nice conversation. first let's get to the bloomberg business flash. >> fourth quarter profit missed profit after its main business unit fell short of its forecast. expectations were 2.8 billion. the >> our return is not where it needs to be. if you look at where we think our return needs to be by the end of the decade, it should be a double digit return. oil prices slightly higher than they are today. that is what we are aiming at.

that is our financial transformation program is aiming to achieve. >> daimler slight profit growth this 2017. aggressive spending, holds back gains in mercedes-benz. 3% to 3.58 billion euros in the fourth quarter missing estimates. later we speak with daimler c.e.o. dieter zetsche. sales rose 51% to 1.8 billion. mobile made up 84% of the company's total ad sales. francine: let's get back to dale and lawrence. we had a minor -- this goes to what the markets are seeing and how you're seeing things. lawrence, remind us.

you think that the bond movement that we have seen would have happened no matter who was president of the united states? >> yeah, in terms of where we're agreeing. you think two rate hikes as do we. we think four rate hikes next year. it seems to make sense for a rising economy. are we now seeing a decouming -- decoupling? that was in the context of quantitative easing. that's when the response to risk off is the fed will be buying more bonds or might well be buying more bonds. >> we don't think yields are going up due trump. yields are going up because the first synchronized global recovery of this cycle started happening in the summer. you saw it in the global p.m.i. started to improve in

the summer. business confidence started to improve y the summer. globals a synchronized recovery. francine: could that not be put in jeopardy by protectionist measures which are being priced in the market? >> it is possible. we have no idea what the details are whatsoever. for us, it is about evaluation. what is discounted. the cheapest are not in the u.s. >> i think in terms of what would productionism do, this is when it is easier to be a strategist than an economist. it is always easier to be a strategist than a fund manager. it is not obvious to that even if there were protectionist measures that the yields would go back down. francine: that is kind of the important point. we also have to talk about brexit.

it has cleared its first hurdle after being voted through by the house of commons. the ayes to the right, 300. he noes have it. francine: the bill now moves to the committee when layup consist discuss it and the legislation and theresa may will publish the detailed brexit plan later today. the bank of england will deliver its monetary policy ecision. they are expected to key interest rates the same. nejra, if you look at inflation, carney said he will look through inflation. will he stick to that today? nejra: what is interesting is

that more recently the bank of england said it is going to be less tolerant on above target inflation. we're not expecting any change to the benchmark rate or q.e. however what we are expecting is an upgrade to the near term forecast. in november they forecast 1.4% growth, 2.7% inflation 2017. that might be upgraded. how is carney going to reconcile that with the neutral stance? also talked about the last quarterly inflation report. that is one big question. one answer is what he says about brexit. he has a delicate balance as always between the economic data we have been getting, solid growth and faster inflation, especially since november and the outlook for risk in the future. francine: what happens as soon it is a brexit happens? they move to actually ease monetary policy. now the markets are pricing in

likely to deliver rate hikes? nejra: that's right. carney was heavily criticized for being overly gloomy on the economy in 2016. since then market has been paying attention to the fundamentals, the strong growth and the markets are pricing in a greater likelihood of the next move being a hike rather than a cut. they are pricing in a 50% probability of a rate hike this year. in fact, again, how is mark carney going to manage those expectations in the market today? it could come back to what he says about brexit. he talked about it a lot before. you have been speaking about the feds. for the feds, the big uncertainty is donald trump. in some ways you could say brexit is the one thing standing in the way of a b.o.e. rate hike. francine? francine: thanks so much. nejra cehic at the bank of england. we'll bring you that b.o.e.

decision. nooling, mark carney will hold a news conference. you can see that here live on bloomberg at 12:30. still with us, our guests. the b.o.e. is in a tricky situation. if we have quite abrupt brexit then inflation shoots up. they would have to do something on interest rates. >> i think they are in a very difficult spot. for them to say they will look through inflation is itself getting to be a more difficult argument to make. the idea is that because inflation is high, therefore we're going to see real consumption falling and a slowdown in the economy. inflation will come back toward target without them having to do anything about it. there is quite a lot of assumptions in that nice path. i think the market is questioning. if you look at the five years

before we break even, the fed looks at the b.o.e. sites. 370 is the highest level since the financial crisis started and much higher than before the financial crisis. the market is expressing a view. 370 five year we view, maps to well over the c.p.i. target. francine: where is the point that it starts hurting consumer spending and puts the recovery in jeopardy? >> in a way this is what they are hoping. we did see a soft december in retail sales. there are straws in the wind that may be the consumption boom that was evident in november's numbers is already beginning to slow. maybe that will be enough for them to say we're not really buying it. it is not going to pan out as we thought.

francine: the central bank coming to an end and we need to have politicians start fiscal policy if anything is going to get unstuck at this point. >> we disagree with the probability of a rate hike in the bank of england this year. they just cut interest rates last year. just increased the balance sheet last year. inflation is picking up. some of that is oil price driven. i would agree, you also have to look at the december sales. the weakest in five years. retail sales. it is about brexit and a lot of uncertainty this year and next year. francine: brexit means higher inflation because it means pound weakness. that is kind of the norm. >> absolutely. brexit also, huge uncertainty. what about the city of london? financial services jobs. will companies build plant in the the u.k.? will they build them in europe? will consumers get mortgages?

will they spend it on credit cards? >> it does outweigh the inflation for many policy make rs. under the bank of england's mandate, there is no scope for this. this is why the bond market is increasingly unwilling to give the bank of england the benefit of the doubt. the bank of england said we're looking through inflation this time. there is always a reason to look for inflation. that's why the bank of england was set up independent with a single inflation target. the strange thing is the management keeps telling us they are not that bothered by it. that is the issue. all the things you mentioned, although they have very difficult questions for the u.k. economy going forward, think of it, if it were the bundesbank, they would be saying what we were doing maintaining the value of the

currency is in the long-term best interest of the economy no matter what and the bank of england is saying it is definitely not that. for the market we're anticipating rate hikes. the back end of the market is discounting higher and higher reak even inflation. strategists think the pound has fallen so far that it is discounting really quite a bad outcome for brexit already. francine: remember, if you're a bloomberg customer, you can watch the show using tv go as well as the video stream that you have here. data check, great graphics and analysis and you can ask lawrence and dale some questions. you can go through me. or our producers. on to some corporate news and deutsche bank has reported fourth quarter trading revenue that missed analyst estimates and concerns about the finances of europe's largest

investment bank. the c.e.o. is currently speaking at a news conference in germany. let's head to frankfurt and get the latest from matt miller. why didn't they keep up with their peers? matt: the fixed income commodities and currency trading which has been the hot button issue this last quarter, the last couple of quarters for banks really just didn't grow fast enough. it was only 11%. the revenue growth in thick and that compares with a street estimate of 35% and a growth in the u.s. leaves the top five banks there at 43%. they are falling very far behind that and the concern is that investors, especially institutional investors are not going to deutsche bank to do these trades because they have lost a little bit of confidence in the bank because of the problems that they have had because of the higher funding costs that the bank

faces for its hedge fund clients and also there is a concern that a lot of top managers have left deutsche bank over the last quarter. they keep getting bonuses cut. there is pressure on conference saying and as a result you see people kind of some extents. selling shares as a result. francine: the bad news that came out on the bank of november and december. is he getting outflows back? matt: that's right. for example, the rmbs investigation which they just settled for $7.2 billion, they have also had the alleged money laundering in russia which they paid fines for in the u.s. and the u.k. this week to $629 million. these issues deteriorated confidence to some extent and

deutsche bank says this in their release. they had outflows in 13 billion euros. the issue is that is a significant number. it is a chunk off of the 700 billion under management that they have but it is the biggest quarterly loss in a couple of years and there very six consecutive quarters in a row of outflows. shares are down 5%. they have been down as much as 7% this morning. investors really selling these shares off. francine: will they have to raise capital? matt: that is question. really the bright spot from the earnings release today is that their capital cushion is up to 11.9%. it is only looking to 11.3%. their goal is 12 tony 5. they are getting closer and closer to that. how do they get there? partly as a result of the sale of chinese bank stake.

they are unloading assets to get a higher capital cushion. they are also derisk and downsizing. investors are looking past that now. francine: thank you so much. matt miller in frankfurt for us. we'll be dale and lawrence. we'll ask about the corporate earnings and the impact that the trump deregulation has on european banks. up next, a done deal. president trump with an agreement on refugees and australia. this is bloomberg. ♪

francine: this is bloomberg "surveillance." let's get to the first review.

>> revenue from debt trading rose 11% from a year earlier. fell short of the 1.68 billion euro in a bloomberg news survey. the c.e.o. has been cutting bonuses and thousands of jobs to raise profitability. we'll talk to deutsche bank c.e.o. later today. rex tillerson has won confirmation as secretary of state. he was confirmed in a vote of 56-43. republicans overcame a demand by temperatures to delay president trump in a resettlement deal with australia. throwing the fate of more than 1,000 displaced people and the u.s.'s relationship with a key

ally into doubt. the obama administration agreed to take thousands of imgrants. they abruptly ended their phone call on january 28. the post cited unidentified u.s. officials who were briefed about the conversation. and the bill to -- has passed its first test in arliament. the approval should not be mistaken from unconditional support. the government mr. l publish an outline of its brexit plan today. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much, sebastian. we're just getting breaking news out of the u.k.. u.k. construction for the month of january. at p.m.i. crugs figure was 53.2. the picture to was 53.8. i'm trying to check whether

there is a pound movement. keep an eye on that. we'll bring you when the white paper cops out to see whether there is any more clear thinking about what theresa may will do. the most important central bank has left rates on hold. a testy phone call from donald trutch and the australian prime minister has thrown that relationship into doubt. stefanie, great to have you on the as always. what do we know about this contentious call between australia and the u.s.? >> yes, well, they spoke on saturday and the conversation turned testy when the issue of this agreement that president

obama struck with australia to an 1,200 refugees from australian detension center. trump said he thought it was a dumb deal. he said he would honor it. he cut the phone call short and tweeted out that he would study it. it is a remarkable thing to say to one of america's closest allies. australia and the u.s. share intelligence. part of the five imp's agreement. it really -- i's agreement. it raises questions about whether he will go next in terms of not honoring previous agreements and ripping them up and pursuing his own agenda. francine: there is a report that he told the leader of erica that he might send u.s. troops deal with bad ombres in the country. if this is true what does it

tell us about president trump? >> again, a remarkably combative thing to say to america's southern neighbor. it is a report in the associated press which got a transcript of the call on friday. again, it comes after trump has already threatened to put a 20% tax on products coming from mexico. they canceled a key meeting. he demanded that mexico pay for the wall. i think it does raise questions about you know, our long-term relationship with our southern neighbor will be and whether he is undermining the mexican government and trying to undermine the mexican economy and what that will mean for the u.s. long-term. francine: he doesn't have a full working cabinet yet but rex tillerson was pushed through yesterday. >> yes, in a relatively narrow win for the republicans.

i think many are looking to rex tillerson to kind of smooth over trump's combative foreign policy, perhaps calm allies and other countries who have been offended by some of the steps he has taken. but he faces you know, quite an agenda. he needs to staff up the state department. he is not an experienced foreign policy hand. he is taking his approach to foreign policy from a global corporate perspective. francine: to you very much. back with our guests. dale, so i guess all of this noise coming from the trump administration may worry earnings forecasters that at some point there is some kind of tariff or trade war and that impacts the supply chain. wu what does that mean for earnings? >> yes. we think the risk are to

merging market manufacturing companies primarily in mexico and also in china. we have a global focus fund in europe. the three biggest market companies we own are telecom in russia, china and south korea. they have 100% domestic revenues. trong balance sheet. that is where the -- strong balance sheet. francine: again, emerging markets are at risk of protection aren't they depending on who the protection is against. >> to be honest, i think china is the -- in the world is too big to have a trade war with. that is a lose-lose situation for the united states. it could be a lot of rhetoric. but for us, where the best value in memplinging markets. not manufacturing exports. francine: how would the bond markets react?

at the moment, no one is taking it personally as far as the markets are concerned. what happens if it escalates? >> again, this is what does risk off look like in an environment where we're no longer doing q.e. it has been the case that you just -- you go buy treasuries when something is going on. i think as we discussed earlier in the program the fact that the fed is moving slowly demonstrates that they themselves regard every step as something they can afford to wait for and would like to wait for in case there is more of this policy volatile ifment in terms of what it means for bond markets, if something happens that that is risk off, does that mean term premiums should be going down or up? over the last decade, since the financial crisis, near a decade, it meant that premiums

should be going down because the fed has been buying treasuries. that is not where we are. it is possible that you see a steepening of yield curves. the t bill the safe haven asset of choice. you see a steepening of the yield curve rather than a flattening of the yield curve. francine: thank you so much. stay with us. we continue to see of course the repercussions on the markets. stay with "surveillance." plenty coming up. we talk the next risk events in europe. the french elections. what that means for yields. plus facebook's streaming success. they had a better than expected quarter helped by strong growth from mobile and we get the latest from washington. donald trump's first two weeks in office. this is ore,

bloomberg. ♪

francine: this is bloomberg "surveillance." i'm francine lacqua in london. let's check in on your markets. mark: deleths let's start with the dollar. looking fat dollar against all of its major pierce. all are rising against the dollar today. lowest level since november. the fed signaled it is in no hurry to raise rates, continuing to describebusiness sentiment.

majors 49%. bloomberg dollar with a sixth weekly drop. following negative comments from donald trump and various officials. fourth quarter revenue missed estimates. key measure of financial growth rose to 11.9%, ahode estimates. the net loss was worse than estimates. these are the big four in europe. barclays best performer up 23%. deutsche up 11%. u.b.s. down 5%. redit suisse down 15%. deutsche bank fourth quarter profits beat estimates. passing a target of 12.5% two years early.

danske is outperforming. this is a great chart showing how france's election is making europe markets nervous. investors are pricing in more volatility for april when the first round of the french election takes place. keep an eye on this chart, francine. very important. francine: no sign of letting with pressure building. after more than a week trying to fend off reports that he had family members on justified salries some are starting to signal he is residential bid may be over. still with us, dale and awrence.

lawrence, let me start with you. political turmoil, whether there is the risk or whatever you want to call it. how does it play on the markets? do you see it in yields or elsewhere? >> it is a good question. one thing we should remember about the european union and the eurozone, you keep having elections in the eurozone. it is interesting that throughout the past where we have seen -- francine: in the u.s., china as well. >> the thing is if you think euro area is going to continue forever, you're going to have to get used to having elections -- and all the experience is that market prices in some risk premium ahead of the election and that is really an uncertainty premium even if the stakes are not as high as they are in the elections coming up this year. nonetheless, an uncertainty premium comes back and then tends to go away again. this chart you put up is

interesting. the french 10 combroir yield. we're -- 10-year yield. the yield has gone up to 1%. francine: this is the one-year chart. let me bring you to five years. >> absolutely. it is still pretty low in the historic content. you can see where q.e. started. francine: this is what draghi wants. he doesn't want to see risk. he doesn't want yield to go up cause otherwise it kind of defeats the purpose. >> yes and no. one of the things about the bond market, the rate market is that on the whole, high yields are good news. it means lower unplement. c.p.i. where it should be. g.d.p. growth. if you look at the low yields that we have here at the bottom of the chart, that was are we heading into deflation? re we destination japan?

the widening flects the upcoming french elections as a risk. the rise in the french yield, i think, it should bpt seen only as a signal that we're worried about the outcome to have french election. the world economy is getting less risky on the downside. as recently as 2013, you would have thought 2% was a low level for these yields. francine: we also have -- this is an exciting moment for "surveillance." we have a viewer with a question for our guests. asking where do you see the best stock picking opportunities in europe and the u.s.? let's start with europe. >> yes we have a global cuss fund which has an overweight in europe. and also value stocks.

that is a consensus view. our nonconsensus view is we don't want to own any european banks. we believe they are trap bid capital problems or capped by nominal growth. excess capital, cheap evaluations, below the book value and upside to the yield curve. francine: insurance companies need to pang manage a lot of money. is it truly because they are cheap? >> no, it is because they are cheap. low book value and there is a global synchronized recovery in growth and inflation. rates are going up around the world, particularly in the u.s. we're overweight european stocks. underweight, no european banks whatsoever. francine: what about the u.s.? >> underweight in our double

focus fund. what is good for the u.s. economy is not good for the stock market. rates are going to go up. however our biggest holding in the u.s. is an insurance company trading below book value using excess capital to buy back 1/3 of its shares. francine: what about infrastructure, we haven't seen the detailed plans. is it already priced in or does it have like higher to really start spending and get things going? >> from the november win, the evaluation is not -- in the u.s. francine: thank you so much. dale winter of wells fargo. up next, the face book streaming success had a better than expected quarter helped by mobile. details next. this is bloomberg. ♪

francine: bloomberg "surveillance." quarterly earnings and user earnh at facebook beat

ings forecasts. >> facebook seeing its shares pop into record high territory after hours. we're seeing refer revenues surge more than 15%. earnings per share jumping more than 17%. the amount of users continued to ramp up. they now have close to 2 billion individuals logging on on a monthly basis. 2/3 of those click in every single day. 1.32 billion people using facebook every day. basically three times the u.s. population. clearly growth is being shown. when we spoke to the c.f.o., he continued to say that it is businesses adding to the growth potential of facebook. they are willing lured on to mobile and they are converting into advertisers. also instagram is really where

we can see more money being brought in via advertising. about half a million businesses advertise via instagram. we got some numbers in terms of the user base for businesses. 5 million on instagram significant growth on a year to year basis. they are not backing away from their previous warning that they are going to be spending big and revenue might be sloge down in the next quarter. they said spending is largely going to head count. they ramp up head count to the tune of 34% in the last quarter. 17,000 individuals added in research and development. that sort of accelerated growth is going to continue into 2017. they say they are going to aggressively invest but this is for the long-term growth potential. overall, it was a strong set of numbers coming out from

facebook and the shares ontinuing to gain. francine: more with dale winter and lawrence from b.n.p. paribas. what do you make over the industry overall? is it overvalued, technology stocks in the u.s.? >> yes, well, you're talking to a nonconsensus value -- francine: so you would say yes? >> we would say that sector in particular is consensus long. fully valued and perhaps expectations are too high. francine: and yet, i keep on being told one day a lot of these technology companies may become our biggest bank. it may be how millennials communicate and bank and drive with. >> we would prefer cheaper evaluations. a very strong balance sheet. a much cheaper evaluation. for us evaluation is absolutely key. francine: lawrence,

globalizeation -- >> facebook said they are hiring a bunch of people. the assumption all of this technology is going to drive people out of work. you see the lowest levels of unemployment in the u.s. since the financial crisis started. you see the i.s.m. employment survey at the highest level in 18 months. unemployment in the euro area coming back in baby steps to what we think it is in europe. the answer is you would think it would push people out of work but it is kind of a backward looking story. there is a transition here but just like those spinning -- in the 1760's, suddenly put lots of agricultural laborors into work, facebook is going to be hiring people. the technology is empowering, even though it doesn't feel like it rather than diminishing the prospect for workers. francine: are there any

software companies that seem more attractive in evaluations? >> for us, any stock with a good compelling evaluation has to have a catalyst. we look for stocks which have product innovation or a blame cycle and/or using very strong balance sheets with any excess capital being returned to shareholders. we own two technology companies in europe and the u.s. francine: thanks so much for joining us. dale winters from wells fargo and lawrence from b.n.p. paribas. coming up next hour, tom keene joins me out of new york. we'll be talking currency, fed and president trump. this is bloomberg. ♪

francine: reflation and expectations.

next up, mark carney and a set of new forecasts from the bank of england. top turnaround. deutsche bank misses the mark on fourth quarter trading revenue. stay tuned for our interview with the chief financial officer. tightening policy. rex tillerson wins senate confirmation as united states secretary of state. this is bloomberg "surveillance". i'm francine lacqua in london with tom keene in new york. tom, it is the most interesting day. there is quite a lot of central bank action regarding the b.o.e. and we're in week two of president trump and foreign policy starts to be at the forefront of what markets may have to worry about. tom: you almost rip up the script for the united states today. what we're seeing is way different from what is in the morning papers. all of this about australia and mexico. kevin will join us in the next hour. stefanie in this hour.

it is a new script coming off the evening and the president. francine: it certainly is. let's get straight to the news. >> we are starting with foreign policy. president trump is blasting a resettlement deal with australia. it would have the u.s. taking more than 1,000 people who had sought asilesileum in australia. he said he would study this dumb deal. the "washington post" said trump berated australia's prime minister over the deal. the post said trump promptly ended the phone call. the whirlwind of executive orders and remark president trump. the fed left the benchmark rate unchanged after a two-day meeting. the first super thursday for mark carney. there will be monetary policy

decisions, new forecasts and a press conference. carney is likely to argue that risks from brexit shouldn't li lead to higher interest rates any time soon. theresa may faces a battle with pro european lawmakers in er conservative party. lawmakers warn their backing shouldn't be mistaken for -- ditionable unconditional support. francine, tom? tom: some movement here, a little more off the fed meeting yesterday and the bank of england today. flattening 25 basis points. euro stronger. a 108 handle on euro, elevated oil. american 53 up to 54. if you would, the idea of the

12.40. a bullback in equities. eel let francine talk about sterling because she is in london. francine: there you go. i'm in london. a little disappointing news from europe. daimler. european stocks lower. crude 54.16. tom: busy economic day. we're focused on london. nejra cehic will join us on the bank of london here. we go to jobs data tomorrow. tomorrow we get that productivity. that quarterly view. let's go to what was almost going to be my chart of the year but g.d.p. went up. this is the productivity boom. productivity boom in the green. down we go with this reduced productive fifment it is

worldwide but certainly we can sigh that the efficiency of the american economy beckons back to the 1980 double recession level. francine: over near the u.k. we're hearing from mark carney later on with new inflation forecasts and this is his problem. since we had the brexit vote the economy has been holding steady. by many measures it has been better than expected, however he now says that inflation, he says that there will be inflation headwinds from the weaker currency. it is hurting underlying inflation and core inflation. even if you strip out fuel prices, inflation is still kicking up. the u.s. dollar slumped against its major peers. the fed said inflation will rise to its 2% target even with gradual adjustments on rates. joining me is morgan stanley's chief asset strategist. great to have you on the

program. what does janet yellen think about what her main concern is. is it in dollar or president trump policy? >> i think it is policy that is going to dominate the discussion of the fed over this year and i think that is partially because we're facing a potentially big shift in policy, something very different from what the fed has dealt with over the last six years. there is also a lot of uncertainty. even if you look at parts of the party on the republican side. the fed for now holding fire waiting to see what that policy will look like and how the growth data will come out, i think they can take some comfort from the fact that inflation expectations are still well behaved in the u.s. this is a proposal for a big fiscal easing very late in the cycle and near full employment in the u.s. francine: is this policy dependent or data dependent? >> i think it is a little bit of both to be honest.

i think the fed is going to be watching incoming inflation and jobs data. we think tomorrow's jobs number will be strong. it also has to have an eye towards policy because it knows its policy. if you're going to get major fiscal easing this year in the u.s., the fed has to think anything we do today might not have a braking effect until 12, 18 -- down the line. tom: it was published overnight about a glimmer of capex investing that we're beginning to see in the u.s. it was a beautiful note. do you from london see an indication of finally global investment that has been lagging, lagging, lagging? >> we do expect it to pick up. we with v have that coming at a couple of levels. government investment has been very week weak over the cycle. our economists see that timely

turning up in japan, europe. we expect it to turn up in the u.s. with some fiscal easing with the new administration. we have seen counts start to pick up in the u.s. analysts are constructive on oil services because of an expectation. so i think it is coming up. ou also see it in surveys. c.e.o. confidence is quite high. there is a case for an investment pickup. but again, i think we need to be careful about overextending our optimistic of mitchell there. there is a certain level where that is going to -- underinvestment. tom: i want to throw an odd chart at you. i'm doing it because it is trurs and francine needs something to keep her going. this is the italy-spain spread. sometimes you go inside baseball. here is the advent of the euro back here. here is the surge -- this is

some real noise on italy, spain. this really gets me going to see italy's yields higher than spain's and the backdrop there is that big surge in german inflation versus italy inflation. francine: you know what else, tom, i had the rate specialist from b.n.p. paribas earlier on. we were looking at a similar chart and compared it to the french chart. is it a political risk that the market is frying trying to price in or is it, this level of growth is still higher and investors need to put their money somewhere and this is an ok place to place it? >> i think it is partially political risk and the unfortunate or the escapable aspect of what happened last year. even if you feel confident that you know how politics will will turn out in a particular country, you can't express that view with the type of confidence you would like to. that is the overhank that

spain has. secondly, you have a domestic banking question where the italian banks are more important and dominant in their investment market. in spain the banks are more diversified. that gives spain an advantage in the market size. tom: i want to get out front of our bank of england coverage. i'm going to talk about this on "surveillance" today. a mercantile america. how does mark carney and the british people how do they adapt to a zureo sum america? >> well, i think it is going to be a challenge because they are going to face in our view a very difficult negotiation with the eurozone when it comes to exit because i think the eurozone has a strong incentive not to give up too much on trade to the u.k. unless they set a precedent that it is much better to be

out than inside. in terms of negotiations with the u.s., well, i think the u.k. sounds confident that they are going to get a good trade deal with the u.s. the trump administration's motto is very much you know america comes before everything else. that does not really argue for a deal that is going to be skewed in favor of the u.k.. i think it is a very difficult position and as you had trump come out and be critical of currency weakness, the pound has been very weak against the dollar. that is another difficulty the u.k. may in those negotiations. tom: governor carney's press conference later today across all of our bloomberg platforms. the fed president from washington lee university, a former fed president of richmond, looking forward to that. worldwide, this is bloomberg. ♪

francine: bloomberg "surveillance." i'm just getting breaking news john deutsche bank and cryon. he is expecting deutsche bank to be profitable in 2017. we have been following the earnings and briefings very closely. he filled in some 15 questions on bonuses. for the moment, you can see deutsche bank is actually down some 4.5%. they were also of course asking a lot of questions on whether the outflows they saw on the asset management unit, whether that was coming in and they seem to be a little bit

more optimistic, john cryan saying he expects deutsche bank to be profitable in 2017. let's get straight to the loomberg business flash. >> deutsche bank posted fourth quarter trading revenue that missed estimates. the largest source of income, debt trading rose less than expected. cryan is john shrinking the company to pay for legal costs. shares of deutsche rose almost 7% between the time the stock was bought and the day the takeover talks were revealed.

and in talks to buy baby formula maker for $1.7 billion. that would represent a 29% premium. the company wants to build on its consumer health business and increase its presence in asia. that's your bloomberg business flash. tom, francine? francine: thank you so much. president trump's roller coaster ride, he called the obama administration's deal to take australian refugees a dumb deal. frump was complaining about mexico keys handling of bad ombres. let's get to stefanie baker. i don't know where we go from this in terms of foreign policy. has there been reaction from the australian side? >> the australian side has

tried to down play this. turnball, the australian prime minister did not confirm the details of this. i think they are trying to down play it. there is a real question here. this has to do with an obama era agreement where the u.s. would that i can 1,200 refugees from an australian de ension center. as we know, the u.s. and australia are very close allies. they are part of -- they share intelligence and it puts a question mark over you know that relationship. so i think he has to -- we have to look at that very carefully. francine: the markets are completely ignoring this. >> they are for the time being. i think we have to question how long that will continue. i think as we expect it and i

think this is a very important part of our forecast for u.s. equities, yes, we think earnings will go higher over the next year. you have decent growth and will get more stimulus. the other side of that, we think the multiple comes down for the market as the market has to provide some greater discount for an increased uncertainty over policy including foreign relations. tom: i look at what we have going now. i link it to secretary tillerson. we have a president, whatever anybody thinks, who is talking ad hoc without process and without talking to his advisors. is there any indication secretary tillerson was briefed on this before the outburst occurred? >> it doesn't appear to -- he has not appeared on trump's schedule until i believe today. they are supposed to have lunch. as we know from what rex

tillerson said during his confirmation hearing when he was questioned about relations with russia, he said he had not had more than a general conversation about foreign policy with trump. now that he is confirmed, there are more questions than answers. will he be a moderating, stabilizing force in the trump administration reigning him in or will he simply be a yes man? we don't know at this point. tom: yesterday what i noticed was mike allen and greg alluded to the idea that priebus was beginning to take over the process in the white house. where from where you sit and with your sources, is that process going now? is this a president that is going to continue to surprise us at 8:00 p.m. every night? >> that is a real question because so many of his nominees have not been

confirmed. a lot of the policy nirktives have been centered in white house and a close circle of advisedors. will that continue once his nominees are in place and have been confirmed or will he reach out to them and involve the state department in a more engaged way before he has these conversations? that is unclear to me. tom: this discussion is like a ad cate blanchett movie. stefanie baker, thank you so much for briefing us on this. this all broke overnight folks on australia and mexico and the president of the united states. coming up in the next hour, this is important. this is a fabulous book. edward aleden of the council for foreign relations just did bang-up job diving into the minutia and detail of american trade. we'll discuss that in the next

half-hour. this is bloomberg. ♪

francine: this is bloomberg "surveillance." i'm francine lacqua in london. tom keene in new york. happy super thursday. the first super thursday of 2017. the bank of england delivers its monetary policy. tom: bonus round. francine: raising predictions to keep rates at a record low. nejra, the question we need to know is how carney will look

through inflation or not. this has to do with brexit. negotiations and the pound. nejra: yeah, francine. that inflation issue is a key one. for a while the bank of england was ok to look through higher inflation but in more recent months what we have seen is mark carney saying there will be less tolerance for above target inflation. what we're expecting today is the benchmark rate to stay unchanged. q.e. to stay unchanged an upgrade to growth and inflation forecasts for 2017. t was 1.7 growth, 2.7% inflation. how is mark carney going to square that with the neutral policy stance they talked about in november? francine: 2017, rates could go up or down. nejra: that is right. that's exactly what the neutral policy is. rates could go up or down.

interestingly markets are pricing in a higher probability that the next move is going to be a hike rather than a cut and they are pricing an almost 50% probability of a rate hike this year. they have been taking into account the strong growth and the higher inflation that we have had particularly since november. i mean just look at the 10-year break even rate for example. the economic fundamentals have been strong. the big question, though, is something mark carney is likely to emphasize is a risk to the outlook from brexit. brexit is the only thing standing between the bank of england and a rate hike. francine: nejra, thank you. how do you look at inflation? >> we do think you're supposed to look throughette. i thought the point on break evens is important. u.k. break evens have been rocketing higher. the market is expecting inflation to be well over 3% for the next 10 years on average. if i think about our economist forecast and how we're

thinking about this, we actually think the bank of england is going to look at the data and be disappointing as some of the strong data that we have had starts to weaken as the effects of brexit start to be pronounced and some hiring decisions and investment decisions are pushed back and that ultimately causes them to not hike rates. the pound, our expectation is somewhat weaker as the negotiating position start out wide. francine: coming up, we speak with the daimler c.e.o. he is dieter zetsche. that is coming up in 10 minutes. ♪

asleep, theou were president did not go after congress, the house of representatives and senate. he chose to go after australia.

kevin cirilli will join us at the top of the 6:00 hour to dive deeper into our relations with australia and mexico. with an update, we get to our "first word news." trump toldsident mexico he may send u.s. troops to deal with what he called bad hombres. place after a canceled trip to washington. the white house says it is putting a on notice for testing ballistic missiles. michael flynn says iran's actions are in defiance of the un security council resolution adopted after that landmark nuclear deal. the u.s. has called the missile test absolutely unacceptable. may surpassorts

opec production, this year. analysts, the u.s. sells -- that is more than libya, ecuador, cutter -- u.k., smarmy -- small manufacturers are warning of higher inflation. in the latest three-month period , the confederation of british factories raise their outlooks to inflation fed -- for inflation to the highest in decades. global news, 24 hours a day. this is bloomberg. bank has madesche an estimate for its fourth-quarter trading.

minutes, john cryan says he expects the banks to be profitable in 2017. europeans now is the managing director. is still mr. cryan talking in that webcast. we are monitoring it. you see what john cryan has faced and is facing, is he over the worst of -- outflows of asset management because clients were freaked out at the news? is he over the worst is a difficult question because i would say the bank is in the midst of a challenging restructuring program. that not really surprising not all areas of the bank are performing at top levels and at

levels were maybe some peers can be at this point. given those challenges, i think the underlying story also has some positives. asis not all quite as bad today's share price for -- price-performance suggests. francine: tom has a longer-term chart looking at equity. john cryan saying our expectations will be possible, this year. you believe he will be profitable and is that a turning point? otto: it is a bullish statement considering today's release. at the publications from today, it does show the loss they recorded during the year

and the fourth quarter, a essentially driven by legacy charges. to the extent that the bank is coming toward the end of those casees, i think there is a , he will not be making these statements just out of thin air. it shows bullishness. tom: i look at what we are dealing with. let's bring up the chart. i did not know this chart. it is amazing what you learn, watching surveillance. deutsche bank from the financial crisis. regression --e here is the regression. they are right on trend. i cannot say all clear for mr. cryan, even though we have gone from 12 to 18 euros per share. is it all clear? price, i the share

don't know if it is all clear. one of the questions is whether the bank can implement its full dogram without having to another capital increase. i imagine that solution could hit the share price, again. i come from the bond market and on that side, there has been progress. capital increase could also be more feasible. you let me be rude with like i was not rude with mr. cryan. what is the merger story? is this salvation by merger? have heard those thoughts. sheetillion euro balance

to emerge that with another withny -- to merge that another company, a lot of challenges. to me, it is a restructuring story. the bank has a number of things that they are working on" -- could quite feasibly improve and turn into a very nice recovery story, just like various other banks with similar franchises. francine: i like the merger question, it is a money question. it,e is validity in long-term but there are regulators that have no appetite for banks to consolidate. that might change depending on what donald trump does in the united states. it is a regulator says ok, you will not see across the board mergers. with the sheer size of

deutsche bank, it is a globally, systemically important bank. is next kind of question what sorts of synergies can you achieve in a cross-border merger with deutsche bank? there are other businesses in germany and italy and a few other places. francine: give me a hint on whether 2017 will be just as painful as 2016. a lot of investors we spoke to say the european banks do not understand the business model and some of them needed capital raising. a child banks still need to be a hundred percent safe and interest rates are going nowhere and you have deregulation in the united states. do you assume the 2017 is just as tough as 2016? otto: i disagree. most european banks, some exemptions like -- but -- some

exceptions like deutsche bank and italy, they have done a good job of rebuilding capital and getting up to speed with all the new regulatory requirements and have really turned into solid dividend producers. even today, in the nordic region, spain also, thanks report very solid underlying performance, good capital ratios. most banks are in good shape at the moment, without a major recessionary development work quality might get hit, there is a bit of question if margins can be upheld and what kind of volume growth can be achieved. it is a solid pitcher in most places. francine: thank you so much. we are back with andrew sheets from morgan stanley. coming up, we also hear from the

chief financial officer of deutsche bank. the very questions we were asking auto -- asking otto. ♪

francine: this is bloomberg surveillance. we need to go to france where the pressure builds on french presidential candidates. the republican nominee appealed to his parliamentary group to get his campaign back on track. morgan stanley's andrew sheets is still with us. can he hold on? this is after his scandal.

there is also the more right wing leading, more pro-business, in the turmoil, accusing the power. , if heuld be troublesome does not step down or if he gets voted into the first round, and you have a deeply flawed candidate with all these -- all this baggage. how will that play out, and the markets? andrew: this is a major uncertainty and a reason that spreads between france and germany -- a reason that spreads between france and germany are thehat is interesting is markets have taken this fear to different extents. well inrt shows quite the french spreads widening out and the euro has been a bit stronger in the last couple of days. in our view, that means there is

more downside risk to the euro then people are expecting. also, if this uncertainty keeps the ecb more dovish, they might be otherwise in terms of the european debt of being strong now, but we have all this uncertainty, why not wait a little longer. francine: what do you use to make your calls? is if the polls? the markets? -- is it the polls? , the markets? = -- is it the polls? the markets? three candidates all hovering in the low 20's, which can lead to a non--- a number of challenging convocations. when we look at the head-to-head matchups. in most matchups, she still loses by a pretty considerable margin which is a sign that even though this is a major concern,

it is ultimately not going to be a risk that breaks onto the markets. it will be hard for the market to gain confidence around that until you get through the first round. tom: in the uproar of the last few days, professor navarro of the president jakey economic team talking about the exploitation of the euro. bring it over to france. france used a weak euro to keep their economy afloat? is there exploitation by france over the euro? andrew: it is hard to argue that. to the response of the rest of europe and the response of the ecb, that i think if you are the ecb and you are looking at growth starting to pick up, inflation heading in the right direction, and then you also have this aggressive rhetoric out of the u.s., i think that makes you more policy than you

would be, otherwise. whatever president trump might want to have happen to the euro, europe and the ecb would say let's err on the side of caution. looking at france, it is hard to argue conclusively that it has benefited to an unusual extent from the level of the euro. tom: where are the donald trump voters in france? is there a donald trump equivalent? there is certainly in urban and rural divide in france , and i think something investors are concerned about and a lot of people have been looking at is does that mean the polling is more difficult than usual because those will voters are potentially harder to reach and less likely to respond with

their intentions. that is a major challenge. the, there is so much less polling history, then you have in countries like the u.s. in france, they are giving with those challenges. investors, ional think they are for better or worse going to want to see improvement before they put capital to work. andrew sheets with morgan stanley, staying with us. bloomberg terminal users can follow us live. tvgo. you can also send us direct messages. you can follow the charts and what andrew is saying and see some of our great graphics. tweet us. this is bloomberg.

♪

francine: bloomberg surveillance. cars.talk about european

daimler says profits will rise slightly after adjusted earnings rose to 3.6 billion euros. joining us from germany is dieter zetsche, the daimler ceo. great to have you on bloomberg surveillance. to give a great guidance for the rest of the year because you are investing a lot to make sure you are at the front of technology. talk to me about the concerns you have on brexit and trade. does that hurt your guidance? there are concerns in the market and all the measures we are following, there. they have improved, independent of all the political turmoil we have seen. where prepared for a year gdp growth is slightly above last year, and therefore a

reasonable environment as far as we can tell. francine: what does that mean, for margins? you have some of the best margins in the business. your profit margins currently exceed 10%. what happens in the next 12 months? the best is to talk about facts. sales numbers are just out of the press and we have seen an increase of about 18%, retail for mercedes car sales. we have seen an increase in china of almost 40%. , for ates pretty well least the start of the year and i hope for the entire year. tom: good morning. i want to talk about the news flow and the president of the united states who took a direct shot at your germany, you're 41

years of service to daimler -- your 41 years of service to join -- daimler. the basic idea is that the euro ought to be at 1.4. aw do you respond to president who feels that mercedes gets a free lunch eight days a week with a cheap euro? i think we have discussions about exchange rates in the last 30 years, back-and-forth. no -- i wouldhave say altogether, let's see how that plays out. we are talking about two weeks in office for the next president. typically we have a 100 day role to get a direction -- to get more a sense of the direction. tom: in warm audience of the

multinational basis of daimler. when we say that mercedes is germany, we get that. ist portion of mercedes outside the euro currency, or you are not exploiting president trump -- where you are not exploiting president trump? dieter: we are selling about 50% of production within the eurozone which is neutral to the exchange rates. my understanding is that the german carmakers together have about 7% market share in the u.s. where is the american carmakers have about 16% in theany or europe -- whereas american carmakers have about 16% in germany or europe. tom: that is terrific perspective. francine: i want to ask you about this partnership with uber for self driving vehicles.

how do you make money off that? do they pay a licensing fee for your technology? do you share profits? this is certainly a blend. we do believe a strong platform on one hand and a strong play on autonomous vehicles on the other could both have benefits out of collaboration in the sense that we might operate mercedes cars on an uber platform and potentially pay a fee for using that platform. tom: or sadie is coming out with a wonderful form. if i go to bloomberg and bring it out. a double-digit dividend growth

for five years. that is distorted by the recovery, but it is a massive 12% dividend growth per year. i'm going to assume you can't sustain that. what kind of use of cash can you distribute to shareholders? is it high single-digit like apple and some of your competitors, or can you sustain a double-digit growth rate to your dividend? when we look at the return on our shares by dividend, in the 5% range, that are independent of further growth, it is a pretty attractive offer in today's world to investors. that, we have a 40% return rule. 40% of our profits, we want to give to shareholders. we provide the cash flow to be

able, in spite of the heavy investments into our future, we are able to provide cash flow to pay these dividends and we are very confident that it will a in the years to come. tom: dieter zetsche, chief executive officer of daimler, thank you so much. andrew sheets of morgan stanley, we hope to get you back, soon. synthesis ofour, all of our politics and markets. trumpcirilli on president , australia and mexico. this is bloomberg. ♪

♪ this is the worst surveillance opening by far,

paraphrasing our president. mr. trump insults us truly a and mexico. kevin cirilli will tell us which nation's next. mark carney measures the brexit affect upon britain and inflation. john cryan confronts negative news flow. deutsche bank has a 2016 to forget. this is bloomberg surveillance. we are live from new york. with me is francine lacqua. fromwill you look for, john cryan? francine: we have huge political uncertainty, which is brexit. you could argue that is similar to what donald trump's policies will look like at the end of the 100 days. central banks that have both scenarios. they worry about inflation but if you look at the bank of england, interest rates could go up or down. tom: we will get to kevin

cirilli in a moment on australia and mexico bashing. first, here is taylor. taylor: president trump is blasting a potential refugee resettlement deal with estoril you. the plan would have the u.s. taken more that 1000 people who originally sought asylum in australia. meanwhile, the washington post said that rated australia's prime minister over the deal. is waiting reserve to see the economic results from the whirlwind of executive orders and statements by president trump. the fed left its benchmark rate unchanged after a two-day meeting. carney will have a monetary policy decision, a forecast and a news conference.

faster growth and inflation should not lead to higher interest rates anytime soon. for minister theresa may faces a battle with pro-european lawmakers in her conservative party. they grudgingly supported her plan to turn to brexit negotiations by the end of march, but that was just the first test. lawmakers warned there backing should not be mistaken for unconditional support -- their backing should not be mistaken for unconditional support. tom: getting to kevin cirilli in moments. how about a data check? commodities off the fed meeting. don't want to oversell that, but a bit of the risk reward feel looking at a two cent spread. the vick showing a little bit of equity pullback. showing a little bit

of equity pullback. out italianput germany spreads as well as they widen out. francine: watch out for guilds. dollar.l about the we have this breaking news from deutsche bank, worse from x -- worse than expected returns. watch out for european stocks because we did have quite a lot of mrs.. -- a lot of misses. tom: joining us coast-to-coast, kevin cirilli, our chief washington correspondent. i don't know when you sleep. you cannot make this up. tillerson is the secretary of state. what does he do with a president totally driven by quote unquote, the deal?

what does a secretary do? kevin: he has to work behind the scenes as the other cabinet members do daughter to try to bring about and decode president trump's messaging. you saw this last night with australia and his tweets following the report that the call with the government official did not go well. tom: to say the least. there is a pattern, a habit we have seen whether it is immigration or trade or what we observed six days ago. do you see people at the white house beginning to rethink the the processetake of from mr. bannon and a deal driven president? what is mr. primus doing -- priebus doing? kevin: frankly, he is going to manybig point person on substantial policy initiatives, including infrastructure.

he is already putting together and infrastructure team. he is the infrastructure point person. as far as reince priebus goes, i say talked to insiders who he and brandon are on the same page, so any notion that they are not getting along right now is just untrue. francine: how are people reacting? how are the american citizens taking it? kevin: americans care and i can tell you that on capitol hill, there is a concern amongst republicans that perhaps some of the messaging coming out of the white house needs to be at more -- be a bit more crisp. following the supreme court rollout compared the executive orders over the weekend which seems like a year ago, but slowly but surely, republicans i

speak with feel like the white house is beginning to get a messaging strategy. francine: it has been reported that president trump told the leader of mexico he might send u.s. troops to deal with these bad hombres in the country. what do you say to that? kevin: the bad hombres line is rhetoric we heard on the campaign trail. the report is what the report is. people are going to take that and do what they want with it. this is a president who has no filter, if you will. the notion that he was threatening to have a war with mexico is false. the rhetoric he used, i think the report says what it says. tom: a very nice report. what should we look for, today? looking on capitol hill, keep watching to see whether or not there will be more republicans who are going

to begin to crack against nominations. the white house is adamant that republicans will hold together and not oppose any more nominations out of that happens, it is a blow to the white house -- nominations, but if that happens, it is a blow to the white house. tom: i think we will have a normal conversation in a bit. fromackdrop of this, away politics and dealmaking. the backdrop for the president and all americans is productivity. productivity is not happening, but we have to remember that the global economy has been improving. against this backdrop of difficult rhetoric or uncertainty, we have had a synchronized global expansion that started in the middle of the summer. that is a positive. when you look at productivity,

in essence, how many people do you have in the labor force and how productive are they? that points to generally weak growth in the u.s. and around the world. tom: let me ask a question. do i express international ownership for u.s. multinationals or british and european multinationals, or do i have to go abroad and appear -- and buy a pure international portfolio? brian: in particular, the emerging markets seem to be recovering nicely, many of them out of recession. market, iternational is not necessarily that you want to have overexposure to the banks in europe, but what you want to look for in europe, a lot of companies that have monopolistic characteristics, selling not only in the u.s. but around the world. investor should think about where they are generating revenue, and less about the

headquarters. that means you want to be exposed to only the u.s. or also emerging markets? brian: i think we need to step back and understand what these trade wars and these resurrects are going to look like. -- and this rhetoric is going to look like. remember that the currency will adjust to reflect. what we have seen in europe, in the u.k. is that the currencies have come down, exporters have returned to some comparative it advantage -- comparative advantage. currencies adjust for that. we don't know what trade wars are going to look like, but remember that the currency will adjust. francine: do you assume there

will be trade wars and you have to look at the company supply chain because that will give you a better story of the tariffs and earning impact. brian: what i worry about is that we will not necessarily have a trade war, not this tit-for-tat back-and-forth, but policies that are supportive of u.s. exporters as opposed to international importance -- international importers. u.s.could slow down the economy pretty rapidly unless we run fiscal deficit. tom: is your prism dollar strength? brian: it is, and i worry about that because what you would need to combat that is deficit spending. you would need to be able to absorb that capital flow. down from talking about the deficit. steve mnuchin talking about paying as we go -- donald trump talking about the deficit, steve mnuchin talking about paying as we go. we will come back to brian

levitt of oppenheimer funds. radio, anon bloomberg important conversation. alfred broaddus, the former president of the richmond fed. chair yellen and the next chair. this is bloomberg. ♪

francine: bloomberg surveillance. let's get straight to the business flash. deutsche bank posted fourth-quarter trading revenue that missed estimates. the bank's largest source of income rose less than expected. deutsche bank's ceo, john cryan is shrinking trading operations

to raise capital levels. he also expects the bank to be profitable, this year. you will hear from the cfo, shortly. german authorities have rated they're -- investigating his purchase of company stocks months before the exchange announced talks to buy london stock exchange group. shares rose almost 7% between the time he bought the stock and when takeover talks were revealed. they call the allegations without foundation. that is your bloomberg business flash. the first super thursday of 2017 means the bank of england delivers its monetary policy decision and a news conference with mark carney. officials expect him to raise conditions. nejra cehic is outside the boe. and we'll all be on how governor carney sees inflation expectations.

how many questions as a going to field about the weaker pound? few.: likely quite a we look at this decision in just under an hour, that rate decision at 12:00 london time. we are not expecting any change to the key benchmark rate or quantitative easing. what we are expecting is from mark carney to upgrade the 2017 forecast growth and nation. inflation. sterling has stabilized, but we have seen solid growth and we have seen inflation continue to pick up. the question is what is he going to say about them being less tolerant about of target -- about above target inflation? potential risks to the downside because of brexit. it would make say

sense for him to put on hold his buying spree in terms of bonds. he has been saying he has thought about 6 million pounds of sterling denominated corporate bonds. nejra: no doubt there will be questions about the bond buying, as well. the extension we got back in august is due to end, this month. not expecting any changes, today, to the monitor easing -- to the quantitative easing. mark carney has talked about it before, particularly the potential risk to the demand side, so that is something he will address, today and the markets have been interpreting what he has been saying, but -- he will have to manage market expectations as well.

tom: help me with your reporting or day to day living in the united kingdom on the effect of inflation upon the people. i get all the fancy talk about brexit. weight one inflation the people of britain? nejra: that is the interesting question and what we have seen is a pickup in inflation, in the past few months. take a look at the 10 year breakeven rates. sentiment, consumer that so far has remained fairly resilient. the big question is whether that will continue and that is something mark carney has talked about, before, when we going to get higher inflation weighing on consumers and the demand side of the economy? tom: don't get blown over by the rain and wind in london. levitt is cool and calm in

our studios. this is a chart i can still not get over. i make a joke about it, kensington high string. here is a banana republic chart. this is not pretty. go, with a lehman crash. the world is coming to an end. london recovery, brexit, trade weighted sterling is trading near weighted low -- near lehman low. how does that box in governor carney? carney is in a interesting predicament. he is cheerleading for the economy and what he needs to do is manage if this -- manage this delicate balancing act. for years, people have asked me

not only in the u.k. but the united states as to what we are inflationary. to full employment, some wage growth, but as they negotiate the brexit terms, they have to be careful not to raise rates to rapidly or tighten policy to rapidly which can be very deflationary. tom: i find some of these aggregate macros this -- aggregate statistics remarkable. francine: i just look at marmite. problem.a very simple a lot of people in the u.k. eat marmite, but they started importing it, so the company that was making it wanted to increase the price and this goes back to the pound dropping and possible tariffs. my question to brian is that

this is supposedly bad inflation. thattion that comes because an economy is overheating, but because of trade and tariffs. what does it mean percent for banks? brian: back to what -- what does it mean for central banks? the point for the bank of england -- we are still in a weak growth environment. we do not have wholesale inflation and the u.k. or anywhere in the u.s. inflation has been trending higher, that is positive for the economy. we have seen credit creation and these are generally good signs. what we want to be caution -- cautious with is that is likely to be disruptive to grow -- growth. bad brexit or less access to the tighterarkets and monetary policy is not necessarily a good approach. francine: thank you so much,

brian levitt of oppenheim are funds -- oppenheimer funds. this is bloomberg. ♪

surveillance, our politics and many central banks. brian levitt with us, with oppenheimer funds. is the labor economy actually

priced to perfection? is it as good as it gets? jobn: there are still openings in this country, but you are in the latter half of a job cycle. your expectation for job creation should not be 250,000 jobs at this point. you are more in that 140,000 range, which is ok and leading to reasonable -- leading to reasonable wage growth, but i would not expect anything beyond that. seecine: we going to quality jobs being created in the u.s., this year? brian: we are starting to, and we have been. as we work through this political backdrop and try to restore some further job creation, you are getting some jobs back and good quality jobs. a market a discounting mechanism with job optimism? can you link the two?

of course jobs plays into that. the market down 20,000 is not that interesting compared to earnings and sales and book value. equities are reasonable. slightly above fair value. tom: we will come back with lots to talk about. coming up on trade. can't say enough about this book, more than you want to know. all the good stuff about trade dynamics. edward alden of the council on foreign relations. this is bloomberg. ♪ >

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private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. francine: bloomberg surveillance with tom and francine from new york and london. let's get to the "first word news." president trump tells

mexico he might send u.s. troops there to deal with quote, bad hombres. the call took place after the president canceled a trip to washington. the white house says it is putting a on notice for testing ballistic missiles. michael flynn says iran's actions are in defiance of a un security council resolution adopted after the landmark nuclear deal. the u.s. called iran's missile test unacceptable. u.s. secretary -- u.s. defense secretary -- says countering north korea's nuclear strategy is president trump's top priority. -- to deploy an antimissile system in south korea. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries.

what we are trying to do one bloomberg surveillance is bring you experts that can deliver clarity above the hysteria. edward alden is in the council on foreign relations and it -- with a deeply influential book. this is a new one, failure to adjust. at the end, he talks about america needing a second chance. what do you mean by that, ted? ted: we basically blew it in the first era of global economic competition that the u.s. entered into. my book traces 40 years of growing u.s. integration and the competitive challenges that opposed. i argue that we left too many americans out of the equation. trade was good in a lot of ways, we left too many people not prosper under that system and we have to find a new way.

-- ine talked to berkeley, yesterday. we've got dollar strength. from your prism of international relations, is that president trump's biggest headache? award: it is going to be problem because his goal is to boost manufacturing and job creation in the u.s. these are industries that compete globally and a strong dolly -- a strong dollar is a headwind for them. talking about infrastructure and tax cuts, likely to drive the dollar up, further. it could be a real anchor on his ability to move forward. francine: when you go back to your failure to adjust, how americans go -- got left behind youhe global economy,

create growth, you create wealth and you redistributed. this is not the way your president is going about it. edward: there are elements in the trunk program that i like. infrastructure is a key part that will create a lot of jobs and improve the competitiveness of the economy. manufacturing is important. corporate tax reform attracting more manufacturing investment matters a lot. the itemsry about is that will help working people. he is not talking about job retraining. we have a skill shortage problem. the health care reform the republicans are talking about could leave a lot of people worse off. i hear some good things on the corporate competitiveness side. i worry about the people working in this country and whether they are also going to get a leg up. francine: do you not need to have a more skilled workforce? what americak to

did 50, 60 years ago, you are competing with china directly and it makes no sense. developed economies need to focus more on innovation. edward: i agree. if you look at the manufacturing jobs being created, they are information intensive, they are robotic operations, they require computer design skills. a different set of skills. they need some help in gaining those skills. the united states spends less money on these kinds of retraining programs than any other country in the oecd. have thee not going to talents that they need, to fill these jobs. tom: a blast from the past, i have not asked this question in over a decade. towards twing deficit hysteria?

are we heading to where they trump administration were received deterioration in the fiscal budget deficit, and a deterioration in the trade deficit? edward: that is entirely are going backu to the reagan years, the last time we had that problem. there are a lot of echoes of reagan in the trump administration's approach. foreignh, going after countries or don't like their trading practices. reagan was aggressive on that front. tax cuts, fiscal stimulus, which will drive the dollar up and increase the trade deficit. that is a leading concern. tom: i know you are an expert on the bad hombres in mexico. help us. what we need from secretary tillerson -- what do we need from secretary tillerson? edward: we need stability, we

have a president who learned his negotiating style from the new york real estate business. when it comes to diplomacy, you need a different set of skills. something inarned his phone call with the president of mexico. you cannot just back foreign leaders to the wall. they have their own domestic constituencies to answer for. you have to give them away out. australia, he seems determined to walk away from the deal we made with australia. you cannot just do that kind of thing to your friends. you have to give their leaders a face-saving way to move forward. francine: going back to your point that reagan was putting on , we have muches better framework than we did when reagan was in charge. when they talk about currency manipulation, it should be completely adored? seen ifit remains to be

the trump administration is going to follow the framework. the thing reagan had going for him was the united states could threaten to close its market unless japan did various things to boost imports. under the rules we have now, the wto, nafta, you are not supposed to operate in these unilateral ways. you were supposed to use these formal dispute settlement systems. trump and a number of his advisers have made it clear they are not comfortable with being constrained by those rules. it remains to be seen how that will play out. take for what would it the world economies outside of the u.s. to come together? squaringnow if it is against the policies of america or protectionism, but is there any reality in the possibility

--a accord without the u.s. a plaza accord without the u.s.? edward: currencies are fluctuating dramatically, right now. i don't think we will see a plaza court situation. on the trade front, i worry that the rest of the world is going to organize around the united states. they trump administration's decision to pull out of the tpp was a big own goal. against lot of leverage china in terms of shaping the next generation of trade rules. trumphe u.s. gone and determined apparently to push australia into the china camp, you will see a lot of organizations forming around china -- countries organizing around china. do with a gameu theory -- what will be the

responses to what we are observing from mr. trump? game theory tells you that the best outcomes are ones in which both sides can win. theyu play games in which are win lose, then the outcomes are usually not ideal ones. trade historically has not been a zero-sum game, it is a win-win kind of game. more,ountries gain a bit the whole idea of trade is to find outcomes that create mutual benefit. unfortunately, president trump does not understand that. he sees negotiating in an entirely i win, you lose framework. that is not the way it works in trade economics. tom: thank you so much, ted alden.- ted

ryan leavitt, help me out here -- brian leavitt, help me out, levitt, help me out, here. brian: there is the one side that we are going to lower corporate taxes and deregulate industry, we will stimulate the u.s. economy with fiscal stent -- fiscal spending. the concern about trade is a real one. we think of it like a bell curve. the base case calls for optimism, there is a good story to be told, but the risks are getting fatter and those are protection of u.s. industry, stronger dollar and deficit spending that is not big enough to absorb those flows. turnbull in australia has to have rick springfield be the secretary of state so rick springfield can meet with the president and figure it out. it is that crazy.

francine: possibly over tea. this is probably not what mark carney will do, later on, having tea with the queen. conference atnews 7:30 in new york. it is all about the pound and weakness and inflation. this is bloomberg. ♪

tom: it is beautiful. secretary tillerson, i hope he got a good night sleep. he will need it. and extraordinary evening with the president and there are

different reports. i want to be careful about going after australia and mexico. is brian, with us levitt of oppenheimer funds. let's look at how we converge. a chart from a few days ago. this will be out on tv go. averages.e moving occurrenceretty rare , where all the moving averages come into one single point. what does this signal to you about institutional money having to make a call, this way or that? brian: you are starting to see some consolidation. you brought forward a lot of returns and had a cyclical recovery and some enthusiasm about what a progrowth administration could look like.

you brought forward a significant amount of returns. and had to see consolidation of that in the united states. the reality is, you look at the broad industries and the dow jones, you look at the broad indices, and in markets in general, they are not trading at excessive valuations. the yield curve is steep. retail investors have not piled back in. the typical signs at the end of the market cycle are just not there. tom: second single best chart. here is the dow jones industrial average. 1900 back here when rick springfield went to australia. there is the depression and up we go, this is guadalcanal. let's be serious. the great courage in the pacific of guadalcanal which was the beginning of the rally.

right here was when jesse's girl was release. dow 20000 and the punchline here is we are on trend. you said that earlier, you don't suggest we are overpriced. brian: we are not overpriced if we see earnings improve, and earnings should improve in a progrowth environment. risks are getting fatter, but lower taxes and fiscal stimulus is beneficial for markets. what is most important when you look at this chart is for all the consternation of investors about individual events and whether the world -- whether it is good or bad, the market reflects whether the world is getting better or worse and you show this great picture of 116 years. look at how much better the world has gotten. francine: do you think that is an accurate reflection? is there a correlation between growth and what we are seeing in the markets, or is it more of a reflection of cockup -- cost

cuts? that does not necessarily make the company better over time, but what we are seeing is improving growth in the u.s. and other parts of the world. corporate earnings should benefit from lower tax rates, from deregulation of industry. earnings have generally been reasonable. revenues have been reasonable. it is not as if this has been induced or incentivized. you have seen revenues and earnings. if you look at the price earnings on the market, slightly above average. price for sales, elevated a little bit -- price per sales, elevated a little bit. there is nothing that suggests

eight significant downturn would be in the often. -- suggests a significant downturn would be in the often. levitte: ryan -- brian from oppenheimer funds, thank you so much. this is bloomberg. ♪

tom: for exchange report, you have to look at the uproar. aussie dollar a little bit of movement on a percentage basis. peso is stronger, mexico versus u.s.. without a doubt, our corporate story of the day, deutsche bank has missed risinges despite trading

11% from a year earlier. we will hear from the cfo, marcus schenck in just a few minutes. outflows, thelly asset trading that perform less because clients got spooked. >> we did see less of an uptick in trading at deutsche bank and some of the u.s. rivals already reported earlier and we are expecting u.k. peers like barclays to report at the end of the month. francine: what did we learn of the optimism that john cryan believes this is a big step over. >> he said that the flows have turned around in all aspects of -- of course we have not seen the numbers, but john the cfo to both did promise a profitable 2017, which we have not seen for a while.

investors could be looking at this as positive news, but deutsche bank still has 20 legal issues on its plate that it has to resolve. francine: what do we know about capital raising? stephen: they are very coy about this. they did say they could pay their coupons on capital buffer bonds without having to raise any more cash. they also left the door open to ipo in part of their asset management unit which can help them raise money without having to go to shareholders for more money. tom: a delicate question, if they do a cash call, is it basically a cram down to existing shareholders? you have to see what kind of terms they offer. you can't imagine the existing shareholders already seeing a bit -- a recovery would be particularly happy, some might not want to double down. we have seen more banks in

trouble managed to raise billions of dollars from existing investors. -- would this be this year, would that be depending on market volatility? stephen: john cryan's answer was somewhere on the line of wheat is not -- we do not have any news to give you, but we wouldn't dissipate they were trying to get as many of these problems behind them as possible. the asset management unit has been marked for growth. often, banks can do this, they can try and sell part of their business to establish evaluation is worthis small part this amount, the we can extrapolate the whole group. barclays did this a while ago and it gives the whole group share price a bit of a kick. francine: thank you so much, stephen morris. we will have plenty more on deutsche bank throughout the

day. deutsche bank missing estimates because of outflows. matt miller spoke to the cfo, marcus schenck. >> there is no intention to reshape the way bankers are being paid since we always have if the market is paying bankers. we have made it clear that 2016 growth was a special year. we felt it was the right decision to basically take out the individual compensation. there is a group component which will be paid and offer the more jr. people -- the senior people have to compensate for the week result that we have in the year. matt: typically, wall street bankers take home a large part of the day at the end of the year -- a large part of their

pay at the end of the year. from -- means2017 a return to profit, -- marcus: we would target to get back to industry standards and normal compensation. that is certainly the objective. we have made it clear that for 2017, we do our most -- utmost to make sure that we don't have to report a loss. we are optimistic that we can achieve that as it relates to compensation, particularly when you compare us with the american firms. there is one structural difference. in europe, we have rules in terms of the relationship between fixed pay and the realpage that are stricter than what you have in the u.s. how do you, despite what is happening in the u.s., how do you attract and maintain talent

--a chairman bank -- doing 28 german bank as opposed to a u.s. bank? our name suggests we are a german bank, and we are, at our core market. a verysame time, we are international bank and we have people from 150 different nations working at this bank. you would find it difficult to find a more diverse bank then deutsche bank as it relates to attracting talent. we are hiring between 8000 and 10,000 new people. -- we have notat seen that been impacted despite the fact that we had a difficult 2016. matt: with such a diverse employee base, have you had any issues with the current executive order banning travel from certain countries to the u.s.? marcus: it has not impacted us

at this stage. something to be closely monitored. john cryan said it in the -- in the press conference. what that brings to us in terms of quality, but also our ability to make sure we can deploy our people and offer opportunities across all the places were deutsche bank is active is important. it makes us better as an organization and that applies to almost every company. that is important to us. so far, we have not seen any issues from that, and we have also seen -- the market side, the trump effect has been positive for deutsche bank in january and february. is that carry through to the regulation side -- does that carry through to the regulation side? marcus: i would not expect that.

it could be that the pendulum starts to swing into even more regulation. the president has made some comments that he thinks the regulation got to a point where it is governing the industry in a very good way and maybe one should not go much further. there is a big item which is the -- we would hope that there would be a resolution of what the outcome is. ♪ the dollar slumps to

an 11 week low, and the bank of england sets policy to an unknown. a warm welcome to bloomberg daybreak on this thursday, february 2. i am jonathan ferro alongside david westin and alex deal -- alix steel. the fed rate remains unchanged. the bank of england's asset purchase program stays on hold at 435 billion pounds, and the corporate bond buying program, both of which are set to end at the end of this month, our 10 billion on target. sterling, a 2016 high coming into this decision and then the forecast drop. alix: for 2017, they raised their gdp forecast to 2%. originally they had seen 1.4%, and they raised their 2018 forecast to