francine: after a weekend of clashes with the courts, the president warns so-called sanctuary cities that defunding them is a weapon he could use. pen declares her candidacy with a promise to hold a referendum on the you membership. we have the latest from paris. and as theresa may brexit plan faces another hurdle in the commons, a new survey suggests more than half of u.k. businesses expect to list their prices this year. this is "bloomberg surveillance ." we have a packed show for you,

some great guests, but first thing's first. let's check on your data. this is a picture for global banks. there may be a little fluctuation as we figure out what the trump administration is trying to do when they say they will roll back financial regulations. bank stocks pretty much unchanged, but some were higher 10 minutes ago. but other fluctuating as well. we had a little bit of news on crude, holding steady at around $54 a barrel. now let's get straight to the bloomberg first word news. here's sebastian salek. sebastian: donald trump says the process of coming up with a replacement for the affordable care act could stretch into next year. the comments came in an interview with fox news' bill o'reilly. >> we're going to be putting it in fairly soon.

i think i would like to say by the end of the year, at least the rudiments, but we should have something within the year and the following year. sebastian: the far right candidate for the french presidency has promised a brexit style referendum unless brussels agrees to reforms. national front leader marine le pen said the european experiment failed. >> who could find satisfaction in inaction in the face of a system that has us in chains, does not work, and ruins us because of its malfunctions? that is why i will announce the organization of a referendum within the first six months of my mandate on whether to stay or leave the e.u. sebastian: u.k. companies face tighter margins as the pound slides. that is according to the british chambers of commerce. it says 60% of businesses it surveyed expect their costs to

increase. german factory orders rose the most in two and a half years in november. orders adjusted for seasonal inflation gained 5.2% from november. it suggested the strong run is set to continue. deutsche bank took full-page adverts in all the major german newspapers to apologize for its serious errors. the ads said legal cases cost them their reputation and trust, in addition to about 5 billion euros since john cryan took over as ceo. it blamed the problems on the misconduct of a few employees. the new england patriots pulled off one of the nfl's greatest comebacks to win the super bowl. they trailed by 25 points that managed to score 31 without reply. it is a record fifth championship for patriots quarterback tom brady.

donald trump tweeted his congratulations. global news 24 hours a day powered by 2400 journalists and analysts in 120 countries. francine: thank you so much. you have full super bowl me.rage once tom joins and congratulations to audrey, who stayed up but still managed to make it on set. there was drama over donald trump's executive order to bar people from traveling to the u.s. the judge who blocked the ban saying people should blame him and the court system if something happens. it is now on track to the u.s. supreme court. speaking to bill, trump said defunding so-called sanctuary cities that take in is something he would consider. >> i don't want to defund anybody. i want to give them the money they need to properly operate as a city or state. if they have sanctuary cities,

we may have to do that. that would be a weapon. francine: technology companies have submitted legal documents condemning the executive order on immigration. let's bring in thushka maharaj, executive director of the global strategy team at j.p. morgan chase, and morris reid, former aide to bill clinton. morris, what did you learn about donald trump, how he will govern? i was surprised and struck by the fact that he talked about defunding and that he is ready to use this as a weapon. morris: he's going to pick enemies, anyone who disagrees with him. now it is cities in his own countries. upis clear that he's lining to his enemies are. we need to find out who is friends are besides vladimir

putin. one thing is certain. he is a friend of big banks. if you saw the way he talked about deregulation, the stock skyrocketed, he's a friend of oil and gas and coal, so he starting to define who he is. as for how he's going to govern, it is unclear. if you look at the way he handled the travel situation, it wasn't much governing. it was merely, i'm going to ram it down. thank god we have checks and balances in america. francine: the institutions have fought back. what if he starts completely ignoring them? morris: we have a constitutional crisis within two weeks of his presidency. if it goes to the supreme court, which is split, it will be 4-4 most likely. he can make the decision to go with one court over the other. he can go with massachusetts instead of seattle. francine: thushka, how do you

look at this for the markets? -- ifre a more immediate technology companies get up in arms against him, they will be punished? thushka: i think one of the takeaways has been, we need to price in more political risk premium. it is not something we've been used to. we've been more focused on central banks. mark carney summarized it, saying central banks are taking a backseat to politicians. the dollar, we've been very positive on, but we are seeing that the coupling between rates and dollar performance can be linked. are you still expecting him to reflate the economy? thushka: i think the risk is more from him talking down the dollar. distorting the performance of the dollar from economic fundamentals. i think that is where the risk comes from. we are not clear on what his

dollar policy will be. his advisers have been quite interventionist, let's call it. i think at this stage we need to have more political risk. francine: who does he listen to? morris: i think he's very clear on his dollar policy. donald trump once a weak dollar because he wants more exports. he understands that exports create jobs. meetingn auto industry and there were no german cars there. that is a clear indication that he sees the german auto market as competition. he's very strategic. francine: he's also asked for higher rates. higher rates implies stronger dollar. morris: one day he will say one thing, the next day another. he can be on polar opposites of things. he is starting to define what he wants to do, which is solely focused on job creation.

germany asafter competition. japan, maybe not so much. the japanese have been very shrewd and how they've engaged in, unlike the mexicans. francine: who does he listen to? the cabinet, they are not near fully confirmed, but is there one person that can kind of cool off his, i don't know if you want to call it temper, or cool off the noise? morris: there's spheres of influence like most politicians. with the clintons, you had tier one and tier two. one,trump, you have tier which looks like benin and miller. ultimately it looks like the safety net is kushner and ivanka. things evolve and change. -- he'sit clear that starting to evolve. we are only two weeks into his presidency and he's having some of the troubles that we had in our early years of the clintons,

but it took us six months to get there. he's a very aggressive politician. he's bringing interesting energy to d.c. he's a businessman so he's got a must get it done today attitude. francine: thank you so much. --ris reid and t to the and thushka maharaj, stay with us. if you typing tv go, you can have it on your normal screen. you can follow all of our charts and functions and mission just directly. some of you have already been getting in touch. they want to ask a couple questions to morris. great to have your perspective. let's get to the bloomberg business flash. sebastian: ryanair has reported any percent drop in third-quarter earnings. the airline said it is cautious about meeting full-year targets as fares tumbled. profit after tax fell in the three months at the end of 2016

compared to analyst predictions. toyota motor has raised its full-year operating profit forecast as the weaker yen boosted earnings. the carmaker says operating profit will probably be $16.4 billion in the fiscal year through march. toyota still faces strong opposition in the u.s. from donald trump over plans to build a plant in mexico. tiffany has replaced its ceo after week holiday sales sent the stock tumbling. frederick criminal -- frederic cumenal will be succeeded on an interim basis by the interim ceo. payds bank is poised to more bonuses than royal bank of scotland. according to people familiar with the matter, lloyds has earmarked 300 90 million pounds, overtaking rbs, which is considering about 340 million

pounds. it underscores the contrasting performances of two banks. francine. francine: thank you so much. the head of president trump's national economic council, gary cohn, has taken aim at the dodd-frank law, saying they've stopped banks from lending. the administration waits to seat its new treasury secretary. >> we want to get the banks working again. we want banks to be back in the lending business. what we think dodd-frank has done is it has stopped banks from lending to small and medium-sized is mrs.. it stopped banks from lending to entrepreneurs. francine: the dodd-frank action is front and center for the markets. the s&p up more than 4%. maharajth us, thushka aid toris reid, formerly

bill clinton. thushka, what does this mean for financial markets? how much deregulation can we expect? thushka: i think markets have already priced in quite a bit of optimism on the deregulation front. over the weekend, we had a few big players in finance saying that even if we do get deregulation from trump, it may not be as positive as we think. secondly, he can affect local conditions, but the basel committee is much more important for cover deregulation of the financial industry, and setting those risk weights, for example. there is some extent to which trump can affect regulation. we've seen european banks up over 20% in three months. trade hashink that room to carry on.

we haven't actually seen action. we think there will be more on that front. we're also conscious that trump is not the only actor in this game. francine: morris, i'm not sure how he squares. giving more to global wall street, does that go against his policy of taking care of the small person that has been left behind? morris: this is one example where you can see the policy. he was very clear he was going to do deregulation when he talked about obama care. no new is going to be deregulated. health care is going to be deregulated. he campaigned aggressively against the banks, but he has a lot of bankers around him. how he spins it to the little man, the person he's supposed to be protecting, it is all about he spins these things. my colleague here is right. there are other actors. you already see formidable

opposition against the deregulation. this will be a president that will be very good for those that want the regulation. this was clear in his election rhetoric. francine: is there a danger that deregulation -- we may need better regulation, but complete deregulation puts the seed to the next financial crisis. how do you handle that? thushka: that is a fair point. getting too far down this road will be a problem eventually. given where asset prices are, the risks of bubbles are already quite high. there are components where the deregulation is positive and it can be helpful. but the point is already made. bank lending in the u.s. is not being hindered by deregulation. we see that already helping growth in the economy, so that is not being hindered by regulation.

it is not regulation only of finance. there are areas where we could see much more negative consequences, for climate change, for the environment. that will impact oil prices, but also sentiment. markets, this in political risk premium needs to be priced across markets. francine: thank you so much, thushka maharaj and morris reid. stay with us. as marine le pen launches her program for presidency, we will ask, how real is the risk of frexit, france exiting the e.u.? this is bloomberg. ♪

francine: this is "bloomberg surveillance." we're just getting some breaking news that francois fillon, the candidate whose campaign is pretty much in turmoil, just announced he will give a news conference later this afternoon, 3:00 p.m. in london. over the weekend, we had some big rallies, marine le pen unveiling her program calling for a eurozone exit, less immigration, and the threat of a brexit style referendum. >> who could find satisfaction in an action in the face of a system that has us in chains, does not work, and that ruins us because of its malfunction? once elected, i will announce the organization of a referendum within the first six months of

my mandate on whether to stay or leave the e.u. macron, whomanuel is top of the polls, rallied in lyon. let's go to paris and speak to greg viscusi. what do we know about francois fillon? a lot of speculation that he may stay on or resign. is giving aow is he press conference in paris. we don't know what he's going to say. this obviously has to do with the affair he's in. one would tend to think it is more likely to announce that he's withdrawing. there has been talk that he would go on tv and say that he's holding his ground. the fact that he's having a press conference and not speaking to the nation on tv makes one presume it is more likely that it is to withdraw. i'm just saying that because that makes sense to me.

we don't know. francine: let's speculate. we don't know what he will say, but let's speculate that he resigns. who replaces him? there's nothing built into the rules of who the next person is. >> very good question. it is the first time this party has held a primary. it is not like they've got a system in place. they didn't put in anything about how they would deal with someone backing out. alain juppe, who fillon if he did in the primary, he tweeted this morning that no way is he going to -- no way would he be a candidate. but things can change. sarkozy, one presumes, would be interested, but he was pretty roundly rejected by the voters in the primary. there's others who could be chosen but we just a note. francine: thank you so much. greg viscusi there from paris.

we will be speaking later on to laurence haim, advisor for the french residential front runner, emmanuel macron. before that, let's get to thushka maharaj and morris reid. chart showing french and german yields? that is one way of praising political risk. how do you look at this? do we believe the polls? is there this unknown quality and quantity? morris: there's two outsiders in this race. if you look at the enthusiasm gap, both of their crowds were think the race is really going to come down to them. what has happened with sarkozy's party, this guy needs to get out of the race quickly. there's a lot of damage going to be done to the party. these two outsiders, i think macron could pull this out. he will be able to coalesce the

two thirds that are always against le pen. francine: it also goes back to what the voters are voting on, security or the economy. morris: i think the french want to vote on restoring their historic place in the world. it is a funny thing. the french have now priced in terrorism. this is the one place we know terrorism will happen. they know how to deal with it. i think what the french want is the economy to turn around and to reestablish the greatness of france. francine: thushka, how do you position yourself in the market? the markets cut brexit wrong. they got trump wrong. thushka: there are some differences with the french election. it is a slightly different environment. but i think you are right. because of the experience with brexit and trump, we need to price in more uncertainty around an antiestablishment candidate.

the fact that we could have both members in the second round already being antiestablishment, it increases the risk premium. we've been positive on cyclical equity markets and normally europe would be one of those, but because of the headwinds coming from the political side, that has taken a backseat. the way we characterize europe we are seeingis economic tailwinds but political headwinds. we had schaeuble out over the weekend talking down the euro to some degree. qe but to al doing lesser degree than before. we are seeing more vulnerability in sovereign spreads. you can see france widening. , oneine: this is the chart of the charts trending.

marine le pen in blue kind of holding steady around 29. macron at 46. fillon at 16. morris: if you talk to most french outside of france, they want to go back home. the number one foreigners in silicon valley or the french. if you look at the technology leaders, grenoble is one of the leaders behind silicon valley. if they can fix their economy, i think you will see a flood of french people going back there. francine: thank you so much. up next, u.k. lawmakers begin a debate. we cover that next. this is bloomberg. ♪

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until next year to replace the affordable care act. yesterday during the super bowl pregame. >> we're going to be putting it in fairly soon. i think i would like to say by the end of the year, we should have something within the year in the following year. following a weekend of drama, he says the funding of sanctuary cities is something he would consider. >> the money they need to properly operate as a city or state, we may have to do that. certainly that would be a weapon. >> unless brussels were agrees to reform. le pen said the experiment had failed. took outbank

advertisements in german newspapers to apologize for its errors. it said legal cases have heard its trust. they went on to blame the problems on the misconduct of a few employees. 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. lawmakers will begin a debate today over legislation that would give theresa may the green light to start brexit. she is in the committee stage of the bill. it would allow members of parliament to make changes. companies are facing tighter margins as they start to feel cost increases. businesses expect their

costs to increase over the coming year with 54% of companies having prices. how do you look at this? do you look at it in terms of what you had land? is it easier for companies to work around it? >> i think there's a lot of uncertainty that needs to be priced in in the u.k.. we talked about political risk. this is a prime example in the u.k. we have a challenging environment. rising inflation and growth is slowing and could slow further. , we are of companies now starting to see the confidence indicators turning over again. we think that will persist for a while longer. we are more pessimistic about the growth picture. that puts us in an uncomfortable

position. inflation is going to rise above target as growth prospects moderate. slowdown toward the second half of the year. i think sterling which has defied expectations will move higher. it is vulnerable to growth. it's weakening on a 12 month run. it will start pricing in the uncertainty. is the pound lower? much lower from here? we say between 5% and 8% more. this is the chart we were talking about. touch i thinkn a it still in negative territory. this is the vote that happened on exit. when you look at theresa may,

she has lawmakers looking into it. worse, does it mean she's going to have a tougher time not adding amendments? i don't know if it's going to be a negotiation or if she seems strong in this. >> democracy is messy. that's it you have now in london. what she needs to do a plan. everyone is nervous she does not have a plan. the more she talks about donald trump, she should be talking about a trade agreement. she is acting on a plan that will be more stability. that's what the market wants. they want to make sure the prime minister has a plan to move forward. she should act accordingly. perception is reality and the perception is now there is no plan. francine: the plan is actually getting out and not paying for anything.

>> we understand that is the hope. in reality, that's going to be a hard brexit. she needs to prepare for a hard exit. , youoment you were out sign a free trade agreement with the united states. bigednesday you go to the countries in the commonwealth. it's about stability and planning. everything in life is planning, especially politics. in the political cycle, you can make everyone in the market happy because they want stability. francine: i don't know the answer to this. if she signs five or six agreements in the first week, can they make up for the loss of leaving the eu? >> it's our biggest trading partner right now. it will be hard to compensate for that loss. we go through a big adjustment. that's why the currency is the big pair of that risk. it's the shock absorber essentially.

>> i agree with you. the biggest market is shrinking. europe is not growing. it's not moving at the same pace the united states is. the commonwealth countries are outpacing everyone. this is about making sure people understand that she does have a plan that will ultimately replace those opportunities and markets. >> in the short term, there will be a lot of people adjusting, even with a plan. i think in financial markets we will see some stress in the near term. exactly. the point about it being a hard brexit is not riced into the market. we are moving closer to that outcome. there's a lot more that needs to come into the risk, especially the currency. >> they need to deal with the reality. they need to manage that and deal with it.

they need to have a plan. if they understand the she is prepared and has a plan and she has a way forward, people will stick with her because this is the only market that matters to them. do you not see a softening of the stance of the eu? crumbles,f london where does it go to? you have jobs that will move elsewhere? >> certainly not frankfurt area the markets are only going to be -- the politics are only going to play on the election. election,has a tough that's a different calculation. i am hearing she may be that way. it may be a coalition government. if france has le pen, that's it different kettle of fish altogether. sheedy's be offense of instead

of defensive. she needs to go to commonwealth countries and start the planning now. that shows it may be rocky right now, but it will be better over time. we are the only place that matters in europe. francine: thank you so much. thank you both for joining us this morning. stay with surveillance. speak tove in paris to the advisor. the french president of kenneth are trying to gain ground. we will hear from the company's cfo after the report. later, we talk donald trump again in that controversial travel ban that has been a very rocky weekend. this is bloomberg. ♪

francine: let's get straight to your markets. mark: for the second day we were down for two of the last three weeks. we are up by .1% in utilities. it started with the biggest low-cost carrier reporting and 8% drop in third-quarter or running's. -- earnings. analysts were previously forecasting no change. this is the shares that are up today. since brexit, shares are up 8%. the two days after they fell 24%. gold continuing's its resurgence.

that could spell bad news for dollar gold. $1220.sing prices that is a key technical level. it foreshadows gains in the declines in the greenback according to historical correlations. gold is the white line and blue is the bloomberg dollar spot. this is according to world bank of canada. davis, said gold could be the canary in the coal mine for the u.s. economy. it's the worst quarter in over three years. keep an eye on french bonds today. it's fascinating to look at this chart. the blue line is the spread between france and the german 10 year. that is the widest sense january 2014. the white line is the simple

yield on the 10 year which is above 1%, the highest since 2015. it almost doubled this year. le pen a good spring and other shock in this year's election. were atwhere near we the height of the sovereignty crisis. francine: let's get more on the race to become the next president of france. the independent candidate is the bookmakers favorite. the u.s. is giving up control. -- he also extended a welcome to entrepreneurs describe the with donald trump. joining us from france is an advisor on international issues. it's great to have you on the program. thank you so much for joining us. let us know the french voters will decide on when they vote in the first round. is it security issues?

will it be jobs or the economy? >> i think the french people are worried about what's happening in france. important to be very election. it's going to decide the kind of society you want in the future. saturday, he was trying to say that. this is a very sensitive moment for france. he is trying to present a new idea of french society. francine: how will he deal with globalization? whichs one of the biggest is from le pen this weekend. he already said in berlin what he wants to do about globalization and europe. he said it's going to be a key element if he is elected president. he wants to rebuild europe in a new way, and the global world we

live in that's going to be a key point here in francine: le pen was promising a crackdown on immigration and globalization. >> for the moment, it's important for me to tell you that he is trying to do. on the national front, if you listen to his speech saturday, he was saying very firmly that le pen is betraying the french people. that is the message. at this moment, it's an important party. it's an important moment in the shetical life in france and is betraying the french people. francine: how will he deal with europe? do you think voters will go to look than because they are fed up with europe and its

regulation? >> you have to go back with what he was saying. he is repeating that. he wants a strong euro. he believes that europe should be strong. he wants to reinvent a new europe. he wants to do something with germany, the relation between france and germany will be extremely important. at a time where you see the united states in a very sensitive position, when you see russia which also need atrong policy, you strong europe. francine: what is the one thing that would propel le pen? this is the movement. let's say there is a second

round, how do you deal with that? >> i think we have to be extremely cautious about what we call political fixation. this is a very sensitive time in france at this moment. element ofortant french political life. he is really watching with caution what's happening. he is trying to save democracy. we can see all over the world what populism is doing. francine: what do you say that he has very little lyrical experience or little local machine behind him. >> i think it's important for this moment. he was the minister. get a lot of things. he is trying to create something new in france which is never been done before.

it's not to be on the left or right. he is trying to build the movement that has different elements of society and he is trying to create a modern aspect in the political life. you can see again all over the onld that people are tired the classical elements of the political life. reinvent in ao new way the political life arian -- life. when you look at the rallies, he is able to attract a crowd. 10,000 people show up at some of his rallies. how does he keep momentum going? i think he doesn't want to work -- speak for the people. he is there for the people. france people are

desperately trying to have something else than the classical parties. he is filling this gap. people. to respect he is listening to people. the understands with happening inside french society. he is young. he is trying to modernize the political life in france and that is part of his success. you can see thousands of people are answering this message. they come and listen. we have a lot of people coming from society. we are trying to change something in the political life in france where it francine: thank you very much. up next, a slump could hurt quarterly profits. they are cautious about meeting

targets. this is bloomberg. ♪

francine: this is bloomberg surveillance.

ryanair shares are down this morning. they reported an 8% drop in third-quarter earnings. the cfo said the company is cautious about targets. >> we see ourselves not going as quickly in the u.k.. there will be opportunities where we are going to grow to 20 -- one companies are in of the benefits of its happening along with sterling being weak areas we get lower costs. that helps us with volume discount deals and we can add an extra in places like naples and copenhagen. see orid, we still growth going into mainland europe and elsewhere. away, there is a lot of uncertainty around what's going to happen with the hard brexit.

>> we were just talking yesterday about a cliff edge. he was talking about the new transition team. when you look at sterling, it's a huge risk for you. how much more weakness do you see in that? are the pickups coming from europe into the u.k.? >> we've got very strong passenger numbers everywhere. we are getting a better program on the lower fares. across europe. people travel with lower fares. when we get closer to exit, we may see a slowdown in the u.k. economy. it was interesting lessening your last contributor. it may affect things elsewhere. that's why we have to be cautious and how we grow in this market. there is a huge amount of opportunity. we only have 15% market share in europe the moment.

we are not going away. >> are you thinking about scrapping the mystic routes? it this isooking at something we can do. it's a relatively simple process to do. we have three domestic u.k. routes out of 1800. it's a relatively small part of the business. , do weet close to brexit want to stay in domestic u.k.? we can open up. we can operate under that. this is planning we are doing. we are looking at all possible scenarios. francine: that was the cfo of ryanair talking to us earlier on. caution seems to be creeping through bonds. this is after there is a little bit of perspective about the french candidate unveiling a

manifesto to take the country out of the euro. that means traders are underscoring political risk is the main factor in all of this. oil and gold are testing high. there is a response. we continue in the next hour. tom keene joins us in new york they are very focused on the 10 year yield in the u.s. we have a comparison of the spread between french and german 10 year yields. we will talk about donald trump. this is bloomberg. ♪

francine: the trumpet

administration is looking it to a san francisco court of appeals to overturn a restraining order. battle for the french theydential election, unveil a program for leaving the eurozone. returns to thete house of commons as the focus shifts to conservative party rebels that can hold up the process. good morning, everyone. this is bloomberg surveillance in london. tom keene is in new york. they are trying to figure out the political risks moving from trump to brexit to france after that huge rally. tom: there is a back-and-forth here. the reaction to our politics in the united states over the weekend whether it was saturday not live mythology of the super bowl best game ever. if you bring it back to the white house, it's an extraordinary weekend in america. it was extraordinary

interview your president gave to fox news. let's get to the bloomberg first word news. trump wantsident members of nato to pay more for their defense. that came up in a phone call. thewhite house said president did express strong support for nato and agreed to take part of a summit in late may. the trap administration will try again to get an immigration ban restarted. the justice department will submit final arguments for enforcing the ban to a federal appeals court. they declined to reinstate the restrictions over the weekend. it could end up in the supreme court. renew.opean union will the travel bans were imposed on 100 russians and ukrainians.

the white house is said no decision has been made on similar sections -- sanctions against russia. the new england patriots came back from a 25 point deficit to beat the atlanta falcons in overtime. , no quarterback is one more super bowl's. he was named the game's most viable player. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. i am taylor riggs. francine? tom? tom: spreads in europe are the big attention this morning. we will touch on that across the five hours. the curve is flattening in the u.s., it's not a big deal. right now to the vix 11.40 showing the dow at 21,000. there is the france germany spread. that widens out. that is a big deal. francine: i know it's a big

deal. you are stealing my thunder. let's not talk about the german french spread. let's go to my data board. there is a little bit of uneasiness in the market. you see a return to risk off. the rally was held was very popular. tom: let's go to the bloomberg right now. francine made me do this chart. this is long-term view on the france germany spread. this is way back to the advent of the europe -- euro. this is normal. this is not normal right now. politics, mr.he draghi got to be aware of this. francine: it's never happened in surveillance history. we have the same chart. tom: yours is better. francine: i did not take it act

as far as you did. how do you rate political risk. this is what we see on the markets. this is something we see on the markets in the last couple of weeks. kit.e for the hour with we have a lot of things to talk about. how do you hate plutko risk in england? kit: you can see it coming through the bond market. i think it's going to build further from here. the first round of the election is in may. you have a few months time. getting morelf is complicated all the time. with potentially several candidates or 25% of the vote. that makes for massive uncertainty. you can see it in the euro against the swedish currency. euro dollar as a little bit of

bavaro in it. see it's going to grow. i think this is going to get euro dollar closer to parity. you are talking about the infatuation with the 10 year yield and you also talk about german orders. , therethink the politics is an underlying story when years have gone. points toom 10 basis 70 basis points. it's from the election of donald trump through december. it is back down. it is going nowhere. the foreign exchange market feels a little like that. bears and dollar bulls capitulate all over the place. that is marking time. that means better economic aid it to change the story.

that is going to drive a lot of markets. the euro itself is supposed to become a political story. exactly ashat's not i expected a month ago is i can see that in some of these crosses. i can see it in the bond market. i don't see it in the euro-dollar yet. i'm sure the euro is going to suffer against the dollar and other currencies from this political uncertainty. it's only going to grow. tom: i am writing out here a very important banner. saint thomas brady only knows the path of the 10 year. monday, help me understand the path of the 10 year yield. it's already way out front on this. what the rates due out a year or two years? kit: i think were going to test

the top of that. if you draw a channel, that would be a parallel line going down. i think we're going to have a good look at the top end of that at some point. i can't think of a parallel for you. challenge as the rise in yields stall, it's negative for anyone who is short bonds. it's a big consensus trade from last year. a lot of people make money. this costs money every day as a trade relative to yields not rising. when we stall, we start knowing the other way. that is what is happening now. people can't do this forever. tom: mr. gross suggested financial repression could go up 30 or 40 years. do you agree the real yield return will stay diminished and

not get us back to what normal was when st. thomas won his first super bowl? kit: real yields have been falling for a hunk of time now. there are a bunch of things that drive that. aging populations have a tendency to stay. as well as the addiction to debt that we've got, i don't see how we can saying -- sustain interest rates until we have gotten over the that addiction. we may be somewhere else with st. thomas. talking about inflation in the u.s., i'm working on a chart. where do you see it going from here? kit: it's edging higher. the challenge for the inflation in the market is we could break even inflation rates in the u.s. above to 10.

we are in the week of the anniversary of the prices. the drag upwards of rising oil prices starts to ease off from now. we've had some inflation. i think we are getting more and more people looking at those breakeven inflation rates. that's all they's affairs. when do i want to start saying inflation has peaked? people are beginning to doubt this whole big reflationary story. the numbers on friday played right into that doubt. francine: we will talk more about that out. speak with the former prime minister of inland. look for that at 6:00 a.m. in new york. this is bloomberg. ♪

tom: it is a new york where even audrey hepburn would have trouble shopping. it's a little better than it used to be. i walked past mr. trump's abode yesterday. there were substantial protests. there was some pushback again. protests on fifth avenue. here's taylor riggs. taylor: it doesn't get more iconic on fifth avenue then tiffany's. a shakeup there. the chairman and former ceo will replace him on an interim basis. tiffany has been rocked by a

slump and by the strong dollar. ryanair is cautious about third-quarter earnings falling 8%. europe's largest discount airfare fell 15% during three months. there is too much capacity in your. tell you what has raised its forecast for the fiscal year. help themen should sell more prius and lexus models. rising tensions with resident trump could have an impact. he has criticized their plans to build a factory in mexico. francine: thank you so much. the trump administration is asking the court of appeals in san francisco to overturn a restraining order. state in federal judges -- we are joined by stephanie baker.

stephanie, what is the tone from the president over the weekend it? it has not changed much. he seems intent on fighting anyone that goes against his order. stephanie: it's not in his hands now. it's incredibly difficult to see how that is going to play out. we're supposed to hear an appeal today. three judges in san francisco will hear this. it's a liberal court hearing it's very hard to predict how this is going to be interpreted. the judge said he thought the order could not be carried out constitutionally. the administration hit act saying blocking it second guesses the presidents national security judgment. it's hard to predict how this is going to pan out. francine: what do we know about his economic land? a lot of it is priced in with dollar strength. when we find out if he

reflate's? stephanie: he said in the fox interview yesterday he was going to press ahead with a tax cut plan. that's the thing people should be watching. that has support in congress among republicans. he is most likely to get that through. tom: certainly, the illusion of against president obama. help me here with how the department of justice advocating for the president will act this monday morning? for thethe to do list department of justice? stephanie: they have had to file legal briefs weekly. they have had to present this to the appeals court today. they are arguing this second guesses the presidents national security judgment. it really comes down to whether the court rules that this is

unconstitutional or does it role of the president has the broad authority to rule on immigration and national security issues. tom: this is my morning must-read. we are trying to look at the history. this is the illusion back to president obama. they cited the precedent of a federal judge in texas who in 2015 throws president obama's executive order. turnabout is fair play. he said it's a dangerous threat to the separation of powers for the president to question the legitimacy of a judge. this is not saturday night live. it was brilliant this weekend. what do you presume geography means here? to gete president have this into a court that will be more southern?

stephanie: it's unclear. what i think is really interesting is he has tied himself very personally to a policy through a series of tweets that may fail in the courts, that may be shot down. how does he recover from that? many think this will gail all the way to the supreme court. will they agree to hear it? it remains to be seen. francine: had you settle on where it goes from here? one of the things stephanie said was we will get to the economic package in due course. we're working through this. this is bad politics on an international level. it's upsetting a lot of the united states allies. that will blow over soon enough. i'm not sure that it does anything much more than that. we have had a lot of this kind of politics before we get to the economics we want, tax cuts,

that's the biggest thing. is isworld, what matters he going to boost economic growth rate? higher?make yields those of the things that are critical. francine: this is the picture for dollar and inflation yield links. what is a go from here? i would've thought it would be auto to begin those real yields with 71 basis points. we jump those yields pretty sharply after the election. my guess is they are likely to be more like 1%. before, i think we are supposed to test the upper side of 3% and the other side of 1% in real yields. if the president delivers a progrowth package that gives the economy growth this year, the extent of the pullback is we went up fast and came back.

for aht go sideways while. like it's the dollar moving back up again. tom: we will touch on this in the next hour, stephanie baker, thank you for the judicial lesson. you were very judicious in my judicial ignorance. we have all become lawyers in the last 72 hours. it takes expertise. in our next hour, a conversation with harvard on the power of the interdependence and dependence of the president worldwide. ♪ this is bloomberg.

francine: this is bloomberg surveillance. you are looking at a gorgeous london cityscape this morning. 12472.nd dollar is it that is our view from st. paul's cathedral. putting more landscape in the u.k.. the article 50 will returns to the house of commons today. lawmakers will begin debate on theresa may to trigger the withdrawal from the european union. we're back. kit, i have the chart made for you. this is the difference between financial conditions that are creeping up a little bit. brexit vote.is the how will this play out in the next six months.

everyone is on board. i think there is still a lot of shopping around. the underlying sense is we haven't had brexit. people are negative on the economics of what the impact will be for growth. they have been surprised by how well things of held up. willme point, people conclude that this isn't really doing much damage or you get the redirect coming through. it's hard not to believe that we will get data coming through as real incomes continue to be squeezed. francine: does it change her stance? are we still on the same path or does it change the thinking with negotiations? kit: i don't think it changes much. i get the sense we are going to get to article 50 and start negotiating.

how they negotiate becomes the critical piece. there is still a sense that the negotiations are a two-sided thing. eventually, both sides will negotiate what's in the best mutual interest after facing off with each other aggressively at first. list -- exitack we've got a lot of water to get under the bridge. tom: is the glow of the economy over? are we through the part of the j curve that had a good u.k. economy and now gets tough? kit: it feels that way. is reporting, they are saying look, my profits are looking pretty good and the stock market is doing well. now they say my import costs are pretty brutal. we are going to have to raise prices. people are beginning to realize that real incomes are under

pressure. disposable income is weaker. we are not getting much more followthrough in terms of job creation and optimism coming. there will be a realization soon that there will probably be higher taxes and more spending restraint head. even if the economy doesn't follow the edge of a cliff, i don't know where the next bit of good news will come from. francine: thank you so much. this is a bloomberg user. it can find -- follow us and follow all bart chart analysis. this is bloomberg. ♪

tom: good morning, everyone. spreads move in europe this morning. right now, here's taylor riggs.

main a baeir replacement for the affordable care act as soon as president trump had hoped. he spoke about it on fox news. yes, i would like to say by the end of the year. at least the rudiments. we should have something by the end of the year and the following year. taylor: republican lawmakers are trying to figure out how to repeal and replace obamacare. more missile tests over the weekend. meanwhile, iran will be on the agenda today when british prime minister theresa may meets with benjamin netanyahu. well discuss security, trade and technology

links. according to mercer, issues involve skills shortages and an aging population can mercer says brexit will present just prevent those gaps from being filled by foreign workers. francine: thank you so much. tell you what raised its profit forecast despite following forecast estimates. head of global automotive research at ever court is still with us. good to have you on the program. i'm not sure the correlation between global growth, about possible trump protectionism and automobile sales, but the link seems pretty strong. industry is inle

the middle of global trade. anything disrupting global trade would be bad news for the auto industry, bad news for shareholders and bad news for jobs in the u.s. as well. francine: can you differentiate, for example, the asian automakers compared to the european ones. who is strong and who is not? >> toyota is the stronger in terms of profitability and cash generation. on the premium side, the germans are incredibly strong. it depends on a healthy u.s. market. toyota is a huge manufacturer of cars in the u.s.. bmw is the biggest manufacturer in the u.s. -- biggest german manufacturer in the u.s. the u.s. consumer likes these brands. we all hope they will be successful there. tom: let me bring up the toyota chart that shows the persistency

of cash flow generation. they move up, up and away. would are the decision trade for toyota? you mentioned bmw. treeis the decision between spartanburg, mexico and mexico-mexico. we can make jokes on "saturday night live," but what is the decision tree in choosing mexico versus the united states? art: it's very simple. these guys look at where will we sell cars in the very love future. investment decisions are for the next 10 to 15 years, not longer. the normal conditions for a plant, they need to produce at least 200,000 to 300,000 a year. labor costs are hugely important. supply chain is usually important. costs, roughly 60% to

70% of revenues. supply-chain,ning well-trained labor, competitive labor costs, and the supply-chain. daimler will bmw and adapt to the new supply chain of new -- of north america? isn't a new supply-chain yet. they will all start negotiations now with u.s. partners. and then they will take a decision and it will probably take them a year or two to figure out what they are going to do next. i don't think that anyone will change the current plan anytime soon because we don't have any complete facts yet. francine: how do these now -- how do these automakers navigate currency? how will the winners and losers depend on currency instead of just models? kit: the biggest number you see on the earnings is just how they

announce their profits in domestic currency terms. toyota makes currencies all around the world. their carst making in japan and selling them to the rest of the world and bring in the money back. they are making x amount of dollars which is more on yen in a given day. a global manufacturing base protects them from -- at the end, you have to translate it back into domestic currencies and you take a hit when it moves a lot or you get a benefit. francine: will we see less of an upside if they'd trump administration shies way from it? art: on forcefully, yes. we don't see the consumer globally is paying for improved fuel economy or fewer emissions. the consumer pays for things like connectivity or a sound

system. so it is hard for carmakers to apply hybrids or an electric vehicle. we hardly sell any electric vehicles globally because the consumers are not paying for yet. can set of this question so you -- so we will impress you with it it as well. where is the best value to acquire shares this morning? buyers ofe big volkswagen. we think it is the biggest turnaround story in global autos. and i think valerio is the most interesting supply route -- supplier out there. it is most exposed to electrification and least exposed to conventional powertrains. tom: how does the president speak of vw? will vw put them marginal employment in the united states,

mexico or germany? what will vw do given the horrific year they've had? needs toink volkswagen spend a lot of time in the u.s. and they need to regain the u.s. consumer. and part of that will be by adding more production at the chattanooga plant. they started investing there a couple of years back, but they've been late to the party of producing cars in the states. they are very big in mexico. so the incremental investment for volkswagen will come in the u.s.. francine: when do we see driverless cars, really see driverless cars? art: we think that is a very, very long way from here. francine: what does that mean, 10 years, 15? art: 15, 20 years. you will probably see autonomous you -- ilevel 5 on university campus or covenant campus. but the real world is too complex. it is not safe enough anytime soon to let.

the car fully take over. it is also too expensive. . people are not paying more money for cars. tom: help me here with the u.s. car companies. are they distracted by the president or can they actually move forward with some level of sanity like the europeans and the japanese automakers? is usuallyne distracted because, in an 7, 10,y where you have 15-year investment horizons, what you need is a sound environment and sound political predictability, which we currently just don't have. the trade talks that have started would massively impact of the car industry. it would massively impact to the costs of buying cars moving forward in the states. tom: thank you very much. he is with evercore. ofely anticipated, just nine, we have been tried to get nye, we have

been trying to get him on the show. this is bloomberg. ♪

♪ [speaking french] pencine: that is marine le on her tv campaign, pledging to reform europe, reform france and put a referendum to the french people over whether they still want the euro. both qualifying for the runoff, she would be defeated 36% to

44%. greg, when you go back and while it down, we have polls where it seems there is a runoff. but what happened to the french law -- francois campaign for now? greg: the revelations came out that he hired his family is parliamentary eight, which is not illegal, but they were making huge sums of money and there are questions about how much work they were actually doing. press conference this afternoon. we don't know what he is going to say. there's rumors he is going to pull out. there is rumors that he is going to stand his ground. we just don't know. francine: it seems to me that the most critical point, which is not 100% actually addressed is will the presidential

campaign be decided on security issues or on jobs and the economy? greg: that depends. on jobs and like it the economy because he is much stronger on economic issues. he has an open view of a plugged in france, embracing new technology. would like it more on national security, because that is where she is stronger and she is stronger talking about issues of sovereignty and the border. she has that trump side to her, but not the economic side of a trial. tom: help me out with the video from a pan. it look like a -- from a le pen. it looks like a super bowl video. is it politics as usual? greg: it's more and more common. 10, 12 years ago, french people would have said, oh, my god, this is terrific. .arkozy introduced a more personal style of politics in

france he introduced his family and spoke about his families. now they all have to humanize themselves. it's a current part of french politics now, but it is relatively new. tom: help me with the running of the trump election where i noticed that the moment of suburbs of philadelphia with for the president. have theme le pen suburbs of philadelphia? the she have a surprise electorate we are going to learn about? reg: probably not a surprise electorate in that almost all the french road anyway. the voter turnout is about 80%. where she has made massive gains is she has always had the white working-class. that has been her game. now she is making gains into low-level white-collar workers and, for the first time, government workers. that's where she seems to be making a lot of gains, low-level workers.t

so she definitely has moved out of her base, which has been rolled voters and white working-class workers. francine: thank you so much, greg. grade insight and an update on the french presidential election. the problem is you have to become more and more political voyeur. it depends on how le pen and macron split up the votes. not he decides fromand, and still those macron for example, we will spend the next few weeks wrapped up trying to risk. behind everything is this question of, you know, the penmption that marine le wins x amount of those in that number doesn't go up. there's not a lot of people

who transfer their vote to a second round so she can't win. that is kind of assumed by every opinion poll and the commentators. this prize -- the surprise is when we start nailing down to the bone over whether that is actually true. francine: do you look at the polls or is it when the markets actually latch onto it? kit: i think it's when the markets latch onto it. she is uplatest one, to 34% in the second round. she is winning people who do not normally vote for her there. any indication i can get from that, i'm going to be very dubious about those kinds of polls because i don't know how you vote the what if the pan is in the second round versus macron. this is one of the trending charts of the implied probabilities. you can see his popularity

staying as in. -- as is. -- we need to know how he is going to deal with europe and job creation and the welfare state. kit: we don't have much of a template. he is very new to politics. he is not an experienced politician. it income through that machine. he was not elected to anything before he became economy minister. be coming out in the next few weeks. tom: go back to that magnificent chart that francine had up. francine, help here. is that blue blondish -- is that rouge?lance, and francine: very good, tom.

the problem is, when you look at the polls, we may be measuring things wrong. many say the polls are mainly done in cities, the analogy being philadelphia. it may not be capturing the sentiment in more suburban areas that my vote for le pen, and also maybe to afraid of saying it out loud or a poll. socialistamill, the candidate, to persuade the far left candidates to go with him. if you put those two candidates support together, they are halfway in the 20% something level to further muddy all these waters. francine: exactly. is that it is muddy waters. these could shift. one thing that is clear is that the rallies are [indiscernible]

kit: exactly. francine: they are the only ones that can get about a thousand to 10,000 people. like trump in his early campaign days. that is coming up in the next hour of bloomberg surveillance. we speak with the former prime minister of finland. let for that at 6:00 a.m. new york this is bloomberg. ♪

tom: bloomberg surveillance. next hour.in our here is the bloomberg business flash. taylor: jpmorgan has won .pproval to write for the first time since the financial crisis, lloyds banking group will pay more and bonuses than royal bank of scotland. it underscores the differences in performance between the two of the u.k.'s bailed out banks. lloyd is paying dividends.

british companies are seeing their profits squeeze because of the following the pound. sterling to the group, drop is having a negative impact on domestic sales margins of all must have the businesses surveyed. the report on exports is next. that's your brew -- your bloomberg business flash francine:. -- business flash. francine: thanks. ecb comes ahead of the presidents, is to the parliament. right?blem is inflation, he is trying to set monetary possibly -- monetary policy where there is inflationary risks. got inflationary pressures. he is god a european economy

that has 9.8 and -- 9.8 unemployment. a it's an economic political problem to be solved. he is trying to buy the economy time by saying i'm going to live within a commie that is growing faster in -- with an economy that is going faster in some places. francine: let me bring you to another chart. this is core inflation versus underlying inflation. you have core inflation and white. tom: great chart. kit: that core line will edge higher. i'm not getting myself excited about that a time soon. imagine the old prize, which the year-over-year low will come in february. we have a couple more months with a headline pushes up quite a lot. then it will slowly start

tapering out over the course of the summer. tom: the second derivative of german inflation, is that you need to germany or does that have to do with all of europe? france, finland, do i care about the acceleration we are seeing in germany? you care about it if you think it will be sustained as a result of tightening economies across europe. you need to see more of it. this is an animal that is alive, at not running around in great make, shape or form. it would be a desirable thing, perhaps, more inflation in germany. it would be desirable to have more wage growth. worry unless it becomes a bigger story. it's got a long way to go. but germans will worry. tom: i made so much money on my bed in st. thomas on the patriots. where do we make money this morning? kit: i think at the moment by

watching markets go sideways. we are not going to be buying a lot of volatility. i am selling the euro on the basis of the increased political uncertainty that we have around at the moment. but we are in a holding pattern now after that big trump move and a correction we've had. we are just stuck here for a few days. i'm finding it tough. tom: thank you so much. next time, we will talk more about arsenal and football. stay with us. this is bloomberg. ♪

♪ tom: this morning in france, marine le pen goes on the offensive.

she is behind. she needs two two-point conversions to get to may 7. joseph nye of harvard. the president leaves his super bowl party early. miracle for the new england patriots. good morning, everyone. this is bloomberg surveillance. francine, tell me how the super bowl translated in london. francine: it translated a little bit because we have about 200,000 americans living here. at the u.k., people looked the ads and how much it's worth. i think they were trying to read a lot into the ads of how you translate the donald trump thing. but i don't know that many people who stayed up until 4:00 in the morning to watch it.

tom: i fell asleep in the overtime folks and woke up just to see st. thomas create a certain miracle of the night. firstget to the bloomberg world news. taylor: president trump wants members of nato to pay for more of their defense. the white house said the president did express strong support for nato and agreed to take part in a summit of nato leaders in late may. the trump administration will try again today to get the controversial immigration been restarted. the justice department will argue for enforcing the ban in a federal appears core. to reinstate the instruction. the battle could end up in the supreme court. to the european union claims renew its blacklist of russia's blast -- russia's president. the asset freezes and travel bans were imposed on a hundred russians and ukrainians. the white house says no decision has been made on similar u.s.

sanctions against russia. anton, like you are talking about, there has never been a super bowl like this one. the new england patriots came back from a 25-point deficit to beat the falcons in overtime. new england's tom brady was named the most valuable player. it is the first cornerback to win five super bowls. tom: francine: it was -- the commentary is great -- tom: it was -- francine: the commentary is great. tom: forget about football. let's turn to the markets. woods interesting here is in francine's neck of the words -- the woods. this is really front and center this morning. i completely agree.

this is a picture of currency bonds. look out for your-dollar. crude oil at $54. opec is sticking to their production cuts. tom: we need to get the kevin cirilli. he has been fantastic in explaining the back story. i want to go to saturday night live. our global audience, there is a prism in here that is translation. this is the comedy of america with the president and the grim reaper. that would be president been in as playedident bannon out in the comedy. how funny is this or is this not funny? kevin: the funniest was melissa mccarthy is john spicer -- sean spicer. it speaks to the notion that democrats are trying to argue that there are other folks in

the background who are running the show in the white house. tom: help me here with the seriousness of the ninth circuit closed -- court. pushing against the department of justice and the president. what should we look for this afternoon as they go through the of peels justice -- appeals process? kevin: this white house will, at the judges full force. in the tweet over the weekend, looting to the quote unquote so-called judge. this white house feels they are completely within their power in executing the authority of the president to carry out the executive order against immigration. scenes, privately come over the weekend, i was speaking with several republican capitol hill aides who were a bit uneasy about the president's language on twitter. look today for briefing with sean spicer about that 2:00 p.m. hour on air force one when they

are heading back from florida to see exactly what approach this administration is going to take at around the same time this ruling is scheduled to hit. francine: mitch mcconnell seems to be distancing himself from the latest controversy with donald trump. what does that mean inside the gop? kevin: the senate has its work cut out for. right now, you have seen other senators who are being led by mitch mcconnell, people like tidball on the betsy devos hearings. you see them -- people on the betsy devos hearing. you see them peel back on the president support. the white house has been more strong. but on the issue of the border adjustment tax, that battle will play out directly in the senate. and mitch mcconnell, while he hasn't been as outspoken as speaker paul ryan in the house,

he is come of course, pulling some strings behind the scenes. and all of the bigger, larger sites will play out in the senate. francine: when does the trump immigration band go to the supreme court, if it does go to court?reme and if there is an overturn of the ruling, how complicated is it for tourists? how people are -- how are people taking in the u.s.? kevin: it is a pretty divisive issue. republicans have largely supported it. of the american public support it. they don't support the rhetoric surrounding it, but they support the actual policy. progressives and immigrants are -- progressives and democrats are vehemently against it. court,s of the supreme we've got to make it through this first circuit round case and then it will make its way up the chain. tom: thank you so much. uneventful day to say the least in washington. he gets huge email response when

he is on. komal sri-kumar has been dead on, dead on about persistent low rates and persistently tepid economic growth. time we us again at a see a lot of people not doubt to a 3% yield and a 3% economic growth. have you changed your view? komal: i have not. we are at 245 on the 10 year and i see a going back to 2%. i don't see economic growth picking up in the 3% to 4% growth that president trump and steve mnuchin have been talking about? i don't see where it is going to come from. trade they have further restrictions, the uncertainty will infect -- well affected business investment and slow growth, rather than speed it up. i don't see inflation picking up either. watches everydent morning. advise the president on what part of the economy isn't going

to happen for the trump optimists. komal: the part of the economy ist is not going to happen the supply chain issues, which we don't understand fully? when you have trade restrictions, that flows through the supply chain and affects the economic growth, that i think that is where the administration itds to be cautious acres can have unintended and unexpected effects on employment and growth, even though you are acting on trade. francine: what is your take on inflation? how much of a headache will that before the united states? 7 i don't see inflation picking up? i've -- komal: i don't see inflation picking up. . worried about was the big surge in the hourly earnings in the united states, i said that will not be maintained. the rate of growth came down. weekly earnings

actually slowed in december and january because the work week has not increased. i for all of these reasons, don't see wages being a big issue in terms of inflation picking up. and i think supply chain-wise, other than the fact that trade restrictions could cause inflation to rise somewhat, the impact from the rest of the world still remains pretty benign. francine: what's your biggest headache when you look at the u.s. economy? there seems to be -- does president trump want a weaker dollar? you have been talking about that earlier this morning and i think that there are enough contradictions in terms of wanting a weaker dollar and, at the same time, the fed talks about increasing interest rates three times during the year, which i don't think it will

happen, but they want to do so. europeanave the central bank and mario draghi remaining on the softer side. bank of japan is not hiking. so i can see where you are going to get a weaker dollar out of all of this. the to-center spread. this is a vanilla spread. here's the trump election. here's the day after the election, up we go. i'm assuming you see the curve flattening as this rolls over. do we roll over with stability and control or are you worried about all the pats and the politics -- the debts and the politics at the time? 2/10 you are talking about is a relative issue. you saw it surge after the trump election. it surged within 36 to 48 hours of the election. i think the next move, when it comes to the 10-year 2%, you

will see the bottom half drop out precipitously. tom: francine? francine: we will be back with him very shortly. back, we will talk with the former prime minister of finland. brexit be asking about and global politics, how the world should deal with donald trump in russia. komal sri-kumar -- this is bloomberg. ♪

this is bloomberg surveillance. let's get to the bloomberg business flash. taylor: there's been a shakeup at tiffany's, jewelry chain replacing the chief executive officer. former ceon and

michael calls will replace him in an interim basis. kowalski will replace him in an interim basis. it was presumed that iger would be replaced by the chief operating officer. thank you so much. is here with us and we are excited to have him with us. wrotennish prime minister that the u.s. is handing they key to world politics. key and start taking a more prominent world on the world stage -- prominent role on the world stage.

we are pleased to be joined by alexander stubb. great to have you on the program. the europeanith union is that there is a lack of commonality. you speak to every world leader in europe and they are worried domestically about policies and they don't have a joint connection. alexander: that is probably one of the reasons that the whole european union was founded. the idea was to have an institutional structure where you would not allow nationalism to take precedent. onwould be useful if it did -- 11 are on trade and were politics. but a lot of european leaders played to a domestic audience. we say that everything that is bad comes from brussels and every thing that is good thanks to me at home. francine: does donald trump basically destabilizes things. >> out --

alexander: yes can know. -- yes and no. he can't be the leader of the free world or the leader of globalization if you say no. fill the power vacuum and fill the space. europeans should try to do that. he does destabilize, but in the sense that i think a lot of european leaders are looking around. we don't want other trumps popping up like mushrooms in europe. let's do something about it. and that will bring european leaders together. tom: the constraint that mr. draghi has is disinflation and deflation in europe. we talk about all of the usual victims, italy. but he says it all when he talks about domestic parties. it is a remarkable moderation in interest rates in finland, right down to the zero bound. how urgent is it to have a trump reflation in europe?

alexander: that is the kind of thing that come at the end of the day, the ecb, mario draghi, is going to decide. if you look at finland as a specific case, we have memories of a severe recession and nearly 1990's, when our unemployment rate went up to 18% and our interest rates went up to 20%. no one wants that. we are quite happy right now with low-interest rates in finland. a little bit of inflation would do good at this stage. there's no denying that. the way theook at finnish economy are the european economies are going right now, they are going in the right direction. this goes again to something relatively of skier, which is the finish contagion. it's not just about the key -- something relatively obscure, which is the finnish contagion. it's not just about the key. komal: more than 70 years, at

the end of the second world war and in the early 1990's, we still see europe not coming together. in a sense, i don't see the criticisms of the united states being so valid. contagion, what you see in europe and the lack of willingness of taking over responsibilities is a key part here. tom: i understand that you are the only atlanta falcons fan in finland. will you please talk about the total domination of st. thomas last night? what happened to your falcons? alexander: it is a sad event. i attended south carolina. that's why i support southern teams. i think the falcons will come back. they are playing better than they did in 1989 when i was

there. tom: his southern accent is as bad as my finnish accent. francine: we will practice both. continue with them. coming up, and are highlighted interview of the day as joseph the president and and his many interdependencies. this is bloomberg. ♪

francine: we need to talk about brexit. lawmakers beginning three days of debate, authorizing theresa may to trigger britain's withdrawal from the european union. we are back with former prime minister of finland, alexander stubb. the problem with brexit is that now we have a plan. the negotiations could the nile lead tedious that messy. alexander: they will be both tedious and messy. that is what it is usually like. but at the end of the day, and it is a clear question the britain has to answer and the european union. you have to give an answer to do things. number one, what is the exit date? is moving with article 50, that will probably be first of april 2019. and second is where gets quite messy. you hear a lot of different figures. upm 50 billion euros top two

--ks a mellie 12 billion -- from 50 billion euros tops to about 12 billion euros at the bottom. the whole issue of the inter-market is set on this. the u.s. will lead the internal market. we will see what the normal setup will be at the end of the day. does become more interesting after the negotiations of 2019 is the future relationship of the unit -- the united kingdom with the european union. that will need a lot of time. when you are negotiating article 50, you're talking about 2000 pages of legislation. it will not be easy to get out. greenland took three years.

u.k. is in the bit bigger. it is very complicated, very messy. are,i looked at where we prime minister, on the calculus of europe and the united kingdom. where in europe is the center of the debate? i can't find it. is primeeurope minister may going to speak to? alexander: there are two capitals that she will be spotted -- speaking to a lot, what is brussels and the rest is the european institutions. thehe end of the day, it is guardians of the treaties. the second capital is in berlin. the truth of the matter is that the new leader of the free world is angela merkel. so she will have to play those two cards diplomatically. alexander: i think -- komal: i think it is not just the u.k. and who the prime minister is addressing. the issue is intensely within

great britain. remember, brexit come he had this big divide between the london elite and the northern britain wanted to exit. and the city you are looking for financial services. their brits have to get over the big diversions before they can negotiate with the du. -- with the eu. can follow the news live. you can look at all our data checks. and you can ask questions directly to alexander stubb and 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. tom: bloomberg surveillance. i am tom keene in new york. francine lacqua in london. right now, on the affordable

care act. to get started, here is taylor riggs. taylor: them may not be a replacement for the affordable care act as soon as president trump had hoped. he spoke about obamacare in an interview with fox news. pres. trump: we are going to be putting it in fairly soon. i would like to say by the end of the year. at least the rudiments. but we should have something within the year and the following year. lawmakers areican trying to figure out how to repeal and replace obamacare after seven years of calling for it to be abolished. former secretary of state and fbi officials have enter the legal battle of president trump's immigration order. they have set a statement to the court of appeals hearing the ban, arguing the travel undermines national security and will endanger u.s. troops in the field. among those signing it, former secretary of state john kerry, and former cia director leon panetta. iran will be on the agenda today when theresa may meets with benjamin netanyahu.

netanyahu says he will emphasize the need for international response to iran's ballistic missile test. he will also discuss strengthen its security, trade, and technology links. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs. this is bloomberg. tom? francine? francine: we are back with the former -- we're back with alexander stubb and komal sri-kumar. we heard over the weekend president trump discussing on the phone call with the nato secretary-general, had to encourage all nato allies to meet their defense spending commitments. if there was some kind of retrenchment from the u.s., it would mean that the finish situation is much less stable. >> the stronger nato is, the better for a country like

finland. fore were to apply membership, we are probably more ready to be members right now. the question is, how much value does nato have, and that is reliant on the u.s. view. if president trump's message is to put more money into nato, good. but if the u.s. will start retracting from nato, that is when it becomes dangerous. francine:'s rush of the biggest security -- is rush of the biggest security concern in 2017? and how should one leaders react to that? after the cold war, it was easy. the u.s. took a leading role. now we do not know who is going to take it. i think china will take the lead on the economy and on trade. , a heard president xi champion of free trade and davos.

i think russia will be strong militarily. there is no question about that. other than that, there is right now a power vacuum in the world. and the question is, who will fill that? tom: the power vacuum is abe's of helsinki and west of moscow. there are 833 miles between 800 33 and -- there are miles of border between finland and russia. why is nato at the heart of the washington consensus in the stability seen since the end of the world war? alexander: it has been the key institution to promote, i would argue, peace around the world. remember, it won the cold war without firing one shot. it has been the basis of the transatlantic alliance. it is a very strong deterrent through article five by basically saying that if you attack one of our countries, we will attack back. no nato country has ever been attacked. that is how strong and important nato is.

it is the strongest military alliance, i would argue, in america -- in history. it should remain steadfast. tom: how do you link this back to our confidence in finance and our confidence in investment? komal: i think where the link comes -- i agree with the prime minister over the importance of nato and maintaining a defense of the european countries through nato. the question is not whether or not they should be defended. the question goes to the finance question you had. who will bear the cost of it? negotiations between president trump and nato is currently taking place in terms of the european countries taking on more of the burden rather than leaving it to the united states. i see two very different questions being discussed, and i would again say that the genuine issue in terms of talking about the budget and burden sharing,

we are not necessarily giving up on nato defense. francine: do world leaders understand that the world could go either way? alexander: i think this is the 1989 moment. we did not know what was going to happen in the aftermath of the fall of the berlin wall. the soviet union collapsed. we went into an era of liberal democracy, and i would argue we are at a similar turning point. it could go in either direction. prime minister, thank you so much. alexander stubb, the former prime minister for finland we will continue with joseph nye next. you know him from power and interdependence, the iconic textbook. far more important, his new book on the new american century. is it a new trump century? stay with us. this is bloomberg. ♪

tom: this is bloomberg. -- "bloomberg surveillance." in the distance, the citgo sign. boston, exhausted thanks to st. thomas, who did good. the patriots came back from the dead. it was amerco, the best super bowl game ever. when we move from the charles river in boston, we must move to our most important interview of the day. joseph nye, too many people, defines international relations. his book is a classic. far more importantly is this new shorter effort, "is the american century over?" wonderful to have you with us. joseph: nice to be with you.

tom: is it going to be a trump century, or is he a one-off in our politics the echo joseph: that is one of the big questions. no he terror up 70 years of building a system that we have seen since 1945, or is he going to wind up reinforcing it? at this stage, it is an open question. too soon to tell. me where the judicial branch fits in. is there a power and independence of an american judicial branch? joseph: there is, and that is one of the reasons some people who are alarmist sensei trump is like mussolini, my answer to that is, not at all. the united states is not like italy in 1922. we have separation of powers and a strong independent judicial branch. we just saw it this past weekend , this past week, with the

executive order. theunited states has benefit of a long tradition of strong institutions. tom: speak to bloomberg's global audience right now as they look at an america in turmoil. is it another part of our history, the election of 1800 and adams and jefferson, or should there be real concern over the stability of america as the dominant institution? joseph: i still think the united states is a pretty robust society with pretty strong institutions. think back to the 1960's, when you had rioting in the streets, a set of assassinations, deep bitterness over both civil rights and the vietnam war. we are not in that kind of a situation today. we are in better shape despite our differences. francine: how much will donald trump test these institutions? you talk about checks and

balances. how far will he go in trying to challenge them? joseph: i think if trump were to challenge the institutions in a serious way as opposed to with tweets, which is what we have seen, where he tweeted against the judge who came down on the decision against him -- but if he were to do something more serious, there would be resistance not just in the congress, but also in the rest of the judiciary, and in civil society. so i think that he can indeed make life difficult for judges, but i do not think that he is in a position to corrupt or undermine the independence of the judiciary. francine: a lot of people were surprised with the rhetoric coming from president trump in the last couple of weeks since his inauguration. do you believe that what you see is what you get?

he has so far just held very close to what he has said on the campaign trail. he will build a wall, he is talking about a wall. can we take the campaign and say that will be his first 100 days in power? joseph: certainly president donald trump has tried to demonstrate through his followers that his base supporters -- that he is doing what he said. that explains the executive were hastye of which and poorly thought through, as in the immigration order. and a lot of others, which are primarily symbolic. in the sense that we do not know how they are going to work out. but he has wanted to use executive orders and tweets to show his base that he is carrying out what he said. that is important because, remember, he was elected by a minority.

he has got to energize that minority. rather than moving to the center , as george w. bush did after a close election in 2000, trump has reenergized his base, or tried to do that. tom: it was quite a moment last night when we saw president george herbert walker bush and mrs. bush come out at the super bowl to toss the coin. that was a different time and place. civilizedth our less discourse. the clash that we have tomorrow from huntington, this clash that we have of less civilized discourse. how do we get to nye normality? joseph: it is a great question. certainly bush 41 was a period where we had a very strong foreign policy and a very simple -- and a very civil discourse. i think technology has hurt this somewhat, in the sense that at

140 characters, people can be quite rude. and the rhetoric of the 2016 campaign was pretty rough. the question is whether politicians will find it in their advantage to keep that way, or whether the people will say, you know, we would like to hear a little bit more listening, a little bit more politeness. so it is possible that the pendulum will swing back. on the other hand, technology is not in our favor. tom: what is your prescription for the newly minted secretary of state, mr. tillerson? how should he ask, given the executiveness of the white house in his first two weeks? joseph: as i said on your program a couple of months ago, i think the tillerson appointment is a good one. he knows what he is doing, he knows the world. he is going to have to deal with

a white house which likes to act quickly, sometimes without carefully worked out consultations, and there is a long tradition of some tension between the state department, the white house, national security staff. through sixn ran nsc advisors. so i would say we would expect to see some friction there. the key for tillerson is to keep a steady course on his own. francine: what about the friction with the gop? will be parties stay around and make sure that donald trump is in check, or will they rally behind him no matter what happens? joseph: i think in the short ,un, facing reelections in 2018 a lot of the people who were critical of donald trump in 2016 are reluctant to abandon him.

they think that they are going to be better off in their reelection if they stick with him. on the other hand, if part of what donald trump and steve bannon are doing is to try to organize a new populist party by appealing to the tea party republicans and the so-called reagan democrats, then a lot of the middle of the road republicans or moderate conservative republicans are going to feel that pressure. so the next two years will see a good deal of tension just under the surface. francine: one of the chances of a real trade war between the u.s. and china this year? calmh: well, i hope that voices will prevail. a trade war would be expensive for china, but it would be expensive for the united states as well. if you are trying to provide is worth remembering

that our exports also provide jobs. i think it is a bad idea, but if you ask me to place a bet on will there be some, i would suspect that there would be some. tom: the speed of events is unthinkable for anybody of any generation, but one feature was the president's discussion with mr. riley -- with mr. o'reilly of fox news where he showed a great respect for russia and for mr. putin. ,ar more important is this idea is america so innocent? explain to us how a president speaks with the innocence or guilt of america in our history? joseph: well, i was surprised by president trump's remarks, first of all. , think vice president pence somebody in the administration -- i guess it was mitch mcconnell, who said that trump

kgbtch -- that trump is x -- is ex-kgb. yes, you can drudge things up from american history where some of our behavior has not in exemplary, but it is surprising to see a president talked that way, particularly when he is going to have to deal with putin to try to prevent putin from doing what he did, which was indeed his neighbor ukraine and interfere in the american elections. tom: professor nye, thank you. francine? francine: tom, the ecb president, mario draghi, will be speaking to you lawmakers. he will delegate some supervisory administration -- some supervisory

decision-making. draghi will be speaking to the european parliament later. bloomberg will of course bring you coverage from that. this is bloomberg. ♪

francine: the queen, queen elizabeth ii, is britain's first ever monarch to mark -- it has been 65 years since she became queen after her father's death. i am expecting a lot of pageantry today. they released a new portrait of the queen by david baylor. we will have more -- by david bailey. we will have more. the queen is supposed to meet donald trump later this year. tom: that is the anna edwards entourage there him as she goes to cover the queen and the sapphire jubilee as well. tom sterling rate -- pound sterling remains supreme for the queen.

euro-swissie i am watching. not through any kind of support but a stronger swiss franc over the last two weeks. let's bring in our single best chart with sri-kumar. this is almost my chart of the year. this is really simple. this is like the play saint thomas was doing on the two-point conversion. in 1994,he 3% mark 1995. it is not mourning in america. we are nowhere near that. komal: we are not, but i do not think the bond rally is by any means over. we are still having the follow-up from the financial crisis of 2008. if you have that ended and we are on our way back to economic growth and inflation pickup, i was say the bond rally has ended. i do not think that is to be the case.

i think there are enough uncertainties that in -- that affect growth and inflation, which is why i think the line that you have showing is likely to continue to go down. tom: within that, and on the outlier call that you have, where are the central banks -- by laborin late day of 2017? the three ortake four major central banks, the federal reserve may be hikes once this year, no more than once. you have this once a year phenomenon which they started 15 months ago. the european central bank is in some form of easing. the bank of england spoke about two years ago as mark carney talked about increasing interest rates. he has not done so yet. with brexit related uncertainty, he is unlikely to do that. then you go to the bank of japan. you have had a 25-year-long problem with staying nation --

with stagnation. and whether it is labor day 2017 or 2018, they are not going to change. and the chinese central bank, you will see some moves toward increasing interest rates to dampen speculation, but they cannot do too much because of the volume of debt the economy is dealing with. so if you look at today, february 6, compared with labor day 2017, i do not see much of a difference. francine: let me bring you to my chart. , and i the correlation want to ask you about the correlation. the dollar, this is the bloomberg dollar index in orange. 10-yearinflation index, government bond yields. how do the two correlate? komal: i think in terms of the correlation, you have seen the bond yields rise since the trump election, and you have seen also

, at least until six weeks ago, we saw the dollar strengthening as well. what you have now is that the bond yield has been coming down a little bit, and so has been the weakness of the dollar. as i look forward, i see the correlation being broken, because with the amount of uncertainties that you have in the world, the dollar strengthens again. but the correlation is broken in that the yield comes down also. tom: i want to let you know, bill gross just published his monthly letter, and he agrees with sri-kumar. he talks about the methadone of quantitative easing. coming up on "daybreak," we will have more. tomorrow, jim glassman. this is bloomberg. ♪

jon: french presidential penidates -- marine le

assesses the political risk in the eurozone market. draghi testifies in brussels, knowing he cannot please everyone. and the position of the crowd begins to crack. the longest weekly decline since 2015. welcome to "bloomberg daybreak." the markets, as we set you up with a little something like this. futures unstable. rebounds. story a little bit of dollar strength after four weeks of weakness. looking at the geopolitical risk in europe. the french yield here backing up i about two basis points as the -- backing up by about two basis point as the dollar strengthens. the index off by 2% in crude oil -- the index off by 2