pen 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%, and crude oil goes nowhere. frenchrspective

presidential candidate marine le pen unveiled a manifesto pledge to take her country out of the euro. >> who could find satisfaction inactionion, -- in that ruins us because of its malfunction that is why once elected, i will announce the organization of a referendum within the first six months of my mandate on whether to stay or leave e.u. frankoining us now from for it is our bloomberg d.c. reporter. it begins in france. the willingness to take the country out of europe is one thing. the ability to do so is quite another. what are the prospects of marine le pen becoming the president of france? are not the prospects particularly strong to be honest, yet. who was supposed to be

the front runner, francois fillon, has been having troubles with his family affairs. whoever comes up against marine le pen can probably count of the majority of france voting for him and to vote out lip had -- to vote out marine le pen. jon: later this week, francois fillon will have a news conference. what do expect from him after the developments in the last several weeks or so? >> i think that the main thing you would want to figure out is forher he continues to run the majority conservative party in france or the eventuality of him retiring and someone taking his place, who is supposed to be the front runner. people expect him doubling down or retiring from the race. for: this is the backdrop

the ecb president today. talk about the line that he will have to thread between better data and the geopolitical risk. >> what marine le pen said over the weekend underscores what is the main reason -- the main risk for draghi right now. it is not the economy or inflation. inflation is picking up mostly for oil right now. it is politics in france, germany, possibly italy, and as we have seen with trump, the outcome of the elections is highly unpredictable. draghi will have to make sure that the ecb will he there to make sure the that europe stays together. markets, the spillover a little something like this. some euro weakness as we kick off some fresh trade. we are down .4%. 10-year,d, the french

almost the widest in some four years. joining us now to discuss is jane foley. quite simply, the question for you in the fx market, what is going to be important in 2017? rate differentials or politics? >> i think it is probably politics, and it is quite unusual to have the markets is focused on politics because we do have those french elections, brexit, and of course trump. this is what we have got. in: how will that play out the eurozone, more specifically? i wonder if it plays out with the euro more broadly in the months to come, or whether it is consigned to individual spreads within the eurozone. how do you anticipate that plays out? at the end of last year, the market was becoming quite

nervous about politics in europe. we had the french elections, the german elections, etc., and there was a lot of that pressure on the euro. then the market became a little bit more sanguine about it. either polls suggested in the netherlands and germany the far right could form a government. but now the right is concerned again about france, given the scandal of francois fillon's affairs. france is again weighing on the euro, weighing on french yields. but i think the euro will see a pretty rough fight over the next couple of weeks. david: there is a lot of talk about politics. if you took the politics out of it, where should the euro b trading against the dollar? if you look at the fundamentals of purchasing power? estimates, most estimates of the euro-dollar suggest it should be higher. you are looking at anywhere

between 1.16 and 1.33, those sorts of ranges. that is your long-term benchmark. but we will know -- but we know that academic measures can stray array -- that can stray away from the spot rate. at the end of last year, the market was getting excited about fiscal stimulus in the u.s. that the fed could raise interest rates more repeatedly. in the early weeks of this year, the market has become more disappointed about that. trump'sls yet about fiscal packages, and of course the payroll on friday had pretty weak numbers for inflation, suggesting, is there really any need for the fed to hike interest rates so soon. jane, when you look at longer-term, is it

possible that mr. schauble and peter navarro, speaking for the president, are pointing in the same direction of fundamentals, meaning a stronger euro rather than a weaker one? trump certainly wanted a weaker dollar to try to boost their trade position of the u.s. that indeed is intervention itself. there is talk that president trump is criticizing other countries of doing that. the german a can only far has been improving. -- the german economy so far has been improving. pushing away from easing monetarily conditions, that is when -- pushing away from easy monetary conditions, that is one we see the euro rising. verbal intervention in

d.c. -- let's talk about the verbal intervention in germany. finance the german minister saying over the weekend that in america, the advisors to the new president are concerned about the question over whether the german economy is to a certain extent competitive and performing well. government isn not responsible for monetary policy in europe, but something else. other countries think it is too strong for them. how did mario draghi deal with verbal intervention out of germany and out of the u.s.? jane: german officials quite openly think that ecb policies know that the ecb has set rates not just for itself,but for the emu and some of these economies are much weaker. without a doubt, germany has

been one of the main beneficiaries in the past because of the fact that the euro is dragged down by those weak economies. that is to the benefit of german exporters. germany itself does not intervene to try and move the currency. this is set by the ecb's policy rates. so only -- so, yes, the ecb does -- does demon inflation to be on a firmer course. deem inflation to be on a from her course. draghi taking his foot on the gas pedal to a point with quantitative easing. is back and forth across upon, there will have to be a pick up in volatility. jane: it is difficult for anyone

to predict what politicians suggest trump or something like a brexit, what could happen next. without a doubt, etc. just's -- it suggests that volatility could pick up. jon: j foley of rabbo bank is -- jane foley of rabbo bank -- of rainbow bank is staying with us. we will take that live when it kicks off at 9:00 a.m. eastern. as we kick things off for you, a frustrating week this monday morning. futures in the united states largely stable. from new york, this is bloomberg. ♪

david: this is bloomberg.

i am david westin. over the weekend, the trump white house was reminded that there is a third branch of the federal government. enforcement was stopped donald trump's executive order. joining us from washington is bloomberg's chief washington correspondent, kevin cirilli. we had 97 different u.s. companies, and we will put six of them appear, 97 tech companies coming up on the side of the state government, against this band. that's against this ban. there are sources i am talking with on capitol hill as well as at the white house, telling me they are incredibly surprised from the pushback they are receiving not only from the judicial system but also from the companies that you alluded to. these are big companies, companies like apple, microsoft, uber, netflix, read it.

basically every company with the exception of elon musk's companies, joining this brief against the executive order on immigration. david: the ninth circuit court theypeals will rule that have briefs coming in today. what is the administration expecting? kevin: i think they are preparing for a supreme court battle. if this ruling goes against them this afternoon, this will continue up the chain to the supreme court. later today, we expect to hear from white house press secretary sean spicer, on a press briefing as theair force one president returns from florida. if we look at the president's tweets over the weekend, he is fully prepared to go against the -- prepared to wage a political battle against these executive orders. david: it is 4-4 right now.

does the trump administration want to move this forward fast or slow it down until they may be able to get judge gorsuch in there? kevin: let's also remind ourselves that judge gorsuch will face tough questions about this particular case, should the government go slow, should they take their feet off the gas pedal, because at the confirmation hearings, you can be sure that the democrats will press him, as well as some republicans. some republicans are beginning to question the effectiveness of this administration. thanks so much. that is kevin cirilli reporting from capitol hill. onx: check out this chart this terminal. it compares the longshore position -- the long short positions versus the bloomberg dollar spot. the white line is the bloomberg dollar spot rolling over. pace since 2013 over

the past cointreau weeks. foley.ith us is jane as you wind up holding relatively well in the u.s., do you view the dollar selloff as a pause higher today, or a reversal? jane: i think it could be a bit of a reversal. , we werer bullishness saying it would run out of steam. where we were wrong is that the honeymoon period would last into the spring. there are a few reasons. the market at the end of last year was quite excited about that postelection trump fiscal stimulus. budgetary spending through congress could take its time. with that, i think the market has begun to really question whether or not the fed can hike interest rates three times this year.

it is argued that they can only hike once this year. with that, we have not been as bullish on the dollar as many people in the market have been. the other thing, this year compared to last year, a lot of people are quite concerned about the impact on the u.s. economy of protectionism, what that could do to the u.s. economy, slowing growth. that is another concern coming through. that is what the market is concerned about in the last few weeks of last year. dollar bulls really are bailing. for them to get excited again, we would have to see something pretty soon and concrete about reflation, fiscal stimulus in the u.s. alix: on the flipside, couldn't you make the statement that inflation is picking up in europe, and that is one of the reasons why the dollar is stalling? jane: i think that is it, too. it is the other side of the coin

and you are exactly right. if we go to that right in the first week of this year, we will start to see better inflation data coming out of countries such as germany, importantly, but also other countries such as spain. that has been picking up steam. that is another point of view. from the european side, or with the improvement of the euro, there are bigger concerns about the politics. a lot of the polls around the french elections are going back to the nominee for the republican party in france, and also the nominee for the socialist party. they have thrown out real counter results from the polls. there is the clear potential for a spin on the put recovery. politicsmentioned the in the eurozone. let's talk about the politics coming out of the sea -- out of d.c. the message is clear. if you run a trade surplus with

the united states, and you are a big economy, we have a problem with the fx channel. how will that evolve in 2017 from words into action, if at all? jane: i think in a few cases we can. the prime minister of japan is visiting trump, and shinzo abe agrees with angela merkel on free trade. he will agree to do some kind of bilateral trade agreement to reassure trump that there are no significant barriers in japan against u.s. goods. we will have to see if there is a pushback. certainly there is more concern in japan, trump reiterating his concerns again about japan being a manipulator, as well as china, as well as germany. the market will get quite tense, but ultimately it is very difficult to see the u.s. going as far as intervening. the same could be said of japan.

the market was speculating about intervention in your ago. that did not come to fruition. one of these countries does start to intervene -- if one of these countries does start to intervene, the risk is that we do have a small currents a war. jane foley of rabobank, thank you very much. coming up, do not count a march rate hike out. the central banks could still work in three rate hikes in 2017. why the market is betting that he is wrong. that is next. and henry mcvey joins us with his 2017 outlook. this is bloomberg. ♪

jon: welcome back. we take a look -- to give us a sense of president trump's economy tuesday, we get the u.s.

december trade balance. initial jobless claims on thursday. michiganniversity of consumer sentiment coming up on friday. coming up with more, michael mckee. she -- steady as she goes looking at the data so far. michael: so far, so good. early, little too according to john williams, but all the other data seems to be coming in the same. a relatively strong economy, certainly better than other economies. jon: all of a sudden the conversation begins. the fed matters pretty if we start pushing back those expectations. you caught up with the president of the san francisco fed on friday, john williams. >> if we push the economy too hard for too long, information -- inflation pressures will

build up. we know that if the economy runs too hot for too long, you will see imbalances and inflation pickup your jon: is this still the janet yellen said? michael: it believes in the phillips curve. up, you willgoes get low wages. williams said do not take march off the table because based on where we are with our current economic policy, with the jobless rate even at 4.8% and inflation taking up, we may want to move in march. window to the fed used to be the san francisco federal reserve. is it still a window into the thinking of the likes of williams? michael: it is a reasonably good thought. john williams is seen as a centrist.

you could go either way. generally that philosophy is probably what most of them are thinking at this point. the ones i have talked to have basically the same view, which is why we have this three rate hikes this year. they figure inflation will get high enough that they need to put the brakes on a little bit more. what they think about the economy right now, the average fed funds rate of about 66 basis points is not the proper setting. out the payroll report came friday, and what struck me was the idea that we are near full employment. how are we still adding 200,000 jobs every single month. michael: they are putting people into the labor force who were out. that is why donald trump may have a point with the unemployment rate, not that it is 42%, but if you include discouraged workers who have , theyooking for a job could come back to work. that is why we are seeing the unemployment rate went up on friday. if that continues, it is good

for the overall economy, but inflation will be a little lower and slower to take off because we do not get wage pressures as quickly. jon: michael mckee, thank you very much for joining us. alix steel, we were told the fed is the second story to d.c., and then you get a downside surprise on wage pressure. looking forward to february 14, when you have janet yellen testifying in congress. coming up, the impact of brexit, president trump, and rising populism on the market. henry mcvey joins us with his 2017 outlook. this is bloomberg. ♪ jonathan: the markets are

looking like this globally. the s&p 500 is on its first three-game winning streak so far this year. it has been choppy. the market will stay like this.

the dollar in fourth straight weeks of decline. by .4%. is coming down it's almost exactly where they started 2017. that is the market action. let's get your headlines. emma: there may not be a replacement for the affordable care act as soon as president trump hoped. he spoke about it with fox news. >> we are going to be putting it in a fairly soon. i think i would like to say by the end of the year, we should have something within the year and the following year. outhey are trying to figure how to repeal and replace obamacare. iran carried out more missile tests this week in. they took place after there were

new sanctions on individuals and companies for supporting the program. the european union plans to renew its blacklist against allies of vladimir putin. the asset freezes and travel bans were on 100 russians and ukrainians. the white house says no decision has been made yet on a similar sanctions against russia. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. i am emma chandra. to take you to erik schatzker who is with henry. >> good morning two. i want to talk about the latest piece you put out. i'm a huge fan of your research. this is the thing.

new reality. paradigm shift. people who think about investing in financial markets and the economy don't throw those words lightly. what you mean. henry: i think this is the first time in 20 years where we have a point where it are highlighting a couple of things. one is a major shift from monetary to physical. we had all of the central banks running the show. i think you're going to have government spending driving entry -- incremental growth. the second thing i would say is we are moving globally. i travel all the time. it feels like we are moving from global to domestic. that has applications for trade in other parts of the world. the third thing, we are moving back from reregulation to deregulation.

especially about energy, financial services, health care will be in the mix at some point as well. i think you're moving toward world were a lot of the volatility has been in the currency market, none of the equity market. it's been periodically high, but generally on a sustained basis, most the volatility has been the currency market. kkr is shifting more to the interest rate market and overtime into equities. people may look at those forces or themes that you believe are going to govern the macro environment, that sounds about right for the united states. maybe it sounds a little at right for the same forces are playing out with brexit and a little bit of reflation. what about the rest of the world? henry: we think there has been a lot of talk about president trump and brags it.

estimates, china is closer to 11% right now. it's a huge difference. if you take the first quarter of last year alone, they put $1 trillion into the economy. that is half of their gdp. there is a lot going on behind the scenes where governments are to get somee fiscal reflation. we had a time where we had slow growth and monetary policy disinflation. that in my mind ended after brexit. rates of bottomed. we think we are anymore reflationary environment. government is driving the outcome. that is going to create more volatility overtime. i think people can understand more than they can potentially what's being said out of president trump right now or if you look around the world

politically, we have a lot of strongmen. we haven't seen this in quite some time. just go through the list. who have veryle strong agendas where you are creating nationalist fervor. that is before we get to europe. erik: what about the cycles? we have had this conversation before. we are very many years into the credit cycle. don't those forces still persist? henry: i believe they do. we have been saying internally that it's hard to rate yourself falling out the basement window. we haven't had much of a recovery. i think we will get some growth. our view is we are pushing back. we are 90 months into an economic expansion. 2018 was going to be in. we think it will be a little bit longer. what's important for investors is our job, we are not a macro

shop. we hold things for long times. we're trying to get the macro out. we are never in the camp or we are going to put all our money to work at once. i would say right now there are certain sectors of the economy that are late cycles. generally, i don't believe it will be the u.s. consumer that pushes us into a recession. many of the concerns we look for is excessive credit growth. that comes out of asia and china in particular. erik: how does that translate into a different asset allocation. give you the view from kkr and you can digest it into a broader capital market. we are quite active in japan right now. that is an area where we see the deacon glamorization of these.

we are as active is anybody there. that is a good business. even if it does not lead to growth, there is still corporate reform going on. if we think overtime the dollar goes up, that's not a bad hedge. erik: what about credit and emerging markets? henry: our view on emerging markets is after 74 months, they are bottoming. erik: even in a strong dollar environment? henry: hear me out. is rates areing much higher than 2013. deficits are smaller. i don't think you're going to get a v-shaped recovery. go intoit's going to the economies that are domestically focused like indonesia and india where you have a larger consumer economy. erik: credit? henry: we are most active right now in what i call performing

private credit where companies who can't access the banks are coming to a firm like kkr and that's a nice return. yieldsliquid side, high are looking the most expensive. the other area, if you believe it data coming out of europe right now, german bonds look expensive relative to growth. thank you so very much for coming. it's always such an informed conversation. it's great to have him here. thank you so much for bringing him. coming up, david rosenberg. this is bloomberg. ♪

; coming up, mario draghi addresses clarity on qe. david: deutsche bank took out the page ads in german newspapers of the ceo can apologize for the misconduct cases brought against the bank. that has related and billions of dollars in fines. the management committee and bank leadership will do everything in our power to keep such cases are happening again. banks.low european

let's start with deutsche bank. is this the beginning of the end for them. do they think they've got it behind them? j: they have had a real struggle. there is a threefold case to make for european banks. the first is the political anxiety about deutsche bank in europe as a whole has been overstated. i think europe is going to integrate closer. think he bearishness toward europe is overdone. i like the euro. i think it's going to strengthen versus the dollar. the european economy is growing faster than the u.s. economy. credit growth is expanding. interest rates are rising. valuation is ray compelling. i think the european banks are one of the most attractive investments. herd: they are not crying

they are growing much more slowly than the u.s. counterpoints across the board. when you think it the growth? jay: we are getting into that. europe has been behind the u.s. in adjustment from the financial crisis. is picking out and european is picking up past or in the banks with loan growth expanding and interest rates doubling, interest rates have doubled in europe. that is very bullish for the banks when you're talking about rates going from 20%. to limit economic activity. it does give the bank an opportunity to make some money. david: there has been a hope of less regulation. how does that stack up in europe? jay: the opportunity in europe from that perspective is the capital market union. europe is made up of all of these distinct capital markets at this point. one of the ways they can

integrate further is to put in place a capital market union it which would be very list for european banks. european banks have their issues. they are priced at 50% discounts. they are on their own. last year was a record for out from european equity mutual funds, a record. the money is gone. you have the opportunity for news to get better, such as much bank. things are going to start to pick up. no one owns them. the are very cheap and economy is growing. interest rates are rising. it's a perfect opportunity. in this day and age, you need to find a place where you get paid for taking risks. european banks are one of those. jonathan: the data has been good and its politics. we see that in france as well. the proxy for political tension in europe has been the debt. it's been the banks in those individual countries. why is that going to change? jay: they have been trying to

adjust their problems. the signal was the italian referendum. the referendum came out. everybody was super focused on it. the referendum came out. it was a no. were up week, the banks 8%. you cover. everyone is supershort. all the hedge funds are supershort. it's a no vote. you buy an cover and they have not looked back at. the etf are you banks is up .8%. jonathan: we still have another italian election and strong support for a candidate that supports and exit from the monetary union. more political integration in europe, a lot of our viewers are struggling to see that coming out of france and italy and the netherlands as well. jay: i think that's right.

the point is it's in the price. it is not news. everybody is focused on that. is going to drive europe to closer integration. that's the debt i am making. i believe i am getting paid to take that bet. valuation is very compelling. no one owns it. the economy and earnings are on an upswing. alix: what are you buying? jay: baskets. there is etf for european banks. i am a 10% since mid-december when it even i first talked about this idea. the banks are up 3% year to date. i think the opportunity is there. it's a very under owned opportunity. you'll will have more opportunities with the political incidents you are talking about. alix: the 48 hours have been

about the rollback of dodd-frank. if you have congress in the letter to janet yellen, we don't want you to make capital requirement agreements over in europe, if that happens and banks in the u.s. get dodd-frank rolled back, what disadvantage does that place european banks at? jay: investors know the case for the u.s.. the banks of had a major run. that moved right after the election. alix: they can't compete of u.s. banks can take on more risk. movingthink the world is away from globalization and to regional integration. u.s. banks are focused on the americas and european banks are focused on europe. you're not having that competition were one is disadvantaged. we are moving into a world were everyone is trying to occupy states -- space in the region. if you think about mexico with

the trade discussions and china, there is a lot going on with the u.s. investor is of the mindset that it's all about the u.s. and the reality is this is forcing other people to make decisions about how they will take control of their own future. investments.sh for david: you mentioned china. he had some warnings about china. he said they are investing 10% in their efforts it rather than 3%. is there excess credit in china? jay: obviously there is. it's a huge challenge for china. this is a point i want to make that i think is different from most perspectives. in 2008, china had the opportunity to blame the west for their need to reshape their economy. they fail to take that opportunity and they double down on credit. i don't think they are going to make the same mistake twice. if they are pushed by trump,

they will say fine. the currency devalues 15% right away. we will sell our positions in u.s. treasuries. what takes off their largest creditor? it's not a typical strategy. in terms of investment opportunity to china, chinese investors are not been able to move their money out. they're locking down their capital account. all of that money has to go somewhere. it's already in property. it's already in commodities. the stock market is down 40%. no one likes it. i am starting to see little ships were people are stirring to move money. china could be a real supplies -- surprise. alix: thanks for joining us. coming up, the european union will renew actions against allies of vladimir putin. president trump says it's under

a microscope. new.ll talk about his it this is bloomberg. ♪

jonathan: let's get you a market check very quickly. last week, we squeezed out a second straight week of gains. it was a three-day winning streak. this is the first time this year. look at futures this morning. we are kicking off a frustrating week going nowhere. if we look at the fx market, it's a weekly the klein. this the longest streak since may 2015. dollar strength against the euro. it's coming in about .5%. treasuries are remarkably stable throughout 2017. we come in by two basis points. alix: we're focusing on tiffany. it's down 1%.

they are replacing the ceo. up bywnside is picking 4%. this comes as one month after week holiday sales were reported. hisk was up 500% during first term and ceo between 1999 and 2015. the holiday sales were not as strong as previously expected. ryanair, they are issuing a very cautious outlook. we see this theme over and over again. they were talking about the weak european economy. profits fell. the super bowl, we've got to talk about the ads. i saw two hours of the game. somecompanies featured favorable super bowl ads. i wonder how much football was in the two hours. alix: none whatsoever.

david: there was a game actually. alix: my daughter was watching. she turned to me and said what happened? with the car commercial, then it was wine. david: the number of commercials had a theme that show different people with headscarves. i thought that was a theme through a lot of the commercials. alix: it was a big theme. donald trump is speaking with bill o'reilly yesterday. for therated his love russian federation and its president. it's better to get along with russia's than not. if russia helps us in the fight against isis, that's a good thing. will i get along with them? i have no idea. >> vladimir putin is a killer. >> we've got a lot of killers.

you think our country is so innocent? on hise have a piece relationship with russia. i would call that some kind of support. does that filter in? >> just the opposite. brush under putin has been unfortunately for the russian people a consistent disaster it just keeps getting worse. gdp tovestment to housing to wages, all of the measures of russia are deteriorating. it starts with the ruble of course. it's lost more than 50% of its value. it's fundamentally an oil economy. maybe thate forget oil got as high as $145 a barrel in 2008. russia had a surplus.

whenwas the moment inspirational leadership could have taken the surplus and diversified the economy, which is what american it, swiss, and german bankers hoped he would do. it never happened. now we have oil where it is. it's a one trick pony. it's a pony that is on its last legs. jonathan: you can find the column later on the bloomberg. thank you very much for joining us this morning. the markets look something like this. futures are dead flat after a second week of gains. from new york, this is bloomberg. ♪

jonathan: french presidential candidates go on the offenses. there is a risk in european

markets. draghi testifies in brussels knowing he can't please everyone. the conviction starts to crack. city, welcome to bloomberg daybreak. the markets are kicking off this week looking like this. futures are flat in the dollar is back after four street weeks of increases. treasuries have yields lower by three basis points. alix: a political risk is showing up in france. the 10 year yield is selling off. you have volatility in european stocks ticking up. at global to look banks. there was huge rally on friday. there is the potential rollback of dodd-frank. david: as we have seen, donald

trump does not hesitate to challenge those who stand in his way. this weekend it was the federal judiciary terry -- judiciary. mr. trump's vice president mike pence was called upon to defend his shot at the federal judiciary. this what he had to say. >> the president has every right to criticize the other two branches of government. we have a long tradition of that. >> is this the constructive way to do it? >> i think people find it very refreshing. david: join us is our chief correspondent. give us a sense to this fight they have picked with the judiciary. kevin: it's a tough task for the vice president who showed he is going to defend trump as his the inner circle, including sean spicer and steve bannon.

they all stand behind him. when you get to the lower-level staff, when you start talking to capitol hill aides and people on the periphery of the circle, that is where the uneasiness sets in. this comes ahead of the circuit that is brewing later this afternoon that could potentially go all the way to the supreme court. there's a lot of uneasiness and the way this was handled. david: how confident are they they will win? kevin: they are very confident. you saw this on his twitter account over the weekend. the bottom line when you talk about people in silicon valley and their representatives here in washington, i can tell you they are increasingly disappointed at the way this was handled and the footing that's gets off on it. potentially, the impact this has bipartisan agenda.

the political capital he has utilized on this has cost him severely and with hearings around the corner, that could throw a wrench in it. with respect to that broader agenda, has it occurred to this administration that you issue a might stand way of the other things they want to do like the regulation? kevin: what you see right now is it could be a trend when you start talking about the regulatory policy like dodd-frank and scaling back the affordable care act. right now, they are talking about how to pay for a border security item with the adjustment tax. there is a lot of the way that could be heading for this administration. david: thanks for a much. alix: confusions writing to

markets. a battle is shaping up between on the bearers and dollar bulls. the 10 year is that orange line. the bottom panel is the correlation. since the election, you've seen that really pick up. it is around .76. however, in the last few weeks that correlation has split. the dollar is trending lower. joining us is samantha from j.p. morgan. david rosenberg joins us. david, let's start with you. why the divergence? david: right now, what we see in the bond market is consolidation. half of the increase from the lows we had in the summertime which took out the deflation trade. i am agnostic on the bond market right now.

in 12l have to see months. i think deals will be lower and higher because the inflation part of the story is too much priced in. my senses inflation will be coming up in the next year. as the dollar is concerned, it's the most overcrowded trade on the planet. i think right now you have basically too much negativity toward hans. that's one of the reasons why we have consolidation. it's too much of a crowded trade on the dollar. alix: is that what you would be doing at this point? how do you view it? samantha: we have pared back the view on the dollar. it continues to go up and we would say when it moved in 2014,

it was moving on expectations of fat hikes and a growth pop. you never saw any of that. there was movement with nothing to back it up. we think the dollar will probably weaken. jonathan: there was some pushback at that point as well. the fed chair came out. the verbal pushback we see is from d.c. what we are trying to grapple with is if the words match any specific action. now,ork you're doing right how is it? samantha: we are looking at the confidence. we have heard through 13 years, if you dig deeper people expect improvements in the situation. if you asked an affair they are going to spend more on hiring, the answer is no. there is a wait-and-see. jonathan: the economy is appearing apparently in wait-and-see mode. what has struck me in the last

week we just discussed is the fx market has been put on notice. we are looking at your currency. we are not talking about any currencies, the three against in the world. currencies, three who is most vulnerable? china? europe? japan? samantha: it's germany. this seems like a zero-sum game. we need nominal growth globally to keep improving. this idea of shifting exports from one region to another is only going to boost growth for so long. we are starting to see the reflation trade it be that nominal mobile growth that has been picking up. marketshat do these tell us about what they think the likelihood is of the fiscal plan going forward?

samantha: i think it's become the release valve. with respect to yield, we would say the we are going through a time of healthy normalization. moving away from washington policies, with a yields should have been higher given where the economy was from a growth perspective. david: at what point do the yields going higher get in the way of growth? samantha: historically it would be a 10 year yield at 5%. we have a long way to go. structurally with growth being lower in things feeling different because the economy is different now post 2008, it's a lower-level. to 4% on theloser 10 year yield. alix: perhaps if you want to see a stall on the dollar and yields it has to act more than we thought. take a look at the bloomberg here. you can see since the election they have loosened quite a bit. there is that zero level there.

see conditions loosen and we see the effect of forcing the fed it to act. david: i think the fed is going to -- they already told us they're going to raise rates three times this year no matter what. if you go back to the jacksonville symposium last year and you look it janet yellen's speech which was the toolkit. but they are telling us is no matter what, barring some catastrophe, they want to start building some bullets to fight the next recession. i guess this is a case with the boy who cried wolf didn't move rates three or four times. i think they have collectively some sellers remorse on that. i think they will move it three times. depending on how much they

adjust the forecast a stun trump, they will probably move more. you mentioned the financial conditions. a stimulus enters into their forecast in the second half of the year in terms of a higher gdp growth profile. they can go four or five times. stagepredicated at this based on how much stimulus we wind up getting through the second half of the year. the fed has put us on notice already. i would be on guard for that. rosenberg and samantha, they will be staying with us. addressesio draghi european lawmakers in brussels as he give some clarity on qe and inflation. that is at 9:00 a.m. eastern time. this is bloomberg. ♪

jonathan: let's take a look at the markets very quickly. for the first time, we are on a three day when streak. we are down 1/10 of 1% of the dow as well. the fx market looks a little something like this. dollar strength across the board. dollar weakness is the story of the last four weeks or so. it's the longest weekly losing streak for the dollar since 2015. as we crossed the asset check, this is what's making headlines outside the business world. emma: president trump wants nato to pay more. that came up a phone call with the military alliances general

secretary. the present and expressed strong support for nato. he agreed to take part in a summit in late may. germany's finance minister sees the euro exchange rate as too low. ecb's military policy has boosted the german economies trade surplus. president trump talked trade. he said it was an undervalued euro to take advantage of the u.s.. has kicked offen her presidential campaign. she declared the same nationalist forces that led donald trump to victory will do the same for her. she did not mention exiting the euro. she did say she wants to recover what she called monetary sovereignty. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. jonathan: it's maybe a difficult

to read between the lines of what she actually met. the weaker euro, its bond selloff in france. a dose of political risk injected into european markets. i want to welcome back samantha and david rosenberg. let's begin with you. what we are seeing this morning is a weaker euro, a marginal bond selloff in france. how you expect those things to a ball than the coming months? think for the french election we will have the netherlands and that will be a tipoff point for what to expect. it's not a black swan event. the markets are aware of these disruptors that are gaining support globally whether it be the brexit vote or whether it

was donald trump winning the election. we are on alert to expect the unexpected. to me, it's a very low odds of that. would have very large consequences. this is the sort of political ramification that is going to ensure the these red widens further over the near term. one of the factors that keeps the euro under wraps, the trade here is to be reflation assets. there is a country that should have the euro at 120. i think it's a political risk in the eurozone or in europe at large. thosean: had you bring two things together? ?ow do you you've got a risk on the other side.

samantha: there has been growth in europe, it hasn't translated to excitement around european assets. i would not be dismissive of political risk. we're looking at whether european earnings can recover. in growth this uptick lead to a performance of earnings. alix: when you take a look at the earnings statements, when does the fundamental come more important than the geopolitical risk? we are in the midst of earning season. samantha: it would be medium to long term. but, i'm in agreement. the political risk is causing a lot of volatility and investor sentiment to turn away that we haven't seen before. over the last five years, lots of money has ported to international assets. alix: how does that shape up when you're looking to invest in europe? you do the fundamentals getting

better. you continue to have the geopolitical risk. i'm trying to get a handle on how you hedge that. david: i think investing around the geopolitical risk is difficult. captureactually can ,olatility in your portfolio your opportunities are limited. what we are trying to do is invest on the fundamentals. things that are insensitive to it's happening in the white house or in terms of geopolitical risk or the risk of a break up in the eu. looking at the data and how super competitive germany is, it has an account surplus of 9% of gdp. i think irrespective of the politics, that's going to be an area you can invest in. i think it's going to be a dominant theme in europe.

japan is starting to work with cash coming off print balance sheets and rewarded shareholders. japan did not participate in the global rally. it's one the few markets trading at a multiple discount. there is an area in japan and germany. there is an area in japan and germany. i think in term of sectors globally, what's impressive is how the oil prices holding remarkably well. the cut in opec and russia are holding. there are things whether it's oil or japan or germany or even , you don't have to worry about what's going to be happening in the white house or in these elections in europe this year. those areas are impervious to the geopolitical. that is going to save money this year. alix: opec might disagree with you on that.

thanks for a much for joining us. up, our deepest regret. that is how deutsche bank signed the full-page ad in german newspapers over the weekend. matt miller is in berlin with more. ♪ this is bloomberg.

jonathan: deutsche bank took out full-page ads of the ceo could apologize for the misconduct cases that resulted in billions of dollars in fines. they will do everything in their power to keep cases from happening again. joining us now is matt miller. who was it for? matt: it's interesting.

it's a full-page ad. in two sites. newspapers ther germans read, it looks like it's geared toward clients. the german banking industry in general are having real problems with the regular rates of the ecb. charge term clients to use or get or use bank accounts. german clients don't like this. they are not using banking services as much. the fees they have been getting hit with for the last two years have made clients and happy. now they hear about the big loss. i was talking to people on the street who have nothing to do with the banking industry. everybody knew about the massive loss in the billions. they were really unhappy about it.

bank is seen as a national champion, even though it's no longer owned by the german government. mario draghi is not getting favorable pr were you sit. he goes to brussels today and will get the same push back all over again. negative rates are hurting tanks and savers. how does the president of the ecb handle that? i think it's going to be interesting to see how he handles the comments from the weekend. the german finance minister said the euro is too weak. with donalde chorus trump and peter navarro. he calls for the ecb to rethink its policy after he did an interview and the obelisk same your could be political problems at the ecb policy. he is swimming upstream. it's going to be a fascinating q&a session to watch. jonathan: great work.

david: that's exactly right. we are going to stay with the european banks. still with us is samantha. she is the global market strategist for jpmorgan. this is what he had to say about european banks. rex the european economy is growing faster than the u.s. economy. credit growth is expanding. interest rates are rising. valuation is very compelling. i think the european banks are the most attractive investments out there. samantha: i would say financials across the board are attractive right now. they are cheap on many measures. they are priced to book with the u.s. market. we might see better entrenchment. european banks of been so unloved. growth is popping. you are certain to see lending standards be loosed.

whether that trend continues based on the idea that growth continues in the ecb stays accommodative. jonathan: it's great to have you with us. thank you very much. ,oming up on this program sluggish wage growth. why one hike could be more likely than three. we will hear from shell meyer next. from new york, this is bloomberg.

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this after a three-day winning streak on the s&p 500 of friday's close. the fx market -- we have had the dollar consolidated from the big move. four straight weekly declines. the dollar weaker, weaker, weaker. the cable rate dropping a 10th of 1% in the euro coming in at 6/10 of 1%. treasuries are in for basis points. -- four basis points. let's get your headlines with emma chandra. emma: the top administration will try again today to get its immigration ban restarted. the justice department will look at final arguments in forcing the ban in federal court. judges declined to immediately reinstate it. the battle could end up in the supreme court. there may not be a replacement for the affordable care act as soon as president trump had hoped.

the president spoke about obamacare in an interview with fox news. pres. trump: we will be putting it in fairly soon. i would like to say by the end thehe year, at least rudiments, but we should have something within the year and following year. emma: lawmakers are trying to figure out how to repeal and replace obamacare after seven years of calling for it to be abolished. in london, theresa may is meeting with israel's prime minister benjamin netanyahu. netanyahu asked theresa may to support sanctions on iran. meanwhile, may said the u.k. is dedicated to a solution. global news 24 hours a day powered by 2600 journalists in more than 120 countries. i'm emma chandra. jon: thank you. why you will be more likely to see a rate hike this year. ? we will hear what key banks are looking at.

a senior economist joins us from her new york office. let's start with the gdp forecast. can you watch us through it -- can you walk us through it? revised q1 and q3 gdp growth to 3%. it is due to data we have received. strong. has been quite we could have a confident stock on the downside. some single from the survey measures albeit only marginal. been a durable goods looks better which means father investment in the first half of the year -- which means stronger investment in the first half of the year. 2% seems more consistent with the recent data. jon: that is the best case scenario. but you put in the wild card in your forecast.

iwhy? : because of the policy environment that could influence trade. negotiations or new deals or protectionist-type policies. there are a lot of wildcards in terms of the potential to impact trades. to us, that is one of the big factors that we are keeping an eye on. look at the volatility in trading in the past two quarters. experts -- net exports grew. you have these big swings from trade in addition to these policy risks. >> that is the eco-front, but we have this red front and center -- we have the fed front and center. we spoke about rate hikes. moving earlier rather than

later, i do think -- i would not one of the too timid. alix: i mean, this was the dove turned hawk, right michelle? possibility could receive even more of a boost in stimulus. michelle: remember, this is the debt that turned hawk last year. it has not been on the dovish side for a while. think yousaid, yes, i have to listen with fed officials are telling us. what they are telling us is they do not want to be too much behind the curve. that said, if you look at to yellen's most recent speech, she said she does not think that policy is behind the curve. she does not think there is a big threat on the upside for inflation. i think that generally, the core of the committee is operating under the framework of risk management under the assumption close to you are so

the effect of lower bound, you have to be careful in terms of how quickly you hike rates. it will be a shallow cycle. it means two hikes in june and december. alix: here is another argument. as you see the dollar weekend, yields pausing and financial conditions in the u.s. loosening , which would make the case affect would have to go faster. how do you reconcile that kind -- how do you reconcile that kind of thesis? to me, the move is what we have been seeing is pretty modest. they are not considerable enough moves to alter the course of policy. they are the function of what we are seeing in the economy in terms of potential central-bank risks. the move and financial conditions we had earlier last year was significant and something the fed to into account.

david: square your forecast with the president of the united states and congress. they said we will have a lot more groping your prediction. are they wrong? [laughter] you have to consider what we have experienced over the past several years. recoveryull recovery, that dealt with structural challenges and low productivity growth and a labor force that has declined. some impairments to the flow of credit. if you take that type of trent growth and you add on to the data, we are at a 2% economy. can we get to a stronger trajectory? sure. policysee certain changes that generate stronger growth, we could get there. but the question is, what will those policies look like? david: president trump says he's not a trend kind of person.

how do you taken that had you take that into account? michelle: you have to think about the distribution of risk. you have to consider where the risks are around the forecast. postelection, those risks have gotten larger on the upside and downside. to your point, he want to shake things up -- he wants to shake things up. the: crystal ball, what is single most important data point you are watching this week? michelle: this week is pretty quiet on the data front. consent of watching the indicators, i would say it is the fed speakers that can be interesting. we hear have a meeting, from a variety of that officials. they willthe markets, pay attention what a lot of officials say this week. david: thank you for being with

us. that is michelle meyer of bank of america merrill lynch. coming up, how the border tax could affect the retail sector? this is bloomberg. ♪

>> this is bloomberg daybreak. this is the enterprise greenroom. coming up, oppenheimer funds cio joins us. jon: from new york city, i'm

jonathan ferro. it is bloomberg daybreak good about 50 minutes away from the open. all the ingredients for a little bit of risk off. equities lower a quarter of 1%. switch up the board. elsewhere, treasuries well bid. it is that screaming risk signal which is dollar-yen. the yen is stronger. we did breach the 112. treasuries fared a stronger yellen. equities lower. as you cross the asset checks, let's eat you some headlines with emma chandra. there is a report for the disney ceo to increase his 10 year. tenure.crease his

jeta's first only passenger will make its maiden flight in the first half of this year according to chinese state media. it was originally due to fly two years ago, but it was played by manufacturing problems. the chinese plane is designed to compete with the boeing 737. there has been a shakeup at tiffany, the jewelry chain has replaced chief executive officer frederick will now after disappointing financial results. the former ceo will replace him on an interim basis. tiffany has been rocked in a slump in tourist spending in the stronger u.s. dollar. that is your bloomberg business flash. i'm in a contra -- i'm emma chandra. >> look no further than retail names. ,, and haynes brand all of them at two-year lows.

ever since the election in november, we have seen them pick up steam on the downside. john keran joins us. a this negativity reflected border tax story? john: significant -- there is significant disruption going on and sporting goods stores. they are not ordering as much inventory. they are pushing back and pushing inventory risk back to the brands. it is causing some of the problems. if border adjustments were passed through, you would see an enormous cut to cash flow. have a border tax adjustment, it will raise your import cost which hurts the retail sector. what names are most exposed to that risk? are the oneses

with the biggest and mistake -- the biggest domestic businesses andneas like ralph lorenz an hanes. as you suggested, there has been a lot of turmoil in business. i'm looking at tiffany, under armour, macy's reported questions of somebody buying them. is changing the ceo the answer, or is there a more structural change that should happen in this business? lauren, terms of ralph they have relied on the department store channel for far too long. hurt ralphng to lauren's overall business. it will force them to do business direct, which means lower margins.

earning estimates are far too high for the ralph lauren on a multi-your basis. a lot of structural change going on with that brand. david: if you are a retailer that has been selling a lot through department stores and department stores are going away, does that friday into the arms of amazon? john john: ultimately, it will. outce will have to figure retailers will have to figure out how to -- look aten you take a the potential for downside and downside revisions if we get a border tax, the inventory adjustment is rocky. how much downside could be windup seeing? john: we see a lot of downside from here, i think. we do not think everything is priced in yet.

we are urging caution, even the stocks have underperformed significantly. there could be more downside. alix: trying to get an idea of how much you would have to re-rate. what will be the hit? john: it depends at the border adjustments are passed. it may not be implemented. if you had a scenario were border taxes are implement it, you would have significantly more downside across the board. few would be able to dodge this. it much more would be exposed -- much more would be expose and others. it is more muted than obviously the border adjustments in arial but ultimately, we are urging caution toward this entire group right now outside of four specific names. david: who is best positioned to weather the storm? john: it depends on what

scenario you are looking at. in terms of the border scenario, the companies like nike. ultimately, there are not a lot of brands in the space who could get through that without a significant cuts to their earnings estimates on a multi-your basis. it if you look at -- if you look at who is waning -- who is waning, they are not looking at the wholesale channel. it will be more investments made for brands to go more direct and it will be expensive. david: john, thank you so much. that is john keran. jon: coming up, it is the countdown for president draghi as the testifies under the european parliament in brussels. markets get a significant dose of political risk injected into them. in new york, this is bloomberg. ♪

♪ jon: from new york city, this is bloomberg daybreak. i'm jonathan ferro counting you down to the opening bell. futures are a little softer down to 10th of 1%. that kind of risk sentiment reflected elsewhere. yields coming in a few basis points, call it four. you see that stronger japanese yen in the mix as well. we are coming about a third of 1% if you are looking at the currency pair. let's get you some movements with alix steel. 500, a&p 50 -- s&p mover. a change in ceos for tiffany after disappointing holiday sales.

ceo -- whenthe michael was the ceo, tiffany's stock rose. at the europe, looking european discount airline. weak european economies. fourth-quarter profit falling 7% year on year. it is the day after the super bowl. there are a lot of fun commercials. coca-cola relatively flat as well as anheuser-busch. they really try to look for a favorable emigration super bowl ad. 84 lumber have the most controversial one. you have media and president trump in a battle. jon: president draghi is stuck between a fragmented eurozone and a bullish d.c. in front ofpeaking the european parliament.

isg, one of the challenges politics. over the weekend, we had a very fronth on the national bullish theresa may on the national front. greg: all the polls have shown whoever she goes up against for the second round, she would lose to because of the disappointed voters. it is not such a topsy-turvy year. runner, his front campaign is in turmoil. we hired -- he hired family -- whilehile key was he was a member of parliament. the poll show that she would

beat le pen. there is a lot of talk he is a bit of a media creation. some people would say that he has not come out with a hard-hitting platform. so, she is not the favorite to be the next president, but you cannot rule it out. market participants have in trying to figure it out because they have been conditioned by the brexit outcome. look at the second round and the polls. like france, germany as well. angela merkel going for another term. does that change anything for germany? greg: we are talking about two different establishment parties. twoare talking about

extremely establishment parties and very committed to the european project. it does not make much of a difference from a political civility point of view. i would go back to france -- the polls show her losing to him by 30 percentage points. that is a lot different than the u.s. election. but germany, i would nazi germany is a risk -- i would not say germany is a risk. greg, market risk is one thing, but political is very different. if you asked at the beginning of the year what would happen with exit and donald trump elected president, you would make rash decisions about the markets. things seem to be reacting in your probably the way they should. we have seen spreads move out. you are not back to the euro crisis.

--we are not back to the euro crisis. there seems to be a fairly reasonable and rational caution in the markets if you look at the current spreads. i don't think you could say the markets are underpricing the risk, or they are getting too excited. david: talk about that spread with the peripherals. does that indicate we are not looking at a breakup of the e.u.? greg: it this point, as i said, are thatce --the odds le pen will not win. that whoever gets into the second round will beat her. but things can change that same things her way. it may leave a slightly different issue because if they do go to elections, the five-star momentous quite powerful. there is a chance they could emerge as the largest bloc in parliament. if italians were put to a vote

to leave the euro, i am not sure at times would vote to leave. the pro-european sentiment in italy is not what it was 10, 15 years ago. that is a risk most of times would not take. jon: greg, great to have you with us. imagine trying to set monetary policy for fragmented politics, inflation risks? and you are not getting political pressure, but getting it from d.c. as well. president draghi will take that already goes in front of the parliament in brussels. we have coverage of that. this is bloomberg. ♪

♪ ♪ city, this isyork

bloomberg daybreak along david westin and alec still counting you down to the open. a dose of political risk injected into these markets with futures negative of 210 several percent -- negative about 2/10 of 1%. yields coming in five basis points at 242 on treasuries. the euro weaker, the dollar stronger. a strong japanese yellen coming in -- a strong japanese yen. alix: we have upside and downside. up 3% and margins widen that beat earnings by four cents. sales were up almost 11%. cisco had been under pressure from restaurant dining. yes of over, table cloths -- but a little bit of relief. hasbro killing it.

fourth quarter elements -- estimates beat -- fourth quarter beat estimates. revenue in girls' toys jumped 52%. the biggeste of losers losing to hasbro. tyson foods off by 1%. the quarter was really good. a record start to the year, but on theck lost some gains news that it was question over the pricing a broiler chickens on antitrust issues. the sec is looking into that and there are allegations that tyson along with other chicken colluded to raise prices. you have weaker mall traffic in the fourth quarter that hurt sales. especially in the yankee candle segment. thank you.

a dose of political risk for euro. how does mario draghi react? you will testify in a few moments. we will give you full coverage. memami is here. is gettingraghi pushback from germany because apparently it is their fault. what do you take? krishna: this is politics as usual. i don't think there is much to it. what draghi does will be driven by what he thinks policy should be. the policy from his perspective is working. is doing much better than it was doing over the last two years. having said that, it has not done well enough and inflation is not at the levels that he would like it to be for him to push back on quantitative

easing. set toflation pressures rise. we had a leading candidate in france in marine le pen said she would pull out of the polls. if you look at european markets, you have to build in the risk premium. krishna: if you take a step back, the risk of the market is not going to come from the u.s. as much as it would come from europe and china. europe, because we have lots of political issues and lectures to deal with that we do not have to deal with in the u.s., and in china, things could slow down. the risk for the markets will come from overseas. alix: as we mentioned, we are waiting for mario draghi to speak in front of european parliament. you can see the live shot. we are getting prepared remarks. mario draghi same financial condition have to remain isportive and the ecb policy

a key contributor to economic policy. he'd will be -- he will be speaking in front of parliament and moments. look through the rising inflation and focusing on panetta conditions remaining supportive. david: the problem for mr. draghi is across europe. krishna: it is not even across all of europe. -- this tentative it is it is very tentative. if we hit a soft spot, things could turn around. things good head the other way very quickly. the situation in europe is very different from the situation in the u.s. where we have had a very robust economy and good employment situation for a reasonably long period of time.

david: how does heat -- how does he avoid the lowest common denominator? krishna: the way he's solved that problem -- the way he solves that problem is in the quantitative easing mode. there is really no rush for any of that today. jon: looking at the comments coming from the president mario draghi, he comes out with prepared remarks, usually repeating what he said in the previous monetary statement. then he gets a series of pushback and questions. he saying --the takeaway is there is more work to do. is pushback from germany that inflation is on target for us. the euro is too weak. germany is the biggest economy in the eurozone. stop. how is he going to take on that

kind of pressure? krishna: the pressure from germany not to do anything on a monetary fund is nothing new. that is been a constant forever. i do not think that matters. what matters is the fact that german inflation is a much higher level. if this sustains itself at the next six to 12 months, we are talking a different ballgame. the point is, it is very early to make a call today. jon: the call i keep hearing again is short bonds. that is ok if you want to fight inflation trade anywhere else. but in your, it is very different because you will get that safe haven on bonds. it is not a straightforward. what is the alternative push back to the short bond trade i am hearing so much about in the last 18 months? krishna: the easiest place to play that trade is in the u.s. economy is doing well. trump may do this go easing. all of that will get growth much

higher and inflation probably somewhat higher. if rates in the u.s. don't rise, the likelihood that the rates in europe will rise is pretty small. david: whatever tensions there are, are the markets correcting for it already? united states treasury has turned around. it is declining rather than going back up in the euro has been strengthening since donald trump was elected. will correct itself? krishna: germany is a very large exporter. they have huge trades . they are a trading powerhouse. trend for u.s. rate is marginally higher if trump delivers on everything. a dollar higher rather than a euro higher. david: wolfgang is a grain from peter navarro and the white

house said we need a stronger euro. are they right --is he right? will it happen? krishna: the stronger euro will come about perhaps a policy mistake on behalf of the ecb. alix: what happens to real rates? krishna: real rates from a longer-term perspective, we'll rates really depends on what the savings trends are on a global basis. people are still saving tremendous amounts. china has reduced savings from 53% to 40%, but it is still tremendous. alix: in terms of your, they could fall for germany creating more tension within europe and the ecb. krishna: absolutely. if mario draghi does something radical, that will end up causing peripheral significant problems and he knows that. therefore, i don't think he will

do anything for a while. alix: doesn't that feed into the populism event? them?more growth for yes.na: from draghi's perspective, there is no salvation for europe without peripherals doing well. that is what he will be focusing on. theyas we await for him, and if it's of the ecb policy negatives.weigh the he is basically talking about fiscally-related issues. he has one tool. there is really no trend with respect to a change in policy with respect to fiscal policy. that is what he is alluding to. alix: we heard janet yellen making similar comments, but you get stimulus or president trump,

and they say, we do not need it. what is going on? jon: the idea that president into this with the prospect of fiscal stimulus and then say we don't need it, is a very different process. when you do that the situation in europe and you bring this new administration in the sea into the fold, the push back against this new- the -- administration in d.c. into the fold, the pushback against germany is -- what do you do about it? do lots ofey can things, but none of them will turn out to be good for anybody. that is effectively a trade war and kind of getting the world and a to z all around -- and getting the world into a tizzy all around. if donald trump is successful in reducing u.s. trade deficits,

that is dollar positive effectively. there will not be a supply of dollars that the world needs. the dollar is going to go up. the likelihood that trade deficit goes down meaningfully and the dollar weakens is just not positive. the keyword here is meaningfully because that will change. maybe not a possible turnaround altogether, but what if the trump administration pressured to cause germany to stimulate domestic demand through fiscal measures? so they were importing more and spending more? could that relieve a lot of the tensions? krishna: the solution for european's current situation is because they want germany to do something. but they are not going to do something. jon: we are what to cross over to the polymet mining were mario draghi is making remarks. draghi: that bold decision

marks a new stage in the process of european integration. it let the foundations for economic and monetary union in the european central bank. citizens started to have euro in their hands. this amounted to a considerable strengthening of the political commitment that has been keeping us together for six years. it is easy to underestimate the strength of this commitment. they would overlook the progress we have made with a single currency, we have forged bonds that survives the worst economic crisis since the second world war. original in fact, the

date of european project, keeping us united in difficult times when it is all too tempting to turn against our neighbors, or seek national solutions. what the objective of economic and monetary union should be to strive to achieve economic and social progress, as was the intention of the signatories to the treaty. for this, we need sustained growth and job creation. the recovery we have witnessed in recent times has been a welcomed step towards this objective. over the last two years, gdp per capita has increased by 3% in the euro area, which compares well with other measurable events --measurable economies.

economic sentiment is at its highest level in five years. 9.6%,oyment has fallen to its lowest level since may 2009. and the ratio of public debt to gdp is declining for the second consecutive year. these are steps in the right direction. but these are just first steps. pathed to continue on this so that unemployment decreases further and more europeans can benefit from the recovery. will start by discussing our contribution to supporting the recovery, and will then lay out why the monetary policy decisions taken in december where the right ones in the current economic contest. as you have requested, i will also discuss risk to financial

stability, which are constantly monitored. our monetary policy has been a key contributor to the positive economic development. s i just described. our measures have worked through the financial system and are benefiting the real economy at large by ensuring very favorable financing conditions. at the december meeting, the governing council saw the need for the recovery to further mature and strengthen to ensure a sustained convergence of inflation rates close to 2% over the medium-term. for this to happen, financing conditions have to remain supportive taking remaining uncertainties in size and outside the euro area into account.

we, therefore, decided to safeguard the amount of monetary easing for the period ahead. against this background, we decided to extend the acid purchase beyond march 2017 -- asset purchase beyond 2017 conducting purchasing until the indian of december 2017 -- until the end of december 2017, or until the council sees it being consistent with its inflation aim. we will continue to purchase assets at the monthly pace of 80 billion euros until march. starting from april, our net asset purchases will run at the monthly pace of 60 billion euros, and we will reinvest the securities purchased earlier under a program as they mature.

add to our muffy net purchases -- this will add to our monthly net purchases. it will strike a balance between our growing confidence that the euro area's economic prospects are firming up, and at the same time, the lack of a clear sign of sustained convergence rates towards the desired level. on the one hand, the evidence suggests that the acute deflation risks have been -- risks have disappeared, and that deflation is set to pick up over the coming years. contrary to a widespread perception, euro area it economic conditions have also been steadily improving. jon: that is mario draghi speaking in brussels. it is a marks on monetary policy reflects on what he reflected in

the previous meeting. we will continue to bring the headlines out of brussels at president draghi continues to speak. you can follow this live on the bloomberg terminal. what strikes me when president draghi speaks, he is still beginning a testimony but the defense of the eurozone and the benefits of it. that to me a striking this many years after the financial crisis good cash crisis. alix: it is like he is specifically talking to germany. it is like, get off my back. jon: those running on populist forms and would like to see the eurozone breakup -- this is happening, but the benefits of what we do is good for you all. david: if you were donald and said, by the way, we should the a country together, you would

have a problem. alix: excellent point. you wind up having a lot of political uncertainty in europe. i like to look at this chart which is european economic uncertainty. the vix is near historic lows for policy uncertainty is near, or around, or around highs. krishna memami -- this divergence does not make sense. what gives? krishna: the diversions would be taken care of by vix rising. you take a step back. from a political standpoint, after the election, we were expecting lots of things. the is becoming clearer is fact that whatever we were expecting will take a long time to manifest itself whether that is obamacare, or whether that is fiscal stimulus. in that environment, when you have things like travel ban and

other controversies shaking things up, the likelihood that business investment improves alix: is pretty small to alix: you are not alone. every single persons of volatility will pick up, but it truly has not. you are seeing bullish assets on the vix. expectation prices are priced in. you are seeing a lot of rotation underneath the surface. krishna: i think there is some truth to that. eventually, if this political theater continues and you do not see concrete policy action coming from the congress on the fiscal side, then eventually, things will catch up. jon: the story of rotation has changed. play the small caps. and you avoid the dollar headwind. that has changed. small caps and a performing.

large caps are. and dollar is weakening. that rotation that we saw lester, will it's not that the other way in a significant way? krishna: you have to see a significant fiscal stimulus. the reflation trade has to come back in play in a big way. that only comes with expanded fiscal impulse. jon: markets discount and seemed slower. the prospects have to improve initially and then they have to see it. after the election, we were all looking for a tax cut. then key -- think he points live amy who was all about fiscal consolidation. you can blame the market for being confused. david: we still have the puzzle of the fix and why it is so low.

someone told me we are underestimating the importance of active investment. that tends to stabilize a bit. is that true? krishna: there is some element of that. when people are all of a sudden entirely focused on passive investing, day to day relative movement is perhaps not that important. and the correlation of uncertainty does not do much for them either. i think that is an element of it. david: we certainly have a lot of policy uncertainty, a lot of volatility. what would be the trigger event that would have that take over to show up in our policy with the vix? krishna: in my mind, the key in all of this is fiscal expansion. if we don't have fiscal expansion, the reflation trade dies out. that is what the bottom line is. alix: i look at the sectors that

have performed best. yet financials, telecom, energy, and industrials. of those four, which will be hit the hardest if we don't get the kind of stimulus you are looking at? krishna: industrials. but we are talking about is a fiscal expansion that gets the economy going again in a big way. financials is more certain because that was more policy-driven. we are getting that already. alix: we got the hope of that. a got an executive order, but rollback of dodd-frank, material could be hard to come by. what is baked into the financials right now? krishna: there are lots of things they can do on the side without rolling back dodd-frank entirely. i think there are lots of her literary issues they can deal with -- i think there are lots of regulatory issues they can

deal with. there are things on the management side to help banks with their management business. lots of these little things can be implemented if demonstrated wanted. jon: we have a lot of declaration of actions, but no policy. that is what you have to distinguish between. what needs to happen in terms of regulation to validate support of the prices we got? what was clear from this new administration is we are not going to support the big ends on wall street. we are going to support the smaller players. likes of jpmorgan come the likes of goldman sachs -- will they be disappointed by the regulatory reforms? krishna: i don't think so. even the structure of the current administration. helping small and community ranks -- that is not on the

cards at all. thebasically have to change structure of the markets in terms of who is involved, capital requirements, rhetorical thresholds -- all of that has to be changed. jon: the likes of gary cohn, formerly of goldman sachs -- if you had to pick up the phone and call gary and ask what would help the most and what would benefit the shareholder, what would be the one rule that could help that happen? krishna: if they could find ways in allowing banks to buy back their stock, or do those types of activities, i think that would change the outlook to ministry could david: i talked to gary cohn on friday, and heave is not at all -- and he was not at all ashamed saying that he would help the banks. how much does that actually reinforce the views that the financial should do well? krishna: financials can do well

in an environment, which is entirely dependent on the executive branch. you don't need legislation. i don't think you get that for industrials and -- reflation trade candidate. jon: krishna memami. great to have you with us. let's get you up to speed. futures are stabilizing down 10th of 1% on the s&p 500 and the dow. the situation elsewhere -- bonds bidding well. calling it four on the 10 year treasury and a stronger dollar almost across the board. a stronger yen as well. this is bloomberg. ♪ amrita: from new york city, this

is daybreak. we are just moments from the opening bell. futures are negative across the board, down .2%. the s&p 500 is squeezing out a

second week of gains. we are on a three-day winning streak. as you hear the opening bell ring in york city, it's a stronger dollar. treasuries are up for basis points. u.s.s your yield on a tenure. let's go over to alix steel. that russian to safety is not helping. the dow is down 57 points. the nasdaq is slipping into negative territory. we do have some individual movers to the up-and-down side that i want to highlight. by .5%.ck is up that had been a higher. this is the rub. we heard they might be making an offer for macy's.

a deutsche bank analyst said that macy's could be higher than anticipated. the total value could be $53 per share or $16 billion. do they have the deep pockets with which to buy macy's? that's a question will be examined. ceoany's has replaced it with a former ceo. the stock was up over 500%. tiffany's are still often optimistic and disney is down by .5%. bob iger will stay on as ceo for a third time. he tried to leave in 2015. maybe not so fast. 75%r this week, we will be done with earnings season. this is a function on your terminal. take a look at the actual sales in the average earning estimates for s&p companies. average sales are coming up over

6%, earnings 11%. what's more is companies are beating on earnings about 50%. more impressive, a lot of analysts are revising their forecasts. they did not do that this time. you can look at this as her beats. there is some political uncertainty with financials and tech doing better as we kick off earnings. jonathan: how do you recognize -- reconcile the prices with the politics. the s&p 500. we are joined i the credit suisse equity strategist and bloomberg stock markets reporter. 1%n was less time had a move? >> we are getting at

a place to the somewhat uncharted. we also had january in which we never went negative on it year asus. there is a stock of things built up. nowhere despite all this volatility in terms of expectations of what donald is going to do. it's absent a sickly. jonathan: as alex pointed out, there is a lot of the index itself. year, nothing came from large caps. how is that going to twist back? interesting right ahead of the election, they were deeply undervalued and we heard there is going to be a protectionist trade environment. we heard tax rates for going to come down. the have much higher effective tax rates. now the valuations are back to neutral. it's a play on fundamentals. tax reform is going to happen in

the rate is going to come down. i don't think we did see any change on the trade side. you need a sense that we are going to get that tax reform. on the backend, the other thing that was supporting small caps was avoiding the for exchange story. it moves the other way. haser: that's sort of story been benefiting both to some extent heard the dollar gains of slowed in some sense. it's not as much of a headwind as it is on earnings. you have seen some solid earnings beat topline. at the same time, if the dollar is strong, it will still apply to small caps as well. it's interesting. it seems like you've got all of these factors applying to oath. you are on a tear where you've got 15% gain since the election. it's incredible to see what has happened there.

you've got that going for you as well. there are a lot of interesting things going on. david: where are we on earnings? >> we crunch the data little bit differently than you. we found that at the start of your people were looking for the s&p to gain 5.2%. that has inched lower. i don't think it's overly alarming right now. we see ratcheting down of expectations. the important thing to keep in mind is everyone came into this year saying we were going to have to take those expectations off. it is not happening. if you look at through these conference call transcripts, they say it's too early to make anything into the numbers. ist's interesting is tack actually very strong right now. if you would with the guidance trends, they are moving down a notch. it's not the lowest sector relative to others. at one point, 80% were rating

guidance. session, there is a clear acceleration. alix: this brings me to one of my favorite rings to talk about. the amount of companies making 52 week highs are 119. the issue is that's too one-sided. : a lot of people look at it from a very positive aspect. strength andsome it starts to break down. it's also an indication of momentum. it's not only on the index itself but how many companies are trading above or below in terms of the 30 day average. it is way off. back in november, you had a ton of companies trading above 70 on

their 14 day rsi. on the flipside hasn't really changed. nothing is oversold this point there are fewer companies that overbought. that is not technical jargon. that is momentum, it's basically math. it speaks to the same idea. alix: if it unravels, where you go? where is a safe haven enough -- in equities? >> i will say what's been interesting to me is we watched the percent of analysts on the street that are taking numbers up for different sectors. its basic is a rate of upward. tech used to be the leader. now we see financials and energy are the new leaders. there is a lot more enthusiasm. are they safe havens? no. they are a lot more positive than negative. jonathan: let's look at where

valuations are for next year's earnings. 500 is about 16 times earnings. where is the room for error? >> we have different numbers. we are trading about 18 times on the s&p. even if you say policy gets pushed out, we need to see something come through that justifies higher movement in the market and we have right now. we are priced for perfection. jonathan: it's great to have you on the program. thank you very much. coming up, financials rally on looser regulations. we will tell you what trump needs for the bank and beer eight minutes into the session. we look a little something like this. we snapped a three-game winning

streak. we continue our coverage right here from your. this is bloomberg. ♪

emma: coming up, the lobby group encouraging company to move from london to paris after brexit. . one-stop we are watching as we go into the open, the financial sectors reporting its best day of three months on friday. these are on prospects of president trump deregulating dodd-frank. we're still holding up around those the last two days. williams, is allison

a senior analyst. allison it, what's going to be the most important thing that is going to justify the rise on banks? allison: have more optimism about regulation. that is going to take time. i think earnings are going to be the focus in the near term. to the extent that companies are counting on continued support from regulation, we're going to be watching that. we have a symbolic signing on friday. it's something people expect to change. it's not just with the change will be, but what the impact will be. alix: it wasn't repealed altogether. for is the potential earnings of a big bank if the rule is stopped?

allison: are the fundamental trends already in place going to reverse? that is unlikely. the rule is expected to accelerate some of the trends and add to the momentum of things that have already been happening. that has many drivers over the long-term. if the rule when away altogether, with that stop that? likely not. there is a question of what changes will impact. if you listen to a lot of the management and the wealth managers, they have said they have been planning for this for several months. use are thequotes train has left the station. we are planning for those changes. there been it changes to the distribution lineup. it's all in anticipation of this. i think most people than expected the rule would get delayed after the election. the impact of that is going to

take time to see. what it says is one thing, who does the regulating. it may take some time to change. it is take time to change the regulators. as you look at the looking forward of banks, how much do they take into account lori: the regulators will change? lori:i'm not sure we can calculate that to be honest. the we do is look at relatives of the broader market. we have a few different factors that go into our model. we are basically two standard deviations below. we have rated back to neutral. we are not expensive yet. , ifou look at other areas you look at insurance, they are still undervalued. you can't take the last couple

of years. you have to go back 15 years to understand how deep that hall was and how far we still have to go to come out of it. allison: the bigger question you raised is returns on average have been expected to be below history. that's why it hasn't lowered. that is the question professors are grappling with you can things change? returns closer to history before we had all these changes? regulatory cost is something that will be helpful. that's been it huge burden to the bank. banks, for the smaller there are some changes that can manyyou jonathan: how op-ed's did you read about this over the weekend? everything is getting rolled bank and the banks are going to do some ugly things and the economy is going to roll over again. have you seen any sign that if regulation, they

are going to jump back in in an aggressive way? banks,: for the smaller that is where the administration is focused. these regulations have been very cumbersome. the bigger banks are able to do better to absorb the cost. for the smaller banks that are supporting these communities, if they could get leaf could that help? i think that's one question. for the bigger banks, there is it might not be helpful to them. you could get some better costs. voelker is something people are hopeful on. that could take some time. we will see what that looks like. the fiduciary rule is helpful on the cost side, but not necessarily helpful to some of the bigger issues. if we do get a rollback, how much do they shift back? we were talking to henry.

he mentioned where he is most active right now. henry: we are most active in performing rabbit credit, where companies who can't access the banks are coming to a firm like kkr. that is a nice return. alix: what sort of second-round effects are there? comment you have his supporting some of the things that donald trump has been saying. perhaps the smaller banks could be more helpful. i think for all credit providers, what they look for our different this locations in the market. you don't want more competition. i'm sure they look for pockets where things might be mispriced either due to issues or other types of things. alix: how does that compare to you appear in -- european banks?

they are cutting costs. of orre a play to be made visits from europe? changes could there be to capital requirements globally? some people have brought up the -- of feelings look at the regulations, they are tougher. a lot of the european relations are coming out tougher. i think the question of u.s. versus europe, there is a makeshift issue. it's something that deutsche bank has pointed to. there is credibility. you have seen them losing revenue share and headline revenue share. we have pet businesses that was a big impact. that makes sense. we're going to see that it rests week this week and they have

these headline issues. three, where has the strength been? it has been helpful to u.s. banks. jonathan: froggy is talking to the parliament right now. he said the road back is very worrisome. thank you very much. you are sticking with us. coming up at the top of the arc, bloomberg markets with mark barton and vonnie quinn. we will be joined by the bloomberg columnist. will european banks suffer if dodd frank is rollback in the u.s.? is the chairman of the frigidity group. he is coming in as chairman of the euro class. to try what he is set up to lure london businesses to paris. we're looking forward to talking to him about how successful that strategy is doing.

anti-putin political activist join us. matt winkler has written a great these, investors are not so much. we have a busy show. jonathan: thank you very much. up the first 30 minutes of trading as we begin a new trading week. from new york, bloomberg. ♪

jonathan: we are 22 minutes into the session. we are dead flat on the dow. we are positive on the session. we are looking at the s&p 500,

we open on the downside as we kick off a new trading week. we have a slight risk off tone of you look at the other asset classes. look it's what happening in the government bond market. we are talking about three basis points. you have a ton of supply coming through this week and we kick off with $24 billion of three-year notes. there is a core element bond did. i would throw france in there as well. have a good dose of political risk in the bond market. that stronger dollar story over the last four weeks at least has turned into four weeks of the kleins. it's the longest losing streak for the dollar since may 2015. we had these huge, crowded, conviction trades. it was long the dollar. lori: it's hard to have

conviction about anything right now to be honest. jonathan: what do you have conviction on for the rest of the year? lori: we've been talking to people a lot about something very controversial. semi-conductors look overvalued. it looks crowded if you're looking at mutual funds or hedge funds. it has all the harkening's that biotech had in 2015 where the momentum is very strong in the fundamentals are strong and experts in the space feel a very firm was it you are going to continue to see strength. on the things we look at that compare groups to one another, it looks risky to us. alix: what looks the most risky? eyes? alix: what

is the most risky for you? lori: generally, i would still say the bond of proxies of this point. what is the most risky for you? lori:i think there is an edge or people to get defensive. i got market jitters as well. you have that itch to scratch there. they just don't look washed out yet. i think people underestimate the extent to which these are over valued. alix: how do you do that when you don't know what policy is going to be like? lori: we are actually not factoring in anything from d.c. at this point in we do take it into account. we think there is an impulse toward cutting taxes and we're not making prognostications. they are deeply undervalued our model. terrible, butbeen it does look like it's coming to the end of that story. it is a very binary trade on politics.

i am not alone in that category. jonathan: it's great to have you with us in the program as we wrap up things on bloomberg daybreak. i am jonathan ferro. thank you very much for joining us. we are 26 minutes into the session. let's get you up to speed. equities are just treading water across the united states. 500 is in marginally negative territory. the dollar is stronger as well. we come in at .5% against a single currency. that's it for us from york city. this is bloomberg. ♪

vonnie: from new york, i am vonnie quinn. mark: i am mark barton. welcome to bloomberg markets.

vonnie: we're going to take you from new york to london and cover stories out of washington dc, paris, and moscow. these are the top stories we're following. the legal battle over the travel ban remains hotly contested. it appeals court could rule today on whether to reinstate the ban on travel from seven nations. there will be a news conference this hour over the scandal involving his wife's job and he is expected to fight back in a last-ditch effort to save his candidacy. how has political uncertainty in france and beyond it changed the business climate in europe? we will hear from one of the largest energy companies.