francine: the deputy ceo of socgen tells us the prospect of france leaving the eurozone is not on his radar. --we consider that [indiscernible] francine: brexit moves closer as the u.k. parliament approves theresa may's triggering of article 50, but not before a musical protest. >> order. order! francine: meanwhile, markets are

nervous, with gold at a three-month high and treasuries on the up. political uncertainty reigns supreme. this is "bloomberg surveillance ." i'm francine lacqua in london. let's check on the markets to see where there are stress points and some market volatility. overall, this is a picture for some of the safe havens. we need to look at european shares. they are rising because we had that are than expected earnings. asian bonds are gaining. political uncertainty still continuing to dominate the markets. index asee the vix touchup and the yen, 112 point 31. i also want to show you the banks. 0.3%.re gaining some expect a little bit of stress possibly on italian banks. let's get to the bloomberg first word news. here's nejra cehic. nejra: sisi get china posted fourth-quarter profit that beat

estimates. down 41% from a year earlier but million euro analysts had forecast. the french lender announced plans for an ipo of its car leasing business. the deputy ceo told bloomberg why he's not concerned about a so-called frexit. of, in is the likelihood france, scenario of exiting eurozone, or europe? we consider that so remote that we don't consider it at all. of course you could see some volatility on the market. nejra: the u.s. senate has confirmed jeff sessions as attorney general after more than a day of debate. the 52-47 vote in the republican controlled chamber followed 30 straight hours of debate. democrats said the alabama senator was too close to trump

and would not protect voting and civil rights. republicans insist sessions will put in forcing law above politics. trump has sent a letter to xi jinping with his first communication since taking office. it thanks xi for a congratulatory note and wished the chinese people a happy year of the rooster. trump hasn't set up a call with xi since he took office. british prime minister theresa may a step closer to triggering brexit as the u.k.'s lower house of parliament gave approval to begin the formal process of leaving the e.u.. to bill passed by 494 votes 122 after lawmakers were promised a vote on the final deal to stave off a revolt. the draft law now goes to the house of lords with a final vote expected on march 7. global news 24 hours a day powered by over 2600 journalists in more than 120 countries.. i'm nejra cehic.

this is bloomberg. francine: thank you so much. gold at a high, treasuries rallying, and the yen at its strongest since november. bloomberg has written a very nice he's, why the markets seem nervous. if you haven't seen our daily market roundup, check it out on the bloomberg. you can also see it by searching online for bloomberg view. simon derrick is chief currency strategist at bank of new york mellon. richard jeffrey is chief economist at casanova capital markets. simon, do you see stress points in the markets? if you look at swissie, yen, does it mean the market is waiting for something ugly to happen? simon: i don't know that it is waiting for something ugly. i think we are aware that there are quite a lot of uncertainties. athink what we're looking at the moment is perhaps a change in focus in the market. we said the first month of this

year, we were focusing on what was happening in the u.s. and the u.k. what we've seen over the last week is a shift away from that and towards the multiple political events in europe. i think that is catching the markets' attention. that is potentially where concerns are starting to rise. francine: so it is not a concern on brexit or what a trump administration will bring with it. simon: that is how we started the year, but now we're in the wait and see mode. we've not had the extremes of policy that perhaps people were thinking about. to me, we've seen a shift in focus. people have talked a little about perhaps what is happening on the currency side, but we've not seen the extremes of moves in the bond market we've seen perhaps back in december. francine: richard, has anything shifted in the markets? richard: i don't think it has.

i think the markets are looking for the theme that is going to drive them forward this year. i think there's also uncertainty about the situation in the united states. president trump has taken all the limelight with his political comments, but markets need to look beneath that or around that and think about what is going on in terms of the economy. there's a little uncertainty, but i think there's increasing optimism about how the economy might perform. if markets can focus on that, maybe that will start -- francine: the world economy or the u.s. economy? what is coming out of it that is good? there was a little disappointment with wage growth last friday in the u.s. richard: there's always a little bit of noise in the figures. generally speaking, it looks to me as if the american economy is going to pick up some momentum. it is not going to be dramatic, but faster growth than last year.

i think that is going to lead to world growth, which i expect to be moderately faster than it was last year. just a slightly more favorable background. at the moment, there's nothing to give markets that real lead. francine: what will pull the currencies forward? what are your favorite pairings, simon? simon: for the moment, you can't ignore the issues of monetary policy. in the u.s., we have a fed which for the last several years has been far more cautious than you would have expected them to be. given what was said at the last meeting, let's expect that will remain the case. i'm not expecting a dramatic move in terms of the dollar. i think a lot of the expectations of a radically stronger dollar will be disappointed given a cautious fed. i think the surprises could come elsewhere. i think that sterling, which we were all negative about the

start of the year, has reacted positively to the clarity we've had in terms of theresa may's speech and the vote. we seem to be doing well. i think stability is -- francine: pound will go further up? speaking, iively like sterling against the dollar, but i think it will start outperforming against the euro. for the euro, those political uncertainties will start to weigh. francine: you agree with that? richard: i think the pound is undervalued. it is vulnerable obviously to nervousness and it is easily the case that nervous talk is at work, nervousness about brexit. francine: richard and simon, stay. now, remember, if you are a bloomberg customer, you can watch the show using tv .

on your terminal screen. you can follow of our charts that our queen of charts does. they are exclusive to this function. you can message us. you can ask me questions or ask our guests questions as well. stay with "surveillance." president trump fans a letter as the new white house reaches out to china. we will bring you the latest on relations between the world's biggest economies. approvalk. gives its to begin the formal process of leaving the european union, we will talk brexit and france leaving the euro. so remote we are not considering at all, the words of socgen's deputy ceo. we will bring you the interview. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash. nejra: total has raised its dividend. it may give the go-ahead for almost a dozen new projects in the next 18 months. fourth-quarter profit beat analyst estimates. adjusted net income climbed 16% from a year earlier to rising oil and gas production and cost cuts. commerzbank's fourth-quarter profit fell 5.2%. net income decreased to 183 million euros as loan-loss provisions surged to 290 million euros in the quarter. that was still above analyst estimates. we will be speaking to commerzbank's cfo. thyssenkrupp says fiscal first-quarter profit increased about 41% as steel prices recovered. earnings excluding one-time items rose to 329 million euros,

beating estimates. germany's largest immigrant is trying to transform into a diversified industrial group and raise annual earnings to at least 2 billion euros. shares in nordstrom saw their biggest one-day gain in two months yesterday despite being lambasted on twitter by donald trump. the u.s. president slammed the company for dropping daughter yvonne got's brand -- ivanka's brand. that is the bloomberg business flash. francine. francine: the white house says donald trump has written to xi jinping. the u.s. president said he looks forward to a constructive relationship that benefits both countries but trump still hasn't set up a call with xi since he took office despite speaking on the phone with other world leaders. senate has confirmed jeff

sessions as attorney general after more than a day of very contentious debates. ,et's bring in stephanie baker who has been following trump closely. we're still with simon derrick and richard jeffrey. stephanie, talk to me about what we know on the relationship between u.s. and china. he's written a letter to xi but hasn't had a phone call. >> he spoke to him after the election. i don't think we should read too much into the fact that he hasn't spoken to him. george w. bush didn't speak to his chinese counterpart until july of his first term. i think it is reflective that trump's china policy is somewhat unformed despite his statements about threatening to label china a currency manipulator and slap tariffs on chinese imports. i think what is more significant is that jared kushner and ivanka trump have aligned to the chinese ambassador in washington, d.c. last week you saw ivanka trump show up at a chinese new year

party at the chinese embassy and greet the ambassador directly. that may be at work behind the scenes. francine: talk to me about yvonne got. -- about ivanka. does it resurface concerns about conflicts of interest? stephanie: yes, it does. hislies in the face of promises to distance himself from the family business. ivanka trump has stepped down from the trump organization as well as her own brand. for him to criticize nordstrom for dropping ivanka trump, her clothing line, flies in the face of that. nordstrom said they dropped her line because sales were week, but it also came after this campaign, this well-organized campaign by grab your wallet, to boycott any products associated with the trump administration.

how much that came into play is unclear. it reminds people that trump has not really separated himself from his business. tweet aboutues to these things, it will be a recurring problem. francine: the senate has confirmed jeff sessions as attorney general. i want to show you a couple yields. richard, i want to go to you first. we had a call from jeff gundlach. this is different to what mr. fink of blackrock says. fink saying the 10-year could drop below 2% or above 4%. they are all right, aren't they? francine: but you need to put your money somewhere. simon: i think conventional bonds look expensive. and there's a direct a link to the trump administration, right? simon: there's uncertainty caused by the political environment. i think the economic scene suggests that bonds are expensive.

inflationary pressure is picking up. short-term interest rates are rising. i think that bond yields at this level are too low. that is not simply in the u.s. that is around the world. there is still this thing in the background that people forget. we have a massive amount of quantitative easing. that is still in the system. that is causing mispricing of assets around the world. francine: simon, are you with gundlach? with the view that yields will be lower rather than higher. when you compare the yields you can pick up in europe or japan, i think that demand will be there. i think the other key issue is that talk about infrastructure seems to have quietly dissipated over the past

few weeks. i think that we're going to see that demand start to kick back in. you so much,nk stephanie baker. simon derrick and richard jeffrey stay with us. --next [singing] a musical protest in britain's house of commons, when triggering article 50 gets the go-ahead. this is bloomberg. ♪

francine: "bloomberg surveillance." i'm francine lacqua in london. house ofs lower parliament has given its approval to begin the process of leaving the european union. the vote passed after lawmakers were reprimanded for singing that he you anthem -- the e.u. anthem. [singing] order. order! francine: you can never get enough of someone losing their temper on screen. it moves prime minister theresa may closer to her goal of triggering brexit before the end of march. still with us, simon derrick, strategist at bank of new york mellon, and richard jeffrey.

simon, we were talking about pound. is there going to be brexit fatigue until article 50 gets triggered and we get a deal or not? simon: i think we do. there is a huge shift at the start of this year, on what concerns the foreign exchange markets at least. last year, we moved away from it being about yield, to political risk. every time we were moving closer to triggering article 50, sterling fell. every time something would delay it, sterling came back. that shifted dramatically. with that speech theresa may gave, sterling suddenly started to like the clarity of it. everything that you saw that seems to suggest there would be some kind of push back against triggering article 50, sterling would weaken slightly. who knows what will happen? for the moment, i think this is

a market that has come to terms with that triggering. i think we are now in a situation where we start to focus on two things. the market ishat short on sterling and has been for quite a while. the second is that we are incredibly competitively priced certainly against the dollar and arguably against the euro. i think that is going to start to kick in. whether we start to move back to it being eerily yield-based, we will see. richard, last week we spent a lot of time talking about france. if you are an economist, when does trade talks or inflation really start hitting you in the u.k.? richard: when we're looking at brexit, we're looking at the whole political scene in europe. clearly, lot going on,

not just brexit, but there are significant elections in a lot of countries. evil are going to analyze and overanalyze and over interpret and that is true of this run-up to brexit too. it is the phony war. we're going to listen to much to the statements people are making. there will be so much misinformation around. francine: is it the research, the boe, and whatever mark carney does? at the moment it seems it is a 50-50 chance whether we get a cut or a hike. richard: they are not talking about coaching -- pushing interest rates up in the u.k. yet. the bank of england has raised its growth forecast this year. they were inappropriately low. i think what is going to catch attention is that the u.k., despite all this uncertainty, all the negative talk about the impact of brexit, the u.k. is likely to be growing faster than the eurozone and i think that

will attract attention. francine: the boe, what will they do? simon: i wouldn't be surprised if we start to hear more talk about the bank of england and higher rates. i'm not that certain that is going to happen. we've had so many disappointments on that particular front. relatively speaking, if you are looking for a yield play, where are you going to be? europe and the u.k. francine: simon derrick and richard jeffrey, chief economist at casanova capital. france, the scenario of leaving the euro. we talk frexit with socgen's ceo. ♪

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hi grandma! and the fastest internet. [ girl screaming ] [ laughter ] i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. francine: this is "bloomberg surveillance." let's get straight to the bloomberg first word news. here's nejra cehic. nejra: the u.s. senate has confirmed jeff sessions as attorney general.

the 52-47 vote in the republican-controlled chamber followed 30 straight hours of debate. democrats said the alabama senator was too close to president trump and would not protect voting and civil rights. sessionsns insist that will put enforcing the law above politics. president trump has sent a letter to xi jinping in his first direct communication with his counterpart since taking office. chinese people a happy year of the rooster. trump hasn't set up a call with xi since he took office. british prime minister theresa may is a step closer to triggering brexit as the u.k.'s lower house of parliament gave approval to begin the formal process of leaving the e.u. the bill passed by 494 votes to 122 after lawmakers were promised a vote on the final deal to stave off a vrable. -- a revolt. the draft now goes to the house

of lords. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. societe generale's fourth-quarter profit exceeded estimates, helped by a surprise jump in earnings. that income was 390 million euros, down from a year earlier, but above the forecast by analysts. socgen's deputy ceo spoke to bloomberg's caroline connan. >> we have announced that we will present to the market our midterm lamb by the end of this year. we will do that. inectively, we could have the second part of the year better understanding on what will be the new framework, which is still pending under discussion. caroline: so you don't think that basel is dead?

>> no, we don't think so. there is ongoing discussions between the authorities. the u.s. situation is probably taking a bit more time to fix, but probably there will be an agreement. caroline: if you have a new basel deal and on the other side, you have no dodd-frank anymore, does that put european banks at an advantage? >> i don't imagine at all that you will have a basel agreement without the u.s. point for the banking industry in europe is to maintain -- [indiscernible] no u.s. membership of this new basel, there will be no agreement, i am sure. caroline: so you think donald trump could kill basel. >> he could, i don't know, because this decision is more complex in the u.s. caroline: are we entering a new world of deregulation?

>> probably. the question mark which is not been addressed yet is, what is the optimum between additional regulation and negative impact on the economy? this new event will raise more this question to fix the right label of regulation to which is a necessity, but we never made the impact analysis. [indiscernible] just to have a look at what is the real impact on the growth potential, on the economy, and unemployment, specifically in europe. francine: that was the deputy ceo of societe generale speaking to bloomberg's caroline connan in paris. let's be to caroline from our paris studio. what else did he say? he expects the low

interest rate environment to continue to impact the french retail unit until at least the end of this year, even though as we mentioned, the french consumer banking of societe generale did better than expected in the fourth quarter of 2016. but before regulation, before the impact of the low interest rate environment, he thinks that the biggest risk that his bank is facing this year is the political risk. the deputy ceo told me he does have a contingency plan in case of market volatility around the french presidential elections, but when i asked him about the possibility of a french exit of the euro in case of a victory of the national front, he told me that this scenario was so remote for him that he didn't even consider it. francine: has anyone else? we had earnings from total.

has anyone else talked about marine le pen more openly while releasing earnings? caroline: the total ceo did not mention the political elections in france. he did mention the uncertainty surrounding the policies of donald trump in iran. from actually benefited cost-cutting on one side, rising oil and gas production on the other side, so they are doing better than other oil majors. at 2.41come is up 16% billion dollars. they are also raising their dividend for the first time in three years. we had some earnings publicis,ing from the advertising company. they missed their sales estimate . the digital unit suffered. they also lost a contract in the u.s. from coca-cola.

it will be a very special year for publicis. as you know, maurice levy is handing over in june. maurice levy did mention the political risks surrounding the french and german elections this year. he said that uncertainty is becoming the new normal. francine: thank you so much. caroline connan in paris. richard jeffrey is still with us. we talked at length about the political system in france last week. how do you know view the spike in spread between the german and the french 10-year and what it tells us about france's economy and future? richard: i think that's spike is telling you more about the politics. when we take the economic venture -- temperature across europe, i would put france in the lukewarm category at the moment. i think it is fairly clear that

germany is picking up economic momentum and that is helpful. another positive sign is it looks as if into eurozone trade is beginning to pick up. that had been flatlining for a long while. that is a good sign that there are still problems economies in the southern part of europe, including italy. france is almost trapped between germany and italy. francine: are we going to see the spreads widen? this is between france and germany. the picture between germany and italy is very similar. richard: i think the answer to that is there's more perceived risk and certainly political risk in france than there is in germany. people are very uncertain given the events we've seen over the past week. at the same time, if the german economy is picking up momentum, and if inflation turns out to be more embedded than economists

are currently expecting, then german yields could start to rise as well. francine: richard, thank you so much. richard jeffrey stays with us. stay with "surveillance." could there be sour grapes in store for monte paschi? the italian lender has poured millions into tuscan forms and vineyards. plus, has trump's presidency added risk to twitter's user base? we will look to micro blogging platforms. cost cuts working for commerzbank? we will speak to the cfo. for more, tune into radio -- "daybreak europe." this is bloomberg. ♪

francine: "bloomberg surveillance." let's get to your market check with martin. mark: we've had socgen and commerzbank meeting earnings. price-to-book ratios for euro area banks, white line versus u.s. banks on the s&p 500. very similar going up to the financial crisis, then you see this divergence in performance. prices much lower for european banks. just a nice chart to kick off today's busy earnings day. the four today, we had four straight days of decline in yields for the u.s. 10-year, the longest stretch since before the u.k. referendum last year. a call yesterday from larry fink, the blackrock ceo. he said there is a probability that yields will fall below 2%. he said we are living in a bipolar world and the yield:

also rise above 4%. drumm this line, 2%, and 4% as well. the red line is 3%. that is the call from jeffrey gundlach. he thinks 3% is the level we will hit this year. today we are at 3.35%. bill gross says 2.6% will herald the end of the bowl rally in bonds. this reflation trade is temporarily coming to a halt. 10-year rake.k. even. as you can see, it has just come off its highs, which it reached in january. this is a chart going back one year. that high in january was a two-year high. its or maybe will come off highs. it will probably collapse below

$50 a metric ton in the second half. --t is according to [indiscernible] lackluster growth in consumption and record stockpiles in china. lovely chart showing you iron ore. francine: great chart as always. italy's biggest publicly traded investment bank has reported fiscal second-quarter profit almost doubling. we will also get key updates on the health of the country's banking sector later today with earnings from unicredit and monte dei paschi. let's speak to elisa martinuzzi. banks.ers italian richard jeffrey is still with us. in december it was all about italian banks. that was one of the main risk premiums we could see in europe

overall. is it back? >> it kind of hasn't gone away. we've got until december. a package was announced, 20 billion euros. what still remains unknown are the details of this. there's no final signoff from the european authorities. thebanks are still facing problems that have led them to this capital gap, lack of profitability, and the bad loans keep piling up. the economy doesn't go very far. francine: is unicredit now the kind of linchpin? if they raise capital and do it correctly, we could look at the section in the industry with much more ease. if something goes badly, we are back to square one. >> i think the function is that the company will succeed in its efforts to raise 13 billion, but unicredit is clearly a different bank to the smaller players that

also have some bad loan issues, such as monte paschi. while the sentiment could improve around italian banks, they are coming from very different starting points. francine: what are you expecting from monte paschi? they are also sitting on a a lot of vineyards which they are struggling to sell. i guess the market is not right. >> this is it. of localent to a lot businesses, small companies, and it is reflected in the hit they will have to take. they are sitting on all this bad debt that isn't going to come good anytime soon. it is backed by collateral that has seen a decrease in value and in many cases can't be shifted. that is what we're seeing here. tonight we are expecting more of a cleanup from the bank, to make more progress in terms of taking provisions for these bad loans, the extent of which we will know

later. they will also be dependent on whether they receive these bailout funds and how quickly as well. francine: richard, let me bring you to my spread. i brought it back to 2010. the red is when mario draghi says, i will do whatever it takes. is this a bank flaring up concern? the same as what we are seeing in france, markets and investors trying to figure out risk, or is this related to monte paschi and the bailout funds? richard: there's a spike in risk at the moment, or a spike in perceived risk. to me, the key thing is when are the italian banks going to be able to support growth in the economy. they going to be part of the credit creation process? if you compare europe with the united states -- what was so good about the united states was they repaired their banking

system very early and it was able to start that credit creation process much earlier than europe. process much earlier than europe. italian banks have to be recapitalized. the money has to go in, then they can start to create credit again. francine: the u.s. has never dealt with a 30% youth unemployment in italy. what has to come first? is it growth? is it creating bad banks, getting in shape? richard: you have to try and mend the banking system. credit creation is vital to the economic cycle. you have to get in and support the banking system. whether you create a bad bank or whether it is done in some other way, that is not so important as getting back to credit creation. francine: we knew that intesa was after some big asset management. there's all these rumors about generali. do we have an update? >> they're are looking at this as a case study.

the option is on the table. there are some doubts about the bank assurance model. having said that, they might be looking at some assets. clearly the devil is going to be in the details. we are hearing that this is certainly forcing other players in the industry to rethink their perimeter. francine: thank you so much. elisa martinuzzi, who has all of our finance and investing coverage in europe, and richard jeffrey stays with us. can twitter get a trump bump? we look ahead to earnings from the social media company. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london. nejra: total has raised its dividend by 1.6% and says it may give the go-ahead for almost a dozen new projects. that is fourth-quarter profit beat analyst estimates. adjusted net income climbed 16% from a year earlier due to rising oil and gas production

and cost cuts. fourth-quarter profit fell on a jump in provisions for risky loans. net income decreased to 183 million euros as loan-loss provisions surged. that was still above analyst estimates. we will be speaking to commerzbank's cfo, stephan engels, at 11:30 u.k. time. thyssenkrupp says profit increased about 41% as steel prices recovered. earnings excluding one-time 329 million euros, beating estimates. ormany's largest you make trying to transform into a diversified industrial group and raise annual earnings to at least 2 billion euros. shares in nordstrom saw their biggest one-day gain in two months yesterday despite being lambasted on twitter by donald trump. the u.s. president slammed company for dropping daughter 's brand.t -- ivanka

weighing the purchase of a 20% stake in china's singtel brewery according to people familiar with the matter. the danish brewer is working with an advisor on the potential stake being sold by us i. ahi.y as tsingtao rose today to its highest level in more than a year. francine: thank you so much. has twitter seen any popping users? bloomberg's caroline hyde takes a look ahead of twitters earnings today. caroline: president donald trump's use of twitter is unprecedented for a world leader. consider his audience. the president's personal account has roughly 24 million followers. compare that to his neighbor

ruling leaders. the mexican president has 6 million. canadian prime minister justin trudeau with less than 3 million. barack obama's personal account has four times as many followers as trump, but half as many actual tweets. trump built his campaign around the idea of speaking frankly and directly to people. timeseted more than 240 since inauguration day, often directing that days news flow in 140 characters or less. sometimes it is to share his schedule. sometimes to discuss foreign affairs. and sometimes none of the above. but with all the added attention the president brought to twitter, has the company attracted new users? not according to comscore. comscore reported that twitter users actually fell more than 6% in november from a year before, and 5% again in

january. snapchat has 82 million in the same month. facebook, twice that. trump hasn't helped inventor sentiment much either. shares are flat since election day. on days trump tweets something in gauging, twitter is not rewarded with a bump in the stock price. his most popular tweet last from sunday,s one january 22. liked by nearly 400,000 users and retweeted over 83,000 times, but when trading resumed, shares closed nearly flat. ubs and pivotal research both downgraded twitter to hold last month, citing muted growth among monthly average users. if twitter the company is not benefiting from trump, who is? perhaps democracy? wroter analyst james

in december, twitter is the loan platform where people worldwide can serve as checks and balances on the media. chance tos a move onward and upward, but we may not see it in revenue yet. francine: this is the picture for your markets before we go into the second hour of "surveillance." societe generale, a lot of focus on that, jumping after its earnings report. shares in hong kong surge. there is quite a lot of political uncertainty, which means asian bonds are following following a rally in treasuries. tom keene joints me out of new york. we will be talking trump, brexit, and markets. ♪

♪ francine: safety in numbers, the 10 year treasuries advance in june -- as investors await more

positive details from the u.s. president. italy's biggest bank unicredit reports earnings that missed a high profile to raise $14 billion. -- goodloem says that morning, everyone. i am francine lacqua in london with tom keene in new york. i know you will spend a lot of time looking at markets and treasuries, the political risk, and foreign policy. tom: it is almost an off day for the trump flow. kevin cirilli will join us in the next hour but you can all must focus on the markets. i find unicredit fascinating this morning. francine: we are also getting an update -- we had an update from -- and monte paschi, we do need to focus on italian banks. let's get straight to the bloomberg first word news. taylor: we are going to start with politics.

president trump has had his first communication with china's president xi jinping. the president thanked him for a congratulatory note and wished the chinese people a happy new year. he wrote he was seeking smoother ties between the world's largest economy. senator jeff sessions will be the next u.s. attorney general. the senate confirmed him after contentious debate that included republicans silencing democratic senator elizabeth warren. they argue he will be independent from the rump. -- president trump. theresa may's latest victory may cost her down the road. comments -- her only concession was that parliament should get an early vote on the final agreement. the question is whether that could be a costly move that could eventually derail her brexit strategy. in china, our sales fell in

january with the first decline and 11 months. deliveries down almost 10%. heart of the reason is a shorter flowedonth, and traffic after consumers bought cars at the fastest pace in 2016. they took advantage of a tax cut on small engine vehicles before it was scaled back. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. tom: one screen today, not two screens. a quiet day. now, 2-10 spread churning, the euro turning, lots of turning going on, and european spreads quieter. francine: i like that word, churning. this is the european stocks. societe generale coming in better than expected but there

seems to be uneasiness and the market. i have five charts i pulled from the bloomberg terminal, and political uncertainty continues to dominate the market. tom: this is the one chart that matters. michael darda will join us in the next hour. this is my trump reflation chart. here is the election november 8, the one day move, steeper yield curve indicated by the hope and prayer of reflation. we have developed a regression, a trend line at 120, 125 basis points. here is the recent angst over the past few days, but here is the one chart to measure the pulse of the global session. francine: this is my chart. i love your chart. i like my chart even more. this is the u.s. 10 year. we actually have two people that the markets listen to, blackrock's fink and -- and they

disagree. this is a treasury 10 year yield , 3% is where gundlach sees it. larry fink of blackrock says it could blot -- drop to 2% but it could go about 4%. he believes there is a greater probability it goes below 2% and we will have a market setback of considerable amount because some fiscal stimulus policies will not be put in place. do you like my chart? tom: i like your chart. folks, the abuse i get, when francine and i do radio and spend to much time together. the next day is always difficult. francine: it is good abuse, tom. it is out of love and well-intentioned. kapoor and andy need are -- nandini ramakrishnan are joining us.

i like tom's chart. it brings us back to it could go .ither way your comment on the 10 year? nandini: we do see it getting higher, fed rate -- rate hikes maybe three or four. we also have a 10 -- higher 10 yield going forward. i think tom's chart on the steepening of the yield curve is key for markets. francine: do you see how she is diplomatic? she loves both chart. .nlike sony where do we stand on when we will get the trump policies on the economy and can he reflate by spending? sony: on the question of charts, both represent something rather similar, and i am with larry fink on the uncertainty. it could go either way, and i

think what tom's chart represents, the flattening of expectation is exactly the market is causing for breath and looking at uncertainty. the promise of the early days of trump big words is now being seriously doubted, and the fact is to whether he can get to his policies through congress has a big? bank hanging over it -- question mark hanging over it. another question of whether those policies will be good for growth, not just in a few quarters but over the medium-term horizon. let's -- tom: let's take the same chart i just showed, and here is the reality. we have to go from this trend all the way out trend all the way out here to the midterm elections in the late autumn of 2018.

the fan distribution, you know this is about the timeline a fiscal stimulus. it is about the timeline of a reflation. we do not have a clue what that timeline is, do we? sony: not at all, and if you look at some of the other policies and the ad hoc nature of the trump administration so far, it is really not confidence inspiring as to whether or not he will be able to get any of these policies through congress anytime soon. of course, whether or not the damage he does in getting these policies through, through protectionism, through undermining the rule of law may actually be greater and undermine growth and financial -- even more than the short-term stimulus may add. francine: do you agree? nandini: it is tougher markets because there was such a rally in stocks and bonds doing separate things after november because of the stimulus of increased corporate america. the first few actions of the trump residency have been on

different grounds in the campaign rhetoric. it is a bit tough to see how markets will interpret these differences and promises and what promises will be kept. francine: where do you see stress and markets? to, we bothk covered extensively the financial crisis. there were signs in the markets. if there were something ugly out there, what would you be looking at, debt-yen, euro-swissie, eds? nandini: how much volatility has increased and the bond markets shows us this is supposed to be and theaven type asset, volatility and duration risks you see in fixed income are where we find most stress. the fundamentals and economies have been doing well enough. europe turning a corner with positive growth, u.s. growth, a question as to how much growth that at least you have some solid fundamentals. tom: is there an austerity in

europe and austerity in the united states? are we still living austerity? viewed --, yes and no no. things are less bad than they were in terms of the fiscal policy, and fiscal policy has definitely been losing on a relative basis in the eurozone and the u.k., and the united states. have aone is to long-term, credible limit on fiscal deficit, then the prognosis does not look very good. in fact, for the u.k. post-brexit, we are expected to have austerity going as far as 2027, even 2050 if we are going to keep deficit less than 3%. in the united states if president trump and ask these massive tax cuts -- an act --

these massive tax cuts, the u.s. will be faced with a widening fiscal deficit which at some point will have to be brought under control, and growth will not compensate for the loss in tax revenue. the eurozone faces a similar long-term problem but the biggest problem in the eurozone is poor, long-term growth expectations and demographic decline. tom: in our next hour we will link this into the x -- equity markets. thrilled to bring you michael 20,000, and of course on mr. trump and your investments. ♪

francine: -- taylor: this is bloomberg surveillance. group once ang close the first round of investment in its $1 billion technology fund this month according to people familiar with the matter. it will give the ceo a huge war to go hunting for deals. societe generale reported first-quarter earnings that the estimates. one reason is the price jump in profit at its french consumer banking unit. socgen plans for an ipo of its car leasing business. bloomberg asked the ceo about the upcoming french election. >> beyond your question could be , [ries to see in france indiscernible]

we see that as so remote we do not see it sure. you could see some volatility on the market and we have always a contingency plan to face that situation. taylor: he spoke to bloomberg. that is your bloomberg business flash. francine: thank you so much. it is also a big day for italy's biggest bank, unicredit reports fourth-quarter earnings and the ceo has spent months pounding the globe to find buyers. joining us from the lawn is dan leaf green -- milan is dan leaf green and with us are nandini n and sonyamakrishna kapoor. how important is it for the market, for unicredit to raise its capital without any hitch until the world italian banks are back in business? dan: i think it is very important.

unicredit has decided to go to the market for 13 billion euros. the biggest rights issue we think ever by an italian financial. he is clearly betting that a success on this will help the entire industry. it is italy's biggest bank. at the same time, he is cleaning up the balance sheet. he gave us a heads up last week saying that the loss for 2016 will probably be around 11.8 billion euros. cleaning up the balance sheet, making more provisions and trying to get npl's off his books through the market by doing deals with pimco and fortress, for example. we not seeny have more resolution? you have this bailout program effectively for monte paschi.

why are we nowhere closer to a resolution than we were at the end of december? dan: it is a complex process. lots of regulators involved. you have the italian treasury and government which will be taking it over, getting the biggest stake. you have regulators in the e.u., thiscb, which has demanded number of 8.8 billion euros in fresh capital. lots of players involved. they have to put together yet again a business plan that gets all of these peoples signatures before they can take off. tom: we are going to bring up a chart of four different banks, fortress dimon, bnp paribas, deutsche bank, and unicredit. isorgan, bnp paribas, this normalized from the financial crisis over here. i want to know what the level of sweat is in italy. i cannot figure out if there will be a massive share

dilution, and they do not even have a real business plan yet. what is the level of panic e-seen? -- behind the scene? dan: the level of panic thus far seems to be under control, but i think you have to remember that senior officials in the italian government, a year ago were saying everything is under control, we have a plan together, we are confident monte paschi will be able to raise this money on the market, and just before christmas that did not happen. obviously there is the security blanket in place. they are working on it, but it is going to take, it is not something you can do in 48 hours. this will drag on months, no question about that. francine: we're back with nandini and sony -- sony.

i will bring you back to my chart. this is a very simple spread between italian and german yields. the spike up here, is a political risk or simply that the banks have not been dealt with? nandini: i think it is a combination. we had a political event in january with italy with a potential risk of a snap election. when you look at eurozone nonperforming loans as a present of growth loans for various onlyries, why is italy the one that has not been able to slightly lower that percentage of nonperforming loans? when you look at the financial assets, italy has a lot of sovereign debt, that is what you see the markets getting nervous about that. francine: why, because the political system is a mess, because they do not have it is a priority, the europeans are stalling? layer, its an added skewers the political leaders who may have pushed this

through, there is a lot of churn. to pick one reason and i think a combination is exacerbating the spreads against germany. tom: i pick up on general, a big dividend. i have a multinational feel in europe. is it a better buy than stocks in the united states? the european indices are at 40 year lows relative to the u.s. index so if you are able to manage a bit of volatility throughout the court -- course of the year, the fundamentals in some of the european sectors are doing well. ironically, financials doing some of the best for this quarter. you have to look within financials, is a big banks, the capital accumulators -- is it big banks, the capital accumulators? playing in the sectors where the best i is at the moment. ramakrishnan,ini

thank you. coming up the next hour, a conversation with the commerzbank ceo, stefan angles. we will be asking him about regulation and business models. ♪

♪ francine: this is bloomberg surveillance. francine and tom in london and new york. let's get straight to our morning must-read, i picked something from the telegraph.

the demise of the uk's social democratic sentiment more even than brexit will be the defining issue of the next decade or two. the timebomb -- the democratic timebomb and cost of our new health techniques means that that even baroness thatcher left alone will need to be slaughtered." he is saying we do not want to be like japan. absolutely, and what is really interesting is the interplay between the two factors, the demise of the welfare state and brexit because brexit has been a backlash against immigration, and immigration is one of the most important reasons why u.k. demographics look significantly better, for example, then the demographics of many western

european states. absent that, and one assumes is the hard brexit option goes ahead, people are even less likely to allow immigrants from south asia and elsewhere than they were to allow christian poles or people from central and eastern europe. the backlash against that will significantly worsen the already existing problem of demographics, plus the massive fiscal hole, the loss in gdp that will come as a result of brexit will mean that the welfare settlements will actually have to be recalibrated in a way that the blue-collar workers who voted for brexit will end up bearing the brunt of it. tom: help me here with what the assumption is given what sony and mr. heath said. bring down my actuary return to a single digit world, right? nandini: if that is the case for the u.k. there will be a lot of

structural change. perhaps the dynamism of the economy is dampened in the near term but the bank of england is actually upgraded the u.k. growth forecast for this year. it does look like the short-term view is a bit mixed in terms of u.k. growth dynamics this year. it will be tough but we are awaiting just like everyone else , the followthrough of the brexit negotiations through the course of this year. tom: a storm on the east coast, it is not here yet. new york city is gorgeous this morning, frigid, waiting for what is to be a big storm. dower in thelan 8:00 hour. ♪

♪ nationwide,de, surveillance. storm central. what you need to look at is that 10 figure from boston down to new york, and of course in a

february nor'easter, that number is going up. it was six inches and then eight inches and now it is 10 inches on the low side. it is not here yet. the a major airports are normal, coming in from heathrow -- the major airports are normal, coming in from heathrow. snowing a little bit in new york right now. with our first word news, here is taylor riggs. taylor: president trump's choice for the supreme court calls his criticism of a federal judge demoralizing and disheartening in a conversation with senator richard blumenthal. last week, trump criticized the judge who blocked his travel ban. abe meets with trump tomorrow in washington and is expected to urge the president issuesess currency instead of seeking talks with

individual countries. last week, president trump accused japan and china of devaluing their currencies. choice forrump's labor secretary agreed to sell -- worth more than $15 million if confirmed. he is the ceo of c qe restaurants, owner -- cke restaurants, owner of parties. ee's.rd the faa has been accused of dragging its feet on allowing supporters, women, and minority groups to have a say on how it is being run. .hey say they need more time as tom was saying, a snowstorm in the northeast today. storm central is already making life miserable for traffic -- travelers.

boston and parts of maine could get up to 18 inches with new york expecting a foot. airlines have already canceled hundreds of flights. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: taylor, thank you. if you are traveling you should look for airlines. we understand at the moment there is no disruption but check before you go to the airport. you are lucky this is not happening in the u.k. vision 2030 could be taking shape as saudi arabia's public investment fund is considering buying a stake in u.s. themepark company six flags. tracy, great to have you on the program. saudi arabia has the public investment fund, a true trillion

-- if trillion dollar investment giant. do we know where they want to put it in? that is the big question people on wall street will be asking. todi arabia set up this fund prepare for say the twilight of the oil age, and they want it to grow to something like $2 trillion worth of assets. many have been waiting for the fund to pick up its activity. we have seen bits and pieces, lots of middle eastern deals but not many overseas deals. that is why people are getting excited over this potential six flags agreement. this could mark the start of the next phase of saudi arabia's perestroika, if you will. francine: are they relaxing the rules when it comes to entertainment, which is why they may invest in this entertainment company in the u.s.?

tracy: yes, that is the other angle and all of this and it is really interesting and get to this post oil age idea. if you are trying to transition the economy away from one in which most people have government jobs, they are basically set for life, given money by the state, then you need to offer them something in return. we have seen saudi arabia make an effort to boost domestic entertainment options. some people are reading the fact that they are actually looking at a six flags stake as an indication of more on that front to come. we have seen a lot of u.s. amusement parks building here in the middle east as they seek to diversify revenue. you could potentially get maybe even a themepark in saudi arabia, although maybe that is pushing it. tom: i do not know if you saw the appeals court discussion of 6:00 p.m. the other night.

it would've been about 2:00 a.m. tracy alloway time. but on tracy alloway time, what dhabi,mood in dubai, abu what is the mood in riyadh to the judicial discussion within the united states? they need to look at the seven nations and they need to look at two of them separate. what is the discussion point that you see in the media and among the royal families? separateam glad you the countries and the geographies out, because a lot of people come to me with that country and say what does the that is at think? fallacy that you see people fall into all the time. the middle east is not a homogenous region. they're a different cultures and political motivations that play. , well you have some people who are certainly unhappy about some of the anti-muslim rhetoric that has

come out of the trump administration, you have pretty significant tension between them and iran. there are a lot of people in the uae who are not necessarily unhappy to see iran on that list of seven nations. we had the uae foreign minister last week defending the executive order, reminding people it was a temporary measure and they should not get too worked up about it. there is always a complex mix of emotions and motives in the middle east. you mentioned earlier with francine the development of what i will call and you sovereign wealth fund. have they actually done over the years in their investment? we remember kuwait leading the chart with norway years ago. how have they actually performed? tracy: that is a excellent question and i wish i could give you the answer. a lot of local huge sovereign

wealth funds are essentially closed books, and that is the interesting that is happening now. i told francine it was like perestroika for saudi arabia. you are seeing big monetary institutions slowly beginning to open up to the outside world. people are getting very exciting about saudi aramco potentially listing, and that is one where we have not seen a lot of financial measures in the past. people are getting very interested in seeing those books open up a little bit, so definitely a theme that is going to be watched for many months to come. francine: thank you so much, great reporting from tracy alloway. let's bring in sony kapoor and nandini ramakrishnan. there are about a million angles in this. we can talk saudi arabia, searching alpha, where is a lot of -- which is where a lot of sovereign wealth funds need to go, but we can talk about oil.

opec right now is sticking to the production cuts. i think we were quite excited when we updated the recent charts for this quarter that the first time the demand and supply line our meeting in 2017 and 2018. that means a higher oil price as supply starts to meet demand growth, and stabilization of the oil price. no $28 a barrel up to $60 in it year -- in a year. we see a higher oil price around 55 or 65. francine: how do these gulf states adapt to donald trump and his administration? sony: the kind of political settlement which meant in return ndemocraticng an u -- and there would be

the future has broken down. his are some of the youngest demographics with very poor skill levels. it is not clear how many people coming into the job market will be employed given the low oil prices in the future. what is interesting as we are seeing a differentiation between what the sovereign wealth funds are going to be doing, and what the rest of market does. rest of market is gravitating toward its passive index,easure -- passive the sovereign funds look different. there is no principal agent problem. most of them will be focusing on infrastructure on emerging market, unlisted opportunities, strategic stakes, etc. abu dhabi has done very well and i believe saudi will gravitate toward that money. foreign directth

investment into the people's republic of mayfair. what will the middle east continue to do as they have an affair with london? will the money keep pouring in? yes, because sadly even as there are significant, much better investment opportunities in countries such as india, for example, in green infrastructure, the lazy options, particularly for the individually wealthy rather than institutional money is month -- london real estate. it is often a protection of a return to capital rather than a return on capital that is the motivation for the chinese and middle east millionaires and billionaires to be putting money here. also russian oligarchs. tom: it is just remarkable to see. i want to go back to rate of return. i get the idea that people can

buy london real estate and let the money sit there for decades, but what do mere ordinals expect out of a rate return? toughi: it is going to be for the s&p 500 or globally listed indices to give us more than high single-digit returns, , infinding specific pockets japan it will benefit from a low yen. sectors, s&p specific do a specific choices to bit better and give us better returns for the course of 2017. i think regardless of the general sense of some earnings growth we are seeing more conversations turned toward alternatives or a little bit higher, longer-term return stories you can get away from the publicly listed equity market. tom: on bloomberg radio this morning, we have power breakfast. we will be at the pm hotel in

the snow. hotel intic -- pierre the snow. how romantic. dennis gartman will give an update on sanity. ♪

♪ taylor: this is bloomberg surveillance. i am taylor riggs. wide by aircraft order from singapore value that close to $14 billion. singapore agreed to by 20 of the 777 -- nine models and 18 of the 7 -- it will be ready for four years. 900 -- $98 million

after agreeing to settle a lawsuit, takata is -- there airbags have been linked to at least 17 deaths. a federal judge has put an end to the second of two giant mergers that would alter the u.s. health care landscape, walking anthems deal to buy cigna, saying it violates antitrust law. at nice is proposed acquisition of humana was also blocked. 's proposed acquisition of humana is -- was also blocked. francine: this week, the imf has held its long-held stance that greece will not reach its target set by creditors. nandini ramakrishnan and sony kapoor. when you look at europe, is this

the crossroads? i know we say it every year and it tends to be in the summer, greek leaves the euro or something happens in france, but it seems there is no commonality and there is lagging support to deal with greece. sony: i think it is the consequence of problems that have been left to fester for far too long. in some ways this might actually be the year of reckoning, given the important elections in the netherlands, france, and germany. if any of them deliver a political shock where the populists rise massively, let's say le pen comes in, we are in for some deep trouble. i think the base case has to be there is a resilience to the european union that has been underestimated in the past, and we will stick together as the european union and greece will be at the end of this year, still and member of the eurozone. we have not read that

much about it, but i picked up on the merkel plan, what she was saying to the e.u. leaders 10 dayssaying to the e.u. leaders 0 days ago. will we have a europe where countries decide to be more degraded or drop out? it seems to be what she was suggesting. think that bridge was crossed into thousand nine with the discussion of the fiscal ,ompact, and many discussions including a core e.u. led by eurozone countries which puts up the kind of fiscal institutions that are complementary of the european union. we have special mechanisms where nine countries can go ahead on specific areas of e.u. expertise and go for closer integration. with the u.k. leaving, the pressure to be with us or against us will increase, and this will be felt particularly

keenly by the smaller countries, maybe the likes of poland who are reluctant. and those who are seeing an anti-euro resurgence. tom: correct me if i am wrong. without question, the number one economist was with us yesterday on the debt workout in europe. it is assumed that has been delayed because the elites do not want to take the losses. which institutions will explain to the elites that it is for their better good to take some form of right off of all this debt of peripheral europe? sony: so far, every single thing has fallen on deaf ears. the best bet, which i think we missed out on, was when the imf got involved. our suggestion at that time had been that the imf should only get involved with the eurozone on the condition that it should be a eurozone wide program,

because many of the adjustments that are needed are those necessary inside the eurozone between germany, greece, etc. the eurozone collectively is not in very deep economic problems, it is about the distribution of the gains and losses and who actually bears that. i think germany ends up bearing a significantly larger share of the losses. there is no serious way forward, and we will continue to trend along the bottom half. even as population stop growing and population stagnates. francine: do you buy a greek yields in the assumption that it will be ok or any periphery debt, or do you stay away? stepni: you have to take a back from just those economies and look at the larger scope. i was a greek debt is not our top recommendation for this year, but looking at what economies are doing well on

their own and which are less susceptible. of msci europeon and eurozone gdp is very small. remembering the larger economies that can manage on their own, some of the scandinavian markets look interesting. they provide a lot of dividend yield and the u.k. companies. active management is a theme for us this year when you have idiosyncratic and specific risks across europe. francine: nandini ramakrishnan from j.p. morgan asset management, and sony kapoor stay with us. if you are a bloomberg user, go to tv . you can have specific charts made for you. if you have any feedback, you can also send questions to us -- to our guests. we can bring the questions up in the next block. this is bloomberg. ♪

♪ this is bloomberg surveillance from london and new york, francine and tom. we need to look at japan. some of the charts that may mean the market is stressed out, yen

is one of them. the currency has collapsed in recent weeks. it rose to the highest level since december against a basket of developed currencies. this is a slightly different japanese chart but it goes back to what we saw also on yen. this is what we are looking at, net flows from japan in white and in yellow is the net inflows in yellow -- net inflows to japan. and sonyamakrishnan time or thehis the quarter where yen comes back in. because of that haven play? nandini: i do not think it will come to full strength. japan has been optimistic, updating japanese growth rates,

not doing anything with the monetary policy and that sent jgb's to the highest level in 12. you have a purchase program that pushes them back again. it things like the bank of japan is not taking extra efforts to reduce interest rates and they are not letting the interest rate curve stray too far from their targets. the perspective of the bank of japan will keep yields as low as possible to start stimulating growth that is desperately needed at a time when demographics as well as globalization and trade are going to be sort of the strangling factor for japanese growth. tom: we talked about prime minister may and president trump. does a mr.bely need a goodr. abe trip to the u.s.? stakethere is less at

than was the case for mrs. may. mrs. may has cast herself adrift from the e.u. and desperately needs some sort of trade deal with the united states. e, japan is doing all right. the bank of japan has put a floor on interest rates -- or a ceiling on interest rates. for the most part i think japan is going to be ok. tom: thank you so much. in our next hour, michael darda, and we are monitoring the storm on the east coast incoming. this is bloomberg. ♪

tom: this morning, indecision over the possibility of a path to relation. on the hour, michael

hopes and audacity of rockefeller stimulus on the reagan frugality. the attorney general sessions will make a supreme effort if ban makestravel its way. come on down to nordstrom's. search addresses are not available. this is bloomberg live from our headquarters in snowy new york. i am tom keene. francine lacqua in london. the snow beginning to fall. airlines alert as there have been cancellations, but that number goes up. 10 inches was six and then a and then 10. francine: actually, we will be hit by the snow some days from

now. it takes a wild to get across the atlantic. tom: i saw that. you may get snow as well. very cold. right now, she is not wearing ivanka. taylor: we will start with politics. first direct communication with the chinese president. the president thanked him for a congratulatory note and wished them on a happy new year. he also seeks to increase the ties between the two largest world economies. senator jeff sessions will be the next u.s. attorney general. the senate confirmed sessions after a contentious debate that included senators silencing elizabeth warren. they argued sessions will not be independent enough from donald trump. theresa may's recent victory may cost her down the road.

may's only concession was that parliament should get an early vote on the final agreement. the question now is whether that could be a costly move that could eventually derail may's brexit strategy. car sales fell in january for the first decline in months, almost down 10%. traffic slowed after consumers bought cars at the fastest pace in three years in 2016. they took advantage of a tax cut on small engine vehicles before it was scaled back. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: taylor, thanks so much. turned to the market. there is not that much going -- turn to the market. there is not that much going on. oil struggling over the last 72

hours. francine. francine: this is what i am looking at. it little positive momentum from asian stocks carrying into europe. this is the picture for the yen. tom: over to the bloomberg right now. this is pretty interesting. measuringe chart on the reflation. election day, steepening of the curve. 210 for. 10 year yield minus the two-year yield. we are in this wonderful trend right now. we are churning a little bit of heaviness here. we have to figure out where we are going as a global indicator. francine: i took a longer , brought it back almost a decade. i brought it back to 2007 just to show the difference between where the treasury yield is

going. it could drop 2% or 4%. it has to do with the fiscal stimulus policy that something will not be in place until 2018. tom: that is brilliant. someone good to speak to about the distribution and our uncertainty and risk is michael, advisor and chief economist. michael beautifully synthesizes in the equity markets with a healthy dose of respect to the animal spirit identified by nominal statistics. gdp?s our nominal how is our animal spirit as we migrate to the end of the first quarter? michael: thanks for having me, tom. the answer is slow, but there is a mild moderate acceleration in mild and moderate gdp. we should anchor our expectations around modest

expectations instead of a drastic pick up on growth on the on growth onckup the back of reforms. tom: i really want to make this clear. of the timeline of rockefeller stimulus, you cannot put a timeline on it. i cannot put a timeline on it. how does the market discount that? michael: i think the market needs to listen to the fed. janet yellen is there at least year.the end of nex next this is not the time in the business cycle to move ahead with that when you are close to full employment as the fed defines it, meaning if taxing and spending policies change in a way to drive up the fiscal deficit, the curve flattens.

you have the picture there. fiscal policy can do anything for us at this stage of the cycle. it will have to be on the supplies side. measures to lift productivity growth, which happened week, but to the -- which have been not tout t hundredths of basis points. francine: it was lacking when the numbers came out. michael: real wages are rising now, but in terms of overall wages, the monthly figures disappointed. we are seeing some acceleration. we were pinned down at a 2% trend in terms of hourly wages. 2.5% 2.5%nning just above

depending on the wage indicator you were looking at. that is on the back of the labor market tightening a lot. we will see further acceleration in hourly earnings, but keep in mind, you should not see hourly earnings growing much beyond the sum of productivity, which has been very weak,and the fed's inflation -- weak, and the fed's inflation target. we are not far away from that level now. francine: how many times are you expecting the fed to hike this year? michael: exactly. i think the fed is on track to hike three times. two to three. tom: really? michael: i think so. some of the financial indicators have improved in only a postelection faction, but the credit markets were returning last year. the fed should be able to raise rates a few times this year. fed funds futures are looking for two. let's call it two to three.

that could take place without a big economic disruption. tom: the pure equity market. here is the chart using the s&p 500. this is the dow. i did this because of the doubt 20,000. -- dow 20,000. here is where michael darda did his work. up we go, and we are really right on track. we are moving from the lower left to the upper right. how can you not be on board this after terrific returns? michael: i would just say i think the equity market will be up, but single-digit growth. at this stage of the cycle, that would be fantastic. let's not look for double-digit returns from here. it is certainly possible. mid single-digit returns, maybe less than that. valuations have moved a lot in the latter part of last year.

the market is discounting some of the improvement we talked about, that we have been talking about already. out a decade, is there a point where i get a real return on savings, fixed income, conservative fixed income? michael: iowa server that is the fact we are in a slower productivity growth world with demographic headwinds. there is hope that policies can change that, but expectations should be reigned in some. if that is the case, we will be in what looks like a fairly slow growth world with relatively low interest rate on a historical basis. francine: where does that leave the 10 year yield? i have my chart. is it 3% or below 2%? michael: in my opinion, it will be a function of how nominal gdp growth does this year or not. nominal gdp growth slowed from

4.9% year-to-year in 2014 to 2.5% by the middle of last year. we are starting to accelerate now. i think we make a run at 4% year-to-year growth in nominal gdp growth this year. if that is the case, the 10 year can move 10 basis points or so, but not much beyond that. longer trend, if nominal gdp is three or four, it will be right where it is today. i do not see a path to 5, 6, even four. we will have much higher inflation expectations. francine: thank you so much, michael darda. coming up later this hour on "bloomberg surveillance," a chief financial officer. look for that at 11:40 a.m. in

london. we will be talking regulations. this is bloomberg. ♪

>> this is "bloomberg surveillance." you are looking at a live shot there d.c. whore expecting shinzo abe, should be arriving 6:00 p.m. tonight at andrews air force base to talk policy with president trump. in the meantime, let's get to your bloomberg business flash. the first run of investment in the planned $100 billion technology fund by the end of this month. that is according to people familiar with the matter. it will give the ceo a huge warchest to go hunting for deals. that will include $45 billion

from saudi arabia. fourth-quarter earnings beat genera softbank. it also announced plans for a car leasing business. about the the ceo upcoming fight election and concerns of a brexit. seehat is the likelihood to -- we consider that so remote that we do not consider it at all. we have always considered that situation. bloomberg'sto carolyn conan. that is your business flash. tom: thanks so much. we talked daily with kevin about the trump administration. mr. sessions becoming

attorney general last night. kevin, i get the idea the attorney general has been working. i get the idea he is working. i get the idea that all attorneys general are controversial. tell me what mr. sessions will do to get to this weekend given the ninth circuit court action. kevin: i can tell you resources i am talking with inside the white house tell me they are beginning to put together a war room strategy in order to have a rapid response strategy to respond to the looming court decision, anticipating fully it could go to the supreme court. with regards to secretary sessions now, obviously, there were some last-minute fireworks with senator warren, who was alleging he was a racist. republicans voting to silence her. that launched criticism from the left. tom: i get the idea there was fireworks, but the fact is this

guy is the attorney general. what kind of talent will he attract to doj? will it be senator crony's? will it be the alabama crew? will it be republican establishment people that will bring a new energy to their debate with the ninth circuit court? kevin: he has some friends in the white house. stephen miller, has top former advisor, is now a policy advisor for president trump. an issue i would carefully watch for is the issue of police force in the u.s. we are coming off of a very heated presidential campaign cycle. there has been contention to say the least between police and various communities here in the u.s.. this is someone in secretary sessions who has quite frankly, represents the police force because the key rallying cry for these folks was to defend the police force.

you get to things like antitrust. we have a big merger underway with at&t and time warner. look for him to perhaps be a little bit more receptive of that as opposed to president trump's rhetoric. francine: talk to me about the chinese president and donald trump. donald trump has spoken to putin, president erdogan, but not the chinese president. they have only communicated by letter. kevin: exactly. earlier this week, president trump sending a letter, saying he would hope to have a receptive mutually beneficial relationship between china and the united states. this comes after various folks within the administration have criticized china. folks like peter navarro as well as president trump himself. some talk about whether china will be labeled a currency manipulator.

on the flipside of that come you have former iowa governor terry branstad, who has a long-standing relationship with china, particularly on agriculture and trade. this is someone who has shown to be a little bit more receptive, using more positive rhetoric than the test rhetoric coming from -- tense rhetoric coming from other officials. francine: i want to ask you about ivanka. are people still talking about conflict of interest between business and politics, or is it more of a controversial, and i don't even know if this was confirmed, by the tree came 20 minutes into his daily butlligence briefing -- the tweet came 20 minutes into his daily intelligence briefing. kevin: i don't know if that has been confirmed yet. i think when you take the personalities out of it, when

you take the folks who are surrounding this out of it, at the end of the day, it is president trump responding to a business, and that is the bottom line. tom: of course, we protect our sources. kevin is wearing a suit from brooks brothers and a suit and tie. thank you so much. our chief washington correspondent as we are sensitive about who is wearing what right now. coming up on radio, dennis will give you an opinion. our our breakfast at the pierre hotel. pimm fox will join me today. that is good. this is bloomberg. ♪

."m: "bloomberg surveillance francine lacqua in london. i am tom keene in new york. snow in new york and boston. airlines, pay attention to the airlines today. francine: no disruptions yet. tom: no disruptions yet. it is coming. how about a morning must-read? let's get to michael darda. the idea of mr. trump's regulation order. mini sort of went man

viral. they may get a little bit of regulation right. michael: yes, we will see. hope springs eternal. our expectations of it in terms of what i regulatory rollback will look like. we went through a crisis and bailouts. you cannot clear how some regulations with a too big to fail safety net in place unless you want hazard to explode. as with tax reform coming changes will be at the margin. if you want to compare it to the potential aca repeal and replace, you cannot just reveal. repeal. there has to be a replacement. tom: this is gdp up here at 3%.

here in 1994, 1995 is where we break 3% on the regression. down we go to the financial crisis. the goal for the president is to go in this direction. the reality is it may be more flatter in a longer timeframe. does he have that long of a time to get us to 2% or a t 2.5% run rate. michael: the figures the administration has been talking about, 3% to 4% long-term sustainable real growth, simply are not in the cards. some level we are looking at there with the line is cyclical. it bounced off of the 1980's deep downturn. if you took a 10 year downturn average, you would see it picking out in the early 2000 3%.n's around now we are around 1%.

liver growth is only to run at one third of its growth rate due to the demographic headwind post-world war ii. i don't see how we end up getting close to the 3% or 4% real. maybe nominal, but not real. tom: 4% is shocking. back to ourngs usa lack of productivity. bill on television, on possible global recession. from new york and london, this is bloomberg. ♪

francine: gorgeous. tom: gorgeous. francine: gorgeous. there is a lot of talk about president trump and the relationship with china and hong

kong. there is also brexit. you look at the shanghai peoplete, you think moved to new york or hong kong with brexit. first, let's get to the first word news. taylor: president trump's choice for the supreme court calls the president's criticism of federal judges disheartening and demoralizing. that came in a conversation with senator richard blumenthal.last week , president trump criticized a federal judge blocked the travel a "so-calledcalle judge." currency issues at international forums instead of seeking talks with individual countries. last week, president trump accused china and japan of devaluing currencies while the u.s. looks like a bunch of dummies. the choice for labor

secretary. that is according to the financial disclosure and ethics agreement. he is the ceo of cte restaurants. that is the owner of hardee's and carl's jr.. theresa may's latest victory may cost her down the road. her only concession is that parliament should get an early vote on the final agreement. the question is whether that could be a costly move that could eventually the rail may's brexit strategy. a day after northeastern u.s. got a taste of spring with temperatures in the 60's, winter has returned. you are looking at a live photo there. some areas may end up getting 18 inches of snow. new york is expected to get a foot. school has been canceled in a number of cities, and airlines have canceled several thousand

flights in anticipation. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much, taylor riggs. it is a big day. fourth-quarter earnings. we are joined by someone who is finance.'s head of when you look at the italian banking system, you know the industry like no one else. why are we not in a better shape than we were at the end of december? if we are not in a position, how crucial is it to get is underway? >> what we saw last year was the that this had to be. with and the banks had to be cleaned up, but that takes a

while. it takes writing on positions, bolstering capital. taken seeing unicredit aggressive approach in doing that. we have had smaller banks struggling to raise the funds privately and having to turn to a bailout of the institutions to bridge that gap. they will clean up the balance sheet, but they need to fill up the capital after that. francine: they said they wanted to raise 13 billion euros in capital. there was a feeling in the market that they would get away with it and make a success of it. still the same feeling now? elisa: i think so. they know they have investors investors, from what we are hearing. that is reflected in the share price. unicredit is italy's biggest bank, and it has a different proposition. that is a proposition for what the smaller lenders could offer.

that is where we see smaller lenders having no choice but to turn to a state backing. francine: what do we have to stop talking about the discount and the widening spread between italy and germany? elisa: we are not sure how quickly it will be. we still have to hear back from european authorities about the details of this bailout and whether it can go ahead with compensation for some of the creditors that includes retail investors. until we know that, the company is going through a restructuring plan, but it needs to submit for those authorities. a lot unknowns still until we get there. tom: help me here with unicredit's chart and the reality of the cram down that is coming. this is an ugly chart. down we go with a massive regression in share price. what form will this cash call take? will it be a steal at gunpoint?

will it be out to the street, where people make a decision to acquire shares in the resident dilutelders -- and present shareholders, or will it be a cram down where people are taken to take shares at government gunpoint? elisa: a combination of new and existing investors. the sheer scale is probably too much for existing shareholders. the foundations that have long been the linchpin of the base. what we are seeing in the market is the share price points to there being support for the offering, which would lead to new investors coming in. tom: right. is the price for the new investors a forced combination of italian banks, which end up being a synergy of 10 or 15% on the expense side? is that what happens after the cash call? elisa: what happens after the

catch call is you have banks that is much cleaner, positioned to be potentially growing. having said that, the ceo has been quite cautious. that has been welcomed by the market. francine: let me bring you over to my chart. this is a bloomberg showing difference in european banks in white and the s&p financial industry. this is the u.s. versus european banks. went to europe start to normalize a little bit -- when does europe start to normalize a little bit? elisa: there is a few things going on that are different for you arek, but overall, looking at the capital situation, regulation that is still uncertain, and that of course could mean more capital for some banks, some more than others, and in some instances, you have legacy issues that way on investors -- weigh on

investors and the uncertainty ahead. francine: thank you so much as always for joining us on "surveillance." in new york stays with us. we will be talking more about the markets. we also talk about german banks. commerce bank chief financial officer. will be talking to him about business models -- we will be talking to him about business models. this is bloomberg. ♪

we make jokes of it, but it is serious. a significant snowstorm to hit new york and boston. i believe boston hit harder.

reports on bloomberg radio, look for that for all of you in cars this morning. francine, this is serious. up to 18 inches in the northeast. it is a good old february nor'easter, but it begins in new york today. a lot of school closings. please check international and domestic airlines because they are already adapting and adjusting to this. right now, we need to go to germany. this is an important conversation on germanic banking. here is matthew miller. matthew: thank you very much, tom. 2016, you told us negative interest rates took about 200 million euros off of your revenue. if we had a 1% rise in interest rates, that could add one billion euros to revenue over

the next four years. are you optimistic at all that we are turning back to normalization and interest rate -- in interest rates? >> we have seen a move in the curve that it got steeper, but the basic issue that we all have is the very flat and below zero part of the curve. in that sense, moving out of the negative territory would obviously be very beneficial, especially for us, which we are heavily geared towards deposit. thatikelihood of unfortunately since i do not have my crystal ball with me, it is not in the near term. matthew: levy talk about the european banking industry. because of the interest rates situation, is there a sense of urgency towards consolidation in european banking?

pressure the obvious pressures on revenues in total lead to the question, and that is where consolidation is one solution, not the only one, and in that sense, consolidation is where a lot of people at least try to create a little bit of speculation. for us, the answer is pretty clear. we have set our program to make the bank faster, more efficient, and a lot better. that will increase our profitability. matthew: you are facing competition from a digital upstart. it is the trendy name they are using now. banking can be done faster, cheaper, with fewer people. how does a switch to digitalization look for commerzbank? can you do a quick and of? stephan: we have a lot of

exposure to it since we have our up, whoure capital set are actively investing in these things. for us, a little bit to learn. a general, i would say yes, fresh start which has no regulatory history and can start do have a certain coverage, but my only normally small parts of the chain of what the customer wants. but still,ncerned, there is a lot to learn for us. matthew: can you add these capabilities by buying startups? you added one million customers last year. now you have 12 million in germany. you want to add 2 million. can you buy a lot of the customers? stephan: we can discuss whether

we by some of the technology. in places, we have done so. that has played very well. on the other hand, we have our own capabilities in developing i.t. not to mention some of the apps. we were one of the first banks to be on the smart watch. there is a lot of in-house capability. we will, as part of our strategy, set of our digital campus. already 300 people working there. they will work in a very typical type of approach. we will see some very good well.s as there as matthew: this is a very sophisticated derivatives business. your attempt to get back to basics in banking, but they make things like etf's, which the kids are using these days. the business is doing well. why do you want to get out of that business? stephan: the business did very well. that is not the reason we want to exit the business.

it is the regulatory complication and to a certain complexity,.t. which is something going forward will be more difficult for us. non-bankhy we think a is a better owner to this successful business. what we will do in 2017 is have a technical set of, having i.t. an i.t. set up, and have a license to work to the end of 2017 and bring it to market in 2018. matthew: i have to ask you about the political situation in europe. how hard is it as a cfo of a major european bank to deal with the possibility of a le pen win? stephan: i think the likelihood two of the dire

scenarios is very low. people like to spend late on these things, and i understand that, but that is not something really on the agenda. nevertheless, i do not have a crystal ball and do not know what the elections will look like in france. matthew: thank you very much for your time. francine, i will toss it back to you. francine: thank you. we are back with michael darda. he is in our new york office. we were talking a little bit about the italian banks, germany with, as bank. -- with commenzbank. we understand there may be a lot of deregulation. they have a huge advantage. we are not on a level playing field anymore. michael: great question. they way they would start it up from a valuation perspective is ifvaluations of -- is valuations are lower. they tend to be lower.

they are below their five or 10 year average. i think the euro area is also enjoying a moderate cyclical upswing. if we look at confidence data or some of the monetary indicators, we are seeing decent growth in broad money. a huge recent run-up based on expectations of a big regulatory rollback, which may not be in the cards. tom: you have the gift that keeps on giving, which is curve steepening. that helps everybody. did you predict curve steepening? do you predict malaise? if the fed is raising rates this year to or three times, the curve is almost certainly going to flatten. curve steepening we saw in the latter part of last

year has probably run its course unless the fed is going to do less than what is baked into the market. they have a chance of doing a bit more. tom: that observation is important. the two-year coming up while the 0-year staying where it is, that would be a delay and gives a number of people that we speak to pause. when we show you new technology, particularly for global wall street. this is cool in our dungeon here at the death star. we are working on tv go. what is great is you can see a chart. you can click on it, and it brings out where we were 20 minutes ago or 40 minutes ago, and you can take a charge and bring it over to your bloomberg terminal. this will save your job at 2:00 p.m. this afternoon. that is all you know. this is a job employment retention of francine lacqua and

tom keene. use tv go to save your job. also, watch out for the snow this morning in new york. this is bloomberg. ♪

francine: london cold with wintry showers. in the east, brighter than the west. for once, you have worst weather in new york. let us bring up the snow pictures. there we go. we look sunny and tropical in london compared to what you have. tom: we will be at the pierre hotel on bloomberg radio. it is a winter wonderland this morning. let me go forex report. euro underr 107 -- 107. stronger yen. weaker euro over the last few days. with us, michael darda. you have been wonderful at linking in nominal gdp economics

and the idea of the markets. let's do that. i was single best chart this morning is the idea of a trade weighted real broughad dollar. i don't think this is as known as it should be. the leg up onha, the daughter has been substantial. michael: on the back of the election and a big surge, the expectation is faster growth, higher rates, more fed tightening. this is a critical question for, in particular, emerging markets, commodities, and anyone levered to those asset classes. tom: what is critical here, michael, bring up the chart again. back here is the plaza accord. if we were to go down fifth avenue, if we had a pierre

accord, when we get here, a trump strong dollar, the idea is emerging markets will have to be invited to the pr hotel unlike years ago. michael: right. certainly china would. this is a big headwind for china if the dollar starts to store the way it did in 2015 going into 2017. the depreciation of the chinese currency was the result of the soaring dollar. you can see that in the collapse of their foreign exchange reserves, which is ongoing. when the administration says china is devaluing its currency, not really. they are trying to prevent it from falling faster than it otherwise would. that tends to deflate global liquidity if you will. moving forward, the question is, is the fed likely to hike more than what is in the faed funds future market?

if there is, there is a potential for the dollar and headwind for the previously mentioned investment areas. francine: right. what happens to the dollar if we see a full blown out trade war with china? michael: well, if that is the case, difficult to say, but probably would be bearish if it reduces u.s. and global growth expectations. a lot of it would have to do with how the fed responds to such a thing. moving down the path to trade really not what we want to be discussing doing if we are concerned about headwinds like the slowdown in productivity growth. you don't reverse that with contractionary retro policies. francine: michael, would that lead to recession worldwide? michael: i don't think it would lead to recession worldwide, but it would be a drag on economic efficiency. we cannot afford that after the slowdown in productivity that

has already taken place. tom: thank you so much. coca-cola out with earnings. some really interesting organic revenue mix. it is up pretty well, even while revenues struggled. just out moments ago. you see that across the bloomberg terminal. michael darda and i. our our breakfast, pimm fox joining us. michael will join us here as well for the council on foreign relations. if you are in new york, boston must a safe. boston, stay safe. ♪

withthe u.s. president

first direct communication since election that -- the probability of brexit. stock markets go nowhere and treasuries complete the longest rally since june of last year. this is "bloomberg daybreak." the markets looking like this. futures positive this morning. up .2% on the s&p 500. a decent session on the stoxx 600 in europe. after six days of dollar strength, will we get a seventh? alix: twitter out with earnings. coming in a bit light in terms of revenue. $717 million. $740stimate was for million. earnings were better than estimated.