♪ >> and growth spurt, japan's economy expands for a fourth straight quarter as shinzo abe tackles trade tensions. reject a bid to reform corporate tax, government looking for new ways to stay competitive. rbs said to plan more than one billion pounds of cost savings by cutting jobs and closing branches. welcome to bloomberg

"daybreak: europe". i am anna edwards. manus: i am manus cranny. this is where does dollar-yen go. a romance between donald trump and shinzo abe, the market likes what it has seen on the golf course and front steps of the white house, so where does dollar-yen go? 115? net short positions have been reduced, asset managers have reduced positions, so might be running into a resistance level. does that dictate where dollar-yan gomes? we will talk about that it. they could guide

risk sentiment, cpi numbers or capitol hill. the risk rate, dollar-yen , in terms of risk sentiment, watching out for what janet yellen has to say. stanley fischer talking about concerns. the asx 200 up .7%. rio tinto hitting a three-year high. manus: is it a dollar-yen story or dollars story? we have not seen a winning streak on the dollar like this since early november, all see markets moving, but look at that iron ore, the highest in two years. you have a surge in china to the highest level and 13 months, 12.5% last week, this is where the big bang comes, 13 analysts

say that will be down each quarter this year. up 16% over been the past five sessions, adding two games last week, and the copper price as well, up again. london, surging copper prices the biggest since 2013. we will get an fx perspective as well. let's go to bloomberg first word news with shery ahn. korea, japan, and the u.s. have requested a un meeting overcil mincin north korea's missile launch. the missile traveled 500 kilometers before splashing down in the sea of japan. japanese prime minister shinzo abe a commented on the issue with u.s. president donald trump. >> president trump assured me

that the united states will always stand with japan 100%. the president and i completely share the view that we are going to promote further cooperation between our two nations and further reinforce our alliance. grown japan's economy has for a fourth quarter in a row, driven by exports, gdp rose 5.2% through december, domestic consumption was flat, minimal wage increases constrained consumer spending. the figures underscore how important it is for prime minister shinzo abe to ease tensions with the trump administration's over trade. swiss voters have rejected a government plan to reform taxation after opponents labeled the reform a series of complicated tax tricks. 41%, due to international pressure on a switzerland needs to give special breaks for multinationals which generates

billions in tax revenue and employs 150,000 people in the country of 8 million. rbs is preparing to cut more than one billion pounds in annual operating costs. according to a person familiar with the matter, senior executives believe the edinburgh-based vendor has more staff than it requires and will cut more jobs. share new plans to meet profit targets when it releases annual results next week. aswalter steinmeyer elected germany's 12th postwar president. the former german minister was a vocal critic of donald trump during the u.s. campaign. the social democrat emerged as the candidate of angela merkel's ruling coalition as the party sought to avoid a political spat over the appointment in an election year. tens of thousands of romanians took to the streets of major cities once again yesterday. more than 50,000 people urging down,binet to step

rallied around romania with 50,000 in front of the government building in bucharest. and an attempt to stem the anger, the prime minister has reversed controversial legal measures seen as damaging to anti-graft efforts, and the justice minister later quit. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. you can find more stories on the bloomberg at top . thank you very much. asian stocks, copper on the move, iron ore pumping away. take it away juliette saly, just how bullish is asia? bullish, they regional index of the highest level since july 2015, taking the lead from the u.s. on friday, but that surge in the iron or contract and copper helping the materials players.

rio tinto closed at a three-year high, but fortescue metals, a top performer come up over 6% on that rally, helping the asx 200 gain .7%, and some solid conviction in the hong kong markets. chinese h-shares on their longest winning streak in two months. buying inad-based that market. in japan, the economic data for fourth-quarter gdp showing once again some expansion, fueled by exports, weaker than was expected, 1% in the quarter, but strength coming through from export players on the back , so it is a story of investors buying into those assets and dumping safe havens today. the yen down, and selling coming through in gold and the asian session, so down about .4%, gold holding around $1230 an ounce.

anna: thank you very much. let's stick to the currency markets. the dollar has climbed to a two-week high against the yen, a tensions shifted to donald trump's promise tax plan. the u.s. president refrained from criticizing japan currency policy at meetings with prime minister shinzo abe. let's bring in simon derek. it is fascinating to see. this was the line we used in some stories about a bro-mance. to that end, the market seems to have taken this as a constructive meeting. >> i think that is right.

over the last 12 months, japan has had three separate times cited by president trump with regards to currency and trying to influence the currency, and withen we had that comment the big pharma leaders, people thought that could be parsed and parcel to this negotiation. last week, we started to see more of the multi-faceted relationship, the defensive side of things started to kick in, and this seemed like an incredibly strong relationship. the worst of concerns where you would see currency manipulation mentioned. japanese officials thought that could be the case, so they are happy that has not been mentioned. them with somees comfort, but nevertheless, there is still the fact that there will be negotiations between the deputies on trade, and as part would you not be

surprised if currency became an issue within that. anna: it certainly could be one of the talking points. geopolitically, the north korean missile test made it on the radar over the weekend. interesting to see how this gave shinzo abe and donald trump to stand united behind. that leads you to thinking how multifaceted that relationship between the u.s. and china will have to be. diffusion we saw some of that tension, and now trump having to leave on china for assistance geopolitically with north korea. there is the sense that may be some of the tension has abated on those geopolitical concerns. >> that complexity has always been there. all you see right now is may be the new administration coming to terms with that complexity and realizing that there has to be

those rather more nuanced relationships. i thought the north korean test was interesting because it wasn't a long-range missile. it was an intermediate-range missile, so maybe it was not north korea pushing the limits of the relationship, therefore from that perspective, maybe a bit more of a risky atmosphere. manus: one of the debates is that politics ultimate dick dictate the value of the yen. the consensus is 117. how do you look at it will the yen left the whole currency,in, i haven and politics will trump trump? years, the last 20 odd it is either 120 or 100 come at so i don't think we will be here in six months time. thosehink you will find

pressures with regard to what happens with the yen starting to reemerge? from the u.s. administration, but from other g-20 members. this time last year, g-20 was making explicit comments about what japan was doing with its currency, making explicit less currency manipulation. would you be that surprised at if thating in march topic started to reemerge? could i imagine more pressure on japan to allow the currency to move more freely? yes, i can. anna: we were talking about leaving that currency conversation, which suggested will be of feature. an interesting story about treasuries, japan the largest holder of treasuries. investors help their stakes by the most in almost four years despite reassessments of appetite for u.s. treasuries,

international investors, what is their take on trump? >> that has been a theme that has been running since late 2013. if you look at for example what china has been doing, mainland china has reduced its holdings to one trillion. there is a lot of that taking place in the summer of last year , so it is before this administration came in, so i think this is rather more the reassessment of the administration and the u.s. bond market rather than comments about administrations per se. yellendo you think janet will intimate that march is really live? , because fort it her to get to the point of getting the market truly believing that march is a move from ultra low expectations would lead to a lot of market disruption, so i think she will be cautious as she has been for the last couple of weeks.

manus: she will walk that line. highlights for your week ahead? anna: donald trump hosts justin trudeau today. tomorrow, janet yellen appears before the senate banking committee, plus three other fed speakers at several events. manus: israel's benjamin netanyahu on wednesday heading to the white house. anna: friday sees the start of a new security conference, attendees including mike pence and donald tusk. quarter fourth straight of growth for the world's third-largest economy, the latest on the numbers like japan -- live from japan. anna: as swiss voters reject reform, we ask what is next. manus: with legislation now clear of the u.s. house of commons, we focus on the path of brexit and what it means for markets. this is bloomberg. ♪

anna: welcome back. it is to: 17 in the afternoon in hong kong. i thought things were a little blurry. things have cleared up miraculously. , commodityng up .3% related companies in particular in australia. let's get the bloomberg business flash. juliette: thank you. president trump plans to nominate david malpass as treasury undersecretary for international affairs. if confirmed, his first job would be to guide currency policy. he would bring extensive government expands to a team that has little public service background. as deputysly served assistant secretary in the treasury and state departments. as special prosecutor is again overioning jay y. lee

allegations, including bribery and investment. the defect oh head of the group and vice chairman was called in for questioning's this morning along with two other executives, .ncluding samsung president it deals another blow to south korea's biggest business empire. forecasts fordefy a price collapse as china remain strong, and the top buyer boosts demand. that is according to rio tinto's cfo. christopher lynch spoke to bloomberg daybreak australia. momentink the key at the is the consensus price is below the spot price. but that canal, cut in two directions as well, so i would not say it is paul off a cliff or anything like that. juliette: that is your bloomberg business flash. manus: thank you.

japan's economy expanded, go on, japan, by 1%, the first time the nation has had four consecutive quarters of growth in three years. demand and export gains, the yen falling today. let's bring in brian fowler in japan with the story. when you look at the data on the japanese economy, a lot of this is driven, but how sustainable is the picture? >> good question. sustainable, i can say definitively the answer is yes and no and maybe for all of that. as you said, we had good export numbers, and that was driven in part by the weekend, that boosted capital spending and the weakcompanies -- yen, that boosted capital spending in japanese companies. inestic consumption came

weaker, and there is some possibility that weakness will persist as we have seen wages , particularly variable pay in the form of bonuses, so it is hard to imagine that will turn around in the coming quarter. january-march, public investment , japan still finishing its ¥28 trillion the fiscal stimulus plan. then of course, the big question is what will happen with trade as the two nations push forward with their bilateral relationship. dids: tell me this, how they think of donald trump's hug of shinzo abe and playing golf with him? meeting got widespread coverage here, the biggest story of the year for japan. i don't know if you recall, but the media did not have access to the golf course. this is the evening edition of

the nikkei, and while the media was on the golf course, one of shinzo abe's staffers took a photograph exchanging high fives . it looks like the pot dealing indicates that may be president trump nailed a long putt. the headline is no demands on trade, no demands on currencies, japan that was the big news of the meeting, coming away without getting beaten up, and that is very good news. anna: brian, thank you very much. i golf summary as well. thank you for that. let's get back to our guests. we talked about the relationship between donald trump tension so gdp numbers,anese does he give you any reason to change your view, where the boj goes?

it seems the international factors driving this number, the weaker yen helpful, but domestically challenges. >> the yen was helpful. you saw the export numbers helping in the growth. we wereet back to what talking about earlier, what has driven the yen. it is hard not to disassociate the performance of the yen with what the boj has done. here we are, the middle of yield control, and the yen remains under pressure as long as they continue to do that. manus: you are a very good guest. he plays the game, doesn't he? this is where the yield curve was in japan when they announced yield controls. this is where we are now. we will get u.s. inflation this week, japanese inflation also rising, up over .5%. this will come under a challenge, but candid boj, it has enough in its back pocket.

they will keep these yields under control? >> yes, that is absolutely right. if you look at the details of when they have come out, since october, the two times when they have announced a limited purchase or the willingness to purchase come that has come when you have had that spiking yields and higher in the yen. since they announced it, you see the reversal of both. aty are incredibly good being able to massage the situation, and will continue to do so until inflation is at high levels or you start to get that g-20 pressure on them to stop using the currency as a means of improving exports. anna: can you see that boj changing that yield curve targeting plan? the marketsd the are no match for the boj, but with the boj given a

reflationary environment, with they want to see that yield drift higher than 0%? >> at some point, yes. there is a fair argument that if you look at the way the japanese economy is going at the moment, then perhaps you would have a height yield curve anyway. the problem is if you do that, the yield hungry investors out there will start taking dollar-yen back down to the 100 level. do i think they could allow to go higher? yes. are they going to? no. manus: let's talk about the dollar. there will be this argument, consensus says 117. is the yen going to the be the currency of choice when it comes to the dollar? the dollar for the ninth day in a row on a rebound, would you make of this momentum? >> it is slightly surprising.

the move behind it is the talk about tax and the fiscal side, but i highlight the opposite headlinech is where inflation is, the fed funds rate 2007,s similar to late so this is not particularly an environment where dollar would do particular well, so it is about the expectations on what will happen further on the yield curve that is driving dollar at the moment. anna: thank you for your thoughts. in the talk about tax conversation around switzerland in a moment has welcome of it interesting how tax has come back on the radar as a competitive factor between nations. thank you. -- manus: tax issues, the swiss voters have gone to the polls and have rejected a corporate tax reform bill in yesterday's

referendum. lawmakers want a plan b. anna: we had to zürich for the latest of elements over the weekend. this is bloomberg. ♪

manus: they shot of the emperor's palace, the dollar-yen on the move, more risk of desire in the markets this morning, the dollar up, and the yen down by .3%. the bullish dollar bets the least in four months. this is a new addition of "daybreak: europe". you know how to get it. it is on your bloomberg. cute,the cover story is overseas demand for u.s. treasuries. chemistry,eard the japanese dumping u.s. government .ebt by the most in four years

returns were the worst on record last quarter. there is still a differential, 10 times more on your u.s. treasuries than jgb's. rbs plan to potentially cut more than one million pounds of annual operating costs. rbs is looking to eliminate jobs as it seeks to bolster profitability. a spokeswoman for the bank declined to comment on the plans. daybreak focuses on the donald trump-shinzo abe b ro-mance following a two-day visit following five hours on the golf course and what the talks could mean, including the key issue of trade. manus: markets, markets, markets, dollar-yen on the move. good morning. convictionrisk on,

and the reflation trade, what ever you call it, money moving into equities in the asian session, stocks extending that global rally. it is a broad-based rally. also money moving to the dollar, slightly stronger after snapping a six-week losing streak, the dollar gained against most major peers. this week, janet yellen testifying before congress, u.s. inflation data, and meanwhile, higher, and conviction in commodities, so iron ore has surged 16% of the past five sessions, up some 6% there, and copper also up more than 5% if you look at shanghai futures, iron ore trading at its highest in more then two years, so not much of a surprise that it is material stocks leading the gains on the msci index,

followed by energy stocks. trading at its highest since july 2015, although still lagging behind the s&p 500, which hit a new record on friday. point 67, the3 yen the worst performer against the dollar today, and although we have seen some yen strength over the past two months, the dollar is retaking its gains, because dollar-yen touching a two-week high today while the 10 year yield on the treasury is up one basis point. trumphe weekend, donald refrain from criticizing japan's currency policy in his meetings with shinzo abe and attention has shifted towards trump's tax plan, and we talked about that reflation trade already. quickly copper, the biggest jump more on the friday, blog, check it out, a macro

strategist in singapore highlighting this chart, saying copper is likely to drive the aussie dollar higher. anna: swiss voters have rejected a bid to reform the country's corporate taxes, forcing the government to find another plan to keep the country internationally competitive. manus: that comes as it plans to end this practice of giving tax breaks to multinationals due to international pressure. what is the government going to do now? this is a little shock. the polls have not got this quite right again. >> indeed. met, the finance minister yesterday to convene a tax force that will meet in coming days, and in a best case scenario, they might have a draft bill by the end of this year, but exactly what the new plan will consist of, nobody knows. what thenobody knows new plan will consist of what

does this mean for multinationals in switzerland? more uncertainty i guess? >> exactly. it is certainly some bad news, but in this there will be a creeping process. nevertheless, tax experts say that companies will probably be postponing investment or moving investment from switzerland to other countries. manus: thank you. let's see what the repercussions art from this. that is the latest from the swiss economy. i think one of the lines in our story is this populism reaching the landlocked country of switzerland, but this rejection is potentially going to evoke some response from the borders around them, isn't it? everybody wants a more level playing field on taxes. a topic thatat is

has been on and off within europe for the last eight years. 2009, 2010, the hotorate tax rate was a sough issue in ireland. the topic has come up with regards to the u.k., so the idea of using corporate tax rates as a means by which to effectively improve your competitive position, in currency for example, is essential. this was public rejected -- the swiss public rejected it wholeheartedly. it shows this rejection if you mainstream government, and that is the message there. the interesting bit will be even in the smallest way, our politicians elsewhere in mainstream continental europe

looking at this and wondering whether that has an impact or reflects a populist sentiment there as well. anna: so the populist debate in switzerland seems to be a live, but also what it is doing outside switzerland, and that is something the central bank will be mindful love. that, an interesting piece on the bloomberg that the swiss franc been higher in eight of the last 10 februarys. what is going through the mind at the moment as they watch populism drive interest in their currency? >> it's probably when we start to see the eurozone crisis. february is typically when these pressures started to build, and that's the point. when you start to see increased upward pressures on the swiss franc, if i was as in the right now, i would look at what has

happened domestically, but my number one concern will be the election in france, holland, withe, italy, something the federal election in germany. those are the things i am itried about just in case brings pressure on the swiss franc people look to safe havens . it is always the same story. number had a note out on -- nomura had a note out this morning on parity. this is rebates, swiss franc against the dollar, swiss franc against the euro. the forced to move on the cap again? >> i think there will be increased pressure. always ends badly.

don't think that is what we will see. the problem is the alternative is increasingly tough. the more you move into negative territory, the more you have to pass that along to retail investors, and retail investors will react badly to this. a culmination of innovation and continuing with the policy they have at the moment. that's the problem with an open economy in the middle of europe, facing political pressures around them. pressures,ing of netherlands, a float we need to focus on, the dutch freedom party leader speaking to dutch broadcasters and making these comments about the extent to which you can't a nor those who will vote in his party. partiesnk that many don't want to burn their hands at my party, but i know one thing, if the voter makes the party big, not 2-3 seats, but

really big, then they will simply have to for two reasons. the first reason is that you cannot sideline two and half million people. you can hate me or the party, but you cannot sideline those people. anna: making the point that populist politics don't have to be in power to have an influence on the agenda in europe. >> i think that across europe, that story will be key. if you, it is easy enough to see , it is unlikely he will be in a position to form a coalition, but nevertheless, there are other places where the races are closer. france is a good example of that. italy is an equally good example of that, whereby populist boatscs winning

will bring pressure on mainstream politicians to take notice of that. it will be interesting to see how the french presidential election works its way out. what is interesting is this is coming up to the point whereby we have issues with greece once again. group meetingo taking place at the end of this month, the last before the dutch elections. if you're going to start dealing with this very sensitive topic of debt relief, you will have to becauseh it quickly you have these populist pressure starting to rise. nd dutchhe germans a have made their sentiment clear on big reach situation. pen a sittingle to power. where are we at your shop? as the tension mounts, would you buy three-month volatility to protect yourself as one should

have and could have done over the trump and brexit moment? >> yes, absolutely. there isall, incredible uncertainty about poland. aboutk we have learned all too well in europe, in the u.k., in the u.s., and whilst people we look at polling in elections, certainly there are academic concerns about the accuracy of that polling, so to that marine le pen will not win the second ground is too simple. that is an issue, but manus: you don't need to be in power. >> absolutely not. greek throw that in with concerns coming back again and the fact that you know that during the height of these crises, the euro comes under pressure, then yes, buying volatility to hedge that makes perfect sense. anna: thank you very much.

remember, if you are bloomberg the show you can watch using tv , and video stream, and follow the charts and functions we use. you can reach up to the show directly by clicking on the button at the bottom of your screen sending messages to our show producers. manus: easy questions on a monday and friday. in between, you can be more aggressive. coming up, labor's leader in the house of lords says it won't try to block the government brexit bill. we will look at the uk's path to leaving the eu. surgingo tinto says iron ore prices won't fall off a cliff. we bring our interview with the ceo. climbs to aollar two-week high, we look forward to janet yellen's testimony to congress. this is bloomberg. ♪

anna: welcome back. this is "bloomberg daybreak: europe." bloomberg business flash headlines. trump nominates david malpass as treasury undersecretary for international affairs. if confirmed, his first job when be to guide currency policy. he would bring extensive government experience to a team that has little public service background. he previously served as deputy assistant secretary in the treasury and state departments. a special prosecutor questioning jay y. lee under allegations of bribery and embezzlement. the de facto head of the samsung group was called in for

questioning this morning along with two other executives, including samsung electronics president. the move potentially deals another blow to south korea's against a business empire. iron ore will defy forecast for a price collapse as china's economy remains strong and boosts demand for higher quality imports. that is according to christopher lynch speaking to bloomberg daybreak australia. it is thatthink dramatic. the key at the moment, the consensus prices below the spot price, that is obvious. that is unusual, but that can cut from two directions as well, so i would not since going to fall off a cliff or anything like that. juliette: that is your bloomberg business flash. manus: thank you very much. labor's leader in the u.k. house of lords says the upper house won't tried to hold prime

minister may's plan to trigger britain's exit from the eu at the end of march. anna: they are to debate the law next week. simon derrick is still with us. we have a graphic that underlines the weak performance in the pound against other currencies since june 23. extent many people have pound hase way the been that relief valve for the u.k. economy should the export sector be of it? >> yes. i'm one of the people that felt sterling did what it was supposed to do. historically, the sterling has been the release valve in the economy. 1930's, itthe late

has been allowed to go, so yes, we did what we were supposed to do. again, early october as well, and should exporters therefore take advantage of that? yes, of course. how is up to them, but that seems to be fair. what is interesting to note is takenith sterling having that strain, we've developed stability at the current level, so a lot of the political concerns have dissipated. that struckne thing me over the weekend, what exporters have not done, raise their prices by 12% in the past year, so rather than nipping away at prices and grabbing market share, they have raised prices by 12%. the contra side is that input prices have gone up by 19%.

dropis the reality of the in sterling. they are not using it to win market share. folly or smart? >> it is a nice problem to have an a lot of ways. any accusations the u.k. is trying to use currency as a means of gaining competitive advantage, they are not trying to undercut other players out there, so from that perspective, you could say that britain has made a smart move. whether they are thinking about that is entirely different come of it helps to defend the u.k. from those kinds of accusations. anna: thank you one thing we will be watching in the u.k. to commodity related stocks react. you saw a rio tinto at a three year high in terms of share trading in australia. that company says their balance sheet is in great straight as it emerges from an industrywide downturn. announcedt year they

a bigger dividend and share buyback. tear,re has been on a quite literally. mr. for lunch spoke to daybreak australia. work've done a lot of ourselves to put ourselves in a position to benefit from higher prices. we can afford to rely on the fact that they will be there forever. we plan around a series of scenarios that includes a downside case on commodity prices, so what we have to make sure we do is control the factors of production we can, cost structures in good shape, balance sheet in great shape, and we are launching a productivity drive across the business that will hopefully keep his in that position and allow us to further improve production, so that is the way we go about it. we like the idea of higher prices, but there's not a lot you can do about that. i can't give you any justification why it is two dollars higher today than yesterday. >> not even the austrian

government, but analyst saying we will see that fall to the low 50's? >> i don't think it is that dramatic. the key at the moment is that consensus prices below spot price. that is obvious. that is unusual, but that can cut from two directions as well, so i would not say it will fall off a cliff or anything like that, but the key issue really being robust weather prices go up, down, or sideways. hard to predict prices, but analysts say much of this depends on how demand from china, how long that pace will keep up. do expect at least in china the same level of pace that we saw last year or an acceleration? there isi think another fundamental shift going on in china, the preference to and lessefficient polluting in the of the industry, so our customer base

is being encouraged. the more efficient mills, they are geared for the higher-quality iron inputs, and i think you are seeing some of that come through. there is also correlation with higher prices for metallurgical , which also demands the higher-quality are in unit, so when you see a port stock buildup at the moment, it is the lower quality product that is causing the increase. >> some are saying, china other than being the factor might also be the biggest risk as well and we might see a peak in demand by 2020 would you concur? i think the chinese economy is a well run economy. the policy measures to take hold and they do have an effect. if we were talking about how , weness a year or 23 ago would have been focused primarily on china and mostly

china-centric. today, we think about the total geopolitics, and china is part of that, but our view on china is that it is a very, very well run economy and we expected to continue. the cfo of rio tinto talking about their business and commodity prices. show that was from our new , bloomberg daybreak: europe straight. daybreak australia. interesting some of these on the bloomberg, the big moves in iron ore, prices jumping to a to my tie. -- two at two month high. is that something the austrian can do well out of? >> at the margin, it helps. it has changed remarkably over the last decade. pre-2010, it was a proxy for chinese growth.

you could track gdp and china and that, one in the same thing. it changed for the canadian dollar around 2010 as well, and one reason was because it becomes one of the world's most popular reserve currencies. so when foreign exchange growing,were outperforming relative to what you would have thought previously because chinese growth was not great through those times. when it changed in 2014, the currency fell off a cliff. right now, do a think you will see a major move higher? probably not. the simple reason is that reserves are not growing that much. anna: thank you very much. bill wright in france saying concern about a france-euro exit moving markets. borrowing costs below, and the

euro protects. back, we willcome talk about trump and what that means for markets. this is bloomberg. ♪

growth spurt, japan's economy expands for a fourth straight quarter as shinzo abe discusses trade with trump. swiss voters rejected to reform corporate tax, sending the government for new ways to stay competitive. manus: boosting the bottom line, rbs said to land a one billion pound cost savings by cutting jobs and closing branches. ♪ you are watching "bloomberg daybreak: europe" in

london. i am manus cranny. anna: i am and edwards. risk on is a good description. strong performance from asia-pacific. that risk appetite spilling into the european session. start,a brisk commodities ratcheting higher. that is what we try to reflect in this risk radar, copper, iron ore. there are views on how momentum can continue in the market. ,ollar-yen front and center there wasn't a devaluation conversation in the open between donald trump and shinzo abe. leverage funds have reduced net short positions on dollar-yen, asset managers as well on dollar-yen. can it make it to 115? year, 117 is the consensus on the upside, and a

couple of houses are saying 100 on the downside. anna: interest in equities in the australian market. it is also around the commodity story. currencies,ties, dollar, yen, then we should be mindful on the calendar this week. u.s. inflation data wednesday book ended by janet yellen. will she talk about march being a live, the fiscal uncertainties? all that as we look at risk appetite across markets. inus: iron ore the highest momus two years, 13 analyst saying iron ore will drop each quarter throughout the year. course chugging along. inventories in london, copper stockpiles falling to the lowest in two months. there is a squeeze and strikes going through. there is the bond market as well, shift into equities.

anna: let's get bloomberg first word news with juliette saly. korea, japan,h and the u.s. have requested a un security council meeting over north korea's ballistic missile launch according to yonhap news. it launched a missile the traveled 500 kilometers before splashing down in the sea of japan. during ae commented press conference with u.s. president donald trump. trump assured me that the united states will always stand with japan 100%. the president and i completely sure the view that we are going to promote further cooperation between our two nations and further reinforce our alliance. japan's economy has grown for a fourth quarter in a row, driven by exports. pointse .2 percentage

even while domestic consumption was flat as minimum wage increases constrained consumer expending. the figures underscore how an important it is for shinzo abe to ease trade tensions with the trump administration. swiss voters have rejected the government's plan to reform corporate taxation after opponents labeled reform a series of complicated tax tricks. 59% to 41%. pressures,rnational switzerland needs to give up special breaks for multinationals mooch generates tax revenue and employs 150,000 people in a country of 8 million. thanreparing to cut more one billion pounds in annual operating costs. according to a person with knowledge, senior executives believe the lender has more staff than required and will cut jobs. rbs declined to comment, but said it will share new plans to

meet profit targets when it releases results next week. frank-walter steinmeier has been elected as germany's 12th postwar president. the former foreign minister was a critic of donald trump during the campaign. ofemerged as the candidate angela merkel's ruling coalition as they sought to avoid a political spat over the appointment in an election year. people have been asked to evacuate northern california after authorities warned an emergency spillway was in danger of failing and unleashing uncontrolled floodwaters on towns below. sant 150 miles northeast of francisco, it is one of california's largest man-made dam isand the 770 foot the nation's tallest. tens of thousands of romanians took to the streets of major cities, more than 70,000 people

urging the to step down rallied around romania. to stem the anger, the prime minister has reversed controversial legal measures seen as damaging to anti--graph efforts, and the foreign minister later quit. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. you can find more stories on the bloomberg at top . thechina market closing out session, and has closed higher by .6%. some very solid buying on the market in theery region mostly is firmer, the regional index holding at highs we have not seen since july 2015. a lot of this is fueled by those export-driven stocks. the export data out of japan today him about also copper and iron ore prices rallying, sending material players higher,

particularly in australia, fortescue metals up 6%, and rio tinto at its highest level in three years. some downside in india, we await cpi data for january for that country, and some strong movement in the last hour of trade in hong kong. the hang seng is up .5%. h-shares listed in hong kong continuing on that strong rally, the best level in two months, so it has been risk on a cross asia and the copper price rising over 1%, gold sold off significantly, as is the japanese yen, gold down .25% in the asian trading session, and the japanese yen falling, holding around 114, so falling further against the dollar, and we do have that meeting or testimony from janet yellen, so focus on the u.s. dollar this week. euros thank you very much.

anna: let's talk about the dollar. manus: it is hitting a two-week high against the yen as attention shifts to the u.s. president's tax plan. anna: tomorrow and wednesdays testimonies from janet yellen, speaking to lawmakers for the first time since donald trump took the white house. monetaryomes to policy, she is expected to keep the central banks options open. to investors who anticipate a rate hike next month, head of european rate strategy at mizuho international. thank you for coming in. a big week for the u.s., inflation data and janet yellen. ick says she will not kick march into a live position. as you look at the rates market, how do you look at march in terms of potentially being alive meeting for a rate hike? can't rule it out yet.

i can see the probability is falling, and that's based on how data has evolved, but what the where theyconvey his will normalize rates to come and a what point they kick in the holds of re-investments, so for me that is more interesting than the path of fed funds over the next year. anna: that's interesting. it brings into the conversation, the go, showing you international holders of treasuries, but a large section on the right hand side, that is the feds holdings of its own treasury, and that for you is crucial. it is what the fed does to reinvest or otherwise those .oldings

>> as they sell into the market, they will have more of an impact. is something the curve has to price and a much more significant fashion that it has. firstly, if they stop reinvest no longer fed is bidding for a portion of that supply, so every auction we have more market impact. all else being equal, that should push treasury yields up. then think about what that will do. that would tighten financial conditions. for corporate scum everyone involved in dollars, they will have less availability of funds at such a low cost. anna: give us a forecasted they do or do not allow those holdings to run off. end, if they continue to reinvest and don't signal i

stop, then at the year end, 10 year u.s. is 2.6%, where as if they do signal i stop this year could get to 3% come and do that quite easily. significant point is that you would get a steepening of the curve because if you get tighter financial conditions because the fed is no longer buying at the auctions, that implies they do less in terms of rate hikes than they otherwise would be comes to you get a steeper curve for to bring reasons. the other dynamic will be janet yellen's testimony in the middle of the week, and the data, cpi. we have gone point 5% in 2014 to nearly 2.4% this week, so if you take everything you just said and ladle on top of that a propensity or inflation, then that doubles up the negative story, doesn't it? reflation all about and the impact on the nominal yield curve.

it should be negative, pushing yields higher. the thing we have to take into account that everyone looks at technicalts come a point, but just to say base affects will be rising this quarter, but then they will be tromping out, so headline risingon, they will be this court to her, but then they will be starting to drop out and dropping out in a big way in the area, and that will change the reflation story towards the end of the quarter. because oilrop out prices have ramped up and then paused? commodities are still on a tear, copper, iron ore rallying. what theto do with energy prices have done recently, but where inflation was one year ago, and so inflation one year ago was pretty weak and causing bond markets to rally once again. when you do that year-over-year

comparison, your base point was lower, and so it will be lowered next month come up after that, that base effect will be dropping out and the euro was start retracing a bit. bullish,w bearish, how this is the exchange in the yellow come the rest of the commodity currencies, but we have talked about iron ore, copper, rio tinto cfo told is , he is talking his own iron ore,it comes to but when you look at that commodities complex, i am beginning to believe in larry fink, 3% quicker than 2% -- sorry 4% quicker than 2% versus your 3%. our commodities the big worry for you? what is the inflationary driver for the bond market? >> we have for low expectations

for growth, but moderate expectations for inflation for the u.s. curve in particular, so i would agree. if we get into this cycle of rising commodity prices along with the reflationary expectations that trump's fiscal policy could have, then it is the u.s. curve that will lead to steepening. it will drag up european and sterling rates as well, but the degree it can do that on europe because of the amount of idiosyncrasies, political risks, challenges more generally on the growth side for southern europe, then it will not serve to steepen the european you curves as much as the u.s. aboutwe will talk more reflation and our next conversation. thank you very much. stay with us on the program. coming up -- manus: the fourth straight quarter of growth in the world's

third-largest economy. we will bring you the latest from japan. this is bloomberg. ♪

anna: welcome back. this is "bloomberg daybreak: europe." berlin and the sunshine, the brandenburg gate. we are training on the euro-dollar right now. u.s. holding gains near 54 dollars after the iea said opec achieved a record 90% initial compliance with output cuts, while demand grew faster than expected. energy ministers said he is happy with the level of commitment to production cuts. >> i am very happy with the compliance. i think the countries are committed, and we hope that in

the months to come that we see similar or higher level of compliance to the numbers mentioned. juliette: president trump plans to nominate david malpass as treasury undersecretary for international affairs. if confirmed by the senate, his first job would the two guide currency policy. he would bring extensive government experience to a team that has little public service background. he previously served as a deputy assistant secretary in the treasury and state departments. a special prosecutor questioning samsung groups jay y. lee over allegations including bribery and embezzlement. jay y. lee and vice-chairman of samsung electronics was called into questioning along with two other executives, including samsung electronics president. the deal is another blow to south korea's biggest business

empire. that is your bloomberg business flash. manus: thank you very much. let's talk about japan, the ax the economy has expanded by 1%, growth driven by recovery in global demand that field exports, and dollar-yen softer. anna: let's bring in brett miller who joins us with everything we need to know about the japanese story, so what is , andng this growth spurt can it be sustained? it had to do with international factors, didn't it? >> as you mentioned, exports were a part of the good numbers, exports to china and the u.s. we did see some positive news in business spending, which did help gdp. we saw continued weakness in consumer spending in japan, and

that raises a question over the sustainability of gdp going forward. as does the question about trade. protectionism is the big thing on the horizon that could be a risk for japan, and in terms of sustainability for exports, donald trump at the moment. all the cards potentially lie and the trump hand, but it did not come up over the weekend. on the street in japan, how did they react to the trump-abe meet? was positive, no blowback in terms of fx policy, the surplus japan has with the a goodo that had to be result for shinzo abe going into that meeting. thater important thing as the economic dialogue from now on gets passed on to his deputy prime minister and to the vice the united states. that probably take some heat and

spontaneity out of the negotiations, and that should the good thing for japan as it tries to put its case forward. anna: thank you very much. brett miller from tokyo. peter, let's talk about japan. we have had this decent japanese growth data, growing by 1% as global demand drives exports, the weakness in the yen a boost to their. does this leave the boj carrying on with yield target controls? >> i think so. recently, they have been acting to support the level of the 10 year to prevent it from rising too high, and that comes as a bit of a surprise because there was some thought in the market whether the boj was allowing yields to drift higher and start to move away from extreme monetary policy, so recent

confirmation that they are buying in decent amounts reinforces something between zero-tenure basis points, the right level for yields as per the boj's actions. manus: one of the things we are looking at is the flawed money from japan into other bond markets, and that has been a huge driver. the differential between treasuries and jgb's, even if you hedge, i know it was a whopping loss in the last quarter them of it even so, 10 times the amount of return on u.s. treasuries versus jgb's, bigthat is still one of the bulwarks of the market. we talked about the japanese selling in the past couple of months, this is still a big differential trade, isn't it? >> that is interesting, between you to talk about market dynamics here. manus: ok. the comparison is more interesting in the long end of

the jgb curve. your point, 30 your point, that offers you approximate equal yield to the 10 year u.s. if you think about market yieldtion, where these curves are going, i don't think anyone is particularly bearish on jgb's yet, particularly in japan. they are not really buying into this reflation, this rocketing growth there. the recovery story is still viewed as a tell risk rather than a central scenario for most , so i would expect most investors in jgb's are looking at the long end of the yield curve and thinking, look at that. that looks relatively interesting, particularly when compared to the u.s. because the inflationary on the yield comes you have the potential if you are buying the u.s. treasuries with the currency hedge, you still have

the potential for capital losses , and so even though that is not necessarily so much of a consideration, no one really onts to be down on p&l recent investment, so it is a question of waiting for more certainty about where the u.s. yield curve is going and what trump actually means for the curve and whether or not there is this big inflation risk. we think there is a big inflation risk, therefore we would prefer to buy long end jgb's. anna: that chart showing where the jgb curve has moved -- manus: that is september, and this is now. >> you see you have the 1% handle, but look at where the 30-year is. that is not acquainted and's. look at the 20-your point, there if yout of role down, so are looking for kerry and roll down, this is where you will focus. anna: a quick question on

european rates. the ecb governing council likely to be even more vocal in its division. how does that guide the ecb news flow and the rate story? >> on the european curve, you have to price in the potential for a taper possibly premature, and that has a number of really interesting dynamics. it means yield curves have to remain on the steepening path, but it also means that we have to be pricing in the potential for significantly less flow from the ecb over potentially second half of the year, and without that flow, then you have to ask the question, is the peripheral that sustainable. isparticular, italian debt, it sustainable as it was when interest rates were so low? we have to question that. manus: thank you so much for your thoughts this morning.

head of european rate strategy at mizuho international. be prepared for less of a generous ecb, stocks up across europe. "bloomberg daybreak: europe" and the bloomberg market open is up next. ♪

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manus: good morning. welcome. this is the european open. i am guy johnson london. matt miller over in the line -- in berlin. matt, a swiss miss. bern needs a plan b for tax reform. the switzerland safe haven status in doubt. iron or hits a 30 month high as the copper rally continues.