francine: truth trump. second thoughts about financing the u.s. government. with minister shinzo talks donald trump as japan's gdp figures underscore the importance of trade with america. and taxing times for lenders as the drawingack to board as voters reject a plan for corporate taxes. is the safe haven at risk? rbs plans to close branches and

cut jobs. will that be enough to bolster profitability? i am francine lacqua. we have a great show for you, packed full of banking news, macroeconomics, and we talk about trump and treasuries. first, let's look at your equity markets. across-the-board the board, equities extending a rally. copper beating. global stocks extended a rally. you can look ahead to asia. they will provide strength in consumer prices. we are getting speeches from a range of federal reserve officials. the s&p 500 index climbed to a record high on friday. chinese shares trading in hong kong cap to be longest winning streak in two months. european equities heading for the highest closing levels in more than a year. we will get back to that in a second. overall, what is the picture we are seeing?

gold, we will get back to you shortly. first, let's get to the first word news with nejra cehic. japan, andh korea, the u.s. have requested the yuan security council meeting over north korea's ballistic missile launch. pyongyang launched a missile yesterday which traveled 500 kilometers before splashing down in the sea of japan. japan's economy has grown for a fourth quarter in a row, driven , even while domestic consumption was flat, as minimal wage increases constrained consumer spending. this underscores how important it is for prime minister shinzo abe to ease trade tensions with the trump administration. aiss voters have rejected government plan to reform corporate taxation, after opponents labeled the reform a series of complicated tax tricks. voters opposed it by 59%. international pressure, switzerland needs to give up special breaks for

multinationals, which generate billions in tax revenue and employment hundred 50 thousand people in a country of 8 million. at least 130,000 people have been asked to evacuate an area of northern california. authorities warned an emergency spillway in the country's tallest dam was in danger of failing, about 150 miles northeast of san francisco. the lake is one of the largest man-made lakes, and the dam is the nation's tallest. adele has prevailed over beyonce at the grammy industries. >> and the grammy goes to "hello," adele. nejra: the brit beat the american in all three major categories, including record of the year and a problem of the year, winning five awards in total. adele is the first artist to sweep the top three prices more than once, and the second woman

to win album of the year twice. more thans powered by 2600 analysts and journalists in more than 120 countries -- this is bloomberg. francine: creditors are having second thoughts about financing the u.s. government. in japan, the largest holder of treasuries, investors consolidate -- sold their state for the most in four years. moved by the prospect of bigger deficits and more inflation under donald trump, and higher interest rates from the fed. meanwhile, speaking at a university over the weekend, fed vice chair stanley fischer said there is significant uncertainty now on fiscal policy. do not think anybody quite knows what is going to come out of the process, which involves both the administration and the in deciding on fiscal policy and a variety of other things. so at the moment, we are going strictly according to what we

see as our responsibility according to the law. this comes as federal reserve chair janet yellen prepares to give her semiannual testimony to congress this week. let's bring in the chief investment officer at ucla investment management, and a member of a french investment community. x for joining us. james, let me start with you. if you see treasuries and investors nervous about what comes next, where does the 10 year go in the u.s.? james: the uppercase is around three percentage points. a 53 pointthat is basis shift up from where we were at the time of the presidential election. it seems clear to me that the market is not prepared for a shift of that magnitude. i also think it would be dangerous to the equity markets. i agree that 3% is a tipping point where the equity

market will start to be vulnerable. going forward, i think higher inflation is building up and will be what will decide if you want to wait or not wait for this 3% threshold. we believe the market is still a bit too conservative with regard to inflation outlook, that there is more than transitory energy on inflation building up. and for that reason, i think there is a risk there. francine: james, talk to me about this chart. this is basically the amount of treasuries held by foreigners. is there anything donald trump can do to get them back on board? james: i think it is possible a global trend rotation from cash and bonds into equity. however, it is very modest in terms of global play. u.s. bond funds have a quite positive month in december. they had inflows of $7.6 billion. there are not signs of an imminent or ongoing panic. francine: let me bring you over to another bloomberg chart.

this is 3%, the 10 year yield. 3% is where jeff goldblatt sees the 10 year going. is the tulare think of blackrock, and he says it could be anywhere between 2% and 4%. is it a binary outcome, other donald trump does succeed in the economy or not? jean: i think it is more than the successor not of donald trump with the economy, in the sense of how for the economy will be growing. in terms of nominal rate, we at the extremely low level. we in terms of real rates, are very far from the lowest we have seen in the past 30 years. bign a sense, there is this fight in the u.s. between whether donald trump will succeed in accelerating inflation and growth, or just accelerating inflation. and this is for me what is the real danger for the bond market. not so much with the rates will be, that whether the rate movement will be driven more by higher growth expectations, or higher inflation expectations. the kind of stimulus we are

expecting in the u.s., because so far we just have listened to what the president and his administration is saying -- the kind of stimulus we are expecting at this stage of an aging cycle is almost unprecedented. and probably this is where the markets know to be a bit worried about it. francine: what does it mean for -- if you look at the 10 year treasury yield, if you look at equities, i know you believe in this rotation to equities. but if there is a trade war, is it equities are yield? james: protectionism is extremely bad news to the equity market. but quite apart from the solid and underlying growth that the market presumably has to gamble on in due course, the market is clearly also betting that trump will succeed in cutting taxes and reducing regulations and you will have an increase in corporate earnings. that would mean a significant shift in the economic environment itself. francine: what is one thing you

are waiting to here from president trump about the economy? we have not really had an economic sign yet, aside from talk about deregulation. james: and checks and balances are such thatstem if he says something it is not necessarily the case it will be carried through. the issue of taxation and the amount of support he gets for the reduction of corporate tax. jean: what we are expecting -- not what we want from president trump, but what we are expecting -- is that he has a very clear economic agenda. this is calling for making some bold moves in terms of how you build your portfolio. this is, in my view, where we are entering a totally different period from what we have been used to investing in over the past 30 years. that is one point. francine: better returns, but a lot more risks if you get it wrong? jean: it means a lot more risk for global exporters. it means people who have had it

good because of the capacity to outsource their production capabilities -- to give you an example, the market fell in love with cyclical companies on the view that you would have this big stimulus in the u.s. i would make a strong the station between sectors like airlines, that are cyclicals which are also very domestic and that should be insulated from a mercantilist agenda, compared to other cyclical sectors which are very vulnerable to policy. we know the manufacturers are being active in the u.s. and have plans in canada or mexico. they are saving money thanks to this outsourcing. , ise companies, this sector an example that not every cyclical stock should be doing well, even if we see acceleration of economic momentum. francine: thank you so much. jean and james stay with us for

the hour. remember, if you are a bloomberg customer, you can watch the show watching tv on your video terminal. you can follow our charts, our data checks, and you can message us directly if you have any questions for our guests, by using the ib function at the bottom of your screen. for the bloomberg business flash, here is nejra cehic. nejra: rbs is preparing to cut more than one million pounds in annual operating costs. senior executives believe the edinburgh-based lender has more staff and it requires, and will cut more jobs. rbs has said it will share plans to meet new profit targets when it releases annual results next week. u.s. oil has held gains new $54 a barrel after the international energy he says opec achieved a record 90% of initial compliance with its output cut deal, while demand grew faster than expected. the uae energy minister said he

is happy with the commitment to cuts. >> i am very happy with the compliance. i think the countries are committed. and we hope that in the months to come, we can see similar or a higher level of compliance to the numbers, as mentioned. nejra: president trump plans to nominate former bear stearns economist david malpass as treasury undersecretary for international affairs. if confirmed by the senate, his first job would be to guide currency policy. malpass would bring extensive government experience to a team with little public service background. he previously served as deputy assistant secretary in the treasury and state department. a special prosecutor is questioning samsung group's jay allegations. the head of samsung electronics 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 biggest business empire. that is the bloomberg business flash. francine: thank you so much, nejra cehic. the dollar touched a two-month high against the yen in a -- in the wake of a visit to the yet -- to the u.s. firm from minister shinzo abe. has caused prior tensions. the leaders opted to put their disputes -- the deputies in charge of discussing a new economic dialogue. separate data underlines the importance of exports to japan's economy. gdp growing for a fourth straight quarter, fueled by overseas shipments. let's get more with a professor from the university of she's worker -- from a university, where she joins us by skype. what do you make of this between japan and president trump?

>> i think they both were taking trades,ry careful especially the president. i think a lot of japanese were bracing themselves for more harsh words. that was not the case. i think the president learned it would be much better to have a much more mild negotiation, considering that japanese companies, especially auto manufacturers, are doing so much in order to create jobs in the united states, and investments, , and regressing back to protectionism really would actually hurt and hinder his future plans, if anything. e took a more moderate route of shaking hands instead of shutting down on the phone, which is what he has done before. francine: tim was a very long handshake. give me a sense of whether it is now accepted in japan that donald trump will not label japan and japanese officials as

currency manipulators. we heard noise of that from peter navarro, his trade advisor, just two days ago. >> the fact of the matter is, most japanese are still watching that with a very careful eye. japanese not only individuals for corporate's have an extremely high level of uncertainty avoidance, probably the highest in the world. therefore, they are still very cautious. many of the companies have basically halted plans of opening factories and facilities in mexico, and taking a wait and see approach. very similar things going on in europe as well. the japanese multinational enterprises are right now bewildered about how things will progress. but the biggest pipeline is the united states. at least we are getting some assurance and security measures, as you reported. that is at least a soothing point. many ofuch still for the japanese corporate's. things are going in the right direction, better than expected,

but certainly they are still bewildered as to what to do next. francine: absolutely. what do great trade relations with like between japan and the u.s.? >> the thing we're worried about the most is the regression back into the 1990's, or late 1980's, factor ofaw the dual negative protectionism, anti-japanese products, along with currency measures which strengthened the yen. that was something people wanted to avoid the most. that is what they feared, especially when you listen to what the president said beforehand. but obviously, i think there is a better way, going forward. certainly, that is in coordination. you can see japanese auto manufacturers -- many of them already held their hands up, saying, we are going to cooperate a lot more. actually, i think there is at least a coordination that is growing between the nations, which certainly is very good news.

but many are still watching very cautiously, as we speak. at aine: i am looking chart showing the yield curve on december 21, when the boj ,roduced its yield curve policy 10%. i am sure you cannot see our terminal screen. from arency -- we heard longtime critic of governor kuroda, saying the bank of japan's efforts to control the yield curve, focusing on the 10 year bond, could come under threat. the is think they will have to abandon that policy? think the bank of japan is definitely running out of cards. they are pretending the have a deep pocket, but there is limitation. you can clearly see that their policy is not being responded to by the market. short-term, yes, but in the mid-run, it is regressing back to normality. their aim is not working. the really have to start working with the government to structural issues that will compound and basically solve our

structural side of the problem, rather than touching on these, in my opinion, short-term financial policies that basically try to please the market. it is becoming a bearish market, and i think it is about time we regress back into structural, transitional approaches, both with the government and the bank of japan. francine: thank you so much. the professor joins us on the line. still with us, james webb and jean. james, when you look at japan, do we need japan to work through structural reforms to make sure that if we see strengthen equities there, we feel more buoyant about the world? james: absolutely. one of the problems japan has faced is that it had experienced a very high domestic savings rate. there was an expectation we would have domestic-driven growth. that has been very elusive. that is not want to get solved anytime soon, given the level of

debt the government has. therefore, there is relative weakness of the policy tools. monetary policy, as we know, has run out. all emphasis must be on structural reform. reform shouldal be high on the agenda. i would say that we are seeing some structural reforms even if some things are a bit unnoticed by the market. japan to, for of example, liberalize its agricultural sector, with regard to the tpp negotiation -- it was a clear sign there are structural reforms happening in japan. when you cannot change in japan is the structure of the demographics, and the fact it is a very aging country. an aging country means the big trend of the population is leaning on spending. when you have inflation before a reflationary agenda, you have a chunk of the population that cannot take advantage of higher wages to cope with higher inflation. this is the big conundrum of

japanese policy. they want higher inflation to support this economy, but higher inflation is squeezing the consumer purchasing power of a very big chunk of the population. i know immigration is something they have not managed to incorporate yet. james: there is a challenge on the return on equity. it is very low, because they have held onto very large cash balances. francine: thank you so much. jean devon-- bevan and stay with us. as swiss voters rejected claims reform corporate taxes, we ask has switzerland's government to limit economic fallout. ♪

francine: this is "bloomberg surveillance." swiss voters have rejected a plan to reform corporate taxes, forcing the government to develop another plan to regain competitiveness. switzerland is under pressure to reform its practice of giving tax breaks to multinationals, and would see a sudden jump in rates. of ourjoined by a member economy team. what can we expect from the government now? saide finance minister has the task force will convene in the coming days to work out some kind of plan b, that we have got few details on what that might consist of. the expectation is that by the end of the year, a bill might be sent to parliament.

but it could take longer. and implementation will definitely be years away. francine: give us a sense of what it means for multinationals in switzerland. well, nothing falls on anyone today. it is more of a long-term creeping effect. the first decision that will be made is a postponement of investment, or to make an investment somewhere other than switzerland. corporatearious organizations and companies have come out and said to the government that they do want reform, and they hope this can be done in the foreseeable future. youcine: catherine, thank so much. catherine from bloomberg's swiss economy team. james, if you look at the swissie -- you can see it in white against the dollar in blue, against the euro. what do you see? does that have an impact in foreign exchange? james: it certainly does.

i would worry much more about the structural challenges the euro faces on the back of political maneuvering this year than about the problems switzerland faces on its tax policy. that, to me, is the big challenge for swissie euro. on swissie dollar, i anticipate what happens with the u.s. economy affects the currency move, not the other way around. bothine: james and jean say with us. it europe survive a le pen presidency? we focus on france and the future of the single currency. we talked policy, politics, and europe, next. ♪

francine: let's get straight to the bloomberg first word news. here is nejra cehic. japan, andh korea,

the u.s. have requested a you and security council meeting over north korea's ballistic missile launch. missileg launched a yesterday which traveled around 500 kilometers before splashing down in the sea of japan. japan's economy has grown for a fourth quarter in a row, driven by exports. -- growth through december, even while domestic consumption was flat and minimal wage increases constrained consumer spending. the figures underline how important it is for prime minister shinzo abe to ease trade tensions with the trump administration. swiss voters have rejected a government plan to reform corporate taxation after opponents labeled it a series of complicated tax tricks. voters of posted by 59%. two to international pressure, due toland needs -- international pressure, switzerland needs to give up tax breaks which generate 150,000 jobs in a country of 8 million.

people have been asked to address ridden area in northern california after authorities warned an emergency spillway in dam was in's tallest danger of failing. 150 miles northeast of san francisco. the grammy goes to "hello," fidel. adele. nejra: the brit beat the american in all three major categories -- song of the year, record of the year, and album of the year, winning 50 words total. adele is the first artist to sweep the top three prices more than once, and second woman to win out in the the year twice. thanl news powered by more 2600 journalists and analysts in more than 120 countries.

this is bloomberg. .rancine: let's talk europe whatever the outcome of france's presidential elections, it probably will not lead to a next from the euro. thanks including barclays and -- unicredit say the chances of marine le pen winning the second round on may 7 are slim, and even if she does, the national front party leader is unlikely to get the majority of the legislative vote in june. her ability to push for a referendum on the currency union will be limited. we are joined by james bevan, and by jean. let me bring it over to the probabilities you can find on the bloomberg terminal. you can type e.u. into tv and see this. marine le pen, 32.3%. francois fillon, 18.68 percent. we have a nice bloomberg story,

.aying 44.7% may be larger but can we trust the polls this time? and can he get it if he does not have big support outside paris? have beenink we well-paid last year to see that we should not trust the polls thecially so much ahead of election, when we look at the outcomes of the brexit vote and the u.s. presidential election. probably it is quite useful, but i do not think they tell us a lot about what will be the outcome of the election. do not forget, there is always a moment in the election campaign when there is a momentum building in favor of one candidate. we are still a few months before we are really entering, if you want, in the real campaign. so for the time being, it gives us a very partial picture of what we should expect for the next election. francine: but you will are on

the markets and have to play the markets. i imagine if the poll's change, it would give you a huge upswing on either side. how do you do that? jean: as an investor and a frenchman, i am aware the market has become a lot better at discounting political events for what they are. -- right now, the market is more focused on economic fundamentals in terms of assessing the situation. with regard to an exit from the european union and the eurozone, my big concern is not the next election, but what is going to .appen with the german when i look at germany with its 50 billion euro trade with the u.k., 75 billion with the rest of the eurozone -- this is where my problem and my risk is, rather than the political noise surrounding what is the real issue of the checks and balances of trade around the world. francine: james, do you agree

with that? we had peter navarro, the trade advisor to donald trump, going really hard on germany. we wonder if he can do anything to get germany to spend more, save more, you'll they serve -- surplus. this is the spread between french and german yields. you see it creeping up. is this the le pen risk? james: there is a risk for the capacity of the european central bank to hold its own, in the context of very significant imbalances getting worse. of course, germany has very similar problems to those of japan. it has deteriorating demographics and a high savings rate. in the case of germany, the negative interest rate has also been damaging. and i would suspect one of the problems we have to deal with as investors is the extent to which markets become very keen on the recovery, andal

have given up on a lot of the defensive policy growth stories. i suspect that six months forward, it is those policy defenses that will outperform the sectors that have done so well. francine: is there a danger we underestimate the real changing of our society, the fabric of society? i understand you are more worried about trade and the german surplus and account deficits, but we may be rethinking capitalism if he gets elected, and i do not know how the markets do with it, apart from ignoring it. jean: i think we are reaching a point where liquidity with a central bank intervention -- there is global trade we have been living under, and begin a quality. what is happening right now in europe is representing what is happening with this kind of inequality frustration. areuld argue that residents

hoping that actually some policy is pulling for more fiscal burden sharing within the eurozone, which might be an upside. james: i would suggest we do see a pension swing between corporate revenues going largely to shareholders are largely to the labor force. the pendulum has been stuck in favor of shareholders. if history is anything to go by, we will have a swing back where labor gets a bigger slice of the cake. if companies control their costs and control their prices, that is what we should be betting on now. and jean james bevan medicin stay with us. we check in on the markets. min ore is surging, sending e higher in the u.k.rs -- miners higher. the opec deal. and the latest on president trump and prime minister shinzo

abe. this is bloomberg. ♪

francine: i am francine lacqua in london. let's check on your markets. mark barton has been watching the action. mark: we are at the highest double since december 2015, led by basic resources. the gauge is at its highest level since 2014. quite a rebound from 13 year lows in january 26 team -- january 2016. declines, and finally rose. that was the worst losing stretch since 2010.

have hedge funds been a contrarian indicator? the dollar spot index in the retreat that started just before leveraged funds on the currency jumped to the strongest in 2.5 years. with those wages, which is a strategy favored by hedge funds, tack down to the lowest since december, the dollar is bouncing back. hedge funds proving to be a contrarian indicator. we had data out of japan, the strength exports fueling a strong fourth quarter, underscoring just how important exports are for shinzo abe to ease trade tensions with the trump administration. meanwhile, we have had the bank trying to control the yield curve. focusing on the tenure portion of the curve. one longtime boj credit -- critic says the efforts may come under threat when inflation starts to quicken, according to the president of hotel research in tokyo, a 30 year veteran of

japan's money market. ont is the yield curve september 21, when the boj introduced the control policy. that is the red line today, obviously higher. iron ore, median price for the end of the first quarter yes -- next year. china's economy remains strong. the top buyer of iron or is going to boost demand for higher quality imports. that is according to rio tinto. it says iron ore will defy forecasts for a dramatic price collapse. we will see if rio tinto is correct. francine: think you so much. mark barton with your asset check. still with us james bevan and jean medicin. when you look at my chart -- what i did is look at u.s. breakevens. you have the two-year in blue. the 10 year is in yellow. this goes back to inflation

across the world. where do you see it going? jean: i think it can go higher. basically what it tells us is that the market has priced a lot more inflation impact than growth impact from trump policies. this might be what should be worrying for investors right now. ,ower for longer environment stagnation, has been good around the world, leading the equity multiples to expand significantly into returns over the past years. going forward, obviously what we need is to be very selective and very active, because not every company could benefit from this rising tide of expanding multiples. therefore, it will be more according to their own merits and their growth that they will be able to make money. james: i worry we are going to get a smart pick up in consumer prices this year. 2018, we might see a return of deflationary factors. we still have global oversupply. i think we will have a rebuild

of inventory, followed by a blowoff of prices. yes to more inflation this year, but not necessarily next year. francine: is there a risk the fed hikes to weekly, or are we near where they need to act? james: i do not think the fed will tighten quickly. i think they will wait to see achieve.p manages to janet yellen in her press statements, and other numbers of the fomc, have said they want to see pricing aggressively. i think we get two or three hikes a year, not more than that. francine: do you agree? jean: agree, i think the fed will be behind the curve. because inflation is probably underestimated by the markets, we could be vulnerable to negative surprise in terms of the number of rate hikes this year. francine: what is the value? if you forget the u.s., where do you actually see value? is there something underpriced, companies that are undervalued,

or whether price-to-book ratio is not great, financials here in europe, or do you go for safety? james: when we talk about financials, companies like credential look to be very well ofosed to the development appetite for wealth products in asia, where they have a strong presence. more broadly, i think policy growth companies receiving analyst upgrades, like sanofi. francine: what about you? jean: i think it is difficult to find value now in the market. there is one segment with clear value which is japanese financials, where you have this combination of cheap price-to-book like in europe, but contrary to europe, much better growth prospects in the region. so you have a lot of room to expand. francine: at the same time, they are committed to negative rates, and that is hurting banks and financial stocks. you think interest rates will start going higher, or at least

not further into negative territory? jean: it is interesting, because you have strong visibility with the policy of the bank of japan, with a steeper yield curve. probably, this is why japanese financials are so appealing. francine: any value in emerging markets, or would you stay away because of potential terrorists? james: i think we should go to emerging markets for what they do best. samsung is very depressed. scandals have made this a long-term buying opportunity. lai precisione hon know how to deliver great product the rest of the world. this is a long-term buying opportunity. francine: thank you for joining us. medicinvan and jean stay with us. happy with the level of commitment to all production numbers. the latest on the important commodity. ♪

francine: "bloomberg surveillance" in london. here is nejra cehic. cuta: rbs is preparing to more than one billion pounds in annual operating cost, according

to a person with knowledge of the plan. senior executives believe the edinburgh-based lender has more staff than it requires and will cut more jobs. rbs has said it will share new plans to meet profit targets when it releases annual results next week. plans to trump nominate former bear stearns economist david malpass as undersecretary for international affairs. his job would be to guide currency policy. he would bring government experience to a team with little public service background. he previously served as deputy assistant secretary in the treasury and state departments. a special prosecutor is again questioning samsung group's jay y. lee under allegations including bribery and embezzlement. the de facto head of the samsung group and vice-chairman of samsung electronics was called in for questioning along with other executives including the samsung electronics president. the move potentially deals another blow to south korea's

biggest business empire. u.s. oil has held gains near $54 a barrel after the international energy agency said opec achieved a record 90% initial compliance with its output cut deal, while demand grew faster than expected. the uae energy minister 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 in the months to come to see a similar or higher level of compliance to the numbers as mentioned. francine: and that is the bloomberg business flash. francine: and let's get more on the oil story. still with us, james beva medicinen and jean -- james bevan and jean medicin. so oil companies struggling with refining margins. better days? james: the only one i would buy

is royal dutch shell. i think the dividend is sustainable. i think they will continue to derive benefits from the time with bg. and they clearly have a very disciplined approach to capital spending. if i am wrong and being quite cautious about the oil price, i do not expect the oil price to get north of $65 for brent before the end of 2018. then, i would be looking at chevron. francine: what about you? does matter.vity we prefer the oil producers in the u.s., which are benefiting from the oil price umbrella, thanks to the opec cuts. we believe also that people should reallocate gradually to companies like halliburton and schlumberger, where you benefit from the deregulation agenda we expect from the u.s. administration. francine: what do you think of

the 65? does it benefit from deregulation of shale? this is the white line. brent in purple. in blue, you have wti. this is the range we have had so far. think it is cap tier, because as here, because of the oil price goes up, more refineries come online. james: i worry about schlumberger that although it is a great company, i think the price is rich now. i think it has had about as much of a run as it deserves. francine: we will come back to this and a second. we are also seeing pictures of france's far right presidential candidate, marine le pen, visiting a memorial to those that were killed last year on july 14, the attack in nice, southern france, an attack that happened straight after the feast in nice.

a huge truck came over. i believe at the time, marine le pen was one of the first ones to blame islamist fundamentalism for the nice attack. -- mym looking at google source is "breitbart," so take of salta gain -- grain -- approval ratings were up after the nice attack because talking downg on fundamentalists. some would say her immigration policy is very close to that of donald trump, and what we have seen from him in the last couple of months. marine le pen is about to make her way over to the main promenade that marked -- right next to the seafront. and she is laying a wreath there to mark, i believe, what is six months since the attack in nice. you look at pictures like this -- i know it is difficult. we are talking about the polls and how we view them. does any kind of attack play

into her hands? jean: these things can happen, and definitively the news can frame a voter's mind ahead of an election. that is for sure. where she is playing a safe hand withat the events resonate the kind of arguments that she has been hounding for years. i think it is an easy ride for her to be there, in a city which is a stronghold, if you want. francine: we have talked about this before. if you look at brexit, is it the same fears that led to the election of donald trump? and is that a trend? james: there must be a risk that we get contagion across europe, and in due course, germany. the agendas are slightly different between these varying economies. and in particular in the united states, it seems very clear to me that it has been immigration that has helped the u.s. economy generate the strength it has

had. mr. trump is going to struggle to create the 25 million jobs he has promised. andcine: james bevan there, jean medicin. here are some of your highlights for the week ahead. donald trump makes justin trudeau. janet yellen appears before the central banking committee. i have fed speakers at separate events on wednesday. and on saturday, g-20 foreign ministers meet. friday is the start of the munich security conference, with mike pence. this is bloomberg. ♪

francine: shaken not stirred. trump and shinzo abe share a joint rebuke over the missile in north korea. capitolllen addresses hill this week as her second in command, stanley fischer, says there is significant uncertainty over the fiscal plan. the authorities are on a collision course. good morning, this is "bloomberg surveillance." look atportant to european data to see what the ecb will do next but i would venture that it is all about security this week. it is about justin trudeau. you wonder if they will be playing golf at the winter white house or in toronto. it is about politics infiltrating into what we do here on "bloomberg surveillance."

an eventful weekend. francine: this is the eu with the forecast. significant inflation and on inflation, they raised the forecast to 1.7%. what the inflation figure does is a whole new heading. the united nations security council hold an emergency meeting tonight on the latest north korean missile test. it flew more than 300 miles and landed in the sea of japan. japan is urging china to take action against north korea. be concern is that they will a will to develop their nuclear technology enough to put a nuclear were head on one of them. voters rejected the plan to reform corporate taxes which could end up hurting the country's place for multinational countries. it would have given tax cuts. voters opposed it 59-41.

the kremlin says putin may need no details yet of an earlier meeting. a spokesperson said they have edward snowden, the leaker who fled to moscow. in northern california, at least 188,000 people have been urged to evacuate because of fears that a emergency spill a dam could fail. over the weekend, the emergency spill a was put into use since the first time it was built almost half a century ago. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: let's get to the data.

changed my chart on francie's comments on 80 you -- comments on the eu. shows the good markets of friday but there is a churn this morning. the s&p index climbed to a record on friday so it is important to remind ourselves. but you are right. trade about the inflation , they look like the main impetus for trading this morning. gold is down to 0.3%. the longest winning streak in two months. some lady keep an eye on. not a huge buoyancy put something we want to keep an eye on. tom: let's look at three stories and i just added the united kingdom into this chart. are three inflations. forget about over here, that is the past.

here is the great disinflation in the petroleum led disinflation where three nations -- france, italy, germany -- were all down here with true deflation. they have come back and you can see germany with a vengeance has a higher inflation. what is interesting is the report that was just out puts united kingdom inflation nicely above these three advancing inflations. the u.s., and germany and italy over here. mark carney says we should look for inflation and the u.k. but i wonder if at some point whether it is a real inflation and whether people will go out and spend less because they worry about the future but you're right. the u.k. is way above in terms of the inflation expectations. ofs is -- i decided because shinzo abe, this is a 10 year yield curve in japan.

so this is the lower yield curve. onis the yield curve september 21. the current yield curve. what this shows us is that there are more and more long-term critics of governor corrode at saying the efforts to control the yield will not work when it comes under the threat of inflation. that is something we need to look out for. we will get a little bit back on the jgb shortly. but first, trumps weekend meeting with shinzo abe featured a joint rebuke of the north korean ballistic missile test. shanker -- marty sugar joins us now. the body language between trump and abe was a lot more friendly than japan.

: certainly, the optic say so. trump tweeted what a wonderful representative of japan shinzo abe was. so not much happened except that the optics were very good. francine: is that mean it is less likely that the trump administration labels them as a currency manipulator? i don't think we know what happens next. steve mnuchin is the new treasurer and the treasury is that.tity that designates trump and thek at

idea of a hard and soft power, it starts with having people in place. is general flynn going out the door this week? marty: i do not think so. tell us that in private conversations, expresses tremendous support for general flynn. so there doesn't seem to be a sign that he is on his way out. trump stays loyal. get i know you like to security clearance to come on "bloomberg surveillance." what is actually involved? marty: it is a very detailed ofk into the background anyone who wants to get that kind of clearance. the people around trump all have it. francine: justin trudeau meets donald trump today.

how can he make sure he does not become a casualty the way mexico has? mexico and canada are among the most enduring trade partners. he will take a low-key and positive approach and hopefully will of the same results that shinzo a pad. i expect those meetings to be very positive. francine: that was marty schenker. -- joining us now is the jean medecin. if you look at treasuries, there is a great article in the bloomberg terminal this morning saying that creditors are shying array -- shying away suddenly.

a trump concern? or did they start earlier? jean: it actually started earlier. it is the result of the supply and demand of paper. we had high yields in the u.s. for quite a while so this is something that started last year. generally speaking, if you enter general belief that there is something like an inflation shortly,bally, then the allocation of capital to move a bit away from treasuries, that is natural. what is going to be central in the next few weeks will be how quickly we get certainty under the trade in the form of clear currenttified for inflation to continue. key for the u.s. and key for europe.

let me bring you to my chart. these are the foreign holdings with a lot of these treasuries. you can see this going down in 2015, accelerating and then staying put. what does trump need to do to get that back up? >> i would agree -- partly owing to the capital flows, partly owing to the dollar strength. it has changed quite a bit. the way they are managing their currency can give it a certain kind of addition that can contribute to this. so it is also an evaluation effect. i don't think this is necessarily something that is

closely related to politics for now. or something that is of particular follows -- particular worry. tom: let's exploit ourselves back to the chart. here is the long-term depreciation of the euro on a trade weighted basis with a modest growth over here. the summation of a basket? or is there any kind of political will that could drive trade weighted euro lower or a stronger level? gilles: i think it is clear that two years ago was after a weaker euro. and to some extent, that was driven by gas. more recently, i don't think the ecb has been active in trying to secure the euro in any possible direction. what we have now is just the basket effect. terms, theighted

euro has been roughly stable for about a year. and what we are experiencing is a strong dollar. across all currencies. and this is been benefiting from some depreciation but em currencies have depreciated over law, as well as our problem with sterling which is quite a big chunk of our effective waiting. at this moment in time, i don't think the ecb is in any kind of currency manipulation. francine: thank you so much jean ch gilles moec and themos fiotakis. meeting with the president later. they will be talking trade, currency and nafta. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." japan's economy has expanded for the fourth straight quarter. 1% inse an annual rate of the last three months of the year. global demand for japanese offset soft domestic consumption. in south korea do, a special questionnaire -- the de facto head of samsung. inis accused of taking part payments that samsung made to a close payment of south korea's president. the royal bank of scotland's claim to have more than $1 billion in terms of annual operating costs. closell cut jobs and

branches. they will unveil new plans to meet profit targets on factory 24th. that is the bloomberg business flash. francine: thank you. we are getting some pictures in from the commissioner of economic growth from the european union. we cover the data every day. i think what is most significant in terms of this forecast is has gone fromting 1.7% to 1.4%. there is anans is inflation problem. if you have italy which is clearly facing deflationary pressures and you have inflation elsewhere, it makes it difficult for the ecb to keep to its program. --makes it difficult for it

different strokes for different folks is how i would characterize this. is prime minister may speaking to in europe? i saw comments on friday but i still don't know who she is speaking to. she probably doesn't know either. right? the concern is when you see europe and the rest of the eurozone not working much in france. president hollande will definitely not be there come next week or in the next presidential election. is still very firmly in charge but we don't know if she gets the next chancellorship. so let's look at marine le pen. if she does, the front leader is --ely to not get a national

we are back with themos fiotakis gilles moec. i know you are looking at this closely because it is your area of expertise. what are the chances that marine le pen will become president? we don't get into actual distributions, but we look at polls. there is not one pulse of our which has given her the head. and the margins remain quite with --cluding those you got into trouble recently so is a meaning, it full positivity. that matters on

the european issue, let's assume she wins, hypothetically speaking. the french institution makes it very hard for her to organize a referendum. either to leave the eu or the eurozone. she would need to convince the majority in parliament or to get a very steep increase in the number of mps that actually would control in parliament. so at this stage, it is hard to see how exactly france could leave the eurozone, because that is what is on everyone's mind market.he but i guess it is the signal or message that matters. even if the constitution makes it very hard for them to formally act on this pledge. tom: help us here on this monday morning, what should we watch from mario draghi?

he is a little bit off the radar with distractions in washington and brexit and the french election. what is the scorecard? what do i need to watch from the head of the ecb? beens: so far, it it has -- he has been quite successful at correcting the hawkish impression that he gave. he said they needed to see core inflation to rise and to do so in a durable manner. so that is the key issue. where is core inflation going to go in the next few months. the other issue is what happens to spreads. that if military conditions were to substantially worsen then the ecb could consider more. the bar for this is high but still, we do have the proper tightening of military

conditions in a number of markets. and a lot of this is due to politics. the frenchter election and the spread continues to rise then mario draghi will try to get into further action. francine: where do they wake up to the political risk? have monitored in our analysis that since this election, the markets have changed trading behaviors. the euro has and correlated with political risk indicators. from the u.s. elections and ever since, the euro has been controlling other factors, weakening, in part, because of political risk. the second thing i would say is that although it is very clear that if political risk materializes, we will have action, the dollar has

been correlating with this quite a bit. so if we have a big risk off on the back of that, the dollar will weaken as well. the third thing i would highlight is that in our talks participants, the you very rarely hear the upside story. wins on someone like -- the other side, could we have a stronger view? francine: thank you very much. that was gilles moec and themos fiotakis. this is bloomberg. ♪

francine: "bloomberg surveillance." your data check. investor for trying to shift equities to bonds. i would mention dollar extending gains. treasuries are falling after data shows america's biggest creditors are actually ditching holdings. iron ore is surging. copper climbing. coming up tomorrow, i will be live in zurich. this is bloomberg. ♪

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. tom: let's make this surveillance crystal clear. politics is driving the market dialogue. we have been doing that since

november 8. washington awaiting and other week -- general flynn is front and center. now, off the sunday talk shows, and important item. here's the first word news. taylor: a white house adviser says the courts have dropped -- on the travel ban. judges who ruled against the band took power that belonged to the president in what he called a judicial usurpation. this will be disappointing for people protesting the president and people who attack the president for his lawful and necessary action. the president's powers here are beyond question. taylor: miller says the white all optionssidering including an emergency stay. brexit is heightening economic risk in the euro area. it is the first economic forecast since the election.

bracingpean union is for tough times as trump has taken more protectionist trade stances. and the next few years may be dominated by brexit negotiations. in romania, the biggest demonstrations since the fall of communism. protesters demanded that the government step down. straight day of protests. romania's prime minister has tried to stem the anger. he has reversed controversial members seen as damaging to anticorruption measures. washe grammy awards, adele the big winner. she beat beyonce for song of the year and record of the year. she also won album of the year. the other big winner was sony -- they re-signed beyonce and adele to new contracts last year. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. thank you.

-- decision to uphold the one china policy and the chemistry with shinzo abe has heralded a change of tone from his comments on the campaign trail. christopher granville joins us and still with us is themos fiotakis. i want to get to currency manipulation in a second, but is this a real visit? is this friendly relations or just body language that could change any minute as soon as something doesn't go trump's way? christopher: you could say it is continuity. an incoming administration has a tendency to announce that asia is their priority. we have seen this since the beginning of the george w. bush administration. they often get dragged back in their foreign policy in other parts of the world by false measures during the ukraine crisis, for example. , theith the missile test

pivot to asia will be linked with actual crisis and difficulties to deal with. to that extent, this does look real. and after the doubts and uncertainty has cleared, it even stemming from trump's declarations on asia related foreign policy in the campaign and the initial statements, it looks like there is a more continuity theme in the way he handles these major relationships, including with our "great, great ally, japan." china -- talking about you mentioned the continuity we are seeing. theye be 80% sure that won't be labeled as a currency minute later and we won't see a trade war? themos fiotakis is the expert on these matters. but if there is a currency manipulator that is minute waiting at the expense of the united states, it isn't china. if anything, they are artificially holding their

currency up rather than down. it is japan. and that is because the unconventional monetary policy and the marketing to french eels. they are clearly behind the drop in the end. this is the basket of asian currencies. 1998.s the crisis of down we go. this is called the assignable damping function. here is the lehman low. and up we go with asia strength. levelscinated about the of -- in the currency war. is this an overt depreciation by these nations? i guess that since

the financial crisis, it has been a world where everyone tries to tap into export demand and the world cannot devalue against itself. yes. sometimes corny phrases are useful because they are right. the currency war theme is right there and japan is a warrior. bloomberg a great chart which showed the export dependency of japan over the last 1-2 years. everybody is living on exports. the you see this rollover? wouldit up again if you anthony, get with it anthony, it's monday. with the weakness at the lehman the funwe get back to and games of the late 90's? themos: you are raising a number of inducing issues. the weakness in asia

currencies over the last few years has been driven by the fact that the dollar has been strong and by the fact that in emerging market come under pressure due to cyclical and structure goal factors. some of them still linger. the second thing is that obviously, the 1990's were very different. different regimes for currency management. there were dollar liabilities that needed to be serviced. what i would highlight in your chart is the week stability which is quite interesting. and it goes to show that there are market drivers here. to me, the most important issue with respect to the dollar is whether they are raising the u.s. low. that is a massive driver. the taper tantrum. and if you are japan and you are keep rates low then

you benefit from the stronger dollar. tom: i look at this and we go dollar, dollar, brexit, sterling, and dollar -- there is a whole new world out there of depreciation. francine: there is. but i don't know what the end game is. can we say with certainty that the u.s. labels a currency manipulator -- would it fall? >> there is no certainty in anything. obviously not in these developments. of china in and out have change materially over the past few years. and that is sparked the policy. stabilizationcent is part of that process. second, there are levels of conservation. a certain set of words that are important to the market.

but they're still just words, to some extent. there are other scales of currency manipulation. other pressures. large, there is a very open account in china. at the same time, the chinese government does understand that they need to maintain a label of stability. what is the more immediate concern? concern is that they do not want to become the next mexico. are there emerging markets that donald trump could try to beat up on to get jobs creation back? anything is possible under the new administration, but the focus seems to be on the to emerging markets -- china and mexico. but picking up on what themos fiotakis was saying, it may be the hope that the administration policy will shift the exchange

rate -- you could argue it never really got going on the exchange tariffs andft to nontariff barriers. because as was said, the -- china's tariffs are trading partners to the united states and it is above the nontariff barriers. i think that'll be the focus. we saw prime minister a flag a major fiscal policy package in the next few weeks. and the market is seeing if that package there will be imports by another name. and that is going to be the major focus. love that -- import duties by another name.

christopher granville with what we are looking at, moving forward. we will continue this discussion. kevin cirilli will join us at the top of the hour. later today, michael frohman will join us, the president obama trade representative. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's talk about russia. donald trump sent out a series ontweets addressing issues the kremlin saying that only falls think a good relationship with moscow is a bad thing. christopherd by granville and themos fiotakis. thank you both for sticking

around. when the ask you about russia and the fact that there are a lot of rumors and talk about vladimir putin being invited to the g7 in may. globalssia have a new role to play? in the new world order? christopher: i think russia has greatmposing its role in inpolitical thought lines the western and southern flanks and also in the middle east. primarily the southern conflict. also in bolivia. we spoke earlier about hibbitts. anticipated to asia. the most eagerly anticipated payment is the pivot towards russia. .nd that will take shape

look out for important and the secretary of state rex tillerson beating over this weekend in germany and there will be further meetings to look out for. francine: do we know if vladimir putin is a friend or foe to the west in 2017? christopher: there is no reason that the west and america in particular can't find acceptable conditions. oft is across the conditions -- including in the ukraine. typical discussion which could detain us all morning. ont, there is a wide scope the political will. and you mentioned it isn't only trump, but also the incoming french president, any plausible

winner of that contest -- public record saying that they want to ease back sanctions against russia. the question of the g-7 summit could prefigure a sanctions lifting in the eu. that is my forecast. in june we will see a decision the sanctionsase against russia. tom: christopher granville, help trump -- who watches "bloomberg --veillance" every morning the basic idea here is ugly devaluation in the early 1990's, the ugliness of the asian crisis stability. another modest devaluation. and we have this joy here. --you just assumed that rish that russia is a banana republic waiting for the next devaluation? russia needs a

weaker currency. on your chart that shows the big devaluation with the global financial crisis since 2008, russia bounce back too quickly. the real exchange rate was above where it started before the crisis by 2010. of course, that was largely linked to the old crisis. now it has closed back some of the losses. but they are anxious to stop things there. and there is a new policy in the coming weeks to do with using excess crystal policy. and keeping the ruble from appreciating too fast. but at the market likes the ruble. opec withup on production cuts -- what is not tom: theresian mark

is the chart again. i zoomed in on it. the idea of a depreciation of the ruble. what i don't get is the toolbox , other than the oil ticket. does he have a lot of options here to stabilize the ruble? >> his priority is to stabilize the ruble in the defense of not allowing it to recover too fast. because russia doesn't need that to collapse again. it needs a stable oil price. that will allow it to reemploy capital labor for the economy.

crucial for the country's long-term future. francine: thank you so much, that was christopher granville. you can see on your bloomberg terminal to see the output and the video and some of the equal charts that tom does. we all sat a data check and if you want to give us comment, feedback or applause or if you say that we could do stuff you can contact tom and me and the producers directly. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." this is the bloomberg business flash. thep plans to nominate former bear stearns economist to be treasury undersecretary for international affairs. that is according to persons familiar with the matter. he served in two previous republican administrations. to report axpected write-down on the nuclear reactor business tomorrow. it will cover cost overruns. the $5.4may clip billion that toshiba paid in 2006.

it has already forced the company to try to sell a significant stake in the flash memory business. that is the bloomberg business flash. francine: thank you. the fed vice chairman is certain about uncertainty. he spoke out and he said there is significant confusion about fiscal policy. >> i don't think anyone knows what is going to come out of the process, which involves both the administration and the congress. policyding the fiscal and a variety of other things. so at the moment, we are going strictly according to what we see as the responsibility, according to the law. francine: we are back with christopher granville and themos fiotakis. you do stanley fischer tell about how many hikes the fed will do this year? themos: as a house, we are

forecasting two hikes. the fed themselves have hinted that the medium expectation is three hikes. the market is pricing something like to hikes. even if the fed says they will do three hikes, you do have to price into reasonable uncertainty. premiums are very tight at the moment. so if something goes wrong, they will deliver a little bit less on what they are expecting, which is what the market is reflecting here at the moment. francine: talk to me a little bit about this, it is talking about inflation. a very simple chart. ins is the five-year and yellow is the 10 year. where do we go from here? one of the reasons why they have been increasing is because they were low to begin with. april,y, between now and we have based effects. the fact that oil prices are extremely favorable.

mechanically, headline goes up. level, breakeven inflation is pricing something around 2% and if you look granular early, beyond all of the economists --ch have little explanatory if you look at the components of u.s. inflation, we probably will continue to realize at those levels or slightly below them in terms of core inflation. so the long-term trajectory is that these are fair. tom: help me with the idea that doingnt years quantitative easing, expanding balance sheets, everyone understands we have the taper, taper, taper -- including the good vice chairman -- what indicator will show us that we are finally really tapering? in terms of bond yields and inflation going higher?

, we need to stay true to the data. what has happened here at the moment is for a number of reasons, also having to do with the you mentioned -- expectation of some fiscal relief from different parts of the world, the china boost to --and through the past year we have seen a growth data come out quite strong. you have seen surveys, european data, metal, chinese data. but if it stays granular to the inflation data, we are neither in disinflation or re-inflation. we are in the middle. so it will take more time, i effort, to not more bring inflation sustainably above 2%. which will compensate. belief then, given

the indeterminacy of where we are, that we do have economic growth? christopher: i guess -- our house echoes themos fiotakis. a stronger reflation coming up, not only in the invited states but also in europe and other parts of the world. we see waste pressures building a lack of spare capacity. so we would expect the chart that you are showing to be back on the up. tom: christopher, thank you so much. this is bloomberg. ♪

tom: this morning markets continue. the dow jones industrial average

20,200. and is silence from the winter white house. no one comes to the defense of a beleaguered national security adviser. general flynn will not be picking up curtains this monday. the vice-chairman. he is certain of our collective uncertainty. stanley fischer on the many responsibilities forward for chair yellin. bloomberg surveillance. live from our world headquarters in new york. i'm tom keene. francie mccrory in london. we continue to churn for what seems to be a good three weeks. francine: we continue the churn. is a great story on the bloomberg saying that a lot of foreign creditors suddenly having second thoughts about financing the u.s. government. i don't know whether it has an impact on president trump's making or not something we need to keep an eye on. if you are justin trudeau, you show up in d.c. a little later. you want to ensure you're not

treated like mexico. how do you make sure the president sticks to nafta? tom: our first word news. here's tether rigs. taylor: the united states occur to council holds emergency meeting on north korean security tests. the sea of landed in japan. japan is urging china to take action against north korea. one concern is that north korea will be able to develop missile technology enough to put a nuclear warhead on one of them. leastthern california at 180 8000 people have been urged to evacuate because of fears that a dam emergency spillway could fail. a big hole opened in the main spillway of the oroville dam. the emergency spillway was put into use for the first time since the dam was built over a half-century ago. the kremlin says vladimir putin may need president trump in july at the g 20 meeting in germany but there are no details of an earlier meeting. a spokesman said that russia and

the u.s. have not discussed the former national security agency employee, edward snowden. the leaker who fled to moscow. snowed in's lawyer rejected a report that russian officials are considering handing him over .o the u.s. as a present president trump plans to to bete david mal pack treasury undersecretary for international affairs. that's according to persons familiar with the matter. malpass has served in two previous republican administrations. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. rigs.ther this is -- i'm taylor rigs. tom: francine, the word that he owns within market economics is the word fast. nobody says fast and writes about fast like david malpass. i can tell you the one word he will give the president is let's move fast. they may, they may not. malpass

is the fast economist. francine: at the same time he would bring extensive government experience to an economic team that has little background in public services. deputy assistant secretary in -- state department during george w. bush. tom: the legislative process running for senate ridley in the state of new york. right now i want to get through this quick. we will get to the bloombergs. i got nothing. francine: you want to talk politics. i don't have much either. significant that people are shying away from bonds on the equities. european stocks. i wanted to show you a little bit of movement on chinese currency. gold, 1200 30. tom: let's look at inflation back here in 2014 as a collapse in oil, the rapid move down in disinflation. .he outright deflation

italy, germany and the united states. abrupt movement in german inflation. at the last moment in our 5:00 hour i put in here that guesstimate of where united kingdom inflation will be one year out elevated above all others. francine: i like your inflation chart. this is what i chose to -- it's inflation risk but another part of the world. i'm looking at japan. ons is the yield curve september 21, that is when the boj introduced the yield curve control policy. his there isws us a huge difference -- a long-term credit of governor corona said the boj's efforts to control yield may come under threat when inflation starts to quicken and we see signs of that. tom: this has become a treat. kevin so really, his chief back

story, correspondent for bloomberg media worldwide. what was the back story of these so-called winter whitehouse this weekend? >> prime minister abbe of japan having dinner with president trump when all of a sudden he gets word that north korea is testing a ballistic missile. this was a midrange missile, not a long-range missile. the white house sources i'm speaking with feel this was timed specifically for this dinner with prime minister ab e. a flurry of activity and dominated conversation. tom: help me with the idea that if we had a missile pointed out is by mexico towards corpus christi it would get our attention. abe wase idea that mr. in an uproar. was anybody in the trump administration in an uproar over this midrange missile movement?

>> i think they are taking it seriously but i also think that when you look at the tweets president trump tweeted out during the campaign trail criticizing then president obama for his lack of authority on this issue suddenly there is a new political reality and i think the more measured, tepid response was something that was appropriate according to most people in the u.s. intel community. also, it shows that president trump is not going to be perhaps as domestic on issues of national security coming from this test with the north korea dictator. francine: facts and figures and i was reminded that canada remind -- relies on the u.s. to buy three quarters of his exports. it supplies just half of the u.s. imports. how does donald trump going to react to the visit of prime minister trudeau? kevin: they've had a tense relationship and the past. i think it will be interesting to see specifically just how they interact with each other today. this is all about trade.

everything today on the agenda between these leaders is going to be about trade. there's concern amongst the canadians that potentially president trump's relationship with mexico could impact canada and nafta. that is where things get more interesting and the white house feels the have leverage. they feel if they needle mexico canada will feel it needs to back off of it in terms of their negotiation strategy with nafta. francine: is it all in the interest of just insured to be more conciliatory? we've heard from people in his party in canada saying he should stand up to trump. this does not work. kevin: they are polar opposites. you have a bombastic billionaire celebrity republican conservative and donald trump and in justin trudeau you have this young progressive liberal who has taken control of canada.

he has given overturns to people like angela merkel were vice president mike pence is set to visit with you germany this week. i think politically speaking you could not have more of a contrast. where they are able to work together on nafta and trade issues remains to be seen. tom: thank you so much. if you are looking closely in that saturday nights get there were taking that this podium and they were going right for greg miliary. there were going to pull him over with his analysis of the trump administration. become a comedy greg but there is no laughing matter here. the general of the nfc's job is at risk. to me it is a huge deal. take us inside why it's important that general flynn is under, not investigation, but greg:.uestioning

it's early to start talking about people who might leave but you got flynn, spicer, and out s is being, pribu criticized, so you have three people a month into the administration who are on thin ice. the optics are not good. i think trump has had a pretty good 72 hours. he got a deal with japan. the one china policy development i think is positive. i love in with trudeau. in terms of photo ops geopolitically i think he's had a decent stretch. tom: i will give that to you now. --s is why we love to have all get general flynn but priebus is in the last 12 hours. greg: an associate came out with some shockingly critical things about priebus saying he's in over his head.

i think a lot of people in this administration may come under that category. i would not put revis under that category. he's got great contacts on the hill through best friends with paul ryan. there still is an image of an administration in some disarray. francine: i was going to talk about paul ryan. great to have you on air, greg. is paul ryan still outwardly support the president? greg: he's got to outwardly as mitch mcconnell has to outwardly. in private they have big issues. whenever trump or his aides bring up this motor fraud story even republicans roll their eyes . or when this administration criticizes the judiciary they roll their eyes. they will alldly stand same page. francine: i'm looking at some of the u.k. press and there's one thing donald trump's visit to the u.k. will be rescheduled to avoid embarrassing the president. are we going to see more on the

visits rescheduled, postponed? greg: there could be that at the same time i do think there is a chance after traditional leaves we will be talking -- after trudeau leaves we will be talking about a bilateral trade deal that could be a bilateral trade deal with the u.k., with japan. things look a little better with china. who would have thought this? on geopolitics i think trump is exceeding expectations slightly. tom: help me with the linchpin so many people are writing about whether it is bloomberg, the atlantic, whatever. general mattis and mr. tillerson . are they going to have a good week this week? greg: i think so. north korea overshadows everything geopolitically right talk think there will be about retaliation. i worry about iran more than any. if there's even a little incident in the persian gulf knew the straight of our most

good that explode into a bigger crisis? that is a real threat. francine: greg valliere of ofizon investments -- horizon investments. we will bring you coverage of president trump and prime ministers just intrude oh's beating that comes later this afternoon. -- prime minister justin trudeau's meeting that comes later this afternoon.

taylor: this is bloomberg surveillance. japan's economy has expanded for the fourth straight quarter. it gdp rose an annual rate of 1% in the last three months the year. global demand for japanese domesticoffset stocks

consumption. in south korea a prosecutor j lee overquestioned corruption allegations. lee is the de facto head of samsung area of south korea's biggest is empire. he's accused of taking part in payments samsung a to a friend of south korea's president. at royal bank of scotland is planning to cut more than $1 billion worth of annual operating cost. according to persons familiar with the matter rbs will cut jobs and close branches. the bank said it will unveil new part gets -- new plans to meet targets. you get lucky when you do a book and mr. at with headlines. jordan rogerson with us. great to have you with us. bob a explained to trump japan's auto's benefit the united states. the president forex talk should be less to finance ministers. the biggest jump hot air i've ever heard in my life.

how manipulated is yen right now within abenomics within the ministry of finance and by the bank of japan? jordan: it's not a direct policyjordan:. type of the bank of japan's jg the curve. when we get down to 100 against the dollar and dollar yen. with a japanese yen is around -- finance ministers, making comments. we call soft verbal. tom: i did that this weekend. i love that. bring up the chart. let's call it soft verbal. we are making up the banner right now. the soft-verbal yen. this did not go as mr. oblique wanted. wanted.bel can he control the yen? jordan: what he did do in 2013 toward the beginning of the birth of abenomics that is when you had a big change. when markets started pricing

looser that was the big abenomics trade. if we get back down to 80 against the dollar. tom: you can get it on tv go which is for bloomberg terminal you could get the whizbang -- jump incine and i here. francine: ever since september 1 when governor kuroda talked about trying to target this 10 year yield half of the market says it does not work for inflation. does not work when you get this feeling of stunted taper. start ofit at the the year. this is basically the fictitious jg be when he started talking on 21st of september about targeting the 10 year yield and this is where it is now. will it work? is it a flawed policy?

jordan: not a flawed policy. look back in april when it sold off aggressively. the sullivan gigi beas is similar to what you saw in the bond curve. when you talk about the control of market with the jg be curve was interesting is the volatility has declined a lot. that's a success in one respect. francine: a success in one respect. how far will go? jordan: it will have to rise considerably. not too far. we're talking five to 10 basis points. not 40 to 50. francine: tom has been saying all week, all month, all year, it's euro yen that the traders in the markets look at. what is your target for euro yen? jordan: we're actually a bit -- for now a bit irish. we think that in terms of euro policy we have more talk at ecb. the second half of this year things could change. as the politics goes away in your row yet.

tom: i can't be bored until the end of the year. we look at the -- we will bring this up later. it shows the reflation and all. our you going to go to sleep until you get to the summer or do you look for fx volatility? jordan: i think french elections are still underpriced. the last two years of conventional political wisdom has failed us. we are to administer a different approach to how we approach the selection. let's be a bit more mature about it. le pen is on the four fringe of the right. what she could do is pull the left more toward her side and even though we are talking about if she wins not winning a majority in parliament you could talk about other parties. tom: what do zero do off the idea of le pen doing better? jordan: we have to price improbability which is low but it is a big tail risk. . you're talking at least 20% lower.

it would be a big shock. tom: jordan rochester with us. by tail risk, what are you saying this we could get out there on new slow. all of this will affect imports and exports for every g-7 nation. michael froman knows this. u.s. trade representative for president obama. look for that and will :00 p.m. today. ♪

thatere are many aspects

are extremely important. significantly reducing capital requirements would reduce the safety of the system. we hope it's not going to happen. particularly for the big banks. francine: stanley fischer issued a warning on reducing bank capital requirements. i thought it was interesting listening to the vice president talk about monetary policy. he was very diplomatic but it certainly seems risk may be to the upside attached. tom: delicate comments from the vice-chairman to say the least. --dan rochester of nomura dovetail what druggy what do -- what draghi will do, what yellen will do.

what is their action plan? given the instability of the markets. jordan: they have a bit of divergence in action plans. big fat tails of uncertainty. has to keep things as status quo as he can. he has to give keep the yield curve low. yellen is talking about a big fiscal policy when unemployment is at a low level compared to the crisis. in the u.s. she has to walk a line of keeping the market ready for rate hikes. not getting too excited. it is fascinating where we are in this february. francine: it is basically how you view inflation. do you see inflation going up worldwide? jordan: absolutely. survey measures of ppi and input tresses of pmi's they're going through the roof especially in europe. in the second half this year will be talking about will the

ecb, will the swiss central bank , will next bank in sweden be raising rates for the first time in quite a while. francine: thank you so much. we will be live. we'll be talking earnings. m&amain thing -- not only but we want to find out whether he will continue with this ipo of the swiss unit. they own about 6% of credit suisse. do thating he may not because he is seeing strength elsewhere. look for that tomorrow. this is bloomberg. ♪

tom: bloomberg surveillance. economics finance investment international relations and more than we want to do on politics. right into art world.

to bring you up-to-date with first word news, teva riggs. taylor: voters in switzerland have rejected governments plan to reform corporate taxes that could end up hurting the country's appeal as a place for multinational companies are the measure what a given company's tax cuts for income for research and development. 59-41.oters opposed it stephan miller said federal appeals judges ruled against the ban took power that belongs to the president in what he calls a judicial usurpation. >> this is going to be very disappointing to the people protesting the president and the people in congress like senator schumer who have attacked the president for his lawful and necessary action, the president's powers are beyond question. taylor: miller said the white house is considering all options including an emergency stay at the supreme court. the european commission says president trump and brexit are

heightening economic -- the commission's first set of economic forecast as the u.s. election. the european union is bracing for a potentially tough time as president trump has taken a more protectionist trade stands. the next few years maybe dominated by brexit negotiations. in romania the biggest definition dish tens of thousands of protesters demanded that the government step down. the 13th straight day of protests. romania's prime minister has tried to stem the anger. he is reserved -- reversed legal measures seen as damaging to anticorruption efforts. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. francine: thank you so much. pen winning the second round of the presidential election. the national front leader is unlikely to get the majority.

this is according to banks including barclays and unicredit. what they are doing is that even if she becomes president will be unlikely they say that there will be a referendum. but cross over to paris where we find mark dean. also with us on jordan rochester. mark is our reporter, political reporter in paris. talk to me about polls. it does seem the possible -- the popularity of marine le pen is creeping up. mark: it is. she is doing well especially francoisnce while -- fillon cost scandal. doesn't mean that france is automatically out of the euro are not? show clearly polls that le pen is not set to win the second round even though she will almost certainly come in first in the first round.

that meansst of all a strong implication of le pen in the landscape. how sure are we of the second round polls? we have been through brexit, we have been through trump. people are understandably wary. does this mean france will automatically go out of the euro? if we get to may 8 and le pen is in office i don't think the markets will wait to find out. francine: give me a sense of the popularity -- we understand he's very popular. he's about the front runner by 44%. he is not very known in the provinces. can we be sure he has that base to be able to make it to the second round? mark: i think it's fair to say that in paris and in the big regional capitals, very well known. the story humor today shows he's struggling to go further beyond that is trying really hard. the thing that your zippy clear

about micron is his command nowhere. ofmeans that the certainty his polling is less good. about 80% of the people who say they will vote for le pen are sure to look for le pen whereas with macron, that is in the 30's. tom: help me with the american stereotype. as we go deep south into france does ms. le pen have a wisconsin? is there some place were role that really matters or as the election all about paris? --dan: the election is not mark: the election is about rural france. it's one vote counts as one vote and you tally of the votes in the person with the most votes gets to become president. that said the national front strongholds parliamentary in coast. the traditional right-wing

sharon hold. also in the d industrialized north the national front has done very well. is a different message that resonates through less anti-immigration, more about the economy. tom: does she moved to the middle to get paris or whatever over the next number of weeks or does she stay on team? marine le pen has made a huge effort in recent years to mainstream,ty more more acceptable to the general voter and largely it has worked. what we're seeing in the election campaign and she is hardening up her line and being unabashedly about what she wants to do on the economy. : france out of the euro in cracking down on immigration. tom: thank you so much. mark dean, our political expert. jordan rochester, i learned a lot.

the number -- another thing i learned, france is in italy, france is not greece. understandn separation in the -- -- the as it turns of debt problem a big divergence is with the two main core countries. politics is also different. what we learned in the segment just now was that looking at the politics of france cover sheets to make her message more towards central leaning voters. to addressramework new problems are not going to work so well. stronger message. what about how france will be great again to take trumps phrase for it. voters in rural parts do not know him so i am worried about his message nothing strong enough versus hers. a motive argument over winning any sort of argument. pen if we assume that le

thes it still could change calculus political -- jordan: she loses by 2% in the lead you have to as a politician recognized 40% of the country asked for le pen to win. while 51% did not, you have to say perhaps you need a whole referendum and that could gain momentum. markets would have to price for that. is also: her father who charged with anti-summit -- alleged in the semitic remarks went to the second round but lost at that point. we have had some kind of president in the past. coming up later today a conversation with -- used to be the finance minister of france. it would be great to get his take on the politics in your land. that comes up during bloomberg daybreak.

taylor: this is bloomberg surveillance. the sheba is expected to report a multibillion dollar write-down on its nuclear reactor business tomorrow. the write-down will cover cost overruns at westinghouse. billion toshiba pay for westinghouse in 2006. it's forced the company to try to sell the significance take in flash memory business. facebook has redoubled efforts to reach a broad agreement with the music industry according to atotiation -- negotiators labels: music publishers and trade associations. the deal would cover user generated videos that include

songs. it could potentially pave the way for facebook to obtain professional videos from the labels themselves. reports that billionaire jeff bezos wants amazon to be the next hbo or showtime. according to the new york post amazon is in early talks about developing a new pay channel carrying its own first run dramas and movies. the paper says the plant was prompted by amazon's recent success of the golden globes in a number of oscar nominations for its movies. that is your bloomberg business flash. tom: jim mckay with us of critical group. a superb manager of what we're going to do with our money down the road. he and principal group do that every day. an actuary. jordan rochester with us as well. jim, i've been dying to have this conversation with you. a bunch of harry markowitz 1952 mumbo-jumbo called the efficient market.

i would say it's going at the window. are we still trying to live a single digit reality or should we get used to double-digit returns again? >> i think it's probably single digit sadly. i think the reason for that is the technology is deflationary. you have automation reducing the cost of many goods and services. .lentiful commodities that is all tending to push down the return. tom: in the last six years, since 2009, everybody is behind on their retirement accounts because they did not and hold u.s. multinationals. here is the dow. in this light up is the great stunning surprise of this financial crisis. up if i did not go up 23% in the last 12 months? jim: i think it is too late to

go for big strong companies. i think what you're than that is value elsewhere. it's difficult to see where the value is. i would go for u.s. commercial real estate. i go over some areas of credit which are not particularly heavily priced. i will go for the u.s. economy. small and mid caps make domestic earnings. that's probably the place to the rather than the big multinationals. francine: isn't that already priced in? a lot of see in terms of reflection very -- how much of that is in asking prices -- asset prices? jim: a lot of it is. the point and make on pricing in the u.s. market is with pes around 20, earnings yield of five, that is actually pretty attractive compared to with what other yields are. see as youan still see the likely deflationary

agenda of the new administration method you can see a play in u.s. stocks that took the full domestic earnings. francine: how likely is it that we get some time to tariff and well-intentioned plans me to be revisited? jim: that's a very important point. there is a probability that you will get a trade war. although the president seems to be backing off it with china and mexico. really what he threatened is the art of the deal, and attempt to get a better deal. that seems to be what the market risk. but it is a other risks are terrorism causing more fear around europe or the united states. leslie i know something you're talking about in the last hour, your can politics, not just france but also italy, germany and netherlands. -- a lot of negative risks.

tom: i call this the francine chart a massive underperformance. is this a value trapdoors is the mother of all guys emerging-market? jim: i see this as a value trap in the reason i see that is i don't see where the growth is coming from in europe. i see lots of risk. it's like you don't really have a risk-free return. you have a return free risk. tom: i like that, can i still that? jim: of course. tom: i love it. jim: so many risks here in europe that the low valuation is probably justified. i would rather have the u.s. in the good case than the u.s. in the back case. tom: ithaca japan gdp which is sub 2% it seems forever. yet the idea, where is the growth. francine: when you look at all of these currency fluctuations, you could see a lot more

volatility. if we are seeing more volatility in currencies that will adversely affect funding costs whether it be the u.s. or the u.k. but also trade. jordan: the volatility of the next three months or six months will be pretty high. worrying for japan in terms of the experts. gdp numbers last 24 hours shows that a dependence on the exports section for growth. it's still pretty as well. francine: do you see value in europe and if you do, do you play through earnings or played three yields? jim: i think the play in europe is very selective. i do expect the euro to weaken through the year. that will be good for european exporters. those are the places to pick in europe probably the larger companies, the ones that will benefit from a weaker euro. tom: i heard a primal scream when harvard finally gave up fancy pants investments of their

going back to block and tackle basic investments. what does a signal to a pro like you and you see harford endowment dramatically change course? jim: i'm not too concerned. i think what is happening here is that a substantial part of the large-cap market is going indexing. a very competitive market it's hard to be. in terms of total ownership, 16 . it7% in u.s. equities could probably get to 30% before it stops. at that point too much indexation to starting prices. i think the trend toward indexation and lower cost in large cap will continue. the challenger active managers is to be in more interesting less sufficient areas area did tom: extremely important. the idea of the smallness of indexing unit with all the fury you see the media. francine: plenty more on that with jim and jordan.

if you are a bloomberg terminal user you can type td go and take time to load up. this is what you get. great charts and great analysis from tom and i. you could also message us directly. such producers you could ask for data checks or directly asked the question. this is bloomberg. ♪

tom: i wonder where we will be at the end of the quarter, march. day isve valentine's tomorrow. the euro, one and 36. a little bit of dollar strength. francine: valentine's day. i will get you extra extra charts for tomorrow. coming up shortly, bloombergs break. i know it is a packed show what are you looking forward to. ix: at your for valentine's

day, i love that. longer-term term for the banking sector what does that end of meeting? will be speaking with john allen. to really dig into that. as well as following everything you need to know about this market rally as well. tom: very good, john allison will join us this morning. jordan rochester of nomura and jim -- chief executive officer of principal group. i want to bring up the vanilla chart. the litmus paper we use. jordan, help me out with your view with a full faith and credit spread in the united states. the steepness of the yield curve. we've shown this chart too many times. the election the next day. we are in this massive trend. how do you break out of that? jordan: if donald trump keeps the market uncertain as to what he's doing with the national debt that you have that toxic steepening in the euro curve. i think that's a bit too

far-fetched. what you could see is pickup in part to the growth -- in productivity growth. one thing with them been caught off guard is by -- tom: jump on this distribution. we do the single best chart twice on bloomberg surveillance. the idea of the fan distribution, the option analogy. is that good thing that we have some he choices of where we are going? jim: a good thing to keep the market on its toes because then it will be better price discovery. i think what's going on here is after the election the market got into its head tax reduction, infrastructure spend. noter economy but it was reflected in financial conditions. what i expect to see over the next year is maybe two, maybe three increases by the fed. get the short rate up to about one and a quarter, 125, 150. that does not mean the tenure i think the steepening

of the yield curve is temporary and you're going to see a flattening. usually see that toward the end of recovery. francine: i have a question from a viewer who listened to what i said. he messaged us and producers and he said ask a jim what his views aren't u.k. equities are and whether he is steering clear until the results of brexit negotiations to come clear. jim: i think that the first point on the u.k. economy and market is that in spite of k --t weaker sterling is kept it ok. you autistic with the companies that are export earners in global companies. the u.k. market more than most is not really about the u.k. economy. it's a series of global companies that happen to be based there. in sterling terms any of those could do quite well. t's the converse of the u.s.

in the u.s., smaller domestic earnings. in the u.k. at going for bigger and more global. i would not hold out the u.k. equity market as a by. francine: where do you see pound going? i've heard it both ways saying it has -- it will stabilize around these levels. jordan: when theresa may gave her speech on the future plans for brexit those probably the local low. sterling against the dollar. the markets come to resting period where a lot of people asking is all the bad and is priced in or going to go higher. i think the optimists have come out and have their say. the big structural trend in u.k. is lower in the pound. tom: we started with the efficient frontier or it can you be in bonds in a retirement plan right now? are they a weight to total return? i don't think you want to jim: the in very high quality and treasury bonds.

yield to 40 on the 10 yield -- on the 10 year. i think spreads in some bonds, if you go to real estate debt, there is a lots, of recovery whenever those you look-- if historically those of been the best places from a long-term to be in bonds. tom: jordan rochester, thank you. across to our radio platform. as well. so much going on today. 2 p.m. this afternoon on canada and the united states. this is bloomberg. ♪

>> reservations for marsh.

the market sees a 30% chance for fed hike, but they are calling a live meeting as janet yellen presses for congress. a handshake and a golf game. president trump eases trade tensions with japan as just intradermal steps into the hot -- as justin trudeau steps into the hot seat. nasdaq, small caps, and s&p trading at record highs. a very warm welcome to you, i'm alix steel alongside david west and jonathan ferro is off. on rally continuing from friday, s&p futures grinding higher as we prep. it's all about the stronger dollar, coming off its first week of gains since december. a powerful rally as treasuries continue to sell off and european stocks inch higher. where are we at? the vix is going nowhere, copper catching a nice bid, crude a little softer on the day.