francine: how soon is fairly soon? the latest fed minutes signal cautious confidence, but the markets do not see a move in march. as theing hurts barclays misses expectations on fourth quarter profits. the ceo says the restructuring plan is almost complete. >> we look forward to attending the restructure of barclays that has been going on for years, in a matter of months. i think shareholders will respond well. francine: is invitation the sincerest flattery? marine le pen says she wants to be like theresa may, as

presidential rival emmanuel micron agrees to appear live. this is "bloomberg surveillance." let's check on your data quickly. -- seeing a lot of spreads widen. i have a terminal i want to show you next. this is the picture overall for stocks. it is driven by a lot of the earnings. some a little worse than expected. barclays, without a doubt, the most important earnings story today. we have chris from semantic coming up shortly. i think because of the widening spread -- what i want to show you is, for example, german and u.s. we need to look at the volatility index. my me bring you over to bloomberg terminal. the spread between the u.s. and germany is widening. it has widened the most since 2010. i will show you that a little

bit later. it is, without a doubt, my chart of the week, if not the month, if not the year, depending on what happens over the next couple of months. to 2016. it back it is even more dramatic if you bring it back 16 years. let's get straight to nejra cehic. onra: barclays has missed fourth-quarter profit as it recognized higher costs for deferred bonuses and fixed income trading rebounded us then u.s. rivals. adjusted pretax profit rose to 284 million pounds, short of the 646 million pounds analysts estimated. is nearings the bank the end of its restructuring plan. >> all the efforts of last year means that in june of this year, we will no longer have a non-core business unit in barclays. for the second half of 2017, this bank will be what it wants to be in the future, and allow us to move forward. we look forward to ending the

restructure of barclays that has been going on for years, in a matter of months. i think our shareholders will respond well. nejra: u.s. treasury secretary steve mnuchin says a strong dollar signals confidence in the u.s. economy, and appreciation over the longer horizon is a good thing. however, in an interview he added that short-term dollar gains can have not so positive effects. the messages similar to the one he delivered during his confirmation hearing, when he sought to clarify a comment by -- donald trump that he preferred a weak dollar. south korea has pushed back on u.s. pressure over its or in exchange policy and current account surplus. the central bank kept monetary policy unchanged. governor lee says the country only asked to check extreme swings in the yuan. there are concerns in the export-dependent country about the intentions of the trump administration. in france, emmanuel macron has agreed to a key alliance to boost his campaign. he says he has accepted an offer

of a deal to avoid splitting the moderate vote in april's first-round ballot. discoverynnounced the of seven earthlike planets orbiting a nearby star and says the new worlds could hold life. they are less than 40 light-years away in the constellation aquarius, tightly clustered around a dim work star. three of them are in the so-called habitable zone, where liquid water and possibly life might exist. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. francine: thank you so much. soon, but perhaps not yet. that seems to be the take away from the minutes of the reserve meeting. the fomc penciled in three moves , and projections released in december, are not convinced now is the time to take the next step. that could change at any moment, depending on the data. the markets are still not participating on the action in

march, pricing in just a 36% chance of a hike. the chief economic advisor of allianz is warning advisers. he tweeted, given context, recent data: an price probability -- and price, the probability of a march type seems too low. we bring in the cohead of ethics and rate strategy at ubs, and chris wheeler from atlantic equities. inc. you both for joining us. -- thank you both for joining us. never a dull moment. talk to me about w.a.r. p. -- wirp. the markets are not pricing march as a time they could go. why not? >> the fed would typically prepare markets for a hike. it is very typical that they go into a meeting with a 20's percent -- 20% chance, and they are not in the business of surprising markets.

they signaled there will be a rise. march is out of the question. , the fedle further up is signaling three hikes. we have months before now and the end of the year, when they say three hikes. we have french elections, data uncertainty. the data is strong, that inflation data not particularly. the optimal reaction of the fed is to be cautious. they stay behind the curve. the market is reasonable to price in something less. francine: isn't that dangerous? if you are behind the curve -- problems,nflationary possibly animal spirits being reignited in the united states. you have a higher dollar. i guess you should or could maybe watch that. you could hikee, rates very quickly, and you would have to do it by too much. themos: we have simulations on that, and there is a chance that two or three year rates or something like up to 80 basis points to low.

crucially, that does not mean people should be trading the next meeting. importantly, even if they hike a lot faster than what the market expects in the next two or three years, the 10 year rate is not going to be affected as much, because the long-term expectation is a good levels. francine: chris, what is your take? discuss to the background -- this goes to the backbone of wall street business models. chris: i think the message we had from the meeting this going to be at is slow process. it is not going to be sudden hikes. the market likes that. we know the market does not like too many shocks. the letter that came out yesterday, the market was comfortable with that. it is even more comfortable today. francine: what is already priced in, in bank share prices in the u.s. russian mark how many interest-rate hikes are priced in? chris: i would say -- this is

finger in the air. exactly how much have we built in? i would say probably two, may be a third at the end of the year, and then two for next year. something like that is in people's minds. what is that going to do for margins, and continuing to boost capital markets, particularly fixed income trading markets? francine: give me a sense of where you see the biggest value in the yields. yesterday, we watched a differential between the german and french to year yield. this is what we have today. this is u.s., german, and two-year spread. i brought it back to 2000. i do not look at this very often. compensation between these is at the highest point in 17 years. themos: this is one of the pockets where we see the most value, in terms of the fact that there is a huge amount of ,ptimism priced into the u.s. particularly real yields, and particularly the long end. at the same time, the amount of negativity. obviously, we have a lot of

uncertainty. i am not going to be the guy who will tell you if there is an upset in french elections, but if the medium outcome comes through and we do not have an upset in france, there is significant upside in europe. francine: i am going to ask quickly the same question to chris. what is priced in, in terms of uncertainty in the u.s., trade wars? themos: if you look at the mexican peso, which has been the poster child of this fear, we that theour estimate chance of a 20% tariff is already in the price. on the short-term, given what moves you could see in the back of this, it could move a fair amount. chris: looking at the u.s. bank stocks, if we look at citi, it has done well since november, but it lacked its fears. it has one of the biggest retail banks in mexico and business in

india. there is concern, particularly around asia and mexico, that they will have hits to their earnings. that is one of the things holding them back. withine: our guests stay us. chris wheeler from atlantic equities. if you are a bloomberg customer, thego> has, as well as video -- tech tv go on to your terminal. you can look at the video. you can ib me and show producers to ask questions to our esteemed guest. you can watch all our data checks and graphics, with charts and analysis. here is nejra cehic. group's earnings jumped 18% last year on cost cuts. recurring operating income climbed, beating analyst estimates. revivalch carmaker's and attempts to buy general motors operations. glencore has signaled the completion of a turnaround as annual profit rose 48% on higher prices and strong trading

results. $1.99ed profit jumped to billion, beating estimates. the ceo said the program to cut debt and strengthen its balance september 20ed in 16 is now complete. the chairman of bloomberg lp is a senior independent nonexecutive director at glencore. orange has reported an increase in 2016 earnings, on demand for faster broadband access in france and rising wireless sales in spain. it rose 1.3%. the company also said it plans to raise dividends this year. that is the bloomberg business flash. francine: barclays shares have risen to the highest level in more than a year as its capital ratio climbed more than expected. speaking to anna edwards earlier, the ceo was upbeat about how the bank had fared. >> i am very happy with our performance. i think fixed income areas of barclays did very well across 2016.

one thing you will notice, if you look at our credit, fixed income trading across the entire call less tend to beta to the market. we tend to have less long-term positions. when credit markets rally strongly, we slightly underperformed some of the desks that tends to have more capital focused on that business. we are more of an agency profile. when markets traded off, like they did the first quarter of 2016, we did very well versus u.s. competitors. overall, very much like how the investment bank performed. in 2016, if you take m&a fees, debt underwriting fees, equity underwriting fees, we were up year over year, one of the few investment banks that accomplished that. inthink we gain market share 2016. we like how we performed in the fourth quarter. some commentators, maybe

shareholders, wanted you to more aggressively shrink or reposition the investment banking path of barclays. you were very keen to hang onto it. are you happy with the decision, a year into your tenure? are you happy with the way you have taken this? -- going backur to the core investment banking revenues, we ranked fifth in the united states in 2016. that was up one slot from 2015. we were third in the u.k.. progress we have made. we like the balance of having a strong consumer business, particularly in the u.k., where we have a citadel position, if you will. balanced with the wholesale london andnchored in new york, but with a global presence -- we like the balance that gives to our profile as a company. i think it is a strategic advantage for barclays. thecine: still with us,

cohead of ethics and rates, and chris wheeler at atlantic equities. what you make of barclays and u.k. banks in general? they are dealing with brexit, but not doing a bad job. with thechris: barclays results today, we see continuing actions around the business. they are still against the capital targets, getting through the south african or african disposal. we saw this from hsbc earlier in the week. we saw this from credit suisse and deutsche. .t is a bit like hsbc we are seeing with barclays and a platform that maybe we'll bring in decent returns this year and next year. it has been a long haul. francine: i know it is unfair, because there are a lot of banks in different countries. they started, and they will end at different phases. can we say that by the end of this year, the restructuring for

european banks will be through? chris: with the exception of deutsche bank. maybe a couple of italians. i think we are getting pretty close to that. are not onlys firmly ahead of cost-cutting and restructuring, but it looks like they are going to get the benefit of rising rates, a better capital markets, of tax and regulation. they are getting a little bit of momentum which will keep them well ahead of the european peers, especially in the investment banking space. francine: we look at a lot of these banks and business models, and a lot of them will do well if their trading armed as well. is currency the place to be for this year? a good trade, you could do well out of it, but it could burn you. themos: the currency market and its volatility, i think that it has -- it depends on the currency. it depends on the trend. it has been quite volatile with

key events. .oth have increased a lot there is a lot of stuff going on, like the euro, so there are opportunities there. francine: chris, let me bring you to my chart. i think i show you every time. the looks attractive at moment, given the results and earnings we have? chris: it is interesting. if we look at the u.s. banks and where they are trading at the moment, they are discounting an awful lot in terms of the revenue story. but if you build in the possibility of the corporate tax rate coming down 10% or 15%, there is still some me to go on these banks. they will get quite a boost. the european banks do not really have to at the moment. they are going to have to do all that good stuff, generating revenues and keeping the cap on costs. francine: what are the ones doing better on others? we had credit suisse versus ubs. in the u.k., lloyd's came out

with figures -- chris: they are different animals. lloyd's has become what some people described as a dividend machine. i think they have done an exceptional job pushing down the costs, becoming a pure u.k. retail bank. that has risks attached to it, as we saw after the brexit vote. you can look at barclays and say it is getting to a situation where it might get close to pulling on deutsche bank's coattails, saying we are the biggest european investment bank. we are somewhat behind u.s. banks, but we are catching up. obviously, banks like ubs and credit suisse there is a story with wealth management and how wealth management develops over the next few years. that has been a great, high return business. francine: chris wheeler from atlantic equities and themos from ubs. theresahe 10 praises may. -- marine le pen praises theresa

may. we focus on the french election. ♪

francine: this is "bloomberg surveillance." emmanuel macron has received a boost in his run for the french presidency with the endorsement of the centrist mayor. he says french moderates must unite in what he calls a critical situation. because the risk is huge, and because the french people are

often disoriented and desperate, i have decided to offer an alliance to emmanuel macron. i tell him the danger is too high. we need to change things, and do it quickly. let's unite our forces to achieve it. national front candidate marine le pen has heaped praise on the british prime minister, theresa may. speaking on french television was night, she said may "running the u.k. using policies i want to run." all those who predicted apocalypse got it wrong. still with us, the cohead of ethics rates strategy at ubs, rate strategy at ubs. , you will see graphics that are even more telling about what we are facing. you can see live 10 -- you can see marine le pen well above , in white.cron

how will the markets play this out? are they worried about a possible le pen victory? themos: absolutely. we have sheen -- we have seen this shift. investors are finding ways to hedge that risk. scenario, it moved on to people seeing higher front-end rates in france versus germany. it gets very vulnerable when you have systemic episodes like that. as pressures intensify, broadening out on the periphery as well, more existential pressures -- francine: what are the real chances of marine le pen becoming president? what does it mean for the next day? themos: the main thing this year ,s that, in the second round

against a centrist candidate, she has a certain ceiling and how many votes she will gather. centristare the candidate prevails. the odds are not showing that as impossible. that makes markets nervous. saw volatility, and unforeseen event. we saw the presumption that there could be some kind of deal, as an unexpected twist. francine: talk to me about french banks. are they immune to political risk? bnp is green, a shade darker. this is the top one, and societe generale. chris: the french banks -- we talked earlier about the restructure of the banking sector. french banks price this earlier than a lot of their peers. they do a lot of deleveraging in 2011 and 2012, very much in line

, and they have been disposing of businesses in greece, and eastern european businesses. banks withtrong strong domestic businesses. if we have an election result which is unexpected, just as we saw with brexit and lloyd's bank , regardless of the quality of these banks, we are going to see quite a dip in the news. francine: do you see parity with the dollar? themos: we think it is not the most likely scenario, even if you get a difficult kind of elections, of french because of the exact same gap you showed with yields being this high. is, ite market will do will revisit all these assumptions about tightening, acceleration of growth, global recovery. that would put them on the back foot. decline in u.s. yields would offset the dollar. the bond market would be more volatile. francine: what would need to happen for you to change your mind? themos: obviously, you need to

have things moving into a place where you have existential risk for the euro. you have le pen coming in as president. , after le pen, a national assembly vote. francine: thank you for joining us today. up next, will germany's central patrimony? the final accounts from the bundesbank. we talked to the man himself. this is the picture overall for the markets. they are still trying to digest what the fed minutes meant, while rebounding. ♪ with x1 you get the best of the oscars.

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the oscars, live sunday, february 26th 7eâ4p on abc. francine: this is "bloomberg surveillance." here is nejra cehic. nejra: barclays shares have risen to the highest level in

more than a year as its capital ratio climbed more than expected. its fourth-quarter pretax profit jumped from a loss a year ago. the ceo also said the bank is nearing the end of its restructuring plan. >> all the efforts of last year means that in june of this year, anwill no longer have inaugural business unit. this bank will be what it wants to be in the future, and allow us to look forward. and theforward to restructure our barclays that has been going on for years, in a matter of months. we think shareholders will respond well to that. u.s. federal reserve officials have expressed confidence they can raise interest rates gradually. the minutes of the fomc meeting show that a hike early soon might be appropriate to avoid the risk of an overheated economy. traders are still pricing in only about a one in three chance for a rate increase on policymakers meet again next month. south korea has pushed back

against u.s. pressure over its foreign exchange and current account surplus. the central bank cap monetary policy unchanged. the governor said they only act to contradict extreme swings in the yuan. there is concern about the intentions of the trump administration. presidential candidate emmanuel macron has agreed on a key alliance to boost his campaign. he has accepted the offer of a deal to avoid splitting the moderate vote in april's first-round ballot. and nasa has announced the discovery of seven earthlike planets orbiting a nearby star, and says the new worlds could hold life. they are less than 40 light-years away, in the constellation aquarius, tightly clustered around a dim dwarf star. three are in the so-called habitable zone, where liquid water and possibly life might exist. global news powered by wind and analysts in more than 120 countries.

i am nejra cehic. francine: thank you. this is a big deal. certainly develop the imagination of a lot of people watching. many central bank is bracing for losses that may be triggered when the ecb eventually unwinds its bond buying program. the bundesbank president has the opportunity to address the matter when he presents the annual accounts this morning. manus cranny is in frankfurt, speaking to him later on. i am so excited about this interview. what are we expecting? i think as you arrive in germany, you get a sense of what the word prudence means. i think he is probably going to take prudent steps to prepare the bundesbank for potential losses in the future. the provisions have not risen that much in the last couple of years. the cost of quantitive easing is the cost of keeping europe afloat, if you want to think of it in broad terms. the bundesbank has nearly 300

billion euros worth of government bonds. they are negative yielding all the way out to your eight. that is what we have to deal with in terms of annual accounts. weidmann said monetary policy decisions solely serve the goal of price stability, not central bank profits. we expect an increase in the provisioning, but look at those government bonds again. record low after record low. the hamed el-erian wrote this morning and said, the ecb, of which they are a fundamental part, cannot catch a break. i want to know the risks on jens weidmann's radar as well. francine: how strong is the german economy? yields record negative lows. it is pumping on gas. think of it this way. inflation is up around 2%.

the specter of deflation in burner,s on the back but inflation is up, and that is a heinous word in this country. it brings back a concept of everything that germany has fought against. when you think of the ceo's and ceo's we have spoken to across programming, there is a hint of caution. the question is the risk on global trade from trump in the white house. those risks, internal risks in europe -- in italy, in france. le pen risk is rising. peter frank talking about some of those risks. i think the risks are manifold. what does that do to the tapering conversation? when does the ecb, of which the bundesbank is a critical voice, talk about tapering? "cut me a break" is what i hear germany saying. we have done our it in terms of

quantitative easing. francine? francine: manus cranny with the very latest. the interview of the day, so stay tuned for that a couple of hours from now. fx welcome the head of advisory in london. 2012,n see this, back to down. this is the zero line. it touches below zero, goes to negative territory. minas 0.8. -- minus 0.8. what are people worried about? >> primarily, the french elections. the flip side of the increase we have seen in french yields is the decline in german yields. there are a number of other technical things going on that are pushing particularly the front-end of german yields down, which is not so much a worried. it is things like intervention by the likes of the danish national bank. francine: that support. steven: as you say, the ability

the -4%uy bonds below the positive right -- deposit rate. the main concern is bonds. francine: what would you ask mr. jens weidmann? do you just want a reaction from him, or peter navarro, the traded visor from donald trump? he is accusing everyone of cheating america. how does germany reacts to that? steven: an interesting thing is, it is not just peter navarro. the e.u. saidof earlier in the week about various eurozone economies -- it criticized the large current account surplus, 9% of gdp. scoring of the u.s.'s of who might potentially be a currency manipulator, obviously germany is not just up there, but well ahead of the likes of china, korea, and other countries. that is a huge surplus. and obviously, weiss -- wightman

widemann's response is, we eurozone andhe cannot necessarily impact the euro. the euro is too strong for germany. probably, there is a question. eurozone and cannot necessarily impact the euro. how do you get over that can problem? my argument is that the euro , as far aso low germany is concerned, but it is probably too high for a lot of other countries, because the flip side of the big current-account surplus we see in germany is deficits elsewhere. although they have improved, there are still a lot of problems in periphery eurozone countries. francine: what kinds of problems? steven: the current account surpluses are still quite significant. budget deficits obviously are quite significant as well. he saw the e.u. earlier in the week, criticisms of italy and other countries, france also. so there is a problem of

indebtedness, whether it be government indebtedness, external indebtedness. that, for me, raises issues or? 's about the longevity of the e.u., going forward. these strains in the eurozone are so substantial. germany has a strong economy, a strong current account surplus. you have everyone else trailing behind quite badly. until that balance improves to a degree, i think there are always going to be these questions. francine: but the argument that germany has made many times is that they are also the ones that funded the bailout for a lot of peripheral countries. we would be in a vastly different eurozone that could not provide relief. right. i think that is obviously, there is a financial relief which kind of comes almost automatically. but there is that financial relief. what the e.u. is saying, what the imf is saying, what the u.s. is saying, is that germany needs

to provide even more relief. germany is racking up a budget surplus as a consequence of its growth, and it is not using that sufficiently to cut taxes and increase spending. there is some of that going on, but it is not sufficient to lift up the other bumps in the eurozone, the other countries. francine: stephen barrel stays with us. coming up, my confidence among u.k. exporters is on the rise despite exit uncertainty. the details of the latest report. beat.t profits we are live at the french carmaker's headquarters. and we speak to the austrian chancellor about the push back in europe. ♪

francine: this is "bloomberg surveillance" in london. let's check in on the markets with mark artan. mark: barclays shares up as capital ratio climbed more than expected. the bank made progress in efforts to do best its africa unit. fourth-quarter profit did miss estimates. the firm recognized higher costs from deferred bonuses. the five major u.s. investment banks collectively posted a 43%. barclays penciled in a 40% gain. rbs, barclays, and lloyd's, in order. barclays today up by 33%. glencore in the news. the commodity trader and minor

posting a greater than estimated rise in annual profit. higher prices from trading results. what a turnaround it has been from the crisis in 2015. investors dumped shares on concern that debt was too high. along slumping commodities a year later. borrowing hard. of asset sales, cost cuts, and rebounding prices, rebounding share prices. glencore is up by 3.68%. today in a record europe's biggest defense company, posting a better than estimated 13% gain in four year earnings. u.s. military spending taking up . weapons were deployed in syria and in yemen. this is the spread from -- the spread, francine, the gap between the french and german tenure. it rose to an intraday high of 83 basis points yesterday. that was a 2012 high.

it slid back to on a 3.7 basis points, or roughly is today. keyon agreeing to a alliance with another centrist politician. the same political space if he had run for the presidency. whoever cleanses the second spot in the runoff will become the --rm favorite to be france's the strong favorite to be france's next president. fillon would win by a narrower 57-43. the spread something we will keep watching every day for the next couple of months. francine: mark barton there with all the charts. confidence among u.k. exporters as sales rose in the fourth quarter of 2016, according to a survey i the british chamber of commerce. the report says the result serves as a reminder that businesses are getting trade despite of the uncertainty around brexit. it also says that to maintain

this positivity, the government must focus on helping exporters recruit, to close a growing skills gap, and help those seeking to navigate currency situations. stephen barrow, an economist in london, is still with us. what happens to the pound? that will be crucial, navigating these currency fluctuations. steven: i think it depends what currency you look at. for euro-sterling to move substantially. i think sterling is likely to weaken against the dollar. target is for a move down to 1.15. that is partly the reflection of a stronger dollar view. things are coming up that could potentially start to weigh on sterling, once we get into the brexit discussion. i think it will be clear how sticky that is. the middle of next month, the scottish national party conference in aberdeen -- that could see the s&p decide for a

second referendum. that would be a major -- a negative event for sterling. francine: how negative? do we touch parity with the dollar? steven: i think that is unlikely. i think it would have to come more from the dollar side. i think back to pre-the brexit .eferendum in june of last year the argument of the time was if e.u., a vote to leave the sterling would decline by around 25%, and we have seen that at the worst, as far as sterling-dollar is concerned. it is 17% or 18% down. i think if you look at the parity of you, thinking in terms of a massive rally for the dollar, we think the dollar get stronger, but not that strong. francine: we focused a lot on this program about the u.s. a possible democratic problem in the u.k., that you do not have

enough people coming into this country. the population is getting older. you have less investment. you have rising inflation. obviously, it is not looking good in terms of growth and the budget. i know that recent figures on the budget side have been a little bit more encouraging, and there is some hope in the next budget coming up that the chancellor will not have to be so harsh, as it were. that may have some scope. as you know, i think the demographics do very much way against the budget situation. speaking before the break about some of the twin deficit problems you have in some european countries, the big budget deficits and current account deficits -- that is a worry, with sterling going forward. francine: do you worry about inflation? if you are a mark carney pham,

-- fan, to what point? theen: it depends on government. we have seen the bank of england performed through inflation to a substantial extent. inflation has risen above 5%. the bank did not raise interest rates through that period. you could say that is because economies are weak. you had a financial crisis, i eurozone crisis. i think you will find a good deal more tolerance at the bank of england, or within the bank of england, for higher inflation. perhaps the government might seem to be letting on at the moment. if there is a change in policy, i think it will be an easing. year, if we do not have to ease policy, the weak,my is not so week -- even as you look into next year,

probably not until the second half of the year before rates move up. francine: thank you for joining us. up next, profit for peugeot group. it continues its revival. we go live to peugeot headquarters. ♪

francine: this is "bloomberg surveillance." here is nejra cehic. nejra: glencore has signaled the completion of a business turnaround. annual profit rose 48% on higher prices and stronger trading results. adjusted profit jumped to $1.99 billion, beating estimates. is chairman of bloomberg lp a senior independent nonexecutive director at glencore. orange has reported an increase in 2016 earnings on demand for france or broadband internet in france, and rising wireless sales in spain. it rose to 12.7 billion euros. the company plans to raise dividends this year. elon musk says he still plans to deliver his mass-market electric

sedan in july. tesla says the sedan remains on schedule and will reach production of about 5000 units per week by the end of the year. reassurances on the timing should help ease concerns over whether the company can overcome its long history of product delays, as well as the impending departure of cfo jason wheeler. that is the bloomberg business flash. francine: the maker of peugeot cars, psn group, has reported earnings of 18% last year, after the ceo spoke to the u.k. prime minister theresa may yesterday in an attempt to reassure her about jobs in the event of a takeover of gmo's european business. bloomberg's reporter is live in paris. what have you learned from peugeot executives about the gm deal? >> the ceo did not want to give away too much, because he repeated that this deal is not done yet. we should learn more about it over the next two days. that will be before the end of next week.

was in aaid that opel situation compared to the 14 years ago. that is when psa had to be bailed out by the french state. psa wasime, you know, burning a lot of cash. islos said today opel burning as much as $1 billion of cash every year. he said that psa-peugeot is ready to help that brand. i asked the ceo whether he was concerned of -- about increasing the dependence of the group on europe, cause if we have a combination with opel and vauxhall, that would bring the market share in europe to 16%. i asked whether he was concerned about increased dependence on europe, and whether this was a first step toward an expansion in the u.s. : there is nothing wrong

about being strong in europe. by the way, it is perhaps something specific to understand how the european market behaves and works. so there is nothing wrong about creating a european champion. so we would be fine with 17% market share instead of 11%, as long as we are profitable, and as long as we have the ability to run the company properly. on the point you mentioned, it is too soon to talk about it. but one thing, of course, that would unfold, if this deal was to happen, is the capability at one point in time for opel to export outside of europe. that is a possibility we have in mind. francine: caroline, what concerns to analysts and investors have about takeover? caroline: there are a lot of concerns about the valuation of the deal. it is estimated to be around $2 billion. synergies and how many job cuts this could have in the u.k. --

voxel in germany and france's taveres repeats he will keep all the jobs he can at these brands. the concern also is whether peugeot is doing too much at the same time. you know he is also trying to buy the malaysian carmaker proton, which owns british carmaker lotus. i asked whether this was too much at the same time, and he said, we have big ambitions. francine: "surveillance" continues. ♪

francine: there is division.

the minutes are concerned about rates colliding with those firmly. parisench connection in throwing support behind marine le pen ashy has charges against ahead of her. a push back. a new policy agenda supporting the right-wing freedom party remains strong. we speak with the chancellor. good morning. this is bloomberg surveillance. lacqua in london with tom keene in new york. there seems to be a lot of focus on yields. if you look at the dynamics of yields it says something about a lot of the tensions. the austrian interview is interesting. that seems to be where every conversation goes, immigration

and migration. cruria is in the cible of that as well. will get back to the markets and central banks. first, is go to bloomberg first word news. : policymakers are not convinced that month is the right time to raise interest rates. they worried about foot dragging when economic reports were solid and those that were concerned about the economy. not releaseump will his revised immigration order until next week. a literature is a legal objections that blocked his original plan. that restricted immigration and band to travel to the u.s. from seven was one-majority nations.

rounding up undocumented focus ofs to be the talk between rex tillerson and mexican officials. have calledpapers the deportation plan a war against mexicans in the u.s. acceptsays they will not trump's plan. marine le pen said she is like theresa may who is taking her country out of the european union. during the pin is the front runner in opinion polls, but surveys see her losing in the runoff phase of the election. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: let's move on to the data check. equities, bonds, currencies, commodities. we are focused on the same

thing. let's move on to your board as we get to the chairman two-year. francine: i wish i put it in my board. i have it as a chart. global equities are mixed. oil is rebounding, dollar, little changed. tom: we do not talk before the show. francine and purposely do that to keep it fresh. here is the two-year u.s. spread way back. i will focus on the history as friend scene looks at the immediacy -- as francine looks at the immediacy. the german yield higher than the u.s. yield. you go to the flip conversion of a struggling germany. this takes up your chart, the rollover to negative yields in germany. francine: it is the same chart.

i brought it back to 2000. the extra compensation that the u.s. two-year notes offer over the german counterparts is 17 years. this gives investors reason to go to treasury markets. something we need to keep a close eye on is the spread between germany and france widens. tension in the ranks with members worried about foot dragging as economic reports look healthy. the other side shows a willingness to look for clarity. l said in increase may be appropriate in the future. is james women. a quick overall light on the market. what is driving the market? trump administration, central bank? james: better economic numbers

supported by trump policies and expectations he will cut taxes. that led to a huge shift in animal sentiment. china credit is also being helpful. i worry that it is going to run out of steam. francine: what happens when it does that? is a substantial premium. investors may prepare to put up with excesses valuations. i cannot make the mathematic aluation standup in relatively contained dress. the only reason you would hang on is that you were either convinced growth numbers will around $140.ially sorry, tom. tom: i did not mean to interrupt.

linkagelooking at the of the markets. to between fixed income and equity, or has the world gone mad? james: the world is slightly mad. they are heavily influenced by the actions of central bankers. central bankers are holding yield at levels that were not consistent with the medium-term outlook for economies. seems investors are recognizing there will be a pickup in inflation in the states, that the yields in germany are justified. investeddo you stay given the lift in equities? wha rationalization allows you to continue to own shares? james: the expectation there will be a cyclical upturn in

activity levels with operational levels will prosper. in contrast policy growth stories, companies with the sustainable high return on equity, decent, quality long-term sales lines will prosper. they looked cheap. unilever is case in point. the share prices are too low, we should be there. francine: unless there is a trade war. these companies rely on supply chain. james: you have to look at the develin the detail, it is a game of detail. these companies subtract margin by controlling their supply chain. i anticipate this is a game for big cap relative to small cap. austria's government coalition had a policy agenda averting the threat of a snap

election that could have brought the populist right to power. let's go to matt miller with the austrian chancellor. matt: thanks. thank you so much for joining us. the 10-year plan you have put her. forth. you want to reduce income inequality partially through taxing robots. .> it is one element i believe we are living in a time of accelerated change driven by globalization. the integration of our economies would put the economies in a box and lock it up. how can we deal with that so that is a big opportunity we have, and how can we avoid the detrimental effects? ation means there

are opportunities but the risk of increasing inequality. we have to answer how can we countries andr finance our social system. the idea is to develop something more creative. that mr.mfortable gates share the idea and supported it. matt: what does he think about the grand coalition helping people that already live in austria get and maintain jobs, people coming from the outside, immigration, hinders them from getting jobs? mr. kern: we are not tendering any party. not preventing anyone to come to austria that is a european citizen. our challenge is to reduce

unemployment. dynamic. good job last year we created 60,000 official jobs. unemployment is nevertheless going up. there is a difference in the average wages between austria ies its neighboring countr . austria is fourto five times higher than romania and hungary. the concert went is people are ising -- the consequence people are coming. we have decided to give incentives for companies that employ people that are unemployed in austria and have austria.ated in it is for all people living here, being educated here. it is not tendering people from other year -- tendering people from other european countries. donald trumpthink

learned something from austria's immigration policy? mr. kern: i don't think so. we have been very generous. we have received the most migrants in europe and we are proud of that. we have had a big challenges spending money therefore, but this is a different case. unemployment is our against challenge. if we are not fighting unemployment, this will support populistic parties. people whohinder have the same ideas as mr. trump from taking our in austria. matt: we heard a different message from vice president mike pence than from donald trump. as chancellor of austria, where do you take foreign policy? who is speaking for the u.s.?

mr. kern: it is difficult for the time being. trump byo judge mr. his actions. -- wek the muslim ban need these countries as allies. it doesn't make sense to say we do not want to cope with you. we have to sit down, be calm, and look what his next steps are. not judge him by his tweets. matt: the u.k. voted to leave the european union partially because of immigration. what you inc. of the strength of the eu right now? aboutrn: we're talking the biggest and most dynamic economic bloc in the world. the european union is a

community of countries who share , ruleme values, democracy of law, equal treatment of women and men. the story of the european union, its legacy, is bigger than just dealing with migration. tt: what about tax policies? part of your plan is to get money from companies like taxes.k and google in sharedre be a strong eu tax policy? mr. kern: there has to we are progressing at a slow pace, but likestria big companies google and starbucks are making big profits in austria and they are being pocket money taxes. in vienna, every sausage store or coffee house pays more taxes than starbucks and google.

it is not acceptable. matt: chancellor merkel also called out starbucks. are you using the same company as an example? have you talked to the chairman of the starbucks? mr. kern: we are doing that. have nottely, they ow.n charged up to n they will be further rulings. it is necessary to demonstrate this is not acceptable. we are paying our taxes. the big companies are not doing that. it is detrimental for social creation in our countries. matt: are you concerned about may cause? theresa may has threatened to make the european union pay a tax haven. mr. kern: this is a concern but

we have to judge the procedure step-by-step. it will be a long negotiation. it will not the as easy as the british expect. thus look at what the outcome is. i know that mrs. may is reasonable. they have good reasons for trying to avoid damage for the economies of our countries. matt: outside of politics you austrianng the railways. have you thought about what britain will have to pay to leave the european union? it will be costly. mr. kern: it will be costly because there are financial obligations. my concern is the rights of european people living in great britain and great britain people living in europe. we should not punish the british , because it was a decision.

a member of the european union has to be better off than a nonmember. it isespect to that, going to have some costs. matt: mr. chancellor, thank you for your time. matt miller joined by the austrian chancellor. listening to this interview together. they touched on a wide range of issues. what struck you the most? tech ishe issue on fascinating. it is a challenge for the global economy. i worry about the expectation there may be a tax on robots. that seems to me to be bonkers. bonkers, this is a technical term.

you are saying this goes back to 18th-century mercantiles? should makewe maximum profit then use that to societies benefit through taxation. the production function by altering the costs, and not the demand or revenue chain. it is backward thinking. tom: help me with what the chancellor said about immigration. in the wall street journal, there is a spectacular set of charts on how the u.s. peopleing. is de- to important is immigration the animal spirit that leads into revenue growth for their businesses? heart this is close to my . i worry about the cessation of people, not only because of

animal spirits, but because of demographics. there will be a drought on economies in the uk. we have a dawn doing scale of working population relative to the elderly. the state pension obligation is the principal challenge in cutting the budget deficit. they cannot do anything unless they change the pension arrangements. they are only payable if we have more people working. we can only have more people working if we have more immigrants. francine: we will have to follow that debate further on. coming up, we hear from the deutsche bundesbank president. this is bloomberg. ♪

francine: this is bloomberg surveillance. i am francine lacqua in london. tom keene in new york. barclay at the highest level in more than a year. earlier on, anna edwards spoke to the ceo of barclays. i am happy with our performance. fixed income credit areas did well across 2016. you will notice if you look at credit and fixed income trading we have less beta to the market,

less long-term positions. when credit markets rallied strongly we will slightly underperform some that have more focused on that business. we are more of an agency profile. when credit markets trade off like in the first quarter of u.s.we did well versus competitors. much like how the investment bank performed in 2016, taking underwriting, debt fees, we were up year over year. one of the few investment banks that accomplished that. we gained market share in 2016 and we liked how we performed in the last quarter. >> aggressively shrinking or repositioning the investment banking part of barclays. you are keen to hang on to it.

are you happy with the decision one year into your 10 year. are you happy with how you have taken the strategy? >> going back to the core investment banking revenues, we ranked fifth in the and nine at states in 2015. hird in the u.k. we like the progress and we like the balance of having a strong consumer business, particularly in the u.k. where we have a sitter dell position -- a position, anchored in but with anew york global presence. we like the balance that gives to our profile. it is a strategic advantage for barclays. james, what is your take on barclays' restructuring?

the focus on growth? james: i think he has further to go in that we have not seen the real fruit being born from the lehman act. optimistic during the global financial crisis. i would expect a further extension of margins and growth before we have an acquisition making strategic sense for them. speak down cold. this is an unfair comparison. the blue line jp morgan. let's call that the best case out ofthe lehman lows the bottom. coming out of the lehman lows are equities has a huge outperformance versus jp morgan and has not gone anywhere. what is the catalyst to barclays' banking, to the united kingdom banking?

james: we have to get an end to the regulatory malaise. thating of the challenges have been ongoing, protection insurance, for example, added 1.5% to gdp by putting money in people's pockets which they spend. it is not clear that banks in the u.k. have addressed bad debt problems. there will be a lot of bad loans they still have to reconcile. tom: we will come back on this. ♪

a thursday, a beautiful thursday in new york. unseasonably warm. it is beautiful, beautiful for

this time of year in new york city. we welcome you worldwide. york.om keene in new markets are there. we are waiting for more information on the german two-year yield. let's get transfixed i first word news. new planhe president's to do for it undocumented immigrants is likely to be the focus of talks between secretary of state rex tillerson and mexican officials. mexican newspapers called the deportation plan a war against mexicans in the u.s. that trump administration handed a victory to social conservatives. obama-era policy about students and bathroom saying that they should use the

tohroom that corresponded their identity. singling there's confidence in the u.s. economy. short-term dollar gains can be good or have not so positive effects. president trump suggested he would like a weaker dollar that would help shrink the trade deficit. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. am taylor riggs. this is bloomberg. relations with india are strained over immigration policy. one point of tension is president trump's plan that will hit indian i.t. workers in silicon valley. we are joined by a british entrepreneur. .he chairman of cobra welcome to the program.

give me a sense of what you worry about. you are a businessman that is pro-global and pro trade. you worry about immigration policies or trade wars? >> i have been speaking in the house of lords in a record debate, two-days with 184 speakers about the european union and article 50. what is clear to me is the uncertainty looking ahead. it is worrying for this country. in that uncertainty we're not trying to block the pressing of article 50. androle is to scrutinize ask the government to think again when we think that should be the case. it is wrong the way the government is going about it. they're trying to ignore parliament altogether. it took a court case to go to the high court then the supreme court.

francine: now it has the blessing of the house of commons. unamended.completely when it comes to immigration, we just heard about u.s.-india relations. one of the first to speak to donald trump when he became president. one of andy's big services is i.t. services. said we are all for doing a free trade deal with the united kingdom in the future, but you lisa's,look at immigration, and students. if we are going to do trade deals, it is not only paris, it is the movement of people. november, they put up the minimum wage for indian i.t. workers by 50%. you say you will make it less competitive cover that went down

very badly in india. tom: the united states of america is in a debate over immigration's and almost in a clash of cultures. going back to bangladesh, sri lanka, what is your wisdom and elites in the united states attempting to bring the country together? karan: i lead a debate in the house of lords about the contribution of the minorities and religious minorities to the economy and kingdom. there is a bad and illegal immigration that no country wants and every country wants to clamp down on her do look at the you realizetion and that without that immigration come of this country would not be the fifth largest economy in 1% world with less than

of the population. the immigrants contribute to every aspect of our lives. we had a country three decades ago where there was prejudiced and racism. britain has evolved to where there is opportunity for all. you are seeing ethnic minorities reach the top in every field whether it is business, sports, or politics. good immigration is essential. one of the most unfair things, we have 3 million people living and working in the u.k. from the european union, they say they are burden on the country and services and we need more schools and hospitals. those 3 million people work in agriculture,ector, ildstruction, we need to bu more homes. the national health service, there are 160,000 people from the european union that work in sector.

without their contribution to public sectors could not cope. have the highest level of employment in living memory. unemployment at 5%, the lowest in living memory. all those european union and more, we need that immigration. tom: what are the leadership attributes that gives the united states back to where thomas jefferson was with the house of burgess and religious freedom many centuries ago? how does america find the leadership skills within the republican party and this getident's party to back to what you described in your united kingdom? karan: we have looked on the united states as the ultimate country of immigrants. the most powerful country in the world built on the contribution of immigration from around the world. my country of origin, india, the

second largest population in the .k. the united states, one of the largest communities is the indian corporation. who is running microsoft, google, mastercard, an indian. they are doing fantastically well. one example of what the community can establish be at the dean of harvard college is an indian. that is how brilliant indians are doing in the united states of america. long may that continue. francine: the problem is people know this. we have seen surveys and the facts. there is a wave of anti-globalization and populism that blames the foreigner. hat andyou stop ta reconnect with people's emotions to where they start looking at facts more? james: one of the root causes of

the problem has been technology. onset of the first industrial revolution, the application of technology has been about the creation of jobs. and now that we have technology that replaces people, people are angry. mrs. may, i worry that she is 80dering to an electorate million people who voted for brexit and may vote for her if she says the same thing, and she end up with a majority that is unheard of. -- cine: we have less than 5% unemployment. we have one of the highest levels of unemployment we have

ever had. you need to him regret labor -- across thent labor board. in london, look at the hundreds of thousands of emigrants contributing to it being the number one financial sector in the world. it is a fear that people have. we need to address the fear. to prime minister wanted remain. she changed her mind and it is brexit at all cost. government can change its mind. government can decide. the public, when they wake up to facts may change with the elections coming up in europe. a lot of things can happen in the coming year, let alone people waking up to the real facts about contributions to the european union. 8 billion pounds is 1% of the public expenditure for a year.

in context maybe they would say maybe we should not be leaving. tom: a good friend to this show at the london school of economics would suggest we need humility within his book "hubris." where is the humility of modern leadership to bring together the massive inequalities, in the ,nited kingdom, america, europe where is the humility to get the ?ilded age less gilded karan: you need to be ambitious, but humble as well. tious.eds to be humbi it is unfair to bully people and say to be not for being pro-brexit is not being patriotic. that is not being humble. harsh, andng blunt,

bullying people. to say to the house of lords if you do not back us that is the end of the house of lords, that is not humble. leadership needs to be more sensible and balanced. this result should have been a super majority. it is a 52-48. you have to take 50% of the population with you, as well as many that may change their mind. a decision on 51-49 verses six to 40. we will continue in a moment. we are looking forward to this. orse from citigroup in the next hour. ed morse. this is bloomberg. ♪

francine: this is bloomberg surveillance. always a good time to talk about france. always, continuing with independent candidate marine le accepting an offer. investors are pouring money into etf's in french stocks. let me bring you to my bloomberg terminal. yesterday i was watching eu tv go. you can see they change for terminal users. i want to go back to the checker. shots for the first round, it has gone back up to

38.7 with a little bit of fortune asian uncertainty. the second round seems more predictable. ande back with james bevan karan bilimoria. we saw a huge spread between the widening of the spread between german and french yields. with that continue until the second round? will: i do not expect it continue by as much. when people dig into the detail, it is clear that madame le pen has essential dislike in the population. share of the vote, i do not think it will go up that much. in physician, we should be backing world-class companies that know how to make money through cycles. it will play extremely well in

the next year. francine: i was watching french tv too late. madame le pen was talking about theresa may. she is running using policies that all the lights are green in the u.k., all the verdict it -- all of those that predicted apocalypse got it wrong. how uncomfortable with this be for theresa may? karan: one thing i said in the the referendum, that even though i am a eurosceptic, i think even the referendum, tht even though if the european union disintegrates in the future, i would rather we were at the table so we would be in the picture come to be able to know what is going on. my biggest worry is that we might be the catalyst with the to the european union. already many say that brexit,

donald trump said this will be brexit times 10. le pen sees it as fuel to her fired. could be the catalyst over there. i hope it will not happen. what macron appears to be the case is that -- what appears to be is that macron is on course. tom: helped me with the state of french business. we had a wonderful interview theerday with the ceo of giant oil company. is the french business community , or will theyh become more anglo-saxon-ish to survive in europe? i worry that the regulatory environment in which the french operate remains glacial in reform.

it is difficult for french companies to pursue and improve capital employed. it is hard to discern the practical coal face of french management. tom: i look at this and i look at the charts, you know what a payroll is. do you have a sense there will be a new france and business spirit out of france after this election? karan: i think that people underestimate the power of french businesses. tom: i agree. many giant, are so global, household names that we take for granted. they have the ability to do that here they are phenomenally capable as a country and economy despite the handicap of restrictive labor laws.

if they freed up their economy they could be a powerhouse. we export every company in the european union and france is our biggest market. we should not underestimate the capability of corporate france. francine: stay with us. if you are terminal user check out your terminal. you can go tv and follow our charts and guests are do you can ask direct questions to the producers to tom and i there. this is bloomberg. ♪

taylor: this is bloomberg surveillance. musk says tesla is on track to deliver the model three sedan in july. that overshadows 2 other headlines. tesla's cfo is leaving and they would run close to the edge without another cash infusion. overg up a title, ending day-to-day of running nissan to

a lifelong nissan employee. he will remain chairman and focus on revamping mitsubishi motos. he will remain ceo of french carmaker renault. francine, tom? must-read, notg on economics, germany, france, or the president. nissan and tesla. he will not be forgotten. if there's one thing that is clear from the literature of mr. ghosn, he has been comfortable delegating. it is now worth more than its yokohama counterpart, despite annualt that it is

production is equivalent to five days' worth of nissan's output. it is clear that mr. ghosn will continue services with mitsubishi. harkens back to unilever and what we have seen about how corporations handle themselves. francine: unilever was definitely something we need to focus on, but different from the past. i do not know if you could make parallels. unilever decided it 2 days to smash it down. the first time i had seen in 15 years that a company said us, this doese not make sense, and walking away after three days. about this was really industrial logic rather than

financial engineering. it is very attractive as an investor to see a debate of how you improve margins through ongoing business activities, driving revenue growth, as opposed to how much can you get on the balance sheet? karan: if you think about who is behind it, the same people that are behind ab inbev. -- unilever is an ancient company, household names like dove and marmite. great brand builders and guardians. if it is not on at the right to value, it will not happen. this was undervalued from everyone's point of view. happening what is with the currency, 2008 jaguar-land rover no one wanted the company. it is one of the great

manufacturing success stories of this country. they are record of through investment, innovation, exports, and wonderful products turning the company around based on the right principles. it is possible to go against the grain in the worst recessionary times as well. tom: this has been an exceptionally productive hour on surveillance. radio.e will join us on citibank on oil, the massive long bet. stay with us, this is bloomberg. ♪

tom: this morning, there are two secretaries the president

mexico. they will explain president trump's view on the deportation of illegal immigrants. they will explain a wall. our michael mckee is in mexico city. there is a one-way bet on oil. oil will go higher, where certain, and this hour, edward morse of citigroup. manus cranny and conversation with the president of the bundesbank. good morning, this is "bloomberg surveillance." live from new york, i am tom keene. with me, francine lacqua. absolutely remarkable to see the secretary of homeland security in this newly minted secretary of state in mexico city. just extraordinary. francine: i imagine they are being sent out as kind of like these brokers back two hundred years work. i'm looking forward to what will come out of the meeting. the meeting is the story of the week. we will get to that in a moment. to our first word news, here is taylor riggs.

taylor: we are starting with that in mexico, the president's new plan to roundup and deport undocumented immigrants is likely to be the focus of talks between secretary of state rex tillerson and mexican officials. newspapers and mexico have called the deportation plan a war on mexicans in the u.s.. mexico says it will not accept the trump plan. in the u.s., president trump will not release his revised immigration order until next week according to a white house official. the president has said the new executive order would address legal objections that blocked his original plan. that order restricted immigration and band travel to u.s. from seven predominantly muslim nations. in europe, france's presidential candidate says she is like british prime minister theresa may is taking her country out of the european union. le pen said in an interview that may is running the u.k. with policies that she would implement as president. le pen as the front runner and first round of opinion polls, but surveys see her losing in

the runoff phase of the election. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. riggs.ylor tom: thank you. let's get to the data. riggs. futures turn today. -- churn today. oil with a lift. that is because edward morse walked in the building. francine: a mixed bag when it comes to earnings. our great shares up. investors trying to figure out what the numbers mean. they're hitting a pause button in europe. the german two-year yield at her record low, but not lower than yesterday. tom: edward morse is with us. we're going to talk oil and we will talk on oil and mexico in a minute. first, we need a briefing. kevin cirilli in washington, our

chief washington correspondent. and michael mckee is in mexico city with the secretary of state. and the secretary of homeland security. would you please explain to me how these two cabinet officers will be greeted at the mexican leadership? tensions areal higher than they have been at a time when business ties or stronger than ever. do they inflame tensions or cool them, which is the ostensible reason for them being here? kelly's deportation orders out this week, a real case of bad timing. they have not been received well here. sayingeign minister yesterday to reporters, he might take this whole issue to the united nations. "the government of mexico and the mexican people do not have to accept the visions that one government unilaterally wants to impose on the other." this scares investors because of the north american free trade agreement and how much it means

to both sides. tom: what is so great about this, mike, thank you for that quote and the key phrase "unilateral." then cirilli, administration's 24/7, unilateral. when is that going to end? then: i think administration is hoping they will be able to negotiate deals with canada and the u.k., and actually send a signal to mexico as well as other countries around the world that they are able to negotiate these types of trade deals individually. all of that said, we are still waiting on the other round of executive orders to impact the middle eastern countries. that has been quite controversial. this administration facing two fronts in terms of executive action on immigration. not only with what is happening in mexico, but also the middle east. that we're getting word, will not come until next week. francine: what could be renegotiated in the treaty, mike? mike: the mexicans have made it clear if they want to negotiate,

they're open to negotiating workers rights, environmental standards. they could do things on energy corporation. i know you're going to talk to ed morse about that. the mexicans see some opportunity for cooperation, but they say they will not be bullied into accepting a one-size-fits-all -- decision on this. francine: where are we on the wall gekko is it being built? who is paying for? mike: it is going to have to be paid for by american taxpayers first and foremost, and president trump has admitted as much and said as much even on the campaign trail. but this will head to a budget fight in congress. the back story is, it is getting criticism not only a mexico as mike said, but also here in the business community, particularly in silicon valley. tom: i want to go to both of you. kevin cirilli, when are we going to have 10 or 15 or 20,000 warm

toies to push deportees down el paso so they can be greeted at the river? when are those bodies going to be in place? kevin: i think is a administration would like to see this quickly. i would also point out, this is an economic issue for that part of the country in states like arizona and texas. 10,000 new border patrol agent is what this administration is pushing for. that is 10,000 new jobs for that part of the country. tom: what is the game theoretic response of the mexican government to 10,000 warm bodies, with bodies in el paso being pushed back into mexico? explain it to me. i don't get it. mike: at this point, i have talked to several mexican officials who say what they would like to do a style down the rhetoric and work on a long game, convince american business to go to the administration and say, don't do all of this. there are 5 million jobs tied to trade with mexico in the united

states, and your putting those at risk. so they would like to get away from his confrontational atmosphere and try to make a political game, which they feel they can play. tom: michael mckee, i'm sure we will hear from you through the day from mexico city. kevin, thank you from washington. what a great joy to go from you to do ed morse in citigroup. he is in the oil business who thinks about the greater global picture and the greater flows, and and non-cartel oil american oil as well. i can't remember the last time that you and i talked about mexican oil. let's do a review. they are producing less oil than they did 10 and 20 years ago, right? >> absolutely. they have opened themselves up to fort investment. tom: are they an oil nation? >> not what they used to be. the oil part of the economy is does undercantly and 10%.

they are and they aren't. they are moving in the direction. tom: from where you sit in the advantages of being at citigroup , tell me how you filter in strong dollar. oil is a dollar-based commodity. his president trump's biggest fear a strong dollar? the secretary treasuries fear. it is good for commodity producing countries. we have ironically seen a return to what i might call the normal. if you go back to the 1970's, 1980's, to the mid-1990's, oil and the u.s. dollar, commodities and general -- modded is in general. .06. probably because of the credit crisis, partly because of the liquidity of markets, partly because of quantitative easing, the market started seeing this and playing it as of the negative correlation was real. we have seen a remarkable dissipation of that correlation. ironically, since trump was elected, i think because of the

expectations of inflation and quantitative easing, that negative correlation is really gone from where it was. francine: can you walk me through what we know about the transit administration energy policy? american firstis energy. we know it is supply-oriented. we know there are tangible instruments at disposal of the government to accelerate pipeline build out. i play and build out, in terms of canadian crude flowing into the u.s.. it is a spurt to supply. it would mean that in all likelihood the expectations by some quarters like the opec secretariat, there would be a beforegap on the horizon 2020. it looks like that has been postponed to maybe forever. howcine: give me a sense of much opec and russia have to continue cutting to balance this extra supply that will come out of the u.s. ed: they do not have to cut very much more to get the market balanced this year. we think it would have been

balanced without the opec cut. , sloppilyded orchestrated between september 28 when they agreed to cut 750,000 barrels a day when they met in algiers and then two months later, they came up with an agreement. by that time, russia had added a couple hundred thousand barrels a day. the gcc countries and opec alone at it over 700,000 barrels a day. we had increments from iran, iraq. any oil that can be pushed at the margin was actually pushed out. 750,000 barrel a day problem became a 1.8 million barrel a day problem. i think they will get there. the opec compliance committee met yesterday and said the compliance was good, above 60%, but not at the 90 plus percent level that was wanted. francine: today need to extend the deal to make sure the actually cut for longer, if not increase the cut the echo --

increase the cuts? needs to bebly extended. what will be the structure of that extension? remember, when they increased production last year, that was not really sustainable. the job really is not as difficult as the numbers might indicate. we are expecting a stock drop every quarter of 2017. tom: you have written for decades out of john hopkins and princeton on a greater international relations of oil. within any of this and the new administration, it is all about fighting the last war. are we fighting the last oil war? and in what way are we doing that? ed: opec had not for more than half a decade tried to manage the market. they're doing so, they say, to bring back inventories to more historically average level. i think the real driver of it, both for saudi arabia and the

new russia, is financial. they make this cut, they get so for $10 average price increase. ,ussian revenue goes up and 33% 34%, saudi by 23%, 20 4%. they have another $10 and mine in all likelihood. they could do that for a while, but the game is not the same. they game is over in two different ways. obviously, we have shale and deepwater and oil sands in canada. they are coming back. it is not just oil say them. if you look at what these three countries did when prices rose, they had a record level of capital spending. the first year we saw this was in 2009. they added collectively 300,000 barrels a day. a couple of the market. i 2014, they added 2.5 million barrels. francine: ed morse, i'm looking for two more thoughts from ed

morse in citigroup. later today, deutsche bundesbank president. we will hear from him on yields. also growth and politics. look for that at 6:45 a.m. in new york. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." barclays rose to the highs level in more than a year. the british make reported its capital ratio climbed more than expected. our place signaled it is making progress in its attempt to divest its africa unit and sell off unwanted assets. the ceo has rebuffed calls to spin off or radically shrink barclays investment bank. >> overall, i like how the bank performed in 2016.

if you take m&a fees, underwriting fees, equity underwriting fees, we were up here over here. one of the few investment banks accomplished that. we think we gained target share in 2016, and we liked how we performed in the fourth quarter. taylor: he just finished his first year at barclays. deepest cutsas its in modern history. low-energy prices have made it mathematically impossible to harvest those fields profitably within five years. that is your bloomberg business flash. tom: thank you. reserve cut it back from flows into where we are now. where is the market? massive long. edward morse of citigroup is with us. this is a chart that has been out there. this is not original to "surveillance." one way that on long oil. this is the cftc, noncommercial,

net long. it has blown out elegantly almost. why is there a massive long bets on oil? ed: that is controversial. there's a massive long bet on copper and soybeans. part of this is rotational bonds . very large market with money going in by macro funds into a much smaller market. it is having a visible impact. it has had no impact so far on prices, but it is hanging over there. it is kind of a disaster in the waiting in many ways. week,e come a week after record links in the market. the normal correlation between the record links or any links in the oil price is completely carpark. your range is 45, 65. what is the gloom group get wrong on oil? ed: they got wrong the buildup in inventory was going to trigger a selloff, so they

walked people who were short, very few people were short, but we have had expectations really at work. expectations of the market has nowhere to go but up because there's no a criminal supply coming from opec countries or there iscountries -- no incremental supply coming from opec countries or non-opec countries. francine: there's a pretty broad range. 340 and 65. i don't want you to put you on the spot. tom: put him on the spot. francine: is a more around 40 or 65 until the end of the year gekko 40 and 65 is very broad. tom: it is the third week of december. where are we? ed: the point of that is it is a volatile market. we are going to see a comeback of shale.elihood it could be more than more than

one marilyn -- one million barrels. the short cycle response makes the market more volatile. like the market, from 2009-2014. volatile. tom: volatile, to say the least. write that down. he said 67 something the third week of december. there's nothing harder to game than oil. i will say that. dr. morseme back with we come back. eisenhower on the banks. he has been covering the banks since eisenhower. really looking forward to that. this is bloomberg. ♪

london, tomm in keene in new york. let's talk more about commodities. we heard from glencore, it's turnaround appears to be complete. the reported annual profit that rose 48%. that beat estimates. billionaire and owner turned the coveted around -- the company around. in 2015, investors dumped shares because there's too much debt. peter grauer's is in your independent nonexecutive director at glencore. let's talk more about commodities. we are back with ed morse. it was not too long ago, 20 of august, 2015, that ivan glasenberg said he was unable to read china. are we or you now able to read china? ed: it is a mystery.

the chinese market, unfortunately, can be seen both from the top down and the bottom up. the top down part of it is kind of wanton and what they do. let's look at what they've done over the past year. when you're go, 120 days into the year, they decided to announce at a time when inventories at the ports, mine sites, and power plants were at unbelievably low levels. they decided to mandate a shutdown of chinese mines. the weakest commodities in the world, cooking cold, and iron ore does some degree, which 100%d be going down, saw a to 300% rise because of government intervention in the market. we do not know where the new intervention will come. it could be bearish or bullish. it is unpredictable. francine: what is your favorite commodity? where is the value going to increase significantly? ed: we think it is an oil and copper. the metals has seen a big flow

of supply from peru's last year. the price went up because this commodity is moving into a structural imbalance with demand growing faster than supply. we would not be surprised to see another $1000 and the copper price by the time the year ends. and so too would oil where we have the brent averaging $65 for the fourth quarter, and that means almost notably touching $70. those are the two outstanding commodities in our list. francine: i know you cannot talk about equities or even a deal that it did with russia, but is russia a good way at the moment -- is there value to be made in russian commodities and oil? value toinly, there is be made. you can do it through the equity side or the commodity side directly. what we're seeing is glencore and investment authority is now equity holders, big structural change in the world, owning

combined some 90% of the largest russian state owned oil company. i think -- 19% of the largest -owned willte company. tom: we will get some historical perspective from dr. morse. let me tell you about tv . years of the18 making on the death star. let's go to something else. you can click on a previous episode and see the charts. don't leave home without it. ♪

tom:. >> tom: "bloomberg surveillance." here is taylor riggs.

of the will not be chief u.k. to leave the european union. christine current discussed brexit with bloomberg tv today. going tossure is because the because there are a lot of financial obligations. my first and foremost concern is what is about the rights of european people living in great britain and respectively great britain living in europe. one aspect is for sure, we should not banish the british because it is a position which was taken indiscretion. taylor: he said that you should not punish the u.k., but a member of the eu has to be better off than a nonmember. and mexico, the present stem planned around up and import undocumented immigrants is likely to be the focus of talks between secretary of state rex tillerson and mexican officials. newspapers and mexico have called the deportation plan a war on mexicans in the u.s. mexico says it will not accept the trump plan. u.s., treasury secretary

steve mnuchin says a strong dollar signals there's confidence in the u.s. economy. he also told "the wall street journal" short-term dollar gains can be good or have a not so positive affect. just before taking office, president trump's adjusted he would like a weaker dollar, that would help shrieked -- shrink the trade deficit. opec officials of agreement to cut or production of president. they're waiting for evidence the deal is drying of the worldwide glut. the minister says the key metric is a reduction in the amount of oil in storage around the world. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you. you need a clinic on opec and ed morse is going to give it to you with citigroup. let's bring up a chart. this is an approximation. this is oil set in today's $50 a barrel, back to eisenhower.

here's opec 1, opec 2, the collapse of opec. $100 oil and down we go. this is inflation-adjusted. it also approximates the rising wealth of america and the world over the years. the headline here is, oil is as cheap as it was when richard nixon was president. to 68e are with oil back are approximate valuations. how powerful is opec given 1968 oil? ed: it was that powerful then and it is getting not to be powerful now in the future. opec was created just around then, and it was created partly because the u.s. was an exporting country, partly because the u.s. market was squeezing out oil from these new countries.producing tom: my major question to you+++

like 1986. if you are wrong and others are right, and we break down below in 1968 valuation, what happens to saudi arabia in his fragile cartel in vienna? ed: i think we're going to get to below 68 value. it is going to be a bumpy ride getting there. this is a real problem. it is a problem not just for the saudis, but rush as well. tom: you're saying on a longer-term view, we're going to get back to pre-opec, pre-1960's, 1970's valuation. what will that do to the kingdom of saudi arabia? ed: they will have to reform. they realize that oil is tending that is stranded and they do not want their asset to be stranded. something at a higher rate, sometime after the ipo takes place, there's going to be probably what is going to drive their policy come to squeeze out other oil, to make a oil survive

and get their economy in order. francine: how can they do that without provoking social unrest? ed: they can do it a lot better than some other countries. they see what is happening to the failed states and petro state world, venezuela, nigeria. they do not want to have that happen. their population, which is under a revolutionary change over the last 60 or 70 years, has become an urban culture, it is a fairly passive set of people. they do not take to the streets the way they do in other countries. they're hoping the reform will enable them to get ahead of the game and stay ahead of the game. francine: hathaway be sure that some of opec countries do not start cheating again when it comes to compliance? that would hurt credibility what's again. ed: one way that keeps this gelled together is capacity. there's not much more capacity to squeeze out of opec countries. i think one of the reasons this particular agreement is successful is that iran and iraq

have nowhere to go. the countries that could go somewhere, the ones that have oil supply disrupted, it is not likely venezuela is going to see a reversal of decline. it is not likely there is going to bps suddenly in the niger delta from to see venture in production go back up one million barrels a day. the only thing that is likely on the horizon is really libya. tom: does cheap oil back to pre-1968, does i completely disrupt any efforts over climate change? does the microeconomics of oil buttress in the business and finance change the climate dynamic right now? ed: i think public policy at the view of,n change the change. u.s. coal consumption is down.

no board of directors of utility is going to sanction a new thermal coal plant that will last 50no board of. on the oil side, oil has become a transportation fuel. the transportation market is a competition. the competition comes from electricity, natural gas, efficiency gains. these brought -- the prospect is for peak oil demand, not the oil supply. you cannot have the climate change scenario and fuld and particularly because the cost of installing solar and wind is really competitive with they slowed coal. francine: thank you. great to have you on the program, ed morse. there's a special edition of bloomberg radio coming up with ed morse and tom keene. coming up here on television, we will hear from jens weidmann life from frankfurt. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." target group, reached a for a fund for special situations according to people with knowledge of the matter. this will be the biggest such fund for carlisle. it will invest in middle market distressed companies around the world. credit so we's is committing about $600 million of its own capital to expand its business in saudi arabia. that is according to people familiar with the matter. it is so we's has securities in equities business there. now a -- no it plans to offer cked illiquida assets. .ut he did take on challenges just three years ago, psa group was bailed out by the french government and a chinese

automaker. now it is profitable and looking to buy gm's opel and vauxhall, whichever losing money or years. that is her bloomberg business flash. soon, but perhaps not yet. that seems to be the take away from the minutes from the fed's last meeting. the fomc consulted three quarterly projections released in december, but unconvinced now is the right time to take the next step. that could change at any moment, however, depending on the data. the markets are not anticipating action in march. not toe warning traders get complacent. tweeting -- about all ofre this. n fromjoined by jan deh new york. great to have you on the program. the fed, do they move even if

the market is at 50 or 55% probability for actually if it is not fully priced in, i was a it a percent they do not move in march? jan: i do not think it will matter from emerging markets perspective. i do not think it will matter of have two or three hikes or move in may or june. the markets have already priced in practically a full normalization of u.s. monetary policy because we have yields sitting at levels that are consistent with where they were back at the end of 2006 with the fed had interest rate that 5.25%. the specific timing of the fed hike is more relevant to developed market fixed income then to yen right now. francine: talk me through the dynamic. in the past, they followed each other. why are developed markets of not seeing and why is a fully priced emerging markets? jan: we have been through extraordinary highly period in the last two years were there has been deflation expectations in the western world combined with massive qe bond purchases

by western central banks. that has created an extraordinary subsidy for 16 come, which is profitable for those invested in those markets. q he is being replaced by fiscal stimulus. demand for bonds is been replaced by supply, which is not good. at the same time, we are seeing signs of inflation and there is no protection against inflation in developed markets bonds. i contrast, em bond yields and currencies, high and low. the currencies are now the cheapest they have been since the beginning of the last major local rally in 2003. very powerful proposition for emerging market fixed income. that is reflected in returns because local currency bonds, which is probably the most hated asset class on planet earth, is bonds fors more nus

the same duration year to date. based on basically, fundamentals, you truly believe emerging market growth, that story has reemerged. talk about possible trade wars. if there is a trade war or if there is a race to the bottom, competitive devaluation, it will hurt emerging markets. of course. it will hurt developed markets as well. it will hurt everybody. that is where the domestic demand story and the extremely competitive currencies in emerging markets to offer a buffer. the u.s. exchange rate is at the highest level it has been in recent times with the exception of the.com bubble during which the market wrongly believed there was a productivity miracle, only to realize it was a bubble and then the dollar fell. currencies are so cheap now that we are seeing significant gains in em trade and account balances. that is not even with flows going to yen yet.

there is cushion with uncertainty, even with a degree of trade protection, and still remain competitive given where valuations are right now. francine: do you put latin america on a different playing field to the rest of the emerging markets? is very clear the presidency of donald trump will have a huge different impact to asia than it does to latin america. jan: yeah, that is true, but i'm not sure trump knows where are is.g -- uruguay he doesn't do nowhere mexico is. mexico seems to look horrible from that person -- vulnerable from that perspective. it is at the same level in real exchange rates we had during the crisis in 1994. even though there is uncertainty about the outlook for mexico, i am almost certain the situation mexico is not nearly as dire as it was a 1994.

even with that uncertainty hanging over mexico, i still think there is value in mexican markets. as far as the rest of latin america is concerned, we had local bonds in brazil made 60% return in dollars last year. their separate another double-digit return in dollar terms this year. there's a lot of value in that part of em. we still think that latin america offers disproportionally better value than other parts or other regions. francine: let me bring you over to my mexico peso chart. you have seen the swing since president trump got elected back on november 8. when you say there is value in mexico, is it equities or is it just pure mexico because of volatility we have seen? jan: i think it is currency. 20, offers value of my own opinion. it is not going to be a straight line every time somebody tweets

-- truck tweets, summit he gets worried. -- trump tweets, somebody gets worried. we're beginning to see a pattern . or sensible officials get down to the business of actually reasonable, sensible policy. i think that is how things are going to pan out with mexico. the the currency looks attractive and that means all local assets look attractive. a particularly like bonds. i think equities are going to bonds in mexico simply because there are genuine economic questions that need to be resolved first before it is completely green light in mexico. francine: thank you for that insight. coming up on bloomberg markets, conversation with john chambers. look for that at 12:00 p.m. in

new york, 5:00 p.m. in london. they will talk about the cloud and all things technology. this is bloomberg. ♪

francine: this is "bloomberg surveillance." a picture of the city of london overlooking the london bridge. they may be looking to what the austrian chancellor told us a little bit later on -- earlier on. speaking to matt miller, he was saying the uk's withdrawal from the european union will be expensive for britain. i know a lot of people in that picture there were listening to that interview, whether they will have to pay for access to the single market or not. another great interview we had here on bloomberg tv, we will hear shortly from jens weidmann, bundesbank president. he will be live from frankfurt .ith manus cranny we've heard a lot about the german to year yield going into negative territory. that will mean that he will also have to answer accusations from what the trump administration trade advisor has said over the

last couple over the last couple of months and weeks, saying that germany is cheating the u.s. because they have a surplus. let's talk about how president trump will impact emerging markets. before we go to that, let's check in on your foreign -- forex report. this is a picture of the dollar spot. i wanted to show you yen. none of these currencies actually move alone. they move against something else. the pound, if you look at the u.k. come also gaining a touch on speculation the shorts being unwound. we have to look a little further east to some of the currencies in china to see bigger moves. that is your forex report. .ow we are back with jan dehn when you look at emerging markets and when you look at mexico, we are talking a little bit about that because rex tillerson is a mexico today. what can other world leaders, especially from the emerging markets, try and do to protect themselves so that they do not become trump's next casualty like mexico has? jan: the first point maybe to

put this in context. trump has been the best thing to happen to emerging markets for a while. emerging market bonds are outperforming developed market bonds. is up.g market so far, there's no need to do anything. but if things do get more into akoni and, it is worth -- draconian, it is worth noting, they control about 80% of the worlds fx reserves. these reserves are overwhelmingly invested in dollar-denominated assets, treasuries, and cash. should there be a need for emerging markets to defend againstes more broadly u.s. economic policies, it is very, very easy for them, either individually or as a group, to divest some of these dollar assets and to support each other. we have seen this happen before in 2008 or 2009 during the subprime crisis, asian central banks gained up and launched the initiative.

various swap lines were extended to corporate's and so on. the central bank reserves are a very, very important defense that can be employed. it is only going to be employed in extreme circumstances. as long as things continue the way they have started so far this year, we are not going to see these instruments being employed. anncine: jan, this is important point, you say trump has been one of the best things for emerging markets, especially the bonds. but it is a high reward, high risk game if you start having trade wars. the first ones that would be hit by a possible trade were are the emerging markets. what is the probability of a full-blown trade war between the u.s. and china this year? jan: i think the probabilities are lower than what the tweets would apply. so far, the passion is in the u.s. is really only done what everybody expected them to do, which was to cancel tpp, which was no big surprise. most of the other promises that haven't made has been scaled

back in various ways. there is -- francine: even immigration? jan: yes. i mean, so far, immigration is not something that is going to affect the ability and willingness to pay in brazil or in turkey or in india, for that matter. it is more going to be a pretty detrimental effect for the united states. last year, the u.s. economy grew 1.6%. 1% of that was population growth and about half of that was immigration. 25% of the growth rate in the u.s. right now is contributed the immigrant workers. if the u.s. wants to shoot itself in the head and cut off that source of growth, well, welcome. it is not going to have much of an act in the countries i invest in. not going to have much of an effect on the countries i invest in. to the have a good handle of risk at the moment? on: the chinese authorities

the process of orchestrating a dramatic transformation from export to domestic demand led growth precisely preparation for more hostile external environment. that clearly shows not only do -- with a on a on the strategic side of the way things are evolving, but i also think that managed this complex transition fairly effectively in tactical terms. contrary to expectations over the last 10 years, china has avoided a hard landing. inflation is been under control. the slowdown that is associated with reforms since being implemented in a very organized stable manner. markets have been a lot more fickle than the chinese authorities. i think that is probably likely to continue. francine: unless, what happens? stable manner. is there not a concern that we are reading the numbers wrong or something as ugly out there that people and markets have not seen on china? jan: if there is one country vulnerable,ible --

he would be china. the u.s.orts more to than anyone else and the trade is more and balanced. that is clearly one uncertainty. of course, if the u.s. imposes tariffs on chinese imports, china will respond. the effect of this will essentially be to get china and the u.s. into a currency war, where each trade tariff is associated with a stronger currency. i think china can cope with a stronger currency better than the u.s. francine: jan dehn of the ash margaret. we will continue on bloomberg radio with tom keene. ♪

♪ jonathan: the federal reserve crawls slowly toward a rate hike

as the u.s. economy shifts. the eurozone recovery sparked a debate about how to wind down stimulus. jens wiseman -- jens weidmann ways in. and-- restructuring should in a few months. i am bloomberg -- i am jonathan ferro, alongside alix steel and david westin. futures on the s&p pretty much dead flat, the euro headed for a third straight weekly slide. alix: here is your check in. take a look at the two-year bund yield, still negative 2.8%. vix goes nowhere. crude -- nymex crude at its highest level since 2015. david: it appears we will get some