francine: brexit battle. the u.k. government hits bac k after the chancellor tells bloomberg britain has a bill to settle. theresa may's ruling party scores a historic election victory. we have the latest. frexit fears. ubs, blackrock, and barclays meet marine le pen's team for answers on her economic plan. is a national front victory starting to look like a possible reality? obvious lays out a 2 billion pound plan. good morning, everyone. this is "bloomberg surveillance

." there's quite a lot going on in the markets. investors once again trying to adopt status quo as they are trying to figure out what happens next. it is a cautious tone at the end of a positive week for global stocks. next week we have a major speech from donald trump. a lot of industry and market participants probably waiting to hear what comes next in terms of his reflationary measures. tactically00 unchanged. i want to show you volatility. we are seeing a little movement when it comes to these yields. 12 54.05. one of the stress tests when it comes to political risks in europe is the spread between the german and french 10-year yield. let me bring you to my bloomberg terminal. we've been watching it all week. we are seeing a take-up for the spread as investors, after news that marine le pen's team met

with top bankers, figuring out what her chances becoming president are, they don't want to get burnt on the markets. we will get back to these indices shortly. first let's get the bloomberg first word news. nejra: british prime minister theresa may has received a boost. her party has won a by election in northwest england over the labour party. the last time the government won a seat between general elections was 1982. jeremy corbyn's labour party held the midlands constituency which ukip had hoped to take. conservative party mp's have hit back at claims by the austrian chancellor that britain will be charged 60 billion euros to leave the union. christine: became the first e.u. leader to put a value on the size of the brexit bill and said there will be no free lunch for britain. that sparked a furious response from parliament, including iain duncan smith, who said, after

saying there's no free lunch, we paid so much into the e.u. budget over the years, we pretty much bought the damn restaurant. royal bank of scotland has laid out a plan to cut cost by 2 billion pounds. the bank posted its ninth straight annual loss. the cfo told bloomberg that he expects the bank to return to profit next year. >> we've been quite open today that we think we've got another tough year ahead of us for 2017. provided we can get through issues, we think we will be firmly back making profits in 2018. nejra: u.s. manufacturing bosses have pressed their case to president trump that imposing taxes on imports would lead to higher employment. dow, meeting with ceo's of general electric, and other giants, the president said he would support a tax on the

border because it will lead to a lot more jobs. malaysian police have said a preliminary report showed a nerve agent was used in the murder of north korea's kim jong-nam. the substance was found on the victim's face and eyes. the eldest son of kim jong-il was murdered in a kuala lumpur airport on february 13. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. francine: thank you so much. with the first round of french voting list than two months away, national front leader marine le pen has ramped up her anti-e.u. rhetoric. she said french foreign policy must be decided by france. friends'sre independence -- france's independence, there is no combat that is too frightening to be taken on. the policies of france are to be decided in paris and no ally, no

treaty, no alliance will decide french policy in its place. francine: some of the pen's top advisers have met with strategist from blacklock, barclays, and other firms. a spokesman says exiting the single currency is crucial to look and -- le pen's program. >> this is the main point or fundamental element of our sovereignty. the money is not only an economic question. it touches the national freedom, the capacity of the government to fix its monetary destiny in its hand. francine: my guest this morning is global chief investment officer at state street investors where he is manage $2.48 trillion of assets. rick lacaille, welcome to "surveillance."

how do you look at political risk? the markets are trying to position themselves ahead of trumps speech. in europe, no one feels easy about it. 3 it feels very uneasy. when you look at that chart, in a way, 80 can't be the right number. its either 200 or zero. it is binary based on that possibility of frexit and attempt to run their own currency. fear withght we had potential brexit, i think when you come to the first and second round election in france, it will be amped up even more significantly. from basically the second round to the second round? ceo's and theych say it won't happen because of the system. marine le pen will most likely get to the second round but than she will face in manual macro and francois fillon and the

french people would never vote for her. as an investor do you assume that as your best case scenario but try to protect yourself in case? rick: i think the data would support those ceo's. trump and brexit were much more evenly balanced. momentum is very strong. it really does depend on events in the run-up to the election. and also, turnout. theacron, which is maybe favorite candidate, can motivate people in france to turn out, maybe the risk is lower than we think. francine: do you buy some of that spread? if you look at the two-year, it is negative territory. how low can that go? rick: we prefer the u.s. from equity market perspective. you've got the possibility of earnings growth. although you've got policy uncertainty in the u.s., we feel comfortable about that growth story. europe is tempting because the

valuations are attractive. are putting any overweight, it is going to be pretty small in europe. concernedare you not about political risk and the political capital of diplomacy that would lead to a trade war in the u.s.? rick: there's a certain amount you can hedge at all. start to put sand in the gears of our globalization machine, it is going to affect shareholders. where are we going to steer on this? it looks like they are flip-flopping on the border tax. you're getting mixed messages on the border tax. i think even that is in the balance and it may not be legal under deputy ovals. francine: what do you buy in the u.s.? is it industry groups, technology stocks, or ones that could benefit from reflationary trade? rick: we think technology and health care is pretty attractive in the u.s. they are a little bit out of favor.

a valuation perspective, the classic value stories look somewhat expensive. you have to look into materials and finances to find value. really avoid the bond substitutes. francine: anything in emerging markets? rick: they look pretty compelling from a valuation perspective, but there's a lot of near-term risk. i think what might happen in china with xi gaining more power and the political environment of the u.s. could lead to some short-term risk. long-term looks much better. francine: where? rick: indian -- in e.m. francine: do you put them all in the same bag? rick: if you look at emerging, those beaten down latin american countries where they've had poor return on equity, maybe they are a better long-term value that. francine: rick lacaille, global chief investment officer at state street investors in a stays with us.

if you are a bloomberg customer, you can watch using tv . just type tv in your bloomberg terminal. you can follow all of our charts, data checks, and you can message the show producers and myself directly. you can also ask us questions for our guests. rick lacaille is with us for another 40 minutes. now let's get straight to the bloomberg business flash. he is nejra cehic. nejra: saudi arabia has said saudi aramco is worth more than $2 trillion but industry executives, analysts, and investors have to number that analysis suggests it is worth may be as little as 1/5 of that amount. a spokesperson says the company doesn't comment on rumors or speculation. vivendi has forecast 2017 earnings below analyst estimates as losses widened at its pay-tv unit in the final corner of last year. the media company predicts a more than 5% increase in sales

willyear and says ebite rise about 25%. credit suisse may need to find new ways to serve clients who generate as much as $750 million of revenue at its u.k. subsidiaries. the chief financial officer has warned that losing access to european markets would endanger 10% to 15% of income at the two units. that's the bloomberg business flash. francine: thank you so much. royal bank of scotland has laid out a plan to cut cost by 2 billion pounds over the next four years as britain's largest taxpayer owned bank posted its ninth straight annual loss. the ceo says he expects the bank to return to profit next year and he spoke to manus cranny. know that we've been quite open today that we think we've got another tough year headway of us for 2017, provided we can

get through issues, particularly u.s., we think we will be firmly back making profits in 2018. manus: which draws me to the very simple question, will you settle? have you any visibility for the markets? >> we've got nothing in relation to discussions with the department of justice, but we continue to cooperate and we will be hopeful we can get through that issue this year. manus: the other aspect of this set of numbers is additional cost cuts mapped out over the next couple years, 2 billion pounds. where will that come? retail banking, investment banking, or support services? >> we've taken 3 billion pounds out over the last three years, including another billion for the last year. we've announced today that we're taking 2 billion out over the next four years.

i think that is pretty broadly spread. we've got a very inefficient bank and middle office infrastructure. we're going through our processes, saying, how can we simplify them? rick lacaille from state street global advisors is still with us. why disappointment after his appointment for rbs? rick: i'm sorry? francine: why disappointment after disappointment for these banks? the overall seems more painful than we thought. rick: banks can still find really effective ways to cut costs. i don't want to talk about rbs specifically, but that number of cost-cutting potential is phenomenal. i think the application of technology in the financial sector is a really important story. we got interested in the shape of the yield curve. there's many of these perennial factors we need to think about. sure, people are upset because this conduct issue hasn't gone away.

as shareholders, that's a big concern. but forward-looking is more important than backward looking. if it can grind down the cost, i think it is going to make it much more attractive. i think the digestion of all the compliance and regulatory issues was a short-term blip in cost. in the long term, those can be ground away as well. francine: yesterday we heard from the alert for, a top performing investor, and he said he doesn't trust bank allen streets and he doesn't trust regulators. rick: i guess if you step act, what are they? they are a spread machine that has exposure to the real economy. you have to have a viewpoint on how the economy is going to develop. the micro individual banks balance sheet, the derivatives, i think the governance is very strong. i would agree that they are complex to understand. but if you step back and say, what is the big richer?

you need a yield curve that is rising. you need an economy that is growing. you need the application of technology to get cost down. when you've got those three things, the sector looks more attractive. francine: that is the u.s. rick: i think europe is a different story. if you look below the surface, you've got these political risks out there, but banks are in a sense cleaning their act up, having increased the amount of capital and put conduct issues behind them. i think the consolidation story in europe is a very important one. we need to drive cost down and get more equity back in the system. francine: one regulator, they don't want more systemic risk. tom: i think -- rick: i think the regulator needs not to be the vanguard of the consolidation, but that needs to be a logical conclusion reached by the banks themselves. francine: thank you so much,

rick lacaille from state street global advisors. up next, america first. the u.s. president trumpets his job message as manufacturing ceo's push for a border tax. we will discuss that next. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua in london. jobs has once again been top of the agenda for donald trump. manufacturing bosses pressed

their case to him today. after meeting with the ceo's of dow chemical, general electric, and other industrial giants, the president said he would support a form of tax on the border but it will lead to a lot more jobs. >> my administrations policies and regulatory reform, tax reform, trade policies, will return significant manufacturing jobs to our country. everything's going to be based on bringing our jobs back, the good jobs, the real jobs. francine: secretary of state rex tillerson and homeland security secretary john kelly have met with mexico's leaders. just hours after trump said a military operation is needed, kelly appeared to contradict his boss. force in of military immigration operations. none. yes, we will approach this operation systematically, in an organized way, in a

results-oriented way, in an operational way, in a human dignity way. francine: for more, we are joined by bloomberg's global business correspondent, stephanie baker, and we are also with rick lacaille, who helps manage more than $2.3 trillion. stephanie, donald trump arguably had a very difficult news conference a week ago. how has his week been so far? we saw yesterday, his meeting with ceo's. he's trying to get back on message, talking about delivering jobs, bringing jobs back that have gone overseas. the ceo meeting seemed very much himnd of public pr push for to say, we're going to focus on the message we promised to deliver during the campaign. thingsthe interesting that came out of that was, some of them are saying, we do have

jobs. the problem is, we don't have the skilled labor we need to fill those posts. is a bit of mixed messages. francine: he keeps on saying, even if there's a border tax, it will create jobs. do we know if the ceo's are advising him against tariffs or a border tax? stephanie: the ceo's that attended that meeting on the big manufacturers. you don't have the big retailers that would be hit hard by a border adjustment tax, the walmart, the big retailers. it was not a fully representative room of business leaders in the u.s. i think that reflects that. francine: how did it go in mexico? stephanie: shows that u.s. policy towards mexico is full of contradictions and mixed messages. just as trump was telling the ceo's that the u.s. policy was all about getting bad dudes and using military force, tillerson

and kelly were giving exact opposite message. mexican officials are probably trying to figure out who to listen to most. francine: who should they listen to, rick? i've had investors this week telling me their preferred asset overall is mexican peso. rick: it has had a valuation adjustment in the anticipation of some of these changes. it illustrates the point, as a global investor, these issues are important. but the results are unexpected. but one of the things that maybe would be predictable, if you have a border tax, it is going to increase the value of the dollar. u.s. businesses have to face a complex landscape of a rising dollar with a border tax and probably a challenge from the wto. i'm be sympathetic to the eye do you -- i would be sympathetic to the idea of latin american

currencies being cheap. francine: tuesday, trump addresses lawmakers. what are the things you want to hear from him to add to your exposure to u.s. stocks? rick: i think we shouldn't hope for too much at this early stage. i guess that is also janet yellen's message about what can happen. tax cuts are easier to happen than almost anything else. to the extent there will be fiscal stimulus, it will be anticipation of tax cuts. the infrastructure, the deregulation, that is going to take much longer. francine: stephanie, do we know anymore about this ban 2.0, is he postponing that? stephanie: it was supposed to come out this week but it looks like it has been delayed until next week. it looks like they are trying to i's, make sure there aren't any legal challenges.

steve miller said the broad outlines would remain the same. it is unclear what is going to be dialed back, how narrow it will be. francine: and, rick, depending on eve of the immigration ban or a border tax, does it make you change the industries you want to be exposed to? rick: the immigration ban was a kind of mood is a issue. how do you separate the noise from the signal? what is important to us is the signals. the fiscal stimulus, infrastructure, those things are important. other things are important but they may not matter much for us as investors in the u.s. we're focused on earnings growth and how that can improve and justify the valuations. francine: where does dollar strength become a hindrance? i don't know whether it is how fast it reaches that point or if you have a level. rick: it is certainly a danger. the dangers we see our profit margins eroding as a result of wage inflation, stronger dollar,

or just the sand in the gears from this de-globalization story. francine: thank you very much. stephanie baker and rick lacaille. up next, does the conservative historic by election victory strengthen theresa may's brexit hand? we discussed that next in our weekly special, "brexit: what's next." a lot of stocks beat expectations, but is it all to do with a weaker pound? what does it mean for your inflation? this is bloomberg. ♪

francine: welcome to our weekly brexit show live from bloomberg's european headquarters in london. let's get a roundup of all the big brexit news. here's nejra cehic. nejra: the u.k. government won

its first clash with parliament over brexit. lawmakers in the house of lords agreed to let the draft bill to invoke article move to the next stage. prime minister theresa may face is a fight to pass the law unchanged as some in her own party are likely to attempt to rewrite it. the governor of the bank of england defended his actions in the aftermath of the e.u. referendum. mark carney testifying before parliaments treasury committee. >> in terms of financial stability risks around the referendum, the bank did take some serious steps in order to mitigate those. that, there done would have been macroeconomic consequences. it is important that we did it. we just have to accept that we're never going to get credit for it. hera: emmanuel macron says wants british banks,

researchers, academics, and other people to move to france after brexit. the presidential hopeful was speaking in london as he met theresa may and sought to shore up support from french voters in the u.k. the ceo of barclays told bloomberg that britain is faring well despite brexit. the comments came after the bank reported well-received fourth-quarter earnings. witheryone is encouraged how the consumer has responded to the brexit vote. consumer spending is up quite a bit. consumer credit is up. we don't think it has gotten to a level that would generate any unnecessary concern. but inflation is up. confidenceconsumer as that inflation number goes up. if we can keep the confidence level and the economy going, we're in good shape. nejra: net migration to the u.k. fell to its lowest in more than two years. those arriving to live or study for a minimum of one year outnumbered those leaving by

273,000 in the year to september. that provides a boost for theresa may. news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. francine: u.k. prime minister theresa may has shown her dominance of britain's political landscape with a victory over the labour party. it is rare for governing parties in the u.k. to win opposition seats in such elections. the last time it happened was in 1982. o'donnell. in svenja investmentle, global officer at state street investors, is still with us. how bad is this for labor? svenja: it is disastrous. copeland is as safe as it gets as labor seats go. it has been a labor seat for decades.

this is going to be a real blow for the labour party. it looks very bad for labor's standing in the working-class wetlands of britain, which have been the strongest support base. francine: what are the chances of jeremy corbyn resigning over this? svenja: that is the million-dollar question. corbyn has weathered so many storms. he's had his entire team quitting on him more than once. he's faced calls for a leadership challenge. he survived a leadership challenge. unless he decides to step down, there's no reason for him to go because the system effectively maintains him. francine: what does it mean for theresa may? i guess her negotiating power, doesn't mean she has more legitimacy, and could it mean that she's in power for much longer? svenja: the conservative government weren't particularly worried about the opposition. now i don't think they think it

exists anymore. she is worried about her very small majority in parliament, which is now strengthened. it is also a sign that the in thecan make gains area she's trying to target, the working class neighborhoods. she's trying to promote a more equal, more egalitarian form of conservatism. she's trying to appeal to that voter who voted for brexit. francine: rick, do you look at things like this, and doesn't actually have an impact in how she deals with brexit, and your world of investment? rick: i guess it is going to rally the troops on the tories' side, but her majority is still quite small. i guess that doesn't our rebellions as it has in past administrations. it means the brexit stakes get pretty high. the risk of a rebellion is always going to be there.

i think she needs to tread very carefully on that brexit channel. francine: what would be theresa may's main concern when it comes to u.k. citizens? i'm going to bring you over to my chart. we saw that mark carney said he would look through inflation. today we had this nice chart saying retailers' selling price expectations, which is a way of them passing on increased costs, will rise. you can see the trend is quite stunning. how does theresa may sell this to the british people? rick: with great difficulty. it is a natural function of the currency falling out of the brexit and it is an anticipation of tougher times from a trait perspective post-brexit. it is not necessarily what project fear might have anticipated, but it is going to be tough to sell. with no meaningful labor

opposition, it does make it a little easier to keep progressing. francine: we know that she wants a favor society. this was the basis of her first speech when she got elected. or when she became prime minister. how does she do that while negotiating with the u.k. and possibly having to cut taxes or do things in similar veins to keep businesses here? svenja: that is her biggest challenge. what is important is to identify the different steps of this. first she's got to make sure she keeps her party with her. her opposition is not labor. it is the more centrist part of her party who don't want a hard brexit and who could make life quite difficult for our by keeping this issue alive in parliament. then you've got the voters. she doesn't need to worry about elections for quite some time, but unfortunately by the time we get to the next election,

inflation has really started to bite, and the hit to the consumer might have started to be felt. again, who does one vote for? ukip didn't do particularly well in this by election either. francine: the inflation we're seeing has to do with weak pound . does it go lower from here? let me bring you over to my ftse chart, where you see that record high in january. if you translate that pound into dollars, you get the blue line. rick: it is a cheap currency. unlike other asset classes, maybe the chances of an overshoot are higher. there's a lot of news flow that could lead the currency lower. trade anderested in investment issues being resolved nicely. we are less concerned about immigration. theresa may will have immigration at the top of the list of things she has to deal with.

markets are in conflict with the politics of the negotiation. francine: thank you so much. svenja o'donnell and rick lacaille of state street investors both stay with us. stay with "surveillance." who will pick up the tab? the austrian chancellor says the u.k. will be charged 60 billion euros to leave the e.u. we've got british mp ian and smith -- reaction next. plus, what does a post-brexit u.k. hold for the technology sector? we will be speaking to the founder of tech london advocates. later, the bundesbank executive board member joins us on surveillance. this is bloomberg. ♪

francine: you are watching our weekly brexit show. i'm francine lacqua. let's check on your markets. nejra: it looks to be a risk off broadly across markets today. by taking to the gmm, you can see weakness in european equities. this follows losses in asia after the rallies in global above $7pushed value trillion. a bit of caution in equity markets today. a bit of weakness against the dollar. euro, 1.0589. the bloomberg dollar index overall unchanged. not a huge move in bond markets. we are seeing those yields coming down. a bit of a mixed picture in commodities. we've seen copper rebounding from a loss of 3% on the london metal exchange yesterday. gold higher. silver up for a ninth street

weekly gain. i'll go more into commodities in a second. first i want to show you this chart, the dollar stabilizing after it slumped following the comments by treasury secretary steven mnuchin. the bloomberg dollar index is still heading for a weekly drop. track that versus gold and crude futures. wti crude trading near its highest level since july when he 15 and heading for its biggest weekly gain this year. this is an interesting chart. in terms of the political risk investors are pricing in for europe, some people saying the place to look is more towards asian currencies, but also the region's sovereign debt. because of the volatility coming down in these currencies versus the developed markets. finally i want to show you iron ore. you could say we're seeing a breakdown in that reflation trade with equities coming down,

money moving into bonds, it also we've been seeing some weakness in commodities, and iron ore getting a bit of a reality check with futures retreating for a third straight day. francine. francine: thank you so much. u.k. conservative party mp's have hit back at claims by the austrian chancellor that britain will be charged 60 billion euros to leave the european union. in an interview yesterday, the first e.u. leader put a value on the size of the u.k.'s brexit bill and said there would be no free lunch for britain. that spark a response from senior members of parliament, whouding ian duncan smith, said, as for saying there's no free lunch for britain, we paid so much into the e.u. budget over the years, we pretty much bought the damn restaurant. svenja o'donnell is still with us, as is rick lacaille from state street global advisors.

you kind of have to laugh. at the moment it seems that not only is it going to be messy, it is going to be very emotional. svenja: absolutely. it is an emotional breakup. my first thought when hearing about iain duncan smith, he would say that, wouldn't he? you got the pre-brexit camp trying to paint a rosy picture of the exit, we're going to get everything we want, life is going to be wonderful. on the other side, you've got the defense of the e.u. and people like the austrian chancellor who see political survival at stake. of course they are going to paint a different picture. how this actually translates at the negotiating table is a different matter. there will be some kind of compromise. but we are heading for a fight. francine: what does it mean for the financial markets? who loses most? u.k. the clearest loser?

how can it damage the e.u.? rick: you can say they are bringing forward the liabilities. e uou look at it from an perspective, there's a hole in the revenue budget. the e.u. is not a well-known cost cutter. putting a bill to the u.k. is one answer. the u.k. is going to be in a worse position in the short-term. the long-term brexit story, you could spin a more positive one from a freedom perspective, but that is a little bit harder to see. francine: what are the stumbling locks and what are the points of stress for the markets? svenja: i think the first few months are going to be largely technical negotiations. you've got france and then you've got germany. they're going to want to set the broad outlines before then. i think we will need to overcome these hurdles to get any

clarity. what is important to highlight is that it is not in the e.u.'s interest to give britain a terrible deal either. they want to keep good relations. but of course this is all tough talk from both sides. rick, should you assume the worst and hope for the best? as a kind of general strategy? rick: yes. you need to bracket the outcome. how bad could it get? price things in that sense. hope for the best is not a great strategy, but to brett the outcomes is really important. francine: what is priced in at the moment? rick: i think it is a pretty bad outcome but it could be worse on sterling. francine: interesting. thank you so much, rick lacaille, and stays with us. he's global chief investment officer at state street investors. & you o'donnell keeping us up-to-date with all thing brexit. up next, we speak to the former skype vice president and founder

of tech london assets. ♪

francine: you are watching our

weekly brexit show. i'm francine lacqua. easy access to european markets, a supportive government, and the best global talent available. as london's tech sector tries to compete with silicon valley, the cities' supporters thought it had an unbeatable offer. the shock vote put the future of many advantages in doubt. what does a post-brexit u.k. hold for the tech sector? joining me is a former vice president of skype, founder of tech london advocates. welcome to the program. still with us, rick lacaille, where he helps manage $2.3 trillion. ross, welcome to the program. give me a sense of what tech entrepreneurs are rescue the most. -- entrepreneurs ask you the most. russ: i think there's a degree of uncertainty out there that adds an additional challenge for tech entrepreneurs.

you've mentioned the tech talent issue. one in five london tech workers is from the e.u. and we don't know what is going to happen to them from a policy point of view. the number one issue i hear time and time again is, not enough talent to meet the needs. we are going to be creating tens of thousands, hundreds of thousands of digital jobs, and how are we going to fill it? that is on their mind. so far investment levels seem to be holding. if you are an entrepreneur, it is always difficult to raise money. it is a challenge. the issue seems to be the talent. francine: how should people and companies manage this? you were saying, don't move headquarters. russ: my assumption is that we will lose passporting rights. what i say is, don't move your hq. i've done it before. it is a very difficult thing to do.

but be open to opening an office e u city. go to dublin, amsterdam, check out what is there, and expand if you need to. don't move your hq. the fundamentals in london are still strong. favorable government policy. great city from an investor point of view. don't throw that away. francine: one of your favorite investments is technology. it looks expensive overall. rick: it got cheaper than it was. like health care and telecom, there are bits that are really expensive. i think again with tech, talent is key. we are the pressure from the trump administration. they does -- it is also really important, attracting talent from different parts of the world. we want to make sure we are to carry on doing that. i'm sure we have very strong

parallels with the technology industry. francine: do we know that this government wants to keep tech entrepreneurs in the u.k.? russ: the prime minister has made some very positive statements about skilled migration and making sure we not only keep the talent here, but also attract world-class talent. what we need to see now is clear positions on visa and immigration policy. we need to make sure it is difficult for tier two visas to be given to tech talent. we've been advocating for third-party sponsorship. we think that is an easy way for accelerators and incubators to sponsor talent from overseas. in addition, let's invest in homegrown talent. we need to make sure we have a strong digital skills agenda for our young people coming out of secondary schools, colleges, and universities. the government is getting ready to issue a digital strategy paper. we want to see investment in digital skills to get behind the initiatives that are out there

today. francine: i understand it is difficult to change headquarters and move somewhere else. if you look at berlin, dublin, it is cheaper than london. london prices are expensive. what is the argument for staying? russ: the argument for staying is, they love living and working in london. they do have access to world leading talent. this is a cultural melting pot. they have great access to investors. when i talked to berlin entrepreneurs, venture capital is still a bad word in berlin. francine: why not move to the u.s.? russ: the u.s. is an option. the current political environment and uncertainty about immigration rules puts a cloud over the sector. i was in san francisco in december. we did an event on the same day that donald trump summoned the tech titans to new york. they are very nervous because they have a huge degree of uncertainty to manage and they don't know what the visa

situation is going to be like. i would not encourage entrepreneurs to go there until there is more certainty. francine: rick, this is the thing that i find most difficult for research. who do you trust? how do you figure out what brexit will look like in two years from now? it is almost like having a crystal ball. rick: you definitely need to listen to independent voices. there are many people who have a vested interest in the outcome. you have to look as widely as you possibly can in academia, independent economic viewpoints, and others. to be frank, there is a lot of uncertainty. don't assume you're going to know the answer. maintain flexibility. maintain flexibility where you might be located, but also focus on quality and cost. if you are in the tech business or finance, you need to keep cost down and drive policy up.

that is independent of where you might situate parts of the business. francine: thank you for joining us, russ shaw and rick lacaille. bloomberg surveillance continues in the next hour. tom keene joins me out of new york. we will be talking to bundesbank board member andreas dombret. we did speak to one investor yesterday that doesn't understand the balance sheet or regulation. about that? say i'm sure he will give us quite a lot of push back. interesting conversation coming up a little bit later. we are looking for a pound movement, dollar movement. this is bloomberg. ♪

♪ tom: moving to -- francine: markets look ahead to president trump's speech to congress as

robert kaplan says the fomc should move sooner rather than later. u.k. lawmakers hit back at claims from the chancellor that britain will be charged 60 billion euros to leave the e.u. mortgage-backed problems, a knife straight annual loss -- ninth straight annual loss. as the u.k. lost its faith in ubs? francine lacqua in london, tom keene in new york. a little bit of a spread on the german and french 10 year, and a little bit uneasy when it comes to u.k. inflation. tom: that is the number one story on the market, the u.k. 10 year -- german to -- german two-year. the ultimate safe haven statistic. francine: here is taylor riggs. taylor: british lawmakers and best in prime minister theresa

may party are lashing out at the idea that brexit will cost the country $60 billion. austria's chancellor begin the first leader to put a price tag on the british exit. former cabinet member iain duncan smith said the figure is conjured up by e.u. officials who are behaving like children. may demonstrated her dominance over the political landscape in a special election in northwest england. it is the first time the conservatives have one in copeland since the district was created in 1983. in asia, a preliminary report says the exiled half-brother of dictator kim jong on was killed with a toxic substance. he was murdered in the airport and kuala lumpur last week. it is believed north korea has one of the largest stockpiles of

chemical weapons. a warning from the white house, the justice department will step recreationaing the l use of marijuana. prosecutions that prosecutors can shut down marijuana operations even in states with a have been labeled just legal. -- legal. 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 so much. equities, bonds, currencies, commodities, it is the most nuanced friday going. equity markets in the afternoon keep writing, futures are negative three. i have no idea where we will be at 4:30. the euro was a 104 through the week -- 1.04. thanks to ed morris for a real commitment to us yesterday.

1123, the dow rounding out near 20,000. the german two-year color should be read. -- red. ,hat is for basis points in that is absolutely stunning. that is the only number mario draghi cares about right now. dollar-peso shows the mexican of mixedand a mass signals given by the trump administration the nation south of the border. francine: investors really seem to be cautious. i think it is because, and i spoke to people on the market, because of the major speech we are expecting from donald trump. we have maybe four days of subdued trading but gold headed for a fourth week of increase. my chart, the german versus france, but the other trade is havens such as gold. you can see the vix index,

11.83. tom: every good op-ed writer hits it out of the park. prichard out of the telegraph did it last night. this chart shows why the german two-year is where it is. this is a little complicated. this is the target to balances of germany in massive surplus as a percent of german gdp. here is the opposite, here is italy in green. i did that because of italian airlines. in yellow is spain, and they are in a negative deficit as a percent of their gdp's. all you need to know is there is a curve here. it is getting worse faster, and that is the deterioration you see were basically what is going on is the central banks are moving their risk out of italy and spain, over into safe haven

luxembourg and as shown, germany. the tension in this chart is directly linked to what you see in the plunge in the german two-year yield. francine: it is really important. it is really important, actually goes back to my chart. in terms of what we are really focused on today, i am a little bit like a broken record because i keep showing you this french-german spread but it is important because every day it gets wider and wider. this is on the back of mario draghi buying these bonds and saying he will do whatever it takes. what people are worried about is marine le pen and general political risk. this probably has to do with the banks and the fact that we have not sorted that yet. when it comes to france, you have people such as black rock, barclays listening to marine le pen trying to figure out what her plan is if she becomes president. tom: it is fascinating, you have

a political chart and i just showed a financial chart, and it really shows that instability within europe. francine: the crossover, it is kind of permeating everything we do. a mixed picture for the dollar as well, so a lot of things going on. yesterday was weakening on comments of the u.s. treasury secretary steve mnuchin who said the effects of fiscal stimulus may be limited. dallas fed president kaplan said the fomc should move sooner rather than later. we are looking at political risk and of course the fed in the u.s.. -- and us is rbc sebastian mallaby. thank you for coming into the london studio because you are usually in new york with tom keene. let me start with political risk. wendy markets really start freaking out about it? canaries in the cold mind, -- mine, when docoal

people say i need to protect myself? comments, me make two related to what tom was just saying. i think if you look at the two-year, germany in particular is not only risk that is driving at. -- there is a scarcity and everyone else is buying swear think that is a good part of the story, that is exacerbated across the entire curve. if you look at this chart you showed earlier about the france-germany spread, of course that is related to one side of that spread which is the german yield. the german yield goes down for that scarcity reason. that spread looks wider than it is. the absolute yield of france is not really rising most recently. back to your question, wendy markets freak out, i have been saying for the last couple of months if instability in markets

is relatively low there is only way it can go, up. as we get closer to the elections, this will only get worse so i do not think what we are seeing here is the end of it. we are probably in the middle of it and it is exacerbated currently by the german situation. tom: bring up this chart, this is a transatlantic divide for sebastian mallaby. this is the difference between the u.s. and german two-year yield. it is not that we are back to conrad at our, but we are getting there fast as is the massive deterioration and the difference between a positive u.s. yield and that massive german negative two year yield. sebastian, is the e.u. experiment politically or financially, is it at risk right now? sebastian: i kind of agree with what peter just said. if you look at the handicapping on the french election, marine le pen is a risk but it is not

like she is the favorite. ron, the centrist candidate remains the favorite. europe has failed to address the fundamental problem of not having a single safe asset. therefore the german bund is the save haven and there is not enough of them to go around so you get a squeeze effect where the scarcity of the ash it -- asset is a problem. they are not willing to come together in joint liability for a single euro bond. it is symptomatic of the deeper structural problems and financial architecture of the eurozone, more than just the politics. francine: what does it mean, sebastian, the concern that a lot of people have when it comes to french politics is it depends on turnout. it will is 60% turnout give marine le pen a much bigger chance of becoming president. what goals do you believe, help

-- polls do you believe help peter? sebastian: there is massive uncertainty. you have seen that with brexit, the trump election. forecasting is difficult and the best you can say is there is a significant risk with marine le pen, even a she's not the favorite. i think at the end of the day, macron is cunningly tapping to the right in the first round of presidential elections because he sees the conservative candidate is the main person to be in the first round. in the second round he will readjust himself and pick up a set of policies designed to show marine le pen as what she is, french nationalist. i am giving him a 65% to 70% chance of winning. le pen, a 35% pale -- tail risk is still pretty big. francine: economies --

economists are coming on and saying the situation is getting better. you have huge unemployment and so little commonality amongst leaders. what are the chances of a recession hitting the eurozone? peter: i find the timing of the question is a bit odd, because if you look at most of the forward-looking indicators they are getting stronger as we speak. the pmi's, all these releases are getting stronger. francine: but unemployment is so high. peter: no doubt, but we have to keep perspective because unemployment in europe structurally is higher than in the u.s. or u.k. the unemployment benefits, social security benefits are higher which means the people, unemployment, they are not facing the same economic hardship as they might in the u.s. it helps us keep perspective. if you look at how unemployment is falling from the peak about two years ago until now, the

euro area has created about 4 million jobs. i would suggest, we are about maybe 12, 18 months away from reaching what is generally deemed to be as full employment in the euro area context, which is around eight point something in terms of unemployment, which looks optically high you have to keep perspective of where is structural unemployment in any case. sebastian: structurally, you can look in europe in the aggregate, but if you have got one economy like greece where the number is still north of 20%, i have the chance to meet with a greek finance minister. i am not giving his name away, but he thought there would be no inward investment in greece as long as you have all of this investment run capital controls. there will be no investment in greece because npl's are running at something like 50% so there is no growth process.

stagnation is the hope -- the best they can hope for. they have this program. aggregate,ust an kind of picture. francine: peter stratford and sebastian mallaby, both stay with us. coming up, a conversation with giovanni sabatini of the italian banking association and andreas dombret, bundesbank executive board member. we will be talking regulation, banking, and hopefully deutsche bank. ♪

♪ union has to be better off than a nonmember. with respect to that, it is

going to have some cost. tom: -- francine: u.k. lawmakers have hit back at claims from christian kern, speaking to surveillance yesterday, that britain will be charged 60 billion euros to leave the a year. "as forcan smith said saying there is going to be no free lunch for britain, we paid so much into the e.u. budget over the years we pretty much bought the dammed restaurant. ." this is not going to be a peaceful divorce, sebastian. sebastian: they cannot even agree on what they should be disagreeing about. , until youn view resolve the so-called 60 billion euro bill, until britain agrees to pay that nothing else can be discussed. the british say, forget that, of course we will discuss

everything at once. even the agenda of the discussion is under discussion. francine: what do markets do, price in the worst? as an economist do you assume the worst? sebastian: what the market is pricing, it has initially priced the worst and has moved back from it to what we discussed earlier. even that is a little bit of a risk. if you look at where we are currently, the u.k. equity market, where the u.k. guilts are priced, the front end of the curve, the market seems to be thinking it is going to be all right. francine: what does governor carney do from here? he has a huge inflation. chart which is a retailers expectations about how much they have to hike their prices. does he hike rates or cut rates? sebastian: we are very clear, we think the risk of a hike is very slim indeed. the bank of england has previously looked through these temporary spikes of inflation.

we think it will not be in a different this time around and the question for us is further down the road, 9, 12 month down keepoad, does the economy surprising to the upside or come down? we think there is a risk it will come down and i would not rule out the risk they cut further and have another qe plan. update on then current account deficit, capital flows into the united kingdom. we are doing this quickly on a friday. all you need to know is goods and services, not a big deal, but the money flows of this vector that is pretty ugly as well. what do the flows tell you about the financial future for the united kingdom? say, one ofe also the counterpart to that is the government needs money and the government needs to fund it abroad. despite the chart you just

the u.k. government bond market, they are not updating at all so as long as that keeps rolling in do not think they will have a problem. tom: let's continue, sebastian mallaby with us and we will talk about the newly minted president. sebastian mallaby with one of the books of the year. in our next hour, we will tie this in, synthesize it into the f -- equity markets. joseph quinlan will join us. this is bloomberg. ♪

♪ this is bloomberg surveillance, i am taylor riggs. rbs, royal bank of scotland has posted its ninth straight annual lost and outline planned for cost cuts. the largest taxpayer owned bank in the u.k. will cut to an a half billion dollars over four years. they call the $8.7 billion loss disappointing but sees a return to profit. , we think ween have got another tough year ahead of us for 2017. provided we can get their issues, particularly u.s. rbs, we think we will be firmly king profits in 2018. set aside almost $5 billion to pay for that u.s. investigation into the sale of mortgage-backed securities. that is your bloomberg business flash. francine: thank you so much.

bankingmorris is our reporter and also peter schafrick and sebastian mallaby. rbs, are we going to have some good news soon? stephen: not for at least another year they are forecasting another year of losses and after that they might return to profitability, but all of that is still uncertain. they will have to deepen their cost-cutting program and still have potentially enormous litigation charges in the u.s. talking bond sales before the test mortgage bond sales before the crisis. -- mortgage bond sales before the crisis. francine: it is the ninth straight annual loss. will people lose their jobs? sebastian: they are deepening a cost-cutting program and when

you see that you would think jobs. they refuse to identify numbers but it is occupying a lot of the boards time, where they need to cut. the have been shrinking enormously since, so it is difficult to see where they can costs out without driving the revenue down more. tom: the chart is like citigroup but worse. this is 2007, 2 thousand eight, and i have gone nowhere. -- me ask the ugly question what are we waiting for? when do these dogs merge, combine transactions, forget about all of the modern mba baloney, when did they get put out of their misery? sebastian: i am not sure it will be anytime soon. rbs is still a taxpayer owned bank and it really affects the sentiment of the entire industry until rbs can be returned until does into private ownership.

-- in private ownership. no one will want to buy rbs at the moment with all of the misconduct, class of profitability and dividend. i am afraid we will be reporting on this same story for least another year. tom: stephen, thank you so much. we have got a lot coming up. i want to talk to sebastian mallaby about the august cover of the new york times that i've cover of theoddest new york times have ever seen. later, paul atkins, a lot has been discussed recently about paul atkins. from london, from new york, this is bloomberg. ♪

♪ tom: good morning, bloomberg surveillance. it is a washington with its head spinning. i have never seen this in all my years, the internal disagreement within the administration goes

beyond watergate. it is off the chart. we will talk to sebastian mallaby in a moment. right now, here's taylor riggs. asia,: moving over to malaysia says the killers used a chemical weapon in the murder of the exiled half rather of the north korean dictator. says aminary report nerve agent was down on the face and eyes of kim jong-nam. he was killed in kuala lumpur last week. north korea has one of the largest stockpiles of chemical weapons. iraqi troops have captured more ground from isis troops. they say they have gained full control of mosys airport and have control of parts of the city. that is the last stronghold. the trump administration cleared the way for the government to make use of private prisons, reversing and obama era --

global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: president trump met with manufacturing ceos yesterday. he told them he would support a tax on imports to create jobs and fix the weak economy. sebastian mallaby says the economy is already strong and trumps negative view makes for bad policy. also with us, peter schafrick rbc. next,ot know what comes whether donald trump will say i want to create jobs in the u.s. and any cost and that could imply a stronger do -- dollar border cost, or whether he rains it in next week. toastian: the single number focus on is this 3% or more growth target that the administration is not backing off.

steve mnuchin i think reiterated it yesterday. you have got to remember that the fed's estimate of sustainable growth is 1.8. we are talking 66% higher is the minimum the administration was to expect. that is a train wreck. they will either overheat the economy, have a massive ledger deficit because they will presume the growth will be higher, and policy mistakes will flow out of the completely unrealistic target. francine: because you disagree so much, do you believe they understand your argument but decide to go the other way, or they do not have enough experts in the administration? sebastian: i think it is a case of not having very many experts. the only phd economist to my knowledge is peter navarro, a slightly eccentric trade protectionist. there is nobody doing macro.

a downgraded the role of economic advisers and have said it is not a cabinet position. they are not open to standard economic advice which is a problem. , bloomberg hasrt the same oddity. thanks to kevin cirilli for a great interview yesterday. the secretary of treasury is talking opposite of navarro in the inside trump stuff. then we have got the new york times, i have never seen this. i am going to get gray hairs over this. wait, i already have gray hairs. mexico, the two cabinet officers do not agree with the white house. here we are at the conservative confab and then and does not agree with anybody. obviously you and i have never seen this before. what would you presume is the best outcome for the president, given this historic dissent within his administration? sebastian: i think almost the

best outcome is that the new york times' portrayal of this massive confusion leads to paralysis and they do not try and do much. if they do try and do stuff i am more worried because that means aggressive policies will go in the wrong way, whether it is protectionism, cutting off immigration, budget policies that will overheat things, create massive deficits. i am very worried to the extent that they have clarity, it is bad clarity. tom: the president is in sioux us everybody is going to have affordable care. the obamacare will continue. i just want to know, i want to have an understanding into the weekend, the power of cabinet officers. does the secretary of state have a voice anymore? sebastian: we will see. there has been also its of headlines about the secretary

tillerson going quiet. i think a big problem across these agencies is that you have now pretty much confirmed some of the top people but all the levels below that have yet to be nominated and put into office. you have this isolated figurehead at the top. you have got a hostile career civil service underneath, and they are not talking much. that is a recipe for confusion. francine: how much do we know and how much do we understand about president trump's hopes for this new world order? he keeps on saying it would be t, he was happy for brexit. what does he have to gain? peter: you have got to ask cam, i do not really know. i would probably come back to what sebastian was saying, it seems to be biased from an economic point of view. probably goingis to be very bad for the european

economy. one of the things i guess we can agree on is at least over a relatively pronounced period of in uttereurope is disarray it cannot be good for the u.s. economy. francine: people are fed up. we saw it with brexit, donald trump and we could see it with marine le pen so they are not looking at the figures economists are looking at. how do you explain the populism of those who feel left out, and what are the numbers we need to look at to fix this? peter: i agree with you, that is one of the things that drives the populism, the way the votes are going. clearly going back to what we said about 10 minutes ago, one of the elements is unemployment and wage rises. what does the u.s. have to gain from a breakup of the euro were e.u.? economically speaking, at least in the next three to five years i find it very hard to see what there is to gain. thestian: the tragedy of

premise underlying your question is becoming less true by the month. this is now the fourth longest recovery since the 1950's. it will soon be the third longest recovery. unemployment is below the long-term trend, 5%. if you take the broader measure of unemployment, that has come down a lot and is below the long line -- long-run trend. said to a thousand 15 -- 2015 -- this was a deleveraging recovery. it is tragic that the political revolution has happened, undermining that steady progress right at the moment when the progress was going to bring fruit in a way that people might have felt in their pocketbook. tom: i do not know, you are gallivanting around europe as you are known to do. , ayou saw nicolas ampersands fabulous article.

he said, it is our miserable century. i get your idea that we are near full employment but we have a massive drug crisis in the opioids and all that. 8 million, 9 million, 10 million people outside the labor force. help us with our miserable century. is it so urgently need public policy action? sebastian: i am a very big fan adt and his book. there are lots of specific problems about left behind workers, particularly male, blue-collar workers who have been falling out of the labor force way before 2008. this is a long run thing, a steady discouragement of male workers being displaced -- displaced by machines. the acceleration of machinery is going to go up, not down. we will get more innovation.

truck drivers will be put out of work by self driving vehicles. i am very concerned about this. in the micro sense, there is serious micro problems, things that can affect millions of people. in the macro of a u.s. population of 300 million, my point is that trump is simply making stuff up. the economy is not a mass in the macro sense. micro cents -- macro sense. you need retraining and you need support for those people and that is very serious, but not a reason to start messing around with order adjustment taxes, protectionism, cutting off migration. as our macro mistakes. francine: thank you so much, sebastian mallaby from the council on foreign relations and peter schafrick, both with us. sabatini,ith giovanni talking about nonperforming

loans and what can italy do next. this is bloomberg. ♪

♪ francine: this is bloomberg surveillance, tom and francine from new york and london. we need to put the spotlight once again on italian banks. italy's biggest bank says shareholders committed to almost 100% of its rights offering, giving unicredit vital funding for turnaround. the italian banking sector as a whole, we are joined by giovanni sabatini, the director general of the italian banking association. great to have you on the river as always. there is still a lot of investor concern that the italian

nonperforming loans have not been dealt with. what is the criticism you can address and when will this resolved? giovanni: first of all, thank you very much for inviting me and good morning to everybody. let me start with the figures, the amount of nonperforming loans at italian banks stand that 190 billion euros. against this, we have 160 billion euros of real estate collateral, and 50 billion euros of personal guarantees. it is an important amount but it is manageable. government and italian banks are addressing the issue very proactively. side, government important measures have been passed to reduce the time needed for repossessing the collateral.

2016, important measures were adopted to speed up the process in the court. magicrse, this is not a round. to be implemented in all italian courts will require some time. , and we: i understand also speak to the italian finance minister quite often who says the problem of npl's are manageable, but this is seen elsewhere by institutional investors who are international. they say it is manageable, but why not fix it, especially when you have a revenue profitability problem for a lot of the banks because of very slow growth in italy? giovanni: the problem is being addressed. has magic.dy

you cannot have npl's disappear in a few days, unless you accept a sale of the nonperforming loan portfolios, which would imply a bankfer from italian shareholders to shareholders of specialized investment funds. npl'sk the sale of portfolio is a way to reduce the amount of npl's on the balance sheet of italian banks, but there are other alternatives. securitization or even the internal management of nonperforming loans. is taken, however we also need a reasonable time spent to address and fix the problem. francine: when very quick question, what needs to happen -- one very quick question, what

needs to happen for confidence to resume on international markets? i think the decree passed by the italian parliament at the end of last year is an important measure to fix problems at some problematic banks. , so this is ahi sign that the problems have been addressed and are under a solution. at the same time, i think that ,ccording to the ecb measure all italian banks will be requested to identify a strategy affecting qualitative and quantitative goals in terms of reduction of npl's. and if this strategy is

credible, then this will have just help restore confidence for investors -- this will help restore confidence for investors. sabatini, ofvanni the italian banking association, thank you. breaking news from the head of the labour party in the u.k., jeremy corbyn. this is his first reaction as he lost two by elections, which is seen as a victory for theresa may. mr. corbyn saying britain must be protected from a "brutal tory brexit." a lot of people, it is ,nclear whether this will even whether there is going to be concern about the fact that he should probably step aside because he has not been this vocal on brexit. this is a clear win for theresa may and a loss for jeremy corbyn because of these by elections.

tom: the unusual nature of that. let me go to tv right now. we have francine lacqua right now, looking good in red on friday. francine: thank you. tom: tv is the one place to go to get all of our wisdom, including that of sebastian mallaby. click on the chart, and up comes the actual piece with the chart. waxing philosophical on the current account deficit of the united kingdom. bonus round, you can come down here and send me hate mail and down here you can send francine love note. francine: or the contrary. tom: i look like a mess today. ♪

♪ this is bloomberg surveillance, i am taylor riggs. saudi arabia has said its oil giant county aramco is worth more than $2 trillion but industry executives, analysts, say they may have to settle for less. wood mackenzie came up with a rough valuation of $400 billion,

less than 20% of what the saudi's hope for. that is according to client who attended a private meeting. the new exxon mobil ceo has called for a carbon tax. said it would promote greater energy efficiency and the use of lower carbon options. his comments were made in the past by rex tillerson, now secretary of state. -- ceo meg whitman is trying to turn it into a -- now she has cut hp ease profit -- hpe's profit and projections missed for a third straight quarter. that is your bloomberg business flash. francine: faced with brexit and the upcoming french election, investors are looking to germany as a safe haven but germany has political uncertainty.

could schultz be the next chancellor? we are with peter schafrick and sebastian mallaby. when we understand what martin schulz's modus operandi is, he is much more to the left, more unionist. what does that mean if you are to become chancellor? peter: it is one of my favorite topics, when i talked to our clients because everyone is obviously focusing on the threat to the rights in france, in the netherlands, and in germany too. i have been saying quite a while that the real threat for merkel is to the left. here, hecome out of has said he wants to repeal parts of the so-called agenda 2010, and he is clearly appealing to those mail, white, blue-collar workers. he wants to do something for them, and that is gaining him

votes. what i think could be the ultimate outcome of this for market and the broader european economy, if he gets into the chancellery, if germany moves away from this hard-core, tight fiscal stance, it could be a game changer for germany but also the entire all fiscal framework in europe. francine: would he be in favor of greece exiting the e.u.? would you see a much more consolidated, we talk now about the merkel plan where people could decide whether they integrate further or not. we can radically change that. peter: he has not specifically opined on greece in his capacity now, however we have to recognize he has made his political career in europe. he is european and when you have followed him over the years, he is very much don't as a federal federalist. a i doubt he would be the guy

trying to muscle other countries such as greece out, i would be very doubtful. tom: one of the great messages of davos is nationalism. i have heard the word brussels three times over the last 90 days. where does brussels fit? sebastian: i think the initiative has moved back to the capital, during the crisis. there were these unprecedented challenges like greece, and that is not something that it was an implementation problem to be left to brussels. it was a bigger political decisions of the initiative flowed back to berlin. i think we are still seeing that. what peter was just saying, i think it is good for europe's cohesion if you get a reflationary left wing leader who is willing to spend on infrastructure that germany actually need, and drive faster growth which will spill into the rest of the eurozone.

i am viewing the prospect of scholz as a plus for european cohesion. peter: may i throw one thing in? when i think could be the ultimate outcome, even if he does not get into the chancellery it is probably driving the current agenda of the current government, and we have seen rumblings of that already. francine: peter schafrick and sebastian mallaby. coming up in the next hour of bloomberg surveillance, conversation with undressed on that -- undressed on brett. -- andreas dombret. that is coming up in 10 minutes. this is bloomberg. ♪

♪ tom: this morning, the german two-year plunges to a record low yield.

the safe haven signals disbelief in the future of the eu political experiment, disbelief and italy ability to grow and italy'sdeath -- in ability to grow and pay its debts. sameannon is not on the page as various and sundry generals. jumpfter day, the stocks higher. it is a raging bull market. good morning, everyone. this is "bloomberg surveillance ." i am tom keene in new york, francine lacqua in london. what a great conversation with sebastian mallaby. it really does center around the financial tensions of europe, leaving right into the political moment your francine: -- moment. have veryyes, you slow growth. it could be to the right or to the left if you look at germany. at the same time, it seems that

more than ever, there are more correlations. is follow thehere money. joe quinlan here in a moment. with our first word news, here is taylor riggs. taylor: theresa may's conservative party is lashing out at the idea the brexit will cost the country $63 billion. ,n an interview with bloomberg chancellor kristin curran became the first eu leader to put a price tag on the british accent. smith cabinet member ian says it is nonsense and officials are behaving like children. meanwhile, it is a big night for theresa may, who showed her dominance. the conservative party took a seat from the opposition labor party. it is the first time they have one since the district was

created in 1983. in france, french presidential candidate marine le pen is refusing to be question by state police. they are investigating her use of european parliamentary money to pay for party work. in the u.s., a warning from the white house -- the justice department will step up enforcement of laws banning the recreational use of marijuana. that is a reversal from the stance of the obama administration. prosecutors have cracked down businesses in the marijuana industry, even in states where they have been made legal. still, a policy maker says policy changes are not like her. that's likely to global news power by 2400 journalists in more than 120 countries, this is bloomberg. are negative 7. i have no idea where we will be this afternoon. .uro is stronger this week

onto the next screen, please. what is really interesting here is the german two-year, we are waiting for the screen, we are waiting. i am frozen. francine: we are frozen. i have it here on my bloomberg terminal. tom: we have a friday meltdown. the entire control room showed up after thursday happy hour. that is what happens on a friday at "bloomberg surveillance. " let me go to the bloomberg right now. this is ambrose evans richard. we had a great on a target to funds flows in europe. i compare it to the gdp of each nation here as well. is germany with a massive surplus. we know that. the surplus is increasing.

the real headline news is italy and spain rolling over, this is target to find the money flowing into germany, out of spain, out of italy, in germany as a percent of their economy, and you can see the second derivative, this massive acceleration in spain in particular, italy. this is the tension, francine, beside the scare for the -- the scarcity of paper behind the german two-year move. francine: i want to show you some other tensions. i benchmarked this against france. today, we have a new record. this seems more like the protection of a "just in case." in thet see anywhere markets really believing that marine le pen could become president of france, but people are concerned about making certain predictions. they're concerned, saying there is little chance, but what if? they try to protect themselves against that by buying german

paper. tom: that is a beautiful chart. right now, we need to go to kevin's really in washington come our chief washington correspondent. the "ft,"omberg, th the "wall street journal," they all say the same thing -- i have never seen an administration talking out of to size of its mouth. which one matters this morning? which side of the mouth is getting the president's attention? kevin: of course we're talking about steve bannon and chief of staff reince priebus. i think they are trying to put behind the rumors that they are not on the same page. cpac, which is a conservative convention annually here in maryland, and it is designed to put any notion that they are not on the same page behind them. i thought they fail. i will be direct about it.

membersco, to cabinet look like idiots compared to what the white house is saying. do they have a power right now, or are they just going through the motions? kelly said "there will be no mass the or tatian, -- mass deportation," and he was adamant about that. hours earlier, president trump himself telling reporters there will be military force utilized in order to have those immigration deportations, so it is a different tone coming from the cabin as well as from the white house, and where exactly that all falls in line is going to matter when of course these executive orders start to be implemented. francine: so we are expecting, heaven, first of all, congratulations on your interview with steve mnuchin yesterday. waiting,t is really a expecting the important speech

by donald trump next tuesday to congress. kevin: yes, and that joint address to congress, especially of congress returns from recess -- they were on a bit of a recess this week -- when they get back, they will have to you with things because they are repealing parts of the affordable care act, which is being scored right now by the nonpartisan budget office. then of course tax policy. ,his is where gets interesting and where president trump's speech today at cpac could matter. tom: joe quinlan does not matter, kevin cirilli. is the president going to play golf in florida this weekend? kevin: [laughs] we will have to wait and see, but he has a lot of work to do in florida this weekend. tom: kevin cirilli, thank you so much, from washington. with us is joseph quinlan. this bullieves in market strategy from merrill lynch. you were shaking your head as

kevin was giving us updates on washington. why are the equity markets immune to what i see on the cover of the newspapers? : they are immune for now. if we do not get this by may or june, we will see the markets outflows, butlow to make him it will still be a buying opportunity because of we do not do corporate tax reform now order the policy initiatives, it is not going to happen. tom: let me get out of the way here. it is 6:08 a.m. wall street time. should i shall stocks? joseph: no if you. are holding good, large-cap dr's,s, some good 8a just stay put. europe, of course, here we go again. there is another problem with italy and spain. ride that out. earnings are good.

don't sell stocks, just stay put or add incrementally. francine: investors are looking for details on these economic plans when trump addresses congress next week. if the president disappoints, are we going to see a correction? joseph: not a correction, francine, not that dramatic. perhaps they pull back. investors, and many of them missed this trump rally, so they are looking for a pullback to come back in. i think that would be welcome as well right now. have a little pause, reset, reload, the go forward. francine: all right, thank you so much, joseph quinlan of merrill lynch, staying with us. coming up on "bloomberg onveillance," a conversation .eutsche bank we talk about supervision and trading. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. let's get to the bloomberg business flash. the british bank took private equity on notes that the business is closing. conditions tots remain challenging this year. meanwhile, royal bank of scotland has posted its third straight annual lost and outlined plans for big cost cuts . a bank and the u.k. will cut $2.5 billion over the next four years. the a $.7 billion loss as disappointing but does plan to turn a profit in the future. gote think that we have another tough year ahead of us are 2017, provided we can get

through issues, particularly u.s. rbs. we think we will be making profits in 2018 taylor: in recent weeks, rbs set aside $5 billion to pay for the investigation of morgan stock securities. and that is the bloomberg business flash. francine: thank you so much. andreas dombret has addressed the banking sector this morning as it relates to brexit talks. today, he said eu decisions may not offer sound footing for long-term decisions of banks. joining us now, we are pleased to say, is the man himself, andreas dombret, still with us, joseph quinlan, head at merrill lynch u.s. trusts. andreas, what is your feeling on brexit? see.as: we will have to

i do not have any insight, as you don't either, so we have to wait. our job is as supervisors and regulators, we have to make sure that we have a transition which is as smooth as possible. the other point of view, i can only tell you we will have a very pragmatic approach in trying to help make this procedure. toncine: yesterday, we spoke a top-performing investor, who said he does not trust at the moment bank balance sheets from regulators in general. how do you take this criticism? andreas: do you trust banks or do you trust regulators? these are two different things. it is our job to make sure that we have good, transparent, and efficient regulation and that the banks adhere to those rules. so we have two parts of the

equation. one is that you do have told rules, strict rules, and you also have to make sure you have good supervision to make sure that these rules are listened to. i can tell you, this is our job, and we are doing it as best as we can. francine: how do you respond to chris's and from investors who said they want more transversely from regulators? -- criticism from investors who say they want more transparency from regulators? is there a deeper concern? andreas: we meet with investors as we meet with banks, and we try to meet with the entire marketplace. we do this regularly. there is a lot of transparency. look at all the stress tests we are doing now, whether in the united states -- there is quite some transparency. sometimes it even has the feeling that we provide more transparency than needed because if you look at how many picks we have once we published in

regards of the stress tests, which are very detailed, and many layers of information -- you wonder whether it is all being absorbed. i do not really see that we could be doing more. in fact, we are open to any sort of question which makes the market more -- grows a transparent market and is good for everybody. dombret, i don't want to get you in trouble with the bundesbank. the here is the issue looking at the german two-year as the yield plunges. prichard writing in the "telegraph" about the central bank and how they are moving europe.ound if i look at the surplus of target to funds as a percentage of german ddp, and i look at italy and spain, this picture --

and i do not want to talk about in particular, but this shows the tension within europe of money flowing to the stronger safe haven nations -- -- but itd luxembourg also shows the movement of pride, risk, and that events over to a public solution. does this give you concern that we are doing another greece, and for that matter, and even bigger greece, in fund flows to your germany? balancesthe target to have been a major point of byterday's press conference my president and my colleague where we showed our numbers for 2016. the balance sheet of the 1000 4ank is now roughly billionusers -- 104

users. those claims we have, not necessarily or not at all, france, italy, spain, claims we had against the system of central banks, and we are comfortable with that. delicately answered. one final question, if i could, sir. way to relievet these pressures and avoid instability within the european monetary experiment? we are not in a european monetary experiment. we are living in a monetary union, and there is quite some stability in our daily work. tom: very good, mr. dombret, thank you so much. we will continue this discussion on a lot to do with the european banking system.

joe quinlan with us with merrill lynch and u.s. trust. later on on "bloomberg daybreak," a most interesting person to speak to now -- paul atkins, a former security and exchange commission or. this is bloomberg. ♪

francine: this is "bloomberg surveillance."

with francine lacqua in london and tom keene in new york. we're back with the deutsche bundesbank board member andreas dombret. we were talking about some questions surrounding the banks. talk to me about regulation and brexit. if brexit happens and it is a are thereessy brexit, concerns that there will be are differences in the u.k. compared to the rest of ne europe? andreas: we would not like to have a race to the bottom. we need to stay in very strict and clear supervision, and we by no means can allow that these reforms we have taken of to be watered down. what can you do, what can bundesbank do, what can you were due to make sure bundesbank is protected? andreas: we will stay together,

as we have come and we will make sure that we follow the rules, we follow the rule, and we implement the rule of law and that we combine good regulation, so we are very committed to having, you know, the regulation and the supervision in place and that we do not have arbitrage amongst each other, meaning we follow the same rules and procedures, which also means that the banks know who to talk and how to talk and that there is no deviation from it. tom: what is the timeline here, mr. dombret? there are a few other things i have got a mystery on, like the trump timeline as well, the many timelines in the united states. what is the european timeline to get to a new financial regime? andreas: we have very few parts of the regulatory reforms still outstanding, the biggest one being the final touches on basil three. 2017 will be the

last year that we implement the last that, but we are in no rush, and we should always put quality for speed. this year will be the year that we finalize. that is my conviction. tom: joe -- we have joe quinlan with us from u.s. trust. francine has a shot of tequila every time i mention this -- when do the combinations occur? what are we waiting for to combine down to a more canadian, simplistic system? banks: tom, i think the are being more nationalized, looking more homework bound. the transatlantic financial system is becoming more fragmented, if anything. basel three without it. -- the homeeeing financial system, particularly transatlantic, is becoming

vulcanized. tom: do you feel that, francine, in london? francine: i do. i do actually have a tequila shot every time you mentioned m&a. tom: joe says we are more fragmented. i'm like -- when did the mergers occur here given the tough growth environment? discussion onugh a friday, the backdrop of a record low german two-year yields. the dow should be red on the screen for the -0394. this is bloomberg. ♪

tom: what you need to know right now -- german two-year down to record lows. joe quinlan with us. we will get to the equity markets in a bit. right now on a first word friday, here is taylor.

malaysia sayssi a chemical was used in the jong-nam, the brother of kim jong-un. he was killed in kuala lumpur last week. it is believe that north korea has one of the largest stockpiles of chemical weapons. iraqis say they have gained full control of mosul's airport and have now entered occupied parts of the city. mosul is one of the last islamic state strongholds in iraq. a reversal of an obama era order justifies investors on -- that of increased since the election. far right presidential candidate marine le pen has met with international banks and

other firms to explain their plans to exit the euro. those joining the meeting -- blackrock, barclays, and ubs. marine le pen's national front says this is the first time their party has been approached. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: taylor, thank you so much. i like your last story, tom. i know there is a 25% chance that marine le pen actually becomes president of france, but 25% is 25%. why would you not try to understand the economic implications or how she views france getting out of the euro if she becomes president. something we need to keep a close eye on. let's continue the conversation on banks, regulation, and m&a. dombretack with andreas . in new york, it is joe quinlan

from merrill lynch and u.s. trust. every day, tom keene asks winter banks in europe going to merge. there are too much banks, and a lot of them do not make a lot of sense. the answer i always turned to his regulation. is there any appetite for regulators to see big merger m&a, which could mean more systemic risk? andreas: if you look at european banks come other problem is not necessarily that they are too fragmented but that their earning power is too low. as a supervisor, we are interested in sustainable, reasonable earnings, and consolidation may be an answer, the correct consolidation, but that does not mean too weak -- two weak banks getting together and forming an even weaker bank. that means banks with synergies getting together and making sure there is a path to higher earnings, may well be a solution. but this is for a private sector

to decide, not for the central banks or supervisors. merger at each and every closely to we have seen a merger in france, a rather large merger in germany, so by no means, from the supervisory perspective, mergers are a taboo which we would like to see -- it is one of many solutions you can use in order to make sure your earnings are higher. francine: what about cross-border mergers? with a be treated differently than domestic mergers? andreas: no, not within the single advisory mechanism. francine: all right, talk about brexit again and if anchors leave the u.k., will they go to frank for it or dublin? --frankfurt or dublin? andreas: i don't know. i expect bankers to make that decision in the first half of this year, and many banks have told me they want to be ready, at least in their decision-making, when prime minister may triggers the article. we are not talking about too much more time until we know

where bankers will go. i do not feel it is my job to promote the financial center of frankfurt because we work in the single supervisory mechanism, and it should be totally irrelevant, at least from a seve financial stability point of view. offer,rt has things to but other cities also have things to offer. it is a private sector decision, and we are not going to promote our financial center above others. vs. sell me on frankfurt moving everything to paris as we talked about earlier this week. andreas: i am not going to sell you on frankfurt, but we all furt is in thek fo middle of europe, has a very strong airport where you do not have long commuting times. we have the ecb, bundesbank, and other agencies there. if you want to be close to the

regulator, that is the place where you can actually do that. it has a good infrastructure, it has enough space, but again, other cities have other banks to offer, and it is really not my job to mode our financial center. this is a private sector decision, and all those banks know what they are doing, and they will make a conscious decision. expect, actually, that we will not have banks and bankers moved to one city on the continent. i expect that there will be some diversity, which also would mean that we would have some diversity in the risks across europe. so banks would go -- several cities for all different reasons, which have to do in the past, where they have been located in the past, where they have good management, where they are comparable. so we will not have one solution. we will have several solutions. tom: joe quinlan, we are not distracted by this in america. it is a huge distraction. joseph: it is. tom: and it got worse in the

last six months. joseph: there is a single market in the 1992 project -- it is not done. they are still working on it. u.s. companies keep going, but they are concerned about brexit, as the gentleman just talked about, where do you go, what do you do with it, ireland vs. frankfurt, but there is time to work this out. tom: i am fascinated about the trend of this discussion, francine, over the last six months. it has been asked ordinary. -- it has been extraordinary. francine: it has been turned talking with the u.s., going back to germany, and what you, sir, would or would not do to fttract bankers and frank urt. first, is there a limit in what frankfurt would do to attract bankers? andreas: we will not allow fly and dry banking, we will not accept empty shells.

so we will insist, as we have always done, that the management, the risk control, and everything else on those businesses are in the country, be in germany, there will n discounts from a german perspective for somebody who wants to move theiro business to germany, but there will be strong and clear regulations. francine: are you in touch with anyone in the u.s. about regulation? are you in touch with jerry cohen about what the u.s. wall street will look like? andreas: right now, i am not in touch with the american side, but i will always be at the table to discuss at any time they want to discuss. francine: all right, thank you so much, mr. andreas dombret, deutsche bundesbank executive board member, for giving us so much of your time today. tom: joe quinlan will be with us , and we look toward doubt, 21,000 -- dow, 21,000.

coming up on bloomberg radio and television -- what a timely discussion this is, the democrats from virginia, governor mcauliffe. stay with us. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." i am taylor riggs. bloombergto the business flash. hewlett-packard's ceo meg whitman is trying to change the company into a corporate technology provider, but she is being thwarted by rising supply costs and aggressive rivals. now, hp has cut forecasts for the current fiscal year, and they miss projections for the third straight quarter. exxon mobil's new ceo has called for a carbon tax to discourage use of fuels that pollute.

the revenue-neutral carbon tax would promote greater technology. his comments mirror those made in the past by rex tillerson, exxon mobil ceo, who is now u.s. secretary of state. industry executives, analysts, saudiscutives say the may have to accept less, less than 20% of what the saudis hoped for. and that is the bloomberg business flash. tom, francine, you have more on aramco? francine: we certainly do. york, josephw quinlan, head of market strategy for merrill lynch u.s. trusts. at saudi arabia, what do you see? uest: a lot remains to be seen.

what is important is when this $2 trillion evaluation was floated, it was based on the oil reserve and giving them an eight dollar a barrel valuation. that is not how all oil companies are valued. it is huge. oil will retain his economic value for generations. francine: it could be worth less than half -- or half. with half, what does it mean for the kingdom? will: they are going to have to make a decision. they only wanted to sell 5% of this. it was a key part of modernizing their economy. it would help the huge sovereign wealth fund. if the valuation comes in far less than the $2 trillion they originally floated, they will have to decide whether the hassle of floating this company, to go through the ipo, is going

to be worth their while. francine: this is a huge deal for the bankers involved. will: of course. francine: how much do they rely on this to make up their end of your numbers? po's are not going to happen until 2018 at the earliest, so if they have some way to paying out the bankers, but clearly it will be the largest ipo ever, and it would be a hugely lucrative payday for wall street institutions. tom: will kennedy, thank you so much. daybreak" coming up. jonpharaoh has chosen to -- appearas chosen to u this morning. is adespite the data, it

weaker euro, and the big question is -- when you get long? before the french election or after the friend french elec -- after the french election? i am looking forward to the conversation with jeffrey you -- geoffrey yu. it is uncharted territory for the bull market once again. i get it,urse, jon, that is part of the debate, but there has got to be another story going on as well. jon: the other story is outright scarcity and the ecb buying into this in a big way. now that the ecb has pre-much said to the bundesbank, "you can buy the lows, the deposit rate," i imagine that is what they are doing. bund is a big bit in the market. tom: jonathan ferro, thank you. francine? francine: you can watch for "daybreak" on tv . you can still watch us. tom: jon is so good-looking.

francine: you are very good-looking. tom: jonathan ferro! francine: our handsome co-anchor. this is bloomberg. ♪

♪

kindle, euro to a $1.04 rounded up $1.0597. you really want to see swiss lower.-- swiss francs peso asonger mexican well. francine lacqua in london, i am tom keene in new york. on a friday, you want to stop and get away from all the politics, all the international relations and just talk to joe trust merrill. lynch, head of market strategy there, about where are we in the market. let me give you a single best chart of this massive extension, and what is amazing here, if a bear market is 18%, we are so far extended that a bear market is down to a dow 17,000.

it is remarkable how we have forgotten what a bear market is, what a correction is. how do you synthesize that into what you do with money? joseph: you always have to have the risk parameters out there, tom. we do not get too excited on the upside or the downside. we look for long-term things playing out, whether it is health care, technology, internet use, digital economy -- don't get too excited on the yes side, and don't get to bearish on the downside. saw a little discussion of adults in the room and corporate boardrooms not buying back shares. do you buy it for a minute? i do not. joseph: tim tatian will always be there now they have more cash from the moneys coming overseas, the tax reform. that is part of the game, part of the play. but the key will be -- will they actually hire? will they invest? will they do mergers and acquisitions? tom: do you think they will?

joseph: a little bit of both pure do i think warding cash is still out there, the sentiment is still there, but it is not going to be all share buybacks and dividends. it will be more hiring an investment. francine: joe, what is your take -- you talked about the market, we talk about industries, but would you break them up and industries, and would tech outperform health care? joseph: francine, we still like technology, we are still bulls on energy, we are putting money in the emerging markets, brazil, russia looks better. mexico looks oversold. we will come back and look at the currency. you really spread it out. is verynk that debt dangerous. it has to be diversified. large-cap stocks have been around forever. dow.at the many of those countries have been around for 100 years, and they will be here when we go forward for the next couple of decades, so look at it that way.

take the long-term and conflate that. francine: yes, you are right. that wethe one thing are underestimating, that is not priced in? trade wars, a strength in dollar? what is the worst-case scenario? joseph: the worst-case scenario is weaker than expected numbers out of china. i know china can prop up the numbers, they can print whatever they want, but i see a weakness that is not yet filtered into the markets. also when it comes to the policy backdrop -- trade investments. mr. trump is walking back some of that. that is good to it as soon as we get clarity in the united states, then we have the problems in europe. by the way, i think the problems in europe are manageable because they have a lot of cash, and they will step up. francine: weakness in china stemming from what? crisis?the banking nonperforming loans that you would watch out for in the coal mining type of moment? joseph: it is the transference of the comes from the government

us as we have a problem when it comes to nonperforming loans. we have to create a bad bank and manage all of this. then you have the currency effect. to me, the currency in china is kind of a linchpin. tom: francine, thank you so much. she is going to run over to radio. francine will leave it off at 7:00 a.m. for another three hours of "surveillance" on radio worldwide. joe quinlan, i want to have some fun with you. i know you can't talk about this, but we are going to go to the id of an amazing valuation. carlos ghosn stepping aside at nissan. nissan is white and tesla is in yellow. this is the market cap of nissan versus the market cap of tesla. you and i have seen this every year in our careers. these silly valuations on whatever story come and i don't want to buy a hotel from you on tesla because i know that is not what you do, but how do we stay

away from this and buy a boring blue-chip when i can do a moonshot of tesla? you have to do a little bit of both, but it is a remarkable chart in the sense of old versus new, a bet on disruptive technologies. boringe of those big, companies, stay with them. we have clients, we want to take them, be in the kind of disruptive space and get these moon shots. tom: i did a study this week on dividend growth, and i did not go back five or 10 years, i went back 20 years on the bloomberg. it was a blue chip stocks, yielding like 9%, or 13% dividend off the investment of 20 years ago. i go back to the arch question of the financial crisis -- is dividend growth the new yield? joseph: i think it is, tom, in this low interest rate environment. even before the crisis, dividends have always been a big part -- tom: 47%. joseph: right. and i think people forget that.

if you -- it is a new old play. our i want you to talk to global audience. we have global wall street, a sophisticated investment group, and people just watch the show for francine lacqua. i want you to talk to us about how we stay in the market with all the gloom notes. you and i are going to read five research notes this weekend that say "go to cash." what do you look into that? joseph: see the longer term, see that the policy backdrop is moving forward. the whole idea in washington is we will have corporate tax reform, we will have 25 years without it. immigration reform will, and be a good thing, infrastructure space. europe is actually expanding. they are buying the populace downbeat bearish case at precisely the moment when you have got a globalized synchronized expansion upon us. tom: i will give this to you, even after the interview we do, europe is doing a lot better -- joseph: better than the united

states in many cases when you carve up the eurozone growth. remember, europe, debt problems in china, italy, they are overall in a surplus. they have money. they have the wherewithal to fix this problem. two fundamental questions on investment your small cap come amid cap, large-cap -- where is the worst valuation right now? joseph: there are many feared i would say small-cap has gotten a little bit ahead of itself. we will see how about plays out. i think the big fear post- election was the stronger dollar, because of the large-cap. the dollar has really traded sideways. tom: a global synchronized lift, where are you on u.s. traditional retirement, multinationals, versus buying abroad, whether it is esoteric e.m. or the blue chips of euro in japan, which is it? joseph: we like the euro cap large companies if you don't own them, but you should own them by now. tom: you have got to realize, i

am in the double leverage all cash fund. it has been great since 2009. i feel safe. joseph: perhaps not. broad in that out. there is some good multinationals coming out of china. we see good opportunities coming out of india. in europe, pharmaceuticals, the banks, the capital goods, they are good as well. tom: this has been fabulous, joe quinlan. we will continue this discussion on monday. david harrow will join us about u.s. and foreign. stay with us. this is bloomberg. and that is a 70 degree new york today. ♪

♪ jonathan: a rally worthy of the reagan era. the dow completes the longest

streak of records since 1980 amid a major speech by the u.s. president. is the canary in the gold mine? german bond yields break down in unchartered territory. it's a ninth trait loss for rbc. the c.e.o. expects to report the first profit in a decade. to our viewers worldwide, i'm jonathan fero alongside david wes continue and alix. 10 straight records on the dow. the futures are a soft session emerging looking at global equities. down by four points, one full percentage points on the stocks. treasuries coming in today well bid, 236 on the 10-year. alix: the two-year bid with a record low. citi says 100 basis points could be a reality for the german two year.