mark: why traders still don't see a march hike happening despite talking up from the fed. sterling slides on a report there could be a second scottish referendum as theresa may braces for a brexit battle with the lords. and macro momentum. polls bonds rise as new see the independent candidate opening of his biggest lead yet over francois fillon. this is "bloomberg surveillance ." i'm mark barton in london. check out what's happening to stocks today.

this is the stoxx 600. investors cautious today before speeches i donald trump and janet yellen. stoxx 600 down by 0.2%. dollarg down against the , falling against all its major peers after the times reported that prime minister theresa may's team is preparing for scotland to potentially call for an independence referendum in march. the french 10-year yield is down to 89 basis points. emmanuel macron opening up his biggest lead yet over francois fillon. let's finish up with gold, down 0.2%. gold will head towards $1300 in as inflationmonths expectations pick up real interest rates turned negative. that is according to ubs wealth management. let's get the bloomberg first word news. nejra: the london stock exchange said its $13 billion tie up with deutsche boerse is unlikely to proceed after a new regulatory

hurdle signaled a potential end to the effort to create a dominant european exchange. officials had requested that the nsc divest its trading platform, but the nsc said it couldn't commit to such a move. the u.k.'s house of lords starts a detailed examination of prime minister theresa may's exit legislation today. a number of amendments are expected to be put forward, including one which would give parliament a binding vote on the final brexit deal. the pound is down against all its major peers after a report said may's office is preparing for sultan to call another independence referendum. the independent french presidential candidate emmanuel macron has won a third endorsement in a week on the suggesting he is favored to win the upcoming election. techcrunch is seen challenging francois fillon with the far right leader marine le pen expected to win the first ballot.

she is currently expected to lose in the second round. the suspended president of south korea has denied involvement in wrongdoing according to the news agency. it sites are written comments to the constitutional court, which is holding its final hearing on her impeachment. park was suspended over a scandal about influence involving her confidant and some of korea's biggest companies. the court will rule on the legality of her impeachment within two weeks. there was a dramatic finale to the oscar awards in hollywood. "moonlight won best picture but only after a mixup meant "la la land" was mistakenly announced as the winner. presenter warren beatty announced he was accidentally given the wrong envelope. it was still a big night for "la which won six awards. global 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. mark: thank you.

bond traders are calling the federal reserve's bluff. despite everyone trying to convince investors the fomc's march meeting is live, traders see a 40% chance of a hike. every rate increase for the past quarter century has been preceded by at least 50% odds according to data compiled by bianco research. one of the reasons for the skepticism is uncertainty about what donald is going to do. we could get an outline of his budget as early as today according to two white house officials. the planfamiliar with says trump is proposing major defense spending increases and big cuts to the environmental protection agency, state department, and other federal agencies. the president is scheduled to address congress tomorrow night. let's bring in francesco papadia . the ecb former director general of operations. is this the week we are going to

get more concrete details of president trump's agenda? he addresses congress today. we could get further details tomorrow -- excuse me, and we could get further details of his budget today. francesco: there is a lot of uncertainty. i don't understand very well why stock exchanges are so bullish with all this uncertainty that is coming from the administration. you refer to fiscal, but of course you could refer to production tendencies. you could refer to general geopolitical uncertainties. i don't quite understand such enthusiasm. e stock investors setting themselves up for a fall? francesco: the thing i fear is they see possible short-term gain, but they don't see the long-term pain that is -- that could come from an asinistration as uncertain

so few of our past, like this one. mark: holger schmieding, are you in the short-term pain or long-term gain camp when it comes to trump's agenda and how it is affecting various asset classes? holger: when it comes to the agenda of the republican leaders in congress, i'm very much in the camp of long-term gain and probably short-term gain as well. what we have to grapple with is the uncertainty that trump causes with his interventions in what is basically a congress-driven u.s. reform program. mark: the treasury market is obviously where he. look at the odds of wirp. fed fund futures 40%. we are led to believe by various fed official that march is live. why aren't we above 40%? holger: investors see so much uncertainty, ranging from trump to the french elections. having said that, we are very much in the camp of, it's likely

to be a march hike. living upic data are to fed expectations. there's always some political uncertainty. who knows whether the uncertainty will be lower three months from now? i think a prudent fed would go now. mark: francesco, can they, will they, should they? francesco: from a more basic point of view, it does not matter whether they do it in march or slightly later. this will not change the economic situation. this is something that is of a lot of interest for traders, but not for economists. mark: and that leads us to the space beyond march, as francesco was implying. when further details start to create out, when implementation of those plans start to occur, that makes policy much more interesting, doesn't it? looking out over the next year,

year-and-a-half, especially when president trump will have the opportunity to change various positions on the fomc. holger: yes. interesting it will always be, but i would say the path for the fed is comparatively clear. they need to increase rates with an economy that is resilient and likely to strengthen. we are looking for three rate hikes this year, three rate hikes the year after, and then we see how many we will need in 2019. this is no longer a decision whether to hike or not. it is the decision whether to hike three times or four times this year, the precise pace, no longer the overall direction of policy. mark: francesco, are you in the 3, 4 camp? francesco: i think that there may appear the four too long some kind of tug-of-war between the fed and the president. i agree the fed has to increase rates because the u.s. economy is doing very well.

but this may come at a time when yields go up just because trump is carrying out an expansionary fiscal policy. he may put pressure on the fed not to increase rates when yields are already coming up. then there is the issue of the balance sheet of the fed, which could be another area of disagreement between the president and the fed. in the medium-term, the president will win because he will choose who is the fed. mark: at watch stage is that island -- at what stage is the balance sheet addressed? when does the fed start to fiddle with its balance sheet? holger: i don't think this has to be an issue for a year or two. the fed can tighten through increasing rates. it can potentially decide to just no longer prolong assets that are maturing. but i don't think that the fed will have any need for the foreseeable future to upset bond markets by actually selling any

of the bonds it has. the u.s. economy is not roaring at that, that beyond interest-rate increases among the fed would have to actively shrink its payments shoot. mark: holger schmieding, francesco papadia, both staying with us. if you are bloomberg customers, you can watch this wonderful function, tv , as well as the video stream. you can follow all the charts, all the functions, reach out to ib toow by clicking send show producers at the bottom of your screen. stay with "surveillance." the u.k.'s house of lords starts a detailed examination of theresa may's article 50 legislation. we focus on the path to brexit. ls givingh two pol -- emmanuelicron macron his biggest lead yet over francois fillon, we will bring

you the fight over the french presidency. the u.k.'s biggest mobile operator by subscriber numbers. we interview the company's chief executive. this is bloomberg. ♪

mark: let's get the bloomberg business flash. here's nejra cehic. nejra: deutsche bank has cut its bonus pool by almost 80% according to a german newspaper. the chief administrative officer told the paper that germany's largest lender is reducing the payments and is aware it will be frustrating for employees. he said some workers in key positions will get a special long-term incentive tied to the bank's performance and paid out after as long as six years. intesa sanpaolo has abandoned

the idea of a joint business model with an insurance company. ceo carlo mussina doesn't see sufficient value in merging with generali. the bank now plans to improve the creation and distribution of value for shareholders. samsung has released a new tablet targeting video gamers and professionals as the company tries to bounce back from the note 7 debacle. they were previewed at the mobile world congress in barcelona. samsung also teased its latest smartphone, expected to be released at the end of next month. that is the bloomberg business flash. the u.k. house of lords starting a detailed examination of theresa may's brexit legislation. a number of amendments expected to be foot forward, including one that would give parliament the final vote on the deal. sterling down against all its major peers after a report said may's office is preparing for

scotland to call for another independence referendum. with me, holger schmieding, chief executive at berenberg, and franc francesco papadia. do you think the house of lords can put a spanner in the works for theresa may? francesco: it is very difficult. i'm no constitutional expert and i know the position of the house of lords is peculiar. powers that are difficult to use because they are not elected and there is a referendum and a common vote that has already gone in some direction. on the other hand i understand that in the country, there may be a wish not to give everything an automatic pilot and give parliament the responsibility, the power to take a final view on which kind of brexit there will be. i don't think that brexit can be avoided, however much i would ofh it, but maybe the form

brexit should be further discussed, and parliament would seem the natural place to do that. ger, do you share those views? do you think parliament will get a final legally binding vote? this is what some it seems are pushing for. holger: i think the house of lords seems to be on the right path. this is such an important decision for britain. it is very difficult to see how parliament would not be given the vote and actually the last word on the final deal. mark: francesco, how do you think the economy is weathering the brexit vote? the data has proven that the economy has weathered it. is that coming to an end? are we starting to see retail sales, credit, are we starting to see data pointing to maybe a difficult year ahead for the economy? francesco: the expectation many

had that there would be a quick effect from brexit didn't come true. in some shown in particular is doing pretty good. consumption was not the issue thought of to be suffering from brexit. it was more investment because investment has to do with the future. what you expect is brexit would affect the u.k. economy going forward. however, it is difficult to envisage a way that the u.k. economy would not suffer from increased borders. borders are bad for the economy. if you increase the size of borders, this must be bad for the economy. mark: is it difficult to see a way the u.k. can prosper under any scenario? holger: the u.k. can continue to prosper, the question is how much. before the brexit vote, we had growth at two .2 percent. with a soft brexit, we expect

1.8%. doesn't sound like a big margin, but if you add that up, it is big. if you think that with lower trend growth, less immigration, unless investment, you will need to tighten fiscal policy more in the future to balance the books, then you see there is significant damage to come over the long-term. mark: good stuff. holger schmieding from berenberg, francesco papadia, both staying with us. ?is momentum with macron where going to examine the french presidential race. this is bloomberg. ♪

i mark barton in london. emmanuel macron looking increasingly likely to be the favorite in france's presidential election. he's opened up his biggest lead yet over francois fillon according to new polls which predict macron would beat marine le pen in the second round. macron gained a third ally over the weekend in the form of the socialist defector. with us still, holger schmieding, chief economist at berenberg, and francesco papadia . if i can start with you, holg er, the spread as it is now known, down from the highs of last week when we saw a difference of 79 basis points,

we are down to 68. been a fascinating election, twists and turns every step of the way. for the economy, is not run the best option? holger: macron is probably now the best option. for the economy, fillon would have been an option as good as mac run. toron has the better chances decisively beat le pen. this risk of le pen making it is in a way the biggest sword hanging over europe. it will have a candidate strengthening, who has an extremely high probability of winning overlap and. it is good news for the economy and the politics. ants probably the minimum reforms france needs to prosper. mark: how worrying would that eventuality be from where you are sitting?

francesco: the probability is low. everybody says that. but we have learned from brexit -- trump that you get forecasting politics is even difficult than forecasting economics. france, you don't see the are ready to put someone as extreme as marine le pen as president. , theu look at the values opinion in french society, the probability is low. but the risk and the damage that she could do is very high. basically, the euro construction could be put in jeopardy by a victory of marine le pen. mark: in the meantime, the economy, according to the data, is showing signs of life. isn't it? is this a false the on or not? holger: this is not a false dawn.

the french economy is expanding at a rate which is probably consistent with its longer run trend. if we get from either macron or fillon significant economic reforms, then next year the french economy could accelerate to 1.6%, in line with the german trend growth. andlways talk about the le risk and this is a huge risk. we should also talk about the opportunity. if we have reforming france, a stronger france, next to a strong germany, then overall europe could look significantly more coherent and strong. mark: francesco, does the prospect of a strong france and germany, is that an exciting prospect for you? francesco: absolutely. this could be the turnaround against populism that we have been hoping for. that would make the entire situation of the euro much, much better. mark: thank you, sirs.

holger schmieding, chief economist at berenberg. trench esko poverty a will stay with us. -- francesco papadia will stay with us. the u.k.'s biggest provider was acquired by bt group. we will ask how it is going. this is bloomberg. ♪

mark: time mark barton in london. let's get the bloomberg first word news. here's nejra cehic. nejra: the london stock exchange says its tie up with deutsche boerse is unlikely to proceed

after a new hurdle signaled a potential end to the efforts to create a dominant european exchange. european union officials have requested the lse divest. to said it couldn't come it such a divestment and wouldn't submit a remedy proposal. the u.k.'s house of lords start a detailed examination of prime minister theresa may's brexit legislation today. a number of amendments are expected to be put forward, including one which would give parliament a binding vote on the final brexit deal. the pound is down against all its major peers after a report said may's office is preparing for scotland to call another referendum. the independent french presidential candidate emmanuel macron has won a third endorsement in a week, suggesting he is favorite to win the election. macron is seen challenging francois fillon for a place in the second round with far right

leader marine le pen expected to win the first ballot. she's currently expected to lose in the second round. president of south korea has denied involvement in wrongdoing. tocites her written comments the constitutional court, which is holding its final hearing on her impeachment. suspended over a scandal about undue influence involving her confident and some of korea's biggest companies. the court will rule on the legality of her impeachment within two weeks. finland has urged europe to increase nato contributions and focus more on security as the continent grapples with political turmoil. toldountry's president bloomberg that once britain leads the e.u., the remaining members must focus on the founding principles. >> it is not a question about brexit. we have seen it. for the union it is the question how the remaining 27 countries

live with each other. i have a feeling that someday nearby, more and more people understand that we have seen -- [indiscernible] and there was a dramatic finale to last night's oscar awards in hollywood. "moonlight" won best picture but only after a mixup meant musical "la la land" was mistakenly announced as the winner. presenter warren beatty explained that he was given the wrong envelope. it was still a big night for "la la land," which won six awards. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. mark. mark: of global tech leaders are gathering in barcelona for the mobile world congress. caroline hyde is there with a special guest. caroline? caroline: it is great to be back

on the same continent as you. i'm joined by marc allera, the ceo of ee. great to have you with us. in just over a year since ee joined forces with bt, how is the joining going? marc: it is going really well. we are really pleased with the revenue performance. the margin we are delivering an hour customer experience results as well, and our network expansion program continues at pace. i think the companies are really coming together. being here, you can see the uy us. why bt did b mobile is where the growth is and the excitement as well. caroline: you talk about that margin growth, that addition of subscribers. do you feel more pressure to be even better, more of a cash cow, when we see concerns about the

italian unit? is there more pressure? marc: there's a huge amount within bt group that is going really well. about 90% plus of the business is performing well. mobile is a huge opportunity. we certainly feel pressure, but it is positive pressure. there are so many opportunities for us to take and provide some growth as we move toward a converged world with a strong mobile network. caroline: what has been still strong -- so strong has been the switch to 4g. we're now talking 5g. how do you ensure you still win that race in how you can get subscribers on a faster, more powerful network? marc: there's a lot of talk here around 5g of course, but we still believe there's great mileage to be had out of 4g and we are seeing great developments

like gigabit speeds over a mobile network, and we are launching a device we just announced yesterday, where we will be bringing a mobile smartphone that will be able to perform at gigabit speeds within the next few months. a lot of runway still to come out of 4g networks and we are building a pretty much ubiquitous network, covering 95% of the u.k. geography, and in parallel we're looking at the path to 5g. it is still early days. where working on the standards and obligations -- and applications. 4g, and: going back to there's still a lot of runway, as you call it, and some of your rivals aren't liking the amount you want to bid for. how do you negotiate that? marc: we've made our views very

clear with foxconn as to how that competitive process should work in the auction. caroline: are they listening? marc: absolutely they are. we've been a huge investor in network infrastructure, way ahead of customer demand. we've deployed relentlessly all the spectrum we have and we are going over and beyond the obligations that foxconn has put on us for coverage in the u.k. any spectrum we do get is in good hands because we're innovating and deploying and rolling out as fast as we can. caroline: there will be a limitation put on you. are the markets worrying about that? marc: i hope not and i don't believe they should. i believe that auctions should be a competitive process without caps and restrictions. that does put innovation at risk. caroline: is innovation at risk with the brexit continuing negotiations, u.k. looking to leave the e.u. russian mark --

the e.u.? marc: we've not seen any impact so far. i think what it does mean is that it's incredibly important, more so now than ever before that britain has a fantastic infrastructure, a great network, a great mobile network. it is going to be incredibly important for the u.k.'s competitiveness as we move into a post-brexit world. that is why we are investing billions at bt group. to give britain what it needs. caroline: you and i have u.k. phone bills and maybe the roaming will be quite lucrative going forward. how does that affect your business model? marc: with the new roaming regulations? caroline: charges having to be pulled back. marc: it is something we are looking at and evaluating. we will be looking at our pricing in order to take into

account the incremental costs that we will be incurring. we're looking at a number of scenarios on how we price for the regulation in the summer. caroline: overall, when you are part of a larger institution, do elements some of the of concern outside of your hands to do with the italian side of the business, to do with open reach, don't affect ee at all? marc: no they don't. we have our plans. we have our investment envelopes. we have targets to hit and metrics to achieve. i have signed off and agreed and i'm now running with my plan as i did last year and i will be this year. obviously it is something we don't ignore and we take a very keen interest in everything happening within the group. the objective is to keep on pushing forward, keep on delivering great results, and ensuring that mobile is a very big part of the future going

forward. caroline: great place to be singing that particular hymn. thank you for your time. it was marc allera, the ceo of ee, part of the bt group in barcelona. mark: caroline hyde there in barcelona. stay with "surveillance." central bankers in the crosshairs. how the populist waves sweeping the world could target the technocrats who set monetary policy. plus, deal disrupted. why the multibillion pound lse and deutsche percent tie up is unlikely to proceed. later, as saudi arabia's new stock market surged, we will hear from the vice-chairman of the saudi capital market authority about the exchange's goal. this is bloomberg. ♪

mark: time for a check on the markets. let's get over to nejra cehic. nejra: in the asian session, we were seeing some clear risk off, looking at the equity space and bonds. it is not so clear in europe. you are not seeing as big declines as you were in asia. it is slightly weaker. up.ftse in italy into leading the gains after it abandoned that merger with generali. in the fx space, sterling weakness playing into the gains on the ftse 100. , 1.0 586.2% in the commodities space, a lot of focus on oil and trading. now, looking at sterling, this is the chart intraday, the worst

performer against the dollar except for the korean won. it is declining against most of its major peers. this is after a report in the times saying theresa may's team waiting for scotland to call for a referendum in march. some say this is a bit of an overreaction. i'm afraid we are not there. we are still down 0.3%, though we have come back a little from the losses earlier. myspace, we're seeing the 10-year treasury basisup some two points. we are seeing the yields come down in france. that is a bit of a narrowing of that french-german 10-year bond yield spread. this is largely down to the political development over the weekend, emmanuel macron performing well in polls. i've taken the spread back five years. we are down at the moment, but sincethat at its highest

2014. finally, this oil chart. i've highlighted the zero line so you can see the divergence. oil has been in a pretty tight range, one of the tightest in more than a decade, but money managers have increased their net long positions to an all-time high. the blue line shows producers increasing their net shorts. mark: as populism grips the globe, there are few targets as ripe for political assault as the institutions stuffed with technocrats wielding the power to affect the economic fate of millions. that means you get this, central bankers come of the fence freedom to set rates, already the target of house republicans pushing for a rules-based system. across the atlantic, the ecb is under pressure to tighten policy. mark carney has increasingly felt the heat from british lawmakers over recent bank of england decisions. that's talk to former central banker francesco papadia.

-- is thel banks independence of central banks really under threat? francesco: to some extent, yes. central banks had to take on their shoulders all sorts of tasks, all sorts of responsibilities, that went well beyond the technical task that was given to them. that was basically price stability. know how to achieve price stability, so you need discretion. during the crisis, central banks had to take the decision, in particular the ecb, that were political in nature. that is creating tension. mark: what will unfold? what will come of all this tension? what rules will have to be changed? francesco: it depends very much whether we have seen an exceptional period as we have seen in the history where the central bank got closer to the

government, had to become part of the administration, because they were overwhelming problems that had to be dealt with. then we will get back to normal, where the central bank can retreat into its own area. or, whether we will see that some of the things that happen during the crisis will continue. if that will be the case, and i'm afraid this may be the case, some adaptations -- don't think anything radical, but some adaptations. mark: give me an example with the ecb. what adaptations? francesco: one thing that came very strongly on central bank was financial stability. before the crisis, financial stability was forgotten. it was not an important issue. now it became very important. the central bankers had two objectives, price stability and financial stability. often they go together. sometimes they may not.

you may need some tweak to deal with that. the tweak i think may be needed is that when there is a conflict , the central bank should go back to its principle, to parliament, and say, i have a problem. which one should i pursue first? mark: let's talk about the ecb in general. the next talk seems to be, are we approaching a point when the ecb is going to truly start tapering? how soon away do you think tapering is going to be implemented? francesco: i don't think they will taper before the date that they've said they will continue doing their qe. i don't think there is a significant chance that they would shorten that. bundesbank,e -- the the president of the bundesbank is not vocally against what the ecb is doing. when draghi says, we are

unanimous on our policy, that must include mr. weidmann. so he doesn't want this to last too long, but he doesn't want this to stop now because he realizes that price inflation of 2% is not their as yet. mark: when will it be there? headline inflation is just below 2%. is core going to creep up to the levels the ecb needs it to, to change policy? francesco: the projections of the ecb in terms of inflation have been too optimistic for too long. maybe it is the time they are 2019,tic, and by inflation would be close to 2%. of course you don't want to exaggerate the precision in that but say 1.7%, 1.8%, would be achieving the 2% objective. papadia, former ecb director general of markets operations. up next, deal disrupted. why the lse and deutsche boerse

tie up is unlikely to proceed. this is bloomberg. ♪

mark: let's get the bloomberg business flash. here's nejra cehic. nejra: deutsche bank has cut its bonus pool by almost 80% according to german sunday newspaper -- the chief administrative officer told the paper that germany's largest lender is reducing the payments with an eye toward shareholders and is aware it will be frustrating for employees. he said some workers in key positions will get a special long-term incentive tied to the bank's performance and paid out after as long as six years. intesa sanpaolo has abandoned the idea of a joint business model with an insurance company. the ceo doesn't see sufficient value in merging with generali. the country's second-largest bank plans to improve the creation and distribution of value for shareholders.

saudi arabia is seeking ways to boost foreign investment will most two years after easing access to one of the world's most restricted exchanges. the thought it will will hold talks with companies already trading on other exchanges for a cross listing in the kingdom i 2018. >> the interest on the saudi market has been gaining very good momentum and basically what among the changes and reforms of the saudi capital markets gives a very positive foreignincreasing participation in the saudi market. nejra: samsung has released a new tablet targeting both video gamers and professionals as the company tries to bounce back from the note 7 debacle. they were previewed at the mobile world congress in barcelona. samsung also teased its latest s8rtphone , with thes

expected to be released next month. mark: deutsche boerse's attempt to acquire the london stock exchange appears to be under the verge of collapse after the lse refused to sell one of its holdings. let's get more with our european antitrust reporter, who joins us from brussels. why is this deal close to collapsing? se said in its statement yesterday that it didn't expect to win approval the cause it had been asked to sell part of a business in order to satisfy regulators' worries that the packet would work. regulators do this is they want to try and make sure that a new entrant comes in, that there's competition from another source. this is not unprecedented. it is not the first time this has happened in a merger. for the company here, it is a disappointment. every company has a redline and lse has said enough is enough.

mark: i thought interest rate derivatives and clearing were meant to be the big stumbling blocks. is it a surprise that regulators are planning to block this deal? >> i would say, given the history of the industry with regulators, we've seen deals being blocked. we've seen deals being withdrawn. from that extent, no. on the other hand, the company thought they had a good chance. you have regulation that would hopefully bring in more competition in the markets. financial markets are changing. they thought they had a shot at it. a lot of this comes down to granular details as the regulators pour over who competes with who and where. it is hard to see precisely what all the issues are. we thought derivatives was one of the issues. that bondual to see trading come up here. ultimately the story is, are you

prepared to give what regulators are asking? if the answer is no, that is not good. mark: thanks for joining us to talk about what seems like the end of the deal between the lse and deutsche boerse. bloomberg continues next. tom keene joins guy johnson out of new york. tomorrow, francine lacqua will bring you our special interview with the starbucks chief executive. that is from 5:00 a.m. u.k. time. have a look at european equities today. there a lovely shot of what's happening in the u.s. the bloomberg davos but index is unchanged. the week for trump, big week for yellen. "surveillance" continues. this is bloomberg. ♪

♪ tom: this morning, the vehicle continues on safe haven bonds.

the german two-year reaches record negative yields. the hero holds firm. in england, article 50 and another referendum are linked. and talk about bundle speeches. this tuesday evening, trump will try not to get the wrong envelope. what a mess last night. it was an all-star fiasco. good morning. this is "bloomberg surveillance ." . am tom keene in new york guy johnson in london. who are you wearing this morning? i am wearing philip, who did my hair. tom: i am wearing oxford of chicago. now we can move on. can you imagine if they got the wrong envelope at the bank of england or the fed meeting? it would be clumsy? brexit feels a bit like

nights. in some ways, the u.s. election night as well. you were completely sold on those events. halfway through the evening, you are like it would go one way. turns out, we got it wrong. just intooscars are with what is going on. tom: shutout to jimmy kimmel. first, you need the monday news. here's taylor riggs. taylor: there is a report that british prime minister theresa may is preparing for scotland to call an independent referendum next month. government sources say make to agree to a new scottish votes, but only after they u.k. leaves the e.u. in the u.s., trump will call for big increases in defense spending and cut to the environmental protection agency, state department, and other agencies. in the outline of the president's budget will be made

public as early as today. steve mnuchin says the budget will not touch entitlement programs, such as social security. malaysian authorities declared kuala lumpur airport is safe after a sweep found no traces of the chemical agent used to kill kim jong un's half-brother. it was a night to remember at the academy reward -- academy awards. warren beatty was presenting the oscar for best picture. >> the academy award for best picture -- >> "la la land." >> there is a mistake. "moonlight," you guys won best picture. >> warren, what did you do?

mistake, they were forn the envelope for oscar leading actress, emma stone from "la la land." 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: complete team coverage here through the day here on bloomberg. what a mess. let's get to the data check. equities, bonds, currencies. on a monday,ting to set the week and get into march. the two cent spread is critical. the euro stronger. vix, 11.9. the german two-year. price, lowerhigher

yield. mr. johnson, what you have in your envelope? guy: what i have is good news. economic confidence for the eurozone -- an aggregate number -- coming in at 1.08. that is above the prior 1.079. the point is data out of the eurozone is getting better and better. spread,u got peripheral but at the 10 year level, they are coming back in. macron, polling numbers seem to be helping that story. stocks lower. just a couple of specific factors. deal assa-generali well. they just continue to grind higher and higher. tom: i like that insight. you see it wide world -- worldwide.

now.e go to the bloomberg we have a new data pouring out of one of our best known charts. this is annual world trade growth. what is new look at the end of 2016, the trend continues down under 4%. this is the old arrow in yellow. the new aero under 4% -- new 4%, there is no parallel. you go back to the weakest trade to 1987. that is a trade slowdown bordering on a global trade recession. guy: let's talk about the fed. this week is very important for the federal reserve. we will get trump speaking shortly on the hill, but this is march, this is made, and these are the odds of a hike budget. look at the white line. today, we get durable goods.

we know the pmi is terribly, but we have not had actual data fallen behind the survey data. tomorrow, we get core pce, the number four inflation. that number will be pivotal. through the end of the week, we get janet yellen, and as well, we start to get into employment data again. so this will be very interesting data the next few days. it will be fascinating to reference back to the march expectation number. let's kick it around and get ideas going. we are joined by rupert harrison, chief macro-strategist at black rock. good morning. data, ishe actual industrial data is there, does that make march more --

onert: it really does depend the data flow. i think we will need upside surprises to get march as a rate rise, just because the option out is still there to wait a couple of months. the asymmetry and risk of a face, there are interesting inflation expectations. still low. so they will be pretty relaxed. unless we get an absolute low out employment report next week. i think probably it is live. speech being closely followed -- is political news important? am i listening to the data, to general -- to janet yellen, or to what trump has to say? rupert: we are seeing -- you're talking about europe. it is all around the world.

it is really synchronized in the data, driving up risk assessment. people are are looking to political risk to knock that off. atthe u.s., we are looking clarity around tax reform. similarly on trade, it sounds more reassuring these days that you could be a route to a nafta deal, though relationship with china seems relatively functional. but there is still risk about unpredictable actions. if anything, it is risk to the downside and how it will materialize. tom: i am glad you mentioned the border attacks. we have some morning must-read coming up in the next half hour on the export analysis. is this the week we realize the story is more complex than the simple certitudes coming out of the election? into launch into march and

the fed meeting march 15, is this where we confront the reform,ty of may be tax maybe budget, and maybe debate over the border tax? rupert: i think we get complexity, i do not think week yet resolution. even a unknown is is a white house attitude to the border tax? we know there is pretty strong support in the house, though some signs that there are perhaps individual congressmen getting worried. the senate is much more noisy. if it is going to happen, i think it needs the white house to come in behind it and use the trump megaphone to back it. time, it isof weeks then is this part of their plan, or the -- or are they happy to junk it? this chartup

quickly. this is the trump reflation trade. we have shown this a million times since november. the basic idea is the resistance or support, i should almost say, where we rolled over. this is the doubts about the trump reflation trade. we have not really broken through. here we are november 9 and before the election. rupert, that shows the indecision we are in right now, whether it is the u.s. or europe. do you carry this indecision right over to the united kingdom and europe? rupert: i think you're up, generally, is very important. we were hearing earlier -- the data in europe is very strong. is interesting -- european assets have not really been following that data. particularly european equities falling behind the u.s. that is a risk you want to own. what is holding it back is political uncertainty in the french elections. maybe longer-term, the italian

elections. when it comes to france, european equities are a pretty good that, because they are being held by political risk. if that political risk gets resolved in a way markets like, you will see that catch up. respond tould europe a border tax? rupert: one of the issues is that it does not tax domestic labor input. officials are pretty sure this is not in line with rules, which could open up retaliation risk from other markets. of course, it is a very political act. interesting piece that suggested the scale of retaliation could be very large. that is why i think it is a risk factor. it introduces a huge unknown into global trade. tom: rupert harrison with us

through the arrow to pass through the hour to get a started. coming up, the linkage to this discussion of politics. your confidence to be in the markets. gallup here. from london and new york, stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. there are reports deutsche bank has cut its full bio most 80%. the cut will be frustrating to employees. about a quarter of deutsche bank's 100,000 workers will be affected.

delta airlines is in talks with korean air lines for a venture that would give delta a bigger foothold in asia. korean air to get greater access in north america, while delta will get a held in seoul. and the tie up with deutsche deutsche boerse and lse is unlikely to be done. lse said it could not commit to the divestment. that is your bloomberg business flash. guy: thank you. the u.k. house of lords starts a detailed examination of the brexit legislation today. meanwhile, there is a report that theresa may's office is compared to talk about another -- independence

referendum for scotland. we are here with rupert harrison. let's start with the house of lords. if the house of lords kicks it back, do you think the timeline for triggering article 50 is still valid? rupert: i do. the fact that the bill was able to go through the house of common totally's -- the house of unamended,ally usually gets a government a strong position. -- is an example of the bigger question is the government is largely unopposed domestically. the labour party, as we saw in the recent elections, was at its weakest in a long time. theresa may dominating the political scene. her biggest problems is what her european negotiating partners are willing to concede and how negotiations will go. she will not need domestic constraints. see expectations at this point?

rupert: they have moved. initially after the referendum and her early period as prime minister, there was a lot gung ho noises. they are in a better place, where everyone knows the early dynamics of the negotiation are -- they are going to spend a long time talking about what to talk about before getting to anything of substance. and the speech she gave was an important adjustment to reality. been keeping things like this in the market open, which is making them look hostage to events. the fact that they have set a bunch of red lines and goals that are more achievable has the u.k. government in a more comfortable place. guy: how much do you think the communication strategy is premised on how the economy is doing? are seeing some evidence of slowdown. the overall forecast looks

reasonable, and the consensus is the u.k. gets through this reasonably unscathed. but does strategy necessarily follow along? forrt: things get difficult any government when the economy is weak. it is interesting that you get some of the more strategic heads in the government, particularly philip hammond and the treasury, warning about risk. so they can say they warned that this might happen been. it has quite complicated dynamics in negotiations. strong economy allows negotiating partners to say that they need to go further. if the economy weakens, maybe that is less of an imperative. in the longer term, it is a complex dynamic. aboutom: -- let me ask

the exhaustion of the english people about scotland. do the english people want scotland to stay within the united kingdom? what is that the zeitgeist now, 10 years on from this debate? that people in england and wales want to preserve the union. i do not think it is at the top of their list of priorities. but on balance, they want to preserve the union. it is aust think pregnant question that has to be asked. one is that mood, please -- what is that mood? puttingi do not think the referendum back on the ng, buthas changed anythi it is a useful reminder that this is hanging over the political system. it is a different -- difficult call for the smp. there are those, the bullish

camps, who say this is the best opportunity to win independence referendum for a generation. on the other side, the referendum is now harder to win then a few years ago, because the oil price makes it fiscally harder. you have to have a land order with the european union, you have to commit to join the euro. it is really a high-stakes decision for the smp. guy: it also depends on how the scots continue to play rugby. if they continue to play rugby as well as they are at the moment, that will be a word. rupert harrison from black rock will stay with us. rock will stay with us. this is bloomberg. ♪

guy: let's get to the morning must-read. the financial times referencing back to larry summers talking about the secular stagnation and whatever happened to it. is it gone, banished, or just and hiding? is unlikely tond banish the problem of sector stagnation for long. we are back with rupert harrison. would you agree? thert: i agree is it is

question for markets. it depends on which side of trump trade you are on. the question is this another part of recovery? or is this the beginning of her change,- of a regime and are we going to see corporate catholics coming through in a way that has not so far this cycle. productivity is the issue we need to keep our eye on. tom: i think we have worn out what gdp and good gdp is. -- 1.6%, 1.3%, one point seven percent, 1.9%. i agree with professor summers that secular stagnation is unacceptable to the political -economic zeitgeist of this nation.

secular -- it is secular stagnation, is it not? rupert: the productivity numbers are under pending bit gdp numbers and there is that out. what is interesting is survey data in the u.s. is consistent with growth 2% to 4.5%. this through, -- whether this gets through, the jury is out. guy: rupert harrison stays with us. we will speak later on with influential names in the industry, including andrew mackenzie. this is bloomberg. ♪

on: "bloomberg surveillance" a monday. guy johnson in for francine lacqua. she is in and will join us in at it.

i am tom keene. with the first news from the red carpet, here is taylor riggs. governors meeting in washington were briefed on plans to repeal and replace obamacare. the number of people covered by obamacare could be cut as much as 51% in some states. trump is expected to sign a new executive order on refugees and immigration this wednesday, according to the associated a seniorich cites administration official. earlier this month, a federal appeals court refused to allow ban to continue. in europe, britain will uncover plans for migrant workers. the home secretary office is looking at a number of options, among them a multi-year visa system, and ending the right for

migrants to claim benefits while working. executed fives security officials because they .ade false reports that comes from south korea's spy agency, which said the executions were made by antiaircraft guns. since taking power, kim jong-un has reportedly killed were executed a number of top officials. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. tom: thanks so much. about reporting. like actually going there and finding out what is going on. our michael mckee actually went on a jet plane and went to mexico to find out what is really going on about this great debate with the president of the united states. he spoke with mexico's secretary of the economy.

important most conversation on the response to trump. >> i believe we need to share more information to get a better assessment. as you know, basically, mexico is the second largest buyer of commodities and manufacturing. in reality is many sectors the u.s. depend on nafta, in the industriesfacturing as well. when you look at numbers, they help you understand better the realities. when nafta was signed, manufacturing jobs remain constant through the years. they changed drastically in 2001, when china comes into the world trading system. the happens when most of the

countries had to face competitors like china. when you look at manufacturing in the u.s., it has been going up in terms of value. u.s.1997 to 2015, the value in manufacturing grew 38%. but it has been going -- what has been going down is employment because of development. michael: given what has been said, mexicans are upset with the president of the united states. is there political support for a renegotiation of the treaty? sec. guajardo: in mexico, the treaty has been an efficient tool. throughout history, u.s.-mexican relations have been strong. but thanks to nafta, the views in mexico has changed drastically in the last 24, 25 years. a shockexicans feel

part of the american neighborhood, and we feel closed to the american people. many of us studied in u.s. universities, a lot of u.s. tourists come to mexico. there is a strong bond. one of the elements we have to defend is economic aggression. minister ofnomy mexico. what is so great is the iconic statue in the background. the minister mentioned it has been a fractious relationship. you have actually gone and seen its. what is the back story of your visit? michael: we see change in the mexican attitude. right after trump was elected, there was a lot of fear about what may happen to the economy. that has changed to defiance. their view is yes, we could lose badly if trump wore to pull out of nafta, but we have great

opportunities, because we have built up manufacturing infrastructure through nafta and can then now turn to the rest of the world. i asked about china. he said they are not ready to go there yet, but south america and europe is a market for them. they can survive and they will not be pushed around. tom: not be pushed around. this goes back to the trade dynamics of export-import. .ring up the border tax michael: their view of the border tax is it is a u.s. decision that could violate wto rules, and they would take that on if it came up. they are more concerned about attitudes towards migration and the wall. if trump wants to build a wall, that is fine, but he will pay for it. if a crack down on migration so much that it is a problem for mexico, the minister said that

is when they walk over from the table. guy: rupert harrison, does mexico have a stronger hand? rupert: there is value in mexican assets. what we have seen over the last few weeks is you can see where a win-win outcome is possible. that is why the u.s. administration wants to get this discussion out of the headlines and into the technical. if they can achieve that, there is a good outcome for both countries. there is a three-year down the road scenario that if it does work, mexicans will say they want a new government. rupert: that is a risk. there is a very credible challenger. i would put in -- i would put it in perspective with other elections around the world. it is a little more stated, and

not a shock and awe, tear up the system type. tom: you know these people. this is a terrific essay from the new york federal reserve. coming great research from the belgian economy, where the federal reserve bank of new york says be careful what you wish for. the largest u.s. exporters are simultaneously the largest u.s. importers of intermediate inputs. both u.s. imports and u.s. exports will become more expensive, and american foreign trade will be dampened. both firms and households will be faced with higher prices for u.s. imports and domestically produced american goods alike. that is an extraordinary essay. michael: the u.s. is looking at

the border tax adjustment, just like everyone else. they are realizing that kids go back and forth across the border. some goods, eight times. the auto industry is so tightly woven that nobody understands how you would be able to slap a tax on there and not hurt people in the united states as much as you heard people in mexico. tom: michael mckee's relationship with the mexican people is great. what is jeff flake's, the senator? michael: i have not asked about senator flake specifically, but anyone on the border knows how important the mexican economy is to the united states' states along the border. not only do we have this trade the big goods go back and forth is counted, but you have thousands of mexicans ,rossing the border every day

spending money. he says that amounts to around $15 billion per year. if you add that in, the trade deficit is smaller, and people in arizona, texas, new mexico know this to be true. guy: let's keep this on similar lines. when you sat down this morning, you and i talked about the process of filling key post in the trump administration is progressing, and your point is some are becoming more mainstream as it moves down the pecking order. you said earlier on that mexico once to get into technical discussions. once we go to the technical discussions with more traditional people filling these roles, do we get a more traditional outcome? rupert: it is probably the most likely case. kevin hassett being appointed chair to the economic advisers .s., very.s. -- the u

pro-trade, a staunch republican. as we are putting together this picture of the administration, as these level two and level three posts get filled, whether in the white house or key departments, key blank areas of policy are getting filled in familiar ways. that is a positive trend paid you have to keep an eye that there are still radicals in the administration. we had this story in the ft retaliations-wto on trade. tom: i am glad you brought this up. michael mckee, you and i have known kevin hassett for years. the chairman of president obama's council of economics really came out with an affirmation of positive statements on dr. hassett. they will win, dr. hassett or dr. navarro?

michael: we do not know yet. but over ross is the manufacturer to keep an eye on. trump said he will lead negotiations. one reason that this is still hanging out there is they cannot aftapast -- nasa -- n started because they do not have negotiators yet. tom: thank you very much, michael mckee. without import an interview in mexico. i cannot say enough to divide dr.een the theology of hassett and dr. navarro. it speaks of another major divide within the trump administration. guy: the question is how our channels of communication working? we will have to wait to see how that works out. rupert harrison will stay with us. tomorrow, a conversation with howard schultz, the starbucks ceo.

the subjects are many. you will find out when. 5:00 a.m. new york time. this is bloomberg. ♪

guy: 44 past the hour. i am guy johnson london. tom keene in new york. boorse boorse -- georgia attempt to boerse's get the loc was in danger. a lot of people i was talking to said politics would top -- kill this deal, but it was the regulator. talk to us about what happened. >> they asked if they could divest the electronic trading platform for government bonds,

and lse said they were not ready to do that. there is talk that deutsche boerse was open to the idea, but the london stock exchange said they did not want that to happen. they are saying the chances of this deal going through are now looking not so good. guy: is it a brexit casualty? do withd brexit have to it, yes, because the deal was announced two months before brexit. now the question is if it is in london, it is an the u.k., but if it is in germany, it is not much help to them. guy: is this part of a trend you would expect to see play out now? that industry leaders are not able to understand what the lie

of the land looks like. business leaders need to understand it will be confronting a more cancellist approach when it comes to britain and the european union. we saw that in news about the refining industry's attitudes. them thinking they could carry on business through equivalence rules. organizations would have to locate more operations in the european union -- tom: all of this is about volume and unit transactions as an alternative to stocks and bonds. are we going to be, in five years, in the city? ? in europe in a more sophisticated derivative, or are

we going to transactions that are more simple? rupert: i cannot see the markets rolling back. i think the people will have to find solutions that allow people to carry on with these instruments that are appropriate to the new regulator environment. that involves some activity moving to the european union. i cannot see it otherwise. but the london hub will not be dismantled in its entirety. are these things dinosaurs? help me with where they will be. in the climate of electronic trading. are they dinosaurs? ruth: it may be a little early to use that term. but the next step we are focusing on his intercontinental exchange, which made an approach to lse last year. so the question is if they

cannot have this european giant compete with exchanges in the u.s. and asia, does ice combat now -- come back now. , thank you very much. in our next hour, david arrow on international investment. harrow onantly, mr. his wisconsin. wisconsinump state of and the president's speech. ♪

taylor: this is "bloomberg surveillance." i am taylor riggs. at the mobile world congress, samsung unveiled new tablets targeting video gamers and professionals. it is meant for entertainment and let's users play for k video. the galaxy book has a 12 inch model and runs windows time. samsung is trying to recover withlast year's debacle the note 7. high rollers from china are

pulling macau out of its doldrums. revenue from junket operators in macau is up more than 20%. billionaire warren buffett has taken a shot at wall street in his annual letter to berkshire hathaway shareholders. he said investors wasted more than $100 billion on high-speed wall street money managers the last 10 years. he urged large and small investors to stick to low-cost index funds. that is your bloomberg is newsflash. -- business flash. guy: thank you. macronal has -- emmanuel has won endorsements, suggesting nominations. marine le pen is expected to

lose the second round, while macron is expected to win the first round it we are still with rupert harrison. team atith le pen's paris headquarters. cannot see it in some of the spreads, but if you look across europe this year, and you think about where the risk really lies, is it actually france? rupert: good question. the market is focused on france. i agree a le pen victory is unlikely. the main risk is always whether in was going to face harmony , is thealist camp extremist candidate can get over their differences. it appears that it will not happen. n isither fillon or macro likely to beat her in the next

-- second round. italy is still the biggest risk for the european union, i think. it is a political system where if you put together the five star movement and of the northern league, some of the smarter parties, you can imagine anti-status quo parties getting more than 50 percent of the votes. that is a much bigger risk for the european union and the french election. guy: what about the dutch election? rupert: that will be the first one. it is coming in march. i think it is lower risk. is dijsselbloem's party struggling, it is a system that will get maximums of 30 or 35 seats into the parliament. strength of the anti-system candidates is not a market shock in and of itself.

tom: gauge for us how economics finance, particularly in investment, will ignore your political world. 2017 go through a two-part where we are resetting off the first of the year, whether complexities of this or that vote is separate from all of the corporate world -- how the corporate world performs? rupert: in a sense, that is a rational outcome. one of the things i have been saying this year is to not be paralyzed by political risk. there are eager things happening in the world. there is a big uptick in the data. you should not be paralyzed by the next clinical events, whether it is the netherlands, italy, or france. having said that, there are a few political events that would bring the whole thing crashing down. that is particularly in year, when it comes to antihero candidates. ro candidates.

that is where italy is dangerous, where anti-euro candidates would hold more than half the seats in parliament. that is the risk. but for the moments, and should not prevent people from looking at data and corporate plans. tom: reuben harris, thank you so much for getting us started this monday. much more coming up. guy johnson, thank you for stopping in this morning. i believe francine has jetted into milan and we will speak to her in a bit. in the next hour, linking political economics at the moment. jonathan golub. this is bloomberg. ♪

♪ tom: this morning, safe haven bonds it continues, the two-year

reaches record negative yields, the euro holds firm. a march fed meeting nears, rising inflation, rising wages? the president will not try to channel faye dunaway, warren beatty -- what an oscar fiasco. come on. it was like the miss universe pageant. good morning everyone. this is "bloomberg surveillance." we are live from her headquarters in new york. i am tom keene. francine lacqua, what have you observed with all the chaos going on? clear that milan is not room. figures that are than expected. i'm here to catch up with ceos. i'm trying to put in fevers.

i have quite a lot of briefings and will give you a better picture of whether milan is back on track and businesses back. tom: let's get to your post-oscars monday. >> we are staying in europe. minister theresa may is preparing for scotland to call a referendum. government sources said that may could agree to it a new scottish boat after the u.k. believes the eu. scotland voted 55% to 45% to stay in the u.k. in an earlier vote. in the u.s., president trump calls for increases in defense spending and the cuts to the epa, state department, and other federal agencies according to persons familiar with the plan. the outline of the president's budget will be made as early as today. steven mnuchin says the budget will not touch social security or medicare.

in asia, malaysian authorities lumpurclared kuala airport safe after the nerve agent that was used to kill the half-brother of kim jong-un was not found. it killed him within 15-20 minutes. night to remember at the academy awards. here is what happened as warren beatty and faye dunaway were presenting the oscar for best picture. >> the academy award for best picture -- >> "la la land" >> there is a mistake. moonlight, you guys won best picture. >> by mistake, they were given the envelope containing the winner for actress in a leading role.

firm responsible for the integrity of the oscar boat has apologized and says it is investigating. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. tom: you can't make it up. that was great. jimmy kimmel i thought killed it last night. let's give you an oscar worthy data check. , 116 basis points for that 2-10 spread. to break to 114, 112, heaven for bid 110, that would be a signal of tension in the market. two-yearen, the german , 0.93, that is the wrong color on the german two-year. that should be up .01. the wrong color there on the german two-year.

let me go to the bloomberg right now. this is world trade. this is new data. right over here is a years summary of world trade growth, or the lack there of. this is what we have done in the last 12 months, world trade under 4% of growth and get you back in the vicinity of the late 1980's, absolutely remarkable. the slowdown in global trade, and my major weekend reasonin rs on the border tax. our chief washington correspondent kevin's a really is here. had you get ready for an auster where the presentation by mr. trump tomorrow in congress? what will you be working on today? ofin: you can read a preview the budget. sources familiar saying a two-page outline of the budget

proposal could come as early as today. sources say that it is going to propose dramatic cuts to the environmental protection agency and the state apartment, and an increase in military spending. tom: what are the real constraints the president faces in the budget process away from being a president of action? kevin: his budget director is a former congressman who is a member of the tea party conservative legit deficit hawk wing of the republican party. this is the group that have advocated for budget cuts. there are folks within the congress, i was interviewing some tea party leaders, and they are concerned that this president on infrastructure, ways to repeal parts of the aca, that he will spend too much money. ,om: civics 101, kevin cirilli

is this a state of the union address? kevin: no, but it might as will be considered one. adjustingwill the entire nation and a joint address of congress. francine: what kind of tone are we expecting the kevi president strike? all, a lot off folks on capitol hill are hoping that he will get more specific, and i think the basis of this from what we are hearing is again going to be this outline of the budget. congress was in recess. they are back now and need to begin moving legislation. care, and is health number two is tax reform, so that is where this gets interesting for how they will pay for it. francine: will he read a speech? is it written or it is flowing.

details, ixpecting imagine he has a hard copy of something. traditionally with these events, he will had lived a bit, but the basis from what we are gathering will be that two-page budgetary document that will outline his priorities. he will try to kickstart this congress into moving legislation, and again, sources i spoke within the republican party are hungry for that type of policy specific detail and have been frustrated they have been left out of it. tom: i have to go to the rest of the political debate, are we going to get a straight speech or is it going to tilt towards a twitter flow we observe, all the fake news stuff and russia, going after the new head of the dnc? which president is going to show up? kevin: i don't think it will be the one you saw over the weekend

, the controversial, bombastic one we have seen of the past couple of days. this is an opportunity for this white house and administration to lay out the legislative priorities. , thank you soilli much come our chief washington correspondent. we have to frame the moment with investment and finance, and do that with jonathan golub of rbc. he writes detailed notes, earnings-based, company-base, looking at strategy in the market. , in the market this morning? -- am i in the market this morning? economy the underlying and earnings driving this market higher, and all this trump talk is a smokescreen on a backdrop that is getting better and better. the level of us bullishness wrapped around the

day-to-day news flow of the president, whether someone is for or against president trump, what is the enthusiasm today? clients are big institutions, hedge funds, pension fund managers -- they are incredibly reluctant to get in because of the lack of specificity. they see a market that has become more expensive, and i think that will be a big mistake for many folks. those who haven't willing to get in with less information, with less specificity, have and rewarded handsomely. give me a sense of what happens if we don't have enough details or if the equity market doesn't like the plan for the tax reform the president tells the congress tomorrow, a big correction, a little correction, pullback, or something else? >> first of all, for everyone who keep saying to market the day we will get all the

specificity. it will be in front of congress, or once he is in office, we keep getting disappointed that there is this lack of detail, so i think we should go into this expecting no more detail on anything than we currently have, and this will come out in bits and pieces, but the thing people need to be focused on is that the underlying data is getting better, that inflation expectation is rising, that we .re below 5% unemployment those are the things driving the market, and i think that is exactly what will be driving the market for the next several months. francine: right, but what is priced in? to tom's question, is this a state of the union address? if it is, the market is expecting something. good question. if you look at the return of those companies that would be the biggest beneficiaries from tax cuts, they are outperforming

by pennies compared to the broad market, which means it is not discounting as much as you think in the stocks, and the same thing for domestically-oriented companies. they are only outperforming by pennies, so the market is not credit to the trump policy as the general discussion would indicate. tom: we will continue this discussion. , andf the themes all week the march 15 fed meeting as well. radio,up on bloomberg the international conversation on equities. we will speak about wisconsin trump politics. the capital getting ready for the trump coverage. look for that tomorrow night. kevin cirilli will be there. this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get to the bloomberg business flash. taylor: there is a report that deutsche bank has cut it bonus pool by 80 for percent -- 80%. a quarter of deutsche bank's 100,000 workers will be affected. delta airlines is in talks with korean airlines for a joint venture that would give delta bigger foothold in asia. it would get a hobby in seoul, korea to compete with rivals. korean air would get greater access in north america. lse says it's tie up with deutsche boerse is unlikely to happen. a new regulatory hurdle has

signaled an end to get the deal done. officials asked lse to divest of trading platform. lse said it could not commit to the divestment. that is your bloomberg is this flash. so much. thank you bond traders are calling the federal reserve's bluff. if you look at the wirp function, despite trying to convince bond markets and investors the march meeting us live, they are only pricing in a 40% chance of a rate hike. let's get back to jonathan golub . why are the market so reluctant to believe that march is still a possibility? is it the trump unknown? get more detail from the president, will the high probability go up quite fast? >> the big story here is that the fed deserves what they are getting by their lack of willingness to keep short part

of the curve where it should be based on the economics. they don't believe the fed because the fed has cried wolf too many times. i think it is important that the fed does get on with this process. not on interest rates, but inflation expectations of are rising, the labor market is tight. the fed needs to move higher, march, june, may, they will need to be moving ahead at this. surprised inuld be march, but it really does not matter. they need to start getting this along. francine: right, but if they delay too much, is there not a concern they will have to hike quicker, and that would the disadvantageous for american households? >> they will have to raise more than everyone thinks over the next year or two been years. 50-75te right now between basis points is absurd when you

consider wages are going up at 2.5% or 3%, so the fed whether they move in march is academic. the real issue is they are behind the curve. they basically told us that by saying they need to move from two times this year to three. they indicated that they are thinking about moving in march, so they are moving. tom: a two-part question, bring up this chart. this is on tv . yield, the two-year lollipop chart. we are here right now. here is the trump reflation in here. here is the march 15 meeting, and we go on. two ideas. first of all, we have to get where janet yellen walks out the door, 2018. how much does this fit turmoil play into what their policy will be? and the real question is when does the financial repression in? i see no end to it. >> if you look up to about 10-15

years ago, the nominal economy, economy plus inflation, told you where interest rates should be, and the basically starting with greenspan put in place these wascies where the fed funds disconnected. we should be moving towards that. rates upinterest 100-150 basis points, not only the short end of the curve, but the long end of the curve. i think ultimately the market will drag is there. -20 18, rates will be at 3.5 or something. is 3% way up here on the two-year yield. you are saying, and i guess we theregrating there, but is not a lot of confidence we get there, is there? yellen canwhy janet say what she wants about march. until she takes control, the market will not believe her. tom: what does it mean for a

stable release of policies and will that bear down on the market strategy? for savers.amaging what the surprise may be is that as the fed normalizes interest rate policy, it will create so much confidence with the savers and their ability to to retire that you may get an increase in spending confidence among consumers and businesses. this misses have not levered up as much as you would think given how low interest rates are because of a lack of confidence. this could ultimately released the economy to be much more productive if we get interest rates moving in the right direction. tom: jonathan golub, that was brilliant. let's look at tv now. here is jonathan golub. this wearing zenga morning. it looks awfully good. more importantly, i can bring up a previous idea. here is the tv chart we

just did for you. look andet a back available all of our charts. you can download them onto your bloomberg. that is way cool. tv . ♪

>> you never engage in the new dialogue with the idea in your mind to go into a trade work. that would be a lose-lose proposition for both nations.

engage in ar to positive view trying to move forward, an agreement that will benefit canada, u.s. come in mexico. francine: that is the mexican economy minister speaking to michael mckee. we are back with jonathan golub. had six top investors last week saying too much bad news is priced into the mexican peso. two, would the u.s. not take advantage of a trade war because it is a stronger partner in the short term? beliefink there is the that the u.s. on a bilateral basis would be an a stronger position than almost everyone. includings everyone, the united states, and ultimately bringing in cheap goods from abroad is great for the american consumer. having access to global markets is great for business, so we have to be careful here. to the first point you made, i think that the surprise since

election is how great emerging markets are doing from a stock market perspective, and a large part is because the global economy has been in great shape and there is a re-risking, so perhaps this discussion of trade war is not making its way into the stock market the way everybody thinks. tom: where do you weigh international investment, not only big cap, but emerging markets as well? >> if you look at the developed world without the u.s. versus the u.s., it is basically in the same place because the european economy is better, so the trade issue is very dangerous if it goes badly, but right now, it does not look that is being priced into the market. tom: are you long mexico here? >> if you wanted to make a speculative bet it would be that there is so much bad news and mexican markets and the pace of

that maybe this is a great opportunity. tom: terrific trade work, not only by new york, but and krueger from project syndicate. almost the micro economics of this debate over trade as well. we have a lot to talk about this morning on bloomberg television, a conversation with andrew mackenzie of australia, the ofef executive officer broken hill properties. bhp billiton on mining and china, andrew mackenzie. from the lawn, italy and from new york, this is bloomberg. stay with us. ♪

francine: this is "bloomberg surveillance." we are on the road. i am milan. , in new york. let's get the first word news. in the u.s., republican

proposals to repeal and replace the aca could pleas lead to people losing their health coverage. according to an analysis obtained by bloomberg, the number could be cut as much as 51% in some states. president trump expected to sign an executive order on refugees and immigration this wednesday. the associated press cites a senior administration official. earlier this month, a federal appeals court refused to reinstate the president span. .- ban that order had been blocked by federal district courts. in europe, plans for overhauling migrant worker rules after brexit later this year. home secretary said her office is looking at a number of options. among them, a work permit, and multi-visa system. mistake at the

all skiers, warren beatty and faye dunaway announced the winner for best picture as "la l a land." by the time the mistake was corrected, they were making acceptance speeches. the real winner was "moonlight." global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. i am taylor riggs. you so much. i did not see it, but i'm told they had uncommon grace during the chaos of the oscars last night. foreign of chaos, policy and the path to a new american foreign-policy. , dublin,s at brookings cambridge, and georgetown. he has written a brilliant piece on dealmaking.

wonderful to have you with this. image of planting seeds in the garden and tending the garden. our president does seem like a gardener. how will he respond to the other dumbest of your world of foreign policy? right, president trump thinks of himself as a dealmaker. this is what he has spoken about pre-much as whole life, not just his business endeavors, but when he talks about america's role in the world and what he would do if he was in charge of u.s. foreign-policy, but u.s. foreign-policy is traditionally more like gardening. it is about tending to relationships. you have to plant seeds in the them over time, not pull them up every morning to see how much they grew overnight and hope you have a strong alliance, strong trading system, that will work to the

benefit of the country over the long term. president trump doesn't seem to have much respect for that and is looking to see what he can tear up and what feels he can strike. the it almost goes back to commonwealth speech of fdr in 1932 about our domestic economy, just to do something. within the just to do something that is out there right now, where does traditional foreign policy bureaucracy fit in? secretary tillerson doing, and can he find a voice for american foreign-policy? >> the most striking thing i think about the appointments and the traditional foreign policy influence in the administration is that we do now have a in senior positions that are much more traditional than the president, not just secretary tillerson, also secretary mathis, secretary kelly, and now h.r. mcmaster. they are a restraining force on the president and should be able

to to help promote traditional it. foreign policies, but will still be a challenge because the president still matters, and what he does still very much counts. francine: why can't the promisee work like dealmaking? maybe we need to simplify things? actually you start speaking in terms that people understand. after all these conversations had in the past were only behind closed doors. >> that could work to an extent, but the real worry is in terms of unpredictability. president trump said he wants to be unpredictable, but much of the world relies on american guarantees, whether asia, middle east, and europe. -- balticsstates don't want the united states to be unpredictable and doing a deal with russia over their head. ,f it is all about dealmaking then there will be huge

uncertainty and instability in jack did into world policy, and you are likely to see crises on a scale we have not seen before as people try to test and proud to see what trump is willing to defend and what he is not. francine: do you think that a lot of world leaders will have to adapt and adjust to the way that president trump speaks? is tryingow, everyone to figure out who is the united states. who is speaking for the united states? president come the secretary of defense, the secretary of all of them, because he says so much that is often so controversial and often tears of pre-existing policy, then the next day it is clarified, but there will, time when what he says does count and does indicate what his view will be, because he is the one who ultimately has the authority, so enormous uncertainty

and confusion about what the true policy of the united states is. tom: let's talk about the dynamics with mexico. what i was reading over the weekend, the border tax. and krueger out of project syndicate, one of our most fiery economists and imf as well. on imports, they boost employment. if the united states declares, decides rather, to curtail partnersmany trading will reduce their imports to because they will no longer be able to finance them. importsarnings, finance , for most of the world, so if american imports drop, u.s. exports will fall by approximately the same amount. is this this gush and happening within the trump administration,

or is the micro economics and dynamics of foreign trade foreign to what we see within the trump administration? >> thus far, the indications are they have chosen people who are on the fringe of the trade debate, protectionist, much more than is normally the case. peter navarro, the senior traded ligheizer,ert white hei people who favor terrorists -- tariffs. the real question about america's commitment to the open economy and whether or not they may be willing to launch trade wars, and then what the repercussions of that will be. you can't just go after imports. onre are huge knock

consequences, unintended consequences on supply chains and the global economy as a whole. francine: who do you think the relationship will be most or becauseh, china, xi jinping has concerns at home, he will want to seem peaceful? china, germany, the relationship with angela merkel is fraught already. and mexico. those are the countries that there is real risk of economic friction with. also, he is boxed in by his cabinet and congress. francine: what would that look like if vladimir turns on trop?

does that mean we are in a world that much more uncertain than 12 months ago? likes trumputin and was his favorite candidate, but he wants concrete things, sanctions relief, a rewriting of the regional order in europe. congress and the probably won't allow trump to do that or will push back very hard come as they showed, because those are destabilizing ideas, but then the question for putin does he try to exploit trumps ambiguity in europe or other things to get the gains that he might not otherwise have been able to get, put pressure on article five and nato, punish the eu, be more aggressive in the middle east. francine: thank you so much. dealmaking versus gardening in foreign-policy. we are squirming over the border tax with mexico. what are your thoughts on what ann krueger said? generally over all

equal exports. this is the first recovery cycle since the end of world war ii where global trade is declined, and it is when the biggest contributors to a weaker economic backdrop, not only in the u.s., but around the world, and if you look at corporate profits, they are so hefty in importing and exporting, it is critical you have open trade channels, and the hit to s&p profits is bigger than we would think if you had a pullback in trade. tom: bring up the chart again here folks, the rollover, the 10 of worldng average trade, and it is not where we 1997, or alterk, the last decade as well. the arch issue within this

theory of america, make america great again, america first, is the belief of world war ii the trade matters. have we simply done too much globalization? did we reach that limit where society says no to the fancy people in suits and ties? >> what is the cost of an iphone to us if we have to manufacture it in the u.s.. first of all, we could not manufactured in the u.s.. tom: it is a fiction. >> we don't have the facilities to immediately manufacture, and if we did, the cost would go up substantially, which would have a negative impact. mind you, we are at full employment right now, so we don't have the people to do the jobs. francine: we also must remember that the emerging markets want globalization. anti-globalization movement is limited to a problem of western countries? why we thinked on

this is a problem. if you think whether it is buying fruits and vegetables from south america during the phones,r cheaper cell if we had a u.s. unemployment rate at 10% or 15%, i would understand all of this concern, but we have a u.s. unemployment rate of 4.8% and are creating one million more jobs a year than we have the ability to fill with our labor market, so i think this is all a bit misplaced. with us.than golub tomorrow on bloomberg television, conversation with howard schultz, the chief executive officer of starbucks, without question, the force of the success known as starbucks. howard schultz. of course, on the same day as the president speech. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in milan. keene is in new york. let's go to france, where our own paris deputy bureau chief is looking at the polls. it seems that emmanuel macron, finance minister, now independent presidential candidate, is gaining in the polls. are the polls fluctuating more than in the past? can you say with certainty he will make it to the first round of the french presidential election? >> i absolutely don't thing we can say with certainty. this election has been a total roller coaster. candidate as the sure thing come the front runner,

sure to be the next president. he was sent off i francois fillon. sarkozy bow out of the race. this election is extremely volatile. emmanuel macron has the momentum and is ahead now, but who knows what it would look like. francine: a difficult and unfair , if you have a marine le pen and francois fillon second round, or marine le pen and emmanuel macron, who is more likely to meet madame le pen? >> the polls show very clearly that emmanuel macron will be le pen handily, and it is tighter for francois fillon. that is partly the legal cloud hanging over francois fillon's head. both of them will win according to the polls, but in a world of brexit and donald trump come all bets are off. tom: when did you learn over the weekend about the trump of boat

in france? we talked about this before. to me, it is a complete mystery he has the surprise constituency. is that same constituency in france? >> i think you are talking about angry people, people who left behind by globalization and not part of the elites and paris, washington, and new york, and those people definitely exist here. the trump victory matters a lot here. in a way, it gives permission for people to do something a bit crazy and voice their anger. if you talk to people in the streets, there is a lot of that sentiment out there. francine: thank you so much. our political correspondent in paris. tom, it is also unclear at the moment whether the french go to the polls and vote on security or whether they decide to vote

on immigration or the economy. that was the clincher when it came to brexit. speaking of brexit, we had quite a bit move on pound. this is on the fact there was noise over this sunday papers in the u.k. that there would be a second referendum on scotland. theresa may spokesman saying she is clear that there should not be a second referendum on scotland. you can imagine that being choppy for the markets if they do indeed have a second referendum. tom: when is article 50? is there a date of decision for article 50 or is it just out there? time you speak to a new politician or later they say i am just waiting for the email, but we understand that theresa may many times has said she wants to do it by the end of march, so there may be a possibly around march night when leaders meet in brussels, or she could wait until the end of march. tom: jonathan golub we will

continue this with. coming up. ,hat a time the conversation martin feldstein of harvard university. tax, most interesting. this is bloomberg. ♪

tom: let's open the correct envelope and look at the foreign exchange report. we can do that. churning. valor-mexico, what an advance 22, 20 1, 20, down to the 19 level. francine? quite a lot of fluctuation on currencies and equities. we saw new record high, banks, glencore, so there is one guy to talk to. we are speaking to him. david herro of harris associates lp. >> it will be about banks and

the metals, but what do you do when the dow has had 11 straight record closes, the longest in 30 years. around thetrimming edges, which he was in a radio interview with you, what he is doing now. the most important question, what are you wearing, tom? chicago, howf about that? >> and you get to keep them when you are done with it. tom: my earrings are a little different. did you see her earrings? nicole kidman's hearings were like the gdp of an island nation. >> and she has to give those back, and her dress to, sequence and diamonds? tom: there it is. we can't compete, folks, with scarlet fu, a celebrity lodestone. scarlet fu owns the high ground. alix steel, thank you very much.

let me get the single best chart with jonathan golub. i did this chart just for jonathan golub. world is coming to an end, by equities. by equities. by equities. -- buy equities. through all this, even if we had a bear market come it would still be a market. >> if there is a lesson here, it is that stocks go up as long as you are not in a recession, and now there are no indications we have a recession looming, so for all the people who are saying stocks are too expensive, they will be complaining a year from now. tom: is your enthusiasm dependent on trumpian nominal gdp or about efficiencies making for better margins? >> the backdrop in the economy is getting better, so we have analystsle wall street

this year expecting revenues on s&p companies to come in 6% versus last year at 2%, and that is because of a reacceleration of the economy. that reacceleration was happening in july, august, wasber, even before trump in office are was thought to win, so i see no reason that that one not continue to push stocks higher. francine: what will it take for this to see a reversal of our correction, after all you can't just go higher and higher. the fundamentals aren't there. in a row is adays crazy outlier, been ordered for things to go bad, you either need some shock to the system, but more likely some increase in believe that we may have a recession coming come and that this long cycle is nearing an end, and right now, that is not the case. tom: help me here quickly.

own the banks? >> iowa on the banks. if you believe interest rates continued to go up, by the banks. if you think interest rates will roll back towards 2%, sell the banks. i think they are going higher. tom: there we go. jonathan golub, it's like who one? it's that kind of decision. jonathan golub absolutely nailed that. francine: what does the envelope say? tom: we will see when we continue on bloomberg radio. francine, have fun and the lawn. tomorrow, howard schultz of starbucks.rewed -- look for that conversation. this is bloomberg. ♪

♪ >> it is an 11th record

consecutive close on the dow. donald trump cheers the gains and says tax cuts are coming. yields grind down to lowe's. investors brace for speeches. the president addresses congress, chair yellen gets the final word. from new york city, a warm welcome to "bloomberg daybreak" alongside myself jonathan ferro, alix steel. it is a market held hostage by policies. it is a new trading week, futures unchanged. the euro stronger, yields up to basis points. alix: i'm looking at the safety check board. -94 basis points on the german two-year yield. nonetheless, we are watching that record it hits on friday. the vix goes nowhere, gold softer,