♪ treasuries recover after a surge with 2014 highs. a 24 hour bug. trade travels increasing off of trump pulling out of nafta. will america actually leave? and crackdown, bitcoin falls as officials say they are looking at the fed to regulate digital currencies. ♪ francine: good morning everyone, and welcome to "bloomberg: surveillance." i'm francine lacqua here in london.

the german economy boosting 2.2%. -- 2.3% for 2017 , but it came in at 2.2%. an impact on your dollar, one. 1939 -- 1.1939. we had a little volatility over the last couple days. markets we are hoping will grow worldwide, and tend to focus on earnings. today, we will talk a lot about that. of 48le bit of zigzagging hours. yield at 2.54. coming up on "bloomberg: surveillance." ," talking with a leader from armstrong, and another guest bolus act -- oldish expectations. ceo -- frank del rio.

let's get straight to bloomberg first word news. here's nejra cehic. a reportina has claiming officials are reviewing the country's foreign exchange holdings, recommending selling or holding purchases of the u.s. treasury, might have quoted a wrong source. the state administration of foreign exchange said "we think a report might have had wrong sources or may have fake news." there was a report that it wasn't clear whether the recommendation was adopted. u.s. president donald trump has agreed that america and north korea will resolve their conflict without war. the north will not be attacked. trump was speaking in a news conference with the norwegian prime minister. president trump: we are building up our military to a point that we've never been before. we also were very much weekend over the last long -- very much

weakend over the last long period of time, but i think we will have peace through strength now. -- 60 the u.k. has had .5 million pounds less investment. there is no word on the customs union or single market. a cambridge study commissioned atthe london mayor looked five different brexit scenarios, and found every option damaged the british economy. germany is maintaining its hardline stance on brexit, demanding the u.k. pay for privileges, financial firms having access to the u.k. market. --nton can talk for a crate britain can't help for a trade agreement like this, unless it contributes substantially to the eu budget. the canadian dollar felt after after canadianl

officials said president trump will have six months before leaving nafta. there has been no change in the president position on the trade pact according to an official. the move is described by u.s. trade representative -- a trade representative as an attack. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic, this is bloomberg. francine? francine: thank you so much, never. bonds, a 24 for hour. , that's the question we are asking. treasury yields have doubled since 2014, and -- longtime pillars of support have showed that is eroding, with news breaking from china. the rosa recommendation for purchases of u.s. stocks. this bust did last long. losses treasuries have by days end, thanks to a $20

billion option, the strongest demand since 2016. here is what some people had to say about the market. >> the market has been at a 30 year old trend. you'll keep going down, which attracts bond investors -- yields keep going down, which attracts bond investors. fundamental gdp has been telling them what it should be for a long time. includesear market, it negative prices for high-yield angst. >> it's an investment rate of -- bonds, high yield bonds. >> it's an investment rate of change. there can be a long time for markets to digest, go over the information. there is a different story if you go over to 75 in two weeks. francine: was this a hiccup or sign of a longer trend?

joining us are two guests. patrick, let me caps off with you. is the most, this unloved bull market ever. what comes after treasuries? patrick: treasury yields go higher year on year. we're still near record lows. 4.5%, a record to improve. we think we will see signs of inflation emerging in q2 this priceas there was a low based last year. there's a weaker dollar, higher commodity prices, and different prospects for wage growth. all of that leads to a subtle appreciation in treasury. a lot of things could come together if there are trump protectionist policies turned into a reality. japan and china don't need $5 trillion of u.s. treasuries. there are things that are wildcards, but with everything

equal, we get higher a treasuries. also get want to rogers talk on this. -- rogers talk on this. -- ouries would hurt guests talk on this. treasuries could may be hurt, but there's talk of a lot of things coming together. where would treasuries be? >> above 3% this year, if everything goes according to our base case. you can see them getting to 3.75, 3.5 may be. if you worry bout some policies, you have bond vigilantes coming in, and a lot of things coming together. francine: do you agree, is your base case, are things quite stable? >> it's an orderly increase in yields. we are looking at less than 2.8%, but the key in our world's trade on new rules.

rising u.s. yields no longer guarantee dollar strength. -- and back in office that is great for markets. we have -- we have to see purchases play out. there is an upside in the dollar, and we think there are opportunities elsewhere in the world. francine: there are those cases of people saying the dollar should be stable, or it should be priced indifferently this year. viraj: we are in the slower camp. we are looking at weighted, not too much related to last year, a relative decline. backe now focusing structurally backwards. their twin deficit risks. we talked about china, but let's ask ourselves about the u.s. treasury. i think they're just part of the wider global investor, their

better return opportunities, and that story could play out over the next couple of years. have people saying they were diversifying, or were slowing bond purchases, treasury, but then they said that's not true. this is my chart looking at the holding of china and dodge through belgium. what does this chart -- tell us about the appetite for treasuries? patrick: i don't think much. patrick:if you get a clear view that they are reducing holdings, that -- the ebbs and flows in this chart are dynamic. i don't think you can extrapolate the trend. francine: is it because they see value elsewhere? patrick: could be a value factor, could be the differential where they are receiving 2.5 on u.s. 10 years,

5% of their own securities. it could be part of a trade war as well. the weapon against the u.s. -- francine: there's accountability, so they couldn't buy euro. where would they go? viraj: it's i first fine. they could increase their euro holdings, holdings for trade partners, if that makes sense. the fundamental -- macro fundamentals for holding the dollar is relative to what it needs to do. a look out and the dollar as global reserve currency is shooting -- overshooting its economic potential. there is scope now for other currencies to pick up slack. francine: what's your favoritefrancine:? viraj: euro now. over the next couple of years, you have a big factor of abovetion in europe, risk fed mementos, and is also financial markets. there is something quite cap -- powerful for the euro.

francine: do you like euro? patrick: we think it will fallpatrick:. 115.ine: 115? patrick: we think the dollar is oversold right now. think with macron being elected in europe, their interest rate differentials playing out this year. interesting, because what happens to german bonds? we had a chief economist from deutsche bank saying this quite powerful repricing. 1% this year, so i think i'll develop markets, government bonds are going to move higher. two years ago, you could be a -- make a case there be deflationary risks. i think that's an old story now.

we are in a reflationary world, where things are normalized. francine: you pushing back against that? patrick: patrick corrections are normal. we are just looking for the next key 126, 1 .67e of the distance. that's the ecb story, a policy for pricing. there are muted euros and inflation dates. people have to -- we have to let it put on the pedal again for markets. 130 atkes us to 125, and the end of the year. francine: it's great having both of you with different views, as this is the challenge of the markets, right? thank you both for staying with us. up next, a look at market reaction, as canadian officials say there's a good chance, trump will withdraw -- on lockdown.

this is bloomberg. ♪

♪ economics finance politics. this is "bloomberg: surveillance." i'm francine lacqua here in london. let's get straight to the bloomberg business flash, here is nejra cehic. inra: via has cut its stake investors, 40.2% as part of its -- its percent on drugs ongoing look on drugs. there is a shift away from chemicals for bayer. torero is nearing a deal

acquire any u.s. company for $2.8 billion. there is an agreement that could be signed as early as sunday. brands have been suffering a decline in revenues. both companies declined to comment. there has been a drop out of the bidding in the stake of one of the world's top investors. according to people familiar with the matter, euro was advised to not have this go to santiago base, after having information in a data room. there was $5 billion at current market prices, which -- and many declined to comment. there was a biggest ever makeover of the dike broke -- diet coke brand. diet coke was lodged in 1982.

sales volume fell more than 4% last year. original diet coke formula wilmot be changed. that is the bloomberg business flash. francine: canadian officials say the increasing likelihood that president will give six months notice from withdrawing from nafta. , andanadian dollar fell there was news that there be no change on the president's position on trademarks. people complained of american duties. campbellon nafta, matt joins us. welcome to "bloomberg: surveillance." this could potentially be a huge deal. us thatthink this shows the cancer of these relationships has worsened. for the first year-ish of the trump administration, people

were eager to not -- if not ingratiate themselves, be open to the new administration as much as they could. you can see that patience is running slim. i'll think nafta will necessarily be killed. there's a long way from here to there. question ising whether or not nafta will survive without mexico. before nafta was created, there for alegal argument larger trading relationship. that is still a long way down the road. francine: the president just announced he is attending an event in 10 days. there is his campaign, calling people elitist, out of touch. how will people welcome this? >> think we don't really know. on the one hand, many people

that a spouse president are not popular in the elite. 0.01%. are up for a there will be significant financial benefits. as unpopular as he may be, the president is powerful, and it's bad to be on his bad side if you can avoid it. force?his back in full i don't think if it will move from. -- full rhetoric. but i think trump may do is have a six month intention to end nafta, but not follow through. there could be an opening gambit, a negotiation. then they will stick up -- with it on new and improved terms. nafta is hugely important in the united states, not just canada or mexico.

canada and mexico are getting all the benefits of nafta, which i hope is just the opening gambit. there means higher prices, lower economic growth. francine: you're expecting protection them. matt: i agree. this is talk and no action. hispoint they're making that you might see things take off a bit, antitrade americans. quite negative for the dollar looking forward. you have the rest of the world firing on all cylinders, but also the fact that u.s. is in the latter stages of its market. here, ifno impetus that makes sense. >> you got to have domestic politics. this is something that the president, he wanted a fairer trade downs.

agreement.re was an he doesn't use all sides to deal with korea. >> when push comes to shove, we have seen that president trump upset the eager to apple cart completely. there are statements, but in terms of concrete actions, he tends to be more cautious. given the dependence on something like nafta or china, their reaction would be thermonuclear. withdraw,- there is a a trade war with china. francine: you talk about the putting in protectionist measures because of the midterm. is this to distract away from the book? >> talk itself is quite profound. francine: currencies move. >> yes. you saw the knee-jerk reaction.

administration cap sees this -- if this administration sees this -- there was a change in the risk environment. the dollar could weaken, and hurt thed still administration without any sort of backlash, if that makes sense. francine: do like emerging markets? i don't know that we need to look at them like we have in the trade, orerms of whether we will have new highs that we saw in emerging markets. >> we don't have emerging-market equities right now. bonds. some exposures in instead of bonds, you are getting real yield 3% above inflation.

francine: what do you see as attractive and emerging-market currencies? >> there are tactical opportunities, especially the european currencies, going back to a strong europe. that's a good destination, especially in asia as well. the korean won, we want to reduce political risk. fundamentals.ng printing: one of the things we were looking forward to an davos is the recession, and now this was looked at by the prime minister in india. it is showing up in davos takeaway the limelight? >> it does for everyone. ofeel bad for the organizers the west. they work all year to create this session that be interesting and have brilliant people on them. donald trump is going to show up in that all everybody is going to want to talk about. francine: last year, they were not -- criticized for not

looking at -- having the trump administration there. >> the west has been criticized again and again, going back to the 70's. there's something relevant to the real world. that was particularly true last year, when the reaction was so obvious been washington. it was the trump inauguration. having someone who campaigned against what the west stand for sale, you know what? and, someone else who traveled saying, i need to go to this event, and it something that's worth my time, the hassle. that shows this is important. francine: is it a simple as the administration putting out things they want, looking at exports? >> i think so. we are shifting away from a strong dollar administration towards a laissez-faire dollar administration/.

think the key is the stock market. the dollar might be better gauge of the economic aspects, but the stock market is the way forward. francine: what do you think of ricer? viraj: no idea. i don't think it's going to matter too much. it will be interesting to see if powell voted with yellen. will you want a fed central-bank come aboard put the u.s. back into recession -- what you want a fed central bank, or putthe u.s. back into recession ? francine: should the fed chair ? more hawkish than -- patrick: francine: do you think we do? >> no. i think other people could shift it. francine: all right. i'm looking forward to davos.

matt campbell, patrick armstrong, garage patel -- viraj patel. next, a study of brexit, what that means for jobs and investment. viraj was all over the newspaper. we will talk about the 150 call, and whether that is strength of the dollar. this is bloomberg. again, quite a lot of movement on yen earlier. if you look at the top, it's all about the 10 year yield, where it will end up in two months from now. this is bloomberg. ♪

♪ francine: dara: economics, finance and politics, this is "bloomberg: surveillance." i'm francine lacqua here in london. let's get straight to the bloomberg first word news.

reportchina says reviewing slowing or halting purchases of u.s. treasuries might have quoted a wrong source. in a reference to a new story published yesterday, the state foreign-exchange said they may be fake news or have a wrong source. itre was a report that wasn't clear what the recommendations have been adopted. the crisis between america and north korea will be resolved without war. the president said he would not correct the two asian nations -- speaking during a white house news conference with in norwegian prime minister. president trump: we are building up our military to a point that we've never been before. we also were very much weakend over the last long period of time, but i think we will have peace through strength now.

nejra: china's li coach on has said the world's second-largest economy ended by 6.9% last year. according to news agency, there and comments at cambodia, there will be a seat of success for policymakers. there is a need to keep expansion on track. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic, this is bloomberg. francine: half a million jobs, 50 million pounds. this was a deal according to a study. analyzed economics five different things. with a deal,ended creating fewer jobs and, all

parts of the economy would suffer. saw a seasonrs inp -- a seesmic drop december. thank you for joining us. we were talking about that 150 call, but first, i want to get patrick's view on the economy. -- is athese surveys month of trends? as their cut off point -- is there a u.k. cut off point? >> it's at 1.5-1 .6% economic growth. brexit is gaining headwind. there interest rate policy, and the various global backdrop. i think there is a kind of growth we can expect in the third quarter as well. >> how much mail would you get call? 150 by the end of

the year. >> it's a stretch of headlines. 3%t we're saying is a appreciation in the pound. i think the second point will really make it. pound directional cause, now a real conviction is taking it to 140. relative economic cycles, monetary policy, political risks. there is slightly too much optimism in the u.s.. francine: you bring -- let me bring you over to this chart. this call doesn't sound so outrageous as it does in the shorter term. why do think there was a

kickback? is it because people see it as pound up? >> for trade, we were thinking 2018 was a story for the pound. what really matters for brexit when you have structural factors is euro pound. we are looking for a better thing this year. at 85-19.is we're just talking about range. francine: you guys don't agree on eurodollar. pound?agree on i expect dollar strength in the first six months of this year. it will fall below 130 this year. a lot of people are talking about this. we don't think the bank of england will be in a position to hike. we don't have wage growth keeping up with price growth. in don't want to be hiking the environment with consumer suffering.

does this do to the economy? >> not much. it's the trade weighted terms that balance it. inflation affects will come from a weaker pound. springsteen: i'm looking at the breakdown, it wasn't great. a lot of electric companies have reported better than expect it. people will go back home. this will be more difficult for retail, right? >> the attractiveness of a cheap pound drives it. merchant,, a everything in the u.k. comes to a standstill. the real catch will be this transition. if we can get that quite quickly, the pound is cheap on a fundamental basis. youcine: patrick, how do look at brexit, on a day by day basis? >> brexit hasn't changed. francine: some negotiations are

-- >> i don't think it's a great scenario anyways. it just leads to more years of uncertainty. how will it end? if you've got hundreds of millions of pounds to invest, are you going to do it in europe? in the u.k., you don't even know. on thisubtle headwind part of the country. francine: what stops james carbon from being the prime minister? >> i think that is weak for pound as well. any leave -- left-leaning government, it's not good for the country. that's a real possibility. possibilities,y all are possible. anytime you get to some authority, -- itncine: have you monitored i know it's an unanswered

question. >>? in 2018, not expecting a u.k. election. are expecting pound politics domestically to be week. the idea is we may see a trumped reaction, and knee-jerk move lower, a bit of a correction. things might not be implemented. it might all be talk. >> do you like guilt? 1.2%, 1.3%. it doesn't make any sense. >> nothing major with the current defense. francine: up next, we dive into bitcoin, and this currency. global power use. remember china coming, this is bloomberg. ♪

♪ \ francine: this is "bloomberg: surveillance." i'm francine lacqua here in london. south korea's justice ministry says there is a bill that will shut down digital currencies. an early report cited the ministries concerned about associations with exchanges. bitcoin dipped on north korean concerns. joining us now are our guests, still with us. you -- we have heard that some of the korean households for borrowing from this industry. some are saying we no longer look at these exchanges is real. korea is trading at 35 --

clearly, they see this as a possible consumer spending prices. .t's not a systemic issue i think where you get the knock on effect is china looks at what south korea is doing and says, maybe we need to double down. other countries begin to look. of comprehensive approaches by regulators around the world. south korea establishes a precedent. that could have a serious knock on effect for bitcoin. >> there is a rule on some right? there's kind of job, if north korea has an approach. >> interesting to see what happens with the agenda, if pointo becomes an agenda for a regional level in asia. we do need a comprehensive

level. let's follow that. on the other side, let's not forget that bitcoin is decentralized. those exchanges that might be running out of south korea, and all those investors, they can always go to another in venue -- another menu and continue trading. we'll see if this truly does curb something in south korea. >> i have a question i want to get in. tried to invest in bitcoin? >> yes. goldman sachs put out a report yesterday in which it they,ghted this as a, as as a possibly beneficial route, that countries with economies that people can use bitcoin has a way of preserving their wealth in some way shape or form. during the greek crisis, there was rumblings of may be greek

households could you -- could safeguard themselves, and people got on to that point for a bit. the fact that goldman put out a report memorializing this idea is interesting. >> energy, a lot of your viewers may be, they always keep an eye on the fact that cryptocurrencies, there are hundreds of thousands of servers somewhere in the world. a lot of it is in china. this brings energy to mind. we understand the scale of these servers. asit spot that as much three/four of the mining and bitcoin is done china. usage, as electricity there are studies that have shown that the equivalent amount of energy used by half of africa is committed to processing bitcoin transactions, and mixing new bitcoin in its mining

operations. francine: what happens if china can't use energy? >> it's a massive disruption i think. it raises a question about the sustainability of bitcoin, an issue over the last year. we have seen computer scientist that designed bitcoin, all debating how do we increase capability? there was a hard fork last year because of that. anything that gets that processing, and limiting processing is a major event, but also has opportunities for countries with geothermal power. this is just movement. maybe the server moves processing. printing: patrick, last time, you weren't that interested in bitcoin. some have become millionaires overnight. >> i have brother and korea, so i hear about this all the time. as a mediume used

of transactions. it's six transactions per second, it's cumbersome. sometimes transactions are 24 hours, 48 hours. $7,000 using china's plate of energy, with mongolia, maybe it is cheaper. bitcoina around shouldn't be conflated with blockchain. for the cryptocurrencies to get it market cap, you need banks to look at reserve. i don't think there's anyone -- anything there that will attract central bank. i don't think it's going to existing currencies right now. francine: how will bitcoin mania -- there's a flatmate of one , heon that is moving out said he was selling up bitcoin to afford a flat. people hear about the stories

and get the -- gets bigger until what happens?? >> let's hypothesize and say that's the case. there are two channels that bring it back to our world of today. if the cryptocurrency market were to group -- cap size group, of thel see the risks press of vulnerability growing. that scales up on the macro level. some countries in korea may have -wealth wealth through come through. the second point, i prospected the idea of a capital outflow. that's the first displacement and source of affects you will see in our convention markets. the things that have capital restrictions, you might see those markets. might. 2018, you more from others.

francine: are people looking into whether people in the europe and -- in europe and the u.s. are borrowing money? >> yes. i think there's been some inklings that this may be happening in the states where people are taking out second mortgages with bitcoin. i think that's anecdotal, not anything at the level we have seen in south korea, were clearly they are concerned about that, but at this point it's probably on that. francine: people looking into it, regulators. thank you so much. stay with us. up next, $70 a barrel, hoping their allies start cheating on an agreement. we'll discuss that next. this is bloomberg. ♪

♪ economic, finance, and , this is "bloomberg:

surveillance." i'm francine lacqua here in london. let's get straight to the bloomberg first word news. here's nejra cehic. francine: china has replaced its ongoing stands to focus on drugs. that --an evaluation 1.8 billion euros will be added. there is a shift away from industrial chemicals. on italian maker of the tele-, ferrero is nearing a deal to acquire business for $2.8 billion, according to a person who says and agreements could be signed as early as sunday. the business which and lose baby ruth, is suffering a decline in revenue. nestle and ferrero have declined to comment. as a stake in one of the world top lithium producers, which a company has denied it in. rio decided not to proceed with an offer for a 30% stake in the san diego-based.

a few you and is worth about $5 billion at current -- fum is worth about $5 billion. representatives from both companies declined to comment. quite thank you. alexis has system highest in three years. there are between just $70. let's look at oil inflation and currencies. we kind of went through your talk picks -- top picks, viraj, but your thoughts on those. viraj: it's fundamental. it's just how quickly can we sustain that these levels? if we drop of oil prices, and what is obscure, then the petrol crisis still has its tight link to oil.

one real point is the correlation between oil and currency, bit more muted if that makes sense. for those two currencies, it's about politics. francine: what are your top three picks? >> the german ecb, on hold this year. that will have property prices. i think it's fascinating that everyone says oil is up. if you look at 2020 features, they are down 10%. there's a quick production response. you can't hedge that right now. futures are down. francine: if you look at the agreement, there's a layer of geopolitics. how long will saudi and russia get along? >> i think there's a lasting

response. if you have a sustained route, you get that production on quickly. think we have the same old market -- i don't think we have that same old market. saudi and russia, you have that rush is soon as a country needs coproduction. it's always cheapened over the last 30 years. the price of oil doesn't threaten this much anymore. are we going to go back to this correlation? > is still -- there is still a lag on inflation. there will always be a lag. .here's always some in the u.s. all those things should create -- >> what are the sides of inflation not showing up? in 2018 much of like we saw in 2017, we are expecting oil, but things haven't materialized.

>> i think the reason this has been picking up his the oil story. the economy has a negative output. you are not really getting any massive inflation pressures. 2017, it's aor risky strategy. it's not about one or two data things, it's a fundamental shift in the markets. francine: if there's one thing you want to get right, it's about inflation. >> i think i will be right on that one, yes. develop government bonds right now. there is something higher. did you have inflation's coming through, or does it come in slower? >> we think we are going to be rewarded for that. francine: thank you so much.

bloomberg said -- bloomberg surveillance continues in our next hour. we will talk more about assets, 10 year yields. in the tom will talk about cryptocurrencies and bitcoin. we will talk about all of this later on. in the meantime, your asset classes. we should touch more on this probably. think we will focus on the yen more later on. of course, data at the top of the hour. accelerating cost in 2017. the german economy is powering ahead. this is bloomberg. ♪ retail.

under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. francine: bonds have bounced back.

treasuries recover. trade troubles. canada seeing increasing odds of trump pulling out of nafta. will america actually leave? crypto crackdown. officials are looking at steps to regulate digital currencies. good morning, everyone. tom keene in new york. i'm francine lacqua. a really busy day for the second thursday of january. we are looking at bitcoin. we are looking at china and treasuries. tom: i going on, a huge news flow. we are going to touch upon nafta, the wall, and this huge american debate on immigration, as well. to thee: let's get bloomberg first word news. taylor: president trump predicts there will be no war with north korea. at a news conference, he

commended this week's talks between south korea and kim jong-un's regime. as you were mentioning in canada, there is increasing likelihood that president trump will give six months notice to withdraw from nafta. trade relations between the u.s. and canada took a turn for the worse this week. canada filed a wto complaint about u.s. duties on canadian products. the u.s. interior secretary may have given ammunition to opponents of offshore oil drilling. less than a week after unveiling a plan to boost oil and gas drilling in coastal waters, he said florida would be exempt. that appears to circumvent the process laid out in federal law. it may be another sign of brexit impact, job vacancies in london's financial industries plunged last month, they fell in 52%.

some fall off in job vacancies is normal during the job vacancies, but this decline was "seismic." global news powered by more than ,700 journalists and analysts this is bloomberg. tom: a real statement, taylor, on the enduring strength of london. let's go to the data check. it is a really interesting churn to the markets. a 1.19.wn to next screen. i only got one board today. i'm sorry. that is because of the churn to the markets. we will do bitcoin in a bit. francine: yes, i will, i actually have a bloomberg chart. i don't put it in my asset classes, like you. i'm not bold. i wanted to show you the oil story. it could filter through inflation stories in the u.s.

tom: george kleinman. the king of moving averages. legendary at merrill lynch. wrote a book on what you do with moving averages. let's go to the bloomberg chart. i love that we can do kleinman moving averages easily on the chart. this is bitcoin with two elegant kisses here. we are now at a critical point, we are two days underneath this long-term moving average line. aat is textbook, francine, sell signal to read i'm not saying buy bitcoin, i'm saying that is the chart from the bloomberg. francine: nothing like two kisses on a bloomberg terminal. officials reviewing china's effects holdings recommends treasuries may cite

a wrong source. we know the treasury yield chart. the amount of treasuries that china holds. it is over $3 trillion. those are the treasuries, not the actual holdings. we are joined by bloomberg's beijing news editor. this is a huge deal in the perception of how traders look if china wants u.s. treasuries or not. how do we get to the bottom of it? what happened? well, the state administration of foreign exchange, they are an arm of the central bank in china, they put out a very carefully worded statement today. they really fell short of a denial of our story, a full and

complete denial. they suggested that it might have been based on wrong sources and that it may be fake news. this is a term that is quite often bandied about in the chinese state media and has been used by chinese government spokespeople. theywent on to say that pursue a quality of diversification when pursuing foreign reserves and they always look to market conditions when it comes to u.s. treasuries. francine: but this does not seem like an outright denial. are they denying the sources or are they denying that someone told him? they are not denying they are diversifying or am i getting it wrong? emma: they are just saying that it may be based on wrong sources, but they never came out and said this is incorrect, this is not happening. it is important to note that our story was based on people officials thathe are involved in investing

china's foreign currency reserves. they recommended that china should halt or slow purchases of treasuries. so, not sell the current holdings they have, but to halt or slow and it was just a recommendation. there was no suggestion that this was happening or that this had been endorsed by china itself. tom: emma with your years of coverage of the chinese media, what do you make of the fact that these different sources are just playing the western media off of each other? bloomberg reports a good story -- a story based on good sourcing and reuters comes back with a story that it is not true, are they playing a shell game with western media? emma: perhaps. it is very hard to know. i think the nature of the denial is really interesting. they are not shy in smacking down western media when they see

fit and if they did not do that in this occasion -- and they did not do that in this occasion. the foreign ministry holds a briefing for international journalists every day and the question did come out about this and all they did was repeat the state's statement. they did not add anything to it or make any comments on whether it reflected the u.s.-china relationship. tom: are chinese officials "in trouble" over this storm? emma: that's very hard to know. from what we are hearing, no. it is a very big organization. the various agencies involved. it is very easy to guess or understand that a lot of these discussions might be happening and, based on our sourcing, which was with very senior-level officials, we understand that that recommendation was made,

whether it will be acted upon, we don't know. francine: thank you so much for your great reporting. emma o'brien. we are joined by our guest host for the hour from bank of america merrill lynch. us.k you both for joining happy new year. let me bring it over to you. first of all, we saw a little bit of a route in u.s. treasuries. what is your call by the end of the year for the 10-year yield? >> it is no cool incidence that the french president is in the region at the moment. if you want to put one and one together, the story was well-timed for his presence. probably goingis to be a minimum of three rate hikes, a possibility of four. that is based on our view that

the economy will continue to strengthen. macroently revised our economic growth forecast on the basis of tax reform in the u.s. francine: steve? 3%,e: we are looking for 3.5% by the end of the year. francine: wow. the fed theso gives runway to do with they want to do. we are looking at three rate hikes and we have for quite a while now. banksis all of this --angst in regard to rising yields and we think that the important point is that we are real late on the 10-year and a long-term stark average of 2% that goes back to 1916 to present. when you were going from such a low level and we could argue and disagree where the neutral real , it is not 50 basis

points. as it is rising, this is a good thing, this is a sign the economy is growing, capital demands are growing. when you look at equity market performance, when the real rates are rising from well below long averages toward long-term averages, it is actually positive for the equity markets because it reflects positively for earnings. it is only when real rates start to push far above the neutral rate, when the fed is doing things, the economy slows, all of the handwringing becomes more relevant. tom: steve, you went right where i wanted to go. i just sent you this chart to put out on tv , justin. this is the real off the cleveland cpi. we are miles away from that red circle, steve, back to 2% real yields. ,hether we set it here or there

how many rate increases begin to approximate a normal real yield? fed is thinking 80 basis points long-term. that is a little bit well below the 2% long-term average. if you look at the core inflation running 1.5%, 1.7%, 2.25%d 80, you get to funds rate by the end of the year. to get to that come you've got growth and a little bit of an easing of the pressure on term abenomics the ecb and and all of that. that allows the 10-year to go up to that. we have a long way to go and that is part of the normalization process and it is far from an event that is negative for growth. if anything, it is very positive for growth. tom: very good, i'm going to

throw that out on twitter. steve blitz with a great observation on this difference between nominal yields, the visible yields that we see, and the inflation-adjusted yield. we come back. don't forget, coming up later today, we do skin you -- continue this discussion of rising yields. from london, from new york am a stay with us, this is bloomberg. ♪

taylor: this is "bloomberg surveillance," i'm taylor riggs. nutella maker is on the brink of buying u.s. nestl'' s chocolate maker.

babyestlé brands include ruth and butterfinger candy bars. weree u.k., investors disappointed by updates from tesco and marks & spencer. marks and spencer home and clothing sales were down almost 3%. both chains are struggling with british consumer sentiment. that is your bloomberg business flash. tom: thanks so much. now, if it is possible, clear clock on nafta. the north american free trade act of a zillion years ago. delonge long has been -- has been just brilliant on the new wants his of this trade deal. sharma in london, kamal and steve blitz. if nafta went away tomorrow, what would happen to the american economy? steve: it would be not a good thing. -- the the understanding

whole point about nafta is really the u.s. and mexico. if you look at the car industry, there are a lot of parts that go back and forth. it is like saying, what if you split michigan from ohio or something like that. it would really be disruptive to the u.s. economy if it went away tomorrow. tom: kamal, i look at this as currency dynamics are currency as the litmus paper of the system. if the president begins to job end toend -- jawbone an nafta, can i assume that the peso will work to new standard depreciation? kamal: we are bearish on the mexican peso and the canadian pulloutn a pre-u.s. from nafta. the impact on monetary policy for canada, if you look at the rates,that canada hikes

it plans on three this year. we have a bank of canada meeting coming up. we have seen further jawboning from trump. that could have a significant impact on the bank of canada's reaction function. we are bearish on the mexican peso and the canadian dollar on these nafta fears. you look kamal, when at how times have changed in the last 12 months, because canada is antagonizing the u.s. or are they because they are saying they are going to pull out of nafta? kamal: we are seeing it as part of negotiations. does certainly suggests that canadians are not just going to fall back and comply with what the u.s. administration is going to say. not a huge amount has been sorted out.

the next couple weeks could be quite significant. francine: steve, it is quite clear that nafta would not survive if the u.s. pulls out, but with a survive if mexico pulls out? steve: no. francine: so, if anyone pulls out, that's it? steve: it is a tripartide agreement. it really is is a trade agreement. the whole thing about brexit is that trade is only one part of that trade is only one part of it. here, trade is part of it and you've gotten a tremendous amount of integration. one of the things that people are forgetting is that a tremendous amount of electronics production, which originally was in mexico, went to china, and is now back in mexico. , and is now back in mexico. it is not as if even with the tax change and this is production back in through the united states, they lowered tax rates, it helps a certain level

of business, but we are not going back to making baseball caps. things like that and lower value add. like i said there is a tremendous supply chain integration that has gone on. the oil industry is the poster child for that. i'm sorry, tom. tom: that's fine. we've got to get to bitcoin. this has been a wonderful discussion. i look forward to speaking further on nafta. folks, this is not going to go away. the president migrating to davos and i guess he is going to explain how you build a wall to the davos ice, as well. sharmal sharma -- kamal and steve blitz. steve ratner on your courage. stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine from london and new york. tom, we are talking bitcoin. it slumped. ministryea's justice offered a proposed ban on cryptocurrencies. joining us to discuss all of this is bloomberg's european

correspondent. what is exactly going on? are they worried people are borrowing to invest in cryptocurrencies? ed: they are worried that households are leveraging themselves to the hilt to get into this market and they are concerned with the knock on effects will be if this goes to zero. tom: i look at bitcoin this morning. this is the same chart i showed before, but it is much more long-term. 2000 to 6000700 to to 14,000. do you have a clue this morning the quality of the bid ask on bitcoin? ed: the quality? i think the quality is the same as it has been over the past year. the only fundamentals we have are the news from south korea, the news from china that they

may be cracking down on mining. that seems to be bringing down i don't think that the quality question has changed. tom: are the bid and ask manufactured by these different small sites or are there market determining price or center tendencies? ed: it is the former, tom. it is basically all of these exchanges setting the price themselves and that is why, in south korea, those exchanges are trading bitcoin at 30% premiums because of the local demand. imagine the arbitrage opportunity between all of these different exchanges, where you've got double-digit premiums. this is really kind of unprecedented. that is why there are numerous traders exploiting these arbitrage opportunities. francine: what are you focusing on your reporting next? we talked about energy consumption. ne bitcoin, it is half of what the african continent uses

for energy. ed: it is equivalent to ireland or nigeria at this point, in energy consumption. there are some projections it could go up to a bigger economy such as denmark or sweden. this has to be solved, this electricity issue. it is a huge drag at some point on this and it raises all sorts of questions about climate change and global warming. if you are burning all of this cold to process bitcoin, i mean, come on. francine: ed, thank you so much. le will be back with kama sharma and steve blitz. this is bloomberg. ♪

tom: moving the needle on u.k. gdp. we will try to do that next week. i'm thrilled to attend francine in london.

london.'s in there it is again across the thames with that wonderful bridge. for any of you that have not been on the millennium bridge, it is amazing. at the end of that bridge is nsys little teensy wee italian fresh pasta place, which is more important than going to st. paul's. really looking forward to see you next week. [laughter] tom, great research. i'm looking forward to it. you will show up here and then we will go to davos together. tom: all of that excitement ramped up yesterday with the announcement that the president will attend. we are moderating a conversation with the president. can you imagine the entourage, francine? francine: i know.

how are they going to find hotel rooms? if you are at the world economic forum, you spend the year working on your agenda and i would argue that at the last minute -- this is a big win for -- yould economic forum have to find accommodation for , incredible. tom: my hotel room in davos is a fold down bed from the wall and is it -- it is without question the worst bed i sleep on every year. francine is that the belvedere on the third floor going, "peel grapes."" -- "peel my here is taylor riggs. taylor: president trump insists a wall on the mexican border must be part of any deal on immigration.

he says there will be no agreement unless he gets money to build the wall. morgan stanley is responding to bill gross's call that treasuries are in a bear market. morgan stanley writes, "don't worry, treasuries continue to offer value." the governor of california is raising the prospect of pension cuts that may have to be made. jerry brown says he has a hunch that would modify the law that says public pensions cannot be reduced. the california supreme court will hear a case on the subject. day.l news 24 hours per i'm taylor riggs, this is bloomberg. half a million jobs and 50 billion pounds of be the cost for the u.k. if it left the european union without a deal.

scenariosrent brexit where analyzed from the hardest to the softest forms. with kamal sharma and steve blitz. we spoke about the call that is about dollar weakness and pound higher, will -- but what is your call on cable. i think the way we are looking at this is that the bar to a weaker sterling from negative brexit headlines is much higher than the bar to good news impacting sterling. the market continues to trade on the transition put. the markets want the can to be

kicked down the road. may seems to be a popular date in terms of the futures market in terms of the next bank of england rate hike. we think that the downside risks , itterling from bad news has to be very high for that to happen. cyclically, growth remains relatively robust. the economy should benefit from global -- francine: tom, you are coming over next week, you want to go to harris. mes is what tom always asks to bring him to. what is the exchange rate going to be? kamal: we have key numbers going out next week. the dollar is in a bit of a tricky spot. you have the china news. for the dollar to regain significant traction, i think we need a good cpi number next week and we need these repatriation flows starting to continue, as well. tom: within that, what happens

in january for the brexit debate? every day, we go through this and i will call it a london soap opera, where do we stand february 1? kamal: i think you are absolutely right, tom. this is a soap opera. we are locking and reloading. you are having denials, counter denials, you are starting to get positions being put down from the u.k. and from the european positions. what is important here is that the markets are treating this as posturing. we have been through many european crises and particularly through the brexit crisis, all the capitulation has come from the u.k. side and that is where the market is relatively safe in its view that ultimately of the u.k. wants to get its timeline under thers in place transition, it needs to cave in on some of these demands and i think that is where we are coming from at the moment. then, as we saw through

first, they believe a deal will be struck. the steve blitz knows that inflation is different in the united states versus london. kamal, what is the character of inflation in london? is it still about sterling or brexit or is there a new character to it? kamal: you saw the pass-through effects. we very much agree with that, which is behind our call that the bank of england is unlikely to hike again this year. it is now contingent on what happens with the second round effects. we did see from the survey earlier this week that firms are saying that there is tightening in the labor market putting pressure on wages. there is an argument that we will see the second round impacts and we think that is where the inflation number will really have the best chance of remaining robust. , what an ambiguous

interview to interview moment on "surveillance," some people calling for strong dollar, some people calling for weak dollar, which is it? steve: i think it is probably closer to treading. i think this story is more about the euro continuing to appreciate. sterling,a 1.40, 1.50 you need to have a 1.35, 1.40 euro to affect that. i think it is looking at how far the ecb has to go from moving from negative yields to positive yields and that yield movement in and of itself, plus the strength in germany, gives the euro a bit more of a bit. i think it is less than a dollar story than it is a euro story in the coming year. francine: steve, when you look at how the trump administration

measures success, do they target the dollar? did they look at the dollar or do they simply want to see where the stock market is to see whether the economy is in good shape? the administration -- steve: the administration is about trade and resurrecting manufacturing. the dollar is an important part of that. they have the deregulation part done, they have the tax part done. we talked a little bit about nafta. i think it is really about ramping up the rhetoric on trade. i think it is about pushing toward more fair access to other markets and things like that. i think they are much more focused on that and they are on the dollar, in and of itself. tom: kamal looking at the inflamed obd on sterling, the cable on sterling, mr. blitz's idea of a mid-train zone is seen here, but as you get to one year out on the bet on sterling,

there is clearly a one-way bet on weaker sterling. do we still have a structural weakness in sterling? kamal: the structural weakness is the deficit. we need a catalyst to that current account deficit to undermine the pound. i think we need to make a clear distinction between the politics of brexit and the politics of the u.k. domestic economy. we have had a reshuffle this week, which is not gone down as well as may have been expected, and there was still this underlying concern that the domestic political situation in the u.k. remains relatively fragile. again, we are talking about the financial sector in terms of brexit. there still seems to be lack of clarity. if this uncertainty continues to , thatte the market current account deficit becomes a bigger problem for sterling over the medium-term. our evaluation models have tended to suggest that sterling is slightly undervalued in terms

of fundamentals, but that will be contingent on where we end up in terms of these transition agreements and the tone of the trade negotiations. tom: what is so important here folks is to get out beyond 2018 and 2019 and look at the so-called british medium-term. we will continue with kamal sharma, steve blitz. radio, good on morning, radio london, we will get those charts to you as we can. your morning brief. "bloomberg daybreak." stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine from london and new york. of keen in preparation showing up in london and then onto davos. the benchmark we saw for more than half, brent surging to $70 a barrel as global stockpiles dwindle and speculators pile into bullish positions. stewart wallace joins us. kamal sharma and stephen blitz are still with us -- steven blitz are still with us. what is going on with oil? >> we have a basic standoff. i think there is a danger when we go above 70 that they are going to start talking down the market. this is a danger zone for them. we have seen u.s. show producers

starting to hedge on the market. on the other hand, you buy futures and you sit on them for a year and you should make a decent return. can that how long state? stuart: there is no sign that it is going to go away anytime soon. that's it we get to 75 or $80 --francine: let's say get to $75 or $80, do they turn on the taps again and we are back at $60? stuart: you have to look at the back end of the curve for the conversation. i think it sets of a problem from two years from now. tom: i look at where we are in , this is nominal brent

crude they read we have clearly broken out of range. this chart tells me nothing. to the pros in oil have a direction, do they have a relief, or are they confusing like the chart i just put up? stuart: yes, the latter. we have a divergence of opinion. -- clearlyerday things are getting incredibly tight on the physical market and i think that is reflected in the price on the futures. on the other hand, lots of people are saying, when you hit $70, $75, you will see pressure coming in from the shale producers, you will get opec taking down the price. there is not a lot of interest to keep price at $70 or $80 a barrel. that is not really what they are after. tom: the age-old question, what does saudi arabia want? are they happy here? they are obviously happy at $100 a barrel.

within the mix of supply and demand, what oil price to saudi arabia want? stuart: i think it little bit lower than where we are today because the reality is that yes, they need money for this investment fund they are starting, yes, they want to do an ipo for a small part of aramco, but on the other hand, plus for oil -- they still love where the price is lower because $100 per barrel created the shale monster. teve blitz, one of the great surprises in the u.s. was when oil went down from $100 to $29. is there a point when higher consumer this oil prices affect trump's 3%es affect

economy? steve: i think there is much too much focus on the supply side determining the price of oil in the world. the reason why we are sitting at $70 per barrel as opposed to $30 per barrel is because the world economy is expanding and when it was at $30 per barrel, it was a lot slower. mf you take brent crude -- to likes to do charts. francine: he does? steve: he does! you chart that against wholesale sales in the united states excluding oils and petroleum, you overlay them, you look a lot -- you see exactly why oil went down to $30 and is back up at $70. i'm not going to argue the various points of these issues, saying it is why -- why it is that $71 versus $65, but the point about being at $70, this

is the reason why you are 3.5%, this is ,eflective of china's growth europe's growth, everything going along with it. they are still the king of opec. without them, i don't know whether a lot of the production is still achieved on this agreement. the only person that can still try to comply is saudi arabia. kamal: and russia. stuart: and russia. francine: how long will that last? stuart: at the opec meeting, they will be having another think about this. francine: does it have an impact on some of the petrodollar's currencies or does it have an impact on inflation expectations? kamal: we truck norway and canada and ruble.

the interesting aspect here is that these currencies have not really follow through in terms of this traditional appreciation to rising oil prices. do your point, it is about inflation expectations, it is whether the rise in oil prices is translating to expectations and clearly that is not happening, particularly for the likes of norway. until we see significant structural signs of rising inflation expectations, i think that disconnect continues. francine: thank you very much. thanks to our bloomberg executive editor for energy and commodities, stuart wallace. thank you to steve blitz. of bank of america merrill lynch stays with us. we are getting breaking news out of the high representative of the european union for foreign affairs and security policy. she is talking about the iranian nuclear deal. what we hear from her is that the eu is determined to preserve

the accord. she is also saying that the u.s. implication in the compliance of the deal. this is not what we are getting from the trump administration. really excited about seeing president trump arriving in davos in about 10 days. on a global stage, you will to the differences between some of the other foreign affairs ministers, including boris johnson and president trump. in the meantime, if you are a bloomberg terminal user, go on to tv and go there directly kamalestions on yen to sharma. ♪

was the last time we looked at dollar-yen? we forget how large and dominant the japanese economy is. we hope we go up here. weaker yen. , but we hope yen we go up here, weaker yen. how normal is this chart or is it a chart of hope by the

japanese government? tom, we have already had a move on the jgb theet following announcement earlier this week in the market got very excited recalibration of and we do believe that is going to happen. we believe that is going to happen the second half of the year. for now, we think the moves are overdone. there is hope that this is the end of japan's ultra-accommodative stance on monetary policy. we have the bank of japan meeting coming up in a couple weeks. a chance touroda push back on that rhetoric. dollar-yen does not show significant signs of backing off, so i think we will have to wait for that particular meeting for the markets to recalibrate. certainly from the domestic perspective, the bank of japan would probably like the yen to be weaker than what it is at the

moment. -- 119 a 1.19 target target by the end of the year. we think it is likely to head lower. tom: but the basic conversation is about europe, about mario draghi, we had a wonderful debate earlier this week on 130 versus 110 euro-dollar. let's take a look at what the pros look at, that is euro-yen. have not looked at this in a while and it is very cyclical. if you have a boy and hero, -- buoyant euro, what does that do to euroyen? kamal: it was the ultimate into the middle of last year. that will still be the case to a certain extent. if you are looking at currency to use, we still think it is a swiss franc.

swiss-yen looks more interesting on those metrics. we have the ecb continuing to paper potentially high rates at the beginning of next year and you have the bank of japan moving at the same time. at this point, they are going nowhere. tom: this is what we are doing at "surveillance," we are stealing a chart from kamal sharma. francine: we will pay him richly. tom: we will give him the massive surveillance royalty check. if he's lucky, he will get a bowtie. we will get that out across all our sources as we can. .orget about it, mr. trump we are not going to see 3% gdp. ♪

tom: is president trump correct that 3 -- at 3% gdp? china says no, you were wrong. i don't understand it. francine and i've will have all the details on that -- and i will have all the details on that. n does notdavos ma build walls. good morning, everyone. this is "bloomberg: surveillance." live from bloomberg world headquarters in new york. i'm tom keene. we are with francine lacqua. where are we on this china bid? we had a great source on this story. right.e: yes, that's we put out a story yesterday

that around the globe, according to a source familiar with the situation -- they don't want to be named -- china is looking into the first fight. they would buy less treasuries, they wouldn't be selling them off. china put out a statement today saying they may have the wrong source. it, but not saying brian says this, it comes up quite often in china. they haven't denied that they are diversifying. angle tonteresting look at. words, fakefighting news. with our non-fake news, first word news with taylor riggs. taylor: president trump and external be no war with north korea. added press conference with the norway prime minister, the president discuss talks with kim jong-un's regime and south korea, though he said he'd have problems with north korea.

canadians think there is a likelihood president trump will give six-month notice to withdraw from the north the government -- north american free-trade agreement. it took a turn for the worst this week. canada filed it world trade organization complaint about the u.s. on canadian products. giveninke he may have opponents of offshore oil drilling. less than one week after unveiling a plan to drill in coastal waters, thinking set florida -- zinke discussed florida. sign of brexiter impact, soft vacancies plunged last month. they fell 52%, the most in three years. morgan mckinley says some falloff in job vacancies are normal during the holiday -- holidays, but this is the most seismic. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. tom, francine?

-- cine: tom: not much in markets. let's do a data check. euro 120, down 10 119. that's all i've got. -- bitcoin south this morning. francine: i think the bitcoin story is interesting today because of a concern on leveraging, from households buying into bitcoin. there was an exchange of bitcoin. stocks declining, treasury gain. at 63.92.e oil tom: yield isn't too big. francine? bloomberg, francine:francine: we're talking about whether china is selling off, treasuries. a couple points i heard. that thisincidence story when mr. macron is in china? people say it might concern --

might not concern others, but i want to show you how much u.s. treasury's china holds. this is looking at the treasury holdings. tom: bitcoin quickly. yeah, yeah, yeah, whatever. watch korea, it has become a big deal. here is the chart. this is elegant off the climb of moving averages. this is a huge deal. two days in a row, underneath this long-term moving average, this is not a sell signal, but i'm just going to say it's a textbook sell signal chart. joining us this morning to mix huge, a guest from -- and one of her most popular guests, komal sri-kumar. the two of you brought this year

together. are we in a bond-bear market? >> i think so. we had>> a couple of days of selling. the yield is 20 basis points above where it was at the start of 2017. inflation contained, yield went up this year. does that mean we will see reversal of a 35 year trend? tom: these are comments of bill gross. this was with mr. gross yesterday. >> where markets, what i'm talking about is mild. it includes prices for high yield bonds. tom: a mild one, which is fair. research note on this. i'm sure blackrock you are talking about as well. can there be an ugly bear market in bonds? the really hasn't been an ugly bear market, has there? ' 94.u have to go back to

the question i have is the global economy being better -- we hear the local economy is doing better, but the secondary factors, demographics, bond yields are lower for so long. this, went to discuss have to get it out of the way. -- betters, becker economic -- higher yields, better economic growth. where are we since gdp? >> i don't see anything better than 2.5%. tom: wire you beneath everybody else? komal: i don't believe the tax plan will give the stimulus for the economy, just as this did for equities. ass is the same thing monetary policy and quantitative easing. ,he fed boosted equity markets and the economy continue to stay at a certain growth rate. the other issue, and the one

-- iyou raised earlier think this is a bull market. after bill gross said to 60 3 am mark -- march 13, i told you that indicated that market had stopped. i thought we were in a old then, and we want to almost 2% in september. again, i said i sold my clients yesterday after the bill gross statement. this is a large. yesterday we had a major on h otc on policy as well. francine? guestne: going to ask our , we are talking about 50.6, a 10 year yield. see a just going to rotation from one asset class to the other for? 2018 -- -- could see gird road a rotation with equities.

i think any backup in yields is contained. i think you could probably see 3% this year. i read with -- i agree with the other guest. you will see other things this year as well. francine: what is your call? [laughter] inal: i would look for 2% 2018. the economy is going to be better. you are going to gain a lot of earthquakes, in terms of what happens with nafta, how president trump deals with north korea. if you do have a trade war, the 2.5 cent may be optimistic. abouton't want to talk whether sources were right or not, but let's say china does diversify. what do they buy instead?

komal: i'll answer into parts, francine. if a due date to -- diversified, there isn't -- if they do diversify, there's not much they can do. the capital market for currencies that the big enough for transactions. second, the bulk of chinese trade is in u.s. dollars, and will not the possible according to other currencies, which if they do, either they take an exchange rate risk, or they shift back into dollars anyway. those are important. in terms of what has happened in the last two weeks, what bloomberg news person was rational. china,eciators in president trump or the united wetes, just to think that would throw the chinese position -- that doesn't exist. that is what the chinese have proved today by seeing that that news doesn't hold.

this is gone through by negotiation, rather than any incentive. tom: who is wagging what? we have a lot of newspapers floating around the world. or we charging for destiny, was her lack of savings, trade tradets and, some say your responsibilities, have we lost control of the flows? >> it's an independent thing. needs ane hand, china large liquid markets for their reserves. it's self-defeating for them to talk down treasuries. at the same time, we know before the tax cut, deficits grow in the out years. symbiotic this relationship where both parties need the other. >> really important to mention our original research.

over to citigroup here. continue. come wall street qamar will continue with us. himrd f diamond, look for in the 4:00 hour. this is ♪ bloomberg. ♪

♪ atylor: this is "bloomberg: surveillance." so railroad is on the verge of agreeing to buy a chocolate business. pay $2.8ad would billion. this includes butterfinger candy bars. in the u k, investors had a

sales updates. expected, andowth closing sales were down almost 3%. many are struggling amid consumer sentiment that it is volatile. avoided ania, dp has trial that could have cost hundreds of millions of dollars. claims that it overcharged california for over cap's. no word how much they will pay. the company said the claims were without merit. that's your bloomberg is best flash. tom: thanks so much. i spoke to an economic forum team yesterday. they assured me that kevin cirilli will stay in liechtenstein as the president visits. mr. some really joins us. li joins us.

i made a joke. he's going to davos to build a wall. he can't do both. how does this play out? kevin: there are several disagreements with the president and leaders that will be gathering. also on environmental agreements as well. i have been talking with sources for the past week, who have told me the problems have been solved. posereally could significant risk for those who wanted it. this is what president trump is to request congress. there is an authority for a fast track, in order for him to get an agreement. request thatto fast track authority to get approval on nafta. that's a clear sign. tom: how close are the republicans on the hill and the

president -- how close are they on the same page? is there an image of what they want, and they want together, or is there to are three or four separate things being discussed? kevin: i think it's both outside watching this geopolitically around the world -- it might start to think about what that means -- but it's a good question. the ultraconservatives field a largere needs to be amount of financial backing to construct not only an actual from sources,ize as well as increasing money for the interior and law enforcement. on the other side, republicans are saying we don't need a wall along the border, we need to make sure we are securing it through tunneling, as well as other -- drone uses and whatnot. there are many proposals out for

borders and whatnot. op as well.hoto how long that while it or who he ises with, the greatest talk moderate republicans -- he could be willing to barter them. francine: when it comes to nafta, some republican lawmakers support that. will there be enough republican support to block the repeal of nafta if that's what the president wants to do? kevin: no. if republicans get behind nafta -- if the president gets behind nafta, republicans will. it's interesting how politics are set up around this. this warning weighing of the democratic party come along opposed to nafta, as well as another wing of the republican party. what you see as most up?ificant coming

the president of nafta, canada, saying that they would repeal nafta. have you ever seen anything like it? never seen one country talking on behalf of another country. [laughter] kevin: the stocks of really deteriorated. we should note that there are already bilateral backlit ,onversations in europe particularly with some of their economic agreements. there is essential leverage for them to work with canadians on this, with leverage over the united states. in terms of what i have my eye expecteddent trump is to issue human rights sanctions. following through with the obama administration -- tom: here's something from the journal this morning, an article. "foreign carmakers can take u.s.

lead." it found 44% of americans sales is where we are. does the white house and do republicans understand the complexity of our economics?do they understand it ? >> it is want to keep moving forward. the white house told you every time, they consistently argued about the stock market, look at the companies. you can hear a growing concern ,mongst democratic economist that there could be a new storm on the horizon. qamar -- cooly masri qamar is fired up about this. [laughter] we will come back and talk -- sri-kumar.al how about a wall around paterson, new jersey? it's maybe the future of

america, their congressman, william passarella. an important discussion today on bloomberg radio during this is bloomberg. ♪

♪ francine: this is "bloomberg: surveillance." i'm francine lacqua here in london. arabia,must go to saudi where there is a potential bond sale. it has issued to way a euro bond sale in the first quarter would -- this comes from

saudi arabia, qatar. this goes back to the price of oil. a lot of countries are trying to circle out of finance, trying to figure out what oil prices do. let's take a look at stocks in general. expectare saying what to this to do. let's look at my bloomberg terminal. we are back with shimon -- komal sri-kumar and ross. >> particularly, yields are rising. we have new environments, economists feeling stronger. i don't think that derails the stock market. it's either the magnitude of

that rise, if it becomes much more pronounced, or was driven by unexpected inflation without strengthening the economy. seel: everything that i suggests if we could get a rally , growth not picking up with taxes, you have all of the global uncertainty, and nasdaq cancellation. see how this is so far away, the canadian and mexican, from the u.s. side, could account for anything like an agreement area if nafta is postponed, that's not going to be good for equities, for the economy. forecast at the end of the year, 2%. i found some equities in that case. biggest: this is the

bull market ever. what would it take for this to go into effect? komal: good questions. we almost know the top ones -- toughest to predict. in late 2007, the subprime, it caused a small problem. it wasn't. orilarly, whether it's nafta some form of retaliation by , geopolitical tension is hard to say. the valuation is priced to perfection. you can might the fire from anyone of these productions. francine: thank you so much. we will be back, and talk and check out business week. ♪

♪ francine: good morning. this is "bloomberg: surveillance." i'm francine lacqua here in london. descending on london next week. my travel back 10 days from now.

there was a loss of 20 minutes or so. this came with a surprise -- as a surprise for me. tom, this is significant, because he had a quarter of brexit. he pushed as much as he could to get brexit through. i don't know whether this changes the theme that we should have a referendum, if you have someone saying that was pro-president. once we have it, they could actually -- this sets it up for a second generation. first, let's get to bloomberg first word news, here's taylor riggs. taylor: president trump insist the while on -- a wall on mexican border must be part of any deal. he says there will be no agreement thomas he gets money to build the wall.

morgan stanley is responding to investors on bill gross install -- call for a bear market. saidn stanley strategist this could lead to an offer value. to declare atempt bear market, though they say it could be a mild one. the governor of california is raising the prospect that pension -- pension hikes have to be made. there was a law that was modified that said public employees can't do this. the california supreme court has a case on the subject. the government is against a self-imposed deadline today, spending more than three searching for a national vote. pressures from business leaders is increasing, and angela merkel wants to avoid a new election. in paris, armed robbers made off with millions of dollars of tools and other items at a hotel . three suspects have been arrested, but to others got away.

estimate -- merchandise is estimated to be worth $5.4 million, and nothing has been recovered so far. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. drinking, tom? tom--francine, tom? tom: thank you. this, tookumar on very different views, and gross cost, what it means for the markets. komal, real simple, you are below are the president is. 3% -- bring up the chart. to morning15 years in america, 4% real gdp. we come down, we come down, the crisis. you are here at 2.5 percent, and the presidents and optimists are up there. let's go to 70% gdp. bridge thissumer

gap between president trump and komal sri-kumar? komal: the big problem with the affected by the fact that rates have not increased significantly since the financial crisis. the stock market has been searching, but low-middle income groups aren't participating. market -- is the want to come back to this, komal -- is this happening with gdp? russ: markets have been exaggerated with gdp. markets are not the biggest determinant for gdp this year. francine: this was common with monetary policy. there are hikes. russ: i it's different if you have hikes, but also if you take into account, there are financial market conditions.

there were hikes in 2017. there is growth. why? part of their reason for a surgeon earnings was overall financial market conditions, not just swings. credits were incredibly easy. that plagues the environment, where regardless of what the fed did, you ease monetary conditions. >> i would agree with ross. earnings,crease in what happened with the stock market, this long decreases that would ease monetary conditions. is, if you stop to tighten them, you don't have the benefit of that. even with easing monetary conditions, you don't have 3% growth in the last several years. why will you have it with tightening monetary conditions hike?youassuming a don't think it will hike -- you don't think it

will hike? komal: i don't think so. i think this is an important indicator. last friday, we reached a 10 year low of 29 basis points. i think economic growth is slowing down. narrows even more in the .ays to come this doesn't tom in that growth is going to pick up, francine. tom: here's the common ground between economics and -- bring this up. . vanilla spread, a difference in yields between the 10 year and two-year. this is what kumar's talking about. what does this trend indicated? russ: a, things. your normal interpretation of this -- but what is not telling you is that

precipitation is much higher. keepinge still forces long-term rates lower. you get this depression, which is needed. tom: i want you to continue on this. a huge body of american society feels compressed. they don't feel tax cuts. they don't feel america again. >> my 2.5% is not optimistic. number,o come up with a 2.5 being below the official target. in are absolutely right saying that the good part of the american population is behind. plan willy, this tax leave behind, the corporate tax cuts will dividends.

dara: francine: do you think rate increases will come?? komal: inflation increased did you say? francine: yes. i guess the fed which the fed -- piecing which the fed is looking at. komal: this jobs data, which came out earlier this week, as i just said today, there are job vacancies and quick rates that are stable. there's still enough slack in the labor market. people don't have negotiating power. that is one more indication, and then we have low participation rates. .> this is an important point this is called minos and a stick tendencies. does not have been

negotiating power in america to the presidents make america great again economy. >> this is partly because of the way our economy is. i know we have done a little work on surveillance. what is your take on inflation? >> i both were muted. there are factors that were keeping pressure down and are --on down area there reports after reports, this is a one-off. what i think that mrs. is that all of these one-off's are connected to secular factors, you can point to technology, and they are very strong and consistent, fresh on prices. that's one of the reasons we have not seen a take-up in wages. tom: superb conversation. a want to finish with -- when we

come back to the rest of the hour. do? do i you are in the world of, what do i do? what you do with equity bond given these one-off's synthesizing into a struggling america? >> the first is the death of the bond bull market may be exaggerated. that suggests that you don't abandon bonds. we are still in an environment where slower growth is arguably in bigger risks and runaway inflation. in the environment, bond still provide a hedge against equities , which is why when you have bonds in your portfolio, it mitigates volatility. tom: which labor of equities do you want? russ: two things, one of which is that i agreed with the evaluations that were the most stretch in the development world, which means that month u.s. equities, notably japan,

also had markets. tom: we will continue this discussion. really, the most interesting day in washington. rest costntinue with rich and komal sri-kumar. i can't remember which are analyst. [laughter] tom: it's from her mood, karen moskow, the morning brief, captive in your car. you know better than the news, smart conversation of uber radio. stay with us. this is bloomberg. ♪

♪ taylor: this is "bloomberg: surveillance."

i'm taylor riggs. let's get the bloomberg is this flash. a chip security problem, which will slow down computers. company has released test results, saying more than 10% won't be affected. as more information that is promised about this. xerox has hired market trainings, saying companies -- have major deals with japan's film. according to the wall street journal, the two are discussing various possibilities, but xerox is not one of them. needy andnhattan, friends were down 2.7%. landlords have been making big big price cuts. businessur bloomberg

flash. ,rancine: there's a benchmark and barrel comes as global stockpiles dwindle into bullish traditions. we welcome komal sri-kumar and risk restaurant -- and rusk koesterich.uss when it comes to oil, how do you look at it? is a geopolitics in the middle inflation, org on doesn't just show that there is strong demand globally for oil, therefore there is a positive for global growth? komal: i would begin by saying the recent surge in oil prices over the last several days has a lot to do with stuff like what you are getting out of venezuela . there's political uncertainty in both -- and iran and saudi arabia.

same time, the emerging market growth has been strong. the questions i receive is 2000 -- 2018, not 2017. it will say, i'm going to have destruction. you are talking about something benign. india was a major consumer of oil. last year, a significant reduction in construction. growth.ontrolling be goods are likely to in terms of oil prices in the coming year. longer-term, you're talking about oil prices being in the fed chair area there are alternatives that different countries are doing, especially with china thinking about getting rid of things over the next couple of days.

-- decades. francine:uss? -- russ? russ: i would generally agree. this also is reflecting of disruptions. i think it's important. this gives a different dynamic than we are used to. in the past, high oil prices were thought of as a on a consumer. benefitalso a positive that will help in the u.s. this they will support capital spending and the energy, lex. int's something missing thousand 15-2016. their concerned that -- francine: is there concern that there might not be enough investment, and we will realize we haven't been investing

enough? russ:russ: not going to pretend that i have an informed view of oil in 10 years, but i agree with them all. factors ofome movement away from carbon-based steals over the last decades, which makes me believe in a massive supply of disruption. $120,nlikely we will see especially when you consider how profitable shale oil in the u.s. is. it's even getting to 80 or 94 sustained periods. that seems difficult. francine: how should investors take advantage of these commodities? what are the underlying share prices? russ: i think that's the opportunity. right now, global application -- we have seen a rise in oil. you don't need much more incentive. even if you believe oil will trade between $50-$60 per barrel, that's not reflected in

the price of lower european oil companies. it's not reflective of low-cost shale producers in the u.s.. i think back premarket offering fewer bargains, energy to one sector -- being one of the sectors, it is cheap. francine: thank you so much. we will be back with, streak i-kumal, andl sr brusque ostrich -- ross -- russ koesterich. --nd we will visit the press we will visit the french president, and there is a rome press conference currently going on. , at i think the concern is the moment power and energy is a lame duck. he says we are entering into a bilateral agreement, working on a trade agreement with france. you had no idea, he has no idea

how those elections will go on march 4. we hope those are good. tom: how many frequent-flier miles does macron get from going paris to beijing to rome? is killing at this one. francine: i'm sure he will get uhhh, a free trip to brexit, thanks to that. this is bloomberg. ♪ [chatter] ♪

♪ tom: a great conversation. francine lacqua in london, tom keene here in new york. russ koeskumar and terich. this chart, this is great. i didn't expect this. this bank index, a massive implosion. go, we go, then up we almost back to where we sit. the euro at the bottom is right no. they came out with some -- the blue arrow at the bottom is right no. it takes a decade.

got --ft the cross-ice, they left the crisis, escape those -- velocity in banking. >> you look at the u.s., global economy. it has been -- deleveraging has been greatly exaggerated. debt iscial that is -- higher at gdp, but everything else is better than 12 years. tom: j.d. diamond, brian one moynihanking -- brian banking. there in your less optimistic economy? >> demand is not strong, especially if you have a flattening -- that's not good for banking either. page bark charts, can i say that --bar charts, can i say that i hate them? . hate bar charts

will these all be assigned to blackrock, russ? yellow bar good, orange bar i can't either place on the upper east side, the child can only go to three summer camp this year. are they going to apply to blackrock? russ: i think so. it's a challenge on the low side, as come all said. said.komal how that's being filled is different than it was 15 years ago. i like bar charts. i don't, but i want to switch them it doesn't matter if you don't like them they are good in general;. will is turn ugly in 2018? is there a sign that would help you to see the global selloff? russ: one thing we are watching his credit markets. they were incredibly well-behaved in 2017. we haven't seen a rise in defaults we have expected and

are worried about area that's usually the canaria in the coal mine. -- canary in the coal mine. that's what i'd be watching. reminds, -- the canadian coal mines, you have a big increase in consumer, student, auto debt, credit cards. >> negative. come on!t, jst, komal: you need to be bearish on some things. new level of to a gloom. where is the canary in the coal mine for kumar? komal: you are watching what happened to high-yield strength yesterday. this is the lowest that we have had in november. tom: blackrock online yields, sell?

russ: no, but it's not as attractive as my guilt i agree, watch the high-yield markets. .om: i will still a chart this is great, francine. what the idea of getting these two guys to battle about where we are going, particularly against the president 3% gdp. francine: i really like that, and a lot of calls on asset classes. there's rotation from one asset class to the other. rockman,ow to gideon the ceo of the financial times -- shout out to gideon. people said, really? let's do that. tomorrow, brad hentz. stay with us. this is bloomberg. ♪

alix: fake news. china denies the report that the

country could slow the treasury bonds buying. u.s. producer price index on deck. nafta in limbo. canada and the u.s. prepare for a showdown. here's the lesson from the market we learned in the last 24 hours. -- buytill by the depth the dip. that was the z-mapp the strong -- that wasond the theme after the strong 10 year bond. david: there are no dips. time for the morning brief. -- ecb