>> breakthrough in berlin after 24 hours of coalition talks, reports of chancellor merkel reaching a preliminary deal with the social democrats. the euro surges to a three-year high. exports pick up in china and a slump in import growth. is it a warning sign for the economy. we get gdp next week. the president triggers fresh accusations of racism after a fouled mouthed against immigrants. ♪ to "bloomberg surveillance," and i'm mark

artan. what a day we are having and what a week we have had. there is the stoxx 600 come up by 0.1%. the best run since november 3. if we finish .10% higher today, we finish higher for a second consecutive week. by 0.7%, the highest level of the euro against the dollar since december of 2014. chancellor merkel and the social democrats have reached an initial deal. we had the minutes from the ecb's meeting yesterday. they suggest they are ready to tweak their policy guidance. hawkish comments this week from other ecb members. throw in economic data and that is why the euro is moving higher. highest level in five

years. china today, saying it has imported a record amount last today, weoming up get calls from this man. we get his take on the latest news out of washington. ellen zentner. reporter: export rose. 4.5%. growth slowed to trump is said to have decided to expand sanctions ran, leaving the

2015 nuclear accord intent. but the administration is preparing new sanctions over iran. the justice department says it will establish a financing and narco terrorism angle. donald trump triggered fresh accusations of racism. the president is said to have made the comments about haiti, el salvador and african nations. the white house spokesperson did not dispute the claims, saying certain washington politics will choose to fight for other countries. the planned trip to the u.k. will not go ahead. tweeted, president w i'm not a big fan of the obama administration. one for $1.2 a new

billion. a bad deal. davos' have pointed to decision originally made by george w. bush. .im jong un has won this round he called kim an educated in mature politician. the unusually warm words came after north and south korean officials held their first or a toxin more than two years. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. and sebastian salek and this is bloomberg. main germany's two political forces have made a breakthrough in coalition talks. christiankel's democrats led bloc and the social democrats reached a preliminary agreement after

negotiating through the night, marking the end of the political stalemate the country has been stuck in for the last three months. german reporter joins us. it has been a long 24 hours, hasn't it? >> indeed. especially if one remembers the long talks with the liberals. yes, it was a long night. mark: what does it mean for the spd, because they still have to get that vote through the party. you look at what they agreed, this is not exactly a deal which will massively swing the mood of the party towards joining the grand coalition. well think the spd is aware it is not so much what they get out of the grand coalition or not. it is about the craftsmanship in the leadership.

how do you tell the party members now that you need to take responsibility and you cannot afford new elections? that is the argument you have to bring across and that is what it will be hinging on. mark: what is the feeling inside the country, birgit? is there a real push by the electorate three months on from the election to just get a grip and come together and forge some sort of coalition? birgit: yes, i mean, you can see in any poll the mood is really shifting. people are already tired at the moment, even with the grand coalition. suggestingn a poll that somewhat prefer a new election. but i think that is just a mood which is prevailing at the moment. you can see that the longer it takes, the more the electorate will become frustrated and if there were new elections, all the main parties would suffer massively.

i think that is what is holding them together. they are all trying to prevent that and this is why they will make it. mark: birgit jennen, thanks for joining us. and joining us today, mr. marinov. look at the chart 1.2119. it has been quite a few days. we will talk about the ecb. this is obviously good news for germany and good news for those who want germany to focus on reforming the >> indeed. it is putting an end to a withinous period germany. the major parties tried several times to form a government. hopefully this time we will have a german government and the reform process within the eu

will continue. therefore, the efforts macron has put into place will be accompanied by the future german chancellor. mark: so, the euro, what next? >> german politics were the catalyst for the last move a. we had the ecb minutes yesterday, which highlighted the ecb is gradually moving towards the exit of its accommodation. they are emphasizing the importance of their rate outlook. in addition, we have stellar on the real activity side. we have industrial production and retail sales. i guess earlier in the week we have that reserved diversification, which punished the dollar, but certainly helped the euro. global reserve managers, much like private investors, are still underweight on europe.

all of these factors help the stronger euro. mark: give me levels. >> our forecast is 1.25. that could seem rather conservative from current levels but we have to realize the ecb will luckily aggressiveness of the recent moves. i think before long the latest move will likely slow, especially given that we have the ecb at the end of the week. will thelie -- level make the ecb jawbone? >> what could mitigate the economic impact is the fact that oil is appreciating. the risk to the headline inflation has been mitigated by that. presumably, there will be some in january. all that said, i think it's a

rather furtive process, especially if we move closer to 1.22 levels, or try to break for that level. mark: is there a currency bulletin? these are all the currencies against the euro today. look at some of those declines, every single g10 currency is falling against the euro. if i could change that one day, let's move into 12 months to give us an idea -- they are all down against the euro. what's the currency to pair or bet against when it comes toi the euro? could best longs against asian currencies. as part of the outlook for 2018 we think the global synchronized upswing will become much more heterogenous. especially with china now,

slowing from the lofty 6.9% growth rate we had last year to 6.5% this year. that is likely to bound toward a of economic disappointment, which we had this morning with chinese import data pretty weak. plus, we had the aggregate state , which was underwhelming. i think for the expectations of weaker data, that will play out qe.the aussi or o, thatthink the eur could be a crisis of choice. mark: valentin marinov stays with us. up next, the latest on what val entin was talking about, the chinese economy. we talk the outlook for the world economy. this is bloomberg. ♪

mark: economic, finance, politics. this is "bloomberg surveillance ," and i'm mark barton in london. there has been a drop in import growth in china, slowing to 4.5% leaving a surplus of $54 billion. joining us is enda curren. how concerning is this tick down in imports? >> good evening. i think it is what to keep an eye on. it was not expected by the economists. we know there has been some moderation of activity, but certainly no disaster or anything. the backstory is the government trying to take risk out of the

banking system and a slow the pace of credit, a well-known story. whether or not this is the start of something more pronounced, we are looking at growth domestically. the global demand story must keep things propped up, mark. mark: it has been quite a week for china, changing the way it manages its currency, china said to be rethinking the treasury purchase program. what's the talk of the town where you are? enda: it certainly has. it has been very useful. we have had a good handle on the emerging economies. today we see exports continuing to go gangbusters. we really saw the slowdown in demand.

when you look at the import side of things and the credit numbers today, it is early days. it could point to a software 2018 -- it could point to a softer 2018. there could be tightening within the second half of the year. where does it go in the first half this year? holiday looming near a in mid february and that could impact activity. it will be interesting to see if they can manage a very soft landing for the economy, rather than a tipping over and landing much harder. mark: thank you for bringing us up to speed. we are getting use into the bloomberg terminal. this hedge fund is set to shut as the top investor exits. just crossing the bloomberg terminal. stick around and a chat about china.

we touched on the import side, does this bode bad things for 2018? the economy will not be as strong as 2017. >> that is expected. how do you change to 6'5" percent growth? there is bound to be a slowdown. the weakness in domestic demand. the weakness in the monetary aggregate could be an early indication of that taking shape. x point of view, i think we see the height in the aussi or kiwi. i think the current levels from both could be an interesting selling opportunity. during the first half of this year we expect to see that gradual slowdown in china, which i do not think is in the price of those currencies. mark: somewhere saying 6.5%, is sand?ough line in the

>> i wish i could read their minds. the koreans were quite explicit about the discomfort about the pace of depreciation and the level. the track data that's the trade data highlights that the chinese are still running with a huge trade surplus with the u.s. that brings in the second driver to play production is a. trump is bound to have noticed that and he could use that down the road. when it comes to protectionism, people have all but forgotten about it because of a nafta dispute reserve for ink. china is where the real issue is for the u.s. with that in mind, the trade data has highlighted those two things. domestic demand in china is slowing, but external demand could come under pressure, especially if the u.s. president gets his way and becomes more vocal on protectionist measures.

that is not a good mixture for y currencies, especially asian commodity currencies. that confirms the view. mark: we will talk about china and its fx treasury holdings in just a moment. valentin marinov stays with us. we talk about the u.s.' biggest retailer. president trump, a racism row. this is bloomberg. ♪

mark: you are watching "bloomberg surveillance," and i'm mark barton. donald trump triggered fresh accusations of racism after a foulmouthed outnurst against immigrants. he questioned senators yesterday in a oval office meeting yesterday. the white house spokesperson did not dispute the claims saying, certain white house officials choose to fight for the american people. the big datapoint today, today cpi, 130. the latest consensus for december is 0.1%. inflation remaining constrained until wage pressures pickup. valentin marinov is here. let's ignore trump

because it ists not market moving. let's look at cpi data. evidence that inflation is moving in a nice way towards the 2% target. >> well, not today. core inflation will remain close to 1.7%, which is not great for the fed ahead of the financial meeting. it is still the big mystery, the u.s. and the lack of inflation addtoday's data will only to that mystery. the good news for the dollar is, that could be only a temporary development. we are dealing with race affects, which might start of baiting into the second quarter of this year, which means both core and headline inflation will start picking up nicely, which means the fed could still be on course to hike rates a few more

times this year. given the dollar sentiment, how subdued it is, i think investors will use any excuse to go short on the dollar. so, underwhelming inflation data. mark: what about this brookings institution commentary this week the 2%ybe you bend target and bring an alternative number into play? >> there are two things to that. clearly, it will be a recognition of the fact that despite all the efforts and the monetary easing, the value monetary banks put in place to fight disinflation -- they failed. if they were to lower the target or consider other measures, that would be a recognition that something dramatic must have happened with the inflation around the world. not only within the u.s.

i am not sure i want to be the fed governor who has got to explain this, not only to his but fellow, colleagues. if the fed were to consider that, other central banks would have to follow, if only because their currencies could appreciate uncomfortably. from that point, it will be a very controversial change. at the moment, given the fomc, i don't think change is likely anytime soon. mark: valentin marinov stays with us. coming up, all things brexit. scrapping the cabinet reshuffle. this is bloomberg. ♪

fell by 52%. mckinley said its finding underscore, particularly after a 37% decline in job openings ear on year. >> political developments. let's start with you. hard to know whether to start with reshuffle or another referendum. let's start with another because it's closer. chances another referendum on the final brexit deal when it's struck, if and when it's struck? >> the government has ruled it out time and chances another ti. but the voices are clamoring for another.

we were talking about nigel, does anyone care any more? clearly they do. his cause a bit of an uproar. wasn't a demand for another referendum. mashe, just maybe, was his phrase, this was a chance to settle the issue for once and for all. the government is sticking firm saying that the decision was made in june 2016. it would be a an insult to the british people to try to have another vote. there's a bit of fatigue in 2 country as well. they've had a major referendum every year for several years. i don't think people want to be dragged back to the polls. but what we've seen is that anything can happen. i think the key to this is probably what the labor parties say. they've been pretty ambiguous, this constructive ambiguity. at the moment they are not coming behind the view for a vote. the way the vote could be brought in could be on the

final deal. they have said parliament will have that vote. it's put to the country who knows what might happen. >> what would another vote mean? >> obviously good for fx knows what might happen. given trading. a good reason to buy. in terms of volatility directional impact on the pound i'll wait for the outcome of any new referendum because we got the first one so wrong. not only we. but people want more clarity. i think the safer bet there would be uncertainty by implication volume tirlt will pick up. >> the other big event. the reshuffle. now we've had just a few days to mul over. disaster was the initial verdict. still? >> well, there was certainly terrible headlines the day after that chaos, shambles, the night of the blunt stiletto

described by the telegraph. so obviously it was not the was refresh that mrs. may hoping but i think as these things do, things have moved on fairly rapidly. we've seen the headlines and the politics dominated by this crisis or as it's being described the crisis. mr. hunt, the health secretary, was one of the people reportedly mrs. may wanted to move out. e talked his way back into the job. >> i asked this of our brexit editor earlier. talk to me about the skeb air yo. how does it come about when the prime minister basically said you're moving on. how is it you end up with a bigger brief? you refuse to move on. obviously it shows her lack of strength. but would that have happened under other leaders? did it? >> we were racking our brains.

we've had prime ministers unable to sack ministers they've wanted to in the past. tony blair wanted to get rid of brown at certain points but wasn't able to do it. darling, of course. but this scenario where it was lined up. then they talked themselves into a bigger job title i don't think there's much precedence for that and it does show of course her ongoing weakness, her inability to get her plans in action to get the cabinet around her that she wants. now we're seeing with these very headlines, with the dates coming out in this winter, flu crisis. seems ens every year but worse than ever, is potentially damaging. phrases like her winter of discontent. there is a chance to refresh the team running the health service. it is such a politically sensitive issue. she missed that opportunity.

she still seems worse than ever, is potentially in charge. they're going to hope that they can keep this under control. >> there it is. seven out of ten currencies rising against the pound. the dollar, the fraverpbing, the canadian dollar falling. what sort of view can we expect? >> the performance is certainly consistent. we do expect the pound to hold its ground against the dollar, actually track euro higher against the dollar. part of the view that european currency still very much undervalued and still on the course to regain and correct that. however, the pound could do relatively well against the high yielding down the road. however more of a reflection of the slowdown in asia more than anything else. e pound versus the euro back in the moment. some, political surrounding

ifment, in the moment. but we expect it start abating. i guess very near term what i should highlight is that there is evidence of a slowdown or weakness in domestic demands. so that's going to man stest itself in weaker retail sales next week may suggest the pound will struggle to perform. i guess in the case of cable, the combination of euro dollar and sterling here so that's less easy to look -- easy to call. but i don't think that the pound may struggle in the near term in the back of renewed weakness. since june 4, 2016. we know what happened that day. final question on brexit, i suppose the most interesting argument of the week since june we know what happened that has financial services, what part they take on the deal. ermany says you've got to pay.

but say -- is that basically where we are? >> this is one of the big arguments as we go into the trade talks that will start in a few weeks time with the transition agreement being agreed. what is going to be the ability for banks in the u.k. to do business in the european union. it's the big lever that britain thinks it's got because we have london. cial center in but this is a really lucrative business that other parts of europe want to have a piece of as well. so it will be one of the main areas for debate. germany laying out its stall this week saying you've got to pay for access. britain going to germany to try to argue their case. it's a negotiation. we're going to see how things pang out. >> and it's just -- pan out. > and it's just beginning.

coming up, could a second referendum be the answer to the current complexities of brexit? nigel certainly thinks so. that conversation next. this is bloomberg.

is setting is setting london may need another referendum. this call has been backed by london of the lee campaign.

the member of the house of lords, he's also a time columnist. are you behind the idea of a second referendum? >> i wouldn't mind myself but i don't think it's a very good idea. if you try and think about why nigel might want one you can see. basically, the moment he having been center stage he can see he is going to have to spend the his life with this. he, hope for another referendum might put him in the spotlight again. ile raising the issue he then, pulled back from it, so his aim i think will be to sort of entice a second referendum and then complain about it. my view is the whole of parliament promised perhaps that there would be a referendum. people would be allowed to decide and then implement the result. particle tarnles which i'm one

in this respect, cannot i think honorably go back on that. if there was a massic public demabbed for a second referendum -- and nigel isn't putting himself at the head of that -- it might feel change the situation where you feel honorably you could do so. however, i think that speaking from someone who offered a referendum and asked for a decision, i don't think it would be possible to go back obthat. >> if the economy starts tanking in the next 12 months. >> yes. >> might that be? >> it's possible although people would have to ascribe that to brexit and they might not.

they might say it was to do with the government's handling of public spending today. i think we should be careful of believing that much is going to change before we leave the european union that will produce a substantial change in public opinion. every so often we have these polls that suggest there's been a move one way and then another way. >> there was a vote, remainers would win? >> i was pretty worried about that poll in terms of weighting. but in terms of the fact you get other polls going the other way. so i don't think we should -- if you think, if there's one public figure who advocated leaving the european union who now doesn't, you know, you can see that the broad thrust of opinions haven't really changed. so i don't suppose they have, either. because none of the facts -- we all argued this would damage the economy. i argued that before the referendum. so it's not my anticipation that this is what's going to happen. >> what about the labor party? we'll use the word ambiguous, over brexit. they have said they they might say it was to do with the government's don't wan another referendum. what if they were behind the notion of another referendum? >> obviously that would change things a lot. you're focusing now on the

right issue. what is the labor party going to do? they've really got three options. one is to reverse brexit. the second is an off the shelf single market arrangement. they replace any deal. and the third is in some form allowing the government deal to go through. they could do any of those things. i think voting against or abstaining but letting the government still go through is the most likely option. may be accompanied with them icking their heels in on customs union. but i think it is unlikely they will call for a second referendum partly because they don't want to upset voters. jeremy corbin never wanted to be in the eu and now they seem to be split on whether they want a single package. i think it was second for what he called on the issue of the single market where he appeared to reject the idea of just

taking a package joining the eu which is the only way i can see they could amepped. >> we can't avoid the reshuffle which has been called all sorts of unsavory terms. >> i'm not a big believerer in reshuffles. >> was the point pr, as the labor party said? >> i don't think it makes much difference. it's not entirely p.r. the second day was very important in terms of bringing and all of the junior ministers who you hope will have a rising career. in the cabinet reshuffle i think it probably would have hunt to swap clark and because ink jeremy hunt is reaching the end of his relationship with interest groups. if you're looking for somebody who can get positive change while still keeping interest

groups, he's quite hunt because ink jeremy hunt is good at he end of that. in the end because they were trying to move ministers around in a way that would vo made a marginal difference, they didn't succeed in doing that. it is right at the end to say it didn't make much difference and even probably had she done everything she wanted to. >> on the issue of jeremy hunt the health secretary, who managed to keep good at that. his job and get a bigger brief, what about this story? w do you solve the massive elephant in the room? this is the nhs. >> i've been a treasury orthodox elephant view. but i've changed my mind. i think in the end the only way we can settle this is by coming to some sort of national consensus about how much money we're willing to spend on health. the end is about how much money we're willing to spend per head. because you could spend 100% of income on all the health care treatments available. so we have to have some sort of

view. and how are we going to settle this unless we have some sort of clear view on who is paying and how much? so i've moved away from the orthodox view which is don't have special taxes. i'm now more of an advocate of those. the gft should be looking forward a -- the government should be looking for a way to reate a clear relationship between the two. if you do that, of course, there's strong reform. i'm a firm believer in the national health service because there's huge failings in the insurance market. so between the i've always been in but i do think we need to visit this link between tax and spending. if jeremy corbin continues to bang on about the underfunding, the issues which ve been all over the news in y recent days, as he manages to try and keep brexit on the side and he makes the continual issue. is that ab election winner in

itself? >> no. >> takes place. >> recent days, as i certainly thi strong issue for the labe our party. you always try to increase the issues important to you. you can see there's a link in pulse. his focus groups, for example, they're more favorable to corbin the higher up their list. so this is strong for labebour. it's a strong issue for them. i think in the end real wages are the strong determine nant. >> which have fairly budged since before the recession. >> in 2015, real wages were going up. in 2017 they were going down, and the gap between conservative and labor closed more. in 2015 they won a majority. you can make public services the big central thrust. if i were labor i would be inclined to do that more in time when i wasn't -- when the economy wasn't going in my direction. at the moment for them i would

do kind of performance because that's what political science says you should do. the political science says if the economy is in your direction you press on the economy. >> final question. i know you're a big football fan. love your column. can they win the quadruple? >> it's very, very difficult because you can make public they've got about sort of a 10% chance. they've got a 2%. it's nearly a 100% chance. >> incredible. >> but once you begin to multiply the other three portions you're getting down into the 4 or 5%, very, very high for the quadruple. for united, it was small. it's very, very high but still there's more than a 95% chance it won't happen. us today. or joining of course, times columnist. next up we'll talk about the

brifment. this is bloomberg.

>> economics finance politics,

this is bloomberg. let's bring another voice into the conversation joining us now to share his thoughts on a second brexit referendum. committee, reviewing political polling. thanks for joining us today. the britishion i say what's another referendum? >> i think the indications are no if you take yesterday's poll for the daily mirror, the indication is that people don't want another referendum. >> that poll also said if there was one, the remain camp would win. do you concur? >> no. accurate o h more poll would be a consistent thread which has shown the margin between leave and remain poll is down roughly between 1 and 2%. that gnificant thing is

the last poll showed a remain lead of 2%, which is exactly what the larger poll showed in 2016. so i think there's been that the last poll showed a remain lead of virtually no shift whatsoever in views overall. >> what would have to happen for another referendum to take place? we were just talking to daniel, of course you know him, and he was discussing the importance view labor party and its on a referendum? > i concur with what he said but i would say if we are going have another referendum it's not going to be engineered by the likes of tony blair who was toxic to large parts of the population. it will happen by accident rather than design and under a series of chance circumstances. but on balance i don't think either the population wants it and certainly the government doesn't. >> it's been an i want resting week with the earlier in the

week the cabinet reshuffle. how is prime minister may standing in what's been a tricky start to the year? >> i think it's not strong. she had a bad autumn starting with things like the tory following the general election. she looked as if she regained her poise by the completion of the european state following th negotiations but the first day the reshuffle and the nas problems have been a problem for her. >> robert hayward thanks for joining us today. tom: this morning the u.s.

dollar is weaker against any and all gold.

the euro is strengthening. it is morning in europe and the very as well. chancellor merkel speaking in germany on her new coalition. and president trump hates haiti. foulmouthed phrase. he saves the best for the american embassy in london. it's president obama's faults. nejra in london. francine lacqua is that nine elms, taking in the view. where is nine elms? nejra: it is actually right on the river. road. windy the telegraph said. this decision actually went back to george bush. what is the real story here.

at 10re the cats saying downing street? nejra: theresa may actually made a little bit of a mistake in inviting president trump to london. he did say if the president more to come to the city he would likely be met with peaceful protests. maybe the decision was more to do with that. you are right, tom. president trump gave the credit to obama for that decision, but the decision to move the embassy came under president bush. tom: it is a gossipy friday. brad hintz will be with us in the next hour. here's taylor riggs. taylor: in germany there is a preliminary agreement after four months of a political stalemate. kids angela merkel and the social democratic party have a tentative plan to form a new government. the deal includes more

government involvement in education and changes to health insurance but no tax hike. discussing immigration. the president used foul language while asking lawmakers where the helping in certain places in othe and not others. president trump has decided to extend sanctions relief to iran again. the white house will announce today that the president will leave the 2015 nuclear accord intact, giving the administration and congress time to develop legislation imposing new restrictions on iran. capped a year of strong trade growth with exports at 11% last month. that is a sign that demand for chinese products is holding up.

slowed to imports 4.5%. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. equities, bonds, currencies and commodities. the dollar weakness is the story today. the futures are up 5%. there is the euro, 1.21. screen, if you would. the equity markets continue to move higher, 9.69 on the vix. the two year yields, really buttressed up against 2%. 2% would be a landmark print for the two year yield. nejra: i'm looking at european equities. u.s. stocks and asian stocks are a hardwar bit higher, but are tg

water. tom: look at sterling. nejra: yeah, i know! this could be largely because of the broad-based dollar weakness. sterling has broken through 1.36. yieldsyear bund still 68 basis points. tom: this is the bloomberg dollar index, and we have shown this many that many points. we are at a critical point. here is 2014 and up we go. here's the recent dollar weakness and we come up once, we come up to her twice and we rollover a commonality critical point coming down on the support of recent dollar weakness. nejra: i have got a euro chart, showing the euro-dollar could some resistance.

but it has broken 1 past that resistance,.2123. ecbgains begin after the accounts made investors think we would get a faster tightening, and we have seen further gains on german politics. i am wondering how much higher this can go before it starts hitting that resistance full the after more than 24 hours of there has been a breakthrough in europe. the social democrats have seemingly reached a deal with angela merkel that will allow moves towards a coalition government. they had been without an official government for four surgedand the euro to a three-month high in reaction. during is now is matt miller. welcome both of you. great to see you, matt.

we got this news today, impacting the euro. and to a lesser extent, german bunds. when could this get confirmed and will the coalition happen? matt: these are preliminary talks. on january 21, the spd has got to put the preliminary talks to a vote on the party level before they can move to actual talks come actual negotiation's. then they will have to go to the party level again if they agree on a coalition after that. it will not be until march or april until germany has a new government. what could be the stumbling blocks between now and then? matt: the interesting thing is they agree on so much already. clearly theuy have been working together -- clearly they have been working together for the last four years 30 will. csu,sister party, the

wants to avoid getting flanked on the right by the afd. so, they are insisting on a 200,000 person cap in immigration. immigration is the most important issue for the germans as well, but there are a cup all other issues they need to deal with. for example, environmental issues. they have the diesel scandal to deal with. andely, martin schulz angela merkel agree. they want to strengthen european unity and they want to work together on that. nejra: we have also got pictures there of martin schulz actually speaking in berlin. jpmorgan, let me turn to you. this reaction in the euro is interesting because i have had a lot of people say they are not pricing in a lot of political risk around germany. is this momentum building from yesterday, or is it specific to this german news? has certainly helped.

the fact that we are beginning to see the formation of a government that potentially would refocus on the european , those are adding to the positive story in europe at the moment. we have had good data out of germany recently. factory numbers in production are very strong. europe is growing profamily above trend. at the beginning of the week we also saw the ecb minutes, suggesting a slightly august him. he euro is still coming from a position of being undervalued. instead we are reflecting a positive and growing economic story within the eurozone. nejra: so, we will fairly price that. >> it is still undervalued, but moving in the right direction. tom: matt, i know you have got

the lamborghini driving the 360 .miles south of munich how far is bavaria from berlin? woodrow the divisions within germany that have led to the ntunning delay i forming a government. matt: driving is five and a half hours, but i can make it in four and a half. politically, it is a big difference. bavaria is a much more -- i don't want to say right wing, but much more center-right political environment than berlin or even frankfurt. tot is why they have got appease those voters, not to move them to the afd. it looked like they have done that. martin schulz says the votes to conclude the preliminary talks

was unanimous. thatso heard from bavaria they are pleased with the agreement. it does not look like they will have much of an issue with the immigration problem. solutionimmigration was to bring in a lot of people from turkey. 40 yearshat from 20 to ago. you mentioned immigration before. how related is this set of younger politicians in the immigration and migration to their ancestors? what is the immigration debate within germany compared to 20 or 30 years ago? is pretty, the debate stark and the issues are on the one hand, germany still feels it has an obligation after world war ii and the atrocities that country to humanity, to accept these refugees. they areher hand,

worried about things, like the terror attack we saw at the christmas market last year. some people think those issues are tied together. tom: to get back to the euro dynamics and our market theme for the day, which is dollar weakness against everybody else out there. where does this coalition want the euro to be? is best for of euro angela merkel? matt: i think they would fall back on the old jean-claude trichet line from 2006. they don't care about the absolute level of the euro, but the rate of change. it has been pretty quick. i moved here a year ago with a euro-dollar 1.44. that is a pretty quick rise and you might see the ecb pushing back. tom: matt miller, i look forward

to a beverage of your choice next sunday. matt miller, he is in london. john bilson with us from jpmorgan as well and we will continue with a look at the american economy and thinking as well. ellen zentner joins us from morgan stanley. we speak on president trump's 3% % of american gdp. within the next hour, it is ellen zentner. stay with us. ♪

taylor: this is "bloomberg surveillance," and i'm taylor riggs. mark zuckerberg has unveiled

major changes to the social network. peeds willsers new s be shifted back to posts from friends and family. earningsry sales in growth that missed estimates. revenue was up almost 5%. vivendi numbers were dragged down. in about a year, and they plan for sale five device in the u.s.. y enter one dozen u.s. cities this year. tom: we are going to talk here -- we are worried about exiting too soon from the market.

sophia, what are you looking at from the american banks this morning. today the focus will be on taxes. a lot of these banks already said they would take quite a tax hit. a lot of this has been flagged, but any guidance on their tax guidance on, any how they think it will affect more broadly the u.s. economy and markets generally -- capital markets and m&a, that is what we are looking at. we got a little bit of guidance by the beginning of december from bank of america. that trading will probably drop again for this last quarter. 15%, that is what they are guiding. tom: what is fascinating is walmart got absolutely whipped yesterday. they come out and everybody gets $1000, rah, rah, rah.

and x number of hours later, they close a bunch of sam's clubs, putting thousands of people out of work. the banks need to do the same policy as well. they cannot look to successful, can they? >> for profits, we almost at things, especially in europe -- the case in the u.s. is not as strong because they cleaned up. they managed to handle their squeeze on profits much better than they did here in europe. i think we are past that phase where banks have to do more layoffs. remember last quarter we had a few concerns around credit agricole. he mentioned walmart. maybe the consumer is not doing as well as we thought. maybe they have taken on this debt, which could be a bit risky within the next few years. the fourth quarter

is generally known as a noisy quarter. when we get those figures from jpmorgan, how do we cut out the noise. >> we know that jpmorgan has already told us they will have billiontment of $2 because of the tax reform. it is going to be a very difficult earnings segment. reporters in europe have got to in the that at 6:45 morning. the key here is what is management saying regarding how this affects their topline going forward? us hownything that tells they are looking at the economy, are they getting positive about it, do they think the tax reforms will impact growth at all? it is going to be a difficult quarter to look at.

bankser, the shares of have been doing superbly well the last year, partly because of where interest rates were going to go and now because of this tax reform. so, now any disappointment? the market is pricing in anything along those lines and it could be a risk. nejra: how do the banks figure into your assessment of u.s. equities? >> i think all sectors are important. the thing to remember about the s&p 500 is that it is a balanced index. i think what is important to take away and i agree with the joint about the fourth quarter being noisy across the board. i think what is crucially important is to recognize this could be -- 2018 could be the second year running where they

delivered earnings across the index actually live up to analysts expectations. that is unprecedented. as a result, the earnings delivery is beginning to come through. it is beginning to challenge to those who have been pointing to the motion. the price settings ratio stays. the expectation of earnings in the u.s. is only 10.8% on aggregate. the expectation to be that -- tom: that is right where i want to go, john. we will come back with that optimism as well. john bilton, jpmorgan asset sofia horta e costa. it is a great day for banking. we get to talk to one bonus round, not one, but two smart people.

wells fargo on radio. hour, with ellen hintz of nyu.ad stay with us. ♪

nejra: i am nejra cehic in london with tom keene in new york. as the euro hits fresh highs against the u.s. dollar, the next focal point for the currency pair is the u.s. cpi

data out at 1:30 london time. during us now is john bilton, global head of multi-asset strategy. how high is inflation risk to the upside for 2018? >> if you look at the trajectory of earnings and the general level of growth in the u.s., which is still a little above trend, and the fact we have significant global themes, they tend to damper wage demand. it is great that cpi has picked up. that means the concern we had during the middle part of last year, we were worried we would slip into disinflation. let's look at the facts. at 2.2% last time. that is a 60 basis point swing.

10%u.s. in 1932 was under and the hyatt 1954 was nearly 20%. a 60 basis point swing is a very be nine inflation backdrop. to be fair, with strong growth and inflation recovering towards the target, the fed should be pleased with what they have achieved and the trajectory of inflation, even with breakevens picking up to thend the 2%, suggests trajectory is stable. stay: john bilton will with us. for more bloomberg stories, pick up the latest addition for "bloomberg businessweek." this is bloomberg. ♪ .

♪ tom: good friday. an exceptionally busy friday. ine.a cehic in for franc let's get to the first word news

with taylor riggs. >> president trump will not say whether or not he has spoken to kim jong-un, the president refused to comment when asked but said he probably has a very good relationship with the dictator. has received a study on steel imports that could lead to tariffs, the commerce department put together the report on whether foreign steel shipments are harming national security. the president has 90 days to decide whether to impose tariffs are enter into talks with foreign steel producers. is moving some production back to the u.s. in the wake of the tax cuts, they will send more than $1 billion and add $2500 in a factory near detroit to make ram pickups now built in mexico. send $2000 checks to about 60,000 workers in the u.s. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries.

i am taylor riggs. this is bloomberg. tom: thank you. every day i say this, and extraordinary 24 hours. tell me what i could and could not say on radio and tv. he is from ohio, senator portman's ohio. read studied under ron round. wonderful to speak you -- ron brown a. where is the republicans run round -- ron brown? >> the president is not sitting good advice because there are opportunities for him to do well. you heard about the checks going to workers. he needs to focus on what matters, instead of distraction

but this may be his political calculus and maybe in four years he will find out if it will work. tom: let's go to the new york times, michael greenbaum, one phrase that goes to the moment, the idea that the president's remarks and the speed with which they have entered the public domain are a new test for media outlets, especially when the comments reveal privately held beliefs of the commander-in-chief. the comment in this case in the contest of discussion on immigration was widely seen as evidence of prejudice. the speed, president clinton did not have to deal with it and al gore, george bush senior did not have to deal with it, is the number one determinant, take the phone away from them so he does not kill himself every day on twitter? >> presidents have always made outrageous comments. ,t is the test of history

richard nixon and other presidents did it and it was after their presidency that we found out. the real issue is the speed we get this information. people are focusing too much on the outrage, all presidents have done this a we are getting the information in real time, which means you must react in real-time. i think people are focusing too much on what he is saying because he is a distraction and you need to look at the policy behind his rhetoric. i have said this from the beginning, he has policy behind the rhetoric and people focus too much on the rhetoric instead of how to defeat the policies. tom: you want to defeat the policies, i think of leon panetta as across both aisles and with a lot of respect in washington, what is the prescription for general kelly to get his policy back on track? >> i sympathize with general kelly, he has served his country and this is one of the greatest missions. you have to insert discipline, that is the most difficult thing

about the presidency, no discipline from the top. the staff has a message they want to stay focused on but the president brings the to the opposite side. then -- them to the opposite side. i look at what he will do on steel, i think you will pull us out of nafta, i look at workforce housing over this year , he could have some success, if he would stop tripping on his own message. tom: this is so important, he says it better than i did, discipline within american politics. that is a huge factor whether republican or democrat, and i go over to ron brown, leon panetta, general kelly, disciplinarians within their own parties and that is what this debate is about. nejra: morris, i love the point you made that we need to stop the -- start the focus on the policy, do you think that is

what investors are doing? if president trump keeps pointing out himself, u.s. equities at fresh record highs. >> absolutely, companies are focusing on how this can work for them, banking stocks doing well and will continue to do well because this is a president that believes in deregulation. that is what you will see success in workforce housing as banks make more money they will put it on the street. steel companies, the manufacturers are looking at what they can get done with this president and not looking at him personally. from a political standpoint, when democrats focus on issues, they beat this president but when they focus on the personal, they lose. nejra: i want to get your point of view on president trump going to davos. what is the political catalyst behind this? >> an opportunity to change the narrative, it is the biggest stage in the world for him besides the united nations speech. he fumbled his opportunity to

send a clear and change the narrative when he spoke at the united nations last year that this is his opportunity to step his mark on the global narrative. he can either focus and say i am a different president, but i am still open to ideas, or i am a different president and i do not care what you think. tom: you came out of ohio, akron, ohio, it got along with manufacturing. what is your democratic party need to do to reconnect with akron, ohio? , weelieve in the process cannot have a situation where it seems we are gender and mandarin a process of running -- gerrymandering a process for running for president. we have to have a candidate who focuses on aspirational issues and be relatable. i know what the folks of akron , and make, security sure their children have a brighter future. that is what all americans want, ohio, missouri, florida.

democrats need to go back to the process and reconnect, stop slicing and dicing the demographics and focus on the fundamental image -- fundamental issues. appreciated, -- appreciate it, morris reid. departmenthemistry from bristol, he sat there at 3:00 p.m. on friday afternoon and said trickle-down, trickle-down, i have to go to a party, trickle-down, john bilton do you believe in trickle-down economics? is -- does it work? it depends on what side of the political narrative you are basis ofht the broad any well functioning economy is it should be one that is creating jobs, has reasonable credit, reasonable economic momentum and is generally adding to welfare. you will not get that in a

situation where the economy is going backwards. ensuring the focus on stability within the market and making sure we have a reasonable and pragmatic set of policies out of the likes of the fed and other policymakers is going to add to that. to be fair, i will defer to political analysts on whether there is proof to trickle-down economics but as an investor and analyst, i would find that a growing economy tends to be a better are come for all who are participants in it. nejra: let's go back to immigration, the fact that the concern about this immigration deal are the deadline pressure when it comes to the government shutdown. how focused are you on the possibility of that? john: immigration will be a discussion that will be with us for here on in. it has been a generation before us. the fact of the matter is, advanced economies require workers. in many advanced economies, the

workforce is shrinking. long-term capital market assumptions, 10-15 year look at the world, japan, parts of europe actually have a little bit of a headwind coming from shrieking populations. the extent to which that is supported by immigration of workers from other countries, that is something which has a political angle to it and the reality is that, if you have a shrinking workforce, it will be a headwind to your economy. clearly, it is up to politicians to manage that immigration flow in an appropriate fashion. but the notion that immigration is not an economic good, i think is why the remark. keep aion you need to growing workforce is important as a bedrock to economic growth. of jpmorganlton with us and i want to get your optimistic message of not exiting early with the dow moving up each day. you see the data checks on bloomberg radio worldwide, she

is internationally famous, karen moskow with the best data checks. she does a complete job. , newberg daybreak: europe york, boston, san francisco, washington, good morning, radio london, this is bloomberg. ♪

♪ nejra: i am nejra cehic in london with tom keene in new york. facebook has announced it is making changes to its flagship social network by shifting newsfeeds to posts from friends and families and away from businesses and media outlets as lawmakers berated facebook, google, and twitter for failing to prevent russia manipulation on their platform during the election. joining us is our europe tech

editor and john bilton from jpmorgan. facebook,ard from this transition is likely to mean people spend less time on the site, are they taking the long view? >> yes, mark zuckerberg has been clear this is a risk to short-term user engagement. the idea is that it will give people a better experience on facebook. rather than people coming on and spending time on their watching videos and media companies have tolished, they will come interact more with friends and see more from their families. long-term, the hope is that it is better for facebook and makes it a more attractive people to go. a huge part is the fact we have seen a huge influx in toxic content, fake news, people are getting sick of it. this is a step to address it.

nejra: will the advertising companies by this? >> we think ad content is separate, this is affecting contact organically and without financial backing appearing in the newsfeeds, stuff companies post, it is not going to affect the flag -- fact that companies can take to have content appear in newsfeeds. my personal view is that it could be better for the companies, because if you see your organic appearances of media content in your newsfeed, the paid media content you do see has a more likely chance of standing out and being seen. nejra: john, let me ring yuan to talk fang sox, we know about -- stocks, how do you look at the elections that valuations? 9 >> technology is a super cycle trend, it will going to be with us in this generation and the out, aneration, one rule

notion that we overestimate the impact of new technology in the short run and underestimate its effect in the long run. if you look at technology today, what characterizes this technology run from the one we saw in the 1990's is that these are real companies with real cash flows and real earnings. they can be valued in the standard equity framework. price-earnings means tries earnings today, in the early 2000's, it met price to eyeball or some other serious metric. real businesses and a trend likely to be with us over the next 10-15 years of investing. tom: i want to translate what i think i have for from you but i am too old to go with the hip, digital lingo. it sounds to me like video is not working. on facebook, they are tossing a ton of video out to people and people are going, maybe not. what is my friend doing?

is that the backstory? >> video has been such a growing and important part of what facebook is trying to do that it has drowned out what they were initially trying to do. some advertisers have gone away from facebook and more towards youtube because they have a higher chance of getting -- getting it seen. tom: exactly, if i will do the digital battle for the next 24 or 60 months, is an you do like the arch competitor -- isn't youtube like the art competitor of twitter, facebook? >> youtube is up there, they have had problems with content and terms of their top creators are doing which is not good for youtube. it may be points towards the fact that some of the other rivals, messaging apps and purely mobile players will see a benefit from this.

,ejra: i have a question, john i love the point you made when you say we overestimate technology in the short term and underestimates it any long-term. are investors doing that with bit going and cryptocurrencies -- bitcoin and cryptocurrencies? >> the technology behind that is interesting, what bitcoin does is not a broad multi-asset investment but we look at different regions and sectors within traditional markets. to us isnteresting what blockchain technology may mean for important, real economy sectors, insurance industry, financial industry, etc. that is what is exciting. tom: john bilton got through that question nicely as jamie dimon goes back and forth on what he thinks on it goin -- bitcoin. , your morning briefing,

if you are at jpmorgan, you can look at john bilton and get up to speed. even better, you can click over here, here is nejra cehic's chart on euro and my chart on euro, bonus round, you can take those charts to your desk to dazzle john bilton in your 11:00 a.m. meeting. this is bloomberg. ♪

♪ >> this is bloomberg surveillance. is making it clear that cost-cutting will still be a priority. they say they will close 63 sam's club warehouse locations. the announcement came the same date walmart boosted starting pay to $11 for our. pitney bowes is having interest from buyout firms, according to people familiar with the matter, the couple he preliminary talks with the firm's last month. the new bose products include postage meters and e-commerce software. a parent of saint laurent and eugene has decided its expertise does not extend to sport shoemakers, a french luxury group will give up control of

puma, and distribute 70% of its shares to investors. tom: thank you. one of the great truths of bloomberg surveillance is we show you the same charts because they are good charts. let'silton of jpmorgan, look at a chart we have used and used within this historic rally. thank you for the huge response. up we go but nowhere near the exuberance of 1999. that would be the equivalent of 38,000.t, 38,000 -- dow you say the risk of exiting too early, how do i find the correct to stay in a market where the rsi is back to where it was in 1904? john: you look at what is

driving the market and pick apart some of the received wisdom's. you need earnings to drive a market. at the moment, earnings are coming through and being delivered. the outlook for earnings, given the economic momentum, looks good. , allreadth of the market sectors you would expect to be performing across the cyclicals in this phase of the cycle are generally holding up. third, the big elephant in the room, valuations. s&p 500 on forward pe is 18.5 times, over the last 25 years, the average pe is 15.5 so it is expensive to average. the peak is around 24.5. we are well below that and even if we take out the dot-com bubble, the averages 14.9 and the peak is 21. times three

price-earnings away from what you would consider an extended valuation. in our view, the conversation of valuations being full but not excessive, earnings momentum being good, and brett being good look to you that this is the time to stick to your guns and stick with the overweight in risk assets. , we within the comedy of are giving money to labor like we saw with walmart yesterday, is the reality of most tax profits will be distributed to shareholders in share buybacks and dividends? john: it is worth noting that if you look in terms of to sales across u.s. companies, it has held up well and not far off what you expect in the cycle. a bit of a dip within the resources sector because of the oil price slump but because of significant global liquidity, a pass back through dividends and buybacks, that is a feature that will continue. baron mind, when you think about buybacks and dividends, part of it is managing share count

because what happened in japan, companies courted cash and it pushed down -- ported cash and it -- where earnings are stable, it makes sense to continue to manage return on the wii outlook by keeping an eye on your share count. it is still reasonably healthy. nejra: speaking of bonds, the uber for equities over credit -- do you prefer equity over credits? >> you can't judge or make a judgment of where we are in the business cycle and we think we .re into the later cycle . late cycles can last a long time. , youyou get to the cycle have to play for late cycle dynamics which tends to favor equities.

reddit spreads should have reached close to their minimum. credit tends to be an asset that delivers outside of these -- recessions but does not have the upside potential that equities will give you. yes, we prefer stocks to credit. we prefer credit to government bonds. tom: john bilton, optimistic briefing, from j.p. morgan asset management in london. a friday, not job state but us, weken leon joins love talking to him about the granularity of what we see from j.p. morgan and wells fargo. brad hintz of nyu next. ♪

♪ this morning, the dollar is weaker against any and all with gold advancing in euro funding rate strength. it is morning in europe.

president -- the president will go to the world economic forum. two gary cohn's piano bar. , foul mouth rates -- phrase present in ribbon-cutting at the new u.s. embassy in london canceled the cocktails. this is bloomberg surveillance. live from new york, bank day, i am tom keene with nejra cehic in london. the news flow is extraordinary. can you top this? the president tweets, he will not go to london for the ribbon cutting, is it because the queen would not meet with him? nejra: it is getting too much for my sensitive years. -- ears. the mayor of london says, if president trump wants to come to

london, he would be met with peaceful protests. hard to know what to make of this, we got bad comments from the presence that may be part of the reason we are getting attention around him coming to london. tom: maybe the president will look at the crown season one and season two to get a briefing on the united kingdom. let's get to the first word news with taylor riggs. >> and germany, a preliminary agreement, according to people familiar with the discussion, angela merkel and the social democratic party cap a tentative plan to form a new government, the deal includes more government involvement in education and changes to health insurance but no tax hike. the united nations calls president trump's remarks on haitian and african immigrants shocking and shameful. the president said using foul language why u.s. accepted immigrants from haiti, el

salvador, and africa and not norway and the white house does not dispute the quote. the president has decided to extend sanctions relief to our wrong. iran. the white house will announce the president will leave the 2015 nuclear accord intact which will give the immigration and congress time to develop legislation proposing new restrictions on iran. china has cap a year of strong trade growth was exports growing 11% last month, slightly higher than estimates, the demand for chinese products is holding up. import growth's slow to 4.5%. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. nejra: i just got some earnings coming through from blackrock. inflows atter, net

$54.8 billion, a beat on the estimate of $52.3 billion from a quarter ago. adjusted eps is beating estimates, fourth-quarter revenue beat the estimate. number issa was a beat, $6.24 versus an estimate of $5.90. boosting the quarterly dividend. tom: i went through a statement and extraordinary return. allen's inner -- we brought in the professor from new york university, brad hintz, we have to rip up the script, this is a virtuous cycle where it feeds on itself, blackrock was solid double these are revenue growth, acid growth, equities are rising -- asset growth, equities arising, but it

begins to be like 2006. what is different now? >> rising interest rates. that is one effect that is doing it. you are right, we have a lot of activity with retail investors jumping into the marketplace. there is an enthusiasm, comments about the market are on the front page of usa today. which is the average american is getting enthusiastic about the market, that is very good. are we getting into a bubble environment? this is good. we have economies picking up around the world, that is the fundamental. rates are rising modestly. that will not cut off things too fast. earnings, you cannot comment on individual stocks but on this observation of him on the and duty of rising

interest rates, rates are rising, what was me, you have made your name and claim saying that you can have rate increases that are good and a good signal of an economy, is that where we are? , corporate's investing because organically it makes sense to invest now which was re: having before tax policy gave more tailwind to that. investing partly because interest rates are rising which encourages risk-taking. on the part of corporate's. for households, this is different than prior cycles, household are in a balance sheet of a fixed rate. tom: what all of our audience wants to know is, you made your name at morgan stanley by being right, right about tepid gdp and a fed that would wait, have you shifted? >> we expect three hikes this year and we called for one in

2015 and one in 2016. three in 2017. we have been getting it right but at some point we will be wrong. if we are wrong on rate hikes this year, we will get more hikes than expected. if you are governor jay powell coming into the chair seat this year, you are looking at headlines around bitcoin and equities that continue to rise. low inflation will only give you so much comfort, you will not sit on your hands and do nothing , so they deliver a hike in march, june, and september. the question in september, do they go in december and what will answer the question is -- what is the yield curve look like at that point? if it is flat, threatening and version, you will have a strong opposition of the fed to going further. that will be a key decision point by september. nejra: if we do get to the end of the hiking cycle at the end of 2018, what does it mean for

u.s. equities -- the they continue to go higher or do we see a stop to the bull market because there is concerns around growth, for example? brad: it continues for a while. you are seeing the end of the cycle at that point. let's recognize why rates rise, they are rising because we have a booming economy, which helps the equity market. i had a macroeconomics professor at wharton when i went there when the pterodactyls were flying the earth, he described asning monetary policy driving a car looking in the rearview mirror with the panel changing size all the time. in other words, it is not a science.

the issue as you look further out, the uncertainty about what will happen to the economy its greater and greater. -- gets greater and greater. i'm sure your crystal ball is right. >> at some point, crystal balls are always wrong. nejra: it can become a circular argument that should the fed be looking more at where it equity markets are now in judging the next steps? >> they have looked at equity markets in a sense they always look at the aggregate of financial conditions. equity markets play an important role in that. we have seen them hike several times, yet financial conditions broadly are still very easy. that tells them they have not done any hikes that threaten to damage the outlook and they can keep going. chairt, i believe that a jay powell will adopt a similar stance as the new york fed president deadly, and that we

keep hiking if financial conditions are easy and markets will let us know when we have gone too far. tom: you had a lot of history in your reports at sanford bernstein, the black books, you steal them and say this is what he thinks about the history, what is the history about the banks if we get her three and four rate increases? brad: earnings for the banks largely regional book it better. -- will get better. i think we are getting too close to be an equity analyst, i am not allowed to do that kind of forecasting. allowed to the mergers, yes, that would make some sense. i cannot talk about individual names. tom: he is in an ivory time are now. c's out thisany

quarter? brad: yes. you are tough, i have heard this. there has been tears in the food court, "the professor is so cruel." bitcoin from in white --brad hintz from nyu. up,ta check, that is coming a guess from general motors in the -- guest from set -- general motors. futures advanced. the dow out to the record. two-year yields will touch 2%. with ellen zentner onset. this is bloomberg. ♪

♪ taylor: let's get to the bloomberg business/. mark zuckerberg has unveiled major changes to facebook, and it may mean people spend less time on the site, the newsfeeds will now be shifted back to posts from friends and families and away from businesses and media outlets. 70 reported preliminary sales and earnings growth for last year that missed estimates, revenue up almost 5% while even the climb 20%, 20 -- tom: let's go to our chief washington correspondent kevin cirilli on a friday after a wild thursday. michael wolff's book is sold out

and he needs a new addition with new chapters at the backend. who will control this uncontrollable president? >> there is no white house press briefing today scheduled as resources telling bloomberg news about the private meeting with president trump and lawmakers earlier this week where he referred to countries like haiti, el salvador, and other african nations as expletive countries. is mondayher king day and this is the eve of the 300,000 folks devastated by the haitian earthquake and the haitian government officials are demanding a meeting with white house officials because they are nervous there will be protests. countryout this, devastated by an earthquake is worried that the comments of the president of the united states of america will spark protests. tom: what is the response in the white house?

you do not see this off-camera, but the president put than a three hour working day. what is the backstory at the white house? what is the response over the last eight hours? words for their level of frustration at all. frustration is an understatement. nejra: it is extraordinary. i almost had a sharp intake of breath when i thought you were going to say the expletive, we all know what it is. no press briefing scheduled. could we see something next week or will it take -- how far does it have to go to get a reaction? kevin: for folks watching around the world, most americans have the day off on monday in the honor of martin luther king day. coveredback to when i the response to the

charlottesville protest and the press conference that president trump gate at trump tower in new york city following charlottesville. when we will hear from the president himself remains to be seen. right now, no public events scheduled with an opportunity to hear from the president about his comments. tom: i will not make a joke about it given the news flow, the news -- joke about the davos entourage, where this nation is going in terms of the white house. megan mcardle with a nice sum up in bloomberg view, why stay with the administration? any sort of person becoming a policymaker, no master plan to catch the president extremely limited attention bandwidth. true whether you are a make america great again, make america first, or a conventional -- conventional

republican, how many are going to volunteer to lean into the strike zone and take one for the team? right,she gets it especially the last line, people in the intelligence community i talk with and in the national security community who would echo her excellent and concise statement at the end that they feel they have a former deputy press to medication secretary to mitt romney presidential campaign. he said that this is before these reports came out, that these types of reports are quite aresaid -- our wide -- why mitt romney is considering running for senate. tom: can you get to 3% gdp? the president has a clarity about optimism of a sustained,

3%, 4% gdp, can you get there? >> not in our estimation, to sustain growth 3% or above, you have to have much, much faster growth in the labor force, which is pretty much a demographic issue. it is difficult to get above .5% growth in the labor force, which at 3% or sustain gdp greater, you have to have 2.5% productivity. we have a nice productivity story in the u.s. after five or six years of it being flat, we have a cyclical upturn which has led to higher productivity but around 1%, 1.5%, a more normal rate for productivity in this environment. i do not understand how you get to 3% on a sustained basis. there is not enough workers to attract that in the labor market to fill that demand. nejra: brad, when we talk about this expletive from president

trump, it goes back to the immigration debate which at the moment is slowing down. we have the possibility of a government shutdown a week away. if we focus on the possibility of a shutdown, how much of a concern is that? brad: very little. to fill theerful newspapers but it is highly unlikely people will allow that to occur. the republicans learned that a long time ago. it is a good story to talk about. tom: brad hintz, and we will get to earnings in a bit. jpmorgan beginning the season and ellen zentner with us from morgan stanley. olden buffett is 87 years and he talked about changing's desk changes at berkshire pickens willoone close and energy focus headphone

according to the wall street journal -- hedge fund according to the wall street journal. stay with us. this is bloomberg. ♪

and ♪ i am nejra cehic with tom keene. euro sitting a three-year high 121,e session, about started yesterday with the ecb

accounts and driven higher by german politics. broad dollar weakness and sterling on the front foot with a 19 month high. stocks treading water along with the 10 year bund yield. after negotiations, there has been a breakthrough in berlin, angela merkel's party and the social democrats have reached a democrat to allow leaders to move towards forming a coalition government. without an official government for four months. we are joined by our german government reporter. this is a preliminary deal. what does it mean for our global audience? >> there are still a few steps ahead but the form a coalition talks have not started. twosteps ahead are decisions which have to be taken -- the social democrats, on january 21 will decide to enter

on the basis of what has been agreed today, informal coalition talks -- in formal coalition talks, in march, april, all of the party members will decide whether a government will be formed. nejra: we have heard from european commission president just now that he is very happy with the german draft governing deal. is a likely they will be happy enough for the deal to close -- the spd? >> as it has been outlined so far, there are a few things in there be spd will like, moreurope, but they have spending for the eu. gotax issues, they have sort of more reduction of sociales of the

solidarity surcharge for incomes -- small and medium income earners. there are elements which the spd will like but they have a bigger problem, they are worried that another angela merkel coalition will squeeze them further in the public opinion. this is a decision spd members have to make, do they want another grand coalition which will make them not look good at the end, or will they run the risk of new elections? nejra: our -- thank you so much. for more stories, pick up the latest edition of bloomberg businessweek. 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. nejra: i am nejra cehic in london with tom keene in new york. francine lacqua has the day off. i want to recap the numbers from blackrock. beat,ed eps

fourth-quarter revenue beat, and fourth-quarter ishares net inflows higher than the previous quarter, and we are looking ahead to numbers from jpmorgan in about 15 minutes or so. tom: given the challenge, i will look to use of cash like the 15% increase of dividend. brad hintz and ellen zentner are with us. right now, our first word news. taylor: the united nations called president trump's remarks about haitian and african immigrants shocking and painful. he is said to have used foul language well asking why the u.s. accepted immigrants from africa but not from places like norway. sayident trump will not whether or not he has spoken with kim jong-un. he refused to comment when asked by "the wall street journal," but says he probably has a good relationship with the dictator.

president trump deceived a study on field imports that could lead to terrorists. whether together foreign shipments are harming national security. the president has 90 days on whether to impose tariffs were quotas, or enter into talks. fiat chrysler chrysler is moving some production back to the u.s. in the wake of the tax cut. they will spend more than $1 billion and add 2500 jobs in a factory near detroit that make ram pickups. fiat chrysler will also send $2000 checks to about 16,000 workers in the u.s. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you so much. we have two giants on the set with us, brad hintz and ellen zentner, so what we will do is

get to brad hintz in a bit with a banking briefing, but right now a briefing on the american economy. did we reach the state velocity? are we to a virtuous cycle for the american economy? ellen: i would argue the 2% growth that we have had for many ,ears leading up to this obviously it was fast enough to bring the unemployment rate down dramatically over several years. going forward, having the tailwind of tax policy, if done right and if we do sustain higher investment levels out of this, some better supply-side dynamics, then you can stretch the cycle for longer. since 2014n arguing this will be one of the longest expansions on record and a capex -- the -- fact that you have a late cycle consumer that now is getting higher take-home pay starting sometime in january, if you are

a business that can adjust withholding that quickly, but certainly by mid-february. i would like to see more from companies that they are raising permanent base pay. tom: rather than bonuses. ellen: we will take these one off bonuses but i would like to see it generate into higher pay. john herrmann at mufg has a single point estimate of 3.1% unemployment rate and it is out always as well. is the central bank of the united states ready for a 3.7, 3.4%, or 3.1% unemployment rate? i don't think -- it is not within their framework. their it is not within forecast and most economists' forecasts because getting down to the threes is scary. the reality is, regardless of how healthy the labor market is,

we have an incredible amount of downward pressure on labor force participation coming from aging populations moving further into old age groups. what does that mean? it means full employment is simply much lower than where we think it is. fomcolicymakers on the believe that the national rate of unemployment is much lower than where they pegged it to be, evident in the fact that we have -- 4.1% unemployment and disappointing pickup in wage growth. what they are prepared for and what they do believe will happen is that it is coming. the unemployment rate just has not gotten low enough yet, but the wage growth is coming. i like "the wall street journal" article from the week before last that looked at metropolitan areas in the u.s., and they found that where the unemployment rate dropped below

4% you see accelerating wage pressures. it is just a matter of time, and takes more downward pressure. tom: nejra, jump in. nejra: a matter of time and the curve keeps flattening. in terms of where the curve is going now, how much does that figure into that forecast? toen: the curve is going matter for monetary policy because as it flattens further and if it threatens to invert, you will see a growing number of voices on the fomc that push back and say, that is a red flag . an version of the yield curve has been a leading indicator of recession, and those voices is will get stronger as the curve flattened. a consensus right now is very much in line with what janet yellen presented in hurt you and day at the december meeting. a at thebank -- in q& december meeting.

if the yield curve is flatter, it can easily invert at times, and it is not an diverting because there is a bet investors are making that recession is coming. this will be the biggest debate on the fomc this year, and something that chair powell have to weigh in on. nejra: it was interesting that we started to see a touch more concern come through in the latest minutes, even though there is a fair amount of consensus. it was a bad year for the dollar last year, and some people are saying if we continue to see dollar weakness, that might have an impact on central banks elsewhere and how quickly they decide to tighten, if their currencies start doing the tightening for them. how could that feedback to the fed? ellen: actually, the weaker dollar, especially after two years of unprecedented rise in the dollar to a 16 year high, the fact that the dollar came off in 2017 and has remained

lower gives them more confidence that they will reach their 2% inflation goal sometime over the medium-term horizon. it ambled in about their inflation outlook, even as it may create a bit more to virgins and monetary policy between the fed and -- the virgin's -- divergence and monetary policy between the fed and other central banks. tom: the president is advantaged within his politics by a weaker dollar, right? ellen: it advantages the economy, certainly. tom: what is your run rate on gdp right now? ellen: potential gdp, long-term potential we still pegged at 1.5%, so we are growing well beyond that which means we will put downward pressure on unemployment. the reason why in my more simplified explanation, looking at this from a macro economic

perspective, what would be a catalyst for higher dollar? not the interest rate differential. central banks are way too transparent these days are there to be the interest rate differential and that is the single factor that drives fx. tom: do you have in your head as an economist away from the uproar of this week and bill gross and a bear market and all that, do you have a tip point on the 10 year yield, which shows a buoyant recovery in american economy that gets us away from vice chairman fisher's altra accommodative? ellen: we are still very much in an environment, and even though the economy is doing well and chugging along, long-term rates have been very disconnected from underlying growth in the economy when mobile central bank balance sheets start -- global central bank balance the -- balance sheets stop rising. you will have long-term rates under pressure, and that is just

the simple fact of it. the dollar will rise this year on the back of trade talk, protectionist talk. that could be headline risk around the state of the union address this month, but that could be a catalyst that will drive the dollar higher. it is interesting, because i was going to ask whether the long end of the curve could be a catalyst for dollar strength if we see it pick up, but you answered the question with a different driver for dollar strength. ellen: questions around the dollar have been dominating some of my client meetings, what could drive the dollar higher? when i think about catalysts, it will be driving at higher but for the wrong reasons through trade protectionist talk. you would see major trading partners of the u.s., their currencies would decline against the dollar and that would drive the trade weighted dollar higher. that is what the fed follows.

tom: ellen zentner with us for morgan stanley. we will have jpmorgan earnings and will put in perspective the size of the too big to fail american banks with brad hintz. you are captive in your car. with the morning briefing and good conversation on finance, economics, and the plowing's in washington. this is bloomberg. ♪

♪ tom: good morning, everyone, bloomberg "surveillance." nejra cehic in for francine.

they do a great job of getting earnings up here it brad hintz of sanford -- getting earnings up. brad hintz is here. my pet peeve on too big to fail. come on over to this green, and we forget -- the screen, and we forget how big these beasts are. 1.4 trillion dollars in deposits, $2.5 trillion in assets, they will make $100 billion in revenue. they will bring down 23 cagillion dollars as well. these are way bigger than the media to trail. brad: that is true, and if you are jamie, what do you do? tom: how do you move the needle when you are big as fortress moynahan or dimon? brad: you cannot do acquisitions.

you have to grow on your own, and that means good ideas. when we think of jpm, think of the sapphire card. excellent new product rolling successful, but how long is sort of an apple problem. how many world changing new products can you rollout? tom: you almost run these beasts. they have probably got 800,000 employees. these are almost the nation -- venetian ships of state from the 17th century, aren't they? brad: and their business model is very interesting. how many industrial companies have front to back integration? how many industrial companies do everything inside? the banks have a business model that is a throwback almost to the 1950's manufacturing. tom: when jamie dimon is a

conference call, how many direct reports does a guy like that have? not 10 or 20, like 50? brad: in the dozens certainly. the management committee is north of 12, so it is a big, sprawling enterprise. tom: is it a different enterprise than when christine harper was on the watch? brad: certainly bigger, yes. i think the real question is, jamie is i think i all measures has done a good job, that what happens when the next person comes in, does not have as good as an idea about where the bodies are buried or how these businesses work together really well? that is a question. tom: i just looked at your 2007 earnings, and i guess they are back to where they were on revenue, but well, are they more profitable. brad: yes, but look at the r.o.e.'s. tom: what is an r.o.e.?

dakin campbell is going, what are you talking about? nejra: measure of profitability. brad: the capitalization, his sheet, and the fortress balance sheet of all of these banks causes a real problem. tom: is it swiss like taken? brad: it seems to be very safe. they have way more capital than in 2007, which is what i think brad is trying to get at. tom: the idea of way more capital, i was surprised to look at the bloomberg terminal and see double-digit growth. black rock with a 15% dividend increase, does mr. dimon have to fink in a like mr. major left in the dividend? >> there is an expectation the tax bill will deliver a lot more earnings to thinks like jpmorgan

and u.s. companies in general. analysts think a lot of that will be returned to shareholders through dividends and more likely, share buybacks. does not get tied into a dividend policy that ties their hands. , one of theo comments that i think we all need to investigate will be the gain that you will get from the taxes, is it going to fall to the bottom line or is this going to be an opportunity for the banks? tom: so you need to do what? brad: invest in technology. you have seen 10 years of investment in regulatory issues. now, will you use it to invest in some of the technology? that mean?oes like mainframe computers? brad: how about the legacy systems that exist in many of the banks? if we look at jpm, they are

spending $9 billion a year. want to bedoes not here and is only here to get a quote from you. are the too big to fail banks two discrete groups? is citibank different from jpmorgan? ellen: yes. -- dakin: yes. tom: you have the first look at the jpmorgan earnings. nejra: they are starting to dribble through. we have just got one line, fourth quarter epf coming in at $1.07. the fourth quarter adjusted revenue needing estimates as well. you can follow all this on real-time on tliv go on the bloomberg. expectations, fourth quarter banking revenue coming in at $1.64 billion, a slight miss on the estimate of $1.66 billion. is key, fourth

quarter coming in at $2.22 billion on that ficc sales and trading revenue. this has been called the kitchen sink earnings season. there is a lot coming through. fourth quarter often has a lot of one-time items, so we are looking at trade revenue, loan growth, and taxes very much in focus. equity sales and trading revenue billion.rough, $1.15 we are getting these numbers slowly. tom: every bank puts out earnings differently, and here it is line by line with jpmorgan . this is making dakin campbell age. you were looking at the fic revenue and the equity breaking out at one point. fic, does that mean layoffs at jpmorgan? dakin: it is a big miss in what was already expected to be a weak quarter. jamie dimon has talked about he

wishes the media and analysts would not look at fixed income trading revenue every quarter, but a quarter like this, with things so badly we may be looking up -- looking at it and talking about it. tom: how do they layoff people at banks? juniormove out the people making $42,500 a year, or the hitters that have six big accounts? how? brad: you know the answer. the mds are where the expenses moveso what you do is you the people who rsvp's up to mds. you do not pay them exactly what the mds that are going, and that is a way to boost things. tom: i do not want to give the -- dakin campbell, what is the pressure here on the operating officers under mr. dimon? what do they have to justify

over january after the bonus season of february? dakin: i think the have to tell us how they are going to show revenue growth. or is a slight miss year, helped quite a bit by fixed income trading. how do you keep this company growing and moving revenue in the positive direction? jamie, he you ask would tell you a lot of things are going right at jpmorgan, so there does not appear on the surface to be a lot of things that can be fixed, that need tweaking here. he has got to look for the u.s. economy to start growing faster, and he has got to take his share. tom: there is that core loan headline, over banking being dampened over the past six months. nejra: we are also hearing about taxes, jpmorgan saying the results include a two point $4

billion charge as a result of the republican tax bill. that is roughly what the company told investors to expect. we are not getting much of a reaction in the premarket so far. this is a noisy quarter, the fourth quarter. what are investors waiting for in terms of what might move the shares? dakin: i think they are certainly combing through the numbers. as you said, it is a noisy quarter. the $2.4 billion is a little bit bigger by a few hundred million dollars than what the company told analysts to expect. when they did put out that number before earnings, they were still combing through the numbers and trying to understand how the tax bill affected the company. you know, most people are backing that out. how are you back that out and the fact that it is a little bit bigger than expected, that is some puts and takes that need to

be reflected in the models before they can really come to a conclusion about what this quarter means. nejra: i want to talk about credit as well. johntic equities analyst hager t says he will be looking for evidence that credit quality remains healthy and loan growth continues. are we seeing evidence of that? dakin: coming into the quarter, there were expectations that consumer credit, loan losses up andake up and -- tick provisions would as well. a lot of people thought that was normalization of a low and healthy rate. so nobody is really expecting consumers to start defaulting in much larger numbers going into this year. we will look at the jpmorgan results for confirmation of that. else are youwhat

looking for in these earnings, not just from jpmorgan but from some of the other banks, that might give you a little more of a sense of where these big companies stand? brad: you want information. what they are seeing in terms of loan growth, what you see in terms of changes in net interest . are they seeing any pressure at all on the rates they are paying on deposits? cycle, but we the know at some point you will have sophisticated depositors starting to move your money to places where you will get a higher return. the most important thing will be taxes, because at this point during the commentary, we will need to know what tax rates to expect going forward. that will change an awful lot in terms of the person -- but projections. is there an opportunity for the banks to continue the run that they had? troubleare having

getting all of the jpmorgan earnings releases out. i just went to their website and it is not up yet. single best chart, here it is with dakin campbell and brad hintz. we forget the individual nature of these banks. here is the dimon excellence off of 2007. wells fargo with a struggle with mpf, and they are back to it. citigroup is the challenge of challenge to banks. are they getting it back together? -- brad: yes, and i had drinks with a moody's executive. his comment to me was, of all the money center banks, of all the giant banks, citi is one of the most difficult to manage. tom: because of the legacy? brad: and the culture and the business mix. this is not an easy organization

to run. tom: gentlemen, thank you. look for mr. campbell's written word chiseled in bloomberg granite, from dakin campbell. now dreck, what do you have? -- nejra, what do you have? nejra: jp morgan seeing the effective tax rate at about 19%, and no significant remissions of cash are expected. tom: thank you so much. stay with us through the morning . wells fargo coming out in the 8:00 hour. as 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. ♪

alix: jpmorgan reporting fourth-quarter. revenue misses estimates, shares down 1%. euro-dollar seeing a three-year high as a german government can finally form a coalition, and cpi numbers and 8:30 as oil pushes up inflation expectations. david: good morning on this friday. it is banks earnings day. alix: jpmorgan down in premarket . s&p futures up about six points. we will see if jpmorgan drags down the index. three-year high as dollar weakness continues to erode the trade. quiet, 2.55% on the 10 year. crude modestly lower, but still $63 on oil. david: it is time for the daily brief.