francine: hawkish talk moves the euro. .udget band-aid a short-term extension of a spending bill in the u.s.. will the present be able to find an accord? and breathing room. brexit driven inflation is expected to flow. the data drops shortly. ♪ francine: good morning and welcome. i'm francine lacqua. i've seen quite a lot of movement when it comes to

euro-dollar. we are seeing a little bit more of dollar strength. we did hear from the european central bank. one of its board members saying it should adjust its policy guide before the summer. it shouldn't have any problems in the inside of the asset purchases. that's got the moves a little bit jittery. it's having an impact on euro-dollar. seeing a little bit of movement on those german bonds. , we have information from trump's first year. later on, we get a view on trade in the global economy. still to come, jim o'neill. he talks emerging markets. to the firstaight word news. nejra: brent crude has gone through $70 for the first time in three years. closing level yesterday. hedge funds hit bullish bests.

a view that opec and its partners will end their supply cuts early is spreading. all predicting a wind that will start from the middle of the year. offeringgovernment is a proposal to bring on the taps. according to three people with knowledge, they are considering a plan to raise expenditure. boost of about a 20% to spending on health care and education. has told donald trump of the two companies should settle issues by opening up markets and cooperation. made the comments during a phone conversation between the two leaders. it also reported that she called for joint efforts on the korean peninsula. counterintelligence officials reportedly told jared kushner

that murdoch could be using her friendship with him and his wife to further the interests of the chinese government. was lobbying for a construction project -- project funded by the chinese government. she told the paper she had no knowledge of these concerns. he was warned. the lead singer of irish rock band the cranberries has died at the age of 46. the musician was announced dead at a hotel in london. police are still treating the death as unexplained. her band sold more than 40 million albums worldwide. global news 24 hours a day. i'm nejra cehic. this is bloomberg. the treasury is back

online after yesterday's public holiday. that's up to the yield on to your notes hit 2% for the first time since 2008. meanwhile, the dollar has stabilized somewhat. this is despite a backdrop of solid u.s. economic growth. the euro extended gains against the dollar. a board member said the central bank could hold its asset purchases after september. growth and inflation continue to evolve. a germannsson told newspaper that ecb should adjust its policy before the summer. they said the latest step is not a big deal anymore. what is next for the euro? join us now, larry hathaway. head of investment solutions. thank you.

what does ecb policy look like? there's quite a lot of movement on the back of his comments. why would they rock the boat? larry: it's a bit of an outlier comments. i think they're going to taper through the end of the year as opposed to stopping in september. i think the move to adjust from negative rates to zero is probably early 2019. an important is message there. if we continue to see upside surprises to growth, despite euro strength, and we see some move higher in core inflation, it's not impossible to rule out both an earlier conclusion of tapering at an earlier rate hike . it is a bit of a warning signal and one with some substance. francine: what does that mean for euro-dollar? larry: i don't think it's the key driver. we have reached their on equity

flows. the world is looking at europe as well as other places like japan as a place to enjoy higher returns. that's really what striving the currency at the moment. this might give it more like up. but i think it's made the move for other reasons. level where there a a higher euro becomes problematic? >> there is but it's some way from here. you probably need to see another 10% upside before it starts to cause real problems. the other thing is you have this key domestic growth story going on. it's independent of any euro strength. rises, consumer confidence the highest it's been since 2001. that's a pretty good backdrop. i think part of the reason european equities are broadly flat since last year's because you have that euro strength. it probably doesn't go that much higher. francine: what do you expect

mario draghi to say? you're unlikely to get any more comments along the lines of finishing qe in september and there's a good chance it lasts through to the 19. it's not a given at all that once qe comes down to zero that they will go straight on to raising rates. when you look at asset classes, is 2018 the inflection point? yes, out of bonds. it's the natural place for people to look. it is in my mind the place in the moment. people think about overall portfolio stability and construction, they'll be looking at things that are out of favor for half a dozen years. liquid alternatives, alternative risk premium, as a substitute for bonds. marrying that with equity exposures. it will create some degree of

portfolio balance. i think bonds lose mostly to alternative strategies. equities move ahead. what does a swing on equities mean for the rest of the market? burkhard: what you're going to see is a continued trend where these things underperform. we are positioned for a financial outperformance. francine: the me take you to my bloomberg chart. this is the 10 year. this is going back to comments that we had last week saying that at some point, if the treasury markets or above 2.6%, it starts hurting equities. mike: -- mike: our view is that you're going to

move up to the 2.75 range in the problem is less of the 10 year yield comes and more when base rates get to around three. were some way off that. this get for rate hikes year, which we think is a possibility, that save conversation for 2019. a 125 basisve seen point rise. a's against the backdrop of very strong rally in equities. leadership has shifted as noted. it's more growth oriented and more cyclical. financials in tech amongst them. those stories still have room left to run. the real question is what tries deal tire. with a improving growth modest acceleration and a gradual pace of normalization, equities will do fine. if it's driven by inflation and therefore by central bank uncertainty, with a titan faster?

you think there is inflation coming. it's a simple chart. he gives a sense of where inflation is going. larry: there is little doubt in my mind that inflation is coming. we saw it rising. interesting lag relationship between a lot of indicators. for example, isn manufacturing and core inflation. they are really turning at the point we's expect they would. i think the u.s. will finish above the two handle. that's two for cbi for sure and may be true for corp. you see as well. it will validate with the fed is doing. it will probably mean three or four rate hikes. things,those themselves, need to be terribly disruptive. if we see core inflation potentially rising at a to an a half percent clip or faster, i

think that's when the game changes. are you more worried about a repricing of treasuries? or of german bonds? no one really talks about them at the moment but if that gets repriced quite widely, it could have huge implications. we think there are more of sides for yields in germany than in the u.s.. it hase ecb steps back, been the main bar in town. once they are no longer on the table, maybe in 2019, i think that puts them outside. in a slightly broader sense to, the market is going to take its cue from fundamentals but also from how quickly central banks adjust. we saw a ripple through the bond market. those were on concerns of the japanese might be less committed to the target.

i think that was a little bit of a warning that if the ecb or to taper sooner and contemplate a rate hike sooner, and the bank that'sn so reasons, really the trigger for a bigger adjustment. butjust in those markets all parts of the curve. francine: is that coordinated action or just the consequent of things? larry: highly unlikely. central banks court night very rarely and usually only in extreme situations. francine: thank you a much. you both stay with us. budget band-aid. republican leaders are set to discuss another spending bill as negotiations appeared deadlocked. bitcoins 2018 flag deepens. this is bloomberg.

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♪ francine: economics, politics, this is bloomberg. i'm francine lacqua. u.s., republican congressional leaders are weighing legislation for a spending bill that would fund the government until the 16th area of february. they don't have the time to complete a fiscal year spending bill even if they were to have a breakthrough in negotiations. familiarth a person for democratic demands dreamer extensions. how worried should markets the about a government shutdown? larry hathaway and mike bell are still here.

are you worried are not so worried? larry: initially not so worried. you seen these before. most of them come and go. short-term extensions are continued. it's the usual mechanism. i think it only becomes a concern of the go back to the. paris had shutdowns that ultimately couldn't put so much pressure on treasury in terms of its funding. it raise some doubts about the credit. i think we are still some ways away from that. i don't think there is much appetite in congress going into midterm elections to arrive at that sort of an outcome. initially notll be that important for markets. francine: does it hurt the animal spirits in the u.s.? i think markets have gotten used to this and investors will assume everything

will be ok. it gotten to a point where the u.s. government was on the brink of default then markets are be much more concerned. we are a long way from that. markets will look straight through this. francine: it seems there's something new everyday the papers are reporting. at some point, will it impact markets? does it impact consumer spending? is it appear white noise? larry: it looks like white noise. that's what the markets have been telling us given the terror they have been on. i think the underlying reason is that the economic fundamentals are markedly improved globally. this is not just a u.s. story and is true elsewhere. the story of the big skew of income distribution remains intact. the corporate sector is the big winner in this recovery.

it's not just about growth, it's also about profit. there also is no alternative at the moment. fixed income looks unappealing. from that perspective, there's a lot of momentum behind the market moves. it would take a large shock politically to derail the kind of outcomes we've seen. mike: i think the biggest risks aren't a major bear market but the normal pullback. at some point, the business surveys are going to peek out. the manufacturing pmi is the highest it's been a record. these surveys are going to peek at some point. when it does, markets love it when they go from ok to great. ok, it goes from great to markets aren't sure. triggerld be enough to

a little bit of profit taking. a normal correction. just some reinstallation of the normal volatility. as long as the labor market remains healthy and consumer confidence looks ok, i think you would want to buy those steps. as a wholecro data that starts to turn. that's a different story. you mentioned financials. do you invest? mike: it depends on geography. -- larry: it depends on geography. we are on the basis of a fairly broad allocations to those markets. when we come back and look at the u.s., we think. dekes following is not the best solution. it is looking at some factors. right now it's a question of momentum.

on the other side, it's about sectors. i think tech is still an interesting area and financials are interesting on the other side of the ledger. on the other side is much listen to state his real estate. it's those things that are little bit more defensive in nature. is a space in tech you like? the internet of things? can you start investing in them now. they will be needed to fund these things? larry: i think we are genuinely interested in disruptive technology. driverless cars, i would put into the category. still, isests us evolution in consumer spending. that's the internet retailing side of it. and some of our strategies tend

to be a long and in a short set of the equation. well-established position but also one that continues to pay good dividends. other areas that have been disruptive our friend tech. that is what is going on in the overall financial services arena. as the b2b side. to anotheret's get one of our top stories. bitcoin slumping. according to people familiar , china isatter escalating its clampdown on cryptocurrencies. despite the recent price moves, investors had a stellar 2017. hedge funds hit more than a thousand percent. . at robinson, our reporter, joins us. aboutking a little bit

the coin. is it contact? is stored value? one word would be almost impossible. it's an interesting technology. ultimately, i think it's a way for people to avoid the long arm of government in currency transactions. mike: if you're trying to avoid the government, ultimately it's under threat from huge regulatory risks. a big risk from governments banding these currencies eventually. it felt all percent today. do we get some of the dog run not? is it a big deal? is a big deal because the record short risk has come to the fore with south korea. the question now is will they or won't they. there have been mixed signals coming out.

were talking about banning trading in these currencies. it's above and beyond what china's done. south korea is concerned. they think it's getting loans to get the coin. >> it's out of control. south korea's up to 40% premiums. there's so much demand for it. culturally, south koreans have an affinity for bitcoin and digital currencies. the government is freaking out. francine: in china how much is there appetite to crack down? >> they are interesting because they have followed the cycle before. they let it run free and then they crackdown. winners will shake out and the state will have a lot of control. right now, we are in kind of a crackdown but i think investors

anticipate that at some point there will be a regime that emerges. it will be stable. do your clients ask about the coin? it speculative but they must ask you if you are looking at it. >> it's more curiosity than a genuine interest. move?h a regulated larry: you're looking at all these authorities. japan is accepting it as a genuine form of payment. you may actually force exchanges in europe to disclose the beneficial ownership. the u.s. is saying it's an ipo. it's a mixed bag of different approaches. nothing comprehensive has come out yet.

francine: we are also talking about the energy consumption. the mining of the coin. is also looking at that. they're are concerned about electricity consumption. processing cost in the coin. there is a lot of computer science that is tackling that and trying to find ways to find -- to solve the problem. the space,looking at that's something you'll want to keep an i on. how do they solve this problem. francine: do you look at it? mike: we have a lot of clients asking about it. it's not really a financial asset. you're not getting a return from it. i think investors should be cautious. you need to distinguish from the

technology and the cryptocurrencies that, unless they have some claim on a business, and some kind of equity stake, are hard to value. i think you would be very unwise to put any money you cannot afford to lose on these currencies. thank you to both of you. next, a slowdown in u.k. inflation is the boe some breathing room. we will bring you the breaking cpi data next. we get an interesting call from ing. 10 days to go. can it do that? this is bloomberg. ♪

francine: good morning. economics, finance, and politics. this is "bloomberg surveillance ," in london. i'm francine lacqua. tom keene, targeting the door

yesterday. we migrate to a couple saying they had to revise downwards because of brexit. you can see that on the back of the cpi data. the pound has not moved that much, currently at 1.3769. we have larry hatheway. if you look at central banks

around the world, the cpi is a different problem from everyone else int hew -- else int he world, partly because of the weakness in pound. it is difficult to do policy for something you do not know the exact impact of. in particulars, around growth, must be wide indeed, if you look at over the next few years, given the uncertainty of brexit. that public its monetary policy to a great extent. the bank should be willing to see through the bump up in inflation that led to the overshooting. the moderation in the core number is probably an indication of that. the u.k.'s beginning to lag. there's going to be a weak investment backdrop until many of the central issues around brexit result.

remember, the progress we have made so far, as difficult as it has been -- the irish question, for example, is the minor part of the deal that needs to be struck. both in goods, that is in trade, but also in services. it is the big issue for services looking at the u.k. as a place to invest in, or not. that will drag on for months, if not more. there could be an extension of deadlines, but that does not clarify matters. this means the bank will have to pause. in after the one hike november, the maybe after one more. and eventually, they will probably have to reverse the decision. francine: the inflation rate is below 3%. is this because the pound has stopped weakening? or because at some point the effect fades? fade: the effect does

because of the lag. stabilization and recovery, that means they will not be as much of an inflationary factor going forward. prices have risen, but that should not be a major factor. they are likely to be focused on wag developmente given the tight labor market and on core inflation. francine: let me bring you to a chart, one of my favorite, u.k. productivity. we see similar concerns that we see in the states. in that you have the output, the white. in blue, we have taken us back to 1994. the blue is if you had continued on that trend, where it should have been. we do not understand the underlying causes of this lack o f productivity. we had an interesting note from

one of the bank of england policymakers. is there anything the government can do to push this up? productivityk. story has been a long-standing issue and goes back a good half-dozen years or more. it stems from the fed that during the financial crisis, the fall in up that was not met with a rise in the unemployment rate. francine: and on the chart, that is what you are talking about. it was basically in 2008 when we fall off that trend. larry: and we ever get back near it. the continuation of the trend is unfortunately mirrored virtually everywhere one looks. whether it is the western europe, japan or parts of the emerging complex, including china, productivity growth is weak. that raises a number of questions, but to raise some of them to simply, there is a school of thought out there measuring output. let me give you a simple example. viewers are the

frequent users of search engines, google and the like, and yet, the economic calculus of what the benefit is comes down to the revenue google gets from advertising. that is how we capture it in gdp statistics. that underestimates the positive impact on the rest of us. francine: by how much? larry: we could be talking about enough to get us closer to that trend line on that chart. if we believe that is as pervasive across a number of different tech sectors as the one example shows. that is probably a slight exaggeration, but it is a way to say that some of that gap could be accounted for. that shows the difficulty we have in capturing a new technologies are adding to our well-being. francine: central banks must

be doing studies on this. larry: the debate is engaged, but the conclusion has yet to arrive. at this point in time, we want ande slightly speculative we are probably under measuring certain elements of output, but it is also the case, and this goes back to the 1980's. it is visible everywhere except in the productivity statistics. new technologies initially can be very disruptive, but not very enhancing. we need the diffusion of those technologies in ways that generate new ventures, new ways of conducting business that really exploit the full potential before we can be productivity gains. some of the answer is really in being patient, the revolutionary technology we are seeing today will be in those numbers. francine: how long -- you can be patient for 50 years.

larry: you can be. computers appeared in world war ii and the real impact did show up until monday 95. the personal computer or more approximate to that recovery of productivity than simply mainframe computing. i think we are a few years away before we see productivity accelerate. francine: if what you are i suggesting is true, we could have monetary policy mismatched with what the economy needs because central banks are looking at charts like this. larry: central banks always have a certain amount of flying blind within their policy. the think they will end up watching indicators. the indicator that will be most closely followed by most of them are core levels of inflation and wages. if those tick higher, they will be covered an -- they will be

confident. francine: up next, traded talks. a constructionrs o resolving to disputes. ♪

francine: this is "bloomberg surveillance," and i'm francine lacqua in london. here's nejra cehic. crude" $70 for the first time in three years. since the commodity rally, the view that opec will end the

supply cut early is spreading with socgen and jpmorgan protecting a wind down will start during the middle of the year. discussing a proposal to turn on the fiscal temps in the biggest fiscal spending spree since putin last ran for election in 2012. the banister is considering a plan that will raise transport by 30% over the next three years and provide a boost of 20% to health care and education. bitcoin has slumped this year amid rising scrutiny from global regulators. china, which first began targeting the industry last year , is escalating the clampdown on cryptocurrency trading, targeting online platforms that offer exchange services. u.s. counterintelligence officials warned jared kushner that wendy could be using her friendship to further the

interests of the chinese government. according to the wall street journal, deng murdoch was loving for the project. she said she had no knowledge of intelligence agency concerns. he described the meeting as a routine senior staff security briefing. the lead singer of the cranberries has died. the musician was pronounced dead at a hotel in london, where she traveled. police are still treating the death as unexplained. forordan was best known hits "linger" and "zombie." global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm nejra cehic. this is bloomberg. francine: xi jinping has told donald trump that besides must work together to find the solution to trade and economic

disputes. according to state-run china central television, the cctv says they urged both sides to take a constructive approach and work properly to settle this dispute and open up each other's markets trump often criticized china, but has repeatedly praised xi. haswhile, tom enders slammed brexit and donald trump's trade policies as twin threats to his business, signaling out brexit as the bigger issue. he says this will increase cost and retail competitiveness. airbus has 25 flights to the u.k. still with us to talk trade and globalization, larry hatheway. the president is showing up ind n davos. he is giving a speech, which

could be america first, which could be an overture to the other world leaders there. it is 2018 and protectionism is back. larry: as far as the speech is concerned, a lot of us will be watching the president closely. and the agenda, america first, will feature prominently. it will probably not be well received by; a lot of other people around the world. remember one year ago at davos it was really china that took up the leadership with free trade and openness and globalization. my feeling is china -- as well as now, assuming we get through the coalition building process in germany, that germany and france will stand up for elements of globalization, the eu itself is a global institution. i think that's where at least in the soft power sense, the subtle sense, where the pushback will come to this particular message, if trump comes with a strong america first message. francine: but you need to hedge

in the markets. i don't know if it is border taxes, the wall. do you need to take some kind of protective insurance if the world does turn a little bit less global this year. larry: an dd it could this year. the border tax adjustment is off the table. what is on the table and what is of course pressing are these nafta renegotiations, which could send a strong and negative signal to the rest of the world about the u.s. and the protectionist policies. the room for trade disputes with china is there. i think much hinges on the geopolitics the korean peninsula because the u.s. will want china's support on any actions it will want to take in terms of tightening sanctions against north korea. that is a geopolitical issue and a trade one. will 2018 be the year of

protectionism? i hope not. up,cine: if nafta is torn what does it do to the dollar? larry: overall, that would have a negative impact and would make the u.s. a less attractive place to invest in. part of the reason to be in the u.s. is to be in north america. the u.s. dominates that relationship. it would be a negative development in how people view the dollar. a safe haven, as a stored value. idling protectionism is a good story for the dollar. the dollar is weakening for other reasons at the moment. francine: what kind of central banker will jay powell be? is the fed still be central banker for the world? larry: as much as we can tell, he'll be cautious.

he will proceed in a measured way. what should worry him, it is the inability to because should. what could bring that about? accelerating inflation would force his and the committee's hand. if he does say a quiet prayer every night it would be about the ability to proceed with the kind of policies that janet yellen and the committee have saiet out. i think he would like to follow those. francine: did you get a call for fed vice chair yet? larry: i did not. i don't think we need somebody who comes in with preconceived notions. at the margin, the fed needs two things. we are losing a preeminent macro economist in janet yellen. in summary on who is a distinguished and objective macro economist would make a great deal of sense. secondly, as new york, president

exits, we need a strong person who understands very well financial markets and not just u.s. financial markets, but global financial markets. given the central role the fed plays in observing those markets , the second big position to fill his them but he who brings the financial markets expertise with them to that discussion group. francine: we have not even talked about the pboc governor. we are expecting an announcement within the next couple of weeks or months. how much do we care about the pboc? the former one repeatedly argued about deleveraging. policycentral bank dictated by the authorities? they: of coursed, in bigger picture sense, it is a political decision made at the highest level. but we definitely need a very, very capable set of individuals

at the central bank. if nothing else, just to alert, worn and forewarn on potential issues. in thegest imbalances world are in china and they are both in the purview of the central bank. creditst is excessive growth. the second is the imbalance in the capital account. there is still strong demand for overseas assets. while it is not apparent today, it will resurface in how the central bank manages. francine: it will resurface in 2018? larry: no, i think if we think of the term of somebody who runs the central bank, we think of the term of that individual. francine: we were talking about donald trump and president xi speaking on the phone -- is that relationship and concern for the market? they need each other to deal with korea. so, you are not too worried about it? prize stability

and uncertainty. they would like to see a good, strong dialogue between them. when president xi visited donald trump last year at mar-a-lago, that was a favorable development for many people in markets. i am not sure if that is sustainable, but people would like to revert to that kind of relationship. francine: that was fun having you on the air for the hour. thank you, larry hatheway. bp says they will take $1.7 billion to cover the deepwater horizon. that's up next. this is bloomberg. ♪

francine: economics, finance and politics. this is "bloomberg surveillance ," and i'm francine lacqua in london. an operating charge of $1.7 billion in the fourth quarter results, reflecting the remaining losses and claims from the 2010 disaster. they are now anticipated to be $3 billion higher than the

company's third-quarter estimate of just over $2 billion. bitcoin has slumped to the lowest level since december as cryptocurrencies continue their selloff. according to people familiar with the matter, china, which first began pricing the industry last year, is escalating the clampdown on cryptocurrency trading. tehe chinese startup is looking to raise funds with a $17 billion valuation. according to people familiar with the matter, the platf orm is targeting $1 billion of financing. that valuation would be six times the level it managed when it last raised funds in march. a representative could not immediately comment. sovereign wealth fund is going to hollywood. the fund is in talks to invest more than $500 million in the holding company for wme.

between 5%range and 10%. that is the bloomberg business flash. francine: "bloomberg surveillance" continues in the next hour. here.ene is tom, how is your new trip so far. tom: the trip is great. of bustle here. i remember coming here for the first time years ago and it was before the financial crisis, but there was a slowness to the city. it is gone. it's lovely. francine: it is gone. do people talk to you about president trump. tom: everywhere. francine: or brexit? tom: no, they talk about trump. there is a curiosity about what is going on in america and that is accentuated by the potential shutdown on friday. way said even if

there is a shutdown he expects limited market impact. tom: we have seen it before and it is politics and that, but the backdrop here again is removed to, where are we? nine days in davos. francine: let's see if he puts his america first agenda on the table. it is kind of fun having tom keene -- not for too long, but it is fun having hugyou in london. s andll talk eurocurrencie korea. this is bloomberg. ♪

francine: qe end game. the ecb board member moves the

euro. could bond purchases end after september? will the art of the deal president be able to find an accord? the pboc, the highest level int two years. the hang seng also surges closing at a record high. good morning. this is "bloomberg surveillance ," tom and francine from london. we talked market moves. i am pitting u.s. treasuries against bonds. tom: bitcoin really has my attention. it is a terrific chart. we will show that later and talk a little bit about it. plunge is notrd incorrect. francine: there is a little bit of pushback. we would not call it a melt off if it was gaining. that could straight to the bloomberg first word news. taylor: oil is trading near the

highest level in three years. brent crude went above $70 for the first time since the end of 2014. investors have increased bets on crude for the first time in more than a decade. production and the world time petroleum glut have shored up prices. said he and donald trump need to work together. according to chinese media, the two sides stroke yesterday. china has been resisting harsher sanctions on north korea. meanwhile, airbus ceo tom enders blasted brexit and president trump's railamerica trade policies as being threats to his business. he spoke in london. he said brexit is the bigger threat because it will weaken british industry by increasing costs and curtailing competitiveness. russia may go on a spending

spree after years of austerity. n is considering a plan to boost spending on transport and roads by about 30% over three years. spending on health care and education would rise about 3%. russia is coming out of the longest recession since putin came to power almost two decades ago. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: taylor, thanks. equities, bonds, currencies and commodities. let's get right to it, davos, 2018. the futures, up. that is extraordinary. a little bit of curve flattening. that is a little different than what we saw over the last couple days. currency is really not advancing. the euro, testing 1.23. we are not there yet this morning. the vix, showing the return to

the amrket. there is the close of the dow, 25000. the dollar weakness, across the board. francine? francine: this is what i'm looking at. there's a euro move. heard fromer we one councilmember saying the european central bank should adjust the policy guidance. assetnds net purchases in one move. i'm also looking at some of the other moves. we talked about treasuries. % for the at 1.99 two-year deal. and the german yield, watch out for any abrupt moves on the german. tom: let me to the bloomberg right now. i'm going to bring up bitcoin today. this is a pretty fancy chart

with removing averages. i am not going to go into the nuances. this is what i would call an elegant chart. it flat out violates the support. i will not go into the fancy talk of point and figure. that's an ugly chart, as bitcoin under 11,000 or 12,000 right now. francine: this is my u.k. productivity chart. this is my conversation with larry hatheway. quite like this chart, i think it is meant to be my chart. this is what i am looking at. we brought it back to 1994. tom: that is a great chart. francine: we will push it up for the listeners on radio. the blue line is the trend. white isicks up in actually what we have had, the number we have had. this has a lot to do with how you measure output. tom: i'm going to tear up.

our a great view from building here. she doesn't need a raise. francine: you are holding the gains. they should adjust the policy guidance before the end of the summer. they had a little bit of a move on euro-dollar. let's get straight to our guest host for the hour. he is erik nielsen from unicredit. we were talking about policy guidance. the ecb -- first of all, good morning and welcome to the new building. this is the first time you have been to the new set. tom: isn't it quite something? it's a real commitment to london, the global hub of the financial market. londone hope that returns the favor. francine: talking about --

tom: the bars close later than they did a decade ago. francine: should we talk about the ecb? let's get back to the wheelhouse. erik, when you look at the governing council members said they could stop asset purchases, this seems to be the outlier. does the ecb have any incentive to do that? economic pointan of view, it doesn't matter if ory end in september december. i don't think that you get noise in the market when we saw on friday, when they put out the minutes. i wrote about that on sunday. you have a very clear case here where they are discussing it inside the ecb the. -- they are quite a disagreement. he said surprised that this. but i think the message was clear from the minutes that by i guess march we could get a

communication change that says, if this continues, we ended in september. francine: we have dabo swinney entering president.ting the erik: the underlying economics are better in europe. productivity growth is better in the u.s. there is a reason why you have a stronger model. fundamentally strange part of this, but it moves a little fast for this space. of septemberend and at the same time, we had the brookings discussion last week on possible price level targeting, which means dovish policies. tom: i want to congratulate you on being truly the great euro optimist. i know it was difficult to do that.

now that we have an erik nielsen europe, what is optimal eur for germany, ireland, the netherlands, greece? erik: this is a problematic discussion because you never can take the currency and take the optimal currency for everybody. take the optimal dollar for alabama versus -- it is very difficult. here's the key point. the euro dropped from 1.45 all the way down to almost parity and in the process, you saw every eurozone property going from the modest surplus to 8%. germany is too competitive. it started to change because wages are going up and productivity is not that strong. now you have german export growth being lower than that of italy or spain or portugal. goingere's an adjustment

on where things are starting to come a little bit more together. tom: going from parity to the 1.20 level, you do see the adjustment click in. i would suggest chancellor merkel would agree that she needs that. she could take us away from that huge surplus. erik: absolutely end she needs -- absolutely and she needs to engineer an internal valuation of the german euro. how do you do a reevaluation? you allow wages to move up higher. is this a dangerous level for exports? erik: for some, yeah. our view is fair value is between 1.25 and 1.30. so, no drama. every single one of the eurozone countries has export growth stronger than the growth rate of

global trade. that means every single eurozone country is competing around the world. francine: tom? tom: i look at where we are and then i look at euro-scleriosis. it is a word that was common 20 years ago. , but then we will pull that. what do you say to the euro -skeptics right now? how do you have a sustainability of this great productivity? a sustainability of great world gdp in europe? erik: on all the indicators, davos is very good at doing these indicators, the quality, if you will -- and europe always

does very well. europe has many problems, one that growth is low. and we have an aging population. it is difficult to grow very fast. you have to be happy with about 1.5% or 1.7%,, or there about. tom: would you assume the united states has got to get used to that same trend? erik: i think that is right. it depends on what trump does, but if he cuts off immigration, that america will not have the growth rate we are used to. tom: politically nobody in america is ready to talk about 2.5% gdp. erik nielsen with us today from unicredit. we are looking forward to continuing this conversation with jim o'neill, coming up later. he is a former united kingdom commercial secretary to the treasury.

jim o'neill with goldman sachs. manchester united, i believe, won yesterday. the only reason he would come on today. what are we doing next week, francine lacqua and i will travel to switzerland. davos, look for that all next week. look for that monday, tuesday, wednesday, thursday and friday. stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance," and i'm taylor riggs. bitcoin took a dive today, approaching the 11,000 mark. bitcoin has come under increasing scrutiny from lenders from many countries. the chairman of the european

securities authority says investors must be prepared to lose all their money in bitcoin. bp expects to take a $1.7 billion charge in the fourth quarter of 2017 on remaining economic losses and other claims from the deepwater horizon oil disaster. the british company says the impact is expected to be spread over a multi-year period. it had already cost them more than $60 billion in compensation and penalties. and bmw said the x2 crossover will increase sales this year. the cfo tells reporters the new model should carry the german automaker to gains in all markets, including the u.s. and china. the international auto show in detroit. that's your bloomberg business flash. tom: there will be a shutdown on friday. of course, everybody looks at

that and says, maybe not. will we see a shutdown? we get prospective from eric nelson. maybe little bit off your beat. always the 11th hour, midnight. we don't turn into a pumpkin, but we get this fixed, don't we? erik: we will see what he does in davos, but i am not optimistic. tom: he might go there with a shutdown, though. the idea is republicans have budget issues. the democrats want to link it to immigration and the republicans say no. erik: yeah, it's one of these things -- we don't have government shutdowns in europe. washington for goldman, i sat around for three-month because i could not get a visa extension.

it's not proper for a civilized society. tom: i love our slogan here, if you could bring that up on the panel here. "budget band-aid." we have a budget band-aid, erik, getting us out to 5% to 6% of gdp, and on and on. that is where we are heading here, too a new fiscal angst. erik: you have a tax package where most economists would wonder about the wisdom of, but there you go. then you have this whole process of dominance, which is most importantly policies and it is in shambles. and we go through this every year. these are strange processes. francine: but what happens to the markets if there is a shutdown? they just ignore it because eventually they will find a way? i'm not going to default, right? as long as you know that --

erik: that is right and that is how the market things about it and probably rightly so. that is the right ascension to make, but coming back to the you can have conversations where you could have had a default. last time you had half of wall say,t's ceos come down and you cannot shutdown. if you do not pay it is a technical default. tom: i look at, erik, where we are, the united states day to s day. are you distracted by the political noise, or do you push it aside from the economic gdp? erik: as an economist sitting here, i am distracted by the politics. in america,family and it is just background noise. life goes on completely and it

is an uncomfortable amusement in the background. francine: erik nielsen from unicredit stays with us. coming up, we speak with robin niblett at 6:00 a.m. we know president trump has president xi on the phone. they are talking about redtrade and how they should deal with north korea. this is bloomberg. ♪

francine: this is "bloomberg surveillance," tom and francine from london.

we got to davos by the end of this week. china releases fourth-quarter gdp figures by thursday. speculation about possible adding to the game. erik, if you look at china and the fact that president trump spoke to president xi on the phone over the last what he hours, is china a positive, negative or neutral for 2018? erik: it is a positive, for sure. space when we big are moving from global dominance from america to china. trump is hopefully temporary. he is pulling america away. china is saying, we will be a global power. we will be trading with everybody. in china -- tom: in the next hour, we have robin niblett, and what i pushed

theniblett on is washington consensus, the sense of the international, everybody is in the. . i get no -- everybody is in the pool together. i get no sense of the washington consensus right now. erik: i eventually very word because the washington consensus is a much better one for liberal democracy in markets. but at this stage, when we have and brexit and uncertainties, at least we have a country that grows quite well, despite the problems they have, we have a country that is engaging with the world. tom: within this is the surprised, since we have blessing you of the german election. were you surprised at the struggle to get a coalition in germany? prik: i was surprised that sb

pulled out. they attempted to make the jamaica coalition. i think it came down to me underestimating how chairman was.the tom: is there a generational tension there? erik: you remember the former foreign minister, he must be turning in his grave, to see his party coming back today. --ncine: are you concerned what are the chances of a 2018 that will be more protectionism? the anti-globalization stance, that could be spearheaded by donald trump in davos? europehat is a risk, but has been doing a deal of japan. they have the candoada deal.

everybody is lining up to do a trade arrangement with europe. europe will never be the global leader, but there is a lot of good stuff going on behind the scenes. trump is moving the wrong way. francine: we will see you next week. erik nielsen of unicredit, thank you. for more bloomberg stories, pick up the latest edition of "bloomberg businessweek." this is bloomberg. ♪

♪ ."m: "bloomberg surveillance london, francine lacqua. in new york, tom keene. trying to figure out how to get the zurich on the livestream in

time for davos. make davos davos again. thursday of davos, it'll be make trumpos like davos again. what do you think the impact of the president will be? francine: for three days, we will talk about what trump will say, then the president will show up, and we understand he will give a speech -- actually, we have to think about the reason why he is doing it. does he want to challenge the people that, for so long, he has pushed back against with his america first agenda? or does he just want to distract, a kiss people will only talk about trump in davos -- because people will only talk about trump in davos. york with now, in new our first word news, here is taylor riggs. washington,

republican congressional leaders are trying to avert a government shutdown friday. they do not believe they have the votes to pass a spending deal by then. according to a spokesperson theyiar with the matter, are considering a short-term funding bill that will keep the government running until february 16. there is account that trump's son-in-law was warned about rupert murdoch's wife. there was a report that she could be using her friendship his wifed kushner and to help the chinese government. in the east china sea, it could turn out to be the worst oil spill in decades. the oil slick caused by a stricken iranian tanker has spread noticeably. the fire that had helped limit the fallout has dissipated. the european union toughened its demand's for concessions britain must make.

the u.k. will not be able to apply new immigration rules to e.u. citizens arriving during the transition period. that means any e.u. citizen coming to the u.k. before the end of 2020 could stay indefinitely. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. francine: thank you so much. u.k. inflation easing for the first time in six months, thanks in part to the cost of airfare. the fastest more than five years. joining us now is jim o'neill, former u.k. commercial secretary to the treasury. i do not know whether i should go quite hard on levels of sound, on the political things, or whether we are looking -- take your pick. i amwell, let's start with

going to dallas on that fancy plane with you guys. francine: will people talk about brexit in davos? jim: does davos still actually take place? tom: it changed. but this is an important point. it is not what it used to be. all of that change with one announcement last week, where the president shows up. what do you respect -- what do you expect will be the response of the international community you helped invent to this resident? when he gets up on the podium how will he be received? jim: amusement. tom: entertainment? jim: entertainment. not taking him very seriously. francine: i disagree. you off there, because i caught wind of something you were discussing. all of this ridiculous stuff about the end of globalization. last year, south korea's export growth was the best ever since they first started recording trade data. francine: but where are they

selling? jim: the whole world. --ld growth probably started strongest it has been in at least 10 years. by the way, i hope that was -- the only useful thing i ever found by davos -- it was one of the best reverse indicators in the planet. francine: so the more optimistic they were? the idiotic sound of douglas is something to -- francine: well, the fact that there is a populist president, whatever you want to call it, does it not change the agenda? because you can see the two realities and they can talk and confront each other? jim: i do not think the rest of the world will, at this point, be that interested in trying to persuade him to think differently. francine: so why is tom enders

of airbus saying he is worried about possible protectionism? jim: i do not know. we have to worry about those things. i do not know. i certainly believe, if i put on my old markets cap, life is best we had a lot of people worried about stuff when no one is worried about anything. is of the reasons the market doing so well is because everyone is worried about everything since the day trump appeared. so i hope everyone worries about him still to the guy cannot be taken seriously. a few years ago, how did you affect your first foreign exchange trades? by seminar, by phone? by morse code? jim: phone. sometimes telly. one of my early jobs was to run over to the telex machine and say the blinged is back and

there are rising -- the blinged back and- the bund is there are rising yields. tom: how does the technology relate today? is technology the friend of our viewers and listeners or not? ofme, that is the core theme davos. no one knows what to do with all of the technology changing everyone's lives. lcd, technology from financial markets has been fantastic. as with everything, it is never all else is equal. from what i can see from a distance, the amount of compliance of regulatory interference, markets are less liquid than they were. despite what technology has built. francine: will that change? jim: maybe at the margins. it is part of what trump is trying to do, which is reduce

the amounts of regulatory interference. it may be a useful thing. it seems the past decade, polity quality withe quantity. in: i sat with jim o'neill the basement of our headquarters years ago. of nailed the yen dynamic four, 5, 6 years ago. this is the recent bloomberg dollar index rolling over. if we were in the basement today, we would be in the roman ruins. if you and i were down doing the chant right now, what would you chant on the u.s. dollar? jim: given the size and breadth of the decline over the holiday isiod, i guess the dollar due for some kind of balance. -- bounce. manyt a time when so

parties in the world are starting to grow so strongly, and let's just say that policy is not being backed by someone the dollard, i think deserves some kind of discount. i imagine the dollar will generally spend more time being weak than strong. tom: are you looking at relative interest rates in the dynamic for foreign exchange? or are you looking for capital flows to be the key idea? jim: it depends which currency. on the euro-dollar, i spent far too much time in my life trying to prevent what i thought was the most sophisticated interest rate differential model for a screening cyclical views of the euro-dollar. if i did that right now, the euro should be trading around 1.15. so the dollar is already trading a discount based on interest rate differentials. i guess that is because of all that your friend from airbus and others worry about,

where trump has taken the united states, particularly in a global context. francine: can that trend continue? jim: of course it can do the more trump says the kind of odd -- at least by the past 50 years' conventional standard of international norms -- the more people around -- the more people in the margins around the world will say i do not have as much money there. francine: do you think the trump administration looks at dollar dynamics? saying ween tweets are strong because the stock market is up. margin, dollar weakness is helpful for the u.s. as always, if it got to a degree where the dollar is falling a lot all the time, and it was associated with the tightening of overall financial conditions instead of an easing, i think the fed will start to worry about it. tom: within that, and the circle back to globalization, is it the

same globalization, or with the technology overlay, the better europe dr. neilsen talked about, is it the same -- dr. nielsen talked about, is it the same europe? standshave four letter on my four head -- "bric." the world is evolving to a different states the last near 20 years. where western countries do not dominate. you ask me about the korean trade numbers, why they are so strong. korea has exported to china more than everywhere else for years. we just heard about new countries whose number one export market is china. we, in the west, do not dominate global trade. china is doing more and more trade with so-called "south" countries. trade between what we often call evolving countries is now bigger

traden -- now bigger than between developed countries paid even without technology, global trade is evolving dramatically. francine: you want to talk about menu -- tom: we decided mr. o'neill would be with us three or four hours -- or at least until manchester united loses again. lord o'neill, the united kingdom commercial secretary to the treasury, at one point. let me remind you about your daily briefing, in america. robert moon on bloomberg radio. please look for that, coast-to-coast. from our studios in london, francine lacqua and tom keene -- this is bloomberg. ♪ this is bloomberg. ♪

♪ francine: good morning. this is "bloomberg surveillance ." tom and francine from london, talking about brexit. looking at the exchange rate every 10 minutes, i am sure, tom. and we also heard from donald tusk. >> is in the u.k. government hurt -- sticks -- if the u.k. government sticks to its decision to leave, brexit will become a reality, with all of its consequences, in march next year. unless there is a change of heart among our british friends. it david davis himself who said if a democracy cannot change its mind, it ceases to be a democracy? francine: jim o'neill from our best from u.k. commercial secretary to the treasury is here with us.

this seems to be the same rhetoric. that unless our u.k. friends do not change our minds, this is the path we are taking. you could argue the e.u. will just remain like this, that these are not negotiating tactics. jim: i think from the sense of the e.u., those tasked with trying to look over the whole 27 , understandably, they are being given by "we must punish somebody who leaves." it is a pretty rigid stance. i can see why they would adopt that. their dilemma is that individual countries who see their own bilateral things with the u.k. being threatened with that stance starting to say "hang on a minute." i guess it is in the u.k.'s tactical interest to try to play what the italians and spanish and portuguese have been hinting

at. that we do not believe we should simplistic. francine: where do you see the u.k. -- actually, on football, it does impact, depending on what kind of brexit you get hit it will impact transfers. jim: u.s. think, but the standards of governance of football are so bad, they managed to circumnavigate any laws about anything, so i should not worry about that. [laughter] there is an irony. it looks to me, from the data i follow -- i still try to follow a lot of this stuff -- it seems that the u.k. economy is doing better than a lot of analysts are saying. i would not be surprised if a -- analystsanalys revised up. they will allow the brexit crowd to say "what is the big fuss?" it is tentative, but i think we

see the early signs of productivity in the u.k. picking up too. i say that because, when i was lost on in the time before, i do not believe brexit is the most important issue facing the u.k., as big as it is. i think it may give it a bit more confidence to the tough guys here in the u k -- u.k. tom: let's look at sterling. bring up the chart. the red circle is brexit. i will get this out on radio london as well. down it goes. down to parity. up we go. and you are even talking about a 1.50 level, the green circle, to do better than where we were june 23. jim: it looks to me like the trend has turned. it looked to me early december that was the case. last time i was on here -- a number you showed in a trade weighted chart. not droppeds

further since the election. the markets have somehow figured out something different was going on. arguably, we get a more gentle brexit, or something else. it looks to me as though the pound has broken out. i would not be surprised if we are headed back towards 1.50. tom: what level of sterling does governor carney want? jim: i do not think he really cares. he does not -- tom: he does not care if it is 1.30 at deutsche bank? i do not think the bank of england should care, and i do not think they do. that set out the margin, because they have a corrective inflation target in mandate. it were to rise further, it would make their job easier. they certainly will not be writing more letters to the chancellor. importantly, it may help to a darkly stop the squeeze on the u.k. consumer -- indirectly stop

the squeeze on the u.k. consumer. francine: even if governor carney is not targeting price, oh what he does not want -- jim: on the ridiculousness assumption that you are right, it will not be tomorrow. if we were to have a 5% move of the pound in the next week, that is something that would get a few eyebrows raised. francine: it certainly will. speaking of eyebrows raised, let me bring it back to the productivity chart. we got about -- we put it back to 1944. drivers always talk about uber greater in london. you see the productivity level in blue. it leveled off around 1988. in blue is the path they would have taken if it stayed at these levels. is it an output measurement problem? jim: it is a measurement

problem. no two ways around it. with so-called services businesses -- how do you measure the output of uber, airbnb, etc.? how do you really measure the output of facebook? one of the most interesting conventional modern ways of thinking is to start trying to put a value on what you or i or anyone else really assigns to using facebook, then if you and that to gdp, causing gdp measures to be higher. it is definitely the case, to some degree, productivity is underestimated. however, there have also been good reasons why that activity has weakened, not least you to the staggering flex ability of labor markets -- flexibility of labor markets. when i first uttered in this world, you would not have drowned what happened -- ramped -- dreamt what happen in the western world. because of unemployment, that is

ending. we saw it in the u.k. policies to reduce the lowest wages. we live in an instant world -- we must see results immediately. i suspect we might be starting to see the first lines of productivity. tom: i want to get to bitcoin, but before we do that, this is so in critically -- this is so critically important. across the street is an old midland bank building, which i am sure you want in eons ago. it was abandoned and is not a fancy hotel. fancy schmancy. francine: that is where we put tom keene. tom: you bet i'm there. but the idea here is what i am seeing is money in. does that money in to london diffuse-- defuse -- across london?

jim: london is underperforming the rest of the u.k. there is conventional stuff that flies around. the mayor of london presided again last week -- in my opinion, very poorly and not deeply researched. the idea that brexit helps the rest of the country more than london. maybe in theory. london house prices peaked over two years ago. the rest of the country, particularly the northwest -- house prices are accelerating paid we may be seeing the very first signs of a multi-decade narrowing of house prices starting to happen. that would be enormously positive for things like interregional inequality in the u.k. -- way more important than brexit. thatwhen you perceive dynamics of bitcoin, they are not a normal market. we do not really know where that

bid is invented. what would you tell younger people on the street, and our viewers and listeners, about the transparency of bidesque on bitcoin? kidsmy kids, and my generation, are asking what i think about investing in this thing. a, you must be met. if it drops 80%, maybe have a go. thirdly, the very fact you are all asking me is yet another sign that this thing is overcome -- overcooked. fourthly, what is so good about this thing compared to paypal? what is it actually really do in the medium of exchange? technology, yeah, why does it have to be -- francine: well, first of all, is there a danger that it infects the economy at some point? if people start borrowing to invest in it? jim: i would imagine, if we get into that kind of stage, clearly

it becomes a genuine bubble that has worrying consequences are the worst bubbles are when people take on a lot of leverage to participate. i do not think emma with bitcoin and the hundreds of building copycats -- --a number of countries policy china -- policy makers in china are trying to discourage this. tom: well, what should sec do? do they need to be adults in the room to dampen the market? jim: they want to be really careful to not allow a lot of leverage for those that are bold, or imaginative, or daft enough to get involved. it is ok if people who do not mind losing all benefits from speculating. but the idea that the system provides over a lot of leverage to play, that is something

policymakers cannot allow. francine: will it be regulated? should treasury be looking at this? jim: i think it is clear there and looking at it closely. for the time being, they are saying, ok. people want to anticipate in this new thing to let them do so. if he gets to the stage where it is threatening financial stability, they would. and should. in: when we see mergers united kingdom banking this year, things are finally better, do we consolidate even further across retail institutions? jim: i think it is probably too early for that, not least because of the ring fencing policy just coming in. the big four are having to implement that technically this spring. you would not want some new, big from that.acting the rise of alternative technology-- here,

really is powerful. so into that base, moore, and banking seems to be a huge area of growth which will threaten conventional forms of banking. i emphasize that is very different than the role of technology in providing some new speculative currency. tom: we have to leave it there. jim o'neill, thank you. francine: should we bring him to davos? should.hink we lord jim o'neill, former united kingdom commercial secretary to the treasury. coming up in our next hour, robin niblett will join us from chatham house. perfect time to speak with him about the international relations of the united kingdom, the united states, and of the world. ♪ world. ♪

♪ tom: this morning, futures signal down. the dollar weaker. meanwhile, bitcoin plunges.

where is bitcoin support? we look for a bitcoin bid. in washington, a friday shutdown of government services -- it is more likely. republicans shift blame to the democrats. democrats would just republicans happen to be the majority party. and in washington, new not consensus. we consider international relations in the time of trouble. this is "bloomberg surveillance ." i am tom keene with francine lacqua in london. thrilled to be here on queen victoria street. it is a whole revitalize part of the city here, with the development over the last couple of years. francine: it is just fascinating. first of all, welcome to london. granted -- it is london, bustling, there are new restaurants. but if you have come to this part of the city 10 years ago, it was all merchant banks, insurance companies.

now, it is a lot more fun and exciting and young. tom: a global financial center with new york, but all eyes next week will be on davos. wednesday.sday, thursday, i believe the president parachutes in for, i believe, an important friday speech. francine: i maybe wrong, but maybe monday, tuesday, wednesday, people will speculate on what trump is saying, and then thursday and friday, we have a clearer view. you are saying with people in europe, and london particularly, trying to figure out what the president's endgame is. tom: next week in doubles, we upl -- in davos, we will rip the script. right now on script, taylor riggs. taylor: republican congressional leaders are trying to revert -- advert -- avert a government shutdown by friday. they are considering a short-term spending bill that

would keep the government running until february 16. there is a report that counterintelligence officials warned the president's son-in-law about rupert murdoch's ex-wife. they said that she could be using her friendship with jared kushner and ivanka trump to further the interests of the chinese government. ochpoke person for dang-murd says he is not aware of any intelligence can -- intelligence concerns. president xi jinping -- the two sides spoke yesterday at trump's request. china has been resisting harsher sanctions on north korea, and trump calls for trade concessions. in the east china sea, it could turn out to be the worst oil spill in decades. the oil slick caused by a stricken uranian tanker has -- iranian tanker has spread noticeably. a fire that had helped them at

fallout has dissipated. the european union has toughened its demands for concessions the u.k. must make ring the exit -- must make during the brexit transition period. any e.u. citizen coming to the u.k. before the end of 2020 could stay indefinitely. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much. let me look at the data right now. equities, bonds, currencies -- united health just out with earnings. united house with a really high single-digit lead. about 9% on revenues. operating earnings of 80% as well. up 1% on earnings -- a real bellwether for the health

industry in america. futures up nicely. i would also note the dollar weaker this morning. dow futures above 26,000 right now, which is flat out remarkable. francine: it is to what i am looking -- it is remarkable. what i am looking is the dollar rising, the yen living -- limping. european stocks higher by half a percent. and i want to show you the two-year yield. want about 2%, briefly, for the first time since 2008. and the german two-year yield -- i like using this, because you can see significant market moves. it would have a knock on effect on other asset classes. tom: bitcoin. the chart on the bloomberg, it is an elegant chart. we really violate all sorts of support and violate moving averages over the last one to

four trading days. bitcoin $11,900, bouncing higher in the last hour. kevin cirilli is in washington. it is a tumultuous washington. but around all of the noise, simply focused -- a government shutdown. kevin cirilli here as he counts the hours until friday. the way the script works if there is lots of back and forth, and at the last moment, they will do a continuing resolution. is that the way this will play out? kevin: that is absolutely the way it will play out. last week when we were talking about the president's reported controversial comments, the say the least, about countries in africa as well as el salvador and others, there have been new development. trump tweeting out criticism against senator dick durbin, essentially accusing him of lying -- and there he is, dick durbin, sitting to the right of the president. saying, essentially, he was lying about these comments and that this type of goodwill has

been daca, the immigration issue, into a tailspin ahead of friday's deadline. tom: there is a great political polarity. for our global audience, explain what shuts down if we shut down. the present goes to devils anyways, right? kevin: right. essentially, there is this thing about people being "deemed" essential. if you're not deemed essential as an employee of the government, you have to stay home. that is a lot of low-level staffers pay for all intents and purposes, the government is still functioning, just lawmakers are not able to pass bills and whatnot. you will see a bevy of meetings around the clock, including over the weekend should the government shutdown. and there will be an around the clock spectacle. francine: how does this get

resolved? if the president goes to davos with a shutdown, that will not look great. does he care about that kind of stuff? kevin: he does not. from the president and administration's perspective -- i think back to a couple of months ago, when the president said he would think a government shutdown would be a good thing. he really believes immigration wants to seease accomplished. he believes he has a winning case against democrats. whether or not that is true will be decided during midterm elections, but he believes he has the higher ground on this. tom: before we bring in our good guess on international relations, what are you watching for over the next few days as we supposedisposable -- a non-shutdown? kevin: even if they do get to some type of deal, punt it a couple of weeks, this mini cliff

gets old. it starts to hinder the president, and republicans', ability to a compass their goals. i think back to 2013, the last major government shutdown. this did not end well for republicans. tom: kevin cirilli, thank you so much. we look forward to seeing you in davos. joining us this hour -- what a wonderful hour we had last hour with erik nielsen of unicredit o'neill -- is robin niblett of chatham house. how did you state in december and say this is what we need to focus on in international relations? robin: you are right that this is an exceptional period. because it is the first time we have seen europe and the united states really almost unparalleled tracks rather than a joint track. whatever the differences have

been tactically, there is a sense the transatlantic community has been a pole of order in general. states that seems to be on its own track, focused on its own agenda and not connected internationally. for us, we tried to figure out where do you put the effort for positive change? we are focusing on europe. chatham houston not do as much on -- chatham house did not do as much in europe in the past. tom: are we trying to hold onto everything we had 10 and 15 years ago? robin: good question. i do not think there is a new post washington consensus, not least because europe itself -- i would not see it as a civil war, but it has conflicting viewpoints. governments in central europe actually welcome some of trump's news, do not mind his comments about immigration, do not mind his me first nationalistic

approach. and you have strong voices inside countries like france, germany, and written that have sympathy to it. at the moment, it is difficult for europe to stand up as the alternative. francine: when you state 2018 will be the year chatham house focuses on europe, what is your angle on this? is it the shifting space of angela merkel or brexit? robin: it will not be brexit. simply because brexit is a process. i mostly think it has one outcome. and it will be a bumpy road to get there two, let's call it, a hard brexit. i think the more important element is can continental europe, built around the you, uses -- built around the e.u., use this as a new phase of quarter nation -- coordination? some of what we will look at is

the new architect of europe. the key element not and our focus is the robustness of national medical systems across national political systems across europe. how strong is government in germany, france? if you do not have strong national governments, you will never get european unity. tom: i would suggest that takes some profound leadership. we will continue here with dr. niblett. "bloombergn daybreak," john allison, the great libertarian of cato institute. from our studios in london, francine lacqua and tom keene -- this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. a chinese video site startup is trying to raise money at a $17 billion valuation. according to people familiar ish the -- matter, kuaishou in the same vein as instagram and periscope. company pimcoed reformed its target for -- rio tinto reaffirmed its target for this year. there has not been a selloff in bitcoin like this for months. the cryptocurrency down as much as 20%, approaching the $11,000 mark. less than a month ago, bitcoin was trading around $19,000.

that is your bloomberg business flash. tom: thanks so much. it has been a most spirited discussion this morning and over the last few days about a richard -- resurgent sterling. sterling affects everyone worldwide. it certainly is one indicator of dollar weakness. page.s, david jim o'neill was on, the acclaimed jim o'neill of goldman sachs. he has the luxury of not being beholden to his forecast, but he made it clear a 1.50 sterling is something people have to begin to think about. are you beginning to think about ever stronger sterling? david: not really. we see sterling really ekeing out gains. --

to see sterling rising 1.40. 1.50, you have to look at the more political extremes. you have to have a much bigger reverse then we have seen. 1.50, is af we get dollar weakness are pound strength? david: there are two things -- we do not see 1.50 -- francine: what you see 1.40. david:1.40 israeli sterling eking out -- 1.40 is really sterling eking out the gain. tom: weak sterling, higher inflation is a theory, right? when do we break that and make governor carney's 2018? david: we are already seeing sterling dip down to 3%.

we think it takes time to get to 2%. we expect it to soft and further. -- soften further. francine: if we do have a weak brexit, will it be perceived as a fudge? if it is perceived as a fudge, with a concern go away? robin: i think we have to face is to get through. -- two phases together. everyone is looking at march. can you get a 12 month heads up in advance this march that everyone knows you get two more years? that goes with it eking out a little more gain. we still do not know what the final deal will bp and there is no soft brexit that exist, in my opinion. but people are waking up to the fact that may be a really

special trade deal will be good enough. tom: is this a focus on united kingdom political dynamics, orders europe step aside because they have no incentive to play in this debate? robin: for us, this is thinking more broadly. europe has to be about more than just the e.u. future of is the europe about what countries can do together. my focus is on germany. as the tech boom happens, is germany ready for that adjustment? italian financial system strong enough to not be an achilles heel? and can britain get a deal good enough to be a partner for the year? francine: thank you so much. we will be back with robin niblett of chatham house and david page, axa investment managers senior economist. coming up, the former u.s.

secretary of commerce. we will talk to him about trade and possible -- possible reductionism. look for that interview. this is bloomberg. ♪

♪ francine: good morning. this is "bloomberg surveillance ." tom and fancy and london. the italian prime minister faces a divided parliament.

party iss expected to get almost 2 million votes, but he established the basis for if the party alliance. still with us to discuss all of this, david page from axa investment managers and robin niblett from chatham house. we look at the italian election -- tom threw me a curveball by asking me whether this was as big a deal for geopolitics as the french election was. there was a moment in the french election where you could have foreseen a runoff. italy feels different, and yet? yet" is the potential weakness of the italian economy. third largest economy in the eurozone. very large levels of public debt. gdp. roughly,

however, a lot of private money. a lot of private savings, unlike in spain, when it sought -- saw debt rising highly. that gives it a cushion. so the worry is less -- how do i put it? skew to extreme politics. the worry is do those politics, and the resulting coalition, prevent italy from continuing its slow progress to growth? because employment started growing again. the growth rate has picked up a little bit here that could easily drop off again. tom: you see that in per capita growth, which has finally leveled off. this is one of the jewels of "bloomberg view." and recommend this to be a regular read. italians and gracefully said i will go to the --

italians look increasingly set on going back to the future, supporting the 81-year-old media tycoon silvio berlusconi. it is about nostalgia, isn't it? robin: it is. italy has the added problem of heavy migration flow. that has raised support for parties on the extremes. i think that unpredicted ability is leading -- unpredictability is leading to populism. tom: is that happening in the you can as well? david: yes. of it is nostalgia, part of it is the government looking for altra trade. tom: i came over and the queen finally sat down and did an interview. francine: maybe we'll get her on

the phone because tom is here. [laughter] tom: but it is nostalgia? david: yes. it is not looking forward to how the u.k. grows. it is the same in europe. there is an element in europe that could move to the next decade, but it is not obvious that is the tendency across the continent as a whole. tom: this will be something to touch upon in the coming weeks. i am looking for to this election. francine: i am, too. we have a strong italian convict -- contingent in dallas. robin niblett and david page state with us. coming up, we will talk about brexit, we have a couple of currency moves, and we speak with neil ferguson on radio. this is bloomberg. ♪ this is bloomberg. ♪

tom: it is the sixth visit to latin america. he is from argentina. chile andf visiting

peru. in the meantime some political le and realin chi effort in peru to meet with the indigenous people of the amazon river system. he will speak to them about the rainforest and some of the hardships they faced. . good morning. this is bloomberg surveillance. from london, francine lacqua and tom keene. republican congressional leaders are trying to over a government shutdown on friday. they don't believe they will have the votes to pass a spending deal by then. there considering a short-term spending bill that would keep the government running until february 16. there is a report that counterintelligence officials son-in-lawld trump's

about rupert murdoch's ex-wife. be using her friendship with jared kushner to further the interests of the chinese government. a spokesperson for murdoch has no knowledge of intelligence agency concerned. the worst oil spill in decades. it has spread noticeably. it covers 62 square miles and a fire that had helped limit the fallout has dissipated. the european union has toughened its demands for concessions to u.k. during the transition period. u.k. will not be able to apply new immigration rules to new citizens arriving during the transition period. beforecitizens coming 2020 could stay indefinitely. global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. i'm taylor riggs. this is bloomberg.

david page with us. with us asiblett well. you said we have some headlines. ge.cine: we do about i do know whether it is tax related or something we need to keep an eye on. ge capital saying they are suspending the dividends to ge for the foreseeable future. this actually feels quite big. tom: we have a market move down here just fractionally. this is the separation of g from ge capital. we are talking brexit. robin niblett, it goes to making it up as we go. >> this has never been done

before. this is the first time we have seen the global disintegration rather than integration. it is the first time the eu has lost a member state. it is losing its second or third largest economy in the process that spent 40 years integrating itself. barnier talkchel about the u.k. doesn't have to go for a panel deal -- tom: you're at a panel with me and francine and davos. and then i turn to you and say give us a primer on soft brexit versus hard brexit. what's the key distinction? i'm going to say there is a soft brexit, a hard brexit and a cliff edge brexit. the u.k. somehow remains in the single market. it is sort of the norway model. it is the idea the u.k.

continues to follow automatically regulations set in brussels. the hard is brexit leaves the single market and has to obey those rules. it leaves the customs union. it will have a tariff barrier potentially with its trade. and the cliff edge exit is you leave with no deal and you drop straight to a wtf status without having worked out any deal. personally i think we are heading for hard. if you look at the politics of brexit and the negotiations are you starting to model a shift under jeremy corbyn? >> i think the hard brexit is the government's vision. and i think the december suggests thatade vision is going to be very difficult to realize which means you either get forced into softer brexit within the single

market which is something the labour party have talked about before or you have a chaotic brexit. i agree with those scenarios. the risk is significant deviation from the government's vision at the moment is likely to come only with political shock and potentially political crisis. there is a risk of a general election this year and under those scenarios jeremy corbyn could become the next prime minister. francine: let's listen to eu president donald tusk. if the u.k. government sticks to its decision to leave, brexit will become a reality with all its negative consequences in march next year. unless there is a change of heart among citizens. it david davis himself who said if a democracy cannot change its mind it ceases to be a democracy?

francine: who is the person that can move markets apart from governor carney? >> obviously prime minister may has had big features and markets have looked to what she said as guidance. she seems to be taking control of this over and above david davis. michel barnier is key here. it's interesting to think of tusk. he said there's either hard brexit or there's no brexit and that's increasingly becoming the case. he is talking about the u.k. changing its mind. when we talk about the possibility of a general election there is also a possibility of the u.k. changing its mind. are seeing the general public increasingly in favor of a second referendum. will that come? it seems very unlikely in january. this is going to be a year with a lot of detail to go through and we could see a significant shift over the course of this time. francine: we are also seeing philip hammond taking some

questions. we are looking to see whether he answers anything on brexit and his vision. if you look at the next prime minister who is that and you think we could have a general election by the end of the year? this would be almost a disaster for brexit negotiations. >> i have to say i lean towards a gradual painful move towards a deal. there will be a transitional agreement agreed in principle in march. i think there is the capacity to drop back into the hard brexit. as painful as the hard brexit may seem it will have impact for the city of london and the supply chain interaction that exists between the british economy and the eu economy. i don't see anyone wanting to go to a second referendum. even if labor would win. the eu has moved on. the eu is talking about deeper integration. has got into his

packet of a potential coalition deal with angela merkel. much deeper integration. defense.tegration on financial transaction tax. the u.k. would not be rejoining the eu that it thought it left. and i think that narrative in the end -- the leave vote remains much stronger and the remain vote is split between some who think i want a second referendum and some who think let's just get the best out we defense. financial transaction tax. can so we keep the best future relationship. i look at brexit as a day-to-day soap opera. what is the theory of parliament of this brexit? it would be different in the united states. i am right that the majority government always sort of runs things in parliament. is that the real issue? not having a true debate on the floor of parliament? >> we are having a much more true debate on the floor of parliament than we would have done if theresa may had won a

big majority. a conservative party would have railroaded it. now a minority government, you have a part that is intervening. it's only intervening to appoint to say it is carefully thought through and doesn't punish the british economy. this is not a parliament that has the authority to overthrow the referendum. tom: we're going to continue with robin niblett and david page as well. i want to point out general electric. a fractional move. now it is more than fractional. down --general election general electric down. seeing a $6 billion charge involving ge capital. don't forget our programming

next week trip it will be monday tuesday wednesday thursday. the meetings at the world economic forum in davos. thrilled to bring that to you with good and esteemed guests. stay with us. from london, this is bloomberg. ♪

>> this is bloomberg surveillance. says it sees age $6 billion charge in the first quarter from an insurance review. suspend itsill dividend for the foreseeable future. that is sending shares lower in

premarket trading. the industrial company is undergoing a strategic review under ceo john flannery to try and turn around the company. saudi arabia's sovereign wealth fund is going hollywood. the saudi fund is in talks to invest more than $500 million in endeavor. that's a holding company for a talent agency. represents stars such as matt damon and ben affleck. rio tinto shipped a record and it hasron ore reaffirmed its target for this year. it is the world's second-largest producer of iron ore. inre hasn't been a selloff bitcoin like this for months. the cryptocurrency has been down as much as 20% today approaching the $11,000 mark. less than a month ago it was trading at almost $19,000. bitcoin has come under

increasing scrutiny from regulators in many countries. china is among those trying to crack down on speculation. brent crude closed above $70. rallies thedity view that opec and its partners will in their supply cuts early is also spreading. predicting a wind down that start from the middle of the year. we are joined by will kennedy. good morning. in theu look at the move oil price what does it actually mean for opec? is it going to be short-lived? >> there's a lot of talk that opec risks overcooking the market and that will persuade producers that they can back away from the plan.

it is worth saying we have had no indication of that whatsoever. this morning we had comments from the russian energy minister and russia has been pointed to as one of the members that might want to back out of the opec plus plan. he has said this morning that there is no reason to back away. that producers shouldn't just change policy because of short-term market conditions and that he is committed to seeing things through. thatr there's none of divergence the banks are predicting. if prices continue at elevated levels towards the meeting in june that might start to change. so far it is study as she goes. francine: looking at the technicals on oil. there was a great story written by a lot of people on the markets and traders becoming cautious because when you look at the technical levels prices overboughtan territory. does it mean we could see a correction just because of

technicals? >> yes. we are starting to see that a little bit today. we have seen a selloff across the commodities complex. oil is down 1%. that reflects nothing more than we have had a really strong rally in the first part of the year and people are pausing. some people are taking profits and we are seeing the selloff. we are seeing strong demand and opec discipline. francine: thank you, will kennedy. we are back with robin niblett and david page. i don't know whether this is goes back to geopolitics and whether the ipo goes back to the stability in the middle east. whether you have seen it more as

a market story. >> my instinct is this is more of a market story. growth.of global number of key markets. united states, europe, china. winding down of inventories. number of key markets. united states, europe, china. i see that and some insecurity and iran. that strikes me is more likely to be the issue. irrefutably remember $29 a barrel on brent. we are back at $70 a barrel. the fiscal integrity of many nations is radically better. radically improved. >> radically improved over a one-month period. about whetherried i can sustain a radically improved fiscal position. this could be a two-week issue and could find itself dropping back very quickly as shale and

unconventional's pick up again. >> i think that's the point. the market is able to rally because we haven't seen that shale reaction. what we have seen historically is something like a quarter or so glad between significant pickups and the shale response. shale rigile you see counts remaining relatively subdued you are going to see hedge funds taking advantage. there is a concern that emp is retracting some of the financing -- restricting some of the financing. ultimately shale looks like a new marginal supply. i'm looking at my chart. you can see the oil rig count moving a little bit is the price goes up. it is having a direct impact on shale producers. >> it is not coming through as quickly as you normally expect. what you would be looking for is

the pickup which should be more evident in the second quarter. you have seen a big shift in marginals despite what opec does it restricting supply. that is been the main story for the last three or four years now. come see that response through again i suspect that feeds into market pricing. for now there is a degree of uncertainty. francine: how long can backwardation last? the longer term prices is what shale producers are going to lock into. they can lock into prices upward of $60. tom: david page and robin niblett with a nice briefing before we go off to davos. let me tell you about tv . it's a way you can get briefed on the morning. bonus round, go over to the side. there is.

and upck on that puppy comes a chart on bitcoin. you can take that over to your bloomberg terminal. you can dazzle david page in his 11:00 meeting. stay with us worldwide. this is bloomberg. ♪

tom: good morning. surveillance from london. francine lacqua and tom keene. let's dance over to our single best chart surveillance from london. francine lacqua with robin niblt and david page. let me start with you on trade weighted sterling. we forget how weak sterling has been. it migrates back to 1992. sort of bounced off the gloom of the john major years. why is sterling support -- showing support? the big thing is the referendum drop. there was a sharp decline and then we are seeing fears of the ultra hard brexit and that is providing some support. when you think back to 92 the u.k. currently runs a very large account deficit. tom: have we seen investment

flows in? >> in the second half of last that was m&a taking advantage of the low levels. since then we are seeing flows moving out. tom, off to radio. tom keene with us all week and then we go off to demos -- davos. i will ask whether the relationship trade wise we see from the u.s. and the u.k. can actually come up with some kind of agreement if brexit doesn't go to plan. not quickly i don't think. the kind of deal the united states would want with the united kingdom is going to be incredibly difficult to be able to deliver. .griculture, financial services

there is a deep u.k. popular antipathy to the idea of the transatlantic trade and investment partnership. it would be very difficult for the government to push through even as a member of the eu. i'm not sure there is commonality of vision. the u.s. may end up actually crimping their space. francine: we heard from jim o'neill earlier. inequality of brexit forces the government to think of other ways of spurring growth. i think this is the ironic byproduct of brexit is that is going to force whichever government is in power in westminster to start to do some of the things for the country that it did not leave -- need to leave the eu to do. infrastructure, education, more efficient capital markets. one of the key things is that we are lower sterling. we are also seeing a revival in manufacturing.

down thosely dragged northern economies. you didn't need brexit to achieve these things but that is a byproduct. francine: thank you, david page and robin niblett. tune in for bloomberg radio with tom keene and jonathan ferro. tom is in london. i know level of pound will come up. that's from 7:00 to 9:00 in new york. pimm fox joins the conversation from 9:00 to 10:00 new york time. u.s. dollar strengthening today. rebounding from its lowest close in three years. this is bloomberg. ♪

alix: the great meltdown.

global equities rally with bonds but commodities avoid the party. and u.s. earnings season kicks off in high gear. t minus four days. towards --licks ticks towards a government shutdown. david: welcome to bloomberg daybreak: europe i'm david westin with alix steel -- welcome to bloomberg daybreak. i'm david westin with alix steel. alix: 2800 on the s&p. large part of the buying is happening in europe. what confuses me is oil. copper. aluminum. all down today. david: just when we