>> good morning and welcome to

"bloomberg surveillance." u.s. yields jumping to the highes level in three years. i looking at crude. the monthly report just coming out now. the report sees explosive growth in u.s. oil output as prices rally. there is not that much of an impact for the moment on wti. maybe traders are trying to see what that means for the markets. coming up right here on "bloomberg surveillance, we talked to an activist investor, one of europe's largest equity funds later this hour. we will speak with gina miler about all things brexit and nigel wilson joins us to give us his take on where to find the best returns in 2018. let's get straight to the bloomberg first word news with nejra cehic reporter: germany's social

democratic party is looking for other ways to sweeten its stint in angela merkel. delegates bothdp this sunday on a proposal by party leaders to stop formal coalition talks with the chancellor. vote,s predict a tight while young party activists lead a campaign to shun policy cover moses. -- shun policy compromises. britain must accept the eu court if it wants its banks to keep access to the single market. macron, as he piled conditions on theresa may. macron made the comments alongside may after a daylong summit.rench >> i am not here to reward or to punish. i'

-- i am here to do the maximum for our mutual interests. i have one request, that the single market is preserved because it is fundamental. u.s. federal reserve insider john williams has been interviewed by the white house. it is according to a person familiar with the discussions. however, they say he was not viewed as being on the shortlist for the job. he is currently president of the fed's regional bank in san francisco, when he took the reins in 2011. he served as a senior economist for bill clinton. haveurope, economists brought forward their estimate for when the ecb the beginnings way among policymakers. no action is expected at the governing council meeting next thursday, but half of responders predicted essential bank will announce a definite end date for as a purchases by june. 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. thecine: in the u.s., house of representatives has passed a spending bill to avoid a government shutdown. it would keep the government open through february 16 while all sides negotiate a longer-term funding. however, democrats in the senate say they have the votes to block the measure. they want republicans and president trump to include protection for young immigrants. current funding will run out at midnight today. we are joined by stephanie baker. first of all, what are the chances of them avoiding the government shutdown today? stephanie: it is hard to tell. we saw last night that senator chuck schumer said that he supported a continuing resolution to keep hte government going for a few days while they continue to negotiations. they might be able to get to a point where they can pass a spending bill that keeps them

working for a few days. but they've got republican senators that are against the house bill that are willing to vote. senator john mccain might not be able to vote. they don't even have all the republican votes mind up. t-- votes lined up. you also have trump set to go to mar-a-lago this weekend. will he do that if the government shuts down? francine: can he sign bills from mar-a-lago? stephanie: that might be the least of his problems. the optics of him going to mar-a-lago, hosting this celebration of his first year in office with tickets going for $100,000 each, i think he's got bigger issues. you know, should he be staying in washington to hammer out a deal? he has already come under criticism for not making enough of calls and the mixed messages coming from him have brought us

to this point. francine: the optics are not great. athink $250,000 for a couple mar-a-lago. what does a shutdown actually mean? does it matter? is it felt today, or in two weeks/ stephanie: if there is a shutdown, it means everything but essential government services shuts down. it means hundreds of thousands of government workers go home. many are not working over the weekend, but it means national parks close down, vacationers might be at yosemite, for instance, will face difficulties. on howly depends they handle it, but it is a big deal the government shuts down. it is costly and stepping back, the government has been operating on his continuing

resolutions for months. they cannot get a spending deal. for over six months they have had stock at measures for three months, two months, one month. this is no way to run a government. francine: thank you, stephanie. for more on the shutdown and what that would mean for the dollar, james foley joins us. thank you. what does this mean for dollar? >> i think it is quite interesting. if we look back at the dollar and its relationship with safe haven currencies, it has been really advantageous. sometimes the dollar catches a bid on the back of that, but right now that is not the case. we still have the swiss franc as the staples for the swiss haven. during 2017, it was clear the euro was taking over a safe haven role. with that still the case, i don't think the dollar will catch a bid on this. francine: what is moving the

dollar? it seems to be dropping on the back of the shutdown fears. at the same time, they are ignoring higher treasury yields? what would this mean for the dollar, up or down? jane: the mindset of the dollar is negative. this explains why the dollar is moving lower. we have seen in the past treasuries move up and the doll ar appreciate higher. right now, we are worried about the u.s. shutting down and we would actually rather be in the euro, and in bunds. you have to remember, the euro has a huge current account surplus. that suggests it's the euro, rather than the dollar, which is likely to be in the safe haven role. for many fx investors, the focus may not be the u.s. government shutdown. that might be more of an issue for fixed income investors. the ecb will meet next week and

perhaps the bank of japan meeting and being in focus as well. francine: depending on what president trump says in davos next week, and i do not know if it is the right forum for it, but we might get an na ta pullingnt on nafft out. >> this is an issue for the make of canada and bank of mexico. with respect to the board, it would really start up speculation in the market that this will be where we see the u.s. treating global trade. this will put china very much in the balance again. we are likely to have a lot more speculation. what's he going to do with respect to the trade with china? it will bring up trading expectations on the front. again, i think in the shorter

term, this is likely to be overshadowed by what draghi says next week. francine: stephanie, when you look at the president in davos next week, what is he going there for? do we have any understand of his thinking? stephanie: yes, we have been told that his agenda there is pushing american businesses, the american economy. it is very much the "america first" agenda. he wants to take a victory lap on the corporate tax bill he passed. let's remember the last time the government shut down, it was fotr 16. to get ahey are able continuing resolution for the next few days, will they resulted in time for trump to get on a plane to davos? what are the optics of that, for him to go to davos with a crisis at home?

francine: stephanie makes a great point, on whether the president will be able to go to davos. what does it mean for other currencies? emerging currencies take a hit? jane: quite possibly. the market right now is really quite optimistic about low growth. that is underpinning risky assets and stock markets. now, trump, of course, has the capacity, if he talks about trade deals, to put this in the works. however, this will not be new news. this is something the market has been getting used to since he was elected. for nafta, yes, it is very much up against it in the next few months, but with respect to other trade deals, we did not see so much bad news.

many people were anticipating this with respect to the u.s. and china last year. it is a big issue for the canadian dollar and the mexican peso. for many other currencies, we will be watching very carefully. i think the market will perhaps take this more in its stride, given the center of global growth right now. francine: thank you so much, jane foley, senior fx strategist at rob a bank and stephanie baker. coming up, we speak with the cofounder of one of you up's largest -- the cofounder of one of europe's capital funds. this is bloomberg. ♪

francine: economics, finance and politics. this is "bloomberg surveillance ." the term activist has become almost synonymous with the aggressive tactics. they have gone after big targets, including volvo, but cevian has its own brand of corporate partnership. what is cevian, and what is it trying to do? let's go to zurich for the exclusive conversation. >> good morning and thank you cevianch to be here at outside zurich. so, let's talk about activism for a moment. the reason i say that is because there is a widespread assumption about what activism is. at the same time, there is an understanding that every firm in the business of activism practices it differently. so, what is cevian's brand of

activism? >> when we started this strategy 20 years ago we had not even heard about activism. i was supposedly the biggest activist in europe. our activism is rather an engaged shareholder. that means we are taking large spaces in a few companies, we make maybe two investments per year, sometimes 10 years, and we look at companies that are sound good companies and where the companies are underperforming. where it is underperforming its peers. then we are asking ourselves, isn we invest in th com company? reporter: would you say you are a "take no prisoners" activist, like a jusjeff smith from starboard?

>> i think our environment is quite different in europe, an d our style is different. over the last 20 years, we have been on the boards of our companies. we have never had to do a proxy fight. we are doing in more of a constructivist way. but we are pursuing change. we are pursuing change within the company because the company is not performing to where it should be. therefore, we want to make sure the strategies and the right ones for the future. reporter: so, you say no proxy fight. is that because you have not needed to? >> correct. reporter: is that to say you would? >> we have not been in that situation you. what we are doing is good not just for us, but all stakeholders. we are not asking the question, what should we do to this company to make the price go up? we are thinking about, how do

we make this company more valuable? you do that by making it more competitive, so it has the byproducts, gets the right customers, so it makes better profits, better cash flows. by doing that, we are creating value. not just for us, but all the shareholders and stakeholders. reporter: you mentioned european activism and the nature of activism in eruope is different from what people in the states might be used to. what is the difference? >> if i look at the american space of activism and the legacy, it came from the hedge fund side, as from the trading side. that is coming in, being pretty aggressive, going for short-term measures. not necessarily bad. short-term measures -- reporter: like share buybacks. >> we are thinking about the

whole company. reporter: so, let's pick an example. gigantic german industrial company. you've been in that stock for four an dd a half years. will kind of impact have you had thus far? >> it's a giant transformation. a very well known company in germany. it is what of the largest companies. it employs about 150,000 people. reporter: and there are all kinds of companies, right? >> correct, it has been built up over 100 years into a vast conglomerate with many different businesses, many of them very good businesses, but together, the structure of the company is way too complicated. that complexity is hampering the business from thriving. reporter: so, you have recently

called for effectively a breakup of the company. >> we think it is not the right thing for a company to combine and try and find synergies between on the one hand, elevators and a more and buildingon, or factories and making order components. in this kind of fast moving where you have to be really good at what you do, if you are grading complexities, you are just making it difficult for the businesses to thrive. reporter: so, if complexity is a hindrance, i have to draw the conclusion that it is depressing the stock value. it has a market cap of just shy euros.billion >> it should be worth double. if the margin targets were correct that the market put up four years, it would be 50 rutod euros per share, rather than 25.

the important thing is that it is breaking up the company. this is about making sure that, thinkking about what management needs to do and what the board means to do. think about the various components of the business, the elevator business. the question, how do we make sure this company is free to move ahead? know,er: as you probably the company is holding the annual general meeting today. germany,eo is in projecting your proposals, your criticism and saying he needs more time. reporter: there has been a lot of time already. frankly, the direction the company is taking is to restructure. agreement to combine

steel plans into one. he came out into the press this morning, indicating there would be a strategic deal with the company for the spring. that is good news. reporter: how much more time do you give them? >> i would suspect the strategic review would lead to basically, thorough review that would lead to a very thorough change. reporter: and if he does not do what you want? >> this is what we are looking at now and through the spring to have this work done. we have a representative on the board and we have dialogue. francine: you know what i'm getting at here. you whatsn't giv eyoe you want, it is the next step to campaign. the strategying that has been pursued so far has not really worked out. these targets were put out four

or five years ago to move the margins of the industrial business from 3.5 presented with the competitors are around 6% to 7%. they are not there. that means something is not working and the root cause of that problem is the structure of the group. reporter: you seem to have infinite patience. >> i think what we have is a combination of patients and impatience. and i think that is what we need to have. francine: you have made a lot of money. >> it is similar to the way that volvo -- reporter: i was just about to get there. by which you mean, what? you sold your interest in volov. >> what do you do with that capital? let me back up one step. we invested in volvo 10 years ago. the first three or four years

ago were difficult to get our thoughts in. changes were made to the management team and the board that could support the company in doing a contingence from being one of the loudest in the industry to one of the best. taking advantage of 4% to coast to 10%, we doubled our stakes years ago. reporter: what do you do with the capital? >> that capital will invest in situations. reporter: what appeals to you? i'm not suggesting that striking fear in the heart of every ceo in america, people do want to know where you are likely to next?tigate you are looking at financial services. we're looking at all those industries you have talked about. but we will not have about what company we are investing in. a company, we in

look at the company for many, many years. we have been following ericsson for 10 years. we have a team of 30 investment professionals that make maybe two investments per year. the travel the globe and meet with the competitors of the company. there is a sense that the easy money and activism has been made in the u.s. few companies had wrong management for erratic boards. how do you compare that with the activist opportunity in europe. >> and never thought about this in europe. this is a very engaged strategy and going into companies and making sure they perform well, that they will be better companies. that is very hard for them it takes a lot of preparation. because we designed the change plan before we advised to shelve the company. then it takes hard work in a collegian matter with the other members of the company to make it a better company.

i have never seen if the money. i love spending time with you outside zurich. that was lars forberg. s you heard, he's no carl ichan. francine: thank you. up next, gina miller, sounding partner of scm private, joins us to talk about all things brexit. id andl also talk misf regulation

francine: welcome to our weekly brexit show. i'm francine lacqua here in london. let's get you a roundup of the week sick of brexit news with

nejra cehic. nejra: the ceo of lloyds told bloomberg she is still planning for a hard brexit. the comments come as the u.k. is preparing to resume talks with the european union. >> we're still going full steam ahead on our plans. about 2 billion euros of business for us. asare going full steam ahead if it is going to be a hard brexit. may's hopes of thawing frosty relations with donald trump at a meeting in davos next week look to be fading. according to people familiar with the matter, the prime minister's team wanted to schedule a conversation during the world economic forum. while there is still a chance they will meet, coordinating their diaries is said to the proving difficult. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries.

i'm nejra cehic. this is bloomberg. francine: thank you so much. just getting some u.k. retail sales. if you look at retail sales excluding fuel, month on month, -1.6%. year on year is a little better than expected. it is weaker both on the monthly and yearly side. trying to see whether there's a little bit of pound movement. also looking at euro-pound. something we still quite like to look at. at -- i guess the concern overall is the black friday hangover. we look at retail sales, when do the bank holidays fall, does that have an impact on some of the shopping? they sell the most in 18 months as retailers experience their post-brexit a -- post-brexit a black firday.

pound with quite a bit of movement. the french president has told the u.k. it must pay into the e.u. budget if it wants access to the single market. he said it is very much up to the u.k. to decide what it wants and he's not here to punish or reward britain. if you want access to the single market, including financial services, be my guest, but you need to contribute to the budget and acknowledge european jurisdiction. francine: the british prime minister spoke of the strong relationship between the two countries. >> u.k.-french economic cooperation is vital to our shared prosperity. we share 71 billion pounds in trade, making france the u.k.'s third-largest trading partner and the u.k. france's fifth-largest.

joining us now is gina .iller, founding partner she won a brexit legal challenge against the government. also with us is the director of the think tank u.k. in a changing euro. gina, how do you write this so far? you have another number of things you are trying to do with brexit, but we may end up getting a watered down version of brexit. >> i'm feeling puzzled because i thought the reality would start donning with our negotiation team and they just seem to misinterpret. it is almost lost in translation. , single market, norwaywant access, it is , and if you don't, it is canada. we are going to have from april until october to sort this out, to give that he you our version

of what we want. beyond that, the transition deal is to get to that place. there seems to be a misunderstanding about what will be included in transition. it is a transition to the framework and what we want. francine: are these just negotiating skills? >> it is a very hard negotiation. we've set down some red lines that make it very hard to get what we want. youe.u. side, by saying have this choice between canada and norway, a lot of space in between the two, mutual recognition outside the formal structure, is effectively being closed off. there will be some movement on each side, but there's not a lot of time to achieve that. i suspect we're going to end up -- francine: i've had quite a lot of pro-brexit analysts on this program, and they were arguing it is not helpful having so many remainers saying this is not a

good deal. then the e.u. thinks the u.k. does not want a deal. gina: i agree that we shouldn't be going on yesterday's argument. but we have to negotiate and ask for something. we should be bold and ask for things. we should be asking for reforms. we should be asking for the best deal we can get. we don't seem to be going any real meaty suggestions of what we want. we go with building bridges. francine: you mean for the u.k. economy to have a template to say, in five years, this is the economy i want? gina: to say this is the sort of deal we want. we don't want canada. we don't want norway. you rely on our financial services. be bold. that is what i think the government has failed to do. it is not about remain or leave.

and the fact that we really don't have much time. we've got to be realistic about the timeline. francine: aren't their hands tied? to be bold, you need leeway. there are red lines. gina: this is a government imposed redline. what they have to do is negotiate, rather than saying we are not going to negotiate. they've put red lines that are imposed by them, and they are being inflexible. if we were bold in what we were asking for -- i think we should be asking for reform on fisheries, asking for them to look at what we do with immigration. we should be looking at budgetary reforms. we should be looking at more transparency when it comes to lobbyists. if they do that, then i think we should consider our position. i'm sure theresa may is trying to negotiate. maybe she's not asking the e.u.

to reform and saying, i want to stay in -- just the e.u. is saying, unless these conditions are not met, and that is the free movement of people. anand: i don't think when we are heading to the exit door is the best time to ask for reform. the government needs to be clear about what it wants. divisions in the government make it hard to stake out a position on trade. secondly, we need to think about our economy post-brexit. with the partial exception of agriculture, i see very few signs that ministers are thinking about what they want our economy to look like. as gina said, time is running out. francine: should the prime minister sack boris johnson? anand: under normal circumstances, any minister that has behaved like he has, would be gone, yes. it is a sign of her weakness that he's still there. francine: can she afford to sack boris johnson? gina: this is the most unusual

situation in politics. the prime minister is in a very difficult position. she is basically being controlled by elements of her cabinet. it must be a difficult place. if she could perhaps rely on some of the principles of how you behave in public life, i wouldn't say johnson is the one that should have gone. other ministers should go. francine: if you look at the various e.u. versus u.k. spatz, does president macron coming -- does it bode better for theresa may? is glass half-full, glass half empty. it is great that he's here and great for the government. on the other hand, it has taken a while for this to happen. we shouldn't be surprised. if you want to be in the single market, that is great, but you

pay money to us -- that has always been the case. francine: let me look at the currency at the moment. we're looking at pound-dollar. that is the highest since june 2016. i don't know how much you look at the currency markets, but if you look at the economy we are trying to build, some forecasts saying the pound should be higher, is it really governor carney that is in charge of the economy? gina: i think if you look at both the currency and the markets, there's been some movement, but it hasn't been particularly dramatic. one could argue it is because the markets take a five-year view. when it comes to currencies, we are seeing a weaker currency encouraging exports. there's too much uncertainty for us to know anything. francine: where is that uncertainty filtering through? is it your members that are concerned?

the economy is maybe not as good as it could have been, but not the disaster economists are saying 18 months ago. anand: we are not a lobby group, we are a think tank. what i would say is, we haven't left yet. there are two sorts of forecasts. there was the short term forecast about what happens the day after we leave. that was proved wrong. then there's the long-term forecast about whether we leave the single market and customs union. none of the organizations have seen the need to revise them as yet. those forecasts still hold. they are forecasting a hit. apologies, you are a think tank. what would it take for you to say brexit is a success? anand: it is too early to say whether brexit is going to be a success or not. it will depend on the deal we end up with. there are ways of doing brexit

that will lead to better outcomes than we have at the moment. francine: thank you so much. stay with us. plenty coming up, including a disappointing strategy. impressediller isn't with jeremy corbyn's handling of brexit. we will also be talking about airbus. emirates ordered a three 80's. this is bloomberg. ♪

francine: jeremy corbyn's brexit strategy has been described as very disappointing. businesswoman gina miller says labour needs to make its position clear. she is accused mr. corbyn of failing to all the government to account. gina miller is still with us, as is anand. corbyn, look at jeremy

what are the chances he will be the next prime minister and what are the chances of a general election in the next 12 months? gina: i don't think either one of those are going to happen. the conservatives won't vote against their own party. that makes it very difficult. the only scenario in which i see the governmentif comes back with a really bad deal and there's a vote against the deal. that could lead to another election. but i don't think either party is ready for another election. francine: anand? anand: it is hard to predict anything in british politics. the prime minister is probably more secure than people give her credit for. her own mp's don't want to get rid of her yet. they don't want mrs. may to lead them into the next election, but they would like to stay until

the brexit process is done. francine: is jeremy corbyn unclear about what he would do in europe because it serves his purpose? gina: the conservatives are in a hard position. labour are also in a difficult position. there are splits in their party too. corbin hasn't really changed. he has been consistent from that perspective. now he's in a difficult position. they have a serving -- a surgeon youth vote. seems to becal bent against europe. francine: how does he deal with that? at some point he will have to address it. at what point does it become more damaging for him and for that you float? gina: they have to clarify what this, something like the single market, means.

there will be some sort of announcement in march that will clarify that position. if they don't, they will lose a lot of support from the surge they've seen in the last 18 months or so. anand: the problem the labour party have is they have some of the most leave constituents and the most remain constituents. what we saw last year was, labour made gains across the board in both constituencies. that was because they were fundamentally ambiguous. you can see why corbyn sees it as an advantage to hedge. i think the calculation is, continue to do this. we are the opposition. let theresa may do this. if she messes up, we can profit from it. labour you think that a government is more important than preventing a hard brexit, that is fine. if you think a hard brexit is

the most important thing, then this strategy doesn't make sense. francine: what does make sense for the u.k. economy? i've heard everything from lowering taxes to a point where you become like monaco if brexit were not to go right, but that goes against what the theresa may agenda is, making it a fairer society. anand: there are all things we can do, increasing skills training, dealing with the productivity problem. brexit is all consuming for our politics at the moment, so very little else is happening. even those kinds of preparations, getting the skilled people we need for the health service, increasing training, there's very little bandwidth left to do that. brexit is taking over and we can't put those preparations in place. gina: i agree with that. there is so much concentration on free trade deals that we are

forgetting that we are in a service economy. that is where the problem is. only started looking at services in the 1980's when they realized it was two thirds of the global economy. when got to realize, the way the negotiations are going is not good for services. francine: gina, i don't know if there's an easy fix, but someone was, jim o'neill, was talking about the northern powerhouse. he said one thing that could be good at of brexit is bridging the divide between the south and north. gina: it is interesting. all the ills with been putting out the door of the e.u., can be at the door of westminster. manpower asked has to come back to westminster. there is no bandwidth in westminster. one of the pluses could be more devolved powers to different regions.

i think you will find that there's more local government increase. anand: one of the positives that has come out of the referendum and brexit is that we've become more self-aware. policymakers realized there are inequalities. our discourse has changed. we are about these things now. you can ask whether the referendum was a price worth paying, but it is a good thing that we are having it. francine: thank you. .nand and gina miller we will be talking a little bit about regulation. coming up, the fda accused of creating an anti-competitive market. we will discuss that next. this is bloomberg. ♪

francine: welcome back. gina miller, a groundbreaking victory against the u.k. government in a brexit case, is now engaged in another kind of battle, forcing asset managers to reveal the fees they charge. the businesswoman believes the fca is allowing some of them to flout negotiations, creating an

anti-competitive market. she says its lenient approach is penalizing firms. i guess the concern his, first of all, a lot of people weren't exactly sure how to deal with it. is it not better that the fca is lenient at first to see what the end game is? gina: we are concerned with article 24 of mifid, which we helped get into legislation. that requires all costs to be displayed in one number. it is very difficult to see how you can't comply with that. this whole idea that companies haven't had time, they actually had four years. are following the legislation and showing all our costs, including transaction costs that we enter, plus transaction costs within the etf we invest in, our costs look as

though they've gone up. look as though they've gone up against everybody else who is not increasing their cost , and that is anti-competitive. francine: because the fca is turning a blind eye? gina: i think what the fca should have done , and i think id missed two points -- it didn't mandate a format. it didn't say the methodology. and it didn't say where it should be displayed. should it be on a flat sheet? it is giving you a direction where it should be. without that form and format, it is very difficult for companies to come to a one number. large, small platforms, different wealth managers are using either different formulas to come up with that one number, so it is very difficult to make a comparison, or they are not

including some layers, which means the whole area is a complete mess. francine: they know that, right? you've taken this to the courts. how will it change? isa: what we will be doing submitting our research, naming all the companies we looked at, and seek a meeting with them. if they are not going to either impose fines, because a national regulator can -- this old idea, there is no period, and the fca never said there was one. they could have done that. if we are complying, other companies aren't, we will be forced to go to court and seek a judicial review. francine: thank you so much. gina miller. we will be right back with "bloomberg surveillance." tom keene joins me here in london. we will be talking to the airbus

chief operating officer. there was quite a little movement on pound. if you look at what happened, the dollar dropping, treasuries studying. the noise is the retail sales we had. retail sales seeing a black friday hangover. it was the biggest drop since june 2016, and the most in seven years. increased.ding fuel you can see clearly from the chart. this is bloomberg. ♪

francine: race against the clock. the u.s. has been tilted into

e u.s. bill -- th u has until tonight to pass a bill that would keep the government-funded. and going out on a high. we will be speaking with the airbus ceo after emirates boarded a380's. i'm francine lacqua in london. tom keene here in london. then we get to go to davos and do it again. 17 hours in the cold. tom: the story today, further u.s. dollar weakness. francine: the weaker dollar, not necessarily correlated with treasuries. let's get straight to the bloomberg first for news with taylor riggs. taylor: time is running out for congress to keep the government in business.

senate democrats say they have the votes to block the bill. they are trying to force president to include protection for young undocumented immigrants. the european central bank is seen to be getting closer to signaling an end to quantitative easing. happy economists surveyed believe the central bank will announce a definite end date for asset purchases by june. that is a sign a more optimistic views on inflation could be gaining traction amongst policymakers. in germany, delegates for the social democratic party convention vote sunday on a proposal to start coalition talks. if they reject the negotiation, that could lead to another election. the party leaders predict a tight vote. the international energy agency forecasts that u.s. oil output is set for expose the growth this year. gains will offset a steep drop in production in venezuela.

oil prices are at a three-year high and opec had succeeded in cutting stockpiles but they could become a victim of their own success. 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: equities, bonds, currencies and commodities. is dollar,day, it dollar, dollar. 2800 on the s&p -- still not used to that level. oil, churning with a little bit of news today. next screen. 12.07 withhe vix, that dow close of 27018. the dxy index is the old style blended index. the bloomberg dxy is a better set of math, but this is the one

people follow. and sterling is absolutely amazing. london. is buying in francine: i don't know if i am buying, but you're here. pound is one of the most significant things today. this is my chart of the hour. u.k. retail sales fell the most in 18 months. there was a black friday lull. we'll discuss that, but overall dollar dropping and we have to talk about oil because we had the iea report. tom: let me look at the bloomberg right now. it is the bloomberg dollar index. this is a little better math than what we see in dxy. we have broken below support. this is an exceptionally elegant

chart with the 2014 and dollar-bund strength. francine: absolutely. this is my chart. we have called it cable's rocky roads, we are taking it back to 1993, when tom was in college. u.k. retailers facing the black friday hangover. it was the biggest drop since june 2016, and the most for any december in sveeven years. tom: our tone here is a briefing through the weekend. we will be bringing you live from davos on monday. but decidedly today is on the american economy, on american politics and of course, derek the mufg to speak on

dollar. first, stephanie baker with an important briefing. this is a day when we are here, aren't we? stephanie: very shot, awaiting a government shutdown unless they get an agreement on a spending bill that will keep them working for the next few days. we had chuck schumer, the democratic leader in the senate, saying he supported a measure proposed by some of his gop colleagues to pass a short-term spending bill that would keep the government going into wednesday. whether or not they get enough votes to support that remains to be seen. tom: democrats are seething. they have zero power during tax reform. explain to our audience by democrats are so powerful right now. stephanie: well, they are fed up. they think they have the most leverage right now. senateed 60 votes in the

to pass this bill. tom: unlike with the tax legislation. stephanie: the republicans have 51 seats in the legislation. they need nine to pass this. a few republican senators oppose the current bill as well. this is where they have got real leverage. they are determined to get a deal on immigration, the so-called dreamers, these young immigrants to get a long-term deal. they feel if they wait until the end of february they have less leverage. francine: tom very kindly spent 250,000 pounds to get us to lago -- i in kidding, but the president is in mar-a-lago celebrating his one-year anniversary. how does he deal with a shutdown if there is one? stephanie: yes, he is due to fly out to mar-a-lago this afternoon. does he go ahead with that, given the bad optics of the government facing a government shutdown and him not around to hammer out a solution.

he has already faced criticism for not making enough phone calls, trying to twist the arms of senators. i think it raises questions about his trip to davos next week. francine: the optics. stephanie: yes, because of optics. can they get a solution that at least keeps the government-funded through the end of february. francine: good morning. shutdown, what does it mean for currencies, for the dollar? >> the template we have is the 16 day government shutdown duri ng the obama administration. back then, it was in huge. we had a 1% drop in the start of the shutdown period, but by october 16, the move had reversed. speaking, not much

significant dollar impact. what is different this time around though, is back then, the policy stance was ultra-easy. ben bernanke had just delayed the beginning of the end of quantitative easing and conditions were favorable. on this occasion, the market is 18% pressed for a move in march. i think we are due for a government shutdown. perhaps not immediately, but investors could become concerned that this could drag on. doubts over the rate hike in march could come into play. affect thecs could dollar. but the fact that the chart is ugly, is there anyway you could model that we get dollar weakness that to where it was in 2004, before the latest dollar boom? derek: well, i wouldn't expect that extreme of a move. we had a 10% drop last year. we are expecting somewhere in

the region of 5% this year. sinceve already had 2% the start of the year. there are, of course, some differences. i think in that context, the backdrop is negative. there'm going to assume is not a single person in washington that cares what you or i think about the dollar. they are not focused on any market reaction, but they have got to be focused on the fiscal outcome of the tax bill, and the popularity of the tax bill. has there been any shift in the popularity of the tax bill this week? stephanie; there has been a little bit of a shift, but it still remains unpopular. i don't think it is part of their calculus right now. look, the tax bill took up so much time and energy. why is why they have not had a

chance to sit down and debate be spending bill in any great detail. which is why the government has been financed through continuing resolutions for months, and this is the basics of governing. that raises real questions with one party controlling both the white house and congress. will they really send home federal workers because they cannot get a deal? it raises questions about how dysfunctional washington is. derek: his approval rating is picking up, though. highest since last summer. it seems on one hand, it is trump saying to the democrats, go ahead, i dare you. the risk is, they could get the blame. perhaps the democrats are thinking, his approval rating is on the rise. let's get the focus away from taxes. tom: this is more complicated

than british politics. francine: and we haven't even started on the italian election. stephanie baker stays with us. coming up on "bloomberg markets," a conversation with the coca-cola president and ceo, six it go6:00 p.m. we ask him about trade and possibly the u.s. ♪ pulling out of nafta. this is bloomberg. ♪

taylor: this is "bloomberg surveillance," and i'm taylor riggs. hsbc will pay $100 million to end the investigation into the breaking of currency rates. that is part of a probe that led to the conviction of one hsbc banker.

hsbc has promised to help with the criminal case against former traders. adt begins trading today on the american stock exchange. they soldiers below the market range. the company is owned by apollo global management, which is said to have more than doubled its investment. $9.3has completed its million deal with a group of investors led by softbank. k at aolders sold stoc discounted price. the deal triggered a slate of government reforms. that's your bloomberg business flash. francine: thank you, taylor. economists have brought forward their estimates of when the european central bank will set the end date for the bond buying

program. no action is expected at the ecb meeting next thursday, but the first change in forward guidance could be seen in march. by derek halpenny. when you look at some of the concerns we have about the european central bank, last year we had a lot of economists saying, this is the big unknown. if they tighten quickly come it could promote a violent move in bunds. what do the markets not perceiv perceive? >> the big story from last year was the improvement in macroeconomic conditions. ultimately, i think it is making the markets correctly assume that the current framework of forward guidance from the ecb is essentially no longer compatible with the reality on the ground. that's really what is fueling

the growing speculation that something might happen. when we look at the rates market, we are not getting anything major. a lot of them are based on what is happening globally. if you look at the spreads with the united states, there has been no notable narrowing of spreads. there's nothing major that is taking place. but i would expect that to come sooner rather than later. i think the idea that rates remain at -.4% well past the end of quantitative easing, i just think it is unrealistic. francine: what are you seeing for the european central bank? ina purchases stopping september -- asset purchases stopping in september and stopping after that? >> i expect march, 2019 and then use the two for the hikies.

it is getting harder and harder hold their tol stance. the ruler i now is not to upset markets. tom: i don't want to upset governor carney, who i know watches "surveillance," every morning, but what the ecb does so important that it drives sterling-euro dynamics and changes the brexit dynamic within the united kingdom? >> no, i think it is largely irrelevant for the u.k economy. it' likelys two years ahead of the eu economy in terms of the output gap, in terms of unit labor costs. francine: what about for sterling? everybody is cable, cable, dollar. what does it do to euro-st

erling? >> i agree. i think the macro fundamentals are dictating we will get more from the bank of england than is currently priced into the market. we are expecting two rate increases this year. we think domestically generated inflation risks are a bigger concern for the bank of england than they are currently letting on. in terms of fx, we have one of the biggest bullish markets for sterling at the moment. we have the euro-sterling coming down, not by a lot. but most of that is a dollars story, still. 2017 was a dollars story on cable. all we are saying for 2018 is we have this situation where the markets consider a correction for the pound specifically. we have a transition in place. the bank of england is moving on two occasions, which is not priced. that will be the environment where the pound outperforms and

we could see trade move higher for sterling. francine: for that would be quite dangerous for exports, especially during this time for the u.k. or would it? >> idling so, but it is based on my forecast of 1.46. that would roughly get you to about 8182. if you look at a chart, the day of brexit we dropped to 80.85. effectively i am saying through this year we get to the bottom of where we got to on day one. there is still a brexit risk premium. during thehat 1.50 referendum and we had the dollar weakening since. if brexit never happened, cable would probably be north of 1.60. 1.48 you still have a considerable risk premium priced into the market. francine: kallum pickering and derek halpenny stay with us. coming up, the coo of airbus will be talking to us about the

big emirates order, $16 billion in face value. this is bloomberg. ♪

francine: this is "bloomberg surveillance," with tom and francine from london en route to davos in a couple days. emirates airlines has ordered $16 billion of a380's, giving the superjumbo a new lease on

life. tom: it has four engines! francine: guy johnson hosts the "bloomberg markets: european open" and has more. guy: i think i will have to compete with tom as being the chief aviation watcher. we have the chief operating officer over at emirates. he's been out back. congratulations on the deal. let's talk a little bit about the structure of the transaction, though. it's an nmou and roughly half of it is in auction. what are the chances of this getting derailed? how firm is it? >> i would say it is quite firm. this is a f15 page mou. virtually every parameter is done. we're going into the contractual stage, which is mostly

contractual language. they should be done by no later than february 15. you know, emirates and airbus, neither would sign an mou unless everything was finalized. guy: ok, it sounds like it is a done deal. let's talk about what changed between now and the dubais airsh ow. thataid a few days back they had come back with a series of questions from emirates. what needed to get done to get it done? >> you and i are both aviation buffs, but i cannot tell you what went on during the contract negotiations. it was obviously were not quite there at the dubai airshow. we were close to getting a deal announced at that point, but these airplanes will be delivered over the next 10 years, whether it gets announced at the dubai airshow or two months later, it is not a big deal. guy: this is not your bailey

wake, but your successful bail ywick in a way. ea have a chance of getting back in? >> absolutely. the fact is, in the contract it is clear they have an engine choice. there are two different engines available. of course, the rolls-royce engine. so, they will take several months to decide which engine they want to select for the next batch of aircraft. guy: you talked about the fact that we can expect more widebody orders coming through. you talked about three coming in the next few months. where will those deals come from? you talked about more interest -- you expect more deals for the 380. who was waiting in the wings? >> airlines prefer to make their own announcements, but we are

negotiating a deal and i am highly confident we have at least one more a380 deal this year and in terms of widebody neo's, 350, we expect more to be announced. guy: where aircrafts get made is becoming an increasing part of what you have been doing. i'm curious to know. if china were to come out and order 380's what i expect more 380's or bits would be built in china. is that how the narrative works now? >> pretty much. this is an international industry, whether you are airbus or boeing, the airplanes are being built around the world. there are 4 million parts on an airplane and they are coming from around the world. of that. be proud this is truly an international enterprise. if there was going to be a significant order out of china for 380's, we would be willing

to talk about some industrial cooperation and building some of those components. guy: so, can we expect -- you have already gone narrow body in china. can we expect wide body in china now? >> again, that is up to the c hinese and probably, for the guy on the next watch. the fact is, we think the airplane would be ideal for china. 1.5billion people to billion people at congested airports -- not just there. this would be an ideal aircraft for china and chinese airlines. looking at could be doing industrial cooperation with the chinese for a significant order. guy: can i stay with the china theme? do you have any financial risks surrounding the hna group? the risks are becoming increasingly well-known.

could that expose your business? >> well, again, not too much. we build airplanes, so there would be an industrial risk if they got into serious difficulty. we have airlines coming down the assembly line. but we also have prepayments, significant amount of predelivery payments to cover our exposure. we would not be that directly impacted. we are not financing our crafts for the high nine group. guy: what do you think of 1.30 euro-dollar, and what would that mean to your success? >> remember we are hedged. if you go to our website you can see the hedging going forward. at this point, it is not the impact many people think because of the extensive hedging we have entered into. guy: great to speak with you, john leahy.

outgoing coo. he will be replaced very shortly. i go back to my extensive 5,iew of watching airplane 6, 7, 8 times. for engines on a plane -- two engines on a plane versus four engines on a plane. i know every aeronautical plane would say i am wrong. four engines. guy: the mass would work in your -- math would work in your favor, the economics, probably less so. tom: who cares about the economics. i will watch airplane this weekend. here is taylor riggs. taylor: lawmakers have until midnight to come up with a bill a overt a partial -- avert

partial government shutdown. last night, the house passed a measure that would keep the government in business through february 16. senate democrats say they have the vote to block it. to force democrats and president trump to extend protections for young, undocumented immigrants facing deportation. the federal reserve plans to ease up on bank leverage. the fed wants to relax a part of the post crisis demand for graphically -- drastically increased -- it's said to be opposed by the fdic. the trump administration is running out of patience with nafta talks. according to people familiar with the matter, the u.s. is serious about its threat to pull out of negotiations of there's no progress on proposals intended to rebalance trade. talks resume on thursday -- tuesday in montreal. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. so much.ks

it's always good to have a guest on "surveillance," being written up in the british press. kallum pickering, this is no boom before the bust. an important essay on getting the gdp done right from one of our guests. francine: a very interesting article on the back of president macron showing up yesterday. theain must accept jurisdiction of e.u. courts if it wants banks to keep access to the -- that is according to french president emmanuel macron who piled on the conditions on theresa may. i watched the news conference and it was quite interesting to see him say, this, this, this, and this and theresa may saying we get along great and we've always had a mutual financial benefit. let's get back to kallum

company --and derek derek halpenny. we look at the future of the european union or the u.k., who has it worse? the rule in trading negotiations is the bigger party sets the terms. so long as the fundamentals of the u.k.'s economic structure, labor -- openness to trade, britain -- brexit is not the end of the world. as long as you avoid a hard brexit, -- inside the e.u., the u.k. can manage 2.1%. an unusuallk about recovery. why is it unusual? kallum: it seems to be long-lived. especially when i go to the u.s. i hear people say 8 years till

expansion. as an economist, expansions do not die of old age. when i look across the developed world, i don't see major signs of access. tom: the foreign-exchange meant -- market, their help in a, what do you see on in balances right now? they certainly exist although i don't think they are necessarily a driver at this point in time. it is interesting when we talk about the twin deficit in the united states and from the point when the market starts to become convinced about tax reform being actually implemented, the dollar has been sliding. are,oks like the markets to some degree, ignoring potential short-term cyclical positives in relation to that and looking further out at the fact that you can have a budget deficit of 5%, 6% for a number of years and if you have better demand relative in the u.s. to elsewhere, you have the current deficit widening.

that has implications for dollar over the return. tom: you are telling me -- francine: you are telling me nobody care -- cares about brexit? it has a huge application for the u.k. government and british citizens, but if you are a global investor, what would you do with brexit? derek: from my experience, going to the middle east just thinking off the top of my head because i was there relatively recently. when i was there, imagine people talking to me about when is the best time to start investing in the u.k. and when i am in asia, it's talk about that, talk about the opportunity rather than the negative in relation to the risks. i would agree with kallum. ultimately, it's not that you indian the -- of the world and i think europeans have a lot more senses than the market is currently thinking about european desire not to set the u.k. afloat. they want to keep links.

francine: i feel a little bit more optimism in the markets, the guests that we have on, and i wonder whether it's false hope wrecks it will be watered down will bent -- brexit watered down to a point that it will not resemble brexit or the government has such a bad deal that parliament will vote it down and you do not get brexit. kallum: the u.k.'s position has moderated through last year. we can put that down to the bund election. most of all, it's corben and the far west. when it comes to the market, the market really only cares about whether or not it will be a hard brexit. i reduced my heart brexit risk from -- hard brexit risk from 30% to 20% last year when they negotiated the divorce and you can see that in sterling. the fact the market is discounting the u.k.'s potential

risk of a hard brexit, the currency comes up. tom: is the dollar discounting trump's 3% gdp and is it really modeling in two point whatever percent real gdp that could be beneath europe's gdp? andk: in terms of fx pricing growth, i would say the markets are broadly not anticipating any kind of upward shift from the current trend around 2% growth. we have the midterms this year and there's a lot of risk associated with that and i sense the markets have become a little bit less inclined to worry about washington because be haps -- perhaps last year the history was there was a lot of noise from the white house and there was enough huge amount of ballot -- a huge amount of volatility. i need to make money on friday, what is your single currency pared trade right now where i can come out of davos almost whole?

francine: wow. you are asking a lot. tom: what is your chait this morning -- trade this morning? sterling, what? we had somebody say swiss franc, japanese yen. what is a trade with sterling where i can pay for this trip to davos? derek: short-term i would stick with the dollar. when i look across fx apart from the dollar across short-term, there is nothing that really stands out, i don't think. playing --re you paying for me, too? tom: brett miller will come in with the helicopter. francine: if you look at central banks around the world, who has the toughest time today and for people in the market, would you look for weakness or mispriced -- mispricing to make money?

kallum: the ones that are looking at economies behind the u.s. in the rate hike cycle and economic cycle. if i pick an economy where the cycle can come to an end soon, it's the u.s.. i would look at wage inflation and the risk of the fed runs the economy hot and feels in two or three years, we need to create unemployment in order to bring inflation back down here it at which point, the central banks which are only then thinking about raising interest rates because they were 2, 3 years behind the fed, then they might be in trouble. tom: bring up my screen. this is the news headline dump we use day-to-day and i have it color-coded so i can see. sort of boring right now. five or six times a year, there are headlines that come across there where i just stop in my tracks. one of them was governor carney saying i cannot raise rates, there is no inflation. or sixlike four or five

months ago. are we going to see more headlines like that this year which keep the banks behind the fed? kallum: the handbook for central banking is, if you have been worried about deflation for a while, you sort of misbehave to get inflation expectations up. what worries me is now we have stronger global cyclical dynamics plus the disinflationary effects of stronger emerging-market growth and more and more globalization plus robotics. all these big rod activity gains and you find a situation where the banks focus too much on inflation, which they don't get, but they ignore the credit markets and asset markets and that's the stuff we have to worry about. we might get x -- excesses. you have to look for inflation because inflation has been a little bit high. has mark carney done any faux pas so far? there was an emergency rate decrease after the brexit vote

he has had to reverse. what is it mean for now? he's a neutral or was that a mistake? derek: they would argue they still did that and it helps conditions to bring about what actually happened. i think it's difficult to answer that question. certainly, the expectation immediately after brexit did not serialize. the u.k. -- materialize. the u.k. environment has been more resilient than expected. i still think -- a lot of npc members mentioned this specifically, they are looking a lot closer at domestic wage pressure. although the obvious one, we all look at the weekly earnings showns, haven't really anything. there's a lot of anecdotal evidence that suggests labor markets are extraordinarily tight. i think part of it is related to brexit and there is evident in some surveys suggesting london in particular, the labor market is extremely tight. emphasis is more

about the threat to inflation and when we get any evidence of it -- if you look at 6 month annualized or weekly earnings, there has been a tick up. there is a suggestion -- tom: there's a little bit of acceleration. interesting. derek: it's not compelling, but it could move that way. tom: wonderful to see you in london, derek halpenny, thank you so much. kallum pickering, thank you so much. thank you for your article today in "the telegraph." we will be a day early in davos. we will begin with you monday ouring in davos with european and united kingdom coverage and bring that right through to the american day. davos for five days next week, the important meetings of the world's economic forum and later in the week some of the president attends.

♪ good morning, everyone. "bloomberg surveillance" on friday. francine mclean -- francine lacqua and tom keene. we hold court in london. gorgeous weather in a booming london and it has to be one of our themes and we are brighter and you will be brighter with nigel wilson with legal and general, which barely describes his place in this city. you are more familiar with this plot of land we are on than anybody we could possibly bring in here. wee us the story of where are coming out of world war ii and how we got here over 70 years. nigel: we were in this building for a long period of time and we were going to partner with bloomberg and the development of it and we recognized quickly there was a very dominant and powerful force on the other side of the table.

we decided the 99%-1% venture didn't look appealing so we moved on about 200 yards down the road. to be fair, this is an absolutely sensational and probably the nicest building in london. francine: did you pay for that? tom: yeah, i did pay for that. for me visiting, there is a bigger pot now. nigel: we are seeing tremendous growth not just in london, there is a renewal of confidence across britain. it's almost an anti-brexit situation and the people actually recognize they have to step up. the citizens voted for something, they cannot let the economy fall over so people are actually making positive decisions to make lives better for citizens any see it here. london is very energetic. if you aren't going to that

youificent conference and were going north, you would see the same in the north of england. francine: some of the retail sales were a little bit weaker, there seems to be a little bit of concern about investment longer-term, a lot of folks on pound. there is certainly a northern south divide that seems to be bridged because we need -- we need more of the northern powerhouse is the play a role, but you cannot say this is helpful for investment, or can you? nigel: i think the weakness in the pound has been helpful. we have a flexible labor market. all the economists have got things wrong. secular stagnation is not happening. when we think about what happened post-brexit, we have had more foreign investment into things and joint ventures than we had in the u.k. than we have ever had in the history of legal and general. we had a record year. just a u.k. and a u.s. company last year.

francine: where are you seeing growth? is it some of your policies? it's pretty close to being one trillion pounds of assets under management. we had a record year in europe last year for the money managed by us. we are seeing the housing market has recovered, a lot more houses being built. there has been regeneration going on pretty much in every city. tom: i want to come back about actual assumption in the challenge to retirement money. i think it's a critically important conversation. francine: we will come back and we will have that. nigel wilson, legal and general group ceo will be with us. if you are on bloomberg go, load up tv . then you say, tom is in london, that must mean he has really poundilt charts or maybe

trade wages. this is bloomberg. ♪

♪ taylor: this is bloomberg surveillance. let's get the bloomberg business flash. investors are taking money out of u.s. junk-bond funds to read about $3.41 billion was pulled f's.of speculative et outflows hit a two month high and the yield on to your treasuries rose. reward point are getting expensive for american express. the cost of paying out rewards $2 billion inst the fourth quarter. the company has been spending more to sign co. brand deals after parting ways with costco and jetblue. one of warren buffett's top deputies built up $109 million stake in berkshire hathaway. they disclosed the holdings in a filing. james is the insurance executive named vice chairman earlier this

month. that is your bloomberg business flash. tom: thanks so much. francine lacqua in london with tom keene and this is the interview of the day if you are part of global wall street. nigel wilson is out of m.i.t. -- heudied with understands the mathematics of the moment. if you are in institutional money, the assumption has been a mystery for 4, 5, 6 years and maybe things are changing. explain how if we of a higher yield regime, you get a higher coupon, but at the same time, a portfolio sinking like a rock. which do you want, the coupon or portfolio stability? nigel: i think we want investment to reverse that. you have identified it correctly and we are seeing people not living as long. there's a lot of changes in the actuarial world. the solution is huge investment to infrastructure because we have created a 30-year infrastructure deficit in the

u.s. and the u.k. and institutions are sitting on all this money which is what you just said, going to be absolutely the case. tom: a lot of money and maybe that is the social good that comes out of this. what it comes down to is the the you are expert at and 1958 cso table. the you know the math of the retirees to come. you have any confidence in the math -- do you have any confidence in the rest of us getting aged? nigel: we are confident on the math. hasrate of longevity decelerated. people are not living as long as expected. interest rates have gone up and that will help reduce the overall debt. equity markets have gone up. we see a transfer of large pension schemes into pooled insurance vehicles.

the deficit in the u.s. and u.k. in terms of infrastructure -- francine: how much damage have negative rates run to the pension funds in europe? nigel: they have been damaged over a long period of time. we have to step up and take a different medicine to solve it. it's quite fortuitous that the political will in europe, the u.k., and the u.s. has finally -- is finally going to address the infrastructure deficit. tom: what we know is there are rhythm or glide pass on negative numbers. do you assume as we come out of a negative rate regime we come out with stability? will you go quarter to quarter minting the 4% you need? nigel: we are going to see more economic stability -- economic growth is happening all over the world. secular stagnation is not happening. of bob --amous words "we begin to see technology in the numbers," which we couldn't

see for a long period of time. business is finally beginning to understand to invest in technology and drive connectivity. the biggest problem is -- in britain is not brexit, it's the productivity difference between ourselves, the u.s., and germany. 30%. tom: we will come back with nigel wilson another time on western world productivity. mr. wilson is with legal and general, their chief executive officer. we continue to look at a weak dollar. must listen, must watch. -- os fiotakis this is bloomberg. ♪

♪ tom: this morning, the dollar discovers renewed weakness against any and all.

a weak dollar is good for president trump. sterling strengthens. can a 140 plus cable derail the brexit express? shut down in washington. the president says if you build it, they will not come. senate democrats say we will shut down government over immigration. women pack their bags. no one flies economy. at,e will be davos bt and before and after a presidential visit. "bloomberg surveillance this is"bloomberg surveillance." we are live from london. with me, francine lacqua and we begin a day earlier in davos. we thought the global economy was so tumultuous and we didn't know the president was going to attend. in hindsight, we look brilliant starting monday instead of tuesday. francine: we look brilliant and we have great interviews coming up.

we are hearing in the margins that may be more world leaders will show up. i don't know if that's because of president trump or not. we need to talk monetary policy and ramp up our coverage of trade and if president trump shows up with a clear message of america first, we may see a schism or move in the market. tom: madame lagarde lecturing the germans on a need to change their economy because of that massive surplus and chancellor merkel will attend as well. there's some interesting dynamics here as the elite meet to great. -- greet. francine: looking forward to going up the mountain and then our coverage. tom: francine takes seven bags and i have my overnight trolley thing. francine: if you believe that, you will believe anything. withthe helicopter tilts her luggage. francine: i happen to be the latest packer in davos and i will have photographic evidence.

tom: she is getting italian on me. taylor: time is running out for congress to avert a partial shutdown of the federal government. senate democrats say they have bill and to block the they are trying to force republicans and president trump include protections for undocumented, young immigrants. the european central bank seems to be getting closer to of signaling and end to quantitative easing. half of the economist -- almost half the economists surveyed believe they will announce a end date by june. delegates to the social democratic party convention vote on sunday on a proposal to start coalition talks with chancellor angela theyl's block to read if reject negotiations, it could lead to another election. party leaders protect another

tight vote. output is setl for explosive growth this year. gains in the u.s. and canada will offset a drop in production in venezuela. oil prices are at a three-year high. opec cuts have succeeded in cutting stockpiles, but could become a victim of their own success. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. thanks so much great equities, bonds, currencies, currencies, currencies. let's get to that. we have some wonderful guests all through "surveillance" today. the euro has really done nothing for five days and we get a nice pop today. oil churning. next screen with the vix out with a 12 handle, that is of interest.

.05. closing nicely above the dow at 26,000. -- would be more than interesting. sterling, i give up, i cannot afford london. i will go somewhere cheap like zurich. francine: and we are sending you to davos because that will be so much cheaper. treasury steadying. we saw a recent stat off -- selloff. signs of inflation -- stocks in europe and asia advancing, gold jumping and we had a report having a little bit of impact on the price of oil. 63.71. tom, i need glasses. tom: i am the same way. i am partially -- francine: i can see some data takes -- checks and others less. tom: let's start in washington. to set the tone, greg of horizon

puts out a morning note and he was scathing today in the tone between republicans and democrats. really most interesting with a focus on mr. schumer. there is a new sheriff in town and his name is chuck schumer, the senator of new york through to the immigration issue defies any solution so long as the president insists on a wall. the republican from kentucky increasingly exacerbated basically said trump is in over his head over policy and he goes pox on both your "ouses. that move would hurt the party in power. kevin cirilli joins us right now. let's cut to the chase. what's the likelihood of a government shutdown? likely.t's increasingly the house of representatives passing a short-term deal to keep the government funded through february 16.

the question becomes in the senate, none of that really matters because mitch mcconnell does not have enough democratic support to bring about any type of deal. yesterday, democrats, including chuck schumer really pounding the issue of republicans and the president on the issue of immigration throughout capitol hill. i am headed up there in a bit to see the fallout of this. the question becomes, are democrats willing to take the chance they will not get the blame should there be a shutdown? the last government shutdown in 2013 cost the government $20 billion. tom: within that and the fed would say, you can print that pox on both their houses. the democrats finally have power, don't they? are they truly unified? kevin: right now they are. the difference between the last government shutdown, which republicans were blamed for that, specifically ted cruz --

is that democrats have poll numbers on their sides and the polls suggest all around the country folks are behind dreamers, the 800,000 immigrants brought here illegally at a young age against their choosing and by all intents and purposes grew up american. it would indicate that polls said just they are on their side and the business community as well. many folks all around the country are really on the democrats' side for this. francine: talk to me about optics. there's a government shutdown and a little bit of criticism maybe he did not put out enough calls to avert the shutdown. i don't know whether he is to blame, but he is also in mar-a-lago throwing a party for office.year party in kevin: happy anniversary. francine: what does that mean for the base? kevin: this is remarkable. this is the one-year anniversary

since president president trump gets into office and he will have a massive fundraiser in mar-a-lago. i talked to republican tell me thewho president holding firm on immigration helps him solidify his base. yesterday the president was in western pennsylvania, a key state he needed to win becoming president in a campaign rally as sort. he played his campaign rally song, "you can't always get what you want." you will find out today if he can get what he wants -- tom: i was thinking this last night during my dinner at the liverpool mcdonald station -- the "you can't always get what soundnt" the stones totally different in london versus what they do in new york. i listened last night and it's a physical thing. been to have never london. francine: we are going to fix that.

kevin: anytime time you guys want me over there. tom: is this percolating -- francine and i noticed this, is there a possibility the president and the entourage would cancel their trip to davos next week? kevin: i have not heard that, but with president trump, anything is possible. we should also note vice president mike pence is still embarking on his middle east trip to israel despite the shutdown from a. -- drama. if there is a shutdown, i don't want to speculate because i haven't heard that, but we are on the cusp of a shutdown. tom: kevin cirilli, look forward to seeing you in london next time we venture over here. he is our chief washington correspondent in charge of rolling stones analysis. -- is a good person to speak to today. ubs was brilliant 12 months, 14 months ago on sterling. of the world was coming to an end and you said, no, sterling

stability and even sterling strength. i guess the world is coming to an end on the dollar. themos: definitely we cannot extrapolate the pace of depreciation as it has been. part of what you call sterling theility has been the fact dollar has weakened across a number of currencies, including sterling. the big dollar driver is there and there are fundamental drivers that mean we still have a little bit further dollar weakness to go in the months ahead. maybe not at this pace, it definitely the direction is there. francine: what kind of level are you looking at? themos: the euro-dollar we have 1.25 this year and 1.30 for next year and that's about it. francine: ok. tom: themos fiotakis, we will continue this conversation. really outlandish calls on a sterling made this week on our visit in london. he is the senator from south dakota, mike around, thrilled

that he will be with us today. look for him in the 8:00 hour on his republican party. year -- the tumult one year on at the presidency of donald trump. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. million inay $100 the u.s. investigation and the regain of currency rates. that's part of a probe that led to the conviction of one former banker and charges against another. as part of the deal, hsbc has promised to help with the criminal case against former traders and anyone else caught up in the matter. home security company

adp begin trading today on the new york stock exchange. adp raised about $1.5 billion in its ipo selling shares below the marketed range. the company is owned by apollo global management, which is said to nearly double its investment. has completed its $9.3 billion deal with a group of investors led by softbank. shareholders sold about $8 billion at a discounted price. softbank invested directly into the ride-hailing service. it triggered a slate of government reforms that eliminated rights held by telling -- found holder -- the found holder and others. now to the european central bank and economists have brought forward their analysts of when the central bank will for theend date bond buying program. the first change in forward guidance is for seen for march.

we are back with themos fiotakis . i think i have a euro trade wage chart if we can bring that up on stage. i don't know if there's a difference between trade wage or the real one. where do you expect that to go depending on how markets perceive the ecb? captions think what this trade weighted chart is the euro has been undervalued. part of the reason is the -- of the ecb. european bonds are the most expensive in the world among the major countries. european yields are way too low and as the ecb exits, this should correct the fair value. mind, they will still be buying bonds for the majority of this year and absorbing more of the supply of german bonds. even if they tweak forward guidance, they will be making very sure they imprint on the market's minds that this will

happen a lot later after they stop purchasing bonds, potentially in 2019 and that has been actually the core of some of the comments we have seen in the recent weeks as the euro has been rising faster than we would have expected. francine: where you expecting ecb -- what are you expecting ecb policy to be? themos: by the end of the year they will have ramped it up and sometime in the middle of next year it will be hikes. tom: i look at the optimal price of euro. i have never seen an academic or market study that says the euro is an intelligent system, you've got to many different economies. single point optimism -- optimum german euro and at a point of discussion, look at italy flat on its back recovering on a per capita basis to read what is the optimum italian value for europe? -- euro? themos: all of these models

there's a wide differential. tom: yeah, yeah, yeah. -- made you say that, right? actually think we would agree on that. what's important for aggregate -- stilluro area, competitive at 1.30 for the euro-dollar and that includes italy, which when the euro does well, italy does well as well. maybe it would've done better if the euro was lower. this is really important. in the italian election, you are's the currency dynamics are the litmus paper of currency is tertiarydary or indicator of how well italy will do in the future? themos: and now that you mentioned the italian elections, we view the election as a catalyst that would unlock risk premium. a verytill maintains wide risk premium and the

fundamentals are a lot better than perceived by the market. tom: let's rip up the script and o to your political analysts' bets outcomes -- best outcome for italy? what is the coalition that is the best outcome for italy and that advanced risk premium? themos: the statement that is makes athe dynamics -- coalition more likely and a coalition which sees very little scope for revising any kind of euro acceptance. francine: what happens to reforms? themos: it depends on what the pricing is. the pricing is still for recession. at the same time, you have risk premium and italian bonds -- trading quite poorly, and gdp recovering. not just on a per capita basis.

all of this has not been in the price primarily because people are worried about the instability the election has made. any kind of coalition is -- that is viable is -- tom: constructive. themos: at least for the next six months. tom: coming up, this is a timely conversation on the rebuilding of james quincey of the coca-cola company. he is chief executive officer, he is president. some terrific societal changes, this iconic american company. ink for that at the 1:00 -- the 1:00 p.m. hour today. this is bloomberg ♪ . ♪

♪ francine: good morning, everyone. "bloomberg surveillance" onto the last hour of tom and francine in london before we migrate to davos. tom is crying because he doesn't want to wear those big boots to walk up the mountain. tom: we have to drive to heathrow. francine: let's look at what we heard from the u.k. we understand prime minister theresa may will be in double sprayed a lot of the talk will be whether she meets with president trump or not. in the meantime, i am sure she is looking at retail sales. they fell the most in 18 months in december as well as a post up a friday lull rounded rough year for british shops. -- butoking at sterling

not looking at cable, i'm looking at euro pound. you can see the trace going onto the one parity and leveling off at 88.274. for london radio listeners, we welcome you, and we will push out this and all of our charts on bloomberg radio. --are talk -- back to talk with themos fiotakis. do you look at cable or does euro pound give a different story? themos: now that euro-dollar has moved cable higher come all of this stability because of the grindingsterling is higher -- there is one underlying factor. the u.k. is a very global economy that has a lot of global-based firms such as the one we are in here and the surge in global profits has been reflected in the u.k. current account and the u.k.'s current account has improved because of global reflation.

to me, the fact that we are not trading stronger despite global reflation, despite the bank of england tightening, despite the fact that we have had a year where -- did better than the community would have expected, makes me think the underlying time for sterling is to weaken against the dollar and potentially him a gradually as long as global reflation continues, we see this grind higher -- eurosterling grind higher. francine: are there any different pairs we don't often look at? poundt know if there's a -- floti -- themos: sterling and swiss will probably underperformed central and eastern european countries, so these are interesting classes to talk about. tom: do you see how he answered that question without giving us a currency pair? francine: he is good. tom: that is a real skill.

czech -- swiss -- we will put that in line -- themos fiotakis is with us. czech-krona. i will save myself here. bloomberg businessweek, this is an important rate, terrific briefing against -- about business and economics that has something to do with the cost of an uber arrive in gatwick. i could not believe what that cost.

♪ tom: good morning. "bloomberg surveillance." keene inlacqua and tom london. a lot going on, particularly a focus in washington.

to get your reading ready for the weekend into an extraordinary week next week, the history of the president united states visiting davos for the first time since president clinton -- it has been ages since the u.s. really had a group there. it will be interesting to see how the week evolves in davos. friday evolves in your city with first word news right now. taylor: lawmakers have until midnight over a partial government shutdown. democrats say the votes are not there. the house passed a measure that would keep the government in business until february 16. senate democrats say they have the votes to block it. their goal is to force republicans to expand protections for young undocumented immigrants facing deportation. the trump administration is running out of patients with the -- patience with the nafta talks. according to people familiar

with the matter, the u.s. is serious about pulling out of talks. talks resume tuesday in montreal. zimbabwe's new president pledged to pay compensation to white farmers whose land was compensated, sell bonds, and hold internationally acceptable elections. end itsying to isolation. >> we will not succeed overnight, but we have committed out -- ourselves to pay our debts. once we do so, i have no doubt that we will begin -- they will begin to lend support to this country. taylor: global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you. this is what i am looking at overall. oil slipping as the

international energy agency became the latest to warm up a jump in production in the united states. the group said u.s. oil output is up for explosive growth this year. kennedy,s now is riley bloomberg's managing editor for oil and commodities in the middle east and africa. if you look at what the iea is saying, they are saying u.s. oil opera will increase because the price of oil is increasing. there is nothing really new. >> what is new is people expect u.s. shale to accelerate much faster than they thought. it to go up to 1.3 million barrels a day. the numbers have become more and more significant. the point is there is every reason to think of this trend will accelerate. francine: what does this tell us about the price of oil? your team is working hard to

figure out if it will increase over back down down -- go back down to $50. will: one thing they pointed out on the other side of the is aion in today's report precipitous decline in venezuelan production. a loss something like 300,000 barrels a day last year to less than 2 million barrels. they could even steepen the decline. that is counterbalancing some of the fresh oil they are seeing to the other thing is will opec hold its line? so far, it is being disciplined in sticking to cuts. but we will hear more and more voices that opec should ease its policy stance. tom: thank you, will kennedy. for brent.l -- i to write hyper detailed commodity analysis.

the soft is what we do not talk enough about. things like coffee. thomas theotokos -- themos fio takis with us. bring up the chart of coffee and the slowdown -- is the analysis in trading of soft the same as it was 10 or 20 years ago? four are they going through it a change in commodities? >> to some extent, it has. broadly, it is still supply and demand. agricultural is supply-side trayvon -- driven. it is supply that drives it, because what is the weather in brazil, in vietnam? in your coffee analysis, i get the usual names -- there is the new kid on the block. vietnam. is there a new come last --

complexity that makes it harder for commodity traders to get on trend? sets coffee apart from the rest is actual on the ground supply information is not really prevalent. you do not have the usda reporting, where as for coffee, you have to be on the ground, literally counting the cherries on the tree to see how big the crop will be. you are right. there is the amount, honduras, columbia. vietnam, honduras, columbia. francine: one of the first things i day -- tom: she does not do this everyday -- any day but friday. i have to discover a cocoa char t? francine: this depends on drought, on social unrest on the ivory coast. kona: it is boots on the ground. that is the only way can find out what is going on in production. it is not large scale.

it is usually one plan and his qatar -- hect -- one man and his hectare of land. francine: what will happen in 2018? kona: on the back of strong economic growth, those look positive, particularly with a weaker u.s. dollar. but softs in grains, i do not think we share that uplift in commodities, because the story i'm a fundamentally, is not quite there. with sugar and grain are in rough supply. we have oversupply under pressure. coffee, technically, is in the deficit. the 2018 crops will be large. futures will be looking ahead at bay crops. -- futures will be looking ahead at crops. tom: one more question on cocoa. cocoa has always been the volatility of it -- you can play

the game. is there still a depth of market? is there still enough of a game being played? kona: i think so. it depends on if you have insights that are the people do not have. but something has changed fundamentally from 20-30 years ago. it is the amount of system funds involved in the futures market. to 60% offobably 50% the total open interest to they do not follow fundamentals. tom: doing almost a black box on cocoa or coffee? kona: yes. tom: do they make money on that? i am fascinated on what you think of bitcoin. soft,eve bitcoin is not a but you have been in the battle of commodities, getting it right, getting it wrong -- what is your thoughts when you look at the date -- bid-esque

qualities of bitcoin? kona: that is tricky. because i am used to looking at markets on a fundamental basis, i am struggling looking at bitcoin on a fundamental basis. the demand depends on the likes as aazon allowing it currency. you have this new thing where regulators are not necessarily going for it. that feels scary. francine: he always wants to talk bitcoin. this is like a free get out of jail card. you can also talk about commodity nations. themos: the fact that soft commodities will be not going up so fast is very important for merging markets. by far, the biggest driver of inflation for merging gets a soft commodities. and the fact that there is a split means emerging-market commodities will be --

francine: when you look at emerging markets, though, a lot of the gains we have seen are due to artificial intelligence. so, for example, equity stocks down. is it the same for currency or do investors look at things such as commodities, inflation, anything in between? themos: emerging markets -- it has been the equity side this year. i have to say the theme is ofadening out because primarily how strong china is in the background, how strong chinese consumption is in the background. look at the next equity theme in emerging targets, it is equity. tom: is china part of soft? kona: yes. tom: give us an example of china and soft it is a cotton? kona: cotton, sugar, coffee, in

a declining order. tom: cotton, sugar, and coffee. kona: and before that, soybeans. chinese sugar -- kona: i am talking about consumption. tom: i am talking about what they make. kona: but even still, china is an importer. francine: how much do they consume? we were trying to figure out the gdp story. they will use less commodities for infrastructure, so that will have longer-term impact on copper and the like. do they drink coffee, drink less coffee? kona: if they follow the path of japan and south korea, yes, we see they make that move from traditional tea to coffee. starbucks is opening every other day in the main cities of china. so coffee is growing. tom: generally speaking, this is

why the bull is the qe dollar -- themos: generally speaking, this is why the ball is the qe dollar. tom: thank you for joining us. we will continue here. too much to talk about today to get your brief this friday into theweekend, into international meetings next week in dallas. for your friday briefing coast-to-coast, trapped in your car, bob moon, karen moskow, bloomberg radio coast-to-coast. good morning, radio london. this is bloomberg. ♪

♪ this is "bloomberg surveillance." let's get the bloomberg business flash. investors are taking money out of u.s. junk bond funds. about the poor $1 billion was pulled out of speculated debt etf's. outflows hit a two month high, while the yield on two-year -- 10 year treasuries rose. award ports are getting expensive for american express. the cost of paying out rewards rose 12% in the fourth quarter. the company had in spending more to sign co. brand deals after parting ways with costco and jetblue. warren buffett's top deputies

build a $1.9 million stake in berkshire hathaway. it -- that is your bloomberg business flash. tom: thanks so much. with us today, themos fiotakis of ubs. this is the bloomberg dollar index did we have zoomed in to a short-term deal. i will tweet it out for bloomberg radio in a bit. we get the september lows, then up we go. as you mentioned at the beginning of the hour, we have some acceleration. mma, gamma, plunging down. why do we have the sudden drop? a numberell, you have of different factors. the most important driver of all of this is the ongoing easing

financial conditions, driven by growth. you have higher equities, higher oil prices, a weaker dollar. you also have a couple of events, including the government shutdown -- tom: but there is also, within those type one ideas, it is this, this, this -- it is also what is not going on. what is not going on is inflation. orders ubs see inflation -- or does ubs see inflation percolating? themos: it is not going on now, but you have a weaker dollar fueling prices. these numbers may bring u.s. headline cpi inflation close to 3%. tom: that is quite a statement. you are predicting 3% u.s. inflation? themos: a little below that. what if the dollar continues, around the middle of the year, headlines will jump.

francine: what does that mean for treasuries? , they get tight. now, we neednk for some inflation. the worry has been we are not delivering some of that. at the same time, allow the market of -- to price in more hikes. an environment of easing, equities are strong, growth is strong, the market will absorb it. the curve will flatten. and given that a lot of that is priced in on the long end of the curve, the u.s. will have less to worry about in the dollar. francine: are there bubbles in the market? kona: -- "bubble" is a difficult word to use.

the low end of the credit quality is more susceptible to higher rates. that will underperform. you mentioned eastern europe is a place where you could see some real movement. trump-likeore governments right now. there has been real clinical noise -- political noised it is that good noise for its currencies? does that develop an authoritarian certitude? economies, smaller they are mostly reflecting how they are positioned in the global set up. they have recovered quite significantly. at the same time, they are benefiting a lot from strength in europe. at the same time, they have better -- tom: economic strength.

are they harmed by a stronger euro? what jockey does, does it matter for the baltic states -- what draghi does, does it matter for baltic states? themos: it does matter, especially in a broad statement. francine: what is your call on yen? does it get impacted by inflation expectations, impacted by the fact that governor kuroda may not get another term? themos: hugely, but all of these factors are the most important thing to keep in mind is japan has a curve, and it is inflating. as inflation expectations go up in japan, real rates compress. that should drive the yen initially weaker. as the yen weakens, inflation picks up. the bank of japan should revise its yield curve target higher by 20 basis points or so. this creates opportunities, both

for the yen and the yield curve, which should steepen. and bonds get some life after spending a lot of time doing nothing. francine: if governor kuroda were to step down or not be reappointed or choose to retire -- whatever you want to call it, what his legacy -- themos: live on? i think you have to think of what succeeds him. in the names that have flown around in the press. tom: this has been great. themos the attack us -- fiotakis, this has been great. i do not have it up, but let me tell you about tv right now. francine coming to the rescue. there is tv , as it buffers up. if you're at your desk at ubs, you can watch themos fiotakis. the importantly, migrate to right side of the screen. look at the older moments we have had.

you can click on it and steal that chart to dazzle themos fiotakis at your 2:00 p.m. meeting. stay with us worldwide. tv . this is bloomberg. ♪ erg. ♪

♪

francine: "bloomberg surveillance." because tomtense, and i are getting ready for davos. we usually fight about how much luggage we each can carry and who carries what. tom: i do not know if you remember this. when we first went to davos, the first fight you and i had was over toblereone. francine: i am sure i won. whiteally if it is the one. this will be different. the president showing up on thursday. we talk a lot about trade and i do not know where you eat inflection points for -- where you see the infection .4 dallas. -- result we saw the president xi that -- xi, year, we saw president

and the president had his inauguration. there was no real representation. this is one of the titles they are focusing on this year. , will we see more -- are we global, will we see more protectionism? tom: let me run through my themes. a little bit of lightness on the back-end. spoof on the importance of what is going on. this is the corporate world, the ceo world. they are used to watching a five-year plan. changed to a three-year plan. and now i would suggest we are at a two-year plan. the other idea is a huge idea of international relations. the complete mystery about the to speak about the davos consensus. the final thing we got is serious -- we do not know what

the president will say. does it become provost -- p ropos? francine: we heard from the margins that he will put out the agenda of america first, but i think you are right. it will be nuanced. cannot even imagine security. it will be a lockdown. this is early in the week next week with the world economic forum. mr. staley from barclays. and richard's. -- anne richards. francine: i have monetary policy friday. this is bloomberg. we look forward to speaking with you in dallas. ♪

♪ alix: hello.

2.6%. tenure yield hit the highest level in years. 17 hours. the government inching towards a government shutdown. david: welcome to "bloomberg this friday. i am david westin. are you staying up until midnight? alix: i am still at work midnight. that is what i am worried about. about two and a half hours until the cash open on this potential government shutdown day. a continuedignoring climb higher. the dollar continues to roll over, seeing its worst level since 2014. euro-dollar up like 2/10 of 1%. the 10 year yield unchanged. 2.63%. what is the knock on effect equities? we will examine that. crude getting hit a little bit. the iea taking the wind out of those sails, seeing explosive u.s. growth. david:im