♪ union.e: stated the donald trump delivers his first annual address tonight. what present we see? globally.reat and life after diamonds. wonders to the co's successor could be. ♪ francine: good morning, everyone. i'm francine lacqua. let's check on with your markets.

there is a little bit of a downside on the stoxx 600. euro-dollar, little bit of an improvement there. coming up on bloomberg surveillance, we talk european growth. to our man from jpmorgan. then we talked to teri haynes. of the get a preview state of the union address. a let's get to the bloomberg first world news. nejra: the house of representatives has committee -- has voted to get clearance to release a republican memo. it alleges bias. say thetive republicans investigation to come in ties to the white house are under false

pretenses. >> for the first time the 10 years or so i have been on the committee, there is a vote to politicize the declassification process of intelligence. that would could potentially copper my sources and methods. the u.s. secretary has announced a list of oligarchs in russia with ties to vladimir putin. it includes 96 oligarchs. -- willmed will not all not automatically face in the sanctions of inclusion may cause banks not to do business with them. there is fragility in the new mood of optimism after canada and mexico came forward in new nafta ideas. the u.s. trade representative said he's hoping to make progress before the next round of negotiations.

the three parties are due to meet again in mexico late next month. the leader of the u.k. labor opposition party meeting yesterday. this includes five people from the business business lobbies. hna has told creditors it has considerable debt. according to people with knowledge of the matter, this was brief last week. hna representatives did not respond to a request for comment. the north african country says

they benefited from the international bond market. >> it's possible this year. it's possible to make it next year. we may trade in term of art that which is in term of our needs. we want to manage our debt by reducing the risks of foreign exchange and other risks. there are solutions to find in the treasury including the opportunity to cap the bond market. nejra: global news 24 hours a day powered by journalists and analysts, this is bloomberg. francine: it is president trump first state of the union later where he will give his constitutionally mandated address to both houses of congress. year andmidterms this the president's approval ratings at historic lows, much is at stake. he is expected to focus on infrastructure, the tax overhaul, trade, and immigration

including his proposal for a wall on the next and border. gets his pain for it? focus on the markets. european equities are treating this morning taking their cue from the states. the s&p fell the most in four naff months. that's as investors get jittery of bond markets. hour, ourw for the two guests. thank you both. it's a momentous day. the first state of the union address. what do treasuries want? to hear they looking from the president or other other factors at play? >> there are other factors at play. yieldries would try to normalize over the next 10 to 15 years. retreat, that

takes yields around the world to levels that are extremely low in historical terms. -- no -- board known they also board no relation to other markets. agosury yields six months were below two. the bond market is pricing the current rate of growth of the economy and also pricing a move away from the old monetary policy. was a movement to the three weeks ago. there's nothing fundamentally different. we had a little bit of data but is of the market playing catch-up? >> it's probably the markets playing catch-up. there's fewer economic data. we have a synchronized global

recovery in the markets have that thislieve recovery will continue this year. now the markets are pricing that in. we are probably heading for for rather than three rate hikes. the market should adjust. francine: how many red light -- rate hikes are you expecting? is there a danger inflation does not catch-up. maybe they overshoot? stephen: on your first point -- on your first point, i don't expect any more than in the dot plot. i don't think those are fully discounted in the bond market. this is mostly just catching up with the indication on the given. is inflation going to run away? it hasn't so far. the jobs picture in the states has been extremely -- it's been

better than many countries and the rest of the world the past five or six years. u.s. growth has held up. yet there's been no response in inflation. but we are starting to see kind back to the bond market is a move in inflation breakevens and swaps. even they are not predicting a massive spike in inflation of the moment. attention tocalled the fact that wage inflation has lied where they expected to be given the timeliness of the labor market. just thatthis is treasury yields that you can see. there is the s&p 12 month dividend yield and then the plane saving. the two.nd contrast why are you expecting for interest rate hikes? are you expecting inflation to be stronger than expected? think: it's more that we the fiscal stimulus will add something to growth. the u.s. will probably reach priests -- reach 3% this year.

deliver 25 basis points. inflation is unlikely to take off but will probably see in wage inflation signs of a modest acceleration. that's good enough for the fed to hold it against that. francine: let me bring you to another chart. this is the vix. move?ch does the vix what are you expecting in the state of the union? can a trade on the back of the state of the union address? as a predictor of has beenf volatility extreme low. i think we are seeing the first signs that investors are getting on board with the rally. there is a statement from some online brokers yesterday that the number of trades online has

spike sharply. i think it's a reaction to the move in prices after the tax cuts. you're starting to see more retail interest. has gotten very firmly into the bullish count. one of the bizarre things about the rally in u.s. stocks since -- is thatt the most it is the most disrespected in the love rally we've ever seen. most of the time, retail investors have not really been on board with it. they're coming to the party now but it looks like that retail interest is wakening. a weaker there is dollar and we can get on to what steve mnuchin meant to say instead of what he said. it's another blanket of stimulus on the stem this we getting from the fed. yes, it helps the stock market quite significantly.

it translates overseas companies u.s. earnings to hire dollar amounts. it's not a decisive factor. the decisive things are growing momentum around the world plus the fiscal stimulus. where they are now where they may be by the of the year, we have a 3% run before the of the year. it will be by his to work matters below. it will not retard the an -- economic recovery in any way. francine: they give her a much. stay with us. you can watch president trump's state of the new address live right here on bloomberg tv tonight. that's her p.m. new york time. 20 coming up. ucb officials are said to see qe ending with a short paper. may's brainstorm. on has quizzed u.k. leaders

her brexit options much of their annoyance. this is bloomberg. ♪

>> economics, finance, politics. this is a bloomberg. let's get to the bloomberg business flash. advanced talkse in blackstone to sell a stake in its financial risk business. that accounted for more than half their revenue in 2018. -- in 2017. reuters reported of the private equity firm is in talks to buy about 55% of the business. a customer for -- a spokesperson for black stone declined to comment. has agreed to buy a

competitor to bolster its cloud-based business. it says it generated sales of 6.8 billion euros in the fourth quarter. toldill mcdermott bloomberg the u.s. tax overhaul has been a major boost for his business. >> president trump's tax plan is been extremely well received. with 15 otherner very large companies ceos that were all my customers. i was very honored to be there. they were all talking about their investment thesis. hna is been telling creditors it may have a shortfall. according to people with knowledge of the matter, the

madeng gap was was -- was known during a meeting last week. hna did not respond to a request for comment. sayseo of commercial bank costs will probably rise due to the saudi led boycott of the nation. would suspect a 15 to 20 basis point increase in the overall funding costs arising from the impacts of the blockade. there will be demand. comfortable, more it's been seven or eight months since the blockade was imposed. we are seeing the economy is continuing to grow. that is mitigating risk concerns. nejra: that is the bloomberg business flash. francine: we are sticking to the assumption that the qe program will end in a short taper. that's according to officials

familiar. they see it winding down. it's a call backed by the most hawkish members of the governing council. they want to see a gradual showing after the last extension concludes. now is paul gordon, bloomberg's head of western european central banks. about thethis tell us differences between governing council members? aul: it confirms of the differences aren't existential but they are significant. we saw that in the market reaction. it pushed the german five-year bund yield back down below zero. even the most hawkish policy makers say they want qe to stop. it's gone as far as it can go. but even so, we understand they

see the need for a kind of buffer. when you do stop, which has to be after september, there will have to be some kind of a wind down. that will be around three months. it's possible it won't start after september, it could be later. some policymakers are pushing for that. it depends a lot on the talks ahead. there is going to be a buffer of some kind it seems. francine: what is the next stop for the ecb? we tried "in davos. said they are not ready to talk about the tapering. do they start talking in march or june? paul: there's a meeting in march and no one on april 26. hawks are looking for serious discussions and a change in

policy language at that time. some members want to make it -- wait until june. they want to see proper signs of inflation is picking up. this all matches for another reason as well. when you get to the end where he -- we get to the point where you it the bond purchases, affects market purchases. stronger signal would be not to stop those bond purchases until the end of the year. francine: thank you, paul. europe, weestment in will talk with our guests. of all, holder, do you worry about euro strength? i don't worry very much

about it. the euro is undervalued. fair value is probably between 125 and 130 to the u.s. dollar. as the zero strength reflects a strong global economy, then for european exporters, the strong demand from a book -- from abroad matters more than the slight loss in competitive this of price. things may be a little more subdued than otherwise which gives the ecb time to lean back and think carefully what they want to do. francine: is there a danger the ecb moves too quickly? bring you to my chart. it's a simple euro-dollar chart. ger says fair values 125. we are currently at one 28. if we think about the exchange rate overall, political risk has an price stop. that's one of the reasons why it has rallied.

i think it's more broad than that. i think the dollar is modestly overvalued against most major currencies. dollarre about the needing to weaken than then the strength of other currencies. useour point, i think the -- the ecb will be extremely careful not to jeopardize the recovery of the eurozone economy that they have fought so hard to bring about. at the moment, the signs are pretty good. manufacturing and consumer confidence are both high. i think the -- the ecb, having fought so hard to bring this think very hard about doing anything to throw it off track. i think there can indication will be very careful. they will lead the market to an understanding of what they intend to do.

make that slightly difficult. it's made up by central members but also representatives of other areas and they will simply respond to the conditions in their own economies. the ecb needs to send interest-rate that's appropriate for all european economies and that is in -- is a difficult thing to do. francine: is it time for a german to be a head of these -- of the ecb? i don't think the nationality of the chap at the top would make such a huge difference. francine: chapter women -- chap or woman. holger: or woman, a good point. leader is about crisis. doing whatever it takes. now we are back to normal monetary policy. course?we adjust

the ecb with its many members will always be a slowly moving body where the chap or the woman at the top doesn't necessarily make the decisive difference. stephen: i think the most important thing is the ability of the ecb leader to communicate their intentions to the market. mr. draghi has been a master of communication. one would hope that future can indication policy from the ecb will be as clear. francine: let me go on to brexit. theresa may is turning to european leaders to talk about what britain's relationship will look like. but it's frustrating top officials. michel barnier has been trying to talk for months of about what relationship u.k. wants. may's cabinet is still debating how close britain should stay to the block.

care or do people -- the level of pound, which i have a my charts, they just want to know the economy is ok. stephen: i think it's fair to say that they are not going to look at negotiations deal by deal. the nature of negotiation is that it is a negotiation and you do not know what the endpoint will be. that positions will shake the final outcome is often a misleading stance to take. said that sterling is the pressure valve that this is than playing out and that's true. is another thing going on. sterling against dollar has been rallying as a function of dollar weakness. dollar rate is pretty much the same as it was at the beginning of the referendum. against euro it is still much weaker than before the referendum.

there's a lot of different moving parts here. it means from the point of view of dollar earners, the tailwind to earnings is no longer there. dollar weakness is a modest headwind. what the final outcome of negotiations are, it's premature. francine: what do you think could be more disruptive to the markets, an ugly brexit or the italian elections? internal potential risks, the italian election is the much bigger point. the risk is very small is this a tail risk from the radicals on the left and the right teaming up after the election and doing whatever they might want to do. unlikely, but not impossible. brexit, for the european economy, is not much of a risk. in the worst-case scenario it could be 0.2%.

we don't know what the negotiations will yield. all the signs from the uk's headed towards a soft brexit. that's what markets are pricing in. i think markets are right in that. the u.k. will stay in a somewhat close relationship. francine: thank you. our guests stay with us. coming up, megamergers. a dr pepper merger was announced. was it an acquisition out of necessity or just a good deal? this is bloomberg. we use our phones and computers the same way these days.

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reporter: global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. and this is bloomberg. anna: thank you. let's talk amid a. yesterday saw a huge deal in the beverage space. keurig announced it will take control of dr pepper. at the world economic forum, we spoke names to banking from jpmorgan deutsche bank. companies continue to use cheap funds for acquisitions. the value of mergers announced so far is the highest since 2000. as always, thank you for coming on. m&a seems to be buoyant. it is cheap financing out there. >> is a combination of both. you have cheap financing.

you saw this last week in davos. all the ceos were talking about donald trump's tax plan, what that means for companies. but you are also seeing some of keurig european names -- is an american company, but is a europeanea entity. keurie owned g, but they sold it. a lot of these deals, you see where one happens. what does that mean for the other? what do they do now? francine: does it make sense if you are in retail, if you are in beverages? we saw huge deals with the beer makers they couple years ago. does it make sense for certain industries and not others?

>> absolutely. and some of these when they come in, they have a reputation for cutting costs, which is what we sow with unilever last year. this year the amount of optimism with theeeing an confidence to do these deals is interesting. we have to how they play out because that will take time, to see if they were actually good deals. we don't know. francine: tuesday of this make sense and a lot of times, i hear that it depends on culture. going on what is there? >> you probably saw him with president trump in davos. he seems to be walking the talk. we need to see how they integrate the company, whether this will be lucrative in a few

quarters and a few years, and judge him on that. it definitely seems like the appetite is more than it has been in previous years. francine: i want to go back to ruth shortly, but is this the spirit worldwide? when you have a lot of m&a is it because the companies are desperate, or they are confident about the future? >> it is probably because they are feeling more confident. this might be the best time to do strong deals. we have strong economic growth, we have confidence, we have animal spirits appearing again. we have low financing costs, and the prospect that they will rise in the future. to in a way, if you want finance a big deal, now is the time. not wait a year to do so. we might be heading for the peak in m&a activities in. francine: is it possible to look for the stock civil rights because they are an m&a target? >> it is not something we

normally do. partly because a lot of the time if a company is going to do it is because management is not getting a return of the assets that other people think they would be able to. by definition are making a great investment. you do not want to sit on the stocks in the hopes that some but he buys the assets. francine: there is a lot of talk about hna. this is a company that has told creditors its ability to repay the debt will face a potential shortfall around $2.4 billion. what does that mean for the companies that it has invested in? >> hna is such an interesting example because last year we were writing about how one of the big american banks decided they did not want to do business with them anymore because there were concerns about them buying everything across the world. they have assets in the u.s., in europe, in asia, and across all sectors pretty much.

now you see some of their assets and they say they need to sell them. so they are kind of unwinding all they did with these big acquisitions, which was funded by all the big banks. and i think a company like h na, a company like steinhoff, is almost a cautionary tale, right? you have all the big spirits. last week some of the in davos said, it's like it is on steroids. everybody wants to do these deals, but when you do them, the of not being able to repay your debt right away, or if you have regulatory issues coming in. it's interesting we are seeing the right now with these companies announcing big deals. francine: on hna, is a difference from steinhoff when the value of steinhoff went to 90% in a day because of concerns about fraud. have we gotten to the bottom of how much hna will impact

what banks? >> we have not seen as much of that as with steinhoff, because there was a big fraud. the company's was being used as collateral. the losses were imminent and easy to see. in this one, some of the bank names are the same. next quarter we will have to watch up for the balance sheet. francine: i am sure we will. will stay withng us. up next, trump's russia watchlist. the u.s. releases the sweeping review of oligarchs. this is bloomberg. ♪

francine: you are watching "bloomberg surveillance," and i'm francine lacqua. the u.s. has released the list of the top government people and richest with ties to putin.

96 people were named. although the list was compiled under last year's sanctions law, the treasury says those mentioned will not face any restrictions. we are joined by our political reporter in moscow. what are the risks for banks and other institutions refusing to deal with those on the list? >> obviously, that is the primary concern of those people. and there is certainly a reputational risk to them from being on this list, though they will not face any specific penalties, but you might find some institutions, some banks, will be reluctant to have anything to do with them. francine: how was the list compiled? and what can it tell us about how these oligarchs will be viewed? >> looks, to be entirely honest, the list was compiled in a far

fairly haphazard manner. they took me 96 names on the russian addition of the russian billionaires and put every top official, excluding putin. argued forcials had a much more selective approach, where they would pick a smaller number of people. but now that everyone is on the list, in effect, there is no dissuasion factor you might try to get people in the elite to distance themselves from putin. that's not going to happen. francine: thank you, henry meyer from moscow. that is the situation in russia. still with us for a final chat are stephen macklow smith from j.p. morgan and holger schmieding. i don't know if i should ask you about the oil, or the list, sanctions and politics.

is it the one thing that could be the real risk to the markets in 2018, or will markets work through these tensions? >> geopolitics is something markets often find difficult to price in a realistic way. you get an accelerated recognition of risks when they actually even to eight. my sense is there are some geopolitical risks we think we can withstand, the italian elections being one and the german coalition talks at the moment. the speech that president trump will give we will be looking for clues about trade policy coming out of that. , but ire a lot of things don't think there is any particular indication at the moment that we are about to face some kind of geopolitical crisis. francine: francine: does the geopolitical crisis an impact the economy? will this lead back to possible

trade protectionism, or does this make people more wary about their economic future, and so, they spend less? >> in the current environment the noise will not affect the behavior. you can deal with some distortions here and there. say three to four years ago when the economy was much more fragile, this could have had a much bigger impact. i will be watching out for whether trump is leaning toward more protectionism -- there is a bit of creeping protectionism. last year it was not very damaging, but if that picks up, it might not affect my forecasts for the business cycle this year, but it could affect my view for the longer-term future of the u.s. and global economy. francine: what is the biggest risk to the global economy, then? is it china? is it deleveraging? are we too confident about the

future when asked from an economic perspective and market perspective? >> from the economic perspective, the biggest risk is unexpected inflation, especially ge inflation from the u.s. that would mean expectations would rise that this economic upswing could be over in a year or two. highly unlikely, but the key economic risk to watch is inflation, especially wage inflation. in terms of geopolitics, the u.s.-china relations. francine: are we to forward with the market? >> no, this comes back to the point on interest rates. interestmoves up in rates and they are often associated with rising equity markets. that makes sound sense.

2% realerest rate is growth and 2% inflation. that is a benign environment for corporate. people then start to discount the rise in interest rates. in interest-rate can move below the 4% level without market getting unduly concerned. if you saw a big change in affectens that could confidence. francine: what would be the trigger for that? >> the fed has mentioned wage inflation. there is a sense that it should be picking up and there are signs. it is picking up at the margin. but you are not seeing a broad-based pickup in wage inflation. something important to understand about wage inflation is you can afford higher wages if they are accompanied by higher productivity. it is not necessarily a bad thing if it is a sign of

productivity is rising. francine: there is another indicator that people feel comfortable in their job, enough to ask for wages. >> be is, to some extent, which inflation is good for the near-term economic outlook. what we need to watch out for are the risks that after the upside surprise to growth last year we could have an upside surprise in actual inflation underpinned by which inflation. there is no sign of that happening. we see a little pickup of the kind that central banks would save they like, rather than something where central banks would have to say, we have to stop that through strong interest rate hikes. so far, we seem to be in safe territory. francine: thank you both for joining us today, holger schmieding and stephen macklow-smith. after daimon.ife jpmorgan appoints two people

after the ceo. this is bloomberg. ♪

francine: economics, finance and politics. this is "bloomberg surveillance" and i'm francine lacqua. let's get straight to the bloomberg business flash. nejra: advanced talks with blackstone to update the financial business, which accounted for more than half of the annual revenue in 2016. 6'1"nit provides billion dollars in annual sales. term is in equity talks for $17 billion. a spokesperson from blackstone refused to comment. and bloomberg lp competes with blackstone. sap has agreed to purchase to bolster the cloud-based customer relationship business. the largest software developer in europe generate sales of 6.8 billion euros in the first quarter. says theill mcdermott

u.s. tax overhaul has been a major boost for business. >> president trump's tax plan has been extremely well received. i was at a been are with 15 other very large company ceos that by the way, where all my customers. i was honored to be there and they were talking about their investment pieces and how they are increasing. they are increasing jobs. they are increasing manufacturing. nejra: hna has told creditors it is facing a potential third shortfall of $2.4 billion in the indented chinese conglomerate. the funding gap was among financial details during a meeting last week. hna representatives did not respond to a request for comment. creating aer is structure that would manage a massive debt load.

one favored option, aside from the initial public offering for the, is combining businesses. that would allow the free cash flow to be used to pay down some of the debt. the ceo of the saudi international petrol company says u.s. shale provides more of a growth opportunity for the firm than saudi arabia does. reportedafter sipchem fourth-quarter estimates that beat even the highest estimates. >> we are looking into the united states shale gas. it is not going to be easy because we do not know the land scale, but definitely we are targeting hopefully we can do something this year in the u.s. nejra: that is the bloomberg business flash. francine: jpmorgan has named

gordon smith as a copresident, them toning succeed jamie dimon. they will take the president's role from dimon, who plans to stay in the top job for five more years. what is the future for jpmorgan. great to have you on the program. we have had these two promotions, which were announced yesterday. that does not actually mean that they are in the running for the top job, taking over for jamie dimon when he steps down. >> it is this running inside joke that jamie dimon is always saying, five more years, i look retire in fiave more yeears. here we have this clear step of promoting people, taking over the copresident role. these two are the frontrunners, as far as seniority and the division they manage. has been some

misgivings that were expressed, signs they might not be the choice. 59 there is some concern that five years from now his aides will be an issue. years from now his age will be an issue. pinto, at 455, runs the investment division, which has done well. they have gone through a lot of different periods, a lot of hard troubles there, in terms of the london whale. they have done a lot to shore up the integrity of this division. francine: the kind of leader does jpmorgan need? there have been a lot of other names. three executives, they could be the next one, but how do jamie dimon and seaboard juice? dani: if you think about where jpmorgan is right now, there is a critical point. there is a fight for where jpmorgan goes from here.

does it become more of a technology company? jamie dimon himself has put a lot of money into technology and seems to be moving as a bank that way. he is also a very outspoken figure and if you look at a choice like marian lake she has been out in public speaking for jpmorgan. francine: "bloomberg surveillance" continues over the next hour as tom keene joins me from new york. we are joined by the regional president, who has a thing or two to say about record. we talk france, markets and treasuries. this is bloomberg. ♪ francine: state of the union.

donald trump gives his first

annual address tonight. will we see the america first president or the more measured davos man? stocks retreat globally as u.s. yields advance, a sign of deeper concern? liquidity crunch. tolds said to have creditors they could face a $2.4 billion shortfall in the first quarter. good morning, everyone. this is "bloomberg surveillance ," with tom and francine from london and new york. i am looking forward to listening to the state of the union address tonight. and we a looking at market moves and a little selloff when it comes to treasuries on the back of what monetary policy could look like in 2018. tom: around the state of the union of course, is all of this discussion about the department of justice. kevin cirilli is with us during both of our hours of "surveillance" this morning. francine: let's get straight to that evening in america with taylor riggs. taylor: the u.s. is ramping up

the pressure on alleged russian interference during the 2016 election. the treasury department released a list of 210 of the country's richest tycoons and allies. putin could be targeted with sanctions. just being on the list could persuade banks to do business with them. a house committee has voted to ask white house clearance to release a classified republican memo on alleged fbi misuses. the document alleges abuse is into surveillance of people surrounding president trump. the top democrat on the panel calls it a attempt to distract from the russia investigation. france's economy had its best year since 2011 as gdp rose 0.6%. for theomy grew 1.9% year and has been bolstered by president macron's reforms and business tax cuts put in place by the previous administration. and in the u.k., jeremy corbyn

has told business executives he is keeping his options open on brexit. according to one person at a meeting last night, he said the party would rule out nothing except for a second referendum. among those attending were five people from the u.k.'s biggest business lobby. 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: thank you, taylor. equities, bonds, currencies and commodities. a pause in the recent moves we see, a little bit of curve steepening. the euro and oil do nothing. a little soggy on oil. 13.89., a really smart tweet last night from charles schwab, with how o dd the vix is right now.

the 30 year bond i put up there, near 3%. brent crude under 70. the dollar index i put up, just because francine had a little slot in a did not want to do it with bitcoin. francine: thank you, tom. it is something to the an eye on. i'm looking at european equities following asian peers lower. we've seen a selloff in treasuries giving. investors taking profits after one of the best starts in the year over recent history. the dollar jumping for a second session. and of course, we have some data and this is gdp for the eurozone, 0.6% in the fourth quarter. that matches estimates, tom. tom: very good. let me do a bloomberg right now into kevin cirilli. it shows the distractions of america. it is an odd and booming america. this is an amazing chart and i put this up for bloomberg radio yesterday. the good times of a low

personal savings rate before the crisis and then a high savings rate as america pulled up by 10%. we have this curve down to a stunningly low savings rate, getting back to where we were in 2-005. there are many theories on this, but with it has come a return to credit card debt. i would suggest the president in union will callee it his renewed confidence as he makes america great again. if you look at the state of the union and we do that across all of "bloomberg surveillance," there are a few distractions. here is our chief distractions correspondent, kevin cirilli. he said the words with mr. bernstein, that it was a monday night massacre. we all agree it was not a monday night massacre. but there are whispers of that, of the relationship of a president to his department of justice. how tenuous is mr. trump's

relationship with mr. sessions' department? it is quite i think interesting with the developments over the last 24 hours. andrew mccabe announcing he will be stepping down a month earlier than he had wanted to. treasury comes as the department within the last couple of hours, releasing terms of the in sanctions related to russia. a lot of evolving back-and-forth. the president will then have his first state of the union. tom: jennifer jacobs made worldwide headlines for bloomberg last night, truly part of the zeitgeist, when she talked about the president's fury on the plane to davos. ssays are many numbers of e describing the relationship of the president with his department of justice. what will happen if the republicans with the president's approval release this documents,

which has classified materials in it? kevin: well, the democrats are saying they don't want this document released. some republicans as well. i think it is those republicans, the more moderate republicans, who are saying, take a deep fear. it will be interesting to see if they hold firm with that regard. i will be really candid here. a lot of the freedom caucus members, the more ultra conservative members are lock in step with this white house. and their supporters are, too. it is these different bubbles we are living in in the sense that there is a strong contingency of the republican party who really believe that it should be. -- that it should be released. tom: well said. i agree with that statement. i bring this up, kevin, because

this has article to backed by nixon in it. the parallels between president is in and this president -- between president nick's in and this president -- between president nixon and this president are clear. blow goes on to editorialize that they are attacking our institutions. lawyers the president's saying to the president, given their knowledge of the nixon impeachment document? kevin: they have said, don't talk to bob mueller. i was looking back at previous state of the unions and president nixon, former president nixon obviously, said during the watergate investigation, "one year of watergate is enough." we all know how that played out. we will have to see. francine: let me jump in.

tom: go ahead, francine. francine: go ahead. tom: the eagles are going down in flames to the new england patriots. kevin: no, they are not going down! way too early for these commons, mments, tom! francine: and you have lost half of the people watching us, because we have no idea. kevin, talk to me about what will be in the state of the union address. how much will the president focus on the topcics? is this a midterm election bid, or is he talking to somebody else -- other world leaders? kevin: it is definitely a midterm election bid. i think you will see the teleprompter trump. he will be trying to unify the country on infrastructure., national security. there's supposed to be a

bipartisan meeting on infrastructure last night. i spoke to a senior democratic aide who said, the white house canceled this. congressional meeting until after the state of the union. so, they are keeping their cards close. look out on trade as well. global leaders will be paying attention to this. i don't think many investors will be in the sense of the meaning of it, but i think they will see a much more davos type of trump. francine: kevin, will people talk about -- how much will he focus on the wall? do people what the wall in america? kevin: i would bet to say the overwhelming majority of the immigration policy in this administration is bolstering security along the u.s.-mexico border and this deadline on daca, and you will hear on immigration and the wall i am told.

during the previous national addresses he has given he has limited the amount of times he wall,"d the words "the which has become a divisive rhetoric. but you will hear about bolstering u.s. and mexico security. thewhelmingly be republican party is in favor of the wall. tom: does mr. sessions have control of his justice department as attorney general? kevin: um, i think he believes he does. [laughter] tom: we will leave it there. kevin cirilli, thank you so much. let me tell you about our coverage tonight. weston will be leading our coverage on the state of the union, all of the drama. the guy walks in, and he says, ladies and gentlemen, the president of the united states -- whatever the politics of the moment, it is a magic moment for america. stay with us worldwide. this is bloomberg. ♪

taylor: this is "bloomberg surveillance" an di'd i'm taylor riggs. purchase thed to software for $2.4 billion. that will give sap access to new sales, analytics and customer in gauge meant tools. michael dell wants to bring his technology empire under one publicly traded roof. he will combine dell technologies and vmware. that will allow the free text flow to pay down some of the dead.

and it is five more years were jpmorgan's ceo jamie dimon. he will then retired to executive. that allows gordon smith and daniel pinto to step up. that's your bloomberg business flash. francine: european equities have followed the asian peers lower and stock futures have retreated and the selloff in his continuing. thank you for joining us. let me start off with you. we see a lot of movement when it comes to treasuries. are they worried about what president trump could say tonight? >> i think the drift higher has been a trend that started this year. the markets are not sure what this actually means. the dollar is not responding.

whether that is a premium on treasury yield, given concerns about the longer-term dynamics of the u.s. deficit is perhaps one of the explanations. but ultimately, the markets over the next 24 hours are probably more focused on what the fed has to stay than on the state of the union. francine: is this a trend? >> i think u.s. 10 year yields will head to 3%, but i don't think they will reach 3.5%. for me, that is the challenge for investors. at 3% we are still talking about nominal yields that it will below the sustainable rates of growth that the u.s. economy can enjoy the. i do think in time bond yields have to rise more globally. as to why the dollar is going down, i will say it always goes down whern the u.s. growth is below average. madame lagarde is talking about

nine percentage points this year. the u.s. will not achieve that. tom: bill gross agrees with james bevan that we will the moderation in the move higher in yields. but kamal, are we seeing theal moves in foreign-exchange is. >> i would say you are seeing moves against the dollar more generally. looking at the europe rate weighted index, this is a big focus ahead of the ecb meeting. the euro is about 1.5% higher. mentioned, the dollar does not historically perform well during a tightening cycle. the bank of canada and bank of england -- other central banks are starting to reprice their expectations of the monetary policy. it is not a huge surprise in terms of that historical framework that the dollar is coming under some pressure here during this u.s. timing cycle. francine: thank you so much, kamal sharma and james bevan.

both stay with us. coming up next, we speak with the paris region president. before that, we talk about the latest bloomberg scoop on ecb. will that move the euro? and will that hurt exporters? this is bloomberg. ♪

francine: good morning. this is "bloomberg surveillance" with tom and francine.

let's talk about europe and the ecb. officials there are sticking to the assumption that the bond buying program will be wound down over three months, rather than being brought to a sudden halt. that is according to euro area officials familiar with the matter. let's get back to kamal sharma and james bevan. when you look at euro strength, the sense is central banks need to target euro strength. is this part of keeping a hold on the euro? you do not end it like this, you announce it and communicate and gradually unwind it. >> qe is coming to an end in 2018. whether they stop it in september or taper down to december, the era of ecb qe is coming to an end. haserms of the euro, draghi a bigger communication issue in september when we have the euro-dollar rating leaning to

euroto 1.20, but also the weighted index. he is questioning the impact of the pastor effect of the higher euro into inflation. it seems they are willing to dismiss the move in the euro, 1.6% rise in the twi, because they are going to taper. francine: james, let me ask you a question i have not passed yet . is there a danger the german economy overheats? >> i think there is. there are clear signs the domestic economy is beginning to taper. but it is clear they have taken up the baton. the export led growth initially provided this strength. one could argue we see a much better spreading out of growth. for me, the bigger worry in the eurozone is we still have multiple speed economies. we do not have a single unified speed, which means the policy is tricky. tom: what do you do as you

acquire or hold shares of european multinationals? do you have a new enthusiasm, james? >> i certainly do and i think there is a good case to be made now for some of the eurozone domestic banks. for example, credit agricole is remarkably well placed in the environment we are projecting going forward. equally, some of the domestic housing lookrman well placed. tom: you hear that optimism from james bevan, but a lot has to do with the euro. we have a number of houses looking for the stronger euro. what is the level that upsets the equity applecart in europe? >> i think it is when we start to hear from these european corporate more broadly, tom. at the moment, we do not hear a significant amount of noises from european corporate about the level of the euro. in fact, we are contrarian on the street in terms of our house view.

we are putting our hopes on a repatriation bid for the dollar over the next few months, which will take the euro-dollar back below 1.20. and also, the repricing of the fed, given the inflation mix, which is more conducive to four rate hikes this year, as opposed to three. francine: what is fair value for euro? i have heard everything from 1.2 5 to 1.30. >> you could argue on the trade weighted scale, it is slightly overvalued. we would say probably we are about at the sweet spot for the europe valuation. francine: thank you both, kamal sharma and james bevan. the let's get straight to paris fintech conference, the most exclusive european event on fintech and finance.

you are joined by a very important guest. reporter: she is the president of the paris region. good morning. ch are at the finte conference. how many jobs will that create for the paris region? to be the place where the finance of tomorrow is invented. so we are working very much on innovation in finance. we want the green finance, the ethical finance, to be raised in france. we are not competing with london for jobs. we think that now with the brexit a lot of companies will have to relocate. relocate to continental europe. we expect, if you really want numbers -- reporter: we want numbers! valerie: we already have 3000

expected jobs that are already known to be coming to paris. reporter: but 3000 still seems like a small number. i heard that 20,000 jobs will move to paris after brexit. so, we are very far away from that. who are you talking to at the moment? which banks and which international companies are you talking to, who want to relocate to the paris region? valerie: the move is slow, but as you know, we also got the headquarters of the european bank agency. investors are interested in the paris region. they want to move here. they are interested because they see that the environment is politically better. we have a pro-business

president, macron. so, the global environment is getting better. very interesting. every investor is underlining this point. i was in versailles -- reporter: the international businesses before davos? valerie: just before davos, and all the ceos were talking about how harris has changed. reporter: you are not exactly macronist. you supported the republican candidate. we have the gdp numbers this morning. is macron just lucky? valerie: we are both lucky and bringing more confidence in the

economic sector. because he has done a little , small.little reporter: so, you are becoming a macronist? fairie: i am in a, s division. i still think we need more reforms. expansions ofe the state to lower rates in france. we should still fight hard, especially for citizens. i'm still waiting for some big reforms. subsidies reform, pension reform. so, there are reforms to be

made. reporter: you were saying you met all of these ceos since brexit. jamie dimon was saying in davos he could allow 4000 jobs in the u.k. after brexit. were you talking to jamie dimon? valerie: yes, he was sitting next to me at versaililles for theall the big ceos were there. especially, bankers. so what we said was that we think the environment in france will improve during the next month, especially with the new workingor people abroad, coming to france to work. the regime, the social regime, inthe best one now

continental europe. in the region, we have the paris the one stop is shop, taking care of all of your procedures and helping you, in corporate s, schools, visa housing, etc. the paris region enterprise. caroline: we have a story about the heart of the stock exchange 1987, before the computer. is brexit a historical chance for paris? valerie: actually, what is good in paris is the political risk of changing the tax rate, the laws, etc., is now very low.

risk the lowest political in the western world. we do not have trump, we do not have brexit, we do not have a coalition problem like in germany. we have a lot of stability. what firms want is stability. that is what france can give them. caroline: very quickly, yes or there is no 2022, better choice, would you be a republican candidate against macron? valerie: i am not there at the moment. what i want is we get more jobs and we createn environment where finance and jobs go together. tom: thank you so much. readingw, with a news -- huge news from washington, here is taylor riggs. taylor: the president is

boasted to post -up- about a strong economy tonight in the state of the union address. the speech is considered the ceremonial start to trump's second year in office. meanwhile, the trump administration is making it tougher for refugees to come to the u.s. from so-called high risk countries. those countries have not been band, but last year's targeted predominantly muslim countries. the deputy director of the fbi stepped down under blistering criticism from the president. leave mccabe will be on until he retires sometime in the spring here the president and some republican lawmakers have argued there is evidence mccabe and others at the fbi were biased and favored hillary clinton during the presidential

campaign. theresa may is frustrating officials with her exit strategy. the british prime minister has been asking european leaders to come up with ideas on what a post-brexit relationship would look like. the yield as tried for months -- for months toried get the u.k. to say what it wants from the split. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. francine: thank you so much. s&p reporting the their biggest the client in five months yesterday. james bevan is still with us. also with kamal sharma. when you make that call, what will drive equities higher? james: to me, the corporate

earnings picture. a lot of people are surprised at the extent to which equities enjoyed such a strong start to the year, but to me, it was all about the tax cut and jobs act, which is essentially gifting u.s. corporations around five or six percentage point additional earnings. i think the market will move in line with earnings growth, which is why i believe the s&p can get to 3100 points. francine: will money come out of bonds into equities? james: we have not seen any of that at the moment. i do not think it is strictly necessary. i think we will see a reasonable valuation in terms of continued low inflation, moving towards coordinated, super nice growth. tom: james bevan with us on the equity markets. enthusiastic, to say the least. let me bring up the james bevan

chart. the dow jones industrial average. what is interesting -- and i will throw this out on bloomberg the move in the the move in 1990's. we have a curve of enthusiasm in an unloved market. the urge is to go to cash with a january gain. how do you fight the urge to go to cash? james: i say where does that gain, from? it comes from the lift up of earnings forecast of analysts projecting on the back of the trump tax cuts. against that backdrop, i suggest equities remain undervalued. if you were to say what is the relationship between the dividend yield and the bond yield, this is a pro equity valuation. if you get into cash, you get diddly squat.

is inflation rises modestly, equities are very friendly place to be. tom: we should point out -- "diddly squat," you learn in level three cfa. the bond markets -- foreign paper righta litmus now. for multinationals who are dollar-based, how will the dollar adjust earnings? got a obviously, you have big move in the dollar, which, as yet, is not sparking a huge amount of commentary out of non-dollar corporate's. obviously, the move in the exchange rate, be it sudden or cause consensus, as it historically has. ultimately, the strength of the global economy is the overriding issue. if you look at europe as corporate's heavily leveraged growth the chinese

cycle, it looks relatively stable at the moment. tom: i look at the transaction yesterday, and i want to give a shout out to lex. was 23 billion or 24 billion. what that transaction shows is the creative finance that can be done to make for synergy and cost reduction, and essentially, they will use the public share vehicle to form the new company. were you surprised at that valuation, and will we see many more to come? james: it is a rich valuation, but i do think we will see more merger and acquisition activity, both because the climates of low interest rates, but also because in a world of cutthroat competition, lots of disruption from competitors, people want to find mechanisms to cut costs.

these sorts of m&a deals are all about cost-cutting. this is critical -- the idea about do the transaction so somebody does not do it to you. you saw that yesterday. it came out as a press release. extraordinary. i like the grows up with debt up to 24 billion. francine: it is, but i want to talk about currencies. they must be in play. wise, the global is cycle is something that obviously very strong at the moment. the structure of those deals are relatively important. in terms of what are the optimal -- i do not have a spin on whether there is an optimal way to get to those deals. francine: how much does fx or financing get into this?

which goes back to animals bear its but also currency moves? where we had a period corporate's were expecting cheaper financing in the euro and a weaker euro. it all depends on whether the corporate climate is conducive to opportunities outside of the u.s. we start to see a run you to pick up an m&a activity more broadly. francine: when you look at this dr pepper deal, it makes sense when you can actually produce things in the same factory, but it does not make sense for all industries. so what industries do you want to be invested in in a way the m&a cycle will also hit it? james: in the case of the dr pepper deal, this is no a minute compared with pepsi and coke pay the challenges of competing in the much a place are written out clearly in that letters, saying

get efficient, cut costs, optimize distribution. francine: if you are a companies that you want to buy another big company, it is because you do not think they are doing a good job with it -- is it fair? james: not at all. in the case of dr pepper, we have to companies that can share lorry.n the distribution we are combining coffee with soft drinks, to make it a high level discussion. that is a mechanism to add value. it is not to products going head-to-head within a single stable. tom: since we are into products, can you explain the nutella uproar? i am lost. francine: it is basically like black friday. you saw queues of hundreds of people when it comes to black ride in the u.s. they did a special deal like 80% off on nutella.

not many people do not like nutella. queues of all these people going crazy. tom: finally, something you can take, on "bloomberg surveillance " this morning -- nutella dynamics. francine: i am sure it is better than the big mac index. james bevan, thank you for that walk-through on dr pepper, and kamal sharma with us on the dollars to be spent. you need a briefing on radio in the morning. you really need everything today. looking at economics, investment, and the unique politics of washington. the state of the union -- karen moskow, bob, coast-to-coast. moon, coast-to-coast. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." tom and francine from london and new york. let's get our briefing on china. h&a told creditors it faces a potential shortfall of $2.4 billion in repaying debt during the first quarter. the funding gap was among financial details that hna governorsovincial about during a meeting. hna investors did not respond to a request for comment. dealsout to our bloomberg

reporter -- how much do we understand who is behind hna and who they have been involved with? to the value of hna go from 100 to 3 very fast? >> their overall debt we have heard is about one trillion yuan. so this shortfall is just a small factoid off that. one of the things as people were talking about how opaque their holdings structure is. have of times, when they done funding deals with a big investment banks, they have done these margin loans where you do not really know the details, at what level it was pledged, and what comes out next. hna is talking about asset sales. they own steaks and everything from hilton to deutsche bank. but we do not know how much of it will be able to start selling. toncine: so it is key

understand who you let into, whether it is the holding company or some other level. but over the summer, we heard about this foundation -- where is the foundation coming from? ruth: that is where the owners have their stakes. that is how it plays down. but you do not know how much control they have about the other holdings and assets that hna owns. we wrote about bank of america being one of the first u.s. investment banks to say we will stop doing business with this company because we cannot understand them and we cannot get past our creditors, now you are wondering what are the global banks are going to be thinking. francine: i do not want to do parallels with finance, because we are still trying to get to the bottom of what hna is or represents, but if it goes badly, how big of an impact could this actually be? it could be huge. we are talking 40 billion in investments that we were mentioning last year. they have huge debt. they have holdings in companies

across the globe, spanning every continent, pretty much. if this starts unwinding them and if buyers know these are fire sales, because hna says we can meet the shortfall in debt by adding to it, what prices are they going to sell us? tom: this will clear the market are the chinese clear differently then we do. called haikou, southwest of hong kong, who clears hna? which regulation or government body actually goes in and clears out this train wreck? ruth: you're thinking the chinese government is spending the most amount of time here. now, the lending that is coming is a lot of the local banks. you would imagine the chinese government gets involved so much. but then you remember they have a stake in deutsche bank, germany's keybank.

so the german government -- you imagine the americans get involved. i think it is global regulators getting involved and trying to figure out what exactly is going on. tom: what is the timeline here? will this get fixed this week or does it get dragged into the spring and summer? ruth: into the spring, the summer, into next year. if you look at the levels of debt they have and the fact that a lot of the global investment banks have also learned to them on these margin loans, you would imagine that this will take a very long time to get fixed. thist speaks somewhat to aggressive dealmaking by companies, which is what we are seeing in the global m&a market right now. it is almost a cautionary tale, the same way steinhoff is, to an extent. francine: thank you, wrist david. only last week, we saw a temporary freeze of the banks that left two hna. into theth is digging

collateral for these margin loans, so we will have plenty more on hna through the week, month, and year. if you want more on hna, one some currency calls, log on to tv . go on the tv and then steal some of tom's cool charts. this is bloomberg. ♪

♪ this is "bloomberg surveillance." business the bloomberg flash played royal philips reported a 9% increase in fourth-quarter profit. orders were strong in china and north america for its diagnostic equipment. -- blackstone group is in talks to buy the financial information unit of thompson royals. -- thomson reuters. llp competes with

thomson reuters. and -- sellalso has decided not huawei devices. francine: thank you. let's get back to one of our stories in the u.k. -- that is the pound. that is as sterling inches upward. let me bring you to my chart. rocky road.e's you can also argue that governor mark carney is getting a helping hand from the currency market as it helps with his efforts to bring down inflation did where does cable go from here? let's get to james bevan of ccla -- the successa of brexit is pound strength or

not -- does it go higher than 1.50? was atwe thought 1.40 least acceptable for the baseline agreement. our baseline argument was we would get a baseline. whether it is a limited time period, which will likely have to be extended if a deal is agreed to, or if it is a fixed time period, concessions will have to be made by the u.k. to abide by that time line. it is interesting, that chart on the screen. that is consistent with our fair value estimate. 1.60 is where we are. when we talk to clients and investors, there, and retorts to cable around 1.40 is it is relevant that is to the business cycle. james: this is much more the story of dollar weakness. the u.s. has huge deficit -- has

huge deficit to finance. i still think the euro area will outperform sterling in the near term. tom: where is th hugee alpha toe made? pairs in thisd environment. where is the alpha to be made? kamal: there is lots of consensus trade out there, with the higher euro. we are looking at the peripheral currencies. we put out a note that looks at the fading of the ecb's qe wedge, which should be good for the peripherals. so once the ecb fully commits to exiting out of qe, those distortions caused by quantitative easing and a week currency will allow more meaningful strength in the swedish and norwegian krone.

can you be long jpmorgan, even if mr. dimon extends five years? james: absolutely. this is a company capable of making big sums of money. i expect banks to be able to take over some of the lead being held by tech stocks. in other words, orders of their parties were better than good. , thankharma, james bevan you so much. coming up, christopher rupkey will join us. an expert on yield movements and the economy. and we will look to the president's state of the union. david westin will have that tonight. ♪

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remain calm.ys others suggest the 10 year above 3%. and profound effects upon this raging bull market. bloomberg's jennifer jacobs says the president rages on the plane to davos. he demands the department of justice to what he says. the fbi deputy director exits. house republicans want to release classified material. and tonight, the state of your disunion. which donald trump will show up? this is "bloomberg surveillance ." we all live from our world headquarters in new york and headquarters in london, francine lacqua. the house of lords is getting together to be lord-like right now. does the prime minister care about the house of lords this morning? francine: i think she cares more about her cabinet, whether she can stop the factions that want

her to go from going further. so the house of lords and house of commons will have a final say on brexit, but her immediate concern is not to get too many needs to say that she get out as prime minister. tom: what we need is everything. here is taylor riggs. taylor: the u.s. is ramping up the pressure on alleged russian in appearance in the 2016 election. the treasury's department released a list of 210 of the country's richest allies of vladimir putin, who could be targeted by sanctions be a just being on the list could cause banks to refuse to do business with them. a house committee asked to release a classified memo that people bias in

investigating the president. france's economy has had its best year since 2011. gdb -- gdp grew 6/10s of 1%. it has been bolstered by president emmanuel macron's reforms as well as tax cuts put in place by the previous administration. and jeremy corbyn told this is executives he is keeping his options open on brexit. going to one person at the meeting, corbin said the party would move -- rule out nothing except for a second referendum. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much. to the data check thickly -- not the moves we have seen in the past days. features now -13.

s&p futures with curve flattening going nowhere. pullback.tle bit of a the vix is moving the other way from the equity market. 14.01. thanks to liz ann sonders for .rilliance on this at schwab an up of the dollar in there to keep francine happy. -- and i but the dollar in there to keep francine happy. francine: thanks. retreating. futures we saw a little bit of a selloff in treasuries -- that is easing somewhat. the dollar preparing to jump and oil dropping a second session. tom: we look at the state of the union later in the hour. we have a great washington analyst who will give us perspective on that. kevin cirilli is completely overwhelmed by the soap opera known as "washington." frontt question, doj is

and center. kevin cirilli, i look to the department of justice and a and up looking at the chief of staff to jeff sessions for years, stephen boyd come out of the university of alabama. he seems to be a key guy when we talk about justice, saying this is extraordinarily reckless, what the republicans are doing. about the team around the attorney general how they are advising him. jacobsour very own jen with the massive scoop about the frustration of the president on air force one, boiling over on his way to davos -- look, republicans are divided right now. not just in capitol hill but in the camps surrounding senior administration and cabinet level officials in terms of the pressure this white house and the pressure republicans ought to or ought not to put on this investigation -- case in point, the potential release of

documents from the fbi. republicans are divided on this. democrats feel none of this should be released, but there is no question that mueller probe is nearing completion. tom: but what does justice do on a tuesday morning? we are -- we heard "extraordinarily reckless." attorneyeople around general sessions -- what is justice going to do today to defuse this for america? kevin: most of the attention will be focused on the president's first date of the new address. this comes as the fbi deputy director announced he will be stepping down one month earlier than had previously been anticipated. the treasury department releasing a hotly anticipated list of russian oligarchs. also, the administration announcing there will not being new russian sanctions as of now

give the white house is very much focused on the state of the union address. they feel it will be a much more unifying message as they look to lay out their legislative priorities for this calendar year. francine: is it a unifying message that they want from the state of the union, or is it the president going for his base so he gets a little more help for the midterm elections? if yes, what are his key messages? kevin: good morning, francine pay they are definitely trying to have -- good morning, francine. they are definitely trying to have a very much more unifying message. they will stick to the teleprompter. form totlining tax immigration -- he will go through the key benefits of that as well as immigration and infrastructure. it will be interesting to see where democrats feel they may be able to work with his white house.

congressman joe kennedy expected the democratic response pay this comes at a time when the mueller probe is intensifying and nearing completion. it also comes at a time when this is a very divided and polarized country. francine: will the president stick to the prompter tonight? [laughter] kevin: i think he will have the last -- it was not the state of the union address, it was a joint address to congress last year, but for all intents and purposes, it was a state of the union, and he did stick to the teleprompter. but he does that on these big, global stages. but it is the president -- if he admits here or there, we will have to wait and see p and he may ri -- wait and see. he may rip up the script. tom: does the president

understand the relationship between the department of justice and 1600 pennsylvania avenue? commentss public indicate he is taking a different approach in terms of face of that dynamic. i was looking back and preparing for the state of the union, and former president richard nixon -- one year into his term in faceoffice -- actually said "we had enough of watergate." history does not repeat itself, but it rhymes. whether or not there is any mention of russia tonight, we will have to wait and see, but i am eager to see if there are rumblings on that front. kevin cirilli, thank you, our chief washington correspondent. mr. westin with the state of the union tonight. we take great pride in having a great set of guests interlinking and speech into policy,

also the trials and tribulations of the president and his washington. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. s.a.p. is moving to bolster its computer interests. a s.a.p. will get access to new sales analytics in its purchase. tohael dell ones -- wants bring all of his publicly traded companies under one roof. to payd allow vmware

down some of its debt. five more years for jamie dimon. jpmorgan says he will serve that long before retiring. two executives have been promoted to join roles of president and chief operating officers. that is jordan smith and daniel pimco -- daniel pinto. tom: thanks so much. joining us now as we migrate within this news flow is christopher rupkey, linking great dynamics into the economy. and michael mckee, back from meetings.nd the nafta is the fed going to slow? this point, we want them to just continue with their program, which is three rate hikes this year, two year -- two they are after that, two the

year after that. it is a little slow. they think if they raise rates too high, it will do something like break the stock market -- that is what happened yesterday. hikes wonder -- five rate , and nothing. tell us about this chart. michael: the goldman sachs financial conditions index. financial conditions are extraordinary loose at this point after the fed raised rate five times. that is another indication, along with what is happening and asset prices, that you may see the fed move faster. can't they just surprise the time around? ofis: there are a couple reasons. one, it is janet yellen's last meeting. and to them, it is a non-press conference meeting. the latest data were not so strong that it would force you to do it right away. what you get to march, and you get four new presidents rotating

who are voting. you get those more hawkish moving into voting. so you could see more pressure. tom: i think the bank of england has more fun than the fed. as an a lot more coming ahead. it depends on how you define "fun." that is a question for another show. how much does the weaker dollar impact financial conditions and stimulus? michael: it is helping to loosen financial conditions. the interesting question is whether we import more inflation more quickly, and that influences the fed. the one thing we do not have, in terms of the condition for faster rate moves, is inflation moving up? there is some feeling the fed will not want to raise rates right now. that will be the initial debate of the powell fed. francine: let me bring you over

to my morning must-read. marin king, bloomberg columnist. he has that columnist. he has that conventional wisdom is the biggest challenge you face is how to face the monetary stimulus of the recent years -- this is basically a letter marvin king is -- mervyn king is pennig to -- penning to jay powell. is this an issue? michael: it is did it would be more of an issue if there were not so many questions of out what donald trump is doing in the legal sphere. can sort of stay under the radar, there will be less treasure, though the issue is likely to a, up, because republicans on capitol hill do not like what the fed has been doing in recent years. if they start raising rates back -- faster, that will not be good.

tom: chris rupkey, one of the great things is the idea of the domestic economy and then fold in trade. in international dynamics, it was a sub 3% gdp, but domestic sales was 4%, 5% plus. which do you look at, the in the fedonomy analysis? think consumer spending is important. consumers have the ball out of the park. 3.8%. so the .8% or 2.6% gdp, which do 2.6% gdp,- so 3.8% or which do you take? stick with the consumer. investment spending pushes growth of faster, longer-term. stick with the consumers, fat and happy and waiting for the tax stick cuts. tom: what is the price for waiting until march 21?

that is a long way away. inwe see markets up, up, up anticipation? chris: i do not know for the latest buzz is the 40 year bond market rally is over -- tom: do you agree? chris: it is not that easy. thator bid -- god forbid the rhetoric and the conversation started with interest rates going up meaning come off. i hope that's why stocks came off yesterday. nowhere near neutral levels, let alone restricted levels. they have to go above the percent before it restricts the economy. francine: do you worry about the big repricing in bond yields and treasuries, and what does that mean for the rest of the market? chris: not too worried. the only thing i am trying to

get it to do is for bond yields to go up to 3%. what we noticed overtime is the bond yield, 10 year treasury yields, do not really go above where the fed fun rates are going to be. the fed funds rate is not anywhere near 3%. the fed is only saying 2.5% at most this year for the fed funds rate. the bond market here has a healthy yield cushion above where the fed funds rate is going to go. i do not know if bond yields are going to sell off forever, even though i want higher yields. tom: bring up the chart -- this is a michael mckee chart. this is the inflation-adjusted fed funds rate. this speaks to the ultra accommodative stanley fischer and mckee as well. we are not anywhere near normality, are we?

michael: that is the point chris was making. there is a cushion between where we are and what would be restrictive, let alone neutral. you are looking at real rates below zero. what is interesting is we have not seen borrowing really take off, even with rates this low. you wonder what the tax bill is -- will we see a significant change in the amount of investment made? tom: that is a great shot, anthony. just beautiful. do that again. francine: i will do the eye roll. you cry. we are a great team. we will be back with a less tearful chris rupkey. coming up, treasury yields and we look at brexit. these are live pictures of the house of lords. if you have a bloomberg terminal, you continue doing that by logging on, but

otherwise, tom and i will bring you breaking news in the house of lords debate. this is bloomberg. ♪

♪ tom: "bloomberg surveillance." global wallart of street, francine and time. right now, a clinic of mr. rupkey. yield, yield,w

yield. when you start losing money, you do price, price, price. the 10 year yield from 19%ksgiving -- we are down annually. i think that is a bear market in the making. chris rupkey here with us. bill gross and others, i think including you, saying calm down. we will see a adjustment and spaces a certain level. as the gross talking about 2.90. others are the gloom crew. why are they wrong? some point, the bond market, as yields go up, will turn around. do we have inflation to support the higher yield? ini cannot go to for out inflation fear the problem is what is inflation anymore? cpi inflation like the bond market loves, or pce? i don't like pce. it is always a little lower, but it is unclear what people are

looking at. tom: bit is critical. in america, this is a raging battle. the cleveland fed, my favorite, is what we see in our mailbox, especially -- essentially. it is what we feel every day. do you agree the labeling fed is set higher and that is the real inflation? chris: i think so. if you talk to the man or woman in the street, they think inflation is little higher. at the moment, headline pce is 1.7%? if you talk to the public, they say i do not know if it is no inflation, but the packaging is going down, i am not getting as much product -- something is going on with prices, which it should be. we are non-years into the expansion. there should be more inflation wen measured inflation is -- are nine years into the expansion. there should be more inflation then measured inflation is showing. francine: but you have to take a view on whether inflation will be much higher than expected, which will mean the fed has to

, or d think it will remain subdued? thes: inflation -- of inflation story will play out over 18 months. the biggest factor is not whether the economy is running hot, whether unemployment is extremely low, leading to greater wage pressures -- it will come from energy prices. it has got to be crude oil. if crude oil is $80 by the end of this year, i would be very bullish on inflation going up next year. tom: i want to go out with this chart -- the price chart. this curve is a huge deal. that is a log price chart. bonds. this is bloomberg. ♪

tom: our state of the union coverage tonight 9:00. david westin leading that. here's taylor riggs. trump administration is

making it tougher for refugees to come to the u.s. from so-called high risk countries. additional screening will be applied to those from 11 countries. they have not been named. last year's 11 nation refugee been targeted predominantly muslim countries. the deputy director of the fbi has stepped down under blistering criticism from president trump. andrew mccabe the on leave until he retires in the spring. the president and republican lawmakers have argued that mccabe and others at the fbi were biased in favor of hillary clinton during the campaign. theresa may is frustrating european officials with her brexit strategy. the british perimeter minister has been asking european leaders to come up with ideas on what a post-brexit relationship would look like. the eu has tried for months to get the u.k. to say what kind of trading relationship it wants

after the split. global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. from whato get away taylor was talking about -- we got ahead of u.s. policy and political analysis to actually talk about the state of the union and what might possibly be in it. here's the state of the union. daynded at jfk the other and it is stunning the difference between europe airports and united states airports. davos,day to elaine chao in fix this. she mumbled a lot of the talking points. what are we going to get out of the state of the union davos on infrastructure that can make a difference for viewers and listeners? >> good morning. i saw your interview with secretary chao live at the time

so i remember it well. you are to get is a pledge that there will be a trillion dollar infrastructure plan that will be heavily weighted towards getting private sector money much more closely involved. moving towards having state and local governments pay for it. frankly i don't think that goes anywhere. i don't see the bipartisanship for it. tom: this is the heart of the matter is the urban rural saturation -- separation of america. this goes back at least to to george and frankly washington building canals outside georgetown. what are we going to do about the urban rural divide in america if everything is rusting away in every single state? we are going to talk a great

deal about it. i don't think much of any seriousness is going to happen. we are in the middle of a five-year infrastructure plan right now that i would call no disrespect anybody who passed it a couple years ago more of a subsistence funding than anything else. i think the trump administration believes the only investment we are going to get is necessary is to get the private sector involved. he got a political party split between republicans many of whom would be interested in the idea but aren't sold on it and democrats who would prefer direct funding and none of the kinds of things he wants to talk about. if you look at the state of the union we understand a lot of focus will be on large-scale infrastructure program but also military investment. it after the tax

bill gecko >> well you can't. there was a building consensus for the last couple of years that if you did repatriation you could take the repatriation money that came in to the federal government and use that for the infrastructure payment. we are using that to partially pay out the tax bill. there is that much money available. the administration wants to say there is 200 billion they would get from cutting federal programs. that's not going to happen. we are now in the middle of continued negotiations over federal spending where the answer that we know is that federal spending is not going to go down. it's going to remain stable the way it has the past several years. that money is there and it's not going to be there. francine: what about the nation's welfare program? this was a problem in november. we have seen backtracking on

this. >> i don't think they're going to backtrack. a priority for the administration and congressional republicans. i do not see any buy-in from democrats at all. serious first of all through i think it is more of a campaign talking points than anything else. what will end up being is something that is used as a wedge issue to differentiate republicans and democrats in the 2018 midterms. tom: jennifer jacobs of bloomberg broke a lot of news on the anger of the president on the way to davos. he's going to do a redux tonight , do a highly scripted speech. remain calm, act presidential. you are a washington veteran. which president is going to show up? under it is he going to be seething and save the anger for cocktails tonight? >> i think if there's any anger

it might be cocktails. good presidential appearance. he has shown he is capable of that. he did it last year. kicknk he will probably back and enjoy a diet coke afterwards. that's what you'll get. the question is always is whether you continue to get that by the end of the week. tom: do you just assume the backdrop for this is trillion dollar deficits? the backdrop is a slightly increased deficit from where we were because the tax bill permitted the maximum amount of 1.5 trillion over 10 years. a marginally increased deficit and i think the jury is very much out on how much you actually recoup from the tax bill and if the deficit goes down even marginally.

what we know is the tax bill is not going to pay for itself. researchever seen any or indication to indicate that would happen. francine: what we hear from the president on immigration? are we going to hear about the wall? >> i expect we will. nexusas developed is a tween the dreamers issue and and what theyy need to do and everybody whenstood this was coming you talk about a fiscal 2018 foliar funding bill. trump and the republicans want to do something about the dreamers issue. they have been there for a while. there's always the what used to be called back in the day the shape of the table discussions.

a lot of that is been going on. they all legitimately want to get something done on dreamers and the president has put forward what looks like a very generous offer on that. at the same timea lot of that i. they want not only money for border security thatwant some assurances the border security is actually going to get built. washingtonknow appropriates on a one-year basis so what they're talking about is trying to bridge the gap somehow. i think that gets bridged. those aren't easy conversations. thank you, terry haines. right now.y with us

the make america great again i.s. curve shifts. do you buy it? stimulus, the whole tryinggain is why are we to create jobs when the economy is already at full employment. it is interesting on the deficit. i think we got to be careful here. washington is out of money. we have a $20 trillion trying to deficit. if anything additional supply of treasury bond auctions could actually push of yields and work together 3% yield i want anyway. people think the deficit over 20 is 150 billion per year. they don't realize it swings out to like to 90, almost 300 -- is0 , almost 300 immediately. we are talking about a deficit effectively that needs to be financed of 1.3, $1.4 trillion.

let's not pretend the deficit may or may not make it to one trillion. my forecast would be more like 1.3 trillion. rupkey with us. he will continue with us. our coverage tonight smart conversation around the president's state of the union speech. look for david westin at 9:00 p.m. worldwide. of course on bloomberg. ♪

francine: good morning.

tom and francine from london and new york. we talk that coin and blockchain almost on a daily basis. guest, bitcoin has risen. up speculation amongst investors over price sustainability. our next guest says the price is up speculationll and amongst investors -- she joins us from the paris tech conference. thank you for coming on today. consensus is a software studio run makes applications to the ethereum system. what are the advantages of using software on the theory of -- ethereum? >> ethereum is a blockchain based platform for decentralized applications. transactions and automated

agreements. because of the architecture the profamily decentralized nature of the architecture we can be sure that actors on the system like a corrupt cfo or hacker can't get into the system and --roperly manipulated data manipulate the data or the programs. economists call this architecture the trust machine. it enables natively digital elements like natively digital money and legally enforceable agreements, securities, identity. what's the most interesting development in the cryptocurrency space that investors are missing? >> the most interesting development? as a seae technology change from building sideload systems on the

public internet or private systems to world in which we ase shared infrastructure the foundational element. so instead of businesses building software for their own needs we are going to see businesses get together in sectors across industries along value chains like supply chains and build shared infrastructure. that's going to be a profound transformation and how i.t. systems are built. tom: you're out of the acclaimed electrical engineering process at winston university. they are being absolutely first-order in game theory and particularly in auction theory. this odd thinking about where we are in the market. to know your confidence in the generation of the bid and the ask within the market of bitcoin and the other bitcoin like instruments.

confidence that the bid and the ask have integrity in those markets? consensus is a software company. ethereum is a platform for decentralized applications. we don't pay a lot of attention to the cryptocurrency aspect of our space. we just consider cryptocurrency the first application built on this new platform. tom: yet but -- i want to know joseph -- joseph you are one of the leading guys in the world on this. i want to know if you buy the formation of the bid and the ask on bitcoin. there are many different liquidity pools on many different exchanges around the world. there are new forward future type instruments. clear that the industry -- it is still very immature. the futures for instance are not

grounded. market.very to the i think we will see deliverables in that space fairly soon. there may be some announcements coming. fairly soon. we just don't pay a lot of attention to the exchange space or the cryptocurrency aspects. are a software company and we build a wide variety of applications. i understand your point. if there is a cyber attack on digital wallets or crypto exchanges does it actually undermine the software? it undermine blockchain because people bundle it into one? in ae internet was formed naive time decades ago and it has been built without the benefit of foundational strong

cryptography and we have seen so many different attacks. equifax for instance. so many different attacks on identity systems. they haven't undermined the world wide web for the global economy. continue ins will our ecosystem. the system is still young. it is maturing. it is heartening. none of these attacks will be existential threats to the system. we just learned from them and build better systems. your company has a fund worth $50 million to invest in blockchain startups. do you choose where you invest and what qualities do you need to figure out before you put your money there? it's really quite general. initially we felt that we had broad and deep experience in the blockchain space and our capital

was best deployed internally. 12 months ago our ecosystem exploded. we are focused on decentralizing technologies and enabling the world to build that are systems for itself and that involves trusted transactions and automated agreements and decentralized storage and and have a computer and communication systems. there are many different projects in our ecosystem and we just want a front row seat in the best projects. we want to support projects that are adjacent to our ecosystem or complementary. tom: thank you. we look forward to speaking with you. joseph lubin of consensus. very important discussion in linking the underlying bitcoin and to all of the software work he is doing with the theory of as well. -- the theory him as well.

him theory him the theory his theory him a theory on ethereum as well. an important conversation with chris rupkey on the price of the 10 year bond. stay with us. in london and new york, this is bloomberg. ♪

>> this is bloomberg surveillance. i'm taylor riggs. blackstone group is in talks to buy a controlling stake in thomson reuters financial integration unit -- information unit. bloomberg lp competes with thomson reuters in providing information to financial industry. the ceo of qatar commercial banks since funding costs will probably rise as part of the saudi led boycotts of the nation. i would expect a 15 to 20 basis point increase in the rising funding costs from the impact of the blockade but there will be demand and particularly as people get more

comfortable it has been about seven or eight months since the blockade was imposed and qatar resilient and that is mitigating risk concerns. >> that's your bloomberg business flash. tom: single best chart with chris rupkey. everybody talking about the savings rate when they look at income and spending in the united states. this is the personal savings rate of income. is this enthusiasm over make or is theret again something else going on in a rapidly declining savings rate? don't forget during the housing bubble years the savings rate also dropped. i can't really explain it. the three point 8% huge jump in consumer spending in the fourth quarter.

a lot of that was based on people taking into their piggy banks. tom: using credit cards. >> maybe are they trying to spend before they get their tax cuts? quite sure what the tax cuts were going to be. many people still don't know how much is going to be in their paycheck. americans are learning just right now. it does seem to be looking like consumers are stretching here a little bit. we will see if some of this money picks back up. savings rate goes back up after they get their tax cuts. it's bit of a mystery. mystery: what else is a ? risk's usually financial dow industrials fell about 100 70 points.

down futures for a while when i came in here were down 170 points. raise people's fears but that's the first thing i check on my phone through the bloomberg system every morning is what happened to dow futures overnight and we really haven't talked about that today. it looks serious to me. there could be some financial risk. interest rate risk not so much. the fed is only going to go up three times this year. tom: chris rupkey, thank you so much. a good briefing on economics and a little bit on washington as well. continueand myself bloomberg surveillance on radio. please stay with us. tonight, the presidents state of the union speech. ♪

alix: equities fell off. higher bond yields take a bite out of the global the rally. or is it some good old-fashioned profit-taking? plus president trump expected to lay out his vision for immigration and infrastructure tonight's state of the union address. we have special coverage from the nation's capital. janet yellen shares her last -- chairs the last fed meeting. tonight's state of theybreak union on this tuesday state of the union day. i'm alix steel all alone in new york. david westin is in washington. david: i am down here for the state of the union. we will be anchoring that tonight at 9:00 live on bloomberg television. one of the big questions is can the president reach across the aisle? he has indicated he's going to try and do that. he has repeatedly said how great the economy in the markets are doing. he no doubt is going to want to say that tonight but is he going to be able to do it given what the markets are doing?