francine: president trump delivers his first state of the union, calling for more than $1 trillion in infrastructure spending. the prime minister brushes of calls, as she heads to china on a trade mission. we are live in beijing. der chairman tells me that spain is back. ana: this is the fourth year that spain will grow and create half of one million jobs per year. spain is one of the best performers of any country in europe.

francine: welcome to "bloomberg surveillance," and i'm francine lacqua in madrid, where i have been speaking to ana botin. mark barton is in london. mark: good morning. we have seen a big drop in the last couple days for global stocks. the msci all country world index, the biggest two day drop through yesterday since september 2, 2016. check out the stoxx 600, up for the first day of three. strongest months in september. the start of the year, gains for every european benchmark with one notable exception. the ftse 100 heading for a drop in january, weighed down by sterling. the euro is up by 1/3 of 1%, gaining by a second day. highest on a closing basis.

extent headline inflation to slow. core inflation to pick up. the german ten-year yield is down five basis points, 60 basis points dropping for a second day after rising to a 28 months high on monday, when it rose to 69 basis points. ande oil is down to $64an change. the euphoria giving way to some concern that u.s. stockpiles will rebound as the rally encourages american drillers. that sparked a 3% drop in yield this week. january though, was the best since 2013.i the best january since 2013. let's get the bloomberg first word news. official factorya's gauge has fallen to an eight-month low in january. the managing index slipped to

51.3. that is in efforts to rein in debt and reduce drag's on activity. bitcoin is heading for the worst monthly slide since december 2013. u.s. regulators ramp of scrutiny , while facebook is banning ads tied to the industry. bitcoin is down 30% this mo nth, while rival cleanser also down at least 2%. the tunisian prime minister says he expects the administration to turn by 0.25%. he says the government is working to reduce spending, revive exports and we the concerns of anti-austerity demonstrators. >> [indiscernible]

levels.mic the challenge is how to recover the economy in order to bring jobs. nejra: global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. . am nejra cehic this is bloomberg. mark: president trump delivered his first state of the union address, largely dispensing o with his calls for bipartisanship. ump interspersed those calls base,ortrayals for his showing his administration as working to build a save, strong and proud america. take a listen to the 80 minute speech in 90 seconds.

donald trump: let's begin tonight by recognizing that the state of our union is strong because our people are strong. this in fact, is our new american moment. there has never been a better time to start living the american dream. so to every citizen watching at home tonight, no matter where you have been or where you have come from, this is your time. america has also finally turned the page on decades of unfair trade deals that sacrifice our prosperity and shift away our companies, our jobs and our wealth. wealth,on has lost its but we are getting it back so fast. the era of economic surrender is totally over. under the current, broken system, a single immigrant can bring in virtually unlimited

numbers of distant relatives. under our plan, we focus on the immediate family by limiting sponsorships to spouses and minor children. any bill must also streamline the permitting and approval process, getting it down to no more than two years, and perhaps even one. together we can reclaim our great building heritage. kennedy gave the official response for his party to the state of the union,: the president divisive. economy that makes stocks sore. bit fails to give workers their fair share of the reward. a government that struggles to keep itself open. russia, knee deep in our

democracy. an all out war on environmental protection. a justice department rolling back civil rights by the day. targeting it replaces. -- targeting sacred places. and this nagging, sinking feeling that this is not right. this is not who we are. mark: how successful was the state of the union? what will it mean in terms of investment? joining us now is simon french. and th e head of the u.s. and americas program.

he attempted to reach across the aisle. it seems as if those attempts were futile. >> absolutely. this was an evening where he did talk about unity. he talked about bringing together -- at least his rhetoric said. then he went back to his policies that he knows will never o appeals to the democrats. what is clear to 50% of the american population is that he is not interested in their interests. that came out, even though his rhetoric was soaring unity rhetoric. one of the things that was really different about this one, about the state of the union, he gave almost no guidance as to what was coming next. typically during the state of the union, the president will say, and here are the three things i want to get done in the next year or next three years.

there was very little of this and it was probably sure because he is not sure what he can get done because of the divisiveness of congress and the american people at the moment. francine: how is he going to fund his infrastructure plan? was anwill say, it economic plan and a little bit of a victory lap. done a massive tax overhaul. who will pay for infrastructure? >> that is exactly the right question and the question we asked one year ago as well. a year ago infrastructure was focused on his agenda. when he was elected president, it was the one issue that people thought democrats and republicans could come together on. it is still on the agenda and he did not get anything done last year. fair enough, he was focusing on his tax plan and getting rid of the obamacare. some successful and some less successful. it is now front and center again, but as you rightly point

down, with all the tax cuts, it is not clear where the spending will come from to spend $1.5 billion on infrastructure and at the same time, to increase spending on defense, which is another part of the state of the union and another part of his agenda. tonwhile, the democrats want continue increasing spending on social services and as such. the big issue is going to be where to find the money and he does not have the answer for that quite yet. it was a muted market reaction. was there anything in their that stopped? was there anything in there that stops this upward movement in global equities we have seen in january? >> not of the speech. upper movement is driven by upward momentum and i expect that to continue. i think the speech flagged two

merging faultlines, the end of trade tensions and rising debt levels. what was interesting what was the reaction of the democrats i think many of the components of president trump are still frozen in the sense that the political issue is trump and he has succeeded politically. himself the political issue. i think the issue with the democrats is they have got to move on from being the party of not trump and having new policies, new people coming forward in the democratic party. it is interesting they chose joe kennedy, who some senior democrats the as a macron. the democrats and people who doing, what trump is they have nobody to come forward with new ideas. simon, trump gave that

speech in davos, which many people said was remarkably calm. does the america first agenda, can it work in the context of globalization? >> yeah, the state of the union address was an extension of the narrative he gave at davos. to your point around whether that can complement globalization, this is a big question mark as to whether economic momentum can be sustained? that itnumbers suggest is very strong. the question mark sits over the supply side and clearly, protectionism and america first approaches to tariffs tand the way in which trade deals are brokered will constrain the supply side. to this is,ement

most expectations is it will be taken away from entitlements. to beements tend supported from the supply side. this will allow trade growth in the u.s. economy to improve, which is ultimately the pricier. francine: when you look at equities, how much are they looking at tech spending or tax overhauls, and how much are they looking at the fed? we saw the dow yesterday. >> i think they have largely been focused on the tax reform. i think many people are ignoring the fed in a number of respects. the fed might have to raise rates by more than what is priced in at the moment. the market has yet to interrogate jerome powell. what does he really stand for? what will the makeup of the fomc be like?

that's something the market has taken for granted and might come back to question. as we get through the course of this year. mark: and your final two pronged question. given that he gave few details on new policies, what can he achieve in 2018 and how do we set up for the midterms in november? >> i will give you one answer. because the answer for the first part of your answer, what can he achieve is dependent upon the second, the midterms. if you thought america was divisive last year, watch this year. with the midterms coming up, america will be even more partisan and even more split. we have already seen that we should not think of it as two parties in congress, but four parties, the republicans are split between centrist republicans or your title republicans and tea party, and the democrats are split between what we would consider the

typical democrat and the more tight democrat, bernie sanders. so, enormous divisiveness as people loom up to the midterms, it will make getting anything done very hard. for those of you watching the immigration debate, i do not see how they could come to a solution before early march, which is when the deadline is. for those of you watching on infrastructure, again, where is that money going to come from? i do not see them finding that money in the timeline to see anything in 2018. what does it mean for the midterms? the midterms, i will tell you what everybody says, it is too early to tell. the 10th the democrats have is in the house. you see a number of republicans over the last six months say, i am not running again. the house is a lot more fluid than we would have thought a year-and-a-half ago. that is where the democrats have a chance of actually winning big, as it were. , thank you wickett

for joining us today. withel o'sullivan stays us. plenty coming up today, including the interview with ana botin. that is after we saw the net income, which beat estimates for the fourth quarter. the british prime minister is working to build a strong post-brexit trade relationship with china. will she face any obstacles? we are live in beijing. this is bloomberg. ♪

francine: economics, finance and politics. this is "bloomberg surveillance ," anmd i'm francine lacqua in madrid. mark barton is in london. theresa may is in china, seeking

to lay the foundation for a post-brexit trade deal. she is accompanied by the largest business delegation her government has ever taken overseas. this is as she comes under increasing pressure. she has rejected suggestions that she will resign, dismissing the situation as hypothetical. joining us now from beijing is our china reporter, tom mackenzie. is theresa may actually hoping to sign deals in china? or is it more of a meet and greet kind of meeting? francine, she is hoping to sign deals, but the priority is for theresa may to move this relationship between the u.k. and china to a point where once britain has left the european union, they can start discussions on the free trade agreement and that is what she is hoping to do, start those conversations about potential discussions. but also, deal with the parliament, which is why she has come over here with the

delegation of 50 business leaders, including the likes of hsbc and bp, and also standard chartered, which has come out with news that they have been granted with a licensed by chinese authorities to underwrite panda bonds, yuan denominated bonds. only the second foreign bank to be given that license after hsbc. we are expecting more on these details as they come through. it is a balancing act for the prime minister, as it is with many weston leaguers. she says she will bring up human rights, and she will talk about what is seen as an erosinon of democracy in hong kong. there is a lot on the agenda. she is still there and we are awaiting more details on these deals within the next few hours. mark: david cameron once talked about a golden era of relations with china. what kind of reception can now prime minister theresa may

expect then? tom: you are absolutely right. this was forged under cameron and a george osborne in 2015. we have heard from the great hall of the people when he met with theresa may just one hour ago. he said the golden era could be pushed forward on this trip. theresa may said she was confident the trade relationship between the two parties could be accelerated. find the scenes though, we have been told there is a bit less enthusiasm from the chinese side. they are aware that domestically and politically she is in a weaker position. and they believe britain is plenty left the role on the international stage as a result of brexit. they are happy to start the discussions, but they are also cautious. the state media has said that yes, the golden era could be

moved forward, but trust is britain and china could easily be lost. nuclear project, theresa may suspended that temporarily. they say that is a cautionary tale for the chinese. beijing. mackenzie in theresa may looking to china in response to brexit. meanwhile, mark carney said he can now fully focus on tackling fromtion as the drag brexit starts to receive. recede.s to thathat hawkish, the fact carney says he can now focus on inflation? >> it is and investor should at thext thursday report, which i think will have a hawkish tone from the bank of england, guiding markets towards expecting a rate rise in the middle of this year, potentially at the may meeting.

inflation is confidently expected to come down away from 3%, down to 2% as that big currency depreciation starts to ease, but mark carney's right to point out that the u.k. economy is benefiting from the pick up in global demand. the big question is the inflation forecast. i think they want to guide markets, and they do not want to be too complacent. simon, i was actually struck by the headline that theresa may has to show up in china saying she is not a quitter. premiseolitically weak or impact the brave the negotiations and trade negotiations with china? >> look, it is easy for headline writers to go down that route. i will try to be better than that. underpinning all of this will be the point that the chinese are looking for stability in any of the trade deal. deal youey point

mentioned during the intro, but also the regulatory regime, which will now be post a transition with the european union, looking into 201. when you get into the minutia of trade deals, when you get into the weeds of the official level, these are the things that matter. quite frankly, the way theresa is is seen in opinion polls very secondary to whether people will sign on the dotted line. mark: michael, if you look at embassies, how they fared in january, there is one index that has a mind of its own, the ftse 100. the sterling has risen and ftse is down. the pound though, it is ever onwards, moving upwards. it has caught many by surprise. 4% rise against the dollar in january. what is priced into this and how much further could it rise?

>> we have seen under weighted u.k. stocks. we are still low on the pound. we think it has momentum. i think the market is beginning to look to a possible rate hike in the first half of this year. we have got two priced in for the first half of this year. mark carneyxt of and the prime minister, i think the worst of the uncertainty is now over. i think the u.k. will be led to a soft brexit framework of the making of the eu. i think businesses and the market begin to realize that. from an uncertainty point of view and business point of view, i think the investment will pick up and the risk, if anything, is the u.k. begins to participate in the strong, cyclical rally the rest of europe is happening. in general, this is bullish for the pound, also at a time when the dollars seems to be in a

place of entrenched weakness. mark: gentlemen, stay there. simon french and michael o'sullivan, both stay with us here on "surveillance." confident the bank can deliver on target. francine lacqua's interview with the santander chairman. ana botin is next. this is bloomberg. ♪

mark: -- francine: this is "bloomberg surveillance." i'm francine lacqua in madrid. let's get straight to the bloomberg first word news in

london. here's nejra cehic. nejra: u.s. president donald trump has delivered his state of the union speech, telling congress and the rest of the world this is a new american moment. polling shows most americans consider trump divisive. he promised to unify the country. he also held tax cuts as helping the u.s. complete globally. >> we slashed the business tax 21% so american companies can compete and win against anyone else anywhere in the world. nejra: china's official factory gauge has missed estimates, falling to an eight-month low in january. the purchasing managers index slipped compared with a forecast in bloomberg's economists surveyed as efforts to rein in debt and reduce pollution dragged on activity. bitcoin is heading for its worst monthly slide since 2013 as u.s.

regulators ramp up their scrutiny of the digital currency , while facebook is banning ads tied to the industry. bitcoin is down about 30% this month while rivals are also down at least 2%. the tunisian prime minister has said he expects the nation's economy to turn a corner by 2020. his administration is facing a wave of protests over living standards that have been slow to improve since 2011. he told bloomberg the government is working to reduce spending and introduce social measures to meet the concern of anti-austerity demonstrators. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. francine: thank you so much. the u.k. prime minister is in beijing. we are waiting for a news conference with the prime minister and the premier of china. we are expecting them to maybe announce some deals.

this is one of the biggest trips for theresa may, i think the largest delegation that she's brought on a foreign trip. on to send enter. , whoke to the chair reported fourth-quarter net income. the better-than-expected numbers helped ana botin post her third straight year of rising profits since taking over in 2014. i spoke to her about the results, the strategy, as well as emerging markets. it has taken 14% to 17% this year. based on topline growth, doing things really the right way for customers, doing really well on digital, so very good performance in brazil. mexico also. all of latin america has done well. francine: do you worry about protectionist measures after

we've heard noise from president trump? ana: what i look to is the actions. in termsu.s. has done of the economy is pretty good. encouraging is very . has all theration right attitude in terms of supporting growth and making banks support growth again. we are very encouraged about how we see the u.s. economy. francine: what are you expecting interest rates to do, and how does that help with your businesses? ana: it is a double-edged sword. rates go up and we have a slightly positive yield curve, that is good as long as they don't go up too much. however, we are all somewhat concerned what happens when qe ends.

we saw prices and equities doing not very well. francine: your outlook on the u.k., how is that going? are you worried about the u.k.? ana: i would like to separate the u.k. as a country and our bank. our bank has done really well. it is growing around 5%. we have what we call positive jobs. pretty good performance. there is a slowdown in the u.k.my, and 2018, probably is the country that is going to grow least. the one where growth will be less, probably around 1.4%, will be the u.k. francine: will brexit mean you have to move investment banking outside of the u.k.? ana: we have very few. we are the most british of the british banks. the most resilient according to

bank of england stress test -- for us, it is whatever happens to the u.k. economy will be tied to that. we will do better. you look at your assets across the world, is there a region or country where you want to be stronger? in 10 always say we are markets. we have 153 million customers. the strategy is to have more loyal customers, more digital customers. it is still a huge opportunity for us to grow on an organic basis. we have lots of deals in poland, argentina, portugal, and this is good. twe said no a number of times. we do have organic growth within our customer base. francine: talk to me about

digital. this has grown exponentially. how many transactions do people do on their mobile? ana: we are excited about this. we started the investment in digital in 2015 and 2016. that year, the growth was 7%. last year, the growth was 155%. digital transactions have gone from 4 million to 10 million per month. spain has quadrupled. brazil has multiplied by three. today, 39% of all transactions in the santander group are digital. customer sales are 31%. we are very excited about what this means for customers and shareholders also. francine: that was the santander chair, ana botin, speaking to me in madrid. and michael

sullivan from credit suisse are still with us in london. if you look at financials in europe, are they really competitive compared to the u.s.? ana botin was saying they may not be as strong as others, but they have exposure elsewhere. it seems that a lot of the u.s. financials are eating the lunch of europeans when it comes to the investment bank side of things. >> i think there are several structural differences. one is regulation. it is commonly accepted that the less.s. banks have stringent regulation than some of the european players. the second is in terms of size and reach in the eurozone itself. you have big banks, but many of them are seen as regional banks. i think many of the european banks are still in the legacy of

the eurozone crisis. to delever operationally. mark: simon, ana botin highlighted the steepening yield curve plus the bank, but she said we have to be aware of the t, easing to to q tightening. market participants seem to be taking it in stride. is there a risk in this approach? >> there is a risk, but probably not from a structural standpoint. there's still a very good underpin for less risky assets, government assets, even if the central banks are leaving the playing field. how is more interesting is the structure of the bond market has changed in the last decade

to the point where you have very procyclical price action. what we are seeing is that pricing decoupling from fundamentals may be a reflection of the fact that there's much fewer active participants, and when you get market news that is unexpected, you get some fairly wild price swings. francine: michael, how much does the rising interest rate environment help banks? it helps with volatility as long as you are on the right side of the trade. >> until maybe the last couple days, rising yields in the u.s. seemed to be taken as a reason to buy banks rather than to sell equities. that tells you what is on the mind of traders and investors, that they are looking for new places to shift money rather

than to sell out of the market wholesale. we're just coming out of a phase where we've had a near record pullback in the yield curve. if the yield curve begins to steepen, that should help the share price of the banks globally. simon french,ark: michael o'sullivan, stay with us. the mood of the nation as italy prepares to go to the polls. why some voters could use the ballot box to punish the prime minister's democratic party. this is bloomberg. ♪

mark: you are watching "bloomberg surveillance." as italians prepared to go to the polls in march, loan default rates could prove a good indicator of voting intentions. plenty of people are being left behind. last year, defaults among families and small businesses rose in 78 of the nation's provinces. the rates reinforce expectations that disenchanted voters may punish prime minister jens alone gentiloni's party at the ballot box. simon french, michael o'sullivan, a bloomberg intelligence pace was released today. won'timate of instability favor italy's much-needed reforms. could the influence change? what are the risks from the

march for the election? >> to some extent, the risks have been mitigated. you have slightly less anti-eurozone rhetoric from the five-star movement, from the northern league, and you also have the pickup in eurozone inflation. it hasn't yet fed through into nonperforming loans, although you would expect for that number to start to improve. the issue is whether the political test will come sooner than italian households start to feel it in the pockets. influences only real that it will discourage the ecb potentially in march from providing guidance around its tapering program -- mark: we're just going to cross over to beijing, where prime minister theresa may is meeting with the chinese. let's listen in. ladies and gentlemen, on this

occasion, i want to once again welcome prime minister may on her official visit to china. the primechaired minister's annual meeting. hadng our meeting, we discussions on a wide range of china-u.k. trade, investment, the international situation, people to people ,xchanges between our countries and issues like intellectual property rights, human rights,

and other issues. views on all these topics. and we have come to agree on the following. u.k., asina and the major economies in the world, are committed to upholding free and pushing forward economic globalization. and in the process of promoting free trade, we will improve , and to enable free trade to benefit not just our two countries, but more countries and people. that we will work to

maintain the momentum of continued growth in our further ouro take relationship in the golden era. witnessed the signing of intergovernmental cooperation agreements. in the areas of trade, investment, people to people delivered we have .esults up between the china

and the u.k. will go further, and china will open wider to the u.k. in line with our agreement, china will expand openness to products of the u.k., including agricultural products. productsl import u.k. that are needed in the chinese market. face a complex and volatile international situation. we believe it is important to uphold world peace. we are willing to work together more closely in the united ourons and strengthen

and our ballot relationship will changes ofwith the the e.u.-u.k. relations. have assessment and discussion on our trade to make our

economic and trade relationship to go forward. we believe that our different cultural backgrounds and -- ourl circumstances countries respect each other and treat each other as equals, and we are able to have candid discussions, so prime minister may and i had a discussion on the dprk. agreedanged views and respect for international law and each other's international

circumstances, on the basis of equal for the dialogue, we can have further communication on , and througherest such dialogue, address our differences and disagreements that we may have. differences and disagreements only happen from time to time. ofy are not the mainstream our relations, and they will not be allowed to affect the larger picture of this relationship. i'm sure this relationship will go

with the businessman. we hope that our consensus could be implemented in the business community, and at the practical level. the prime minister is visiting china in winter, but the spring is just around the corner. believe that in our ballot relationship, we don't have winter at all. what we have is spring, and beautiful spring scenery. thank you. now the floor is yours, prime minister. >> thank you very much. i'm pleased to be here on my first official crime ministerial visit to china. although i may be visiting in winter, i've had the warmest of welcomes, and i welcome the opportunity we've had to discuss a wide range of topics in an open way, important issues, which face us both, and i look forward to continuing that

discussion over dinner tonight and tomorrow. i'm pleased that we've agreed to intensify the golden era of u.k.-china relations. the u.k. and china are both global partners with a global outlook. you made reference to the united kingdom leaving the european union. so, and as china continues to reform and open up, we are committed to deepening our strong and vital partnership. our relationship is broad and deep, and it delivers real benefits to both countries. we're working together to tackle security challenges such as north korea, slavery, threats to aviation security, to build sustainable economies, and to develop our strong education and societal link. i would like to say a few more words of detail.

>> we also talked about excess capacity of steel. >> we did indeed. as fellow permanent members of the u.n. security council and the g20, we are committed to jointly addressing global challenges. steel is one of those challenges. we are also committed to protecting and promoting the rules-based international system. we said we would discuss north korea. we agree that its pursuit of nuclear and ballistic missile programs is illegal, reckless, and poses a threat to international security, and we've agreed the full implementation of sanctions is vital to dissuade the north korean regime to change course and abandon its illegal activity. we agreed to measures on aviation security designed to

improve standards in the u.k. and china by sharing more information and undertaking visits to share best practice and observe standards of limitation. we will also do more to tackle the scourge of modern slavery, to disrupt and prosecute the groups responsible and protect victims, and we will begin new work to attack her of a -- to tackle other forms of organized crime. economiesed how our have complementry strengths. trade is already at record levels, worth over 59 billion pounds. u.k. exports to china have grown by over 60% since 2010. the u.k. is already one of the largest european recipients of chinese foreign direct investment. mark: theresa may speaking in beijing with the chinese premier. she says she says she's committed to deepening the partnership with china. she says she's pleased to agree

to intensify that relationship. the china-u.k. relations won't change, li said, post-brexit. he said that china will import u.k. products needed in the chinese market, and china is open to a wider relationship with the u.k. that press conference is continuing. just want to thank simon french and michael o'sullivan. both for joining us today. "bloomberg surveillance" continues in the next hour. francine lacqua and tom keene will look ahead to the fed's rate decision. ♪

francine: a new american moment. president trump delivers his

first state of the union with an of the message on the economy. democrats accused him of driving the nation further apart. dollar doldrums. the u.s. currency dips. as continues to decline treasury yields stabilize. the company chair of santander says the company can deliver on the targets. good morning. this is "bloomberg surveillance ," and i'm francine lacqua in madrid. tom keene in new york. i had a good conversation with the chair of santander, ana botin, telling me she is confident about the future of u.s. banking. she also spoke of interest rates and what the fed can do for her bank. tom: we heard that from the president last night as well. he might not have spoken about interest rates, but he is certainly confident about the future. we will have a lot of coverage on the look forward to where the

policy might go in the coming months. alsoine: yes, tom, we spoke about the state of the union. let's get straight to the bloomberg first word news. of the after the state union speech, president was overheard telling a republican tomaker he 100% plans release that classified memo. questions about the russia investigation. federal reserve policy are expected to maintain the range of the benchmark lending rate at the end of the two-day meeting today. a bigger concern is how the fed will describe inflation. policy buffs have argued there is not enough progress after six years of undershooting the 2% target. theresa may is in china, where she will be walking the tightrope between politics and trade. she said she will raise the sensitive issues of china's

human rights record and democracy in hong kong. she also wants to build a powerful post-brexit trade relationship. president trump arguing that the u.s. has arrived to what he calls the new american moment of wealth and opportunity. the president spoke for 80 minutes last night in his first state of the union address. never trump: there has been a better time to start living the american dream. so to every citizen watching at home tonight, no matter where you have been or where you have come from, this is your time. taylor: the president explains his immigration policy and was booed by democrats. he also made pitches on subjects such as infrastructure, prison reform and family leave. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. tom: taylor, thanks so much. with the weaker dollar front and

a tough dayee on equities and a little curve steepening. oil, a little down from the $70 level on brent. .2457.nger euro, 11 the yen, not really part of the story. i put the dollar-renminbi in the re, a stronger chinese currency. within, struggling here what the chart clowns call a narrowing penant. right now we give you full state of the union coverage. we want to go into the policy and maybe what the view forward is on budgetary items. yes, there were politics involved as well. kevin's really designated survivor for bloomberg. -- kevin cirilli is the

designated survivor for bloomberg. we don't really care if mike mckee is the designated survivor . he can go or i can go. mike mckee, what did you hear on infrastructure? mike: if there were $1 trillion, but there is not. it would not even make a dent in the infrastructure problems. the one thing you can say about this speech is it had all most forward-looking items for the economy. tom: i like that idea, kevin cirilli, of hope. what was the hope you heard last night? kevin: well, i think it was a different type of president trump than we are used to hearing. a different tone. but i think it was light on policy specifics. republicans liked it and democrats did not. i spoke with policymakers last night as they were leaving the chamber and i think a lot of

folks -- one of the surprising areas was on drug prices. a lot of that caught a lot of interest, in terms of what he would do to lower the cost of prescription drugs. but again, no specifics on how he would do that. tom: buried in the speech was a choice paragraph. it is picked up in "the washington post" this morning. let us listen to the president on federal employees. donald trump: all americans deserve accountability and respect and that's what we are giving to our wonderful heroes, our veterans. thank you. the basic after that, idea -- here we go. donald trump: we will empower every cabinet secretary with the authority to reward good work and to remove federal employees who undermined the public trust or failed the american people. tom: there it is. that was the point. that went viral on twitter.

was he speaking about the department of justice last night. kevin: there is no other way to read those, tom. etyeah, i think you're absolutey right. francine: kevin, how will he find the infrastructure program? kevin: well, something lawmakers said after that speech -- there is some skepticism about just how he will. there was some notion he would use repatriated funds from overseas, lowering the corporate tax rate. the administration has been lukewarm on that. as one lawmaker put it to me after the speech, another idea that has been raised is the idea of raising private and public capital. but again, we do not have the specifics for how they are going to -- which backing the administration wants to see on that. tom: i look at this and i look

at all of the speeches last night and i would like to think somewhere in there was policy. mike mckee, you are looking into policy as kevin looks at the politics of it. what was the policy prescription for his loyal republicans last night? mike: more of the same. this was a speech for the base, his 36%. much more on immigration than on infrastructure. a lot on national security. but very little in terms of what he will do now. tom: is there a plan now? i want to go to both of you on this. mike, what is the plan for 2018? ,ike: they really is not one not in terms of a unified, holistic view. he mentioned the brit prescription drug pricing. tom: same question for you,

kevin. what is the plan for 2018? they have a massive victory lap going on, the tax cuts. but did you hear a plan last night? kevin: i think candidly after watching that speech, the plan w as speak in a different tone, continue to speak the way you did in davos, and sees on this massive audience. scoreize this moment to some easy layups, so to speak, and hit your foul shots and try to move forward because as we all know, there's a lot of other things outside of the state of the union address, such as the robert mueller probe, which has intensified. i think the republicans and officials after the speech last night when they were leaving, he got the job done that he needed to get done when he started out. kevin, what does this

mean for the midterms? this earlier said in the week, francine about, watch the democratic reaction to what the president is saying and even on infrastructure, putting it mildly, democrats barely at the president's calls for infrastructure. you stood a couple of times, joining with republicans to cheer. but in terms of what this means for midterms, i am not sure that the speech does anything to change the dynamic setting into the midterm election cycle. houston should the -- how soonal with should the president deal with 's acertady assertion?

>> nobody really remembers who gives the responses to the state of the union addresses. the president did what he needed to do and congressman kennedy didn't have any gaf. senator bernie sanders gave his own speech and he had a glitch. they dropped him halfway through. the congressman kennedy did all right. tom: do we expect action from the special counsel and robert mueller navy in the next five days? wary to'm always predict the timeline of the investigation. but here is the facts. he's intensifying and interviewing people closer to the president, including general kelly. all the signs suggest they are getting closer to the end of the investigation. tom: right now it is extremely important.

now we go to michael mckee, who knows 10 more times about football. do the eagles and kevin cirilli have any chance at all against the patriots? mike: sure they do. they are missing their starting quarterback. they might have tapered. the biggest news that washington last night, forget donald trump. the kansas city chiefs traded alex smith to the redskins. i like you,w buddy. tom: kevin cirilli and meghan mike mckee, thank you so much. coming up on "bloomberg: daybreak." this is a governor speaking on the law and regulations. this is bloomberg.

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taylor: this is "bloomberg surveillance" and i'm taylor riggs. in korea, samsung electronics has approved a stock split to enhance shareholder values after posting record earnings in the last three months of the year. samsung reported strong demand for the memory chip. high-teching displays. the biggest profits in six years, putting more pressure on the ceo of the world's number two fashion chain. they are trying to turn around h&m after the recent struggles. and blackstone group has agreed to the biggest buyout in a

decade. the firm will buy a majority stake in thomson reuters financial risk unit. the deal is valued at $60 billion. that's your bloomberg business flash. taylor, thank you. it is the final decision day for janet yellen as the current fed chair prepares to hand over leadership to jay powell. the central bank's focus remains on inflation. so, that is what we are focusing on. there is no news conference today, but the statement is likely to show no change to the benchmark rates. most will be looking at how the committee discusses inflation. we are joined by the citigroup head of global macroeconomics. thank you for joining us. what is the biggest danger for the markets today? is it that inflation is too high?

or is it that we will have a repeat of 2017? we are waiting for inflation but it does not, strong as expected? >> at this stage, the upside risks for inflation are burning the central bankers. we have been waiting for inflation to pick up to the sort of levels we have been used to and a central bank's are targeting, but at the moment, as inflation creeps up, one concern is that it might force central banks to move faster than central markets are prepared for. so, i think some language from the fed for instance, that it is starting to see inflation move up decisively would reinforce this trend of inflation concern and rising interest rates as well. brahim, how worried are you about the weak dollar adding another layer of stimulus? is there a danger of overheating? ebrahim: i do think there is

some danger of overheating, but we have to distinguish between the danger that on entered markets will overheat and we could see euphoria. there is the more traditional form of overheating, which would be that inflation rises, but i'm less worried about that aspect now because there is plenty o f aspects to keep inflation contained. and then there is the third. there is an unusually large budget deficit in the u.s. at a time when interest rates are very low. there might be a sense that a little more prudence on the fiscal side would be in order in building up buffers. that is the risk that is gaining in traction and financial markets. tom: we will touch on that with martin feldstein. does the phillips curve model still work, ebrahim?

we begin with chairman powell now, and they have a core model linking employment dynamics with inflation dynamics. does it still fit? think the do not simple version of the phillips curve is very helpful. the relationship between inflation or even wage pressures and measures of labor markets, those links are very loose, flatter than they have been in the past. that does not mean the overall framework is misleading. there are many other factors that enter into that equation. inflation expectations. as well.n for instance the model is outdated and we do not have a more general version. beckons.lieve february i want to cut everybody some slack. do we see inflation at this time? him: i do not think we see inflation moving up decisively. in the u.s. this year we have a

number of statistical factors that will mean the year on year rates will creep up over the course of the year. every time inflation will remain relatively subdued it is perhaps slightly below 2% for the end of the year with the measures the fed focuses on. i do not think this is the year where the inflation picture changes dramatically, but we are moving away from the scenario where we were acutely worried about very low inflation, low inflation and disinflation. we are normalizing on the inflation side, but just very gradually. francine: what about a quite strongly pricing of treasuries? is that a possibility now, and what does that mean for markets? ebrahim: this is one of the possibilities linked to inflation. but there are several factors. there is a little bit more inflation risk being priced.

we have central-bank policy rates going up in the u.s. and canada, for instance. and then there is the third aspect, the net supply of government holdings are going up. we do not think we will see much further upward movement in the interest rates, but that is clearly one of the big risks that could upset the current market environment. ebrahim with us. we will touch on the federal reserve. the final meeting with janet yellen today. i am honored to say that we will speak to the former chairman of the federal reserve system, alan greenspan, during the schedule. stay with us. this is bloomberg. ♪

francine: good morning, everyone. this is "bloomberg surveillance ," with francine lacqua in madrid after speaking to the chairman of madrid. tom keene in new york. let's go to switzerland and julius baer's strategy of strategy of drawing recruitment, drawing funds until the end of the 10 year. -- and of the tenure. bloomberg's manus cranny spoke with the new ceo. couldestion for him was, he sustain that momentum? >> i am confident we will be

within the range of 4% to 6%. but with the hiring we see, we plan to hire 80 relation managers during 2018, i am confident we can deliver that. joins us manus cranny now from zurich. manus, great to have you on the program of bloomberg surveillance. it is very clear that new money came in under collardi. what is the new ceo's strategy going to be? to stay.ll, he is here that was the message he wanted to deliver on bloomberg. the reason why the stock is ck,ing a bit of a kno francine is, can the stock sustain that level? bankers is ag of

tough act to follow. collardi hired 166 in 2016. 2016 and hired 40 in then they shot for 80 this year. manus cranny, thank you so much for the reporting from zurich. new leadership at julius baer. an important note to tell you after the state of the union. bill will come new. a perfect time to speak with professor felstein on the nation's deficit. this is bloomberg. ♪

tom: this is fed day. fed day this afternoon. is in madrid and

will continue there. i want to go to a chart. comment onu can this. here is the dollar versus asia. we have shown this chart a fair amount over the last couple of years with the crisis of 1997. i will get this out for radio london on twitter. here is a stronger asia recovering out of 1998 and then we have a recent massive switch back. when did dollar dynamics matter? beginning to be brutal moves? have twos stage, we general twins -- two general trends. what is supportive towards the asian currencies, the rebound in global investment and the sector.

it is a question of what is really driving this. and at this stage it is the fundamentals pushing up. at the same time it is a dampener that i don't think it is hurting that much yet. if we get back to the strength of the currencies see that in 1996, that is a historic sick. set you up for the instabilities of 1937-1988? -- 1997-1998? we clearly saw less caution when it came to investment decisions. as long as we don't see those aspects, the strength in the currency is only going to inflict limited damage.

and we did have situations where the dollar was very strong. these are situations where economies in asia and china were under pressure. they do still have dollar-denominated debt. i would take a weak over a strong dollar. tom: we want to talk about europe in a bid but let me ask about the appropriate level on the euro. we are not there yet but do you have an economic when it starts to impinge on economic growth? ebrahim: we have to distinguish between where it is more while, on the growth side, it even comment levels are easily absorbed. isthing north of $1.30

concerned and we were moving in that direction. tom: deutsche bank this afternoon. we'll do that in a bit. right now, your morning briefing with taylor riggs. taylor: donald trump is trying to connect his presidency to the country's prosperity. in the first state of the union address, he argued that they offered wealth and opportunity. president trump: this is our new american moment. there has never been a better time to start living the american dream. booed some ofats claims on immigration. he falsely claimed that green cards are headed out without concern of the safety of the

u.s. guantanamo bay still holds 41 prisoners. obama had ordered the prison to be put on the path for closure and ordered that inmates be transferred. u.s. government is investigating apple over software updates that models.own older whethert to determine apple broke laws. apple is responding to questions from the government. -- anna, the the official official eight month low. and moderatingan -- and stronger output is moderating growth at home. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. francine: beating estimates with fourth-quarter net income,

thanks in part to a strong performance in latin america. the resilient unit saw a 26% jump in earnings. i spoke to the chair about the numbers. it has taken r.o.e. up to 17% this year. and it has made a strong topline growth. is strong forhis customers. a good performance in brazil and mexico also. francine: do you worry about protectionist measures taking place after what we have heard from surveillance -- from president trump? is pretty good. the tax bill is encouraging. we will put that back into and theages

administration has the right attitude in terms of soap in growth and making banks support growth through these measures so we are encouraged about how we see the u.s. economy. francine: what do you expect interest rates to do? ana: if it goes up and we have a more positive yield curve which is what is happening, then it can slow and they don't go up much. aboutr, we are concerned when quantitative easing ends. what does that mean for the market? this is one of the things we're looking out for this year. your outlook on the u.k., are you worried about the u.k.? ana: our bank has done really well this year.

currencys around 5% in and sterling. we have good performance. however, there is a slowdown in a u.k.nomy and in 2018, is the country that will grow the least. every single country this year 2018 is expected to grow but the one will grow the least at one point 4% will be the u.k. francine: will the brexit move mean you have to move outside the u.k.? we have very few. and we are very resilient. that was in the stress test. is whatevert happens to the u.k. economy will be tied to that. ,t a less good scenario santander u.k. will outperform.

francine: that was and a a botin. she went through country by country where she could do better or not. such a great bellwether for the emerging markets, especially latin america. she said in the state of the union address, it doesn't matter what he says, let's see if he has protectionist measures. you any ideagive of how she wants to compete within europe? francine: in europe, it is clear they are growing -- they are going after syntax. in the last year, there was a 330% growth in mobile banking. they are in 10 countries and there are opportunities in eastern europe on a targeted basis.

francine lacqua is in madrid. economicsbriefing on with the markets and the dollar weaker. look for that in the "bloomberg daybreak." stay with us from madrid and new york, this is bloomberg. ♪

taylor: this is a "bloomberg surveillance." to bloomberg business flash. new details on the control of xerox. this will give the corporation synonymous with copy machines 's of business. they will get a special cash

dividend and they were alone 49% of the new company called fuji -xerox. it could end the career of steve wynn. allegations of sexual misconduct -- het him -- when denied denied the claim. 21st century fox is close to a deal to air thursday night football. he has submitted a bid higher abc agreedd cbs and to pay last year. that is the bloomberg business flash. francine: thank you. euro area inflation fell in january, highlighting hurdles that central bank space as they attempt to normalize policy. gdp growth hit estimates and the single currency is trading at

its new year high. on the road to recovery. reaching the end of the bailout program. what does this mean for europe? what does it mean for the currency? .et's get back to ebrahim: when you look at the concerns about the central bank, how much do they have to worry and how much can they worry about the strengths? ebrahim: they are starting from a point where they are much less worried overall than they were sometime ago because growth has been so strong recently and inflation has started to creep up in financial markets. the remaining concerns -- there has been a fairly slow over the recent trend in deflation. theecb has said that if

strengths of the exchange rate is going to come from the stronger fundamentals, it is not worried. but if it is due to other factors, unwarranted depreciation, then it becomes a point of concern. there are some signs that over the last few months it wasn't the fundamentals driving up the euro so clearly the exchange with factorsg up to consider for the ecb. francine: how can they do it? how can they communicate that policy effectively? possibly raising interest rates in 2000 18 without spooking the markets or sending the euro higher? ebrahim: it is a tall order. we know the turning points of monetary policy are difficult for financial markets to understand. we will see dislocation. overall, we will see the ecb be

cautious. they are focused entirely on program and then to reassure financial markets that interest rates will not move higher soon or quickly. we will talk about forward guidance, specifically on interest rates, and tying that to inflation in the in coming months. even topic in march but bigger at the june meeting and possibly afterwards. i asked you earlier in the program about a possible repricing on treasuries. do you worry about the repricing of german bonds? what does that mean for europe? ebrahim: yes. if we go back to some of our conversations with clients, people would have thought that mispricedds are even more than treasuries.

clearly facing risks ,hat he will see at a minimum at a drift. the exchangeat rate will be potentially more significant in terms of the effect on inflation than a smaller tantrum on the exchange rate side. but, again, turning points are difficult to control for central banks. the ecb will think go out of its way to try to pin down the expectations of interest rates to prevent the sharp rise in interest rates, including but not limited, the .und yield tom: a lot of our viewers in the united states aren't aware of is the improvement in unemployment rate. the on up limit rate of poland from 20% down to 14% and now down to a stunning 6.6%.

europe, can you is over?euro-sclerosis it is dead? ebrahim: i wouldn't go that far. what a lot of our conversations boom exceeding the crisis. it is a significant progress taking place over the last few years, including that is down one percentage point a year and i think it will go lower than some other cycles. it is going down alongside structural improvements in labor markets in various countries. let's be fair though, there is a long way to go in countries like spain, greece, unemployment is still too high. italy, too high. it isn't enough to change the

social issues to keep us away from the political tensions. tom: you are writing a chapter for the imf on financial security. our the deficit and debt dynamics of the european countries more responsible than what we are seeing in the united states? terms,: in simple probably yes, at this stage. we have lower deficits in the eurozone and a lower general government debt then in the united states. there are countries like italy are suffering from a very high level of debt and in the current version of monetary union in europe, the sustainability of the debt is lower than in the u.s.. u.s., theve to the eurozone has clearly put more weight on fiscal responsibility. some would say too much. i suspect we can say that they

have put more effort in building the buffer then on the other side of the atlantic. francine: to questions rolling to mind. main disruption for the eu economy -- does that come in the form of the italian election? what can the rest of europe due to convince germany to even out the trade balance? ebrahim: good questions. we are traveling to rome later today and spending the day there tomorrow to find out the situation on the ground. at this stage we are not unduly election but the we can't see any prospect for meaningful reform after the election. in the medium-term what is more significant is that we don't see the scope for reform for italy to follow france or spain.

on the german side, it german german argument demand is increasing. i see meaningful progress on that over the next two years from a high level of trade surplus. is with usm rahbari this morning. we will continue. coming up this morning, an important interview with the immigrant from lebanon who is one of the great supporters of the president. colony north star, in the 10:00 hour. this is bloomberg. ♪

francine: vest timecode good morning, everyone. an important interview with the leadership of santander. we are joined now with a special moment for russia. harleyrnalists on a davidson would have loved this moment. , you haveshidsky

loved this moment. you are on the billionaire list for russia which has been used by president trump to signal out oligarchs. is the list accurate, do we know what they are worth? id: i took part in putting together the first billionaires list for russia asbes and we try to make it accurate as possible but these are ballpark estimate because a lot of these companies are private. fortune of these ,ssessments are estimates educated guesses based on market andes and analyst estimates the sizes of the businesses.

so it is not exactly -- this is informationurate although the people who put it together now do try really hard. tom: you have called this a disgrace. let us act up. how many of these acclaimed russian wealthy people made their wealth before putin? how many of them did before versus those who could say they got their wealth from vladimir putin? an majority of the people on the list were wealthy before putin arrived. hadad wealth sources that nothing to do with vladimir putin. some of the wealth was made outside of russia. tore are people on that list do not have any business interests in russia today. tom: thank you so much. we greatly appreciate that. the important essay on russian

oligarchy. to say the least. an important guest in the next hour -- speaking to kevin cirilli and michael mckee about the state of the union but this is what was unsaid in the state of the union. fiscal affairs of the nation. andin phelps will join us we will touch back to the reagan years and touch forward to the coming years of trump. francine lacqua in madrid and i am in new york. this is bloomberg. ♪

tom: this morning after the state of the union before chair

yellen's final fed meeting, the dollar fines avery nude weakness. a word from the president on weak dollar policy. -- sit on their hands. he wants federal employees out -- and are we on the edge of reagan? in this hour, martin s feldstein on the deficit. i am tom keene. in madrid is francine lacqua. good morning, why are you in the trade? francine: r.i.m and madrid. we just finished an interview with each share of santander bank. uss is a great benchmark for to see if they're concerned about protectionism and the health of latin america. in theme up and mexico

state of the union address. tom: and the building of a wall that perhaps will be budgeted. first, first word news. taylor: after the state of the union speech, trump was overheard telling a republican lawmaker he is 100% planning to release the classified memo. the memo raises questions about the russia investigation. federal reserve policymakers are expected to maintain the range of the benchmark lending rate. the bigger concern is how the fed will describe inflation. have said there is not enough progress after on shooting after after undershooting the feds target. theresa may is in china where she will be walking the tightrope between politics and trade. she will raise sensitive issues in human rights in hong kong. is arguing that the

u.s. has arrived at what he calls the new american moment of wealth and opportunity. 80 president spoke for minutes last night in his first state of the union address. been a betterever time to start living the american dream. watching atizen home tonight, no matter where you have been or where you have come from, this is your time. he explained immigration policies and was booed by democrats at one point. he made promises on prison reform and family leave. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. tom: equities, bonds, currencies and commodities. -- curve is steep manning the curve is steepening a little

bit. the dollar gets your attention and the next screen, please. showing the tensions in the 14.25.at a little more there, sara. i felt remain deep with a strong overand chinese renminbi the last couple of days. bitcoin can't get out of the way. that is over the last number of days. kevin cirilli is our chief designated survivor. he survived the state of the union. michael mckee listened to every word and he is the international economic politics correspondent. remember when state of the unions were predictable and shorter? shorter.they were you hear about policy

last night? michael: very little. not much that is going to get accomplished listening to the speech. this gave him a chance to throw about some of their competence of his first year that will be forgotten with the next tweet. have february 1 coming and we are getting closer to november. the democratic response last night, didn't begin to address the midterm elections? kevin: yes and no, there are several democratic responses last night with kennedy and bernie sanders delivering. i agree with michael mckee. i don't think there was any behalf of thethe president. it was the speech he set out to give. republicans will be happy. every republican i spoke to last night was happy. they feel that he did the job you needed to do but just like i think we will forget about the state of the union, i think we

will also forget about congressman kennedy's speech as well. that video again, if we can. here was the best part of the state of the union. the global audience -- this is a huge american tradition. a really big deal. of theee parts government are there. will becare what published. there he is, he is smiling. baron is smiling. look at that. michael: that is not barron trump. tom: that is not barron trump, thank you for correcting me. americans deserve respect andty and that is what we are giving to

our wonderful heroes, our veterans. thank you. toight, i call on congress empower every cabinet secretary to implore good workers to remove federal employees who andrmine the public trust failed the american people. tom: that was picked up by the press as well. kevin: i don't think there is any other way to listen to that it meant.nsider what look, the president made no mention of the russia investigation. although he was caught telling republicans that he wants to have those documents by the fbi released. , on the statement

about the dreamers. we are couple of weeks away from a monumental decision ahead of the march 5 deadline. francine: that is where i wanted to go. the most immortal part of the speeches that he didn't talk that much about policy and he didn't talk at all about funding. to funding andk policy? kevin: it was almost like the administration made a calculation and based upon the calculations we have been having in the washington bureau, it seems like they did -- saying, let's have a long speech that is the in line with the tone president set in davos and let that be the headline. the rich market movements.

going into various different programs that he wants to launch at the agencies and instead, he wanted to provide a much --ferent tone than what the i don't think this will have a long-lasting effect. francine: went to be find out about the investigation? kevin: less than 24 hours before, the administration

remark they would not be administrating new sanctions on russia. most would argue that this is and thethe end president's chief of staff -- we have been reporting on the back and forth over whether or not they will go against the legal team and actually testified. as trump says he wants to do. so this is nearing the final stages of the investigation. tom: you have a very busy day here. last meeting. michael: it is a non-press conference meeting. i'm sure there will be a cake but there will just be a statement and nothing else. his term is up on saturday and jay powell will be sworn in on sunday or monday and she will go

quietly out. tom: michael mckee has an exceptionally important interview today with the minister of canada. please stay with us. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." in korea, samsung electronics has approved a 50 to one stock

split. earnings inrecord the last three months of the year. samsung reported strong demand for memory chips and the high-end displays used in the iphone tech. sweden's h&m reported the biggest drop in profits in six years. putting more pressure on the ceo of the world's number two fashion chain. he is trying to turn around h&m after the recent struggles. and blackstone's europe has agreed to the biggest buyout in a decade. a firm will buy a majority stake in the risk unit. the parent of bloomberg news competes with thomson reuters in providing news and information to the financial industry. that is the bloomberg business flash. feldstein is with to and we're going to talk

him about the elephant in the room and his exceptional expertise on deficit and debt dynamics. everyoneu react when tells me we will have persistent in $1 trillion deficit? what does that mean? margin: it is terrible. debt thatcits and the keeps rising is a serious problem, not only in the long run but also right now. up a chart to bring right now. .his chart is so important this is when you served president reagan and we are on the cusp of that with -- talking about migrating down to levels you saw with reagan. path tothe same glide or isat you experienced

this time different? the deficit grew very sharply because of two things. we went into a recession and also because tax brackets that had previously not been indexed not in place.were nobody expected him to succeed as fast as he did to bring down inflation so the deficits shot up. but by the time reagan left years at the end of eight -- e deficit tom: what about now? -- it is heading higher. the congressional budget office

says it is 77% now and by the end of 10 years it will be close to 100%. francine: how will congress respond to all of this infrastructure spending? tin: the administration's plan is to have the federal government pick up about 1/5 of -- thaticit infrastructure spending and the rest will be a combination of state and local governments and private investors. it is it clear that any of those are stepping forward to do it. but that is what it will take to get the infrastructure program through congress. the dollar drops from here, is there more of a danger that the u.s. economy overheats? and is this a problem that

should be of concern? gdp.n: imports are 50% of so a drop in the dollar by 105% has a pretty small impact on the overall price level and the state of demand of the u.s. economy. so i don't think about that in the same context as the deficits or monetary policy. tom: the republican savior is to grow our way out of this mess. do you see evidence we could get to a sustained 3% gdp, making the little g in the feldstein math good enough? we willi don't think see -- we could -- but i don't think we will see three plus growth on a sustained basis over the next decade. tom: so what do we do to get the

frugality and the measured fiscal responsibility that you four decades in washington but it seems to have evaporated, and i correct? martin: i hope not, i hope there is still concern. years, when there were budget deficits, interest rates rose. tom: the market becomes in as really -- the market comes in as vigilante. seein: we are beginning to market rates move up. if they move up substantially it thinkrce congress to harder about this. but that means going after various programs of congress and andtlements and food stamps finding other ways of raising revenue without raising tax rates. do you think 2018 is

the year when the phillips curve comes back? healthy, i don't know about healthy but i think it comes back. superlow unemployment rates. and why has inflation been so hard to find. people don't feel secure enough in their jobs to ask for wage increases? martin: import prices haven't moved up. not just china but a whole bunch of other countries that are capable of supplying america's product needs without inflation. tom: very quickly. secretary mnuchin didn't take -- martin feinstein. artin: i don't think we have

weak dollar policy. i don't think we have any dollar policy. what is it, intervening in financial markets in dollars? we don't do that. lowering interest rates in order to lower the dollar? we don't do that. so we don't do anything that is aimed at the value of the dollar. i think what he was saying is that the markets have pushed the dollar down in the last year and that is good for exports. it is an ok statement. 10.ould pass that in ec tom: it is good to have the young guy here. martin feldstein. scarlet fu will be leading our coverage this afternoon. alan greenspan will join us and we are looking forward to speaking to chairman greenspan on the new fed. this is bloomberg. ♪

francine: good morning, everyone. from madrid and london -- madrid and new york. santander bank beat estimates with a fourth-quarter net income. they posted a third straight quarter of rising profits. i asked whether she was confident that this is a turnaround for the economy? for three or that spain has had growth and

creating. one of the best performers in europe and of the americas. she is very feisty. she says there are 10 countries ande santander is posted in she is bullish in all of them. the u.k., reservations there because of brexit and because it could have an impact if they have to move some of the bankers europe. rest of although she said the investment banking and london is good. i asked her about resilient and whether the turnaround there -- : it has taken r.o.e. close to 70% this year. with a close topline growth. doing things the right way for customers, digital -- doing well on digital. phil.ood performance in

mexico, also. all of latin america has done well. francine: -- tom: phil. francine is in madrid and i and then new york. coming up, another conversation where we will touch upon the deficit as we do with martin feldstein. look for that in the 8:00 hour. from madrid and new york on this fed day, this is bloomberg. ♪ .

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tom keene is in new york. this is one of the most touristic places in spain and goes to the strength of this country. if you look at southern europe and the trials and regulations it went through, spain coming out strong with huge structural problems with unemployment but growth surpassing 3% for the last three quarters. tom: a recovery in spain and a relative recovery versus the peripheral nations. it has been a wonderful 2017 in spain. francine? francine: let's get to the first word news with taylor riggs. >> donald trump is trying to connect his presidency to the country's prosperity. the president argued that his policies had set the country up for a time of wealth and

opportunity here -- and opportunity. pres. trump: this is our new american moment, there has never been a better time than living the american dream. >> democrats booed some of the remarks on immigration and he falsely declared the visa lottery randomly handed out green cards for -- without merit for skills. president trump has issued an executive order to open the prison -- keep open the prison at guantanamo date which still holds 41 prisoner and president obama ordered it to close and ordered that inmate be transferred elsewhere. the u.s. government is investigating apple over software update is slowed older iphone models. determineors want to whether apple broke security laws. apple says it is responding to questions from the government. factory inl gauge china hit an eight-month low,

the stronger you want is slowing down demand for exports and policies to curb excessive borrowing are moderating output at home. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. say you heard michael mckee that the president spoke to his base, 36%, 38% of america. darren soto is in the ninth congressional district of florida. it is in the vicinity of east of disney world and it is the most interesting district. it is the fastest-growing hispanic and puerto rican district in america, the future of america, whether anybody likes it or not. congressman, wonderful to have you with us, when do puerto ricans gain voting power in america? the demographics are there but they are not voting yet, will they in 2018?

2012, the puerto rican community was pivotal in the election of barack obama. there is over one million of us and i made history as the first meridian of puerto rican descent elected. ricanridian of puerto this set elected. last night, the trump administration cut food and water benefits to over one million americans in puerto rico while they are facing great tragedy. , where is athis policy, as a democrat, you could support from president trump last night? >> we hope to hear about infrastructure. it was his biggest initiative, the problem was we heard little details. he throughout a $1.5 trillion number but spent less than one

minute on his top initiative for and we are somehow going to believe that local governments will help fund this with the private sector. a lot of money has been spent on the tax reform. we will like to see that and lowering of prescription drugs. tom: one of your terms is you grew up in the trenches of orlando politics and florida legislature politics. you have been in state government. how far is this president removed on the day-to-day affairs of a given room state like florida? >> our economy is based on real estate. there are a lot of low-paying jobs in florida. that is a key than the president could be making mistake, tying his fate to the stock market. while wall street is surging, main street has unimpressive growth that two point 3% last year, less than half of americans are invested in the stock market. ,or the forgotten american's

they are still forgotten in the speech and there are a lot in central florida. davos laste were in week when we heard the president, difficult to say if he is popular with the billionaires but everybody wanted to listen to the president. how can democrats regroup and rethink and find a leader able to go against president trump in the next election? >> our focus is on 2018. we have great candidates across the nation. we have record retirements on the other side and wonderful governors running. the key will be with virginia and new jersey and some of the special elections, that the president could very well be facing a democratic majority after 2018 because of the groundswell of support. who knows whether jimmy kimmel out rated the state of the union last night because people are not tended to a lot of this speech is directly -- directed

solely at his base. francine: how will democrats deal with immigration? >> we are hopeful for a compromise that includes helping our dreamers, real border security, border awareness, without having a wall. we are ok with making sure we have more forces down there, in addition, we do not have border where does. -- border awareness. we do not know if someone climbs over or under a wall because we do not have the technology. democrats are ready, willing, and able to get technology. in florida, a wall does not help come it is port security which we want to see funding. tom: and the demographics in florida, when does florida become a democrat state? >> i think we will see

potentially 1, 2, three seeds moving over the next elect -- seats moving over the next election as the demographics change. we had a popular representative in south florida not running for reelection, those were major democrat seats. that will be tough with anybody standing with donald trump, whether it is puerto rico and throwing paper towels or his treatment of dreamers, it will be hard for people -- hispanics from florida to cast a ballot for anybody associated with the president. tom: from the ninth district in florida, and extraordinary demographic experience. martin feldstein knows of the changing america. it is remarkable to see the dynamics of what we take for granted 30, 40 years ago. it is gone to a new america. >> it has changed a lot,

employment has changed, the economy is changing more and more. tom: jeffrey sachs would agree. >> t-shirt, he was my student. -- he should, he was my student. tom: did you give him a b? he says we are a dumber america. need angree and do we education jumpstart with our infrastructure jumpstart? >> i do not know if we are a dumber america but we can improve our education system, particularly primary and secondary education. we are seeing kids not getting the kind of education, not the kind of training to go from school to job. tom: let's continue with martin feldstein and maybe we will go back to the fed. janet yellen with a meeting and our coverage.

tom is a huge supporter of the president and is an immigrant, him on the state of the union during the 10:00 hour today. from madrid and new york, this is bloomberg. ♪

♪ tom: good morning. tom keene here and francine lacqua in madrid. we continue with the state of the union. then we will get to the fed with martin feldstein. research,e wonderful in-depth stuff. did you do that after the general statement last night? was there minutia that got your attention? >> i felt like we were in the

1980's and walter mondale talking to gary hart and saying where's the beef? no details for analysis. a lot of generalities. no policy plans. nothing to work off of. hwy?do you have a y -- proposals,not seeing especially after the victory lap of tax cuts? >> we generally do not see proposals out of this president. we have gone a full year, an entire campaign. it is rare we get details. this speech was more of a normal donald trump speech. a big pitch to his base. first with noca actual policy plans going forward. tom: i have not heard a positive

word on infrastructure. , why cane saying, ok we get a policy agreement on infrastructure in washington? i asked alain to and i ask you -- you lame chow, and -- elaine chow, and i ask you? >> where will you find the money. no agreement to how you fund and finance it and spend it. is: do you agree that part as classic as the days of eisenhower, the urban-rural divide in america? >> i think it is broader than that. that has been in play with this administration, putting the rural areas home to many of his supporters against urban areas that are more democratic. i think there is a reluctance among republicans to spend this money.

there is not political willingness by the administration to do entitlement reform or look for other sources of cash. wheree a situation everybody wants to do an infrastructure bill but nobody knows how to pay for it. tom: i will go with that but we , it cut a tax-cut bill taxes and increases the deficit. they can go one way but not do programs. do the republicans have any ideas to do programs, or are they the no majority. ? hesitate to speak for my friends and the republican party or the democratic party. i think that what we have seen is the general problem you have with a president who his all generalities and leaves it to congress to work out the details. when you leave it to congress to work out the details, there are

200 plus republican members of the house and each one has a different idea of what to do. with so many caucuses and coalitions, it is hard to come up with a majority position. that is what we are seeing, you cannot get an agreement. tom: i like the where's the beef analogy. thank you. let me tell you about tv , it is pretty good. you are on wall street and need a morning brief, you can do it there and come over here to look back. otis round, you can have martin feldstein talking about the deficit and can steal that chart. and be brilliant at 11:00 a.m. this morning. this is bloomberg. ♪

♪ tom: spectacular in new york, the neo-art from flight research center gives us this eclipse of the moon, sf labor, a blooming -- exceptionally rare, a blue

, the year after the american civil war is the last time we saw a lunar eclipse with a very large blue moon. that is extraordinary, thank you to nasa for bringing us that today. let's go to taylor riggs. >> fujifilm gaining control of xerox that would create an $18 billion company and would give the corporation copy machines, 's of business. you rock shareholders will get -- see rock shareholders will own 49% of the company. a move that could end the career of steve wynn. the nevada gaming board has launched an investigation into allegations of sexual misconduct against him, they have the authority to force an out of the industry. he denies the claims. with a deal tox

.ir thursday night football they have submitted a bid higher than the $45 million bid cbs and nbc agreed to pay last year. that is your bloomberg business flash. tom: it is a big honor on this day to be with martin feldstein of harvard university. we go to the single best chart on the final meeting of chair yellen. this is the fed funds rate adjusted for inflation which shows the massive accommodation we have had in the recent months. janet yellen coming in about here. with immense accommodation, stanley fischer calling this altra accommodative. -- ultra-accommodative. up but nowhere near where we need to be. haven: no and they should

started three or four years ago and they cannot make up for lost time by jacking up the rate at a fast time. we not go measured quarter-point by quarter-point but 38 of a point move? martin: that would be ok but if they say, we started three years ago, we would be up not one point to five but at 3%, so let's just jump to that. we cannot do that without upsetting markets, but we have to get there. the danger is, the equity markets will not like it. the equity market so far has been fine with the hike. we did not have the temper tantrum we had last time. why are you worried for the next 12 months? martin: because i think the equity markets are priced way out of line with historic experience. the s&p price-earnings ratio was something like 70% higher than

its historic average. if it goes back to a normal price-earnings ratio, that would be a very big drop. and it would cost investors, households, $10 trillion, just for the one-time correction. that would be a serious impact on the economy and the fed would not be in a position to offset it. are you telling me that you believe equities and bonds or at a bubble? janet yellen discussed that and was worried about that. martin: the short answer is yes, a bubble means they are at a price level where getting back to normal cannot happen without some people being seriously hurt in the process. tom: excuse me, i have the plague. the hallmark of janet yellen's

time, her voice would change and she would get a brooklyn accent. the fine her f -- define her effort to be patient, to pick up the job slack that was in the economy. martin: she did a great job of bringing down the unemployment rate and inducing increases recently in labor force participation rates. for that.n a , they did notand pay attention to the impact of all of their policies on equity markets, real estate markets. tom: what should chairman powell due to begin to look at what we see with quantitative tightening and the asset bubbles that many people are worried about? martin: as i said, they cannot roll back the clock and catch up immediately for their failure to raise rates gradually starting

three years ago. that is what they should have done. tom: within this and what they should have done, i want to go forward with chairman powell. so much is language. his first speeches are critical. , but all he can do is talk about what they will deliver and what they will deliver will be more of what they have been doing recently, gradually increasing three quarters of a point, one point per year. tom: where is the inflation? martin: i am less worried about inflation than i am about what has happened to asset prices. tom: that is an implied inflation. inflation not any prices of goods and services but in the prices of assets. tom: do you suggest across all central banks as we in the experience with what people call a science fair of quantitative -- ag, can we do that with

public figure has to say we can do it, you are not a public figure, do you have confidence we can do it with stability? martin: no. the real problem is that the financial markets are fragile and therefore the economy is fragile. look at what is going on with the european central bank. interest rates at zero or negative interest rates. e the five year yield in germany, cannot we come out of the negative rate regime? martin: they can do it but what happened as a result of all the years of zero and negative embers in europe and very low rates in america, there has been an explosion of asset prices that is not sustainable. tom: is this criticism because mario draghi went to m.i.t. and not harvard? martin: not at all. the i am kidding, this is

end of the tenure from janet yellen. martin feldstein taught an economics course for a few years, i claimed. -- acclaimed. jon ferro rumored to be in the building. new york, boston, san francisco, good morning, london. the dollar weaker today. anddollar index under 89 the euro with a little bit of a lift. it is astronomical, the super moon. spectacular on the west coast. first time since 1866. ♪

>> their president of the united states. >> president trump talks infrastructure from immigration, and drug prices in his first official state of the union address, we breakdown the message and marker reaction. equities find a footing after the biggest two-day slide in global equities that's 2016 and passing of the torch, janet yellen delivers her last that decision before jay powell takes the reins. her legacy and fiscal stimulus. a warm welcome to you. i am alix steel in new york and david westin is in washington. are you awake? >> the president kept us up but i am awake. >> did you feel like it was bipartisan? it sounded like it could have been. what the president said he wanted to do was reach across the island immigration and infrastructure