♪ coming up on "bloomberg best," the stories that shaped the week in business around the world. volatility returns with a vengeance. >> markets little bit disorderly. >> it is a global contagion. >> the first product is blowing up. >> does the weeks wild ride to signal danger ahead? leaders of finance and monetary policy offer insight. >> the correction was waiting to happen. >> there were people looking for buying opportunities. >> so far, this is small potatoes. >> the u.s. government stays open.

the doe says it may be time soon. two and through. >> scandal forces steve went from the home of his empire. and, a synonymy of earnings reports. >> i am pretty confident with the capacity in our business. >> we will stay disciplined within the capital framework. >> we are interested in being the most profitable. on "bloomberghead best." ♪ hello and welcome. i am ramy inocencio. this is "bloomberg best." of the mostreview important business news, analysis, and interviews from bloomberg television around the world. investors enter the week on edge after the dow dropped 2%, then on monday the plunge continued.

the dow jones industrial average losing 1175 points, a four .6 percent decline, now off 1.5%. >> last week we had the selloff occur in the context of a monotonous rise in treasury yields, whereas today yields have come off a little bit. it suggests the first time was about risk management and position reduction. about earnings, and it has been about earnings for the last week and investors are notng may be tax reform is a great story for all companies. that created a little selloff. that got investors spooked. >> we are getting some price discovery right now. this kind of disorganized

selloff, this will only go on before someone steps up and says there is an opportunity in the selloff, and it does not have to take that long. overall global equities from this time yesterday have lost $2 trillion in market cap. >> markets are on the verge of getting disorderly, then you get regulators and central banks interested. the equities selloff extended to asia and europe after stocks in the united states recorded their biggest one-day drop in six years. credit suisse buying back one of its exchange traded funds, triggering volatility. >> pretty interesting story. it has ironic element to it here at all in investment banks have been waiting for in recent months and years is the return of volatility.

now volatility is back and the first product is blowing up. we had reports earlier they were considering buying it back because of the rise in volatility, so this was a bad against volatility. now the bank is confirming we will fight back this note in the next two weeks. the implication of that is that investors will lose money. >> the stoxx 600 worst day since june 2016 come up big drop, far cry from the drops and asia and the u.s.. >> it is a global contagion. we got ourselves into a moment to market. all it takes is a little prick and the air comes back out. tumbling after its biggest spike ever, but the spike already did its damage.

>> right now we have not had a normalization in the vix curve. if you look at the spread versus active contracts come up that is what it is tracking today. we are trying to get this normalization and volatility. we are still working on normalizing and we are not there yet. >> what a difference 24 hours makes come the dow recovered .rom yesterday's drop it was not a straight up move, down, up, down, little changed, but then we close to near our highs. >> the market selloff -- sorry, we rebounded. at what point do market selloffs translate into real economic ramifications? where would it have to go to see that in consumer behavior? >> i think there is a sigh of

relief at the federal reserve. the market is finding out stocks don't only go up. we just eliminated a significant amount of shortselling, which was a proxy for picking up yields, which was a reflection of low interest rates. the short answer is i still think it is early and the implications are not significant. tonomura has apologized customers, writing we sincerely apologize for causing significant difficulties to investors. this is a list of products we believe can be bought that individuals and institutional investors. >> you look at these products tied to the vix, where they were a few weeks ago is a tremendous shift. is this shakeout done? >> we will see. half the assets are gone because of the inverse side.

the long side is still doing fine. these are popular products. that nomura statement was interesting. says weologizing, but think it is ok for individuals. i think these should be labeled or make clear these are for power tools, or you could call them exotic, but there are a couple that made the news this week. etf's better leveraged and track volatility. i put oil futures in this category. tools, they are trading where as the large majority of etf's are investment products. bank of england holding rates unchanged. as the boerging turns hawkish, suggesting it may need to raise rates faster than indicated. market is say the interpreting this as a hawkish hold, different to november.

what was interesting about the market reaction was in november, ltu saw sterling drop, gi yields drop. today, the reverse of that in other direction. markets have started fully pricing in a rate hike in august -- the probability of a rate hike in may was just over 50%. now it is 75%. >> is may likely? at thatve been looking for a while. they did not say one in done. soe like two and through, they have given us fair warning another rate hike is coming. u.s. markets entered a technical correction yesterday dow and s&p 500 fell 10% from the closing highs in january.

stocks were hit hard in asian trading. the buzz word is this is a healthy correction. in line withewhat 1987. we did decline a little additional, then we rallied. we have a good chance today could mark below. ideally we close down the day and start up next monday. >> 1987 is farcical. that was down 23% in one day. up 70% over the last five years, and unchanged over the last three months. >> the motion is adopted with out objection. >> voting to pass a two-year wretched deal, ending a government shutdown that started at midnight. the bill raising federal spending by 300 billion dollars and extending the debt ceiling for one year. president trump is set to release his $1.5 trillion

infrastructure plan on monday. no one is showing any fiscal restraint whatsoever. it is basically congress giving the government a home equity line with no upward limit. i would not discount the bipartisan nature of this. 72 democrats went along in the house, and this will pave the way as we look for to the daca debate next week. >> still ahead as we review the week on bloomberg best, thanks, oil producers, and automakers among the companies reporting earnings. thee, we dig deeper into turmoil that shook markets with three officials from the federal reserve and some of the most respected voices and finance. up next, more of this week's top business headlines. j wiley goes free. be stunned and not surprised, that is the reaction here. >> this is bloomberg.

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ramy: this is "bloomberg best." i am ramy inocencio. tous return to our global of this week's top business storiesr. >> jerome powell has taken over. ininherits a u.s. economy its third longest expansion on record with unemployment and inflation both near historically low levels. >> he inherits the fed at a great time, but there will be a lot of challenges. the main one is how the fed will manage the next crisis. most likelyll will

preside over the next downturn in the economy. 3.5% andaised rates by rates then they lowered in the downturn by 5.5% and five 125%, so big moves. -- and 5.25%, so big moves. they don't have that buffer this time around. this will be up to the new fed chair to manage. yellen's final act, the federal reserve slapped wells fargo and the board with a cease-and-desist letter. the vendor had its rating cut by three analysts and felt by the most in two years after the fed band the bank from growing until a convinced authorities it is addressing shortcomings. >> this is a harsh order and unique. >> the fed itself called it unprecedented. typically you see the fed talk about board oversight come but

the asset cap is what was unique fargo can't wells grow its assets until it shows it has made progress on this, and that could have some longer-term effects. it also seem to indicate it was not happy with the pace of wells fargo cleaning up its act. they have had some time to clean it up, and i think the fed is looking for them to speak data. >> a south korean court has suspended the prison sentence of jay y. lee after he appealed the jail term. the sentence was cut by half, although he is now free to go on four years of probation. >> if you can be stunned and not surprised, that is the reaction today. we are stunned the high court reviewing the appellate court process in the central district court behind me, they have not

exonerated jay y. lee. sentence, but they have allowed him to walk free. he has already left the courthouse by a bus to the detention center, where i suspect he will collect his belongings. a has been there for nearly year. the yonhap news agency saying the man who was convicted in the same courthouse in august to a five-year prison sentence for various corruption charges, he will be able to go home this evening. it is a stunning reversal because this of all the different options the appellate court could have come up with, this was the one that legal experts said was the least likely, second to only being completely exonerated. >> the bitcoins life continues, and leadncy declined currencies lower as the selloff

deepened and investors migrated towards havens. what is the biggest concern right now? more regulations coming? is this why we continue to see the selloff? >> there have been a couple of regulatory questions coming up. regulators are starting to send subpoenas and ask some tough questions about some of the big problems we have seen in bitcoin recently. on top of that, you have big banks and credit card issuers putting freezes on by cryptocurrency. appears there is said general feeling it could be too risky to allow credit card users to buy on credit, cryptocurrencies, especially some that are more suspect or less well known. >> bitcoin is marching towards its second day of gains and comes as senators spoke yesterday, calling for oversight

of cryptocurrencies without proposing industry killing measures. >> the message was roundly we have this under control and they understand these technologies 30 darn well. there are a lot of interesting areas on the margins where legal clarity could benefit innovation , but the hearing was quite a success. is trying to force qualcomm to come to the bargaining table for what would be the biggest technology deal ever. it has raised its takeover bid to $121 billion from $105 billion. >> they call this the best and final and are not willing to negotiate a higher offer. is it enough to get qualcomm to the table? the short answer seems to be no. whatalcomm turning down radcom called its best and final offer at $120 billion and leaves the future of the proposal to be

decided by shareholders next month. how do you say we don't like the deal when the deal is $82 a share and your stock is trading at $62 a share and is not going higher? >> qualcomm is saying broadcom acquisition,g the the potential resolution of its licensing dispute with apple, and the opportunity to expand as five g technology becomes a thing. resortsounder of wynn has stepped down amid allegations of harassment. the board said it appointed the current president to the role of ceo and remains to committed to upholding the highest standards. help us to understand the events leading up to this moment. sexuale social beennduct allegations have circulating and regulators have voiced their concern about the issue, and they have reached out to wynn, wynn macau executives,

and key directors to make sure they are fit for their roles. macau is important market for wynn and where the company nets most of its earnings. gaming regulators in macau are watching this closely as well. >> even as the company has let go of steve wynn, it is still facing pressures because of that linkage to steve wynn. massachusetts regulators are aggressively continuing their probe into wynn. >> both nevada and massachusetts said they are probing allegations of sexual harassment. massachusetts said it will be taking a look at steve wynn's personal stock holdings. regulators find some reason why he should not continue to be a shareholder, he would have to sell it and that would further put the company in a position where it would be vulnerable to take over.

>> in germany, the political stalemate that has lasted since september appears to be over. chancellor angela merkel reached an agreement on a coalition government with the social democratic party. , the financeitions ministry, which has gone to the spd. how much of a concession is that? my third be some grumblings within her own party? >> it is a big concession. party, the cdu, should keep the finance ministry considering they were ahead in the polls in the election. the spd made a strong case they want to have this powerhouse so they can make their mark in european policy as well. the currency weakening as much as 1.2% in shanghai, the

biggest move since the 2015 devaluation after data showed was cuttrade surplus h by half. >> even the path of true love is not smooth. nothing goes in a straight line. this was going in a straight line and is in reversal. volatility is infectious. event like the boe, new zealand, you are getting bigger moves in the currency than we would ordinarily see. import numbers from china did not look pretty. basically the pboc are talking about current account liberalization, particularly the bond market, so we are getting some two-way moves. ♪

ramy: welcome back to "bloomberg best." bloomberg television spoke exclusively with the presidents of three regional banks. bill dudley has been outspoken in his view, the recent fluctuations in equities will have no impact on monetary policy. kathleen hays spoke with him on thursday. we have had today has no implications for the economic outlook. it proceeded a very large rise, so it stops here, the implications for the economic outlook are marginal, so probably not change our thinking about the economic outlook. further ando go on be more persistent, then it could start to affect household and is no spending behavior, and that could influence the economic outlook. so far, i think it is small

potatoes. >> i was thinking about 2015, when we came into the year and the fed was going to hike rates in march and then there was brexit and a big selloff in the chinese stock market. the fed past in summer and in september, only one that year, so clearly there is a point where markets and market volatility have an impact on the fed's path. >> in the first quarter of 2016, it was not just the markets. commodity prices were falling sharply. putting pressure on emerging market economies dependent on commodity exports. china was going through a difficult adjustment, so it was not a market event or say. it was the things happening in the global economy. the global economy is doing fine. >> wages finally started to accelerate them a more inflation, not just three rate hikes, four in 2018 possible.

what do you see? >> i think it would depend on how the economy if all spirit it is premature -- economy evolves. it is immature to say how many. three rate hikes in 2018 seems like a reasonable projection. if the economy looks stronger, could three turn out to be more? perhaps. if the economy looks softer or inflation does not materialize, then the fed could go slower. the jury is out. ramy: coming up, more conversations with robert kaplan and neel kashkari. they shared their economic outlook. plus, more exclusive insight from the biggest players in global finance putting volatilities come back into context. >> i think the markets are still

vulnerable to a slowdown in growth momentum. ramy: this is bloomberg. ♪

willam confident that we achieve our objective to ensure price stability. all of the ingredients and requirements are on the table. we have a robust growth. broad-based growth in the euro area. we have a rising investment activity. we have an increase in unemployment. we have very generous financing. inflation will come in the medium-term and that is our goal.

and that is why i think that, in this year, we can accept the programpurchase of our balance and start coming back to a more normal monetary policy. ramy: that was ecb executive board member speaking exclusively with matt miller about the progress of the bank towards inflation targets and its timeline for concluding qe. let us get back to the u.s. and fed policy. neelnday, we sat down with kashkari. she asked him if rising bond yields and jitters in equity markets have raised the risk of recession. wasne of the risks i

looking for was the flattening of the yield curve. it has now steepened which is a good news sign as opposed to stocks pricing. -- as opposed to stocks falling. that fact takes a little pressure off and says -- ok, if the bond market is seeing inflation expectations creeping up, that may give the fed more room to tap the brakes. >> what do you think is the biggest risk to the economy? say. is hard to if oil prices take off that could be a big shock to economic growth. the dollar i think is going to put some inflationary pressures on if it continues to trend down. at the thing time, we are seeing growth around the world. europe is doing better. japan is doing better. it is a pretty positive global economic environment to be in. hopefully, we have slightly stronger inflation and wage

growth. those would be good problems to have for the federal reserve. >> i know you tweeted out some nice words for janet yellen. >> i thought she has done an outstanding job and is an a plus public service. at the end of the day, it is the call of the president and every president gets to make his own appointment. and i think he made an outstanding choice in jay powell. he is not an ideologue. he is a consensus builder. we have gone for about 50 months without a 3% -- for about 15 months without a 3% correction. that has been an abnormal period. there is obvious some market mechanisms that probably need to be looked at in hindsight that i think more volatility in the addressing some of the excesses and imbalances in the markets with more

volatility. healthyprobably a thing. i will be watching carefully to make sure it does not transmit to tighter -- but at this point, i would be optimistic that it would not. we thought we would push you a little bit. how quickly might that manifest itself? many people come into the studio and they say financial conditions are loose. it can afford to tighten a little bit. >> let me tell you what i am watching. credit spreads. high-yield credit spreads. other financial products to see for example, our credit spreads widening, is there volatility in other markets? so far i do not see that. it is something i am watching for. it is notable that i have not seen that. fx volatility.

really has not shown anything despite the four-year high in yields. that this mayme well be a stock market event, it may have been accentuated why some structural issues in the market that probably need to be looked at. this is six days in and i have found that it pays to take a little more time and be vigilant. i will be watching for that in the days ahead. question, the return of volatility to equity markets was the dominant business story and bloomberg was able to get exclusive perspective from some of the most prominent figures. let us start with the top executives at goldman sachs. we are in hong kong. tom mackenzie sat down with several. first, the president and co-coo, harvey schwartz. >> are you sensing an

opportunity at this stage? >> when i talk to clients around the world, they have struggled because they have a lot of liquidity and the have felt valuations are stretched. not surprising when you see the s&p 500 was up more than 20% including dividends. there were people looking for buying opportunities. when you see a big spike in volatility, it might make people more cautious. they may be looking for a second or third order effect. people are looking at this as a buying opportunity. >> we expect to see more money put to play at this stage? >> i think it is possible. you may not see a rush. but you will here at the conference that the mood is pretty high because the real economy in the world is moving at a pace, and everyone talks about synchronized gsp.

different companies. it is good for employees and wages. if that translates into earnings, yes, people will feel confident and will be looking for buying opportunities. important forwas the volatility to reestablish itself because the markets were getting carried away with a very goldilocks environment in the last year. global growth was accelerating. expectations were being beat. bondd very low, unstable yields and extremely loose financial conditions. bear in mind, until this correction, u.s. conditions were looser than at any point since the financial crisis. contributing to the low volatility. having that come back into the market and having valuations coming back to it at a more appropriate level is quite a healthy thing. i think the markets are still a

little bit vulnerable to a slowdown in growth momentum. and any further rise in the bond market. beis the fed still going to on track? has this made you rethink your view of the fed? >> know, we still think the fed will hike four times this year. and of course, that could change but what we have seen to date has not changed that picture. the basic reason is that even with the downturn in equity prices and the tightening in the financial conditions we have seen, that has only brought us back to where we were at the turn of the year in terms of overall financial conditions. i thought that was consistent with an expectation of good growth and gradually tighter monetary policy. one hike per quarter. that is where we are at the moment. >> we are obviously not in a

bear market. it has been a correction. if we were to slip in a more radical selloff in the market, with that be something you have to re-factor into your forecast? >> it certainly could. if we had a much bigger decline in equity prices, widening of credit spreads, more evidence that the turmoil is spilling out of the equity markets into other financial markets, then that would be -- that would mean broader tightening in financial conditions. more like what we saw in the early 2016 areas and it would cause for -- and it would call response.tary we have not seen that to any significant degree. what was interesting, even with the rapid decline in equity prices, we still did not see a lot of spill over into other asset classes or other market

functioning. so far, it has not happened but of course it could. >> the market has shown an unprecedented amount of complacency. volatility was down to an all-time low six months this year. and so, the correction was waiting to happen. but i also said -- do not assume that volatility will creep back into the system. when it comes back, it will come back with a vengeance. i did not think it would happen so soon but it did. many people were wrongfooted. if you were selling low volatility, that came back to hot you. and the market was very complacent. there is a big disconnect between sentiment and hard data. it has still been a very good year. >> it is the spillover of tax we should be more concerned -- the spillover effects we should be more concerned about. >> i think the 10 year treasury

will reprice. we are doing wealth management. thatill strongly believe the u.s. has some momentum to go. we think u.s. markets still have some momentum to go. this was a transitory correction that we should not take too seriously. ♪

♪ ramy: you're watching "bloomberg best" i am ramy inocencio. it is been another busy week. a roundup of the reports. paribas says its biggest lender is seeing an uptick despite the challenging market. >> overall, if you look at the

economic evolution, you see a pickup in demand for services. that is what you see. on top of that, we are digitizing and adapting to a company those changes -- to pany those changes. that weighs a bit on the top line. but it also means the cost of risk is lower than what you would expect. overall, the bottom line is 5%. france's second largest lender. 69 million euros. it has been expected to post a loss for the period. surpriseny also saw a comeback for the equities trading business in the final three months of the year. betterth quarter we did than our peers. a modest decline. when i look at the full year

compared to banks, we are doing better. our decrease is lower than the others. it seems to me, at the beginning of the year, at least when i look at the markets, we are out of the extraordinary monetary policies which probably also meant low volatility. a lot of money available. with thety confident capacity to deliver our business plan which is a predictable growth. shares in commerce bank are trading to the upside this morning after the group reported fourth-quarter net income of 90 million euros. i head of analyst estimates. >> indeed, we had a pretty successful 2017 as the first year on our way to rebirth -- to

rebuild commerzbank. we have been pretty successful there. -- overover tea achieved some of our targets which gives us confidence to resume dividend payments in 2018. >> by the end of the year, you will resume dividend payments. >> it is formally decided by our agm. in spring of next year. p has reported adjusted net profits of 2.1 one billion dollars in the fourth quarter, i had of estimates. an increase in net debt. it also tightened its capital spending targets this year. how do you manage that? >> we have a framework that we work within. we were up around 29% and now we are down to about 27%. we are heading in the right direction.

we will stay, buried disciplined within the capital framework that we have. we have generated a lot of cash this year. i think we are on the right track. rio tinto shares. positive territory today. a annual profit is at three-year high. and commodity prices have helped that. the world's second-biggest minor raised its dividend payments. total cash returns to investors in 2017 have raised 29 $.3 million. >> we have a very disciplined capital reallocation. capital in the aboutity -- it is rewarding our shareholders. with a cash return and it is about investing in the long-term.

when we say growth, it is about growth in capital. it is not about volume or market shares. it is not about being the largest that about being the most profitable. >> first quarter earnings beating the estimates. disney has its theme parks to thank. this time, it is not star wars but avatar. >> it is the avatar theme park. business, every single year continues to put out earnings. it is an unsung hero. disney continues to invest a tremendous amount of capital. the returns are very solid. it is in a discussion with softbank. it is also planning to list a

take in its mobilephone unit. what do we know about softbank's ipo plans? >> much of the news is already out. alibaba has reported its earnings by them. but they always give you something to talk about. this time it is about an ipo. not much is known other than the of its seeks to list all domestic telecom assets including its broadband operations sometime within the year. we do not know the amount of state they want to sell or how but debt it will take on one interesting takeaway for softbank shareholders is that the ipo will be focused on the dividend payout. >> g.m. announced its earnings for the fourth quarter and for the full year of 2017. it beat estimates. >> the fourth quarter was a great quarter. another strong quarter. record $3.1 billion of

profitability over a percent margins. marginsned -- overt 8% -- over 8% margins. a record quarter at g.m. financial. and an improvement in our international markets, primarily south america which was profitable for the second straight quarter. we are pleased with the resilience of the business model and the traction we are getting in our core business. we are pleased with the overall results. giving -- atax cuts boost. -- tax cuts adding 3 billion to the bottom line. what is the company doing right at the moment that is creating this good story? >> one of the reasons markets are loving the results to much look at a couple of aspects. one analyst pointed out that the

quality of assurance spending is looking like it is down quite a bit. it is a back to basic improvement. and the sense of spending. lot toe still spending a try to move cars in north america in the tough market there but they are spending less than the competition. the classic good operating income, good margin result which people have been looking for for a while from toyota. tesla is jumping around in after-hours trade after reporting fourth-quarter earnings that have beat estimates. what a week for elon musk. they are not burning as much cash as before. is this really good news? >> i think so. tesla reaffirmed that they plan to hit their latest production guidance which is 5000 cars by the end of june. there was some concern that it

would be delayed once again but they are sticking to their most recent guidance. and i think people will be happy. the other thing that was positive for them was that customer deposits are up. people are not canceling their orders. ♪

♪ if you look at the bloomberg, emerging-market nations have lost more than 750 billion in the last week. for today, you can see that brazil for instance is much higher. the bright green indicates a sharp advance. sharper than what we are seeing in the united states which is a darker green. in the european markets have

closed. the red is across continental europe. are about 30,000 functions on the bloomberg and we always enjoy showing do our favorites on bloomberg television. they may become your favorites also. here is another useful function -- it is you you i see go -- quic go. here is a quick take from this week. >> there will be one notable at thee from the nations winter olympics. team russia. the reason, they got caught doping, big-time. here is the situation. the world anti-doping agency started investigating the russians after the head of the moscow laboratory for olympic drug testing blue the whistle. report concluded that between 2011 and 2015, russia ran a huge state directed doping ring involving about 1000

athletes. in december, the international olympic committee barred the russian team from competing in the winter olympics. even though performance enhancing drugs have been banned since the 1960's, the authorities are under a constant struggle to keep up with the popular advances. larger and fuson's -- blood and takings stimulants. now, anti-doping officials have a relatively affective if related we -- way to catch cheats. retesting samples from previous olympics. afteralists were snared beijing and london summer olympics were tested. in a numberathletes of sports including russians. the east german athletes that

dominated the olympics later sued the government for feeding them anabolic steroids. critics say the crusade against doping has failed. the authorities completely missed the russian conspiracy until a whistleblower stepped forward but anti-doping enforcers argue that some athletes will always seek an advantage via performance-enhancing drugs. they say what is really needed is greater authority and funding to investigate the cheats. even that might not be enough. according to the former head of the world anti-doping agency, sports remain in a state of denial and so many people involved are happy to look the other way when it comes to doping. and that was just one of the many mistakes you can find on the bloomberg. you can also find them on bloomberg.com along with all of latestiness -- the business news and analysis. that is it for this week.

things for watching. i am ramy inocencio and this is bloomberg. ♪

i am mark crumpton in new york and you're watching bloomberg technology. let us start with first word news. president trump praised rob porter, the former aide who resigned in the wake of domestic abuse allegations. >> we certainly wish him well. a tough time for him. he did a very good job when he was in the white house. and we hope he has a wonderful career and hopefully he will have a great career ahead of him. mark: the president says he was surprised by the allegations but suggested giving porter the benefit of the doubt. he also called the news very sad. a white house spo