♪ francine: europe ticks lower amid signs of a softer u.s. open. south africa's ruling party is said to tell the president to quit after he refuses to resign. the anc holds a key news conference today. we get u.k. cpi figures shortly. giveey dip below 3%, will -- will this give carney and the bank of england room to breathe? ♪ >> welcome to "bloomberg

surveillance." -- in the and the european session has not come through to the asian session. we got the s&p futures firmly in the negative territory. we have seen the s&p futures on the back foot. interesting to see what has been happening in the currency market. a lot of yen strength in the market. the dollar is down against the japanese currency. we heard from the japanese prime minister, he had some words to say about who is going to run the bank of japan. there has been lots of reports about corona -- kuroda been tapped for a second term -- being tapped for a second term. we have an exclusive interview with the ceo of the luxury group

sales werer holiday good. i would be taking you through the first hour, nejra cehic will be with you for the following couple of hours on "bloomberg surveillance." >> u.s. president trump has unveiled a $4.4 trillion budget for the 2019 fiscal year that and otherwelfare domestic programs in favor of higher spending on military and immigration enforcement. calls for cuts to programs such as the state department and the environmental protection agency. president trump: we are increasing arsenals of virtually every weapon. we are creating a brand-new nuclear force. we have to do it because others are doing it.

if they stop then we will stop, but they are not stopping, so we are not going to stop. we are going to be so far ahead of everyone else in nuclear. >> treasury yields will hit 3.5% over the next six months. that is according to goldman sachs asset management. timesee rates rising 4 this year and it also sees yields increasing. billionaire hedge fund manager ray dalio says the risk of a recession are rising. he said the u.s. is further along in the business cycle that he thought and bonds are past their peak, but it is unclear how far the stock market is from its top. the slump -- recent slump was a minor correction typical of late market behavior.

toob zuma refused request resign voluntarily. he has been urged to quit. the decision was made during a 13 hour meeting. it was called to agree to a transition of power. bank of england policymakers are uniting behind the key message of last week's inflation report, telling investors that rate hikes will come quicker than they previously expected. likelyafferty says it is borrowing costs will rise to a greater extent than anticipated. policymakers dispute the view -- have yet to dispute the view int the next hike could come may. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. >> we are getting some breaking news from the iea.

the energy agency giving us their forecast, in particular on global oil demand. they are boosting their 2018 global demand forecast, basically on the strength of the global economy. they are saying that opec has almost cleared the oil glut. that the shale risk remains, in terms of the ability to clear that oil glut completely. let's talk about where we are on global stocks. many people are asking whether the rebound is over, or whether this is a good time to buy the dipping stocks here in europe. u.s. futures are pointing lower. we --s next and what will where will we get market direction?

we will get cpi data from the u.s. tamara, tomorrow. cpi numbers today. hewsom joins us=n -- michael hewson joins us. we see a wobble in futures in the u.s. what are your expectations? michael: i am not entirely convinced by the argument. at the moment we are getting a little bit of risk, bonds are up, swiss franc is strong. the nikkei 225 on our futures has dipped below 21,000, right on its 200 moving date average -- moving day average.

the s&p is the only major index to be well away from its long-term support. at the moment there appears to be some deterioration of the technical picture for u.s. equities, u.k. equities, it european equities, and global equities more broadly. i will be paying more attention to the nikkei, given that we did not see any rebound and the nikkei, in the wake of the rally that we have seen in u.s. markets and european markets yesterday. >> we should -- we might have expected to see some cut of rebound -- some kind of rebound. thewonder to what extent is move and currency markets linked -- move in currency markets linked. market expectation is that cowrote a -- kuroda gets

reappointed. is this general dollar weakness? michael: i think it is general dollar weakness. we have seen a recent rebound in the u.s. dollar in the last week or so and we are running into a wall at the moment, i think, with respect to further upside. today there is slightly more risk off. i think it is too early to say. one of the things that i have taken away is that investors were very complacent about the fact that u.s. stocks really could only go one way, and global equities really only go one way. we're not in that place now. i think it is still too early to really take that view, that we are going to continue the bull market that we have been in, in the last nine years or so. i am developing a very wait and see approach.

i think currencies will have a significant part to play in where we go to next. dollar-yen has found a little bit of a floor. furthert farther -- dollar weakness, that could play into further weakness in the dax and the nikkei. >> what are you expecting to see on u.s. 10 years? given how low yields have been, given where we have come from, put this into context for us. michael: third .5%, that is a 3.5%, that is a long way away. i'm not really prepared to stick my neck out and suggest that we are going to see that in the next six months. i think if we stay above 2.65% on the 10 year amount i think the likelihood is that we will

push towards 3%, maybe over the course of the next six months. i think interest rate and inflation expectation what have to go through the roof for u.s. treasury yields to really push to that sort of height. you have to extrapolate that across the equity sector and argue what that would do to equity markets. i would argue that it would push equity markets quite a bit lower. much --el, regular thank you very much. there was a note really cautioning about getting too excited about one particular data point. net is a lot of excitement around tomorrow's inflation numbers out of the united states -- there is a lot of excitement

around tomorrow's inflation numbers out of the united states. >> there is. the global economic backdrop is better than it has been. we have global synchronize growth for the first time since the financial crisis. mean they are certainly -- it doesn't mean they are slamming the brakes yet. the bank of england is going to raise rates, that is priced in. there are very few unknowns at the moment. how facile inflation get -- how fast will inflation get? growth accelerate or have we already reached the peak on that? you surprised it resulted in a 10% correction in equity markets? are only talking

about things we already knew about, does that justify the amount of head scratching where sing at the moment -- we are seeing at the moment? january you have this upsurge. now it seems like we are in a freefall, and we are really not. we are in correction territory. where we go from here it depends on the fundamentals of the u.s. economy, the global economy, and possibly more importantly, corporate earnings, which still look pretty strong. >> do think markets have dealt effectively with this higher growth environment? inflation is faster than we thought, because global growth is faster than we thought. is it that simple? >> if you look at it one year , it is what you

would expect in this backdrop. you would expect there to be some market reaction. there was a reaction to us being hooked up to the life-support system, the quantitative easing and record low interest rates. it is an entirely rational reaction to reprice for the new environment. it does not mean that you sell everything. it does not mean that there is a bit of a wobble as a get used to this new environment. going forward, unless you get a fundamental shift in the corporate earnings outlook, there is nothing to say that this continues into a market rout. >> thank you very much. --ket gilbert stays with us mark gilbert stays with us.

we get cpi data and around 17 minutes time -- in around 17 minutes time. , jose neves, who is the co-chairman, ceo, and founder of "farfetch.com" joins us. this is bloomberg. ♪

♪ >> this is "bloomberg surveillance." 9:16.me in the london is cpi data out of the u.k. is due very shortly.

policymakers are telling investors that an increase will come quicker than previously expected. we will see what the number will come through as. let's speak to the cohead of fx and rates strategy at u.b.s. limited. he is themos fiotakis . what will it take to change market expectation around rates? inflation will probably be coming off a little bit in the next few quarters. the bank of england still needs to normalize come even within that environment -- normalize, even within that environment. i think one of the little points is whether we get a transition deal around the brexit.

>> you referenced both what is on the inflation side and also the politics. -- hikesrate heights are you expecting to see in 2018 from the bank of england? we are definitely expecting one immediately after some kind of resolution takes place come in terms of the politics -- place, in terms of the politics side. the bank of england it self is signaling something between two and three hikes to normalize rates to something a little more

appropriate for an economy that is not doing great, but it is still at a tight capacity level. inflation is still at the target. we're talking about an adjustment here, rather than eight for hiking cycle -- than a full hiking cycle. you need to have a sense of risk and stability. a sense of risk coming down and stability coming up. >> what are your expectations ?or u.k. interest rates, mark >> historically .5% is very low -- 1.5% is very low. last week's inflation report

inflations rising and slowing. if that does not come through, then i think they will have to rollback from the current policy stance that they have taken. i think the idea that brexit will be smooth, that idea will be tested. that could be the thing that really dictates everything. what if rates have to go up this year, then go down next year because of brexit turmoil? gothey don't want to negative. if they are raising rates, i suspect there is an element of toting to have some scope cut rates if the brexit negotiations go badly. >> does that make sense to you? themos: i think a lot of the statements made here makes sense. the economy is not particularly

robust or strong. it is growing, but not explosively so. you would have expected it to do a lot better considering the global growth backdrop. you have expected to see signs of a lot more stability here. flatound is actually quite and if anything, it has been weakening in the past few days against the euro. you are expecting to see a much stronger sterling. of.e is a lot uncertainty the bank of england does realize that there are 2 scenarios. you have the downside brexit scenario and the positive scenario. you need to have some contingencies for that positive scenario. >> we will see what boris johnson brings to the

conversation. themos fiotakis , co-head of fx and rates strategy at u.b.s. limited. thank you for joining us. this is bloomberg. ♪

♪

anna: this is "bloomberg surveillance." -- at managing european banks is average at best. they say that the central banks --. is the easy -- as the ecb prepares to take on more responsibility, it's track record suggests it could be a bumpy ride. investors will not always get the clarity that they seek. joining us now to discuss this julian van kan. julian: when you talk about national interest, it is not the ecb only, it is also working within the regulations. i think they have done on off a

awful lot. an the continued demand is now being based on banks. >> when you look at things like over the time that the ecb has been in charge, balance sheets have measured by that simple metric. is that the correct way we should have gone? julian: i think just looking at the ecb on its own is putting too much of a narrow focus on it. we have to look at the overall impact that was created in 2008-2009. .anks basically became too big what we had with the ecb is discipline around controlling asset quality, but also making sure that there are sufficient buffers to look after the

,epositories, -- depositorsm first and foremost. let's look at the data points. let's go back to, let's say 2008, 2009. many banks have 30 times more capital than they had in 2008. the has to be seen as a good thing. where does a bank operate efficiently? the more capital that you create, the less effective that you are, because how do you deploy it effectively? most banks use their own advanced methods around calculating risk. we have additional impetus the placed on that, as we have -- impetus being placed on that, as we have seen. we have seen a couple of

examples and things have gone differently, whether they have been in spain or italy. do think we have enough clarity on what the rules are? this is where, we look at the work that the ecb has done, i think that the one-size-fits-all model does not really work. how do you work around insolvency liquidation, and also creditor preference. we can't expect to see necessarily the same treatment in italy, spain, or other jurisdictions. >> that is interesting. we should not necessarily aim for one-size-fits-all policy. thank you so much for your thoughts. kan joining us.

we are waiting from the inflation data out of the u.k. the estimate is that we will get 2.9% on the january inflation. what kind of reaction will we see on the pound, and markets as -- in >> going to mention that we see on the pound in markets as we get this number? we get this number coming through a little stronger than was expected. inflation at 3%. it stays at 3%. the prior reading with 3%. it stays there. the estimate was 2.9%, but it is ahead of that estimate. going into this we were asking if we had weak data, if the panel would suffer as a result. we are asking if the pound gains or further titans? nes the message we

were getting from the bank of england, talking about rate rises coming faster than the market had been expecting and we spoke to a guest from ubs. ratee said two to three hikes is what was needed during this normalizing cycle from the bank of england. you can see the pound going stronger there. let's get the bloomberg first word news update with ed ludlow. president trump sees as wasteful, such as the state department and environmental protection agency. we arent trump: increasing our stores of every weapon, modernizing and creating a brand-new nuclear force and we have to do it because others are doing it. if they stop, we'll stop. but they are not stopping so we are going to be so far ahead of everyone else in nuclear. ed: treasury yields will hit

3.5% over the next six months as market price a steeper pace of fed tightening. the unit sees rates rising four times this year. it also seems yields increasing. ray dalio says the risks of a 24ession in the next 18 to months are rising. are past their peak. but he is not sure how far away the stock market is from its top. a week ago when a selloff with equity markets was beginning, he said this was a minor correction typical of market behavior. a cyber attack has paralyzed the winter olympics in pyeongchang to embarrass the organizers.

the wi-fi connections fail during the ceremony and prevented tickets are being printed at the olympic website. hit the olympic games infrastructure. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm ed ludlow. this is bloomberg. francine: the online fashion retail farfetch has joined forces with one of the biggest distribution -- sorry, there is a lot going on in the middle east. the joint venture will increase global reach. it will also raise new questions about the timing of the company's ipo, how long will the chairman remain on the forefront of that jennifer lawrence -- forefront of that? the ipo plans, what are your hopes for the ipo? >> we do not have any plans. francine: no plan?

no timing? not talking to anybody? not getting any advice? rumors. not comment on francine: ok, what are you expecting to get from that. what are your expectations about what it can deliver to your business? it is one of the largest luxury good markets in the world . savvy withdigitally populations, demographics. they are amazing as well. it has a lot of the highest concentrations of smartphones, over 100% infiltration. yes, online luxury sales are below 5%. so, the market is really, really angry and watching a switch. was ant we saw

opportunity to partner with the best luxury labels. some of them have over 10 retail sotres across the whole region. so, they really know the customer. they know how luxury retail operates there. and we are marrying digital and luxury retail together. francine: so, you bring the digital and they bring the luxury experience. does money changed hands in that situation? what are the terms. se: we are not disclosing the terms. we are very focused on the value for the customers. another partnership you have in place is jd.com, over in china. how is that going for you? jose: it's going great.

china has a very fast-growing geography for us. that was the case for jd. it is accelerating with the jd.com battleship. we signed in july with eight programs for technical integration. francine: what are the priorities for the business? the middle east have demographics that you like? we chinese market has scale that you no doubt like. which exciting more? jose: we see a huge opportunity in the asia-pacific, and also emerging markets. we are one of the few players that practice in all entries as markets in the world. we have 12 languages and 12 offices. we are in america, russia, now the middle east and china, asia we are looking into

luxury and e-commerce in these regions. they are very european countries. companies, it's hard for these companies to e-commerce in some of these territories. francine: so, they rely on farfetch to do this. how much do you rely on logistics? because you mentioned the linkages and areas you serve. what about warehouses? we subcontract. we also work with local partners. they own their own logistics. you are for the last trial that

is simply how we operate. francine: you have a big focus on digital. why then am i reading about your plan to roll out new deb technological shopping in stores? like music and television and media. it cannot be completely digitized. human connection is important. is here to stay. it is still monday percent of luxury sales. -- it is still 90% of luxury sales. there is a need for a much more personalize experienced, which today technology allows us to do.

you want to drag them into the 21st century. co-chair, ceoe and founder of farfetch. zuma versus the anc. we look at the impact of the south african president's standoff with his own party. we are live to cape town, next. is bloomberg. ♪

francine: this is "bloomberg surveillance," and i'm anna edwards. let's talk a little bit about oil. ve alwaysits allies ha

achieved their goal of clearing and oil glut. but their efforts could be derailed by the united states and other rivals. crude has rebounded and is trading $59 a barrel after falling 10% last week, dragged it down, and then bouncing up once again. with more, we speak with emery boar. why isn't oil rallying, then? i guess, it's being treated like a risk asset, isn't it? u.s. futures are pointing down. reporter: exactly. over the last two days, with some risk assets be swept up a bit, but not so much for oil. you would think that with the i.a. save the glut is almost clear, we would stabilize prices, but it is going to be shale versus opec. the shale company is able to deliver even more now as we have those recovering prices and opec

production is likely to grow. withmore than we will see demand. opec said themselves yesterday -- they said oil production outside the cartel will expand by 1.4 million barrels a day. that is up some 250,000 barrels per day they had in the last report. even opec said there is going to be shale. we didn't speak to some ministers and they said that will be enough demand in the market for it to be absorbed by shale. the people are really asking, is opec now the victim of their own success. adirush and sasia and sudi winning too much? much," hm?ning too when we see these headlines, how the market is positioned. annmarie: tug-of-war again. if you look at what the positioning was from money

managers last week. he would not have realized that oil went down 10%. there is positioning in the market for hedge funds to be wrong and you know, you could see that in a lot of amazing charts. i don't know if we have the one i had in my mindful that today and right now we see those short positions spiking up. this is put on oil two to three months out. they are becoming more expensive, so positioning remains logn. -- remains long. anna: annmarie horden joining us on the oil beat. analysis nowitical and go to one of our top stories. told africa's anc president jacob zuma to step down. that is according to five people familiar with the matter. the press conference is scheduled for 2:00 p.m. for the anc to explain his next move. for more on this story, let's bring in anna martin.

we have five people telling us what the anc has decided. the definitive confirmation yet, but it seems as if they are writing it on the wall for jacob zuma. the writing is on the wall for jacob zuma. in his rather imminent. he will be addressing the media on the outcome of that national executive meeting that was 13 hours long. that alone is the indication that the major division within the ruling party, on with president jacob zuma should make an exit from the south african presidency. we have been told that some of the conditions we tried to lay out, one of them deemed that he wants to stay for three more months and wants immunity from any allegations of corruption or scandal he might face in the future. the anc said they would not grant in these conditions and he

wants him to resign. anna: it is interesting to see how the markets reacted to this. the asian equity session was reacting to some of this. we saw some weakening of the rand, didn't we. but how our markets reacting generally to this broader development? annmarie: it seems as if the market is not her how to react. especially because this year has been marred with of their something that the other agencies have warned against. the political uncertainty in the nation, certainty is a risk factor for this nation. we know moody will be issuing a review . that is something they will be watching very closely. it seems the market has been pricing in the announcement of the exit of president jacob zuma in the dollar-rand exchange rate. we will have to see later on

tuesday exactly how the market reacted in terms of how stable that transition was. the deputy president could take a physician. how will be market react to that? anna: what is expected then, at this afternoon's press conference. it to goou expect smoothly. what do you know. ,> we know the deputy president .hat was now the hit of the anc the president went to meet him less mentoring the meeting. i was thinking, i am so successful. they will have to impeach him otherwise i will support a motion of no-confidence for

jacob zuma. anna: thank you very much. cap to busy by those long anc meetings. as she joins us there from cape town. up next, is there more turbulence ahead? we will talk more turbule=a lace. we look at th evix next. ♪ anna: this is "bloomberg

surveillance," and i'm anna edwards in london. just 21 minutes ago we got u.k. inflation cpi data. we got a little boost to the pound and rising after. u.k. inflation data beat median forecasts. we did see the pound going little bit higher. and we have the u.k. 10 year yield in there for you. u.k. inflation better settle above the two-putt i resent. nash the u.k. inflation better settle above the 2% target.

ed: jail for his role in the bribery scnadandle. years inntenced to 30 prison after somebody found him build the giving $71 billion to the confidant of the former president. four year jaile term. amazon is cutting hundreds of jobs at the seattle headquarters. while hiring a new alliance of business, like cloud computing platformic platform, some see it as a mode of relaxing only used way humans. the firm also accused president doug haines of using inappropriate time on the

whiteboard and leaving it there for weeks. hey said in a statement that emphatically denies the allegations. spece is convinced they will miss the auto show next year. that is a big blow for the auto show. mercedes says the decision was obligated by rising complexity with the auto industry. the treasury will hit 3.5% in the next six months as rockets price and a steeper pace of fed tightening. if the fed it terms the holdings of the treasury, they have purchased through quantitative easing. that is your bloomberg business flash. anna: thank you very much, just getting a few words going through. wil love to

complain. we have a press conference to later on today as well. there is a lot moving at 2 p.m. south africa time. now, we are here about his caucus. the rebounding global stocks we saw yesterday. at the market is recovering from its wounds, even if stocks in europe struggle to find direction today. volatility future show the turbulence might not be over yet. here to talk to us about volatility in the market is danny virgo. let's talk about that then. facebook prices higher than future prices. -- what ist tell you that telling you about the equity market. usually when we look at the vix cujrve because

investors do not know what is happening in the future. currently in the u.s. and europe, those it short data features are more expensive than what is coming down the line. usually when this happens, it happened during brexit and hearing the european debt crisis. typically in event is coming up or just occurred and investors are feeling very nervous. we had that volatility last week, perhaps something strange happening with the effects. investors are actively concerned about near-term events versus future events. the: and the shape of formation curve, does that tell us more than the oval level of the vix. it does. by thoses conduit of in need to borrow it.

and because the has so many different inputs, -- again this is because it has so many s&p 500. it is basically taking a vet of volatility. before when we had the vix po ertetially low sometimes that can be a little more sensitive to market movement. in another interesting thing we are seeing is not only is it masturbation, but the spread between the first mom future's in the second month each year. anna: thank you very much, dani burger. continuing to the next hour now. francine joins us from london. ♪

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♪ >> let's get to bloomberg business flash. some rare job cuts at amazon. the company is a limiting hundreds of jobs in seattle focused on selling products online. foron is hiring businesses cloud computing and its alexa platform. as 80's bands has decided to sit out next year's auto show. continually reviews the platforms it chooses to reach customers. bloomberg reported mercedes --

car companies do major reveals that the rhone showcases. food alliance has made an approach to buy american bourbon. -- america source bergen. there may not be a deal. that is your bloomberg business flash. u.k. inflation held steady at 3% in january. downward pressure was offset by the cost of gardens. itis comes amid a brex backdrop. still with us is jordan rochester and joining us is bloomberg's london bureau chief. 2.7% on the call. mccafferty come

out with pretty hawkish messages following that hawkish hold we got from the boe last week. will we get a rate hike? >> absolutely. a year for thees forecast. ,e had about 41 basis points the bank of england expected --. the reason the pound has moved explosionthey expect -- inflation to decline. we were calling for pete inflation in october and november and we are still here in january not seeing it. we will slowly get the 2%. that's the market forecast. does it move the needle on sterling? everyone is talking about two hikes will not offset the recovery.

the pound has not moved very much. for now we have taken off our long-standing position after being long for a long time. short-term positioning stretch the market pricing in the good news on cpi is offset by the potential. >> we are on 139 now. chartier which just shows sterling volatility hereasing grade -- chart which shows sterling volatility. still at the highest since about march. let me turn to david. -- what are we expecting this week? brexit ambiguity is where we are at. we are waiting for the bridget -- british government.

parliament is in recess this week. so brexit ministers are getting -- fanning out. last week there was a meeting of the war cabinet that was supposed to thrash out a negotiation. we had -- last week saying this transition agreement is a -- johnson making his valentine's day speech tomorrow. he will make the case for brexit. later in the week we have mrs. may herself at a security conference in munich talking about security arrangements but also more information there. still not the official paper. the europeans are clamoring for more clarity. the big question is why haven't we done it yet? -- shel can't reconcile

still can't reconcile the different parts of her party. tom: i've got to come up with a valentine's day speech as well. that was a beautiful summary about how confused people are with this soap opera. who has the upper hand? who has the power? the united kingdom against europe or the european union against the british? david: it depends on who you speak to. davos ofreports in mrs. merkel saying you are the ones leaving, you come to us with a solution. who has the upper hand in the conservative party? it is existing to see who is pushed out to make speeches. we have the brexit secretary good the chancellor sits on the main side.

he is being kept under wraps ever since he said a few weeks had to be slapped down for suggesting the british relationship would be changed much. that may be telling up desk telling us britt may have the upper hand. who had to make all the concessions last year? it was britain and not europe. tom: we will watch that with inflation and sterling as well. jordan will continue was live to talk about the yen stronger. tim o'brien as well. this is bloomberg. ♪

♪ tom: i'm tom keene in new york. let me show you a chart. four inflation of the developed world. these are the five year five-year break evens. very low inflation in japan. the united kingdom. here is the united states with a little bit of a curve up. europe as well. jordan with us on that euro in between. what is that inflation factor in europe right now? jordan: it is higher.

the recover we are -- recovery we are seeing is remarkable. growth expectations are off the charts. we are past the recovery phase and we are in expansion. in the u.s. and u.k., you will start seeing it in europe. the trajectory is higher, but it is slow. i think we will add tire, this of thatnal the end monetary policy of qb in june. a rate hike by the end of the year. flow is inom: if the a stronger europe, is it in the netherlands? or is it diffused out across europe? jordan: german bunds have started to go into positive territory. it is not the best yield it can

get. i think you will see further normalization in europe to come. it is only when you start getting levels above u.s. that we start to look interesting. you at about half a trillion euros about flows in the fixed income last year. you start to see that reverse and go down and inflows next year. really large bets on a stronger europe. coming up in our next from london, timothy o'brien on his president trump. stay with us. ♪

retail. under pressure like never before. and its connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store

near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. leaving every competitor, threat and challenge outmaneuvered. retail. under pressure like never before. and its connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. tom: good morning. tom keene in new york and nejra cehic and for francine lacqua in london. let's get to the bloomberg first word news. here's taylor riggs.

begun thee senate has debate over immigration with the two sets far apart. mcconnell backing a bill that provides president trump path for and the citizenship for 1.8 million undocumented immigrants and provides money for wall on the mexican border. democrats have rejected the plan. opec and its allies have almost dried up the glut. the cartel faces a growing problem -- rising supplies from u.s. and other rivals. u.s. output will soon surpass and maysaudi arabia overtake russia as the global leader by the end of the year. in south korea, the chairman of retail giant latte group will be sent to prison for bribery. sent to 30nt was months. they bribed in exchange for government favors. olympicsit the winter

and attempt to shame its organizers. a cyber attack paralyzed internet networks at the opening ceremonies in south korea last friday. whoever was behind the attack new usernames and passwords . global news 24 hours a day 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: timothy o'brien has a modest book out called "trump nation," which makes him an authority on the finances. he has read and discussed the zeitgeist of america, the many themes of this unique presidency. mr. o'brien is with bloomberg view and we welcome him this morning. for one hour go right now on many topics, but let me go to the budget we saw yesterday and a touch of "the washington post" this morning

with the idea that donald trump is libertarian. that's a fascinating and loaded word. is he really a libertarian where it's every man, woman, and child for themselves? timothy: no, i don't think he is anything ideologically. i think what trump is is a force of nature. most of his decision-making derived from either self-aggrandizement or self-preservation. he is and it largely for himself. he is not a policy maven. you see in the budget for example that it's mick mulvaney's budget. i will think the president really cares about the minutia policy and it can become inngerous to sort of read political theory or strategy into his motivation. tom: if it is just a document, is it a wasted moment for the president if it is mr. mulvaney's budget? timothy: it's not a wasted moment for him politically

because obviously what he is tried.to do here is play to his base. i think republicans are nervous about the midterm elections in november. i'm always skeptical of poland, but if polling is to believed, the democrats probably enjoy what looks to be a winning advantage and the house of representatives. that has the gop scared. what trump is doing right now is playing to his base. the document in that context serves a purpose. tom: talking about the philosophy and theory of both parties and here's a touch of a really good essay. an assetity mindset is that destroys every belief system it touches. he goes on to say conservatives will realize if we want to preserve conservatism, we can't be in the same party as the right plant warriors. liberals will realize if we want to preserve liberalism, we can be in the same party as the left plant warriors. six is the republicans

months out as we migrate into 2020? where does the republican party go? timothy: they have to address the scissor in the middle of bit between the tea party of the far right of the party and more traditional conservatives. one of the lessons of the trump administration is that wherever we are ideologically in partisan politics, process matters. it matters to companies and in the public sphere. there is an apt management right now in washington. it is not sophisticated policymaking. it is not sophisticated legislation. i think the gop has to decide whether or not they want to carve out an identity apart from the president if the president ends up alienating a court chunk of what would've been traditional conservative republican voters. nejra: the deficit is at the core of all this as well. timothy: isn't it amazing that

the party of fiscal conservatism -- not the first timersnejra: it happened but still. timothy: it follow that ramp in defense spending and tax cuts as did bill clinton. the problem is that trump and his administration is pursuing this well into an economic expansion. they are essentially pursuing a fiscal stimulus at a time when says went book case or what you don't do a stimulus and it's not right now. get cuter is that taxes in spending goes up and the economy slows down and you end up with deficits. it. math. pure math. nejra: do the numbers square up? jordan: he will see expansion on the stimulus side. wasu.s. economy tax system as complicated at the time, but

to see the expansion that we have seen the last year and tax receipts falling and then cut taxes and do spending is very strange phenomenon. it will lead to a weaker dollar. we will see further dollars in the system and more treasury issuance for example. you'll see investor saying is that really worth the money? that is why u.s. yields are heading higher. tom: mr. mueller has been very quite recently. i will be interviewing gary conversation ona mr. mueller and the fbi and such . as we go toward whatever the special counsel is going to do toward mr. trump, is he going to touch on the finances that you are truly expert on? is mr. mueller going to stay away from the tim o'brien world or go after net worth and the tawdry financials that are allegations? timothy: i don't know if they will go after net worth.

this't see how he conducts investigation without looking into the business operations and finances of the president simply because there are three legs to this investigation. there's a collusion investigation. that's probably the weakest part of the investigation. there's not clearly and obstruction of justice component. all that leads into the third part, which is financial quid pro quo. did the administration trade things like lifting economic sanctions on russia in exchange for financial favors of. sorts?d he has people on his team in eastern new york that has a long history and financial fraud investigations and tax investigations. he is going to come under the radar on this. will be how the congress handles the results of the mueller investigation when they finally surface. tom: what is so interesting ofut the book is this idea

the simple word investigation. the you have any inkling of the deaths of the investigation that we are seeing from the special counsel office? timothy: all you need to do is look at who is on his team to understand. he has recruited people from the irs's criminal tax fraud division. yes people who are experts in money laundering. he has people who prosecuted trump's former business partners in new york, some of whom were career criminals. this is all dangerous stuff for the president. bob mueller cannot be more of a polar opposite from the president. he does not seek headlines. he is sitting quietly with a little notebook checking off a box when the president and his legal team makes a mistake. nejra: let me bring it back to the markets and the point that jordan was making earlier that 10 year yields are going to move higher. when we heard from president trump, he likes it when stock markets go up and interest rates remain low. that is not what we have got

right now. is this going to complicate what he does next? timothy: it's not clear to me that the president doesn't understand the markets in the short term are not the real economy. i much additional list. i think stock market valuation should be driven by corporate earnings. ultimately they may not in the short term, but over time that is what you look towards. corporate earnings are function of the macroeconomy ultimately. getting the smart thoughts earlier is that we don't have the pieces to the puzzle lining around cisco probity and impact that will have on the impact and the equity market. i think you get a nasty surprises some part to have them markets are going to react. rochester and timothy o'brien both with us on set. timothy o'brien visiting us from new york. they both stay with us. coming up next, we speak with tyler brouillette.

this is bloomberg. ♪

tom: good morning, everyone. "bloomberg surveillance." nejra cehic in london and i'm tom keene in new york. jordan rochester with us. tim o'brien with us as well. so much and the political economics and true politics of washington. right now we digress. he is someone that everyone within journalism watches, tyler brule is with "monocle." it's a magazine that you can put on your coffee table and disappear out of your house. i know this from firsthand

experience. children steeled up my coffee table and he joins us now from his city as well. he is the editor in chief of "monocle." let's talk about zurich. you have a love affair with zurich out of london. it's an expensive place. this bowtie is $30 more in zurich than anywhere else. why do we like zurich in 2018? it would probably $60 more at least. a couple of things. i can speak specifically for our business. we have been looking for a base that functions incredibly well, which is logistically found where there's investments in infrastructure. we have to have a news base where we can obviously deploy quite quickly. from a business point of view, in media, we looked around the world and our two biggest advertising markets are switzerland and italy. this approximate the the -- there's the proximity of wanting

to be close to our clients. you seem other companies like fashion business is moving here. there's a new type of energy from people who knew the zurich of 20 years ago or 10 years ago. and away you can say some of the tips that have financial markets hit force people out of the street in a good way. you see a new level of entrepreneurship that simply wasn't here before. tom: the level of entrepreneurship and obviously the election will change that as well, but you look at switzerland and northern italy as a place to be. it's about getting young people to move there. do you believe that brexit in london that we will see an exit of the energy? tyler: that's already happening. we have seen it happening in our own editorial floor. you can go and speak -- it's not just the creative sector. it's many sectors, but it's happening.

some of the fluff year ends of the business where people aren't good salaries and have a good quality of life in london, will they go to paris or moved to berlin? it is happening now. we have seen people voting with their feet. they are 25 or 26 years old. do you want to be living 90 minutes or now or away from your office in london or do you want to have a better quality of life on the continent or even somewhere else? nejra: are those 25 or 26-year-olds still flocking in the same way to work in media? tyler: very good question. news isthe good absolutely. is london an is attractive place for people in media? andever we post a position certainly an editorial position, there's no shortage of people coming out of college in london and columbia and schools in canada who want to apply. there might be certainly a

different view when they come into that environment how quickly they are going to have their name on the masthead or will they be around the microphone? i thought it was what to wait a little bit longer like we all did. a lot of people think they will be there in the first week, but nevertheless, there is still an interest there. nejra: what i love is that "monocle" still has priced editions and a magazine at a time when a lot of people are saying that print india is dead. -- media is dead. is it not? tyler: obviously have come on in front of your cameras in various parts of the world to tell the story. it is still the biggest revenue generator for us and a cash cow are varbusiness, incredibly -- and cash cow of our business, and credibly important. out forted figures come magazines all over the u.k. and i'm happy to say there'll be a nice little increase again as well. i was talking to one of the very big banks here in switzerland

yesterday and they said they are seeing a swing back and putting more money back into print because they are very hesitant about everything that's happening in the digital environment, which is not fascinating to hear but surprising to hear that one of the biggest spenders in this country and financial services th is skeptical of digital. tom: you have a london media summit coming up in 10 days or so. you have an issue this month is on the media. what is your advice to every single media guru watching? what is the single message on what media has to do to get to 2020? tyler: tom, i think it's always maybe a classic sort of tale, but you have to be very careful about always running to the shiny new object because everyone goes off in that direction. it means there will be a lot of opportunity elsewhere. in our case, it's obviously what we do with print.

i think there's always a great drive and desire to be the first one there. i think you can look at the pioneer trails of america and see there's a lot of corpses left hind. you don't always have to be first, maybe with the news. nejra: thank you very much, tyler brule. jordan be back with ji rochester and timothy o'brien. take a look at tv . while watching us on the tv, why not double up? you can see all of our great charts and look at the bios of our guests. this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. the ceo of alternative asset manager apollo global management was paid more than $190 million last year. that's a 4 for the 5% increase from the year before. all the money came from stock dividends. manager ish

reporting a better-than-expected increase of new clients. the firm expected a new boost this year because of the u.s. overhaul. the ceo told bloomberg that the recent chaos under forced -- underscores the strength of his firm. >> it reminds people that out of the end of the day nothing beats global diversification and active decision-making and investment. taylor: that is your bloomberg business flash. tom: thanks so much. jordan rochester with us and we will get to the single best chart in a moment. right now, timothy o'brien, he is with bloomberg view and bloomberg gadfly on his dollar and washington. it's a weak dollar policy and maybe it's a week mnuchin dollar policy. i will let you phrase it the way you want. it is absolutely original to have the politicians job on the dollar weaker. how original is it? timothy: well, i think there's a

degree of comfort with that kind of jaw boning that's original. udin did not want to jaw bone it lower. the president is hoping for an economic boom, which would somewhat run afoul of where they are on trade. there's not a lot of synchronicity and their policy positions. ultimately steven mnuchin is the treasury secretary. he will not have that much influence on where the dollar goes. we look at the fed for that. if we are expecting a year of rate increases from the fed or aggressive rate increases, that is going to affect the dollar. tom: that is the theory as well. let's look at the chart right now that mr. o'brien describes. this is one of the most elegant charts i've done it all these years of bloomberg. this is a hugely well behaved trend down and u.s. dollar.

a little bit of a loop appear. this is new in the last three weeks. jordan rochester, technically that's an exceptionally difficult resistance. what is the resistance to stronger dollar? jordan: the fundamentals, tom. if you look at what drives currencies and purchase power parities, if inflation is running high, that reduces any roads the power of the currency. you have a trade deficit that is wider and it got wider thanks to the higher consumption of the u.s. consumer. that's a drag of outflows of dollars so the fundamentals should drive it. theou zoom out and go to 1970's, the dollar does about six or seven year cycles. we are in a cycle now where it was very overvalued thanks to the fed being one of the first central banks to hike. the third factor you have to take into account is that there might be a positive u.s. story.

if everywhere else is doing quite well as well, those currencies tend to appreciate versus the dollar, which has moved very high on the very long-term chart. we are seeing an unwind of that said first and catch up from the central banks. tom: let's go back to the chart and i can zoom because it's logarithmic. tim o'brien will explain in the quiz later today, but here's the basic strong dollar. nejra? nejra: it's interesting the point that you make about other currencies versus the dollar. how much of that dollar weakness is what is happening domestically and how much is about the rest of the world? jordan: the yields move higher, but we have the risk off with that little blip in the chart that we saw higher, but the long-term trend is amazing. questions i've had is that rates are higher but the dollar is lower. why is that? there are unwind and a higher amount of a wash dollar and the

system to be bought and you need a lower dollar to offset that. nejra: what are you buying against the dollar? jordan: we were talking about the euro and the yen and pushing for cable higher. we reduced our sterling position, but long-term week talk 1.48 and cable. 1.40 in dollar-yen. tom: jordan rochester, thank you so much. tim o'brien, don't be a stranger. he is with bloomberg view and bloomberg gadfly. in the next hour, we will be joined by unicredit and stand colander on america's budget. this is bloomberg. ♪

♪ tom: this morning, the japanese yen is stronger. thatstrong yen a sign

nixon volatility will spread -- vix volatility will spread? don't call the libertarian budget. it's a trump budget that says every man, woman, and child for themselves. the president desires to encourage "dignity of work and self-sufficiency." congressional reality in this hour. ,tanley colander on your credit trillion dollar deficits, and total debt tilting toward japan, italy, and the banana republic of your choice. good morning, everyone. this is "bloomberg surveillance." we are live from our world headquarters in new york and london. nejra cehic is in for francine lacqua. inflation -- the three number for governor carney. does he write a letter? who does he write the letter to -- the queen or the prime minister? nejra: the chancellor of the exchequer. one letter has already been written that he might have to write another one because if

inflation is 1% or more of that 2% target, that is when we see that come into play. cable is up 5/10 of a percent and a 2.7% call. in the background, we still have these brexit negotiations and we are expecting the u.k. government and the cabinet and theresa may to come out with a clearer u.k. position because what they are working toward is getting that transition deal with the eu before the end of march. that is key for businesses. tom: nejra cehic, thank you so much. in new york city, your first word news. here's taylor riggs. taylor: starting in south africa, it's a standoff between president jacob zuma and his own political party. the anc has told him to quit after he refused to step down all terribly. that is according to people familiar with the matter. the anc could still told members to vote zuma out of office. congress is expected to all but ignored president trump's proposed budget.

the plan abandoned's the republican goal of balancing the budget over a decade and other domestic programs in favor of more spending on the military and border enforcement. the uk's inflation rate held steady at 3% last month. less than prices rose a few years ago and food prices fell. it is expecting the effect of the pounds depreciation to from 2016.back london city airport says it's business as usual after an unexploded world war ii bomb found in the airport was removed. the bomb was discovered in the river thames. all flights to and from the airport were canceled yesterday. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is delivered. tom: that's a great story.

nejra cehic, tell us about the london city airport. all we know is heathrow and maybe we flying to get look once in our life. what is the london city airport? nejra: london city airport is smaller than the others and is mainly targeted to business travelers. in many ways i'm a big fan because you get through everything really quickly. one bug that i had with it as i wanted to get moisturizer and i can only find one kind of moisturizer in the airport. that's a little bit of feedback coul. overall it's great. tom: we supply it for free on the "surveillance" golf team . equities, bonds, currencies, commodities. futures get back a little bit. i've no clue where the markets will be at 2:00 p.m. today. dow futures -162. dollar weakness, euro strength, back tohe vix, 26

26.27. still nicely below any kind of technical support. yenbig story today is the and i will show that chart the moment. what do you have? i'ma: in the fx space, showing cable because we have gone through 1.39. up 5/10 of a percent after that cpi data. 3% headline inflation is what we got for the u.k., a full percentage point over the target. a little bit of weakness coming in of european equities after they gained more than 1% yesterday so i bit of it wobble in that rebound. keeping an eye on the rand as well as we are awaiting president zuma possibly stepping down. the 10 year bond yield down three basis points. tom: let's look at the yen strength right now. down to1, 2, 3 moves 107.60. any breakdown to this level

would be a john doerr missed -- ginormous deal. nejra: i'm glad your banner says vix contagion. i'm looking at the vix curve. this does not have a #. i brought up the function on the bloomberg. the blue line is where we were on january 12. that is the vix and tango. we are in backwardation so basically the market sees more risk of volatility near-term that further out. daniel curtis, who helped me with the chart, says that the normal scenario and a high volatility environment. the yellow line shows that we were back in backwardation. that is when we saw a comparable spike in the vix to what we are seeing right now. tom: we had eric nielsen with us yesterday. his brother in crime joins us now, the unicredit chief u.s.

economist. the view on the budgets and the markets, you lead presciently with a research note that we are just not going to get to a 3% u.s. gdp. let's start with america. what does that mean for president trump and america that we will not get to a sustained 3%? harm: the budget proposal we saw yesterday is way too rosy. even with a 3% growth goldilocks scenario and low unemployment rate, their budget was looking for a shrinking of the deficit toward 1% or whatever over the next 10 years. that does not include the latest congress deal. this sot get 3% over the forecast is way too optimistic. tom: within that is how a 2% economy affects the rest of the world. we know mr. trump once a 3% economy and maybe stimulus will

get it for a cup of coffee. what is a 2.5% america mean for the rest of the world? harm: it depends on how international relationships change. we see that 2018 and 2019 may be unfortunately the year where the u.s. of ministration follows up the bid more on trade and on negative trade measures. so far we have seen nothing. if you look at the real trade deficit and even exclude petroleum, the real trade good deficit, the u.s. just experienced a record deficit. it is the worst balance that the u.s. has ever had, which means that is solidly growing u.s. economy is still good for the global economy. nejra: what we have seen in equity markets recently is that a lot of people are tribute in market finally waking up to inflation risk and a faster path of fed tightening. arehose inflation risks coming through and we do get a faster tightening from the fed, is that going to risk a recovery

that we are getting in u.s. economy or is it the fed simply catching up to where the economy is? harm: first of all, it's the market catching up with reality. the market has been downplaying the risk of inflation for way too long. it was not too long ago on the space show that i was the odd man out and saying we would get higher inflation rates. people were saying the what are you talking about? we have more of a deflation risk that inflation risk. the market was placing one rate hike for the fed. we see that the market tends to exaggerate. it exaggerates on the downside and now is overplaying the risk of a breakout of inflation to the upside. withhas to do in my view that sense of security that the market has thought that we have had on inflation the last several years. it is one of the market catching up. the fed has been after hiccups

in 2015 been pretty consistent saying they want to normalize rates. the followed up with three hikes last year and they will follow up with three hikes this year . they have not adjusted their forecast. tom: i want to talk about the separation between domestic and economic growth dynamics and trade aspects as well. it has been a theme here in the last couple days. we will come back. today, david westin with an important interview with goldman sachs chairman and chief executive officer lloyd blankfein. this is in the 3:00 our in new york. that will go worldwide. always important to speak with lloyd blankfein. stay with us. from london and new york, this is bloomberg. ♪

taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get the bloomberg business flash. decided to sit out next year's detroit auto show. carmaker says it continually reviews the platforms it chooses to reach customers. her sadie's was considering the move. -- mercedes wasn' considering te move. many do reveals at their own showcases. has made a bid to buy alliance. it has it surging in premarket trading. no deal is in this and there may not be one. that is your bloomberg business flash. tom: joining us now is kevin cirilli. i'm going to ask you the same

question that tim o'brien asked and i know you have to answer it in a different way than mr. o'brien. "the washington post" alludes today to donald trump is libertarian. the budget that was presented yesterday, does that indicate a new libertarian donald trump or mick mulvaney or libertarian senator paul from kentucky? kevin: i'm just a reporter, but i don't see how that budget proposal is libertarian at all. i think it is more government spending. i spoke with several republicans yesterday, particularly those who were a bit perplexed at last year's to be government expansion -- last week's to government extension, that this was a "symptom of the swamp." this is more government funding for a host of programs from infrastructure, opioid addiction, national defense.

i'm not saying that's a good or bad thing. i'm not seeing how that's libertarian. tom: the speaker pelosi taking a victory lap? kevin: she had a lot of pressure on her, but before last week, daca8.5 hour filibuster on was something that rallied the democrats behind her. quite candidly she needed it . wera: does the fact that have midterm elections coming up this year change in any way how congress might handle this budget? kevin: yes. let, honest with you, there is this really wonky term in the budget extension called reconciliation. we talked about that when we reported on health care and on tax reform that they needed to get through the process of reconciliation in order to allow them to get to the 51 vote threshold as opposed to a larger majority.

that is out the window. conservatives who wanted to keep that 51 vote threshold to make it easier for them to get stuff done, that is gone. on something like infrastructure, which this white house with like to get done, it will make it very difficult for them to get it done. they got to attract democrats and lose conservatives. tom: let's go philosophical if we can. our morning must-read from "the new york times." the scarcity mindset -- it's a great sa for republicans and democrats. the scarcity mindset is an asset that destroys every bully system it touches. conservatives will realize if we want to preserve conservatism, we can be of the same party as an warriors. liberals will realize if we want to preserve liberalism, we can't

be in the same party as the left clan warriors. where is the middle ground and politics in the next three years or five years? kevin: the left is really framing this as the resistance and they have been united in terms of the "resistance opposition." the middle ground like senators joe manchin -- right now there does not seem to be those common ground for people to work together. particularly when mike pence is criticizing someone like senator manchin, that does not seem to be many political all branches being extended as of now. tom: what is critical to your observation is that there are a ins outmore manch there, but there are a good number of moderates getting crushed in this maelstrom. kevin: absolutely. the government extension bill last week when you had senators calling and high camp -- collins

and high camp working together to have a meeting to come together and get something done, it's like where is the era of bipartisanship? president trump had that bipartisan meeting and he brought in the cameras. that was something that arguably was a strong point. whether you agree with the guy or not, but the strong point in this presidency and people are craving that. where that has been missing is a symptom of the swamp. tom: we will see. he touched on it in one of his morning tweets. kevin cirilli, he is our chief washington correspondent. i really want to come back and dive into the deficit and the fiscal policy. let's do this. ands come back with harm stan. a really important discussion. you will all want to hear this across america and worldwide as we discuss the american budget deficits. worldwide, this is bloomberg.

♪

tom: "bloomberg surveillance." we digress. we digress for valentine's day. for nejra cehic and the rest of our viewers, what do we need to buy? eurig willfrom k get the job done. one of the great all-time

battles and fashion is the battle over gucci. their chief executive officer just sat down on the mother of all success stories with our caroline connan. gucci had a wonderful year last year and we grew by 44%, but more importantly, we even reduced discounted sales. all has been done on every category and every region, meaning the trend into q4 is that we have seen 44%. we are still enjoying that trend so we will continue to grow significantly this year. >> is this a bubble? >> no, it's not. it could be very dangerous if it one or two ways as we say in the industry, but very healthy. the growth is very well spread over all the categories and all the geographies and all the

clientele's so it's very strong. what has been put in place in terms of supply chains ability to cope with growth in terms of lack ofon, without any being demanded for quality, this is all in place. i'm very confident that we will be able to continue not that momentum of 44%, but to grow significantly above the growth of the market. andould gucci become bigger one day in terms of sales? >> i hope. why not? >> in terms of instagram above 21 million followers on instagram, a growth 2017. in is this how you attract millennials? >> it is true that part of the growth of gucci has been driven

by this new generation that is much more attractive to luxury than the previous one. we used to have luxury 25% to 30% of our sales bubble, but this generation of millennials is reaching above 50%. in addition to the existing of course. efficient situation and it's true that generation is completely digital. they are in search for expressing their own personalities/. they are in search for a motion. the only way to reach them is by creativity. it's to propose a very strong creativity to attract the new clientele. >> you are creative director. how much is the brand dependent on the creative directors?

we have beendel working on for years now, we are not depending anymore on designers. the designer is depending on the brand. the way we choose our designers is first of all, we have a very clear vision of the profile of our brand and we do recruit people with very strong creative minds that are fitted for the brand. we are not dependent. we are not trying to fit the brand below the creative director. it's the reverse. it's a win-win situation between amazing creative minds and an amazing brand like gucci. tom: absolutely fascinated. now with the new generation and their desire for emotion, we go to london and nejra cehic. just as long as it's full priced emotion. what is it about gucci and those younger?

please describe. nejra: it is hard for me to say and i'm probably going to disappoint you here because i am a millennial. however i spend most of my time out of this office in athleisure. i'm in my yoga where and dancewear and i account for 45% of athleisure sales could it's hard to answer what millennials what with gucci. it is so much about the experience. the luxury brand get that experience element, that is where they will win. tom: i moved the needle of italian gdp down at the bottom of the spanish steps. nejra cehic, thank you so much. caroline connan, thank you. coming up, abby joseph cohen. this is bloomberg. ♪

♪ tom: washington, d.c. of course fixated on fiscal policy and we do that with stanley collender in a bit. i would also note markets today,

there's the dollar index spot, thank you for putting that up, weaker dollar, stronger yen and stronger yen in the last hour as well with futures light to say the least. i am tom keene in new york. good morning, they retake it in london. in london.hic francine is off today. i guess that is a net import-export dynamic in gucci out of italy. the domestic economy, everybody agrees doing better than good, but what about that nx on the right side of the equation? >> it is deteriorating for the u.s., the better the domestic economy is doing because the structure of the u.s. economy has not changed at all. the real good deficit is now the theest on record and stronger the fiscal stimulus

stimulates the domestic economy, i think the bigger the deficit will be. we needofficial --tom: official surveillance fingers to do this. take america great again, up, up we go. does it really drag it down? is it a dampening factor or does it really drag down mr. trump's desires harm: -- desires? u.s. is not importing all of a sudden more than the domestic economy accelerates, it's just a portion of the additional demand created in the u.s. economy eventually benefits foreign exporters and that is, of course, quite the opposite of what the administration tries to achieve. if you look at the large u.s. current account deficit, one is exports and one is imports and it's easy to conclude and that is kind of what the administration seems to lean towards is the u.s. is importing too much and that is why we have the big current account deficit.

if you make an international comparison, the u.s. relative to its size is actually importing less than other areas like the eurozone chama -- eurozone, china, japan. the real issue is the u.s. is not exporting. the u.s. is not producing the stuff at a quality or price that the global economy wants to buy it and i think the fix is very different than if you are simply importing too much. cpia: all eyes on the u.s. print coming this week particularly after inflation expectations rattled markets. where specifically do you see inflation coming through in the u.s. economy? a weaker dollar import-export all has an impact, as does the deficit. harm: true. in the simplest way, split core inflation into two categories, services and goods. the biggest factor is always services because 75% of the u.s. economy is services and that is driven by the slack of the u.s.

economy. you are referring to the weaker currency and maybe some commodity price, that is showing up in court goods inflation. court goods inflation has been extremely weak over the last several months. it has been very weak over the last decade because shops like walmart have not discovered china only last year. they have -- we have the downward pressure on the u.s. core good prices for many years and i think it's good -- crucial what happens to services driven by slack and that is diminishing. tom: can the dollar come to the rescue? harm: for higher or lower inflation? tom: to boost exports and domestic economy up periodically and exports come around because of dollar movement. harm: at the margin, it helps. if the dollar is weakening. let's remind ourselves, you have talked about italy and the u.s. has a current account deficit with italy and had a deficit when the euro was at 150.

that tells us there is more than -- it needs more than just a weaker currency to fix it. tom: we will really look at the american fiscal economy here in a moment. she was taking notes during the interview with the people from gucci with our first word news in new york, here is taylor wakes -- taylor riggs. taylor: senate majority leader mitch mcconnell is back in a bill that trump -- president trump's framework and provide a youngo citizenship for immigrants. democrats have rejected the plan. up theve almost dried oil. the international energy agency says the cartel faces a growing problem, rising supplies from the u.s. and other rivals. thanks to shale oil, u.s. output will then -- soon produce that of saudi arabia and may overtake russia as a global leader by the

end of the year. hackers hit the winter olympics in an attempt to shame its organizers. a cyber attack paralyzed internet networks at the opening ceremonies last friday. whoever was behind the attack knew usernames and passwords. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. tom: thanks so much. oil weaker today, $59. it was 58 print insight on american west texas intermediate. this is an interview we have been anticipating for days, stanley collender is encyclopedic on the american budget and worked on capitol hill translating reality for decades and is with us now. he's a professor at georgetown university. collender summary of what has been wrought with tax

cut legislation and the new deficit from congress? stanley: we are talking about a change in the -- there's no more pretense about alan thing 10 years, -- about balancing 10 years. about trillion dollar plus and maybe even $2 trillion deficits going every year at least through the trump administration and maybe for the rest of our lives. tom: for many people watching and listening, good morning on bloomberg radio worldwide, stan unthinkable.is is what will upset of the certitude of the people voting for more guns, more butter. what is the shock that will change this discussion? stanley: the only thing -- the only real thing is the bond market, the return of the bond vigilantes or we might call them bond ninjas. if interest rates start to rise,

that is a political stitches -- sensitive political statistic and it's the kind of thing that got bill clinton upset and made him change his mind about what he wanted to do. it might change the current political thinking in washington and then there is an interesting question, in this administration your not going to see a tax increase. you are not going to see a cut in defense spending. where would the reductions in givenficit come from unless you look at medicare and social security, there's not enough to make much of an impact. on thegreat to have you program. i am so glad you brought up the bond vigilantes. i am reading aaron -- alan greenspan's book at the moment and it feels like we have been here before. what can we learn from history and how this administration should approach this if we get rising interest rates as we are getting a ballooning deficit? stanley: i am not sure you can

say this administration is going to respond in a normal way. this is not an administration that looks at the past as prologue and as -- lessons to be learned. i suspect what you find from mick mulvaney and steve mnuchin and the president is that even if the bond market started to react negatively and interest rates started to rise sayipitously, they would it's just temporary and it will all be well within a couple of years and give it a chance to work its way out. i am not sure in the short term you are going to see much change even if the bond market does start to respond that way. nejra: what impact could that have on the midterm elections? could it have an impact that soon? stanley: absolutely. i said this a second ago, interest rates along with inflation are one of the two most politically sensitive statistics that exist. if interest rates spike as mick mulvaney said yesterday might happen, then you probably find

there would be less satisfaction in republican epic -- economic midterms,at the democrats will do even better than they are expected to do. interest rates have a definite impact on what people think about the current administration. nejra: let me just bring you back in here, if we get this world of higher interest rates in the u.s. and a ballooning u.s. deficit, what does that mean for the rest of the world economically? harm: there's plenty of supply out there. let me add another component. i said earlier the president's budget assumes goldilocks and there are two ways we can deviate in my view. one is we adjusted the -- the recovery continues but at a more normal pace. potential growth is something like -- let's call it 2%, so deficit will be higher than projected. we are actually seeing a more material slowdown in growth because the stimulus is bringing

growth forward. we mayalk 2019 and 2020, -- end the next downturn and what then? i am more worried about that than rising interest rate at this point. tom: help stan collender with his next forbes analysis. where is your tip point of where interest rates begin to affect the american consumer -- the american economy -- the american taxpayer? on a 10 year yield, where is that point? harm: i don't know if we get there. it's always more the pace of how we get there than the levels at least over the short to medium term. just throwing out numbers, maybe misleading. -- just throwing out numbers may be misleading. we have seen this relatively fast increase in yield, has already started to upset financial markets. that is the first transition. that is the stuff -- tom: that is an important word,

transmission, what is the transmission effect of what many would call the budgetary responsibility in washington? how do you perceive that after decades on the hill, what is the transmission effect to the rest of america? stanley: first of all, the president has offered everybody everyone -- everything they could possibly want and said it will not cost them anything. in the short term, there will be a little bit of a sugar high in terms of everyone thinking they can get what they want. was justas harm saying, within a month, people are going to realize they will not get what they want and the situation will be worse than expected and a trillion plus deficits are going to be -- even if they are not economic a -- economically damaging, they will be politically damaging and i expect this will be an issue within weeks. tom: stan collender, thank you so much, we appreciate it.

we will continue -- we are looking at south africa -- all the focus on zuma. far more importantly, the focus on tape down and the wonderful news for cape down and there horrific water issues. they have had rain in the last number of days and that is critical within their water crisis. worldwide, this is bloomberg. ♪

♪ inra: i am nejra cehic london with tom keene in new york. let's turn to south africa. political turmoil continues where the country's ruling party said to tell -- president zuma to step down after he research -- refuse the request to step

down voluntarily. effortstop body marked -- amicable transfer of power to one headed by the party leader. -- joins us from johannesburg with the latest. as far as i understand, zuma refusing to step down at the moment. it does that mean we are going to get a no-confidence vote? >> it's more likely than not. we are expecting the highest electoral body within the ruling party to have a press conference in around 15 minutes or so to detail what their decision is and what exactly is the way forward. a big elevation -- revelation may come forward. the opposition party wants that to be heard this week and is calling for an urgent application to be set forth if

the speaker of parliament does not bring forth the motion to happen sometime within this week. the amc could indeed lead to that motion. they have given the president two days to step down. whether he agrees to that will be one to see. nejra: if he continues to push back against it, what happens then? my point is i feel like we have been here before. what is different this time? arabile: that is the big question, what is different this time? the support of his own party is really what is at stake. he doesn't seem to have that support anymore. it seems allegiances have completely shifted to the new amc president, the country's deputy president at this point in time and it seems that complete support has waned out for president jacob zuma at this point in time. if he does manage to get through that motion of no-confidence,

whether that comes through as one where he is then ousted or not will depend really on whether the vote itself is in secret or in open, which is also a big question moving forward. nejra: we have seen the rand shrank than somewhat -- strengthen somewhat on the prospect of zuma stepping down. what is it about a future under erandma foes a -- ramaphpos that is reassuring -- ramaphosa that is reassuring investors or are they just gone to see zuma gone? arabile: >> let's not forg the dollar weakness has -- forget the dollar weakness has played some part in all of that. seeing aitself really business minded -- someone who had a lot of shares in minding -- mining industries, he had an executive role as well, so he is a business minded politician now

who is seemingly going to understand the business sector a little bit better and i think that is what is driving the confidence and the uptick in the rand. tom: thank you so much from south africa. , i read harm bandholz the numbers and to me, it's a socialistic government and socialistic disaster. harm: i think that is what we are seeing in the market, particularly the fx market. the market wants change. tom: the elites want change. harm: it's also foreign investors and to a certain extent, you need them. deficit into 2% south africa. the trust of investors into the country has faded and i think countries like south africa still need a certain amount of foreign investors. looking forward, just the fact we get change. we don't know this -- how this change plays out, has already been good for the rand. fx strategists have been

forecasting a much more we thinkd strategy and it goes to 1150 at the end. tom: thank you so much for that update. we will come back and touch on economics with mr. bandholz. tv , it's your morning briefing at your desk. you are watching -- if you are at unicredit, you need to listen to harm bandholz as well and you can run over and get a chart and steel that yen chart. this is bloomberg. ♪

♪ is "bloomberg daybrea surveillance." the ceo of apollo global management was paid more than $191 million last year. from the% increase year before. almost all the money came in the form of stock dividends. he received a no bonus and no carried interest. swiss wealth management -- manager is predicting a better than -- better than expected increase and a boost because of u.s. tax overhaul. the ceo told bloomberg the recent market chaos underscores

the strength of his firm. >> a strong reminder to people that at the end of the day, nothing beats global diversification and nothing beats the -- excellent decision-making in investing. tom: how about a single best chart on the finance, on the interest rates of his germany? harm bandholz is with unicredit and it's a good time to move on this chart, which is the agony, you know, of negative interest rates in the two-year space with a little leg up in the 10 year space. guess what? none of this matters to germans. they cannot even get a government together now. what is the generally shown -- generational shift you see in germany? harm: in terms of politics, what is different between germany and many other countries and the u.s. is that in many other countries, you have to hammer out a coalition and agree on

stuff before you enter the government. here, we are hitting deadlines and then talk about the issue. that is one of the issues. in terms of the generational shift, my impression is still that germany is more conservative in sticking to what we have and i think the german model works relatively well, so there's a little bit less change in terms of digitalization and investing, to be quite frank. he mentioned that, it's tough to get germans to invest in stocks, so you complain then about the chart we have here and negative interest rates in and people say, what do we do with our money when interest rates are zero and some people say you should buy stocks and german reaction is usually, "nah." nejra: i want to talk about a bund yields because we have seen them increasing with yields globally. are you hopeful we are going to get anything out of these wage negotiations in germany which

could give a lift to german, eurozone cpi or is the cpi in europe more likely to surprise to the downside? harm: first of all, we have seen some movement. in germany, you have the negotiation's done union by union and one of the big unions already found an agreement with pretty decent increases in wages and the overall package. on inflation overall, we think it is trending higher, but we must not forget the euro zone economy is basically four years behind the u.s. and we have seen how long it takes in the u.s. to finally get to a point where the market starts talking inflation. yes, the global backdrop is better, so maybe europe gets out a little bit faster, but the trajectory is probably relative to gradual acceleration in eurozone. tom: harm bandholz, thank you so much. too much to talk about here, particularly his call that it will be difficult to get to 3% u.s. economic growth.

let me do a report and i want to fold that into a data check. ateign exchange, looking dollar-yen and there is really no other story. much stronger even half an hour ago. euro, 1.2 343 and euroyen showing that strong yen this morning. futures negative 16. our futures -170 and the vix, 27.38. if you look at american oil under $59, the barrel. stay with us through the day. worldwide, this is bloomberg. ♪ we use our phones and computers the same way these days.

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next selloff to buy the dip as 1% moves in equities and the vix over 25 becomes the new normal. a monster short squeeze. investors betting against treasuries 24 hours away from the latest read on u.s. inflation. is goldilocks dead? d.c. threatens to overheat the economy as good news could now be bad news. welcome to "bloomberg daybreak." i am alix steel in new york. david westin ditched me. he is in the today and we got a great lineup of guests. d.c.'s in the seat -- today. david: kenneth mccarthy, were going to talk about what all this appropriations they have been doing on capitol hill. i have been to shake shack, but we will talk to danny meyer about what it is to make a business and lloyd blankfein