francine: yields up. your strong inflation reading. the u.s. 10-year yield runs through. after years asut president. and currency has a 15-month high, but the finance minister says that is not enough. ♪

good morning, everyone, and welcome to "bloomberg surveillance."i am francine lacqua in london. 0.6%.600 gained there is a fine thing going on in the market. if we look at last week, there was a huge volatility reserve. have yields rising equities rising at 12 euro-dollar, $1.2492. the yen, we have a lot going on in the japanese market. coming up on "bloomberg ," we have an interview with the standard life ceo, martin gilbert, after shares were hit this morning. , we are joined by the ceo gen. we also speak with diego entini, formerly of amazon

and let's get to first word news with nejra cehic. nejra: president zuma has resigned, ending a 10-year run hard by scandals. he disagreed with the anc's decision to throw him out, calling his treatment "unfair." they must ric choose a replacement for him in 30 days. in mylife should be lost name command also, the anc should never be divided in my name. to thetherefore come decision to resign as president of the republic with immediate effect. nejra: president trump has that he approves a $.25 increase in gas and diesel taxes.

democratic senator tom carper said the president unexpectedly raised the idea several times during the federal gasoline tax is not been released since 1993. the yen high against the dollar after the finance ministers of the recent appreciation is not abrupt enough to warrant intervention. it includes speculation about doj action and follows a recent spike in volatility. angela merkel says she will not allow compensation. merkel tells his last week's .oalition deal she also said ceding control of the finance minister was the price to pay for alliances. a senate group agreed on an immigration proposal that would allow citizen ship for young, undocumented immigrants in the u.s.

it would provide a cut in family end to the visa lottery. section 21 point eight so-called dreamers. 17 people were killed in a school shooting in southern broward county. has been arrested or he is said to be 19 years old and a former student at the school. president trump has said he senses condolences to victims' families. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am nejra cehic. this is bloomberg. francine? francine: nejra, thank you so much. lloyd's ended its asset minus management pack. host of "ny, the

bloomberg daybreak," as well as martin gilbert join us. how much of a surprise have this meant for you, and how will it impact your? martin: it is not a total surprise. clearly we are disappointed. we would have preferred to keep managing money, and there is a possibility we will still manage the money, but i think it is important to have the review and our arrangements. it is less than 5% of revenue, but it will have an impact on profit, but this is not for the business, but these sort of blips you go through. francine: your share price is down 7.3%. martin gilbert, can you tell us why you think this is a relationship that did not go to plan? martin: look, we have known

about this for six months. clearly they believe we are competing with them. they are obviously entitled to that view, but the rest of our business is doing really well. we have merged the two companies to create a world-class investment company. goingk the merger is really well. this was obviously one of the us,gs that could go against but as i said, look, let's be clear, they are reviewing their fund management arrangements. against that, we have done a great jail for their clients, so we are very proud of the track record in managing the money, and we will continue to manage

money as well we can for the next year. manus: martin, a very good morning to you on days like this, markets are in question. one, are you going to be allied to bid for that business once expires, martin, continuing for the rest of the year? will you be allowed to get for that business>? martin: i think that is open for us to discuss with them. we will give more details from that next week when, yeah, we produce, hopefully, a strong set of results. we will obviously, as we have said, we are going to communicate with them, we are going to discuss the situation with him, and hopefully we can persuade them that we are still the best managers of their clients' assets. there is a year to go in this

contract, and a lot can happen in a year, manus. manus: you have reached a convergence on that particular line, and again, the case of six weeks, the markets can turn on you. let's get to shareholders again, martin. dividends, the stop, as francine said this morning, is fine. the market is punching you quite hard on this loss. of havingce in terms any kind of dividend or any kind of cash return program to the shareholders? martin: no. to be givinge time opinions on those sort of things, but i would stress it is less than 5% revenues. .t is a low fee it has got a very low fee that mandates. i think it is good value for their customers, and we have done a great job, so, obviously, moments like this, you are just

again, i have had lots of disappointments in my career, and this is just another one that week to get over. me a sense,ve martin gilbert, about the exact implications of this. i understand this is a blip. i understand you're trying to be positive, but the market is trying to worry about something. the implication is on job cuts. will that be any implication on how you manage your business breaksclusive martin: no, i don't think so. thosetoo early to discuss sort of points. i am positive. i think this business is in very good shape. clearly it is a blip, and i think the issue here is that it is such a large amount of money as opposed to the revenue from it and be profit from it, so what i am doing is i am missing on the revenue from it and the

rather than the headline amount of money that could potentially change hands sometime in the future. headlinertin, the under money management is perhaps what has caused the market to react as it has. block on another of money to top off that revenue, where is that going to come from? the biggestu seeing opportunity for you to replace these kinds of moments where business potentially goes out the door? martin: i think the great thing about this merger is we have huge opportunities globally, especially in the u.s., japan, asia, europe, u.k. so it is a very, very strong business, and we have the products now that we have combined the two operations to compete globally.

good shape, and, you know, as i would say, this mature, brokered business, which was declining, as i am sure you are aware. but, look, i am not going to hide from the fact -- look, i do not like to lose any client at any time, so it is disappointing, but as i say, it is important to keep this in context. it is less than 5% of revenues. francine: what can you tear shareholders today -- tell shareholders today? your stock is down significantly today. when can you guarantee this will not affect the future? martin: as i said earlier, it is not something i want to give an opinion on today, but the is in robust financial health, is how i would describe a 5% drop inknow,

our share price is not hugely significant when you lose a big client. so, you know, we will just have to get on with it. manus: martin, let's just close this off. you have got to get on with it, you have done it before, a very pragmatic field. what does this mean for fees in this business? are they going to have to slice and dice on the fees to win it? martin: yes, fees are going down globally. it is already quite a low fee. whoever, including ourselves, may have to cut the fee to win this sort of size mandate. but it is a very complicated mandate. it is not just one bank account that you can transfer all of anz's money.

so it is a big, complicated mandate, which is why it will , if at least a year to lose it does move to anyone else. francine: martin, is this what you are focused here in the u.s.? martin: you have heard me say many times that more than half the world's assets are in the u.s., and we would like to be bigger in the u.s., whether it is a deal or growing organically. whittling we have the right products now for the u.s., and yes, our aim would be to expand , australia, asia, all of these markets are looking very good for us now. right, thank you so much, martin gilbert, for giving us a little bit of your time this morning. that was the ceo of standard

life aberdeen. and thank you to manus cranny, anchor of "bloomberg daybreak: americas ." hermelin of capgemnini joins us now in paris. business seems to be ok. what you think are the biggest capgeminiap gemini -- in the next 12 months? paul: we have raised our growth. othere committed terminologies that are now fully accounted. quarter withfourth ,ore than 12% growth, so for us we now account for 40%, and we

show that the business is eager. start with a company like capgemini, we have sold mainly to the directors, the cio's. risk, maybeak of protection is, this is something we have been on for a while. francine: back here for the next congratulations, your share price has gained some 5.3%. where would you see the biggest jump? last fivethe years, capgemini has been the margin story. margin asss the best a european player, we told the markets we are now a growth story. we gained market share. we share with the market and

ambition to grow organically 5% to 7%. we now can say we will be there in a year. so that is adding to the free cash generation. we can add 1.2 points of external growth -- one point to two points of external growth. francine: talk to me about hiring. are you hiring more people in france? and your customers, are they more confident going forward than they were 12 months ago? france is about 20% of the group revenue. we are number one in france. we gained market share, we had a growth of 5.4% in france, and we are ahead of the market. 24,000 people out of 200,000. we are growing in france. people in france look more confident.

we have more growth, investments, so i often support that. we have seen growth being the 5% in of investment, europe, in germany, and italy. we are growing by 10% or more. francine: talk to me about consolidation. i asked you about the model in october. are you still expecting consolidation in your industry? what kind of player can capgemini be? is in a strange position. we are part of a group that grows by 24%. we said the group will grow, which means less because of volume reduction, less because of competitiveness. that is the world of automation.

-- i thinkg drive today we have more than 10,000 people that are mobilizing a high solutions. that will be the main driver for growth, and i would take a share of that basis. francine: mr. paul hermelin, thank you so much. please come to our london studio spirit that is the chairman and ceo of capgemini. high inflation of your let's go back to markets and as th asset checks. year on year figure, 2.1% gain work, higher yields 9.1%, higher than expected. this is what investors reacted to. >> january is a month where you often get outside surprises, discounts that we saw in november and december taken out of the market. i would not read too much into one, but there is a pure

acceleration going on. >> this is stronger than accepted -- expected, but we have felt for a while that the core will move to a higher trajectory in the next couple of months. worried about a volatility market, but somewhat higher rates of inflation. >> more conversations around inflation, more inflation expectation dialogue, as far as the real data for my guess, that is not to say it will not come. not talkings you're about inflation shock, a little inflation is good for stocks. it means there is some pricing power. inflation,or more on joining us is the head of strategy at unico. thank you. yields are up. stocks are up. what is going on? uest: first, was an entirely

driven by high yields, or was it the fact that equities have really had a strong run over the past 2, 3 months in think what is going on is the market is inflationary pressure, but not a whole lot. at the same time, there is strong growth and to that extent, this happens to continue to benefit from at least for the next couple of quarters. francine: at least for the moment. found a little bit crazy is we have been telegraphed. it has been said that inflation is coming. speak out at the market? vasileios: as far as the bond is concerned, we needed to take a break from this multiyear range in bond.

having said all that, i think there is an additional element just in the u.s. what we see is inflation getting higher across the globe. when you have this discussion about this collapse, the world is producing all of this money into the system, and all of a sudden, you start seeing inflation picking up in the rest of the world. is beingionship restored, and it is getting in touch globally. francine: do you think we have a correction coming up? a very simple s&p 500. the drop we have had since pretty much last week, it was an upward swing. does it mean that will actually get a further dip? the $1 trillion question. vasileios: [laughs] i think that is definitely a possibility, especially as far as the u.s. is concerned.

the market remains quite stretch from a valuation perspective. in the think we are not environment yet in which we were are going to see a sustained bear market inequities. so, yes, if you ask me, yes, the possibility is clearly there. in i doubt that, at least the next four days, it will be becoming sustainable. francine: what do you do your research on? what is next? are you looking at a credit market? are you looking at underlying market psychology? vasileios: the credit market is very interesting in itself because we see massive spreads. as a matter fact, i think what is potentially the first one that should start flagging a signal when we are approaching their market, particularly at the later stage of the business cycle. the spreads have widened. i think an equally interesting and very important story that is

u.s. assetmpact prices going forward, and it will definitely have an impact. francine: on bonds or the dollar? vasileios: on bonds as well, but high yields does not necessarily mean higher dollar. francine: the deficit -- are you saying it means a weaker dollar? the fed has hike more than three times to make up for financial conditions that are loosened? an argumentell, could be made that the fed was actually a little bit behind the curve in the first place. i think we are approaching the stage now where it is so mature, so old, that the fed is going to be more likely to pull the trigger more aggressively because it knows that we are approaching the next slowdown. reason to tryf and amplify that. francine: what do you do with

credit at the moment? do you buy credit? vasileios: it is trading at multiyear spreads, and at the same time, you cannot really expect it is going to widen. globally, you have the support of global growth. widening, it starts think you're worried about the market. francine: are you worried about the german bund? vasileios: well, not for the next six months to nine months. definitely providing a source of support. i think the pricing has the potential since 2019. what we are seeing right now in the eurozone is very, very sustainable and broadbased growth. terms of the fx

market, you are expecting the dollar weaker. vasileios: oh yes, for sure. francine: how much weaker? vasileios: our forecast is another 5% deflation by the end of next year, potentially for 2019. to 4% i think the market is waking up a bit sooner than i expected. aboutically, if you look it, the dollar has actually fa red quite badly during periods when the u.s. deficits expanded. it is expanding at the wrong stage of the cycle. this is the time the u.s. should be saving money for a rainy guy. you cannot just throw yourself to 5% gdp. i do not think it looks well for the dollar. francine: is the yen still too cheap? vasileios: i think the yen is

still too cheap, and i think the direction is going to move the dollar-yen downwards, especially following -- francine: is there anything they can do? vasileios: there is not really a lot that they can actually do, and they are aware of it, so they are not willing to start talking because they know they will not be able to put their money where their mouth is. , thank youasileios: so much. piacentinith diego coming up next, the svp of amazon international. we are looking at markets. this is bloomberg. ♪

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. francine: markets, economic finance, and politics, this is "bloomberg surveillance." i am francine lacqua in

londonderry let's get to bloomberg first word news with nejra cehic. nejra: jacob zuma has resigned as south african president, ending a 10 marked by scandals. he says he disagrees with the ruling decision, calling his treatment unfair. ramaphosa is expected to be a replacement for zuma in the coming days. mr. zuma: no life should be lost in my name, and also the anc should never be divided in my name. to thetherefore come decision to resign as president of the republic with immediate effect. shares in standard life aberdeen have dropped as much as 9%. under the current agreement, which will now end in the first half of 2019, standard life

aberdeen oversees 109 billion bank. of assets for the ceo martin gilbert says the change will not have a catastrophic event on the business. shares dropping more than six years after the company promised earnings growths. the pain maker were reported reported 20's -- the pain maker reported 2017 earnings. they have a 1.3 billion euros charge against the military transport model can we will to airbus ceo tom enders in his first conversation of the day shortly after 11:00 a.m. u.k. time. president trump say told lawmakers he supports a gas tax to help fund public bridges and other works. he unexpectedly raised the issue several times during a white house meeting with lawmakers. the federal gas tax is not been increased since 1993.

police in florida now say 17 people were killed in a school shooting in southern broward county. state authorities say the expected gunman has been arrested. he is said to be 19 years old and a former student of the school. broward county sheriff scott israel said it was a catastrophic day. president trump has offered federal assistance to the state and his condolences to the victims' families. global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. i am nejra cehic. this is bloomberg. francine: what do you do after after three decades working at one of the hardest companies? the answer, take the skill set to the government. apple,t 13 years at running his own business before joining amazon, spearheading is oversees efforts. that was in 2016 when he was recruited by prime minister lorenzi.

18 months into the project, how successful has it been in modernizing? we would like to welcome the government commissioner for digital agenda for italy, d.l. o.p.s. samiti -- piacentini. ps an in rome, and you have to to do a new operating system. what was the biggest challenge? diego: i have the great advantage of building my own team. the reason why we decided special commissioner is because a special commissioner can hire his own people. tell us what we have done for the recruiting, technology people, smart lawyers, and i created a team of about 20 people now. we are focused on the government.

francine: how many ministries -- what are we talking about? we are talking about the central administration, the local administration, and we are really focusing on site brexit. -- cyber activity. it is not that italy never invested in technology, don't get me wrong, the point is that there has never been an effort on the digital transformation of the government. this is about many, many governments. i mean, the u.k. government's digital service started in 2010. we are starting in 2016, so have a six-year gap to fill. first of all, it is the program, and we issued after six months the three-year digital transformation plan on the government, the administration, and it was signed by the italian

prime minister. francine: is this sending a mouse? if this -- emails? is this the government communicating with people? diego: communication is one piece. it is a set of activities, guidelines, and it goes from the ability, it goes from starting, using interfaces for the department to communicate with citizens, it is about how to build services. it is a set of guidelines. that has also been supported by haveitimate effort, we been working with several departments, including the public function, to work that out. but the big piece here, that beside the program and a law, which is where the government spends most efforts, we start working on programs some of the platforms, digital payments.

francine: you come from amazon, which you see as a fast-paced editing world, your decisions person, to the attacking administration machines like a black hole. diego: first of all, never complained about bureaucracy. francine: fair. administrations who understand the importance of that, the minister of development does a fantastic job, finance ministers, really working and helping us with all the guidelines. just to give you an idea, at the end of december, malan issued milan issuedate -- more certificates online than on paper. francine: at the end of the day,

i imagine this has an impact on gdp because if you are at a starbucks or even amazon doing business in italy, you want things done efficiently. diego: it is obvious. a modern government that meets the life of citizens and corporations easier is obviously a big impact on economic development. it is a very long-term process. i mean, we really started to come in three years ago for something that will take a lot of time, because it is a cultural change, a location change, a change in management. but it is happening. seeingry positive about it in terms of improvement of the services. francine: is there anything you taken from amazon and tried to put it into the italian government? well, it depends on the kind of meeting because in the

things we need to grow in depth, things we need to grow fast. what i brought in his guidance. never stop to design something surface that go into the details. of --e plaintiff concept and applying the concept of management, those things are completely missing in the government. the third thing is -- never stop. i mean, myself and my team, we're always like oh, no, that is not possible. oh, we cannot do that. nobody has ever done the. then you are scratching the surface. then you have a reason for not doing. you?ine: are people behind you hired 30 people. i guess you need to convince the others to go along with your modernizing.

were they all for it, or is there a lot of pushback? diego: there is some pushback, but we have been able to identify the. virtues of the administration's believe it or not, a lot of people in the public administration are really good -- the virtues of the administration. believe it or not come a lot of people in the public at administration are really good. they are carrying. that is what we added. ison't do that," it "do that because." francine: what is the dirt? what is something you could fix that is very simple that nobody thought of before? diego: i would say the biggest one is in terms of growth of digital identity. now there are 2.2 million citizens with a digital identity. it gives the possibility to access the services in the

government with a password given to you in a secure way. it is getting the administration to accept it. that would seem to be, like him a impossible to do, and we actually were able to get come in less than two years, 2.2 million citizens. francine: the two-year mandate runs out. are you back at amazon? diego: six months is a long time. i don't want to think about it. [laughter] piacentini.ego jacob zuma is resigning as south african president. is that the end of a crippling period in the economy? we talk about that next. this is bloomberg. ♪

francine: this is "bloomberg surveillance." good morning. i am francine lacqua in london. south african stocks gained after president jacob zuma resigned. now it is up to anc leader cyril ramaphosa to step into acting president. i spoke to him last month in davos and asked him about his plans. amaphosa: all south africans are united in correcting what has gone up. up, wes is up, labor is are working together, and

various structures of government and community-based organizations, so you cannot do any better. this is like a force. francine: thank you so much for joining us. if you look at the last 48 for thehat does it mean stock exchange in south africa? guest: well, the stock exchange overnded extremely well the leadership of our ruling party. the numbers were viewed come as you may be point in your opening remarks,, nearly 4%. the number is quite a high number, an active day on the markets. but certainly there is a lot of activity. nicky newton-king, do

you believe the stock exchange can go even further? we spoke with ramaphosa. he has a tough road ahead. nicky: he does have a tough road ahead, but he does have a lot of support. south africa is very much concerned with getting the country on a path to growth. that can happen. we need clarity on the leading assets, the leader of the ruling party. those, delivery, each of it includes really bold investor confidence. if you get investor confidence, i think it will be very good for the markets. you have widely

expected mr. ramaphosa to adopt a business friendly policy. what are you most looking forward to? nicky: we are looking forward to very clear decisions taking discipline,l particularly to the extent of government spending. forre looking at leadership enterprises. very clear policies parts ofowth, which our economies we want to and for growth, where we have a competitive advantage, and we think immediately of the finances as an example. what we're looking for is parity so we can move forward. francine: the cabinet seems to be needing a clean out, and the jumpstart.ds a nicky newton-king, how long do you give mr. ramaphosa to do it? timing is important. when you are running a country, you have to set a right tone. i think he has got to

make hard decisions within the six months, but we will start to see the fruits of those decisions after six months. but we have to make those decisions. francine: are you expecting more ipo's, more stock movements because of this political movement? nicky: definitely. what we see through history is when there is a more positive sentiment, that entrepreneurs come to market to raise capital. that is very good for us. last year was one of our best ipo years for a number of years, notwithstanding the environment in which we operate in. but we are certainly a more constructive, business friendly, clear environment. i would encourage further ipo's. i am quite sure that. francine: thank you so much for joining us today, nicky

newton-king, the ceo of the johannesburg stock exchange. have --the silliest you cannot guess -- ionakis of unicredit is still with us. >> there are some concerns that the loading has been achieved. i think we see, you know, some overhaul and some corruption, which might be the easiest step we can take right now, but certainly going forward, around labor markets come around corporate governments, those things really take a lot of time to take hold.

i would say, though, that speaking with a lot of investors, it feels like there is still some skepticism regarding how much exchange rate in the coming years and months, so that is kind of an underweight position in the country's assets that leads through further rallies in south african assets. francine: let me bring you back a little bit later. let's to 2013. you can kind of see the revenue accent, where we are right now, 11.62. vasileios: it is coming out of a very strong rally. there is no question about it. the reason i am saying this is, investorseciate that have some skepticism. it is actually quite healthy for .hem to

the important thing to remember thehe past 5, 6 years, foreign direct investment in south africa, to the extent that managed to be the right investment incentives, and corporate governance to the right course, i think this will invite a lot of flows to south africa. so, you know, it is a bit immature. right now, you have global forces, you have global growth. south africa has seen a meaningful improvement in external balances, and at the same time, you have a political, positive shock. it is manifesting through more

flows into the south african market i am still positive. francine: if there is one thing that cyril ramaphosa can do in the next few months, to boost confidence to get into the market. vasileios: i do not think it is one, single thing. francine: it never is. vasileios: it never is. i think that is fair. as long as he goes along with coherent policy and keeps to the script of reforms and tackling corruption, i think this will be a very positive sentiment. francine: phoenix? phoenix: quickly, there is something you can do that would investorsly boost politics, that would be to engage in a cabinet reshuffle, whether summer brought back to the fold, i think that would be such a tremendous amount of economic and investor confidence, and we would see investor inflows on the back of

that. francine: i do not know if you would call south africa on a stronger footing, but it would attract investors to emerging markets overall, or the volatility that we saw, the treasury yields, do you worry that this will affect emerging markets? phoenix: i think this story over the past several months has been one of to purchase between the emerging market economy versus kind of the aggregate, havelevel rally that we seen in emerging markets over the past two years. it is not a question of south africa pulling a lot of assets is being's, i think it much more differentiated in terms of where to invest. the narratives for emerging markets, it is still south africa, russia. vasileios: i agree with that. i think we went through the in emerginge

arket assets, and there is separation between the good and the bad. having settle that, i have to highlight that although it is ofy mature, this is the rest the world, this is a relatively young stage in the recovery, which means that, especially good ones, they have plenty of room to grow in terms of prices higher. have beenphoenix, i tracking some stock market gains, and a lot have to do with -- i do not know if it is social we anticipate the artificial intelligence and new technologies. what is giving boost to emerging-market stocks? think it is executions of higher earnings, growthbal synchronized recovery, especially out of emerging nations and china.

i think that really underpins global growth as well. francine: ok, what is your favorite country? is there a country that you think investors should go to and one they should stay away from? phoenix: on the fixed income side, it is south africa and russia. vasileios: i fully agree with fixed income as well as the ssi, south africa and russia. -- fix income as well as the asset side, south africa and russia. in general, it has a high visa to the euro, so poland and the czech republic. i would stay away from czech. francine: you are not worried that a fed hike may be more than expected would hurt emerging markets, and the same for some of the eastern europeans if the ecb moves? vasileios: well, ok, as far as the fed is concerned, we are already priced into the hikes

for this year. indeed, let's say that the fed becomes extremely aggressive and goes ahead with four or five rate hike some it will have the possibility -- francine: four or five rate hikes?! vasileios: that is the question, because the market has already moved to hikes. more aggressive, then yes, it will start putting strains on growth, and potentially, you will start seeing real deals shooting higher, and we will start seeing outflows. but right now, given how robust is, it seems like there's not much you can do between what is priced in and where the rest of the world is going. even despite this volatility, emerging market, local currency, still maintain sentiment. i think that tells you a lot. francine: quickly, do you worry about trade wars?

does that impact emerging markets, or are emerging markets trading upon themselves? phoenix: wephoenix: certainly worry less about trade war's this year than when trump first came on. i think as a global factor, it is becoming less of a risk. about learning much more contagion from other risky assets. francine: thank you so much, phoenix kalen, director of emerging market strategy at societe generale, and vasileios gkionakis, unicredit. tom keene is with tom enders in his first interview of the day. this is bloomberg. ♪ retail.

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u.s. inflation reading. high, a spike in the yen, japan' hits a 15 month high and the finance minister says that is not enough to warrant intervention. south africa, president zuma is out. stocks surge. good morning everyone, this is "bloomberg surveillance". i'm francine lacqua, tom keene is in new york. up,ds are up, shares are breaking away from correlation, quite a big move in yen. tom: francine, i love what you said in the opening about strategist struggle. that captures the zeitgeist. not bafflement but what is going on in the correlations of the market. it is amazing to see the vix do that round-trip from 50 down to average. francine: you're right.

we will spend more time on that chart. let's get straight to the bloomberg first world news. reporter: starting in south florida, the highschooler who was arrested for a school shooting, was kicked out of school the previous year. the suspect was armed with a semiautomatic rifle and smoke grenades. he set off a fire along to draw students out of class. he was arrested a mile from the school. africa, ramaphosa will become president today and he is likely to be elected in permanent capacity on friday. who finallying zuma gave in to demands that he resign. his years in office were marred by scandal. president trump has surprised lawmakers by saying he supports a hike in the gasoline tax.

it would help pay for infrastructure, the gas tax has not been raised since 1993. secretary steve mnuchin says the irs will close a loophole that has hedge fund managers using it to find shelter. working around the new rules on carried interest profit. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. tom: thanks so much. a lot has changed in data check since 2 p.m. yesterday afternoon, wall street time. futures continue advancing, dow futures up 259, yield curve i'm not sure where it is, euro advantage and american oil bouncing back higher from $58 to 61. there is the vix under the

long-term average, down to 18 with a massive plunge on the february futures, shut down the -- 3% on the the 10 year. francine: similar data board to yours. global stock rally marching ahead, investors not worrying about treasury yields edging toward a 3%. the dollar falling for a fifth day and again advancing. tom: let me show a bloomberg, a simple chart. the dollar, good math, this is the bloomberg dollar index. put together by our team with michael rosenberg. it is a gorgeous chart. this is beyond elegant, how the index rises stronger dollar, up to the moving average, we are now at support. no other way to do it. this morning we are at a critical point for the mnuchin weak dollar policy.

i say that with respect to the secretary of treasury. this is television. chart.e: a good-looking tom: elegant chart. francine: mine is a very tom keene chart. profound disruption of long-standing correlation. this is a simple chart. i charted the yen against the dollar versus the 10 year treasury yield. it breaks away, a couple of weeks ago, it goes the other way. saying a media, profound disruption, you can see the moves as you look at dollar-yen and the 10 year yields. so much for higher inflation spooking the market. kse rally in global stoc despite cpi hotter than expected. higher than the 1.9% expected, , thank younow, viraj

for joining us. why the correlation not correlated anymore? viraj: the dollar has been trading on new rules. rising yields does not have to mean a stronger dollar. that has been a mentor for 2018 -- a mantra for 2018. this is not new for the dollar-yen, this happened in 2005. we need to ask ourselves, what is going on? weaker dollar, u.s. yields might be telling you something about the state of confidence over the long run u.s. economy. maybe investors are losing confidence here and putting money elsewhere. back to be continuing in 2018. the speed is catching everyone out. francine: what do you think is going on? is there something more sinister

a play? -- at play? we have just had dollar weakness. that is the bigger story. why is the dollar weak? it can't catch a bid. there is strong growth in the rest of the world, decent real interest rates in emerging markets. we are seeing more of a repricing of growth and rate expectations for the likes of europe, then we are for the u.s. that, there is large twin deficits, this will deficit, current account deficit. the fundamentals don't add up that brilliantly for the dollar. , i want to go back to this chart, really good math. the traditional, the dow at the

right corner, simple as you can, we are at support. i love what you say about the new rules. if we break through support, is that predictive of fiscal deficit and twin deficit challenges for america? viraj: spot on. also an added catalyst of u.s. trade policy coming in as well. that is what gets you back to this 90's throwback for dollar-yen. we are expecting a decline in the dollar, if the loss of confidence in u.s. economy comes quicker it will be a catalyst from u.s. trade policy. some noise, if we see action now, that is back to the 90's. that is not a central scenario but that is what markets need to watch out for. tom: a real rate return in the credit space? viraj: we are heading in that

direction. david: we are in a transition to post qe investment regime. last week with volatility, it was a wake-up call, the qe unwind is underway. we will see more episodes of volatility. breakdowns and correlations, across assets, greater asset price dispersion. that is creating opportunities. it will be a bumpier ride then we have seen over recent years for investors. francine: how bumpy? are we back to normal volatility levels or is it hiding under your desk at 8 a.m. kind of ugly? tom: that was yesterday, francine. [applause] francine: was it? were you hiding? tom: i was. david: a dangerous path, today. will it be a massacre that could extend?

tom: very good. david: i don't think so. i think what we will have, let's be honest. a lot of people in the market have not actually invested in a more normal pre-qe regime. in the dollarves or in yields or equities, two plus percent, that is a big move. it did not used to be. it didn't used to be something that was subject to so much attention. we will have to adapt expectations around the level of risk and volatility and how you manage that. francine: viraj, are you expecting more volatility? yesterday weing, said the dollar wrist getting dumped on valentine -- the dollar risked getting dumped on valentine's day. it kind of did. let's focus now in the absence of heart break on the euro

story. which is much more important now. tom: a great segment to get us jump started with real market moves on this day. francine and i are going back and forth, every day is valentine's day at bloomberg surveillance. we will continue with our guests on these market moves. a treat for you in the next hour, howard ward is with us. we will speak about the equity markets, the courage to buy, may be we will even talk about the class of the new york rangers in ice hockey. this is bloomberg. ♪

♪ this is "bloomberg surveillance".

let's get the "bloomberg business flash". reporter: airbus is promising growth this year if they can fix two problems. said, crossing the target would depend on overcoming engine problems for the hot selling neo-jet. at 6:20d to tom enders a.m. new york time on bloomberg tv. whether then of biggest deal in the history of technology going forward. they met yesterday to discuss the billion dollar hostile takeover. the board will meet to discuss next steps. k, a banking group has terminated an arrangement in which the firm oversaw $153 billion of assets.

the move would affect less than 5% of annual revenue. that is your "bloomberg business flash". tom: taylor, thank you very let's look at the bond market. the two year, not the 10 year. the 10 year begins to threaten 3%, 30 year bond, way out duration moves. fed looksat the at, a two year yield with you to acceleration outside of the addictive envelope of a number of months ago. viraj: -- davidis still with us, riley brings experience. david, the bond character now, are the vigilantes telling the economy what to do or are the vigilantes telling the central banks what to do or is that overplayed? david: overplaying it a little.

the bond market is catching up to what the fed has been telling him. what we have seen this year, the bond market prices the fed. both the two-year and the tenure, three hikes is priced bull for this year. an endpoint for the cycle, a roundabout 3%. in the near term, it will be hard for the markets to move much more higher, from where we are at the moment in terms of yields, without getting a signal from the fed. that the fed itself is recalibrating. when jay does speak, powell speech to congress at the end of this month and at the march meeting, it will be critical. tom: the data matters. we got data yesterday, a jump

decision, a sharp reversal in all asset classes with the inflation report. we need more of those reports, to keep the new rules going. how many more data points do you need, where you are a believer in a new high real rate? rates arehink real the key measure to watch for risk assets and that includes credit as well as equity. we've seen the nominal rates being driven by inflation expectation. real rates have been rising slowly until more recently. that is where, the bond market vigilantes are coming back in. they are saying, we need more risk premium, compensation, for inflation risk premium but also term premium. it changes at the fed, inflation picking up, washington is on a spending spree, tax cuts, borrow, we don't care, that where the debt is going.

we are seeing real rates higher. the question is, at what point do you get real rates where it becomes untenable for risk assets given that you still have a lot of debt in the world? interesting, briefly, in terms of yesterday's price action, the rate market, the treasury market took a cue from equities. equity sold off immediate aftermath of that print, whatever, they move tire. -- they moved higher. they said fine, if you are willing to push equities higher, that means you're giving us the go-ahead to push bond yields higher. francine: do you think that is what happened or are they just not talking to each other? david: not talking to each other. stock market was an anomaly. airaj: that is a double when mmy. the fx markets were taking a cue

from the cycle. it is about the duration and extent of this u.s. economic record for the dollar. inflation doesn't give you any signals. it tells you where you are in the cycle. cycle confirmation. that is where the knock on the steps came in, for us, the weak dollar make sense. i weree: tom and remembering an interview in december with the chief economist at deutsche bank. he was saying what everyone is ignoring, the biggest risk to global markets, the repricing in german bonds. is the market ignoring the fact that it could reprice quickly and the move could be more violent than what we saw in treasuries? david: it is a risk, that we get this repricing in bund, and that becomes a global rate shock.

has being said, the market kind of moved a reasonable amount. 40, 50 basisn, points of rate increases by the end of 2019. the market has moved pricing, and of qe in september, rather than an extension, that we would see normalization or policy rates. this is where the dollar comes in as well. ecb will be wary, cautious of the market getting ahead of itself based on the normalization. they don't want an unnecessary timing of financial conditions. they will be worried about the strength of the euro. the ecb will be wanting a stronger dollar and a weaker euro. where marketse are discounting any potential for rate shock, japan. francine: we'll talk about japan next.

[atel and david riley, both stay with us. tom enders, next, look for that interview. we will be talking about dollar dynamics as well. this is bloomberg. ♪

♪ francine: good morning everyone, this is "bloomberg surveillance" , tom and francine from london and new york. away from fashion onto the yen.

extending for a fourth day after finance minister aso says it was not enough to provide intervention. when you look at yen, is a cheap? on a dollar-yen basis. 1/10 to 100, we are on a path toward that, 105 is fair right now for dollar-yen. two reasons. the u.s. trade policy risk and the weaker dollar and also the fact that the japanese story, the local story, no longer makes the yen a go to short in the g10 space. these are big dynamics. that is part of the reason why you see the minister saying, this is more about a short speculative yen story, there is a weak dollar story here and that lowers the bar for which, raises the bar for which the

japanese officials can talk down the yen, if that makes sense. tom: how do you talk down a currency when you have oddities domestictative easing, politics, can they go in either direction? viraj: only if it gets more disorderly. right now it is probably ugly but not disorderly. four fx markets and central for fx markets- and central banks, they will be comfortable on two conditions. the rest of the world is also normalizing policy. that mitigates the effects. if it is just a dollar-yen story, they might have to have the ecb bear the brunt. tom: what about steve mnuchin and the united states if we get a ¥99? viraj: this fits in with the

underlying objectives of the u.s. administration. it will be difficult for them to put the weak dollar back in the bottle. the markets of caught on. this is not new. it was at the start of 2017, when we heard the president say the dollar was too strong. since then, we have seen the dollar on the declining trend. that is the cake. francine: thanks so much, viraj patel of ing and david riley, they stay with us. you can get hold of the latest business week edition, two covers, two regions, first, boeing and the other on trump. ♪

♪ good morning everyone, francine lacqua in london and i'm tom keene in new york. the vix has gone round-trip from the fear of 50 back down below average.

without question, the data point of the morning. howard ward in the next hour. right now, taylor riggs. reporter: the deadliest school shooting in the u.s. in more than five years. alice in south florida say 19-year-old former student opened fire at a high school with a semiautomatic weapon. at least 17 people were killed and more than a dozen others wounded. the suspect, nikolas cruz was a reckitt a mile -- was arrested a mile away from the school. he had been kicked out last year. the epa is collecting half as much in civil penalties from polluters under president trump. according to data being released today, the environmental integrity project found there have been fewer cases resolved and a smaller fines in the trump administration. seeking authorities are documents related to jared kushner's family real estate business. familiar,to persons

investors were subpoenaed in projects managed by the son-in-law of the president's family. the firm is not under investigation for tax issues. president trump plans to meet with mexico's president in the coming weeks. relations between the two countries are strained. thatdent trump insists mexico pays for the wall on the border but has demanded that mexico agreed to changes in nafta. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs, this is bloomberg. francine: thank you so much. onto south africa and what we saw overnight. jacob zuma has officially resigned, ending nine years of a scandal-marred administration. to the already shifted challenges ahead for his

successor, ramaphosa, who has been deputy president since 2014. when i spoke to ramaphosa in davos he was very clear about his plan. what will be his main challenge in the months ahead? reporter: i think his main challenge may come from within. the ruling african national congress has two major factions, that are cut down the middle. we may see some of the people who supported the former president during his tenure, dragging their feet in terms of delivery in government. another big challenge, delivering on the promises of reviving an economy that was growing at its slowest pace since the recession in 2008. he will also have to deliver on the promise to boost investor confidence ahead of the 2019 elections, wherein we may see

votes, and the country falling to a coalition government. tom: does the rule of law change in south africa? i understand the business interest, the elites are worn out. does the rule of law change within the nation? reporter: yes, it seems as though, the lure of change, heralding a new renewal of the country as well as the anc, the country is very excited. the news of former president jacob zuma resigning on wednesday evening. therand rallying against dollar. sincerrency surging ramaphosa was elected. it seems the markets are inspired. they want to make sure, that ramaphosa delivers on his promises.

people looking to see if the unemployment rate will come down under his tenure. francine: it is very clear that, mr. ramaphosa is expected to adopt business from the policies. what will that look like? he has started to clear out corruption in state-owned companies? what more can he do? it seems as though the main key factor will be dealing with those allegations of influence on state owned companies. the treasuryure, sticks within the fiscal adoption. closees will be keeping a eye when the finance minister delivers the country's budget next week on the 21st of february. we have to make sure the government delivers on the fiscal consolation that it has adopted.

to deliver a ratings review on south africa, next month. he will have to toe the line in terms of delivery in government but also making sure that money is not misused. is -- does a strong rand mean for south africa? we can look at imports and exports and all that, what does a strong rand mean for the nation? bring up the chart and you can see the one day, today, back-and-forth of jacob zuma, that arc, what does it mean for the people of south africa on the street? meanser: it essentially confidence is coming back to the country. that investment could be drawn back to a country that is -- that has really been struggling to grow. it is been hit by the worst drought in over 100 years. people have been strained.

the credit rating has been downgraded by rating agencies. there have been economic developments that have weighed on the man on the street himself. it brings forth hope of possibly new job creation, new investor sentiment. that puts pressure on the acting president, he could be the golden child of a new south africa, during this transition, toward the 2019 national elections. however, this could indicate the end of a period where south africans were desponding about the future and bring about a renewal of hope and faith in the government. francine: thank you so much, from bloomberg news. patel and us, viraj david riley. first of all, let's start with around. this is my chart. i will bring it back further.

real-time, 2013. you can see, rand marching. then it went to 17, currently at 11.61. what are markets hoping for from mr. ramaphosa. the rand has been a good performer in the em space. it should already be priced in, you might get consolidation. chop -- 10r, tenure year chop, the potential for dollar-rand to pull back. the domestic political noise will reduce. if you are a believer, rising bond yields, dollar-rand could -- not far off basically. love the south african story.

from a cyclical point of view, a situation where, going through a tough time, inflation starting to drop, current account deficit is narrowing. we've had a long position. we like the local bond market. something like, 2.5% to 3% real yields. that is attractive. we like the notion that we are potentially at an inflection point in terms of regime change. we could get a boost of confidence. is, we would be looking for escom, the state power company, there needs to be significant reform and changes. that is where investors will be looking for signals, that ramaphosa will push the country and not it away from this cyclic long-standing decline. i think we can go to 10.

not in the near term. tom: let us continue. good conversation this morning with markets on the move with mr. riley and mr. patel. don't forget your morning briefing, bloomberg, coast-to-coast. bloomberg daybreak: asia, look for that. stay with us. this is bloomberg. ♪

♪ good morning everyone, francine lacqua in london and i'm tom keene in new york. foreign-exchange today, the litmus paper of the global system feeds into everything we do. patel and david

riley. let's bring up a chart right now, trade weighted sterling. it goes back to the history of 1992. i will call it the major sterling week. here, here we are with recovery. a trade, viraj has rated believe in sterling. basically called the pound at 1.50, against the dollar. anything change? viraj: not at all. one of the things, the patience for that u.k. story to kick in. one thing we learned, the pound's resilience over the past weeks, yesterday through the brexit noise, we are in a different trading environment than 2017. u.k. markets are recovering back to data, all of that suggests

defer spending upside, until clarity on the brexit transition deal. optimistic on that, expect deferred upside, we look to 1. 45. francine: we could get that. or we could get it in months. viraj: that is the point. trading over the next four weeks. we need the clarity, a lot of firms will activate worst-case contingency plans. if we don't get a deal by march 31, the pound will plunge, it depends on how the economy behaves. i want to shift discussion to what we observed yesterday, thanks to our team in london for the important coverage of mr. johnson's speech. what did we learn from boris

johnson yesterday? the treatment of the "new york times." thatine: i love the fact they are talking about london politics. we calculated how much time it took for him to talk about northern ireland or ireland in general. we counted 45 minutes until the first word. you're right, it felt t tertullian but we are wondering what the markets think of it. you presumably listened to it. can the prime minister work with him or does she need to fire him? he is the only one in the cabinet with real star power. david: diminishing star power. i wouldn't describe it as

churchillian. it was another illustration of members of the british government talking to each other and debating about the terms of a transition deal and still yet to resolve, provide clarity in terms of what is the post-brexit vision for britain. to be on the other side, sterling, i've been on the wrong side of that. that doesn't stop me from going back in again and repeating the same mistake. i just don't like the story. i don't like the fundamentals, politics. i think brexit is yet to be resolved. is on fumes,umer running down savings, increasing the amount of debt. i think the bank of england has boxed itself in to a corner. -- it willght rakes height rates in may. that will be probably viewed as a mistake. francine: i have to correct

myself because boris johnson did not mention ireland once in his speech. you are saying, on brexit, who will we get clarity on brexit from? guest: the prime minister. forerday was a risk event, sterling. looking here, clarity coming from the prime minister and also the eu side. this is unprecedented and this is where markets will trade the facts. we have a last-minute solution, is anyone going to be shorting ahead of the leader summit? probably not. you have the small positives. stability, let's wait. tom: i will not give you the glory of a 1.50 pound, if we get there you are a genius. how does governor carney adapt to the dynamics around him when

pound indicates 1.45? viraj: as long as it is a dollar story, not too much of a problem. 3% to 5%inted out, a rise in the pound this year will not do much to the economy in a negative way. you called it the major. we called it the carney. expect that to stay and gently rise, without any negative implications for policy. francine: this is my euro-pound chart. are you buying that? david: against the euro, the short position. strength in sterling, we would be looking to reengage and be on the short side against the euro. francine: thank you both for joining us. ing and david

riley of bluebay asset management, staying with us. if you have any questions about shorts or longs, the good trades or bad trades, or any call on euro-pound, log onto tv and charts.m -- steal tom's we will be right back. this is bloomberg. ♪

♪ francine: -- reporter: this is "bloomberg surveillance", i'm taylor riggs, this is the "bloomberg business flash". warren buffett giving confidence in table up pharmaceuticals -- teva pharmaceuticals. millionose after $300 investment. hedge fund billionaire rate dalia of bridgewater associates has amassed against the biggest companies in europe. they appear to meet requirements for selling stock. a strong economy and rising interest rates. airbus.e companies,

nestle posted full-year sales that rose at the slowest pace in more than two decades. revenue was up 2.4%. the food company was aiming for a increase this year. l'oreal could be setting the stage for divestment. we talk to the ceo. >> we indicated last year that we are interested in portfolio adjustment, most notably with small to midsize companies. we did not rule out larger deals by the sweet spot was going to be smaller and midsize. this is exactly how it played out. we did several transactions in the second half of the year. 2018, we have announced one transaction, of a company in south america. the pattern is the same, trending toward

nutrition-health, wellness strategy. lighter foods, super foods. welook at the same thing, are not ruling out larger, multibillion transactions. reporter: that is your "bloomberg business flash". francine: i love this story. nestle, one of the biggest companies by far in the world, the sheer amount of produces. perrier, espresso coffee. the new ceo has kickstarter the acquisition machine. supplement,health he is also opening the door to more things to buy. when they buy, these are companies that are worth billions of dollars. tom: what i find fascinating on a strategic basis is, 328,000 people have done a .3% per year

for the last 10 years -- 8.3% per year for the last 10 years. way to move the needle on a company that size is to reallocate capital around products. this article on bloomberg could have been written 20 years ago on nestle. they have been doing this for decades. francine: successfully. i have not seen the share price over the last 20 years but you are right. how do you remain relevant? tom: there it is an they do it when money is dirt cheap. david riley and viraj patel, david, the fuel for these companies has been free money. when does that end? david: not any time very soon. interesting, from a credit point moreew, we're going to see m&a activity potentially leveraged buyout's, for the end

of last year, the deal with unilever, that will be one of europe's biggest buyouts. that is providing opportunities. equity markets are up, ceos are optimistic. still pretty cheap at this juncture. that is still a scene that has to run. tom: what is great about this, you know this from your work, if you get a revenue pop, nominal gdp pop, you can move nestle from 3% to 5% revenue growth, that filters down to the income statement like there is no other way to do it. the best way to do it. david: absolutely. inflation is exactly -- tom: exactly. david: let's be careful what we wish for. if that starts accelerating and getting out of hand, frankly, we are a long way from their. we have priced out deflation

risks and we will have moderate to rising inflation. from a credit point of view, not much room for credit to rally significantly. there will be lots of opportunities for stock in the long and short. tom: super. thank you so much. back, when, coming we hit a 1.50, on sterling. howard ward joins us. stay with us. from london and new york, another hour of "bloomberg surveillance". this is bloomberg. ♪

.

♪ tom: this morning, a weak dollar policy has become a week dollar reality with the vix any last 10

days, unchanged. howard ward on the courage to add to the positions. the fiscal affairs of the united states of america do not add up to the math, the vigilantes already have, how far behind the yield curve is jerome powell? president trump's foreign-policy , for into turkey, the panic ofcourse with steven cook the council of foreign relations. this is bloomberg surveillance, live in new york and london, francine lacqua, there is a big part outside of -- heart outside of our building. reminding you and me we missed valentine's day. heart, 22we have our parts in20 to 30 other iconic place -- hearts and

iconic places in london. it is reminding people to love london. a little bit of a signpost with the brexit. tom: across the tapestry of london, did theresa may and boris johnson send valentines to each other? francine: i do not know if they are on speaking terms. [laughter] no big inflatable hearts to each other. tom: every day at bloomberg surveillance is valentine's day. we begin with a sad story. >> and south florida, the 19-year-old arrested for shooting at my high school had been kicked out of the school the previous year. at least 17 people killed and a dozen others wounded here only say the suspect was armed with a smokeutomatic weapon and grenades and set off a fire alarm to draw students out of their classrooms.

he was arrested one mile from the school. africa, the acting president will be appointed today and he will be likely elected in a permanent capacity on friday, he replaces jacob in anho gave an -- resigned. president trump has surprised lawmakers by saying he supports .n increase in the gasoline tax the $.25 per gallon tax what upgrade roads, bridges, and other public works. the gas tax has not been raised since 1993. says the irs will close the loophole that hedge funds manager used to cut their taxes, he says a bloomberg news story said they created shell companies to work around the new rules of carried interest profits. global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. i am taylor riggs. this is bloomberg.

francine: thank you -- tom: thank you. let's at the moment for our guests with a data check, green on the screen, stronger euro and weaker dollar. oil with a rebound off of a 58 handle and the vix is stunning. of 6.57 is one remarkable. 7 is remarkable. francine: global stocks extending the rebound the treasury 10 year towards 3% and the dollar falling. the yen and crude oil advancing. tom: the weak dollar policy, it is simple, down we go and we are at key support on the dollar. the lower right corner, we are there on weak dollar. francine: this is my favorite chart of the day.

it is looking to show the strong cpi sales which snapped the dollar with what we see in treasuries. -- inyen dollar and white white. the 10 year treasury yield, divergence from january 12th or 13th. tom: wonderful to have howard ward with gabelli funds with us. wonderful to have him here for the entire hour. we thought we would start with a blend with his experience with michael mckee, our international economics and policy correspondence. brief us on jay powell and how the last 1.5 weeks changes his march 21. michael: it does not change it, markets go up and down, going back up with no systemic problem the fed has to worry about. that is off the table but what about the economic fundamentals?

we saw inflation rise as predicted. .othing has changed for them no reason for them to change the forecast. how many ratef increases we will see this year. tom: howard ward, the word -- word invoke is regime change. is the world of mario cavalli and howard ward regime change? >> no, business as usual. deskwhat do you do at your in front of the bloomberg terminal? >> not a lot. we have become spectators at the show. it was a show over the last 10 days, the volatility in the market. to a large extent, we have been expecting a downturn because -- we had been expecting a downtrend because a record time without a 5% pullback.

when you did he map on what you should expect in a year-end target for the s&p, best case scenario i would venture to guess would be about 17.5 times the expected earnings for 2019. we were bumping up against the ceiling and the economy was doing better. we were throwing fiscal stimulus and rates went to a four-year high, they begin at the tenure at 240 and we are at 290. the market snapped. that was the catalyst. we have had a correction. it would be rare for a 10% correction to end in one week. maybe it has, i do not know, but rates go higher and as they do, it will become more difficult for stocks to do the same. francine: let me bring you to my chart, i like the way you put things. this is the s&p 500, we brought it back to 2004, the red circle

is a small correction, 5% drop. from june, that, maybe july of 2016, to almost last week, no such correction. in -- and then 10% lower. is it more likely than not we will see further falls? >> is you are looking at the history of corrections, 10% corrections, normally it takes a time of a number of weeks if not months for a market to stabilize and have another advance. i am suspicious that this rebound we have seen in the last couple of days is lasting. particularly given the economic news of yesterday, which throw some doubt about the strength of consumer spending, it throws some doubt about the rate of inflation and its exhilaration, will be fed have to tighten four

times this year instead of three? is the dollar weak abroad because europe is growing relatively faster. will that mean the ecb and the boj will have to throttle back their stimulus faster than expected? and this racing rate environment , i have to be cautious and suspicious that having been down 10% and a quick rebound, only down 5%, i am suspicious of that . in this environment, in this world, and this robotic, artificial intelligence machine driven world, anything is possible and you have to throw out old rules. michael: the three of us are old enough to have been through this before. a lot of people said things will be different on trading floors when we have a rising rate environment and a correction we have not had in so long because the guys trading were kids the last time we went through this.

how did the markets handle it? over the last couple of weeks? >> i think there was a real mechanical element to this decline in the market. somewhat similar to the 1987 crash where it went down 22% in one day. there was that. a lot of the more experienced investors as opposed to speculators did not much of anything. liquidity in the market is not what it used to be. you do not have a lot of market makers ready to commit billions of dollars to facilitate trades. itself is notstem as smooth as it used to be during times of stress. i think the market did ok. plunges, when you're going down 1000 points in the dow, even if it is a person's decline, is not what used to be on 1000 points, that scares

investors and makes you wonder -- can we do this better? tom: this is a question nobody is talking about and you are good at getting in front of this , this is the famous fomc go screen. 21, everybody focus on ,hat, may 2, november, december two weeks after labor day, three weeks after labor day, tuition has been paid and kids are in school, what is jay powell doing when we come around labor day? he is one or two rate increases into the parlor game. michael: how fast the stimulus hit the economy and what impact does it have? probablying bill will hit sooner than tax cuts in terms of how it affects the economy because the government will push a lot of money out over a two-year time. do we start to see it push up inflation and use a more slack in the economy? if that is evident, maybe the forecast changes in the september meeting is one in which they do new forecasts.

they might tell the market that we are thinking about a fourth rate move this year or increasing the number for next year. we will see how people react. tom: it keeps us employed, and a lot of variability into the spring and summer. we will talk to kevin cirilli and a bit about the budget in washington. howard ward will continue with us. i will ask about apple. he has a direct channel to tim cook. michael mckee will begin his day looking at the economics across all of the bloomberg platforms. technology, onn building revenues, this is bloomberg. ♪

♪

>> this is bloomberg surveillance. i am taylor riggs. qualcomm is giving no indication of whether it is close to agreeing to the biggest deal in the history of technology. they met with broadcom executives to discuss the $121 billion hostile takeover. qualcomm says their board will meet to discuss the next step. in the u.k., shares of standard life averaging are falling with lloyds bank group have terminated an arrangement in which the firm oversaw $153 billion of assets. standard life says the move would affect less than 5% of its annual revenue. tom: thank you. there is too much to talk about about washington and how it folds into our financial world. kevin cirilli makes note of an interesting idea at the white house. after the horror of last night, no scheduled events for the

president of the united states. that may be one indication of a white house in turmoil. i will not put it all on the general, he is only one voice, one person in a large staff. how do you have a president, after what we witnessed yesterday, with "no scheduled events?" >> the president is not scheduled to speak publicly today as a result of the tragedy . he has an intelligence briefing, not public, as well as a meeting with you in ambassador, nikki haley -- un ambassador, nikki haley, behind closed doors. americans expect in national tragedy that their president and elected officials serve as consolers in sheets. we have not seen evidence of that from this president. in what has been the 12th shooting, according to one estimate, this year alone.

tom: within the delicate questions from november 8 of last year, what is the influence of his family within the white house? they seem to be important advisors. we saw that in sources, and they seem to have drifted away. is his family part of the presence in the white house, given the horror? >> they are, particularly as criticism against general kelly and the handling of the last two weeks as engulfed inside the beltway. and the dominant storyline inside of the doorway. if generaln is -- kelly survives, has the groundwork been laid to find his successor? is that what we are witnessing, his successor is being quietly appointed? so when the exit strategy for general kelly comes -- gina

powell had a line with general mcmaster, an interesting dynamic because general kelly, with his military background, for her, she is out of the white house and to line with general mcmaster -- tom: interesting. let's move on the tragedy to what we do each day, jason furman, he has appeared on the show many times, in the wall street journal today with an important essay. actual growth over the next 5-10 years that vary from 1.5% to , imagine you're asked to predict the high temperature in boston on christmas and you may say 43 degrees for the average over 10 years, or 40 degrees, the average over the half-century and it could well end up being 20 degrees or 60 degrees. a brilliant distribution of the uncertainty we have. slower growth is less the fault of the president than of his

generation. this is an important essay about the plug-ins of a fiscal certitude. how will the white house handled the very abilities of the tax-cut and burgeoning deficit after it? -- i thinkwhat his that is important because this is the new normal. that policymakers have suggested for quite some time, even during the obama administration. the new normal of economic growth is something that politicians are saying should not be the new normal but policymakers are saying, this is where we are. lawmakersent and his in the republican party has said that 3% growth, 4% growth is what they want to achieve. if they do not get it, that will be a significant hurdle for them to clear. in just a couple of months in the midterms. francine: when you talk about the deficit, his telling the

president this is not a great idea at this time. irrespective of whether you are or bigger or smaller deficits, if you look at the economic cycle, this may be a time you keep ammunition for the downturn. is the president listening? >> several members of the republican party who -- at the member level who are increasingly trying to figure out what goes on with the deficits in terms of the national debt. also, why this fiscal stimulus that is being pushed by the white house in terms of an infrastructure plan, how it will mash with the national deficit. there does not seem to be rhyme or reason, or a opioid -- articulation -- coherent articulation to continue the need for fiscal stimulus. while drumming up the national debt. tom: thank you, our chief washington correspondent, kevin cirilli. look at the fiscal deficit and a potential twin deficit is howard

ward of gabelli funds who has lived the 20th is it good -- quinn deficit. deficit. the deficits as far as the stock market have not really mattered for a few decades. that does not mean they will not at some point. particularly given our burgeoning government debt load and rising interest rates. if you raise the average interest rate on the deficit by one percentage point, you are talking hundreds of billions of dollars of extra interest payments and gets livelier from their. -- uglier from there. it is potentially a concern. tom: we will come back to this. we will talk about apple. johnson withy

disabilities on international aviation, speaking with tom enders of airbus. from london and new york, this is bloomberg. ♪

♪ francine: this is bloomberg surveillance. from london and new york. let's get to airbus flits shares jumping the most in six years after they promised earnings growth of 20% in the current

year. this is despite engine issues slowing production of its top-selling aircraft and a 1.3 billion euro charge against a military transport airplane. let's get to guy johnson who is joined by a special guest. >> i am joined by tom enders, the ceo of airbus. the market has like what it is heard from airbus, stock trading sharply to the upside. the target you have laid out is a contributed factor to that. those targets are contingent on the manufacturers of the engines back to want to your aircraft. delivering. given that you just found out last week about the latest problem with the pratt & whitney turbofans, do you have the visibility to have confidence in the targets? all, thank you for

having me. yes, we have good results and you are right, the guidance we have given the markets in 2018 is dependent on whether the engine partners deliver the requisite engines. that was not different in 2017. we have had more problems with new engines, very efficient, fuel efficient engines. discovered aitch week ago and we are inspecting the implications. this happens early in the year and i am confident we can work through it and recover whatever it needs to be recovered in terms of deliveries throughout the year. >> to you have transparency? when you are working through these problems, with pratt, do

you have confidence that transparency is 100%? think -- i can assure you that we are working very closely together with them, this is not the first problem we are encountering. the other engine is not completely free of problems and challenges. our teams know each other very well and we will quickly assess what it means and what the focus who be to support customers are operating these engines in the marketplace. that is the top priority for us at airbus and pratt. >> when will we have a solution to the problem on the gtf? it feels like we have to take a step back to step forward, when will we have a solution to that

problem? and how easy is it to change the seals on the engine? >> that is not rocket science. the teams -- it is a new problem and they are investigating, i think they found the root cause and the first assessment, a that we cansessment april. deliveries in other's talk about the airplane, a-400m. workalked about beyond the , is that language for no new charges, or for the charges you will get smaller from here? think, in a situation with

a complex program, you never can put your hand in the fire and say this is it once and for all. i am certain that we reached a breakthrough agreement with these six government customers -- this brings us over the help -- hump. i risk exposure going forward with the program will be significantly reduced. >> ok. let's get into the weeds on the numbers and go to the next income -- net income line in the statement. , you talkragraph about the fact that there has been an adjustment on the refundable launch aid for the 380 program for the home nations. give mortgage on what that means. is that a reduction on the interest charges on the refundable on?

on the that play a part deal that has been struck with mr. clark at emirates? i cannot give you much detail. it is what we said, we have to reach an agreement with an agreement -- an agreement beneficial to airbus and the governments and help us. we are payingt interest, levies on this. burden for the company going forward. found agreements that is positive for us, positive for our customers. isjust to be a little pushy, the cost going down?

>> is the cost of what? >> other the cost of those refundable loans -- is the interest charge going down on those loans? i can tell you these refundable loans are very good business, they get the loans back, the levies on top of that. we have discussed in arrangement to benefit the program going forward so that we can reduce fees for the next eight or 10 years. john lee has departed after many years at airbus. how much work needs to be done with the sales team to get it back into gear? do you think that sales team is where you wanted to be just want it to be? -- where you want it to be?

tom: that is an industry record for the year. eric is a very experienced salesman. he really had the road running. well-versedularly because this is where he worked onross and he worked heavily selling our great portfolio and we have found the ideal successor for john lee. >> there are investigations surrounding airbus. is there a morale issue? do you need to do some work there? investigations are

never easy, particularly for sales teams. i do not see any morale problem and the look with a numbers or how engaged our sales teams are on the campaigns. i think eric will be the right man to bolster the morale to lead to new successes. >> it has been well documented over at bridgewater has taken out a significant short on airbus. we have done the math and did appears it is probably down to him taking out a long euro call and that is what he is focusing on here. went through 125 euro-dollar this morning grade what -- how much pain will you feel over the next 12 months? 1.35 onyst talked about

euro-dollar. what would that mean for your numbers? learned a long time ago that i should not speculate about the development of the dollar euro. hedgessured, the average is coming down. the dollar is coming down. for a well prepared dollar range between 1.20 and 1.30. i am not worried about the development of the dollar euro exchange recently. >> thank you very much for your time. as we have indicated, shares trading sharply on the outside so that short will be stinging a little bit. tom enders, ceo of airbus. francine: thank you so much for that interview. earnings growth

of 20% this year, pushing the stock up the most since 2012. let's get you first word news. it is the deadliest school shooting in the u.s. in more than five years. police in south florida say a 19-year-old 14's -- former student opened fire at the school with a semiautomatic weapon. at least 17 were killed and more than a dozen were wounded. the suspect was arrested about a mile away from school. he had been kicked out of the school last year. trump, thedent environmental protection agency is collecting roughly half as much penalties from polluters as it did under his predecessor. that is a going to data being released today. the environmental integrity project's found their been fewer cases resolved and smaller fines in the trump administration. u.s. tax authorities are seeking documents related to jared kushner's family real estate business. according to a person familiar with the matter, authorities

looked into project management's son-in-law's family. a lawyer representing the company says the firm is not under investigation. plans to meetp with mexico's president in the coming weeks. relations between the countries are strained. president trump had insist mexico pay for a wall on the border. he has demanded mexico agree to changes in the north american free trade agreement. news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. the datant to look at first. futures up 13, dow futures up to 36. we are watching currency stronger, dollar weaker. a frack's eastern mediterranean,

the east and north of the middle east. there is no one better to speak to then steven cook. he is a senior fellow. i want to get to your wonderful book. what is the. for the trump -- false dawn for the trump administration in the middle east? >> the top is relationship the u.s. has in the middle east is with the turks. the problem is, the united states is working with syrian kurdish force the turks believe quite rightly is part of a terrorist organization waging war on turkey since the 80's. that syrian kurdish force has been effective in helping the united states to grade and defeat the islamic state in syria. confident in the team at the state department and the military attached to them that it is -- that is advising

the secretary of state? >> we know secretary tillerson likes a lean team. at the same time, there is a lot of expertise of the state department and pentagon on turkey and syria. i can hope that secretary tillerson will smooth out the nkorat andetween a washington. the level of distrust and the implied threat leaders have made against u.s. military forces in the area have made it extremely difficult. thecine: going back to staff killed in the syrian explosion this week, why have we not heard much about it from the russian side? is there concern president putin takes it as a personal front and retaliates? steven: i think the issue is where did those russians come

from? are they part of regular russian forces, are they russian contractors? it is entirely unclear the russians would like to reveal. with all the bravado the russians have had in syria, if you look at the video of the conflict, the brief conflict and wish those russians were killed, it's clear the united states has the better technology and can essentially teach the russians and allied forces a significant lesson in syria. that's what the russians of them quiet about it and i think the united states has kept it quiet, not want to escalate tensions wherere already high there are at least four armies operating. francine: where is iran in all of this? steven: iran after russia is clearly the most influential actor in syria. in american presence

alliance with syrian kurdish fighters -- fighting forces so angered the turks as part of a long-term strategy on the part iranians into -- the middle east. iranians have a plan to build a road through iraq and syria. if that kurdish forces there, it will make them hard to do that. -- make it hard to do that. is the middle east unraveling for the trump administration as they are distracted about what to do? or what to do here or how to tear apart the previous presidents regime and decision-making? isven: the middle east confronting an unprecedented level of instability with four countries failing or failed, unrest in other countries, controversy over moves like the

presidents moved to recognize jerusalem as the capital of israel. i think it's clear that no longer to the leaders in the region really consider the american response when they are about to do something greater so when the saudi's and emma irati's making -- emm don't necessarily consult the u.s. when making these moves. does llies american concerns and interests are secondary to them. i think the trump administration if it wants to be successful is going to need to reestablish an it isan role there where once again a leader, otherwise you have these allies who are so sewiunngling chaos --

chaos. been more thane patient. we will continue with them and find out where we are after a correction. we have a correction. the kurds to be in more -- in the market. this is bloomberg. ♪

♪ this is the bloomberg business flash. warren buffett is given a vote of confidence. share rosen -- the most in two months after buffett's berkshire hathaway disclosed it had invested in one of the worlds biggest generic drug maker. it is working on a turnaround,

it has been hurt on the reason slumping u.s. generic prices. hedge fund billionaire ray dally oh of bridgewater associates has a massive billion-dollar bet against companies in europe. conditions on the continent appeared to meet his requirements for selling stocks. among the companies he is shorting, airbus and vivendi. you said me up so well. joining is now, howard ward who will speak about the shorter is a multinational. of multinational. it's a must a macro that. .ow do those do -- macro bet how do those do against multinationals? howard: generally not that well. i'm not sure i would be doing that.

am i right that it is not a thate that, it is a global -- global bet? howard: these companies have a lot of financial flexibility and a move things around and things are never quite as bad as people fear. francine: when does it get as bad as people fear? think we are a ways away from that. the global economy is doing quite well. that does not mean it will be doing better six months from now , it may be in a slowing phase then. but right now, we've a lot of cylinders firing. i would not be betting against the gold economy now unless you think we will have a spike in interest rates. that is possible. if we went to three and a quarter, three and a half over

the next six months, that would be promote turbulence and stocks would fall out. i don't think that will happen. i don't think the inflation scare will overwhelm us anytime soon. this is not the 70's. are we facing some issues in terms of capacity in industries and with respecter labor? yes -- respect to labor? yes. but we have room to go with this expansion. francine: do you worry about the weak dollar? the weak dollar basically a next her layer of stimulus. stimulust is a form of , so in a sense it is a bit of a tail wind. i would be more concerned about a strong dollar is a headwind and we may be running into that at some point later this year. francine: let's talk about use

-- tom: let's talk about use of cash. cisco will wander back 60 billion from abroad, apple is trading at a multiple of 14 times, maybe forward 17 times. they will generate 65 billion in cash. has use of cash change for any successful company? howard: i think at the margin, the changes in the tax bill will generate some additional capx. a lot of money, whether -- a lot of money will come back to the united states. a lot of that money will be used for dividends and buybacks. some of it will be spent on capv as -- capx as well. apple has committed to building

a new campus. thecine: the idea -- tom: idea is to put the money to work, jobs are created. do your analysts see a renewed interest in investment by business? howard: it is early innings for that. the expectation is that it will be there, but we've not had a lot of evidence of that so far. i think it gets back to we mentioned earlier in the program, we talked about gdp growth and what is doable, we struggled mightily to do 2.5% growth because you have population growing at half a percent, productivity at 1%. if employment rate is down to 4.1, it can't go lower, so we are pushing up against the limits of growth. the tax reset will give us a bit of jews. juice.hat, -- a bit of

ofncine: howard ward their gabelli funds. the incredible conversation with the blackstone group chairman at 8:00 a.m. in new york, 1:00 p.m. in london. this is bloomberg. ♪

♪ want.his is the chart you francine lacqua in london, tom keene in new york. let's look at the fix. -- look at the vix. loan,art for 2008, lehman the single best chart. there it is way back here, ugly, ugly, ugly. here is where we were on a daily basis a few days ago. daily we got out to 50, we come down. howard ward, we back to adjust like that. how does a fundamental guy like you with three-year short-term timeframe use the frenzy of the vix in urinalysis?

-- in your analysis? howard: i don't. these spikes in the vix over where with of time spurts of economic activity prior to downturn. the spurt we had in the last week has been associated with what's perceived in a pretty strong economy and -- with a pretty strong economy. tom: what data do you look at to determine 3% gdp versus a howard ward gdp? what do you look at. is it jobs claims or something different? howard: before the moving average, there has been a per it -- terrific indicator. that has been at a 40 year low or historic low so that suggest the economy is robust and with the unemployment rate at 4.1%, how low can that go?

wage pressures are bubbling up. this is some of the concern people have about what will happen this year with the fed. does the fed have to move faster? francine: what is your biggest concern? is it productivity, if the fed has to move faster or if they are behind the curve? howard: my biggest concern is rising interest rates and let me explain why. i think the earnings outlook for this year is double-digit growth in earnings and perhaps for next year as well. that is the expectation right now. for returns, it is earnings and multiple. the last time we hit the 10 year treasury where was today was 2014 and the forward multiple on the market was 15. now it is 17. as rates go up, and they are trending higher, we had a technical breakout with yields to the upside. have as go up, pe's

tendency to contract. everyone point move down will cost six percentage points of return. when we have a 10.1% correction, we lost almost two full multiple points on the market and that could happen again over the course of this year and that is what i worry about. tom: howard ward, thank you so much. return to just below average. jonathan ferro and myself on bloomberg radio, stay with us worldwide, this is bloomberg. ♪

♪ >> dollar under siege.

higher yield stonethrowing lifeline to the u.s. currency. the yen surges. selloff, bonds continues with the ten-year yields to the highest level since 2014. is 3% a negative catalyst for stock? south african stocks pop, but for how long? david: welcome to "bloomberg daybreak: europe go -- welcome to bloomberg daybreak. up yesterday, look what happened. we see those higher bond yields. 2.5 hours to the cash open in the u.s.. future looking to a positive open by about 13 points. weaker dollar, weaker dollar. 1.24 heading up to some kind of resistance. the selloff in the bond market continues.