francine: cohn versus tariffs. the eu threatens to retaliate. it is the's president -- italy wanted us president faces critical talks. how long until we get a government? will the triple miami of italian elections and speedbump and european growth cause mario draghi to play it safe during thursday's meeting? we speak with the chairman.

good morning, everyone and welcome to bloomberg surveillance. london.ncine in some stocks are gaining some 0.4%. we talk about tariffs in the u.s. and possible retaliation. at the moment it is not impacting european stocks that much. the dollar spot index, it has been stable -- 19 is i believe, the bloomberg index. and we need to compare that with the euro-dollar. crude, pretty much unchanged, 62.4. we speak with the chairman of socgen. later in the program, we will talk the threat of trade war. we are live at the geneva motor show, where we also talk tariffs

and protectionism with the chief executive of aston martin. let's get straight to the bloomberg first word news. nejra: longtime donald trump associate sam nunberg does not plan to cooperate with the summons by robert mueller. but the associated press has since reported that he, in a reversal said he probably would cooperate in the end. he was asked to turn over emails, texts, and other conversations with 10 campaign associates, includg trump, starting in november 20 a man hospitalized is convicted of spying for the u.k. he was granted refuge in britain in 2010 after a spy swap with russia. he and a woman in her 30's were found unconscious on a bench sunday afternoon after

exposure to an unknown substance. doctors and toxicologists are still examining what made them so ill. italy's political future remains hanging in the balance. the president and his team plan to speak to party leaders over the coming days and weeks, urging them to put the tensions of the campaign behind them and seek ways to form a government. questions for the presidency hether theeather anti-migrant leak would be supported and if there is any chance a less democratic party would join the alliance. as ahas said kim jong un firm will to advance relations with south korea. he's been more than four -- he spent four staright hours with moon jai in. that was also attended by kim's wife, mother and north korean officials. prince has urged

kwok ration between his country and the u.k. on fighting terrorism. cooperation between his country and the u.k. on fighting terrorism. no decision on the international part of the aramco ipo will be announced during his trip. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. this is bloomberg. francine: thank you. now, let's kick it off with our top story. the white house economic adviser gary cohn is planning a hault the effort to president's tariffs. there is a high level meeting wednesday between donald trump and those unions, which depend on steel. the block is reviewing

on a host of products. for more on this, we are joined by the chairman of societe generale. isining us for the latest is jim. there is a lot to talk about, but we only have five minutes. to much can mr. cohn do not antagonize the president, but to change the possible trade war path? >> it is tricky because a lot of this depends on the president's mood. how he is feeling. if you recall, his announcement that he was going to announce this trade war came out of the blue for many of his advisers. that it wasg was because he was having a tough week on various fronts. francine: but this is a campaign promise.

>> it was, but he made a lot of campaign promises. you remember with health care, so -- has focusesing he billion about his entire political career, but there was no process, no analysis, no interagency recommendations. was just him deciding, we will just slap these tariffs on. as far as whether he will step back from the brink you know, it is unlikely, but it has been known to happen. francine: here he cohn is basically arranging a meeting in the white house and there are chief executives from the car industry the president shows up and it is understanding what the repercussions of a global trade war would be. james: maybe he would hear from those industries and employers that would be hurt and then opponent will go down, which will -- which is contrary to his policy. but at the same time, he has a

congressional election in southwestern pennsylvania, where there are many steelmakers. it should be a republican lock. there might be a political imperative domestically for him keep pressuring this point in the coming days. francine: first of all, how much can this really hurt if it goes ahead. global trade and therefore, world gdp. and it can you benefit because the chinese being mad at the u.s. would put money in europe instead of america? >> this is just the first step. if the thinking that will go on in the white house maybe needs to come down, we would believe it. if there were really

countermeasures from europe, this would lead to a situation where we would not be in the better position. , we have slowed down. if we enter the way of thinking that, what is the best step in terms of retaliation, i think we will all be worse off, starting with the u.s.. going to be increasing prices for u.s. consumers. they will have to think hard about that. do we know how i president actually measure sus? if the stock mket goes down, is that a way of him stepping down from protectionist measures. he looks the cable news headlines. to think the reporting from the white house is pretty clear that that is his benchmark. flaxen wayne based on

what global news reports about him. francine: i have one of the most read stories on bloomberg terminal, which is a former aide to donald trump gets a subpoena from mr. mueller and he says, no way, i'm just going to ignore it. >> the best thing i read about that, i believe the bloomberg white house reporter tweeted whitehat is the o.j.'s bronco stage, behind mueller. francine: this is the exact quote, quote? says, they want me there on friday. what happens next? >> next, he will back off some of probably. if not, he goes to jail. francine: the markets are very cool about everything at the moment. are they a little too cool foer the u.s.? >> yeah, i believe it is

surprising. everybody expects to get out before everybody else. who knows when the news will come and we need everybody to adjust their portfolios. i think you have got to be very careful when looking at all of .hese events happening if only there was complacency in ket, marut we have been seeing this for weeks and months and nothing happen francine: but is complacency because of algorithms and the market function, or is complacency because we do not know how to add to the ordinary. partly it is the case and is recognizable. we need a series of political and economic values to really

seriouse more adjustments. and this has not happened yet. francine: thank you both for joining us today. next, the future of italy after sunday's indecisive election. then again, the impact this could have on the market and italian tpp.

francine: economics, finance, politics and markets. this is bloomberg surveillance

and i am francine lacqua. nejra: elliott management is building a stake in telecom italia. he is considering nominating directors and pushing for other changes the company. m telecomatives fro ivendi declined to comment. he was finance regulators are working quickly to make material changes to the rule. named volkcker rule, then he banks from trading with their own money. it has been a top target from the trumpet illustration plan to dialback financial regulations to spur economic growth. volkswagen, whose global emissions cheating scandal has put the future of diesel engines in doubt, plans to return and soon.

the interview was held at the geneva auto show. >> now, the situation is different. quality problems in germany have been around for many years. and the communities and politics have not provided technology. technologyplain the for modern diesels. we could market it and make a contribution towards seeing the diesel as part of the solution. u.s. has offered britain a more ope limited open skies aviation deal. according to people familiar, the main stumbling block in the negotiations is washington is using the standard template for aviation agreements, which has less generous terms eu, the deal with the but they will continue to discuss discount for the

transatlantic market, which will remain unimpeded. disillusioned by establishment, a sizable chunk of these voters threw their support behind populist rivals. the five-star movement and league claim they have the right to govern, though neither have a majority. the country and the struggling economy have got to wait for the president to make the next move. he and his team are ready to speak to the party leaders in the coming days and weeks. how concerned should investors be about the italian situation. still with us is lorenzo bini smaghi. i guess the concern is that markets are not concerned at all and yet, we have no visibility on who will be in charge next. noenzo: for sure we have visibility because none of the parties having of votes in the parliament to form a government. is any to dsee if there

form of alliance, or the democratic party supporting s pecial movements. it seems very difficult at this stage that this could happen. don't forget that one option is to go back. to the elections in seix months or one year. is dependentove on the execution of a could happen if there is another election. what is the likelihood of another election? italians mostly have shied away from having to go back to the polls too quickly. >> yes, but this has happened because members of some parties have changed sides and have come to the rescue of some kind of you know, grand coalition. now you would need the whole democratic party. 100 deputies and senators,

moving against what they have been saying over the last few days. you have seen it in germany. things havfe changed, of course. the traditional grand coalition and germany is much longer than in italy. it's a plot to predict. francine: the german economy is not the same as the italian economy. it's not the same. what are your main concerns, that the reform gets pushed aside? >> i would say that in terms of he budget for this year has been adopted and there are a few areas of convern, as the european commission would say. an additionalfor budget, which will not be very popular with the new winners. and that is stable, slightly

coming down. but it is a ready for movement situation. inwth is continuing europe and italy, only at a slower pace. if we took a picture today, we could wait for a few weeks and months. but if you look at the dynamics of a possible slowdown of the world economy, the end of qe and so on and so forth, you need aided.to get populist why did the parties do so well? if you look at the figures, italy was doing better in 2016 than during the last many years. >> yes, but the recovery was lower than in other c countries. busy i believe there was a political factor. the italians wanted to change. every election is either four

more years or time to change, as we see in the u.s.. this time it was time to change and what were the options? the traditional party, middle league.gain, or another condition oft is a economic factors, with the recovery is, but not as strong as in the eurozone. youth unemployment. where do you go when you want to change? well, they said, let's try. 2/3 said, let's try. francine: was it more on economics and immigration? >> i think it was probably 50-50 because 38% chose unemployment. i think that is a major factor. look at the you number, it is not that big. and the economy is not growing

in the social fabric, which is not ready to absorb the inflow. anhink thhis has effect. francine: i want to get back to the european central bank and whether something i this would it change their perception on whether they would come back on the bond purchases. this is the spread between the italian and spanish yields. what does that tell us about the risk perceived in it? >> i think it is important to look at the spread between italy and spain or italy and portugal because you have to get out of the general trend of europe. more recently, we are going to a spread, which is going up. anit signals that tokets may start

again.ous i think as time goes by, the difficulties in forming the government in italy could be uncertainties about the economy. francine: thank you so much, lorenzo bini smaghi. now, let's get another voice on the tariff situation. the chief executive of the european oil giant says president trump's plan to impose the steel and aluminum tea ariffs will only room his day. >> it is tough. , butm showing this access you know, we did not plan for that.

when we announced five years ago we did not plan that. the extra cash, which will come for the company. i do not choose where we finally get it all. this is the way it is. we visit nice countries. have a class action lawyers. perfect -- reporter: we have heard a lot of talk of potential tariffs, 10% , how do you think about that as a ceo of a major international oil company? reporter: i believe it is the government speaking. something that is a political issue, not only in the u.s., but everywhere in the world. in europe, with the elections. , i think there is a problem, but there is globalization.

and it was quite positive for many people around the world. so, i cannot the in favor of putting down rules, because i think we should try to build bridges. but the irony that we are so arrifsate that we put terroris owned by chinese companies, they just put a message into your company's because of some companies that are next. the good news is, the market will grow. and i look at steel. you have been organized from mexico, to canada.

what did he really learn? at the moment, it is just a game to play. francine: talking about a pipeline though, does that worry you? is, will people take it. i am not sure you take more jobs. you do not trade jobs like manufacturing services in the u. s. we create a job because you have your own ideas on youtube. this is just a negative impact on the global market. in the end, the question is, will it create job? , and it is ad tragedy. i believe the other word for the u.s. economy, for the world economy, again, i do not the global company. like total could be in favor of bidding wars. i don't know who all the pcps

are, because we know how to build budgets not the consitution. francine: we were discussing what tariffs would mean for this and the business. of the numbers on the euro-dollar. :p we get his take on the future of monetary policy in europe. we look at reform, and also growth in europe. that discussion is up next. in the meantime, european stocks, following the asian peers higher. and since there is the extension of their event with investors offing the sell as part of the global trade-off. we discuss that next. this is bloomberg. ♪

francine: economics, finance and politics. this is bloomberg surveillance and i am francine lacqua.

reporter: the european union intends to target 2.8 billion euros of u.s. goods, ranging from whiskey to t-shirts. that would be in retaliation of donald trump imposing the tariff on steel. they would discuss the measures at a meeting last night in brussels. isnwhile, gary cohn summoning executives of american companies who depend on aluminum and steel to meet this week with president donald trump in a last halt steept to tariffs. he is organizing a meeting on thursday, which would include automakers, along with the oil industry. and the president of the united field workers international joins us at 7:30 p.m. longtime donald trump associate nunberg does not plan to

cooperate who before the sepecial probe organized by robert mueller. in britain, a man hospitalized in a critically ill condition is a russian, convicted in his own country of spying for the u.k.. according to a person familiar, he was granted refugee in britain during 2010 after a spy swap with russia. he had a movement in her 30's were found unconscious on a afterng bench exposure to an unknown substance. doctors and toxicologists are still examining what made them so ill. italy's financial future remains hanging in the balance. president trump said they planned is becoming party leaders over the coming days and

weeks, putting the tensions of the campaign behind them. questions for the presidency include where the five-star would accept a coalition instead etherst extra backing, wher they are really supported by the anti-migrant made. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i am nejra cehic. this is bloomberg. francine: we are just getting gdp figures out of south africa and it is much better than expected with gdp expanding an annualized 3.1%. the fourth-quarter estimate was 1.8%. so, let me bring you to my rent a chart.

markets have recovered significantly since december, when mariposa took over. we also heard from a johannesburg-based lender, saying the outlook has become more positive and we are seeing a lot more corruption tackling and kind of things that should have been done in the past. this is according to the first trend. you can see that move on a south african rand. that is people appreciating what you've done. let's change and talk about the european central bank. maria draghi just received a cripple any of the evidence justifying possibly playing it safe when he meets his fellow policymakers this week. president trump's plan is to raise the topic of the trade war and the anti-establishment view. might be, there another speed pop in the black. 's argument is officials

must be patient when providing stimulus. let's go back to the central cheeding. at the european central bank, and what it is thinking now, should it wait to start normalizing. order to power ahead. if you wait forever there will be another crisis, another election. is now the time to start normalizing? >> i think the ecb has made announcements and has got to stick with these announcements. anctipatewanted to things, i think ahead to the wrong so far. you do not want the dramatic changes every month. i thinyou have something consistent until the end of the year when it is pretty clear wh will happen. unless something major happens. you don't want to deviate.

francine: what is something major? are tariff's major? >> they're certainly concerning, but they are not major. something major is the exhilaration of the recovery. something that would leave the ecb to think they are behind the curve. i do not think they are behind the curve, so much as the impact of qe is approving these effects. we are bhind in terms of the policty. monetrary not going to be -- francine: ignore the town elections? >> the ecb is the central bank of the eurozone. moon is only italy abd tghe boon

for moviation. francine: this is not the chart i wanted to show you. -dollar, andeuro put the level at 1:20. is this a higher your overt and exports? >> it depends. at the rate at which the exchange rate changes and the level, the euro-dollar's dollar change rate, probably 20 years in the making. we have seen levels but for much more worrying. i think if the fed continues the face of tighteng and the ecv is me or less behind it. a hink we coo could have

interest rate that is sustainable for the eurozone. frankly, i would not want the best person to be at the top job. so, somebody who is credible, right in the decisions and they would be able to address markets and the people in europe with a credible background. he or she would be able to leave the complicated institution, but noke the ecb, ---- francine: we are going into a period of horse tradnig, are we dnot. -- are we not? ao, it is a politica appointmentl.

woh why ever not not.ver it is cool to be able to take decisions that are in the interest of the eurozone as a whole, not just one country. there are many division iii made next year. the european commission, the elections. they've been looking at the italian elections. we can think about the european elections, maybe next year. and another majority is coming up. so someday, it will be interesting. it in the end, this is a very special, volition, i think. the leadership, whatever it takes, you wan to go look at some of the who has the same ability to manage the markets. francine: you were on the

governing council at some of the most turbulent times. during the financial crisis. is it almost as difficult or more difficult now because you do not really know what happens when you start normalizing. again, let's look at the u.s.. orse who were against qe were afraid, are saying, how do i get out of this. in the u.s. got out relatively well. you cannot always control what the markets do. it was good at raising rates. the markets have more or less adjusted. the center break should give targets a clear direction on whether to change the ride,. odd

free turbulence. but are too much exciting. i think we are lucky in europe. we have an example to follow and in the end, it is not so dramatic. account notinto only the ideology, but the markets, and you look at the economy. inflation is still below 2% and figuring me it out. right,hen the time is startek's lending to the market. -- start explaining to the market. francine: are you aware of inflation in the u.s. and also maybe in europe, that it will go up quickly? that is the main concern, 2017 was a waiting scenario, and then in 2018, it picks up faster than central banks thing. the u.s. are closers to the situation. i have never seen one.

and we would see the forecast next thursday. i think we had time for patients, at least, i do not mean complacency. because we have projected, i think i will come over to 2019 for the rates to start going up and then for you to normalize and then there will be something normal way again, as i said, let's look at the u.s., all the fears proved wrong. scenario inmilar the eurozone, i don't know if we have the right people at the head. always fact -- they always

factor a little bit of uncertainty and the political problems are always there. one of the issues that we have got to be taught by the new german government, french government, try to use and next year before the european election tries to strengthen the eurozone. we have our own institutional framework. we still feel the need to compete within the banking area, become an insurance scheme strengthen the civil supervisor. get our similar situation, also good for the cb, because they cannot be there to do the politicians job and the university. francine: lorenzo bini smaghi, thank you. we will be talking specifically about the banking center, next. plenty coming up, including, the warning from the auto industry is president trump tosses a trade war. there live at the geneva motor ow.sh

later on in the program, the focus turns to banking with banking regulars. this is bloomberg.

francine: you are watching bloomberg surveillance and i am francine lacqua in london. the auto industry is warning there will be no more meetings if president trump launches the trade tariffs. now, matt miller is at the geneva motor show and he spoke to the coo, as well as the chief executive of volvo cars. >> that would be of course, a big problem for all of us.

and i mean, it would be really bad. that -- because i hope that the factors do not blow up. we areea was that th we wouldo help and retrain for the jobs in the u.s. anything that is slowing down the flow of business is always something we are very careful about because it is not necessarily very good. let's see what the situation is and go down. matt miller joins us now from geneva. you love cars. but the auto show was overshadowed by the talk of a trade war, i would imagine. tom: you just heard from the ceo's, they do not sell cars in

the u.s. are concerned.s of course it is a bigger problem for some but he like oliver bloom from porsche, with whom i spoke earlier. the u.s. changes its attitude as far as tariffs are concert and is not try to start a big trade war. right ishe gary cohn also trying to convince the president to at least tailor back his ambitions for tariffs. thecine: how quickly are electric carmakers telling you they can ramp up their electric car offerings. matt: that is interesting. here at renault-nissan, they were one of the first here.

their first baby project, really. a lot of the other carmakers seven really slow. how long does this event goes on. and you can tell they are rushing them out, trying to me we arers and events showing some support for the mission-y crossover. of course, they already make hybrids, our hybrid cars. so, especially with the season diesel, you are certain to see more companies, with electric car concepts. the problem now is where the people charge them because infrastructure is not quite there yet in europe. thatine: think you come in miller. i am looking forward to hearing a lot more from matt. i think he is also speaking to the lamborghini ceoo later on. let's go back to render quote. he says u.s. financial greg

litters working quickly to make u.s. changes to the role. the measure was included in the 0 dodd-frank and. it has been the target of the trouble ministration plans to s in loosen regulation for specteecotor growth? do you worry that once again european banks are on the back foot as they deregulate and create these champions, such as jpmorgan. they keep on getting stronger and stronger. if you look than 10 years after, american banks are bigger. and regulation after the initial changes and any movement where we are going back, i'm not sure if they were eliminating all of the worker will will make the u.s. economy grow for more. we just concluded an agreement in basal between the u.s. and

now we anticipate hirules and the first discussion is how to take away certain house rules. drives mew, it crazy. and you know, we want to have a level playing field, especially for the landless plane. that's a good step, to have a plane filled. europe needt, does to consolidate, to create a big, champion to take on jpmorgan> you see european banks getting out of the u.s. right now and u.s. banks getting into the water. this means the competitive situation is not far. we certainly need consolidation in europe. ot

-- it is starting, many within countries. buzz border we need the regulator to make up its mind because they said they will not. to work, which discourages this consolidation. primters reach -- they could come other printers, they also reach to cross-border consolidation. ashley on went we paid left. >> what role do you think societe generale will play. francine: i think we are ready to look at many options. i think we -- >> ideallyeurope ito have cross-border banks to create also the capital market that everybody wod like to see in europe. if you look at the u.s.

experience, the capital market has been the consideration of the banking system, which was able then to originate any disturbance. this midel is europe cannot speak. he does not allow it again. so, you need to sell it on your back and close the international banks. course, we have the brexit problem. in europe, that does not help. suddenly, the train will be taking the european champion. francine: i don't know if there are what, 10? 1: >> i know it would make a headline. but there would be less. i think. and there are many, if you look at germany and italy, they are hundreds of banks.

the consolidation has got to happen first. in france, they are of five large banks and in spain there are four. in each country, there are three or four banks where we need the consolidation first is in germany, italy, and then we look at the closed border murders. i think the banking environment will change drastically within the next two years. and we just need a bit of help have a sure that we system which is resilient and andhis intuition francine: you have a massive short from salt lake to european countries, and a massive short on italian banks. here is he right and wrong in europe, if you look at the factors areem, two changing first. regulation we know now was related. we did not have interest res

graduallgoin down. so, the environment ine urope will look similar to this one. francine: we talked about italian banks. they are still nonperforming loans. treatise government kept thing the banking system has been dealt with. are they right with come or does the political uncertainty risk infecting the banks was again >> i think the time zones. are looking at the macro picture l have a gradualist approach. i think the market has shown addressyou drastically each nonperforming loan, you will then send them out into the universe and the willing to picture and provide the necessary balloon capital. i think it is a little bit of courage to do a clean up, which is accelerated and in the end, y

ou have to give it back. i have done this experience before. it shows. francine: but this comes from the private, or the incentive of the governmentz/ francine: i think it is the shareholders. you have got to realize that first we need you id, on the craigslist. then, we will go back to mark anderson present a plan. think the capital market has shown that i am also not so, weng a scan well turn on capitol hill until bets can be hedged. but this comes with the cleaning up of the balance sheet. and also with restructuring and consolidation. as i said, initially you have hundreds of banks. count, country that we

this consolidation is obligated. it is easy to encourage by the public but, it is inevitab and the same in rmany. francine: thank you, it was fun having yor the hour. that was lorenzo bini smaghi, the chairman of cooo. bloomberg surveillance continues in the next hour and tom keene joins me from new york. we will be talking to the lake executive.f we will be looking at a lot of market moves. it is xi jinping -- it is tariffs, trade, and dollar edging higher. ♪ mom you called?

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francine: trump's economic advisor summons executives to white house. evying tariffs on. faces critical talks before nominating the next prime minister. how long until we get a government? good morning, everyone. this is bloomberg "surveillance". i'm francine lacqua in london. tom keene is in new york. there is a lot to talk about. the fight is on tariffs and trade. you look at european equities, they are -- forgetting some of the concern we had thinking this would be deescalated. tom: really the first quiet day for markets. i only have one screen on my data check. the follow on from italy and

china. the trade is front and center. yesterday afternoon was simply surreal in washington. francine: it certainly was. there is a lot to talk about. here is taylor riggs. >> theuropean union is prepared to strike back if esident imposes tariffs on aluminum and steel. $3.5 billion good would be targeted. he said the tariffs are needed on national security grounds. gary cohn is trying to head off the tariffs. he summoned executives from companies that depend on aluminum and steel to meet with president trump. he said tariffs could hurt the economy. kim jong un spent more than

three hours with south korean officials since taking power. according to north korean official news agency they made what was called a satisfactory agreement but there were no other details. the trump administration is is offering the u.k. a more open sky after brexit than it currently has. according to people familiar with the matter, the u.s. is using its standard template for aviation deals. global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries. tom: thanks so much. equities, currencies, commodities. let's get to it. one screen today. fufes up.

euro advances over the last 48 hours. vix fran seen now, 18.21. in from a 20 level. a little bit of quiet out in the markets. francine: yeah. a little bit of quiet. i wish i had put rand. a little going on in the rapped. much better than expected. g.d.p. figures out of south africa. stocks rising. it seems a lot of the investors are judging the selloff sparked by the global trade as being overdone. dollar and oil tom, steady. treasuries edging a little bit higher. you'll have to rely on my voice. we will get the board up 368 tom: there it is. good morning radio london as ell.

this is an interesting chart. i'm doing this because of paul allen, one of the founders of microsoft. there is the depression. this is a really, really cool log chart. it is the dow jones industrial average from the turn of the century, 1,900 on we go, world boom, he huge 1920's the depression. i call it the guada canal low. it is fabulous and extraordinary that mr. allen and his tm found the u.s.s. lexington at the bottom of e coral city 500 miles off australia. i believe that has been in the last few weeks. it folds out to the great american bull market we have seen coming out of world war ii. francine: that is a good chart. i'm not sure i fully understood it. tom: we'll do it again. francine: this is my chart but

this is a simple chart. we're looking at italian bond yields. you can see actually that spread widening. if you look back at the dip, which you can see there. this is when he said that he may resign and that's kind of when the spread started to widen a little bit. this is what we found out on sunday. first of all, there is no clear winner in the italian elections. no program for growth. if you strip away these troubled election results, there is an economy seeking reform. you see the spread not with germany but with spain edging up a little bit. global trade, white house economic advisor gary cohn is planning a last ditch effort. this morning the european

commission reported retaliatory tariffs. mark, tariffs, trade, not trade, retaliation. gary cohn would escalate it back by bringing a bunch of c.e.o.s and the president together in the white house. >> t-shirts, jeans. it is basically against bruce springsteen, isn't it? i don't think anyone wantses a trade war. i think gary cohn -- goldman sachs said how bad trade wars are for the economy. let's hope cohn can reign it back. t's hope that this doesn't proceed.

francine: what does it mean for the dollar? >> so far we are talking about small items relative to the broader scope. even if we were to impose tariffs and subsidies for the whole entire u.s. trade side, it would still not be the primary driver for the dollar. because the broader, the service balance and the income balance is unaffected. this assumption for economics is that trade restrictions lead to a stronger dollar. the dollar offsetting the dollar strength, the benefit you're trying to give to your domestic producers, in our analysis, if you drill down into the fundamentals and what companies may do with these things and we have a wide platform and are able to ask these questions, you try to see what effect this is.

it is not going to be good for a number of companies and it is not going to affect the dollar in the way people assume it will. now this obviously means that the implications for equities are deep and profound. this impact may matter a lot more for the dollar than the macro economics. at least for the markets horizon. tom: this is really extraordinary. i want you to dive into this. "washington post" publishes been larry summers has quite vocal. currency markets are sending a signal that the united states is not a healthy -- on a healthy path. it is time for the united states to strengthen the

strong fundamentals on which a strong dollar and healthy economy depend. can politicians move the dollar? >> i think that this can move a lot of other assets depending on their decisions. the quote from larry summers, it has deep economic insight. what i have to say is at least when it comes to the term tation of the dollar weakness so far, i think it is a bit of a stretch. i think the dollar is weakening because the dollar is expensive and the rest of the world is starting to grow. it needs to be a broader discussion. it needs to be understood that some of the economic outcomes from trade wars are not what the policy maker intended them to be. tom: within this, mark gilbert, the it is our reality and their problem. how will these other nations

adapt if mr. trump gets a trade war and the political fallout against steel and aluminum. it has a huge effect on these other nations, even the once not in the headlines. >> clearly policy makers at the fed and the e.c.b. and the bank of england and the bank of japan will be watching this quite nervously. we have this global unified expansion, first time since the global financial crisis. that is empowering policy makers t return to some normalizeation. the trade war is goin to inhibit policy makers. that has a lot of implications for currencies and the fund mentals of the economy. tom: much to talk about. we have so many other good guests as well. one of them on the equity markets. this is perfectly timed to speak of the many

transactions, combinations, the spirit that is out there with billions and billions of dollars of cash. stay with us. this is bloomberg. ♪

>> this is bloomberg "surveillance". let's get the bloomberg business flash. ireland's market cap group has rejected a takeover. the cash and stock proposal failed to show growth prospects. activist investor is building a steak in tell come italia according to people familiar with the matter. the alarmest investor is

running it. -- and may nominate france's total may be one of the companies that doesn't care about the oil spills in texas. >> i think this is a -- which is just a matter of wording. you can be very, very efficient. total is the most profitable company. >> total is fafocussed on five key areas. africa, the middle east, deep water development and liquefied natural gas. francine: today's mainstream parties may have underestimated voter sentiment. they threw their support behind rivals during sunday's election. they claim they have the right to govern.

either won a majority. mark has written a very nice piece, i urge everyone to check it out now on the terminal and also on our website. what i liked about it is it goes to the heart of a very difficult relationship between the italians and the euro. for the moment, there is overwhelming support but we were just talking from your piece, the eurozone, the rise of populism threatens to underfine enthusiasm. >> it spurred on enthusiasm that reform will happen, particularly things like the capital market which means to get going and bring the cohesion, especially in a post brexit european union. the vote in italy undermines

th at the margin. you're not going to t italy wanting to leave the euro. but in terms of the macro merkel access, for introducing reforms into the structure to have european union and the eurozone, at the margin, italy's vote must undermine those efforts and that in turn should give pause to anyone who has been buying euros that the project is back. francine: 65 governments in less than 60 years. was italy really ever part of the reformers? was it ever really a strong voice? >> given the italian banking system, actually italy stands to gain a lot from the banking union and banking reform. francine: when you look at euro levels, does it hurt the e.c.b. thinking when it comes to bond purchases? >> no. i think i disagree with the previous assessment. i think definitely it is a missed opportunity for further

reform. definitely you know, the structure over the italian economy is not likely to change tremendously. but one has to look at what is moving the market. one has to look at what is different between now and two years ago. that is that the european economy is growing very strongly. the level is high compared to other economies. it will have a big impact on m.p.o.'s and debt to g.d.p. levels that will boost over time the italian banking system's health and over time bond prices and it will help the euro come back closer to he fair value. tom: that's where i wanted to go. last night they had out the chart, the divide of the parties in italy. it is a stunning image of the division within the nation. what euro gets this done for

the south of italy? i don't buy that it is 120 or 130. what is the value or equivalent lira value that allows italy to get back on track? >> i don't think -- i think the euro is coming pettive. it is competitive for the broader union. that means some european trade may become a little bit more intraeuropean. to your point, the debate in italy at the moment is not the euro. it is not about integration. it has to do with the old generation and the demise of the old establishment against -- to win that vote had to move to the center. that is very important. the movement is to the center. not to the outskirts over the political spectrum. francine: you could argue again what it stands for. move to the center or to the right or to the left and to

the right for what you see. >> the thing we have to remember is the european central bank is still there buying bonds for now. there is a backstop. draghi's commitment seems to be to do whatever it takes to defend the euro. it has been extended by macron's election to the presidency. if you look at the cft everyone c figures, the people buying euros, betting on euro gains, it must undermine that enthusiasm. the margin, the prospect of reform that has been underpinning those euro gains is weaker than it was last week before the italian elections. rancine: thank you both. both will stay with us. coming up, a conversation with

niels christiansen. he is the legos chief executive. we'll also talk about possible video games and where lego goes next. this is bloomberg. ♪

francine: good morning, everyone. bloomberg "surveillance". om and francine. lego, yeerps biggest toy maker. they had a cleanup in vort. -- inventory.

joining us now is their chief ecutive, niels christiansen. talking to us from denmark. thank you. your first decline in revenue. a lot of analysts say you're paying the price for letting the organization grow too big and too complex. how do you plan to are focus? >> i think the first thing i take note of really is that revenue declined but our consumers stayed. the consumer purchases stayed flat over the years. when we talk about cleaning up inventory, in 2016, we built inventory. in 2017 rbles we took it down. that marks the decline in revenue. you can say the consumer level is at the same level. we have a strong foundation. we ended the year pretty strong. we were on the top of children's wish lists in many

of the big markets and we remain there and built some of that position in some of the big markets. we come into 2018 in a good fashion land use that to build the foundation and invest in what it takes to get back on a growth journey. francine: what does that mean in terms of your focus? a couple of years ago, you had frozen legos. that sold well. then you had batman. and then star wars was not as good a seller as you thought it was. are you going to do video games more aggressively or stay with the little bricks but go on to different products? >> we definitely stay with the little brick as you say. that is an amazing brick. the power of that brick is really as high and relevant as it has ever been. of course we'll build things around that. you talked about movies and video games.

we don't only do movies just to sell products. we do them to promote the brand. this is a unique experience into the hands and knowledge of many parents and kids around the globe. we will still be doing a lot of that. we may not have movies every year or we will have different movies. francine: are you happy with the simpification and reduction of the organization so far or do you have to do more? >> i think i'm happy with what we have achieved so far in that sense. think a from here, the simplificaton. it will give more people power closer to the action so we can react faster and get more creativity out of our

innovation department. have an amazing crew of imaginative people and passionate people. i think it is going to be key for our success going forward. tom: the reality is you have to go against giants in america. the toy industry goes back and forth every christmas season. how are you going to compete with has bro and mattel? >> that is nothing new. there are other a lot of other companies. the plan is to win long-term by being more creative and building our play experience and building around the brick and continuing to build this relation between digital and physical. we have a lot of solutions. the lego boost that we launched the second half of 2017. it allows children down to

third grade, building things, guitars that can play. ats thataning or speak and program it. and it will actually help them move ault all the way into secondary school and high school or into university. i think we have some really interesting things around learning and around the brick. tom: over the week, maybe the last two weeks, i read an exceptionally kind review of the lego movie saying it was incredibly smart, etc. you have done a great job of leveraging the brand which means everybody wants to buy you. explain to our global audience how the private company digests the many offers you get from bigger, larger toy manufacturers. >> i wouldn't say that this is a privately held company. it has been here for 85-86 years. it has never been up for sale.

the family here wants to run this company for a long time and really wants to develop it for 50 years ahead. that goes into a lot of the decisions we do. we don't do decisions only for the short-term. we do decisions that promotes the brand. that's also why 18 is going to be the year where we resolidify our foundation and invest so we can get back on ourse going forward. being privately held by an owner and a family. francine: a lot of the talk today on air is about tariffs. do you worry about protectionism? tariffs on your company, on your products would mean what? >> i'm not too worried about that discussion as such in general. in general we believe free trade is a good thing. the terms are not good. i don't think we have that --

if you think about the u.s., we are in the u.s. to promote the brick and our play experience to all the children in america. it is less so for tax reasons or tariff reasons. francine: thank you so much. mr. niels christiansen, the chief executive of lego. let's get straight to the bloomberg first word news. >> the european union is prepared to play an expensive game of tit for tat when it comes to tariffs if president trutch imposes duties on aluminum and steel. ranging from motorcycles to bourbon whiskey. in italy, the president is -- for time in the wake of that inconclusive election. each party claiming the right to lead. they won't nominate anyone to form a government unless they have confidence votes in both houses of parliament.

in china regulators say they will work to relax or remove limits of foreign investment in some sectors. they spoke at the national people's congress. foreign investors in midwestern and northeastern parts of china will get preferential treatment. u.s. regulators plan to make changes in one of wall street's most heated restrakses. the volcker rule is not working well. five regulatory agencies are onboard for a rewrite. it is designed to reduce risk taking. global news 24 hours a day powered by more than 2700 journalists and analysts in more tha120 untrie thiss bloomber francine? tom? tom: thank you so much. it was an extraordinary afternoon yesterday in washington. how many times have i said that? somewhere in the vicinity of

2016. with us to translate is the correct person. he has not only worked off the new york desk but traveled to europe to see the distance of the atlantic ocean and joins us on our london desk this morning. jim, i want to start with the distinguished senior senator from mississippi. ted cochran has been exceptionally fragile. he retires. he and trent lott of mississippi went at each other for years. he was the old line gracious republican. it is with respect to the senator a dying breed, isn't it? >> it sure is, tom. in today's washington it seems like you're only as relevant as your last tweet. you know, old-timers like that, are real dinosaurs. tom: within the news cycle and the tweeting and reason the cial media, how is the

uproar's plural of the last week taken across europe? >> you know, europe has to take it, even though it is a bit of a car crash in the u.s., europe, especially when it comes to tariffs has to take it seriously, as you swee this list of possible tariffs that in fact a little bit of news broke this morning. europe is not sitting around enjoying the show. they are acting and they are going to have to act. tom: our john ferro was really quite heated on "surveillance" yesterday about europe with its own trade issues as well. i mean, u.s., europe, is radically different than u.s.-canada or u.s.-china, isn't it? >> it sure is. in fact, the u.s. has a surplus with canada. you see, there are trade imbalances everywhere. i'm not sure that tariff is going to help.

germany has a massive trade surplus not just with the u.s. but the rest of europe. that has been an issue here for years. it reached a fever pit during the greek crisis. trade imbalances are something out of part and parcel of the global economy. there is always going to be losers and winners. francine: this could turn ugly. gary cohn. chief executives. some will make oil components. he is getting them in a room with the president to try to talk the president out of imposing these tariffs. >> he got -- by wilbur roth and peter navarro. the more i guess america first economic advisors, trade advisors for president trunch. they got in there. hey got him to a place where

they wanted and now gary cohn, if he wins, he has to persuade the president to dial it back, to even retreat and for a guy, who -- for a president who uses the word strong or strongly in every other sentence, that is a hard place for gary cohn to be. francine: could this remove a couple of percentage points on the world growth if it goes badly? >> as it stands now, probably not. it has to impact specific countries which is sizable. if it broadens out, it does. it is important to keep in mind a couple of things. first of all, tariffs by themselves, sometimes they work as taxes to exports actually. unless they are combined with subsidies. you're starting to get in to having so subsidize some sectors on the back of that. you end up taking away from the consumer, more than giving to the producer.

that ends up being a negative economic result from all of that. some of the offsetting mechanism that a lot of this logic relies on, the dollar would have offset that move yuped have a benefit to certain teams and groups without too much -- they are not particularly likely to happen. given that a number of other things including the sentiment for equity has a powerful impact on the broader dollar. it may be true for dollar-canada but not true for the broad dollar. tom: dollar-canada, the focus, we'll get a will the more from canada as well. forget about the math and the microeconomics team. the effects of the discourse in rhetoric must be extraordinary. am i wrong on that? >> i think that people are worried and they are creating all of that extraordinary

shock wave that you're talking about. what keeps things together here is that people understand that we can go from a certain set of sectors, to an all-out trade war globally. you need regulatory and legislative approval and that is a higher hurdle i think. tom: one more question, with your knowledge of france and time in paris. howmr. ck does ron adapt and adjust -- macron adapt and adjust to the first 48 hours of the new italy? >> we were talking about that this morning. in europe, the eurozone, the first impulse is to bring the outliers into the club. that will probably be the first move yousm have some extreme at the euro, politicians, to some extreme, you know, with some extreme rhetoric. i think for example, the greek prime minister who had been a

fire brand, obviously the circumstances were different but they eventually brought him into the club. that will probably be the first impulse, the new italian government. francine: thank you so much. coming up next, a conversation lamborghini's chief executive. we'll talk about tariffs and trade. this is bloomberg. ♪

francine: good morning, everyone. this is bloomberg "surveillance." i'm francine lacqua. tom keene in new york. there is a less glamorous

issue playing on chief executive minds. the global trade war. the next battle ground after steel and aluminum tariffs. tariffs on u.s. steel. we head to geneva now. joining us is stefano do minute cali. when you look at tariffs and possible trade wars, do you worry that your company and industry will be affected by the trump administration? >> good morning. as always, you know, we need to look around the world and the what the situation is presented to us. we do believe our products are strong enough and this is why we -- with our customer. if we are able to provide the right car, they will buy it. this is our attitude. this is something we need to be focused on in that respect.

francine: let's talk about the marks and the i.p.o. it seemed to prove there was quite a lot of value left when it came to fiat. do you believe a lamb genie lamborghini un-- would impact the value for b.m.w.? >> i believe what we are bringing as a value for the groups, the company is growing. growing, the perfect ability. mainly in terms of value for the brand. to take the right action at the appropriate moment. as c.e.o. of this company, i have the duty to make sure that -- it is up to me to make that decision. tom: are you under a pressure, sir, to move more units and in plain english, do you need to go more down market?

>> i would say one of the value of our brand is to make ure we are exclusive enough. it is -- growing every year because the segment is going in the right direction. the introduction of the super s.u.v., we are getting into a newness that was not there before. the tradeoff between the right growth of this dimension and is value has to be managed by ourselves. this is a ell is great responsibility that we need to bring onboard. tom: what have you learned from maserati's efforts in america? that has been an exercise in a brand reyppings. what has lamborghini learned

from mere mortals like maserati? >> i would say we are different brands. the united states of america represents for us the biggest market. more than 32%. we know that market. we have positioned ourselves in a higher niche. the biggest thing we need to make sure we are following is we will get new customers that were not part of lamborghini before. the level of expectation, services. making sure our brand is fulfilling the wish. francine: matt miller on the ground is telling us that your stand at the auto show is twice as big as it was last year. your sale also double actually this year. you produce to sell more. if you are, does it mean you lose a little bit of that the exclusivity? >> no.

the growth of our company is because we are introducing a new model that will enable us to double the dimension because we see the potential needto be very hh. exclusivity is a value. the right growth is the hallenge of lamborghini. our customers see our brand as very -- great moment for this company and for the people and all of women and men that work for lamborghini and also our customers that look to us even more. francine: thanks so much. the chief executive of lamborghini speaking to us from geneva. more on the auto show next hour. we'll be joined by the chief executive of aston martin. log on to tv go and look at the video screen and click underneath the video screen

and ask tom and i questions on your behalf. this is bloomberg. ♪

>> this is bloomberg "surveillance." activist investor paul singer's elliott management is uilding a stake in italia. they are changing way the french conglomerate is running it. elliott has taken a 6% stake. one of mcdonald's biggest operational shakeups in years. they will start using fresh beef for its quarter pounders in the u.s. instead of frozen. they are looking for ways to entice customers and fend off the competition. the chain's sales have been rising the last three years. on musk's spacex is is launching from cape canaveral in florida. they launched a satellite into or bit. they are claiming 30 missions this year up frr for 18 in

2017. that is your bloomberg business flash. francine, tom. tom: thanks. it was wonderful to cover spacex. there will be many more missions to say the least. right now the mission of prime minister may is to keep her eye on sterling. trade-weighted sterling and it is a remarkable -- i can't get over the way we're back. the great trump, bring up the chart as well. he success of stability in moderate sterling strength as well. what more needs to be done with trade-weighted sterling to say all clear for prime minister may? > i think prime minister may may need to help clear those risks for stirling. you look at it against the

euro. the euro-sterling has been completely flat for the past year and has shaken off even the expectations of more -- by the bank of england. the main thing that is keeping its there, investors are waiting to see whether there will be a transition deal and what it means for services. that has taken longer than investors would have expected so far. tom: a lot of people got this call wrong many, many months ago. they were looking at the olitics maybe instead of the dynamics. my recollection is you and others at u.b.s. nailed strong or at least stable sterling. what has the u.b.s. called out into 2019? >> the main elements has been the decline in the dollar and the rise of the euro and the tidal wave this means for the pound. the euro going to 125 and carrying dollar-sterling as

well. going forward, i think when you look at sterling against the euro, the problem here is that until the point that we have some kind of -- the future of the relationships, the downside risk to sterling, not from politics, but some kind of disruption from the economic flows in the current accounts are big. the benefits of normalizeation at least in the short-term relative to pricing. that is keeping investors on their toes. there is a prospect of a normality coming on and that is important. if for whatever reason the agreement does not come, the pound from the current account can be large. francine: do we need to bottle the possibility of fresh elections in this country and if so, do you need to model jeremy corbyn as prime minister and what does that do to injuryo-dollar? >> the pound? francine: euro-pound.

>> euro-sterling. it is a very long time from that. there are many, many different underlying components to yore question. -- your question. i think that any kind of solution that for now reduces the uncertainty with respect to sudden disruption in the current account flows from some kind of brexit fallout, i think would be something that the would have big tail risks for the pound and that carries some limited impact. francine: what's your favorite currency currently? >> against pound? >> francine: against anything. where do you make money in 2018? >> i think our toll call has been currencies such as new zealand. peripheral european currencies outperforming the dollar and the canadian dollar weakening against the dollar. something along those lines,

having some growth. some exposure to the euro against the dollar. swiss franc and canada. tom: as we get ready for the next hour, i want to bring it back to yeah, tariffs and all of that but really this massive discussion on dollar-post and dollar-canada. what is u.b.s.'s summary of the dynamics of that tripod of currencies? >> that's tricky a bit. we have argued for the broad dollar, all of this talk on trade is not particularly the big driver for this particular currencies, you have economies that have sizable exposure. in these place, particularly canadian dollar is expensive. any kind of downsize, has a bigger impact than good news. tom: on dollar-canada, are you

looking for week looney, stronger u.s. dollar? >> yes. that has been among our less consensus kind of -- trades. mostly as a hedge to this situation. francine: we kind of touched on it before. but i didn't ask you straight if a trade war also means a currency war. do the two go hand in hand? >> that is a very complicated question. in trade wars, what i'm saying is historically people have used whatever weapon they have and works best. in some cases, it may be the currency. in the past, in japan, for instance, where restrictions in quantities were used, the opposite effect of what the u.s. regulator was intending. people will use their competitive edge to try to

deflect. tom: thank you so much. greatly appreciate that. our guest from u.b.s. i think we have to look at this. this is clear and unusual punishment by francine lacqua. come on, francine. we do a lego interview and you do this damage to me? francine: it is good, isn't it? the only thing as someone pointed on twitter, it doesn't turn. tom: thank you so much. next hour on the equity markets, on spirit of transactions and combinations, charles kanter. stay with us. this is bloomberg. ♪ ♪

tom: it continues, the varied

reaction and response to an american trade war. old party sayrand no and the president, just say yes. the president from -- senator from mississippi will retire. special counsel bob mueller -- mueller is tired after an exhausting monday afternoon. this great bull market and the billions and billions and billions of dollars looking for persistent a growing cash flow. we consider transactions and combinations. good morning, everyone, this is "bloomberg surveillance." we are live from new york. i am tom keene. in london back from italy, francine lacqua. what was the major take away from the chaos in italy? francine: a lot of the establishment groups, parties did not do as well as expected. for the moment, the italians have not voted for more reform. there is no real euro skepticism

, but we have to ask how long it will take to form a government. it could take months and what does it mean in the meantime for the economy of italy? tom: i agree with that after what we saw in germany. you wonder on the months to get -- some kind of stability in italy. here is taylor riggs. taylor: the european union is preparing to strike back as president trump imposes tariffs on alumina -- aluminum and steel. goods would of u.s. be targeted from t-shirts and whiskey to order cycles and ladders. white house economic adviser gary cohn is trying to head off the tariffs. he summoned and correct -- he summoned executives that -- from companies that depend on aluminum and steel to meet with the president. he said tariffs could hurt the

economy. kim jong-un spent more than four hours in his first meeting with south koreanfficials since taking power. according to north korea's official news agency, the countries made a satisfactory agreement, but there were no other details. the trump administration is offering the u.k. a more limited open skies aviation deal after brexit. both sides are confident the transatlantic market will continue unimpeded. according to people familiar with the matter, the u.s. is using a standard template for aviation deals and that is a less generous one in the current agreement with the e.u. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs, this is bloomberg. tom: data here real quick. i just did one data board, that

is how stable the markets are. calmer, 18.12, a better, market over the last 24 hours. francine: i think that is exactly what the markets are pointing to. european stocks are following higher and that is extending the rebound we saw in risk assets with investors judging the selloffs sparked by trade fears. treasuries edging higher and gold gains. tom: in the last 24 hours we have seen extraordinary images of the uss lexington from world war ii sunk 500 miles off australia in 1943. i bring this up because when i have talked in speeches, i have --ays talked about it wer cal lows, a depression and recovery -- and right here is 1942, 1943 as well, which shows

the immense volatility we saw into world war ii. really amazing what paul allen has done in finding the lexington. we bring in charles kantor to talk about the new volatility. thank goodness it's not a war we are dealing with. 6 weeks ago, it felt like one. what did you do as the vix went to 50? were you like the old guys getting the buy tickets out of the best? charles: i think we did almost nothing. underlying cash flow hasn't changed. we entered the year with a reasonably optimistic view on risk assets driven by business and consumer confidence and lower corporate taxes. i think it was a reminder that the volatility we experienced over the last five or six years is unusually low and

conditioning our clients to the idea that that was more cyclical versus secular has been a challenge. downs of 10%s draw usually happen a couple of times a year and we have gone almost 400 days without a 5% correction. volatility is a reminder that in equities, it is not always straight up to the right. tom: within this for the lower is yourupper right research notes, which are always interesting to read and there is a jewel where you talk about box checking investment style. i love that phrase. how many people are out there just checking boxes right now in active management? charles: i would hope not a lot in active management. we see that pervasively in passive management where the exercise is predominately box checking.

the passive guys do not have valuation frameworks. i like to think of them as being on the battle for free and driving it from the back. i think our role as active, engaged managers with judgments around business, we have to be the governor -- governance -- agency for the market. as a percentage of stocks increase, who provides the corporate governance watchdog? francine: let me just jump in here because i think we have a significant piece of news to bring to viewers and listeners. this is according to a south korea official. north korea is said to be open regimeclearize if it's safety is guaranteed. let's put this into context. this is after kim jong-un spent more than 4 hours with the south korean president in special envoys late yesterday and this was his first meeting with

officials from the south of the border since he took power in the late 2011. if we focus on this piece of news, what does this mean for the markets? there wasn't really a kind of tail risk of something escalating in the korean peninsula, but should this give a lot more comfort to the -- at thist nothing point, should go worse than it is now? charles: i think markets always worry about tail risk and uncertainty and to the degree that we have a more cooperative regime environment between south and north korea and the rest of the world, that is a healthy outcome. on balance, it should lower equity risk premiums and provide equity with better risk-adjusted returns, if it is true. understand, again, you are absolutely right. if is from south korea, but we are seeing move in 10 year treasury. i don't know if we have that chart -- tom: i will work on it,

francine. francine: what does it mean for central bank? what does it mean for fed policy thinking? charles: if the move is real, it is likely an indication of better global growth and that has been the story this year. you have better real economic growth from the u.s. and the rest of the world and more stability in that part of the region, more stability with china and the u.s. -- and the north etc. is good for global growth and good for rnings and risk assets. tom: today chart of the 10 year yield with a break right there, up we go yesterday. ,tability, you can see francine this nice move up to a higher yield, 2.89% and this important headline out of the south and i would suggest north korea as well. how do you handle washington? yesterdaytnessed afternoon, i am sure all of you at neuberger berman were glued to your bloomberg terminals

watching the news flow. you cannot make this up, is one part of it and two, i cannot do what i do for my clients -- yet you have to take it in. how do you do that? charles: i think you have to have a framework for handling headline news and you have to distinguish between fact and fiction. the devil is always in the details and you can only judge the details when you have the rules of the game. we do not have that yet. i think the market in general has handled the noise out of washington in a very productive way over time. it took some adjustment, but i think now we have handled it reasonably well. frameworkot to have a and our framework as it relates to the president is threefold. we believe he loves america. we believe he loves business and we believe he loves a deal. across those things, we think about the news flow.

tom: charles kantor gets us to where we are headed next, the festivities in washington over the last 24 hours. coming up, it's the auto show -- if i can bring out my fractured french,ut an important executive with wonderful brand, aston martin. andy palmer will discuss my inner james bond. stay with us from new york, from london, from geneva, this is bloomberg. ♪

♪ bloomberg.com -- ♪ francine: this is "bloomberg surveillance." we had that big piece of news from south korea saying that after four hours of talks with

the north, they may be closer to some kind of deal. north korea should be open to frank talks with the u.s. on denuclearization as long as its regime is safe. peter is joining us on the phone. this feels like a very big deal. how credible is this? peter: very credible and a very big milestone, big step. obviously we have to take a copy that this is from the -- caveat that this is from the south korean envoy that just returned from north korea. this is them saying north korea if theiro denuclearize safety is guaranteed. they are also open to talking to the u.s. about denuclearization. they will not do anything until the next -- is held in april. pretty significant events. indeed, for this is

real, who takes credit. is it south korea or the trump administration? peter: that is a good one because i think clearly trump administration will take the credit because they will argue because of their hard-line stance on north korea, particularly because of the maximum pressure with increased sanctions, north korea responded this way. jae-inother hand, moon could also pipe in and say he takes credit for it because he is the one who called for talks to bringing peace to the region. we will see in the next day or two. tom: about a year ago, there was an image which i think shocked a lot of people, which is south korean soldiers at the dmz holding hands so they would not be yanked into north korea within transactions that were occurring at the dmz. how do we get trust back so

people are not holding hands in safety at the dmz? peter: again, just having people back on the table talking to each other, i presume the next step would be to reopen the industrial park where they did have joined north korea, south korea operations. there would be a number of steps that would be taken, i am presuming, to restore that relationship. we have to remember, though, north korea is still under significant sanctions partly -- in large part for human rights violations. there are still clearly critics who feel that north korea still needs to do a lot to restore relations. needdoes south korea secretary tillerson and the united states to assist or are we the proverbial chef in the kitchen? peter: i definitely do think --

and i think moon jae-in has said so, they need the u.s. at the talks, at the table. very critical. south korea, u.s. relations has been sort of the academy of the epitomes -- academy -- of the relations here. exclude thehard to u.s. francine: what is the next step in this? more: again, there will be talks. they have already agreed to another summit in april. the main critical part will obviously be if and when north korea sits down with the u.s. and actually talks through the details of the nuclear risin north korea. it is not clear to me at this point whether there are conditions for it.

for instance, whether they will ask that the u.s.-south korea joint drills be suspended. the south korean envoy seems to indicate that is not a condition, which is a good sign. korean --s of a north u.s. talk is good. francine: what are the red lines? if you are the u.s., what are the red lines? if you are south korea, what are the red lines? peter: for the u.s., it's clearly north korea needs to practice -- start dismantling its nuclear program. that is a no-brainer. that has been trump's line all along. to it.itions attached on the other hand, north korea need to south and u.s. stop their military drills in which north korea -- which north korea views as a preemptive

strike. it sounds like there has been some agreement on both of those positions. if that is the case, we could see some kind of a peace agreement. tom: thank you so much, we greatly appreciate this important and breaking news out of the two koreas. joining us out of washington with the extraordinary events of yesterday -- we must rip up the script with kevin cirilli. with good humor and it's always something any administration will celebrate, how large a victory lap will president trump take on this announcement? kevin: i think he will take a pretty big one. he has greeted the developments with skepticism, but he has said he is willing to communicate with north korea on these issues. everyone in the national and national security world in the intelligence community tell me

that talk is good, but with skepticism. the you were involved in story yesterday afternoon. explain bloomberg's involvement and explain your observations up and through the erin burnett interview on cnn. kevin: remarkable. sam numbered is a former trump i called him and yesterday and said what is going on with the mueller investigation? he is one of the folks that was investigated by committees on -- in congress and he told me he was not going to cooperate and on actually going to call our network and say that. he gets off the phone with me and we publish his remarks and he talks to the washington post to say i am going on bloomberg to say am not going to do this and that he continued to make

the rounds that we all saw unfold. it was remarkable, he ended the night in an interview with the associated press saying he ultimately would cooperate. i spoke with two sources close last evening who tell me they are concerned about him. tom: kevin, if i could, one final question, within all of these dynamics and the trade wars, the president pulling back from the certitude of tariffs as he sees speaker ryan and other gop members really push against what we saw a few days ago? kevin: i think there could be a cardtial call -- policy out. i really not sure that the president would fully back down. this is something he campaigned on and there is a policy within the administration -- policy weighing within the administration -- policy wing

within the administration that supports this. tom: congratulations on your reporting last night. i look forward to further reports. charles kantor is with us. futures advancing. if i look at the bloomberg, futures up 11, dow futures up 130. clearly the market reacting in a gentle fashion. here is a morning must read which comes with the complexities of which mr. kantor has to work with management of money. u.s. assets have to be put on sale at bargain prices to persuade foreigners to hold them. not to diversify into overseas assets. currency markets are sending a signal that the united states is not on a healthy path, it's time for the united states to strengthen the strong fundamentals on which a strong

dollar and healthy economy depend. i believe mr. rubin could have written that as well. fold in dollar dynamics and confidence into your optimism on the american investment model. charles: confidence is key. within confidence comes the ability for companies to reinvest into their business to make a really attractive rates of return. confidence within the consuming encourages them to choose after-tax income to improve their quality of life. nothing begets confidence like uncertainty -- certainty around the rules of the game and lower corporate taxes are a big deal for the consumer and businesses, driving higher after tax returns for businesses and providing consumers with more after-tax income. tom: are we going to see a record year of transactions and combinations? i come at that with the -- from the wall of money trying to find

a warm spot. charles: when we engage with investment banks on the street and regular analyst meetings, they suggest the pipeline for deal activity is large. they are in the businesof suggting pipines robust, but i think they are exceptionally robust right now. business owners, boards of directors finally have the confidence to think about how to invest for the future, to transition from innovative senators -- productivity managers to innovators and investors and confidence shows up in deal activity, pipelines suggesting confidence is high and businesses have to think about where they are going to be three to five years from now. it is -- francine: what does it mean for wage growth? does that investment include a little more wage growth and does

that help the fed with its mandate? charles: there is no doubt labor markets in the u.s. are very tight. not only is labor getting more after-tax income because of lower taxes, they are getting more income because of modest increases in wages. it is reflective of a tight labor market. when you speak to ceos, they are short of skilled labor as well. there is a dramatic shortage around that. it's reflective of the healthy economy. as it relates to the fed, we would argue in this environment, the consumer is a tremendous beneficiary because i think businesses themselves are going to think about how to deploy the comeus profits that have from lower corporate taxes and one of the ways they are going protect andis to grow their market share. for the consumer, that will show up in lower prices and possibly help the fed as they think about

monetary policy. you look -- this would be a positive for the u.s. economy? how much does it help for gdp and if you look at tariffs and trade concerns, how much is that a negative on gdp and is it actually net net neutral? charles: it's impossible for me to tell you if it is net net neutral. in the u.s. we have a economyusly strong driven by confidence in business and consumer which will drive investment in technology and fixed investment. i think the strength of the and globallye u.s. is underappreciated. everything as it relates to the i.s. m -- u.s. and globally are to the right right now. tariffs themselves provide fly in the ointment, so to speak, but we do not have the details yet and anything that disrupts

supply and demand and price has to be taken seriously. are goingquickly, we to run out of time, but it is an important question. the use of just you can finally model internal rates of return higher? we can actually lift up irr? charles: they went up in the short-term a lot because corporate taxes went down. dickey question is what -- the lookuestion is what irr's like a year from now. i don't think in a competitive market everyone will be allowed to keep a step up in irr. tom: we will come back and rip up the script and do this with charles kantor. stay with us. from london, from new york, this is bloomberg. ♪

♪ tom: good morning, everyone, "bloomberg surveillance." extraordinary and historic

headlines out of korea. this is really something that can come back to the early 1950's. korea will speak, both koreas, north korea and south korea suggesting they move to a summit in april and a number of other headnes talking about a word we haven't seen before, north ifea open to denuclearize the safety guaranteed and finally, maybe a little bit of peace and goodwill. south korea clearly celebrating and according to our peter pae we just spoke to in our seoul news bureau. there is the immediate news on korea this morning. with your first word news, our taylor riggs. taylor: the european union is prepared to pay an expensive game of tit for tat when it comes to tariffs. the e.u. will slap tariffs on

three and a half billion dollars of u.s. products from motorcycles to bourbon whiskey. that is according to a list obtained by bloomberg news. in italy, the president is playing for time in the wake of the inconclusive election. --ers elected a hung karmiel hung parliament. according to a senior state official -- will not nominate anyone to form a government unless they have the support to win a confidence vote. in china, regulators say they will work to relax limits on foreign investment in some sectors. the vice president of the economic planning body spoke at the national people's congress and said thorne investors will get -- foreign investors will get preferential treatment. u.s. regulators plan to make changes in one of wall street's most hated restrictions. is an example of a complex

regulation not working well and he says five regulatory agencies are on board fray rewrite. the rule is designed to reduce risk taking by banning bakes trading with their own money. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs, this is bloomberg. tom: thank you so much. charles kantor with us. -- wallace.to he is really someone to speak to with his work out of taxes and the johns hopkins university and far more importantly, kim wallace worng for treasury for president obama as well. wonderful to have you with us today. how broken is washington? this morning there is 4, 5, 6 story and tomorrow there will be another three to add to it? how broken is inside the beltway? kim: it is probably as

dysfunctional as it has been in the last decade. probably due to a government that is on its training wheels and not communicating well given the turmoil in the white house. there is a lot wrong right now. tom: what is the state of the institutions? i think we had an understanding in the bush administration how the white house ran things, yet there was a dialogue with selected institutions. is there any dialogue going on with 1600 pennsylvania avenue? i would worry more about the economic institutions in washington which don't seem to have a lot of feedback into the white house right now. tom: when do we get careful analysis of tax cut affects -- charles kantor was mentioning this earlier, the benefit to corporations. when do we get appropriate and good analysis of tax cuts and overlaid on that, the new budget realities? kim: i think charles is right.

for the first two or three quarters of this year, you will have a strong tailwind. the first glimpse of the downside of what happened will be the april estimate of the budget. it usually comes at the end of january and has been delayed until early april. it will probably be another wide -- another year before you see the baseline changing before people begin to worry about debt in a serious way. tom: good morning to you from --francine: good morning to you from london. do you worry these tariffs -- that you have punitive -- kim: i do not worry about it in this context. -- one of the reasons the white house is going to reconsider what it announced. another reason are the meetings scheduled today with u.s. ceos, the feedback on the proposal has been negative around the board, really, the only people who

benefit are some steel companies and aluminum smelters. tom: we are -- francine: we are hearing gary cohn putting chief executives together with president is he is -- with the president. is he the right person? talented, whether or not his standing in the white house is weaker than it was, is irrelevant given that you have a strong pushback from speaker ryan and almost everyone else in washington, d.c. it it's the message must let -- much less than the mechanism. tom: charles kantor with is a neuberger berman and we are speaking with kim wallace. let me show the chart, the reaction off the korea headlines. the 10 year yield nudging out, nudging is a technical word, charles. nudging to a higher yield with futures up 15, dow futures up

173. i will not call it a surge, but a constructive positive up on the headlines. let me bring up an incredibly important and historical bloomberg essay by noah feldman, the professor from harvard. he goes back to 1812 when charles kantor was interning on the street. madison, our fourth president tried all kinds ofanctions to open markets, but ended up in the war of 1812. trade wars do not always work in practice a way they are supposed to work in theory. the invasion of canada -- not now, folks, this is 1812, was repeatedly repelled and the u.s. was lucky to get out with a draw. that is worth remembering as trump commences alienating u.s. allies over trade, including the ally immediately to the north. this is a beautiful essay on expect the unexpected, isn't it? kim: it is and he is elegant in his words.

you cannot expect to grow and prosper from trade and then act unilaterally and expect prosperity and growth to remain in tact. it is illogical. tom: how do you react with long-term institutional capital? charles: i think you have got to recognize that america is trying to become more competitive on the global stage and economics a about being competitive and corporate tax rate was in comparative and the reduction you saw in that was to get us closer to the rest of the world and this matters because we live in an increasingly interconnected global marketplace. tom: we are interconnected with canada. charles: interconnected with the whole world because our companies have found ways to take products to the global stage and foreign companies have found a way to take their products to our stage. free trade in and of its self without any interference with

any government would be, of course, the most desirable outcome. we do not live in that utopia, so things that disrupt the playing field, cause uncertainty, cause uncertainties and disrupt national -- natural supply and demand and overtime, hopefully we find a happy medium. i think cosnd keeping people off balance is a style that our president likes to use. francine: charles? charles: yes. francine: you talk about competitiveness and the quickest of way to be competitive is to devalue your currencies buried are we going to see a currency war? on mys: that is not playbook at all. let's hope we don't get to that. i think stability around currencies are helpful and overtime, without interferences, they should reflect different countries' relative positioning

and underlying strength. tom: i look at this and the news flow we are seeing out of washington. what is secretary tillerson's to do list right now? how does he get back in control of the dialogue and debate? kim: i don't think secretary tillerson believes he will ever be in charge of the debate and i am pretty sure he is convinced he has never been. i think his message is to translate the administration for leaders around the world. he has admitted that is what he spends most of his time doing. i want to go back to something charles said. i think he is absolutely right about competitiveness from a tax standpoint. if you are going to cut it, pay for it, that is the easiest way. tom: the distinction is the fiscal overlay done weeks after the tax cut. when you is right and couple the two, you have $3 trillion of debt in a seven-week period to the baseline.

it irresponsible and it will come back to haunt us. tom: this is wonderful, kim wallace. thank you so much and charles kantor with us as well. we will continue. on radio, your morning briefing. coast to daybreak coast worldwide digitally and radio london. this is bloomberg. ♪

♪ taylor: this is "bloomberg surveillance." let's get the bloomberg business flash. paul singer's elliott management is building stake in telecom italia.

according to people familiar with the matter, they want changes in the way the company's largest investor, is running it. the italian newspaper says elliott has taken a 6% stake. it is one of mcdonald's biggest operational shakeups in years, the world's biggest restaurant company will use fresh beef for quarter pounder's instead of frozen. mcdonald's is looking for ways to entice customers. the sales have been rising the last three years. spacex is on track for a record year. the company launched its 5th mission of the year earlier in cape canaveral. it carried a spanish communications satellite into orbit. they are planning -- isejected takeover build hitting the department store directors against top executives. nordstrom's directors turned down an offer by the family --

founding family. the board told the would-be buyers come increase their offer or move on. that is your bloomberg business flash. francine: thank you so much. now onto cars and the geneva motor show. aston martin is best known as the iconic car driven by james bond. the british carmaker is set to be considering an ipo in new york. this comes in the wake of president trump's steel tariff announcement. let's get to matt miller, the anger of european open at the geneva international motor show. over to you. matt: i am here with andy palmer, the ceo of aston martin. you have some exciting news in terms of electrification, kind of a different spin than other automakers have put on it. i have to ask you first about trade. it has really overshadowed the show, the possibility of a trade

war. how do you react? andy: i think the best thing is not to react because we are talking about a tweet, which is somehow contradictory to other messages we are getting and there's so many things happening in the world, brexit, there is an of section -- obsession among people and you have people speculating this, that, or the other. i prefer not to speculate, just get on and do the business. matt: we know the president wants tariffs on steel and aluminum. these are two products obviously you have to buy in bulk for your business. what does that mean for raw material cost and are you concerned prices need to go up? andy: if it happens, the raw material price goes up. in our business, that gets pass ed to the cusmer anthat would be true anywhere in the rld. timately, the customer pays. pricewhat kind of

elasticity are you dealing with? these are not $50,000 cars, these are the top luxury, the apex predator of sports cars. do your customers react if they have to pay 350 as opposed to 325? andy: there will be, everybody resents paying too much, especially when it's in tax. some of the places we sell to come you have a doubling of the --ce simply because of the if they want an aston martin, they will have an aston martin and the sensitivity is not that great. matt: there's a lot of talk about the possibility of an ipo. everyone is excited having seen so much value placed on ferrari, when do you expect to be able to tell us your ipo plan? andy: we have moved on. normally i would say that is a matter for the shareholders. of late, the shareholders have

asked me to study areas options, which includes an ipo and my plan is to get back to them in the days and weeks with various options they have. don't know when they will decide, that's always the prerogative of the shareholder. at least they will have options in frontthem andan decide what works for them. matt: what kind of price would you put on aston martin? what value do you think this company has? andy: it is a growing value as we grow in size and stature and launch new cars. i don't think it's appropriate to put a number on it, only perhaps to point to the multiple that you see from for ari. matt: let's talk about look down o -- lagonda. historically it is part of aston martin. andy: it was actually formed in also an opera singer, for your trivia quiz.

it was an independent company until they were bought together. successad checkered over the years. in the 1970's, it did very well with the wedge, as we internally called it. loved it orther hate it. it was a wedge shaped, square stark design and now you will make a new brand out of it. andy: the phoenix is back brought up from the ashes and we are making what i think is distinguishing us from the other guys around us, so we are not saying here is an electric car in the range. ahat we are saying is lagond equals ev. every car they make from now on will be electric. matt: because customers want it, is that what you are understanding? andy: there are two courses. one is legislation demands you regulations,uture

particularly in that case where we continue to make e 12's -- so you have regulatory pressure and now you see electric vehicles gaining traction with consumers. we are a company that makes hard choices. backis why we decided to the ev resolution -- revolution. matt: we could spend an hour talking, but i have to talk -- ask about this formula one behind you. it is kind of a reentry for ashton martin -- aston martin into the league. what kind of sales do you expect to generate? are: most definitely, you increasing awareness, particularly in places like china and hopefully the united states. more people will know about your brand and remember what your brand is. familiar,hey become

the more sales grow. we are incapable of making 7000 cars a year and we hit that buffer in the second half of this year. essentially, not only are you driving volume to some extent, but it allows you to avoid discounting and improves residual value. good for the company and good for the consumer. matt: we wish you the best of luck in the championship. andy, thank you so much. andy palmer, the ceo of aston martin. tom: we are watching much in the markets. 13, dowok at futures up futures up 148 and we have the huge headlines from korea earlier. much more on that through the day. right now to investment, kim wallace with us up eurasia group and charl kanr of neuberger berman. let me bngp chart charles kantor knows and believes in. it's easy to look back 2020 hindsight and wander back to amazon and whole foods and it's another to look back at the

kantor report card. whole foods in green, flat after the big announcement and what a shock, amazon put it on a percentage basis afterwards. what are the best practices of jeff bezos in capital allocation? he does capital allocation like nobody i have ever seen. charles: part of it is he has won the confidence of investors to convince us to think about his investment through the lens of paybacks to its -- that extend 20 and 30 years. incredibly cheap and patient capital with investors that want him to deploy in huge marketplaces, one of which is grocery, a $700 billion marketplace. although it is one characterized overlong periods of time with very low margins. attractive? because it is a big market with low margins and maybe he will

bring tremendous technology and innovation to keeping those margins stable, but ultimately, i think that investment was around matching the best of whole foods with matching the best of amazon. tom: i have got to make news here. taylor riggs talks about challenges, i believe they are out of seattle and there's a little bit of a cultural angle. is -- has charles kantor lined up the retail ducks mr. bezos might be interested in? kim: i wouldn't be able to comment on that. have aat is why we surveillance back door. can you give us a color of the kind of retail institution mr. bezos would be attracted to? he wants to go off the very, very, very large markets. yesterday there was a story about checking accounts, the financial landscape is characterized by huge markets. it all works as long as he continues to execute and

convinces investors that irr's over 20 years are very attractive and that is the remarkable story, the confidence he is wanting for the long-term. francine: at what point does amazon become too big? you are talking about it becoming a financial service, which we have in the past, do they have to deal with regulation. do regulator start looking at it? i think you've answered your question a bit. yes, regulators will look at it increasingly and i think some thing to watch is tip-off will be the outcome of the at&t-time warner lawsuit before the d.c. circuit court of appeals. that is a lawsuit that will delve into verticality, vertical mergers, and network effects from the mergers. it will be very important not only for antitrust policy going forward, also sectors media, health care, tech. it will be important in what signal goes to legislators and regulators about vertical organization. tom: charles, jump in here.

charles: i think the regulatory framework is so are behind as it relates to the competitive landscape and how to think about competitive markets they do not have a way to think about amazon. the degree to which they stopped walgreens from acquiring right aid showed they did not -- riteaid showed they did not understand the competitive landscape. tom: this could be a must watch, must listen with charles kantor and kim wallace. wall street has always been worried about combinations, and inward sense of power. do you see any tone in washington to block the media business affected by time warner and you bring that over to skye, disney, and the rest of it. is the apparatus in place to say no? kim: the apparatus is the d.c. circuit court of appeals -- challenged the vertical merger because of what he sees as benefits that would come to the

combination that are anti-competitive. tom: do the courts only get in the way of transactions and combinations that mr. kantor speak or can the legislative branch do work in this area? charles: my understanding is the will rewrite the vertical antitrust guidelines which haven't been touched since 1984 as opposed to three updates from the horizontal guidelines. i think you will have some fodder on capitol hill about what it means to be big vertically and what it means for consumers in the long haul. charles is right, washington has never been in front of this, nor do i think they should be. they have a market they don't understand very well and i think the courts will lead them to new information. charles: and the rate of change has never been faster. businesses and economies are changing at an incredibly fast rate because of technology and we have legislation yet that hasn't been looked at since 1984. francine: all right. cam, going back to your point,

where to the courts lead them? kim: i am not going to guess the outcome. i think it is a 55%, 60% chance for i guess i will guess. it's with a lot of risk to it. irrespective of the outcome, the decision will send messages both to the executive and legislative branches and charles is right, they are way behind. tom: this has been brilliant. we have to get the two of you back on set together for an hour. kim wallace of eurasia group and charles kantor of neuberger berman paris to stay with us on bloomberg television, all of our digital media as well. worldwide, this is bloomberg. there is your foreign exchange, yen, 1.0648. ♪

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david: not so fast, president trump faces increasing resistance to terrorists from within his own party. gary cohn takes one more shot at changing his mind. hold the bourbon. a draft plan has europe retaliating on motorcycles to bourbon. don't forget the fed. we heard from -- hear from the fed today amid all this turmoil. welcome to bloomberg daybreak. i am david westin. alix steel is down in houston. you were searching for that secret not so secret dinner. did you find it? alix: we did find it, amazing reporting and sleuthing from our team down here. you had secretary-general down