francine: mark zuckerberg is still yet to surface. and we will be speaking with jes staley ahead of the bloomberg capital market forum. good morning. this is bloomberg surveillance and i am francine lacqua in ld ondon. in for tom keene, julia chatterley. one of the focuses today is the dollar on the back of jay powell's first fed meeting. e: absolutely and thank you for having me. the infamous dot plot. we have three hikes priced in. to what extent do we get 20ications, hints, clues for

and what happens beyond18 -- clues for 2018 and what happens beyond that? francine: now, let's get straight to the bloomberg first word news. taylor: there appears to have been a development in the austin, texas bombing. station saysision to the suspect was arrested and he was killed. one bomb was exploded and another discovered before it blew up. for the first time this year, the clock is ticking on a possible u.s. government shutdown. republicans missed their own target to reveal a 1.3 trillion dollars spending bill because they cannot agree on immigration, border security and a rail tunnel between new york and new jersey and funding expires at the end of the day friday. mitch mcconnell ended his three days silence on president trump and his role in the

investigation into the russia probe. he thinks he should allow robert mueller to finish the probe. peterson became a billionaire by cofounding the world's private equity firm. peterson has died in new york. in 1985 he and stephen schwarzman put in $200,000 to form blackstone. he was 91. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. thank you. this is what i am looking at for your asset class on this fed day. there's quite a lot going on. if you look at oil, it is advancing on tensions between saudi arabia and iran.

european bonds are stable. the pound is advancing on the back of the bank of england meeting. the federal reserve's first policy decision under jay powell is coming up. i just want to remind everyone that because of the time difference, it is an hour earlier if you are based in the u.k. julie: i am glad that you picked up on the 10 year and two year, u.s.isting int h the rates. i think investors are positioning a more hawkish fed then they were one year ago. perhaps, some hints of some softeningin the u.s.' stancfe over the nafta negotiation. a huge it sticking point over autos, the regional requirements. could the united states back out? that would be a huge br

eakthrough. francine: this is my terminal of the day and i did something different. i was looking at treasuries and hillary clark gave me this chart, giving me the average two-year yield on average g5 countries. there you go, the average target arethe g5 targets for 2018 2.5%. it is rising and has been quite significantly over the last couple of months. julie: if you break that down in terms of theu.s. in particular, the rate differential favoring the dollar. yet they cannot rally. i want to talk about facebook as far as my chart is concerned and we have all been talking about the losses the share price has seen, $60 billion wiped from the value. look at the sensitivity to the broader market in the down trend, which is the white line.

if we see a broader crackdown as basic privacy is concerned, it is not just facebook that is implicated here. it will be a big problem for these big guys as well. despite that, facebook and sharing ultimately and that is what will hurt these guys or does not. francine: and we will talk more about facebook later in the program. as eyes on the new fed chair jay powell makes his debut with the rate hike all but certain. the biggest news could be hidden and investorsrint will be looking out for any hawkish notes and guidance. will the central bank open the door to four rate hikes? peter dixon, the global financial economist at commerzbank joins us. oner, we had eric nielsen yesterday and he was saying we were expecting three or four hikes this year, but the concern

is 2020. because if something happens inflation, her suggested we could see a fed cut . is that underestimated? peter: it is a bi tail risk for sure. inflation, he suggested we could see a fedfra? peter: in my view, no. the economy is ticking on ok. there is no inflation to speak of. age, mosty and central banks are normalizing following a decade of ultra expansion. francine: 40 watching out for today -- what are you watching out for today with jay powell? with his tone? 40 watching out for in foreign communications? >> i would probably be looking at the end, does the u.s. raise the estimate of the federal

funds rate? that would indicate the markets, whether or not the fed is already concluding the fiscal reform is boosting u.s. potential on growth? justification the here for the federal reserve to even indicate they are doing four hikes this year, at what percentage point equivalent? u.s. economy has grown well above the fed's equivalent. we could get well closer to 3% this year. four rate hikes during this environment is still pretty gradual. we could getthink of the fed lop the u.s. economy on an even keel, just leaning against the fiscal expansion. you,ine:a bear with say to what about this after inflation data we saw? why not sit on your hands and

let the data play out? kallum: well, the u.s. economy is still well above potential. is aboveeconomy potential come you see volatility in the data. it is totally inconceivable the u.s. economy can continue to accelerate only under the conditions the fed hikes. the fed needs to take the position that the rod trend growth can be sustained. i think they will. yes, we have a little politics, and if the fed were to wait now, they might find that in one year's time, it has fallen behind the curve a little faster. the last thing we want the fed to think is they have got to create some unemployment to stop the economy from underheating. julie: at this point, does it have to be behind the curve? peter: i think behind the curve. it makes sense for the fed not to be too ahead of itself.

i think we have got to go back to the point of,w will the four hikes. three or we have got to look at the level of interest rates, not the level of changes. i think looking at where the weight is is key, rather than three or four changes. francine: yeah, financial conditions is still where they were back in 2017, but the problem is, markets anticipate ahead of time and they will be questions here about how sensitive they are as well to a 2% inflation rate, what does he say as far as the sensitivity to the top side? are they willing to accept more than 2%? peter: i think many people would be happy with that. it would start to make people feel a little bit better off. a problem forot

any major economy, really. fed's sensitivity as far as markets are concerned, let's face it, their objectives are unemployment and growth and not the market's. and there is a consequence the markets will have to live with whatever the fed gives them and they have profited very well over the fed's stance over the last decade and maybe it is time for a little payback. francine: on that note, what do the tariffs and a possible trade war with china mean for them? peter: we are not at the stage yet when we are talking about trade wars. it is a r5isk.isk. to materialize and impact upon the u.s. economy more seriously, then the fed to think about it, but let's face it, we have been here before, back in 2002. it did not stop the fed from acting. i think at this stage, let's see

how the news plays out and react when we have -- francine: different administration, but fair. we will also be speaking with the barclays chief executive jes staley. panelists will also be joining us and you can tune in to that conversation on the terminal by typing in the function tliv . this is bloomberg. ♪

taylor: this is bloomberg surveillance inamed taylor riggs. fedex has increased the annual profit forecast for the second quarter in a row, getting a boost from the republican tax cut and a record holiday season.

cashing in byare higher demand caused by higher online buying. deliveries to homes are less profitable to those of businesses. at $768as valued billion after the close yesterday, about $5 billion more than alphabet. the world's artist online retailer has surged. and the european union could give it's ok today for bayer to take over monsanto. the report says bayer but still up to meet some conditions for the $66 billion deal to go through. u.s. regulators are still opposed to the takeover. that is your bloomberg business flash. julie: facebook has lost $60 billion in value over the last couple days as the data crisis

deepens and the story continues as u.s. regulators are looking into whether the social media giant broke its own privacy policies. hasridge analytica suspended the ceo amid the revelations. joining us to discuss, the bloomberg technology reporter. the with us of course, peter dixon and kallum pickering. great to have you with us. just talk us through now what we have heard over the last 12 hours, giles. and to what extent is the pressure extreme on mark zuckerberg or sheryl sandberg to talk about this now? giles: that is the biggest point -- it is not the question of what we have heard, but what we have not heard.. we have not heard from mark zuckerberg. there was a town hall meeting, but that was done by the deputy general counsel. they will do a town hall on friday.

mark zuckerberg has used an excuse in the past, that if he gets to talk to one regulator, especially in europe, he must talk to all of them. theays he does not have time to do that. i think now is perhaps the time to talk to regulators inside the u.s. isie: right now the language important. there are indications to talk to regulators, at least at this stage. to what extent are we talking about a legacy issue. are the breaches of privacy that we are talking about here are legacy issues that have been dealt with by facebook, or are we talking about something more systemic? not knoww? >> we do yet, but it is definitely more systemic. facebook has not dealt with the issue. they were asked to leave on the u.k. data stage and that does not give me the impression they

are in control of the situation. francine: my are they not talking? is it that they do not know how to respond? in the past, even when there was the talk about election-meddling., they have been on the slow side. is that fair? giles: they have been on the slow side, but they have had a mixed reaction to different crises. in this case, they tried to front run the issue, coming out with the blog post on friday. sometimes they dumb down block posts on what they believe the issue is and they always try to direct it away from facebook, saying it is just a platform. the problems are not their issues, but quite clearly they are now. francine: is this a business proposition problem? we heard this from publishers that it was just a platform. does facebook need to change and what does that mean for your interest in tech stocks?

peter: the biggest problem with my view, with regards to facebook, is data rights. who owns the data that we give to facebook for free? they would say, you own it, but we can do what we want with it. a bit of a dichotomy there and i am not sure if that is strong for a viable business model in the future. i think the entire sector will have to rethink very carefully this question of digital data and until we do that, maybe investors will be a little bit the of the stocks for foreseeable future. francine: peter, thank you and thank you to giles turner. both stay with us. coming up in the next hour, we speak with john silvia at 6:00 a.m. in new york and 10:00 a.m. in london. this is bloomberg. ♪

francine: this is bloomberg surveillance and we have breaking news. we understand that abu dhabi investment counselor will become part of this. wasou look at how abu dhabi investing, it was through various vehicles were investing it was that they were partly state-owned. abu dhabi has a mainstay investor called mubadala investment company and it seems everything is merging together under that umbrella. and it means as a whole, the group will have a lot more money to invest.

i do not know if they do it alone, or if they diversify. but it seems to be a bigger sovereign wealth fund. and now focusing on brexit, it seems that the democratic unionist party leader think the irish should tone down the rhetoric regarding brexit. >> i have sensed over this last year that there has been quite a lot of aggression. i hope we can get over that and move to talk about what our trading relationship is going to be. we want to work with our irish neighbor and the republic of ireland in a practical and pragmatic way that is good for both of us. so, let's move on to doing what is right. francine: in addition to keep brexit transitions, we have the policy decision on thursday and with us, peter dixon and kallum pickering. kallum, let me start with you. i am looking at euro-pound, and he used to be a u.k. chief

economist, so you are perfect to talk about what the equivalency profit means, and whether it translates into your pound, or you look at cable. kallum: if it were me, rule of thumb, still in euro-trade, he would be in euro-dollar trade, and whatever pops out for cable pops out. the markets do not seem to be responding to the economic fundamentals because they worry that in one year's time we could have a hard brexit. places this ont the hard brexit i do not think we will see this move up in a major way and on a trade basis i think it is undervalued between 5% and 10%. francine: peter, we have a etin, which says

the wording during the draft yesterday was vague because it goes to the internal debate amongst the 27 countries, on what they want to do and they have different factions. do you look at any of this, or do you file it under this? peter: i do not think you can ignore it. clearly the brexit story is the biggest single issue facing the u.k. if not for generations. we care about what the shape of the agreement will look like. as you said, it is all a bit vague. there is still a risk that somewhere down the line this could turn into something nasty, the hard brexit. but i think there is a sense that the sting have gone out of this debate and in that sense, the likes of the financial markets are looking at the u.k. and saying, as long as we do not get the hard brexit and we can continue growing at a rate of look at2%, then we can the fundamentals and that message.

francine: thank you. kallum pickering and peter dixon stay with us. we have the exclusive interview with the founder and chairman of kingdom holdings. the first time he spoke. it was a great interview after his holding for 83 days. this part today we bring out with a a lot more focused on what he does with his business assets from now on. looking at shares in europe, they are holding on to gain from yesterday. these are the first decisions since jay powell to be home. theay powell first took helm. ♪

♪ this is "surveillance." i am julia chatterley in new york. francine lacqua in london.

behind -- beyond the boot -- beyond the blueprint for more than a decade. budget shortfalls lowered by crude production. let's get to the investment where a reporter has been speaking to the biggest political and business names. take it away. ofyeah, when you think kuwait, you think of the southern wealth fund and then you think of oil exports and you think of a lot of capital outflows, but not necessarily thinking of it as a foreign investment hub. that's about to change. you are seeing the rest of the region spearhead some of the more ambitious reforms and they are like, that means we would be in trouble down the line. they want to change that and they have put out key changes to regulatory frameworks across the board opening up sectors. the issue here is there's a lot

of work. they need a political force to champion a lot of these changes. figure will be the first deputy prime minister here in kuwait and we got access to him, the first news organization to do that since he took the post. >> believed they were looking for the 2055 to be a real fit for it and a prevailing society. i have that feeling. now we are working very hard to investment code of for this international hub. and i think it will change ofait and it will be particular help to ironic.

-- iran. oureel secure when we see neighbors are settled and happy with us. >> that was the first deputy has ininister kuwait parliament. the issue in the past has been, how do you get through parliament? been of decisions have blocked. he's the man who thinks he can make it happen and investors are open to the idea, especially after the experience with joint saudi arabia. what does the corporate world think of this? -- hereof legitimately is what he had to say. >> we see that vision reflected in executive action at the government level, over 100 billion kds of various projects underway. the government is responding to that vision. lateth sets hear from the at least on paper for now.

we will see how far they get and whether they will be able to reach the goals they set out over the next year or two. julia: what is the differentiating factor here? you have mentioned a couple of times the saudi's are desperately looking for outside investor cash to come piling into the country. we had breaking news about abu the best wet is just had breaking news. >> i have had this conversation with investors on the ground and authorities themselves because -- and it is tricky. it's the same spiel, opening economic diversification and reduce affinity on oil and try to open it up to tourists as well. kuwait is making the argument the proximity to iraq and iran along the arabian gulf is what is going to be able to really be

a convincing factor for a lot of investors. they are not trying to rewrite the playbook. they say they are keeping it simple and ultimately they are trying to make it easier for those who want to take part in a more -- market when compared to the more mature markets like this uae and saudi arabia. francine: thank you so much, yousef in kuwait. we are getting breaking news out of the u.k., it's usually 9:30 we get the latest news. employment change, three month is much higher than expected. if you look at weekly earnings, they are also higher. , they strip out bonuses are pretty much in line with expectations. this is for the month of january an account coming in at 9200 people asking for jobs this week. let's get to bloomberg first word news. here's taylor riggs. taylor: there are reports of a

suspect in the austin-texas -- austin, texas, package bombing is dead. the were trying to arrested suspect when he exploded a device. authorities used surveillance video -- reportedly used to valence video from google to track him down. yesterday a package bomb andoded in san antonio another in austin. in afghanistan, the suicide bomber killed at least 26 people and wounded 18 others. the attack took place as the country celebrated new year. in illinois, a billionaire has won the democratic primary for governor. $70 million of his own fortune to try to win a job that comes with huge fiscal challenges. in november, he will face republican governor bruce boughner. illinois has the worst bond rating among the 50 states.

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. you so much.nk the euro zone economy may be in recovery mode, but the pile of non-performing loans for the banks stands at around 760 billion euros. unlike u.s. lenders, which were forced to act fast to repair balance sheet, european banks lagged. the european commission and the ecb announced rules to tackle the problem and the commission requires lenders to set money theirovertime to clean up loan books. someone say the ecb is being even more stringent. how much longer will it take? andrea enria by and the former head of the -- division at the central bank. thank you for giving us a little bit of your time to better understand the world of

regulation and the challenges faced by banks. nonperforming loans are the big topic. how worried are are you about nonperforming loans? >> i am less worried than i was a few years ago. 2014, low performing loans increased significantly and they were at 1.4 3 million in the e.u. more than one quarter increase in the npl's. we need to continue with a policy on supervisory pressure to get this down. francine: if you look at the european commission and the ecb, they are trying to push back to set aside even higher commissions. do we need more or do we need less? andrea: the initiatives the ecb and the commissions have taken are referring to the new nonperforming loans, to avoid the pileup of nonperforming loans in the future. in dealing with stocks, there's

a number of additional actions that are being taken. we took actions defining common nonperforming loans across the european union and giving more transparency on what they are. secondly, there has been supervisory pressure with the ecb setting targets for the reduction of nonperforming loans . thirdly, some countries -- management companies have been established. francine: talk to me about italy. do you worry because of the political vacuum a lot of nonperforming loans will take longer to be dealt with? work, they have done some but more can always be done. andrea: honestly i am pleased with the process -- progress in italy. i think there has been a significant reduction in stock and the secondary market is working better, so we see more transactions of nonperforming loans. the increase is significant. there is more work to be done,

it is still in single -- double digits. we are also trying to help the functioning -- the secondary market for nonperforming loans. -- template for nonperforming loans in december in the hope to increase efficiency and liquidity of the secondary market. that's an important component. julia: how much lower to nonperforming loans have to get overall, you are talking about an 800 bureau -- 800 euro some weore we see -- sum before see credit flowing. as much as you say progress is being made, if you compare nonperforming loans to the united states or u.k., it's still significantly higher. andrea: yes. the ims has done studies based on cross-country comparisons and iswn at that when the ratio within 5%, 6%, you have serious problems in terms of capacity

for the banks. the average level -- now we are at 4% in 2017. there are still a number of counties in the double digits. i think we need to bring the -- down so that is still some way to go. julia: you talked about e.u. wide asset management companies that need to be established to deal with these loans, do you also need to ask top -- establish there's too much euro skepticism in order to be able to come together and organize something like this? andrea: i have to ignore that towards no optimal move a full-fledged -- the commission --lished a few days ago proposed to set up a blueprint for national management companies. would become a model which could be established.

this could be a tool that might turn out to be useful. francine: how do you do that without taxpayer money? andrea: first of all, there are examples of private initiatives which have worked. also, the commission's blueprint does not rule out the possibility of state with a national management company. there's criteria that needs to respect to the commission's guidelines and the major value of these blueprints of the commission is to explain how an asset management company would work -- with the legal requirement and the state of requirements. francine: how would you update the banking regulation to take it bit -- account of what we just said? does it need to change dramatically? andrea: the regulation is fine. these changes on nonperforming loans come i think we have all the pieces in place.

in a general, i think in terms of the toolbox for future crisis, let's say probably this asset management company is an important one. in the next crisis, i would like to have at least two available at the european level. adjusti just want to slightly in light of what we have seen in the u.k. and the relationship between the e.u. and the u.k. and the transition agreement over brexit. what advice are you giving to banks at this moment that are operating in the u.k. that need to apply for eurozone banking licenses? has anything changed or do they still need to assume the worst case scenario over brexit? andrea: i think we need to toite all financial firms assume the worst case scenario is possible. the transition agreement is a positive development, but until the full packages completely under agreement, which also has

to go through the parliamentary scrutiny at the european level and the u.k., we cannot say the -- we have full assurance about the transition and the deal being there. we think banks need to continue preparations and actually speed up preparations in terms of licensing and ensuring continuing -- continuity of contracts for customers. we need not to lose the eyes on the ball. francine: do you worry banks are slow in their resolution planning? we are also looking at some of buffers. el -- mrel andrea: the ball is more in the camp of the authorities, honestly. i have to ignore it that the directive has been implemented rather late in some countries.

the progress has been a bit slower than we would have liked. the resolution plans, which are effectively operational and can be activated in a short period of time. we are not there yet, to be honest. francine: andrea, thank you so much. on, we will be speaking with the barclays chief executive, jes staley, here in our london office. other panelists include deutsche bank's marcus shank. you can tune in for that conversation on the bloomberg terminal by typing in the >.nction on live

♪ julia: this is "bloomberg surveillance." i am julia chatterley in new york with francine lacqua in london. we are showing you live pictures just before the sun comes up over new york. we are expecting some more snowble wind and weather, over the east coast. i got up this morning expecting snow, it hasn't arrived yet. i am cold -- told it will arrive. francine: i have the snow plague. i keep on talking, julia. julia: i feel like there was a dramatic pause there for the snow instead of the rain. tariffsd aluminum continue to receive a frigid welcome on the world stage of the g20. the e.u. expects to be fully exempt from the tariffs without conditions.

meanwhile, in china, a major newspaper backed by the communist party pushed back against the u.s., calling the country the true breaker of wto rules for the soybean dumping. we are back with peter dixon and colin pickering. it's really difficult to put any kind of price impact on the kind of trade discussions we are having. can we do that whether it's potential inflationary impact or trade. begin. plainde wars are just bad. any arbitrary increase in prices reduces everyone's real income eventually. the numerical impact of the steel and aluminum tariffs is very small. it probably will not show up in economic data. the risk is any escalation or even if markets here of escalation, that will hit confidence and europe has to worry about that more than in the u.s. we are much smaller economies on average and much more exposed to

global trade. with a little look, the response by either the e.u. or china will be proportionally less than the initial tariffs by the u.s. and its congress manages to rein the trump in, this could the escalate over time and a little confidence affect -- we probably will not see economic impact on the data. is the president's bark worse than his bite as far as the trade sanctions tariffs are concerned? peter: possibly, but that remains to be seen. i think the day that the tariffs were announced, i was in a client meeting saying so far the president hasn't done anything he did not promise on the campaign trail and in terms of day, itdid later that would prove to be entirely incorrect. at this stage, it's difficult to know where this is going. this is aely possible

brilliant move on the part of the president to get other parties to stop talking about tariffs in other areas. it could be, for example, that because the e.u. has generally higher tariffs on non-agricultural products than the united states, this could be a bargaining chip. the president certainly likes to keep us guessing with regard to his policy actions. julia: what should the fed say far asif anything, as the possible economic implications of the noise we are seeing whether it's nafta, china, specific tariffs we are talking about, how should he tackle it? reallyi think what he should do is try and keep out of the debate as best he can and i am sure he knows this because this is a highly political problem which the fed has been criticized before for trying too much into political -- i think what he can do is talk about the nafta risks and stressing the risks and what

that might do to the economy. i think it would be unwise for him to stray too far into something that is generally outside of his area of expertise. isncine: what surprises me we always have these conversations saying tariffs and trade wars are bad for everyone and a lot of chief executives that i thought would be more for globalization who behind the scenes although the relationship with china is not right and we need to fix it. peter: i think when you are talking about china specifically, there has definitely been a change in the -- in attitude. there have been articles talking about precisely that topic. i think sense that today we have a china which is big, something like four times the size of the u.k. compared to equal back in think the time is perhaps right to talk about how to put in place global

architecture to prevent expect -- exploitation from continuing. companies generally are in favor of anything that raises competitor's prices. benefitst concentrated to a few injured -- industries, but the spread out cost will be enormous when it comes to the fed. if i were mr. powell, i would say that supply-side politic raises prices over time, so trade tariffs would not leave necessarily overtime to be reducing interest rate or keeping easy monetary policy. responding to brexit with interest rate necessarily hike's event,ive supply side trade tariffs would point in the same direction for the fed if this got far enough heard -- enough. julia: i want to pick up the point about the pushback we have heard and those excepting there is not there -- that there is -- and those that are accepting

there is an asymmetry. if you look at the reports we have seen here that there is a discussion behind-the-scenes of a potential deduction of $100 billion in the scale of the deficit the united states has with china. do you think the chinese are willing to play ball to some extent here? peter: they might to some extent, but they will not want to be flattened and i think they see the tariffs as the u.s. wielding a big stake. i think they would be happy to sit down and talk about the possibility of making changes, that i think the problem we have is that we have a global financial architecture, which is not made for the likes of china. it's made for one big dominant player and that was the united states. the question now is how does the international community sit down and figure out how to find solutions to this problem where we have two heads rather than

one? francine: we had an abysmal reading from the zed yesterday, probably the most volatile indicator of all time, but there is something to be said -- we keep saying germany is great, but germany is a big exporter. how much would they lose in the trade war? kallum: germany and europe would lose disproportionately in a trade war with the u.s., some 50% of german gdp is earned by exports. this is where the constants affect matters. these aluminum and steel tariffs don't have a major economic impact, but the threat of escalation is what hits confidence. at this stage when all the employment gains have been had, firms will be relied upon to raise economic growth through investment, training, and if confidence is hit by trade, it puts big downside risk to the economic outlook. francine: this looks at

treasuries, the 10 year treasury yelp -- yield in the u.s. and we charted -- chart it against dollar-yen. i am looking at a note saying yen will be the best trade and they say actually when you look at the current account deficit, and the dollar-yen. i am looking at a note fiscal st will weigh on the dollar. what is your take on it? kallum: i would say this reflects the same thing, the rise in treasury yields reflects stronger expected in flint -- inflation. the weaker yen reflects -- in a way, the same thing as the weaker dollar. the normalization means that investors move out of low risk asset classes, safe haven currencies, the yen, including that into slightly riskier assets. the increase in the yield and theweaker yen reflected

same thing, it's the risk on environment headed into 2018. peter: i think what we are --king at is a sort of story. do you like the dollar or do you like the yen? at the moment, investors don't particularly like the dollar at all. it's not getting a huge amount of support at the moment. what wethat reflects have been talking about with regard to the policy. francine: thank you so much, peter dixon and kallum pickering joining us today. next we speak with wells fargo chief economist and a conversation with the barclays chief executive. we will talk about investor activists.

♪ francine: the big debut, the

first fed policy meeting for jerome powell. will there bury -- will there be hence about 4th hike? governments on both sides of the atlantic focus on data security. mark zuckerberg has yet to focus. we will speak with just staley ahead of the european -- just staley -- jes staley. good morning, this is "bloomberg surveillance." i am francine lacqua in london and julia chatterley is in new york. we are looking at the fed and a reminder for european viewers, don't go out for coffee at 5:00 p.m. because that is when we get jay powell and it's all about the hints in the number of words he says about the approach. julia: and all about the questions and whether or not they are good enough to give us more information. what we learned when he testified to congress is his willing to give the own opinion. the question is does he do anything to move the markets more to really, particularly given his position to the hawk is -- hawkish side.

francine: and looking at a really good note by ubs saying the dollar seems overvalued on deficits. let's get to the bloomberg first word news. here's taylor riggs. taylor: the suspect in the austin, texas, package bombings is dead. police and fbi agents were trying to arrest the suspect when the man exploded a device. authorities reportedly used surveillance video and information from google to track him down. yesterday, a package bombs exploded in san antonio and another was found in austin. both were linked to a four previous bombings. we are getting live feed on viewers from both tv and radio and we will bring updates as they become available. for the third time this year, the clock is ticking on a possible u.s. government shutdown. congressional republicans mr. their own target to unveil a $1.3 billion spending bill. they cannot agree on immigration, border security, and a rail tunnel. current funding expires at the

end of the day friday. mitch mcconnell has ended his three-day silence on president trump and his attacks on the rush investigation. mcconnell says the president should allow special counsel robert mueller to finish the probe. republicans are privately concerned the president may try to fire mueller. if you have threatened specific consequences. for the first time this month, the nor'easter -- northeast of the u.s. is bracing for severe weather. the latest storm a drop up to 8 inches on washington, 15 on new york, and 10 in boston. airlines have canceled 3000 flights and school kids in the region are getting an unexpected holiday. 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. francine: thank you so much. this is your data check. shares in europe a little bit on the down side.

falling,r actually traders waiting for the first federal reserve probably did policy decision under jay powell. oil is probably one of the things we need to keep an eye on. it advanced on the tensions between saudi arabia and iran. this is quite significant. julia: jay powell the man -- julia: jay powell the man at the moment. indicate as far as hikes this year, three, some concerned if he indicates 4. the dot plot will very much be in focus. we have seen a more hawkish by price around 77 basis points for 2018 as well. what will that be after we get the statement and after the press conference?

strength to the canadian dollar, to mexico, hence perhaps the united states is softening their position as far and the content requirements are concerned. if that is the case, this will be a breakthrough for nafta negotiations. francine: this is what i am looking at. we are looking at treasuries and we will be all over that for the next 15, 25 hours. this is the average and i say it's the average two-year yield china, u.s.,es, u.k., euro area, and japan. throughy, you can see the chart and we will push it on our social media platforms, for radio listeners, good morning to you. the average is at least 2% or line --% and the dotted there with me, radio, we are

trying to explain, it is significantly below where it is now and that's the average since the recession. julia: not working for the u.s. dollar, as i said earlier in the show. i cannot help but talk about facebook a given the speculation and the absence of ceo. 811. looking at the chart, you can see the price change, the big drop is the blue bar you can see not only yesterday, but the session before, $60 billion wiped off the value of facebook and it has implications in terms of the performance of other banks if there is going to be broader crackdowns of facebook. these guys will be in the hot seat as well. francine: and being hired as the chief executive of barclays in 2015, just staley has faced serious challenges. he faces an ongoing investigation. lender.'s second biggest

is caught in the activist crosshairs with investors sweeping in for 5.2% on the rights. despite headwinds, there have been bright spots. barclays made good on its dividends andtore is considering buybacks for the first time in more than 20 years. i am pleased to welcome the barclays chief executive, he is jes staley. thank you for giving us a little bit of your time so investors can have clarity on what you are trying to do. the you see -- feel under increasing pressure from shareholders over the length of time it has taken to restructure the bank? jes: we are very focused on a shareholder returns and have been very focused since the day we arrived on getting better stock price performance. to do that, we had to execute an extraordinary -- over the last two years. we have sold down some 95

billion pounds of risk assets and sold 22 businesses. we close to the bank in 12 countries. we sold our controlling position in africa. in two years, we reduced the headcount by 56,000 people. we completed the restructuring at that young the of 2017. we got all this done in two years and now the focus is on returning access to shareholders and improving overall profitability. we are as focused on making the changes to get barclays into a strong position. we have recapitalized the bank -- and that has allowed us to more than debit -- double the dividend for 2018. we are on course to deliver what we committed to shareholders in march 2016. francine: is it taking longer than you thought? jes: no. francine: it was always going to be this tough? jes: yes.

in march 2016 we said we would close non-core businesses by the end of 2017 and we did that 6 months early at the end of june 2017. we gave ourselves 2, 3 years to get the sale of africa down. we did it in about a year and a half. we are ahead of schedule and the two main things we thought to do for our shareholders and stock price. francine: what is the question you get the most for -- from investors? jes: i think it's split. we are very committed to our investment bank and we think we have a great investment bank. francine: do you get pushback from investors? jes: across the industry, jpmorgan, goldman sachs, or deutsche bank, there are questions about investment banking ever since the financial crisis. we like the diversified portfolio barclays has. we are a consumer and wholesale bank. we like the progress we are making. new teamt together a

investing in technology. we feel humble about where we are. we get questions and we will have to answer the questions. doubling the dividend was the first step down the journey. francine: what do you think your new shareholder activists wants changed at the bank? jes: the head of ir had a brief meeting with them. we look forward to engaging with shareholders. the moderate shareholder is very involved in what companies are doing that they have invested in. we have an active dialogue with shareholders. we recently had a shareholder in tiger global. we have had engagement with them and chase and his team. we are always engaged with shareholders. francine: the fact that they went to 5.2% seems to beginning a clear message to the markets

in the media that they want something changed. do you know what that is? jes: i wouldn't say that and branston hasn't said that. we look forward to hearing what his thoughts are. whether it's capital or tiger, i am keenly interested in what the bank is doing and we look forward to articulating our vision for the bank and seeing what shareholders have to say about it. francine: there is nothing tangible, right? he's not going to have an interview this afternoon telling what he wants from you? will you meet with him? jes: sure. francine: and ask him what? jes: i think i would answer his questions. francine: what will you tell him about buybacks? beenexactly what i have telling the market, we intend to deliver excess capital to shareholders, that the bank is -- has not had a stack -- stock

buyback for over 20 years. we have a legacy of litigation with the department of justice. we want to settle that. if we get that behind us, given -- we should be in the position to talk about stock buybacks. francine: do you think 2018 will be the year where volatility is back in the market and what is it mean for trading revenue? jes: i said at the beginning of the year and i think you were part of that conversation, we thought there was some of a disconnect between where the equity markets were trading and the fact that we were in -- at historically low levels of volatility and a lot of the low volatility we thought was driven by people -- short volatility. the returns a move, to normal volatility levels would be quick and that's what we saw at the end of january, beginning of february.

volatility sort of prompts institutional investors to rebalance the risk portfolio -- that gets them engaged with banks like barclays. a lot of what we do is engage in , helping them to rebalance the risk of their portfolio, which changes as markets move. that is a benefit to the investment banking industry and barclays in particular. francine: are you confident barclays has the right kind of equity trading position and what does it mean for your fixed units? we saw a couple of notes saying even if there is volatility like 2006, 2007, some of the key banks would not actually have the capacity to take advantage of it. what would you say to that? -- what do you say to that? i would point to quite a

historic transaction for barclays prayed we were a principal m&a advisor to the cvs health acquisition of aetna. it's one of the largest m&a deals done ever. them andt, we wrote underwriting check of $20 billion. there have only been three banks in the world that have written an underwriting check of $20 billion, goldman sachs, and a british -- we led the third-largest bond deal ever done in the history of capital markets, which generated interest of over $120 billion worth of demand, which is the highest built -- book built ever for a bond issued in the world. --t might be an antidote anecdote i would use to say that barclays is in the scale. are europeans at a disadvantage because of regulation -- even because of brexit? jes: one of the things a number

of us bring at barclays, people like -- who came from jpmorgan and myself is we were at morgan's investment bank for many years. i think we know who we are competing which. -- competing with. barclays clearly has the capability to compete and service our clients like jpmorgan does. francine: what does improve liquidity for financial services mean for barclays? jes: i think the bank of england and the pra -- has done a great job re-regulating the financial industry in the united kingdom making it much safer than it was before. we are night and day from where we were in 2008. i think the u.k.job re-regulatil is committed to supporting the city of london as a financial center globally. barclays as a british bank is committed to that happening. part of that is making sure we

recognize the regulatory environment you see coming out of brussels and making sure first and foremost, the city of london stays set -- financially safe and secure. also, keeping an eye and making sure we are competitive as a financial center. francine: is it too soon to say whether those things you mentioned will stay the same or whether london will lose out as a financial capital in europe? jes: as i said earlier in the year, initially i think we all have to recognize the u.s. right now is very actively trying to ase the u.s. environment business friendly as possible, whether it's dramatically changing corporate tax rates, in of barclays businesses the united states, moving the corporate tax rate to 20% has an impact on the bank. there has been a conscious decision to reevaluate the regulatory framework in the u.s.

given the size of the u.s. financial market, i think europe and the u.k. need to keep an eye on what is going on is a regulatory matter in the u.s. francine: how much time do you spend looking at central banks? do you feel like it's kind of in the right-hand? you have jay powell and his first decision today and mario draghi. the uc risk coming from somewhere else -- the politics? jes: that's a hard question. one, i think you have to give a lot of credit to the central banks and how they navigated post financial crisis and have used their ballots sheet and interest rate policy -- balance sheet and interest rate policy to generate economic recovery. the challenges we have economic recovery and global growth is quite robust and now you have added the additional stimulus up tax cuts in the u.s. -- of tax cuts in the u.s.

that -- now central banks have to move from accommodating growth by having low policies in interest rates and buying securities and now they have to pick it. managing -- pivot. and managing that is going to be a real challenge. given where growth and inflation is, you have to see a move in interest rates and you have to do it in a way that doesn't disrupt the market and hurt the economy. francine: talking about that risk compared to a full-blown trade war between china and the u.s., how would that affect? our clays a lot of your clients are -- affect barclays? a lot of your clients are taking advantage of it. is that too difficult to model at the moment? jes: everyone benefits from economic growth. a recession would be challenging an all of the markets and out and out trade war would clearly be disruptive for economic growth and we hope it doesn't come for that. francine: what is the latest on

the investigation? jes: no comment from that. francine: what will we hear from the bank in the next few months? what is the message to the market today? if i am an activist shareholder looking at bloomberg surveillance, what is your message? them this is the first year in over five years where we start with a clean operator model. we have the bank we want for the first time in many years. i think the message beginning with our first quarter will be, what is the earnings capability of this bank now that it doesn't have a non-core to deal with, doesn't have assets it doesn't want to have, has its balance sheet in the right place and is now firmly capitalized. what does this bank look like when it is running free? francine: looking forward to hearing more from that. chiefaley, barclays executive, and we will do a panel together in about 25. join us for live coverage of the chairman's jay powell -- fed

firstan jay powell's decision. it's actually 5:00 p.m. in london today. this is bloomberg. ♪

♪ julia: this is "bloomberg surveillance." i am julia chatterley with francine lacqua. jay powell makes his fomc debut with a rate hike orbit certain.

the biggest news could be hidden in the small print. investors will be listening for any hawkish points. will it opened the door to 4 rate hikes in 2018? joining us is the chief economist at wells fargo. good morning. great to see you. the hard work has been done. to what extent do you think he indicates four rate hikes are in the cards? talk about dot plots and the indications. john: i think they will keep with three rate hikes. you have to see what extent they talk about stronger economic growth, better employment numbers, and an upward tilt to inflation. that will indicate there's a bias toward that fourth rate hike, but not now. julia: too early. watch the data. what about inflation at this stage? what about the sensitivity to 2% inflation. after he testified in front of congress, there were all sorts of questions about how sensitive he is to allowing inflation

overshoot. you and had not -- jon: i had spoken about this before. if inflation on the 1.7 versus 2.3%, they are very sensitive on 2.3% because this is where you get the sensitivity that inflation expectations will not be anchored breed for the fed, that's very important. i think the focus has to be they do not really want to .3%. anything tending toward 2.3% will give them a bias to do the fourth rate increase. francine: do you think the fed is a little bit worried about rate differential between the fed and ecb and fed and the og? -- boj? john: absolutely. this afternoon when you and your friends are out for a pint in london, the impact will be where the exchange rate is going going forward and the trade implications of a weaker or stronger dollar.

there will be a lot of concern. john: -- francine: we haven't since 1998. the culture has changed a little bit here as well. what ise challenge is the confidence on longer run economic policy in the united states when it is concerned about tariffs and sustainability, the strong 2.5%h we see this year at to 3%. those concerns have to be there. we continue to see, in our outlook, a weaker dollar for the next 6 months to a year. julia: what is the driver than for the u.s. dollar? if you are talking about interest rate differentials, the dollar is not really playing ball. what is the concern as far as interest rate differentials are concerned? this is fascinating for the marketplace between the dollar reflects interest rate differentials. it seems -- the market is

looking forward in time and or a year fromh now, it's more likely the euro, ecb will be tightening, shrinking it balance sheet. as a result of that, the euro will appreciate in value compared to the dollar. francine: what will jay powell say about trade wars -- what can he say, really? john: i think you can say really little except that they create uncertainty in terms of monetary policy. the challenge with trade wars with respect to nafta changes the cost of imported goods. it changes the availability in the supply chains for imported impacts growth and inflation. you get less growth and less inflation. francine: thank you so much, john silvia of wells fargo stays with us. coming up, a conversation with

scott leonard, the guggenheim partner chief investment officer at 8:00 p.m. in -- 8:00 a.m. in new york and 12:00 p.m. in london. i have two panels. we will talk about capital markets, brexit, banking, we also have barclays chief executive, and the cohead of the investment bank and co-chief investment officer of deutsche bank. julia: i will take care of your show over the next half an hour. can't wait to watch later on. this is bloomberg. ♪

♪ julia: this is "bloomberg surveillance."

let's get to the bloomberg first word news. illinois, a billionaire has won the democratic primary for governor. huge fiscalth challenges. he will face the republican governor in november. a new study indicates that first-time homebuyers in the u.s. do not have it easy, according to u.s. real estate website truly a, starter homes are smaller and scarcer than they were a year ago. the median price for starter homes has risen in the last year and supply has fallen to a new low. for the fourth time this month, the midwestern u.s. -- the northeastern u.s. is bracing for severe storms. airlines have canceled over 3005 in school kids across the region

school kidshts and across the region are getting a break. this is bloomberg. ♪ julia: breaking news. bayer has won approval for the monsanto takeover. bayer is to show that able to purchase assets. they are saying the remedy is worth 6 billion euros. digging into the details of this. jeffrey's coming out saying monsanto is likely $118 a share if the bayer deal fails. official eu approval of this. the morning must-read, we are

focusing on facebook. some studies have shown that facebook apps work quite well for businesses. --they worked for trump cambridge analytica story is a red herring. i think you can apply that not only to facebook but also the big users of data in the tech space. we are joined by kevin, who is in washington. kevin, it is early in the morning. talk to us about this. we have not only from the united states the regulators all of the world inviting -- and i use that word carefully, inviting facebook to talk.

>> it is getting increasingly unlikely that mark zuckerberg can avoid lawmakers and investigators here in washington dc. the comparison is, if the ceo of a major financial institution was dealing with a situation similar to what facebook is, they would be dragged into testify and the notion that mark zuckerberg and sheryl sandberg have avoided facing the music and facing the questions is one a lot of fok in both parties -- folks in both parties to do not understand. i spoke with senator kennedy who said that he found facebook's behavior quote creepy. he said big data collection is equivalent to big oil. the republican argument is big data is the kind of porting that

their hoarding that party cannot get behind. both parties having strong questions about what facebook is doing and their self-regulation talk is not appeasing anyone in washington dc. : axion reporting that mark zuckerberg may speak out in the next few hours. kevin, you tied in the russian angle. you saw mitch mcconnell being silenced over the issues with robert mueller and his future as the leader of this investigation. he actually spoke. >> leader mcconnell says that he believes president trump will not ultimately decide to fire bob mueller but if you did it be a problem.

he would be against that. he thinks the investigation should reach its natural conclusion but be the talk to gt into the weeds is whether or not congress would pass any bobslation to prevent mueller being fired. itsident trump split about they think they should be legislation. chuck schumer praise mitch mcconnell, saying it agreed that it is -- he agreed that it is the right thing to do to not have president trump fire bob mueller. that is bubbling below the surface and that has been the issue every senator has been asked about. julia: it would be the democrats who would push for this if they

wanted a bill that would require legislation to be changed. kevin: to bring it to the floor, leader mcconnell would have to do it but even if they lost a key part to republicans, the democrats would be the main avenue to get that accomplished. julia: i was going to tie it to a proposed omnibus spending bill we need to keep the government open. kevin: the government technically shutdown today because of a snowstorm. on my way in, i did not see a single snowflake. also seeing headlines crossing the wire between the united states and russia. a phone call between the two presidents congratulating president higgins on --president putin on his win. >kevin: this is interesting.

the leaders of the u.k. and germany did not called to congratulate putin and be reviewed from republican leadership in washington, including from the top republican in the upper chamber as well as john mccain and lindsey graham, they were critical of president trump for making that congratulatory phone call yesterday and the things that not come up in that phone call or the nerve attack against a former agent in the u.k. this brought a lot of swift condemnation from the president's own party. julia: let's end where we began this conversation. facebook very much in focus today. we have the speaker, someone at thet from facebook in capital today. what do we expect from the? >> kevin: this is a closed-door

meeting. these are representatives meeting from facebook to deal with intense scrutiny over the follow-up of selling data and ads to foreign actors. this is one financial institutions need to consider. if wells fargo did this, the ceo would be testifying. if jpmorgan was involved in something like this, the ceo would be testifying. how mark zuckerberg and sheryl sandberg have avoided testimony and senator kennedy putting, they must be paying a of money to their lawyers. how they have not testified before congress, i do not see how that continues. let me recap the headlines. rumorswe were expecting

that they would bring conditional e.u. approval for that monsanto takeover. the eu saying that bayer needs to show a remedial package to the tune of over 6 billion euros. the e.u. says they are ensuring competition in the pesticides and agricultural business. the eu commissioner speaking about these big deals. from new york, this is bloomberg. ♪ >> they will also divest

"bloomberghis is baye surveillance." all eyes are on jay powell as he makes his fomc debut. will the fed open the door to 2018.ate hikes in vincent, great to have you with us. talk about what you expect from jay powell. ratehe indicate that four hikes are possible in 2018? and how does he do it? >> i think you will be positive. there has been more fiscal stimulus, the global economy seems to be in a synchronous expansion. he does not have to point to a 4th rate hike.

ify will lean toward it but the data comes out like you would expect for the course of the year, markets will price it in. for now, get what you have to do over today. ay a coupleyou will p more times and everything is conditional. julia: he seemed quite optimistic when he testified in front of congress and then he had to rein it in at first the comedy has been concerned. --as far as the economy has been concerned. three or fed tightens four times, right now that is a theory. the theory that the unemployment rate starts with a 3, that cost pressures will emerge and inflation will pick up. there's been a modest uptick in

inflation and cost pressures but it has been slight. he is assuming inflation will rise based on the overall momentum of the economy. if inflatione is does rise it to the upside, a new fed chairman has to elalean --lean forward and say we have everything under control and we will not be behind the curve. line.ave to walk a fine ;i >> we know the real side of the economy. what about the financial side? we see the fed raising interest rates and we start to see financial conditions change. what is your view on the possible financial implications of the fed continuing on this path? >> the deep irony of this firming cycle of federal reserve

policy is that financial areitions broadly stated weaker than they began. we have had significant gains in equity prices. they look at financial conditions as the markets have been accepted of rates. it is a renormalization of policy. what they worry more about is leverage. there has been some pickup and debtebt -- in the footprint in balance sheets both in terms of f firms and households. the u.s. government is certainly doing its ahre -- share on that. that is probably why they go slowly on raising rates.

they do not want to shop the system. fiscal policyr as is concerned or what comes next after this u.s. administration. what does he say about the possibility of tariffs and trade war implications. what does he say? >> the ultimate feature of jay powell's appearance only hill is about addressing anything of a political nature. it is not my job, it is not my job, i'm a simple banker. he will probably do the same. the prospect on trade our are material so we cannot avoid it. from the central bank perspective, a rise in protectionism is essentially a supply shock. intense to be a hit -- it tends

to aggregate demand when you cannot know who you can trade with. cost pressures have been so contained that hopefully businesses will take the opportunity to raise prices so they can blame someone else. point aboutncent's the financial conditions index. we in the markets focus so much butreasury rate moving up the dollar has really declined and equity markets continue to be fairly solid for new financing. powellhow does the jay stamp his mark on the federal reserve and say this is my era now without shaking things up too much. >> i do not think jay powell is a guy who shakes things up much. --by puttingdo is

his own stamp on the institution is making it a little cleaner spoken, -- plainer spoken. &a on themony in the q hill was more personable and less technical. he is not an economist. he just plays one on tv. plainspokento get answers and he will try to express his ow own view. he will not hide behind the most recent document by the fomc. he will say this is what the says ande this is what i think is important. i think this will be a feature of fed communications in the powell regime. julia: the streamlining of information relative to yellen.

thank you very much. to point your attention to tv . interviews, analysis, anything you want to watch you can go to tv . tv is a big thing to watch. from new york, this is bloomberg. ♪

♪ julia: this is "bloomberg surveillance." just cleared a billion-dollar hurdle for its takeover of monsanto.

eu regulators have given the ok for the deal. haven one condition, bayer to sell its agricultural technology to basf. the company is being taken private --the nordstrom company ends talks with founding family about being taken private. and the u.k. secretary liam off boss isnced -- laiiam convinced that the world still needs the u.k.. >> london will maintain its global dominance in financial services. we have a financial service capability not replicated anywhere else. we have regulatory and legal trademarks under the protection and regulation of the bank of england. julia: timeout for the single

best chart. this encapsulates everything we have discussed over the last two hours or so. curve,. interest rate whether it is libel or two year yield, 100 basis points of tightening despite the fed hike from 25 basis point since september of last year. the white line showing financial conditions, which is still where they were in january of 2015. >> the fed looks at this and says it allows them to raise rates in march and june. it allows them to anticipate raising short-term rates over the next year or so. says the markets can handle a 50 or 75 basis increase in the federal funds rate. julia: it is pre hike. talk to me about how the fed

looks at this overall as far as indicating the full rate-- four rate hike potential. they can look it flexibility but at what point does the market look at this and say what do they know that we do not know. the challenge for the fed is this classic market expectation. they have access to data we do not have. what is going on with inflation. what is your benchmark. --is that the overall inflation mark? woody looking at for new car prices, telecommunication services? when the fed talks about welation, what extent do understand temporary versus impermanent changes --permanent

changes? julia: what do you think as far as the recent weakness we've seen in the data? kevin: this is a challenge in the marketplace. we do traditionally in the last five years, first quarter gdp has been weak. looking at retail sales, the challenge you have is a lot of retail sales are tied to credit. as interest rates rise, auto delete with the rates have risen. durable goods, maybe there is a challenge there. julia: thank you. coverage of fed chair jerome powell's first rate decision and conference, 1:00 p.m. new york and 5:00 p.m. london. this is bloomberg ♪ mom, dad, can we talk?

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that's a good one. seems a bit long, but okay... set a memorable wifi password with xfinity my account. one more way comcast is working to fit into your life, not the other way around. ♪ ♪ >> we are coming for you.

facebook sees $50,000 --$50 million in market cap wiped out. hike seems like a done deal. the question is, will it move higher this year or 2015? and higher store term funding cost triggering global financial distortion. >> welcome to bloomberg daybreak. i'm david westin. wednesday, it must be a nor'easter. >> 100% chance of snow tomorrow. who is going to go home tonight? serious one.s a >> let's see where we are trading ahead of the fed day me eting. euro-dollar a little flat. 10 year yield go nowhere. you're watching