francine: the fed hits ponds, j leads marketell confidence to rise. giantshines, the oil beats estimates despite a quarter of volatile oil prices. >> our buyback program is an important commitment we made to the markets. we remain committed to achieving the 25 billion by 2020. ♪

francine: good morning, everyone. welcome to "bloomberg: surveillance.". you can see the stoxx 600 gaining, boosted by a dovish fed. we also have earnings better than expected, some of the stocks of in a fitting. -- benefiting. this is what the u.s. 10 year yield is doing, you can see 2.67% on the back of the dovish fed comments. treasury yields and the dollar extending declines that we saw. and looking at the pound, we know with the u.k. parliament wants to renegotiate, but we keep hearing from europe that this is the deal they will get, so we will see if they change their mind. atre also take a look facebook in extended trading as company revenue comes in better than expected. we can see facebook gaining some 11%. coming up, our exclusive interview with the chief financial officer of shell.

cap set interview a little bit later on right here on bloomberg: surveillance. let's get straight to first word news in new york city. >> the federal reserve signals it is done raising rates, at least for a while. they made a sweeping pivot towards tightening for a much more dovish stance. jerome powell says the economy is in a good place but there are signals on the global outlook. we are now facing a somewhat contradictory picture of generally strong macroeconomic performance alongside growing evidence. at such times, common sense risk management suggests patiently awaiting greater clarity, an approach that has served policymakers well in the past. >> jamie dimon says he is a case -- ok with tax hikes, but the revenue must go where he thinks it will do the good.

his comments coming as elizabeth warren defends her wealth tax proposal. she says it is a way to raise revenue and improve opportunities available. >> capitalism without rules is theft. encouraging companies to build business models on cheating people, that is not capitalism. that is not competition in the marketplace. that is not producing consumer surplus. what i believe is that capitalism with serious rules. that means rules where everybody gets a chance to play. >> china's slowdown taps the brakes. it came in above the december level, also improving slightly, new export orders. this comes as high-level talks continue between the u.s. and china. this morning, there are few signs beijing will bend to american demand. .ey issues remain in place

president trump is expected to meet with china's vice premier. ministeraly, the prime says that the economy shrank in the fourth quarter and would push the country into a recession. this can also dampen the spending plans of the populist government. is comments raise eyebrows came one day ahead of the major economic announcement. preliminary data will be published today at 10 a.m. london time. the statistics office denied the numbers were leaked. local news, 24 hours a day on air and on twitter powered by more than 2700 journalists and analysts in order -- in over 120 countries. the european union is prepared to take brexit down to the wire rather than cave. according to diplomats, the block is not ready to give any concessions to theresa may without an emergency meeting. the next summit is due just

seven days before the planned exit date. joining us for more on brexit is jim o'neill, former commercial sector -- secretary to the treasury. he is in tokyo for a conference on japan's post-brexit relationship. always a pleasure to speak to you, even if it is very far. first of all, give me a sense on the possibility of a no deal brexit. have they gone up? my probabilities for what they are worth have not changed. weeks, 20%t three also that we never leave. it sounds implicit in the question, a relatively high percentage of 60. some derivative of the deal

passing by before the tournament or soon after. believe that they are ready to renegotiate. >> we find it difficult to believe that if it eu has nothing new to say whatsoever. they have to think about the following issue. whatever the basis behind it, it is the case for the first time since the self-inflicted madness started, the house of commons actually had a majority agreement. the eu has said often in recent months that there is a sign of

something that the u.k. supports. and we have gotten a sign, it is not one that is easy for the eu to respond to. they have gotten that sign, and if the eu were to persistently follow the statement, that backfired even worse. of course, the eu is a master at playing these kind of games. i don't take what has been said overnight with a great deal of salt. i think there are lots of things going on behind the scenes. banking news from deutsche , we understand from our reporting that deutsche bank will seek a merger if all else fails. they know that the new executive is beleaguered by concerns over legacy issues. of course, a lot of investigations are ongoing, and

we are hearing that deutsche bank may seek a merger if all else fails. a me ask you about the banking sector and then we will go back to brexit. he said in the past that we need more consolidation. why has it been so difficult to clear? >> in a strange way, you can relate it to many of the developments. underlying the uk's issues. works economically as well as it is supposed to, why have we not had a major european wide bank? you look at the likes of deutsche and other local leading european banks, they have increasingly struggled to compete with the big u.s. guys. almost anywhere in the world, including some areas in the home turf.

and you wonder why the eu has not allowed the economist of scale to follow through into something like banking. he did say the same about airlines, about a number of sectors. i'm's sure there are plenty of internal reasons why they have gotten into the situation. i think authorities should be providing a better platform for true, wide economies of scale to allow the theoretical benefits to actually follow through. francine: do you believe the eu banks should be competing with the u.s.? they are focusing more on retail and wealth management and the u.s. is focusing more on investment banking. >> well, that is what they are doing right now. but it sure there has been many a time when you have sat there and interviewed all sorts of people at deutsche or about deutsche. of course, certainly, through my career, they have had many

attempts to be a serious player in the investment banking business, as have many other european banks. one of the reasons they are not doing it is they found out they can't compete. if it is the case that european don't really think there should be a european bank competing in the space, fair enough, it would be a bit of a strange decision. it would be indicative of the fact that the eu does not in terms ofperly the economies of skills that come from the single market and so on. going back to brexit, you are in japan. alsoapanese carmakers and businesses work one of the first ones to ask for a guarantee from the government for the investments to be safe. what is the mood like right now? aware, am sure you are

given the very courteous nature of japanese people, including the business people, i have not actually heard directly said about it at all. nor, for that matter, the disappointment about a couple of japanese companies in all the nuclear in the u.k.. i suspect that it will be part of courtesy and manners, but the issues you just rates are well known, particularly for the auto industry, a hard raise it would be a disaster for the big companies in terms of the global supply chain and the role they played. but it actually heard very little said about it. interesting is exactly the first time i have been back. nearly six years. said is very interesting, close to 30 years.

because of the other things going on in the world, in some is like a bastion of stability, at least within the g7 companies. i think the scope for the u.k. and japan to explore some areas of mutual interest are better going forward. degree, a relevance of the brexit outcome, but particularly if they are going to think more smartly. said at that as last week about technology and data protection. i wouldsomething imagine the u.k. should be a big ally. japan's stance on this at g20. another thing which i think could potentially be really important, something you and i talk about. think about a

sensible strategy with china. it has has decades of hundreds of years of a very complex relationship with china. they have to be sensible about it. the u.k. gets so conceptual and sort of philosophical about these issues. and fashionably the case sony western european countries, and in particular, the u.s. and the moment. sensible got a pretty stance about the sort of things. up next, the fed pivots to patients. they leave rate hikes hanging by a thread. plus, but also take a look at deutsche bank shares after the company is set to seek a merger.

we discussed what all else fails actually means. this is bloomberg. ♪

francine: economics, finance, politics, this is bloomberg: surveillance. first press conference of 2019 has left market expectations for a rate hike headed -- hanging by a thread. says the fomc will remain patient on rate moves and signals of on producing its balance sheet. it was seen as a substantial pivot away from a bias towards higher cost. >> we are now facing a somewhat

contradictory picture of generally strong u.s. metronomic forms alongside growing evidence of crosscurrents. at such times, common sense risk management suggests patiently awaiting greater clarity, an approach that has served policymakers well in the past. still with us is jim o'neill and simon french. let's kick off with you. they worried about, a domestic slowdown? geopolitics? >> three things sort of hit the fed in the last six months that have enabled them to take this pause. the first is the weakness in domestic demand as the sugar rush from the tax cuts starts to fade. second is the weaker global oil price and that will translate to to lower headline and core inflation. the third aspect is the strength of the u.s. dollar, particularly in the first half. will we have seen that soft and, -- soft and -- soften.

there are reasons why, despite all of the accusations, i prefer a data dependent central-bank rather than ideological. francine: do you believe central banks are data dependent? i tend to agree with what simon just said. the other thing i will throw in , it seems evenyo more eager on financial conditions than ben bernanke was heard -- was. clip i've seen, he was emphasizing the importance of tightening financial conditions. resonates more powerfully, going back to the days when bill

dudley and i. mid we were working in the 90's when we developed our own financial conditions. the fed cannot ignore the tightening of financial conditions that took place in the fourth quarter. there almost trying to reset the equation. the longest may maintain flexibility and is the pretty rational thing to have done. you believe jay powell is also giving you merging the gift of they were hoping for? which has dollar dynamic implications. >> of course. discussed, as we have , we live in this very peculiar world. importance for the u.s. economy. is extremely important, but

not anything like 15 or 20 years ago. the role of the fed's is even more important than that. at some point in the future, something has got to give, because it is a various sub optimal state of global financial operations. but it is what it is. and it means that when the fed's which is significantly, then obviously, many aspects of the financial system, not just the emerging markets, move dramatically. this is a bit of a friendly gesture after the pressures that emerging markets have faced on and off for much of last year and the year before . i would imagine that if they follow through, we will see a big rally. francine: thank you very much.

we are expecting jim in the studio when he is back from his travels. the we runme to through some of the day's biggest running stories, shall getting a boost. -- shall getting a boost. bank, seeking a merger if all else fails. that's up next, this is bloomberg. ♪

♪ francine: this is "bloomberg: surveillance."

let's get back to germany. deutsche bank's top ranks are bracing for the merger with commerzbank. shares with both banks are trading down. isning us from frankfurt stephen, who covers german banks for bloomberg. why are shares moving lower on this news? everyone was expecting something to happen at some point, but many people are surprised by the timeline. this seems quite soon. the ceo has up eagerly said they are ruling out anything for 2020. by midyear, it is quite urgent and might show that it is not shine the light. they might not be happy. if all else fails, what does that mean? >> it is basically the

turnaround plan. he unveiled a new plan when he stepped up the post. but he is still hoping that his plan works and he is likely to unveil. a firsty to present annual profit. is also likely to show that he has been able to cut costs and keep costs below 23 billion euros. but he has not been able to stop the revenue decline. that is the problem he is facing and he is running out of options. francine: all right, stephen, thank you so much. coming up, we saw facebook and other tech stocks. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance." despite volatile prices, real dutch shell has managed to be

estimates. it delivered a surge in cash flow, which it says will underpin world-class returns to investors. the chief financial officer spoke exclusively to bloomberg about the outlook for 2019. >> we're going to do it all. we need to do it all. that is our objective, to be a world-class assessment case. to achieve that, we need to continue to have a strong balance sheet as resilient through this cycle and increase shareholder distributions. that is what we're going to do. our priority is generating the right level of cash so that we can achieve all three objectives. manus: you talk about the downstream business. i'm fascinated where i am sitting. what is the demand side like out there? where is the strongest and in or is there a taper and demand?

jessica: we have a big portfolio of lng, oil products, lubricants. we are in 70 countries around the world, so it is hard to have one answer to that question. oil demand globally has continued to increase in that has been driven by growth in demand, particularly in asia, marketplace mexico. it is really market specific on the whole we continue to see strong demand for oil and gas. francine: does the chief financial officer speaking to ejra and manus. viviana: the federal reserve signaled it is done raising rates for a while. the central bank made a sweeping pettit to a much more dovish stance. jerome powell says the u.s. economy is in a good place, but the global outlook has conflicting signals. >> we are now facing a somewhat

contradictory picture. sense riskes, common management suggests patiently awaiting greater clarity, an approach that has served policymakers well in the past. says he jamie dimon to is ok with tech heights on the risk. emai enough statement -- statement, he says super wealthy americansl can afford to pay more. warren says her proposal is a way to spread revenue. >> capitalism without rules is theft. encouraging companies to build the business models on cheating people, that is not capitalism, that is not competition in the marketplace, that is not producing consumer surplus. what i believe is capitalism

meanserious rules, that rules where everybody gets a chance to play. viviana: china's slowdown tapping the brakes. improving slightly, a gauge of new export orders coming as high-level talks continue between the u.s. and china. this morning, there are few signs beijing will bend to american demands. during today's negotiations, president trump is expected to meet with china's vice premier. in italy, the prime minister says the economy probably shrank in the fourth quarter. this will push the country into a recession. this could also dampen the spending plans of the populist government. his comments raising eyebrows as it came a day ahead of a major economic about. beliminary gdp data will posted today.

global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. francine: thank you so much. let's bring you another earnings story. unilever is warning of a tough year ahead. it says sales growth will be lower than expected as consumer confidence weakens in emerging markets, especially latin america. the chief executive spoke to bloomberg. >> the reason why we have delivered and archiving in the lower half of our ongoing range of 55%, is basically due to volatility in key emerging markets. latin america,, in particular but also places outside east asia are running of the below their traditional levels of growth. for us to news up in the higher half of our guided range, we would really need to see a stronger recovery in latin america. annmarie: are you also seeing a

slowdown in china? by now you are not luxury, your everyday consumer products, but i chinese consumers still buying dove soap? alan: we are seeing good growth out.in, you're consumers are engaging in the type of brands we are selling. increasingly, we are developing products in china for the chinese market. itngst all the volatility, seems like the consumer products segment is part of the stable chinese economy. annmarie: is the trait were impacting business? alan: we have a tremendous global footprint and we are used to dealing with geopolitical shocks and movements. at the moment, that is certainly not a significant impact on our business. annmarie: what market shows

opportunity for you? overall asiaseeing doing very well. india, pakistan, bangladesh are doing really well. china has been a stable source of growth. part of the world where people are really moving into consumer products markets, southeast asia, we're starting to see a recovery led by think this is in indonesia. francine: those the chief executive of unilever. for a broader look at the , let'sn earnings season bring in our guests. if you have a breakdown of who is doing well and who is not, is a retailers, good if they are not exposed to china, but tech not too bad? >> there is very few companies that have very strong outlets

and strong results for the fourth quarter for the full year. played -- gave an exclusive interview to bloomberg this week is seeing major growth. h&m, unilever are all showing pretty weak results. francine: does that mean the burberrys of this world are doing well? nia: today, we had really great stocks from shell. next week we are expecting bp. hopefully with this oil price direction we saw at the end of last year, the energy sector has cut that costs so much that they are now comfortable with pretty much any oil price. francine: what is your take?

sam: i think it is growth around the world. i think of a bit of caution for the current earnings season is it is up against some very the competition from 12 months ago. 12 months ago, we were talking about the global expansion. i think in terms of 2019, itding growth in is very much second cap wa .- second half weighted the fed will probably take pressure from emerging markets, it is very much second half weighted. francine: is at the guidance you are focused more than earnings on the previous quarter? simon: the guidance based on very cautious statements based on the outlook from global growth.

if you are looking for a great, you're probably going to have to be patient for the first couple quarters of the year, but perhaps get ahead of what we marvelous news the second half. enia: very few banks have reported in europe. possible job layoffs we are expecting and also major outflows from ubs. wall street results have been very dramatic and disappointing this year. goldman,anley, jpmorgan reporting slowdowns in sales. that is not going well for european banks. francine: thank you both for joining us. coming up, the eu is set to be prepared to take brexit down to the wire rather than case into the u.k.'s demands. this is bloomberg. ♪

francine: this is "bloomberg surveillance." the european union is preparing to take brexit down to last-minute high-stakes summit rather than cave into u.k. demands. the eu is not planning to give any concessions to theresa may u -- may before she opens up to another vote. annmarie: this is what we not this point. the eu would rather take this to a late, almost emergency summit in march then to cave in now.

at this point there is no appetite to give any day.ssions, clear as the eu will not do it backstop and will ditch the irish government. they think at this stage there is nothing they can put on the table that will appeal to brexiteers. they still think this is very much a domestic story that prime minister may need sort out before she comes to brussels. we're not expecting her in town this week, which i think really tells you a lot of where the negotiation is going. francine: thank you so much, maria. joining us is the answer -- director of the institute for -- research. we had pretty heated arguments. we have people that say it is almost demagogic. which one is it?

simon:: the reality -- the reality is that it is somewhere in between. you have to interpret from that what they are not saying which is, his very potential for a document here? is the withdrawal deal a political debt -- declaration and something around the process and arbitration of the backstop. no one has ruled that out. cap did you have to be careful in terms of what is being said and what is the ruled out. also what may be ruled in as we go through this negotiating segment. this is coming right out of the wire. clearly, the european strategy is trying to pivot a political declaration towards the customs union and use a lot of movement on the backstop as a way of engineering that. francine: what you think will happen? no chancenk there is

of the eu 27 moving on the backstop. a thing for the hard brexit tears, unless the withdrawal agreement changes, there will be no satisfaction reached for them. the withdrawal agreement doesn't necessarily mean the cable get what it wants. what is spain comes back and says, if you are opening again, we want further assurances on gibraltar. it is very unclear to me why people believe the outcome of reopening the withdrawal agreement will be good for the u.k.. believe thatple some point you have to decide between a no deal brexit, wt arrangement or a softening of their stance. if they don't show a softer side, they will be blamed for what is happening. tom: i think the issue is, what softer side can they offer? if you take that problem of having no border between territories space and customs territory, what is the alternative solution?

the brexiteers come out and say, we need alternatives, but then specify what the alternatives are. if they were able to articulate what the solution would be, there might be a conversation to have. the fundamental problem is that they don't have an alternative solution to the backstop. the inaugural brexit is very unlikely. i think people have misinterpreted it. we have seen this week is not an increase in the likelihood of no think what we have seen his other outcomes other than the prime minister's withdrawal agreement have diminished in the likelihood and the syntel likely scenario is that the withdrawal agreement will pass the house of commons. francine: where do you see gilts going? simon: i think you need to strip out the brexit element, but also the underlying pressure in the economy. the labor market continues to be

strong. if you get a brexit withdrawal deal either in q1 or it falls over into q2 and the start to get the bank of england able to focus back on the near-term policy rate, you may see guilt sell quite extensively. the bank will need to be active to stand had a play core inflationary pressure in terms of the labor market. francine: what does it mean for pound? cable is moving on the dollar side. simon: of dovish fed and dovish ecb. the note has diminished from a but ise to a lower base, think the risk is a symmetric here. i think sterling will rally a little bit stronger from here as we get clarity. curb your enthusiasm. even if you do get a withdrawal deal, you have a 20 month window rate.otiate a free trade

that comes with its own uncertainty and you are not going to see sterling rally back to its pre-referendum levels. francine: i have a really good chart looking at the flattening yield curve. when do you think a second vote needs to happen for this withdrawal agreement as we have it now to get past through? : i think it is what it probably roll into march in the end. i think it will continue to contain the backstop. let's all remember that the backstop is a destination for the economy than the free trade agreement envisaged. the backstop actually has less of a negative impact on gdp then going into the free trade agreement, which is the outline destination set out in the political declaration. this is a slightly perverse argument. we're talking about, how do we do something more harmful to our

economy. francine: would theresa may actually risk splitting her party to get this withdrawal bill for? tom: the conservative party is split. i think she will put the withdrawal agreement back in pretty similar form, maybe there will be some edits. i think it will pass probably with labor extensions -- labour extensions. think it is unlikely they will vote on the steel -- this deal. simon: one of the things you need to look at is the dynamic setting. you say the customs union is better economically than the free trade arrangement, for what are the ramifications if we pursue a customs agreement on a political standpoint in the u.k. in terms of splitting

potentially both major parties. investors i speak to are worried on the political ramifications of this being a botched job that puts the political system and the political system and nikkei and therefore your ability to press investments much more heavily impaired by the linning political risk. -- looming political risk. tom: i disagree. i would say most conservatives are positive. parties pretty evenly divided. at the end of the day, brexit is a strategic decision to remain integrated in the european economy on a different political basis, or do you try to divert from the european economy. to labour party wants remain. think the issue is that the parties are so finely balanced in parliament that a relatively

small number of either side disagreeing has have political consequences. francine: thank you both for joining us. tonight also, we will bring you lacqua."aders with be sure to tune in tonight at 7:30 p.m.. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance." retiring again. this reinforces the company's reputation of having a revolving door of top executives. the surprise announcement came during the earnings call yesterday. elon musk vowed to cut costs. facebook reported revenues that beat estimates, as of thertisers stuck with social media company through a series of privacy scandals. joining us now is a senior analyst with bloomberg

intelligence. simon french stays with us. it seems that tesla got investors back up because the new chief executive was announced not by a press release, by the end of a conference call. >> just 20 seller governance for tesla was improving -- just when governance for tesla was improving. i think given the focus on tesla's financial performance and any to improve cash burn and profitability, a change in finance potentially takes confidence back a few notches. grow tostor base has to know and understand and trust. francine: about know whether tesla has implications on how you look at the tech sector or car sector, or whether you just leave it to one side. simon: i think it is

symptomatic. when they talk about the headlines on geopolitics, tesla acts as a bit of a bellwether. we don't often talk about tech companies as a bellwether. it is one for chinese growth but also, what is going on at the global level is a shift from 30 years of free-market doctrine to a more competitive market doctrine. tesla could get caught up in that shift. francine: we need to get matt back to talk about facebook. matt and simon. up next, we talk markets with tom keene. coming up, madeleine albright. ♪

pause.e: the fed hits

shines. we hear from the cfo. utsche wo group -- group is set to megamerger if all else fails. good morning, everyone. does is "bloomberg surveillance." -- this is "bloomberg surveillance." reporterson the ground have been trying to figure out what deutsche bank's future looks like. about 30 minutes ago, deutsche bank saying it may seek a merger if all else fails. it could come as soon as midyear. tom: the bottom of the story, you look at 8 consecutive quarters of revenue decline. right andyou are we're also getting breaking news

out of italy. italy now in a recession after the economy shrunk in the fourth quarter by 0.2%. that is something we have to spend a lot of time on. first, let's get straight to the bloomberg first word news. viviana: the federal reserve signals it is not done raising interest rates for a while. that is a sweeping pivot from its biased toward tighter monetary policy last month. jerome powell says the u.s. economy is in a good place, but he warns of slowing growth in china and europe, plus the impact of trade disputes are sending conflicting signals on the outlook. little indication this morning china will given to u.s. demand as high-level trade talks in washington. a second day of negotiations is set for today. president trump is set to meet with the chinese vice premier. a breakthrough deal is unlikely. the white house says a statement will be made.

corporate america weighing in this morning. it wants to end president trump's trade war. will start a new attack next week on policies acs damaging. parispaign will be called hurts the heartland. deutsche bank could end up merging with rival commerzbank by midyear if all else fails. bloomberg has learned that the bank executives are concerned such a deal may become their only option. e is set toeutsch announce results from a difficult fourth quarter. if there is no improvement, a merger may be inevitable. the european union is ready to push the u.k. to the point of no return on brexit. the eu is willing to go down to a last-minute high-stakes summit rather than cave in to demands from theresa may.

man's getting ready to go to brussels to reopen her brexit deal. the eu doesn't plan on getting her any concessions before she returns to a vote on -- in parliament on february 14. global news, 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. tom: thank you so much. mckee moved the market in the process. a steep real curve off the dramatically lower yields yesterday. at a little confusing, but that is the way the pros look at it. weaker dollar, strong euro. the vix, 17.49 shows the equity market. this is important. not only yield curve dynamics in the two years base, that curve dynamics in the 30 year space. 3.02 is the 30 year.

yen is well stronger. francine: stocks in europe are up. we had pretty solid corporate earnings. treasury yields on the dollar extending wednesday's decline. what i'm looking at is the two-year or 10 year yield on italian bonds because italy fell into a recession at the end of 2018. fiscal tensions seem to be taking their toll on the economy. we will get back to italy and deutsche bank, but first, the fed signals it is done raising rates for now. the central bank made a sweeping pivot to a much more dovish stance. u.s. economy is in a good place and we will continue to use our monetary policy tools to help keep it there. ofpite the positive outlook,

the past few months, we have seen crosscurrents and conflicting signals about the outlook. growth has slowed in some major foreign economies, particularly china and europe. at such times, common sense risk management suggests patiently aniting greater clarity, approach that has served policymakers well in the past. the committee is now adopted -- evaluating the proper timing. this decision will let the be part of a plan for gradually reaching our ultimate balance sheet goals while minimizing risks to achieving our dual mandated objectives and avoiding unnecessary market disruption. if we don't react to most things that happen in the financial markets, but when we see a sustained change in financial conditions, that is something that has to plan to our thinking. our policy works for changing financial conditions. it is sort of the essence of what we do. francine: that with the federal reserve chairman, jay powell. we are joined by chris and

patrick. thank you both for joining us. what do we misunderstand about the fed right now? reaction tois a equity markets, in particular i think in q4 as well. some people may categorize it as a reaction to trump pressure as well. to have given themselves maximum optionality right now. they are saying if the data is strong, there will be hikes, if it is weak, there may be cuts. it makes a lot of sense given the uncertainty we have. yet the government shutdown that is way to keep a lot of noise in q1 data. you shouldn't have a set that has got a very clear bias. you need a fed that is what he reacted to movements in the economy right now. francine: do you agree with that? ris: definitely agree with

that regarding the symmetric outlook. a think it is a great surprise and came earlier than the market expecting. just that focus on the fed balance sheet is not in the markets domain. it has been very positive for the risk environment today. one of the issues last year was that test fighting was sucking money into america. now, it allows some breathing room for the rest of the world. tom: want to open this discussion. chart.p the on what to call this the michael mckee chart this morning. the key asked the question -- m ckee asked the question, was into thatgime change and 16 on a shift in policy and strategy for the central bank.

chris: i was a probably need to spend a little bit more time analyzing said communication over the next month because this has been a shock without quickly the fed it -- has changed position. himself, theid risk management approach there is probably right. why put yourself out there taking retirement global environment is quite concerned. tom: it would help if i explained the chart. this is the view five years out and five years forward. all you have to know on radio, the old rate was 3%, the in the new rate is 2.2%, 2.3%. there is a huge is shift here. michael's? simply are we in a regime change in the federal reserve? are we?

patrick: i think they are off the market. i'm going to be a contrarian right now, but if you look at the job growth and wage growth numbers, it is about jobs in attracting jobs. i think wage growth is going to fuel inflation. is probably went to hit operating margin. stagnation,uctural i don't think that is the right narrative form of the u.s. economy is going to be facing. francine: haven't we been waiting for that for 18 months? patrick: we have been waiting for it, but it is there. think it is starting to build now.we have had to wage growth over the last five years. you still have a very fed fundsive said -- in future. that gap is 100% going to the euro. -- narrow.

francine: with is a gift to emerging markets? patrick: the balance sheet is very important for the pressing of assets.if we see the fed blinking , a it may trigger another run-up in risk assets. chris: definitely agreed. francine: both staying with us. coming up, we talk more about deutsche bank and we catch up that is ats can tory 6:00 a.m. in new york. this is bloomberg. ♪

viviana: royal dutch shell came

through three months a volatile oil prices to be earnings estimates. that to ease concerns the company can afford to pay one of the world's largest cash dividends. shall says it is still committed to a big share buyback. isare buyback program important to what we made with the markets. we remain committed to achieving the 25 billion by 2020. viviana: earnings missed estimates by swedish retailer. to get into high gear rid of excess inventory. that is the bloomberg business flash. francine: let's get more on deutsche bank and bloomberg's the last 15ng in minutes or so on the fact that it could merge by midyear if all else fails.

let's get to steve who has been covering deutsche bank. what is the all else fails? to they have four months or five months to convince investors it has the right strategy? steve: exactly. he needs to show that he can deliver. he is probably delivered. he will reveal annual fourth-quarter results tomorrow. they'll probably show he has delivered on annual profits. hasn't done is stem the decline in revenue and that is exactly what analyst investors want. hope that this is still possible. the bank has lost too many people.funding costs are high . if they realize it is impossible, the merger is the option of last result. tom: put look at the history here. know if the to persistent in the path is

stunning. for deutsche bank is on the long-term failure and regression is amazing. one of the rationalizations here is we need to keep london, we need to keep new york. 8000 roughly employees in london. what is good to happen to them if you have a german bank through german merger? steve: think that is a very good question. i'm pretty sure everyone working for deutsche bank in london is asking themselves and perhaps colleagues the same question. they have been very adamant the bank will need the u.k. in the u.s. it wants to remain at the investment bank and it is impossible to be that without a stronghold in both of those countries. even if they merge, that will continue to exist. the whole thing would be premised on the assumption that it will need to cost synergy. they would remain close in those countries. tom: give us the cultural view

in germany of the government coming to the rescue, for government forcing this merger. i know it is a people familiar story, but you are on to 8 quarters of failed revenue growth. history of cultural germany to the rescue for the banking institutions? steve: that is a really interesting question. it is difficult to understand from the outside world, of the view in berlin in the german capital has changed dramatically since a new government came into power last year. the new finance minister and deputy are very pro-banks. they are concerned about the strength of the german banking sector and are trying to help deutsche bank become strong again. they are standing by to help. they're not forcing it, the merger, of they really want something to happen to help deutsche bank, so they are in

favor of the merger. francine: thank you so much. i just want to understand whether these two banks, if they merge with actually make a stronger bank? this is political interference, isn't it? patrick: if you get both commerzbank and deutsche bank happy with it -- francine: but does it make it better bank? patrick: it reduces competition in germany. they have large class overhangs and both banks are probably bringing them capital. the best scenario would be it won't be allowed for a foreign bank to come in and do it. very unlikely. francine: let me show you my chart. thank you to hillary clark. this basically shows that commerzbank is more valuable than deutsche bank. are there any mergers in europe of big banks that have worked? patrick: good question.

i can't answer on the top of my head. to the banking union in the eurozone would facilitate a lot of these. it looks like there is no impetus to get that done. there's a lot of overhangs for the banks, that we don't own any deutsche bank shares in french banks right now. at six-sevening times earnings. if you multiply all those by 1.5, i still view that as fair value. i like the middle ground where they are a little bit better, but still incredibly cheap. tom: i am doing math. here is what you need to know. the combined revenues,: $39 it $39 billion. i have other ratios coming up because it is so cold in new

york, on you can do in new york when it is for above zero is due math in ratios. present patrick with us. coming up, an important with us. stay with us. this is bloomberg. ♪

francine: this is "bloomberg surveillance."

tom and francine from london and new york. the first official gauge from --na's economy shows president trump is expected to meet with china's vice premier today. patrick and chris are still with us. we spent so much time talking about the pitfall because of the trademark. how much of it is just global slowdown unlinked to trade and trade just exacerbates it? chris: 20 was would be the story about the global expansion. i think protectionism was quick to jot down the story.of think italy has been at the center of the slowdown. obviously, there have been problems in europe as well. for that to be some kind of breakthrough, i think it would be relief. francine: how should investors

look at these trade talks is it the escalating or re-escalating? patrick: we have been -- we think there will be a deal, we don't think it is going to be all-encompassing or incredibly meaningful, but i think we will get something that puts a truce on things. it may be a slight fall back. it is awkward to come down to implementation. china can agree to everything on intellectual property, transaction, things like that. i think you can get a win if you want it where people agree on this, but that it is the implementation market lacqua to be cheating, think. : without the dollar was going to people later in the year. i think the market is moving into a viewer the dollar has already top and looking for opportunity in undervalued currencies. tom: if there is a weaker

dollar, what does it mean for china? chris: you probably think so. i think it is interesting to look at the renminbi against a trade weighted basket. last july, it got hammered largely on the back of flows and pessimism. this year, we are seeing a recovery. about 30% of the losses from last year, i think the move is likely improving. as patrick was saying, if there is progress on trade, i think you probably expect demand traits that would support a supportive environment. not too bad an environment for chinese exports. patrick: we think the dollar is going to be weakening as well. we think europe is going to rise in the second half of this year. if you look at wages in europe,

2.5% wage growth is strong. if you compare that to zero interest rates, employment down to 10 year lows, the european consumer i think can surprise a little bit this year. you weaker oil prices, which is a boost to consumer. if you get fiscal stimulus, which makes so much sense, it might be a way to appease some of those things. francine: thank you so much. patrick and chris both stay with us. coming up on balance of power, madeleine albright at 12:30 p.m. in new york. this is bloomberg. ♪

♪ "surveillance," many stories. brexit is quiet. francine: it is never quiet. tom: the german government will

go to deutsche bank and commerzbank. i want to give a fact on deutsche bank. stone, not chiseled in that i did some quick work which you can do off the bloomberg. how much revenue does a given employee at jpmorgan make? $429,000 per employee. the merger of deutsche bank and commerzbank would be a lot less. that is the answer. that is the profit really -- profitability gap per employee bank and- a struggling a well oiled machine. let's talk about another well-run machine, facebook. what a disaster their pr has been. their positioning within technology as well. let's listen to their ceo. >> we are going to continue to

make the investments to prevent harm and build great products, and invest in the future. our focus is continuing to do all of that and i think people wonder if we can do it at once come all at once. i think this quarter shows we can and we will. tom: baloney. i know she is spinning a message. cut to the chase. is this a change in quarter or was it fortunate, wrapped around these other issues? matt: there is a lot of changes going on at facebook. at will take quite a long time to see. what you see in q4 is more the insatiable demand of people like you and me to use their phones. we are addicted to them, and that is where advertisers need to spend the money. even if they prefer to spend that in a controlled

environment, they have to go online. question is a critical and goes right to your work. our advertisers going to the land of sheryl sandberg because they want to or do not know where else to go? chris: -- matthew: i think it is a mixture. advertisers and the agency are having to relearn. it was a stable environment with tv where did new you got a return. and they are doubling up spending money on traditional and new media because they are not sure what is most effective. they will figure that out, but they need to be online because that is where the eyeballs are. francine: i have a million questions on tesla, but on facebook, advertisers are ignoring the scandals. matthew: i do not think that is quite true.

they are pushing back strongly at facebook. they are in a difficult position because they cannot pull back because if they do, they open the door to their competitors. they are making it clear to facebook they expect more. there is calls for google and facebook not to mark their own homework on the results. i think in 2019, independent verification of the results you get online. i think there is pushed back but they are in a bit of a corner. tesla, the ceo is to party and elon musk -- departing and elon musk says there is a transition. matthew: instability, nobody likes a management change. if you are trying to build confidence in the company trying to demonstrate positive cash flow, the cfo is core to that.

when you transition, you have to rebuild trust with a person nobody really knows. tom: mr. cooke at apple pay for some of his private flights and mr. musk flying around. amazon's tv ad blitz for the super bowl. the super bowl is a football game in america and all you need to know, here's the amazon commitment to super bowl and here's facebook. do we understand how amazon dwarfs these other players in size? matthew: i don't think we do. reading a few things before we will account for 50% of online retail in the u.s. it is huge and just starting to get into its own push on advertising. acquiring agencies specialist firms that do nothing but help advertisers use that

advertiseo advise -- and improve their sales. francine: how do you see this? andacebook they were clear aftermarket it is up 11%. tesla, elon musk is back to his old tricks. patrick: facebook results were stunning in terms of profitability. i had concerns about them losing users -- and there was no sign of that. they got much more revenue per user. looking at numbers, facebook is good but the pr, they are creating a lot of problems. it is things you cannot price in. we have gone from a high-growth, cowboy industry to one that will face more regulation. tom: i like that, cowboy industry. francine: sounds like "surveillance." tom: right now, your first word news. viviana: oil is heading for its

biggest monthly gain and almost four years. futures have risen more than 20%. reduction cuts from opec and its allies have started to cut -- kick in, plus a dovish fed. chuck schumer says the u.s. intelligent chiefs need to stage an intervention with president trump, describing them as "passive and naive." he says the president's criticism will undermine the public's confidence. in theng to economists u.s., payrolls likely through by $165,000 -- grew by 165,000 workers. the impact of the partial government shutdown could home sellers had an

average realized gain of $61,000, according to data solutions. homeowners who sold had been in their properties an average of 8.3 years. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. earnings,back to unilever is warning of a tough year ahead. be lower thanill expected as consumer confidence weakens in emerging markets, especially latin america. >> the reason why we have delivered and are guiding and -- lower half of our ongoing is here to volatility in key emerging markets. southeast asia is running below

the traditional levels of growth , and for us to move into the higher half of our guided range, we would need to see a strong recovery in latin america. we are making sure we had inventories of products sold in europe but made in the u.k. on one side of the channel, and on the other side of the channel. few weekslding up a of inventory to cover all scenarios. francine: that was the unilever chief executive. brexitanies prepare for scenarios, theresa may will head to brussels to reopen talks. the e.u. is not planning to offer any concessions. i am not sure exactly how to use this, because we spoke to jim o'neill who is basically saying a 20% chance of no deal, 20% chance of no brexit, and 60% chance of the kind of withdrawal agreement and renegotiated, but on what?

-- being renegotiated, but on what? chris: if we focus on the next couple of weeks, the positioning from brussels, there is nothing to be done. primely the base case is minister may comes back with nothing material and we returned to the focus of the amendment hills -- bills on the 13th and 14th. that is how we saw sterling trading. it was not like effectively the chances of an agreement or second referendum where blown out of the water. it is kind of like a stay of execution. francine: what does it mean for flattening yield curve in gilt? this is the 2-10 year yield spread. will it go forever flatter? onis: tracking what is going in the states over the last year or so, we think the bank of

england would like to get a rate hike in if there was an opportunity this year. i think if there were signs of progress in a couple of months or so, you would assume the long end would pick up and the flattening would stabilize, a bit like in the states. tom: patrick come across the portfolio there is a revenue patrick, across the portfolio there is a revenue believe. are we just shifting it down the window? doing is shifting it down when we look at unilever? patrick: we always shift revenue down as you get closer to when revenue will be reported. humans are too optimistic. will matchwth nominal gdp growth and will not be incredibly different. ,f you get 4% revenue growth

that is probably in line with long-term gdp growth and anything above or below that will not be sustainable. tom: what an interesting our. a huge news flow. we will continue with deutsche bank and the fed. myself, maryo and lovely of the peterson institute with the dynamics of china and the united states. that is in the 7:00 hour. we will do more on deutsche bank. this is bloomberg. ♪

♪ francine: bloomberg "surveillance," tom and francine. shell came through a quarter of

volatility to beat estimates. the cfo spoke to bloomberg. >> the buyback program is an important commitment we made to the markets with the bg transaction, and we remain committed to achieving the 20 billion by 2020. it is important to keep in mind the amount of cash the company has generated, a pretty extraordinary number, more than 2014 when it was in prices were $99 a barrel versus $70. our strong flow cap -- cash flow generation of the company is allowing us to keep investing and paying down debt. we have been strengthening our balance sheet and start the share buyback program, increase shareholder distributions. we have completed some $4.5 billion already. we have committed to the next

tranche of $2.5 billion. if you look at the underlying cash flow of the company, we are able to achieve ambitious objectives of growing the company, deleveraging, strengthening the balance sheet, and increasing shareholder distribution. : there are a lot of things to achieve. demands from investors are dividends and buybacks but also cutting debt and growth and capex. you have talked about the free cash flow. that is key. in terms ofebate shell being at risk of under investing and not focusing enough on growing reserves. what do you say? we are focusing on growing our cash flow,ng which we have demonstrated over the last couple of years. at themportant to look

nature of our cash flow and the amount we have been investing for the past couple of years is allowing us to generate $50 billion in cash flow from operations. we have been the highest generator of cash flow for the last four quarters, in the sector. assessing our investment and the direction of the company, the proof is in the pudding. you can see what we have been generating in terms of cash from investments. our capital discipline and capital efficiency is in a different place than a couple years ago. the company ind terms of unit development costs and unit operating costs. what we are able to deliver today is much more than before, for a given dollar of capital spend. the final point is in terms of cash flow, less than half of it is coming from our upstream business. we have huge industry-leading

businesses in our into gated -- integrated gas portfolio, lng portfolio. those are less capital dependent to generate growth. it is important to understand the nature of shell and our cash flows, which are not necessarily dependent on excessive levels of capital investment. the way we have reshaped the company allows us to accomplish a lot more for the same dollar of capital spend. francine: that was the chief financial officer of royal dutch shell. oil is set for its biggest monthly gain due to opec cuts and a more dovish fed. still with us are patrick armstrong and chris turner. if there was something ugly happening in china, do you see an oil demand? patrick: we see an oil demand and we have no position in oil.

russia is showing signs of moving away from opec so i think you will get a supply risk if there is any positive good news on the economy. on the downside, we see lower oil prices and we do not expect the economy to disappoint. 5%, 6% dividend yields, that is our payment sector. tom: i thought that was the biggest bunch of hot air from a cfo of an oil company in a decade. they have been a gross underperformer for well under -- well over 20 years. how do they get their act together and become a big player of continental europe? it is not about being dominant. it is about producing economic value. i think oil companies, the $30 oil government, they are very efficiently run.

tom: are they running in europe for shareholders or running to sustain management? patrick: there is always a bit of both in europe. definitely improved their focus on shareholders. you are getting great dividend yields and they are buying back shares which is part of the strategy. incredibly comfortable with the valuations. i think the dividends are supportable with oil at $50 which we think will hold and maybe even upside. francine: coming up on baker'sties edge," chief executive. this is bloomberg. ♪

♪ bloomberg "surveillance," from new york and london. we need to go to india, off the radio -- radar for the western world. it is part of a political experiment that is india. is it safe to say mr. modi is fighting for his life?

is the right way of putting it. the government will be presenting its budget and this will be a significant announcement. the prime minister will use his budget as apelike to announce the campaign for 2019. plank to announce the campaign for 2019. the stakes are high. 800 million indians are employed in the farm sector directly or indirectly and modi understands the political significance. a farm support program becomes extremely significant. india is in the middle of a serious crisis where farm incomes are not going up. farmers are demanding a better deal. therefore, announcing a farm support program will cost the exchequer a lot of money but will be important. tom: we all know that mr. modi

took a global victory lap upon ascending the leadership of the nation. how is the modi of today different from the modi of a few years ago? he remains the most the toppolitician in contender for the top job in 2019. make no mistake about that. the game is still wide open on who will form the next government. stateb just lost a few elections and that is galvanizing opposition to gang up against modi and form a coalition. if you leave his popularity on one side, they have to cleverly form alliances to form the government for 2019. for that, this budget becomes extremely crucial because this could be the last attempt by this government to deal with both sides of society.

francine: you are suggesting this budget could help his chances of being reelected, but when the polls open in may, what will they vote on? government came on the promise of two things. one, that it will create jobs and sell the idea of development growth. while thet four years narrative was controlled by prime minister modi and his party, in the last six to eight months the narrative is slipping. and of those keywords flagships have not delivered much on the ground, which means there is ultimately enough ammunition for the political opposition to gain some ground and say, he was a large marketing machine. it boils down to the numbers of who will cross the magic number. , politicalned

alliances will be extremely crucial in that aspect. tom: thank you so much. , we will look at the future of the market on a day where amazon trots out there size, their balance. --their size, their balance. a good time to talk with charles kantor. francine and i will consider deutsche bank, commerzbank as well. stay with us, worldwide, this is bloomberg, and that is a very cold new york city, coast-to-coast. be very careful. ♪

♪ tom: this morning, the time has come after some eight quarters of declining revenue. deutsche bank may or must merge

with commerzbank. the future of deutsche bank in london and new york. a stunning and market moving fed meeting. michael mckee asked the question chairman powell refused to answer. the liberal senator from massachusetts, issue too liberal for her party? -- is she too liberal for her party? i am tom keene in new york, francine lacqua in london. we are brexit free today. why? francine: i would suggest you are brexit free because we are focusing on company stores like deutsche bank. if you look at my world, we are definitely not brexit free. there is a lot of pushback from the e.u. and mr. uecker j --uncker, saying he will not

renegotiate. tom: right now, first word news. reserve the federal signaled it is done raising interest rates for a while in a sweeping pivot towards its tighter monetary policy last month. he says the u.s. economy is in a good place but slowing growth in china and europe, plus the impact of trade disputes are sending conflict ring signals -- conflicting signals. a second day of negotiations between the u.s. and china is set for today. president trump is supposed to .eet with chinese vice premier a statement will be released on the progress both sides have made. corporate america weighing in this morning. it wants to end president trump's trade war. ranging from agriculture to liquor, they will start a new

attack on policies they see as damaging. about 100 executives and business owners will come to washington to lobby congress. deutsche bank could merge with commerzbank by midyear if all else fails. arebank's executives concerned such a deal may be their only option. deutsche bank is reporting results from a difficult fourth-quarter. a merger may be inevitable. the e.u. is ready to push the u.k. to the point of no return on brexit. the e.u. was willing to go down to way high stakes last-minute summit rather than cave in to demands. may is going to brussels to reopen her brexit deal. the e.u. does not land on giving her any concessions for she returns for a vote in parliament

on february 14. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: equities, bonds, currencies, commodities. the market moving off the fed meeting, off the bat of the statement. curve steepening even with lower yields, there is some mathematics we will not go into. euro stronger, dollar weaker. end, bear market will market correction. yen is may be part of the global litmus paper. francine: maybe. i am looking at u.s. stocks futures, together with european stocks are fluctuating. market participants are trying to question what a pause in the interest rate hikes means for their portfolio.

some of the declines we saw yesterday, and one of the stories of the day, deutsche bank set to see a merger by the summer if all else fails. technically, italy is in a recession. the 10 year yield is 2.24%. we are just getting some earnings from ferrari. fourth-quarter adjusted earnings a touch below estimates, but pretty much in line with expectations. tom: all three of our audiences hang on every earnings release from furry. ferrari.-- thank you to scarlet fu for leaving our coverage yesterday. here is jim o'neill. worlde live in a peculiar where the direct cause of the u.s. economy has diminished dramatically. importantl extremely

but is not at the margin anything like the importance of 15 or 20 years ago. dollar, thee of the u.s. dominated financial system and the role of the fed is no more important than that. at some point in the future, something has got to give. it is a very suboptimal state of global financial operations. tom: jim o'neill on something has got to give. right now in new york, charles kantor with us, raising the cold to be with us. we will get to a conversation on amazon and technology. simple there will be a change and there is a fear of what will the fed do? your investment world goes on irrespective of fed action. charles: the powell put is in full force and the longest

duration assets are equities. lower yields on a 10 year basis is good for equities over time. let's not forget the dramatic turnaround in his stance versus just six weeks ago. the has candidly matched equity market over some of the time, off of the lows. tom: the great missed call that you have taken advantage of over the last 10 years is the gloom of the single-digit world, and it has been a double-digit world with double-digit returns for those brave enough to stay in the market. to we finally need to get used to the single-digit gloom? charles: i think we need to be careful around dingle -- single digit versus double-digit. will beg in capitalism critical. starting points matter a great deal when you think about long-term returns.

i would say today's starting point is more than attractive for those that can stomach the long-term and can see through the volatility that will continue to rise as we deal with different entities. if you think about where interest rates and the dividend yield on the s&p is, and about valuations given the dramatic multiple compression last year, today's starting point for those that can look a little longer will prove out to be more than attractive. i would expect average equity returns. francine: let me break in, because we have a shareholder activist on the phones, elliott management. what is happening with all of the misunderstandings and the heated conversations regarding telecom italia. elliott will raise their stakes further.

let's park the fed question for a second and what you were saying about financial conditions. will we see more shareholder activists in general be active for companies that are outperforming? charles: i think the activist , thein the market constructive engagement role is fundamentally important to long-term returns. it holds management and board accountable to their key role, to allocate capital for the benefit of shareholders and to hold management accountable for achieving long-term financial objectives. the market across the world wants more in focus as it relates to that topic. no more do the complexity and structures work to the benefit of boards and management. because we have lived in such a low interest rate environment, the temptation to do a greed of

earnings related financial -- creed of earnings related financial -- thankfully companies and constructively engaged investors have forced important conversations in the board room around, do not do the isng, do the thing that additive on long-term capital. they are fundamentally different , probably 500 to 600 basis points between the cost of equity. francine: what you always be on the side of a shareholder activist? if they know what to do, why can't the chief executive see it? charles: we will use whatever tools we have in our quiver to go to the end of the world and back to maximize long-term shelter value for our companies. ae most recent example is special chemical company in the u.s. where we publicly took the

side of management and the board in their proxy fight against the activists. we did that with a key set of demands around the number of new board members. we thought the company would benefit from. we pushed for change in the government and nominating committees, and the internal compensation committee. are committed to capital allocation subcommittee across the board and ultimately, our seven year investment in ashton together with a partnership with the company to make this a safer investment because you have stronger corporate governance with more accountability. tom: we will rip up the script. this is incredibly timely with the elliott announcements on journald wall street elliott, paul singer earning more money. do you agree -- do you disagree

with paul singer's approach to go get them? charles: i think you have got to put your approach to your personality. it is not for me to speak to paul singer's approach or not. you, all shareholders benefit to the degree that paul singer and his firm can bring accountability to the board room and capital allocation discipline and focus to the board room. the most recent example has been ebay, a company we have owned for recent -- numerous years. over the time, paul singer will focus on the right things. tom: we just heard the chief financial officer of royal dutch shell rationalize the company's view forward simply for the use of cash. those days are over, aren't they? there has to be a more synergistic strategy, a larger

view than just financial engineering. charles: it has got to be company dependent. when you think of a company like shell, would you rather shall get the money or would you back into the ground on risky projects that do not return capital? i would rather take the nimby -- money and invest it. the worst thing a company can do is return their cash to shell. tom: is apple returning to much cash to shareholders? charles: no. apple has more cash than they know what to do with, and to create a healthy tension is the fundamental debate. i do not think it is a one thing fits all environment. tom: thank you so much for bringing up that elliott add line. charles kantor with us from newberger berman. much more going on.

i believe we will touch about -- that john deutsche bank. radio, very lovely will join us on the dynamics between the united states -- mary lovely will join us on the dynamics between the united states and china. this is bloomberg. ♪

♪ viviana: this is bloomberg "surveillance." earnings missed estimates at the swedish retailer h&m. they got rid of excess inventory through discounts. they were helped by low price garments such as $10 sweaters. in new jersey, a spectacular

fire ripped through a paper plant. important to note, no one was hurt. battlingfirefighters the blaze in subfreezing temperatures. it is the second fire at the country's oldest environmentally friendly paper company in months. tom: glad you showed that. to all of you first responders nationwide and across frozen europe, there is a fireman out with a video in the freezing cold. it is dangerous. thank you for your support worldwide in these sub arctic temperatures. kevin cirilli has never known cold like this. they will shut down the city. conversationthe mr. wiesenthal had with the senator from massachusetts.

senator warren: i have gone out and talked about this with people in this country, and they rules are rigged to help the wealthy and well-connected, and they are ready for change. tom: what an interesting time and interesting senator. can a liberal like warren shift to the middle ground for an election? kevin: i think anyone who has covered elizabeth warren will know that she has a streak in her about bipartisanship. she has worked on issues pertaining to the military and to some extent, nuanced issues in health care, she has worked across the aisle. she worked with lindsey graham and went to the middle east. senator elizabeth warren proposing ideas, and when you have so many candidates running

for president, this will be in ideas primary. say what you like about elizabeth warren. you know where senator elizabeth warren stands. you know what type of ideas she is supporting and backing. when there are so many democrats of all different stripes running for president, what are their ideas? harris fumbled out of the gate with medicare. tom: you told us that. as the democrats lining up we heard with joe weisenthal and senator warren, are they lining up to be anybody but trump, or can they come up with an initiative in position that moves away from anybody but trump? kevin: that is the challenge for people like progressive billionaires like tom steyer. ,e is not running for president but many folks within the democratic party are trying to

make it a race of anybody but trump. others are trying to say, what are the ideas? president trump is not running in the democratic primary. yes, he will cast a shadow, but when so many democrats are running and they will be on the debate stage in about six months, they have got to have ideas. tom: that is exactly what i was going to say. sounds like july of 2019. kevin: it is warm in july. tom: stay warm. an important conversation with charles kantor of newberger berman. not a light -- evelyn albright and david westin -- madeleine albright and david westin in conversation, always straight talking. in the noon hour. this is bloomberg. ♪

♪ that would be 16 below zero, the flags in the windy city down in the lower left quarter. flags notero with the quite like yesterday, extremely unsafe across a lot of america. travel carefully today, particularly children. right now, we travel carefully with charles kantor of newberger on the state of american dislocations and one would be trade. all of this trade talk catches up with investment.

charles: it catches up with decision-making which catches up with confidence and eventually shows up in the numbers. capital allocators, corporate private consumers hate uncertainty and there is uncertainty around trade. the u.s. and china hopefully can come to some kind of agreement because do not forget that 40% of the global economy -- the difficulty has been how it impacts decision-making come the influence it has on supply chains, and corporate executives are already adjusting to the new and servicing goods services from other places including indonesia, taiwan, vietnam, and the like. we would love certainty. , theme degree, abc 70% market is assuming we get some kind of agreement between the u.s. and china.

that would be important both to corporate decision-making and the chinese economy. francine: is it already priced in, some kind of agreement, in the markets? charles: at least 70% of it is priced in. what precisely that agreement looks like, no one knows. it would be nice for companies sourcing apparel from china to get some clarity around how they should raise things once they and in the u.s. they have no visibility around that toward year-end, which caused tremendous bottlenecks in the supply chain in the ports of l.a. that is not a great environment to run a business. a deal with certainty is almost at this point better than a bad deal. tom: charles kantor on certainly what would be a left of a cloud, cloud,will, -- lift of a

if you will, to the market. a lift yesterday after chairman powell's -- the powell put. we will come back and talk some of the enthusiasm of the market with charles kantor. on bloomberg radio today, dana peterson and the strength of the american economy, including on the back end of the equation on trade, the nx of it all. futures fractional, dow futures go the other way. it is cold across the midwest. this is bloomberg. ♪ the latest innovation from xfinity

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like never before store. the xfinity store is here. and it's simple, easy, awesome. and the army taught me a lot about commitment. which i apply to my life and my work. at comcast we're commited to delivering the best experience possible, by being on time everytime. and if we are ever late, we'll give you a automatic twenty dollar credit. my name is antonio and i'm a technician at comcast. we're working to make things simple, easy and awesome. tom: general election -- general electric releasing early. there is an earning miss. point 5%omes in two

above estimates as they manage the crisis in ge capital. it is an earnings miss when you bring it down, $.17 versus $.22. a vet mackinnon is that the stock right now. we will get much more on general electric moving forward. finally, on brexit. francine: finally. the e.u. is understand -- is prepared to take brexit down to the wire rather than capon demands. they are -- cave on demands. they are not prepared to cave on ireland and about the backstop. will the e.u. budge? dara: there is absolutely no sign of that. yesterday i was speaking to a andomat based in dublin they say theresa may well

receive a cold shoulder. she may win some minute tweaks, but the e.u. is unbending and there is no sign of softening. francine: what happens if the e.u. were to decide, if ireland were to decide between a no deal brexit or a change in the backstop, what will they choose? that point, not at and it is extremely hard to say what they would do in that situation. talking to people in dublin, there is a sense they are willing to take this down to the wider. -- down to the wire. leo riker is in a tricky situation. his government is a minority. if he has to cave in on the backstop, that would be a threat politically to him.

you could be looking at an election. i do not get a sense he is willing to step away. yesterday, what we heard the deputy prime minister say is economic self-interest will not trump the peace process. they are making the case, we will not bow to northern ireland for the sake of east-west. collins rewrites the interview we did with the prime minister and davos and goes on about his instability and challenges given domestic politics. what is his relationship outside that with brussels and the separate nations of europe? are they genuinely on the side of ireland? dara: i would say you're a student questioning created a massive wave last week with leo davosbeing accused of

being the main issue. the main stand, there is no sign of any weakening and resolve. -- the seen some jinx prime minister suggested a five-year time limit on the backstop but that was slapped down. leo to express his regret over misspeaking of the possibility of a border being reinstalled. all of the signs are that the commission is sticking by ireland. as things go on, there may be pressure coming, but now there is no sign. tom: top live working on the general electric earnings. they look for dividends payout in line from there peers. general electric targets credit in the single a range.

if you are a certain age, a certain vintage, that is a stunning headline. heading for its biggest monthly gain in almost four years. oil futures have risen more than 20% in january. opec andn cuts from its allies have started to kick in and a dovish federal reserve boosted markets and improved the outlook. chuck schumer says u.s. intelligence chiefs need to stage an intervention with president trump. "passivedescribed as and naive." schumer says his criticism undermines public confidence. according to economists surveyed by bloomberg, payrolls likely grew by 165,000, a record 100 straight months of gains, but the impact of the government shutdown could impact.

home sellers had an average realized gain of $61,000. homeowners who sold in the fourth quarter had been in their properties an average of 8.3 years, the longest in at least 19 years. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. -- hurtado. cataldo tom: general electric out with a lift, they pulled out a little bit. charles kantor with us. aboutands that we talk fortress sandberg, the chief executive officer of facebook. you want them organized and their management structure. to a guy likeaos you, or is there an executive direction? charles: you have to ask legitimate questions about how they receive -- handled the

crisis. that is about looking back. investing is about looking forward. tom: what kind of charles kantor executive does facebook need? charles: given their shareholders soccer -- structure, mark zuckerberg will decide it and shareholders will have to accept that dynamic. it is about to look forward, and the great demise of facebook has been greatly overstated. the results yesterday were much better than people expected and surprised despite all the hoopla around privacy in matters like and engagementw grew in the u.s. and europe. advertises go to where -- advertisers go to where the eyeballs are and the trend is to online, away from traditional

media. francine: at the end of the day, advertisers have almost ignored the scandals. they are thinking about it, but is it only advertisers that can make facebook have different or tougher privacy rules and why have they not done it? charles: the privacy rules have gotten tougher, especially in europe. user growth in europe grew 4% once the concerns dissipated. at the end of the day, people are addicted to facebook and those who are addicted to facebook and instagram have a keen sense the data they give facebook, like the data they give many folks, is used in ways that do not seem to bother them. tom: we have got to get an update right now. the big game is a football game in the united states. you were front and center on the whole foods/amazon meant -- merger.

does this work out for fortress bezos? charles: i think it will work out and it has worked out. it has worked for the consumer and amazon. the results tonight will be the one year anniversary of the whole foods acquisition. tom: that is why i bring it up. charles: the big news out of whole foods most recently has been bezos's commitment to expand the number of boxes that whole foods will have. their capitaled allocation privacy was not driving historic returns on boxesl and the prior 200 -- they have about 440 in the u.s. bezos has a much lower return on capital than standalone whole foods. tom: he has a lower standard because he prides himself on an x-axis that goes out forever.

how long can he get away with that shell game? charles: he has got away with it for a long time, and at some point the market will have to decide that. because of that, the competitive advantage that has given him has put tremendous pain on all his competitors, tremendous pain. tom: do you require shares of amazon today or after the earnings? charles: wait own shares of amazon and we are excited about tonight's release. goodobably gives you a lead indication that amazon's market business is performing well. tom: francine just asked me -- are the avocados as good now as before the transaction? charles: candidly, they have got a little spotty in my mind. tom: a little spotty. francine: a little bit. tom: i know other sources that

complain mightily about the new avocados at amazon/will foods. -- amazon/whole foods. at newberger berman, you have a call today. at have got to see kantor 10:00 a.m. in the morning. you need g tv . your knees are shaking and you are a young turk at newberger berman to. get a new chert. michael mckee, the question yesterday at the fed meeting. chairman powell avoided it. it is nine above zero. ♪

♪ "surveillance," francine lacqua and tom keene. what does the tooth fairy give nowadays? francine: the u.k. versus the u.s. tom: i put a quarter under the pillow and i got yelled at by various sundry. a quarter does not cut it. charles: just convince your child to -- tom: you do not put a share of ge under the pillow. charles: that would be nine dollars. tom: right now, a discussion on the family matters of the investment business and we say this for the great -- for the passing of the great jack vogel. you would posit that passive investors have a huge advantage

from activist. charles: investing, doing fundamental research, changing boards of directors, influencing capital allocations decisions, designing more thoughtful compensation plans, that takes a lot of work. it takes a lot of work to get folks to change. you have to make constructive, engaged arguments. you have to win the trust of the board and those not doing that are candidly benefiting off our work and others. it is a great shame. it has been the ultimate free ride for many. our fiduciary responsibility is to protect our clients' capital. tom: are passive investors in private equity markets going to be in for a shock when they fall apart, or can they sustain a long-term return because of guys like you? charles: the key determinant on the passive side is where you

stand on sound advice for the end client, and can the passive investor drive the car from the back of the bus for free? will the bus keep going down the lane in a straight way? i would put a big question mark against that. the goal here is to get people to avoid doing dumb things at the worst times. on the margin in december, there was much more selling in passive than buying. that will turn out -- and has already turned out -- to be already expensive -- very expensive. those who believe they can drive the car themselves, administer ital and medical advice, will require a tremendous amount of discipline on your most important financial asset. francine: what is the dumbest thing investors could do? charles: the dumbest thing

investors could do right now is continue to rethink their risk tolerance as it relates to the asset allocation, which happened in spain in december. unfortunately, when fear goes up, people reallocate and really think about their long-term investment returns. the key over time is to understand yourself and create a northstar in asset allocation it is stay with it when really cold in the market like december or when it becomes warmer like january. that is a 15% move from high to low or low to high. doing nothing as difficult as it was, was the right thing to do. doing something more than likely ended up to be costly. tom: we thank you all for watching on twitter this morning , francine and i thrilled about

the streaming we are doing on digital media. we will continue with charles kantor. coming up later, an extremely porton conversation. , andhink about fedex, ups the logistics and structure of the u.s. economy. you will speak to david abney of ups in the 10:00 hour this morning. stay with us, stay warm. this is bloomberg. ♪

♪ this "surveillance." facebook surging in premarket trading. advertisers sticking with the face -- social network despite privacy scandals. facebook spoke -- bloomberg spoke with sheryl sandberg. we will continue to make the investments to prevent harm, make great products people want to use, and invest in the future with vr and ar. doing thats to keep and people wonder if we can do it all at once.

this quarter shows we can and well. viviana: shares of microsoft are lower in pre-trading. they recorded second-quarter estimates that met estimates but investors are working of -- worried about slowing cloud growth. francine: thank you so much. we are getting some breaking news out of brookfield that notd be for kpn but it has made a final decision. it is one of the industries we have focused on the lot, a dutch telecom company. if you look at the pressure for telecom companies especially in europe, consolidation and buyouts could be the name of the game. tom: let us look at general electric. secret.the liquidity."here " that is where karen ubelhart

goes. she has got her number two dixon ticonderoga pencil and she is looking at liquidity. why? karen: in the short run, he has to generate as much cash as he can. the net -- debt overhang is enormous and they made some progress. working capital was positive by $3 billion. cash increased by $5 billion. cash flow was positive. that is all important. tom: on the balance sheet, the number of moving parts are from an accounting standpoint and the idea is goodwill and that will. they have a lot of bad will. karen: they wrote $17 billion off from the power division but they still have a lot of goodwill. they did $80 million -17 million $17illion dollars minas

billion. aviation was great and health care was great, and they need to carry the ball. power is terrible but orders needed -- have stabilized. maybe things are not getting worse and that is the first step to getting better. what will ge look like in five years from now? how much transformation does the company need to go through? karen: there will be phases of it. the first step will be the obvious ones they have told us about, get out of of oil and gas and transportation, it out of the piece of health care. be gonehealth care will long-term and we will split power in aviation, but not for a while because they need the aviation cash to get the power. i think it will be a broken up company but not for a number of years. francine: tom? tom: on general electric, i look

at the wonderful earnings stream on the bloomberg terminal and there is that a rating. it is a aaa company and there is an a rating. you say they will be broken up. why don't they just get to it? the blackstone headline coming on, they will buy into the tall grass energy general partner. people are doing stuff. why can't ge go faster? karen: they are in a fix. who will take power? it is negative cash flow and they need to keep it together. cashs to do a dance, raise , and keep businesses that raise cash while he fixes the one that does not. i do not think he can break it up now. francine: if you look at the businesses that make cash, how much bigger can they become? grew 12% in an

20% plus margin. there is no sense with the backlog that that will slow. health care, the growth is more moderate but the earnings are very high. 100% plus free cash flow conversion, so they still have ways to go. francine: go ahead. karen: the other businesses like oil and gas are just growing moderately. ,he three big ones that matter two are doing very well and one is not doing well at all. francine: if they were to break isup, and you just said this unlikely because they need to get some of the businesses that grow on better food inc. -- footing, but what is most valuable in ge? karen: the aviation business as a market leader and they make over 20% margins. there is a huge annuity. that is the jewel. health care also has good positions and imaging and life science.

some humor?e have what part of ge would danaher by? karen: they certainly have a relationship. tom: karen, thank you so much. this has been an extraordinary day. thank you to our london team for work on deutsche bank, the story really becoming more apparent into january and february. we continue the conversation on bloomberg radio. this is bloomberg. madeleine albright later. ♪ this isn't just any moving day.

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simple. easy. awesome. stay connected while you move with the best wifi experience and two-hour appointment windows. click, call or visit a store today. alix: powell's patient future.

the fomc says it is patient. degrees shift from unwind autopilot. resting on first quarter results. earnings bonanza. delivers,ion unit buying the upside in earnings. david: welcome to "bloomberg daybreak." it is earnings day. ge came out a bit ago. they missed on earnings per share, $.17 per share versus the estimate of $.22. they did better on revenue. there aviation unit did well. jetblue sang the profitability was off a bit. alix: revenue fell by 25%. it feels like