♪ slide.it president trump signals he could extend his deadline for more tariffs as they are close to a trade. santander skips a call option, giving investors a reminder there could be a downside to yields. and come a theresa may's top brexit agent overheard saying the prime minister will wait until the last moment before putting her deal before parliament. ♪ >> good morning, everyone. this is "bloomberg surveillance." i am francine lacqua here in london.

doinga, the markets are well, a conciliatory tone it when it comes to donald trump and his regards to china giving markets. the the pond is also at 1.29, we are trying to track the latest on the brexit debates, whether we will see concessions or delay from the e.u., and whether theresa may actually has the arithmetic to go to parliament. we are getting breaking news that global oil demand growth remains unchanged from the iea. coming up, we speak to the bank of england the governor. we will also talk about negative rates and the impact of some of these nordic economies. let's get to the bloomberg first word news in a new york city with kailey leinz. kaylee: hi, francine. president trump is playing down the threat of another government shutdown. he will use executive power to

fund border measures. jay powell says there is a low risk of recession in the u.s. the fed chairman says of the economy is strong, but then the benefits have an up felt evenly across america. alan greenspan is warning about the risk of stagflation, concerned by the looming budget deficit at a time when growth is slowing. is only bezos scandal adding to the national enquirer's woes, as they reported a $35 million loss in this quarter. they look set for a fight with the world's richest man. monday alone, jeff bezos increased his wealth by a bigger 'sllar figure in all of ami financial revenue for the last year.

and theresa may may wait until the last moment to approach her deal before parliament. his top agent says she would force lawmakers to choose between her deal and a potential lengthy brexit delay. italian prime minister facing backlash in the e.u. parliament. the focus was on the populist policies of his two deputies. the heated exchange comes in the wake of the french governments withdrawal of its ambassador in a rome. >> how much longer will you continue to be the puppet of dimaio?and i would ask you to do one thing, to draw inspiration from your more illustrious compatriots. >> i am not a puppet. i am very pleased to work on the .hange the italian people want

kaylee: global news, 24 hours a day, on tictoc and on twitter powered by more than 2700 journalists and analysts in over 120 countries. i am kailey leinz. this is bloomberg. ♪ francine: thank you, kaylee. global stocks rallied in whether three weeks and are expected to climb higher. that is as president trump says he is open to extending the march deadline to race tariffs on chinese goods. with little more than two weeks to go before a planned doubling on tariffs on $200 billion on chinese imports. joining us now is our chief asian economic correspondent, enda curran. what are we expecting from the talks in beijing? we are certainly getting to the business end of it, was the march 1 deadline approaching. trader presented and steven mnuchin entering the fray tomorrow in beijing. have already landed.

common negation from steven mnuchin this morning talking about talks being positive. commentary from president trump saying that he is willing to look past the march 1 deadline. even though there is a view that perhaps there is some kind of deal on the table, there is also hard tothat it will be come to a lasting agreement. ofhink that is where a lot investors are economists who are watching this keep coming back to. the near-term view is positive, but it is hard to be completely certain as to how this will be resolved in such a short time frame. francine: what does that mean over all than? enda: that is one of the big , if therein terms of is a trade deal agreed, the thinking is that it will take a

downward pressure off the yuan, it will be positive for sentiment and at the very least you can see the you on track sideways, notwithstanding other externalities that could drive the exchange rate. but if we see a breakdown in trade negotiations, the thinking is that we would be back into volatile territory. notwithstanding trade related issues, there is a feeling the yuan would slip a little bit. the backstory is also that china's economy is slowing down, if you remember. given the exchange rate is somewhat controlled, they are certainly feeling the negative trait outcome, and it would mean a negative outcome for the yuan, also. francine: enda, thank you so much. a mike us now is gallagher, managing director of micro and strategy at continuum economics. thank you for joining us.

and also funnel spots of us -- the most purpose of us, -- >> the big picture is that we will be likely to see a delay in the march 1 deadline. trump really wants to try to get a trade deal with china, but the u.s. is asking a lot of china. it is not straightforward, it also involves structural changes that are significant for china's live. this is the opportunity now in 2019 for him to do that. he will probably not get the opportunity in 2020. china listen to a trade deal because it wants to diffuse the situation, but it will be difficult to reach that kind of agreement, so it could be positive, but i think we have to wait until spring for the real progress. francine: follows, we have citigroup saying that the currency will weaken, if trade talks falter.

nos: i think it will bring volatility to the lower side, but i don't think a breakup of the seven, a political statement that the chinese would want to avoid. disappointment, think trump was to make sure this works. he is a ready in a pre-election .ode i think when of the key things we have to look at is the domestic economy. buttrade story is one part, we have actually seen a slowing in the domestic economy. the chinese government has undertaken certain measures. weare waiting to see that stimulate the market economy. but it might be the march data that might give us real indications of that. the risk rally in e.m. assets

against difficult at the moment. the yuan is probably stock until we see this play out in the spring. francine: we also saw a couple of defaults, two defaults from china. i know they are managed, but when could be start causing a contagion? i don't think there will be a contagion. i think they will work best the government will work to alleviate the domestic angst. there may be a slowdown but it is a slowdown from an economy which is multiple times larger than it was a few years ago, so i am not worried about china and i think it is positive for e.m.. francine: you are not worried about the false either? mike: we don't see a systemic crisis occurring in china. chinese authorities have many policy tools and also, there's a lot of state creditors and local governments who have a state influence. it is something that will slow

growth ultimately on a multi-year basis, but i think we are inclined to avoid a debt crisis. francine: thank you both, thanos papasavvas, and mike gallagher. both of you are staying with us. coming up, out of love with the cocos. a reminder that juicy yields can come with bad surprises. we discuss that next. this is bloomberg. ♪

♪ francine: economics, finance, politics. this is "bloomberg surveillance." santander reminded investors that juicy bonds can come with nasty surprises, rattling the convertible bond market by saying it will skip an option to call 1.5 billion euros of notes next month. this came right at the deadline for a decision, that sent the cocos tumbling. joining us down is a credit market reporter for bloomberg news. thank you for joining us. first of all, why is this decision so important? >> because on the cocos bonds were introduced, they came over with a juicy yields, but also with many risks that people were not initially aware of. you could read it in the documents, but until you are hit by a risk, you don't really pay too much attention to it. in previous years, there are concerns about coupons, but there was no case where a on extended out of the date. people were expecting the bonds

to be called as the first opportunity even on the bank is not obliged to do so, so this is the first time it is happened that people understand that it can actually be a possibility. francine: how has the market responded? >> did not react very well initially, but there is a bit of a balanced reaction now. i think the market is becoming more mature with these cases, people are understanding the risks of the coco market, which there are quite a few of actually. in the long-term term, this could turn out to be a positive case for the market. we had the first test case, and we had an initial hit, but the destroyed or in flames. people understand about that there is always the economics of either keeping the bonds or replacing them with potentially higher yields. this was something that was going to make people wider. francine: what is the impact on the wider coco market, it must impact other banks, right?

impact otherl banks. people will try to balance the yields and say, will the banks looks to make savings, or will it look after its reputation? order to be more bond holder friendly and call the violence? so they have to second guess what the bank may do when the call comes due. francine: do we know i santander decided to make the call? os: apparently they have concluded potential savings in the next few years that could reach $100 million. so they could tap the market in the future was coco bonds, but apparently management had to make a decision -- we save money by extending bonds, or delete damage our position in

the long-term? won overow what on in this time. francine: let's keep the conversation in banks and keep my two guests back. , away from cocos, it seems like consolidation will take place at some point, but we have been talking about it in europe for five years. does it have to have an domestically before we see cross-border investment in banks ? thomas: i think so. thanos: i think so. it doesn't on the impact of the banks themselves, it impacts the ability to lend on a broader consumer sentiment, but i think this is the first step for we move further out, which is then moves into the broader political scheme infecting the elections in may as well. francine: mike, do you agree? mike: i think so.

it needs to be done on a domestic basis first, because there are synergies which exist between domestic markets. the political environment in europe, as you know, is fractious at the moment. tension between france and italy that.an example of consequently, i don't think it is necessarily the momentum or the eurozonesion between at the moment. francine: thank you, both. from abppasavvas invest, and mike gallagher from continuum economics. up next, we discussed the deal on border security funding. this is bloomberg. ♪

♪ francine: this is "bloomberg surveillance." president trump is downplaying the threat of a new government shutdown. a bloomberg source says the president is likely to gradually find the legislation and use executive authority to fund additional border measures. would be, he said he getting $23 billion for border saidity -- in a tweet, he he would be getting $23 billion for border security, but did not explain how. thatman jay powell said u.s. economy is strong with low risk of recession, and the claims were echoed by the aliens economic advisor. >> the chances of a recession in

low..s. are very this is about what is happening in the rest of the world, where there is significant weakening in europe and china, with the possibility of a spill back. this is about muted inflation in the u.s. and about the fed not wanting to take on the markets again. this is also about evidence of slack. still with us, mike gallagher from continuum economics and thanos papasavvas from abp invest. it more, worry about or less? mike: i think we should worry about it less. the risk of the u.s. recession expecteds low, i would to come in place after the inversion of the yield curve in 2021, well after the elections of november 2020.

thanos: i think president trump will try to make a deal with the democrats to avoid a recession? mike: i think we will see a hike in september and i think that reflects the u.s. economy still moving above trend growth, and the fed taking a bit of insurance out against the future. but it will be a dovish hike. we want really have great confidence about the falling through quite quickly, so it will be accepted well by the market. it will be seen to have been driven by the growth picture in 2019, which will turn out to be better than the fears out at the moment. francine: mike, the question of the day if you are a bloomberg customer, definitely log on to your bloomberg and go on tell iv go. this is our m liv question.

which cracks first, the treasury yields, or the curve? mike: it is a tough question for the following reason. i think we will get up towards 3.50 area in terms of 10 year yields in 2020, and that could lift the yield curve as the fed tightens. i'm a think we will see a proper crack your 3.50, and i think they will be biased before the s&p 500 being broken, but that could be five years away. hanos: the credibility of the fed is ingrained. could break,0 year but we don't have the risk yet. i think we will see most likely the break of the triple top, but not this year. francine: what worries you in 2019, overall? you are ok with what the fed is

doing, you are pretty clear about china, are we measuring the risks of politics correctly? mike: not in the u.s.. nos: my concern is volatility in europe. we should moving from the volatility of the mid-2017 area, so i think we will be an an elevated volatile environment. the area being underpriced the europe.s the risk of i think power will be moving away from brussels over the next decade and into the national areas with angela merkel and mario draghi not there to drive and control the center. i think the parliamentary elections will be vitriolic in terms of politics. we have already started seeing that between france and italy and i think the euro will start weakening from that, and the spreads will start widening b.sus the mike:unds i think in terms of european politics, we will see a

shift towards a more populist hardee's in the may elections, but that might not be enough this year to transform the political landscape in europe. it is more likely that germany will try to do a deal with italy to actually install a german president, october and try to maintain the status quo. i think the bigger threat of a political upset comes once we can get into the next decade and see the next german election. but for now, i think we will see turbulence around may. francine: thank you both. both of you will stay with us. coming up, we talk more about aidet, theresa may's top overheard saying that she will run down the clock. ♪ down the clock. ♪ 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. francine: economics, finance, politics. this is "bloomberg surveillance." let's have a look at where markets are doing. we're seeing a little bit of an cope thatcause of the

president donald trump signaled a more conciliatory stance toward china. it is fueling hopes of a breakthrough in the trade war. when talks get underway later on this week i'm looking at dollar. unchanged. i am also looking at oil. a rebound from a two-week low after saudi arabia pledged to deepen output. this is the very important u.k. january inflation rate, falling to 1.8%. the median estimate was at 1.9%. this was linked to what the bank of england will or can do. this is all up in the air as we still don't know what kind of brexit we will get. the clock is ticking toward march 29. prices. getting house the index pretty much unchanged for the month of january. let's get back to mike and

thanos. does this make the bank of england's future of the easier to read? thanos: i think that is right. the banquet be unable to raise rates if inflation was as expected. i think it is a relief to see inflation coming down. should there be the worst case scenario on currency weakness, it will cre -- not create an inflationary shock. mike: absolutely. the oilo forces, decline from autumn but also the continued very poor situation in the retailing sector, which is depressing the trajectory of retail sales but also keeping inflation quite subdued.

if we look at the alternative where we don't have a no deal and sterling remains pretty much around the current levels, there is really not that much opportunity for the bank to build a case for a rate hike this year. francine: let's also get an update with what is going on with brexit. itv news says the tactic was week.sed earlier this 's has theresa may will wait until the last moment to put her deal before parliament. this would force lawmakers to choose between her deal, no deal or a potentially lengthy brexit doing. rob also have a fantastic article on the bloomberg terminal and on our website going through the arithmetic on what kind of deal she could get through parliament. what is the tactic of theresa

may today? rob: as ever with her, nobody really knows. just to correct slightly what the robin strategy as reported by itv is to offer mps may's dealbetween slightly changed or extending article 54 very long time. the idea of that is to scare people who want brexit into voting for her deal because the this would happen in the last week of march and you would be told, you can have brexit and less than five days or you can have brexit put off for a year. who knows what might happen in that year and you might get no brexit at all, which sounds like a convincingly scary prospect for people who really want brexit. the problem with that is whether mps will let her get to the last week of march without a deal in

sight. through your reporting, what do you think her tactic is? i think the main tactic is still to try and get a deal through. i do think if she can get a deal through now, she would, it would be a lot easier. what she needs to do to do that is to get the eu to agree to something that northern ireland's democratic unionist party can sign off on. there are only 10 of them, but they bring with them 40 or 50 odd conservative mps who will vote for something if the dup agree to it. the problem for may try to do that is getting the eu to upgrade to the sort of thing that the dup might agree to because the eu at the moment says they won't. that is what you might see us getting to the last moment.

it also might be to scare people in the eu into thinking britain might really do this, we need to give them something substantial. this does feel quite high-stakes at the moment. francine: thank you so much. of the best minds when it comes to european parliament and chest names. investors are still unclear what kind of brexit we are heading for. >> as brexit uncertainty continues to swirl, some analysts are trying to forecast an event that many of their peers have set is untradable. event of aat in the shift toward a softer brexit, cable could strengthen. and that a hard brexit would still bring a boost to the pound.

but extending article 50 and putting the u.k. in political limbo would be worst of all, seeking the pound to 1.3. david bloom says staying in the eu could give sterling a surge, a level not seen since 2015, but that and at set from the block without a trade deal would be disastrous, plunging cable down 0, i level it hasn't fallen to since the 1980's. mark carney warns that a disorderly brexit could see the pound dropped to below parity with the dollar. with time running out and children leaves the eu with or without a deal, who knows where sterling will end up trading? still with us, mike an d thanos. binary, especially

if we believe the i to be reporting and rob reporting that plans a meaningful vote before march 29. what does it mean before bash for sterling? -- for sterling? thanos: i think it is wise. the euro saying this is your one opportunity to get a deal, which may not be as good as you like, but are you willing to risk a reversal of that? sense, of think she will succeed in getting a deal through of a time when the european economy is faltering. for the pound, i think it will but i would not be willing to take a position at this point in time because of the left-hand risk of events. francine: a meaningful vote before between might seems very high risk.

is almost binary for pound. mike: it is, that we may not get to that point. we make it parliament forcing her hand before. either way, we have to think the most likely situation is that she won't be able to get it through parliament and will have to go for a delay. to delay itself, initially will boost the pound. we are going to be stuck right back where we are. is also worth remembering that the economy is weak not just because of brexit, but because it is so dependent on a week u.k. consumer. francine: thank you both. up next, the fda is on the brink of approving a breakthrough depression drug. we will tell you why it is significant for the farm industry. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to the bloomberg first word news. kailey: donald trump says he is open to letting the trade -- at last. march 1 with the date the president was set to double the $200 billion on chinese goods. negotiators are meeting in beijing this week. meanwhile, president trump is playing down the threat of another government shutdown. we have learned the president is likely to grudgingly signed a deal reached by capitol hill and then use executive powers to find additional border measures. trump tweeted he will be getting almost $23 billion for border

security, but he didn't explain how he arrived at that number. jay powell says there is a low risk of a recession in the u.s. the fed chairman adds that the economy is strong but that benefits have not been felt evenly across america. glan greenspan is warnin about the risks of stagnation. the bezos scandal is only adding to the national enquirer's woes. 's publisher reported a $35 anlion loss that marked improvement over the air before. it looks set for fight against the world's richest man. italy's prime minister faced a wave of backlash in the european parliament.

wake of the french government's withdrawal of the ambassador from rome. >> how much longer will you continue to feed the puppet on salvini? i would ask you to do one thing, to draw inspiration from your more illustrious competitor it's. -- compatriots. >> i'm not a puppet. i'm very pleased to work on the change the italian people want. kailey: 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. i'm kailey leinz. this is bloomberg. francine: thank you so much. the u.s. food and drug administration is on the brink of approving a breakthrough drug that could upend the way severe depression is treated. hurdle.leared a major

a panel of experts recommended the fda approved the treatment. if it is approved, it will be the first major advance for depression since the introduction of prozac in 1987. joining us for more is a senior pharmaceutical analyst for bloomberg intelligence. still with us is mike and thanos. it is always great to have a real microscopic lens on some of the things we're watching out for. how big is this? how important is this for the combat against oppression? sam: there are two ways to look at this, how important is a for the companies in terms of commercial impact but also the fact that it is the first new mechanism to treat depression in a very long time. depression is a very serious problem. about 5% of patients who have major depressive disorder actually succeed in committing

suicide. this is a very serious illness. between 200 and 300 million people worldwide have depression. 30% of these people, when they take the standard antidepressants, there is no response. resistant,eatment which is what this drug is for. this is a drug that has been very positively viewed by the neuroscience community for a long time. outside of the clinical aspect of things. quite anuite -- it is achievement. francine: this is different because it actually would act quite quickly? once you would take it you would feel better and a quick round of time then prozac? sam: yes. one of the perennial problems

with antidepressant is that they take a long time to make a difference. often, don't forget that a lot of depression episodes are very short, 2-3 weeks. your kind of defeating the object there. was an intranasal delivery but also the way it works is much faster acting. francine: is this a game changer for johnson & johnson? sam: that is a massive company. this is not going to move the needle massively for them, every new drug that is approved is positive. i think the consensus isn't as high as it could be for this drug. have some near-term headwinds in that the drug has to be administered within the doctor's office to make sure the patient isn't responding or having a side effect to it. francine: how big is this class of antidepressants? sam: this is a new mechanism for

treating depression. at the peak, when there were no major pressures from generics in 2008, sales were around $14 billion. i think this could be a several billion-dollar drug. it is paid for by the usual channels that pay for drugs today. francine: thank you so much for the update. sam runs all of our bloomberg intelligence here in europe. and ng us back is thanos mike. when you look at the pharmaceutical sector, and not know whether you see it from a consolidation industry a little bit like the banks.

thanos: we see it bringing external parties within the industry to try and make some change. that is an opportunity and something we think is attractive from the bonds factor. mike: i think another angle to look at is the emerging market growth story because we know that in terms of population aging that that is all occurring in the advanced economies. we have got a huge wave of the growth of population. in china into the 20 30's, -- intoation agind 's, the population is aging. beencertainly china has one of the growth areas for the pharmaceutical company in the the two or three years, but dilemma they have is what we have experienced in japan, that the demographics shift so fast that it creates pressure on the economy in terms of, how do you

pay for the drugs and help you need to provide? china has been implementing cost-cutting measures that are impacting the less innovative also accept understanding that what is going on in the industry is that the innovation happening is so fast, and the differences they are making in patients lives and cost is so significant that they need to find a way to pay for them. what happens is that your highly competitive area where there is lots of drugs is under pressure from pricing. francine: thank you so much. coming up, we have plenty more on your markets. you've also probably never seen a vehicle like the one we're going to show you next. if it publicly traded canadian company has its way, it will be long before you see a lot of them. tesla,electric like a price like a ford fiesta, and

one of the weirdest looking vehicles you have ever seen. introducing the solo. >> a clean energy electric vehicle for one person was an opportunity to great not to seize. 15,005 hundred dollars and is being handbuilt in vancouver. the company has 23,000 preorders. to meet demand, it is going to mass produce an updated model in china. >> the vehicle concept was always to have one that can be assembled quickly, efficiently and with high quality in under three hours. has 100 miles of range and charges in three hours. it is designed with a specific group in mind. the company says 83% of north american commuters drive to work alone each day. the question is whether those commuters would be prepared to drive to work in something like

this but you can just fit in. the company's optimism isn't backed up by the numbers. >> seven out of 10 of what the consumer is buying is a truck at this point. the idea of a single seater limits you to a very specific user. >> there are areas bloomberg intelligence sees as more promising. they're looking at car sharing and 7-eleven and dhl are already testing for deliveries. >> you don't need to have two seats in a delivery vehicle. >> investors still need convincing. the ceo says the solo will be profitable. >> 25% growth profit is built into the design of the car. >> the company hopes to deliver 5000 china produced solos in 2019. longer-term, production can be brought back home. general motors announced in october it was closing its site

after 100 years of manufacturing in canada. they are also eyeing more passengers for the two-seater all electric roadster. can it handle the challenge of meeting billions of dollars worth of preorders? ♪

francine: economics, finance, politics. this is "bloomberg surveillance." let's take a look at what stocks to watch. annmarie: let's start with heineken on the upside. they are seeing growth in their namesake division. stoxx 600 up. a load of the lea -- of relief action. a lot of pressure on the stock. now, this is a rally in terms of their 2019 forecast. abn on the downside. down nearly 7%. they had bad loans in increased

cost you to money laundering prevention. what is also going on is investors were expecting bigger dividends. francine: thank you so much. we continue in the next hour. tom keene joins me out of new york. we will be speaking to the riksbank governor after they have chosen to not extend their mandate in fx prevention. oil is on the move. we had that brexit showdown. with me to look at what we heard from the chief negotiator of theresa may's. they may extend that to focus minds of np's -- mp's. i'm a veteran

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. francine: president trump signals he could extend the

deadline for more tariffs if they are the real deal on trade. a nasty surprise, santander skips a co-option giving investors a reminder there can be a downside to reducing yields. isresa may's top brexit a overheard saying the prime minister will wait until the last minute before putting her deal to parliament. this is "bloomberg surveillance." for the first time in a pretty long time, we have inflation underneath the target of the boe of 2%. this may give it a little bit of room to maneuver depending on what kind of brexit we get. tom: there are ambiguities there. is the lower inflation a good thing, bad thing or indifferent? is endemic. no question about that. francine: meanwhile, the picture in europe is getting worse.

we will have a look at euro as well. let's get straight to the bloomberg first word news. kailey: president trump is playing down the threat of another government shutdown. we have left the president is likely to grudgingly sign a deal which by capitol hill in these executive powers to fund measures. border he tweeted he will be getting almost $23 billion for border security, but he didn't explain how he arrived at that number. meanwhile, he says he is open to letting the trade deal lapse if the u.s. and china are close to a deal. march 1 was the date he was set to more than double the tariffs on chinese goods. negotiators are meeting this week. may's top brexit a is reported to have said she will wait until the last moment before bringing her guilty parliament. deal to parliament.

italy's prime minister faced a way of backlash in the european parliament.he attended a debate on the future of europe , but the focus was on a populist policies of his two deputies. this comes in the wake of the french government's withdrawal of their ambassador from rome. how much longer will you continue to be the puppet on -- demaio'sdemae strings? i would ask you to draw inspiration from your more illustrious compatriots. puppet.ot a i'm very pleased to work on the change the italian people want. kailey: 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.

on kailey leinz. this is bloomberg. tom: thanks so much. i only have one data screen today. a better market with futures advancing. the grind higher. the euro has my full attention. american oil under $54. francine: what i'm looking at it's all a bit of optimism when it comes to the markets probably because what we heard from president trump. you can see this conciliatory stance with china means dollar and treasuries have little change. at also looking at oil rebounding from a two week low after pledge to deepen out the cuts. pound, this has to do with inflation in the fact it came in low under expectations.

$22 trillion in deficit. let's go to a chart that really compares the debt to something you can grab onto. this is the debt of the united states as compared to the working labor force of the united states. eisenhower in the 1960's. something changed in the air and chemistry in the early 1970's. this is the slow down here where the labor force shrank, so the slope goes up, but it is amazing the persistent debt to labor force. $362,000 per working american. francine: i like that turn a lot. line is simple. it is just euro sterling. no matter what we get in terms of inflation, eurosterling is

range bound. today, we had u.k. inflation back toward the target for the first time in two years. let us move on to a good conversation. >> the chances of a recession in the u.s. are very low. this is about what is happening in the rest of the world where there is significant weakening in europe in china with the possibility of spill back. this is about muted inflation in the u.s. this is about the fed not wanting to take on the markets again. this is about evidence of slack. tom: i have not heard that work for three or four years. paul donovan joins us right now.

what are we wondering into right now? identify the core reason for this disinflation. paul: we are getting normal noise in inflation. you have got basically inflation hovering around its long-term average is pretty much everywhere in the world. u.s. inflation on on almost every measure around its 20 year average. there's nothing particularly exceptional about this. last year was above trend growth, you're not supposed to stay above trend growth. that is what economists have trend growth. last year, above trend, this year, trend. tom: bring up a chart. here is service sector inflation in the united states.

deflation. do you assume with the normal slow down that you talk about that we will see goods inflation will back over into deflation? paul: this is where things start to get a little bit messy. is 3.5%-4% at the moment. it has clearly picked up in the recent past. labor costs are a good portion of costs. i'm inclined to think you get a little bit of the squeeze on profit margins rather than an inflation story. then we have got hedonic adjustment. this is this wonderful thing where prices go up and inflation goes down at the same time. we're going to be seeing some of that. but weectly reasonable,

are going to be seeing that come through and this year is going of theaps take the cpi look at lower. i dare tom keene to make me a hedonic a graphic chart. tom: what is great about head-on next is when they are up -- and ics are up.hedonc francine: can the fed even hike this year? paul: i think they can and they should. the problem they have is politics. if economists just ran everything, life would be so much simpler and better. francine: sounds like a central banker. paul: the fed has the problem. aboveon't have inflation 2% at the moment.

they are running out of months where they can be raising rates. they can certainly raise rates once this year, twice as possible. from a pure economic point of view, i think it could easily justify two rate hikes, but it is probably only going to be one because of the months black top of this political noise. francine: should we worry more about the u.s. deficit? paul: we should worry about it because of the direction. debt, is nothe disastrous. the americans are just beginning on this process, but the trajectory and more to the point, the direction of the debt would polarize politics where no one can ever agree on anything. that means the future doesn't look quite so bright. francine: we will talk more. paul stays with us. governor speaks at a news conference in stockholm

on today's monetary policy decision saying they are coming from strong economic levels. this is something we need to keep an eye on. earlier on, this of the slowdown is especially clear in the euro area. -- continue keeping and i on riksbank. this is bloomberg. ♪

tom: "bloomberg surveillance." good morning, everyone. let me frame what we are doing today. global disinflation. willf the things we

touch upon in the next hour is the equity market performance has left a thundering silence across london and new york. with a january, what a february. francine: we each talk about brexit. setesa may and the eu are to be heading for an all or nothing last-minute brexit showdown. itv news is reporting that her top be

he says that will force them to choose between her deal any potentially lengthy deal. we will talk about the test games in a second and the fear mongering or how to get this through parliament. talk to you about inflation. for the first time since 2007, it is a low 2%. paul: it is basically ok. it is providing ongoing support for the u.k. consumer that is ignoring the whole brexit nonsense. you have decent wage growth in the u.k., and probably better income growth than the wage numbers imply because a lot of self-employment. the take consumer is getting a disposable income and their prepared to spend it in accused the economy ticking along. central banks have these targets, but they think it is a 1% ban on either side. andhere between 1% and 3% carney is happy. francine: you say retailers are stockpiling. but if we get a deal, they are left with stockpiling, which means that will hurt their bottom line. paul: the stockpiling is not huge.we do not have mountains of microwave ovens. francine: and toilet paper? paul: we don't.

we don't have a huge stockpiling. what we have is a certain amount theg on, the inventory, consumer just blindly carrying on, doesn't care about this at all. refusingave companies to invest until there is a decision one way or the other. what we will get when we get a decision is companies will kick in the investment, the consumer will still carry on not caring, and the stockpiling will go down. remember, companies are a lot more efficient in inventory management and stockpiling been they have been in the past. i don't think you have nearly a stake in distortion as you had in historical episodes like this. tom: what can the pre-brexit people learn from switzerland? if we are going to walk away from a customs union, we are going to go to singapore on the

thames, but what is lesson from switzerland in terms of independence yet straddling are being surrounded by your? -- europe? paul: at the risk of making a career ending statement, switzerland is too small really. it is a very small, very open economy. it does have trade deals with europe. it does have common standards and it pays into the european budget. actually, you can't really learn very much. it's not a great example. as somebody who is driving across the border from france to geneva on monday morning, to say this is frictionless is not true. i don't think switzerland is a particularly great idea. the u.k. economy is the second largest economy in europe.

is not the second largest economy in europe. it is a very different scale of operation. the u.k. has complicated relationships, particularly in the financial sector but also manufacturing which will be damaged in the event of a hard exit. i don't think the u.k. disappears from the map, but it is not going to be good news. is that is the case, what are we going to look for in february and march? with the trade structure of the future of the united kingdom, what do you envision as they go out multilateral? paul: what i think they're going to get in march is a delay because unless they are going to accept the government's deal, there is no time to do anything else, so we delay probably until december, which means nine more months of this.

if we are waiting until december, i think markets will take that quite positively. markets will take that as a symbol that we go out with a -- remember, we not negotiating the final deal. this is barely the beginning of the end. after this, we have another two years of negotiations. the longer we delay this process and the more time it takes, i think the better the chances are that we get a more integrated final solution for the u.k. and europe to deal with. francine: thank you so much. theng up in the next hour, city special economic advisor. we will ask him about brexit and also germany.

this is bloomberg. ♪

kailey: this is "bloomberg surveillance." executives from t-mobile and sprint are in capitol hill today to defend their merger. they are likely to face a skeptical audience.

critics argue the deal will hurt competition and lead to higher prices for wireless service. activision is planning to cut 8% of its staff. the videogame maker delivered a disappointing sales forecast. and also reported revenue of $2.8 billion, missing the $3 billion projected by analysts. abm amro has been hit by an increase in bad loans. part of the issue was write-downs on corporate loans and areas such as offshore energy, diamonds and commercial banking. the bank is making progress on its cost to income ratio. >> we are making no commitments regarding dividends for 2019. it is extremely early. we are well placed to consider additional distributions for 2019, and we will make decisions for the dividend at the end of the year. kailey: that is the bloomberg

business flash. francine: santander has reminded investors that to see bonds can come with nasty surprises. they said it will skip an option to call notes next month. the need toed balance the interests of all investors. this seems like a really important decision. do we know why they took it? >> is cheaper at current market rates for them probably to go and extend that note rather than calling it at this point. we have to remember that banks always balance these decisions and economic decisions, and in this case, that seems to have been what has driven their .ecision

the note is still trading. it has rebounded today and that is an indication that investors aren't taking a wider week across from this decision. francine: let me bring you over to a we are seeing from the cocoas. they were up and then down. this has white implications for the whole of the cocoa market. sree: that is correct. there is an expectation for investors that they will be able to -- that the bank will redeem at the earliest opportunity. tom: this is the key thing. this is really important. these bonds are issued with no majority, right? sree: that is correct. tom: they are perpetual in neighbo -- nature, which means there is a gentleman's agreement that santander -- did santander

break that agreement? sree: investors are certainly surprised, that they are positioning. it became more apparent in recent weeks that they would not be actually exercising the call. the fact that they left it down wire, many did interpret that as a sign that they will not be taking any further action on it at this point. i would say this was somewhat of an expectation. francine: thank you so much. coming up later today, we speak to carlos gutierrez. this is bloomberg. ♪

♪ "surveillance." the disinflation watch. paul donovan is with us and willem buiter will join us in the next hour.

vittorio's mexican crime lord el chapo faces life in prison. a jury in new york convicted him. his lawyers promise to appeal. efforts totion's restrict cross-examination. the bezos scandal is only adding to the national require -- national inquirers -- that marked an improvement over the year before. it looks set for a fight with the world's richest man. he increased his wealth by a ofger dollar interest in all their revenue for a year. a wire fox terrier named kang is -- was named best in show. it was not considered an upset. terriers have won 47 of 112

times. 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 kailey leinz. this is bloomberg. tom: show the video again. you nailed this, this morning. screaming about, do not walk away. a terrier won. this is an american thing. dogs in the worst damn central park. a springer spaniel or labrador retriever when? kailey: good question. they always win. francine: when kaylee was talking about the dog show, i thought why are we talking about the dog show? i thought many had an -- benny had enrolled. tom: the springer spaniel came in third place.

us and wean is with will go to washington debt, deficit, and politics. you nailed it when you said for economists it is all about politics. debt,trillion deficit -- with the glide path that has come a that is unsustainable for any given economy. paul: the debt level is not unsustainable. the debt level and direction of travel makes it unsustainable. the direction of travel is the problem. you should not at this stage of the economic cycle, the having a deficit as large as you have got , and you should not have the trajectory that we are likely to get. those are the problems. tom: the ubs optimism on the economy, they were acclaimed with maury harris and his

optimism, paul donovan and the entire shop wake-up optimistic. can you frame your optimism that we can continue to grow our way out of the vector of increasing debt? paul: no, you can't, obviously not. that is one of the problems. the current position of debt, given where we are in the cycle, is not something you can grow your way out of and you cannot inflate your way out of debt. always punishes governments faster than inflation can help them. what have you got to do? cut spending and increase taxes. that is ultimately how you have got to do it. that is basically it. that is part of the process. you were showing the chart about debt per working american. there is another solution which basically is tom keene needs to keep working until he is 100, work longer and harder, and

change the dynamics about the workforce. francine: i love that. paul: the two of you could be going on another 50 years. francine: that is like a whole can of worms we were not ready to open. to international investors still want treasuries? paul: there is a certain innate demand for treasuries. dollar is still the global reserve currency and there is no competitor at the moment. if you are going to on the dollar --own the dollar, you will have to own dollar underlying assets. global trade i think will be coming down as a share of the economy over the next 20 years. this has nothing to do with the trade disputes. this is about technology, automation, all that good stuff. if that is the case, the relative demand for the dollar and underlying dollar assets

will shrink over time. that get out of free -- get out of jail free card people have been playing will be taken away. francine: when? paul: global trade has stagnated as an effective global gdp for effectively the past six to seven years. we are seeing signs they are gradually starting to slow down now. it is a gradual process over years. it is not, you wake up and there is nobody at the bond options -- auctions. it is something to adjust to. francine: what if china uses it as a trade countermeasure? option, inuclear think that is extremely unlikely. if they do that, the sensible response in that nuclear option for the united states is to freeze all chinese assets in the united states. in 1979 andin iran

they could do it for china. tom: we got the gift of not rising rates and there is a lot of stuff analyzed about it. all of a sudden, the physical .omph clicks in, in an ugly way back to 2006 yields, is that bad for our fiscal integrity? paul: it would probably have to be higher than that, and it does in part depend on why the yield is going up. if the yield is going up because the economy is growing faster than i think is plausible or because inflation has ticked up, that may not be bad for fiscal integrity. you have to balance this a little bit. i do not think we will necessarily see a huge rise in yields because there is a stealth tax at work. you have got regulation of the financial sector.

through regulating the financial sector, forcing institutions down treasuries at lower yields than they would naturally want to own them, that is a way of effectively taxing them. from the government's point of view, the savers do not blame the government for the tax, they blame the bank. the bank is regulated into it. it is a good way through financial repression, lowering the problem of debt. tom: great clinic, paul donovan from ubs. $22 trillion and growing debt in america. the smart conversation of paul donovan, well about her, -- brad setserr, and is absolutely definitive. the council on foreign relations, brad setser in the 4:00 p.m. hour.

♪

♪ this is bloomberg "surveillance," tom and francine from new york and london. spain and the 2019 budget has little chance of being approved. there are reports of a snap election being called with cap leaders on catalan trial for sedition. he raised his conservative rivals who demonstrated in the streets of madrid. we are joined by angel talavera.

when you look at the trials and tribulations of spain but a snap election would do, what we get a clear majority? angel: i think it is quite the opposite. the fragmentation and spanish politics -- francine: it will get worse. angel: in addition to the four main parties in parliament, we have the rise of a right-wing party which is supposed to get quite an important outcome in this new election. we will have more fragmentation. francine: what happens if pedro sanchez cannot move with the budget? he has no choice but to call a snap election. angel: he could stay in power until 2020 so it is not a done deal. francine: what happens to the budget? angel: you can postpone it. you can rule by degree, so things like the minimum wage have been done without the need to approve a budget.

he could stay in power. the political climate makes it unsustainable. tom: what can we learn in spain from chronic weak nominal gdp? it is a vital economy but some 4% nominal gdp, sub 3% nominal gdp. what do we learn about that as other economies face the same thing? weak. 4% nominal gdp is you can argue the persistence of low inflation makes it so the nominal gdp numbers are and flattered by this. if you look at the evolution of the spanish economy, the growth has been quite robust. there is room for stronger expansion given the depth of the crisis we had, but i would not characterize nominal gdp growth as weak, especially compared to standard. tom: how much is tourism

involved? off to spaines when the flakes fall. how much does tourism play in? angel: tour them -- tourism is an essential part of the spanish economy. tourism --spain, the luckily for spain, the tourism industry is booming and that helps with economic growth and rebalancing of the external sector in spain, which has been one of the main stories, the rebalancing from having a chronic deficit to a surplus, which is a good development. francine: this would be cat elonia separatists claiming another scout this year. what does it mean for populists and politics and euro gdp? paul: this is an area i am interested in, because what we have been

politics where you have a big focus on one particular point and that fragments parts -- parties. brexit is an example. single issue politics are dominating. with the fragmentation of politics, you end up with less coherent government policies coming through because if you are trying to follow lots of single issues, you will not get a coherent platform, which is what we are seeing in italy, in the u.k. parliament. to what extent is spain's fragmentation peculiar to spain and to what extent is it part of a global trend which is perhaps going to be difficult to resist. paul: there are specific elements in spain that are very there are -- angel:

specific elements in spain that are very particular, but at the same time, a lot of the things we see in spain is a reflection of rutter politics everywhere in the u.s., you -- broader politics everywhere in the u.s., u.k., italy. in economic policy that is structured and make sense. francine: if you focus on italy and france, do the parliamentary elections change policy? paul: this is an interesting thing. for the first time in human history, the elections might be interesting because there is the question of do the established parties maintain control of parliament or not and how does it play out. the feedthrough of european parliament is largely irrelevant in the grand scheme. the feedthrough to domestic politics may be over interpreted. the europeantreat

parliamentary elections is the ideal opportunity to do a protest. to that extent, the rise of extremism is not necessarily going to be reflected in national elections or policy, but is indicative to the extent to which there is protest against the established government in europe. tom: what is the form of populism in spain right now? what is the nuance you can bring? what is the form of populism you see? angel: i think the one thing that defined spain until now as we did not have populism on the right as most other countries had before, and now that is over. there was a story about spain is different, and now we have the partyof vox, a fire right -- far right party which is very obsessed with national symbols come up migration, questioning the membership in the european

union. very similar to what you see in other countries in europe. years ago, probably what most people would observe as a populist party, it has moderated its stance quite a lot. partyd put a firm left not necessarily on the same scope of orban or other such parties. tom: thank you so much. paul donovan of course with ubs. we need to drive forward to the conversation on bloomberg daybreak. mark bristow, chief executive higher andld a dash a disinflationary reversal. worldwide, this is bloomberg. ♪

kailey: this is bloomberg "surveillance." the world's second largest -- posted four earning -- full-year

earnings that beat estimates. heineken says profit growth was partly due to running its business more efficiently while commodity prices rise. mike never graph says bitcoin will be digital gold despite its 80% decline. the islander of galaxy digital talked about cryptocurrency. equilibrium in this 3400, 3600 zone. , but ito either way feels like we are grinding along the bottom. kailey: that is the bloomberg business/. -- business flash. tom: we talk about disinflation in japan. japan has been living it for decades and decades. this is the animal spirit of japan, the financial crisis in the middle, and the nominal gdp rollover when you take into account the dynamics of price

change on a somewhat struggling japan. what is the number one lesson we can learn on chronic disinflation deflation out of japan? paul: the problem with this is that japan is a very peculiar case. tom: yes. paul: what you had in the 1990's was the collapse of the system of conglomerates of companies that led to a situation where the banking system and floated, small businesses -- imploded, small businesses imploded, but they never dealt with the problem, leading to prolonged weak economic growth. now you have got living standards in japan rising around the same rate as the states. if you look at real gdp per person, living standards are going up. their challenge is to manage all the debt they built up in the crisis with an aging and , andning population

therefore a nominal gdp in real gdp that will never be fantastic because the population is going down. tom: is europe doing a japan-ification? paul: absolutely not. small and medium-size businesses in europe are vibrant. if you were a small business in output85% to 90% of your would go to one company. you have no marketing or developing department. you basically have ties to one company. northern italy small business sector is very vibrant. you complain about the stagnation in the european economy. powerhouse.a we have a small business sector in europe which i think can maintain the economy.

the comparison for japan is not fair. francine: we have had a couple of calls for governor kuroda to resign because he cannot get inflation up. can someone else do a better job? technically, the bank is independent but in reality, it is not. the problem that japan really struggles with is japan arguably has the highest inflation in the advanced industrialized world. the problem is the perception of consumers is they have the highest inflation and because consumers believe wrongly that inflation is a tie, they are reluctant to spend and put money in the economy. inflation expectations are too high. you need to bring down inflation expectations and raise wages and actual inflation. that is what kuroda failed to do. francine: he was saying that

japanese yields fall into negative territory and it is not a problem if the moves reflect economic fundamentals. paul: if you have negative yells reflecting economic fundamentals , you should be thinking about that. the japanese government's bond market is manipulated and the regulation and manipulation is a distortion to yields. francine: thank you so much. sorry, go ahead. tom: paul donovan, thank you so much. really appreciate the extended conversation with mr. donovan, with ubs. this will be a joy with willem buiter, the gentleman from the school -- london school of economics. comment,ithin paul's it will rebound over to bank of england as well. francine: i am looking forward to that conversation, and i want to ask him about germany.

have some euro area figures that were disappointing again. thank you to paul donovan for joining us. that interview with willem buiter coming up. we will talk about brexit and inflation. 2017,e first time since inflation below the boe target. we will figure out exactly what the strategy of theresa may to deal with brexit is. she will face a new threat in parliament. sheshe get it through if gets a meaningful vote closer to the march 29 deadline? this is bloomberg. ♪

♪ tom: this morning, there is a global disinflation. is it a secular stagnation? willem buiter of citigroup.

stocks climb the proverbial wall of december, january into february, corporations adjust. america, it is happy at first glance, shutdown averted. this is bloomberg "surveillance." live from our world headquarters in new york, i am tom keene with francine lacqua in london. i do not really know where we are in the shutdown right now. francine: on the shutdown or brexit? on the shutdown, we are negotiating. on brexit, we have no clue. there were various reports about tactics theresa may may use to change the minds of her mps. there is probably only one person that knows exactly what she is trying to do, the prime minister herself. tom: here is kailey leinz.

kailey: starting with president trump, he is playing down the threat of another shutdown and is likely to grudgingly signed the deal reached by capitol hill and use executive powers to fund additional measures. almostted he will get $23 billion for border security but did not explain how. president trump says he is open to letting the trade deadline lapse if the u.s. and china are close to a deal. march 1 was the date he was set to more than double tariffs. negotiations from both sides will meet in beijing this week. paper says the president will meet on friday. to me sort -- theresa may will wait until the last minute before putting her deal in parliament. claimed to have said may would force lawmakers to choose between her deal or potentially

lengthy brexit date -- delays. a wire fox terrier named king was named best in show at the westminster kennel club last night. it was not considered an upset. terriers have won 47 of 112 times. 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. leinz.ley this is bloomberg. tom: scandal. we will move on. currencies,nds, commodities, let us look at the terrier index, 47 times. euro, 1.1320. it is a quiet take. francine: dollar edging higher, treasuries edging higher, stocks extending gains around the globe as president trump signaled a more conciliatory stance with china.

industrial production was worse than expected. tom: i did depth of the united states $22 trillion compared to the labor force of america. something changed in 1971. there was stability of the debt to labor force and as we go up, increasing debt. some of the noise has slowed down. $362,000 for each employee in the labor force. the math does not work. in washington, kevin cirilli. expect to day within shutdown verbiage? kevin: i was speaking with lawmakers yesterday and they want to see the final language. they have been working well into the night to get this arrangement, but many lawmakers outside of the bipartisan group have not read each line by line. the president feels he will get more money.

how will he do that? coming out of capitol hill is significantly lower than the $5 billion he is calling for, and it does not limit him from looking at other avenues or revenue streams like declaring a national emergency, like looking at construction in terms of the military budget, to get a wall outside of congress. tom: so he can take the army corps of engineers' budgets and pulled them to his wall to make another couple miles? kevin: exactly. where there is a will, there is a way in washington when it comes to the budget. francine: any attempt to shift money i imagine will trigger a new round of battles. kevin: legal battles, potentially. if you are nancy pelosi, you do not want to budget all on any additional money. it has been interesting to watch the president living up to the state of the union, says he

wants to work with congress. you are seeing in the past 24 hours, conservatives with a megaphone on social media and airwaves, criticize the president if he gets on board with this budget and backs down as essentially a cave in. many republicans want to see the president move on from this, especially given the dynamics of the 35 day shutdown. francine: are we still talking about the possibility of declaring a national emergency, or would there be so much backlash he would not do it? kevin: that is still on the table. if he were to trigger a national emergency, that would trigger the courts. money, as theyof have been described, three or four that lawyers in the

administration are looking at to get more money. tom: molly robbins writing this up in the washington post today -- once again -- the president needs a terrier. what is up with the president and dogs? how would i look walking a dog on the white house lawn, the president asked during a rally. the last time the white house lawn did not have a president walking the dog -- walking a dog was 1901. walking on the white house lawn with a dog would ruin the image. you have seen presidents walk dogs on the lawn. what is with this president? kevin: who am i to judge whether someone has a dog or not. i never had one. trump, maybe he wants a dog. maybe we will get a dog in the

white house in the next couple of months. francine: i am not sure where to go with that. i never had a dog. kevin: neither m.r.i.. -- neither am i. francine: joining us now is willem buiter. we have a million questions to talk about, disinflation, whether europe is becoming more like japan, but let's start with the u.s. and the shutdown. if there were shutdown on friday, how badly this be for the economy? willem: a second shutdown would do considerably more damage then the rather contained and partly reversible damage from the first shutdown. is ae would view this recurrent feature and would start adjusting their spending accordingly, both in the households and among corporates. the optimistic noises about the shutdown being avoided, the second one, are definitely good

news for the economy. francine: should we worry about the deficit, the american deficit more? willem: of course we should. we will be running 6% of gdp general government deficit this year, or thereabouts. that is full employment. so the structural deficit is completely unsustainable. at some point, the markets will wake up to that and will punish the treasuries. at the moment, the appetite is you can get away with years above 3%. tom: if the appetite is such an the interest rate is low, there is a nagging thing out there that someday this will catch up with us. max boot writes in the washington post -- deficit to gdp of a blended 35% of gdp.

america's is 108% of gdp. do you assume that one day the bill comes due? willem: well, unless preventative corrective action is taken, which is possible but not likely under the current regime. to: does this debt fold in larry summers idea of secular stagnation? does the mass of the debt lead dampenedshed and productivity and innovation, which leads to less innovation and growth? willem: the government spending more and taxing less is counter to secular stagnation. once the debt is out there, it acts in a depressing way on private demand and corporates. it contributes to weaker demand and secular stagnation. tom: this is an incredibly important theme, $22 trillion of debt.

we will continue with willem buiter. francine matches on that great theme of disinflation in the middle of february. coming up, david westin grilling neil mullally of new york. the dynamics of her democratic, new party, 12 noon today. this is near -- bloomberg. ♪

♪ this is bloomberg "surveillance." let's get the business flash. executives from t-mobile and sprint earned capitol hill to defend their merger. they are likely to face a skeptical audience.

hurtcs argue the deal will competition and lead to higher prices for wireless services. activision plans to cut 8% of its staff as part of a restructuring after they delivered a disappointing sales forecast. it reported revenue of 2.8 billion dollars, missing the 3 billion projected by analysts. sales for some key games have been disappointing. hit with moreeen bad loans. profits scoffer their plans to increase dividends, gains onhey are making cost a dividend ratio. is we arecan say well-placed placed to consider additional distributions for 2019 and we clearly made

decisions for the dividend at the end of the year. kailey: that is the bloomberg business flash. it is a us pretend lecture hall at the london school of economics. there would be silence for willem buiter as he explained the nuances of the general phrase -- there is a disinflation. willem buiter has migrated to citigroup and joins us this morning. you are in a lecture hall with a bunch of smart mouth undergraduates

knowledge he and logistics and diffuse mint of productivity across borders. what is the distinction of this disinflation? willem: new disinflation is partially driven by unrecorded productivity increases. imperfectly, but it is also a continuation and because of the cyclical global slowdown of the 10 year or more of near liquidity trap life, that all advanced economies have had. the u.s. is the closest to escaping that, but even they have only begun to scrape the inflation target from below. tom: a backstory at davos was the idea that europe must clear its banking system. i do not want to get you in trouble with the general counsel of citigroup, but is a prerequisite to get out of the trap that europe must clear its banking system? willem: europe is so dependent the capitalo markets are relatively undeveloped compared to the u.s. and u.k. a further cleaning up and strengthening of the banking system is a necessary condition for the resumption of the

cyclical recovery that at the moment is under serious threat. francine: how do you do that in europe? do you consolidate? do you take out the problem banks? consolidation would have to start with deutsche bank and commerzbank and go cross-border, or do you start cross border? willem: i think the obvious thing to do in europe, with in arm is natural -- national retrenchment -- enormous national retrenchment after the deficit is to maintain close borders. that way, you have strengthening andanking in each country maintenance of strengthening of competition as well. that is the only effective way to proceed. francine: is there a regulator appetite for that? willem: at the moment, very little, i am afraid. the national retrenchment is

still very much part of the mindset of bankers and it hasians, because remained clear throughout the financial crisis that your government stands behind you if you are a troubled bank. it is not whatever cross-border government may be looking after subsidiaries or branches. tom: give us the recession unit. the character of this gdp slowdown that you see forward, is it cyclical of a recession nature or is something more going on? willem: this is just a recession. in some ways, we are due for one. we have had quite an extended recovery, and cycles happen, even without policy actions to precipitate it. business cycles for 160 years before we had activist models

and fiscal policy. we should be expecting a slowdown, and there are many one-off factors and a general weakening of business optimism of animal spirits that is driving down capital expenditure in the eurozone especially, in the u.k., and may be doing so to a lesser extent in the u.s. tom: comment after comment we have covered, willem bauder with us -- willem buiter with us. this is the most important discussion. he is with auburn and stonebridge, but that rarely the contribution to the nation, carlos gutierrez on immigration, our number one topic, coast-to-coast, in the 12:00 noon hour. this is bloomberg. ♪

♪ today, data at the national level shows strong economy. employment is near a half-century low and economic outgrowth -- output is growing at a solid pace. prosperity has not been felt as much in some areas, including

many rural places. >> the chances of recession in the u.s. are very low. this is about what is happening in the rest of the world, a significant weakening in europe and china with the possibility of spill back. this is about muted inflation in the u.s. and the fed not wanting to take on the markets again. this is evidence of slack. tom: the messaging of the chairman of the federal reserve and dr. mohamed el-erian as well. from spain and carlisle. francine: this is about a lighting specialist based in germany. bid.are set to outweigh they could make the bid by the end of march and they are still deciding to make it. it is something about pricing and whether they see combinations and values in this. tom: back to the whims of

federal reserve policy, is there a big arch battle at citigroup over what the fed will do or is it the proverbial everybody on the same page? willem: everybody is more or less on the same page. see some chance, given the relative outperformance of the u.s. economy, and given the fact that actual output is expected to grow by faster than the potential outlook for the whole year, the greater risk of a further hike than a cut. patients is the new normal -- patience is the new normal and the presumption of inactivity is not a crazy one. francine: if the u.s. is close to maximum employment, what does that mean for fed hikes? willem: we do not know where maximum employment is.

we do not understand the labor market anymore. this kind of employment we are seeing, including broader employment measures would end the past have been associated with significantly strongly rising wage inflation. we see moderates increases and wage inflation. it is possible there is slack left in the labor market, especially to increase the participation rate. if youe: does it change increase labor force dissipation? if that is one of the main focuses of the fed, does that change the main economy? willem: they are constantly looking at that, looking at the labor market in great, excruciating detail. if they believe there is the laborility of material force dissipation rate, it is like an increase in supply.

a positive labor shop to the market -- shock to the market, they would pay attention to that possibility. francine: coming up, we hear from stefan ingves following today's monetary policy decision. he will have something to say about negative rates. this is bloomberg. ♪

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"surveillance," tom and francine from new york and london. kailey: jay powell says there is low risk of a recession in the u.s.. he adds the economy is strong but the benefits have not been felt evenly across america. alan greenspan is warning about the risks of stagflation. his concern is a ballooning budget deficit will spur inflation. mexican crime lord el chapo faces life in prison. a jury convicted him after a three-month trial that uncovered the violent details of his cartel. his lawyers will appeal and focus on the extradition process and the prosecution's effort to restrict cross-examination. reported al inquirer $35 million loss. it looks set for a fight with the world's richest man. jeff bezos increased his wealth by a bigger figure than all of

their revenue for the first half of the financial year. italy's prime minister faced backlash. he attended -- the heated exchange last night comes in the wake of the french governments withdrawal of the ambassador from rome. withdrawal ofs the ambassador from rome. >> how much longer will you continue to be the puppet of solving a -- salvini? i would ask you to do one thing, draw inspiration from your more illustrious compatriots. >> i am not a puppet. i am very pleased to work on the change the italian people want. kailey: 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 kailey leinz. this is bloomberg. francine: thank you so much.

theresa may and the e.u. are said to be heading for an all or nothing brexit showdown. top brexit aid will wait until the last moment before putting her deal to parliament. lawmakersthen force to choose between her deal or a potentially lengthy brexit delay. let's get to raphael therese, always a great pleasure to host you in the studio. you say jeremy corbyn finally couldd in on brexit and be the linchpin to save the deal? raphael: this morning's news about this extraordinary story that her top civil servant inadvertently revealed the government's strategy in a brussels bar plays into the labor policy, which we talked about in this piece. keep the u.k. to

in a permanent customs union and get labor support. what robbins has said and what the government has said, this is just his view, is that may will not go for a no deal option. she is willing to go for a long extension and is hoping to corral her mps into an agreement. in the context of the brexit melodrama, it raises it to another level. tom: we heard last week from jeremy corbyn's five foreign land -- five point plan. if he were to stay in the customs union, theresa may would have to get out of her red lines. which she do that? therese: she basically turned down the labour party proposal suggestit in terms that she would keep the door open. the big unknown, everyone has been saying, what does she

think? would she really except no deal? maybe she is leaning toward no deal, and with all the economic news that is negative with the poor investment environment, that frightens a lot of businesses. suggest anyelations rational thinking person would say a government could never take that risk. he seems to be confirming that which again, brings us back to, we have 44 days left to get to a deal or some kind of a delay. at: i am absolutely baffled what i see in the zeitgeist this morning. i just looked in "the irish times," moving the proverbial can down the road. is everything the same as it was three or six or nine months ago? i do not detect one iota of

change in the debate. therese: i think you are right. --s suggests we are going to and we have said this almost every time -- we are going to five minutes before midnight, the end of march before we have clarity. what has changed is with corbyn's move towards a customs union and with the robins revelations, we are coming close to the point where no deal is being taken off the table because theresa may has a parliamentary majority for something. her right-hand person, the issest top civil servant basically saying no deal is not something the government would entertain. it would rather a long extension. we are narrowing the landings own. , i want to buiter talk about the socialism that is all the rage in america. let's move over to the labour party in the united kingdom.

this is not tony blair's labour party. what is the character of labour dissent that you see in the united kingdom? willem: the labour party under corbin is more a return to the labour party of the 1970's. tom: i will go with that. or brownhen a blair type of labour party. it is hostile to the markets. it believes in regulation and taxation. it leaves internationalization -- believes in nationalization. francine: going back to your point, the narrowing field is landing but a no deal is not what the government wants. it is very high risk. if parliamentarians vote on her to bearch 21, she has deal she can revoke or delay and we do not know what the e.u. will say. therese: robbins, his comments

suggested he thinks the e.u. would go for an extension. the e.u. has always said they would extend for a particular reason, for a second referendum or general election. they suggested they would not extend just to allow the debate to continue, but if we get to that point, maybe they would be willing to grant a longer extension. i think the consensus is we're looking at a short extension. tom: we are looking at a short extension. i am absolutely baffled by the no deal has lessened. says who? do we get back to the second and third week of march and no deal reigns supreme? therese: that is what happens if nothing else happens to stop it. no deal is hard to imagine without some kind of government into premature -- in premature.

she will support a request for an extension, which the british government has to request that. all 27 e.u. members have to approve it. it suggests perhaps these amendments we have been hearing about in previous weeks, the cooper's bowl amendment that would force the government to call a referendum two aboard no -- might beight the in play. we are getting closer to understanding the alternatives and getting a clue to what theresa may thinks. francine: we have an assignment to hit the bars in brussels to get scoops on brexit and overhear the advisors of theresa may. much.you so willem buiter staying with us.

we talk pharmaceuticals coming up. pharmaceuticals leader, coming up. ♪

♪ this is bloomberg "surveillance." i am kailey leinz. the world's second-largest beer maker posted earnings that beat estimates. heineken was helped by the fastest growth of its namesake toa decade, partially due

running its business more efficiently while commodity prices rise. f says bit going will be -- bitcoin will be gold. an equilibrium in the 3400, 3600 zone. could it go down, of course. it feels like we are grinding along the bottom and we will be significantly higher. kailey: in sweden, the central bank committed to a plan to raise interest rates and they dropped a mandate that allows policymakers to intervene quickly to move inflation. we spoke with the central bank governor. >> it is important to keep in mind there is not a one-to-one relationship between us and the ecb. when the elephant moves, it is us -- it affects us. that is the case. on the other hand, there is nothing automatic about that.

they do what they think is best for the rest of europe and if they are successful, that makes things easier for us. kailey: that is the bloomberg business flash. tom: let me go to single best chart. we are on the fiscal path and this is the debt to gdp in the united states divided by gdp. 104%, and those commie socialists in sweden are down here next to 35%. with us, willem buiter of citigroup and coming out of a family of international trade unionists which are like in our guests and socialists, he joins us today. were you a card-carrying socialist? willem: i have never been a card-carrying member of any party. i come from a long tradition of democratic-socialist. the do you hear that in

united states from the congresswoman in the bronx and everyone else, this up or dish up were about scandinavian redistribution? willem: elements, yes. in sweden, the positions seem to be better thought out than they are currently in things like the new green plan and all that. yes, clearly the socialism that is advocated by some on the left of the democratic party, it borrows heavily from elements of the european social democracy. francine: do you believe -- first, a headline from spain and we will get back to that in a second -- the spanish parliament has blocked the 2019 budget bill. going back to socialism and the u.s., do you believe socialist parties -- policies in the u.s. would do better for its deficit, finances, and gdp?

willem: socialist policies because most of the u.s. population, it is still an anathema. it seems like single-payer health care system, more effective social safety net, and other measures to encourage employment, say by more generous income tax credit or these measures would do well in america. ,n europe and not in the u.s. it is a plus where income inequality seems to be in inexorable increase mode. francine: given the split that it seems like the republicans are going more towards the right and the democrats to her the left, is it polarizing politics? what does that mean for the

fundamental economics of the u.s.? goes toif it alternating left democrats and right republican administrations, the economic life will become more interesting in terms of market aortic, with important policy more chaotic, with important policy reversals. polarization does not tend to make for orderly policymaking. tom: thank you so much. professor willem bauder -- professor william bauder. -- willem buiter. the conversation on gold coming up. this is bloomberg. ♪

francine: this is bloomberg

"surveillance." we just had breaking news out of spain, opposition parties voted to block the prime minister's budget bill. the approval was blocked by 191 votes out of 350 cast. we were talking about the possibility of a snap election. if you cast yourself back to the protests over the weekend, protesters in the heart of the spanish capital are demanding an election under accusing the prime minister of being soft in alans of talks with cat separatists. tom: what else do we have? francine: let's stick with spanish banks, santander reminded investors the juicy bonds can come with nasty surprises. they rattled the 81 bond market by saying they will skip an

option to call 1.5 billion euros of notes next week. the bank cited the need to balance the interests of all investors. joining us is jonathan tice. first of all, thank you. this seems like an important decision for santander, which could reprice in the market. jonathan: the amount surprises me. what is clear is the market is struggling with, if you price something into perpetuity versus a core, you could be looking at 2% to 3% yield difference. this isnot sound like completely out of line with what santander has done in the past. this has been talked about over the past few months. look how trade has recovered. francine: does it have wider implications? jonathan: it is not a panic.

there are three or four banks everyone will look at, barclays, --nordea,santander santander, there will be plenty of chatter. this is not out of line with what santander has done in the past. see othere going to coco bonds? the idea that this is critical, a bond into perpetuity. will we see more of this from other coco's? jonathan: the impression i get is probably not much, but certainly it is from the debate of quarterly calls versus over a five or 10 year date. the debate will rage on, but if you look at the price action, it will go from $.98 to 95.5 cents back to $.98. it is manageable. tom: the heart of the matter --

and this has been written up as the cost of funding of italian banks, deutsche bank -- the santander piece coming in at a 5.53. is that a high-yield? are the banks in europe that junkie? odd billione 400 that will come due over the next 12 months, you are beginning to look at liquidity in european banks and the funding ratio. you have to take into account, what will the ecb do? with return -- in terms of funding, do we have a problem? no. we have a problem in the outlook. that is part of the net interest income line. francine: what do they do with the tltro's? the ecb indicated they will not be around. how problematic will this be for european banks?

jonathan: more of another drag on revenue. one or two percentage points off. i think depending on how funding conditions change, the ecb may change its tune. francine: at the moment, what exactly does it mean? will the banks repay the loans quicker than they should? jonathan: they will repay when they need to. some banks are talking about the fact that they will lower their liquidity coverage ratio. clearly, the ecb does not want the banks to run down liquidity much, so it is a balancing act. is it a drag? absolutely. tom: i believe credit suisse does the ballet tomorrow. what are you looking for? in core business banking demand and stuff like that, are they moving forward? beathan: credit suisse

interesting because it will be net new money and the thick and equities -- fic and equities trading. i am most interested in barclays because the estimates are for it to be up and fixed income to be flat and small. given that share a 5% and the activist investor, there could be a lot of price action. they will probably be talking about share buybacks again. tom: will they be talking about rightsizing? refite--- will we employment to the new definition of digital banking? jonathan: they have 25% of the credit card market over here. that is one part of it. barclays is in the investment bank and that is where the capacity to do the buyback will come from. holding courttyce on the european banks and credit

suisse trotting out tomorrow with a look passed and maybe a look forward -- past and maybe a look forward. on apple,ur podcast spotify, jonathan ferro and i will continue the conversation with willem buiter. ,here is a lot more going on and we are watching the brexit story with stronger sterling over the last 12 hours, above 1.29 on sterling. futures advancing. i guess it is a bull market. a february bull market. stay with us. this is bloomberg. ♪ the latest innovation from xfinity

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the president could push back to march 1 deadline if the u.s. and beijing are close to a deal. brexit blowup. plan reportedly revealed in a local bar. between domestic issues and a weakening china. david: we had this news that came out a few moments ago. spain has rejected that budget proposed by prime minister sanchez. you need the catalan supportive -- some of them are under trial now. alix: there was an immediate reaction to the downside. we talked