francine: renminbi jumps, the u.s. asked china to keep the currency stable. theresa may heads back to brussels to save her deal. the president speaks, vladimir putin stern to give his annual state of the nation. while you on domestic policies or ramp up rhetoric? ♪ francine: good morning, everyone. these are what your markets are doing, a little bit of fluctuation.

remember, it is all about the fomc minutes to give us an idea. the dollar is steady, but the renminbi in china rising after asked that china has been to keep its currency stable. let's get straight to first word news in new york city. sterling has rallied on optimism of a brexit breakthrough of the prime minister has to brussels. she is set to meet jean-claude juncker to secure a workable agreement. he is anything but optimistic a deal is close at hand. there is not enough movement for me to be able to assume it will be a productive discussion. the unregulated exit of britain would have devastating consequences for britain and europe. >> we could get a clue as to how dovish the fed has become.

january minutes will be released at 7 p.m. u.k. time and something that impact the curve. ittain signals can see resume its narrowing after bouncing back from a december low of under 10 basis points. swedbank is facing allegations from a swedish broadcaster it was used to launder money, alleging some 50 customers showed quote clear warning signals of suspected laundering. a spokesman telling the broadcaster it has reported suspicious transaction. some eu leaders are pushing for a change to antitrust rules. the aim is to allow companies to compete globally with competitors. angela merkel and emmanuel macron are pushing for the change. arean and french companies often the target of tough merger reviews, following the eu decision to block the siemens rail merger. recordsanders raising a

$4 million on the first day of his run. the self-described democratic-socialist will again seek the democratic nomination. the senator did better than expected and upended the primaries in 2016, most of all the candidacy of hillary clinton. global news, 24 hours a day on air and on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. -- francine. francine: the u.s. has asked china to keep the currency stable as part of trade negotiations. china's currency climbed to the highest level in nearly four weeks following this report. is marked for more kudlow, our bloomberg mliv strategist in singapore. first of all, what are the implications? mark: i don't think they are two major because it is already one

of the most stable in the world of expectations are it would stay that way. it stayed more stable then global peers, the implied volatility shows it has lower volatility van any. than any g10 currency. i cannot imagine the u.s. is concerned about access strength. normally, the u.s. has been more concerned about countries manipulating the currency. in this case, they're asking china to be more proactive in manipulating the currency overall, a marginally positive bit of news. china's yuan is already stable, already doing well. if this is all the u.s. wants, this is great news. give me a sense of why renminbi moves markets.

are they expecting the u.s. to put extra pressure on china? , if this isct is going to be an issue, they certainly feel china will give them an easy win. is something they are making negotiations contingent on, the pboc will be happy. they might that back against ip demands, but i think the pboc will give that. so has provided investors confidence that risk will rally of a generally good for currencies. it is good for the economy because negotiations will go well and it means the pboc might be even more relaxed about allowing more he won strength -- strength.trenght -- francine: thanks, mark. joining us is the chief global equity strategist at goldman sachs.

peter, great to have you in. you have a new note out talking about these topics. what will be at the forefront of what markets look at? is it fomc minutes or trade concerns? difficult to pick one, they are all important. they relate to investor concerns, particularly at the end of last year. part of that fear about recession reflected the yield curve flattening. part of it was relating to trade issues. those concerns have moderated with the rally we see in january, rightly, in our view. but people will be very focused on the hard data as opposed to which reallyta, led this panic at the end of last year. francine: what are you expecting markets to do, broadly? is it range bound?

and is it because there is a slowdown? peter: range down, yes. was toosaw last year much negativity being priced in because of fears of a recession, which rethink is unlikely. in that context, we saw valuations coming down. rebound backeen a to levels consistent with slow but moderate growth. so the upside for equity markets is capped, because we do not see valuations driving higher. grow, same time, profits which is slightly to be positive. around 6% growth in the u.s., 4% in europe and sweden. positive, but moderate. francine: how much of that is led by technology? technology has been a crucial driver in the bull market.

these are companies in aggregate to that are still january -- generating. but we cannot expect them to deliver the contributions that they have done over recent years. of the u.s., the technology center drove over 60% of the rise in margin and's 2010. we don't think they will fall, but we don't think they will rise much. there are two, we would expect slower growth. francine: let me bring you to what we are working on. if we were to have a u.s. china resolution, does that change fed expectations? peter: it is still possible we get back to a point where markets price in a rate rise. contextsngly, in the of risk assets of last year,

when investors started to worry about a recession, we saw inflation expectations falling everywhere. and interestations rate rises canceled. the growth is not really as bad as feared, and that is being reflected in the balance that we see. coming back to some kind of tightening could still come back onto the table. but i don't think we should read too much into the flat yield curve that we have. there are technical reasons why it is as flat, but it does not signal a depression. many say that even if it inverts, let's keep cool. peter: that is right. the signal or the reliability of signal to a recession is much less reliable now than it has

been in previous decades in the postwar environment. so there are other factors driving the longer end of the yield curve. it is consistent with slow growth, but not recession. francine: what looks overvalued or overbought? peter: to some extent, the itself. we did see long-term yields falling in the u.s. across europe quite dramatically at the end of last year. been, that may have consistent with the fears of growth decelerating sharply, but with the absence of that fear, and your earlier comment, if we got any resolution to the trade conflicts, i think we could see a little bit of premium and rising yields back into play. that would be one area which would look quite stretched. francine: are german bullets the most -- bunds the most

underpriced? amazing how much they have fallen. again, of course, the u.s. economy has been weak and germany has flirted with recession, some of that we think is temporary. but it does reflect, to some almost the constant and insatiable demand for risk free, long-duration asset. aat is not likely to go quickly either, there is not much supply, and i think yields will stay low. francine: peter, thank you very much. we'll talk more about europe, germany come and brexit. in the meantime, we're seeing live pictures of vladimir putin making his annual state of the union address. that is at in moscow, he is

expected to talk about domestic politics, also to talk about international foreign affairs. we'll bring you any breaking news out of that, it's always quite a picturesque and imposing set up. we will talk more about emerging markets, including russia. this is bloomberg. ♪

francine: this is bloomberg surveillance. let's get straight to the bloomberg business flash. investors have pulled $3.6 billion out of danson over november.

suspended tim heywood in july over allegations of shortfalls. he was the manager of its flagship bond fund. the u.k. regulators saying this merger would be difficult to address for antitrust concerns. the authority says even a sale of a large number of stores will not address those concerns. as thecapital is closing founder plans to join another firm. samantha greenberg will leave the firm and join a hedge fund giant. multi-manager firms like citadel have become a haven of hedge fund managers who continue to be under pressure. aon musk has wound back prediction for vehicle production only hours after.

he corrected an earlier tweet saying that they would make about 500,000 cars, he says that is the annualized rate. this year will be about 400,000. thank you. theresa may is making a last-ditch attempt to save the deal. she went to brussels to meet with jean-claude juncker with the hope of getting legally binding changes to the irish backstop. meanwhile, officials are playing down the prospect of an imminent breakthrough. what does all this mean for investment? still with us is peter oppenheim are. for how you mean view equities? they have been sold off because of pound jitters. is it a good time to get back into equities? peter: u.k. equities would get a

bounce if there was some kind of deal, simply because we have seen record slows -- flows and there might be some positive stimulus you get just from money back in. the main beneficiary of the deal, and therefore the main focus, would be on the currency. in the case of getting some withdrawal deal through, or at least moving ahead without crashing out, we would expect sterling to rally to around 1.4. we do think sterling is undervalued. in the context of that rise, some would say large-cap stocks in the u.k. will come under pressure, because for quite a long time, the big global companies which make up the ftse hundred have benefited from the weakness. but recently, the correlation has shifted.

as you get closer to this important cut off point, is reflectinging more confidence we can avoid a crash out. that is tending to push the u.k. market up a little bit. so it is an interesting shift. is the market correctly pricing a no deal? >> there is some probability of a no deal, but certainly, if that were to happen, markets would react pretty aggressively i don't think that is the central assumption most are making. it would not be our assumption but clearly that is odd. if the current trade he -- treaty does not get through, crashing out is the default option. as we closer to the end of march, as indeed we are, one might imagine that people get more worried about a crash out,

but because of the other maneuverings we have been seeing , the complexities of the developments in the u.k. parliament, it still looks as if there is a significant majority to block crashing out with no deal. would happen, we may not know until close to the point itself, but i do not think the market is pricing a crash out. francine: you are expecting 4% equity increase this year. peter: for current levels, it is that. francine: we are seeing negative views from italy, germany flirting with recession. because the ecb will remain accommodative. is in line with the profit growth we are expecting. if you take, for example, the , --x 600

we are also making a claim on global growth. overall, we expect some positive, but relatively moderate growth. we don't see any valuation change. bear in mind, you got a decent dividend yield. so the total return will be a bit from earnings and a little bit from dividends giving us a price return of 3-4% and around six or 7% when we take the total returns of local currency. francine: thanks so much, we will be back with peter to ask him about the risks and emerging markets. get your questions in by going on line. you'll find it, ask questions. this is bloomberg. ♪

♪ francine: this is bloomberg: surveillance. we are talking about germany and brexit. more and more people are worried that europe is becoming like japan. ? is it? like japan. is it? peter: it is in some respects,

great quality of life and food. but if you look at the gdp slowing, it is not dissimilar. of course, they have similar demographics, in many ways. if you look at the stock market in the last two years, is actually map of the movements very closely. part of the issue here reflects the slow growth. europe had ad problem with banks at the point with air bubbles burst. if you look at the japanese and european banking sector, the performance has been quite similar. francine: talk to me about emerging markets. is it overcrowded? peter: i think you are right, the fed moves are critical. if we don't get rising rates with the dollar weakens, those are helpful. forget anything close to a trade agreement, that will be positive for china, particularly if we get fiscal stimulus, so we generally like emerging markets.

francine: peter, thank you so much, chief global equity strategist at goldman sachs. there are concerns donald trump will not repaid his loans while in office. it just came out on the terminal, so we bring you that next. and looking at some of your markets, u.s. futures drifting, stocks in europe are up. report theafter a u.s. asks china to keep the currency stable. toresa may headed back brussels in a last-ditch attempt to save her brexit deal. we will have a full round up next. 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. francine: economics, finance, politics. this is "bloomberg surveillance." top executives at deutsche bank were concerned after donald 2016.won the election in

they were afraid he might default on about $340 million of loans while serving as president. extendingdiscussed until after his term. eric trump responded in an enough that the story is complete nonsense. steve helped write the story. first of all, why didn't deutsche bank actually extend? ve: we don't exactly know. put yourself in the situation. is a difficult situation to make. they would have asked the trump organization to agree. any changes need to go on the record and need to be filed with the regulators in the u.s. it would have created headlines. it would have been a difficult thing to pull up.

it put that the decision and said we are going to go for an easier way and just business relationship on hold as much as we can and not take the complicated step of extending the majority. francine: how is deutsche bank dealing with the exposure? situation innk the late 2016 after trump have been elected u.s. president, the executives at deutsche bank, which had served as a very important lender to donald trump it was a very complicated situation for the bank. -- they were facing the perspective of having to ask back money for a sitting president, and if you have not been able to pay it back, that would have looked bad. they decided to try and put the decision -- business relationship on hold. since then, there has been a lot of scrutiny. we know democrats are now

intensifying that scrutiny. is business relationship something deutsche bank would like to keep out of the headlines as much as they can, but politicians in the u.s. are trying to shed light on the. i think it is going to continue to happen as we go along. francine: what are you expecting for 2019? ven: the democrats are the power inerage a house to find exactly what had been going on between the bank and donald trump before he was president. they are trying to get documents. to our knowledge, they have started receiving some of those and are going to try to use them to figure out what had been going on. i do expect more details to come to light, but we will have to see how much can actually take place. francine: thank you so much. let's get straight to the bloomberg first word news in new

york city. viviana: the u.s. is asking china to keep the value of the yuan stable. they want to fend off any attempt by beijing to devalue its currency. bloomberg has been told the two sides agree it would be a part of any final deal. the latest negotiations in washington are set to run through friday. the president says he is in no rush to reach a nuclear deal with kim jong-un. that is because he has a strong relationship with kim. u.s. sanctions will remain in place. record,m has hit a $1500 an ounce. it is extending powerful rally that has been driven by an acute shortage of supplies. car manufacturers are scrambling to get hold of the material needed to meet stringent

emissions holds. lacking, this leaves the government with lower revenues to bring cut. power utility is likely to require further support after operational problems have led to rolling blackouts in recent weeks. some eu leaders are pushing for a change to antitrust rules. the aim is to allow companies in the block to compete locally with competitors from the u.s. and china. angela merkel and emmanuel macron are pushing for the change. eu's decisionhe to block the rail merger. 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. -- starling is a

british digital bank. in recent years, we have seen more startups in online banking businesses. how does it stand out? the company announced a fund-raising ground of 75 million pounds. joining us now is the chief executive of starling bank, which she founded by losing her bank. an irish after doing all the big ones, she said enough. ann: i thought big banks were spending so much time and money repairing problems of the past, putting what went right wrong in the financial crisis. there was room for a new organization with new values, transparencies and new technology doing what customers really want to. francine: which is basically what, credit cards? anne: what we have is a checking account for consumers and small businesses. that is really useful banking.

we provide the payment services, the processing that small businesses and consumers need to run their daily life. artificial intelligence and machine learning to get the best value for your money. francine: how many customers do you have now? anne: almost 500,000. we can get very big. we are focusing having something like 8% of market share. every week, lots of people sign up for our account and are getting huge value from it. francine: does this target for businesses but also individuals? anne: we have a market where we have the best market -- technology for businesses and individuals. we open up our technology to large corporations and government.we have contracts

with government that have contracts with big banks. we are really bringing in the best technology to the industry for the first time. francine: does it feel like it is a crowded market? you are going after the big four. you also have quite a bit of competition on the ground. anne: metro is very much a high street proposition. we are all about having the best model, best customer service, an organization customers can relate to. francine: what is your customer service like? i love my app. do i actually get to speak to somebody? anne: you get to speak to somebody 24/7 if you need to. was customers can do anything on their phone, but if customers want to speak to someone at 2:00 in the morning, we are there. francine: how important is it for you to scale up?

anne: lots of people tell their friends and family about starling. that is how people here about us. if you ask people at the moment, we are part of day-to-day conversations. people are getting to know about us. people are getting to know about the fact that we are very fair, and weounts are free flex personal businesses to make sure we really respond to their needs. we have a full banking license. the regulations for us are very tough. we're talking many years to get a banking license. we are regulated at the same level and in accordance up to 85,000 pounds covered by the financial services conversation team. francine: how big do you want to be? anne: we will have one million counts -- accounts by the end of the year, and many more after

that. a fund thatng for has been set up to a more competition into the market. that is quick to be very important to enter these new competitions in the coming years. francine: how much do you worry about brexit? anne: brexit is difficult for all of us. the uncertainty is difficult, but most organizations, especially organizations young in our history, are able to flex and actually figure out how they are going to navigate the situation. francine: how much exposure do you -- do you start with the u.k. because it is a great model and then you go to somewhere else? anne: we are big in the u.k.. we have a euro count which is very successful. next up, ireland, and from ireland we launch across europe. francine: what is your euro

count? anne: right, we have a euro count for u.k. citizens and businesses. we will soon have those accounts over -- offer to european citizens across europe. francine: any acquisitions outside for technology? anne: we were very hard getting the best technology in the world. i spent 30 ought years in traditional banks trying to fix the old problems. is great to be in an organization where we have new technology and we can take the best from around the world and use it to solve financial services problems in the right way. francine: thank you so much. it was really great having you on the program. to the executive and chairman of the spanish utility company next. this is bloomberg. ♪

francine: this is "bloomberg surveillance." let's get straight to the bloomberg business flash in new york city. viviana: investors have pulled on6 billion out of investment company that has been battered by choppy markets and a scandal over its star money manager. he was the manager of its flagship bond fund. ap regulator says it would be difficult to address the deal and high trust can.the competition ofs even a large number

stores won't address the concerns. swedbank is facing allegations that it was used to launder money. a swedbank spokesman says the broadcaster -- told the broadcaster, reported suspicious transactions to the police, but the broadcaster doesn't mention transactions of the report. francine: the spanish utility company reported that its earnings beat estimates thanks to the company's resilient and spanish market. it also announced it will buy back up to 150 million shares. joining us now is the chairman and chief executive from internet. -- madrid. you have pretty good results today. if equity continue into 2019?

are you quite bullish about the year ahead? >> we are very proud. we have already beat our record. euros net 3 billion profit. we have seen a growth in all the lines of the account. already two digit growth in all of them. merger,equence of the we have been ready this time many years ago to invest heavily in renewables and storage. that has already given us the result. we are longs today as well and increasing our dividend by 7.1%. our plan for 2019 is to continue this growth, middle single-digit

growth as well into 2019. we are planning to put into place something like 6000 mega votes. francine: are you planning any acquisitions? are looking at any of the assets that edp might be getting rid of? ignacio: our plan is very clear. our plan is based on organic growth. raising $32 billion in investment between 2018 and 2022 indicated organic growth. that is what we are making. if our growth is good enough to achieve the result we are achieving. francine: how much bigger do you think the renewable energy business will be in about 12 months? ignacio: sorry?

i cannot hear you very well. francine: how much bigger will the industry be, the renewable industry in europe be in 12 months? cio: the energy plans and climate plans of the european union is trying to accelerate investment in this race that. or investment is mostly directed to this expectation. in europe, the expectation is that growth will be huge. the winter package has already been approved. is going to produce already a tremendous about because investment is going to be required in other countries. case, i think it is going to be many billions.

you are: of course, going through a spanish electoral campaign with elections due in april. if there is uncertainty in the politics, does it have an impact on your share price? ignacio: i don't think so. announcedoing to be the energy climatic plan for the next few years. i think that is something which i am convinced has a tremendous consensus on everybody. that is way to create a lot of opportunities for a company like ours. wind,e a lot of sand and , the we can dams be transformed in storage. i think that is already opportunity for the country. gold, no gas.

making investment in renewables and transporting these is going to generate good work in the country. i see no one political party. francine: talk to me about your dividend policy. dividend of 8%. paper to promise to continue doing that kind of growth for shareholders? : for a long time, we are already applying the same policy that our dividend is increasing in line with increase of profits. the larger profit increased by 7.5%. the dividend has already increased by 7.7%. changeategy is going to for the future and continue to increase our dividend in monmouth the increase of our net

profit. that is what we have been doing for the last 10 or 15 years, increasing dividends in line with increasing profits. growth, single-digit sloughing dividends are going to increase by single-digit growth as well according with our plan. francine: thank you so much. up next, tesla's twitter troubles. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance." soon.usk hits send to the tesla chief executive have to correct it tweet about how many cars the company would make this year.

between said half million vehicles in 2019. hours later, he clarified that instead, auto deliveries for the would be about 400,000. what happened to the sec controls? this sparked a lot of interest because i thought this was the old elon musk and we were meant to see the new one. alex: absolutely. to sec said that tesla have convert better control over its ceo's tweeting. processes of vetting were good enough. maybe they didn't check it accurate enough. once again, it points to a failure at tesla. francine: does it actually impact the way he is running the company? alex: when you look at the way he rides his communications department, what does that say

about the other substantial operations of the company? we have any number of examples of executive departures. probably, because of his management style, this point taken to the broader problem of how the company is run. francine: we had other people that were put in charge of meant to keep an eye on him. do we have any insight on how that is going? tox: he has yet to appoint directors. the intention is that those people keep him under better control. it looks from the outside in as if those people are personalities that were very close to him already. the chairman was already on the board of tesla, the oracle has also joined the

board. that is someone who is a huge champion of elon musk.and all points to the idea that the idea to rein him in is very limited. francine: thank you so much for the debrief. hour.tinue in the next tom keene joins me out of new york. we will be talking to the ceo of allianz. david bringing out the big guns today. we will talk banks, commodities, fed, minutes, markets, china. all of that coming up on "bloomberg surveillance." this is bloomberg. ♪ 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: renminbi jones. -- jumps.

speaking of water compromise, theresa may have act -- is back from brussels. worries about the white house. good morning, everyone and good afternoon if you are watching them asia. this is 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. we will spend a lot of time talking about deutsche bank. our bloomberg reporters have been working the phones to try to figure out what they're thinking and what deutsche bank decided to do, given the relationship with trump when he was elected president, but i would also caution everyone it is about been in the and china. the report about chinese stability. tom: on the deutsche bank story, there is a quote from direct trump as well willy pushing back against the reporting and what the worries about deutsche bank. that story will be front and center. we will discuss that briefly with martin this morning.

francine: let's get to the bloomberg first word news. back -- theresa may has has back to brussels to try to save her brexit deal. they's meeting with european commission president is seen as a crucial chance to get legally binding changes to the irish border backstop. eu officials are playing down the prospect of an imminent breakthrough. the leaders of france and germany one changes after a real project was vetoed. emmanuel macron and angela keepl sacred regulations european companies from competing better with those in china and the u.s.. blocked a bide eu to create a row company with a french rival. president trump may finally deliver on his campaign promise to address china's management of its currency, but that would mean a reversal almost a decade of economic possibly -- policy.

that would help ensure a truce between the two would shrink the trade imbalance. u.s. senator bernie sanders raising a record $4 million on the first day of his run for president. the self-described democratic-socialist will again seek the democratic nomination. he did better than expected and appended the 2016 primary, including the candidacy of hillary clinton. 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. it.s get right to the focus here is on the german ten-year yield. i want to discuss that with ourtwo just here in just a moment. grinding higher yesterday after that big friday. a little bit of an oddity across the atlantic. we will even that out here.

euro-dollar with strength the last few days. on to the next screen. 15.15 on the vix, now grinding to 26,000. 30 year bond. 2.97 coming in. sterling with strength, let's call it optimism as the prime minister goes to brussels. francine: don't be sorry. houston is always a beautiful thing if you live in the u.k. the prime minister is heading back to brussels in this last-ditch attempt to save her brexit deal. we heard that she should get her hopes up. i'm looking at dollar pretty much study. the biggest story today is yuan rising after this report that america is asking china to keep its currency stable, part of the trade talk. tom: very good. let me go to the bloomberg. this is just a study. what if you took the german

deutsche mark ever stronger against the dollar for a solid 30 years. what if you add the advent of the euro, and instead of going like this, following the trend, deutsche mark leveled out? you would get the germany that is advantaged to the german automobile industry. the difference is a stunning 42% after 20 years. that puts the euro out to about a 1.58. it is just a study. i'm not saying the euro got to be there, but it gives you an idea how euro -- deutsche mark valuation changed with the advent of the euro in 1999. francine: this is what i'm looking at. we kind of go back to this every couple of months. today, it is quite significant because of the minutes there. it will have the potential to m -- -- said one of the

parts of the ultra -- yield curve hurling down. tom loves a historical look at past recessions and the yield curve inversion that preceded them. let's get back to the markets and minutes and is chinese-u.s. trade tension. our guests join us for the hour. tom talked about bringing the 18 together this hour in london. thank you both for joining us. when you look at trade, the u.s. and china, they have a deal. they're going to be friends, no they are not, we may have tariffs. what is the overarching theme for the market? should they just ignore or follow it every week? andreas: they should ignore it for tactical reasons. i think there's probably every

expectation that there will be some sort of deal. let's not forget, this is a deal that leaves us substantially worse off than we were three years ago, because pretty much 50 years of u.s. tariff productions will have been undone. i think strategically, the market should be concerned because this issue of international profit, the text cold war and technology supremacy, both nations would like to achieve or maintain will weigh longer-term entree gold .nc and how the market does francine: do equities flatlined this year? we are concerned about slow down, growth in europe, similar concerns in the u.s. are we just going to find a flat market in 2019? david: part of it is our starting point in terms of

valuation. 2018, we started at a rich valuation level. earnings were ok. growth was ok, but the valuation level that we started the year in 2018 was quite high. fast-forward a year to 2019, evaluation is much more acceptable as a value investor. we see especially places in europe, in particular where you see very low valuations. acceptable andan attractive starting point, as i believe we did in 2019, i think as long as the global economy stays together and it looks like we're going to grow someplace around three put 5%, that means earnings should still move up at at least the single-digit level. but to be decent for equities. that is not to say it is going to the, but we are starting at a very low valuation starting point. touch upon your

german expertise with allianz as well. howie way the upset over german trade, helps upset germany is about potential tariffs with the u.s., how do you way that versus china? andreas: it's pretty significant. the german economy relies heavily on car and other capital goods exports. i don't think germany has fully woken up to the strategic threat of this. you talked earlier about the euro.that is part of the reason i think the euro is weak . the euro zone economy is slowing. also, if you think about it in terms of the stock market, the tax is one of the worst-performing stock markets in the world this year. it's up a little bit, but nowhere near the s&p are cac 40. tom: i know you don't like to buy autos, your loaded on the you see theow do

burgeoning trade issues between germany and the united states? david: we actually own a few autos, almost exactly what s isea's iss -- andreas saying, there is the regime change in europe that should have started this year. they through the entire automobile sector into a tailspin. it was extremely distorted to the automobile market. i'm surprised no one has really reported much on this. this in the trade fears in the diesel issues have all really hit auto shares, which have made them attractive. i think ultimately, these trade spats will get worked out. i can't imagine that there will be high tariffs. if you start with that premise, these valuations of 5.5 times earnings for the premium auto producers, which still face

structural, not as strong as growth as they did in the past, but still, the emerging world, places like china, there are still good growth opportunities for the bmw's and idlers of the world. world.lers of the we actually think it is attracted to look at because it has been hit so hard in the last 18 months. tom: david always searching for value. we will continue. let me tell you about another guest. look for the open this morning. bloomberg. ♪

viviana: this is "bloomberg surveillance." let's get the bloomberg business flash. today, we have a scoop about the relationship. between president trump and deutsche bank the gentleman lender was so concerned mr. trump might default on 340 million dollars worth while in office, they went to restructure them. the plaintiff decided not to do any new business with him. a british bank is betting it can weather the brexit storm with a 3.2 billion share buyback. biggest business -- lender reporting profits roughly a month estimate. the are warning the outlook for the british economy remains unclear. swedbank remains the newest nordic lender to be accused of laundering money.

it is at the center of europe's biggest money laundering scandal. swedbank says it has reported the transactions to police. that is the bloomberg business flash. tom: i believe she said suspicious transfers of $4 billion? very good. thank you so much. let me show a chart before we go erro.dreas and mr. h i showed this last week, the european banks are together, the european banks are together. in 2012, they are not. deutsche bank, credit suisse not so good either. this begins a conversation front and center for andreas and david. are you buying shares this

morning of these beleaguered banks? lot, as you know already of these beleaguered banks. business, the reason we own them is because this is where we are finding value. you mentioned credit suisse is a perfect example. in the last 3.5 years, they have really transformed themselves to an institution that was really dependent on the investment bank for its earnings and earnings growth. everyone kind of ignored the private bank. restructuring, the turnaround was put in place, the less reliant on the more unreliable earnings from the investment bank. this has mainly been done in the market has ignored it. we think there is livestrong earnings power coming from credits these and some of these other banks. tom: francine, jump in here with your special relationship with zurich. was going to ask you

the upside for credit suisse. do you worry about some of the compliance issues? is there anything in switzerland that would make you reassess some of your investment? david: we are always looking at what new information may come up. to haveliance issues, paid their fines and i no longer -- doj list. if you look at their capital positions today, if you look at the capital buffers today, given the amount of capital generation today, it is able to absorb any little tiny hit and still grow their business and still give money back to the owners. i think this is kind of what the market is missing, the cash flow streams are a lot more stable today, given how the businesses have been repositioned versus three or four or five years ago. francine: if you look at your

investments in banks, are you happy with that portfolio? we are seeing so much political turmoil in italy, would you add to your -- any other italian banks? allianz. are also in i think it would be hard to add any more in our portfolio. we have plenty of exposure to the european sector. however, our basic mechanism is the price of business. 's price moves away from evaluation, we add and if it gets closer, we subtract. as of right now, i think we are happy with the way we are positioned, which is extremely overweight in european financials. if they were to begin, that is a different story. next commercial bank, buy 10,000 shares of allianz just to keep under y

-- andreas happy. if you look at the banking story, we assume some sort of american roll up.when is it going to happen and what will be the catalyst to get us to transactions in combinations in eu finance? andreas: that is a tough one because as you probably know, some of the regional savings banks making it very difficult for the major financial institutions, particularly in northern europe and germany to effectively compete and gain market share. even if there were to be a merger between commerzbank and deutsche, which has been rumored, it is difficult to see from then on they can do any better unless the context in which they can compete is addressed. i think capital markets needs to be a must, but i want to come back to david's earlier point of valuations. there was a point when valuations start to cheapen.

dividend yields are approaching 6% across the sector. taylor underperformed by the general market by about 20% since the start of last year. the question is, what are the catalysts? you're quite right to ask for that. one of the catalyst could be a benign brexit deal. i know the equity talk about that later. one of the catalysts could be a renewal of anticipation of the ecb starting to continue on their slow typing cy -- tightening cycle. tom: where it going to do about negative interest rates? the ceo of commerzbank told matt miller he can't work with negative interest rates. center.s are front and what are you to do about the chronic nature of negative interest rates for financial people, not fancy pants economists? right.you are absolutely is the key challenge.

you could add negative interest rates. it makes it even tougher for the and investor to maintain the purchasing power. that is part of the raise middle income segments of the population are being so hard. it is incredibly tough. we need to get back to growth. we need a dose of inflation that is tough to achieve. the central banks have shown how difficult it is to get that back into the system. clearly, all of this uncertainty around trade conflict, brexit doesn't help at all. francine: thank you both. david are staying with us for the hour. coming up in the next hour is a spanish foreign affairs minister. with see the campaign being started for the election in spain. i believe that is april 28. that interview, a must watch. this is bloomberg. ♪

francine: this is "bloomberg surveillance." tom and francine as always from london and new york. we are following vladimir putin's speech, the state of the union. he has just said he is not seeking global confrontation. the u.k. is confronting the eu today. theresa may making a last ditch attempt in brussels to prevent parliament from taking control of the divorce. three in peace are pleased to be

walk -- mp's our quiz to walk away during negotiations. joining us now are andreas and david. by the markets underestimating the possibility of a know don't brexit? there seems to be just an overarching confidence that nothing ugly will happen at this point. andreas: it is a factual event anyone a small probability of a problemsit would cause in pretty significant disruptions. it is very difficult to attach the right probabilities that outcome and determine what the right market level should be. let's not forget, even a negotiated deal is still a nightmare for the economy is still a nightmare for people who do business in this country. francine: what does that mean for assets? andreas: there are a lot of assets in the u.k. that have

overseas earnings. that is not going to be as much of impacted. but struggling is going to have to find a new level, and whether that is higher or lower than today is difficult to anticipate. it depends on the nature of the deal. francine: we will get back to that. andreas and david both staying with us. coming up, the weekly prime minister's questions midday in london. we are also hoping to hear from the european side on what he will do and whether he can actually give written assurances on the brexit backstop. please understand that is what theresa may wants to renegotiate with russell's. so far -- brussels. so far, they said no way. this is bloomberg. ♪

♪ bloomberg "surveillance" and in moscow, president clinton's speaks.

-- putin speaks. i want to bring to your attention, this is about weapons. it has a tone of sequence of headlines out of another decade. we need to know, another word for americans is poseidon which is confusing. mr. putin says russia will deploy the first submarine with the side and in spring -- poseidon in spring. the u.s. needs to take our new weapons into account. poseidon is a new weapon for russia announced last year. it has been around for three years. it has drowned characteristics launched -- drone characteristics launched from a submarine. president trump says he

is in no rush to reach a nuclear deal with kim jong-un. that is because he has a strong relationship with cam. -- him. next week, the president will hold his second summit. watchdogthics rejecting wilbur ross's financial disclosure forms. he said he sold shares of -- but he did20 not sell them until last year. talks between the u.s. and california on auto emissions and fuel standards have broken down. no further talks are scheduled. says it would not lower vehicle prices and improve road safety enough. in the u.k., a regulators report may make it difficult for walmart and after to make their

acquisition and merger. company would rival tesco as the largest grocery chain in the u.k. 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 her tanto -- viviana her tanto. -- hurtado. tom: andreas utermann and david herro are with us. we bring forward the great debate of the last 20 years, active and passive investment. fidelity andt others have decided, i guess it is a price war. does this have critical mass? will we see every shop offering vanilla management and a vanilla zero fee?

david: i do not know about vanilla zero fee -- andreas: i do not know about vanilla zero fee. we were close to launching in the u.k. and the u.s. a very low based fee fund with performance fees attached. we have been offering that in the institutional space for many years. that the price of beta in most beta streams has come down with the advent of passive etf's, and active managers that want to survive need to acknowledge that, and figure out what that means. we need to earn our keep by aligning ourselves with our interests, through performance fees. tom: how will this end up? we have been talking about this for years and you have been astonished supporter of buying

bank stocks. how is this going to and up, this active and passive debate? david: there will always be this debate, and it is a strong passive sex -- sector is a necessity for active investors. youive investing implies are buying things through an index and the more it up, the bigger space it occupies in the index. this is inefficient pricing of assets and as an active investor, we need in efficiency to exploit over the medium and long-term. if we want to perform in the medium and long-term, we need market inefficiency and mispricing of assets. if passive investing causes more mispricing of assets, that is good for us. the problem is we keep shrinking and they are getting larger,

which means the opportunity set for the remaining active investors increases. as long as you have the staying power and discipline to hang in, you will be good for active investors. the road that slices the pie between active and passive will keep moving slowly towards passive. for me as an active investor, i am thankful every morning there are passive investors. francine: talk to me about more in, will we see 2019? is there correlation between volatility and people getting their money out? andreas: not necessarily. the outflows in q4 across the board are caused by specific market events. we do not anticipate that continuing in 2019 now that the central banks have taken the foot off the brake a little bit. as the year progresses, the challenge of end investors with

negative interest rates, they will have to start taking risk again to get returns, and that will favor the slow, steady return of fund flows across the board. francine: are you expecting more volatility in the markets? the fourth quarter was a bit rough. david: the fourth quarter of 2018 was extremely strange because the price movement but the outflows and dislocation in prices, prices completely divorced from reality. it will come back at some point, who knows when. even though it is painful as you go through it, it is good for an active investor because it is basically the raw material to position your portfolios. when you see emotional trading and price movement that is not reflective of reality, it will come back. tom: that is brilliant on the

mergers and combinations we have seen in asset management. does that extend this year into the second, third, and fourth quarters, strategic planning will continue? andreas: i think it will continue and accelerate. we have seen a world of pain in that manyhe stresses traditional asset managers are facing with hybrid models. do i focus on a technology led ,odel or distribution led model active or passive? will of active managers have its second to look at their business and decide to either sell or merge. i think it will accelerate in 2019. allow me one further comment on the active-passive debate. it seems that the debate is so much focused on security selection. as we all know, many of our clients have concerns beyond that.

they want to know when to buy a particular currency exporter or when to hedge it, when to get market exposure or when to reduce it. you cannot do that in a passive manner. these are active considerations. the active-passive debate is to bank focused on security and it is also an issue of pricing. there is much more than just security selection. francine: do you want to respond? we do focus on equity analysis, but it is much bigger than that. david: it is much bigger than that, especially if you are retirement planning. you have to have a diversified plan and assets that can deliver a return to fund your liabilities. from my perspective, i am providing a service to that person who wants an active value oriented global investor. that is my job.

if i was running a big pool of money, i would take some of me, some of them, some of them. you have to be diversified and protect your ability to fund liabilities, first and foremost. francine: david herro and andreas utermann, both stay with us. markets, on bloomberg we speak with richard branson. exploring further .field, further into space look for that interview at 2:00 p.m. new york, 7:00 p.m. london. ♪

♪ viviana: this is bloomberg "surveillance." fortescue saysr iron or in china will remain strong and boost profits but the ceo says the company cannot take advantage of a shortfall caused by the mine collapse last month. atmost will be looking opportunities for incremental chances in the market, but we do not have the capacity currently. viviana: palladium has extended a powerful rally, rising above $1500 an ounce to a record. need palladium for catalytic converters. the rally is benefiting suppliers in russia and south africa. it was a tough report for

glencore, reporting weakest trading profits in five years and they missed estimates. they have always said traders can make money in any kind of market. they announced a $2 billion share buyback program. francine: sticking with commodities, we are back with andreas utermann and david herro. he has one of the biggest stakes in glencore. are you changing anything? are you buying or selling? david: it is a really good earnings report and it shows -- member, three and a half years ago, this was a company that was written about what was going under. this is their second or third big stock buyback because they executed a textbook deleveraging story starting in september 2015. now they have so much cash they

do not know what to do with it. we are glad they are giving it back as we would rather them do that -- if you look at the alternatives, they do not have a whole lot of debt. expanding at this stage, they have the necessary footprint to grow their business going forward. want to make expensive m&a, so this is the best option to deal with free cash. francine: there is still ongoing investigations by the doj. you are comfortable? david: if something is found by the doj, we do not think it will be a large, prohibitive fine. we have in our numbers a compliance cost. if you look at copper, zinc, coal, the prices have been ok. trading has been good and they are generating a lot of cash. be mindful of investment, debt is down. tom: thank you so much.

you go to the glencore website and they are afraid of the word "trading." it is called marketing, whatever the hell that means. they are a trading firm that does mining. you own them because of the mining or because they are not really in mining, they are actually traders? david: the fact that they are a hybrid is positive. ebit comesof their from trading. we would value this higher than the mining business. i am not a big fan of mining or any extractive businesses as they are high fixed assets, and it is not a business i love unless you can get them at the right price. as long as those commodities are what you are investing in, you are on the right side of the cost curve, which glencore is. we like the fact that their

trading operation is top-notch -- marketing operation is top-notch, because they are the biggest go-between and they do not take risks. utermann, salomon phil roe back again. afraid of world commodity trading? it is done in switzerland, not germany. can you explain why trading is ugly? andreas: i do not know. you have a better take on this than i do, clearly. you know what? just one anecdote i will offer. if you know anything about france, financial services companies are never very popular. the worst insult is they will call you a traitor. -- trader.

francine: that is worse than being a journalist. at glencore, what it be the same without him? david: it will not be the same and whenever there is a change of leadership, it is different. ivan has been there a long time and he is an excellent businessman. he will be missed. it is still three or four years. i do not think he is leaving tomorrow. he has a good group behind him. he is a very unique special business person. owns just under 10% of the company so he is not going away, per se. tom: andreas utermann and david herro with us. coming up later, this is a really interesting conversation,

david westin with the gentleman from philadelphia. i believe he is not a democratic-socialist, and render dell on his new democratic party dell on his new democratic party. ♪

♪ live pictures of a beautiful london and the house of parliament. shortly in about an hour and a half, theresa may will leave downing street. we will get live pictures of number 10, as she makes her way to parliament. favorite things is when you camp out at downing street, despite the fact that it is a wind tunnel and a microclimate, you see often fights between the camp at number 10 and the foreign office cats. tom: maybe we will have a new cat this spring. there is the prime minister exiting 10 downing street for her busy day with questions.

she will see if she is a few tory members lighter, widely anticipated. what is it come with three or four tories will announce they will leave the party? francine: we are expecting three of them. this goes back to the seven that defected from the labour party to start this independent group. whether they could change or shift the debate on brexit, we will find out. tom: on dressed men spoke about the sows -- andreas utermann -- and with us also is david herro. i want you to explain to our global audiences the social heritage of wisconsin and minnesota. this goes back deep to germanic roots 150 years ago. when we talk about socialism and democratic socialism in america,

can i state that you neck of the woods was the crucible? david: there certainly was some of this. in the late 1800s, milwaukee was inhabited by about 80% german-speaking people. media was-- german larger than the english-speaking. learned thatin has socialism is the root of economic demise, we now no longer have socialists. francine: for now. of wisconsinvernor could be a socialist, but it is still controlled by a republican senate and house. graveerro digging that ever deeper. there is such a fracturing in german politics now. does socialism play any part of it?

andreas: no, i think it plays a significant part. it is unclear how this plays out. the traditional party of the left that emerged after the second world war in west germany is fighting for survival. you have a much more clearly socialist party that is vying for that mantle of the main voice of the left. it is indeed very alive, and it has undertones in the populist movement of the afd. in terms of their approach to politics and the solutions they propose, you are veering into that direction. it is relevant and no different to what we are seeing in other countries in the western world, namely people are concerned about income inequality and so on. it will be with us for quite a while. francine: i was going to talk

about the fed, but i will run with the socialist the. voters in the u.s. are in favor of taxing the wealthy and how will that change things? wealthy, you are not you want to tax the wealthy. the u.s. is this kind of entrepreneurial, hard-working place where the vast majority of the population who wants to be financially secure and wealthy, and when they get there they do not want to be taxed to kingdom come. this debate over socialism will always be with us. it has been with us since carl marx. the economic issue of the world is quite clear, which form of economic strategy works to elevate people. more market-based with a strong regulatory framework, but a market taste, -- economic based

-- decision-making by the few against the dollar votes of the many. this system does not work to elevate people. tom: we are going to run out of time. this has been fabulous, andreas utermann and david herro. is other way we can do this david can take you to a green bay packers game against the socialists from minnesota, the vikings. gentlemen, it has been brilliant. coming up on the new volatility of the vix, more than you want to know, dean curnutt of macro risk advisors. ♪

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gene mccarthy of minnesota. wall street loves 1968 and democratic socialism. december to february, call it a 31% move. we consider your volatility. primessels, we saw minister may exit tory -- 10 downing street. francine lacqua counting new independent group members. this is bloomberg "surveillance ," from our world headquarters in new york and london. the prime minister just got into the car at 10 downing street. am i right, there will be fewer tories to greet her today? threene: we are expecting to say they are resigning. they will be in parliament and join this independent group.

to make sure the prime minister does not take control of the there istion -- multiple angles to the story. we are only five weekends away from march 29. the end of brexit as we .now it viviana: vladimir putin is promising that russia's wills -- russians will see an increase in living standards and promised not to make the mistakes of past decades. one of his goals is to reverse the decline in population. donald trump may deliver on his campaign promise to address china's management of its currency with a reversal on

almost a decade of policy. they are asking china to keep the currency stable as part of a new trade deal. that would shrink the trade imbalance. minutes of the last fed meeting should shed light on the biggest reversal in years. they are being reversed -- released today. policy pledging to be patient on what they call further rate adjustments, stepping away from the statement of further gradual increases. theresa may heading back to brussels to try to save her brexit deal. her meeting with jean claude juncker is seen as a crucial chance to get legally binding changes to the irish backstop deal. 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. tom: equities, bonds,

currencies, commodities, let's get through it quickly. futures flat but grinding ever higher. on the dow, the curve flattening. with the vix, we will talk with dean curnutt about 15.10. 2.97%. bond, the last two or three days, stronger sterling. francine: theresa may will face prime minister questions and then go to brussels to renegotiate something on the backstop. looking at the market action, european stocks rising a little bit higher. , it looking at renminbi moved quite a lot after a report that america is asking china to keep its currency stable. tom: good conversation last hour with andreas utermann and david herro. we continue this morning with

a visit fromand marty schenker. snow, does the city come to a halt? marty: it comes to a halt on the prospect. tom: they literally do not go out? marty: there is some snow removal equipment and 30 years ago, they did not have any. tom: let's go to some democratic party politics. the washington post, david von road loves to write history. 1968, young shanker was protesting. history will not be hoodwinked by the excuses hillary clinton supporters make for her disastrous loss in 2016. only a terrible candidate could have managed to lose to president trump. camemccarthys and them

courtesy of peter, paul, and mary. sanders played simon and garfunkel. in 2020, there is no wounded giant to define the party for a. it is not 1968 for bernie sanders. both: paul simon and i corrupt in forest hills, new york. in any case, it is somewhat symbolic that the second time is not the same as the first. bernie sanders, the excitement of the first time, he may not be able to match it this time. tom: there is this whole overlay of socialism. magazine" with a whole socialism play, does that have legs or does that whether a way? marty: it certainly has legs if you are a gop strategist. trump andr donald

the gop will hammer on the choice between socialism and freedom. it is a false choice, but it does work as a narrative going into the 2020 election. ,rancine: as we go into 2020 what are the fault lines? do we have an idea of what people will vote on apart from tax? economy, immigration? marty: first we have to get through the primary season. what really matters is what kind of democrat will the country put up to run against donald trump? will it be a left-leaning, progressive democrat or a more moderate democrat? the polling is interesting. democrats say they want someone that can beat trump. that is their number one requirement, yet the progressives seem to be catching all the power and there is real

question about if they left candidate can beat donald trump. francine: do we have an update on this possible trump-kim summit? marty: we have a story this morning about how there may be a nuclear plant that north korea is willing to close down. they have made that kind of promise before, and that would represent a significant win. tom: the theme song for bernie sanders is simon and garfunkel. i thought it was mrs. robinson or something. this is america. bring it up on the wall, this sounds like a trump campaign speech. let us the lovers who will marry our fortunes together, i have some real estate in my bag. marty: marijuana is legal in lots of parts of the united states. tom: there you go, where else can you see that it on bloomberg

-- but on bloomberg "surveillance"? morning, 1968 this dean curnutt going, why am i here? we will continue with dean curnutt on volatility and we thank marty schenker for important perspective. looking at the data, it is a turn to the market. -- turn to the market -- churn to the market, the german ten-year yield is lower. philippe reines, former clinton advisor, joins us. this is bloomberg. ♪

francine: breaking news out of the u.k., three conservative mps

have decided to quit. we understand they will join the independent group of mps that was formed on monday. we have been trying to figure out how this political movement could change the face of u.k. politics. withnked it back to 1981 the gang that split from the spd and started the labour party. for the moment, a little too soon, but it could be the start of something new indeed. when a to look at it almost every step of the way to understand what it will evolve into. tom: did they evolved into a merger with the liberal democrats? the liberal democrats from 2010 have come down in headcount, but if they are talking zeitgeist with thinness brexit team -- within this brexit team, that they will make -- francine: there is a newly formed party and there is

controversy because they have not registered as a political party yet. that may change very quickly. before they decide to merge with the liberal democrats, it could have an impact on brexit policy or could force theresa may to strengthen her campaign for a delayed to the uk's departure or a second referendum. i do not know whether we are seeing movement on the pound. let's bring it up. it could be a big deal, which is why we spent a bit of time on it. tom: a little bit of weakness off of three days. here is the vienna hurtado. -- viviana hurtado. viviana: the relationship between president trump and deutsche bank, the lender was concerned mr. trump might default on $340 million of loans while in office, they considered restructuring them.

deutsche's realizing it would be a pr disaster to go after the assets of a sitting president. lloyds as saying it can weather the brexit storm of 2.3 billion share buyback. reporting fourth-quarter profits roughly in-line with estimates. the near-term outlook for the british economy remains unclear. caesars entertainment will evaluate suggestions from carl icahn, who once the casino operator to consider selling itself. n announcing he holds at least 10% of caesar's stock. they will continue to hold talks. we got would be good if to our guest host dean curnutt. i have a chart named after him. this is the vix map, a zillion years.

there is crises and down we go, and we are back to 15. the arch question for this grossly misused statistic is the 15 of now and the 15 before october, 15 before the ugliness of last february, what is the for fifth -- 15 of today? dean: 15 is driven by the day today swings in the s&p so when you get a vix above 30, it is almost tantamount to saying the s&p is moving to percent a day. -- 2% a day. the movements or lack of them have brought the vix down. what is different from 10 years ago is the financial is asian of the vix. financialization of the vix. was a baseballms player of modest ability with a team from boston.

you have eyesight like ted williams. the double-digit returns so far today. what did you see in your volatility spectrum on december 23 and 24th? dean: dislocation, meaning the selloff in asset prices was greater than you would have expected given the deterioration and metrics associated with the real economy. the dislocation between the year-to-year performance of the s&p versus the personage -- purchasing managers index, those are correlated and work in tandem. tom: they were not then? was a two standard deviation dislocation of the s&p versus the pmi. it was an illiquid time of year. jay powell fumbled the football. there was a lot of stuff going on and it told us that it is very hard to sustain a vix north of 30 given what was a slowing

of the real economy but not dramatically falling off a cliff. francine: how much more volatility are we expecting in 2019? we had a weird fourth-quarter in terms of volatility. will we see much more of that? dean: macro risk advisors is a broker of options so we would like more volatility. first 60 days of the year is quite a bit of a slowdown. folks have decided we are in a range bound environment so you have seen volumes fall off quite a bit. what is it that will catalyze volatility? , youyour pick of china guys have been talking a lot about brexit, uncertainty coming out of the european economy. sometimes it is priced itself that is the sponsor of volatility, meaning the market needs a little bit of a push down to reassert the risk

aversion that tends to promote hedging, which can create a reinforcing process. of course, you come back to the data itself. it has been pretty cooperative. one thing to me that is quite confounding is this notion that there is still a probability or at least a decent possibility of out through. rates january of next year against the backdrop of 3.8% unemployment rate, pmi of 67. these do not jive, so the risk management folk -- of the fed -- you kind of take that off of the list of things that markets are worried about and it gets back to looking at corporate profits and economic growth. francine: if you cast yourself to what is happening in the german bund, how do you explain

this ever move lower? is it because it is becoming like japan and jgb's 15 years ago, or is it a dislocation? dean: it is less a dislocation. there are technical reasons to own german bunds, even down it 10 basis points. post the actual brexit vote, the german ten-year went negative and german life insurance companies were buying them hand over fist at negative nominal rates. it is the slowdown in the european economy. it is concerns the ecb is not going to be able to get out of this anytime soon. there has been a decent amount of discussion amongst policymakers, but they have to reassert some monetary policy. i think it reasonably squares with the data.

the german ten-year is anchored by the policy rate from the ecb, which has been firmly negative for a couple of years now. i think the german economy and european economy is something we are supposed be watching pretty closely, not for the battle days of the feedback loop of 2011 and 2012, but for the reality that federal reserve policy makers live in a globalized world of risk. with the european economy slowing, they have to pay attention. francine: thank you so much. we had breaking news about 15 minutes ago, three u.k. mp's resigning from the conservative party. we have been sent some of the letters they wrote to the prime minister to inform her of their decisions. there was a common letter where the mp's told them "brexit has redefined a conservative party, undoing all the efforts to modernize it or go we are trying

to -- modernize it." we are trying to figure out whether this split could shift an approach to brexit. this is bloomberg. ♪

♪ francine: this is bloomberg "surveillance." francine and tom from london and new york.

executives at deutsche bank were concerned after donald trump won the u.s. election. the german lender was afraid trump might default $340 million of loans while serving as president. , executive vice president of the trump organization responded in an email -- "this story is complete nonsense." we are joined by one of the authors. what does this go to the heart of? does this go to deutsche bank and the trump plc and they still have that relationship? >> i think what it primarily whatis shine a light on the election of donald trump met for deutsche bank -- meant for deutsche bank. they did have a strong business relationship. it shows how much at surprise people at the bank and they were

struggling to come to terms with it. it was obvious to them that donald trump or his organization would default on loans coming due in 2023 and 2024. it is still an issue. makes very clear these are vanilla loans, my language. we know the character of these loans, recourse or non-court -- nonrecourse? vanilla or esoteric? sure they havet looked at public records about the loans. some of those were floating and some are fixed interest rate loans. it seems like at least, to my knowledge, there would have been recourse but i'm not entirely sure. tom: thank you so much, this story out on bloomberg. very informative and moving forward on the trump administration.

the trump administration through trump making- eric it clear it is "complete nonsense." group, branson of virgin maybe we will talk of l.a. chartered to jfk or virgin collected -- virgin galactic. along with the ceo of virgin galactic. prime minister may has left 10 downing street with the resignations announced of three members of parliament. please stay with us. this is bloomberg. ♪ the latest innovation from xfinity

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their first-quarter forecast because of the government shutdown, the longest in history. we heard from delta saying the government shutdown, because it was the longest in history that kept 800,000 people at home, cost the airline some $25 million. that is delta in january. first, let's get straight to the bloomberg first word news. the u.k., three conservative members of parliament are walking away from the party and joining an independent group formed by eight former labour lawmakers. it does not affect the map for theresa may's plan to get through parliament. donald trump is in no rush to reach a nuclear deal with kim jong-un. according to the president, that is because they have a strong relationship. u.s. sanctions will remain in

place and next week, the president will hold his second summit. bernie sanders raising a record $4 million on the first day of announcing his run for president . he will seek the democratic nomination. sanders did better than expected and upended the 2016 primary. 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. tom: thank you. dean curnutt with us with macro risk advisors. i want to talk about the second derivative, acceleration, dynamics of the market. there is a lot of fancy words as we go into the political season like gamma and convexity. do you assume second derivative jumpiness as you go into a political season? dean: sometimes politics are more bark than bite.

this season is likely to be one of the more interesting if not the most interesting in the modern day because of the reaction to help polarized things have gotten. if you look at trump and have a strong opinion, the markets also have a strong opinion that has been favorable and positive. he pulled off something extraordinary in terms of the corporate tax cut. tom: let me talk about trading strategy. take little bits of money to place on large changes come up large bets down the road -- changes, large bets down the road. dean: that is one of the challenges investors have had. extrapolate the here and now into the future, and when we see stability, when

markets are stable as they have been the last month or so, we tend to fast-forward and think that will persist. i would say there are certain trades that i think are cheap from an options standpoint. one thing on our radar is gold. gold is a lot of things. quite negatively correlated to the s&p and the fourth quarter is one of those. if you own some gold as a hedge -- and it does not work all the time -- this is an asset that held up quite well. a threey it had standard deviation moved to the upside. it tends to do well when rates are suppressed. we might be going back into one of those cycles where global central banks decided the fragility of the system is such that they have to hold the rates down. tod is negatively correlated the s&p and great to have in your portfolio, and is going up

in value. the options are as cheap as we have seen them in years so we like call spreads on gold. on thean curnutt volatility pending into the political season. if there is one person to talk to it is a pit will terrier for hillary clinton, philippe reines . do you have a candidate you are representing? not have a do candidate that i like enough to dislike the rest. tom: the punditry that is out there right now, what drives you the most nuts this early in the season about the punditry and x number of candidates? philippe: lots of things drive me nuts, probably the same as

you on the audience. one is how different 2020 will .e, nothing we have ever seen every campaign is different from the year before but it is not that different to have a number of candidates. if you look at the republican field of 2016 and the democratic field of 2008, people are getting carried away. it will be old-fashioned money. ifple like beto o'rourke they jump in, will raise money. it might be more conventional during the primaries than we think and we will talk about nothing for a year until there is something to talk about, which sounds familiar. there are-- francine: parallels between brexit and trump, u.k. and u.s. politics. we saw defection of members of parliament in the u.k. would you ever see a proper

split in the democrats or republicans in the u.s.? islippe: the comparison funny business with cambridge tica, but i personally think the republican party is dead. i do not see how it comes back from what it is gone through, starting in 2010 with the tea party. to the not bounce back grand old party days of reasonable, moderate conservatives at the top of the ticket. there is something within it therexploded, and i think are a number of people, particularly in congress, who dingwalking around delu themselves about what is next, but i do not think 10 years from now we will talk about the republican party like we do now. francine: the last election was an eye-opener because donald

trump convinced a lot of people who had not voted possibly for decades, to vote for him. is there someone in the democratic party who can do that? philippe: i hope so. when i look in this field, i see more than one president. appealre people who can to those that voted for him in 2016. some had voted for trump and barack obama, and continued to do of the job barack obama was doing that day. tom: how does the mainstream in your democratic party defend themselves against the new socialism? philippe: it is a tad. -- tag. the republicans are great at putting a tag. i think people will listen to the ideas.

if you are talking about health care for everyone, making sure people aren't equal pay, call it what you want. people will find that appealing. people can now look at what donald trump promised and what he is not delivering. that makes more of a difference at the end of the day. tom: thank you for the briefing, philippe reines. we will continue much on politics. working on the other side of the aisle, economic advisor for president trump, look for that with david westin at 12:00. this is bloomberg. ♪

♪ speaker, she is capable

of answering -- francine: we will have some more prime minister questions where theresa may will speak in the house of commons. live at the house of commons as they await the prime minister to arrive. it is a lovely day in london. three tories have walked out of the tory party. let's get straight to the bloomberg business flash in new york city. viviana: australian miner fortescue says iron ore demand in china will remain strong and boost profits. the ceo says they will not be able to take advantage of a shortfall caused by a mine down in brazil. >> we will be looking at opportunities for incremental changes to market, but we do not have the currency --

viviana: it was a tough earnings report for glencore, reporting its weakest trading profits in five years and they missed estimates. they have always said it's traders can make money in any kind of market. they announced a 2 billion share buyback program. tom: thank you so much. let me look at the single best --rt with dean curnutt will dean curnutt. let's call it a single best chart, the agony of february of a year ago now, with three standard deviations out, huge move. this is a four standard deviation chart, october with the white circle, and down we go into december agony and a return back to good in normal times.

we are center tendency now, but do you trust it? dean: i do. the lack of trading volume and what i hear from clients as we are in a wait and see mode for now. providing2000 18 as evidence that late cycle vulnerabilities tend to build up and markets, especially the cycle that was lowball and low rates-- low vol and low for some time, it is symptomatic of more to come. right now, markets are in a little bit of a -- tom: let me ask you a david herro question. own a guy like you want to the beaten up value stocks or the stoxx that went down -- sto cks that went down a little bit? dean: over a long time, value will do well.

that is what the data shows. poorly.ue did pretty if you have a long time horizon, there is opportunity. investors in hedge funds to not enable a long time rise, so it is difficult to sit and wait when investors are clamoring for returns here and now. francine: where are the value traps? dean: we are very focused on volatility. here is what i would say. there can be value traps and owning option protection, and i think what we see very option is there is a rush to hedge at exactly the wrong time. the vix got to 37 at the end of last year. there was a surge of hedging in s&p options and very much in credit options. etf attracts high-yield credit. the surge in hedging through

cuts and put spread's last year -- puts and put spread's last , costly elevated prices levels of insurance like we had never seen before. it tells you something about the credit investors' concerns that what was happening was not an equity event and was bleeding over to credit. what makes it difficult is whenever that he wants to do the same thing at the same time -- everybody wants to do the same thing at the same time, the pricing protection goes up. there is a tremendous amount of put options in hyg that will roll off because the market is recovering so quickly. that is a value trap we watch on the derivative side. francine: dean curnutt, thank you so much. coming up on bloomberg "daybreak america," the head of the spanish election will speak to

the foreign affairs minister at 7:00 a.m. in new york. this is bloomberg. ♪

>> because of independence. is bloombergs "surveillance." tom and francine from new york and london. the prime minister has faced defections from her own party. three mps gave their resignations from the conservative party. joining us is rob hutton. we have three conservative mps joining this newly formed independent group where seven mps joined on monday. is this a political force? rob: i'm sorry, a political push? francine: a political force to be reckoned with? does it change brexit policy? rob: all of these people will continue to vote as they had been voting before. they were already pretty much

semi-detached members of their parties and already pretty much voting against brexit at every opportunity. from the point of view of brexit s is, i do not think -- map do not think it matters. , i thinky management it matters and from how parliament looks, it is important. tom: the prime minister puts out a tweet -- i am saddened by this decision. these are people who have given dedicated service to our party for many years and i thank them for it. will this independent group merge with the liberal democrats? is there a new common ground in british politics? rob: that is what they are looking for, and i think the answer is they do not know. the liberal democrats have said they would like to cooperate. there has been lots of talking about this behind the scenes, lots of meetings. quite possibly what you would

see is a nonaggression pact with liberal democrats and this independent group, whatever it decided to call itself, where they would not stand against each other in seats. that ultimately could lead to some kind of merger down the road. that happened the last time this happened in british politics. -- which in itself was a nonaggression pact. that is definitely one way this goes. the honest answer is at this stage, nobody knows how this will play out, including the people involved. francine: are we expecting any more mps to quit and join this party? dean: yes, yes, we are. we do not know who they are. anyone could come up with a list of likely suspects. i can even see one walking across in front of me right now, but nobody quite knows.

there is a deliberate strategy to drip the names out. they know that three days of news is better coverage for them than one day of news, and i think you will find that this keeps going over the next few weeks, mainly from the labour side but it is not unusual to imagine from the tories. maybe some people will be provoked to join who are not currently planning to. as he huntsb hutton down some members of parliament who could defect. is an last-ditch attempts in brussels to save her brexit deal. maria tadeo is on the ground in brussels. is there anything we are hearing from the e.u. side they would be willing to give theresa may? funny, because the u.k. briefly reported this will be significant meeting between

juncker and may. they will tell you they do not see a break serve and it is a waste of time. they are running two different narratives. the last time this happened was in salzburg and that was a disaster for the prime minister. what we have seen in the last hour really aggravates some of the concerns from the europeans, this is a prime minister without a majority. why should we give concessions now if she may not get the deal done? everybody on the same page in brussels? maria: at this point, they are, and jean claude juncker has rallied the troops, saying the only weakness with regard to the e.u. is that the unity could crumble in the final weeks. that i see is we are on two different deadlines.

european leaders are in no rush to get this deal done and see it going all the way until march. tom: what are the contingency plans? we saw headlines against the bloomberg that basically we are doing every plan, every opportunity, a consulting group telling europe what to do. what is your reporting on the plans given any brexit outcome, are they there or not? maria: that is a good question, and you could argue neither the u.k. or european union have brexitin 30 days and a that does not get deal -- get a deal by mistake has gained ground. 's chiefarnier negotiator for the europeans, checking in on every capital to make sure they are doing their homework and preparing for no deal perhaps. the focus, if you look at how

the european economy has flowed, the point despite the political commotion is to get the deal done. francine: if you are a european leader or head of a commission, do you look at these defections within the labour party and conservative party as a third possibility? does it make them less likely to negotiate with theresa may on her current brexit deal? maria: right. everyone was keeping a very close eye on the tv today because there is a lot of speculation we would see this. for the e.u., it is two things. the u.k. has not figured out what kind of relationship they want with the european union and this makes things more difficult. there is a question as to jeremy corbyn. he isu. does not know if into brexit or not, what kind of deal he wants. tom: yesterday we reported on

the death of karl lagerfeld. we are thrilled to know that francine lacqua is front and center, wearing black. what you do not notice is the lagerfeld chanel piece she is wearing as well. i thought that was a great touch . you are way more wired in on london fashion and everyone knows, and it is great to see the chanel flour. -- flower. francine: it is amazing to see the tributes to karl lagerfeld. to say he changed haute couture is an understatement. tom: understated and lovely as always, francine lacqua. this is bloomberg. ♪ i'm a veteran

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my name is antonio and i'm a technician at comcast. we're working to make things simple, easy and awesome. alix: the tory revolt. members form their own party as

prime minister theresa may gets ready for critical talks with the eu president. we will get the perspective from the spanish foreign affairs minister. ran volatility spikes. investors want deficit neutral. the government needs to find a solution. the truth behind the fed's 180. will the truth be as dovish as investors think? david: welcome to "bloomberg daybreak" on this wednesday. we have cvs reporting earnings. they beat on revenue and be on earnings-per-share for the quarter. guidance going forward below estimated. as a result, the stock is down over 5% now. alix: sequentially, you're on the air, it will be lower -- year on year, it will be