>> china and the u.s. get set to sign there phase one trade deal. should markets worry about a new front on the trade war? trade optimism pushes u.s. stocks to records. the market has been up for 11 years. we are in the longest bull market, the longest expansion in history. profits are not rising, stock prices are. not in thee investors favor.

♪ >> happy tuesday. these are your markets. a lot of the focus this week will be on earnings. we have a lot in the u.s. and europe. of days awayle from the signing of that phase one trade deal between the u.s. and china. we are still trying to figure out what happens between the u.k. and the eu. there is a lot of speculation. while bank earnings c,itif with j.p. morgan

and wells fargo will follow after. we will focus on what blackrock just announced moments ago to focus on more sustainability. let's get to the bloomberg first word news. >> the world's largest asset manager is upping its push to a greener future. blackrock will put climate change at the top of the investment strategy. inwill avoid investing companies with sustainability risk. the u.k. is likely to secure a trade deal with the eu, according to boris johnson. he said he is very, very, very confident. the transition phase is currently scheduled to end on december 31. iraqi leaders privately want u.s. troops to stay in the

country. iscome -- mike pompeo playing down demands to expel forces. india, inflation is surging in december to a five-year high. largely driving this jump. this may force the government to spend more. manchester united risks losing its position as england's top learning soccer club. it has been kept out of the champions league. revenue could slide as much as 11%. deloitte says that could put it behind manchester city and liverpool. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. bloomberg. >> thank you so much.

the u.s. has dropped its label for china as a currency manipulator. this comes as the two nations get ready to sign the phase one trade deal in washington. also driving the currency up as data that says china's currency is on its way to steadier ground. despite trade with the u.s. declining. first of all, trade numbers, are they as good as the headlines project? positivetainly is a read. they reflect better sentiments. the economy is shifting toward a trade deal. there is relief all around.

there is a base effect going on here. reflects the front running of shipments. there were some positive takeaways. china managed to find new markets. some growths in parts of europe. does this mean that we are at the start of a trade rebound? >> it is the big question. world's biggest trading nation.

we know manufacturing gauges are bottoming out. there are some signs that the technology side is bottoming out. those gauges are positive signals. on how this depend trade deal is viewed. we had warnings in hong kong. she described the trade deal as merely a truce. there are much bigger complicated issues coming down the line. clearly we are in a better state. long depends on how sentiment can hold out. most of that will be driven by the larger relationship. francine: thank you so much as always.

joining us as a portfolio manager. thank you. you know china a little bit better. what does it mean for the market? >> the market has a very positive outcome. we have shifted from panic to euphoria. is happeningt what within the market, there is still a little bit of a lack of conviction. parts of the world are linked more to china like europe. they are still lagging. it is probably a little bit expensive now. the phase one trade deal will be a truce. there are still heavier issues to be tackled like intellectual property.

what does a phase one deal actually mean for the markets? does it change anything concretely? >> the markets have been on and off for so long. to actually get something as a calming of tensions. now the market can actually rise. some areas will continue to lag. have the currency manipulator tag taken away. i would expect the yuan to weaken. they have plenty of room to let it go. they will let the yuan weekend. and then you follow with that.

francine: if there is a 10% move in the yuan, will the u.s. take offense? >> i think so. the u.s. administration tilt -- still needs a potential enemy. to continue to polarize people's anger. having a complete piece with china is not there. will be more rounds of volatility. you have to think about what is happening in the market more recently. we moved from panic to euphoria. weakerstarting to see countries like brazil and south africa. picking up steam in the market.

the market is starting to be in better shape. 2018 was a big recovery. this year could be more about alpha. this is a chart we made for you that looks at what we are forecasting for the yuan at the quarter aend. if you look at what china needs from the u.s. next, does it need a phase two? or can it stick with phase one as long as the relationship does not deteriorate? need to have something to throw rocks at. i think the chinese are aware of that. if you get a weaker yuan, you get a stronger dollar. it affects everything.

if the dollar is stronger, you will see a weaker yuan. francine: we will discuss what this year could mean. this is bloomberg. ♪

francine: let's get straight to

the bloomberg business flash. gsk sees the potential for six new drug approvals. the ceo telling us about the importance of drug price transparency. >> we absolutely support any kind of regulation that continues to sport an invasion. but also more transparency. particularly passing on the discounts that manufacturers bring to patients. this escalating out-of-pocket challenges a real one for many people. no one should have to be rationing their medicine. support moreedly transparency. boohoo raising its guidance. he continues to outperform the u.k. retail sector that is

struggling. ohoo expects a higher profit margin. making a final plea to the u.k. to block wall way -- huawei. supporters say the tech can be used in noncore areas. but the u.s. is the safest solution is to leave it out altogether. francine: thank you so much. year fortandout investors, are the returns to be found in 2020? howard marks says now is not a good time to be investing. >> the market has been up for 11 years. we are in the longest bull market and expansion in history. profits are not rising. stock markets are. it does not go -- mean that the markets will go down tomorrow.

but it means that the odds are not in the investors favor. our guests are still with us. after 10 years of cheap money, at some point this will normalize in the markets will suffer. >> the market is expensive as a whole. it is not a good time to invest if you buy the market as a whole. but if you can choose what you buy more carefully, there are opportunities. if the economy improves this year, say there is a positive surprise, european markets are very unloved. equities, banks, emerging-market equities. you could have a positive surprise from europe or china. that is where the upside is. an l-shaped recovery or growth beyond 2% in the u.s.,

the new have a lot of zombie companies that have survived because of low interest rates. these companies are vulnerable. that dealorporate's in cyclical sectors like retail. and energy. offer very little spread over treasuries. there are interesting shorts and hedges and a down market. last year it was a lot about the market moving back up a whole. francine: last year it was difficult to lose money. >> correct. some countries still have trouble. argentina, lebanon, they essentially defaulted. this year is a lot more about where you go. it will be more about picking countries and sectors. willbly central banks start doing qe, which means currency will depreciate.

push to moneyged printing. to be a lot more careful about where we go. francine: would you agree with that? >> absolutely. what he is saying is that the cassondra's have been around for the last few years. why is that? the ecb is backed doing qe again. there is more money coming in. assets are scarce. asset prices go up. it is not rocket science. market ise stock probably doing ok as long as we avoid a recession. but it isundervalued undervalued for a good reason. it may well recover. i think emerging-market areas will be very strong this year.

blackrock has said climate change is reshaping investments. these are companies that have been under extreme pressure from climate change activists. how will it change? >> blackrock is the biggest fund manager in the world. finally at they have to shape shift because the world is changing. client,ant to get a new a younger person who is more interested in climate change, you have to be selling something. blackrock has come into the light it really does not want to be in. it needs to come up with something. thank you both.

companya's airline thought about putting its pilots through simulated trading -- training. this is bloomberg. ♪

♪ let's get more on the ongoing crisis.

boeing considered putting pilots through simulation training. internalccording to communications. the airline abandoned the idea. let's get more on this with our managing editor for global business. why did boeing push back on this training? simulator training is a fairly complex affair and it can complicate and make a new plane more expensive if you have to have the extra level of training. this is something that boeing has always pitched to its customers. it said the max is an extension of the 800, the previous model, and is not that different. it does not require additional training. that was the pitch. there was some concern from the customer side saying we think

this plane has a couple of extra tricks up of its leave. -- up its sleeve. there was some back-and-forth about whether this training was required. boeing got the upper hand. we are coming -- seeing this come out of the emails that were released last week. there is pretty salty language in these emails. some customers are accused of being idiots. boeing said the plane was designed by monkeys. there is great unease about the product. and a certain disdain for some of the customers and their demands. francine: given all of this in the way it is going, will that plane ever fly? does boeing ever recover from this? >> that is the multibillion-dollar question at this point. we know the plane is on the ground.

units.lt but undelivered this is becoming increasingly difficult for the company to recover from, especially after these emails. they show this great unease about the product internally. customers don't usually want to be called idiots. that is what some of the employees have done. boeing is trying to diminish the fallout from this, saying that it is unfortunate and they are hoping that sometime this year the plane will be back. francine: thank you so much. coming up, our european stock movers. mainitefish is the sticking point between the eu and u.k.. this is bloomberg. ♪

francine: all clear on fx as china and the u.s. get set to start their phase i trade deal. the white house says beijing is no longer a currency

manipulator. the e.u.'s new trade chief arrives in washington today. should markets worry about a new front in the trade war? plus, proceed with caution. trade optimism pushes u.s. stocks to fresh records, but howard marks tells us exclusively, investors should beware of the bull market. howard: the market's been up for 11 years. we are in the longest bull market, the longest expansion in history. profits are not rising, stock prices are. it doesn't mean that the market is going to go down tomorrow, but it does mean that the odds are not, in my opinion, in the investor's favor. francine: this is "bloomberg surveillance. just over 1.5 hours into the trading day, let's check in on european stock movers with dani burger. dani: retailers have had a difficult holiday period, but maybe it is because they were shopping online. a record amount of trading in the past four months for

boo-hoo. all thanks to stronger than expected sales over the past few months. some other u.k. stories we are looking at today, travis perkins rallying more than 2%. they have sold one of their arms. heatingumbing and business for 46 million pounds. according to the ceo, this is one step they are taking to reduce the complexity of travis perkins' business. toy are using the profit pare back debt. old mutual is seeing their aares rising, almost 5% after court case saying old mutual does not need to reinstate a fired revia ceo. that a fired previous ceo. -- a fired previous ceo. he says he is going to appeal the decision, but for now the

shares are rising. francine: dani burger with your main stock movers. let's get to viviana hurtado. viviana: we begin with the top story on first word, u.s. dropping its currency manipulator. it says beijing made it -- decisions not to devalue the yuan. it also coincides with officials preparing to sign a fade will in trade deal tomorrow. talked to end libya's civil war have broken down after a top militia commander ejected the agreement. he left moscow where the discussions were being held. it may jeopardize a fragile truce that went into force over the weekend. apple says it is helping the u.s. fbi investigated december terrorist attack on a florida naval base. the tech giant pushing the back against criticism. that -- anterates argument against crating special waves for the government to

access the devices. global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i'm than 120 countries, viviana hurtado. this is bloomberg. francine? francine: thank you so much. let's talk trade. phil hogan is headed to the u.s. for wide-ranging talks of contentious issues such as tech tax and -- subsidies. prime minister boris johnson is gearing up for his next battle for more onean -- this, our brussels reporter joins us. first of all, should investors be worried about the new front on the trade war? should, and they should be worried about the trade war that is still pending in the u.s. because we know it has been a difficult year between the trump administration and the european union. e.u. as aot like the

trading partner. that he does not like the e.u. as a trading partner. we have the french tax that is still at stake. we have phil hogan in washington trying to escalate some of that tension. you have to keep in mind that it is becoming difficult to separate the trade from the politics. in many ways, trump does work as one unit. the europeans are insistent they want to keep this alive, so from a european perspective, they want to de-escalate. they know this is all due to an election year. they have no incentive to renegotiate with the u.s.. they do not want to be had by terrace. on this site, you have u.k. story that is very much playing out. the european say there has got to be in agreement and they still believe the trade deal, big broad comprehensive trade deal can not be down in one year. boris johnson is insisting he is not going to ask for more time

on the transition. francine: maria tadeo in brussels. we know talk exactly about what the e.u. u.k. trade deal will look like, roberto. does that change your view of either european investments or u.k. once? it matters a.k., lot more, being that 50% of the u.k. exports -- here we still see bottom up, weak data in terms of investment confidence potentially leaving and consumption is still sluggish. even though there is a rebound in sentiment following the brexit deal happening, a bit more certainty. but no big change in the economic variables for long-term investors. still with -- so we still see sluggish growth.

we see the bank of england cutting rates again. francine: january? we don't know if it is january, but certainly during the year. freefall, no recession risk. ness in theuggish consumer. the companies are linked. there are other companies, particularly in the retail ,ector, which could be weak high stake firms that could be challenged by new firms. we are focused on these firms. that need to restructure their business models. and be hurt by a weak consumer. there are a lot of mpc members that are turning a lot more dovish than they were three weeks ago. are we going to see some bad data from the u.k.?

atmarcus: they are looking things that they would not do. they have fallen fast again, extraordinary behavior. they index is weak, i think they will get to cuts in january. looking on the consumer , a bunch ofthe cfo stuff, all of which has gone straight off since the election as confidence has returned and uncertainty is reduced. i think the data is pointing to a stronger u.k. economy than currently it looks. that is a logical way of looking at it. i think the u.k. has a decent chance to outperform this year. just as we have seen the march level out. francine: are you worried that the bank of england cut, if it is a positive mistake, what are

the unintended consequences? get a war on inflation and it looks rather foolish again. do a cut insense to january. i am not saying they will. it may absolutely be fine. we have time to see what happens , post-brexit, what the government set up a fiscal policy is going to be. maybe more on what is happening on the trade talks. then it is definitely weak, as we said flat lining. then i think there is justification to cut rates. i think there are chances that central banks would do another mistake this year. in 2018 the fed was too hawkish and ignored the signals from markets which then turned sour. this year it seems like they are very afraid of making that mistake, and they are being may be too dovish in the phase of data, which is potentially muddling through or rebounding a little bit. we see this already at the bank

of england with discussions of -- but also at the fed. so maybe what we are worried that the most this year is central bankers are a little bit too dovish and we could see some widening in inflation and bond yields later in the year. both albertonk you gallo and marcus ashworth. citigroup,jp morgan, wells fargo. will it be a good earnings season? more on that next. this is bloomberg. ♪

of othernot an issue supplies out there. the reality is they are starting from such a low base, and every

day is an important day. one in plentiful supply that we can get into the marketplace. francine: that was peter coleman, chief executive of woodside petroleum, speaking about the climate change challenge. the big u.s. banks cast fourth-quarter earnings today with financial equities trading in the barter markets -- in the broader markets this year. dani burger joins us. dani: because we have seen these stocks trailed the benchmark, their outlook will be crucial as we dig through the numbers from the big bank earnings. it kicks off with jp morgan, citi, and wells fargo. immense pressure considering the low rate environment. a healthier consumer, more borrowing there might offset some of those profits. but these banks, certainly there

macro outlook is very important, according to credit suisse. we will listen to see what the executives say on the call. morgan,comes to jp their fixed revenue by far, a big drop off. trading in general will be an interesting figure when it comes to these earnings. consider how volatile the fourth quarter was in markets. trading,encourage more will profits be higher, or does it mean that traders remained on the sideline? citi, my corvette set a goal -- number, andkey whether they hit or or not could there areference if gains or false today. francine: still with us, marcus ashworth from bloomberg opinion,

and alberto gallo. also joining us, covering the banking sector for our columnists. if you look at investors, and if you have an eagle eye, what should they be looking out with u.s. bankers? >> you are coming off a record period for earnings, very strong equity market performance last year, the best in two decades. now the focus is going to be on whether this will be pain in 2020. the focus will be primarily on the macro outlook. market pressure relatively strong, low growth, and of course the trading business having gone pretty well in the fourth quarter compared to the previous year, which was dreadful in 2018. what kind of sustainability do they see going into the quarter and beyond. francine: so you focus on something like loans, do you

look at the health of the u.s. economy? they are not so much hurt, for example, like european banks are? elisa: absolutely not. but on the capital market side, how is dealmaking shaping up? are we seeing more engagement on the back of the easing of trade tensions that we are seeing? francine: blackrock came out onay, and a lot of focus sustainability. is this on backlash, that a lot of the financial companies have had, over the last couple of quarters? elisa: absolutely. of actorsbeen a lot pushing investors to be on the front. does point out that he plans to double the number of etf's that will target sustainable investments. that is where some of this, what the clients are pushing for.

it is a combination of both, i would think. it was a u.s.ink bank saying they would put 500, 600 people in china. are we going to have a strategy on how we deal with china going forward? it is interesting to hear more on that in this earnings season. depending on how strong banks are in the u.s., does it change your outlook at all in fixed income? from a macro perspective, there are some tailwinds for banks moving forward. central banks are dovish. they may let the economy and inflation run hotter, which means yield curves are getting steeper. , from a margin point of view, especially in the u.s., where bank lending tends to -- mortgages are longer dated. that is one positive. for banks to have more international exposure, like ci

at better looking growth in china and a trade deal, so there is a tailwind. sectors is european banks, and that is where you can see more upside because valuations are super and banks are still cleaning up their bad loans. but they are making some progress. we are seeing progress in the country come mostly behind. u.s. banks trading is good, perform well, but is not something unexpected. what is unexpected is you could see a positive surprise in europe where valuations are still close to 2008. francine: i feel like we have spent the last 18 months talking about when banks would consolidate. is 20/20 the year, our are we not going to talk about it? elisa: i am not sure it is.

regulators still with a mandate, more capital as they get bigger. it stops easing from regulators to that effect. i am not sure you will see a lot of big activity. francine: i know you have written a lot about it. deutsche bank? elisa: i don't -- marcus: i don't think so. the banking union is nowhere near yet. unfortunately, more of the same is what i can see. i would point out that some of these things have gotten credibly cheap, but they are cheap for a reason. they cannot get out of their own way, and some banks do quite nicely. i don't think the politics is anywhere close yet. -- ifne: if you look at banks outperform in the earnings season, is it good earnings for european banks, or could it be that there they have -- that they have taken even more market

share? elisa: on the trading side, it may not be immediately positive for the europeans. we have seen some areas, and you have deutsche bank putting out equities, that allows the mp's to come into the space. it will be interesting to see how that market share shapes up. francine: i almost forgot to do my chart of the year, so far, to alberto gallo. there huge implications for european banks. what does this tell you? alberto: i think the policy narrative has change. dez has changed. , andve new regulators policymakers are realizing they need banks not just as someone to throw rocks at, but as institutions to transmit monetary politics to the economy. there are more concerns about making banks sustainable and profitable, and there is also a

to berlin.pproach there is a reasonable -- a -- thel bank in germany approach was much tougher in the past. now it is not just thick, but it is encouraging banks to fix themselves to become investable again. there is some upside in assets that are looking like a cheap option. francine: that chart basically looks at the correlation between inflation and bond yields per thank you come all of you, for joining us today. marcus ashworth and elisa martinuzzi. plus alberto gallo. coming up, we hear from the chief executive of glaxo the smith kline -- of glaxosmithkline. this is bloomberg. ♪

>> whether it is positive for patients or what we hope will be

new proposal for 2020. technology for us is an enabler for innovation, an accelerator for innovation. it is so exciting to see the advances coming in both in biology, particularly with the science in immunology, but also in technology. that is why our head of r&d is based here. we have been building exciting new partnerships, whether that be with 23 and me and the pioneers in cell therapy. cities in the u.s. and nationally, but we see opportunity fundamentally to improve through genetically validated targets the probability of success and therefore the productivity of r&d. >> you had a deal and while back for more than $5 billion, and recent success has proved some of the recent critics wrong. where do you see the future success of that?

emma: fundamentally we are betting on the acquisition on of -- on the acquisition of tesoro. the womeno beyond with the brca gene, 15% of variant cancer patients and potentially treat far more of them. we thought the hypothesis was 50%. the data played out over the summer that this method would be relevant and could be very important for 100% of women, reducing reoccurrence on average by 40%. and this is a horrible disease, ovarian cancer, 85% reoccurrence. >> a big portion of the portfolio is within that cancer face. when do you expect these drugs to become big blockbusters? emma: we went from having seven medicines in the clinic last year to doubling that, in part with the acquisition of tesoro.

we had two positive readouts from to sorrow -- from to sorrow. -- from to sorrow -- we were hoping to get an approval for that. this is for people who really are running out of options, failing on average i think with seven different treatments, and we saw good results there. the important thing, with up to 10 studies, the question will be how we can move that medicine into upper lines of therapy? we are optimistic on that. francine: that was glaxosmithkline chief executive officer emma walmsley. this is bloomberg. ♪

francine: all clear on fx as china and the u.s. get set to

start their phase i trade deal. the white house says beijing is no longer a currency manipulator. the e.u.'s new trade chief arrives in washington today. should markets worry about a new front on the trade war? and blackrock goes green. put climateill change at the center of its investment strategy. good o morning, good afternoon, good evening. i'm francine lacqua in london, tom keene is in new york. i know we have a lot going on. we have data from china. what i would point to when it comes to markets and markets moving, the german bond yields, is positive territory after the new year's selloff. leaves are on. you're absolutely right, francine. it is extraordinary. as well, to see where oil is, we will take a look at that later. a lot of things out there in a

big tech market yesterday. francine: we will get back to the markets, but first let's get straight to bloomberg first word news in new york city with viviana hurtado. viviana: we begin your first word with the trump administration hanging a political u-turn. it no longer is calling china a currency cheat. the u.s. treasury department says china made enforceable commitments not to devalue the you want. it says beijing agreed to publish exchange rate thermation two days before u.s. and china are set to sign phase one of a trade agreement. is squaring union up for a fight over trade. bill hogan -- phil hogan is trying to head off a transatlantic commercial war. the prospects for success looks slim. donald trump has backed up a threat to hit european auto parts with tariffs. secretary of state mike pompeo iraqi leaders

want troops to stay there. publicly, iraq's's parliament voted to seek the u.s. withdrawal. pompeo suggested the public outcry is not genuine. next week president donald trump's impeachment trial is likely to begin. the senior republican senator says a week from today he expects opening arguments. there will be a unique series of rituals. they include a procession of house members carrying the two articles of impeachment through the capitol rotunda to the senate chamber. global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i'm than 120 countries, viviana hurtado. this is bloomberg. francine? tom? tom: let's do a data check right now. amazing markets yesterday. let's call it flat right now, but that is better than where we were an hour ago. that is oil. i will talk about that in a

minute. american oil, 58.13. what a pullback in oil. the vix, 12.40. folding right into francine's observation on the german paper. francine? francine: the german paper is significant. overall european stocks, a decline, more optimism when it comes to the u.s. earnings season. officials are also preparing for a trade deal with washington, the yuan holding to the strongest level since -- tom: i want to give you a sense of iran, iraq, and the united .tates upward of above $70 a barrel, down we go. this has been very linear, very well behaved. this is brent crude, under $65 a barrel. brent crude is the global oil price. francine: looking at german yields, this is a significant

story with the 10 year yields climbing to the highest level since may of last year. thanks to the help of hilary clark. we did a correlation between inflation breakeven and the bund. breakevens have been climbing. could this mean that this yield is next? that is what we have been trying to figure out. i know we will discuss that chart at length during the hour. the u.s. has dropped china as a currency manipulator. ahead of the scheduled signing of the phase i trade deal in washington on wednesday. our guests join us. thank you both for joining us. let me kick off with you and your thoughts on the trade deal. phase one will be signed. now china is no longer a currency manipulator in the eyes of the u.s. what happens next? >> obviously this is a short-term cautious optimism in the market. the proposal,ugh

carefully, you would have -- the debates on the two sides have not really been resolved for phase one. from a domestic perspective, the treaty, he is looking for stabilizing the economy and also to show the ability for him to manage u.s. china relations, where's donald trump really needs to have core support from american farmers and also wall street bankers. francine: i had a previous guest in the last hour tell me that because the u.s. no longer sees manipulator,rrency then -- >> right now we need to look at the context of how emerging markets are performing right now. long lunge of the german bund yield, there is less a bad player people are looking at the cyclical upswing and earning

emerging-market currencies and assets. so it is following market demands, not exact we what the americans want. what are enforceable commitments ? what is an enforceable commitment? yu: enforceable commitment is a way to indicate how much china is willing to commit on certain criteria that americans have required. so if we are going through the proposal on the phase i deal, we found out that mostly they are loosely defined commitments such as ipr protections, such as opening up the financial markets . we do not see really much details on here. so far, it looks very good on paper, but really how much substance we should have, and i think we should wait and see. geoff, what is your study of enforceable commitment? who can enforce what a world away?

wtof: they would love the appellate courts to be back up and running again, but i do not think that will take place for a long time to come. i think there will be some sludges along the line as well. there has to be some enforcement panels. some arbitration committee as well. on fx, that is probably going to be somewhat easier. and whether that matches up with how currency is moving, that may be a bit easier. yesterday it was announced that foreign banks would be allowed to participate in chinese andsactions as well, foreign banks, for and investors would have more transparency about how that operates. speculateif you would when you face the -- when the deal happens, will that happen in 2020?

yu: probably not. twoamentally the countries have different economic systems. likely he will agree? probably not. phase two is a long away game. francine: when you look at the dynamics for the u.s. economy, if the dollar goes up, does it make it more likely that the trump administration will go after china again? it depends on what currency the dollar goes up against. if the dollar starts to strengthen against the renminbi, against the stronger chinese growth, i think the treasury reports will start to take care of that. but we think actually the dollar is probably on a decade-long cycle. --bably a good levels probably at good levels. tom: expand on that. what is your dollar call now,

not so much on the renminbi, but a general statement on the u.s. dollar? geoff: weaker. you mentioned it earlier, down to 100 levels like that. 1.28st up toward euros-dollar, 1.40 in cable. enough,eally cannot say the diversions that we are seeing in interviews on "bloomberg surveillance," the conversation about the u.s. dollar. professor, what kind of currency is the chinese renminbi? floating, is it fixed? is it traditional, or is it a beast of a different character? i: as being a non-economist, , theviously the currency chinese government wants to show it has overall control on the

flow of the currency. so in a way, what kind of renminbi does the chinese government want? it is a benchmark to how -- to judge how much capacity the chinese government has toward its own economy. francine: do you agree with that? say itthe pboc will is a political tool, just to look at the messaging of the pboc and relative authorities are trying to provide. of capital outflows, in the context of china's report, china is hoping foreign capitals to go into managing the outflow. one of the things we were looking at is a lot of new -- is this still managed? is it good to let off a little bit of steam? yu: i think this is a way to

show that the -- the audacity the government is willing to let the economy slowed down to get the system back on track. if you look into the report for the current central economic conference in december, 29 times the word stability has been mentioned, to show that the china party for 2020 is mentioning a stabilizing economy. phasehat do we know is in i? will we know in the next 48 hours what is in that, or will we have to wait weeks? yu: i do not have the protection here, but it seems likely that it will be on january 15. it depends last-minute whether there will be some last minute discussion. we really do not know. you jive with us today. we really want to talk yu jie with us today, as

well as geoff yu. morgan, they all report differently -- citigroup, j.p. morgan, wells fargo, and a busy andend goldman sachs blackrock come out tomorrow with bank of america. much more to come on this. our chief financial correspondent joins us later. stay with us. this is bloomberg. ♪

tom: "bloomberg surveillance." bank day is upon us. francine lacqua is looking at the german paper coming in.

frome is with us, chatham house. a wonderful academic. and geoff yu is with us to continue on china. geoff yu, this has been the heart of ubs wealth management. finally international stocks picked it up a little bit. china 2020. is china going to lead international stocks to a better outperformance? the regions, all we are looking for en to outperform. that is the focus and not just a tactical view for the next six to 12 months. this could be the decade where it starts out before the listed markets, the private markets, through the standard themes, the long-term themes, and china will lead the way on that. that is the difference between wanting to invest on a holistic than expressly accessing it. the actual flow into china. the caps on the sidelines

waiting to get in. that will be important, too. tom: professor, do you buy the correlation to china with specific em? are they linked together, or is there a new calculus for asia? that'm not sure how correlation is made. whatertainly if we look -- is the percentage weight of china in a sense of emerging-market? economy in theof emerging market, that is worked out. but certainly the china slowdown --l bring a wider china -- how much is that for real? a: again, we have to take wait and see approach here. the chinese government has the courage -- if the chinese

government has the courage to open up the financial market, have to show what regulatory framework the chinese government will offer. we are hearing so far a lot of positive noise, but i do not see the substantial framework. and also how the license has been given in the market. that is the question mark. it is again about the government capacity -- the governing capacity of the government. francine: i saw a story saying that china was moving to digital currency how much of your research will be focus on this? are they really trying to rival the u.s. dollar? it would take decades. is this an end game? fashionablemething and something really up in the air. preferably, if china were to talk about the discursive power of international affairs with china to shape the debate, in the very beginning for anyone international issue, the currency is one of those

interpretations. china would prefer to stop there beginning, become a major player on currency. tom: what does phase ii look like? maybe we will know the details, maybe it is enforceable, but what is the next step to phase ii, given there is no multilateral, and that there is barely bilateral? twoi would estimate the core elements will be argued. firstly, it will be to what extent america allows china to have that sense of technology competition, that sense of technology standard that china would like to set up in international space. and how much america would like to give china that fix. that is the one element. the second element will be going to the core element of enterprises subsidies and how much america would tolerate that behavior of subsidies being offered.

phasef the reason that roman numeral run -- phase i and phase ii is so difficult, it is hard to change the central behavior of the chinese government, essential way of how the economy has been managed. buy geoff yu, can you china, what is the most efficient way to participate in china if you believe in a leveling or an improvement in economic growth? our asseti look at location, em, even though we are overweight -- mid single-digit's right now in the balance portfolio -- holding the the emerging side, that can only hold -- i think in em, lack of a creative the -- lack of liquidity, that is one area where asset management can still earn their keep, but they have to deliver the returns ultimately. so a combination of things.

also private market, private equities. that is 3.5 trillion in cash. probably emerging markets in china as well. any thing tothere do with credit in china? geoff: the china international bond market is opening up as well. if you look at the amount of in that market, leaving the some banks side, have hundreds of billions in bids in chinese banks. bond byance, the dollar chinese corporate's, that has been a surprise, one that shows tolerance for inflows and we need a bit of dollar liquidity. tom: it has been wonderful, professor. thank you so much for joining us today. professor yu jie from chatham house, and geoffrey yu from ubs. much to talk about and a lot of

it has to do with iowa. looking at all of iowa from des moines. kevin cirilli on the caucasus. they will debate in des moines. this is bloomberg. good morning. ♪

viviana: this is "bloomberg surveillance." i'm viviana hurtado. we begin with indonesia, lion

air, the airline company considering putting its pilots through simulator training before flying the 737 max p the airline abandon the idea after boeing condensed the carrier it was unnecessary. that was months before the lion air 737 max crashed. was referred to as "idiots." the allianceaying between nissan and renault, that itsan was the core of competitiveness. boo-hoo group maintaining its record about outperforming the british retail industry the online fashion seller raising financial guidance after a strong holiday season. boo-hoo saying for the year through february, sales growth is expected to be as much as 42%. the company uses instagram and reality television to boost demand for its fashions. that is your bloomberg business flash. tom: boo-hoo.

how about tech? let's look at the tech chart now. apple on and on. tesla printing 500 apple with a surge from 2007 with a big leg up recently. francine, it is really extraordinary, the differential. francine: extraordinary. i do not know whether that leads to a bigger question on exactly 2020 sees a correction and whether that will be central-bank action. we will discuss the tech sector. we will see how they compare with european ones. this is bloomberg. ♪

♪ bloombergthis is "surveillance." we are looking st. beautiful picture of

paul's cathedral in london. the i is prime minister leo red irishid he was staged -- said minister leo vradkar he was ready for an election. he is trying to see the political moment. he had decided on a date and would review it publicly after briefing paul -- colleagues. february 17ld be on a strong trying too on economy to strengthen his hold. tom: it will be interesting to see. "the irish times" leading off with an essay on how this will be a different election. viviana: accusing donald trump of playing politics with the

treasury report on china. reversedistration itself and said china does not manipulate its currency, two days before signing a trade deal with beijing. -- andnt trump overrode declared china was manipulating the yuan. boris johnson tells the bbc an agreement is likely between the u.k. and e.u. endtransition period will december 31. iran arresting a number of people in last week's shooting down of the ukrainian jet but the u.s. -- carlos ghosn's alleged accomplice is still in japan. they are questioning his ability

to get a fair trial. mr. kelly was arrested on the same day as mr. down. ghosn. global news 24 hours a day, on air and @quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: did you go to cash? should you? should you get back in the market? these are interesting questions, given the recent surge expected by many. here is howard marks. howard: the market has been up for 11 years, the longest home market and expansion in history. profits are not rising. stock prices are. it is a liquidity driven market. it does not mean stocks will go down tomorrow but it is not in

the investor's favor. tom: howard marks on q4 geoff yu, we have a banner -- on cue for geoff yu, we have a banner showing the demand for paper. spain looking at 53 billion euros subscribed. geoffrey yu has seen this before and made an important statement that there is a wall of cash. that was really telling when you said that. we see it in equities. explain the wall of cash in the bond market like we have seen the bidding for the spanish 10 year paper. geoff: we go back to the barbell approach with an bond markets. we have the long-term managers and pension funds and insurers who need to own the long end of the paper. then you have the front end which is ample with cash, and

the overseas investors, a lot of talk about the asian bid for u.s. credit. they can pick up some yield as well. often if you do something abroad, if you look at japanese and south korean asset managers alone, they can fund a good deal of the u.s. debt market. it is a changing environment. will sovereigns still take this opportunity? that will be the case. behaviors asll be the cash comes in the different assets. do you detect a behavior of bubbles, a behavior of measured inking? -- thinking? is it an irrational exuberance? geoff: the behavior is fear of an irrational exuberance. it feels like investors on the

private side or institutional side, there is an acknowledgment that in the credit or equity markets, valuations may not look as attractive. translates into cognitive dissonance where it has worked in the past and will still work. i think we are lucky either on a seasonal level or natural progression, the data has stabilized. it has not turned. -- data has stabilized which that risk. francine: what could go wrong in 2020? i don't know if there is a correction in parts of the market we are not the. -- not seeing. geoff: what could go right and prompt something to go wrong, you talked about the curve to start off. aggressively,ens how the sovereigns will it react

-- will react. if something similar happens in the u.s., will we get a shakeout in credit? expectationtion start to rise? good news is suddenly bad news. francine: what happens to central bank policy? at what point does it stop working? geoff: we have shifted toward the need of fiscal raise and central banks will be concerned that there is no follow-through. there will not be any prospect of fiscal in the u.s. and that will worry central banks. the burden of proof is not, when are we going to hike, but what gives us reason to cut further? tom: how will ceos behave? underpinning as an , are we going to see share buybacks at these multiples? geoff: it is going to be a tough call.

nowavor the consumer right over the corporate's because the corporate's will not be using the cash they have to invest. i don't know what they are going thing what -- but one they are not going to do is invest. they want to wait for the government to say, we will use low rail rates to invest, get -- real rates to invest, get that kicked off. it will not come from corporate investment. francine: looking at the german two-year, this is german two-year and 10 year yields, if that goes further what does it tell us? geoff: that tells you the prolonged soft patch where we have dabbled with recession in europe is probably over and bond markets will price that in. inflation expectations and

breakevens, that crucial 1.8% level when two years ago draghi said inflation levels have become the anchored, can we get deanchored, can we get re-anchored? francine: taylor riggs spoke with the glaxo smith kline chief executive about the acquisition of a drugmaker and the effort to increase drug pricing transparency. >> we absolutely support any kind of regulation that continues to -- innovation where value can be accessed, and also more transparency, particularly passing on the discounts manufacturers bring to patients so this escalating out-of-pocket challenge -- which is a real one for many people and no one

should be having it -- we wholeheartedly support more transparency. ♪

♪ viviana: you are watching amazonrg "surveillance." taking the next step in the fight over a $10 billion pentagon cloud contract. it will ask a judge to temporarily block microsoft from performing substantial work. because of political interference, they say they lost the contract. visa making a big bet on banks and start ups, agreeing to pay $3 billion for plaid, a fintech company connecting add -- apps like venmo.

assetrld's largest manager will shun polluters when it comes to investing. blackrock ceo larry fink says climate change has become a defining factor in their long-term prospects and rights he believes we are on the edge of a fundamental reshaping of finance. that is the bloomberg business flash. tom: let's move forward on that. , and elisaoffrey yu martinuzzi joins us. blackrock,l-timed by before davos i am sure laurence fink will trot down the hallways and everyone will be on the edge of climate. is it the real deal? dofinance really going to esg? elisa: there does seem to be

sufficient pressure on companies from investors and activists to be pushing the bigger finance companies to be taking more action. from what we learned today, blackrock will put more private heart ofolicies at the its investment decisions, including pulling back from companies that generate more than a quarter of their revenue from coal. there is some firm action and not just talk. 737,000 shares of royal dutch shell, and 5 million shares of bp as well. will they sell big oil? elisa: at the moment, their commitment is to sell businesses that are heavily exposed to coal. that is in relation to their which is this -- business

makes about one third of that 7 trillion of asset, leaving the passive business passive. they will be urging companies to be more transparent, to deliver on commitments to high might -- highlight their climate risks. that is where they will be taking more of a step back with passive investments. francine: when you look at this rivalry,versus europe is one necessarily going to lose out if the other one wins, or can they grow together? the european banks? elisa: that partly depends on the economies. you have had a more buoyant u.s. economy the last years then you have had in europe and that has bolstered the year he was -- u.s. banks. they are able to compete more .ggressively on the trade side

francine: what are we expecting from u.s. banks? elisa: the fourth quarter was a good one relative to the previous year. the trading business, there is obviously pressure on lending margins. it will be interesting to see how much we have been able to offset that slow growth, and the focus of the s&p is after a --iod of peak pop hilarity popularity, whether that is possible to sustain. you to talk want about the banks or individual companies but i want you to talk about esg. what are you doing day today at ubs given the new consultant world of you have got to do esg? how do you adapt? geoff: integrate si and esg into our processes.

it is not just an afterthought, it should be at the forefront. we have gone from educating clients to the push being from clients. we need a diversified approach. we can think about exclusionary processes and inclusionary processes, when you are at a low base in terms of esg standards, these countries can bellow the highest returns, and we want to make sure they are involved as well integrating into our processes day in and day out, and that will proliferate across the industry. francine: thank you for joining us, elisa martinuzzi and geoffrey yu. this is what sterling has been doing, six trading days against the u.s. dollar on the back of boe expectations. the pound extending its decline to the longest and eight months.

that in eight months. -- ian eight months. -- in eight months. we will have plenty more on the boe and pound. ♪

♪ this is bloomberg "surveillance." trade lines being drawn in europe, boris johnson gearing up to face the european commission post-brexit. .hil hogan heads to washington aircraft subsidies are among the issues. joining us from brussels is maria tadeo. how contentious will fisheries be compared to the french tax? maria: it will be contentious when you look at the brexit deal because it has become a political issue. when you ask the e.u. delegation, they look at it as a sovereign issue. with brexit, they would assume they would gain control of the fishing waters.

-- europeansaeans will say, we still want access it is a minor issue -- access. it is a minor issue that is becoming contentious. phil hogan and the focus on the digital tax, it is obvious that president trump is not like e.u. as a trading partner and does not think it is a fair situation. isn it comes to trump, it difficult to separate the trade from the politics so the digital issue is important for the e.u. and in particular, the french. i amine: i am glad -- tom: glad francine brings up fishing. are we missing the basic things that all these tensions between brussels and x number of nations in the united kingdom, are we missing the both basic transactions -- most basic

transactions in this debate? maria: that could be the case. what i want to go back to is the fact that this has become a very political issue. it is an industry that you would think is not the most relevant. when you look at the u.k., you would think they would be more concerned about the financial services, but this hits a nerve when you speak to the average britain who says, we should gain control. rules,es back to regulations, and standards for the e.u. and what they believe is fair access. this is becoming increasingly critical -- political and where the trade deal could implode over fishes. tom: geoff yu finishes up with us. what am i missing in the brexit debate? if you were to rate seven to 10

pages -- right seven to 10 pages, what is on the radar? geoff: fishing, it does not matter how small a share of the economy it is. once it strikes a nerve and arouses passions, that is where you could actually see over protectionism or over maneuvers just to support a political point. taking a step back, there will not be a fundamental trade deal. that has always been ambitious. we need a framework not unlike the china -- china and the u.s. to, phase one, then phase two and three along the line. there are many solutions. francine: if you look to boe cut probability, it has moved quite a bit. are they overdoing it? geoff: it feels like insurance

rhetoric, if that is the right way of putting it, providing some cover for a cut earlier than expected. we were looking for one at the start of the year. the spring budget comes in that leaves -- francine: michael songer will speak on wednesday and that is when we get consumer prices. will we have a better idea of what be away will do -- boe will do? geoff: in terms of the cpi numbers, it is showing that inflation expectations are being --de anchored as well. i am looking for upside

surprises. tom: are we finally getting back to normal? boe chartsing at the and rates expectations, that is only more currencies can start to behave like that if you look at our forecast, the aussie dollar, you fund out the aussie to buy the dollar, not the other way around. things are working again. tom: can you buy equities this morning? geoff: yes, we are still overweight equities. that is what we are telling our clients for the medium to longer term, still in the middle on the barbell em. look for other opportunities and in the u.s., markets will be reassessing. tom: i want to congratulate geoff yu on the wall of cash, you nailed that. 's with ubs wealth

management. coming up, it is bank earnings. we are thrilled to bring you thomas michaud. he looks at the regional banks and the too big to fail. start.stivities this is bloomberg. ♪

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china is not a currency manipulator. they "have made enforceable commitment." hope for phase one .rade success dust off the couches. our debate in iowa. it is a tech will market -- bull market. $2 trillion apple this is bloomberg -- apple. this is bloomberg "surveillance." you had an observation on one of those tea leaves of normality, the german to year and 10 year coming in. francine: we have a number of ways of looking at the charts. they are eyeing positive territory after the selloff since the new year and we are looking at the correlation between breakevens and bund

yields. tom: our first word news in new york city. viviana: we begin with a political u-turn, the trump administration longer calling china a current the cheat. they said china made "enforceable commitments not to devalue the yuan." the move coming two days before the u.s. and china are set to sign phase one of a trade deal. the e.u. and u.k.'s squaring off over trade -- u.s. and e.u. squaring off over trade. the prospects for success look slim. donald trump has backed off a to hit europet with tariffs. privately, says iraqi leaders want the u.s. to stay there.

mr. pompeo is suggesting the public outcry is not genuine. global news 24 hours a day, on air and @quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. tom: how about a data check after a bang up day yesterday for the equity markets? we were green on the screen and now we are red. we are oscillating. oil is south, a little bit of a lift. the vix showing a bit of a bull market, 12.58. 107, 108, 109. shahab jalinoos joining us in a bit. francine: i am looking at a bit of a reversal when it came to european stocks. its highestsing to

since july and the fact that it is no longer in the eyes of the u.s. a currency manipulator. the trump administration revealed the move before the signing of the phase one trade deal. we are joined by brendan murray globallyees the trade is there -- globally. is there a chance if you remove the currency manipulator level the yuan could increase? it is goingsuggests to be a love fest at the white house tomorrow and china took offense at being named a currency manipulator. taking it off eases tensions. china confirming the $2 billion number that will amount to chinese purchases. that theave reporting

strategic dialogue that the countries had a couple years ago that was canceled is going to get back on track. that puts things quite on a different track than they were months ago with the countries lobbing tariffs. francine: what does phase two look like? brendan: it will not come together in the too distant future. this gets to the core of china's economic model that the u.s. wants to see reformed. xi jinping will come out of phase one relatively unscathed economically and politically, and we will see what sort of appetite there is in chinese domestic politics to make such reforms. we are looking at months if not years for anything like a phase two. imf august last year, the

forcibly came out and said no, they are not a currency manipulator. let's go back to first principles. what is a currency manipulator? is it a uniquely american or republican -- what is it? brendan: it is basically not letting market forces set the value of your currency. china hasn't really been an active intervener in the past few years. it had been for a while and u.s. administrations in the past have taken offense. doesn'tuld argue now it manage its exchange rate for competitive reasons. there was a lot of debate about whether they should have the treasury tag of a manipulator, and it was largely, a lot of observers would say, used as a political cudgel, with the deal

coming together the treasury backing away from it. tom: from a trade standpoint, here is strong them name be -- renminbi from 2005 and then we have a little bit of week is with some noise. does that look like manipulation to you? brendan: it would for a lot of observers, depending on the economic fundamentals around it. does the exchange rate, does the yuan's movement track economic fundamentals or is it used to give an advantage to chinese exporters? it depends on the context, but a lot of folks on the u.s. side, particularly manufacturers who compete with chinese products would argue that that would suggest manipulation over the years. again, it is in the eye of the beholder. francine: brendan murray from

bloomberg. a number of things going on in ireland and the u.k. according to the irish independent, elections will be held on february 8. we had earlier heard it could be february 7, but it is clear the prime minister said stage -- set the stage that he successfully negotiated brexit to strengthen his power. we have boris johnson writing to nicola sturgeon that he will not agree to the transfer of power of scottish parliament. tom: we are not crushed right now with international relations and politics -- do not tell kevin cirilli in oh -- iowa. shahab jalinoos is with us from credit suisse and we will talk about foreign-exchange. you dip the litmus paper in,

what is it saying about the world economy? shahab: it is improving and volatility is low and asset markets are said to rise further. giving fairly positive signals. tom: is your dollar call weak dollar? shahab: we are one of the few out there that see ongoing dollar resilience. tom: there is a huge issue. is itre a weak dollar or symmetrically that everything else is strong because we are recovering? shahab: those calling for a weak dollar tend to point to the idea that the fed could still cut rates further, but others will benefit from improving the global framework. is, inth of the matter the u.k., the market is still trying to price in the possibility of a rate cut in australia, the market is still

looking for rate cuts. the idea that it is only the u.s. cutting rates this year is something that in my view is a misunderstanding. and gives the dollar and an it ultimately has among the highest rates in the g10 space. francine: on the pound, and if you look at my chart, boe probability cut surging, it is extraordinary how the markets have repriced what we saw on the pound. tom: great chart. francine: are the markets pricing too much of a rate price -- rate cut probability? shahab: it is fair to have this pricing because policymakers at the boe have made comments suggesting this is appropriate. it is not clear whether the bank of england will necessarily be uniquely forward-looking and how it approaches interest rates. those who are optimistic say the

data will improve and the bank of england should focus on it. the data was weak in the fourth quarter and the bank may decide it was weak enough to justify one more rate cut to make sure the economy has enough fuel if it is going to start the recovery. that uncertainty and the fact that central banks have tended to lean dovish, that makes the rate pricing appropriate. tom: shahab jalinoos with credit suisse with us. renminbi has been stronger, 6.88 yuan per u.s. dollar. us, 35rnings are upon minutes until we kick off the bank earnings season. a conversation with a chief financial officer of wells fargo, john shrewsberry has his hands full with the rebuilding of that franchise and making it

domestically distinctive. this is bloomberg. ♪

♪ day,what an interesting bloomberg "surveillance" in new york and london. news andt crushed by we are focused on the market. i thought your 4:00 a.m. our was really -- hour was really strong with marcus after worship -- marcus ashworth and alberto us --shahab jalinoos with alberto gallo.

us.ab jalinoos with what signals do you see from your world of e.m. currency that gives you confidence or reticence to be in e.m.? shahab: it is a mixed picture. the asian space is benefiting from the lift the renminbi has had if you look elsewhere -- had. if you look elsewhere, there are problems linked to domestic issues, for example reform in as -- africa. as far as equities, the e.m. space looks good. it is not clear the currencies should follow what the equities are doing. tom: billions have been lost over the years. do you hedge your currency exposure when you purchase

international equities? shahab: for u.s. investors, it seems an attractive to do. economies, theed dollar offers a premium where you get paid to hedge your risk which is attractive. nominal yield differentials between emerging-market currencies and u.s., in many cases are at all-time lows. brazil is a classic case. hedging the currency risk becomes an attractive proposition and you can still gain from the indexes without the extra layer of risk. tom: there is a window into the e.m. sophistication of the market framework. francine: what do you do with the emerging-market currencies that have marvin idiosyncratic risk -- more of an idiosyncratic risk? shahab: keep a close eye on real

interest rates, how much do you get paid once you account for inflation? if you are looking to hold onto those currencies that offer high , and youal rates mentioned the mexican peso, that is a classic case. even in turkey, we have seen that for a long time where the market has been willing to hold the currency because of high real rates. russia another case. -- currencies like the brazilian real and chilean peso give you a combination of low real rates and high political risk. those are out of fashion now. francine: tom had a great chart looking at oil. what do you do with oil linked currencies? shahab: it has been volatile within a range.

as far as the impact on currencies, what the market tends to look for becomes constructive in oil currencies, a sustained surge that raises renewed hope for investment in the industry, and that is still lacking a relatively high prices by recent standards but not a surge large enough to create a sense of large-scale investment across the globe in oil, and especially oil in some ways is becoming unfashionable. there isll hard to say a strong investment story. that is the key factor holding commodities and oil currencies back. tom: shahab jalinoos with credit suisse with us. tonight, there will be some hedging in des moines, iowa. it will be a select group of candidates.

look for the iowa debate. we will have coverage and analysis from des moines, kevin cirilli holding court, eating pork chops on a stick. this is bloomberg. ♪

♪ this is bloomberg "surveillance." indonesians lion its considering putting

pilots through simulator training they abandoned -- training. they abandoned the idea. before a plane crashed. nissan is pushing back against reports it is thinking of breaking up with renault. the partnership was shaken by last year's arrest of carlos ghosn whose dramatic escape from japan is another blow. boohoo group outperforming the british retail industry after a halls strong -- a strong holiday season. growth is expected to be as much is 42%. the company uses reality television and instagram to boost demand for its fashion. tom: this is a real joy, and we

start off the bank earnings strong. we do that with thomas michaud. polls not only on regional-- pulse on companies. i want to go to a great part -- there is brought up another kbw index which is the regional banks. they are behind. are the big banks and head or are the regionals behind? tom m.: the regionals are behind. we will see those themes as earnings kick off. bigger banks have gotten more profitable. there has always been taught that the bigger banks were more diversified, they had scale and would be more consistent earners. that never happened until now.

companies like jp morgan and bank of america are earning 16 and 17 on tangible common equity. tom: how do you mid-banks compete? tom m.: the good news is there are outliers, and what you have to know is what your business is good at and focus on it consolidation -- it. we are seeing consolidation in the regional bank space to compete. you take what i just said with good performance of good banks. withap has gotten too wide the regional bank stocks and the regional bank etf is like underperform the big bank index. francine: if you look at u.s. banks, and we will not ask you

about them, negative interest rates is a real problem. are they here to stay in europe or are we at the limit? shahab: inflation remains very low in europe and there is no sign that is about to change. that is something we have to live with and one of the factors that is keeping the dollar bid against the low yielding currencies like yarrow and japanese yen -- like your a and japanese yen. -- euros and japanese yen. that is what we are banking on. francine: if you look at the u.s. banks, who will do better? tom m.: in terms of performance, jp morgan will have a nice quarter. consensusut 3% above as far as stocks go, our biggest

pick is citigroup. we think there is a positive leveraging story happening. very inexpensive relative to other banks and they are probably going to return 100% of their earnings to investors in the form of dividends and share repurchases. tom: did you say citigroup is 1.1? tom m.: yes. tom: that is extraordinary. tom m.: the bank stocks rallied hard recently but i don't think people realize how much they went down in august. tom: tom michaud not understanding we need to go to break. this is bloomberg. ♪

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ask: 45. right now -- 6:45. accusingcritics are donald trump of playing politics with the treasury department report on china. the administration now says china does not in a belated's manipulate dose -- its currency, two days before it signs a trade deal. british prime minister boris johnson is optimistic about the chances of a trade deal this ,ear between the u.k. and e.u. telling the bbc an agreement is likely. endansition period will december 31. iran arresting a number of people in the shooting down of a ukrainian jet. the u.s.dent saying was at the root cause but it

does not excuse iranian officials. carlos ghosn's alleged accomplice is still in japan. greg calley is questioning his ability to get a fair trial. his wife says without carlos ghosn's testimony, he cannot defend himself against allegations he violated japanese financial law. global news 24 hours a day, on air and @quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. this is bloomberg. francine: thank you so much. we are getting news out of the u.k., the prime minister saying he cannot agree on a transfer power to the scottish parliament we have been -- parliament. we have been talking about whether the union stays together, and money markets

suggesting a 50% chance of a rate cut. if you look at the next 12 sterlingow much of will be impacted by rate cuts later this year, and how much will it be back to politics and negotiations between the u.k. and e.u.? shahab: they are interlinked and both will retain a dominant influence on the currency as has been the case the past years. the boe has made it clear the direction of politics, trade talks with the e.u. will have a profound effect on how the economy develops and interest rate policy will develop. i feel the market is prepared to how the u.k. doubts on trade talks will go, but there are other issues to focus on. the issue of whether the u.s. and e.u. end up in a trade spat,

point, u.k. and u.s. concerns about potential divergence of views over the iran issue, whether the u.s. decides to use more financial tools to pressure the e.u., the u.k. could end up in that makes. -- meeks. -- mix. there is the issue of transatlantic tensions and even the huawei story with boris johnson potentially allowing the u.k.'s 5g networks to keep working with huawei, something the u.s. is trying to discourage , all of these factors weigh on the situation. francine: what will be more volatile, you're a-dollar, cable , oruros-dollar, cable euros-sterling? shahab: you're a-sterling is the --ely -- your ohio sterling

it is a coin toss which one ends up dominating. your ohio sterling is most interesting to the bank -- euros -sterling is the most interesting to the bank. tom: how has the city changed since the election? shahab: one of the important things that has developed is an air of optimism and a sense the government can function in the u.k., and a sense that the risk policies unfriendly emanating from domestic policy from left-wing policies that might be seen as bad for the market, that risk has receded. these factors have lifted the mood. can we substate -- sustain the lift?

happy abouts fairly how those are likely to go. i suspect by midyear there could be a cloud on that horizon. francine: shahab jalinoos with us and tom michaud. we are expecting focus on jp morgan, those earnings coming up this hour. we will be providing instant analysis. watch out for an out -- targets and trading -- markets and trading. its revenuekes half on income from consumer and community banks. this is bloomberg. ♪

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"surveillance -- bloomberg "surveillance." sonali basek with us. about theshow a chart jacksonian moment here in. -- moment we are in. this is massachusetts and the number of bank institutions. showed has tattooed to his brain a huge collapse in banking , and the 1980's, we had a few moore. banks and had 18,000 now we are down to more than -- a little more than 5000. tom: she writes a letter for linkedin, absolutely phenomenal.

what is the summary on scale? sonali: it is all that matters for the banks, hedge funds, private equity, everybody. the cost of capital is probably lower. tom: he gets often airplane with his team and says scale. midsizedhe responsive and smaller banks when you tell them? tom m.: they see it for themselves. until last year before senator crapo and the house put together the dodd frame -- dodd-frank reform act, it was hard to cross $50 billion in asset since that barrier was removed, you see a pick and read until all banks -- in regional banks merging. sonali: something that is interesting is that the big banks, jp morgan will not buy

another original bank. they will buy a fintech firm. tom m.: jp morgan is one of the best fintech companies in the world. what is remarkable for the dollar is the big four are investing in fintech and that is what the industry is watching. francine: the bank stocks have had an incredible run over the last couple of mwhat will it tae prices to go up? tom m.: they have had an incredible run, but before they had an incredible run they had an incredible fall. you can buy very good banking companies for 10 times earnings at 1.5 times book value. one of the stocks we like is timesoup, trades at 8.5 next year's earnings and has a good dividend yield. they had a good run because the market was so pessimistic last august when we thought there was

a recession around the one or. -- corner. the industry is that high profitability. earnings-per-share growth is nil because of the fed policy of cutting rates. if we are done cutting rates, you will see net interest margins improved, cramping in profitability, and that is prop -- ramping in profitability. what are you focus on, interest declines or trading? sonali: i am looking at both. incomean, half of their comes from this so you cannot ignore it. not to mention, the low interest rate problem is not going away anytime soon. it is a perennial issue. tom: in april of last year, james dimon, a 50 some page letter. energetically drive

organic growth, that is his trump card, isn't it? tom m.: organic growth is the best acquisition you can make one customer at a time. that is the best thing you can do for shareholders and big banks are investing billions of dollars into technology scale. tom: are they doing it in charge cards? a wall of earnings, a powerpoint deck as mr. diamond calls it. what is driving his organic growth? sonali: they are doing it in branches. jp morgan is investing in them hard through mobile acquisition. people forget, jp morgan has opened up their data to plaid which just sold to visa yesterday for $5 billion. tom: should i wear plaid? tom m.: if you really want to see what is coming, look at

real-time payments. the bank has gotten together with the clearinghouse and if you look at house alcan move money real-time, the banks -- how zelle can move money real-time -- zelle?n little banks do tom m.: they are trying. the time it takes to get on boarded, you have to work hard to be an early mover. iphoneam looking at my and tell you children can get on board zelle very quickly. no problem. i can see that here. francine: kids always find a way that is across -- find a way. that is across all boards. if you look at fintech, what is

a barrier of entry for facebook or amazon coming in as a bank? tom m.: i would give a for-grade to the regulators protecting the payment system in the united states. robin hood started out with vanke accounts but were not a bank and that -- bank accounts but were not a bank and that did not go over well regulation often is a headwind and in this case, protecting the payment systems is important. you need to be a bank to do a lot of things that banks do. the fintech industry has realized they need to join up with the industry. they are not going to disrupt and remove the banking industry so you are seeing apple team up with goldman to have a credit card. you will see more of that it will -- that.

it will collapse profit margins but the banking industry will be central. francine: the trading numbers, will they be really good because the previous year they were so bad? sonali: the previous december was a real issue for these big banks. wall street estimates on equity trading are not that great. , we arecome trading expecting a proper rebound and we expect that numbers from morgan stanley and oldman later in the week -- goldman later in the week. tom m.: one thing i would look at is return on tangible common equity, that is becoming the metric that investors are watching carefully because it is how the banks are managing in a low revenue growth environment you are seeing -- environment. you are seeing lots of share repurchase and the higher returns on equity, barring any

significant economic downturn, are here to stay in that will have an impact on valuation. london,ncine lacqua in tom keene in new york. us and weak is with are thrilled tommy showed -- tom michaud could join us this morning, on the scale of too big to fail banks and regional and larger banks as well. what does the job economy look like? are they cutting jobs? sonali: most of the job cuts are in europe, but jp morgan is building a regional banking network in europe like they have in the u.s. tom: i did not know this. sonali: deutsche bank needs to watch out. tom: why not buy deutsche bank and put them out of their misery?

youli: why buy them when can start over yourself? they are expanding at a time european banks are shrinking their headcount. we had an interview run by our colleagues yesterday with chris purvis of ubs. the bonus culture going away, different types of talent who will work for less, that is something to work -- look out for. headlines on jp morgan, and this is the wow statistic, revenues adjusted up 9% over -- year-over-year. a nominal gdp basis, up 9% is a big number. tom m.: it is remarkable. you would think a bank typically would grow like gdp. bps on it.100

tom m.: expense control is impressive in the banking industry. the management teams are talking about it you take 9% revenue growth with good expense control and share repurchase, and earnings-per-share can go up a good amount. tom: mentioning tangible common equity, a small number, 17%. i have never seen that the to stick. -- statistic. francine: earnings-per-share $2.57 for, earnings-per-share. provisions for credit losses, $1.4 billion. overall, as we look at more of these results, if jp morgan does great does it mean the other u.s. banks will do similarly

well? tom m.: it is a good signal and supports the thesis that the banking industry has been in good shape. the question was all about growth. deep into a good economic cycle. credit is still not on the horizon. that can cause earnings to change quickly, but right now it does not look like those issues are on the horizon and you are seeing good profitability. tom: i got a 1.8 times book jp morgan. from where you sit with this entire financial team met bloomberg, -- at bloomberg, what is the distance of jp morgan from everyone else? sonali: it is pretty whopping. citigroup has the best estimates on wall street out of every firm , so people expected to rise the most.

people are expecting jp morgan to dip, but they are soaring through expectations. fixed income trading, $3.4 billion in fake revenue. -- fic revenue. tom m.: it is not a cheap stock and it is a $400 billion market cap to the extent that -- cap. to the extent that money is going into -- it will be a good benchmark. tom: i could make a joke, it is one third and apple, but the reality is you have to deal with this every day. do we really understand how large these in the duchenne czar? -- institutions are? 1/10 of arevenue is trillion dollars, do we have our hands on those scales, the size of the banks?

tom m.: the big banks are big. if you look at the policy response of a global crisis, made them bigger, not smaller. that is why i think the banking industry is going to stand up regional champions to compete with them, whether it is truist with their merger or other regional banks. sonali: wall street will be generally happy, feeding on equities and fic of a billion dollars, but loans are slowing. let's not forget that. tom m.: i think it is impressive. i have not read the report because it just came out, but the fact that they can produce these type of results with loan growth slowing talks about diversity of the company. slowing,my has been doing better more recently, but

slowed from 18 months ago. it is difficult for a bank that big to grow faster than the market. francine: let me take the time to thank tom keene who has to head off to bloomberg radio, as we continue to go through these earnings. i am looking at jamie dimon saying the u.s. consumer continues to be in a strong position. the share price reaction is muted, up 0.3% in premarket. actually it take to make your shareholders enthusiastic, given what we have just heard from j.p. morgan and the share price reaction? tom m.: i think with the banking industry, it will be a slower grind in terms of earnings-per-share because the industry is still dealing with a very difficult revenue environment because the net interest margins have been under

pressure because of said policy. -- fed policy. our view is by the end of the year that will get better as fed cuts are behind us the question is, are the stoxx inexpensive stocks inexpensive enough to get the growth? -- statistics show there they are 10% to 15% cheaper than they have historic traded so there is some room for them to do ok, even though they are not as cheap as the end of last year. salesne: you look at fic, and trading revenue, that is an 86% gain. sonali: it is through the roof and well above everybody's estimates. people will be asking about that

number, whether it is sustainable and whether they are gaining market share. for a while, jp morgan was number two in prime brokerage and they were behind morgan stanley in equities. upther jp morgan is catching and surpassing morgan stanley and asset managers will be an interest for the end of this year. francine: what kind of u.s. economy and u.s. consumer does jp morgan need? tom m.: credit quality is the main issue. we were looking for good card growth in the order on a quarterr-year -- in the on a year-over-year basis. it would be better if we had more economic growth, but if you had to pick one point, the industry needs credit quality to continue to remain under control

because that is a variable that can change quickly. we do not see anything like that on the horizon. francine: does this mean anything for the european banks? we were trying to figure out if u.s. banks really do well, they are taking market share from europe. sonali: deutsche bank has said fixed income will be better this year, so we know they are hanging in there, but do not know if they are taking aggressive market share. another place to watch out for that we have not talked about is the i.b. revenue. equity and debt underwriting did rise, but where they did gain market share, jp morgan, morgan stanley, goldman sachs represent one third each of the deal market so if you are that big in mergers and acquisitions and are posting low advisory revenues,

how are you supposed to make money in investment banking? it does not guarantee more money coming in. francine: tom michaud and sonali basak. we will have plenty more on jp morgan and the banks in general. massiverecap, we had a beat on trading for jp morgan. we were expecting a great performance year on year, but this was better than expected. trading showed an 86% gain. later, we speak to the wells fargo chief financial officer. ♪

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china trade data improves. of u.s. clears the yuan currency manipulation with 24 hours left to go unto a trade deal is signed. investors will have to work harder to make money in a low return environment. jbm crutches estimates. crushes estimates. citi and wells fargo on deck. welcome to "bloomberg daybreak." i'm alix steel. jp morgan just crushed estimates. s&p futures off of the record highs we seen the last few days. euro-dollar pretty much goes nowhere. it is a broadly stronger dollar story, with the exception of the swiss franc. it was the bond market that took everyone by surprise yesterday. crude up by 0.7%. also want to dig look at delta here. those numbers coming out. earnings just