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tv   The Pulse  Bloomberg  February 17, 2016 4:00am-5:01am EST

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hrain.turning to ter will they back the saudi russian plan to freeze production? china steps up support for the currency -- for the economy. banking beat. estimate asole tops the lender announces a restructuring plan to free up capital. very warm welcome to the
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program. you're watching "the pulse" live in london. i'm anna edwards. china stepping up supporti for its economy bys ramping up spending and considering new measures to boost bank lending but it comes as voices raise concerns about the sustainability of the country's credit. the minneapolis fed president has called for greater regulation. he floated the idea of breaking banks up to protect the economy. significant progress has been made to strengthen the financial system, i believe the act did not go far enough. i believe the biggest banks are too big to fail and continue to pose an ongoing risk to our economy. president barack obama says donald trump will not be elected president.
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the republican primary campaign has alarmed foreign audiences who expect the u.s. to lead the world. president obama: i continue to believe mr. trump will not be president. the reason is because i have a lot of faith in the american people. i think they recognize that being president is a serious job. -- hosting aing talk show or reality show. it's not promotion. it's not marketing. it's hard. news 24 hours a day powered by art when he 400 journalists in 150 news bureaus around the world. currenciesing market drop to their slowest level in two weeks hit by anxiety surrounding oil prices. mark barton has some analysis. mark: let's start with the mcsi
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all country index. it has not risen for four days in 2016. it is the biggest four-day gain since october. year to date, this index is down by 8.5%. i wanted to look for the yuan headed for its biggest two-day decline. on monday it had its biggest rise against the dollar for a decade. today the pboc cut its reference rate by .16%. that did surprise some analysts who forecast smaller moves ahead of the g-20 meeting next week. is rebounding after falling yesterday. attention turning to tehrain meet iran and iraq will after russia and saudi arabia agreed to freeze output. is unlikely to take
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part and it says the deal that unlikelyk yesterday as to revive prices and there remains uncertainty that it'll materialize. one of the big movers today is credit agricole. shares up by 8%. it'll sell stakes in three dozen regional banks to pave the way for an all cash dividend. this $18 billion euro transaction would increase its ensure the1% and lender can offer an all cash dividend as soon as 2018. anna: thank you very much. fed minutes are due out later today. investors have abandoned bets on a hike this year as the question turns to how much volatility is shaping fed
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thinking. speaking yesterday, the bank of ton president suggested turmoil in the financial market could delay a move. >> gradual monetary policy path is appropriate given the headwinds we are seeing. the depreciation of the dollar is going to mean we are not going to be exporting as much as we were expecting. it has an impact on gdp as well as an effect on our ability to get to our 2% inflation target. anna: for more on what those headwinds might mean for the fed, let's bring in a european head of global markets research at -- mitsubishi usj. i mentioned there that investors are raining back expectations of fed hikes. some people have abandoned those. the markets are pricing in a 2% chance of a hike in march. and something in the mid 30's onto the end of this year but
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you are still expecting a hike. moment we are expected three this year. certainly march given what has been happening and perhaps the minutes will suggest that this evening. march is now looking a little bit early given the turmoil. but, you know, the assumption of a june rate hike is that the financial market conditions we have at the moment cannot persist into the summer. so, four dots what is currently in the fomc message. it is clearly too high. perhaps there will be some hint in the minutes this evening suggesting that will be revised down. anna: what kind of close to we get around those dots, because that has been appointed contention between the market which has never been pricing information hikes fisher, a-- t who have and the fed been communicating for rate hikes this year. what kind of information can we
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got from the minutes? as you say, for some fed officials, really it's too soon to say whether the turmoil we see in markets will be translated. i think the interesting statement is the fact they refuse to give a risk assessment. for me, that's a bit of a cop out. i personally think that we are leaning towards downside risks because of international development. but they really did not want to send that message so soon after raising rates in december. that is why they did not give us an assessment. i think the markets will look at this evening is to give, to see what the details are behind that and how concerned they are in regard to the international development. because when you do balance it istimistically, and this why we are thinking june as possible, the domestic story is compelling. inflationary pressures are picking up. wages are picking up.
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consumer spending picnic at the beginning of this year. domestic related outside of manufacture because of oil and dollar is still doing very well. anna: some people point to the theyr oil price, and point that job status which perhaps you would describe is looking good. then others point to the downside in the u.s. economy, surprise index. certainly the back end of last year in particular around manufacturing. sk contaminating the broader u.s. economy? the most recent senior loan officer survey data did show a tightening of lending standards.
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but when you look at it at a chart relative to the tightening of standards that happened in the crisis, it is a tiny blip. but perhaps it is the start of something. the other transition mechanism could be through capex and business confidence. if this equity market turmoil is to continue, there is a chance you get a retrenchment in capex that sprays into the broader economy and starts to impact consumer confidence. the idea thath the u.s. could worsen from here. relative to the rest of the world, the u.s. is looking strong. with us on the program from bank of tokyo mitsubishi. brent crude has written ahead of an oil meeting between iraq and iran. it comes after saudi arabia and russia agreed to freeze production yesterday,a move the saudi oil minister described as a beginning of a process. let's have the latest elliott gotkine. more likely to get on
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board for this? iran for so long has been under the influence of sanctions. now they want to get their market share back. this will not be perfect timing for them, talk of a phrase. oil minister's said they will not for go market share. for, which is producing million barrels a day, has ambitions to increase that by 50%. it would seem to be best placed to come on board with any kind of agreement. just come out of sanctions. it would seem unlikely to want to impose further restrictions on itself, especially when it is planning to boost production by one million barrels a day this year. deal that for this was a disagreement reached between the saudis, russians and the qataris, in order for that to hold any water, you have to get iraq and iran on bored.
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they were set to increase production the most this year. anna: even if we do get a deal with in this meeting that takes y, is that going to be enough to boost oil prices? elliott: goldman sachs does not think so. ds have got to get everyone on board. we are talking about the mexicans, the norwegians and all other producers. they are not going to cut of someone else's going to take their market share. ofn if you do get some kind agreement, and let's assume it is just a freeze and there is not some kind of secret talks going on to discuss production cuts which happened in the past, if they do reach an agreement, there is a question of compliance. do managed to boost prices or prices rise as a result, the oil producers are being squeezed out right now, some of the frackers in the u.
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s., that would give them the opportunity to come back in. more oil when come back into the market and drive prices lower. goldman sachs is not convinced. i guess we can see what is in the oil markets. while there are talks, their hopes that at least something will be done in order to stem the slide in oil prices and have them stabilize and perhaps go higher after that. anna: thank you very much. up next on "the pulse," plenty coming up. first with s&p warning with china's credit rating is at risk. then we speak to the german born labour mp in the u.k. about a brexit. after a disappointing earnings season, netflix and amazon, plunge.'s one day 44% we look at where to invest in tech.
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stay with us for that. ♪
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anna: this is "the pulse." amro reported a drop in fourth-quarter profit. net income declined. abn is the state controlled
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dutch lender that returned to the market in november. ricole says it will sell back states in three dozen regional banks to free up capital to ensure the french lender can offer an all cash dividends as soon as this year. it posted a 28% increase in fourth-quarter profit. sold $12 billion of bonds to return capital to shareholders. the move accounts for half of $23 billion raised by blue-chip companies yesterday. that followed a week where debt issuance was frozen amid concerns about the health of the global economy. that's your bloomberg business flash. downside risks amount for the chinese economy. beijing is looking to show it is up to the challenge. the company's biggest economic planning bodies are considering fresh stimulus. asia economics
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correspondent joins us live. talk us through some of these measures. what is most interesting, what they are going to do on infrastructure are what they might do in terms of allowing banks to lend more? what caught your eye? enda: good morning. adeed, and looks like quite push now. the authorities are trying to send out a firm signal they want to put a floor on their growth. to keep the economy ticking allotted 6.5%. they are starting to put more money into the infrastructure side. that spreads out across the eady projectsvel ra and put some men at work and some those areas hardest hit by overcapacity in the coal and steel' sectors. side we saw that bad loans were at a decade high. the government is responding by considering easing off provisions.
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th'atat's quite important. was perhaps the most colorful role was the rhetoric coming from policymakers. one forcibly told his audience the government has still large toolkit at his disposal and they are ready to do whatever it is to get to, keep growth going. central bank or broke his long silence at the weekend. he try to talk up confidence in the currency. it is quite a combined push from chinese authorities to regain confidence in what is happening here. th governors and central bankers and no shortage of talk -- us with thejoining latest on the chinese story. let's continue our conversation around china and the risk that poses for foreign exchange. derek halpenny is still with us.
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let's talk about the chinese. they had been moving, cutting the reference rate on the currency once again. hasn't cost the same level of nervousness and markets that move might have done in early january. it should be remarked on nonetheless. is this is a sign of anything to come? you are in the camp that says the chinese are going to devalue their currency even though they told us they are fixating -- they are not fixating on that. derek: i would not use the word devalue. that brings to mind what happened last august when you have a one-off, big shift in the currency. but when you look at the fundamentals, there are many reasons to justify a weakening of the cny. i go back to what i've said before in terms of what it was fixed to the dollar. the dollar was soaring. the cny soared with it. there was not much justification given to that given the fact that the gdp was decelerate.
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that type of slow depreciation from here makes sense. cny candollar continue to move to the upside.. the repercussions of that. and we talked with elliott about the latest on the attempts to put a floor on the oil price. what is your base case for oil? seek: we are going to prices stay where they are for now and towards the end of this year we start see some moderate recovery. we have all -- our related fx strengthening versus the dollar. most notably in the final quarter of this year. when i look at what is happening now and whether there is any kind of opportunities in oil looks like it it is where it should be based on price and yield spreads. x is one of the worst
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performers so far this year. it looks to have overshot based on where the oil price is today. if oil was to stabilize because of this freeze in production and that could be an opportunity, especially if the u.s. economy pans out likely thing. it,: the dollar, do you see do you see it pausing here? derek: for me, the three currencies that are doing well is the dollar, the euro and the yen. between those the dollar is the worst. what is coming into play as we look at the nominal your spread but it is important to look at the real yield spread. and basically because of low inflation in europe and japan and skepticism about their central banks being able to lift inflation, real yield there are supporting those currencies versus the dollar. but if the ecb exit aggressively, we can get it
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lower. but the fed has to come into play for it to lurch lower from here. anna: thank you very much. up next, brexit negotiations. we take a look at the signs of progress ahead of the talks in brussels tomorrow. and possibly into friday. ♪
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anna: welcome back. e.u. leaders are preparing to head to brussels for a summit where they hope to strike a deal over britain's membership with the european union. for more on the risk and the pound let's get back to derek halpenny. thek, we're at 1.4295 on pound against the dollar. in the middle of 2014 we were up at 1.71. that is not all brexit risk? brexit risk i s obvious in the pound. derek: from the middle of december we were on short-term regression models. that tells us where currency should be based on the day-to-day variables. it was perfectly in line until mid-december. cameron stood up and basically handed a deal could be done in february. and i'm eagerly the pound our there wasn't one stage of 4% to 5% risk premium -- there was at
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one stage. been broadly stable over the last months and with brexit still there, if these conditions continue, i think we are about to lurch lower again. anna: how much of aroldis f-- of a role does fdi play here? we have use that nicely to cover current account deficit. do you think we will see that ebbing? derel that is a crucia one. up until the third-quarter of last year, the fdi covered 'sarly entirely the u.k. current account deficit. that is great financing, the best type of financing you can have for your deficit. but ultimately it makes sense to think that in the run into brexit, the fdi flow could have
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dried up. anna: we will look for clues. joining us.r joining us from bank of tokyo mitsubishi. we will take a short break. more on the subject of brexit when we come back. ♪
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anna: welcome back. this is "the pulse." employment data from the u.k. is crossing the bloomberg now. let's get to mark barton. mark: u.k. employers showing should -- showing few signs of responding to a tightening labor market. unemployment holding at 5.1% in the fourth quarter pretty earnings growth slowing. pay growth excluding bonuses edging up to 2%. the data likely to reinforce expectations that boe remains a
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long way raising its benchmark rate from a record low .5% " some policy say near zero inflation is keeping a lid on pay settlements. unemployment falling 60,000 between october and december to 1.69 million. employment climbing 205,000 to 31.4 million. jobless benefits fell 14,000 to in january760,000 taking the rate to 2.2%. nothing there to make us believe the bank of england will budge on its record low interest rate of .5%. any movement in the ftse 100, it is creeping higher today. up by 1.25%. whichs the 10-year yield last week hit its lowest ever level, down to 1.3%.
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since thursday, it has crept up to 1.43%, but still, the be global bonding market in 2016. that is the latest data from the u.k. anna: not all that much movement in the pound, either. let's get the first word news. nejra: brent crude is higher before a production meeting between iraq and iran. it comes after saudi arabia and russia agree to freeze oil yesterday. iran's oil chief will meet its venezuelan counterpart later. the minneapolis fed president has called for greater regulation of u.s. banks. the man who led the 2008 bailout program floated the idea of breaking them up to protect the economy from another financial crisis. e significant progress
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has been made to strengthen the financial system, i believe the act did not go far enough. i believe the biggest banks are still too big to fail and continue to pose an ongoing large risk to our economy. newa: glencore has a revolving credit facility to replace its $8.45 billion low. the commodity company received commitments to $8.4 billion in the first phase of syndication, an increase of 3 billion banks above existing levels. shares have rallied 14% this year after plunging in 2015. global news 24 hours a day powered by our 2400 journalists around the world. anna: prime minister camera as edging closer to a deal. hoping to finalize details of the european summit that starts tomorrow in brussels. let's welcome our next guest. a labour party member and a vocal euro skeptic.
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good to have you on the program. let's talk about your view on brexit. you are out of step with policy -- with party leadership. the labour party officially wants the u.k. to stay in the e.u. >> if you look at this from the spectrum a party politics over the last 40 years of our membership, both political parties have taken -- the labour to.y came this is got be looked at in the national interest. i would caution people not to be dazzled by the performance of this performance. let's look at the substance. the bloomberg speech which the prime minister gave, what he meant by a series of reforms in the european union. he is even lower in his own bar . worried if he
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would democratically indoor something that is not a reformed institution. it would be bad for the european union. anna: this is not going to be a vote on this renegotiation. it might he in some people's minds but the vote is going to be on whether the u.k. should stay in or get out of the e.u. a sense that the results of this weekend's activity could be held -- haiileled as a triumph and thene move on to other issues by the time the vote comes around? gisela: it will be a fundamental vote on our relationship with our neighbors. and that's why i look at three basic things. these are the principal duties of the nationstate. it is what happens to currency, what happens to borders. and collective security. deal cameron's
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improve our position? i can't see any of that. the key thing is is someone in the treaty structure of has to acknowledge that some member states are not part of the currency. ole number ofw a wh relationships. i do not have a problem with federal states. ent 40 years of my life in the united kingdom. as a lawmaker, i look for structures which are sustainable in the long term. and we haven't got those at the moment. anna: you mentioned where you come from. the irony will not be lost on some viewers that you're from g ermany. you've arrived in the u.k. now you want the u.k. to leave europe. does that seem like to positions that conflict with each other? should you not be more of a fan of europe given the benefits the e.u. has given to you in labor mobility? when i arrived here,
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every nationstate had a choice between how it relates to its neighbors. they could go for deeper political integration, something, the driving force of france and germany, or more economic relationships. the problem with the united kingdom has been is that we have edged towards political integration still trying to deny it is happening into making an economic argument for a political union. david cameron is something not facing up to this. he's not th first prime minister not to do that. leaveanna: what about the campaign. are you officially aligned with them? they seem to think it is being run down a two -- run on a two-pronged approach. there is not one campaign in charge. we'll wait to see which campaign gets the official seal of approval as the "out" campaign. is there a chance we get these two groups working together? i've worked much more
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unwanted think the substance of the deal is, rather than how any campaign would be far because believe it or not, i am an eternal optimist. cameron comes back on friday ensured ai have deal. i will not have to keep going back to plead exemptions." i'm perfectly prepared to say, you know what? he so fra, he had -- so far, has not done that. that would be the test. anna: you could still change her mind. gisela: if the deal is good enough. but it really would have to be good enough. anna: he will hail it as a success. he said the bar. -- set the bar. he will say he has got a treaty that makes a closer union less relevant in the european context. he's change the
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agenda in regards to new arrivals for the rest of the e.u. we know what it is going to look like already. gisela: if he comes back from something which he was -- would still have to require the approval of the european parliament afterwards -- we are not going to get full treaty reformed. but that's what he has to entrench in the treaty. otherwise, this whole deal will be -- you bend it one way, and then you turn around you have got back to its original position. behalfey negotiator on of the national park to-- parliament. i think at the moment, we focused on the consequences of an "out" vote. let's think through the consequences of we join the critically -- democratically endorse a deal that is third
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rate, then any future prime minister that will go to the european colleagues and say this is what i need. they will turn around and say, hold on. you have endorsed the settlement. you have got democratic approval. you have just exhausted all your negotiating capital. so, that could be even more damaging. anna: we will see with this summit thursday and friday produces. thank you for joining us. the house of commons member for the labour party. 9:40 in london. up next tech trouble. our next guest says that twitter could be heading to the internet graveyard unelss the company changes -- unless the company changes emphasis. ♪
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anna: welcome back. this is "the pulse." ammro reported a 32% drop in fourth-quarter profit. net income declined 272 million euros. abn is the state-controlled dutch lender that return to market in november. credit agricole shares are up after saying it was sell back stakes in three dozen regional banks. the move will ensure that the
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french lender can offer an all cash dividend. has sold $12 billion of bonds to return capital to shareholders. themove accounted for half of $2 3 billion raised by blue-chip companies yesterday. followed a week where debt issuance was frozen amid concern about the health of the global economy. anna: it has been a disappointing earnings season for many tech companies. any value to be had in the sector now? theguest who call manages alliance trust. good to see you this morning. sum up the earnings season. we saw high profile moves liked linkedin tumbling. in terms of the big players, how was the earnings season? >> i think the companies that
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sell into the advertising market, like facebook and google, headquarters. thecompanies that sell into corporate enterprise market like linkedin, they saw hesitation among their users and maong purchasers. -- and among purchasers. anna: you raise an interesting dissension between different parts of the tech world. facebook, amazon, netflix, google. you mentioned facebook and google selling into the advertisers. netflix selling into the consumer. as is amazon. is there anything that unites them/? ? can we look at that acronym as a useful lens to analyze the sector? it is confusing but i think those companies you saw a lot of investors gravitate to last year. high concentration
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of investments into those companies. they accounted for -- the performance of the tech sector last year with just those for companies. story.mazing success netflix, the focus on the international business and investing. somebody i used to talk to years ago around netflix used to shout at the television about the low barriers to entry in that business model. it has not seem to have stopped them yet. is that something that could haunt netflix? w the cost of content is going up. if you do not have unique content, it is hard to get traction. the barriers to entry are pretty high. anna: twitter. we mentioned that you think they are risking being heading for the internet graveyard. why? walter: i think twitter has about 300 million users that use it on a regular basis. it's like the, it replaces the
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corporate press release or the p.r. mechanism out there know. but they have tried to broaden to be a newspaper or tto be a news source. i think they should be happy with what they are and focusing on developing that and not try to be something else. anna: don't be focused on growth. focus on the niche you have got. walter: and making it continue to be valuable to your users. amazon, a we look at lot of concern about the amount of money they have to spend on the infrastructure, innovation. is that justified? walter: i think amazon is the leader in cloud computing. with our surveys it looks like they have 80% market share. we think that is going to be a $100 billion business. i think it is justified to spend a lot of money on that. in the retail area, i think that area, the returns are pretty
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low. so, i'm less enthusiastic about putting there. anna: how much more cloud and how much less retail is amazon going to be? will bei hope the clock as valuable as a retail business, worth several hundred billion dollars if they can realize his potential. anna: security spending, another big trend within the technology space. there seems to be a lot of smaller players in this field. how does that all fall into place as we had forward? -- head forward? walter: most security professionals are trying to secure their companies. they like this concept of layered defense. they like to have several vendors for several different capabilities. so, they want to have somebody to keep you from breaking into their company but also someone that can protect the data, once an attacker gets in, keep the data from leaving.
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i think there is room for several successful vendors. anna: one of the beach friends we have seen has been the move towards mobile internet away from the desktop. i thought all of that was almost done. being mentioned by companies as a reason why this happened. in their earnings releases. this is still a trend that is yet to play out. about 15%bile is only of advertising dollar spent now. yet it is 30% of time spent. gap will continue to close. they will continue to monetize the time you spend on a mobile phone. you will see more advertisements. anna: great to see you. walter price joining us in the studio. a clearer sense of where the fed is heading? we look ahead to release of the january meeting minutes coming up next. ♪
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anna: welcome back. this is "the pulse" live on bloomberg television, streaming on your tablet and phone and minutes will be scoured over for a fresh sign of where the fed is heading next. the presidents of central banks of boston and philadelphia say they could support a slower high cycle. let's get to michael mckee in new york. what might investors learned
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that could affect their thinking on the fed when we get these minutes? mike: what you just noticed about those fed banks presidents means that the minister not tell us all that much. investors want to know why the central bank remained optimistic in january about rate moves, even as investors were pricing them out. they want to know why the central bank did not characterize the risks to the economy, even as they suggested their forecasts remain intact in january. fromu mentioned we heard another of fed officials including janet yellen just last week who suggested a change in policy is possible to achieve noted the fed's concerns about the developments in china, about oil prices, about inflation. and said the fed is going to be watching those developers closely. anna: wonder how much we will have to mind that gap between what the markets are expecting and what the fed expects. how are the minutes going to be
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weighing into the trading day? mike: my guess is they're not going to affected a whole a because i do not think traders will get a lot of new information. it will kill them to believe this but janet yellen says we have until march 16 to make a decision. we're not going to give you an absolute one way or another. is somemay get today sense of how many people were worried about which particular issues which will give investors a framework to think about the fed as we get that additional data between now and march 16. anna: i'm devastated. thanks very much for joining us. u.k. fourth quarter jobless data 9:30.d at holding steady at a decade low after inflation data out yesterday shows an increase in january. let's get to the bloomberg and mark barton. mark: this is the chart you need
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to know about the u.k. economy. that's, the white line, inflation. this is a chart, 2011 to 2016. yesterday we learned that inflation year on year came in at .3%, which yes, is the highest in the year but a long way away from the 2% target inflation hasn't been at 2% since the end of 2003. we have had some wage data out of the u.k. average earnings in the three months to the end of the year excluding bonuses. it is up from the prior month's but above the 2.9% we were seeing in the middle of last year. it is clear to bank of england officials that wage growth is slowing which puts let's pressure on them to raise interest rates. this leads me to the third chart. morgan shanley's gauge of
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telling us how long it will be the sort -- before we see the first hike. according to this gauge, it will be 41 months. more than three years until we see the next hike. economists say it'll probably happen a lot sooner, possibly in this year.uarter of many economists and traders are even talking about rate cuts. a 10% chance. interest-rate futures are put in the probability at a 60% chance. i want to quickly show you what is happening in the markets. keep an eye on credit agricole shares. rising by 11%, fourth-quarter earnings beat estimates. it is going to sell back stakes in three dozen regional banks to shore up capital and pave the way for all cash dividends. credit agricole up by 11%. anna: big news in that banks stock. stay with bloomberg.
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we get housing data and industrial production out of the u.s. at 1:30. then we get the fed releasing are minutes from the january meeting. see you tomorrow. ♪
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♪ there is no gain from saudi oil talks. commodity struggle to find a bid. your and america show good, not great, economic growth. the debate over the brexit is a here and now debate. good morning. this is bloomberg "surveillance." live from our world headquarters in new york. i am tom keene with guy johnson and caroli h


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