Current is performing well are a risk on currencies, dollaryen lower by 4 10 of a percent and the question is why . We will tackle that. And yields in the u. S. On the tenterhooks, pretty much going nowhere. 50 a barrel for crude oil. David and it is the big one, we will get the cpi numbers and they will give us a read on inflation. And then retail sales figures for january. 11 30 a. M. President trump meeting with members from both sides of the isle to talk about the infrastructure plan. Alix and a first take on the top three stories of the morning. Yen making a move in banks trading on volatility. And cpi. David i want to take a look at the cpi story. I want to pull up this chart that shows where we are. It is 8692, there we go. It is up. Gina, we have a projection on core and headline cpi, how the markets prepared for the said this point, because they are really on tenterhooks . Strategist a rate tell me yesterday that it was feeling like barrel friday in the middle the month. Fridayaccurate peril in the middle the month. Pretty accurate. Cpi is relatively simple to predict and people are pretty accurate at getting it, but is it is a mess or a gain you will see miss or a gain you will see movement in the market and everybody is positioning that is so be a big deal. David you say a big deal for markets, is it important what it tells us about the economy or is that the markets are so nervous right now that they will overreact anything . Jeanna i want to keep an eye on right now, that is the question, this will not tell us a ton about economic fundamentals simply by the fact that is only one number in we know that the fed takes this as a moving average. If we see cpi move up a little bit the fed would be welcoming that, they want to hit the 2 goal, but that is not what the markets are hoping for so there is a disconnect between what the fed is hoping for and what markets are expecting. Alix comps will be tough because 2017 was good. Taking a look at the 10 year, huge amount of shorts. Ade . Is the patron pay tr higher than inflation. I do not think a lot of the rise in yields we have seen can be attributed to marketbased inflation being pushed up. That would still be a surprise for the markets. One thing to keep an eye on is, yesterday there was a huge block trade put on, somebody basically hedging that position, or taking a bet the other way saying that we make the 10 year will come in hard this week and yields will go down nicely. Alix in terms of equities, what is the pain trade there . Luke i am not quite sure come i think the equity market would i think theure, equity market would welcome the notion that we have not left the goldilocks environment, relatively low, stable inflation. That would be welcome. I do not think there is a number that says we have left of this regime. Alix it will not be easy. To get us started, we are watching what is happening with the dollaryen, breaking through. The risk on currencies rallying against the dollar, but so is the yen, is this a safe haven explanation or what else is going on . Luke seems to be a big story here, this is dollar weakness, and in the dollar weakness is manifesting itself in the yen lately. In tokyo, there is a great chart that basically showed that kuroda called in the bottom, nailed the bottom in the end, a couple years ago basically saying that you look at the trade weighted basis there is not a lot of scope for depreciation, so since then the japanese economy has gotten better and the way that we think about japans economy has improved, so does japan really need a Lower Exchange rate right now . That is not obviously true to me. David the japanese economy is growing. And the japanese companies, are they prepare for a stronger yen . We have a chart that indicates the yen has weekend, but companies are anticipating Something Different and it could hurt them. Alix this is the other chart by the way. Luke that is their assumption going through q1 of this year, so it shows the yen is a stronger than predicted. Jeanna the question to watch is how they react as the story plays out. David it is interesting as the market faces volatility and they about think the banks and they have brought back the banks. 4 result was q and we have talked about being very strong and we indicated numbers up 10 . Q1 is looking very strong for us. David we heard for so many quarters that trading was down because there was no volatility, now it is time to read the rewards, potentially. Reap the rewards, potentially. Jeanna yes, volatility is back. We have seen stories on the idea that volatility is good news for these banks. So i guess we will have to wait and see if the volatility is sustained and whether it is a story that will continue. Alix is it . Luke i was just talking with the Joe Weisenthal about it and he says if the trading activity is so good for banks, the k. D. W bank index is down, that is worse than the s p 500 sense february 2 since february 2, so i just the market not think it is good for banks . I think that there are a lot of other things playing out and i do not think that the banks will be welcoming, but certainly one part of their business, and attractive part, fun part to talk about as deregulation picks up steam, that would be good. David and on joes point, we are looking at rates going up, and a steepening yield curve, we are told that will benefit the banks, so why arent equities going up . Lueke we have seen in from the surveys, we should see the loan growth picked up, we should see m a bonanza because of tax reform. I do not know why banks have not gotten a better bid on this. Jeanna i think anecdotes are interesting, you see consumer facing banks saying they are not passing along the rate increases to consumers, they are taking the hit, just eating it themselves, so i wonder how much that is playing into this broader story, how much there is not enough demand for this lending higher rates and that is affecting the banks. Alix you bring in a deposit beta situation come at what point will they pass on a rate increase in a good way so that we are paid more on our deposits . We see that in the Wealth Management, but that might wind up hurting their spread. Ke i have to bet a dollar a month on that. Alix i get like . 17. What bank are you in . Luke not telling. Alix both of you, good to see you. One story we are keeping an ion is the South African president facing a noconfidence vote tomorrow by the ruling congress. In an interview, he says he is not defied the government and if you look at the dollar rand, ran d moving higher and potentially we have a change of leadership. The hope that this will be finally good for the government. David you feel like there is negotiation going on between the president and the government and he says he will not leave, then they say we will have a noconfidence vote. Thank you very much. Alix he has had these before, but the difference is they are not behind it. David his party says you have to go. They are pulling for the noconfidence vote. Alix then you have to show the growth. At the end of the day. David and corruption. Alix that does not seem like a big deal. David coming up, we will look at the cpi expectations next. This is bloomberg daybreak. At tberg business flash, seeking a surprise witness for the trial over the government decision to block a deal with time warner. According to the new york times, the phone giant wants someone to testify. At t could be sticking to show that the government decision was politically motivated. And citigroup has won their first deal in saudi arabia since returning their following a 13 year absence. According to people familiar with the matter, citi is talking to an airline about it ipo. And it is a Culture Shift first chipotle, the burrito chain that has lost customers because of foodborne illnesses. The company has named the head of ceo head of talk about the takeover. Brian niccol will be the new ceo. That is your Bloomberg Business flash. Alix thank you. Cpi data will be out this morning and all eyes are on inflation after a market frenzy, and part of the worry is a more hawkish fed. Joining us from boston is Jurrien Timmer, from fidelity, and mike mckee from bloomberg. Set the stage, mike. What are we watching . Mike we will watch of the cpi core index and see if they can repeat what it did last month. I brought a chart of what this is all about. Core, it picked up 1 10 to where it was the month before and everybody went crazy and said inflation. You could see what was happening in 2016, we are way off that mark, today analysts expected to go down for a host of reasons. We are more likely to see a fallback. It is not clear why this is such a big deal. David Something Else must be going on, 1 10 of a point on the cpi cannot be causing so much, maybe the markets are inclined in that direction already. Lasten inflation went mia year and whether it got amazon permanently, where whether it was a series of oneoff situations come i think that is what we will find an answer to and our sense is probably the inflation will come back towards 2 , best Case Scenario for the fed. The cpi itself is noisy as an indicator and i think that the fed uses the core for that reason and the cpi usually runs higher. As mike said, the surprise the market moving part came two weeks ago with the payrolls, with the average Hourly Earnings number and that kind of reset the markets. Now that the markets have been reset, i do not think todays number will be that significant, but inflation is the new payroll so this is like the data point du jour that we will be looking after the next few months the kind of give us a sense of whether the fed is going to execute on its suggested six hikes, or whether it will change that. My guess is they will stay with their six hikes, they won a at a seventh because of the cpi coming in at. 2 instead of. 1. David does that fit is the markets have been wrong . The fed has been clear were they are heading, they are not changing dramatically what they are saying they are going to do, it is just the markets did not believe them so they are particularly sensitive to things like a cpi number . Jurrien i think so. The two problems with the markets, until two weeks ago, was the stock market was not paying attention to the bond market. Last august when this last phase of the rally in the stock market began with the tax cuts went from dead in the water to all of a sudden becoming a done deal, the stock market rallied, the s p went up, the 10 year yield went up 85 basis points as the bond market read priced in the last august the market was expecting one more hike over the next two years, which of course was way too low, now it is pricing in four more, so we have had that adjustment now, but it was the stock market ignoring the bond market really and it is not something the stock market should ever do because Interest Rates and liquidity conditions are an important part of the overall stock market math. Alix looking for it, this is one number, but take a look at the expectations on a quarterly basis, we can bring it up, 1. 45 for the first quarter, then 1. 8 , then 1. 9 , so that jump, is it going to be a huge market moving event . Is the market priced for that kind of jump . Mike not yet, but it is starting to price in. That is what we had over the last couple months, people are expecting htis because this because labor markets are tight and we have stimulus coming. Anticipating inflation will come in over the course of the year, the question is how fast. We had a point where we saw it taken off, that happened in 1994, is a good example, but could it be that it just continues the slow grind higher that we have seen, or does not come at all . It is hard to make a bet right now and that is why you see conflicting signals in the market. You see the forward spreads pricing in inflation, but this chart, 9130, the stock market went down and inflation breaks even, the white line also went down. So people are in the short run thinking, it is not an inflation problem, but maybe over the longer run, as you mentioned. David how much of a problem is theyre going to be an oversupply of treasuries issued, because we are spending money like a drunken sailor . Jurrien fiscal, you know, the budget deficit of 5 or 6 of gdp nine years into an expansion, with an economy at full capacity, that is something that we do not see often and i think that is one of the reasons the dollar is down, for instance, but ultimately i am not that concerned about the supply of treasuries. If we look at the 10 year, it has already doubled in yield from the july 2016 lows, 1. 3 , now at 280, 285. You look at flows into bond funds and eps over the past 12 months, record highs, 350 billion, so demographically there is enough demand for yield, whether it is from u. S. Retirees or pension funds, as the yield go higher and higher come i think there will be a bid for yield, anything that provides a yield. The real issue is valuation in the stock markets, because if yields rise, valuations are high because of the qe era, and that is one of the issues we saw, you know, the increase over the last six months was unwarranted and we gave it back in nine days. Alix so you want to be short or long, tenure at 829 10 year at 829. Jurrien the price is in for better than months ago, so i am comfortable having exposure to the bond market at these levels, maybe not six months ago, but for today, yes. Alix ok. Jurrien timmer is a sticking with us. Mike mckee, thank you. Coming up, the yen climb into a 15 month high. We take a look at the u. S. Inflation read and what it could mean for the yen and why we see a potential safe haven bid. As we go to break my point out what is happening in south africa. David interview given by the president , jacob zuma, to the ap right now saying it is unfair that his party will have a noconfidence vote, asking him to leave. They say they cannot give him reasons to leave, he has been president for nine years and he is under indictment, suspended for accounts of over 300 counts of corruption and fraud. We will follow this, because the rand has been strengthening on a possible noconfidence vote. We will continue to follow that story. Live from new york, this is bloomberg. Has perplexed the market as to what is happening with dollar yen my break and below key support levels off of the lows of the session, nonetheless continuing to grind higher. And we have Jurrien Timmer still with us. What do you do with dollar yen right now . Jurrien first, i think this has less to do with the yen and more to do with the dollar. The dollar is in a downtrend and it has been hints after the election and i think it has since after the election and a think it has more to do with fiscal policy and inflation prospects here, versus other parts of the world where the cycles are a few years behind us. I think that this is a dollar weakness story more than a yen strength story. Alix should you be shorting it . Jurrien i am comfortable being underweight the dollar, or dollar assets. Would i be selling the dollar here . I think it is less compelling than it was a year ago, right after the election. The dollar was, the consensus was overwhelming it would go up, and it has fallen quite a bit, so at this point i think it is still, i think the outlook is still down but not as compelling as it was in the past. But david explain that outlook being down, because whether people are for or against tax cuts there was a general consensus there would be an inflow of funds, because of lower income tax rates, causing more investment, so shouldnt that be supporting the dollar . Jurrien it is not clear. The cash that is trapped outside the u. S. And is getting repatriated, it is not clear to me whether it is in dollars or other currencies, so im not sure it would change the dynamic for the Currency Exchange rate, so that is, that is one thing that i think is quite unclear at this point. Has a veryhing powerful trending function it tends to be currencies. And they tend to run for a while. I think the trend is down, Global Growth is a strong and it synchronized and that kind of gets facilitated by a weaker dollar as well. Maybe docompanies will more here rather than overseas at the margin, that could boost the dollar, but generally i think it is the fiscal story, the inflation story, that is happening here before somewhere else. David what about investment here . Ins say they will invest more equipment and people in the United States if they have a lower tax rate, is that not large enough to stem the dollar decline . Jurrien that is why i think the outlook is not as bearish as it was a year ago for the dollar, so i do not think it will be a onesided trade, but when we talk to companies, they won all follow that playbook. Some will keep buying back shares or raising dividends or buying other companies, some companies are passing along the tax windfalls to their employees and others are actually investing it in new capacity. Because thed, economy is at full capacity and for the economy to be what a run at a stronger rate without generating inflation you need to boost productivity, which of course you get through cap x. So that is a good story, but ultimately capex. So that is a good story, but ultimately i think the dollar will stay on the weaker side. David ok. You will stay with us. Command, a take on how reason volatility is affecting the trading business. Thatll be coming up next. Live from new york, this is bloomberg. Alix this is bloomberg daybreak. Until 8 30 a. M. , we have a risk on the rally and we are up triple digits for dow futures. European stocks coming in higher. Stronger growth in germany because of net exports, helping the dax move higher. The one currency pair that is puzzling, dollaryen come off of the lows of the session but still down for tenths of a percent, at one point hitting its lowest level in 15 months. There are the g10 currencies that are rallying against the dollar, just not the yen and it is a puzzling circumstance. In the u. S. , yields go nowhere and we are waiting for the 8 30 a. M. Number, the spread is lower and i have 10 basis points, coming in at 72 basis points, crude oil continuing to roll over. Now update on what is making headlines outside of the business world. The ruling African Congress will take the next step to pushing jacob zuma out of office. Parliament will vote tomorrow on a noconfidence motion. Jacob zuma has ignored calls for him to quit. His nine years in power has been marred with allegations of corruption. He says the decision is unfair. And in israel, Benjamin Netanyahu has denied he is guilty of any wrongdoing and insist he is a victim of a witchhunt. Police recommended he be indicted for bribery, fraud and breach of trust. They say he traded his influence for flavors favors. It is up to the attorney general to decide whether to charge him. The administration looking at the free trade agreement, the trade representative down play the chances that the u. S. Would with a assess the talks are going well, especially with mexico, but light heiser has been critical of canadas stance. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Am kailey leinz. This is bloomberg. David we are hearing from the banks about how they are doing in the wake of the volatility crashing back. I spoke with the Goldman Sachs ceo yesterday and asked whether his bank had plans for contingency and how the trading business is doing now that volatility is back. Lloyd please do not stay the same. The price of oil will stay 60 forever, i do not think so. We will have growth in the United States and Interest Rates under 2 , i do not think so. The equity market will keep going up forever on a measured way and never retreat more than, more than 5 in a year, i do not think so. We are not that lucky, im not that lucky and you are alive the same time as me, so no way it will be that way for us in our lifetime, so things are going to happen. Therell be something that happens in the world, somebody will get elected, there will be a natural disaster, a company will go under, there will be war, pestilence, something will happen that will cause all the relationships of one asset to another to have to readjust against each other. It has been an unusual time where that has not happened. Now, people are not sure the reason why, my own best guess is when they write dissertations down the road, they look back and they will say at a point in time because of qe and a Central Banks around the world buying risky assets, as much as they could get, as fast as they were issued, they purchased them, that is a blanket over spikes and asset prices into probably kept things low. As the market and people anticipate that coming off, we will see more volatility. David so this is your job the contingency that you are planning for, the possibility of, is it fair to infer goldman is doing pretty well right now, with commodities, fixed income, given what is happening with volatility, because we have heard the problem of trading was the lack of volatility. Lloyd this is a much better sellonment, look we insurance to people and we take risk away from each other. If there had not been a hurricane on the east coast for buyingpeople stopped insurance and those that buy insurance do not want to pay a lot. If you have four hurricanes, like the year of katrina, the next year everybody is buying insurance and they pay whatever it you ask them to pay. Anything can happen anytime, but their sentiment has changed and anxiety has changed and it is a much better environment for our client franchise and the answer is there is a better environment on any given day and we could be positioned wrong, we have to position inventory based on our best guess on what our clients will want the next week or month because we deal with liquidity. It may not work right every day, but the environment is good. It gives us chances and it makes is valuable to our clients. David that was Lloyd Blankfein on how the toil the turmoil in the markets is helping Goldman Sachs. We also heard from another ceo that things are looking up this year because of volatility helping a trading business. It means that people, people see this as a negative, but it creates opportunity. If you are on the right trade. The people that we work for, you would have seen it as a key part of the strategy, and their purses a patient and their participation went up this year, so it is really working. They are sophisticated investors and understand markets, and we see qe as an opportunity for trade. We are trading more, increasing our trading revenues. Hasif you take which more than doubled its profit this year, 16 billion, two thirds of that comes from Wealth Management and we are trying so that connection is very strong. Volatility, people say they do not want to transact at the moment, they are holding back. It is hurting the primary market. So we see a lot of that in the secondary markets, but the primary market issuers are reluctant to issue with liquidity is high. So i think things are settling down now and we should face a better we do not believe we have seen a major disruption. The correction was unavoidable, everybody expected it. And theat the spreads, market has held up well. But you have not seen a contagion, which means the fundamental economy, the fundamentals are healthy, you see growth in the u. S. , unemployment at historic lows, growth in europe is coming back, growth and the emerging markets is very strong. Earnings are going up. And from the tax reform in the u. S. , we do not see a downside scenario in the economy. Do you expect it to go to the credit market . Within credit markets will hold because the economy is so strong, the underlying economy is so strong. It affects thet, mortgage market, etc. , we do not see indications of negative going back to the turn on capital. The target ranges between 10 15 , so the volatility, does it make you closer or more confident it is helping our revenue ise, but also tax reform basically adding 100 basis points to our equity and that is a big boost. So, it is really the two stories of operating leverage, closing earnings and 2016, 1. 9 in 2017. 1. 4 in 2018. After that, you can see it coming through. Alix is the volatility going to last . Take a look at the chart in the bloomberg, taking a look at one month implied volatility for the s p, for the nasdaq 100 and russell 1000. You can see the implied volatility coming down in the top panel and the bottom panel is the spread, purple line is the s p versus the q, and the red line is the s p versus the russell, that volatility is also starting to normalize. We have Jurrien Timmer, what is your take . Will it continue or stabilize . Jurrien i think it is important for everyone to remember that volatility is what you sign up for in the stock market, the Value Proposition of investing is that you get better returns than from the riskfree asset, but you have to enter volatility, and for the last few years the s p was up 52 against the record low vol, the analyzed vol was 3. 9 in 2017, which was low, and you get the inevitable shakeout. Those are actually good because they prevent even bigger excesses from building up. There should be vol, that is part of what people sign up for when they buy stocks. And it has been a very strong game against gain against a very low vol, and that is not sustainable. I think volatility is going to be higher, but it should become a that is part of the deal. Alix you have to rethink a portfolio based on a vix of 25, against a vix of 10, and had to do that . Jurrien the vix is like credit spreads, they are normally low, maybe not as low as 10, maybe like 15. Then they spike during corrections, so we just saw the spike go to 50 and we have seen that many times in the past. So some volatility is good. Too much is not. 12 my sense is after this correction over the last two weeks, that things will normalize and you know, for this year, with the fed at three hikes and the Market Pricing in all of those, i think generally speaking things are still going to be fairly quiet. Maybe next year, as the fed gets forced into that decisionmaking of how many times do they keep going and which time will be a bridge too far, i think that will more likely be a volatility event than we will have in the near future. Alix we will look back at what it means for banks. You can help trading, but what does it mean for Investment Banking in terms of m a . If you are a company, valuations are coming down, but you a volatility to contend with, so what is your prediction . Jurrien they have been down, but down to where they were last august. Valuations are still high and i do think that ultimately that is the issue. Mr. Blankfein was talking about this as well, about the qe blanket hanging over the markets. Now when you are discounted future earnings, that discount rate, which is the sum of the 10 year treasury, is very low, 4. 8 . If it was at 6 or 7 , the market would be trading four points lower than where we are today and so that i think is really, that is really the question. ,n terms of financials and m a financials are still attractive in this kind of market with the tax cuts, with stronger growth and rising yields, those are pluses for financials, but what it does to m a really depends on what happens to organic growth. That seems to be very strong right now with the earnings estimates rising up 20 yearoveryear for 2018. Alix ok, thank you so much for joining us. David and coming up, a big change at the top of blackstone. We look into the changes made and who will succeed steve schwarzman. And as you commute today, you can tune into our colleagues, tom keene and jonathan ferro, from 7 00 to 9 00. And pimm fox joins from 9 00 to 10 00. Bloomberg surveillance can be heard across the United States on sirius xm radio. This is bloomberg. This is bloomberg daybreak. Coming up in the next hour commended ben sheets next hour, nathan sheets. Not to Bloomberg Business flash. In japan, toshiba has brought in an outsider as ceo in the wake of losses and a downsizing. The new chief executive is the director of cvc capital partners. Toshiba is in the process of selling their memory unit after billions of dollars of losses in their Nuclear Energy operations. They are forecasting that sales at the brick and Mortar Stores will return to growth next year, the retailer trying to attract shoppers back to the mall and grab a share of ecommerce. M saysnd m says h that all my sales and should rise 20 . And investing in an ipo. Russian banks and a joint russian chinese fund are eager to take part. Saudi arabia plans to sell 5 of aramco in what could be a record public offering. That is your Bloomberg Business flash. David we will turn out to wall street beat, where we cover three things that wall street is buzzing about. Blackstone, they set up a succession plan, naming Jonathan Gray as the president and coo, big announcement for wall street. And we learned more about bridgwater positioning as it goes along and it could be shorting the european stocks to the hedge as well. Third, it was a blow or claims somebody artificially triggered a record spike in the volatility index, and says it is nonsense. Alix jason kelly is joining us, executive editor for Global Television at bloomberg, and i was interested in the blackstone announcement. John gray, president and coo, what will they look like under him . We will see. Blackstone becomes graystone. Alix you had been working on that. [laughter] took a long time to say that. David well played. Isthis is a headline that not unexpected and it really many ways thef in succession planning for the big private equity firms. For blackstone specifically, probably the biggest piece of this is that this is not a private equity guy, it is a real estate guy. He hasay, the only job had is at blackstone and he came in the early 90s, straight out of penn, he comes and essentially builds a giant real estate empire, and along the way does some of the most influential real estate deals ever done, whether it was Equity Office properties at the tail end of the boom in 2007, or hilton, which will go down as one of the biggest real estate deals. David they are still making money off of that. Right. David you know these people, i know only a little bit, this may have been the least disruptive move they could do, soon or later they had a name succession, so isnt this the most sensible . It does feel the most sensible to people in the firm and across the industry. They telegraphed this pretty closely and they talked about the deep hedge, and to be clear, short man is not going anywhere and tony james is not going anywhere, he will remain an executive vice chairman. Tony has been involved in the Infrastructure Projects and funds that blackstone has been talking about. Schwartzman not going anywhere, he is taking on the role of global statesman and philanthropist. But john will be running the firm and it is a big move. David without a doubt. Bridgwater, we talked about this yesterday because they went short. Now today we hear that they are going long. Not a huge surprise, because last summer they said they wanted to go to 5 or 10 goal. I think i lost it a little bit. Interesting to read it and be reminded, especially when he feathered in the comments for the past couple days, where he was talking about the likelihood of a recession. It is fascinating to get a peek inside peoples books. Alix that would be talking your book. [laughter] john paulson going have a long gold, maybe those long positions, maybe a lot of it is hedging. That is why investors were expecting he eventually did on gold. David that fits into reporting from our colleague overnight and were speculating, but on the shorts yesterday in the european equities, she says it is possible they have gone long, the index over all in europe, and they are taking the stocks out by shorting those. You have to look at these positions, there is often something on the other side that maybe we do not see. You have to love the fact that now we are into this market and it is a theme we have been talking about over the past couple weeks, that hedge funds are actually hedging. Alix they are doing their job. [laughter] that is cool. Alix remember that . Investors are paying them a lot of money to make these choices based on things that could go up or down, hedging. Alix the whole point of being in a hedge fund is that when there are losses you lose less. What do you do with the vix . Now there is so much conversation about potential rigging of the vix. There is a whistleblower, apparently, and the worry is that there is a spoofing on the vix. This was a story that yesterday really caught the imagination of wall street and i was thinking this morning why that could be. Story last week and volatility was the story last week, so people were looking for a reason. I think there is also, if i could be meta about this, there is a sense of, is everything being manipulated . We go back to the scandal that really rocked london and wall street over the past three years, so there is innate skepticism. David it is a conspiracy theory, billions and trillions at stake, but we should say they immediately came out and said it was wrong. Ere was an academic study that said it was possible and they said it was wrong too. Alix is there a distinction between manipulation, trading using instant messaging to find out what they will be positioned as, versus there are some a derivative products out there, you earned it. It also speaks to the really incredible complexity that is baked into all of wall street right now, but certainly within the vix. One of the things all of us have been learning, except for those who are deep into it, into the vix and the derivative products, is just how ripe for arbitrage in a positive way, but potentially manipulation. David one humongous investigation will be lining a lot of pockets. We will find out if it is true. Alix after the elections last year david thank you. Thank you, for joining us jason. If you have ever wondered what makes jeff bezos stand out from a crowd from a new report shows the company has put emphasis where it counts, in washington. More of what i am watching, next. Alix is he hiring more . David i am sure. Alix check out tv , interact with us directly. Pick up on your terminal. David ok, this is what i am watching. Quietlyly love, they went from chihuahua to great dane in a few years. This is talking about amazon and lobbying done in washington. Amazing story. We have talked about tech having regulation coming their way, jeff bezos is in front of the pack and the have increased lobbying spending by 400 . It is huge. We have a graphic to show. Orange is amazon and how they have gone up. They are really stepping up. They are looking for a second headquarters, and they have whittled it down and three of the top 10 are in washington. One in northern virginia, one in washington proper and one in southern maryland, so just so jeff bezos is sizing of the government. Alix i wonder what we can take away from the other industries that have been through this, big oil, huge lobbying power, got their way for a long time and there was an enormous backlash from people and environmentalists, how does that translate into tech as we transition into the leadership . David and financials, hedge funds. They did all right on that. Alix 400 . David they have spent a lot of money. They can afford it. Alix nathan sheets coming up, the former treasury under the secretary for International Affairs joining us and his breakdown of the cpi, next. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Alix cbi conundrum, markets coiled like a spring waiting for the latest read in the u. S. , what kind of numbers does the market want to see and how do you trade it . The yen curbs, continuing to march higher, japanese gdp, mulvaney is in the hot seat and the director will face lawmakers about the president s budget. We hear about the committee at the center of that hearing. David welcome, im david westin alongside alix steel. I love that word, conundrum. Alix thank you. Sometimes i get a good word in there. Happy valentines day. S p futures up nine points, steady as she goes, a nice rally. Dollaryen continuing to grind lower. At one point, 15 month low, question is, is that a ripoff trade or is there Something Else happening in the underlying fx market . Yield going nowhere in the u. S. One basis point, crude still getting hurt. 8 10 of 1 down. David time now for the morning brief. Cpi readingipated on inflation, also at 830 a. M. , retail sales figures for january and at 11 30 a. M. This morning, President Trump meets with lawmakers on both sides of the aisle to talk about infrastructure. Alix kelly is here with the first word news. Reporter in south africa, the Ruling African National congress will take the next step enforcing zuma out of office. A noconfidence motion calls for him to quit. His time in office has been market with allegations of corruption. Republican senator bob corker is reconsidering his decision to retire. Listeningn said he is closely to people in his home state who want him to run for reelection in november. Is a strong critic of President Trump who called him a coward for not seeking a third term. And london, foreign secretary boris johnson, the roadmap to brexit. For euh was billed, members to support britains new role. Threat, not an economic but a considerable opportunity. Not under british but a manifestation of this countrys Historic National genius. Reporter global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Thanks so much. Less than 30 minutes away from the cpi data in the u. S. Joining us, nathan sheets. We want to touch on the cpi number. You can see what the estimate is in the bloomberg, yearoveryear, cpi, 2. 1 last month, looking for a decline to 1. 9 . Does the Market Reaction matter more . Nathan i think it does matter. They will be looking at the monthly move and the core cpi. The expectation is somewhere around. 2 . Will got that markets without a big reaction. More than that, we could see a move in treasury markets, maybe a broader move, throughout the Financial Market complex, as people would be concerned that that would mean the economy is moving to a hotter place. That the fed it may react were vigorously, than is currently anticipated. David as you look at the economy will, what because that number to go up . It is too early for tax cuts so what might drive inflation . Nathan there are fundamental things like, we are seeing a gradual increase in. Wage inflation not quite as much a couple weeksd, ago but underneath the economy is firming up. The reduction in slack, stronger growth could manifest itself in higher inflation. Beos iswildcard, the introducing methodological changes to the way it handles used cars and cell phones. There could be noise in the index. Something that analysts and traders will be sorting through this morning. Alix the question has become for the market, when you look at the rise in yields and the shakeout in equities, what does that do to inflation or Something Else . I want to point out the disruption in inflation. Yearlue line is the 10 break even, the white line is the 10 year premium, how much to investors demand for longterm duration, that has been moving higher, as bonds break off, selling lower. What is your interpretation . Nathan some of both. On the one hand we continue to see evidence of a strong u. S. Economy, Global Economy. Leaving its signature in asset prices, in addition when you look at the chart, it started moving up late last year when the tax cuts were approved. Following this latest budget deal. There is some evidence looking at markets, people are worried about the outlook for u. S. Fiscal policy and there is an additional risk premium built in. David it looks like we will have bigger supply down the pike with treasury notes. The fed at the same time is reducing the balance sheet. That could put pressure on yields. Nathan something that analysts that i work with, were quite concerned about, the outlook for supply. Is therel, our sense is adequate demand for safe assets and treasuries. But the moving supply, as a result of fiscal policy, as a result of Federal Reserve reducing the size of the balance very significant development, we will have to see how the markets absorbed it. Good point, something confusing last week, the rise in yields, you did not see the buying come in. The rhetoric had been at some point you will see buyers come in. I wonder if this is part of the explanation. This is chinas holding of u. S. Debt. This is from november, falling to the lowest level since 2000, is that in part responsible . Nathan as a general matter, chinas holdings in treasuries have been on a downward trend over the last couple years, as the reserves fell sharply and later in recent months, for the last year, has stabilized. I think it is more a private sector phenomenon. I think it reflects shifting expectations for how the economy will perform an potentially associated with u. S. Fiscal policy and increased supply. David maybe this comes under that category but there was a bloomberg story a couple days ago, part of the problem is the cost of hedging and that may be discouraging foreign buyers, because of fx volatility and risk for the dollar. How much of it is that risk . Nathan it is hard to decompose. Expectingvestors are a depreciation of the dollar or have to pay significantly to hedge that out. That does weigh against flows. Price,ably moved the where foreign and private investors are coming in, maybe from a 250 10 year treasury yield to higher. Alix the number that disrupts the equity market . In one word . Nathan 3 is looking like a threshold. Alix great to have you. Advances. Yen what it could mean. This is bloomberg. Alix this is bloomberg daybreak. This is the Bloomberg Business flash. At t is seeking a surprise witness over the block of time warner. The phone giant wants to have Justice Department testify. Seeking to show the governments decision was politically motivated. Citigroup has won the first deal in saudi arabia since returning their following a 13 year absence. According to people familiar with the matter, the airline is partly owned by billionaire prince, kingdom holding. In japan, toshiba has brought in an outsider for ceo. Executive is director of cbc capital partners. Toshiba is in the process of selling the memory chip unit after billions of losses. That is your Bloomberg Business flash. Alix thanks so much. The move in the fx market, the dollaryen. Why . Joining us now, richard jones, fx strategist for bloomberg news. It has been a big move. If we get a strong cbi print today we could see a reversal in the dollar could strengthen. We are taken out important Technical Levels on the downside in dollaryen. Bullish,people are all yen, bearish dollar. If that sees a selloff, the market has turned bullish, from here, it will be difficult to reverse that trend. Alix you bring up a good question, safe haven. Arehe strength in the yen, we back to an account surplus thesis or is it buying back hedges . Reporter there is an element in both of those. I hear people talking a lot more about current account surpluses. For the yen to go higher and the euro higher against the dollar. We dont focus that much recently on it but it seems to be emerging as a theme for investors through last year and more into this year. Alix richard jones, thank you so much from berlin. David still with us, nathan sheets, pgim chief economist. Lets talk about japan. How much of this is fundamentals, how much is positioning in the marketplace . They are growing. They hadnt been for a while. They didnt grow as much as they hoped. What is the state of the economy right now . Nathan the japanese economy is performing as well as it has, at any point over the last several decades. Sustainednjoying a domestic demand led expansion. The Fourth Quarter data was softer but even that, we see private consumption, beating market expectations. Monetary policy is providing a lot of a tailwind to the economy. And the Global Economy is helping as well. Looking good. This strong yen persists or increases, how much of a headwind would be to that sort of growth . Nathan this is one of the fundamental debates about the yen versus the dollar, imparting restraint to the japanese economy. Senses, probably something stronger than 1. 05. 100, depreciates through that is probably starting to weigh against the recovery. I dont think we are there yet. Alix if you look at this chart, the white line is the dollaryen, the blue is the japanese survey. It is looking at, what level of the yen expected by japanese businesses and it is different than where we are now. More . S a rally mattering nathan the japanese finance articulates that you that view. They talk about these vicious moves of the yen. It is more about where the yen is then how quickly it moves there. Over the last several years we have seen the yen bounce from 100 to 120 and the japanese economy over that time has performed fairly well. It is a safe haven currency, a currency that appreciates during times of stress. That suggests, relatively volatile currency. Alix we have seen this before. David reassuring. Nathan sheets, pgim chief economist will be staying with us. Debateup, the budget continues in washington, we hear from steve womack of arkansas. Coming up next, this is bloomberg. Omb director Mick Mulvaney is spending time on capitol hill selling the budget to congress. Center,at the representative steve womack of arkansas, the chairman of the house Budget Committee. We welcome entered thank you for coming. Rep. Womack it is a great honor. David explain what is going on here. We talked to mark short at the white house yesterday, he said, the budget the white house came out with is not as influential because you passed the budget deal last week and you know how much money your spending. What is left to be decided . Rep. Womack great question. Lets begin with the fact, we kick off budget season, as we call it, with the disclosure of the president s budget. The president proposes a budget every year, been going on forever. The congress looks at the president s priorities and does its own thing. The house realistically is supposed to do a budget, the senate is supposed to do a budget, then the 2 budgets which will be different, can get together and we will try to come up with a concurrent resolution where we can resolve all the differences between what the senate thinks we ought to do and the house. Powers of the constitution gives the authority to congress, not the president. It is important to hear his priorities but that is essentially what this document does. Dear question about the budget deal last week, to set that up we to set that a part, agreed on the top line numbers, the 302 a numbers, which establishes Discretionary Spending for the remainder of this year and all of 2019. That is out of the way, as it were, unless and until the congress decides to do Something Different. Which is probably not in the cards. What my job is as a house budget chairman is to lead my committee through developing a budget take into that will consideration the president ial priorities but at the same time, give congress its ability to take a bite at that apple and determine what we think ought to happen to put america on a different glide path from a fiscal perspective. That deals with Discretionary Spending, which the caps we set last week, also the potential for changing the 70 of the budget we call mandatory, where we find our social safety net programs. We have a tool in the budget process called reconciliation that we have used in the past and we can use once every budget resolution to change mandatory programs. That is how this process unfolds. It is now congresstime to act. David very helpful, thank you. Take us into that process. Youre just having the hearings now, nothing is set in stone. You know this, anticipate where we are going. Will you actually take a look at some socalled entitlements . We have heard talk of social security. What is on the table . Rep. Womack i will not try and prescribed an outcome for my committee. And democrats on my committee, out of decker, we have to come up with what we believe our ideas. You can hear chatter from the other end of the capital, the senate, they say they may or may not do a budget this year because we have set the top line numbers on discretionary and they wont change anything on mandatory side. If you look at the fiscal lighted path of this country, it is not sustainable. If there was one thing about the president s budget, i would disagree with, it never balances. It allows for deficits to continue year over year, in perpetuity. We are 20 trillion in debt today. The debt markets will have an opportunity to weigh in on the fiscal direction of this country, Interest Rates will have a major vote in what happens here in washington, because every time you increase deficit, which increases debt and net interest payments, it crowds out other spending for other things the American Public would like to have. We have to have an opportunity to look at these, from top to bottom, then come up with what we believe are solutions that can be politically doable, house and senate that the president will sign and that is what the Budget Committee process will do. David there are a fair number of people in the Business Community and wall street who will be reassured with your concern for the bond market. There is a lot of talk about that with deficit spending. You are not going to be able to get to a balanced budget without dealing with the mandatory spending. You cant speak for your committee but for you, you believe on the table, should be some entitlement reform . Rep. Womack i do believe that, david. It is fundamental and here is why 70 of what we spend in your tax dollars, goes out on autopilot, automatic. It takes a change in law to influence any changes in that 70 . By the way, that number continues to grow because these entitlement programs continue to grow unchecked. We put 11,000 people today on medicare. We will do this for another 15 to 18 years. Another 30 million plus people will go on. We have to create a program that is sustainable plus, be careful not to jerk the rug out from underneath people who are currently receiving benefits or nearing retirement and have planned their lives around them. This is a great challenge for congress. You cannot do this on discretionary alone. It is not mathematically possible. David very helpful. Thank you very much, representative steve womack of arkansas and the chairman of the house Budget Committee having hearings today with Mick Mulvaney. Chiefnathan sheets, pgim economist, cut through the noise. Nathan everyone hates debt. That are other priorities congress has emphasized over fiscal austerity and discipline. Representative is right. Is there actually political will, are their votes to address it . If we do not do it now, it will only get harder later. Without entitlement reform, the debt picture ends up looking grim. Baseline forded it goingdeposition has out by 2050 to 150 before tax cuts and the latest budget deals. Everyone agrees with rhetoric but we need to see policies. Alix fair point. Nathan sheets sticking with us. Moments away from the latest cpi data. Lets look at where we stand moments before that. Futures higher, take a look at the bond market. Steady as she goes, no moves. A tiny bit of buying on the margin but very cold as we are looking forward to the cpi release. The best quote of the morning, breaking it down for you, this is bloomberg. Alix this is bloomberg daybreak, im alix steel, we are 30 minutes away from cpi data. A rally in europe, solid numbers out of germany. Other aspect classes, dollaryen is on the radar continuing lower off 6 10 of 1 . Marketease, treasury neutral as we wait for the number. Lower by one basis point, the spread flatter. The numbers are out. Take a look, year on year cpi better than estimated. Over 2 , 2. 1 . Core, back out energy, year on year coming in stronger. 1. 8 , expecting sequential decline, that didnt happen. Month on month, looking large. Points, better inflation read across the board. Retail sales, potentially different story. Back out auto and gas for january, coming in down 2 10 of 1 . Real average, Weekly Earnings coming in, 4 10 of 1 , down sequentially but still, coming in solid. Hourly earnings as well, a tenths of 1 . Lets look at what is happening in the bond market, selling across the board. Strongest selling in the belly of the curve, to year yield jumping by three basis points, 10year jumping three basis points. Margin, a, on the little selling, that is not the big mover. Look at what is happening. 2. 8 6 on the 10 year, the market, taking as an inflationary side. David look at futures. Points, s p down 17 points over equities, not liking these numbers. Alix we are waiting for inflation. Then you get the read, equity market does not like it. Lets look at what is happening with the dollar. Indexdig in at the dollar shooting higher, dollaryen under pressure all morning. Off the lows, weaker on the margin. Roundtable, Michael Mckee and nathan sheets of pgim fixed income still with us. Mike mckee, you have had a minute to look through the numbers. What are Details Behind the higher inflation . Reporter a big rise in apparel prices. Chart,want to go to my this shows you that what happened in november, prices sell significantly and bounce back. Part is seasonal adjustment, up 1. 7 on the month. Big change. 1. 8 rise in transportation cost. Used carcrease in prices, new car priced flat. It seems to be a rising Car Insurance rates, maybe the first of the year, that is the first thing that stands out. The other thing, any other special category, sometimes as to this price, they were up as much as previous months. No real change. A couple categories influenced what we saw. Apparel and transportation are in the core. That pushes that higher. The thing it tells you, inflation maybe is getting a foothold because it is broad across the various categories. Alix michael arrington, you do this for a living, what is your take . Michael this was supposed to be the month that had difficult confidence a year ago. January 2017 was the largest jump we had that year. I thought we would see everything start to accelerate on core inflation next month, the next six months, the average of 1. 1 . Gosh. 349, the three decimal places, core inflation. Think on this. As much above expectations as this one, it was close to. 4. What do you think that would have done . Year, 1. 84 six, that was supposed to go down to 1. 7, we almost went up to 1. 9. The optics will be bad on inflation. I didnt think they would be bad until next month. Alix the data conversation a couple weeks ago, was this sustainable . Is there anything you have seen that could be a oneoff to the upside . Michael not so far. Looking through it, one of the things people want to talk about this month was the used cars and been, athat was, has big story Going Forward, the bls is behind private surveys. People thought revisions would cause used cars and trucks to be a drag. Month on month they were positive again. Year on year accelerated. Rents were up. Medical care accelerated. I dont see anything here that looks like a crazy one off that we would expect to see reversed anytime soon. David what is going on with cars and trucks . We were told we would have suppression of prices now. Leases, coming out with the used car market would go down, it hasnt played out. Why . Michael that comes down to hurricane harvey. We had an overhang of used cars, hurricane taking half the cars off the road, we are seeing a reaction that looks similar to a lesser extent, the cars the cash for Clunkers Program in 2010. It took one million cars off the road. Youre seeing, the cash for clunkers, one of the reasons we had this overhang of used cars. The new cars are used cars now. Harvey managed to take that off the road. Private surveys think that we should be seen used car prices going up and the bls data has been lagging where it should be. David nathan, anything in this that causes you to rethink the trend you see in inflation . Up my i wouldnt mark expectations for the path of inflation over the next year, the single print. It gives me increased confidence that we are in a place where inflation is likely to be gradually rising. More or less, in line with the Federal Reserves forecast. Consistent with an economy with diminished slack, strengthening labor markets, solid growth. Some of the laws of normal economic nature, seem to be reasserting themselves. Alix mike . Was as muchl sales a surprise to the downside as cpi to the upside. 3 10 of 1 s go down on a headline basis for the month, a control group is flat on the month, a revised 2 10 percent decline last month, going to this chart, you can see what happened. Average basis, a big increase from june in retail sales that was reversed over this past month. People stopped spending. Consumerecent days, credit card spending going up, Savings Rates going down, the surprise indexes in terms of Economic Data have been rolling over. If the consumer is pulling back the same time where getting more inflation, that is not a good recipe. Let me throw out one data point, for each of these items this month. Something to keep an eye on. Alix with yields also. The u. S. 10 year yield, 2. 88 , up five basis points as selling takes control. The curve is confused, the 2 10 confused, flatter, now steeper. What is an appropriate market response . Nathan we were surprised on the upside by inflation, by recalibration of longterm treasury yields, seeming appropriate. Five basis point move we have seen so far, doesnt particularly surprise me. 2. 9 start moving to the handles, that will be bigger. Im not sure it is justified on this one data point. David as we look at where we are likely to head next, to what extent do we need to take into account Consumer Spending or suppression of Consumer Spending because of falling savings rate, increase credit cards . Is that a factor of inflation Going Forward . Sure whichwasnt mike you were talking about. Alix Michael Aston. David you are the expert. Michael sorry. Said,k what has been lets not over emphasized onemonth, january number, back and be all over the place, it is high, consistent with the underlying trend, those underlying Consumer Trends are a potential damper. On the other hand, potential supply Side Development such as, increasing protectionism coming out of the administration. Look. Accelerating core inflation around the globe, this is not just a u. S. Phenomenon. What we know about inflation is, you dont have to have great Consumer Spending, great economy to have inflation. Look at 1970s in the u. S. As a great example. Go into a hardcore super recession again, sure, all bets are off. Momentum the pricing is established. Alix Michael Mckee, what will have more influence on the market . This inflation read or vice chair . Guest the story overnight that loretta is a leading candidate for the fed, you could not pick a more hawkish member of the open Market Committee to be vice chair. In the long run she would have more influence than cpi. If Inflation Numbers are going to keep rising at a faster pace, you will have someone pushing powell very hard to lead against that. Alix great stuff. Happy to break this all down. Nathan sheets, pgim fixed income and Michael Aston and Michael Mckee, the headline, core cpi, 1. 8 , that are than estimated. Take a look at month on month jumps. 2 . All cpi was over a big upside print. Here is what the Market Reaction is. Sell bonds, equities, curve slightly steeper, dollar stronger. We will break more into this. Intou can you today, tune tom keene and jonathan ferro. They join the conversation at 9 00. Bloomberg surveillance can be heard in new york, boston, and washington, this is bloomberg. This is bloomberg daybreak here in the hewlettpackard enterprise greenroom. Coming up the cio. Market,action in the the upside sell bond, the dollar. Global us, eric stein, Income Portfolio manager, are you selling . Guest i am on with you so not right now. In the global macro strategy we take a longterm approach of the long and short around the world. We look at reports like this one but we are not daytraders. Alix the trend, sustained . Slightly higher inflation environment, this was hyped up, what your previous guest, nathan sheets said is true. We are in for a slightly higher period of inflation. Time,reakevens for some short duration Strategic Income for higher Interest Rates, we are in for an environment of more volatility in markets but also higher rates and inflation. David the dollar is rallying on this info, what does it do to your view on the dollar Going Forward . Have a long and short approach in our global strategy. When the dollar is weakening like it has been for most of 2017 and early 2018 and the past couple weeks, you have to question, why are you long on dollars at all, short on for foreign currencies . Ant being said, if we are in environment of higher u. S. Fiscal deficit and stronger growth abroad, ultimately we might go back to a weak dollar trend. Right now there will be choppiness as the markets focus on inflation print. Alix advice for dollaryen traders today . Guest the yen has been stronger the past couple days. It was overnight, didnt move much after the report. We dont have much of a position in the yen. Global macro strategy, we have been playing that through japanese inflation, bonds, equities, shorting the 30 year, not much eva position on the end right now. Alix you can see weaker dollar, higher yields, sustained . Guest we could be in an environment of that, if we have better growth abroad, the fed hiking but not that aggressively. We could return to that trend. Hyper focusedms on this inflation print, it makes sense we have a stronger dollar and higher yields close to higher than expected inflation. David as you look to invest in fixed income around the world, do you hedge risk or play . Guest one of the key tenets to the global macro strategy is thinking about risk factors. Currencies, sovereign credit spreads, local Interest Rates. We try to take currency risk but if there is a market we like the duration, the local yields on a Government Bond market, dont like the currency, we will hedge the risk. It buries market by market. Alix lets talk about it varies market by market. Alix 53 basis points platter on the release but the 2 10 flatter, a tiny bit flatter. What is your call for spreads . Guest the curve will get steeper as growth and inflation pick up, will the fed respond . Yes but as much as they focus on a 2 target, they should think more in a range. His inflation picking up . Yes. Are they going to react to every print . No. Equaling higher spreads and a steeper curve. Alix at what point does a higher yield in the u. S. Draw more investors . Richard burr as low says if the richard here at bloomberg ,ays exploding deficits diversification, yield levels are a gift to begin portfolio normalization. How come all i hear is speculators getting short the 10 year . What do you think about that . Guest that could cap treasury yields. In a weak dollar environment, building in Central Banks, reserve managers, u. S. Treasury yield is higher than japanese bond yields and german bund yields. People get excited, yields go higher but they will not go so higher because the economy cannot sustain that but also because at some point there are lots of forced buyers of treasuries and reserved managers are one of them. Alix eric stein, good for your perspective, thanks very much. S p futures dropping like a stone after the cpi data. More on what im watching next. Usck out tv , watch online, click on charts and graphics, interact with us directly. Check it out. This is bloomberg. Moments ago,a out rising half a percent higher, court rising 3 10 of 1 . There is Market Reaction. As of the futures dropping, the trade of the morning, the dollar. Stuart walter jones is on the phone. What do you do on this type of day . I think one of the interesting things about this move, the 1 decline in s p futures, it comes after three consecutive days of gains. The reading is negative from the asset rebounds perspective, the idea that bond yields higher, equities lower as a result. Interesting, the markets are forgetting the fact, higher cpi means higher profit. Faster, is expanding average Hourly Earnings implies march in expansion. A day like this, we will be watching the futures around the open, throughout the day but it seems at least off the bat, hopefully the move will be contained. The selling have been done last week. Still onasis, we are our call on the shortterm basis, spot neutral, vol lower. And we will see with the vix print this morning. Alix higher inflation brings higher yields, jumping basis points. We talked to nathan sheets of the level on the tenure disrupting equity markets. Nathan we are in a world where Foreign Investors are expecting a depreciation of the dollar or having to pay significantly to hedge that out. That does weigh against flows. Alix the number that disrupts the equity market . One number . Nathan 3 , looking like a threshold. Alix 3 doesnt look crazy. Your call . Guest given that we are 10 basis points away, we will need a higher number than that. 3. 25 is right between the midpoint of where a number of analysts on the street have moved forecasts, somewhere between 2 and 3. 5 . The pace at which that happens is more important. Earlier on your show, you mentioned the positioning in futures and treasuries, the lack of demand at recent auctions. E isuld argue, that pac the key factor and people will be watching that this week. What weve seen is, the dollar has also traded, an inverse correlation with the s p as well. Look for a stronger dollar, not just higher treasury yields as a potential equity weaker event. Make a simple, in order to invest in equity, you have to bet against inflation. Between 2. 9 wage increase and the numbers today, there is not rampant inflation, it is modest. The markets have run away. Guest true. Right now we are in a scenario where growth is at an optimal level, real growth is strong. For the next year, growth will be strong. Equities go up, yields go up because that implies a higher, a stronger outlook for the u. S. Economy. Given that we are in a strong growth environment already, on the margin, any increase in yields is just, a sign that the fed is going to tighten faster or potentially, investors will go into this risk asset that now has a higher yield than the equity market. Alix stewart, great to see. Neutral on s p and looking at volatility. Higherthanexpected inflation, here is the Market Reaction. Futures dropping, yields higher as selling bonds becomes focus. Markets, Bloomberg Jpmorgan private banks. This is bloomberg. This is the countdown to the open. Coming up, inflation jitters return. Another upside surprise, higherthanexpected. Higherthanexpected. The futures swing deep into negative territory. Elevated volatility lends a hand to someone. The first to confirm an early year trading revival. , the story looks like this, down 22 on the s p 500, just coming off of session lows, the dollar starts to jump. Treasuries on offer, yields spike higher by about three basis points after the governance. This morning, the headline, inflation, making a comeback, u. S. Consumer prices rising more than estimated, adding more fuel