Abigail looking at mixed trading action for the major averages. Week, the major averages having their best Weekly Performance in years. With, a bit of a pause investors looking for direction and consolidation here. The dow down. 6 at session lows. The nasdaq ever so slightly higher. The dow being weighed on by the shares of walmart. Lets look at shares of walmart and home depot. Walmart down 9 . The company put up a disappointing fourthquarter this, theirhind ecommerce efforts with jet. Com not doing so well. They dont know the full effects of the tax overhaul. Overall, a disappointing quarter for walmart. Home depot has been higher, up 2 . They put up a solid quarter. The Earnings Guidance for the full year a bit below the forecast. Looking past the result and the fact that they had forecasts for shares ever so, slightly higher. Shares of righty trading higher on the news that albertsons is buying the company for 24 billion. Teaid tradingrigh higher. This will give private investors a chance to exit qualcomm down 4 . Toyve increased their bid make the deal go through. They are fighting off the 121 billion deal from broadcom. Lots of interesting action here on the deal front. We will see that the bloomberg dollar index is up once again, up for its third day in a row. Yields up ever so slightly as haven bonds selloff. This is a longterm chart of the 10 year yield. This is the great bull market in bonds. We have an area of congestion in the 10 year yield suggesting we will see the 10 year yield move back up to that trend line, even shoot above it. The 10year gilts is confirmed to go well above 3 the 10 year yield is confirmed to go well above 3 . Nejra absolutely. That is a great chart. The 10 year yield has already gone above that downtrend. 90 minutes to the close of session in europe. After the losses yesterday, weve seen a bit of a rebound in european equities. The stoxx 600 up. 3 . You have the dax higher by 5 , the cac 40 up some. 4 . The ibex in spain higher by. 7 . A bit of weakness on the ftse, off by. 1 . Focusing on one equity in particular, weve had a lot of focus on hsbc. Leading those Industry Groups on the stock 600, heading for its worst day in a year after hsbc saw a miss in revenue and profits for the fourth quarter. Swansong gulliver was looking for. Shows how hsbc shares have swung under his watch. Off. 1 . Erling a bit of Dollar Strength across the board. This is showing the pound shortterm employed volatility exceeding this is inverting the curve. Traders seem to be more concerned about whats going to happen a year out. We have the eu summit happening in brussels towards the end of march. Deal toto see the eu give the pound a lift. If we take a look at whats happening with the euro intraday, at the talking about Dollar Strength. We are seeing weakness down. 5 . Vonnie little ripples across the market. U. S. Bonds falling across the board. Investors dragging the 10 year yield to the highest level in four years. This is all ahead of record issuance this week. The treasury will sell 20 50 billion of debt 250 billion of debt. Americas debt burdens wells. Burden swells. Joining us, michael regan. With that in the background, rates rising, what are equity markets doing . Michael they have at least one eye open. We have most of the major earnings reports. Over we have the fed minutes the auctions you just showed are as of much interest to the equity market at the bond market. Dictate how stock investors feel. Andrew Morgan Stanleys talked about the stock selloff we saw a few weeks ago being an appetizer. That was the first course. What are other people saying . Michael i dont think most people would be surprised if we do see some more volatility. When you look at the step back and look at the fundamental picture Economic Growth is strong. The passive Interest Rates is it a question on a lot of peoples minds. As the fed pulls back and the supply of treasuries gets blown out. Perhaps a bullish, bit more cautiously bullish then they were in the slow grind up we saw. Than they were in the slow grind up we saw. Nejra i have a simple chart showing the twoyear yields doubling in five months. The twoyear is one of the auctions that we are getting today. 70 basis points, more than the upper bound of the fed funds target rate. We have seen some curve flattening in the last few days. Is that likely continuing after today . Michael i talked to ira jersey about this last weekend. Looking at the supply and what is expected of the treasury supply this year is that its going to be heavily concentrated on the front and. Could veryr yields well keep going and latin the curve because flatten the curve. That gets to the whole question about the yield curve and its impact on stocks. Its not as straightforward as a lot of people would lead you to believe. One thing a lot of people will be looking at this week with all debt billsterm coming in, you start looking at the threemonth to fiveyear curve a better proxy for 210. Than the all the kurtz will start coming in place in. Thats all the curves will start coming into play soon. Has topart of that note do with real Interest Rates and their impact on equity. Whats more important the yield curve or real rates . Michael i think real rates are just as important. For me, the story will be the Earnings Growth for equities. If the earnings come through as predicted, better than expected walmart is a great example of that today you will get punished for disappointing earnings and disappointing forecasts. But, i do believe the tax cuts coming this year, the amount of cash available for buybacks and dividends is really going to be the main story in equity market. Enough to possibly look past the rising rates. Vonnie we are seeing momentum stocks do it for nearly well extraordinarily well. Why is that . Michael where else will you get the best earnings prospects longterm . That should be heartening to some people. Can send misleading signals the leaders send in consistent signals. Its when you have tech and these midcycle sectors leading. Still signs theres room to go. Later in the cycle, you see tech start to underperform, consumer shares start to underperform. Obviously, during really risk off recessionary times, using utilities and real defenses outperform. Tech is still in the lead. Something to be more comfortable about. Vonnie michael regan, our thanks. Time now for the bloomberg first word is. First word news. Robert mueller has built new charges in the investigation into russian meddling in the 2016 elections. Hes been charged with a criminal information which usually precedes a guilty plea. 100 students from that Florida High School that was the scene of a mass murderer are going to the state capital today. They hope to pressure the legislature to vote for a package of sweeping gun control laws. Meanwhile, the president has set aside longstanding differences with mitt romney. Hes endorsed romneys run for the u. S. Senate seat in utah. The republicans are trying to hold on to their majority in the senate. Teame u. K. , theresa mays has a plan to halt brexit payments thats according to people familiar with the matter. Some inmates administration mays administration feel its necessary. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Vonnie coming up, more charges are filed by Robert Muellers russia probe. Lawyers been accused of making desk a lawyer has been accused of making false has beens a lawyer accused of making false statements. Nejra live from london, im nejra cehic. Vonnie im vonnie quinn. This is bloomberg markets. Robert mueller has unveiled new charges in the russia probe. Alex van der zwaan is charged with making false statements to federal authorities about work you did that he did for the ukrainian government. Joining us from the white house now, kevin cirilli. This lawyer was charged with false information. That will become a criminal charge. What will this lead to . This lawyer lied about conversations he had with rick gates. Who does that give leverage to . Kevin this latest charge comes fact that bob the gates is affected to plead guilty. Rick gates is the deputy to Paul Manafort. Paul manaforts righthand man for quite some time, dating back to their business dealings in ukraine and during manaforts chairmanship of the president s campaign. Paul manafort is charged with conspiring against the united states. Bob muellers team is relying on rick gates to bring about more charges. It also suggests that rick gates is cooperating fully with authorities. Theres nowhere in this latest round of changes that would implicate anyone in President Trumps current inner cycle. It does suggest a strong focus on Paul Manaforts business dealings in russia and his support of a prorussia faction in ukraine. Vonnie Robert Mueller has seized on michael flynn, george papadopoulos, the california man and now rick gates. Can we expect to see Something Else very soon related Paul Manafort . Kevin on friday, that bombshell, more than 30 pages worth of an indictment charging 13 russians and russian businesses, suggesting it will orchestrated cyberattack a well orchestrated cyberattack carried out by russia in the united states. Today, bob muellers team is announcing a new set of charges. Hes focusing on all metaphor and Paul Manafort and the russian attempts to meddle in the u. S. Election. President trump weeding out best weeding out that hes been far more tough on russia than the Obama Administration twe eting out that hes been far more tough on russia than the obama admin attrition and Ma Administration and ticizing general mattis the Senate Judiciary Committee Chairman going so far as to say that he hopes the Republican Administration does more to prevent russia from getting involved in the 2018 midterms. Vonnie our thanks to kevin cirilli. Banking onl ahead, the back we will get a look at hsbc and other u. K. Lenders. This is bloomberg. Vonnie live from new york, im vonnie quinn. Nejra from london, im nejra cehic. This is bloomberg markets. A big week for u. K. Banks. Investors awaiting earnings from the regions top lenders. Today, we heard from hsbc. Swansong Stuart Gulliver hoped for. They missed estimates for fourthquarter revenue and profit. Share buybacks are on hold. And edwards spoke to the hsbc finance director about the results. The fourth quarter, from our perspective, was a bit weaker with respect to market revenues in the ficc space. We also took a couple of provisions for significant corporate exposures in the fourth quarter. More isoining us with elisa martinuzzi. Great to see you. This miss for hsbc, there were two parts to it. A weaker trading line on the Investment Banking side and the revenue line not being as strong as investors were hoping for. Thattors were hoping that momentum would continue in the fourth quarter. Nejra the loan losses were down. Thats correct. Not aorted that huge surprise. They pick other european lenders. Things cansign that go wrong even if you are growing. Nejra on the training and the Global Markets division, even though we saw that trading decline, hsbc didnt do too badly compared to its u. S. Peers. The guidance for this quarter wasnt as strong as people would have liked to see. Credit suisse spoke about the trading environment. Investors will be looking for more of that kind of guidance. Nejra what did we learn about the share buybacks and the reasoning behind putting them on hold . Investors had gotten the return to shareholders there wasnt a committal they were open for. Overall, not exactly the swansong Stuart Gulliver was hoping for. Investors getting used to beats from hsbc. What will they be looking for from the new ceo . He starts tomorrow. He will be presenting a new Strategic Plan for the company. Which has been through quite a shrinking over the last couple of years, turning more focused on key markets in particular. That pivot is certainly paying off as far as 2017 profit is concerned, three quarters coming from asia. Nejra weve got other earnings this week as well. What will you be focusing on . We have lawyers presenting earnings lloyds presenting earnings and its Strategic Plan. Finally free from state ownership. They will determine their course over the next couple of years. Questions will be asked over how brexit affects their business. Later in the week, we have barclays, the focus will be on the trading there as well. Nejra it all culminates with rbs on friday. Vonnie great stuff. Time for our latest Bloomberg Business flash. Latest test of the u. S. Retail and health care industries. Albertsons will buy riteaid. Albertson shareholders will riteaid is selling 2000 of its stores to walgreens. The cash raised offer is valued at 33 billion. At 33 billion. Qualcomm itself is fighting off a takeover attempt. It has rejected a 121 million offer from broadcom. Walmart with a disappointing annual profit forecast. Ecommerce sales growth started to slow down. , the u. S. Tax overhaul that is your latest Bloomberg Business flash. Still ahead, we are speaking. Ith Sebastian Mallaby this is bloomberg. Show me the olympic winter games like ive never seen before. Xfinity x1, yeah, i always know the scor. Triple corks in 4k. Lookin so sick. Stream live on every screen, every win, every trick. 2000 hours of coverage, get your mind blown. 50 olympic channels, yup, youre in the zone. And if theres something that you want to see, pick up that voice remote and just say show me. Experience nbcuniversals coverage of the olympic winter games like never before with xfinity. Proud partner of team usa. Melissa during the lunar you holiday, people across asia prepare for a feast over the spring festival. Singaporeans and malaysians go big on pork. Lyseda traditional, barbecue turkey and it is popular during the season. It is sliced, minced, air dried and marinated. Most Companies Fiercely guard their recipes and refused to dipoles amount they purchased each season. In weeks leading up to the new year, prices surge and shoppers pick them up. It is not unheard of for others to stand in line for them. Diehards even go camping overnight outside stores to get their hands on the good stuff for you if you are feeling adventurous, a variety of flavors are available, from crispy almond to pineapple infused. It is safe to say, shoppers are spoilt for choice. Vonnie that is one of our highlights live on twitter. Live from World Headquarters in new york, i am vonnie quinn. Nejra line from Bloomberg Live from bloomberg in london, i am a rich heritage. I tried that pork for the first i am a the weekend, and day fan. Aylor a new report says north korean side group has emerged as a global threat. According to california and a cybersecurity threat group, they can reach beyond the peninsula. The infiltrate a range of industries from electronics and aerospace to health care. On capitol hill, senators are scrambling for fallback options to prevent the deportation of young people who arrived in the u. S. Illegally as children. The clock is ticking on the program that allows them to stay. Immigration legislation failed last week and no plans have gained traction. The billionaire Koch Brothers had turned thumbs down on proposals to raise the gasoline tax 25 cents a gallon. A report says the increase would fall hardest on States Donald trump ron in 2016. Won in 2016. President trump has offered to support it, reportedly. In russia, senior analysts are asking Vladimir Putin according to people familiar officials want to borrow money to build new highways and railroads. Putin is expected to win another term. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Vonnie thank you. It is a big week for bond aaders and what deals like pivot point. The treasury will sell more than one quarter trillion dollars in debt, starting today, with 179 billion. We are joined for this and a lot more by Sebastian Mallaby, author of the man who knew the life and times of Alan Greenspan, just out in paperback. Is also on the Economics Council for Foreign Relations. We are delighted. I have one word, 1994. What are we looking at in terms of a potential repeat or echo . What might we have learned from Alan Greenspan that year . Sebastian 1994 was remembered as some by hurricane greenspan because he hiked rates and not in a predictable, smooth way. 50, times he did 25, onetime 75 point hike at one meeting. It was the unexpected delivery made someikes, which lose 30 , and other hedge funds blue up completely. That was the moment when the fed disrupted bond market traders and created a smooth landing for the real economy. Maybe theres a parallel in that. Vonnie that is one of the reasons that communication changed so much. The point that perhaps can vacation and how calm it is might move markets. Sebastian i think the main problem in the economy is you have one Interest Rate appropriate for the real economy. And that is a fairly low Interest Rate. Information is below target. Financial markets are pressed to perfection and that is scary because they could fall and disrupt inks. You want to discourage financial speculation and bubbly behavior in markets and not snuff out the real economy. I think delivering gradual interestrate hikes in the more surprising way, sometimes being willing to spook leverage shortterm from a thing, and duke the carry trade, you could lose money because short Interest Rates, that uncertainty in markets might be helpful. Vonnie that is parallel with 1994. Not that we are facing the same circumstances, but a bond bear market that will be quick, fast and painful. Do you think that . Sebastian i think the market is a oneway bet now. Rates, we can debate apostate will go up but we do not see them coming down. The pressure of enormous government issuance is important in terms of global asset allocators deciding that the world overweight the dollar deciding they will overweight the dollar and everyone fled to safety assets, and they are adjusting to a riskon environment with more euro bonds coming in, so forth. Those point towards rising Interest Rates. The question is, how fast . Nejra could we get a return of the bond vigilantes of the early 1990s . Sebastian i think it simply means that bond vigilantes will raise rates as they see fit and not take a cue from the government. That has gone away a bit i would say since she we infinite qe infinity. The mantra on the streets is, do not fight the fed. It is too powerful. If the fed goes into a following mode, it is a good question. Would we see a return to the markets leading the fed as opposed to the fed leading the markets . It is not top of mind for me to worry. , what youdisruption would need to have this last munication. I think the communication has overshot in terms of calming investors. Vonnie do you think we will get that from Jerome Powell . Less communication . Sebastian no. I think he is a student of janet has embracedhis the notion that he should talk to the markets as much as possible. When you go back and look at the fomc transcripts from the lake greenspan time, when ben bernanke had persuaded Alan Greenspan around two dozen for it was a good idea to communicate a lot, it sent a miracle each meeting, i would say, well, we raised markets and the we raised Interest Rates, and the market was calm. It feels great until there is too much calm that incentivize is much leverage. You have to prime and mint the spiral, where traders have a fixed advertised risk. If you derisk policy for them, you are going to take more risks by leveraging up. I think that is what we face now. Time somest industries were at risk, the lifeinsurance insurance industry, for example, are there any industries or geographies at this time of quickly rising rates . Sebastian i think the lesson from historys he never predict exactly. The 17 not know after that it would be mexico that 1982, and you in did not know what Orange California with the end of 1995. When you have had a stable time, some people up borrow too much and stable their rates. They have gone leveraged, and it could be the junk bond markets. Debt tod recently that gdp in some economies outside the u. S. , for example, switzerland, have reached a record high, so we do not know what is under that rug. Globally, it is a fair bet that when you incentivize massive borrowing in the short term to take risk on the longer end, and you reversed that second stands, there is a risk act. Vonnie one final greenspan question. He made a call on productivity in 1996. Why is that an eerie echo of now . Sebastian we are hearing talk about whether it is accelerating. Has gone up in the u. S. After a time of disappointing numbers, lets hope it accelerates. That means the fed targeting inflation can essentially use back because companies are able to produce more without raising prices to consumers. They can pay workers more without raising prices to consumers. Strong productivity growth is what greenspan cleverly saw in 1996 before anyone else. It is one of his greater calls us the chairman and he kept rates relatively low through 1996. That set the system up for the wonderful great moderation growth of the late 1990s. The sting in the tail is that that policy set the system up for an enormous financial bubble that flew up into thousands of the tech bubble. Vonnie there are always two sides. Sebastian mallaby is sticking with us. He is on the council of Foreign Relations and author of the man who knew the life and times of Alan Greenspan. Curious a check on the markets. The dow down about. 9. The s p 500 down about half a percent. The nasdaq with Tech Companies unchanged. And walmart, a big mover, down 10 after the forecast disappointed. This is bloomberg. Live from london, i am nejra cehic. Vonnie from new york, i am vonnie quinn. We are back with Sebastian Mallaby. He is most recent author of the men who knew the life and plan of Alan Greenspan. Lets talk about the current president. Good or bad for the American Economy . Sebastian he is running a dramatic experiment to a normal fiscal stimulus, when most people think the economy was stimulated already. In the longterm, running large deficits is going to be a bad idea. You need fiscal ammunition to stimulate the economy when there is a recession great if you use it up when there isnt one, that is about idea. At the same time, we will see what happens, whether it will drive unemployment lower we are already at the low rates, 4 and it could go lower and we will see what real wages mean and if it can be done without creating a financial bubble. It is interesting times. Vonnie what is happening with trade . It is not just in america, but britain as well, and other economies. Is it beginning to be acceptable to think that free trade isnt the only way for the Global Economy to grow . Sebastian because we have had periods in history where trades have been attached remember the late 1980s, people were bashing out on Japanese Television on capitol hill there has been tension for a long time. What is new is the u. S. President would normally be the anchor for the arguments for lets have a rulebased international system. That person has become the cheerleader for the opposite. I think that does lasting damage to other countries willingness. You need a quarterback to make the team play. That quarterback has been the white house, and the quarterback is joining the opposition. Back to thet to go deficit because Alan Greenspan im sure would be one person to say that a large deficit is not a good idea. In his book the age of turbulence, she talks about how a surplus can be challenging for the fed, as well. If we are to expect a booming deficits, and it seems most are expecting it as a foregone conclusion, how would you work around that challenge and paradigm . Sebastian when i wrote my book about Alan Greenspan, i thought i would write about the greatest postwar financial statesman to read it turned out i was also writing a book about the machiavellian political operation, unbelievably cunning and skillful in navigating washington. What you referenced, namely his argument that a surplus can be damaging, i think politically, it is an expedient argument to make an area of george w. Bush. He was legitimizing the bush tax cuts in the early 2000s because he knew he would be frozen out of the white house if he did not. And that would cost the fed and make it vulnerable to being pushed around by an angry white house. I think his real view, the real greenspan view, is that deficits are damaging. I suspect that is still his view. In the face of huge deficits, the fed would normally tighten the lot. It is starting from two things, such a position that structural looseness, in terms of low rates and enormous amounts of qe, which is still in the books. Qe works through a stock process and not just slow process. It still holds a lot of treasury bonds. You are exercising a listening impact, even if you stop buying them. That is a problem. The fed is such in this posture that when a new administration delivers a massive fiscal boost, it is a long way for the fed to get the tightening posture. And the president s gradual philosophy that Jerome Powell has inherited, its not with appetite to do a greenspan and jump in with a 75 basis point hike in one meeting. The gradualism, combined with starting posture of the fed, extremely loose, combined with enormous fiscal stimulus from the white house, they are a cocktail, which i think is driving the u. S. Economy into an unprecedented experiment. Nejra it is impossible to predict where the next recession will come from, what one thing you could say about alan defend thes he did boom in the Housing Market because of the color of 10 protecting premarket capitalism is private property. In the end, the crash and 2008 largely came from the Housing Market. Does Jerome Powell have any signals where the next crash might come from . Sebastian the market in the 2000s is a lesson because the fed studied that process of house prices zooming up, and there was a split debate amongst professional staff as to whether this was worrisome. It was staring them in the face, and it wasnt clear this was a bubble, as opposed to something driven by fundamentals like she on their feet, housing formation changing. People made reasonable arguments as to what house prices might go up and help the way. I think that proves we never know where the next level will blow up. What we do know is you run this policy from long time and you run a risk. Vonnie what about regulation and deregulation . We have seen President Trump say he will roll back a lot of regulation in place. By the time he is finished, it will probably be a lot. Is that good for growth . Ebastian i think it is if you get companies more freedom, they will invest and take advantage of that but the problem is spillovers. They could be for the environments, health and safety of workers, or financial stability. I am not saying on the financial big seeing a rollback on the financial side. Wells fargo recently looks like they are pretty tough to read you push deregulation too far and for too long, there are risks. Vonnie your previous book was more money than god hedge funds in the making of a new believed. Im curious to your. In the Hedge Fund Industry to your thought in the Hedge Fund Industry. Population has gone down, redemption up. Returns down. Could we be on the cusp of a new popularity for hedge funds, bright ideas, and so on, given what we have seen in the markets and what they look like when there is a shakeout . Remain a massive bull about the hedge fund model. It has the best incentive, incentives to do Great Research and find out ideas for the upside and that is in the form of a 20 kerry. It has incentives not to blow up on the downside because moche because most Hedge Fund Managers have their own wealth. It has freedom to go along, short, the leveraged, not leveraged. Those incentives together make for a Good Platform for investing intelligently. In the last 10 years, it has been tough because the fed has dampened the pricing of risk. If your job is to accurately price risk as a hedge funds, you are not compensated for that because all risks have been dampened by quantitative easing. Thehat goes away, i think business of thinking intelligently about markets, bek, and returns, that will compensated again and vonnie hedge funds will have a glorious resurgence. A glorious resurgence for hedge funds. That is a teaser. Sebastian mallaby, thank you. On the Senior Fellow Council of Foreign Relations and author of the man who knew the life and times of Alan Greenspan. Nejra exciting. Walmart shares fall the most in two years. Where does walmart turn next in its efforts to challenge amazon . This is bloomberg. Vonnie walmart shares are dragging down the dow. Investors are worried ecommerce growth is slowing at the retailers. Traders are worried about walmarts chances in the battle against amazon. Missed,our gadfly calla columnist, sara, in washington. To what it does come up from buying jet. Com, investors are not happy. Sarah they are hard to please now. What we saw this quarter is walmart had had sizzling growth the last three of us 50 on their ecommerce. We test stop a drop off. We saw a drop off. Bad22 loss isnt that compared to competitors. It is outpacing the real in this the Retail Industry overall but investors are worried the honeymoon is over with the executive who has been spearheading this that maybe his magic is not quite as sustainable as we thought. Nejra how can walmart convince investors not to panic yet . Sarah the best thing to do is dial sales growth back up to 40 . That is what they promised with their guidance with their fiscal 19 forecast. They expect growth at 40 . Think grocery should be a focus. We saw a deal announced this morning albertsons is join forces with riteadid. We know the muscle amazon and whole foods are bringing. It walmart can demonstrate power on groceries, that would go a long way. Was really stock doing well. Suddenly, something changed and there is no magic touch anymore. Is there anything they can say . What he can do. I think the numbers will speak volumes. Walmart had interesting stuff up their sleeve. They plan to add smart car pricing, something jet. Com did, where you see lower prices if you bundle orders. That could be powerful for them. Vonnie thanks to sarah hall zach from washington, d. C. Nejra coming up on the european close, we follow equities. Less than 35 minutes until the end of trading. U. S. Equities might be lower but the stoxx 600 is higher. This is bloomberg. 11 00 a. M. In new york, 4 00 p. M. In london, and 11 00 in hong kong. I am nejra cehic. Vonnie in new york, i am vonnie quinn. This is a european close on bloomberg markets. Nejra these are the top stories from the bloomberg and around the world. Here are the top stories, benchmark forage as yields are at the highest in several years. Morgan stanley warns the biggest test of the market is yet to come. Vonnie a new twist in the battle over brexit. The u. K. Warning it will not pay the brexit bill without a good trade deal from the eu. And President Trump remains of fines, saying officials warned of more russian meddling in u. S. Elections. Nejra
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