After volatility yesterday that left all three majors lower. The nasdaq down for two days in a row. Equity markets once again after three weeks of huge volatility, look at thelets twoyear yield, 10 year yield, and spread. Up four basis points after yesterdays options. The 10 year yield down a bit. We have the 210 spread coming in just a little bit as we have a movement, you take a look at g btv 5957. An important driver on stocks. Spread that is inflation expectation, the cost year,ey coming in, last the spread had really come in as thatyearold curve flattened. Year, the 210 spread flowing out again. Getting a little tale with an the question is whether it can last. Thank you for that era is half forward for the Federal Reserve, lets get over to Michael Mckee in minneapolis. Michael thank you. We are here with the president of the minneapolis fed and has been kind enough to invite us to his place, particularly the fed minutes and a focus on what you guys did at the last meeting, including adding the word further to your line about gradual adjustments. Were you sending a signal by doing that . First of all, great to see you and thank you for coming. Yes, every time we made the word change, a lot went into those are further, it is intended to say, continuing the current path we are on. That is the debate we are having to i am focused on the outlook for inflation, which growth, is there still slack in the label market. I will let the minutes speak for themselves. The market can read those and interpret what the collective views of the committee was. Your collie from philadelphia saying only to rate increases because he doesnt see inflation moving. Changing . It i do not want to overreact to one jobs report. The wage increase about 2. 9 . Do not want to dismiss the data but i do not want to overreact to onemonth blip in the data appeared we have to look at yearoveryear what is happening. For almost 10 years, the fed has been undershooting inflation targets. We keep saying inflation is around the corner and then it disappoints us. Take ouron has been to time and allow inflation to come to us. We have powerful tools to keep it from getting too high. Limited tools if it ends up being too low. Lets let the inflation come to us. Those powerful tools can have side effects in the markets. Saw inflation breakout, are you concerned he would see wall street overreact perhaps to the fed moving more quickly . Wall street overreact to everything. On the upside, the downside. We cannot make policy based on market blips up and down. Congress is so the dual mandate and we achieves those on average in the long term. Wall street will do what it will do. I said could have an effect on the economy for years. The fed will step in because they dont want a collapse in Consumer Confidence if the market goes down too much. Is that in place . We care about Financial Stability and we know there is a Feedback Mechanism just like through the currency markets on the u. S. Economy. Toare not saying we will try move the dollar up or down or do know there is a feedback loop. Trying to engineer a certain level of the stock market. I try to differentiate the tech bubble bursting. We have to watch very hard. Michael are there any available crises you see either in equity valuations, a rapid rise in body yields or the dollars rapid fall . Neel i am not seeing that personally. Could there be currencies in the iock market where the vix, strongly think there could be and we want to keep our eyes open but most importantly, were seeing massive leverage the way they did in housing in 2008. Leveraged 10 to one, maybe nothing down in 2006 or 2007. A minor price correction and all of a sudden, generally speaking, investors are leverage in stock portfolios and Corporate America is less than housing. It is very important to how painful the correction is. Building up leverage at a rapid pace, the u. S. Government. Are you concerned about the level of debt we will face . We saw it in the auction market yesterday, some concern. Another auction today. A lot of supply. People are beginning to wonder if there is an unlimited appetite and treasuries and if not, we have to pay more. Note western the price of the bond will reflect by by and demand. Over the longterm, the United States has to get the fiscal house in order. We cannot run these forever. The biggest question is is it is not just the u. S. When will investors have other bond markets as they better on market. They say, we find you more attractive and we will put pressure on the u. S. Bethe near term, it will fine and in the longterm, we live within the means. Is more supplye coming in from all over the world, it will have an effect on prices and rate. Driving rates higher now . Outlook for inflation, a loss of confidence in the u. S. Government . What do you think . I do not think it is a loss of confidence. Increasing deficits plus the Federal Reserve is on a gradual path to sink the Balance Sheet as it rolls off over time. People are more optimistic i have been surprised the tax cut Congress Passed has led to a lot of optimism in the u. S. Economy. If that leads to more investment , more production, a stronger overall economy, that would be good for the u. S. Economy and markets are trying to ferret that out. It will lead to a longerterm investment but time will tell. Are they telling you they adding to the stock . Thate tax bills stimulate or are they waiting to see whether they need to invest . We are labor supply constrained. I think nationally. One thing is simply more workers and consumers. Age population has flatlined. Businesses say they cannot find the workers they need. They will turn to more investment to try and promote more automated automation. Immigration has an effect on whether or not they decide to invest in more equipment or hire more people. What do they tell you about wages . Leave aside the wage gains. What are they telling you about whether they have to pay up to find those workers . I have this discussion every time i meet with business leaders. First they say we cannot find workers. Usually the answer is no. If you are not willing to pay more for it, you are not serious. Some say we are paying more and it is generally at the lowpaying wage spectrum. Folks getting a onetime bonus as an example. Constant discussion. Been pleasantly surprised how many workers have come in off the sidelines. Do you believe there is a lot of slack out there . Neel i think there is still slack left. The u. S. Prime age labor force participation, still slow as it was in 2006 and 2007. If you look at europe, canada, japan, they have covered recovered from where they were in the financial crisis. I do not think we have a great answer, but it seems like there are more workers of a prime age range who could potentially come back in. Michael manage indexes have shown companies are paying more for raw materials, not getting more for the stuff they sell. A lot of companies in your district, are they experiencing that . What will they do about it if so . It is a competitive marketplace. Another reason why these markets are more competitive. An amazon effect, i would expect to see higher productivity numbers. A low productivity number for the last decade. Is driven byk it automation and Technology Development and the likes of amazon. What are the odds that the tax cuts an additional Government Spending by the end of the year will either raise productivity or raise inflation . Neel it is hard to see it would raise productivity so quickly. Generally a slow burn. They pay off over the longterm. Whether we see inflation pop up this year or not, it could be the tax cut helps the Federal Reserve achieve the 2 target. For eight or 10 years in a row, maybe this will help us. I can speak for everybody, we are totally committed to the goals. Everyone is committed to the to achieving the goals given to us. Independence absolutely found. Italy to good outcomes in the longterm. Michael you do not talk about the number of rate increases this year but in terms of your mandate, the free three fed rate moves for the year, does that do the job . Happenspends on what with the data. Upn Hourly Earnings came 2. 1 , when i do deeper, ours went down. Maybe not such a strong wage report as it seemed. I cannot judge whether three or two is the right number or one. We need to see what happens in the data. Will wages continue to grow and will that translate to sustained movement . Those will drive my decisions. To my weatherding app, it is seven degrees in minneapolis and 72 in new york city. There is an opening at the fed. A couple of them went on to become the president of the new york fed. You have any interest in moving to five a warm climate . Know. Love the cold and is a Wonderful Community people here. I am very happy here. Michael we agree theater of the people including you. Thank you for joining us. Send it back to you. Vonnie thank you for the wonderful interview. We have pimcocio and he joins us now from Newport Beach in california. You heard it said higher rates are a reflection of optimism. Our higher rates purely a reflection of optimism in the economy . Yes. Higher rates are reflecting a higher trend growth first. We were basically growing at 2 real. That by atrease least half of 1 by 2. 5 . Growth will the pick up and we are seeing a pickup in inflationary expectations. Growth will pickremember the fiscal deficits have to be financed. One thing happening is pimco was ahead of the curve on this, we will see for budget 50 billion increase in treasury issuance growth this year versus last year. The market is digesting the new treasury supply which has these deficits going forward. We have been cautious on rates. Backup in 10 year 22. 9 in 5. 5 months. We have seen a big move in markets. Money the 10 year reached 2. 9 changed. The 10 year, are you sticking with that given how the markets have been repricing . Underweight for a long time and we are turning more neutral now. We think a lot of this has occurred. No question the market has to digest supply. Bonds are starting to get exciting and we have not been able to say that in three years. If you look at the way the markets have evolved, you go back three to five years ago, cash was yielding almost zero and bond yields were very low and the place to be was equities and real estate. With equity valuations having run up significantly, you can get High Quality Bond Fund yielding four or 5 and cash is now heading to 2 . Cash and bonds actually look for good relative to equities. The market for bonds is getting more interesting. It is indeed getting more interesting. What parts of the spectrum look most interesting to you . We believe in a high quality bond portfolio. We believe we are later in the cycle in terms of the u. S. Economic expansions. We have been reducing highyield. We like nonagency mortgages in the Housing Market here we like core bonds and we like to. Iversify selectively it in banks, the consumer, pipelines look interesting. Earnings growth will be robust this year. Those are areas we find exciting right now. We were talking about the deficit now. An interesting chart brought by bloomberg intelligence. It is the federal deficit as a percentage of gdp against the treasury yield. It shows that all the way back through the 1960s, there has been a correlation. Can the deficit and looming toget deficit tell us where . O 20 trillion dollars economy, we are currently running 3. 5 deficits. Because of this used, we will go to 4. 525 deficits. Or 300 essentially to billion new bonds which have to finance that. What is interesting is this is the first time in about seven years where we will be increasing deficits when the Unemployment Rate is 4 . Fire anddding fuel to what that basically means is when the economy grows at 2. 5 , and your potential growth is only 1. 5, it means you should expect this to be reduced. The Unemployment Rate at 4 3. 5hly now, should trend to within one year. That is another way of saying the fed will have to keep raising rates. That is effectively what the bond market has done. The bond market is pricing in higher Interest Rates reflect more supply. Investment isid looking at the bonds that are very exciting. If you look at the investmentgrade index, the price comes down but it is still yielding less than 4 . Is that enough of a return to not buy the 10 year at this point with a total at 3 . The important point is really, bonds offer diversification. In more challenging equity areet, while earnings growing robustly today, valuations are pretty stretched on most particular in the u. S. And we think 4 or even 5 in Higher Quality and longer maturity bonds makes sense. The important thing is a lot of bond funds have one third volatility of equities and they also protect investors in the case of an equity correction. We could see yields go lower and that provides price upside on bonds in the case were equities in price. Oing down it is part of an overall portfolio particularly where at where equities are priced, we think bonds make more sense. He is sticking with us and we will talk more in a moment. Among the boe policy beforespeaking Parliament Treasury committee, giving the Central Bank QuarterlyInflation Reports. Walk watch the full testimony on the bloomberg at tv. Mark carney has been so far reiterating that the boe doesnt beent to a precise and has saying rate increases will be somewhat greater and somewhat sooner than the market expects. Yield movingilts lower by two basis points. This is bloomberg. Vonnie this is bloomberg markets. Back with the cio of global from newportins us beach in california. A lot of events happening today. Auction. Fiveyear that has been a part of the curve. What will happen today especially given yesterdays mixed auctions . Especially given yesterdays mixed auctions . The market has really backed up significantly ahead of these auctions, markets tend to be forwardlooking. Minutes will probably see especially given yesterdays mixed auctions . The market has really backed up significantly ahead of thesee fed acting more reciprocal. They will talk pretty positive about the economy and real growth and financial conditions. In terms of these, we are getting to a point where bonds are starting to look a lot more exciting and real yields are positive when you take out in nation. I think were getting to a point in the u. S. Treasury market where we may not be there yet but we are getting closer. Vonnie there has been a lot of analysis over what the word might have meant. We heard that it means continuing on the path the fed is on. You forecast three rate hikes for the yearbook could you entertain four or five . What might make you entertain the idea . Reportmarket price is for , talking about the Inflation Report we had recently. You can keep track of it all on your bloomberg. On thursday, africa passes fifth president , the pressure from the Ruling National Congress party. In his first address to the nation, he pledged to revive the economy that went to a second recession in less than a decade last year. Restorecome confidence and millions of new the 27 bring down Unemployment Rate. Market embraced and ran the rally at all eyes on the are on the finance minister scheduled to present the nations budget wednesday. P will have to show how he intends to narrow narrow the deficit and rein in the debt while under pressure. Im in johannesburg. You can follow me on twitter and for all the latest news, follow at ticktock. Vonnie that is one of the highlights. Live, i am in new york time vonnie quinn. This is bloomberg markets. A global view for you because i have to looking at the 10 year treasury spread versus g7 where 160 basis points have really been widening out. If it does, is that about the usda more tractive versus the rest of g7 or is it about elsewhere rising with continuing rising u. S. Yields . A think it is some of both. In u. S. Bond market australia are probably the two most attractive now. Up. Story is catching their economy is finally picking up. We ultimately think japan is targeting 0 10 year rates and could also we move the target upward over the next year or so. Of the other economies, europe and u. K. And japan start to gradually pick up growth rates, we should see their bond yields between thet spread u. S. And those rates narrow. What they highlights is the u. S. , relatives attractive to the u. K. , and japan. What about peripheral spreads . They underpricing at the moment . What has happened and this has been 2012 and 2013, we have seen it a significant tightening in the spreads. And Massive Central Bank support by the ecb. The spreads are quite tight p are to are not taking significant risk in italy longerterm,ink those peripheral spreads are at risk of ryan of lightning. Were more cautious at these levels. And a central bank that is getting out of the markets. A very good point and it highlights some select emerging market exposure. You hit on a key point. Unlike where the inflation rate is rising, and you think about it, five years ago, 0 inflation now they arely 2 , specifically brazil the lower rates, even the ecb, higher rates in developing markets. Vonnie ultimately, the risk is higher rates and bonds. U. K. , higher rates over year,we do think the 10 you have the potential to see lower rates. The bonds are getting exciting. Equities are priced really for single digit returns. Vonnie lect equities you watching these as much as you are watching ons it seems. For the first time in three years, bonds are looking exciting relative to equities. Likean get an equity return four or 5 in higherquality bond portfolio. Great stuff, mark. Pimcocio. Just under an hour to the close of back woody trading. The stoxx 600 is pretty much in the changed unchanged. You look at various industries, down. 7 . The u. K. Europe, not really going anywhere right now. Data. Ing pmi lower than the periphery, those fields are heading lower. The Industry Group doing again, downsidenged on the and the biggest drag is coming from utilities and energy is not doing well either. Quite strongly and financials and telecoms as well. Taking a look, because we had numbers from glencore today, the we have in seeing is yields, something to keep an eye on, and finally, lets take a check on the effect space and perhaps what look has kept it supported is the headlines we had throughout the day. Vonnie thank you. Lets check the first word news. Parents, teachers, and shootings the the president is a strong supporter of gun rights but the white house is willing to listen to guncontrol proposals. The Trump Administration says Vice President mike pence was ready to meet with north korean officials in his visit to the olympics. That would have been the highest level meeting between the u. S. And north korea and more than a decade. Cuts, much longer than planned. Global demand growth for the next two years. Opec and its partners to unwind the production curve they began last year. Worldrenowned christian evangelist till graham has died at the age of 99. He preached to more than 200 Million People in 185 countries over six decades. He became known as the chaplain to the white house, giving him access to u. S. President s and other World Leaders and he is considered the most influential american preacher of the 20th century. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. We will talk miners. This is bloomberg. Time now for the stock of the hour. Retailers posted betterthanexpected fourthquarter earnings but still, some analysts are saying guidance for the rest of 2018 looks conservative, maybe. 2 headwinds for growth. Taylor has more on what kind. Outor the management came on the call and said theyll time in 2018 to be 9. 1 billion. Most analysts on the bloomberg terminal, the average was 9. 5 alien dollars. Maybe management is just the conservative toking at revenue set expectations and revise them upwards. That is unclear now. Morgan stanley said they are not concerned and advanced auto parts should be turned with industry growth. You see the lower end of management forecast. Wishnalyst still remains a. And rbc analyst who is saying this will be an expansion story worry about topline conservative to setgrowth. Grosshe grossed margin that have been contracting since 2019 and going off 2019, expected to expand a little, management coming out and saying we will get market share and we have a supply chain issues this year. Were working on getting those gross margin that have been contracting since 2019 and going off 2019, expected to expand a done. We will see margins expand this year. Vonnie what about suppliers . They were high earlier and i was thinking perhaps it was on the growth expectations we saw. Maybe these were higher and they expect companies to order more parts. I think it is showing a mixed theyre and lower as perhaps take a sigh of relief today coming and digesting the earnings call. The three Companies Get 60 of revenue from auto retailers. Thoseo get revenue from that are sensitive to that growth. Vonnie thank you for joining our attention to auto parts. Party like it party like it ist glencore. The worldss largest minor reported highest trading profits in a decade, surprising investors with 2. 9 billion in. Ividends it has still got cash to spare. The ceo saying we are generating 10 billion of Free Cash Flow on current Commodity Prices. There is room if and when we want to do acquisitions p are joining us with more on the record earnings, will kennedy, bloombergs managing editor for commodities and energy. Investors generally do not tend to like it when companies have cash but i guess it depends on what they are spending it on. The most are very happy with the state of glencores Balance Sheet. It was interesting is they were able to supply with dividends and they clearly do not have the headwind to do deals but they want to. 10 billion is the bottom of the range. They have given themselves a lot of room to maneuver. Known as a dealmaker. What can we expect on the deals front . Agriculture business. He has long said he likes the agriculture unit. Canadian Pension Funds to expand and u. S. Agriculture, they would like to fill that gap. One of the big agricultural traders in the u. S. , we know theyre interested in the agreementdone. Know an he had signed, approached not to do anything for six months or so, he has a free hand. Vonnie what happened . They were about to go bankrupt at one point. Debt, theren by were concerns about the company and suddenly, giving out money red registering 50 . The company would dispute they were ever close to going bankrupt. Some concerns red registering 50 . The company was carrying and how they were exposed to weakening Commodity Prices. Several things happened. Down to twoown big things, they sold lot of assets and cut down on dividends and did what they had to to change the structure of the Balance Sheet and get it to what investors wanted. Then we got a a recovery. We saw the biggest at glencores bottom line by more than 30 last year. That is bleeding through two small numbers. What is the outlook for commodities prices . We see a lot of countries pull out of free trade agreements and so on and yet, the outlook seems bullish for commodities in general. Is that because they will plow on the matter what geopolitics happen around them . Bullish for commodities in general. Is that it depends on commodi. There is a lot of concern but most people like Commodity Prices in the late stage of that cycle. To seeo see inflation pick up. Were seeing synchronized growth. What glencore will tell you is there commodities make their portfolios metals particularly strong for the global economy, moreing and shifting to Sophisticated Technology especially in china. Cobalts, and batteries. A question on dividends that we mentioned earlier. You have got a chart showing the payout there as well. Is there risk that with payouts like this now, they sort of raise Investor Expectations and build them up for disappointment if we get a downturn in Commodity Prices . A couple of points on that. A lot of companies have restructured the way they paid dividends. They have had aggressive dividends which rise matter what. Can cyclical business, that get you difficulty which we saw in Commodity Prices that were soft. These companies are generating an awful lot of cash again. Investors are clearly sending the message that in the past, deals did not work out and they will build those my those expense those complicated once. Give us give it back to us and let us to some indifferent with it. Thateam seems to be taking on board for their shareholders. Thank you so much. A quick disclaimer. Peter, the chairman of lumber go p, is a nonexecutive director at glencore. Time for a look at some of the biggest business stories in the news. A new twist in attempts to buy qualcomm and what would be the Biggest Technology takeover ever. Qualcomm im deaf qualcomm is slightly lower in its bid because qualcomm raised its own bid for semiconductor spare qualcomm has rejected twice. It is now dealing directly with company shareholders. For the first time, dish network has publicly reported it says 2. 2 million customers take 20 each a month, a sign of losses, in subscriber it is time to attract those cheaper options like netflix and amazon prime. That is the latest business flash. Coming up, President Trump to hold a session about school shootings. This is bloomberg. Vonnie this is bloomberg markets. Vonnie President Trump is meetih school teachers, affected by last weekshooting, among others. In order on bump stocks. To go how is this through and would that be enough to satisfy some lawmakers at least . There are a couple of Different Things they could do regarding gun control that are politically realistic her first and foremost, the bump stock. That is the device that allows for the weapon to shoot more rapidly. The second thing is to provide enforcementaw federal agencies which runs the National Background checks inadequately funded for some time. They do not enforce the laws on the books. I talked with several conservatives on the issue of gun control who say additional funds would allow these agencies to force the National Background check system. In the third final piece, Mental Health. That is something talk to that after the sandy hook massacre. There are things that could get done. Arequestion becomes democrats and republicans able to actually give a little on each side and patch something through . Much wouldnt even be that of just ensuring the background checks are complied with, that is being done at the very least anyway. Is that satisfied by democrats or will this continue in congress. Not think it would satisfy most or all democrats but it would be a step. Republicansveral who are against that ban on bump stocks. I do not think it would satisfy republicans either but if you look at pulling, americans theistently say overwhelming majority of americans say at minimum, they want something done a Mental Health and they want the background check system to work. The warning signs particularly, for these to be enforced, there are a host of different conversations being had. Trumpite house, president , meeting with a victim of a mass shooting. It was only four months ago that shooting happened. To the rush investigation, securing qe . Yes. Yous interesting because connected Paul Manaforts campaign chairman, and very that the would note investigation is really looking on the financial dealings of paul manafort, the president s campaign chairman. We have to leave it there. We will be back in washington, d. C. That was kevin there for us. Coming up, we are following equities 35 minutes to the end of trading. You can see a little bit of a mix. Higher as well but not quite as. Uch the headline levels of the stoxx 600, pretty much unchanged. A big picture across Industry Groups. This is bloomberg. The headline levels of the stoxx 600, pretty much. 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. Nejra 11 00 in new york and midnight in hong kong. 30 minutes left in the equity trading day in europe. From london, i am nejra cehic in for mark barton. Vonnie in new york, i am vonnie quinn and this is the european close on bloomberg markets. Nejra here are the stories we are covering, u. S. Stocks higher led by the tech sector ahead of the release of the fed minutes and in europe, earlier losses are raced. We will be watching the bond market for Interest Rate moves as the u. S. Treasury prepares to sell 15 million in notes. Apple is said to be taking action to protect its supply of cobalt, the competition for the key ingredient needed for batteries and why the electric car boost could cause a shortage. Let look at european equities and where they are trading under 30 minutes until the close of equity trading in europe. On a regional