Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170323

The 200 day moving average. Emma police say they are theing on the assumption gunman acted alone Authorities Say the attack was islamic inspired terrorism. Theresa may addressed parliament a short time ago. What i can confirm is that the man was britishborn and that some years ago, he was once reestigated by mi5 in extremism. Ligious killed,ur people were including the assailant and the Police Officer he stabbed. 29 others were injured. The republican head of the House Intelligence Committee is offering some support for President Trumps claims that he was wiretapped. It was during legal surveillance of foreign targets after the election. President trump says he feels somewhat vindicated. Trying to wine passage of the Republican Health care bill. Lastminute changes were made to attract house conservatives. Delayedans have already a key procedural step before the bill gets to the floor. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Im emma chandra. This is bloomberg. Alix for more on the Republican Health care bill, lets bring in Kevin Cirilli. What is the vote count . 21 votes is the amount of. Otes they can lose this will come down to the wire. Members of the House Freedom caucus are going to be at the white house later this morning with President Trump as he tries to wrangle and negotiate and get this bill passed. Right now, they dont have the votes. As a result, they cant get to anything else on President Trumps agenda. Alix what will we hear from President Trump . Kevin the chairman of the House Freedom caucus saying on fox news last night that potentially there could be some type of deal and they could work toward one. The aids im speaking with im speakingaides with privately, including aides for rand paul saying they are Holding Strong against this. Should President Trump and speaker rhine be able to get this passed tonight, this would. E a victory for them alix Kevin Cirilli joining us from washington. For more on health care, we are joined by torsten slok and Yianos Kontopoulos. Seems like the market is looking at the Health Care Bill as a referendum on trumps policy agenda. Is that a fair conclusion . Torsten absolutely. We have been waiting so long for any piece of evidence are we going to do trade . Then, we thought it was immigration. Then, Corporate Tax reform. Now, obamacare. Will this succeed . What about the rest of the agenda . Alix wheres the risk here . Yianos the asymmetric risk, i dont think that much is coming from the politics side. We are fairly well informed by now in terms of the difficulties of the process and indeed we will have a delay at some level or another. Most of the asymmetric risks are coming from the economics. Jon you have to make to judgment calls. Whether this will derail the agenda elsewhere. The second is whether the risk rally is dependent on what is about to happen in d. C. Forten confidence consumers and corporates have gone up since the election. The electionuse of outcome or because the stock market was going up . Now, the stock market is starting to wobble. This may be more uncertain. We will get more idea of whether this update it will do well or whether we will get some turnaround. Everything fed each other on its way up and could do the same on the way back down as well yianos there is certainly some reflexivity here. There are competing theories behind the move up in cyclical assets. Part of it related to a u. S. Led push, but theres also the support from china, the fact that global yields reached lows in the middle of last year. There are competing theories. You said it was less about politics and more about the ecodata. Will you see the survey data move down to the hard data . I think it is probably very likely that we see the peak on the survey data given the surprises. The remaining question is ier hard data will cut dont think we will get a substantial push here. We have to grapple with the idea that we are past peak momentum in terms of growth. That obviously will have implications in terms of what sort of returns we should expect from risky assets. Alix take you look at the atlanta fed gdp forecast. That has come down from 3. 4 to 0. 9. One very complicated issue is that the region why q1 his week is we had a significant drop in gdp. The seasonality from that specific quarter is still eight years overhanging the numbers we are getting from q1. We also look at this carefully yesterday. Growths a 1 drag on gdp in q1 of this year as a result of that residual seasonality. We dont think the economy is losing steam. We think the economy is still doing relatively well. What the soft data will do will be an important thing Going Forward for markets. Jon i want to understand the that when it will finally kick in when will we get the catch up with hard data versus soft . Employment numbers have been relatively strong. Beis true that you could skeptical, but that is why the political situation becomes a very important part. Jon i find it absolutely stunning that we sit here in march going into april after a couple months of an administration saying one vote tonight could derail the whole agenda. Is that a bit euphoric for some aspect . Three months in, its all over . It becomes important from a prioritization point. Maybe Corporate Tax reform is the next thing on the agenda. This isnd of the day, an important test for where we stand in terms of prioritization of policies. Alix how do you play this, then . You look at the ecodata and you are worried it is a referendum on President Trumps agenda. What do you do . Yianos you need to have a strong sense in terms of what is priced and effectively position accordingly. Look at the history of large fiscal programs. Have a sense of how that and intes to growth terms of additional financing costs. Indicated that we are roughly in the middle of the range of what is feasible in this case. I dont think we will be faced with a significant surprise over the next couple of days. The market will give the benefit of the doubt for a little more while. One last factor that makes a difference here is the fact that we still have relatively high yields in the u. S. Would provide a cushion, even if the hard data doesnt kick in automatically. That is why the market is not really taking an extreme views here. We discussed the terror attacks of yesterday with nick burns. That is coming up next. City, you are watching bloomberg. Jon theresa may addressed parliament after the london attacks of yesterday. The investigation is still ongoing. The assailant was britishborn. For more, were joined by nick burns in boston. He served as under secretary of state state for Political Affairs under president bush. Ministerfrom the pie with the attacker was the Prime Minister, the attacker was britishborn. Atwn as a french character this point. However important are the details we have learned in the last hour . Nick it shows how difficult this is for the British Police and authorities to track down not only the accomplices of the thatker it is important the attacks yesterday took place one year to the day after the deadly attacks in brussels that killed more than 30 people. That gives you a superficial indication that there may have been some contact or relationship between the attacker and the Islamic State or other International Terrorism groups. Smartitish have been very not to release the name of the attacker to not give any accomplices undo notice. They are already making arrests and pursuing this. What does it say about the Security Services at this point that he was known to mi5 but considered a fringe character . It is very difficult to make a judgment. The job of protecting the people who may berorists underground for a long time is a store nearly difficult. Extraordinarily difficult. He had not been a mainline suspect in the past. It is too early to judge the authorities. They seem to be working extraordinarily hard and effectively and Law Enforcement has an impossible job. The british have a lot of experience in fighting ira terrorism in the past. You need police and intelligence and judicial cooperation. Whether the European Countries can be helpful here or the United States the british will be looking everywhere for these suspects. Eu describe the cross Corporation Security cooperation that exists. Prof. Burns the Cooperation Among the eu countries is extraordinaire lee strong extraordinarily strong because of the repeated attacks. They are working every day to compare notes and give each other heads up when they think the suspects are traveling across national borders. When the british begin to negotiate their departure from the eu, retaining the type of Police Judicial intelligence cooperation will be could call for britain and the other countries will be critical for britain and the other countries. Cooperationtates has been critical to our country and the brits. Really highlight the struggle we are seeing all across the globe in terms of politics. You fight hard when it comes to economic borders but you need the internal cooperation when it comes to national security. Does this soft in the conversation at all soften the conversation at all . Prof. Burns it reminds everyone, especially as they look at these negotiations, that retaining links between britain and the eu will be critical in this realm. What we know about terrorism these days, these are single individuals or just a few individuals, they do cross borders. The only way to defeat terrorism is to have profound international cooperation. That has to be on the mind of the europeans want to cut britain off who want to cut britain off. Jon you and i have had this discussion many times the character of the threat has changed. This individual being britishborn do you think the way they secure london will change after this . Many of the police are unarmed. Do you think the secretive forces will have to change their approach . Forces will have to change their approach . , i wasurns i must say in london last week, i have watched the british for a number of years, the professionalism of the British Police and their services is quite impressive. Carrying on as usual was the best answer to the terrorists. I greatly admire what the british have done. Alix really great to get your perspective. Partner atkey barclays will join us on his latest call on global equities. We will break it down. This is bloomberg. Emma googles advertising practice has gone global. Big markets have halted spending on googles display network. Google is trying to head off the problem by implementing new tools and policies. Toshiba says the board of its nuclear unit will decide whether to file for bankruptcy. There have been construction delays at westinghouse. Is considering selling a controlling stake in westinghouse. Retail sales in the u. K. Rose more than expected last month. Purchases in stores and online were up 1. 4 in february. That is your Bloomberg Business flash. Jon a big upside surprise on u. K. Retail sales. The pound higher. A 125 handle on the pound against the dollar. To discuss, torsten slok and Yianos Kontopoulos still with us. The numbers in the u k, classic e. M. Dilemma. Upside risk inflation, Downside Risk to growth. They arent materializing in the way people thought they would. Torsten the issue is the u. K. Has been helped by europe having a stronger recovery and the u. S. Having a strong recovery. The u. K. Is not an island. It is a classic die lemma dilemma of an uptrend in inflation. That should be quite worrying for the bank of england. Jon i did a navigate this dilemma how do they navigate this dilemma . Yianos it is a primary risk for them. That is what the markets fail to understand initially. You are in a sweet spot of benefits of the week are bound and those are tapering off in the next few months. They needs to keep patience, keep along the lines of having the option audi to provide some additional assistance option ality to provide some additional assistance. A more hawkish stance serves them well. Switching strategies aggressively makes sense. Jon in the markets, we talk about the price setting the narrative. 2223, i was told that if the u. K. Voted to leave the european union, the economy would roll over. That didnt happen. Now, the consensus view is we havent started negotiations yet. Once they do start, things will roll over. The narrative shifted as the data points came out ok. Are waitingestors ite macro economics that continues, we will be good against the political difficulties in quantifying what is the scenario for brexit, who will do what and when. What will be the reaction from the germans . It is difficult to quantify this political issue. , it alwaystries how long will the pound continue to decline . The u. K. Economy will continue to benefit. The export sector will do very well. With that, you will get more inflation. Alix and Pricing Power in wages increasing at the same time. , the pain trade has been if you are short sterling over the last few months, when will that trade Start Playing out . You always have to be careful in terms of what you are paring it against. One makes an argument about the u. K. And sterling in particular, you really need to be looking against the euro. That is the starting point. At the end of the day, what is in our mind, a quintessential macro trade in the sense of the weakening of the pound over the next 12 years, one has to be patient. I would like to present the opposite view here. More hawkishness out of the central bank and better data. Look what happened to the pound against the euro. Not much. Jon great to have you on the program. Torsten slok and Yianos Kontopoulos of ubs. , aorrow, 11 30 eastern time program dedicated to fixed income. Youre watching bloomberg. Jon from new york city, this is bloomberg daybreak. Two hours away from the cash open in new york. Futures a little firmer, up. 1 . The s p 500 up. 2 . This is how the stage is set ahead of the key vote tonight on the Health Care Bill. Yields up a single basis point. A squeeze on the cable rate at 125 handle. Upside surprise for u. K. Retail sales. The man behind londons worst terror attack in more than a decade is described as britishborn and was once investigated over concerns of extremism. Theresa may described the governments response today. Protecte going to communities across the country to reassure the public. This will mean increasing the number of patrols across the country with more armed police on the streets. Emma they believe the attacker acted alone. Still, eight suspects have been arrested. What are people died in yesterdays attack, including the assailant and the Police Officer he stabbed. Thats four people died. The white house trying to get house conservatives on board with the Health Care Bill. They worked late into the night on lastminute changes that would attract support. Republicans have postponed a key procedural step. In asia, japans government is denying allegations linking Prime Minister shinzo abes wife to a banking scandal. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Im emma chandra. This is bloomberg. Alix here in the u. S. , lots of fed speak today. At 8 45 eastern. Ashkari and Robert Kaplan later today. Still with us, torsten slok of Deutsche Bank and Yianos Kontopoulos of ubs. Does this delay the path . Torsten i would not say so. The communication today from yellen, she will say lets not rock the boat here. Lets continue with this idea that things are moving the right direction. Theres a lot of uncertainty from the administration. Theres uncertainty about the exchange rate. Back and saying lets see what the data is coming in and lets be data dependent. Jon still the data dependent story. Alix neel says lets keep going. Then we compare the data. Nominal Interest Rates may remain substantially below the averages of the last halfcentury. Policymakers are more accommodative and seek inflation near 3 . It was a fascinating read. Torsten that paper is very important. Its written by someone at the fed, which tells you it has pretty significant weight. Critical, itsry as we will stay at zero 40 of the time in the future. If you are a rates investor and you read that paper, you should conclude that long rates will stay relatively low for a very long period until this demographic issue has been resolved. Lets raise the inflation target, there is a lot of problems with that. With this issue that weve gotten so close to zero. Alix you could see Interest Rates around zero 40 of the time. That seems to kill the bond bears. How do you rethink how you invest . Yianos you need to keep an open mind, truly. At the end of the day, we do know that the process to higher inflation will take time. The additional piece of information we have, sustainable inflation at the level that is desirable for most policymakers, you first need to see growth and then you get inflation. We are in a situation that i would still qualify as does this mean the fed needs to err mostly on the accommodative side . Is that the case for the next 30 or 40 years . Who knows. They are taking it a quarter at a time. Jon i want cherry pick a time frame. There was a huge consensus position that we were short treasuries. What of the biggest repricing is in bonds . Treasuries are debt flat, yields lower on the 10 year. That makes sense. It is a rational macro type of move. If anything, i would expect it to continue, especially past the Political Risk we have ahead. In essence, what really stands out is the very wide gap in terms of real rate expectations, real growth expectations between the u. S. And europe. The market has given too much reratingterms of the of growth expectations out of the u. S. And too little on the european side. That is hard to sustain overtime. If you want to bet on that direction, you start on the european side. 233. 5 billion euros. That was the take off this morning. Average is much, much lower. What is the signal that comes out of that . Torsten the key story now is that europe is getting better. For a long time, the absolute value between european rates and u. S. Rates has been significant. The ecb is now discussing rateshey should before qe. It makes sense that the markets are set to reprice european rates. That could have a Significant Impact on european rates across the bond. Jon why is it still 200 basis points . We were trading at 222to 23 at one point earlier this year. 222223 at one point earlier this year. Torsten we are getting to the point where the ecb expectations are changing. Look at what ecb expectations are for the december meeting. Ecbdecember meeting for the , if you months ago, there was a now, it is up to 50 . We have had a significant repricing of the ecb outlook. Perspective, it is not so much about absolute levels. Its about what is not priced and the upside risks and Downside Risks. For the u. S. , we are used to upside risk. Those trends are now reversing. Alix the idea is you want to buy european cyclicals. We get that. Deutsche bank coming out and saying the dax is expensive, defensives will lead, not cyclicals. That doesnt seem to square with what you see in the markets. Goes by andime given the performance weve had in stock markets in the last few beths, all of us need to more granular in terms of picking sectors. Theres a bit of a paradoxical issue here. If you look at the makeup of european stock markets versus the u. S. Stock markets, they tend to be more defensive fight construction. By construction. Be particular, you have plenty of opportunities on the sector level in europe that can take advantage of the domestic cycle picking up or some sort of global uptick that may continue over the next few quarters. I dont think the difference will be that stark. From a valuation perspective, it could make a much more stronger argument on the european side. Jon can you leave the rate where it is . Torsten it is impossible. Its really about keeping things stable. The biggest beer at these to be at the moment must be that they create a taper tantrum. The biggest fear at the ecb at the moment. The more the ecb tries to fiddle and do this in a way where markets get surprised, the higher the risk will be. Theres a huge discussion and willersion of views it be as bumpy as the u. S. . Or will they do it in a more elegant way . Jon thank you very much. Evans and jimrles bullard, all speaking with bloomberg. Later, keith parker from barclays. You are watching bloomberg. Emma this is bloomberg daybreak. Coming up, House Freedom caucus mo brooks. Esentative pharmaceuticals planning to cut an unspecified number of jobs. They want to exit unprofitable operations and reduce expenses. Teva said it plans to cut 6000 jobs that report is inaccurate. Jay clayton is a wall street lawyer. He says theres room for improvement to make u. S. Markets more appealing to businesses and investors predict starbucks plans to hire 25,000 more military veterans by 2025. They drew boycott threats earlier this year after saying they would hire 10,000 refugees globally. That is your Bloomberg Business flash. Market, you oil have brent a little higher today. Usingsterdays lows the technical damage over the last few days. Is james herring. What are the technical indicators and when is a the structural when is the structural chip reflected in the price . Theres a structural fundamental element to this. Opec is cutting production. Theres no visibility of the impact of that on the stockpiles in the u. S. That is what triggered brent to go below 50 yesterday. Crude stockpiles rose again. We should be seeing them fall by now. Alix how will opec address this . Do they extend those cuts in june . James that is the big question. Meeting this weekend to discuss compliance with the existing sixmonth agreement. , includingeople now some opec members, coming out and saying six months is not enough. They need to go a full year to remove the surplus in inventories. Shale keeps on producing. Herron. U, james that catch22 has implications for the Broader Market and the fed. This is the relationship between oil and breakevens for the twoyear. They have had a tight correlation. Still with us am a torsten slok still with us, torsten slok of Deutsche Bank. What happened . Torsten this is a dovish argument for saying inflation is not going to be as strongly up trending as we thought. Maybe oil can holdings back a little bit. Hold things back a little bit. The correlation with breakevens is very strong. ,he developments of Oil Prices Going down despite the cuts from opec opec must be frustrated. You have lower oil, lower gasoline prices, more consumer spending. This is different from going to 126. Torsten the key issue here becomes, for the fed, the oil price is a driver of inflation in their models. What oil prices do and whether they go down here, despite opecs efforts to prevent that from happening, that is a significant develop. Jon is this a good thing that crude rolls over . Oil spreads were widening dramatically. What we want in the market is something that is stable. We dont want a big crash in oil prices or a big increase in oil prices. We want businesses to plan according to something that is people. Clickable. That is predictable. Alix that is what opec is trying to achieve. What is the seethrough in the credit market . 7 for highyield. That doesnt signal where we were when oil was at 26. Torsten we have been through a significant washout in the credit space. The Energy Sector today is more prepared than they happen in a long time that have been in a long time. Remember the panic we were experiencing a year ago. Those were the main narratives that were driving markets. Not only in credit, but also in equities if oil does go down , we do see aark significant decline because we are not sing supply coming back on stream, that would be something that would wake markets again. Alix which Asset Classes in the drivers seat . Torsten bonds seem expensive. It i hear thek at argument that all risks in the u. S. Are to the upside. Risks in europe are to the downside. Maybe we should reprice those risks. European asset risks look more attractive. Confusing point. That becomes important for whether the u. S. Alix great stuff. , click watch is online on our charts and graphics and interact with us directly. On youro tv jon from new york city, it is the calm before the vote. Futures up 12 points. The dow positive. 2 . What a move weve seen in treasuries of the last week or so. Last monday, to 62. 262. This morning, 241. The euro printed a 2017 high earlier this week. Weve come down by. 1 . We started with 125 earlier on the cable rate. A big upside surprise on you pay retail sales. U. K. Retail sales. Alix how much more upside can we squeeze from this market . S p investors are quite bullish. This is a chart from torsten slok of Deutsche Bank. , 10 chance of a bear market the white line. The red line is a 5 chance. How did you find this data . Torsten this is from the minneapolis fed. Know how bullish or how bearish is the market. Have been theople st bearish relative to people are not position for a major crash. Jon are they position for major upside . Torsten we will not have a 20 increase over the next six or 12 months. Much already run up so what the market expects us to stay at these levels for the next 612 months. Care into the health bubble, theres 50 upside and 9 downside. This chart shows there is neither. Jon are you saying it is not there . Torsten investors are waiting to get more evidence on brexit come on trump, on policies, on italy. Those things will continue for quite some time. The complacency in the sense of lets wait and see and sit and eat popcorn, that is a situation where you say investors are too late back. Laido laidback too back. Jon we are having a serious conversation about normalizing Balance Sheets. The fixed income investors struggle to make sense of that. What do you make of the bond market calm . Torsten implied volatility is where you see the most complacency. Credit at lowg levels despite this enormous uncertainty in europe and the u. S. Its fascinating to see how markets are implicitly betting that the future outcomes have a narrow range compared to what could happen. What is actually going to happen politically and will there be spilling over to markets . Tuesday happened and a group of people freaked out. When we finally start normalizing things like the ,ederal reserve Balance Sheet are people prepared to have the where thereket back is significant price action . Torsten absolutely. This is very important. We are leaving behind zero yearsst rates for eight there is no longer risk on risk off like there used to be. This is opening the idea that we have to normalize how people think about Interest Rates. Process of differentiating between assets is playing out and that will be quite some time before we get to the end there. Jon torsten slok of Deutsche Bank, thank you very much. Coming up with the ceo of the National Retail foundation and congressman mo brooks on the health care debate. You are watching bloomberg. D. C. Han the politics of dominance Market Sentiment the Health Care Vote goes to the wire, and the white house consider changes. Considering whether the administrations agenda will become unhinged. Parliament resumes after a terror attack in london leaves four people that. Dead. Iron Jonathan Ferro alongside alix steel. David westin is off today. Futures are up. The margin of. 2 on the s p 500. The euro, softer, down. 10 . We retreat from a year to date high. Alix with your safety check, i dollarin. At the longest losing streak since 2011. The pound moving higher against the dollar, off the highs of the session, but nonetheless, after the betterthanexpected u. K. Sales number, no fear affected in gold. Brent crude, i am watching the level. What is making headlines outside of the business world, and the chandra is here with first word lose and the chandra is here with first word news. And the chandra Bridge Police say they are working on the ascension the suspect worked alone. Authorities said the attack was islamic inspired terrorism. Theresa may addressed parliament. Prime minister may the man was british born and was investigated by mi5 in relation to concerns about violent extremism. He was a peripheral figure the case figure. The case was historic. He is not part of the current intelligence picture. four people were killed. 29 others were injured. The head of the Intelligence Committee is offering such support for President Trumps allegation that he was wiretapped. President trump says he feels somewhat indicated. A group of conservative publicans meet with President Trump today on the obamacare replacement to. Bill. A vote is set for today. Developing leaders have delayed a key procedural step before the bill comes to the floor. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Chandra. The covermore on Health Care Bill, lets bring in Kevin Cirilli two questions, what is the vote count, when is the vote . Kevin cirilli they can only afford to lose 21 votes if they hope to get the bill passed, but i also spoke with rand paul, a republican from kentucky who opposes president obamas and House Speaker paul ryans health care plan, and he is saying he is pushing for a vote delay, which would indicate the white house is not confident they are able to get the vote needed to pass this. Later this morning, members of the ultraconservative House Freedom caucus led by mark meadows will meet with President Trump at the white house in an lastditch effort from President Trump to get the sales over the getline, and send it this bill over the deadline, and send it to the senate. Bill,concerns the which they already feel is not conservative enough, would become more moderate if it reaches the senate. Alix great stuff, Kevin Cirilli. A delay markets freaked out. Jonathan lets bring in the team, stephen stanley, and jpmorgan vocal Global Market strategist. Mark, lets begin with you. What is the reaction of the other side . I do not think it is going to have a huge impact to be honest with you. The reaction we have seen the last couple of days has been more concern for the idea that this shows that perhaps trump is not going to get through his tax cuts rather than anything to do with the health care sector. I think the reader cross is not necessarily fair. I do not think if they fail to get the bill through that necessarily means you are not theg to get the tax cuts markets are hoped that focused on and hoping for. if it is not if or we wont get them, is it about the timing, is it about it pushed back if they cant get the Health Care Bill through . Stephen i would say less about the timing and more about the ability of the president and congressional leadership to push through the agenda because if they cannot get health care done, which is topic number one on the campaign, really, then there is going to be a lot of question about whether we will get tax reform, which will be equally difficult. Willess is the leadership not go forward with the vote until they have the votes to pass it. If we see a delay, in a perverse sense, that might be a good thing because it suggests they hold out hope they could gather enough votes over the next few days or week or two to get this done. Michael, you said there would not be a huge reaction, but tuesday we were educating the selloff to the fact that health care might not get past. How do you square that with your fairly benign outlook over the next 24 hours . You could see a Small Movement in markets, but the key thing everyone is focused on is when youre going to get these tax cuts. It seems likely that irrespective of what happens in the Health Care Bill, you are going to at least get some tax cuts. When we look at the forecast for growth this year, were not building in any impact from tax cuts in 2017, so the time, we are expected to come through in 2018, and that will add a little bit to growth. Were still been relatively conservative. The u. S. Economy is heating up nicely even without stimulus. You have Consumer Confidence high, Business Service survey data at high level. Any boost you get from fiscal stimulus and tax cuts will be an added bonus to an economy that is heating up nicely. And a lot of people have been on the sidelines looking for a buying opportunity and they have marched higher since the election. If you get a pullback, you are likely to see some of those investors come back in, and that is likely to mean any pullback is likely to be relatively moderate and u. S. Equities will remain quite well supported. Alix pivoting off of what mike said, the atlanta fed gdp forecast is. 9 for the First Quarter. You have been constructive on the economy and inflation. How do you square your outlook with the quarter one reading that is light, and the potential for delay in tax reform, or just more confusion . Stephen taking the two topics one at a Time Starting with gdp has been weak in most years in recent history, and i think that is going to be the case again. I dont really put a lot of significance on that in terms of the big picture economic view. One of the main things you are seeing, ironically, a warm winter is actually hurting activity because we did not have to spend as much on heating bills, and that is showing up in consumption data. There is also this issue of seasonality in the data, and every time we have had a week First Quarter, we have gotten a strong bounce back. I am not overly worried about that. In terms of tax reform, i think at the end of the day, the time is less significant than the substance of getting something. As i mentioned before, this tax reform package is going to be difficult to get through congress. Look at the debate we have seen over the border adjustment tax. Tax reform is never easy. That is what people are focused on, you know, what is going on now with Health Care Reform, which is a difficult thing to get through, and if we can get through Health Care Reform, i think there is going to be some concern about whether tax reform is going to happen. If it does happen, to me it does not matter if it is passed in august, september, october, or even next january. In the long run, it will be very positive. Jonathan quickly, to wrap things up, a lot has been made about the Central Bank Put to the president ial put are we about to find out how effective or not very the president ial put actually is . Michael i would think clearly if we dont get any kind of fiscal stimulus from the Trump Administration, markets will move higher on the back expectations of that. I agree with the previous comments that as long as we get something, the timing is less important. Now you might see some sort of cause in markets as investors wait for the actual delivery, but the medium term view with the u. S. Economy heating up the way it is at the moment, would argue stocks can remain relatively well supported, and when you do get the tax cut coming through, as we had expected, at least by next year, that should be pretty supportive and positive. Jonathan michael dell, sticking with us. Stephen stanley sticking with us as well. Coming up on this program, Richard Clarida and julian emmanuel. Both of them join us from new york city. Counting you down to the market open, one hour, 20 minutes away. Features this morning a bit firmer. You are watching bloomberg. Emma Bloomberg Googles advertising has gone global. There are concerns as would run alongside offensive videos. Google is trying to head off the problem by implementing new tools and policies. Toshiba says the board of its nuclear unit will decide whether to fire for bankruptcy. That file for the accuracy. The government has been struggling with construction delays. Toshiba estimates it will need to take a 6. 2 billion writedown. There also considering selling a controlling stake in westinghouse. U. K. Sales in the if retail sales in the u. K. Rose more than expected. Burgesses were up 1. 4 in february. Still, retail sales are headed for the biggest quarterly drop since 2013. Alix we are about a halfhour away from janet yellen speaking today. You have a dove, a hawk, a chair this is what the markets are telling you. This is the spread between the twoyear and the federal funds rate. Now, during the december hike in the march hike, the spread was over 60 basis points. Now it is about 25 basis point. It means investors are remaining that hike expectations. Still with us, stephen stanley, and michael bell. What do you make of that . Stephen you know, it is interesting, if you look at the fed funds futures, it is not like the markets are reversing the hikes put in for the year. Still around 2. 5 for the year. I think the bond market is rallying, and there a lot of liquidity in the world, Central Banks doing qe, and you know, we will see. These things go up, and they go down. I am not sure what to make of it. What i do feel pretty comfortable with is that the fed is going to go several times this year. Alix you are calling for potentially four. You called march when no one really did. Michael, what you make of this . As the market still leading the fed . Michael i dont think so. I think the fed showed quickly they can quickly change the Market Pricing to a level where buyers expect and they can go ahead. I would agree that we are going to get at least three rate rises, and quite possibly four. I think the market is underpricing the possibility we get a fourth rate hike this year. If you look at 2018, the market only expecting to rate rises, two rate rises, we would think for next year at least is realistic. Jonathan i am told again the path of least resistance for the euro is higher. Treasury yields have been stubbornly lows if you low. If you want to play the bullish dollar story, what do you want to play it against . Michael the pound using the pound rally really, but that seems unsustainable. You expect the pound to range in 1. 15 range. You have Consumer Confidence that is continuing to weaken. We had decent retail Sales Numbers in the u. K. , but it is unlikely that is going to hold up, and that is really what has been keeping the u. K. Economy afloat. You expect weakness as inflation has to weigh on real wage growth, and that has put some further downward pressure on the dollar. Can go with you the euro higher against the dollar if the ecb tapirs as we expect and also, if you get, as polls suggest, Emmanuel Macron winning the French Election rather than marry him and. Mary and le pen. Stephen our expect weakness on both sides, or at least uncertainty as a result of the upcoming frexit negotiations, combined with the fact brexit negotiations, combined with the the euro tradee higher as the markets are serialized we get more rate hikes than currently being price. Alix stephen, the reprinting in the markets has come from the german bond market. What is the possibility we will have centralbank convergence this year and next, and how does that filter out . Isphen obviously, the fed well ahead of the game. It feels like the ecb is going to be very slow in turning the ship around the Monetary Policy ship around, but if you look at the u. S. Expands, at least as it relates to the dollar, it seemed like the Inflection Point was the big move, right . The dollar moved a lot in the early part of 2015 in anticipation of the first rate hike, and it really hasnt reacted much over the last, call it, six months, from the last two. So, maybe that pattern is playing itself out again, as mike said. In euro has strengthened anticipation of something that might not happen for a year or two jonathan . Jonathan it is all relative to expectations the expectations coming into the year was we would get the version monitor divergence he in the mind divergent Monetary Policy. It doesnt seem that way. Michael i think what youre going to see in europe is tapering. We are pretty confident the ecb is going to taper the qe program , announces 20 end of the year and start to implement it next year. Extent, means youre getting some tightening policy from the eurozone and the u. S. , and that could potentially be,nd given the current account since the surplus is so strong in the eurozone, that is supportive for the euro. But i think you are going to see Monetary Policy divergence between the u. K. And the u. S. Where i would expect rate rises to come through in the u. S. , but not in the u. K. , given the uncertainty that faces the economy in this brings the negotiation period we have of the next couple of years. Alix we do have some centralbank divergence, but you do feel a by the dip scenario. What is your strongest conviction trade based on the . Michael at the moment, we are starting to think european equities is a Good Opportunity whereby everyone is fearful because of the politics, and it could be the case you want to follow the maxime that you should buy when others are fearful. The most likely outcome is that Emmanuel Macron is going to win, and if that is the case, you can see a lot of investors that have been sidelined waiting for the clinical risk to dissipate, coming back into the market, because actually european fundamentals are looking quite healthy. You have pmi in the you are eurozone at the highest it has been since 2011. Alix stephen, is that the story it will be about euro growth rather than u. S. Growth over the next year . Stephen to bring it back to where you started, you look at the levels of treasury yields here, and they are not consistent with either the performance of the economy, or the likely path of the fed. I mean, yes, a lot of investors are focused on those spreads you know, whether it is the german bond treasury spread or the various fx rates, but at the end of the day, if the economy performs as i think it will and the fed follows through with several rate hikes, the level cannot stay here for much longer. Jonathan thank you very much for sticking with us. A programming note for next week do not miss fed president charles evident, James Bullard charles evans, chain james evans, jamesarles bullard. It is a week full of fed speak. You are watching bloomberg. Theresa may today, we meet as normal as generations have done before us, as future generations will continue to do, to deliver a simple message we are not afraid. Jonathan the resilient british ital getting back to work theresa may addressing parliament after the london attacks that left four dead and or injured. She has stated eight arrests have been made. Investigations have been ongoing, and the assailant was britishborn. Us now is Jacob Kirkegaard britishborn, known to the mi 5 what is the significance of that . Jacob i think the significance is it highlights the difficult is for liberal democracies to protect themselves against these types of loanwill style attacks. British style attacks. He we have a person that takes a knife and turns it into terror we cannot really do anything about that. Becauseer news is that of that, we know from a long history of these types of tax dollars terrorist attacks, the macroeconomic significant of them are zero. Consumers are resilient, they really dont care, and they can get on with their lives. Jonathan it has been a year to the day since the brussels attack, and some people say that is more than a coincidence. Lets talk about the political implications. There are very little macroeconomic and, or for that matter in the financial markets, what are the political publications . Jacob for better or worse, they will be limited. Of attacks is so low that the political effect, will be, in my opinion, limited. Do not think you could say there were political fallouts of any similar attacks we saw in europe, in berlin, and nice. It is a terrible thing to say given the tragedy of this event, but we will, in almost all probability have forgotten it in two weeks. Jonathan that is the tragedy of hass well Islamic State, claimed responsibility for this, calling the assailant a soldier of the Islamic State. In an age we have given up on and rightwing politics, and it is globalist versus nationalist, how does the world come together . A security something where we will still see a global effort . Jacob absolutely. There is no doubt about that. You may remember democracies can protect themselves against this kind of attack the only way liberal democracies cant protect themselves against this kind of attack is not by closing the doors to immigrants because this person was britishborn, but it is to continue to do exchange theand surveillance of that these groups are, to the greatest extent possible, their whereabouts are known, and you can basically get in and get to the minds of the people they can sway, like this unfortunate individual. Keep in mind, this is not probably going to stop. Jonathan Jacob Kirkegaard of the peterson institute, thank you very much for joining us. Show me academy of Country Music awards. Thank you so much for that down home welcome. Show me female vocalist of the year. Thank you so much. Thank you so much acms, i appreciate it. Show me acm best moments. I could never have wished for, asked for and dreamt of anything more than this. Catch your favorite moments from the acm awards and an exclusive encore performance by Kelsea Ballerini following the show on xfinity x1. The acm awards. Live on sunday, april 2nd 8 7 central on cbs. Jonathan from new york city, bloomberg daybreak. Im jonathan fair a. About one hour away from the cash open in new york, futures up. About. 10 on the dow. 2 on the s p 500. Elsewhere, treasuries on offer on the margin. Yields higher by a single basis point. What a repricing we have seen since monday of last week, from 2. 62, 2. 6 3, 2 2. 41. Alix initial jobless claims with an upward revision versus last week and slightly above estimates. Nevertheless, we are to lowest level for javascript we have seen since the 70s. It is all in context to how much lower we can go. Theould also point out provider prior week was revised up by 2000. This tickets to the question, how much slack is there in the labor market . Jonathan its a initial jobless claims has not been much for a long time. Federicod by schiffrin. I want to begin with you, a quote you have given to us although we see the same month, we see through different eyes. The headline numbers in the u. S. Labor market may be speak to that. Federico liver markets are strong i think last week we saw the central bank expressing a view that the markets are pretty tight. Broadly speaking, how we see this developing is we are very willing to make bets on domestic manufacturing u. S. Based manufacturing for two reasons. One is we still see there is some growth left in the market. Second, where policy is going, we dont know where direction of travel, particularly where it relates to trade and taxes going, this u. S. Based manufacturing still seems to us like a nice, longterm sustainable trend. Alix and is that a trend based treasury jobs we have added, or is that based on an official should plan from President Trump and bringing jobs back . I take it from a different way for us it is a way to mitigate future risks in terms of where policy will go and to us one of the bigger unknowns here is where trade policy is going to end up. And its close cousin, which is tax reform. Betting on companies that are ,ugely exposed to trade flows outside the u. S. , presents a longterm volatility problem. Alix that the question becomes what does this mean for emerging markets with the dollar relatively stable, you could make the argument emerging markets are in a good spot. The South African rate, bestperforming currency year to date. The mexican peso of by 9 . How do you you emerging markets and view emerging markets through the lens of the white house policy . It has changed in a way that we have not said that we would not have said two years ago. Despite the threats of a stronger dollar. The reality is china is becoming much less of a risk. Am and growth in most of the countrieser we are looking at the growth and mulch most of the countries we are looking at is strong. This path of going down the capital structure trying to pick up yield. It is good for american markets. Jonathan i am trying to work out how much is about the fundamentals and treasuries the massive short that existed that have not materialized and yields that have remained quite low . The i would not deny that islar stopping to rally beneficial, but something is going on with countries themselves. Post 2013 adjustment has been brutal. A lot went through deep recessions and now they are recovering from it. More importantly, with the guest was talking about, the manufacturing revival we see globally, goods recovery we see. Lobally benefits em you see it in taiwan, korea, singapore, mexico, even mexican exports are quite strong. We are benefiting from that, that is part of the story. Alix frederico, what you make of em. Policy overhang, yes . The way that we look at em is the possibility of generating outside returns has to be significantly larger than it is in our core market, which is europe and the u. S. , and right now we are very cautious, generally speaking, and i would say we are not willing to make huge bets emerging markets when we think there are sufficient opportunities that we can focus on in our core markets. We were talking about european we just mentioned the u. S. That is i think where we are going to focus 80 of our time. Jonathan some investors alix some investors are not taking that stake. Chinas Junk Companies are selling a ton of debt overseas because of the reach for yield. Do you feel that investors can be taking on too much risk that they are not compensated for dealing with yes, that is it, that they are not compensated for . Amer by the way, with all my euphoric introduction, i have to mention that valuations in emerging markets have run quite a bit. You are starting to look at Sprint Center potentially even to tight even for the positive story i am suggesting, so some caution is necessary. Chinesepoint, the abroad. Quite a few of this is chinese demand chinese themselves are demanding dollarbased assets. This is also about locals buying. The demand for some of this is genuine. Lets talk about the commodity market and the repricing we have seen. It has had an effect on highyield. Why has it not had an effect on your world, in the emerging markets space in a pronounced way . Amer that is a great question. We are noticing the instability in high yields. Honestly isanswer the amount of inflows that come into our asset class. So far we are ignoring flows into emerging markets remaining quite strong. I want to emphasize the story is good at this point. It is a combination of the technicals and good fundamentals. Jonathan the story is good, but the optimism is quite hard. I caught up quite high. I caught up with Mohamed Elerian and we talked about the composition. He is saying they are taurus and they are cautious. D. C. Tourists coming into the do you see tourists coming into em em investment . Amer i would not call them taurus. I would say they are nonconventional investors. Jonathan that is my wood. That is my word. Amer the numbers are very large. You could think of it as a tactical trade that could be quite dangerous. You could think of it as a structural presence into an asset class they have been out of four years now. I tend to favor the latter. Have beene crossover underinvested in emerging markets since 2013 in this is their way of catching up. Is there a shortterm risk, of course there is. Alix finish your thought. Amer structurally, i am confident with their presence. Jonathan talk about playing catchup, the idea is money will come back in, and every person we have had at the table says i want to buy europe. How do you do venture a how do you differentiate . Federico a lot of people want to buy europe, but how do you buy we have article 50, what does that mean for sectors are on your . Maybe it is in our nature and dna, but we are taking a cautious approach because the direction is unknown and the impact is unknown. Jonathan there are groups and individuals that think this wall of money wasted going to europe wants to get past the French Election. To use his car to the theory . Federico the first thing that will happen is there will be a sigh of relief if macron wins. If people really want to go into europe, my question is to asked him where that money is going. I to ask them where that money is going. They were not be able to pinpoint where they want to go. Jonathan federico schiffrin, great to get your insight. Amer bisat of blackrock, thank you very much. An update on what is making headlines outside of the business world, emma chandra. Emma the man behind londons worst terror attack in more than a decade was britishborn and once investigated over concerns about extremism. Prime minister theresa may describe the governments response today. Prime minister may we are stepping up releasing to reassure the public, and as a precautionary measure, this will mean increasing the number of patrols in cities across the country with more police and armed police on the streets. Emma police say they believe the attacker acted alone in his rampage in the houses of parliament. According to the associated press, the Islamic State says the attacker was one of its soldiers. Four it were killed. In kyiv, a former russian lawmaker who fled moscow for the begann ukraine and criticizing Vladimir Putin has been killed. His bodyguards may have wanted the attacker. The white house is trying to find a way to get house conservatives on board the Republican Health care bill. Lawmakers in Trump Administration officials worked late into the night are lastminute changes that would attract support. Republicans have postponed a key procedural step before the bill can get to the floor. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. Alix. Alix thank you. Coming up, representative mo brooks an outspoken opponent to the health care law. What would it take for him to vote for it today . This is bloomberg. Emma this is bloomberg daybreak. I am emma chandra. Hour, up in the next barclays u. S. Head of asset allocations. Stay with us. Alix the focus on d. C. This morning the Health Care Vote is down to the wire. The lands is considering changes to win out hold outs, and one of those holdouts, republican commitment mo brooks from alabama. Take you for being with us. What are you doing at 11 00 a. M. Today President Trump will meet with the Freedom Caucus will you be there . Brooks yesterday i met with Vice President mike pence and the white house staff and i do not have the details on who would be invited to the meeting today. Yesterday it was not all of us, but a majority of us that wasnt right. Today it might just be the Freedom Caucus chairman, the board numbers, or it might expand beyond that. It probably will not include those that already agreed to vote yes. Fair point. Yesterday i had the pleasure of speaking with commerce and mcclintock on whether Freedom Caucus should support the bill. Here is what he had to say. Representative mcclintock i will compare my conservative credentials with everyone with anyone we might not get all of what we want, but we get most of what we want. Rep. Brooks i disagree with his discussion of the bill. Primary emphasis is to do something about Health Insurance premiums this legislation, contrary to what people believe, it does not repeal obamacare and it increases Health Insurance premiums according to reports by the Congressional Budget Office in the joint committee on taxation. Over the next two years, premiums go up 15 to 20 . That is the wrong direction people of america want us to go. Secondly, this legislation creates the largest Welfare Program in the history of the recovery can party, and with huge Welfare Programs, you have, what, a disincentive to work. It undermines the work effort. You have higher taxes required to pay for the benefits that increase over time. To higher taxes lower the ability of American Families to take care of their own. This legislation has bad aspect to it. If the argument is it is not as asbad it is not as bad obamacare, i will concede the argan, but is not the same thing as saying it is good. This is a bad bill. Jonathan for our audience, market participants, they are looking at the vote and extrapolating what it could mean elsewhere. Something give the vote is not past it will unhinge the rest of the administrations agenda and tax reform will get pushed into 2018. The you subscribe to that theory . Rep. Brooks no, i do not. It is important that whatever legislation we pass achieved the goals we hope to achieve. This legislation does not achieve those goals. As a consequence, i think you will see an adverse effect on the economy, which, of course, as people discover how bad the legislation is, will also have an adverse effect on the markets. Reformn as far as tax is concerned, what kind of doubted you have in mind if you will spend more time dealing with health care . Rep. Brooks we could address it next week if we wanted to. Italy takes a day or two on the house for to pass legislation, it only takes a day or two on the house floor to pass legislation. Given the complexity of tax reform, it could take a week, but we could do multiple things at one time. We have already passed dozens of piece of legislation even though we have these major issues pending. I do not subscribe to the belief that we can only chew gum or walk the same time, congress can do both. Aboutcan you not talk legislative agenda and economic agenda the same time is the whole point you have to do it separately . Rep. Brooks i dont think so. We could address these major issues whenever we want to. We could have a Border Security bill whenever we want to, tax reform whenever we want to appear we could address health care whenever we want to. The issue is not whether we have the time in which to do it. The issue is whether we have the motivation to do the right thing for our country, or will we succumb to the temptation to do the right thing wrong thing, and often those come in the form of Campaign Contributions from very powerful special interest groups. That is what we have to be wary of. Alix congressman, alabama hates obamacare. That is a pretty true statement. If you do not get a Health Reform bill passed, do you expect to lose your seat next year question mark next year . Rep. Brooks i am supportive of a repeal of obamacare. Alix right, but is this the best bill you are going to get . The senate ise not going to pass something that you want, so this is it, you dont vote for it, how do you win your seat . Rep. Brooks i am not going to vote for legislation that is not going to be what the American People want, and when they discover they have been sold a bad bill of goods, the people that voted for this legislation will be at risk. When people understand that rather than repeal obamacare, it continues major portion of obamacare, American Voters will be upset. When American Voters realize we are creating a Welfare Program, American Voters will be upset. When American Voters learned that their premiums have gone up, not down 15 to 20 over the next two years, voters will be upset. When that happens, i will probably point out i voted no. You if the president calls and and says we are willing to change the essential benefit clause, do you vote for the bill . Rep. Brooks i think there are deeper structural problems and than just the essential benefit clause. We need to repeal obamacare and we need to do that with legislation that passed the Republican House and the senate two years ago. We get that on the president s desk, and this time it is signed rather than vetoed, and then you can work on constructive changes to the health care system, primarily interjecting competition into the marketplace, which by the way, this legislation does none of that. There is nothing in the legislation that deals with interstate competition of health insurers. There is nothing in the legislation that removes antitrust exemptions that in the Health Care Industry create oligopolies or monopolies that allow companys to increase prices because there is not competition. It allows the companies to decrease the quality of care because there is not competition. This legislation has major flaws in it, and im not going to vote for legislation that longterm is going to make things better, worse, not better. Alix a very hard know there. Thank you, congressman brooks. Jonathan i dont think he is voting for the bill. Alix definitely do not think he is voting for it, but if markets are not are worried about the bill not going to come he does not think that is a big deal, and will get tax reform done. That, that convey could be a game changer. Jonathan the president says he has to have one before the other. You had minutes. He deftly got that across. Alix definitely no. This is bloomberg. Alix leaders were from some of the nations top Retail Companies met with President Trump speaking on tax reform and potential border adjustment tax. We are joined by National Retail president and ceo matthew shay. Do you agree with congressman brooks that they cannot do Health Care Reform and tax at the same time . Matthew i take a little issue with congressman brooks i think they will get this finished before they move on, and there are a number of reasons why they do with health care has indications for the overall budget and Health Care Reform generally speaking, not to mention the political dynamic that if they just pull it, this does not get done. That has an impact on the psyche and political will of members of the house and since signals to very factions and constituents. We think this needs to happen. Our view is not let the perfect be the enemy of good. Everyoes not solve problem for everyone, but generally speaking, it is a move in the right direction. It removes the employer mandate, eliminates the cadillac tax. It does a lot of things in terms of flexibility. Alix that is what area you agree with President Trump. One area you dont is border adjustment tax. How successful were you in the meeting question mark meeting . Matthew we actually agree. He came out and he said this was confusing to me. Alix it is not clear where they stand on it. Committedhey have not themselves, but there is a serious question about whether this is a good idea or not and i think for a good reason this will hurt consumers. The border just the tax will cause the price of everything we import, whether its food, clothing, shoes, construction drugs, automobiles, petroleum anything that is supported will cost more. That is not good for conservatives consumers. A tariff is a tax. The cover you represent, to communicate with his face, what would it do to employment . Retail industry is the largest privatesector employment employer in the country. We think it has the potential for substantial impact in a negative way on job creation. This is an issue facing disruption. We are hearing about that or what is happening in the marketplace as we adopt new technologies and Consumer Preferences change. To think this could be the worst possible thing we could do to employment in the Retail Industry and for consumers. Jonathan at this point, Business Confidence is up here. When i talked to the people you are present, they feel great about the economy were better than they otherwise did with this administration. What needs to happen for them to Start Building things again . Matthew that is a good point what we were worried about in previous years with the uncertainty of what might happen next. I think now we are pretty certain terrible things will happen, but were not sure how good it could be. If we get rattled toward reform done, Health Reform, i think people will go out. Consumers and a good position. That is down. Wages are rising. Good position to spend, and i think they will spend more and businesses will invest more if we can get policy things taken care of. A tough time for retail. Matthew shay, we appreciate your time. Parker,p, Keith Barclays head of asset allocation. Youre watching bloomberg. Jonathan a little price action across Asset Classes as investors consider whether the invest the administration will become unhinged. The Health Care Vote goes down to the wire. The white house considers changes to win over holdout. Managed care stocks limping ahead of the vote on the floor suggesting more pain could be ahead good morning from our 4 could be ahead. Good morning. We are 30 minutes away from the afternoon theyll. Bell. Future softer on the dow negative about 10 points, going nowhere on the s p 500. Treasuries, yields lower by two basis point. Last monday and even with the fed hike that is where we are. We get there first before we get back to three . Jonathan do you want to play that game . Alix fed chair janet yellen is taking right now in washington, d. C. She said the economy will benefit when people are better prepared for work. If you are interested in anything on Monetary Policy you were disappointed. She did not take that date. Ferrari, rates are at neutral from citi. Also, fireeye getting a jump, goldman upgrading shares from buy to sell saying the revenue is occurring faster than they had expected. Dollar general cut to underperform. Competition rising cost pressure raising on earnings. You can definitely say a tough environment for retail. The house Health Care Vote is down to the wire and the white house is considering changes to win over holdouts. Joining us for the latest is Kevin Cirilli. I just spoke to congressman caucus andhe freedom he did not even know if he was invited to the meeting. Who is going to go . Kevin mark meadows will be at that meeting at 11 00 at the white house with other top members of the Freedom Caucus. I spoke with some senior aides to members who are opposing the plan, and they tell me they are all in, hoping for a delay in the vote. Should this vote be delayed, though sources are telling me they hope speaker ryan will not take the bait and have an overnight type of vote because the political optics of that would be that it would be rammed through overnight, further irritating some of the more conservative members of the party. The white house feels they will be able to muster the forces that be to force this thing over the finish line, and ease conservative concerns that this is not a conservative enough plan despite their concerns that it will become more moderate. Numberway, 21 is the key. If the white house and speaker ryan are able to keep the defections from being 21 votes they will get the plan passed. Alix bloombergs Kevin Cirilli, and it aint over. One man not getting invited to the white house, that was the congressman about 15 minutes ago. Joining us for how the political environment is impacting their ofategies barclays head asset allocation. The target on the s p is 25 by year end. Why . Kevin a synchronized turn up in keith a synchronized turn up in growth underpinned the rally. , our viewle rerating is we are in the earnings up cycle and that multiples have rerated closer to fair so we look at it from a base value perspective which would put the s p 500 at 2450. It will be trading with an embedded fiscal option which we are seeing, where the real fulcrum is based on tax proposal which we estimate at 75 points right now. Jonathan lets talk about the earnings. Alix ford down over 2 in premarket, announcing their First Quarter adjusted market the estimate was . 47 a share. 2018es profit improving in but in 2017 at is looking at about 9 billion. We talk about earnings supporting no matter what President Trump does, but does that hold up . Jonathan talking about a fiscal premium, clearly these companies are not baking it into their guidance. I think theres is a transition logically from optimism which is hope, and certainty which is when do i get the money in my pocket . After taxing corporates would go up and i think that is when you start changing your spending behavior so that is the next potential leg of tax reform. Alix ford citing higher costs, lower volume, and an Unfavorable Exchange rate. What is your view on the dollar considering we might not get the health care past . How do you square that . Keith i think we are still constructive on the dollar. There may be some upside especially if we are able to get something through on the border tax side but we will find ourselves in the situation where we are deployed deporting inflation. Story is farollar less of a known at this point and there is uncertainty on what happens in washington and how that plays out on the treasury market. Jonathan i just want to establish a framework for the vote. Do you see it as something that could potentially derail the isinistrations agenda or this all about time, the timeline might be pushed out further . Think the reality i president that tweet about the market and jobs is obviously watching how optimism develops, so i think there is somewhat of an inherent fiscal foot where the gop needs a win before the midterm. Put,han the central bank all you need is the central bank chair to come out and say we are backing away. Further president , he needs a lot of people behind him. I think you start to put an uncertainty premium around that said today is the first test around the perception of how organize the gop is. Basically been the story the past couple of weeks . Keith certainly it has been since we saw the fed come out with its hike, and the big question right now, is the treasury market facing a conundrum where we have the fed pushing up the front and rates where the 10 and 30 year sector continued to outperform . Alix do you agree we are looking at a referendum on President Trump . Ian i do. Trump goings is to be able to deliver much in terms of fiscal policy and reform . If he is it will be great for the markets and if he does not, i think we will be back to where we were. Jonathan what do you say to people who say fade the political vote . What do you say back to those people . If the vote ends up not happening and we end up with yields at the lower end of the range, i would not say that because i do not think this administration has proven it has the traction to push through some of the bigger reforms that have been promised. Alix what do you do over the next 24 hours . Retest 230we could and 10 year yields, which was the low mark throughout the course of this year since the election. Jonathan the tens and 30s are remaining stubbornly because of what happens elsewhere or because of what is happening at the front end, because of the repricing higher, which is it . It is a combination. We have what is going on with the ecb, the bank of japan continuing with their zero target in the 10 year yield, but the notion that normalizing Monetary Policy at a time when the expansion is starting to get long in the tooth is trouble some. That is what the market is responding to, and the inflation story. Alix i know you make the case, but make it again when you have the 10 year trading at 2. 39 for being overweight risk, which was your note today. How do you make that call . There is the fundamentals and there is the politics. If you walk back to where we were a year ago, we are one year into bottoming commodities and inflation growth and that tends to persist for some time. You have that combined with this fiscal play where on the rate side you have a market where the long and is relatively well behaved, and they becomes about those longterm growth expectations. So netnet, that is positive for you haveand in europe a pretty sizable disconnect between relative fundamentals and European Equity valuations. Alix you said you want to pare back a little bit on the u. S. And go to the europe so wendy rotate more heavily toward u. S. When do you rotate more heavily toward u. S. Equities . John talked about the risk premium, and in europe we have relation election related risks which is not our call. Tactically it is a nice relative trade. Alix both of you are sticking with us. A mover in premarket, it is ford. To . 35 as opposed to estimates of . 47, they are , lowerhigher costs volume, and an Unfavorable Exchange rate. Alix financial conditions tighten slightly and we have a wishywashy market. What does that do to fed rate expectations . This is a twoyear spread of the federal funds rate. Now it is a 23 basis points. Still with us is keep parker and ian lyngen. Are you starting to price out rate hikes ordeal you think this is just a trade . I think it is more of a trade play and the market is questioning on whether the fed will deliver on another two rate one, orhether it is whether we do not see anything else until 2018. Alix nothing else from the fed . Ian we will find out. Alix it was about centralbank divergence and now it is about centralbank convergence. You have seen a reset in rates, first in the u. S. And the gap between european and japanese and u. S. Rates have that, willyou have we converge a little bit . The risk around elections, we have the potential for the ecb guiding language about deposit rates. There is this con virgins but as ,e saw from the convergence but as we saw from the fomc it will be gradual. It as a do you see market casting a vote against the administration in d. C. And a Global Market everybody is optimistic about, or is it a market that formed the bullish case that the dollar will weekend . I think it is more of the latter where we have a repricing on the back of better growth that has taken a breather. One of the worries in the fall is the rate strayed would get out of hand and hurt the equity would getrates trade out of hand and hurt the equity market. I think the place to be is equity. Jonathan the state of the bond market, we have had several conversations around the following, the rate hike of an ecb Building Momentum on the deposit rate. Beyond that, a conversation about normalizing the balance bid on at treasuries 10 year. What do you make of that . I do think there is a lot of unknowns currently in the market. We came into the beginning of the year with the idea that we would be faced with more significant inflation that has yet to materialize. Gdp growth is starting off on relatively lackluster footing and i think that as we look forward, these policy changes are largely data dependent. The ecb is not going to shift their stance on voluntary policy until we saw Monetary Policy until we see more momentum. Yellen has come out and said we will take it slow and see how the data develops. I think that is what the treasury market is telling us, if you expect the fiscal side to drive Inflation Higher it is going to be a process of waiting to see. Marketoesnt the bund disagree . How do you square that . Ian i think what is going on in europe followed with the dutch elections. There is the realization that the ecb at one point will have to taper. Alix it was like 4 10 of 1 in the First Quarter. Jonathan get with the narrative. Ian they are actually now importing inflation because the weakness of the euro, and i think they might be based faced with a false done because it is currency driven and if we see a change in the policy differentials jonathan you go out of europe and go into the u. S. Goesig threat, arima pen Marine Le Pen goes several years and then you have a bund market that has to reprice. What does that mean for risk equities . Keith one is the European Equity risk premium and what drives that, you saw a percent of assets leave European Equity funds last year. I think some money comes back into european risk and with the repricing in rates and European Bank valuation still relatively low, the pricing out of negative rates would lead to some valuation in the equity market. Alix your top convection trade for both of you. Keith i think the europe trade on a global basis within u. S. Equities, i think we are still long financials. And still long tech. Alix that curve does not like that. What is your conviction trade, ian . Ian i think 10 year yields get back to 2 before 3 . Jonathan a bullish call on treasuries. Coming up tomorrow on the bond ,arket, bloomberg real yield 11 30 a. M. , 30 minutes dedicated to fixed income. 11 minutes away from the market open. Futures slightly negative on the dow, the s p 500 going negative going nowhere. Yields are up by a basis point at 239 on the u. S. 10 year. You are watching bloomberg. Jonathan ford motors offering a little bit of soft guidance. To . 35, the estimate was . 47. Stock premarket, that down 2. 5 . Joining us is dan suzuki. I want to get to this Earnings Guidance from ford and try to extrapolate what it means for the others. There was so much optimism about earnings in the quarter. What does that tell you . Dan it is another reason to be a little concerned. Everybody is focused on the fact that growths getting better, earnings are accelerating, and that is true but on our numbers earnings will peak out and the First Quarter quarter and you will see that rollover. There is a huge divergence between the survey data the confidence data and the actual economic surprises on the Bloomberg Index are at fiveyear highs. At some point those have to converge and there is a risk they converge lower. Jonathan what a carmaker says slowing u. S. Demand and rising costs, the have to deal with those, what does that say about where in the cycle we are at . Is this sector specific . Dan i think some is sector specific at some has to do with the entire economy. On prettyt the much everything it is already peaking or has already rolled over. Year over year auto sales are negative. You are seeing loan delinquencies pick up. There is still definitely a lot of concerns and the key is we are late in the cycle. Alix where are the most downward revisions going to be in the next earnings cycle . You are probably going to see earnings revisions pick up a little bit. Alix they are risk but they pick up . Dan yes. Despite this improving view unconfident, provisions have continued to cut estimates more than they raise so there is room to pick up estimates a little bit based on growth getting better. There are certain sectors at risk. I think it is the more hyped up sectors and some of that lies within tack. Tech. I think you will see revision trends improve. Alix on Conference Calls confidence calls, ceos were citing optimism. What do we hear on the confidence calls and the first order . 47 or be optimistic at will we hear more negativity . Dan there is the trump put, the hope trade, and businesses are getting increasingly optimistic that you will get relief. As the Health Care Bill drags through and the vote gets pushed out, maybe ceos fade a little bit on confidence. Ceo confidence is probably at multiyear highs and it can come down a little. Optimism what are they going to do . As we set people up for the market open, about five minutes away, talk about how significant this vote is for the risk that risk rally. Is Health Care Bill extremely important because it is what people are looking to come up to see that this administration will get a push through. The market is clearly more focused on tax reform. This is just a leading indicator into whether you will get the tax reform bill push through. Jonathan is it a case of the Administration Agenda becoming unhinged or just delayed . Dan ultimately i think it is a matter of being delayed but i think the risks are going up. Jonathan dan suzuki sticking with us. We are counting you down to that market open. Futures marginally negative, down 1 10 of 1 on the dow the s p 500 treading water. Yields lower a single basis point, 2. 39 on the u. S. 10 year. You are watching bloomberg television. Jonathan from new york city, you are watching bloomberg daybreak. I am Jonathan Ferro. Open,onds from the futures a little bit softer. The s p 500 goes nowhere. We call it the calm before the vote. What it means for the Administration Agenda. Nowhere on the dxy. Market thebid on the 2. 62, 2. 63, right now, 2. 39. Wti. , 47. 82 on we are putting our attention on d. C. Where the Supreme Court nomine neil gorsuch is entering day four of his hearing. Hearings are underway at the pick toank for the lead the security and exchange commission. Bloomberg terminal users can watch those hearings using the function live. Across the board, the nasdaq off 2 10 of 1 , the nasdaq and s p the s p nowhere near the drama we saw on tuesday. Health care stocks pivoting toward what might happen over the next 24 hours, lets look at united health, aetna, and cigna. Anthem off 1 10 of 1 . Have and the men cigna anthem and cigna very exposed. United health and humana have pulled back from the exchanges to help their earnings. The other stocks you want to watch are 17 and melina, medicaid players. If there is a pair down of medicaid assistance, what does it mean for those . Companiesing the card Car Companies after ford announced its earnings per share would be . 30 to . 35 per share versus 47. Weakness from ford earlier in november. They are spending a lot of money to boost their investments but they expect to return to that profitability in 2018. Drawing down General Motors and fiat in particular, all of them lower. Growth might be slow because the whole market is softening up. What is optimism like heading into the Health Care Vote and what does that say about where we might trade tomorrow . White line is the number the chance of a bear market, a 20 decline or more. That currently sits under 10 . The orange line is the same over six month, meaning Equity Investors are the most bullish since 2008. Not a lot of people see a lot of downside but not a lot of upside either. How do we trade from here . Make of what do you this sentiment indicators and what they tell about the Broader Market . Dan the ones or investment market . Jonathan investment market. An there is pretty much record percentage of investors who think the market is expensive yet allocation of equity is close to alltime highs. I think what it means is you are seeing fomo, fear of missing out. I think that is classic light lead cycle sentiment. Jonathan your point in the market is overvalued and evaluation is a terrible time indicator so what is a good one . Dan infiltrate on sentiment and technicals. Small caps are trading north of 19 times. There has only been six or seven that they have been trading above 19. The market will trade up on optimism and what the technicals are saying. Jonathan how much longer . Dan and the near term you will see more volatility and will get to a point where anybody who feels they missed out on the trump rally will get a chance to buy at similar levels. By the end of the year, growth will be improving and the markets will and higher. Alix what do you sell, what do you buy . Dan i think if you look year to date, some of the losers are looking a little more attractive which is why we upgraded energy on a bullish oil outlook, but we still think you want to own health care and financials. Work is still underway at the sectors so it is far from over done. Jonathan the view on oil, what independent test underpins it . Alix 70 is a pretty bullish call when you have wti trading under 50. Dan anything above 60 is a huge win for oil so we just need to get about 60 and oil stocks will rip. The bullishrpinning view is the demand and supply story. From a demand perspective, i think you are actually seeing seasonally the refiners come back. China, the Global Demand is good, and from the supply side we think saudi will stick to the opec cut. That is the controversial data. We think the meeting will ultimately confirmed that saudi will stick to that. If demand is strong and supply continues to remain constrained oil prices should go higher. Alix fingers crossed there. So what is the sector that is most exposed to rising rates in the u. S. , and what is most crowded . Proxiesarly the bond are most negatively impacted. Alix you would think utilities. Dan Interest Rates have gone nowhere, they have been following which is why utilities have done well. If you think rates will go higher than utilities will underperform but rates have been going down. Jonathan how do small caps respond . Dan people have pretty much given them up for dead we are structurally very negative when we talk about the valuation. I think in the nearterm they are very tied to growth, sensitive to u. S. Growth. If that improves in the nearterm that will help the small caps outperform in the nearterm. Care, jasonn health mcdormand joins us. This chart says that all, you have managed Health Care Valuations trailing the s p, the white line is the managed health what happens over the next 24 hours if we get a Health Care Reform . Jason if you look at the different subsectors within health care, managed care has the highest expectation for longterm Earnings Growth at about 12 . I think investors are positioning for the fact that aside from the medicaid medicare, the other insurers because they have been losing money on the exchanges are at a bit of a pair back in the near term and this is favorable. Plus, you have a lot of taxes they have been hit with potentially getting repealed. In the long run they lose some potential lives they would cover but in the near term a lot of potential positives. It is really more for the hospitals that lose out they still treat the folks but those people may not be able to pay their bill. Alix is it short hospitals by aetna . Jason if you believe the bill will be passed as is, that is absolutely right with the large haveanagedcare come to cut their exposure to the exchanges a lot so i think you will get support and stability written into the bill that can help those guys as well. The other thing to consider is that is controversial to take away health care from 20 million people. The fact that that number is so big makes it unlikely the bill will be passed in its current state. There may be room for them to reduce that pain point, and that is good for the managed care guys as well. Hospitals are definitely losers. Jonathan i want to strip out the politics. Dan what is the secular story behind health care which is why you want to buy that secular story when the stocks are cheap. I think it is a great play because of what you were talking about, this is not just a shortterm story. Aging demographics is a global story and you will be dealing with it for decades. Jonathan i want to wrap up with the cyclical story and talk about where we are currently. You are talking about valuations popping out, late cycle behavior in the equity market. Where are we in the economy . One of our viewers asking about credit growth, slow my supply, pointing to dare i say the r word. I think we are in the midst of a shortterm up cycle in the shortterm. If you zoom in on the bloomberg i think you will see everything getting better. If you zoom out on these indicators you will see a longterm downward trend. Maybe that points to hitting thresholdthreshold will be a few years away. Long growth is rolling over, delinquencies are picking up, and valuations are really high, not a great time for a longterm investor to be investing a lot. Alix the credit market does not agree with you. One of two things happen, these Credit Investors will be hit with a ton of brexit or they are forecast bricks were they are forecasting that correct pace. Dan the equity market is also saying the same thing with valuations very high, but i work we have done shows if you cannot time the peak of the market within a year , which seems like a long time but it is not that easy, if you cannot time it to within a year you might as well stay long the whole time and ride out the bear market. I do not think we are within a year of peak which means you still want to be long in this market even though longerterm investors, you have pulled forward a lot of your futures. Suzuki, and thank you to bloombergs jason at norman. Tomorrow andda Julian Emanuel of ubs securities, it will be the market session after the vote. 11 minutes in, we have equities marginally lower, down 1 10 of 1 . Down 1. 5 points on the s p 500. You are watching bloomberg. Emma this is bloomberg daybreak, i am emma chandra. David gura sits down with the conversation with eric cantor at 1 00 p. M. New york. Alix shares of ford are following this morning before and analyst meeting. They announced their fourthquarter adjusted etf will, . 30 to . 35 a share versus their estimate of . 47. Joining us from the phone is tigers financial in these investment officer. Were these a surprise . Yes, especially in light of what has been strongest are confident, expectations for a very strong auto market, and overall good momentum in auto sales from last year. Alix what is interesting with some of the headlines they wound up talking about, lower volume, Unfavorable Exchange, higher them, what has changed for since november . Not understand why they are pointing to those items when they were known in november so that is catching everybody by surprise. Alix what does that mean for the broader Auto Industry, is this for the specific or the industry . Ivan everybody else seems to be doing well and recording record earnings. Gm sales are strong. This is a little surprising for ford, especially with the popularity of the f150 and the feeling that the Construction Industry is about to take off, is doing well and is about to take off with hopefully significant budget expansion for infrastructure. It is a little surprising and it may be ford specific. Jonathan what do you think, a failure to manage expectations efficiently . Possibly, or maybe just trying to manage the expectations now early in the year and hopefully that things will improve throughout the year. Then i could overall have a good year. Alix so you want to buy the dip . Ivan yes, we are bullish on the Auto Industry overall and we have a buy rating on ford. They are also having an analyst day today so they are probably going to go over a lot of rejection and numbers, answer a lot of questions so i think the weakness would be a buying opportunity. If i wanted some exposure to this sector out of the Car Companies in the United States, where what i want to be . Ivan number one pick is General Motors. The stock is cheaper to the group and pretty much has the best lineup of cars in the history of General Motors. Was ave by mary barra smart move. I think they have great , andrship, a great lineup i think the auto cycle is in their favor. I think gm will be the best performing, will continue to be the best performing automaker. Finds that the tigers financial partners, thank you. Toathan Credit Suisse said consider the stock sale to raise cash to capture the potential of a cash call. Trading down right now about 1. 5 . Credit suisse said to consider a stock sale to raise over 3 billion swiss francs. Alix this is the issue, they are building their capital reserves. Alternativee other would be the swiss unit ipo, the share sale would be an alternative to the swiss unit ipo. A decision has not been made. The stock down by 1. 6 . About 18 minutes into the session, equities in the United States largely debt flat. Dead flat. From new york, you are watching bloomberg. Jonathan from new york city and worldwide, im Jonathan Ferro. Credit suisse, according to people familiar with the matter, they are considering selling stock valued at more than 3 billion was franks as they seek to boost 3 billion swiss francs as they seek to boost capital. It is one of the options on the table. This according to people familiar with the matter. Pricing the potential of a cash call in the stock target, Credit Suisse down 2. 5 . D. C. , if big mover in the Health Care Bill will be passed by the house. Representative brady sees 90 agreement as of this morning. , formernwood congressman, he knows a lot about what it takes to reform things in the as well as the Health Care Bill. 95 you hear things like and the Freedom Caucus is saying we are not going to vote for this, does this get through . Jim it is almost impossible to get through but not get it through. I think they will do it. We have 200 yes votes, 20 no they, and 17 undecided need to hundred 15 votes so they votes soet 15 215 they need 15 more. They are appealing to the Freedom Caucus whose demand is, lets remove the essential Health Benefit requirements. Are skinnye policies and do not cover all essential health and if its, that is ok. That means they lose the moderate because the moderates are insisting on that. Having been in the town a quarter of a century, i believe they will get their. Theres parliamentary questions of whether you can do that, deal in a reconciliation bill with i do not think the parliamentarian will allow that in order to get to susan they will have to move the bill further to the left and then it comes back to the house where the Freedom Caucus will not be able to swallow it, so that is where it will get dicey. Alix we spoke to congressman brooks who is part of the Freedom Congress Freedom Caucus and he said no, there is so many other problems with the law the bill. The market is looking at this as a referendum on President Trumps ability to get things done. Is it a correct view . Jim is a high bar. You can get a lot of things done and still not get this done but the problem, given the schedule and agenda that the republicans want, this really could be a logjam if they do not get this done, which is why they will get it done. Ugly, there will be a lot of twisted and broken arms, weird deals made like the deal that collins made in new york. Specificgraphically deals will get made but i believe they will get it done, and the president is likely to get a bump from that. Alix congressman brooks said we can do tax reform without this. Goldman sachs coming out and saying something very similar, whether or not they pass the Health Care Bill does not determine tax reform. Is that true . Jim i am not going to say for sure because i am not that close to the tax part of it. What may confuse it is there are a lot of tax provisions in the existing Affordable Health care have offthey want to the ledger, so to speak, before they can start tax reform. If you have existing taxes sitting there on repealed it will complicate things. Jonathan appreciate your time, a pleasure to have you on the program. We learned that Credit Suisse is said to be considering a stock sale of over 3 billion swiss francs. Michael moore joins us from london. Michael Credit Suisse had been planning to ipo is swiss unit it swiss unit, and they said they are still looking at that option but we are recording their considering the opportunity the option of a share sale to raise capital. The runup in the stock of the last few would make that a more attractive option. Jonathan earlier this year francine caught up with tijane thiam and he talked about the second half of this year to ipo the swiss unit. Is the second half the timeline for the potential stock sale as well . Michael we are still waiting to hear on that front. I think there is some flexibility. The stock sale can happen a little more quickly, you sell that with Deutsche Bank and unicredit. They pulled theres together in a matter of weeks or, so it could be something or it could be sooner. Jonathan michael moore, thank you for joining the program. The markets look a Little Something like this. The dow and s p 500 treading water, treasuries unchanged. That is it for bloomberg daybreak. Bloomberg markets up next. It is 10 a. M. In new york and 3 p. M. In london. Mark welcome to bloomberg markets. Julie we will take you from new york to london and cover stories out of chicago and moscow but we have breaking economic data. Us home sales for february abigail the month ofs for february came in at 92,000, up six up 6. 1 . This is a big beat him it follows the strength we saw for the month of january goes against the grain with expectations for weakness considering inventory issues and rates rising. The major averages are basically doing what they were doing before and trading un changed. As for the week, we are