Transcripts For BLOOMBERG Bloomberg Go 20160331

Outperforming european equities since 20,003. The euro dollar. The dollar index heading for its sincet quarterly drop 2011. Yields on the u. S. 10 year at the 10 year. Wti at 38. 17. Lets go to vonnie quinn. Vonnie in washington dc, the Nuclear Summit gets underway. Terrorism and the Islamic State will be on the agenda. President obama will discuss north Koreas Nuclear and missile tests with japan and south korea. Considering whether to deploy a Missile Defense system in south korea. They will talk about north korea with the chinese leader. The president will bring up human rights and chinas territorial claims in the south china sea. Officials at the Bristol Airport Brussels Airport are working on temporary repairs. Bombs destroy the checkin area. When the airport reopens, it will be able to only handle a fraction of the normal traffic. Donald trump has reversed himself after making remarks on abortion. Earlier, the president ial frontrunner on the republican somesaid there would be sort of punishment roman who got an abortion if the procedure was outlawed. Later, trailed said the doctor and not the woman would be responsible. Global news, 24hours a day, powered by our 2400 journalists, in 150 news bureaus around the world. Another reality check for the worlds secondlargest economy. Chinas economic slowdown continues to be a cause of concern. The outlook for chinas Credit Rating was cut to negative from stable, stating the rebalancing is likely to proceed slower than expected. For more, we go to end a curry enda curran from hong kong. Anything new in this for you . Enda we know it the chinese debt story is. It is still a timely reminder of the challenges china is facing. The pace of the debt held up has been a concern. Since 2008 it is grown to two point five times the size of the economy. Bad loans and the Bank Balance Sheet added 10 year high. Theyll act as a drag on growth. The s p is whining woman because is warning, because they do not think it is going along as smoothly as expected. They dont think china can pull this off. It will be a balancing act for china to make sure it hits his growth target of 6. 5 and manages to contain its debt while at the same time unleashing fiscal spending. The focus . T i do not understand the s p questioning the growth numbers. If something goes wrong, they will not give them the flexibility to deal with it. There is not a crisis in china. Government that the Government Debt levels are 40 of gdp. China has room to spend if they need to. There are risks. Hurt0 year high will Economic Growth. You do not want to slow Economic Growth in the local government is already heavily indebted as is the banking system. There is the risk on the Capital Accounts side that if the money began flowing out of china if , for example, expectations on the american dollar reversed, that would put pressure to keep liquidity. I do not think s p is in crisis, but there are risks to the outlook in china. Tiere this is the second and third tier of the baking system. What happens in that goes bad . Is this get forgiven . Swap by the a debt government. Theyre talking about it equity program. That is not going down well with the executives. Some banking executive save we do not want to swap that debt swap bad debt or bad equity. Orember, we are not 1999 2004 when china had to establish 4 bad banks and clean up the system. David thank you. The chief asia economics correspondent. It is the end of the First Quarter. If we look at global stocks, theyre practically where they were at the start of the year. Europe might be a different story. The index that measures performing and emerging markets is down a quarter pay percent. Andrew slim and joins us from chicago. Thank you for joining us. So far. Een topsyturvy what is it telling you about your Investment Strategy . Ndrew a lot if you fellows sleep on december 31 and woke up today, you would say the s p is up 1 , it is a boring quarter. The major story is a leadership rotation. Value stocks has worked over growth. Emerging markets are starting to outperform developed markets. That is the bigger story of the quarter so far. You rebalance your portfolio for the last three months . Jonathan absolutely. Number one, in the u. S. The big that secularecame Growth Stocks became too expensive relative to value stocks. Value that very cheap. Value is prized for a recession that we didnt see. Opportunities arose and commodities, materials, and energy stocks. That warranted a valuation swap. Along with that, some of the commodity emergingmarket areas. Very cheap. That has warranted a swap also, increasing exposure relative to developed markets. Two very big stories in an otherwise lackluster quarter for the markets overall. Matt miller, here. Will you see a continued performance for value stocks versus growth. Number 754 in, our library for those who want to check it out here at values have outperformed growth so far here and were finished with the quarter. You expect that to continue through 2016 . Ndrew i do you can see that we have had a big reversal in the last month. I think that we are due for a breather. The fact of the matter is that the market was pricing some of the sectors as if they were in a recession. Energy is clearly in a recession. We know the best time to buy stocks is when they are in a recession. Year of thef the year comparisons for some of the Industrial Companies with a weaker dollar, energies the bottoming word is that they will be opportunities for good returns in 2016, even though the overall return is moving along with earnings growth, which is lackluster. S p. Ear to date, for the that is 4 if you annualized it. Withe moving along lackluster earnings, as we did last year for the markets overall. The buyer keeping the s p alive. That was companies themselves. Does the buyback trend continue . What happens if it doesnt . Andrew thats right. Gdp and to 2 environment in the u. S. , companies are not reinvesting money back into their companies. I dont see that changing this year. The whole argument that Profit Margins are peaking and will drop, i dont see that happening. Companies are using their cash flow very conservatively. Is only thing they are doing buying back stock and reinvesting. Were not seeing a big Capital Expenditure elsewhere. That might come sometime next see some kind of Corporate Tax reform. Is ifside from the market we have any tax reform next year, that could induce companies to reinvest in their businesses, but i dont see that this year. David as you look at balancing and rebalancing the portfolio, how big of a factor is the fx . That could be true for American Companies or overseas. What is fascinating, and i heard another guest talk about the dollar, think about the dollar. It only rallied off of the fed increase of december of last year. That was the move. It was priced in for the dollar , developedr markets markets, all of 2014 into 2015. When the market realize the fed would not raise rates until december 2015, the dollar stopped appreciating. I dont think it will continue to appreciate. Janet yellen is saying we are taking it really slow. I think the dollar appreciation stories behind us. That is why we are more optimistic on emerging markets. The dollar started appreciating against the euro last year. It only stopped appreciating recently. Emergingmarket currencies have done well. Emergingmarket stocks have done well this quarter. Do you expect that to continue and profit more with dollar weakness versus currencies . Andrew bingo. Youre absolutely right. It is not justt em currencies, it is commodity currencies. The Canadian Dollar started to appreciate. Value rotation that is starting to help some of the emerging markets and other currencies that are commodity oriented. As a dollar investor, you get a double whammy as the stocks improve and the currency goes your way. David when we play the game, bingo is as good as you can do. Thank you very much. Seniorslimmon, the portfolio manager. The euro zone cpi drops for the second month in a row. Will the druggie stimulus measure be enough to turn the economy around . Vonnie heres your Bloomberg Business flash. The biggest a control lenders and china posted to post annual profits and a decade. An increase in bad loans. The president of the bank of china forecasted a new normal of lower profit growth. Argentina is one step closer to returning to the International Credit market. A bill was approved to end a 15year dispute. Preventedd loans that the government from repaying bondholders. A comeback from bill gross. The janice capital on constrained bond is having its best quarter, up 2 . The top 11 in its pure group. Law andss dominated the market for decades before he was ousted from janice capital. Jonathan we will dig into bill gross. Do not miss that. The euro inflation falling for the second month in a row. One day before the European Central bank rams up its Bond Buying Program from 60 billion to 80 billion. For more, we are joined by the European Central bank team leader. Paul, it is good to see you. It seems like 0. 1 around the negative or positive is the reality for the rest of the year. 40. 1 . He forecasting only a pick up to 1. 6 percent average in 2018. The goal is just under 2 . 1. 6 is not there. The stimulus needs to feature into the system. Central purchases will rise by to 80 billionos euros. Then we will at longterm loans were banks could be paid to take cash and linda to the real economy. An intriguing concept. Will it work . It will take a while to see it. Policymakers will be nervous in the meantime. Jonathan the shift from 20 to 80, just to give the world the Financial Markets a guide. Going from 60 to 80. What do they buy when they shift the dial . Paul the details have yet to be sorted out on corporate debt. It is unclear what or when they could start buying. A lot of this will be government bonds. Regional debt is in the next. National Central Banks are buying regional bonds as well. In ecb has been confident saying that should they need to expand the program they can. They will not run into liquidity problems. This is a lot of debt thereby. Thereby. David what is the difference between nominally and cores . It was up. The price of oil, as it stabilizes and comes up, what does that do to your nominal number . The fact that it is stronger is good news. It is still too weak. It doesnt have a goal, or a publicly declared goal. It sees it as an indicator of where headline inflation will stabilize in the mediumterm. It stabilizes at 1 , that is in good enough. They want to see this number rise further. Energy prices hopefully bolster headline in places, i will say rebound. Matt this shows us with the ecb has bought since the program began. You can see 26 of their purchases are in german debt, french debt. The biggest countries get the biggest allocations. . Ou use this tool a lot if you shift into another category, country buying, where they buying on the curve as they shift up to 80 billion . The idea of the ecb is to match the size of economies using the k. Germany is 25 of the euroarea economy. Debt. Re not buying more the same goes for maturity. They want to match the maturity of the market. The ecb will try its best to do the same. Remember, the mandate is to get inflation to under 2 . They will do what it takes, even if it distorts the market. Vonnie how mario draghi is thinking about the euro now that it is strengthening . Paul the ecb does not have an Exchange Rate target, but they are aware it is important to bolster the recovery. They havent downplayed how important the Exchange Rate is as a policy transmission mechanism. Live withrobably these levels. They wouldnt want to see it rise further. The central question for mario draghi is not how he is buying bonds, but where the money goes. People selling bonds get money, the question is where does he put the money . Is going into plants and equipment rather than buying japanese bonds . This is why theyre so much hope in the longterm loans program, because it is lending to the real economy and stopping money from floating in the system. Excess liquidity in the euro area has increased. Banks are not lending. Redit has been fragile the ecb wants to do whatever it can to push banks to lend, and households and companies to borrow and invest. David thanks very much. Coming up, more layoffs on wall street. Blackrock announces job cuts. Will pay full attention to the jobs forecast tomorrow. Bill gross is one of the guests that will be joining us on bloomberg. Jonathan this is bloomberg. Let me get you up to speed on equity markets. Futures are positive. The s p 500 is up barely one point. Dow futures the dax down by. 5 of 1 . The quarter. Bank stocks in europe are down around 20 on the quarter. Big moves this quarter. Lets go to matt miller. Matt i want to kickoff with a broad call on nigeria. Downgrading his 2016 growth forecast for the african nation to 2. 5 from 3. 8 . Capital inflows were cut in half last year and bond inflows driedup in the second half. We have a great function on bloomberg. Country guides. I picked nigeria in the yellow box. You can click on economics and see that growth has been strong in nigeria, but inflation has been big. Rio tinto downgraded from a holdover and axiom capital. Cutting 14 from 19. Alumina markets are worse than feared. The Downside Risk. In 2016 ares expected to fall 18 yearoveryear. Arcelormittal and the global steel dynamic improved. They are protected by antidumping duties with the lower earnings estimates and a positive catalyst in the long term. They decides whether or not to shut down, giveaway, or sell their british operations. David blackrock, the Worlds Largest money manager, will cut 400 jobs, 3 of its workforce. The biggest cut in its history. We will go to boston. Give us a sense of how big of a deal this is. It is a pretty big deal if you look at what they have done historically. Theyve only done one other layoffs in 2013 where they laid off 300 people. Theyre planning on laying off around 400 people this time. Broader employee base, it is a small number. They have 13,000 people, but it is still significant that it is happening at this time. David is it because their earnings are expected to be down . Sabrina it is hard to say. It sounds like it is driven by market volatility from the First Quarter. Earlier in the year. To lookwhat killed them at their businesses and see where they will focus resources Going Forward. There are estimates revenue will be week for the next couple of quarters. Jonathan thank you very much for joining the program. It has been hectic for the banks for the last three months. No one seems be insulated. We will have more on the jobs situation. , World Leaders gather in washington for the Nuclear Summit. You shouldnt have to go far to get the help youre looking for. Thats why at xfinity were opening up more stores closer to you. Where you can use all of our latest products and technology. And find out how to get the most out of your service. So when you get home, all you have to do is enjoy it. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Shoshow me more like this. E. Show me previously watched. Whats recommended for me. X1 makes it easy to find what you love. Call or go online and switch to x1. Only with xfinity. Jonathan in the city of london, this is bloomberg. Down. 7 of 1 . Just hammered on the stoxx 600. Down around 20 value. Tom keene joining us straight out of radio, but down the last three months. Tom the fake headline in the f the big headline in the ft this morning, we go into this quarter and it is serious. Jonathan lets go to vonnie quinn. Vonnie an early draft of the plan to help puerto rico with the 70 billion dollar debt. Republicans object. That echoes complaints from readers who do not want them to be forced to take losses. And insurgents in columbia may come to an end. The Second Largest Group as agreed to a piece sold with the government. The government says they will not continue until they release of hostages. They have similar negotiations with their largest rebel group. More attention in hong kong as the city prepares for elections in september. Hong kong is threatening sevare the Political Party advocating independence. They say hong kong is an inalienable part of china will take action against any movement that urges otherwise. News 24 hours a day powered by our journalists and news bureaus around the world. David thank you. Tom, its time for the morning mustread. And i huge news flow should not do this but this is brilliant. In the new york times, this is the dumbest time of year for people trying to get their kids into fancy schools. He kills it. College admission shocker. , even thele student west end child, could not live without. In the stack of applications that i reviewed, i did not see any Gold Medalist from the last olympicssummer or winter gamesand while there was a 17yearold to perform surgery, it wasnt openheart or a transplant or anything like that. She will thrive but gail. [laughter] this is the stupidest time of year, isnt it . David the sad truth is there is a lot of truth. Not quite that bad. Tom my grandmother would call it harbored on the rain harvard on the brain. Serve on the board of my kids school and we talk that it is not about being straight as, you have to do other things like bring peace to the middle east. Catherine of the Washington Post did the great summary this week. Everybody gets that. Jonathan a similar situation in the u. K. With some entrylevel ands going into university the inflation of this particular grades has been a big issue and they have to differentiate. For i brought this quote in david westin. This goes to the school of madame lagarde. I believe the obama daughters, one or two of them go there, College Admission shocker. This is the worst and that has happened to anyone ever. 18, a senior at sidwell friends in washington, d. C. She added that whether she excepts an opera from admission from m. I. T. Or one of duke, shoulder for enrollment and take a gap year to regain her confidence. Vonnie it is interesting because in britain and europe, these are going on as well but not remotely like this in the u. S. Its ties the job offers on wall street because some promotions for the bankers who have their kids in private schools and are now losing their jobs and what do they do with them . There is a fallacy in this pair it we have so many great liberal arts colleges in the country. I have said this to my daughter, third year in college, if i had seen that you had went to harvard or princeton and were better adjusted to more successful, then i would say, you have got to get there. I have seen no personal relation. Werex number of them failed and david westin screwed up, but the bottom line is there is no coalition. David i could find none. You look at the schools for the wrong reasons. I went to michigan because i only had one choice. Michigan. I understand it better. Why do i feel like this is personal for tom keene. [laughter] get wound up. It is a long story. My father was at texas a m, and the reason he got there had to do with world war ii, but every path is different. David it is what you make of it. Vonnie as soon as you get in, then it starts again because yet to get to the right clubs, sororities or colleges. David i will turn to something that matters more which is Nuclear Security. Jonathan fair enough. David World Leaders gathered in washington for a twoday Nuclear Security summit hosted by president obama. On the agenda, progress of the Iran Nuclear Deal and the risk of the Islamic State obtaining nuclear material. Former senator sam nunn joins us from washington, cochair of the Nuclear Threat and he has been extinguished has a very good career. Welcome. You have worked for many years security issues. How bad is that threat and how much progress have been made and what needs to be done . The era we are in now is different from the past no longer have a monopoly over weapons of mass distraction. That includes nuclear and radiological dirty bomb material and biological and chemical. Countries have to work together. Even if they are not getting along with other things. Is,other basic london until the bad guys, those who commit Nuclear Terrorism and were able to get the kind of material, the hardest job is to get the materials that would be what the great materials and that is not easy. Prevent way to catastrophic Nuclear Terrorism is to prevent the materials from getting in the hands of the bad guys, and that is what the Nuclear Security summits are all about. This is the fourth and final one and a lot of progress has been made. The threat of terrorism has grown. The sustainability of this effort is imperative. David when you talk about nuclear material, do we know how much there is in the world and who has it . Mr. Nunn the weapon Grade Nuclear material, and nothing is absolutely certain in this area, but we have pretty Firm Intelligence and so forth that there are 24 countries not that have weapons usable with nuclear material. Not including [indiscernible] including radiological, but there are over 30 with radiological materials that could be used. The good news is we have gone from 50 countries to 24 over the last 20 years. Since president obama has led the way of the Nuclear Security summit conferences, 11 other countries have gone without Nuclear Weapons and a clear material, so we have gone from 35 to 24 in the last six years to eight years, but the effort must be sustained. All countries continue to have Nuclear Materials and they must make it as secure as humanly possible and any other way possible and feasible to get rid of it. Vonnie vonnie quinn in new york , is there complete bipartisan agreement on what the u. S. Wants out of this summit when it comes to your position of president obamas position . Can tell you my wish list. I am not sure with the u. S. Government is asking for, that sustainability of the effort is number one. Number two is we have been dealing with about 17 of all the weapons used of nuclear material. We have not been dealing with military material. This is not material in the weapons. This is material under military jurisdiction, and in many cases, that is just as vulnerable as civil material. Including military is imported. Also, including cyber threat is enormously important. That is just beginning to get paid attention to. As i mentioned, radiological dirty bomb material, not weapons usable, has to be a top priority. Those would be my main items on priority that i hope would be given special focus during this next couple of days. Senator, i think we have to think about going backward in the sense we have one candidate for president who is sane, may other countries should get Nuclear Weapons, and it might be a good thing it south korea went nuclear. What is your view on that . Mr. Nunn i would hope mr. Trump or take another look at that because he would be deviating a radically reversing the u. S. Heldion, strong position by every president since president eisenhower. I think he really needs to get some top people to give him some advice. He needs to understand the history of japan in that part of the world and understand the feelings of the japanese that they dont want Nuclear Weapons. He also needs to understand the relationship between japan and the korean peninsula, not just north korea but south korea. And he has to understand the relationship between japan and china. This is stirring up a hornets nest. I hope he rethinks and he needs to think new on this subject. Tom senator nunn, i am sure you and grand which could find do you look atd this as a oneoff moment in American History or kelly get back to disability or can we get back to the stability . Mr. Nunn we have to get back to it. The biggest problems, you name it, we have to have both parties participate. Also on a global basis. United states and russia have to find a way to cooperate. While we are at each others throats, we have to be able to agree on a formal working group of intelligence, Energy Departments in both countries to any otheril for Extremist Group from getting control of any weapon of mass distraction. That ought to be something we cannot like to see us announce that in the next 30 days. We are in a race globally between cooperation and catastrophe. This is a race with no finish line, but we have to run a lot faster than now. David let me ask you about the United States and china. Will meet with president obama in washington, maybe the last bilateral meeting. When they look toward north korea and the nuclearization of north korea, what would you hope would come out of that . Mr. Nunn i think china has to on northack down korea. It is against chinas interest and they have said so for north korea to continue to develop a nuclear program. They are ready have weapons and the crucial part is when they match weapons of missiles. We have every reason to work with china. To get a lot tougher. I think we ought to have some very serious private conversations with the chinese about what we would do if economic sanctions really koreans toe north the point they collapsed because the chinese and our friends and south korea worry about economic the repercussions thereof. So we have to have conversation about what we would do and willoperating with china squeeze the rules on north korea, but having north korea with Nuclear Weapons and missiles to go with it is something that is against all Global Security and will be stabilized and will destabilize northeast asia. David thank you very much. That is former senator nunn. There is a twoday summit that we are watching closely. Next, a look inside of ray dalias culture and the details of that, coming up on bloomberg. Matt matt miller in the hpe clean room. In the next hour, covenant, join us for discussion on banking regulation. And cromwell join us for discussion on banking regulation. Vonnie here is your business lash. General electric no longer wants to be considered a Financial Company. They have asked regulators to drop the designation. Their goals when youre ago when they decided to sell the bulk of ges lending business, readymade of the too big to fail and remove strict oversight. Emerging markets investing for management. Mark is overseeing the emerging markets group. The new chief Investment Officer will be steve indo hurt. Stephen dohert. British Prime Minister David Cameron meets with his minister today over how to prevent the a factory in south wales. It has decided to sell the factory, which employs 6500 workers. The British Government says there considering all options, though it has ruled out [indiscernible] that is your Bloomberg Business flash. Storyan for more on the you mentioned, ge expected to ask the u. S. Government to drop the designation as an organizer that is too big to fail. For more bloomberg, rick joins us on the phone, how times have changed. 10 years ago, you wanted to get big, big, big and now you have pleased with the government to say, we are not that big. you know, this is something they have been working toward for the past year. They have one it to shrink ge capital for a number of beers, but when youre ago, they said that the specific goal of dropping this systemically important designation with a plan to selloff off most of their finance unit. They wanted to sell about 200 billion of assets and they have done about 80 of that or reached deals on 80 of that so far. This is a big step for ge. Vonnie what about the timing . It just happens that metlife has escaped the too big to fail designation. Does this get ge moore has with this argument more heft with argument . Rick it is probably a coincidence. My sources are telling me that this was in the works and probably going to come today, regardless of what happened with that life. With metlife. It is something that ge has said they wanted to submit the application before the end of the First Quarter, which it be the end of the day today, so they are running up against that deadline. Hatdoes not hurt t argument. Jonathan rick, thank you. Word soot heard that many times in a statement. David welcome to washington. [laughter] we are going to turn to bridgewater, ray dalios bridgewater has been a mystery on the outside. Only recently, some people have been given access. Robert kagan is a professor and coauthored a book that is covered on everyone Corporate Culture and leadership. He was given unprecedented access to bridgewater and employees. Thank you for joining us, professor. Let me start with the overall inspiration i take from you put that they believe that bridgwater in radical transparency and truth very our colleague Erik Schatzker interviewed ray dalio and we will play a bit of that. What we one is our goal is meaningful work and meaningful relationships. The relationships part is just as important as the work part. Meaningful work and relationships to radical truth and radical transparency. What i mean by radical truth means we can talk about whatever weaknesses are, who is good and bring thoseand problems to the surface. And then radical transparency so everybody in the company can see all of this stuff going on so there is no spin behind it. David professor, we knew about the 210 more or less principles and that they filed these. We heard some of these, but the thing i did not know out of your book is the process, fairly collaborative, process behind the principles. What you take us into what they do to implement these principles of radical transparency . Professor yes, i am a professor of development and im interested in if you wanted to create the most powerful incubator in your company to grow the capabilities of your people, what would you do . Bridgewater and other companies we write about in the book or a pretty good answer to that question. Create a want to culture where people are continuously actually coming up against their limitations. It sounds uncomfortable, but if you build enough support around a person to help them grow past their limitations, then people have an exhilarating experience on the other side to grow and develop. I think bridgewater could be 30 years or 40 years ahead of their time. David you talk about constantly coming up against limitations. Can you talk about the dot Collection Program . It seems to be a constant evaluation that is posted in a dot plot. Absolutely. Gan if we were in a bridgewater media right now, we would each have our ipad and it would be loaded up with stuff. We would have the number that we would dial men for, and there would be the names of each of us, kind of in that meeting, and there is a whole host of kinds of characteristics like, you know, being a brave communicate day, making a good analysis, geting for consensus or to any of these desirable features that would be recognized in any company. And then i had the option, as i am participating in that meeting, if i am struck by something that you are doing and i am especially admiring, i might give you a nine or 10 on a one10 scale on a particular item. On the other hand, if i feel like you kind of backed off and you did not really hold your ground, i might be giving you a two or three comments of the feedback is constantly coming in. If you look at all the studies on millennials, the think they most want is more feedback. To be getting it constantly. David there is so much more that people need to read to understand. That is professor at the Education School at harvard. Thank you for being with us. Professor kegan my pleasure. Jonathan political turmoil in africa is weighing in on the economy. We discuss it with matt miller. Time for off the charts with South African president has been found by one of the highest courts of the highest courts to fill up keeping the constitution. Matt miller digs into it for us. Another leader of the big emerging market very close potentially to lose his job. He has upgraded his house for 15 million. You want to see a picture of that place . He used state funds and good friends with indian billionaires and they are concerned with those relationships. What is more fascinating is the failure of south africas economy. Before you heard about anything about jacob upgrading his house, take a look at this chart. South africa has weekend more than 55 against the dollar. The blonde has fallen 40 , so there is already a big problem rooting in south africa. I spoke to a South African centralbank government the couple of months ago about the dilemma. Upside risk inflation and Downside Risk of growth and youre pumping upbraids because you have no choice to keep up with inflation, but you are just squeezing growth and Political Uncertainty has that country. Matt Political Uncertainty does not help, but what hurts a lot mores the weakness in commodity prices. This is a commodities driven economy and an economy that is so closely linked to the economy of china. This is ectr, the great function to call it that you want to see trade relations between countries. South africa trade relationship with china is especially strong, about 60 billion in trade every year and is by far their biggest relationship, four times greater than their trade relationship with germany, their second biggest trading partner. Jonathan brilliant function. s trade is rousseff coming in south africa. David thank you. Coming up next, chief global strategist will be joining us. U. S. Stocks ended the wild First Quarter as gold heads the best rally in 40 years. The s p 500 cutting rating from stable to negative. The impact on the Global Economy. Tesla hoping to kick sales and high gear with their brandnew model 3, but will it help or hurt the stock . Welcome to the second hour of bloomberg. I am david westin with jon ferro and vonnie quinn. Vonnie here with this is john vail. Jonathan i have a question, how many years has this quarter shaved off his life because it has been phenomenal . Lets get your check on the markets globally. Futures in the u. S. A little bit firm, up about six points on the. 501 s, down by about. 05 of 1 . Underperformance of europe once again. That is the difference between those two indexes, the stoxx 600 and s p 500. Switch up the boards. Maybe there is an fx story and not just next door. The dollar is heading for its worst quarter in some five years. Dollaryen whitfield come in that 10 years at 8. 81 . Pretty much unchanged. That is your market wrap. Lets get the vonnie quinn. Of more than one dozen countries have dissented on washington for a on Nuclear Security. It is likely to be on north korea and the nuclear program. The president will talk about north korea with chinas president xi. Mr. Obama will bring up human planes. Nd terrorist Brussels Airport police say they criticized security long before last weeks attacks. In a letter to airport authorities, they complain that strong signals about the lack of security and police worried that too many employees had criminal backgrounds. Isroup of House Republicans balking at an early draft of the plan to help puerto rico with their debt. The republicans object to what they call bankruptcy style involuntary restructuring. That echoes complaints or holders of puerto rican debt. They do not want to force them to take losses. Local news powered by our journalists and news bureaus around the world. The end of the First Quarter and the s p 500 has gone for a second Straight Court of again and gold is heading to the best rally in 30 years and oil will snap to straight month quarterly losses. John vail is with us now. Start with the s p 500. It went down, has come back up, where do you see it going next . Mr. Vail we have been pretty cautious since about two. It is bouncing around a lot. It has saved a couple of years of my life. Shaved the cuouple years off my life. [laughter] jonathan i am with you. Mr. Vail we think it will trade sideways, but we are positive another stock markets. Jonathan looking at the divergence between europe and the u. S. , a big story. The outperformance of the u. S. An fx europe, is it just trade or something happening . Well, the u. S. Has a lot more optimism. Investors are willing to pay a higher premium for their stocks and there is more m a activity here. Europe is docked with many problems with investors around the world and in europe seem to think it has structural problems quite a while. Unfortunately, the recent terrorist attack is not helping. Jonathan to look at valuations with s p 500 trading at about 17. 5 at the earnings and the u. S. Stocks at about 15. 5, when you look at the evaluations, most people expect pretty ugly q1. How do you said up strategy around that . We think that burning season will perhaps disappoint a bit. All they become are quite low. The u. S. Usually outperforms from their consensus expectations. We might have a few minefields there and a few big mistakes, but for the most part, we think it will perform in line with consensus. The expectations Going Forward are the key issue. They have been falling in the u. S. And they have been falling quite sharply. It will be very important to see them bounce up. We expect to see that happen around the end of the Second Quarter, especially if the oil price does what we think it is, which is to gradually increase from here. Vonnie one of the problems investors face is the divergent trade, and it is kind of going away as an idea because, yes, the u. S. Might be going somewhat but it does not look like the central bank will make any move anytime soon, and that is what is feeding the divergence rates, right . Mr. Vail yes, and we have the next few on the fed. A mixed view on the third. We think the central bank divergent trade will continue. We think the fed will hike in in december, which is not too far away but it is hard to know what consensus is these days, especially after miss yellens recent speech, but we think that june is very likely. There is a small chance they might move to july because they dont want to make any major movement. Vonnie july without a press conference . Yes, they say every meeting is live, but if they dont do it in june, they will get you to sense, so that would lead few this sense, so that would lead everyone into the expectation that july would be upon the table. David lets check that against w rip. Matt the market, futures are not forecasting a move until december of december 2016, said talk about july and june. It seems a little bit overdone here. What are the chances that we go through this entire year without a rate increase . John . Well, it is always a chance. It would have to be a large crisis. Politically or economically somewhere. Which is not terribly unlikely. A political or economic crisis somewhere in the world, right . With the fed global . Mr. Vail you are right, that uncertainty into policy to not sure which any yellens most worried about. Obviously, she is very informed and she might know a bit more than we do about what is happening around the world. She seems to be concentrating on china and there are risks, but for the most high, we do not see any major crisis. And no rate cut for this year. David it is one thing to talk about with the fed will do, but another question is what it should do. What are you concerned about with wage pressure . We have jobs numbers out tomorrow, but do you worry about that . Reallyl we are not worried about it but we think it is trending higher than the statistics show. Official statistics show very moderate wage increases, but look at the headlines. Everyone is raising wages quite a lot. The airline industry, the retail industry, mcdonalds, lots of very large corporations that are raising wages. That is good for the economy, and the fed should not overreact to that. I think everyone should be a ware that wages are rising nicely in large chunks of the economy. Jonathan as farce the treasury is concerned, the front and looks pretty anchored now. Janet yellen appears to be pushing back on any potential rate hike soon, and to curb his steepening. Is steepening. You expect that to continue . Mr. Vail we expect longterm Interest Rates to rise and shortterm Interest Rates to rise almost as much because we do expect a june hike in the fed and that is not discounted by the market at this stage. We think that the bond markets will be negatively impacted by that. Jonathan if the front and rises, do you get more hype than the market expects, and in the start of january with the weak dollar to strong dollar, and withis across the board china and commodities and issues with Central Banks, so if we get the strong dollar, that sounds like it will be messy. Mr. Vail it could be. The u. S. Stock market is going up this by prices going down. We always thought that those two things were correlated but they are not at this stage. You are right. It would create headwinds for markets, but if the markets feel that the Global Economy is ok and that china has not having some major crisis, which has been a large source of the concerns over the last couple quarters, there are no major issues on the economic side. The dollar can get shot without commodities falling. David i want to take about jons point about the dollar earnings and s p 500. To what extent their earnings affected by the strength and weakness of the u. S. Dollar u. S. Companies . Mr. Vail they are definitely. I think the market discounts that quite often when earnings are slow because of the u. S. Dollar and they said the company is solid, but it is being affected by things out of its control. It is not the core problem with the company, but it does impact earnings expectations. That will be a headwind for earnings this year if the dollar is as strong as a think it is. Chiefan john vail, global strategist with nikko. Thank you. Next, we will talk china with the s p 500. China going from negative to stable. Ahead of the open, futures black and equities lower in europe and future spot in the u. S. Vonnie General Electric no longer wants to be considered a two big the sale Financial Company and have asked regulators to adopt that. That was one of the ceos goals one year ago when he decides the sellable co ges lending business, getting rid of the two would free upbel capital and remove restrictions. China, the outlook for going from stable to negative. S p 500 says the rebound will move more slowly than expected. The firm says done great could follow. If the company has credits too fast, chinas Credit Rating is aa. Retails the lot from the most in 17 years, sales plunged 21 . The big problem, fewer Chinese Tourists visited. That is your latest Bloomberg Business flash. Looking athank you, the xp market ahead of the open, futures pretty much dead flats. If you went to sleep this summer 31 and woke up this morning, it as if nothing happened, but it did. Matt a big drop for the retailer and double dogleg after barclays cut the stock to underweight to overweight, saying, sell the shares after they said by the shares. Document clinton not pending price target to 70. It had been 90 claio intock changing his price from 70. It had been 90. They downgraded the stock to neutral and analyst saying valuation is more fair and more fill you valued. Square is up 80 since the beginning of february. Moving to the cloud, downgrading to sell this morning. The analyst their same the sale of the company is highly unlikely and asked the shares have moved higher, there was asked occasions that it was [indiscernible] and you could see it moving down on mostly percent in the premarket. Toally, certainly no friend paypal. Reiterating the underweight rating out of 33 price tag it, and the analyst, one of the most noted technology analyst, saying the stock is overvalued in the probability of acquisition there remains low. They are concerned about increased competition in the payment space. Paypal moving up a little in the premarket. Jonathan i can tell you that it is no friend to china. S p 500 cutting the outlook from negative to stable and declaring it a statement we provide outlook to reflect expedition of the economic and [indiscernible] to the Chinese Government credit worthiness. John vail still with us. It seems that we are trading equities around the expectations of china and not what is actually happening very trade is almost a proxy for sentiment around china. Doing need to revisit what is happening fundamentally and look at the companies again . Mr. Vail if you are talking about what is happening to china, it is extremely important markets and the u. S. Multinationals will be affected by what goes on in china. It came out today with Important Information and one needs to have a very close eye on what is happening in china. We have several offices that follow china closely. We are not wildly concerned about the country. There are some large risks, things could go badly in china, a very tricky economic transition that they are going through. For the most part, yes, we do not think that investors have a lot to worry about with china. David talk about the risk because any transition from manufacturing to service is a tricky thing, but they have to this in a prize issue which is linked to the credit issue they have this enterprise issue which is linked to the credit issue. Mr. Vail there has been a lot of disappointment in the reform in china over the last couple of quarters. The have not done as much as they had promised to do. They have been a little scared to do very much on that front. However, there has been recent news that a very large steel company, soe, a stateowned enterprise, is going to be restructured or have a Bank Restructuring and a very large meadow company is also going to be were actually entered into bankruptcy, said there has been some very large dues there recently that shows china is starting to attack the problem. They have to be concerned about the employment aspect and that feeds into the political question. They are concerned about protest and whatnot from unemployed people. Yes, there are reasons to be concerned about china. Property prices are soaring again, which is not a stable situation, but we think that they will muddle through for the next few quarters. Vonnie where you anticipate where you want to be at the end of the year . Mr. Vail we dont actually target that to be honest, so i cant give a good answer. Dont expect a major change. China is trading on the basket now, so it would trade along with the weaker currencies versus the dollar. David lets turn to japan and where you expect it to go. Mr. Vail japan is facing a lot recently, the Economic Statistics have not been that good. However, corporate profits have been quite strong and equity valuations are quite low there. Are beingtax rates cut. A lot of good things are happening. Thehe negative side, transpacific partnership, that does not look like it will go through in the current form given what everybody in Political Leadership is saying about it. Unfortunately,d, for japan because they have tight so hard to do the deal. On the good side of that, some of the things they negotiated due to the u. S. Pressure, i think that they will end up doing, even if tpp does not pass the u. S. Congress because they need to do it on the agricultural side and they need to reform the Agricultural Sector and i think they will go ahead and do that despite tpp. Next, opportunities for dividend Growth Stocks. Lets get to the morning meeting, where we hear what he banks are looking at. Blackrock manager is here with me now. Tony, you believe dividend stocks that we are talking about an Investment Grade companies that are better investments than highyield stocks, which have been all the rage and everything we are about. I do think it is better to go with Investment Grade stocks . We are invested in companies that pay the competitive dividend but sele providing Dividend Growth. If you think about that strategy, the yield on our fund is higher than the yield on the 10 year treasury today. Provides a compelling opportunity. The treasury is fixed highdefinition, whereas we see companies that could then income over time. Matt the spread is big. You expect investors to be able to earn mid to high singledigit returns. Toynny yes. Matt it is important to point out that you are not just looking at highyielding stocks but you are looking for companies that will actually continue to raise their dividends. How do you find them . Tony that is right. In todays market, Companies Pay a high yields and getting bid up in price. That high price represents risk. Dividend growers have been left at an trading at some of the most attractive valuation in years. Matt you cannot talk about names for regulatory reasons, but you can tell us what you are looking. What sectors are you finding this kind of stocks . Tony two interesting sectors we have added to our health care and the Financial Sector. Both current performance here today but offer act but offer attractive Dividend Growth. Matt i understand health care, so what are you looking in health care . And pharmaceutical companies. They are growing their earnings and almost faster than any other sector and dividends. Matt i understand as a pay more and more for help care in the society and the growth rate is amazing, but on the banking side, it seems that that is being turned into utility by regulators. In this rate environment, how do you find Dividend Growth the re . Tony that is what we like. We think the market has punished these stocks because of regulatory issues. Theregulatory issues create capital buffer that creates more stability matt and safety and soundness that we have ever seen. On the price side, the market has pushed the stock down, but the regulatory issues given the room to grow the dividend, which is what you are looking for. Months,er the last 12 that sector has had the best Dividend Growth than any other in the s p 500. Matt a month ago, we would have thought that janet yellen would have raised rates three times this year, maybe two times, but now i look at the wrip function after this dovish speech he gave on tuesday, and i dont see the market predicting an increase in till december. What does that do for your kind investments . Tony coleman our perspective is this, one, those expectations have gone up and down consistently since the financial crisis, so that can change quickly. 2, what that means is the market is expecting no rate increases so were finding opportunities where we get free options. I think the Financial Sector of the large banks is an example, where no one expects rate rises so the expect interest margin to be compressed. If it starts to grow, we get that for free. Matt great to have you. Thank you for coming in. Black rock fund manager. Jonathan great work. We are about one hour away from the open and wrapping up a tough quarter. The s p 500 actually has gained over the last three months, up 10 points on the dow teachers. Futures. Up by. 5 of 1 and the stock 600 down 7 on the quarter. Switching the boards quickly. At 1. 13, dollar yen increased blower and a stronger japanese yen. Yields unchanged. 1. 82 for the 10 year and unchanged at 38 a barrel. The weak dollar heading for the weaker quarter in some five years. Next, jobless claims ahead of fridays job report. This is bloomberg go counting your down to the payroll friday. Stay tuned to bloomberg tv and radio. What a lineup. There we are. On bloomberg tv tomorrow from 7 00 a. M. , new york, right here on bloomberg go. Crossingobless claims the bloomberg and any second. Well go over to matt miller. Matt breaking news on initial jobless claims. Lets look at the numbers. 11,000 was the rise. 2007000. We were looking for 265,000. A little more than we have been looking for. The prior week was 265,000. Such a tightn range and well below 300,000. The initial jobless claims number is not as important as it once was. It has come down and stayed down for so long. The granddaddy of all Economic Statistics comes out tomorrow, the change in payroll. We are looking for a gain of 2005000. Anathan i want to bring in special guest. On thereat to have you program. The first question, this is a highfrequency data point. The trend has been that in the headline numbers look fantastic. It is more nuanced than that. Can you redefine what we thought full employment was . Question. A great there is a disconcerting disconnect between unemployment levels, job increases on one side. On the other side, wage stagnation. Rethink whether 4. 8 israeli the equivalent of full employment. Maybe it should be down in the 4sfor the past day low 3s. Gh in the last half of the 1990s, employment was down 4. 5 with no noticeable inflationary pressure. To be real reconsideration. Congress should reconsider the Federal Reserves mandate which is employment and inflation. I would add sustainable wage growth as a third item. David is that politically doable . You know washington so well. I think it might be exceedingly difficult week is very little gets done. Me to see any political leaders saying i am in favor of sustainable wage growth. Vonnie youre talking about a revolution. Foreground of all of this. It seems like we are creating more and more services jobs. We saw that yesterday in adp. The financial industry is getting decimated. Is that what we are saying . The highest financial jobs being paid more, and the lowest just going away . Rodgin there is pressure on companies to cut expenses because there has been so much pressure on revenues. Undoubtedly the most significant pressure has been in the low Interest Rate environment. Asre are also such pressures huge increase in compliance costs. The needs to be some adjustment to get to the bottom line. Andes undoubtably pressure an enormous competition from that are not part of the Traditional Financial Services industry. David well come back to regulatory pressures, but first matt . Oft first, a couple measures that Mohamed Elerian says should be on the forefront when you are looking at the jobs released tomorrow. We watch the Unemployment Rate in red. You watch the amount of jobs added and wage growth, which has been one of the key metrics. Mohamed elerian is saying what you want to watch is the labor force british operation rate the labor force per dissipation rate. Labor is inverted. Unemployment is inverted. Going up is good, going down is bad. Everything else is the same. Participation came to a historic low that had not been there since the 1970s. It has picked up a bit. The total population over the age of 16 has a job. That has been recovering steadily. Those two, i wonder how important they are. Think that you people who have simply retired and demographics are responsible for the low labor force for dissipation rates . Rodgin it will be difficult for me to disagree with such a prominent economist as mr. Krueger. I think you are correctly pointing out that there are factors other than just jobs added and the Unemployment Rate which are indicative of the state of the economy. It is not that simple. This is a nuanced area. David i want to pick up on what youre talking about with the banks, Financial Institutions and regulations, particularly reserve requirements. We had the Federal Reserve governor in december, and he says they are regulating. That it was quite likely to revise to increase the reserve requirements. What do you predict . Rodgin there is no question that the u. S. Banks have become exponentially more stressful. The assumption in this year stress test this years stress test is including requiring banks by definition to hold more capital. I agree fully that the objective is to make the stress test the capital requirement, not the publish capital requirement, but the stress test. The trend is to continue with these very stressful tests. Paramounton is whether the Federal Reserve is prepared at some point to be more transparent about what it is actually doing with the stress tests. Vonnie there is also living wills. Is there a possibility one or more banks will sell assets . Rodgin that is an important question that we have been waiting. The bank ceos and cfos have been waking up each morning wondering if todays the day. Later, presumably sooner, we will get the stress test results. There are those who believe the Federal Reserve and fdic will grade on a curve, meaning some will fail and put pressure on them to restructure. Jonathan it seems a lot of banks are wanting to sell assets of the same time. Who will buy them . Rodgin by definition, if you are selling lots of assets, you need relatively large banks to buy them. Small banks cannot by huge amounts of assets. Cannot by huge amounts of huges cannot buy amounts of assets. You cannot make it work economically if the whole institution has to hold more capital for an incremental increase in assets. It is not so easy. Will see the emergence of private equity into the Financial Services sphere to a degree more than we have seen in the past. David you mentioned another asset that banks have his people. There is a report from citibank suggesting there could be 1. 7 million, or more, jobs lost over the next 10 years because of sin tech. On that and view the ramifications for traditional banks. Rodgin theres no question that a competitive issue for the banks. I think that there is a broader issue, which is how can we regulate fintech . Revolution. L be a should we think about a National Charter so that the companies . Re regulated it is also uniformity for them. There are advantages to the companies. We can deal with issues that are finteche, such as, are more exposed to cyberattacks . There are some fintech companies, one or two that i know well, that are incredibly focused on these issues and have very strong protections. Im not sure that all of them do. Some of thepresent largest and most important banks. Are they talking to people on capitol hill and washington, hoping that there would be this kind of regulation . I dont think so. I think that they are a threat to that the banks need to meet themselves as opposed to going to washington for regulation. The regulation changing the competitive landscape, but making it a better situation for the country as a whole. Vonnie some say that doddfrank and that hamper the ability of banks, put a ceiling on us. Banks will figure out another way to make money. Rates will go up. Is it possible to put a figure on the opportunity costs . Question,ere is no but there are opportunity costs being lost because of doddfrank imposing a number of requirements on banks. Putting a precise figure is difficult. That is one of the reasons why banks are not successful in going to capitol hill and being able to say this is too much. Math is a reviewable that if you have to have double the capital unless you can increase your earnings twice, your hourly goes down. No one will be able to increase their earnings twice. Jonathan European Bank stocks, down 20 . They are years behind how the u. S. Bank is said to have adjusted. How much are those banks actually changing . Besides wiping out thousands of jobs, are they structurally changing and becoming Different Companies as far as youre concerned . Rodgin i think they are. Lets go back to the capital issue. They are starting to abandon and reduce the areas which are requiring the highest capital charges. They are trying to innovate and deliver services at a much more in a morebasis, and efficient way. Whether they can change fast enough to accommodate the low Interest Rate environment, which is an enormous tax on the Financial Services industry, and other pressures remains to be seen. There is substantial innovation going on. Cannot let you go without talking about metlife. I do not want you to reveal buthing that is under seal, you were saying that life would no longer be designated. From what you know, and ive read the pleadings, should we expect other Financial Institutions to pursue this course . How will they be classified differently . Rodgin for the banks, they are caught by statute. They have very little opportunity. We are talking about a phone number of institutions filed to be the designated best to be de designated. They have shown little aptitude little appetite to designate other institutions. David thank you for being with us. Coming up, will teslas model launch help or hurt the stock. That is coming up next. Matt im in the hpd green room. Michael cohen, the head of research on crude oils next move. Mcdonalds plans to open china, korea, and hong kong. Theyre looking for partners. They have 2800 restaurants in the region, most owned by the Company Rather than franchisees. The Argentinian Senate approved a bill that would end a 15year dispute that would hold out on the defaults. The man who popularized emerging markets investing is sitting down. Mark mobius is passing on responsibilities of overseeing the Templeton Emerging Markets group. Mobius is 79 years old. He is now focusing on attracting investors back to the emerging markets. David our shortsellers investing big on teslas model . New will unveil the massmarket car in hopes of lifting profitability. Interest has jumped 50 to 26 of shares outstanding. Company. Most shorted cory johnson, joins us from the san francisco. What does this mean for the companys current relationship with investors . Cory and academic study shows the most shorted stocks tend to outperform the other stocks in the market. Everything is a bet about the model 3, which will be unveiled today. This is not about the cars they make or the Financial Results that they put up. More cars they make, the more money they lose. Goes, they lose money on every sale and make it up in value. , its not about the model s is not about their Station Wagon suv, the model x, which is starting to hit the streets. It will roll out more in the coming year. It is about a cheaper model 3, that is 35,000. It will be a different kind of car. What will it be . We will find out this evening. David how many of these model threes do they need to make to break even . Cory if they lose money on every car, they should make one and walk away. That the areas david they wont lose it on every car . Cory perhaps. I hate to ascribe a theory that they have not espouse themselves, but it is being compared to the bmw. It is being compared to a nice mercedes. At 35,000 dollars, if they lose money on a 100,000 tesla, what is going to be the features on a profitable 35,000 tesla . Everyone loves the car when they get it. The model s. Is a mystery. We will see what it will look like. The timetable is important. There are so many competitors. You have not only american carmakers looking at electric cars, like ford and chevrolet, you have audi, bmw, and mercedes. The time this hits the market, there will be competition in the electric vehicle market. Vonnie investors are betting on ks models. Whether he can deliver on time or enough. Cory the company has a history of missing deadlines. It is important timing. Well see what kind of details we see about the car. It will probably be out of aluminum. What kind of mileage. The model s looked very different that was shipped than the one that was unveiled. Of thenext, battle charts. Laura keller will take on matt miller. David this is bloomberg. This will be the battle of the charts. Laura keller is taking on matt miller. Laura, you get to start. Laura im excited, i really want to win. The chart that i have is showing something that defies what is happening in the market. People are saying the bond markets are closed, nothing is happening. This chart shows to the middle of march that that is not the case. The u. S. Investmentgrade bond go, for people looking at their terminals at home. You can see from the middle of march compared to last year, we are rocketing in u. S. Investmentgrade, not highyield this is totally different. Sadly, the market is closed there. Vonnie wells fargo . That is the bank that i covered. They are pushing up. You cannot see all of the details, but it is a bank on wall street that is doing the best. We wanted to highlight them because they are growing. It might show nice Investment Grade going on in the Investment Banking world. I think it is a great chart. It is cool that wells fargo, are they moving up in the table . Laura they are. That might show bright spots for the Investment Banking quarter. Matt im standing on the shoulders of giants today. I brought a chart that hillary made yesterday. Bit. T tweaked it a little vonnie it is a group chart. Matt everyone has raged on it. This is chart number 753. Everyone has worked on it. This is chart number 753. It shows the stoxx 600 in europe versus the s p 500. The worste that it is quarter, we are finishing the worst quarter that european stocks have had against u. S. 2003. Since in blue, i put european gdp so you can see with the growth of the economy has been like. It has been a disappointment if you are betting on european stocks over u. S. Stocks. Five quarters ago, if you are betting on europe, you one big raises the u. S. Now, if you are betting on europe versus the u. S. , you lost big over the last four quarters in a row. David laura, i love your chart, theme of theohns day. I will have to go with him. Laura i will have to come back for a rematch. Thinking positive about Investment Banking, which is hard to do. Fantasticit is a chart, but because i sent this a. M. , andil at 3 00 was up ridiculously early, i will you do to him. If we had overlaid it with the euro dollar it would have told a better story. Matt miller and laura keller, thank you for joining this program. The winner is matt miller. Laura i lost by a hair. Wasthan essentially, i voting for myself. Lets be honest. Oil prices going back to 30 dollars a barrel. Michael cohen, the head of Energy Commodities Research Berkeley is next. Counting down to the market open on bloomberg. That is 34 minutes away. Features shaf futures soft on the s p. We will talk about crude. Appeared brent counting down to the market open on bloomberg. Vonnie it has been a wild ride for stocks. The rebound is losing steam. Wti and brent unpacked for their First Quarterly gains since 2015. Will they last. The end of the bull market. Recessions worry that stimulus has given new life to record that rally. Record debt rally. We are 30 minutes from the opening bell. This is bloomberg go. Also with this is michael cohen, the head of barclays. T im not sure if you heard of a buffalo drop. They have a lot of rates on bloomberg. We would get to that. By now, lets get you up to speed on what is happening in markets. Futurist look boring. Was notks boring. It is inching higher into the grain. 2016 highs are dead flat. Down one third of 1 . The dax is off a little bit. The dollaryield, 1 12. Yields on the longer end are selling off, rising at the front end, anchored in a yield curve. That. E will talk about 1 . Of lets get the vonnie quinn. Vonnie authorities in western belgian are searching a wooded area close to the french border. There are reports that link the men that is planning that was planning an attack. He is accused of planning at least one imminent attack and transporting arms and explosives. As well as holding fake documents. A nonprofit link to john mccain receives a donation from the government of saudi arabia. His office says the arizona atublican has honorary roles the Mccain Institute for International Leadership and the think tank fundraising arm. A group of House Republicans is taking aim at an early draft of the plan to help puerto rico solve its debt crisis. It is a bankruptcy style in voluntary restructuring, echoing complaints from those who want them to take losses. Global news, 24hours a day, powered by our 2400 journalists, in 150 news bureaus around the world. David i vonnie quinn. It is time for the three stories that matter. Now to break it down as michael cohen, the head of energies Commodity Research at berkeley. Chinesehas cut the Credit Rating. Rating aa minus credit has a negative outlook. Lets take it back to commodities. We have been focusing on china. Not least because of the effect on consumption of commodities. What it has meant for emerging markets and world markets. Where are we on commodity consumption, particularly oil, in china . Michael it is a complicated picture. You have a stronger dollar which makes consuming commodities more expensive. The trend is a slowing china. A china that is a growing as much as in the past. A more service let economy has implications for the broader economy and the consumption of commodities. Otherappens is that emerging commodities in the neighborhood, and outside of it, that are providing commodities to china are slowing because the chinese demand for commodities is slowing. The Property Market is slowing. Theres excess capacity. Is continuing. That is causing a situation in china where they believe the gdp outlook is more modest than in the past. That has an implication for commodity prices, oil prices in particular. In china you have the industrial commodityled, and oilled commodity demand. That is for consumers that are flying more, or can afford to buy new suvs and cars. We have two sides of the story. We are seeing very strong gasoline demand growth in the last couple of quarters, but at the same time negative diesel demand and fuel oil growth because of the slowdown in industrial. Jonathan it is difficult to get a read. If you look at the volume and price of imports, the volume has stayed steady. I wonder how that dovetails into the potential of wti with brent rolling to the lower 30s. Demand for a country like china still looks pretty solid for crude. Ichael china is only one part it is a big part of the demand story. Obviously, brazil, for example, is sending less commodities to china. That has an effect on the Brazilian Oil demand. Pay attention to first understand that the data is in great for china. We dont have how much is being consumed. That is one of the Big Questions for the chinese data. The other thing is that chinese authorities have plans to continue to increase the amount of strategic thought they have in the country. That is affecting the overall of how much oil china is importing, because they are putting some into stocks were strategic use, not consumption. Vonnie number two of the in the, inflation eurozone. Consumer prices fell 0. 1 from a inr early after 0. 2 drop february. Oil prices continue to be a drag. The longer this goes on, whether in the United States or europe, the more you wonder exactly what kind of influence low Energy Prices are having on core inflation. How long does it go on before we worry about that . Michael from our standpoint, every single bit of price increase that we see obviously raises more inflation concerns. It raises the possibility that monetary authorities in the u. S. And in asia, take more proactive measures than in the past. What we are seeing is a circle. As prices come up, monetary authorities believe Global Growth is on track. If prices come back down, there the broader concern about global Macro Economy. Circle, with no kind of end result. David jonathan, i want to put you on the spot. I wonder if mario draghi looks at these numbers and breathes a sigh of relief. He has announced an aggressive policy stimulus based on the need to get it going. It hasnt kicked in, the corporate bonds. Jonathan somewhat think it is justified. There expectations for the year, 0. 1 , is already pretty dreadful. Looking ahead, the average brent 35. R this quarter central bankers were hoping for positive effects, but things got worse. The fact that they are hoping for stability, tells me about the buffalo drop. An impacte are seeing of low oil prices on broader those countries that are exporting oil. That creates concerns with the Global Economy. Piece entitled buffalo drop, that because of the Investor Sentiment shift and the broader fundamental questions about the sustainability of commodity there is then potential that the financial and macro sentiment shifts at some point the next couple of quarters, creating a rush for the exit. What we saw is a massive inflow into commodities over the last three weeks to four weeks. It is basically the beginning of the year. , and thet sentiment fundamental backdrop for the price rise is it sustained, we could see prices rapidly come back into the middle 30s for oil and other commodities. Drop, andthe buffalo into a wild First Quarter. Global stocks are flat. Against the greenback major peers, heading for its worst month since 2010. Wti and trent are on track for the First Quarterly gain since 2015. The dollarng at index. Jumping around the worst quarter since 2010 or 2011, depending on where we finish, how important is that at this point . Michael very. We have seen the correlation become extremely tight. See the correlation is likely to break down as the year goes on because of the shift in the trade balance. Further along in this year, we are doing more damage to the supply side in oil. That oil and the dollar are moving in tandem because of macro concerns, that is one ring, but they do virtually oil is being affected by things unique to the oil complex. Prices, we are doing damage to the supply side. Meaning, we will essentially see to bringeconomic shift oil back down as result of the Macro Economy from a higher level moving forward. Jonathan matt miller once an excuse to talk about gold. I enjoy the company of gold bug. Up. Can see it as shot this is the chart for 10 years. The euro oneweek deposit rate going negative. Do you see this trade continuing as the fed gets more dovish, or is it all about the ecb and the doj going negative . Our call is for to rate hikes. The market is pricing something that is even less than that. There is a likelihood to the extent that that is correlated that we will see gold not increase as much. Gold has been trayvon not by the Central Bank Activity, as well as volatility , byold has been driven up the Central Bank Activity as well as the volatility. Markets right here right now. Head on bloomberg ares p 500, futures negative, but not by much. Vonnie you are watching bloomberg. Signinger of americans up for Unemployment Benefits hit a two month high. Jobless gains up 11,000. It could indicate that improvements in the labor market is being tempered by manufacturing. The federal government releases its monthly jobs report tomorrow. General electric no longer wants to be considered a Financial Company. They are asking regulators to designation. It would free up billions in capital and remove restrictive oversight. Tesla motors is planning to unveil the latest electric car. The base price is 35,000. That is a bargain compared to the other two models, which is at 70,000. He 3 will be presented tonight it has a range of 200 miles fully charged. Jonathan we wrap up quite a phenomenal quarter. What a three months it has been. I want to wrap up the big moves. One of the big stories has been what is happening to bank stocks in europe. The europe stoxx 600 bank index. Down 21 . To be precise. The worst quarter since september 2011. Eurozone debte crisis. Bring up the bloomberg dollar index, the worst month since 2010. The bloomberg dollar index down by 4. 4 . I went to get to treasuries. It must goelds, higher, that is the call you hear every year and the yield go lower. Of thewrapup some quarter, i want to get free market movers. Matt i will start with one that we have been talking about. Target. Ove on a double downgrade for this retailer. Replays cutting the stock from a sell to a buy. It wasnt overweight, but essentially a sell from a buy. To 70 the price target from 90. Shares are trading at 82. 40 in the premarket. They have seen some gains, but Matthew Mcclintock thinks that will turn around. It has been a rough year for fitbit. The stock is down more than 50 this year, but gained 10 in march. Today. Icking higher islysts believe that fitbit able to gain in the market. Are buyingsses employees these fitness trackers. Analysts think that fit it will be the winner. Micron analysts are lining up to cut their targets on the chip maker after disappointing earnings. Brian staying cut, mccrory cut to a hold. Lowered to 15. Going the other way, but most analysts are negative on micron. Next, could oil supply finally be heading for a decline . Michael well give us his answer to that question. Jonathan welcome back to bloomberg. I am Jonathan Ferro. A deep dive into the crude market. What a quarter it has been. For commodities says well. Wti up. You might shrug your shoulder and say that is the First Quarterly gain since 2015. What matters as we go into Quarterly Earnings season is the comparison. Thisverage price for brent quarter is 35 a barrel. The First Quarter of 2015, what was that . How much worse will things get as we go into reporting season . From theit is down First Quarter of 2015. The average was around 50. Down steeply, and then rallied. There has been a concern that that same profile has turned out for 2016. People are concerned that as we moved down, and prices moved up, has there been a fundamental backing to the move . The argument is that there hasnt been fundamental backing to the move down from the middle of december 2 the middle of february. A lot has been associated with the broader macro moves. The shift in macro sentiment is more dovish from the fed hear the concerns from china. As asset prices overall are higher than what many investors thought they were, it is no surprise that investors hit the sell button hard. That is how to result in reducing the price of crude. What happened was that we saw the Significant Oil supply disruptions take place. One in nigeria and one in iraq. In our view, those are temporary. We believe there will be a higher risk of disruption through the year, but that supply is now back online, or at least it will be in the next couple of weeks. With the market is trying to pay thention to is how quickly supplysider just to lower prices. David lets go there and put aside macro. You called it the damage to the supplyside. It isight think correction. How quickly as the supplyside adjusting . The u. S. Is one of the biggest contributors to it ramping up. Michael the u. S. Supply has been the biggest contributor to supply growth outside of opec companies. In 2015, that changed. Opec production ramp ramped up one Million Barrels a year. Saudi arabia, raised its output. Iraq raised its output. The opec Companies Double down and raise their supply. Not much of an increase in demand, we saw the prices come down. An effect of crowding out investment that was possible nonopeclace in supply. Our analysts estimate that in 2015 we would see a 30 cut. Then we will see that 20 to 30 . Ut again in 2016 the damage is made, but there is a lag because we had a number of years of high prices. You had to have a number of projects that had to get across the finish line, keeping supply supported. Are the banks now getting cold feet . Do they need repayment . Will have been to the companies when that materializes . When that materializes . Michael there is a redetermination where companies will have to reevaluate how much they are able to borrow Going Forward. Will beronment in 2016 different than any of the 2015. Rmination periods in a lot of the producers that are up 1. 5ge, but still make Million Barrels a day, they are for the lowprice environment in 2016 as they were in 2015 or 2014. That will result in a cut in Capital Expenditures. I think that banks are mostly prepared for that environment, but it will be very difficult. David you are referring to a lag between the cut in expenditures and production. How long is that . Between sometimes a lag three months and six months to lln you drill drill a we and connected to the market. That is why we are seeing a large cut in the rig count without much of an impact on production. We built up a large backlog of wells that producers with capital were able to put onto the market. Head of Energy Research and commodities research, making headlines. Thank you for joining this program. Brent crude down. 38 a barrel. Up for tents on brent. Futures, negative. Jonathan this is bloomberg. Im Jonathan Ferro with vonnie quinn and david ferro. 31,of the opening on march thursday, wrapping up a phenomenal quarter with futures flat. The action in europe halfway through the session going into the close, the ftse 100 down. The sound of the bell, the ringing of capitalism. We can get that across a check. The euro dollar, the weaker dollar has been the story off the quarter. The dollar index heading for its biggest drop since 2010. A stronger japanese yen. A 10 year at 1. 82 . What a quarter for treasuries, the best since 2012. As your market opens, we are 30 seconds in. Look at the major indexes and watch them move as they open. Have the green arrow on the Dow Jones Industrial average. Very little change. That is not terribly surprising since there is very little change in futures and in europe, even though you saw substantial red arrows. The s p at 2063. Looking at some of the commodities we are following as well as the dollar, the bloomberg dollars pot index is down for four days in a row. That is after six days of gains. At 1238ures gaining point 70. People still piling into the precious metal. Dynamics crude coming down, 38. 05. Not a lot has happened over the last few days. Picture,to date reminding me that the quarter and year to date are the same right now. You will see the dollar spot index down 5 . The worst quarter for the dollar since 2010 because of the turnaround that we expected a hawkish fed and we are getting a dovish fed. Gold heading for its best quarter rally in 30 years. Investors go to that because of uncertainty in the Central Banks and Global Growth. Oil, snapping to straight quarterly losses. They havent done a lot in the past few days, but has been amazing over the quarter. The 10 year yield, speaking of the dovish fed, the best quarter for treasuries since 2012. Everyone wonders when it will be time to finally get there should finally get bearish treasuries. He finally see the tenure at 1. 81. Thehanie joining us is equity strategist. Stewart, it has been quite a ride. We are heading into the Second Quarter. Equities and arrayed and derivatives. What are you looking at in terms of performance . The dynamic between the fed being stronger and weaker dollar. See ny devaluation. Y devaluation. The dollar rallies. Equity sold off. Expectations declined. We saw that on the upside and downside. We are seeing an environment where we have equity prices rising. Out. Ave the fed priced in volatility markets we have seen this strikingly. David i want you to take us through this. This is your cooling mechanism. Your feedback loop. The expectations will go down. That is understated. Take us through. A dovish fed leads to a weaker dollar relative to the and euro. That puts pressure off of the pboc. They no longer need to devalue the yuan. Risk asset prices can recover. You have the hike expectations increasing, but decreasing into the march fed meeting. The fed was dovish. The plot went to 2. We have seen in the commentary that we will probably get dovish pricing out any nearterm risk. You have seen the volatility market react by the volatility curve thing state. All of the markets are saying that risk premium is gone. Jonathan that loop turns into a doom loop. Recover, thessets dollar strengthens, we get word about china, then the process happens. When we get trapped in that loop, what breaks that down . Stewart i think we saw somewhat of a breakdown with the fed being dovish despite risk assets had increased ahead of the meeting. Looking at the feds reaction function, it seems they care more about volatility over the past few months than the current price. Mode in thed see first life meeting will be in june. We have a cooling off in the midst of this. Equities did not do much from the beginning to the end of the quarter. Have you been concentrating on the derivative side . Where have you been looking for opportunities . Stewart one thing is the roll down in the ball curve. Given the decline in yields, the systematic selling. That has not been in place throughout the last six months. Shorter data, but the curve is so steep that people are going further out to curve. On the equity side, the high level of dispersion. Looking at health care and financials relative to telecom and utilities, there is a 20 difference in the performance. If you are a section or, it is an interesting market. That reflectdoes underlying corporate earnings . At some point you have to get back to fundamentals. The company has to make money. I am naive, but i keep hoping. Stewart s p expectations for q1, the market season 9 decline. In energy, it is steeper. Consumer discretionary and telecom are the highest expectations of yearoveryear earnings growth. On the discretionary side, it is expected to rise 9 . Matt im going to give you a sneak preview of my that all of the charts for 11 40. Do not share this with betty liu. David no one is watching, matt. Im sure betty does not watch. When i come on the tv, she turns it off. This is very interesting because you have circles at the end of each quarter. What you see is a trend reversal. At the end of two quarters ago, we were headed up. A lede dropped like zeppelin. Last quarter, we were headed down and shut up like a cannon. Im wondering if you see the same reversal is a possibility now, since it looks like that is a trend. Stewart that is a really good point. Given the absence of risk premium, the fed is likely to stay put, more likely to see a lower environment. People tend to sell ball as collecting risk premium. We see it being low in the near term. As the fed approaches june and the economy perhaps slows down, we could see a rally. Vix getwhy didnt the higher . We saw a little bit higher, but nothing approaching crisis. Look at assetu managers long position in s p futures, it is the lowest it has been. It only goes back to 2011, but the demand to hedging is not a substantial as in august and you spike. All market down to the february 11 low, the six strike. The s p 2000 strike call, those where constant, only rising one or two. You saw the market rise down the curve. David i want to come back to buy backs. We were talking about earningspershare. We have a chart that i found remarkable that compares operating companies to the amount of money they are spending. This is during blackout periods. You can see it bumping up when the buybacks kick can. We have another chart comparing operating income. That is minus dividends and buybacks. You can see that we actually went into the negative. As a group, companies are borrowing money to pay buybacks. Stewart it is one of the situations where an unsustainable situation lasts longer than anyone can imagine and ends faster than anyone would expect. Running 150 billion dollars per quarter with dividend payouts just under 100 million per quarter. Undertal payout is just 1 trillion, in excess of reported earnings, which divert from operating earnings. That is why a more dovish fed is so positive for equity prices as Companies Continue to borrow. Topike in you one relative q4. This situation is likely to persist longer than anyone would expect. Thishan i wonder what means through the fx market and through the European Equity market. Our chart of the morning is this divergence between the performance and the u. S. Equities, eventually grinding along the bottom and flattening out, versus the european equities. Im sure matt miller can bring it up for us. The divergence between the u. S. And europe, does that continue in coming quarters . Stewart one key thing is the euro Exchange Rate. Our expectation is that that will continue to be strong despite easing measures put in place by the ecb is the fed becomes more dovish. Yearslook at last earnings growths, it was driven almost purely by the fx moves. Taking that out of the equation, you are back at zero growth. That is affecting the market. Eurodollar inthe the chart. This was my battle of the charts when her last hour. Winner last hour. Blue. The eurodollar in you think it will rally for the rest of the quarter . Vonnie i think your success is going to your head. Jonathan we should probably give a shout out to the author of the author. Did she write this yesterday . Maybe sophia saw his chart jonathan well get to the bottom of it. Vonnie i want to ask you opportunities, obviously. You talked about industries and finding different industries. Why havent hedge funds performed better . Stewart liquidity is very difficult. Thats seen it because dealers Balance Sheets are constrained. Relative to a few years ago. Getting into position is easy, getting out of position is tough. Looking at Equity Factor performance from february 11, the market low, to around the ecb, all of the factors reversed. Much of the move is driven by the reversal in equity moneyoning by leveraged funds. The outperformed momentum and you some momentum taking it on the chin after outperforming for such a long time. Most shortedof the sectors outperforming the rest of the s p. David that is stewart warther, bnp paribas. Thank you for joining us. Are missing out again. What is behind the 2 trillion rally in global debt. Of then live pictures chicago fed president sitting down with Kathleen Hays. Well bring you some of that interview, and some of the headlines, next. Matt i am matt miller in the hp greenroom. Tomorrow, do not miss yes for jobs lineup. Lineup foriss the jobs day. Vonnie i am vonnie quinn. Planning to open 1500 new Mcdonalds Restaurants in china, south korea, and hong kong. Theyre looking for partners. Mcdonalds has 2800 restaurants in the region, most owned by the company. David cameron is trying to figure out how to prevent the closing of a factory in south wales. Ttal has decided to close the ctory. Fa theyre considering all options, but have ruled out state ownership. Emerging markets ownership, stepping down. Mark mobius is steppin is passing on his responsibilities. Mobius will now focus on bringing investors back into emerging markets after years of declining values. That is the latest bloomberg is no splash. Jonathan equities in the u. S. Are surging up a 2 10 of 1 . The s p 500 is flat. Lets go to the index to get to the movers. Index is flat, but we have big movers. We have been telling you about them in our analyst calls. I want to start with one that got a price target lift. Ibm. They were adding roughly 15points to the index after Morgan Stanley raised its price target from 140. The analysts there increased estimates for a fouryear estimates. They continue to believe the loss and opportunity and significant and it is an overweight rating. A lot are questioning if watson can do it for ibm. It is a fascinating product. Does it really make money and move the market . Target is one that we have been talking about all morning. T iniggest laggard on the terms of points. A double downgrade for the retailer after barclay cut the stocks to underweight from neutral. Matthew mcclintock is im sorry. Underweight from overweight. Used to say it was worth the 90. It is now worth 70. 81. 61. Are down to david lets go to the nasdaq. Abigail doolittle has a couple of movers. Areail project software plunging after they missed firstquarter estimates by 7 . In addition they offered a full year revenue outlook that was disappointing as chris bergens set to retire after a transitional period. A number of factors. Steve cohen ache managed to find a bright spot, the fact the stock is down so much from its peak that it makes a possible acquisition feasible. One stock moving in the other direction is the biomedical onpany that is soaring reports that they have hired bankers to defend against takeover interests. Medivation is likely to get acquired. Shares are down 35 or more from the peak last year. Vonnie thank you. Collie Kathleen Hays is sitting down with the chicago fed president , Charles Evans. Given the conditions, they have called for a lot of accommodations. In the current environment, we are looking at an economy that is close to fulfilling its maximum employment mandates. Unemployment is below 5 . That is a very good outcome compared to 10 to the basic measure of unemployment. A Payroll Employment growth has been strong for the last two years. Inflation has been low. Reason why i the think continued caution is called for here and we have to have confidence that we can get inflation up to 2 . In december, i agreed with the rate increase. I voted for it. I did submit expectations. They asked, what do you think an appropriate Monetary Policy should be to support the outlook that you submitted . I had one rate increase in december and 2 in 2016. In our last meeting, i was still comfortable with 2. The rest of the participants, the cloud of dots, we call it a dot chart came down. I think that chair yellen explained it well the other day. That the International Outlook had deteriorated a little. I think there were greater risks that supported a shallower path. Any improvement in the outlook would give rise to a stronger funds rate path. Any surging of confidence in inflation getting to 2 would do the same. Kathleen when does Charles Evans say that we are going to raise the rates . April . June . Charles for the students in the finance, in a world of what is the stock value supposed to be . And then there is what it actually is. It takes time to get there, either going up or coming down. My assessment of appropriate Monetary Policy is that given the economy and what were looking at, it would be to rate hikes this year. It is not critical when the two rate hikes take place. I guess i would say one in the middle of the year and one at the end. Good move earlier . Leader . Could you get another one in . It depends on the data. It continues to fall and inflation picks up, then we could get that. April, june, July Kathleen you said the middle of the year, that is june. We will take it that it is more likely june than april . Berles another could october. The chair does a good job of explaining what we will do when we have a press conference. Kathleen you are forecasting 2. 5 growth. The fourthw 1. 4 in quarter, then a Consumer Spending report this week. January and february numbers are weaker than expected. Consumer expending this Consumer Spending is so important that a lot of people are looking at 1 in the First Quarter. What is the risk to your forecast if the economy fall short and does not accelerate . Oh you argue for a lower funds for a longer time or more aggressive approach . Charles the numbers do not push the outlook around very much. Consumer isthat the a strong fundamental for growth this year. With the most recent retail sales and Monthly Consumer expenditures have been weak. We tend to think that that is transitory. Atlanta fed number is their gdp now forecast, purely statistical. That is a good piece of information to look at, but judgmental information and thoughtfulness could easily push you to be more optimistic. I am more optimistic about the middle of the year, the Second Quarter and beyond. That is even if the First Quarter is lower. I already only have 2 rate in creases. That has a lot of accommodation. Start at 1 and you are looking at 2. 5 , do we have to have the 3 quarter . Charles thats right. We will get by the middle of the year more information. Is why ive focus more attention on the middle of the year. A couple of months, the inflation data has been firmer. If that continues holding, there could be confidence that it is sustainable at a higher level. Sure. It is part of looking at the data. Is your view on negative Interest Rates . The fed discussed and dismissed them as the bank of japan took a major step in that direction and the ecb followed. What is the alternative is growth does not accelerate . The economy remains at a stall speed orchid head lower. Would you look for negative rates in the u. S. . Charles the bank of japan, the ,cb, the Swiss National bank they have been working very hard disinflationary trends. To get inflation up to their objectives they have provided a commentary they have provided a commentary they have accommodating policies. You can say, i dont want to be in the situation. I am said that one reason to keep our eye on the 2 inflation objective is to make sure we get up to 2 . And findder run 2 yourself at a lower level and the economy stalls japan has been in that situation for 20 years, and we know you dont want to repeat that. Forthan that is it bloomberg. Stay tuned to bloombergtv for more from chicago fed president Charles Evans. Coming up, you will hear from the fitbit ceo and the former ceo of shell. Gross andbill blackrock. 10 00 in new york, 10 00 p. M. In hong kong. From bloomberg World Headquarters in new york, i am david gura. I am caroline hyde. This is bloomberg markets. Taking you from new york to london to hong kong in the next hour. Here is what we are watching. 30 minutes into the trading day in new york. U. S. Stocks fluctuating. The s p 500 heading for the the year. G in heading for a loss of more than 7 . Elon musk set to unveil the new massmarket car today in hopes of lifting the companys profitability. Be going he will be going head to head with gm and the chevy volt. Bringing emerging