Way higher. Stocks ending higher, tech and utilities leading the gains for the s p. Utilities would make sense, when it comes to rate rises. The highest for the s p this year, positive territory yet again. It does feel like this is a general risk on a rally, people are not differentiating that much at this point in time. And they are already not on the fix. Vix. We saw the volatility go down a bit. And tracy, you pointed out, a lot of Hedge Fund Guys were into the vix. It is at the highest level since 2004. Tracy they are not going to be happy with that vix collapsed. We could see that exacerbate the fall. That is something to watch for sure. Lets take a look at currencies. Yellen is talking, dollar falling on the back of this. It is now on course for its worst month in five years. Which is pretty amazing. Because we have that weaker dollar, that is feeding into emerging market currencies. Idiosyncratic situation in brazil right now, but that moved sharply higher on the back of yellens comments. You can see the dollar lending a big, big boost to emerging markets. Alix and when it comes to gold, we side big spike higher there. No one expected janet yellen to be hawkish today, but we have seen a lot of said officials come out and talk more hawkish lead. Aboutn see, gold up by 20. Said, it is ater good thing that gold rallied this far this pass. Reallyget shaken out easily. Hikes, you cand watch out. Tracy it seems that that point is growing further and further into the distance. Your marketose are minutes. And we want to take a deep dive into the bloomberg. You can see the charts in the bottom function at the screen. Now my favorite function, work. What happened when janet yellen was speaking. Basic, april probability of a rate hike right around 0 . I dont see a 50 rate increase probability until november. Just for fun, i want to chart for you what it was like yesterday. Just on monday, probability of a in july, it was 49 . September, it was 59 . In june it was 38 . And that, my little scribble gives you an idea of just how a ratee market rerated hike after janet yellen was speaking. Tracy i like it. Note, i amsimilar taking a look at our taylor rule function. Im sorry i cant make a much bigger for you. Tracy the basic idea, according models,tional economic Interest Rates should be much higher than they are. They should be up here where the blue line is. In actuality, they are way down here. The difference between those two, real rates and model rates, are the highest since the financial crisis here it this is interesting if we are going to talk about the datadependent said, which im sure we will as the in the course of the show. Inflation,t, stable they should be raising rates. As were going to discuss, there are so many other factors that yellen is taking into account right now. You can see all these charts and more on twitter. I want to bring in our guest, gabriela santos. Alix she is a global strategist at j. P. Morgan. Speech, janeter yellen endorsed rate hikes. Risk of the outlook, i consider it appropriate of the committee to proceed cautiously in adjusting policy. This caution is especially warranted because with the federal funds rate so low, the focs ability to respond to economic disturbances is asymmetric. Alix gabriela, that is pretty dovish from a yellen. It was pretty dovish, but a departure from what the others said. It is interesting that you mention the taylor role. If you think of them mandate in relation to the Unemployment Rate, we believe we should be hiking at a much faster pace. We clearly saw in yellens remarks she was concerned about what is happening overseas, what is happening in Financial Markets. Alix the rhetoric out of this was that it was very dovish. In a light volume day, the nasdaq up by almost 2 . What a surprise we did not see an even bigger rally . Gabriela i do not think so. The market was already accepting to rate hikes at most. Say, ofrmation, lets that speech. The movemental is in the dollar down. At that provided a little bit of support for the stock market today. Tracy given that we have a general risk on rally, is this the return to alexs earlier point . I really believe that. And there are diminishing returns now from centralbank policy. There are only going to be able to help the stock market to help perceptions so much, and the rest of the job has to be up to the data. The economic data, the earnings data. I think this rally can only be sustained if we do continue to see improvement. So not only centralbank talk. The dollar. Ome, and oil, if it called quite a bit. What is your call for the dollar and oil prices . Gabriela it is always tough to know in the shortterm, right . For oil prices, we found bottom 25 30 range. But i think we have got into a bit of a ceiling here. Fundamentally, production is not coming down very quickly in the u. S. We still have that supply issue. A bit, pricesde to remain a little more stable, ofch is helpful in and up itself. When it comes to the dollar, it is a hard call, especially with such a dovish said. The two main very bold that were so negative last are, really turning around this year. So you have the dollar and oil finding footing, a huge annd it is already astounding degree. Gabriela we have seen markets outperforming this year. On the back of that, dollar weakness in the commodities. From this point forward, we run out of steam a little with these two variables. What where left with in emerging markets, very low growth compared to others, a lot of risk. I think we may run out of rallies with this em upturn for the rest of the year. Alix what about credit . Do you want to go by junk bonds today more than 24 hours ago . Gabriela we have since the beginning of the year talking about the opportunity, especially highyield. Highyield in the equity markets, january and february we denied where we were. Really, with a dovish centralbank it makes it even harder to see a recession this year. It is extra appealing, the spread you can find in credit in the u. S. These days. Alix the dovishness, i guess that it encourages this risk rally. On theer comments general economy and the state of Financial Markets, does that give you any cause for concern . The fact the cc that as so week we have to watch how fast we tighten . That is exactly why we think there are diminishing returns. Exactly, she is not as confident with the economy, underline, why we want to be investors. There is at risk on rally in the beginning, but fundamentally for markets to get higher, bit the fundamentals need to improve. We are watching earnings in 2016, not just focusing on the dovish remarks. Alix what you want to buy right this second . Gabriela the positive stories of the u. S. And europe. More focus on developed markets and that domestic story, especially the consumer. Tracy main street over wall street. Thank you so much for joining us. Alix the fed is becoming the central banker to the world. One take on the comments from chair, janet yellen. Mark hello, i am Mark Crumpton and this is bloomberg first word news. President obama is in atlanta addressing a conference for treatment providers, counselors, and others, for funding and next avoiding drug problems. The highest number of opioids on record were sold in 2015. The president is seeking federal funds to confront the problem. The first public into me with the Supreme Court nominee, merrick garland. He complemented him as one of the most eminent jurists in the country, and criticize the gop for avoiding the syrian hearings. He said they should hold hearings on the garland nomination. Fired a short range projectile from area near the eastern coast. It is unclear whether the projectile crashed inland, or overreached its target and landed in the sea. The north weapons test is seen as a response to ongoing military drills between washington and seoul. Brazils Biggest Party has left the coalition. The move that deprived the president of the bochy needs to fend off an impeachment in a corruption scandal. They say the countries will turn to democracy turned to democracy in 1985. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. I am Mark Crumpton. Alix whatd you miss . This take on todays comments from chair janet yellen. The head of u. S. Economics, saying the fed is slowly moving to the role of central bank for the world. The fed has to let inflation in the u. S. Rise to offset this inflation elsewhere. Joining us right now is michelle meyer, deputy head of economics at merrill lynch. Do you agree with that statement . Formere i am a colleague of kneels, and have a lot of regard for him. They have to account for the global environment, and i think that is what they have communicated, that there are Downside Risks from what has happened globally. You cant just looked at the Unemployment Rate in the u. S. You have to think about how the global backdrop will impacted. I would go as far to say is they are the centralbank of the world. Theyre primarily meeting the mandate in the u. S. , while being aware of what is happening globally and how that feeds back into the u. S. If we learned anything today, the fed is willing to tolerate some degree of inflation to batten down the risk to the u. S. Economy. How high are they willing to go on that point, and at what point do some people start worrying about inflation . Learned, what we have they are not concerned convinced that inflation is turning around. The comments today, they are not sure if it is just a temporary boost in inflation. They are still concerned about the dollar potentially weakening. They have not yet seen Wage Inflation take place. If you dont have that push through to prices from wages. In that respect, given the uncertainty, they are going to allow inflation potentially to increase a bit more before they become at all concerned that they see high inflation. We also have to remember, 2 as a target, it is not a ceiling. It is an average. What is the actual alix what is the timeframe for that average . Day,lle at the end of the their objectives are to smooth the business cycle. You want to creighton environment where recessions are not too deep, and or your economy does not run too hot. The timeframe is entirely unclear. Fed with that, does the lose credibility . When you have hot after hawk coming out, and then yellen says, guys, no. They are learning as they go. The fed has realized and yellen seems to realize, as they talk about this normalization process, talk goes a long way. Early last year when they began to discuss a removal of policy, in,market quickly priced and tightened conditions. You saw these moves in the market. Fairly early this year, for whatever reason, distractions got the fed worried. Is not a cleare picture as to what the markets are going to look like, and have that feeds back into the on the, they will err side of being cautious. Tracy yellen did Say Something interesting, she said participants seem to recognize that data approach. Alix i was confused by that. Michelle the datadependent approach, means it is not predetermined. They truly are going to be adapting, given the set of data they are looking at, given the Financial Markets and what they are seeing in terms of financial conditions. And then, how they are weighing the risks. Pure data, youir can argue the case is there for them to continue to hike unemployment up 4. 9 , but they are unclear as to the risk factors. Ause they feel as though they are going to because just, and datadependent. Bill gross tweeted about productivity. He said, divided fed, but yellen is it chair. The secular arguments, production will rise, doubt it. , volume not rates high. The lowdriving productivity . It does not seem that she knows. Michelle no. Her view of structural productivity is about 1 . It is not overly optimistic, currently running about. 5 . She says it structurally you should see something a little bit higher. But it does not see that she is in the camp for a big productivity boom. She is hopeful you can work through some of these postcrisis challenges that have impaired growth. And you can see an environment of higher economic performance. Acknowledging that potential, as well. Gradual, a very gradual process. Is our outlook for the u. S. Economy this year at how does this square with some of the risks yellen outlined today . It is not that different, low 2 growth. We are tracking about 1 , if not a little below. The data has continued to come in pretty soft, low 2 environment. Inflation, a little stronger than what the fed has. We are surprised the fed it did not revise inflation for next year, given that the recent data looks stronger, and the dollar has started to weaken. Likelihood, a stronger inflation forecast. But not so much will fundamentally change the occasion for the fed. Tracy i just one of the device with this great chart. Atre going to be looking the policy curve, this line is where we are right now. The yellow line, we are just at the end of december. Alix it shows how tremendous the market has rerated down the curve over the next few years. This chart really says it all. Michelle it does. And i dont think it is over yet, in terms of the fed during alix can the green line go lower . Tohelle it will continue move as the data comes in, as the fed tweaks their language. The other thing that will move, is their expectations. You have seen them convert more to the market, then the market converge to the fed. Tracy thank you, michelle meyers. Why are Inflation Expectations moving more than oil . Coming up next. Alix im alix steel, whatd you miss . Inflation is not all about oil. Looking at. Youre that green line is the fiveyear forward break even. Expectations of five years out for five years. That purple line, tenyear break evens, and the white line is the oil price. Where we are right here for break evens. The last time we saw this level of break evens was back in the third and Fourth Quarter of 2015. Oil prices were really around 45 a barrel. Now, they are around 40 a barrel. The point, the rally that we have seen, expectations cannot just be about oil. We tend to blame it on each other. He says, that is not true. Last year we saw something very different. It was truly fascinating. Tracy and we have seen things Like Health Care costs, that feed into the different types of inflation indexes, independent which one you look at, and the , you can weighting get a very different view. Especially when oil is 10 cheaper than it was in 2014. Medical, it was a very interesting call. Tracy i have something a very little more simple. Alix will make me feel ashamed of my chart. A companytalk about that sold a lot, did a lot of financial engineering, and is seeing its share price collapse. Valiant. It is sun edison. A solar company, used to be very popular with hedge funds. This green line is its share price. You can see it peaked over here, and has been dropping like a stone. There is further news today that they may have some liquidity problems. The share price has just collapse. Is ahile, the white line fair amount of debt outstanding. You can see Something Like 12 billion. Another similar, valianttype deal. He took advantage of easy money come a investors, loaded up on debt, was very popular for a wild, and is now falling apart. As bad as equities . Tracy pretty bad. Alix coming up, my interview with capstones ceo tom ward. Show me movies with explosions. Show me more like this. Show me previously watched. Whats recommended for me. X1 makes it easy to find what blows you away. Call or go onliand switch to x1. Only with xfinity. Great time for a shiny floor wax, no . Not if you just put the finishing touches on your latest masterpiece. Timings important. Comcast business knows that. Thats why you can schedule an installation at a time that works for you. Even late at night, or on the weekend, if thats what you need. Because you have enough to worry about. I did not see that coming. Dont deal with disruptions. Get Better Internet installed on your schedule. Comcast business. Built for business. Mark hello, i am Mark Crumpton and this is bloomberg first word news. The Supreme Courts appears to be seeking a compromise and a controversial obamacare case. The court is asking both sides are worriedroups about Health Care Plans that cover contraception. Marco rubio may be out of the president ial race, but he can person, he is still trying to hold onto the delegates he won during the season. President obama will convene with leaders in washington this week, one a key topic, the long smoldering tensions on the Korean Peninsula and in the south china sea. Leaders from china, japan, and south korea will take place in the summit hosted by the president on nuclear security. News 24 hours a day, journalists,r 2400 in more than 150 news bureaus around the world. I am Mark Crumpton. Alix u. S. Markets closed saturday after secretary yellens dovish comments. We want to head to asian markets, opening in a few hours. Paul is in sydney. Journalists, in more than 150 news bureaus around the world. Morning, a lot of positive sentiments after those comments. ,xpecting gains on the nikkei and in australia, as well. New zealand will be the first to react when they open in less than 30 minutes time. Action on the hong kong exchange. Two banks making their debuts on the stock exchange. The bank of communications, the big chinese banks, reported some surprisingly good results yesterday. 1. 4 gains in the Fourth Quarter profits. 2. 2 billion, very encouraging. We were expecting to see Profit Growth slowing. Also, better than expected results. Talk to us about that. Would expect that things would go badly for them, given that week oil prices, and it was down 30 to 5 billion. Analysts had expected far worse, 4. 6 billion, all expected there. But that was offset by very Strong Performance by the benefitsbusiness, that from a weak price. Operating income, up 3. 2 billion during compared to way to enter Million Dollars loss from a year earlier. That will be one to watch at the open, as well. They slipped 1. 5 at the close in hong kong. That was before the result was announced. It will be interesting to see how it performs today. Down, oil and Gas Producers in third place behind sinopec. Im paul allen, four tv in sydney, australia. Alix whatd you miss . A giant in the shale industry. You cant talk about Oklahoma Natural Gas without mentioning tom ward. Energy. Uns tapstone his relationship with of the late Aubrey Mcclendon has brought about a great deal of attention in recent weeks. The two meant when they were 23 years old, and Work Together for 23 years. Now, the relationship is in the hot seat. Indicted for conspiring with a no other country to lease bids, other company, sandridge, tom ward used to helm. Aubrey mcclendon died nearly four weeks ago after the suv he was driving slammed into an overpass, just one day after his indictment. An exclusive interview, i asked tom ward what you admired most about mcclendon. A good friend, very smart, as Everybody Knows your it most people that have ever been around him were energized by him. The same with me. I did not have the ability to do we were both Better Together than when we were separate. He was an extraordinary example to me, being able to raise capital. I have never met anyone in my career that could raise capital like he could. Alix do you regret leaving chesapeake . Tom sure, i have lots of regrets. It just came to a point of my life for a had to change how i was delegating time with the 2006,y, was so big, by ,hat for me to operate in a way where i knew what was going on with all the rigs and acquisitions, it became i couldnt. Like how was your relation when you left . Tom we were competitors. With how do you compete aubrey . Tom you dont. He was a very competitive person. The best thing to do is to try those typeses that of competitors, not just chesapeake, but other big , you just cant compete with that much capital. Alix did you stay in touch throughout the years after you left . Tom oh, sure. Alix in a friendly way . Time i hadhe last dinner with him, was december. Alix the energy world was shocked to hear of his passing, his carpeting that in a bit. What did you think, your reaction . Tom i was sad. Alix there has been some speculation about the state of his mind, having been indicted just a day earlier. In your experience, was he the kind of person who would be rash , or take the indictment to a different level . There are questions about suicide, what you think about them doing that . The obviously, i dont know state of his mind at that time he passed. I cannot speculate on it. Alix when you talk to him in the past, what was he like . Did he change after you left chest be . Tom no, the same guy i knew. Entrepreneur, what was the biggest thing you learned from working with him . he had a work ethic alix i read that you never went home, youd only sleep for three hours a night. Tom i was younger. He was driven, worked exceptionally hard. Much both of you get so credit for creating the shale boom. You are both extremely aggressive in getting acreage and such. Do you feel that during your time together, or the biggest mistakes you made . Tom easy, the largest we made when i was a chesapeake, we developed one of the best gas Navasota River field in east texas. Tried tohat model and move it into louisiana, which at first was successful, but ultimately, was not. Our concept revamp around natural gas. Alix biggest thing you would redo . Gone intold not have louisiana. That was a mistake. Alix in the past, you describe also af as a contrarian, Company Builder who runs really guy whod the kind of does not want 100,000 acres, you want one million acres. Is that description of you true right now . Tom no, not necessarily. I dont know that i would agree with much of that. I like to take measured approaches. Is 100,000 acres that is proven, or that you have enough indication that can work, then yes, that is a good acquisition. I believe, as i look back over wet we did it tapstone, dont take nearly as much risk as people think. Alix a Fair Assessment. Going back to Aubrey Mcclendon before his death. He wasatement after indicted, just hours, he said he felt he was singled out as the only person in the oil and gas industry in more than 110 years since the sherman act became withto be accused of a law the joint bidding. Is that a Fair Assessment . Know the answer. I dont want to get into his legal issues. Alix to be sure, the inference is that aggressive, leasebidding was at least part of the energy industry. Is that true . Tom it could be, in areas you look at any hot plate from the various areas, they all get more aggressive as things are proven up. That was it august to you one person all of a sudden gets singled out, not that these practices were going on, but why now . Did you have a feeling why the doj was interested in this . Tom no i dont. Ofx that was tom ward, ceo Tapstone Energy. Been named by bloomberg is the potential other party. Alix he did not want to focus on that or go there. If is also a lawsuit against him from royalty individuals around the same topic. So he wanted to shy away from legal issues there. Nonetheless, it does paint a picture of an industry now being painted in this negative light. Guys transformed our Energy Universe here in the u. S. Aubrey mcclendon, others, they did it. It is an interesting parallel, an interesting struggle. Sure we will be hearing more about that eventually. Alix i think you might. More of my exclusive interview with tom ward, talks about natural Gas Production and prices. Alix whatd you miss . Flow will beash the theme of natural Gas Producers in the future. As i speak to the Tapstone Energy ceo, tom ward. I asked him where the industry is going to get capital from if the banks cut reserve lending. Tom prices will have to recover, and that is what will happen over time. In my opinion, it is already set at 2017 and beyond, until we coming into our business, the prices will have to move up. Basically, youre saying the Capital Markets are relatively frozen for natural Gas Producers. That means you do need stock chart prices to move higher, but it will take some time to get there. Sometime 2017, sounds like a long way off, but it is not, really. Alix is there a price where you think they will ramp up a drilling . Analysts look at that as a proxy because it is close to so many demand offenders. Tom sure, and some companies are more healthy than others. They just dont produce enough gas to offset a balanced budget scenario. Alix what is the perfect to gas price . Tom again, what is the perfect capital structure . If you have ample capital, you coal,ke money outside of three dollars, 3. 50. It is a little on the high side, waiting for capital to come back to the market. Alix do you think companies have had it cut their size . What are the longterm implications of that shut down . Tom cole in their production with declining be nearly a reversible. Alix it is a reversible . Tom i believe it is. Alix how come . Tom because they produce so much gas. Months, production could come back up. Why is natural gas different . Moreoil might decline quickly than other natural gas fields. If a company were to quit drilling, youre going to see declines in the 25 40 range. Year over year. Alix and that is not going to come back . Tom it will, over time. But you will have to start spending cash flow to do that. The companys income or cash flow is going down as prices drop. So there is not as much to be able to spend. Alix do you feel that investors will let them finer capital again . Tom i do. Most investors agree. Time, youmove up over can invest in the business. It might be years. Alix in the meantime, what do you do when you are waiting for Capital Markets to open, waiting for Natural Gas Prices to go up, have you stay alive . Is cole and if the company well positioned, it is the perfect time to buy. If you are a major, and this is the perfect time to be buying acquisitions that you dont have to pay for. Alix why havent we seen that . Tom it is a struggling time. It is difficult to predict when things will turn around. I have never seen a market like this very even in the 1980s, there was not nearly as much debt as there is today. It is just a different type of a market. It is difficult. Alix do you expect there to what you think is finally going to trigger that . Tom cole in Public Companies have difficult times merging because you have different expectations. I would think that you could start to have some activity and publics merging with private companies. Isx does that mean tapstone up for sale . Tom we are always up for sale, of course. Alix we will have much more from my exclusive interview, that starks on Bloomberg Markets tomorrow. Coming up, fed chair yellen with a more cautious tone today. Stay with us for the top three takeaways from yellens message, next. Alix im alix steel, whatd you miss . Carnival wanted government to cuba. To sale it will become the first u. S. Cruz lined to dock there in more than 50 years. Their stock has fallen 9 this year. Ahead of earnings, lets see what their Financial Statement say. Carnival leads of the cruz industry when it comes to capacity, how many rooms on a counting pulldown van rollaway beds, you can see them here at 47 . Thanks to decades of consolidations, they control about 80 of the market. Royal caribbean, as well as carnival. Up fiscale side come 2015, carnivals revenue fell 1 . That is the orange line right here. Yieldlide in net revenue offset. Like forue yield is hotels. The amount of net revenue generated per capacity day, takes into account the price per day, and occupancy rates. On the profitability side, the carnivals operating margin peak in the summer months, improved during the last two years, but should expand 1. 8 percent further in 2017. These margins did benefit from lower fuel costs and consumption. You can see a huge drop in fuel prices. Also much more efficient. Cost per metric ton of fuel consumed also declined 36 in 2015. Outside of cuba, china wants to be a big player in the cruz industry. Asia represents a just 5 of industry capacity, but carnival and others are locating a lot of ships there. In 2015, carnival introduced its shipess brand, with a based in china. And we will follow results in the reports for wednesday. I kind of want to go on vacay now. Yellen justified Interest Rate hikes. Matthew boesler was at the event, and has three things you might have missed from remarks or it. Matt, you highlighted a particular statement from yellen that highlighted Something Interesting she said about markets. Financial Market Participants appear to recognize the influence these datadependent approach. Incoming data surprises typically induce changes in Market Expectations about the likely future policy. Andhall see in movements bond yields, the acts to buffer the economy from shocks. This mechanism serves as an important automatic stabilizer for the economy. Matt, i have three questions. One, whether she mean . Two, issue right . Something tells me this is controversial. And three, how significant is this . Matt i think this is very significant, we talked about on two weeks ago. This is not the first time she mention this. It is significant. Someshe is saying, people going into this speech thought maybe they are concerned about the fact that Interest Rates have fallen so low, investors have taken rate hikes off the table. The exactught that, opposite happened. Not only did she validate current marker pricing, she also gave that drop credit for helping to support the economy. That is extremely significant. Say, why their Economic Projections stay mostly unchanged two weeks ago, but the docs still came down . She explained very clearly today, that the reason the projections for the economy stayed unchanged, is because the dots came down. The fact that they lowered Interest Rates, it is a rate cut. We got one on march 16, and another today after the speech. Alix an underwater, hidden rate cut. Also pointed out Something Interesting when it comes to Inflation Expectations. Lets look at the terminal, the chart you provide. The tenure and five year treasury yield spread. One measure of Market Expectations of inflation. What is it telling us . Matt it is a good illustration of what we were just talking about. You can see that today, after her speech, we got that big spike up. If you charted out further, you can see we got a similar sort of spike up after the march 16 meeting. What this is saying, the spread between tenure and five year treasury yields is like that inflation risk premium of that protects demand to against inflation risk in the longer term. When that spread narrows, Monetary Policy is to tie, and it cannot rise. When you see that spread widen come a goes back to this idea of, an easing of Monetary Policy because now investors might have to demand more compensation in terms of higher yield. Tracy thank you, we could talk about this all day. Alix coming up, what you need to know to gear up for tomorrows trading. Alix im alix steel, whatd you miss . Industrial japan tonight, and the conference tomorrow. Lets get a read on how the businesses are doing. Tracy and whether we have seen a slowdown in the global economy, i like it. Eix we have adp respect with all due respect to the campaign, no, no do respect. We have been saying for months now to the king is a three ring circus, but with the events of the past 24 hours as turned into something darker and weirder. It will get to ted cr