Transcripts For BLOOMBERG Bloomberg Surveillance 20180209 :

these are your markets and we see a little pullback when it comes to european stocks, down by 0.2%. s&p futures gaining 0.8%. the further correction we saw overnight is putting a little bit of anxiousness out there on the market. we spoke to a lot of market artisans and they say, look, it is too soon to see if the situation will stabilize. we will look at the opening of the was market to see if there are any tensions there. it's just too soon to make a call on whether or not the markets will be quiet right now. that is what we will discuss throughout "surveillance." we will keep you updated on all the action throughout the morning. plus, we speak to iain duncan smith about how long theresa may can hold onto power. we also have an exclusive interview from milan. and later on, we hear from the chief executive of l'oreal. first, to the bloomberg first word news. u.s. senate has passed a budget bill. that is as lawmakers seek to end a partial government shutdown that began at midnight local time. in other news, the republican house will vote in a matter of hours. donald trump could force america to borrow $1 trillion this year. it has been wanted this worsens the frenzy. bank of america senior u.s. economist has said the federal deficit was on track to exceed 5% of gdp by 4019, by far the largest for the economy while at full employment since world war ii. china's factory inflation has slowed for a third month. -- theducer price index consumer prices eased to 1.5%. coulduing moderation signal winning support for the global reflation trend. there are concerns over price gains elsewhere that contribute to the market turbulence. in south korea, kim jong un's sister has landed at the airport, marking the first time that a member of the dynasty has officially entered another country since 1948. the potential for week your leader of the -- the foot angela future leader for the -- the potential future leader for the hermit nation will arrive in south korea. >> $10 million was spent on forastructure, like roads, and the olympic stadium. 12.8 million dollars was spent in preparation, which is what we expected and we did not go over budget. and because it is now easier to access east coast cities, we will attract more people to the area. and we see this in tourism and thisconomy -- and we see th invigorating tourism and the economy there. nejra: global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. francine: thank you. we are getting news about the credit suisse banker that had diverted some of the money from client accounts to cover mounting trading losses -- this was five or six years ago. maybe longer because he was sentenced to five years this morning. he has been found guilty in geneva. we will get back to that. he had at the time personally enriched himself by 30 million francs. now, on to our main stocks. endedlloff looks to have midweek has come back with a vengeance. into declines, exceeding 10% from the january highs. we are in a correction, but what is next? here is what some of our guests, including william dudley, told us. >> for this to go on much further and be much more persistent, it could affect business spending behavior. that could influence the economic outlook. so far, i would say this is small potatoes. >> we have had a correction and 10 year treasury notes. those are up 10% to 12%. of 10 year a double treasuries and that has to have implications for the rest of the capital markets. >> i would argue it is not really done because these things take time and it is hard to have such a dislocating move without wreckage around that you are not expecting. >> i think this is much more the great unwind. unwind is getting priced in. this is unwinding and i think the entire market is realizing that this decline that came from qe is continuing. francine: how long can the rut continue and what is next? futures indicate a positive start to the day. for the latest on the selloff, the chief investment officer for germany at ubs. thanks for joining us. what exactly happened overnight? hand, we -- on the one had a continuation of the technical selloff together with the continuous increase in the bond market. we would say this is down to technical factors rather than anybody else. we would not expect one route to have any lasting impact on monumental. francine: ok, maximilian, we're also joined by julian howard here in london. thanks for joining us. how do you see this playing out? >> other than the volatility clearing out, if you look at the vix volatility curve, we have elevated short-term volatility, but looking out to the future, it is much lower. that is a bit of an inversion from the normal state of affairs. i think there will be a normalization at the point and then we have more stable markets. francine: maximilian, are you worried that other processes would be affected. it started in the vix, and it has touched equities. what comes next? maximilian: well, we have nothing massive moves with volatility in other currencies. more importantly, we have not seen any major deterioration of economic -- macroeconomic and microeconomic fundamentals. we have seen this will not occur anytime sin and that in turn should mean that fundamentally financial investors should step into this market and support the market going forward. francine: do you agree with that? julian: i tend to agree. on monday we had chinese service pmi numbers, which were positive. today we have the chinese ppi numbers, which are pretty good. china is actually going through a goldilocks period. global growth is good. this is a technically driven issue. there will be a clear out period. at some point, there will be an option for investors to buy into this market. francine: do you buy into this market, maximilian? and a do you need a further correction to then buy into it? maximilian: we continue to be risk on. efore, having followed our advice completely, global equities are moving to equities further and further. yes, this is a buying opportunity. will this materialize within the next couple days, i have no idea. over the next six months or so? i am not sure. francine: maximilian. i'm try to figure out if there is a canary in the coal mine or something you are looking at as a sign to buy. maximilian: what you typically have with canaries in a coal mine would not be this lasting correction. companiestment from and it evaluations in equitiesk for a major deterioration -- over investment from companies equities, orons in a major deterioration in terms of earnings growth. looking at the current earnings season, it looks strong. there are very strong sales growth numbers and going forward also, we expect very strong earnings numbers from companies across the globe. francine: julian? julian: for me, it would be unwarranted contagion. that is the signal to get back into the market. you have to ask yourself, is growth ok? are these rates stable? i think the answers suggest this is a stable and fundamental market. if it is selling off because people are trying to raise liquidity, that is a great time to get in on the other side. francine: what happens if it does not affect the trademark significantly? julian: there could be a contingent into the long-term borrowing rates. that would be problematic, but at the moment, i think growth will prevail over time. we have seen this in the short-term, and only a few weeks ago we had a working paper which talked about the long-term return of everything from 1870 to 2017. it reconfirms the case for equities. but if you cannot handle volatility in the short-term, then the market is not suitable for you. francine: we are looking at some of the market here in europe. the ftse is positive. we are not losing anymore. x, is it different in china vanke ithan in the rest oe world? maximilian: we have to put it into context. last year we saw a returns close tage higher. what we are seeing there is quite a healthy correction. what do you make of china, julian? julian: i think china, and emerging markets more generally, is taking the air out of the credit market. i think these are healthy development. i think e.m., because it has sold off the heart. this is an option to keep your allocations, or selectively add to. francine: do you think a lot of this market turmoil will lead to the fed not raising interest rates as much as they said they would? themilian: i don't think federal reserve will be changing its stance on interest rates. we were just talking about how financial conditions continue to remain good. so, if you are not seeing a major blow out in terms of high-yield spreads, they will continue the gradual tightening path this year. we will see three hikes this year, 25 basis points each and 25 basis points next year. what would be more concerning was if the federal reserve would purchase more on inflation, in terms of asset price inflation, as well as cpi number is going higher. i do not think that is going to happen. that is clearly something we have to watch. francine: what about you? julian: stock ownership among u.s. retail investors is pretty low. it's 15% of the household that has direct stock. that means the fed does not need to respond to a perceived damaging wealth effect. but on the political angle, donald trump has been touting this great stuff market and has been talking about how wonderful it is. then starts to come off, maybe some subtle political pressure to bear. obviously, the fed likes to see itself as independent, but we do not know how this will play out. the stock market has been central to the trump message. the white house only one week ago said it is all about the long-term. they do not want to look foolish either. if we had a more sustained correction, i think they will want to limit the damage and they can apply pressure in certain ways. francine: thank you, maximilian kunkel from ubs and julian howard stays with us. stay with "surveillance," plenty coming up. lawmakers in d.c. with a key deadline. plus, may is not for compromising. we spoke with duncan smith about the premised are's ne prime mi'w hard line on brexit. this is bloomberg. ♪ francine: markets, economics, finance and politics. this is "bloomberg surveillance ," and i'm francine lacqua in london. we did see a sharp selloff overnight. a little bit of the european stocks recouping some of their losses, coming back from intraday lows. u.s. futures, well in the green. bit lower,0 a little a touch lower, but pretty much unchanged. italy is also lower, but less than it was before. if you speak to a lot of participants in the market, the pattern of trading suggests it is too soon to make a call on the market stabilizing. we are watching this closely for you to get to the bottom of what exactly happened, but it is too soon to call the end of the correction. we will get plenty more on your markets shortly. but here is nejra cehic. nejra: broadcomm has urged qualcomm to meet with them this weekend. this is after a rejected raised bid, saying the hostile offer materially undervalued the company. in response, broadcomm reiterated that this was the offer it final would make. the profit for next year will grow as much as 43%. that is after the owners of the world's figure shipping company fell short of meeting expectations in 2017. the company said 2018 will have $5 range of $4 billion to billion. >> this will do well in most economies around the world, but 13% of existing capacity is currently under construction. so, if markets continue to grow have a relatively good position from a supply and demand perspective. nejra: the turmoil surrounding wynn resorts is unlikely to translate into a big acquisition in the casino industry. that is according to the ceo of rival mgm resorts international. we spoke about the huge opportunities he sees opening up in japan. >> we consider it to be quite as large as the singapore market in the market on the las vegas strip. mgm has been here now for about iree or four years and personally have been up and down the country many times. mgm, with a group of japanese consortium partners, is willing to invest upwards to ¥1 trillion for that opportunity. nejra: that is the bloomberg business flash. francine: the senate passed a two year budget agreement that would boost spending by $3 billion and suspend the debt ceiling for a year. a partial shutdown began at midnight d.c. time after congress missed the funding deadline. what is next? stephanie baker joins us with the latest. julian howard is still with us. stephanie, the partial shutdown, first of all, was because of a republican senator, rand paul. concernedy, are we all the time, or just when we are in the minority? stephanie: that was a preview of what we will see in the house this morning. the spending bill they passed increases spending by $300 billion over two years, increases military spending and mustek programs. it al-- and domestic programs. it also blows up the deficit. there are republicans in the house that are concerned about this and have said they will vote against this bill. you also have democrats in the house who have said they will vote against this bill because they still do not have a deal on immigration. and house democratic leader nancy pelosi warned house leader paul ryan to guarantee and a schedule a vote on immigration before they sign up for this spending deal. it is unclear how the votes lin ue up on either side. you basically now have the republicans and the democrats split, not just between themselves, but between their own parties. francine: so, if it passes through the house, funding will come back just in time when workers, i think, arrive at their jobs. if it doesn't, it is the second government shutdown in two or three weeks. what happens after that if it does not get past? stephanie: i think it gets kicked back. the house, they need to sit down and work out a compromise. people are now saying this is really in paul ryan's hands. all he needs to do is schedule this vote on immigration. he's said, i'm not going to schedule a vote on immigration until we get the spending bill passed. i will not schedule a vote on immigration until we have a bill that i think trump will sign. he does not want to come up with something that will be vetoed by the president. this is his view on how the november midterm elections are affecting today's politics. you have republicans in the house that are worried about however they might vote on this immigration bill playing out in november. francine: julian, what does this mean? if you look at this and sa y, i'm an investor and congress is dysfunctional, does that mean you take a position on the markets question mark would you say, i am ignoring the dysfunction? it does get resolved and people eventually get back to work. but stephanie's point about the deficit is interesting. there is a really good chart you can run against the yield curve in the u.s., as the deficit rises, the yield curve steepen's. back in the territory of long rising interest rates being pressured by a higher budget deficit. the neck it is him for that is risk premium on the u.s. treasury market. is ae premise for that risk premium on the u.s. treasury market. something we need to watch. if we get higher rates -- the last week as shown the market is already nervous about rising bond yields. deficit could add to that pressure. francine: we are just getting pictures as the house continues to vote. that will is the rule set up the vote on the final passage. and the third will be the final passage, but we do not have a timeline yet. what is the probability of this passing because it has already gone through the senate, stephanie? thehanie: i don't think fact that it has been approved by the senate means it will go through the house. the, like nancy pelosi, she was digging in her heels. he gave this remarkable eight hour filibuster speech on immigration in four inch heels, showing how committed she is to this. again, this is -- four republicans to embrace this bill is quite different from their position historically. just under obama they had been arguing against anything that would add to the deficit. this spending bill on top of the tax cut will blow up the deficit like something we have never seen before. i think conservative house republicans have very clearly come out and said, "we're not voting for this." whether or not they can get enough votes from both sides of the aisle remains unclear. francine: are you worried about the risk of overheating? julian: not really, because if you look at wages, they will pick up, but there is still a very low participation rate. i think jerome powell said himself, look at the participation rate. until that picks up again, we should not worry about labor market capacity. i think there's some slack still 4ft -- not a lot, but million people could be added to the economy until you get a spike in wages. francine: are you recommending to buy anything in the u.s.? bonds also look pretty expensive. are they in a bubble? stephanie: now, i think they are on a gradual trajectory. two years ago, we talked about a bond supernova ready to explode. i don't think it will be a supernova. i think it will be an orderly move upwards and that the equity market can withstand it, as long as the terminal rate is no more than 3.5% on the 10 year. to julianthank you howard and stephanie baker. we are watching developments from the white house and concerns from the trump administration, including the tough time for john kelly. this is what the markets are looking at. i think a lot of the stories today will be on the market. this is the picture for europe. we did see a correction, especially starting in asia. china was down some 5%. a lot of people in the market say the pattern of trading this week suggests it's too soon to make a call whether the market is stabilizing. there was always a move towards calmer markets in european hours, but the selloff began again two days ago. up next, peer pressure. how local lawmakers turned one of theresa may's easiest exit battles sour. then, we speak with ian duncan smith. this is bloomberg. ♪ francine: welcome to our weekly brexit show. let's get straight to the bloomberg brexit flash. here's nejra cehic. nejra: david davis says the u.k. government is very clear on what it wants out of talks with the european union. that came as he met michel barnier in london. barnier told the british government that it now has to make a decision over its future relationship with the bloc. the customs union, outside the single market, barriers to trade in goods and services are unavoidable. the time has come to make a choice. nejra: u.k. businesses said they are split over how to move forward in light of government uncertainty, with many companies disengaging. that is according to the british chambers of commerce. was no roomed there for continued ambiguity as companies tried to make decisions for the future. minister as the prime headed into talks with her cabinet over the negotiating positions on key issues such as the customs union. billionaire brexit becker michael ensnare said he's cautiously optimistic. he made the comments in an exclusive interview with bloomberg's tracy alloway. >> always been a tough situation. wasreason i was for brexit because of sovereignty. that is moving forward. it is a very tough job. to say i'm pleased is overstating it. it is moving forward. nejra: the u.k. prime minister never toher cabinet compromise over their demands on the european union. according to officials, theresa may is adamant that britain must aim high. this as her inner circle struggles to hammer out what kind of trading relationship to seek. that is your weekly brexit bulletin. francine: we are just getting some u.k. data. worse than expected. down 1.3% production for the month of december, month on month. -1.3%. year on year, zero flat. looking at manufacturing, that seems a little bit stronger. 1.4% instead of the 1.2%. it seems to be evening out somewhat. pound, 1.3945. that is an intraday chart, kind of moving sideways. one of the easiest parts of the brexit talks is becoming as difficult as the rest. politicians and business on both sides want a transition period, but domestic pressure has pushed theresa may into a battle with brussels over the details. it is another issue that divides the prime minister's party, who has not shied away from denouncing the prime minister or each other. the civil war, we call it civil war, has given rise to an unlikely potential leadership rival, jacob rees month. be able to hold her team together? joining us now is our london bureau chief, david. great to have you on the program. what is going on? every day i ask about a leadership challenge, but now we seem to have figured out that there could be an infrastructure. >> there's a shady group that we are reading about called the european research group. hes is the group that actually chairs. it is not clear who is in this group. there's a buzzfeed report, about 70 mp's, might be a conservative number, and they are a pressure group. they call themselves researchers, but it is really a pressure group. hase are seemingly -- this may very worried about the stance they take. when there are reports about perhaps being a leader, if the er g are going to have some influence, they may be pushing that agenda. francine: so this is kind of like a group that would keep in check theresa may so she doesn't do a brexit betrayal, and my understanding correctly? >> she's got this balance she is trying to strike. she's got the brexit camp, the remain camp. we are still waiting for the cabinet to come up with their position. all the language you've been using about a battle with brussels, it is what they are calling their war cabinet on brexit. two days of talks and no final decision. mrs. may apparently telling everyone yesterday, no compromise, not quite no surrender. but what do we want them not to compromise on? francine: we used to talk about boris johnson trying to topple theresa may. is jacob now the person that wants her job? he's very controversial. her, were to unsettle would it trigger elections? >> at the moment, there's no sign of an official leadership challenge. even in the cabinet, he's a backbench lawmaker. but there is process in the conservative party. there's a committee of mp's. the chairman of that committee has to receive a number of letters. the magic number is 48. that is a certain percentage of conservative lawmakers. if he gets letters from 48 of them, that would trigger a vote of no-confidence. she could win that vote, or if she loses it, what happens then? mp's whittle down the candidates. they choose the leader. the reason he is being touted as a potential winner is he's very popular at the grassroots level. if he manages to get onto that ballot, there's a chance he could win. francine: could you see a general election, because some of maybe the youth wouldn't be for it? what they really go for mr. rees mogg, we don't really know that. he is very popular among some of the mp's on his own side. labour and conservative the cano. neck and neck. francine: do we have any idea how much she's distracted? how much is she trying to placate the conservative party? >> we are seeing frustrations on the european side that they still don't have the proper position from britain. she's in this impossible position. francine: thank you so much. david joining us on the latest machinations, not only with brexit and negotiations, but inside the conservative party. up next, showing her hand. theresa may reveals more about her vision, fueling civil war in the cabinet. will the prime minister be able to stay in power? we are joined by the former conservative u.k. leader, can smith. later, the latest lender to boost its dividend targets. us for anins exclusive interview. this is bloomberg. francine: welcome back. we are looking at market volatility. we are looking at a market correction. we are also looking at brexit. these things are completely unrelated. over in the u.s., they are voting on a government shutdown, or not. u.s. futures are gaining a little bit of ground after an asian session that left a lot of red. i was looking at the chinese benchmark index, and it was tumbling the most in almost two years. we've been trying to hit the phone calls to get a lot of the traders to talk to us. if you speak to market participants, they say if you look at the pattern of trading, it is too soon to make a call on whether the markets stabilize or not. it happened on monday. we had a huge volatility spike. that led to a big selloff in the u.s. a couple of people came on the program saying they were worried it would spread to the credit markets. by yesterday, we thought there was more calm in the markets, and they were still flat at lunchtime, and then overnight, a lot of things happened. that was a huge worry for everyone. we are trying to figure out if it infects more asset markets, if it is a concern. brexit,may, back to buckled under the pressure of pro-brexit hard-liners in her party this week when she committed to taking britain out of the customs union. the decision would allow the u.k. to strike its own trade agreements with countries such as the u.s., which is seen as a key benefit of leaving the e.u. it also raises difficult questions about a hard border with ireland, a conundrum that remains unsolved. well theresa may be able to hold her team together to deliver the brexit she wants? joining us now, iain duncan smith. he is a conservative mp and ford er party leader. what exactly is the er g? mr. smith: a research group which has a researcher who does research. francine: there are numerous press reports. mr. smith: there no organized issue. people do exactly what they want to do. they talk to each other about europe. francine: what would it take for you to stop supporting theresa may? if you felt she was too soft on the e.u., that she wasn't trying to get the best deal, would you see it as a betrayal? mr. smith: there's no issue about the prime minister. she won the election. she has a mandate to govern. that government will go on. there is no threat to her. from of this is generated the media. i have yet to meet somebody that has told me they want her to go and has written a letter. most of them are disgruntled individuals that have and ask to grind. the rest of it is all about natural debate. you said that somehow through pressure she has decided not to be in the customs union. that hasn't been clear for a long time. it was in the manifesto. it was clear when she spoke at length her house. also, she was quite clear in florence. the purpose of leaving the european union was to leave the single market and customs union. otherwise you haven't really left. the rest is about negotiations to what that future relationship is like. that is what the focus should be. the key thing is, what does the european union want? >> what sort of position would you like to see, and your colleagues in the er g, when we finally get the position from the british government? mr. smith: i think it is quite straightforward. on anuld be focusing implementation period. what are you going to implement. the reality, it is clearly better if both sides agree that we are important trading partners with each other. daft to startther putting up ideas of barriers and tariffs. the european union has a lot to lose when they play this game of saying, we can punish the u.k. not really. the u.k. is the largest trading partner for the european union once we leave. i talked to a lot of businesses and they say, we want to have good trading access. >> are their red lines for you and the rest of the erg? mr. smith: i have no idea. the erg does not take a position categorically. my position differs from others. there is no group that meets secretly. that i think the party itself is pretty much united that the idea is to leave the customs union. don't, then there's hardly any point in leaving the european union. the idea is to set those new trade deals. francine: we keep hearing about factions that are eurosceptic and factions that are pro-european. those avenue and come together, have they? mr. smith: it is politics. go to germany and germany can't even form a government. politics is always about debate and discussion. the real point is, the vast majority of the mp's in the house of commons are keen on leaving the european union and making the clean break. reflectsay knows it the party. that speech,ce there was a little confusion about how hard or soft brexit is. how are you putting pressure on theresa may? how are you putting pressure on this government to deliver the brexit that you think this country wants? mr. smith: i'm not putting pressure at all. i express my own views. the view of the majority of the party is that it was clear, everybody on the remain side made it clear, if you vote to leave, you have to leave the customs union. they thought it was a threat. i think it got more votes over the line than otherwise. it is a clean break. the idea is, we leave the european union, but want to remain good friends. we will help them with intelligence and support them in defense issues and the rest. but there is a big prize to be gained by leaving, and that is that 90% of the growth in the world is going to be outside the european union. i don't agree with the treasury report. they get it wrong when they say that the extra growth that may come from a trade deal with the united states is very small. the australia-america trade deal improved their trade relations by 70%. there's a lot of pessimism. my people have got their forecast wrong. >> do you think there's an actual majority in the houses of parliament as a whole for pulling out of the customs union? mr. smith: i do. the pressure is on the labour party. the labour party has been deeply unclear about what their position is. they won some votes by saying they were leaving the customs union and the single market. lots of clear information about that. now i hear they were with michel barnier, telling him they might stay in the customs union. there are labour mp's who want to stick to their manifesto commitment to leave the customs union and single market. they are hugely in many northern seats, but they are very critical to labour. they have voted to support government policy on key moments. francine: please come back. he is conservative mp and former party leader with our own london bureau chief david merrick. from brexit to banking, mediobanca has joined the lenders aiming to pay out 40% full-year earnings. that is after it posted second-quarter profit that beat estimates. how confident is mediobanca about the path i had? joining us is the chief executive from . thank you for joining us this morning. we have a massive short from ray dalia, shorting all the italian lenders, saying the march elections will be disruptive. what do you tell mr. galliano? r. dalio? >> i think the italian election could not represent the real problem or threat. vote that electoral is a bit cumbersome. it has been drafted and introduced not to give clear leadership to a party, so a coalition government is the likely outcome. the positive is that all parties have a pro-europe program and i think the coalition that can be made will be a coalition aligned to the path that has been followed in terms of structural reform and adjustment that has been done quite a good job in growth we are the seeing. francine: congratulations on getting back to some of your shareholders. could you actually increase the targets, given the trend, but also the improved outlook for the italian economy? >> we are going in the right direction in the sense that in many metrics, we are ahead of our plan in terms of profit, net .arnings, capital generation for this reason, we revised the guidance on dividends going towards 50% payout. thinkng other guidance, i it is too soon. the group is growing fast. devising a guide. stick onter to , and maybe further improve. so you are focusing on wealth management to boost revenue. what are your targets on this segment? >> the overall strategy is to reshape growth in a way that the key component of the group can , and wealther management is going to be the main contributor. contributioned 45% -- so at theope end, mediobanca will have revenue that will come mainly from asset management. francine: talk to me about the payout. you want to focus on m&a, am i , but if yousitions don't find anything to buy, does that mean you don't increase payout? is a planse the plan of targeted 2019. the bank will go much beyond that, show -- so we should look at m&a beyond that date. consideration,o this needs to continue to increase rim and duration to shareholders. mediobanca has grown its revenue to digits in the past two years, and the gross operating profit in the last four years. this has led to a mix of our granik -- organic growth and m&a. francine: what are the countries you are looking at? are you revealing anything for possible acquisitions? >> for wealth management, we are targets mainly of distribution in italy, and in terms of platform, we are affiliate like the one we did recently that was quite an interesting transaction. [indiscernible] alsoine: give me a sense -- you are the prominent investment bank in the italian landscape. what is your take on m&a? we have seen in the last two pipelinequite a robust and a number of deals announced both in m&a and in capital markets. we think that this kind of thing will continue. cost of debt will stay low. the amount of liquidity and , both capital incorporates, but also in banking sector and private equity, is very abundant. so we will see a continuation of this trend, this big one and midsize one, and also equity markets and capital markets that are open to this kind of trend. francine: one final question. you will have to come back with me in london. do you worry about this market volatility? >> can you repeat? francine: i was asking about the market volatility. do you worry about it? worried in the sense that we think this indicator that led to this seenction over time can be , and the levelal of interest rate is still low. it is true that credit has been very tight. -- yes?le threat francine: thank you so much. we will get you in london. this is bloomberg. ♪ francine: the rut resumes. will chinese stocks drop more than 4%. volatility 2.0. money managers worry about zig-zagging in other asset classes. and a shutdown scramble. the senate reaches its deadline, but passes a delay budget bill to keep the government going. the bill now goes to the house. i am francine lacqua in london. this is "bloomberg surveillance ." we have two stories, the market and the house voting to avoid this government shut down. there are three votes, and we two, thegh the first last being just procedural, as i understand it. tom: the idea that leads to a buoyant economy, higher interest rates, and that is where you market turmoil. here we have photos of the house. it's an exhausted house. they have been up all my. here's the former speaker of the house, nancy pelosi. she had her marathon speech yesterday, well over eight hours, francine. speaker pelosi continued to discuss immigration. francine: eight hours in four inch heels, definitely something she cared about. let's get to the bloomberg first word news with taylor riggs. taylor: like you mentioned, it is now up to the house to decide whether to end a partial government shutdown which began at midnight. lawmakers will take up a two year budget agreement that was passed by the senate, but a number of house conservatives are opposed, and so are many democrats. republican senator rand paul blocks the senate vote for hours, angry about the $300 billion in spending increases that are at the center of the deal. and on the deficit, the ballooning budget deficit under president trump could make the global market rent the worst. the budget deal approved by the the deficit push even higher. before that the bank of america deficit wasthe on track to extend past 5% of gdp. for the first time, and member of the dynasty that ruled north korea is officially visiting the south. kim jong-un's sister arrived today for opening ceremonies for the winter olympics. and british prime minister theresa may is. telling her team not to compromise on brexit. according to officials who work closely with her, she wants to aim high foer an ambitious free trade deal. they might not be drawing up any fallback plans, at least until talks are well advanced. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. tom: equities, bonds, currencies, commodities. we bounced up 16, nobody trusts that. spreads wider, just a bit. but yields have moved up. quality, you don't see that in dollar-yen. the vix has been the early story friday. 31.77 on theesday, vix. this is where the dollar was on the close and the 30 year yield was at 3.15 again. higher yields. francine: tom, i'm looking at a similar data check to yours. i'm focusing on the european market, which is the family off of the day's lows. equity futures gaining. the asian session, a sea of red, with china's benchmark tumbling the most in two years. i spoke to a lot of market participants this morning and there seems to be a consensus that because of the pattern of trading this week, it is a little too soon to make a call on whether market stabilizer not. tuesday the stabilized a little bit and wednesday was calm. a lot of traders are in a wait and see mode. tom: let's put it in perspective. this is a chart i have used other times. you will see this all day. we are getting major play on twitter from bloomberg radio. here is the thousand point d rop. up with a 10%k correction. the 200 day moving average, we are not even back to it in such a bull market. what is down here? this is 1987. that is the one-day drop you would have seen in 1987. and this is 1929. these are much larger percentage drops. this puts in perspective, the needed perspective, francine, between point change and percentage change. tom: i like that, tom. i went for a much simpler chart, all thanks to hillary clark. i decided to look at pound. i was looking to see if there was a bit for the pound. it is now back in the lower levels of the initial brexit selloff. this is quite important because we are also hearing about factions from within the tory party, kind of regrouping and lobbying to avoid the brexit betrayal. duncan smith,ain who was reported to be part of that group, he is not. the selloff that looks to have ended with the week has come back with a vengeance, hitting markets from the u.s. to europe, markets falling 10% from their january highs. we are in a correction, but what is next. jeffreythank you both for joinig us. what does come next? the either an infection of credit markets, which could turn everything ugly, or slowly but surely they stabilize. >> look at the dollar yen and the dollar swiss. normally you would look at the nikkei, right? but that correlation has broken down. there is no safe haven bid in the equities. >> i think the chance of separating how much of this or what part of it is technical and how far that has gone, versus the fundamental concerns -- because it is both. that is what is different about this one. from the technical point of view , in terms of all the investments you had, the impact on that on the risk parity function, that is not quite done. there is one reason to be a little cautious there. on the fundamental side, you will see this is about inflation and therefore, do we worry about high fed rates? we do not know yet. we want to which for the next data point, which is cpi, which is next week. francine: what happens if it starts spilling into the credit market? is it almost inevitable because of how much we have risen during the last 18 months? low,en though spreads are if you look at default rates and upgrade and downgrade issues, we know what the outlook is like. even if you have this in the financial market comin, it is a bit of a stretch. tom: geoffrey, i'm watching dollar-yen. i don't see quite the quality in yen. is that right? geoffrey: this seems to be isolated within the u.s. equity market. it is a technical matter. if we look at what is really going on in japan right now, should we start to rethink the relationship between japanese and the yen. because if you believe in the japan reflation story the yen should be independent. tom: right now geoff yu, one of our themes today has been the move away from the desperation and the crisis over the last eight to nine years over to now with outright inflation. do you buy the theme that we are moving from reflation to inflation? so, outright inflation, or runaway inflation will not be there. bear in mind, you still have a fed which is wondering whether or not the phillips curve is still relevant. we have had one data point. is that enough? until the fed comes back and says, there is a strong phillips curve, then we should rethink things. at this point, it is too early to tell. tom: daniel, is this an opportunity -- this morning we kass.alk to daniel doug is this an opportunity this morning? daniel: we are looking at our investments from a longer-term perspective. tom: i know! this is important. doug kass is looking at six hour s, two days. daniel morris is looking way out here with long-term investment. that said, is this an opportunity today? daniel: i would not go as far to say that this is necessarily the bottom. if you are looking at -- from a long-term perspective, if you reallocate towards risky assets, which is what we will be doing because we still believe in goldilocks. if it turns out to be early and things go down before they go up, that is something any investor has to deal with. we're looking at our positions and what to add. if it comes to taking that position today or waiting a week or so, it depends on each individual portfolio manager. francine: what does this mean to you regarding the way the market functions? workrey: with the products when you have a very low vol environment. i think that is the main lesson here. francine: thank you do geoffrey yu and daniel morris. coming up, the conversation with the chief economist from credit suisse. that's coming up in 50 minutes. this is bloomberg. ♪ taylor: this is "bloomberg surveillance," an di'm taylor riggs. qualcomm has rejected the largest takeover bid in history. chipmaker made what it called its best and final offer. the proposal will be decided by shareholders next month. walmart is in talks to spend in several billion dollars to take a stake from india's e-commerce leader. walmart could invest as much as 20% as part of a deal that would valuation tot's as much as $20 billion. and the world's biggest shipping company came up short last year. the danish company is working for the historic split of the corporate structure. they are selling the energy unit to focus on transport. that's your bloomberg business flash. tom: so much going on, of course. looking at the house, exhausted. it's been an all miter. the 54th speaker of the house just poke, paul ryan. speaker ryan wants this budget passed. he wants a large expansion of guns. ryan completely different than he was three to four years ago, running as a vice presidential candidate. that is one of the angles here, as the house considers this senate legislation. the market leading all co verage. right now, daniel morris, senior investment strategist from bnp paribas, with us and geoffrey yu with us. geoffrey, did this start in davos with a comment from secretary mnuchin? that was mentioned today in a "washington post" essay. does this give us perspective here, the combinations of everything that is going on? this goes back to the weak dollar policy. republicans plan to make deficits great again. it is not only hypocritical, but terrible policy. yu part.he geoffrey if you expect the dollar to continue losing value, investing in dollar assets, such as treasurys, look even less appealing. good story: -- --is that a good story? ffrey: i'm sure many managers would love to up their u.s. economy.wing but if you want to look at the short-term, if you want to push for a weaker dollar, that could import a bit more inflation, especially in the u.s. and if you look at the way the dollar-renminbi has been performing, that does not help. tom: i do not want to say never but i would say we have never seen the double impulse, as we do with the tax cut, and curve.th the ta i.s. cannot get over 3% gdp? geoffrey: 3% will be the magic number. we are not there yet. if you are going to see the investment, lift that investment impulse and ultimately productivity, the 3% number is more about trend growth. if we can get u.s. trend growth back up to 3% or higher, that is a game changer for the entire local economy, not just now but for the future. francine: do you agree? daniel: that would be fantastic. the fed still thinks the trend growth rate is 1.9%. that is crucial because they are making their decisions on interest rates eased on the perspective that it is 1.9%. we will probably be growing two to three quarters this year. they think, we need to be hiking much more. francine: is there a danger the u.s. is overheating? daniel: absolutely. at this point we did not need a big fiscal stimulus at this cycle.= and the fisca the fed will be meaning into the growth to keep this under control. this is why we do not think this selloff, in terms of it being spike lee inflation, will go too far. -- in terms of it being spiked by inflation, will go too far. francine: at what point does the u.s. dollar that is weaker force the fed to hike more? daniel: earlier we were talking about how much further the market would have to fall. really, don't think that is particularly likely, but it is a scenario that could happen if we see another 10% drop in the market. tom: very good. the vix back up near the 32 level. yu,el morris and geoffrey thrilled they are with us today. doug kass will join us later. a good interview with mr. kass. the house begins to vote in washington. stay with us. this is bloomberg. ♪ francine: good morning, this is "bloomberg surveillance," with f rancine and tom. investors reeling from the biggest selloff in two years. that has been very acute in china and hong kong. the benchmark has entered a correction. investors bracing for possibly more volatility before the new year. we are back with daniel morris from bnp paribas and geoffrey yu from ubs. hong kong was significantly lower. is it just that the market dynamics are different question mark why was the selloff sharper over there? >> there was a big move in the renminbi yesterday. there are big move behind it. as we know, the constant creating in china is tension. at the same time, liquidity tends to be a bit squeezed heading into the new year. the chinese growth forecasts have been revised higher. francine: is there anything we should watch out for in the chinese market, then? or is it just more technical stuff? daniel: we are expecting the growth rate to slow, we forecast more on the services sector, rather than the domestic sector. i think the separation will be more important this year, given that we expect a slowdown in gdp, as opposed to the acceleration we saw last year. that dynamic will be important. , i: daniel morris believe it is important to get for the record, what your reaction is. exogenous shock that keeps you up at night right now? daniel: i guess we always had the risk of any geopolitical event. that is something that is inherently unpredictable. it's ever present. one i could have a more realistic grasp on is the concern markets have on inflation. we have the cpi data coming up this week. whether or not that confirms the data from the nonpharm payrolls. we will see how that will impact of inflation expectations and yields. tom: will they rattle over the next six or seven days, or not? geoffrey: i do not think they would be trading monetary policy as tactfully as markets have been up to this point. the question is, is there any way to kickstart the economy? we were discussing fiscal stimulus -- i know that is a dirty word here. what would be the distributional effect of the stimulus and wealth creation in the u.s.? that will be a very daunting prospect for central bankers up ahead. francine: if you were to sell off something right now, what would it be? is there something that if it was infected looks like it could turn ugly? geoffrey: we are looking at spreads in the high-yield space. so, if there is a great injection of risk premium, it will be in that market. should there be a stronger reaction or for now, is it just isolated in equities? let's wait and see, but that is probably where the adjustment needs to be made. tom: daniel morris from bnp, th ank you. in washington, the senate has voted. we await the house vote. they begin that vote to end the shutdown. let me be clear. we are in government shutdown as we speak. the house is voting to get out of a second shutdown. stay with us, worldwide. ♪ ♪ tom: good morning, worldwide. francine lacqua in the city in london and i am tom keene north of wall street in new york. it has been a tumultuous seven days and the house voting right now. we are right now getting down to the idea of a shutdown and how do we get out of a shutdown? we may see that in moments. with your news update this friday, your first word news, here's taylor riggs. taylor: donald trump's health care plans to target patient out of cost. alex azar has laid out several proposals that will appear in the budget proposal on monday. one would make sure the elderly covered by medicare benefit from discounts at pharmacy managers negotiate -- that pharmacy managers negotiate with drug makers. the administration is considering emergency orders that could keep coal-fired plants online. federal regulators rejected a proposal to bail out the plants. in china, inflation at the factory level is easing. january from a year ago, a third straight month of slowing down, that suggests the world's biggest trading nation will not be passing on inflation to the rest of the world in near term. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. i am taylor riggs, this is bloomberg. tom: very good, thank you so much. i want to bring up these headlines now and we have news out of the house. we need to be very careful about projections of votes versus the actual vote. there is an exhausted house, no one more exhausted than the democrat, policy of california. tong up my screen and i want show you the news flow and how fast we see it across the bloomberg. you have a headline and the house has votes to pass the bill that would end the shutdown. vote on stopgap funding, debt limit suspension bill, this is kind of the stream of consciousness as we try to get the legislation that would dramatically boost the budget of the united states of america. francine? francine: i was going to ask you if you could, for us, make us understand the difference between the projections in the actual votes. usually when you look at the to sayions, it seems they have past on those accounts. is it true? do we believe -- as the's not as thin federal reserve vote, which is really down to one vote in the senate, that would be the senator from kentucky, rand paul. nothing like that. we need perspective and we do that with stephanie baker in london as she looks at the follies in washington. what a delicious distraction for the white house to see congress do that. yupoke earlier to geoff about the idea that now we have a tax cut and we have laid on that a budget explosion. is that what we have done back to back? stephanie: if you combine the tax but with the spending bill, it is extraordinary how much it will add to the deficit. historically have been railing against an increase to the deficit and demanding spending cuts. we remember the last government shutdown under obama, prior to the one three weeks ago. it was all about republicans being against any spending increases that would add to the deficit. this is a real departure. the i want to go back to headline, the new york times headline, and bring it back again. house clears, build to end partial u.s. government shutdown. what is your perspective on the silliness of back to back shutdowns? do we need a third shut down so we can have a hat trick although most fiscal immaturity? stephanie: it's really a sign of the sort of dysfunction in congress. the shutdown was really due to senator paul wanting to attach an amendment and bringing this midnight.oss to that really caused the shutdown even though it did not change the bill in any way, shape, or form. i think the real thing now is this whole democratic ploy to tie immigration, the immigration bill to spending has been coupled. i think the real questions -- there are real questions as to whether or not they can get the immigration bill through now. tom: let's look in real-time as we aggregate our news sources. we've got bloomberg coverage, the budget and debt ceiling deal now goes to the president for his signature is our final headline. i guess it is news in the making, but it's been an ugly week of headlines and turmoil. francine: it's been quite unexpected, especially with republican senator rand paul saying, are we only conservatives in times when we are minority government? investors and the american people, if they wake up and see this come are they going to think their congress is dysfunctional or not? stephanie: it's a win for republicans and i think it will take time for the consequences of this to sink in. democrats got what they wanted, increases in domestic spending programs like children's health, disaster relief, republicans got what -- not what they wanted in terms of increased military spending, but that ye and you result is this massive increase -- the end result is this massive increase in the deficit and how people digest that remains to be seen. tom: stephanie baker with us as well as we are all stephanie this morning. wonderful to have you on bloomberg surveillance and i guess it speaks to the app and -- economics you overlook in all of bloomberg. we've got the fiscal part of the curve and the money part and it seems all a jumble this february. what are you looking for out of washington that will maybe give us constancy through february? >> i think we are looking at what you always have -- the toiest bipartisanship is ande on taxing less spending more. economist will be trying to catch up to what this spending bill will do to the deficit going forward in a time in a cycle when you have never seen this process local spending. -- pro cyclical spending. stepping back, i would say the content -- it's not just the process that is dysfunctional. the content is pretty dysfunctional. any of the measures in the medicare arena that were actually about trying to cut cost, have been taken out. tax breaks have been removed and taxing that had already been done, so you are not actually encouraging anyone to do anything. i think people are been a look at this and say it's a further stimulus to the economy and the merger -- margin, higher inflation down the road which has fueled market concerns this week. let's go to the chart right now, this is the deficit buildup back to world war ii. here is the blip of world war ii, this is nominal. here's the clinton surplus, down we go, and this is the chronic sense of deficits. stephanie baker, who won here, guns or butter? stephanie: i think they each got a bit. obviously the military got more. that you to got what they wanted and they got something they can use and sell in the november midterms. the children's health program, that was something democrats had been campaigning for. they got 10 years of funding for that and again, disaster relief has been something democrats have been hammering on about and they finally got a boost to that. supportingats were increased military funding, perhaps not at the levels that were included in this bill, but i think you can safely say perhaps this is win-win for both. francine: what is it mean for investors? ffrey: we have been saying globally there has been fiscal restraint that has hindered things and now we are really -- if you look at the coalition agreement in a germany, the prospect of that accelerating as well. i think we should look at the positive side of things and look at the japan situation as well. i actually don't see too much of an issue driving yield higher or deficit. i would rather focus on the growth element. francine: i want to ask the same question to stephanie. given what we have talked about all day today in the u.s. and where rates are an inflation is, what are the chances of the u.s. overheating? geoffrey: if we get above 3%, that may feel like overheating. -- m a central bankers'c it points to the kind of recovery we are getting in the u.s., which may do great things for the economy, but it will boost the trade deficit and be good for the rest of the world, but possibly lead to faster interest rate rises that people were thinking. how attached, stephanie flanders, how attached is the united kingdom to london right now? stephanie f: [laughter] of course, it's the bbc, not the u.k. -- it'sk the been very interesting. there's been a lot of debate about the impact studies the ministers are sitting on or not sitting on, are they accurate? the area of britain that is likely to have the least impact is feltxit, bizarrely, to be london, not because the city will not be affected, but because, in fact, you have already got this critical mass of a city that is pretty functional and attractive to people regardless of some of these question marks around brexit? we are not that much closer -- to fixing the dilemma, a global city with a not very global country attached, as some people say. baker, whenephanie you look at the trump administration, i guess the turmoil we saw over last week with one of the staffers leaving over allegations of misconduct at home. how does president trump handle it from now on? does he distract after he has had a win with the government shutdown, tax, something else? are we worried about a trade war or the russia investigation in the forefront? stephanie: the russia investigation is not going away any has to grapple with this issue, does he sit down with special counsel robert mueller to talk one-on-one. they are still negotiating the terms and there has been pushed back from his lawyers on that. that will be an ongoing story. we have the resignation of the staff secretary today, john kelly, white house chief of staff, his number two and what many white is how house staff only have partial security clearances, which is kind of incredible when you think about it at this stage. raft of resignations from the white house has been such turmoil, but he keeps blowing through it. tom: that's a terrific summary, thank you so much. i agree we go into a most unusual weekend in washington. we thank stephanie baker for being with us. stephanie flanders will continue with us. providee yu will foreign-exchange wins the -- wisdom. robert moon, karen moskow, we look forward to them coast-to-coast tour it when you are trapped in your car, no better briefing than bloomberg daybreak bloomberg radio. ♪ ♪ francine: good morning, everyone, this is "bloomberg surveillance." tom and francine from london and new york. tom, boe, brexit. one of the easiest talks is quickly becoming -- than the rest. -- want a transition period, but -- pushedressure post theresa may into a battle over the details. as critics of theresa may has become increasingly vocal, the civil war has given rise to an unlikely potential leadership rival and that is brexit hardliner jacob. a still with us, stephanie flanders of bloomberg economics -- in charge of bloomberg jeff noddle -- economics and geoffrey yu. some of the forecast yesterday had been changed. how do they deal conceptually only brexit, but possible leadership challenges within the conservative party? stephanie: there are senior conservatives who say they wonder if there will be a single conservative party at the end of this year. they are looking at that vote over the brexit transition and the formal end of the process and wondering whether the conservative party can escape from that. the bank of england, mark carney was clear, they have to just hope that eventually sanity prevails of the business community and the bank of england waiting for the same thing, some kind of clarity at least on the transition deal. stepping back a bit from the sort of mood music with brussels and the nasty language from theresa may or negative language, i think you are -- the assumption is you are going to have a transition period that looks almost exactly like the status quo minus any u.k. influence over european policy and that doesn't feel like a comfortable place for brexiteers , but still feels like that's the most likely scenario. francine: can the u.k. cope with one interest rate rise? there seems to be -- that it can't -- consensus that it can. can it cope with two rises? you have -- saying a doubling of rates, two rate increases from where we are in the next year would not be such a great shock, which is unusual for them to talk in the number of rate rises. i think they will be trying to kind of normalized that in people's minds and downplay the impact even though they know that any given percentage change will have a bigger impact on households than in the past because of high debt levels. you more thanyu, anyone talked about a resilient sterling and a stronger sterling when everyone said it sterling was going to go down, down. that is aged history. i want you to -- ancient history. i want you to earn your keep on friday. can it ever get back to 148 or does it finally rollover? geoffrey: we are absolutely staying the course. a good chunk of that is the dollar story. right now, it's asymmetric. if we get bad news from the u.k. on brexit or what ever or the perception of that news, i think clients are like, what ever, more of the same. if it is good news, then this is something i was not positioned for, so i should reduce my shorts and my lungs. we still think it's -- longs. eurosterling probably flatter now, but really, sterling and aggregates them is still a buy. francine: for the moment, i just have cable for you. does it touch 150 by your end? geoffrey: even if we get a quick bounce tour that level, that is where basically the positioning will turn against you and the fundamental news will turn against you and markets will probably react more to negative news rather than add to good news. demandsncine domains -- trade weighted sterling, we are doing this now to dazzle stephanie flanders. we have trade weighted sterling and we are back to 1992, 1 of the worst images out there, back to lehman low weakness. trade weighted is always based on flow. stephanie flanders, what are the flows dynamics we are reporting at bloomberg economics right now? stephanie: i think what we are seeing is a lot of people trying to consider what the state of the global economy actually means for the u.k. and relative players. it is hardly affected by what has happened to the dollar and people are just seeing a net and if it from being in the u.k. -- benefit from being in the u.k. relative from before. when you look at charts like that, you think, we have reached this great low. it is the lowest since 1992, but all of the 1980's was felt to be a period of massive overvaluation of sterling. even though we like to have those historical perspective, if you had gone a bit further back, which you may not have the trade weight index for, but you will see the 1980's were a bit of a blip and many people would be more comfortable seeing cable where it has been over the last few years than the earlier times. francine: thank you both for joining us, geoffrey yu and stephanie flanders. coming up on bloomberg tv, if you are a bloomberg customer, and we hope you are, you go to tv and ask painfully difficult questions to tom keene by clicking underneath the video screen. forget trade weighted pound, we can do more difficult than that. this is bloomberg. ♪ ♪ we welcome all of you worldwide. francine lacqua in london i am tom keene in new york. more market coverage today and more data checks. karen moskow with extended data checks later today. thou futures up 1.0 2 -- how futures up 100 02. next screen so we can show the vix. 68.8 is a good stick and a 38.77. yield elevated this morning. francine? francine: i am looking at in europe, they were down, they were up and now they are pretty much trading sideways. a lot of the investors we spoke to yesterday may be called the end of volatility too soon. i am looking at u.s. stocks index futures, which will give us more of a sense of where today goes. the boe volatility index dropping. still with us, stephanie flanders, and geoffrey yu. when you look at the markets, stephanie, you have been in the markets for a long time. before blooming bloomberg -- before joining bloomberg, what does this week tell us? stephanie: there's a lot of things we were expecting to see maybe earlier in the cycle. sit andgan, we used to talk a lot about the unloved bull market and this is kind of correctione,d almost ed correction almost. in the investor community, people are pretty calm about this. they know this is part of moving to a higher bull regime, a later stage regime, but one with good economic fundamentals. it has been an interesting week because the numbers are not really telling what people's sentiment is when he talked to long-term investors. francine: what if it spreads to credit? stephanie: volatility is back and that's not going to go away, at least not from a week to week basis. it was pretty hard to diversify -- the message was this was hard to diversify out of. you cannot easily employee negative normal correlation, but still something they are looking at going forward. francine: thank you so much for joining us. geoffrey flanders and yu. coming up next, we speak with james sweeney at credit suisse, the chief economist there. we will talk market corrections and avoiding the shutdown. this is bloomberg. ♪ ♪ tom: this morning, omg, a correction, should i buy or should i wait? breakout higher again. we consider the underlying economics behind a new volatility. doug kass on the joy of cash. omg, and all night or in washington. not that there a french majors at georgetown, the senate acts, the house acts. we go to washington in a moment. we consider the road taken from reflation to the new new in inflation. good morning, everyone. good friday morning. this is "bloomberg surveillance" from our world headquarters in new york and from london. francine, why don't we review where we are on this friday morning? i believe we are trying to get the market open. the festivities in washington and important conversations in london as well. francine: important conversation because once again -- actually, to put it clearly, there is media speculation there's a keep an -- trying to eye and even topple theresa may they see what would be a brexit the trail, being to fost to the -- soft to the e.u. i spoke to one of the people and he denied any press reports. tom: it always seems to come up on a friday to get us to an eventful weekend in the united kingdom. we need a news briefing. here is taylor riggs. the congress has and in one of the shortest u.s. government shutdowns on record. hours after the partial shutdown began at midnight, the house pastor to your budget bill that raises federal spending -- past a budget bill that raises federal spending. president trump promised to sign the bill. republican senator rand paul blocked the senate vote for hours. he was unhappy over the extra government spending. the ballooning budget deficit over president trump may make the global market frenzy worse. the two-year budget deal would push the -- push the deficit even higher. before that, bank of america warned the deficit is on track to exceed 5% of gdp, that is the largest for the economy while at full employment since world war ii. the the first time, the member of the dynasty that -- a member of the dynasty that rules north korea is officially visiting the south. jae-in meet with moon for lunch tomorrow. theresa may is calling her team not to compromise on brexit. to aim high in demands for an ambitious trade deal. officials may not be drawing back -- drying up fall back until talks are well advanced. global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. tom: more data checks through the morning with bloomberg equities, bonds, currents, commodities. 120 at 7:00.p oil not part of the story. euro with a little bit of a bouncer. on to the next screen. the vix really, the barometer of all 32, 33, down two figures, the dow closed. elevated, theyd should be green up two basis point it yield and up 3 basis points -- watching the linkage to the markets, francine? francine: i have enjoyed our coverage, especially on our blog very much and this is what i am looking at in the markets. stocks pretty much unchanged. a little bit down, but not as down as earlier. in any stock market correction, you want to watch for contagion, how far it spills over into other asset classes and if it touches the real economy. certain credit markets, probably the ones you would watch out for. tom: thank you so much. we need to go to washington. eric is completely prepared for the turmoil, he is one of the america,rees of philosophy. you needed all of your philosophical training to get through the last 24 hours. what did you learn from speaker ryan? what did you learn from the republicans as they move to this vote? eric: i what -- i learned speaker ryan wants to play hardball and nancy pelosi is starting to bring down the budget deal that would have ended the government shutdown and failed to do so. 73 democrats ended up going along with the spending deal that was negotiated by both parties, even without a stronger commitment from paul ryan on the immigration bill. this is what nancy policy is speaking, commit -- nancy pelosi is seeking. that immigration debate will kick off in the senate next week. it remains unclear whether the house will pick it up. tom: let's get out in front of the punditry, did fall right -- paul ryan just pull up john boehner? if he had a 70 what ever democrats come over, is his shelf life as narrow and small as john boehner's was? eric: i don't think so. i don't think he is in jeopardy at this point. i don't think there's anybody that can replace paul ryan at that point -- this point. certainly it is a big bill and does raise the debt ceiling and there was a distraction of 67 republicans, but he did the -- he did get the majority of his congress and that's important for maintaining. was the mostt surprising thing in the last 24 hours you saw? where does this leave paul rand? where does it leave paul ryan, you say? francine: rand paul. oh, rand paul. he did make a play and the government did shut down for five hours or so. actually, the shutdown is continuing because president trump has not really -- has not signed the bill. presidentho ran for in 2016 and it up being beaten donald trump and here he is pointing out the deficit is in a grow from about $500 billion under obama to over 100 -- $1 trillion. you so much, try to get some sleep in the next 90 minutes or so. we are going to do what we do on surveillance, give you perspective across all timelines. james sweeney will join us with a much broader economic picture. right now, we go tactical. doug kass is simply legendary. he is with seabreeze partners in florida and he has been 80% in cash. doug kass, you bought on the bid last night. why did you buy? : you asked someone about 40 minutes ago on "surveillance" what would be a shock to the markets and i think they mentioned wage inflation. to me, we are already seeing that shock in this volume and volatility inspired unwind. let me explain why i think the market pressure maybe over shortly perhaps even before pitchers and catchers meet in spring training in three days, 17 hours, and -- just give me two minutes for perspective. tom: i will give you 90 seconds. mistakesould parade my in a very long parade down fifth avenue, but some of the things i learned over the history of markets provides a lesson and a blueprint for how to act in the present in order to deliver good returns in the future. you might recall a few years back warren buffett invited me to be berkshires'scredenti -- berkshire's credential -- with the help of three of my analysts, nick, kelly, and scott, i did research and formulated the questions. i learned important lessons from the article i think kerry today and have relevance. tom: give us one of those right now. doug: we have had this pernicious impact against volatility link strategies. "in the 20th century, the u.s. endured two world wars and other military conflicts, depression, a dozen or so recessions, oil shock, even the resignation of a disgraced president, yet the dow rose from 66 to 11,500." in other words, when you trade and you invest, warren taught us to pay attention to history, that it pays to be emotionless and we should him passively move on opportunities that represent themselves. when market prices suggest three things that happen in the past weeks. for the first time in a long while over the last two weeks, stocks and bonds have declined together. that reciprocated the deleveraging process. secondly, in three of the last five trading days, 90% of the stocks on a daily basis have declined. this is only the second time in 80 years this happened. the last time was may 17, 1947 and that ended at -- a 29% decline in the dow jones. francine: doug. sorry, let me just jump in here. what does this mean? do we have to be fearful are not? the markets don't seem to be fearful at all. doug: in the absence of any apparent change in fundamentals interestnd rise in rates, which were contained yesterday and unchanged this morning, we must be reactive to changes and sentiment in valuation and use history as our guide. with the s&p closing thursday at 2580, i do not want to be as negative as i was when i was substantially net short when the index was 2880 exactly two weeks ago. francine: will this spread to credit markets and if it does, what does that mean? doug: it's a great question because that is the important thing to watch, which few people discuss. we have to watch the high yield bond market, for example. the fact of the matter is if you look at junk bond yields relative to treasuries, they were at a multiyear low. i think there's some room for expansion in that spread. francine: i think i am seeing a little bit of cracks in junk bond. doug: we see the crack in junk bonds after a move in which the difference between junk yields and treasuries were probably 650 basis points years ago and a contracted to about 150, 175 basis points. i think there's a little room for that spread to widen and still be unconcerned. got time kass, we've for one more question. you applied funds yesterday and went long. is there one sector where kass has to load the proverbial boat this morning? is it utilities or something more romantic? doug: i think what you want to and for size are companies -- emphasize are companies that have recently beat expectations. especially in the financial arena, which will benefit from a likely widening in the 210 spread and the likely increase in the absolute level of interest rates. -- insurance comes to mind as an inexpensive way of taking advantage of what happened. , thank you soass much from cb's partners -- seabreeze partners. we digress from market dynamics, he has been waiting a schenley, james sweeney absolutely nailed don't be worried about inflation fears of two years ago and now we migrate over to a great global reflation may be herating into inflation and joins us amid this market turmoil. how much fun has the week been? james: it has been a lot of fun. i think what is happening is the distribution of risks is shifting towards some people are starting to take inflation seriously and others are starting to take new monetary policy possibilities seriously. i think we need to remember last week, too. the euro strength-dollar weakness and increasing yields, people were thinking differently about monetary policy and i think ultimately that was the trigger for this very u.s. equity market centric move. tom: even though mr. sweeney is with credit suisse, he is not in the division or the area of the vix uproar and we will not ask questions about that this morning. i am going to ask questions about how j paul does it. -- how was the first day, the chairman have to react to this, doesn't he? james: yeah, but he has experience with the fed and he has -- will have testimony soon. we are looking for any 10 of -- any kind of signals about terminal rate, long-term rate expectation changes. if we see inflation, do they bring back the words measured pace at some point? cover,ere is a measured this got a great laugh. look at the balloons behind, those are keynesian balloons in the background. do like: i actually that cover, very smart on the part of joel webber. talk to me about what it means in the markets. you could argue a weak dollar means the fed has to hike more than expected, but you could also argue the market turmoil means they could slow it down. which cam are youp -- which camp are you? for a bigger move in the dollar than we have had, we are not so concerned about the dollar's move at this point and its impact on inflation and the economy. it's really more the euro strength and what it tells you about a market that is starting to think seriously about ecb hikes next year. the dollar has been -- francine: james, tom and i were in davos, the treasury secretary shows up and says they almost have a weak dollar advantage, or at least that is what they want, what a weak dollar policy. his boss, donald trump, 24 hours later denies it. i have never heard that before. james: they have said a lot of things you have never heard before. i think they want to signal they care about the trade balance perhaps in ways that other administrations in the past have not. i don't believe they are about to embark on any kind of actual policy measures designed to weaken the dollar on purpose. i think the dollar has weakened before the market is expecting the rest of the world to tighten monetary policy in line with recent growth. tom: we will get to many of these themes through the hour. i want to jump forward with james sweeney and the fiscal policy. ring up the chart, anthony. it is the deficit to gdp and we are beginning to see people really model what -- was talking about quarters ago, bank of america, james sweeney, down to a 5% deficit to gdp. then wet tax cuts and got fiscal follies. the two combined is really something, isn't it? james: yes and on the fx side, the old twins deficit meme story. deficits getting bigger, fiscal deficit is getting bigger. these things are good and associated with recent growth in the short run. these things are bad and associated with other problems in the long run. we know this. this is a big deficit. tom: i want to revisit this. you are predicting we are going back to a twin deficits style log of a different -- of another time and place. of dollarely a period weakness and i think the market will be focused on that in the next few years. tom: thank you so much for being with us. thank you doug kass for that trading perspective this morning, and thank you to erik wasson at capitol hill as the house and senate move forward on chronic trillion dollar deficits. right now, there's a number of things we want to do. why don't we go to kevin cirilli in washington, our chief washington correspondent. we heard from erik wasson before. sonheard from eric was before. i want to pick out how the white house response to what we have seen. --ublican plans to make great again is not only hypocritical, it's terrible policy. fewer people may be interested in buying more debt read if you expect the dollar to continue losing value, do you really want to own treasury as they look even more appealing? kevin cirilli, make deficit great again. this is the president that just cannot say no, can he? kevin: he cannot, no. early this morning, late last evening, senator rand paul really pushing forward regarding this argument about deficits and you had a clear division within the house vote we saw in the last hour. the bottom line is that this raises the debt limit. if you are outside washington, this prevents drama with the debt limit through march of 2019. i want to play this forward because i am hearing we will get infrastructure details early next week on tuesday. what this does is essentially embolden a lot of the deficit hawks on capitol hill will be scratching their heads next week when this infrastructure proposal comes out and they say, wait a minute, i am not sure we have the money to do this. hawks,en we say deficit we always think republican, baloney. my childhood was democratic party deficit hawks, including john fitzgerald kennedy. where are the democrats deficit hawks? kevin: great question. me, inell you that for my reporting in the last couple of beers, it has been remarkable to see this shift you are alluding to with some democrats coming to the forefront saying this is too much money and i think you are going to be hearing that more from the aggressive base. look at the 2020ers, the folks eying a presidential run. you saw them put forth -- from senator elizabeth warren, the senator from massachusetts, putting out statements voting against this in senate, joining the likes of senator rand paul as a result of those deficits. weekend, it's the know it's early in the morning. kevin: thank god. francine: it's the weekend, monday morning, republicans wake up and they have a hangover, headache on what? kevin: i think conservatives will have a headache on government spending, particularly once the base gets their hold on this. on the flipside, let's focus on bipartisanship because it's a rare moment of bipartisanship. i spoke with representative garamendi, the democrat from california who told me this is the type of bipartisanship they like, even nancy pelosi facing pressure from the base on daca, saying publicly yesterday it's a good deal, but she wishes daca would be into it. if you are outside washington looking at the coming uncertainty, infrastructure, asset recycling going to dominate the private sector with government next week -- look out for immigration. tom: kevin cirilli, thank you so much. he is our washington correspondent. coming up later, we will look at market dynamics. he has been right, he has been wrong. we shall speak with dennis gartman about a market moving upper left to lower right. this is bloomberg. ♪ ♪ francine: this is -- good morning, "bloomberg surveillance ." we were talking with james sweeney about the dollar dynamics. this is what we picked out for our morning must read. this comes from james sweeney gravityand it's called or let's bring it up so i can read was going on. gravity versus the dollar. the dollar weakness is unlikely to change the fed's policy course, even if it boosts gdp slightly. our view is through whatever short-term noise occurs, the dollar will conform to its historical pattern, bringing it for the bottom end of its trade weighted range. james is with us, james sweeney of credit suisse. what if 2018 were radically different? james: sorry, what did you say? francine: what if it were different james: you are arguing it continues to slide or continues what it has done in the past. what if this time it were different? james: i think -- if the dollar were going to reverse and make our house view wrong and rally significantly, i think the most likely way for that to happen would be disappointments in growth in europe and overseas because, again, i think the primary driver of this dollar weakness we are seeing is a market which has -- is taking seriously tighter monetary policy. basically, big news, positive interest rates in europe, short-term interest rates in the next year, two years. neville hill in london is forecasting quarterly interest rate hikes by the ecb in 2019 and the market is certainly not there, but the market is pricing for the ecb hiking next year maybe twice. i think that if suddenly the european data starts to disappoint -- disappoint, inflation goes down in the market comes back into its low interest rate deflation risk forever outside the u.s., then that is the kind of -- that is the dollar-bullish story. we don't think that's going to happen. francine: thank you so much james sweeney of credit suisse stays with us. this is bloomberg. ♪ . . . we use our phones and computers the same way these days. so why do we pay to have a phone connected when we're already paying for internet? shouldn't it all just be one thing? that's why xfinity mobile comes with your internet. you can get 5 lines of talk and text included at no extra cost. so all you pay for is data. choose by the gig or unlimited. and now, get a $200 prepaid card when you buy an iphone. it's a new kind of network designed to save you money. call, visit, or go to xfnitymobile.com. francine: good morning, everyone. this is "bloomberg surveillance ."tom keene in london . -- i am in new york london, tom keene in new york. systemax company in the world, what they talked course thernings, of strength of the economy, and she asked about the recent market route and whether that can have an impact. know thatmportant to the market itself, the luxury market itself, is three times more dynamic than the mass market worldwide. grew byate it globally brands inviously for the market, they are a force with the tide, growing very fast . it is a more challenging environment. , thespecially in the u.s. u.s. market was pretty soft, but, you know, i have seen that throughout times in my life. it does not mean there will not be a gain in 2018. it really depends on how interesting, creative, innovative the quality of the attractare in order to consumers. the turbulenceve as we have seen on the market could potentially have an impact on the direct real economy, on negative growth? jean-paul: i am not an economist. the only thing i can say is that ofreal is great in case l'oreal hasbecause been very well-balanced. it is across all channels, croissant countries, and we have seen these crises between 2008, 2009, that when the l'oreal business was very resilient, because in a case like that, when division, so i don't wish for that of course, but if there were, i think l'oreal would be a very safe place. >> with the difficult market in 2017, you've seen many times your confidence in emmanuel macron, what does it take now for new capitalism? jean-paul: it takes time. it takes time committee market, the french market had to be slow, depressed for several years, so in 2017, it was still the same. doingk emmanuel macron is really exactly what he should do , and i believe it is going to take time in order to translate our consumption, confidence. it takes time. it is never overnight. the chiefthat was executive of l'oreal, jean-paul agon, speaking with carolyn in france. targeting inpatient costs and out-of-pocket costs. several proposals have been laid out that will appear in the present's budget -- president's budget proposal on monday. managers will negotiate with drug makers. the trump administration is considering an emergency order that will keep some coal-fired power plants online. last month, federal regulators rejected a proposal by entergy secretary to drop out. they are owned by firstenergy solutions, which is not formally requested the eight. in china, deflation is using. 4.3% from a year ago. that is a third straight month of blowin slowing down. that is an indication it will not be passing on inflation to the rest of the world. -- the world.s company news global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. thanks so much. it is not of the headlines, the punditry, it is actually -- what are we going to do with the money? john hudak is working. he of the senior fellow at government studies, and he is dedicating to saying ok, $1 billion here, $1 trillion there, but what are we actually going to do? thank you for joining us on short notice this morning. how do we spend -- efficiently -- trillions of dollars of new money? how do we do that in 24 or even 36 months? john: it is actually a really important question. what we have seen, particularly over the past few weeks, is a report coming out of the u.s. government about funds being mishandled or misappropriated or unable to be accounted for. at the same time, the congress is now increasing both military and domestic spending by about 10%, something hundreds of billions of new dollars into government coffers at the same g's are coming out and saying agencies have to get better about spending their money. g valliere yesterday had two items -- one, at the end of an aerobic comes to deflation, and then two, 22%. carrier,t an aircraft whatever, a fighter plane is going to cost a lot of money. how does the department of agriculture spend?billions of dollars john: many of the federal agencies, including the department of agriculture, have gone through several years in which their spending has been capped, in which there have been cutbacks come and when you factor in inflation, even miniscule inflation like we have in the united its, that means you have effective budget cuts in these agencies. means these agencies are prepared, as she said at the outset, for a last minute infusion of this money. what these agencies will have to do in the short term is figure out how to spend francine: this new bounty. -- spent this new bounty. francine: john, what does it mean for treasuries? john: what we are facing is a period of time in which we have all of this market uncertainty. august the come of what stock markets around the united states and around the world over the past week and have have done is alarming in some circles, and about inflation, we have a new injection of money into the economy. i think what is starting to happen is an entire economic system that is looking to the president for more fiscal responsibility and more fiscal restraint than we saw under the obama administration is starting to think maybe there is a liberal and the white house, and i think these adjustments to the perception of the president going to have wide-ranging effects the route the economy. tom: john, very quickly, what are you going to look at on monday when you walk into brookings? you have also it's of good things, including bernanke and walkn, you are going to into brookings, what are you going to study on monday? john: i will look at many of the questions that you start of the segment with -- how are these agencies planning to spend this money? funding]those new president's budget on monday? i think that will be an important signal to agencies, not just how to spend the money but how the president is prioritizing that money. tom: very good. john hudak, greatly appreciated on this historic day, as greg v end of an era. james sweeney is with us from credit suisse. i love the capital impulse -- make deficits great again. where is the fiscal responsibility? -- i mean, it is going to boost growth in the short-term. tom: how much? james: 2.5%, 2.6% -- tom: how much? james: not much. 2.5ish to a a 2.7ish. why can't we go to a trumpian 3%? james: the trade deficit will get bigger, it is a gets bigger, it will pick up. this tax plan in general is going to drive a significant pickup in business investment. there is significant trade deficit linked to that for we have a trade deficit in capital goods. the most important economic dynamic we have heard this week. here is the formula for gdp. i will move it over here behind the wonderful freedom tower downtown. here is the domestic calculus. onto it is the international dynamic. the president is going to get his domestic calculus, but he is going to lose the international impulse, right? james: yeah, as businesses are investing, investment is definitely up. over the last 10, 15 years, a lot of the supply chain for the tech sector, business equipment has left. it has gone to asia, in particular. we think as investment picks up, there will be big pickups in imports them and that will drive a bigger trade deficit in the short-term. clientves you a bigger account deficit, and you have a bigger budget as a result of the fiscal policy, more generally, so that is the deficit mean, popular in the mid-1980's, and for a moment, i think, around 2005 as well. that is the story links to people staller views and something we will be talking s dollarter -- people' views and something we will be talking about later this year. it ends with the u.s. dollar, but it is a period of growth. short-term this is a stimulus. it likely ends with higher interest rates and tighter financial restrictions, the fed hiking a number of times. it does not look like 2017 when markets were incredibly on volatile and it was easy to own both bonds and stocks and expect significant gains. it will be a little but harder now when you have more volatility in interest rates, but that is because central banks are reacting to this. good short-term growth, down growth, a bigger debt stock, and there may or may not be problems related to the. that is many years out. you will not have any kind of major debt problems over 12 months because of those short-term fiscal stimulus. the shorter term problem is currencies, interest rates, financial condition. francine: james, where do you see interest rates in the u.s. and interest rates from now? james: i think policy rates, we expect the fed to hike three times this year. we think they will hike twice next year. longer-term interest rates are likely to be a little higher with that happening, but whether they can go much higher i think will depend on whether you actually see the acceleration in inflation. francine: all right, james, thank you so much. jim sweeney of credit suisse will stay with us. coming up next, we speak with mauricio cárdenas, the colombian finance minister. we also speak about credit rating agencies. this is bloomberg. ♪ tom: good morning, everyone. markets reversed. "bloomberg surveillance" in new york and in london. jon ferro would call it a witchy market, a lippy market. dell futures actually red on the screen, -10, and the vix at the 32 level. francine? justine: yes, tom, we are looking at some of the news in the premarket in the u.s. we have seen the u.s. and also the fedex, this is as, we understand, amazon may be beginning its own delivery service. we know when we shop on amazon that they use other delivery services. at the moment, we understand they are exploring a delivery exit, tom. tom: really fascinating. it will be interesting to see how they dabble on the boxes outside our front door. holding a record number of amazon boxes outside their door, francine, is james sweeney of credit suisse. how many boxes have been outside? james: probably 10. tom: francine, do they have come in the united kingdom, piles of boxes? francine: i bring back presents delivered by amazon. at the moment, tom, they are seeing amazon is expecting to roll out the service in los angeles in the coming weeks. again, if you look at what amazon has done, the sale of amazon, even with the acquisition of whole foods, if you are someone that is close to the space and could be disrupted, you are thinking about what the next move to protect yourself could be. tom: let's bring in james sweeney outside his door. i want to go to the created destruction, and this is the mystery of many technologies over the american economy. you are at 2.5% gdp. is that technology-adjusted, or do you just throwing the credit suisse towel and say "we cannot figure out what it means when amazon goes after ups or fedex"? james: we forecast statistics as statistics. there is a manual for gdp. we review manual, and we forecast it line by line. we don't think you can tell what is happening in technology from a number like that. tom: i pray that you get 12 boxes from amazon this weekend. a new sweeney record. that is a big announcement from amazon. we will continue here on "bloomberg surveillance," more data checks through the morning on television and radio as well. please stay with us from london, from new york, this is bloomberg. ♪ francine: good morning, everyone. this is "bloomberg surveillance ." inm francine in london, tom new york. the world bank says it is relatively optimistic about colombia's economic growth. the country has a stable outlook for 2018 with a presidential election in may and 8.6% unemployment. there are political and economic hurdles in the coming months. we're joined from our new york offices with the colombian finance minister, mauricio cárdenas. minister cardin is, thank you so much for joining us and for giving us a little bit of your time. are you worried that some of the several candidates can put their names forward for the upcoming election in may are offering large tax cuts? that would be problems for the rating agencies. mr. cárdenas: we have elections. different cabinets propose different platforms, but there's one thing that characterizes the colombia, that is the stability and economic spirit this has been the position for many years, even decades. so i think that colombia's will make a wise decision -- colombians will make a wise decision, and this framework will continue. we will achieve low inflation, low fiscal deficit, and keeping a strong and strict control on our public debt. a comfort toe investors and also to the rating agencies. the uncertainty associated with the presidential elections will be addressed for a soon. i mean, the elections will take place in may. see that there is a big consensus about the framework. francine: minister, do you worry about world trade? you were in davos. there was concern about the terrorists that the u.s. -- the ariffs that the u.s. president put on solar panels. i worry.nas: it is not good for the global economy, every country, big and small. in the colombian case, i do not worry because the united states has a big surplus with: via. columbia -- with columbia. buys technologies. i do not see any risks associated with a trade imbalance that could generate issues here in the u.s. in: you are a great voice colombia. the president has once again said: be a is a "drug den." how do you respond to the secretary over the president's comments? mr. cárdenas: there is nothing better than solving the drug problem in colombia. remember for decades, drugs were part of the problem. the: be agreed to help in government -- the coal on the lombian government. we are in the process. this is not something that changes overnight. we understand there is a situation, and we are adopting the right policies, which means thousands of families involved into the economy, providing them with assistance, providing them with the funding, cropsg them transform the into legal crops. tom: minister, thank you very much. greatly appreciate that comment on the president of the united states, francine. francine: sorry to interrupt. we are getting breaking news. the position for brexit speaking o in brussels, mr. draghi saying the transition is not a this point. there was is ceramic, tom, on -- there was disagreement, tom, on whether the u.k. was planning, willing the government, but mr. barnier is talking about a little movement on the pound. it is $1.3844. we are trying to figure out what exactly this means. but it is a little bit more friendly, now a little bit more negative. tom: i sure how it -- i am not sure how it will be on prime minister may. what would be like this weekend? francine: as you know, the policy is lucky forefront of newspapers. we had a couple of reports this mp'sng that said several are willing and wanting to topple theresa may if she is not hard enough on brexit. but others said it is a load of baloney by a couple who were accused of doing so. it remains colorful, and we will try to stay on top of it, tom. tom: francine, thank you. let me go to foreign-exchange in the market. we have some instability in foreign-exchange. jeffrey view of ubs is the yen has not moved on quality. 1.0904. $ stay with us. this is bloomberg. ♪ week of pain. led last week, the most on record. have markets finally hit a bottom? yields drop. dropbears as yields farther. adding to a $1 trillion increase in a budget deficit for tax reform. david: welcome to "bloomberg daybreak" on this friday, for glory nice. -- february 9.in i am david westin with alix steel. alix: here are the scores on an insaney after week. we take a look at s&p futures come up by about 11 points. it has been a little bit of a would be morning as well. how we've parade on the 10-year. crews continue to roll over, but

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