Current is performing well are a risk on currencies, dollaryen lower by 4 10 of a percent and the question is why . We will tackle that. And yields in the u. S. On the tenterhooks, pretty much going nowhere. 50 a barrel for crude oil. David and it is the big one, we will get the cpi numbers and they will give us a read on inflation. And then retail sales figures for january. 11 30 a. M. President trump meeting with members from both sides of the isle to talk about the infrastructure plan. Alix and a first take on the top three stories of the morning. Yen making a move in banks trading on volatility. And cpi. David i want to take a look at the cpi story. I want to pull up this chart that shows where we are. It is 8692, there we go. It is up. Gina, we have a projection on core and headline cpi, how the markets prepared for the said this point, because they are really on tenterhooks . Strategist a rate tell me yesterday that it was feeling like barrel friday in the middle the month. Fridayaccurate peril in the middle the month. Pretty accurate. Cpi is relatively simple to predict and people are pretty accurate at getting it, but is it is a mess or a gain you will see miss or a gain you will see movement in the market and everybody is positioning that is so be a big deal. David you say a big deal for markets, is it important what it tells us about the economy or is that the markets are so nervous right now that they will overreact anything . Jeanna i want to keep an eye on right now, that is the question, this will not tell us a ton about economic fundamentals simply by the fact that is only one number in we know that the fed takes this as a moving average. If we see cpi move up a little bit the fed would be welcoming that, they want to hit the 2 goal, but that is not what the markets are hoping for so there is a disconnect between what the fed is hoping for and what markets are expecting. Alix comps will be tough because 2017 was good. Taking a look at the 10 year, huge amount of shorts. Ade . Is the patron pay tr higher than inflation. I do not think a lot of the rise in yields we have seen can be attributed to marketbased inflation being pushed up. That would still be a surprise for the markets. One thing to keep an eye on is, yesterday there was a huge block trade put on, somebody basically hedging that position, or taking a bet the other way saying that we make the 10 year will come in hard this week and yields will go down nicely. Alix in terms of equities, what is the pain trade there . Luke i am not quite sure come i think the equity market would i think theure, equity market would welcome the notion that we have not left the goldilocks environment, relatively low, stable inflation. That would be welcome. I do not think there is a number that says we have left of this regime. Alix it will not be easy. To get us started, we are watching what is happening with the dollaryen, breaking through. The risk on currencies rallying against the dollar, but so is the yen, is this a safe haven explanation or what else is going on . Luke seems to be a big story here, this is dollar weakness, and in the dollar weakness is manifesting itself in the yen lately. In tokyo, there is a great chart that basically showed that kuroda called in the bottom, nailed the bottom in the end, a couple years ago basically saying that you look at the trade weighted basis there is not a lot of scope for depreciation, so since then the japanese economy has gotten better and the way that we think about japans economy has improved, so does japan really need a Lower Exchange rate right now . That is not obviously true to me. David the japanese economy is growing. And the japanese companies, are they prepare for a stronger yen . We have a chart that indicates the yen has weekend, but companies are anticipating Something Different and it could hurt them. Alix this is the other chart by the way. Luke that is their assumption going through q1 of this year, so it shows the yen is a stronger than predicted. Jeanna the question to watch is how they react as the story plays out. David it is interesting as the market faces volatility and they about think the banks and they have brought back the banks. 4 result was q and we have talked about being very strong and we indicated numbers up 10 . Q1 is looking very strong for us. David we heard for so many quarters that trading was down because there was no volatility, now it is time to read the rewards, potentially. Reap the rewards, potentially. Jeanna yes, volatility is back. We have seen stories on the idea that volatility is good news for these banks. So i guess we will have to wait and see if the volatility is sustained and whether it is a story that will continue. Alix is it . Luke i was just talking with the Joe Weisenthal about it and he says if the trading activity is so good for banks, the k. D. W bank index is down, that is worse than the s p 500 sense february 2 since february 2, so i just the market not think it is good for banks . I think that there are a lot of other things playing out and i do not think that the banks will be welcoming, but certainly one part of their business, and attractive part, fun part to talk about as deregulation picks up steam, that would be good. David and on joes point, we are looking at rates going up, and a steepening yield curve, we are told that will benefit the banks, so why arent equities going up . Lueke we have seen in from the surveys, we should see the loan growth picked up, we should see m a bonanza because of tax reform. I do not know why banks have not gotten a better bid on this. Jeanna i think anecdotes are interesting, you see consumer facing banks saying they are not passing along the rate increases to consumers, they are taking the hit, just eating it themselves, so i wonder how much that is playing into this broader story, how much there is not enough demand for this lending higher rates and that is affecting the banks. Alix you bring in a deposit beta situation come at what point will they pass on a rate increase in a good way so that we are paid more on our deposits . We see that in the Wealth Management, but that might wind up hurting their spread. Ke i have to bet a dollar a month on that. Alix i get like . 17. What bank are you in . Luke not telling. Alix both of you, good to see you. One story we are keeping an ion is the South African president facing a noconfidence vote tomorrow by the ruling congress. In an interview, he says he is not defied the government and if you look at the dollar rand, ran d moving higher and potentially we have a change of leadership. The hope that this will be finally good for the government. David you feel like there is negotiation going on between the president and the government and he says he will not leave, then they say we will have a noconfidence vote. Thank you very much. Alix he has had these before, but the difference is they are not behind it. David his party says you have to go. They are pulling for the noconfidence vote. Alix then you have to show the growth. At the end of the day. David and corruption. Alix that does not seem like a big deal. David coming up, we will look at the cpi expectations next. This is bloomberg daybreak. At tberg business flash, seeking a surprise witness for the trial over the government decision to block a deal with time warner. According to the new york times, the phone giant wants someone to testify. At t could be sticking to show that the government decision was politically motivated. And citigroup has won their first deal in saudi arabia since returning their following a 13 year absence. According to people familiar with the matter, citi is talking to an airline about it ipo. And it is a Culture Shift first chipotle, the burrito chain that has lost customers because of foodborne illnesses. The company has named the head of ceo head of talk about the takeover. Brian niccol will be the new ceo. That is your Bloomberg Business flash. Alix thank you. Cpi data will be out this morning and all eyes are on inflation after a market frenzy, and part of the worry is a more hawkish fed. Joining us from boston is Jurrien Timmer, from fidelity, and mike mckee from bloomberg. Set the stage, mike. What are we watching . Mike we will watch of the cpi core index and see if they can repeat what it did last month. I brought a chart of what this is all about. Core, it picked up 1 10 to where it was the month before and everybody went crazy and said inflation. You could see what was happening in 2016, we are way off that mark, today analysts expected to go down for a host of reasons. We are more likely to see a fallback. It is not clear why this is such a big deal. David Something Else must be going on, 1 10 of a point on the cpi cannot be causing so much, maybe the markets are inclined in that direction already. Lasten inflation went mia year and whether it got amazon permanently, where whether it was a series of oneoff situations come i think that is what we will find an answer to and our sense is probably the inflation will come back towards 2 , best Case Scenario for the fed. The cpi itself is noisy as an indicator and i think that the fed uses the core for that reason and the cpi usually runs higher. As mike said, the surprise the market moving part came two weeks ago with the payrolls, with the average Hourly Earnings number and that kind of reset the markets. Now that the markets have been reset, i do not think todays number will be that significant, but inflation is the new payroll so this is like the data point du jour that we will be looking after the next few months the kind of give us a sense of whether the fed is going to execute on its suggested six hikes, or whether it will change that. My guess is they will stay with their six hikes, they won a at a seventh because of the cpi coming in at. 2 instead of. 1. David does that fit is the markets have been wrong . The fed has been clear were they are heading, they are not changing dramatically what they are saying they are going to do, it is just the markets did not believe them so they are particularly sensitive to things like a cpi number . Jurrien i think so. The two problems with the markets, until two weeks ago, was the stock market was not paying attention to the bond market. Last august when this last phase of the rally in the stock market began with the tax cuts went from dead in the water to all of a sudden becoming a done deal, the stock market rallied, the s p went up, the 10 year yield went up 85 basis points as the bond market read priced in the last august the market was expecting one more hike over the next two years, which of course was way too low, now it is pricing in four more, so we have had that adjustment now, but it was the stock market ignoring the bond market really and it is not something the stock market should ever do because Interest Rates and liquidity conditions are an important part of the overall stock market math. Alix looking for it, this is one number, but take a look at the expectations on a quarterly basis, we can bring it up, 1. 45 for the first quarter, then 1. 8 , then 1. 9 , so that jump, is it going to be a huge market moving event . Is the market priced for that kind of jump . Mike not yet, but it is starting to price in. That is what we had over the last couple months, people are expecting htis because this because labor markets are tight and we have stimulus coming. Anticipating inflation will come in over the course of the year, the question is how fast. We had a point where we saw it taken off, that happened in 1994, is a good example, but could it be that it just continues the slow grind higher that we have seen, or does not come at all . It is hard to make a bet right now and that is why you see conflicting signals in the market. You see the forward spreads pricing in inflation, but this chart, 9130, the stock market went down and inflation breaks even, the white line also went down. So people are in the short run thinking, it is not an inflation problem, but maybe over the longer run, as you mentioned. David how much of a problem is theyre going to be an oversupply of treasuries issued, because we are spending money like a drunken sailor . Jurrien fiscal, you know, the budget deficit of 5 or 6 of gdp nine years into an expansion, with an economy at full capacity, that is something that we do not see often and i think that is one of the reasons the dollar is down, for instance, but ultimately i am not that concerned about the supply of treasuries. If we look at the 10 year, it has already doubled in yield from the july 2016 lows, 1. 3 , now at 280, 285. You look at flows into bond funds and eps over the past 12 months, record highs, 350 billion, so demographically there is enough demand for yield, whether it is from u. S. Retirees or pension funds, as the yield go higher and higher come i think there will be a bid for yield, anything that provides a yield. The real issue is valuation in the stock markets, because if yields rise, valuations are high because of the qe era, and that is one of the issues we saw, you know, the increase over the last six months was unwarranted and we gave it back in nine days. Alix so you want to be short or long, tenure at 829 10 year at 829. Jurrien the price is in for better than months ago, so i am comfortable having exposure to the bond market at these levels, maybe not six months ago, but for today, yes. Alix ok. Jurrien timmer is a sticking with us. Mike mckee, thank you. Coming up, the yen climb into a 15 month high. We take a look at the u. S. Inflation read and what it could mean for the yen and why we see a potential safe haven bid. As we go to break my point out what is happening in south africa. David interview given by the president , jacob zuma, to the ap right now saying it is unfair that his party will have a noconfidence vote, asking him to leave. They say they cannot give him reasons to leave, he has been president for nine years and he is under indictment, suspended for accounts of over 300 counts of corruption and fraud. We will follow this, because the rand has been strengthening on a possible noconfidence vote. We will continue to follow that story. Live from new york, this is bloomberg. Has perplexed the market as to what is happening with dollar yen my break and below key support levels off of the lows of the session, nonetheless continuing to grind higher. And we have Jurrien Timmer still with us. What do you do with dollar yen right now . Jurrien first, i think this has less to do with the yen and more to do with the dollar. The dollar is in a downtrend and it has been hints after the election and i think it has since after the election and a think it has more to do with fiscal policy and inflation prospects here, versus other parts of the world where the cycles are a few years behind us. I think that this is a dollar weakness story more than a yen strength story. Alix should you be shorting it . Jurrien i am comfortable being underweight the dollar, or dollar assets. Would i be selling the dollar here . I think it is less compelling than it was a year ago, right after the election. The dollar was, the consensus was overwhelming it would go up, and it has fallen quite a bit, so at this point i think it is still, i think the outlook is still down but not as compelling as it was in the past. But david explain that outlook being down, because whether people are for or against tax cuts there was a general consensus there would be an inflow of funds, because of lower income tax rates, causing more investment, so shouldnt that be supporting the dollar . Jurrien it is not clear. The cash that is trapped outside the u. S. And is getting repatriated, it is not clear to me whether it is in dollars or other currencies, so im not sure it would change the dynamic for the Currency Exchange rate, so that is, that is one thing that i think is quite unclear at this point. Has a veryhing powerful trending function it tends to be currencies. And they tend to run for a while. I think the trend is down, Global Growth is a strong and it synchronized and that kind of gets facilitated by a weaker dollar as well. Maybe docompanies will more here rather than overseas at the margin, that could boost the dollar, but generally i think it is the fiscal story, the inflation story, that is happening here before somewhere else. David what about investment here . Ins say they will invest more equipment and people in the United States if they have a lower tax rate, is that not large enough to stem the dollar decline . Jurrien that is why i think the outlook is not as bearish as it was a year ago for the dollar, so i do not think it will be a onesided trade, but when we talk to companies, they won all follow that playbook. Some will keep buying back shares or raising dividends or buying other companies, some companies are passing along the tax windfalls to their employees and others are actually investing it in new capacity. Because thed, economy is at full capacity and for the economy to be what a run at a stronger rate without generating inflation you need to boost productivity, which of course you get through cap x. So that is a good story, but ultimately capex. So that is a good story, but ultimately i think the dollar will stay on the weaker side. David ok. You will stay with us. Command, a take on how reason volatility is affecting the trading business. Thatll be coming up next. Live from new york, this is bloomberg. Alix this is bloomberg daybreak. Until 8 30 a. M. , we have a risk on the rally and we are up triple digits for dow futures. European stocks coming in higher. Stronger growth in germany because of net exports, helping the dax move higher. The one currency pair that is puzzling, dollaryen come off of the lows of the session but still down for tenths of a percent, at one point hitting its lowest level in 15 months. There are the g10 currencies that are rallying against the dollar, just not the yen and it is a puzzling circumstance. In the u. S. , yields go nowhere and we are waiting for the 8 30 a. M. Number, the spread is lower and i have 10 basis points, coming in at 72 basis points, crude oil continuing to roll over. Now update on what is making headlines outside of the business world. The ruling African Congress will take the next step to pushing jacob zuma out of office. Parliament will vote tomorrow on a noconfidence motion. Jacob zuma has ignored calls for him to quit. His nine years in power has been marred with allegations of corruption. He says the decision is unfair. And in israel, Benjamin Netanyahu has denied he is guilty of any wrongdoing and insist he is a victim of a witchhunt. Police recommended he be indicted for bribery, fraud and breach of trust. They say he traded his influence for flavo