good morning, everybody. let's show you what has happened overnight. let's start with the asian equity session. we have been in and out of positive territory in the asian equity session. here is the msci asia pacific, vaguely in positive territory. china is still up for the lunar new year. year. for the lunar new the u.s. treasury coming forward with those numbers. we hit 2.26%, which was the highest since 2008. thosein yields getting to -- those yields getting to those levels that we have not seen since 2008. it continues to raise questions as to whether international buyers will continue to be tempted in as rates go higher. how much does what is going on in this market we can that investment case for holding equities broadly? big moves in the oil market. we saw the price of oil hitting eight two week high in yesterday's session -- hit a two-week high in yesterday's session in new york. mv with stakesot o in the north sea. is 267 million euros -- 367 million euros. the fema coming through from -- theme coming through from omv. million, and if you are a shareholder you get a dividend of 1.5 euros. in this new rising oil price environment, exploration and upstream. you don't want to end up with stranded assets. the stock price is up 37%. us aeo of omv will be with little later to discuss what is going on with omv. out edwards sent a note last night, show me the money. of course i am channeling "jerry maguire." you got this supply, show me the money, show me the yield, and they did. the bid to cover ratio was a least in almost a decade. they tried to make this offering quite rich to bring people in, but the 3-6 month bills sold at a level not seen since 2008. times thethe last lines in the sense -- send -- sands when we had the option. option -- auc the bloombergtion. at -- the bloomberg aggregate index has fallen. the committee for responsible budget expects the u.s. deficit to swell even more this year. pressure --ng seeing pressure in the bond market. can we do just it -- can we digest it? anna: we have a lot to talk about in terms of that dollar conversation. ore prices and the quality of iron ore that the market is demanding. robert scott will beginning his first interview -- be giving his first interview of the day. let's get a bloomberg first word news update. >> let's kick off with the story with theresa may. she is under more pressure with 62 lawmakers from her own party demanding a quick, clean break from the european union. they want the prime minister to take a harder approach. meanwhile, opposition leader jeremy corbyn now says that the labour party will campaign to keep the u.k. inside the customs union with the european union, saying that it is necessary for trade. crisis has turned into a potential diplomatic incident -- the banking crisis in latvia has turned into a potential diplomatic incident. earlier this week, latvia's central bank governor was released on bail and is being detained -- on bail after being detained on suspicion of taking bribes. -- admitted misleading investigators about his contact with a former associate of paul manafort. he is the fourth person to plead guilty in robert muir's wide-ranging -- robert mueller's wide-ranging inquiry. police say that the gun man who killed 17 people at a florida high school last week used an ar-15 style rifle with a bump stop. president trump: i signed a memorandum directing the --.rney general to i expect that these critical regulations will be finalized, jeff, very soon. >> global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. can find more stories on the bloomberg at top . let's check in on the asian markets and crossover to david inglis in hong kong. >> this is a quick snapshot of what we're seeing across the region. it is a bit counterintuitive. the benchmark is barely up. you can really blame just a few big names on that drag on yield benchmark. it is a decent session. compared to 30 day averages, it is nowhere near those levels just yet. china is of course still on holiday. as you can see, 2.8%, the demand for that market really coming through. as far as the sector breakdown here, minersers -- and industrials are seeing some gains. 2.1%,le bit of a pickup, higher than expectations, but nowhere near where it would sustainably need to be for a rate hike to be considered. bhp billiton is the continuing story from yesterday. taiwan listing that benchmark. that is essentially a look at asia this wednesday. anna: thank you very much, david. let's pick up on a few of the things that we mentioned. the u.s. treasury has already sold $179 of securities this week as it works to rebuild its cash balance. the offerings of autos saw significant demand. we are joined by eoin angus murray. good morning. were you surprised that we did not get indigestion last night? >> in terms of the whole, it got away nicely. we've got more to come with 258 billion for the week. we can see white through the whyion -- we can see through the --. that takes us about -- through about 1.5 trillion that we need. anna: do think investors will find this more appealing as yields rise? international investors are going to increasingly say, show me the money. as the dollar has been generally week, that is one of the metrics , that is oneweak of the metrics that will impact it. >> you have the potential downside risk with further weakness in the dollar. thathe time being, i sense international investors will stick with it, pending further moves in the dollar. manus: tell me this, are you worried enough about inflammation -- inflation to buy inflation protection? we have not broken out of a range in terms of the treasuries, the tips market. , soave not busted out above the barth -- bond market is still deliberating. is that a fair assessment so far? >> i think it is. we saw that in the down -- bounce back with yields creeping back up again. the feeling seems to be that as long as the fed moves gradually and we have got the demographic and technology headwinds, disinflationary headwinds in place, that everything can carry on for the time being. anna: my next question asks what kind of recovery, if that is the right word, are we going to see the selloff? we've got a simple s&p chart here. rebounded and then we come is that the and of that story -- rebound, is that the end of that story? >> it looks to me as though the market is currently pausing for breath. it has been a roller coaster since the beginning of february, but if you look at the backdrop come we're still think strong synchronized -- we're still seeing strong secret eyes global growth -- strong synchronized global growth. i think the market is faced with a slight dilemma. our inflation concerns genuine and real. i think the equity markets might look to the bond markets for a lead. manus: is the bond market going to govern the stock market in terms of the caps? let's talk about the fed. this is about the minutes, which of course we're going to get tonight. much has changed since january. the minutes of the meeting are more dated than usual. the price pressure showing scant indications that policy measures could lead to a faster rate of normalization. january is so different from where we are now. just how tight and relevant are these minutes to the market tonight? >> i think they will be followed very closely, but i would be surprised if there are any dramatic changes. i would imagine that the new faces when not be looking to greatly rock the boat -- will not be looking to rock the boat. anna: to what extent do you think that the fed is behind the curve? in 2015 janet yellen it did a very long speech setting out what it was important to start the rate tightening cycle come even though inflation was not a target -- cycle, even though inflation was not a target. >> i still think that the fed are struggling with mixed signals, in terms of both the inflation numbers and some of the wage data that we have had come out. they would have expected court higher at p.c. to be this point in the cycle. we might see them attempted to go for a fourth rate rise this year. we look at this yesterday. ae word further may mean little bit more confidence in the strength. would that take you more towards 4 hikes? >> i think it probably would. 4 hikes would probably leak to the bond market. go abovebove -- if we the percent and had towards 2.5% -- 3.5%, is that risky? manus: well done. , eoin angush us murray. anna: we will talk about the quality of iron ore next. manus: and later, rainer seele speaks to us about omv. ♪ ♪ against thero dollar, it is 123 or so, as you see there on the screen. the dollar a little weaker, but begin is weaker -- but that en is weaker.y manus: we saw first half income that tumbled 44%. it is the world's fourth-largest iron or exporter -- iron ore exporter. the company ships products with an average grade, which is just below its rival. we have the opportunity to talk with elizabeth anne gaines. the challenge for you is that the great of -- the grade of ore that you are pumping out, --. should we prepare for a more bumpy 2018? >> we have actually seen strong performance in this first cap of halfinancial year -- first of the financial year. we have a generated very strong cash operating margins, even in this current market. we have indicated that we think willrice -- are price -- to 71%.70% we will see very strong demand. anna: elizabeth, good morning to you. given the chinese preference for ore, is itality iron wise to take a cautious view? elizabeth: we have been shipping iron ore to china for almost a decade. this is our 15th year of operation. we have had one billion tons of ore shipped to china. we are big supplier of the chinese market. our ore is widely used, has low impurity, and we see a very strong outlook for demand for in china.re what investors want to know is that if you are slashing the dividend, profits are taking a bit of a tumble come when all we going to see you bring some of these other products online to perhaps diversify? elizabeth: the dividend is our net profit after tax. we have been a very competent in her pay up -- in our payout ratio. guidanceot changed our in terms of dividends. we have never been in a stronger position, when it comes to diversification. our balance sheet is incredibly strong, the best shape that we have ever been in. that does provide opportunities for business development in the future. weare exploring ecuador, and continue to explore. we are at a relatively early stage in that exploration come but we will continue those efforts as well. really we are focused on our court iron or -- on our core iron ore business. anna: what kind of expectations should investors have around diversification? when should we expect a financial contribution from other commodities, if at all? >> we have not given any guidance on the development of other commodities at this point in time. we are in quite the early stages of exploration. we are just about to commence our drilling in ecuador. that is still some time a way. that is why we continue to be very focused on our core iron ore business. manus: i can see the bankers in sydney shaking in their boots. you have gone to the chinese for a facility of $1.4 billion longer-term loan. how do you see china as a source of funding for your business? in terms of more refinancing? other chinese pricing loans -- are the chinese pricing loans better for you? we have had very strong support from our domestic banks. it builds on the facility that we established in 2016, where we financed the construction of e carriers. our or then we announced a revolving credit facility last july. we have been building on those relationships for some time. i think importantly, this facility has representation from china banks. ourhink that strengthens ties. one of their major shareholders is based in china, and now we have this finance facility, so it is an important part of our ongoing growth -- ongoing evolution. anna: elizabeth, thank you so much for joining us. es, the ceo of fortescue metals group joining us. anna is going to talk to rob scott. anna: that is coming up next. we will talk a little bit about their move into the u.k. market. what is the future for the business in the u.k. also, domestically the coal business is under pressure. we will talk about all that when we return -- all of that when we return. this is bloomberg. ♪ ♪ ♪ show me the olympic winter games ♪ ♪ like i've never seen before. ♪ ♪ xfinity x1, yeah, i always know the scor♪. ♪ triple corks in 4k... lookin' so sick. ♪ ♪ stream live on every screen, every win, every trick. ♪ ♪ 2000 hours of coverage, get your mind blown. ♪ 50 olympic channels, yup, you're in the zone. ♪ ♪ and if there's something that you want to see, ♪ pick up that voice remote and just say "show me..." ♪ experience nbcuniversal's coverage of the olympic winter games like never before with xfinity. proud partner of team usa. back. welcome --are looking get dollar-yen we are looking at dollar-yen, the four of the decline -- day for of the decline. fiscal policy management has been discussed. the mobile business in france icard hasephan r delivered numbers right in line with what the market estimated. you've also got rising wireless sales in spain. you've got nice improvement in the french economy, we know that the unemployment numbers are .mproving their -- there there is no plan to currently expand into new countries. available to take part in potential consolidation talks. was 41.1 billion. let's get you set up for your date ahead -- day ahead. last.yellen's mark carney addresses the u.k. parliament treasury committee. africa minister of presents the national budget for the coming year. eoin murray into the conversation. it is a personification of europe renaissance, so to speak. when you look at the bond market in europe and the recovery story, how entrenched is that? how strong is that european recovery to you? >> it seems to be very strong and sustained. this week has been the news thend the possibility of next president of the ecb. possibly a deal done to see the irish candidate as the economist and about one years time. i move towards perhaps a less dovish ecb. manus: the dollar weakness is a given. the euro strength, if you get , does that take you to a progressive euro strength? what does a progressive euro strength look like? >> it could be that we see some faster moves from the ecb, both in terms of rate rise and potentially balance sheet reduction. looking forward, if we get to a situation where there are further difficulties in any particular member of the union, would be the case that there would be a great deal more political conditionality attached to future bailouts? manus: hold those thoughts. anna has got an interview. anna: wesfarmers profit has , with to a 15 year low the australian conglomerate reporting and 87% drop in income. robert scott is the managing director at wesfarmers and he joins us. i'm talking to you from the u.k. you took a big charge and the u.k. -- in the u.k. what is the big concern about that business? 2 weeks ago we announced that the losses and art u.k. operations -- in our u.k. operations have escalated. we also signaled a determination to improve the operating performance, and then signaled that we would update the market in june.arket today we were very pleased to cenounced error -- announ our half-year results. anna: obviously going into a new market is not something that you do lightly. is it something that worries you? have you been back more than you biten backten -- more than you can chew? >> i have spent a lot of time reviewing our processes around the investment in the u.k. there is clearly a lot that we can learn about the experience. we clearly made some mistakes in the implementation process of the acquisition. wesfarmers has a very proud track record around capital allocation, and has had more successful acquisitions than not. we are prepared to face the fact that this is not going to plan, and that is what has led to the decisive moves around changing management, and focus on inroving the performance preparation of a very important summer and spring season. anna: is it possible that you decide enough is enough and the u.k?-- in the >> i really don't want to preempt the outcomes of the review. a couple of years ago it was a profitable business. clearly we have made some changes that have caused some significant trading losses. i am pleased that we now have a led by ang local team very experienced executive in the home improvement sector in the u.k. they are working very hard to improve the training performance -- trading performance. it is important to us irrespective of where we want to go come june. we want to find a sustainable --h forward for the bombings u.k.ngs business in the anna: how much are you willing to do in order to lower prices to stay competitive in that market? >> over the last 12 months it was a very dynamic time in the supermarket sector in australia. pleasingly, over the last six months or more can we have actually seen the pricing environment stabilize. marketfinding the competitive, but rational. we are pleasingly seeing some improvement within the business going into the second quarter, and also coming into this calendar year. overall, improvements in performance off of the back of a very difficult year. anna: speaking with the competitive environment in australia, amazon and their recent entry into some of your markets. how much of an impact is that having? i think the performance across our retail businesses in australia and new zealand demonstrate very solid performance. in many businesses we are the , the disruptor, we having a lot of success with their own digital offer. it is wrong to only focus on one competitor. there are lots of different competitors out there. there have been in the past, and there will be in the future. when you look at our results for the first half, we demonstrated very strong improvement in sales, good improvements in earnings, and i think importantly a lot of progress in improving digital offer -- with an improving digital offer going forward. anna: what have you been doing to get ahead of that competitive threat? robert: there are many different competitors and i think it is wrong to only focus on one competitor. when we look at our retail businesses in australia, we had some quite significant in vantage is in terms of very strategically located properties. we have some great team members, we have an enormous amount of experience and scale within this market that we can leverage. something that i am very passionate about is continuing to invest in technology in ways that improve ever customer offer -- improve our customer offer. to viewmewhat myopic technology and retail as being how much stuff you sell online. i am really pleased with some of the progress we are making around expanding click and collect. click and collect we are finding is really resonating with customers. that is where our strategically located property assets are very valuable to customers. we are getting strong growth on the channel offer across a number of our business is. we have announced the establishment of a center of excellence, which is also providing additional support for each of our businesses. i feel we are quite well-positioned in the current competitive environment. anna: thank you very much for joining us. robert scott, managing director at wesfarmers joining us. manus: dealing with the challenges of amazon. wesfarmers profits slumped to a first-year low -- 15 year low. coming up, the u.k. prime minister faces demands from brexit hardliners in her own party over her eu exit plants. brexit a little later in the show. we will also keep you updated with markets. the cry from the macro man and the bond boys and girls. show me the money. this is bloomberg. ♪ ♪ anna: this is "bloomberg daybreak: europe." around aes have turned little bit, or at least improved slightly. now they are in positive territory, so moving slightly more towards positive turf for u.s. futures. omv is building a robust international framework. ceo rainer seele joins us. looking get the market, -- looking at the market, help me understand where this uptick is going to come from. i'm looking at the fourth quarter numbers, somehow much libya is going to contribute to your story this year. morning.ood first of all, i think that the numbers in the fourth quarter are not really reflecting our situation, because we only have one month of the production from her russian -- from our russian field. the increase in production in 2018 you see is the full consolidation of the entire production for the full year. this is good for 100,000 barrels per day. our production in libya will stay on the level that we saw last year. we'reing whether or not going to see any interruption in the infrastructure. i don't see a big upside in libya, but i think that the downside is not as big. manus: we have talked to a lot of oil ceo's. $60n that you see oil at for this year, what guidance can you give the market in regards to your ambition on dividends? ainer: the 150 is reflecting great performance in 2017, given that environment. forn't see any big change 2018 so far. i think it is too early to give you any guidance about how the dividend will look like in 2018. let's wait to see how the business will continue in 2018 to give you more that it's. -- more guidance. we have a progressive dividend policy. if the business is developing progressively, we will also have progressive dividend development in omv, which means that we would like to increase the dividend further on. manus: you mentioned russia when you were talking about production. one of the people that i spoke to said that you have done an asset swap, which is giving up higher cost production in a politically stale region -- stable region and you are taking on lower costs, but perhaps more politically unstable assets in russia. this could be perceived as quite a high risk strategy. what would you say to the detractors of this? rainer: we have a business model that is more or less based on an interdependency between the 2 partners. we are buying all of the gas, we are producing in russia, so therefore i think this is more a balanced kind of partnership that we have with our russian partner. the asset swap was the intention to increase our reserve base, because we could not manage in the last years to recover fully our production. since last year we are above the , so reserve or punishment that there is not a strong need to continue that strategic concept. we will focus more on the future with the update of our strategy, we are going to report and to thece in march financial community come we will have a stronger look -- community, will have a stronger look at balancing the overall portfolio. we will target other regions to balance out there portfolio. manus: before i let you go, i and we weresterday deals --bout doing to doing deals. they are saying they are going of on lowp to 15% carbon. what are you going to spend? ofthis talking -- topic is major importance. we're going to shift our capacities. we are investing into the infrastructure. we're not an electricity company. i will not spend a penny on electricity generation. we will focus on the infrastructure, given the high tech network that we have built here in europe. this was one of the reasons why we took a share into a company which is good for the recharge stations. we will focus more on alternative fuels, so we will invest into hydrogen mobility, as well as natural gas for cars. i think this is a potential which is not on the agenda of politicians right now, but we should do more as an industry that we are going to push natural gas as a clean fuel also for the mobility sector. manus: thank you so much for being with us this morning. eoin angus murray --rainer seele , omv ceo. anna: the crisis engulfing latvia. this comes as the central bank governor was detained over the weekend on suspicion of security bribes -- securing bribes, a charge that the denies -- that he denies. we have the latest details. what is the latest on this evolving story? >> good morning. statement hinted that russia could beat behind an information attack against latvia. the ministry compared this alleged operation to those seen inthe pre-election period the u.s., france, and germany. they did not explicitly name russia. a similar statement was made by a senior lawmaker, who is a defense committee chairman in the latvian parliament. he accused russia of trying to create chaos in latvia by portraying it as a failed state in the as of the international community -- in the eyes of the international community. anna: is there any evidence to support that russia is trying to inflame a crisis? >> it doubts the authenticity of a photo that shows the central bank governor in russia. they say that the photo was loaded into a picture database on february 19 and that it now appears on little-known websites that have never published information on latvia before. what the governor himself has said regarding the picture is that he has done to a fishing trip to russian far east twice, but that the people in the picture were not familiar to him. the defense ministry has not offered much more in terms of evidence, but it has said that the information attacks directed against latvia could continue ahead of the upcoming parliamentary elections in october. anna: thank you very much for the update. manus: let's rejoin our guest host for this morning, eoin hermes fund from managers. 62 tory hardliners making the case in terms of the heart brexiteers.rd they are demanding a clean break. is this a risk rising, or is this clarity arriving? >> i am hoping it is just clarity arriving, but there is no question that prime minister may is starting a very narrow tightrope walk here. there are still for me massive questions out there that need to be resolved. with the looming danger of no deal still a real possibility. out: we have some data due from the u.k. today. bloomberg economics saying that this is crucial for how many rate hikes we get. i've got this chart that talks about the mismatch between wages and inflation. what do you expect to see on wages? >> i think the boe it will watch for it closely. i would imagine that we might see at last a little bit of a rise in the wage numbers. perhaps then we can talk about the philip's curve coming back into play. hand may welle's be forced. volatilityone-month --.urpassing if there is a delay in the transition agreement later in march, is that where we are going to see the most amount of pressure come from? the recent rise in the value of the pound has given a little bit of a reprieve. do you expect more volatility in the pound? this is the spread that we have got between the 2. more volatility to come? >> yes, i expect so. mostound volatility is the obvious area for uncertainty to express itself in the short-term. anna: the uncertainty could n a year.n markets i we appreciate you joining us. sells the u.s. treasury $179 billion of securities to rebuild cash bounces. -- balances. will we get a touch of indigestion? that is the question. the bid to cover ratio was the lowest in many months. ♪ ♪ >> good morning. i'm manus cranny. anna: here are the top stories. sellsthe u.s. treasury $179 billion with securities. anna: mark carney testifies in parliament as the banking and says it's bracing for the next financial crisis. manus: lawmakers demand the u.k. prime minister take a harder line on brexit and make a quick, clean break. ♪ anna: good morning, everybody. it's around 7:00 here in london. we got information from a mining giant. we have full-year adjusted ebit a touch below the estimate. full-year maga -- ebitda, in the same region. the big question going into this is in return of cash to shareholders. depending on the size of the theyt that we see here, say in the statement, what level of payment are we seeing and how will they balance that with him and day -- with them in a -- m&a? we are focusing on the dividend payments. a historyrecommend should of $2.9 billion or 20 u.s. cents per share. they will be paid in two equal payments. there is the announcement on what they will begin back. the question is how do you balance the return of cash with m & a intentions. they have added to their portfolio. copper assets, oil assets, call, agricultural commodities and products is an area they want to expand. the bloomberghat chief executive is a senior non- involved executive at glencore. pretax profit misses the estimate. a considerable miss. the stick a little bit deeper into what causes that miss. they will invest in strategic initiatives. it's part of the ambition to transform the business. he is in his fifth year over at lloyds. what you have is a buyback. it's one billion pounds. profit, it misses by 100 million pounds. that's going to be something to dig into. he has been cutting jobs and stepping up investments. bank of america merrill lynch released a note. they say lloyds will benefit. they are the largest mortgage lender in the united kingdom. if anybody could benefit from that it is them. lloyds is aiming on a cost to income ratio in the low 40's. top stories. let's talk about the markets. we were investing a bond auction yesterday. have pieces of data to pick up today. mark carney is testifying in a couple of hours. he will talk to the banking and quarterly in relation report. the french numbers along with the german numbers. the u.k., it's all a been to be about the unemployment numbers. we've come off the lows in the u.s. futures. to be about which dog in which lead is guiding the markets. is it the bond market or the u.s. equity market? . u.s. turning around a little bit. ofo picking up a little bit upward momentum as we have gone through the session. china is still out. when of the biggest things markets are digesting is the big issuance of short dated treasuries. here is the u.s. two-year yield. it is the highest since 2008. this is the path of the curve we were talking about. does it continue to tempt in international buyers? do to the cost of holding stocks? how do you balance equities and debt in your portfolio? big questions to deal with this week. by nine tens of a percent. it was down by more earlier on. it hit a two-week high in yesterday's trading. there is talk of fading the global glove. talking about $60 a barrel for the rest of the year. we have bills and two-year paper. the bid to cover ratio is a little bit less than the past six months. today's offering is $15 billion worth of two-year. $35 billion of five-year. what is the bid to cover ratio going to be like on that? pick a big, round number because that's the only thing that institutions are doing. can see yields up at three and a quarter or 3.5%. impressivet a pretty cold and of risk. maybe for the bond markets. the treasury auctions are going to drive these prices. you have futures up. let's get to eric ludlow. under more may is pressure. a want the u.k. prime minister to take a harder approach on britain making its own rules and the transition. that businesses want. says the labour party will campaign to keep the u.k. inside a customs union with the eu which is needed to prevent a hard border with ireland. the banking crisis in latvia has turned into a potential diplomatic incident. a minister pointing a finger at russia. is efforts being pulled that are difficult to those in other countries. he was detained after on suspicion of taking bribes. a london lawyer is being prosecuted for life u.s. officials in the rush investigation. he admitted to misleading investigators on his relationship with rick gates. to plead fourth person guilty in robert mueller's inquiry. president trump has directed the justice department to ban got accessories known as bump stocks. say the gunman who killed 17 people at a florida high school last week used in ar-15 style rifle. ago, i a few moments signed a memorandum directing the attorney general to propose regulations to ban all devices which turn legal weapons into machine guns. i expect that these critical regulations will be finalized very soon. ed: global news 24 hours a day. can find more stories on the bloomberg at top . let's check in on the markets in asia. some upward momentum really coming through. we do have some of the major markets already closed. really, a lot of momentum coming through. taiwan, right here. 2.8%. best day in two and a half years. that is coming off a long holiday. when you look at taiwan doing something like this, it's a market that is cyclical. it does bode well. takes us about halfway back to the peak right before the cascade lower in the equities phase. we will have some of the movers that we were following today. bhp was also out with earnings. 4.8% drop. what you're looking at here, asia would be doing much better word not for some of these big names dragging it down. it's a decent session right now. manus: yesterday, the u.s. itasury sold security as works to rebalance the cash balances. anna: there was decent the man a delusion of sales. paul, good to see you. welcome back to london. let's talk a little bit about will we are seeing in the u.s. market. concerns about the level of borrowing going on in the united states. how does that manifest in the dollar? >> people talk about dollar impact but i'm not sure it's that big. they need more inflows. that knee -- that means we need higher rates in the u.s. to attract those inflows. what is driving the dollar is the fact that balance sheets in , ecb,rope -- in europe japan, are extending at a slower place -- slower pace. it's undermining the dollar. it will continue to do so. the dollar hit extraordinary highs when the u.s. was the only growth game in town. even if we haven't seen hikes from the european central bank and the boj, we have seen a change in their policy. >> if you look at what explains foreign-exchange rates, it's not interest rates. in an era of quantitative easing , it's the quantity. and the quantity that the ecb is they're going to go to zero. dying off of the quantities is really giving the euro a bid. manus: the nonpartisan committee responsible for the budget expects the budget deficit to be $1.2 trillion in 2019. we have had every reason for what is moving markets. does that deficit feature on we have exactly the same number. given that the u.s. is at the top of the cycle, is a ridiculously big number. manus: even more so given that it's republican-controlled. they are all in favor of fiscal rectitude when it's a democrat in the white house. manus: the risk for this number, then. >> the risk is when we have a recession in the future. the budget deficit is going to blow up. that the u.s. government won't have enough firepower to really stabilize. i think it's a little bit reckless to be honest. the u.s. government should be trying to reduce the deficit based on upward track. the demographics means that's going to continue. anna: the explanation is that global growth everywhere is very strong and that has weighed on the dollar. you are saying the higher yields are required because the market is nervous. there are two things. one is the extra supply. the other is that the market is revising up its estimate. currently, there's about 20% chance of for hikes this year. a few months ago, the market didn't believe in two. . think we will get for hikes i think the inflation numbers are crucial to that. the more the economy refuses to slow down, the more the market will price in higher and higher yields. manus: in terms of the surprise of the growth numbers, it's a surprise to the upside. given the deficit funding that you have and the pump you've got going into the economy, does that kind of number sustained for this year? what is the challenge for powell. i'm not sure. i think yellen is giving him a golden chalice. takes us intoowth overheating territory, he may have to raise rates in order to slow the economy. that's not going to go down very well with mr. trump. if he does slow the economy too much, it's going to be bad. he will have at some stage an awkward choice between pushing the economy into a slowdown that the white house doesn't welcome or late -- letting inflation overshoot. how will he continue to show the independence of the central bank? that will be the biggest legacy of his tenure. that will only come with a growth slowdown in inflation picking up. as things grow well in inflation is rising, the challenge will be when do you stop. we have a little bit more to get to. he stays with us. in the meantime, ms. may is under pressure. she faces demands from brexit hard-liners in her own party. we talked the latest moves on brexit. this is bloomberg. ♪ ♪ anna: it is 7:20 here in london. 39 minutes to go into the start of the equity session. this is what the futures look like. they have turned a little bit more positive. they feel they maybe have some catch up. there is the bond yield over in germany. get a bloomberg business flash with ed ludlow. they are benefiting from rising growth in consumer confidence. before taxes, depreciation and amortization rose two and a half percent. the company is adding wireless and fiber broadband subscribers at a rapid pace. they are branching out into banking services to keep customers loyal. walmart shares plunged on wall street. expanding internet sales at the world's biggest retailer contribute to a low market rate. other clubs say there is not enough money in the world to buy me a messy and he will finish his career with the team. >> we do not want to sell lionel messi. >> not even if it's secure. that we want to have an practice is unique way. he is a keeping player. also, he doesn't want to leave barcelona. that is your bloomberg business flash. theresa may is under more pressure. theresa may is under more pressure. some u.k. lawmakers water to take a harder approach on britain. we have the chief economist for north america. i'm always fascinated to know what the americans make of brexit. and that special relationship and what it might mean. from a market perspective, what we want to find from you is to what extent do you think the markets is anticipating something like this 62 hard-liners rising in the hard brexit. i don't think the market is pricing in a hard brexit. lane say itphilip could cause a financial crisis. mr. carty says it could be like a game of agenda. i don't think the market is pricing any of that in. they are pricing in an anticipating that there will be a deal. that gives us a reasonably smooth transition. anna: we were talking about this chart. this is short-term volatility. one month versus the year. at first i was surprised by this . when you think about where we will be in a year, there could be reason to be nervous area the market has worked out the thinks it knows that we will be -- >> the most likely outcome is some sort of deal. in a run-up to the negotiations and agreements, we know europe is all about deals struck at the 11th hour on the last day. there will be uncertainty. -- details of the transition things will be clear for a long time. probably not is likely we will get a cliff edge and something abrupt. businesses can't wait for cars of march 19. maybe some can. i can't imagine the ceo of a major bank is going to sit and wait. for theresa may and her cohorts. they have plan a, plan b, plan c. i think you need at least a year in order to implement a plan b. if things don't work out too well. manus: that's why transition is so critical. >> that's why the next two months, the pressure is on the politicians to come to an accord. otherwise, people will they cannot wait anymore. story is economic pretty strong. it's the euro boom. boom, i does the euro have this chart here. this is obviously a dollar call and a euro call. what is your expectation for how strong the euro can get an stand? >> i think it can get to 130. is still cheap. the economy is booming. the central bank will tighten monetary policy. i think the ecb is quite cautious and the euro influences their policy quite a lot. the stronger the euro is, the more pushback you will get. we appreciate you visiting us. between been core talking about. glencore ceo saying there is or m &or him and a -- firn a. manus: lloyd's sees return on equity. onwards and upwards. anna: a little bit softer for europe. u.s. equity markets looking strong. exit for us. the european open is up next. ♪ retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's why retailers rely on comcast business to deliver consistent network speed across multiple locations. every corporate office, warehouse and store near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. welcome. i am guy johnson. cash trading is less than 30 minutes away. ♪ guy: fed minutes or out at 7 p.m. london time. will they reveal if they plan to go beyond the three hikes? it's a huge week for the bond market. electric dreams.

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