Surveillance. I am Francine Lacqua in london. Getting some breaking news out of the euro area. February services pmi falling to a level below what economists had forecast, 56. 7, instead of 50 7. 6. Manufacturing falling below 58. 5. Sts, at i do not think this will impact the eurodollar, 1. 2316. After the trading session that we had on yields and the huge bond auction that actually went according to plan you can see the twoyear yield over in the u. S. Practically unchanged at 2. 25 . Then we did see a reversal on european stocks. They were gaining on the back of asian equities and now they are actually down 0. 4 . Coming up on bloomberg surveillance, emerging markets and trade. Then we also talked canada and of course, more market movements ish blackrock and it budget day. We will bring you with the countrys finance minister, gigaba. Lets get straight to the bloomberg first word news. Under moreesa may is pressure with 62 lawmakers from her own party demanding a quick, clean break from the European Union. They want the Prime Minister do take a harder approach on britain making its own rules after brexit and on the nature of the transition period. Meanwhile, Jeremy Corbyn now says the labour party will campaign to keep the u. K. Inside a Customs Union with the eu, saying it is necessary for trade and to prevent a hard border with ireland. The crisis in latvias banks has turned into a potential diplomatic incident. They point the finger at russia, saying it could be interfering in the sector. Earlier this week, the Latvian Central Bank governor was released on bail after being detained on suspicion of securing bribes, a charge he denies. His spokesperson said this morning that the governor will not go to the governing council. Eeting a londonbased lawyer pled guilty to lying to u. S. Officials pursuing a legend russian meddling in the 2016 election. He admitted misleading investigators about his contacts with a former associate with the onetime from Campaign ChairmanPaul Manafort. He is the fourth person to plead guilty and Robert Muellers wideranging inquiry. President trump has directed the Justice Department to write regulations banning the use of accessories that allow him semiautomatic rifle to be fired more rapidly. Police say the gunman that killed 17 people at a Florida High School last week houston style rifle. Donald trump a few moments ago i signed a memorandum directing the attorney general to provoke regulations to ban all devices that are legal weapons into machine guns. That turn legal weapons into machine guns. I expect these critical regulations will be finalized very soon. Nejra u. K. Lawmakers have published a regulators report detailing disgraceful misconduct at the royal bank of scotlands now defunct Small Business lending unit. The report identified inappropriate treatment of Small Companies in more than 60 of the cases reviewed. And windfarms produced a record 15 of britains electricity last year. According to a report published by Imperial College london, wind regeneration produced double the output of coal as several storms swept through the u. K. , boosting turbine speed. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Francine the u. S. Treasury optioned 179 billion of notes yesterday, sending yields to levels not seen since 2008. The offering saw a decent demand, considering the market is facing a flood of sales. The longer dated notes will come today and tomorrow with an issuance of more than 250 billion in just three days. Could we see the 10year crack 10 . What is next for treasury . Joining us next for the hour, a man he knows a thing or two about central bank thinking. Hes the former Deputy Governor at the bank of canada. Jean, thank you for joining us. How do you take the treasury first of all, we do not have a lot of data from the markets. This hangs on the success of these bills. Jean good morning. I think the backdrop here is we are adjusting slowly to a very significant fiscal stimulus that has become clear over the last couple months. In more is reflected treasury issuance and we will see more of that coming. We have seen over the last few weeks, rate just to this picture. This is mostly a real rate story. This is mostly about growth, stimulus coming on the back of that and also, deficits that are larger than we would have expected otherwise. That is starting to factor into the picture. Francine francine let me bring you over to my chart of the day, which is the 10 year yield. We are currently at 2. 87 . Is this a trend . We brought this back to the 1980s. You can see that yellow line, starting in the 1980s and then it goes down. What happens from here . Jean we are seeing a movement upward on rates from extremely low levels, some steepening of the curve. I think this is consistent with a backdrop and what we have been learning about. At the same time, we do not want to lose track of the fact that there is a massive amount of savings globally. The imf forecast is 22 trillion of savings. So, that is no surprise that you see this issuance finding some demands. I think this is an equilibrium force. We will see rent going up, but in a contained fashion. Francine how many times do you see the fed hiking . This is the number of rate hikes on the right, and market volatility took hold over the last couple weeks. That have been slowed a little bit. That ebbed and flowed a little bit. Jean with the growth impulse we are getting now, which will become even clearer over the next couple months, i think four reasonable18 is a position at this stage. We will see the wage data come out, which we will see in a minute. I think we are seeing a slow adjustment. Is that the kind of the word of the day and what would you interpret it as . Twice in january . Jean i think it is opening the door for more and it is kind of, you know, signaling some transition. It inl see how they frame the minutes, but the inflation picture, it is not like it is a massive regime change, but it is evolving in the direction where the picture will be dissipating. Francine should they tolerate higher inflation . Around the 2 target . , should we care that much . Jean if they should whether or not they will francine that is a different question. Aan 2. 5 might actually be desirable thing, but the optics will be tricky for them to manage. 2 , i think itve will respond to that. Think that will be a massive problem, but at the same time, i think it will be reacting to inflation being above 2. 5 . Francine do you believe that we can call 2018 the end of cheap easy money, or is that a false assumption . Jean we are still in a world where the Central Bank Balance sheet the fed is adjusting, but it is very slow, the unwinding of the Balance Sheet. The ecb and boj are not reducing the Balance Sheet in2 2018. There is an evolution in terms of the stimulus we see in the global economy, but i do not think it is a game changer. Francine jean boivin from blackrock stays with us. Plenty coming up, including the fed releases the latest minutes tonight. Will it upgrade its plan to four hikes this year . And could weakness in the be good news for global trade . This is bloomberg. Francine market, economics, finance, politics. This is bloomberg surveillance and i am Francine Lacqua in london. Lets get straight to the Bloomberg Business flash. Nejra glencore has delivered results with earnings jumping, bolstered by nettles and mining trading. The commodity trader and miner reported record profit and said it will pay 2. 9 billion in dividends this year. Adjusted earnings before interest and taxes more than but it to 8. 55 billion, was below analyst estimates. The senior independent nonexecutive director at glencore. The Banking Group will invest 3 billion pounds in technology as part of a new threeyear strategic plan. They will also buy back up to one billion pounds of its own shares. The bank took a 600 Million Pound charge. To 20 profit dropped to 700 80 Million Pounds. Orange has posted the first domestic annual Revenue Growth and eight years and predict it a faster growth and earnings in 2018. The Company Benefits from Rising Economic growth and Consumer Confidence in the home market, adding wireless and broadband to describe at a rapid pace. To keep customers loyal, the former french phone monopoly is also branching out to banking services. Apple is planning to purchase kobold directly from minors. It is a key ingredient in factory induced power smart phones and other devices. Manufacturers fear there could be a shortage because of the boom in electric vehicles. Bp is not worried it will be left holding unusable assets, even though the world is shifting to a cleaner energy future. Bob dudley has told bloombergs manus cranny it will be a slow transition. He does not expect a lot of volatility during that process. I think the key is the responsiveness of the shales. There is a shock absorber on the upside and the lower side of the oil process. There is such a response of market in north america. I think in terms of 50 to 65 is the ban we will drift within over the decade. Nejra that is the Bloomberg Business flash. Francine now, lets talk about the dollar, the weakness in the currency could prove to be a boon for global trade. Oxford economics said the dollars fomite at 3 to world trade, noting that other witness increases crossborder lending and boosts equities. Now, who will be the biggest winners from the dollars weakness . For more on all of this, we are joined by jean boivin. When you look at first of all, markets, i do not know how much you worry about trade wars, and that would be another incentive for the correction of the market dollar weakness means trade is ok and growth is ok. Are you confident about the future . Jean i think in the near term and on the horizon, the answer in the nearterm i think, what is very constructive at this stage is how synchronized the global impulses in terms of growth. We are living through the most integrated extension in global history. We have never seen an extension when the world was so integrated. We are seeing the benefit of that now, where we are getting fiscal impulses from the u. S. We think some of it will leak into the rest of the world more than it has in the past through trade and other channels. This is more important than it used to be. In the nearterm comes the story is mostly about the strong underpinning and the weaker is a significant impulse of Global Growth over the next year or so. I think the nearterm story is a good one. But to your point, this is all predicated on global trade play ing key roles. So, anything that would come and disrupt this could be pretty significant. One way to put it is, the Global Financial crisis was a Global Financial crisis because the core of the system was being undermined, tested. When we think about the global trade agreement, the similar, core element of the system. A significant threat to that could be received with. More adverse and significant reactions. But nearterm, it is pretty constructive. Though risks are looming as a result. Francine we will get back to the broader equity market after the selloff, but i want to take you to my chart, which looks at the u. S. Fiveyear yield minus the canadian fiveyear spread. Government bonds in canada have outperformed the u. S. Counterparts by the most in seven years. Is there too much optimism priced into the canadian curve . Jean i think this is in some ways, not too surprising, given everything that we have seen over the last couple of weeks. We have seen the announcement of big fiscal stimulus, huge fiscal stimulus in the u. S. , at the time when the economy is recovering. That is a key driver. We would expect to see that reflected in the u. S. Rates more so than the canadian rates. Think that explains a bigger spread. . Ow, is it overdone i think it is logical for the fed now to move more quickly, more adjustment is needed on that front been on the canadian front in the nearterm. And overall, i think this is consistent with the widening spread. I think this is good news for canada and to some extent, the Canadian Dollar eventually in an be not as strong environment like this. It will be wellreceived by the bank of canada. The question is, when this inflation, which is at 2. 2 , famous for the u. S. , same as for the u. S. , how tolerant will they be . Francine jean boivin stays with us. Up next, reading between the lines, we go back to the fed meetings tonight as the Central Bank Clarifies its wording during last months statement and what could that mean for the hiking path . We go through that and talk about the markets. This is bloomberg. Francine this is bloomberg surveillance and i am Francine Lacqua in london. Lets get back to the fed and officials added the word further twice to the january statement. With the release of minutes at 7 00 p. M. London time, investors might find out why the Central Banks pledge twice to make for the gradual adjustments with Interest Rates, as opposed to gradual adjustments. One possibility for the language is the fomc debated raising rates by more than three moves in 201018. What clues will the minutes give about the rate path . We are joined by the head of emergingmarket cross Market Strategy at ubs. And jean boivin is still with us. I am very curious about this. You were the Deputy Governor of the big of canada. How were they drafted . Did you count the words and say, i will say it twice, and that should fool the market into thinking this . Jean yeah, you spend hours, days, going carefully through each word and how it might be interpreted. Yeah, you think about adding further to gradual is not random. There is a meeting expected to be conveyed with this. The meaning might not always be the one that is being interpreted by the market. But yeah, this is i think, crafted and calibrated to achieve a goal. Francine a little bit more confusion than the fed was expecting. The Central Bank Governor is always thinking about it the market agonizes over it for weeks on end. I think theres no doubt the word has been put in purposely, but i think we could be slightly over interpreting it. I think the most interesting part of the statement, of the fed minutes is likely to be what they think about inflation because that is what they sounded more confident on during the previous statement. They have done work to suggest that inflation has two parts, acyclical. L and if inflation does not move much with the cycle, for instance, with health care, if that picks up, that justifies why they believe further rate increases are necessary. I think the market will slowly move towards pricing four. Were looking at four this year. Given the big gap between the dot plot and what the market has seen, they might not price in four. The market is slowly going to move in that direction. I think the content continues to move up and also, 2019 is not fully priced. That is what the market will focus on as well. Francine we were talking about whether the fed should look at 2. 3 to 2. 4 . If they have a weak dollar policy, this as another layer of stimulus, which means you have financial conditions that are looser than they should be. Jean i do not think they have a weak dollar policy. I think they have a rating within their wellestablished policy framework, which is guided by a target. The dollar matters for achieving this target. So, that is taken tinto account. The dollar could potentially add fuel to the inflation picture. It is important to keep in mind that they were communicate in three hikes in 2018, where they were seeing potential downsides to inflation. That downside now has been dissipating. So, i think four hikes becomes more likely. At the same time, i do not know that Inflationary Pressure will be that important. We think of it as, it is going up, it will be around 2 we do not see much pressure to be much higher. I think one of the Big Questions for us is, what is going to happen to potential in the u. S. Economy, the potential growth rate of the u. S. Economy is ripe for a potential upgrade at this stage. That also changes the inflation figure for the fed. Francine is that putting the u. S. In danger of overheating, especially when they have a growing deficit . Bhanu clearly at this point, are well above trend. That debate is not fully in the market as of yet. If youre moving the terminal rate higher, that changes the data quite a lot. The two year, 10 year, and also for the dollar potentially. But to do that, you must be clear signs that the capex is picking up, that it is leading to productivity. These are the two aspects of the u. S. Economy that have been quite weak for some time. It is not clear to us that that is happening as of yet. There is an overshoot relative to trend growth right now and by 2020, we might see some give back of this kind of growth because the fiscal stimulus could be temporary. Jean this is the big question, and i agree, the markets have not caught up with the implication. We are putting out a note this week, trying to squeeze out more on the potential outlook for growth. There is a good case that investment will be key. We have got to see that coming. We have seen some pickup in 2017, but there is another important dynamic. We have been through this very long cycle, the duration of which has been much longer than usual. Theres a risk that we have been attribute in more of