Eastern, we get existing home sales data. At 1 00 the u. S. Treasury is auctioning 35 million in fiveyear notes. Now the turn to our first take away, these are big stories. That great treasury sale continues with twoyear yields in the option yesterday the highest in 10 years. Continues toconomy struggle to get wage increases to keep up with inflation. Glencore reports earnings with catholics flow and earnings the turnaround in that company is so dramatic. It was on deaths door just a couple of years ago. Come inside the bloomberg. We had all those auctions yesterday, and this is what we saw. Yields rising to the highest level in 2008 print much across the board. Ira, what did we learned yesterday . We learned demand was maybe a little higher than perhaps people feared. I cant say there werent a little hiccups here and there. The threemonth bill demand maybe wasnt quite up to standard. But otherwise when you look at the 2year note and six months bill auction, they went ok. I think today we will probably come and go. The fiveyear maturity has actually underperformed over the last two weeks, and i think that makes room for a little bit of supply. Sevenyear tomorrow, i think that could be a little dicier. That is the first time we have seen a big out of increase in issuance in something with a bit more market risk then we seen. David did we have a sense of whether markets are learning to adjust these higher Interest Rates so that they dont go into shock . What is happening in the earnings market is an intense focus. Violation is naturally constrained, so you are more sensitive to drive price action, and that is what yesterday was all about. About half of Earnings Releases yesterday were mrs. As opposed to be. That was 8 misses as opposed to beats. Utc more movement in sectors sensitive to Interest Rates you do see more movement in sectors sensitive to Interest Rates. Certainly the higher yield dividend paying scots are underperforming. It is not a huge drag on stocks at this point in time. Alix you guys are looking at 4 , right . Gina i think the market is more sensitive to about a 4 yield. To get towill be hard 4 , quite frankly, at least anytime soon. What it would take to get 10 year treasury yields up to that level would be significantly faster growth, and in particular, much higher inflation, and we just dont have that right now. Story is, i think, important. When you look at the twoyear option yesterday, demand was higher than in june. You saw basically in the whole second half of last year and 2016 the demand for him out of bonds being issued was actually about the same as it has been for the last year and a half. Ok demand for the twoyear. One of the things that had to happen for that is the amber line on this particular chart alix weve never heard amber. [laughter] ira well, will he made the chart, that is what they told us when we made the chart, that is what they told us. Of the curve is at the steep end, so the amber line shows you how much the current 2year note has gone up compared to the old 2year note. This is a little bit of market nuance here, but you are talking about curves steepening in a particular part of the curve to make that particular issue more attractive. David we want to turn to our second story over the u. K. We got stories this morning about wage growth going up by 2. 5 . The bad news is inflation is going up even further than that. We will hear later today about where exactly they are going with this. What does this mean for the bank of england . Carney always talks about real wage growth which we are not happen. Wage Growth Continues to fall a little become a particularly when youre trying to hike Interest Rates because you think inflation is railway, that is a real problem because is running away, that becomes a real problem. Alix we are also seeing theresa may and parliament, we have learned 62 conservatives have pressed may for a clean break, so still a hard brexit scenario. Is risk appropriately priced in the u. K. . Gina if you look, the equity market is pretty hip to this story. It has clearly been a big drag on domestic equities and the u. K. , and i think the even bigger story is what the pound has been doing, reflecting what is happening with inflation and growth conditions, what is happening at the central bank. That has been a huge drag on the stoxx. Cks. Sort of on the sto anything that relieves that pressure will fuel u. K. Stocks. David normally is the pound goes down you think there are bargains there and people will buy. Gina the pound is actually gone up relative to the dollar, like everything else. That makes the u. K. Exports much more expensive. That is a big drag on the biggest countries Biggest Companies in europe. A lot of those are energy companies, which we know have been big laggers in the market. It has just the nature a dearth of growth opportunities. Ira when you have slowing growth and wind up with prospectsm growth coming down, you worry about inflation. When you get bad wage numbers, you worry that inflation is going to start to come down. The problem in the u. K. Is what exactly with our process best prospects be postbrexit prospects be postbrexit . You dont have a lot of clarity on where the economy is going to be had. Alix lets look at the third story, which is glencore. We talked about 10 billion in Free Cash Flow. Debt down, profit up,. Up. Rofit if you look across the energy and materials space, what you find is a big improvement. You have a couple of very big bad apples. Exxonn and ask on and are good examples that spoil the soup in the energy sector. But if you look at the others you have an improving story and a rare secondment rare secondment of the equities market, and glencore is an example of that. It is not as Company Specific as you might think. There is a broader story of improvement going on. They are expected to lead to the earnings recovery on the index this year. There is a big story of recovery. I think is a total disconnect between the recovery happening in Energy Shares and sentiment in the Investor Base because sentiment is extremely early negative. Ive not gotten in front of a long only investor that has told me they are not worried about the energy sector. There is just no optimism. I think any Hedge Fund Universe theres a lot more willingness to take a little more chance on an Energy Recovery and inflation trade developing and the equity markets, but it certainly is not a widespread optimistic sort of story. Alix what is also so fascinating about glencore is the fact they have been able to repay debt. I feel like a year and a half ago were talking about, can they make it, they have too much debt, etc. Ira there are a lot of companies that have good Free Cash Flow and continue to pay down debt. You are an interesting place right now because you are starting to get here were yields are in treasuries that a lot of maturing debt actually has lower Interest Rates than where they could issue debt today. That wasnt the case the last decade. The last decade everyone was paying down debt or paying less interest on debt. That is not the case today, even with credit spreads as tight as they are. We dont know if we should actually issue this debt because it is just more expensive. Gina and ira of bloomberg intelligence. Coming up, more on those bond auctions and how they could move the markets. This is bloomberg. David south africa has announced their new budget under their new president , and it is pretty interesting. Going to bet is difficult on a lot of people, but it is necessary, a form of austerity, to bring their finances in line and narrow the gdp, which the United States is not moving towards. Pass . Can it pass . Can it be implemented . Theres a lot to read through in south africa. David this is maybe an early indication that mr. Rum opposer ramaphosa is going to do what is asked expected. You we need to us the treasury auctions last november, you would say, nothing ever happens here. The problem is we have gone from 2. 4 percent to 2. 9 on the yield on the 10 year. If we can move that quickly, then obviously yields are going north of three on the 10 year. To me most important piece of the information here is, how long do we settle into the new level . The spread between the two and the 10 has broadened out. That was the bogeyman last year. I think we pay close attention to all of the options now and certainly two things like hands of inflation, commentary around inflation, and the fed minutes later this afternoon. David how much of this is the underlying economy . On the other hand, the treasury borrowing a lot more money at the same time the fed is getting out of the business. Art i think both of those things in a will measure. I think it is also commentary ecb certainly talking about august being the end of their quantitative easing program. It is not just our central bank. Nd where we are headed david you said that wasnt necessarily a line in the sand. There is a line in the sand somewhere. At what point do you start to get pretty nervous . Art at 4 yield on the 10 year. We sort of painted ourselves in a corner three weeks ago when the jobs numbers came out and we saw a hint of inflation in the wages. Ever since then people have been saying, wait a minute, if we get 3 that of the end of the universe, which is crazy talk. It is just that is where we have been for the last seven years. It was not long ago you would say if yields could get to 5 they might start attracting money from equities into fixed income. That never has that number has never been anywhere close. I would say wake me up at 4 . We continue to make ourselves into a corner that doesnt really exist. Alix but we have seen such a rotation and more defensive tone market. Ken on the what does that tell you in terms of what emerges as a leader . Art you bring up some very good points. In the rising Interest Rate environment, utilities should not be holding up very well, nor should staples. To the extent we are in this interim, the only place that looks defensive seems to be catching a bid. It is some of those defensive sectors garnering sponsorship, which is very intuitive. Alix especially because energy and materials have been one of the top three worstperforming sectors you would think would do well. Art commodities actually hung in better than equities. I think that is where some of the biggest catches are. About awhen you think lighter regulatory touch, garnering some benefit repatriating capital and Economic Activity picking up, i think tech will always be a leading sector. If i had to take three leaders i financialsech, when you get 75 basis points in germany, 2. 4 looks pretty good. The twoyear is very local. This chart here that shows what the market is expecting the fed to do in terms of rate hikes. The yellow line is next year, the white line this year. It is almost three hikes for this year and one for next year. What are you going to be looking for today that changes this market view . Art unfortunately this meeting is really in the rearview mirror. This is really the swansong. It has been well disseminated. It is hard for us to imagine that something is going to pop out of this meeting where we say, oh my goodness, that is a lot different from what we are thinking. I dont think anything today changes consensus thinking. I think when march rollaround death rolls around and we have to hear from a new fed chair and nobody voters are, that is the difference rolls around and we have to hear from a new fed chair and know where the voters are, that is the difference. There is nothing new here unfortunately. Coming up, glencore reporting record profits, cutting its net debt by 1 3. More on glencores Strong Performance and what it means for the sector, next. This is bloomberg. Alix the glencore surprise had a bigger dividend on the end of surging stocks. Joining us is bloombergs chief energy correspondent. The standout is that 10 billion in Free Cash Flow. What are they going to buy . Reporter glencore certainly seems to have more spending in 2018. Says therexecutive are no deals, but made clear the committee will have a free cash for 2018,0 billion that probably means it could afford some acquisitions. For sure the market is going to because used potentially that is one of the potential candidates. Alix so it is eventually going to be a an ag play, is that what you are hearing . Reporter they do not have a big presence in the United States. That is one area. If we know one thing about glencore, they are very opportunistic. If a deal comes, theyre going to go for it. If the price is right and what it is coming from. Glass was keeping a very open mind on what he is going to do. He did three deals in 2017. He said in general last year he had no idea he was going to do those deals. And why are they so good on her trading versus other companies that dont do as well in the grading trading in their marketing . Reporter they build an empire of mines and oil fields and other assets. Other companies have tried to create Trading Companies around it. It is a very different approach. The culture is not there. Everyone started their career trading commodities. Alix thanks very much. Great to talk to you. David still with us is our hope is art hogan. A want to go back to something you mentioned before. Theres a great chart here that shows us what youre thin betweene divergence commodities and energy. Art the biggest bogeyman in this entire thing is that Equity Investors are afraid that supplies wont come back online. Weve seen that in energy before. The price of wti is artificially held up. Saudi arabia is holding the price up because they have a lot of deals to get done. The largest of all the concerns is that at any point in time, kers can really start producing more. I think all of that is overblown. I think what we are not looking at is how much demand has blown up. You completely shut out the synchronized Global Economic growth we have seen that has increased demand and continues into the next three years. We think demand is catching up with supply. I think inventories are working their way down. X is the big guys anps arenk u. S. Probably as cheap as we have seen in the cycle. I think the Services Side has already played out. I think you could perhaps short the services. Alix good stuff. Art will be sticking with us. Coming up, Prime Minister theresa may speaking with parliament. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats 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. Leaving every competitor, threat and challengretail. Euvered. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats 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. Alix this is bloomberg daybreak americas. Im alix steel. Very much a wait and see when you have that fire option coming up at 1 00 and the fed releasing its minutes. After that 1 selloff yesterday, it feels relatively calm. Composite pmi also coming in weaker. Im watching treasuries here in the u. S. Sterling getting hit after the wage data did not hold up, unemployment rose to 4. 4 , causing a rally in the gilt market. Here in the u. S. , everyone talking about the 2year yield. Five basis points, selling picked up after yesterdays option, 2. 7 , the highest ands 2008. Crude, wrapped up into all of this, a stronger commodity story. David lets get a check on news at sign the Business World with kailey leinz. It is President Trump first action with gun control since the florida shooting. He told the Justice Department to write regulations banning socalled bump stocks. The white house will not roll out the chance that the president made back restrictions on rifles like the one used in florida. With the first time, the white house has it knowledge russia tried to interfere in the 2016 election. Also said it is clear that russia had no impact on the results in the Trump Campaign did not collude with the russians. President trump had been criticized after not speaking out after last weeks indictments. Prime minister theresa may is considering a longer brexit transition period. That can worsen her relations with members of her own conservative party. They want the u. K. Out of the block as quickly as possible. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im kailey leinz. This is bloomberg. At this hour, Prime Minister theresa may is taking questions. This is another member of parliament talking at the moment. Later this morning, mark carney will be addressing the treasury committee, discussing the policy decisions and forecast. Joining us now from london is lucy makin. I am going to put up a chart that shows the trend on wage increases and you inflation in the u. K. Wages were going up faster than inflation. Now we have the reverse. What does this tell us about the economy . A harderers are having time, it is causing them or to buy things but their wages are not keeping pace. Consumers are a huge driver of growth. That tell marks carney as you look forward to his testifying today, what does this say about what their policy should be . Have tosaid we will deal with and overshoot of inflation. They believe it was driven by the pound dropped off and the brexit vote. Then they had to decide that maybe that was not so great, and th