Transcripts For BLOOMBERG Bloomberg Daybreak Americas 201703

i'm going to be interested in the contrast between monetary policy and the skinny budget. the first budget from the trump administration, it will be fascinating to see. alix: and dynamic scoring. here is where we are stacked up. 2.5 hours before the open in the u.s. equities softer, s&p futures off. 10-year yield on the margin, the basis point down. 1% ascatching a bid, up 1. the pound recovers. euro-pound was down for a while and is now reversing. i'm taking a look at where volatility is -- nowhere, up by just .5%. goldman sachs says buy copper and oil, market not listening. a 60 losing streak, the longest since november. kicking off this big week for central banks, our guests. to me, the big question is 2018. it shows the possible rate hikes the markets are expecting. for 2018, we are just over to michael. what is it going to take for the fed to move that line? >> it's going to take more clarity on the fiscal front. an interesting disconnect is it being pulled up on fiscal but not expecting the fed to react. alix: bob, is the market prepped for that in terms of the dollar? >> i don't think the market is completely prepped for big fiscal stimulus. hasview has been that what been driving equities is not necessarily trump, but global growth, which is rebounding quite smartly here, around the world. everyplace is looking pretty robust. i think right now the fed is not discounting a major fiscal stimulus. they haven't factored that into their expectations, but they are pretty far behind the curve. if you look at normal cycles and where they should be, given a level of inflation and growth and unemployment, i think they have a lot to do, and i don't think the market has really discounted a lot on the fiscal side, and that could add even more to the fed action, which would increase the dollar. alix: where is the market most complacent? 2017, we were at 2.5 hikes. 2018 may have the most complacency. >> there is so much uncertainty -- you can go up to a meeting and not know what they're going to do. trying to divine what they will do in 2018, particularly given the uncertainty of fiscal policy, is difficult. the market is taking a middle ground. they will do a little more, not as much as this year, which is a bit of a catch up, taking a wait and see attitude t. this president and his administration had talks about doing a lot, and when it comes down to reality, there hasn't been a tremendous amount of followthrough in terms of some of the things declaring china a currency manipulator, things like that. i think the reality of governing is setting in, and i think the fed in the markets are just sort of sitting back and saying what really develops. more of aing to be news conference that janet yellen has. we are at 100% likelihood for march. what are you going to be looking 2018?ther to one isuple to questions, what the fed is seeing outside this fiscal question. this has changed the balance of risk and there has been a lot of concern going into this year about the possibility that we are one that shock away. it would give a backdrop of support and the fed could be more aggressive. we are looking signs that the risk assessment has shifted. the other thing you want to keep an eye on is the balance sheet. wouldn't expect a lot of news. i think we will probably see a meeting or two in which we have some big discussions, some presentations from staff on how to communicate it and executed, but cerner or later -- execute it. get asked and'll repeat what we said, we want to get rates closer to neutral. the difficulty will be when they get the funds rate above 1%. 1% has been viewed as the threshold. you have to at least get the funds rate to 1% before you talk about the balance sheet. that may be where they are in june. i think the balance sheet issue is going to become the predominant one as we go through the second half of the year. she could probably skirts that issue in the march conference. alix: michael, what happens to the curve? >> it comes back to expectations of fiscal policy. obviously, i think the short end is going to continue to price in -- alix: all the way? >> for now, it makes a lot of sense. it's a question of how much we are going to be seeing an extension of the budget, particularly on the debt side as we go forward, and that is an open question. alix: we had central-bank divergence for so long, and there's a potential we could now.called virgin convergence have is that influence the market? >> i think it is at best a second half story, or later. it's true that global growth looks better. we have the boj this week, too. i think they are going to be very slow to back away, and the markets could sniff it out in the second half of the year. from the ecb standpoint there is still a lot of concern about the elections yet to happen. the divergent story certainly plays until the back half of the year. at that point you are potentially looking at some narrowing of, say, the treasury-bunds sprint curve, some of the dollar strength. david: we have talked about fiscal policy may be getting some assurance from the fed. what about global conditions were generally? the global growth picture? is that actually freeing up the fed to take more risks with interest rates? >> that could be the biggest change for the fed versus six months ago, what's happened in the global environment. that seeing numbers indicate gdp growth in the eurozone could move above 2% on a year-over-year basis. it doesn't sound like a lot, but their potential gdp growth is closer to one. we are definitely seeing better momentum in the rest of the world. interestingly, with two exceptions, the u.k. is slowing down after being surprisingly japan can't16, and get any momentum. what is interesting is those are the other two central banks meeting this week. so if you are talking about the ecb moving toward a little tighter policy going forward, other central banks around the world, the two exceptions are be the bank of england and the bank of japan. the others would be meeting this week. alix: you bring up a good question . is the fed data dependent, or have they shifted their reaction function? is it more how they view the economy, the global economy, and then they make the decision? >> it is part of a ship that was gently suggested when she started talking about international conditions. the fed seems to be more conscious of the global economy rather than just truly domestic issues. >> it comes and goes, but i think that is definitely a case. i think the question for the fed is one of risk management, given that we are at or very close to zero we have to because just. now that we have the global backdrop in the fiscal story, that potentially means more balance or upside risk. alix: bob, what is your strongest conviction? >> for us, it's dollar higher still as we go through the course of the year. not necessarily against the euro. we have been thinking 1 .05-1.10. but i think as the year progresses the fed will outdistance the rest of the world and we will see the dollar move up against emerging-market currencies. right now, emerging-market currencies are benefiting from this surprising global growth momentum. if that begins to fade later in the year and the fed keeps hiking, then i think we could see some movement in the dollar. for us, it is dollar higher. guests will be staying with us. coming up, the senior professor at the akoni university and nobel prize-winning economist joins us from elan. this is bloomberg. -- from thmilan. this is bloomberg. ♪ >> time now for other stories making headlines. i'm emma chandra with your bloomberg business flash. the reports of intel buying the israeli company mobilize up to $15 billion. the deal is expected to be announced today. they make software for pedestrians. it would be the biggest ever in israel's tech industry. insurance executive mark tucker will be taking nonexecutive chairman of hsbc. he is ceo of aia, and will start on october 1. his primary task will be to find the new ceo to replace stuart gulliver, who has led hsbc for more than six years. iceland is back. the government says, effective tomorrow, it will release all the remaining capital controls to allow icelandic citizens, corporations, and funds full access to global capital markets. the banking collapse led to its worst recession in more than six decades. and that is your bloomberg business flash. i'm emma chandra. this is bloomberg. david: in a week full of economic and political events, markets will be focused on the future of the eurozone, and what that tells us more broadly. joining us now is -- michael is also senior professor at caponi university, and will speak later today at a conference on protectionism and nationalism. professor, thank you for joining us. >> pleasure to be with you. david: a little bit of a delay. we will be patient. we have an event coming up tomorrow, professor, where we have angela merkel, the chancellor of germany, coming to washington to meet with donald trump. is this a clash of two worldviews about globalization, trade, or is there room to meet in the middle? >> oh, i think there is room to meet in the middle, but both sides are going to have to move somewhat. in the background, there is a difference of views. the european union just reaffirmed its commitment not only to globalization but to the multilateral approach. i think it is multilateralism versus bilateral is him that will be the area of possible disagreement. david: but president trump has made it very clear, he does not believe in multilateralism. he wants to do it bilaterally. do you think angela merkel could persuade him to move toward her? >> well, i'm not sure. that's part of the uncertainty we all face. but i hope so. lism is fine for the major economies in the world, they can work out mutually beneficial relationships and solve the challenges in terms of distribution that we have, and that president trump not only identified but that helped get him elected. multilateralism, however, is a pretty important entry card for the smaller countries in the earlier stage of development. they don't do well in the bilateral world. so hopefully they will find some meeting ground, where they accept parts of each of the agenda is, but keep the global economy open for the weaker, less strong, less wealthy economies in the world. david: what is at stake for angela merkel? do we have some growth -- it is not as robust but there is growth. how vulnerable is germany and europe more broadly to the new trade policies the trump administration is talking about? >> europe is somewhat vulnerable, although i think the principal owner abilities have to do with the differences between north and south, to be perfectly honest. trump's policies are likely to cause the dollar to be strong. that is, on balance, beneficial to europe. the growth you were talking about is mainly in germany and north of here, the problem areas where nationalists are gaining ground, in france and italy, in the south. ist is where the weakness from the point of view of european coherence and cohesiveness. i hope they come to some agreement on the question of these nationalists. there is a subset of the trump administration that is reported to be highly supportive of the nationalist parties in europe, and that, i think, is not helpful from the point of view of trying to maintain, in a difficult environment, european cohesion and coherence in the eurozone. david: michael, when you talk about that divergence, it is not strictly geographic. that may be manifest as early as this week, when we have the dutch elections, the french elections. what does that really tell us about the sustainability of the eurozone, as it is now configured? well, that's the $64,000 question. i think in the dutch election, the issue is mainly sovereignty, as it was to some extent in britain and the brexit vote, and immigration. quasi-re important economic or noneconomic overlays. but in france, the issue is nationalism, sovereignty, but there is a significant fraction of the population that's starting to feel the pinch of globalization and other major trends. the pundits say on this round that madame le pen will not win, but once one of these parties gains enough ground to take control of the government, they're anti-euro. i think we are talking about a longer-term risk, rather than short-term. i don't think the netherlands would take the eurozone down, but a withdrawal by a france or italy would produce a major disruption. david: is the eurozone in a position where they either must go forward or must go back, in the sense that they must become more integrated with fundamental reform, which was demanded by those who voted for brexit, or they will have to look at a different, and perhaps more diversified, approach? >> yeah, that would certainly be my view, that the status quo is unstable. it's a status quote in economic and i think the populists and nationalists will continue to gain ground. people who support them are basically saying this isn't just a more difficult recovery, it is a permanently impaired condition. the sameeve the gdp is today as it was in 2000. high, -- unemployment youth unemployment high. i just him think you can keep this up forever. what you said is right. either brexit and the trump election and the rise of the populist party serves as a wake-up call and there is a major change in policies, both at the national level and at the eu level, that make it easier for these economies to adjust and start the growth engines, or we will sort of drift. alix: looks like we might have lost professor spence. let's see if we can get him back. what is that windup meeting for the ecb, bob, when you have better growth at the end of the day in some areas, inflation in some areas, politics in some areas -- how does the ecb said policy for that? >> you know, i think right now the ecb is going to sit back and see what develops. there is certainly enough excess capacity across the euro zone economy that they are not facing significant inflation pressures. core inflation is stuck at .9%, near the low of the cycle. i don't think they will be in a hurry. they have time to sit back and watch, much like the fed had time to sit back and watch last year. for the fed, i think that time is up. they have to act. grudgingly, they're coming to the realization that, in fact, their economy is picking up pretty substantially. but again, like the fed, i think they will be very patient to adjust it as we go through the course of the year. alix: professor spence is back with us. what do you think about what the ecb will do when it has to cater to different countries? bob says they will have to wait because the risk, but then you have inflation heating up in germany, and that provides its own pressure into the election were on jul angela merkel is fighting. >> there are two parts to the ecb, and they are both important. i agree with what was just said. if inflation continues to heat up, regardless of where it is, but especially in germany, and starts to get -- core inflation gets up near target, which is just below but not far below 2%, they have to react. the pressure is building for them to do that. that won't necessarily help the countries that are doing less well, but i don't think they have any choice. the ecb's they mandate is inflation. there's another part of the ecb that is important, that has never been used. it is called the outright monetary transaction. draghi did inrio 2012 to calm down the sovereign debt markets. that is still in place. that's another piece of the puzzle that doesn't get talked but potentialh, instability in the sovereign debt markets would certainly cause a major disruption in europe. we have got major challenges. david: finally, we have developments going on across the channel, in the u k and even today is the house of commons is debating this law that would allow theresa may to exercise article 50. if it,, in fact goes forward, and there is a brexit, and they can't come to an agreement on european side -- how bad could it be for europe, if there really is a disorderly breakup? >> well, it is certainly not good. but again, if you imagine a the adjustmentch mechanisms in europe are made more flexible, were fiscal transfers -- there is more inflation so the overleveraged parts can adjust faster, the uncompetitive parts can adjust, then i don't think a brexit is the main event, to be honest with you. it's more piling on in a relatively weak situation that makes it worrying. david: ok. thank you so much. nobel laureate and senior professor, michael spence. alix: the other big news we are watching is in commodities. oil prices weaker again today, a goldman sachs says it is time to buy. they came out yesterday saying by copper in oil. joining us now is bloomberg news executive editor for energy and commodities. it was interesting his call, bec ause they said it wasn't about china, that the weight on commodities was overdone, and they are still buyers. >> yeah. that's quite a sensible position. last week was a wobble, we may get more wobbles, and the supply situation stops. calls.r ete the two key and they are saying don't get too hung up and do they comments. think about the long-term. what we know from commodity cycles is that you get a few years of really bad prices, and then you have a subprime problem. alix: this chart really shows that. the blue line you see is wti. the white line is the time spread, one versus twelve-month oil prices. you can see the weakness has not caught up in terms the time spread. that says to me that supplies are still title than what the stock market thinks. >> absolutely right, and if you look at the beginning of next year, you have that backqu idation, which super sizes returns. that's a great environment to invest in oil. but short-term, six months, it makes it tricky to make money in this market. if you look at open interests across the u.s., oil futures market, it didn't dip at all. there's no lack of interest. bob, you are not as optimistic,? are you? >> no, i'm not that optimistic, in the sense that i think the u.s. has become the swing producer. unprecedentedly coordinated action to cut back on supplies, and here we are with prices breaking down and u.s. inventories at record levels. i think in the global context this is a major sense that the u.s. is becoming a swing producer. we haven't even seen the freeing up of the energy market that is likely to come. so if -- alix: is the dollar an oil currency? is that what you're telling me? >> i don't know if it is an oil currency, but the flexibility for u.s. policy going forward on the trade side i think will be improved by this, and i think it gives much more energy independence, more flexibility in policy, in general. alix: u.s. dollar commodity currency? blow my mind. thanks for joining us. a quick programming note. coming up on wednesday, the fed decides. this is bloomberg. ♪ alix: this is "bloomberg daybreak." a huge week for economic data and central-bank meetings. this is where we are stacking up. 10 year yields flat, ftse mildly higher, the story is a stronger pound. euro-pound down by .4%, the pound really hammered over the last six days, getting released today as theresa may could get the go-ahead to trigger brexit. in other asset classes, vol is nowhere. vix up by half a point, copper a little higher. .oldman sachs says go long let's get an update on what's making headlines outside the business world. emma chandra is here with first word news. emma: in europe, theresa may will try to quell revolt over brexit in her own conservative party. the house of commons is voting today on amendments the house of lords attached to the brexit bill. a number of conservatives are in favor of some. one would give lawmakers essay on the ultimate outcome of brexit talks. in the u.s., there is a report that president trump will host president xi jingping at his mar-a-lago resort. it's been called lowering the temperature summit. the white house has received a mysterious phone call a day before one u.s. attorneys were told to resign. a spokeswoman says the president just wanted to wish him good luck. the calldn't take because of restrictions on communications between the president and prosecutors. he was fired over the weekend when he refused to resign. global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. alix with breaking news. alix: intel is going to be buying mobileye $415.3 billion. nhe company says it has a enterprise value of just under $15 billion. mobileye provides technology for cars, like advanced driver assistance system that prevents collisions. a big bet, $15 billion. the remarkable thing to be is everyone wants to get into this business of self driving cars. it,: apple is getting into so they need this equipment. david: ford and gm, why not us? alix: exactly. david: as emma told you, a pretty busy weekend as they tried to replace all the u.s. attorneys around the country. but this week it looks to be busier, with health care and the president's first budget on the agenda. joining us now is bloomberg chief washington correspondent. kevin, start with health care. is it in trouble? it seems to beginning shot at from both sides. >> a big week for health care. midweek, we are hearing from the congressional budget office, who will finally release their nonpartisan report, scoring how much money this house speaker health care plan will cost the government. that is the one number they will look at, because they need to a vert a filibuster. the other number in this report is just how many people would lose health care as a result of speaker ryan's plan, and that could pose political problems for moderate republicans. david: speaker ryan over the weekend was saying, it's not up to me, it's up to the people. they get to decide if they want to be on. 6 million people off, they decided it. does that have political strength? >> yes, and when you take a step back and look at how much premiums and health care costs have risen as a result of the affordable care act, especially in states that president trump carried, states like michigan, wisconsin, that was a huge factor. vice president mike pence was in kentucky over the weekend, touting speaker ryan's health care plans and later this week he will likely travel to nashville tennessee. all of this comes on the back drop of submitting budget proposals on thursday or wednesday. david: i was going to finish up with the budget proposal. for a lot of us, that is what we are looking for. what is going to be in this budget? what is it going to show? >> a couple things. wall, a lot about the increasing the u.s.-mexico border security. this is where we could finally get some hard numbers of just how much that border security will cost. we could also hear things for how they are going to pay for some of their other, more elaborate plans like medicare and medicaid, which is very controversial. finally, military spending. angela merkel, should the snow not the way her, is expected tomorrow to the with president trump on the backdrop of some fascinating developments in asia. secretary of state rex tillerson 's visits will be juxtaposed. david: we will come back to you later in the program. still with us is michael hansen of td securities, thanks for being so patient. so from an investor's point of view, what do you make of what's going on in washington? how much should they be taking into account the possibility of the budget in real fiscal stimulus? >> the big question for investors is not so much on the wall, it's on tax reform. how much detail we get in a skinny budget remains to be seen. there are some really extensive debates on things like the border tax and there are questions about how much that is going to play a role in whether you can get republicans on board or not. they need to think about how fiscal policy moves forward. david: take the border adjustment tax. how much does that put some hair on the deal? >> it's difficult from a lot of points of view. oil refiners are very concerned about it. it's interesting that there has been a lot of opposition rising in the senate versus the house and from an economic perspective it will not be as big a deal, but it is definitely challenging. if you don't get some form of border adjustment tax you are blowing a huge chunk in the budget and that seems to be a road too far. david: a $1 trillion hole. alix: bob, you were shaking your head. >> i think this border adjustment tax -- hopefully it fades. quarter adjustment tax make sense when you have a value added tax on your domestic economy. , we buy things in europe, and as we leave it airport we get the refund. to have it in a country where there is no value added tax, never been done, i don't understand how it makes sense. the risk is that is so complicated, and i am sure that most people in congress have no clue how this works or what the applications are. it interferes with the process in terms of making reforms to the corporate tax system, which many people think has been a big positive for u.s. equity markets, some expectations that corporate taxes will be reduced. now i think you create a whole level of uncertainty about policy, and it really comes from introducing this new form of this border adjustment tax that i think very few people understand. alix: but if you don't get it, ura dollar bowl. how do you be a dollar bull if you don't get it? >> well, where i come from, expensive fiscal policy and tighter monetary policy is a potent positive. alix: even though we will see a budget deficit -- >> in the short run, it wouldn't matter if it was a larger budget deficit, because the fed from that form of stimulus, the fed might have to be more aggressive as we go forward. think it's a terrible thing if we get higher deficits from the perspective of the dollar, at least in the short run. david: what is your perspective as an investor? are they up for a lot more leverage on the federal balance sheet? >> in my mind the more likely scenario is we get a much smaller tax reform and maybe it is sold as a down payment to further reforms to calm but you have to thread the needle somehow and it will be hard to do it if it involves a large debt issuance. david: a lot of those companies are planning on the tax cut. >> that is a risk. alix: there could be more issuance, right? does that mean we are in for higher yields, including no matter what the end of the day, not because of growth but because there is so much supply? >> that's a possibility. it comes down to how much tolerance there is. i am skeptical and that is why i think the compromise is a smaller tax reform. alix: what is your conviction? >> strongest conviction is more volatility. alix: everybody says that. [laughter] is hard to imagine a scenario when you have this much uncertainty in the budget. right now i think the markets have given the trump administration a lot of running room, right? they are very optimistic about the possibility for reform, it's a big change, they are willing to be patient. but at some point they need details, more clarity, and as we get into the back half of the year with the fed, the fact that both the domestic economy looks better, markets will look for something on the fiscal side, and i think it will be a hard road. finch,ichael hansen, bob you are sticking with us. i want to reiterate the breaking headlines from a few moments theyintel buying mobileye, see it adding to free cash flow immediately. that is a preview of about 34% to the march 10 close, all about autonomous vehicles. they already had a partnership of some kind, and now that takeover will be official. intel stocks down on the morning. we want to welcome our viewers from twitter who had been watching, "bloomberg daybreak" is streaming, no excuse for missing us. up, wednesday, morgan stanley's head of global interest rate strategy is here. thursday, the former council of economic advisers will join us. friday, the former cbo director will be joining us as well. all-star lineup. this is bloomberg. ♪ emma: this is "bloomberg daybreak." this is the hewlett-packard enterprise greenroom. coming up, the special coverage of the fed rate decision. this is "bloomberg daybreak," time for other stories making headlines. i have your bloomberg business flash. goldman sachs has become the last major bank to join the rush on chinese stocks. strategists have overweight chinese shares, forecasting an almost 25% gain for 2017. the msci china gauges already up 11% this year. motorcycle maker harley-davidson is considering its first bond deal outside the u.s. it will meet with investors in australia and singapore later this month. in recent years, other big u.s. names like apple and coca-cola have tapped asia-pacific investors' appetite for corporate debt. and british housing prices rose at the fastest pace in a year. home values increased .6% to an average $360,000. london housing prices rose, too, snapping a two-month decline. and that's your bloomberg business flash. i'm emma chandra. this is bloomberg. alix: thank you. breaking news for you, scotland is going to take steps for a new independence referendum next week. scotland take steps for a new independence referendum next week. i want to take a look at what's happening for the pound. re seeing it still higher by about .5% against the dollar. what's thisfor more, dig in? >> i think there was a tremendous amount of pessimism about the pound after the brexit vote, understandably. i think a lot of people expected that the economy was going to weaken right away. our view was that consumers are very rational -- they see the pound go down, they expect it to go up in the future. we had very strong consumption growth during the second half in the u.k. there will be an offset to that, and we think it starts to set in through 2017 and prices are beginning to rise more substantially. , think we will get consumers after being surprisingly strong in 2017,, being weaker and that is going to keep the bank of england, along with the bank of japan, as the central banks that don't have the ability to start to adjust policy is to go through the year. alix: what is the significance of another referendum for scotland? toyou know, it's interesting have one of these changes going on at once. potentially we had a scotland vote that was rejected to leave, now you will have that taking place at the same time as brexit. alix: is the pound still up against the euro, the dollar? >> on the day, the pound is up, but that's a bit of an oversold situation. as we go forward, the combination of the uncertainty in the u.k., the bank of england not being able to move policy this year, the fed moving policy, i was a little optimistic on the pound in the second half of last year. i think now we get back under 1.20 and trade in that range as we go through the middle part of the year. david: when they voted for brexit, there was a lot of uncertainty about how it would play out. since then, every one of those events has broken the wrong way from theresa may's point of view. one of the problems is everyone says nicola sturgeon is pretty smart, and she wouldn't ask for it if she didn't think she could win it. there is serious talk about them leaving the eurozone without having any deal. we hear from the european side, they want to be tough on them. this is not going in a good direction. >> well, i think the markets discounted that a little bit, but let's keep in mind that this is at least a two-year process from the time the trigger. they haven't triggered yet -- that will hopefully be later this month. then you have a two-year negotiating process. the eu's largest export markets are the u.s. and the u.k. when push comes to shove, there are a lot of companies in the eu that want to maintain a trading relationship with the u.k. i think that is going to be a dominant issue as we go forward -- there will be a lot of posturing but in the final analysis they will come up with a pretty accommodating deal for the u.k. to maintain its trading relationships, because there is a lot of economic exposure from the eu to the u.k., and the companies want to maintain that. alix: this is coming out of a briefing from the scotland prime minister. a scottishying independence vote will be in the fall of 2018 to the spring of 2019. next week they will take steps for the new independence referendum. she also went down to say that she is not turning her back on further talks with the u.k., but the issue is we don't want to do anything that will substantially damage their economy. this is scotland's chance to stop the country being swept up in brexit it was so ardently against. >> there is a lot of pride in scotland. they came close before. alix: it wasn't a huge margin. >> it goes back to what you were saying about oil. but net-that, where are you on the pound? has it taken all you think it can take? >> i think it has taken a big portion. but i do think it is going to settle somewhere in the 1.15 to 1.20 range. i think it is interesting on the timing, on the scotland referendum, it could be around the same time the brexit negotiations are winding up. there are a lot of headlines right now, the reality is we are talking about 18-24 months out, a lot of uncertainty, and i don't think investors will take a lot of positions on decisions that could main 18-24 months down the road. david: not just in terms of securities, companies making decisions about plans and equipment and people. companies, aauto manufacturer in the u.k., export to europe, vice versa. are they sitting on the sidelines? >> i think the one thing that will be heard is investment. investment has really been that strong. the strength of the u.k. economy and a lot of last year was on the consumer side. i think the consumers are now going to react in the opposite direction and scale back. they have done some advanced purchases. you talk about uncertainty hurting investment, it is hard to believe there's a place in the world that will be hurt more by uncertainty than the u.k. in terms of investment. if investment is soft, the consumer is soft. you have some fiscal stimulus but i think the u.k. economy will be weakening. alix: where is the volatility? >> good question. often, markets anticipate when everybody gets on in one direction, the markets don't satisfy that one direction. as he said, everybody in the world as position -- as you said, everybody in the world's position for higher volatility. these last few days it has been locked in. a lot of complacency, and then in one week the inventory numbers matter and the price cracks down. there areat right now so many positions set up for higher volatility than it is going to be difficult to get that higher volatility in the short run. alix: great stuff. thank you. good to have you. i want to check in on where markets are trading, breaking news that scotland will seek terms to have an independence vote, 2018 or 2019. this is what the market reaction was -- this is the 10 year yield moving higher as the selloff continues, underperforming all its other european sovereign markets. as a currency market you are seeing a stronger pound across the board. if you look at pound-dollar, up, and also euro-pound, continuing to fall hitting a session low. really interesting development here. nicola sturgeon saying, look, she wants to say that she does not want to commit to brexit, she does not want to do something that will wind up hurting the economy. david: and this is before you get to northern ireland. alix: yes. we will continue with this breaking story. we will be right back. this is bloomberg. ♪ alix: welcome back. more on this news breaking in the briefing from nicola sturgeon, the prime minister for scotland. she says she believes she could win a referendum, and will be taking steps to a new independence referendum next week. she thinks the vote will fall in 2018 spring to. 2019. here is what the market reaction is. continuing to see pound strength on the day, up by .5% against the dollar, as you wind up seeing yields moving higher, well off the lows of the session. peers,rforming all major and your-pound is still in the same situation. the pound got so beaten up over the last six days against the euro, so it is hard to make a lot of this. is this optimism? or is this just responding to what's happening with yields, to some oversold bound? david: maybe a little backsplash against the reaction to draghi. alix: yeah. it'seon also saying important to indicate a desire to stay in the eu pre-brexit. the referendum would be heard once the brexit terms are cleared, but she wants to take steps to make sure scotland will have a choice, that they can decide on independence. you point this out as well -- she wouldn't be making this movie she didn't feel like she had the vote. alix: it's clear that this is not a good day for theresa may. we will see what happens in the house of commons. we can to do follow this breaking story throughout the next few do hour -- the next few hours. pound stronger on the day. a programming note, coming up on wednesday, don't miss our special coverage of the rate decision at 1:00 p.m. eastern time. this is bloomberg. ♪ alix: new steps for new independence referendum in scotland. says she thinks they could win the referendum. one huge week, president trump budget plan.il his central casting. the fed preps for rate hikes this year. david: welcome to "bloomberg daybreak: europe on i'm david westin alongside alix steel. jonathan ferro is off today. we thought we had a full agenda and now it is scotland. alix: we thought wednesday was going to be the big day. nicola sturgeon says they will hold another referendum for the u.k. they will set up the steps next week. she does not want to lose the relationship with the eu she currently has. david: the real question is will theresa may be the united kingdom? will there be a united kingdom? alix: that is the question we will be tackling over the next few hours. here is where markets stand in relation to that news. you wind up having the ftse up by about 0.3%. but the pound moved higher on this. you have euro-pound down by about 0.5%. the pound got hammered the last six days. is this an oversold bounce or a commentary on what nicola sturgeon is talking about? owen,g us now, david jefferies international chief european economist. what do you make of the news? >> i don't think it is that surprising. nicola sturgeon was always suggesting she would be wanting to call for another scottish referendum. theresa may has to agree to this. it is by no means clear that she will agree to the referendum. in scotland, they are beginning to play more fiscal games. on economic grounds, it is going to be very difficult for scotland to go it alone. we did a piece about this a couple weeks ago, highlighting that scotland has really underperformed the rest of the u.k. since the middle of 2015 and they are running a budget deficit approaching 10% of their gdp. oil revenues are a lot less today. they are very dependent on the u.k. the u.k. is their major market. the gdp is basically export and import with the rest of the u.k. to think that scotland can economically go it alone is problematic. theresa may thinks she can get more concessions out of london come out of the u.k. by calling for this referendum. we will have to see where it goes. david: is this really nicola sturgeon saying out or is it really starting in negotiation? if the latter, what does she want out of london? david o.: just more concessions, maybe more devolution, more public spending. at the end of the day, scotland will remain within the eu. in particular, nicola sturgeon was your tainted by the fact that the government in london is not going to remain within the single market. scott's want to remain in the single market of the eu. would have to apply to rejoin the eu and that would lead to membership in the eurozone. they would not have an opt out. the u.k. has its own opt out. scotland would not. when you look at the hard facts and analysis, it would be very difficult for scotland to go it alone. employment in scotland is currently declining. u.k., it isthe growing 2% year on year. of 2015e second quarter , the data tells us they have been doing worse. it is really underperforming. if we have a situation where it wouldppear the scots vote to leave the rest of the u.k., i think we would see a lot of capital leakage, people moving funds. it is a very different scenario to brexit. scotland pulling out of the rest of the u.k. it would be really problematic for them indeed. david: theresa may had a big day in front of her as it was before the scottish news when she had a vote in the commons for the bill. how much does this complicate even further negotiations with the eu if she has scotland on her left or right sniping at her? i think you also have to look at northern ireland as well in this mix. it is such a mess and it will be very torturous. at the end of the day, i will think they will leave scotland to one side and come back to it. the important thing for theresa may is to trickle arctic or 50 -- trigger article 50 and get the negotiations issue -- started. then they will deal with the irish issue and the scottish issue on the side. with scotland, they will come back to this in a year, depending on how the negotiations go, what actually is nicola sturgeon trying to achieve from this. it is very difficult to believe scotland could go it alone actually. the numbers don't add up. they really don't. alix: for more, we are joined by kathy jones from schwab financial. i'm really stuck by the lack of market reaction. what do you up and make of market reaction to this? david o.: it is a pleasure. >> i think that maybe this is a view that there is a political move rather than an economic move. it looks like a little bit of short covering on the pound taking place right now and there is a lot of anticipation of what the next move at the bank of england is going to be. i think people don't see it as a realistic economic outcome, more as a political outcome. david: to what extent does this effect would governor carney as to do when he meets later this week? david o.: i don't think --kathy: i don't think they could probably do this calculus this quickly. i think they just have to take this as another factor that they have to take into consideration, but probably not a realistic one. alix: you mentioned for the short covering and the market taking this in stride at the end of the day, but it also highlights a much theresa may is up against. you saw the house of lords rebelling last week. people in her own party could rebel. how does she put out so many fires and also deal with the eu and where is the volatility in that? kathy: all good questions. i don't know the answer to them. she is not superhuman. the market is looking at it, they are more focused on the bank of england than on the political mention nations in the short run. just machinations -- machinations in the short run. alix: what are the markets going to pay attention to when you have the exogenous risks? we don't have the volatility yet. when does that factor through. kathy: you would think we would see a lot more volatility. that is one of our calls this year. playbook continues to be kind of the reflation trade. people are willing to go with that. for the moment, that keeps volatility down. i do think it is going to pick up as the your moves on. david: what is happening with foreign investment in the u.k.? they need foreign investment to survive. is that tailing off? how is that holding up? holding upeems to be reasonably well. as we get further down the road in the process, you were going to start to see that really hang back because particularly in the financial sector, jobs would be leaving. foreign investment probably is going to trickle down. alix: when you are looking at this as an investor, you say it is just rhetoric? kathy: i don't know that it is tradable today is the problem. alix: if you have gotten these headlines six months ago, we would be all out of bed here. kathy: i know. we have had a lot of unexpected developments in six months though. and the world is still here. our view on the pound is still mostly negative. alix: also joining us is joshua shapiro of mfr. i know that you are a u.s. economist. if you are the fed and you were talking about how global developments were much more calm than they were before, do something like this wind up saying, let's pause for a second? joshua: definitely not. global is important, but i think they are much more focused on the u.s. isbal economic data stronger. the political stuff and what is going on with the eu and the two-year process with the u.k., that does not factor into decisions this week. alix: when you look at something like this, does that not affect what you are looking up for global growth? see where, i don't this is going to affect anybody's economic forecast one iota. alix: what is your strongest conviction when it comes to looking at the u.k.? kathy: we are still negative on the pound. versus the dollar. alix: how low does it go? kathy: down to the 1.10-1.15 area. given the uncertainty going forward and the hit they could take on the economic side, it is really tough to make a case for the upside being substantial from here. david: this will lead u.s. companies to be reluctant in the u.k. investment right now? kathy: i would think so, particularly in the financial sector. i would think that they would have to look at the potential for growth to slow down because of these trade barriers that we have put in place. although the pound is cheap and that is an opportunity to invest , i think they have to hesitate now to say, how is this going to play out? alix: those headlines as the briefing continues, the prime minister nicola sturgeon saying there will be another referendum for independence next week. they will lay out the guidelines. in the falle a vote of 2018 or spring 2019. we want to make sure scotland will have a choice and does think that they will win the referendum. it would not be acceptable for the u.k. government to make them wait. we do here some potential negotiating tactics versus something that was fundamentally changing the picture. it is all about maintaining access to the single market and concerns of brexit will halt that. you see market reaction. the pound still stronger on the day. you do see selling in the gilt market. our special thanks to our roundtable. jones, and kathy joshua shapiro. coming up wednesday, don't miss bloomberg's special coverage of the fed's rate decision. they will have some fan charts. those are cool. this is bloomberg. ♪ david: this is bloomberg. i'm david westin. tomorrow, president trump welcomes angela merkel to washington. joining us now is our chief washington correspondent, kevin cirilli. we have been waiting with bated breath. we are finally going to get it this week. what are we going to see? kevin: we are also seeing that it is going to be a piecemeal budget, which means we may not get the full budget. i'm going to be watching for a couple of things. first and foremost, how is the tea party going to respond? the sources i have inside the house freedom caucus are concerned about spending limits, about just how much president trump wants to spend and whether he has the mechanisms to pay for it. the nonpartisan congressional budget office will be releasing health carebout the bill. a lot of money moving parts this week. should the tea party not defend this president, that could post policy problems for him and his ability to unify the republican party to accomplish his agenda. ared: the freedom caucus really all over this thing. does that indicate that we may not hear much about infrastructure or maybe even tax cut policy because they tend to think that sounds like spending? kevin: last week, i interviewed the house transportation committee chairman bill shuster and what he told me is that there is still not a definitive mechanism for how they are going to pay for the $1 trillion infrastructure spending plan that president trump and the administration have called for. all of that said, there are a couple of different ways they could do it. they have tried to take a more piecemeal approach, especially on infrastructure. they want to couple it with corporate tax reform. they feel they could repatriate some of the money coming back into the united states in different infrastructure plans. another story that will not drive as much media attention, the house will be taking a look at driverless cars, driverless trucks. that could garner some attention from infrastructure watchers. david: that repatriation would be more or less a one-off deal. another $1 trillion is being kicked around as the border taxstment tax to pay for credits. will they have to commit, the white house, to the border adjustment tax to get the tax reform they are after? kevin: it is the big question in washington, where will this administration fall on that? we have heard all over the map from administration officials and cabinet heads that they are to committing to a specific policy position on that issue. they can wait until they put out a tax report. there are a lot of people in washington who are carefully watching every single word that administration officials are saying on that particular topic because they view it as a revenue stream potentially paying for tax reform. david: thanks, kevin. markets have been playing -- paying close attention to the trump plan. we also have a little thing called the fed meeting this week were monetary policy will be taking center stage. is the fixed incomes chief strategist for the schwab financial research center and joshua sapir of, known as josh -- joshua shapiro. kathy, what are you going to be looking for? kathy: i think the tone that janet yellen takes in terms of future rate hikes is going to be very important. i think she is going to emphasize the gradual process. it is working so far, so why change it? thatnk she will emphasize is slower raising of rates the way to go. i would like to see information on balance sheets. i would like to see that plan rolled out so the market knows what the plan is and how it is going to be implemented. david: josh, what is gradual at this point? if they go from three to four next year is that gradual or not? joshua: i think gradual is different than it was. it is less gradual already. our view is that there are going to be four this year. we don't that to be just expect that to be reflected in stocks. all they will have done with this one is move it up further than expected a couple of months ago. we think the economic data will continue to be strong and they are going to move four times this year. alix: why do you see four times? joshua: it is just the growth numbers, the sentiment numbers we are seeing. i think the world itself is getting healthier. global growth is stronger, inflation numbers are getting to where they want them to be. i think also that part of that issue knows her days are numbered. she wants to get more done before whoever will replace her. alix: a survey from bloomberg shows that economists think we will see three rate kites. -- rate hikes. this is the fed funds contract. shows where we see the rate hike potential. the red line, the orange line .ould be two hikes the pink line is three. in december, we do see that crossing over into three. do we feel like the markets are finally catching up to where they need to be? i think so -- josh: i think so. were expecting march and the fed made it clear that we are getting one in march. markets adjusted to that. they will adjust going forward. markets are reactive. they are not as predictive is a lot of people would hope they are. david: kathy, d you expect them to say anything about the balance sheet this week? kathy: i doubt it. there might be something in the statement. perhaps they get a question on it. i'm hoping they get a question on it. i would like to see how they plan to do it and when they plan to start. i do think that janet yellen would like to get something on the books in place in terms of a plan for the balance sheet before she exits the fed. so that markets can adjust and so they can have the plan in place. david: how they do it might affect housing markets. kathy: absolutely. if they go to a treasuries only balance sheet and focus on mortgage backed securities first, that could affect mortgage rates. you wonder thing buying from overseas, higher rates in the u.s., lower yields does not necessarily seem to be --seems to be the case scenario going forward? joshua: i think the yield curve is going to react to fed policy. if the fed tightens four times this year, it is hard to see yields going down. tighteningey are come you still want of having negative policy rates over in europe. joshua: i do think that it is going to put a cap on what the longer end of the term does. i could argue for and even flatter curve than otherwise. the two-year is going to trade off fed funds. alix: what is the cap? 3%? joshua: we think less than 2.5% is where they are going to end up sometime in 2018. alix: guys, thanks so much. shapiro.es and joshua thank you very much. coming up this week on "daybreak," an all-star lineup. matthew hornbeck joins us on wednesday. jason furman on thursday. friday, the former cbo director breaking down the skinny budget for us. it will be an all-star lineup. this is bloomberg. ♪ alix: intel announced they will aboutrael's mobileye for $15 billion. why the purchase? how does this make sense for intel? >> good morning. thanks for having me. is intended to jumpstart the auto business. this has become the last area where there is pretty expansive growth in the markets. servers are getting pretty entrenched. , autoel wants to expand is one of the few segments that is large, profitable, and still growing. the auto market is slightly different from pc's and handsets in that you can't make a design overnight. you can't win a design overnight, you can't convert that into revenue overnight. it takes 4-5 years over that to happen. m&a is the largest way to go and it is a very good purchase for intel. david: they are in the tesla model s. whom didn't intel by? who is the rival for mobileye? perspectivechnology , the mobileye purchase is pretty sound because it gives them not the nuts and bolts of the car from a technology perspective, it is not the run-of-the-mill sensors, this is advanced driver assistance systems. from that perspective, even though the revenues are pretty small, it is the right kind of revenue that you want to have. companies like nxp, in finian, and xt micro are the legacy participants. david: thank you so much. quick programming note. coming up on wednesday, don't miss bloomberg's special coverage of the fed's rate decision coming up at 1:00 p.m. eastern time. this is bloomberg. ♪ alix: this is "bloomberg daybreak." i'm alix steel. we are about an hour away from the open. yields going nowhere, dollar going nowhere, crude off slightly, all waiting for the federal reserve meeting on wednesday. what will they say about the future path of rate hikes. the news of the morning comes to us from across the pond. particularly in scotland. nicola sturgeon saying she will start the legal process of preparing for a second independence referendum that she thinks they will win. pound is enough, the stronger on the news. that is helping the ftse 100 gained a little ground. the gilt market underperforming all the major sovereigns in europe today. david: i think we need some help going throw this brexit talk. we are joined by the european head of global markets at the bank of tokyo mitsubishi in right and megan green here in new york. derek, let's start with you. was it a big surprise? what does it mean for theresa may and brexit? weekend,nly, over the first thing this morning, there was talk that this could happen. i think nicola sturgeon is playing a good game once again. if you recall back when the referendum vote took place, she was very vocal and making sure that scotland's voice was heard after the big event of last june. i think now just ahead of the probable triggering of article 50, nicola sturgeon is again out making sure that scotland's voice is heard as we go into the next big event that triggering of article 50. david: certainly, this means that theresa may has a lot of cooks in the kitchen ago shooting the deal -- negotiating the deal. sure. i think perhaps why the markets have not reacted to forificantly is that theresa may, it is still about the negotiation process and how that goes in the early stages, the first 2-3 months. i think the markets really want to get a grasp of the early stages of negotiations before incorporating the potential risks of a breakdown of the union of the u.k. and scotland leaving, which there are still an awful lot of ifs and but in relation to how that would transpire. alix: is the market complacent today on the news? megan: they're pretty complacent, but it is a long way off. the main event is still going to be triggering article 50 every of nicola sturgeon was smart to get in and had of all that, but it does not change anybody's negotiating status. alix: does it make theresa may's job harder? megan: maybe marginally. threatens the existence of the united kingdom. northern ireland might start kicking up, as well. she will have more on her plate when she is trying to negotiate a tough deal in the course of two years, which would already be difficult without these issues coming up. alix: also joining us is scott the kennedy -- scott kennedy and roger jefferson. -- rodney jefferson. ?odney, can you set the stage tell us what happened in the room? rodney: nicola sturgeon entered it is a in edinburgh place where she has taken the stage a few times before to announce big statesmanlike moments. this was definitely one of them. she was very much acting as scotland's first minister, the leader of a some out thomas government, rather than the leader of the scottish national party. we know that her key policy is independence for scotland. she feels she has no choice other than to pursue this path. simon kennedy in london, how does this compromise theresa may or is this just a sideshow? simon: it is not a sideshow. it opens up another area of debate. the recent events, the tory rebellion that she could see today, that is going to look small fries compared to what she is up against when she takes on 27 leaders. to be flying to brussels and yet hearing warnings from the north the threerough that century union with england could be severed, it is another complication, another thing she has to juggle. as nicola sturgeon was speaking about, she has been destined prime minister travel to glasgow recently. this is another issue that she is going to have to juggle at a time when there are going to be multiple balls in the air. alix: simon, can we break down those balls for a second? what is the time went from now until the end of march for theresa may? simon: we have the nicola sturgeon talk. we have parliament debating the brexit bill. we have the tory rebellion over the weekend. the vote is around 7:30. if gets that through, that is the point of celebration. then between tomorrow and the end of the month, she will have to meet her deadline. she could well do it tomorrow. one issue being reported by bloomberg over the weekend, one suggestion was that she uses up that today, but she will trigger a couple of weeks. that would give clarity to her plans, allow her to avoid obstacles such as a dutch election this week. it would also allow the eu to get its ducks in a row for a .ummit on april 6 there is a chance that she could put her finger on the trigger tomorrow, but not quite pull it. it could be that she pulled the trigger during the week. alix: those are the balls, how they line up. megan, what is going to be the reality? megan: for the next three weeks, i think the markets will fall once it is triggered, but once it is triggered, we will need to learn a lot about what the ' positions are. we will still need a lot more detail. those negotiations will play out over the course of the next two years. this is going to be in the forefront of everybody's mind. david: derek, where is the opportunity here? whenever there is this much uncertainty, somebody sees opportunity. i've been through big corporate merger. your competitors come in. who stands to benefit from this uncertainty? derek: well, from an markets perspective, i think certainly there is still substantial short positions in the foreign exchange market. there is anticipation about the upturn in focus around the could result in further depreciation for the pound. my own view is that if it does materialize, it is going to be pretty fleeting. you get to the potential for the early stages of negotiating going somewhat more smoothly than what the markets are fearing and that could result in the pound rebounding from weaker levels that we get to over the short term. megan: from a macro perspective, they are also winners in terms of who gets the banks. there is still a question about whether it will be paris or amsterdam or dublin. it will probably be a combination, but a lot of business will end up going to the continent, particularly europe clearing. alix: the real question, simon, becomes what does the transition agreement look like? how do they make the transition agreement when they don't know what they are transitioning to do? simon: that is a key point for the european commission negotiator. tosaid he does not want discuss a transmission until deep into the process where the landing zone is better known. that is a problem for the u.k. if there is no indication of a transition, this banks will already be starting to shift business to the eu. just to highlight one of the risks of this kind of negotiation, you could well have a u.k. at the end of two years that has no new deal. theresa may said no new deal is better than a bad deal, but i don't think that is necessarily the case. the u.k. could end up stumbling out of the eu and that is a much worse option. alix: fair enough, but then you wind up seeing short coverings for the pound. what about the medium and long-term it that scenario plays out? derek: i think at this point in time, it is important to stress that both sides are positioning for the beginning of negotiations. mayhat perspective, theresa is perfectly correct to say what she has stated, that no deal is better than a bad deal. that makes complete sense to me. but we only really will see the reality once both sides sit down and start the negotiations. i think that although the eu is a much larger economy and the u.k., there are huge threats on both side for smooth the negotiations to take place going forward. really until that transpires, we don't know. i think the markets are going to wait and see and make a judgment perhaps in one or two months beyond the beginning of the negotiation process. david: are you suggesting that we might hear a lot of back-and-forth, a lot of grave talk, but in the end, they will hedge? derek: yes, to a degree. if you listen to the rhetoric coming from europe, where is the most pragmatic voice coming from? by far, it is from senior german politicians. i think every step of the way, we have heard that they wanted pragmatic, orderly approach to negotiations. i think when you have a key player like germany who will potentially push for that, it does bode well for the potential for the markets to be surprised. the early stages of negotiations go somewhat better than what many are fearing. and rodneyn kennedy jefferson, thanks both to you for being with us. hal penny and megan greene will be staying with us. alix: derek, so calm. [laughter] david: don't miss this special coverage on wednesday of the fed's rate decision. alix: here is where we trade with less than an hour until the open in the u.s. we go nowhere. dollar index goes nowhere. oil lower on the day. in the other market, i'm taking a look at the u.k. up wind up having the ftse by almost 0.3% and the pound having the best day in almost three weeks against the dollar and against the euro. you have the selloff in the gilt market picking up a little bit of steam. this is bloomberg. ♪ emma: this is "bloomberg daybreak." coming up later today, the intel ceo joins us at 12:45 eastern. is "bloomberg daybreak." time for other stories making headlines with this hour. it big acquisition underscores the growth in the market for self driving cars. intel has agreed to buy israeli automotive software maker mobileye. the deal is valued at $15.3 billion. mobileye makes software that alerts drivers to pedestrians and unattended late departures. insurance executive will be the new nonexecutive chairman of hsbc. he will start it hsbc on october 1. his major task will be to find a successor to stuart gulliver. harley davidson is considering is first bond deal outside the u.s.. they will meet with investors in australia and import later this month. in recent years, other big names , such as apple and coca-cola, have tapped asia-pacific for corporate debt appetite. david: it is a big week for europe. among the many events tuesday, president trump will meet with german chancellor angela merkel. wednesday, elections in the netherlands. the g-20 summit will start on friday. derek is still with us. megan greene is with us right here in new york. derek, let me start with you, and unfair question. we have a lot of elections coming up. which is the most important for markets? by far the most important political event of 2017 will be the presidential elections in france. the idea of marine le pen as french president i think would be a catastrophe for europe. the polls are suggesting that is not going to happen, but importantly for this week, the dutch elections may well shape sentiment going into the french elections because of the freedom party does better than the opinion polls are suggesting, that inevitably will raise tensions and political risks in the run and to the first round of the french presidential election. david: to what extent our markets pricing in the possibility of a marine le pen victory in the second round? derek: very, very little. i'm sure you have heard people say to you that the euro is holding up much better relative to where it should be trading versus the dollar on relative macro monetary policy and interest rate spreads. i think a big reason the euro is holding up better than expected is the fact that the political risk premium has been reversing over the last two weeks on the french 10-year spread that has narrowed by about 12 basis points and essentially the risks in relation to france and the netherlands have come down. that makes for perhaps some surprise reaction possibly on wednesday when we have the dutch elections david: may have you assess the elections coming up in europe? megan: i would agree that france is the biggest event. it is not the highest probability event. given that marine le pen is intent on having a referendum to have france leave the eu, either one would be a huge market event. most french were actually choose to stay in. even if marine le pen were to come into the government, there were a referendum, it is not a sure thing that france would leave. is the risk coming out of europe that or is it the chance that ecb could hike rates before they winds down qe? megan: the fact that the ecb could hike rates reflects very little risk. i'm not worried about that event at all. the idea that the ecb would be tightening, i do think that is misunderstood. i think that most of the inflation data has come in looking great. i think we have a while before the ecb starts tightening any further. derek, is there a chance that markets may be overestimating political risk. lift?there be a left -- derek: there certainly could be. ,iven what i said a moment ago obviously the uplift, if marine le pen does not win, would be less if you assume the current risk remains. but the markets are very sanguine. the one week volatility implied for euro-dollar suggests a 100 breakeven on euro-dollar over this week, which to me looks pretty narrow, given it is not just the dutch election on wednesday, but also the fomc meeting. the markets are very sanguine about the political risk at the moment and that makes me think that the markets could be more inclined toward responding more to a negative outcome than a positive outcome. alix: derek, thank you very much. megan, always a pleasure to have you on set. if you have a bloomberg terminal, check us out. interact with us directly. if you missed any of our previous conversation, check it out. this is bloomberg. ♪ alix: this is "bloomberg daybreak." a look at what happens to oil. over a year to date, the slide. the longest losing streak since november. long paring back, as well. down almost 3% last week. joining us, credit suisse global energy strategist. goldman sachs says this is the type to buy. >> you always do this to me. goldman sachs. [laughter] alix: they have a note overnight. what's a girl to do? >> they said on friday to buy. we are a little earlier. this market was overexposed, over-bought, it was over early too soon. fundamentally, it is quite the opposite. this is rebalancing. over the year, we should get a rally. alix: is this the chart that shows that. the blue line is wti priced. the fact that this is holding up shows that supplies rebalancing versus the stock market? >> correct. if white had been going way -- get out. alix: when did that happen? when do we wind up seeing rebalancing? when we get back? >> we tend to be optimistic. we tend to be quick or early, if you will. we thought it would happen the second half of february. then we stand pat with four days away. it feels that if this does not happen in april when we are trading the june contract, then there is something very wrong and how we do our balances. soon will be a short answer. david: have we learned in the last few months that no matter what opec does, the u.s. producers are going to come back online? and what ceiling does that put on oil prices? matter, $60,cal $65 is where the united states risks going into hyperdrive. then you would need to have very strong demand growth. the sweet spot is that $55, $65 range. a little bit higher would help, i suppose, especially if you are a sovereign oil producer, who at 60 dollars is still not balancing the budget. mean opec will be forced to extend their cuts? >> that is a really good question. the sovereigns, the kings, the m want to rolls will over because i think they need that $60-plus and without a rollover, it might take longer. if you are a strategist inside a ministry, perhaps we cut to soon, gave the americans and little bit too much rope too early. alix: what is the downside? the downside if they can't agree? >> the downside is a really ugly scenario. the downside is the strategists winning and saying we need to push this market down all over again. the downside is an aggressive .arket share move from the opec i don't think they can afford that politically. but there is that the radical downside. a globalcourse is economy type risk downside, but that would take a little while to move forward. alix: jan, great to see you. ahead of goldman's call by oil on friday. [laughter] btig coming up, the technical strategist will talk different asset classes. where they are telling us the equities will go. this is bloomberg. ♪ ♪ alix: central casting, the fed and wall street ci to i, three fed rate hikes. one huge week, president trump prepares to unveil his skinny budget. beholder, of the intel planning to buy mobileye. bloomberg to daybreak. i am david westin, alongside alix steel. we have a big calendar this week will -- this week. scotland decided to going to have a referendum. nicola sturgeon say they will have a referendum in 2018, possibly 2019. i am interested in the fed. we like the fed. i want to be a fly on the wall when it comes to angela merkel meeting president trump tomorrow. these two people could not be more different, but terribly important. we get the budget finally out of the trump administration, at least the outline, so we will have some sense of where he is headed with the economy. not taking on the position's into a week promising headlines. here is where we stack up 30 minutes to the open. s&p futures go nowhere. you have the yield up one basis point. the fluency of .3% as the pound is near a three-week high. ftse is up .3% as the pound is near a three-week high. volatility under 13, a slightly , copper catching a bid despite a stronger dollar, but oil off when 3%. that is your macro look as we look ahead to the fed on wednesday. julie hyman joins us with individual movers. that woman reading her magazine as the car drives itself. software fors autonomous driving. intel is buying the company. you can see mobile ishares surging by 30%. this is the biggest purchase until has ever made, also the biggest purchase of an and really -- is really technology company. shares down .5%. we are looking at the technology chip industry at amd. this company will enter the s&p 500. movesd to see money that around companies that benchmark the s&p. this will happen before the open march 20. the stock has done well in the past year, its market cap around $13.8 billion. who is leaving? solar,utfitters, first the parting the s&p 500. raisinge, carl icahn his stake once again in the nutritional supplement company. 24.57%,k now going to on march2,000 shares 10. it looks like he has made a profit, the shares up 1.6%. the context is his well-publicized fight over bill ackman. carl icahn does far has had the upper hand. david: thank you. for more now on that peak week ahead for central banks, and particularly the financial reserve, let's bring in a bloomberg intelligence economist analyst. what is the most important thing we should be looking at as we get the decision from the fed on wednesday and the news conference from janet yellen? it's not theagrees rate decision itself, but the dot plot and the press conference. analysts will look at how much tightening the fed is seeing down the road. thatnot going to change much, because fundamentally things have not changed. there will be tightening into moderating growth in the first quarter, so the economy is doing ok. it's still not accelerating. david: we saw the wirp function go from 30% to 100% within a week. economicng you say conditions have not change, something changed someplace. >> bloomberg intelligence says they are driven by concerns about the market overheating. that is why they moved this rate hike to march and probably want to do it as soon as they can while conditions are allowing them to do that. david: what are they looking at on their dashboard that tells them that? what has them worried about the market overheating? >> the stock market. the bloomberg terminal, you see the positions well, so proudly a broad range of different things, but really it is not the economy. i think that is important to say that it is not the economy that is overheating. david: ok. thanks so much for being with us. joining us now is the chief market strategist for convergex. as you look at this, when you looking for and what janet yellen says at that news conference? >> it will be what she says but .lso the dot plot they will press her again on how much she balances potential this goal with monetary policy. we have not heard what that will be like out of the white house and congress, but the fed has two incorporated into their worldview. david: when you say they have to incorporated, they haven't yet. we don't know what's going on with fiscal policy. >> nobody does, and that's a bigger problem for the markets and volatility, but for the fed is how do you plan the dots, and that is a conundrum for them. alix: which sectors have yet to price in a rate hike? >> two weeks ago, it did not seem like any sector priced in a rate hike, then we had this big move and markets did not respond, so now it seems like all of them have even though prices have not changed that much. we are waiting for commentary about trajectory and longer-term futures. alix: the reflation trade has petered out. the small caps are down. thanks seem to be well bit in the morning, then roll over into the close. arecan say investors selling into that. what does that tell you about the reflation theme? out for the near term. financials had that one big move after the election come then went cold. small caps on a big rip, but are down on the year even though the s&p is up. we got a big burst, and everything has been quite since then, so it seems like everything is factored in and no one understands the next leg of the trade. david: how much all of that reflation trade is united states to mystic development? >> it feels like 80% is focused on change in u.s. policy, and 20% based on better news out of europe and asia, so very u.s. centric. david: we have been worried about china in the past and what china would do to the global economy. is that concern waning? >> it comes and goes day by day. the nature of the changes in u.s. politics have pulled market attention away from china and what's going on here for the moment. everything has its moment, but for the moment, it has been the u.s.. trade takinglation a pause, you want to buy on that pause or rotate into defensive's? >> the hardest part is we've had this big move and volatility is so low, so it's hard to say you have to make a big asset or sector change now. the opportune thing is to wait for volatility and play the next leg higher. alix: we will get volatility and a second. does that mean you sit in cash and wait? >> it feels like that. alix: you want to sell into strength though? >> it feels like we will not go higher until we get more information. that information will probably polis lower first. alix: cell, yes? >> yes. alix: then put into cash and wait for volatility? >> yes. david: we have a convergence of expert views about the markets. people are more or less agreeing . what is the outlier? that is what people are missing. time. outlier is we did a survey last week of our clients and ask them when you think tax reform will get past. 42% said not until 2018. that's a long time to wait. there are other things that can go wrong between now and then, so the think people are missing is this bridge from point a to point the and how long it will take. based on that, we have seen the correlation breakdown in the s&p, the reason volatility has been low. what will cause correlations to pick back up again? >> correlations pick up when volatility returns. correlations, utility correlation, utility stocks, -25% over the past month. who sees negative correlation in this sector, it is incredibly rare. overall volatility is down and most sectors have correlation below 80% am a very unusual. alix: that is a good set up for volatility. you're sticking with us. , anng out this week all-star lineup for an all-star lineup of central-bank action and economic data. joinsday, morgan stanley us. thursday, former council of economic advisers jason furman, director joining us on a potential skinny budget. we do have some breaking news for you. the atlanta fed is selecting a new president. as atlanta fed president on june 5. lockhart replacing mr. lockhart. he will be there on june 5. the university of southern california, usc trojan. alix: ok. updated.eep you a lot of things coming up, three openings on the federal reserve board that president trump has to fill. david: there's been this issue about whether they will go with epidemics or business people. this appears to be an academic. alix: this is bloomberg. we will be right back. ♪ alix: it is one of my favorite questions, where is the volatility? the vix around 12. it has rallied 25% in the last five days through march. still with us is the chief market strategist at convergex. tied theme to together. vix is informed by volatility and the last 30 days, so the two are tied together, but it feels like volatility has bottomed. alix: when does it pick up and how high can we get? turningll be a slow process. correlations have falling quickly and overall volatility has declined quite a bit. correlations come up when volatility picks up, you get that next turbocharged effect of volatility to the upside. david: alex loves volatility, but which comes first, the chicken or the a, detergents and individual stocks or volatility? >> typically volatility jams correlations together, stock prices to move more tightly together, because people are selling into uniform fashion. you get a headline event that the market is not expecting and volatility picks. david: there is the puzzle. i don't remember a time when we had headlines more uncertain in the u.s. and europe, so what are we have more volatility? underlying issue is what moved stock prices, earnings and interest rates. where have earnings been? where have rates been? 1.5% to 2.5%. where has the volatility been? we have to see one of those things become more uncertain, and from a violation standpoint, we think the world is perfect. alix: the question is volatility and other asset classes, not fx, not treasuries, but yes oil. this is oil volatility against s&p, oil is over for times more volatile than stocks. does that feed into stocks or is oil unto itself? >> oil has been unto it self over the past couple of weeks. we saw oil breakdown, but stocks did not. alix: they have have that positive correlation. typically oil and is only 2.5 times more volatile than stocks. we continue to see or oil breakdown. that could be the driver that pulls us into a downward spiral with stocks because when it moves down quickly as stocks go down with them. david: the volatility of stocks will come to the level of the volatility of oil rather than the reverse? >> that's right. oil volatility has then driven by uncertainty oversupply, but over the long term, it's about demand. if demand slows down for oil, where is the economy and earnings going? not hire. david: what about underneath the surface. to what extent has there been turmoil and rotation out of utilities? thing aboutng utilities, correlations are negative to market, -25%. 2.5%,ilities were down the not beat the market, but were not too bad. they zig inside sag when the market move the other way, very unusual behavior. i don't think that will continue. as correlations come back, volatility comes up. versust is implied relies volatility. take a look at this chart. implied volatility is the white line. historical volatility is the blue line, 7% for realized volatility. they don't usually have that extreme convergence. >> what happens is the vix can only go down so far come even when historical volatility is low. markets want protection from a big downside move come a so you always see that gap there, as actual volatility picks up, the vix picks up with it. alix: what is the trade? >> if you are flat out long, by some puts. get that protection now when the volatility is cheap, because it is like insurance. when the house is on fire, insurance is expensive. alix: what will be the upside? long-term average back to 1990 is 20 on the vix. we are one standard deviation away from that right now. getting back to 20 might be the end of the world, but it is a long-term average. david: is this good news for active investors? is it a stock pickers market? >> it should be. the correlations have broken apart, and when volatility except, that gives you a chance to outperform. david: thank you so much for being with us today. a quick programming note. wednesday, don't miss bloomberg special coverage of the fed's rate decision at 1:00 in the afternoon eastern time. this is bloomberg. ♪ alix: this is "bloomberg daybreak." i am alix steel. nine minutes to the open. higher,res marginally may be, not even one point. all wait and see until the fed meeting on wednesday. a selloff in the bond market, yields backing up by two basis points. the ftse up because of a stronger pound, the theme throughout the morning. in other asset classes, a marginally stronger dollar, one 06. it was higher, but came down a few hours ago, and the vix goes nowhere, right around 12. some buying in copper. goldman sachs says by. david. the s&p homebuilders index is up more than 20% and sits at a 10 year high. our next guest says stocks are starting to heat up. he comes from his office in new york. good to have you. nutshell, whyn a is this going so gangbusters right now? >> initially you had this pickup a lot of us rates, were concerned that would drive a positive the housing market, but instead we've gotten out into the season and we seeing some urgency. people look out and say we have had head fakes in rates, but now nothe time when there is looking back, and so if we are on the fence, it is time to start looking. david: the rates have gone up a little bit rather than down, so why is it taking people this long to say i want to get back in the housing market? >> you've had a bunch of issues, but the affordability has been worsening as prices have inflated over the past couple of years. it has become difficult for the andinal buyer to kick in drive the next leg higher in housing. that has been a continual a pushe, so you have had and pull affect, and now that rates are starting to move higher, you have some urgency coming into the market, where as people could afford to wait and see and how the job prospects and wage prospects involved. upid: we have been showing some board showing individual stocks, what does this say about earnings. i understand topline is going up as people by houses. what does this do to earnings? that's where we seen the bigger challenge with stocks specifically. stocks have been choppy because builders are seeing margin pressures at the same time volume has been going up. they have been facing pressures from rising land prices, rising labor prices, and having a more thatcult time offsetting with price increases, so you have had margin compression, which for the homebuilding stocks can be a little challenge for how investors deal with them , so it is not always clean leverage on volume. alix: what are going to be your top picks here? it gets trickye because you have had a big run coming out to start 2017, and so when we look at it, we do see the sector as a whole has further to run, investors have generally not been positioned long in this group or long to the extent we have seen in the past when things are a bit more optimistic, and so we have had a big run. we still think there is maybe a few percent left on the sector, but some of our top picks would be an are, policy, and try point group. those are stocks with another 5% 8% ahead.oint -- it tends to be momentum driven and you see an overshooting the upside and so for the next month or two months, the group can trade higher. what about masco. it has not participated as much. stocks.so like those we are overweight a mess go there have been some margin concerns as we see three inflation in some of the commodity baskets. we think those are overblown and mask us is positioned to take advantage of what we're saying on the ground with the demand trends and able to leverage that and draw some bottom-line results. thank you very much opening bell is next. futures are flat. this is bloomberg. ♪ alix: this is "bloomberg daybreak." i am alix steel. we are moments away from the opening bell. we stack up. dow jones futures up 18 points, s&p futures flat, nasdaq futures up one point. not a lot of positions ahead of a big week across the board for economic data, central banks, politics, and european elections. , theitch up the board dollar index slightly higher, yet relatively flat. you do see a sell off in the 10 year, yields by two basis points. down 1% and has gotten hammered over the last six days. as we opened up in the u.s., we head over for a check on the markets. don't see much change ahead of the events you have been talking about, notably central banks meeting in the and the u.k., so we have investors taking a step back. last week was the first down week for u.s. stocks. aboutssell 2000 was down about 2%, the worst week of the year, so something of note. if you look at some of the movers we are watching today, we have some ink pushed around by analysts. boeing downgraded to equal weight from overweight by morgan stanley. the stock lowered on valuation. it is up 40% since last year. aig was cut to sell at deutsche bank. analyst they are saying the resignation of peter hancock as a negative, saying the board is indecisive on the direction of the company and there is no succession plan. the stock originally got a pop after it was announced. stanley saying the company could get as much as 17.2% of the market in macau for wynn resorts. that has been driving interest to the other properties as well. alix: good stuff. joining us now is kate stockton and oliver renick. we haven't had that one person move in the s&p to the downside in months. if you look at the moving averages, the 50 day and 200 day , where are we headed? they are both heading higher, reflecting the medium and long-term uptrend. shorter term, they starting to roll a bit and losing short-term momentum that supports a deeper pullback in the near term. alix: oliver, what are we seeing from say 52 week highs for example. when you have wider breath, you make highs, what are we seeing? >> i like to look at highs and our aside. those are the only two technical things i would dabble in. highs, oneg new making new lows, so there is still that reflected their, but not as strong as we saw a couple of weeks back. , ae thing happens with rsi come down from where we were a metricso in which those were very strong. so of course it can continue and momentum can continue, but often times that happens when things peter out. fundamentally on the other side, earnings are done, went pretty well by every standard come that there is still expectations for the growth to happen. it is interesting when you look at a market expecting a multiple ando to 18.5 from 21 to 22, that is a significant expectation for earnings growth. people are also expecting the market index level to go up as well. alix: if you look at the charts, how quickly do we get to that support level and what does that matter? what does that tell you about the next move down? >> the support is around 2280 and derives from fibonacci retracement levels. indeed, we have seen overbought, oversold measures come off over bought territory. this is constructive ultimately. it takes a couple of weeks for oversold conditions to settle in manifest itself and improved short-term momentum, so a couple of weeks at a minimum, maybe a couple of weeks longer. there is some loss of momentum in areas like the financials. david: what are the financials to you? >> it is still pretty overbought on an intermediate basis. some things are getting oversold, so it is balancing momentum with the overbought condition. enoughentum has fallen to say we need consolidation or pullback, especially the banks. >> if we look out the rsi function on banks, you can see that right after the election, the red is when you got rsi above 70, by one measurement overbought. it has come down a bit, but still elevated. there has not been any meaningful correction and banks whatsoever. some other sectors have vacillated postelection. industrials took off, then slow down. relative to banks, they have slow down. you saw a pickup in some sectors that did not initially pop after the election, so looking it is interesting on what has been holding up since november. alix: treasury yields can't seem to break out of 2.5% of its of this is your next chart, a 10 year treasury yield, 50 day. it is butting up against the 2.5%. double top? >> i don't think it is a topping formation, but it is the trading range. we need to assume a neutral bias until it breaks out or breaks down. the breakout would occur at 2.65 for the 10 year, and 2.3. we have short-term overbought signals that suggests another pullback before it ultimately breaks out and we can focus on 3%. david: resistance upwards if it breaks out? that's right. targeted resistance at that 2.65 level. alix: oliver raises an interesting pattern. you see banks doing well earlier coming in, retail then peter out at the end of the day, big investors selling into strength, so a trading range, but no real breakdown. >> it is interesting. we have been watching this. when you look at what has been happening intraday, it is interesting where the last 30 minutes to one hour of trading has been very active, volume strong. i was talking to a few people that attribute that to the strong inflows into passive strategies because a lot of that trading happened at the end of the date when index funds rebalance. i think the intraday action is something that has been interesting year to date so far. alix: totally agree. the other big mover as oil, now down for a seventh day in a row. you can look at the moving averages here. the 200 dayline is moving average. we are trading below it, but not at time of selling with that. >> it is reminiscent of the october-november correction where it was a swift downward move that proved to be a shakeout. we do have signs of short-term exhaustion, but with the metkdown, we have already the target because of dramatic downside followthrough, so i have that contrarian view on wti, thinking it will rebound. in doing so, will preserve its gradual uptrend channel. alix: does that say capitulation to you? >> yes. alix: what is the typical range? >> again, 1-2 weeks for the stabilization to be followed by improvement. alix: thank you very much. oliver renick, great to see you. katie stockton, you are sticking with this. david: it was a big deal announced this morning, intel buying mobileye in a deal valued at $15 billion. mobileye shares soaring into the open. joined by cory johnson from san francisco. you know all about this company. is this a good deal? >> it is an expensive deal. mobileye has about 350 main dollars in revenue, enterprise value $14.7 billion. this is an all-cash acquisition. this is a big effort for intel to go towards this assisted driving market. is interesting. it represents this change in computing. intel missed out on mobility and mobile phones when they were focused on the pc and the single-digit growth, single-digit shrinkage in the topline numbers for the pc business. in thea center business pc business are still the largest sources of revenues and , but under intel brine percentage, the focus has been on newmarket's to put loads and loads of chips, not just a very few expensive cpus that characterize the pc era. they are focused not just mobile phones and smart phones, but thinking of the iot and cars. carleye is a leader in the semiconductor market, and intel has recognized it as a well-run company, and norm asleep profitable, and more importantly, a technology leader in assisted driving. a leader inay it is the assisted driving market. is this a market that will come up with one-to standards like vhs in beta, and is this intel's gamble this becomes the standard? >> we will talk to brian cassandra later today. right now, the characteristics of semiconductors in automobiles is that they are cheap. they are more like sensors than smart cpus, so the dollar content of semiconductors inside of cars is in great. more importantly, the individual chips are not very clever. there are lots of them, but the central cpu part of your smart phone, part of your pc. cars are just learning to have that kind of thing. the expectations is we will have lots of that going on, but they also gather data and ascended to the cloud, and some of the data has to happen on board. phones don't have to get smarter because you can use snapchat or pokémon go and the calculations are happening upstream in the cloud. that does not work in a car. and a car, you have to have instant calculations, and the car is supposed to use those centers, gather visual hader about what's happening around the car, it happens in real time, more calculations, more silicon, and more profits for the industry. alix: thank you very much. catch cory johnson on bloomberg radio with carol massar at 2:00 p.m. eastern. intel down in early trading. mobileye popping by 29%. , don'tup, brian krzanich miss that interview on the merger news. in the markets, we are open for 11 minutes in the u.s. the s&p flat. the dow flat, down 11 points. the nasdaq up 55. the selloff in the 10 year continuing to raise yields come up by two basis points. and see into this big week for economic data, a big week for the fed him a big week for european politics. this is bloomberg. ♪ >> this is "bloomberg daybreak." , intelup, brian krzanich ceo at 12:45 p.m. eastern time. ♪ david:david: this is bloomberg. disaster. 2017 will be the worst year yet by far. republicans will come together and save the day. joining us now is kevin cirilli. the president has set his agenda. it seems to deal with health care. what is he trying to do here? kevin: he will use the power of the pulpit to rally republicans. mike pence was in kentucky touting paul ryan's health care plan. later this week, president trump will travel to nashville, tennessee to tout this health care plan. this fight his tweets, this is a republican party divided. there are several folks in the tea party wing such as the house freedom caucus that has concerns about how much money this will cost. not aave concerns this is bald repeal. when you look at the senate, the armartisan budget office scores this thing midweek as being is costing more money than some estimates have predicted. a huge problem when the bill gets out of the house and moves to the senate come especially if president trump and speaker rind want to avert a filibuster. you have given us half the problem. david: it might drive other people off insurance. how to see thread that needle? remember on the campaign trail when he would talk about just how high premiums were going up for people in key battleground states. this, he isine is entering into 2018 in a midterm election year where republicans are up for reelection and have to be complaining on parts of obamacare, which is unpopular among the conservative base, however parts are popular with the moderate wing and democrats, so he has to walk that political tight rope, and that number in the cbo report that people could lose insurance is the number we are also looking at. david: thank you. ground zero, the capital building. alix: in the market health care the worst performing sector. johnson & johnson and united health making new intraday record highs. united health off that level, but interesting two stocks to watch as we pick up trading in the united states. is katies for more stockton. we talked about the financing. we are supposed to get the ceo be scoring the new plan this week at what we expecting? >> a couple of things to watch out for. it was mentioned earlier, the number of people that might lose or gain health insurance coverage under the republicans to be a verygoing big deal. it is expected to not look good. republicans including paul ryan have been preparing members for this, telling them it will not look great. we just have to get past this point. we are giving people access to health care that they might want point versus making them by health care, so that is what paul ryan has been telling people. has been house downplaying what the score will mean, so were looking at how much it will cost the government or how much they might save based on this score. all of that will either help or hinder republicans moving forward, one of the hurdles they are facing in this plan. alix: do we trust the cbo? didn't they say they overestimated how many people would sign up for obamacare? >> they did. that has been something the white house has talked about a lot, sean spicer talking about it on the sunday shows. health and human services secretary tom price brought that up a few days ago. the person who was the cbo director at the time obamacare was scored, and he said this is tough stuff, but pointed out there estimates were still better than any republican opponent of the legislation, and he talked about some points they did get right. they did estimate the cost of premiums and other things like that, so it wasn't just how many americans will buy into obamacare. alix: he will be on a program on friday. we can get better answers as well. so health care stocks not reacting to that uncertainty. take a look at the bloomberg, the s&p health care sector. you have a golden cross, the 50 day average, paint the line versus the yellow line, well extended. the golden cross, how much more upside is there? there is promise on a relative basis for the health-care sector. it is poised to outperform the broader market because it has defensive properties, the farmer names could outperform in a weaker tape. we've had a nice run in absolute terms, but the momentum is there a long-term shift that could be sustainable beyond all back. alix: i mentioned united health thenng a record high, coming off. how does that work in a technical analysis when you're looking at record highs? >> you don't want to fight the moving averages or momentum. when you see the 20 average takeen, that's a reason to down partial exposure, helping you to eliminate that noise of intraday highs. -- stuff youtaff thank you for joining us. coming up this week, we were talking about it, an all-star lineup on wednesday. we are talking rates. thursday, jason furman. the former cbo director doug elmendorf on friday. in the market, equities on a softer foot, the dow jones off by 17, the s&p flat, nasdaq losing steam come up by three points. this is bloomberg. ♪ eventthe fed is the main in a super bowl of central banks this week as markets price in a rate hike for wednesday. joining us for a preview is matt boesler. it's about the rest of the year. what are we looking at? matt: the march rate hike has happened. they are pricing in a hike this week. people are focused on what is coming after march. it looks like the way the market has a distributed, there is 75% chance of a hike over the summer, and beyond that, 100 percent chance more or less of a hike either in september or december. alix: you have a chart that breaks this down. the white line shows the odds of a rate hike in may, june, july, probably june of those three. the blue line shows that either september or december, so this is the basis point of tightening. be 25 get a hike, it will basis points. you can see the white line has come down in the last few days as those odds of a march rate hike have gone up, so that is that dynamic of pulling forward that hike that people thought was going to happen in june into march was so that's what we seen of the last two weeks. david: that should get us three this year. what gets us to four? what gets us to four? matt: we are looking at a new dot plot. their language about this decision is it is about that balance of risk from the downside to balance more towards the upside. so that does not mean moving got three number, but you have to think about a little bit more now about that? about a hawkish statement and a dovish press conference? matt: i guess it depends on what gets into the statement. one of the things we are looking at in the statement is that balance of risk language. they have been calling the risk roughly balanced, and they could change that to balance to indicate there is no longer that downside skew. to the extent people are expecting that or take that as hawkish, that can happen. the press conference will be interesting because janet yellen has to explain frontloading three hikes as opposed to back loading them in the which is the assumption and how that is some should has changed in the marketplace. david: matt boesler, good to have you here. alix: busy week for matt. 25 minutes into the session. you have u.s. equities going nowhere, flat, flat, flat across the board, all waiting for the fed. taking a look at the 10 year, a selloff there, up by one basis point. this is bloomberg. ♪ >> it is 10 a.m. on wall street, 2:00 p.m. in wall street. from new york, i emily chang. mark: and i am mark barton. markets." "bloomberg vonnie: we take you from new york to london and cover stories out of israel, the netherlands, and china. here are the top stories we are following on bloomberg and around the world. it is the beginning of a very big week for central banks globally. expected fromre the federal reserve, the bank of england, and the bank of japan. whether be any surprises for investors? politics, a new twist in the brexit battle as nicola sturgeon lays out steps for a second independence vote. how will that action complicate things as the u.k. lurches towards triggering article 50? annie: intel is buying israeli company for $15 billion. will it help intel find

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