Transcripts For BLOOMBERG Bloomberg Daybreak Americas 201703

-- authorizing prime minister may. we trade, to where a half hours until the open. robert shiller robert shiller coming out and saying stocks are way overpriced. s&p futures off by three points. over 2.6%r yield around the highest level since 2014. the dollar is a touch stronger as well as crude. i want to focus on what is happening in the u.k.. you have the ftse 500 moving higher despite the fact the pound is getting hit -- or because the pound is getting hit. up .5% and dollar pound -- #can dollar at an eight week low. he have to look at that weather -- you have to look at that to see -- i would be remiss if i didn't touch on valiant. this is a two-day chart all what happened yesterday when we heard they were selling out. that stock down 15% in nearing the record lows. how low can it really go? we will dissect to that later. david: he doubled down and now it does -- it did not work out. alix: so much drama for so long and now he does it. david: this morning in england, we had surprising news out of the bank of england as the deputy governor resigned in the wake of news she failed to disclose her family ties to barclays. here to explain how this could affect boe decision-making, we are joined by our colleague in london, scott hamilton. before we get to the ramifications, take us through what happened with charlotte hogg. scott: she was appointed when mark carney joined the bank of england and it was only this year that she was also -- she also had expanded to become deputy governor for markets and banking's. she only had that job for two weeks. during the application process that it turned out she failed to disclose her family connections. her brother was at barclays and she never told the bank her brother was there. during the scrutiny process that came about, they looked further into it and came out with a report saying they didn't think she met the high standards of the position of deputy governor and she sips of -- she subsequently resigned. david: this was handpicked by mark, someone he specifically chose. do we know anything about how she would have voted as part of the monetary policy? very little about her economic stance. she doesn't have a strong .conomic background her main experiences in the private sector, consumer financial firms, institutions. she was seen by economists very speculatively that she would join the mark carney consensus which inhabits the census of the committee and would probably vote in line with mark carney. depending on who replaces her, that could upset that balance. at the moment, the bank isn't facing a situation where it needs to maybe change its stance quickly, so maybe the bank of england has time to find somebody before anything else comes up. david: thanks so much. thank you for joining us from london. -- youoining us now is made it in thomas cole, we will -- this feels -- black eye.r lack -- >> i think they bank of england will take a backseat in the coming weeks. we are watching the data and we see challenges ahead for the u.k. economy because brexit will be triggered in a few days and weeks and in our view, that will hurt the economy. we think there will probably be more bad news for the u.k. economy going forward. we will stay alert to these new fax. alix: it seems like the market is catching up to that. we heard yesterday we could see another scottish referendum on independence and the pound is up. today, 120 one on sterling. what prevents us from getting 120 and breaking below? adam: nothing and the long-standing target is 115 and i am comfortable with that. i think the uncertainty of the bank of england is clearly on helpful, but there are bigger uncertainties facing the u.k. bc.n the composition of the n think there is some danger we have become complacent on the outlook for the economy. is startingof risk to shift in the other direction. we were worried for sterling ahead of yesterday's developments and we feel no easier today. alix: what will be the trigger maybe it below 120 or 118. will it be theresa may officially triggering article 50? what is the timeline for you? adam: i think that is one of the potential catalysts, when article 50 is potentially triggered, which looks like later on than sooner. and the process of negotiation becomes much more open. it turns out to be a lot more antagonistic and difficult than markets currently anticipate. i can certainly see politics as one risk. the other is the potential of the data surprise which has been almost on interrupted lee positive -- on interruptedly positive since the referendum. i think they could both serve as catalysts to get a break lower in sterling. david: there doesn't seem to be a definitive move one way or the other. there is uncertainty on both sides of the channel. is that because markets are waiting to see how it plays out or have they already built-in all the risk? thomas: i think europe is between a rock at a hard place. elections in the netherlands and france and germany later on, not to mention brexit. on the other side, you have strong economy data and i would highlight credit data. credit data is picking up and in the u.s., it is trending down. you have cyclical -- momentum in europe and that helps european assets like the euro. david: is supporting the euro a practical matter? compared to where it was, the growth is not that robust. adam: if we look at how the euro has traded, through data releases, it is not taking a lot of direction currently from cyclical economic indicators, but rather, it is being driven , inerceived political risk particular if we look at the risk of le pen victory in the french election and the euro is trading very closely with that and carrying a risk premium for political events. the economic cycle has moved down the agenda for the currency and that is likely to remain the case for at least until the other side of the french election and potential he even that does not reserve the political overhang. david: exactly. does that mean that if you take away the political risk, which ,t some point it will go away that the cyclical forces would kick back in and the euro would rise? other things being equal, i think that is the case. there is no doubt that cyclical indicators have improved and growth is running a little higher. i am not convinced political risk it operates that quickly. once we get through france, we have german elections later in the year and italy constantly on the back burner and likely to come to the forefront. alix: and you have president trump on the other side with political risk. there is a story out there that when you have angela merkel meeting with president trump later this week that president trump will push her so hard and the u.s. is so important to german exports that if they lose that connection, she will need the u.k. even more and that has the possibility of making a softer brexit. do you see that narrative at all playing out? thomas: i think you now see the role of the european union as a trade entity. stronger as anis entity and fighting for all of its members, including the u.k. the thing with the germany is that they are more focused -- there is more focused shifting to the trade within germany, which has been growing strongly. i think that will definitely come on the table when it comes .o the meeting with trump however, i think germany will continue to say that the surplus is a result of competitiveness. alix: does it wind up needing the u.k. more and make the case for softer brexit because uncle or -- angela merkel will be pushed against a wall? could help other countries to intensify -- incentivize them -- that is another issue. alix: thank you very much, we appreciate it thomas costerg staying with us and adam cole, good to see you. we want to welcome our twitter viewers. "bloomberg daybreak" is streaming live 7:00 a.m. to 9:00 a.m. eastern. coming up, wednesday, matthew hornbeck, morgan stand -- morgan stanley will be here and jason furman, the former councilman economic advisers chairman joins an all-star lineup. this is bloomberg. ♪ ♪ >> time for other stories making headlines at this hour. i am emma chandra. -- raising the white flag on valeant pharmaceuticals. they put the entire stake in the embattled drugmaker. it is estimated that ackman may have lost $2.8 billion and possibly more. company ise struggling with construction delays in a multibillion-dollar write-down in the business. or she been made the announcement that it gained approval to delay the release of third-quarter earnings until next week. the company estimates best has not gottenba their auditors to sign off on the plan. vw's improving profitability in the -- they missed the profit margin by 2.2 build -- 2.2%. they had to set aside money to pay for the scandal. this is bloomberg. david: today, the fed begins the two days of meetings in a snowbound washington leading up to decisions tomorrow and we have janet yellin's news conference. to take us through what investors should expect and what it could mean for markets, thomas costerg is still with us. there is a lot we still think we know. we are still at 100% for a march rate. thomas: i think the key focus will be on the dot plot. there is a risk of a move that up potentially if they believe the u.s. the data warrants a rate hike. david: is that a timing issue or an ultimate where we end up two years or three years down the road? thomas: i think first you need to have rate hikes and then we can discuss where they end. the long rate will be in focus and it is true that the tiny yield has not moved that much since the beginning of this year. i do not think they will move the long-term rate. i think they still view the neutral rate as close to zero for the moment. alix: the question is what traders are pricing in. news,omes from bloomberg the blue is the spread between august and jay-z -- august and futures.ed fund the white line is april and august, about 18. that is a 75% chance of a rate hike in the summer. it seems like the market is starting to reach the fed. we could see three hikes. thomas: for the first time in a while i think the situation is good for them -- for the fed because the market and the fed is aligned. -- it lira is expected could stay low and that is what they want, judging by what the markets want. alix: if you are looking at the spread, it shows the market is anticipating three hikes. what is going to put four on the table? thomas: i think you need the stock market to continue doing well and u.s. a data to continue performing well. i think the key issue right now is for inflation, which i think is quite soft. core p -- about oil prices -- -- that is as a vicious cycle. david: people are worried that it could go lower. if they are going to be raising, we will need a flattening curve. what would drive the low end up, does that depend on president trump and the fiscal stimulus? thomas: it is usually driven by the fed being behind the curve, you have inflation pressure rising quickly. it could come from trum and if -- trump and if congress orroves a inflation bill infrastructure or so on or if inflation shooting up out of the blue and then i think the market could actually worry that the fed being behind the curve. david: what are the indicators telling us now? thomas: the five-year, five-year, it is actually quite stable around 2%. that is why i don't think the fed will be in a rush to have a -- to have four rate hikes. i do not think they will go above 2% in their rates because inflation seems to be stuck and i do not think inflation will break to the upside massively. aix: you can see that in 10-year low rates, you can see them at 60 basis points. what has more upside, dollar or yield? thomas: it is complicated because they both upside in the near-term. i think we see the 10-year yield moving to 3% and we see dollar strength in the near-term based on rate differentials. however, there are interesting weries that are we -- that are keeping on. i think the broad picture is dollar strength for the next few weeks and yields moving higher. david: the you subscribe to the view that there is this and once you 2.65 break that you will go to three on the 10 year? thomas: i think it is difficult to break through 3%. i think yield could likely go back down next year, touching 3% would be difficult to break and then we go back down. alix: great to get your perspective. thank you very much for making it in on this snowy day. a quick programming note on wednesday, don't miss special coverage of the fed rate decision at 1:00 p.m. eastern. i have been told there will be sand charts. you are looking at a snowy d.c. we are expecting 17 inches. this is bloomberg. ♪ ♪ david: this is bloomberg. the congressional office came out with the scoring of the new health care plan and right away there was a lot of controversy. as many as 14 million americans could lose their plan. tom price, the secretary of health and human services came out right away and questioned the cbo. with disagree strenuously the report. we believe our plan would cover more individuals at a lower cost and give them the choices they want for the coverage they want for themselves and their family. not that the government forces them to buy. david: republican senator lindsey graham, the senator from south carolina told the new york times "let's say the cbo is half fort, that should because concern. the prudent thing is to look at the report and see if we can address the concerns raised." this is high drama involving the cbo. who wins in this battle? kevin: there is something in the report people will like and dislike on both sides. this says they will raise revenue at $337 billion offset. that is a win for the administration. when you look at that 14 million number of people who will lose insurance and democrats already onnds on that -- pounce that. that is where the fight is headed. with that number, you put a face on people who will lose insurance. that is not necessarily a number that folks headed into the midterm elections want to see. honest, thee to be sources i am speaking with in the tea party and the more conservative numbers in the senate are still opposed to this. they have concerns that this plan does not go far enough. david: that is on the senate side. on the house, they already made through two major committees. will likely pass the house and when you get to the senate and talk to people -- like senator rand paul and lindsey graham, senator mike lee, they have concerns. they feel this institutionalized -- of they of of the affordable care act taxes. they feel this is not a full repeal. for a host of reasons, this could be something that is not -- that does not pass for republican support. because of the cbo scoring and because of that metric, this could get through the senate. david: there were some interest groups pretty much opposed. and questionsa from the aarp. one of the questions is on the elderly. the elderly with lower income at how badly they would be affected. what is the chance that could build backfire in the senate? kevin: look like -- look at states like michigan and indiana, all of these "flyover" states that the republican party was able to win during the last presidential cycle. these are also the states largely impacted by the affordable care act, that the affordable care act opened up coverage to and that would be directly impacted as a result of the 14 million people losing coverage. from a political standpoint, that hits exactly the same states they want. david: we will come back to this throughout the program. alix: governor cuomo just closed metro-north and a tractor-trailer ban is in effect starting at 9:00 a.m.. here is a live look at times square. you can see potentially 17 inches. 5300 plus flights have been canceled so far. david: that is the way i get home. alix: coming up, the former president of eli lilly gives his thoughts on the -- on obamacare. this is bloomberg. ♪ ♪ alix: this is "bloomberg daybreak." meats for two fed days, potentially to raise rates. you have schiller saying stocks are way overpriced and the 10-year-year-old around a 14 year high. a little bit of buy on the margin on the yield. up as well. we are looking at what is going up in the u.k. you have the pound continuing to get hammered. at one point you had a sterling at an eight week low. you had a sterling-dollar down .7% and selling on the 10-year. let's get an update on what is making headlines outside the business world. --emma: chuck schumer is threatening a shutdown on the proposed border wall. schumer told republicans not to border -- the border fund parenthoodg planned into a senate bill. presidenteport the -- gave cia new authority to conduct drone strikes. under president obama, the cia used drones to locate terrorists and the u.s. military carried out the attacks. the northeastern u.s. is being hit by a snow that could leave over a foot and a half of snow. there is a blizzard warning from pennsylvania to maine. the wind may gust over 50 miles per hour. aboveground subway service in new york has shut down, so has bus service in new jersey and parts of connecticut. global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. david: yesterday we received the much-anticipated scoring of the republican health care proposal and it raised controversy over the estimates that 14 million americans would lose coverage next year and cover -- premiums going up 15% to 20%. we are joined by tony butler, the senior equity analyst of guggenheim and he joins us. i think one of the most basic questions is how reliable is the cbo report. you had tom price immediately come out and say don't pay attention to it. tony: it is a fair question. analyst bypolicy -- any stretch of the a minute -- of the imagination. my view is that cbo will always provide a score and in many cases, the real question i think if thisd address is were to pass the house, how does he get changed or mutated in the senate and what really emanates out of the senate that we could mouths andse\/ -- two on. the real question is what happens out of the senate. david: lindsey graham saying let's slow it down because even if this is half right, it raises problems. some of the concerns are among the elderly, particularly. what happens to the elderly .nder this fan -- plan how much impact would it have on elderly americans? tony: there was a concern about the individuals between if the 64.-- 50 and those individuals have premiums that may rise if they change insurance and what they may cost . i think the real key here as we were toit is if you consider the number of individuals who may lose insurance and you alluded to that in your opening statement. i think the one thing would be would they be able to obtain additional insurance? ashink the overall view somewhat of a layman who follows equity stocks is what really occurs at the level of entitlements. if you think through this a little bit more and notice the to move -- into her position, she is trying to put a cap on medicaid entitlement programs. is this part of an overarching component affecting the elderly and the poor? alix: let's go to your wheelhouse covering drug stocks. you have that and you also have president trump continuing to beat down drug pricing. what is the lead of that on all the companies you cover? and: it is a fair question first of all, the cost or pricing components are separate from what we are talking about with this bill that moves .hrough the house there are no affects that have anything to do with drug pricing. as we think about some of the large pharmaceutical companies and biotech companies, they really are dependent upon individuals may be under the care of a physician and obviously take medicines. if, in fact, you do not have insurance, the probability that you take -- you are under the care of a physician and take medicines is less. those removed from the pool could be medicines -- medicine takers. there could be a modest hit to the pharmaceutical companies. it is unclear how much that might be and unclear if those individuals would obtain other insurance. my sense is that it is very difficult to read between the ofves of the tweets president trump, i think it change orire real another additional bill that would have to pass the republican house and senate, which i really don't think will occur. my sense is that what mr. trump and secretary price are going to try to push through is increasing competition and that may simply be by making sure generic drugs get approved more quickly. remember, nine out of 10 drugs or prescriptions written in the united states today are for generic medicines. if you have an increased level of generic drugs, wouldn't that implied you would have more competition? alix: take us inside companies lilly, can youi say which company is the best levered to take advantage or defend themselves against all you are talking about? tony: it is hard to say. they are all companies that have less medicaid exposure. it would be at the margin, but it is really hard to say which and what types of drugs they may be taking and how that would affect individual companies. it is a good question, but overall, it is difficult to parse that apart because we don't know what each individual -- where they fit into a particular category and what types of drugs they are taking. just think of it as an overall umbrella. if volumes come down, there would be modest hits to the majority of companies. no one more than the other. david: that is tony butler, guggenheim security equity analyst. even the president has said the -- that health care is complex. no one better to give their point of view than someone who has run a major pharmaceutical company and has overseen health care in the company. alex azar is former deputy secretary of health and human services under george w. bush and the former president of eli lilly. thank you for joining us. alex: great to be with you. david: let's put up the headlines from the cbo. as many as 14 million americans by next year might lose coverage . we would save $337 billion in deficit over a 10-year period of time and premiums could go up 50% to 20%. 20%.% to neither all right or all wrong. it depends on the assumptions you start with and how good you at predicting human hate -- human behavior and market forces. ofle cbo has a great deal integrity, they often get that wrong. their predictions three years ago were off by 50% on obama care for this year. drug predictions on part d program were off by 40%. the track record is not great. up important issues. the second factor is cbo tends to over index on the role of government. lost lives inn 2018 is simply from getting rid of the penalty on the mandate. 14 million people. that means 6 million of the 9 million individual market people will exit next year because of the relatively small mandate penalty going away and they claim 5 million people will leave free medicaid insurance because they won't have a freete on them to accept medicaid. i find that hard to believe. david: at the same time, the idea originally for obamacare is we would require people to go and get insurance who otherwise would not, so we had a full that included healthy and sick people . if you take away that requirement that you go into the pool, does it affect the insurance business? alex: that is a very important point and if you talked to insurance executives, there would be a big debate about whether this mandate is the reason you have about 9 million people into individual market or the extensive subsidies happening right now to provide very low cost to the beneficiary health insurance. the house package does have a mechanism, which is this continuous coverage requirement and that kicks in in 2018 and 2019 that if you do not have insurance, if you have a break of more than 63 days in insurance, you have a 30% higher premium penalty the following year. the cbo doesn't put much weight on that. they only say that will keep one million people to 2 million people in. one million to 2 million for that penalty, but they disappear for the lack of mandate penalty. these are estimates. it does not make a lot of sense to me. they are economic estimates. david: another important aspect of the republican plan is what it does to medicaid and cutting back of medicaid support. one of the questions raised by the report is particularly how it affects the elderly. megan mcardle writes this "the american association of required -- retired persons will not like it at all and things the aarp does not like tend to have a long time getting into law." differential impact on the elderly because of what will be done with medicaid? alex: it is not so much what is going on with medicaid that could impact your under 65 elderly. the current republican plan would change how the rate structure is. right now under obamacare, your 1ung, healthy person at a premium and the elderly can only be three times that amount in now it would go up to five times that premium. the bigger impact would be the subsidies. under obamacare, that 64- gets ad income basically top up on income with subsidies. -- impacte bigger him people are talking about and i think that will be the big issue forwardas this moves into the senate, whether that aged judgment -- age adjustment is enough alone. david: there is a section in bloomberg news drawing from the cbo report of someone who is 64 years old making $25,000 a year and the differential is enormous between what obamacare would do. a huge subsidy as opposed to the new proposal where they pay $15,000 of their $25,000 income. up thehat will tee critical issue about the size of the subsidy. the one thing i would fault cbo is it assumes a non-dynamic insurance market. my point here is if you are giving everybody aged 64 a $4000 subsidy, will the actual insurance benefit market change to meet that $4000? with aow, just like student loans, we give a massive subsidy and college tuition goes up and it keeps going up because the subsidy chases the cost. under obamacare, the same thing, the subsidy chases the cost with a flat -- with a flat, fixed subsidy does the insurance market contain cost and offer flexible benefit packages to go down from the $17,000 premium closer to something that makes up -- makes that $4000 affordable? anydoes not account for dynamics. david: i want to take up that put back on the hat for former president of eli lilly. see -- ireally did not do not think any of the big pharma companies saw benefit from obamacare in terms of coverage. -- lives whenes into medicaid. use all growth there, but a lot of those people that came into medicare were also -- were coming out of the cash pay market or commercial insurance and into medicaid where the gross to net is vastly gross -- mixed. anything youe could describe as a material benefit from obamacare in terms of flow-through into prescription dollars. if the bill stays as it is now, it will benefit from getting rid tax onfederal excise government sales of pharmaceutical products. that is in the packet right now and that is a material benefit to the pharmaceutical industry, which would provide more bottom-line money to go into rnd. david: i hope it is less snowy out there than in new york right now. that is alex a the former president of eli lilly. alix: rand paul just fitted -- "abandonaying obamacare lite now. it is bad law and cannot pass." david: he wants to deal away with it all together. alix: we also have breaking news the fed says they will absolutely be meeting today despite the snow. they are braving the five inches of snow. want to take a look at shares of about 12%.wn if we open at this level, it will be the lowest level in eight years. choice to sell's now is a poor signal the turnaround is coming -- is taking longer and the company could face more challenges, questions about the sustainability of the company. this is bloomberg. ♪ ♪ emma: coming up on wednesday, the fed decides during -- don't miss bloomberg special coverage at 1:00 p.m. eastern time. ♪ alix: oil taking a leg lower. tell opec they pumped 10 million barrels a day in february and a third of oil output cuts. kuwait sees the risk of oil dropping to $45 a barrel. joining us over the phone for more on that and the state of .he oil market is stephen short what do you make of that, they reversed a third of the cuts and daying $10 million of oil a -- 10 million barrels of oil a day. >> the headline a month ago when opec claimed they were close to 100% of compliance. simpson will find the real killer before i will ever believe opec is anywhere , -- 100%, 90%,t 80% of compliance. i think what we see here and could've seen since november is the fact that you might get these headlines out of opec, but there was going to be a supply response from north america and after north american production -- $8.5 billion -- 8.5 billion barrels a day -- 8.5 million barrels a day. what is happened now is opec had the initial response and got oil of over $50 a barrel and we stayed there between november and most of february between $50 and $55 a barrel. bat in the swing a united states without hitting a barrel of oil. barrel and low $50 a the signal has been sent that opec cannot talk the market higher. alix: if you have shale rising -- at the peak it was 90,000 barrels a day. and 2014sed the 2013 peak. the story was the saudi's would do anything they could to rebalance inventories. can we take this number at heart or will it be kind of average over that six-month cut? stephen: we will have to look at the average. i have been skeptical on their ability to talk and move the market higher. there has been this misnomer that opec is trying to destroy north american production. that is not the case. saudi arabia specifically cannot destroy the north american production because it is too strong. what we have seen over the past three years is opec has done the u.s. a tremendous favor. it forced the oil and gas industry to become more productive. u.s. oil producers are now putting moyle -- oil onto the market at greater margins and lower prices. saudi arabia learned the rest that there is no silver bullet or piece of garlic that will destroy this oil .racula that is u.s. production at this point, the general concern now is how low can we go? alix: that is the question and i love all of your analogies today. you have kuwait saying you cap -- you have the risk of $45 a barrel on the increase in shale. how fast do we get there? stephen: given the technical targets right now, if you are a fibonacci guy like myself, looking for oil could fall -- 20k for support between $47 -- $47.20. we could continue to go lower. i would see -- right now, if you are bullish oil, your only hope that this point is the season. we are at the worst possible season as far as demand is concerned because refineries are in their -- they are not drinking up a lot of oil right now. in the weeks and months ahead, oil demand in the united states and the northern hemisphere will increase as we get out of the seasonal maintenance and prepare to make a lot of gasoline for the upcoming summer driving season. right now, command is at its darkest. command -- demand will pick up over the next couple of months and continue to trade higher and peak in late july or early august. the bottom line here is if we are going to see an ent to the oil, fromowndraft in a technical standpoint i would see the support hold $47.20 to $45 40. i with the demand pickup in the weeks and months ahead. if we are going to see a halt in oil prices, it will happen $45.30 and hasd to happen over the next one to two months. if we get into may through july and have this tremendous overhang and opec is cheating -- alix: is there another explanation for pumping $10 million -- 10 million barrels of oil a day? if you look at dubai prices, the sweet, a light crude has become flush with oil. can you make the oil that part of the oil market is extraordinarily tight and that is why saudis has increased? stephen: absolutely, it is a fair assumption and this is exactly what saudi arabia is looking for. keep in mind, they are also price-sensitive at this point and it comes down to a matter of market share. saudi arabia is putting oil onto a market and we are taking these tobers at face value preserve market share. who are they trying to preserve market share for? the united states is exporting surplus oil, the expensive stuff that we don't necessarily need. saudi arabia is still competing iran,heir age-old rival, for market share in the pacific rim. this certainly is a tight market, but opec and saudi is trying to preserve their own market share. alix: thank you so much stephen short, -- stephen schork. you have saudis lowering the price they sell oil for in asia. you do that when there is not enough demand. david: the lesson to take away from that is the marginal cost of extracting a barrel of oil in the united states will determine the cost, ultimately. alix: now you have the middle east trying to play catch-up. fascinating conversation. saudi arabia pumping 10 million barrels of oil a day in february. andrew sheets, morgan stanley cross asset strategist. this is bloomberg. ♪ >> a possible successor to the governor resigned from the bank of england as theresa may kept the green light to exit the european union. officials begin their two-day meeting despite the snow. hikes over the next three years up for grabs. 14 million without insurance, a 20% rise in premiums. the republican health care plan, republican governors fight back. the u.k.day in parliament as it gave theresa may the authority she sought to begin the brexit process. ,e are joined by anna edwards with someone with a great deal at stake. >> thanks. i'm joined by the mayor of london outside westminster. great to have you on the program. reaction to the vote we saw yesterday? you must be disappointed? disappointed. am i except the vote of the british eu.ic to leave the wet of this is recognizing have got a million londoners from the eu, 3 million brits, and ieed some reassurance was hoping the government would give them the guarantee. i'm looking forward to them having this sooner rather than later. so what are your concerns about eu sentiments? what are you calling on the government to specifically do? make it happen soon? what is the requirement? mayor khan: the european union, which gives us two years. two things. you should now be given a car lenders.antee to those they have got children who are brits. our economy and our prosperity. they is a possibility won't do it in two years. if they do not do a deal with the eu in two years, fall off the cliff edge. early doors, you should agree with the eu, and interim deal that gives the clarity they need . anna: what kind of listening is going on? what kind of audience do they get? do you feel the views are crucial? the brexit secretary, they meet on a , trying to impress upon the government that he's of london, taking with me business leaders and experts to explain what they need. first is making sure the government understands what the needs are. if london suffers, the country suffers. second stage when it comes to the government talking to the eu announcement for the referendum, number two. london did not vote for this by a similar margin, to scotland. almost 60% remains. mayor khan: i am proud london was the one to vote to remain decisively. i believe in the nationstate. london needs the united kingdom. it is important i impress upon the government what london's needs are. think the reality is we not and served the notice yet so we cannot know what it will be. does what she is doing more decision-making to actually take place in london to get around the deficit? the brexit vote necessitates the government giving more powers to cities, regions, and nations. the powers is as come back from brussels, they should be given not civil regions andto nations at the same time. it makes a necessity rather than a luxury. more powers over infrastructure spend richard -- expenditure. missions are coming to london every week. what do you tell those businesses? underlying a year ago, six years ago, it is still there. are theem we capital of the country. the political capital the country. if you are a business in london, -- if you're thinking of investing in london, we are open for business. any of thenk contingency plan arguments have swayed you not to pull the record? said on juneeople it has -- it has not happened. it is a fact that some banks are planning for some parts of their divisions leaving london, ubs, have talked about this. we have got to make sure the government recognizes what the banks need is clarity and certainty. a need for an interim deal to make sure. a better deal with financial services with the united states, and not compensate for any potential loss. mayor khan: i want to not replace it. we will haveing is a good relationship with the eu, but we will also recognize a special relationship, canada, india, china, australia, all parts of the world, new zealand as well. we have got to use brexit as an opportunity to keep what we have got, more links and better trade. anna: what kind of feedback are ,ou having on the potential talking about having talent, you have mentioned the possibility, how realistic is that? mayor khan: we are the one region elected to remain in england. we understand the important -- the importance of immigration and we need it. some sectors, 35%, if it -- if it is the case you want the government -- want the country to prosper in the future community this as well. i recognize and respect other parts of the country may want immigration and that means we recognize the immigration system. i want to work with the government for how we can attract talent to london and recognize parts that want. thank you very much, joining us here in london. : thank you for bringing us that important interview. coming up, and asset strategist will be joining us from the fed to europe to break it, we will cover it all. valeant getting pummeled in the premarket and analysts are coming out and getting skittish about the company and bill ackman is bailing out. what does that mean for the future of the company? waiting for the fed her the 10 enough for 2.61%, some buyers on the market and oil really rolling over after saudi arabia, more than 10 million barrels a day in february. are waiting for prime minister theresa may to trigger brexit. the ftse was a earlier today. the pound getting hammered at an eight week low. the gilt market goes nowhere. this is bloomberg. ♪ alix: it was the fed meeting we know the answer to. the market expects they will hike at what does it mean for 2018 and 2019. joining us now is bloomberg's fed reporter. making it inou for today. we appreciate it. what will we see over the next 48 hours for the fed? >> obviously, a march rate hike when no one was expecting it. was it because they want to hike more than we thought, or is this about pulling the time forward and buying some option audi so you can wait and see what happens later in the year? that is the big question. they always say it is the path that matters. yields moving lower have now started to move higher. like inflation is not cemented in stone. >> i like to look at the five year real yields. bouncing around for the last four years now. we tried to break the level multiple times over that time and every time we have gone above zero, we have come back down. zeroe poking up above today and it will be interesting to see if the economy can handle the real yields because so far we have not seen that positive rate. part of the reason it felt like the markets were ok with fed hike is because we have seen financial positions become looser. the fedt really put off for the rest of the year in 2018? >> i think we will see. it is an interesting time. it has been a situation where the markets have under price to what the fed is telling the market lace. it is quite unique. the change today is as the market typically does, starts to overprice what the fed is telling me, the doctors are telling you over the next three years, the market is really fading that. only one hike the following year. the markets and financial conditions stabilize around the , if thatushing back changes or the market prices and even more, that is a real change in the financial condition and is not great for risk assets. market might be getting ahead of itself a little bit here to what is the downside here? >> yes. i think downside risk is really trying to manage against what seems to be a slightly stronger economic backdrop versus an expensive valuation. this week alone, a central bank bonanza. have noise around d.c. with health care, and then brexit coming to the fourth. somewhat successful here and i think the fed is up front and center. >> how do you position yourself in that world? >> much more cautiously. backve dialed this meaningfully over the last month or so. we are taking some ships off the table. the high-yield market is an area we have been max lashawn and looking at valuations, we have pulled back and become much more defensive. is a prevailing view that rates need to move much higher. we are against that view. in the past few days or so, the rates have moved higher. markets are missing the lack of inflation. is more proactive, all being equal, that will push rates lower and not higher. >> what happens to terminal rates? ofit has gone up because more optimism about how far we can get, but we are kind of returning to that dynamic in a this year cycle -- for example, tightening in the back here starts to go down a little bit. we are seeing that whereas before, the fed was trying to run things hot at the beginning and then hopefully that would boost that terminal rate later. they are now doing the opposite. we probably need another type of shift like we had in the election. alix: great stuff. thank you. up, all-star lineup for daybreak morning. plusday, jason foreman, friday, former cbo director. don't miss that. crude dropping below the 200 day moving average. you are looking at a live shot .s the snow continues to fall metro-north not happening. this is bloomberg. ♪ alix: the story is about brent crude following its 200 day average. over 1%. saudi arabia saying they pumped 10 billion barrels of oil per day in february reversing the cuts in january. losing not seen this streak for brent since january of 2016. we are tracking it throughout the next hour. >> yesterday we got a much-anticipated scoring of the republican health care proposal and it raised a lot of controversy right away. with us for more, we are joined from our washington bureau health care regulation reporter. number of4 million americans who may lose coverage a surprise? >> it was not exactly. this is something the gop leadership has prepared the party for for the number to be bad. this was probably worse than expected and it is giving some , particularly from republican states, a little bit of pause because it is such a big number that it will not look great for the 2018 midterm elections. david: will it slow things down in the house? >> it is possible. i have not heard house members say yet that we need to slow it down. senators who from had just seen it yesterday afternoon. the house will take up and the budget committee the proposal on thursday. it was going to be on wednesday but that is only because of the weather and not because of anything yet slowing down. paul ryan has talked about getting that through the house before easter when they go on recess. want his party to have to talk about it again. david: thank you for joining us today. michael fromg to morgan stanley. ands talk about the score what it does as a practical matter. it may or may not slow down the house. what about the senate? >> the senate has been pretty that there are a lot of reasons they don't like the bill and the reasons are product -- are primarily from a conservative angle, that it does not include core form -- core things they would like to see. tom cotton in particular talked that if you're not getting some of the core reforms, that you are also amount, i amair agree theng, i prospects don't look any better than they did 24 hours ago. question is the timing. the president himself has told us we cannot get tax reform unless we go through obamacare. what does this do when you put together health care reform with tax reform? because themportant divisions within the republican , thatunderscored by this is critically important for investors because tax reform in the conversations we are having, investors consider to be the vehicle for fiscal stimulus, improvement in corporate profitability, and because it has underscored how difficult policy making is, it supports our thesis that tax reform and into the timeline laid out by republicans, getting it done by august, is far too aggressive. we think the fourth quarter is far more reasonable. 2018, a midterm election of course. it comes with his things enormously. we have not had the white house come out aesthetically on one side or the other. can we get the test form without going through? >> you can. it is tricky. we laid out what we think are eight viable paths to get it done. it seems like a lot. >> it sounds good. >> it seems good but the problem is whether or not some of those meet market expectations. some of them don't. get thets are where you required tax cuts and either no border tax or a what are down one. underlying it is divisions in pope -- in the republican party come it probably increases the possibility that they want to assert themselves and therefore include something like a border tax. you do have the head of the omb who himself has been the head of the freedom caucus. does that mean we cannot have tax reform without it being revenue neutral? to be thatnot have way. it depends on what the president's leadership will be. one thing we have underscored is whether or not, how the president weighs in on border tax. it will tell you a lot about whether or not he will put his weight behind something that will increase the deficit or not. there are gimmicks and tactics within a budget reconciliation tax reform but it relies him a president selling the message of growth over deficit and that is a problem we need to prioritize. david: we have not seen which way he will go yet. critical question. alix: a quick programming note. tomorrow, the special coverage of the fed rate decision 1:00 p.m. eastern time p rall star lineup of guests you do not want to miss. futures rolling over a little, s&p futures 10 times. this is bloomberg. ♪ alix: this is bloomberg daybreak. an hour before the open here in the u.s., futures taking a leg lower. than 1%, 200ower day moving average, saudi arabia pumping over 10 billion barrels of oil a get -- a day, reversing cuts. and index around the highs of the session and a lot of lying now coming into the 10 year market. down by about two basis points. we have breaking data not here yet. there we go. a final demand for pb i year on year coming in at 2.2%. the estimate, 1.9%, that is stronger. .3%. up the interesting thing is how much of that will be oil. if we do have oil rolling over and we do see -- what does it wind up meaning to headline ppi inflation well as expectations. you are seeing that come in 2.2%. it seems like anyway way you slice it, it is a higher production rate. >> to your point, year-over-year, 2.2% total, it is 1.8% with energy and trade. alix: a great point and we want to highlight what happens in the market here. s&p stocks right around the lows of the session. the fiveng a look at year yield off the lows of the session but nonetheless, you are seeing buying coming into the market. the primeiting minister address in the house of commons for a briefing on the eu summit that came last week. about any read through we can here on when she will trigger brexit? will it be in a week and a half? what is the language we will look for. nonetheless, the brexit triggering, you can see it now in the pound. low ofg at an eight week how much of that is baked in? joining us now is senior sovereign analyst, laura. what prevents us from getting to that level? sterling. with the expectation on the cusp of triggering article 50, the pound seems to be under pressure and is set to remain pressure. we are cheap on sterling against the dollar and the euro. run butalue in the long it will be a bumpy road ahead for you cast that spirit >> where is the volatility? we are not near the levels we saw with the independent referendum and nowhere near -- nowhere near the volatility. where is the market complacent? >> i think volatility overall has been very low on account of the central bank accommodation that has swamped markets and pushed volatility quite low. volatility asgher we have the uncertainty about what brexit will meet for the economy in the long run. david: it is not as if we don't know that it will happen. why hasn't the market priced in the risk already for brexit? risk ande priced the we will begin the process, but there is quite a lot of uncertainty about how the process will unfold and whether -- u.k. will unsure financial services, after brexit is concluded. contains a two-year timeframe, but nothing is written in stone that the two-year timeframe can't the extended. there is still a great deal of uncertainty about hearing this language about a hard exit, but after two years, all the eu laws will cease to apply and the u.k. will reverse to wto rules in but there istrade, also domestic politics in the u.k. to consider. there is a considerable amount of uncertainty still about whether it over the long time, whether we do go all the way through brexit, whether the process becomes mired and bogged down and we remain in a limbo relationship with the u.k. and the eu continues beyond the two-year time horizon. alix: when do we see parity here? >> i think our expectation is that sterling is undervalued relative to the dollar and over time, as investors get more comfortable that the brexit process will be a long and drawnout process, we have seen better resiliency in the u.k. then i think many economists had expected. i think there is a bit of numbness that will evolve. we are sensitive to the headlines at the moment. for months and months, i think markets will become numb to the process and say wake me up when there is a major headline that i need to pay attention to with meaningful impact on the u.k. economy. i think sterling will reverse closer to the value as the process continues and until we see a major development either for the better or the worst for the u.k. for the long run. we are waiting for theresa may to adjust parliament , you just mentioned the dollar. >> we see the u.s. economy well supported here and the interest rate support comes through underneath and we are preparing for the federal reserve meeting over the next few days. we think the factors continue to underpin the dollar in 2017. we see upside risk from pretense -- potential proposals. alix: hang on one second. we have promised her theresa may beginning to address the house of commons. let's listen in. andesa may: i welcome this recognize the strong contribution he has made in office. we discuss the challenge of migration, crime, and the motives needed to boost this. theeen the eu and self-governing. we were able to show once again how written will continue to play a leading role long after they left the union. i welcome implementing the action plan, which we agreed on the formal summit last month. greece working to implement, whether u.k.'s providing additional staff to support iraqi and afghan international. to stop thedo more smuggling ring who profit from the misery and subject to many to unimaginable pieces. with coordinated and committed action, we can make a difference. between the national crime agency and coast guard led to the arrest of 19 members. as i have argued before, we need to manage, control, a truly and help ensure refugees claim asylum in the first safe country they reach and help the country's support refugees so they don't have to .ake the journey to europe we need one which recognizes all countries have a right to control their borders. this will be an important part of discussion at the somalia conference hosting in london in may. turning to the deteriorating situation, i made clear my concerns about the risk this presents to the region and the wider collective security. organized criminals and terrorists are ready to exploit this and we see increasingly brazen interference by russia and others. i called on the council to do more to do -- council destabilizing and to raise the visibility of the western commitment to the region. the u.k. will lead the way. visiting russia in the coming weeks, where i expect him to set out concerns about support of russian interference. we will provide strategic ,xpertise to the eu institution information campaign in the region, and we host the 2018 ourit and in the run-up, security cooperation with our on organizedluding crime, anticorruption, and cybersecurity. i also reemphasized the importance of nato in our collective effect -- defense and withed others to start more so every country plays its full part in sharing the burden. properlyy by investing to ensure we are properly equipped to keep people safe. turning to growth and competitiveness, i wanted us to build a new relationship that would give the company maximum freedom to operate within the market and allow your businesses here. at this council, i called for further steps to complete the single market. oflso welcome the completion the free trade agreement between the eu and canada and press for an agreement with japan in the coming months. just wait a bit. these agreements will lay the foundation for our continued trade agreement. at the same time, we will also seize the opportunity to forge our new trade deals and reach out beyond europe and build relationships with old friends and allies alike. we announced a two day to visit the u.k. and build on the five pounds of trade we already do every year. we also will strengthen the proud global relationship we fiber with a diverse and reliance on commonwealth which we celebrate yesterday. last night, the bill on article 50 successfully completed its passage. it will now proceed in the coming days so we remain on track with a timetable i set out six months ago and i will return to the house before the end of the month to notify when i have ,ormally triggered article 50 lucy knight he can will leave the european union. this will be a defining moment for the whole country as we forge a new relationship with europe and the new role with the world. withong, self-governing control once again over our borders, and we will use the moment of opportunity to build a stronger economy and fairer to secure a better deal for ordinary working people at home. the new relationship with the eu that we negotiate would work for the whole of the united kingdom. withve to working closely the administration -- including the scottish government, listening to proposals and recognizing many areas of common ground such as protecting workers right and security for crime and terrorism. it is not a moment to say politics or create uncertainty -- it is a moment to bring our country together. to honor the will of the british people and have a better and brighter future. i commend this statement. >> we are witnessing the unique institution which is the british parliament as theresa may faces her opponents across the way. they are heckling her, i think it is fair to say. important thing is what is going to happen with article 50. articleed her to invoke 50. then she will formally notify come back toe will parliament to tell them when she has to matt that and it will be before the end of the month. that is clear. she talked about other territories, and particularly scotland. we heard yesterday scotland wants its own them to separate themselves from the united kingdom. her opponents really had a good guffaw about that. alix: can you imagine congress doing that? really. you can watch this for yourself. alix: we are not seeing a lot of movement in the pound. what is the timeline for what it does to the currency? >> in the short run, the pound will remain under downward pressure. it has gotten a lot smaller as data improved. as we head toward the trigger, it will rebuild. if i can.ts on brexit it is import into keep in mind the u.k. wants to negotiate with europe, at the same time they are negotiating the exit from europe. adamant they will only first and any negotiations will have to come second. this will be something we have to keep an eye on over the next few months as we go forward with article 50. it is interesting to keep in of brits the majority think the eu needs them more than they need at an german and french citizens think britain needs the eu more than it needs them. standoff that we will deal with over the next few months that will keep assets in the u.k. under -- , weso think with sterling will see global investors taking advantage of that and buying u.k. assets, whether that be in the real estate market report accepts. >> thank you for your perspective. an agreement to the transition to the agreement at the end of the day. i do like the energy and the heckling. coming up, morgan stanley assets registered will be joining us, his take on brexit and u.s. markets. this is bloomberg. ♪ >> this is bloomberg daybreak. coming up in the next hour, morgan dan wii's chief cross asset strategist. chief crossanley's asset strategist. ackman's's about-face. repeatedly double down even as we all watched the stock plunge. we sought at a loss and he is leaving the board. joining us for more is rock. the question i guess i want to ask you is how much of this story is about bill ackman the person and how much is about hedge funds more broadly? >> it is both. been akman has polarizing figure even among measures with a very polarizing category of investors. he makes big bets and his outspoken. there has been a number of situations where he is been criticized for may be letting his ego get in the way and not wanting to give up on thing that arguably should have been given up on a lot longer ago. may be another one of those situations. david: it is a lot of money. the reports were $2.4 billion. some same more. how does that affect this? >> it obviously will not in good. he has not been having a great run lately. it's huge bet on herbalife is still dragging on and has not quite played out the way he was hoping. the numbers have not gone anywhere. chipotle, shares are where they are when he got involved. sincee not seen a run-up fully started to make changes. not a lot ofad luck lately. the valeant loss will really staying in light of other investors who have not performed as he was hoping. david: does it tell us something more broadly? how much are they really tied into a single individual? i'm never quite sure where the hedging is. >> i think activist investors are much more tied to an individual. ackman is being the best example. becomes situations, it very much about the person. they attract a lot more attention for investment they make, which can be a good thing and a bad thing. you might have people jumping on the opposite end, to take the opposite that he is taking. it does become a personality game at some point especially when you have the situation so toopoken, arguably in it long and you have made it so big that it does start to reflect on you personally. it is a tough business and he is not having a good day, i think it is fair to say. telling opec there pumping oil. joining us now is the senior vp equity research at raymond james. your reaction to that report this morning? seen increasing chatter over the last couple of weeks from the saudi's and others saying they are not burden forcarry the the rest of the group. cut its production more than they were supposed to based on the deal from late last year. not cutf other guys did as much as they were supposed to and russia in particular has cut almost nothing. understandably, it does not want to shoulder the burden by itself. there has been increasing chatter that they would take ninth -- less the canine stance on this. they ended up bringing supply ink of the little bit february. even after the increase, it is worth noting that saudi has still cut more than they were supposed to under the plan. it is behaving with discipline but the others are not. is it a it a threat, commentary on the medium crude market, which has become quite orht in the last few months, is this commentary and more about the battle with the u.s.? where would you lump it in? >> i suppose we have no way to know exactly why they are doing it, but they are doing it, whatever the reason. i think all of the theories you outlined may well be components .f what is motivating them there is no question that saudi has been disappointed by the rest of opec not pulling their weight. it is not a new story. we have seen for decades they do not want to shoulder the burden by itself. we have also seen u.s. but to be clear, it is still very modest. now below $50 per barrel, u.s. supply will not grow much in 2017. hardly at all. maybe 300,000 barrels per day. much more meaningful is the fact the rest of opec has not been pulling their weight. what is the downside target? >> our sense is oil has overcorrected, and it will move higher later in the year, of the view that oil should touch 70 at some point in 2017. it is true the inventory data in the first 700 has not been as alleged as what we anticipated. so it may take longer but the longer it stays below 50, the higher it will go. >> thank you for your insight. asset up next, the strategist. don't miss it, this is bloomberg. ♪ ♪ alix: third officials begin their two day meeting. it is the pace of hikes over the next three years up for grabs. 14 million without insurance, 20% rise in premiums, the cbo scores the health care plan. crude reality, oil down for seven days, breaking below key technical levels, saudi arabia tells opec it rained and output. .avid: a warm welcome i'm david westin alongside alix steel. jonathan ferro off today. that is from the rooftop from here in new york. on the right, snow in washington. the fed going ahead today. alix: looks like a possible white out, brutal, 17 inches. the fed will meet. teleconferencing potentially. , 24's where we stack up hours from the fed decision, s&p futures down seven points. crude off, brent below 200 day moving average, causing a ripple effect in the bond market. yields coming down by two basis points. the dollar still holding up, not a lot of movement there. the u.k. waiting for theresa may to trigger article 50. , the pound near an eight-week low against the dollar, down .6%. higher, but could not sustain. julie hyman, valeant. the snow for new york is moving down, so that might the good news. valeant pharmaceuticals also down by 11%. bill ackman throws in the towel. he's recorded at least a $3.2 billion loss, the stock hitting the lowest since 2009, down 96% from its peak in 2015. there are some prominent hedge stock, johns in the paulson, still the largest holder of valeant, 19 million shares. has 15ond-largest holder million shares. we will continue to break this down and talk about this story. let's talk about a bidding war international, the payment transfer company, up 25% 15.20 ats a bid for share. it is trading about that offer price, indicating there could be a counter offer. from was an accepted offer ant financial, but this is 15% higher, so we will see if ant comes back with a higher bid. finally, walmart, bank of america making positive comments about the stock, being added to their focus list. the analyst they're saying court u.s. strategy is working at comparable traffic growth of 1.4% is a standout. analysts cited growth in e-commerce for walmart. alix: it's going down, the snow forecast? julie: it's supposed to change to rain. david: i producer said that is fake news. alix: the fed will be debating what to do about monetary policy. march is a done deal, but what about the rest of the year? the white line is the spread between april-august fed funds futures. roughly 75% chance of hike in the summer. the blue line is the spread between august-january at 26 basis points, over 100% of the hike. march, one in summer, one in winter. our guest joining us now. the market seems to be pricing in three rate hikes pick what you see? the market is on point. german yellen was explicit to say she believes in three hikes. three hikes is probably the minimum. hikes, we might see some additional tightening later this year from the fed announcing the start of balance seet reduction, so we do a reset of the baseline towards a hawkish fed, three being a low bar for the fed to clear. one-to two from potentially 3-4, but the market still seems relatively calm. what market has yet to price in a steeper path? a couple ofhere are things we are looking at. where our forecast disagrees with the market, it is next year. our expectation is the fed hikes four times in 2018. we are in line with the market expecting three hikes this year. it means we think there could be further weakness in the belly, specifically the five year treasury note, which might be more vulnerable to that 2018 pricing. it means we are watching real yields closely. there are as on what level of interest rates affect the stock market. of 80 basis level points in real 10 year yields, the level at the beginning of 2015 that caused a few issues. that is another level we are looking at. we are 20 basis points away from that. david: if you focus on the out projections, what does that say about the dot plot? >> i think it is about the market believing in it. the fed is higher than the market. the market has been right for a number of years to be skeptical of that. , the nexte moving step is to price something closer to those dots. one of your earlier guests was talking about a very good point, traditionally the market prices in a risk premium over what the fed is expecting. recently it has been pricing under that, but there is room to move up. david: do the market conditions support this in the sense we have growth in >> the united states and globally? >>that is an interesting point. there is a lot of focus on the feds hawkish rhetoric, but it is in the context of better data. that is the case in the u.s., but also globally. was out of china overnight pretty strong. data in europe was surprising to the upside them as so if we take it holistically come it is not clear that overall monetary policy is really getting a lot tighter adjusted for the better growth data. it also means that when we look at global markets, we think the best opportunity is playing reflation and generating returns outside the u.s., where that policy mix is easier and the acre arguably has been better. alix: we will get to that trade soon. hang tight on that. if we were to have fed chair janet yellen prep the market for a steeper hike, maybe four, balance sheet conversation among how does she do that? i would think that if she wants to start the discussion, she would be cautious. i expected to take place in the press conference. there are ways to get it into the statement, but it would be seen as aggressive and therefore against natural tendencies. i think she will have ample scope in the press conference to respond to questions about the pace of rate hikes and the process for balance sheet reduction. if she wants to give guidance if she's opening up to a tighter path, there will be ample scope to do so. you are janet yellen, how concerned would you be about inflation now? >> i would be cautiously relaxed about these prospects. we have some structural features that for now keep us on a relatively calm and low inflation path, but at the same time, you want to be for looking as a central bank. we are close to historical lows for unemployment, so she is stressing it is an appropriate time to normalize, but the fed is not behind the curve. alix: what is the terminal rate? >> the way the fed in turkey it sit, i would think it is probably around 2.5% come at lower than where the fed stands there is uncertainty around long-term trajectories and we are less convinced rates are terminal rates as low as we thought 6-12 months ago. alix: how do you invest around that? versus the short long-term investment strategy with that? >> there are three things we are trying to keep in mind. if you think about why the market has been supportive, easy year-over-year comparisons for earnings and inflation, which makes it seems like things are getting better. easier financial conditions. third, it has been about policy, and policy optimism has been focused on the u.s., so if we think about the rest of the year, all three factors look better in europe and japan. those are markets that are going to have an easier time during earnings this year, given comparisons and where are analysts are projecting earnings. bese are the markets would easiest financial conditions because there is less pressure. that is where there is the potential for policy to surprise on the upside. i think this is a challenge we see in the u.s. market. aroundsin expectations policy are high, the bar to deliver are higher. whereas i sensed concern around the european election cycle, and japan has dropped off the radar for a number of people. alix: we will get more on that in the next segment. both of you are sticking with us. tomorrow, morgan stanley joins us come and thursday jason with us.hey will be friday, former cbo director joining us as well. futures into the open off by six points on the s&p. this is bloomberg. ♪ ♪ this is bloomberg. i'm david westin p or yesterday, we saw the anticipated scoring of the health care proposal from the cbo. it raised concern over whether we can believe it or not. earlier, we spoke with the former president of eli lilly. >> their predictions three years ago were off by 50% on obamacare enrollment this year. their predictions on part d drug program which i helped to launch were off by 40%. the track record is not great. david: with us now is kevin cirilli. is this shooting the messenger? folks within the republican party are criticizing the cbo. it is our governments nonpartisan referee in terms of crunching numbers, but the senate, this is where things get interesting. senatorslook at the and the republican party who have criticized this plan regardless of what the cbo says, this faces a dramatic uphill battle. they will have a 52-48 majority in the upper chamber, republican majority. at senator rand paul, tom cotton, mike lee, lindsey graham, ted cruz -- the senators are chipping away, so in less there are dramatic changes to the bill, it will not pass. david: this will affect a lot of people. there are people waiting for tax relief. we have told may be by august by steven mnuchin. what does this do for the timeline on tax reform? proceduraluse hurdles and the congress, lawmakers cannot address tax reform unless they address health care reform first, and so as a result come all of this finessing going on about health care does directly impact the congress's ability to get to tax reform. when you take a look specifically at the proposal, what's going on, and you look at republicans attacking it in the senate, they are doing it for different reasons. some say it's not modern enough -- moderate enough, not conservative enough. david: thank you for that. alix: how do you model growth in the u.s. when you have a timeline of uncertainty that kevin outlined for us? are counting for tax reform to affect growth very late this year, so we still have an expectation that this process with meaningful tax reform after overcoming health care reform. inre is a likelihood that the fourth quarter and 2018 that we will see a boost for both household and investment spending as a result of tax reform, which i would expect include stimulus as well. alix: can we get to that 4% growth that president trump wants? unrealistics me as where potential growth in the u.s. is below 2%. the high point in our forecast is just below 3%, and even that is only for a short period. david: that's pretty good. alix: andrew, you major case that japan is an appealing area. does it mean there is downside in the u.s. or not as interesting as reflation elsewhere? i think it is the u.s. will have to deal with bigger that higher bar of expectations, so my colleague was on this program in the previous hour talking about how we shifted back our expectation of wind tax reform gets done. we shifted it back to the fourth quarter this year. the risk that it could be even later than that were less than expected rather than earlier and more. andink that is a challenge, that is before the market has the debate over can you really get big fiscal easing when unemployment is this low and potentially there is limited slack in the economy? other regions, specifically for us, japan and europe have lower bar for policy. andrew, your colleague said hello to you. i want to pass that along. when you want to invest in japan and europe, where? traded equities, alternatives, the debt market, where is the most sensible way to play the reflation trade? in europe, we have a strong value bias in the financials, energy sector, both have still lag and lag severely over the last 10 years, so they bounceback recently. that's where we see the real earnings upside in europe, where investors aren't position, and giving the data has been surprising to the upside, i think people might be over looking that. on japan, it is an interesting equities story. it has fallen off the radar. this was a mark get that was a darling of -- market that was a darling of investors this time last year. there are not major election risks, and one of the highest equity risk premium markets in everything we cover. alix: that is the stock and investment outlook. you see the same in your growth outlook? >> broadly speaking, yes. in both japan and the eurozone, we are seeing growth of on the upside, and both are areas where people have had low expectations, so the environment in the eurozone and japan is supportive. in europe, we have risk events coming up, so we have to cross our fingers that they don't deliver any major surprise. if it doesn't, we are set for a relatively benign outlook in both regions. alix: thank you very much. good to see you. a quick programming note. on wednesday, bloomberg's special coverage of the fed rate decision, 1:00 p.m. eastern time. to break, amtrak has suspended service between new york city and boston. the storm continues. airlines now canceling over 5000 7000 over the last two days. we could see as much is 17 inches of snow. state of emergency, schools closed -- look at that storm. david: we are not going anywhere. alix: this is bloomberg. ♪ ♪ david: this is bloomberg. i'm david westin. and billhares are down ackman cuts his losses and sells his stake. making theng out, company situation more difficult than before. thank you for being with us on the phone. is thing everybody is asking this unique to bill ackman? he did go out on the limb for this country. is this a broader issue about how hedge funds are investing? >> it speaks to the broader issues we are seeing at valeant, but bill ackman and pershing square have been a champion for the company. the joining of several of pershing square members to valeant's board was seen as a turnaround,possible and that was a positive during the troubles the company had been facing a year ago, but exit doestheir question the future growth and the ability to turn the story around. that: we want to recognize a lot of people are rooting against him. deeplysame time, he was involved in this country when it ran into troubles. in the fundamental problem their structure, buying cheap drugs and jacking up prices? or was it a more fundamental issue within the company? >> the pricing is an issue that was not sustainable. was simply noty sustainable. the company built itself up to a series of acquisitions in a short time, which ended up with $30 billion in debt. pharmacy specialty valeant had been using to prop up prices, after that debacle settled out and bill ackman said the story can turn around, lawsuits have happened, this is not the end for the company, he claimed a 448 dollar price target for the company, and now we are $11 per share at best, so that indicates his confidence previous to the news we received yesterday. david: it didn't help the stock one bit. the shares are down to what is the future of this company? there had been good news coming out of it? can it survive or is it an acquisition candidate? andt is one step forward two steps back for this company, a drug approval, then a delay with another approval. last week, we saw the company did successfully sell some assets, which had been part of the plan, to pay down $1.1 billion in debt, but at the same time announced a restructuring to financing which gave some pause in terms of the actual growth opportunity after the company said they could meet that pay down, so there is a question of growth and looking at key franchises and negative pride pressure. david: thank you very much. alix: we are four minutes away from the opening bell in the u.s.. ,&p futures off seven points lows of the session, oil rolls over. this is bloomberg. ♪ ♪ alix: this is "bloomberg daybreak." i am alix steel. here is where we trade. dow jones futures off by 52 points, s&p off by seven. it has been 104 trading days without a 1% move down on the s&p. the nasdaq down 13 points. crude continuing to roll over, off by 2%, some buying in the bond market. yields down to basis points to my buying on the margin. the dollar has been steady through the trading session, off by .3%. see gamee a wait and as we wait for the fed decision tomorrow. march is in the cards, but what about the rest of the year? i'm assuming a light volume day with all the snow. myie: i want to defend weather forecast downgrade. new york city is no longer under blizzard watch. google it. major averages, a pullback this morning. .4% and .3% for major averages. futures versus oil prices, the oil downturn was a big part of the drop in futures. take a look here, and intraday futures,l and orange, and you saw oil take a down leg. that after saudi arabia said it eased production cuts. it looks like the s&p 500 followed with it. thatll continue to track throughout the day. , bill big movers, valeant ackman exiting his stake in the company, throwing in the towel on a long time losing that. initially, he got involved with valeant because he was trying to orchestrate an acquisition by allergan. that did not materialize. some big oil companies reacting , exxon,drop in oil conoco, chevron feeling the heat. that has to be one of the big drags on stocks today. alix: absolutely. thank you, julie hyman. our next guest joins us now. to drugthe potential the markets lower? for $45 is potential and dragging the market lower. will is 18% of the high-yield market. and you haveslides oil companies squeeze like late 2015 early 2016, it could be a drag for the market. oil will continue to head lower. there is way too much optimism, way too many speculative longs, too many people talking about how they can make money at $40. guess what, that's where we are going to go. alix: what is the trickle down? the bloomberg high yield energy index, the spread is only 509 basis points. i year ago it was 1400 basis points. what is the downside? where is the shakeout? >> you can see oil going to the low 40's. ultimately it will be a conviction level am a windows everybody give up on their bullishness. to get $26 last february that level. i don't think we need to go down that low. it will take a big toll on the high-yield market. energy is the largest sector of the high-yield market. it will struggle as prices continue lower, so i expect lower prices, wider high-yield spreads, and the stock market not take it well because it is an important part of the u.s. economy. is,d: where do you think it fully valued, overvalued, overbought? overvalued to fully valued. it is definitely not a cheap market. the key to the market will be the recent interest rates are going up. if interest rates go up because the economy is getting better, than the stock market will hang in there. if they are going up because inflation might be coming back, something we have not seen in the long time, then rising rates could be a problem for the stock market, that it has little room for error. they cannot go up either way because it is fully valued to slightly overvalued. david: is it growth for inflation? what will determine which one it is? i don't know if it will be fiscal stimulus as much as the actual data. if you look at the actual data, three categories, the hard versus soft argument, hard data being actual economic growth, last --last locker -- lackluster. a third category, inflation data booming worldwide. we have been looking past it because it has been such a long time since we have seen inflation that we have convinced herself that it is never going to come back, but if that inflation data continues to pick up especially in other countries, you can definitely see it start to become problematic for the bond market and trickle down to the stock market. seeing the biggest jump in volatility today in one month, although still below 12. what is factored into the market? take a look at this chart. nasdaq 100 volatility versus volatility of the s&p, near nine-month lows. inwe don't see volatility tech because they are immune from a rate hike, is that the sector you want to be buying versus banks and utilities? >> has far as volatility goes, there is investors skewed volatility that tends to below when the market is high, and tends to be up when the market is low because the natural state is to be long, so there is always that correlation. volatility is starting to pick up once you look at it relative as opposed to absolute. , but still 12 on the vix still a high number. volatility come i suspect you will see more of it, and i suspect you will see it in the high profile places, financials, dodd-frank, health because itl and tech is economically sensitive than people give it credit for. fair,but, but, but to be nine-month low versus those options for the s&p, so is that mispriced or an opportunity? a missink there might be price. i think tech is booming because of some the high profile, snapchat ipo and stuff like that, that has people excited, but i think the volatility will pick up the which is a way of saying tech stocks might struggle a little bit as we move forward. it is kind of like they did after the election, another bout of volatility in tech stocks. david: you mentioned the bond market and thought we would have trouble if inflation picks come of that you have said you think people are too bearish on bonds. are you bullish on bonds? thread theng to needle and hopefully i don't confuse people. 2018, interest rates will be geter, so let me -- when we into next year, they will be higher, but just like we talked about with the energy market, there are way too many speculative shorts in the bond market right now. that is one of the reasons we .re at 2.60 yield we were 2.60 in december. we have not seen much movement higher in yields, so the between now in summer, we will trade down to 2.25 because we have the 10 year yield and so many speculative shorts, then we climb the wall of worry as rates go higher and everybody doubts whether they will go higher because they went lower in the summer, then we get the higher yields from their come up but if rates go straight to 3%, everybody makes money in the bond market because everybody is positioned for it. david: in the short-term come a buyer, in the short-term, you are a seller? be threeort-term would months, and the long would be a year or so out, but if you want to forget the short-term, let's just sell because yields will go higher, it will be painful before we see yields go higher because of that dip in yields lower. your 48 hour view. how are you position into the fed? >> hopefully there will be a fed hike him a but beyond that if you look at the last fed hike, ed and you -- peak get volatility around the fed announcement. it comes down to the press conference and the dot plot, not the headline that the fed raises 25. alix: seems like some caution. good stuff. we are nine minutes into the trading day. this is where we trade. the dow off by 23 points, s&p off by six, nasdaq off by 19. volume is not as terrible as i thought. up by 30%. the dollar relatively neutral, trading these levels all morning. you do have buying on the margin, yields down two basis points. energy and materials the hardest hit. david: coming up, ford or administratoraid under president obama joins us next to talk little health care. this is bloomberg. ♪ ♪ >> this is "bloomberg daybreak." don't miss tomorrow's bloomberg special coverage of the fed rate decision at 1:00 p.m. eastern time. david: the congressional budget office released its scoring of the gop proposed health-care plan yesterday. with us now to look at that the former medicare and medicaid administrator under president obama's administration and he is experienced in health care, particularly online. i want to start with something we heard from the former head of eli lily that raises the question about how much stock we should put into what the cbo says. prediction three years ago was off by 50% on obamacare enrollment. their predictions on part d drug programs were off by 40%, so the track record is not great. david: is he right? are we paying too much attention to the cbo? >> i would not be quick to dismiss the cbo. nobody can forecast the future perfectly, but they tend to land on the green just about every time. if you look at the aca forecast, they did not foresee the supreme court case. what they didn't see was congress coming back and withholding $8 billion to $10 billion, so they will not foresee every event in the future, but what they did predict is we would end up with record uninsured rate at a low and have a budget that more than pay for it self, and both things proved to be true. even if you allow for the cbo to 40% --by 10, 20, 30, these are still in norm is numbers. you referred to the percentage insured. we have a graph that shows the dramatic differences according would cbo between what happen under the new proposals versus obamacare in terms of the percentage of americans who do not have health insurance. as you look at this plan at of the gop, what strikes you the most, 14 million americans who may lose coverage next year? >> it is two things. the first is of course that there will be millions of americans, 24 million by the cbo 's count, that will lose coverage. david: we are putting it up now. that redline is the percentage of americans who will not have health insurance under the new proposal, the blue line is under aca. >> there is a second impact that is even more important, this a 25% cut inects the medicaid program, and for those of you who don't know what that is. it takes care of kids come a pretty women, people with disabilities, two thirds goes to taking care of seniors and people with disabilities, so it is a core program that in this proposal is cut by 25%, then capped, so not only cut, but capped. the federal government lemon's -- limits the amount of coverage it provides. play thisetting much morning, but has as much long-term significance as anything. said it was ane unfair scoring because it assumed obamacare would keep going the way it was. it has been under siege, insurance companies pulling out, and people giving it up. is that a fair criticism and where was obamacare heading anyway? you saw in 2017 some you saw in 2017 some correction -- important,ases were the cboas well as report effectively said there is no death spiral. in fact, it was a one-time event. i will take all 50 states had perfectly functioning markets, acasome needed support, the is unsteady steady footing by most objective analysts views. david: the cost curve, both obamacare and the new proposal, which plant would have more result -- plan would have more result in bending the cost curve? >> by their own a knology meant, the bill does not limit costs. they had something in the draft bill that would do that. they took it out. i think you're talking about a phase two in phase three, but the bill attempts to lower premiums for younger people might -- by making them higher and limiting tax credits. i don't think we should confuse lower premiums for lower costs. i think we all know that mean someone else's ticking of the costs if it's not hate for in the insurance premium. beare on track and need to on track to focus on the cost curve. in the you a quick stat obama years, the medicare was about 2% come under bush 6% per capita, so we are headed in the right direction, but there's more work to do there. david: thank you for joining us. alix: good perspective there. up, bloomberg markets. oil moving down. we've not had a 1% move down on the s&p and 104 days. focus ine our futures just over 20 minutes. we continue the conversation you are having about the cbo estimate. john delaney will joining us. following, the chairman looking ahead to the fomc meeting. we finish off with iceland's finance minister. the government is getting rid of the remaining capital controls in place for the last eight years. we have seen movement in icelandic assets as a result. we will see you in about 11 minutes. alix: thank you so much. if you have a bloomberg ,erminal, check out tv charts, graphics, interact with us daily. if you miss any interviews, you can rewatch it as you need. tv on your terminal. as we had to break, the s&p offr by seven points, dow by 23, the dollar steady, 10 year yield down by two basis a crossselling, buying the curve has oil continues to grind lower. this is bloomberg. ♪ david: this is bloomberg. volkswagen has had a tough time of it, but now says its efforts to turn the page are starting to bear fruit. after more than a year in crisis, the company named volkswagen operating margin of 2.5%. spoke to matt miller and told him the worst is now over. >> i do hope so that the worst is over. progress, butood there is still legal action pending and disputes and investigations going on by the authorities. the -- thesese of of the our customers and dealers needs to be improved. not just the authorities, it is private civil suits in europe. alix: do we have any idea how other carmakers benefited? david: although not nearly like volkswagen, but there was a temporary dip in market share of volkswagen, but seems to have come back. alix: they have regained trust in some areas, maintaining market share and keep it. you have a one-year chart their, 24%. i'm looking at the winners and losers. come inside the bloomberg. volatility picking up, the highest level, i down move on the s&p, and there is the why. this is all oil except for united riddles -- rentals. chesapeake off by 3%. marathon made a sizable that buying into the permian. that is the shell mecca. saudis are saying i'm not cutting it anymore like january. that causes a lot of turmoil. david: how would you like to be the ceo of a big oil company and waking up to see what the royal family and saudi wants to do. it's about efficiency. on the upside, nike off by 2% on the s&p, price target boosted by credit suisse, incremental revenue catalysts and recent market losses will moderate. good news for nike. they said the online segment is encouraging as well. david: they are reliant on china. that is their big opportunity, so we will see if they're selling more shoes in china. alix: what about the trade dispute, not only suppliers, but big multinationals in china as well? david: wilbur ross may have something to say about this. alix: exactly. in the markets, we are geared up -day fed meeting. s&p down by nine points. some buying coming in to the bond market, 2.61% on the 10 enticing some. the dollar index steady, not a ton of upside movement into the meeting, but oil continuing to roll over, off by 2%, moving on that potential oversupply from opec. will it drag the s&p lower on the day? that is the question we will follow throughout the session. this is bloomberg. ♪ ♪ >> it is 10:00 a.m. in new york, 10:00 p.m. in london. >> "bloomberg markets" welcome to -- welcome to "bloomberg markets". ♪ >> we take you from new york to london in this hour and cover stories out of chicago and china. here are the top stories. the federal open market committee starts its meeting today. will janet yellen and company accelerate their rate hikes this year? kingdom, sooned to be out as deputy governor of the boe weeks after her appointment due to a conflict of interest. what does it say about mark's leadership style? >> oil continues its slide after saudi arabia says it reversed some production cuts it made. if the opec deal about to fall apart? we are snowed in in new

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