♪ sonali: welcome to bloomberg markets. we are looking at stocks falling with tech selling off and we are hitting session lows. benchmarks tumble in the last hours a let's check on the markets. the s&p 500 is on track to have the second week in a rollover. weeds -- it's now down 0.7% and the nasdaq is down more than 1.2% and semiconductors are down almost 0.3%. volatility is inching slightly higher but we are watching the second day of rises.

some midday movers on the equity side, boeing shares after a 787 jet plunged in vitamins way from auckland. a flight intended hit a switch on the cockpit see propelling the pilot forward and pushing down the jets knows injury multiple passengers. nippon still says is determined to complete the 14 alien dollar acquisition of u.s. steel steel even after president biden state of the company should stay in u.s. hands. u.s. steel is up about 0.7% but had losses this week. we are keeping a close right on crypto markets because bit going continues to slide. shares of crypto equities are falling with the largest digital asset, down almost 4% and coinbase is still seeing gains of 1.3% and marathon up about 2.8%. markets are positioning for the federal reserve policy meeting with the dot plot mostly in focus. will discuss that further with

the macro policy senior policy advisor. how do you expect that dot plot to change its course after the economic data we have seen this week and knowing that as we look to future rate because the summer that there is still a lot more inflation data ahead? >> laura rosner who does our inflation data has affirmed our forecast for core pce being at 0.28% in march. that's because we got some good news on the import prices this morning and when we look at that pesky factor of owners equivalent rent, it went up in january month over month and then updated. it looks like that will continue on his trajectory lower. i preface this by saying where

does the fed need pce to be when it starts cutting? it was -- it will start cutting prior to it reaching their target. we have very restrictive policy. they will go from very restrictive policy to somewhat restrictive policy on the pathway to neutral. sonali: the rental data is important. a number of investors are pointing to that and telling me that if you look at how much housing prices have risen and how high mortgages have stood, the pressure on rents here could really make life difficult for a lot of people. how much is that a factor relative to other factors in the inflation data? >> when we look at the actual rental indices, the real-time rental indices, we see them moderating significantly. we expect that to beat through the inflation data.

one thing that is difficult right now is that we don't have the cost of interest in our housing data. we made adjustments after the way we compute housing data that has to do with the fact that when you purchase a house, part of it is a consumption item but part of it is investment item. that interest component is usually more tied up in the investment part. that kind of technicality aside, higher interest rates are impacting the affordability of owning and the amount that purchasers have to lay out each month in order to acquire homes. this is impacting that spread of mortgage rates above the 10 year treasury. they are higher than normal because of the invaded yield curve and prepayment risk. sonali: what about the impact this is having on investors but consumers? you have some interesting data not just on housing and how it's

impacting people but the labor picture. i want to get a picture of what you see here that might give some investors a look under the hood. >> we do proprietary scrubbing of quarterly earnings call to all companies over $1 billion. what we are seeing when we look at that data at hiring intentions and firing intentions. earlier on in the pandemic, that date it was giving us an indication that firms work labor hoarding and they were going to hold onto labor even if their sales slowed slightly because they had trouble acquiring label during the pandemic. that labor hoarding is persisting but diminished. that makes us concerned but also confident our forecast for lower payroll as the year progresses is a good one. it also comes back to the original question about the dots.

what you see fed officials say is they are looking at balance risk. inflation is at a level where they will start taking into consideration what is happening in the labor market. we think there is some scope or narrowing in the spread around the central tendency but we still think the majority of docs will show three cuts. sonali: how much does the economy have to weaken and in what ways does it have to weaken to start to justify these cuts? >> we don't necessarily think the economy has to weaken materially to justify cuts. rates are restrictive at these levels. we are growing at close to 2% on an annualized basis. we are about at our potential gdp growth. we can afford to have a slightly less restrictive policy especially if inflation is

moving in the right direction. our gdp cap for the first quarter has bumped out to 1.5% on those weak retail sales numbers. we see the consumers are pulling back. they gave the last hurrah at christmas time and over the holiday season but we are definitely seeing some pullback into this year. is partly driven by higher rates. that's what higher rates are supposed to do is push down demand and we are certainly seeing that. sonali: what is the feedthrough if we only see 3, 2, one, or the zero rate cuts this year? how do you think about that ripple of fact? the less cuts we have, what does it mean from a broader market perspective especially in equities? >> what will the cuts due to the shape of the yield curve? if there aren't enough cuts, you will not get a positive slowing yield curve. if you haven't negatively sloping yield curve, even the financial conditions may look

bland when we look at financial market indicators for that person out there trying to buy a house, you'll still have the extra spread over 10 year treasuries and barely elevated credit card debt -- credit card interest and banks are also going to be a little more conservative with their lending when you have the inverted yield curve. will the fed cut be enough to on invert the yield curve? that would deftly change financial conditions in a much broader way for the economy. sonali: we've been talking about this a lot the logs inversion of the curve we have seen all the data we have going. constance hunter, we thank you for your time. the big conversation of next week is the big fed meeting. up next, a consumer story, -- mcdonald's says sales are affected from asia to europe. this is bloomberg.

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♪ ♪ ♪ sonali: this is bloomberg markets. it's time for the stock of the hour. mcdonald's has been hit by a system outage that appears to have started in the asia-pacific region and spread to other markets globally. this left customers unable to order at its stores electronically. it says it's not a cyber attack but joining me is michael halen who covers mcdonald's and has a report more broadly about the widening spread between westra winners and losers. -- between restaurant winners and losers. we've known they've had some troubles in their international business already.

>> the overnight digital issues they had, i don't think that will be much of an impact on the first quarter, maybe -- maybe 10 basis points on same-store sales comps. it's probably a couple of dozen markets. all the restaurants in those markets were not close just some. they were back up online this is the restaurant business or you can order online but you can still go through the drive-through or pay with cash or go to the register and pay with cash. sonali: they say the issue has been resolved but you think about the broader question and you want to say that the bulk of the issues is their international business but what about the low end consumer in the united states? >> they are definitely seeing some headwind -- headwinds with the low end consumer. they finally fessed up to the consumer coming less often and spending less when they do come, ordering more frequently off the

dollar menu and up -- and things of that nature. the low and consumers are pinched in usmc credit card balances at the highs they've ever been, credit card auto loans are rising so we see some pressure on that low end consumer and we continue to see a case shape recovery -- a k- shaped recovery. the high end consumer is still doing pretty well in low income sewers -- consumers are struggling. sonali: you think dollar tree for example but when you look at the restaurant business, what are the things people are starting to switch out? where are people walking away and where people diving in? >> they've just been reacting to these higher prices we've seen over the last three or four years by coming less frequently. we are seeing a kind of a divergence. chains like chipotle and

mcdonald's to some degree have been able to attract hiring have been able to offset that loss of the low income consumers. we were kind of seeing this divergence between winners and losers in the companies that can draw in this high end consumers are vastly outperforming change that can't. sonali: how do you see this playing out? you saw some pricing power but when does that stop? >> that's a great question. we haven't hit that yet for a lot of the middle income and higher income consumers. it's tough to tell. right now, we are in a tough spot with the restaurants in terms of projecting out what we will see. we pass the toughest comps of the year. january and february were very difficult comps and now that we've got that in the rearview mirror, the year over year comparisons get easier but as i mentioned, the consumer especially at the low end is weakening. when does this come to a head?

i don't know, late 2024 possibly but it's difficult to tell. sonali: can some names. you .2 darden about the fine dining expected to rebound. any other signs of promises? >> we like fine dining because they have -- had a terrible 2023 so that the easiest, your so that we be a tailwind asset prices and home prices are higher that makes people feel a little wealthier. some of their customers may spend more money last year than they did -- this year than they did last year. casual dining we are concerned about because it has low and middle income consumers but they have much higher guest checks. you also have to tip on that meal anymore likely to get drinks and desserts of the overall check is a lot higher. what we see in times when people are stressed is that they will often forgo some of those

full-service occasions and maybe go to a qs are or mcdonald's or chipotle instead. sonali: perhaps we are seeing people selling their bitcoin for st. patrick's day. we thank you so much for your time. looking back at the overall market, we are near session lows in stocks and pressure could be from the rebalancing of three major indices and triple witching which is five point $3 trillion worth of options set to expire. abigail doolittle has the details. abigail: earlier today, the estimate in terms of the expiration amount was closer to 3.5 trillion dollars would tell you the amount of contracts that are moving around and relative to what's happening. triple witching is the old quadruple witching on the quarterly triple witching which happens on the third wednesday of march and then june along with september and december and the expiration of stock options,

stock index futures and stock index option contracts. what it typically brings a some volatility. today's volatility is a little more than typical and big volume. we can see these points where the orange circles are, more than double the volume of other days because there are so many contracts changing hands. the one i remember the most is back in march of 2020. in that we, the index declined about 15%. down monday, napped down another two or 3% so that was the bottom. often these days act as a reset given the fact that we are basically near that top, the question could be -- is there is a reset to the downside? the fed meeting next week will be a big key on that whether that is potentially happening. it's not just the triple witching, it's also the rebalancing of the s&p 500 which happens on a quarterly basis. super micro computer's are in and whirlpool and zaentz are

out. we have had super micro computer up more than 1100% over the last year alone. this has to do with the ai craze. this is pretty amazing. everybody talks about nvidia and their huge rally but try to find nvidia on this chart. the s&p 500 is in blue, up 34% over the last year. in white, nvidia up 266%. in our inches super micro computer up nearly 1200%. the excitement around ai and index managers needing to buy the stock for their portfolios and that's what happens on these rebalancing's. it will be interesting to see whether the big gains can hold to that degree. sonali: we thank you so much for looking under the hood. coming up next, red-hot credit trade of 2024 that may get caught in the basel three endgame backlash. that's up next on today's wall

street beat. stay with us, this is bloomberg markets. ♪

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speaking to us about possible changes to basel capital bank rules and how it affects the credit market. it brings us to the wall street beat. we are looking at potential changes to the rules that would make synthetic risk transfer less appealing to investors. this has been a red-hot credit trade and we will talk about this now. let's set up why this trade was so attractive to the likes of hedge funds. >> the coupons are in other asset classes. you can see double-digit coupons in those trades. height yield is related to a high risk as an investor's of threats related to the highest risk portion of a pool of loans, could be corporate or mortgage or other types of assets the

banks have on their books. sonali: how exactly does the trade work? you are essentially buying credit default protection as a bank officer in part of these loan books. how is that risk transfer to the counterparties? >> they basically, the investor is the first in line to absorb losses on an earmark portfolio of loans. from the buyer of that risk transfer, the need to look inside the portfolio and the risk they are assuming. they need to make sure they are buying a high-quality or taking a risk of a high-quality portfolio. sonali: so for the banks? >> for the banks, the advantage is that they can obtain capital relief because they can free up capital that they can use to

provide new lending. that's one of the advantages. there are others but this is probably the most important one. sonali: let's talk about what happens is the rules start to change. one reason the banks wanted to do more of this or asset managers expected to do more of this was potentially very onerous capital standards about to slap them on the head. if the rules are rolled back quite meaningfully, how does this trade change? >> you may remember that last week, the fed chairman basically said that they are considering to tweak the initial draft that was released to the market. the market knows there was a basel endgame. the indication is that probably those rules won't be as

stringent as expected. that means the banks may not need to use as frequently as previously expected. it doesn't mean there won't be a market or that banks won't use this kind of transaction but probably won't need to use it as quickly or in the amount the market was expecting previously. sonali: estevan duarte, catches most read article on the day on the terminal. let's take a quick check on the markets. we are looking at markets near session lows. the s&p 500 is quickening the pace of losses, now at 0.9% lower in the nasdaq 100 is four point that is 1.4% lower in the semiconductor indexes lower but the russell 2000 is holding onto its flat level on the day. yields are still writing higher. the 10 year is still at 4.30,

one basis point move higher. we will keep an eye on those markets throughout the close. stay with us, that does it for bloomberg markets and this is bloomberg. ♪. and a beautiful website. just start with a domain, a few clicks, and you're in business. make now the future at godaddy.com/airo

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>> from the world of politics to the world of business, this is balance of power. ♪