good afternoon. i'm matt miller. lower following a report on crude inventories that forced oil to pair earlier gains. are we looking at the end of the year's longest rally? top minds on the economy this hour. and ed hymanart will join me. where do these giants of economics put the odds of a u.s. recession? after maintaining operations there for more than 100 years, citigroup lance to exit retail banking in argentina and brazil. shares falling on the news. let's head over to the markets desk where julie hyman has a look at the oil. julie: you asked, is this going to be an end to the longest rally of the year?

probably yes at this point. there's always been unpredictable be in the markets, but right now come all three major averages are lower with the nasdaq leading the kleins. the dow has been the best performer. declines.leading the s&p has been a bit choppy. a pretty narrow range here. it continues to maintain those as we head throughout the day. all of this is on relatively low volume. take a look at the bloomberg. by sector.bf all these bars going down except for one. energy volume is up 18% over the average over the past 20 days. we are seeing a lot of these energy stocks pull back on heavy volume. had theree stocks biggest jump in volume today. with newsoming up

pushing them down. devon expanding its share held as these companies are trying to raise cash in a weaker oil environment. matt: what did the oil inventories essay? tease we got a bit of a from the american petroleum institute yesterday saying inventories unexpected lead dropped. the official government numbers said no, they rose. we saw a sharp leg downward in oil and that it has been bouncing around. right now come up about .3%. there has been this bouncing around. if you take a look at the bloomberg once again, here's the crude inventories, weekly numbers here. we had these built for several weeks in a row. is with opecsue and other nations, what is the

world consumption versus the world supply? this is from bloomberg intelligence, here's the total word system -- world consumption and world supply. consumption is still smaller than supply. you have inventories rising in the u.s. come a freeze on production. matt: thank you very much for that. let's take a look at the first word news. : first up, we had to pope francis. trumpage for donald saying anyone who wants to build a wall along the u.s. border with mexico is not a christian. christianss said build bridges, not walls. how smart are they? they see the pope and tell the pope bad things about me because i'm very strong for illegal

immigration. we have to stop it. pope that trump is bad and the pope says bad things about me. i don't care. amy: trump saying it is this graceful to question a person's faith. a trip that will under secure -- underscore the huge change in u.s. cuba ties. agreeama and raul castro to twitter relies relations. cuba is still criticized for human rights abuses. at least 61 people killed in a head-on collision between a passenger bus and a truck in central ghana. one of the deadliest road accidents in that country's history. colorado state house committee will begin a debate

tomorrow on becoming the first state to regulate organic labels in the pot industry. tell whethernot marijuana caring inorganic name --lly is that this carrying marijuana carrying an organic name is really that. the minutes of the january fed beating show that policymakers are waiting for the smoke to clear. , the economicers picture is very clear. >> we are in a new world where the challenge is not excessive inflation, the challenge is getting inflation up to 2%. the markets are saying that is not going to happen in any major place for the next decade. matt: let's gauge the current economic climate with vincent reinhart.

he is a visiting caller at the american enterprise institute. think you for joining us. -- thank you for joining us. let me ask you what you make of that that situation, the justice -- juxtaposition of the fed wanting to raise rates but the market betting it will not happen come even until early 2017. vincent: market views go through a wide arc. haveederal reserve's views a smaller amplitude. fed officials have to average over lots of different indicators of financial conditions. they take a more medium-term view in assessing the economic outlook. relative to when i started tightening in december, the west does not look quite as good, the rest of the world -- that is enough -- they worked

so hard to convince market but his fence they would be willing to tighten. they don't want to backtrack from that. matt: a lot of indicators we some the number of distressed debt issuers is peaking at a level we have not seen since 2009. a lot of indicators we look at point for the possibility of recession. they are blurred by, in this drop.the energy prices where do you think we are headed as far as economic growth and the possibility of a recession? vincent: a big disconnect, if you look at financial indicators , they seem to be pricing in a high probability of recession. traditionalat the real-time indicators of recession like the composition of the unemployment rate, the forms of spending, what you find

is that probability is much lower. something on the order of one in five. that goes back to my earlier point. the financial markets go through wide swings. set of this important prices moving lower, it will distort a lot of those financial indicators. no indication we are in recession now. risks are elevated because global risks are higher. matt: do we have a magnified negative feedback loop in the u.s.? if prices fall in the stock market in germany, that doesn't necessarily mean the german consumer is less willing to spend. here in the u.s., it means the stock market prices have more of an effect on the average person's daily spending. vincent: the u.s. is bigger, wealth capital is more

important. f oury as a share o wealth is high. there is an element of a feedback loop. bad news generates concerns about the course of the economy and that generates worse news for earnings. which is what should drive equity prices over time. matt: the market action, janet she put offision, an interest rate hike last year theuse it seemed like evaluation -- how much to the falling markets affect her decisions? vincent: if you look at the minutes from yesterday, they related that the tightening in the financial conditions over periodmc inter-meeting

was the equivalent of a monetary policy tightening. they do not need to tighten financial conditions more given what has happened in markets. do not confuse the weather and the climate. it was minus five on sunday with 55 yesterday, minus five does not mean we are entering in an ice age. confirmnot global warming. the main message to convey in march, they don't see as much tightening as they previously anticipated. tighteningsbe four this year. it will likely be two or three. matt: we appreciate your time. up, despite all the chatter about the possibility of

recession, our next guest says the weakness and energy has not yet transferred to the key horsemen of the s&p. he's been voted the top wall street economist 35 content of years. ed hyman joins us later this hour. ♪

matt: you are watching bloomberg markets. it is time for the bloomberg business flash. , star board value taking initial steps towards a proxy fight with yahoo! the move signals the activist

satisfied --ot under fire after stumbling in her efforts to fuel growth at the company. 20eral motors plans to sell and 30 year notes to make a payment on its huge u.s. pension obligation. it would be $2 billion. ndst year, the pension fu was underfunded -- economic sanctions were lifted a ban had been into place for two years. headed to our markets desk for julie hyman has a check on the company movers. julie: we had a flip-flop today

versus the last three days. there was risk on over the last three sessions and today, that is flipping. one of the groups that had been recovering that is now turning lower, the banking -- i want to in the banktigroup plans to exit its banking operations in argentina and brazil. been there for 100 years. this is a long history it has had in these nations. it plans to announce these changes in next several weeks. citigroup has been streamlining its operations more particularly its retail operations around the globe. shares down by 3% today. we are seeing widespread selling in the banks. jpmorgan trading lower today. also falling back

today. deutsche bank with a 4.5% decline. banks are the worst-performing group in the s&p 500 this year. what we saw over the past several sessions when they rose was a pause. down 17.5 percent year-to-date in the financials are also performing poorly. we wade through earnings season, the pessimism triggered by energy stocks is causing a broader meltdown. have earnings yes people hundred for the biggest quarterly decline since 2000 and. -- 2009. how do you read a market jittery -- he has been with the firm for 25 years and currently has $5 billion in assets under

management. you and i just looking at the ea function on the bloomberg. 73%gy is expected to drop from earnings one year ago. you are saying it is not such a huge part of the s&p that it will pull down the whole sector. >> that's right. there's discussion about earnings and discussion about the economy. last year from energy was 12% of the s&p. this year, it is 6% making seven dollars per share. it cannot have the same damage it had last year. how could there be spillover to the other sectors? we have not seen that yet. the key drivers are technology, consumer discretionary, health care. you've not seen the earnings drop off leading to destruction like we saw last year. matt: how does it not benefit the other sectors?

so many manufacturers, and must be cheaper to make their products. >> we have not seen the transmission effect yet. when you're gou come able cost you have as much to fill up your tank of gas, you would go, i will spend more money elsewhere. if you look at consumer discretionary, the sector has not seen big increases because of that. we have not seen the drop off yet, which is why the recession call it so hard to make because we have not seen a drop off in consumer. matt: consumer discretionary one of the groups earning more money -- if you break up the s&p into 10 groups come only three of those earning more than they did in the same quarter last year. consumer discretionary, health care and telecommunications services.

is that enough to see earnings growth? >> no. that is the problem. year-over-year earnings growth is not that much. is, is itestion worthy of this much decline? i don't think so. i think this year will be another repeat of last year. anemic earnings growth means anemic returns for equities. it doesn't mean we are headed for a recession. matt: do you feel like the market has checked that finally? the last three days of gains were great. we also saw a lot of indicators, financial stress indicators letting off now. citigroup economic surprise index back into positive territory. dup like the market has turned the corner? going on here,ly there are sectors of the economy in a recession. energy. there are parts of the economy that are hurting right now.

it will not spill over and that is starting to melt into the markets. i think that is healthy. the key question is, where are the opportunities? is best time to buy stock during a recession and there is a chance of coming out, that creates the best opportunity. matt: what about when we think there is going to be a recession? and there isn't? >> the are some sectors in a recession. matt: we had howard marks on bloomberg this morning. he is buying energy now because he knows there's a lot of upside from here. >> we don't think we are in a recession but if we were, some of these sectors would have a problem. i know we are in a recession in these areas. got it. thank you for joining us.

, big news in the banking industry. citigroup is pulling out its retail banking operations from two of latin america's biggest countries. ♪

matt: welcome back to bloomberg markets. a bloomberg exclusive, citigroup said to be getting out of the retail banking business in argentina and brazil. shares have city happen under pressure this year. the ceo continues with his plan to shed the banks least profitable businesses. story.ampbell broke the congratulations on the scoop. what do we know so far? to exit thegoing

branch network, retail banking first and foremost. they have about 70 branches in each of the two countries. footprintpretty big for a u.s. bank to have another country. -- in another country. they will be committing to their institutional businesses. they will still be doing corporate banking, investment banking. matt: they have been there for over a century. >> that's right. argentina was their first non-us branch. matt: they announced last year they plans to exit 11 countries. is this a continuation of that plan? >> it seems to be. in 2012, they had a branch footprint in 40 countries outside the u.s. now, that is down to 24. these two will take that down to 22. that is almost half of their foreign branch networks in the last three to four years. matt: does he say i want to get

down to operating retail in 15 countries? >> he has not said that. he puts his different businesses in different buckets. some need more resources to grow, others have too much capital. he has not said which businesses are in each bucket. this leads us to think these two countries, retail business is one of the lower returning buckets. this is not something we can make a lot of money at. matt: he wants to get out of lower return businesses, obviously. that will bring down the top line, revenue. do we have any idea as to how much this will impact that? >> good question. we don't have great visibility into revenues from each country. indo know when they exit 2014, those markets only

accounted for 5% of their consumer banking revenue. that account for more than , but u.s. him a much smaller percentage of the overall peace. matt: thank you so much. great scoop. look forward to more. i will be speaking with the best rated economist on wall street. ed hyman, chairman at evercore isi. stay with us for this rare interview. ♪

matt: from bloomberg world headquarters, this is bloomberg markets. i matt miller. want to kick it off with headlines. y: first off, we had to pope

francis. he has a message for donald trump. anyone who wants to build a wall along the west border with mexico is not a christian. the pontiff says christians build bridges, not walls. donald trump saying it is disgraceful to push in a -- question a person's faith. john kasich says he is not staying in south carolina on saturday night. instead, he will head to vermont and massachusetts. both states hold their primaries on march 1. buyingrico says it is blood from the red cross after the federal government said u.s. territories affected by the zika virus should limit the use of locally donated blood. the fda directive applies to puerto rico, u.s. virgin islands and american samoa.

google, facebook and other tech companies and supporting apple in its fight against the u.s. government. apple has rejected a court order to help the fbi unlocking iphone used by one of the shooters in san bernardino. a federal grand jury in nevada indicted cliven bundy and four others on charges related to an armed standoff back in 2014. the case involved a dispute over unpaid grazing fees. he was arrested in portland, oregon where his sons are currently joe. global news 24 hours a day powered by our 2400 journalists in more than 150 news pros run the rope. commodity markets closing in new york. gold futures erased earlier

losses, resuming their 2016 rally. at theuity declines demand for haven assets. the negative correlation between equities and gold nearing the strongest inverse relationship since april. --ht now come at of uti right now, wti almost hitting a high of $32 a barrel. u.s. crude inventories advanced to an 86 year i. stocks also pared earlier gains after that inventories report. our investors fears beginning to dissipate? correlation between assets has begun to decline over the past four days. take a look at this chart from bloomberg news. although they were incredibly tight, the correlation between stocks and oil reaching .96 just a few days ago, they have been falling for four days.

fromt to bring in ed hyman evercore isi. if i'm not mistaken, you started your career looking at commodities, trying to forecast commodity prices with your computer model at m.i.t. and harvard. vincent: that's why i'm here. -- ed: that's why i'm here. matt: what do you think about the correlation -- a number of assets are interesting public oil and stocks were so tight. it has started to unravel. what does that say? ed: it is still tight. today, oil was up and then came back down and stocks came right back down with it. the response is when oil goes ,own, the fed does not tighten that misses the banks up. get oil goes down, you

bankruptcies. that is not good. negative feedback loop between oil and the stock market. matt: i want to show you a chart that makes that point to some extent. people at home can pull up our charts now. you can see here that the number of distress issuers trading right now has climbed to a level we have not seen since 2009. distressed debt has climbed up to a level that we have not seen since the financial crisis. if you did not know about what was going on in the oil patch, you would think we were headed for a recession now. get bankruptcies out of the energy patch. this is centered in energy. i look at the broad measure of junk bond yields. they're back to the 2011 peak.

they have come back about 50 basis points in the past week. it has settled back some. there are many other indicators that the economy is doing fine even though the manufacturing sector and energy patch are in deep trouble. we saw the citigroup surprise index come out earlier. i also have that on my bloomberg. the chicagoat economic stress index, you see a bit of a recovery there. what do you look at for indicators? you famously look at different indicators. ed: the things i'm watching closest right now is whether or

not the consumer cracks. at evercore isi, we have a series of surveys. they are still generally just fine on the consumer. credit card business is ok. consumer bank loans are ok. and then i watched the pmi numbers. they have been on the weak side. i watched the unemployment claims that came out this morning and they were pretty darn encouraging. that is the middle of the month when they do the employment survey. they just increase the odds that the employment number for february would be a good number. i grabbed the employment numbers, initial jobless claims out five years. it is a trend that just improves and improves. i want to get back to your survey.

you talk to cfos of companies from rail to shipping to trucking to retail. everything. what would you say the chances are of a recession from the results of your survey? ed: the surveys are really good coincident indicators. as of this week, they are consistent with 2% growth. have unemployment claims -- i have very strong readings that wages are accelerating. that gives a bit of a forward look at the economy not likely going into her session. matt: finally starting to see real wage inflation? ed: i think so. we surveyed the 20 employment agencies. they say business is very good. they say wage pressure is strong

and getting stronger. this week, the united airline minutes workers were offered a 25% immediate pay increase. a $9,000 signing bonus and they overwhelmingly rejected it for something better. whether you look at walmart ,orkers or united auto workers wages are starting to accelerate. we've already gone from 2% to 2.5%. i think they will be 3% by the end of the air. matt: i expect the drop in oil prices to be great news. i was in dallas last week. i saw somebody fill up their truck for $1.26 a gallon. doesn't that leave the consumer with extra money to spend? shouldn't same-store sales be gangbusters? matt: they are a debt. only up .5%.

so far, you are not seeing the sort of let i expected. -- sort of lift i expected. the support from lower gasoline prices which works for consumers and ranchers and , it works to prevent a recession. matt: thank you for joining us. you will stick around. i will ask you a few questions about the fed, negative interest rates. more from evercore isi chairman ed hyman. stay with us for that. it is apple versus the u.s. government. a closer look at the encryption fight dominating the tech world. they are interesting story. something you don't want to miss. ♪

matt: welcome back to bloomberg markets. i'm back now with evercore isi chairman ed hyman. i want to get your take on some rates issues. rates, getting paid to borrow, now japan joins germany, switzerland and denmark -- it seems insane to me that i would pay someone to hold my money for me but people are buying this debt. matt: seems insane to me, to. it has to be a bad sign. -- ed: seems insane to me, too. it is a reflex in the system. the situation in japan is very scary. they have the negative rates, they did qe and the rates just popped through the roof.

the nikkei has been sick. the market is queasy. in the end from the question will be whether or not u.s. growth and china growth in your growth -- and europe growth continued to move ahead. my guess is they will. this negative rate problem will dissipate. stopave to get oil to going down. matt: you feel like it has? you've got your finger on the pulse. know it has gone up six dollars in the past week. you are getting into the reflexive part. the s&p downgraded saudi arabia this morning. when they do that, they put pressure on saudi arabia to think about output.

you still need to get the other factors to work in like a drop in inventories or production or an increase in demand. matt: how did the central banks not see this coming? supply was through the roof. demand just has not been growing as fast. do you think the fed was behind the curve a little here? ed: they are structural factors that are overwhelming. on the demand side, every car that gets old has much more gas mileage. gets sold. on the other side, fracking has been a juggernaut. nobody thought you could produce this much energy at that cost. had problems in the middle east in terms of their response function. they have not they willing to cut production. matt: at all.

in the past, they have cut production when you see drops like this. i want to turn to interest rates. a really cool chart on the treasury curve. the yield curve. lot.s flattened out a how do you deal with this in your world when you need to use the yield curve as an indicator for what is going to happen in the future? more than most economists, i'm very market-driven. i watch things like the yield curve, i watch the stock market. spreads come we talked about earlier. there is no doubt the yield curve is indicating a slowing economy. market -- atack stock market. i have to look at the factors that i watch. this is one of the times when

the markets are getting more excited than the economy is. i think this will pass, but i'm all over it. curve, itld definitely has flattened out. it is not going to a recession signal. it got a lot flatter than this in 1994-1997 and you had that continue. i'm on the edge of my chair but not willing to change my view yet because of the yield curve. matt: what does this mean for your investing? what would you advise people to do in this situation? the financial markets point where recession but you don't to gets going to happen. i don't think we will have a recession. in the past when you've had recession, the markets go down to the present. when you have not had a recession, it goes down 15%. -- the markets go down 30%. 15%ink the stock market is

down play. , whether it's real errari's for equities, better than owning cash. globalhat do you think finance ministers are going to do? you mentioned the yen shot up. the peso has been a led zeppelin here. people talking about the possibility of a new plaza accord. matt: i think we need it. called for a coordinated action and they said let's do more fiscal than monetary. which i think is the right cocktail. i'll doubt we are going to do

it. it looks to me as though policymakers are totally in action. the fed has pushed off rates. bank of japan is going nuts. pboc cut rates. there is fiscal action over there as well. there's tons of action in a reflective sense. opec is starting to make some action to support the price of oil. i think we are in a strong reflexive action. there are times when things are going to hell in a handbag and policymakers are tightening, doing the wrong thing. this will pick up as you get into the spring and summer. matt: we appreciate your time. great to see you, as always. stocks are down after the strongest three-day rally that we've seen since august.

utilities are not part of today's selloff. julie hyman has more. the rally the strongest since october of 2011. three days of gains of more than 1%. , 5% gain wastively the biggest three-day rally since august. it depends on how you dice and slice it. mostly a down market. the utilities etf looking relatively well today. that is true whether you are looking at the biggest contributors to gains today from the large cap utility stocks we watched here, southern energy and duke energy. con ed reports after the close of -- those stocks rising as well. some of these have to do with

these fundamental earnings reports coming up. some have to do with interest rate. the gain we are seeing today is on the back of what has not been a very strong performance this year. if you look at the year-to-date performance we have seen, it is up 8% as we have seen yields go down. you tend to have this inverse relationship between utilities and bonds. the bond yield at 1.76% going down today. one thing fueling the gains in utilities. utilities tend to have a high debt load. when you see rates go down, it costs them less to service that debt. they pay relatively high dividend yields. take a look at the bloomberg here. hf to look at the correlation ief.en xl you anu and the they move in tandem.

this is the correlation between them. matt: very cool. thank you very much for that. valleyhead, silicon rallying around apple in its fight against the u.s. government. the latest in the battle between safety and privacy. ♪

matt: welcome back to bloomberg markets. cked a fight pi with u.s. government and silicon valley is joining his side. the biggest names rallied around the ceo after he vowed to resist a court order demanding apple help unlock the iphone of one of the san bernardino shooters. for more, we had to are watching bureau. -- we had to our washington bureau. cook picking a fight

with the federal government or is this the fbi picking a fight with apple? >> it is a bit of both. this is an issue we saw first come up in late 2014 when apple put out new software that made the encryption on their iphone really hard to get into. apple was saying they could not get into these phones. ever since then, the fbi has been lobbying and pushing for apple and other tech companies to make these backdoors into these devices. matt: why don't they just break into this one phone? we know the guy did it, he is also dead. what difference does it make? apparently they cannot break into this one phone unless they create a way to break into all ipods. >> right, exactly. there is note one keeper one phone. an ideald be creating of being able to get into the phone. key for oneno one phone. once it is figured out for this

case, it will be applied elsewhere and perhaps outside of this country. the chinese could demand a key or somehow get one and use it. what does the legislation say about this? legislation you've already got in place is dealing more with network operators than hardware manufacturers. >> the court order that came down this week is based upon an idea that we have seen put in place for the telephone networks. it has not been applicable to a cell phone device yet. what we are going to see if there is going to be some appeals most likely going forward in the courts. the pressure is now coming on congress to come up with a policy solution on weighing the measure between privacy and fighting terrorism. these are big top level issues

lawyers say need to be decided in the halls of congress. matt: you know the butchered ben franklin quote. a man willing to trade security for liberty decides neither -- deserves neither. >> that is the debate. matt: it is butchered, but often attributed to ben franklin. tonight on "with all due respect," an interview with bobby jindal. he will be talking about his support for marco rubio and the pope's comments about donald trump. ♪

>> it is 3:00 p.m. in new york. welcome to bloomberg markets. ♪

from bloomberg world headquarters in new york, good afternoon. here is what we are watching at this hour. stocks are fluctuating between gains and loss. after the three-day rally, the strongest in august. crude oil also giving out gains. walmart, one of the big drags on the dow jones industrial today at your forecasting disappoints. the company sees slowing growth in retail sales despite spending billions to take on amazon.com. and tech stocks have been bouncing back in the past week that are still down for the year. names, amazon, facebook, and netflix. an hour from the close