>> bloomberg world headquarters in new york, i am brendan greeley. argue thative, some this may be the best deal for the fed to deal with long-term economic downturn. there is a new twist in the matter of apple versus the fbi. the government is working on its own backdoor to mobile devices. republican presidential candidates square off in south carolina and democrats face the test in nevada. world to the markets desk julie hyman has the latest. julie: there is a selloff to end the week. we are now seeing stocks decline today. the nasdaq is typically the biggest liger on down days, that is not the case today. we're seeing the s&p and the dow down the most.

the sectors are on the move. we have energy with the biggest drag, followed by materials. discretionary also doing its part. we're seeing tech not down quite as much, which explains the nasdaq. first of all, while prices are lower once again. they held up relatively well yesterday. it went downward after we got the inventory report. we still positive for much of the session before heading lower late in the day. they remain lower today. that is what is causing pressure on u.s. stocks. we goter thing is consumer price data this morning. inflation is rising more than economists had anticipated. you get the regenerating of interest rate expectation on the part of investors. brendan: what happens now? is everybody going to a safety trade? julie: gold prices saw a big

lift yesterday are continuing to gain in today's session. if you look at what is going on in the treasury market, we're seeing something of that as well although not much movement on the 10 year. yieldsan increase in after the cpi data, which is what you might expect. we are seeing that reversed to some extent. on thed to look at wrip bloomberg, which uses the futures to calculate the probability of rate increases. we have seen a little bit of an uptick. the chart for november is on the bottom. we saw a drop in expectations and now that has been moving steadily upward, more than 30%. finally, want to point out the movement we have seen in the vi xx. yesterday, even as we were seeing some weakness, it was

lower, which is little bit unusual. it is a little bit higher. we're not saying in the norma's amount of movement, even though stocks are selling off. this implies that even though we are seeing some downturn, it is not a very volatile downturn. brendan: i'm surprised you took this path -- back. 70%,expectations are above there's nothing close to 70% although he out into figure 2017. -- frederick 2017. julie: no. brendan: we're going to check with first word news with vonnie quinn. vonnie: the nation place tribute to justice antonin scalia. his body lies in repose. they're holding an hour-long private servers. the general public will get a chance to pay the respect to the courts longest-serving justice. the president and mrs. obama are expected this afternoon.

the funeral is tomorrow. the fight against the islamic state turns his focus on libya. an american warplanes struck multiple targets, including an islamic state training camp. u.s. officials do not identify the leader nor the area where the airstrikes were conducted. last week, president obama pointed his counterterrorism efforts in libya. david cameron drawing into resistance as he tries to appeal the uk's mentorship in the european union. there began the second day agreements. there will be a vote in june. >> i was here until 5:00 this morning working through this. we have seen some progress, but there are still no deals. i when i do a deal unless we get what brady needs. i would everything i can. vonnie: eastern european leaders do not like his demand on non-british senators -- citizens. the u.s. has projected turkey's

demand to break off relations with the kurdish group fighting islamic state in syria. ae kurdish group were bombing place that killed 20 people. international space station just got a lot tighter. the space craft should reenter the atmosphere and burn out harmlessly over the pacific on saturday. global news 24 hours a day, powered by our 2400 journalists and more than 150 news bureaus around the world. i'm vonnie quinn. brendan: stock markets are in turmoil. federal reserve officials are asking whether they were considered going negative should economic conditions deteriorate. >> it seems insane to me. i think it's necessary at this point. >> easier money even if it means a move towards negative rates

tends to be stimulative. i think we have negative rights because of -- negative rates because of deep issues and our economy. it has got to be a bad sign. there is no way you can think it is positive. it is a reflex in the system to try and get the economy moving better. going, the economy is the fed seems to react to this uncertainty. when they react to uncertainty, it causes more insurgency. to regardre inclined the monetary policies as a response to the problems rather than a cause of the problem. >> negative rates are not where the u.s. needs to go at this point. >> in the end, the question is whether or not u.s. growth or china's growth or europe growth continues to move ahead. my guess is that they will. rateey do, this negative problem will dissipate. brendan: where going to bring in

one of bloomberg's top-ranked economic forecaster, maury ha rris. even though many companies have been negative for several years, it felt that right after that, you are actually allowed to do that? is that something that eventually happen in the u.s.? maury: i don't think it's going to happen. in do not rule out anything what i do because the world is full of surprises. the fed has other tricks up their sleeves before they have to do something radical like go to negative rates. you're still sitting with your 10 year and they could launch a qe for -- qe4. they're going to do that as much as they can before they could consider going to negative rates. there are other tools other than negative rates, but

is not the only one they have. i want to take a look at this cpi print that went beyond my expectations with watching inflation expectations go down with markets and consumers. there is the truth. change?s not change the cac it was for the fed at the march meeting. should tell this investors is that even though ,he economy is slow right now with a relatively low level of employment and a relatively high rate of apartment occupancy. the grants of your labor-intensive services will pick up. justpick up because we pick up at a relatively low unemployment rate. this is all consistent with the average hourly earnings that are finally starting to pick up again. i think with the inflation numbers today tell us is that

there is the possibility and likelihood that the fed will get back on track and starting to raise rates. before they get there, we have to get over this soft spot that we have in the economy. brendan: this is not a cyclical trend. these are traditional models. it is fascinating to hear you talk about higher rates. that is more of a secular shift. people are not buying houses, some point to student debt and changing attitude. that's in me says this is not inething we can just hold on the labor market will take care of it. maury: the slack in the labor is less than it has been in years. when you look at statistics on businesses saying how hard it is to fill positions in the small business sector. when you look at the job openings rates, we have a tight labor market, even with the

slowdown in the economy. the level of unemployment down to 4.9% has always been the trigger pointed which raiders of celery. , you sees accelerate the pickup and labor-intensive services prices. you could have some pickup in core inflation, even with the slow growth economy, once you have relatively low unemployment. brendan: how to talk about market volatility. you say this is not the apollo -- apocalypse. participants were little bit perplexed that there is so much fear in the markets. fundamental still seem to look ok. should we be there -- worried that this will turn into something bad? maury: the way that it will become bad is if it would be filtered over into a broad-based credit crunch. when lenders became very fearful

and started denying credit to credit worried borrowers. i think we are far away from that happening right now. brendan: i want to talk about gdp growth as well. your expectations for the are set by what you think gdp growth is going to be in the future. candidates can't agree with how well we are doing because they can't agree with how we should be doing. jeb bush says it is 4%. maury: if you were to have 4% growth, i don't think you can keep it up for very long. you don't have tremendous amount of slack left in the economy. the underlying growth rate of the economy is probably only around 2%. is in the sky. see as: are we going to we see the slack, are going to see a pickup in business -- are we going to

see a pickup in business investment? maury: i think we will see some pickup and capital spending. markets whong labor want to substitute capital for labor. you should have somewhat better capital spending. from a historical perspective, it would still be disappointing. maury is going to be staying with us and talking about inflation and cpi. investors are taking a look at the cpi numbers this morning and wondering whether this is going to lead into a rate hike. ♪

brendan: good morning, you're watching bloomberg markets. i am brendan greeley. harris.ith maury let's talk about how to make and use forecasts. one of the chief development is that the fed's forecast have been consistently wrong. they've been estimating mournfully -- inflation that has been happening. broken in the way we look at economic forecasts? maury: i think what happened was missed many forecasters the impact of globalization. you have a much more competitive global economy. also, it is very hard to forecast the dollar.

once you have the stronger dollar, that was going to contribute to less than expected inflation. the other thing that has happened on inflation, if you get beyond the core inflation and look at overall inflation, who knew that oil prices were going to go from over $100 $230 $30?wo under brendan: this talk about globalization. -- let's talk about globalization. you are saying that labor can move elsewhere. it is difficult to create inflation in wages the way it worked in the past. maury: you've got more competition from foreign labor. case in somehe parts of the service sector. in many parts of the good producing sector, you can produce it cheaper overseas. competition from foreign labor affects prices of goods here in

the united states. brendan: another thing that surprised me talking to economists at the central bank, aboutre talking more people responding differently to the same stimuli. there is one actor in the economy who behaves in a rational way. qe, somer example, people respond in a predictable way and some people don't respond at all. is that part of the way you look at your forecast? maury: i think you have to realize that there is going to be a variety of public reactions to a policy change. one prevalent reaction. brendan: what you are saying things like common sense, but it is a profound departure from what people did in the past. maury: economists think in terms

of a rational human being. academia a starting to think more about irrational behavior. economists may think we are rational, but the rest of the world may not be that rational. you have to consider irrational behavior, fear, panic. those are just human characteristics that you cannot ignore. we are ignoring it in the classical economic models. brendan: you're talking about oil, globalization, and the strength of the dollar. who is ahead of this with getting the forecast right?when you look at the academics job ofs doing a better taking these unknowns and accounting for them? think your academics who are focused on the behavioral economics, which gets away from the classical economics, are focused on rational expectations.

i think the people who are the behavioral economists have a better shot at getting this world right in terms of forecasting. brendan: we have a couple seconds left. if you are at a conference five years from now talking to central bankers and you're looking back at this moment, what you going to talk about that we have learned? maury: i think we have learned that low interest rates are not necessarily the answer. go to old-fashioned fiscal policy would of work better in which it up and using more fiscal policy and not as much monetary policy. brendan: you are singing straight from the st. louis vet. -- still ahead on bloomberg markets , the us government was to find a way to gain access to the most heavily protected encrypted data

and iphone devices. what this means for silicon valley and washington. ♪

brendan: you are watching bloomberg markets. brendan greeley. abigail duel has the latest from the last back as she is taking a look at to take companies, starting with yahoo!. what is happening today with yahoo!? abigail: yahoo! is trading higher after the news of the board creating a committee. all of this follows months of pressure from investors that are unhappy about the stalin -- falling stock price. that theyannounced will streamline the content on its website. a lot of changes for the stock, too. shares rose more than 200% when

reins.meyer took the turning to another big tech name, apple. shares are fluctuating between small gains and small losses amid continued news that the company is refusing to unlock the iphone ever shooter in the san bernardino terrorist attack. some of you and cook is a champion for digital privacy, but this also comes against the backdrop of continuing concerns of iphone sales. turning to apple. apple declined a judge's order to help bypass the security of an iphone. this comes less than a year after the white house revealed it when i forced tech majors to in store -- install backdoors. ,oining me now is mike riley

bloomberg news cyber security reporter. mike, you have this amazing scoop this morning. what did we learn about how the white house is approaching this issue? mike: although i think that u.s. take companies. they won the battle, that was not the case at all. around things giving, the national security council met the deputies committee which is the most important department the government. they approved a memo that said this is an all hands on deck problem. we need to be able to get data that is not being encrypted by these easy-to-use apps and we will pull out all the stops and resources. andntially, more budgets whatever you need.

this is a big move on their part. i think what they're doing is a workaround issue. you don't actually have to solving corruption problem by breaking encryption. you can get the data in other ways. applek the fbi's move on on the san bernardino phone shows us how is going to work. brendan: help me understand the interplay the laws that need to change and technology that needs to develop. what is needed? what new laws have to be changed? mike: the fbi's operating on a model where they needed information into a phone tap, they had to go to a phone company and give the judges warned -- judges warned. there are now entering a world where the world is making through the internet. they can give the warned to a phone company or wherever and they're not getting anything back.

then i have to think about the world in a different way. they have to think about it in terms of how you get that data and the legal restrictions about with the fbi can do. thinkingve to start out-of-the-box. if the way to get the data is to hack the phone, do we need new legal authorities to do that? what has to change in this new world where communication is increasingly not the old-fashioned phone lines, but through easy-to-use devices and apps that hide everything? brendan: i have to let you go after talking to you about black hat hackers. this is bloomberg markets. ♪

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i've never felt so alive. make your business phone mobile with voice mobility. comcast business. built for business. brendan: live from bloomberg's world headquarters in manhattan. you're watching bloomberg markets. i am brendan greeley. vonnie quinn has more from the news that.

-- news desk. the brazilian president says the government will provide all resources needed to develop a vaccine to fight the zika virus. brasilia has been the hardest hit country with more than 500 confirmed cases of a rare birth detect. they are also investigating thousands of suspected cases of a new virus. polls released on the eve of today's primary has ted cruz ahead five points of donald trump. but the other polls are leading by other double digits. tonight, we will be joined by one of the key players at 5:00 p.m. eastern. bernie sanders fundraising is coming from an unlikely source. sanders raised more than $50

million from people who identify is either unemployed or retired. clinton, 17% of the nearly $900 million she has raised came from small donors. the nevada caucuses tomorrow. a helicopter flying nearby pearl harbor and suddenly lost aptitude and crashed in the water. tourists stop filming and jumped to help. , but onee made it out teenage boy is hospital and in critical condition. federal investigators are trying to determine what caused the accident. texas --nd forward, ist worth, texas transferring you think cap to an adult system. couch.n

global news 24 hours a day, powered by our 2400 journalists and more than 150 news bureaus around the world. i am vonnie quinn. brendan: low growth, rising inflation, one in four people unemployed, south africa's economy is deteriorating on many fronts because of the slow child -- slowdown in china. china is south africa's biggest trading partner, nearly $62 billion of the company's total trade. matt winkler has found a silver lining. i want to talk about the silver lining, but let's first talk about the black cloud. what is going wrong with south africa's economy? >> just about everything. inflation.rising south africa has had a chronic high unemployment rate for about

25% of the workforce which is disastrous. and youre not growing inflation is going up, that is a recipe for a failed economy. brendan: with so many inflationary forces in the world, what is driving this in south africa? mike: the currency has fallen more than 25% in the past 13 months. analysts survey anticipated falling again by the end of this year. currency is weak and volatile, that will drive up inflation. brendan: south africa has one of the worst form reserves gdp ratios. there's nothing they can do to intervene, even if they wanted to. >> that is absolutely correct.

there is a silver lining. why there areson inflation protected bonds are doing as well as they are. debt of look at the south africa as a percentage of below thet is well average for middle eastern countries and below the average for african countries. it is very much well below japan,ed countries like the u.s., and canada. if you're going to play with comfortere is a bit of interesting.o was brendan: if you guys can go into my bloomberg, i put up the south

african gdp ratio. it is at a comfortable 49%. look at the line. that should worry us. it is the trend. >> the trend is not favorable. when investors look around the world and look at for example, , south africazil does not look that bad compared to those countries. the fact that south africa is a -- a business hub in that south african countries themselves are doing fairly well, those are the kinds of where you say it is not as bad as it could be. if i can be protected against inflation, that is a pretty good deal.

is a bit of harmonic convergence. today, there was an option -- that was linked to inflation. todayafrican investors 2.5 times cover fo the acution. there was demand more than twice the amount that was sold. that gives you the idea of the excitement and interest in this instrument. brendan: when you walk me through this, i understand the silver lining. i understand the bet, but what scares me is that where there is yield, there's danger. this is a fundamental rule that we forget. what is the downside? that it allide is

goes bad. thingsstop buying these and they plummet in price and value. we are a long way from there. in the meantime, hope springs some point, the , the currencyina ceases the fall. these investments actually look pretty good. on top of that, sub-saharan african people should recall the best emerging market in the world. things cannot continue to go back forever. thank you to bloomberg editor, matt winkler. you can read his column online

at bloomberg.com. be sure to turn into the africa business conference in cape town. coming up, oil resumes its slide. we will take a quote -- closer look at the economy. ♪

brendan: this is bloomberg markets. i am brendan greeley. the stoxx 600 was looking at

its biggest weekly gain in four years. then, we were looking at our biggest weekly gain in one year, and now we're looking at its --inst weekly gain that the since october last year. the stoxx 600 is still up today -- of this week, excuse me, by 4.2%. not gettingwe are ahead for the biggest weekly gain in four years. every industry group is declining today. i want to point out the back spread. ec said that five lenders under its supervision missed a key capital ratio in 2015. sterling volatility continues to rise as david cameron tries to leadersdeal with his eu in brussels. the meeting is extended for a second day.

this is sterling volatility against the euro and implied volatility has risen since 2011. yield curvegerman from one year to 30 years. the 10 year yield is falling today and it has fallen for five consecutive weeks, which by the way, is the longest losing winning -- losing streak. brendan: all right, mark, we are heading towards the european close. before you head off to your estate in scotland, what we have planned? : the chief executive wants britain to stay in the eu.

negative interest rates are not so popular with economists. we're going to talk about the battle of the charts, greeley versus barton. i am open to bribes. brendan: i am not going to need to bribe you. julie hyman is standing by. w, i like it. let's take a look at what is going on in the major averages. the nasdaq is leading today. we see large-cap technology perform better today. downfall as we see lower oil prices. i wanted to talk about some down movers. first of all, in the retail industry, nordstrom came out with earnings that missed estimates. sales up 3.7%, but that also missed projections.

goldman sachs analysts are saying strengthen television sales will be offset by weakness in wireless. we have a trio of commodity related negative earnings reports. construction and engineering and caters commodities. company,e tractor clients are still suffering as well. industries, the maker of railcars, those cars have not been caring as much of things like coal and other commodities. brendan: real indicators from the real economy. returning to commodities. all prices falling the u.s. crude stockpiles rose to the highest levels in more than a decade. joining us from new york is blanch.o

this talk about geopolitics. -- let's talk about geopolitics. francisco: it is a first step to stabilize the market. we have to see how it pans out in practice. if you pick opec versus russia, that is half of the market. andeeze in oil production russian, that should be positive for prices down the line. for the last six or seven weeks, swaps ofeen the trade many role producers skyrocketing in the private sector. that is going to put a lot of pressure on output over the next few months. we have the carter lysed -- we have the guys and russia and the

guys that look at the market for becausealso struggling of the environment. in my mind, this points to a meaningful stagnation. their constructive overall. brendan: we're talking about the possibility of a floor on the price of oil with the cartel and the price of russia. obviously, there has been the stress and the american oil patch. reacht floor comes up and $40, that is not look quite as bad. there are people in north the coda and texas -- north dakota and saying at russia that the price will never get above $50. i think the forward

oil price may have a hard time. the stock price is a function of both cyclical and seasonal demand. it is much harder to make the calls that it will never go above $50. the one point the highlight is that even if we get back to $40, u.s. output is going to continue to contract and companies will still default if we go back to $40. many companies are not coming back, even at $45. even if we see a rally in the summer months, which may provide temporary relief, it was the make a challenging for the sector to continue to produce. in our view, we will lose half a july.n barrels by june or

the gap gets bigger and bigger if the prices stay at $30 for a few more months. eventually, if you look at the medium-term picture, if we stay in the $30 for the next five years, we think that supply will be down where is the man could be up by seven or 8 million barrels a day. we would have a 13 million barrel cap to fill between opaque -- opec. we have to go 15 or higher. brendan: i want to move to metals. we've been talking about south africa and anglo american. do you see other commodities beyond oil, a dynamic happening where and of production has been cut or plant to be cut. have we seen that? francisco: copper is easy to

-- copper iss hard easy to store in oil is hard to store. if you look at copper, he has been going up the whole year. i think negative rates are actually good for china. capitaling to contain outlooks and china and give a boost to the american economies. we will say emerging markets don't look so bad anymore. brendan: thank you very much. still ahead on bloomberg markets, politics is coming up. we will talk burning, trump -- bernie sanders, south carolina and nevada and all of these things with megan murphy. ♪

brendan: you are watching bloomberg markets. im brendan greeley. we are heading for a big weekend with politics. the race may be tightening with the primaries. ted cruz is not just 5% of points away from donald trump. we have bloomberg news washington bureau chief, megan murphy right here and somehow not traveling around the world. let's talk about south carolina and ted cruz. one of the things we have learned in iowa was that his organization was masterful. how important is that going to be in south carolina? megan: he has some of the smartest minds and organizational politics in terms of getting up the evangelical vote. we saw this in iowa and new hampshire.

i think people forget that his show a new hampshire was great. south carolina has been incredibly disciplined and focused on turning out been getting to the voters who look at marco rubio and donald trump and think, who was going to be the defender of christian values. that is a huge portion of the electorate. i think this latest poll is an outlier, but i think the lead donald trump has is contribute. we will have to see how the pope dispute plays out because that poll was taken before the pope. brendan: how does this play out? megan: anything he says is help them, but it bumped off marco rubio's endorsement from nikki haley. people are turning to him because he thinks he will say things that nobody else will say. it is almost a moth to a flame.

again, he got incredible run of free air time and that helps in a primary. brendan: everything he does make him look strong. await way to come back against the pope is brilliant. megan: the other thing you have and marco is jeb bush rubio defending him, saying the pope had gone over the top. brendan: i saw mike huckabee talking about the times in the old testament when heroes had to build walls. how can we not talk about this? i want to go back to organizations, because that is true for bernie sanders. it is not just a socialist message, he is shockingly world -- well organized. megan: and nevada this weekend, that will be fascinating to watch how that comes in. a state where the polling is patchy. she has been there with a bit of -- dedicated group of people. she is targeting the latino

group and only being there for a few months, build a young army. when we see those results tomorrow night, she takes another loss -- if she takes another loss, people will be raising the questions if she can raise the wage gap. brendan: al gore failed to use bill well. megan: it is incredibly difficult for her. he said things that came back to hurt bernie sanders. we cannot underestimate the 22 porter -- point lead. they will put him out and audience where they know he when i make a mistake here at one more mistake from him, they would take about how much they want to put him at all. brendan: it is amazing to watch him. he is clearly so excited to be out there again. bringingtant is the

out the black vote for hillary in south carolina? megan: you have to look at that demographic. bernie has struggled to make any moves. is he a gain or a liability? 2008 andat happened in shades of that happening in new hampshire, with one misplaced comment. he could really tilt the vote in the other way for her. i think they are going to be very careful. brendan: megan murphy, our washington bureau chief. ,oming up on the european close banks are dragging european stocks from a two week high. were going to talk about that and mark barton is coming up next. ♪

mattbrendan: on brendan greeley. mark: and i am mark barton. this is the european close. ♪

brendan: we are going to take you from new york to london to be very busy brussels in the next hour. here is what we are watching. running into a roadblock. prime minister david cameron faces resistance as he tries to work out a deal to keep the u.k. in the european union. the brakes onts lending. some banks will have to put away or reserve because they made loans to fast. a fast lane. in we will look at the next big thing in collectible cars. it is not all ferrari's and lamborghinis. we are half an hour away from the close of trade in europe. mark, tell us about today's market action. mark: before i do, we have breaking news. you want to tell u