flynn out, mnuchin in. yellen in the hot seat. her last chance to make a case for a march rate hike. the turnaround plan working as andcompany cuts more jobs stockpiles cash. a happy tuesday morning. a beautiful sunrise over washington, d.c. where the action is taking place, from president trump's administration to janet time before congress. i am alix steel with david westin. we have a cause in the global equity rally with s&p futures a little softer. european stocks, -- theronger dollar across board against all ga currencies. dollar-yen turning lower down a touch. 113.

-- i cannot get my words out today. stirling is lower against the dollar. inflation below 2% taking the heat off the boe to do anything in in the next meeting. at one part use a rally off the gilt market. a pause in the commodity market as we await janet yellen. david: all of that news coming out of washington, we are joined by mike mckee. and by kevin cirilli. i want to start with you. it is one in and won out. let's start with the one leaving. what happened overnight with the national security advisor? kevin: this is a win for the establishment folks in the u.s. intelligence community. general flynn was paid facing pressure around stories around him come his connection,

conversations with russians during the election. either president trump did not want to get rid of them, it is notable that general flynn offered a resignation and was not fired, but was facing pressure within the u.s. intelligence community. he is now out. the second part of your question, steven mnuchin and going through the confirmation process, getting confirmed. i would anticipate it is tax reform and repealing parts of dodd-frank first on his agenda. humanaetna and terminating any merger between the companies. at could pay a $1 billion breakup fee to humana, or $630 million netting tax. humana is up slightly by 2/10 of 1%. we are racking up how many deals have been terminated over the last year. david: particularly in health

care. a couple of dead deals walking. you mentioned steve mnuchin. he also has to feel a lot of jobs. a viewas to fill quite jobs. we saw david malpass is going to the administration. he has to craft a policy agenda filling out the lower level staff positions. eli miller is someone that was close to him during the campaign comes from senator marco rubio's political orbit gum has been tapped to be the chief of staff. a lot of job positions that are underway. steve mnuchin is officially in. where capitol hill is mike mckee is covering jenny yellen's testimony. what are we expecting her to say? mike: that is the key.

it is the ongoing soap opera at 1600 pennsylvania avenue. the opportunity to talk to wall street and to members of congress about monetary policy without being sucked into the political maelstrom about what bankns next to the fed and regulations. we have a new chairman taking over his first hearing with the fed. lookingto see if he is for her to tell more about monetary policy and how they make policy going forward, or if he will focus on regulatory aspects, dodd-frank aspects. for the administration to make policy and fill jobs is the same. we do not have the banking regulator, the man in charge of banking regulations, being on the fed anymore. that will be a key position for the administration to fill. we make it questions for janet

yellen about how she handles it. david: will we hear about march? . the fed would like to have march on the table. would like to have the odds calculated by wall street higher than they are now. they may want to use that as a window of opportunity. they have been criticized for not moving when they could, then things keep them from doing that . as we get obama care, tax reform, it may become harder for the fed to move. she may want to keep march as an open possibility. david: thanks. we have heard what chair yellen is expected to say to congress. what will markets be looking for? for the investor's perspective we bring in the chief economist thembers purified and

senior global equity strategist from st. louis. let's start with you. as someone representing investors, what will you be looking the senior global equity strategist from st. louis. for in the testimony from janet yellen? >> the market will focus on monetary policy. the fed will not do and a lot of speculation on what regulations might change. in june and december look like rate hike meetings. i would be surprised. the market can digest three rate hike meetings no problem. the market need to heads up. we are four weeks from the meeting. is that enough of the heads up for the market? it is not. we will hear that we are data dependent, we are watching things come in the labor market. but it ising tired, not really tight. the average numbers that came up out with last market was huge. marketswhy rallied. gdp was far below estimates.

1.6 or the whole year last year. the fed is not in a hurry to hike rates. say, what heard scott are you going to do? is it too late for janet yellen? it is in a 30% range, right? the likelihood of a race in march. is it too late? stephen: that is why this is a pivotal appearance for yellen. she could prep the markets as mike said. but she would like coming out of the meeting is for the market to be closer to 50-50. almost trying to price large out. every time that happens an official says that art is on the table. it will be interesting how hard yellen pushes. alix: she is not going to say that i think mark is a lie. if we read between the lines it is how she describes the economy . if they are data dependent or a

broad stroke things are improving. her tone has changed. she was very negative as of the first half of last year. the last couple of time she had spoken she has been upbeat. she can talk about where she feels the labor market is, close to full employment, compared to what she has said the last few time she has talked. and we're getting closer to 2% inflation. the way she characterizes the path from here to 2% is it is close and it will be easy to get to 2%. that sounds more hawkish than if she hymns and hazen says we are not going to get there or not. alix: potentially she will highlight there is a 50% chance of a go in march. where is the vulnerability in the market if we get that testimony today? tophen: we are pushing record highs. you will not see the market

trade much higher this year. the vulnerability is taking money off the table. to have her, if the goal is to get the market to think there is has-50 chance, janet yellen work to do. i do not think she will be able to do it in this meeting. you will have to read between the lines, but to move the odds up to 50-50 based on the economic data we have, that is unlikely. she says the word "inflation" a lot in her testimony? scott: the market is going to be laser focused on the average hourly earnings number in every report. that has been the most important number over the last nine months. there will be more wage pressure. the headwinds in the second half of 2017 will be fears of wage pressure and the fed behind the

curve in 2018. the market will be absolutely focused on this wage number every time it comes out in the employment report. hikeswe look at three this year, that has nothing to do with fiscal stimulus. do you think the markets are not pricing that in enough? we get into trouble is there is a sense that the fed will wait and see what happens. started thinking about fiscal stimulus and pricing that into what the fed was going to do, the fed was saying they will probably go three times. the fed does not have the luxury of waiting indefinitely to see with the administration will do, and being on pause until everything is done. they probably would have waited too long in that event.

alix: great to see you, thank you for joining me. .tephan stanley and scott wren janet yellen's testimony before the senate banking committee .tarting 10:00 a.m. eastern we will have live coverage on bloomberg television and radio. coming up, a quick check on the markets. we have softness across a global equities as s&p drifts lower from three record high closings . treasury stocks on the day, and a stronger british pound. -- a uighur british pound. this is bloomberg. ♪

>> time for other stories making headlines. at to not and humana made it official. they're calling off the proposed 37 billion dollar takeover, blocked by a federal judge on antitrust grounds. at now will have to pay humana a breakup fee. the company that makes such runs is destroying and acquisition of general -- is exploring and vauxhall and opel businesses. all psa is saying is that it is in talks to expand existing projects. credit suisse posted a 2.3 billion dollar loss for the fourth quarter. it took a charge to settle a u.s. investigation into the target check your's business. the loss was bigger than it.

credit suisse will cut 6500 jobs this year. the bank is in the middle of restructuring. the countdown to president trump announcing a phenomenal tax plan continues. some are skeptical. chris krueger says any plan will be a puff piece with adjectives. let's ask dan yergin who was with president trump and other business leaders at the business council meeting along with executives of boeing and ge. great to see you. tough he's with adjectives, or something substantive? this is one of the biggest things that he has promised to do and is in the mind of congress. the other two things that jumps out to me in the room was contradictoryor regulation with five different authorities regulating banks.

15 different regulatory authorities for a pipeline bill. the mountain of regulation. the question is building infrastructure the company needs. alix: when you have ceos like boeing and ge, they will benefit from the lowering of the corporate tax rates, bo porter adjustment taxes could affect them. how does that dynamic, up? dan: companies are on different sides of the border adjustment. it is a complicated tax and there will be discussion about what will work. one subject is what would a transition look like? it has been an intro cool part of speaker ryan's plan. getting it to where people can understand it, and it fx consumers. david: it is great to hear the wonderful things congress plans for us. you have to pay for it somehow. how do you pay for it?

it does not cover all the costs. dan: the other idea is higher economic growth that will .enerate revenues the border adjustment tax is seen as an important part of the paying for it. you have to get the money from somewhere. you have to reduce detections, such as the interest rate deduction? dan: everything will be on the table. the tax is complicated because there are winners and losers. the borderaunt adjustment tax. when companies focus on which adjustments get eliminated. dan: lowering the corporate tax would be stimulating to the economy and get us to be more competitive with other countries. in the room, vibe it is not a scientific way of asking, but 51 percent of companies say they are more optimistic. did you see that in the room?

.an: i could feel it there was a lot of give and take. you had the ceos of the companies with an opportunity for everyone to say what was on their mind. this tax and the regulation question, two of the things that are driving the optimism. david: growth. listed, infrastructure, deregulation, taxes, what is the biggest driver of growth? dan: tax looms large, but deregulation. it is rationalization of regulation. everywhere you look it impedes. for small businesses it has been a huge burden. we have not seen the business formation we should these seeing in this country.

alix: business meetings with the president is not unusual. what was different about this meeting with mr. obama? dan: i was not in similar meetings with mr. obama. i was taken by the give and take . there were no speeches. and different opinions were expressed. what i focused on was infrastructure and energy, something they have put a lot of emphasis on. david: he will be staying with us. more on president trump's tax policy. joins us onraskin where things stand. on bloomberg television and radio, janet yellen's testimony before the senate banking committee at 10:00 a.m. eastern this is bloomberg. ♪

alix: this is "bloomberg

daybreak." toyo prices stapling. a weaker dollar and opec cut. you have positioning around record highs, are the opec cuts enough. yergin.me is dan there is a story that no matter will notsaudis do, it be enough to reduce the stockpiles. dan: some of the estimates for demand is going up. that will probably be one thing at the end of this agreement, which will reduce some of the overenthusiasm that may otherwise be the case. argument that an this is the best we will get? the saudi domestic demand will pick up. their numbers mode to be as awesome as we saw in the last 48 hours. dan: what is striking is the degree of compliance. now it is 93%. they are serious. the forefront at

in terms of the cutbacks. the immediate thing is the cutbacks on one hand, and at what speed is u.s. production come back on the other. alix: time spreads, that is how you judge if the cuts are working, if you come inside the line'srg, 4221, the blue oil prices, the white line is the 1-12 month spread. it is a tiny bit of strain. the degreerprise is to which this agreement is actually working. alix: there is so much oversupply in the north sea. dan: inventories -- this agreement is getting inventories down. they are starting around the world to come down. this was not only an opec deal, it was non-opec. it is the first time russia has been serious about participating

. they're not cutting back a sharply as the saudis, but they are enforcing it among the other non-opec companies. what happens with u.s. inventories, crude and gasoline, matter, but we are seeing strength and demand. one of the areas where you are getting demand growth is oil exporting countries. the iea has just raised the estimate for demand growth in 2017 to 1.6 million barrels a day. david: you mentioned the percentage of compliance is historic. saudi arabia is accounting for 100% of it. they are over-cutting. i they getting a good deal? dan: they are over their quota. they are over 100%. you are right.

they have done more to make the overall numbers work. they are determined to see this succeed. david: is it helping them? we are producing less, but we have a higher price, does it pencil out for them? day at the end of the volume times price. they want a higher price, along with the others, because everyone was feeling pressure. it is helpful for the world economy. alix: what is it going to take andthe leg higher to $55 $60? dan: we are in the middle $50 right now. what sustainable at $60, will the market have to see? demand, the for demand, seeing what you said before, in the inventories going down. it is not only opec and non-opec

, but the financial markets and the credibility. producers can hedge. the things that people will be watching is what happens to u.s. production and how fast is it come back? we think we could see u.s. production increased to more than 500,000 barrels a day. we go back to the thing of winners and losers. alix: you to see you. chairman., ihs market european banks down more than 2% . we will hear from the credit suisse ceo on the challenges facing the bank. this is bloomberg. ♪

alix: this is "bloomberg daybreak." ibm alix steel. stocks over equities across the lord, futures backing off after

three straight record closes. euro stoxx coming off of the one year high with the ftse in positive territory of .1%. below 2%inflation data with a weaker sterling and stronger dollar. the dollar is weak or against all other currencies. treasuries go nowhere, oil up slightly almost 1%. outside the business world, and the chandra is here with first word news. emma: michael flynn has quit. those allegations of improper contacts with russian officials. said he entered certainly misinformed mike pence about the contact because of the fast pace of events. the white house said that michael flynn discussed sanctions with the russian ambassador and misled officials. the trump administration is

committed to the european military alliance, but president concerned not every country is paying a fair share. >> and my two phone calls, defense spending has been a main topic. hisas strongly expressed commitment to the transatlantic bond, nato, but at the same time he has in both phone calls underlined the importance of a fair burden shared. emma: a two-day meeting begins tomorrow. in china, factory prices rose the most since 2011, the fixed rate increase for the world's largest exporter, and lifting the outlooks of global inflation. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. david: credit suisse says it

keepsut 6500 jobs as it pushing cost-cutting measures. the bank announced a bigger fourth-quarter loss than expected. francine lacqua spoke to tidjane thiam who said there are more changes ahead. it will be a source of volatility with the 10 year french treasury, with a basis point around 1%, will create uncertainty. that outcome and the uncertainty of the outcomes. david: francine joins us from zurich. election, they are settling some of the litigation problems in the united states? what they are saying is they posted a bigger than expected loss. the trading did not go how they

were hoping, but they feel they and a capital ratio in line everything goes back to the loss they settled with the department of justice. tidjane thiam telling you clearly he thinks this was a massive hurdle and he is pleased it is behind them. the other thing markets will want to know is the swiss ipo unit. we are halfway through the three-year overhaul. tidjane thiam has been in charge for a year and a half. his three-yeared strategy, he said he needed to raise more capital. they raised $6 billion. he still wants the ipo swissie unit. a lot are questioning that if your revenue is good and everything is good, do you need to do it? tidjane: given all the uncertainty, the french

toctions, we are not ready give up volatility. the second half of 2017, so that gives us some time. we look at other markets as well, we always have. francine: he will continue to cut jobs. tops expecting 5000 to 6000 cuts this year. i also asked about regulations and if swiss bank and credit suisse were on a level playing field. tidjane: we have a leading position. q1.ave done 63 deals in we have done 19 ipos.

our exposure to america is a positive. look at theen you positives and negatives, it is clear today they had more positives. a caveat is that trading in certain parts of the world, asia, was not as good as expected. david: francine, coming live from zurich. better,ings are looking but we did see down .4% in the fourth quarter, german growth coming in late. joining us is the bloomberg intelligence senior ge analyst. can you help us square the data from what we are seeing today versus what we are hearing from the big banks in europe. >> you do not have banks talking about loan growth. we are seeing a stabilization. europe isuestion in

what inflation poses as a threat with what the ecb is doing, what germany wants the ecb to do, versus what the periphery countries need the ecb to do. growth will be bumpy. we know that currency has swung a lot. inflation is a bigger issue. alix: where are we in terms of change for european ranks? i have trimmed expenses. now they have to transition to being profitable. where are we on that scale? positive is that is that a lot of the banks are more comfortable about where the capital position is now. you have the boe talking about a bolt on acquisitions. we know italy, for example, more consolidation will take place. germany, spain, they are

over-banked. alix: the other question is when do they create value? we have had investor after investors saying i like european banks. blackrock was the latest. big headwinds there. the margin is a lot in the price . how much is in the price when you look at evaluations of the banks? they need a little bit of good news and you could see increases in share price. alix: u.s. equities at a 40-year high relative to europe. at what point does value investing overshadow the transition a lot of the banks are in? >> the banks are trading 11 to 12 times two-year forward. tangible xp of 10%. if you look versus history, you

have tanks at a fair value to where we are. we need to believe that you either get regulatory relief or revenue strength will pick up materially. better, aftermuch multi-year lows thanks to low rates. david: we hear the european banks have to grow out of the problem by making money. which european banks are unattractive to grow themselves out of the problem because of their probability? >> the usual suspects. royal bank of scotland, deutsche to cutommerce bank had dividends to pay for the restructuring costs. you have the banks that continue to struggle to get near the low single digits roe> . relative to where we were in 2005, we were at 13% to 14%

r.o.e.. capital is higher, but it is unfortunately still the usual suspects. let's not forget the greek banks and imf, portugal and the spanish banks. alix: r.o.e. of age percent or 9%, but in the u.s., we will see double the r.o.e. for u.s. banks . if we want regulation cared back in the u.s., hammering down european banks, what advantage does that place european banks on? >> i'm not sure we will have a disadvantage. at the moment, something is called capital flaws. internalt ratings-based models to decide how much capital we need. the u.s. has a different way of thinking about it. we have a committee meeting soon . we will find europe in the u.s. are not seeing i tie. alix: -- seeing eye to eye.

alix: thank you for joining us. t-mobile earnings moving higher in premarket. earnings at $.45 a share, revenue for the fourth quarter $10.2 million. you can look at fourth quarter adjustments at $10.5 billion. it looks like a beat for beat.le, a sizable the phone that consumer editions, 933,000. t-mobile sucking competition away from its peers. david: coming up, julianna n emmanuelle will be joining us. this is bloomberg. ♪

next coming up in the hour, more on president trump's tax policy with peter roskam. time now for other stories making headlines. your bloomberg business flash. annual earnings fell less than expected after rolls-royce. it was helped by a late surge in sales. costompany will step up cuts and look to restructure the weakest parts of its business. $3hiba expects a six-point billion right down in the nuclear power business.

they blame cost overrun at the westinghouse unit in the u.s. toshiba also announcing the resignation of the chairman. shares fell to a 38-week low. another big year for the ceo of the alternative asset manager who was pays $132 million in 2016, up slightly from the previous years. collected the same dividend of their shareholders did, he gets no bonus. that is your bloomberg business flash. this is bloomberg. david: out of europe, the owner of peugoet.- matt, who knows everything about automobiles. big news, potentially. they are in talks?

has confirmed they are in talks with general motors about a collaboration that could and up being a complete takeover .f opel and vauxhall vauxhall be the gm u.k. operations, opel being the german operation. it is exciting because this gives general motors a chance to wipe its hands of europe ahead of the brexit. concern.t has been a the cfo said recently is will be a headwind in 2017. david: we could play that. we have it he woul -- it cued up. >> it will be a headwind in 2017, the impact from a currency standpoint. looking at the environment, moderate growth, a challenging environment with the currency in the u.k., we would expect

flat-ish performances from a standpoint in 2017. does this do for gm if it went forward, their margin, their focus? matt: the margin would go up. money has been either a loser or a breakeven situation or general motors over the last decade. since right before the financial crisis. they get rid of this troubled unit. for peugeot it could be a winning situation. they could access, assume is my , to some of general motors technology. general motors has moved ahead in the electrification of cars. they have done well with the volt. that could be the possibility that peugeot could get a hold of

that technology and merge been aons with what has competitor. they are in the same markets, opel, and vauxhall. they have been spending money to fight each other. now they will not have to do that. david: we can you grow the most? this is mary barra saying we are not going to grow in europe. where will they get the growth instead? look they will continue to in china, though that has been a bumpy ride. a lot of automakers in europe and indiag to iran for growth. there are places to grow. the problem is europe's future is so uncertain and difficult to operate in that environment with not only brexit and a tightening of the eu.

the german candidate for chancellor has said he wants to ' standardsn workers of to everywhere else in europe, making an auto manufacturing plant in europe more expensive, and it is already one of the most expensive places to produce a car worldwide. david: what does this do for nissan? matt: renault nissan had been making headway. it taken over the role of the second largest automaker from peugeot in europe. this will give peugeot 16% of the market share in europe. they will leapfrog for second place after volkswagen. big player,geot a and gives them capacity where they had been stretched. toid: if you want one person

talk to about this, it is matt. alix: matt is to cars like im to oil. check out tv . you can watch us online, interact directly, you can talk to us during an interview. go to tv on your terminal. this is bloomberg. ♪

david: this is bloomberg. when he was a candidate donald trump made no secret with how unhappy he was with what he called currency manipulators. the wall street journal says that he may be taking steps to back up that rhetoric. the plan is to designate currency manipulation by any china, -- cluding it could be a heating up of what has been a cold war over

currency. richard jones is the bloomberg fx and rates strategist coming to us from london. if this proves to be true and the administration takes this action, what with the reaction be in fx markets? richard: if you recall a couple of weeks ago, president trump's trade council had peter navarro singled out germany as someone who is benefiting from a grossly currency.d the multi lateral approach to trade issues has already started . what we saw that day was the euro rose. it has fallen back on political ofcerns, but it takes some the sting out of the bilateral negotiations between china and the u.s. by widening the net, president trump and the administration are able to deal with other trade issues, germany being a specific example.

david: one of the first questions was what is the president going to do about it? this would he a suggestion that the president would be able to do something about it? of the big things raising concerns among investors is if we get a protectionist bent from the administration this will be a drag on global growth. if that is the case, it will make the macroeconomic picture in 2017 and beyond even more cloudy. alix: there is a distinction between taking president trump seriously verses literally. are we going to take a potential tax on importers that devalue their country as literal or a suggestion? saying guys, get it together, have a stronger currency, and i will get off your back. richard: you have many countries in the euro-area with one

currency and one central bank. i'm not sure in the case of your -- of europe specifically how they will get their act together. people have been right to look at germany saying they have been a beneficiary. even some of the politicians are saying we want higher rates, we do not want the euro to be this week, but with one monetary isicy for the continent it strictly. investors have to take him literally until we see details. alix: china has been trying to prop of its currency to prevent the evaluation. is this the message to china, keep propping your currency or make direct investments in the u.s.? --hard: the relation cheap the relationship between china-u.s. is complicated. china is one of the biggest buyers of credit.

it becomes quite complicated. that could be the message the trump administration is trying to send to china. david: i've heard it said you do not pull out a gun unless you are willing to fire. to dou say we are willing this, does this ramp up the possibility of trade wars if they took this action? what would be the retaliation from other countries? richard: the first few weeks of the trump presidency has told us the president is not afraid to act. what is it mean in terms of the reaction? buya has already started to less treasury securities. if they ramp that up, that could be a problem as u.s. yields would rise more quickly than anyone is planning. alix: thank you for joining us. we following this story for the of hours.e

next, republican congressman he roskam.could -- peter we're looking forward to that interview. the global rally stalls. s&p futures off the lows of the session, taking a break after three days of record closes. the ftse is relatively unchanged. sterling, the dollar down against g10 currencies but up against sterling. buying the boe time in order not to raise rates. .8%.to getting a bid up this is bloomberg.

♪ alix: mnuchin is in. changes in the trump

administration forced the markets to take a breather after hitting record highs. janet does before the senate in her last chance to make a case for a march rate hike. making on the fed. the company cuts more jobs and stockpiles cash. a warmer welcome to you on this tuesday. happy valentine's day, david. david: happy valentine's day. alix: i m alix steel q with david westin. steel here with david westin. jonathan ferro has today off. the dollar is weak or against all g10 major currencies. the dollar-yen is weaker on the day. the sterling continues to grind lower against the dollar off by 2.4%. -- 0.4%. earlier, we saw a sell off in the gilt market. it is now relatively unchanged.

old making a little bit about it here up about eight dollars. steve mnuchin arriving into office. join to discuss with us now is marty shanker. marty, good to have you today. let's start with general flynn. what happened? marty: what happened is that he quit. obviously, the people in the white house forced his hand. ,e apologized for misleading and if you cannot trust your national security visor then he is out. -- advisor then he's out. story isat kind of this for our new president? marty: well, cass has been the kind of modus operandi for this

administration. hours before mike flint quick, kellyanne conway said he had the .resident total support it does seem a little chaotic. david: 40 ceo, the first rule is ceo, the first rule is that if you have a problem solve it and then move on. marty: the were signs of a problem earlier, and they spent a month before doing anything about it essentially. david: let's go over the arrival of steve mnuchin. he was sworn into office last night. part of this is the tax plan. what do we know about the tax plan to being pursued on the hill and what the white house --ts. are they the same white house wants. are they the same?

marty: that is kind of the question of the hour. no one really knows what the specifics of the plan is. leading thes been effort on taxes, and now you have steve mnuchin at treasury who could very well claim it is his responsibility. there is potential for conflict there. let's hope they get their act together and come up with some specifics. david: one side of the story is what the white house wants, and the other side of the story is what the hill once. for anave a slide outlook on what speaker right once. he is looking to cut corporate taxes to the 20% rate. connecting with that is the famous border adjustment tax which would tax imports and make exports tax-free. that is a fundamental change that would upset the tax system of this country, and, in fact, the world. cornerstone ofe

the ryan plan. y, thank you for joining us from washington today. joining us now is representative peter roskam. these days, mr. chairman of the subcommittee you have one of the most important jobs i can imagine. you will be possible -- responsible for crafting the process before congress. we are glad to have you here sir. for what we pay speaker ryan is proposing here? let me start with a more basic question -- if you got everything you wanted in your blueprint that you laid out in great detail on the website, how much would it cost in terms of lost revenue? roskam: in the past, washington has scored things on a static basis. change in presume no

activity regardless of your tax policy. that is relatively absurd. if you years ago, congress said we need to have a static score in addition to a dynamic score. a static score looks at what happens to growth when all those things come together and come to fruition. what we are proposing is that this would be revenue neutral on a dynamic basis. that is the agenda we are trying to seek. we are trying to balance a couple of things. number one is growth and the type of simplicity everyone is yearning for. also the recognition that we have $20 trillion in debt. we cannot make that problem worse. david: there is another aspect to this which is revenue enhancers in the plan. let's talk for example about the border adjustment tax. it is admitted to be about $1.1 trillion over 10 years into the federal coffers. how critical is that to you? rep. roskam: it is very

critical. it is one of the foundational pieces. hate foreans for a point of view, it is also good policy. let me quickly describe that. i resent western suburb of chicago. if you are a manufacturer in my constituency, the cost of your manufactured product is cooked into that income tax into that product. if it is exported into another jurisdiction, the other jurisdiction taxes it again. the inverse is not true. we do not impose a tax on the way in. au can see how this becomes made in america tax. 160 countries around the world adjust their taxes at the border, and what we are proposing is to do the same thing. the currencies will adjust, and our argument and our appeal is to say, "let's put american manufacturing on this sure

footing, because we have created a system over the use of has pushed more and more business offshore. we need to reset the clock and bring them back home." i am from michigan, and one thing we learned is that there is no such thing as a free lunch. whose pocket is this money coming out of? rep. roskam: it comes out of the foreign jurisdiction's pocket. the importers that are exporting and importing into the u.s. are going to have to adjust their prices. the arguments of some of the old opponents have shifted over the past few weeks. some have argued that they do not think the currencies will ever adjust. the argument that adjusted and said they are now concerned about the timing of the currency adjustment. if that is the case, then let's work with congress and the ways and means committee to work through transition rules. we have right now is not

sustainable. everybody has tried to deal with the u.s. based erosion issue literallyur tax base dissolving beneath us in the u.s. as if it here and act is ok, it is a fools errand. there is an urgency to this. we need to move. we need to move this year. otherwise, there will be screenshots in the years ahead where your viewers are going to be wondering what happened to that company or that company. we know what to do and how to do it. we also know what not to do. the house tried in the past. the obama administration tried in the past, and it did not work. we have to reset the whole thing. david: there's probably not a single american right now things the tax code is the way it ought to be, at the same time, can you guarantee -- there are a lot of studies out that say automobiles would be putting $500 more per car that

$2500 more per car. if the corporate tax rate dropped to 20% and thee is full expensing, if business rate for pass-throughs drops to 25%, if the top individual rate drops to 33%, if income tax rate dropped to half of ordinary income, then that all creates an enormous amount of energy and growth. these things cannot be devalue waited statically. critic's have to look at the context of what we think could be 3.5% or 4% growth. look at the total picture and not something in isolation. if you look at the total picture, there is a greatness to this. jess -- brightness to this. the inversion pressure is going to continue to happen. everybody has tried to think --

of inversion,base and it is not working. we have to create a new base, and that is what we are proposing. david: in two to three weeks, we will know about what the plan is from the president. does that sound right to you? rep. roskam: i think the white house will announce a plan in two to three weeks. the house has had a blueprint that has been public cents the beginning of the summer. the senate has some things they are working on. this great confluence of construction is beginning -- of event is beginning to reach a crescendo. we know we do not want to do things the way that the affordable care act was passed. it was written in the speaker's dashed through. what we need is a far more open

process. the blueprint is a proposal, and we are very interested in what president trump have to say and the proposals from the senate. david: the present of peter roskam, think you being with us today -- representative peter for joining usou today. alix: coming up, we look at the trade with pimco. the cold currency war heats up among nations. here is what we stack up about an hour before the open. s&p had a record close yesterday. a little bit of strength over in the u.k. european stocks are down from a one year low. all eyes are on janet yellen in d.c. this is bloomberg. ♪

♪ alix: this is "bloomberg

daybreak." i am alix steel. the wall street reporting today that the white house is exploring a new tactic to discourage china from under bowing -- undervaluing its currency to boost exports. this is part of a trump administration challenges to one trade partners. the question is, if the u.s. says your currency -- you are a currency manipulator, and i am going to tax the imports from your country -- does that make for a hot turns your -- currency war? >> no, i think it is still a cold turns to work. i call it that, because it is fought with words and covert action.

the europeans and japanese started with covert actions late last year when the ecb did a sales rate prep in december. this really depressed bond yields further into negative territory. also we can the euro. the boj was also active in pinning down 10 year yields at a time when global yields were rising. this why did the year differential and it weakened the yen. we should not be surprised now that the u.s. administration is reacting with words. alix: we've been talking about japan and germany, but really china seems to be their target. are chinese authority, and you read the wall street article today, what do you do? term, ink in the near do not think they want to

provoke the trump administration into slapping tariffs on chinese exports. i think the strategy in this currency war will be to hold back and prop of the currency. do not provoke the other side, and then see what happens. alix: is that, in essence, a soft plaza accord? >> you could call it back, but i do not think it would hold on for longer than march. in march, we have a g10 meeting with a new secretary will get together with finance ministers from other g-20 countries. that is in the middle of march. between now and then, i would europe,- expect japan, and china to take a step back and not push their currencies aggressively lower. again, they do not want to provoke the trump administration. alix: what is the long-term play here? if we get a weaker dollar and the next few weeks, what happens after the g-20 meeting?

>> if we have a weaker dollar, than i do not think much will happen. that will keep the trump administration quiet. the last thing they want is a dollar overshoot -- too strong of a dollar. if we can hold the dollar relatively weak and make sure it does not get too strong, i think that would prevent terrorists -- tariffs. dollars a risk that the appreciates in the next few months especially if the fed gets more hawkish and we get some more hawkish appointees to the fed board. i think that is really the thing to watch. if the dollar appreciate too much, then i think we should expect protectionist action from the u.s. david: the concept of a cold war in currency is fascinating. however, it walks the line of andng note currency at all setting a rate. is everyone constantly in a cold

war of currency? >> i think we were in a half war -- hot war until sometime early cut ratesen the boj into negative territory. they then realized this was a bad thing in the dollar got too strong. that was bad for everyone including emerging markets and japanese and european exporters. we had the shanghai accords that were put in place in february after the g-20 meeting last year. that led to a period of calm. now, we are back to the old game. the reality is that no one really wants a strong currency in this world, so that is why i expect this cold war to continue. david: so, there will be this constant cold war over currency unless, as alex said, there is a new plaza accord.

x yes, that is the reality we live in considering we do not know what will happen with trade policy. will there be a trade war? that is why we will continue to see a continuation of this cold currency war. david: coming up, we will bring you live testimony from janet yellen in front of the senate. this is bloomberg. ♪

♪ david: this is bloomberg. i am david westin. janet yellen it will speak in front of the senate banking committee today, and then she will speak with another committee tomorrow. it to take us through what to expect in the report is mike globalnd pimco's investment advisor. mike, what are you looking for?

policy --is monetary magnitude and timing. the other is regulation. we spoke a little bit about regulation and what the fed my do going forward. wall street is going to be focused on the monetary policy aspects today. there is two parts to that. one is the attitude and how many they are going to do this year. janet yellen will likely say that they will stick with their december projection which means three. we do not know much about what will happen on this goal policy. there is also the time in question. she does not want to pre-commit, but she likely does not want the markets to rule out march. at the time you get to june, you will be in the middle of the health care and tax reform debate could we will have passed the date in which the government might shut down over the continuing resolution if they do not propose a new one. this might be an opportunity to get a rate increase in. she likely want to talk of that possibility without committing

to it. through be a lot of people listening to her today in terms of what the fed will do and how they are going to do it. david: it sounds as if she is writing horses into different twoct -- riding horses in different directions. how can she pull that off? howhe will likely mention we are data dependent. if the data shows it appropriate, we could see rate increase soon. fromve seen the same several experts. a lot of the federal bank experts are saying we should raise rates sooner rather than later. they are trying to push you in the direction of a possible march increase. we do get another jobs report, and this week we get you cpi -- get ecpi. david: one question her colleagues have raised more than once is the balance sheet.

>> she will likely be asked about it. my guess is that she will not raise it on her own. the fed have put rules in place with their exit. deskis, when they get to a when they get significantly closer to a neutral rate, then they will start thinking about the balance sheet. what they will start is by investing maturing securities and let it roll off. they have not yet changed that guidance. as john williams pointed out a couple of weeks ago, they are still not even halfway to what they consider a neutral rate. it could become a neutral by the end of the year. she will let they talk more about how they plan to do it. it is likely not something the fed wants to have on the table as in imminent option at this point. david: final question. it is terrible to ask reporters to speculate, but let me ask you -- is she having in mind with the markets are today as she goes into give this testimony?

accused ofbeen paying too much attention to the markets. the concern is are there policies contributing to market rises that are considered unsustainable. to let you, i have go see you can get into see that testimony. we will hear from you later reporting on janet yellen's testimony. what are you going to be looking for in janet yellen's testimony? >> i think she will want to send three messages. one to the market, and to two policymakers in congress. -- the message to the markets will likely be to leave the door open for a rate hike in a march. i think she will emphasize that the economy is not overheating. toy are getting close inflation at 2%, but the economy is not overheating. i think you see a slowdown on wage growth on various measures will buy them time to skip march

and then to hike rates in june when there will be a little more clarity on this goal policies. that is the message to the market. two messages for policymakers. first, i think she will want to emphasize that at this stage the u.s. economy does not need 80 big fiscal boost. ig fiscal boost. i think the second message she will want to send is that mechanical policy rules can lead to policy mistakes. alix: thank you so much. him, will be sticking with us. we will bring you janet yellen's testimony live at 10:00 a.m. eastern time. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." i am alix steel. here is where we stack up on the latest inflation rates. we have had three record closes.

the dollar was softer on most of the session. nonetheless, it was weaker on all g10 currencies with the exception of currencies -- the sterling. the currency's not going anywhere in expectation of janet yellen's meeting before congress. you back up food and energy coming in at 1.2% at a month-to-month basis. it is up 0.4%. a slow grind higher when it comes to producer price inflation. it is still so significant a price below that 2% level that it does give more breathing room to janet yellen today and to the fed before they must consider more of a height in cycle. this is a pre-volatile reading, so we do not want to read too much into it. nonetheless, you have a year on year stack up for food and energy. s&p futures right around the

highest of the session good you have a relatively weaker dollar on the session. relatively weaker lows. in terms of the treasury market, you are seeing a slight backup and selling on the margins. a 10 year yield is very much going nowhere backing up by one basis point. we are still joined by joachim fels of pimco. while me through how you view inflation right now. you have had a little softer wage growth in the past -- last job report. the consumer price is strong, but not strong enough. joachim: yes, i think inflation took a small breather. on various indicators are slowing, but we think that is temporary. the labor market is pretty close to full employment. recently, labor force participation has risen a little bit, so people are coming back to the labor market or they are exiting at a slower pace,

because they are hopeful they can find jobs. down onmaybe weighing jobs a little bit. likely to rise rather than fall. we are more interested in the incoming this goal stimulus. fors definitely a story next year. it will hit the economy when it is near full employment. i think the risks to inflation are asymmetric. it is likely we get a more upside than a downsized to price. that is why we continue to launch tips into inflation back securities. we think the market is not fully priced for that rise in inflation. even one charts break expectations for two-year, five year, and tenure. the drive in inflation expectation sense september have moderated somewhat. nevertheless, still around that 2% level.

how can you make a call for tips when everyone calls is as well? is there still value? joachim: i think there is still value. i think the market was too pessimistic on the inflation outlook last year. we have seen some correction on that. i think that is largely explained by the pickup in headline inflation. i think with the market is still not price for is that big fiscal boost that is likely to hit the economy. alternatively, protectionist measures that might push up import prices. if you get the right policies and more fiscal expansion, you get inflation. if you take the left policies with protectionist policies, that will cost push inflation. in both scenarios, you get the higher inflation. i do not think the market is fully focused on that. alix: what kind of relation do you want to buy coming on thursday? joachim: we think the long and is quite attractive. we do not think there is nothing

inflation priced in. the whole inflation curve is rather flat at the moment. david: the difference between that right tail and left hill is pretty enormous. -- left tail is pretty enormous. to what extent do the fx markets take that into account? i do notat the moment, think they are focused on inflation either. i think they are focused on what will happen next from the administration. what kind of trade policies are we getting? will we get the border adjustment tax as part of the corporate tax reform? i think that is what the fx markets are focused on at the moment. as we talked about earlier, we are in this cold currency war are now words matter a lot. i think that is the focus right now for the fx market. in the short-term, i do not think you will see the dollar move either way. the borderegards tax, is it a stronger dollar? it is a i think

stronger dollar, but i do not think it would move fully to adjust -- over adjust to that border adjustment tax. i do not think you will see a full offset in the dollar. that means that either the foreign exporter margins will decrease or we get domestic inflation. again, that is part of our inflation story. get the border adjustment tax, it will raise the price level in the u.s. because imports will get more expensive. david: what does it do to our u.s. current account? joachim: that depends on if the dollar moves to fully offset or not. if it does not, you may actually in a smaller trade deficit smaller current account. it really depends on how much the dollar moves in response. there is an alternative possibility which is that the dollar overshoots. if we get in announcement of a border adjustment tax but it is only faced in overtime, you may

get an overshooting of the dollar in the near term. in which case, that would actually be bad news. into what weis up would hear from janet yellen later today. if the fed is seeing that kind of inflation risk, what does that do for their rate hike cycle? joachim: i do not think the fed sees that inflation risk at the moment. they have a much more inflation -- sanguine view on inflation. i think they will just wait and see what happens on the fiscal policy front. if we get a big fiscal boost, and that is a story for accelerated rate hikes and somewhat rundown of the balance sheet in 2018. it is not really a story for this year yet. having to do more rate hikes later is not going to be a real risk to the markets, but you guys are saying otherwise. riskim: i think there is a that we get too much fiscal stimulus, and that eventually we

get a fed that overdoes it in reaction to the fiscal stimulus. is the risk, there of the inflation overshoot which is a story for 2018 or 2019. there's than the risk of accelerated reaction from the economy intoh the recession into 2019 or 2020 when we have the next presidential election. alix: that echoes what we heard earlier from one representative of citigroup. what does that kind of and to the business -- end to the business cycle look like? joachim: it looks very, very ugly. this is an administration that plans to do a major fiscal stimulus. i think you could see a very significant inflation overshoot. much more than what we had in the previous cycle. with new faces at the fed who will likely come in over the course of this year and next year, you could get some more aggressive reaction to that. an extra session could be quite

ugly. when youaditionally, see that type of turnaround, it is because her has been too much credit expansion. you see evidence of that at this point? joachim: not at this point. the corporate sector has been leveraging, but that has been for balance sheet engineering activities. the household sector has not really leveraged up yet. this may start to happen in the next couple of years but so far i do not think there is any evidence or bubbles. the real risk to focus on is the real economy. it is overheating and accelerating wage inflation and consumer price inflation. in that sense, it is different from the previous cycle where it was ready -- really the credit expansion that was the problem. alix: we have been circulating a lot of articles around about the treasury mark. it started last week when we had

foreign investors selling u.s. treasuries, and now domestic demand is more than happy to pick up what was being sold overseas. what is the potential that longer-term that poses a risk to the market if a majority of the buyers of the treasuries wind up in pension funds? this is i do not think a long-term trend that for investors will start selling u.s. treasuries or credit. i think there is still a strong appetite for higher-yielding u.s. bonds relative to the low yield being seen in japan. 0% yields targeting a for the tenure. -- 10 year. in emerging markets, there is uncertainty about protectionism which is weighing down on some of those markets. there is demand for safe efforts. we think the appetite for u.s. yields and u.s. treasuries and

credit will remain strong for some time to come. alix: wrapping this all up here taking your view of inflation and treasuries, you like the longer end of the curve and that duration. what else is attractive to buy right now? joachim: i do not think there is much that is attractive in the equities space, but apart from what you have mentioned -- we like securitized bonds. in particular, we think the u.s. housing market is very stable and solid. we like mortgages both non-agent and agency mortgages. securitized, is because we want to be in the super part of the credit spectrum. pimco'sany thanks to joachim fels. coming up, jim b iago will join us to talk about -- jim bianco

will join us to talk about what he expects from the fed. coming up, we will have live coverage of janet yellen's testimony at the senate. this is bloomberg. ♪

emma: this is "bloomberg daybreak." i and emma chandra. coming up, we will hear from the u.s. equities and derivatives strategist. time now for other stories making news at this hour. i and emma chandra with your bloomberg business flash. avengers are calling off at his proposed billion-dollar takeover

that was blocked by a federal judge on antitrust grounds. t-mobile is using delays and promotions to boomer customers away from other -- to lure customers away from other carriers. t-mobile has been winning over customers by pitching free video streaming promotions and on limited data plans. credit suisse posted a bigger than expected loss for the fourth quarter. charge afterk took a u.s. investigation into its mortgage owning of the u.s. security market. a really good position. we have done 60 free deals so q1.into one -- in if you look at ipo's, we have done 19.

we think it is a positive and not a negative for us. suisse also said they will cut 6500 jobs this year. i am emma chandra. this is bloomberg. david: we are now joined by alison williams. view,n analyst point of is this a good report or bad report from credit suisse? alison: we knew they were going to lose money, so it is a good report. despite the charge, their capital came in better than expected. even better than some of the numbers they talked about. first quarter trends are coming in rather solid. we sawhow much of what from credit suisse today is specific to credit suisse, and how much can you generalize about european angst more broadly?-- banks more saying deutsche bank was

about 40%. credit suisse was talking about certain businesses doubling. we had a strong quarter. things are looking better in thick -- equities are a little light. despite the fact that we continue to see these gains in the market, we are not seeing the volatility. they do getms like that monkey off their back, so how much option our the do they have? alison: i think it really does help them. you heard it in the comments, the ceo today. he spoke about some ideas they are talking about. there is the language that it remains an option and that it was ineffective backstop during the peak year -- was an effective backstop during the peak year of what the 16. -- of 2016.

also looking at cutting jobs and cutting costs that way. things to continue to look at. they basically improved their ratio. i think it was 11.6% off the top of my head. was 11.6% off the top of my head. it is hard to say where they are compared to their target, because the big question out there is regulation and what relators call "basil for." it will increase the denominator. the inlet of progress on the numerator and they are making progress on the denominator by selling off assets. to the risk that their models might overshoot that denominator could cause them to fall short, and that is a tough call. alix: if you have a president trump who is calling for deregulation of the banks in the u.s., you have the opportunity for the fed to change those rules, and then you have the basel force over european banks. who is at an advantage in who is at a disadvantage?

alison: four basel, it is expected to be more punitive. the u.s. banks have already gone through a process with the fed in terms of getting their miles approved -- a lot of banks had to make adjustments to get their models approved. we were member bank of america having to do that a couple of use ago. in terms of overall dodd-frank, the feeling of us regulation is a positive for the banks. an executive order signed last week was more of a signal than anything else. what is interesting will be what janet yellen have to say today. for investors, some of the more interest in comments was the recognition followed by the backlash over the stress test and criticism. we will see what janet yellen have to say about that today. david: how likely is that to play back against also for -- basel four? is it possible that it will be

dialback? -- dialed back? that is what is interesting, because you have european regulators coming forward saying they hope that united states is not backtracked from some of the agreement we have made. we have had the the mastic pressure on janet yellen with that basel force. one thing to keep in mind is that the u.s. regulations are tougher than basel. a lot of the things being talked about are not necessarily going to be good for big banks. that is another thing. what are the changes and who does it help? alix: the regional banks also sending a letter to congress there. alison williams, thank you so much. if you missed anything in the last hour and a half, do not worry. if you have a bloomberg

terminal, you can go back and watched any segments you might have missed. you can check out our charts and graphics, and you can even id us. you can go to tv terminal and check it out. this is bloomberg. ♪

♪ david: this is bloomberg. i am david westin. news out of europe today, the owner of szechuan a is pursuing a possible acquisition of europe-based general motors. joining us now from berlin is matt miller. matt, i just saw this statement that came out. the owner is saying that yes they are talking after all. peugeots we spoke with a little mile -- a little while ago. jennifer motors -- general motors just put out a statement. finally confirming that the two of them are in talks. both say that there is no

affirmative to a final sale will be reached, but that is assumed as they are in talks. these talks are fairly advanced. it is interesting, because it of a problem they have been dealing with for a decade. it gets peugeot an additional million cars capacity in europe. even possible a way into the u.s. which is a market that peugeot has wanted to find a way into for some time now. executives who are talking about this might be thinking it is something of a win win. shareholders have a bit of togeot's shares in france the highest levels we have seen since last summer. investors are very bullish on this possibility. david: if it does not come to pass him a market and investors will be disappointed. both investors thought this would be a good idea. why is this a good deal for peugeot?

do they want to get back into the u.s. market? not sure if that is the primary concern, but they do get an extra million cars production capacity in sales. on my bloomberg terminal, i have something from bloomberg intelligence. a wealth ofss information on the bloomberg. i have tapped into european carmakers market share here. you can see the vw has the largest market share. ise is peugeot, and here gm's opel and locks all. with a combination, they would become the second-biggest carmaker in europe. it will generate an economy of scale. they will have five major brands under their roof, but they will be able to manufacture their

brands with our fewer platforms and groove -- boost profitability and operating margins which is the aim of both general motors and peugeot in their collaborations here. that is according to the gm spokesperson who just put out this statement. that will really help us as far as that help them as far as gaining market share and probability. david: we have been at peak auto sales. what happens if there is a downturn? who benefits more from this deal? matt: for one thing, general motors is not suffer the downturn if you see it here in europe. they are making more profitable cars, trucks, and suvs in the united states. from the peugeot side of things, or any company's perspective, a downturn is much easier to bigger if you come from

profitability margins. if they can boost their margins with this purchase and merger, then they will be able to deal with a downturn in a much better way. david: matt, thank you. good have you with us today. alix: we are just hours away from janet yellen's testimony. here is what was said in delaware, "significantly, that significantly higher rates are warranted. he also expands that best expects the u.s. economy will expand in 2012." for thechecks -- check hawks before janet yellen's testimony. this is bloomberg. ♪

alix: happy valentine's day. welcome to bloomberg daybreak.

am alix steel along with david westin. we are stacking up in the markets with futures slipping into positive -- sorry, slightly flat. recordthree high closings. a little weakness in europe with from their 1/10 of 1%. it is a weaker dollar with the exception of sterling. no big physicians being taken at the 10:00 a.m. -- david: a little bit of a breather after such a run-up. . little tired now we will turn to the news out of washington. we are joined by kevin cirilli. big news overnight, the national security adviser is out, michael flynn. kevin: i'm hearing from one source near the conversation

there could be a front runner as early as this week, they could potentially name someone in the establishment. hasral robert is hard top.ed as the also david petraeus. this is a win for the u.s. intelligence establishment as general flynn was quite controversial, he has since resigned. d possibility is fascinating. it would be a unique relationship between the white house and the pentagon. also speaks to the general mattis previous admiralship with harward.

flynn resigned and was not fired. we know that president trump of loyalty. he viewed general flynn as someone who has been with him for months on the campaign trail. he was one of the earliest military officials to endorse his candidacy. it is someone who, frankly, president trump trusted. to see the events unfold and watch him resign under such pressure is fascinating. heid: part of the drama is stood shoulder to shoulder with donald trump when he was the candidate for a long time. it speaks even louder about this decision. do we take from this that there is disarray in the national security establishment, or this is a strong ceo who is at take the way that i have seen ceos act? little --kevin: little --kevine

above. that is how powerful the establishment boats and the u.s. intelligence community are. effortks to a cohesive to highlight the conversation that general flynn had with russia during the campaign trail and a broader effort of how president trump is trying to some of himself from the allegations. finally, i think this is an effort to put this story behind them. we saw this over the campaign trail. this is when president trump and talkdministration want to about policy. this gives them, in their opinion, an opportunity to do it. david: the possible market effects. we bring in jim bianco. saw this overnight, there was immediate reporting that the dollar softened. is that a fair correspondence?

jim: i don't think it is. you get divided into 2 camps. 18 year highs and consumer confidence, all-time high in the stock market. business people are saying things are great. then you can turn to msnbc, fox, and they are -- david: what are those? alix: we only watch bloomberg. are breathing through paperbacks about the politics. i do not think what has happened to general flynn, or what may happen in the non-business aspects will affect the markets. it doesn't mean it is not important, but i do not think that will affect the markets. i think the dollar weakening was more noise thann an signal. david: there has been quite a marked up we have seen. now things are pausing. is ai think there

push-pull in the market. most people look and why traditional metrics see a market that is may be overvalued, not cheap. there are hesitant to jump in. the hope they are having is that .e will see the trump reflation we will see higher growth, earnings, the economy move forward in a way that it hasn't during the post crisis period that will justify the high levels. the market moves forward, reassesses, moves forward again. alix: what doesn't happen is any big correction of 10%. you come in and futures are off 5%, clearly there are buyers in the market. at these levels if you are trading on hope? jim: you would want more cyclical, more economically

sensitive areas of the marketplace. anything but financials. such a huge run. on the other hand, if you are worried this will not come to camp,i put myself in that then what we will wind up with his more inflation, you would look to sell some of those issues and put yourself in a defensive position. if inflation percolates and bond ,"elds are saying "not yet that will be a headwind for the markets. now, it is all systems go. alix: you may the argument with donald trump was elected in november, but you would have missed out on record rally after record rally. how do you had yourself? -- hedge yourself? you are seeing the hope of

the market has been moving forward with is that things are not great at this moment, maybe they were not great last week, but make america great later this year is what we have been having with the market here and you have to base it on the forecast. you are not buying a cheap market. if the forecast does not come to pass, you will hold a market that is overextended. david: when you look at the fork in the road between underlying fundamental growth and inflation n,thout growth, a t-junctio when you look as a researcher, what will you look at to determine which way we are headed? jim: when interest rates head up in earnest, they will be signaling that there is an inflation coming. we have not had that in a post crisis period. really, the numbers have never

burned that out. if we see inflation return, you will see it first in interest rates. rate inards a digital markets, higher interest rates on stock prices. that has not been the case in the post crisis period. that is the question in the trump administration, will the reflation lead to inflation? interest rates would be your signal. gander want to take a that we may not get any correction. at 11, there is less buying and selling because that is how investors are responding to political risk. if we get the uptick in inflation, but stocks are under owned? vix low,only is the but you have seen it with a volume that there has not been the burst of activity you would expect with new highs and optimism that things will get better.

usually see an uptick in volume. this has been a low volume grind forward for the market. the problem with looking at those metrics is that when people come to the conclusion that maybe it has not played out the way they thought is that they move in instantaneously at the same time. neither bull give you a lead over anything else. a 1% 45 days without increase, 85 days with a 1% decrease for the s&p. david: one thing you would not have predict it is that donald trump would have been that. you are sticking with us. coming up, the equities and derivatives strategist giving us takes on the market and what to make on apple hitting record highs. to break, here's where the markets are stacking up. the s&p is flat, taking a break

from three-day's of record gains. european stocks off of their one-year high. a weaker dollar except when it comes to sterling. the dollar off lows of the session. nymex crude a bid over 1%. all eyes on washington, d.c. and janet yellen's testimony in 15 minutes. ♪

alix: this is "bloomberg daybreak." aetna and humana, this is the year to date chart. the merger between the two will fall apart. aetna ending a

takeover. they did not appeal to a ruling by a federal judge who blocked the combination. now aetna has to pay humana a breakup fee. profit revenue beat estimates, they're too many 17 guide also just met estimates. t-mobile starting to steal market share from competitors. last of is sent no sure. $1.6 billion for sino sure. that is the second cosmetic surgery deal in 2 days. 28% premium to that close. less than an hour janet yellen will testify in front of the senate. with us is jim bianco. what is the yellen trade? what do you do? , it when it comes to yellen will be when the fed will raise rates. there is rumbling that march

might be on the table, or might not be on the table. it would be huge news if she hinted the fed would move in march because the markets have not gotten priced in. you will wait to see if she weighs in on the discussion of the fed reducing the size of their balance sheet or the bonds they hold. we have not heard from the big fed officials like fisher or onl dudley or janet yellen the subject. if they weigh in on that subject , that would be significant. i do not think she will on this go around. david: i feel sorry for mr. locker. should we ignore the people apart from janet yellen? extent, yes. two things seem to drive fed policy, what stanley fischer, bill dudley, janet yellen say, then what the markets price in.

over the last 100 to 200 meetings, there has not been a rate hike over the last 25 years that was not priced into the market before they did it. we are at 30% right now, so it would be unprecedented if the fed hikes rates without the market expecting it. the market will only take its cue off of the top three officials. it is nice what some of the fed presidents and governors say, but they will not sway policy. the market cares about what will the policy be. past i thought we were trying to figure out when the next 25 basis point rate hike would be and we were focused on twitter and what was coming out of the trump administration. where are we in the fed-put versus the trump-put? jim: the market does not expect

anything for the next several months. that moreill parse and watch our twitter feed for donald trump ticket market breaking news for the next few months. our market breaking news for the next few months. what we have learned about trump is take him at his word, not what might be in his best interest. it sounds like janet yellen will not be the fed chairman when her term expires in 2018, and we can start the parlor game about who will be the fed chairman. david: let's assume janet yellen does not go beyond her term. do we have a sense of what sort of person the president would like? harvard university did a study. for the first 80 years fed usuallys were successful in business, bankers,

or lawyers. it is only in the past 30 years we are emptying economic departments of the universities. i think we will go back to business, bankers, and lawyers. with john ellison, kevin worsham, those names,. haveesspeople that success. that will be the stamp the trump administration will put on the fed. they have the potential to name the chairman and three governors. in one year or 18 months you could see a lot of business people bringing to their attitudes and decision making process to a fed that has been dominated by phd's in economics. it could be very different. onid: we had john allison and we talked about that. that could be not only people with different answers two different questions, but different questions.

he said we have been paying too much attention to the big guys, and not enough to the small, regional people. will we have that shift in the fed's emphasis? jim: you could have a completely different shift in regulation. successful bankers will say that dodd-frank has been too much of a burden. the fed's regulatory powers have been too much of a burden. that is why financial stocks have done so well postelection. on the other side, they will ask hard questions about monetary policy. has qe worked? has it created jobs? do we need to continue with the large balance sheet and extreme policy? maybe we should be more aggressive in undoing it. those are the questions they will ask. whether they will have a quorum to vote that in is another thing, but they would ask

different questions. alix: how do you build a portfolio to tie this in? utilities and yield sensitive stocks look more appealing. industrials and materials -- in 2016 where you could see a hawkish fed and growth picking up, that causes a tighter cycle. what does your portfolio look like? jim: you are right. 28 teen, you will see higher rates -- 2018 come you will see higher rates and would want to buy beneficiary stocks, higher rates will be defensive in the bond markets in 2018. the problem is that is a consensus call. everyone is betting for that. i would not be surprised in the -- t half of this year

you start to see rates go higher. if rates were to go to 3.5% on the 10 year note, it seems the vast majority of the bond world would make money because the world is positioned for that. when they position one way it does not seem to work out that way. alix: that sounds like no gross that we could achieve 2% on the 10-year, then get to 4. david: go down, then come back .p thank you, jim bianco peer group will bring you chair yellen live starting at 10:00 a.m. eastern time. this is bloomberg. ♪

alix: t-mobile posted profits that beat estimates.

joining us more aware key banks are looking is the equity analyst from morgan stanley covering telecom. it was about the ad subscribers. they just met estimates, they did not surpass it. that part of the issue with today's numbers is theirmpany reported subscriber numbers in early january. we had a preview. they did provide constructive guidance with these results, but the other thing overhanging this unlimitedroduction of data usage by verizon. it is something they have not offered since 2011. aboutis concern accelerating wireless wars, weighing on the host sector. alix: t-mobile righted itself on offering a low price and unlimited data. how competitive can verizon be

on that? verizon has a strong network. they have seen the customer growth slow because people have wanted to go to unlimited. we are seeing more streaming, music, video. if you have teenage children you do not want to try to figure out if they are going over their allowance. the simplest of unlimited is attractive. by improvingonded the quality of video to high definition, improving hotspot, 100 dollarsne for offer. it shows how quickly they can respond. david: can any carrier when the price war, or does one have to make a move like at&t try to do with time warner? simon: t-mobile has been taking the majority, all, of the industry growth.

they only have market share in the mid-teens. we have been looking at other insurgent types. to take the ability more share. they are expanding into markets that they have not been competitive. they are moving into enterprise. we are seeing a lot of m&a on the particularly in the wire-line sector and other areas. we have a new report about what is likely to happen in the u.s. the stoxx have run up in anticipation of consolidation, but there has been an incentive option meaning companies cannot talk to each other. that auction is winding down raising $19.5 million. in april or may, the companies will be able to talk again. t-mobile has potential auctions on a standalone basis. they think they can grow operating free cash flow in the

18% range in three years. that led us to raise our target price from $64 to $72 on a 12 month basis. alix: simon flannery of morgan t-mobile,verweight on $72. away.tes relative softness at the margin with u.s. equity futures as the s&p closes three record closings. in europe, thess ftse relatively flat. a weaker dollar as we await janet yellen speaking in half an hour testifying to the senate banking committee. this is bloomberg. ♪ with x1 you get the best of the oscars.

you're a funny guy. funny how? how am i funny? scorsese finally wins. could you double check the envelope? show me best picture. what's the difference? show me best actor. i do not take tonight for granted. thank you so very much. get all the greatest scripted and unscripted oscar moments on xfinity x1. the oscars, live sunday, february 26th 7eâ4p on abc. alix:." this is "bloomberg daybreak 30 seconds until the opening bell. future is a little softer with the s&p and the dow closing at

three record highs. the nasdaq closed at five record highs, futures also seeing a little softness at the margin. asset classes, a relatively weaker dollar with the dollar index off the lows of the session. the 10 year yield goes nowhere. we headarginal lying as into janet yellen's testimony. you continue to have crude winding its way higher. as you have the weaker dollar and potential opec as well. here is abigail doolittle. abigail: the first down open in 4 days, very small losses on the open. it does look like investors are ahead of fedr chair janet yellen with the markets unchanged. this is fitting to a macro theme. five 611,ok at g #btv

the s&p 500 has not made a 1% move up in 46 days or down in 86 days. the firsttreak is time this has happened since 2006, so investors are stuck in a range. the last time this happened in the summer it did cause big volatility. when the complacency breaks it could be a big move up or down. one sector moving in a decided direction is auto trading higher, especially fiat motors -- fiat chrysler considering and general motors, considering buying is considering general motors. it could be sparking consolidation hopes with goldman sachs saying fiat chrysler is in

the best position for a wave of consolidation. alix: with+++ you will dovetail over what abigail was saying. it is the vix versus global policy uncertainty. huge uncertainty, the blue line. the vix around levels we have not seen since 2007. help me explain the denver -- the divergence. julian: we are seeing political confusion. not just here but elsewhere. a part europe, china has that will set the course for the next five years. rather than selling stocks and creating volatility, investors thesitioned taste on

prospects for growth, that animal spirits could revive, with confidence measures. mode. in a wait and see there is really just an absence of trading back and forth. do with that?you how do you position your self to deal with uncertainty and low volatility when you do not know how to model your estimates because you don't know with the fiscal policy will be? : recognize the range in outcomes is much wider than normal. potentially coming off of fourth veryer of 2016, the first good earnings quarter in a couple of years, one would expect a tighter range from 5% to 8% growth. we are seeing numbers that range 14%.3% to 4% to 12% to

in that perspective in terms of thinking in stocks and sectors, we want to stay with places that do not necessarily need tax policy to kick in to a great degree in 2017. financials will benefit from the ,act the fed is likely to hike supporting the long end of the curve, plus an emphasis on less regulation in financials. at the same time, health care and technology, which lagged dramatically during the reflation rally between november and year end, have started to work. primarily, because as complicated as tax policy is, they will benefit from repatriation. they have all of the offshore cash. alix: 51 percent of executives were optimistic. and unbelievable animal spirits in the boardroom.

david: they have been waiting to be optimistic and are seizing the opportunity. when you position yourself and you have this policy uncertainty, do you go more into the most conservative and most risky, or to the middle saying let's get risk off without trying to be too conservative? julian: you need to be invested in the markets, but realize because volatility is so low and expectations are so high, there three .2 to be one or during the year like we have seen where the markets have a temporary 5% to 10% fall. you do need to be invested, eight years in, we're looking where valuations are reasonable. financials, health care, technology, despite that

financials have rallied as much as they have, they are still relatively undervalued versus the index. david: are you ready to come in you see a temporary dip in the marketplace? julian: yes. you have to be quick. to trade andg trading the plan. rather than hedging on the way down, think about where your targets are and have your sectors lined up so you can take the emotion out of buying the dip. alix: valuation dispersion, if you do get more protectionist trade measures, that will pan estimates. on the flip side, you have 2600. looking at valuations, that is a huge dispersion. julian: it goes back to the thesis that the range of

outcomes. one thing that people have said is that donald trump is not an 11 vix president. later into the year, the markets will move based on the perception of where for -- unaware policy will drive earnings. if you start a trade war based on tax policy, you could compress the 14 times earnings from what is historically high over 19 times. that is 1800 or do you could overshoot, particularly if we get good news in the next few weeks. david: apple shares closed at record highs. nextnnouncement is the iphone will boost sales growth. increased value to $699 billion, making it the world's most highly capitalized company. joining us on the phone is a

senior analyst at nieman company covering entertainment and internet. is this a rising tide lifting all boats, or is there something specific to apple to drive this? >> both. it is the context you have been discussing for the last 10 minutes. it is apple specifically because they got lucky with the galaxy note 7 explosion. there has been damage to their core competitor. that is apple-specific. and people are excited about the 10-year anniversary iphone and led screens. known about the new iphone for a long time. is there something new that we know about the iphone? laura: people are more excited about the services business, subscribers now that they are reporting out of

subscription-driven businesses and a foray into content. there is a lot going on in the company that makes the ecosystem more powerful. the average person holds an iphone for 12 years. ecosystems have higher multiples man devices. turn fromt is a big hardware to services. is high margins, but a relatively small part of their business. is it conceivable they could pivot to a services company? laura: i wish they would sell phones on a recurrent subscription basis and charge you $40 forever and become a services company. of the devices are paid for month-to-month and they sell .igh-margin services around it if the average person owns an iphone for 12 years, three or four in a row, that is a subscription model, but they

sell them as a device. alix: the tech leadership as the market rallies, does that continue? julian: we think so. looking at tech broadly, valuations on a relative basis. run this faret has is what will work on a relative basis. valuation is attractive. technology trades at a premium toward the late stages. plus, technology has lots of this offshore cash. as we saw in the rally postelection, those names were left behind because they were not necessarily growth enough. now tax reform, those names we think could work. this is a company when it is having a high tax rate, white and p/e.is as to wrap it up, how much of

apple's rally has to do with cash repatriation and policies from the white house? laura: 50-50. 50% apple specific and 50% new tax policy. alix: laura has a strong buy on apple with a $150 price target. good to see you. julian emanuel, you are sticking with us. coming up, live coverage of chair janet yellen's testimony at 10:00 a.m. a tiny bit of softness in the market. julian emanuel is laughing. softness over europe. the s&p sitting around record highs. this is bloomberg. ♪

emma:. this is "bloomberg daybreak" full coverage of janet yellen's testimony to congress from 10:00 -- at 10:00 a.m. eastern time. david: this is bloomberg, i am david westin. wouldent trump said he have "a phenomenal tax plan" a few weeks from now. any plan will likely be "a tough piece with adjectives," he went on to say you should not study his statements. trump's white house is nonlinear and non-consistent by design. still with us is julian emanuel. i want to ask you to comment on

the trump white house, but let's talk specifics with the border adjustment tax, which according to the hill, they really need to pay for the goodies they want. julian: it is very clearly delineated. the losers are the companies that are very reliant on imports. more specifically, apparel, semi conductors. it, in a lotabout of ways, if you are going to pay import your product, and you are unable to pass that to the consumer, that is out of your bottom line. the you think about potential losers, it is the diametric opposite to the 1980's when apparel and textile manufacturing were huge in massachusetts and the carolinas and were off short as costs

plunged. the winners are the export- and companies who may or may not receive a border rebate. their exports have a larger percent relative to anything they import on the cost side. those are health care products and services and consumer staples companies, who also have offshore cash waiting to be repatriated. few,: i will list the top under armour, ralph lauren, macy's, kohl's. it is the apparel people, the retailers. julian: when you think of the potential of not passing along the costs to the consumer, there couldargument that there be a profound, fundamental shift in their business model. alix: under armour is down 25%

since the election. what is priced in? there are a stock-specific elements, but in general it is one of the things when you think about where policy is potentially headed, it is easy to see why investors would be cool to the space in general. borderadvocates for the adjustment tax say that dollar will go up and negate whatever reporter tax there may be. a congressman just said the same thing. what is your response? do see in theory we dollar appreciation. fx strategists think that is 4% to 5% as opposed to the 20% a lot of people are calling for. you will not see that massive dislocation because the u.s. and notis a price maker

a price taker. when you think about it, notes at value as a total percent of the total economy is low and falling as we transition to a knowledge economy. alix: have you played this rotation yet? julian: there are a number of names in the apparel space that .ur analysts are cautious on in fact, consumer discretionary has been a space that has worked very well over the last five years to six ears. we are neutral on that theme. the companies that are poised to win with the cash, we've do point particularly to the that markets are very fully priced, that some of the defense and health related areas look attractive to us. alix: it is a pleasure. julian emanuel of ubs

securities. .ark barton and vonnie quinn we are around the record highs, but a little pause. 12 minutes from janet yellen. mark: you have done my tease for me. full comingmony in up. is that short enough? i love it, and we will get the analysis from you afterwards . if you have bloomberg terminal and missed anything you can go to tv peer group can watch charts andclick on graphics, interact, even sending us notes. this is bloomberg. ♪

david: this is bloomberg. i am david westin. live pictures from capitol hill where janet yellen will appear before the senate banking committee.

president jeffrey lacher spoke at the university of delaware ahead of the remarks. >> the elevated uncertainty of around fiscal policy, particularly substantial fiscal stimulus, suggesting the next increase should come sooner rather than later to reduce risks associated with having to raise rates more rapidly later on. david: explain how this works. freelancing, putting pressure on his boss, or doing her bidding? >> he is not doing the bidding of janet yellen. they have been on opposite in some of the policy spectrum. he has been wanting higher rates in any condition over the past several years. janet yellen has had a more measured approach. david: let's talk about the march increase. a 30% likelihood.

does janet yellen want to get that number of? carl: i do not think she wants to move the needle significantly. they want every meeting to be a live meeting. that does not mean a rate hike is coming, they only want the market to consider the possibility. the fed would be satisfied if the odds are 50-50, more or less, heading into the meetings. 30-40 is not far off of that. a considerable amount of data in the meantime, it she will say where we are currently is not .trong enough to justify that in the spirit of valentine's day, she will be flirtatious with the commitment to a march rate hike. she will not tell us one way or the other it is happening or it isn't. based on her broader comments that she is not ready to pull

the trigger at the march meeting. time: when was the last the fed raised with a 50-50 on a w rip? carl: this cycle has been much better. we go into those meetings with hikes the last two december is, the markets were broadly anticipating the rate hikes so 90% ors were 80% or better. because the economy was fragile, the fed did not want to risk uncertainty and a clumsy market reaction. they will stick to that mantra is the current operating environment. alix: how hostile will congress be to janet yellen? are we going to see soap opera action on television? carl: there is the risk for that, and she is prepared to that. it is important for them to push the fed on various issues, but also important for chair yellen

to push back and firmly assert the fed's political independence. alix: it seems like with a trump said we run the risk of a fed backing away from independents and a more rules-based economic policy. will we hear that reverberate? peoplee will hear pushing for a rule-like policy. from we had heard from chair chair fisher, is a pushback from that wrote approach to monetary policy. they keep highlighting human discretion and not a self-driving said. -- self-driving said. david: we have not heard from the new chair of the banking committee. how important will that be? carl: it will show the amount of beaufort pressure they will try to -- the amount of overt pressure they will try to push on.

janet will not be swayed. fed values its independence and will assess economic conditions on the ground. when the economy is growing 1.9%, the risk is not tilted too heavily towards overheating. i would push back behind the curve. david: thanks, very much. said chair yellen begins her testimony at 10:00 a.m. eastern. alix: you're looking at where the grilling will start. 20 five-minutes into the session. softness across the board. you have a relatively weaker dollar with no action ahead of yellen's testimony. this is bloomberg. ♪

i vonnie: you are watching "bloomberg markets." moments awayis from delivering her monetary policy report he for the senate taking committee today. that will be followed by

lawmakers. her first is appearance on capitol hill since trump took office. markets are looking for clues on how quickly she will tighten monetary policy. ours get to michael mckee, correspondent. michael, what do you have? short, simple and direct. economy, hiring and inflation are growing fast enough to justify additional rate hikes and reading between the lines, don't take march off the table. janet yellen "waiting too long would be unwise, potentially requiring the fomc to raise rates rapidly which could risk disrupting financial markets and pushing the financial market into recession. testimony i can remember, 4.5 pages, janet yellen both that job rose has