president's address, details on how he plans to energize the u.s. economy. the dow, a record every day since trump promised a phenomenal plan to cut taxes. marches live as the federal reserve waits for details. traders drive up the odds of a rate hike to 50%. from new york city, worldwide, a warm welcome to "bloomberg daybreak". the program, import and conversation with howard schultz, discussing tax arrangements and u.s. politics. the tone of the market this before thethe calm speech, futures that flat, equities in europe that flat. really not much price action to speak of. as well, safe haven assets, the front end of the german bund curve up two basins points. , crude light on

the day. one stock that is moving is target, off i 13%, a dismal fourth quarter, plus full-year outlook life as well. only low single digits for same-store sales for the full year. they pre-announce some bad news, but this beat the worst estimates. david: to get us ready for president trump's address tonight, we are joined by a man who has been in the room. served as secretary commerce under president clinton and chief of staff to president obama. he joins us today from his home in chicago. good to have you. take us through it. from the point of view of the white house, the president, number one, who is the main audience he needs to address tonight? largestis is the audience he will a dress since the inauguration, and probably the largest audience for the he needsthe union, so

to affect the congressmen and senators who are sitting right in front of him, but you're really talking to them, the american people, and most importantly for president trump, he is talking to his core supporters, the base of the republican party, the ones who will move those congressmen. he is now getting to crunch time on getting things done in congress. he's done everything he can do with executive orders, and now the challenge will be getting andgs out of congress signed by a president and enacted. david: you name three constituents good one is who is in the chamber, the members, number two bank as the american people come but number three are his base. those three are not necessarily the same. would you advise trump to go for his base first? would because he

is most comfortable there. if you look at his inauguration and action sense, he has played to a narrow base of the american quiterate or population, frankly. if you look at the polls, which i don't think they pay much attention to, they look at who is staying with him and why and who he is appealing to. he has talked of those people in an aggressive way. he would do that again today. that is how he motivates is based to motivate the republican congress. isid: if the main audience his base, how does he measure success? bill: well, i think he has to be well received. verynk the markets will be clear on tax reform, regulatory reform, all the things the markets like. willtimate is the market respond positively, but then begins the process of tax reform.

he talks about infrastructure, spending, deficit spending probably, and why not? we fought two wars on a credit well so we might as rebuild america on a credit card. i think the market, the economy, business community will like that, so there is a lot he can talk about that will stimulate optimism, but then you have to get into the details, and as the president said yesterday rather shockingly, he found out health care is very complex. well wait until he tries tax of the tries to cut 10% budget while raising the defense expenditures by 10%. do,e are not easy things to and the president has just begun the process quite frankly with congress of doing those things. david: how can he deliver an affirmative message on tax reform when he also said he would deal with obamacare first before tax reform. of would he avoid the morass

health care reform so he can get the tax reform? is a morass, no question about it. they have raised the bar for the last six years, saying repeal, repeal, repeal. it is amazing that no one thought about what would replace after the repeal. inthey feel so confident repealing it, just repeal it and let the 20-30,000,000 people be uninsured and see what happens to them politically. i think you are right, this is much more complex, and the president will find out that he has two wheel and deal and have to do it with his allies, namely the republicans, who have been on a jihad for the last six years saying obamacare must be done away with without any thought to what would replacement, a serious thought to replacement i should say. david: the american people, markets, business leadership are looking to the speech and expecting a lot in terms of the

direction the president will take. as you watch it, if there is one thing you are watching for most of all to determine where we are at it, what would it be? quitewhether are not frankly back to what i said, does he double down on his base with an aggressiveness and the tone he said during the inauguration and has continued for the last number of weeks? or does he show some discipline and focus and conciliation towards those that may not be strong supporters? i think it is a small chance he does that quite frankly, then follows it up tomorrow with rhetoric and with policies and an aggressiveness and conciliation in making a deal with democrats and republicans who may not agree with him. that is a tough thing to do, and for a man who has not personally been involved in these sorts of things over the years, that is not an easy task for a new president. david: thank you.

john: i wonder if we finally have a president who looks to the futures market. alix: he has taken credit for the 13 straight closes. byn: we will be joined capricorn fund manager and deutsche bank global head of rates research. here is the question. do we have a president who looks to the markets to judge the effectiveness on how well his speech was received? he will haveink one eye on the reaction and also the bond market in terms of whether he is delivering on the so-called trump trade that came into effect after he won the election. the bond market is really .olarized i think

there are a lot of people out there who think yields are going up, and they are all very short. a lot of people think it will come rattling back down again. the difference is whether we can see delivery on the policy promises, not just from congress, but also trump. come the shorts that have off, is that the story of the moment? dominic: yes, i think there is a concern that if we don't get more clarity and even if we don't get exactly where we are going, we want to understand the path, so if we don't get that understanding, there is the risk of the market will become frustrated and rates will fall. alix: that path has to do with tax reform. you don't get it at all, you do get it with the border tax adjustment, you get it and it is messy and the dollar spikes and creates have it, so walk me through what happens to yields.

how low can we go? dominic: there is extreme concern that tax reform will be so complicated and there are too many different priorities and you can't result in in the end, and why could we go back down to where we were around election time, which is 180. one of the main things about the tax reform in our view was this run-up to break even in inflation rates. there was a focus on whether it was infrastructure spending or a order tax. inflation expectations have been very a low before the election. they deserve to go up, and this is a catalyst to get them to go up. yields have been relatively benign, so that is the issue. you could run the risk of going below 2%, which people are not focused on because you think there is a high probability of tax reform. london ising us from the capricorn fund manager. we talk about the bond market and the message come are we

2% before we see resen 3%? >> it depends on the next month or so and the tax reform plans we see. to beal concrete policy, honest, we have not seen any concrete policies today. alix: we have seen 12 straight record closes. if we don't get the specifics, what happens to markets tomorrow morning? : if i knew that, i would be very rich. too the downside because most of this rally has been predicated on tax reform. infrastructure spending is likely to be extended out just because the current plan as we

can see it does not make sense from an equity and lending point of view. it relies too much on the public sector. david: what will be the most important thing you would be looking at? u.s.-yen, the bond, what will you use to determine what the speech did? bond yields are probably the most important element. we have had this narrative of inflation, everything positive, and the u.s. will break out. we have seen some dollar softness against the major currencies. emerging-market currencies have rises significantly against the dollar, but it all comes down to bond yields because if you are not scared of duration risk, the question is will you put more money into equities. if you are running hundreds of billions of dollars, the equities have caught a bit ownuse people don't want to

30 year bonds, but if the yield comes down towards 2%, then you get more confidence. alix: a lot to watch for here. they are sticking with us. coming up, ahead of president trump's speech, the chair of the house budget committee, diane black, on what we can expect. latest bloomberg column on what a fed rate hike in march will imply. this is bloomberg. ♪

i am alix steel. a march rate hike got pretty real. this is the implied probability now hitting 50%.

this jump came in the last few days. is this really the market reconsidering a rate hike or some kind of end of month rebalancing in euro-dollar futures? debate lasthink the week was it they did not hike in march, when would they hike. idea is may be made, so maybe get one in now if you are going to do three this year. also, fed officials have not gone out of their way to rule at out at out a lot of guys on the if sheould vote for it wanted to do it, so it is for her to decide. alix: didn't we find that out last week? she did speak as well as other members. she was a little hawkish. she were to switch

gears and they were to end up hiking, it would be a different hike than in the past. it has been well telegraphed in advance, and they have been uncomfortable moving unless it is all it's on probability they will do it, so this will be a shift in gears in terms of how they hike. let's take that at face value. marches on the table. why aren't we seeing markets move more towards this. if it had happened in august, we would have seen a big move in the fx market. the common narrative is the u.s. a strong and tight and you will get hikes regardless. ,veryone believes in a shallow reasonable rate hike cycle, but even if you see i march rate hike, you might not see the typical reaction in the bond market you might expect to see. the market is looking out further. this is in the news, and the question is what is next in the news.

when you say the typical reaction in the bond market, what do you mean specifically? dominic: you would expect to see the short and move because that is short-term rates. a functionates are of short-term rates plus inflation. however we have seen a big run ahead in inflation on the 10 year and 30 your bonds far out, but now that is coming back, and it is that balance that is very interesting at this point, where a rate hike might not translate into a 25 basis points increase on the 10 year. end hashe front yea party move, hasn't it? haven't we factor that into the two-year? dominic: the issue is the expectations of three times or more and inflation expectations.

to my mind, there would be a concern for the hike in bond markets. john: flattening? definitely flattening, real yields usually go up as well. there will be rebalancing within the 10 year. alix: what do we have to see march 10 to make this a 70% or 80% probability? emad: probably in line with consensus. you don't need to see much because all other factors of the u.s. economy are strong. it will be inflation on the wage side. any sense of typing in the labor market -- i think it would be a ma big mistake to hike. david: thank you both very much for joining us. fcc chairman the

getting out of approving deals. we will ask just that question. this is bloomberg. ♪

john: from new york city and viewers worldwide, this is "bloomberg daybreak". this is the calm before the speech, futures dead flat after 12 days of records. the longest streak since 19 ever87. to beice action nowhere seen. it is a softer dollar story against the euro. not much happening here. yields lower by a basis point, 2.36 on the 10 year. who wants to make a move ahead

of the unknown? david: exactly. in the meantime, there is a new sheriff in town, fcc chairman ajit pai, and caroline hyde is with him at the mobile world congress in barcelona. >> it is sunny barcelona, and i am joined by ajit pai, the new sec chair. wonderful to have you with us. it is the age-old excitement, m&a, particularly the united states. yesterday you said you would not review the at&t-time warner deal now. what lightr view of regulation is? ajit: it is limited to these particular facts. the parties have structured the transaction so they won't come before us, and that's why i said what i did yesterday. we be, the market is

expecting it, are we going to see more m&a in 2017? is a humble and boring one, which is to review the papers put before me and look at the facts as presented and make a decision based on the law and precedents established. >> it is interesting that tom wheeler says that the u.s. marketplace, you now say the u.s. marketplace is extremely competitive. could it still be extremely competitive with three providers in the market? in the can't say abstract what the optimal market structure is. is that theay wireless market is extremely competitive. started itsc

investigation of free data providers offered unlimited data plans. that is good for consumers. interest,n the public we would be likely to approve a deal. >> could it be in the public interest with time warner and at&t? you have been looking to roll we see consumers and service providers when using their data, does this mean potentially we will see a rollout of net neutrality ajit: that meant putting a pause on one of the rules that would go into effect march 2. broadly speaking, there is consensus about the need for a free and open internet. that is something i think

consumers and companies have come to take for granted. the only question is what regulatory framework and we adopt that her text that core value and preserves a massive incentive to invest in infrastructure across the united states? that's what we are deciding upon. >> my colleague wants to ask you a question. we will see if you can hear it. david: it sounds like you are not too worried about concentration in media. your president just gave an interview to another news outlet that said he was very concerned -- you can hear me? >> can you hear anything? ajit: the fcc does not have --ist the action jurisdiction over this, so you are safe. >> in terms of a digital divide come something you have been focused on, how will you and center to five's companies to invest more? hard issue,a

because the parts of the world are unservederved for a reason, less population density, less return on investment. the sec wants to think about all the tools in the toolbox, federal subsidy programs, relaxing regulation, and getting more regulatory incentives to companies to take that risk. i'm also working with congress and the administration on infrastructure plans. we want to help americans get connected. >> it is wonderful to have you. sorry for the technical difficulties. the chairman of the sec ajit pai . john: thank you very much. live from new york city, you are watching bloomberg. ♪

john: from new york and viewers worldwide, this is "bloomberg daybreak." speed on you up to market action, or the lack there of. where is the price action ahead of the president's address to congress?

not much. flat after 12 days of records. out just two on the s&p 500. the euro pushes higher. is treasury market marginally lower, down one basis 2.3 six. that is how the stage is set. that is the market action. in the u.s., president trump will discuss foreign policy, security, and more before a joint section of congress. still workingis on the speech, and officials are not sure how specific he will be on policy goals. the president is expected to include talks with health care leaders and law enforcement in the address. you can watch the speech live on bloomberg television 9:00 p.m. eastern time. starbucks ceo howard schultz came out against trump's executive order on immigration.

to hirehis decision 10,000 refugees was not a political one. he says it is part of the starbucks company culture. a world thating in is very fragile. there is a lot of uncertainty, and i think we have an obligation and responsibility as a company to add value to itanity, and if i can say and my own parlance, this is a time where i think we as private citizens and as business people need to build bridges, not walls. >> he spoke with francine lacqua . starbucks is opening its first outlet in italy. francine will have more with that interview. in europe, british consumer confidence got weaker again. insehold sentiment fell february, and the appetite for making major purchases decreased, an indication that the drop in the pound is beginning to weigh on the economy and consumer spending. global news 24 hours a day powered by more than 2600

journalists and analysts in more than 120 countries. this is bloomberg. david: when president trump addresses congress tonight, financial markets and the business community will focus on what he says about the budget, and what is to be done with obamacare, and where do we stand on tax reform. joining us from washington, she black ofan diane tennessee. she is the first woman chairman of the budget committee. number two bank, she prefers to be called congressman. thank you for joining us. diane: thank you for having me. i appreciate it. david: we heard from the president and remarks to the governors that he believes you will have to deal with obamacare before you can get to tax reform. do you agree with him? diane: i do. i think we are heading towards a solution for that. we want to rescue people from this broken health care system, so we will put some things out

to show the people that we are serious about putting a patient-oriented system in place. david: where are you in the process of getting the republicans on the same page? you earlier expressed optimism, but now we have for example your colleague congressman walker saying i am not on the same page at all and disagree with where they are headed? diane: i have not spoken to congressman walker directly, but what he was referencing was an older plan that was leaked, but we are working together. this is everybody coming together to say where we should go and what it should look like, and that is how legislation is made. we want to hear from everybody. david: after hearing from everyone, when should we expect a plan that people can get behind and we know what is being proposed? diane: we are working on that really hard. people to make sure understand we are 40 days into

this new administration, so we are working hard to get this done right, but we don't want to do something so quickly that it is not done properly as was done with the aca. giving some time and working to each part of it for the best of the american people is what we want to do. david: i will question you just a little bit because our audiences eager to know about tax reform, which we have to go through obamacare to get to. mnuchin from secretary that he hopes to have tax reform done by august recess them as a what does that mean for obama care reform? when you expect to have that done? we will have it done before the tax reform. your listeners probably know we have a resolution, budget resolution, for 2017 we are working on them and then we will work on the 2018 budget, and i can't have those both on the table at the same time. not that we can't be discussing those in putting measures together, but we will take care

of obamacare first, then go into tax reform, and i expect we have enough pieces put together that we ought to be able to come to a consensus on what the testing from looks like and do that before the august break. president trump was talking about $54 billion in defense spending offset by discretionary spending cuts. tennessee your home state is reliant on federal spending. what will you be willing to cut to get a deal done? diane: let me say this. what the president has talked about are just numbers. we don't have detail yet, so we need to get detail from him, but let me take what we are doing in the budget committee. we are working towards a balanced budget, and that is our prerogative to do. the president will have his budget. we will have our budget, but we will work within our committee and put something out for the general members to take a look at. congressman, my same question, what will you be willing to cut?

you have to go home and answer to your constituency. what would you be willing to cut in federal funding towards tendency to get that balanced budget? you have to cut something. are lookingll it we at every agency to see where we can find waste, more efficiencies, and we will put that plan out there. it is early to talk about the specifics of this point in time. david: you have a partner in your ranking member from kentucky, and we talk to him recently about what he thought, and he was optimistic that you would get it done. listen to what he had to tell us. >> the biggest problem we will face with tax reform is the outside world, meaning the advocacy industries and the lobbyists, and there will be thousands and thousands of them looking attacks reform legislation. they will make it hard to compromise, and our advocacy groups on the left and right will make it hard. left to our own devices, put out in the middle of the woods and

taking our communications devices away from us, i think there is a lot of room for agreement on some items. david: congressman, whether the woods or kentucky, do agree with with your colleague that left to devices without largest and special interest that you could get tax reform done quickly? think we could get a lot of things done in washington if we did not have a lot of noise, but that is the way it operates. it is the way politics has always operated. we need to listen to people too. i have an open door policy. yourme how it will impact company, how will it impact your household, and i want to listen, but at the end of the day, we have to make hard decisions, and i think we can get that done, but ultimately it will be for the good of our country to see the economy grow. david: you must be hearing a lot from the retail community and oil refiners on that border adjustment tax.

is that essential to getting tax reform done? we can all i think agree on is that we are a manufacturing country, and right now we have a penalty on manufactures and we need to find a way that when we sell products outside this country that we are not putting our manufactures in a difficult situation where we tax them and other countries don't do that same thing because this is an so important part of what we will be doing, looking at how we can make sure it is fair to our manufactures. david: that sounds like you are in favor of the border adjustment tax. as the president going to back you on that? diane: i don't know. i have not spoken to the president. we have not gotten a message back from the president. we are listening and want to make sure that we help our manufacturers to not be in an unequal situation. at the same time, we are listening to those who feel this is not in their best interest of a at this point in time, we are in listening mode, but at the

end of the day, we have to do what we have to do to make sure a manufactures are not disadvantaged. john: i want to pick up on something you just said, we are a manufacturing country. where is the data that says we are a manufacturing country as opposed to a services country? diane: we do both. john: you do more of one than the other. diane: here is what i know. when we look at companies that have moved offshore, we hear more and more of that wanting to happen. we want to make sure that does not occur. i have a district that has a lot of manufacturing in it. i want to make sure manufacturing stays in my district. it is a good place for my constituents to get good paying jobs, and we need to keep that manufacturing here in this country and not push them offshore. john: i think many people would agree with you. they got thease

president elected, but what would you cut in order to boost spending elsewhere? it looks to me you want to protect your constituency in terms of manufacturing, but over 2 million employees, they don't want the border adjustment tax. how do offset that? diane: that is what we are doing, listening to make sure this is fair to all concerned. alix: i want to wrap it up here with the timeline you spoke of. the government has been operating under a continuing resolution for months. why do have the confidence that you will be able to appropriate individual programs this year and get this done? differentare under leadership and the white house but we are not fighting constantly against someone every day. in the last six years, i felt like we just fight, fight, fight. now we have somebody coming to the table to do some good things and to move them along for our country, and i am optimistic

about that. congressman and chair diane black. thank you for your time today. program,ing up on the the head of the world's coffee shop speaking on taxes and transparency. an interview with howard schultz, coming up next. later on, or u.s. senator and ambassador to china on what to expect from president trump speech. this is bloomberg. ♪

>> this is "bloomberg daybreak."

hour, up in the next former u.s. senator and ambassador to china max baucus joins us. ♪ welcome to "bloomberg daybreak". howard schultz says the world's biggest coffee shop operator has a commitment to transparency and doing things the right way. down with francine lacqua yesterday in milan covering politics and taxes. criticizing any particular person or municipality, sometimes a company that is iconic as starbucks gets pulled into things that the whole story is not really told. pay 18 main pounds of tax last year in the u.k. that is emblematic of

our commitment to do things the right way. i personally believe 100% in transparency and want to do everything we can to make sure there is trust and everything we do and we are an open book. it impact your customers, the perception, refugees, or do you do it no matter what? to pay fair and equitable taxes. 100% of the time, never do anything that would remotely be inconsistent with being ethical and doing the right thing. with regard to the decision about refugees or things of that nature, i think it is important purpose andour car your reason for being in all aspects of the business, and leadership and being a strong leader can't be when it is convenient. it is easy to be a great leader when you have the wind at your

back. it is harder when you have the wind at your face. i think leadership is defined many times when you have to make a tough, but just decision. stuff.reat francine lacqua joins us now. he said china will overtake the u.s. as its largest market. an interesting time to make that statement as tensions between the china and the u.s. are high. did he give further commentary on that? francine: he did say that because of the size of the country that he expects many more drinkers of coffee and many ine stores in the u.s., or china compared to the u.s.. i had 40 minutes with him yesterday in malilan. can you imagine starbucks selling espresso and coffee to the italians? we know he is stepping down as ceo and a couple of weeks, and he said being in italy was a dream. ae last time was 1983 when

young howard schultz was walking through the streets of m ilan. where heon to china said they are opening up one shop a day almost because you have such strong demand there. john: we will have much more of that conversation throughout the program. francine lacqua, starbucks and milan, how is this going down in italy. has been there backlash, starbucks and entering europe and milan. they got into paris about 10 years ago because of regulation, a backlash among italian drinkers, but by 2018 they had this beautiful space, then i think he is hoping to open a lot

of shops. very much. you from coffee to retail, getting hammered this morning, poised to open at multiyear lows because the full-year forecast trailed estimates and the fourth quarter was worse than estimated. joining us more is the senior retail analyst at wolf research. what happened here? why was so bad? >> what you are seeing is a confluence of events here that is taking all of retail, target with it, down. we simply don't have a lot of volume growth, particularly consumables. we have amazon taking huge share in consumables. we have deep discounters moving into the u.s., and this is causing the fourth problem,

which is walmart, a big competitor of walmart, to feel a lot of pressure and adjust his is this model, lowering price and performing better at the store. it is causing a chain reaction in retail, which has been pretty ugly. alix: everything you listed has been well telegraphed. even target sent december sales were disappointing. how much more downside can we expect and wind you want to get in and buy that dip? saying this for about a year. we have an underweight rating on target and food retailers we view the space as un-investable because the way consumers are choosing to interact with goods commerce seems to be changing rapidly. while it seems somewhat obvious that these problems have been out there, the speed of change is taking people by surprise. as an example, i was at an amazon fulfillment center two

weeks ago in california, 1.2 square million feet. there are batteries, barbie dolls, protein bars. amazon built 24 fulfillment centers, another 30 this year. this is accelerating at a pace that i think it is hard for companies to understand and react to, and clearly investors as well. alix: and a sharp difference with some of the retail names like a walmart as well. thank you very much. if you have a bloomberg terminal, check out tv . you can check us out online and interact with us. you can go back and click on interviews to watch the whole interview. tv on your terminals. this is bloomberg. ♪

gearing uparkets are for a rate hike in march. the latest odds for a rate increase of 50% and above.

with me now is matt basel or. all of a sudden, even money. what was yesterday about? >> we have a lot of data on the calendar this week. it was not clear that markets were queuing off information, but there will be a a lot of opportunities for the rest of the week. we will look forward to sifting through the data points. surge inre was a volume yesterday. is that the best way to look at how a market is set up ahead of the risk event like the fed? >> the best way to look at it is what price is doing. we saw the odds go up a lot. people are shifting in that direction, and so there is an opportunity to further that as we continue through the week and into next week or wind it back. is some to weigh risk on the table. i go back to that speech and

september that shot down the hawks and said the policy should be tilted towards guarding against downside risk. is that still relevant many months later in this environment? >> absolutely. the one thing that has not changed much as the fed funds rate. it is still close to zero, so the leadership of the fed will continue along that line of thinking that we really don't have a lot of room to cut here and need to be careful until we get rates up much higher, which could take several years. john: we get the address from president to congress. the chances of a move in march for rates, does the hawkish much to the fed? >> we will try to parse through the policy leanings and how this gets implemented, and that is the million-dollar question. until we get clarity on that, which we probably won't this

year, we are not likely to see a big acceleration in fed tightening based on fiscal policy. john: this week was book ended by two big speeches. president today and the fed chair friday, doesn't muddy the message or is something new coming? hikeven the odds of a rate , close to 50% now, you can imagine they are feeling like those are too low am especially if they are not inclined to move, so we probably get another situation where central bankers try to stick the landing as a good central banker does. john: do we really believe the federal reserve sits around the table and william dudley looks at the bloomberg and says we have green light, red light? they look at this and say we are north of 50% and we should go? >> markets will move above 50% if it looks like it is likely the fed will go and the causality does not run in the other direction. john: thank you very much.

be sure to tune into this one. friday, real yield, new program that focuses on fixed income, every week, 12:00 p.m., do not miss it. guest is twc. looking forward to it. can't wait to see it. coming up, max baucus, former ambassador to china on what to expect to the president speak to congress. what would a fed rate hike in march imply. said thel-erian portability was low, but what does he think now? this is bloomberg. ♪

♪ jonathan: a market hungry for clarity as the president's

address to congress takes on the importance of a state of the union speech. we are live as the federal reserve waits for fiscal policy. from new york city, a warm welcome to bloomberg daybreak on this tuesday. i am to love david westin and alix steel. coming up, we will study you up for president trump's address to congress with the former u.s. ambassador to china, max baucus. the price action is pretty much nowhere to be seen. futures are largely negative. the euro is marginally positive and treasury yields are at 236, not much going on -- 2.36, that much going on. alix: all wait and see.

one stock on the move is target, falling as much as 15%. same-store sales down 1% in its outlook for 2017 earnings are below estimates. a really rough outlook. to preview president trump's speech to a joint session of congress, we are joined by kevin cirilli. why don't you do that, what we are out of the president? kevin: president trump has to a detailed speech, tonight to capitol hill members within his own party who are looking for those details as they begin to craft policy. he will make the case to have a $54 billion increase to the military. he will also call for cuts to state department -- to the state department as well as the environmental protection agency and foreign aid. he will try to get specific on a host of policy issues ranging

from tax reforms to how to repeal parts of the affordable care act, and infrastructure spending. david: give us a sense of the tone, as far as we know it. is this going to be ronald reagan morning in america where there is hope or is this point a be something where things are a mess and we have to dig out of a deep hole? kevin: i put this question to some political operatives and they tell me they are anticipating this to be a much , tone -- measured president trump will look to win over moderates, the type of working-class voters who propelled him to the presidency. that said, he had taken a host recently, much more competitive with the media and he is facing questions on capitol hill, not just from the my cat -- democrats, but from members of his own party. david: what else are we expecting in terms of foreign policy, in particular, trade

with china. kevin: this is going to be all about trade. he has said he wants bilateral trade agreements and he has toyed with the idea of just how exactly he would work with trade agreements like nafta, particularly when it comes to mexico. last week, i interviewed steve mnuchin who said he is not ready to label china currency manipulator, but that has been the rhetoric we have heard from the white house consistently, even on the campaign trail, how he targets china remains to be seen, but a lot of folks will be watching how tough he is on china, tonight. his homeis man serve state of montana for nearly 36 years in the senate. then he went to beijing as the ambassador to china. with us is ambassador max baucus who has a good deal to say about u.s. china relations and how the

trump administration should handle them. welcome. is it ambassador or senator? whatever you want. alix: one of the specifics of a trade war with china under the trump administration? at the congress goes down that road, which is a mistake, that is a 20% tariff on all imports, including chinese endboards and they could retaliate and there is no question they will find some way to retaliate, that is a bad idea. and it would not just be china. max: that is correct, it will be worldwide. the market about exchange rates going to take care of it, and i don't believe it.

the market is not that free. currencies,ies that it is a bad idea and china is going to be watching closely. been in beijing, how do they regard the trump administration? max: they are intrigued. that thought this guy was a dealmaker and to be honest, he is not like human rights, but afterwards, they are now having second thoughts because he is going this way and that way telling you when to call and the one china policy problem, and they don't know how to deal with him. they see an opportunity for china because the united states appears to be dysfunctional and more isolationist and they will take advantage and tried to steal markets. alix: there were a couple things you can do, and direct plaza

accord, you could open up services to allow more imports from the u.s.. based on your research, what is the most likely connection between the two countries? >> china is facing significant growth struggles as they have for the last two an half years. their economy is maturing. and chinadecelerating is trying to put a cushion under that and if you are opening up domestic industry to foreign competition, record with the cost of problems for the economy, so they have been extremely resistant to that and now you're going to have this skirmish over trade policy. look at all the countries that run major trade surpluses and they will be hit hardest by the border adjustment tax. because of that, there will be an indirect plaza accord 3.0 because all the countries don't necessarily want to face the u.s., they don't want the stronger dollar. is that going to happen? >> i am doubtful there will be

some grand scheme. free-floating are for most of the developed economies. there are questions about chinese intervention. i don't think there will be a grand accord. jonathan: we had a congressman who said we are a manufacturing country. the heart and core of this come -- of this economy is services. the right way to go for this economy? max: the proper approach is to get tougher on china. china is protectionist. major subsidies, they are protecting their champion industries to the this inventive other countries. i would go straight at them and say you have to open up more and knocked down your subsidies or we will take tally to reaction retaliatoryake action. jonathan: companies in the u.s.

are incentivized in a big way to go to china and produce directly on that surface and then distribute their vehicles that way. how do you go to the chinese and say drop your trade barriers for the autos? max: are companies do pretty well in china. gm selling a lot of cars in china, ford almost as much. -- the main point i am making is the industries that are not doing well, we have to say you can't go down that road anymore or we will retaliate. david: for example? max: semiconductors. part of that is giving it to chinese companies to acquire u.s. technology, part of it is development, part of it is denied market access. >> the companies that are doing well, it is because they are

moving production and to elegy on the chinese soil. the companies that are trying to produce externally and import into china are doing -- are having far less success. president trump is taking a page out of the playbook and saying pull production back onto u.s. soil and they answered that incentivize this with a border adjustment tax. i see a lot of parochial math about how that will work. i think it is failing to take into account a lot of variables that mean that change were -- exchange-rate adjustment won't be quite so large and there will be some direct losses. david: i hear you agreeing with what the -- with part of what donald trump is saying, which is we need fair trade. is there a way to address that without having a trade war or curtailing -- or curtailing national trade? max: you don't do it by slapping on a 20% tariff on chinese next.

you don't go down that road. on the other hand, you say here are two or three industries were we are not playing their will selectively in -- take actions against that. -- there are a lot of actions we can take to get them to open up and we have to, otherwise china will keep moving. no,keep going until you say we will have to start saying no. david: it looks like some -- jonathan: it looks like someone has started to say no. coming up, mohamed el-erian with his latest bloomberg column on what a fed rate hike in march could imply. from new york city, the state of play is like this. here are the scores ahead of that address to congress. futures this morning, march in the negative, equities trading water -- treading water.

this is bloomberg. ♪

>> this is bloomberg daybreak. is your bloomberg business flash. shares of target are following. the retailer came out with a forecast that trailed estimates on the heels of a fourth-quarter performance that was even worse than target projected, last month. south korean prosecutors are compared to deliver a blow to the company's largest conglomerate. they're going to indict the de facto leader of samsung on bribery charges.

four other samsung executive -- executives will be charged. starbucks is heading to the home of the espresso. it will open its first store in italy, this year. italy,ng to strategically, it is not the biggest market in the world, but it is mostly that it is the most important market. because the italians mastered coffee -- coffee way before starbucks and we are not coming here to teach them how to make coffee, but we are coming here to present our interpretation of what coffee could be. is stepping down as ceo of starbucks in april. david: still with us is former ambassador to china, max baucus.

he pleaded central role in the drafting and passing of the affordable care act. he also chaired the joint committee on taxation. i want to talk about what happens in the senate and the house as you know that well. the president has announced a extensive agenda. we have obamacare, repeal and replace. we have tax reform, infrastructure spending. how realistic is it for him to get that through congress? reform in the country needs -- he wants tax reform and the country needs tax reform. to get that, he will need to raise revenue. that means either the border adjustment tax which is a bad idea. is to bring cash back from overseas. what he is looking at now is putting obamacare first, to try to get some savings out of a repeal and replace so they can use some of that revenue to

lower tax rates, especially when he is trying to increase defense spending. i think he has a big problem because health care is so complicated and people don't want their health insurance taking away from them. it is a mistake to try to raise revenue by changing obamacare. generally speaking, when you trying to get things like tax reform done, if you can't have the border adjustment tax, can you make it back to cutting back on deductions? there was a proposal they came out that save a lot of money by cutting deductions. is that realistic? max: it is, if the president really cares. if trump really wants to do it the right way, lower rates, it can happen but it will take a lot of work. jonathan: we asked the same question, every day, how patient will the markets be before they

are disappointed. talk to me about time. you need to sort out health care before all this with tax gets sorted out. the treasury secretary says august. is august realistic? max: i cannot anticipate the markets. i talked to members of congress and the head of the ways and means committee ends august is optimistic and that it might take longer. jonathan: another question people are interested in is the appetite to take on more debt by this administration and congress. does the appetite exist to take on more debt in the same way that they were for eight years with the former president administration? not many times, congress is paid for things. a lot of this comes down to leadership. if the president wants to lead and he shows he wants to leave,

that will help set some -- lead, that will help set some stability and confidence. david: if you were back in your old could -- position as chairman of the joint committee on taxation, or could you meet the president, halfway. there is a place the democrats could support? formula, broaden the base and lower the rates. every congress adds more complexity to the code because each group comes in and says different so we will use a different vision advocates ossified and gets barnacles and that is when he finally needs tax reform because they pretty much collapse on it -- under its own weight. we are at that point, but it takes leadership. when i worked on tax reform with dave camp, we were very close until we realized the president obama did not want to spend the

political capital to get it done. david: is this a bigger problem for democrats or his own base? problem, it bigger is both because democrats want to make sure that middle income breaks are reduced. ratesican proposals have reduced only for the upper income folks and that will not fly. max baucus talking about what he thinks should and can happen with obamacare. will be joined by the ranking democrat of the committee on task with his views on where we are heading with tax reform. this is bloomberg. ♪

alix: this is bloomberg daybreak. earlier we spoke with congressman diane black and she said obama care reform will come before tax reform. however, the head of the largest group of house conservatives said he will not support the

party's existing obamacare replacement strategy, dealing a potential blow ahead of president trump's address to the joint session of congress. joining us is max baucus. the ambassador played a key role in the drafting and passing of the affordable care act. you know it. how hard is a substantial kind of reform going to be versus tweaking on the edges? max: extremely difficult because health care is complicated. there are so many different parts. republicans are going to have to recognize that. >> you tried to bring together that -- the democratic caucus and republicans back in 2009, when you guys were working on this bill. give us a sense of how challenging that process was and what we can know about -- about what the republicans are going to have to do. max: the big lesson is when it gets political, you have

problems. it got political back then. we were working together for two years and in the end, the republican party saw the politics and not one republican voted for it and when that happens, you don't have by and. withoutnt buy-in -- sufficient by an, it was unsustainable. >> trump has said it will cover more people, the less expensive. is it possible to do? max: he has the magic words, but practically, no. is this an issue of having democrats on the far right agreeing on -- and the far right agreeing on a not be happy with

the repeal? max: the far right does not want to increase the budget deficit and immigrants to not want reduced coverage. the american people want health insurance, they want us to find some way to cut down cost. we spend twice per month -- fore as much per capita health insurance in this country is the next most expensive. >> we are kind of in the big hopes moment of this thing, early on, and a new congress and the reality is beginning to set in. presuming that they do something, what does that look like and what does obamacare look like, or maybe it will be rebranded trumpcare. fastow what i have seen, it

is going to be a mess. 20 million people are not going to have health insurance. problems will get even worse with the individual mandate. it will be a death spiral, premiums are going to go up because insurance is going to tend to cover the sector rather than the help. it will be a mess. jonathan: if you were -- david: if you had a chance to fix one thing in obamacare, what would you fix? max: i would not cut down coverage. the thing i would fixes reimbursements based on foreign outcomes and equality rather than numbers and procedures. it would save money. david: how much? max: i don't know, i don't have a figure. i know it is the right approach. >> when you look at the tax proposals by the republicans, does that remind you of the cadillac tax? max: it does.

saying very is expensive policies, they are too expensive, so you have to pay a tax on them. alix: do you think august is optimistic? max: it is. things tend to get shoved up to the deadlines and the next deadline will be next year. alix: i remember 2009. jonathan: great to have you with us, max baucus, coming up, a slew of economic data in the united states, including gdp and personal consumption. we will break that down for you. futures are flat. you are watching bloomberg. ♪

jonathan: go back to sleep, i don't mean that at all. about one hour away from the open, futures are going nowhere. there is no price action. futures are dead in the unit -- in the united states. the bond market look something

like this. treasuries unchanged. 2.37 is your yield on the u.s. 10 year. we are up by a 10th of 1%. the firsting at revision for fourth-quarter gdp, revised downward -- excuse me, it is the same. we were expecting a raise, so flat on the adjustment. core pce is the measure of inflation that the fed watches, ticking down to 2%. a lot of data. jonathan: looking at a wider balance of the trade balance. the median survey was -66. thati will jump over is

personal consumption. 3%, the survey was 2.6%. three full percentage points. a decent pop, there. alix: taking a look at inventories, as well. month on month is down. we had a really interesting sort of readout when it comes to holiday sales. some inventory build. jonathan: that is the date around. -- great to have you with this, let's begin with megan. the data in the u.s., personal consumption popping higher. megan: it has driven this

recovery as well, so we can expect that. we might get government spending doing a bit more heavy lifting, as is expected, but i really think it is personal consumption that will be carrying this recovery. thethan: to get gdp up, ultimate equation is you either do something with government spending, it is thing about the trade deficit or you just carry on, supporting personal consumption. which lever will this administration pull? jeff: consumption is most important for the economy. in terms of what markets are doing now, we know the data is strong and the fed is going to be hiking rates this year. the trumped to see is administration fiscal plan come through. so far, we continue to wait and that -- the dollar is not pushing higher. jonathan: the idea that the

federal reserve of kills off the recovery before it has gotten push backo you against that argument in a significant way? will they come out and do loads of hikes to offset what happens in d.c.? i think thatn: they are really cautious. they will actually have to accept some sort of overshoot. they will accept the overshoot that we need to see. we need to see inflation of 2.5%. yellen has already suggested that won't happen, but i think the fed will proceed cautiously. it will not happen anytime soon, but they are throwing it out there and talking to market participants to try to throw out a trial balloon. alix: core pce coming in at 1.2%, so can we dig a little deeper into that inflation data? megan: the fed's favorite metric

of inflation is core pce and it k down.e down -- tic everyone is excited we will get strong wage growth and that will boost inflation, but it has not panned out yet, in two years of this kind of argument and i don't think it will, i don't think we can expect this start coming in. the difference between pce and inflation, a kiwanis health care. health care is weighed more heavily in pce, rather than inflation. that my continue, so that might take upper pressure off of core pce. work, howing money to do you deal with a cpi of 2.5%? you have core pce potentially heading lower? the marketentioned crossing for the march reading.

i think the chances of the fed hiking and mark -- in march are very slim. we are looking for them to hike in june and december, so marginally, you need to take out some of the steam. the dollar is likely to rally. and weshould go high should see the s&p 500 up to 2500 and in fx markets, you need to start thinking more tactically. as opposed to buying dollars, you want to be tactically buying other g10 and buying some things in e.m. as well. david: the story since the election has been the hard numbers are not doing anything spectacular, but expectations have ramped up. at some point, those two will have to come together. let's assume that fiscal stimulus is delayed, tax reform is delayed. does it support the current market conditions? jeff: in the short term, yes. inflation expectations

push slightly higher since the election and that is supportive of stocks, so if you have inflation expectations up a bit, you can price in companies doing something better and that helps them. if you do see trump do something on fiscal, that means bonds are higher, but that is like saying bonds are risky until you see shifting out of bonds out of -- until you see shifting out of bonds and into equities. is an interesting -- megan: it is an interesting data point. we will start to hear a debate on whether the house republicans are willing to raise the debt dealing because a couple years ago, they were the reason that we hit the debt ceiling, they did not want to increase spending, so we will get a sense of how much the house republicans are whipped to this idea and how much they will allow trump to do in terms of

boosting spending and running up our deficit. jonathan: finding out if the fiscal hawks are actually fiscal hawks. hawks couldeficit give trump trouble. megan: it is worth highlighting that the debt ceiling could be raised, that we will figure out who is going to remain a fiscal hawk and who will kiss up to their new boss. jeff kendrick in london, this feels like a goldilocks scenario. we are seeing this global synchronized growth and the data is ok in the u.s., picking up in europe and the fed remains patient. is it as you were, for em? jeff: so far, yes. what will eventually not e.m. office peg -- off its peg -- knock national and so far, with

-- so far, we are not seeing -- we are telling people to be more selective. the ruble can continue to outperform. you may see dollar brazil pushed just below three. in g10, i think you need to be buying the aussie dollar. that story is turning around on the back of commodity prices. investors want to be buying backend -- alix: what do you hope to hear from president trump or janet yellen? so for on president trump, we have just been waiting. it is more likely we get more platitudes, which will be unfortunate in terms of u.s. yields. from janet yellen, i suspect the fed are more of a sideshow. we know they will hike and are

likely to hike in june. yellen has been hawkish. that real yield support you need for the dollar has not come through and it is like -- unlikely to come through in the short-term. alix: the one thing that could push the dollar up higher is if donald trump throws his support behind a border adjustment tax. i think that would push the dollar much higher. even if he were to throw his support behind it, it is unclear whether the house or senate republicans would support it. jonathan: this kind of event, how big is it for you guys in london and you stack the deck ahead of what could be moving in the market? jeff: we have had a lot of those events over the last 12 months. we have the brexit vote and the trump election. these days, when you have speeches that are 2:00 a.m., london, people tend to back off, slightly. alix: thank you so much, jeff

kendrick and megan greene. we are also following premarket jpmorgan, earning other banks down with it. jpmorgan's forecast disappointed. 1%. stock off more than they see it modestly higher, quarter on quarter. asset manager revenue growth was just about 5%. the same thing with r.o.e. for that unit. in terms of analyst estimates, they were also light. follow this group into the premarket as well as into president trump's speech, this evening. up, we- david: coming have heard from the chairman of the house budget committee. next, we are joined by her tender part, the ranking democrat for his views on tax reform. later, hobbit el-erian -- mohamed el-erian.

this is bloomberg. ♪

emma: this is bloomberg daybreak. coming up, mohamed el-erian, and a bloomberg view columnist. time for other stories making headlines. for the first time in five quarters, valeant beat estimates. a turnaround plan to pay down debt. it has been boiled in scandals about high prices and accounting that led to investigations.

retail workerline which firm in the u.s. is slashing commissions. fidelity investments is cutting the cost of trading in u.s. stock and trade funds by 40%. says that is a percent lower than standard commission trades. the biggest jet engine maker in europe is freezing salaries for 8000 managers. rolls-royce is stepping up cost cuts by almost half. the company has been hurt by lower sales of engines. there has also been a slump in the jet -- in the ship engine is this. -- business. david: representative john yarmuth has represented his home town in -- his home state of kentucky for 12 years now. right in the center of action of action obamacare, tax reform and the new budget, a joins us now from washington, d.c..

john: good morning. david: we are earlier talked with the chair of your budget committee. we asked her about how long it is going to take to get through obamacare. she said you can get it done by august, but it sounds complicated. >> we will have the obama care reform done before we do the tax reform. i don't want to get wonky on this, but you listeners now we have a resolution for 2017, and then we will work on the 2018 budget and i can't have both of those on the table at the same time. david: does that sound realistic to you? obamacare and a tax reform plan by the august recess? john: judging from the disarray the republicans are in right now, i can't see that getting done by august, by itself. they had to do that before the tackle tax reform, so i think that timetable is unrealistic.

the timeline has slipped from the month of february, now toward august and i think what they realize -- but they are realizing is what we already knew and donald trump figured out yesterday, that doing a health care reform is complicated. david: he did say that in remarks to the governors. take us into the process. ,e have not seen a proposal yet. when do they have to have that worked through their own caucus before they present it to you and the american people? john: the timing is up to them. there is no deadline. you living that is a factor -- the only thing that is a factor is that they are working on a repeal and replacement of obamacare through a process called reconciliation, which requires only 51 votes to pass in the senate. that has to be done before they can use the same reconciliation process in the 2018 budget to do

tax reforms. they have to do health care reform before tax reform which pushes the entire agenda back considerably. david: give us some sense of your timetable. when do they have to present something in order to get it done by august? when do you have to see some pen put on paper? john: they are in charge of the process, so they could do it within a few days time and the only requirement which they have violated a number of times is that the legislation is posted 72 hours before it is debated. they could go up to the end of july before they present it to us or the country. david: is the problem they are facing, on the one hand they want to save money but on the other hand, they don't want to knock people off health insurance. john: they are finding out the promises they have made, generic promises of patient centered care and quality care and affordable care and all these freedoms and choices are not

easy to orchestrate in a complicated process like this. i have been saying for months the only real alternative to the affordable care act other than going back to where we were is to go to a single-payer or medicare for all plan. on finally looking at that and i think many in my caucus would be, as well. they don't want to go there. they are finding out that all they will be able to do is tweak the affordable care act which is a republican plan that came out of the heritage foundation. david: if you're advising one of the members of our audience, a business ceo on wall street and they say when can i realistically expect real tax reform, what would you tell them? john: i would be surprised if they get it done, this year. i am not confident they can get tax reform done at all. day, theke the other outside world makes it difficult to do something this complicated. there'll be 10,000 lobbyists

working on tax reform legislation and you have all the outside advocacy groups that will make it difficult and they will have to rely on democratic votes as well. if they keep advancing this agenda where the top 1% is going to get a $200,000 year annual tax break in the middle of -- and middle america is getting just over $1000, that is something they will have a hard time selling to the american people. david: thank you, congressman john yarmouth -- john yarmuth. alix: watching jpmorgan, off by 7/10 of 1%. its forecasts were slightly weaker than analysts estimate. the cfo has been speaking. she says the latest headline is never before, more compelling to have jpmorgan and business mixed but a little bit of softness into the open. as we go to the break, check out

tv the can interact with us, directly. you can go back to previous interviews and watch the whole thing. it is on your terminal. we want to welcome our twitter viewers who have been watching this morning. bloomberg daybreak is now streaming live. you can catch that at bloomberg.com -- bloombergdaybreak. twitter. tv. ♪

jonathan: from new york city, this is bloomberg. jason kelly is sitting down with the cohead of the european credit. they are over at the super return conference in berlin. morning.od thank you very much stop i am here with blair and this is the super return private equity

conference and there is a huge amount of congress -- talk about debt and credit. you run the business in europe looking at areas like reddit. why is there so much -- like credit. why is there so much talk right now? blair: the reason for that is that the european credit markets are undergoing a significant change that we saw in the united states maybe 15 to 20 years ago. what we have seen is a declining importance of banks in the marketplace and an increasing importance of alternative lenders. jason: when you talk about stepping in for the banks, are they gone for good? i think it is a developing change. banks have not left the market. what happened in the u.s. was the banks consolidated, served bigger clients and ultimately left middle size companies

behind. what happened in europe is certain banks did go out of business, consolidated but there still are banks active in the markets. regulation,ased banks have a lower risk tolerance and appetite to make these types of loans to middle sized businesses which has created the opportunity set for alternative lenders like ares. jason: there is a huge amount of talk about the -- about the political landscape. u.k., but as we look at the upcoming european elections, in germany and france. how does that affect your willingness to lend and how does that play out for the rest of 17? blair: if you look at the economic indicators in the market, it is like nothing happened. the ut had a brexit vote last june and since that time, the economy grew 2% and the ftse 100

and 250 are at all-time highs. what is most important is when we look forward. from a brexit perspective, we do not know what the timing will be for brexit. we don't know what the relationship between the u.k. and the rest of the economic union ultimately look like. as you look forward to the elections in france and germany and the netherlands, europe will come to a crossroads. does it go to the right or does it go to the left? that can have profound implications toward the european union. how that impacts us as a lender, we believe the loans we provide are quite defensive. lender, senior firstly which means we'll the first capital in and out of the company. we do these for healthy companies with good growth rates. we will write loans that are covenanted.

companies implement in their business plans, we are negotiating those loans. when you look at the different asset classes addressed in european markets, the types of loans we write our relatively defensive in a market that is quite uncertain. jason: blair jacobson with aries, thank you very much. jonathan: coming up, mohamed el-erian, with his latest bloomberg view column. from new york city as we count you down to the markets looking like this, about 34 minutes away from the open. futures down -- futures largely negative. this is bloomberg. ♪

♪ jonathan: optimism seeks out reality as the market hungers for clarity.

looks to the president loss address to congress. the details of how he plans to energize the u.s. economy. hoping that the dow grounds out a record for every day since trump promised a phenomenal plan to cut taxes. the federal reserve waits for details on fiscal policy. traders driving up the details, 60% next month. good morning, welcome to "bloomberg daybreak." as we count to down to the opening bell, it strikes me over the last three hours premature everyone we have spoken to has said that if you want to tax plan, you are not going to get it until august. david: everyone agrees. the chair of the budget committee saying that they have to wait for obamacare no matter what. the counterpart, saying you got to wait for it. max baucus, saying you got to wait for it. max said that they would never get it in august. the ranking member said they might never get it. alix: of course, congress and black said something very

different, more optimistic. saying that the republicans will get some stuff done in congress and the white house. what's interesting to me is that you have paul ryan and president trump, they don't agree on anything either. just because you have one party that rules all business doesn't mean that you can agree on the specifics. a border adjustment tax. republican saying you have to have the tax form. the president hasn't told us what he wants yet. jonathan: and the u.k., when the builder comes over and gives you a quote and the timeline, usually it is higher than the timeline, the quote, so forget about it, scrap it. coming up, mohamed el-erian, chief economic advisor with his fateberg column and what a -- fed rate hike could imply. this is how we are set up this morning. 21 minutes 31 seconds away from the cash open. futures going nowhere. looking at the futures on my screen right now, taking a little bit higher as we inch towards the close. from new york, then, let's get you some movers, shall we, crossing over to alix steel.

alix: not going anywhere today in the futures market. it has been a tremendous month with a major averages. the dow jones is sending 12 straight record highs today, third straight record making history, tied for the longest streak right now in 30 years. what added to that rally, though? apple, best performer, contributing 128 points to the rally. goldman, adding 109 points. over 100 points. diversity in terms of industrials and big banks. s&p, up by 4%. remember, guys, we keep saying record closes, the dow is just up for percent. a pretty weak rally at the end of the day. the s&p has been up for four straight months. the nasdaq, up seven of the last eight months. stillng major averages, setting records this month as well. in terms of the market, we have a bunch of movers i wanted a highlight. target, the big one of the morning, off by 13%.

traffic slumping, cutting its full-year 2017 outlook. i really don't need to say anything more on that. 10% below the consensus. tenet healthcare, down by 12%, one of the hospital admissions dropping. earnings really took a hit as well. this is the third hospital operator in the u.s. priceline.com, bucking the train -- trend, up by 3.5%. cutting its outlook, but that is in anticipation of discounts. in terms of earnings, higher than anticipated with the market taking a look at the good there. john? jonathan: we are less than 12 hours away from the president's address to congress. investors leading in equities, like financials, housing, health care. they may have the mutt -- the most on the line. want to begin with you. just give me an idea of how we

are set up ahead of this. how big of a market event could it be? david: the state of the union address question mark jonathan: yeah -- address? david: yeah. jonathan: i would not want to be short stock on the president who , optimism.usiness it is in decline. i think a tax reform will get done in 2017. get to thehen we timeline later on, do you think that there needs to be a phenomenal tax plan question mark will there be more than that? david: we will not get more than -- tax plan? will there be more than that question mark -- more than that? david: it will be paid for by growth. david: are we going to here that it has to be revenue neutral? david: i don't think we have to hear that from this president. alix: maybe arguing that tax reform will be simpler.

implying no border tax. even president trump has called a compensated. talk to us about where the retailers have trickled out of congress. >> we saw we tell her's rallying quite nicely after the election. rallying quite nicely after the election. really giving up a lot of those gains as the border adjustment tax sort of seemed like more of a reality. the border adjusted tax has fallen by the wayside and fallen out of the purview, a bit. there is no denying that that is just a serious lightning rod policy for this sector. it is just going to trade on that, basically. we sort of information that get from that. tonight is not likely to get more details. probably more likely to get [no audio] the defensed

sector, rising to its highest in history. .hat just goes to show as david was mentioning, stocks are likely to rise. if you are going to go out here and actually give details for policy, it will be one that will be pro-business, helping things go up. alix: you are sitting, watching the tv, you check. infrastructure was first. ok. tax reform, it was here. obamacare, here. do you put out trades in order of the priority question mark is that how you do your business? overallooking at the market economy, that's what i'm focused on. when it comes to the specifics, after a tax adjustment like infrastructure spending and how that affects stocks, i think you will have the president reiterating a commitment to infrastructure and it could provide a little bit of support and balance for industrial stocks. we think of that is where the problem is, overreaching. only so much can be done so quickly. i would stick with income tax at -- cuts. everybody agrees that

repatriation, tech, health care, would be focused on as the priorities. jonathan: what gives you the encouragement that this will be done quickly question mark david: we just -- done quickly ? david: in terms of tax reform in a way that is done in a revenue neutral way with the border adjusted tax, which i think is imposing a tax on our trade partners, i look at it and most investors alike it. most in pennies don't like it. the opposition, mounted by the companies likest it. the opposition, mounted by the retailers, you don't need to drop the corporate tax rate 20% or even 15%. something like 25% is enough to stimulate the economy and align taxes with the rest of the world. jonathan: it's one of the situations where you have almost got to strip out the scenario where, for instance, let's say we don't get the border adjustment tax. it's not going to affect u.s.

retail, is it? it's two sides -- joe: sides of the coring, here, really, with stocks possibly reacting to not being talked about. if he doesn't give more clarity, that could cause someone to lose confidence. we saw that in the infrastructure stocks of the last couple of weeks until yesterday, when he said he is going to do big spending. literally, the only word that he said was big. jonathan: like, phenomenal. recovered.ocks he keeps dropping these morsels but i think that if he doesn't provide information in the areas people are expecting into, that could be a negative in the short term for some of these areas. david: david, i want to press you a little bit on corporate. it's so important, corporate tax reform. if you are a ceo you say, let's just borrow some money, take care of this problem, get tax reform. this bill is congress. it has republicans. conservative fiscal republicans. if he makes that move, when he

lose a substantial part of his own base within the house of representatives question mark doesn't that jeopardized tax reform? -- jeopardize tax form question mark -- tax or? david: most conservatives would agree that it's not a good idea to pick winners and losers. utilizing retailers, helping out penalizing- retailers, helping out exporters , but the point is many of those conservative people shouldst -- would say that there shouldn't be that kind of conservative decision-making. the budget is still important, but corporate taxes are not a huge part of tax revenue. if you drop it from 35% to 25%, maybe $100 billion. repatriation would pay for that over a year or two. alix: take a look at a bloomberg. these are the high tax rate companies, the white line versus the blue line, the s&p on a normalized basis. havean see how much they outperformed. is that outperformance pricing

in the 25% tax rate? or the 15% tax rate? at this stage the s&p is pricing in the benefit for corporate tax reform. if it went from 35% to 25%, forget 15% or 20%, with most of the tax code left unchanged, it would provide about a $10 benefit s&p earnings at the companies that have the most the mystic businesses. now, retailers have some challenges in domestic. they haven't benefit -- benefited as much from the highs, but going from 35 to 25 benefitnefit -- financials and businesses. jonathan: thank you very much, david bianco, he will be sticking with us. coming up, more on the column of what the fed rate hike in march would imply. and later on today, special coverage of president trump us speech to congress, beginning at

9 p.m. eastern time on bloomberg television. from new york, cash -- counting you down to the cash open, you are watching bloomberg. ♪

♪ tox: janet yellen, on deck speak on friday. the odds of a rate hike, 20%. take a look at those spikes adjusting in the last few weeks. right now, sitting on that 50%. still with us, david bianco, chief investment strategist at deutsche asset management. gdp fourth quarter today, coming in no revision upward, 29%, or pce was light, 1.2%. how do we make the case for a mark -- march rate hike question mark david: the only case -- rate hike? david: neeley cases on the labor market.

we continue to have slow growth, somewhat accelerating growth, growth on services reading to jobs, unemployment rate continues to fall, and the fed makes slow progress towards this minimum of overnight interest rate normalization. i don't think that there is going to be a hike, on march 15, but i can understand that the other climbing from where they were. the first hike, ultimately, deutsche management asset is in june. alix: pretty difficult of the first one is in june. so, what is the dollar rate doing? do they need that to push higher question mark -- higher? if the fed keeps hiking the labor market company keeps the threat of unit labor costs from climbing higher. i think if it hikes at that pace, which is two times the maybe four times per year in 2018, the 10 year treasury yield doesn't climb that much and you get a flattening curve. just modest appreciation in the dollars that occur. david: jonathan: -- -- jonathan:

there is a window, they have been conditioned by that. couplewell, the have a -- well, the window maybe open a little bit, but they are still screening there and i don't think they are going to that window in march but i do think it is wide open for june. jonathan: they want more information. in the best case, it seems august, congress and out there, saying that's optimistic. what do they take away from a hawkish trump later on tonight? david: yeah, we're still not going to know exactly what the fiscal stimulus is going to look like or the effects of it in august. but i think i august, certain things like, will there be a border adjusted tax and what does that mean for inflation and what does that mean for the dollar, those kinds of issues will be settled. as i said before, i don't think that the border adjusted tax happens. i think that is something that makes the fed a little bit more comfortable moving in june. david: there are a lot of questions. who will be on the fomc in may or june? how might that affect the

calculation? david: i think that much of the key leadership is still there. but the debate is still based on the fundamentals. the fundamentals are you that they should be hiking the mode in a labor market. inflation has picked up a little bit, but i don't think that anybody is really worried about it yet. orientation about those, at least talked about, for possible candidates for fomc, tend to be more rule-based rather than have this data dependency. let's have some rules, not as much discretion on the part of the fed. that is certainly what congress is pressing for. if three or four seats go that way, what would it mean for the markets? ? i feel like in this era of artificial intelligence, everyone trying to automate things and make an algorithm to make decisions, certainly these are important tools for making a decision. that people are forced to make decisions from an investment standpoint. i'm not willing to go on

autopilot. i totally understand why they want to have their models, their frameworks, to bring robustness to the process, consistency to the process. but i don't support rules-based decision-making. alix: let's talk about your models for a second. first leg of the rally, financials, telecom, energy. then, so far in the last month, health care, utilities, consumer staples. is the reflation trade dead in the water? are you rotating away the way that the s&p has rotated its assets question mark -- assets? david: it means different things to different people. oil going up is dead, or has slowed down a lot. what has consistently played out is that the economy is on the right track, labor market tightening. if you believe in higher inflation and fed hikes, as i do, for the results on a wedding yield curve, it's good for financials. if you believe in higher inflation, i argue to buy financials, not so much energy. the oil price recovery is

getting slower than what energy shares are priced four. what is interesting is that we start 2017 and financials had further of a rally to confirm the real strong rally of late 2016, but health care technology finally came back to life. that makes sense to me. a little think with fiscal stimulus, the right structural policy, this is going to be a long-lasting expansion. i really believe that this cycle, we are eight years into it, pretty much, beating the prior record of 10 years, meaning that sectors with good growth aspect for tech will outperform for the cycle. alix: you know what also came back? utilities. david: the reason it it is because the treasury tenure went down. as i said, inflation is going in the right direction, but it is not surging. as long as the fed does hike, you'll probably get only a limited climb and people look and say the 10 year treasury, how can we not by utilities?

how can we fight this higher pe on the overall s&p? , of deutschebianco bank, will be staying with us. coming up, what would of march fed rate hike imply? mohamed el-erian will be here with his latest column. this is bloomberg. ♪

♪ david: this is bloomberg. i'm david westin. jpmorgan is holding its annual investor day new york. we will hear from ceo jamie dimon later today. we just heard from the cfo,

marianne lake, on her outlook area lacks in 2017 and over the medium-term, we expect to charge operates to be militarily flat, with the exception of cards, which will be up modestly on the back of target credit expansion as we have previously discussed area and in 2017 circles -- discussed. and in 2017 circles we expect charge-off to be loan growth. david: laura keller is covering it for us and she is here to give us more on what she has learned so far. she addressed loan generation. what do she have to say? laura: but she talked about, the jpmorgan cfo, she is talking about loans depleting a little bit. last year, 2016, loans for what they called core loans, were up 16%. now they are seeing 10% for this coming year. definitely a little bit of a pullback. as you mentioned, for a consumer she is seeing charge-off rates for credit cards tiring, which is that for the bank.

at this.was surprised i thought that they said that there were animal spirits kicking in, lots people coming in, asking for new loans, activity like that, but this tends to point in the other direction, doesn't it? laura: she is going to be asked questions later, maybe that will be brought up, hope come anyway, because it is huge for jpmorgan anyway, in terms of their growth, but some of the stuff that is happening from late last year, we don't really know it's going to happen in late 2017. if you think about what lake said in terms of the commercial into theell, waiting pipeline, where his tax policy going to be, are we actually going to get health care reform? on the consumer side you can see how that would hinder the loan generation as well. but she hasn't actually said that. so, i'm very curious as to what the reasoning would be behind a 5%. david: feels like we're moving sideways. what about trading? lot of money off of it. david: interestingly enough, this is something we would love more granular crypt -- clarity

on. why is trading modestly up for one q? terrible as a trading quarter, for everywhere, not just jpmorgan. second quarter, when everyone picked up, people were thanking god that we had a better quarter. coming off a bad quarter from one q last year and are only modestly better, that really raises a lot of questions about where the momentum of trading and volatility after mr. trump was elected, where is that all going? why are we not seeing that in a much better corner -- quarter? jonathan: it begs the question, as a market participant, you can price and the optimism. as a chief executive, it is so much more difficult to do. you can't turn around and say that we agree with the base case scenario in the s&p 500, revising our estimates higher to go with the analysts. that's not how it works, is it? like to have realistic managers.

looking at financials, i'm still overweight financials. our argument has always been that we don't expect gdp to surge or interest rates to jump up. but i think with markets and business is going in the right direction, most importantly, the dividend ratios go up and that furthers the price-to-book expansion. banks witht the big valuations that are the least demanding. within the value space, things like energy and financials, we prefer financials. as i said before, i think that people should keep their expectations moderated and have a look at what's going to benefit the long-lasting cycle. jonathan: with that in mind, laura, isn't this just the prude executive managing see sweet expectations? laura: exactly. last year,ent bank they guided something like 14%, than 15%, and then this year they guided 1% down, 13% expected for 2017. you can imagine a scenario where they then come in at 14%, therefore beating there on next

vacations. jonathan: come in, beat a low bar, that's how it works. david: you how. jonathan: laura keller, thank you. david bianco is sticking with us, from deutsche bank. counting down to the opening bell, the speech to congress, you're in the united states. new york city, negative on the dow after 12 consecutive record closes. we've got 13. it will be a record of a record run of winning records. you up to speed? switch on the board. treasuries, looking like this. yields lower, 236 on the 10 year , the euro kicking in $1.06. the opening bell is up next. you are watching bloomberg. ♪

♪ jonathan: the stage is set for a speech from the president of the united states. futures, marginally negative.

down after 12 consecutive records, the longest in 87. on the s&p 500, we grind towards four straight months of gains. the longest streak since july of 2016. [opening bell] jonathan: as you hear the opening bell ring, calm and the asset classes -- in the asset classes ahead of the speech tonight. the u.s. 10 year, down to 236. let's get this market open. here's alix steel. alix: john, looks like we are still trying to open up her. the nasdaq and the dow, flipping lower. this looks to be the closing price from yesterday. a little bit of softness, as you mentioned, into this week. how any positions are investors really going to want to take on ahead of president donald , the's speech? nonetheless s&p has four straight monthly gains. the nasdaq, up seven of the last eight months. the question is, will we see of 13 straight record for the dow?

that would be an unbelievable feat headed into president trump's speech tonight. in the individual movers, retail is really an area we really want to hit hard. target, off by 14%. they missed on everything. revenue, profit, out sales, pretty ugly. the issue is, will they wind up cutting prices to compete with walmart? will they shift to a lower price merchandise world to attract more shoppers, cutting into margins in profit? we should hear more about this later on the day. walmart, getting taken down, off by 1% as well. they plan to cut $6 billion in prices. they are, according to reports, asking food suppliers and companies to cut their prices the walmart. byse of stocks, kroger, off 1%. we tend to make a lot of those streaks, the longest in 30 years. let's look between the lines of that kind of rally. we have not seen a 1% move in

the doubt and back in december of 2016. me, six 12 of -- excuse of those closes, we just saw a move of 2/10 of 1%. yeah, we keep making those record closes, but the extent of actual movement, john, ok, you can make the argument that there is animal spirits and all that, but in reality is a? .2% move really an animal spirit kind of move jonathan: writing out the record after -- a .2% move really an animal spirit kind of move? jonathan: joining us now, morgan stanley senior management asset management manager, along with david bianco. do you look at that, here? important.it is 12 record closes on the doubt. the fact is, we have very low volatility. at the same time, you have very low implied volatility, low levels of fix something implying that there is kind of a little here that is kind of potentially

realized in the immediate term. you think about the trump trade's, the hope in the market, it really centers around, i think, these fiscal policies that are progrowth. and we are probably not getting any major announcements, at least in excruciating detail, either tonight or the next ever months. probably closer to the end of the year. pressurel kind of be to deliver. but i think we are still months off that. markets looking forward. jonathan: we have discussed it, but there's almost a presidential put in the market. fueled by words. feel by tweets. where he comments on the record run on the dow. is it enough? are you believe in it, as a market participant, that there is a presidential put their, delivers this speech later on, looks to the market to gauge reaction. is that a real thing? david: the optimism is there. i would knock is a far as to call it a firm put. look, it's the strongest rally since the election of herbert hoover. that's got everybody's

attention. david: how did that work out? david: it worked out well for the middle part of 1929. [laughter] david: if i was this administration, i would want to keep a safe distance from recession and get through the first term with a recession. i think this is going to be a long-lasting expansion. to be fair, they are actually set up in a reasonably good way. the u.s. economy, whether the shots of the strong dollar, the drop in oil, the recession, the u.s. economy is a surface consumption oriented economy. less risk of big inventory swings. we just whether the recession. , productivity and investment, drop the corporate tax rate, keep talking optimistically and support in investment and businesses, investors, i think we will do well for several more years. jonathan: let's pick up on something that you said. the life of the cycle. the life of the bull market. you need to approach this as an investor as a new bull market, once completely divorced from the one that began in a nine. -- in 09.

is that weifference haven't had a true recession in the last four years, but we have had pockets of weakness. looking back to 2011, 2012, we have that fiasco. europe weakness. but we didn't go into recession. farther out, 14, beginning at 15, we had industrial weakness. the consumer held up the economy and we avoided recession. i mean, the market has, in the months posted the election, looked very early cycle with very cyclical areas rallying. but i think the truth is we are late cycle. really, if we go into recession or not, i don't think it is that big of a deal. because it won't be another 2000 eight. the next time that we go into recession i think it will be shallow, a quarter, half of a point negative on gdp. but it is something that we can really kind of fight through. you think we are not

headed for recession, but if we were, would you agree that it is that big of a deal? fedn the options from the with interest rates, they don't have as many weapons as they used to have. david: that -- those are fair points. any recession fees upon itself. you can never know how bad a recession is going to get. but i do agree with the point zach: that zach made. made.nts that zach it has been a resilient cycle. i think that's a good reason to believe that the next recession is unlikely to be anything as severe as we saw in 08, 09. alix: we have seen value outperforming growth, cyclicals outperforming defenses. that was the trade, right? do? do you is it the playbook to do the value with the cyclicals? postelection, from our standpoint, both within the u.s. and outside the u.s., value outperform.

but this is something that we saw throughout most of 2016. and this year it has been a different story. kind of the leadership in the u.s. has been technology has been -- technology, has been health care. but outside the u.s., value has continued to lead. i think we are kind of seeing the fact that we are kind of asynchronous in terms of where the cycles are. of, again,e are kind very long into the cycle. but europe, and japan, the rest of developed markets are much earlier in their cycle. david: it such a great question. right now, there are areas where there is a still cyclical recovery occurring. look at the ongoing normalization of interest rates from very low levels. part of the reason i like financials. but i think if you look at long-lasting cycles, the 1960's, the 1990's, once you get past that cyclical recovery, but tends to outperform his growth. i think that is going to continue to get the u.s. market growing.

and outside the united states. value, howt from about valuation? looking at the united states, we are well into this rally now, stock market. if you look at the u.s. versus e.m., japan, where is the better outsidetion mark zach: the u.s. -- buy? zach: the u.s. has been more richly valued, better earnings growth has made the u.s. improve better. so, i think that by itself wheret quite determine you should allocate. at this point, we think, simply the cyclical recovery is more fully priced within the u.s. than outside the u.s.. -- u.s. at this point you want allocation to these stocks, international stocks, that is where the value trade is poised to continue. you know, kind of, u.s. growth companies are excellent

companies. they kind of outperform, have really driven earnings growth and it certainly merits and allocation there as well. jonathan: bringing us to the final question. prices, then underlying behavior, shaking price. valued.es, fully behavior, bordering on euphoric since the election in any way for you? zach: i wouldn't call it euphoria. people seemed extremely skeptical on equities prior to the election. you know, we get the rally post trump three. we get the hike, the trigger, the rise in interest rates. we get the cyclicals outperforming. it seems to have come back somewhat. but i don't think it is to the point of euphoria. we look at positioning kind of based on cf pf -- cf bt data. we are right near historical averages. people are in line with where they normally are, from our standpoint, but we are not in an overhyped level at this point. jonathan: great to have you on the program. zach apoian , david bianco.

coming up on this program, mohamed el-erian with his latest bloomberg view column and what of fed rate hike in march could imply. the markets, almost 10 minutes on the button into the session. the dow, after 12 consecutive record closes, a marginal move lower by a 10th of 1%. we have seen this a couple of times over the last 10 weeks. board, quickly, the asset classes whizzing through things for you. down about a basis point on the 10 year yield. the euro, its neck above $1.06. from new york city, you are watching bloomberg. ♪

♪ emma: this is "bloomberg daybreak," coming up on bloomberg television, special coverage of president trump's speech to congress from 9 p.m. eastern time -- time. jonathan: from new york city, for our viewers worldwide, this is "bloomberg daybreak." checking on the markets right quickly, 13 minutes into the session, a marginal move, 1/10 of 1% on the dow. no real drama here. equities treading water throughout the morning and a day over in europe. it is the calm before the speech to congress from the president of the united states a alix: little bit later. alix steel? alix:comcast saying that they will buy the -- united states a little bit later. alix steel? comcast, looking up the stock and what it is trading in the markets, with me now, down 2/10 of 1%, comcast buying the in universalke

studios japan. interesting update their. headlines as they cross. john? jonathan: thank you very much. the main event, a little delayed or, the president's address to congress and the united states. joining userian, now, bloomberg view columnist and chief economic advisor to allianz. how important is this address later, to market participants, as far as you are as -- concerned? mohamed el-erian very important --mohamed el-erian: very important, terms of what we have priced. jonathan: what is the most important, content, timeline, or overall approach? : content.-erian the market wants to be reassured that there is a tax or form plan and an infrastructure deregulated approach and they would like all of that to be d in a way that is fair

but still free trade, not protectionism. jonathan: doubts around the table today from congressmen and officials in d.c., about the timeline. the idea that the treasury secretary can get a tax plan and acted by august. if it is delayed through to the start of say 2018, how much disappointment will there be? how much all i will there be, given where things are currently? be some there will disappointment. the market is looking for moving quickly. the market is looking for structural growth engines to help cyclical growth engines. to the extent that we don't get anything on the structural side, i think that markets will be somewhat disappointed. jonathan: data drops across the bloomberg, allow me to bring it to you. chicago pmi, safety 7.4, significant upside for price. if 2.3, the previous reading. the pmi's, no matter where they come from, continue to drive these upside surprises. alix: if you continue to have global uncertainty while pmi's are inching higher as well, the thing has to get there.

either uncertainty comes down or pmi starts to roll over. mohammed, how much of markets actually priced in? will he get a president trump that will come in tonight and give us very specific actions in terms of economic growth and tax plans question mark like frankly, foolish. we are not going to get that. i don't know anyone who thinks they're going to get that. what is the downside potential tomorrow morning? mohamed: you said very specific. i don't think we get very specific. i think we get more specific. if we don't get more specific, if the tone is not progrowth, there will be downside. don't -- don't forget, there's a lot of other things going on in the global economy. there's little risk in europe that we cannot ignore. an anchor.we need the anchor is the progrowth policy momentum's. that is what the market has bought into. the equity market, yes. the bond market, it seems no. anchored with a handle for the last week or so. we kissed the 260's back in

december. and then we rolled over. what has changed in terms of the enthusiasm that took us to the middle of december with breakevens popping, then you saw what happened with yields as well. what happened since then? , europe --e you word one word, europe. we have had enormous influence on the u.s. bond market coming from europe. there has been concern about political rift. look at the two-year german government bond. it is at -90 basis points today. why? not because of economics. in fact, europe has the brighter outlook. it is about political risk. we have been heavily influenced by what is happening in europe. markets higher, dollar lower, yield on the off but tomorrow, down a little bit because of those risks. is that the scenario we could be setting up for question mark mohamed: we're looking at many scenarios -- setting up for? atamed: we could be looking many scenarios. i love the way that john called it earlier, the presidential put. markets like and understand the

central bank put. why? the central bank is relatively autonomously comes to policies. if we shift to a presidential put, that's very different. president trump needs congress. moreof this becomes important. look at how the market is going to wait a presidential put, as john puts it, versus the comfort with the central bank put. david: but talk about that but. there are two ways that you can do it. one is big, brash, and bold. allocated to push through. the other is pragmatic and more modest area which donald trump are we likely to see tonight? but id: so, i don't know, think and a way the markets would rather have the latter, david, which is confident that this is a process, not a one-off thing. this is a process that we will first, taxes, infrastructure, deregulation, and let's not forget labor market reform, let's not forget education. there's lots of issues holding back of activity. i think the market would like to see a gradual approach as

opposed to a big bang. david: that would be wonderful. that's not the approach that donald trump took as a candidate. it was not a gradual approach. can he satisfy the markets on the one hand and his base on the other at the same time? politicalnd that is a call. remember, you have to work with a congress that would rather have a gradual approach than a big bang. the problem with big bangs is that they are very hard to design. happen inbig bangs crisis mode. but when you are not in a crisis mode, it is actually very difficult to get the political will. that's assuming that you can design it. it's hard, david. it's a hard requirement to have the big bang. just a quick question. there used to be a time when we assumed that the president would lead the news conference at the ecb and check for the euro was trading. congress meeting with -- address to congress, checking the futures? mohamed: he will. he will want validation of what

he just said in the evening. so, he will check on futures. he will see how it resolves tomorrow. i think it's important. you said it yesterday, he's looking for higher growth to help solve other issues as well. higher growth, higher -- healthier market, these are things that he is hoping for and i would argue that he needs if he is going to get his approach to be effective. jonathan: greater have you with us on the program. coming up at the top of the hour, "bloomberg markets," with mark. what's coming up? mark: a preview of the big trump , looking forward to that at the top of the hour. robert leonard, credit suisse prime security services, discussing the annual hedge fund performance. and ending the show, the abn amro chief officer. he says we have entered into the great financial normalization, risks to price, normalization. see you in about 10 minutes. jonathan: looking forward to it. alix: if you are on the

terminal, go to tv , interact with us daily. is it the question we just ask you directly to mohamed el-erian , so go to tv on your terminal. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." i'm alix steel. usamed el-erian, still with from california. 48% of ability of a rate hike area that's what i'm seeing on the implied probability. what kind of jobs numbers do need to see to take the number above 50? needed: above 50, you just strong employment creation. if you want it above 70, you need strong employment creation plus a pick up and wage growth. wage growth is the most important number that is going to determine what the alix: fomc meets in the middle of alix: march. well, last week -- middle of march. alix: well, you are saying that

they were under pressing the need for an increase. you said it should be more like 50 to 60 when they were more 20 to 30. why did you see that? mohamed: because of the numbers. i was very surprised when the market took it down to below 30 and i came out and said that it should be more like it did to 60. yesterday we got to 52, today we're 48. i think that is the way it is based on the numbers. higher, they need some assurances that inflation is going to indeed stick around the 2% target. i think they're not worried about employment as such. they're worried about inflation. that's where wage growth becomes very important. 1.2% right, we saw it down year-over-year, down under 2% on the breakeven, so it doesn't look at that kind of scenario is really playing out. mohamed: for that they need to get a better handle on the wage dynamic. i feel sorry for the fed. there have been so many moving pieces. a lot of analytical models.

especially the historical ones are simply not as effective as they used to. so, they want more assurances under which dynamics will make them feel better about the inflation side. tox: is there another answer the question that i posed earlier when it comes to the march rate hike probability? could adjust the end of the month slows? a lot of euro dollar selling in the market yesterday. is it just that? ? is it really fundamentals or other technical -- just that? is it really fundamentals? or are there other technical flows? it is important, it has been putting a downward pressure on our rates. second, you have clarification from mr. kaplan, the president of the dallas fed, that sooner rather than later could mean quite soon. thirdly, the fiscal side. you know, if are going to spending,efense that's easier done than reducing other spending. i think the market is pricing in what is here. alix: great stuff, good to have

you here, mohamed el-erian. it's not just us that are going to be watching this. you know that janet yellen will be tuning into the speech tonight. [laughter] alix: she has her speech on friday, so what he lays out matters. jonathan: i'm afraid the fed has a massive problem if she changes what she says on friday based on what he says tonight. jonathan: i have to agree. nothing's changed, we still when you're up for everything. lame europe. are up what the futures to this morning, lower this morning, opening up lower, down 1/10 of 1% on the dow, 2/10 of 1% on the s&p 500. the calm ahead of the speech. from new york, you are watching bloomberg. ♪

vonnie: it is 11:00 in hong kong. mark: welcome to bloomberg markets will stop -- markets. ♪

vonnie: we will take you from new york to london in the next hour and cover stories out of washington, d.c., harris and milan -- paris and milan. julie: we just have numbers coming out for the month of february. this is the consumer confidence index rising. 111.6 forom a revised the prior month, so it continues to rise and recently, we have seen that, characteristic of the data we have gotten in terms of confidence, whether you are talking about consumer or business confidence, the readings have been improved. i don't see any of the details in terms of the sub indices. in terms of overall