>> sterling pounded for a third day ahead of the u.k. budget which analysts say will do little to support the valid currency. payrolls poised to steal in march rate increase. they're about to go old-school. global trade and border taxes, a conversation with the commerce secretary. .ood morning from new york city welcome to bloomberg daybreak. i am jonathan ferro alongside alix steel in new york. in dce is david westin. we are talking about a border adjustment tax. david: we certainly are. nafta and renegotiation with mexico is a big item on the agenda. the question is how do you negotiate if you don't know the answer to that question? we are talking to wilbur ross about trade. alix: peter navarro said you were going to privatize the economy and growth versus inflation. how does that square when you come back -- when you commit a reflation? we are talking to the ceo

frederick dear in a little bit. markets, to get you ready, futures just a little bit softer . down 1/10 of 1% on the s&p 500. the euro is weak or by 1/10 of 1% and the treasuries on offer for an eighth straight day. yields up. alix: it is not even a basis point. it is sterling that is the story for me. the downside off 4/10 of 1%. not waiting for that u.k. budget. gold is slightly lower but not picking up steam. now it is down by 1%. not necessarily supporting the oil price. i jon: want to pick up on sterling falling for a third straight day ahead of the u.k. budget which many are saying would do little to support the pound is a currency. in the next hour, joining us

live from westminster with moore is bloomberg's and a redwood. -- and a red word. what we expect from this? he is changing jobs but just because he has moved the timetable. here,e are expecting from credit is describing it as fiscally mutual. it is not doing anything to support the currency or the preamble around the budget. as you pointed out, this is a chancellor who is going to be dealing with more headroom, more room to maneuver because the u.k. economy has not been as sluggish post brexit as many thought it would be. we have got the last look at the u.k. economy in this way. we want to make sure that it is match fit, it keeps you powder dry. in the process that is to follow, expect a few

announcements around spending and social care and protecting businesses from higher taxes. in some cases their areas have been attracting political heat but generally it is not going to be a big giveaway. some good news around the growth story. whether this is november and what is dealt with as a result. jon: you mentioned the brexit process between the house of parliament, the house of commons in the upper chamber. a defeat for the prime minister in many ways. what is the situation now? >> it is an interesting one. we've got a self-imposed deadline on article 50 by the end of march and the key is to what extent is that deadline still intact? that is not certain yet. now, the bill goes back to the house of commons. what they choose to do with it will indicate whether we get this ping-pong process between the house of lords and the upper chamber until they reach some

kind of consensus. that will indicate the timetable, whether there is a chance to trigger article 50 somewhere between the 15th of march and the end of march. that seems to be the conversation at the moment. jon: we will check up a little bit later. joining us now is our chief global equity strategist. can we put out the political situation as a battle of messy politics? if i give you a pound or euro, which one would it be right now? >> i would be very firm in the camp of owning european equities. have a nice reflation trade which began in germany 18 months ago. that is working its way through parts of continental europe including spain and ireland and now it is going to arrive in france. we have the pmi numbers in france picking up and all the indicators are that people's sentiment towards europe and

france is very poor, like china 12 months ago. there is a lot of outside right now in european equities and i think on the absolute basis, they could outperform the u.s.. jon: clearly for many people this is a short-term comparative evaluation story in europe. it is a medium to long-term recovery story as well? >> i think we have to put things into context, which is that parts of europe including france have had a very low inflation rate. that has been part of the problem for some of these economies. secondly, we haven't had much of a cyclical upswing in the last 18-24 months. global trade has been week but that is turning around with the emerging market story resynchronize in. resynchronizing.

it is a cyclical story and they are all price for worst-case scenario. italy towards france and and parts of continental europe in the 18 to 24 month reflation theme. the european yield curve has been flat for the last 12 months. alix: does that mean you have been selling bonds? daxes, we still are on the short german bonds. investors have been very bearish sleep positioned -- bearishly positioned in the story. as i said, three quarters of europe grew very well last year. three quarters of europe is actually growing above trend at the moment compared to the forecast 12 months ago. it is the more sluggish france and italy that has been perhaps betraying the better story elsewhere but i think that is turning around at the moment as

well. bear in mind, france and italy all run current accounts so systemic risks for those economies are very very low. alix: there is another case to be made, goldman sachs saying profit margins in the u.s. are better than in europe and they don't see that changing. if it comes down it is because u.s. profit margins are coming down and not because european margins are coming up. what turns that story around? >> i think there is a story in the u.s. that our own work is cost input pressures, whether it is wages, rents or energy going to make a dent in the u.s. margins. i think the story in europe is really not the story of big exciting change in the business structure but the fact that asset turnover has been very weak. we've had capacity utilization rates over the last three years and it is just simply a recovery story from a very low base.

in particular, with this week euro, bear in mind the dollar is a 12 year high and most of it has measures like effective exchange rate euros being cheap. the total terms seems to be within the european continental story. jon: i want to pin you down on how long that lasts though. it is flattered by base effect in many ways. some inflation matters elsewhere, how long can that go on? mostthink the disappointing thing about the european equity story because of the u.s. has been the lack of m&a. there hasn't been a degree of consolidation we would have expected in a reasonably mature economy and that has to play itself out. you've got to have further restructuring and some more of the capital intensive industry. i would say that also has to

play itself out in the european banking sector as well. there are some themes that have to play themselves out. --n things are very everything looks pretty awful, but coming off of the base, the gain positioning has been very bearish. in the u.s. it is all about health care and financials. alix: can you give a breakdown of your top three? >> in the u.s., we have been aligned to those sectors that have got the most correlation to inflation. energy, banks and materials and we have been very along those sectors in our portfolio. energy is still going toward's $60. alix: what about europe? is that the same theme? >> i would say perhaps more so on the european banks and financials. its yield is steepening and we are getting inflation picking

up. that is really the key. waiting european banks for france and germany are much higher than in the united states. the kicker for performance may come from that more than anything else in the next 12 months. >> sean darby of jeffries, still with us. up, a ceo will be joining us and later, wilbur ross, u.s. commerce secretary. lots coming up. trade, border adjustments, this is bloomberg. ♪

david: this is bloomberg.

i am david westin reporting from washington, you are looking at a live shot of the white house where there seems to be all sorts of news eating made. -- being made. we are joined now by our washington correspondent kevin cirilli. thank you for welcoming me to your house. we have this new revelation, the fact that the president did meet with a russian official. >> it comes as the health intelligence committee has scheduled a meeting for mid-march. we will be joined by top officials who will testify before the committee from the u.s. intelligence community about all of these allegations. but countless times on the campaign trail we would hear from top spokespeople within the trump administration who would no that candidate trump had interaction with russian officials but now we are learning that he did have interaction. officials are saying it was brief. all of that said, regardless of what they talked about, they said they didn't and now they say they did. david: i guess one of the big questions for our viewers is is this a distraction?

yesterday was all about obamacare and repealing obamacare and they started marking up the new bill today. is that going to slow down that process? >> it cost the administration political capital and it also puts my republicans in the position of having to choose between the white house or facing tougher questions against the white house. the more republicans have to challenge this administration, that means they are not going to be talking about things like repealing parts of the affordable care act or getting onto tax reform or the regulatory matters. all of this is chatter that the white house would like to see go away but it keeps him continuing. -- it feelseals like the swamp is not raining. back to you, alex. alix: 98% chance the fed will raise rates next week. jeff gun lock yesterday saying the federal bank will be raising rates sequentially. they are starting to become a sequential type of said pattern.

it is almost old-school. with us is sean darby, jeffries global equity strategist. at some point we are starting to eat into the market rallied. 6% on the 10 year after trump's first term. what happens to the equity market? >> in the short-term we have had monetary easing in the united states. we have to remember that the real interest rates, the rates areadjusted minus one and a half percent. we have had an incredible easing of monetary policy in the last 18 months. weekway, what they do next is really just to take back some of that a norm is slack. that has been very good for asset markets, particularly equities. i think we could still see some surprises on inflation.

rates could be fairly negative for most of 2017. the difficulty comes towards early 18 when the long end moves towards 3%. the equity market probably couldn't bear it at the moment. >> the conversation around the fed is round -- is around 18. we are seeing a lot of strategists upgrading their shots at 2600 of the s&p for the end of this year. what is the short-term and medium-term? >> the difficulty is what might be quite good for the economy might not necessarily turn out to be quite good. -- not necessarily good for the equity market. for the s&p 500 revenues it is going to be quite difficult, perhaps without some fiscal impulse from from plants or a

comprehensive train -- change in the tax code. what the equity market needs going in towards the end of this year, early 2018. a strong dollar is probably going to suffocate the earnings growth and either trumponomics or fiscal policy is a reasonable change in the corporate tax rate. mark for question 2018. jon: your year-end forecast is below where we are right now on the s&p 500. we are at 22.68 yesterday on the close. where is the optimism? >> i think i learned from my mistakes in early 2016. i was actually quite optimistic on the u.s. profits. the strong dollar really did hurt them. that was the thing i learned. the rate of appreciation of the dollar. that is the specific audience of the s&p.

you might get a few sectors like energy contravening a large outside -- contributing a large outside. other sectors might find themselves quite weak despite growth being good in the u.s.. necessarily a very easy story to pin down in numbers. only the energy sector is providing the biggest rate of s&p inin growth for the 2017 and that is largely based effects. comps are energy going to get harder and harder throughout the year but there is also a conversation to be had that the dollar has already had a monster rally that any kind of appreciation won't be on the scale that we saw in 2016. is that oneculty is, maybe we do get sequential on thekes which we have forecast for the beginning of

the year. there in mind, if we do get the comprehensive tax package and overhaul and we have a border adjusted tax, that would cause the dollar to appreciate quite rapidly. forecasts that it could appreciate by double digits if fully implemented. careful what might begin for the economy and generally good for the united states, purely because the s&p is so weighted in overseas revenues. it might not be good for the s&p 500 earnings. alix: it is great to get your thoughts. jon: joining us from a very dark hong kong right now. coming up, wilbur ross, the u.s. secretary on trade and bder taxes. exclusiveacqua has an interview with mr. jamie dimon. p.m. -- seven: 30 a.m. tomorrow. from new york and d.c. you are

watching bloomberg. ♪

>> this is bloomberg daybreak. i am emma chandra. time for other stories making headlines. i am here with your bloomberg business flash. we pay gap between american ceos and their workers keeps getting bigger. chief executives of 42 companies saw their packages rise 5.5 percent well workers received 2.8% pay hikes. all this from the consulting firm advisory partners. boeing is considering building a new twin-engine plane for flying the atlantic. from 225 toanywhere 250 passengers. isted airlines says it giving the go-ahead. uber ceo travis kalanick is making good on his pledge to provide leadership help. they are searching for a chief operating officer. he promised to get help after

his altercation with an uber driver was caught on video. that is your bloomberg business flash. i am emma chandra. back to alex. alix: we want to focus on adidas, up by a must 8%. post a lower forecast for 2016 earnings but it did sound upbeat for 2017 and beyond. it expects sales to rise between 11 and 13%. profits could drop a whopping -- could jump a whopping 20%. going to focusly on its fashion lines and casual wear. is a different story for it em in europe, off by 6%. it is europe's biggest power company, down near all-time lows. they are trying to raise $4.2 billion to write this issue. it is building up the balance sheet. the government owns the utility by 86% and it is going to sell a portion of its rights on the new

share issue. that story is permeating today. rounding out with caterpillar, a fascinating story as the company grinds lower all throughout the morning. now down by three and a half percent. the new york times reports the company carried out accounting fraud. the company is investigating the swiss subsidiary for years. no files have been charged. caterpillar has not been shown the u.s. evidence but the allegation of the tax dodge allows the company to cut its tax bill by $2.4 billion over the last 13 years. last week we saw the illinois office raided by caterpillar. the new york times is claiming caterpillar structured almost $8 million in overseas holdings and loans to avoid the tax situation. a few weeks ago you had donald trump promoting caterpillar as a great company. a fascinating story coming out. we don't yet have the evidence for it. up, ceo on brexit.

the politics of the french election and of course global the regulation. then it is a conversation about trade and border taxes with the u.s. secretary of commerce, a conversation with wilbur ross coming up. in the markets, the cross asset situation is looking like this. future is marginally softer yesterday on the s&p 500. we had a second straight day of losses. you have to go all the way back to the end of january for the last time we had two days of losses. the winning streak has been much better. the moves to the upside may have been marginal for this continue. we had a slight retrace over the last couple of days. in london, the stocks are by 2.5%. board, thech up the cable rate has been dramatic, three days of losses for the pound. the pound at a seven-week low. 18% moves since brexit.

in treasuries, alix steel, this was remarkable. eight straight days of treasuries on offer with yield higher. alix: what is interesting about that is that we broke above to a half percent. so many technicians are saying that was the level and now cap broken -- we have broken into the upside. if we don't get any insight into 2018 hikes, oh boy. jon: the auction cycle continues. yesterday we had a three-day auction. this is the last few. the auction cycle continues to pick up. andears coming up today tomorrow. from new york and d.c., you are watching bloomberg. ♪

emma: this is "bloomberg daybreak." president trump is throwing his weight behind house republican plans to replace the affordable care act.

he told republican leaders he is proud to support the obamacare replacement, but conservatives are attacking the measure, some calling it obamacare like. --light. in asia, china is going on north korea and the u.s. to avoid a head on collision. china is urging north korea to halt its nuclear activities. the u.s. was asked to suspend military drills with south korea. china's foreign minister wants to get north korea back to the negotiating table. british prime minister theresa may is fighting back against brexit rebels in her own conservative party. they handed her another defeat in the house of lords. they rewrote the brexit bill to guarantee parliament on the outcome of exit talks. she will try to get the changes reversed when the bill goes back to the house of commons. global news powered by more than 2600 journalists and analysts. this is bloomberg. jonathan: thank you very much.

let's get you up to speed on markets. two hours away from the cash open. two days of losses on the s&p 500. down by not even 0.1%. the penchant for politics in the u.k. is in the chancellor's little speech that comes up in a moment, the budget, his final spring budget. we are down by 0.4%. theaker pound story for third straight day. you wonder if there will be anything in what is coming up in the next hour that would support that particular currency. difficulty is what we are going to see in the gilt market. gilt we see a rally in the market? jonathan: personalities are important. thee minister -- conversation in london is not

what we are going to get from mr. philip hammond, a little more conservative. these can be very boring in many ways. there will not be enough space for giveaways. the focus will be on negotiations with the european union. let's get over to david westin in d.c. david: in washington, it is said that this man may be the most influential secretary of commerce in u.s. history. wilbur ross has taken on this key role in the trump administration and much of the talk around washington is about his number one job, putting together a trade policy for the president who has made it plain to everyone he is not too pleased the way things have been going. secretary ross is with us now. welcome, mr. secretary. sec. ross: good to see you. david: let's go back to yesterday, way back to yesterday. you announced a very big arrangement with a chinese company come almost a $1 billion fine for violating sanctions with iran. explain to us that transaction and how that fits into chinese

trade policy or is it a one-off? sec. ross: people don't realize it, but the commerce department as many divisions, one of which is the bureau of industrial security. their lapel 10 in honor of what they did yesterday. their job is to make sure that ve materials don't get into the wrong hands. they were dealing repeatedly with the wrong -- iran, north korea, who despite the sanctions in both cases. this case has been going on for quite a few years. the department only has 20 agents in that particular segment. this is not the only case. you are going to see more cases because there have been other violators of the sanctions. david: you and the president

have been pretty outspoken in the relationship with china when it comes to trade. forhere a special focus commerce on chinese companies? sec. ross: for any companies. we are not discriminating against the chinese. anybody who violates the sanctions we will deal with harshly. david: let's turn to mexico and nafta. another very big item on the agenda. the president has made it clear he wants to renegotiate nafta. as you go into those negotiations, there is a proposal for a border adjustment tax. unclear what the white house's position is in your position is unclear. assumptionsake about a border adjustment tax as you negotiate with mexico? do you assume there will be one? do you wait? sec. ross: the kinds of things we have to deal with in mexican and canadian negotiations are really not related to the border adjustable tax. the genesis of the border adjustable tax is as much the

need for revenue, as part of the new tax bill, as it is anything else. it is not intended principally as a trade activity. it will obviously have an impact on trade, but that is not its main origin. situation is the following. it is an old treaty. our economy is very different from what it was when that treaty was entered into. we did not have the whole digital economy. services were not nearly as important as they are now. further, we have had decades of experience with the treaty. very hard to get a several thousand page document right at inception. there are some things in it that we missed. there are things that were not done correctly to begin with. a lot of things that might have been ok back then, but don't work now. there is a lot to fix. david: both the canadian and mexican governments have said

things like that. they have said there is room for negotiation. that is one model. another model is we have a substantial trade deficit with mexico we have to fix. which one is driving the department of commerce? sec. ross: both. [laughter] david: are you really targeting the trade deficit? it has not risen with mexico over the course of nafta. imports and exports have both increased, but the overall trade deficit has not increased. sec. ross: that is definitely not true. we regularly had a trade surplus with mexico and now we regularly have a substantial trade deficit with mexico, so it is not true that pre-nafta and post-nafta there has been no change. david: one of your goals is to reduce if not eliminate that trade deficit. sec. ross: absolutely. we think there is no logical reason why one country, namely the u.s., needs to have a trade deficit that roughly equals the

combined trade surplus of the rest of the world. that not our fate in life we have to absorb all the net exports from everyone else. to get thoseer sorts of concessions out of mexico, there will have to be some threats, i don't think it is too strong of a word, made about tariffs. could that really disrupt trade overall with mexico? for example, i'm not a very threatening figure. [laughter] sec. ross: so, i don't know about the word threat. is the mexicans know, the canadians know, times areknows that different, we are going to have new trade relations with people and they all know they are going to have to make concessions. the only question is what is the magnitude and what is the form of the concessions? i'm told the president repeatedly has made my job easier by softening up the adverse parties.

what could be better than going into a negotiation where the fellow on the other side knows he has to make concessions? david: what is the time horizon now? when would you expect negotiations to begin at how quickly would you like to get a result? sec. ross: i would like the results tomorrow, but that is not the way the world works. we are now in the early stages of the process, the trade promotion authority, the so-called fast-track. that process, by its own nature, has a couple of months' starting point before anything serious happens. we are probably the latter part of this year before real negotiations get underway. david: you know from your prior role, a very successful investor, business really does not like uncertainty. investors like to know what is happening. there is a lot of urgency on the part of american business and financial markets to get this thing resolved. sec. ross: they don't have any

more sense of urgency than i do and you are well aware the president has a well-documented sense of urgency, as well. david: we are here with u.s. secretary of commerce wilbur ross and we want to welcome our radio audience, as well as tv. do you have a sense at this point of what the major sticking points are likely to be? for example, rules of origin, environmental restrictions, there have been a list of things that people have suggested that should be taken a look at. sec. ross: there are roughly 20 chapters to the original nafta and there are several chapters that need to be added because of the digital economy and other things that have developed subsequently. there are marriott points of discussion that will come. which ones will bear the most fruit is a little bit premature to discuss, but there is a lot of need to be dealt with. david: as you go into these negotiations, how mindful are you of the possibility of what

the markets talk about as a trade war? where sanctions would be taken that might escalate, go to wto, reciprocal sanctions, things like that, how mindful argue of danger? sec. ross: we are in a trade war and we have been in one for decades, that is why we have a decade -- deficit. the difference is our troops are now coming to the ramparts to that is the only change. david: it sounds like it is going to be a shooting war now. sec. ross: it is not going to be a shooting war. if people know you have the big bazooka, you probably don't have to use it. david: you are reasonably confident we will come up with a revised nafta that will substantially reduce the trade deficit with mexico in a year? sec. ross: i would hope the negotiations would not take substantially longer than a year. how long it will take to implement them is a different question. you mentioned rules of origin. be a big topic.

these are complicated issues. you have to be mindful also of the supply chains that have developed and to the degree that the geographic transition is needed, that takes some time. david: you mentioned the supply chain, very much on the mind of a lot of u.s. business. i will pick on mary barra because she has spoken out about this and gm has a complicated situation shipping parts back and forth across the border. to what extent are you hearing from u.s. business and are they playing a constructive role about how you could accomplish your goals? sec. ross: they are all nervous because, as you mentioned, uncertainty is the big curse of any business, but frankly, it is a big curse of government too. government does not like uncertainty anymore than business leaders do. we will try to get it resolved as rapidly as we can and we will be consulting with the industries that could be affected. ,art of this whole tpa process

this consultation with domestic industry -- both getting recommendations from them as to changes they would like and peering through -- hearing through the problems and changes might create for them. focus on tend to mexico, but nafta is a trilateral agreement. do you went to sedate the negotiations -- anticipate that the negotiations will be three-part, with parties bartering across borders? sec. ross: the president has indicated his preference for bilateral, but we are open-minded about the form in which the nafta discussions will take place. the most important thing is the end result, not whether it is a bilateral or trilateral arrangement. david: i want to come back to the border adjustment tax. do you have a view about the border adjustment tax? sec. ross: yes, my view is that i'm studying it very carefully as it evolves and as we get to

understand more of the intricate details of it and how it interacts with everything else, that is when we will take a position. david: you suggested quite correctly that speaker ryan has put this forward as a way and principal part of saving a lot of money for tax return -- reform, but it will affect trade flows that you will be analyzing. sec. ross: absolutely. anything that affects what goes across the border clearly has a trade implication, but it is meant to be part of an overall tax package. so you have several issues. one is the question whether or not to do a border adjustable, second is what magnitude of it is needed, third are the intricate details -- how does it really work? if you are a solely domestic producer who does some exporting, that is one set of facts. if you are mainly an importer, a different one. if you are both, even more complicated.

so, it is not a very complicated thing to analyze. anduse it is so important such large numbers you are talking about, potentially $1 trillion over a 10-year period, that is way too big a number to get wrong. david: i want to turn briefly to germany because chancellor merkel will be visiting washington next week. there has been some discussion from the administration about trade with germany, where there is again a trade deficit. will that be on the agenda for discussions with angela merkel? sec. ross: my guess is that those discussions are somewhat higher level than getting precisely into how many automobiles from germany get sold here. i would be very surprised if it got to that level of granularity in the discussion. it is also complicated in that germany is not a separate entity. trade relations with the outside world fundamentally come through the eu.

it is a little more complicated structurally dealing anything with germany than with say mexico or canada. david: this is a point that peter navarro made recently. he actually criticized germany, saying they were getting an advantage in trade because they are part of the euro, which is artificially low, where a deutsche mark would be high. is that part of the trade policy of the u.s. government? sec. ross: currency is a factor in trade, clearly. with mexico, for example, the weakness of the peso has been a significant factor in trade. peso is way down versus the dollar just this year, let alone prior years. sure, that affects the relative competitiveness of countries. david: is it u.s. policy at this point that the euro is too weak against the dollar? --. ross: currency madurese

matters are mostly dealt with by treasury, not by commerce. my plate is pretty full, so i won't go poaching food from other people. [laughter] david: does it strike you as ironic -- you mentioned the peso being down -- if you tracked -- devaluation peso appears to be in response to president trump getting elected, is that ironic that the more successful years, it exacerbates the problem of the trade deficit? sec. ross: that is a complicated equation. what it does show is that markets tend to adjust to probability ofhe the trump presidency, as it grew, it had implications for mexico and others and now that the trump residency is a reality -- presidency is a reality, it hasn't even more clear implication. david: thank you very much. that is wilbur ross, the secretary of commerce.

jonathan: david, thank you very much. news from chancellor hammond out of the u.k. government. the office of budget responsibility. delivering a 23.5 billion pound cut of plant borrowing over the next five years because the gdp forecast is part of this. raising the economic forecast. the economy battering did not come true following the brexit vote. the forecast had to be revised. 2019 cut from 2.9%. you see the reaction in the fx market. a slightly firmer pound off the back of that. still lower on the day.

some better news maybe for the government. great forecast, not as bad as expected. the budget deficit expected to narrow. alix: we are definitely seeing the gilt market selling subside. the forecast was not as positive. 1.6%. still, hammond's view is much more positive than even the oecd. jonathan: i would say 2% is actually bang in line with where the bank of england is that for this year. withy much bang in line the bank of the united kingdom on growth forecast. where everyone was wrong is how quickly this would get into the u.k. economy. we have not seen it rollover. it is coming through a lot more slowly than many people anticipated. alix: when does the data start to turn? we have seen data coming in

lighter, but when is the turn going to be and are we going to get caught flat-footed again? we will bring you updates as they come. coming up, and interview that you do not want to miss. tomorrow, francine lacqua has an exclusive interview with j.p. morgan chase ceo jamie dimon. tons to talk about, don't miss it. this is bloomberg. ♪

emma: this is "bloomberg daybreak." this is the hewlett-packard enterprise greenroom. coming up, societe generale's ceo in the next half hour. from new york city,

this is "bloomberg daybreak." let's get a check of the markets. equities down. futures tread water. off by a single point on the s&p 500. if we look at the cable rate, the pound just firming up. off session lows, down by 0.29%. yields just turning as well on the back of more optimistic growth projections and a narrower budget deficit in the u.k. i want to head over to the u.k. break down we have heard from chancellor hammond. in the spring budget. one of the key lines that has come out is this upgrade to the growth forecast up to 2% from 1.4% back in november. the key thing is that that

upgrade has not happened when you look out to 2018 and 2019. this is one of the balances. the office of budget responsibility was a bit too pessimistic in the wake of brexit, but this near-term boost that we have seen in the u.k. economy might not hold out. the cuts to the deficit projections. that is a key thing. philip hammond did say the deficit is down, but the debt is still too high. that brings us on to borrowing. 23.5 billion pounds cut from plan to government borrowing over the next five years. this is what gilt investors will be looking out for. we were expecting borrowing in this fiscal year, the issuance in this fiscal year to be cut to a decade low. jonathan: to speak in broad strokes, it feels like the brexit fight many anticipated has been pushed out to say the 2020's. how can we be so sure that there will be one full stop when the

data remains remarkably resilient? is thatell, the thing not many people can be very sure of anything when it comes to brexit because there are so many uncertainties ahead in terms of how to project for the economy. one thing about the projections today, would you did highlight earlier, is that over the next two decades, they are bank in with theang in line forecast. philip hammond has used the term "gas in the tank." even though the economy has performed better than expected since brexit, he does not want to be in a situation further down the line where there is a problem. he wants to balance the books in the next parliamentary term, beginning in 2020. this is the balance that he is having to find in terms of how growth with the bump in that we have had since brexit. alix:an: to your point --

to your point, you are getting tweets that are very skeptical of the 2% growth. it seems a bit high in the u.k. given economic data. the naysayers are still coming out. it has not happened since. by these projections, it looks like a 2019 story. jonathan: many in the brexit bed have been dead wrong. as the bank of england looks at , do they remain on hold and do nothing through the year? nejra: you know what? quite possibly. the other thing is sterling. if you look at sterling, yes, ,ilts have been outperforming treasuries have been outperforming, but the weakness in sterling is a big concern. when we going to see that big feedthrough into inflation? that is another of the big questions. jonathan: great work.

we will hear from you much more much later. theng up on this program, societe generale's ceo on the elections in france, brexit talks, and the prospect of deregulation right here in the united states. don't miss that conversation, don't miss this one either. francine lacqua with an exclusive interview with jamie dimon on president trump, brexit , and global banking -- that is tomorrow at 7:30 a.m. eastern time, 12:30 in london. you are watching bloomberg tv. ♪

it is a reality check

for the bears. the chancellor of the exchequer said the u.k. economy will grow faster than previously forecast. payrolls could see a march rate increase. the fed is about to go old-school and hike sequentially. banking, weing -- bring you a conversation with the ceo of societe generale. good morning to our viewers worldwide. this is "bloomberg daybreak." i'm jonathan ferro with alix steel. in washington, david westin. futures trending nowhere. dead flat on the stoxx 600. you look at the tone of european equities. the euro marginally weaker. the headline story -- 12 straight days of declines for treasuries. yields higher. alix: the curve steepening. barely up by about a basis point. also taking a look at sterling. how we trade now,

inching toward positive territory as we get the budget statement from mr. hammond over in the u.k. gold going absolutely nowhere. watch crude. a lot of bullish talk. not reflected yet in the oil price. i want to go back to washington with david. you spoke with u.s. commerce secretary wilbur ross. he is thinking about a quarter tax adjustment. he is studying it. come on. i was hoping for a good statement. [laughter] david: he is emphatically, unambiguously on the fence is where he is. he thinks it is very complicated, trade implications, tax implications. here is what he had to say. sec. ross: i'm studying it very carefully as it evolves and as we get to understanding more of the intricate details of it and how it interacts with everything else, that is when we will take it position. david: alix, it struck me that

he wants to try to separate out the border adjustments in that negotiation with mexico. he wants to negotiate nafta without knowing whether we have the border adjustment tax. alix: if we do get that tax, it could put pressure on the peso which will exacerbate the issue we are complaining about anyway. david: which you brought up, the weakness of the peso. he already said we are in a trade war, we have just been losing. we are going to put our troops on their border instead of them coming to us. very interesting. jonathan: this is what i understand, these guys are businessman, they will to you they want simplicity, less regulation. in speak to chief executives the united states and they say they don't get the border adjustment tax, it is too complicated. when you consider that and how many debates we have to have on this table every day about this particular policy, doesn't that just tell you it is not worth it? david: i don't want to oversimplify it, but i tell you would make him down to one man

-- may come down to one man and that is paul ryan. he really believes in this end is really pushing it and it is difficult for the president to get done what he wants to get done without paul ryan. alix: we will be tracking it. joining us now, barry bannister, the chief equity strategist who just upgraded his forecast and andy blanchflower. i want to pick up -- danny blanchflower. i want to pick up on this. are we going to get this appreciation in dollar back? danny: maybe, but who knows when? jon's right to talk about whether or not it makes any sense. even if it does, what is the prospect it will get done anytime soon? we are really on hold here and that impact that we are going to talk about later, all of this

stuff just generates more uncertainty. we don't know if it is going to happen, we don't know what the actual plan is, we don't know how big a border adjustment tax would be, so that just raises uncertainty. we are going to talk more about it. this is obviously a big problem. we just don't know. alix: uncertainty, we have the vix trading under 12. barry, walk me through the uncertainty from a political front to what we see playing out over the next three years on the markets. barry: we have been stepping up our target for the s&p. we are in the late stages of a bull market. i'm looking for earnings of $125 this year versus $109 last year. a lot of that is driven by a rebound in earnings, energy, financials, industrial, growth elsewhere. when you have very low interest rates and you switch over from a deflation fear to reflationary confidence, what you find is you get a very high pe ratio on the

inflection in earnings and this is typical of a late stage bull market. jonathan: here is a question, barry. you keep lifting your price targets. in the extent is price market for you? what has led you to increase your price target? barry bannister, i believe we might have lost him. danny blanchflower. i want to ask you about equity markets. i will ask you about the general economy and the border adjustment tax. if you plug in the border adjustment attacks to the labor market, what would it mean for the labor market, for the economy of the united states? danny: wow. that is a really tough question. i think the labor market is much more fragile than other people think. we are a very long way from full employment.

we are actually waiting to see what the numbers look like on friday. let's be aware that last month the unemployment rate ticked up. we are really kind of questioning where the labor market is. you know that i think we are many millions of jobs away from full employment, so any rise in a border adjustment tax, any impact on the flow of trade is going to have an impact on the labor market. i'm very fearful to read i'm fearful that the fed is going to raise rates. i'm fearful that the fiscal authorities are not going to deliver the stimulus that people think, partly because it is just going to take so long, people are not in place. i'm concerned about what is happening in the labor market. we are going to see things on friday, but let's still be aware that if we were anywhere near full employment, we would see wage growth around 3.04%. alix: just to pick up on that when it comes to the fed, if we

do get the march rate hike and we do get more rate hikes in 2018, the market seems to be fine with it. the worry is undershooting the unemployment rate. , undere a possibility what conditions could the fed do that cycle and everything be ok? danny: the reality is that the world turns. there has been a business cycle forever, some of the been driven by simply the climate, by the weather. we are about eight years into a recovery. the expectation is that the economy will start to slow within two years or so. the likelihood is that the fed will contribute to that. the big issue is yes, the fed would like to raise rates, fiscalg that a giant stimulus comes into place, but we have not seen any evidence of a tax cut. we are talking about a border adjustment tax. we have not seen any evidence of a plastic do -- plan to do infrastructure spending. ratesan is the fed raises

in estimation of a huge fiscal stimulus coming, that stimulus does not come, the economy slows down, they have to reverse. i think the likelihood is that within two years, the economy will move active recession. it. is just how god planned that is with the business cycle does. we are a long way in. that is just how it is. jonathan: i did not realize that god was his bearish as danny blanche bauer -- blanchflower, but apparently he is. [laughter] jonathan: i want to turn back to barry. barry, just to put that question to you again. thank you for coming back to us. ,ou keep raising your forecast what has changed over the last couple of months for you? barry: well, we have seen a more global recovery. there was polity divergence in 2015 that plunged inflation expectations in the surging dollar. the fed is hamstrung by the lack of policy coordination and the

lack of growth overseas, but you are starting to see better results out of europe, china, and japan. things are getting a little better. to danny's point, this is not a typical recession, this has been a balance sheet recession. it started with excess capacity and excess credit and as a result of that, the last thing to turn will be credit and capacity expansion, which is why some of these late cycle names are occurring. alix: to that point, you see 2018 p cop to miss a, you see a bear market in 2019 -- is that projection that we will get an economic recession in two years? barry: expansions don't really die of old age. the fed or an oil shock or a financial crisis will tend to bury them. what is going to happen, i think, is the fed will miscalculate, they will hike to a rate that will at the time seemed quite normal, perhaps close to 2% and it will choke

off the economy and we will have a downturn by 2019. alix: danny, is that what you see? 2% on the fed's fund rate? danny: i would be surprised if they get that far. i agree with what barry just said. if you think of it, inflation starts to pick up, wage growth has not gone anywhere. now, you are seeing the last two or three years or so, positive real wage growth turns into reverse. things start to turn into reverse have an impact. was just talking about the u.k. the dispute in the u.k. is about what happens in 2018. yes, they raised forecasts for 2017, but they have lower things much and the oecd has a more bearish view of the economy. i think the reality is that 2018 is the big deal and it is clear in britain that is what the fight is about, what will happen eventually if brexit kicks in.

i think 2017, 2018, i would be surprised if they get to 2%. jonathan: the oecd report sounds like it is bearish full stop. danny: absolutely. jonathan: jeff gund lot has talked about the -- gundlach has talked about the federal reserve going bearish. danny: it is clearly possible, but i've been hearing things coming out of the fed that make no sense. i've heard them saying that all the evidence in the last three-month is of improvement. i don't know what world he is talking about. maybe he is talking about thailand. some of the staples coming out of the fed our as if they are on a different planet. i'm very concerned about it. we have had this sudden move. i don't know what has suddenly changed to the bullish side in the last three months. i just don't see it. jonathan: danny blanchflower. seats available

around the fomc. can you imagine danny blanchflower being a trump nomination? alix: that would be quite something. jonathan: he may be a little bit too dovish. [laughter] jonathan: you guys are sticking with us. coming up on this program later ceo oniete generale's global banking, brexit, and the french election. later, the latest call on the s&p 500. you are watching bloomberg. ♪

i'm jonathan ferro. this is "bloomberg daybreak." speed on get you up to

the spring budget in the united kingdom. chancellor hammond addressing the house of commons. the 2017raising 2%.omic growth forecast to a more optimistic outlook for this year. the brexit decision then begins as the years progress. forecasts revised lower for 2018-2020. alix: in the united states ahead of the friday jobs number, 298,000 jobs, much bigger than estimated, and a rise also from january -- almost 100,000 more than estimated. is there a complete parallel for the freddie jobs number? no, but continued strength in the labor market. there is more slack and this is the kind of data. jonathan: the reaction in the fx market. we had this last month. the recalibration on what you may or may not get. a big pot on the dollar index -- pop on the dollar index.

if you are looking at treasuries, treasuries declining 12 straight days, yields climbing, climbing much higher now. we are up by 4 basis points. on the 10-year, we are up by 2.57% on the00 -- u.s. 10-year. i want to bring back in the team. danny blanchflower of dartmouth. and barry bannister. --ny on it is a tear up up theit is a tear script moment. you are the labor market expert. it is not a very high correlation, but that is a pretty high number. 2.27%, last time we got the adp number was pretty high. last month was actually a drop. there are obviously two parts to the data. there is the household part and the establishment survey. the establishment survey was

strong with nonfarm payrolls, but there was a rise in the unemployment rate. we will see if there is a simple read. the one read i would take, look at the wage growth series, look at it for non-products and -- nonproduction and supervisory. that is the take home, that is the pay packet people get to take home. that is rising at 2.1%. i think we are kind of trundling along. we will see if there is big positive news, that is absolutely going to lock in things going forward the next month or so. we will see. my suspicion is that there is still lots of slack in the labor market. my estimation is probably 8 million or 9 million jobs away from full employment. that is why all these people who voted for trump and all these people are so upset in the rust belt and the american heartland and it is a complete contradiction between all the nonsense coming up from the fed and what the people on the street are actually feeling.

i think that is really the story of the labor economy. show thaton this donald trump is closer to reality on the amount of slack in the labor market than these people at the fed who don't seem to have gone out of washington. alix: that is where we do see the unification, danny blanchflower, of president trump. barry, talk to me about u.s. corporate profit margins. if wages wind up increasing, which sectors can do well and which get hurt? barry: most of the margin decline that had occurred in the last couple of years was energy. as energy has bounced back, oil from low 50's to the mid-20's, back to the low 50's, that is simply the fed having backed off after february 2016 from the unilateral exit. as we have lifted these deflationary concerns, the margins of stabilized. i'm watching unit labor costs.

wages are up modestly, but we are approaching the full employment danny was talking about, in the sense that there could be some wage pressure. with lagging productivity, that could be an issue for margins. jonathan: here is something that really interests me. a big upside surprise on the u.s. data point, it means something for payroll on fridays, the dollar strengthens, but futures look really stable. a reaction in the equity market. reaction in the equity market. it used to be that the upside surprise was a good news/bad news prospect. how has that changed and now? barry: it is something technical called gibson's paradox. all that,tting into you are switching over from a sort of deflationary psychology surrounding the treasury in absence of the term premium and you are switching to a more reflationary or avoidance of

deflationary confidence. if you get that, a higher rate is not necessarily a bad thing in the sense that the market can absorb it, the fed can be facilitated to gradual rate hikes. i'm going to argue that you will have an almost outrageously high trailing earnings and that is why we have been raising our target ever so slightly in this late stage bull market. alix: if you take a look at the sectors that have outperformed this month, you are looking at utilities, even consumer staples . financials is the winner. what kind of sector rotation are we going to see with this? barry: we actually saw more of a reflationary trend since february 24, the day the 10 year yield bottomed and turned back up from close to 2.30%. if you can get the treasury, the 10-year, to my target, actually a 3% yield by next year, that would be a top. when you start applying discount rates to the earnings stream,

and appropriate rate would be the baa yield. i could see that reaching as much as 5%. so, if you are at a 5% discount rate, it is entirely possible we will be selling for 20 times, which is why i got to a 2500 target, among other reasons. alix: wow, good stuff. michael mckee joining us. where other workers coming from? michael: that is a good question. [laughter] michael: obviously, there is slack in the economy. obviously, there are people who have not been in the workforce and are coming back into the workforce. ,ou cannot take adp literally although over the past year, they have been much closer to what we get from the labor market. the markets are going to take it seriously. where i'm going is that it does tell you is that there has been significant hiring.

if you want to go inside my bloomberg, you can see the graph of adp changes verse nonfarm private payrolls. they don't match up very well over the last five years or so. but in the last year, they have been reasonably close. it does give you the idea that yes, we are hiring. alix: i do have to point out that there is a reaction for the fed. 100 percent probability of a rate hike for every single month. the idea is that this is like a green light gangbusters. michael: the way you read wirp is if you raise in march him of that is 100% for may because it will already have been up. alix: but the idea. michael: yes, you are ok. jonathan: danny blanchflower over a dartmouth, a question many will ask, whether those survey indicators with the optimism right up here is beginning to translate into hiring? what is the lag time and when will we see it, if ever? danny: there is quite a lot of

lag time going on. i was just thinking about what michael was saying. i think the reality actually is we may well see continuation, but i think this whole story everyone is telling is susceptible to one really bad day. i think the reality is one bit of bad news will shock this whole thing. i think the positiveness is fine, but it does not look to me that it is very stable. i think this is kind of a fragile position we are in. supposing we get one bit of really bad news, what will that do? we are susceptible to that. everybody is so convinced that this recovery -- but this recovery is not strong. i think we will just wait and see. mike is right. people are coming back from outside the labor force, but there is a long way to go. once you start a new tightening

cycle, you are susceptible to a negative shock coming. inx: negative shock, is that may 2016, june 2016 scenario? all right, guys, thank you so much. thank you so much for joining us. coming up, it is an interview with the societe generale ceo. you do not want to miss this. european banking, u.s. banking, all of it, reflation trade, we will be discussing. this is bloomberg. ♪

jonathan: from new york city to our viewers worldwide, this is "bloomberg daybreak." one hour and 23 seconds away from the cash open and this is the state of play. future softer on the s&p 500. the board and it's a

monster upside surprise on the adp report that drives treasury yields higher by five basis points on the u.s. 10 year to 256 in the dollar stronger against the euro and the pound is both of those drop by 2/10 of 1%. we count you down to the non-fun payrolls report coming up this friday. alix: we got nonfarm productivity for the fourth quarter at 1.3%. lower than estimated. you lower productivity and labor costs are on the rise. a little higher than estimates and this is a little interesting conversation because it's all going to be about wages. productivity going nowhere. wages if they pick up squeezing profit margins. there are sectors talking about the fact that there are no workers, like truck drivers. jonathan: do you think the federal reserve hikes this month? alix: i fit we are still 100%. jonathan: i think of going to go

100%. big upside surprise on the adp report, two days away from payrolls this friday. let's get you up to speed with the news this morning. in asia, the islamica: state has claimed possibility for an attack on a hospital in afghanistan. more than 30 people were killed. it began with the suicide bombing with attackers and medical uniforms. treasury secretary steve mnuchin has a problem. he cannot get his choices approved by the white house. according to people familiar with the matter, president trump's aides says mnuchin's takes are too liberal or to wall street. meanwhile, president trump is throwing his weight behind the affordable care act. he told republican leaders that

he is proud to support the obamacare replacement while house conservatives are calling it obamacare like. ght. one result in senator called it that on arrival. global news 24 hours a day 2600ed by more than journalists and analysts in more than 120 countries, this is bloomberg. david: we are joined by somebody who will be in the middle of the markup for the republican bill, when they talk about what they will do with the republican bill, today at 10:30 a.m.. richard neal is the ranking democrat on the house ways and means committee. his counterpart on the energy and commerce committee and it said it would rip health care away from millions of americans. welcome to the program. thanks for being here. rep. neal: good morning. david: tell me about your reaction to the republican reaction to the proposal. are you surprised at the level

of dissension we are hearing from republicans? rep. neal: i am not. even president trump has pointed out in the last week that health care is exceedingly complex. done with this rapid pace that they have put together without sufficient hearings for all of us to participate in. david: one of the issues is whether they can score it, whether it will be that positive, net negative, or neutral. we had one of your counterparts on yesterday who said that there is a minute scoring coming out. due week spec to know out of the cbo what the budget consequences are soon? -- do we expect to know out of the cbo what the budget consequences are soon? expect to we specte know whether the cost of markup will be. neither republicans or democrats know how much it will cost or how many people w will be afforded coverage. david: for some of us not inside

the beltway, we are skeptical of the scoring. even if you can come out and neutral, it's because the out years they project certain savings, for example, a cadillac tax. to expectistic republicans can make sure the scores neutrally no matter what happens? rep. neal: i think they are driven by ideology. i think they have not thought this through. i think there is considerable consternation on their side. most importantly, as you look at this legislation, it really does not provide the access that we previously outlined nor do we have any idea of what this is going to cost. i think one of the real burdens here that we ought to consider is the following. this is essentially turning health care over to 50 states, so you're going to have 50 different plant in 50 different states, and governors will be tempted, as they were with the moneyo tax, to spend that on fixing bridges, paving roadways, improving highways. i think the health care delivery we had, given the federal guarantee, is about to be compromised. the american medical

association, the aarp, and the american hospital association right now are all opposed to what they plan to do. david: there is no question that more responsibility will be given to the state if this becomes law. do you expect republican leadership at the state level? we already heard from john kasich in ohio. rep. neal: one of the reasons that governor kasich has that position is that this will cut back kob opiate services to those who need it. this will cut back on hospitals it,care for people who need and certainly it is likely to cost more for major segments of the american public. pretty clear that you do not think this is a good idea on the merits, but let's talk about politics. how realistic do you expect this to be stopped by democrats and replicants? rep. neal: it is unlikely that we will have the votes in the committee this morning to stop the legislation, but i think there is considerable dissent on the republican side. is interesting that the

moderates are fighting with the conservatives on the side, but in both instances, they have no plan that will stand up under the magnifying glass of critical analysis. that's for sure. david: finally as you look at it, what is a need for health care providers? is this going to be a good thing if it becomes law or a bad thing? rep. neal: this is about thing. -- a bad thing. you consider hospitals are the biggest employers in congressional districts, that and of itself is major reason to oppose this legislation. hospitals offer first class health care across america. david: a lot of our audience frankly wants to know what is going on with tax reform. we have been told we have to get through obamacare before we get to tax reform. give me of the sense of a timetable. when can we expect real action on tax reform in the house? rep. neal: their argument is that they will get tax reform as soon as this is done at august. all of us acknowledgment that

will be a pretty heavy lift. david: when do you expect tax reform? rep. neal: it could be imminent in terms of discussion. in terms of passage, it's far off. i think that's a frank answer to the question you raised. david: do you expect it in calendar year 2017? rep. neal: there is no consent to the border text that republicans are proposing. given when republicans and democrats could sit down and iron out these differences, that is what we should be looking at as opposed to one side jamming the other. david: it is funny a family people thinking of 1986 and bill bradley crossing the aisle. it as a bighey saw achievement and i hope we would be able to do the same. david: very much well said. richard neal coming from the capital. alix: not to morning meeting when we look at key banks looking at economic data. dana peterson joins us from her office in new york.

that blowout adp number coming 298,000, well above the survey data for the jobs number on friday. are we going to see revised estimates? what does this mean for friday? dana: it does pose upside risk for payrolls. adp has a forecast for 200,000, which is very strong for the labor market cycle. we are already at full employment and certainly the fed would be pleased with any payrolls reading about 100,000, so certainly with that adp measure being so incredibly strong, we do have some upside risk for this friday's report. alix: in theory, it doesn't make sense. we are late in the business cycle like you said. we are at full employment or near it when it comes to the fed. wire we seen this many jobs being created? dana: one argument is that they're are still a little bit of slack in the labor market. while we have seen the number of people working part-time unwillingly largely unattached from the labor force, they are

still somewhat elevated relative to the precrisis level. it is not completely unheard of that we might see these very strong readings. we also may see some weak readings. i think it is a strong signal that the labor market is doing well and consumers are finding jobs and that they are seeing their wages at least in aggregate income, rather than wages rising. alix: we will put the labor market aside for a second. a lot of the inputs for gdp have been coming in a bit light. it got better throughout the year. the atlanta fed gdp trackers now at 1.3%. what do you see? dana: you are absolutely right. some of the most recent near-term data has been a little soft. again, we only have measures for january. for example, if you look at retail sales, real sales were down in january. when you look at the details, a lot of it was a reflection of a

pretty big drop in gasoline sales and also kind of a waterbed effect from auto sales. auto sales were very strong the december and we saw the reverse of that. taking away those other items, sales elsewhere were actually ok. they were actually doing pretty well. in terms of durable goods, yes, soft,uarter earnings were but we know that businesses have been lackluster and their investment. we are hoping that will take up. surely with the increase and what we're seeing in terms of expectations and hopefully those animal spirits will come together. alix: we take a look at the world implied ro probability of a rate hike in march. the next hike that the market sees is just in june. that is pretty much it for the rest of the year. is that the right market interpretation of what the data is in what the fed is saying? dana: certainly for next week, d has indicated that

most of the data has been skewing more positively than negatively the past few months. in terms of the balance of risks, a number of governors fomcsaid -- or at least participants have said that risks have's shifted from negative to neutral or somewhat to the upside. certainly big markets are correct and expecting a rate hike next week. there's a lot of disagreement over when the next hike should be and certainly whether this should be two or three this year. our own forecast, we moved it out from june to september as we move the june rate hike up to march. it will really depend upon the data flow. we are probably still going to be growing somewhat above potential this year. we are expecting some further declining unemployment rate. also, legislation to continue to gradually rise. alix: dana peterson, looking for 200,000 this week on fridays jobs number. coming up next, an interview

with a societe generale ceo. lacqua will bene interviewing the man himself, jamie dimon, at 7:30 a.m. eastern. this is bloomberg. ♪

emma: this is "bloomberg daybreak." i'm emma chandra and this is the hewlett-packard enterprise greenroom. bank of america merrill lynch is head of equity and quantitative strategy. from new york city to our viewers worldwide, i'm jonathan ferro. this is "bloomberg daybreak." there talking brexit, french election, and the prospect of the regulation the united states. i'm pleased to welcome to new

york city the societe generale ceo. great to have you with us on the program. we're going to start with a little game. we are going to wake up in the second round of the fetish election has happened and marine le pen has been voted the president of france. the first phone call you make, the first thing you do on that result, what is it? >> i think, first of all, maybe it will send a message generally to our staff that we will deal with the situation. let's not speculate. we should keep in mind that we are 50 days from the election. in terms ofterm politics. for watching in the u.s., i like to highlight that we have two runs. be a vote ofht protest, but the second is a vote of rational people. i think of the debate that you

will see more clarification between the two programs. something i would like to highlight when people talk about scenarios is that you also have the parliamentary election, which is important, not just the presidential want. one. the question of which majority is important. jonathan: to put you on a spot a little bit -- when you say voters are more rational in the second round, is the rational vote not to vote for marine le pen? frederic: again, probably some of the people will represent more protest votes and are a bit less rational. let's keep in mind that people in france remain supportive of the europe and eurozone construction. this will come into the debate with more expiration of consequences of such a scenario. second, the particle culture is from. -- political culture is strong. we have television shows and

the turnout for the vote is also important. this is how we will have differences with some other countries. jonathan: let's talk about something you have direct control of -- the strategy of your business. have you had any contact with marine le pen or her team? frederic: banks do not want to appear in the political debate and we don't want to do that. we want to speak to our strategic agenda as you send. our scenario is the reinforcement of slow, but reinforcement of europe and construction. . inzone construction particular as we share the same currency. in light of brexit in a world that appears to be more fragmented, there is support for that in france. we see opportunities there as banks. jonathan: it is intriguing for many people that many large financial firms, including those

in the united states, have met with members of marine le pen's team. do you not want to get a better understanding of what her plans are for the economy? we face again the prospect of redenomination risk in the eurozone. abilityt the response to sit down with members of her team to try to understand the direction of her policies? frederic: as french, we understand a little bit more than maybe people in the u.s. who want to have a precisely better knowledge and spend less time that we did listening to the people. i think we have a relatively good thing. things will be clarified in the coming days and weeks. the campaign to a certain extent has not really started. it starts when we have the finalist of candidates on the 17th of march. than the programs will be then clarified. happening, programs it is sometimes different. ris oran: do you de-r

keep the vote study in the direction it is always been on? frederic: we keep the vote study. we are a french bank enshrined in the french economy in a french the eurozone. we have dealt with all the regulatory requirements. we are fine. we stick to the long-term agenda, which more around dealing with our clients, innovation. 2017 will be a transition, but to where? reinforcement of the eurozone and we need to think strategically about this and we spent time to say to politicians and the european commission to think strategically about the next 10 years. jonathan: let's talk about five years in the country like france could what is the direction for societe generale? what is the policy of the ecb? which is the bigger headache for you? frederic: of course, currency,

but it is not translate some climate orusiness economy climate. the economy is doing particularly well in the french area in particular. of course, a normalization of interest rates is something important going forward because it would mean that of course you will have more growth. you will also have maybe the additional political steps which will help the ecb to normalize the policies. for us, exiting the rates will be a good thing. jonathan: to be clear, people in this guest maturity translation with the curve in europe. so long as the front end is negative, is that all that matters to you guys that will remain a headache? frederic: there are two things -- whether the curve is steep or not. when we hold a lot of treasuries and things like this, it is better to have higher interest rates. if you put your money in the

central bank and you have to pay , that's difficult because we do not pass that to the clients. for an individual client, it would be very difficult to say you put your money in the bank and you have to pay for that money to be in the bank. normalizing also and going back to 0% would be positive for us. jonathan: you and i are going to get in trouble. the 10 euro wager is as follows. your term ends in 2019 of may. president mario draghi's term ends the back end of that year. by the time you have left, has the ecb raised rates? frederic: i'm not there to speculate on this, but i think there is more chance that they can do this. why? we have seen all changes in the environment and the u.s.. inflation is picking up and is picking up and there's a question of whether its core are not, but we have seen some signs of better inflation. again, growth is a little bit better. i think the ecb has a clear understanding of the negative consequences of ventures rates and also on the financial sector and can see that credit is doing

better. one of the rational's was to have an incentive for banks to lend and not keep the money in the central bank. we have seen better credit development. i think there's better chance that there is normalization, so i'm happy to take your b et. [laughter] jonathan: the other question i got for use that many banks are coming up with a report lately saying that european financials deserve a lower valuation against their u.s. peers because of the complexities of both politics and the situation in the economy as well. things still relatively weak. do you believe that there should be a cheaper valuation applied to your bank compared to a similar u.s. institution? frederic: i think it's a too short view. u.s.he short term, the would benefit from maybe a slight more dynamic economy and better interest rate environment. when i say europe, particularly the eurozone, we have more work ahead. more work to build a financial service, which is more

balance between capital markets and banks. to wait for work full normalization of monetary policy. there's also opportunity for european play makers to take advantage of these constructions which would be more completed, so i remain optimistic. i think step-by-step, more and more positive steps from the europe and banking sector. jonathan: the u.s. banking sector -- the prospect of deregulation is a prospect and i will ask for you view. can a european investment bank compete on scale on wall street? frederic: we have decided to have a dynamic but focused strategy here in the u.s. to do with businesses which are consistent with our global strategy. our core strategy is in certain sectors like energy or capital markets on the credit side because we want to be able to finance whether they are in euro u.s. dollars. we try to find the right

consistent businesses. we do not want to compete with other businesses, like u.s. cash equity. if you are selective, which means not necessarily that day, i think you can compete and be profitable as part of a consistent business. jonathan: the a ministration here in the united states looking at a softer touch perhaps with regulation. none of their policies are out yet, but that seems to be the direction of travel/ is that about. is that a bad idea? frederic: and trying to understand the direction. are looking atey refinement. if it is this and you carry on with the main decision, which is to build a safer system, i think it is not a big deal. the regulation and the burden for the united states banks may be less further european peers. the level playing field so to speak that has existed for a while might not be there. what does that mean for socgen?

frederic: the burden we also have on our shoulders is very significant. and we have to digest some regulations. overall, i think it's important to try to keep a relatively amortization because it we have different ways of financing the economy. you have more capital markets you could the same regulation means less for you then european banks where we finance the bulk of the economy. overall, isaac is important to keep the global framework, which has been decided. i have happy with that. we have adapted. we have complied with all the rules. now we should focus more on transforming the businesses. we need to innovate, as you know, with their technology and find a way to add more value to the plan. that should be the core for focus. jonathan: the final question -- what is keeping you awake at night at the moment more than anything? frederic: you know i have one

real as a ceo, which is to sleep reasonably well. always five to six hours at the minimum. that is why i still have so much energy after many years as ceo of a bank. jonathan: hopefully you do not have to pay me those 10 euros. great to have you with us to talk global banking and the elections in france. the societe generale ceo. alix: amazing. joins up, bank of america us with the latest call on the recent upgrades. she will tell you why. tomorrow, francine lacqua interviews jamie dimon, ceo of jpmorgan, at 7:30 a.m. eastern. this is bloomberg. ♪

jonathan: 100% lift off. a monster adp report puts

the marks of a rate hike at 100%. treasuries for the biggest losing streak since 2012. u.s. commerce secretary wilbur ross has said the u.s. is in a trade work for decades. itsbull market heads into ninth year, adding 11% since president trump's election. find out why our guest says there's more room to run. a warm welcome to "bloomberg daybreak." good morning from new york city. i'm jonathan ferro alongside alix steel. over in washington, d.c. is david westin. just under 30 mins away a situation that looks a little something like this. futures up a 10th of 1% on the s&p 500 after a couple days of losses. the story is as follows in the fx market. stronger dollar story, dominated by another upside surprise in the labor market. this time from adp report as you can down to payrolls report on friday.

treasuries on offer for a tall straight session with yields up by five basis points on the u.s. 10 year. that is a situation across assets. let's get you up to date with movers withou alix steel. alix: bank of america up by 1% and the 10 year yield up a quarter point. this is the longest winning streak for yields since march 2012. 2580, the high that bank of america said last week. here.racking caterpillars the company carried out tax and accounting fraud. the u.s. is is investigating it swiss subsidiary for years. been filed,et have but potentially the company try to cut its tax bill by $2.4 billion over 13 years/ that is one of the allegation. h&r block over 6%.

if it holds, it will be the best day for the stock since june. typically the third-quarter losses normal because of the seasonality of tech season, but revenue also came in higher than estimates. it is some of the names we are watching into the open. with u.s.lier i spoke commerce secretary wilbur ross and border adjustment tax, which is so central on tax planning up on capitol hill. this is what he had to say. >> we are studying it very carefully as it evolves. as we begin to understand more of the intricate details of it, and how it interacts with everything else, that is my we will take the position. david: joining us now from capitol hill where all this is going to get resolved sooner or later is bloomberg chief washington correspondent kevin cirilli. you heard that secretary ross is firmly on the fence on the border adjustment tax. we've not heard too much definitely out of the white

house, but this is the linchpin of tax reform up there. where is the administration on this question? kevin: you are right. this white house has not taken a position on the border adjustment tax despite vehement outcries coming from the tea party opposing it. last night, i spoke with a senior lobbyist working with the retail industry against the border tax. they told me that they are still hopeful that this will not be included. here's the bottom line. you have to remember that supporters of the border tax argued that it would create a $1 trillion revenue source to help with other tax cuts. in order to have these tax cuts, you have to find a mechanism to pay for it. supporters of it view it as a way to do that. tomorrow, senior economic advisers to president trump will huddle at the white house. you can bet that this is going to be a key topic. talking start about the realities of revenue and income and how folks are going to pay for these things,

items like the cadillac tax as well as the border tax are topics that this government and white house are starting to grapple with and realize this is the new reality. ,avid: for all our audience they want to know what is is going to be resolved. -- when is it going to be resolved. when will the president start deploying political capital on capitol hill to say this is where want to go, please get behind me? kevin: we are watching that unfold as we speak. later today, the markup for house speaker paul ryan supportive care act repeal plan will begin and begin to get underway. there has been much dissension with the republican ranks about whether or not they all supported. senator rand paul, republican from kentucky, has a competing plan in the senate, saying that speaker ryan's plan is "dead on arrival." i can tell you there has not been outreach from this white house in terms of how they are going to craft this type of specific policy. they largely left that to

congressional leadership. it will be interesting if they take more of a force in the weeks ahead. david: we heard from the president thinking that rand paul will come around and then saying thateet ginny were in february with a -- january and february were the strongest months for hiring. we'll get the adp numbers out today. how successful is the white house becoming on keeping the agenda on the economy and jobs as opposed to meeting with russian ambassadors? kevin: there are parts in his early months of that the administration where he has met with ceos and touted an economic message. he still needs a legislative accomplishment. health you're has to be the first one for him and his first term. david: thanks so much, kevin . jonathan: in the markets, features a little bit firmer ahead of the open. guest to bring in our

with her updated s&p 500 call at 2450. the heartland capital cofounder and cio, i will get to him in just a moment. an upgraded target for the s&p 500. why? ourta: basically we think bear case is less likely and our bear case was an economic recession. that is looking less and less likely given the indicators we're looking at. the other reason for the upgrade is that i think we are moving into that final stage of global market that is marked by euphoria. investors go all into stocks. right now, there is a tremendous amount of money sitting in bonds and cash that has the potential to move into stocks if interest rates continue to rise. it is really a question of sentiment driving the market more than just fundamentals at this point. jonathan: that is where we are

at. we are almost gripped by euphoria. is this a market you want to chase? savita: if you look at the upside built in, it is three percentage points away. the rest of the year is going to be choppy. we are probably due for a pullback. 10% pullback have are john -- happen on average once a year. we have not had one since last january. with that said, if you were to think about buying or selling is yourth a year and target, we think there is more upside than downside risk to the market at these levels. jonathan: do you agree that part of the rotation of the bonds and stocks will move these higher? average are sitting on cash balances that are close to 5%, which is high by historical standards. so that rotation is coming down a little and people are going into the stock market, but it has a bit to go. spam technical point, it would be hard to phase this market.

i think fundamentals have gotten better. we have seen fundamentals for s&p companies rising along with earnings, which was different than last year where we had an earnings recession. now we are talking about a nice rebound in earnings across the board, which really happened well before the presidential election. that strength is continuing into this. i think the call around bumpy is certainly a good one. i'm not sure i would stay this rally. alix: what is your pushback on that? the dollar strength is not as much of a deterrent the last two years. yeah blues financial conditions and you have the soft data really coming in quite strong. how do you square that with where you think the fair value of the s&p is? savita: here's the thing. the fair value of the s&p is a bit lower than what our target is. that is really predicated on a normalized valuation measure. i know, valuations

are terrible predictor of near-term market returns. if you sold the market in 1998, you would've lost a lot of money over the next couple of years. is lookinglue model at a normalized valuation framework and saying that valuations at these levels are but, not a reason to sell, kind of on a normalized basis, the fair value of the market is 100 points or so lower than our forecast. i agree on the fundamentals. i think that fundamentals are improving. i just think that when i talked to investors, the push back i get on the market is largely driven by valuations. expensive.is too our point is that the market can look at heck of a of a lot more expensive before it hits the top. that is what we have seen in prior cycles. jonathan: mark, you came on the program about a month after the election. i remember you said i'm so

bullish i feel uncomfortable. mark: i'm a credit guy, so i'm very and comfortable. -- very uncomfortable. what's very interesting to see as this rally has continued, the numbers keep getting better. i think the setup is interesting. there's a lot of people pushing back on the rally because they think this is a trump rally. i don't really see that. i see that as a sweeps rally. the sweep is getting to be much more than just the two houses and the presidency. we are probably got the fed in the mix now with reappointments along with the supreme court. that setup is a great set up for getting something done. policy is going to take a long time, as we saw this morning with health care bill and all the debate going back and forth on that, but regulation is something that certainly can change very quickly. trillion estimated

and regulatory cost for the u.s. economy. that's 10% of our current economy. someone in the finance area will understand this very easily because we have been running into it constantly for the last eight years. as that starts to move that, there is certainly a lot of productivity and capital that gets released. that's very good for the market and the economy. alix: we are going to get more into that call on credit as well. savita is sticking with us. coming up tomorrow, francine lacqua interviewing jpmorgan ceo jamie dimon at 7:30 am eastern. this is bloomberg. ♪

alix: this is "bloomberg

daybreak." i am alix steel. if you want to go in the market where risk is being taken on, if the credit market. this is the investment grade versus high yield trade for treasuries. that is that post crisis heights and the investment spread is 121 basis points. that is a risk on search for yield of five ever seen one. okadaa and mark ro still with us. does this chart make you want to sell? mark: absolutely, i think fixed rate has run a bit too much. we'll gone from zero to 100% on march. i think we get at least three hikes this year. i would be fading rate risk and ig has a lot of it. high-yield now does because a big portion is trading with the four handle. that is not high. that's better than treasuries, but it's not high.

alix: you see yields wind up moving higher? mark: i do. barclays is down almost 2% since the election. loading rates up almost 3%. that's been a good sort of rotation. actually have high-yield bonds trading about the same nominal yield as loans. places in credit to rotate, but to your point, spreads her tight -- spreads are tight across the board. we have a lot of money flowing to the space, so you have to get a sense of but w about what you on. you have to figure out what you own. a lot of this index money will have trouble as the beta gets stretched. upathan: you brought the barclays and the outperformance has come from the longer maturity staff. why?

mark: because there's not a ton of bonds in some of the longer maturity. technical sort of dynamic takes over a bit there and helps with that. i see most people are very bullish on the very long end of still very steep. when you come in and see what the fed is doing, pushing up shorter rates, that is going to make in your maturity, which is also a pretty crowded trade, get technicals. jonathan: issuance has swelled so far this week. 's is starting to come in a big way? -- is it starting to come in a big way? mark: wouldn't you be borrowing as much as you could as the fed has signaled they are going to normalize rates? i would certainly he fading on the 10 year and a 20 year and 30 year if you were corporate. lock in those low rates. that makes a ton of sense and the market is wide open.

alix: we were talking about the risk in the credit market and looking at the investment grade as well. given the same kind of risk in equity market, are we seeing the search for yield continue and is that exposing investors to some kind of risk when the fed hikes? i thinkthink -- savita: that has been the story for the last eight years now. if you look at yo leadership, we have had yields and staples stelling -- selling at the highest multiples we have seen. there are vestiges of that could continue since rates are still superlow. think it's interesting to see leadership from maybe february of last year to now. it has been a remarkable rotation out of yields plays into the bonds market into the more cyclical areas. .anks have done fairly well

i think what we are doing is sort of slowly exiting the slower forever interest rate environment that we were kind of mired in and moving into an environment where a little bit of a rise in interest rates is fine as long as growth is keeping up with rates. that gives you the latitude to move into some of these beaten-down sectors that have not really done anything for a very long time, like financials. that's one of our favorite sectors. it's basically been hurt by disinflationary pressure and low interest rates and it could start to come to life again. one thing i would point out on the leverage side is that , we haveint out recently seen a surge in said issuance. what worries me is that not only you have the fed on a potentially rising in just rate pattern, but you also have the potential for the removal of the interest expense reduction for u.s. corporations.

what this does is overnight it increases the cost of leverage by 25% if companies lose the ability to deduct their interest expenses. what i worry about within the market and where i think the bigger risks subside are in the super levered companies, like the materials, some industrials. you look at utilities and staples. there are really levered pockets of the market trading at high multiples. savita: they are talking about a phase in of something like three or four years for that. mark: they are talking about grandfathering the existing debt. .t is an issue to look for when we look at tax reform and what's going on, i think that's an 18 sort of issue. is something to keep your ion. eye on. savita: here's my point. all these companies raising to issue debt today, what if it's

not grandfathered in? what if it sits over time and you're sitting at fairly high ratios for the s&p 500? that is one risk that i do not think is a near-term risk. longer-term, the fact that leverage ratio are now higher than they were in 2007 makes me a little bit nervous about the longevity of this bull market. jonathan: you guys are just getting going and the producers are screaming in my ear to wrap things up. thank you very much. we will try to get you both to stick with us. coming up tomorrow, for coverage 's the european central bank decision. plus, conversation you don't want to miss with this man right here, jpmorgan chase investment officer jamie dimon, sitting down with francine lacqua 7:30 a.m. eastern time. from new york city counting you down to the opening bell, you are watching bloomberg. ♪

david: this is bloomberg. i'm david westin reporting from washington. it was a big day for pharma industry on tuesday. republicans released their plan to replace obamacare and trump tweet,arma lower with a "i'm working on a new system where competition for the drug industry what prices for the african people going way down." we did see this movement and .harma stocks was it the trump tweet or the republican plan or both? >> i think of as much more of the trump tweet. the republican plan was not too bad from the farmer perspective. -- the form of perspective. -- the pharma perspective. there was nothing with pricing in the plan, but trumps tweet right after the plane came out told investors the big issue is not going away and we are in a theyng period to see how

address the issue of drug prices. david: we've not seen the plan on addressing drug prices yet. to be have any indication of how they might go about that? they will not have direct regulation of prices i assume. vamil: some of things that trump has mentioned himself is the government having one negotiating power when they set prices with the drug companies. could they potentially allow importation of drugs from john companies outside the united states? that's unlikely. he ist comes to trump, focused on the voter and out of pocket costs they have to pay. with some of the larger copayments, it will be good for him in terms of politically and the voters would appreciate that. with how that's done and how it supplement it, we just don't know yet. david: as you look at the activity in the pharma stocks

and more generally at this industry, are all pharmaceutical companies equally exposed to this risk or does it disperse? vamil: i do not think they are all equally exposed. we don't know where the next week might come from or who it may be directed back, but generally companies that have more novel products or unique aspects where there's not a lot of competition, there's a little bit better position. there's been a lot of similar product developed over the years . that is where the pain will be with the pushback. david: some of the stocks they got hit were the ones that try to ratchet prices dramatically like the manufacture of the epipen. is there a pattern that some people up with a target on their own back? vamil: i think companies have to be a little bit better about controlling pricing and not being so egregious with the raises they have made. if they can do that, they can keep the target off of them. they can get back to the

innovation and try to loosen regulation about getting drugs approved. tax reform could help the industry. i think they need control the pricing themselves. i think that would be a good thing for the industry. david: thank you very much. jonathan: thank you very much. counting down to the opening bell up next on "bloomberg daybreak." the scores are like this. futures firmly up ahead of the open, 2/10 of 1% on the dow. positive three points. in the back of an upside surprise, a monster o upside surprise on adp report. a stronger dollar. the opening bell up next. you are watching bloomberg. ♪

kevin: from new york, this is "bloomberg daybreak." david westin. let's get to the opening bell.

futures, the stage is set like this. 15 seconds away from the open. positive 40 points on the dow. firming up ahead of the cash open. up 2/10. in can hear the opening bell new york city and switch up the board. this is a monster upside surprise from the adp report. it read across the payroll as followed. yields up by five basis points on a 10 year. and where the yields go, the dollar follows. and it does today. of 1%.enths let's get you up to speed with alix steel. alix: a modest upside as the markets open up. the s&p and the nasdaq are pretty much flat. it feels like a wait-and-see.

the bond is falling. down for the next 10 days. you can see this reflected in the ishares are the 7-10 year treasury bond. so it is an investment treasury with those maturities and that is a 2%. a sickly, trading like the yield. the trade is like a bond. so that is reflected in these kinds of etf's. individual names, retail gets hammered again. the split, up by 7% with a downbeat outlook in the first quarter. it was down a lot and same-store sales were off by 13%. it also cut the full-year forecast. urban outfitters struggling even more, down by almost 10%. missingrevenue slightly. comps sales were flat and it was pretty ugly. online was slightly up. both of these guys getting hit in the market. we have been talking all morning

about the upgrades we have seen through many strategists and where you put your money and how much room there is to run. this isto capitalize on the relationship between cyclicals and here is the ratio. this is the regression line. as you can see, cyclicals have outperformed defenses on the whole since the beginning of 2016. there has been choppiness but nonetheless. we handed this a few weeks ago and we are down from that level meaning the fed has started to there ism cyclical but the potential for a catch up. what will it take for us to get there? over the past few weeks it has utilities. not necessarily tech and cyclical. so what will be the trigger to change things around and have cyclical play even more catch-up? is --an: joining us now

all still here with us. do you assume the cyclicals are going to start to outperform again? confidenceds on your in the trump trade with the growth.and the economic i think if you do look at the economic numbers and you look at what has been coming in, it does look pretty solid. i think it was a telling moment when markets got bullish when the fed started talking about hikes and we saw the whole team from the fed talk about interest rates. that is not the norm for several years and now it is. jonathan: and when you get an upside surprise on the adp .eport, markets just a when you forecast euphoria gripping the market, does that mean cyclicals will outperform again? think some cyclicals outperform. i like financials and i like the consumer cyclicals that are beaten down and are still cheap. other cyclicals have run ahead of themselves.

is trading on stimulus that may or may not happen. cyclical, a selective with the fed tightening, it seems like it could bolster for the cyclicals to continue to outperform on the margins. when you talk about euphoria, which pockets of the market do you think investors will become euphoric about? where he will get the melt up? savita: i would look for areas that have not worked for a while. here, i would point to financials. some of the more cyclical areas in the consumer complex that have railed -- that had a failed over the past few years. movement tax cuts or in the rate horizon, that could be bullish for the sectors. i would look for sectors that haven't worked for a wild that

could see upside based on the fact that we are rotating from a falling interest rate environment into what could be very different. alix: i want to push on financials. we are trading right around the levels that we saw even 10 years ago, when the 10 year yield was twice as high as it is now. why the confidence? savita: yes. yes. on the financials, you have to be selective but here is why i have confidence in financials. re-rating is cash return. so we have noticed that the payout ratio for banks increased and the multiples generally increase. now, with a less regulatory overhead facing the financials and unlocking the earnings power, i think there is a longer runway for the banks. i look at it like tech in 2010 having just come out from the doldrums and there is a lot more upside for the sector, overall.

alix: how does that pair with your world? how do you translate that into how you invest in credit? ofk: we are a user everything the industry puts out there and we see activity in the new issue calendar. we also see trading start to pick up so secondary markets are looking at this better. so all these things and up giving you a tighter risk premium and that gives you a rise in prices. trader in methe wants to say it is smart for the investor. and it wants me to love it because it has moved so much and the trader wants that. so we can do that as an active manager. that have runs too much and they will sell into the rally a little bit. and when the models catch-up with the name, we will buy that back backed cheaper because that is the dynamic.

so to the point of what happens in the credit market, when it gets technical on the positive, everything runs with it. we can settle into the names that have run too much as a trader but as an investor, i really think we should stay long and not sit on cash. talking about getting active and picking companies or a particular credit, this is the environment a lot of people have waited for to get this kind of this version. money far, do you see going into passive funds or avoiding the active managers? what is it about the market right now that could potentially make this different, when, it has been like this for 3-4 months. it is a big setup. we sat seen a huge amount of underperformance from active managers. and the way your mobile investor works is that you look at the settlement. and they sell at the bottom.

so some of this has to come out of the system for this to start working. but on the other hand, you could sit there and look at a trade and say look, this is etf driven and it is way too high and at some point, it will start working. we are seeing that more and more. so it is starting to pick up but it isn't all the way there. the numbers from active are getting better versus passive. jonathan: if you look at the equity markets 10 minutes into the session, you think there is nothing much going on this morning. the price action is elsewhere. yields are up for an eighth straight day. at question we were asking the back end of last year, i imagine it will be asked again and again and again to you in the coming weeks.

at what point do we get a backup that we seeyields the anthem in equity markets? how far away are we from that? there is no magic number on treasury yields. today,ow low they are there is a decent margin for upside. treasury yields are moving higher, along with growth, that is great. what if treasury yields are moving higher and the fed it tightens to quickly because of inflation without growth, that is not great. so those of the barometers we are watching to say ok, is this a good move or a bad move? and so far, it has been pretty healthy. the economic data has come in strong. what we are seeing now is nothing to worry about from an equity standpoint. look at realtake a rates, they have been falling for a while but they are

starting to pick back up. with stocks happen up 6%-8%? ratesit depends on why are up. rates are up because the economy is doing better. so if the u.s. economy is doing better versus the rest of the world and the rates are up, the u.s. economy is doing better through the world. those setups are created to stop and evaluation. we have a time where rates are up because money is flooding in from other places, in the rest of the world, and it is not doing so well with inflation, that is not a good setup. the fed is trying -- the fed is trying to choke off a too hot economy. we don't have that yet. a 2018-2019 dynamic. jonathan: do you worry that we will get a federal reserve that comes up more aggressive? savita: so far, not so much.

they have basically said they are going to do what we would expect them to do. that is the worry. that is why we are not overwhelmingly bullish on stocks. there are risks. there is the potential for a hyperinflationary environment where the fed is forced to tighten more quickly than the economy can handle. as your other speaker pointed out, we are not there yet. so it isn't something we see as a near-term risk. jonathan: fantastic to have you on the program. savita subramanian, marco caught up and oliver renick. coming up, an important conversation with the j.p. downn chase ceo, sitting with francine lacqua. also tomorrow, full coverage of this one. the rate decision followed by mario draghi's news conference.

all of that is coming up and more. 12 minutes into the session. a muted equity market position. stocks this morning, a marginal move to the upside. 13 points on the dow. this is bloomberg. ♪

emma: this is "bloomberg daybreak." and is the hewlett-packard prize greenroom. tomorrow, francine lacqua has an exclusive interview with jamie dimon at 7:30 a.m. ♪ david: this is bloomberg.

reporting from washington. he spoke earlier with wilbur ross and will be asked him whether he was concerned about triggering a trade war, he said we were already in one. wilbur: we have been in a trade war for decades. our troops are coming to the endpoints. that is the only change. co joining us now is an astute student of d.c.. al hunt from bloomberg view. it is true, you know it is true. -- one of the most controversial secretary in history. al: he may be. by and large, what they're talking about is a ruse.

this would generate a real trade war but i suspect they won't do that. they may do a currency manipulation thing. they will renegotiate nafta. david: go even further. some people are just going back to tpp and fixing the asian deal and making some changes. .here are a lot of forces it is a really important deal, politically. we want to leverage against china and asia. tpp, countries like vietnam and singapore, they think tpp is critical. they were devastated. they may be doing some window dressing. news is thatod washington has never seen windowdressing before. talk to me about something that

might be more than window dressing which is the repeal and replacement of obamacare. that has been the big news this week and you have a piece on bloomberg view discussing the congressional budget office scoring office? al: they are starting a markup that is 70% of the economy and they don't know whether it will add to the budget deficit and how many people will not be covered that are covered now. this.are issues in doing -- said whichever party owns health care will lose. and it basically is true. if you have ownership then it is bad. democrats have had ownership for seven years and it has hurt them. no question. if publicans take action now, it will hurt them. david: they certainly want to.

al: this is the thing, this will be fascinating. the complaints are coming from -- he will be responsive to the criticisms that people can't afford it. some workers, laid off workers in west virginia, and it will be at odds with the right-wing base on capitol hill. our audience,f business leaders, they want to know when it is going to happen taxuse they want to get to reform. and they have to go through this. i we get into a ground war with asia? can we get through this? al: it may be a legislative vietnam. but i'm not sure tax reform has any better prospects. i think tax reform is almost impossible. tax cuts are not but tax reform. david: that is another thing that we talk to wilbur ross

about. al: right now, that is dead. it is dead right now because of politics. david: explain that. there was fundamental tax reform in 1986. why couldn't we simplify taxes and deductions -- it is a basic plan. it,if you and i were doing we could. they had the most skillful treasury secretary in history. jim baker. the republican president with democrats in capitol hill like bill bradley who said, we will get this done. coalitione partisan came together. is there any prospect of that occurring? it should. you ought to have a broader base. there is no bill bradley in the hell. david: we need -- bill bradley in the hill. david: we need to come back to

you often. what is: vonnie quinn, coming up on the program? vonnie: excited to be speaking with the ceo of pimco which just merged. the $34ask her why billion fund company is now a massive one behind blackstone in the field. and it is international women's day so we will throw in a question about girls who invest. she sits on the board about that. and later we will talk about the .ond moves as you mentioned, international women's day. the march on washington, they launched a campaign for women to stay home from work today, urging women to avoid shopping today unless business is owned by women or minorities.

and the world's third-largest asset manager has constructed an opposite for wall street's infamous bronze bowl. state street global advisors is installing a statue of a defined the bullfront of overnight. putting more women on their boards. it will sit around in manhattan for the next month. that is according to spokesperson of the company. very cool. today?n't i stay home it would have been a game changer. s&p, you have bank of america and citigroup, one of the top performers. you will have yields higher in the u.s. and you now have a 10 year yield, it 2.56%, eight straight days of gains for those yields. this is bloomberg. ♪

jonathan: last year, janet yellen made it clear that the fed would raise interest rates in march and today, better than expected adp employment report. further support for the market and analyst expected in's. we said better but we need a better word for that. it is a monster upside. 200 98 thousand. an upward revision from the previous month. the big picture question that will be asked is, have the animal spirits taken hold of the labor market? >> especially given the numbers we see from the adp this morning, showing that this surge was due to take hiring in construction and manufacturing, the two sectors that have been having a tough go of it lately.

if that is turning around then it will be a big boost for the u.s. economy and everyone else. up but thetocks hold hard data isn't there and this would contract that. sex that's right. and typically you expect the survey data to lead by a few months. so to the extent that week see -- maybedata pick up we can translate that into real hiring gains if this holds up. jonathan: it is always there for the labor market, whether there's something happening there were an anomaly, what would that be? have had issues with the wage data, where it looks like there were calendar quirks holding that down. so if we see the exhilaration in wage growth, after last month in friday's report then that will

definitely reinforce that with the statistical quirk. jonathan: thank you. how long before the president tweets about the adp report? does he wait until friday? he will claimw credit, maybe both times. i guess both. jonathan: david westin was in bc. thank you very much from the "bloomberg daybreak" team. a marginal move to the upside. if you look at the s&p 500 by 1/10 of 1%, from new york city, this is bloomberg. ♪

vonnie: it is 10:00 a.m. in new york and 3:00 p.m. in london and 11:00 p.m. in hong kong. mark: welcome to "bloomberg markets." ♪

vonnie: we will take you from new york to london in the next hour and cover stories out of los angeles, washington and germany. here are the top stories we're following. ispolitics, the house revving up its engines to repeal and replace the affordable care act. multiple committees will be marking up the republican plan today. infrastructure is a key focus on capitol hill. hammond unveils the -- and raises the nation's economic growth forecast. can the u.k. hit 2% growth this year? are hedge fund fees too high? where are funds putting their money? we speak to the ceo of pa