wall street image. the president has given ultimatum to lawmakers. the 50 billion pound price tag for brexit before prime minister may triggers negotiations. the oil market keeps pressure on producers to maintain cuts. from new york city, good morning. welcome to "bloomberg daybreak. david westin is off today. futures are on the margin up 2%. the euro is up 2/10 -- .2%. we have some blowout data in the eurozone it. treasuries are unchanged. ekingthe dollar-yen is out again for the first time at about nine days, but just barely. it's well off the sessions. the yen had its longest rally since 2011. the fix is pretty moderate. you have 18% on the week.

gold is relatively flat. crude is getting a boost, but down at 2% for the week. president trump is made an ultimatum to lawmakers, telling them to pass the health care law. joining us is kevin it. the only question i want to know is what is the count. kevin: the count is still in flux. lawmakers and a and president trump were working to the night, trying to get the votes to get this health care bill passed sometime this morning. i spoke with the chairman of the rules committee pete sessions who told me they have a 24-hour on-call mode it to begin the procedural hurdles to get a vote should they get them. conservatives in the house are concerned that if this vote does get through today, it will go to the senate where moderates will be able to walk it back to the middle. this is a political fight with

so much on the line because this get totration cannot other parts of its key agenda items until the first pass health care. alix: thank you so much. the conversation remains, you've got to get this done it first before taxes. jonathan: that's a big question. joining us is tom from barclays. he joins us from his office in your area and i want to begin with the question. if this passes later today, what does it mean for tax reform? sean: i think they can move to the next reconciliation. failure to get a health care deal would potentially jeopardize their ability to get tax reform done. tom: i don't think it says popular as they thought about repealing obamacare. misreading,k to the what people want.

i think it's going to hurt small business. i think it's negative. jonathan: how much is the premium about washington can -- what washington can do it -- get done? tom: the market is+++ forward earnings on medium. that is more expensive than october of 2007. i think huge amount of premium is built in. the pe is telling us earnings

are going to surprise huge. i don't think we can get an expansion if we get tax cuts. you're not going to get paid to own stocks. alix: the president is getting busy has a comes to pipelines. that has been a pipeline under debate for long time. it transports 830,000 barrels to nebraska and then to the gulf coast. this window to close the deal is monday. it's not over. there are still lawsuits pending. this is one step to the promise that he will wind up approving this pipeline. you made the point that reform can get through even if health care doesn't. why doesn't the market believe that? get: they want to see to health care through before they get to taxes. failure begets failure. if they don't get health care reform done, there is no chance they can get tax reform done. if they can't get this deal done for the gop, there is pressure to get something done of the domestic agenda. focus will be on taxes. is the republican party a governing party, or an opposition party? alix: there is much more agreement on tax reform from both parties in the roosevelt care, which should pave the way. shawn: there is something court to the gop.

it's getting tax reform done in this cycle. jonathan: people say the administration's agenda will become unhinged if this doesn't go through. sean: it's a valid argument. fail on thisey vote, the messaging will be important. you are starting to see that with the president and the speaker, people are pointing fingers at each other. they will double down understanding the midterm elections are really important and they have to have something done of the domestic agenda. if that is going to be tax cuts on the corporate side of. it's going to be a conference of tax reform package. i've been watching it very closely. i was in the see the last couple of days. we held a barclays conference there. it's going to be close. i'm surprised they could not get it done last night. i would not be surprised if they keep the vote open hoping to twist some arms while on the floor. it's going to be really close. alix: are you trading the health

care vote today? tom: no. i think it's hard to have an edge. i would rather focus on where you can get good risk. these are really low pe stocks. it's tough. i think it's been a tough market for perceptional -- professional managers. alix: net outflows are $9 billion, the biggest and 38 weeks. the you buy those? tom: some of those, yes. i think the banks are very investable. you've got real tailwinds, higher interest rates, faster growth. look at the european pmi. you have close to 80 billion in incremental. i think the outflows, i might point out they are kind of headwind for stocks. that is one of the thing supporting equities for the first few months of this year. jonathan: let's get back to the

agenda. if this doesn't go through, taken from -- focus on tax reform. -- they can focus on tax reform. if they bring that will, how quickly can they get that done? shauna: let's assume it -- sean. : i think it's very aggressively published. we have talked about it and we see it more likely being a late 2018 event. there were a lot of complications on tax reform as you can imagine from repatriation to corporate taxes to the border adjustment tax. they have to find some way to get the resolution. whatever the house does feel on this, you can look for a better way forward. is going to be a back-and-forth within the republican party again. jonathan: you are quite bearish. does this depend on tax reform

not getting done? is it independent of it? tom: it's independent of tax reform. i think tax reform is positive. i think it really affects market outcomes. i don't think of it as a long-term catalyst for stocks. alix: you're skeptical of what rates would do. you see a correction in the 2150. if it's not based on tax reform, what is it based on? tom: i think it's about the virgin's is. the yield curve, especially the long-term, has been flattening like a pancake. it is backed up 50 basis points. those are usually drawdown signals. small caps of been week. i'm not sure i'm going to buy equities here. alix: you were looking at those rates when no one else would. thanks very much. it's good to see you. i want to reiterate that breaking news. transcanada gets a permit for the keystone xl pipeline.

it transports 800,000 barrels of canadian oil all the way to the gulf coast. it's not over. lawsuits are still pending. nebraska has to approve it and there is environmental pushback. health care hangs in the balance and d.c. it's a big announcement. they will be joining us next. this is bloomberg. ♪

emma: this is your business flash. president trump is living up to one of his campaign promises.

he has given the go-ahead for the keystone oil pipeline. president obama had rejected the project, saying it wasn't in the national interest. president trump invited transcanada to submit the application. they still do have deals with all of the landowners and nebraska along the route. huber's biggest rival in southeast asia will raise money. there is a new funding round packaged by japan's softbank. they are pledging $1 billion. oil cuts discuss the this weekend in kuwait. the market has made it clear their work is far from done. analysts say the oil cutbacks have extended past summer. there are records in prices below $50 per barrel. that is your bloomberg business flash. you very much. the health-care industry is waiting to see what happens with

the repeal today in the sea. some drug companies are making investments. eli lilly is investing money in its u.s. operations for things like research laboratories and manufacturing sites. president andthe ceo and the governor of illinois. we will get to that investment. i want to focus on the big nose -- news over in d.c.. >> as you know, the pharmaceutical industry's of ordered the affordable care act. what we learned over the last several years was coverage did not equal access to haul quality -- high-quality care. evolving power out of washington back to the states and individuals. they can choose of the amount of coverage they would like. i think we are encouraged to see this move forward.

to get back to the business of making innovation available to americans, go matter what their plan is and let them decide what coverage they want. trump took away some of the essential benefits. people can pick and choose what benefits they want. the young people won't buy prescription drug plans. you might have premiums that are high for that. that means your drug prices are going to suffer. will they actually go up in the scenario? >> i don't think so. the exchange plans where we saw the drug plans be skinny to begin with you they were mostly covering generic products. for our business, that allows people with the existing conditions and chronic disease to buy drug coverage. i think that's a good thing. alix: if drug coverage gets more expensive, people are not going to buy it and you are losing out from a demand for spec.

you've got to make up that revenue somehow it you will have to raise prices. people you're talking about who are covered under the expanded medicaid or under the aca or not enjoying a rich drug benefit to begin with. they weren't line many innovative products. that didn't perform well over the last seven or eight years. the bottom line is we are not walking away from much under the affordable care act. alix: the people you would be losing weren't buying drugs anyway? >> correct. alix: governor, your state expanded medicaid. what you get out of the repeal? know the course we're on is unaffordable and unsustainable. what we have proven here under the indiana plan, if you allow states to better control costs and allow more access and provide incentives, we can do a

better job than democrats in washington can. cohortsaged some of my in our delegation to seize the day. we've got to take this right first step right now. we can get on it to the other matters of the day. alix: what do you tell people who are going to lose coverage? tell them this is but one of the first steps of many. it will be a journey. indiana has proven if it's in managing our budget or building out our infrastructure, we will approach this as a challenge and an opportunity and we will prove as power outside washington goes back to the states, trust us. we can get this right. alix: the investment really proves that point for indiana. one more question to dave about drug prices.

president trump is to coin -- declaring war on drug prices. is that the sense you get from washington? >> i have said before we are all for competition. if this administration or others want to unleash more competition, we are for that. we would like to compete. speeding up drug reviews is a good idea. expediting generic approvals were you have only one generic approved and they can raise the price, that's not good for americans to we are for those things. alix: what corporate tax rate would you want in order to offset the downside? >> those are unrelated issues in a way. blueprint the house on a corporate tax reform, which has a 20% rate. we think that's a big enough difference from the 35% rate, which is the highest in the world. that would make a difference for

investments. in moves to a territorial system. we don't tax american companies just because they are american. million, holding structure in the state, why now? what you're going to do with the money? why did you decide now? >> we are announcing this investment because of the growth of our new products coming out of the pipeline. as we have talked before, this is an exciting time for the company. our innovation is coming to market. we are investing behind that $850 million in new capital products to support r&d. with what you want to do all that money? how can you incentivize other businesses to do the same? think we are a model. we have been for over a decade. our economy is strong. i wake up every day not just smiling year to ear for 140

years, indiana has a triple-a credit rating. it is rated by all three rating agencies. we have a higher labor this patient rate than the national average. we have balanced budgets and to billion dollars -- $2 billion in reserves. we are investing in the future of our state and country. we are partnering with universities or is making a real difference. we are number one in the midwest and a top-five state in the country. my job is to understand companies like eli lilly and small family businesses have the worldview that they can grow in indiana and i wanted to be a no-brainer decision. alix: congratulations on that investment. thank you so much for joining us. -- we are creating

investments. , the marketming up is getting tough. the cio joins us later in the program. from new york city, you are watching bloomberg. ♪

jonathan: from new york city, this is bloomberg. eu may's back out of the cost $60 billion. the bill comes as theresa may writers -- readies to article -- trigger article 50. brexitjoined by the editor. where does the 50 billion come from?

simon: we don't know yet. they haven't disclosed the thinking behind it. you can make some guesses. it's a series of budget commitments they made in the past, pension payments they promised to pay for people working for the eu and various other things that are infrastructure projects. they didn't have to meet the budget for it until later on. loan guarantees for some of the bailout programs during the financial crisis. a lot of things are being stitched together and that's the subject of huge debate for the british and europeans. there will be pushed on some of the demands. jonathan: next week they are triggering article 50 and the negotiations begin. havee they move on to discussion about what the relationship looks like after the u.k. has left the eu, is the exit all that needs to be

addressed first as far as the eu is concerned? sending a hard message to the british. they will not deal with trade until you are looking to the benefits. they won't discuss that until it settles the divorce. the number one item is the rights of each economy already living in the others. they want to have that done quickly. that sounds simple, but it isn't. there are potential ramifications. mary, do thelater rights extend to their spouse? the really big issue is the brexit bill, which the europeans will want to have settled before they start to talk about the trade deal and the british will want to have those talks and paramount. intohan: the tone going all of this before they get around the table, it's not that

bad, is it? the noises coming out of europe seem to be we want a partnership with the u.k., we need a partnership. other peoplestop from leaving. how to they manage those two things? simon: there is a fair amount of movement on both sides. theresa may said she didn't like the term divorce. you are not friends with the person on the other side of it. she was talking about the importance to britain and how britain needs europe to succeed for its own economic good. they were talking about how they would like to make it a friendly split. that is the mood. the reality is they have different incentives there. the british want to get out of the eu with leaving as little money behind and with as few ties. they still want to trade links. the eu needs to send a warning that following written out the

doorway would not be an advantageous decision by others. jonathan: it's great to have you on the program. the data has been ok. we are learning that deutsche may be committing to a post-brexit u.k. with a new london office. does that tell you everything you need to know? nothing has materialized in a significant way. common up later, a new show later on in the day. 30 minutes dedicated to fixed income. that is later. we take it to the world of cute -- crude. producers are going to carry on cutting. from new york, you're watching bloomberg. ♪

jonathan: from new york city, this is bloomberg daybreak. we are about two hours away from the cash open.

if you switch up the board and we go toward a week of losses on the s&p, the biggest loss since -- of 2017 so far. the euro is firmer. treasuries are unmoved. on the week, yields granted lower. the action, let's get you up to speed on headlines. emma: president trump says it's now or never. he told house republicans vote today to approve the replacement bill or rejected and the president will move on to the rest of his agenda. they made last-minute changes to the bill to win support from conservatives. it's not clear if there are enough votes for it to pass. a lawsuit be embarrassing for the president and paul ryan. made it toice arrests in their investigation

into the london terrorist attack. nine people are in custody, one woman was released. attacker was once investigated over concerns he was turning to extremism. he had a history of minor convictions, but had never been convicted of terrorism. he was killed by a policeman and a fourth victim was killed yesterday. the egyptian president has been freed from prison. he was serving a life term for ordering killings in 2011. the verdict was overturned and the top appeals court ruled that real tire -- retrial. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. i have emma chandra. so much.nk you the move in oil prices was dramatic this week. there was a dramatic day on tuesday, against a backdrop of opec and non-opec members meeting in kuwait this week in. do they talk about extending cuts passed june?

we are joined from kuwait city. i am jealous that you are there. they are not going to make an announcement. what are the signals we are looking for? really leaves the groundwork for the meeting later on in may. the committee comes together over the weekend. they will review the progress or lack thereof they had been making. if you look at compliance, that is 90% more than analyst are persuaded by. the issue is the non-opec space. that could be as high as 70% according to some estimates. they are going to try to beef up compliance is art of the monitoring committee. saudi arabia applauds russia publicly. they have not delivered on their promises. here is thesue

fundamentals of the global oil market is working against them. u.s. crude inventories, you are looking at a rebound in the shale industry and libya as well. you are looking at libya. andconsensus appears to be a lot of the analysts we have been speaking to his they are going to extend in may 1 of the -- in may. as you can see, the numbers are not working in their favor. goldman sachs is saying time is not on their side. fair point. we are back where we were before november. is there talk of 60 or 40? >> i would say they are not really targeting specific rice. opec is made that clear -- specific price. opec has made that clear. this is not about oil prices, this is about clearing the inventory.

the reality is and i find this fascinating, many people out there are calling oil rices -- prices. barclays is saying the drop you are seeing is just temporary. who the winners and losers are in the next couple of days. alix: it's going to be fun. thank you very much for joining us from kuwait. what are the ramifications when it comes to the oil market and how does it spread to other asset classes? you can really see bloomberg high-yield energy index, that is the white line. oil is the blue line. you have the yield at 6.7%. the last time we saw that, oil was trading at $80 a barrel. how does that make sense. jim joins us. jim: there is a lot that has gone on since 2015. embedded in some of the spreads was an expectation of a

recession or a global pullback. ining that recession commodities, there were a lot of enhancements done. oil companies were issuing equity, they hedged a lot of foreign production. they improved credit quality. you see a bit of a pullback, but not as significant as the commodity itself. the real thing from a high-yield market is if it's a sustained pullback and a continued lower price. that will pressure credit. jonathan: we just assume the composition of those companies, they are a lot healthier. it's a higher quality and it was three years ago. it is improved. the weaker companies are pushed out of the market. you had the other companies hedged out forward production. it has improved the quality.

i would say the market is pricing that this is going to be a shorter term issue and you are going to start to see some inventory draws. if oil gets weaker, it will impact these companies. area --ngers crossed crossed. that i have that to me says opec has to extend the cuts. that is versus the five-year average. it would take massive drawdowns to get to the five-year average by june. >> clearly. it's the criteria they are using to look at where the inventories are going to be. it's a done deal. they're are going to have to extend the cut. alix: that's not necessarily what the market is pricing and currently. you can make the statement that we have shale rebounding. pushia says shale could $100,000 -- 100,000 barrels a

day. why would they give the u.s. a free ride? >> i think the saudi's are in a tough spot. they backed themselves into a corner. i think what you see in kuwait is a big poker game and the world is watching. you've got a lot of laughing. you saw that with the saudi's announcing their production was up in february. that was the biggest discrepancy ever. that was the saudi's lame the cards. we are prepared to walk away. on the other side of the table, the russians are making the bat that the price crash was to painful. we don't think you're going to play that card. my money is on them. i think opec and saudi arabia can afford to let the market fall apart. they will have to extend the cuts. it is leading to u.s. shale producers. jonathan: let's say we test $40 a barrel once again. i yields have been tight.

e.m. has outperformed. who's got the bigger problem at $40? with the local debt or the high-yield space? >> i think if you had a sustained $40 price, e.m. would come under fire. they are tied to commodities. significant part of funding the budget. you will start to see real issues there. jonathan: is that the risk? >> i think you have to look at different factors. policy is important across the board. policy from opec is important to look at. the: your call is $60 in second part of the year. you could see shale grow to one million barrels a day. what demand do you need to see to offset the growth? >> we're not bullish on the demand. the type of numbers we have seen

recently looked a little soft. you had an abnormally warm winter in the united states. you had the demonetization in india. that is driving demand growth. both of those are temporary. you are coming in around the 1.4 level, which means inventory should clean up pretty soon. i have a hard time squaring other commodities getting hit as well. that did not react over in chill a with the bhp. we see lots of rolling over iron ore at barclays. why doesn't oil get dragged into that? because there are different drivers there. they are on different timelines and cycles. demand growth is good for oil. you have the low oil price which is been a stimulus on the importing side of the equation. those developed worlds, we have seen good demand.

the bigger macro worry is what we saw last week. if you start to see the trump reflation trade come into question, there is a significant downside. so long as the trade stays in play, you will see the record long positioning we've got in the oil market and you will see the things getting bought. alix: what is the downside? >> if you really start to see that big question mark, look at the record length in the oil market. specialists plane fundamentals. it's people participating in this broad reflation trade. if that fades, you are looking at significant liquidation and you will be back at the $40 level he quickly. jonathan: is the reflation trade deflating? policies look at the that have been in place since the election it, this is going to happen. now the question is is the

timing of it, the reflation trade is there. you will still have volatility around it. jonathan: thank you very much. it coming up next week, a week full of fed speak right here on bloomberg. withare all speaking bluebird television and bloomberg radio. that's all coming up. is on edge looking down a d.c. and a key vote on health care. wall street awaits the outcome of that vote. from new york, you are watching bloomberg. ♪

emma: this is the human packard enterprise green room. cio joins us.

is bloomberg daybreak did this is your bloomberg business flash. eni, it's theor first oil producer to make a major offshore discovery in mexico. the monopoly ended in 2013. they struck oil in the gulf of mexico. mexico sold licenses to exxon mobil and bp. credit suisse has increased the bonus pool by 6% and the ceo was paid $12 million for his first year on the job. credit suisse is in the second year of a costly turnaround plan. suisse is doing a share sale to raise $3 billion. shares of a chinese hairy

plunged 85% in hong kong. int wiped out $4 billion market value. speculation that the shareholders miss appropriated millions are not true. to zero.rth close the company rejected the report. as muddy bloomberg waters capital joins us in the next hour. that is your bloomberg business flash. jonathan: the fed rate forecast is for two more hikes this year. full anything derail that? we got the inflation outlook. gdp growth is sluggish by historical standards, it will be sufficient to cause further removal of the labor market slack. seeuld expect that you will more downward pressure as the year goes on with the unemployment rate.

i think we are making good progress at the fed in reaching our 2% reflation objective. jonathan: joining us now is blackrock. he manages the high-yield portfolio. it's great to have you with us. if things are progressing in the way that the fed resident thanks, why are we at 240 on the 10 year? jim: things are progressing. there are still a lot of secular headwinds. all the aggregate debt in the system has shifted to government balance sheets. that's going to be a headwind. you still have labor displacement with technology. there are head warns -- headwinds to long-term growth. i think long-term investors are looking and saying what steve cyclicality of this? -- what is the cyclicality of this? jonathan: we may have

overestimated how strong the structural forces are. we have balance sheet normalization. we've got rate hike discussions over at the ecb. have we underestimated how strong the structural forces are? jim: i don't know the bond market is underestimating. it is holding down even though , the labor side is coming out of this. we are in a much healthier place in the household sector. the boj, the central banks around the world are read using -- reducing monetary stimulus. the question is on the way forward, how are they going to ease out of that? how are they going to start? they are going to tighten and if they tighten too much, it's going to put pressure. there is a lot of debt in the system. themselves,nts fund corporations, households, that

is going to be the balance. i think we are talking about lower growth long-term. alix: what is the reflation scheme russian mark if you look -- scheme western mark this is -- scheme? sinces the weakest january 2016. with reflation being priced out, is that oil? jim: i think it's a combination. of this is oil. i think there is going to be a lot of volatility to reflation. it starting to tighten up. say if you take a step active look at 2015 into 2016, there was a big pullback in commodities even this year you see some volatility in the last month or so. i do think the simplicity of shifting from gridlock and monetary stimulus to want a

terry tightening and the promise of fiscal stimulus, that is going to create more volatility. that transition is going to be difficult. the market is going to shift around from cycles as you saw the last couple of years. jonathan: we have an issue for growth in the united states. we have a record quarter going back to 1989. do you expect to see a slowdown western mark we have seen a quiet week so far. you expect that to continue? jim: i think it will be strategic with m&a. some of the issuances have been financial to the market. a lot of these companies in front of the election slowed down a. -- down. the market is pretty healthy. if you look at corporate fundamentals, if you look at aggregate yields right now plus spreads, it's a healthy

environment for companies to get involved. jonathan: i guess to put the question another way, do you expect the issuance to continue? expect the markets keep sucking it up as it has? jim: i think some of the record issuance is a pullback in front of the policy and the election and last year. that was in the first quarter of this year. i think the issuances will be strong. i don't think if you look at the composition of that issuance, it's not like 2000 16 and 2000 -- 2006 and 2007. we are looking at companies doing route financing. alix: verizon has been front and center with that. it's good to see you. check out tv on the bloomberg terminal. you can interact with us directly. you can actually ask us us duringand talk to

the show. it's very cool. check it out. this is bloomberg. ♪

jonathan: the swiss lender handed out bonuses in 2016. the peers are down sizing bonus pools. they are considering a share sale to raise more than $3 billion. joining us with the latest on the story is bloomberg intelligence. let's begin with the bonus pool. why are they doing something the others have not been able to deliver on? >> part of that relates to the fact that the legal issue that credit suisse has been facing and the settlements they have managed to reach with the u.s. authorities weren't as severe as the case of deutsche bank for example.

clearly they have been in a stronger position to pay out bonuses. businesslth management while facing struggles last year is still consuming less capital. as capital position isn't worrying as some of the other european banks. about thelet's talk capital position how they look to bolster it. we were told they could ipo the swiss unit. now they may be raising capital. which one is it and why is one better than the other? >> this boils down to the fact that the share price rallied more than 50% since the start of july last year. the swiss unit is one of their more profitable does this is. it was one of the few units where profit targets were not cut in their investor day.

i think there have been a lot of shareholder and investor unease that they had been considering doing an ipo for the unit and losing some of that profit contribution. i think the fact that you have this massive rally in european prices, itnk share makes another issue more palatable at this point. is $3an: the bonus pool billion. the share sale is $3 billion. what do you think about that? >> i think one of the biggest issues for european banks is the need to grow revenue and we have seen revenues falling for a number of years now. within that, you have to be able to retain talent. investors would be quite balanced when they look at this. they recognize the bank needs to

attract its top staff and really try to compete on a more even playing field with the year us -- the u.s. peers. jonathan: thank you very much for breaking down the latest with banks wiese. our bloomberg view columnist is join us. in new york city, the cash open is 34 minutes away. positive zero. you are watching bloomberg. ♪

♪ jonathan: high-stakes voting d.c. has wall street on edge.

the president gives an ultimatum to lawmakers. brexit's 50 billion pound price tag could set the bar high before minister may triggers negotiation and crude reality for opec and its allies. only market -- the oil market keeps pressure on producers. good morning. this is "bloomberg daybreak." alongsidean ferro alix steel. we swing to the biggest week of losses in 2017 on the s&p 500. the euro is stronger on the backside of blowout data on pmi. and treasury stable. alix: the dollar finally up for the first time in 90's against the yen, but barely. vix down by 2%. same situation with gold, but crude getting a nice bid.

president trump has made the ultimatum to lawmakers telling them to pass the health care bill or forget about repealing obama care. joining us from washington is kevin surreally. >> it should be later this morning. a republican from ohio says all signs are indicating that the vote will be held today. groups,conservative else i conservative groups are urging them to take their time to continue working their differences. this is becoming a test for president trump. testing them about where their loyalties lie. jonathan: for those of you --

for those not familiar, how long does the vote take and when can we get a result? kevin: if it is voted on today, if they then head -- can get the bill through the house if it is brought to a vote today. then it would go to the senate. in the senate, you have an opportunity for lawmakers in the senate to move the bill more to the metal, which is why conservatives are concerned. after which, you get to the reconciliation process in which the final version of the bill would come to the front. for there to be it would enduntil up on the president's desk. alix: thank you. forget the fed, forget pmi's. we are talking politics. jonathan: joining us is richard

clarida. rich, we want to begin with you. if the vote does not go through, it on hinges the agenda completely, or delays it. which one is it? achard: i think there will be big push to move to taxes, which is where i think the republicans want it to be all along. this has been a distraction. derails it, but it puts the focus on giving a win on tax reform. jonathan: brett, we look at the situation in terms of risk, and this though does not pass, what is it me for the fs market? dollar softer, yield softer. there is almost too much being put onto this bill. it is not going to be the end all, the all.

they have this concept of a two engine economy. the u.s. is doing quite well ahead of trump coming in to office. well.onomy is doing quite labor is fine. inflation is percolating. we are seeing wage growth. too excited to get on dollar lows if the bill does not pass. it will be a short-term negative. alix: if the bill does pass, what happens to the dollar? if it goes nowhere, what does it say about the underlying thesis you have outlined? >> been there is a lot of doubt in the system. even if we get the health care will whether or not trump be able to move forward among the other initiatives. the problem when you have a market that is trying to look at political events is that

politics is uncertain. markets love certainty over uncertainty. when you have politics in play, you have a lot of very nations politics don't like. jonathan: let's divorce market pricing from the politics of d.c. if theo you rich, inflation rates reflate, is that what we will see? richard: longer-term, the reflation trade is still in play, but it will depend more on fiscal than monetary. longer-term, you do not want to bet against the fed to get at least 2% and inflation. jonathan: same question to you. >> the reflation trade is still

in play. doing fine.nomy was we have seen wobbles recently, but commodities are holding in there. we are not going to completely roll over in that sector. the reflation trade is very much on track with the fed tightening. us toof this -- they gave hikes into quarters. trading -- isyear shorting the way to go? what it points to is that the 10 year yield is influenced by global developments. after brexit, 10 year yields were 140. global factor in the 10 year yield. it is reflecting with the trump package is. it will be a big factor in bond yields. 240 made sense.

it is doubled. >> we're still above water. jonathan: we have reprice significantly. wire treasuries holding water like this? you areis going on is planning for the fed is going to be going. they are on a removal accommodation cycle. until the federal funds rate gets above -- we are removing accommodations. you much of europe and the u.s. and it is on expectations. in europe, a difficult situation in the sense we keep getting blowout pmi's. how do look at the euro. is the path of least resistance higher? >> the path of least resistance

is higher in the euro. it will be a grinding trade. the currency is relatively flat now from very short. the ecb and pricing of a rate hike there has become the story of late. is it ecb going to hike soon into 2018? that is overdone similar to what we have heard from the bank of england last night. until they see wage pressure and wage growth in domestic goingption, they are not to be all that anxious to hike. and mario draghi is one of the most dovish members of any central bank out there. the market itself is getting a little anxious. the pmi figures help that story for sure. to the extent we move through france elections without any hiccups, the euro will trend higher. alix: the story of the last year was about fed chair janet yellen. now it is about president trump.

will the story for 2017 be about -- willaghi was to mark be about mario draghi? >> yes. it will be more about that. they still have a lot of issues on the domestic side. -- thereng pressures is a lot going on in the eurozone still. there is a lot of skepticism if things will end well there. but with the data doing what it is doing, a lot will depend on inflation and ultimately that is where they are looking. wage growth is the key component that is missing right now. commodities have helped the headline numbers. bank ofhi in the england are willing to look through that until they see the real inflation come through. thank you. coming up on this program, it is the story in the wilderness of the hong kong equity market.

dropping 91% out of nowhere. short-sellers. later on, a new program, bloomberg real yield 11:30 eastern time, 30 minutes dedicated to fixed income. from new york, you are watching bloomberg. ♪

♪ alix: carson block hardly slept at all last night. blockis close to zero and has no idea why. muddy waters capital founder and ceo. shortme out with a

against the company. what happened in 24 hours? thatn: it was clear to us it has been a manipulated stock for some time. we knew going into releasing that report that we were probably dealing with a bid that was going to try very hard to defend the stock. there were looking to break the stock. so, i'll looks like it started a chain reaction, which that is the goal. as active short-sellers, we probably -- we tried to knock over a bunch of dominoes. it is been reported that the chain reaction led to a number of lenders do not of the company's books discovering that hadker and a bunch of money been misappropriated, which are report said was going on. causedoks like it has the collapse of the stock is one of the senior executives has apparently fled. that bid that is been there for

a few months, or really over a year, disappeared. alix: collapse is a good word. end of the2 at the day. you closing out the short? carson: it is halted. things get tricky during a halt. we will see what happens. jonathan: at this point, the point you put out the report, the company said the allegations were represented -- were misrepresented and they declined to comment. ofmove things on, and terms the market overall, a lot of people will say valuations are very frothy. we had someone say yesterday that valuation is in a timely indicator. how do you view things currently? carson: as a short seller, whenever we see lofty valuations, we are kind of skeptical, but what is striking

to me the amount of complacency among investors. -2014, air, during 2013 lot of long biased investors rode the market up. seems like everybody beginning with the election, just stopped caring or worrying about the warning signs and is in pretty evident. we see not only beside relation issues with individual companies, but we see a lot of risks to the system that are not priced in. one of them, as i wrote about last week, which is the upcoming problems with the debt ceiling, which we think is going to be very hard to raise or suspend again the debt ceiling. jonathan: i want to get into the i want to get- into the specifics in a moment. when you see this kind of momentum, does is make your job easier or harder?

carson: it is a double-edged sword because there are far more problematic companies that have really valuations, which is a short seller is a positive. on the other hand, when you look on what some of these stocks have done over the past several months, so, you don't know when that is going to turn. from a timing perspective, you have to be prepared if you are shorting at these levels to ride things up more before ultimately they crash. -- it's never a great time to be a short seller. alix: on tuesday, you did pretty well. impactson, the near-term is going to come from d.c. and the health-care bill. how do you trade in the next 24 hours? despite my view on the debt ceiling, we are not really trading macro. our concern of the debt ceiling has to do with our playing

defense for our clients' assets. right now, i am not trading the aca. i think it is pick them as whether it is appealing a place. against repeal40 and replace. what i think is important here, and people don't seem to be focusing on, is what this tells us about how difficult it is going to be to deal with the rest of the president's agenda. beyond passive form, and we are going to have a problem if treasury runs out of money in june or july. alix: just to bring it back to more specific, it was about banks, companies that have high tax rates and buybacks. those other themes. that theme has turned. small caps falling out and large caps have been beating banks. do you want to short what did well on the back half of last year as we head for that debt

ceiling? carson: on one hand, yes. another set of companies with the infrastructure companies as well. one that we have shorted is a little bit more resilient than we would have expected. but yeah, if you are looking at things from a macro perspective, and you are really looking to play a deflation of the market or deflation expectations, then those would be some of the areas to keep in on. jonathan: the stock was down 90% in hong kong. were you sleeping? carson: there was not much you could watch. i picked up my iphone and saw the thing had crashed. there was a little bit more action there and then a halt. it was more about catching up with people who were following this. when something falls like that in the space of a few minutes, you miss it, it is unfortunate. alix: carson, i asked if you are

closing in on a short -- what point do you close in on it? carson: normally, if we get 91% down, we're going to close it out. alix: make sense. carson: yeah, you know. se in thek a gift hor mouth as they say. carson block of muddy waters. thank you for joining us to talk about that. coming up, don't miss charles evans speaking with bloomberg. it is an exclusive week of fed speak. you are watching bloomberg. ♪

alix: from new york city, you are watching "bloomberg daybreak.

that is according to the european president. we are back with richard clarida. brad, they are going to work out what the exit bill will be. they have to address that. this could take a while. what are they doing at 125. >> the position in the pound has become short. the imf look at position report, we're seeing multiyear lows. .ome of this could be a squeeze in addition, you have the pricing on the bank of england. the data has been relatively ok. inflation data has been looking good. at the same time, it is looking solid in the market was getting pretty excited about the idea of a bank of england rate hike down the road.

similar to the ecb in many ways. obviously, we had a bank of member england throw cold water on the idea, but the pound is set up in a very short position with data that looks ok and a market that would like to see the bank of england hike. i anticipate we will see a squeeze and the pound. one third as is the target out there. that is what the macro is looking at. that is something we are set up for an seems to be likely in the short-term. , we have talked about emerging markets and we can throw europe in there. the brexit negotiations introduced downside growth risk. as a monetary policy official, how are you meant to manage that fine line? that ity recognizes weekend. that is why the u.k. economy has

held up. they understand that is the longest expectation. through afford to look the effects. they will be monitoring inflation expectations. they will be happy during the brexit negotiations to keep policy where it is. alix: brad, help me understand with real yield. if we take a look at 10 year -- if wages pick up, what is the downside to sterling? in the u.s.ields seven cut in half recently. we had a strong push higher and now it is part of what the dollar was riding. always watching real yields in the u.s. relative to the u.k. relative to the euro. that will be a key driver going forward. that is some of the reason why the dollar strength we have seen in the market has dissipated quite a bit.

i would keep an eye on that space, but to the extent that we don't -- on the inflation story, so of the extent of commodity-driven are fx-driven. we need to see that real core inflation moving higher. it is a similar situation and the rest of europe. what is your favorite europe play right now? europe isusing sorting through the remaining challenges in the financial system and the banking system. there are opportunities in europe, but we look at it on a name by name basis. a lot of different companies and -- in terms of rates in

europe, especially with the political uncertainty and populism, it is focused on relative value. jonathan: i want to play sterling in -- what direction? >> short-term, you set up for another's. longer-term, it is going to be messy. we don't know when brexit negotiations will start giving things. it will be a messy trade anyway you slice it. in the short-term, you could see another squeeze. jonathan: great having you with us. from new york city, you are watching bloomberg. ♪

♪ jonathan: from new york city, this is "bloomberg daybreak." 20 seconds away from the cash open and futures squeeze higher 2/10 of 1% on the dow.

the week that was included the biggest single daily drop so far this year. the week to complete it may be the latest weekly drop. if you switch up the board, treasuries bid on the margin. solid after blowout data in europe. and the u.s., the data points as follows that durable goods orders come in at 1.7%. prelim waiting for february. if you take a transportation, it is softer. at 0.6 andtion capital goods orders come in and -0.1%. that is a significant downside surprise. alix? alix: with us is richard clarida and brad. what you think of the numbers, rich? richard: there was softness in

the underlying. overall, the economy -- what we are looking for is the hard data and the soft data. is tracking it. it is seasonality there. obviously, we are looking to see the hard data reflect the soft data momentum. alix: if you take a look at 111, is thatder accurately reflecting the kind of data we are seeing in the u.s.? >> i think so. dollar-yen has been highly correlated to u.s. deals and highly correlated to u.s. equities. real yield as well. around is 111 area is right. we are getting into the year-end for japan. typically, what you see is a lot of dollars selling resulting from the exporter community. a market is likely to see further supply of dollar-yen. i would not be surprised if i continues to be a headwind even

if we get a positive result on the health care bill. it will have a hard time rallying. you say it is transitory, but the market does not agree? goinga gone -- on a forward basis, the market is at a 2% growth rate. that is in the growth rate for the last -- answer, 2% correct on u.s. growth. markets are really key in both ethics and fixed income -- in both fx and fixed income. alix: to that point, treasure terri secretary steve mnuchin saying that he is optimistic the health care bill will pass. and tax reform by august will be a challenge premature to say how much lower the corporate tax rate will be in the are taxing hedge funds. the goal is a middle-class tax

cut. but the delay from august seems to be new? technology numeral be challenging is something marginal. brad, i want to bring you into the conversation about expectations. they have flipped this up and did the hard data versus the soft data surprise. you can guess what it looks like. the blue line is a soft data surprise index. the hard data surprise index is not a somatic. haveentiment surveys -- they got to optimistic? -- have they gotten too optimistic? hinge on a lot will what we see with trump and the tax cuts going forward. the one thing that is out there is a corporate repatriation.

that is a big dollar positive. that has been flown under the radar. it gets lumped in with the that istax package, but out there. there are a lot of unknowns in terms of what we might get. more unknown on timing and the extent on which we will get things, but to your point on sentiment, sentiment has gone very neutral on the dollar. there are people i talked about were very dollar bearish right now and people who are dollar bullish. much of the market is complacent and hesitant. they are not really putting the chips on too big a fashion until we get more clarity. it is really a lack of clarity. there is nothing -- to your point on the charges showed on the screen, it is not like a super stellar move here in the u.s. things are trucking along as rich mentioned. growth is where we had been a for a long time. things are trucking along there is nothing to get too excited about. the dollar is losing its spirit

that ramped up during the last quarter. richard: the biggest surprise in terms of what my crystal ball is we got a earlier fed hike. if anything, the dollar has been softer after that. of had a hawkish fed a move, yet the dollar with the other markets has been able to digest that. we have had a substantial rally and risk assets. if you are at the fed, you cannot draw this up any better. alix: mnuchin is talking dollar now. he said the dollar shows confidence in the u.s.. >> they always say that. [laughter] in bold letters, 18.5. maybe we have to think about the market differently. last summer, we saw deflation, deflation, deflation.

then people got excited about reflation in terms of normalization. we reflate it in terms of pricing repriced. >> exactly. the real issue in the fed is the fed is been undershooting its inflation target for five years. you are getting mixed messaging from the fed whether or not to percent is the ceiling or the average. yellen said it is supposed to be the average. the unemployment rate is going to be pushed below the night grew. were two roads in brookings thing that is a 40% chance that we will be at zero over the next decade. had you president of the market? -- how do you price that into the market? does that mean lower yields no matter what happens? i've seen that fed study.

there basically saying when you are at a low rate environment is a central bank, you need to think differently. that means allowing for some overshoot of inflation because when average rates are low, it is more likely you hit pets zero band and going to quantitative easing. the fed officials are arguing that it makes sense in this environment when you have the opportunity to overshoot on the inflation target. jonathan: just to wrap up the conversation, maybe years in politics, what is the trait in the dollar from here? >> you cannot ignore the dollar. it will be well supported. the dollars going to remain strong. we still have a fed that is normalizing rates. you the potential for balance sheet -- we have the potential for balance sheet reduction. that will continue to grow.

not too far down the road, we will start hearing about the plans for that. that should be very positive for the yield curve in the u.s. that will be positive for the dollar. it is hard to ignore the dollar. i don't think you will have the same speed of the move we had in the fourth quarter last year an early start of this year. jonathan: gentlemen, great to have you on the program. thank you. let's get you up to speed and the headlines outside of the business world from emma chandra. president trump given house republicans an ultimatum on the obamacare replacement bill and says if they do not pass a measure today, we will move on to his other priorities. not been ableve to agree on the measure. i, the trump administration make changes to the bill to appease conservatives. it is not clear if that will win enough votes. it will be a blow to the president house speaker paul ryan. in your, burj khalifa make two more rest overnight in the investigation into the london

terror attack. one woman was released. authorities say the attacker was once investigated over concerns he was trying to extremism. he had a history of minor convictions, but never convicted of terror events. he was killed by police officer. print presidential candidates marine le pen is in moscow where she called economic sanctions against russia counterproductive and said russia must be cautious of the fight against terrorism. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus across the world. i'm emma chandra. alix: thank you. headlines,e the steve mnuchin speaking at an event in washington saying that august tax reform goal will be a challenge. he is optimistic that the health care bill is going to pass.

supportthere is strong for a tax reform, but it is too early to say how much lower the tax rate will be. he says he will tax hedge funds as well. that rhetoric coming as steve mnuchin potentially says tax reform in august. coming up, we are going to talk oil and energy ahead and opec rob.ng with oildo you invest as you see at 47? we will break it down. this is bloomberg. ♪

>> is the green room. coming up in the next hour,

julian emmanuel at ubs. i'm here with your bloomberg business flash. company had a 21 stake from blackstone group for $21 a share. cipro has been struggling with attendance and criticism over its use of killer whales and shows. credit suisse increased its payical 6% as the ceo was $12 million for his first full year on the job. credit suisse is in second year of a turnaround plan. the bank is been hampered by market turmoil and legacy issues. it is considering a share sell to raise more than $3 billion. it is the first for italy's emi. made an offshoot in mexico.

says it has struggled with shallow formations in mexico. that is your bloomberg business flash. alix: thank you. week.ices down 3% this setting a tough backdrop for opec. energy sector has followed continuing to be the weakest performing sector within the s&p. .oining us is robert thummel he managed $15 billion and now he is up to $17 billion. also joining us is dan. i will pull up the chart. -- ite pressure on opec puts the pressure on opec. the orange line is the five-year average. dan, does opec have to extend the cut to deal with that? an: they do.

i think opec is feeling the heat. your 2015downgraded -2017 target. can you walk through your rationale? at $50 acash flows barrel. it is not enough to meet demand. the number needs to be closer to two $70 dollars. at the end of the day, we need more cash flow in the business to be the rising demand and get oil on the ground. the appetite to keep the cuts in place are going to be clear this weekend. where's the appetite aramco it's a way? >> long-term, you have to think weut it -- everybody thinks got this big global boxing match

between u.s. shale producers and opec. in reality, that is not the case. it is not an either/or proposition. it is both. u.s. shale and opec needs to fill long-term demand. long-term demand for oil will grow in you will need u.s. shale and opec to fill that demand in the market is not factoring that entered alix: what is your favorite investment? >> what happened from u.s. show perspective is it became one of -- lows cost basis. it can peace with a lot of other opec countries. it is going to be growing cash flow for years to come. it is a great way to play in oil producer. alix: you said you need $65 to incentivize production.

pioneers break even that is under $40. >> the u.s. has become the base production globally. so, the low cost guys win. ..s. shale is winning the losers all the non-opec producers. shale wins and everyone loses share. alix: does that mean more m&a consolidation? we're supposed to get the big m&a. does that continue? >> probably does. we have to get back to a more growth-oriented environment before the big guys feel the heat consolidates. the shareholders are telling them returns and dividends. as prices improve, it will be growth and growth will have to come from acquisitions. jonathan: i want to talk about opec in this competition with its allies. you say all the crew is going to be needed and then why is saudi arabia letting the potential of a partnership with china going

down the drain and getting slapped around by russia at a time when they are cutting back production? how that relationship evolve? >> the political relationships are tough to gauge, right? what we look at is simply this --china's demand has been strong. as oil prices declined come the demand has gotten bigger and stronger. china production actually has fallen. china production is one of the reasons that opec producers are not investing any money in the production anymore. somebody will have to sell that supply and opec will have to sell that supply. we think long term, if you look back and energy sector, growth and consumption in the energy sector has grown 31 out of the last 32 years. you cannot say that about many sectors across the board. the energy sector is underappreciated i investors in this. time. alix: pioneer of 30%. that is not underappreciated.

how do you find the value in the sector? what other names do you like? energye are ways to play and it does not have to involve oil, right? energy infrastructure is a great way to play. we like should near -- we like shinee they are exporting natural gasr. . in the early stages of that process. it has nothing to do with the oil price. it has everything to do with exporting low cost. alix: when you take a look at the overall share world, what number does pioneer get scared? 43? 40? >> anytime you get oil prices in the low 40's and 30's, everybody gets scared come even the low cost reducers. we have seen the entire u.s. industry correct significantly.

rick count was down significantly. the low cost guys are scared less, but everybody's scared when you get in the low 40's. alix: but not when you look at the high space. the overall high-yield is that 6% come 7%. at what point does oil feed over into the market in a way we saw last year? emma: high-yield environment is less concerned about oil prices. if oil went back into the 30's, you with the energy companies be viewed as more risk. right now, but the market is telling us is we have a correction in crude price, but not a debacle. alix: that is what i keep hearing. thanks very much. i should point out that there is a conference in louisiana on

thursday. i will be talking to all of the permian players. i will be talking to the shale players who are changing the oil market right now. check out tv on your terminal and you can watch us online and interact with us daily. question andus a we will talk to you. this is bloomberg. ♪

♪ alix: this is "bloomberg daybreak." is -- here is our etf analyst. >> biotech is relentless. be the s&p six out of the last seven years, which is a minor miracle. you have a lot of wealthy baby boomers who want to live forever and of healthier lives and

there's always demand for drugs that help them do that. you have emerging market demand. it is a great industry. this year, you see biotech has come back from last year. it was there only down year. they are political punching bag with both clinton and trump going after them. the vichy are, they bounced back, so you see a lot of you leash and. forumre largely immune the whole health care issue. health care etfs has 17% biotech. it is sectioned off on the health-care debate. biotech is back to being biotech. it is is great story. alix: to high beta play. let's talk about flows. u.s. equity showed $9 billion in loan last week. what did you notice in the etf world? >> it was not that bad. use the people

indicator of vix. spies long him the 13th biggest of the last 12 months. when people are afraid, it gets jacked up. itple are using options on and it has become a call market. if you look at the flows, there is outflows that day, but they went right back to it. etfs have been in a brick make -- breakneck pace. normally they only take one billion a day. they are faster taking inflows. summarize it, the perspective is we have had a lot of money russian. -- a lot of money rush in. this poll will be interesting today. if the market looks at it and says this will be tougher, a lot

is priced in and this is something we will have to watch. spies volume. jonathan: great to have you with us. coming up, julian emmanuelle joins us in the next hour. cashnutes away from the open. futures squeezing higher by a quarter of 1%. switch up the board quickly -- treasury, yields lower on the margin. from new york, you are watching bloomberg. ♪

♪ jonathan: a high-stakes odbc has wall street on it and the

president gives an ultimatum on lawmakers. brexit's 50 billion pound price tag since the bar hide before prime minister may triggers negotiations. busy in apple here record highs among top performances. up rightst is coming here in new york city. in warm welcome to "bloomberg daybreak" on this friday, march 24. i'm jonathan ferro alongside alix steel. devin westin is away. the dow is up to 10th of 1%. we are higher by 0.17% on the s&p 500. equities go towards a week of losses. the one await handle opposite blowout data. a march.s have been on alix: markets relatively complex. micron surging into premarket.

company projects rising sales held by demand is the less supply control. apple a little higher by 2/10 of 1%. the company still remains a topic. taking a look at finish line getting wamped? jonathan: wacked? [laughter] alix: getting killed in premarket reporting a fourth-quarter loss with earnings. sales trailing estimates and earnings coming in $.15 a share. watch those stocks into the open. all eyes on d.c.. d.c. taking on i have been asking kevin cirilli, what is the vote? kevin: the vote will be this morning. the rules committee devoted

moments ago. means this debate, could be heading for a vote. have to be honest, i spoke with moderate members supportive of this bill who are pressuring members of the house freedom caucus to get on board so they can send this legislation to the 'snate, but the key party concern will leave that it will become more moderate. a lot of conversations in a very fluid seen here. house speaker paul ryan walking through behind me. they will continue to meet with lawmakers. alix: thank you. kevin cirilli. and the markets are calm. julian emanuel is at ubs. you are looking at the situation. how significant is this to you? julian: the markets in a message that it matters. we do not want to get too carried away. the narrative if the vote does not succeed this afternoon that the agenda is gone, tax reform is gone.

it is absolutely -- it up slowly does not make sense if you look at the last year what donald trump has accomplished where he was a year ago, expectations have been exceeded. there is constant surprise. from that perspective, yes, today's important, but it is not the be all and end all. question is --ig let's walk it out. if they make tax reform a priority, how long will it take? julian: it could take a while. may be late this year early next year. but again, we have to remember, if we have learned anything over the last couple of weeks, is it is a difficult process. when we think back to the last time there was tax reform in 19 86, that was from president reagan who came in to office in 1981. it took five years.

the market is discounting perhaps a little bit too much in the way of tax benefits over the next year. alix: what about the next 24 hours? julian: we don't look at it for the next 24 hours. alix: there has to be some kind of repercussions for you? julian: the bigger message for us is confidence in public flows have been the thing over the last month or two that is kept the market and moved the market earnings,mes 2017 which we think are too high. the key here is the maintenance of that. it will be challenged and there's a negative outcome, but the bigger picture is we are in a soft taxes quarter. it is looking my gdp will come in at 1%. the fed hikes during quarters of gdp has been is weak , the market has sold off in the near term. we think that is possible. jonathan: we have to find out how ineffective --

julian: look. completely internal territory with respect to how the markets have traded, how they have moved. the fact is even if this bill does not pass, there is still an impetus from more regulation. tax reform is not a bad idea. prices inthe market things like that, but when you run a business, let's just say my boss said do this -- i would do it because he signs a check if the end of the month. when the president says do this, if you are a republican, you're not accountable to him, but you are accountable to your constituency. the politics doesn't quite matchup the -- julian: no. politics has never worked that way. certainly not with the partisan rambling we have had with the

eight to 10 longer years. it is a process. we look at the market, the markets try to look through that type of politics and the question is -- are we going to grow more this year than we did last? we think the answer is yes. alix: bankamerica calling for potential full flush out to raise rates, volatility does not seem to care. if you take a look at the bloomberg, the purple line is implied. historical is blue. under 9%, that spread is that a two rate. what reconciles itself? fix itself tends to trade at a spread over realized volatility. that is closed recently like days like tuesday. ultimately again, with this idea

of at least questioning the confidence and were the economy is heading near-term, could we have a soft patch? is oil in the credit markets telling us that we will have a soft patch. we think there will be less certainty going forward regardless of how the vote goes this afternoon. jonathan: is the reflation trade deflating? julian: we think people are looking at the reflation trade the wrong way. cannot justand, you say all cyclicals -- energy, materials, financials -- alix: literally, that is what everyone comes on the show and says. by although stocks -- buy all those stocks. julian: you have to become the sin of valuation and catalysts. materials, and industrials -- we are neutral on the sectors. financials -- you look at 25 years of market history and they have had a very good move. they are still attractively

valued. i point out that even though the yield curve has come in a little bit, you are still at a high level or banks can make plenty of money in a deregulated environment. alix: so, what you do then? what a i think you do lot of our professional investors have been doing right now which is part of the reason why volatility is as low as it is. you wait and see. people are not heavily invested. somewhere around seven or 7.5 on a one to 10 scale. powder, plenty of dry but they are looking to see if there is clarity and whether the economic projections and earning projections are going to materialize. if not, they will pull back to more reasonable by you relations. alix: 150 -- is that what you are looking at? julian: 21.92. alix: we will talk about how you get to the 92.

emanuel of ubs. you are sticking with us. we have jim bullard at an event in tennessee. of the headlines here. he says the fed is in a good position to allow balance sheet to shrink and inflation a century at 2% and expected to stay there. and rates can stay low with jobs inflation. i don't understand that. hawkish,ittle bullish, and dovish at the same time. jonathan: another balance sheet to shrink. alix: butter rates are going to stay low. jonathan: we will continue the conversation later on. yield" 11:30al eastern time. late in hong kong on a friday night, 11:30 p.m. anyway. the conversation with former greek financier.

look for that 4:00 p.m. -- 4:00 p.m. in london. and some data that outperformed with outside surprises that reclaimed the 108 handle. we will talk europe versus the u.s. next. you are watching bloomberg. ♪

♪ alix: lots of said commentary today. we heard from charles evans. jim bullard gets the next set of officials. having about the balance sheet shrinking. we will hear more from bob dudley again. it julian emanuel from ubs still with us. that talking about scoring the balance sheet. how do you reconcile? us, you have part of

the reflation rally taking yield 1.7 to around 2.6. are we going to hear a little bit of a different tone? from the fed speakers? chair yellen was very unconcerned over the first quarter. we will see of that tone changes at all. if so, yields could stay here. the other issue is, if we are going to proceed with tax reform that may not necessarily have revenue, the bond market will probably object in some form. alix: we have seen conditions tightness rebound up seeing equity selloff on tuesday. does that derail sentiment at all? julian: they pay attention to what markets are doing. has been talk about discomfort with a low volatility environment. notmove on tuesday -- i do

think it upset the apple cart. the reality is is the vix has been under 15 since the election a half months. that is a long time. normalization would probably mean about of volatility is healthy. alix: if you were in the fed and if you said you were going to hike twice, but treasury yields would be pretty much in line, what would you say back to me? julian: there is a question there. but looking at earlier in the year, you have had a very, very substantial move off of what a 135. last july was around it was frontloaded in our point of view, but now, the question is, we all expect the economy to grow in the fed says 2.1%. is somewhere around there. we have not seen that coming yet. we see that, that is when yields

will creep higher. alix: reflation trade that we will see a washout, but we have seen synchronized global growth. the next two or three quarters will seek synchronized central hikes. is that the conversation? julian: that is part of it. talking to our client, there is an excitement that europe is able to move the dialogue in that direction. despite the fact that you got the french political risk. people are starting to be interested in the theme. alix: could we have seen we tell come heavily into the u.s. atthat a counter indicator the end of the day that they are betting on the wrong central-bank? julian: look, that is always a concern this far in at these valuations. that is part of our call for near-term caution. a lot of new money has come into the markets the last couple of months. money that has not had what we call a gut check moment. what happens when that happens? what we think will happen is

people will stay the course and that --course, but you need to see a dip to take things back to a more reasonable valuation given the fact that we got economic uncertainty. jonathan: i don't want to spend too much time on this, but would you do if that is the consensus view? so do you ask to get it if everyone is waiting for the same thing? julian: we actually think you do, ok? where we think it may be different is people say, short and shallow. we do not think short and shallow. we are thinking 5% to 10%. moves has of music -- engendered fear in the past, but that is healthy fear. the market needs this. alix: here is another issue for you though -- the brookings institute has come out with a report that said 40% of the

time, we will have zero rates. you will have a hard time getting above 2% inflation will have to overshoot to 3%. world ifu adjust to a that comes to as an investor? julian: that again argues for this idea that the days of 3%, and the 10 year really does not make sense. a call to wind up buying utilities and selling banks forever? julian: no. this environment, you still need companies that can grow their earnings. there are lots of companies out there, very good companies and spaces and financials, home improvements, and so on, that have good yields, can grow their earnings -- alix: 40% of the time, how can banks grow? , this: in the u.s., again

is the whole point where the yield curve where it is, it is still a moneymaking proposition for banks on balance. alix: all right. julian emanuel of ubs will be sticking with us. next week, don't miss charles evans, and jim bullard speaking with bloomberg. what you going to do with the balance sheet and when? jonathan: normalize it. 20 minutes away from the opening bell. s&p 500 down by 1.36%. the biggest weekly drop. yield up the boards -- unchanged on the 10 year. $1.08 is what a euro buys you right now. some significant upside surprises on the continent. we will get to the u.s. versus europe sentiment with julian

emanuel in a few moments. you are watching bloomberg. ♪

♪ jonathan: nine minutes away from the open. you are york city, watching bloomberg. futures are firmer. a squeeze on futures after a week of losses on the s&p. the biggest so far this year. if you switch up the boarding get to the euro, here is one of the trades. $1.08 and parity and squeeze higher by a few percentage points. let's get to julian emanuel of ubs. the upside surprises in europe continue. the pmi data is firm, firm, firm

and a solid. but equityituation situation for your versus the u.s.? julian: when you look at europe -- and this story has been around a while a, no question about it because her has been a lot of political risk. valuations are at all-time lows versus the u.s., where as the earnings upside potential, and a lot of that has to do with having more exposure to emerging markets, which are recovering as we know. the earnings upside potential is potentially far greater than it is at the u.s. jonathan: political u.s. premium is baked into the valuations. how big is it? does it fall out of it if emmanuel macron wins the french election? julian: i would point out that even the volatile outcome that people think could happen in france may not be quite the

outcome that disrupts the markets simply because if you look at the composition of the french parliament, either of the two leading candidates at the moment are going to have a hard time getting anything done. jonathan: so would you want to get in? julian: this is a good time for us. we have been patiently nibbling away here. obviously, there is political risk, but as we see over the last couple of weeks, the price of the political risk has come in. alix: deeply sectors are regions? -- do you play sectors or regions? julian: you want to stay with the cyclicals. this could be a time to dip into financials. autos, chemicals, things of that nature have really been beaten down. even more so on a relative basis. far this year, britain has been beaten down and yields of doubled up for a grand

total of 41 basis points on a 10 year. but it is not a significant repricing. in bonds will shake out after the electoral risk, what will happen to the market there? julian: at this absolute level of yields in europe, you can ask a have a little bit of volatility and in fact, if it is upside volatility of the yield, financials will like that a lot. alix: things have deutsche bank same the cyclical trade was the dax, but that is overextended in terms of evaluations. comes on the program and talks about how the cyclicals will do well in europe and that brings money in. where are you on that? dax overvalued? julian: it is less about the dax and more about how the rest of europe in general adapts to this areworld that we

encroaching on, and obviously, that new world will start in a few days when article 50 gets triggered. this is a process. if europe is going to work, germany has to lead, but the higher beta areas will outperform. jonathan: u.s. equities are european equities in one word? julian: at this point, we like europe. we do not think though bowl is over in the u.s., but we are cautious. jonathan: u.s. financials are european financials -- one word. [laughter] julian: we like them both. alix: if you had to choose? julian: it is a risk tolerance issue. if you look at the u.s., you have rates and deregulation working in your favor. high-pricedittedly versus europe, but versus the rest of the u.s., financials look very attractive. jonathan: any surprises with the hawkish tilt at the moment? back to the recent

press conference, the fact that this first quarter was dismissed as being noise was a surprise, selecting what the data looks like. jonathan: where will the politics be messy? julian: the politics is messy everywhere. [laughter] fromhan: julian emanuel ubs, sitting on the fence. [laughter] we are four minutes away. will he get a vote today and will it has? focusing on d.c. and wall street on the edge. futures pointing higher and a quarter on the s&p. you are watching bloomberg. ♪

jonathan: from new york city, for our viewers worldwide. this is bloomberg.

of the quarter on the s&p 500. higher after a week of losses potentially. the biggest losses this year. which included the biggest daily loss this year. at thelar is on offer margin. the euro is outperforming this morning, blowout dater on the pmi with the eurozone. treasuries are stable this morning on the face of more comments of normalizing the fed balance sheet. crude is catching a little bit of a bid. 20 seconds into the session, let's get the market open. alix: we see an upside. the nasdaq is up by .4%. the dow is looking to snap the longest losing streak since november. it had been down 63 days. how much risk are investors wanting to take on? it all depends on the vote in

washington with the health care bill. we have individual stocks you want to highlight. trans canada is one of them. up by over 1%. trump came in and said the permit would be granted. but however, there is a lot more to go through before that can be built. quarter 2019 when oil starts pumping through. byes are going to be helped a strong demand as well as supply control. mylan's off. relatively flat. mylan cut its -- excuse me, abbottabad's cutting its stake to mylan. it was the largest shareholder. about iteen talking all morning. what is priced in? here are two ways you can look at it.

bottom panel is the price to fail ratio for the s&p 500. both of them on a valuation level are hitting the highest level since 2000. two different valuation metric showing the highest valuations since 2000. that is a head scratcher. and take a look at what flows are doing. down. bonds were the largest outflows in 38 weeks. jonathan: joining us now is michael o'rourke. valuatione say the story is frothy but some people say it is fair. what do you say? michael: i think it is frothy. i see a lot of multiple expansions. there was revenue growth with a of multiple expansion. when you sit there, you stretch the limits of historic valuation with the bubble environment that

we have been through. to me, that gets scary. and to your point, all the stuff we're talking about, if trump is successful in his agenda, we will see structural change in the economy. and there will be businesses that are winners and losers. what i have been doing is taking the different teams that trump has talked about. whether it is the backpacks or ,mmigration or whether it is you know, more about tax reform in terms of avoiding in terms of avoiding inversions and things like that. i'm keeping track of companies with high corporate effective tax rates. they should benefit from tax reform. companies with low corporate tax reform should not benefit as much. is what i think people miss that the largest companies in

the s&p 500, the true winners, they have been playing this game for the past 15 years. so they don't stand to gain as much. and therefore, the market doesn't stand to gain as much. but there will be so many different teams that will be affected. after 15 years of globalization, we are going to a trend of deglobalization and we will reverse the process. so we have to watch to see how successful they will be today. the next step is tax reform and then infrastructure which is keepingtheme we are track of. alix: break it down for me. international versus small cap. low tax, repatriation, rates, high tax rates. the beneficiaries had a run after the election but they have fallen off. what is the trade there? michael: that is the hard part. i think we had to let the facts start to play out. know, i think as we said

earlier, valuations are off the chart. the fed created a double. to hear --rkable talk about commercial real estate prices being expensive after the fed had the easiest monetary policy in history for the past eight years. i from that perspective, but think is interesting is that you want to have cash available because you want to deploy it to the new winners once we know what the changes and i think that is important. obviously, we have priced in so many gains here on so many different levels. what are you going to miss? 10%? we will see this a radically different world when retailers come under pressure. you want to be prepared for that. bubble is an emotionally charged word. market distortion is something that nobody can disagree on.

when is the market distortion more pronounced if you look at asset class? michael: it is widespread. i say the u.s. equity market is one of the most expensive assets out there. attractive valuation in other global markets. theelection, look at mexican stock market and the peso postelection, we get to the point where we outperform the u.s. so i think you had because present of the ongoing shifts. the problem is that the u.s. market is really expensive. there is not much that is attractive so having the cash is a good thing. alix: how much are you in cash right now versus normal? michael: the most defensively positioned i could be. alix: the problem is when the newsbreaks. don't you miss the move if you stay in cash? i think in terms of

long-term cycles and risk and reward. all you needed was a few things to go right and you would be handsomely rewarded. all you need is a couple of things to go wrong now and there is a risk. you talked earlier about the s&p -- 2192. weaver at 2000 in july. it is it crazy to think that if things come apart, those numbers are not on the table. are you also in 10 year yields? treasuries are incredibly expensive. our rates are being pulled lower by europe. example, ford had guidance

yesterday that was disappointing. they said interest rates are extension onthe the car loans has a great equity environment that is hurting the used car market. pullingre talking about ford buyers in the car market. and we are doing the same thing everywhere. i call this a buyer exhaustion environment. we saw this in housing over a decade ago. and then you think about like the taper tantrum. the 10 year yield went to 3%. the fed is raising rates. on sois distortion going it is a dangerous environment because we know that most asset prices are pricing up the rates. jonathan: let's get to the timing. we talked about this yesterday. it seems to be the consensus -- it seems to be the convention that it is the terrible indicator. michael: long-term investors

have to think in terms of risk and reward. 1999-2000, whatever your methodology that would have had to make your fortune would have gotten you destroyed in 2000. so successful investors had a methodology that they followed overtime and he keeps them safe in risky times and it encourages purchase assets when there are rewards to be gained. jonathan: nine minutes into the session. the dow is up .1%. .2%.&p 500 is up we are counting you down to the health care vote. i do want to bring in and jason gorman who joins us from princeton. walk us through what the hangup the progress in d.c.?

jason: thank you for having me. you have the freedom caucus with the more conservative members of the house that are hot on a pre-existing conditions clause and the mandatory benefits that insurances have to cover. they want to take those out and they want to take as much out as they can to keep prices down. handful ofhave a senators that are concerned that 24 million people are going to lose coverage in the next decade. so 20 of the 52 senators who are in states with expanded medicaid and a lot of those people will lose coverage. so there is a huge hurdle that even if we get through the house vote, once it gets to the senate, you have competing interests there. and it will likely include revision to get sent back down to the house and go through this goes through.hat alix: talk about the stock movement. we have seen a lot of movement into the vote.

what is going to be the sector to watch to gauge that reaction? the most exposed sector here is hospitals. and they don't seem to have a huge upside scenario in terms of earnings. most of the scenarios seem to be negative for them. community health and tenant, they have the most earnings that they are in from the affordable care act, 10%-11%. .o we are talking reimbursement people who don't have insurance -- they still have two treat them. but thereome reaction is much less so because they are paired with exposure. you with great to have us. that was jason mcgorman. how significant is this vote for you? michael: there is significant. we have seen the party failing .ears over the past legislation

now you have a republican president and a republican congress, you expect they could get things done but it has to be disheartening for the markets if they can't get on the same page. jonathan: michael o'rourke. we are firm, we are stable. on bloomberg tv, a new program at 11:30 a.m. new york time. 30 minutes dedicated to fixed income. this is bloomberg. ♪

emma: this is bloomberg daybreak. today, a finance minister at 12:00 p.m. eastern time. ♪

david: -- into the 50 minutes session. for more than some might have expected. up .25 percent on the s&p 500. data is dropping in the united states. a downside surprise on u.s. manufacturing. was 54.8. estimate a downside surprise on a u.s. services. the march a luminary reading comes in at 52.9. the median estimate in a survey was 54.0. and we come in at 83 point two, a preliminary read for march that is down from a previous reading of 54.1. alix: apple is a top performer of the year thus far but could be heading for another record close. there was a downgrade chairs for strong buy to buy. laura, good to talk to you.

talk to us about the call? laura: the stock is up 40% since we put the target price on it. we think it will be up when you present in the next 12 months. we think people need to add back the excess cash has there is 15-30 dollars a share fully taxed sitting offshore so depending on whether we get a tax holiday, it could be as high as $30 per share which makes apple look all that cheaper. the other thing we are really thinking is important is the recurring revenue streams. our data shows that the average consumer stays in the apple ecosystem once they get there for 10 years. twice as long as a cable company. if apple traded at a cable company multiple, shares would be $190. a service company, which is similar to the high margins, it would trade above what a cable company trades at, above 190 dollars.

alix: when did receive each transition from a cable company or a services company? as services revenue grows, it tries profitability faster then revenue growth and it creates customer lock-in. so you get the elongated engagement and that cycles with the apple ecosystem. so we have to see more and more of the longer trends of ownership by consumers. alix: how much of a positive apple iphone cycle that he get in the fall is taken to the price? laura: some of it. is the s&pe of it 500 moving up and the stock 11-13 times forward your earnings. ofi would say maybe 1/5, 20% the iphone upside, it is baked in and it gets better as we go to the launch of the new iphone. alix: disney had a record high on monday as we got the announcement that bob iger will

be staying on for the next year. what is the bob iger premium in the stock? has such auld say he steady hand with flawless strategic execution with china and acquisitions of films studios. he has done a great job. so i would say that it helps, because it buys us another year to find a successor but i think the biggest challenge for disney is leadership. if bob iger got hit by a truck, it would be bad because they don't have an internal successor and the company would be in disarray. apple.sk at disney than alix: what is the downside potential? laura: i would say immediately, 15% if anything happened to bob iger because there is no natural successor in turtle he. i think they have to extent because they are finding trouble having someone who is qualified for the seat who is willing to

take the seat. a lot of people have stayed no. alix: that was laura meyer -- that was laura martin. mark, what is coming up on the program? mark: we talk about all of the angles talking with kasey nixon, asking whether markets care and how they will react in ever -- in every eventuality. the finance minister, trying to hammer out a deal on the next bailout payment. we have one of two analysts with a buy rating and he explains why. there is a $30 price target and steel versusx taylor riggs in the tournament of challengers. something to watch. she has been super quiet about it for a reason. she feels the pressure.

alix steel is competitive. i am competitive? what? that's not true. [laughter] go to the bloomberg terminal to check out tv , you can interact with us daily. just go to the tv terminal. we can respond to you. this is bloomberg. ♪

are on capitol hill today. you are looking at a live shot. health care in contention as congress is set to vote today on the proposed bill. joining us from washington on the latest on the health care bill is kevin cirilli. a busy morning on capitol hill. it is expected to be sometime today. didhouse speaker paul ryan meet moments ago with top

republican leadership in the room over there across that hall. au know, clearly, this is full bill and they won't bring it to the floor unless they feel the have the votes. alix: what is the procedure if they don't get it through? many congressmen say it is ok, they will go right to tax reform. what is the procedure? be able to.want i put this question to a representative who said this is all hinging on their ability with tax reform. tea party groups and conservatives are urging republicans to take a few days to rework the bill. they are not going to be a look to do that because the way they are trying to pass the legislation is the same way that democrats try to pass the affordable care act. and it ties in from a procedural standpoint to tax reform. earlier today in washington, steven mnuchin and speaking publicly at an event saying he

pass come branson attacks reform by labor day. mark: -- does not pass,is there is an argument and an administration agenda that becomes unhinged and we are only three months into the administration. is there sensitivity on capitol hill around that argument? kevin: let's not forget when james comey a few days ago testified before the house intelligence committee to say that there was an open investigation into the administration and their ties to russia. and those hearings will continue next week in the senate. getes, if he is not able to it through today, i caution because sources i speak with here indicate that the vote will be brought today on the house of representatives it to the senate. but should he go out the window than this was be a weakened administration and a weekend

house leadership office in a republican-controlled congress. alix: trump is busy this morning. putting the keystone pipeline -- that to make an announcement later today? kevin: he is going to reverse obama's action on the keystone. doing what he likes doing, executive orders. if thed be a big day bill gets passed in the house. on theoving forward keystone. alix: breaking news that trumps travel ban is upheld and previous rulings blocking it remain. can this help -- does this make sense to you? to go if it continues through, the immigration travel ban, the second iteration, they say it will help them and it will be upheld in the court. they face a strong opposition from democrats but it hasn't

faced as much criticism from the same republicans who had concerns with the first iteration. either way, the white house is saying they are prepared to fight this to make sure it gets implemented. alix: this is from a virginia judge as well. that is kevin cirilli. how muchion on monday, investors putting a stake in this agenda? jonathan: we will find out. orther it gets unhinged pushed back. this is how things are set up on wall street. is wall street on edge? will the agenda become unhinged? equities are firmer. this is bloomberg. ♪

today could be a make or break deal for the repeal of the affordable care act. the house scheduled to vote on the legislation at some point today. we will be bringing you the

latest developments as it is still unclear whether house speaker paul ryan has the votes to deliver passage. good morning from new york. mark: good afternoon in london. this is "bloomberg markets ." a quick look at how european markets are paring. stocks clearly mixed today. , downoxx 600 is lower over the week, alternating between weekly gains and losses for the last six. .2%.uro up the best stretch since january. the german 10 year yield down a couple of basis points. for germany and the eurozone and today. brent crude is up a key meeting taking place in kuwait.