quickly restored and markets stabilized. u.s. policy uncertainty over. political risk is something be fed rate hike could take into prospect. the finance minister takes a bite out of the south african rand and we are 24 hours away from triggering article 50. going back at this is just in that the u.k. will pay a fee. welcome to "bloomberg daybreak." david westin. alix steel is on assignment. something little bit like this. more stable and calm from where we were this time yesterday. the futures are up five points on the dow. we go nowhere. switch up the board. a big bid on treasuries. this time yesterday. this morning, markets are lower. the euro is weaker. the dollar gaining a little bit of strength this morning, up .1% . administrationp

has not had much luck with health reform i doubt they are talking about moving onto tax policy but there is the deregulatory portion of the president's agenda that could go ahead without congress. today, you will be signing an executive order to roll back obama era energy orders. here is kevin cirilli. first and foremost, president trump is going to completely reverse the former administration's environmental protection policies. has approved he several pipelines that he says will create job growth. however, he also has upset the environmentalists. al of that said, it has been busy week on capitol hill as the investigation into the potential russia meddling into the u.s. election continues, particularly in the senate. officials are going to testify. david: as much as we would like the president to be focused on tax reform, it seems like he is distracted by russia repeatedly.

the honesty tax reform issues, there is another deadline looming. markets may have to react to that. tell us about that deadline? that: april 28 is the date the lawmakers have to pass some kind of government funding bill in order to avert a partial government shutdown. steven mnuchin and has said publicly that they are hoping there will not be too much political theater surrounding that deadline. at the bottom line is this. there are so many divided republicans right now on a host of policy issues and the tea party -- particularly the house feeling golden-- after last week they were able to stall the development on the health care policy. so it would be devastating to republicans and the republican administration, should there be any type of drama, so to say, surrounding a partial government shutdown. david: is there any real prospect that the republican

congress could shut down a republican government? that sounds unthinkable. kevin: it sounds unthinkable but that is the washington we are living in. you would also think that after campaigning for seven years to repeal the affordable care act that they would not be able to do it. who knows? has been an exciting time in washington, to say the least. david: thank you. this is nothing to do with politics, remember? joining us now is isaac boltansky. and here with us for the full hour is mohamed el erian. let's start with the market reaction. a reaction that was dramatic. futures down over 100 on the dow and we came back rapidly. mohamed: markets have been conditioned to buy. i was listening this morning to someone who used the phrase

"cash trapped on the sidelines." you normally think of cash being trapped in the markets but now it is trapped on the sidelines. cash engages. david: in the longer term, what are the real risks now of the trump administration's policies getting badly off track? d.c. does two things really well -- nothing or overreact. and we are in a place right now where the markets are intensely focused on the shutdown date that kevin mentioned. if a 28 will be telling, not just because of the government shutdown, but also because it is ofng to be a telltale sign how this government is going to run for the next two years. and i think investors are going to be incredibly skeptical, regarding tax reform or infrastructure spending, or really anything else, if the republican party can't keep the lights on past april 28. david: what is the chance of the

markets are overreacting, once again, on the downside? or perhaps, the upside after the election? mohamed: we have hardly had any reaction. not even 2% down on the dow. way around.other that we have priced in so many things happening on the progrowth legislation, pricing in the reflation trade, and we need to see things happening. is morning, there are indications that the trump administration wants to move quickly with infrastructure and tax reform. and the big question we have heard is whether congress will come along. jonathan: another narrative out there and head of all of this is that maybe some of the optimism in the price is divorced from anything that will happen in d.c. -- do you buy that story? that a lot of the price doesn't have much to do with d.c. so it doesn't matter whether they get the agenda through or not? mohamed: i think it does matter if you look at where the

valuations are. we need higher growth and inflation and corporate earnings, otherwise we cannot validate what the market has priced in. policy does matter. but also, markets have been for aed from reality while. there is so much liquidity in the system that people are being pushed into taking risks rather than being pulled into taking risks. to risk: you going events like the french election later this year, and then the italian one on the agenda that could come as well. we have been conditioned by those events over the next 12 months to not take protection out anymore because you keep buying. how do those kinds of things play out? think of a sand hill where each additional grain of sand doesn't change the shape until one does. and it is difficult to figure out which one that will be. political risk is mounting and we have policy risk. central banks are stepping back on their support for the market so it will be interesting to see what the ecb does.

i think right now, focus on the lagging sectors -- that is why europe is doing better in the u.s. and that is why the nasdaq is doing better than the dow. the lagging sectors have paid off for investors. jonathan: that is the market story and i want to talk to you about politics. what is apparent over the weekend events and since friday if there is a significant divide in the republican party. talk to me about the divide in the white house? the nationalistic tones of the stephen bannon's and liberal tones of gary cohn. how do they reconcile their to have a plan money to get through congress? the president's leadership style, historically, has been somewhat chaotic. and it set up his advisers, in order to fight with one another. and i think that out of that chaotic destruction that we have seen in the headlines, we're decideo have to really

which side will win. and whether it is the naturalistic side or the goldman sachs side -- my bed, personally, is on the goldman sachs side influencing the tax reform debate. it is in the houses hand over tax reform but i believe that the white house is going to take a far more active role in trying to craft an overall package that they think can get through, even with moderate support. david: there is a significant difference. does the president need to decide between going to the the freedom caucus or going to the democrats, to try to bring them in, particularly as you come to the things like the resolution of april 28? isaac: the mass is tough. freedomit is the 35-40

caucus votes or the moderate democrats that everyone is talking about in the house -- but there are not really moderate democrats in the house. there are only 12 democratic house members who represent districts that president trump won. so i'm left with the belief that there really isn't a whole lot of leeway for the president to move to his left. furthermore, i am concerned that paul ryan, after the past week, doesn't have what is necessary to navigate the upcoming funding deadline. he is facing barrages from the tea party on his right and the herbal tea party on his left. mohamed: if you look at the specifics that the markets are interested in it, if you look at how they will finance the tax cut and how much of it will be in a deficit and what happened --the border adjustment tax where do you think they will come out on these issues? to resetthink we have

our expectations for tax reform, overall. it will not be the broad reimagining that we saw in the house gop blueprint. those 35 pages are still incredibly important, that ultimately, we have to believe that there will be a narrowing in terms of scale and scope. so we have advised our clients to expect tax reform to go through this year. it will pass in the house before the august recess. it will go to the senate and it will go to a committee by the end of the year. but i don't think the top corporate rate will be anywhere near the 20% that we have seen. we have been advising our clients anywhere from 20%-2 8%. after the blackeye that the speaker got, it is difficult to have belief that anything else will come. , greatn: isaac boltansky to have you with us. mohamed el erian is sticking with us. one of the men you call if you

want to know more is ian brenner. and on thursday -- will be joining the program as well. from new york city, a softer tone. this is bloomberg. ♪

david: this is bloomberg. in his book "the only game in town" mohamed el erian look forward to the day when he market would be driven more by fiscal policy and many thought we had reached that day with donald trump. it now after the failure of the health care legislation, we are not so sure. and this week we hear from a slew of federal reserve members. mohamed el erian is still with us and we are joined from madrid hadike mckee, who yesterday

the exclusive interview with charles evans. >> to the extent that i gained -- i gained more confidence in the forget that i had, that would be a good toicator that i could go three. two might be the number if there is more uncertainty or any modest concerns about whether or not we will get that and if things really take off, if we get continued strong growth with underlying inflation picking up, we could get for this year. mike mckee is joining us from a dread. nice and sunny? we are jealous. mike: yes, it is. he said, where should we go to do this interview and he said madrid. [laughter] david: the interview sounded like he is paying attention to

what is going on at the white on thend depending uncertainty there, it may well affect what the fed does this year in terms of a hike. is that what you took away from the interview? mike: yes, absolutely. he had put some measure of stimulus into his forecast for 2017 and 2018. and that was one of the reasons you could justify three rate increases this year and next year. but he says now he thinks he might have been too aggressive. he movedrch meeting, the stimulus into 2018 and after obamacare, he thinks maybe it has to come down more. which leaves she was where the economy is right now. with current economic conditions saying you could do it two more times this year. from a policy makers perspective, it is about keeping options open. from a market perspective, it could be interpreted as -- you know what, the fed is our best friend.

they will be there and we will adapt. you think the right interpretation is? mike: i think you are right to a certain extent. it is in the way that then officials would put it. but he did say something interesting last night, and that as that 2% is not a ceiling, many of the markets interpret it as. we could go well over that for a little while and it wouldn't be a problem because inflation is so low now that it isn't like it was in the greenspan years will we were at 4%. so the fed may not be in such a hurry, he's adjusted, to raise rates. as it would have been 10 years ago, and that would have been interpretive positively by the market. from a: so we will hear whole slew of fed officials today. what you think they will be telling us in terms of where they see the economy going and whether the dollar has allowed them to be somewhat more hopeful that they can normalize at the

pace they signal? we are getting a lot of fed officials speaking but most of them are not talking about the economy. robert kaplan in dallas is the best shot at that. and maybe jay powell. that they will be saying pretty much the same thing. disagree about the second or third rate move this year. that will be data dependent, they will say. that all of them will continue to reemphasize the idea that they can be slow and gradual. you need to move rates up that you don't need to do it quickly. jonathan: you used the analogy is a friend and a lot of people lookingd it as a parent after the toddler. always being there. is beginningeserve to lead the market. and are not taking the parental tone towards market participants as if the market is a toddler. will that continue in the coming months? at a time when people's

ambitions and optimism about fiscal stimulus coming from d.c. ways a little bit? will they continue to move? mohamed: my gut says yes. it continues to move. you want to go from following markets to leading markets. the only thing that would stop that would be a significant slowdown. we also have the ecb in a difficult situation because they are promised qe until the end of december but now there is reason to be less stimulative. so what will they do? will they push on the excel a writer and the same time? it is a hard time for central banks. if you don't get the policy breakthrough in the united states. david: in your book, i took it as warning as saying dependent on central banks. he needed the governments to step in. what is the danger here in that we may not make the transition after all? mohamed: if we do not make that transition, we will find out a

few things. that central banks are less effective at repressing volatility and promoting growth. the political system will get more complicated. to askkets will have themselves -- does it make sense where valuations are, and even the economic and political background? the important thing is that the road we have been on for such a long time, the new normal, is coming to an end because it is being eaten up by its own contradictions. and the good news is that we pivot to recovery in growth and a boost in earnings but if not, we go the other way. david: how long do we have? 60 days, a month, a year? mohamed: i think we have a couple of years. there is a lot of cash out there. this is a powerful notion that tells you what the mindset is -- that cash is trapped on the sidelines. as long as there is cash, it will limit the market reaction.

but there will come a time when that no longer will be there. jonathan: michael mckee is in the dread, having a good time with charles evans. you know we will not let that drop. mohamed el erian is staying with us. tesla announcing a 5% passive stake. we are up by 3.2% on the session. of by over 2.5 percentage points in a green market. coming up, two more exclusive interviews this week. wednesday, we speak to the boston said president and on friday, said president of st. louis. this is bloomberg. ♪

jonathan: from new york city with the eyes of the political world on the city here -- london

-- in the next 24 hours of the british government gets set to trickle article 50 and trigger the process of exiting the european union. at onerning is unchanged to 5.58. credit suisse >> is saying capital budgets are strong enough to consider exchanges -- beyond thet ipo. take a listen. , we were clear about that in february. it has really helped us. both in the restructuring time. made so muchave progress that we can consider other options. jonathan: let's discuss the state of the central banking. still with us is mohamed el erian. there are two stories here banks needing to raise capital at the second is the market access issue. and there isn't one right now.

they can raise capital by offering stock. what does that say to you about how open the market is more european banks? a reason for them to come to markets. they can just issue equity. mohamed: it is open for business because people are looking to take on more risk but the problem with that approach is that it lessens the pressure on asking yourself the most important question -- which business model makes sense now? and you have seen that with several european banks going from fundamentally trying to rethink business plans to seeing that they can waste capital -- they can raise capital so let's go that way. it is less pressure on them to think of the fundamental issues. david: what effect does this have on the european economy, overall? companies are much more dependent on the banks in europe than in the u.s. news.d: it is good it is a part of the picture that suggests that europe is doing better than it has before. banks will be able to lend more.

they are strengthening their capital position and they are able to do so at relatively low costs. that means they are more able to lend and more willing to lend. that is good news. however, the long-term issue remains which is you need the banks to decide which business model makes sense in the long term. and we haven't seen that happen quickly enough. jonathan: what kind of business model does make sense? credit suisse has the ability to fall back on the heritage and deutsche bank, people struggle to see what that bank will be. if the question on wall street is, can you have a big european investment bank compete with the likes of morgan stanley and goldman sachs? mohamed: that is the big question and so far, the answer is, it it is tricky. the retail sectors are not big enough so they have to look to something else. david: as a practical matter, will be say world in which this retracts and they become

specifically defined players? mohamed: i think that is exactly where we are going. and i think there will be issues as to whether to big to manage is still on the table or not. jonathan: mohamed el erian is staying with us. we counted down to the cache open. futures are stable this morning. -11 points on the dow after an eight-game losing streak. no drama in the total sum. we switch up the board and treasuries look something like this. yields this morning are lower. this is bloomberg. ♪ the biggest week in tv is back.

wow, watchathon has netflix? hey, drop a beat... [ beatboxing throughout ] show me orange is the new black. wait, no bloodline. how about bojack? luke cage. oh, dj tanner. maybe show me lilyhammer. mmm, show me last chance u. on second thought, maybe pompidou. narcos, fearless, cooked, the crown. marco polo, lost & found.

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the dow on an eight-day losing streak. treasuries up. it yields lower by a single basis point. ago, 2.62.wo weeks the euro a bit softer. regaining some of the ground at lost yesterday. >> trump will begin undoing .olicies he will sign an order that starts unraveling rules aimed at fighting climate change. he wants to get rid of job killing restrictions. a japanese appeals court has overturned a ruling that -- two reactors.

abe sees the return of atomic power as crucial. areakers in scotland expected to support the call for a second referendum on independence today. nicholas sturgeon wants permission to hold a vote by spring of 2019. she is frustrated with the european union. global news, 24 hours a day, powered by 2600 journalists and analysts. this is bloomberg. front page of the daily mail getting more attention about the debate between scotland and the united kingdom. britain will pay nothing like say theyt eu officials need to exit.

joining us now, simon kennedy. the argument over the bill continues. will it be the thing they need to address? >> it will be an early flashpoint. one of the few things they have said they want action on his this sum of money they feel they are owed. theresa may could use that to discuss how you get to a number. the numbers are getting short shifted in london. let's talk about the teams in place in the amount of civil servants the u.k. has had to hire. -- for a long

time. is the team in place? >> it is getting there. the government has a front bench team led by david davis. is behind the scenes they have a problem. watchwordserity, the for a few years, reduce the size of the states to its smallest since the 1940's. for those departments leading the charge, they have been siphoning off talent elsewhere. of the team is coming together, but it is short on numbers. has been doingr this for years. >> tomorrow, we get the announcement and a hint there

has been discussions behind closed doors and that the gap is not as large. >> it would be surprising. both sides understand some of the heat needs to come out of this episode. reporting the government is worried there will .e an emotional backlash it will cloud judgments. besome ways, it will see europe doing well. in the declaration on friday,

europe sees advantages in britain as well. perhaps there will be a narrowing of the divide. the possibility they have a years worth of negotiations and they don't have a deal with the eu and there is a severance of the relationship without a deal in place. >> better people than me can make that probability, and they have. he sees the chance of a collapse in talks. together, please suggest a non-negligible chance that the talks do collapse.

a lot of time, we spend talking about international engagement trades. she also has domestic constituencies to take care of. those who fought for brexit are ofng to remember what kind supporters she was. they will be watching closely. your idea that they could leave without a trade deal, they have acknowledged it would the okay. the guardian suggesting that leaving without a trade deal would cause chaos. it may be something they say outside officially, but they need a trade deal. david: markets don't like uncertainty. would have in that deal is total uncertainty. triggering article 50

tomorrow, a lot of this should be priced. we should wait for a two-year negotiation exit strategy. dropped weadline would trigger article 50 tomorrow, we did get a reaction in sterling. ?hat kind of set up do you need does it matter? mohamed: i would be surprised if it moved markets at this point. when we came up with trades for the year, in the first six it is unlikely you are going to get information that will move the dial beyond. elections asn well. where it willsee

go. i wouldn't expect too much movement tomorrow. jonathan: when do you start getting a handle of the substance from the negotiations that are going to come? how much longer before we see some substance? it is a tight timeline. it is not long. especially with the u.k. looking to include some framework for the future. by the summer, we will see early signs of how negotiations are going. that is some way off. in the long-term term, the risks because ofdownside

the possibilities of these uncertainties. in nos having to price trade deal is a big concern for me. for now, we have enough priced in. is few look at the fair value of the pound, it is undervalued now. there is upside. if you look at the u.k. media at the moment, head of the summer, it is about where well u.k. people go on holiday, which countries are cheap enough. when you see that type of story, it probably suggests currency is relatively cheap.

jonathan: for equity investors, -- tove to look to been the u.k. newspapers to see where they are going on vacation. have not seen this damaging impact, not even for the u.k. mohamed: it has been a slow brexit. what the government realized early on is you cannot replace something with nothing and they went slow. how much you talk about the front page and where people go on holiday, are we seeing significant adjustments going on? shahab: if you look at the hard data, it is slow.

not seeing enough of an adjustment. we see how this year has gone. the environment is hard to argue. how with the u.k. economy adjusts that? we think we have a problem in the united states. gdpu.k. is roughly twice of . how does that get adjusted? mohamed: britain has been lucky

it is attracting inflows. they have been able to maintain -- these flows are materially impacted. how much has this been going on elsewhere? shahab: if you look at dollar-yen, right after the election, from close to 100 two to 100 tofrom close nearly 120. to me, the failure to pass the health care reform raises questions about the wider agenda.

of those.ven up half the rest of the world has been contributing to fx. in many markets we have had positive surprises. there is some divergence. the mexico peso is one of my favorites in the past week. moche -- much of the bad news seems to be priced in there. i don't think it is all about the dollar, but half of these movements are about the dollar. i doed: if i say what do with the dollar index, what do you tell me? shahab: the dollar index is struggling for the right reasons. positive newsome for the euro.

tactically, the dollar makes sense at this time. whether it makes sense back tocally relates u.s. politics. if longer the jury is out trump will deliver the worst status for the dollar. david: this is bloomberg. ♪

this is bloomberg daybreak. coming up, our very own alix steel speaks with tim dove.

david: this is bloomberg. tumbled as much as 3% said toesident zuma was tell leaders of the communist party he plans to fire the finance minister. joining us now, our south african economy and government reporter. thank you for being here. take us through this,. , reports came through that the president had summoned the finance minister -- we know they finance minister landed this morning and he spoke to us at

the airport, saying the president is his boss and that is why he welcomed his request to come back to the country. the headquarters of congress to speak to leaders on whether or not he will keep his job. this a question of power or how a policy should be followed? is this how he wants them to loosen up the purse strings some? speculatings are what is behind this. therew that last year, were cabinet ministers that came out saying they want the president to step down. he said he will not make changes to his cabinet, including the portfolio of the finance minister, which has caused a lot of tensions in the market as to

whether gordhan will keep his job or not. the president wants more access to the treasury and wants to work with a finance minister he has a better report with. thank you. she is reporting from john s berg. esburg. johanna comes in anddhan stabilizes everything, the face of credibility for financial markets. what is going on? out?ave these reports come why is he having these conversations with the communist party? shahab: the market has had in mind that gordhan will be booted out of his job.

significant amounts of time last year. been there idea has is a populist economic agenda some in south africa want to follow and that gordhan is standing in the way of that. this tension to sit around the political timeline, the timing is bad now because the market got over its fears of gordhan being kicked out. the market went long rand. just this year before the news hit and it has fallen 5% and two days. simple way of looking at this, look at the current seat relative to volatility. that metric has gone downhill. the market will likely have to scale down its rand positions. david: what is the danger of losing credibility with the

market if gordhan leaves? it is large. this has an impact on the economy from the currency and the fixed income side. it is surprising we are playing this scene again. we have seen what it does to the economy. was turning the corner and people were optimistic about the currency and growth after the commodity shock. it is sad to see this happen. you would refer to them as nontraditional investors and i would call them tauris. :-- tourists. i have been looking at this sector for 30 years. it overshoots in one direction and the other direction because

of tourist dollars. they come in without realizing things happen in the emerging world. still an isolated issue. it is not generalized yet. the hope is that investors will --. coming up, the head of u.s. equity strategy for jpmorgan. from new york, you are watching bloomberg. ♪

david: still with us, mohamed el-erian. the equityched market and debt market going in different directions. why? i don't know. the debt market is worried about economic prospects, more than the equity market is.

so far, the equity market has proven correct and the debt market has been fluctuating. i don't know how long that will continue. it is interesting. jonathan noted the 10 years, when it was 262, the equity market has not moved that much. economic how much signal is in the debt market at the moment? is it more to do with positioning? have had to take some of those positions off and maybe we can disregard the signal that comes from it. while, european and foreign flows were driving u.s. rates more than the equity market. weis a good question and will see how it works out. david: has this happened before? the debt market is larger and deeper than the equity market. market gets debt

the macro right and the equity markets get the firm-specific stories right. been great toas have you with us. a privilege and pleasure. tomorrow, eurasia group president knows about geopolitics. that is a conversation you do not want to miss. from new york city, we build towards a higher close just yesterday after a deeply negative open. this morning, futures softer. you are watching bloomberg. ♪

jonathan: reaching for the buy

the dip playbook is restored. political risk does something fed rate hikes could not. bite taken out of the south african rand. away from article 50 in the u.k. a warm welcome to "bloomberg daybreak" on this tuesday, march 28. day losing streak on the s&p 500, make it eight so far on the dow. but no drama.ter down 17 on the dow. negative two on the 500 bank. 2.62 in the last week. 2.37 on the screen this morning. the euro just south of 1.09.

isid pup president trump scheduled to sign an executive order this afternoon, rolling back some obama era environmental regulations. our chief washington correspondent is with us. where do we stand in deregulation? kevin: president trump will reverse much of the environmental regulations and executive orders later today. this is following a series of executive actions from president trump and which he has approved a pipeline, which he says will lead to job creation, but he has alienated environmentalists and democrats united against this effort. he does have the support of some more moderate and centrist people like senator joe manchin, who have emerged in the senate as the type of deal making sensors that this white

house will look to when they look for democrats, especially following last week's devastating blow to their policy initiative with which they were defeated either own party on health care. david: exactly. he will need some democrats, particularly on a continuing resolution they have to deal with before the end of april. the only have 12 days of work to get that fixed. will definitely need democrats to everett the partial government shutdown. april 28 is the date when all eyes will be on washington as lawmakers have to pass some type of partial government spending bill to avert the government shutdown. this would be a second devastating loss for the republican-controlled congress and a gop-led white house should they shut down the government. this is something no lawmaker likes to see happen, and it would provide much market uncertainty following, again, a policy loss from last week.

policy watchers and investors look to see how influential this white house will be able to be in terms of getting there policy missions accomplished. is one thing,y but execution is hard. we will check back in with you later. bnpthan: we have the paribas senior executive joining us. mentality still dominates the equity market. u.s. 10-year. what is the message from treasuries? >> it is the realization that reflation trade may take a little bit longer. we think the setback we are seeing now will be temporary. we think equities will stabilize and recover. we think treasury yields will, as well, and move up higher, perhaps up to three by the end of the year. jonathan: do you see the 2.75 call down in d.c.?

do you need want to get the other? >> absolutely. on one hand, the republicans campaigned on infrastructure spending and tax cuts, which will be inflationary. as we have seen with this type of bipartisan discussion of from the democrats, they are going to like infrastructure spending. ofyou have an alignment interest to spend more if it is on infrastructure. we will see how far the tax cut goes, but we will get some deficit spending this year. david: how about that -- does the defeat on health care reform make it harder or easier to get tax reform and to infrastructure? >> it is a complication. the gop in the house is fractured right now. it is hard to see how you will even get a 2018 budget resolution through the chamb er. to need that if you're going

do tax reform without dealing with the senate filibuster. .o the have a lot of problems that said, the white house can help here. what the market wants is a president who is pushing deregulation, who is trying to get the economy going more, and who is not engaged in all these fights over wiretapping, fights over russia. focus on the economy and what can get done. i think the market will react positively. jonathan: there is a big gap in the schedule at the white house. with executiveo orders to push the agenda you just laid out? >> let's get some people in place. the banks are such a big part of the economy and the market. we're waiting for a vice chairman of supervision. that could be extremely positive and could lead to some easing of capital and liquidity standards, put more money in the hands of businesses out there, and help with growth.

the other area where you are seeing action today is on the environment. you can agree or disagree with the broader policy, but the point is i think the market is looking for action. if the white house can continue to roll out efforts over these next couple of weeks, i think there will be a very different perception on what trump needs and what we saw last week when health care went down. david: it seems as with the present is discovering he has a limited they had with -- band width. where can he go on offense rather than simply being on defense? >> hopefully for the future of the markets, it will be the focus he has had for a long time on growth and on jobs. looking at the policies that he pursues and proposes through the perspective of the impact on jobs, i hope that will give us a better idea of what he is actually going to make a priority. i think it goes back to

deregulation and also the tax reform. hopefully just making the system more efficient without necessarily cutting the tax rate, just making it more efficient will be beneficial for growth. david: how much does the president need to step up and really take charge? with health care, it seems like yan was taking that on. does the president need to pick some spots and say i need a win here? >> white house leadership is -- always critical to it it keeps the troops in line. republicans are just as the democrats have always been. so you need somebody who can kind of give marching orders from 1600 pennsylvania and keep the ship moving. we did not see that with health care. there are some early signs that we may see that with tax reform, which up until the last day or

two has really been house gop initiative. so the more you can hear from the president pushing policies theard, i think the better reaction is going to be. the white house around the president, are they on the same page at all? >> well, i mean, don't we hope that they are? the problem has been that they are not. i mean, we cannot even agree whether we cannot even agree whether we're talking about a border adjustment tax or border tax, the difference, how it would work. does tax reform need to be paid for? are we going to try to stick the budget resolution and just try to get 60 votes? there is a lot of uncertainty, and i think that is one of the reasons why, when health care reform went down, people got so negative on tax reform. mydawned on folks that, oh, gosh, this really is so complicated and could take a long time.

as far as the optimism in the equity market is, it is just a blanket buy the dip mentality, buy on any pullback. does that worry you? all thees a bit with focus on the lower level of the vix recently. there is a lack of appreciation. nott was pointed out, we do necessarily have a vision from the white house, let alone from the republicans in the congress. all this optimism, it is not clear what it is optimistic for. as we get more clarity on what will be achievable, you will probably have parts of the market that are disappointed. of theth the softening decline, we are concerned it could continue. jonathan: thank you very much for joining us. coming up this week on

bloomberg, tomorrow, we will speak with ian bremmer, eurasian group president. and thursday, a guest to talk about the world of finance. you are watching bloomberg. ♪

emma: this is "bloomberg daybreak." to buy as agreed middle eastern company. earlier this your, amazon walked away from talks. the operator of dubai's biggest mall offered to buy the company. a 5% stake in an electric carmaker in china. it is tesla's fifth largest shareholder.

deliveries may miss expectations. a $24 billion takeover, a dutch coatings company says it will intol a plan to break up two businesses. akzo says it will open up ways to improve profit margin. that is your business flash. of thishe focus of much week is on politics in washington but also the federal reserve. we hear this week for most of the members of the fomc in various interviews and speeches, mike mckee, yesterday, talked with the chicago fed president in madrid. evans gave his version of where the fed is headed. >> to the extent that i gain more confidence in the forecast i have, that would be a good indicator that i could perhaps support three. two might be the right number if

there is a little bit more uncertainty, if there ar e any modest concerns about whether or not we get that. and if things really take off if underlyingation, inflation really picks up, we could get four. david: still with us is daniel morris from bnp, coming to us from london. what the president is doing they affect the rate hikes. where is the fed headed? daniel: our expectation is for three hikes this year. but there is a scenario where you only get two and perhaps four. there has been a breakdown of the momentum behind the republicans, so it is possible you do not get the stimulus we were looking for. there is also the possibility of some sort of external shock, china are europe. the bigger possibility that would take us away from three

hikes is more stimulus than the markets have baked in. there is a scenario where, with the setback with health care, trump tries to go even bigger with infrastructure spending and with tax cuts, and now they do not have a 300 billion dollars from health care, so that means a bigger increase of the deficit. election lesse november, a lot of people said that finally will go from monetary policy to fiscal policy. did the defeat, what you call the health care setback, does that really pose a danger from that transition from monetary fiscal policy? if it was just a fiscal stimulus were the government issues more debt, spends money, and people think that spending really changed the trend growth for the u.s. economy, that was mistaken and doomed to be disappointed. we have had fiscal stimulus in many countries over time, and we know it is just a short-term boost.

the central banks will step into to raise rates and bring inflation down. what i think investors want to taxis the deregulation, reform that makes the system more efficient and encourages investment. transit growthe vacancy faster gdp. onathan: your call for 2.75 the 10-year, a lot of people were bearish on the long end. saying they would issue long debt with longer maturity. is that going to happen now, and do people need to rethink the shape of the curve when they fold in their views on the potential fiscal stimulus? daniel: our view for the higher rates was not based on the extension of the maturities. it was a believe that we get a net increase in deficit spending in the u.s. between the infrastructure package, between tax reform, upwards of $1 trillion over 10 years.

we may have come down a little on that because of health care, but it is still an increase. the fed has not dates any of that into their dot plot -- the fed has not baked any of that into their dot plot. jonathan: we are seeing a flatter curve. on the long end, we have just kind of rolled over up it what is the message? daniel: i think it is the loss of momentum, moving towards this ultimate outcome of debt increase in spending. before, there was an aggressive objective of getting that done by august. that will not happen. in may go to the end of this year. we will get it, but it will take longer, so you will not get that pressure on longer dated treasuries as quickly as you thought. with the health care decision, you expect treasuries to reflect that. david: with all the information

we have today, as opposed to when you made the projection for 2.75, is it a chance bigger that we get to 2.75 by the end of beer or would it be 2? daniel: i think the odds are 2.75. range,ard part of the 2.75 and 3, is a bit less likely than before. david: is that true even if we do not get tax reform until late in the year? daniel: very good point. there is a question of the timing. if we find that the hurdles republicans face in congress trying to pass this and coming up with a coherent package, one takee lessons they may with health care is to take more time to make sure it is coherent, make sure you have

support across the party or a partisan support. if that is the case, that is how we are talking later in the year. it does raise the risk that you do not get that inflow so quickly. jonathan: i want to extend the conversation about equities. by the debt mentality, buy the dip in treasuries. there is institutional money that needs those coupons every time we get a backup. talk about the head ones. we get it back up to 2.75. how much resistance will you have from some of that buying that comes every time we get a little bit of a backup in yields and treasuries? daniel: there are forces are gearing for higher yields -- arguing for higher yields, those for lower. there are factors we have not talked about, the running off of the balance sheet, which we think the fed will start next year. that is another factor that will argue for higher rates.

happening on what is in europe, how quickly you think and what it taper, means for demand for u.s. treasuries. thanks foran, sticking with the spirit coming up this week, interviews from fed presidents. eric rosengren from boston. friday, jim bullock, st. louis. we are watching washington, d.c., as always. it was the potential that the administration just might not go through the way people thought it a little bit of drama at the open yesterday. somewe came back to stability. futures just a little bit softer. in new york, you are watching bloomberg. ♪

jonathan: credit suisse has said could consider alternatives beyond a swiss bank ipo, signaling it may the open to

sell its stock to obtain full ownership. we were clear about that in february, which has helped us go from a restructuring period -- the ipo. and now we have made progress and can consider other options. jonathan: still with us is daniel morris, bnp paribas. suisse, bank in credit -- deutsche bank and credit atsse, both were looking obtaining some businesses. and a market opened up and said you do not have to sell your businesses, you can raise capital. what is the message you take away? daniel: hopefully the financial sector, banking system as a whole, is starting to help the recovery you see in europe. fundamentally, we do not have a

properly functioning banking system. we have had discussions about the impact of negative rates and what it does for growth. i think the fact that we are seeing now some stabilization in the capital building that a lot of these banks have had to do, not quite in such a dire state come i think it is more of a tailwind now for economic recovery in europe. italy is always on the periphery of our mind. credit growth is improving slowly. we did have the low-cost lending to banks last week. it does seem to be getting better, but not as quick as the ecb would like jonathan: do we have a handle of what these banks ultimately want to become? daniel: i would think not. this is where you see the advantage of the u.s. banking system. they address the bad loans that they had much more quickly than they did in europe. it worked much more effectively on the business models. you see that possibility in the share prices.

europe still dealing with that. and you have that overhang. it is more difficult to restructure businesses in europe than it is in the u.s. david: the capital is available. what would determine whether it has been well-invested? what needs to happen to the european banks? is it up to individual banks to render businesses better or is it a macro picture, yield curve and using regulation, things like that? of al: the profitability lot of these banks needs to be addressed. some countries are still over-banged. are they -- over-banked. the big question is going back to the future of the eu, the future of the banking union. eurozone-wide regulator with the ecb, but there is still a lot of debate now on what the future financial landscape will look like in europe.

it is a challenge with them to come up with a long-term business model and the financial, political regulatory way itpe is still the is. jonathan: long u.s. financials, long european financials -- which one? daniel: europe for now because i'll u.s. and's. jonathan: you are sticking with us. and eight-day losing streak on the dow. iswe get nine, i am told it the longest in 78 years. going all the way back. they losing streak is the number of days. from new york, you are watching bloomberg. ♪ show me academy of country music awards.

thank you so much for that down home welcome. show me female vocalist of the year. thank you so much. thank you so much acm's, i appreciate it. show me acm best moments. i could never have wished for, asked for and dreamt of anything more than this. catch your favorite moments from the acm awards

and an exclusive encore performance by kelsea ballerini following the show on xfinity x1. the acm awards. live on sunday, april 2nd 8/7 central on cbs. jonathan: from new york city, this is "bloomberg daybreak." the a to day losing streak, the longest since 2011 -- the

eight-losing streak. almost 2% on the dow. the worst one was in 2008, 20%. that was the pullback on the dow. that is the real drama. we switch the boards. treasuries look something like this. 2.36. the dollar showing a little bit of strength early in the morning. we give some of that up. retail inventories positive, 0.4 percent. m read form wholesale inventories at 0.4. the advance good trades balance and there is a little bit, negative 64.8 billion, down from a revised negative 68.8 billion. coming in just above the median estimate of a bloomberg survey,

-66.4 billion. narrower thanbit anticipated. david popeye want to bring in dan morris from bnp paribas, senior investment strategist there. give us your reaction to this data. what is going on? compare and contrast the u.s. economy right now with europe. europe isnalysts say looking a lot better in comparison to the united states. pmi's: if you look at the from leslie, we know the europe numbers are good. but when you compare the numbers, europe accelerated in terms of the pmi's. previously, the u.s. and japan went down. still growth but decelerating r ate. europe is not us for a long in a cyclical recovery as the u.s. is. the u.s. has been going now since 2009, so we are expected

to be much more tepid at this point. data. pmi's are soft willu expect the hard data catch up with the soft data in europe? daniel: there is this divergence that has to converge. it is not just the pmi's pointing to better growth in the u.s., but we also have sentiment data. but without the hard data that has come through. it is a question around the u.s., whether or not you will see an increase in business investment, in terms of the hard data. in europe, we think it is more likely that the data will come through. there is still a lot of pent-up demand among consumers, so that should drive some growth. the risk is if the euro strengthens because the fed needs to be more hawkish, and there is still a lack of animal

--rits in europe to

economic outlook is not terribly encouraging, so you can still have that safe haven bid. at the same time, you have rates going up. david: does that mean there is an opportunity in terms of asset values being depressed, perhaps artificially because the political recidivism keeps going on. in the u.s., in terms of this risk, it has happened quickly. daniel: exactly. i think that is one reason you see eurozone equities generally a number -- underperformed, and u.s. equities so far this year and last year, even though the fundamentals argue for better performance in europe. there has more recently been this political risk, this overhang that we do not think

will go away with the french election. balancing the better fundamental outlook. higher rates in europe will be better for the economy, a for the financial sector. offsetting that will be the political risk, never-ending discussion. it is about the future of the eurozone and about the future of the eu as a whole. jonathan: the bias this year is that bonds will underperform. they need toys, understand where the underperformance comes relative to what? we get an underperformance of bunds relative to treasuries. is that what you are saying? >> you have much lower income. we do not think the spread will narrow between the two. it has been near the historical highs. if you get to 75 are close to three on treasuries, we think that will be reflected. on a duration adjusted basis, they will both suffer, but you at least get some coupon on that investment treasury.

jonathan: emma chandra joins us with first word news. emma: in the u.s., president trump will begin aggressively undoing policies designed to keep. today he will sign an executive order that starts unraveling a number of rules and to fighting climate change. the president has said he wants to get rid of what he calls job killing restrictions. the trump administration is leading the push to derail a conference that seeks a legally binding and our nuclear weapons. the u.s. ambassador to the u.n. from theup of envoys u.s. allies to object. neither would comply with the band. in asia, china has us banks and other financial institutions to increase their lending to manufacturers. the government wants thinks to boost credit to improve factory

technology, especially for smaller businesses. speculative lending away from china real estate market. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. jonathan: oh her an apology because i went so early to that, i could see her running to the set. thank you very much. jpmorgan head of u.s. equities strategy. later this week, roger altman. from new york city, you're watching bloomberg. bloomber♪

jonathan: the president wants someone to blame. do you think behind closed doors, the president acknowledges the job the finance minister has done and realizes tot he needs gordhan maintain stability in markets? >> i think markets thought the

latter until may between four hours ago, and now we are concerned that it may the former interpretation that the prison is a whipping boy, as you call it. that is, to take the blame. it is not clear why this is happening, unless of course what president zuma is trying to do is change the direction of economic policy dramatically head of the selection of the next president at the end of this year and the elections in 2019. the markets will still be very disappointed, because there is no doubt that the reforms are relatively aggressive. they will take time to be implemented. it has been very good news for south african assets.

i think you have to assume that is probably the conclusion. i think you would have to wait to see who he put in place of .r. gordhan as finance minister could they find somebody who is going to push those reforms forward or are we going to go back to more populist policies, fiscal expansion, and public-sector patronage, frankly? i think you need to wait to see who the new finance minister would be. we may be jumping the gun here, but certainly your best guess is that mr. gordhan believes the reform program as it stands is on the way out. leaves, is ite inevitable that the credit rating agencies come up with a downgrade? is that inevitable that they want to see who it will be? >> it is not inevitable.

it is not a question of personality, it is a question of policies. see whold want to the new finance minister would be and what policies they would put in place and whether there would be a continuation of structured reform. the rand is already overvalued, in our view. we do not expect it to fall quite so sharply in such a short amount of time. it is underweight also insult african equities. debt what happens on the rating, we will not predict that, for sure. when you look at the policies and the reform program the new finance minister will indulge. jonathan: the big picture for e.m. has been this blanket, big fx trade where a.m. has outperformed relative to the dollar.

looked at as overvalued as an asset class? fxwe say only parts is generally overvalued. the rand has held up better than we anticipated. but in this world where we anticipate the dollar goes lower, we are dollar bears. our forecast is dollar-euro at the end of the year at 1.13. we just published a note this morning arguing that the carry trade story into e.m. will continue, and you will see some strength in certain currencies. there are some currencies sit are a bit overpriced. the dollar outlook from here means you will see a continued view to em currencies. up, drew vottog

lycos. he will talk about eyeing the dip and equities. live from new york and from washington, this is bloomberg. ♪

jonathan: this is bloomberg. -25 points on the dow. ide since 1978 if we make it to nine days. the dollar gaining a little bit of ground.

almost flat on the session now. let's get you some movers. >> lots of movers in the premarket. calm premarket setting. state regulators said. monitoring. stock before a $60 it happened. tesaro.the shares of it is said that tesaro now has a competitive advantage. softwareompany, company, had a strong quarter.

.nalysts at barclays >> new york state regulators said it will stop monitoring the mortgage bank after a 2014 consent put this monitoring into place. this had been a $60 stock the for that happened. perhaps this will be the start of a turnaround for ocwen financial. shares of tesaro higher. the ovarian cancer drug was approved for use by the fda. citi says tesaro has a competitive advantage against both astrazeneca and clovis. hat, software company, up more than 5% on the strong quarter. that is according to the analysts at barclays.

deutsche bank thinks red hat could be a $100 stock on this true rebound quarter. david: thanks so much. -- you being the you a securities head of global market. you are bullish overall. put aside south africa. we have talked about it. the trump administration has talked about it. there are other issues around the world involving trade. which emerging market does that potentially hurt? >> it is a very big question, of course. no doubt one of the reasons the market have rallied so far this year. you have not had action yet from president trump on trade. the obvious market they gets hit the most is mexico. whatever trade barriers or trade controls that may be imposed, to impact mexico,

whether you talk about a quarter .djustment act fact thatflects the we feel the fundamentals in mexico are relatively weak right now in terms of the growth rate of the economy, the need for the central bank to raise interest rates, the pressure. there will be foreign direct investment into the country given the industrial policy of president trump. we suspect that the rally was from an oversold level with so far the absence of any action on the trade front. the danger is that could change at any moment in time. i think to be long the case so -- peso is not what we would recommend. david: compare three different

countries -- india, south korea, and taiwan am a particularly as they may vulnerable to trade actions. impacted.s the least it does not have tremendously strong trading links with china or with the u.s.. than most,isolated and he we think korea and tied one are potentially under pressure from trade action from president trump. over are tremendous issues the technology supply change, which could limit any trade action the administration may want to impose. and there are concerns from the u.s. administrations that currencies be kept weaker than they should have been. that is a factor, and you have to separate those are completely. there is no doubt at all here the big risk from trade is the 70 china. jonathan: the base case for most

people is yields are going to back up. a lot of money has already gone into e.m.. the base case is the reality, commodities have rolled over. where in e.m. do i go and still have a bullish case? don't think bond yields are going higher from here. we think they will stay relatively low because we are not big believers. do favor certain carry trades within e.m.. we have overweight in brazil and india could we also like korea. jonathan: thank you very much. ♪

jonathan: reaching for the buy the dip playbook, markets

stabilized at u.s. policy uncertainty abates. with health care in the rearview mirror, president trump moves to tax reform. three stocks in the defense sector. shares of tesla charging higher after a chinese internet giant pays close to $2 billion for a 5% stake. good morning. a warm welcome to "bloomberg daybreak" on this tuesday, march 28. we continue to count you down to the market open, just under 30 minutes away. future showing the dow on an 8- day losing streak. negative three on the s&p 500, a three-day losing streak. no drama, the dow down almost two full percentage points. treasuries with a strong dip. yields lower by two basis points, 2.36. the dollar is stable. the cable rate, 1.205.

let's get you some movers. abigail: here are shares of tesla. a chinese company took on a 5% passive stake ahead of the model 3 production. tesla is being called a global pioneer in new technology. shares are up more than 2.5 percent. these are actually up 6% over the last few days. this may not be news to everybody. also trading higher art first solar, which is getting higher after president trump's epa cuts left clean energy untouched. investors seemed to like this. jpmorgan did cut solar, so a bit of a rebound. beat estimates and said they will be opening between 30 to 35 stores in 2018, and they forlying the chatters chain $780 million.

investors seem to like it. -- they are buying the cheddar's chain. david: if you are in the market, what are you paying attention to if you are in washington, d.c.? kevin: president trump will travel to the epa today, where he will likely be joined by the energy secretary him erect. , where they will announce consecutive action. this comes following the president's approval of various pipelines, which he says will lead to economic growth. and later today, during the lunch hour, vice president mike pence will be meeting with senators, having lunch with them. this is as they look to continue to bridge the gap following last week's failure to pass health care reform. us now isjoining dubravko lakos-bujas and an

internet technical analyst, frank. welcome to the program. technicals, we broke the 50 day moving average yesterday, excitement about what that could mean. what do you make of the move we saw yesterday? and then just an unwind of it. >> i think it was probably more of a coin sit in's that we bounced there. i think short-term traders probably saw the gap in the morning. soon after, indices found their bottom, and that is when we saw the rise. we will see how it plays out over the next few weeks. if the s&p continues to move sideways, it will it pops up above it. look a lot like what happened september, october, when the s&p first broke the 50 day moving average and it became difficult to go back above it.

jonathan: for now it is a blanket buy the dip, that simple playbook. how long will that continue? cautious viewd a for most of march. a lot of it was driven by positioning across fundamentalist and systematic strategies. i think a decent amount of that has played out. we remain cautious, at least for the for seeable future heading into the french election. when we look at, more broadly, the next several months, we are of the view that it is constructive on the profit site and macro site. we're looking at opportunities. jonathan: the inflows into , they haveike s.p.y. been big. does it continue? >> we will see. a lot of people made the case that last week, we had the first 109 days, 1% decline, that was a

big deal. what happens in the coming days. the biggest volume of the year flowed into spdr's. the weekend of march 2, it was the biggest inflow. that suggested that there is also some exhaustion. but we finally saw emotion come back into price action that we had not seen in quite a few months. that may suggest the vacuum him volatility has changed. david: what happened to volatility? we saw the vix pick up a little bit last friday. it has come back down again. where did it go? beene same place it has the last three-month spirit absolutely nowhere but they volatility got so low for so long that there has to be some kind of new aversion. action.ee more sideways

the moves will be a low bit more extreme, as well. jonathan: why does there need to be an aversion at all? >> you could see it, you do not have to. i think a lot of things will be centered around what happens with france and potentially the tax reforms as far as the administration goes. these are being paid close attention to. that could result in an increased amount of volatility, either to the upside or the downside. jonathan: talking about fundamentals, there was a big question over the weekend as to whether this administration's agenda was becoming unhinged. what do you gauge what is happening in d.c. at the moment and how to apply it to any kind of forecasting would make in equities? >> these things are not easy to quantify to her generally, i think from a number of different resources, our view has been that tax reform is the biggest to get item as far as equities are concerned. you can take different views, but one of you on the back of last friday's result with health mights that now things

start to speed up as far as tax reform goes. that is next in line. granted, you could see expectations for the size of tax reform to come down because some of the funding might not be available. things could be moving ahead. .that is a source of upside risk it is hard to determine when they will give us more clarity as was the blueprint goes. david: there is a question beyond the politics, whether this administration has their legs under them and can handle a complicated situation on capitol hill. by the way, it has been complicated for a very long time. it is a difficult situation made more difficult after the health care. >> one thing i look at is ceo confidence and a lot of the guidance numbers coming out. i do think that is picking up. sortnk that is reflecting of how the new administration is starting to play out. i think the fact that the new administration is spending so

much time talking to the corporate ceo's of the u.s., you could see it as a positive. jonathan: many of these ceo's upgrading guidance, not borrowing more money, not investing in more plants or missionary. -- or machinery. when does it translate into something meaningful? >> i think it has been more sector specific. if you look at financials, there are several areas where you are starting to see some pick up in activity. if you look at some parts of energy, like infrastructure, we have already seen some movement there. david: take me into the technicals. what are you looking for to either drop below or break out to the upside? what are the key factors? >> to put this in proper perspective, you have to look at the weekly chart. there is a distinct upward sweeping channel that starts with the february lows. the top of that channel, the 500

bank, when it hits when he 400 a few weeks ago, it came off. a similar thing happened during the rallies of last year. we saw it top out in april and then again in august. the hope is now that markets will do the same as it did back then, which was digest the move formace, regroup, continuation patterns, and break out again. the concern is that that does not happen and we come back down and break down. looking at that chart, the spicy bank can go below -- the s&p can go below 2500 ring up. one of them top thank you both very much. coming up, we continue to county down to the market open and the coverage of politics continues. house speaker paul ryan is holding a news conference and washington, d.c., with

republican leaders at 10:00 a.m. eastern. it will be live right here on bloomberg. we are heading into the open. ♪

david: mike mckee yesterday talked with the chicago fed president, charles evans, in madrid, and evans gave his version of where he thinks the fed is headed in an exclusive interview. >> to the extent that i gain more confidence in the forecast that i have, that would be a good indicator that i could perhaps support three. to pot might be the right number -- two might be the right number if there is uncertainty, modest

concerns about whether or not we get that. and if things take off, if we get continued strong growth and underlying inflation, we could get four this year. david poppa still with us is dubravko lakos of jpmorgan. thank you so much for being here. versus three versus four this year, does it make a difference? does.ko: we think it generally, i would say it is a negative for equities. if you look at the march outcome, it was a little bit of a goldilocks situation where did hike but expectations do not generally rise higher and so the markets sort of see that as a slight positive. looking ahead, you have to take into account what is happening with the dollar. the fed is looking to take rates twice or three times this year. or in an environment where the rest of the world is sitting on qe, that could push things pretty high, and these are

pressure points for equities. david: in the past, chair yellen has said we are not baking from fiscal stimulus from the trump administration because it has not done anything that it looks like. is it true that they are disregarding it or is it because the difficulties with health care and tax reform may be, will that affect the fed's pass? dubravko: i think it is definitely one of the variables they will consider, fiscal and deficits going ahead. i think if you look at march, for instance, with an interesting period with not that .uch incremental they were really looking at june, not march. it is hard to say, but they always say they tend to be fairly objective about how to go about things are the stock market does basically no with

the deficit is at. does the dollar matter? yes, probably does. jonathan: let's talk about the psychology to by and how resilient the equity market has been. when you get higher rates, the bias to by still exists because i am told it is a reflection of how strong the u.s. economy is. and i'm toldakens, that is u.s. equities. what is into this bias to buy? dubravko: it has been persisting, but i think it is running out of time. there is quite a lot of leverage in the system. if you look at leverage and financials, it is at an all-time high. as rates move higher, the impact will my be significant immediately, because a lot of the debt is still fixed. it is basically now moving from being low rates to a tell when to now rates moving higher and

becoming a headwind. same thing about yields. yields at 2%, 2.5% support higher equity multiples, and their moving to 3% on the back of her haps fed action. i think it is very much a function of growth. if growth is superior, yes, i think we can tolerate a higher level of interest rate. if it is not superior, you face higher inflation, more moderating and growth. jonathan: a lot of people talking about the reflation trade, and they talk about high yield, the stronger dollar. for corporate, they need to be able to raise prices. i do not seeappen, that happening. the consumer has not been very strong. over the last 2, 3 years, that has been masked. if you look at conception growth

numbers, there's sort of at par am at best. again, a lot of these yields an interest rates rise, adding an additional source of pressure on to the consumer, as well, an important part of the u.s. machine. david: there are other possible sources of pressure on the margin. wage inflation. as wages go up, that puts pressure on margin. as you look at tax reform, part of the price is actually adjusting, curtailing the interest rate deduction, in a highly levered situation, they could put pressure on margins. dubravko: it could, but it is unclear. there is a discussion of the reduction and the stability component. there has been discussion of allowing immediate expensing, and offset it we have to see where they strike the balance. david: do you look at which sectors in which companies would be benefited or disbenefited from that? >> we do, absolutely. you could get a significant

amount of dispersion. if you look at a lot of the we thinkn around tax, it benefits the more domestic model versus the multinational model. a lot of companies could have high leverage but long asset life. in transportation, there is leverage, but the asset life is very long. they will be able to benefit from immediate allowance of capital. clearly, yes. jonathan: let's get a framework. look at it through the prism of tax reform. tax is your base case for reform and your trade in equities? dubravko: we are basically looking at the current blueprint from paul ryan and the gop, which is talking about a significant cut in the corporate tax rate. expensing and cash reprint sheesh and. -- repatriation. it is controversial, especially

with high import content. potential questions about what happens with the dollar, which might not be aligned with the new administration. a you strip that out as source of funding, hypothetically, the interest rate -- if you strip that out because it is too controversial, you might face, hypothetically, cutting the corporate tax rate that less than originally planned. instead of from 35 to 20, maybe mid 35 to 30. in 1986, we did have the corporate cut that went from 39 percent to 35%. jonathan: the trade-off the back of that? dubravko: without the negatives, we estimate a five dollar boost. you get a cash repatriation, that could be an additional one dollar or two dollar boost. it could be worth 100 points in

the s&p. about 11 the open is it's away. coming up, two more interviews with fed presidents. tomorrow, eric rosengren. friday, jim bullock. that is right here on bloomberg television. from new york city, 10 minutes away from the open -- the 8-day losing streak on the dow, three have a day losing streak on the dow. 19 points down on the dow. you are watching bloomberg. ♪

jonathan: from new york city ahead of the open with all eyes and politics, house speaker paul ryan holding a news conference in washington at 10:00 am eastern. we will have full coverage right here on bloomberg. a little softer, down .1% on the dow, -.1% on the

s&p 500. i want to get sector specific and bring in our guest, dubravko lakos, chief of u.s. equities strategies. , a lot of enthusiasm the banks. you share that enthusiasm. why? dubravko: we have had a constructive view on financials for about a year and a half now. some of that is related to rising interest rates and the benefit of that as far as margins go. post trump, the discussion around deregulation i think is a relatively big and important factor. it is a hard one to quantify. provisions have been moving higher, and it is not easy to quantify. it is something that is potentially a big factor is a continues to drive the rate higher. jonathan: rate hikes, a lot of people have written about it. deposit beta, basically the

change in the deposit rate. it starts off really low. it kicks in aggressively. it stops the competition between banks. offe are we now coming zero, and how quickly does that kick in and how quickly does the benefit of fed rate hikes diminished? dubravko: the benefit of higher ,ates for banks and margins deposit rates move higher and we have now had three rate hikes, looking for a fourth one, i would say the sweet spot is the first 100 bits. then i think the curve flattens out and competition kicks in.

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xfinity. the future of awesome. the biggest week wow, watchathon has netflix? hey, drop a beat... [ beatboxing throughout ] show me orange is the new black. wait, no bloodline. how about bojack? luke cage. oh, dj tanner. maybe show me lilyhammer. mmm, show me last chance u. on second thought, maybe pompidou. narcos, fearless, cooked, the crown. marco polo, lost & found. grace and frankie, hemlock grove. season one of... show me house of cards. xfinity watchathon week starts april 3. get unlimited access to all of netflix and more, free with xfinity on demand. jonathan: from new york, this is "bloomberg daybreak." futures a little bit softer after the dow closes with an 8-day losing streak.

softer by .1% on the dow and s&p. the opening bell, there it is. across assets, treasuries the what a swing. 2.34 yesterday on the 10-year. two weeks ago we were breaching 2.62. we repriced this morning with yields lower by two basis points. the dollar is a touch lower. crude positive by .9%. we reclaim 48.18. that is the situation. let's get this market open. abigail we are working at an unchanged open. the dow, s&p, and that stick all changing -- trading fractionally lower. we could see the longest losing streak in the s&p since 2008. the dow looking toward the worst

performance since january 2016. a mover on the open, the car space. tesla up nearly 3% after china's company announced a 5% passive state, saying tesla is a pioneer in new technology. closer tong higher, up 1% in the premarket after president trump tweeted the company will be opening and investing in three plants in michigan are the shares are down about 8% on the month, so it looks like this action will not reverse that. to the macro, the story yesterday was about how the reflation trade is reversing. this is g #btv 6739. this is out of the election through january 3, risk-on. bloomberg dollar index all higher as the 10-year sold off. the dollar index started to trade lower, followed i oil in february. stocks hit a high run march 1.

bonds traded higher with the 10-year yields moving down, suggesting there is a reversal in the reflation trade which may be in play. jonathan: joining us now is dubravko lakos, the jpmorgan head of u.s. equity strategy, and a portfolio manager is here with us. this story yesterday was that the administration's agenda will not become unhinged because they will focus on tax reform. what do you say to that? >> i say it is tricky. because of the health care issues, i think there was an idea that some of that money was going to be saved to be used for tax cuts. so without solving that health care problem and having big money, i think it is trickier than the market right now is willing to believe. jonathan: is it just a political fight between paul ryan and president trump that maybe

markets need to caesar through the noise at the moment? abigail: i think if we do not have a deficit issue and the budgetary issue and it debt ceiling issue, it would be more about the little theater, but i think there are some hard numbers that are problematic. you have disagreement within different parts of different parties on how to deal with that. i think that will be hard to resolve. david: does this mean there will be less tax reform and it will be later than we thought? they cannot pay for as much as they thought they could, and they have a lot of trouble getting their act together. dubravko: i would probably argue things could speed up. with the health care thing, if it went through reform friday, the question is what happens with the senate. now i think things are moving faster. david: they have big battles. border adjustment tax, there is a lot of dissension about that.

it is assuming they go forward with a significant cut in a tax rate. it could be significantly diluted or could get removed. if you look at reviews from our political analysts on the health care side, there is a lot of different views and disagreements. people tend to, have more of a unison view. jonathan: you have the deficit hawks that want to see this big spending package to appease the base that voted them in. how do they reconcile the differences much in like how do you deliver the kind of infrastructure plan and at the same time make those guys that

want to revenue neutral budget happy? dubravko: revenue neutral will be hard to rebalance things in a budget neutral fashion. desksense that devon since deficits will have to increase gradually -- i sense that deficits will have to increase gradually. it is not clear at this point. jonathan: one of the first things we heard from the president was what he wanted to do on a budget, saying we want to spend a lot more money on defense, taking away from social programs. what does that potentially mean for defense stocks. >> there will have to be a trade-off. there will be some horse trading there. a think you will see more money spent on defense. the government wants to save money, so they will also be outsourcing some more. there will be a trade-off.

we want them to put other people and and not hire on the federal site and get more people on the i.t. side. i think defense spending will probably grow. jonathan: defense companies have to get ready for higher. revenue potentially, skinny margins how will that play out? >> one could argue that there are a variety of ways in which you can get some of the things through without as many changes as we have had. i think if you look at the scope hadhe way the contracts are to begin with, i think there is room for some of the things on both sides. i think you will not see as many changes. jonathan: get specific which companies do you like at this point? >> we like an i.t. company that bought the business from lockheed martin. we still like raytheon. this will weigh on defense stocks, and it might be a chance. they have had a nice run. the i.t. space has moved as much

for it we think there is some opportunity there. really important. jonathan: the reflation trade, still in tact even though cracks were showing ahead of friday? dubravko: yes, i think so. ist is important is what happening internationally with europe and emerging markets. it will be interesting to see some storm of reversal in monetary policy, and that will make it reversible. if it is all u.s. and the rest of the world left behind, it is unsustainable with pressure points. jonathan: do i want to do that through small caps, which were great towards the back end of last year but not really the first quarter of this year? or do i do it by big caps? dubravko: small caps have not done that well at all so far this year. ishink the backdrop supportive of small caps, so i would probably look at it as an opportunity. perspective, as

ok. as we're still i think small caps are underperforming. are larger, funds but we think there's opportunity on the u.s. side and some of the u.s. names. david: how much of the reflation trade is simply because of the price of oil, year over year? >> i think it is oil but also copper and some of the other commodities that were hit last year. i think there is a combination of other commodity trades. i think it is the idea that activity will pick up a mother for inflation is coming because demand is going to pick up. that is what people are counting on it if we do not see that, i think it will be tricky for the market of the multiples they are. jonathan: we have to leave it there. thank you very much. coming up, house speaker paul ryan having a news conference in washington. that is 10:00 a.m. eastern it we will carry it live right here on

bloomberg television from new york city, the markets are about nine minutes into the session. a flat open with the dow going nowhere appeared the s&p up marginal. the situation is like this across assets. or the dollar2.37 pretty stable. from new york, this is bloomberg. ♪

emma: coming up on bloomberg markets, alix steel sits exclusively with pioneer natural resources ceo. david: this is bloomberg.

i am david westin. a 5% sale and tesla as they wait to bring their model three sedan to market. tencent is a top five shareholder. is up substantially. it was up 2.5%. it is up 3.5%. autong us is the senior analyst. thank you for joining us. this is a surprise to me. looking for capital because they are burning through cash very fast. why do we know that tencent made this deal? >> if you go back over the last there have been changes around the time is vehicles. vehicles.autonomous

many investors questioned, where is tesla going to find its mapping technology to bolster its autonomous the a goal hardware technology? companyinvested in a based in the netherlands that is a mapping technology company. pieces ining how the the not so distant future. david: giving capital to tesla, but also to technology? >> i think that is right. is going to be paramount as they look to build more products over time. aspects will be partnerships

along companies that can provide mapping skill sets, radar skill sets, sensor technology. tesla will not be able to do that alone. this makes strategic sense from that regard. the fords in the bmws, do they have to choose sides and form partnerships with mapping companies as well? >> many already have. obviously, the big news is that intel made an offer to buy them out two weeks ago. very much partnered with suppliers. on the high-tech side of the equation. seeing it play out. strategically, looking at the three, ford is investing in

artificial intelligence capabilities on the engineering side. gm on the volume side. they have a company called me then that is a ride healing service looking at the volume side. fiat chrysler is almost more of manufacturer for google's a taunus vehicle, aspiring autonomous vehicle, fleet. they are all trying to box out in regards and partnerships are critical. jonathan: i want to talk about the cars as a consumer proposition. looking at the potential of a .odel 3 to eat into that sale is that a scenario there thinking about? , but if they are not they should. this 3 series, and extended to c class of and the

mercedes, consumers have opted out of the luxury space. they are already struggling makes and models and they are critical volume drivers for all of the brands i mentioned. if you take those three, and put the model 3 next to it, -- model 3 next to it, it would be an outlier. updates,air technological advancements around the hardware, capable for autonomous driving, tesla will give them one heck of a fight. we imagine they will eat into that market share. if not immediately on the launch, overtime as the vehicles grow into proliferation. magic word,sed the volume. can tesla produce the model three in the volume they promised? i they going to make their numbers?

>> of the numbers are different depending on who you ask. what we learned in the model s and model x is the difficulty in assembling a vehicle, partnering with third-party suppliers, many technology companies have underestimated the complexities around. the model 3, we had them on the road. they feel more comfortable where they sit ahead of the model 3 than the s or x. there will be quite a bit of automation on the production line. in, and that is already will be in theory, using her scale when the machinery is calibrated. frankly, they will have an ,asier time scaling the model 3 but their volume aspirations are higher than the s and x. i think they hit their numbers.

this is an important time to think about investing in this stock ahead of the launch. david: the senior auto analyst at consumer edge research. jonathan: what the profit margins look like if they can achieve their volume. david: they have been negative so far. jonathan: we are up 2.3% on the session so far. coming up, julie hyman alongside mark barton. julie: you have been talking about tesla. as you have been watching, ford, after president trump said ford will invest in three michigan plants, we are waiting on details of that investment. we're talking about housing with the ceo of kb hall. the shares of that homebuilder up year today. we'll talk about the outlook for

the housing market and if he is seeing confidence. we are talking about confidence among investors in policies of the administration. we'll talk about if you seeing that among home buyers. i will be with you in a little more than 10 minutes. jonathan: looking forward to the program. david: we'll be speaking with the eurasia group president. then the ever core partners founder. he will be joining us on set. live from new york and washington, this is bloomberg. ♪

jonathan: 21 minutes into the session. can you divorce valuations from

the optimism of what may or may not come down in d.c. house speaker paul ryan holding a news conference with republican leaders at 10:00 a.m. eastern. in about 10 seconds or 11 seconds. ared: in washington, they never on time. equities, a little softer, down 1/10 on the dow. 1% on the s&p 500. compare the stability to where we were yesterday. david: let's look at the seven minutes until the paul ryan press conference. kevin cirilli is with us. is this paul ryan trying to seize control again after getting his nose bloodied on friday? kevin: the question is whether or not he will be able to unite this republican party, particularly the house freedom caucus which voted against him and president trump during the health care debate. wants tos speaker ryan

get on to issues like tax reform, he has to prove he is going to be able to unite the republican party despite having the republican majority. at his weekly press conference, moments away, he will have questions about if you will be able to do that. david: he really knows policy well. boehner is a good politician, and he had a difficult time with this same group of people. kevin: the back story, david, is that president trump's chief of staff is the former chairman of the republican party. he has a good relationship with speaker ryan. they are described playfully as the wisconsin mafia, being that they are all from wisconsin. that relationship puts the house freedom caucus members in a standpoint where they are negotiating with people that they have a tense relationship

to say the least. , they frequently clashed with speaker boehner and reince priebus. he has now inherited that policy debate. talk to theto takeaways from the program. for me it was daniel morris. we talked about the question of the day, is the derailment of the trump express in washington going to affect the markets? >> i think it is the realization that the reflation trade may take longer. for the year we are looking for higher rates. we think the setback will be temporary. we think equities will stabilize and recover, yields will move higher, 275 to 300 by the end of the year. david: a setback right now, then back on track. jonathan: the base case is that the dollar is up by. .- is a buy

any conviction you may have, we .aught up with mohamed el-erian a little bit earlier on the political contamination. listen. >> the political system is going to get more complicated. politics will contaminate economics more markets will have to ask if it makes sense where a valuations are given the economic and political back around. the important thing, the road we have been on, the new normal, is end.g to an it is being eaten by its own contradictions. jonathan: a lot of people have made noise about it, for monetary policy to fiscal policy. it will be more volatile than people anticipated, it hasn't happened, and when you get there how efficient will it be when feddon't just have the

chair having a news conference and i think 1, 2, 3 and the market repositions. david: we are in uncharted waters. we have never had negative interest rates. the notion that we will definitely hand this back without disruption -- jonathan: a session that looks like this. equities looking softer. a nine-day losing streak on the dow. on a daily basis, the longest stand since 19th -- longest 1978.since from new york city, thank you. you are watching bloomberg. ♪

julie: 10:00 a.m. in new york, i am julie hyman. mark from london, i am barton. welcome to "bloomberg markets."

mark: we're going to take you from new york to london with stories out of south africa and scotland. economic data and consumer confidence for march. julie: this is coming from the conference board for consumer confidence for march. you might have some kind of delay with the data feed. let me get to the other breaking news. i will bring you consumer confidence in a moment. is revealing its investment plan that the president tweeted ford is revealing its investment plan of the president tweeted about this morning. this is something that had been agreed upon with the auto workers several years ago. it is fleshing out the plans it initially made. shares