>> pulling the brexit trigger. prime minister may signs article ties begin to unravel. over an exit bill, banking and immigration two years in negotiation between 27 eu nations and the u.k. lie ahead. the brexit their case has not materialized. with economy has not rolled over. is the consensus call quickly becoming by europe. good morning from new york city. a warm welcome. i am jonathan ferro alongside david westin and alix steel with a focus on brussels. brexit process begins. futures here in the united states ahead of the open a couple of hours away. futures treading water, equities go nowhere. cable rates a little bit weaker at 1.2422 -- >> the by is picking up. you have a yield coming down by three basis points. , below its 50 day moving average.

volatility pretty much goes nowhere and gold is flat on the day, crude getting up by 4/10 of 1%. jon: it has been nine months since the u.k. voted to leave the european union and the continues sever ties today. the weekly event taking place in the house of commons this morning, where questions will begin to the prime minister, theresa may. 30 minutes from now she will make a statement to the house of commons on brexit. we will take that coverage to you live right here on bloomberg. we have covered from london and brussels. anna edwards is in westminster and matt miller is in brussels. walk me through the process for the rest of the day. .> thanks very much jon in just under half an hour's she will transition into the set piece event that happens every wednesday in the house of commons. she will read that statement to the country, talking about what she has communicated in that letter into the eu

president. that letter is being handed over by the uk's ambassador to the eu. he will hand that over in about 20 minutes time. around the same time she will address the country. she then will get a full release of the letter. there is lots of speculation in the u.k. as to how long the letter is, what tone will it might matter to those watching the markets. some suggesting in the fx market this could be something key in the short-term which could guide u.k. assets. how the tone will run for the next year and a half or two years, not sure what certainly that could be interesting to start the process. jon: the process begins today. how quickly will the eu 27 be willing to come to the table and address the content of the letter? hear donalding to brooks, the president of the eu, give a response to the letter in

just about 45 minutes time. we will stay in the podium behind me. they are going to be able to officially kick off negotiations when they've gotten guidelines, a framework that they will legislate. the guidelines for negotiations, they don't intend to drop those guidelines until april 29. it is going to be a while until negotiations officially kick off but you will start to hear a chorus of responses today from other eu leaders around the continent. from annajust heard edwards about a possible conciliatory message. what would they look like? what would she have to do with the transition period? how they handle eu citizens? what would it be? >> it probably would have to do with the movement of people. david: i was asking you taking off of what anna said. >> i would defer to an on this,

but they first have to do with eu citizens living in england. they have been making a lot of noise about the fact that they want some certainty on this and it is a huge part of prime minister may's constituency. if i'm not wrong i would say that is their first focus. >> that is going to be one of the issues. the other thing is around the brexit bill, the divorce bill, the cost of leaving the european union. a lot of the noise out of london ask us for 50t billion pounds and then not tell us how you get there. there is also a message out of london that the u.k. would honor its international commitment. to contribute what is required certainly which, that would be seen as something conciliatory. whether she mentions that detail at all will have to face some suggestion.

maybe even what we heard in the lancaster house speech. getight have to wait and further into the meat of these conversations in the weeks and months ahead before we get this real new news around brexit. alix: from that exit bill, what is the process over in brussels in terms of getting the exit bill? then what is on the table to discuss? i spoke with the vice president of the european union earlier, and he said they want to first negotiate the brexit and then worry about the trade bill because he said trade bills don't take two years to negotiate. take at least five years to negotiate. that will take more time. as far as the price tag on brexit it is not a price that britain has to pay for brexit from the eu's perspective. it is just the amount of money and itey currently owe will be offset by the amount of money the eu will head back to britain throughout the next two years. it will probably be less than the 60 billion euro price tag you have heard from people like

the austrian minister. jon: matt miller over in brussels, anna edwards in westminster. more on bloomberg daybreak. you are looking at the shuttle to the house of commons with theresa may taking questions from parliament this morning. in 24 minutes she will address the house of commons to address the contents of that letter that she signed yesterday. that letter arrived at the eu president desk in just a few moments. joining us from london is john fryer. great to have you on the program. the process officially begins today. family people actually think it will get done in two years? >> not very many people. that is one of the real risks hanging over the protest. in theory we have a two-year countdown starting in about half but everyone you talk to is involved, and they tell

mindnumbinge deep, complexity of all of this. these are very deep and philosophical issues. they are going to be politics and technicalities piling on top of that as well. it is important to bear in mind that it is possible to extend the deadline as well. see is anight also interim deal coming as well. now is the facing realization that the uncertainty hanging over the british economy or hanging over this whole saga will probably last longer than two years. jon: you have had to build up a relationship and untangle a complex relationship that has been built up since 1973. marissa cramer coming on bloomberg tv today. a sequential negotiation process begins with the exit bill.

is that how this is going to play out? going from one thing to another, it is trying to address it all at once? >> it could be like that. the sequencing is very important. looking at the negotiations it is important. onthe eu comes in heavily the moments of negotiation which will effectively kick off on friday where we hear the guidelines, if they come in early and say, we are not going to talk about anything until britain agrees that they are going to ois 50 billion euros that is going to create a political problem. it is likely that we will see a sequencing and the dividing up of this in good chunks that would get negotiated as it goes ,long i think it is important the first steps of this will set the mood for the whole two-year process or longer than that. right now, the politics revolving around this bill is how much the you ko's the eu.

david: it may be a political problem with the divorce bill first for theresa may. is it not also in negotiating problem? if she gives that up, she can't get something back for the other issues? >> it will be a very early concession for her to make. she is going into this with the right-wing of the conservative party, breathing heavily down her neck. she has gone to great pains to sound like a hard brexiteer but she knows there are going to have to be copper misers down the line. your firstdon't want big concession, a big compromise in a prolonged negotiation, in the early phase. base.our political that will have to be a compromise. it wouldn't surprise me if she has to pay some sort of some at the end of it i think she would much rather that come at the end of the process. shed: at the same time, has

lost control of the negotiation in the sense that the burden has shifted to the eu? once article 50 is triggered, they have the issue. now, don't they have all the cards? >> you are right. this has built into the whole eu tree. the moment you trigger it, believing party loses the initiative. can the eu can do is they drag this out as long as they want. it, the euk at really isn't going to be in a position to negotiate on substantive issues until arguably early october with the german election in september and coalition building and germany can take up to six weeks. it might be late october or early november by the time germany, the most important country in the eu is ready to sit down and negotiate. you are already losing six

months in that process. the timeline is one of the real problems for theresa may. she is losing oxygen on these negotiations. jon: a lot of heavy pressure. much more later on in the program. we will put together a list of quotes from various sources over the last nine months. this from the car -- former cabinet minister. "we have paid so much into the eu budget over the years we pretty much but the restaurant." david: it was surprising how many had to do with food. alix: i noticed that. it was funny. jon: the official process begins today. you are looking at a live shot of the house of commons were theresa may is taking questions. in 19 minutes she will address the house of commons and it will be exclusively about brexit. full coverage continues right here from new york city with our eyes on westminster and the heart of europe in brussels.

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jon: you are looking at a live shot of westminster at the house of commons with prime minister theresa may taking questions from the house of commons this morning. the usual weekly process has a big difference. in 60 minutes time, just after she signed article 50 yesterday, that letter arrives at the best of president donald tusk. we will bring you full coverage of that right here on bloomberg television. i want to bring in our guest from london. international fx strategist. i want to begin with you. , theessimism in the price

spread between that and the economic reality currently. how wide is that? >> it is wide in terms of the fact that we have not yet had the pronounced slowdown we were expecting. have the first time we gotten consistent growth three quarters in a row at that level. we need to think about what brexit means. it is not about past, it is about the next two years. reflation to breach the bank of england's target and perhaps a little bit below. but going forward, the pickup we saw after the brexit initial pessimism, will that continue or will it rollover? last months example started to show signs of weakness. that might be the case going into next week. while today is all about article 50 and in 20 minutes time when we do get that letter i don't expect it to be such a big market event.

what next week we will start to -- more indications of what was that last month just a one off or is there a slowdown? jon: what i am trying to figure out is how much the economy needs to reconcile down the pessimism and the price. we got to one point 15 on cable, down to 1.2450. is it radically different to the data we had in early 2015 and early 2016. how much of a rollover in the british economy could justify the pessimism? >> you need to price to be as low as it is because the u.k. now has political uncertainty attached to it but also on trade as well. what will the future relationship be for businesses? if i was looking to invest in foreign investment u.k., i would need to look at the risks around it. low, it is about

the uncertainty. that is why it is where it is. don't get me wrong. i think the u.k. is all right right now but it is about the future. if we willn knowing be a member of the union and how that will be, i'm not going to suddenly start investing unless i get a price. alix: what is the trigger point that jordan is talking about when we see the rollover in the data? >> i think we are already seeing that rollover in the data. you see it weakening in february. resale has weakened over the last three months. nowunderlying trend is negative. we are seeing consumer credit come off as well. i think we are seeing a slowdown for the u.k.. the income has been squeezed. that is going to continue. you will see more of that. you see the inflation move further towards the end of the year, towards 3%.

that will squeeze income growth even more. as the cliff edge approaches, we are going to see uncertainty. that will ring in business investments. alix: business investments, what does that mean for the gilt market? 740 2 million pounds of guilt in february, that doesn't jive with the data that you are talking about. is it has been made more attractive. but also, we haven't had the process start the two-year negotiation process. these talks will be extremely difficult. then, there is the transition which is much needed by business in order to ward off. then there is the future relationship. we don't think you will get the untiltion if we get one we arrive at the end of the two-year negotiation period.

businesses will have to act before then. they are not disinvesting. that will change. inthat cliff edge approaches march 2019. david: there is a lot of uncertainty in the marketplace but at the same time everyone i have heard from says the fair market value of the pound is substantially higher than what it is trading at right now. is there a chance the market has overreacted and taken it down 17% since brexit? >> they are talking about evaluation, pdp. price parity. what we have got is a completely different line for the u.k. you got uncertainty and higher inflation coming through in the next couple quarters. that measure that says sterling comes by around 10 to 20% the terms the fact is you are looking at. that, youwere to use have lost a lot of money in the market.

workesn't technically always. jon: you used the term cliff edge. the last two years these negotiations weren't going to work out in the u.k. favor. power scenario is there will be a transition. clear untilecome one minute to midnight. so we will have to take action before then. notification a year in advance of the changes. if we don't get that sign of a transition deal until late 2008 -- late 2018 the fed has to react to that. in terms of the transition deal is very much needed. it gives businesses the time to react. that. believe we will get there is still the meaningful businesses need to

plan for that contingency. jon: daniel, great to have you on the program. toward in rochester will be sticking with us. you are looking at a live shot of the house of commons with prime minister theresa may taking weston's. n about nine minutes time, she will address the house of commons on brexit. we will bring you full commons. point 2451,one pretty much unchanged on the session but what a move we have had. 16% and some change as well. vote. just before the you are watching bloomberg. ♪

jon: from new york city, this is bloomberg with our eyes on westminster and prime minister may.

nine months since the u.k. voted to leave the european union, the process to officially sever ties begin today. she will address the house of commons on brexit exclusively. full coverage right here on bloomberg. alix: also joining us from london is stephanie flanders, j.p. morgan asset management chief market strategist for the u.k. and europe. here is megan green, manual like asset management chief economist. the rhetoric six months ago was hard brexit. is that at stake today? >> it is much harder now. it used to be that a hard brexit was the worst possible outcome for the u.k. , butt is the most probable they have no deal at the end of the year to stop a lot of the eu. we are relying on the wto rules. the u.s. might have taken all of the clause out of the wto but not complying with its rules. there is a real risk that this might be the arrangement they

have. alix: that is one argument, that it is hard versus harder. there is actually upside political risk in europe. access strategists are moving in out of the u.s. what do you see? >> i think both of those things are true. unfortunately, the positives being beneath the surface in the eurozone are not ones that would necessarily give you a more optimistic view of brexit and the general outlook for the u.k. there are some signs of the support for extreme populist parties in europe. it is at least kind of topping out and seems to be declining in some places. we've also got the possibility of the end of the year that the leadership in france and germany could be new and could be in favor of more integration and strengthening the franco german relationship. that is very positive for the eurozone and could help bring money into the eurozone at a time when the economic

fundamentals were already improving on behalf of europe. but none of that is very good for the u.k. the new leadership in germany might mean a stronger or tougher line in those negotiations. we keep those things set for the u.k.. political risk is certainly there but economic risk, the potential long-term applications you have been discussing, for economic growth and living standards in the u.k. david: take us down that path of harder brexit. i understand that means there is no deal at all. of the u.k. economy would that particularly hit the hardest? >> i think we have to distinguish, as you are ready, between different kinds of hard brexit. there is a cliff edge, this idea that there would really be no transitional arrangement, note deal that would soften the blow of leaving the european union which means going back to it in wto rules. but there is no developed

country in the world which only operates under wto rules. there are other agreements you have to enter into to make customs work fluidly, to help goods go through ports even with tariffs. so with those kind of things, you are talking about europe refusing to even sign those kinds of basic recognition arrangements. that you won'tis get negotiations to go so far in a negative direction that you will end up that. but certainly the kind of interim deals could be quite bad particularly for the services side of the economy. a big part of exports are services and maybe there will be a deal for the first few years. thingsh airlines and like that, they could be quite affected by a agreement. alix: i think that is particularly true if they end up cutting and pasting another trade deal. >> particularly, the deal that the canada and eu have.

will have a they deal after a few years is if they cut and paste someone's deal. that would be bad for services but there is another option, the deal the eu just struck with the ukraine. i think that is being discussed more behind closed doors because it is trying to follow the ukraine's model. jon: there is another option, just take a whole lot longer. anyone who has followed anything in the european union for the last decade and more understand that things never get done on time. what are the odds it actually gets done in two years? extremely low. >> i don't think there will be a cliff edge. if you look at what we are coming up with, the implications if that materializes, the eu has a similar story. i want to avoid the financial instability. same for the u.k. as well. even if we got down to the wire and it was a game of poker

between theresa may and the eu there would still be some sort of agreement to just transition or move that cliff edge out. it could kick the can down the road but we will have a bit more clarity over the next month. in the eu summit we will have an ifa of what has started and there is a match that can make sense, if we can come up with some sort of agreement a lot quicker than the market. jon: just before the brexit vote a lot of people may forecast, tuesday forecasts about what would happen to the economy but compared to some of those many of them were predicated on the fact that they truly believed prime minister cameron was going to sign article 59 months ago. it has taken nine months. here that ittory is just going to take a whole lot longer than many people thought? alix: we do have official news. the eu has received the brexit notice from the u.k.. countdown clock against.

deadline as they can move it if everyone agrees. the politics might be toxic enough for some countries to go against it. we may have a provisional agreement. maybe the eu will be living it and they may not want them to fall of the cliff edge but do not want to give the u.k. a good deal. also because of domestic politics that they can fight against anti-european policies. alix: other rhetoric from morgan stanley saying that the u.k. and eu will have to have a softer deal if german and the u.s. but heads with trade. he says he is positive on the pound because we are buying sterling. what would you say to that? >> i would say, no, probably a wrong view to half. probably 127. you have read evaluating the

future of doing business -- reevaluating the future of doing business in the u.k. what falls must goes up. for me, the way i frame it is look at a real rates in the u.k. and equity valuations. both overvalued. i need low sterling to make them attractive. -- lookingtephanie at this situation, does the united kingdom have a team in place to come to the table and do something they have not done in decades is having trade negotiations? stephanie: widespread concern is that they do not have enough people. we were thinking we are going to get clarity over the next few months. the key political decisions around talks will be taken by the french and german leadership and we will not have new leadership until the autumn.

the idea we will have a clear idea in the next few months is possibly optimistic. there are a lot of of reasons why you might sell the pound. country that has nearly 6% of gdp deficit of borrowing from the rest of the world and uncertainties about the future of global trading relationships. i am always suspicious when everybody agrees on the currency. it could easily go the other way. the morgan stanley view, i think, is out on a limb when you look at the structural forces that would be weakening the pound if you do not have the uncertainties. not likesiness does uncertainty. this morning, they said they will cut capacity as soon as the first half of 2018 if there's not a deal in place. about not really getting started on till october. do 10 ryan air -- do we take ryan air? type ofpends on what

business. financials cannot wait to find out what the regulatory environment will be like at the end of the two years. there can either be scaled up or down based on how the agreement falls. impacted and, less anecdotally, not planning on moving out. ryanair, may see a start but mentally financial services and institutions. ne has beenf the to decent from the eu a u.k., how soon will is sour as they deal with the exit bill that most people anticipate will be first on the table? stephanie: one of the longtime said everybody goes in to trade negotiations with fine talk about strengthening relations and when you get into it, a bareknuckle fight for your own country's interest.

there will be an aspect and the money issue, if the british refuses the exit bill and say we do not go a penny, that will make it very difficult to build mutual goodwill and move ahead with the negotiations. send it important messages will be key. him playing on twitter. donald tusk tweeting -- more official confirmation. talking how they u.k. will rollover, how can that spread to europe at the same time? if at the u.k. is going to get hit like everybody is saying, it will spread to the continent that has huge surpluses. why are we not talking about that? >> it might shift as the harder data comes out, not entirely following this as i anticipate. there will be impact on europe.

the greatest risk is political risk. given brexit will not be finished for another two years, their other risks. jonathan: the big consensus appears to be buy europe at a time when europe could be distracted. we could have two years of it, the back and forth, the back and forth for you say they will not be distracted over this, jordan. jordan: the new store -- jonathan: we have to leave it there. the government on the democratic will of the british people and it asked on the clearer and convincing position of this house. a few minutes ago in a brussels, the united kingdom's representative to the eu candidate letter to the european council on my behalf confirming the government's decision to revoke article 50 of the european union.

article 50 process is now underway and in accordance of the wishes of the british people , the united kingdom is leaving the european union. this is a historic moment for which there can be no turning back. britain is leaving the european union. we are going to make our own takeions and own laws and control of the things that matter most to us and take opportunity to build a stronger, faerber britain. a country our children and grandchildren are proud to call home. that is our ambition and opportunity. that is what this government is determined to do. mr. speaker, at moments like these, great turning point in our national story, the choices we make do find the character of our nation. we can choose the say the task ahead is too great and turn our

phase to the past and believe it cannot be done on the forward with optimism and hope and believe in enduring power of the british spirit. i choose to believe in britain and our best days lie ahead. and i do so because i am confident that we have the vision and plan to use this moment to build a better britain. leaving the european union present us with a unique opportunity. it is this generation's chance to shape a brighter future for our country, to step back and ask ourselves what kind of country we want to be? i want thes clear -- united kingdom to emerge from this pedal of change stronger, and mored more united outward looking than ever before. i want us to be a secure, prosperous, tolerant country, a

magnet for international talent and a home for the pioneers and innovators who will shake the world ahead. i want us to be a truly global britain. the best friend and neighbor tarp european partners. the country that reaches beyond the borders of europe, too. >> i apologize. mr. boswell, calm yourself for you have to behave in a statesman condition for that is your goal. think about is this, you can study the record full i want all colleagues to have a chance to question the prime minister. this is the important statement and it is reasonable to expect the prime minister gets a courteous hair root in every other top -- courteous hearing and every other candidate gets the courtesy of hearing. i want us tor may: be a global britain.

a country that reaches beyond the borders of europe, too a country that goes of the world to build relationships with old friends and new allies alike. that is why i set out a clear and ambitious plan. a plan for a new partnership between britain and the european union. a partnership of values, of interest, a partnership based on cooperation in areas like security and economic affairs. and a partnership there worked in the best interest of the united kingdom, european union and the wider world. ,erhaps and now more than ever the world it means the liberal democratic values of europe. values -- crosstalk] [laughter]

prime minister may: the world needs the liberal democratic values of europe. values that the united kingdom shares. that is why we are leaving the institution of the european union, we are not leaving europe. we will remain a close friend and ally and will be a committed partner and play our part to ensure they europe is able to project is values and offend is self. we will do all we can to help the european union prosper and succeed. mr. speaker and of the letter delivered to the president today, copies of which i place in the library of the house, i have been clear that the partnership we seek is and the best interest of the united kingdom and european union. clear we will work

constructively in the spirit of sincere cooperation to bring the partnership. i have been clear we should seek to agree the terms of this future partnership within the next two years. i am ambitious. the objectives i set out to be negotiations. we will deliver certainty wherever possible to the business, public sector and everybody else has as much clarity as we can provide as we move through the process. tomorrow, we will publish a white pair -- paper confirming our plans so that everyone will know where they stand. it is why am clear the government will put the final deal between the u.k. and eu 12 fold in both houses of parliament. we will take control of our own laws and brendan and to the jurisdiction of the port of just -- and bring an end to the jurisdiction of the courts of justice.

our laws will be made in westminster and belfast. those laws will be interpreted by judges not in luxembourg but across this country. we will strengthen the union of our4 nations that comprise u.k. we will negotiate as one united kingdom taking into account the specific interest of every nation and region. when it comes to the powers we will take from europe, we will consult which powers should reside in westminster in which should be on to the administration. speaker, no decisions currently taken by the administration will be removed from them. it is the expectation of the government that the administration in scotland and wealth and northern ireland will see a significant increase in their decision-making power. the area westin

ireland and no return to the borders. we will control immigration so we attract the brightest and best to work and study in britain and manage properly so our immigration system serves the national interest. we seek to guarantee the right to be citizens already living in a burden and national -- in britain and nationals as early as we can. that is set out clearly and of the letter as an early priority. we will ensure workers rights are fully protected and maintained. under my leadership not only will the government protect the rights of workers about to build on them. a bold and ambitious free trade agreement with the european union that allows for the free as possible trade between britain and a eu member states.

british companies the maximum freedom to trade wes and operate within european market and less european businesses do the same in britain. european leaders have said many times we cannot cherry pick as remain members of the single market without accepting the .reedoms that are indivisible we respect for that position and accepting those freedoms are incompatible with the will of the british people, we will no longer be members of the single market. thate going to make sure we can stretch rate agreements with countries from outside of the european union. it is clear that they u.k. means to increase significantly its trade with the fastest-growing export markets in the world. we helped the team to collaborate with european partners in science, research and technology so that he u.k. is one of the best places for

scientific innovation. and it to deliver us mold and orderly brexit -- and to liver -- and to deliver a smooth and into a brexit and moving process of implementation in which britain, they eu institutions and member states prepare for the new arrangements that will exist between us. mr. speaker, will understand there will because of courses for the u.k. leaving. we know we will lose -- we know there will be consequences for the u.k. leaving. -- we know we will lose rules that affect the eu economy and companies that trade would have to line with rules agreed that we are no longer a part just as we do in other overseas markets and we accepted that. we approach of these talks

constructively, respectfully and in the spirit of cooperation. we should use this prices to deliver our objectives in a fair and orderly matter. it is in the interest of united kingdom and european union there should be as little disruption as possible and the interests of both they europe should remain strong, prosperous and capable of protecting its values in the world. at a time when the global trade is slowing and assigns a protectionist instincts on of europe has aope -- responsibility to stand up for free trade in the interests of all citizens. with europe security more fragile than any other times in the end of the cold war, we commit our cooperation and failing to stand up for values

would be a costly mistake. is note to leave the eu rejection of the values we share. we willopean country, play our part in promoting and supporting the values during the they are.ns and what we will be reliable partners with our allies and close friends. we want to continue to buy goods and services and a trade with them as free this possible and work with one another to make sure we are safer and more secure and prosperous through continued friendship. in an increasingly unstable world, we must forage the closest security cooperation to keep our people safe. we face the same global threats. that message was reinforced by the attack on westminster bridge last week. there should be no reason why we should not agree a new special partnership between the u.k.

anti-e.u. works for us -- and eu works for us all. ofnow it is a day celebration for some and disappointment for others. the referendum last june was divisive at times. not everybody shared the same point of view. the arguments on both sides were passionate. when i sit around the negotiating table, i will represent every person in the united kingdom, rich or old, -- young or old, rich or poor. have made ofonals the country their home. to gety determination the right deal for every single person in the country. as we face the opportunities ahead of us on this momentum journey, our shared values and ambition can and must bring us together. we all want to see britain that is stronger than it is today. we all want a country that is

fairer so everybody has the chance to succeed. we all want a nation that is safe and secure. in a julie to live global britain that gets out and build relationships with old friends and new allies around the world. ambitions this government has planned for britain and ambitions that unites us so we are no longer defined by the vote we cast but our determination to make a success of the result. we are one of gritty union of --ple with a proud history we are one great nation of people with a product history. now that the decision to leave has been made, it is time to come together so this great national moment these a great national effort to shape a stronger future for britain. let us do so together. let us come together and work together. to believe it is britain with optimism and hope for if we do,

we can make the most of the opportunities ahead, we can make success of this moment and we can build a stronger, fairer, better britain. our children and grandchildren are proud to call home. [cheering and applause] jonathan: that is theresa may, a for somelebration disappointment for others. a historic day which there is no turning back. longer a member of the single state. no real news in a that but there were 10 the rights of eu citizens within the united kingdom. i want to get to market reaction. no real substance in the speech but tone important. cable rate of. -- up. stronger pound a week or ftse continues.

the ftse up quickly. rolling over of the session about 24 points. i want to bring in jordan rochester and stephanie flanders. thank you for standing with us. the framework for thinking about the fx market, sterling for the next two years, what is it? jordan: a mix of politics and the data. we talked about how does break the impact the u.k.? we think we will see the slow down. the bank of england should be on hold in our view. it is when it comes to moving the markets left and right, there will be times as we are currently seeing where they will be pushing the markets or hawkish pricing. we think we should save that. sterling will not be moving up on a bank hike. on the politics side, whether we have a nice relationship with they eu after brexit or the

cliff edge. i think we will avoid the cliff edge. in september with the general elections, uncertainty from the eu game asy play the same the u.k. and trying to get the best a deal or close off the u.k. and show the u.k. as an example of what happens when you leave the eu and set it as a bad example for what -- what other members should not leave? alix: i want to throw at the picture of the ambassador, tim barrow and donald tusk, a handshake when the letter past. what was the tone? doesn't look conciliatory? stephanie: everybody playing their ceremonial role at no point of doing any grandstanding at this point or making any new enemies i saying anything unpleasant. you are in a difficult position

if you are theresa may. she have to make the bet of brexit. having a positive tone and going into negotiations with positive rhetoric. the cost in terms of public opinion and preparation you may have wanted to see for negotiations is there's been no expectation management. the country has been promised everything. she can only fall short in the goals she set forward. you can see why she would want to be positive. she got noise in the parliament when she talked about how we democratic values they europe presents. many say that is why we should not be leaving the eu. you can see why she wanted that positive tone. nothing for her to be anything for her to be conciliatory. what is going to happen in the negotiations? david: exactly.

i wonder if we did see a couple of things. she reiterated more than was national security and terrorism. a possible thing the u.k. could offer is to increase support to europe on that front. she said she wants to deal with the rights of citizens. those could be an indication of early as awant a gift. she said no more single market. forget the european court of justice. stephanie: you got the pros and cons of her own experience. she is not been in the foreign office or treasury but wasn't years as the home secretary. she is had a positive experience working with europe on the security and arrangements. you can see her pistol in those areas because she knows it can be positive for the areas she came at the -- nuclear positive in those areas because she does

it can be positive. -- the areas on the european court of justice, if she states firm and says no, we wanted to control of our borders when it comes to people and do not want jurisdiction from the european court of a it will make a more ambitious trade deals more difficult. david: and know about a paying of the divorce bill. be aanie: that will sticking point. there is a legal opinion that the government is sticking with that we do not owe ap any. -- a penny. there is general agreement for goodwill sake, the u.k. should pay a price and she has now ruled it entirely but it could be a real issue of whether you go into something tried establish goodwill or if you have many enemies early on. jonathan: stephanie ross --

stephanie flanders and jordan rochester. letter.out the official the tone is important. last year, the voters voted to .eave the eu it was not an attempt to do harm to the european union or any remained and member states. it is important because it sets of the stage for a series of negotiations were many people think they will come undone. they will have have a real debate. alix: the tone is important to. you can see it reflected because trade wasn't the euro against other up around -- pound at the brexit. he is intraday lows, the tone is quite important. david: she talked about trade more than once. she said we want to trade as freely as possible a u.k. goods to make it into europe.

quote from the former cabinet minister. after saying no free lunch, we pay so much into the eu budget and bought the restaurant. do not high widely held that view is? the idea we pay in exit bill, how will it go down with the electorate? david: the facts are on his side. if you look at the inflow and outflows, u.k. second only to germany and in the eu. they have paid more than their fair share. jonathan: a free trade agreement that includes finance. will that become undone? if you agree with kramer, this will be a sequential process and you begin with negotiating an exit bill and move on to wear with a u.k. have the leverage? if you want this exit bill, we want this. you get through wanting and move on to the other.

-- one thing and move on to the other. people will say if you want this, we will renew negotiations -- renegotiate. this will not the done in two years is the consensus. david: if it was commercial deal, you would never negotiated like that under theresa may's view. i will give you this last after i get what i need. how many times she mentioned security, safety and stress? if felt it was an opening bid. we know we need things for you but security and stress, unique th, you need there from us. jonathan: try to run a business. the process begins. it could go for longer. what decision do you make?

david: if you are general motors, you sell opel. part of the reason they sold opel was because of brexit. forward came out with an email saying it is a big problem for automakers -- four came out -- ford came out saying it is a big problem for automakers. jonathan: how many people have made hiring decisions over the last nine months? how many people would've hired more aggressively? that uncertainty does not make things rollover but people hold back. i went out much they will hold back. we will continue the conversation. the coverage continues in westminster and london in the heart of europe in brussels. you are watching bloomberg. ♪

jonathan: prime minister may signs article 50 to leave the european union and in officially begins. about two lines over a break -- battle lines over a brexit a vote. the british economy has not rolled over. europe?consensus is buy i amloomberg daybreak," jonathan ferro with the david westin and alix steel. the official brexit process begins. theresa may signed article 50 and handed it over to president donald tusk. donald tusk approaching the podium in brussels in europe. let's take a listen to the eu president and what he will say back to the letter from prime minister may. donald tusk: and formally

starting negotiations of the united kingdom's withdrawal from the european union. there is no reason to pretend that this is a happy day. europeans most including half of the british voters wish we would stay together and not drift apart. as for me, i will not pretend this is a happy time today. , there is something positive in a brexit. community made us the more determined and more united than before. i am truly confident of this,

especially after the declaration and today i can say we will remain determined and united also during the difficult negotiations ahead. that i in the time toon have a strong protect the interests. i am talking about both sites -- sides. aboutence, this is damage control. our goal is clear -- to minimize citizens,for the eu businesses and member states. we will do everything in our to achieve this

difficulty. and what we should stress today is as for now nothing has changed. to the united kingdom leaving the european union, eu law will continue to apply to and within the u.k. like to say you have just released an official by the european council in which the leader stress you will act as one and stop negotiations by focusing on arrangements for an orderly withdrawal. on friday, i will share a proposal of the negotiating guidelines with the member states to be adopted by the european council on april. i will refer to this and i will

command other proposals on friday during our press conference with prime minister -- what can i add to this? thank you and goodbye. presidentthe european donald tusk. very own's very on -- article 50 is that people were not aware of until a year ago and many people never thought would be used in the official process begins. talk to me what we heard from the european union president. >> we heard pretty conciliatory tone from donald tusk. the eu does not really have a much reason it seems to give a butall weight to the u.k.

they do want to remain closed for the sake of the business interest and the people's' interest. u.k.ny people live in a and in europe. he said as much in his official response. the british, for their part, fairly conciliatory at the beginning of the letter and they posted it on the website. they make a couple velti threats on security cooperation -- veiled threats on security cooperation. jonathan: how does it play out? we have to wait of four month until that the summit. will we have lines drawn? seeing some we are lines drawn out. i have only had a chance to look through the letter. if you look at the bullet points six in the letter, it is an interesting line where theresa may said she wants ambitious

free trade agreement. it also includes financial services. usually around manufacturing and she is expanding the definition of free trade agreement and she talked about how there's already a regulatory system and the implication why it should not continue. we are seeing nuances emerging. we will hear more from tusk on friday where we get more guidelines. we talked a lot about red lines and threats and also overtures made as well. alix: i love what you mentioned about article six because it talked about the framework for the fair and open trading environment and was interesting. that wehn brought up will get for mr. tusk, what does it look like? -- a he made appointment

point that the european union still has to pass a framework of negotiating guidelines. that will not happen until april 29. it will be a long way on till the eu can legally, officially negotiate this exit. negotiate a to trade deal later. made a greatavid point, britain wants to do all the negotiation at once and give as much as a they get. they want from the trade deal more than they want from the brexit negotiations. before youve to say go to the number of, she made interesting point in the letter where she set we like a free trade you and if we do not, we will restore back to wto that it would affect national security and we will work with you but it will be weekend. this is a strong negotiating point.

john: the national security is anas negotiating interesting want to look at. you have to ask yourself a question given the events of london last week, is it something theresa may was to make a series bargaining point? when it comes to wit, maximum-security issues like terrorism revolving around protecting lives and safety of eu citizens, you have to question if it is something she will go and hard on. certainly, a high wire act, slightly risky gamble, i would say for the prime minister to play so aggressively early on. the challenge right now is time to figure out which of these statements are posturing and which are actually reveals the hard-core priority that will be on the table at a midnight to

one minute to midnight in two years time. a lot of interesting things to look at. david: a really hard stance to ite and we want to see how plays. a lot not covered in the letter. it is insecurity terms of failure would mean our cooperation in the fight against terrorism would be weakened. that is strong opening gamut. risky one andly given everything not only in london but on the continent. what we are looking that is basically another six months of almost a holy war to certainly extent. the commission will not be able to have a proper sign off until to the end of april. and then, a search -- sort of limbo on least until mid-september with the german elections.

after german elections, it takes six weeks to get a government put together. it could be late october, early november before we can get down and see which of the open positions from theresa may are -- is shein which are serious about. alix: anything that happens in the next few months before the german election, does it really matter? matt: the french elections certainly matter. one thing that will be worse than a brexit would be a frexit. if le pen won, and we are told the chances are low, if she were she said she wanted to pull out of the european union and wants to pull out of the single currency. that could be detrimental to the bloc. i think the political events between now and german elections matter and all probably more than the german elections. you could make an argument that

angela merkel been such a consistent and steady hand over europe in the last 12 hours that change route would be detrimental. jonathan: great work. matt miller and john fraher in the city of london. a history moment for which there is no turning back, the words of prime minister theresa may. the process begins today. this wednesday morning, futures a little bit softer. we go nowhere. the ftse rose. the pound's threatening we rolled over a little bit. 124.46. yields up abide 2 base points. from new york city, eyes or europe, london, westminster and brussels, you are watching bloomberg.

prime minister theresa may? today, the government acts on the will of the british people and ask of the clear and convincing position of this house. a few minutes ago in brussels, the united kingdom representative to the eu handed a letter to the president of the european council on my behalf confirming the per -- the governments position to invoke article 50. jonathan: the official process begins. let's capture the story in the fx. cable rates a little bit higher after the tone. 124.43. roll over a touch. that gives you an idea of the scale of the drop since the decision was made to leave the

european union alix: take a look at of a trade. the euro moving lower after theresa may spoke in parliament early down by 0.5% pretty joining us now is great anderson and paul malloy -- great anderson and paul malloy -- greg anderson and paul malloy. the reaction is the more conciliatory tone from theresa may. do you buy into longer-term? sure if the reaction is her conciliatory tone or she brings forward new leverage in good negotiations. people do not think the u.k. had and that is why was seen the higher.e move longer-term, nothing will get resolved until after the german government is seated. i would say after we know what is going to happen with the situation in italy.

monthsion is nine to 12 out. i think we will find it will be relatively friendly to the u.k. a euro sterling, i think below 18. stanleyu echoed morgan and they said that will be a softer deal. call, do you buy that statement that is what we are in for after going into situation where there was less leverage and now that is more? >> i think that is accurate. it is not in the benefit of any party to be extreme. they need each other. big trading partners. it is hard to undo that history and proximity and the need. despite all the great posturing you will see early, we will get to a spot that may not be exactly like the eu but shall work for both parties. jonathan: you mentioned the new leverage, what is it? >> bringing security.

the first leverage point was a pass through as a u.k. said we do not care that much about it. , exitxt point was price price. this is the u.k.'s response to a high price. you will pay high price on the security front. people who think it will play out sequentially and deal with the one by one, what do you say to those people? i think you will see everything fall together quickly once the political hurdles are out of the way. , the last election little piece of it is italy and we need to be sure there is not split to be a snap election by the end of the year. i think a deal will fall to the quickly. and theow much leverage security issue in the letter to mr. tusk? >> i do not think there is a

ton. security is something both areas can really get behind. in as they you or any country or the u.k. are going to leave that to chance. i do not think there is a leverage point. it is something to open the discussion and to make people realize that security is a big part of it. david: after the incidents in how oftenrussels, have they been called in authorities to help in counterterrorism? >> what we see in public and what happens behind the scenes are two different things. i think there is more going on than we are able to know about. alix: bull for we her theresa may speed, the conversation was not what to happen and you will not get a deal in 18 months and then well for conversation they need each other too much and it will be five.

greg, the issue is the countdown. it still has to be approved by the promise and that will be counted down with the german elections. potential italian snap elections and how can teresa negotiate when she does not know the leaders will be. >> it is one thing to have a view of how the deal will look going forward and another to sign all of the papers. knowhe markets, we need to if there is a framework in place in the market and will price the final deal. jonathan: a great answer. anderson and paul malloy and both of you are sticking with us. this is the same right here and right now this wednesday morning. the dow goes nowhere. switch out the boards. treasuries, yields are lower. , a little overh

on a u.s. 10 year. from new york, you are watching bloomberg. ♪

jonathan: from new york city, you are looking at westminster in the city of london where 45 minutes ago the prime minister, theresa may, made a statement declaring the process has started at a day of celebration for some and a disappointment for others. still with us is paul malloy. they consist of view is emerging on the last several months. buy europe. the politics do not go near it.

what do you say? paul: i think you have to go to economics mean everything. politics is a lot of rhetoric and being said in the political arena are hard to get initiated especially on the extreme end and that's what we have seen on the political front is political talk and most things that do not get donald. -- thettle closer to the do not get done or you me closer to the middle. it is all about gdp and earnings. alix: do you like your? -- europe? l: it is not any place i was shy away from. it is not in a place i dislike from a fundamental standpoint. valuations are tight at the moment. alix: a lot cheaper than the u.s., are there sectors or a region that looks more appealing to you?

l: from a sector region standpoint, nothing really jumps out other than some of the u.k. banks started to maybe look a little rich on uncertainty and some of the french banks are overdone. on the back of political risk opposed to fundamentals. david: as you say, economics matter. is the market pricing in politics that would create an opportunity because we are discounting assets? >> the fx market and rates markets. other risk assets are missing out on pricing in some of the near-term political risk or volatility. most of the rates are where you see a it is widely absent out side of a few segments. spread,: looking at the the spread between the price and

the pessimism in the price for assets and where the economic data is currently, the reality versus pessimism, how wide is it? i mentioned earlier, not terribly widespread in not that far apart. is abovee do believe trend at this point. it has been much better than expected. that is not tremendous at this point. i think we are moving slowly in of good direction after central-bank action and a lot of things to be done in the last five to seven years to the present. .lix: paul malloy interesting to hear bring up central-bank action. aside from politics coming ecb, a convergence story, what winds up happening to the market? jonathan: the bank of england

with price stability. a little bit uncertainty does not fall under it. the downside to risk is, i wonder what are you thinking today? david: mr. carney has not had an easy job of it and it is not getting any easier. jonathan: he has come in for a lot of criticism. alex may when is he out? -- alix: when is he out? that sounds like a deal. yeah. yeah. jonathan: from new york city with our eyes on europe, the process of brexit continues. you are watching bloomberg. ♪ live-stream your favorite sport

at the airport. binge dvr'd shows while painting your toes. on demand laughs during long bubble baths. tv everywhere is awesome. the all-new xfinity stream app. xfinity. the future of awesome. jon: from new york city, this is "bloomberg daybreak." let's get a check of the markets very quickly. futures are stables this morning in the u.s. on the dow and s&p 500.

the dow yesterday snapping that eight-game losing streak. lowstse bouncing obsession . -- off session lows. weaker pound story, weaker euro as well. stronger dollar on both of those pairs. yields lower by two basis points. two weeks ago, to 62. a big repricing in that treasuries market. let's say good morning to emma chandra. u.s., president trump will be briefed tomorrow on the various options for tax reform. the president's chief economic advisor will be among those conducting the briefings. one of the proposals is the border adjusted tax. that would replace the 35% corporate tax with a 20% tax on domestic sales and

imported goods. they want to pressure democratic senators to support the nonprofit will spend $1 million on a tv campaign that starts today. in asia, a research group in armn proposed the company itself with the first offensive weapon since world war ii. they recommend japan improve its missile defense systems. they're very concerned over north korea's recent missile tests. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. jon: thank you very much. the process officially begins, nine months after the decision to leave the european union. prime minister may signs article 50 and triggers the two-year process to sever ties with the continent.

joining us from london is stephen morris, bloomberg u.k. banking reporter. fears playching the out -- how will you run your business as far as london is concerned? >> we are entering a huge period of uncertainty can especially for the west bank's based in based in u.s. banks london. letters have been released from theresa may and the u.k.. it doesn't look like financial services will get a good deal. muslim european banking stocks falling across the board. sentiment is a bit negative today. -- as you can see, some european stocks falling across the board. most banks started to make

announcements last week. employees, a few hundred here and a few hundred there just to be certain that they can continue to serve their clients across europe. that is when people like jamie dimon will have to start looking at the thousands instead of the hundreds. jon: one of the arguments being that if they try to chop up london as a financial higherey can expect borrowing costs on the continent. how well received is that? an enormous is collection of politicians and former finance officials. there's a benefit of having a hub.

that is probably the major argument going for london. it's the only place that has the expertise to do all these things. there is some recognition on both sides of the channel that there is a potential for mutually assured destruction if both sides refused to come to an agreement. london is going to suffer. jon: stephen morris. i still struggle to find a banker in london who wants to move to paris. who wants to go to dublin or frankfurt. alix: i would go to paris. david: it's not easy to do business in those places. jon: it's a reason socgen is they have huge hq's in london. satd: john micklethwait down with theresa may in

february. value financial services in the city of london and i will ensure we can keep financial services in the city of london and britain will do just that. david: we are fortunate to have john micklethwait here. john: the poor man's substitute for theresa may. david: theresa may included financial services as part of the trade agreement in her letter. what are the chances of her getting that done? john: we are stuck in this thing where the british, the may government made this big mistake where they came in and began to speak about financial services didn't matter, this is all about carte blanche and things like that and they simply turned that back on financial services. they weren't going to do any of the things that people want it.

they gave it away at the beginning. suddenly, right around that davos interview, she began to change because she realized how important financial services are to the british economy. this is crucially part of the british economy. suddenly, they are trying to get something through, but in some ways, it is too late. that is partly may's fault. very logical case for europe having one financial center. everyone's borrowing costs will be much lower. every european politician i've spoken to says so what. the british up to suffer. david: theresa may downplayed it at the beginning because she didn't want to say we need it because that gives up our wing leverage -- gives up bargaining leverage. john: i think it was the

opposite. they wanted to turn their back on the city. it fit into her vision of the people versus the powerful. but thetics can change underlying economics of the british economy are very simple. how quickly can areas like frank for an paris change their laws and revisit the industry to accommodate financial services over the next two years? john: frankfurt, the question there is the culture. there's not a lot of people who want to move in a rapid hurry to frankfurt. bankershole, investment don't tend to want to rush to frankfurt. the financiale center, it was paris. the laws are terrible.

on the whole, most bankers would rather stay in london for the next period. they will pull some people out and try these other places. maybe amsterdam. the one currently getting the most backup seems to be dublin dublin is easy. it speaks english, it is close by. paris would have possibilities if it changes the law. jon: they won't invest. a lot of people thought the economy would roll over under 24th and we would have a series of bad data. -- january 24. will this be a really slow burning economic event? john: it really slow burning thing. the british economy is based on services. sign all these fancy trade deals in places far away. we can have a great trade deal with australia. fantastic. what will happen is the

australia's will export beef to britain, that will work. the british economy services come it is difficult to persuade an australian company based there that they need pr in london. that is the problem for the british. the british economy is tied into services which pulls it more to work europe. toward europe. david: they talk about car plants -- john: it was more that they tended to -- that is entirely fair. what was wrong was to destress the city as an important thing. it's not the same as 40,000 jobs in the city which pay more. there's a high-end bit of british manufacture and. ironically, the car industry is

very young. the car industry we grew up with was a nightmare of terribly made cars. andr people came in refashioned the british car industry. one of the main car manufacturing centers in europe now. in --how do you factor how many free trade agreements come with services? john: that's the point. would be an union lot more efficient if it had a proper services free market. you can do on your trading with the rest of europe without having to do any more, that was helpful. that is what might now go. jon: john micklethwait is sticking with us. coming up, a quick programming note. a closer look at how the rising populism is reshaping the global economy.

andformer ecb president former italian prime minister way in. -- weigh in. from new york, you are watching bloomberg. ♪

emma: this is >>. -- this is "bloomberg daybreak." coming up, and exclusive interview with the boston fed president. >> we are going to make sure we

can strike trade agreements with countries from outside the european union, too. the u.k. needst to increase significantly its trade with the fastest-growing exports market in the world. alix: let's bring in alan crawford from berlin. theresa may went on to say if we leave the eu without an and to the opposition from the wto will affect our -- is thatoperation how you read it? we will pull back on our security forces? definitely ay was lot more conciliatory than her previous a speech in january the originalt terms of what britain wanted from the eu.

she said she wanted the eu to prosper and succeed, the u.k. wants to be the closest of partners, but there is a significant difference of opinion here when it comes to trade and the future primeonship that the ministers stressed that she wants discussions about the u.k. leaving the eu to go alongside with this new partnership, the trade agreement. has said its response we will only focus at the moment on the u.k. leaving. they are not even going to discuss an immediate future. buy the security angle? >> frankly, no. amount ofa certain

, nowage, but at this stage that the article 50 process has been triggered, they can dictate how fast these negotiations take place, what they will discuss. issue for onee part of the block. by no means is it everything. alix: alan crawford joining us from berlin. david: still with us is our editor in chief john micklethwait. there was a lot of heckling going on. at one point, the speaker had to stand up and say behave yourselves. she tried to say something positive about europe, the eu. there's a lot of politics behind this. she has difficulty reaching out. the populists really are anti-europe. john: most of the populists in the u.k. are

anti-europe. you have marine le pen in france. le pen saying she will call a referendum on the euro, which is a clever thing to do. if she called a referendum on leaving the european union, that would be quite tough in france. to leave the euro, there's a lot of support for that. she would effectively throw the european union and crisis. david: how does that form the negotiation -- john: you would hope that it would have some affect on the europe.y, the rulers of for most of them, it would have some affect. we really need to change the way that europe is run.

particularly angela merkel. she's facing a situation where in 20 years time my children across europe will be asked to write an essay answering whether angela merkel was good or bad for europe. she had all this power, what did you do with it? the second group are these --ple on the outside pushing they know that something has to be done. they have to change europe in some ways that makes better. giving the british anything is giving the people who just and there's no great love for the british at the moment. jon: do you think they are aware that there's one individual in the room with capacity for cover my stomach it is prime minister theresa may -- capacity for

compromise, it is prime minister ?heresa may john: she has the labor party against her. step forward to years time, imagine the british economy , imagine people begin to say this really could be worse than someone mishandling the situation. they will say you should have just walked out of this. a lot of other people will say this is a mess, we never voted to leave the market. we thought we would just leave the european union. she could be the woman in the middle who looks like she's not running something. jon: over the next two years, what is more likely? this gets done within 24 months or prime mister make calls

another election. john: the second. the chance of this getting done -- you would be stretched to do this. , a divorceebate negotiation where one side is andng please be rational everyone else is saying you weren't rational with us. jon the negotiator. i don't know. jon: they don't want me in brussels anytime soon. alix: john micklethwait, great to see you. check out tv . click on our charts and graphics and interact with us directly. just go to tv on your terminal. this is bloomberg. ♪

--: joining us from london to get a grip, a handle on the next two years for sterling denominated assets. richard jones, let's begin with you. the framework for thinking about sterling. we've been bouncing around 120, 127 for the next nine months or so. how do you play this? >> it has been noisy over the past few months. that range over the past three months has been dominant. below 120 werek above 127 to really get new direction. until we break through that range come and will be very, very frustrating, very difficult to trade. jon: the noise matters a bit more now. the noise becomes official when

they begin to negotiate. do you just assume that volatility has to pick up in a way that it hasn't so far? >> it will over the course of the coming months. we've had an underperformance of sterling come a credit risk -- sterling, credit risk. people are looking for some form of revelation. this is just the decree predict we still have two years before we get to decree absolute. volatility will pick up as we move through. there's been a benign response. this been a small outperformance of sterling risk versus euro and dollar. we take a look at the gilt market -- what will be the leader of gilt? more of the fed and ecb raising rates or will it be able to stay

focused on the brexit news? >> politics has been driving all the u.k. assets since the referendum vote. what's become more interesting now is the actual domestic data. it is starting to turn a bit lower. inflation-adjusted wages in the u.k. are contracting. look at retail sales, the most recent report of the last three months, we've had the biggest decline since early 2010. it seems like the data are starting to turn over and we do tightening priced into the curve for 2017. it wouldn't surprise me if that starts to work out. to: the downside risks growth has not yet materialized in a significant way. witharts to and gets going carney getting out of the corner he's in. >> absolutely.

as far as risk appetite is concerned, there's been this assumption of continued qe. start thinkingo about the positions you been putting on in the high-yielding lower credit quality part of the risk spaces. jon: great to have you with us. bankg up, from one central to this one. fed presidents this week on bloomberg. -- bill dudley and jim bullard. from new york city, you are watching bloomberg. ♪ careful joe, they've got you outnumbered.

the dinosaurs' extinction... don't listen to them. not appropriate. now i'm mashing these potatoes with my stick of butter... why don't you sit over here.

something for everyone is awesome. find your awesome with the xfinity stream app. more to stream to every screen. 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. jon: europe versus the u.s. .trategists are noticing

fed back in focus. three fed presidents take stage across the globe today. on growth, bank of america report reveals fund managers putting their money to work. we reveal what sector they see as the big winner. good morning. a warm welcome to "bloomberg daybreak." 30 minutes away from the open in new york. the stage set as follows. futures go nowhere, the dow one point up. 500, futures unchanged. the cable rate a little weaker, down .3%. the stronger dollar story materializes. yields lower by two basis points. alix: that is the macro, here is the micro. ,ertex pharmaceuticals up 20%

its cystic fibrosis drug combo does succeed in trial. deal max rsmall chip sxr andinear -- maxlinear. a big bet on xr. restoration hardware up 15%. it sees first-quarter revenue guiding up to $545 million. really trumping estimates that we've seen. we talk about retail and how they are not feeling it. restoration hardware seeing a more optimistic picture. froman historic moment which there is no return some of those were the words of prime minister theresa may. historic moment from which there can be no turning back. britain is leaving the european union. we are going to make our own decisions and our own laws.

we will take control of the things that matter most to us and we will take this opportunity to build a stronger, farrar written -- fairer britain. jon: joining us from westminster, nejra cehic. the day is finally here. talk about the next two years. >> that is what the focus is on now. that letter has been signed, sealed and delivered to the eu. the divorce papers have been submitted. given the tones we've had from the u.k. and the eu side, it seems this divorce is going to be conciliatory. theresa may talked about a deep and special relationship between the u.k. and the eu and from the eu side, there were some hints of emotion and donald tusk's statement. one of the key things going in u.k. wants tothe

come to some sort of free trade agreement with the eu simultaneously as it discusses those conditions for exit. already, we are seeing that that could be some kind of a sticking point. that will be one of the key challenges over the next two years as well as sticking to the timeline. theresa may was pretty optimistic that the talks could be concluded within two years in her address to parliament. jon: nejra cehic from westminster. thank you very much. it's becoming a popular call, isn't it? buying europe. deutsche bank said investors should reduce holdings in the u.s. and by europe on valuations. jeffries says the euro is cheaper on every metric and socgen says it's time to switch to euro area. joining us from charlotte, north -- buy europe seems

to be the consensus trade. the politics of screams stay away. what you say -- the politics scream stay away. what do you say? >> to the extent that markets climb the wall of worry, that's one of the things that people worry about. england leaving the european union, the elections in france with the arena pen potentially being the new head of france, those issues are always on investors' minds. valuation is what it's all about. you look at the euro stocks, 15.8 times earnings. the u.s., it's about 18.3 times earnings. europe definitely looks attractive. dollar strength seems to be fading in the short run.

europe does look very attractive right now. alix: the etf gathered $518 million. yes, there is money being put into that that. -- that bet. is there a distinction between the flows and where we see the flows stop? >> it's the early stages. you can look at the flows into what's happening. see what's happening. ultimately, it's one of those things where investors are looking at what is available to them, what is the best option, what makes most sense. more and more money will move to europe, potentially leaving the u.s. and looking elsewhere for better valuation opportunities. david: europe is a pretty big place. take us into the divergence here. are there parts of europe that are more attractive by sector or geography? >> sure.

people talk a lot about the financials. you are starting to see some recovery there. people will look to play the financials. look to play parts of the thatll economy recovering could be on the consumer discretionary side. looking at countries, it varies. germany is considered one of the stronger economies in europe from a valuation basis, maybe you are better off looking at the more peripheral nations. spain, greece taking on more risk. also look at the best risk reward and look for upside as the economy continues to heal. alix: the blue line zero stock -- is euro stocks. that grind higher, cyclicals wound up taking over. there are some calls out there that the cyclicals, the dax is overvalued and defenses

bolstered leading the way. -- will start leading the way. >> some of the reasons they are expensive and with a good fun metals. fundamentals. cyclicals will continue to improve as the economy gets better. that might be an example where you would take the financial sector along with the cyclicals. ,tilities and consumer staples maybe you would stay away from those and go more towards consumer discretionary, technology. it has nothing to do with europe, it's the fact that you get a depressed valuation comparatively versus the u.s. and you capture that global growth story. outside of europe which you can achieve through the dax.

the weighting towards cyclicals come industrials on some of those benchmarks. >> that is a fair point. the big story is the improving world economy, seeing all the economic data coming out from around the world. that is what is driving everything as you look at equities across the world. to takestory continues hold and move higher as we expect it will. david: trade is critical to a lot of these companies. trade growth is slowing down if not actually flat at this point. to what extent is that a danger, a risk for trade? >> protectionism, anti-globalization, that is always a risk. clearly, we are moving into that

phase now with brexit and the u.s. election and what's happening throughout europe. we see some counterexamples where in germany, merkel was able to hold power. this anti-globalization push, this protectionism push is out there, it is a risk, but the broader trend of increased globalization, technology helping to increase productivity that is what is going to win out over time. some of these protectionist ideas and looking towards anti-globalization will be impeding the growth we are currently saying. ultimately come of those larger trends will win out and the fears of trade will subside over time. come a closer look at how the rise of populism is reshaping the global economy.

the former ecb president and the former italian prime minister will be weighing in. there is westminster. the heart of the united kingdom and a debate over britain's future as part of the continent. the countdown clock begins, the two-year process starts today. the divorce finally started proceeding. from new york, you're watching bloomberg. ♪

david: this is bloomberg. a big day today pre-brexit but a big week for the fed. we've heard from a number of speakers already. today, we will hear from evans and williams. cio.ng us, the cornerstone

what are they telling us about where the fed is headed given what's happening in washington? >> clearly come of fed has the opportunity now to move the baton from fiscal stimulus -- monetary stimulus to fiscal stimulus. they are moving more quickly now, raising in march right after raising in december. what we saw last week with a health care bill falling apart and not passing has to make them a little concerned. it was smart of janet yellen to say the fed is not currently adding any of this policy movement into their work asked. -- into their forecast. this week, they will try to reassure the markets and make it one understand that they will not just raise three or four times this year no matter what happens. they will be looking at what's

happening in washington. right now, the fed is signaling three rate hikes this year. the market is not quite believing it. if washington does nothing, do we end up with three or less than three? >> that is a great question. the bottom line is what happens with the economy. assuming washington does nothing and the economy continues to improve at this pace, you will see three hikes. some kind of growth scare or something comes out of left field -- the market is discounting this. those go ifly do something happens unexpectedly which drags things down. the fed is beholden to the markets. they are watching what's happening with equities, change in their tone and messaging. for now, it seems that that carriers very much -- cares very

much about what happened in the markets. alix: we are ignoring the reduction of the balance sheet. do you think investors have started to factor that in? >> investors are starting to think about it. you are looking at what's happening along other parts of what the fed will be doing down the line. that is very much on people's minds. if the economy is very strong this year and you get these progrowth policies, the fed and they willimes start talking about what they're going to do with the balance sheet. i don't think they have a choice of letting it unwind naturally. they can smooth it out if they want to or actively reduce it. most people would think the smartest thing for them to do would be to take this out in an orderly way. they cannot allow everything just to hold everything to maturity.

where they have more maturities coming due, they will continue to purchase during those time frames. likewise, when they have a lot coming -- lot less coming up, they will proactively sell. the fed will be very careful about how they unwind their balance sheet. .lix: everyone wants order buy then dipg the mentality. --see for trillion dollars $4 trillion. what would shake something like that? >> it is hard to know what is really going to shake people's confidence in the markets. the underlying optimism around the economy continuing to improve even prior to the election come a lot of this hope out there with the progrowth policies have people thinking you always want to buy the dip

and if something goes wrong, the fed will be there for you. what will shake that mentality is one of these unexpected events. it will not be something people are predicting, it will be that's a large scale terrorist attack, or military conflict with north korea. setbacks regardless of whether that is in congress not passing bills or some of the policies in japan or europe because they are taking longer than people expect, people will be buying because there is the underlying optimism running through most investors' minds. david: one last question. you see it should be orderly. they have two different securities, treasuries and mortgage backed securities. does orderly mean even stephen between those two? >> i don't know if they have to

be even. they definitely need to be even in terms of the cash flows. to the extent that that is allowing money to come back into the economy or taking money out of the economy, they will want to do that in an even pace. the mortgage backed securities market is something you have to really look at. the fed has been such a large fire of mortgage-backed securities. -- large buyer. you push out the prepayments, that will be a risk for that market. the restnow this and of the market place knows this, but that's what people will be wrestling with. if there is strength in the underlying market, the demand is there to replace what the fed has in mind, everything will be fine. i'm a little more skeptical.

i think is an area where you need to tread a little more carefully. outside of the federal reserve, the number two and three holders of treasuries, japan and china. who will be the marginal buyer? who will step in? >> that is a great question. we don't really know. china's already been unloading a lot of their treasuries. they have taken advantage of , unloading more than anyone else. what you will see as far as from sovereigns, it will be about the currencies. to the extent that people are trying to protect their currency versus the dollar or vice versa. that ultimately is what is going to drive the demand. it's hard to say at this point exactly where that will come from.

i do believe currencies and other countries will be looking to maintain what their relationship is with the dollar. companies and other players out there who needs to own treasuries as part of their investment mandate, that will always be there. as far as the marginal buyer come it goes back to who will be doing it more for currency reason than anything else. david: you will be staying with us. coming up, we still have several interviews with fed presidents. on friday, bill dudley and then jim bullard. and you will see at all here on bloomberg. ♪

alix: bank of america reports that -- joining us, gina martin

adams. they just launched their dashboard on the terminal. we are thrilled that you can join us. thank you so much. when you hear something like that where you have all the money coming into cyclicals and you have the flow coming into financials, is that a warning sign? gina: it might be. there's a lot of optimism that financials are the place to be this year. there is one risk in that. if the long bond doesn't continue to show an increase in yield, financials really will struggle to perform well. yield takesg bond 2.6% and started rallying again, financials have underperformed pretty dramatically. you need in the long bond to rally and yields continue to rise. it is hard to say at that will happen. that is the consensus expectation. hear other worrying

things. retail is buying into this. consumer confidence yesterday showed a lot of confidence in stocks. do you look at that counterintuitively? gina: not necessarily great in one thing that has helped this market back, we haven't had any flows for seven years. into can get that coming the market and optimism from animal spirits rising, the markets can experience a nice come along pop. ends.ally, that of a flowly stages story, it can be quite positive. jon: break out bullish case for financials. we've got the yield curve which remains quite flat. then coming you got the regulatory story -- then, you've got the regulatory story. gina: if you look at valuations

for financials, they are still the most attractive among sectors on the index. price-to-book, price-to-earnings, no matter what score you use, they are still relatively attractive. driving of what is , you need the yield curve to be more upward flow. financialsy key for to outperform. you also do need to the regulatory story to continue. we've seen a change in the regulatory story. we will see regulation pullback. that will continue to prop up financials relative to other sectors come it seems. david: what extent is the yield curve related to the larger issue of trump stimulus? gina: that is a great question. it is hard to tell. when of the things that has

happened since election in november is the long end of the yield curve has continued to rise. thatarted to question thesis. you have to see the 10 year yield move beyond 2.6%. in've got to see that happen order for financials to do very well. jon: welcome to the team. coming up, the opening bell. features a bit softer on the dow. we did snap the a day losing streak -- eight day losing streak. some dollar strengthen the fx market. 240 on the 10t year. you're watching bloomberg. ♪

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some stability after yesterday's big push higher. the dow snapping that a day losing streak -- eight day losing streak. you hear the opening bell ringing in new york city. treasuries bid, and yields lower by two basis points. through 262 just two weeks ago. that gives you an idea from a sense of how much the market is repriced of the last couple of weeks. the cable rate softer. down one third of 1%. a stronger dollar story across the g10 space this morning. let's get you some movers. alix: a bit of softness all across the major indices. the dow jones off by 36 points. the nasdaq relatively unchanged. the s&p had its biggest gain yesterday in two weeks. not a lot of momentum as the bond yields hit their lows of the morning.

take a look at what's happening in the tech stocks. barclays begins internet coverage. amazon is one of the stocks named overweight. ebay as well. bezon's price target may among the first with a $1 trillion market cap. ebay they call the value end of the spectrum and twitter unchanged on the day. shocker, they put underway along with groupon. -- underweight along with groupon. a note from socgen saying we will talk about brexit all day, but the real story in the market has been the fallout of no volatility. the white light is fx volatility, the purple line is treasury volatility and the blue line is the vix. , theility for stocks

selloff -- the down move we've seen when it comes to currencies and treasuries catching up to the next. -- to the vix. this is the story of the market. the overall slowdown in volatility and what it winds up meaning. he is good at the way he writes it. juckes is on his blackberry before he comes on the air with me. joining us from st. louis is studio,ne and here in gina martin adams. off ofickly, piggyback alix steel's work -- kate: investors are very comfortable despite the political risks we are seeing in

the market. to put money to work, focusing on better earnings and better global growth. rather than all the things that are in the headlines right now. it is a good sign that we are seeing lower volatility. we don't expect it to last throughout the year. as long as investors are complacent, markets move higher in general. not something i normally reconcile with good signs. gina: we have some research on this. markets of at bull the past but we've identified two massive bull markets over the last 70 years. each of those had four legs. we're probably in the third leg of this bull market if you look at different corrective patterns and match them up. intriguingly, the characteristic of the third leg of the bull

market is that it is low volatility. very low volatility. usually about average returns. that is what is a little different of the last year. returns, butreme low volatility. let me tell you what the things that happened in third legs of the past. 1960's, jfk was assassinated in the third leg. still able market, low volatility. 1990's, the bond market massacre of 1994. we can absorb a tremendous amount of political risk and intrastate risk and experience able. -- a full. -- experience a bull market. alix: that trade has not worked out as well in the first order of this year. it is still something while the market has been resilient where we could see

higher volatility especially if some of those things that investors have hoped will happen don't come to pass. in particular, many investors in the u.s. are very sensitive on tax cuts, they thought health care reform would be positive. they are thinking that regulatory relief will be a positive for earnings. the researcher spending, the whole trump agenda is partly priced and. -- priced in. that doesn't mean we see stocks go straight up. june is correct in her overall analysis. we don't expect the low volatility part tuesday as low as it has been recently. jon: talk about how the third leg transitions into the fourth like. the leverage builds up. the lake fourth leg is where you have this extreme price increase in the blowoff -- it's about lower

volatility, study bull market right. the fourth leg is the extreme leverage building come extreme optimism. tremendous inflows into stocks. it is the peak. calmhird leg is quite david:. i wonder how much of this is artificial in this and that we had no growth globally and central banks said we have to cut interest rates. now, we are getting growth but central banks have been jacked up the interest rates that much. rong inrs are not w being complacent. >> that's part of white investors have been looking at the better earnings growth. these are the plenum and will that drive long-term stock prices and keep them rising over time. surprise make sense, but at the same time, there's disappointments.

investors have been extra narrowly resilient that extraordinarily resilient and not paying attention. think it will stay quite as low as it has in the first quarter. yes, it would be characterized by low volatility but that doesn't mean that you shouldn't be prepared for normal market volatility, including a correction at some time during the year. jon: investors have been paying to buy lot of attention the dip and ignore the noise. k: that continues for quite a while. end aing that tends to bull market, the economy headed into recession, the issue area because the federal reserve or other central banks jack of interest rate -- jack up interest rates sharply. the fed is likely to continue to

be modest in its increases and very cautious. bubbles bursting is the second thing. it's the last phase that we see a lot of leverage. for a bubble to burst, you need not only prices to increase but that leverage component so that when prices start to decline, people are forced to sell. that's when you get the sharp downdraft. that says to us the bull market continues and you want to buy the dips and look at companies that are well-positioned despite political uncertainty. they are the ones that new to manufacture their own growth. kate.a good lead-in, what companies? kate: united technologies and pepsico. both of them operate globally, they are very diversified. they have attractive dividend yields and growing dividends over the next few years. they might not be the top

performers, but we also think that for investors who are trying to look at that longer-term horizon and maybe a little concerned if volatility picks up, they are the ones they can stay with. but united technologies and pepsico are attractive opportunities today. energy was at an conference and the industrial by it wasys were saying much more positive than the energy guys. with thea discrepancy end demand user and where it starts with the industrials? gina: it's a really good point. when you look at where demand is growing and where pricing is changing, there's a couple of things to note. there is a segment of industrials dependent upon the energy companies, but not the entire sector. more than half of sector sales come from inside the united states. they are related to the consumer and auto and building.

nothing to do with energy. when oil prices are low or stable, those companies do pretty well. those that are related to energy are struggling because oil prices are very low relative to where they were a few years ago. it will be a longtail workout to $40 for them to shift or $50 oil. kate thank you very much, warne. june a martin adams is sticking with us. -- gina martin adams is sticking with us. this is the dashboard, bull leg.ts' third jon: today at 2:00 p.m. new york time, the federal reserve bank of boston president. of course, the fed speak continues. you can find it exclusively

right here on bloomberg television. from new york city, this is bloomberg. ♪

emma: this is "bloomberg daybreak." ,oming up at 2:00 p.m. today the federal reserve bank of boston president. david: this is bloomberg. last week, the trump administration had a setback when it comes to health care. now, investors as well as the president himself turning their attention to taxes.

what are they going to do to cut tax and reform the tax code? the president will be meeting with the head of the economic council -- joining us and gina martin adams. thisritten a piece of on about which sectors stand to benefit the most. >> the story was looking at the goldman sachs basket of high-tech companies stretching across 10 industries. they will benefit the most from having their tax rates cut. it's been interesting to see how they've performed since the election come in the month afterwards, up 20%. a chart on the bloomberg chose this -- shows this relative to

the s&p 500. has happened come as people have been getting more skeptical, we priced in a little too much, a lot of air is coming out of the balloon. david: that may be because of some skepticism and there's a bit of hair on the deal. there's a lot of options and it goes beyond just cutting tax rates. it also includes cutting back on the interest rate reduction. joe: that is something that could directly affect the profitability of banks. banks will be the ones that benefit from the rate hikes. if you do some like that, it undercuts the share appreciation and profitability that people are expecting. this also certain areas -- the border adjusted tax is one of

the focal points of the gop. bill was health care pulled on friday, it might want to scale back the more controversial aspects and focus on things they can get through. getting everybody from the gop on the same page and getting some democratic supporters as well. david: are these stocks as sensitive to the possibilities of tax reform as we tend to think they are? gina: no. similar research results. in our work, there is a tiny premium for the top quintile of s&p 500 taxpayers. it is very, very small. this very little evidence to suggest that they are trading on tax reform alone. it's almost impossible to isolate this as an issue by itself. stocks trade for all sorts of reasons. i do think markets over the last

couple of months have normalized their expectations for what we are going to get out of tax reform. thisurse, it will be winning if we don't get something by the end of this year. if we don'tpointing get something by the end of this year. i don't think stocks are trading exclusively on tax reform. jon: the enthusiasm and optimism around it, they certainly are to some extent. gina: there is a strong correlation between the market right now and economic surprises. economic surprises come in many forms. some of that is consumer confidence. are the soft economic data we been talking about over the last few weeks. will that manifest in real economic growth conditions? there is a lot of intermingling here. maybe that is why economic surprises have been so strong. stocks are looking for that next catalyst. what is the next catalyst to bring us higher?

we've already talked about tax reform and the regulation and economic surprises stalling. what is next? alix: we've already had the dollar moderate. back to the software that, binky chadha looked at this and said survey data has reflected that lagging the hard data. is that the correct way of looking at that? gina: it is not clear yet. if you go back in history, soft data is leading data to our data. some data our confidence indicators. -- soft data are confidence indicators. the leading indicator is a leading indicator of better conditions than the hard data. if the soft data doesn't leads to our data improving, it would be historically anomalous. it's very unusual usually, when

people feel better, they spend more. -- it's very unusual. david: isn't it also more fickle with a soft data? gina: it is. absolutely. sentiment data is oftentimes commingled with the market. people feel a lot better when the market is rising. there's a lot of circular references here. things can go wrong in the relationship. and ginaie martin adams, think you for being here. is according to w ususa 9, there has been an officer-involved shooting near the capital. the ongoing incident around the botanic garden, an

officer-involved shooting near the u.s. capitol. the situation is now over. we will be bringing more news to you as it comes out. ♪

jon: the heart of the global the cabledebate -- rate a bit softer this morning as prime minister may signs article 50 and triggers the two-year exit process to sever ties from the european union. from which there is no turning back. those are the words of prime and mr. may earlier on -- prime minister may earlier on the >> the united kingdom's permanent representative to the eu handed a letter to the president of the

european council on my behalf confirming the government's decision to invoke article 50. >> we will remain determined and during the difficult negotiations ahead. >> my firm expectations of the european side will want to negotiate in sequence. the first part is the divorce settlement and then talking about the future status. >> 3, 4, 5 years at the very least. >> when this country leaves the european union, we will have control of our budgets and we will decide how our money is spent. deal.deal is a bad >> except the people of scotland. that was simply unacceptable. >> now is not the time -- >> there's no reason to pretend that this is a happy day. come outay of all days

we should be coming together as all days,ingdom -- weeks be coming together as united kingdom. jon: what was striking about all what the european union would like is a sequential process. sequence by sequence, deal with the exit first and then the contents of the letter prime minister may send to donald tusk. while the tone is positive this morning and i'm sure it will be for the next couple of weeks, when they finally get around the table, how quickly is that going to sour once they disagree on the fundamental process of negotiating? david: let's do one at a time. i said no way, no how. that is a negotiation technique. what we are going to do, trading off of tone for the next few weeks? gina: possibly.

it is similar to the tone of health reform and tax reform. alix: how did that look? or for worse,er we have a ton of issues to deal with from a political perspective. for the u.s. market, brexit is important. sadly, a bit of a sideshow to what's happening internally in in u.s. and what's happening d.c. are you really going to roll back regulation on financials? what about the special interests in the tax code? there are so many issues to contend with right now. until brexit creates a disruption in either the currency markets or the bond markets are the economic data, it is probably going to trade on the issue that we talk about when the u.s. issues are sendoff -- jon: how investors will be under hedged. they've been conditioned by events of the past.

this been no follow-through from the brexit situation. is that a risk? gina: that is completely a risk. we have been three years and years of conditioning now that all of these events are nonevents. the brexit announcement in july turned out to be a massive buying opportunity. really confusing signals for investors. jon: gina martin adams now with bloomberg intelligence. great to have you with us on the program. 25 minutes into the session. equities opening a bit lower. negative on the s&p. you are watching bloomberg. ♪

vonnie: it is 10:00 a.m. in new york, 3:00 p.m. in london. from new york, i'm vonnie quinn. mark: lightbank from london, i'm mark barton. welcome to "bloomberg markets."

♪ vonnie: we will take you from new york to london and uncover stories out of brussels and tokyo. but first we are getting to breaking economic data. julie hyman is here with that. julie: pending home sales, and looks like we have a bigger than estimated again, building on other better than estimated economic data we got yesterday to the case schiller home price index. 5.5%, overnt5 -- the percent estimated. on the month my month basis there was the bigger than estimated gain. perhaps not entirely surprising, given the price increases that were reported yesterday, as well as the idea that we saw the consumer confidence number yesterday coming in very strong