the national democratic redistricting committee says the election cycle is critical to affecting the congressional redistricting process. there has been concern political drawing maps the benefit one party over another has led to partisanship and gridlock. european union brexit negotiator's same major differences remain over whether britain should be obliged to respect all eu rules and obligations during the transition aimed at easing the country out of the block next year. separate talks are being held on one of the toughest issues, how to keep goods and finance flowing across northern ireland and the republic of ireland. the future relationship would and to divide our border

protect, and a good friday agreement. mark: he quoted it is important to tell the truth. a u.k. decision to leave the customs union would make border checks unavoidable. say two officials explosions at a mosque have and wounded 75le others. the blasts happened in morning prayer. a twin car bombing left 33 people dead. ruling south african parties will bring it into jacob zuma's presidency. the african national conferences trying to wrap up a deal for him to resign so that the party leader can restore public support as it gears up for elections next year.

global news 24 hours a day powered by 27 hundred journalists and analysts in 120 countries. this is bloomberg. julia: live in new york, i'm julia chesley. i'm scarlet fu. joe: i'm joe weisenthal. julia: stocks going from positive to negative today. major averages currently in the green. joe: what jim is? scarlet: rocky stocks at the end of a rocky week. higher interest rate volatility could be partly to blame. -- where are the deficit hawks?

the flag that stole the spotlight at the opening ceremony at the winter olympics. athletes marched under a flag of unity. the efforteans for to give up nuclear weapons in north korea. >> we are looking at the final 30 minutes of trading. it could get interesting because we have typically seen an acceleration to the downside if you judge by the recent history. right now we are up by three quarters of 1%. we have been little changed. >> we have. it has been difficult to keep track. so many have been talking about they got up to get a coffee and then everything has changed. that is characteristic of trading this week. 1.9%, risingalling

as much and a half percent. as we say, it could change at any moment. now it is lower but it was higher during the day. this higher volatility is likely here to stay for several months if previous volatility spikes in the aftermath are any indication. if you look at the five day charts of stocks, negative returns to say the least. on aesent, the decline weekly basis is the worst since 2011. we were admits the financial crisis. we backed off a little bit and most investors have said you are not paying a fundamental risk at this point causing this selloff. something to keep in mind. i continue to watch the ranges we are seeing.

the percentage spread between the low and high of the session. it was low for some time and now it is being characterized by these huge swings that we have been talking about leading to this interesting momentum. i can't get enough of this chart. this is a two-week decline in momentum. decline is here, the the quickest we have seen ever in terms of speed, velocity of the decline that we have seen. the other thing that is characterizing the selling, it is on high volume. we could be on track for trading volume by 500 of a billion shares. the last time i checked a few

moments ago, 50% above the 20 day average. that is the chart you see on top and the 15 minute interval of the volume above the 20 day average. wide swings. a lot of trades being executed in this market causing a surge in volume and no end to this volatility in the intermediate. almost like it was organized. the perfect teaser. let's get some context. price, us now, cameron bloomberg intelligence rates strategist, i were jersey joins us. great to have you with us. what a long week. happy friday for now. talk to us about the unprecedented momentum shift. january, the stock

market seem to go up every day which led to an extraordinarily overbought condition. what it usually means, it is bright for a pullback but essentially we have never seen a pullback like this. the move from the highest overbought level and 50 or 60 years on the s&p to oversold in the span of a couple of weeks, it basically never happened before. >> what does that do for sentiment? >> it kicks it in a sensitive place. julia: every day we have had someone tell us this is healthy. is it? >> the fundamentals are healthy but the technicals have disintegrated. any usefulhat have information of someone calls something healthy?

>> or things like panic. >> it is something of a cliché. really when you hear healthy correction what you are referring to is an overdue correction. is this the hallmark of a healthy pullback? is that how the bond market sees it? >> one of the things that is going on, we are pushing down volatility. a lot of people were selling volatility, they thought this run of the markets was going to continue ad infinitum. what you have seen is this massive spike in volatility that cause things to go down. you look at what the vix did, in risk sensitive rate assets. you see that same thing. swaptions on the

market. your maybe going back into a new paradigm where you are going to have somewhat higher volatility in almost every market. joe: why have we not been seeing much treasury buying like we did in previous ones? >> you have two factors. plus ann expectations error turn -- term. the real yield has a lot to do with volatility. what is uncertain to be like? moread uncertainty rising than inflation expectations. you actually have inflation expectations that have gone down because of worries about the stock market and the economy but then you have real yield so this war rate that has gone up. that is why you have seen 10 year treasuries near unchanged. scarlet: i have the chart that

illustrates the volatility we are saying as well. of the other note to have written, the momentum given the casino -- but we have seen over the last few days. we keep talking about the momentum players. what are you watching as far as the levels? global,everything is you start to see market reversals. where are the systematic stops? ctas are basically models. the model says trade come of than you trade. i think of the quick trigger cpas would have been selling s&p futures below 2600. coincidently are not that is where the market went into freefall monday. one of the reasons, and it is always an autopsy afterwords but the x iv volatility blowup

contributed to the meltdown. i think we are going to find ctas were selling at the same time which is why there were no bits. -- a: joe: we have the report coming out next week. i think it is going to be one of the more watch data points we have seen in some time. which way is the way traders are leaning? pushing inreally that direction and there is opportunity for a snap down? >> if you wind up with a relatively high inflation imprint people with say we three out three head -- rate hikes. that is going to reverse the front end of the curve. you have seen two-year notes

being bought a lot and two-year notes have gone down. that can reverse a lot if you get above expectations. all right, thank you for joining us. coming up, we spoke about volatility. it took center stage this week. .e spoke to robert ingle he will be with us next. julia: we now are above 1% for all three majors. not only in the green up more now. from new york my this is bloomberg. ♪

julia: a wild week for equities. volatility firmly in the spotlight for investors. and the director of the volatility institute and professor of finance at the school of business, he joins us now from new york. great to have you with us. you say the financial turmoil we have seen in the volatility derivatives is notable but not the story. what is the story here? >> the story is the volatility ofare seeing now is a result the movement we are expecting in , through the fed and the treasury is going to be selling these bonds over the next few years. interest rates are going to rise.

you expect the market to come down because it is discounting at a higher rate. we expect more volatility in interest rates and the stock market as well. it volatility, the effective is what we kind of expected. we did not know when it was going to happen. that is why it is a surprise. to the think it is due derivatives. it is due to the fundamental processes in the economy. joe: the way we talk about volatility is as if it is all placid and then it explodes and this pent-up volatility unleashes out of nowhere. is that how it is? is there a relationship between the severity of the spike? continuing tois change.

week, last at this week and then this week, you see the volatility was low. what i am talking about when i measure volatility is the volatility of the underlying assets. that shot up starting last week and is very high. it mirrors what the vix has done. i don't think that the derivative effects on the vix are actually dominant. it is volatility. volatility after all is the natural response to new information and that is what we have got. julia: we have the vix volatility index back below 30. scarlet: looking at global volatility you can see across north america it is read

relative to the past. we are talking a year ago where the vix was nowhere near those levels. if you look at the global volatility eight days ago it was a different story. i want to ask about correlation. index volatility has risen more than average stock volatility. that suggests correlations have risen. why do you think that is? the passive investment for instance? >> what has happened, if you look at the stock market indices, you see this incredible increase in volatility, well below 10%. up until last week. now it is maybe 30%. how does that happen? if you look at the volatility of individual stocks, you can look at the average in the market.

it has only gone up very slightly. muchan the index go up so in the individual stocks, they all start moving together. that is what we call correlation. andelations have gone up that can happen subtly. the samely see economic drivers then all stocks move together. in markethis increase volatility but not individual stock volatility. julia: speaking of, i want to make the point that we are towards thely now final 10 minutes of the u.s. trading session. points.the dow up 380 we have seen a 900 plus point range in the trading session. highs trading around the

up 1.6%. s&p 500 and the nasdaq. 6 we were up for 50. that is how crazy volatility is. seen thesewe have volatility spikes a few times in recent history. early 2016 and the flash crash. how do they end? do we have any idea of how long this can persist? does something new comes in its way? new economic is information the market doesn't nowhere to go. it moves to a new equilibrium. , theis the volatility movement to a new equilibrium and fluctuating as it tries to find a new equilibrium.

we saw with brexit the world orh was volatile for a month two. if you look at the effects of the u.s. election, in our trading partners, we saw something like that. we are likely to see a couple weeks may be of high volatility. stabilize ating to a new and lower-level of stock prices from what we had before. scarlet: perhaps a new regime. professor robert ingle, thank you so much. coming up, how quickly the good times have soured. we have the three charts you a zoomiss and there is

higher in the final 20 minutes of trading. joe: we were say we were below where we are. scarlet: every sector now green as well. in positiveenergy territory. this is bloomberg. ♪

scarlet: s&p and dow in correction mode. we have come back off of our lows of the session. we what to put this into context. we have had more than 20 sincetions from the peak 1940. it shows all the times the s&p has seen a drawl down.

i marked the 10% line here. it has happened fairly frequently. it was a month after the fed lift off. people were worried about a policy error. before a long time another draw down. in the grand scheme of things we are still nowhere. we are now up 1.6%. we are just slipping. 6 do you think we joe: do you think we will close green? you can't be totally sure. julia: just to reiterate the choppiness, people changing their minds, you can see the prices, there is a great deal of uncertainty.

today is just the day to steal charts, he was talking about this earlier, ctas which have a momentum strategy, we show the chart earlier of one of the worst momentum reversals. .ere is how it shows up the biggest five session loss since 2007. you can see it speaks to how offsides they were because of the swift reversal of momentum. extraordinary drawl down. one of the worst weeks in a long time. scarlet: momentum to the upside. we are looking at all 11 sectors as we head to the close. we are looking at gains. off session highs, holding on to advances. julia: we have the 10 year yield, 2.85% earlier in the

session. scarlet: a lot of choppiness still in the markets. the dow up. this is bloomberg. ♪

julia: the quarter major averages holding after it soared from red to green today. yields pushing up. i am julia chatterly. scarlet: i'm scarlet fu. weisenthal.m joe if you're joining us live on twitter, we want to welcome you to our closing bell coverage every day. scarlet: we begin with our market minutes. welcome to the end of a very volatile week. we have the s&p, dow, and nasdaq 1.4%.g higher, up is hard to tell what direction it would close and even an hour ago. we have been up, down, little changed. we fell 2% and rose 2%. in the end, we finish on the upside. joe: an extraordinary day. the fact we are sitting here talking about the dow up for 4.50, dow down.

julia: how do you trade these markets? scarlet: you sit on your hands. for a lot of people, it has been a painful couple of days. we sold off right into the close on three of the previous days. at one point, the s&p and dow fell as much as more than a percent for their biggest weekly decline since november 2008. back and will close out the week with the biggest declines since june or 2016. julia: we have to put in perspective the runoff and activities we have seen in 2018. boys giving it some perspective here. -- thenificance are always giving it some perspective. scarlet: the individual names almost a matter of this point. the energy stocks were the big decliners. by bay, we're talking about 0.3%. the highs of the level or higher as well. all and real estate leading

better than 1.9%. for the week, this is the trends people will remember, which is energy down right 8.5%. utilities off by 2.8%.losses all across the board. joe: a pretty ugly week, even if today is a little bit of a rally. let us talk about the government bond market steepening. yields the two-year down again. people are starting to find expectations for rate hikes. but the 10 year yields are continuing to climb. it is close to the highs for the week. we have been a little higher earlier in the week. dominant theme right now. the fact that there is not much of a bid at the long end of the treasury curve. 10 year yield, 2.85%. let's look at currency

land. the dollar bill changed on friday even as we watched the significant gyration over in the equity markets. this you can see, we have dollar yen/ inflows into the swiss and yen. mirroring a snapshot at the end of the equity sessions.losses in the swissie and yen relative to the u.s. dollar. let us look at euro-dollar. have a look over at the last two weeks to get a sense of what is going on. given the losses we have seen in the european equity markets, more than 5% losses over the ,ast week for the german market we have to remember the global theme going on overall here and that is significant losses in europe despite guests telling us over and over again the places to be outside of the united states and the likes of europe and emerging markets are worth bearing in mind.

do we have some currency stuff to give you a snapshot of what is going on? scarlet: ask and you shall receive. julia: nicely times, guys. unchanged for one dollars 30 here. emerging markets getting on some of the recovery are paring of risk, if you're looking at the losses we saw earlier in the gains today, same story for emerging markets. joe: finally come of those commodities. oil down below $60 a barrel. it is amazing how quickly the story has flipped on oil. people are super -- were super bullish a few weeks ago. now it went down another 3% below $60 a barrel. as scarlet was mentioning earlier, the big bloggers today did this partly explains why gold is not doing much and copper down 1.2%. in the energy complex today. one often seen as an industrial bellwether.

those are today's market minutes. scarlet: for more on today's market action, let us bring in jim swanson. jim, great to speak with you. thank you for joining us. if you were to look at what happens today and in particular, the final hour of trading, when we came right back up, how much could you read into that price action, the recovery, the sharp rebound? thidoes this suggest the shakeout is nearing the end? >> not yet. historically, these corrections -- and this is officially a -- last 30, 40, 50 trading days. the market was looking up and down in dramatic fashion and it tells me that machine training is really a big part of this and positioning and passive funds back and forth. i think that is what you are seeing today. to market does not know how calibrate this. i think that is what is behind

it. through the steps here. using the main anxiety people are feeling or the machines that were programs by people is trying to recalibrate for a potentially new rate regime? yes. i think so. remember the setup. the olympics start tonight. i'm a big skier and i use the word set up. in skiing it means snow conditions, light, condition. this week was one of the two were.of, positions long everywhere everyone was buying on dips. people were not buying puts are trying to buy market protection by going along the vix. believed the market just on one way, directional up and that cannot last forever. you know that. the fundamental story did begin to tilt and rates started to move up. wages started to move up in the west. that is an inflationary trigger. that is the cause and set up.

julia: we have had years and years and years of a bull market effectively and lower volatility, unprecedented. how does the structure change significantly, whether it is lower liquidity and fx and bond markets or the structure of someng, funds and products we've seen put on in the market? exchange-nk these traded products are based on derivatives. you touched on an important one, the bond structures. you have to remember the bonds world is not exchange traded. it is over-the-counter. when you look at how that has developed. how much money has gone into these structures. it used to -- develops, how much money has gone into these structures, it used to be you buy around and they had capital devoted to trading bonds. buds are huge part of the capital markets. they do not do that. they have been restricted. program a lot more

trading. a lot less liquidity and more passive buying of indexes. when the fish in the aquarium start to go that way instead of this way, everyone starts to move at once in all these machine-driven or algorithm-driven programs chip in. a lot of them have simultaneous factors they are looking at. you put all that together against two years of calm, upwardly-moving markets, complacency, and this is what you get. investors should remember this can predict recession but we do not think this is the tip-off that a recession is coming. scarlet: that is the case and we have made the -- heard the point made several times that the stock market is not the economy. the economic fundamentals are strong. does the kind of price action we have seen this week, the violent moves, change people's expectations about what constitutes strong fundamentals? jim: i think it does and i think the public, who really stays on the sidelines during much of this whole cycle, has started to

come in in the last year and this is a shock to suddenly see this and people might be markets arese riskier than we thought. the main fundamental change here is wages. which is have moved up -- wages have moved up. at the same time, it threatens earnings. investors need to watch this over the next six months. if we see wage increases like we used to in the cycles previous, that would begin to threaten this regime of high stock prices. joe: and previous bouts of selling in this market, the ,"iche has been "buy the dip and it has worked every time. now you say there is a correction and they last a little longer. if you have cash, should you be buying here? or should you be watching for some sort of other sign out there before you actually put fresh money to work? jim: i tend to think people should wait for a couple of more cpi numbers.

i'm not so worried about the fed. i think they have a program and are very transparent with what they will do. remember, we have a steep yield curve. that means short rates are much lower than long-term rates. they're sober about this. if that stays of the shape of the curve, there is more growth and some inflation ahead. for tend to be good equities. when you have those occur, usually the market can go up for a year. eventually, this begins to take over and rates get too high that i do not think we are there yet. julia: i guess the speed upon which we have steepened over the last couple of sessions are here too. great chatting with you. thank you so much. jim swanson. thank you for that. just of a little perspective. julie hyman putting out the presented swings in the s&p this week. monday, 4.5%. tuesday, 4.1%. today, 4.1%. scarlet: incredible when you

consider the s&p had not moved 1% in either direction for all those sessions. goes, when perspective that nails it. coming up, should you stay or go? we will see emerging markets and the equity selloff and try to answer that question. this is bloomberg. ♪

mark: president trump says he hopes rob porter, they'd that resigns this week in the wake of "hastic abuse allegations, a great career ahead of him." he wished porter well saying he did a very good job. porter has denied the charges

and the president says he was surprised by the abuse allegations, calling the news "ver sad." visited --ent a hence vice president mike pence sat in the vip box in front of the sister of north korean leader kim jong-il own. the vice president did not speak to the north koreans. he said the games should not be used as an opening for substantive talks until the north's nuclear program is up for negotiations. saysar's catholic area refugees in bangladesh would never go home and that "the elements of ethnic cleansing that drove them out now apparent." two months after pope francis visited miramar in bangladesh, he said even though the government was making plans to receive learning go back, many that, manyhingya

would opt to go elsewhere. theat will not happen so easily because of the and they will be discriminated by the majority of the buddhist community. "we: he continued saying still have to give a little time to say if it is ethnic cleansing or the direction of the military." .he eiffel tower is closed authorities are telling drivers in paris to stay home as snow and freezing rain hit the region. the company that manages the monument says the tower will be closed all day today and tomorrow. workers are using hand shovels to clear the snow but cannot use salt because it could corrode the metal and damaged the elevators. global news 24 hours a day. powered by more than 2,700 journalists and analysts in more than 120 countries.

mark crumpton. this is bloomberg. julia: what'd you miss? a wild week for u.s. equities, including the fact they managed to plot a positive friday close. let us get some context here on the price action. want to bring in the chief strategist of alpine macro joining us from montreal. you point out that most are assuming at some point this will be a buy on dips opportunity. you whenever you are not so sure. why? the think this is part of were normalization process. i do not think this process is over. if you think about it over the last couple of years, the world economy has been lukewarm, anemic, when everyone a call it. we have had a great stock market. i think we are in a

medium economic boom and that means interest rates will have to adjust tire as a result. earings have fallen. this is part of the adjustment process you would expect because when you move interest rates from very low levels to higher levels, you will see a massive adjustments in terms of ratio and asset prices. i think the volume will go to 3.5% or eventually 4%. we have a long way to go here. scarlet: you have good earnings as a result, the higher rates across the curve, which could depress share prices. that is in the united states. we are flashing some facts here. does that apply to the em equities world, as well? chen: absolutely. a veryry here is

different one. if you look at emerging markets, the interest rate level there has never fallen as low as what we saw in g7. we're talking about zero rate in the united states, europe, japan. where you look at interest rates across the emerging markets, high.till are quite i do not think we have the same in terms of normalization in g7rgening markets verses world. thisecond point is i think thing, especially when you look at the relative performance between em and the united 500, it's different cycles so the em outperformed the s&p 500 in decades of 2000. the emerging market really got hammered in previous decades.

going forward, we will have an emerging market turn again. i think this is sort of a long-term deal. joe: slaton was a specifically the relationship between a higher rate environment in the u.s. and the prospects were em. sayorically i think you can higher rates not considered good for emi you also here people saying that is kind of broken down. not a sensitive. what is the link right now? joe: what is think about this. incurrencies got hammered 2015. they collapsed. was veryhe dollar strong. right now, the whole dynamic has been reversed. u.s. dollars started to weaken. went up,urrency interest rates are beginning to fall. you could see that in brazil, a lot of countries. when interest rates started to

e a good reasons for stock markets there's outperform everybody else. i think this is really a sort of turning.cycle dynamics,k at the that is where the case for em becomes very strong. julia: thank you so much. chen xhao there. scarlet: coming up, other any fiscal hawks left in washington? perhaps just one. deposit deal passing could come with a price tag of $2 trillion in debt. how does the deficit boom and? this is bloomberg. ♪

scarlet: what'd you miss? the only physical have left in washington. senator rand paul waging a crusade against them budget plan overnight, with the cast as a existential deficit threat. congress voted over his debt concerns. julia: a veto would've worked there. scarlet: it? peter: no. i have to give him consistency for -- i have to give him a lot of points for consistently at least. he voted for the tax cut and then we will make small government. if you cut taxes you also cut spending. joe: he knew that was not going to happen. peter: true but at least conceptually, he stayed consistent to himself. it is just no one let along with

him and that is the problem. blake jpmorgan, chase, and goldman sachs are talking about how this latest move injects stimulus into the economy, which is already at full employment. not the time for stimulus but labor force into dissipation rate pretty low. inflation pretty low, tax or maybe means increased production capacity. is it possible we could get the stilton it could be justified and helpful and that it will not be as negative as people are saying? peter: it will not be on negative. there is a supply-side benefits of these tax cuts. what people are saying is it tends to evolve over time, where is it happens -- demand-side happens right away. it for theou cannot wa

seated to be flat." short-term, --g-ter julia: we priced in the prospect of whether there is a treasury issuance are the process of some kind of inflation appearing finally. it is kind of wha tyou covered on the front cover of business week this week. we cannot forget this was jay powell's first week on the job and, oh boy, welcome to the financial markets. peter: what a week. i think we could see a clash between the two of him. scarlet: president trump and jay powell? peter: right. even though trump picked powell to be as chairman, he could soon find they are not seeing i die. -- eye to eye. joe: and powell is being a contributor to the stock market decline? peter: exactly.

a lot of the things we haven't saying another people have been saying is one trigger for the stock market decline is last week's big report of higher average hourly earnings growth, which causes people to up their idea for how many fed hikes there would be, and on and on and on. julia: i will point do you think it becomes a collision point? tight asset prices or is it just rhetoric beyond what we are anticipating already in terms of three hikes from the federal reserve? where you see the tension point coming? the president is not shy about expressing his views on anything quite frankly. ella point does this become a real problem? peter: harvard university's memb us he could envision early-morning tweets from the president. trump probably does not want to go quite so soon. thettle too first week on

job. joe: people in trump's orbit do not do very well, do the? the end they often does not look good for them so it raises questions for the economy. normally is an interesting word because it is not completely independent. the fed could take away -- i think congress understands there is value in an independent body setting monetary policy in order to keep the u.s. currency strong. julia: congress becomes the buffer. scarlet: we will see if they stand up to the job. peter coy julia: -- julia: peter coy, economic editor for bloomberg is this week who wrote the cover story, this week. scarlet: you can at some of the how did your first we go. julia: a long one.

coming up, more data next week. we will discuss. this is bloomberg. ♪

mark: i am mark crumpton was first word news. a white house spokesperson told bloomberg that john kelly did not offer to resign. this follows an abc news report that kelly expressed to president trump he is willing to step down. abc says the president reportedly is considering multiple names as possible kelly replacements. among those, top economic advisor gary cohn, mick mulvaney, and mark meadows of north carolina. kelly has been under pressure since questions surfaced about his defense. a former white house staff secretary rob porter. only thought to keep harder

the job despite accusations of spousal abuse from porter's two ex wives. he resigned this week. one police officer was killed, two deputies receivers lee wounded in a shooting that left a suspect dead south of the plaintiff. the ap cites authorities who said today's shootings happened as the officers were serving an arrest warrant 40 miles southeast of atlanta. nearby locust grove elementary schools that are marked down. hopes of finding more survivors from this week's earthquake and taiwan faded today after two more bodies were found in a partially-collapsed hotel. killed's10 people were and tuesday 6.4 magnitude quake. more than 270 others were hurt and five people remain missing. as the winter olympics got underway and south korea, the u.s. olympic committee welcomes the decision by the court of arbitration of sport to reject of the last-minute appeal by 45 bands russian athletes to --

banned russian athletes to compete in the games. >> athens competed in these competenow they will iagainst clean athletes. do not come to the games if you are doped. we will catch you. mark: the speaker of the country do my saying "dpuble standards are unacceptable." he also quoted a harsh and resolute reaction from russian authorities. global news 24 hours a day. powered by more than 2,700 journalists and analysts in more than 120 countries. crumpton. this is bloomberg. scarlet: let us get a recap of today's market action not just today but for the week. u.s. stocks had the worst we years.wo bandit today on a positive note but nevertheless we entered a correction that is a 10% drop from our highs earlier this week

minie mounting a comeback. julia: the close shows the gen choppiness, particularly in the last 30 minutes. scarlet: we have news we may ahv have missed into the closed. fidelity is holding customer purchases of sb ex-wife, x iv, and the heavy -- viv. fidelity use of not issue the news publicly until friday. they are allowing customers to sell out of existing positions. julia: better late than never. joe: really? i think a lot of people would want to buy right here. scarlet: there was some buying the buyers beware. julia: what'd you miss? the ruby a bevy of economic dates to watch this week as we get -- next week as we get

capacity utilization numbers. joining us now is bloomberg's macros there. perfect time. through. -- us matt: there has been a lot of talk about strong wage growth sings of inflation pierces in the financial markets. one of the things that strikes me as interesting as there has been a strong, positive correlation between the stock -even inflationk rates over the last seven years or so. if you look at the top right of this chart, what you are seeing on the y access is the change in the s&p 500. the five-yearis rate before the selloff started we are by the chart. the s&p 500 was outpacing breakevens. today, we are at that red

asterisk.we, in a little bit in a little bit because the stock market has fallen but is not consistent with how the relationship has played out. there is not a clear sign that would have got the start markets to sell off is some sort of inflation. not necessarily reflected in the market. joe: if we were to see a continued divergence, with that said to be assigned, perhaps -- hat the market is no longer comfortable with where inflation rates are going? matt: the bottom of the chart shows the two lines and the market is noisier than the break evens. a change is more an earlier. in the last two days we are seeing breakevens fault little. it could be the case -- fall a little. if it stays down here keeps declining --\ joe: overall the relationship is normal? matt: exactly. julia: a whole factor.

within the performance of the energy sector today. foot -- the 10 basis points tied. more than 10% of the market selloff began. that's an inflationary two-year?absolutely not. they have not been outperforming. stocks have not been underperforming. is not clear that that is what is driving us. we do have some inflation data to look out for next week. within the report, something we've been talking about for several months as rental inflation. that is the red line here. you can see that has really been scaling off over the last year or so. part of what this chart is supposed to show is the rental inflation is the component of the consumer price index that tends to respond, have the

phillips curve relationship, rise in a tightening labor market. if that is starting to come off and that will be a real concern for the fed's trying to meet the 2% inflation target, because they will not be able to bank on that relationship. yellow line is the wage growth. the blue line is for production and nonsupervisory workers. other real take away from the start as you can see rental attracted as it has not and other decades. growthnot they got wage because inflation has already been running a little bit high. scarlet: finally, for the last are here, let us bullet up. it is on julia's bloomberg. urban customers love food and

energy. core inflation. matt: this is the number we will be looking for on wednesday. the yellow line is manufacturing to pass the utilization. we get this with the industrial production report later in the week. this is in terms of thinking about inflation. last month, it went up to the highest level since before the crisis. you can see it so well below the utilization rates that we've seen in previous business cycles. i think this should kind of tame expectations are concerns about inflation going too high because the fundamentals are not there. this is sort of a contested theory but even if you believe cleared to responding changes of supply and demand, you can see a lot of excess supply. made the case that inflation perhaps is not what is driving market turmoil because you look at the numbers it does not bear that out. do think people will believe that when they had into the report on wednesday? matt: i saw greg peters earlier

and he made a good point that if bething, the cpi report will likely to con fears about inflation rather than stoke them. we will not see that big of a swing. scarlet: we will see. matt poser. boser. thank you so much. julia: i sanitized that segment by bringing up my chart. i apologize. hear howwe will volatility in equities do not have that much impact on the fixed income market. joe: get involved in the conversation. send me a tweet. here's my twitter feed. links to stories, clips, sarcastic comments that are not to be taken seriously. julia: you are never sarcastic, joe. joe: check it out. this is bloomberg. ♪

julia: what'd you miss? real yields looked about how it has the same impact on the fixed income markets. listen in. >> it is all about the drivers of the correction. we think it is inflation that is the driver. when inflation is the driver, for stayinggood in italy and greece in dealing with their issues. it is good across most emerging markets. many people would think it is surprising that the peso is up for percent year to date. virtually low volatility. today. rally year it is really those assets that have the most overpriced by thisn kicked in inflation scare. that would be treasuries. back at dover into the u.s.

equity market. bonnie: i would agree that it goes up and debt so in a way it is good for them by would put out the ecb has been buying a lot of credit. even though the program is a lot smaller, they are buying the same amount of credit as they were at $80 billion. just a mix in the credit. as we were discussing, the peripherals are trading like credit. you see that support. >> ultimately, you need to inflate away the debt and that makes perfect amount of center you get an ecb that removes the presence a little bit. what is more important, and you really get that balance going 17 back and in? bonnie: it is a fine balance. they are not compensating you for the risk. we do not think it is a good find. you have to get to be italian elections. the valuations are not where you would want them to be. >> if you are looking at the short-term, growth is

popping. that is the term you would use. 2.5%, potentially less than 1%. growth is booming and the short-term that is good. long-term, there is sustainability issues. wth is popping you would expect a serious. valuation of what is happening and that is fine the bond yields make sense to a lot of people but that means what are we going to do? have them start eating into the spread even more and it will get even tighter? >> eventually maybe some pressure on some of these peripheral bonds from the bonds moving up. like you have seen in the u.s., eventually eiji has started to wane -- why did out in the last couple of days so there will be feedthrough. but you're right. it is in that were able for show itself. >> i think the front end of the market is mispriced. that is tied it to the negative depot rate.

i think that is the most sensitive points. but the growth story is an important story for the periphery very to make sense to me that they continue to do well as a consequence. in europe, the big surprise the past 18 months has been strong growth. stronger growth helps these countries, and their spreads should reflect that. >> we've had the equity market draw down quite a bit. it really what anchored and in united states, credit has been resilient all recently where we have started to see cracks. this is been most recently in part of the whole high-yield, which makes no sense. >> is a price discovery issue. when you look at the derivative market, the pricing is more volatile because the discovery is instantaneous. triple c's trade by way of

answer you do not know true value. what is interesting i think where the fund flows. you saw out flows out of high-yield in banks and inflows into investment credit. i think that tells you there is still a demands firsor spread and credit. >> for the conversations i can tell from the last year or so, a big book of investment managers here in the united it have deep risk and high-yield and they have not participated in the more specifically equity. is this a market for you? iare tight but they have been through most of last year anyway. is this a market that a lot of people have do risk? -- derisked? >> i think a lot of people talk about that more than they do but it makes sense. real: that was bloomberg yield. unexpected company.

vice president mike pence attended the alan thicke ceremony earlier today sitting right in front of the sister of north korean leader kim jong-un. could the winter olympics help board tensions on the korean peninsula? we will discuss. this is bloomberg. ♪

scarlet: what'd you miss? let the games begin. the opening ceremonies kicked off this morning and pyeongchang was very strange bedfellows in the vip box. michael pence sat just in front of kim yo-jong.

here's the president from the korean society. would we be wise to read a lot into that? >> i think it>> is important to the south koreans that north korea showed up because two months ago, south korea worried that there could be security risks. i think those the case with people who are going to cover it for the news. that is all gone, in the background. north korea made unprecedented steps with sending a family member to south korea for the first time. a unified team. that is not going down all that well in south korea because once i was announced, president moon's approval ratings dipped. positives went down and negatives went up. it is understandable,

particularly coming from the culture we do. 's are competitive, that women have been practicing all their lives and throw them will not get enough ice time or will not make the team. so be it. reallyortant thing turned the end is the focus should be on the competition is is worth south korea would want it to be. big showcase project for them. 30 years since the last olympics from there. when create became a democratic country. julia: do think that is what caused the popularity, the president to drop 10 points as a result of it? what do you think people fear? thing in some way vaporized or bombed by north korea or do they fear reunification and the costs that would ensue?

thomas: i think the president still has high approval ratings in have been much higher than what has traditionally been the case in south korea but some of the book came off. the north koreans are trying to present an image that we are one nation. let us go together as one nation. this one nation, indivisible south korean notion has dimmed over the years. julia: and meanwhile will continue to develop nuclear weapons. thomas: a day before the opening ceremony, north korea moves ahead and advance its military .r raid and had joe: you said you southern doing a good cop-bad cop thing. cop is a mutual tactic. are're working together or

these complementary strategies or are they contradictory strategies? thomas: way understand things and what i am seeing on the news as president -- vice president pence met president moon. they both agreed to continue the sanctions regime. the maximum pressure. south korea's taking the soft approach. what they are doing is testing north korea but not willing to trust north korea. they came out realizing it is very difficult to advance trust and north korea. who is testing whom here? koreansike the north don't lose anything here. they want to be presented on the world stage and this is what they get. feel kim jong-un is laughing at everybody. thomas: he could be now.

i think the way to judge the politics of the games is after-the-fact. will he be able to create cracks in the alliance are on the international sanctions efforts? scarlet: is there any reason to believe that the north participating in these games denuclearizert to north korea moves ahead in any way? thomas: that is the hope. everything we've seen so far. scarlet: what do you think? thomas: i think it is very difficult. however, when vice president pence met president moon, they both said they would be willing to enter into negotiations. at the star, the denuclearization has to be on the table. julia: who is paying for the north koreans to be in south korea to participate? thomas: that is a good question. one little antidote. the north koreans sent a ship and they requested that south fuel the fairy.

north korea is under tight sanctions. asked number have of gallons of gasoline. evidently, there is no response for south korea's the north korea rescinded the request. iso not know if south korea bankrolling this whole thing. i doubt it. north korea is still making some money, you know. not completely cut off. it's a has foreign exchange earnings from russia and china. julia: great to chat with you. thank you so much. president of the korea society. thank you for that. it is time for the bloomberg business flash look at some of the biggest business stories in the news right now. bridgewaterf shorts has have quadrupled over the week. the hedge fund has $13.1 billion in wages. the stock will decline. the $3.2 billion disclosed on february 1.

bridgewater's that it will be more than $1 billion as the largest short holding in europe. bean's lifetime guarantee is no longer. they will impose a one-year limit on most returns. they cited abuse and fraud, which has doubled in the past five years totaling 250 million dollars. that is your business flash update. joe: what you need to know for next week. this is bloomberg. ♪

scarlet: what'd you miss? an up-and-down week that ended up for the day. president trump announces his infrastructure plan monday. joe: wednesday, so much interest in cpi. julia: wednesday, the numbers for global gdp are out.

mark: i am mark crumpton and new york. you are watching "bloomberg technology." president trump at the white house today praised rob porter, the former aide who resigned in

the wake of domestic abuse allegations. pres. trump: we certainly wish him well. obviously a tough time for him. he did a very good job when he was in the white house. and we hope he has a wonderful career, and hopefully he will have a great career ahead of him. mark: the president says he was surprised by the allegations but suggested giving porter the benefit of the doubt. he also called the news "very. sad." john kelly has not offered to reportafter a news saying he asked to step down after the rob porter scandal. kelly wanted to keep order on the job after accusations of spousal abuse from his two ex wives. he said kelly encouraged them to spread the word he acted to remove porter within 40 minutes of receiving evidence th