1 00:00:02,360 --> 00:00:05,760 Speaker 1: Global business news twenty four hours a day. If Bloomberg 2 00:00:05,800 --> 00:00:08,880 Speaker 1: dot com, the radio plus mobile app and on your radio, 3 00:00:09,160 --> 00:00:12,960 Speaker 1: This is a Bloomberg Business Flash and I'm Karen Moscow. 4 00:00:13,000 --> 00:00:15,640 Speaker 1: This updates brought to you by National Realty thirty percent 5 00:00:15,720 --> 00:00:18,240 Speaker 1: returns on cash and rented real estate. Find them at 6 00:00:18,400 --> 00:00:22,240 Speaker 1: n r I a dot net US dot Index futures 7 00:00:22,280 --> 00:00:24,919 Speaker 1: are lower this morning after a rally cent The SNP 8 00:00:25,079 --> 00:00:28,520 Speaker 1: fived to its highest clothes this year, as investors wait 9 00:00:28,560 --> 00:00:31,680 Speaker 1: further assurances that central banks will continue to support growth. 10 00:00:31,960 --> 00:00:34,560 Speaker 1: We check the market's every fifteen minutes throughout the trading 11 00:00:34,640 --> 00:00:38,199 Speaker 1: day on Bloomberg SNP EVENI futures down five points, Dow 12 00:00:38,240 --> 00:00:40,920 Speaker 1: E Mini futures down twenty eight and NAST Documni future 13 00:00:40,960 --> 00:00:43,599 Speaker 1: is down about eleven. The decks in Germany's up one 14 00:00:43,640 --> 00:00:46,560 Speaker 1: and a half percent ten. Your treasury up eight thirty seconds. 15 00:00:46,560 --> 00:00:48,680 Speaker 1: The yield one point nine five percent. Yield on the 16 00:00:48,720 --> 00:00:51,520 Speaker 1: two year point nine four percent. Now I make screwed 17 00:00:51,560 --> 00:00:53,560 Speaker 1: oil down two point seven per cent or a dollar 18 00:00:53,680 --> 00:00:56,800 Speaker 1: three to thirty seven forties seven of barrel comexs Gold 19 00:00:56,880 --> 00:00:58,880 Speaker 1: is down two tenths per cent or two dollars forty 20 00:00:58,920 --> 00:01:01,840 Speaker 1: cents to twelve fifty An announced the euro at dollar 21 00:01:01,880 --> 00:01:05,160 Speaker 1: eleven twenty one the end one thirteam point five nine 22 00:01:05,360 --> 00:01:09,040 Speaker 1: Starwood Hotels and Resorts, which is being bought by Marriott International, 23 00:01:09,120 --> 00:01:12,679 Speaker 1: receiving a separate unsolicited takeover proposal from a group of 24 00:01:12,720 --> 00:01:15,759 Speaker 1: companies led by ann Bang Insurance Groups. Starwood is up 25 00:01:16,040 --> 00:01:19,200 Speaker 1: more than eight percent. Apollo Global Management degreed to buy 26 00:01:19,200 --> 00:01:22,400 Speaker 1: Grocer the fresh Market for about one point four billion 27 00:01:22,520 --> 00:01:26,280 Speaker 1: in cash. Fresh Market is up almost twenty four percent. 28 00:01:26,600 --> 00:01:29,479 Speaker 1: And that's a Bloomberg Business flash, Tom and Mike Karen, 29 00:01:29,720 --> 00:01:31,760 Speaker 1: thanks so much again. A little way to futures at 30 00:01:31,800 --> 00:01:37,160 Speaker 1: negative five. It is on Wall Street. The following is 31 00:01:37,200 --> 00:01:41,600 Speaker 1: from Bloomberg View. Opinions and commentary from Bloomberg columnists. I'm 32 00:01:41,640 --> 00:01:45,920 Speaker 1: Francis Wilkinson, an editor for Bloomberg View. Ted Cruz plotted 33 00:01:45,959 --> 00:01:49,480 Speaker 1: the most promising path to the Republican nomination until Donald 34 00:01:49,520 --> 00:01:53,440 Speaker 1: Trump came along. In fact, Trump's initial popularity only validated 35 00:01:53,480 --> 00:01:57,440 Speaker 1: Cruise's strategy of making himself a vessel for enraged voters. 36 00:01:57,640 --> 00:02:00,520 Speaker 1: As trump staying power grew, however, and his hold on 37 00:02:00,640 --> 00:02:04,360 Speaker 1: racially resentful white voters tightened, Cruz concluded that he had 38 00:02:04,400 --> 00:02:08,280 Speaker 1: to confront Trump, attacking his personal finances and saying a 39 00:02:08,400 --> 00:02:11,000 Speaker 1: vote for Trump was a vote for Obamacare. In a 40 00:02:11,120 --> 00:02:14,320 Speaker 1: GOP debate Thursday night, Cruise opted for a new tack. 41 00:02:14,880 --> 00:02:18,959 Speaker 1: He used the word solution nine times, suggesting Trump diagnoses 42 00:02:19,040 --> 00:02:23,080 Speaker 1: problems but that his solutions don't work. The debate only 43 00:02:23,120 --> 00:02:26,840 Speaker 1: reinforced how thoroughly Trump has beaten Cruise at his own game. 44 00:02:27,360 --> 00:02:30,120 Speaker 1: Cruz once went to extremes to cast himself as a 45 00:02:30,200 --> 00:02:34,040 Speaker 1: radical who, in the words of one conservative commentator, wants 46 00:02:34,080 --> 00:02:37,760 Speaker 1: to burn Washington to the ground. Having been bested by 47 00:02:37,760 --> 00:02:41,240 Speaker 1: a superior act, Cruz is now forced to remake himself 48 00:02:41,280 --> 00:02:45,320 Speaker 1: as a man with solutions for sale. I'm Francis Wilkinson 49 00:02:45,400 --> 00:02:49,280 Speaker 1: and editor for Bloomberg View. For more Bloomberg opinion and commentary, 50 00:02:49,320 --> 00:02:52,600 Speaker 1: please go to Bloomberg View dot com. This has been 51 00:02:52,600 --> 00:02:56,800 Speaker 1: Bloomberg View and Bloomberg View commentaries give heared hourly weekdays 52 00:02:57,400 --> 00:03:01,119 Speaker 1: on Bloomberg Radio. Michael but Igan Allen Zendre the chief 53 00:03:01,200 --> 00:03:04,280 Speaker 1: us ekondas for Morgan Stanley, who has h it's not 54 00:03:04,320 --> 00:03:06,880 Speaker 1: an outlier call because other people agree with the same thing, 55 00:03:06,960 --> 00:03:09,440 Speaker 1: but at least she is on the low end of 56 00:03:09,600 --> 00:03:12,839 Speaker 1: fed activity. For the coming year, or two just one 57 00:03:12,840 --> 00:03:16,440 Speaker 1: move this year, two moves in two thousand seventeen, which 58 00:03:16,520 --> 00:03:21,520 Speaker 1: is much less than the consensus forecast for what the 59 00:03:21,520 --> 00:03:23,240 Speaker 1: Fed is gonna do. I want to start by asking 60 00:03:23,240 --> 00:03:26,080 Speaker 1: you to put that in context. Though. Are you suggesting 61 00:03:26,080 --> 00:03:30,160 Speaker 1: the Fed is not going to move because the economy 62 00:03:30,320 --> 00:03:33,960 Speaker 1: is going to be bad, or because inflation so low 63 00:03:34,120 --> 00:03:36,320 Speaker 1: they don't have to and they might as well get 64 00:03:36,320 --> 00:03:41,000 Speaker 1: the extra stimulus. Well, I think, of course, Mike, economists 65 00:03:41,040 --> 00:03:44,880 Speaker 1: have many many hands, um and, so I could say 66 00:03:44,920 --> 00:03:47,120 Speaker 1: on the one hand, other hand, and a few others, 67 00:03:47,160 --> 00:03:50,280 Speaker 1: so it's always a little bit of everything. But they're 68 00:03:50,320 --> 00:03:53,360 Speaker 1: not pressured on the inflation front at all either on 69 00:03:53,400 --> 00:03:56,120 Speaker 1: the wage front, so labor markets just aren't tied enough, 70 00:03:56,880 --> 00:04:00,680 Speaker 1: uh and, and certainly not on the inflation front, particularly 71 00:04:00,840 --> 00:04:04,880 Speaker 1: when we look at our forecast for core inflation, where 72 00:04:05,160 --> 00:04:09,360 Speaker 1: the the lagged cumulative effects of the trade, the rising 73 00:04:09,400 --> 00:04:13,320 Speaker 1: trade weighted dollar will continue to depress inflation for some time. 74 00:04:13,400 --> 00:04:16,120 Speaker 1: So they're really not pressured on the inflation front this year, 75 00:04:16,480 --> 00:04:19,680 Speaker 1: but they are emboldened by what they're seeing in the 76 00:04:19,760 --> 00:04:23,680 Speaker 1: domestic economy. We're facing a lot of external headwinds that 77 00:04:23,760 --> 00:04:27,360 Speaker 1: have resulted in net trade dragging on growth, energy investment 78 00:04:27,440 --> 00:04:29,919 Speaker 1: dragging on growth. But if you take those out of 79 00:04:29,960 --> 00:04:33,240 Speaker 1: the picture and just look at final private domestic demand 80 00:04:33,279 --> 00:04:35,840 Speaker 1: and the economy, just what we're moving and shaken here 81 00:04:35,880 --> 00:04:39,120 Speaker 1: in the US UH and it looks pretty good. And 82 00:04:39,200 --> 00:04:41,919 Speaker 1: so they're going to continue to communicate that they like 83 00:04:42,040 --> 00:04:45,200 Speaker 1: to do more and they'll maintain that tightening bias. But 84 00:04:45,360 --> 00:04:48,240 Speaker 1: ultimately decisions are made meeting by meeting, and coming up 85 00:04:48,240 --> 00:04:50,360 Speaker 1: to each meeting, we think that they're going to be 86 00:04:50,400 --> 00:04:53,159 Speaker 1: looking at inflation dynamics that are going to lead them 87 00:04:53,160 --> 00:04:56,560 Speaker 1: to push on hikes, and a lot of that will 88 00:04:56,600 --> 00:04:58,560 Speaker 1: be determined by and this is going to be a 89 00:04:58,680 --> 00:05:01,560 Speaker 1: key phrase. I think that we'll or all year diverging 90 00:05:01,720 --> 00:05:06,880 Speaker 1: global central bank policies. Other global central banks are still easing. 91 00:05:06,920 --> 00:05:09,640 Speaker 1: We're not as near to the end of the global 92 00:05:09,680 --> 00:05:12,040 Speaker 1: central bank easing cycle as the FED had thought we 93 00:05:12,040 --> 00:05:14,840 Speaker 1: were when they raised rates in December, and that's going 94 00:05:14,839 --> 00:05:17,640 Speaker 1: to continue to make it difficult for them to deliver 95 00:05:17,720 --> 00:05:21,240 Speaker 1: more hikes because, as our FX strategists have have also 96 00:05:21,320 --> 00:05:24,240 Speaker 1: released a separate note this morning, they believe there's more 97 00:05:24,320 --> 00:05:29,640 Speaker 1: upside than the dollar to come because of divergence. Well, 98 00:05:30,120 --> 00:05:34,800 Speaker 1: now you ask the dollar, trade weighted dollars lower than 99 00:05:34,839 --> 00:05:37,840 Speaker 1: it was before the FED raised rates, Well, certainly, so 100 00:05:37,880 --> 00:05:40,320 Speaker 1: we've had a nice pullback in the trade weighted dollar, 101 00:05:40,720 --> 00:05:43,920 Speaker 1: and of course if that is sustained, then that would 102 00:05:44,279 --> 00:05:46,960 Speaker 1: further add to the Fed's argument to do more this year, 103 00:05:46,960 --> 00:05:49,240 Speaker 1: and we would probably end up being wrong on the 104 00:05:49,279 --> 00:05:53,120 Speaker 1: one rate hike assumption. Um. But our F strategist and 105 00:05:53,200 --> 00:05:55,640 Speaker 1: Tom can tell you, if you listen to an FX strategist, 106 00:05:55,680 --> 00:05:58,280 Speaker 1: you could practically fall asleep on all the nuances they 107 00:05:58,320 --> 00:06:01,880 Speaker 1: give around what drives current season. One of the driver. 108 00:06:06,000 --> 00:06:10,360 Speaker 1: One of the drivers is diverging global central bank policies. 109 00:06:10,520 --> 00:06:13,400 Speaker 1: And at the time of the December rate hike, the 110 00:06:13,480 --> 00:06:16,440 Speaker 1: FED was looking at the world and through a different lens. 111 00:06:16,560 --> 00:06:18,880 Speaker 1: They thought that we were nearer to the end of 112 00:06:18,880 --> 00:06:23,039 Speaker 1: global central bank easing cycle than we are. They were 113 00:06:23,080 --> 00:06:27,719 Speaker 1: blindsided by Japan going negative, ECB going negative, And it's 114 00:06:27,760 --> 00:06:30,080 Speaker 1: now apparent that we're not as close to the end 115 00:06:30,120 --> 00:06:32,479 Speaker 1: of the global central bank easing cycle. And that's that 116 00:06:32,640 --> 00:06:36,159 Speaker 1: policy divergence is just one of many reasons that we'll 117 00:06:36,160 --> 00:06:38,760 Speaker 1: put upward pressure on the trade weighted dollar. We think 118 00:06:39,200 --> 00:06:42,640 Speaker 1: just joining us. Ellen Zentner with Morgan Stanley tomorrow. It's 119 00:06:42,640 --> 00:06:45,440 Speaker 1: a fair and balanced Bloomberg surveillance. Hans Rhdi girl will 120 00:06:45,480 --> 00:06:48,960 Speaker 1: join us. He'll tear apart Olans. That was quite something, Ellen. 121 00:06:49,600 --> 00:06:51,840 Speaker 1: Don't tell don't tell Hans that I said people will 122 00:06:51,880 --> 00:06:55,479 Speaker 1: fall asleep when you live. I will not. I will 123 00:06:55,520 --> 00:06:58,320 Speaker 1: not do that. But but seriously, this comes down to 124 00:06:58,320 --> 00:07:01,840 Speaker 1: a basic economics, which is a common ground of everyone 125 00:07:01,920 --> 00:07:05,240 Speaker 1: we speak to. There's a short term, a long term, 126 00:07:05,279 --> 00:07:08,680 Speaker 1: and the British have the conceit of the medium term, 127 00:07:08,680 --> 00:07:12,840 Speaker 1: which term is chair yelling in well, I think right 128 00:07:12,880 --> 00:07:16,360 Speaker 1: now much of their so when they make decisions meeting 129 00:07:16,400 --> 00:07:19,400 Speaker 1: by meeting, it's financial conditions that determine it. What if 130 00:07:19,440 --> 00:07:23,400 Speaker 1: financial conditions look like going into those meetings. In terms 131 00:07:23,400 --> 00:07:27,440 Speaker 1: of the medium term, the framework, the policy framework is 132 00:07:27,520 --> 00:07:29,880 Speaker 1: that tailor rule that we all love that tells you 133 00:07:29,920 --> 00:07:32,360 Speaker 1: how much of an unemployment gap do you have, what 134 00:07:32,440 --> 00:07:34,920 Speaker 1: kind of inflation pressures do you have, and what does 135 00:07:34,960 --> 00:07:38,280 Speaker 1: your output gap look like? And she believes that the 136 00:07:38,360 --> 00:07:41,600 Speaker 1: real equilibrium rate in the short run is currently negative 137 00:07:42,760 --> 00:07:46,560 Speaker 1: or about flat and will rise only gradually over time, 138 00:07:46,680 --> 00:07:50,080 Speaker 1: and so they look to align policy with that gradual rise. 139 00:07:50,160 --> 00:07:53,240 Speaker 1: So that dictates that they know they're pretty certain the 140 00:07:53,400 --> 00:07:56,560 Speaker 1: rise in rates is going to be very gradual. That's 141 00:07:56,600 --> 00:07:59,880 Speaker 1: the framework. But the decisions will be made meeting by meeting, 142 00:07:59,880 --> 00:08:02,679 Speaker 1: and so they'll look at financial conditions going into each 143 00:08:02,720 --> 00:08:06,640 Speaker 1: meeting um and how certain they are about their their 144 00:08:06,680 --> 00:08:09,560 Speaker 1: outlook that they will meet their outlook. That will dictate 145 00:08:09,760 --> 00:08:12,520 Speaker 1: what they're willing to do with rates today. I have 146 00:08:12,560 --> 00:08:15,680 Speaker 1: to ask you about a very short note in your 147 00:08:15,720 --> 00:08:20,640 Speaker 1: most recent note clients about recession remaining your bare case. 148 00:08:21,320 --> 00:08:24,400 Speaker 1: How much of a percentage do you put on recession 149 00:08:24,440 --> 00:08:27,440 Speaker 1: because what caught my eye is just this phrase, Uh, 150 00:08:27,440 --> 00:08:30,480 Speaker 1: it's deeper and longer to reflect increasing risk this scenario 151 00:08:30,600 --> 00:08:34,360 Speaker 1: plays out. Yeah, so it's a good question, Mike. And 152 00:08:34,440 --> 00:08:38,760 Speaker 1: the US economy, basically, recession probabilities keep fluctuating. We believe 153 00:08:38,800 --> 00:08:42,720 Speaker 1: between twenty and thirty percent, depending on how much angst 154 00:08:42,800 --> 00:08:47,600 Speaker 1: there is in the markets. The reason why recession probabilities 155 00:08:47,920 --> 00:08:51,040 Speaker 1: aren't higher for the US even though we're in this 156 00:08:51,200 --> 00:08:54,560 Speaker 1: very low growth backdrop, is that you really need to 157 00:08:54,679 --> 00:08:58,640 Speaker 1: show more damage on the domestic side of the economy, 158 00:08:58,960 --> 00:09:02,040 Speaker 1: you know, the industrial eye to the economy. We've we've 159 00:09:02,080 --> 00:09:05,000 Speaker 1: released a lot of analysis around this is in recession. 160 00:09:05,360 --> 00:09:07,439 Speaker 1: It takes off all the boxes that the m b 161 00:09:07,559 --> 00:09:11,040 Speaker 1: e R looks for when dating recessions. Industrial production has 162 00:09:11,080 --> 00:09:13,679 Speaker 1: fallen from peak. It's fallen by nearly two percent. It's 163 00:09:13,720 --> 00:09:16,440 Speaker 1: fallen over more than a six month period. But that's 164 00:09:16,520 --> 00:09:21,160 Speaker 1: ten percent of your economy. The other ninety percent is 165 00:09:21,160 --> 00:09:24,800 Speaker 1: still growing and around the two growth rate. And you've 166 00:09:24,840 --> 00:09:27,440 Speaker 1: got to see more damage done to the labor market, 167 00:09:27,480 --> 00:09:31,760 Speaker 1: to consumer confidence UH, to to spending UH than we've 168 00:09:31,800 --> 00:09:36,000 Speaker 1: seen in order to get those recession probabilities up much higher. 169 00:09:36,320 --> 00:09:39,040 Speaker 1: But it has to remain the base case, sorry, the 170 00:09:39,040 --> 00:09:42,880 Speaker 1: bear case, because we're growing at such a slow rate. 171 00:09:43,200 --> 00:09:45,560 Speaker 1: This is a mature phase of the cycle. I want 172 00:09:45,600 --> 00:09:47,520 Speaker 1: to say, we don't know how long this business cycle 173 00:09:47,559 --> 00:09:48,920 Speaker 1: will last. We think it will be one of the 174 00:09:48,960 --> 00:09:52,600 Speaker 1: longest on record. But of course, when you're growing this slowly, 175 00:09:53,120 --> 00:09:56,600 Speaker 1: any sort of bobbing can push the economy into negative growth, 176 00:09:56,640 --> 00:10:00,199 Speaker 1: and so it has to remain your bear case. Thank 177 00:10:00,280 --> 00:10:04,080 Speaker 1: you so much, congratulations on your terrific two thousand fifteen. 178 00:10:04,160 --> 00:10:07,559 Speaker 1: And an important research note today from organ say Adam 179 00:10:07,600 --> 00:10:11,760 Speaker 1: Parker migrates is equity called Ellen Sentner migrates the economical 180 00:10:12,400 --> 00:10:16,280 Speaker 1: titled in the shallow and Mike um It's important anecdotal. 181 00:10:17,080 --> 00:10:21,199 Speaker 1: Yahoo down from the peak of late two thousand and fourteen. 182 00:10:21,800 --> 00:10:25,840 Speaker 1: And then there's securities analysis. You go to Twitter, thank 183 00:10:25,840 --> 00:10:30,839 Speaker 1: you Casey for the photograph. It'sself by Southwest of the 184 00:10:30,920 --> 00:10:35,800 Speaker 1: tumbler party, and Casey, after careful research, notices it's a 185 00:10:35,880 --> 00:10:40,360 Speaker 1: cash bar this year. This is the change at Yahoo. 186 00:10:41,280 --> 00:10:44,720 Speaker 1: There's a cash bar at their tumbler party at south 187 00:10:44,760 --> 00:10:49,440 Speaker 1: By Southwest Important news. You can use security analysis there 188 00:10:49,440 --> 00:10:53,960 Speaker 1: you go no free cash, no free cashual, no free liquor, 189 00:10:54,400 --> 00:10:57,120 Speaker 1: versus on the warpath. I think we're having a cash 190 00:10:57,160 --> 00:11:00,600 Speaker 1: bar south by Southwes. It has changed. It is not nearly. 191 00:11:01,559 --> 00:11:05,000 Speaker 1: It is different collegiately. It is different than it was 192 00:11:05,080 --> 00:11:08,920 Speaker 1: ten or twenty years ago on economics, like Ellen Zentner, 193 00:11:09,000 --> 00:11:13,320 Speaker 1: on finance and investment. This is Bloomberg's surveillance. Another hour 194 00:11:13,440 --> 00:11:13,920 Speaker 1: coming up.