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Speaker 1: This is Bloomberg Surveillance. We're taking a GDP effect from housing.

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Speaker 1: It's adding about three tenths to GDP growth, almost as

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Speaker 1: much as it's ever going to do. It is enormous.

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Speaker 1: There's a tectonic shift taking place where young wealthy people,

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Speaker 1: who all advertisers worship the big rail of our leaving

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Speaker 1: broadcast TV. There is definitely a contingency in the Republican

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Speaker 1: Party that feels left behind by this recovery, and Republicans

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Speaker 1: are going to have to address that. In Bloomberg Surveillance.

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Speaker 1: Your linked to the world of economics, finance, and investment

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Speaker 1: on Bloomberg Radio. Good morning. I'm Michael McKee in New York.

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Speaker 1: Francy Lachwase sitting in today for Tom Keene. She joins

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Speaker 1: us from London, and we are both on Central Bank Watch.

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Speaker 1: It is seven am on Wall Street. It is eight

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Speaker 1: pm in Tokyo today. The Federal Reserve makes its latest

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Speaker 1: decision two pm Wall Street time, and then we get

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Speaker 1: the Bank of Japan overnight you'll wake up and have

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Speaker 1: that decision. So there is a lot to talk about,

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Speaker 1: both affecting the markets. A lot of earnings today, as

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Speaker 1: we mentioned in one just coming out now. Comcast first

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Speaker 1: quarter adjusted earnings per share eighty four cents. The consensus

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Speaker 1: forecast was for seventy nine cents, so Comcast beats. There's

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Speaker 1: also a story this morning the Comcast is out looking

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Speaker 1: to buy dream Works, which they could fold into their

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Speaker 1: Universal Studios package. So a lot going on with Comcast

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Speaker 1: ahead of the Central Bank decisions. Mixed markets Europe is higher.

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Speaker 1: The stock six hundred is up by a tenth of

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Speaker 1: a percent, the docks up by twenty nine three tenths

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Speaker 1: of eight percent. Tokyo today finished lower by four tenths.

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Speaker 1: Nika off by sixty four points. That will probably turn

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Speaker 1: around by the time we speak to you tomorrow. In

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Speaker 1: the US, futures are lower, and this may be more

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Speaker 1: due to earnings than certainly the Fed, which is not

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Speaker 1: expected to do anything. The S and P off by

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Speaker 1: six points, three tenths of eight percent, the Dow two

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Speaker 1: tenths s low or forty points. You really see it

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Speaker 1: in the NASDAC off forty nine points one point one.

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Speaker 1: Apple the story there Apple reporting disappointing earnings last night,

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Speaker 1: and the Apples shares at the moment are down by

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Speaker 1: let me get a quote here, a seven point seven

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Speaker 1: percent in the pre market trade. The bond market ahead

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Speaker 1: of the FED decision is trading a little bit flatter.

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Speaker 1: The tenure note yield at one point nine down three

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Speaker 1: basis points, the five year at one point three seven,

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Speaker 1: and the two year is at eighty five basis points

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Speaker 1: right now. Story in the morning and France been all

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Speaker 1: over this, friend, interesting to see what's happening with oil

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Speaker 1: West Texas right now Brent crude. But w t I

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Speaker 1: got up to and Brent got up to forty seven

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Speaker 1: oh five. You were noting that that we breached some

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Speaker 1: technical levels there. Yeah, and Mike, I really love the

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Speaker 1: story because, first of all, we have always been interested

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Speaker 1: in oil, sure, but actually what we saw and lost

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Speaker 1: three to four months it was that it was a

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Speaker 1: real core lation between the S and P and a

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Speaker 1: lot of the stocks to oil. And you're right that

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Speaker 1: forty five level for w t I brings us back

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Speaker 1: to November of twenty. These are technical levels, but they're

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Speaker 1: also increasingly important because there's a large majority of people

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Speaker 1: watching the all market saying even if we go up,

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Speaker 1: it won't go far beyond fifty because again, if you

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Speaker 1: think of the swing producers, if you think of OPEC.

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Speaker 1: In the past, it was Saudy that could with a

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Speaker 1: switch on or switch off the tap, change the markets.

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Speaker 1: And now it's all about US show producers and around

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Speaker 1: fifty they can just switch on the taps. Well, let's

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Speaker 1: bring in our first guest. George can call us now

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Speaker 1: he's no Mirror's head of US rates strategy and ask

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Speaker 1: him first of the year, George. Everybody was concerned about

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Speaker 1: oil prices. There was a big worry that US producers,

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Speaker 1: exploration and production companies, the frackers, we're gonna go bust.

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Speaker 1: That was gonna lead to defaults in the high yield space,

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Speaker 1: and that was going to bring down the rest of

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Speaker 1: the A bond market. Are we ready to declare that

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Speaker 1: oil prices are making that not a worry at this point?

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Speaker 1: If you were to freeze time and look at where

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Speaker 1: we are now and if oil continues to move from here,

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Speaker 1: then no you would not. But the problem is it's

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Speaker 1: a very dynamic market, very fluid, we should say, um.

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Speaker 1: And although you can point to a supply demand and

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Speaker 1: balance as what's driving oil prices, and you know, to

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Speaker 1: Frans Francis point, I mean, it definitely is very technical.

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Speaker 1: It feels like the market has caught a trend, and

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Speaker 1: these trend following traders are probably what's driving this more

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Speaker 1: so than the geopolitics and a sort of rhetoric that

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Speaker 1: we heard out of the dough deal or lack of

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Speaker 1: a deal. And so I think that if it's a

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Speaker 1: very technical market, we have to be careful because you

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Speaker 1: can always snap back the other way. So I think

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Speaker 1: that people are are optimistic that it's turned, but they're

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Speaker 1: not quite there yet to say that the coast is clear. George,

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Speaker 1: I spent many, many, many days trying to doorstep a

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Speaker 1: lot of OPEC ministers and always used to try and

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Speaker 1: get a figure out of them. And at the time

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Speaker 1: we're talking about seventy Is there a magic number when

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Speaker 1: it comes to the price of barrel? Is it fifty?

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Speaker 1: And if we do reach fifty again, is that only

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Speaker 1: a technical level or does it bring promise of recovery? Well,

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Speaker 1: I think each region, each country has their own targets

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Speaker 1: in mind. Um I think for the US point of view,

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Speaker 1: I mean the numbers you've referred to, fifty to sixties

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Speaker 1: is the sweet spot. So somewhere in the middle there

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Speaker 1: what makes sense to to get the fractors um, you know,

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Speaker 1: really out of harm's way and not have to really

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Speaker 1: tap into credit markets again and and hope, hope to

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Speaker 1: use the cash flow from higher oil prices to pay

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Speaker 1: back their loans. But you need to keep it there, right,

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Speaker 1: So the question is, are we making a move now

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Speaker 1: above this technical level forty five towards fifty? It will

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Speaker 1: stay there and therefore they'll be able to pay back

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Speaker 1: their loans and then eventually become profitable. And I think

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Speaker 1: that's the key question people are. I think in conversations

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Speaker 1: I had with folks and just the overall gauge of

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Speaker 1: of of how I see things in the market, people

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Speaker 1: are not really convinced that it's going to stay here.

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Speaker 1: How big a concern was the whole high yield space,

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Speaker 1: so it was at an overblown issue for the markets. Look,

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Speaker 1: I think in general, um, the high yield market, it

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Speaker 1: plays a critical role, uh, in conjunction with the investment

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Speaker 1: grade market. There's been a lot of issuance in the

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Speaker 1: corporate bond sector. It's helped stock buybacks, it's helped you know,

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Speaker 1: financed a lot of these energy companies. So it is

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Speaker 1: an important, uh, you know, piece of the financial landscape.

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Speaker 1: And so you know, if we were to see oil

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Speaker 1: you know at twenty like it felt like it was

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Speaker 1: going to that would have been a big problem for US,

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Speaker 1: for the US economy, for US financial sector for sure. Alright,

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Speaker 1: big day, not just in oil prices, but for central banks.

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Speaker 1: For your constituency, the US rates market, what's the most

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Speaker 1: important thing oil prices, the Bank of Japan or the

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Speaker 1: Federal Reserve. I would actually probably go in the order

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Speaker 1: of bankage pan Oil, then the feed. I think the

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Speaker 1: feed obviously plays a key role in setting short term rates.

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Speaker 1: Long term rates are driven by supply demand and by

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Speaker 1: what's happening around the world and inflation expectations. And if

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Speaker 1: oil continues to move higher, as we have been discussing,

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Speaker 1: then you know, inflation expectations will go up, curve will

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Speaker 1: stay steeper. Long term rates would do some of the

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Speaker 1: discounting for the FED, and so that's a critical piece

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Speaker 1: of the puzzle. But Bank of Japan, I think, you know,

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Speaker 1: plays a pivotal role in the next couple of hours,

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Speaker 1: uh and hopefully trying to change sentiment over there about

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Speaker 1: what took place in Q one with their launch of

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Speaker 1: negative rates was not really well taken, and I think

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Speaker 1: they have an opportunity now to tweak their programs, try

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Speaker 1: to do more credit easy instead of just charging negative rates,

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Speaker 1: and actually try to incentivize the banks to lend. I

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Speaker 1: think if they can do that in conjunction with some

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Speaker 1: fiscal policy in May and June in Japan, can really

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Speaker 1: turn the corner here, and that would force people that

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Speaker 1: are hiding in bonds in Japan, as well as those

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Speaker 1: Japanese investors that have been buying treasuries to to kind

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Speaker 1: of lighten up on some of their fixed income, and

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Speaker 1: that would also push up rates and kind of do

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Speaker 1: the job of the FED as well. So I think

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Speaker 1: in order, it's really Bank of Japan, Oil and the FED.

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Speaker 1: But George, I'm not even sure how to measure success

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Speaker 1: for bo J and actually for Japan, because abonomics for

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Speaker 1: the moment is not really working. Do you measure success

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Speaker 1: as a weaker yen or do you measure success as

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Speaker 1: limiting the impact of negative rates? I think changing the

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Speaker 1: sentiment and measuring success you know, from like a more

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Speaker 1: definitive metric. Looking at the nick and nick will be

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Speaker 1: your your first place to notice if there's a you know,

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Speaker 1: a vote of confidence in what what what's changed overnight

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Speaker 1: when when when we get the news, I think that

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Speaker 1: matters more. I think, you know, a slightly higher term

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Speaker 1: structure and higher long term rates out of Japan will

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Speaker 1: also be viewed as a success that people are not

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Speaker 1: just hoarding bonds and they're willing to put someone in

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Speaker 1: mind to work into other assets. So I think that that,

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Speaker 1: to me, you be the measure of success. But I'm

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Speaker 1: with you. I think that there's you know, the burden

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Speaker 1: of proof is now on them to kind of change

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Speaker 1: this negative outlook that people have around what's going on there,

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Speaker 1: and I think it's it has to start tonight. Are

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Speaker 1: they taking a big risk? Though? If if they do

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Speaker 1: something strong enough to make an impression on the market

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Speaker 1: and it doesn't work, what then? I mean, markets are

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Speaker 1: fickle in the short run, but in the long run

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Speaker 1: they would realize that if it is a real proper

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Speaker 1: change in an approach and they're really genuinely trying to

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Speaker 1: get credit markets to open up in Japan and lending

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Speaker 1: to improve, then I think the fundamentals would take over.

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Speaker 1: So I don't think the markets are are gonna be

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Speaker 1: that foolish. And if it's a big enough change and

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Speaker 1: it's meant and to be in the right direction. I've all,

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Speaker 1: I got about thirty seconds left. But when what would

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Speaker 1: the change need to be? Just additional monetary policy that

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Speaker 1: moves the yet around isn't gonna do it. What would

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Speaker 1: be credible to tell you that something has changed in

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Speaker 1: the long run. I mean, I think they're never gonna

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Speaker 1: hint that there's more fiscal policy because that's not their domain.

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Speaker 1: But I think lining up um, they are easing so

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Speaker 1: that if there is more fiscal policy down the road,

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Speaker 1: it would help to kind of implement that fiscal policy.

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Speaker 1: They're already buying a ton of bonds already, so that's

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Speaker 1: that's not They're not gonna be it. I think it

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Speaker 1: needs to be combination of more lending programs and e

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Speaker 1: t F purchases and if there ever is in need

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Speaker 1: for more easy that they were gonna be open for it,

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Speaker 1: all right. George Goncalas is with us from Nomera ahead

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Speaker 1: of US fixed income. We will talk about the FED,

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Speaker 1: we promise. Right now, the yen is trading at one

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Speaker 1: eleven twenty six uh, the key rate out of all

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Speaker 1: of what is happening over the next twenty four hours.

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Speaker 1: According to George Dollar index is still weaker ninety four

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Speaker 1: point three eight eight as the Fed prepares to meet

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Speaker 1: this afternoon. This is Blueberg Surveillance and we are brought

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Speaker 1: to you this hour by Mount kisco Vovo. Visit Mount

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Speaker 1: kisco Vovo dot com. Here's Michael Barr with the latest

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Speaker 1: world in national headline. Mike, thank you very much. Republican

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Speaker 1: Donald Trump will be delivering a speech on foreign policy

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Speaker 1: today in Washington. Yesterday, Trump won in primaries in Connecticut, Delaware, Maryland, Pennsylvania,

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Speaker 1: and Rhode Island. Trump now has sev of the delegates

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Speaker 1: he needs to hit the magic number of delegates to

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Speaker 1: win the nomination. Democratic front runner Hillary Clinton is now

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Speaker 1: ninety percent of the way to her party's nomination after

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Speaker 1: winning four out of five. She only lost in Rhode

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Speaker 1: Island to Bernie Sanders. The Vermont senator told the Associated

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Speaker 1: Press he has a very narrow path and is going

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Speaker 1: to have to win some big victories. Belgium has turned

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Speaker 1: over terror suspects Allam Obdislam to France for trial. Slam

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Speaker 1: is accused of taking part in the conspiracy in the

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Speaker 1: Paris attacks last year, killing a hundred thirty people. Global

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Speaker 1: four hundred journalists on Michael Barn Mike, thank you, Michael.

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Speaker 1: We're watching futures lower in the United States. NASTAC features

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Speaker 1: are all forty eight points one. Probably the disappointment in

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Speaker 1: Apple's earnings last night. Federal Reserve meets today a decision

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Speaker 1: at two pm. Wall Street Time, Scarlet Food, Joe Wisenhal

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Speaker 1: and I will have all the coverage for you here

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Speaker 1: on Bloomberg Radio Global Business News twenty four hours a

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Speaker 1: and on your radio is a Bloomberg Business Flash. And

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Speaker 1: I'm Karen Moscow. This updates brought to you by Sector

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Speaker 1: first quarter profit at Meat Analyst Estimate Soda. Glaxo Smith

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Speaker 1: bought by a unit of the private equity firm Leonard

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Speaker 1: Green and part nurse for about two point two billion

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Speaker 1: in cash. U I stock Index Future is falling after

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Speaker 1: Apple's first sales drop in more than a decade. NASDAC

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Speaker 1: eveny Future is down forty nine points or one point

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Speaker 1: one percent this morning. SNP EVENI Future is down six

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Speaker 1: dowie Mini futures down thirty eight The acts in Germany's

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Speaker 1: up three tenths per cent. Ten year treasury up eight

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Speaker 1: thirty seconds, the yield one point eight nine percent. Nimex

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Speaker 1: scrude oil up one point eight percent or eighty cents

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Speaker 1: to forty four eighty two. A barrel Comex gold is

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Speaker 1: up four tenths per cent or four dollars forty cents

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Speaker 1: to twelve forty seven eighty announced. The euro and dollar

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Speaker 1: thirteen thirteen again one eleven point to seven. And that's

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Speaker 1: a Bloomberg business flash. Mike and Francine Karen, thank you

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Speaker 1: so much. So. Treasury is rising for the first time

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Speaker 1: in eight days, higher yields beginning to entice investors. Of course,

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Speaker 1: it's all about the Fed. Will they hold, will they not?

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Speaker 1: Will they give us more of an inside on what

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Speaker 1: they will do in June? If anything. Let's get back

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Speaker 1: to the Central Bank conversation. We're still joined by George

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Speaker 1: Gunkl's head of US rate strategy for Extincome at Nomura. George,

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Speaker 1: we're talking a little bit before about the b o J.

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Speaker 1: The FED, I would argue, is also just as interesting

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Speaker 1: because there's been so much devishness on the market. That is,

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Speaker 1: if a chair yelling is that little bit more hawkish,

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Speaker 1: we may see yourself off. Well listen, I mean, the

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Speaker 1: ball market has been discounting some of that for the

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Speaker 1: last eight days, as you mentioned, and it's interesting that

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Speaker 1: we're heading into the meeting with the treasury market actually

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Speaker 1: rallying a couple of basis points here and there, really

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Speaker 1: not a huge signal, but still not going in the

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Speaker 1: right direction. So I mean, I do think look, um,

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Speaker 1: they did a quick about face at the end of

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Speaker 1: Q one and early part of Q two. Really, you know,

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Speaker 1: linking their views to these global factors and international concerns

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Speaker 1: really have taken a greater importance for them. However, a

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Speaker 1: lot of the issues that they were highlighting have kind

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Speaker 1: of gotten better, and we've in China is at least

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Speaker 1: somewhat stabilizing versus what people were fearing, and Q one

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Speaker 1: oil has improved notably Emerging markets in general have seen

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Speaker 1: of gone sideways to slightly weaker. There's really no excuse

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Speaker 1: for them not to be a little bit more hawkish,

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Speaker 1: given how devish the bob market is pricing. The question

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Speaker 1: is can they actually deliver the right message and can

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Speaker 1: they are Are they over deliver? Are they over messaging? Look,

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Speaker 1: I think I think, um, there's a little bit of

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Speaker 1: happened and then kind of communicating. I think me obviously

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Speaker 1: they're they're watching the markets, and they in real time,

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Speaker 1: but I think that you know, as they calibrate their

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Speaker 1: impact is. I think, you know, all else equal. If

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Speaker 1: they were to you know, come out and to say that,

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Speaker 1: you know, the balance of risks are not askew to

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Speaker 1: the downside, or if something that doesn't sound like they're

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Speaker 1: worried about things getting worse but at least stabilizing stability,

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Speaker 1: you might be viewed as hawkish in this, in this

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Speaker 1: very perverse world that we live in. But if they

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Speaker 1: do nothing and are as bland as possible, don't they

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Speaker 1: risk at some point falling behind the curve and bringing

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Speaker 1: the bond vigilantes out of the would work. There are

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Speaker 1: a lot of people who say they're already behind and

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Speaker 1: that there are questions about the Fed's credibility. Well, like,

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Speaker 1: I'd love to find the bond vigilante is still out there.

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Speaker 1: If you have anyone's email address, please let me know.

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Speaker 1: I mean the bond vigilantees or the the those that

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Speaker 1: are more on the hawkers side and concerned about higher

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Speaker 1: rates have either gone into hibernation or or just non existent.

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Speaker 1: And I think partly as a reflection of this multiple

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Speaker 1: years of dovish FED and low rates, I think they

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Speaker 1: FED would not mind being behind the curve and actually

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Speaker 1: would encourage some of those bond vigilantees that come out

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Speaker 1: of those caves wherever they may be, as long as

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Speaker 1: it's for the right reasons. If the market is, if

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Speaker 1: the economy is improving, inflation is going higher. If the

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Speaker 1: FED is staying behind the curve and the bond market

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Speaker 1: doesn't work for them, I think the FED would be

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Speaker 1: too upset with that. They've been struggling with why does

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Speaker 1: the bond market never believe them? In the first place.

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Speaker 1: If the bond market were to find religion and say, oh,

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Speaker 1: look the feeds forecast maybe will be realized in the future,

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Speaker 1: that's not so bad a thing. Well, there raises an

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Speaker 1: enterting question. We have talked a lot about what's the

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Speaker 1: FEDS reaction function? These days, the markets don't know the

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Speaker 1: FEDS reaction function. But does the FED know the market

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Speaker 1: reaction function anymore? I mean, look, I believe that their

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Speaker 1: understanding the market is much more global than ever before

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Speaker 1: UM and and that we take information from all parts

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Speaker 1: of the world and trying to discount those those factors

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Speaker 1: in a real time basis. And if you look at

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Speaker 1: you know, the market used to be much more sensitive

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Speaker 1: to economic data, and of course jobs data still plays

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Speaker 1: a huge role, but other data and start to lose

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Speaker 1: importance where you can have situations where we had weak

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Speaker 1: data but yields were going up, which is counterintuitive for

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Speaker 1: the last two weeks. So I think that in the market,

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Speaker 1: after many years of these low rates and q eass

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Speaker 1: has lost some of its calibration as well, And I

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Speaker 1: think the FED to only look to the market for

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Speaker 1: guidance would be wrong. I think that the probability is

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Speaker 1: being as low as they are. If FED really wants

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Speaker 1: to hike in June, they have to do something this

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Speaker 1: meeting to start to nudge those highers. At the Francine's point, Um, So,

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Speaker 1: I don't think that there's there's there's some cross wires

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Speaker 1: going on on both sides, both the FED and the

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Speaker 1: market as having a hard time understanding each other. I'm

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Speaker 1: just looking at some of the headlines coming through from

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Speaker 1: Larry Fink of black Rock, and he believes that the

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Speaker 1: FED will only be able to raise interest rates at

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Speaker 1: best by another quarter point this year. Um, Georgia, If

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Speaker 1: this is the case, why bother at all? How much?

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Speaker 1: How much do you think that they will raise by?

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Speaker 1: In so, our house view is is two hikes per year,

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Speaker 1: which is in line with the FED, and and it's

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Speaker 1: been our our view ever since they started the program

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Speaker 1: back in December. But the risks are a skewed to

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Speaker 1: the downside that there's only one hike this year. And

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Speaker 1: I am very sympathetic to that, to that view of

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Speaker 1: you know, only one hike, because that one hike has

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Speaker 1: a magnifying effect when everyone else is still going into

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Speaker 1: negative rates or keeping their rates lower or doing QE

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Speaker 1: this kind of give and take globally speaking, all manifests

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Speaker 1: itself with the dollar and with with short term rates,

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Speaker 1: and if if the it might feel like a hundred

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Speaker 1: basis points given wherever. What's going on in the rest

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Speaker 1: of the world. George ken Commas, thanks for being with

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Speaker 1: us this morning. Two o'clock this afternoon we will find out.

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Speaker 1: And then, of course you say you gotta stay up

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Speaker 1: tonight for the Bank of Japan. Yeah. Always, I'm always

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Speaker 1: always up all strange hours of the night, so you

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Speaker 1: may get a call from our bookers at that time.

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Speaker 1: Thanks for coming in this morning. He's head of US

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Speaker 1: Rates Strategy for Fixed Income uh NOMRA. Well ahead of

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Speaker 1: the fantist friend mentioned. We're seeing the US buttons rise

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Speaker 1: a little bit. Yields are lower too. Basis points for

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Speaker 1: the tenure now down to one point nine oh, the

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Speaker 1: two year is at eighty five basis points. It's only

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Speaker 1: off of one basis point, so a little curve flattening

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Speaker 1: going into today's decision. This is Bloomberg Radio to p M.

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Speaker 1: This afternoon, the Federal Reserve decides. Joe Wisentheal Scarlett fu

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Speaker 1: and I will bring you all of the Feds language

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Speaker 1: in their statement, and a lot of reaction here on

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Speaker 1: Bloomberg Radio.