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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: This is a Bloomberg Business Flash and I'm Carr in Moscow.

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Speaker 1: This updates brought to you by cbo E vix Options

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Speaker 1: cbo E dot Com. Slash Powerful Outcomes. Vix Us stocks

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Speaker 1: are rising as bank and energy shares let an early climb,

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Speaker 1: with higher oil prices adding to gains. After the SMP

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Speaker 1: five hundred posted its best week since November. We checked

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Speaker 1: the markets every fifteen minutes throughout the trading day. On

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Speaker 1: Bloomberg SNP five hundred up one point three per cent

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Speaker 1: or twenty four points to ninety two, Dow Jones Industrial

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Speaker 1: average of one point two per cent or one hundred

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Speaker 1: ninety five points to sixteen thousand, five hundred eighty eight,

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Speaker 1: the NASDAC up one point per cent or fifty six

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Speaker 1: points to forty five sixty Tenure Treasury down five thirty seconds.

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Speaker 1: The yelled one point seven six percent to yield on

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Speaker 1: the two year points seven six percent NIMAX screwed oil

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Speaker 1: up six eight percent or two dollars two cents to

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Speaker 1: thirty one dollar sixty six cents of barrel comex goal

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Speaker 1: down one point seven percent or twenty dollars thirty cents

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Speaker 1: to twelve ten forty announced the euro a dollar ten eighteen,

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Speaker 1: the yen one thirteen point to zero. Lumber liquidators is

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Speaker 1: down about twenty two per cent a day. It's flooring

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Speaker 1: tested for formaldehyde was found to have a three times

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Speaker 1: higher risk of causing cancer than previously stated. US regulators

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Speaker 1: set in reversing their own funding from earlier this month.

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Speaker 1: That's a Bloomberg business flash. Tom and Mike Karen, thank

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Speaker 1: you very much. Scott Matther is chief investment Officer for

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Speaker 1: Course Strategies at PIMCO. He's an old offender to the program.

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Speaker 1: Everybody knows him and Scott timing is perfect to have

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Speaker 1: you on given the issues that are out there right now.

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Speaker 1: Following on we want to talk to you about negative

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Speaker 1: interest rates and but following on what Lisa bram Witz

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Speaker 1: was just saying in the concerns in the markets of

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Speaker 1: about not just negative rates but financials and liquidity. Uh,

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Speaker 1: let me ask you, um, how bad are things her

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Speaker 1: views seem to be that things are pretty bad because

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Speaker 1: nobody knows nothing. As the old saying goes, well, good morning,

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Speaker 1: Yes it's uh, you know, certainly I think this this

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Speaker 1: sort of environment, the uncertainties have increased because of policies

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Speaker 1: like negative interest rate policy. Some things that people assumed

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Speaker 1: could never happen, you know, are happening in financial markets,

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Speaker 1: and so there is a greater degree of uncertainty and

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Speaker 1: combined with the regulatory backdrop, that has kind of reduced

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Speaker 1: liquidity across the board. Uh, there are sort of you know,

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Speaker 1: choppy markets and choppy price action. But you know, for instance,

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Speaker 1: in the bond market, we you know, we still observe

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Speaker 1: that there's a tremendous amount of transactional activity. I mean

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Speaker 1: we're still you know, humming along. Look at investment grade

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Speaker 1: corporate issue it's still humming along at near record record

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Speaker 1: pace of activity, large amounts of bonds coming to market

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Speaker 1: every week. So, you know, the nature of the markets

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Speaker 1: has changed. But in in people sort of perceive that

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Speaker 1: there's different ways that markets function versus the way they

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Speaker 1: functioned in the past. But we don't think there's anything

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Speaker 1: like sort of a systemic issue with with wave volatilities,

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Speaker 1: you know, impacting markets. At this point, you feel like

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Speaker 1: you can sell what you may want to sell or

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Speaker 1: need to sell these days, and if things go south,

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Speaker 1: you'll still be able to do that. Yeah, we just

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Speaker 1: we describe it as a as a different sort of market.

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Speaker 1: It's no longer the market where and where you can

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Speaker 1: you know, pick up the phone or or hit the

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Speaker 1: buyer sell button, uh in many different sectors in the

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Speaker 1: way that you use to because counterparties aren't providing the

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Speaker 1: balance sheet to conduct business that way. So it just

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Speaker 1: means it takes more time to connect a real buyer

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Speaker 1: and a real seller. But there's still plenty of that

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Speaker 1: going on, and there's new mechanisms for for putting buyers

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Speaker 1: and sellers together that seemed seemed to be functioning fine.

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Speaker 1: I I look Scot and I think a lot the

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Speaker 1: trading desk challenges and drunk maybe is not part of

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Speaker 1: the PIMCO world. Are you working day to day now

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Speaker 1: where we're just in a low rate environment forever? I mean,

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Speaker 1: one of the things Mike and I have seen and

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Speaker 1: we usually talk to in job's day when we're on

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Speaker 1: a leather about labor, it's nice just to talk to

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Speaker 1: you about the normal markets. Do you just assume a

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Speaker 1: terminal value means low yields are here to stay. Well,

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Speaker 1: we certainly think that that low yields are here to

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Speaker 1: stay for very many years. But you know, still our

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Speaker 1: forecast that that interest rates in the US will be

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Speaker 1: slowly normalized and out a few years you should expect

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Speaker 1: to see UH, you know, policy rates close to two percent,

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Speaker 1: and you should expect to see UH tenure rates probably

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Speaker 1: close to three percent UM. So you know, we're we're

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Speaker 1: just right now at the point where because of what

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Speaker 1: other central banks around the world are doing and the

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Speaker 1: spillover effects on the US market, it's prevented US yields

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Speaker 1: from rising. But you know, if we look at other

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Speaker 1: major central banks in the world, you know, project what

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Speaker 1: the e c B will be doing a year from now,

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Speaker 1: what the Bank of Japan will be doing a year

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Speaker 1: from now, We think that they'll they'll be done with

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Speaker 1: with with easing UH and we'll be looking to slowly

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Speaker 1: normalize UH, you know at that time, so some of

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Speaker 1: those spillover effects on the US market should begin to dissipate.

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Speaker 1: Negative rates aren't going to be something that is the

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Speaker 1: new normal. No, We don't think so. I mean, it's

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Speaker 1: it certainly seemed like over the past um, you know,

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Speaker 1: three to six months, there's been a herd of central

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Speaker 1: bankers that have moved in that direction and and uh,

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Speaker 1: you know, as if they've discovered a new tool. And

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Speaker 1: in many ways they have because it hasn't been used

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Speaker 1: on the way that it's it's being used at the

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Speaker 1: moment um. But the enthusiasm probably for those for those

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Speaker 1: policies is beginning to wane because if you look at

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Speaker 1: what happened when the ECB moved in that direction, what

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Speaker 1: happened more recently when the Bank of Japan move in

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Speaker 1: that direction, of certainly I don't think they achieved what

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Speaker 1: they were looking to achieve. In fact, you know, we

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Speaker 1: now have tighter financial conditions. Uh. The market was certainly disappointed. Uh.

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Speaker 1: And on both of those modes, either the ECB in

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Speaker 1: December or Bank of japanic anyway, those tighter conditions negated

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Speaker 1: rate increases, including the one occurred. We would say so, um,

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Speaker 1: you know, most objective measures that people have different financial

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Speaker 1: condition uh, indices that they put together. We have our

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Speaker 1: own at Pimcoe, but there's there's numerous ones available Uh,

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Speaker 1: they're they're all indicating that financial conditions globally and in

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Speaker 1: almost every reagion of the world, they're tighter than they

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Speaker 1: work just a couple of months ago. Mike, I think

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Speaker 1: this is an incredibly important idea. Marching to March sixt

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Speaker 1: is the idea of that. Remember all the uproar about

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Speaker 1: a rate increase. I mean, you know, did you you

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Speaker 1: age that day, didn't you. Marty Felstane has a piece

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Speaker 1: in the Wall Street Journal today. I miss that that

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Speaker 1: suggests the Fed would be mistaken to back off its

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Speaker 1: forecast for rate increases this year, And it would probably

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Speaker 1: be a mistake given the economic data we're seeing now

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Speaker 1: for the Fed not to raise rate on the rates

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Speaker 1: on the sixteenth, because then it reinforces the market idea

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Speaker 1: that there is now and always will be a Fed put. Well,

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Speaker 1: it's certainly, Uh, we would say marches is probably not

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Speaker 1: very likely at this point, because it's it's likely given

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Speaker 1: this tightening of financial conditions at the Federal Reserve, will

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Speaker 1: we'll sit back and say, we need to see more data.

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Speaker 1: Let's see what the influence of these tighter conditions is

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Speaker 1: on the real economy. So they may take a pass

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Speaker 1: in March. Um, but you know, we certainly expect that

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Speaker 1: interest rate hikes are back on the table for the

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Speaker 1: remainder of the year, given given where we're at in

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Speaker 1: the cycle, and given where inflation and wages are headed.

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Speaker 1: What's your view on what the tightening we have seen

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Speaker 1: in markets is going to do to the economy, given

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Speaker 1: the fact that when you look at saying the Chicago

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Speaker 1: Fed UH index, you're not seeing tight conditions. I mean,

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Speaker 1: we're still very low, just tighter than they were, as

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Speaker 1: you say, a couple of months ago. Yeah, that's right.

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Speaker 1: They you know, the high frequency data continues to look okay,

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Speaker 1: and a lot of the survey based measures look okay.

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Speaker 1: So um, you know, if you just look at what

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Speaker 1: our model would say in terms of tightening financial conditions,

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Speaker 1: how much that would lop off growth? You know, it's

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Speaker 1: about a quarter of a percent. So whereas you know

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Speaker 1: you might have had forecasts of two two and a

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Speaker 1: half percent growth for this year, if these tighter financial

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Speaker 1: conditions are sustained, uh, you have to reduce that by

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Speaker 1: perhaps up to a quarter point. Scott Manthers, thank you

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Speaker 1: so much, greatly appreciated with Pimcoe today as we look

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Speaker 1: at her broader strategy. Mike, I think what Scott Mather

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Speaker 1: said there is just profound about the trip. You know,

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Speaker 1: we've heard a lot of economists say it, but to

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Speaker 1: hear somebody and the trenches of the bond market talking

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Speaker 1: about just flat out tightenings occurred, and then there's just presumption,

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Speaker 1: almost discreet and separate from it, of presumed rate increases

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Speaker 1: is bizarre the right word. Well, I don't think the

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Speaker 1: market is presuming any rate increases at this point, which

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Speaker 1: is probably I mean, maybe Marty Feldstin goes too far,

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Speaker 1: but at this point the markets may have gone too

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Speaker 1: far and in believing nothing happening. When you look at

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Speaker 1: the Atlanta Fed GDP now report, um granted it, it

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Speaker 1: continuously moves as the data come in, but the data

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Speaker 1: is so far are suggesting around two point seven growth

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Speaker 1: in the first quarter, which is going to get people's attention.

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Speaker 1: And as you've been noting, inflation is out there, Yeah

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Speaker 1: it is. I mean it's it's as I had the

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Speaker 1: Cleveland Fed chart up today. I'm not sure we even

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Speaker 1: used it on TV. We'll bring that out to you

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Speaker 1: on social, but it's it's edging up. Mike, there's no

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Speaker 1: other way to put it. Here's been a news Stanley

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Speaker 1: truck and Miller um, I guess he runs his own

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Speaker 1: fund now, but of course he used to run du

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Speaker 1: Cane for years. Says he is going to endorsed John Casey,

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Speaker 1: that Marco Rubio is not the most electable Republican and

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Speaker 1: that Casey ken Wing Case had less than eight percent

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Speaker 1: of the vote in the South Carolina primary. But JACKO

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Speaker 1: Miller says the big industrial states in the Midwest can

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Speaker 1: help put him over the top. No, there's some political

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Speaker 1: discussion here and UH, we'll be doing that for years.

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Speaker 1: We go to Super Tuesday, I might I lined up

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Speaker 1: the states of Super Tuesday from Vermont to Texas. It's

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Speaker 1: just wonderfully eclectic, but a real Southern bias. The five

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Speaker 1: top states Texas, Georgia, Tennessee, Virginia, Alabama. Calling it the

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Speaker 1: SEC Primary Athletic Conference. There's a lot of other stuff going,

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Speaker 1: but that will be really fun to see how something

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Speaker 1: that EBB and flow goes. We'll try to bring you

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Speaker 1: more of that within our economics, finance, investment, UH, and

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Speaker 1: international relations as we move forward to next Tuesday. We

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Speaker 1: are produced is always by why you n Our Global

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Speaker 1: Technical Director Ken Felio. The market up a good two

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Speaker 1: points zero. Stay with us all day on Bloomberg Radio