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Speaker 1: This is Bloomberg surveillance. Europe An attachment to Europe looks

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Speaker 1: worse and worse every single day. There's a security issue

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Speaker 1: that the Brits field. I don't think the business cycle

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Speaker 1: dynamics that we've seen since World War Two changed. I

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Speaker 1: think they're the same and they're gonna start to manifest themselves.

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Speaker 1: Many in markets are looking at tenure rates at a

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Speaker 1: seventy five and are concluding, Wow, if rates are so low,

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Speaker 1: that must mean that the U. S economy is unhealthy.

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Speaker 1: Bloomberg Surveillance your link to the world of economics, finance,

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Speaker 1: and investment on Bloomberg Radio. Good morning everyone, Michael McKee

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Speaker 1: in Washington. I'm Tom keenan New York. We welcome all

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Speaker 1: of you across the nation worldwide Bloomberg surveillance and most

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Speaker 1: interesting warning made more interesting after really a quiet three

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Speaker 1: or four days of news. The bombshell out of the

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Speaker 1: Federal Reserve yesterday on minutes, moving the dollars stronger and

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Speaker 1: bringing June somewhat towards the current I'm not sure where

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Speaker 1: we are after the comments of Jeff Lacker two uh,

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Speaker 1: Michael McKee, but um, there you have it. Yields higher

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Speaker 1: the two ye yield point nine zero percent and the

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Speaker 1: tenure yield one point eight six percent. Our for X

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Speaker 1: brief as always brought you by Interactive Broker's winner of

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Speaker 1: f X Weeks two thousand fifteen award for the best

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Speaker 1: reach out for X trading platform visit ib at I

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Speaker 1: b k R dot com slash four X dollars stronger

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Speaker 1: what you need to know on a blended basis, the

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Speaker 1: d X y nine four out to a ninety five

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Speaker 1: point four seven, nowhere near recent dollar strength, but nevertheless

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Speaker 1: the vectors in a certain direction. Yen one oh six

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Speaker 1: seven eight nine, one ten seventeen weaker, yen euro was

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Speaker 1: a one twelve a cup of coffee ago, Maybe Jeff

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Speaker 1: Lacker moving the euro weaker one eleven eighty five. That

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Speaker 1: is not not your parody, not near a week week

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Speaker 1: euro call, but definitely uh there it is. Sterling on

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Speaker 1: nine Sterling was stronger earlier, is well Brent for four

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Speaker 1: dollar based European oil down a dollar zero eight oil

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Speaker 1: retreating off of dollar strength. Um. We we always have.

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Speaker 1: The answers were always out front, but there's nothing like

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Speaker 1: news to move a stock. David Wilson, the note to

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Speaker 1: me is the mass of Walmart and what it takes

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Speaker 1: to move a stock eight percent. That's a lot of

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Speaker 1: money moving in one direction. Oh no kidding, But let's

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Speaker 1: face it. Walmart's results definitely a contrast to what we

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Speaker 1: saw out of Target yesterday and what we saw at

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Speaker 1: a Macy's and Cole's in Northstrom last week. Fiscal first

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Speaker 1: quarter orties at the world's largest retailer amount of ninety

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Speaker 1: cents to share. That's ten cents higher than analysts average,

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Speaker 1: Ustment and Bluebird survey, and sales also beat projections. So

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Speaker 1: you mentioned eight percent gain for Walmart. Today most active

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Speaker 1: stock in early trading Cisco Systems up five percent, the

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Speaker 1: largest networking equipment maker, gave fiscal fourth border profit and

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Speaker 1: revenue forecast to be an estimates Cisco benefiting from a

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Speaker 1: shift towards software based networking security and management. And then

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Speaker 1: you have monts Santo up six and a half percent.

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Speaker 1: The seed and farm chemical supplier received an unsolicited takeover

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Speaker 1: offer from Germany's Bear or if you like, buyer, while

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Speaker 1: neither company disclosed the terms. Mont Santo had a market

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Speaker 1: value of forty two billion dollars as of yesterday. If

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Speaker 1: this sounds familiar, it's something Bloomberg reported last week was

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Speaker 1: in the works. Church and Dwight up six percent. This

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Speaker 1: company makes, among other things, arm and hammer, baking soda,

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Speaker 1: and Trojan condoms. Stocks up for a second day on

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Speaker 1: takeover speculation. A Spanish website negotios dot com reported that

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Speaker 1: the UK's record bank guys are pro plans and offer

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Speaker 1: uh story, citing unnamed sources. F m C Technologies up

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Speaker 1: two percent. The oil services company agreed to merge with

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Speaker 1: French Pierre Technic in an all stock deal valued at

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Speaker 1: thirteen billion dollars. It's all about cost cutting in the

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Speaker 1: wake of falling oil prices. Back on earnings Salesforce dot

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Speaker 1: Com up five and a half percent. The maker of

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Speaker 1: internet based business software posted fiscal first quarter earnings and

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Speaker 1: sales and exceeded estimates. Advanced Auto Parts down seven and

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Speaker 1: a half percent. The retailers fiscal first quarter of profit

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Speaker 1: and sales trailed estimates. Sales is the four year sales falling.

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Speaker 1: Its stories open more than a year and should point

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Speaker 1: out rival Auto Zoned down three percent and O'Reilly Automotive

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Speaker 1: down two and a half percent. The summary here away

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Speaker 1: from Walmart and I guess I guess Urban Outfitters, I'm

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Speaker 1: guessing did well as well. Other than that, it's pretty grim. Yeah,

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Speaker 1: that's I mean, you haven't got Take two Interactive, the

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Speaker 1: video game maker, down four and a half percent after

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Speaker 1: their earnings. L branch was Zones, Victoria's Secret down six

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Speaker 1: and a half percent. You mentioned Urban Outfitters, It's up

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Speaker 1: eight percent in the wake of its results. American Eagle

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Speaker 1: Outfitters another pa are retail doing better? Let's not fourteen

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Speaker 1: never boring, David Wilson, thank you so much. You get

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Speaker 1: Walmart up seven up ten percent earlier. Really remarkable. Um,

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Speaker 1: it's always a good time to speak with Sobrato a

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Speaker 1: job of society general. But now it's really a good

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Speaker 1: time after what we've seen in the last eighteen hours. Um,

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Speaker 1: so brought up does fixed income ahead of their US

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Speaker 1: rate strategies. It's action abrought a good morning, Good morning,

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Speaker 1: what an interesting time. How did your world change yesterday afternoon?

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Speaker 1: Do you stay with your beliefs or have you made

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Speaker 1: a shift overnight? Well, we've definitely made a shift overnight.

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Speaker 1: I mean the minutes, we're definitely on the Hawker side.

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Speaker 1: I think that they're starting to get concerned at the

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Speaker 1: markets too complecent about rate hikes. You know, you're you're

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Speaker 1: seeing good data. You know, they seem to be dismissing

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Speaker 1: the week GDP data in favor of employment data. Basically,

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Speaker 1: they're telling us that every meeting is a live meeting

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Speaker 1: and that you know, the UK referendum doesn't really uh

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Speaker 1: isn't going to really necessarily stop them from hiking in June?

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Speaker 1: Is the condition that appropriate? When you look at this

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Speaker 1: what is the bet now in the street? One of

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Speaker 1: the things that that you do so well and all

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Speaker 1: strategies do, is try to find where the chips are

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Speaker 1: placed at any given moment. Is there a bet right

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Speaker 1: now for lower yields or higher yields. You know, the

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Speaker 1: market's been sort of sideways for for a few months now,

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Speaker 1: so there really wasn't any conviction on which way the

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Speaker 1: market could go. And you know, we're actually in one

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Speaker 1: of our recent publications last week, we had said that

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Speaker 1: there's just too much complacency in the market. So, you know,

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Speaker 1: there's a potential for yields to go higher because of

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Speaker 1: hockey freet pricing, and there's also the potential that you

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Speaker 1: have downside risks some overseas and you know, volatility in general,

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Speaker 1: you know, both and equities and fixed income was very

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Speaker 1: is very low and low. And behold yesterday we've seen

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Speaker 1: a significant move. The issue of for the fair that

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Speaker 1: Jeff Lacker sort of dismissed, But what they raised in

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Speaker 1: the minute is whether or not there would be enough

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Speaker 1: data going forward. He seemed to think that because his

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Speaker 1: view is we should raise rates now you don't need

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Speaker 1: a whole lot more, But is does the market need

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Speaker 1: to be convinced by more data? Absolutely, I think that

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Speaker 1: the market is still resisting pricing in a hike for June,

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Speaker 1: where we also have a coin toss for July, but

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Speaker 1: you know, June still the herd of the June is

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Speaker 1: still quite high. So you know, I think that there's

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Speaker 1: not much data coming from bring in between now in June,

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Speaker 1: so it's really a question of, you know, how how

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Speaker 1: we proceed from here on. But you know, there's going

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Speaker 1: to be very little new information between now and June

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Speaker 1: that's going to really market. So it's just all going

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Speaker 1: to be about fed speak from now on. I think

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Speaker 1: I pay attention to what you know your fat President

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Speaker 1: Douglas says today and Janet Yell says on June Sex.

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Speaker 1: I want to give you a window, folks in this

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Speaker 1: abroadest world at sucks and this is something that we're

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Speaker 1: not going to discuss on air. I think, John Tucker

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Speaker 1: there's a federal law against that. We recommend six months

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Speaker 1: forward six months to year vault straddles versus mid curves,

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Speaker 1: which also has a three month Z score for the

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Speaker 1: ratio forward the spot volatility of a negative one point

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Speaker 1: for John, did you get it? I thought you said

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Speaker 1: you weren't going to talk about it on the area. Yeah,

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Speaker 1: well we're there there it is. I mean, Sobrata, you

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Speaker 1: heel in an incredible world of complexity. May I suggest

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Speaker 1: the world is that volatility will return to your market? Yeah?

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Speaker 1: I think I think that the market was definitely is

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Speaker 1: definitely these last week seemed to be underpricing the potential

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Speaker 1: for volatility in the market. And that's why we recommended

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Speaker 1: that trade because, uh, you know, there's just a lot

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Speaker 1: of complacency. You know, if you look at the movement

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Speaker 1: that it was, it was at the at the at

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Speaker 1: the lows. The vix was at the lows, and to me,

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Speaker 1: the biggest risk was exactly what happened yesterday, which is

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Speaker 1: a Hawckey shreet pricing all rate high expectations, and you know,

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Speaker 1: the market just wasn't priced for that, and we tried

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Speaker 1: to sort of you know, clearly there's a lot of

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Speaker 1: program selling of of ghammos is short did in volatility.

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Speaker 1: So I think that that, you know, it was it

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Speaker 1: was much easier for us to sort of recommend trades

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Speaker 1: you know that take advantage of forward volatility um going up,

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Speaker 1: as in you know, for volatility in the future going up.

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Speaker 1: Is the market agnostic as to price? In other words,

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Speaker 1: uh is the is are people just happy to price

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Speaker 1: based off of what they think the benchmark rate is

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Speaker 1: going to be? Or is there a feeling that the

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Speaker 1: Fed and the benchmark rate is wrong and we need

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Speaker 1: lower rates for the economy and for corporate earnings and

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Speaker 1: all the things that go into why you hold an investment.

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Speaker 1: I mean, to me, at twenty five basis point high,

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Speaker 1: even you know, from from such low levels shouldn't really

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Speaker 1: impact the economy at large, you know, And if you

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Speaker 1: look at sort of the FED pricing, what really stands

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Speaker 1: out in the fat frond futures pricing is that you know,

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Speaker 1: I mean, I'm not nearly concerned about whether they hike

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Speaker 1: in in June or July. It's the pace of hikes

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Speaker 1: after the first, after the next eight hip that I

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Speaker 1: think the market is totally discounting. We're only pricing in

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Speaker 1: two hips until the end of so, you know, even

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Speaker 1: though you know some fed uh you fed governor seemed

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Speaker 1: to think that we could hike rate, you know, two

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Speaker 1: or three times this year, the markets basically not budging on.

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Speaker 1: That brought to a job over us with society general

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Speaker 1: as we look at some of the nuances the fixed

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Speaker 1: income market made all the more important that Jeffrey Lacker's

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Speaker 1: comments this morning to Michael McKeon, also to the five

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Speaker 1: minutes yesterday in a legitimate move, stronger dollar in the

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Speaker 1: market with end right now one ten fifteen, weaker yen.

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Speaker 1: We are also tracking the missing Egypt airplane. Here is

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Speaker 1: Michael Barr with the latest on that story. Michael, mine time,

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Speaker 1: Thank you very much. Egypt Civil Aviation minister says his

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Speaker 1: country is not ruling out any possibilities, including a terrorist attack.

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Speaker 1: In this morning crash of and egypt Air passenger jet

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Speaker 1: into the Mediterranean. Greece's defense minister says egypt Air flight

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Speaker 1: eight oh four made abrupt turns and suddenly lost altitude

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Speaker 1: before entering Cairo's air traffic control area. The sixty six

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Speaker 1: people aboard the airbus A three twenty we're flying from

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Speaker 1: Paris to Cairo. Presumptive Republican presidential nominee Donald Trump is

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Speaker 1: weighing in on this morning's crash of the egypt air flight.

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Speaker 1: Trump tweeted yet another terrorist attack, which has not been confirmed. Egyptian, French,

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Speaker 1: and Greek officials have launched investigations into the crash. Global

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Speaker 1: News twenty four hours a day, powered by our two

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Speaker 1: hundred journalists and news bureaus around the world. Mike Lavarren, Michael,

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Speaker 1: thanks so much. Brent crude forty eight dollars a barrel

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Speaker 1: down said, stronger dollar, weaker oil. This morning, Michael McKee

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Speaker 1: in Washington. I'm Tom keenan New York. Good morning, Market Drivers.

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Speaker 1: Brought to you by Fordam University, the Gavelly School of Business,

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Speaker 1: Executive NBA top rank with the Redowned Professional Network. Classes

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Speaker 1: in Columbus Circle or Westchester. Learn more at Fordam dot EU,

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Speaker 1: hours a day at Bloomberg dot com, The Radio plus

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Speaker 1: Mobile and on your radio. This is a Bloomberg business flash,

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Speaker 1: and I'm terin Moscow. The Bloomberg A Future's Report is

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Speaker 1: more at Interactive Brokers dot com, slash, c n E

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Speaker 1: Group US DOCK Index futures are lower, with raw material

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Speaker 1: producers poised to follow. Commodity prices lower as investors race

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Speaker 1: for a possible Federal reserve interest rate increase as early

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Speaker 1: as next month. We checked the markets every fifteen minutes

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Speaker 1: throughout the trading day on Woloomberg SNP even A Future

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Speaker 1: is down five and a half points, Dow E Many

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Speaker 1: Futures down forty six and NASDAC E many futures down

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Speaker 1: thirteen and a half. DECKX in Germany's down nine tenths

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Speaker 1: per cent ten, Your treasury down one thirty second the

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Speaker 1: yield one pot eight five percent. Nim X screwed oil

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Speaker 1: down one point seven percent or eighty four cents to

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Speaker 1: forty seven thirties seven of aarrol COMACS gold is down

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Speaker 1: two point one percent or twenty seven dollars twenty cents

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Speaker 1: at twelve forty seven twenty an ounce, the euro A

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Speaker 1: dollar eleven ninety four, the N one ten point oh seven,

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Speaker 1: and Walmart up seven and a half percent after first

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Speaker 1: quarter results beat analysts estimates, tamping down fears at the

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Speaker 1: retail industry as mired in a slump. As a Bloomberg

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Speaker 1: Business flash, Tom and Mike, very good, caring. I greatly

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Speaker 1: appreciate that. Good morning everybody. It is as a busy

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Speaker 1: morning here headlined by Michael's interview with Jeff Lacker of Richmond. Mike,

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Speaker 1: as we expect that you were very good on this.

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Speaker 1: The vice chairman speaking at Frankly folks Uh in important

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Speaker 1: and emotional event at Columbia University in honor of Michael Woodford,

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Speaker 1: the esteemed monetary theorists, and Mike. There's the headline that

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Speaker 1: the Vice sherman says nothing he's so important that says

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Speaker 1: that says something well in this case, because as you mentioned,

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Speaker 1: this was in honor of Michael Woodford's choosing not to

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Speaker 1: comment on US economy or federal reserve policy. Right now,

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Speaker 1: he is talking about the economic models that inform the

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Speaker 1: FEDS policy, and he suggests that the neutral rate of

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Speaker 1: interest that Jeff Lacker was talking about has moved lower. Yeah,

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Speaker 1: that in the terminal that goes off of some of

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Speaker 1: the work of I think of John Herman and Michael

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Speaker 1: Faroli among many, leading a charge on a new lower

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Speaker 1: set for all of our economics. Seradarajava, society general has

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Speaker 1: to live this in fixed income support, Supadra, Is your

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Speaker 1: world removed now from economic models and dynamics? Are you

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Speaker 1: attached to the system or is everything so distorted at

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Speaker 1: the point so we're not because what's typically what you

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Speaker 1: do is even if you're looking at you know, coming

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Speaker 1: up with a fair value for tennit treasure yields, you

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Speaker 1: would look at GDP and inflation and come up with

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Speaker 1: a fair value model that's going to tell you what

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Speaker 1: tennit treasure yields are. But now we're in a in

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Speaker 1: a world where you know, there's so much demand for

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Speaker 1: treasure is coming from overseas because the Bank of Japan

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Speaker 1: and the e c B are engaged in quantitative easing

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Speaker 1: that it really, um you know, it really drives what

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Speaker 1: you know back and yields. So there's definitely um a detachment.

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Speaker 1: I mean I would say tenniture giels have detached from

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Speaker 1: economic fundamentals. Yeah, and and and like you see that

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Speaker 1: Bill Dudley headline and introducing I believe the vice chairman

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Speaker 1: Dudley says he hasn't fully embraced nominal GDP targeting yet,

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Speaker 1: which I guess is not some yeah, some who suggest

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Speaker 1: that that should go to that if they want to

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Speaker 1: try to drive inflation higher. When we look so broader

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Speaker 1: at the rate market, do we have a risk here

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Speaker 1: of low yields which expands credit like in another moment

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Speaker 1: before two thousand seven, Yeah, there's uh, you know, the

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Speaker 1: odd thing about this cycle is that back and yields

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Speaker 1: have remained very low. So I mean I was checking

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Speaker 1: what the you know, fifteen new mortgage right is, you know,

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Speaker 1: last week and it was two eighty one. So the

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Speaker 1: back end has remained somewhat pegged through this whole, through

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Speaker 1: the whole talk about rate hikes, and a lot of

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Speaker 1: the pressure is coming on the front end. So as

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Speaker 1: far as sort of consumers and boring costs are concerns,

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Speaker 1: you know, it's still very cheap and interjects is still

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Speaker 1: very low. So you know, for the most part, I

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Speaker 1: would say that, you know, the rate hikes in and

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Speaker 1: of itself haven't really stopped the consumer from borrowing. Jeff

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Speaker 1: Lacker said, we didn't need to see inflation go higher

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Speaker 1: just as long as it doesn't go lower. What we

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Speaker 1: haven't seen is a real move higher in inflation expectations

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Speaker 1: from the people in your markets. Are they seeing the

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Speaker 1: same things that the members of the Open Market Committee

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Speaker 1: are seeing in terms of inflation, or are they still

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Speaker 1: in the camp that this is temporary and it'll go

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Speaker 1: away again. I think that what what's telling is that

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Speaker 1: we've seen a significant move up in oil prices. I'd

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Speaker 1: say that at least earlier on this year, the correlation

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Speaker 1: between breke evans and oil prices was quite high, and

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Speaker 1: now what we're seeing is that we've seen a recovery

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Speaker 1: in oil prices, and break evens are still quite low,

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Speaker 1: especially tennier break events are are still quite low. In

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Speaker 1: the five or fold five year break even, which is

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Speaker 1: what the FED looks at, is also quite low. But

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Speaker 1: we're where we wore back in October. So in some respects,

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Speaker 1: there's a case we made that if they were comfortable

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Speaker 1: with the would break even back in October November to

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Speaker 1: be able to high create in December, then that is

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Speaker 1: probably not a big issue for for the FED. Sobrata,

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Speaker 1: thank you so much to rout a job I was

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Speaker 1: sucking with us today. Mike, have gotten in front of

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Speaker 1: me the text of Vice Chairman's uh Fisher's speech in

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Speaker 1: honor of Michael Woodford. Unfortunately, folks, it's so brilliant, I'm

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Speaker 1: gonna have to actually sit down and read it. It

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Speaker 1: is a superb history of the contributions of Paul Samuelson,

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Speaker 1: potention of of Israel, and of Woodford of America. Mike,

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Speaker 1: I have to share with you this oiler function, which

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Speaker 1: is what Woodford is acclaimed for. X equals e x

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Speaker 1: at T plus one minus um omega I minus uh

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Speaker 1: the expectation of inflation minus the real rate. Did did

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Speaker 1: that help? Rachel tells me she's down in Greenwich Village

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Speaker 1: booking you a coffeehouse to do a reading. Yeah, it

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Speaker 1: is a superb It's only what you would expect from

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Speaker 1: Stanley uh Fisher. His his contribution to economics across history

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Speaker 1: and theory and driving it forward as he has done

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Speaker 1: with public policies is extraordinary. I will put that speech

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Speaker 1: out on social media so you can grab it easily.

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Speaker 1: It is a tour to force by Vice chairman uh Fisher. Mike,

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Speaker 1: what did you learn from Jeff Lacker today? Well, I

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Speaker 1: think the most important headline is that he doesn't need

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Speaker 1: to see and uh. He seems to think the committee

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Speaker 1: may not need to see inflation go higher between now

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Speaker 1: and June fifteen. As long as it doesn't go lower,

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Speaker 1: it's on the proper path and mathematically should continue to rise.

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Speaker 1: So uh, that's interesting, He argues. There is enough data

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Speaker 1: out there for them to act. Yeah, and move markets again,

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Speaker 1: as the markets will come back as they always do

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Speaker 1: at the end of an interview, but clearly higher yield

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Speaker 1: scene through the McKee lacquer uh interview. We need to

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Speaker 1: get the markets open. Few 's negative five, the vics

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Speaker 1: sixteen point six three Bloomberg surveillance. We are cutting it

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