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tv   Bloomberg Markets  Bloomberg  April 27, 2016 12:00pm-2:01pm EDT

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>> from bloomberg world headquarters, i'm tracy alloway. here is what we are watching of this hour. it is decision day for the fed and while every hike is not expected investors are bracing for sign of future action. stocks are mixed after a disappointing sales forecast. tracy: comcast is in talks to buy tumors animation. the price i can be more than $3 billion. david: apple earnings may have disappointed with our high expectations for facebook. investors will see the comings worth its high valuation. halfway into the trading day in the the market desk with julie. julie: we have been muddling along today which is interesting given we have big earnings news from apple and others as well. the nasdaq was down more than
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1%. but it isoff the lows the worst performer because of apple which comprises about 7% of the composite. the s&p only slightly lower and the dow is higher. earnings like united technology, boeing, verizon. those shares -- at&t is the one out with earnings. that index a limit higher. let's focus on the nasdaq as the underperformer. in april it turned higher at one point for the month. it was getting closer to a -- the racing is the client for the year to date. that now is gone. we've had a number of high profile, big tex disappointments. the worst percentage performers and the nasdaq 100 include apple, the company coming out with the sales decline for the first time in 13 years. this year is down 6%. activision and all trying arts
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also following. ve, a spinoff from liberty media. it is been steadily declining. the record happened -- of the team happens to be 4-16. atr to date now if you look the major averages, the nasdaq is a little more deeply in the red even as the dow and the s&p hang on to their gains. tracy: in just two hours we have the decision from the fed. what are we seeing ahead of that? julie: something from the atlanta fed called gdp now. it's almost a real-time gdp. forward-looking indicator look at the bloomberg. this yellow line is a indicator. the white light is the gdp earnings as reported. this is trending lower. we have got next economic data. at the same time, if you look at
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the 10-year note in the action leading up to this fed announcement, yield has been climbing. up until today we saw seven straight sessions of rising yields for the 10-year note and across the yield curve. we have seen this rising expectation for inflation, even as the economic data doesn't necessarily bear that out. asre we have to check wrip, we tend to do on fed days. the fed fund probability calculator. 0% chance of a change today. we don't get 50% now until november. we will be watching this throughout the day, especially after year from the fed to see if there are any changes. david: thank you very much. tracy: let's check on the bloomberg first word news. mark has more from the newsroom. mark: thanks so much. donald trump is calling himself the presumptive privilege and nominee and hillary clinton has all but locked up the democratic nomination. that was the outcome of five
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northeastern presidential primaries on tuesday. trump won all five states. winds his lead over ted cruz and john kasich. as far as he's concerned, the race is over. mrs. clinton one for the five states. bernie sanders only won in rhode island but says he is not getting up. mrs. clinton's victories all that seal the nomination. she is roughly 90% of the delegates she needs. we have racing news. ted cruz saying he is making a major announcement later this afternoon. there is growing speculation he will name a running mate. wmur television in new hampshire is saying that cruz will name carly fiorina as his vice presidential pick against -- that's a get that that's according to wmur in new hampshire. ted cruz to name carly fiorina as his vice presidential pick. we will review more news on this as we get it. the former speaker of the house
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of representatives dennis hastert is in a chicago courtroom to be sentenced in a harsh money case centered on sex abuse allegations. prosecutors intend to focus on accusations that he molested at least four students when he coached wrestling at an illinois high school. he pleaded guilty to breaking banking laws as he tried to pay some of $3.5 million to conceal secrets of his past. the deal suggests probation and six months behind bars. the outgoing ceo of valiant pharmaceuticals will say he was "too aggressive" interestingly i think drug prices for several medicines. this comes days before michael pearson is to be replaced as valeant ceo. are -- global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world.
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i am mark crumpton. back to you. david: we are looking at live pictures of the mayflower hotel in washington. donald trump is scheduled to deliver what is characterized as a major policy address. it has been a month. since he is delivered a policy speech it is expected to focus on the economy and focus on global trade, national and economic security policies. donald trump scheduled to speak in just a few minutes. we will carry some of that live on bloomberg television. to federal reserve is set announce his latest monetary policy decision at 2:00 p.m. today. it's widely expected to keep rates steady with markets forecasting only about a 22% chance of an increase at the next meeting in june. tracy: with no news conference afterwards it will be focusing on the post meeting statement. where -- will janet yellen turf from -- turn from dove to hawk?
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what is the number-one thing you will be looking at a 2:00 p.m.? >> how much less cautious the fed might be. we clearly saw in the last two statements caution from the fed. janet yellen back it up in the press conference in march. there are a couple of things they are looking for. any easing in terms of the fed language around the risks, particularly global risks. they can be elevated, just not quite as much as before. it's unlikely they will return to a balanced statement of risk like they had last year. tracy: this is what everyone is looking for because this was the legacies before the december rate hike. michael: given the changes in the summary projections in march it seems a quick switch back to a set of risks. we might get a little bit more optimism on the inflation outlook. we have seen the dollar weekend and oil prices rebound. these are two things they cited to think inflation may persist
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and remain at low lovers -- levels longer. back in october the fed gave a pretty strong heads up that my coumadin december -- they might do it in december. david: if you look at it here over the last month only have these last few fed meetings we saw an uptick in that. kim accusative talk about the economic conditions the fed policymakers will be looking at the head of this announcement? michael: the data has announced a great. quarter gdp will be very soft and fed officials will have to acknowledge that in the opening paragraph. the question is how much do they push back? financial conditions is one thing they can point to. the stock market is up for the year. the dollar has weakened a little bit. concerned about china has faded. it's kind of on everyone's mind is the brexit.
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that's just a week after the meeting. there is certainly a chance that it markets are volatile or we see selloff ahead of the event the fed could wait and go perhaps in july. tracy: you mentioned the brexit risk. whether theessarily fed policymakers are hawkish or dovish, but whether they are internationalists or slightly more focused on the domestic u.s. economy. michael: what we've seen from the committee for the last several years is a stronger focus on international. i think it's degree and not kind. yes, there is certainly lingering concern about the global black -- backdrop. first-quarter gdp notwithstanding it has an better. i think we are seeing that wages and prices are finally starting to pick up at the fed has been cautious on that. caution has been the keyword. there is a symmetry in the policy framework. it's easy to hike rates going forward.
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it's difficult to backtrack. i think that keep the from moving very quickly towards higher rates. david: we talk about the fed lake -- slang which in the past. -- the fed language in the past. do tos the fed prepare people for? michael: it's much more likely speeches will be the mechanism. if it turns out things look good enough come june. otherwise we could get a hand in the june statement that july is a live option. it's not a common for markets to think that fed can only move at a press compass reading. they don't really want to be constrained or change policy four times a year. there's a real chance with the brexit risk the domestic conditions are supportive and they could single a july hike. tracy: do we have to see market expectations move up before the fed exit move -- makes its own move?
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you said 22% for june, but it's probably a little lower. ie closer we are to 50%, think that officials are a little bit more comfortable with that. david: thank you michael hansen. coming up, the wall street journal is reporting dreamworks is in talks for a sale of comcast. you could be worth $3 billion. we crunch those numbers next. ♪
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♪ david: you are watching "bloomberg markets." it is time for the bloomberg business flash. some of the biggest stories and that is right now. iscy: general motors
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effected to announce a pair of factory investments. 2015 contracts with the united auto workers union says the spring hill, tennessee facility will get never knew -- nearly 700 new jobs. bay city, michigan will get nearly 130 new parts -- jobs to make engine components. 202,000 recall. f-150ers the 2011-2012 and the lincoln navigator. it is cost three crashes no injuries. suv'sre recalling 81,000 to fix a rear suspension problem. says that lost 2.2% in the first quarter of the year. the cavities is increasing complexity and markets over the past few months is here to stay. bloombergt is the
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business flash. chipotle is where we are going to begin. tracy: i would love some to folate right around now. julie: you are the rare one. the margins have plunged. jim foley these to be this huge stock, best in class in the industry as terms -- in terms of margins. the stock is trading down 6% today. revenue fell by 23%. same-store sales fell by 29.7%. the margins are only 6.8 percent now. they had been around 20%. a huge change for this company. it does not seem to be getting better anytime soon. buffalo wild wings also feeling a lot of pain. the company forecasting -- cut its forecast.
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sales falling 1.7%. a couple of issues. it did not promote effectively in --ms of its business and saw greater than excited food costs. management says a large competitor is rumored to be building inventory for a fall promotion. that drove up wing prices and driving the shares down by 12%. panera is faring better. beating estimates. it's probably because of the success of remodeling its stores. the so-called panera 2.0 is proving the lorraine to diners. awnings --er earnings beating estimates. those shares are trading higher. tracy: think you so much, julie. david: shares of dreamworks are popping after the maker of "shrek" is looking for a buyer.
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comcast is in talks to buy the animation studios for more than $3 billion. tracy: let's bring in paul sweeney. dreamworks is one of the few independent players left in hollywood. is this going to kick another media round of consolidation off? paul: we think it will. we saw consolidation in addition region side of the business. at&t buying directv, charter communications about to acquire time warner cable. in the wake of that it made a lot of sense for some the content companies, studios, to really get together and level the playing field and consolidate on their own. i think one of the areas we have about, some of the smaller independent companies such as amc or lions gate or dreamworks might consider to get together amongst themselves or might be candidates to be acquired by some larger companies like comcast. david: jeffrey katzenberg has
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tried to sell the company before. what is different? paul: comcast has had a lot of success across the board. the cable business had good earnings and the company today. all their businesses are doing generally well, particularly nbc universal. they acquired the entirety of nbc universal and i think you're very confident in that business. the only universal movie studio, one of the most successful studios of the last couple of years. i think the are looking to add to the animation part of their business, which dreamworks is a leader in animation films. i think that's the business universal and comcast are looking to double down and if possible. tracy: is this going to spur more consolidation? paul: i think it could. a lot of the drivers in terms of consolidation are still very much there. i think investment bankers are calling of all the media companies and saying, did you see this deal?
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what is a fair value? what are you willing to do? there are smaller companies out there. i think we will continue to see in 2016 more consolidation on the content side of the business. david: you cover yahoo! as well. proxy war averted? ,eul: they continue to mak slow, gradual process. f it getsour -- they get four board members. they will have a seat at the table. they have less than 2% ownership of the company. i think it's a fairly big deal for them. clearly management and the board at yahoo! has gotten the message. they are moving forward in trying to monetize their japan assets, alibaba assets, and to spin off or so the core operating business of yahoo!. tracy: thank you so much. david: more "bloomberg markets" after the break. ♪
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♪ david: this is "bloomberg markets." apple's latest earnings report sent global markets stumbling. the tech company felt the heat. the nasdaq dropped to a six-week low. it all became the dow jones industrial average's worst performer today. cellplain why there is a order on apple on bloomberg . >> there is far stiffer competition from chinese makers. indigenous makers. that's the first sticking point. the other is the self-inflicted dylann roof. they failed miserably to innovate in the latest iteration of iphones. upgrade,ed a cosmetic
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the six -- 6s version compared to its predecessor. now they are heavily discounting iphones by launching the special edition at half the price of the 6s plus. third, the gross profit of the 6s plus. i would also say that apple has destabilized relationships with operators in the last couple of years by being overly aggressive on the commercial terms it has struck. mark: let's just look at it on an annual basis. you have been down on apple for a long time. you have been wrong for a long time. why you think you are right now? whether i've been wrong in the past or right in the past, it does not matter for
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future projections. i think that the misunderstanding. i believe for the reasons i just dlluded to that apple will see market share in the iphone will emulate the trajectory we have seen from the ipad. remember back in 2011 that many people them believed there was only one tablet you can even consider. that was the ipad. it now has shrunk to a market with a typical consumer margin. contrast that with the iphone. the iphone is still generating something like a stunning 65% margin. that is unheard of for anything comparable to the volumes that apple has delivered in the
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recent past. >> i am curious to hear what would change her mind. i you looking for a certain valuation target? are you looking for a new product cycle? what would make you more positive on the stock? diversifye were to into a different field. if apple were to transform itself positively into a --tware service agent with and limit the disproportionate exposure it has to the iphone profit machinery. then i would definitely be obliged to reevaluate my investment case. tracy: that was peter lindberg from stockholm. just looking at apple's share price, it still down about 6%. it is dragging down some big part of the market.
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we know that apple is a big stock. it's and lots of portfolios. the nasdaq down about 1%. david: look at all the major indexes ahead of the fed statement at 2:00. we will have special coverage here on bloomberg television. the dow down to tens of 1%. the s&p 500 down just barely one point and the nasdaq down a tens of 1%. -- eight tenths of 1%. tracy: wall street has skyhigh expectation for facebook's first. quarter results we will preview that report next. ♪
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♪ david: tracy: this is "bloomberg markets" let's start with the headlines. mark has more from the newsroom. mark: thank you.
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the percentage of conservative republicans to consider global warming of threat shot of 19 points in two years to 47%. that's according to public opinion researchers at yale university and george mason university. 56% of the republicans agree that it is happening. if you include democrats and independents, the average is 73%. the u.s. house bill that would establish a federal oversight board for puerto rico and given powers to reduce the island of would be "aion debt satisfactory resolution." that's according to pimco. it would not trigger higher borrowing costs. house speaker paul ryan address the situation. >> >> we need to do something to help our fellow citizens and puerto rico.
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there will not be a taxpayer bailout for puerto rico. mark: congressional delays arrigo without federal help and faces a potential default. the federal reserve is likely to keep its options open for an interest rate increase in june. policymakers finishing up a two-day meeting today. economists believe the fed will keep the federal funds rate unchanged for a third straight meeting. the fed raised rates in december for the first time since 2008. joining us today from 1:00 to 3:00 p.m. new york time, special coverage, the fed decides. abdelslam is accused of renting cars and hotel rooms for the attackers. elgin investigators say that led other members of his cell to launch terror attacks in brussels four days later.
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global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. i am mark crumpton. david, tracy, back to you. facebook reports earnings after the bell. investors are hopeful for another strong quarter, setting high expectations for the company. david: brian, facebook has 1.5 billion users. mark zuckerberg has not been shy about saying that he wants to expand it. how much work would it take to do that? whatsay they keep doing they are doing. they have pr battles in some countries, india, for example. the bigger story comes down to commercialization of the products. it really just keeps that topline at such an amazing pace and scale. tracy: i'm sure a lot of investors will be focused on
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that and we did see some lower-than-expected pricing and programmatic advertising numbers from google and yahoo!, who are facebook competitors. what do you see on that front? anything intod that on facebook. you have to look at google's top line well in excess of pace of growth for the entire industry. pricing is an output, not an input when it comes to the volume of dollars out there. when we look at facebook, facebook and google today -- together are in hegemonic positions, collectively taking the bulk of the growth of the industry. when facebook is continuing to build the new product, instagram for example, the facebook audience network, which probably has topline revenue, but it adds to the top line as they need it. let's clarify programmatic advertising.
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little revenue that facebook generates would typically be called programmatic. that's not what they do at this point in time. david: are there any signs that advertising on instagram might be cannibalizing facebook advertising? >> it probably is. inventory inore at a diverging range of potential units to sell. it gives an excuse for facebook to go to the marketer to say, we got $10 million from you last year and we would like to get that to $15 million. we can give you more video units in your mix. we can make sure you are getting some instagram inventory as part of that mix. if it helps to persuade the advertiser to part with more of their money to facebook, that's a good thing. an analyst with pivotal research group joining us from portland. mark crumpton is at the breaking news dekes. -- desk.
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mark: the mayflower hotel is the scene where this speech is taking place. his first major foreign-policy speech since he announced his presidential bid. let's go to washington live on bloomberg television. my foreign-policy will always put the interests of the american people and american security above all else. has to be first. that will be the foundation of every single decision that i will make. america first will be the major and overriding theme of my administration. forward,art our path we must first briefly take a look back. we have a lot to be proud of.
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in the 1940's, we saved the world. the greatest generation beat back the nazis and japanese imperialists. then we saved the world again, this time from totalitarianism and communism. the cold war lasted for decades, but guess what? we won, and we won big. democrats and republicans working together got mr. gorbachev to heed the words of president reagan when he said, tear down this wall. history will not forget what he did. special men and president. unfortunately, after the cold war are foreign-policy veered badly off course. a newled to develop vision for a new time. as time went on, our foreign policy began to make less and
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less sense. logic was replaced with whichhness and arrogance, led to one foreign-policy disaster after another. they just kept coming and coming. we went from mistakes in iraq to egypt to libya to president obama's line in the sand in syria. each of these actions have helped to throw the region into chaos and gave isis the space it needs to grow and prosper. very bad. a dangerous with idea that we could make western democracies out of countries that had no experience or interest in becoming a western democracy. we tour of what institutions they had and then we are surprised at what we unleashed. civil war, religious fanaticism, thousands of americans and just killed, lives wasted.
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many trillions of dollars were lost as a result. isisacuum was created that would fill. iran too would rush in and fill that void, much to their unjust enrichment. they have benefited so much, so sadly for us. our foreign policy is a complete and total disaster. vision, no purpose, no direction, no strategy. identify fiveo main weaknesses in our foreign-policy. first, our resources are totally overextended. president obama has weakened our military by weakening our economy. he has crippled us with wasteful debt, lowmassive growth, a huge trade deficit, and open borders.
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our manufacturing trade deficit with the world is now approaching $1 trillion a year. we are rebuilding other countries while weakening our own. ending the theft of american jobs will give us resources we need to rebuild our military, which has to happen, and regain our financial independence and strength. i'm the only person running for the presidency who understands this, and this is a serious problem. one that knows how to fix it. secondly, our allies are not paying their fair share. our allies must contribute towards their financial, ofitical, and human costs
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our tremendous security burden. but many of them are simply not doing so. at the united states as weak and forgiving and feel no obligation to honor their agreements with us. 4 of 28 other member countries besides america are spending the minimum required 2% of gdp on defense. we have spent trillions of dollars over time on planes, missiles, ships, equipment, building up our military to provide a strong defense for europe and asia. are defendingwe must pay for the cost of this defense. if not, the u.s. must be prepared to let these countries defend themselves. we have no choice. the whole world will be safer if our allies do their part to support our common defense and
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security. a trump administration will lead a free world that is properly armed and funded, and funded beautifully. thirdly, our friends are beginning to think they can't depend on us. a president who dislikes our friends and bows to our enemies, something we have never seen before in the history of our country. he negotiated a disastrous deal with iran, then we watched them ignore its terms even before the ink was dry. iran cannot be allowed to have a nuclear weapon, cannot be have a nuclear weapon. administration, will never be allowed to have that nuclear weapon.
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all of this without even mentioning the humiliation of the united states with iran's treatment of our 10 captured sailors. so vividly i remember that day. and negotiation, you must be willing to walk. many of deal, like so our worst agreements, is the result of not being willing to leave the table. when the other side knows you thatot going to walk, becomes impossible to win. at the same time, your friends need to know that you will stick by the agreements that you have with them. you have made that agreement, you have to stand by it, and the world will be a better place. president obama gutted our missile defense program, then abandon our missile defense plans with poland and the czech republic. he supported the ouster of a friendly regime in egypt that had a long-standing peace treaty
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with israel, and then helped bring the muslim brotherhood to power in its place. israel, our great friend, and the one true democracy in the middle east, has been snubbed and criticized by an administration that lacks moral clarity. just a few days ago, vice president biden again criticized israel, a force for justice and peace, for acting as an inpatient peace area in the region. president obama has not been a friend to israel. with tendered iran love and care, and made it a great power. iran has become a great, great power in a short period of time because of what we've done. all of the expense and all at the expense of israel, our
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allies in the region, and very importantly, the united states itself. we pick fights with our oldest friends, and now they are starting to look elsewhere for help. not good. fourth, arrivals no longer respect us. confused as our allies. and even bigger problem is that they don't take us seriously anymore. when president obama landed in cuba on air force one, no leader was there to greet him. perhaps an incident without precedent in the long and prestigious history of air force one. then amazingly, the same thing happened in saudi arabia. it's called no respect. remember when the
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president made a long and expensive trip to copenhagen, denmark to get the olympics for our country? effort,is unprecedented it was announced that the united states came in fourth place? he should have known the result before making such an embarrassing commitment. we were left at all over the world, as we have been many, many times. the list of humiliations go on and on and on. republican presidential candidate, the front runner donald trump discussing his foreign-policy agenda at washington's mayflower hotel. mr. trump said, my foreign policy will put the interests of the american people first. he said, our foreign-policy is a complete and utter disaster. he continued, our resources are
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overextended. he listed point by point what he thought to be some of the problems with the current foreign-policy of the obama administration. hasaid, the president crippled us. our allies are not paying their fair share. from his negotiations as a real estate magnate in new york city, mr. trump said, the whole world will be safer for our allies. he said, iran cannot be allowed to have a nuclear weapon. he said, some of our allies are now not our friends because they believe according to mr. trump that we have not treated them well. he said, the humiliation of iran's treatment of our 10 captured sailors was one of the points to make. he said, in negotiation you must be willing to walk. donald trump are his first major ateign-policy address
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washington's mayflower hotel. watch this speech in its entirety on bloomberg or our live event channel at i am mark crumpton in new york. ♪ david: you're watching bloomberg. i'm david gura. tracy: i'm tracy alloway. david: the u.k. economy loses steam. what's behind the slowdown? tracy: the electric car industry gets a boost in germany. how the government is propping up sales and what is the benefit to consumers. david: in china, what is the likelihood that the country's debt bubble bursts? britain, the u.k. economy lost momentum in the first quarter as services had their weakest growth in almost a year. growth slowed to 4/10 of 1%.
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that matched the weakest reading from 2012. gdp rose 2.1% from a year ago. has become the latest international group to warn the u.k. not to leave the european union. the organization said a brexit would lead to a 3% drop in gdp as well as higher restrictions on labor mobility. in germany, the government has reached a 1.4 billion dollars deal with automakers in boosting sluggish sales of electric cars. electric vehicles will get up to $4500 in rebates. the auto industry and german government will split the cost. china's economy has stabilized, but that does not mean a hard lining has been avoided. some concern sparked that china's debt bubble may soon
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burst. >> many of our hedge funds believed it would be an event in 2016 they would need to devalue. i came out publicly and said, that's not going to happen. am i worried about it in the manner in which they are accelerating their economy? yes. does it mean there's more potential for a bubble and a burst? yes. but it may not happen. time for our bloomberg quick take. killed eight point 2 million people worldwide in 2012. 20 million new cases a year expected by the 20 30's's. -- 2030's. --unotherapies harnish harness the body's defense systems. the u.s. fda has in the last year approved a number of immunotherapies.
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merck has shown promise in fighting melanoma. former president jimmy carter is the most high profile patient to have taken the drug. a drug developed by bristol-myers could prolong survival by 3.2 months compared with a chemotherapeutic drug. re-engineer the patient's t-cells. the most successful treatments may be combinations of the drugs. science first stumbled across the human bodies first cancer defenses when doctors noticed tumors shrinking after patients developed infections, stimulating antibodies to fight cancer were not so promising so radiation, then chemotherapy became the most favored method despite the sickening side effects.
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here is the argument. the therapies are so new, nobody knows how effective they will be at preventing relapses. they have only been proven effective for advanced forms of cancer. cost may also be an obstacle to widespread use. that is your quick take and global business report. for more stories, visit tracy: we will have more "bloomberg markets" coming up next. ♪
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david: and david gura. tracy: i'm tracy alloway. david: we are a few minutes away from the fed session today. i want to bring a chief u.s. economist with bloomberg intelligence. what are you going to be looking for? >> this no press conference, no forecast updates. david: set of usual things. >> there is no press conference
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scheduled. there could be an unscheduled press conference. there are a few moving parts to this statement. there's the first paragraph, the economic assessment. that has to be dialed back in light of what we know about first-quarter economic performance. they characterized growth as moderates. in the last fed statement, i think that has to be dialed down may be to modest. spending, the core engine of growth, was moderate and has to be ratcheted back in light of what we have seen in retail sales. dialing back the growth assessment, but doing it in the cause ahat does not dovish market to become even more doveish with respect to interest rate expectations. in the second paragraph, that is where the balance of risks normally resides. it has been conspicuously absent at both january and march meetings.
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this is a dovish lee inclined hasthat in recent weeks scolded the market, saying we could move more aggressively than what you are expecting right now. on,his doveish fed holds they could put the balance of risks in neutral stance back into the statement and that would be a signal to market participants that the june meeting is very much a live meeting. it is -- if the balance of risks does not come back into the statement, i think it's going to and very hard sell, instead, those still believing that the fed will raise rates twice this year will have to redirect their attention to what july is not september. tracy: do you expect to see the balance of risks language inserted back in? i think in my heart of hearts they will not bring it back in. they are not seeing the that second-quarter
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activity is revving up in a fashion that realistically puts june in play. tohave not had much data watch yet. consumer confidence aren't telling us that gdp will come roaring back in the current quarter. david: thank you very much. for specialune in coverage of the fed starting at 1:00 p.m. eastern time right here on bloomberg television. " on is "bloomberg markets bloomberg television. ♪
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tracy: from bloomberg's world headquarters, this is "the fed decides," the special over their
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decision. we are one hour away. the economy attempts to recover from a sluggish first quarter and we will discover how much they are waiting on janet yellen and other policymakers. we are tracking the market with stocks mixed and the dollar is weak or ahead of the decision. over the next two hours, we would decide -- you will hear the statement and we have guests, including the fed president as well as former fed governor. i am scarlet fu. my coanchor is bloomberg economics editor michael mckee and joe. let's shared their thoughts on another fed decision. joe: everybody knows that this is the most anticipated fed decision of all time and no one expects the fed hike. the fed hike. economists do not expect one, that there will be interesting things to watch for, and one of the questions has to be that i
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am interested in, what will they say about the international situation. in the past, they have visited chinese concerns being the cause to because should, but we also know that china has slowed down a lot and there is talk that if they don't go now, they will go in june, but there's the brexit votes, so that will be one aspect i am interested in seeing. michael: you have to ask yourself how cautious does janet yellen want to be? it reminds me of clint eastwood lucky?you feel how far does she want to go in suggesting there is a rate increase in the future? does she want the market to react? what happens if they raise rates? that is good for the economy if the dollar gets weaker and if you raise rates, maybe goes the other way and that is not a good thing for the economy, so look for janet yellen to be as cautious as possible. she will probably live up to her reputation and you may not get
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all that much out of this. scarlet: the economic data has been fairly humdrum for gdp and inflation that has not kept pace with the labor market. michael: we will start seeing more inflation because of the base fx with lower inflation for lower oil price and we have seen a build and now that oil prices are moving back up, we might get more inflation. the fed is thinking about what it will do and how fast is that happen and to the markets lose faith inhe fed -- the fed? so they still have some time. scarlet: speaking of the markets, let's check in with julie hyman to take a look at just what the different classes are doing. julie: moderate trending right now ahead of this, and also, investors are focusing a lot on earnings right now. yes, they are talking about the set prettye bar is
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low here. are people really going to be expecting any new information today? the dow jones trading higher because of burning reports. s&p 500 lower and the nasdaq much lower because of the ponderings of disappointing technology earnings. we have technology as the biggest dragon s&p 500. note price. telecom energy and utilities are the best-performing groups today. oil prices have been all over the maps. an energy stocks rising today and it is important to look at oil prices. we did get a weekly inventory report that actually showed a larger than estimated build. we stop a steep drop on oil, but it has been coming back since then, up about 1.9 percent, said the gyration in the stock market today has tracked with that we have seen in the oil prices. scarlet: a lot of anticipation ahead of that report. of course, the earnings. we have to come back to that because we have 41 something in the s&p 500 monday announced the results. julie: maybe we will get
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commentary on corporate processes from the fed today, but in terms of the earnings highlights, stocks are down, apple we have been talking about all day with the disappointing sales numbers, coming up with numbers that missed estimates and chipotle continuing to see its salesquine in numbers as well. on the plus side, it is a mixed bag of earnings in terms of the kind of companies. fmc technologies, and oil services company on the downside, h&r block, not only reporting earnings but replacing .he ceo and goodyear tire and rubber with disappointing margin spirit i want to take a look at the price reaction to the various earnings with the reports we have gotten. this is a scatter plot, a little tough to read, but companies and sectors on this side mean they have been in terms of sales projection and companies above
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this line, the stocks of klonopin reaction. energy is way out here. energy companies have been beating estimates, i should say missing estimates, but a have been rising partly because of cost and that has been an interesting reaction. we have seen the s&p 500 not fair that poorly since the beginning of the earnings season. all of this is to say that, yes, the fed is important to the market but investors are still in the middle of earnings so it coincides with that and they will be focusing there. setting thank you for the scene for us. let's get your check on the bloomberg first word news with mark crumpton. mark: thank you. a federal judge in chicago has sentenced former u.s. house speaker dennis hastert to 15 months in prison from hush money case that centered on accusations that the sexually abused at least for students when he was a high school wrestling coach. he also must undergo sex offender treatment, two years of supervised release after his
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time behind bars and a $250,000 a crime victimto fund. earlier, he told the courtroom that the "mistreated some of the athletes he coached decades ago and that he is deeply ashamed." donald trump wants to shake the rest off of american foreign-policy and place a yielding focus on what is best for the united states. he is still addressing an washington's mayflower hotel. he spoke about his foreign-policy agenda earlier. donald trump: my foreign-policy will always put the interests of the american people and american security above all else. to be first. it has to be. that will be the foundation of every single decision that i will make. mark: mr. trump spoke from prepared remarks with the assistance of teleprompters, a rarity for the billionaire, who is known for his off-the-cuff
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style. ted cruz will make a major announcement later this afternoon. there is growing speculation that he will name a running mate, even though he trails donald trump. mr. cruz the kleins to say with the announcement will be, but his gate out identified the short list of possible vice presidential candidates. wmur is reporting that cruz woman carly fiorina, she dropped out earlier this year and endorsed cruz. security officials say an explosion in the turkish city was a suicide bomb attack. the blast killed the bomber and wounded several others. this comes as the u.s. issued a new warning about credible indications of terrorist threats in touristy areas in the country. turkey has been hit by six deadly suicide bombings since july that worry the claimed by kurdish militants or blamed on islamic states. news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus
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around the world. i mark crumpton mark crumpton. scarlet, back to you. scarlet: thank you. we are less than one hour from the fed decision. erik schatzker is live in washington to help us check the scene. we have heard lots of commentary from market watchers saying that this will be a yawner but people dissect the statement anyway. will, or givenly me if this sounds a bit familiar, but for those turning their attention to the fed with the policy statement less than one hour away, let's just reiterate that there is virtually no chance of a move today. the data is supposedly a data dependent fed and the fed funds futures do not show a probability of any rate hike. in fact, the probability is zero. thehermore, oall economists think the fed will hold off until at least june. as you have been discussing already, the focus is now on the
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language that the fed uses to characterize the assessment of the economy and the risks that it does or does not perform in line with the fomc's projections. balance is the key word, as you have been hearing, because if that word returns -- it was used up until two meetings ago -- to describe the risks facing the u.s. economy. the fed's projections, if it returns the widespread consensus is that -- if it returns, the widespread consensus is they have laid the groundwork for a rate hike in june. if it is not there, all bets are off. i should remind you that the the fed dot plot shows anticipating 50 basis points of rate hikes between now and the end of the year. again, going back to the implied probability as illustrated by fed fund futures. the market anticipates only 120 five basis point hike and there are some that anticipate at and thechnology
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possibility that the fed will stay put where it is now, and i will include in that group larry fink, chairman and ceo of black rock, who i spoke with earlier this morning. here he is. larry fink: i think there are pockets of inflation, especially in the tech wage area. that, there is lower inflation. we have seen an increase in energy prices from various deep lows. i do not see any evidence at this moment for inflation. a scenario ing light will pick up a 2017, but i don't think that is an issue for 2016. they have essentially seven months to determine that path. i would probably be in the camp of 25 at best this year. erik: contrast that with what we heard from jamie dimon at jpmorgan a couple of weeks ago, where in his annual letter to shareholders, he talked about the risk that the federal have to raise rates faster than
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anybody expects to catch up with inflation, which marry a knowledge to we have yet to see. scarlet: and all these bank executives want to see the fed kind of get going because higher interest rates remain fatter margins for them. theael: one of disappointments of this great hiking cycle that we have not seen, the big rally in the financial. erik, this meeting has a five similar to last october, another time and people are not expecting much, but then the fed throws a curveball and sort of sets of december as a possible time to hike and they ultimately did. if the fed wanted to do something like that again, how might they go about it? erik: they could go about it in exactly the same manner as they did in october, joe, and that would acknowledge explicitly that the possibility of a rate hike existed, quote unquote at the next meeting, meaning the next fomc meeting, which was in december when we got that -- when we finally got that 25 basis point moved that we had
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been waiting for since october of 2014, which is when the fed qe3.ded they could also choose to change the language set it uses to describe the external risk if you go back to march and you remember that the fed talked about global, economic and financial developments as the extractor, weighing on the u.s. economy in preventing the fed, not just from raising rates now, but also in inclining the fomc to dial back their expectations for rate hikes to 50 basis points from 100 basis points, so we might see that as well. the other thing to pay attention for is the level of dissent. in the last meeting, it was only after george of the kansas city fed that argued for 25 basis point rate hike. since then, as mike will remember, immigration hawks, including jim board, arguing pervasively -- persuasively that the u.s. data is understating the pace of u.s. economy and
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inflation, so it might be that we see someone else joined the ranks of the defenders it esther georges there as well. scarlet: all right, erik schatzker, thank you. we will see what the top of the hour for that decision. still ahead, we have allen of morgan stanley. later on, pimco and all of that coming up on "the fed decides." ♪
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this is a bloomberg special report "the fed decides." i am scarlet fu with joe weisenthal and michael mckee. edelman,s turn to economist for morgan stanley.
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she joins us from new york. a lot of people think the fed is on hold for this meeting. you would put that a lot longer. you don't see any reason for the fed to move anytime soon. ln: you are right, mike. we set expectation early in the year. at best, we think the fed gets in one more rate hike this year ellie place it in december at the tail end. it is not unthinkable that they could deliver the rate hikes they envision in the second half of the year with a better growth profile in the second half of the year, but there is no compelling reason for them to do anymore or to be aggressive at all. i think we do not expect any kind of signal that june is a real possibility out of today's statement. people thatre are would say the compelling reason the fed is destroying the markets is they are financial rising what is going on -- they what isncial lies in going on, so it does not put productive uses into stocks and
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other assets that are not producing anything for the future growth of the economy. how long can they do that? problem,ere lies the when you look at the economy without looking at it through the lens of the monetary policy maker, and if you are trying to gauge, not with the fed should do, but what the fed will do, you have to think about it through the lens of monetary policy makers. they had given us on outlook. based on that outlook, if it comes true, then they think to rate hikes this year is appropriate. their is under shooting expectations. we will get the first rate on first quarter gdp tomorrow and the fed will not have that data in hand, but they have a good sense it will come in pretty weak. we also have indications that q2 is not shaping up that much better. core pce prices, bloomberg reported at the end of this week , looked like they will be falling further, and all of that on this backdrop of earnings
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decline, which janet yellen has mentioned, means that if you are a policy maker, you are darn nervous about your forecast coming to this year, a forecast that further rate hikes are predicated on. i am less interested, the fed should do. my job is to guess what the fed will do. i am telling you that the appetite for rate hikes is just not there like it was last year. michael: i want to go back to the u.s. economic situation. you mentioned the fed gdp number coming up and will be pretty weak, but people are pointed out that there might be something seasonal with q1 gdp because it several years in a row now, have gotten the week number. what do you think is going on there and do you buy that there might be some measurement quirk or something else going on? or if we are seeing the downturn in the pace of growth of the u.s. economy, why is that and why are things spluttering? is thethat
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million-dollar question. we could argue both sides of the coin there on is there a seasonal bias in the data? this was an issue that popped up last year. a lot of heated debate among economists and fellow reserves policymakers weighing in on what is going on with the first quarter growth. it seems to come in very week every year. it seems to be some statistical error in the measurement, so if you are a hawk, you might point at the week q1 gdp and say, this always happens, so we can dismiss that. on the other side of the coin, we have weather forecasters that are more amazingly accurate this winter, telling us we will swing from one of the coldest winters on record this year -- last year to one of the warmest on record and that would presumably have an upward seasonal bias on the data, particularly whether sectors like construction, retail, automotive sales, soap some have asked, what does that mean that growth would have been negative in the first quarter except for that upward seasonal
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bias? bottom line is that policymakers do not know. he cannot be certain, and when you are uncertain, uncertainty is the enemy to monetary policymakers. base hit sit on their hands and wait for better data. scarlet: you are saying that the fed will maybe acknowledge the financial markets, the fact that the data has not come in the way they want to see it, that will trump any improvement in financial conditions? ellen: i think that is right. they are going to have to a knowledge that financial conditions had used since the last meeting, so they will probably take out the part that says financial conditions continue to pose risks to the outlet. they will go on to say, however, the committee continues to follow international financial and economic developments closely for any risk that it may posted outlook, so it is very very generic reference but leaves the door opened to adjust expectations depending on how the data and economic events unfold. there's just no other way for
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them to reference things. we might even see the 30 paragraph when they characterize current conditions, say something about earnings. .hey did in early 2001 i hate using that reference because it was months before the recession came, but they mentioned the decline and the resultantnd backup and inventories, which is a similar situation to what we have right now. they mentioned that in the first paragraph and that could be taken dovish. scarlet: all right, ellen zentner, you are sticking with us. still to come, our conversation with ellen zentner continues. and joe, mike and i dive into the bloomberg terminal. ♪
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scarlet: this is the bloomberg special report. i am scarlet fu with joe
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weisenthal and mike mckee. michael: i went to get back to ellen zentner, chief economist for morgan stanley. this should fall into the category of what they should do versus what they will do, but when you look at the fed raising interest rates and what we are talking about between now and the end of the year, is this really just angels dancing on the head of the pin? here is a chart that shows the corporate darling spread, basically, your average corporate bond, and the fed rate increase and we have seen corporate spreads come down, borrowes paying less to even though they pay interest rates. it is not look like they will hurt the economy of they try to move higher and solve some of the problems they created in the markets. ellen: those are all fine points, but they have to be sure that as they move further through the process of normalization and raise a at the pace of economic growth will models, so their own and admittedly, we have 17
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policymakers that all use different types of modeling around with the appropriate level of interest rates would be, tell them that further increases are appropriate. it varies to the degree of that policy prescription, but the further rate increase is predicated on the economy growing at least close to its potential and the unemployment rate continuing to come down and labor market continues to improve and that lays the groundwork for fed confidence that inflation will move back toward the 2% goal. that is just not the backdrop that they are working under right now. the statement today will supposedly guide us in our expectation for the june meeting. they have got to see conditions pick up quite a bit for them to have any confidence that further rate hikes are appropriate. that does not mean we cannot get there in the second half of this year. but say if the dollar staples out from here, needed a bigger
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swing to bring from that trade to positive from that trade or no drag in the second half of the year, you get a better ablation dynamic in the second half of the year because of that, these are a lot of if's but you can see them be more confident in the second half of the year and that is why i say it is not unthinkable that they could deliver the two rate hikes and vision, but the bar is just way appeared and the economy is down here right now in terms of closing that gap and we have a ways to go. , chief: ellen zentner economist at morgan stanley, that is why she says december when we get the next rate hike. ♪
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♪ scarlet: from bloomberg world headquarters, this is a
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bloomberg special, "this head decides." withscarlet fu along michael mckee and joe weisenburger. house speaker dennis hastert sentenced to prison, a hash many case on out edition's that he sexually abused at least four students when he was a wrestling coach. hastert accused of sexually abusing at least four students when he was a wrestling coach. earlier, he said he had mistreated some of the athletes he coached decades ago and that he is deeply ashamed. president obama plans to make the first trip to flint, michigan, since the water was found to be tainted with lead. he will receive a briefing on the federal effort to assist in the cleanup and to hear from flint residents.
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two estate and one local official have been charged in an attorney general investigation. taskawyer for the paris a -- attack suspect is being charged with possession, and he will be sent to a jail outside paris later today. he told an investigating judge he will explain his role in the deadly attack in the french capital at a later date area a dallas judge has set a $1500 bond for johnny manziel in his misdemeanor domestic assault case. expected to turn himself in for a booking next week, though no date has been set. the heisman trophy winner was indicted after his ex-girlfriend alleged he hit her and threatened to kill her during a night out. was hit so hard that she temporarily lost hearing in one ear. he faces jail and a $4000 fine.
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global news 24 hours a day powered by our 2400 journalists in more than 150 news bureaus around the world. i am mark crumpton. scarlet, back to you. : thank you, mark, and let's check in with the markets and julie. i guess it would be down with the dow unchanged. julie: it is going a long. of the nasdaq is taking the brunt because of the apple earnings and the ripple effect of apple, affecting the tech stocks, and yes, the dow is holding up a little bit better. commentary,the fed the fed funds probability monitor, and it calculates the probability of a rate increase at the various meetings using fed funds futures, so right now, we are looking for no probability of a hike today, and it does not get to 50% until the november meeting. it has sort of been switching
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between the september and the november meetings. we will check on this after the commentary comes out and see if there are changes. we have had seven straight sessions of selling the u.s. 10-year note. that has reversed today. we are seeing the yield coming down a little bit, but it is interesting, in general the trend being upward going into this meeting, and checking the u.s. dollar versus its major trading partners, we have got the euro trading other higher against the dollar, and the yen is actually now unchanged, but the recent trend there is also interesting to look at. to look atesting treasuries versus the u.s. dollars. this is the bloomberg dollar index in blue, and then this is the daily change in yields on the 10-year on this are chart, and what we have seen is the dollar has really gone down over the past several weeks. at the same time, yes, you have had up and down days for rates, that we have had more of an
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uptrend for yield, so that divergence is sort of interesting. normally, you would expect them to be more directionally going the same way, and finally, a quick check on oil and gold. we have got crude oil rebounding today even after we had an inventory report that normally would be errors for oil, and then we are seeing the gold futures getting a little bit of a bid -- normally would be bearish for oil. we want to take a deep dive and explore some of the themes that the fed is encountering, and i was looking gdp,netary policy versus and our thanks to socgen for pointing this out. and normally move in sync, the 1970's andr in 1993, 1999, and 1993, when policy was trailing growth and fueling some bubbles. now -- i should say
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fed funds targets are trailing gdp. if that is the case, are we in a bubble right now? you brought up the spreads and how they are coming in. michael kohler earlier today, we were talking about that. can you have a bubble when gdp is so low? joe: and i think the other is that the feds fund rate did not deep, and obviously, we have to make up for lost time and keep rates ultralow to make up for perhaps that policy was inappropriately tight during the worst of the downturn. scarlet: nonetheless, dislocation, with huge ramifications. mike, what are you looking at? : what do we do, and how does that leave us standing at the end of the day? this chart shows that the dollar index was a really good proxy for the reaction of what central
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banks will do. that is october. the fed came out and said they are going to raise rates at the december meeting, and you can see what happened to the dollar. that is the december meeting, where they raised the fed funds rate. you could say there is an announcement effect, that you get most of the reaction after they predict they are going to do it, and that it levels off, but the market reaction we saw after that is not in the textbooks. the dollar goes down in the value, and they were prepared for a high dollar that would hurt the economy for a while, so do they say something today, figuring this may happen again, or are they worried it will not happen again? we have got this nice declined. will it go back up again? they may want the dollar to go lower to help the corporate profits, so do not rock the boat. scarlet: references to the next meeting, which is a live meeting, which has happened in the past?
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they may not want to do that because everybody might take it as a signal, and putting the risks back into the statement, that might also be read as a hawkish signal, so the first rule in solving a problem, if you are in a hole, stop digging. they probably do not want to dig anymore, and they want everybody to go home at two: -- 2:05. china has stabilized a bit for now, but there was concerned that at the june meeting, they it, and up against let's go to the bloomberg and look at the volatility. this is basically volatility on the british pound. you can see it really surged this year as people get more and more nervous about what that vote or result is. it has also come down a little bit lately, thinking that it may
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be more likely to remain than not remain. people are saying that obama+++ maybe that helped, and so it is interesting. people say this could be a reason not to move into, so watch the pound/dollar volatility to see where the market in any given moment is thinking about this question. scarlet: mike, have they ever made an explicit statement? mike: janet yellen has talked about it in testimony, and others have talked about it in their speeches. they are concerned about china, because it is, of course, a big commodity user and is the second-largest economy, and it has an effect on growth, and they talk about the dollar. china seems to be ok right now,
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not great, but not crashing, and the dollar is coming down, so maybe as alan bittner said, it is not a great situation out there. it is not getting any worse. garlic: if they do bring back that oversees development line, it could encompass risk. : it is not my china has completely gone away with the global economy. it is a way to incorporate the stuff in general and a way to continue to sound dovish. joe: this year, the global risk is the dog that did not bark. or years, we have had risk from greece on. it could be a story, and spain now has a government. who knows what will happen? scarlet: ok, the european risks keep rising. and a former fed governor coming up in the next hour, and a quick check of where things stand as we head towards -- as we barrel towards that fed decision, the dollar the changed right now, up 15 points.
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we mentioned, treasuries were bursting their seven-day rally. you can see the two-year -- we should not even have that percent change. 11132, andyen, at nymex crude is coming back a little bit from that $45 level it reached earlier today. ♪
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♪ this is a bloomberg "the fedeport, decides," and i am scarlet fu here with michael mckee and joe weisenthal. we are talking about context.
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joe: for most people, it does not seem to be that big of a deal, because they are not expected to do anything. however, the bank of japan meets, and that would be a big one. and i've had a number of people say they have to stay up late, because the bank of japan could do something that will affect the markets, and the bank of japan has the same dilemma as the fed. let's take a look at this chart. the fed raised rates. we just talked about this. and what happened? the dollar got weaker. inl, the bank of japan back january posed negative interest rates, and then the yen got stronger. it is going the opposite direction. we have sort of gone through the looking glass in terms of what should happen when banks change monetary policy, and it raises the question about whether monetary policy works or not, and george was making the point that the bank of japan has to be something big enough to convince the markets that monetary policy still works. and the unanswered question is, what if they do
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something big, and the markets do not believe them? scarlet: the markets shrug and say, that is just noise. japan perhaps will allow some negative rates on some bank loans? i was kind of revealed to us in our reporting in the next couple of days. joe? it fizzled a little bit earlier this year. obviously, the bank of japan went negative, and everything seemed to go in the wrong direction for them, and since then, we have seen more balance sheet expansion as a technique to stimulate the economy. obviously, the ecb did their big corporate bond buying thing and balancing. we really do not know what the boj has played, but it is funny. i have not remember the last on the was a fed announcement and the year j announcement, and everyone cared about the doj announcement so much more, or at least we wanted to know more about what the boj was doing. this could be similar to what we are seeing in europe, where there is some sort of incentive ,or banks to lend money
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assuming they had some lending targets, so theoretically, it looks like that could be a part. scarlet: you wonder what the differences going into the munich, because we have the dollar that unwound after the fed did move, and then you had , andlong yen trade somewhat argue it is way to you oh crowd it right now. michael: yes, it is hard to know where you want to position yourself on the yen right now, and one of the things i think it's possible is the yen will increase the amount of equities it buys equities through etf's, and they could increase that, so do you want to belong the japanese stock market at this point? some of the companies have the government as their biggest investor. joe: it was said that the bank of japan is now a top 10 the nikkei in 90% of two to five companies,
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unbelievable status, but when the other central banks, none of them are buying equities, bank of japan scooped up all of these etf's. scarlet: i want to dive into this, as we head into the boj meeting and the fomc meeting, and volatility in treasuries if the white line. that is an index from bank of america merrill lynch. it is at its lowest since 2014, so you have to go back pretty far, right about here, and financial concessions -- considerations have changed. usually, the higher it is, the weier the conditions are at have inverted it to show you how correlated they are. they do not always correlate, but since last august when they made the surprise move to devalue their currency come you have really seen the move in tandem. michael: they are still lower
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than they were at the beginning of the year, so by no means are we seeing a difficult our wing condition for anybody. joe: and since the fed embarked on extraordinary evening in 2009, volatility, we have these brief moments where it looks like volatility will normalize or spike, and then it goes right back down to the mats, which that chart is showing you. scarlet: they say volatility will stay low, and then all of a sudden, a spike up here and there, and that is the worry more than anything else. joe: sudden spikes. scarlet: yes. a quick check as we go to break. you can see emerging currencies are pretty much unchanged at the moment, at least an index that covers them, and the euro against the dollar, $113, and european stocks have gained to close out their trading.
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♪ scarlet: this is a bloomberg special report, "the fed decides. fu along withlet joe weisenthal and michael mckee. you so much for joining us. so the questions, people talk about maybe this would finally be the year that inflation would start to pick up towards the fed goals, the official measures of inflation. we go inside the bloomberg -- i have a chart of inflation, broken down in several different cbi, and housing. they had been trending up for a few months. then, we got a little bit of a down take lately. where do you see inflation going? you warned in the past that the
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fed policies could be irresponsible, could stoke inflation beyond what we want. jim: inflation and inflation. first to say there is not the kind we saw at the supermarket way back in, there is inflation of either a pernicious or a delightful variety, depending on how you are investing. asset values. the supernaturally though interest rates, what they have done is to distort perceptions of future cash flows, and they have therefore served to elevate or levitate prices of commercial bonds, what stocks, have you, and in so doing, they have -- joe: why does it not filter through to grocery stores? jim: i will get back to that. i think one of the paradoxes of free money is that it has caused the marginal texan to drill the
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marginal hole in the ground that delivers the marginal fatal barrel of oil and gas that collapses the energy markets, makingst me that i am order of this in retrospect rather than forecasting something brilliantly five or six years ago. i am available in five years, i hope. joe: tony, let's ask you. the fed wanted to create an effect that would trickle down to the economy, and that would eventually create inflation. it has done almost neither of those. why not? 10 central banks not accomplish more than raising asset prices? tony: perhaps steal much burden is being put on there. how would things be if they had not acted question what the answer would probably be a lot worse, because central banks and the reason they had been hell-bent on printing money and ,aking very strong and severe
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unconventional measures is that because they are afraid of the death of money, and they are afraid that banks would not lend again patron member, in the united dates, bank lending contracted on a year-over-year basis from 2008 m a 2011. it has been increasing. in europe, it is fighting the fact that banks want to shrink. banks are three times the size imagine if all borrowers wanted to repay loans at the same time? be banks cannot lend the money at the rate that banks are paid, and that money would leave the financial system for good, extinguish the money supply, and demand for goods and services would collapse. angst could be a lot worse. you can say that banks haven't very successful in preventing what we are most worried about, deleveraging, which is saying a faster rate at which banks decided against making new loans relative to the ones that are being repaid. scarlet: right.
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jo: tony, looking around the banks have and more gone into negative rates as a policy tool. how do you see that? markets seem to be nervous about it. do you think there is potential there, or is this an avenue that central banks ought not to go down? tony: it certainly has not been beneficial or proved to be as beneficial as those who would push the rates into negative territory would have wanted. for example, the bank of japan moving its interest-rate into negative territory in january. hoped that its currency would have weakened, and instead, it strengthened. creates a lot of negativity in financial markets. one of these channels is through inflation expectations. .onsider if rates fall to the average investor, it says something is wrong to the createsinvestment and
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pessimism for the average investor. when they decided against a hike , a week later, janet yellen seemed to do a perspective. she was as the question, should i be paying attention to the expectations we are seeing in the inflation protected securities market, or should we be paying attention to other things? and she concluded these other things and people and their views of inflation. that is the biggest thing they seem to want to be focusing on right now rather than markets, so negative interest rates can make people feel as if there is something wrong, so in that sense, it is a negative and can hurt banks, and it does not answer the question of how to push growth up. atrlet: so do you look inflation expectations, jim, and if so, how is it flawed? are we rooting for inflation?
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if you lived in the 1970's, what we dreamt of is a world where the way inflation was measured was between nothing in a small amount, like nirvana, and now we have nerve, and as human beings, we want something else that we call nirvana. we ought to create such credit as will lift up a measured average of prices to an arbitrary number is a conceit of the modern phd economist. and the nothing in this long history of money and banking to validate this nostromo. -- nostromo. this is the phd standard. these people have you from the business of central banking into work of planning. they are in the business of suppressing at manipulating the price system. world ices in the approve of are discovered and not administered.
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the central banks are in the process of administering prices. they want us to be richer. theyhen, let's see, yes, want the currencies to be stable, so they will retract a little bit of what they have given us, and so it goes on and on. the fed is now in the business of moving its goal post frantically, and we know not where. scarlet: we know not where, and that remains a source of concern for markets as they have grappled with uncertainty, even as this data graph shows inflation is getting closer to, as you call it, jim, and arbitrary 2% target. look at thequick data before the announcement at 2:00 p.m. the nasdaq is the world loser here, off by almost 1% because of apple. mike, soear yield, sensitive to where it is headed, currently at 85 basis points. of course, we saw a very big
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move over the last seven or eight points, where it went to 73, now back to 85. the dollar/yen currently at 11149, and nymex route just below that $45 a level errol. little changed as we head into that fed decision. we would like to welcome our listeners who are joining us on bloomberg radio. this is special coverage of the april fed decision, now broadcasting on bloomberg radio and television. i am scarlet fu here with michael mckee and joe weisenburger. mike? where do we see the reaction, and how long does it last? the dollar, and the two-year yield will probably be where we see the most, but does it go beyond today? does it go beyond the quick knee-jerk reaction, or does it all faith with the bank of japan tonight? janet yellen would hope, probably, the later. -- the latter.
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: maybe later saying it must have been dovish, or it must have been hawkish. listen. i'm going to try to make a we are going to leave the analysis. know, therel, you is a move that we should note at the end of the day, as well, and according to hunter hill, the average daily range on the points, so 8.4 basis it is possible, perhaps not an immediate knee-jerk reaction, but at the end of the day when it settles, you do see a big move. >> how long does it last question mark does it get wrapped up in what the bank of japan does? maybe we do see a dollar effect. that is something the fed has to take account of going forward, and they are flying blind here into that decision.
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scarlet: so we are not going to look at the market reaction, joe? joe: we do have to look at the market reaction, and for 10 seconds, i'm very excited to see the market reaction. scarlet: ok, let's go live to the fed. on interest change rates, scarlet, but the federal open market committee drafted a policy statement with a somewhat hawkish tone, and that is a surprise. gone is the reference to risks from global and economic financial developments, which the fed used to explain its decision not to change policy back in march. translation? the fed is not as concerned about external risks to its outlook, and it focuses back on the domestic economy. as you know, the first paragraph of the policy statement is the most key, and in i w


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