syria and the potential of president trump firing mueller leaves markets unsettled. how china will open up its financial sector. defendskerberg facebook's value, markets believe him, senators do not. to "bloomberg daybreak," america's on this wednesday. we have the president leading. -- tweeting. syria, getng about ready russia, they will be coming, nice and new and smart. you shouldn't be partners with a gas killing animal that kills his people and enjoys it. that does not sound calm to me. david: that sounds a long way from vladimir putin and i can get along. alix: it's having an effect on

the markets. the s&p futures now off by 21 points around the lows of the session and the euro modestly it's really.1%, but about dollar-yen moving much lower as the safe haven big continues for the currency. theare seeing buying on margin, especially on the back end, yields moving down about two basis points. oil up .6%. oil is ae a conflict, good geopolitical indicator at this point. morningddie: 30 this new york time, we will get the u.s. cgi numbers for march and then we get the fomc minutes from the march meeting. and that brings us to the first story action in the first take, going back to mark zuckerberg, and was testifying at 10:00. joined by alex webb and lisa abramowicz. he testified at length, six hours almost yesterday in front

of the senate. this is part of what he had to say, it was clear that senators were not dying all of his apologies. stocks --reement suks. -- sucks. the purpose is to cover facebook's rear end, not to give users their rights. vote to't want to regulate facebook, but by god, i will. tenor of an overall you would better be ready for regulation. lisa: this was widely viewed as a win for mark zuckerberg because it seems like the commerce members had a lack of understanding of the basic structure of facebook, asking what is your business model if people don't pay you and he said advertising. it represented a disconnect between the understanding of the big and frankly,

tech companies that they might sink to regulate. in yourhis is right wheelhouse and the stock exley went up on facebook as mark zuckerberg talked. alex: when he sat down, he saved like a schoolboy sitting in front of the headmaster, but he was very competent, despite the u.s. senator and every single answer. this is very much a microcosm is the broader problem. regulation has been slow to catch up with facebook and we're demonstrating in the lack of knowledge of the internet's innerworkings and facebook's innerworkings and showed they are ahead of the curve. and regulations having the catch up. shut in the barn door before the horse has bolted. establishedess has over the years doesn't need to understand seven to regulate it. that's a critic -- a clear

look risk. they are asking mark zuckerberg are you intending to propose regulation yourself and it's interesting to see what facebook comes up with. alix: there's a huge tc risk when it comes to the market. president trump tweeting get ready, syria, we're coming for you, saying you shouldn't be partnered with a gas killing animal who kills his people. you are seeing immediate reaction in the market, this is the s&p intraday versus oil and the best way to get a read on what's happening is come inside andbloomberg, oil spiking s&p futures rollover on the lows of the session, is not just relegated to you u.s. assets, you are seeing the ruble extending the decline versus the dollar and also having lows of the session. where'd you go for safety here? lisa: you are seeing a bit of

flight u.s. treasury's, though not as pronounced as you think even volatility we have seen in equity markets. do you go to the yen or corporate credit? not of interest rates are rising in the u.s. is selling records amount of debt, three your notes sold the highest yield since 2007 with the greatest absorption since september. clearly weaker demand there. this is the question right now and then there's another question which is, is this all just a head fake? are people going to be risk on and buying the dip again? what point can people write off the political risk as we see this as gloating rhetoric? tension between the u.s. and russia is escalating in the real risk of syria is that the u.s. accidentally kills or maims some russian troops, bring a greater number of potential countries into the conflict. alix: talk about that flight to

safety, i want to illustrate where investors may be going for safety. dollar-yen moving lower, you also have the vix and look at gold, it's moving higher as well , it dollars an ounce. you are seeing buying in the 10 year, the not as much as you would of thought considering these headlines. if you hedge political risk in the last year and a half, you were not rewarded for it. david: people are sitting on the sidelines, they need to have this thing sorted out. from the european perspective, the latest go around with russia started in the u.k. with the poisoning. alex: the europeans are against russia, clearly. i don't know to what extent there is an appetite to get involved in any sort of conflict in syria. france has been more active than the u.k., the u.k. is a certain number of issues in terms of just ability to put planes in

the area, we don't have aircraft carriers. cypresses very close to that part of the world and we have aces in cyprus. one would imagine that france and britain have roles to play in that scenario it would be game. alix: you have russians elected by housing in the u.k. that's aggressive sanctions that you would of expect it from theresa may. the place was will really hurt russia is somehow cutting off access to capital and the u.k., that also will damage the u.k. economy, we are very and --nt on house rises house prices and russia has been dragging house prices higher despite all the problems of the past five or six years. david: despite all this turmoil, there is calm in china. overnight we heard from the stepped upvernor who

to talk about opening the doors to investments. >> with the new open-door policy, i'm confident that china's financial markets will be more competitive, better regulated, and also served the real economy much better. it's a fair competition in level playing field, so chinese companies and foreign firms can compete equally. the president has tweeted this morning and said things are going better than we thought. so much fake news about what's going on in the white house, very calm and calculated with a big focus on open and fair trade with china. the president believes we are headed in the right direction. rhetoric isa: the what we are seeing here. another key point is the head of the people's bank of china clearly said or indicated they weren't going to be using their foreign currency -- their exchange rate as a tool.

toy are not go to try depreciate the u.s. in response to us living sanctions. that takes one potential risk off the table as they try to open up their markets, so definitely a change in tone. alix: if you take a look of european equities some the dax is the underperformer of the year. it's a trade war since germany has so much relationship with china in terms of exports. alex: i love the cars that germany cells in china are made in china. -- a lot of the cars that germany cells in china are made in china. a lot of the stuff that is made in china and exported to the u.s. is from the likes of apple, that supports one million chinese jobs. i can't see china being willing to crack down on that of the forceful way because that affects them in a substantive way. are in special economic zones which make it easier to import without any duties. the big question now with

china is how do they guarantee intellectual property of the company's me into their country? how do they protect and not just deal of the way they have in the past? david: that's an issue not just for the united states. the europeans care very much about the electoral property issue as well, could they be our allies? a sense in theng semiconductor space of the opposite might be happening but they are sensing opportunity. european tech companies are intel, theys not are a little bit smaller. this as an opportunity to light export not just hard products but things made in taiwan and china, they sent an opportunity, i think. david: market share. , everythingrmakers is made in a joint venture and

then all of a sudden chinese companies are making cars which are very similar. amountill be a certain of caution in ensuring that intellectual transfer does not happen to quickly. alix: thank you both very much. coming up, china pledging an open-door policy for financial markets and we go deeper with ethan harris, merrill lynch global head of economics. what's going on with the markets in response to risk in syria, as futures up a full 1% as we are around the lows of the session. crude getting a big boost from yesterday, but now the geopolitical risk is splitting -- spreading as well. your safety trades, gold, yen, and treasuries, much more coming up. this is bloomberg. ♪

alix: president trump says d.c. is calm and russia these to prepare for missiles to hit syria. i want to take a look at the reaction and russia, this russia etf, this is current shares outstanding and this is getting hammered in the market now, down by 3%. harris us is is ethan and how do you look at the geopolitical risk, market reaction, how do you translate that as an economist? mr. harris: these kind of events registering.y we've gone through a lot of geopolitical risk of threats of war between north korea and the u.s. and the trade protectionist stuff and so on. i would say the markets have

done quite well in the last two years, consumers business confidence has picked up not just from the u.s., but globally. i think that investors have become a bit stronger in the face of these kind of shocks. not saying we should dismiss it all, but i think if things have to escalate a lot before becomes important. david: when the markets react, where will it be? mr. harris: it's a safe haven kind of trade. days? what is safe these mr. harris: the u.s. treasury market, we are getting into some very big edge of deficits and so on, but it is still the center of global capital markets and see a to deficits -- budget deficits, a critical safety of an place. that's where money tends to go. alix: i understand the thesis of a global synchronized recovery, but i'm struggling if that still holds. we got china cpi and ppi missing

estimates, bring into question the inflation reflationary story. where do you stand on that? mr. harris: starting in spring of 2016, we had a synchronized recovery. i do think it is shifting. china is on a steady slowing path, europe can't sustain the kind of 2.5% growth they were achieving. if you think about it, it's got a be the u.s. to drive the global economy going forward. a big the country with fiscal stimulus, it's much too early to have seen that in the data. there's a bit of a rotation into the u.s. and the risk to that is if trade war's run out of control, you cancel out the benefits of the fiscal stimulus. there is a bit of a rotation going on, it is not a synchronized to some people might think. two or three months ago we had tax cuts and fiscal stimulus and now we do have this prospect of trade wars.

is the very prospect of it, cannot really pool growth in the united states? mr. harris: we are still trying to figure that out. have you know whether it matters are not? the first side is the equity market. the equity market has been very shaky around this and it hasn't yet had a big drop. at this stage from a wealth affects one of you or the point of view of confidence of the equity markets becoming cautious, the story isn't there yet. if you look at measures of business confidence, these are the people who should be the most sensitive, particularly manufacturing firms. there is little hints of concern if you look at the purchasing manager report, but it's all very small right now. i think the challenge to investors is going to be a could take a couple months to resolve this battle with china. commenthere's a 60 day

period, we assume it's going to be resolved in 60 days. mr. harris: i think after that we really come with responsibility. down,s all this up and that back-and-forth will continue. the other thing that investors need to remember is the protectionist pressure doesn't go away with the resolution of the latest battle. we're going to come to activists again down the road, the u.s. trade deficit is big and it's very stubborn. the u.s. has a lot of stuff in its laundry list where they can approach trade protectionist questions. this is a cold war is the way i put it. is a series of small conflicts that we have to deal with for a

multiyear period. said heactly what xi didn't want to do yesterday in his speech. how does the u.s. managed stimulus to grow the economy versus trying to tackle the budget deficit, at the same time we've a cbo saying we could have a trillion dollar deficit by 2022? how does that play out? mr. harris: the unfortunate fact is that washington has given up on budget discipline. it's a multiparty thin, not just one party or the other. i think at a time when i think most economists, including the imf and fed officials to the extent they are willing to comment on it, when we should be reducing the budget deficit and preparing for the demographic challenges of the baby boom generation, the deficit is going up and it doesn't mean a debt crisis in the u.s. anytime soon. we have a lot of rope to hang ourselves with.

but it isn't good public policy from the long run perspective. clearly, we are moving in the wrong direction. david: are we, as the government, pursuing directly contrary goals? on one income or reduce the trade deficit, on the other, borrow more money. also, we did your money to do that, china, could you send it over? david: you are not saving as much money. mr. harris: it is a contradiction. if you look back in the history of the big trade deficits in the u.s., the original was the 1980's and it started with massive budget deficits and is going overseas and spending more than we produced and therefore, importing a lot of products. it's going to be very hard to get movement on the trade deficit if you are expanding your budget deficit. there is definitely a contradiction as you pointed out. ethan harris of bank of

america merrill lynch will be staying with us. in latest read on inflation the united states, what to expect for march is a cpi data, coming up next. bid, it's a safe haven saying treasuries lower by three basis points and money flowing into gold, yen, the next as well as treasuries as oil gets of pop and s&p futures around lows of the session as president trump says get ready, russia, missiles coming of syria. this is bloomberg. ♪

♪ david: just over an hour away from getting the latest read on inflation in the united states. the consumer price index is expected to rise to 2.1% in march after a pretty low year last year. still with us is ethan harris of bank of america merrill lynch. ago, we have year

this big collapse and wireless service costs and that drove down the inflation numbers and now we are at steady wireless cost in the last 12 months, so we will see inflation pick back up again. i don't think there will be a big story today in terms of something fundamental change in on the inflation front. has fundamentally changed in the last five days has been aluminum prices. powerfulng its most rally in years, it spread to oil and copper and part of that is geopolitical risk. was the future to inflation expectations? mr. harris: for inflation expectations, they are sensitive to this, especially oil. that adds to the kind of tone of higher inspected -- expected inflation. even in today's cpi number is in the game changer, we are definitely in a world where you are looking for higher inflation and the commodity markets are signaling some pressure. labor market just gets better and better and better. economists have low

credibility in this is we forecast a lot of inflation and that it never happened, but now the stars are aligned. david: what are we headed toward? mr. harris: i think we are heading toward -- it may seem kind of fantasy like, but i think we are heading towards inflation approaching 2.5% in terms of the pc deflator that the fed focuses on. that would be an overshooting of the fed's target and i think the fed is slowly accepting the idea that a gradual overshooting the target is a good thing. if you're going to average 2% inflation over time, you have to be above 2% some of the time. david: if you go to 2.5%, do you stay there? mr. harris: we are in the late stages of the business cycle and we don't know when the next recession is. we do know the risks get higher, i don't think they are high this year or next, but as you go to

years out, the risk of a much weaker economy as high because you will lose the fiscal caffeine shot and we will be in a world where the fed is now becoming a little tighter and rates are high enough that they matter. i think there are organic reasons to expect the economy to be constrained a couple years down the road and that will end in keeping inflation going any higher. alix: 39 basis point is where we are at. ethan harris of bank of america, thank you. facebook's self-regulation days may be numbered. we break it down with mark lehmann and a risk off tone in the markets. we break that down. this is bloomberg. ♪ welcome to the xfinity store.

i can tell you about... streaming the most free tv shows and movies on the go. yeah, and... xfinity internet. it's so fast! and you can save by... by getting up to 5 mobile lines included. whoa, you're good. i'm just getting started. ♪ simple. easy. awesome. come see how you could save $400 or more a year with xfinity mobile. plus ask how to keep your current phone. visit your local xfinity store today. david: welcome back to "bloomberg daybreak." president trump tweeted just moments ago the rush of out to shoot down any and all missiles fired at syria, get ready, russia, because they will be

coming, nice and new and smart. you shouldn't be partners with a gas killing animal who kills his people and enjoys it. a lot of activity this morning. previously, he said everything has been calm and then he says russia, get prepared for bombs and missiles in syria. , he really took action right away and did not hesitate. he said within 48 hours or so he is going to take action which is a lot of pressure. they went to the u.n. to try to get a security council resolution on russia blocked it. the russian foreign ministry says trump's missiles may destroy evidence in syria, and immediate response on that front. david: but the russians have said we don't want to going in to find evidence. hedgeit's tricky, if you on geopolitical risk, you were not rewarded. whopping 28down a

points, the dow jones office well. you're getting dragged lower, the dax off my over 1%. in other asset classes, it's a safe haven story. again shooting higher, money coming in treasuries especially at the long end, flatter, and the vix jumping over 21. syria doesn't produce a lot of crude. -- a lot of any kind of disruption when you have potential sanctions, it's a very difficult precarious situation for the oil market. david: there's a lot going on for the business floor and kailey leinz that is here with first word news. kaylee: a military transport crash after takeoff, the russian plane was carrying soldiers just as i knelt years. authorities say crashed in the farm field. christineng director lagarde warns the world must avoid being sucked into a

protectionist spiral. she says tariffs are not the way to adjust trade imbalances. she spoke in hong kong. thing isst important to do more trade than less trade and there's an entire sector which is still crippled with barriers and tariffs and reservations and that is the service sector, including e-commerce in particular. we need to move ahead. the world is becoming more digital and we cannot stay with barriers of the past. facee: wall street banks higher capital demand under a new federal reserve proposal, the so-called stress capital buffer is designed to streamline computing regular tory demands on banks. the fed would relax parts of its annual stress test, the most significant rewrite yet of requirements imposed after the 2008 financial crisis. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz, this is bloomberg. for more on president

trump's tweet warning russia to get ready, because u.s. missiles would soon be sent to syria, we are joined by marty shanker. the president's tone on russia has changed quite a bit. dramatically. it's unprecedented for a president to announce what he is planning to do in advance of a military action. for those who criticize donald trump for being ambiguous about russia, this is a pretty strident threat. it's not just we are going to do something with syria of a russia, you would better get ready, you shouldn't be partners with somebody who uses gas to kill his own people. see it in the markets, it's a very unprintable situation. will there be a direct confrontation between the united states and russia? iran is in the region as well. it's basically unprintable. there's collateral

damage, the israeli strike earlier killed some iranians, there are russian military people in syria, if there were a strike, how we make sure you don't actually heard some russians -- hurt some russians? marty: russia threatened not only to strike at the missiles in coming, but the store those -- the source of those missiles. it's quite possible that there could be a direct conflict between russia and the united states. my production as they are going to back off. alix: who is they? marty: both sides. donald trump and putin have had discussions and they have picked up the phone and talked to each other. there's an opportunity for that to happen here. donald trump has promised military action and that appears to be what is going to happen. alix: it's interesting, the market reaction is as abuse in the lows the session, you are only off 1%, a marginal bid for treasuries down 3%.

that seems to imply they are going to back down, is this the president trump that we know? you go out and hundred percent and then dial back to 50%. marty: if there's a discussion that allows all from to back off, that's what will happen. i do think that the impact on russia is greater if you look at the ruble, is in freefall and has been for the last few days, sanctions and this possibility of military action being the reasons for that. in terms of sanctions in the middle east, sanctions against iran, we're coming up to that may 12. where are we with that and how does that exacerbate issues with russia and other areas in the region? marty: don't forget, john bolton just joined and he has been is hartline as they come on the iran deal. i would suspect that donald trump is going to basically blowup that agreement and then it becomes what to the europeans

do? david: and mike pompeo, he has to hawks. many thanks to marty schenker. we turn now to washington, we're joined by ryan costello, representing a member of the house servant on the energy and commerce committee. he comes to us today from the capital. it to have you. talk about the fact that in 2.5 hours you're going to ask questions of mark zuckerberg on face. we do have this news about syria and the president this morning. traditionally, congress really rallies behind the president, no matter what the party, when we have a situation like this. what is the mood right now in congress? are we united behind the president behind popular action in syria? rep. costello: to have minutes ago i was alerted to this tweet and i think there is a lot more information or detail that should and will be provided by the administration, that's

really the best answer i have to your question at the present moment. i think more information will be revealed in the coming hours. david: we have to have more facts before we can form an opinion. rep. costello: what does it mean? there's a little ambiguity yet in his tweets, and is difficult to discern orange over what he says and what that means. david: thank you, congressman. we will have mark zuckerberg in front of you and yesterday we had almost six hours of testimony on the senate side and one of the things i came away with was a sense even amongst some republicans that in fact some form of regulation may be inevitable. is it inevitable that there will be some federal regulation of social media such as face book? think it'slo: i do inevitable, that how far-reaching it is and actually who is the one that issues that regulation, is it congress or the ftc, interpreting and forcing things a little

differently on the election interference side? is that the department of justice and the federal elections committee? there are a lot of questions to be answered on how that takes effect. here is facebook does self police, mr. zuckerberg did indicate a need to be much more active in that ecosystem. we don't all of that means on how the police themselves, but i do think that the american public doesn't want to see something done in the digital privacy protection space. i also think it will be something short of what the european union is about to implement in the next month. david: i'm glad you raised it. we do have new regulations coming out in europe that are pretty far-reaching, including pretty stiff penalties that say for users, you get a choice. often, opt out whether you can use the data, do you think that's going too far? rep. costello: back, the right to erase information or rectify it, here's what i think.

i think that's going to be a template to learn what works and what doesn't work. we don't know what the compliance costs are going to be for a lot of tech companies. it's one thing to regulate these billion-dollar companies. that's another thing on this permeates down to the startup of company or enters into other sectors of the economy that don't even realize that they may have to comply with it. i think we need to take this slowly and cautiously. it doesn't mean we shouldn't regulate, but it also means that we shouldn't just quickly and in a far-reaching fashion implement a set of regulations and think we solved the problems because we might be creating more problems in the process. david: congress has a lot of experience with regulation, but are we have an entirely different world? andllion users of facebook 6 million advertisers, 6 million advertisers. it's not like regulating a

television network with a few hundred or a few thousand advertisers. if it possible for the federal government to get their arms around something that big? it is something totally different and that's a good question that i don't have an answer to. i think it would be very difficult and that's why we should not pretend it that somehow we can issue regulations that somehow will correct the perceived problems and actual problems as it relates to how facebook is utilized. it's a platform, right? people will misuse it and data will be mishandled by some people who do use it. things will be said on their that other people don't like. here's what i think is the question that needs to be -- we only to think about. should really be able to use data for things that we agreed to or might there come a time through innovation when data will be used in ways and for purposes that we have not yet even contemplated, but will have a socially beneficial purpose?

artificial intelligence is one sort of new area that we can apply that question two. and that's why we need to proceed cautiously and thoughtfully and not just react in a way that might sound political correct but might do more harm than good. david: we will be watching about two hours and 20 minutes. pennsylvania,of thank you for sharing your time. alix: it's all about syria, russia, and mr. trump altogether. donald trump tweeting saying our relationship with russia is worse now than it has ever been and that includes the cold war. there is no reason for this. russia leads us to help with their economy, something they would be very easy to do and we need all nations to work together. stop the arms race. i find that to be a very, very striking statement from our president. david: particularly what he said in the past about russia and vladimir putin. it's interesting, stop the arms race, there is talk of the two of them getting together, vladimir putin and donald trump, maybe having a summit.

he's raising the possibility of doing something good together. alix: when you hear worse than cold war, what do you think about that? toty: it's him trying position himself as a tough president in foreign affairs. don't forget, this comes in the context of bob mueller's investigation, it does change the conversation and probably rightfully so. he actually wants to solve this problem, and i think as donald trump loves the idea of being a savior of some kind, this relationship, he is actually sending all of branched pressure here. david: you know who will welcome this is -- sending in all of branch here. olive branch -- here. his rubble can colleagues will love this. an agreement,e is

the market would love this. alix: in terms of market reaction, what's happening with the ruble, you are now the highest since 2016, which means the ruble is the lowest since 2016, as it continues to get pummeled, russian equities rolling over here. i'm taking a look at the russia etf to see if it's trading premarket, that's down by about 3%. you are also seeing the safe haven bid in the u.s.. by 23 points, and in terms of bonds and safety, you are seeing yields move lower by three basis points. u.s. feels more measured, you played this out, the potential russian response area it seems like a double way for them to be very difficult. the way the u.s. can influence russia's after military action or foreign affairs, it's really in the economy. in the russian economy. they are hurting. the u.s. has the ability to make them hurt even more. and while putin enjoys great popularity, that is in jeopardy

if this continues. david: the oligarchs are hurting. it is an oligarchy to a large degree. alix: $15 million loss on monday alone. i wonder what's going to happen on thursday when we see those kind of numbers. marty shanker, bloomberg to content officer. the selective facebook, that stock down 5.7% and the vibe is that regulations seems inevitable. the question remains how much further the government will go to regulate the company. is mark lehmann. feltarket reaction positive yesterday, but then the congress reaction fell negative. will facebook really take action if the market is able to try this off -- shrug this off? mr. lehmann: there is some regulation down the road and facebook is doing a lot behind the scenes to self regular. there will be some meeting in the middle of that i believe. congress takes a long time to get things done and i think

facebook is smart enough to get things done on their own in the interim. any that's what you heard from mark zuckerberg yesterday and you will hear more today when he is in front of congress later today. alix: if facebook self regulates and they have to pump millions i'm guessing of dollars into security, they are hiring 10,000 people, what does that do to their bottom line? mr. lehmann: it's way more than millions. we calculate here that if they cost, thatllion of cost them one dollar a share for calendar year 2019. it's a big number. but it doesn't really hurt their earnings and a big way for a company that's not trading as an aggressive or multiple of some of the other fang stocks we talk about. they are ready to do it and i think their multiple in the near-term will suffer. in terms of growth rate of users, i don't think it will suffer as much and that will be good for the stock going forward. of a what do you think

change in facebook model, where i can find it -- where i can pay for having no ads versus ad revenue? mr. lehmann: that is something that has been floated i think it's unlikely we will see that in the near term. i've always called facebook the most mercantile company out there. they are really focused as opposed to other companies that are doing a lot of different things. they are focused on making money. i think the team will figure out what the calibration is between the two, but i don't think that's going to be very soon and i think once that happens, it will be a small sliver because people like free. to turn the tv on and watch a few commercials. i think most people want care. alix: do you buy the different facebook? -- the dip in facebook? mr. lehmann: i think so. unless you have something consolidation warning, i don't think you will see a poor first quarter. these are big expense statements

about their respective earnings but i think going forward, you want to own this stock. jmp: mark lehmann of securities. you can see mark zuckerberg's testimony at 10:00 a.m. eastern in new york. headlines coming for mario draghi, speaking to college kids and university kids at a q&a send something about trade. he says the direct impact of the u.s. trade announcement is not big for europe, the dax underperforming might tend to disagree. must be mindful of the confidence affect of it trades that and feels like the confidence affect can be very important. it is a data starts to roll over smallle bit, nfib, business confidence was at a five-month low yesterday. how will that white up feeding through to the economy? david: if you are a ceo, you have to be attention -- pay attention to what the present is tweeting. so far, sanctioned straight is not affecting them, but the need to watch because

they don't like uncertainty. david: it doesn't mean you won't invest. just maybe not right now. these are three great stories down,e picked, stress wall street banks space numerals is the fed proposes a rewrite of post crisis requirements. and then stephen schonfeld fund takes on folder hill. virginity's in asia and finally, a nordic hedge fund targets 200% returns by going long and short on energy stocks. alix: joining us now is peggy collins. if you come in today and you are er, what aret you seeing? ms. collins: i think you are thinking volatility is going to stay high. day of feels like you come in and there's a new geopolitical twist, in part because of the way the donald trump is speaking to the world into the country. alix: are you happy about that?

as equities trader, do you say awesome? david: or like a ceo, do you sit on your hands? i'm not making any big commitments right now. mr. collins: if you're a short-term trader, the volatility coming back is great news. manager trying to long-term investment clients or a company trying to prepare for the future, it's a bit unnerving. we have the tax reform bill, on the company side of things, there's a lot more certainty than on the wealth management side of things for people who are trying to prepare their clients for retirement or college savings. alix: a great distinction which leads us to banks and how stressed out a maybe. this is fascinating. capital stress buffer by the fed was meant to streamline the regular tour demand for banks, but actually result in big banks paying more. walk us through what we learned yesterday. peggy: what the government is trying to do, one of the big steps for the drug of

administration doing with is that they were going to do, was to streamline the regulation. -- the trump administration doing what they said they were going to do, was to streamline the regulation. they have to jump over the hurdle of the stress test, but for bigger banks it may mean they have to hold a little bit more capital, for smaller banks it may mean less. this is a proposal that will be out for the 60 day comment period. david: if i'm bank of america or jpmorgan, am i happy or sad? i am already reserved for that and it's not going to require me to reserve more. i don't have as many hoops to jump through. it's high stress test into the capital requirements. it's a mixed bag, but overall it will be good for banks. we saw a lot of smaller community banks take a hit through the dodd-frank regulation and they have been essentially saying for a while we need a little bit more help. overall, most of the financial

industry has been saying we need less and more streamlined regulation and this is what they have with this. david: does this confirm his role as the deregulate or in -- thehat he was bill as deregulator in chief he was billed as? peggy: they will cry of what larger banks are able to do in terms of dividends and by banks. david: the schonfeld story, we have a hedge fund that is picking up a new operation, folder hill, particularly the asian unit is a big one that they are picking up. what is this about? peggy: it's a hedge fund named , it had an investor who is a wall street name, a star trader and over the last several years he picked up a lot of trading units or invested in proprs who used to be on

trading, that's banks. speaking of regulation, have really kind of been closed down over the last several years and he is basically growing. he is taking over the struggling hedge fund he had an investment in and bring it in house to say that almost. almost.ve it you want a strong operation in asia and be able to keep some of the traders that have been working for the hedge fund over there. there may be job cuts on the u.s. side. rolloutt feels like a with interest in both and now they are putting them together. peggy: the manager that was running asia fund for folger hill is going to work for leucadia. there's a lot of ties between all three of them. schonfeld was operating as a family office managing his personal money for many years and now his branching back out, investing in a number of teams the two courts trading -- teams that do want trading. it will give them a broader base

to work with and potentially have more access to client traders. alix: the third story is the hedge fund in oslo the targeting 200% return and based in energy equities. peggy: this story made me think of what we talked about earlier in the week in terms of hedge fund betting on russia. there are a lot of people who are pretty bullish on the oil trade right now, in the sense that they think oil prices average room to run in this hedge fund is basing -- betting on both sides. going long on oil in terms of oil prices and short in the u.s. on master limited partnership's. i thought that play was interesting because it may be assigned that this hedge fund doesn't think the researcher dollars a trump has been talking about will hit the u.s. as soon as other people do. going to go are short mlps on the financial basis and the pipelines aren't going to give builds, oil prices will fall even more. i wonder if they are changing their business structure, mlps

are no longer going to be a huge dividend payer guy, being much more capital restrained and capital allocation coming much more important. and i stopped the conversation. david: you know the answer to that question better than we do. peggy: i would speculate that is perhaps the case. alix: goldman sachs bryan singer saying this is the golden age for big oil. in this kind of world where you are going to see more restraint on production, this is the golden age for big oil. the focus is on the mps. and i stopped again. david: many thanks to bloomberg peggy collins. the hour is of president trump, who has been tweeting a short time ago that russia vows to shoot down any and all missiles fired at syria, get ready, russia, they will be coming nice and new and smart. you shouldn't to be partners

with a gas killing animals and feels his people and enjoys it. big news coming out of about possible attacks on syria and on russia. the president also tweeted our relationship with russia is worse now than it has ever been in that includes the cold war. there's no reason for this. russia needs us to help with their economy, something that would be very easy to do. we need all nations to work together, stop the arms race? something he raised before a possible discussions with vladimir putin. alix: one response from russia saying trumps missiles may destroy evidence, waiting for more response from russia as well. in the markets, it's clear, safe haven buying risk is off. s&p futures around lows of the session off my .8%, seeing a bit of the treasuries and into the yen as well as into gold. the rhetoric i'm seeing is that you should have seen a bigger reaction if there was going to be true, true fear in the market

on some kind of russia u.s. syria conflict. is moderatet it means potentially the geopolitical risk is already priced in and how that set this up as we had to earnings season which is really going to break out with some of the big banks on friday. nonetheless, it's a risk off feel in the market with dollar-yen moving lower and gold moving higher in treasuries moving higher is yields move down in the s&p also rolling over. coming up next, stephen roach will be joining us, and we get his take for what this could mean for the russian economy. yet to take a look at the ruble and equities in russia. and where we are in a china u.s. trade war. as is bloomberg. ♪ this wi-fi is fast.

i know! i know! i know! i know! when did brian move back in? brian's back? he doesn't get my room. he's only going to be here for like a week. like a month, tops. oh boy.

wi-fi fast enough for the whole family is simple, easy, awesome. in many cultures, young men would stay with their families until their 40's. ♪ alix: president trump says dce

is calm but warns russia missiles are coming to serie a. investors offer safe havens be a political turmoil. -- as little turmoil heats up. mark zuckerberg defense facebook value. david: we look at the white house on this wednesday, april 11. the tweets earlier this morning tweeting out more than once about russia and syria. "syria, there will be missiles coming." he's as relations with russia are the worst they have been since the cold war, but maybe we can still -- alix: in the markets we are seeing interesting reaction. as i mentioned it is a risk off tone. the s&p off the immediate lows of the session. euro-dollar lower. the dollar -- the dollar-yen is capturing the market. buying on the long end.

we are going to see about 10 -- $21 billion and 10 year notes sold at 1:00. what the buying will d -- will be. i think if we have come in overnight, i would be thinking a 1% or 2% decline and i wonder if that means this info is baked in in summits -- to some extent in even in oil only up 1% amid potential disruptions. david: it's not the first time we thought there would be more reaction. not as much as we have anticipated. alix: maybe some resonating in the markets as we head to data at 8:30 which could be a market as well. david: kailey leinz is here with first word news. in algeria, a military transport crash just after takeoff killing at least 257 people. the russian built plane was carrying soldiers on a flight from a military base just outside algeria. it crashed in a farm field. would face banks

higher capital demands under a new federal reserve proposal. it is designed to streamline competing regulatory demands on banks. the fed would relax parts of its annual stress test, the most significant rewrite yet of requirement and code after the financial crisis. as you mentioned, president trump has a warning for russia and syria. he noted russia had vowed to shake down missiles -- you down missiles fired in syria. the president says "get ready, russia because they will be coming." he says russia should not be partnered with a killing animal. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm kailey leinz, this is bloomberg. david: thank you very much. for more on president trump possible warning for syria is gina martin adams of humor intelligence and the former u.s.

ambassador to nato. good to have you here. before you were ambassador, you are a general. give us the stands on what your experiences about what preparations would be going on in the united states government for possible strikes in syria? plannersk the military -- plan is largely centered on central command in tampa, florida will be presenting the president a range of options. these would be strikes options with different means of striking. different weapon systems and so forth. also different cardinal directions for the strikes for the mediterranean or elsewhere around the region. of giving theim president a range of opportunities to select from. i think that kind of precise planning is going on now. he will very much be driven by the available intelligence on the most recent use of chemical

weapons in syria. the intelligence community will be very busy trying to establish cause and effect relationship. , by which means. was it aircraft delivered or artillery deliver chemical weapons. where were they manufactured, where are they stored and so forth. that is the detailed work going on now. david: how possible would it be to plan that kind of strike and make sure we don't hit russian parties inadvertently? to bes: it is going difficult because there is a certainty intermingling of assad 's forces, the syrian forces with russian and irani and advisers. there is a risk. of unintentionally targeting russians or iranians as well. wayd: gina, what is the they can react to this possibility? certainly strategy by tweet

is not much of a strategy at all and we found that out over the last year. any sort of shot across the bow in terms of geopolitics results in some sort of short-term reaction. the equity market frankel he doesn't know if the crisis. the discussion is not action so far. one thing that is notable is the destruction of the commodity markets the last two days. it is not something new today but over the last few days we have seen escalation commodity prices. that is filtering to the equity market and resulting in some -- into the commodity sensitive sector. certainly the inflation plays have been beaten to a pulp. they are now starting to show some signs of life as a result of the fact that the commodities are moving. and that'smething the commodity price movement. broadly whether or not this has an impact long-term whether he truly dampens investor confidence depends on actions more than words. >> if the market needs to be

looking for action, not words, what specific thing can they be looking for to take their investment cue from? douglas: there is action possible. military presence forewarned that. i also think it is very useful to watch what's going on diplomatically. diplomatically on a number of different fronts first of all. any strike against the sources of this chemical weapons attack would be much amplified. the effect would be amplified if we did it with allies. i suppose diplomatic channels are open right now with the u.s. talking to allies such as the u.k. and france and probably others. aim toname -- with an bridal death broaden the small coalition. beyond that i think diplomatic action at the organization to prevent the use of chemical weapons, but also with the u.n.,

so not only military planners are active, but the intelligence community is on this and i'm sure the diplomatic channels are open. we went to the security council of the united nations and russia vetoed an effort to find out whether there was a chemical attack in syria, do we have allies among the nato forces that really will step up? douglas: i believe so and this is why we have allies. we have them for times like this , times of decision and action. and the value of nato for example in this instance is that you have allies that are like-minded, centered on similar values and have military capabilities that have been practiced and rehearsed. alix: if i want to look for some say vd -- safety today, where would i look? >> commodity sectors. i think there is a tendency on investors that have to sort of naturally want to migrate to the

defensive sectors. the defensive sector in an environment where inflation is starting to break higher, the rates are rising a very dangerous. earnings volatility there is a lot higher than investors recognize. the better play for us is to remain cyclical. interesting, thank you very much for getting is a dose of perspective. former u.s. ambassador to nato, thank you very much for your perspective. i also want to point out we might have another headline from the russian ministry saying russia may sanction u.s. citizens in a retaliation for another tit-for-tat when it comes to the rush -- russia and the u.s. as well. roach. us is stephen great to see you, thanks for being here. we will get to trade in china but i wanted to hear a little bit on what's happening with russia and the u.s.. what you think the impotent --

economic impact is on russia? stephen: minimal in terms of missile strikes on syria. on rush i think the major economic pressure point from the u.s. is through sanctions and russia is a one-dimensional commodity sensitive economy and remains highly vulnerable to tighten sanctions. failedsian economy has to diversify from this commodity sensitive structure. david: haven't they also shown they can take pain? we have had think before and we heard them and yet they still seem to go ahead. stephen: it is all relative. they can take pain but they can also -- they also incurred to economic costs for taking pain. the bravado starts to seem increasingly -- , we would've know been talking about china and trade.

let's get back to that subject now. we have had xi jinping coming out trying to make noises. the new governor overnight, saying they will open of the financial markets. where does that stand right now from what you understand? stephen: nothing new, david. there is a lot of spin on the market to say china has backed down and they flinched. i look very carefully at what the president and others have said overnight from the conference and i was in china two weeks ago. there is nothing new at all relative to what was said then. response tos is in aggressive moves by the u.s., china did not up the ante and come back in kind. i think that is the encouraging china and of wants to go -- a negotiated end to this. the idea china can up with new opening market news does not

really conform with at least what i know having been on the ground there. david: you're not encouraged with talks specifically about what he said, about investment and insurance companies and greater investment in securities. stephen: i am encouraged, but this is something that was stated very clearly several months ago by president xi and the senior adviser. china is going to move ahead aggressively in lifting the ownership requirements on financial services. the news last night may have added a little bit more clarity, but it was not new news. alix: i really enjoyed your piece you wrote for bloomberg last week and you talked about how the u.s. needs china more than china needs the u.s. in part because we buy stuff and we don't save as much. i want to highlight that point. you wind up looking at the blue line, the u.s. trade balance

versus the white line. they pretty much track each other. can you walk us through? stephen: i look at personal savings, business saving and government saving combined all adjusted for appreciation. the domestic savings rate on that basis was 1.3% of national income in the fourth quarter of last year. that is ridiculously low for a leading country. we have to borrow savings from abroad and run these big current accounts and multiple -- multilateral trade deficits. supply chain impacts the store, the magnitude of china's share as well. we don't like trade deficits, how about saving? budget deficits with the trump administration are taking the debt the wrong way. trade deficits will get bigger. that's the point i try to make to turn protectionist at a time

when trade deficits are getting bigger is ludicrous. david: this is a critical point. is it possible to run a bigger budget deficit and reduce your trade deficit at the same time? clearly we are running a bigger budget deficit. >> if consumers decide they want to increase their personal saving to compensate for a massive budget -- government budget deficit that might be possible. the odds of that are close to zero. alix: what is the solution? stephen: the solution is for the u.s. to rebuild its own savings. go the other way on fiscal policy. we also need to do a much better job in establishing a mode of communication with the chinese. this idea we have once a year summits, we come together with the party does not come together -- does not work. we need to focus on market access both in china and the chinese want to focus on access to our market.

a pile -- bilateral investment treaty is long overdue and clearly we need to deal with the issue of intellectual property rights and technology transfer. the key allegation the u.s. trade representative has made against china and one that indicates very poorly made by their report issued in late march. david: is there a better case to be made? there's perception to the fact that china is building their future in technology by essentially taking western intellectual property. the u.s.that is centric view and they claim china has this horrible program called made in china that will establish their supremacy in a number of leading industries. we do industrial policy to. ,o does japan and germany people like to think china is the only one doing it, that is ridiculous. we do it through the defense department. the military-industrial complex

was identified as president eisenhower has been leading the edge in all of these government-sponsored innovation r&d programs and spinoffs from internet and the like. the idea is that china alone has the right to focus its government on innovation rmb and &d and we don't is wrong. alix: what about retaliation? china not selling or buying more treasuries. do you feel like any of that is realistically being considered? china, their vice minister of finance said recently they have a lot of tools at their disposal. unlike us where we have a leader

who spouts off about all of the things that he can do to china. china is keeping its cards close to its chest. so they have introduced retaliatory tariffs on the u.s. exports. american say what the big deal, china is our third rapidly growing export market so that hurts. they are the biggest foreign holder of u.s. treasuries. we have a lot of treasury auctions coming up over the next several years as the cbo indicated. we will need for and buying. maybe china doesn't sell treasuries, but maybe they won't participate in the auctions will be coming up. the in just has the ministration given any thought to that whatsoever? wedo they cavalierly make will run this big budget deficit and what choice to the chinese have? we do not have an administration making strategy towards china. theya lot of accusations

level. totally unsubstantiated and we hear them every day. i want to point out is we do have some statements from russian politicians speaking to lawmakers that said russia make definite must take retaliatory measures on u.s. goods. >> interesting they haven't come out definitely on it. we have some breaking news on that. paul ryan is all confidants -- has told confidants that he is not running for reelection. is another first time we've heard this. tois terribly important report this because he wanted to get tax reform done, that was his goal. yet he didn't want to be speaker. he is afraid tough reelection campaign. reporting that paul ryan

is telling people he may not run for reelection in the midterms. alix: who would take his place as speaker? does no one want this job? they had to drag him kicking and screaming to the post. david: i suspect there would be a few people in washington would want that post. third in line for the presidency. steve says we should just be thinking about republicans. the 900 pound gorilla blackstone, on the other, a hedge fund. at stake, trillions of dollars of credit default swaps. with chrisnding by for more. pucillo, good -- to see you. chris: good to see you. eric: it is a refinancing deal that went for a home dealer.

-- deal hinges on and as the buyers of credit default swaps, they will benefit on the default should be ruled a credit event. have a got that right? chris: that is correct. eric: i was surprised when questione answered my about this dispute on bloomberg television a few weeks ago and i'm even more surprised that you are here. why are you here? chris: it's more about educating the market and what's at stake. the current structure is somewhat incomplete as to guidelines on what market participants can and cannot do. there is a narrative that there is a loophole here. we don't think there is at all. eric: a loophole that blackstone exploited. isis: that provision basically intended so that a pirate bonds and a buyer protection conserved the default on their bonds and then collect

on their default. it is not to conspire with a company. >> blackstone has been described -- this trade has been described as genius, brilliant. how would you describe blacks own behavior? chris: on ethical. do need a conspirator with the company to do this. eric: a conspiracy. chris: it feels like that. you have an exchange offer intended to what you referred to as refinancing. intended to create a deliverable that out of the gate would only be worth $.50 on the dollar. eric: it is getting a little arcane. the deliverable is a bond that can be delivered at an auction default,if there is a it is called a credit event. you went to court seeking an injunction against the refinancing the exchange offer and you lost that, what happens now? chris: we modified our

complaint. we are suing them for marketing manipulation, fraud, a bunch of other things. where does the swaps and derivatives association common? chris: -- come in? chris: their position is that they don't respond to bilateral disputes. i think they will really need -- eric: the determinations committee has to make a decision as to whether this is a credit event. chris: that will come when someone poses the credit event. there is a provision in the exchange for that demand for the company not make the instrument -- interest payment on certain bonds the company owns. eric: so you could win if it's not ruled a credit event? if certain bonds aren't allowed to be deliverable. what if you lose? how much does it cost to? chris: the market has are even

significant here. eric: how many millions of dollars? chris: the moving the cds is now 37 points, so could it trades down more? yes. the bulk of the move was made in 2017. eric: if it all plays out according to the market would cost how much money? chris: nothing. eric: so why fight? chris: there is no limit to what a company could create here. you saw there was another exchange on friday posed by the company which we don't know the results of. 2047 bond.eating a theoreticallyd so that would be a lower deliverable price. eric: you don't stand to lose anything have i got that straight? chris: if it clears below the current market we could lose money. eric: but you are fully hedged i taken? -- i take it?

you have already tried to limit on that side. is there no way for you and perhaps goldman, which is been to thering with you higher the price of those cheapest bonds lets you stand to lose. so why -- aren't you incentivized to raise the prices going into the auction? have you plan to do that? -- planned to do that? chris: we are discussing options. lb one of the ways to have it clear. for example those bonds were trading, the cbs would clear. >> what would it take for you to drive those two par? chris: how much -- yes. eric: how much would that cost? chris: a few hundred million dollars. eric: if you don't want to gamble on the determinations

committee >> i think we will know they've decided prior to that happening. the option would take place. eric: how determined are you to screw gso? chris: it's not about screwing, it's about writing a wrong. eric: why try to say this at all? it's a shadow of its former self. it does not -- people argue it does not have value to the average investor at all. chris: we're not trying to champion cds, we are not a significant -- on a subprime short we put on. we have not really been involved in the market to any great extent. we are going to -- we've lost money, we could lose more here. we could make a lot of money. are the markets we want to build to participate in. i think the companies who for example if you have an interest rate swap, the bank gives you an

interest rate swap, that bank made by the protection in order to protect or mitigate that risk. that needs to function here. paintis it fair to blackstone is a conspirator or villain when -- testified that solus was also doing this as low as december. chris: the villain aspect doesn't have to do anything with the financial. we didn't really think it was below market, it was really on the cost are in they asked us to go lower in terms of price and we wouldn't. eric: if they change the cds to make this impossible going forward, with that fix the problem? chris: no. there is over $10 trillion in cds that would still software. -- that would still suffer. eric: thank you very much for

spending time with me. always good to see you. cillo.s chris pu alix: thank you so much, a fascinating story. i love the different pitfalls of wall street -- pitbulls of wall street. nice bids getting a here as we have safe haven buying coming into the market well primed for cpi as well. online atdebt coming 1:00 -- 10 year debt coming online. ♪

♪ i'm alix steel. 30 seconds away from the cpi data and you're seeing in i bit in the treasure market -- treasury market. in the treasury market, the long

and as well. 10 year yield lower by three basis points. steep, but 39 basis points is the threat of this jump. oil commodities getting a bid as well. aluminum dragging up the entire complex. let's take a look at cpi. year on year coming in 2.4%. the estimated increase sequentially on a month by month basis, you are looking at a rise of 2/10 of 1%. continuing to grind its way higher. prices fall 1/10 of 1%, but if you back out energy and back out tens -- rose to 2/10 of 1%. joining us is michael mckee. i'm looking at these numbers, what is your initial push? >> i'm looking at cell phone prices.

they was will to drop out of the index and they did. they were up to tens of 1%. last march.wn 7% that has dropped the year-over-year calculation which is why for one reason we see the overall numbers go up for year-over-year. david: this shows rapidly cell phone prices last year. pretty precipitous. michael: this is what janet yellen was talking about the whole year saying that we have these transitory effects that would drop out of the calculation and we finally have a point where they do. alix: the increase pricing power in shelter, medical care, motor vehicle insurance and airfares, all of those prices moving higher. on the downside you of apparel declining. that seems to be -- year in the month of march we had an almost 8%

drop in men's shorts and pants. we are not going to look at that. i have one for you. this is going to throw your heart. energy prices. this is a big deal. energy prices went up precipitous. they were heading down in this period last year. on a month over month bases they may not contribute as much but inflation is coming back. this is part of the story. alix: you have to back out energy for cpi comes still 2.1 percent. higher energy prices going to be very much to higher inflation expectations. >> that could be. what we have seen is that consumers do seem to look through energy prices when forming inflation expectations. if that is in the case i think you have to get more worried. so far inflation expectations among consumers is -- if

anything up and running on the soft side. over the last year four months, one thing that keeps to should keep the fed, about that is the fact that inflation expectations have remained so far pretty well anchored. we will see with the latest move in energy prices is. david: if you look through all this noise, really where is it headed over the next 18 months? >> it has firmed over the past couple of months. i've wanted a look firmer. some unusually strong numbers of last two months. i think we had some downsides. we are getting a few upside surprises now. i think your to cut through that noise. generally speaking i think it should be getting out of here. the wage numbers have been pushing higher. they are moving higher. we think inflation will follow that over the next year. alix: i want to talk about the

data as a whole. our companies able to pass through their own it increases to consumers -- own increases to consumers? michael: there is a little bit of that going on and we are starting to see it come in but it is not overwhelming price pressure at this point. we are waiting for companies to broadly raise prices. we have not seen them broadly raise income or wages. personnel wage is the biggest cost for every company. once we see that, you should start to see companies try to make that up by raising some prices. to michael's point, 96 36, you and the core have both risen. the fed target runs generally below the others and its 90 --

we will see how quickly it gets there. of marketerms reaction it seems selling the long and is what you will see. part of it is a safe haven bid. nonetheless it feels like the market was not impressed with the inflation. let me break it down one more time. at 2.1%. the core on a month by month basis down by -- the 53 spread continues to have a three handle. selling in the long end of treasuries is continuing. joining us is kevin logan and i paired to with michael because you are one of the most dovish economists on the fed hikes for next year. you see one. michael sees four. this has to be a fundamental difference. kevin: that is exactly right. we don't think there will be much of a change in inflation.

inflation has been stable for nearly 20 years. despite big fluctuations in the economy. despite global expansion. inflation is a great deal of inertia now and it's really big on expectations rather than economics. as long as it citations are a stable, it looks like inflation will be stable. two more rate hikes this year, one more next year. it will put it in positive territory. it will have an effect on economic activity and expectations. if they can control expectations, they will control inflation. alix: debate kevin logan. >> first of all on inflation, , we mckee talked about cpi will see the same thing on court pc. -- core pce.

we are past it for unemployment. that andadd on top of we saw this in janet yellen's editorial last week which is that we haven't even begun to feel the effects of fiscal stimulus. we know that coming in the second half of this year and that we think is a further boost of growth when you are ready at price stability and already at full employment. the fed has to get back to neutral and do that pretty gradual, but steady. alix: does that imply the you see the tax coming to run the -- side and not the demand side of? -- side? kevin: it's useful to think about how much of a stimulus is this and if we look at the series of forecasts from different institutions, some of the think tanks in washington, forecasters like myself.

when we look at the boost of growth about 3/10 or 4/10 of a percent, not by very much. it is not like it's a big stimulus. as people keep saying, the curve is flat. with a flat carbon a boost to growth, you will not see the impact on inflation. mike was telling me about neutral and says moving gradually towards neutral. but they will move above neutral. be --re really trying to restrain the economy's growth as a consequence. i don't think it will have to do that. david: to trade restraints a vector analysis at all? >> right now -- affect your analysis at all? >> if we do see those, we think it would probably be essentially like an adverse supply shock.

like an oil price hike where it restrains growth and moves up inflation. that leaves the fed neutral provided there is no followthrough effect on inflation expectations. right now we are seeing it as a wash. if we get these actual tariffs. thehould keep in mind here deficit may be a lot of smoke, but no fire. alix: that also implies with the long run late -- rates can be. the neutral rate doesn't actually move higher? kevin: we are moving up from zero. how far will we go? if inflation is just below 2% and the fed on my forecast takes a to 2.5, we are looking at real rate of about 50 basis points, 70 basis points. they will have taken the real fed funds rate above.

do that, they are likely to hold inflation down. alix: michael, what do you make of that? michael: i think generally i am not that far off. we both think the fed will need to go into mildly restricted territory. it may be closer to one, therefore neutral nominal. getting up to 3.5% by the end of next year. i don't think we have a lot of confidence in the estimates, what we do know is the economy continues to grow above trend even with the rate hikes in places that are probably still below. the other thing to keep in mind is that the increase in federal borrowing which will be pretty enormous in the coming quarters should up our stock. that mean yous see a recession, kevin logan? kevin: not in 2018 or 2019.

2020 becomes a candidate because by then fiscal stimulus will be fading, the fed will tighten a bit. we are the limits of labor market tightening. the economy becomes vulnerable. would be ay there recession, it just becomes more vulnerable. david: michael at jpmorgan and kevin logan and bloombergs mike mckee, thank you all very much. facebook's self-regulation days may be numbered. what to expect from mark zuckerberg on day two on capitol hill. we will talk more about the privacy issues and how it could change the tech landscape for other companies. you can turn on the radio and listen to tom keene and jonathan ferro. can hear them in new york, boston, the bay area, onhington, dc and all states

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♪ lix: this is "bloomberg -- >> this is "bloomberg: daybreak." ♪ it is day two for mark zuckerberg on capitol hill. he will be testifying before the house committee on energy and commerce. investors welcomed his efforts to defend facebook. it is now down 7/10 of 1%. our bloomberg technology reporter has been covering the hearing. my headline at the top of the , congressuckerberg 1

zero. walk us through what we can expect today. for akerberg prepared harder hearing that he got. a lot of the questions we heard yesterday seemed to not quite understand facebook's business model. there were some hard hitters and we did get zuckerberg uncomfortable at some point. especially a when asked if he would disclose what hotel room he stayed in last night, which he was of course shaken by. whymostly senators asked facebook sells its data to advertisers which of course does not do. there is a lot of misinformation involved and i am hopeful that today in front of the house, they had this hearing longer than the left -- than the senate did. that they are more focused on consumer issues than judiciary is. i'm hoping they will ask questions that are more on the nose. we willhanks very much,

be watching. you can see day two for yourself on bloomberg television at 10:00 a.m. this morning. itthat testimony yesterday, the facebook ceo apologized. >> right now a lot of our ai systems make decisions in ways that people don't really understand. that in 10 or 20 years in the future that we all want to build, we don't want to end up with systems that people don't understand how they are making decisions. doing the research now to make sure the systems can have those principles as we are developing them is certainly an extremely important thing. david: that use of artificial intelligence has been a key trend intact -- in tech. it has potential and many risks. besant --w is kathy

cathy bessant. you just heard what mark zuckerberg had to say about artificial intelligence in his part of the world. give us the sense of some if wes it might pose don't understand the way ai is working. cathy: i think it is unmistakable that the power and potential of artificial intelligence to literally make the world a better place for people, for businesses, that potential for growth and prosperity is unmistakable. with that comes some other risks. risks around workforce transformation, the potential for human bias. the absolute need for , a legal and judicial framework. i could go and test on and on. the important thing about the creation of the council and to make sure the discussion is balanced to make sure we captured the great opportunity of ai and at the same time specifically architected future that mitigates the rest.

david: let's talk about that counsel, the council on the responsible use of artificial intelligence. cool be on the council and what does it hope to accomplish? cathy: the purpose is to lead the discussion. we are proud to be a founder of the work we believe. it is very important to have harvard as a partner because they've been as adamant as we have been that we design the process and people in it not to achieve a particular outcome but really intellectual quality of the work. we are still only beginning the work of who will be on it. we don't have any predetermined thatmes in mind and to say driving force that kind of open discussion with diverse and inclusive membership will be key to getting the quality outcome we are all after. you are right in the

middle of this at bank of america merrill lynch. we know you have a vast tech operation. you are working on these things right now. how do you make sure as big and as fast as the us -- these are that humans still remain in control that there aren't decisions being made a human wouldn't agree with? cathy: your point is very important. a lot of discussion around ai is designed to make us think artificial or automated intelligence is better than humans and in fact it is a subset of who we are as humans. so at the company we not only but a lotous cases, of actual work going on already and it's important to ensure the fundamental quality of our data quality, data accuracy and understanding of how we are using data as well as strict governors that we pretty rigidly adhere to for how we , how we willodels

ensure there aren't unintended consequences. these things are very aggressive and very disciplined. to ensure that we get the goods for our customers and clients and we don't have the risk of unintended outcomes. to wrap this up coming back to facebook, is it realistic to expect artificial intelligence in part could help us fix some problems we see in social media? these are complex issues. cathy: i think there are a lot of important issues at artificial intelligence can help tackle. diversity and gender inequality for example, limiting bias from hiring potentially and getting better capabilities to serve clients and customers and give them the experience they want. there is no question there are issues around artificial intelligence can be a solution. turning the issue of how to use big data into a modeling and

algorithmic set of capabilities around testing and monitoring and ensuring that it is used as intended hold real -- holds real potential. david: always good to have you with us, thanks for being with us. alix: president trump says u.s. missiles for in syria. as we had to break, check out your bloomberg terminal, you can watch us online. interact with us directly. this is bloomberg. ♪

♪ a potential contagion in emerging markets. u.s. sanctions of a race nearly 530 million dollars in market value for some big creditors. bloomberg intelligence fixed income strategist joins us now. where is vulnerability in russian assets? yield curveeen the

and rates explode in russian local debt. so far it has been relatively mitigated. it is mostly russian corporate's and monitors. looking ahead we are trying to look at where have sanctions not hit. and which ones might be subject to future risk and where is that premium being built into markets. financials may be at risk. david: commodities and finance -- alix: commodities and financials. does it spread? or is it a russian specific story? damian: it is fresh in people's minds. now you have syria thrown in there. there is a lot of noise. there is a lot of risk of their and a lot. alix: is it turkey?

broader emerging markets? damian: turkey is definitely feeling it. it is the worst performer year to date, second is russia. they both exploded this month on all this news. ,n terms of the ruble and lyra both which are falling out of bed relative to the dollar. equities are taking it on the chin. thank you so much, bloomberg intelligence, good to see you. david? alix: -- david: we can confirm that speaker of the house paul ryan will be stepping down from his position and will not run for reelection. the speaker paul ryan will no longer be running for house and therefore will not be speaker of the house. a very important official stepping down. alix: is this a surprise?

i feel like he didn't want the job to begin with. there has been so much dysfunction. david: he never wanted the job to begin with and it's the worst cap surprise in all of washington. it has been reported several times. earlier he had been telling people he was not happy. it is a big position. alix: entirely true. , priya misra on this risk off day. the s&p futures now off by a tenths of 1%. the selloff also in europe as well. buy the yen, buy gold. this is bloomberg. ♪

jon: from new york city, i'm jonathan ferro. 30 minutes until the start of trading. this is the countdown to the open.

coming up, russia, get ready. trade tensions replaced with geopolitical ones. as thek stock rallying ceo faces bipartisan grilling. vindicating a federal reserve riskng for price change -- aversion dominating equities once again. we are down by 22 points. euro-dollarrket, from her up to 1.376. at 2.76 inng in the united states. a single tweet warning russia to get ready because u.s. missiles will soon be sent into syria