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[00:00.000 --> 00:06.000]  received about 26% of the vote. South Bend, Indiana Mayor Pete Buttigieg was a close second
[00:06.000 --> 00:11.240]  followed by Minnesota Senator Amy Klobuchar. Massachusetts Senator Elizabeth Warren and
[00:11.240 --> 00:16.960]  former Vice President Joe Biden finished well behind.
[00:16.960 --> 00:21.720]  That cruise ship that was barred from docking in four countries has found a place to disembark
[00:21.720 --> 00:27.080]  the more than 2,200 people on board. Operators of the Westerdam say the vessel will dock
[00:27.080 --> 00:33.760]  in Cambodia on Thursday. The ship was turned away by Thailand, Taiwan, Japan and the Philippines
[00:33.760 --> 00:39.120]  because of fears that those aboard could spread a virus that originated in China. Holland
[00:39.120 --> 00:44.280]  America Line says there are no confirmed cases on board the ship.
[00:44.280 --> 00:49.120]  In Germany, the search to replace Angela Merkel as Chancellor is getting underway. Pressure
[00:49.120 --> 00:54.240]  is growing among Germany's conservative factions to speed up the process to choose a candidate
[00:54.240 --> 00:59.120]  for the next election. Chancellor Merkel's heir apparent shook up German politics Monday
[00:59.120 --> 01:03.800]  by declaring she would step down as the governing party's leader. Huawei technologies of being
[01:03.800 --> 01:09.760]  able to tap into mobile phone networks. National Security Advisor Robert O'Brien says officials
[01:09.760 --> 01:15.760]  believe the Chinese company uses back doors designed for use by law enforcement. Huawei
[01:15.760 --> 01:21.440]  is rejecting the allegations. The Trump administration has been urging allies to bar Huawei from
[01:21.440 --> 01:27.600]  their networks. Global news 24 hours a day on air and on quick take by Bloomberg powered
[01:27.600 --> 01:35.120]  by more than 2,700 journalists and analysts in over 120 countries. I'm Mark Crumpton.
[01:35.120 --> 01:52.920]  This is Bloomberg. Live from Bloomberg, we're all headquarters
[01:52.920 --> 01:57.880]  in New York. And live in Toronto, I'm Amanda Lying. Welcome to Bloomberg markets. We're
[01:57.880 --> 02:03.720]  now joined by both our Bloomberg and our BNN Bloomberg audiences. Day two for Powell, the
[02:03.720 --> 02:08.800]  Fed share continues his testimony on Capitol Hill, striking a dovish tone. What is remarks
[02:08.800 --> 02:13.080]  on the central bank's efforts to increase labor force participation could mean for
[02:13.080 --> 02:18.320]  rates. And another day, another record US stocks are in the green with the S&P 500 and
[02:18.320 --> 02:23.160]  the Dow Jones industrious climbing to all time highs. Treasury yields have advanced
[02:23.160 --> 02:29.920]  in lockstep crude climbs oil inches above $51 a barrel, even as OPEC slashes its forecast
[02:29.920 --> 02:37.520]  for global demand. And US inventories were above estimates. Let's get you started with
[02:37.520 --> 02:40.960]  a quick check of our markets are trading in the afternoon session. We are seeing risk
[02:40.960 --> 02:46.640]  on sentiment with US stocks at a record high. Treasury yields also rising at the same time.
[02:46.640 --> 02:52.720]  We are seeing the S&P 500 being led higher by consumer discretionary and energy stocks.
[02:52.720 --> 02:57.360]  Interesting oil is still above $51 a barrel, despite the fact that OPEC came out and slashed
[02:57.360 --> 03:02.360]  their forecast for global demand this year. Not to mention that US inventories are higher
[03:02.360 --> 03:06.000]  than expected, came in higher than expected. We're seeing the Dow gaining seven tenths
[03:06.000 --> 03:09.800]  of one percent. Of course, we're seeing a little bit more optimism given that we are
[03:09.800 --> 03:14.360]  seeing the spread of the coronavirus slowing down. In fact, when it came to Hubei province,
[03:14.360 --> 03:21.040]  the epicenter of the outbreak, we saw the lowest number of new cases this month. Still
[03:21.040 --> 03:24.720]  worth mentioning that there is uncertainty out there. Of course, the virus death toll
[03:24.720 --> 03:30.240]  has topped 1,100 already. Not to mention that we are seeing this deep slump in the industrial
[03:30.240 --> 03:34.800]  production continuing in Europe. Take a look at this chart because if you want to hedge
[03:34.800 --> 03:40.360]  amid this environment, the yen might be a better option than gold. At least it would
[03:40.360 --> 03:45.520]  be a cheaper option. You are seeing the skew on the yen against the US dollar, which shows
[03:45.520 --> 03:52.720]  bullish call options against puts. That now lower below that of gold. Morgan Stanley
[03:52.720 --> 03:58.720]  saying that the yen could be a better bet when it comes to hedging tail risk at the moment,
[03:58.720 --> 04:03.880]  Amanda. Really interesting. I want to show you another chart inside the terminal here.
[04:03.880 --> 04:10.400]  This is the S&P 500, its valuation relative to its 20-day moving average. We're now seeing
[04:10.400 --> 04:16.120]  it at the highest level that it has seen in 200-day moving average, pardon me, in two
[04:16.120 --> 04:21.120]  years. It's about an 11 percent delta here. Just in terms of where things stand on a valuation
[04:21.120 --> 04:26.320]  basis, getting lofty in terms of where it trades here. We do have some breaking news.
[04:26.320 --> 04:31.200]  Even as we see a calming down of concerns about the coronavirus, we learn that the Mobile
[04:31.200 --> 04:36.320]  World Congress has been canceled by GSMA because of that coronavirus. There had been participants
[04:36.320 --> 04:40.400]  who had already said they would not attend the Mobile World Congress. Perhaps this is
[04:40.400 --> 04:45.520]  just a simple reflection of the fact that it was going to be already affected by it.
[04:45.520 --> 04:50.600]  That is the news that we can now bring to you, that Mobile World Congress has been canceled.
[04:50.600 --> 04:54.360]  The virus, of course, was a topic for Fed Chair Jay Powell this week in his two days
[04:54.360 --> 04:58.840]  of testimony on Capitol Hill. Michael McKee, Bloomberg International Economics and Policy
[04:58.840 --> 05:04.200]  Correspondent with us now with key takeaways. Today, Mike, the focus does seem to be on
[05:04.200 --> 05:09.560]  that wage and the job picture. Just a big picture in terms of what you're hearing from
[05:09.560 --> 05:13.040]  Jay Powell. What's your biggest takeaway from it all?
[05:13.040 --> 05:17.240]  You start with the coronavirus and the Fed's inability to really put any kind of numbers
[05:17.240 --> 05:21.960]  on what kind of damage it might do to the global or U.S. economies. Jay Powell telling
[05:21.960 --> 05:26.880]  the Senate Banking Committee today, it should have a significant impact on the Chinese economy,
[05:26.880 --> 05:31.000]  but they don't really have good numbers yet. And of course, if it affects the Chinese,
[05:31.000 --> 05:34.920]  it will affect their trading partners, Powell said. And there may be some impact on the
[05:34.920 --> 05:39.480]  United States, but it all depends on how long it lasts. That was the news in terms of any
[05:39.480 --> 05:44.800]  kind of thoughts of what the Fed might do in terms of interest rates going forward.
[05:44.800 --> 05:49.080]  Much of the rest of the time was spent, as you said, on sort of political topics. The
[05:49.080 --> 05:55.560]  idea of whether or not the Fed can do anything to increase employment beyond what it's already
[05:55.560 --> 06:00.160]  doing. And Powell basically said, we're letting things run hot. We've learned our lesson. Inflation
[06:00.160 --> 06:05.600]  is not rising. We'll let it go and see how low it can go. But to really boost the economy,
[06:05.600 --> 06:10.120]  you guys up on the dais, the senators and representatives need to do more on the fiscal
[06:10.120 --> 06:13.120]  side. Yeah, when it comes to that fiscal warning,
[06:13.120 --> 06:17.600]  of course, also coming on the back of President Trump's new budget, which would really increase
[06:17.600 --> 06:20.880]  the deficit spending, what else did Powell have to say on that front?
[06:20.880 --> 06:25.880]  Well, he was asked about it and he said, you know, he worries about the deficit right now.
[06:25.880 --> 06:29.420]  Even though it isn't a threat right now, we're not seeing higher interest rates, but he does
[06:29.420 --> 06:34.560]  want to see it brought down over the long run. And one reason is, in the case of a recession,
[06:34.560 --> 06:38.000]  the Fed might not have the tools it needs to completely fight it, and they would want
[06:38.000 --> 06:42.920]  fiscal help as well. And with big deficits, he's afraid that the Congress won't be able
[06:42.920 --> 06:46.800]  to respond. And of course, all of this, we have to keep
[06:46.800 --> 06:52.320]  in the context that we don't yet know, Mike, the full extent of sort of damage done economically
[06:52.320 --> 06:57.160]  to business, even in some ways to confidence, although that may now be muted. How much do
[06:57.160 --> 07:00.880]  you think this is factoring in and we'll have to keep factoring into what the Fed is thinking
[07:00.880 --> 07:05.360]  as they watch data come in related to sort of global friction around Corona?
[07:05.360 --> 07:10.200]  Well, they will watch the data come in. Even if you took the coronavirus out of the equation,
[07:10.200 --> 07:14.760]  they would be watching to see if there were a positive reaction to the phase one trade
[07:14.760 --> 07:19.840]  deal and the idea that maybe the global economy had bottomed out. Now, we got bad economic
[07:19.840 --> 07:25.560]  data out of Europe today that suggests maybe Powell was premature in saying that. But they're
[07:25.560 --> 07:30.280]  going to be watching the data. They're in no hurry to change rates one way or another.
[07:30.280 --> 07:33.720]  An interest rate increase is off the table. But whether they would cut rates like Wall
[07:33.720 --> 07:38.120]  Street wants right now, that's not on their table. They're going to wait and see.
[07:38.120 --> 07:42.960]  Mike McKee, thank you very much for the latest on Chair Powell's testimony today in Congress.
[07:42.960 --> 07:49.400]  For more on the market reaction and the virus impact as well on the markets, let's go to
[07:49.400 --> 07:54.000]  Luke Howell. He's our cross-acid reporter joining me now here in New York. So we are
[07:54.000 --> 07:58.880]  seeing a positive sentiment across the board, stocks rising, yields rising. But how much
[07:58.880 --> 08:05.680]  of this has to do with anything on how positively Powell portrayed the economy and just virus
[08:05.680 --> 08:07.840]  concerns retreating?
[08:07.840 --> 08:12.480]  Probably a lot more on the latter there. Just in the absence of news flows surrounding the
[08:12.480 --> 08:18.320]  virus getting materially worse, we're probably going to move away from the kind of the depths
[08:18.320 --> 08:22.840]  of recession, fear type pricing we had and the 10-year yield. And if you look at kind
[08:22.840 --> 08:26.800]  of the range that yields have settled, then now it's been interesting to see pretty much
[08:26.800 --> 08:31.480]  if we hold this daily range, the past two days will be among the least the 10 years
[08:31.480 --> 08:36.240]  moved this year. So it's not only the fact that yields are kind of settling into the
[08:36.240 --> 08:40.720]  middle of what could be a 20 basis point range. They've tended to trade in ranges of about
[08:40.720 --> 08:44.640]  that and then have a crazy move in one direction or another. But they're also kind of calming
[08:44.640 --> 08:45.640]  down on the intrepid.
[08:45.640 --> 08:49.240]  At the end of the day though, are we just headed towards lower yields? Given that we
[08:49.240 --> 08:54.520]  are seeing these global growth forecasts and the impact that the virus is having, not
[08:54.520 --> 08:57.720]  only in the Chinese economy, but yields are rising, but we're still at 162.
[08:57.720 --> 09:02.520]  Yeah, exactly. These aren't necessarily high burn costs by any stretch of the imagination.
[09:02.520 --> 09:06.960]  No one's expecting them to get materially higher. However, you know, there is a sense
[09:06.960 --> 09:11.240]  and even as Powell does strike, you know, kind of a dovish note while still signaling
[09:11.240 --> 09:16.000]  confidence in the U.S., they definitely, as Mike said, they're in no hurry to lower rates.
[09:16.000 --> 09:20.760]  We got a signal overnight, I believe, from the RBNZ that kind of even they are not leaping
[09:20.760 --> 09:26.000]  on the train to necessarily cut rates in the face of the coronavirus. So the central bank
[09:26.000 --> 09:31.120]  response or the market kind of interpretation of how aggressively central banks will respond
[09:31.120 --> 09:36.640]  to that has probably been a little over overstated so far. So that as a driver of lower yields,
[09:36.640 --> 09:40.640]  probably not. But just the fact that growth and inflation haven't really picked up in
[09:40.640 --> 09:45.400]  years and aren't expected to, that's probably the more enduring trend.
[09:45.400 --> 09:50.320]  And then where does the correlation between equities and fixed income fit in here, Luke?
[09:50.320 --> 09:54.560]  So that's been interesting to watch that really snap back in. Cameron Christ did a good job
[09:54.560 --> 09:58.720]  of highlighting that this morning on the MLive blog. We have essentially now for a while
[09:58.720 --> 10:04.720]  early in January, stocks and bond yields were fairly negatively correlated. Their stock
[10:04.720 --> 10:09.600]  would manage to rise even when yields were falling. And this was essentially a software
[10:09.600 --> 10:14.760]  to the moon trade, even as cyclicals were fading. Right now, it's kind of the situation
[10:14.760 --> 10:19.000]  has flipped back to what you might get a little more normal, stocks rising, bond yields rising
[10:19.000 --> 10:23.400]  in tandem. And that just, I think that shows that you get to a certain point in markets
[10:23.400 --> 10:27.960]  where you can't make the valuation excuse anymore or you can't say that falling yields
[10:27.960 --> 10:31.720]  are just always and everywhere a good thing for risk asset valuations, because they were
[10:31.720 --> 10:35.840]  starting to really, really send a potentially negative signal about the growth outlook.
[10:35.840 --> 10:40.600]  And now as yields rise, it's more having to do with some of the tail risk, whether rightly
[10:40.600 --> 10:44.840]  or wrongly based on how limited information we have at this juncture kind of being abbed
[10:44.840 --> 10:45.840]  away at.
[10:45.840 --> 10:52.640]  All right, Luke. Luke Koa. Great to have you with us. Appreciate it. Coming up, lawmakers,
[10:52.640 --> 10:56.440]  Democratic and now Republican are stepping up their efforts to fight climate change and
[10:56.440 --> 11:00.960]  addressing the nation's aging water systems as high on the to do list. We'll discuss the
[11:00.960 --> 11:05.880]  evolving topic of water safety with Professor and Public Health expert Kellogg Schwab. This
[11:05.880 --> 11:07.320]  is Bloomberg.
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