Classes for you. Futures in the United States, the s p 500 on a three day losing streak. Look at the euro. 1. 08. The politics, the risk diminishes a little bit. A confluence of different pressures taking us there. Alix part of that has to deal with the new pressures. The pound, look at that, 1. 24. That is up 0. 8 . Gold is going nowhere. It is treading water. Crude oil is up about 0. 6 . Jonathan we start with the French National debate last. Macron and le pen coming out on top. Our Deputy Europe chief covers french politics joining us now. Lets start with macron. Where did he strike his blows . I would caution you on saying this is an actual win for him. He went into this as a potential frontrunner, tied with le pen. What he needed to do was maintain that position. It is fair not to say that he maintained that position. Two polls since the debate last peoplehow that 29 of thought macron did best in the debate. That is better than anybody else. That is a good thing. He probably consolidated his face more than actually gained new voters. Jonathan what does he need to do from here . Macron need to maintain their positions as frontrunners. Fillon was looking for a breakout moment. He was trying to present himself as president ial and experienced. He did come across as president ial and experience. In order to catch up to macron, Something Else has to happen. What else he can do at this stage to make that change occur. Alix how many are undecided at this point . About half of the electorate is undecided, which is massive. If you look at the numbers, in the polls, the pollsters ask if you were for le pen, how sure are you to vote for her . The numbers ourselves. It percent say they are 80 say they are maintaining that vote. With fillon, you are at 50 . There is a lot of fluctuation here. A lot can happen. Jonathan great to have you on the program. Appreciate your time. Joining us is the wells fargo head of global strategy. Jordan rochester joining us from london. Lets start with you and talk about the fx markets. A squeeze on the euro. Do i still need that hedge . Maybe my College Educated french was not up to scratch, but i agree with mark that it was not such a grand slam. Lets go back to donald trump and Hillary Clinton. 10 minutes in, dollar mexico was already heading lower. The market was saying donald trump is not winning that debate. This time around it is different. The polls are nowhere near as close with Hillary Clinton and donald trump. Balancing this risk about le pen in the breakup risk of euro, we think euro gets to 115 this year once the french elections are out of the way because the ecb story is massive. This is a huge impact. That is why we think eurodollar should have higher. If we close above 1. 08 today. We are about that range. That does not close the 1. 08 since november of last year. Jonathan when will we see an aggressive repricing of the bund curve . Seen a little bit of repricing. You are seeing 10 year moving from 15 basis points to about 45 basis points in the last three months. You will start seeing some tapering effects strongly. The next question is when will rates follow with that . Taking this point and putting it into this bond s pread, it is about 65 basis points. That is where the danger is, anywhere above 60. How much uncertainty you think is priced into this spread, and how much will need to rerate . Not enough. Unfortunately, we are underweight developed market debt. If you look at the story domestically in the u. S. , you taperingve off of and into higher rates. You see that as europe is moving into tapering. We expect them to move more significantly into tapering. If you take that as a precursor of what happened in the u. S. , you will see higher rates in europe recent. Jonathan looking at the currency market, ubs is kind of with you. A euro target of 1. 12. The only thing stopping people buying europe right now is the french election. Talk to me about the flows that are pentup waiting to go into europe if we clear this hurdle. The japanese flow story is interesting. You have seen buying from the japanese side. The past couple months, you have seen a lack of french fine. Of thee election out way, you will see a rally in favor. Like we said, the ecb story is still a cell. People will take advantage of that straight after the election. Alix how do you deal with volatility . Where do you want to be positioned over the next few months into the election . Fascinatingolutely what is going to happen in the next few weeks. From the first of april, what we will start to see is a lot of people leave there is a chance Marine Le Pen goodwin. Tap on yournt that shoulder from your boss saying you have too much risk in this event, you were burnt on trump and brexit, you should take that risk off a little bit. Will we will see into the election is a big spike in the events premium so people will be rolling their hedges and say it is not going to happen, but just in case. When you see that mechanical rolling of your pages and the fx this goes higher. Maybe the events premium of le pen is going up, while each time into the scottish referendum, u. K. Brexit, donald trump, you see that spike higher three weeks beforehand and two or three days before he had a cell up as people take advantage of that high level of implied volatility. We will see a similar pattern, but maybe less because the polls are not as close. Jonathan there is a was going to be Something Else. Across the bloomberg right now, setting a date for grexit summit on april 29. We have two years of this to come. Is that i think u. K. And brexit is specific to that side. Rather than affecting the eurodollar, it is more of a cable story. I dont think the brexit story is going to hinder people buying european assets. What is all about u. K. Uncertainty there. Im still trying to find a reason to buy sterling. When everyone around you is a green, that is usually assigned to get out. A lot of people are agreeing sterling is going lower. Year,rowth of 4 year on but we are not there at all. Alix on days like today, if you are short sterling, it is the pain trade. If you look at what is happening in the bund market or the treasury market, the short trade has been the pain trade. If we get a stronger ecb taper, what is your playoff of that . We have seen that short trade spike up. We saw a Standard Division of roughly three standard deviation event earlier this year. It has spiked more significantly than that. Although you might see shortterm rates moving up. I believe is you will not see intermediate or longterm rates move significantly because of that short trade. Alix great stuff. Jordanrusnak and rochester. Later, paul quinsee, jpmorgan asset manager, this is bloomberg. Bob dudley speaking earlier today. That is leading up to chair yellen on thursday. Chicago fed president evans says he can support two or three rate hikes this year. Minneapolis that present the lone dissenter. Bloombergon television. I look at this as repeating the same mistakes over and over again. I think we are behaving as though 2 is the ceiling rather than the target. Im hoping to remind my colleagues to step back and not repeat the same errors. When the data calls for, we should move. Jordan rochester and George Rusnak. It seems the market is agreeing with evans. The market agrees with fed chair janet yellen. I think it is fascinating how the market reacted. The dollar should not have sold up as aggressively as it did. It tells me that the market really needed to hear the words three or four hikes not two or three. I think eurodollar higher. Cable is trickier. Sterling should underperform. The fed is not pushing the dollar here. It is about the fiscal policy. Alix same question for you, george. Is this monetary conditions or capital flows or vc . I think it is a little bit of both. We are transitioning to looking not just to Monetary Policy but physical policy. I believe is Monetary Policy will be a little more passive and reactive to the market. We expect to rate rises this year. If you look at the path of when they raise rates, it is when they have best conferences. Have press conferences four times a year. The first one was in march when they raised rates. The next one will be in june. I believe is they will likely hold off in june and look to another rise in september or december of this year. They just raise it in december and march. Jonathan they were not reacted this time around. Then let the market in an aggressive way over two weeks with aggressive speech driving rates higher. Why wont we get another repeat of that . That is a good point. Since every 10, the expectation of a rate hike was only around one third. That moved up significantly over three weeks. Part of it we believe is the market drove them to raise rates. It led them to the idea that if they raised rates in march as we think they are gearing up to a june rate hike, it would not affect the market negatively. That is our belief. Therefore they raised rates in december and again in march, we think it is likely they will digest the data in june and hold off. Just listen tou the conversations that are emerging around the Central Banks right now, the Federal Reserve is having a real conversation about normalizing the balance sheet. The discussion around the ecb about navy taking the deposit rate to 20. We could see an aggressive repricing in the bond market. Curve. Seeing on the bund treasuries on offer. At what point do we have a bond that echoesout some of the stuff were hearing in the fed and ecb . If we take a page out of 2013, what really happened was you had a huge taper tantrum. A big amount of the premium went into the curve. The dollar did very well and had a big outflow from em. This time around there is that talk about raising the rates before they do any tapering. In essence it is still Monetary Policy tightening. We are going from very loose policy in europe to what would be less loose. That would be a big push for the markets. I think the ecb will be trying to avoid that. It is hard for yields to go lower. The only way to go is up. No rights are in a bubble, and when that bubble pops, it is going to have big reverberations in the bond market. What would happen to see that scenario play out . Inflation would have to pick up dramatically to see that play out. If you look up close and supply demand technicals, they are supportive of a low Interest Rate environment. If you look at differentials between u. S. Rates and developed market rates, there is a big spread. Roughly 150 basis points late last year of that to 200 basis points. We think that will keep that in check and not necessarily a bubble burst. We expect rates to and roughly where they are currently. Alix take a look at volatility for treasuries. That is going nowhere right now. What is your favorite trade in the u. S. . If the pain trade was short treasuries, what do you do . Things we think are operating in the market place, one is complacency. We think that is happening here domestically. The complacency factor of evaluating what happens in the market where you evaluate both monetary and fiscal policy has been a risk on environment. We have seen money flows into high yields and spread compression dramatically. Roughly 50 basis points away from fiveyear lows and not significantly away from 10 year and 20 year lows. That is roughly 150 basis points away from averages. We think high yields could back up here. As far as where you put that money, we think missable bonds offer attractiveness. There has been the idea that there may be lower tax policy. Right now if you are looking at it, it is actually a seasonal affect that happens around caps on were people sell municipals to pay for taxes. We think that could cause a backup in the marketplace. We see flows go negative over the next couple weeks. We think that is a Good Opportunity for longterm investors. Jonathan thank you for sticking with us. Sticking with us on this program, the ceo joining us from their investor day. Can you down to the market open, two hours. Futures are firmer. on the s p 500. You are watching bloomberg. Alix this is bloomberg. U. S. Regulators are talking to find Deutsche Bank and the Foreign Exchange market. That is according to a person familiar with the matter. They have agreed to settle the currency case. On monday, the banks that the Justice Department closed the criminal investigation without filing charges. Preparing a second takeover it for the european clothing company. Ppg 22ected the billion offer earlier this month. Fbi director revealed that the organization is best getting whether any trump says its collaborated with the russian government during the campaign. He said there was no evidence to back up President Trumps claimed that he was wiretapped by his possessor. Predecessor. This is bloomberg. Alix president Trumps Supreme Court pick faces a tough day of questioning in the senate. Democrats have accused him of backing corporations over people. Ron is a former Supreme Court law clerk, former senior aide to mr. Obama. We set up your resume there. What can you expect out of gorsuch when it comes to regulation . Yesterday was the overture. You saw both sides setting up the themes today. The real show starts with questioning in about two hours. On the topic of regulation, judge gorsuch is in a different place than his predecessor, Justice Scalia. He believed that one agencies were a lot of things, the court should defer to that. Judge gorsuch is a leader on a new way of thinking about that, saying the work should be more active in questioning regulation. That is one of the few areas where they differ. Youll see a lot of questioning on that today. Alix what regulation to be most at risk of thing overturned by mr. Gorsuch . You will see this on issues relating to energy and the environment. People will here today senators deference,ds chevron firstagency deference was created. Ironically enough, the centerpiece of that case was judge gorsuchs mother who ran the epa under president reagan. It is not a surprise that a lot of these deference issues come to areas where science is at the center piece of regulation, and that is often environmental regulation. Why watch Justice Kennedy . He is the Supreme Courts window. He was put there in 1988 by ronald reagan. Many people thought if a republican took the white house, Justice Kennedy might retire. The republican has taken the white house for the first time in eight years. How this hearing plays out with the democrats and republicans could be influential in his decision. If he leaves, it will set off about roy out for control of the Supreme Court. A conflict we have not seen since he was it on the Supreme Court in 1988. Jonathan thank you. We will be bringing you the confirmation hearings live and in full today at 9 30 a. M. Eastern time. Coming up, joining us from their investor day. That is later. We will talk brexit and pound cable rate that keeps squeezing higher. Youre watching bloomberg. Jonathan from new york city, this is bloomberg. Let me get you up to speed on the markets in new york city. Futures squeezing higher. S p 500 coming off of a three day losing streak. In europe, the banks outperforming. The electoral risk in france, the consensus view is that it is diminishing somewhat. The euro squeezing to a 2017 high. The bond market largely on offer this morning. Political risk diminishing on the margin. That is taking treasury yields higher on a u. S. 10 year. Lets get you up to speed on the news outside the business world. Emma the Trump Administration is imposing a new role and that travelers coming from the mideast and africa. They will have to store Electronic Devices or to the mobile phone in their checked baggage. They say the numeral is based on what they call evaluated intelligence. A former ira commander who helped negotiate peace in ireland has died, martin mcguinness. He later became one of the most Senior Leaders and instrumental in the peace process. He eventually became the deputy leader of Northern Islands powersharing government. Appeared for questioning in the first day in that Corruption Scandal that involved her government. She had immunity from prosecution while in office. Global news, 24 hours a day powered by more than 2600 , journalists and analysts in more than 120 countries. Thank you. The bank of england raises what you call a classic emergingmarket dilemma. Upside risk to inflation. The Downside Risks to growth have not materialized. The upside risks are materializing before our eyes. Cpi, theprinting 2. 3 fastest inflation growth since 2013. North of their target. Joining us from london, u. K. Economist dan hansen. Great to have you on the program. Talk me through what is pushing inflation in this direction. Good morning. There are a few things going on here. It is all focused on the good side of the uks cpi basket. , and one ofd, fuel the surprises is recreation and culture prices. All of those things together, taking them together, they are very sensitive to sterling. The u. K. Imports all those things. When you think about that, you are seeing the fall in sterling coming through. Is this fuel for the hawks . Are they saying i told you so this morning . Quite possibly. All of this externally generated inflation, domestic cost pressures remain muted. Wage growth remains very muted. The fact is she will still have one eye on that. It is worrying. Inflation is running at the same pace as annual wage growth. Real income squeeze is coming through. You can see that having a feedback affect on to the economy. That is potentially more than the bank of england was expecting this year. Jonathan the ecb was talking about whether this pick up inflation was transient or not. On the back end of this year, the basic facts are not going to be where they are. What does the