We have steve ratner, who is with us often. He is one of the advisors. He is about to come here by himself in front of the committee on the tactical issue. We have a lot coming up. On the tax reform issue. We have a lot coming up. Similar story for stoxx 600, down by 3 10. Removing the currency market has truly been unbelievable. 1 buildingr 1. 1 on the rally we saw yesterday. Fourar yield now back by basis point. This is your safety check. Dollaryen down 6 10 of 1 . 112, a huge move. Oil trading on its own fundamentals up 3 10 of 1 . David thank you very much. We will set the stage now. We go to our chief washington correspondent, who is across town. Lets start with the facts. It is fair to say washington was rocked yesterday with this report that supposedly President Trump encouraged fbi director to stop the investigation into flynn. What do we know . Kevin it has been such a busy morning that i have not been able to get to the capital, but and irector james comey, am having trouble with my audio, having that connection with the fbi has raised a lot of questions. I spoke to a senior eight of a permanent member of the public and in congress who says quite frankly there is not confidence in President Trump at this moment. David if you can hear me, kevin, i understand that a congressman, who is head of the oversight committee, is demanding that they seek any memorandum from the fbi. Is that likely forthcoming . Can you hear me, kevin . Ok. We will now bring in our first guest. He of course covers banking regulation. We want to turn to you about the effect of what is going on, the drama over at 1600 pennsylvania avenue, and what that might mean for some of the banking the regulations that are so important the banking deregulation that are so important to the industry. There is the legislative track. That is in mortal danger right now. You have senator mcconnell on yesterday talking about changes to doddfrank. That looks like it is fading fast. Catch a form is in trouble right now. The legislative agenda is being drowned by the steady drip of crisis coming out of the white house. David we did have a majority the majority leader on yesterday who said he would want to have changes to doddfrank, but he would need the democrats. Is that because the democrats just one play or because there is too many distractions right now for the white house . Brian it was already an uphill battle beforehand just as a primer for some viewers who may not be familiar. You need 60 votes in the senate to pass most legislation. The doddfrank changes would require 60. That means republicans will have to get eight democratic senators. It was always going to be a high hill to climb. The current crisis, the current city flow of crisis steady flow of crisis out of the white house makes it tougher. Democrats are looking forward to 2018. They are seeing their chances of regaining Congress Know up every day. Republicans are probably going to be running scared over the next few weeks. 8etting those democrats that you need, that republicans would need to collaborate with them, is probably a bridge too far. David in the end it proves to be too difficult given the climate to get the big changes to doddfrank, are there lesser changes that can get through this congress . For example, the point at which something is designated a systemically Important Institution . Brian i think consciously optimistic for that limited change in doddfrank. I have made an argument that actually a good fit in a reconciliation bill, which is a whole separate conversation. But i think the governing by crisis, the daily flow of scandal coming out of the white changes,es even modest bipartisan changes like changing the threshold tougher and tougher. I am growing more pessimistic that congress is going to raise the threshold. Lot of a negative for a regional atlarge Community Banks looking to break above the 50 billion mark. David you know washington. You follow it closely. What is the chance that actually we are caught up in the moment of the story, which is very hot in washington, in the media . With time, this can be put behind us, and we can get back on track with more fundamental changes. Particularly if there is a committee. Brian that is why i said in a note to clients overnight that talk of impeachment is premature. I dont want to get caught up in the moment. However, we are early in the Trump Administration, but become administration and the president himself has not shown an the ability to learn from past mistakes. They are compounding their mistakes. Yes, we might be getting caught up in the moment, but it is very tough at this point to see a white house that is ready to reorganize, put this behind them, put out a public apology, and then follow the apology with a new course of action and a new modus operandi under which they act in a normal fashion. The president was elected to stir things up in washington, and he surely is, but it is not in a way that is a cop as anything. Ive but it is not in a way that is accomplishing anything. I think we are headed down a path that will lead to a couple of years of gridlock. David go back to the other side of the equation, the regulatory reform. Regulations without the need of congress. How much can be done . Is Steve Mnuchin and gary, are they moving forward . Brian the president a couple months ago mandated a report from the Treasury Department on doddfrank regulations, how effective they are, what changes might be needed. We will probably get that in june or later. It could come out in a series of reports. The banking regulators, once trump nominees are in place, and follow up on some of those regulations. There is an opportunity to make additional changes to the stress testing regime. Former governor already set the motions. You can see some changes in the role. A rule. I think you can see some changes their. There. There are positive changes for the Banking Industry that are possible at the regulatory level. For that reason, i am still modestly optimistic that the Financial Sector is going to benefit from a trump presidency, but certainly on the legislative side, it is tough to see what relief is coming from. David you said something critical in that answer, which is when the Trump Administration gets their regulators in place. Of the problems were having right now involving mr. Comey actually interfere with the possibility of a Senate Confirmation of the vice chair of the fed . Brian the vice chair of the fed may have a residency problem because one of the people being floated for that position may come from the San FranciscoFederal Reserve bank, where janet yellen already represents, and there is some legal questions about whether you can have two members from the same district. But getting the rest of the nominees in place, thanks to harry reid last year or a couple years ago changing the senate rules, you need a simple majority. I think republicans at this point can still hang together to get the president s nominees across the goal line. It will take longer. They will probably need to be there will probably need to be a little more handholding. I think those people will be in place overtime, but it takes time. The chairman of the Federal Reserves term does not end until february 2018. There will not be a trump appointee running the fed, and that is a critical spot, until early next year. David sounds like overall, you are cautiously optimistic on the regulatory front. Brian yes. That is a very fair way of putting it. I remain cautiously optimistic that the trump regulatory agenda remains on track. The legislative agenda is being derailed. David brian gardner, thank you so much for joining us here in washington. Back to you. Alix thank you so much. Coming up, more on our top story. A full line of guests to react to washington this morning, including a key member of the house Intelligence Committee. In the market, here is where we stand. It is Political Risk that spreads to the u. S. Dollaries and the broadly weaker across the board. Money flowing into the annex. Vix up. Gold up. Oil up as well. This is bloomberg. This is bloomberg daybreak. I am emma chandra with your Bloomberg Business flash. Comparable sales analyst unexpected at a discount estimatesand it beat coming of a target some muchneeded momentum. In refurbished more that 600 stores and introduced new store brands. American businesses will cash in one President Trump visit saudi arabia this weekend. According to people familiar with the matter, the oil company will sign agreements with at least 10 American Companies. Among them, general electric, halliburton. The deals call for the companies to open manufacturing parts in saudi arabia and train local workers. In the u. K. , a completely privately owned bank once again. It was mailed out in the middle of the financial crisis. It has sold its last remaining shares. The treasury made more than 1. 2 billion on its original investment. That is your Bloomberg Business flash. Alix thank you so much. In the market, the move is what the dollar. Joining me now is mark mccormack. What do you make of the dollars slide . Mark i think it is a mix of a lot of things. We have d. C. , a trump premium being built into the dollar. U. S. Dollar is trading below where it should be from interestrate differentials of the u. S. Versus the rest of the world on a two signal move. The u. S. Is creating this high level of discount around the dollar, but it is coming at the same time that they are Getting Better data out of europeans and outside of the rest of the world. What we are seeing is a lot of a headline risk people were focused on in the beginning of the year in europe is subsiding. Europe seems to be moving in a different state. The economy has grown twice the level of potential gdp. Seeing the same thing out of japan. What we are seeing is the negative tone for the u. S. Dollar is building up. Alix fairpoint. We were talking in break what if what happened in d. C. Happened six weeks ago or eight weeks ago . When we see the same kind of stress in the dollar . There is that worry in the market as well. Mark i think the focus has been on the buzz with people talking about the divergence of soft and hard data. When those things get reconciled. Soft data moves to where the hard data is that. We got to the heart data last week hard data last week. Guard. Lot of people off the big deal with inflation is there is a lot to parade factors in that report. You have telecoms changing the way they price out their business models, which created a huge downside move in the way people have to pay for their cell phone services. The way we are looking at it is domestic prices in the u. S. Are running well ahead of the feds target, labor costs, those kinds of things. Alix today, we have eurozone cpi. Corp. , 1. 2 . German court, 1. 6 . That is still below here. Differential should tell you the dollar is moving higher. Is that a cue to buy the dollar . Mark our strategic view is we are sellers of u. S. Dollar rallies. The way we are looking at it tactically is we have these models we look at that we look at interestrate differentials, equity prices, those kinds of things. All of the major european currencies are trading two sigma models,es on those which tells you there is a lot of euphoria around the story in europe. A lot of the brexit stuff is priced in right now, but there is this big dollar discount, which is coming off of the back of what we are seeing in washington, but when you are also starting to see is there was pentup appetite for people to move back to the european markets now that we have the benign outcome of the french election. The way we are looking at the next few weeks, the fed will hike in june. We think they will hike in september. There is more ways of heightening financial conditions in the u. S. , which is generally beneficial to the dollar. Given hothe other thing to add o it, the entire Hedge Fund Community are short u. S. Dollars. Anecdotally, we have conversations with clients. The conversation is long emerging markets. Everyone is extremely pessimistic on the dollar. For me, that is usually the signal when we start to see the technical positioning of valuation moving in one direction. Essentially, we are starting to say when does the rubber band pop and the dollar starts to rally again . If you have a onemonth tactical view at looking at fx, it is a good time to buy the dollar. Alix buy dollar into the fed and sell rallies. Mark european currencies will move higher along with the yen. Our thesis is the dollar bull market is winding down. The drivers that lead to that is we are starting to see the rest of the world accelerate deion the capacity beyond the capacity of the United States. There is much more pickup in terms of growth expectations, growth potential, and when you start to look at harvard earnings data, europe, u. K. , japan, always countries are growing at twice the level of potential gdp, which in terms of is only looking at x, it growth coming from outside the u. S. You probably will see a drawdown of the currencies if we see a more risk off tone. We want to belong in euros, sterling. But also, we are looking for a big downside in dollaryen over the next year. Alix pivot into the shortterm , you are seeing the eurodollar futures move up a little bit as well. Conditions are tightening ever so slightly. Is there risk that the fed gets derailed again . Mark i dont think so. Alix why not . Mark what matters for the fed is the fundamentals. Where is the Unemployment Rate . Where is the expectations . If you look at monthly payroll growth, we are looking at a run rate of 170,000. Breakeven is 89,000. Youstic wage pressures, have unit labor costs, the strip median fed indicators, wage growth, all these things are at or above the 2 inflation target of the fed. You start to think of how a works, once youhillips curve are at full capacity to bring past that, all be domestic indicators move higher. Unless there is an extreme event in washington that changes the entire landscape, i think the fed is comfortable knowing that the fundamentals for the u. S. Economy is the potential is at 1. 5 , u. S. Economy is growing relatively close to 2 , and that keeps the inflation moving higher and probably hiking rates this year. Alix extreme event . Havent we got enough . Coming up, we are following all the development out of washington with a full line of guests, including Democratic Congressman mike quigley, the key member of the house Intelligence Committee. Dont miss the interview coming up in the next hour. This is bloomberg. Alix in the market, crude trading at 48 ahead of the opec meeting next week. What does that mean for market currencies . Still with us is mark mccormack. Traditionally, you would see oil currency sort of move in tandem with oil prices. We are not seeing that right now. Goldman sachs says they see a breakdown in correlation with oil. Mark the market has been focusing on the china story. China has taken the opportunity since the economy is going pretty well. It is going pretty robustly. We see is going around 6 . What i think they are trying to do is they are taking the option while growth is relatively stable to try to reduce some of the leverage in the shadow banking system. They are tightening monetary conditions at the same time they have allowed fiscal stimulus to work through the economy. China has now its to slow down because the tightening of the Monetary System is working through a little bit, but they have essentially tried to close the capital account and limit the amount of off low so you are starting to see the reserve go up. The story is about whether china is develope the bellwether. Markets piling into a onesided trade, which i think markets have kind of contemplated the two. We have hired citations we will get an opec deal later this month, which will lead to an oil rally. China is going at a relatively decent pace. Alix what about the Canadian Dollar . I feel like that is still leverage to oil. Some say the u. S. Dollar can be in oil currency. Mark yes, there are links to both of those things. What is interesting with canada what we have seen th last couple of weeks, canada with everyones hated currency. You have the nafta rules where we saw tariffs on lumber and every. We saw the Credit Rating downgrade of canadian banks. The Canadian Dollar went from one of the worlds favorite currencies three months ago, and everyone thought the bank of canada will hike rates this year, to now it being the most hated currency. When you look at over time, the beta of oil to the Canadian Dollar has changed dramatically. We have broken almost half the level we have seen in the beta. Essentially for a time from 2011 to 2014, the beta was negative, which meant Oil Prices Went up. That benefited the u. S. Dollar. Now we are starting to see the beta stabilize but it is well below the level we have seen historically. There is debate whether shale has priced out western canada and what impact will oil have on the Canadian Dollar. Alix real pleasure to have you here. Thank you very much, mark mccormack. Thanks very much for joining us. Take a look at target. 7 in premarket. Earnings were bad but not as bad as expected. Sales only falling 1. 2 . Coming up, we will speak with john allen. This is bloomberg. John fallon. This is bloomberg. Alix this is bloomberg daybreak. Here is where the markets than as they digest news overnight about another issue for the Trump Administration. S p futures software down by about nine point but off the lowest of the session. At one point, we were off like a religious. Euro stocks down. The 10year getting a big move down by about three basis points. Buying all across europe now spreading to the u. S. The dollar continues to get hammered. Big for the yen. Big for the euro. G