European open, the rally in europe, Deutsche Bank down another 4. 5 . The dax deep in the red. There are so much to discover this morning. Cehic. Et over to nejra a turkey will be pressing for concessions as the European Union meets over the refugee crisis. The eu wants turkey to stop the flow of refugees from the middle east in return, turkey wants money, a quicker path to joining the eu and the ability to travel to europe without visas. A Kurdish Militant Group has claimed this possibility for last weeks explosion in turkeys capital. The same group that claimed responsibility for a similar attack on turkish army officers. To fillt obamas choice the Supreme Court vacancy goes to capitol hill that it. Today. Mitch mcconnell says garland wont even get a hearing. Some republican senators and say they will talk with him. Global news 24 hours they powered by our 2400 journalists in more than 150 news browse around the world. As we watch the fed affect work its way around the globe overnight, it saw changes and evolutions during that time. In on thegth in asia back of the fed commentary being more dovish than had been estimated, with the exception of japan. If you look at what happened in , wepe earlier in the day did see gains in european stocks, but then they seemed to melt away. Seeing declines across the board in europe now. You can pin it on that last line here. , the ceobank yesterday coming out saying they are not likely to be profitable this year. Shares lower for a second day and other banks are following suit. The dax the worst performer of the benchmark suite been tracking in europe. , weakness in futures as well as investors contemplate day to a following the fed day two a following the fed. The strength we are seeing is in commodities producers. , crude oiler stronger, the fed seeming to indicate that it doesnt want further dollar strength. If you look at currencies around the globe, we have been seeing the dollar weakness versus its Major Trading partners. The dollar falling versus the end, the pound and the euro strengthening against the u. S. Dollar. Lets look at treasuries to see how they are doing now. Yields worked lower as the fed lot down to two increases. Interestrate rate futures to extrapolate the probability of rates going higher this year, in particular the june meeting. Yesterday, before the fed commentary, this probability was 55 . Today, under 38 . We see the markets ratchet back their expectations. We have to one individual stocks, that is caterpillar. The company with a forecast that is below estimates, reflecting further weakness despite the bounce weve seen in commodities. Stephanie janet yellen referred to the next gathering in april as live meeting. Fed fund futures continue to price one rate hike around december 2016. Jim carrey enjoins us. Joins us. Dean, lets start with you. Policymakers have scaled down there projected rate have to despite recent jobs come inflation data. What does this tell you . Dean how sensitive the fed is to Financial Market developments and develop its overseas. It is much less sensitive to u. S. Economic data, which happened firming. It is a different fed reaction function than what weve seen in prior years. Has emerged in the last 24 hours over whether the Federal Reserve has changed policy just a little bit. They shifted away from this notion that you can hike gradually as the data comes in. Is this a central bank that is about to run Monetary Policy hot and look for overshoot on the inflation side . Dean they are looking for some overshoot. For a large looking overshoot, but they are willing to risk that. They are concerned about the fragility of the u. S. Economy to the developments elsewhere and to Financial Markets. In my view, the u. S. Economy is not as gradual as they seem to think. It is there thinking that will drive policy. Jim we have to think that if you go back to the g20 meeting, what we are starting to see is courtney did centralbank policy action. Meetinged with the g20 results saying the banks dont want to see competitive devaluation and that is an important factor. The pdo see has been behaving nicely. Started to walk back negative Interest Rates and even the boj at the margin started to do the same thing and now as the fed is trying to follow through we are moving away from Central Banks individually trying to address the easing of financials. Trying to make financial conditions easier. We are seeing this in a much more coordinated fashion. And is remarkable right now one of the big changes we are witnessing. Jon what are we seeing since g20 . The ecb putting a lot more attention towards the credit channel. Moreederal reserve, a much dovish Federal Reserve than people expected. That theseo believe Global Leaders got together in shanghai and agreed to do something coordinated, what does that mean for the fed . Dean whether it was coordinated or not, the signal the fed is giving is a favorable one for risky asset investors. The fed is saying if markets run into volatility, the fed will scale back rate hikes relatively abruptly. That is a positive signal for those investing in equities. Here,nie bottom line when you look at Janet Yellens actions and what banks did think the do we volatility could quiet down following these two days . Dean the problem here is that theres always something to worry about. In the older days, what the fed would do is skim through these events and proceed as they wished. The fed is much more sensitive to those events. The policy will be much harder to predict because it will be quite abruptly changed from daytoday. Jon what does this mean for the bank stocks . Deutsche bank down another 4 . On the back end of last year, we said timing will be good. It is the yield curve, it is coming. Did not happen. Turn of the year, too much volatility, that is bad for banks. The banks are stuck between a rock and a hard place. Is that your take . Dean a number of factors are waiting on banks around the globe right now. In europe, theres worries about negative rates and how those will proceed. In the u. S. Can mothers questions about how much tightening the fed will actually do. U. S. , theres questions about how much tightening the fed will actually do. I dont think the u. S. Actual defaults are a big issue for banks at this point. Stephanie in terms of banks defaulting or not a big issue in terms of all the companies those banks lend to . We will definitely see defaults this year. Maybe not banks defaulting. Dean we will see defaults, no questioning. Im talking about nonbank defaults here. Those are likely to be less than have been feared at times in the past. Will see some difficulties in the energy sector, but when we look across corporate america, it is hard to see a massive wave of defaults looming right now. Jon we come into the Federal Reserve meeting and look at the spread between the Federal Reserve looking at for hikes and the markets and saying maybe one. Federal reserve looking at four hikes. Jim my view is it is oneto. 1 to 2. , they data gets a strong could go by june, but i dont think they will go to me, its either june or december. Its a question of how if financial conditions tighten too much, janet will not move. Shes happy to do one hike this year. Jon you look at the data, its hardnflation to say the fed is data dependent anymore. Stephanie when can choose the data they want to look at. You can paint whatever picture you want. Dean it is the case. , they need to hike not only the u. S. Economic data to be looking strong, the employment data, the gdp data rebounding, but they need Financial Markets to because to be calm and growth in the rest of the world to be promising. That is quite a list of things to check off. I think the fed will be raising rates later this year, probably more than the markets think. It is a difficult barrier to get over for the fed. Jim when we say data dependent, which data . How much does u. S. Data influence the fed . 10 year yields went down. Global economic data, whats happening in oil and commodity prices. Yes, there is the dependence. This is a bit of a change now for the fed. They are turning more global. Dean, thanken you for joining this program. Jim will be sticking with us. The situation in brazil escalated. Details on that, next. European equities, this market command to these in europe were up, then turned over. Now futures down by 35 points. By 55 futures down points. Nejra this is your Bloomberg Business . Bloomberg business flash. Caterpillar estimated fourthquarter earnings to be less than estimates. A been hurt by a commodities slumped. Talks in the u. S. About setting up two funds to pay for pollution linked to those emissions tests. American automakers are taking a big step aimed at avoiding crashes. They will announce today that vehicles will be built with braking systems to prevent crashes without driver action. That is your Bloomberg Business flash. Stephanie on to global go. Protests in brazil broke out last night as president dilma vow to turn around the government backfired. Her plan to appoint the former president as her chief of staff was an attempt to shield him from a legal probe. Wow. Is a at this point, can she salvage her relationship with the brazilian people . Thats what we are waiting to see. Last night was an unexpected development. The release of the wiretap dilma. Lula and ,eople took to the streets spontaneous protests broke out. 10 00ill be sworn in at a. M. We are waiting to see what happens. Wiretapping the president. Is this something weve ever seen before . Weve never seen this before. The judges said he was wiretapping lula and happened to they released tons and tons of phone recordings and couple of them happened to be with dilma. Stephanie from the brazilian perspective, it she is impeached, who would step in . Who do they support right now . Where are they looking for leadership . That is another problem because we dont really have the they havembers been implicated. We dont know what is going to happen next. If she is impeached through congress, the person who takes over is the Vice President , the largestt of one of the parties in the state. Theyve given her 30 days to decide what to do. We are following developments as they go along. Stephanie and following the markets. Are seeing the incumbent the Opposition Party being looked after, what does it mean for the economy . Brazil politically has been congresslock since focused on the impeachment process. The reforms are not getting done. At this point, we need to solve the political issue and then we can get to the economic situation. What a lot of people say also is that we are in a confidence crisis. You dont know where the government is. Stephanie what do outflows look like in terms of brazilian investment . The situation has been so fluid, we just dont know. Investments have been going down, stocks have gone up recently over impeachment prospects as Dilma Rousseff loses power come investors get more positive on the country. Now with lula being nominated, that has reversed. Investors got a bit more excited again in late trading yesterday. Stephanie that is more of an emerging market story. Could we see more investors push into emerging markets because of brazils unrest . Yesterday, when strategist there is no positive outcome out of this. Period. E no brazil, thank you for joining us this morning. , we are taking a look at what the feds latest rate outlook means for credit. We are seeing rates rise in the early hours. Jon yesterdays fed decision providing less support for the u. S. Dollar. Karen is still with us. You provided a chart of the trade weighted problem. Massive appreciation over the last 18 months and then this rollover of the last couple of months. What does this rollover worth . We want to summarize what the fed is addressing, what it is is a stronger dollar. The dollar has been strengthening since mid2014. 24 based on the trade when it index feds trade weighted index. It is appreciated a total of 12 . These are aggressive appreciations of the dollar. That hurts Global Financial conditions to the extent that think about all the emerging dollars ernal stronger dollar pushes oil prices. If the fed is trying to address Global Financial conditions, one of the ways they can do that is talk about lower rates, try to weaken the dollar to some extent and that should help. Jon this is stephanies world, the world of credit. Its not like the debt is being paid off. You get these portfolio effects, look at what the chinese are doing. Paying off foreign debt. What does it mean for your credit strategy . Jim we have to think about the linkages. What is the number one thing correlating . Oil. Note can say the dollar is going to strengthen as much, that means oil prices effectively should not fall as much as we thought they would come which would reduce some of the default risk. That is a strong positive for energy, especially the highyield energy sectors. That is the linkage that the fed is trying to address. A dollar strengthening too much too fast is not a good thing, not just for the u. S. , but not for the world or not for the financials. Jon what about the risk that the strengthening dollar is pushing noncredit investors into the credit market, causing those markets to get more crowded and tighten more than they should . Credit markets are not as liquid as government bonds. When the market turns like we saw in early january, we got a worse affect in the credit market and we should have. Jim if you get too many people into the credit markets, that will be a problem. Credit people are spreads have been widening. Look at any flow of funds and to credit, we need easier financial conditions. One of the channels to get financial conditions easier is to lower the cost of credit. Do you think about highyield, highyield spreads back in basisry were over 850 points with yields of 10 . Today, that has narrowed by 200 basis points just in the past month. But not enough. We need to see better credit conditions. This is happening in europe as well. One of the reasons the ecb has turned their qe policy towards try to support credit and help creditks in terms of creation. We dont want to force people into a market that is not as liquid as it used to be and then when there is a problem, there is a mass exodus. , at this point, the Central Banks are trying to support this asset class as a means of using financial conditions. Using financial conditions. Jon the conversation about the Federal Reserve willing to accept an overshoot in inflation, the market is not believe it and yields are lower this morning. Can you get a rally in the sovereign debt market and credit . Jim i think the reaction in u. S. Treasury and sovereign markets right now is really just , look, the fed took to rate hikes off the table. That will push yields lower. , treasury it right yields and Inflation Expectations should rise. Stephanie coming up, has the u. S. Gone too far in advising against written britain leaving the European Union . Jon hello to the beautiful city of london. 30 minutes away from the bank of england decision. Stronger pound on the screen. Bank of england, 30 minutes away. Fed reaction coming up on this program. Tune in, top of the hour, david westin sitting down with Alan Greenspan. Do not miss that. Caron. Jim here is mr. Tom keene. The morning to nejra cehic. Inra for the third time four weeks coming european leaders are meeting to discuss the migration crisis. They will be in brussels trying of the flowthe stem of migrants. There may be hundreds of thousands of migrants in north africa waiting to come into europe. Antigovernment protests have broken out in brazil. Demonstrators were angry that president Dilma Rousseff named lula to her cabinet. The move is seen as an attempt to shield lula from an investigation. May be warmer enough to spread the zika virus in new york and los angeles. The summer will be warmer than usual. The spread of the range in south america. Jon thank you very much. Politics and focus. I see the brazilian side of things absolutely phenomenon. Tom clive crook gets out the knife. Its inconceivable that the president or any u. S. President would even consider such an arrangement for america. Is it exaggerating when he says the u. S. Defense its own sovereignty hysterical vigilance. A point. , he has why is the president lecturing the greater england jon hes being encouraged by the government in the u. K. The government has taken a position and the present here is backing them. President here is backing them. This is a democratic decision for the people of the u. K. To finally get a say. Tom fair, it is a democratic decision. He can do nothing until this sent over until the brexit until this freezes over . Jim it is one of the biggest risks for this year. That goes thevote wrong way in terms of brexit, that could be a negative event, particularly for rising risk across europe. It could expand into the rest of the world. It is hard to manage and we dont think there is a high probability, maybe about 30 . Something to worry about. Tom Robert Felton was on this morning reading about raving about alans call way out front on rising yields. What we are witnessing in currencies this morning, dollarng the sing stronger. These things are really moving. the norwegian rate cut they dont quite make sense sometimes. Had some great calls and some bold calls on the fed and this is one of them. She has a call for one rate hike this year. With that tells you is essentially when we look at rates today, what she is basically saying is that rates are very limited in terms of their upside. Yields and they year at 1. 75 . Even lower than where they are today. Is that a positive for other market classes other Asset Classes . We have Inflation Expectations at modestly rise. We have Interest Rates that are relatively low. That is a good tailwind for credit and highyield inequities and other assets.