Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20171012

As how we trade. The dollar, flatter on the day. Less than 82 basis points. This is what the banks will hate. The vix under 10. A tough quarter for them. The morningfor brief. We are going to get weekly u. S. U. S. Priceims and index data. Trump is set to sign an order he says will promote Health Care Choice and competition. At 1 00, the u. S. Treasury will auction 12 billion in 30 year bonds. Emma little progress has been made in talks with the uks with the u. K. Much is deadlock over how the u. K. Will pay for the right to leave. Davis is urging leaders to take a step forward and move talks to trade. The death toll is rising from the wildfires devastating california. At least 23 people are dead. 180 are injured. Hundreds are reported missing. The fire has destroyed at least 3500 homes and businesses. Get congress to repeal obamacare, so he is going after it himself. He will sign an executive order that the white house says will promote competition. It will likely allow people to band together to buy unsubsidized coverage. Critics say the plan well raise costs for the sick. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Before we came to air, we got earnings from jpmorgan. Shares are dropping. Investment revenue was down 9 . Joining us is Allison Williams Alison Williams. Cost is one thing we are looking at. With revenue uncertainty growing, it looks like they did well on that front. , spot on. Me trading it is interesting when you can get that exact. Banking fees a little bit better. It is not surprising. Loanve heard slowing growth, that is something we are watching in the banks. As these clients are tapping Capital Markets, less loans but more debt fees. They are down in their trading. How are they making it up . The debt fees coming in stronger than expected. Interest margins are much better than one year ago. Vix is down 26 . Jpmorgan had one of the strongest quarters across the global period. Jpmorgan saying loans and deposits continue to grow. That relationship on loans and what you have to pay on deposits how will that evolved in the coming months and what what have we seen . Alison the interest margins start to pick up. That has been positive. Bit of asts, we saw a pickup. That stabilized this year. Banks have been releasing reserves. That is a thing we are watching, windows that pick up . When revenue picks up, that is good for your lending spread. We are looking at credit card. Good this year in terms of the ratio, coming down. We wont want to get underneath that and hear about more details we want to get underneath that and hear more details. Alix the card revenue is up 7 . There is a higher new accounting origination cost. Is that the sapphire card . Do they have to pay up to win over the consumers . Alison that is generally what we haves teen. What we have seen. Their guidance around the origination cost has been the upfront cost for the sapphire card. It has been a great product. The question is they are paying these cost up front, are they going to be able to keep them on my long enough to make a profit on that investment . Been talking about the lending slowdown. Total loans at a oneyear growth estimate. Jpmorgan is down about 4 . Other banks are faring worse. Walk us through what we are seeing here. Core loans are up about 7 . Where does that leave us in terms of lending growth . Ni growth has been a bigger worry. That has been slowing over the last couple of years. Some of that is tighter underwriting. Some of that is customers tapping me Capital Markets tapping the Capital Markets. The other part of that is the consumer loans. Picked it up. As auto lending has been a relatively big driver. Tanks are starting to pull back from that. Card has been accelerating. That is where the banks are fighting market share wars. In jaywant to bring pelosky. Great to have you on the program. Talking about bitcoin. Here we are, talking about the numbers. Jay on the banks, it is simple. Banks are ahedge hedge with upside. Can they do well in a rising rate environment . They have upside because of regulatory action. You are seeing easing of doddfrank. This market is built on return of capital. Significant to see return of capital. You have a hedge against a sharply higher Interest Rate. Banks benefit from that. You have upside from regulatory relief. Is attractive. Jon who will benefit the most . Jay that is tough for me. The main banks, i dont have a view. I have been looking at u. S. Banks versus european banks versus asian banks. The play has been outside of the u. S. Been in european banks, up 30 , double the almost double the performance of u. S. Banks. General, globally, they are winners from Regulatory Environment. They provide protection against rising rates. Alison it is a question of who is performing the best, who has the best upside to get there. Comingrsus europe, u. S. Out of their crisis earlier. A lot stronger earlier. European banks, people feeling better about it and people looking where the most upside is. Within the u. S. Banking universe, what we saw with capital return, we saw this quarter the fed giving clearance to go over 100 payouts. The combination of every body reaching capital ratio, very positive. The companies that to the group and bank of america, the ones with the biggest catch up. What is the number one headline we need to watch . Alison equities trading. We will talk about that later. Alix Alison Williams will be back at the top of the next hour. Jay pelosky of pelosky Global Strategies will be sticking with us. Coming up, Christine Lagarde at 10 00 a. M. Eastern time. This is bloomberg. Alix trumps meeting with john taylor, the short list of people in consideration to be the next chairman of the Federal Reserve. Kevin warsh is the leading candidate. Jerome powell is moving to second place, tied with janet yellen. Peloskymckee and jay still joining us. To me, this says a powell fed. What are you hearing . Jay this would probably be aj powell fed. It suggests one of the things that is in attribute of powell, he looks like a central banker. Trump likes those things. You could probably say maybe powell. Terms of his experience on the board, regulatory overview, which is to pull back from the regulations of doddfrank, he fits what the Trump Administration seems to be looking for. Alex is what about the relationship between the fed and the treasury . Mike it has been generally good. Ruben, theays of bob sort of thing that bill clinton adopted. This suggests may be Steve Mnuchin thinks he has a Good Relationship with powell. Does mnuchin think he can influence powell in the fed. The economy starts to grow fast and inflation picks up, how hard will the fed lean against them . That has to be a consideration. Said pull back a little bit. Trump does not talk about pulling back a little bit. Who isooking for someone a little more of a hothead than Jerome Powell . He is open to making changes. The fed cannot dial back everything. The question would be, would be fed chair support action on capitol hill. We dont know how powell feels about that. Cohen, the most deregulatory, the guy who came from the industry. He has slipped down the ranks of the possibles. David how was scheduled to give a speech. He canceled it. Do we read anything into that . Michael i dont read anything into that. Kevin warsh was also to give a speech and he canceled. Just be wise not to say a lot in advance. Alix harold hamm canceled something when he was supposed to be in deese the and i had bn d. C. When he was supposed and i had this whole story in my head and it did not happen. Of thist you think horse race . Jay not much. One of the issues in the next six to 12 months is the tradeoff between fed winding back its Balance Sheet, versus the possible trump tax plan. Bese two things, they will important. The market will appreciate someone with continuity. Jon the Federal Reserve, inflation and the latest minutes. It is set for a rate hike at the end of the year. The headlines from the appeared contradictory. Many said they are not sure inflation is going to pick up. The feeling would be you dont have an inflation problem, it is just at a low level. You might as well get rates back to a normal level. In the future, you may need to cut rates again. We havetes back up what heard from janet yellen, there is growing concern inflation is not rising and dynamics have changed. Alix a few want to wait until inflation was on a path to 2 . Charles evans. S he spoke yesterday. To 2 isg inflation important. Moving expectations by talking about it, we are willing to go above 2 if that happens. Inflationsymmetric perspective. We should push inflation above 2 . We have spent a lot of time below 2 . Michael of jpmorgan said the december hike goes from layup to free throw. What do you think . A free throw is better. The layup was easier, you are closer. Play basketball. I was a football player. What do i know . You know what you get with me. The market is expecting a rate hike. It is baked in. The fed has done a great job of communicating what it plans to do. The market has absorbed it nicely. It is a solid environment for the fed to move forward and give itself optionality on the other side. If they need to cut rates, the higher they start from, the better. This get a tax cut, economic recovery goes for another year or two. Rates can gently drift and the fed can do its thing and get us back to a better place of optionality. Jon jay pelosky of pelosky Global Strategies sticking with us. Michael mckee, thank you. The cable rate, lower. The chief brexit negotiator tells us something i thought we already knew. Brexit talks have reached a deadlock. Stick with us. This is bloomberg. Hsbc has made it official. They have picked john flint to be the next ceo. He is currently head of hsbcs Retail Banking and Wealth Management units. Oil stockpiles will fall this year. That is the First Time Since prices slumped in 2013. The rationale, stronger production curve. Surging supplies from the u. S. And elsewhere prevent inventories from dropping and that could limit price rises. Bmw is talking about outsourcing the mini brand to china. The automaker has been in discussions with chinas biggest suv manufacturer. Than 230,000 manys worldwide minis worldwide. Jon at best, brexit talks are going nowhere. At worst, they are going backward. In italy, election risk lies around the corner. Political skies are darkening again. Still with us, jay pelosky of pelosky Global Strategies. We peaked back in may. We seem to be treading water at the moment. Jay the markets have climbed a wall of worry all year. The only mistake is to not be invested. That has been true, notwithstanding brexit, the French Elections, it set her up. Spain French Elections, etc. An issue. Europe brexit is a plus because it drives inflation further. Macron workingnd together gives a unique upside over the next couple of years that the world does not have. Europeans driving integration, but i dont see it in policy. I see a lot of distracted countries. Emmanuel saying lets do something. Rajoy is looking the other way. Jay it is not a oneday event. The process is going to move forward. Is takinggration place, if you focus on the politics alone, you will miss it. Integration is taking place at the corporate level. M a is picking up. If you look at steel and rails, and the big one coming, banking. You see rumors about commerce bank. When you get europeanwide financial integration, the process is underway and it is going to be deeper integration amongst the political space. The guys in the boardrooms trying to decide the future over the next five years, they have to build champions to compete and protect their space against the chinese and the americans and to have the half to go out heft to go out and compete globally. David you are right. You are seeing really big deals. Market share has been tough. Going to recognize the threat of china . Jay you are spot on. Where europe is being a roadblock is technology because. Hey dont have tech champions if you look at the European Equity market, Technology Makes up 8 , versus 20 in the u. S. Roadblock is in technology because they dont have their own champions. I look for the digital Single Market in europe to come in the next couple of years. Jon jay pelosky of pelosky Global Strategies sticking with us. Ask this guy if he has advice for Governor Carney bank of england. E lesetja kganyago, that is coming up. Jon this is bloomberg daybreak. A little softer. Of 1 after2 10 closing at an all time high on wednesdays session. Organ coming out with fixed income trading profits. The banks are the underperformers. The loser on the dax today is deutsche bank. Stock on thening equity benchmark in frankfurt, germany. Market, Something Like this. A decent bid. Two basis points at 2. 33. Price subdued in effects. The cable rate is the one that makes the move. Down 6 10 of 1 on the following headline area brexit talks have reached a deadlock. I thought we concluded that over the last x months. David the last six months or so. Outs get you some headlines side the business world. The wildfires in Northern California have an area covering now cover an area bigger than chicago. Fires have destroyed at least 3500 homes and businesses. Wind is preventing firefighters from containing the fires. The situation will get worse before it gets better. Trump is promising his tax plan will save money for american families. Spoke in harrisburg harrisonburg, pennsylvania. He argues corporations get to keep some of their profits and will use some of the money to reduce wages. If he is found to be in violation of the law, he will be given three days to back down. After that, rajoy can force the cattle and government from office. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im emma chandra. This is bloomberg. They may get aid deal and they may not get a deal. To report on what could make or break the deal, we bring , andher David Scanlan kevin cirilli. To start with you. We had your Prime Minister visit d. C. And go to mexicos eddie. View from the canadian point of view. What can they agreed to, what do they have to walk away from . The Prime Minister will be. Appy he has been positive up until now that nafta can be reformed. Deal is indged this trouble. Chapter 19. Tecting this is the dispute mechanism that allows independent panels to settle issues around trade. That is important for canada. They have done well by that. Rules of origin are important. Trump would like to increase the number of spark plugs in u. S. Cars. Canada wants to maintain the levels where they are area supply management, a system dairy isy is where fairly protected. David lets go to mexico. What are the red button issues for them . Mexico has been clear the line in the sand is no new tariffs or quotas. The Agricultural Chamber has told me mexico would be dead set against any kind of limitation for seasonal trade on the agricultural fronts. Rules of origin is also a big issue, other reports of high rolls of origin and on in the automotive reports of high rules of origin in the automotive sector. By staying benefits in nafta. There is no reason for them to get up and walk away from the table. Our understanding is they are willing to finish out all seven rounds, bring the proposal to mexico city and discuss and a stay in the negotiation as long as they can. The biggest threat is if trump leaves before or during the president ial election of 2018, which could throw everything into disarray for the election here. There is no reason for mexico to leave. David given some of the things of origin,rd, rules dispute resolution, those are things wilbur ross has said is critical for u. S. To get concessions on. The administration and trump feels unpredictability is going to help. International dispute settlement boards, from the administrations perspective, they are focusing on dairy intellectualell as property rights. When you look at the comments of secretary ross, it is interesting to see how politics influence policy. It has states it has impacted include upstate new york and wisconsin. Unpredictability has been interesting. Press not have a joint conference from Prime Minister trudeau or trump this week. It has been interesting to watch. Everyone thought mexico and states had the most contentious relationship, but it is really canada and the United States. David what are the chances we have a 21 action going on with Justin Trudeau in mexico city . Is it possible mexicans and canadians could team up . Has said he is going to go to bat for mexico. He has to protect his own interest at the same time. If you parse trumps words, he said maybe we do a deal with one and not the other. Assuming they are talking about canada, not mexico. Long before there was nafta, there was a freetrade deal between canada and the u. S. A nafta falls apart, there is chance they will go back to that agreement, which candidate did well by. Ondeau has an upper hand mexico given that. David we want to thank our three were orders. Our three reporters. Alix still with us is jay pelosky of pelosky Global Strategies and Michael Mckee. From mexicoback city. What was your read on the ground . Changed mexicans have their strategy. They said they made a mistake by assuming the threat from the u. S. Was so great a needed to be afraid of the United States. Look ate taken a their trade situation and have said yes, they will stay at the table, not give trump any reason for them to walk away. If he walks away, they can live with that. Business ties are so tight between the companies, they dont think companies will move to sever the ties. The second, if you lose the go to wto. , you mexico, they can raise tariffs significantly higher in a number of sectors, including agriculture. To 35 on raise up corn and mexico buys about 30 of our corn. The hands weapon in of mexico. They dont want to use it. It would be bad for the mexico economy, but a are less afraid than they were of the president s bark. Rhetoric from trump, but you dont hear it from robert lighthizer. Some. S. Has tabled impossible demands, but maybe they are starting points. They work backwards from that. There is a chance it is a negotiating ploy and they will push forward on it. You just never know. As if i told you this is that is it was going to get into the administration, you would be happy, wouldnt you . Jay you are talking to the guy who recommended mexico as one of for 2017. Ve takes jon that is the shameless plug. Jay i love shameless plugs. Jon you can have a look at the performance. You will see the peso up about 10 , a live in percent. Jay mexico has been a great place for investors. It is a concern the peso has weekend weakened. Were trudeau, i would be worried. The relationship now between mexico and the United States as much deeper and more important from a business perspective, then the relationship with canada. If someone is going to take a hit, it will be the canadians. Ou have limited time we are running into a tight window. Something is going to get done. The American Chamber of commerce has said trump has to get something done. End, we are going to get a deal. It will not be significantly different and market will march ahead. From will it come executive orders or movement from congress or on nafta. We will probably see tom sign an order on health care. We will see trump signed an order on health care. Jay there will be a deal done. Nafta can be improved. Plus a 20yearold agreement at this point. We fixed some things and everybody goes ahead and is a winner. For mexico, it is important. For trump to get a win and keep the Business Community on side into the midterms is critical. David thank you for being with us. Jay pelosky of pelosky Global Strategies will be staying here. You can tune in tom keene and david gura on the radio on bloomberg surveillance. Live from new york, this is bloomberg. Linebargerg up, tom will be talking about master. This is bloomberg. Tech stocks have driven the bull market. It seems investors take the opportunity to buy more when they take a breather. Facebook and google, possible increase regulation and rough in washington and brussels. Is the cohead of the International Law form of law firm of weil, gotshal, and manges. Speculationot of these companies have gotten so big. The antitrust companies will have to break them up. What is the risk investors should take into account of regulatory action . Laws federal antitrust were passed back in 1890. Are in a Digital Economy talking about a different situation. There are misconceptions about antitrust. System, just because you are big and dominant does not mean you are subject to antitrust laws. Big is not equal bad. Why would you encourage companies to run the risk of competition if you turn around and penalize the winner . Being big is not an issue. Downave to break it between mergers and companies who grew through internal growth. Mergers is taken care of. The government has a chance to look at those in advance. How do they get there . Them over thee alternatives. There was Consumer Choice that led to it. Situations,hese they are platforms. It is a place where others in the market come to interact. If you arent cap developed if you are an app developer, you need a platform. Once it becomes big, the iteelopers want to wr there. Antitrust the lows with it because after they get the monopoly, the actions they take to maintain it can be exclusionary. David the sherman act was night was 1890. The nature of the business, their success comes from the fact they get so big so fast, they dominate an area and it makes it difficult for someone else to come in. That inherently anticompetitive . There is no room for the second person to come in. Kevin there is very little opportunity for others to come tend toother markets one player. Consumers like onestop shopping. I would not call it anticompetitive. Is it more efficient than the next best alternative . If you have fragmentation that lends itself to one or two players, that will not make consumers better off. David are they likely to get creative in dealing with the regulatory issues involving technology . Envy thedo not assistant attorney general. They have long histories following the conventional conservative republican. They are worried about false positives. You have trump on the campaign trail talking about we are worried about saving jobs and that raises costs are inconsistent. It is interesting to see how they operate. We caught up with scott galloway. This is what he said. I dont think the administration has the will or iq around technology to take on big tech. Big tech is smarter and has more resources. The regulation, the intervention of times is going to come out. Jon jay pelosky, should be worried about d. C. Taking on big tech . Jay Regulatory Risk is underappreciated by investors. It is a global issue. Tech has been the leadership sector for the stock market. If there is an underappreciated risk, investors will be at risk. It is a great opportunity to take profits and tech and reinvest it elsewhere. To old economy. We are in a up cycle. A great run. S been this is a risk. We should move away from it and shifted elsewhere. Alix thank you. If you have a bloomberg. Erminal, check out tv interact with us directly. Go to tv on your terminal. Emma passive investments may get a boost. Larry fink believes he is seeing accelerated slows into his etf. Says theew york mellon u. S. Will designed to improve quality could more than triple american etf assets in five years. In japan, a scandal keeps getting bigger. Bullet trains have been found with substandard parts. The parts dont cause safety risks, but failed to meet industry standards. Steel still in the news. Is theckland has administrator of the national Highway Safety administration. He joins us from washington, d. C. If you were at net said today, would you look into the nhsibility if you are at today, would you look into this . It is usually a proactive situation. When you get reports of possible things that would make a vehicle not compliant or defective. They should be looking into that as we speak. David how do they do that . It is more of a data exchange. They would ask for manufacturers to make a report or give up information about issues affected by kobe steel. It may take time to figure out what the components were and to test them. What you think about is whether or not the product has presented to the government and is the Motor Vehicle Safety Standards or whether it is Something Different than the standards and increases risk to safety. Every manufacturer has to look at those issues and report back to nhtsa. David would there be data that with has to match up possible accidents that have already occurred . You would have to look at crash reports on both vehicles. Which vehicles have the kobe components and whether or not there was a data indication that they had a higher crash risk than other vehicles. Then you go through a normal procedures and think about a recall. Sound like itnot is that much. Can you put in perspective how much can be in something that could be dangerous . It could be a complex component with a small amount of copper which sends an electrical signal. If that small amount of copper creates an issue with an electronic control unit or steering, that could be catastrophic. You have to look at what the purpose of it is and whether or makes 8 that proposes a Reasonable Risk of safety. Bankheadng up, the tv of north american strategies. From new york, counting down for the cash open, stocks closing yesterday at an alltime high. This is bloomberg. Jonathan jpmorgan kicks off earnings season on wall street, another dismal quarter for trading is not stop jamie dimon from posting higher. Our latest survey shows gary cohn falling further behind the pack. Brexit talks go backwards. Pressure turned up on catalonia. Political skies darken. Good morning, this is bloomberg daybreak. I am Jonathan Ferro alongside david westin and alix steel. Alix it looks like a beat on the top and bottom line, earnings coming in at 1. 2 four Cents Per Share 1. 24 Cents Per Share. This comes in line with estimates. This as jpmorgan came in a tiny bit weaker than weaknesses than we had thought. Investors windup digesting these headlines, it seems like the big call has been what is happening with loan growth and provisions. Ofathan Alison Williams Bloomberg Intelligence joining us. This is a perfect job in expectation management, isnt it . Alison it is remarkable how close fixed income trading is, given how volatile it is. At first glance, one of the positive things is equities, much better than expected. That does not mean much to the quarter because equity business as much smaller for them. I think it is important, strategically. One of the things they talked about was they want to grow that business, they want to be in the top five. They have made progress, they are in number seven, up from number nine. 3,we go into 2018, january there is a sense that a lot of people are going to implement that rule, globally. There is a strategic imperative for citi to gain shares and it looks like they are making some progress. We need to get through what happened with fixed income trading and then talk about loan growth. A 16 decline from last year for citigroup and for anyone following this, you can do this on the top live go function. Me, these banks are delivering drops in trading value, fine. Jamie dimon says this is like assessing over the weather. Is that necessarily true . Alison we spend a lot of time talking about earnings and the reason why is because that can be volatile, quarter to quarter. When you get a big swing, it is going to be in that line. Youre not going to get the same growth the same line in slow growth. You are not going to get that volatility. What is important and one of the reasons i am focusing on citis , you do not want to you do want to focus on what is happening, longerterm, and so we look at the trading results, that is what we want to know what happened and why it happened. And onehave trailed quarter, that is one thing but if there are underlying issues, investors are going to want to look at that and look for that to be addressed. It is a significant revenue stream. Investors are focusing on what asthe run rate, especially it is meaningful to goldman and cityi. Alix Retail Banking increased brandedr you had citi at 1 . sison the big story on citi north American Consumer is the cost of portfolio being more creative in the second half. That is something we are going to be looking at. It is hard to look at the growth for the overall portfolio. You want to hear about what is happening underneath and what the drivers are. Card has been an area that has been accelerating. It is very competitive. I have not had a chance to look at the charger. It is something we saw a bit a bit better than expected. That,trying to look at too. That is pretty typical. You are going to put up more money if you wind up loaning more money. Yearn 2016 was the first of reserve building for the industry after several years of relieving reserves after the crisis. That was driven by energy and this year, we have seen more reserve releases. A lot of that is due to more energy improving, but the offset is cards. Part of it is reserving for the future, so if you get better loan growth, you will have reserve building. Have talked anies lot about that, the increases in reserve building, due to growth. It does into next year, have an impact on overall provisions, just due to that reserve building issue. David we are seeing a little more reserve for bad credit on the consumer side. Does that tell us anything about the state of the consumer, or is it tracking with the size of the business . Alison when you look at the credit side, you want to look at two things. The overall provision was more, that is that because the chargeoffs were more were worth more than expected or because they are growing . 6 growth in their card business, so you are going to get reserve building for that. The building was a surprise. 50 million e within 50 million of expectations. The chargeoff rates for cards came down. That shows they are reserving for the future. We will want to hear more on the call. Is that growth, are you seeing more at the margin . They did have an accounting change in the quarter. That was about 60 million to 65 million. Optically, that might look like credit getting worse, but it is just accounting. Alix you see citigroup up by 5 10 of 1 . Joining us now from toronto is Mark Mccormick, td bank head of fx energy. Fx strategy. When you have a yield curve that continues to flatten, that is a hard thing to do. You want to think about it from an fx standpoint, it is like why is the curve flattening or steepening. You want to think about where terminal rates are, what it is across major countries and if you want to talk about the fed and the dollar impact, what we have seen is the best environment we have is if we get better flatteners. The 10 year coming down, that is a Good Environment for the dollar because it kind of suggest that the fed is suggests that the fed is tightening policy. The dollar tens to lag and i think that has to do with the growth dynamics that are happening around the world. In this environment, we are looking for whether or not the fed is going to develop and whether or not we will see some upside inflation. It is interesting with regard to this kind of outlook we have with a fixed income curve, whether or not we could see the curve flattening or steepen. Alix they are trying to pivot away from the line on their trading revenue and more into Consumer Banking and lending which is basically what jpmorgan and citi do. People have gotten overly pessimistic about goldman. They had huge trading shortfalls in the first and Second Quarter and they came out with a historic presentation just a couple months ago, when harvey shorts, the copresident used harvey schwartz, the copresident , use of the word of it. Word ticketsed the pivot. Alison they are turning to the consumer, incrementally, so it is not something you will see overnight. The entrance into the consumer business is a game changer for goldman because this is a company that historically has purely focused on the institutional markets. Even the retail part of their market is high worth and institutional. I think that was a change at the margin. It does Say Something about the is this and about goldman about the business and about goldman. You see ano environment that will enable them to ramp up the lending business . Alison that is a key question for investors. Is this a time to be entering the consumer business, but what goldman would say is we dont have the history, the legacy and as long as you are going into the business and you are underwriting for the risk, that is the most important thing. Where you get into trouble is when you are misjudging the risk. David you have not talked about cost for citi or jpmorgan. Alison jpmorgan looks really good. I think cost is becoming more important. Ratio, 55 . Ost that was better than last quarter and they are targeting the same 58 million they were targeting, before. Citigroup, we will see how their cost came out. Tickmight take up it up a little bit about the target ratio. I have not looked specifically at the quarter, but i am guessing that they were in line with that guide. David citigroup squeezed their course Third Quarter cost, 2 . Alison and then we are going to go on and look at the other side of that. Revenue perspective was better, i think that was the headline. If your cost and revenue are better, that is good for your overall profitability. Alix to recap all of these stories, they beat on earnings, on revenue. Equities revenue coming in much stronger. Theall, revenue for consumer global revenue, coming up 3 , to over 8 million. Much more coming up on all the big banks as earnings continues to trickle out. Thank you, Alison Williams and Mark Mccormick. Coming up later in the show, they World Bank President will join tom keene at 9 30 a. M. Eastern. Dont miss that interesting interview. David this is bloomberg. Minutesy, we got the from the federal open Market Committee meetings and although they did not do much to bring into down the rate rise in december, the markets remained relatively dovish. Bloombergs manus cranny spoke with Charles Evans yesterday on just that sus just that subject. Isgetting inflation up to 2 very important and moving expectations up by just talking about it and making sure we are willing to go above 2 if that happens, because we have a symmetric inflation objective. We should be spending some time above 2 just like we spent some time below 2 . David still with us from toronto is Mark Mccormick of td bank. What do the markets take away from this . Back,lation is not coming then there is no big rush to raise rates. Is that it . Mark i think that is the thing you want to think about. The term people are using is gradualism. There are many levers you could use. Stronger dollar, higher rates, and little more volatility over the past couple of years. The key outlook for whether or not the fed is going to do more or achieve what is priced in for the dot plot is based on inflation and i think what we got from the minutes is that there is a lot of debate about whether or not this is transitory or whether or not inflation is going to be structurally lower. Given the run through the the bull market has been, up about 35 . What the dollar needs here is higher inflation and higher inflation needs to translate into a much stronger fed policy over the next year and a half. What we are going to see is Global Growth continuing to dominate and the rest of the Central Banks are going to normalize policy because theyre they fail they feel their inflation mandate is know who is going to be sitting on the board, in a few months. Whoever is next year is going to be dealing with a very divisive fed and volatility is going to pick up no matter what because communication is going to become difficult. What do you think . Mark i think something that increases volatility is not having an up and a academic or phd economist at the head of the fed. That introduces a lot of uncertainty about what the policy function is going to look like. We are used to going back three and a half decades of having phds and standard economists running the fed. If we move into a new world where there is a new model for the fed chairman is not an academic, it does change the perception around the reaction function and what kind of rules they will follow or what kind of model they are going to focus on. That will create a little tension around the board and it will bring out a lot of different voices and that is something we see in reports and that is why the markets tend to discount a little bit because they ignore the noise signal ratio. Not a focus on a conventional or consensus driven type of model, i think we will see more volatility from a Monetary Policy perspective, which will seep into the broader fx market. Alix thank you so much, Mark Mccormick, staying with us. U. S. Growth growing a lot faster under tax reform. You always love to hear him talk because he is so opinionated. Lets take a look at tax reform. David fascinated with washington. He wants to get back to regulatory issues. Alix distraction, dont look at the number behind the corner. David coming up, tom linebarger. We are talking him about nafta. This is bloomberg. Emma this is bloomberg daybreak. The International Energy agency forecasted Oil Stockpiles would fall this year, the First Time Since prices slumped in 2013. The iea says surging supplies from the u. S. And elsewhere will prevent inventories from dropping further and that could limit price rises. Official, theit british bank has named john flynn to be its next ceo. Of thes currently head Book Management unit. Bmw is talking about outsourcing production of its iconic mini brand to china. The german automaker has been in discussions with chinas biggest suv manufacturer. In the first eight months of the year, bmw sold more than 230,000 minis worldwide. Jonathan across europe, Political Uncertainty has reared its ugly head. At best, brexit talks are going nowhere and at worst, they are going backward. In spain, more focus on an unruly catalonia and less focus on reform. Just as growth is picking up on the continent, the political scars political skies are darkening. Great column today on the politics in europe. I want to get a note on what you think of italy. What is going to happen through this week and why is it important . Mark italy has had three votes on constitutional reform, which has passed. Tomorrow, there is a secret vote where the legislators dont have to say which side they are voting for. The change is designed to favor Coalition Governments Going Forward. Antibeen viewed by the european there was a chance the government could fall over this. Legislators saying that the Prime Minister will have to go, so you could have a risk that the government falls in italy, over this constitutional reform. We have seen this, before. Jonathan so far, markets in europe have been resilient to any kind of political front or, whether it is spain or the recent election in germany. Should markets be more focused on what is about to happen in italy . Mark we got over the election in france, macron taking control of his parliament with a substantial majority. That was kind of a big speedbump that people were fearful of. With that out of the way, we looked to be free and clear. Angela merkel did not do so well. Youve got the situation in spain. This weekend, weve got elections in austria where the populist party, the Freedom Party which is very nationalist may gain some control in a coalition. The skies are darkening over europe. Investors have kind of the French Election gave people heart that populism was off the table. I think there is a risk we might see it, again. Jonathan a final note on the ecb. Politics is messy, but growth looks solid compared to previous years. How does the ecb approach that kind of dilemma . Mark we saw great Industrial Production figures and the economy has definitely grown. If you look at charts showing how economists have changed their outlook this year and the year after, it is a steady upward movement. The ecb is going to take its foot off the accelerator, but it is still adding to the Balance Sheet and it has been explicit in saying it will not raise Interest Rates until after the end of quantitative easing. It is still attracted to ease off the stimulus, but it is not putting the brakes on, anytime soon. Jonathan mark gilbert, thank you so much for joining us. I want to cross over to Mark Mccormick from td bank. The situation in europe, have we seen the high for eurodollar . Over as theed politics begin to bite. Mark i dont think we have seen the high. I do think the political situation creates Downside Risk for the euro. He saw over the last couple of months, some good news from the u. S. Side. Potential hawkish candidates coming to the fed. The fed getting ready to go in december. Downside risk coming from the european political side. What dominates the outlook for g10 is nominal gdp. Eurozone is growing almost three times its wealth potential. I think the scope of the euro is undervalued. I think we have more room to move higher. Jonathan Mark Mccormick of td bank, sticking with us. Coming up, e lesetja kganyago, the south African Reserve bank governor, joining us from d. C. This is bloomberg. Jonathan alltime high for the close in the United States in yesterdays session. 60 minutes away from the open. Futures down by about a 10th of 1 . The story in the bond market, a bit of a fit. The dollar to showing a little bit of strength against the euro, a whole lot more against the pound. Brexit reality bites in the u. K. Statesry in the united is is in Economic Data. Alix inflation picking up in terms of Producer Price index. Food and energy on the month is up by about 4 10 of 1 . Year on year reading is also higher, backing up to 2. 2 . Take a look at the job market. Initial jobless claims at 243,000, that is lower and low expectations. A strong job market continues. You are seeing some inflation pass through, but that is to be expected when you take a look at what has happened with Hurricane Irma and harvey as well. The question is what will that mean for the cpi numbers . From tdark mccormick bank joining us for some Quick Reaction numbers. That this give us any indication of where we are heading, tomorrow . Mark we know the data is going to be pretty noisy. The point i would make is to provide a bit of a signal of what we will get in cpi. It looks like we will get a pretty big move on the headline number but for the fx market, you want to focus on core inflation. We will need to see something above 1. 8 , to come in about consensus. You dont want to see numbers too large of a consensus, which would downplay the signal you would get from inflationary pressure. People are taking the inflationary data with a page of salt. A pinch of salt. The market basically took the dollar higher and has been selling it aggressively for the last four days. Domestic core side are your signal, but we need a upside surprise. Jonathan we head down to d. C. Were some of the biggest names in finance and banking have gathered for the Imf World Bank meeting in washington. Christine lagarde is calling for the creation of a more inclusive Global Trading system. Joining us now is lesetja kganyago, the south African Reserve bank governor. Great to see you, governor. Lets begin will usually begin which is upside and Downside Risk. You have the difficult task of managing upside risk to inflation and Downside Risk to growth. Which is more pronounced . When we try to think about the risks in south africa, still on the downside, although we did revise our growth from 0. 5 to 0. 3 . Next year, we only expect growth over 1 and that is not going to be enough to make a dent on unemployment. , therespect to inflation july, wehat we had in said that the risk for inflation outgrew the downside. By the time we got to december, we revised our inflation forecast, we assessed the risk for inflation to be more or less balanced. Jonathan how has that outlook changed, given your view on inflation, currently . Folding it with what has happened in the currency, does the weakness over currency curtail your ability to address those growth risks . Lesetja the currency had adjustments. It has come as a result of a global realignment in Exchange Rates. That droveme, the currency lower. But the currency is by no means driving inflation. Getting into the previous policy, our oil price consumption assumption was lower. The impact of electricity. Scenario nt a [indiscernible] regularity is they start to factor that into the inflation expectations. Jonathan how big is the scope of Interest Rates, now . Striking. T is very their forecast of Monetary Policy is to get inflation under control. It is because inflation is under control that you will have lower Interest Rates. About the Analyst Community at the moment, who keep saying to cut Interest Rates. Our forecast is always on the policy horizon and that horizon, we estimate to be between 12 and 18 months. What risk to us is having an adjustment on the policy, it has to do with our trade in terms of inflation outlook and in terms of growth outlook. Jonathan it is not the Analyst Community that has pulled this out of thin air, this is indication from the south African Reserve bank that the scope exists. Could we see an Interest Rate cut before the end of the year . Lesetja we have to wait until the next meeting of the mpc. The mpc will assess the balance of risk. Governor, in terms of politics, i want to understand politicalhe uncertainty can weigh on the economic outlook. How much of it can weigh on the economy . I cannot quite comment on what is happening in the anc. Thatis crucial for us is the Political Uncertainty we currently have in south africa impacts on the policy environment. It will be difficult when you have Political Uncertainty to drive policy reform. At the moment, south africa does to theructural reform potential growth rate. With respect to the environment that we find ourselves in, we find that uncertainty with respect to policy impacts the Business Environment and that impacts on business confidence. The political environment also has a impact on consumer confidence. If we are to restore consumer confidence, you will see Significant Growth picked up, but more importantly, what you will have is that you will have investments to take off and that is crucial. Jonathan one big part of it is what is happening, worldwide. Youve got this synchronized growth story that many people seem to be celebrating. If you go to the meetings and d. C. And speak to your peers, what is your message . What will you be speaking about . Lesetja speaking about a range of things. Talking about the economy, our is s the Global Economy there seemeen to be a number of occasions that have had to the imf and revised growth. This Global Economy recovery is straight across the regions an emerging markets and the developed markets and for a small economies such as south africa, a recovery in the Global Economy is good for the South African economy. The adjustment has that has taken place with reference to the external factors of the South African economy, we are talking about Exchange Rates, that they depreciation of Exchange Rates seems to be engineering a rebalancing. South africa is less vulnerable than it was three or four years ago. South africa is running a positive Net International investment position and that lays the basis that when the economys start to normalize, it will find that south African Services are critical. Jonathan we do have a question from a viewer. He wants to know what your comments are on some of the branches of government wanting to change the mandate of the reserve bank. What do you have to say to that . The government has not said that they want to change the mandate of the reserve bank. What you had was a recommendation to say that the mandate of the reserve bank should be changed. This conversation about the mandate and role of Central Banks are discussions that are actually taking place, globally. Here in the u. S. , there have been questions and debates about the fed and the role of the bed of the fed. They are healthy, they must take place. Problems that we had is that the recommendations of the public shenothing to do with what was actually investigating and what you have is the discussions in south africa, about the mandate of the reserve banks are not informed by fax and they are not informed by serious policy analysis, but by populist agenda. Jonathan you have had so much experience, dealing with messy politics, high inflation, growth risks. Governor carney asked you if Governor Carney asked you for some advice, how would you deal with it . Lesetja i would tell him he is doing a very good job. Jonathan the governor of the south African Reserve bank, always good to catch up with you. Alix if only he would have been on that question. Data weo read the ego received about 10 minutes ago. A mild Market Reaction to Producer Prices up on the month. Backing up food, energy and trade services, it rose 2. 1 from september of last year, the biggest gain since may. The governor says the storm did not play a factor in moving that ppi number higher. The Market Reaction, equity is still pretty much flat. You can see the ftse is up in the dax is flat. The currency market as well as the treasury market, you are seeing an impact, there. The dollar index hitting the highest of the session and you have the 10 year yield, pretty much flat. This is bloomberg. Emma this is bloomberg daybreak. Hour, up, and the next Liz Ann Sonders, Charles Schwab chief investors from admin chief investment strategist. This is bloomberg. Jpmorgan stock is up 4 10 of 1 as it reported earnings that eat on the top and bottom lines. Digging deeper into the headlines is julie hyman. Jamie dimon is not going to talk about that point anymore . Julie . I guess he felt like diving into that issue that a lot of people are passionate about is not going to be fruitful. Julie marianne lake did talk about it on the call and she said the Underlying Technology is something we are very optimistic about. She talked about block chain and that somewhere down the line if there was a more structured or regulated the currency market, that they might be interested in it. Dimon pointed out we move trillions of dollars a day, digitally, it is not cash. That was his contribution to that discussion. Taxes,ighing in of it on but he was less expensive on politics that he has been on recent calls. He said of tax reform is passed was past five years ago, there would be considerably more growth, right now. He talked about expanding wages, raising wages for their employees and if there was further tax reform, they would likely continue to do so. They talked about regulation, saying they expect a recalibration of doddfrank, not throwing it out. The analyst call is going on, right now. They have not yet started to take questions. That is usually when we get into the meat of things. Alix we will check back in with you, later. David we will turn now to trade. The latest round of nafta talks are underway. We are told that this may be the crucial time, the future of the trade agreement may be in the balance. President trump as much when he said it might go either way. I dont think anything has changed. We are negotiating a nafta deal. It is time. We will see what happens. It is possible we will not be able to make a deal and it is possible we will. David with us now is the ceo of cummins. He comes to us from his headquarters in indianapolis. This is tom linebarger. Thank you so much for being with us. Nafta can sound pretty abstract. A lot of facts and figures thrown around. Give us a sense from your business point of view. What is at stake . Tom nafta is the most important agreement for cummins by far. Our largest trading partners in the world are canada and mexico. Our exports to canada and mexico have tripled. We have significant jobs created in the United States because of nafta. Truckpplies, our mexican market came from jamestown, new york and rocky mountain, california. We ship engines to one of our largest truck markets in the world, in mexico. We also ship mining engines the canada. We had more than 100 million in sales to canadas mining sector, last year. 600 million of exports to mexico. For us, this is a critical agreement and why cummins has had success the last two decades. Sense of what the in administration is hearing from businesses like yours. Are they listening . Tom they have been open to input from business communities. We have reached out to congress and talked about what is important to us. Administration does know what we think about nafta. We know that it is an important didnt an important agreement and i think you administration has stated that they would like to get better deals for u. S. Manufacturers and u. S. Workers and we support that. We think that nafta is a great agreement in the sense that it has built so much trade and commerce for Companies Like cummins over the years, but it can be improved. It is missing a lot of what is necessary in modern trade agreements, things like ip protection, data and ecommerce clauses, things to help when you compete against foreign owned, stateowned companies. There are a lot of sectors that can be open and expect opened and expanded. I hope they will reach an agreement that builds on the base and finds new ways to make it a better deal for u. S. Workers and farmers. David one of the things the administration said they want to improve are the rules of origin, which determines what is a product manufactured in one of these companies countries. If they did tighten up those rules, what effect might that have on cummins . Tom in modern supply chains, they are global. Our business is global. We have 25,000 workers in the United States, but we supply everywhere in the world. 95 of our customers are outside the u. S. Without our ability to supply those customers, cummins cannot afford to invest in the r d it takes to keep up and be competitive. We want to access those Global Customers and we need Global Supply chains to do that. One of the complexities of rules of origin is where are things really made when you got components coming in from all over the world that go into these complicated engines and generators . Our concern is that it is very difficult in a modern supply chain to describe exactly where our product is made since it has components from all over the world. That is what makes us competitive. We are able to compete anywhere in the world because we source the most competitive and capable products from anywhere in the world and we supply them and win with customers all over the world. David if you hear from wilbur ross, he says those rules have got to get changed. Are there any changes that could be ok for cummins if not good . Tom i dont want to speculate on what could be good or not good. What i would say is that the most important thing that the that the secretary and other members of the administration will focus on is that nafta has provided Significant Growth in jobs and business for u. S. Companies. Largest sources of export are canada and u. S. Canada and mexico for the u. S. While there are improvements to agreement, is an old there are sectors were u. S. Companies could push in to canada and mexico and earn more business and create more jobs, and i hope they find more ways to do it. The most important thing is that they build on what is here and make improvements to create a better deal. I think there are good opportunities to do that. David it is clear that nafta has worked out well for cummins. If you listen to the president and wilbur ross, one of the points they make is well trade is increased, the deficit is increased as well. Even if cummins is benefiting, there are other companies that are not benefiting. What do you say to that . Tom but only has cummins benefited. We have 2500 direct suppliers. These are suppliers that supply components to cummins from the u. S. These range from 10 employees to thousands. I spoke to one company in the western suburbs of chicago. They supply precision fuel system components. They have tripled their business with cummins. They have expanded their business, they are adding a new building and all of that is based on supplies to cummins that we are selling in the u. S. And exporting to places like mexico. The Small Companies grow because cummins grows. It is about all the small and Mediumsized Companies that work with Companies Like cummins. Every Large Manufacturer i talked to in the u. S. Says nafta is the most important trade agreement for the u. S. While i believe there are companies that did not do as well under nafta as they would for liked, for the matt the majority of workers and companies in the u. S. , nafta has been positive. The question is how to make it more positive, even for those who did not benefit the last time. I think that is the opportunity in front of the three trading partners. David thank you so much, Tom Lineberger tom linebarger, ceo of cummins. Alix still with us is Mark Mccormick of td bank. The ceo is worried, the fx market does not seem to be. Mark i think nafta, in terms of the world we live in, the complexity around nafta and the elongated negotiations that are happening around the trade agreement is it is a difficult environment to trade. Maybe you see some moves that had a little bit of supportive comments coming out of the trudeau and trump meeting. Tradely think that the you have around nafta is thinking about who the winners and losers are, if you start to renegotiate and gravitate more toward a canadian focused nafta agreement. I think the way you want to look at it is simplistically. If you think about which countries have the largest trade deficits, it is the United States and what is the reaction of the trade officials is they want to eliminate the u. S. Trade deficit with mexico. That would have to come by trying to destroy the supply chain a little bit on the mexican side. The rules of content originated, which is 50 of the goods manufactured in the United States, this is geared toward the auto sector. If you think about which currency would lose in this kind of negotiation strategy, it is one where the Canadian Dollar would probably outperform the mexican peso. Jonathan just give me the 32nd macro. How can this administration engineer a weaker dollar . Mark one is specifically through the fed official. If you choose someone who is maintain the gradual standpoint or is even dovish or someone who is very i think all of those environments will weaken the u. S. Dollar. I think inflating the Global Economy. We are seeing a boost of Global Financial conditions and currency strength, not inhibiting other countries. I think it is trying to keep the pulse of the Global Economy strength, keeping the u. S. Dollar week. Dollar weak. Mark mccormick of td break of td bank, great to catch up with you. Coming up next, Liz Ann Sonders, Charles Schwab chief investment strategist. Futures just a little bit softer, out there. Down 2 10 on the s p 500. Negative about a 10th of 1 . Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Jon jpmorgan kicks off earnings and season on wall street. Rajoy turned up the pressure on catalonia, just as europe starts growing again. Good morning. Welcome to bloomberg daybreak. The story in the markets, a record high at the close of wednesdays session. We are down. 2 . A stronger dollar on the margin against the euro at 118. 47. Confused Federal Reserve minutes showing confusion over inflation but conviction to hike Interest Rates. Alix juniper downgraded at nomura. Really dragged down its Network Equipment revenues didnt disappoint in that cloud vertical. Domino earnings coming in better, but come sales were down. Citibank now trading higher on the day. Jpmorgan down 27 , but that was in line, we were expecting that. What they are saying about their loans is an interesting conversation point. Citi says provision for credit losses is up 15 to 2 billion. Jpmorgan says their provisions are up 20 . Is there a turn in the credit cycle . For more, lets head over to julie hyman. What are we hearing about that on the call . Julie i wanted to hit a couple of different points here. First of all, there was a equifax hackt the equifax and whether jpmorgan was in your Ripple Effect from that. She is not seeing any specific increase in fraud. The company is already spending a lot of resources on trying to prevent hacking internally. Jamie dimon says if the bank knows your name was affected, that you were affected by the breach, they should be able to help reduce fraud for that specific account. That was their commentary around that. I want to talk about credit cards as well. There was an increase in credit card loss provisions overestimated by analysts. There were questions because of the success of the sapphire reserve card, which is supposed to target customers that have higher credit scores. Jpmorgan is saying over the past few years that they have andnded sapphire reserve who they are getting credit cards to. Finally, i also want to touch on what the company has been talking about in terms of deposit pricing. The Banking Industry for a while now has been waiting for customers to demand higher return on their deposits. Marianne lake today saying that is not really happening. They are not being forced to raise the rates as of yet. Those are some of the highlights thus far. Alix thanks so much, julie hyman. Jamie dimon is not talking about it anymore. Dont get excited. Jon maybe you can get excited about trading revenue. Maybe we will see a correlation. Joining us now to date deeper into the Bank Earnings, Alison Williams and Liz Ann Sonders. Great to have you with us around the table. If youre a jpmorgan shareholder, you see the stock go up 40 over the last 12 months, you are probably not bothered by trading revenue because the bottom line is looking better and better every quarter anyway. So, the takeaway is pretty decent, isnt it . Liz ann theres a lot of talk about credit. Its something weve been watching. You are seeing consumer tick up. That is not surprising. They had broadened out their credit universe. This is something theyve been talking about, so you expect to see an increase. We are looking at provisions and the rise and provisions. Is that because of growth or something they are saying in terms of the environment . They are saying this is as expected. To the bottom line, you think about the stock and the company and what are the big picture things that will drive this Going Forward. Thats why you hear jamie dimon talk about tax reform. The focus is the indirect. What can this mean for the economy . What can it mean for the customers and loan growth . Jon is it helping loan growth . Alison not now. Its having a negative effect. You just saw a slowdown of loan growth in the quarter. Citigroup getting a bit more help from that best the one thing we are not talking about is the interest margin. Thats been going well, but we did have a disappointment there. Citi andter, both some meeting there of the comments around deposit betas and what that refers to is how fast are the banks passing this on to customers . Basically, what we are seeing, deposit betas are low. They are right in line with introductory. Thats what the banks expected. They are right in line with the trajectory. Seeing a bit of a pickup in the wealth business, but that should be expected. That bodes well for margins, revenue and profitability Going Forward. David a good story for the banks, solid performance. At the same time, a lot of growth inequity price in the equity price, theyve been able to distribute crac capital to their shareholders. Is a netclearly, there interest margin story for lot of the Financial Institutions. There is a demographic story in terms of the broader public estingpublics need broader public, investing publics need for a swath of it may mean the expectation bar got set sufficiently low. When we headed into reporting season, the deterioration estimate was quite mild, surprisingly mild. Companies were still able to outperform those not so lowered expectations. Coming into this quarter, we have seen a significant haircut to expectations. The two sectors where the haircut was largest were financials and energy. Is something wrong here . Or have we now lowered the expectation bar sufficiently that we will see a significant be great beat rate . We dont of the industry level analysis. My group stops at the sector analysis, but financials has been a mediumterm overweight for us. Technology is our longest standing overweight, but financials is still an overweight and i dont anticipate any change to that in the near term. Alison just in terms of the estimates, coming down going into the earnings we had the hurricanes. Thats bad for insurance stocks. Going back to provisions, part of the reserve at the banks may reflect the hurricanes. Setting aside some of the money for that. Its not a huge thing for the banks, but still at the margin could be something. Reserve building was higher than expected, but not insanely higher. Just modestly higher. Secondly, to the Bigger Picture question, the longerterm demographic, he talked about completing a global tour, theres so much money sitting on the sidelines, hes really focused on retirement and this Global Retirement issue and the fact that that money should be getting invested. Its not meant to make a market call or whats happening at the moment in terms of the cycle, but broadly, is there something more strategic, more secular look at for the industry . Jon fair point. Alix we see goldman front and center with that, going more into loans. We talked mostly about loans. Mike is always outspoken. He spoke to us about citi. That was a longterm structural play. In terms of citigroups resiliency, citigroup has the strongest Balance Sheet in a generation. They are looking for modest singledigit revenue growth. In terms of the quarterly earnings, we describe it as the capitals, cost control, return alison one of the positive things we did get in this quarter was cost control. Citigroup and jpmorgan coming in very well on that metric and thats important because as the revenue environment becomes uncertain, you want to make sure banks are doing what they can to protect the profitability of the firm. That provides more upside as the revenue picture improves. David cost control is always critical. Isnt that an awfully crowded space . You dont need to be a big bank to manage wealth. Liz ann they realize the Competitive Landscape has changed and theres more dominance on the part of smaller Financial Institutions registered Investment Advisors that now offer a broader sweep out to their investors. Wealth management and tax and estate planning. Thats one of the reasons why the big firms are upping their concentration. They know it is a relationship business. They are not necessarily going to lose all their Customer Base to those smaller institutions, but they know its an area of competition and one they want to focus on. Jon consumers should be the most rate aware theyve ever been in history. When will the competition start . Liz ann its all about the incentive. Alison it depends on the type of deposit. If you have a Million Dollar deposit versus you are a consumer and you have a couple hundred dollars with a bank is 25 basis points enough to move the dial for you . Thats why theres a lot of focus on investors in terms of deposits and the type of deposits. Jpmorgan talking about the focus on building those retail deposits and gathering those smaller deposits that are likely to be stickier. Questions about online bill payments. Jon Alison Williams great to catch up with you. Liz ann sonders sticking with us. Next fedte for the chair emerges as the paper to run the Central Bank Next year. Who is potentially moving up on trumps radar. This is bloomberg. Jon live shot in washington, d. C. The facebook chief operating officer being interviewed by that facebook has a norms responsibility to its users and all russia link ads should be released. She says if content is from real accounts, it should stay up. Divisiveness is not a reason to take it down. They have to go after the fake accounts. She had a productive meeting h investigators estimate yesterday. David congress has said its up to facebook. You want to release them, go ahead. Staying in washington but turning to the fed, yesterday, the fed released the minutes of the last fomc meeting and the headline was the discussion, the disagreement, perhaps even confusion over inflation or the lack of it. Joining us now, ann miletti. And Liz Ann Sonders of Charles Schwab is still with us. Confusion the fed is perplexed about what is driving inflation or not driving inflation. Ann theres the cyclical and secular arguments. Liz ann you do have some cyclical and transitory reasons to use yellens term for white inflation has been somewhat suppressed. Not least being what you saw in things like Wireless Services and the crash and prices there. Then you have the more structural effects keeping inflation down, whether it is the amazon affect or demographics or innovation and technology. Those effects are going away. Theres the breakdown in the phillips curve and the relationship between wages and inflation. How do we best measure wages . Average Hourly Earnings is just an average. The atlanta fed came up with their wage tracker that is more of a median measure. It shows greater acceleration. We are going to see a bit of a lift in inflation, Consumer Expectations for inflation have picked up. We are limited in how far up its going to go by virtue of the Structural Forces that are not changing in the near term. David how complicated is the situation . Ann theres no historical precedent for what position we are in today. Thats why even the professionals at the fed are struggling with what to do. The one thing i would add, oil prices have been very low. That has impacted inflation, causing more deflation. A lot of moving pieces. The fed wants to do the right thing. The market is counting on one more rate increase. Thats what i read through looking at the data, even though there is some worry and fear. They are not just looking at a data point in one given day. They are looking at how it changes over time. Jon you think the revelation story is still a contrarian view . Liz ann i do. Benefits, having a read on how investors are thinking and behaving. Years following the start to quantitative easing, the a conundrum for investors who assumed we would get that, not understanding its a function of the velocity of that money and the fact that money stayed in reserves. Want just the contrarian in me to say that nobodys asking me about inflation anymore, therefore im a bit more worried about it. There is a component of that contrarian in me that says nobody thinks this is a risk right now, everybody is still in that deflationary mindset. I cant help but put it back on my radar when i see other fundamental underpinnings for a bit of an uptick. On can pull up dots the bloomberg. T median view right there we dont know who will be at the fed. What still remains is that spread. General, when it does narrow, its narrowed by the feds being forced to come down to where the markets have been. The markets have been more right than the fed over the last couple of years. Interestingly, the market is now higher than the fed for this year. The move looking ahead is the market may have to do a bit more catch up to the feds forecast. The narrowing will come in the opposite direction than it has in the past. David Liz Ann Sonders and Alison Williams will be staying with us. Coming up, the Imf World Bank meeting in washington, d. C. An interview with jim yong kim. This is bloomberg. Jon jamie dimon says the u. S. Would be growing a lot faster under tax reform and you bet the big banks want it. Heres the estimated increase if Corporate Taxes are cut to 20 . Jpmorgan the third best benefit benefiter for that. Whats your best case for tax reform . Ann banks and then smallcap. Theres a lot of companies in that thee given lower tax rate for them allows them to invest more in their business. I know theres been a lot of backandforth about whether or not companies will just use that and issue moread dividends or buyback more stock, but i do believe they will use it for investments once it is in place. Jon that is the golden word. Alix the idea that we havent seen anything done israel. Is real. Are we going to have to trade on executive action . Liz ann theres less that can be done in terms of fundamental tax reform through it executive action. Its a much more complicated, robust thing. You cannot go at it piecemeal. There is still a gap between a framework and an actualits a m. There may be is that appropriate optimism would be a good thing in terms of the economy and corporate earnings. Our enthusiasm about the likelihood of it getting done in the short term. President bush had a bipartisan Tax Reform Commission in 2005. I was there to represent a nontax geek perspective and talk about how this affects the real world. , when youfirsthand walk into the room with the idea that this has to be done, our tax code is a mess when you get into the weeds, actually getting something done is much more difficult because of various constituencies and different perspectives from each side of the aisle. Alix when you look at Something Like health care, do you have to your factor that into thesis . Ann that is a space within health care that will be most impacted. We do like the tools theres a lot of growth and innovation there. As long as there is money going into the health care system, that innovation will continue. That is the sweet spot we like. Alix you expect a Material Change in health care . I wouldnt attempt to wade into that. Jon thank you very much, ann miletti of wells fargo. High on wednesday. 2 on theutures by s p 500, down 19 points on the dow. Yields lower by two basis points. The dollar reemerging from eight period of weakness with a bit more strength against the pound. Jon 30 seconds away from the opening bell. Assets closing yesterday at a record high come at futures just a little bit softer ahead of the open. Down. 1 on the dow, down. 2 on the s p 500. Week ofraight gains. A poorly losing streak for the dollar index we bounced back by. 1 . The story is the bond market. You have to reconcile if Federal Reserve confused about the outlook for inflation but still has some kind of conviction about hiking rates before the end of the year. Yields lower by two basis points. Crude does not catch a bit, negative two percentage points. Lets get the cash open. Jon a softer open on the day, all major indices down. The nasdaq up by nine. We did wind up having ppi a bit stronger. It was the biggest jump since may. 3 of the dow up and 1. 5 of the s p. It did have a pretty solid quarter. Other names weighing on the markets have come from tech. Macron off by 1 . Clout centers have placed fewer orders and that is weighing on juniper and cisco. Macron also lower. Centers have placed fewer orders and that is weighing on juniper and cisco. Micron also lower. Lets dive deeper into earnings season and Earnings Growth. Earnings growth for the quarter will be one of the weakest we have seen since the Third Quarter of 2016. The big slowdown in Earnings Growth we are expecting in the fourth quarter, which would be the lowest in a year. Material slow down here as well for the Third Quarter. Many are predicting we will see a jump back into 2018. Down icane striking dragging down financials. Is the underlying economy Strong Enough to do that . What sectors will be the strongest versus the weakest in terms of earnings revisions or this quarter . Looking at energy and materials and financials. Will that continue . Jon lets bring in Liz Ann Sonders of Charles Schwab. Most analysts have been incorporated the tax reform story and fourthquarter Earnings Growth assumptions. Liz ann i dont think they should. It would be a major needle mover and it would benefit in the short term very quickly from a Corporate Tax cut standpoint. If you went down to the 20 level call, the original ryan plan, you would add 7 to overall s p earnings. Dollarsllars or nine added to the years forecast. If you went down to the desired 15 rate per trump, it would be double that. It is meaningful. The right decision is to not attempt to forecast this into the numbers. I dont know of any economists that have added into full anumptions for gdp at aggregate level. Assumptions for gdp at an aggregate level. Jon wheres the risk around that . Liz ann this will be a tricky quarter. Im not going to say the market is going to look past the quarter with all these hurricane affects. Theres a willingness to accept the volatility associated with the effects of the hurricane. In general, the pattern of weakness in the quarter in which the hurricanes hit and then the recovery boost their after is consistent with what we saw after sandy and katrina and andrew. The good news and so far is some of the hits to the economy that are typical after major natural disasters, not least being the quick search in unemployment claims has already started to reverse itself. Maybe that is not a proxy for broader Economic Data, but some data has already started to move back to prehurricane trends. The data will be quite murky in the near term. David whats your take on the economy overall . Is this a 2 economy . What would make it a little better or worse . Liz ann we may be able to get growth more into the 2. 5 . We could get a quarter or two like we got last quarter with a three handle on it. Thinking about the economy growing that fastly one ofstained basis ironies of an antiimmigration stance, the math doesnt work. For that piece of the equation, you will need immigration growth for a labor force growth. The way we measure it, the same way we measure did 40 years ago, it doesnt pick up a very good economy right now. That means gdp is understated. A sustainable moved to above 3 growth rests on a lot of factors i dont see in the near term. David what extent has productivity been driven by best buy high wages been driven by high wages . Liz ann thats why weve had sustained low productivity. We may be at an Inflection Point here. The acceleration we are seeing in medium levels of wage growth, we may start to see that pick ilso because companies would be skeptical that it would be going into longterm investments. The fact that there is some traction there anyway, i agree with the notion that is an additional benefit and companies are realizing now is the time to step up those longterm investments for the benefit of efficiency and productivity. Alix what is your strongest conviction . Liz ann my strongest conviction, that a recession is not a risk at all at least until 2019. Alix how do you understand where we are on the credit cycle . Liz ann monetary conditions are still quite lose. Onks have kept the rains lending, but i think that is appropriate in light of not only the Regulatory Environment but a need to keep capital constrained. There are pockets of problems in the auto cycle and student loans. I dont see that as a risk for the Financial Institutions or the broader Financial Markets because that is more of a government problem than a Financial System problem. The auto piece of it is also contained. Theres not derivatives that turn into an inflection in the broader system. From a private sector standpoint, i dont think we will see the same surge in the credit cycle on the consumer side that we have seen you have a consumer that is still experiencing the muscle memory of the severity of the financial crisis and is a much smarter consumer and will not look at fueling consumption off the back of debt. Jon great to catch up with you, Liz Ann Sonders. Eight minutes into the session. 2 on the benchmark. The story for the banks, expectations management across the board as far as bond trading is concerned. Stillan showing they can grind out profit gains in a big way. Some outperformance from citigroup, up. 8 . This is bloomberg. Emma this is bloomberg daybreak. Director, imf managing Christine Lagarde. This is bloomberg. David a big morning for Bank Earnings today. Thirdquarter reporting in for jpmorgan and citi. Julie hyman has been monitoring the Jpmorgan Earnings call. More we just got some granular detail on the various business lines. Overall, jpmorgan seems relatively sanguine on the business. Jamie dimon not speak very much on the call. Questionsnt a lot of on the trading side of the business. Most questions had to do with the credit side of the business and loan growth. The bank was pretty positive on those fronts, saying the charge had to do with a widening of its Customer Base over the past couple of years and just overall growth and credit cards as well, particularly the sapphire reserve card, which has been a popular product. Not many fireworks overall for this quarter. David have they given i any indication where they are going . Julie not a lot of outlook on the call overall. It was relatively positive here. They said Commerce Solutions and auto revenue will be flat in terms of growth in the fourth quarter. Granular ins very terms of Bigger Picture growth and projections, there wasnt much in the way of that. Jon you know how this works. Guidance. You give it four weeks before the numbers come out. You say trading revenue is not going to be great. Jamie dimon will Say Something outlandish about something else. Look over here. Bitcoin. Look over here and talk about this shiny object. David you have the scope down. Story we are following, the facebook chief operating officer just finished an event in washington. She talked about facebooks relationship with fake news and the election and even the Harvey Weinstein scandal. The first line of defense against fake news is going after big accounts. She says we want to help identify those bad actors and we will do everything we can and Divisive Political ads should stay on social media, the fake accounts are the ones we have to tackle. Tech has outperformed. Then you wind up having these headlines, potential he regulatory thats potential regulatory issues with that. Liz ann tech, believe it or not, is still a bit of a value call, leaving aside what had been the dominant names therefore a while. Tech is starting to broaden out. Its the appropriate thing to look for value. I cant tell you how many questions ive gotten recently particularly when the stocks were at the top of the leaderboard about whether tech was turning into another bubble. I had this one chart sent to me all the time about the level of the nasdaq or the s p tech sector specifically getting back to those 2000 end highs. Tech has stayed in line with the overall market, which is a very different picture than we saw in 2000. For the tech sector and the stock market to have a similar valuation is appropriate. One of the mistakes we talk about is that when looking at how other regions of the world is oflued, the mistake looking in absolute terms and not understanding that each market will be dominated by a particular sector so therefore the value of the overall market should have some relationship to the sector that dominates it, whether its australia and canada being Natural Resource oriented or japan more financials. The fact that tech and the overall market are in line tells you theres still some value within the sector. You buy in europe, you buy the banks. How does it shape your regional view . Liz ann right now, we use the term neutral across the three major Global Equity asset classes. Sounds not that may like a somewhat benign outlook, but that means for our investors that take a Strategic Asset allocation approach, you want to be at your target across those areas. Within the u. S. , thats the only place where we have a bit of a tactical bet going on where weve had a bias toward largecaps over small caps. That was a great place to be until september. You saw a 180 degrees shift in a number of factors, the hope for tax reform and the rally in the dollar, which gave some light to small caps. Within Global Equities but thats the only technical that we have within Global Equities, thats the only have. Cal bet we jon do you expect in that rotation to flip back again . Liz ann if we see hopes for tax reform fate, that would be a factor that could put continued downward pressure on the small caps. The reversal in the dollar was a big reason the small caps got a lift. The earnings outlook is not appreciated the same way the stocks did through september. As a result of that outperformance by small caps, they are trading at he 9 premium to large caps without a commensurate improvement to the earnings outlook. We havent seen an adjustment to those earnings forecasts. If tax reform really starts to gain some traction, then that could provide a longerterm support for small caps. David given the relationship you describe between the weakness of the dollar and smallcap versus largecap, what is your thinking about the dollar over the longerterm . If youre investing for the doesnterm, in general, the dollar seem to go the same direction for a number of years . Liz ann we think we are more likely than not still any longterm bull market for the dollar and thats what we saw this year, a cyclical downturn reflecting the fact that the Interest Rate differential and the gap that had developed between u. S. Monetary policy and other central bank Monetary Policy had been white but wide but has started to narrow because global economies started to pick up steam. Theres no country tracked that is in a recessionary. In a recessionary period of time. There is this notion that other Central Banks are going to start to take those steps toward policy normalization. Had outlook for the gap supported the weaker dollar up until september of this year. The reversal may have been a counter turn reversal, sentiment works as a factor in currency markets and it became a onesided trade betting against the dollar. What we may see in the reversal is a reflection of that and a counter turn move. Still some cyclical pressure down, but in the context of an ongoing still bullish market. Jon just got a message on jamie dimon. Has an ace up his sleeve. When you text the president , thats when we know jpmorgan is really struggling. When he attacks the president. Alix any shade at trump. Liz ann sonders of Charles Schwab sticking with us. Check out tv. Interact with us directly. This is bloomberg. David this is bloomberg. Important Economic Data tomorrow. A 30 eastern time, the cpi data and u. S. Retail Sales Numbers for september. Joining us now, Michael Mckee and Liz Ann Sonders is still with us. Will it be clear or just noise . Michael the way the fed is set up, the possibility of a december move in the minutes talking about inflation, that would seem to be their lone star, but they know the numbers will be distorted by the hurricanes. We already know in the cpi today that we had a big jump in energy. Rices its not really going to give them a clean read. The question is next month, how quickly does it return to normal . Do they get much more information before they meet in december . David are there any other indications that might be a little more independent of the hurricane noise . Michael it will be very hard to find stuff. Retail sales, same problem. We had a lot of cars purchased this month because of the hurricane damage. Industrial production offline. Petrochemicals down in the houston area. It will be hard to get a clean read on it. Construction work in florida. All over the place. The fed has the look through the data and find underlying , what they basically said is if we come out of this into the december meeting looking about like we did in september before the hurricanes, we are where we want to be. Alix you have people talking about we want to see the data what will change in the next two months . Liz ann there is a broader approach the fed is taking, too. Yellen has expressed it in a number of ways. This desire to continue to take some steps toward normalization. Not only are you dealing with the lagging returnsthis desire e some steps toward, when you have the worlds most powerful Central Bank Still trading like its in the tom a room that the trauma room, that affects confidence. Theres more esoteric reasons the fed wants to move to something approaching normal. Jon Michael Mckee, thank you. Lets get to the markets very quickly. 25 minutes in, futures a little , too. , now stocks are. 2 on the s p 500. We can cross over to tom keene at the imf in washington, who is standing by with a very special guest. Tom we welcome all of you on Bloomberg Television and. Loomberg radio we have jim yong kim. What was the Biggest Surprise over five years . You moved over to the world bank, this gigantic bureaucracy whats been the Biggest Surprise over five years . Mr. Kim thank you for having me back on. For me, the Biggest Surprise is just how powerful financial tools are in fighting poverty. I didnt know the combination of leverage and stocks and hedges and Political Risk insurance and guarantees, how powerful those instruments i had to learn macro economics and finance. The toolsg those two, the rich use every day to make themselves wealthier are just as useful for lifting people out of poverty. Tom let me go to a new project of the world bank which has my attention. I look at the mystery of the decline in productivity in major countries, including the United States. Human capital, the idea of a Human Capital project. That is translated in the world bank what does Human Capital mean . Mr. Kim we want to be very clear that this is a huge part of the wealth of nations. We are writing a report where we in terms ofapital overall wealth is more than 60 of the existing wealth in the world. Was take ated to do hard look at the connection between Health Outcomes and educational outcomes, whether youre learning things, and do a regression to look at the correlation with growth over the last 25 years. Far more powerful than we ever thought, using very foundticated methods, we if you look at the top when he 5 of countries that have improved Human Capital and the its 1. 25 of gdp per year. That will only get more powerful Going Forward as economies become more digitized. The countries themselves decide what loans they want to take. They are not focusing enough on as drivers of economic growth. Your unique tension with yoump administration are seeing a widening inequality in education and the opportunities that are out there. You have an administration in america which is really pushing back against your projects. Saturday, we are launching a major project with the Trump Administration. This is the womens entrepreneurship financing initiative. Ivanka trump wanted to do something that would support Women Entrepreneurs in developing countries. It was the fastest fundraising weve ever seen. Ivanka told us she doesnt want to have anything to do with the running of the fund, but she will be a mentor. She will provide mentoring to women in developing countries. We have found lots of different we are talking to them about infrastructure and various approaches to development to tackle difficulties. Tom i should have said mrs. Kushner. I will be in trouble. Most of our viewers and listeners dont know that you and your team changed the dialogue on tuberculosis. Youve never gotten the credit for that that you should. You changed the way we handle this worldwide. Bringing it to refugees and migrants myanmar is really front and center right now. Talk about the linkages between the world bank and health with this new one of the things thate Human Capital project will show is that countries dont invest in their people at their great peril. If they refrain from investing in their people, if they find excuses, it is at their peril. The situation for refugees is if we dont invest in the health and education of refugees, we also do so at our own peril. The young people who dont have a chance, who cannot compete in the Digital Economy of the future, i worry they will become with the domination of en