Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20171023

The ibex on the flipside is weaker. Political unrest in spain. Ahead of the ecb meeting, here is where we are stacking up. 43 basis points. Gold at a low. Ecbd says david the will hold its policy meeting where mario draghi is expected to announce tapering decisions. Now, lets get an update on what is making headlines. Taylor shinzo abe gambled on early elections and won. That boosts his chances of winning another term. That could make him the longestserving leader. Investors responded. The increased role in the counterterrorism policy. The cia has increased operations in afghanistan. Joining to hunt and kill the taliban. Spanish authorities have rejected a call for negotiations. Day, i ams 24 hours a taylor riggs. Messy politics in spain will be the backdrop for the meeting. The theme is lower the amount and extend the bond buying program. From london, i want to get your take from the unrest we have seen from spain. Does it influence the ecb at all . At the moment, it will not be a key focus for the ecb. The key focus will be on the economy and inflation and how they will pan out this tapering plan. Between sizebate of tapering and the timeframe over which they will continue the next stage of quantitative easing. All things will be in the air. The markets will listen closely. Jon lets start with mario draghi and how he will navigate in the news conference. It is a local issue. If you look at spanish bond will look to that. If there is no disruption in markets, he will put that issue to one side. Issue, thebecome an will get more interesting. It is remarkable how quiet the market has been about this issue. How important is it they signal there will not be a rate hike until 2019 and how does it affect how long extension goes for . Chris it is important they dont rush. As they pull that forward, it will concern markets. There is no sense that will happen. Data has been softer than it was three or four months ago. This. Not pushing hard on it is very gentle. They have been trying to reassure markets. It is something they will not encourage at all. David how seriously do you take the reports . If they keep going through at a 40 billion a month pace, will they be done with the buying early and my that trigger a rate hike . There is always finessing these details. The key will be to keep the qe going. Inflation is below its target. The ecb will be concerned about that. There is a split on the committee that the more hawkish german side and other parts of northern europe. On mass of them are focused keeping going. It is a trillion had of the total market. That means roughly 20 of Interest Rates are negative. The ecb is that we are having on thursday, but later down the road, when they continue to tighten is significant. Have 10 year bund yields going into anints ecb conference that could lay out the removal of quantitative easing over the next 12 months. Chris it tells you how structurally weak the western economic economy is. There is a theory that treasuries are anchored by unds, but if you look at it, the structural status of the western economies, we are in deflation. Look at the percentage of countries that are zombies in the western world. You can get between a percent, 9 , 10 of the corporate base listed as a zombie. The reason the yields are low is because of qe. Becauseds are so low productivity growth is weak. Alix if you look at the logistics, the blue line is net issuance for the european union. The gap is a norm us. The trickle down effect you have within the bond market should be huge compared to the fed. Absolutely. If you take the u. S. Yield curve, it is the most important. Every time the fed has announced qe program, we have seen yields go up. It is not about buying. It is about Monetary Policy. In the last two years, we have had the opposite from the fed. What the ecb is doing is an extension of timing in the global economy. That is what tapering is. Bund yields of 45 basis points. From they are, as we kick off a frustrating week and another alltime high with futures positive, this is bloomberg. David shinzo abe had a big win over the weekend. For what this means to the economy, we welcome tobias harris. He comes to us today from tokyo. Give us a sense of what this means. We are going to see a lot of. Ontinuity and stability. E is staying the course i brought japan prosperity and we should keep doing that, that is what we should expect Going Forward. Does it extend the Monetary Policy . That is the most likely outcome. The logic of keeping him around is the want stability and continuity. Least riskyly the option. A busy agenda going into 2018. You have the budget debate coming up in the spring. You have some legislation on work reform that was supposed to be done that will come up in the spring. It is the most logical thing is. N how crowded the agenda the i want to pick up on constitutional issue. The market has reacted positively. The yen is weaker. I want you to tell us whether there is a risk here. Maybe a whole lot less on the economy. It will be a messy debate. It is time consuming. Uphas to get his party lined behind him. That, he has to convince a majority of the japanese people to go with an amendment. Getting to that point, we should assume it will take more time than abe would think. Resistance. More alix thank you. The political capital, you have to expand versus reform. Jon he ran on a platform where one of the payloads was changing the constitution. This is something personal to shinzo abe. A good part of his political appeal. He was tough on north korea when they were becoming belligerent. Inx here is what happened equity markets. The nikkei rose. The yen weakened against the dollar. Chris netnet, it means the yen weakening relative to where we were before the election. What is interesting about japan beene stock market has degraded this year. It is lovely to see it making a new high. Very unloved, and interesting economy. Chris a number of signs suggest deflation is prevalent. It has been in japan for much longer. It is an interesting place to put money. David he has substantial challenges in front of him, specifically with the public debt. This make it a longterm investment . Chris what you see is the. Mmigration looks to us it is not going to offset the whole challenge of aging and challenge of shrinking population. You are bringing robotics and that offsets a lot of the reduced labor. Ways, japan is doing a lot of good things. Growth is strong ,ompared to most of the west and in particular, compared to europe. Will beris watling sticking with us. Looking forward to all of it. A big transaction in the Insurance Industry. Sees a deal adding to earnings next year. Hello fresh is seeking a market valuation as it kicks off its ipo this week. Shares are expected to start trading in frankfurt on november 2. Hello fresh will test appetites for Meal Delivery services. It has seen its value drop by about half since going public. Jpmorgan is bringing in Artificial Intelligence to predict market moves. The program will compile data from all desks and orders to clear picture in realtime. Jon ai for everything. Lets sixs a problem, it with ai. Alix that is the take away. Already be doing that . Jon i would have thought so. Theresa may might need Artificial Intelligence. She faces a new opposition to her brexit bill. It could force her to give parliament a vote on the final deal to lead the european union. Watling. H us is chris is the domestic pressure greater than the pressure coming from the . Chris it is a difficult negotiation. She is under a lot of pressure. We are keen on having some say as well. It is difficult in parliament jon Prime Minister may was discouraged and disheartened. The Spokesman Says no comment. Chris the leaks come from a variety of different parts of europe and london. Juncker is not conducting them. He does not have the final say. The final say as merkel, macron, the leaders of europe. It is confusing to get a real sense of what is going on. It is very difficult to get a clear sense of how we play up from here. David what these members of parliament want to do is look at it and decide whether they agree or not. There is no trade agreement that can survive that kind of scrutiny. Chris that will get hard. Tories, the leadership wants to avoid that if possible. It is another layer of intense scrutiny and negotiations. Process. Intense they are making progress. We should not be discouraged. The markets are relaxed at the moment. Months wherend six the markets are when the clock ticking is louder. Progress is being made. It is a tough negotiation. Jon lets be kind and say the economy is a little softer. Can you be kind when you look at the bank of england and questioned why they may raise Interest Rates in the next couple of weeks . Chris that is a good question. Stuck between a rock and a hard place. The economy has been on housing steroids and critics steroids for a number and credit steroids for a number of years. If they dont raise Interest Rates and the rest of the world is, the currency weakens, we get back into the real income squeeze we had over the end of last year and into early this year. A are stuck. They have to raise to keep up, but it is not what the economy needs. Jon it is great to catch up with you and get your insight. Shawn golhar chris watling. Golub will be joining us. The tone is good, the sentiment is positive. Jon we go into the results. Futures are positive. Another alltime high at the close. Two hours away from the opening bell in new york. Market, the the fx 1. 31. Rate is about we kickoff things unchanged, tooth. 3 eighth 2. 3 eighth on the 10 year. Taylor a day after abe paschi coalition retained its two thirds majority, the benchmark gained for the 15th day in a row. The victory means he is likely to continue his policy of monetary easing and fiscal spending. Areish manufacturers spending less because of a lack of specificity about brexit. Just one third of Companies Say brexit has had no impact on their plans. Oversaw the relationship between saudis and a rock vital to bolstering security and prosperity. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. David we welcome kevin cirilli. Lets start with tax reform. Mcconnell thinks it can be neutral. I thought we were past that. trump also says to be flexible on the number of brackets there will be. He has proposed reducing those brackets from seven to three. We could get four to five. Trump will be on capitol hill with gary cohn. To meetident is set with senators. They are going all in in terms of the time table and they are keeping the schedule. Holdsssing of the budget them to the schedule of wanting to get things done by the end of the year. David the president is not shy about giving interviews to tell us about his thinking. Kevin he said he could have a kevinion where you have or Jerome Powell in a oneto combination. 812 combination. 12 combination. Janet yellen was at the white house for a routine meeting with gary cohn. David thank you. Joining us, shawn golhar. Still with us is chris watling. With tax reform. Where are we in terms of timing . They want to get it done this calendar year. Is that realistic . Shawn it is possible. We have been telling clients we think it is doable, but probably by the end of q1, maybe the end of q2. You have lingering Health Care Concerns come january, the Cost Reduction subsidies. You have the docket immigrant the daca immigration issue. There is a lot on this agenda. Are investors focusing on the details on what it might cost . Said it mayonnell be neutral. One way to pay for it is to cut back on these special treatment for 401k contributions. Is a lot of different that the white house can use. Floathouse, they can ideas out there to see how investors react. We dont have legislation in hand. This will be a bill that is several hundred pages, not a nine page summary. A short in five year futures getting attention. Does that make sense . Chris the market is exceptionally short in five years and 10 years. Fundd the Merrill Lynch manager talking about 10 year shorts being a popular, crowded trade. Goingre we get tax cuts through, the more activity we get and the more we get short rates up, which flattens the curve, not steepen zip. S it. Ve not steepen from theet a reaction fed. It will be largely negative for the yield curve. If yout also flattens have a hall get as fed chair. Comingwe understand him out, trump saying he likes taylor, powell. How do i understand that . Where he isows going to go and all the moves. He likes this process. He likes to play it out. State secretary interviews, he had a lot of people coming in. He wants to showcase the different candidates, having them come to him to trial balloon the different possibilities out there. It sounds like folks like the idea of powell. Republicans in congress dont toe janet yellen if he wants reappoint her. Jon is the Senate Confirmed fed chair different to the nomination we get in the next week . Shawn i imagine he would call up Senate Leadership and talk this out ahead of time. Given the fact it is happening at the same time, you dont want to have any hiccups in the process. Theou are managing president pauls schedule, you will want to talk to the president about this to make sure they are comfortable with their nominee. Sensitive as we seem to be . Chris it is important who ends up in that chair. John will have a different approach to Monetary Policy than janet yellen. The combination is critical. If we get taylor and, we get tightening. Probably a different modus operandi. Curve. Believes in the they are not sure how inflation plays out. John taylor believes in a rulesbased fed. That implies notably higher Interest Rates. Markets are about liquidity, who runs the fed is critical and key. David you can tune in to tom keene on the radio. Boston, theard in bay area, and across the United States on sirius xm radio. This is bloomberg. Taylor the Hewlett Packard enterprise green room. Coming up, Ellen Zentner. This is bloomberg. Now to your business flash. Halliburton boosted profits thanks to fracking operations. Mhe company has benefited fro rising orders. Explorers have cut back in order of operating wells that have been drilled but not frack. An overhaul of Financial Services rules takes effect in january. The head of currency trading warrants it could ruin some peoples christmas. In fang rally next year stocks. Theyding to thomas lee, outperform the s p 500, in all years ending in odd numbers. Late calls it a mystery similar to stonehenge. Jon thank you. Alexs i think i have better years in even years. I related to that. David we call a numerology. Jon very complex, isnt she . Another thing that is complex, deciding who is going to be a fed chair. Not one, but three people for the position. Most people are saying it is down to two. Jon he is considering a combination of powell and taylor may be. Chris the question is, if taylor is in charge, how much does he counterbalance . A lot of the committee is dovish. It depends on the other seats that get filled over the next few months. Think as a counterweight would be a more dramatic statement. It doesnt sound like it would be coming that way. Up, treasury yields are would you be fading the move because it would be difficult for him to do the things he might want to do. There may be a case for that if you feel his actions will be contained. It is a tough call. It is easy to view this through our prasm at bloomberg. What is the reality . Is it about who was going to get the s p 500 juiced up . Seeing thep likes stock market go up. It is important. Behind the scenes, he has been more conventional. We dont see tariffs on mexico and china. China is not a currency manipulator. Is going through a renegotiation process and has initiated rounds 4, 5, and six. We have not seen that bombastic attitude we have seen elsewhere. Be a bit morehis going through the mechanical process. Wantsms like something he to follow through on a plan. He has a handful of people left. His staff can come up with the pros and cons for each candidate. Is not watching bloomberg tick by tic . Come on. What if we get someone pro deregulation . We have differing views on the fed. What does it mean for consensus and volatility . Chris it is a bit of they many regime shift, or major aid or maybe a dramatic one. Markets will have to digest. That will bring volatility back. We have known for the last few years how they operate markets. Volatility is addressed by the fed every time. It is a different environment for volatility. Uncertainty will pick up to respond to that. Jon what is the argument that whoever takes over the fed will have to be hawkish . What is about to happen in d. C. Given the stimulus could get interesting. Chris that is another thing to add in. Also, who else they put in the other empty seats. It will be an interesting couple of weeks. The markets are complacently priced. There is no volatility. Major have a minor or regime shift at the Federal Reserve coming up. It is going to be interesting. Chris watling and shawn golhar, thank you for joining us. It is confusing. Lets use ai. You can watch us online. Click on our charts and graphics. On your terminal. This is bloomberg. David the situation in venezuela continues to deteriorate. There oil company has a bond payment coming due of almost 1 billion. This comes on the heels of elections a week ago that many thought were fraudulent, many access is aegime quote authoritarian dictatorship. Welcome back to the program, katia. Where are they going to come up with this money . Katia you would not think it is a lot of money, but they havent made about 500 million of payments that were due earlier this month. Is have they been saving the money . The thing that is important is there is no grace. Others had a grace period. They have been using them for the other payments, but they dont have that with this one. There is speculation about what is holding up the payments. Holdingcause they are up the money . There is a delay in the Banking System, they have to convert the money into dollars. Whatever it is, everyone is hoping they have to figure it out for these payments. If they have not, they can trip the wire for credit default swaps. It can trigger a serious crisis. What are the practical consequences . Katia right now, they cannot borrow money because of sanctions. It would basically be a shutdown on production for oil. Hey depend on oil studies have shown when a country is in default, the price of oil falls significantly. It could impact them that way. If they tripped the wire, they could not enter into restructuring talks. Until a be a moratorium regime change. Basically, there could be mass chaos for investors. Alix joining us, gerardo rodriguez. Venezuela, what do you think . Been a difficult case. It has been operating under extreme economic and political circumstances. It has been three years since we have been waiting for the default to come. This is not the first time they have used the 30 day grace period for an interest payment. There is a principal payment coming up friday. They have decided to continue to service their debt because other implications are going into default. It implies significant amount of revenue in dollars. There is a bit of a conundrum in the case of venezuela. Being in default would not imply index inclusion for bonds. We use fixed income as a way to volatility and portfolios. It drives the behavior of your portfolio. The price has been operating close to default levels. They were to default, it is likely the price of the bonds would go lower. So, 40ng at . 30 or cents to the dollar, the downside is limited for investors who own cash bonds. It jon how many would put pressure on them to give money for the humanitarian crisis . Gerardo there has been a lot of pressure. The secondary market activity of the bonds are not that related to the economic situation. What you dont want is for them to use the primary market. The function of markets and the fact they are part of the emergingmarket creates this conundrum we have been living with. Over 900 million do. Doy have almost 5 billion for the end of the year. Jon coming up, Ellen Zentner weighs in on the race for fed chair. We come in hot to monday. Futures just off session highs. From new york, this is bloomberg. Gamble paysabes off. A record 15 Straight Days of gains. Spains leader stamps his authority on catalonia. The president indicates yellen is in the running. He likes her very much. Very, very much. Good morning. This is bloomberg. Ets get you set up it six days of gains. Six straight weeks of gains. We begin the week at a high. Futures are looking stable. Up Single Digits just over one point. Back on euro dollar ahead of the ecb meeting on thursday. Treasury is really stable. Two point 38. To alix in japan, dollaryen at up highest level since july, 2 10 of 1 . Seeing weakness in spain. That is despite relative strain in other parts of europe. The meeting will be about what happens to bund yields. 43 basis points. Gold softer. David what is making headlines outside the business world, we have taylor riggs. Taylor trumps knocking down speculation his tax plan would target 401 k plans. He says there will be no change to the program. This has always been a great and popular middleclass break that works and it stays. Shinzo abe gambled on early elections and won. His coalition has maintained two thirds majority in the lower house. Chances of being the longestserving leader in japan. In the u. K. , theresa may faces a new challenge to her brexit bill. The opposition may join with rebels in mays conservative party. Demanding party is changes to the repeal bill. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Broadsoftsshare, equity is pending. They are not yet trading. This is about cloud. Broadsoft is a cloudbased company. Competition. Ore jon that is a company with a lot of cash overseas. In terms of politics, spanish Prime Minister announced motions to strip away catalonias autonomy. It could come as soon as this week. Joining us is maria. I could have read that introduction last week and maybe the week before. The weekend have pushed things on again. Talk to me about the next steps in terms of the procedure. It seems we have been here before. We are getting a little breaking news now. The parliament will reconvene on thursday. This happened over the weekend. The key takeaway is the entire administration will be dismissed from office. The Spanish Congress will get a veto right over the catalonian parliament. The catalonian president as saying were going to hold a session. What is new now, he is coming to madrid to explain himself before the senate. He is saying he might consider coming here and explaining his case. Jon what would it take to get spanish reconciliation . The article is being processed by the senate. To newate can adapt circumstances. There has been a lot of speculation as to what would happen if she decides to backtrack. What is interesting here, we are hearing i might consider going to madrid. He has been invited many times and never showed up. He has never met here in madrid. This is someone interested if it indeed happens. Jon those messy politics in spain the backdrop for the central bank meeting. They will announce qe tapering decisions on thursday. Economists see the first rate hike in q1. That will shift around a little bit. London, steven barrow. Set to unveils what may happen with the asset purchase program. The backdrop is political rupture in spain. How do you navigate those two issues . He willi dont think pay attention. If you look at the eurozone doestion, you see the eu not want to engage in this issue and it is leaving it up to spain to sort it out. From a Monetary Policy per spec have, and will do the same thing. It is not something that will stop the ecb from doing what it needs to do on policy. Where do you see a dropping, and how long for . Steven about half that amount. The key issue is whether it is , meaning whend you get to the end of the nine decide ton the ecb extend it further or will some pushing for the ecb to say that is going to be 2018 september, october of . Tighteninga dovish from the ecb, or something that will lead to lower yields and a lower euro. The rates the race between the hair and the tortoise is what matters, where you end up, not how fast you start. Ellen the ecb is taking cues from the fed. They have examples of where the fedgot it right and worthy got it wrong. They did not delineate the tapering qe had nothing to do with the timing of the first rate fed got it wrong. They did not hike and until thet right, we had the taper tantrum. The ecb has the example. Mistake to give an exact date of when the program would end. How would you know what Economic Conditions would be like at that time. The safest way is to leave it openended. That it has right nothing to do with the timing of the rate hike . If it keeps going, you know they will not raise rates at that time. Ellen you have pinned the front and by making those assumptions clear. This schedule of what happens. These were set in stone. Jon you guys will be sticking with us. Thank you. Golub willjonathan be joining us. Futures are largely stable. We are at a record. Can we close out the year at the target of his year, 2600 . This is bloomberg. Most people are saying it is down to two. I also met with janet yellen, who i like a lot. Lookinghree people i am at. There are a couple others. I will make my decision shortly. David he really likes her a lot. He is leaving it open to three candidates. Still with us, Ellen Zentner, and from london, steven barrow. Paying attention to this drama. We would like to get a decision before the end of this month. Our investors are paralyzed while waiting to know who the next fed chair is so we can gauge what the reaction function is Going Forward. Imagine how difficult it is for an economist to give expectations. At the end of the conversation, it is always yeah, but who is and why be the leader does everything need to change . David what does the common nation to you . Ellen you can see john taylor become vice chair and powell in the chair seat. It is a kneejerk reaction. You would probably want to juste markets might because you would have taylor backing out powell, taylor who is married to whichever version of the day of his taylor rule that is dominating. Governor powell, we know him. For thehere extraordinary policies, getting off of zero and drawdown the balance sheet. Know his reaction, very similar to janet yellen. , but light onllen regulation. Equities would take that well. The lets get a look at Market Reaction when it comes to treasuries. This is the biggest sure position ever. We saw a reduction in dollar short positions. Is this the trade we see as we move toward the fed nominee . Steven the decision about the said nominee is important. For me, when i look at the bond market, i think what is the enemy of the bond market . Fed chair or is it inflation . As far as i am can earned, it is inflation. Turned up. Has not who do you have fighting inflation for the moment. The key Going Forward, what thoses with inflation, pair might want to make. Jon if he nominated taylor to be the chair, he gets the dollar spike we would expect, would you save that, steve . Gethe dollar is likely to stronger. I would not necessarily thing the cost of fed chair. There are a few things in the dollars favor. Progress seems to be being made on the tax front. Problems in the eurozone, we spoke earlier about the situation with respect to spain. Currencies, japan, we could see a stronger yen come through. Is going to asia fairly soon, trying to push trade agenda there. That could have a bearing, as well. There are a number of cross currencies. I am more optimistic for the dollar than pessimistic. Chance wehat is the get a taylor fed, powell as a number two, a compilation of all of these people . What is your base case . Ellen the shift on the composition on the board itself more hawkish. We would count ourselves more lucky inflation remains low because it allows them to remain on that gradual path. Markets are hypersensitive to signs of inflation. The way the core of the committee is taking low inflation is in other tightening cycles, we would be speeding up. Because it is low, we can remain gradual. We know the current reaction of the current fomc. Ellen the most important speech was the one janet yellen gave in cleveland, where she showed a chart based on her own inflation model that there is no slack in the economy. Yellen has come down very clear on where she stands. There is no more slack in the economy. We can continue. Us thelation affords luxury of for meaning gradual. If you get a shift in the composition of the fed, john taylor in the chair seats, we would have to assume what if that happened when inflation rears its ugly head . That is a fed that will have to speed up. Markets would not be wrong taking it as a hawkish turn. David Ellen Zentner will be staying with us. Live from new york, this is bloomberg. Alix a landslide victory for shinzo abe whose coalition retained its super majority bolstering the chances of staying in office through 2021. The nikkei rallying. The dollaryen up by 3 10 of 1 . Chris mcguire. Still with us is steven barrow. This mean Going Forward for japan . Markets, as a foreign investor, we liked it when they called when abe called the snap election. Investors felt comfortable in what abe and almond on mix was doing and abenomics was doing. Are at least seeing the continuation of the good policies. Foreign investors are coming into the japanese market. You like japanese stocks. Do you feel this is enough to attract more permanent Foreign Investors . Chris i have been trading japan for a number of years. It is a hard market. We are hitting the highest levels the nikkei has seen. We have legs on the market now. We have rallied over 10 in the last six weeks. In theyone involved market, they think it is about the market and the economy. Abe, is it about the constitution and the market less . To take aways want the provisions that prohibited the japanese from having an army. Inlooks like that will be the news and that is where he will have a lot of focus. Rethink theave to or theanese equities japanese yen will go off the back of that . Is goingister abe forward and can double down on the economy. That is the consensus now. Is that the way it should be . Be in power for at least another three years. We have still seen six quarters. F growth continually more and more stimulus will probably happen. Surprisesecting some from mr. Kuroda. David talk to me about taxes. Are we going to see a valueadded tax . Steven there have been times in the past where it has been pushed back and we have had the delay. One thing he promised was more spending for education and welfare, but did not say he was mobile bonde issuance in a couple of those payments. There could be a bigger hole on the deficit side. There was not attention to get the primary budget into balance. That promise has gone by the right side by the wayside. Is actually going to make a huge amount of difference is difficult to say. The wiggle room in japan is limited week the debt levels are high. Alix tell me what you like on this. How are you constructing a portfolio . Chris it was broadbased. Invested in convertible bonds. A lot of investments that have done well are smaller cap names that have benefited in etf buying from the bank of japan. That has pushed smallcap names higher. The yen weekends, normally Foreign Investors look at autos and exporting companies as the names that will have the best quick shortterm moves. Jon Chris Mcguire and steven barrow, thank you for joining us. Coming up, a big week for tech. The stories in equities, six Straight Days of gains. Begin another trading week at an alltime high with futures positive. This is bloomberg. Jon a huge for earnings coming up in the u. S. And europe. Look at the split in the stoxx 600, the outperformance from technology stocks. The biggest losing Industry Group from bank stocks in europe, down about zero point 5 . Big banks reporting included Deutsche Bank on thursday. Look out for that. Stabilizing on a u. S. 10 year. Even with yields coming in just a little bit, the dollar bid stays in there against most of the g10 space, with the exception of the kiwi. Thursday. On on the cable rate just a little bit weak. That is your crossasset picture. Going into Market Action in the u. S. , lets get stop some top stories. In catalonia on thursday, a vote on declaring independence. Carles puigdemont asked lawmakers how to respond to the Central Government plan to take direct control of catalonia. Separatists say they will form human shields around the government regional headquarters. It is a sign of the cias president role in trumps counterterrorism policy. According to the New York Times they have expanded secret operations in afghanistan. Areofficers and contractors providing intel to help kill the telegram. In argentina, a victory for the president and his reform agenda in congressional elections. In party will pick up steam both houses of congress. That will help him overhaul tax and labor laws he says are blocking growth. Local news 34 hours a day from more than 120 countries. I am taylor riggs. This is bloomberg. Jon what a big week coming up. Over a third of s p 500 earnings coming through, a lot from big tech, including alphabet, amazon, and twitter, all reporting on thursday. Joining us with what we could be looking for in their reports is a fund founder and ceo, and someone from Morgan Stanley. Lets begin with amazon. I think everybody is going to focus on whole foods integration. Eps expectations have come down a lot. Amazon is going to make this a loss leader for a while. The estimate is . 14. The street is a bit lower at negative two. I do not think longterm this is going to matter much, but a lot of people do not pay too much attention to eps numbers from amazon. What the correlation between the 90 day performance of the stock and the beat and miss relative d consensus 90 times, they perform similarly. You say eps does not matter. It did for a couple of quarters. Where are we now . Longterm, nobody is looking at eps for amazon. Do they continue to grow . Over the shortterm 90 day popups, highly correlated. Alix what about google . Leigh the money tree keeps on printing. People are looking at the significant decline in cost per click dollars, down around 20 this quarter again. At number of clicks keeps going up. That ad revenue is going to keep going. We have seen significant ad numbers for the google revenue numbers. It is usually a strong sign when you see upward revisions into the report. They should beat again. The stock usually performs well to that announcement. About 70 of the time, the stock moves positively. David is there any indication google is changing the response with the public pressure and governmental pressure . In europe as well as the states. Leigh you have to think they and facebook are going to start focus on this more. You are still in that phase where they are going to deny, deny, deny. Under the covers, they are probably starting to do stuff. It does not seem it is having an effect on the multiple of the stock yet, so i do not think investors are really paying that much attention. Another quarter of this maybe the Mueller Investigation really wraps up. I think you are starting to see internal pressure from facebook employees to pay more attention. David apart from the multiple, are there steps they may have to take that would reduce earnings . Leigh they would. There is a bill in committee ask, iow in congress to think, advertising or social Media Companies with over a million users to very specifically regulate who is allowed to advertise on their platforms. That could have a dampening effect, especially for Something Like facebook, i think, more than google, where the ability to hyper target and not go to any kind of review that would definitely put a vice on them. Jon who do you think is handling the political storm better than anyone else right now . Leigh that is hard to say. Honestly, i feel like google, facebook, and twitter are all doing a relatively poor job at this. You always ask yourself what is their goal at the end of the day . If the goal is simply to keep the stock price up and the multiple where it is, they have all done a relatively good job. Problems,f fixing the i would say google is going the furthest the fastest. It sounds like zuckerberg is still a little bit, something happened, but not completely our fault. It was hard to prevent. I think you will them change over time. They cannot change rapidly. You are going to see the rhetoric Going Forward. I do not want qualcomm at the end of the day. If we wind up seeing more oversight of the big tech names that have been responsible for leading the equity rally, and to some extent growth, what happens in your models . I think as economists, we think of, where does it hit pockets . How much of a share of the s p is tech . We were doing this back when Energy Prices were falling so much as well, and it was a much greater share of financial assets, s p, then it was a share of the economy. That is a way to think about it. That is going to be something that weighs on the s p or elevates equity risk premiums. That would flow into financial positions and how we model it for the economy. This is from an economists point of view. I do not see this as being Something Big enough to dent wealth in the u. S. Where the wealth effect flows through and changes the outlook. Cyclical pressure, kind of under the radar this year visa absolutely ripping through 2017. If i think about the people come through amazon and all these other big players in ecommerce, not many people bring these up, but that is where the performance is big. Square, and paypal we are not a research organization, so we do not make picks, but you look at the correlation between continuous beats of consensus and stock momentum, these stocks have everything going for them right now. It is directly aligned with the consumer economy, which is surging online purchases. Of purchasese which are digital continue to rise. I see no reason why these names would not for any reason see multiple contractions. Paypal, which really crushed it you have banks adding to their low loss reserve that is all about the credit cycle. Ellen it is all about the credit cycle, but i would also add that it is not a cycle that lifts all boats, per se. , betsy,ncials analyst took a deep drive dive into credit quality by income group, when she was going short or underperform for Companies Like capital one that caters to lower income groups. There is a different story when you start to look under the hood, as you do have some deterioration in credit quality at the low end of the income scale. But that is not unusual at this stage of the cycle, that you tend to see a little bit of deterioration that starts from the bottom up. David thanks so much for being with us, leigh. Ellen will stay with us. Bloomberg surveillance can be heard on the radio all across the United States on sirius xm radio. Taylor this is bloomberg daybreak, and in the next hour, the Credit Suisse chief u. S. Equity strategist. David it was not just the fed chair President Trump was talking about last week. He also made it clear that pulling out of nafta remains very much an option. President trump at some point, even after will be new rig we negotiated so it is fair to the United States, or it will be terminated. People think that is a very tough statement, but it will probably be renegotiated. But if it is not successfully renegotiated so it is fair for the United States, it will be terminated. Being the president is very clear, but it is not clear investors are taking him seriously. To get his talk on negotiations, we welcome eric farnsworth, Vice President , council of the er ofcas, and ellen zentn Morgan Stanley is still with us. We have gone through four rounds of negotiation, with five or six coming up. It is taking longer than we thought. The main issue in the United States are we going to back down at all . Negotiations broke up a week ago, last tuesday. I would not say a chronic, that i think the three negotiation parties recognize how far they have to go. They suspended negotiations until november 17 in mexico city. This months long hiatus is a take stock. They can the deadline has been extended from the end of this calendar year to the end of 2018. That begins to get complicated, particularly in the context of mexicos president ial elections. Where we are is a lot of question marks. The United States put a lot of very difficult issues on the table last week in the fourth negotiation round, and the two other parties will have to digest that and see if they can bring them on board. A lot of uncertainty. David difficult positions. It seems the parties may be going farther apart. Canada and mexico have been clear about rules of order, about sunset provisions, and the United States put that all on the table. Does the United States really want to be here . Question. Is a good at the beginning of negotiations, we could update nafta, modernize it, bring and provisions that should be there for a relatively aging agreement that is a most 25 years old. It was not until the fourth round that the u. S. Came with the most difficult negotiating positions, like the ones you suggested, and others as well. The governments have to decide can they go forward . Meanwhile, the United States seems to be holding firm. I think the president is not bluffing. I think he is willing to pull out of nafta. From my perspective, that would be harmful to all three economies. Alix we talked about how it is worse for mexico, that there are regional areas in the u. S. Where it would be also destructive. Ellen you are absolutely right. It would hurt mexico more than the u. S. In an aggregate picture cents. Texas, which are located strategically right on the border there are a lot of crossborder flows. Of there eight veins nafta trade corridor that come up through the country. Interstate 35 starts at the Mexican Border and goes all the way up to canada. It is the longest in our nation. It goes straight to the center of texas. All the ancillary businesses that have popped up along the way in texas to trade with northern mexico all of that activity would be damaged. In thee would not see it u. S. , or as much as we would in mexico. But regionally, i think you have got some very angry people in texas and very angry industries in texas at what might come out of these. David i wonder whether the of ministers and is focused on the republicans in congress who come from those border areas. The president are we sure he has the authority on his own to go forward without having to go through congress . Eric i cannot speak for the focus on certain republicans or democrats or not, that i agree that the border states would be impacted directly. Entired be the agricultural midsection of the United States. Mexico is second. But in manufactured products, these are massive for the u. S. Economy. If you look at more countries trade globally, almost all of them have canada or mexico as their top trade partner. This would impact the entire country in some way. They try to bring down taxes on the accurate u. S. Citizen by aggregating nafta which you would do if you increase taxes on all the consumers in the United States. For automobiles, perhaps several thousand dollars per unit. This is not something we can say is a foreignpolicy issue we can have or not have. This is really an economic issue that is going to hit all of us. David when President Trump was elected just over a year ago now, there was a lot of concern about trade, and specifically nafta. He talked a big game but is not going to do it. Is that concern coming back for investors . Ellen i think any nafta and the difficulty of discussions bubble up again, every time, the peso is hit. Being a Major Trading partner, it gets a large weight, the trade weighted dollar. Ironically, when the peso weakens, the Dollar Strengthens, and on paper it worsens the trade balance with mexico, which is exactly what we are supposedly trying to correct. You are absolutely right. The trade weighted dollar soared to a 20 year high just after the election because trump went walking with a very big stick. Since that time, the peso has come way off, or i am sorry, recovered. Pressure again. It is ebbing and flowing with these nafta talks. Alix eric finds, thank you for joining us. Ellen, you are sticking with us. Latest post on linkedin says the fed needs to watch the bottom 60 of earners in the u. S. To make their policy. Interesting commentary. Its as average statistics camouflage what is really happening in the economy and could lead to dangerous miscalculations most importantly by policymakers. A policy mistake, you look at those who make more money and spend more. Jon it is not the first time he has made this argument, and there are great stats in this piece. Spoke a lot about populism over the past year. His key concern is ultimately, if you dont address that if you address the averages, you miss the underlying story, one that is feeding populism. We could end up in extremism. It is a little point that is built on economics. Alix it is difficult when you invest with that scenario, because populism has been rampant all over but you have not seen the material Market Reaction. Jon we just talked about trade and what would happen with mexico. A lot of people 12 months ago or a frightened about what would happen with protectionism. It has not happened. David at some point, it become social instability. We talk about china with unemployed and, not the United States. At some point, you have serious social instability if you do not address the entire population. Alix we are seeing that in spain and potentially italy. If you have a bloomberg terminal, check out tv and interact with us directly. Weeks ofstraight gains, the longest winning streak since march. We come to a new trading week with an alltime high, futures just positive or 0. 1 on the s p 500. The story of the fx market through the day so far on the back of tax Reform Efforts the dollar bid stays in there. 1. 1734. Lar back to a stronger dollar and higher yields. Twosis point on the 10 year 2. 38 on the u. S. Treasury. Lets give you your Bloomberg Business flash. To buy cisco has agreed broadsoft. Provides Cloud Communication Services to businesses in about 80 countries. It is a big transaction for the Insurance Industry today. Buy at matts Group Disability business for a little less than 1. 5 billion. Hartford seats the deal earnings next year. The the next fed chair of Federal Reserve be a policy hawk or a dove . The Financial Times head Analysis Company used Artificial Intelligence to parse the speeches and papers i nine contenders for the job. President trumps chief economic advisor, gary cohn, could be the most hawkish. The president has said he will make a decision shortly. That is your Bloomberg Business flash. Alix seriously, ai to predict the fed chair . Is that where we are at . Taylor i may be out of a job. Interesting that it came up with gary hahn as the most hawkish. He would also be the most hawkish the most unknown when it comes to policy. Jon this shows us how bad ai may be. Whoever talked most about Financial Stability ends of the most hawkish, and given gary cohns job, that is what he talks about. How does it work . Ellen we could also parse, what does most hawkish mean . The market would simply place greater possibility on a chair delivering three hikes them at chair yellen, even the market is still not going to price in three hikes. Jon i asked someone from Goldman Sachs, if gary got the job at the fed he laughed and said, all markets would rally. I would imagine that is the sense of most investors. He is a trump loyalist. Could he be the Second Coming of arthur byrne, where fiscal policy takes hold . The fed does nothing unless it overheats. You could increase the boom bust cycle, so it is a doubleedged sword. What about the linkedin post that you are in a policy mistake if you do not look at individual u. S. Earners . Ellen it struck a chord with me. He talked about the perils of looking at the average, or we would say looking at things in aggregate rather than digging down deeper by income group. Look at what the s p 500 is doing. Quintilencome represents 40 of all spending. If they are spending you look at the aggregate numbers. It looks like consumers are spending and it is fine. When i spoke to our financials analyst, looking at credit group, youincome look at the lower income groups and you are starting to see signs of. That is were policies should be targeted, in order to help those groups list their income. The liability mix is so different. The Federal Reserve has fueled the asset side of the issue for so many people. It is a quality problem. Qqqqqqqqqqqqqqqqqqqqqqqqqqqqqqqq jon the fed leadership race enters the final stretch. Ther yellen is still in running. The ecb prepares to adapt to a better economy amidst political chaos as Mariano Rajoy expands his authority in the region of catalonia. And amtech, top performers reporting this week. Amazon and google look to extend a record run in stocks. From new york, good morning. I am jonathan ferro. Alongside, david westin and alix steel. Lets get you up to speed, 30 minutes away from the opening bell. The sixth weekly advance, with futures positive. We could add to that. Bit in treasuries, with yields coming in about a basis point. The Dollar Strength story sticks , and g10 stronger against most of it. A weaker euro ahead of the ecb decision on thursday. That is your cross asset picture. Lets get some movers. Alix halliburton now off by 0. 4 . It was a earlier, in premarket. The earnings beat. The revenues were better. That northd, i know america is hitting on all cylinders. This is different from what we heard from schlumberger and baker hughes on friday. It is still an idea of a weaker market. Halliburton, down at 1 . Hasbro also down by about 3 . Earnings were up, helped by sales of star wars asset action figures. It was their Fourth Quarter revenue forecast that was hurt. It is expected to be out 4 to 7 . What happens with toys r us . Bankruptcy,ares what happens to their inventory . Looking forward to it. Cisco is going to buy broad stock for about 55 a share. About two up by dollars. They are going to diversify away from hardware. Clout is going to be part of that. Company. Is a cloud broadsoft has interest from searchlight capital. They have been auctioning themselves since august. Cisco is coming in 55 a share. She wears skechers. The numbers are lucky. And she is going to be watching the star wars movie. Alix i have a yoda winter hat. Jon is that what you are for halloween this year . David there is a lot to alix steel. Jon pretty complex. Thank you. All eyes on d. C. , another complex place. In washington, president s trumps President Trump tax plans, and an announcement on the future of the Federal Reserve. The president revealed three candidates he is considering. President trump most people are mr. It is down to two taylor, mr. Powell. I also met with joe and yellen, who i like a lot. I really like her a lot. I have three people i am looking at. I will say i will make my decision very shortly. With more isus bloombergs chief washington correspondent, kevin cirilli. I have learned not many people in the Republican Party like her a lot. Where we are as we enter the final stretch in this race kevin it is the final stretch, the president likely going to make that announcement before he embarks for his asia trip. Up to five gains we have been closely tracking a lot of advance out of the banking committee, but janet yellen is the last name on the list. On capitol hill, they are very much still talking about tax reform. The president weeding out earlier this morning about tax reform, saying he will not play with peoples 401 k s. This is a big political win for asset managers. There would be no change. This has been a great and popular middleclass tax break that works, and it stays. Milwaukee ross no wonky rothification. Jon i am sure anyone involved in the market will be happy about the 401 k issue. Localt comes to state and tax reductions, that has fallen by the wayside. Are still asking how that is going to be paid for. Mitch mcconnell says he has not given up on a tax plan revenue neutrality. How is this going to be paid for . Something is going to be unpopular and something has got to be done. Most estimates put this tax plan at 6 trillion. The state and local deduction would estimate 1. 3 trillion as a source of how to trade for it. Even if they were to do something with rothification, that is 2. 12 billion. We will not know how a chunk of this is going to be paid for until next week. The pretax committees in the house and the senate. There is a big question, how they are going to pay for it. Gary cohn will be on capitol hill tomorrow, meeting with members of the house of representatives in what is known as the republican study committee, the executive board of that. President trump also anticipated to be here on capitol hill later this week. All attention now into how they are going to be ready for this. Jon can we take a moment to reflect on how crazy and how excited people got on friday when chair yellen went back to the white house for no reason, just to meet with very come . David that was a regularly scheduled meeting, the meeting with gary cohn. Alix gary cohn it might have been a couple of minutes. It had even been reported before. Overreaction by the media. [laughter] fault. Ons jon the difference between taylor and powell has the thential to bolt jolt bond market. It has kept yields in a tight range. There is a lot riding on the pic for President Trump, who has consistently pointed to stocks reaching highs. With higher rates, taylor could bring that to a halt. We had a conversation last week about a conversation with a aient who use the s p 500 as Money Market Fund, and six month later take it out with a decent return you would not get from the rates market. Is that going to change . Methe surprises, when i with gary cohn, that the market did not rally. He said there may be some others. Jon he is not going to tell us what they said. When you have volatility really low, you can argue that any low volatility asset can be treated it is not anywhere near the stability. I can understand why somebody would make the comment. Every day, the market seems to be moving ahead by not big numbers, but five basis points, 10 basis points. That is not because something crazy is happening. The ball is low and you get the slow grind. It is not a money fund, that i can see why people make those comments. Jon is that going to change with the next fed chair . Jonathan the reason the low volatility is around is because in some way the fed is supporting the stock market, and i do not believe that is the case. They are very accommodative, but you have an economy that looks terrific. Recessionary risks are super low. That thisbout morning. When those risks are low, it is not only good for stock returns, but its use volatility very tight. Jon that Money Market Fund example we have used is a joke. At the same time, people have done it because rates have been so low. The Federal Reserve has done some of the heavy lifting. Jonathan if you were saving for your kids college education, before, you would be uncomfortable leaving all of it in stocks right up to the point where theyre going into college or you are retiring. We have not seen a large drawdown in a very long time. If the drawdowns are weaker, you leave a little bit extra in the market, and that changes behavior and pushes stocks back. Your note came out this morning about recession risks and how low they are. How much of that is because this market is so unloved . It has not broken out. It has not been to robust. In the past, has and that often triggered the recession . You get runaway inflation and a policy mistake. Jonathan markets do not drive economies. Economy strive the markets. The most important was one chart in the report which showed this is a long recovery, longer than normal, that it is the third longest in the last 75 years. It is not absolutely crazy. The whole size of the recovery, the Economic Growth in aggregate, is way below average. That is what pushes you. The question is, how much total growth of you had since the last recession . On that metric, we potentially have years longer for that to go. Alix do you agree that if we look at average statistics, the fed could be in for a policy mistake, because it is papering over the economy . Jonathan i was looking at those comments before coming on. If you saw that they were quarters of the market under stress all over the place but the averages were hiding it, i would agree. What what do we have . We have wages not running away, Interest Rates low. We have an accommodative fed. Housing activity is strong. Creation is strong. You really want to see isam in the 40s before you think you are going to see something falling. Pmis Manufacturing Activity around the world improving. Ism not sure ray dahlio seeing what i am seeing, but we are not seeing risks almost anywhere. Jon inequality as well. Bigdalio is seeing it is a issue for him. At the same time, the Federal Reserve has exacerbated that, hasnt it . Jonathan i am not sure the Federal Reserve is the cause. Jon but the asset liability risk you are rich, you have assets. You are to her, you do not. Assets, you have done terrifically well. Jonathan one thing about life in this country today is, it is democracy. People were unhappy with what they saw in washington, whether they should or should not have been. They voted in donald trump as agent for change. If the population is not happy with what he is doing for the middle class or for people personally, they will throw him out and bring somebody else in. That is why there is a safety valve in democracies that you do not have in other kinds of political systems. I do not see it as a threat to the markets. I disagree on that. Jonathan, you are going to be sticking with us. Earnings pick up steam. , and bob shanks of ford. Barclays, Deutsche Bank, and ubs are all reporting earnings this week as we look at u. S. Forces european financials. Tice, joined by jonathan senior e. U. Banks analysts. Still with us is Jonathan Golub of Credit Suisse. You have earnings coming up. What are we expecting out of big european banks . Jonathan i think more of the same, frankly. The majority of concern has been priced off, with guidance down 15 to 20 . I think the Equities Trading space is important, particularly for the french, and the last quarter, barclays and Deutsche Bank Credit Suisse rallied very strongly. There are expectations that they may have turned a corner. Be driving this principally . We always focus on how trading is going. Is that going to determine who does and does not do well . Barclays last quarter admitted that even after years of restructuring, they still had misallocated capital. We are expecting weakness again there. I think there has been a fair bit of talk about how much is enough for the ceos. Some of the biggest parts of the banks are not working. Jon barclays and Deutsche Bank both report on thursday. We have heard about the pressure at Deutsche Bank. Who is under the most pressure at the moment . T that is a top one. Do not forget the investigations over the whistleblowing incident ticking along and the background. I would call it fairly even stephen. Consumer Banking Center is a tough place at the moment. Even the barclays is refocused, civ is still massively important, because competition and the u. K. Is horrible. Credit cards have a 20 market share. Fairly well tied, a hostage to fortune. Refocusing, about but Morgan Stanley refocused and they get numbers. They get big results that investors want. Big banks over europe have refocused. They still seem to be fighting the war of five years ago, which is bad loans in the periphery, and an underperforming Investment Bank in the case of Deutsche Bank. How has that changed . Ecb published an addendum talking about new reserve requirements provisioning for new bad loans. The bad loan issue for italy, spain, portugal, greece is still very real, and something we have not addressed at all, or we are beginning to address. I think from a trading perspective, barclays and deutsches were always the heavyweights in europe. Deutsche decided to be the last man standing. It still looks as if they are losing share. Ofyou look at the hsbcs this world, they look relatively better than those two heavyweights. I do not see the struggle ending. I think a lot of it is to do with where the capital is allocated. We have had the capital in the wrong place, and this is 2. 5 years into the restructuring. David compare and contrast the United States and europe. We have just been through the big banks here. How do you regard them . Jonathan g you look at the with old problems. The u. S. Banks got way ahead of these issues, took it on the chin, recapitalize themselves. If you look at Loan Performance, it is very solid. Just very, very unruly. The banks had good not amazingly good, but had good numbers broadly. You are talking about a low volatility environment. It is not productive for trading activity. Whether it was Morgan Stanley, wealth management, or the Investment Banking businesses jamie dimon has commented repeatedly about how the Loan Performance has been. Banks lend money, and if people pay back money, it is good for banks. Have met and exceeded their numbers for a variety of different reasons, even in an environment where the trading has been pretty soppy. With regulation expected to ease we have notes coming out from treasury. We will see more there. In our view i think the consensus fear, with Interest Rates rising on the long and short part of the curve, you would probably also see some easing on bank profitability. We like the group a lot. Jon we talk about europe versus u. S. , but within europe, i think it is fascinating. Italy has a political issue coming up around the quarter. Spain has one right now. You mentioned french lenders. French banks seem to be the bright spot in europe. Why . Athan t Credit Agricole one of the things that have done is, the parent companys own huge retail networks. For the last two to three years, they have been selling insurance and Asset Management products, which has given them phenomenal rates of growth. A flow monster. They have a more solutionsbased approach. I know that sounds a bit twee, but the numbers have out performed. The french are positionally strong in structured finance, which has picked up nicely. I think there are fairly clear reasons why the rates will be slowing. They should still be a bright spot relative to the deutsches and berkeleys. Alix is that monster thing a technical term . I like it. Will be talking more about finance and the regulation. I will be speaking with david solomon, Goldman Sachs president and coceo oh tomorrow. Tomorrow. We will talk deregulation, fed, and tax reform. Alix 53 closing record highs for the dow this year. It is tied for the longest streak since 1995. It is not just the u. S. It is global growth. You can see all the downward revisions we got in 2016, 2015, and if you this year. The earnings revisions slowly moving out of that negative territory. Still with us is jonathan golup of Credit Suisse. Is your more bullish outlook for u. S. Equities next year because of the global synchronized growth recovery, or is it u. S. Specific . Jonathan g it is u. S. Primarily, but we are seeing this recovery is synchronized, and it really started i would say a year ago, june, maybe 16 months ago, when you had a turnaround in the chinese off thisand its set big improvement in global economies. We are seeing strength in every major market in terms of these pmis, these forwardlooking indicators, which are positive everywhere. That is what you are seeing in these numbers, the turnaround. The chart, youf would see it was positive straight through. The delta or the changes outside of the u. S. Residence in the states. Alix many are bullish for next year, but you are the top. What do you see . Jonathan lets break it into two parts. You see earnings and stock multiples. Pps could grow at 7 , in line with what Portfolio Managers would think. You get 4. 5 of that in revenue, which is about where the economy is going. Oil you have to bounce off the bottom. Easy comparisons. Nothing spectacular. Where we differ is that we think that multiples, even though they are high, are going to go higher. We think stock pes are going to add 3 to 4 on top of earnings, and that is the big number consensus. Alix why . Jonathan the cost of capital is low. A note we had out this morning on recessionary lists in the u. S. Around the world being low we find that when the likelihood of recession is low, stocks go up more often than they do not, and that is the secret sauce. Alix if we get tax reform we do not need extra stimulus out of d. C. If we get it and a fed that has to go faster, how does that change are thinking . In my view, if we get to stimulus in its totality, which i am not sure we will we are running at a little more than 4 unemployment rate. , you gett extra demand more inflation, not so much more output. As and looks at that inflationary threat, and they try to squash that down. I do not think donald trump is the solution, or these tax plans are the solution for a market that has a growth problem. Mostasked . Clients still when will the rally and . Jonathan it typically ends not by whimpering, but by going down tell me how long the Economic Cycle is going to continue and i will tell you an answer. I think we will see the cycle go on at least until 2020, if not longer. If that is the case, we will be having the same number station in a year and a half. Jon Jonathan Golub of Credit Suisse, sticking with us. Jonathan record highs in a sixth straight day of gains. A big week for earnings and a new trading week as far as equities are concerns. The scores as follows. Futures positive by 30 points on the dow. 1 on the s p 500. More than a third of the s p report earnings this week. We will break it down right here on bloomberg. The story in the bond market as follows. Yields higher through last week. We are back down to 237 and negative a basis point on the 10 year yield. The dollar bid stays strong. We are up. 3 on the dollar index. The broadbased Dollar Strength continues. Strong against nine major currencies today. Is there another record high in store . Nasdaq sitting at record highs. They are not moving much. The dow has closed 53 times so far this year at a record. If it closes today its 54 and it is the second most record long streak for the dow. The s p relatively flat. Some big tech reports out this week. Seagate up by 13 . Earnings and revenue all feet of a turnaround for this company which fell 16 after each of its last two quarterly reports. E getting a lot of analyst downgrades. This is after that terrible quarter. Betsy down by 5 . Amazon is moving into their business. Amazon is announcing a handmade gift shop that will directly etsy. Te with nasdaq 100. The this is the number of records we saw in all of these years. We are up to over 60. What we saw ino 1999. My question really is are we in a place where we are going to see more comparisons to the dotcom bubble. Inathan lets bring Jonathan Golub of Credit Suisse. They have been really muted gains havent they . If we do some simple math on this if the market goes up 10 a year it goes up five basis points a day. If theres no volatility that is enough to push you a tiny bit higher than yesterday and a tiny bit higher. The big difference between here and 1999 was there was a ton of volatility. The market was moving all over. What got you to record highs was days where it jumped and came back. Today its a very slow grind higher. Its a whole different field than it was back then. Tech companies are making real money today. Youthan because of what have just said we havent had a 5 correction in about a yearandahalf. What is the response when a client comes to you with that stat . The vix is almost exactly 10. Stocks move 15 to 20 basis points a day. Do you know how many days in a row you have to have a 15 to 20 basis point move . Something has to really change. Its just the math of what low volatility feels like. It makes us uncomfortable. It makes newspaper headlines. It doesnt mean investors are acting irrationally. Its just the nature of lowball. How much of it is just thanks to the Central Banks . You have an awful lot of money chasing a limited number of assets and people need yields. Some of it has to go into equities. It. Hats a small part of we have had a weaker recovery throughout the whole process. The slower the economy you have a weaker inventory cycle. Businesses are more conservative in their behavior. Therefore the Economic Data is less volatile. The fed is accommodative. What causes spikes is a big macro threat like a recession around the corner. You also have threats that option guys like to talk about. , onecorrelations are low stock goes out and the other goes down and the market doesnt change a lot. Theres things going on behind the scenes. Higher but market isnt. Theres a whole bunch of things contributing. Its not all about the fed. They are one of three or four or five things that matter. We have seen a lot of stock earnings estimates revised lower into earnings. They still have 5 faster growing than any other company in the s p. Theres that to consider. I do like these names. They have run really strong the last year on higher stock multiples and people becoming more excited, they were up more than the rest of the market has their earnings were doing well and yet the valuations on these things were not leading up. This was so different from the late 90s. He before paying more and more for a dollar of earnings and the earnings werent coming through. Now they are coming through brilliantly and they still look relatively cheap especially when you consider what you are getting in terms of earnings growth. The Chinese Central Bank governor mentioned it. You talked about the current regime we are in. Somewhere somehow theres got to be a buildup of instability. Do you not agree . Will there eventually be, sure. We have substantially delivered the Banking System. The system has been made more stable by the fact that we are in the Banking System going into the financial crisis have really been reversed and taken down. Eventually get to excess, sure. Are we anywhere near that, i dont see it. Could you find the Student Loans or auto loans, theyre not big enough right now as a problem to be the minsky catalyst. David one of the things we are hearing more about is socalled Zombie Companies. Uptick ineing any Zombie Companies that are being kept afloat because Everything Else is going so well . I havent done work specifically on that. Marginsy is looking at being brilliantly high and cant go any higher. In fact the real benefit of margins is lower interest expense and slightly lower taxes. If you look at the margin behavior of the market and take out the interest benefits, they look very average. They dont look stretched at all. Othern say zombie, on the hand you can say they have more room to run. Lower Interest Rates have had a very big impact on corporate profitability and perhaps Companies May look better than on an earnings basis because of that. The other is buybacks. I would rather look at earnings. Companies buying one and a half to 2 of their shares throughout the cycle. They are still solid. Jonathan the one thing you are watching this week . I will give you three stories. Industrials early on. I would like to see them do well. Energy companies lay in the week we had poor results from the services companies. Middle, they have big promises. Three stories this week. Jonathan Jonathan Golub of Credit Suisse, thank you for joining us. Record highs across the three majors in the United States. Its the seventh straight day of gains. , this isyork bloomberg. This is bloomberg daybreak. Im taylor riggs. Coming up an exclusive conversation with dani reese on the status update since the march ipo. This is bloomberg. The main event of the week is on thursday. Estimates say we will see an announcement on the future of kiwi on thursday. The theme seems to be by less bonds but extend the time of that. In frankfurt. What can we expect . As usual we did a survey of economists who told us the consensus for the meeting is that the ecb will cut its 30thly rate of purchase to billion from current rate of 30 billion euros a month and they will extend the program for another nine months. The program was obviously, president draghi himself promised. In october meeting will be when the governing council will announce the bulk of its decision. It seems like the consensus is coming around that number. For nine months and 30 billion euros. Up a chartst threw of what many think the cap will be. It comes to about 2. 5 trillion euros. Cap . Do we had the thats exactly the situation. Ecb decidest if the to extend for another nine months at the rate of 30 billion they will probably reach the cap and of the economists policymakers believe is the limit for how much the ecb can still buy under the current constraints of the program. Those constraints stipulated are the ecb cannot Central Banks cannot have more than 33 of bonds of the single issuer and issuer. The 2. 5 or slightly above 2. 5 trillion euros is where it will probably be. If the extension happens as planned. Jonathan the numbers are important. Kind of changes to the Forward Guidance are you anticipating from the people you speak to . What we have heard from the Central Bank Executive Board especially the chief economist of the ecb as the man who proposal forgives every meeting. They definitely want to extend the program. He would like to see the extension of the program for as long as possible because inflation is still not there. That would help anchor expectations for Interest Rates. Want to do ist signal that the extension of a program or reduction in the pace of purchases will translate into expectations that trades will rise after. The current guidance says they end ofep rates pass the net purchases. According to our survey the theensus is well past means first increase in the First Quarter of 2019 and the main reference rates until the Second Quarter of 2019. Jonathan also a question as to how hollow those commitments might be. We were told they had a commitment to this program until inflation got below 2 . The chief economist of the ecb is concerned they are not there. Why are we having this discussion about the removal of qe. The rundown of the Overall Program as well. Probably you wont hear from the ecb. Program is slowly but surely facing certain constraints. At the same time inflation is not where it should the. It was. 15 and ecb zone forecast dont expect inflation to reach their goal which is below or close to 2 until the end of 2019 or even later. To find aay of trying certain balance between how much deliver they can still and have in their arsenal. To keep it going and spurted out so it is still there go up. Ps inflation obviously there is a question of much consensus is within the council. There is the hawkish side of the governing much council that sayy would like to see a certain end date set for when the qe ends. They havent been comfortable with the program from the start and obviously at this point they would gladly see an end to the program. David why are we so confident we will have something approaching a definitive answer on thursday . Saying autumn. Pt how disappointed will markets be if we dont get guidance on thursday . Scope fors always surprise. There are certain elements to consider. Mario draghi has been hedging his bets. Said i would like to see the decision. The governing council was not so certain about it. October looks like the sweet spot for them to announce it. They delay until december gives markets very little time to adjust. Considering an october decision is the best moment to give markets time to adjust to changes for the program. Any surprise will probably be taken badly by the market if. Hey dont get enough clarity visibility on what the ecb does next year. Jonathan we called up the chief International Economist at Deutsche Bank. This is what he had to say. The total outstanding amount of bonds in negative interest trillion out of a towable total market of 50 trillion. If a trillion starts to turn around and become positive that means the ecb event we are having potentially already on thursday is very significant. He talks about the distortions and the huge bulk of negative interestbearing. A lot of it is in europe. Will the ecb be over the pricing currency in the debt market and the potential for the kind of issues the Federal Reserve experienced they ares ago . Very conscious of that. They had a certain taste of what it could be if markets are caught by surprise. It happened in june when mario draghi had a speech at the ecb farm forum where he first gave to hint that the ecb is on the road to reduce the stimulus. Still we had a certain reaction in the market. People even started talking about an experience of taper tantrums in the eurozone. Wer the following weeks heard so much from the ecb trying tocouncil manage expectations and it seems to be considering the outcome of our survey and all of the information that has been coming from the governing council is that markets are well prepared for what may come. Alix its going to be a really interesting week. Thank you for joining us. Check out tv. You can watch us online, interact with us directly. Tv on your terminal. This is bloomberg. David heres a look at what we are watching this week. We are hoping congressman kevin brady will be speaking at 5 00 this evening eastern time. We will be listening for any clues on tax reform. On tuesday we will get the ecb rate decision. On thursday a number of Big Tech Companies report earnings. Morning we get advanced thirdquarter u. S. Gdp numbers. For more on what to watch this week we want to bring in michael mckee. We have that long list. That dont have official schedule dates are naming of a fed chair and a vote in the house on the budget. I think the vote in the house on the budget is easier to predict and when the fed chair will come. The rules Committee Meets tomorrow. When they adopt a rule it could come wednesday or thursday. It shouldnt be controversial. It should sales through sale fairly quickly. In a normal world you would expect it to come any day. With donald trump wait until he gets back or is he going to move while the secretary is out of the country . David the president is on his way to asia. Last week before he goes you have a fed meeting tuesday and wednesday so it will be hard to do anything while janet yellen is locked in with at the other fed members. Alix what else are you watching . We are watching the tax debate. We dont expect chairman brady to outline in any significant detail. As the house budget is adopted hes going to let out the chairmans mark which is the initial starting point. Thats where we get all of the details for the bill that will enable people to start scoring and give us an idea of what it will actually do rather than the speculation we have had so far. Have somey will legislative language we all get a chance to look at. This week we could get some language to look at. There is a feeling he will either do it thursday or friday or early next week. They want to get a vote as quickly as possible. And have to do the markup then get into the floor. Until he releases the details they dont have a starting point. Jonathan gdp friday. 2. 5 versus 3. 1 in the Second Quarter. Thats going to be hurricane related. We are expecting a big rise in pce for the quarter. Also hurricane related. You have to wait until the Fourth Quarter and maybe average them. Trump is playing golf. I am not invited. I dont really know. Alix do you have to throw the game . David they bonded over golf. She criticized donald trump for a lot of things. Apparently he was a good golfer. Jonathan from new york, this is bloomberg. Who knew that phones would start doing everything . Entertaining us, getting us back on track, and finding us dates. Phones really have changed. So why hasnt the way we pay for them . Introducing xfinity mobile. You only pay for data and can easily switch between pay per gig and unlimited. No one else lets you do that. 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. Vonnie from new york, im vonnie quinn. Mark from london, im mark barton. Welcome to bloomberg markets. Vonnie here at the top stories from the bloomberg and around the world. The race to head up the Federal Reserve is entering its final lap. Why one money manager says the central bank needs to think about the u. S. As two economies. May Prime Minister theresa address is a deeply addresses a deeply divided parliament. Kindler shares his view on where the biggest cash grab is right now. Are 30 minutes into the u. S. Trading session. Julie hyman is here to explain why it doesnt seem like there is much happening. Julie theres a lot happening below the surface