Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20171120

Low. If the spread is a tiny bit steeper in the u. S. David im not sure how to. Lets take a look ahead. We will look at the details from the meeting of the fat and the European Central bank. Janet yellen will be speaking. Philip hammond produces the u. K. Budget statement. Thanksgiving is thursday. The Retail Shopping season kicks off in the United States with black friday. Alix ive got a list of things on amazon im waiting to all the trigger on when the price goes down. The big news over the weekend was the failure of Angela Merkel to put together a coalition and form a new government. Three government democrats walked out last night after failing to overcome differences on immigration and other issues you if you look at the euro, it is lower than rebounded and then rolled over a little bit as we heard more aggressive talk and question marks about who would be the leader. The dax is recovering from a sevenweek low. We are joined by matt miller in berlin it. Miller, tell us about the events over the last 24 hours. Seen such anrarely incredible story developed so likely. Last night, the toxin failed. Merkel gave a statement after midnight. Then you started to see the blame game start. The ftp andlamed said they would be responsible for giving the afd more power. The commentary shifted and said it was a good move for their own party because they would be seen as less spineless than the last time they rolled in a coalition with merkel and they might be able to gain power in a new vote. Hours, the new boat seemed like it was the only way to go. German president will issue a new statement. He is going to tell the party to go back to talks and try to find some way. He is a former social democrat. He is going to try and force a new grand coalition that Martin Schulz had been against. Schultz will have to go. Alix walk us through the next steps. If we see another round of votes in parliament, when could be dissolved . Vote,if you do see a new he has seven days constitutionally to decide if he wants to call a new vote. If he calls a new vote, that would happen over a few weeks. The parties would have a couple of months to prepare. It would happen around april. More likely, the preferred route for germany is not to hold a second set of elections, but defined another coalition. The liberal party wont be coming back after so dramatically walking out of talks yesterday. Most people think that was a preplanned exit. It was a power play. If you see a new coalition, it would have to be a grand coalition between the social democrats and the union block. David talk about this new idea of a grand coalition. They said yesterday they were not going to stay in. Would that be a good thing for them to come back in . There might be a more stable coalition than when they were talking about. What i think the way markets responded said this is a local issue and it will be quickly resolved, without much fanfare. Andt now, the key to Europe Brexit talks and its based on a strong term in leadership. The same way we look past the developments in new york city or california when we talk about the u. S. Economy. Sound right tot you . She had eight weeks to pull this together. Is this a matter of ideology at the white . This point . Matt it allows a wave of immigrants in. You are seeing the backlash from that. Is it key for her to stay in power, or is it possible she is unable to move forward quickly enough . Take europe faster western mark faster western mark faster . Alix it is m a monday. They are adding to revenue growth. This is as they reported third order earnings. The next tie up of this Semi Conductor movement, we have seen this frequently. They have a rough go of it. They had a corporate scandal. The founders were ousted. There are activist investors. This is a new chapter for marvin l. David it is not done yet. Alix the deal was relatively well telegraphed. Eurodollar,ok at is the risk matching the downside . Marc just like the election in april put a bottom in for the euro, i suspected it would happen in germany. Ive have been looking for the euro to work its way lower, especially given the fed is going to raise Interest Rates in december. The differential between the u. S. And germany is the whitest since the 90s. Ofid there is a wide range possibilities right now. Does any of it matter to the amazing engine of Economic Growth in germany . Matt on one hand could say no. We have seen examples over the years of caretaker government that allows economies to flourish. In belgium, in the netherlands, in spain. Mario draghi on friday was urging europes governments to get there houses in order. Take advantage of the stimulus i put into the system and do your own work on the monetary side. If germany is unable to do that because they dont make decisions when the caretaker government is in place, mario draghi may have to leave that in place, which could give more weight to the trade down the euro. Alix there is a rhetoric we could see a stronger euro and european equities. Do you see that happening . Marc for the first part of this year, i think the cost money. That is the cost of money. I see european stocks for the most are picking for five months ago. The u. S. Stock market is within a percentage point. A lot of fun managers will be on the u. S. Right now. Its not back into europe. Alix matt miller in berlin, thank you so much. Ticks or, the clock the tax overhaul. The key thing to watch will be what is happening behind closed doors. We will have the details next. This is bloomberg. David congress may be a way for recess, but they are trying to put together a majority to overhaul taxes. Susan collins said she could not all along with the azil to do away with the individual mandate. The white house could live with that. I dont think that provision should be in the bill. I hope the senate follows the lead of the house and strike it. Piece, forull this some middle income families, the increased premium will cancel out the tax cut they would get. I like anybody doubts were the white house is on repealing and replacing obamacare. If we can repeal part of it and have a tax bill that is still good, thats great. If it becomes an impediment to getting the best tax deal, we are ok with taking it out. David we welcome our white house reporter. The us into specifics where individual mandate. If they do away with it, theyve got a big hole in the deficit. Thats right. Theyve been trying to plug holes in the deficit. Thats why the individual tax less thanto expire in 10 years because of the budget numbers they are trying to hit. Thats one of the reasons they put in the individual mandate repeal. They wanted to have 300 billion to plug into the tax plan. They are going to have to make changes and reduce the size of the tax cuts or reduce the childcare tax credit. That could make the gall less tolerable for a number of how level for number of senators. They are trying to keep 50 votes on board. You may use some of the senators who are expressing doubts they have very have. Theaw how unpopular Obamacare Repeal bill was earlier this summer. They could face the same fate if they leave that in there. They are going to try to appease some of the senators who had doubts so far. David at the same time, you have the router issues with the middle class. You might take away the tax benefits because of the health care. Childcare is going to the middle class. Are there things they could do to fix this that doesnt that the middle class . She floated the idea of not having the corporate rate of down to 20 , have it go down to 23 and that would free up hundreds of billions of dollars. Senators doublican see the bill as being skewed toward operations and the wealthy and they are looking at ways to plug the money is helping out the Business Class and taking it toward the middle class. They are not sure if the white house would open to that. Optionse not very many for help in the middle class and you have such a big business tax cut. That is an area where a number of Republican Senators May be looking to make changes. David thank you so much. Alix thanks. The white house has another message. Dont mess up the tax plan growth. The White House Council of economic advisers said he respects the independence of the fed. Dont create Interest Rate pounds that are inconsistent. With us now is michael mckee. We respect you, but dont mess this up. Let us do what we need to do. Possibility and then we knock it down. Nobody knows what will be in the tax bill if it passes. The fed cant say what it will do because it does not know what effect it will have on the economy. We dont know if there is a supply side benefit. That doesnt seem to be a problem anyway right now. It is silly to worry about what the that is going to do until there is a plan. Is already out and center, four rate hikes. Might we will have to see what happens. I would be comfortable with two. There is another debate that is going on. They are letting the bonds mature and other people emphasize the effect. When they are letting the alan sheet unwind, they say its not tightening. David do we want this tax package to work or not . If it does work, the that may come crashing in. Marc you would want a well crafted tax plan that would increase her activity and that would raise the ability of the economy to grow and Living Standards to move higher. This is not it. It is a tight plan that could affect the economy. The question for the fed is what do you do at that point. This is where people lose the thread. Given what we have right now, the rent that is going to raise four times. They are forecasting and economy an economy that calls for for rate increases. Remember what janet yellen said last week. We change our view based on what happens with the economy. We dont make a forecast and stick to it. David to the equity markets agree . This plan will not increase productivity to the degree they are anticipating . Relatively close to highs. Be disappointed if it did not get past this year. The big issue is what caused a great financial crisis was a lack of aggregate demand. Im not sure these tech changes are going to anything but exacerbate distribution of wealth in america. I think its more monetary policy. Times, hike rates three they are still consistent with a higher dollar. Mike you get a much higher trade deficit and that will have an effect on the dollar. Alix this is a six year bear market for the dollar. You, mike mckee. Coming up next, baseline is moving Market Capital last week. They are surging past 8,000. This is bloomberg. David alibaba is betting that can take on walmart in china. Walmart has made a deal to distribute 3 billion into the hyper mart chain. Walmart hits it against in the largest retail arena. Witharallels frankly amazon on one hand and whole foods on the other, i didnt know alibaba has been in brickandmortar for a while. Alix what are they not in . David thats the question. Will these two rivals have to but up against each other. The question is do they come up against each other . Alix it would be easier for expand to internationally than for amazon to move into china area david if you listen to President Trump, absolutely. Alix lets take a look at bitcoin. They are climbing to over 8,000 after a week of losing market cap. The recent surge, lets talk about this rally. It is 700 so far this year. Do you like bitcoin . Marc i dont think i would put my money in it. Im not sure what you are buying. Alix i wonder if we are the fools. We dont quite understand it. I wonder if we are the ones who will feel doma in a few years. Umb in a few years. Marc if you look at the market cap, i dont really know. Dont really see them buying bitcoin. I see them buying technology companies. I still dont see it. Alix the conversation was really interesting. Aaron brown wrote in bloomberg that prices do not display a longterm dynamics associated with bubble. That is interesting. If money comes in and there is no dramatic volatility, thats not a bubble. If there is not a lot of institutional movement, thats not a bubble. We are not there yet. David it is institutional in some sense. Goldman is open to it. Others are taking a look at it. The cme is about to start trading options. Marc right now, you cant go short with it going. It will allow people to go short, what is happening is there is a lot of liquidity and it is risky assets. I think bitcoin, i dont know why they call it going coin. I think what happens is the liquidity of the system gets drained and bitcoin will be drained. Alix we did see a safe haven last week. Marc what does that really mean . A safe haven in zimbabwe. So did gold. Alix if we want to look at safe havens, maybe its the euro, gold . Marc bitcoin cant absorb that kind of liquidity. Its 5 trillion a day. David it has come so much farther than people imagined area. Marc i have no idea where price is. We think we know the price of a lot of things, but dont know the value of anything. David im not asking about price, liquidity. When this starts to become entered connected, why do we rule out the possibility . What if it becomes more like gold . Marc it could be. I doubt this. There is nos value. I think it lacks the article mass as a means of exchange. If you look at how much energy it cost to produce these, how much computer power. It is very inefficient. Alix i swear we will all be proven wrong. These are some of the stocks moving. That company. Ing verizon. Ave its nearing a deal to carry streaming nfl games on more devices, including internet tv. Thats an interesting expansion. There are no plans issue new shares to raise capital. Thats an Interesting Development over there. They have heavy acquisitions, but no capital needed. Coming up, its the latest on brexit. Find out what they had to say about the impact on banks. This is bloomberg. Upx heres where we stack before the cash open. Thats lets happening in u. S. Equities, nothing. We have a shortened week. Despite thep by. 1 fact that you have Coalition Talks breaking off last night. Lets look at what happened with eurodollar. That is flat on the day as well. It was lower. Now it is flat. Dollar yen is flat. Treasury yields are almost flat when it comes to crude. David now we turn to taylor riggs. Taylor the future of europes longestserving leader could the in doubt. Merkel failed in her attempt to form a coalition government. This is over immigration led people to walk out of the deal. She will stay on as acting chancellor. They may have to hold another election. Charles manson has died. In 1969, his followers killed sharon tate and six others in Los Angeles Area he hoped that the tests would lead to a race war. He died in bakersfield. He was 83. The special counsel has told the Justice Department to turn over a wide array of documents. Robert mueller once emails related to the firing of james comey. They want documents related to Jeff Sessions recusing himself from the matter. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. David thanks very much. Just as we are waiting for an offer from the u. K. On brexit, we heard from the lead negotiator today that the u. K. Banks will lose their passport rates no matter what happens. The legal consequence of brexit is the u. K. Financial Service Providers lose their eu passport. Services offfer the 500 Million Consumers and 42 million businesses. David to give us a read on this, we welcome our brexit expert. Tell me if i am right or not. You are going to lose your passport matter what happens . Is this negotiation . Emma we have expected banks based in you take u. K. To lose passports. That is because of the single market. I think this was the clearest he has been when it comes to passporting. They are preparing for life after brexit without passporting. The u. K. Cytosine a would like of the trade agreement that includes Financial Services. That would be unprecedented. They are making it very clear. It comes to me as the brexit secretary has been on a charm offensive. He told gatherings of bankers that Financial Services were a priority negotiations. This might be a response to that. David you said it is free trade and you cant get there until you get a divorce name taken care of. Is there a way in which its not a complete past or, that they get some concession . Emma they have to sort out the bill and the irish border and then move on to transition and trade. One of the options that has been discussed is the idea of sides recognize its very fragile. A third way about recognition. None of this has been discussed in negotiations because of the divorce bill and the irish water. David tell us about the deadline. Is it a real deadline . There is a summit in december and in order for it to be formalized at that summit, they have to come up with the better offer. There is a meeting this afternoon of may and her ministers. They made it clear on sunday that the u. K. Would present a better offer on the bill and they would do so in time for the summit. David ok. Thank you so much for joining us, emma. What do you make of brexit . Help us sort this out. Are they making any progress at all . Marc its very limited and weve got to get to the next two weeks so we can see if the negotiations are getting to the next stage. It makes a big deal about the money. It makes sense that she doesnt want the taxpayer to pay more than they have to. It makes sense that she negotiates. We will see a commitment to a greater amount. The real challenge the real thorny issue will be the irish border. David money is sometimes the cheapest cost. They dont have good trade relations with europe, that will hurt taxpayer in a different way because it affects their economy. Think the rights of citizens in the u. K. Is the easiest issue to resolve. Then comes the amount of money they will pay. There is some compromise between what they are offering and what the eu wants. Offer waswful only a third and the irish border, where that order be drawn. Its not going to be drawn between Northern Ireland in the irish republic. That leaves them in a difficult position where they have to give up sovereignty. David if you dont have a single market, you cant have passports. Can you have a borderless relationship . Marc it seems that the government is still in denial. When they voted for brexit, there was a windfall. It was unknown in they did not have a strategy outside of campaign slogans. They want to have their cake and eat it too. There are going to be some major tradeoffs. Random, but really they are licensing more space for corporate in london. You have the advantage of moving people out. What is the first advantage if you cant sign a lease. Its a really fascinating headline. David it gives their real options. They dont know if they are going to be there or not longterm. Alix they really think goldman employees are into that. Would you go to frankfurt . Marc they are already beginning to firm up in anticipation of anymore bankers in frankfurt. Alix what you do with sterling . Marc i suspect there will be a breakthrough this week or next week. I think we get to the next round. What europe has to be worried about is they cant push may too far. Incould force an election the u. K. And her successor could be more hardline. Think theough that, i sterling volatility is correlated with stock price. I think we could be in store for a volatility spike and it carries sterling higher. David what is the risk of the u. K. Being left behind in the synchronized Global Growth . They are faltering. Marc its true that it is faltering. It still operating at a good level. I think the focus with monetary coulduld be about be the ultimate driver. I dont see another hike until next year. David they do have an inflation problem. Marc boosting inflation this year, that is close to a. Perhaps we have seen the peak. Next year, we see lower inflation in the u. K. David thank you so much for being here. Alix i am going to sit down with the Credit Suisse cohead of American Capital markets and get his thoughts on what it looks like for energy with 60 oil. This is bloomberg. Taylor this is bloomberg daybreak. Ofing up, barclays head global credit strategy. He will talk about the highyield rollover. Now to your Bloomberg Business flash area there is a presentation from volkswagen day. They raise revenue profit targets for 2019. A plan to meet its target with a 30 dividend payout within five years. They are trying to bounce back after resolving the take in missions test scandal. Alibaba is making another bet on rick and mortar retail. They have agreed to take a stake in the biggest operator of walmart style hypermarkets. They are acquiring 36 . Blackrock you Exchange Rated funds will be designed by robots did they have built an empire on funds. They will be actively be managed and use Machine Learning and processing algorithms. That is your Bloomberg Business flash. Alix what does the 60 oil price meeting or ipos in the United States. You can see the blue bars are what happened to ipos and the white line is the price. They are highly correlated. Now we have 60 oil. What issuance do we see. This is the man who runs the game for Credit Suisse. If you want money, you go to robert. Good to see you. What issuance will you expect . Robert i think you will see it take up next year. We will have a quiet second half of the year. That was the result of a pullback summer. It was a function of the underperformance of the oil equities and energy equities, creating a softening of sentiment. That is about the turnaround next year. Alix you said it was going to be oil services that would lead the eye you market. What is your pipeline for next year . Year, if you recast this two thirds of the ipos were oilfield services. Next year, it will be more balanced ross the three sub segments of energy. Services will be well represented. Alix why are Companies Going to market versus staying right . Robert its an interesting trend to slow down the Acquisition Market and energy. Privateally, a lot of companies have been sold to Public Companies for cash. Areink what you see now Public Companies having deeper inventories and more moderate growth expectations and relying on their existing inventory. That is creating opportunity for public investors to get in. Alix you want to put more money into stocks and dividends and let production grow. Robert i think thats what youre going to see. You will see them reduce the pace of acquisition of focus more on generating returns off their existing assets and living within cash and potentially returning or cash to investors. Its going to be a slower growth, but there will be growth. X if you take a look look at the terminal, what can we expect . The Capital Market was way open. It seems to have slowed down. Issuance wasave of driven by two phenomena. By first was driven recapitalization of the industry to respond to substantially lower rices post opec 14. That happened through the first part of 2016 when oil bottomed. Issuance from that point to today has been driven more by m a and recapitalization. Down, pace has slowed equity slowed down. The market is open. We have a number of issuance is in the market area we will see more early next year. It is a more moderated pace. Alix are companies waiting for secondaries to see what opec does . Robert they probably are closed until the opec market. There are going to be some short windows into december. You could see some ipos in that window. You will see the market reopened in the First Quarter next year. Alix when you hear about them moving away from oil and yes, is there something to be learned is a company . Dont wait because your assets will be worth more now than seven years . Robert i think there is a general confidence in the industry, the oil is here for a long time. Western mark after norway said they are getting out of oil . Robert i think there is a more serious discussion on the buy side of when we will see peak demand and at what point is that. The pace of the electric Vehicle Market share growth and the degree to which manufacturers it standards affecting gasoline demand, there is a discussion of that becoming more robust on the buy side. I think at this point, its less of the end of oil and more function of other Tech Knowledge hes participating in a technologies participating. Alix we have seen a lot of regional blowouts. It means that oil is worth less than the gulf coast. You can export more. To those regional differences impact the ipo market . Robert they can. They do not influence is now. If you look at the differentials in different basins, the edge into the economics, but they dont destroy them. Most people are selling in the u. S. Market against cushing. Cushing is 56. That is a good price. You will have a healthy industry at 50. Those are all shades of gray industryowing u. S. That is gaining share in the world. Tox conversation was 45 50. Have your clients rerate did those expectations . I think you have seen the expectation move from 40 45 to 60. S there is a big difference between rent and ti. Brent could move there. Alix thank you so much. David now as a reminder, if you have a bloomberg terminal, you can check out the go. You can interact with us directly. Just go to tv on your terminal. Live from new york, this is bloomberg. Alix this is my oil guy. He is talking about law school and being a lawyer area you are killing me. Lets rounded back to ipos. This is u. S. Total ipo volume. We are at 40 billion u. S. Dollars. That looks lower than we have seen in 2014. What do you think for the rest of the year . Robert i think its going to be a busy year. Pricing expectations are subdued for ipos. I think the volume will be there. We expect a sizable volume going into yearend. We see some defensiveness protecting gains. See aear, we continue to calendar with Technology Picking up and energy picking up to contribute to the return. David you see any uncertainty in the csuite . They want to know what the rules are. Robert i dont think you will see that quarter. I think it will process regardless of the tax outcome. You will see the impact of tax reform into next year, people thinking arthur winners or losers . Small companies are not heavily impacted by overseas earnings. David some ipos havent worked out all that well. There is a lot of capital available without going public. Robert if you look at the eye torments since labor day, its been more moderate. Prices are below expectations. That is reflected more side. Vatism on the buy from a pricing perspective, there is more caution in terms of what to expect, but the demand is there. There is no question the trend is here to stay, a lot of capital, there are bigger private companies and they will stay private longer with more access. Alix you said energy will lead the way. If you look at financials, energy is 30 billion in value. We have a chart that is easier. What are we going to see next year . Robert i think you will see next year the biggest change from this, see hopefully tech kick in. Thats what we can expect. I think you will continue to see reasonable percentages of financials, so that may moderate where it has been. Energy is going to pick up next year. David is there something waiting in the wings western mark wings . Robert i think its going to be back half next year. We dont see things eminent. Things may work their way into the ipo market finally. We have been wrong before predicting that. Reform, we do get tax what happens . Robert i think if you see tax reform, the biggest impact will be on corporate valuations with lower tax rates. You will see tailwind to the equity market. The market will be disappointed if we dont get it, but i dont think its priced in. There will be a lot of ipos. Its going to be a very active year. Robert, its always pleasure. We appreciate having you here. , this is bloomberg. Alix Angela Merkels bid to form a government. The chancellor of the exchequer says the u. K. Is starting to break the logjam on brexit while the chief negotiator issues a warning for banks. U. S. Senate has 15 session days left to sign off on tax overall this year. Another senator is uncertain about the bill. David welcome on this monday, november 20. Are you still sighing about the markets question mark alix it is the holiday monday of thanksgiving week and theres pretty much nothing with s p futures totally flat step the eurodollar is flat despite the drama in germany. Its flat on the tenure and pretty flat when it comes to oil. Its a similar story on the dax. The poundsterling is up by two 10 of 1 . Bitcoin is not flat, it its over 8,000. David thats very exciting. News from outside the business world, we turn to taylor riggs. Taylor the future of the longestserving leader in europe could be in doubt. Chancellor Angela Merkel failed in her attempt to form a coalition government. The Free Democratic party walked out of the deal over immigration and she will stay on as acting chancellor and germany could have another election. Leaders murder and cult Charles Manson has died. In 1959, his followers killed actress sharon tate and six others in los angeles. He hoped the death would lead to a race war and it and he was serving a life sentence and died in a prison in hospital in bakersfield at 83. A second republican senator has expressed reservations about the senate tax bill. Susan collins of maine says the measure needs work. She says the provisions on the individual mandate should not be in the bill and senator johnson says he cannot support the bill in its current form. Global news, 24 hours a day, powered by more than 2700 journalists and analyst and more than one inch 20 countries. This is bloomberg. David thanks very much. As we wait for the senate to vote on tax overall after thanksgiving, it seems like its one step forward and one step back. Over the weekend, republican senator Susan Collins said the bill may not have her vote which includes the repeal of the individual mandate and yesterday, budget director Mick Mulvaney said they would be open to that approach. I dont think that provision should be in the bill. I hope the senate will follow the lead of the house and strike it. The fact is, if you pull this piece of the Affordable Care act out, for some middle income families, the increased premium will counsel out the tax cut they would get. I dont think anybody doubts where the white house is on repealing and replacing obamacare. We absolutely want to do it. Ande can repeal part of it have a tax bill thats still good and can pass, thats great. If it becomes an impediment to getting the best tax bill we can, we are ok with taking it out. David to help us put this together, we welcome an expert. He is coming us today from washington. Welcome back to the program. Lets start with the individual mandate. How key is to the how to use it to the senate approach . Out, twoy take it things happen. In the first decade, they lose about 320 billion of revenue. Toy would use that money increase the child tax credit, increase the middle class tax cuts all of that presumably has to go away or be scaled back. Importantly, the ability to make some of the business reforms permanent starts to get called into question. Senate, you have to look at what happens in the second, third and fourth decade and some of the ways in which they are paying for the permanent relief on the business side, on making the tax code more competitive and trying to induce businesses to do more Economic Activity in the United States. Some of that would have to be sacrificed or you have to find another way to make that revenue neutral. Features,ere are two what happens to the middle class tax relief in the first decade and what happens to the business tax relief and the second, third, and fourth decade and can you make it permanent in a way that businesses can plan and incentivize Economic Activity that congress is trying to bring back to the United States. Real you pointed to the dilemma. Susan collins says i dont like doing away with the individual mandate because it hurts the middle class but to pay for that, it does not help her much politically. She says we should also look at the 20 corporate rate. What effect without have a fate took that out . I watched what she said carefully and i read her statement differently. I heard her say that i dont like the individual mandate penalty language in the bill but i am concerned about premiums and there are other Things Congress could do in premiums. I think she made a specific reference to a bill introduced by senator murray and there could be collateral moves made that would blunt the premium increase concern or address it. You have to be careful to look at not just what she is saying but the rationale of the position she is saying and are there other ways to do with the issue she is raising. I think that would be the first thing that leaders would explore. The alternative is you have to be less aggressive in terms of the relief. If you raise the corporate rate, you can certainly do that and you lose less money as a result but you make the country a less competitive place to do business. We are talking about 20 federal rate. There are another four or five points of state and local taxes on top of that and that puts the all in rate for u. S. Headquartered Companies Close to 25 . The average in the developed world is like 24 . We are kind of at the margin of being competitive with the rest of the world. The more you go up, you start to sacrifice that competitive edge. David thanks very much for being back with us. What if i said that a 25 Corporate Tax rate could get you 3300 on the s p by the end of 2018. The chief u. S. Equity strategist at ubs is saying that. Line is his base his upside case of 3300 if we break. Orporate tax his baseline is yellow, 2900 at the end of next year which is 12 up size. Keith joins us now. Thank you for having me. Alix walk me behind the logic of your call. To put it in perspective, 2017 was the first year of earnings growth. We think 2018, you can still get of around 8 wth with valuations cheaper than you think where we see higher rates placed in high or growth expectations not priced in. The upside case hinges on a Corporate Tax cut which we still see as likely. Congress is motivated do something before midterm elections to impact this and we dont see this priced in. Talkingat we were just about, will the Corporate Tax rate boost growth . Will it boost wage growth as well and trigger the demand . See all those pieces fall into place for the 3300 call . I think the conditions are already there. We have seen without energy and are in the picking up. Conditions are in place and we have had a profit recovery. I think a tax cut would be another catalyst to further boost that spending story. Assume the tax cut goes through and that helps stocks. Does toyou assume that inflation and growth and what does it do to the fed . Where are you priced and as for his fed rate increases question mark . The fed is still relatively patient but will price more in on the curve at a modest multiple expansion as the market starts pricing in the second and third order effect on growth. David at what point does the fed ramp up their expectations . They already have three priced in next year so at what point do they have to increase the rate . I think the rate market does not believe that. What we see from equity multiple standpoint is Equity Investors see pricing in that 2. 8 fed rate. David thats interesting. Alix talking about individual names, if you see your call and it plays out the way you think, what sectors benefit the most . From a corporate spending perspective, we Like Technology and industrials. From the demographic and growth perspective, we like health care. We would use materials, utilities and rei as a source of eventsts as a source of revenue. Disrupts isg that risks around the consumer. The savings rate has dipped and i think the story needs to be that the consumer remains solid in order for that business spending to pick up. Alix thank you for sticking with us. Coming up, Angela Merkel fails to form a new government. What does it mean for the europes largest economy in brexit talks . This is bloomberg. Alix german chancellor Angela Merkel failed to form a new government and Coalition Talks ended after failing to overcome differences on immigration and other issues. Markets have an Immediate Reaction in europe. Germany could be headed for fresh elections. Do investors think political differences are unlikely to disturb the Economic Growth . The dax recovered as well. It fell to a sevenmonth low at one point and then climbed higher and is now up by 1 10 of one percent. Right now we are joined by Bradley Rogoff as well as keep parker. You guys were old buddies back in your shop. What do you make of the reaction . I think the reaction reflects solid economic momentum in europe. Uncertainty around politics will continue to remain throughout europe. Bettert that youve had growth momentum supports the markets we see today. Because the conclusion is politics will not affect Economic Growth particularly in germany or is of the markets have a tough time pricing it in . I think the German Economy has been doing quite well as was alluded to by keith. The markets have been focusing on the peripheral and whats going on without too much bad news. Its hard to see things changing very much especially in the credit markets or the European Market is benign in terms of volatility. To continue on that, does there, point when the markets get concerned . Its been eight weeks so far that Angela Merkel has been working on this coalition. If this goes into the first or Second Quarter of next year, does there become a point where the market becomes impatient . When you go back to brexit and we saw three or four days of a market selloff and you go back to some of the other things happening politically in europe whether it was the italian and a half an hour later, the market spread went wider and came back. What the markets are telling you is we will not move right away on political things. We actually want to see growth or Something Like that in order to push the market wider. Alix lets take a look at the curve. Germany is the blue line and it goes nowhere whereas the u. S. Is very intense flattening over the last few weeks. Why . Fed or at and the different points in what they are doing. The fed is potentially hiking again next month as well as what they have done this year. Less than theyng were and have announced they will buy less than may have been over the course of the year but thats still very much an expansionary thing relative to whats going on at the fed. In the u. S. , we see the front rise in the back end the seems to be grounded by things like inflation. Alix work this into an equity standpoint. The trade was if you want value, go to europe. Than we had the market week in may. Now what . As you showed the chart on the curve, the equity market is negatively impacted by short rates but the fact that we have longer duration treasuries still well behaved as growth expectations move up instead of positive for the equity market boosting valuations, i think in terms of the value trade in europe versus the u. S. , we are seeing investors moving more toward technology which has a bigger, better media term growth. , have theyty markets priced in us going away tour i would away from qe . The fact that you still have relative equity versus bond yields two times plus greater than u. S. Treasury and equity volatility less than two times that of bond markets, you are seeing equity risk premium still relatively elevated. We see some pricing in of that. You you mentioned when talked about Corporate Credit. Will the ecb by more Corporate Credit what does it wind up doing for spreads . I think it doesnt necessarily put the spreads that much tighter. It will be a few basis point here and there. Potentially, the share of what they are buying to go up a little bit in terms of Corporate Credit. If you think about the numbers, its pretty astounding what they own already. They are defining the universe of what they are willing to buy and it does not include financials. Universe is buying, they will own 15 of the corporates. Overall, that is a high singledigit percentage. A topic it moves things much tighter in the nearterm. Toward the end of next year, when they stop buying similar to the fed when reinvestment stops, what is the approach of the market but we are too far away from that now . Ford thank you both staying with us. Coming with us, the uncertain future of at t and time warner and we will talk about why this is no normal antitrust case. Live from new york, this is bloomberg. Alix this is bloomberg daybreak. A big takeover in the chipmaking business. Marvell technology has agreed to buy capeion for 6 billion in cash. They control hard disk drives and thats a market that is no longer selling. Presentation from volkswagen, the german automaker raised its revenue and profit targets for 2019. They plan to beat its target for 30 dividend payout ratio within five years. The company is trying to bounce back after spending billions to resolve the fake emissions test scandal. Blackrock of Exchange Traded funds will be designed robots. It has built in 1. 3 trillion empire on passive funds but the new funds will be actively managed and use natural language processing and algorithms. Thats your Bloomberg Business flash. David on friday, there was speculation the department of justice would be blocking the at t and time warner deal at any moment and then it was reported things have been postponed. Pulse when he is ahead of north American Research for Bloomberg Intelligence and joins us now. It went around the newsroom on friday. Then there was a report that have been postponed, why questio . Hopefully the parties are still at the negotiating table so they dont have to go to court. Its not in anybodys best interest for this transaction to go to court. The government, the department of justice does not have a strong case here. On the other side, at t and time warner have no interest in going to court to delay that transaction or running the risk of it not being approved. Both parties are have an incentive to get a negotiated settlement so the transaction can proceed. That there were reports the Justice Department wanted states to sign on. Could this be giving them second thoughts . Hear at t speak, they feel very comfortable and their legal standing for this particular case given that its a vertical transaction and because the recent case precedent is so strong and their side, most notably the comcast acquisition of nbc universal. Its an unusual tack the government is taking in terms of looking for some significant revenues for this transaction. Nevertheless, both parties have their heels dug in but hopefully, most are hoping the transaction will arrive at a resolution in next day or two. When disney bought abc, the company is consumed with this. The executives are contacts are consumed with the bandwidth issue. Extent, it does not have time warner moving forward in the core business . Thats always been the rest. This has been ongoing for a year now. The Media Business is facing some serious fundamental challenges that a lot of the Major Companies are making bold bets with disney going direct to consumer with some of their products. One wonders what time warner is doing to manage their business while they try to close this transaction. David you mentioned other trend other discussions are going on. Departmentice development perhaps having a Chilling Effect on discussions . It certainly might. Whats happening is the fundamentals of the Media Business are pushing for change in this business, pushing for consolidation, repositioning of assets because the Media Business is being disrupted by the internet and the netflix of the world and all Companies Including news corp. Are thinking about their future. David on friday, there was a report that for rise and is in talks to buy an nfl game to have the licensing right for 21 million so that illustrates what all the media companys are facing. Exactly, they are trying to get into content and trying to figure out what the best way to distribute is and how to get paid for it and verizon has been mentioned as if this as a potential suitor for 21st century fox which makes sense because what they have done with content by buying aol and yahoo assets does not seem like a big enough that in the content side of the business. David is any point where someone might come in after time warner . The stock price has gone down since this news. Its possible when you have signaling that they are ready to sell the company after time warner was slimmed down over the last 10 years. Its a collection of some of the most phenomenal assets of the world. Im sure lots of companies would be interested in those assets. David thank you so much. The one thing i guarantee is the media world will look different two or three years from now. Alix totally. I cut the cord a million years ago. There you are. Looking at the troubles in the junk modern mark in the junk bond market spilling into stocks, its flat. Its ace newsy monday morning on a holiday shortened trading week in the u. S. I will tell you what else its happening. S p futures and dow futures are flat. You also have the dax inching europeanigher as stocks are moving higher despite the fact that Angela Merkels Coalition Falls apart. Pretty much flat everywhere else. This is bloomberg. this is bloomberg daybreak. I am alix steel. Futures are flat in the u. S. A Little Movement to the upside in europe. The real action earlier was with euro dollar. The worst decline in three days off headlines over politics in germany. 0 we are down to. 1 . It is a soft and sleepy week. David lets get an update on headlines. Taylor riggs is here with first word news. Taylor there has been a stunning turn of events in zimbabwe. In a televised speech, mugabe failed to announce his highly anticipated resignation. The ruling party ordered him to step down. The special counsel in the russia investigation has told the Justice Department to turn over a wide array of documents. Robert muellers prosecutors want emails related to the firing of james comey and Jeff Sessions decision to recuse himself from the matter. Ray dalio says there needs to be a National Initiative aimed at helping the bottom 60 of income earners. He spoke on cnn. If you look at the bottom 60 of the economy, there has been no income growth. There has been rising death rates. There are two economies. Taylor dalia was the founder of bridgewater associates. Day. L news 24 hours a i am taylor riggs. This is number. Alix thanks so much. Is he saying to buy gold . David that is easier said than income try to equalize inequality. Politically controversial. Market, the story has been a slow down in the highyield market. How has it translated into equity performance . Rerating in the last few days. Is banks with strong balance sheets. Yellow are the banks with weak balance sheets. Broadly, the conversation was that high equity was rolling over. Was that true . It was true if you look at the s p 500 and the highyield index. I think if you look at the andorates in highyield the equities, it is a totally different story. The equities underlie the small yield companies. When we drill down on those companies, their equity underperformed the s p and in line with how you would expect based on the way highyield bonds were performing. Alix does that mean we do not see contagion because this is a fundamental move . Fairlyink it was sectorbased. Likeu look, you see things telecoms, health care, and retail. That affected the highyield market. The highyield market does not have the big equity stocks. Is this a series of particular situations or is there a broader phenomenon . Leverage, and on the other hand, the possibility of cutting back on the interest reduction for corporations. You have a difference between largecap investmentgrade equities that are not as impacted by this phenomenon versus Smaller Companies. As it relates to tax, if you do the math, it is a 10basis point impact to earnings. That is not an issue for the s p 500. This bradley, does breakdown roughly along the lines of the s p or the russell because they tend to be Smaller Companies . A little bit. Our view is that the house and senate plan have different locations for highyield. Butto get too technical, they use different definitions of earnings. Because the senates definition of earnings is more restrictive, it will affect more companies. To oneld look at up third affected as opposed to teens in the house plans. That led a little underperformance of highyield. As keith said, it has little impact on largecap highyield companies. David i think youre talking about the difference between ebitda. Eve that could make a substantial difference. Basically, the d. N. A. You are 40 ng off we think is about of the average company. The 30 number you are capped by is coming from a number only 60 as big. Obviously, that will affect more companies. Alix take a look at the bloomberg. Bb. And we have seen ccc outperform. They did get hit but are still outperformers. What is the trade now . It potentially gives people more confidence around the bb companies. They will not be impacted much. Cautioncause for some was if you look at them versus high grade equivalents, before the small selloff, we were at decade heights. I think it is still a decent riskadjusted asset to own but the upside is not necessarily there in bbs right now. What about the rotation . We are at that point in the later stages of economic recovery where companies are becoming more competitive. Companies have leverage up to buy back stock. Flexibility in any sector where there are shifting changes. David thank you for being with us. Keith parker of u. B. S. Will be remaining with us. Up, Eric Farnsworth will look at naftas toughest sticking points. Live from new york, this is bloomberg. Taylor this is bloomberg. I am taylor riggs. The head of equity strategy on why he raised his target to 2636. It has taken nine years, two elections, and multiple lawsuits and protests. Today, trans canada will learn if he gets the final permits needed to build the keystone pipeline. Regulators nebraska will make the final decision on whether building the pipeline is in the states interest. Largest Ecommerce Company has decided to take a large stake. . Ibaba is acquiring 36 selling new shares to avoid delisting in tokyo. The move may bring in more foreign investors. Among those buying the toshiba shares. That is your Bloomberg Business flash. David thank you. Breaking news out of germany. He has told the parties to go back to the table and put together the coalition. Over the weekend, Angela Merkel tried and failed to do a coalition. One possibility was to hold new elections. The president said to go back to the table and try to cut a deal. It is what matt predicted earlier in the program. Alix kudos to matt. In equities, down barely. Euro. Rately softer david the markets seem to be shrugging everything off in terms of politics. Thean president has told parties to go back to the table and try to cut a deal. Round five of the nafta negotiations are due to end in mexico city tomorrow. There are not reports so far of Real Progress being made. Eric farnsworth comes to us from washington. Good to have you back with us. Give us a sense of what is likely to come out of round five. I think it is a really important round in that the three lead negotiators did not come and they are allowing their teams to try to flesh out some of the romance demands by the United States. Probably no great breakthroughs but some progress to get to the endgame by march. David that is critically important because originally the endgame was the end of december. Now it is march. We have heard from wilbur ross that time is wasting. How do we move this forward faster . Do we have to get tax overhaul out of the way first . Tax overhaul is paramount. That will have to be the priority. Quickly. Oving some of the big issues have to be resolved. Without a key negotiators at the table, it will not get resolved. This is a time issue and will become more so. David what are the big stumbling blocks . Rules of origin in the auto sector is huge. The sunset clause that the United States is demanding that nafta be renegotiated every five years is huge. Those are some large commercial issues. They are new. Right now, there is no clear way to resolve those to satisfy all three negotiating partners. David take us through the rules in the automotive sector. The president seems almost by himself on this. The u. S. Auto industry appears to be against the president s positions. Exactly right and they are becoming more vocal by the day. This is seen by the administration is a Campaign Promise to the midwest and manufacturing sector. What the United States is trying to do is guarantee greater manufacturing in the United States compared to mexico and canada. That sounds good in theory. But the reality is the supply chains have become so integrated that this would screwup the auto sector in north america and there is no clear path forward. David thank you, Eric Farnsworth. Alix keith parker is still with us. What is your best case for Something Like nafta . I think it is another degree of uncertainty that could be added to the market. For therules change auto or manufacturing sector, it impacts violations. Alix you like cyclical. How do you like them when there is that uncertainty . I think there is the broader underlying demand trend where business spending and tech spending usually follows profit growth. Anticipate labor costs going up . Risk. E, there is you have been dealing with wage increases per hour since the financial crisis. What has been weak is productivity. Our call is the productivity growth needs to change to support margins. Does inhibiting crossborder trade do to productivity . Many of the productivity gains we have seen over the years since the mid1990s has been improvement in Global Supply chains. I think rewinding fat and putting it in the opposite direction is a risk. David as an investor, you focus on u. S. Equities. How do you strike the balance for your investors between u. S. Equities as opposed to emerging markets . How do you make the decision on where you should be going . The u. S. Versus emerging markets story is the global backdrop. We see a solid u. S. That drop backdrop. In china, infrastructure demand slowing and rebalancing. We still see emergingmarket equities higher next year but being more selective and favoring financials over more pure commodity plays. Alix you are not alone. J. P. Morgan is saying something similar. Hasnt money already been coming into em . The money come from. There are still valuations. The last stage of a bull market is usually given by retail foreign flows. This year, it has all been short covering. You would expect inflows into financial funds and etfs to continue, in particular supporting em and hopefully u. S. Equities as well. Alix if you are buying em because of growth, how can you have em and the u. S. Still having strong growth . Our baseline is solid u. S. Growth with the rest of the world a bit better and a stable u. S. Dollar as the fed continues to normalize. The curve flattens and centralbank accommodation is removed gradually globally. That is still positive for select yen. Alix we will be having you back. Thank you, keith parker of u. B. S. We will tell you why College Football teams are worried about tax overhaul. Check out tv. Interact with us directly on your terminal. Ask a question. We will flag it in the next segment. This is bloomberg. As a companys of plan to overhaul taxes gets it together as ashington comprehensive plan to overhaul taxes gets put together in washington, our reporter has found something that could hurt College Football programs. Take us into this. I never knew there was this booster exception. My wolverines got killed by wisconsin just painful. For the past 30 years, College Football and College Athletics in general have commercialized largely on the backs of these unique donations structured to be taxexempt. It is a winwin for the school and the donor. As College Sports has exploded, it has done so largely because of this. The tax plan republicans unfurled last month threatens to undo the exemption. That has many worried. David michigan just redid the stadium three or four years ago and built big skyboxes that people pay a lot of money to get. If i spend a lot of money on those, i get to deduct some of the money . Exactly. They took the licensing format from pro sports. You would pay an upfront fee just for access to buy one of those boxes. It could be a 10,000 fee just to buy a box or season tickets. A 10,000 fee just to get access is 80 taxdeductible under the current model. David under what theory, charitable donation . That is a Foundation Donation and should be taxexempt. David how concerned are the schools and programs . Very concerned. Lsu brings in 60 million a year in donations tied to cede priority seed priority. That could curtail donor amount by 20 . That is a huge hit. They are very worried. David are the people writing the tax laws thinking that is too bad, we need the money, or are they thinking they will pay it no matter what . That is a great question. That is what athletic directors are asking me. Are they going after this because they dont believe it should be there in the first place or are they just looking to make money back as they give cuts elsewhere . David how much is at stake . 200 million a year going into the federal coffers on this. There are a economists that study the extent to which a tax break will affect donations. Some say this could have a significant effect on donations. Others say negligible. David the government will not make 200 million because people will not pay. Unlike giving to the red cross where you are getting nothing back in return, these donations are full access to tickets. Most boosters view this as part of the ticket price. If they think the price of my tickets went up 7 , they might not be willing to stop paying that. David any lobbying going on with this . Estate and local taxes broke down on state lines. A lot of red states will not like this. Not exaggerating when i say every bigtime College Program is working with the Governmental Affairs group at the university. They are lobbying local senators and congressmen. That is a powerful lobby when you put all of the universities together. The fear is they have so many people screaming about the tax plan and reaching out to senators and representatives saying this is what might mean for me that they are afraid their complaints might get lost in the wind. David is this in the house and Senate Version . It is in both versions. It is in the house version approved thursday. David this could make it into law. It certainly could. I would imagine if you were gauging the worry in College Sports, thursday was a big jump up in worry when they realized he got through the early versions in the house. The lobbying is extensive. I imagine it will start ramping up even more. David it is hard to feel too bad for the programs because they get a lot of money. Williamsks to avenue b eben the noble williams novywilliams. Alix he will discuss why he is bullish raising his ear and targets yearend targets. This is on a day when features go nowhere. A little upside in europe. In asset classes, similar story. A little upside for sterling but not a lot of movement on this holiday trading week. This is bloomberg. Joanathan republicans push for tax reform and vases no shortage of headwinds. There will be heavy debate. Merkel says the coalition over the brexit bill, but markets remain calm. The hunt for murdochs assets its a fever pitch. They are tackling a deal with the nfl. From new york city, good morning good morning. This is bloomberg daybreak. I am jonathan ferro. Let me get my breath back. Alix we missed you. Eurodollar, ive got to say the german Coalition Talks collapsed trade the president does not won a second vote. He wants the parties to carry on talking. Eurodollar goes nowhere. Basis are up by a single point. Lets get you some headlines. Alix thank you. We have the m a monday tie up. Marvin l is making a deal for the company. Thatm is trading above price. Rvell is trying to reinvent itself. They are driving to move into the semiconductor space. A lot of action is happening in that space. Avon is moving with a bona fide 3 . They may be interested in buying avon. Thatadded 587 millions in for a licensing deal. It could be used for other purposes. Thats interesting to watch as we head into the open. Lowes is stronger, up. 7 . Home depot had a killer earnings after sales jumped on the hurricane related demand. We are looking at 4. 5 comp sales. Joanathan some breaking news. Uber technology is line Sport Utility vehicles from volvo to form a fleet of driverless autos. Up 1. 2 . Ered is they are not really moving. There are 120,000 sportutility vehicles. Its beginning to see like hoover once the big firms go their own way with us, they are on top of the software. David they had a relationship already between hoover and volvo. They had an accident in arizona. This is interesting. They are doubling now. Joanathan its the future. Up without at 122 driver. 2021 is when its going to start. Alix when you look at peak car demand, they have that out into the 30s and 40s. There are some that say it could 2020 or 2021as because of the adoption of driverless cars. David the other auto manufacturers are focusing on urban settings, and expensive cars that will replace taxis. I do think of volvo in that context. They tend to be more suburban vehicles. Joanathan do i see this in the futures curve yet . Alix you will. The oil could crash to 10 on this. Joanathan investors will see more room to run through it. There will be multiple strategist using the yearend target. We spoke to keep parker of ubs. Geth we think 2018 can solid growth around 8 , valuations are cheaper than you think. We have higher medium growth expectations not priced in. The upside case is a Corporate Tax cut, which we still see as likely. Joanathan joining us now is chris harvey. There year in target to 2636. Thats a big upward revision. Is that where we are in the market . that is our 2017 target. 6 or18, we are expecting 7 return. What we are looking at is everything is expensive. Similar to 100 basis points. You are looking at mid singledigit returns. Thats it we are going to get in 2018. We are still speculating on speculation. We are looking at a fed tightening cycle. What we have seen and we have gone back to 1996, multiple compressions of two points. Taxes mayou get from be taken away from multiple compressions. Joanathan i went to ring in our political reporter. Wall street is saying they dont need this. Downing d. C. , if they go home to their constituents are they going to hear from electors the day we need these tax cuts . Toluse not likely if you look at the polling. Thes not something electorate at large is clamoring for. Aretax cuts in the bill skewed toward business and corporate interests and americans dont draw the like between the Corporate Tax cuts and corporate profits and are in financial situation. They dont see that trickle down as an automatic things away the administration portrays it. You dont see polling that says high levels of some of the tax bill. There is only 60 of americans who believe its going to help them and reduce their taxes. This is something businesses most likely are seeing is something that is orton for them and the American People in large part dont see it as benefiting them yet. David the American People may not be counting on this. What actually might most affect equities . One of the things we talk about is what the tax bill can do. What we think it will do is start to spur m a activity. They are not sure what the tax benefit or liability is. It puts into question some of the funding of the cost of funding. We think m a will start to pick up in earnest. David which ever way it comes out, just having the rules set will spur m a . Chris i couldnt say it any betty better. Then people can price things. Alix when you look at the value growth debate, it seems like value should take hold. When you have a flatter curve, how do you justify that . Chris we think its episodic. Midcap, be smaller, more value oriented. Value could come back in favor. We dont think its a longer term trend. Alix what is the downside . Is it as simple as tax reform . Chris we will have an m a cycle. In the second half of 18, growth may begin to decelerate. Fedhave an ecb, the tightening. What multiple you start to put on that western mark what we see is a contracting one. Joanathan using the market getting ahead of the economy . Chris we do. One of the reasons we raised our price target this year was passive. One of the things we noticed is passive is starting to look like qe. He took a significant amount of the treasury out of the market. Now you are taking the equity market out of circulation and putting upward pressure on price. Joanathan Goldman Sachs is looking to 2018. Typically, late cycle behavior is putting leverage up. This time, it is taking risks with liquidity. When you need to get out, the exit door is the small and then gets the small. Bad, it goest goes aboutwe are concerned there not being a lot of opportunities. Everyone is trying to squeeze into these opportunities and things can get dicey. Move up in quality. That is the best position for you. You can participate on the upside and protect on the downside. Joanathan its great to have you with us. Chris harvey will be sticking with us. Coming up from germany to the u. K. , Political Drama is heating up and investors keep shrugging it off. Eurodollar is going nowhere despite Coalition Talks breaking down over the weekend in germany. Upt conversation is coming in about 20 minutes. Futures in the United States are potentially quiet. Its a little bit firmer, up 28 on the dow. This is bloomberg tv. Alix the ecb president is speaking before the European Parliament committee on monetary affairs. He is doing that from brussels. He said stimulus is still necessary. The backdrop is quite interesting. Its all about german politics as merkel tries to salvage fourth term. She is pushing talks to avoid a new vote and the market is very calm. Downdown is dollar is. 1 . Joining us is matt miller in berlin and still with us is chris harvey of wells fargo. How significant is it that the president said start talks again . Matt it wouldve been more ofnificant if the leadership the Opposition Party had not voted on new election. They were the emergency go to Coalition Partner for merkel and her christian democrats has said forget about it. They are not doing it, even without schulz and merkel. They would prefer to have new elections. The greens have said new elections are the most likely path going forward. Merkel has told her party bosses that anything should be avoiding new elections. It does not seem her weight along with the president are going to bring about any coalition. Alix once the process then of new elections . Has seven daysr to make sure he cant somehow form a new government or asked the parties to do so. After that, he would dissolve parliament and the new elections would be called. Everybody would want time to get ready. We are hearing that march or april is the timeframe we would be looking at for new elections. Joanathan the market really does not care about this story or the potential for not having a German Government. Youve been reporting about this morning. Why . Matt i thought it was amazing as well, but consider the voice you came in on. Mariota draghi is speaking today. He urged governments to get their houses in order so he would be able to end the extraordinary annulus he has been putting into the eurozone. He is putting that into the eurozone still. Even if the German Government doesnt form or a new government is formed, the ecb is essentially saving today or the euro and for european assets. That has a lot to do with the reason you saw things bounceback. Joanathan i want to get a couple of questions were chris. We have talked about trade politics. If you wake up on monday and you expect to see this gap in europe, i dont think you would acted to be filled the way it was in the fx market. Chris i was in europe three weeks ago. The move is positive. People are constructive about the way things are going and the economy. Outside of the recent political issues, people are ok with the clinical environment. The vix has been teflon this year. You would think politics wouldve done something to it. The thing we talk about, the thing we say is it has not been a cornucopia of legislative success in the u. S. Alone u. S. Less government is good. As you talk about the various partners, they are all pro business. None of them are against business. We have no Jeremy Corbyn in the mix. How is that driving it. Matt with the exception of the greens, they wanted to close down coal plants and dan internal combustion engines. Upy werent willing to give on some of those demands. That is what the liberal party said as to one of the reasons they backed out. The greens were unbending and they were necessary for a successful coalition. The interesting thing about gridlock being good for washington, weve seen a few examples of gridlock being good or european economies. You had no government formed in belgium for over a year. There was no government in the netherlands and spain. Althoughs economies did quite well. Thats what the market is heading on here. Things are going swimmingly. People are expecting 3 growth for the year. That is great. If there is no government formed, they wont be able to stop that progress in progress. Alix matt miller, great reporting this morning. Coming up, merger monday is living up to its rolling. We will discuss the latest consolidation did this is bloomberg. David the chipmaker is building itself a future outside the market. They are buying a rival. They will pay its billion dollars for a networking processing company. Chips control hard disk drives. I didnt know there were that many left. That market is no longer growing. Joining us now is the bloomberg deals reporter. Let me start with you about this deal. How much of this is triggered by broadcom . They are going through huge wave of consolidation. You mentioned the ball, deal. Qualcomm deal. There is a lot of consolidation in the semi space. You are putting to Semiconductor Companies together. On the one side you have ma rvell, those hard drive chips are going out. Cavium is much faster growth and takes them to a different area. David take us into the story here. Has notst heard, mavell been growing. They are going into an area where they are dominant. It makes sense. You are right to point out this was actually a lower growth type of company with some challenged markets. This is a transformative deal for marvell. They go to a highgrowth company by acquiring cavium. Rather than intel, they are really eating with broadcom here. They are the 800 pound gorilla in storage. They are going to be the number two player in that market. Joanathan how long before they get . Chris is a good question. Someone else in a public call said you are buying until you are bought. Who knows. They may be bought. Joanathan its kind of ridiculous, isnt it . If you are trying to all of this sector, i dont know where to start. Ed everything is potentially for sale. Is too big in the space. You have very ambitious ceos. The market is rewarding them for making these deals. They are over 3 premarket. Stalwart, they really created this. They put pressure on the company to change management. New management a ceo. He was a very ambitious guy who was encouraged to do this deal. Joanathan lets have a look at marvell. Who would want to buy them, everyone out there at the moment who is making these big acquisitions . Number one. Com be i dont think that would get by antitrust. That would be the big hurdle. Who might want to do this . Intel themselves, this gives them a time of new technology they can add to their folio. The list is actually quite long. Both very muchu for being here. Lets return to chris harvey. Lets talk about this sector. Is the sector an attractive one . Chris it has had a run. I worry about its starting to feel like the Health Care Industry from a few years ago, where the market rewarding everything and that it didnt. What happens is usually you do if you deals and they worked out well. It gets bigger and the probability gets reduced. Im starting to worry there is too much going on. David if you are trying to figure out if we are at that point or not, what are the indicators look more . Chris a number of things. You look at market share because there may be issues with the boj. Synergy time and time again, that becomes an issue. If you look at how aggressive they are with their accounting and how they are aggressive with their assumptions. You get more and more worried. David this synergy mean people . It usually does. Thanks very much. Joanathan we are more minutes away four minutes away. Over. 1 to dow futures are up 31 weeks. After a shorter and more quiet week, they are higher. In the fx market, eurodollar is coming back. The Political Drama is significant, but the move in the markets is quite small. This is bloomberg tv. 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. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Trading week in about 25 seconds. The cash open is just around the corner. Up. 1 . 500 futures are there was another week of marginal losses last week. A quieter trading week, discussion is still about politics. Its not a flatter yield curve this time. Market, dollar pound is up. 2 . There is a slightly weaker euro with germany. That gives you a cross asset nature. Lets get to the opening bell. Alix it brings true as we open up here in the u. S. The nasdaq is up by or points. Four points. Biggest equity bowl on the street. That is not factoring in tax reform, that could be shall 9 upside. Beatties the market, we are seeing some very interesting movers. To they arep. 1 buying part of a Chinese Grocery chain. Story is you have walmart in china, you have amazon getting into groceries here. The war between the three continues to heat up. Againstp. 6 recommendations of the weekend. Upside nextave 30 year after a long slump. In they will. 7 lose their exclusive rights on mobile. Its a very interesting change continuing in the immediate telecom industry. We complain about the low vixen complain we havent seen a pullback. Inhave seen rotation november. The leader of the market was staples. We 10 months before, cyclicals outperform everything like that allergy and energy as well. This chart tends to tell that story. The blue line here is the next. The white line is the Goldman Sachs strong balance the she stock. It really started to sheet stock. It really started to perform well. Rotation insurface, the type of stocks investors are starting to buy. Joanathan are reporter joins us along with chris harvey wells fargo. Do we see that flight to quality on the margin . Chris people are talking about rotation. What we see and what we talked about is higher wally. Thats what you see in the marketplace. Companies with more leverage, it is more difficult. We dont see the rotation. Joanathan tesla is able to come out and say we are going to have these new cars in the future. What does the market do . I still dont know. Thend just quality in different permutations we seen in the market this year, one thing that amazed me, if you look at energy and tech stocks, they dont go down at the same time. Thereve been two days this year when they have had smaller trades. You see the rotations and the market refuses to go down all at once, whether it wally or Interest Rate sensitive. Nothing is big enough to need cap all of these species in different. Joanathan it is kind of interesting, the obsession with growth at any cost. You can see where a stock is priced in if you can promise growth, they will be ok. They need to raise more money. They could go to the equity market for it. Chris inertia is the most powerful force in the Capital Markets. We think momentum will continue for the next six months. M are having a great year. Sold, ite they have hasnt worked out. They are not doing that anymore. You see a lack of sellers. Back when they were trying to gain liquidity or push stocks around, at the beginning of 2017, for every dollar went to intondex firms, . 20 went tech. Now its . 25 into tech. David it matters who is line. To we have a sense of how much of it is retail . When the retail really start coming in it tells you where you are at in the cycle. Where the money is coming from. It just amazes me that at this point in the cycle, you talk about this synchronized Global Growth. Central banks are moving toward normalization. This is been the great backdrop for momentum. Who wouldve thought this would be the time for value to shine so that when this kind of year is possible. Alix at the margins, you will not because it doesnt work. It doesnt mean you cant by staples. Is it a trade that is going to emerge the next weeks . Chris you can find higher wally. Its a good stockpicking marketplace out there. We think many stocks and the things clients are saying to us, they dont want to buy anything without will mentum. Even the value players, it has to have some type of mentum. If you look momentum. That is a significant return. If we look at asset, it is very positive. To belaborward, not the point, in the First Quarter, we expect to see some m a activity, what should shift around what people want to buy . It may be midcap value wise. Joanathan to your point, momentum is always killing historically until it doesnt. This year, wow. Everything,tty much long bonds, everything you would think is in a bubble did well. Luke it has continued to outperform broadly. Joanathan gelman, great to have you with me. We are seven minutes into the opening bell. For two weeks of losses, a little bit of a bounceback. We are a. 1 on the dow. Despite the politics in europe, they are of. 4 . Up. 2 . Dollar is the treasury market is higher on. This is bloomberg. Alix this is bloomberg daybreak. Taylor coming up on bloomberg markets, the former Deputy White House chief of staff. This is bloomberg. David last week we so reports of media Companies Interested in buying 21st century fox, even as the just is putting the brakes on at ts purchase of time warner. Verizon might be buying the rights for nfl games. We are going to welcome walter isaac. Acrostic a, artan barton crockett. Once going on here . Media is scrambling to come up with a better model to compete the digital guys that own all of the subscriber growth. One of the things they are postulating is something very reasonable, that combining content and Cellular Networks could be a better model. You can leverage the data to innovate in advertising and content distribution in ways that provide an opportunity for traditional media to get back some of the growth they are giving up now to digital. David youve seen this over the years. They have not had content. Does anything change the rules right now . Atter they dont look sprint and tmobile as their competitors. Their competitors are amazon and facebook. They are looking at this new world. They talked about the fact that the saw them get nbc. In some cases, its reactive and repositioning. Its diversifying their revenue stream because its based on headwinds. You mentioned an enchanting interesting point. Who are the competitors . Are they focused on amazon and netflix . Barton i think they are looking at netflix and google. You look at the ad growth globally, its going to digital players. All of the subscriber growth is going to netflix. Stream that the model needs to be changed. If you keep doing what you are doing, the data tells you youre going to get steamrolled. One of the things the pipe guys can do is leverage this unique asset they have. They have the distribution. They can track it in a way the other guys cant. They can leverage that to give you more effective advertising and give you a more effective content product. That is the longterm vision. I think thats smart and they need to look at that. David how important are the types . You are going straight to the internet. How valuable are those pipes . Walter thats why they have been investing in those stocks. Greater enabling capacity and greater speed. Thats a new opportunity for them to change. He talked about the verizon deal, they lost out a little bit worried they had exclusive to get the nfl into their exclusive sunday night. Now you can watch it on any service provider. The pipe is shifting to wireless. That is something they have to be counting on. If you look at cable, what is their next move . Comcast might be going after fox. Nbcbehavioral remedy of the acquisition is what is driving this deal with the doj. They should look at more wireless. David make the simple for me. Where are they going to make their money . There needs to be some scarcity somewhere. Where does it come in . Martin your pipe is the commodity. You need to make it more than just a commodity by making it the unique and different and thats where content comes in. Heref the question marks is how will the Justice Department the in stopping this Natural Evolution . At the end of the day, they will not be very successful. It is absent with the mainstream of antitrust laws for many years. There is a political motivation. Through, thel goes gloves are often youre going to see more combinations like that. They are talking about better and growth and i think see that. You will see much more of this from verizon and others. Its clear that the wireless guys and the cable guys need to merge. The additional element is to have not just content, but exclusive content. Pipes are not a commodity, why does verizon think they can get more money out of content in the content providers can . They are priced above tmobile and sprint. Sprint has cut prices in half a mixed attract customers. The information they get on where and how the customers are viewing on content, they think they can create better content, or short form media that will take the studios and the product they are buying and make it better for the consumer. Alix do you have the new iphone yet . Walter i am not a fan. Alix did you buy . The 7. I am a big fan of david thank you both very much for being with us. Alix you can check out tv on the bloomberg terminal. You can interact with us directly. You can ask the question and we will do so in this segment. Joanathan we are 17 minutes into the session. Futures were treading water a little bit. Thats where stocks are as well. The s p 500 is going nowhere. 19 Industry Groups are in positive territory. A government less germany is on the cards. This is bloomberg. David uber is pushing into driverless cars. They are buying 24,000 cars from volvo. Its the first commercial purchase by mover. I want to clarify, there are two ball those. One makes automobiles and one makes trucks and marine. The one publicly traded is the truck one. This is the car one. That is correct. That is the one that is going to be producing these vehicles for uber. It is 24,000 of them. They started testing these last year in pittsburgh. They had a driver to make sure everything was ok in case something went wrong. They were fully autonomous. Thats what they are planning these 24,000 vehicles to do. David a lot of what we have heard about our smaller vehicles in urban centers. What is the theory here . Thats a good question. At the moment, im not entirely sure we know, other than the fact that they are big enough to have a lot of the technology fitting into them. They have a lot of tech in them. They have gps and lasers. They need room for passengers as well. They are more than official for this kind of testing at the moment. This is what they used last year. They are continuing that. David can we read anything into this acquisition . They had an accident early on in arizona. They have had accidents. A lot of the had accidents. Google is testing Autonomous Vehicles as well. What they have to do is embrace that and say what what wrong, can we make this better . One of the problems is when an act happens, there is going to be so much attention about why it happened and who the blame lies with. There is a moral question, who is at fault . Is it the software . Is it whoever is operating car remotely . David thats terrific. Thank you very much. Alix its all about oil. Multiple lawsuits. Everything relates the oil. Protestsenvironmental and the president ial action and challenges. Transcanada is about to learn if it and get a permit to build the keystone pipeline. For energy, editor what are we going to get . A the final decision from Nebraska Public Service commission. That is the last hurdle they are facing. When President Trump made his decision to move forward, he had the ceo of transcanadas office to let him cheer him on. He was very excited about when construction could begin. Nebraskal need to get to sign on. Alix lets pretend they sign on it. Once next . Pipe will go in the ground. This has been underway for nine years. Its an environmental lightning rod for a lot of places. We will see actual construction, which we havent. Weve seen all the environmental report. Alix will the Court Challenges pick up . Absolutely. What you will get from either side is a challenge if its rejected. We could see the company come out and go to court to fight for this. If not, there is a strong possibility you will see an Environmentalist Group go after this. Alix i would assume. Totransports oil from canada the gulf coast. Why do we need . Nine years was an entirely Different Oil world in the u. S. We have seen a huge reversal in prices. Theyve been producing a lot more. They will continue to grow. Most of that is incremental. Once you have the operations there, you can expand them without a lot of and expense. You see the demand if you look at the price of western canada oil. That shows there is a lot of capacity, there is a lot of oil there. Alix does that differential close . Not entirely. You would still have transport costs. For have we seen keystone other pipelines or other routes to get it to other places . One thing they have been saying over and over is we will take oil somewhere else. There have been a number of projects to take the oil to the west coast and ship it to asia where there is a lot of demand. Also seen their existing projects, they have a huge pipeline. You have the train lines that can move it. Alix great stuff. We really appreciate that. That decision will drop in about an hour. Joanathan is this thanksgiving dinner at your place . Alix my motherinlaw is from south dakota. She gets very upset. There was a leak in south dakota last week. David do you watch the shale special is a family . As a family . We are 26 minutes into the day. Futures look stable and the cash open, we are going nowhere on the s p 500. From new york city, the coverage of markets continues. This is bloomberg tv. Vonnie 10 00 in new york, 3 00 p. M. In london. From new york, im vonnie quinn. Mark welcome to bloomberg markets. Vonnie here are the top stories we are covering from the bloomberg and around the world. U. S. Stocks are opening slightly higher as the holiday week kicks off. Will questions about tax reform, brexit, germany and more eventually derail markets . We will ask the chairman of research. Is tellingresident chancellor Angela Merkel to go back to the drawing board as Coalition Talks collapse. We will talk to a key lawmaker from one of the parties involved. In commodities, we think one of the leading executives at , how theining giant recent runs for copper and metals change the company strategy. Next twoll ahead of hours