Saying this is really serious. Livedt, kyle lowry, who in toronto but now plays for the golden state warriors, said this is not toronto. We are nice people. In fairness, the crowd just immediately reacted, but then there was an eerie silence after they figured out what happened because he was really badly hurt. Alix nothing like sports to bring up the massive competitiveness. In the markets here, on a news flow basis it feels very calm, but we are seeing some fall through to the rally. We are continuing to climb higher. S p futures up by about 12 points, eurodollar flat. You are buying stocks, selling bonds, but only in the u. S. The move not really seeming to freak anybody out quite yet. We had a huge rally in bonds last week. Are we reversing now in crude . Up 7 10 of 1 . David in the morning brief, 8 15 this morning, ubers ceo is speaking washington, d. C. At 8 30, u. S. Ppi numbers for may. At 1 00 this afternoon, the u. S. Treasury is selling 100 billion in threeyear notes. Teslasthis evening, Shareholder Meeting gets underway in california. That is all coming up today. For now we turn to bloomberg first take. We are joined by Gina Martin Adams and romaine bostick. Romaine, lets start with china. President trump on the lawn yesterday, saying tariffs could go higher than 25 on 300 billion of chinese goods. Tseve never gotten ten cen from china, and now we are making money from china. We definitely saw with regards to the mexico potential tariffs, the market is still very much into with what is going on with regards to trade and being able to price in or out whatever is going on. I think that will come up at the g20 meeting, assuming xi does show up and meet with trump. I think the market will be hanging on anywhere that comes out of that. I think regardless of where the monetary flows of these tariffs are going, the end result is what is the trade relationship between the u. S. And china . Alix you know where it is really going . Two farmers. All of the money we are making from the tariffs, it is going to farmers to make up for this year and last year who were hurt by trade. Go figure. What i found interesting is if you look at the world index of chinese exposed stocks, they havent participated in the rally we have seen the past few days, which tells me there is still a lot of wariness. Gina and still a lot of uncertainty with with back to where this was going to go. How much is it going to dampen overall growth . What is the impact . Theyre still attentive uncertainty for these chinese exposed companies, but one big thing changed last week, and that is the fed backstop was made much more clear. The fed is willing to step in if growth is dampened, and that has changed the outlook for equities to some degree. I think it is much more mixed as opposed to two weeks ago, it was just down. Now the outlook is there will be beneficiaries, there is support for equities if the fed is going to come in and save the day with several cuts or even just one or two. That is a different dynamic for equities than one in which the fed is on hold and we have to contend with trade. It is just a mixed view. Romaine we had Something Like seven straight months now were trade with china has dropped by 20 plus. Even if a deal is struck, that is a lot. It is going to take a lot to dig ourselves out. It will be interesting to see how much the fed supports the plan. David and it is not just the fed, actually. Several banks around the world are all pricing this in. Less and find where we are less entwined with china, do we take away from Global Growth, or can we survive and flourish . Gina i think it depends on how long and how durable the Company Transitions are. I think that we survived without chinese production before china started coming into the wto and ramping up presence in the world. Most likely you will continue to see manufacturing migrate around the world to its lowest cost area. The overall story here is 30 years ago, there was no chinese manufacturing input to technology. 30 years from now, may it will be somewhere else in asia. Maybe it will be in africa. There are other areas in the world where manufacturing presence could continue to grow. That is a structural shift. It doesnt always have to reside in china. For china, the trick is china is the single biggest market in the world. Thats the catch. How do you get that potential growth out of china from a topline perspective . It could be a longerterm question. Alix Gina Martin Adams and romaine bostick, with a very snazzy, glittery purple tie, by the way. Did you notice that . [laughter] alix you can find all of the charts and more on gtv under terminal. Coming up, investing against the backdrop of dovish Central Banks. We go over the playbook with jp morgan Asset Management head of jp morgan Asset Management global asset strategist. Viviana this is bloomberg daybreak. Agreed to buy online photo products retailer shutterfly for a little more than 1. 7 billion in cash. The buyout plans to merge shutterfly with rival snap fish. Leaders will not get to make the call on approving one of the biggest Defense Industry deals ever. The pentagon will submit its views to the Justice Department or the federal trade commission. The antitrust regulators divide cases on decisions like this one. Pfizer selling 9 billion of bonds as part of a transatlantic , its dollar debt sale coming in four parts. It is also looking at selling bonds in euros and pounds, expected to be around 12 billion. That is your Bloomberg Business flash. Alix thank you so much. Who is the most dovish of them all . That is the question central havers around the world been signaling with a shift. The Central Banks across the world have moved to an accommodative stance. It is fair enough to say that we have in easing bias. Reaching this deduction is possible. Not go how it is predicted, we will certainly act. All of you have been talking about rate cuts so much, so rate cuts get into your system. Several members raised the possibility of further rate cuts. Welike mario draghi, i think can do these things. We set the room for the recent room for adjustment is tremendous. Mandel, jpus is ben morgan Asset Management global strategist. What is your playbook . Ben i think you have to look at the fed, and everyone else follows behind. They pivoted in a dovish manner in january. Not just developed markets, but emerging markets as well. That is the epicenter, and every thing else is somewhat of an aftershock. Now, what can we expect . Given where markets are pricing, it is fair to say the fed is going to provide a decent amount of support for financial conditions is here. I think part of that conditions this year. I think part of that is on their framework review. How do we deal with inflation outcomes that have been systematically below where we want them to be . I think where that ends up heading is towards some type of average inflation targeting strategy. In other words, they are going to be much more supportive of longer strategy over the course of the expansion, towering higher tolerating higher inflation. Where i am skeptical is that the fed is extremely proactive, providing insurance for potential growth problems. I think they will be watching closely to see what happens over the next couple of months, and i dont think that a rate cut in july is a sure thing like markets are expecting. David katerina, how much of this is reacting to the trade disputes . A lot of what was said by the fed was about what we thought were going to be mexican tariffs. If they cut at that point, where would we be today . Is the market ahead of itself because we dont know where we are going with trade . Guest it is nice that we seemingly dont have to worry about mexico anymore, but with china, in lieu of the g20 summit, we are hoping for a positive resolution, but we are giving it about 20 that that is going to happen. As this is going on, we are hoping that the fed takes a more proactive approach and may be preemptively cuts rates, which should bring markets up a little bit. Alix last week, we were led higher by utilities. Yesterday it was the large rally in market caps. Go . Here do we katerina we have to look for more defensive sectors. We are looking at low digit returns for the remainder of the year, so we have to look at utilities, certain sectors of technology. David if there is room to grow, is it because of the fed or because of the underlying fundamentals in the economy . How do you separate those things out . Ben i think you would have to have some kind of fed put that helps evaluations. On the earnings side, there are pretty significant constraints in the nearterm and throughout the course of this year. In the near term you are just getting a little bit of payback for q1. Q1 was a strong quarter. Youre going to see a little bit of deceleration following that. But as youve seen not just through the manufacturing surveys come about the Services Side of the economy slowing, bit, wewing a little are not pessimistic by any means, but we are cognizant of the fact that growth is going to be lower in real terms over the course of the year. Weve actually cut our secondhalf forecast to slightly below trend for the u. S. Economy. If youre going to get that pop to equities, it is going to be a relief rally of some sort from all of the political tension, and it is going to be valuations. Alix if you take a look at Central Banks globally, we have a chart that shows how those rate cuts have been permeating throughout different nations. Is there a relative value that you then play when the conversation is all of a sudden global cutting . Katerina we have to wait and see. It is kind of difficult to protect it globally. Here in the u. S. , we think that three rate cuts is probably too aggressive, but we are expecting one soon and possibly two before the years end. David weve heard a lot about corporate sentiment refraining from investment. What about Consumer Sentiment . Can pull us through here . Y concern that consumers are getting wary . Ben not yet. You look at consumer balance sheets, and the job market is still healthy, notwithstanding a little bit of deceleration at the beginning of the year. Sentiment is quite high, so the consumer and the Services Side of the economy is kind of the protection against exhaustion us shocks here. Againstar, so good here, and socks far, so good. Alix what you wind up doing with the banks . The banks have not been leading any rally, but if you are pricing in rate cuts, what does that mean for financials . Ben theres always this conversation. What do banks need to do well . Is it rates at the absolute level being higher, or the curve bit . Ening a i think if you get some relief from political tension, youre going to have a bit of a steepening, and that should be helpful for the bank profits. But it is hard to see the absolute level of rates recovering from here. Im on board with the fact that the 10 year treasury in the low twos is probably overdone. It is probably overdone in terms of Recession Risk and in terms of three rate cuts this year, as katerina mentioned. With that in mind, you still have a lot of buyers for treasuries because this is your insurance policy against leach ipo against late cycle growth shocks. So seeing a massive selloff in treasuries is unlikely. David are we particularly vulnerable right now because tech has been a leader in equity markets, and yet has been disproportionately hit by trade issues . Katerina i would say not all tech is created equal. We have to see which areas are affected by supply chain and which are really dependent on chinese markets. There are certain areas of tech, like the software or i. T. , cloud that are not going to be quite is affected. Mandel and Katerina Simonetti, please stay with us. Coming up, the race to be the next tory leader. Nextthe contest to be the british leader could mean for the economy. This is bloomberg. David the United Kingdom has spent three years trying to figure out how to leave the European Union gracefully, without much to show for it, but now there are 10 candidates seeking to replace theresa may who all think they have the answer. The answer sounds much like just get out. We wont deliver brexit with bluff and bluster. I am a conviction brexiteer with the plan and the focus to lead us out by the end of october. Our failure to deliver brexit has put our country and our party in grave peril. We need to deliver brexit, but not be defined by brexit. We need to then get to the Center Ground where we can attract people however they voted. We will negotiate Free Trade Agreement with the European Union and new free trade deals across the globe. I will ensure we are out of the Common Agricultural policy come out of the Parliament Come out of the eu, and once more taking back Common Agricultural policy, out of parliament, out of the eu, and once more taking back control of our laws. Without brexit, they will be no more conservative government and maybe no more conservative party. David i dont know about you, but i feel much better about the whole situation. [laughter] alix i just cant believe they found 10 people who want that job. David i keep hearing theresa may saying brexit means brexit. Im not sure they are saying more than that, but you have Parliament Saying i dont want to leave without an agreement. Is there any hope of progress here . Ben in a strange way, this make me want to buy u. K. Equities. Brexit, 70 or 80 of the revenues are from overseas, so it is a defensive market. It is a widely under held market, so technical factors, it is just hated. It has been for a while now. So i think it actually stands to benefit if the economy is resilient enough to what could be a fairly large shock. Alix we did just get wages coming in pretty strong. Would you agree, katerina . Katerina i agree. Counterintuitively, as we are all hoping for a positive resolution for them having a deal, if they were to exit the European Union without a deal, it might be positive just from the perspective of a certainty. Finally we get some certainty of what is going on, and it will be positive for the european market. David were we too afraid of socalled hard brexit . With a hard brexit, at least you know what is going on. Ben it depends what perspective you are looking at. For the longterm potential growth rate for the economy, those are things that rely on total factor productivity, capital deepening, workers getting more skill, etc. From the perspective of longterm potential growth, i think there is i think it is quite corrosive. For the near term, im not sure it matters that much. Alix katerina and ben will be sticking with us. You can for your hand in the ring. You lived in the u. K. Why not . Brexit, or the prolonged discussion. Which one is worse for the market . , what we see for the trade standoff. Can the u. S. And chila really go it and china go on their own . This is bloomberg. The latest innovation from xfinity isnt just a store. Its a save more with a new kind of Wireless Network store. Its a look what your wifi can do now store. A get your questions answered by awesome experts store. Its a now theres one store that connects your life like never before store. The xfinity store is here. And its simple, easy, awesome. Alix this is bloomberg daybreak. The dow triple digits. Dax over performing in europe. There is some optimism in reflection of some polyps some positivity. Eurodollar premuch flat. You are seeing some selling in the bond market continue. Threeyear auction coming out later today, so watch that. We do want to highlight the cable rate, up by 1 10 of 1 . Is it better to have a prolonged brexit or a hard brexit, and is there any kind of pound position you can take that will help diversify . That is really the position traders are struggling with. Crude up by 8 10 of 1 . Part of that is more infrastructure stimulus from china, maybe . David it is interesting you think it is a choice between prolonged and hard. It could be both. Alix but you have to wonder what is underpriced, know that we are moving to a new prime minister. David something will change, im sure. Now it is time for the first word news. Viviana hurtado is here. Viviana u. S. Senate democrats say they have enough republican support to oppose president Donald Trumps plan to sell weapons to saudi arabia. Four republicans reportedly back actions. Ns against the the president invoked emergency actions to overrule a senate hold on the sale, but even if the resolution passes, there may not be enough votes to override a president ial veto. They spent months jabbing at each other from a distance. Now President Trump and Democratic Front runner joe spend will both today in iowa, critical to their futures. The president once to shore up support in iowa as part of his strategy to win the midwest again. Here in manhattan, a helicopter pilot warned he had problems moment before he crash landed on a highrise building. The pilot was killed in the crash. It was foggy and raining at the time. The helicopter was owned by a company linked to american continental properties. Global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Im viviana hurtado. This is bloomberg. David this is a terrible tragedy yesterday that happened here in new york city. I am mindful of the fact that it seems, at least, there are more helicopter crashes going on, and there are more and more helicopter rides. Alix that also dovetails with what we are looking at with maybe robo autonomous helicopters. Many Companies Want to start having those transport to jfk or otherwise. That is also super scary when you have just a manual pilot not able to control. David we covered that last week, actually. Week was a business story on this. Ill believe it when i see it. And yesterday was terrible weather. Alix it must be very difficult to navigate, whether autonomously or manually. Anyway, that was a terrible tragedy yesterday. David now lets turn back to the subject of trade. The u. S. Trade dispute with mexico seems to have gone away, but the issue with china seems to remain very much with us. The countries becoming more and more separate is a real possibility as an apple manufacturer says they can china, and they are intent on becoming selfsufficient as well. The mood there is very grim, but also very determined. The u. S. Realized that is not a reliable trading i think they are on a trajectory now that they are not going to move off of becoming holy selfsufficient in tech. David we welcome now chen zhao, alpine macro chief global strategist. Ofh a still are ben mandel jp morgan Asset Management and Katerina Simonetti of ubs. What happens if the u. S. And china become less entangled with each other . Way afterhe why the huawei incident, if you read what President Trump is saying, first of all this is a National Security threat, but you can put huawei in a trade negotiation, so what is it . Are you trying to contain that company, or is it really a National Security threat . The long and short of the story is very deep distressed, just trust. I think the Chinese Government will try very hard to be selfsufficient in key component supplies. David since world war ii, the western world has been based on the premise of increasing trade is good for Global Growth, good for everybody. If we disentangle these economies, what does it mean for the prospects of Global Growth over the medium and longterm. Chen you see the eruption of the trade war between the United States and china when the tariffs start to go up, volume melted. The bond market has already passed the verdict, which is very deflationary. The bond market is saying that tariffs are very deflationary. We always thought if the tax increases prices on consumers, the bond market says they are going to be absorbed by shrinking profit, so it is highly deflationary. It is very disruptive for income growth, so it is bad. Alix the question becomes, and we talked about this for a dotle bit, what china can against the u. S. The loss is bearable for china. People believe it doesnt matter to have some losses. The chinese economy is still growing. We dont have any negative growth. We are still growing. Is he right . Shortterm view he is probably right. Chinese exports to the United States account for about 4 of completely could close down the market to chinese goods and the total hit to the chinese economy would be 3 , 4 max. They have enough savings to be mobilized and increase Infrastructure Spending to make up the loss, or partially offset the loss. But the problem here is the technology. The chinese are way behind the curve. The key components of technology are being controlled by the United States or its subsidiaries. Tand this is something they cannot avoid. I amdent xi jinping said not willing to split with the United States, nor do i believe President Trump is willing to split with china. They sent have a signal that they want to be continuously engaged with United States. The key thing is they need technology. David even if the countries , they probably couldnt become totally disentangled. What is the effect on india and other players that say we can have other people replace what china would have provided . Ben i think that is the key element of change here, which is trade diversion. We have a few Academic Studies on the effect of the 2018 tariffs, so far as they were applied, and they were relatively small in terms of the direct effects, so the total hit to National Real income is relatively small. What is larger the diversion effects. That is 3 to 4 of imports being switched from china to other countries. That is not coming back to the u. S. It is just a distributional effect. In the long run, what this suggests is that 6 for the chinese economy is an anachronism. David with was back to gdp growth with respect to gdp growth. Ben thats right. So how did they grow subsequently . You look back at korea 20 years ago any much more favorable international environment, they were growing at a lower rate. Thinking about 4 , 5 in the future for china is probably more reasonable here. Alix if that is the case, how does that change how you might diversify or asset allocate. Or asset allocate . Katerina our mantra has always been plan, protect and grow. This is where protect really comes into play. The yieldswe think arent attractive, adding some bonds could add safety and security. Youd as an investor, as look at this situation from your perspective, where are the opportunities . Where are the places you want to invest because they could benefit from this substitution, and where you want to stay away from . Chen i think the key thing here is in the Current Situation in terms of markets, youve got a bunch of negative forces. The trade war, a slowing u. S. Economy, a depressed trading system. You can see the fed has already caved in. At the same time, the Chinese Government has been already responding to the slow down. I dont want to be too short of risk because trump can turn around and say, you know what . No trade war i have a phenomenal no trade war. I have a phenomenal deal with china. He would look like a stable genius. In that case, we are having problems, so you dont want to be too short on the risk. But at the same time, you dont know his mindset. You need a barbell strategy. Lots of risk on one side, lots of duration on the other side. So either way, if it is a deflationary shock, you are at risk, but your safety will make relieve a lot less. So the barbell strategy, that is the key for todays environment. Of course, it is not going to work if you have inflation. Both sides will be taken to the cleaner. So it is easier said than done, but the risks today are definitely skewed towards the inflation side taylor . To the inflation side. Alix so how does the dollar you n end upe dollaryua playing into that . Chen thing about the chinese yuan is a key indicator of capital. Steadyalways sort of a slow down, back up a little bit. It is the chinese currency market that is a really accurate the rolesn of expectation. When it goes down, the market is anticipating a sharp slowdown of an economy on the verge of some kind of collapse. When the yuan starts to rally, taking athe market is sign of relief. I think the market is beginning to respond, topping out the previous stimulus because of the trade war. That is why i have a strong doubt that it is going to break seven. David you heard it here. Chen, ben, katerina, thank you for being with us. Executives resign as a result of sexual allegations. This is bloomberg. Viviana this is bloomberg daybreak. Coming up, jeff caray, Goldman Sachs global head of commodities. This is bloomberg daybreak. Slight technologies expects growing revenue and higher than usual losses in the Second Quarter. The Software Maker is gearing up for a direct listing on the New York Stock Exchange june 20. They will begin trading publicly hout issuing new ones trading existing shares publicly without issuing new ones. Had bigger ted baker slashes profit outlooks. And in germany, about 80 former and current employees of Deutsche Bank are suspect in the tax fraud investigation. Bloomberg learning investment learning the Investment Bank had , as well the suspects as the former ceo. Deutsche bank is not commenting. That is your Bloomberg Business flash. David i would be disappointed if we didnt have 802 story somewhere. Have a Deutsche Bank story somewhere. We turn now to wall street beat to cover three things wall street is buzzing about this morning. First of all, citigroup suspended from japans bond auctions. The bank is excluded after being found guilty of manipulating futures prices. Cocio wills depart the hedge fund after a decade, the second shakeup at that fund in two years. And lastly, the lloyds of london scandal deepens with two executive accused of Sexual Misconduct. Alix lets start with the primary dealer over in japan, citi cant do it anymore. What happened . Reporter they got accused of spoofing. Certainly with citigroup, it is a familiar story. It is something they got into a lot of trouble for in the u. S. A while ago. It regulators around the world have been having a hard time getting a crackdown on this problem. In japan particularly, they wont be able to participate in a number of options. They are the 12th underwriter of Corporate Bonds there, so this is pretty big. David and it is illegal in the United States. But i never knew that big banks spoofed. I thought these were the guys in the back office, some hotshot hacker. There are traitors that do that in big banks. I didnt know that there are traders that do that in big banks. I didnt know that. Sonali they were million,y about 1. 2 and it is only a one month suspension, but still, it is not a great sign, especially for citigroup, which had such a big global operation. They have a big asia presence. Alix just dont do it. David theres also compliance issues. Viking. Rn to theres some intrigue going on, where there is a shakeup with the cocio. Theres a little bit of a backstory to this thats played out over the last couple of years. Sonali the cocio was promoted, so then jacob was edged out after that. Hes 38 years old, so we will see where he ends up. Fundsp ranks of the hedge on wall street, i swear they could create a Cottage Industry to help create the next generation and what these funds should look like moving forward and secession planning behind them. Alix part of it is also energy. All across wall street, youve seen closures, getting out of public money because the energy has not paid off. No matter what happens to oil prices, the underlying share cannot get a bid, and that has wiped out all of these guys. Of a bummers a bit because it is so marketdriven. And this guy was a market guy, an analyst. But in energy in particular, the Energy Wagers that soured at the end of last year wiped out a lot of gains. It was a really significant issue at the end of last year. Who knows what happens to the sector in the next year or so. Alix lets get to the third story, lloyds. This all took place in a Bloomberg Businessweek expo on Sexual Misconduct in the london Insurance Market. Two executives have now resigned after allegations of sexual harassment. Sonali wild story. Insurance is particularly maledominated. Lloyds of london was, for a while, run by a woman. There was kind of some hope there, but is a but it is a centuries old place and culture, so we are seeing some executives take action for the first time in a long time. Alix let me just get to this point. One of the executives accused of groping colleagues was given the option of resigning after he was reported to the Human Resources department. He levered a payout of more than 200,000 pounds, denied culpability, and claimed the company was in part responsible because they had an open bar. David it was their fault because they gave us too much free booze. Who wasthe woman the ceo tried to get rid of the drinking culture. And Marine Insurance Company that was part of lloyds, and this is when journalism actually works. The reason this came to light is because people read about this report and said, hey, this is happening to me too. Theres a lot of things like this going on around the world that nobody ever hears about because they are afraid to put their hand up and lose their job. Sonali that is certainly right. It does encourage more people to come forward, executives to take action, and hr to do something about it. Many women were not only not coming forward, but they thought they wouldnt win. Alix he got 200,000 pounds from the Human Resource department. David im not going to defend it. [laughter] david but at least hes gone. And at least other people have come forward saying to blow the whistle on this. Alix youre right. He is gone, to another Insurance Market in london. David youre right. Alix thank you. David thank you, bloombergs basak. Bo sonali coming up, hong kong bracing for protests on an extradition bill. This is bloomberg. The situation in hong kong continues to deteriorate. They are trying to pass a new statute to extradite people from hong kong to the mainland. Now they will call strikes for wednesday, and the u. S. Has gotten involved and issued a statement, which is not that coming. The u. S. Shares the concern of many in hong kong that this threatens hong kongs autonomy. You can imagine they didnt like that that much. They came right back and said, stay out of our business. Alix weve talked about this for years, the intersection between trade and geopolitics and how that winds up playing out. I also love that the company is actually giving their employees half a day, or they can work from home. They are letting them go from the workplace. David or if you want to stay home, thats fine. Alix i dont think ive ever heard of that. David it is extremely rare , if precedented at all. The u. S. Is sending the coast guard to the south china sea. Alix how does that work . We will worry about that, too. Coming up on the program, we are joined by sarah punter, alpine hunt, upon sarah Alpine Global funds manager. Alix trump threatens china again, saying he could move tariffs to 25 or higher. Can the two countries go it alone . Local governments room to spend on infrastructure. Stocks and metals rally. And whats in a cut . Central banks around the world show their dovish wings. Investors prep for rate cuts, so how do you play it if it is already priced in . David welcome to bloomberg daybreak on this tuesday, june 11. Weve been talking about this main supplier to apple saying we dont need china to produce for apple. We can manufacture from other places. Alix this is hon hai, and they make the most smart phones the chinese mainland, but they are saying they can divert what you need to sell in the u. S. It doesnt help apple selling into china, but it would help their component parts. In these countries go it alone . David clearly they cant entirely go it alone, but more than they have . That looks right now where it is headed because it doesnt seem like this is headed towards any early resolution. Alix particularly when tech is caught up in all of this. A good relief trigger for them. Even if they do come up with some sort of agreement, theres going to be ongoing monitoring and enforcement and contention. It seems like we are in for a long, hard slog. Alix which is why you are seeing economists downgrade their forecasts. S p futures now up by about 0. 5 . Eurodollar pretty much flat. Is a different story, but today you are seeing yields in the tenure up by three basis points. More 3, 10, and 30 year notes later this week. Curriewe have jeff coming on. Alix always fun. David at 8 15 this morning, inrs ceo will speak washington, d. C. We will get u. S. Ppi numbers for may. At 1 00, the u. S. Treasury will sell 100 billion in three year notes. In the afternoon on the west coast, teslas Shareholder Meeting gets underway. Alix central bankers around the world shift to looser monetary policy. We will act as appropriate to sustain the expansion. Central banks across the world have moved to an accommodative stance. It is fair enough to say we have an easing path. This reduction is possible. Somehow do not go how it is predicted, we will certainly act. All of you have been talking about rate cuts so much, serrated cut gets into your system so rate cuts get into your system. Like mario draghi, i think we can do these things as necessary. The room for adjustment is tremendous. Alix joining us now with a look at what the market is expecting from a dovish fed is bloombergs taylor riggs. Take a look at what usually happens in a rate cut. Taylor right. As we kick off the third quarter, we will be in record expansion territory. Our bloomberg economists are saying that you can thank fed policy. It has always been about smart exit fusion on their part, and the fact that the fed is now on hold and the market is pricing for 2019, howts does that translate into the market . Interestingly enough, the s p 500 actually falls during the rate cut. It really does rally when the fed is on hold or hiking, as you can see, from 2008 through the next 10 years. 700 toket rally from 2200 while the fed was on pause. Bullally you see some yield curve steepening as the fed cuts rates on the short end. Our bloomberg rate strategists saying that given qe, expectations, and structural low inflation, you may not see the yield curves even as much this time yield curve steepen this time as much as 2001 in 2008. David joining us now is sarah hunt, alpine woods global funds manager. Which is the chicken in which is the big . Is the reason why the stock market goes down because the fed is cutting . Sarah you look at those charts and you knew the moments where you were already experiencing a problem. Now we are talking about a preemptive rate cut, so i dont know how that plays into where we seen the s p go on earlier cycles. I think a little bit, the market is pricing and a lot more fed action then the fed has telegraphed. They have said that will they will be patient, but i am not sure they were going right from we are patient and things are ok to july and we are going to cut rates in a big way. They have come out very devilishly. Mike Morgan Stanleys to notrecent note says buy any equities. Do you feel that pessimistic yet . Sarah i think that is a little early. The job numbers were not that great, but the revised a little lower. You need to smooth things out a little bit. But if people are worried about a global slowdown, which we are, cutting Global Growth for this year and looking forward, i think there is some concern about earnings and Global Growth. You are starting to see things slow down, so what multiples should we be playing . I think there is some tension within that right now. David what do you look at to determine whether we are seeing a slowdown or not . Theres conflicting data out there. What makes you say it really is it really is conflicted . Sarah you have to look at what people are talking about in their own predictions. A lot of times on these earnings calls, you are listening to what things will look like going forward. I think that expectation is one of those things to look at in terms of what the general feeling is, and what people are actually doing. I think you are seeing a lot of m a and i think lower Interest Rates will continue, but you have to look at what is going forward, whether companies convict money in that environment, or whether the labor picture is starting to get a little tighter, and that is going to bleed margins, which is problematic. Alix do you need to use the Options Market specifically in the shortterm, around the g20, to play for trade and upside without getting invested . Are there different derivatives you need to be looking at . Sarah we use them as a hedging strategy. We do have these binary outcomes. The mexico one was quick. China is clearly not. Hard and it is dont know youre going to get an answer in the shortterm. I think what you will get is it is going to play out a little further or we harden our stance. If it hardens our stance, i think the market has a very difficult time with that. If it plays further, i dont think you have anything that will be a shock to the market. David in mexico, things were pretty binary. We had a date. Turns out it didnt happen. China feels anything but binary right now. There are several dates. You dont know if it is going to be more tariffs, less tariffs, no tariffs, what they will agree to, if anything. How do you play your Investment Strategy in that situation, where it looks like it is going on for a long time and there is a wide range of outcomes . Sarah the issue for china right now is changing that supply chain. One of the reasons we are in this argument to begin with is this is a much bigger and longer play. In mexico you are saying come and do something because we would really like some action. It is not so much about the interaction of goods going back and forth. With china, it is. That makes things more difficult because you have to find a way of saying, what happens with huawei and other technology . These are not easy to solve, and not easy to keep an eye on once you said you solved them. But as long as people are trying to get to an answer, i think that is ok. Alix sarah hunt of alpine woods will be sticking with us. Join us on bloomberg daybreak tomorrow. We will have more on trade with euros commerce secretary wilbur ross with u. S. Commerzbank terry wilbur ross. U. S. Commerce secretary wilbur ross. Technologys biggest conference gets underway. This is bloomberg. Alix we have some breaking news. President trump is tweeting about europe. The euro is valued against the dollar puts the u. S. At a disadvantage. Thats a beautiful thing. David hes not being shy. I thought it was just that one hike he objected to come but it sounds much more fundamental than that. Alix it sounds like it is all of them. The quantitative easing, that is one thing, but you are seeing a you are seeing a eurodollar move on this. David he specifically referred to what the pboc is doing for president xi, saying why cant we have that . He clearly wants lower Interest Rates, and case we didnt get that. Alix still flat on the day. Has very low inflation. It is a beautiful thing. I wonder what the inflation rate is he actually wants. 5 is what he said the other day. David you know who could help on on inflation . Debtors. Get to our Bloomberg Business flash with viviana hurtado. Viviana Apollo Global management agreed to buy online photo product retailer shutterfly for 1. 7 billion in cash. Apollo will also assume more than 1 billion in debt. The buyout plans to merge snapfish. With rival military leaders will not get to make the call on approving one of the biggest Defense Industry deals ever. Itspentagon will submit views to the Justice Department or federal trade commission, the two antitrust regulators dividing decisions on cases like this one. Apple has a backup plan if the u. S. china trade war gets out of hand. The committees manufacturing partner says it is able to make the companys many factoring partner says it is able to make all components for the iphone outside of china if necessary. That is your Bloomberg Business flash. David thanks so much. We still have sarah hunt with us. Does that mean you want to buy apple at this point . Sarah i think the iphone issue for the u. S. Is different than the iphone issue internationally, whether china is going to be a market now where they are disadvantaged because of the trade fight going on right now. In this market growing rather rapidly, that is one place where you want to see them. There was a. Of time was a period where they werent buying japanese goods. Is that really translate to sales . We dont really know right now, but i dont think that apples valuation is incredibly demanding. Alix big tech got hurt. Microsoft, totally different story. Closed at a record yesterday. Do you buy . Guest microsoft is benefiting from a lot of things. They are more to mystically focused. Clearly theres a lot of excitement around the new xbox. I like microsoft, but i think that from a valuation standpoint, that is probably a little bit of a push. Isnt alwaystion the most important thing. You are looking at the longerterm and saying, they have managed to change their business enough that they are in a good position going forward. At some point, valuations matter less. The videogame industrys largest conference e3 gets underway today. Just some of the players in the as somearticipating analysts see a decline in the industry lasting until 2020. Joining us is pj mealy pj mcnealy. Walk us through the death of gaming. Is that real . Guest no, the death of gaming is something we will hear a lot about over the next 24 months because the industry, and reality, is just changing. The days of microsoft, nintendo and sony roaming the earth are changing because folks like google are getting in the market with stadia, so that is driving new excitement. You have apple lurking out there after tv and film, and what to do next about films. Most a portly, amazon is the biggest coming out there with an advantage it hasnt taken advantage of yet with twitch. Twitch drives User Acquisition costs way down. If they move into gaming, this industry continues up. Alix you look at the number of subscribers, and that is where you are really seeing growth. Walk us through what the potential is for that and how these players coming in blows this out of the water. Historically if you had to buy a 500 piece of hardware for your living room, but now with new technology and 5g, all of a sudden it runs from the serverside. With games streaming on the serverside, it means new entrants into the market. These are free to play aiming models or subscriptions. We are seeing plenty this week with microsoft really pushing xbox gameme pah theirgoogles pushing subscription. David are we going to see a breakdown in the distinction among the various forms of media . Its not a very long step from over the top traditional media and streaming games. Can you bring people like disney and netflix into the Gaming Business . Demographically, you are seeing that the 18 to 35 age group really want access. They dont want ownership. It is really a case of having a platform. It may have tv, film, gaming, a social layer. Anything to keep them in the platform. Streaming is a platform in general, and is really going to drive the next wave of growth. Alix what does that do to monetization of yesterday versus tomorrow . Pj if you look at the historical Business Model, you are looking at a 60 package game. Moving forward, you see a couple of different things. You will see subscriptions, like we talked about. Pubgl see others like fortnite that turns into apex. You will see micro economies continue to grow in videogames for sure. David a couple of years ago it was all about virtual reality. That was going to be the future of gaming. Is that still the case . Pj vr certainly has huge potential. We are seeing the chip size decreased to make portable units more viable. But the reality is vr is still difficult to make. Ands an expensive process, the deployment of hardware is still not quite where we would have expected it to be, given the hype two years ago. Alix wrap this up in a nice, neat bow here. Who are the winners and losers of this transition . Pj i think you will see not only sony and microsoft and nintendo struggle with platform share, but you will Say Developers too that have to figure out how to transition their workforce from making a 60 package game with a beginning, middle and end to having an online service. If you look at fortnite or apex right now, you have content coming regularly at different intervals. You will hear more news from folks like amazon and tencent who have pieces in the background to take advantage of connectivity. David that was terrific. Thank you so much for joining us. That is pj mcnealy of Digital World research. More next in todays bottom line. This is bloomberg. David time now for the bottom line, where we look at three Companies Worth watching this morning. First off, apollo is now buying for 1. 7 5 billion dollars, plus 1 billion in debt. Cancally, a place where you store photos and go and get them. Alix jp morgan, one of the last bowls, dropping last bulls, ng, sayingts buy rati it is just a total valuation call. That stock getting creamed in premarket. The third comedy we are watching his target the Third Company we are watching his target utilities power. This is about Big Companies trying to renegotiate how they are getting their power. Brooke it is a lot of retailers you are seeing, Companies Going to dominion and regulators and saying these price points are too high. We want to shop around and go directly to the utilities, following in the footsteps of walmart and aluminum foil maker reynolds, who successfully negotiated an agreement with virginia to shop around for its power sources. To me, this is a really interesting debate in light of what is happening with pg e, which has heard all types of questions about who is ultimately responsible for the bill at these utilities, and whether it is about protecting consumers and ensuring that investors in these utilities get a good rate of return, or whether we should rethink this. David the concern is that the big guys will get good power rates and leave everyone else out. Brooke but then you have individual consumers also able to shop around for power. Does that ultimately come to pass, or do you have a more free market . What does that mean for the stability of the power source . Sorts ofhis raises all interesting questions, especially at a time when we are seeing more events that could be tied to Climate Change and change the nature of these utility companys businesses. David what about a world where you have competitive supply of power . Sarah this comes against the backdrop of needing to put more money into the infrastructure of power anyway because you have a lot of places with older equipment and issues where you have reliability issues. Of thosehis is one things where youve got one person who got out, and all of a sudden, everybody goes, wait a minute. I want to do that to. Whether or not that works on a Business Model standpoint, utilities are really extensive things. Putting transition lines in and switching out power stations are very expensive things. We have a very old grade. To put more recent very old grid. Recent additions on it, that costs a lot. It is a very interesting debate to come now. Alix and are they actually say havens actually say havens with all of that . Coming up next, jeff currie from Goldman Sachs on china and metals. This is bloomberg. Alix this is bloomberg daybreak. I am alix steel. Bpi out in just a few moments time. Trumps says the fed rate is too high. He says low inflation is good. You are buying equities and selling bonds in the u. S. That is the trade of the morning. Yields up in the u. S. By two basis points. Crude participating in that rally. The ppi numbers out for may. Back out of food and energy on a monthtomonth basis. May in line with estimates. 2. 3 present. Sequentially, lower. Does not seem to be big surprise. David we are at where we are expected to be. If you take out the trade, there is a difference. Alix takeout trade, energy, and food, up. 4 . Still up 2. 3 . Does not seem to be moving one way or the other. Unemployment still steady despite that last number we got on friday. Chinese equities posted their biggest gain in weeks. Chinas finance ministry taking steps to ease their growth slowdown. There is also an attempt to boost Infrastructure Spending on a local level. Currie,us is jeff Goldman Sachs head of research and sarah hunt of alpine woods is still with us. Walk me through what you see for china growth. Look at theou unconditional distribution of potential growth outcome they look scary but as soon as you condition it on policy it starts to become steady as she goes and as you said quite boring. You have trade wars impacting sentiment and investment, but as we saw last night, you have cap local government specialpurpose bonds. You end up with something straight across home plate. Pmi, and demand growth tracker. What you get out of that is the pmi our survey data. When you have trade war and these other factors come out, they impact sentiment which impact the demand for iron ore and copper. Policymakers everywhere are micromanaging this growth environment, whether it is the fed, hawkish or dovish, whether ,t is opec raising production chinese policymakers. In january, massive stimulus, taken away. They are collapsing those tail risks. When we look the unconditional distribution on growth and see it in the demand for oil, the demand for copper, it is steady as she goes. A boring demand outlook. David take it forward. Lets assume the u. S. China trade dispute does not get resolved in the near future. China may have to continue to stimulate. Lets talk about infrastructure building. Or ishat drive things up it a steadystate with the trade threat . One offsetting the other . Jeff they would stay offset. Copper trading 6500 on six weeks ago. Trade war broadened and we went down to 5750 on copper and now we are trading backup. The economic fair value for copper is probably 6500 or 7000. When you go back to Infrastructure Spending, the developed markets are not doing it. I was in russia last week. National spending programs were infrastructure. You saw that last night in china. The outlook for em is positive because they will do these infrastructure projects. Alix you make a distinction. When you look at one to 12 months of copper versus the flat price, you can see what you are talking about. The demand side is a tighter market that it is not getting rewarded in the same way as a flat price. Is that normal . The fundamentals are tightening which is being captured across the spread. Macro concern is putting downward pressure on prices. We put out a piece more recently to take profits in the macro space but focus on the micro opportunities like the time spread and the commodity markets. I want to emphasize that we replaced macro risks with more idiosyncratic risks. If you take the week macro data, it was driven by the flood in the midwest. Climate change if you look at whether globally at the whether globally last month, it was one of the standard deviation moves. If you have idiosyncratic risks, where is the opportunity . Trade on timeto spreads, relative value. We want to trade gold, we want to belong bold against a short silver. Lets say we want to belong oil and long wti. That is the way you take out the macro risk and focus on the fundamental micro stories. Alix sarah, you do not get that luxury. You are trading equities. What you do when one indicator is telling you you want to buy freeport and the macro indicator says do not do it . Sarah there has been a sentiment problem for oil and these other places. Given where the market is, there are a lot of places in the Energy Infrastructure where the pricing is lower than it was. There is a negative sentiment because the Commodity Prices have come down. Im thinking about the midstream, the pipeline guys, as opposed to some of the refining guys. I look for some of those places where i think that the market is thinking there is a shorter term long horizon. I do not think you are swapping everything out. Do all those things, and those assets are yielding nice yields. That banks the question, when you take a look at services across the globe, they have all been rising. Talk me through how you play that trend. Jeff when we say capex, commodities, it is things like between, copper is in things like jet fuel, gasoline. Jet fuel demand has been ok. Commodity. Another when you look at gasoline and jet fuel, the demand has been robust. You look at aluminum or some of the other more opex oriented commodities, the demand has been off. 1750, youou are at are coming into the cost structure. The capex commodities, but iron ore has been one of the better performers. Iron or is up 5 . Alix we have President Trump tweeted lowinflation is a beautiful thing. Usually in a higher inflation market is when you want to be betting with commodities. Have you think about the overall commodity sector . Sarah it goes back to supply and demand. Even though some of those markets are tighter, there is a playbook that says without too much inflation and without a tight commodity market and with huge demand, and the problem right now is you have slowing global roads and concerns about that. That is putting a sentiment damper on most of the commodities. Even when oil was higher, the stocks do not reflect it. They were trading as if oil was still 40. You are not getting a match for the equities and the commodities. Pointthat is a critical because i see it whether i am talking to the equity investors, why are equities disconnected from oil . Why is the peso disconnected from oil . Investors do not want long cycle investments. You think about commodities in general, their long cycle. You need to take a view five or 10 years out. If you deal plant if you joy if you drill and offshore platform oracle mine, it will pay out later. People do not want commodity investment because of that concern. Alix great point. Sarah hunt of alpine woods, thanks for joining us. Jeff currie will be sticking with us. David lets get a look at what is happening outside the business world. Viviana hurtado is here. Trumpa president donald and Democratic Front runner joe biden will both spend today in iowa, estate critical to their political futures. Biden needs a win as the state caucus next year to get a jump on his rivals. The president wants to shore up iowa as part of a strategy to win the midwest again. In manhattan, a helicopter pilot warned yet problems moments before he crash landed on a highrise building. The pilot died in the crash. By aelicopter was owned Company Connected to a new York Real Estate firm. Golden state meeting toronto 106105 in a must win game five. Star forward kevin durant going down in the Second Quarter and it is possible he may have a torn achilles tendon. He was playing in his first game in a month after hurting a calf muscle. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Hurtado. Ana this is bloomberg. David way seen in toronto as kevin durant went down with a serious injury. First andcheered at then the Toronto Raptors said calm down, the guy is hurt. They got silent. Alix it was not the best moment for canadians at the game when you are cheering a major injury. He seemed ok. Do we know that . David we do not know yet. It is not good news. Alix achilles never sounds good. We are also looking at the uber ceo speaking in washington. Things about certain like two to four years about growth. Apparently they will diversify into the scooter space. They want to go to scooters and aerial taxis. Alix and helicopters which after yesterdays crash in new york might concern investors. Triggers off a question we asked in bloomberg which said they would start exploring at jfk. Down the road they want to go to pilot less but this one has a pilot in it. Alix 200 to jfk. Such a tough call. Well be talking falling oil demand with goldmans jeff currie. This is bloomberg. Viviana this is bloomberg daybreak in the hewlettpackard enterprise greenroom. Coming up later on balance of power, American ActionForum President and former cbo director. This is bloomberg daybreak. In germany, 80 former and current employees of Deutsche Bank are suspects in attacks flawed investigation. Tax fraud a investigation. Deutsche bank is not commenting. Shares of british clothing retailer ted aker plummeting. The Company Warns of markdowns and trading difficult conditions will hurt its result. It has slashed its profit outlook by 30 . There were allegations the previous founder gave employees unwanted hugs. Iran is looking for u. S. Concessions before it agrees to talk some missiles and intervening in the middle east. Irans foreign minister says the safecannot expect to stay as it wages an economic war against iran. The next move would be aimed at in iranian financial body. Im viviana hurtado. That is your Bloomberg Business flash. Alix time for all of the lead. A deep dive into stories making headlines and moving markets. Today we will look at the uncertainty over oil supply. Speaking at the meeting in moscow, you and Energy Ministers you and Energy Ministers concerned oil a range of views into what is going to happen with opec plus and a deal with the saudis and russians. Still with us is jeff currie and gold of Goldman Sachs fresh from his trip to russia. Are they in agreement . Jeff lets go back to the question of uncertainty in economic pressure. The trade war put pressure on china and then china responded with that local government partial purchase bond. None of that is a boring demand Economic Outlook despite the high level of uncertainty. The problem with the uncertainty how do you come up with production data when you do not know where demand is . Lets look at iran. The numbers and last week you could drive a truck through. 400 there is an barrels a day of exports. 400,000 barrels a day of exports. Orit because of weak demand because the iranian supplies are not off . The key point is we do not know. Dealover on the current and make a caveat we will supply oil if there are iranian shortages. The core problem i picked up in russia last week is that russia and saudi arabia have two different incentives. Lets go back to the dual mandate of what opec plus would have balance the nearterm market on one side and increase market share or production on the other. Russia has a free flow currency, saudi arabia does not. That says saudi arabia puts more emphasis on the nearterm rebound in the higher current prices. Russia cushions them from declining oil prices but puts more weight on market share, growth, and supply. If you have Strong Demand and you had supply disruption, both want to increase production and lower production. The problem is we have all of that uncertainty. The optimal strategy, given the uncertainty on iran, is to roll over the current deal. Alix is 54 oil legit . Atf our base case is brent 65. We see a little bit of upside. We roll over on the deal and people feel comfortable, sentiment improves. I think that infrastructure bond this morning in china is meaningful. It says policymakers will respond. It says you probably have upside. With oil, the big issue is hikes coming online out of the permian later this year. That is the potential to create substantial downside risk. I want to. 1 thing i picked up in russia. There is a lot of focus i want to point out one thing i picked up in russia. The question of what kind of uncertainty is tied u. S. Oil supplies. David what is the biggest risk upside or downside . Is it shale oil out of the United States . , it is thatmodities supply uncertainty is the big uncertainty. Demand, we may have sentiment swinging all over the place. The tail risk on demand is going like this. David within supply uncertainty , where is that uncertainty the highest . Isnt iran coming to terms with United States . Oil, Europe International you have a lot of you have international oil, supply out of canada, brazil, norway has reverse those production cuts they made earlier, and then lets go to the shale bucket. , is thetion people pose drilling in u. S. Going to be sufficient to fill those pipes and exports . I think the answer is yes. Inventories are building rapidly. Then lets go to the low cost. That is most of opec. Think about iran. We do not know where iran is. There are three different data sources that make this a mixed picture. Given that type of uncertainty, it is hard to say supply uncertainty is not greater than the demand uncertainty. Alix it feels like Pressure Versus the u. S. And you get squeezed on lng versus oil. That should supplies that should surprise a lot of lng. Jeff that is the most interesting stories in commodities. It all starts with china. China is at capacity to import lng. Youre hitting a wall on importing lng. Lng leaves the Pacific Basin and goes to the atlantic basin. It went into europe. What has happened the european inventory . Swelling and going up. The price of gas goes down. U. S. Natural gas is trading globally and we are seeing u. S. Gas coming down. Is thatback i got everybody is banking on the norwegians to cut production to shore up gas prices. If you are the norwegians are the russians, we do that to save the u. S. Producers . Cutting. With always a pleasure, great to see you. Coming up, teslas annual general meeting. Morgan stanley says investors under appreciating the companies economy business. More on what i am watching, next. This is bloomberg. Ceo goobers ceos ubers speaking in washington. L autonomy by david this is interesting. He is lowering the expectations. Alix lowering the expectations but also talking about scooters. David scooters are popular. Alix this brings us to tesla. Morgan stanley saying investors are under appreciating the companys autonomy business. We also have the annual general meeting coming up later today as well. Theyll be adjusting to see what they will try to sell investors. David an earlier tweet said it is all about autonomous and maybe they underestimated that. Alix what do they want to hear in these things . Do they want to hear the grand picture ideas . David investors want to know demand. Is biggest question is demand tapering off for the model three as some indications have said . Do people still want to buy these things or are they maxing off . Alix i still think we will see big sweeping statements. David he has a valuation based on growth. At the same time, people are saying you have to also manage the company. It is a tricky piece of business. Alix i think it will be fun. I am looking forward to what we get out of it. It would get dicey and i appreciate that. That wraps it up for bloomberg daybreak on this tuesday. Coming up with jonathan ferro, matt hornbach, Morgan Stanley global head of Interest Rate strategy will be joining him. A risk on day as President Trump tweets about lowinflation being good and the Federal ReserveInterest Rates are too high and the euro is potentially devalued and europe is doing it on purpose. You see the equity rally holding on to its theme. Taking a look at eurodollar, moving higher for a moment on that headline about being devalued. David we should not be surprised. Remember when he said germany was a currency manipulator . Feels better about china and that is why he feels he can attack europe . We will say. This is bloomberg. Jonathan this is bloomberg. Hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Jonathan from new york city for our audience worldwide. Im jonathan ferro. The countdown to the open starts right now. Jonathan coming up, the equity market bounce leading into day 6. The s p 500 inching closer to a record. Tighter credit spreads, loser financial conditions, yet a market that still expects the fed to cut. The president using the threat of tariffs to keep china at the negotiating table. 30 minutes until the opening bell. Could we get a six . The president gives the dollar a. 1 , eurodollar up almost and treasuries unchanged. Issue. Egin with the big equities inching back towards a record and a market still looking for a rate cut. Markets definitely have upside. Shortterm upside. The optimal outcome is moderating growth