Heading towards louisiana. Not pictures we want to see. David and it can really affect oil prices. A lot of facilities are closing, offshore platforms, and it oath course will reflect refineries. Alix we see people taking taking boatspeople down streets. Meanwhile, we have near record highs on u. S. Equities, trying to push higher to get back to those highs for the nasdaq. Euro gaining just a touch versus the dollar. 30 year yields unchanged after yesterdays really violent session, a real increase after a bad option. Crude prices climbing a bit on the storm and geopolitical tension. David it is time now for the mooring brief. Eastern,his morning ford and volkswagen will announce details on their big on electric and on most vehicles. On00 we get u. S. Ppi Autonomous Vehicles. At 11 00 we get u. S. Ppi data. Angela merkel joins Emmanuel Macron in paris. And we get important economic from china, including gdp growth. Now we are joined by rachel evans, who heads bloombergs etf coverage, and look and luke kawa, bloombergs crossice at reporter. We have a chart cross asset reporter. We have a chart here showing the yearoveryear. Luke this is the worst thing you can think of from a macrolevel. The idea that this is antistimulus, it is still kind of taking more of a slice from Global Demand than it is giving. On the flipside, what this does do is it reinforces the need for fed easing, and you are already starting to see more articles on the terminal about how fed easing opens room for emerging markets, especially china, to ease policy without worrying about capital flight. I point to secondly to the data from europe on industrial production. If that can happen without chinese support, that is probably a good sign for the Global Economy. Lisa that raises a question, who is more important here . The ongoing trade negotiations when it comes to china and the u. S. , or Federal Reserve chair powell . Is there a sense that the powell put will trump all, even these trade tensions . Rachel i think that is the hope. We did see markets being sensitive to any hints that the trade war was going to restart. Yesterday all it took was a trump tweet on china. Lisa we can pull that tweet up. China has been letting us down and have not been buying the Agricultural Products from our great farmers that they said they would. Rachel i think people are very reactive at any sign that the trade war will start up again, but at the same time we are pretty locked and loaded into a rate cut. That dynamic leaves the question of exactly how bad would be tensions have to get for markets to really fall. David you understand why the chair was talking about global uncertainty. On top of all of that, we have the foreign minister of china coming up today and warning the United States not about trade, but about selling arms to taiwan. As you know, they care about that even more than trade. Luke it adds to the kind of picture of uncertainty that to a trade issue. When you look at how the fed perceives the Global Economy, the growthnd when absolutely parabolic, it tends to be the mirror image of u. S. And global pmis. The last time it spike like this was around qe3. That gives you the case for easing. Lisa certainly that seems to be the wager in markets currently, although perhaps people are starting to push back, which raises a question for our second point. Yesterday we saw a 30 year bond auction that was by all accounts incredibly weak, the lowest bid to cover ratio going back to 2016. This comes as you see the amount of debt in the United States climb. I just have to wonder, at what point are bond vigilantes going to return to the market and demand more yield, especially as the nation encourages more debt . Rachel its a great question. Luke made a good point in his newsletter today. When we look at how the markets have been responding to these dynamics, more debt, powell looking to ease, potential trade tensions, we are starting to see yields rise. But really, the longer data treasuries on the government side of things are not seeing risk assets being hit, which does beg the question, are people asking for the right amount of yield in relation to these bonds . I do see on the etf side that tlp, which tracks longer data treasuries, had its worst day since april 1 yesterday. It does to just there is a little but every pricing going on, but how far does that move through . David when you talk about the right amount of yield, compared to what . If the ecb is racing to get ahead of us on cutting, then we are already there. Luke things can get messy just based on how it could be prone to a positioning reversal, but with bunds still firmly in negative territory in the new York Fed Survey of marketers offense of market participants, the fed rate average has come down to 2 . Traditionally that has been a little bit of a cap for yields, or at least could serve as a bit of a magnet. Hard to see the 10 year either way getting too far away from that 2 level. Lisa by big question is if fed policies prompt more debt out into the market right now, does that structurally make it difficult for them to get the inflation they are trying to ignite . Rachel i think everything makes it structurally difficult for them to get the inflation they are trying to ignite. [laughter] lisa there you go. In markets a have lot of enthusiasm for stocks. People saying that lower yields will drive people to equities. But theres a problem with this, and that is earnings. If you look at the earnings yield on the s p 500, it is coming down not only in actual relation, but also in to 10 year treasury yields. This makes an argument that even though yields are going lower in the United States, so too our profits, so perhaps this wont necessarily give the boost to stocks it has in past rate cutting cycles. Luke exactly. I think this is something people will be honing in on. It helps that in recent sessions, especially yesterday, rising yields didnt hurt stocks as much as you might think. It is a great source of support for multiples and valuations, so that is something i will look for Going Forward. That tradeoff between good economic yield, but earnings still arent great or disappoint. How does the market react to that . So far it has shown resilience. It seems to be more on the dollar than yield, but i think it is something to definitely be worried about. Lisa it is definitely interesting. I have to wonder whether earnings could end up the catalyst for selloff. Is that your sense . Rachel if you look at the Second Quarter, we were expecting to have an earnings recession last quarter. We didnt get that. It actually turned out relatively positive. This quarter we are looking at negative territory. It looks particularly bad for financials. We are seeing those come up next week in terms of reporting. Thats where i am looking to see the second of the wedge the thick end of the wedge. David in face of low yields already, what are we looking for . Luke we are essentially looking for things to not be as good on the net side and not as good on the trade side. It all seems to be a terrible trading environment recently. We have a chart in our earnings preview showing just how depressed they are from a valuation standpoint on pe relative to the broader market. At the same time, banks have become more like utilities in this kind of Market Expansion with postcrisis regulation and whatnot. You see more dividend yield convergence between financials, but these valuations could not be anymore difference. David we will have a preview of what to expect from the banks. We will talk with Betsy Graseck, Morgan Stanley head of banks and diversified financial research, and the next hour. Lisa thank you again. It was good to have that insight. A reminder, you can find all of the charts we just used and more i running gtv on your terminal. You can browse recent features and save our charts. You can see, for example, the s p 500 earnings yield, how it as contracted thats how it has contracted how it has contracted. More onoming up, the tolls of the trade war with Nick Bennenbroek. This is bloomberg. Viviana this is bloomberg daybreak. Two of the Worlds Largest automakers are teaming up on self driving cars. Volkswagen will invest in fords Autonomous Car partner argo at a valuation of about 7 billion. Audi vw will fold its selfdriving unit into argo. Mercedes benz parent daimler issuing its fourth profit warning in just over a year. Earnings will be significantly below last years level, daimler blaming the cost of a recall to deal with faulty airbags. It also has higher expenses stemming from the diesel emissions scandal. Bloomberg has learned Budweiser Brewing company aipac is weighing a number of options, one being to relaunch a hong kong offering at a different date. Retailers cant find enough demand to comparably priced the deal within the market range. That is your Bloomberg Business flash. David trade war effects on china and trade data out overnight, with both imports and exports from china down yearoveryear. We welcome now enda curran, bloombergs chief asia correspondent. These are disappointing numbers in terms of the asian it the chinese economy. it is. Thatfell in the month donald trump tariffs on additional goods. Imports fell by 7. 3 . Over the last half year weve just had, imports and the u. S. Have fallen by double digits going to china. I think it all adds up to this picture that the export and manufacturing side of china continues to be under pressure. Thats why there is so much focus on whether or not trade talks can reach some kind of resolution. David if these were not terribly surprising numbers, what do we look at sunday . Then we get secondquarter gdp numbers. Enda we are heading into Second Quarter gdp numbers. Theres always skepticism as to the veracity of it, but it is expected to confirm that the worlds secondlargest economy is slowing down, and there would be more pressure on policymakers to roll out stimulus. There are some to domestic issues related to the slow down, but let me give you one example of the external story here in asia. Singapore had a shock secondquarter contraction of gdp, according to figures released today. Some people are arguing that south koreas economy has already had a down session. When you consider the drop to trading powers in the region, the take away is that asia, which accounts for more than 60 of Global Economic growth, is under pressure, and china itself is under some pressure. There is no sign yet that the broader economy has bottomed. David great point. Many thanks to bloombergs enda curran reporting from hong kong. Staying on the subject of trade, jp morgan is cutting exposure to emerging markets amid risks from the trade war. Says, the area we have seen the most weakness is in the emerging markets complex, particularly china. Benbrook is Nick Bennenbroek, Wells Fargo Securities head of strategy, and with us still is luke kawa. To bethere does appear this Collateral Damage with singapore and korea. Particularly in the case of china, the very week imports is interesting particularly because of what it might mean for negotiations Going Forward. David we tend to think if we have a weakening u. S. Dollar, that will benefit emerging markets. We have a fed saying they are going to listen. Why shouldnt that be helping emerging markets . Does trade trump currency . Global policythe is more important, so while it will be less of a gain for emerging currencies, it still should be a good environment. Lisa one big question is how much of the trade tensions already impacted earnings. Youve got some signs from fastenal and others that perhaps it is starting to bleed into the overall demand for companies, but which are you looking for in particular as earnings season gears up next week . Luke i think it is the industrials that are going to be focused on, and then a lot of the real deals and products, real hardware. You are looking for more of the industryspecific overhang, but looking at those areas will give you some degree of exposure. Are they worried about it getting worse . Are things deteriorating at a faster rate . Or are they starting to see a bit of a turn . Lisa how much is the decline of industrials an issue of the changing economy into a service economy, even in places like china, versus a wholesale global slowdown . Luke i think it totally matters, but when you look at where the delta in global activity comes from and a Slower Growth kind of world, it still does come from manufacturing and commodity price changes. When you see Central Banks worried, this is the sector of the economy they are worried about. David talk about the race between the fed and the ecb on who is going to get lower faster. Nick it is a long way behind, but it looks like the fed is going to win that race, or at least catch up. We are looking for 25 basis points at the end of july. Mr. Powells comments essentially confirmed that. Probably another 25 basis points in the fourth quarter. We think the ecb is going to be a little more gradual. We think the fed goes in july and the ecb goes in september. With think the fed goes 25, the ecb goes by 10. In terms of who is moving the quickest, we think probably the fed has the greatest impact on currencies. David but i have to wonder lisa but i have to wonder, do you expect anyone to talk about the strong dollar at this point given the fact that President Trump is trying to get the dollar lower . Luke i fully expect that companies will, as always, use the dollar as an excuse. I think that tradition is fully entrenched, but i do think it matters for the multinationals Going Forward, and that Dollar Strength starting to wane. We seen a weird combination markets lately where u. S. Stocks are still outperforming generally, relative to msci and the world, but you would expect to see more domestic related strength. I think that is where the dollar tiein recently is really starting to help the international outlook. I dont think they will be too to see the dollar beat earnings down the road. David we have much more lisa we have much more on currency coming up. Nick bennenbroek is sticking with us. Coming up, we discuss President Trumps desire for a weaker oflar and the growing chorus warnings about fx intervention. This is bloomberg. Lisa the buzzer on u. S. Currency is growing. Goldman sachs issuing a warning, direct fx intervention by the u. S. Is a low and rising risk. This would cut against the norms of recent decades. Central banks have recently use their Balance Sheets more actively, and fx intervention is akin to unconventional Monetary Policy. ,till with us, Nick Bennenbroek Wells Fargo Securities head of currency strategy. It to intervene to affect the u. S. Dollar . Nick it is a very low risk, but even the unpredictability that this can happen, markets have to start placing some probability that there could be a change. Because of that, i think its going to definitely have some influence on the value of the u. S. Dollar. David is there a difference between direct intervention and affecting the currency by Monetary Policy . Arguei think you could that you know, youve got your fast acting drug in the next 30 minutes, and then the 12 hour. You could argue that intervention is the quick action to try to jolt the currency. The Interest Rate dynamic is something you would expect to be more longlasting. Eventually they have the same impact, but maybe the intervention is more of a surprise and has that greater shortterm impact. Lisa even though people are expecting the Federal Reserve to cut rates, hedge funds are still not long the dollar still net long the dollar. Do you think they are wrong . Nick they are fairly balanced. You could argue they are wrong, but they are less wrong than before. Say they are essentially following the money, following what mr. Powell is saying. The repositioning has been appropriate. I would probably not be surprised if they were to move to short within a very short period of time. Lisa so you see more significant weakness in the greenback in the next three to six months . Nick yes, i would say so. Lisa how much . Nick probably in the euro zone about 1. 12. We could get up to one fitfully 1. 15. Up to is mildlyy it overvalued against the euro, where maybe it should be more in the 1. 20 to 1. 25 region. The euro is a little bit weak. Possibly against a couple of other currencies. This thing about these valuation metrics is, to be fair, we dont know what the true value of some of these currencies are. I dont think they are so missed valued we can constantly say they are undervalued or overvalued. David the president has a view, though. Lisa which is that it is too high. [laughter] david Nick Bennenbroek, thank you so much for being with us today. Coming up, the hunt for yield. We will look at how investors are piling into credit. That is coming up next. This is bloomberg. Were the slowskys. We like drip coffee, layovers and waiting on hold. What we dont like is relying on fancy technology for help. Snail mail we were invited to a y2k party. Uh, didnt that happen, like, 20 years ago . Oh, look, karolyn, weve got a mathematician on our hands check it out now you can schedule a callback or reschedule an appointment, even on nights and weekends. Todays xfinity service. Simple. Easy. Awesome. Id rather not. Lisa this is bloomberg daybreak. There is a slight positive tone and the u. S. Ahead of the open here, although slight is the operative word. Across the board, we are seeing strength in europe as well, although not so much carrying over to the emerging markets. If you take a look at what is happening across assets, you can see the german 10 year yield actually taking up today, continuing that upward trend after hitting a rate that was below the deposit rate of of. 4 . Meanwhile, crude rising as the storm barrels down on the louisiana coast. Gold futures hard to really get a sense of whether this is risk on or risk off. A pretty quiet morning. Lets turn to bloombergs taylor riggs for a look at big returns in Corporate Credit as investors chase yield. Taylor you know the story is all about the largest junk etf. We are taking a look at the massive inflows into highyield junk bonds as investors grasp for anything that has yield attached to it. In june, 3 billion dollars of inflows, the highest pace on record. This month we are already looking at almost 1 billion. If that pace continues, you are looking at the highest month since 2015 as investors jump into the sector. What that means is spreads look very low. Youre only adding an extra 2. 7 to take that escrow risk. Spreads have really been tight that extra risk. Spreads have really been tight since qe. The bloomberg gag index is only up about 9 come up the bloomberg ag index is only up but what wet the are seeing is the highest quality bonds within the junk space are outperforming. You are looking at triple be at bbbs outperforming the bb. Underperforming, so investors taking risk, but getting a little more cautious as we get into this late cycle sector on how much risk you are being compensated for. David thank you so much. Lets take it one step further beyond highyield and talk about the stress debt and talk about distressed debt. We welcome now amit patel, cocio of invictus global management. Welcome. Good to have you here. Give me a sense, how much do you have to work with . How much distressed debt is out there . Amit you have to look at the environment we are in. Mathematically, half of the default rate is going to create the same amount of opportunities. At the same time, theres been tremendous consolidation among the big funds in terms of capital that can be deployed as Global Growth slows. For firms like us that focus on distressed credit where we can build idiosyncratic portfolios, we are pretty excited that we are going to be able to move to the middle market, where there isnt as much competition, and have a lot to do for years to come. Lisa do you think that is the opportunity for distressed funds point . The fed seems pretty set on not allowing another downturn in the near future that will cause that shakeout that people have been waiting for. Amit im not a global macro economist. That is not my specialty. But this Economic Cycle has gone on for more than 10 years, which is quite long in the tooth. So the fed is going to do what they do and try to keep markets high and growth continuing to flow in the United States, but ultimately there are a lot of geopolitical factors, and we think in the next 12 to 24 months, growth will slow, Capital Structures are unsustainable, and you will have a lot of restructurings. David when you listen to chair powell saying i am going to use every tool to try and extend the growth and you see yields go down my does your heart sank just a little bit . There are companies out there that otherwise would be really pressed come up really pressed, and they are going to get an extension. Amit that is a good point. We heard that before. I think when bernanke was there, we heard similar things. Ultimately we have to be patient and wait, but we think theres going to be opportunity, and you can only do so much. Lisa you said there are Balance Sheets that seem unsustainable to you. Are there specific sectors where you think there will be on proportionate amount of stress . Amit we seem Retail Energy lead the way in terms of quantum opportunities over the last five or six years, and we think that is going to continue. There are certain secular issues in Capital Structures that are not sustainable for when Global Growth ticks down. In energy, we think theres the same thing, although we dont believe theres as big an opportunity set just given the nature of the subscale companies that end up filing for bankruptcy. We also believe that the orphaned obamacare and Opioid Crisis is going to create a lot of opportunities in health care. We also believe there are and we issues in tmt, are starting to see in wireline opportunities,. Lisa what about the amount of money that is actually chasing after distress right now . It is outpacing the amount of debt out there. This is the total volume of bonds outstanding that are rated ccc are below. These are typically the lowest rated, have the distressed type fields, usually 10 Percentage Points benchmarked. The total volume has just been shrinking since the 2014 oil crisis. I am wondering from your perspective, do you think the values are so inflated that the interim points so inflated, the entry points are so inflated, that the profile doesnt seem worth it . Amit in terms of the broader market, they are inflated. The new issuance has become more and more aggressive, so sponsors are being able to carve out a substantial amount to shift assets out, et cetera. When the default rate picks up, we are going to be able to go into those situations which are becoming increasingly complex, and we think there will be a lot of opportunity. David there is a Tipping Point building. What do you think that will be . Amit we think there are things to do today. If you look at things like pg e and puerto rico, theres still ways to put money to work that arent necessarily correlated to the overall markets, and that is what we have been focusing on. We think when defaults take up, theres going to be even more opportunity. Lisa you talk about these nontraditional uncorrelated assets. You are talking about bank receivables, highprofile examples. What is the next thing like that . Amit we think pg es claims are pretty interesting. Theres a lot of places to invest. Theres the dip financing, 20 billion of highyield, and about 11 billion of market cap. They have potentially 30 billion of claims that believe pg e is responsible for their homes burning down. They have insurance. The Insurance Company pays off the victim and stands in their shoes to the extent that there is any liability to pg e. Where Capital Structures are trading, with debt trading at very high prices, you can claim the subjugation claims, so it is a very interesting opportunity. David when you put a valuation on certain investments, how can account legislate of action by the California Legislature . Amit at the end of the day, if you look at the capital structure, we believe you want to be. With the victims you want to be with the victims. We dont believe the legislature will come after those whose houses of burned down. David very interesting. Amit patel, thank you for being with us. Viviana hurtado is here with first word news. Viviana china is promising to impose sanctions on u. S. Companies involved in arms sales to taiwan. The Foreign Ministry saying those sales will hurt chinas sovereignty and national security. The u. S. State Department Approved a 2 billiondollar package for taiwan that includes tanks and stinger missiles. British chancellor of the exchequer Philip Hammond putting Boris Johnson on notice. He says he will fight any attempt by the likely next Prime Minister to leave the eu without a deal. He also wont back a proposal to suspend parliament in order to get a no deal brexit. If anybody were to attempt to shut down parliament in order to carry out a course of action which parliament is known to oppose, that would be very serious indeed. That would provoke a constitutional crisis. Viviana former Prime Minister john major says he would launch a legal battle if parliament were shut down. President Donald Trumps warning facebook over its plan to create a Digital Currency. The president tweeting, if facebook and other Companies Want to become banks, they must get a banking charter. He also expressed skepticism of Digital Currency in general. 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 the vienna or todd of. This is im Viviana Hurtado. This is bloomberg. David so the Tech Industry is having quite a time of it. Chair powell talking about facebook, and now the white house talking about social media. Lisa youve got President Trump weighing in on libra, this cryptocurrency we still dont understand and facebook may not understand, but the specter of them getting into the cryptocurrency space clearly has representatives pretty nervous. David and next week down in washington, theres going to be a series of hearings from everything to antitrust to privacy in cryptocurrency, iver thing else. We caught up and everything else. We caught up with senator marsha blackburn. This is what she said. Sen. Blackburn we need to look at competition. We need to look at censorship. These are all things we are going to do. Im looking forward to working with Lindsey Graham and the Judiciary Committee and moving forward with this. David im not sure the tech people are looking forward to what they are going to be hearing. Lisa but this is what they can expect heading into the 2020 election because clearly this is a hot button issue. Coming up, potential delay in what was set to be the largest shares sale this year. Ab bev struggles to price its Hong Kong Unit taylor if you have our terminal Hong Kong Unit. If you have a terminal, you can to browse thego charts and interact directly. You can be in the action with us. This is bloomberg. Viviana this is bloomberg daybreak. Coming up in the next hour, Betsy Graseck, Morgan Stanley head of banks and diversified finance research. This is bloomberg daybreak. Production cuts by opec and its allies didnt prevent the return of an oil surplus. According to the International Energy agency, global stockpiles surprisingly increased the first half of the year, and consumption was far weaker than expected. Oil supply exceeded demand by 900,000 barrels a day. Global shipments of personal Computers Rising 1. 5 in the Second Quarter. Businesses upgrading to the latest Windows Software for microsoft fueled the increase. Chinas Lenovo Group Holding the number one spot over u. S. Rival hp. It is day one of six of wells fargos search for a ceo, but there is little sign an appointment is imminent. Bank of americas kathy besant is among those who remains in talks to be ceo. Some of the banks biggest critics on capitol hill have rolonged the search critics on capitol hill have cited the prolonged search. Lisa it raises the question sonali basak joining us. It raises the question about the political pressure on wells fargo and what that does on its ability to move forward. Sonali there are regulators that say they need to be approving of the next candidate stepping into this office. Kathy besant is a really interesting candidate here. David shes been on the program several times. The thing we underestimate is shes in charge of all the tech, but actually she has more than half of the total employees of bank of America Merrill lynch. It is a huge number of employees to be responsible for. Tech, security, cybersecurity, and digital is so much a part of every bank. Sonali this is her most recent job, but she also led treasury and banking functions as well. Lisa lets turn to wall street beat. First up, local rule 2. 0. The fed plans to release a fresh after criticisms said that they were not easy enough that they were not tough enough on banks. What was goingng to be the biggest shares sale of this year. On the volckered rule revamp. Evidently the plane to roll back parts of it wasnt drastic enough. What is the latest . Sonali we reported in april, the words used was an unmistakable victory for wall street. The reason is because the banks are getting a lot of what they want here, which is more easily readable rules. The idea is that instead of embarking on trades on an accounting standard, it is now based on risk to the market, something that will make the process on the backside less subjective. David something the Trump Administration has committed themselves to. Did they wanted more easily understandable or just easier . Sonali they want it easier, thats for sure. Since the financial crisis, everyone has been talking about the restrictions on trading. You seen how much the trading divisions have gone through. Whether this is the silver bullet, im not so sure. Lisa where is the pressure coming on the other side . Is there anyone coming out and saying weve been steadily stealthback either in were very upfront ways regulations on banks, it is time to change the narrative back. Is there anyone saying that . Sonali the banks have done the biggest deals we seen since the financial crisis. We seen the banks dive into bigger ranch networks. Shell davis has been a Michelle Davis has done a lot of great reporting on this. Bankss a lot of pressure expanding not just trading. Lisa lets shift gears a little bit to another area of what is the financial world because ab inbev was set to raise as much as 9. 8 billion in what would have been the biggest share sale of the year in hong kong. It has hit a bump in the road. Whats going on . Sonali they were unable to price the shares. It is a lot of pressure on ab inbev, which needs to get this done by monday. Over the weekend they are working with jp morgan and Morgan Stanley to get this done. Last year the Hong Kong Ipos really propped up the ipo market. To see the market get so much more tumultuous this year is really interesting. David so what went wrong . Sonali well, if you think about how much the tone has changed in just a couple of days, obviously this is in the middle of trade tensions david but is the market moving away from them . Put a it would really dent in ab inbevs plans. Remember, china sales for them is a big deal as beer growth slows around the world. China was propping them up quite a bit. Whether this is about trade tensions, theres just a lot of money being raised. This is way bigger than uber, for example. David i wonder if facebook understood it was going to be a brush cause celebre when they announced this. It was jay powell who said facebook is not too big to fail, but it is unclear how much this should be regulated and how the government should handle it. David President Trump said youve got to be a bank. This is what he tweeted. If facebook and other Companies Want to become a bank, they must seek a new banking charter and be subject to all banking regulations. Lisa but we dont even know exactly what libra is. Even facebook itself, this is a concept at this point. What does it say about the fact that everybody in congress yesterday seems to be drilling into fed chair powell about this . President trump has come out on this. This indicates it is a hot button issue among consumers. Does that give more firepower to facebook in some ways . Sonali on one hand, you have facebook reaching so much regulatory pressure from other agencies, and now opening themselves to the Financial Services industry. Maxine waters pointed out that people dont even really know how to regulate cryptocurrency, let alone facebooks cryptocurrency. So you have a twopronged problem here. David it doesnt help that facebook can reach billions of people. When you have that much clout, there could be real consequences. Lisa that is the concern that people have, that basically facebook, if they did get into this, it could create a cryptocurrency that would rival the u. S. Monetary authorities, the chinese monetary authorities, and this is the big concern. Sonali to global issue, the fact that switzerland is the one so kind to them, and it is not just a u. S. Problem at all. David thank you so much for being with us, sonali. Coming up, dined cuts coming up, dined cuts its outlook again ler cutsg up, daim its outlook again. Lisa tune into Bloomberg Radio on sirius xm channel 119 and on the Bloomberg Radio app. This is bloomberg. Aimler came out with another profit warning, the second since may, the force in just over a year the fourth in just over a year. This time they say it is because of recalled airbags and the emissions scandal. Lisa allender how much this is i wonder how much this is indicative of demand of luxury cars, given the Global Economy and where we are on trade. How much can we look at daimler as an example of what we are seeing in the economy . David if you look at the auto index overall in europe, it is down. The, the whole issue about emissions scandal is tied up with electric vehicles. Frankly, all of them wanted to go pretty quickly into diesel in order to take care of this problem, and it didnt work out, so now we got electric vehicles. Lisa although it make you wonder how they are going to move themselves forward, especially when a lot of automakers are seeing scale is very important and they are looking to consolidate. I wonder whether daimler is going to look at some scenario like that. David by the way, theres a cliff coming up where all of the automakers in europe have a big new standard they have to meet with emissions, and it is not clear they are prepared to do it. Is going to cost a lot of money. Lisa the question is, do they have the money to spend on it . David exactly right. And they have to do Autonomous Vehicles as well as electric vehicles. I will sit down with the ford and volkswagen ceos to discuss their new alliance at about 10 30 this morning. Coming up, we preview next weeks Bank Earnings with Betsy Graseck, Morgan Stanley had of banks and diversified finance research. Life from new york, this is bloomberg. Most of us dont know how much data we use, but we all know were paying too much for it. Enter xfinity mobile. Americas best lte with the most wifi hotspots, combined for the first time. When youre near an xfinity hotspot, youre connected to wifi, saving on data. When youre not, you pay for data by the gig. Use a little, pay a little. Use a lot, just switch to unlimited. Get 400 back when you buy the new lg g8. Call, visit or click today. David trade war casualties. China exports and imports decline over last year as the trade war fights. Trump claims china is reneging on a commitment to buy more farm products. Fed chair powell completes his report to congress. Bond yields creep up. And what does an easing fed mean for u. S. Banks . We find out next week as the banks report earnings. Morgan stanleys Betsy Graseck will be here for a preview. Welcome to bloomberg daybreak on this friday, june 12. Lisa we are watching the Tropical Storm barreling towards the louisiana coast. The images are concerning, to say the least, especially as the Mississippi River breaches its highest levels. This is a concern yet again about rainfall and flooding, especially because this is yet another slowmoving storm that will just sit there and dump rain. We are already seeing this letting images now. David as you pointed out, it is really the people you have to think about, but it also will affect Oil Refineries and production, natural gas. As much as 70 might be affected , so it will have economic effects as well as the individual effects. In the meantime, we have the news broken out about the alliance between ford and volkswagen. What it does is basically says ford is going to take the autonomous part and volkswagen the electric part. This includes investment by fordwagen and argo, the Autonomous Vehicle operation, at about 7 billion value. Their investment will be about 1 billion. Is the head on Autonomous Vehicles, volkswagen the head on electric vehicles. I wonder if this is going to become a template for other Auto Companies Going Forward as they all try to figure out how to invest and become leaders in this at a time when scale is so important. David when you have something you have to do but you dont know what is there, and it costs a fortune, it helps to have a partner or two. Lisa this is sort of on the usual sort of unusual. This is a new model. David it is a new model. Lisa very interesting. Here in new york, a bit of a positive tone, although you are seeing a sort of mixed picture when you talk about risk on risk off. The euro gaining a little against the dollar. 30 year yields unchanged after yesterdays pretty difficult session. Crude rising below where it was earlier crude rising, below where it was earlier, as people assess the storms and geopolitical tensions. David time now for the morning brief. At this hour, ford and volkswagen are announcing the details of their joint venture on electric and Autonomous Vehicles. I will sit down to talk with the ceos right after the News Conference here in new york. At 8 30, we get u. S. Ppi data for june. Over the weekend, wimbledon comes to a close. Also on sunday, german chancellor Angela Merkel will join president macron in paris to celebrate bastille day. At 10 00 in the evening sunday, we get important Economic Data from china, including on gdp growth. Lets turn down back to the fed and fed chair powell has completed his congressional testimony. Nothing dissuaded the markets in their belief that accommodation is on the way come with stocks at record highs as bonds go down. Can the two continue to diverge like that . ,e welcome now Frances Donald man u life Asset Management management chief economist and head of macro strategist. Frances i think the answer is it depends on your timeline. From a macro perspective, we have a lot of support from policy. We have a couple put, a Trump Administration a towel put, a trump admit a powell put, a Trump Administration put, and i think we have a china put coming. I do wonder how companies are going to behave in that environment, so 12 month i get a little more nervous about risk assets. Lisa is this setting us up for a big fall when that downturn does happen . It is ticking up asset valuations based purely on the technical. Frances lets also talk about what the powell put is essentially doing. We have a central bank likely to cut at least two times. When we run that through our models come that supports growth for 2020. It is not just the fed easing. It is a banks as well. That is going to support the Global Economy much more than where we thought we would be six months ago. David does cheaper capital generate demand . Frances it should historically. It would help prolong the business cycle. We do have businesses and offending from a stable u. S. Dollar, narrow credit spreads business is benefiting from a stable u. S. Dollar, narrow credit spreads. The hope is that it does extend the cycle a bit more. Asa will this be effective it has been in the past, given how low rates are and how accommodative arc its already are . It is not Like Companies are struggling to raise money right now. Frances that is true. If you go back to your econ 101, yes it is effective, but far less effective than if we had a big output app or if we were in the middle of a recession. In my estimates, we are looking 0. 3 growth. Maybe it helps bolster the slowdown going into next year. David thats a really good point. It seems like everything is less effective these days. Even going over to wage growth, we heard chair powell talk about employment, which is a great place to be, and yet wages are not coming as much not coming up as much as we would expect. Frances another way of coming out what you are asking is why is inflation not responding to the current environment . When i listen to more and more fomc members talk, they arent talking about concerns for growth. They are talking about structural headwinds against inflation. I suspect we reason i suspect the reason we continue to see powell dovish is because they are trying to preemptively move for inflation, not growth. Lisa what is the potential consequent of this . Will we see bubbles created by the fact that the economy is ok, and yet the Federal Reserve is lowering rates potentially at least two times, if not three . Frances if we are seeing a central bank saying we are going to cut rates even though the economy is near potential, to me that says we better get ready for some inflation as back end of this. We should get comfortable with the idea that over the next couple of years, we could go back to twopoint shot percent to 3 . David what would give you cause 3 . O 2. 5 to david what would give you the cost of believe that the fed is headed towards inflation . Frances maybe because our potential to grow is lower, we maybe went a bit too far. They essentially said that trade wars mean our neutral rate is likely lower than it should be. If they are cutting when the need for wages lower, i think we can when the neutral rate is lower, i think we can get a little more inflation, a steepening of the curve a little over 2 . Lisa what is the most dangerous asset class to own over the next three months . Frances you know what . We may need to think a little bit i will not say three months come about through the end of the year we may need to take about bonds. They are talking about 3 to 4 , or three or four rate cuts. We probably to revisit that story, but that is more of the three to six month period, which is why i also get nervous about equities over that time. David expectations are so high, it is going to be hard to not disappoint them. Frances we are either in insurance cuts or the beginning of a sizable easing cycle. It is one or the other. The idea we are doing three or four doesnt make sense to me. David Frances Donald is going to be staying with us. Now we turn to Viviana Hurtado, here with first word news. Viviana President Trump warning facebook over its plan to create a Digital Currency, tweeting, if facebook and other Companies Want to become banks, they need to get a banking charter. He also expressed skepticism of Digital Currencies in general. British chancellor of the exchequer Philip Hammond putting Boris Johnson on notice. He will not back a proposal to suspend parliament in order to get a no deal brexit. If anybody were to attempt to shut down parliament in order to carry out a course of action which parliament is known to oppose, that would be very serious indeed. That would provoke a constitutional crisis. Viviana former Prime Minister john major says he would launch a legal battle if parliament were shut down. Turkey may be one step closer to u. S. Sections. The first shipment of a Russian Missile Defense System has now arrived there. The u. S. Has warned turkey it would thanks sanctions it would face sanctions if it went ahead with the shipment. 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. Lisa thank you so much. Coming up, the clock is ticking towards big Bank Earnings. We get a preview of what to expect with Betsy Graseck, morgan head of banks and diversified financial research. This is bloomberg. Viviana this is bloomberg daybreak. Two of the Worlds Largest automakers are teaming up on self driving cars. Volkswagen will invest in fod in in argo. Fourth issuing its profit warning in just over a year. Daimler blames the cost of a recall to deal with faulty airbags. It also has higher expenses stemming from the diesel emissions scandal. Asian unit is struggling to price its 9. 8 billion hong kong ipo. Budweiser Brewing Company aipac is weighing a number of options. One may be to relaunch the offering at a later date with different terms. The arrangers cant find enough demand to comfortably price the deal within the marketed range. That is your Bloomberg Business flash. David thanks so much. We start Bank Earnings reports next week, with citi being the first report monday. In the latest note from Morgan Stanley, we hear this. Global gdp is slowing, Inflation Expectations are dimming, and the fed is positioned to cut rates, making it harder for banks to deliver surprises and operating leverage. With us is Betsy Graseck, Morgan Stanley head of banks and diversified finance research. With us still is Frances Donald of manulife Asset Management. Im sure what you heard from chair powell reinforces your concern about the banks. Betsy i think what he said is, get ready. We are going to have one. The question is, are we going to have to . At Morgan Stanley we are looking for two. Frances lisa if the fed cuts rates, consumers will be more encouraged to buy. Companies will have more firepower to continue the cycle. Wont that be net good for the banks . Betsy thats a question we get from a lot of people. If we were earlier in the cycle, maybe i would bring down my expectations for provisions a little bit more, but we are 10 say, we, and like folks are late cycle. Is it one more year, five more years . Dont know, but there is less room for me to cut provisions this late in the cycle. Companies have increased their leverage. Consumers have increased their leverage. At some point, we are going to get a cycle. David we talk a little earlier about the fact that what the fed does it seems a little less effective than it used to be. Will that two cuts, affect things like loan origination . Will people be asking for loans . Frances it is really just a shock absorber as opposed to a cycle changer. Right now we are not looking for a recession in 2020, but we are looking at a sizable slow down into that period. There are a lot of consequent is that come with a slowdown. I asked portfolio managers, would you trade differently if i told you gdp was. 3 or. 3, and they say not really. Lisa at some point we are going to get a cycle. I have to wonder what you are looking for, but also, do you want to see banks being more cautious and earn less because they are preparing for the cycle, or more aggressive given the fed policies for nearterm profitability, even if it means they might be less prepared heading into the next cycle . Betsy what i think Institutional Investors are looking for is sustainable earnings over time. Institutional investors are looking for the banks to be making decisions on lending, where youre going to be able to earn more than your cost of capital over the lifecycle of that loan. That means that looking for a stable, careful growth, not done growth. T gun it david which of the banks will be most affected . Betsy theres a lot in that question, and the reason why is it is a function of how your assets are stacked and how your liabilities are stacked. There are some institutions who are a little more asset sensitive. A folks like sensitive. More asset there are folks who are more liability sensitive like american express. That is not your classic bank, but it is probably the most differentiated from that perspective. Lisa what do you say to this idea that betsy is bringing up, that the fact we are so late in the cycle starts to catch up with you, and we are starting to see consumer delinquencies pickup in certain sectors . Does that worry you at all about the u. S. Economy . Frances what worries me is what happens if consumers lose their job. Right now the consumers have elevated savings. We dont see weakness there or on the consumer balance sheet. If all those trade tensions start to do what they did in may, which is Companies Say we need to stop hiring, maybe we should let go of some people, that is when i start worrying about fundamentals. Betsy that is a great point. At our conference in june, one of the key points was jobs, jobs, jobs. Consumers are not going to link when as much because they can get that next job. At the same time, if they do go into an extended delinquency period, institutions are finding the severity of that loss is higher than what it had been prior. Jobs are absolutely the most critical thing to watch. David is there a pretty direct readthrough from Interest Rates and easing that weve heard about all week from chair powell and dili quincys . And delinquencies . Betsy what you will see in and easing cycle, the marginal borrower can afford to pay their loan. We should expect, if it is a 50 basis point cut, the cycle extends a little bit further, more people can stay current, and there is that positive benefit you get. I dont think that then mentioned zero going to gun it for low growth. Lisa you also have to wonder Going Forward which type of business in the banks you think is going to be most successful. David and a lower rate betsy in a lower rate environment, or for this quarter . For the quarter, we just talked about loan growth. Loan growth has been doing very well youre on year. The First Quarter was like a percent, 9 , unusually high. This quarter weve got 5 , 6 . That is good. Thats solid. Thats where you will hear the positive points in the calls. Lisa so there is more loan growth there. Frances donald and Betsy Graseck will be sticking with us. This is bloomberg. Lisa facebooks new Digital Currency libra is facing fresh backlash, this time from the president. He writes in a tweet, if facebook and other Companies Want to become a bank, they must charterew banking and become subject to banking regulations just like other banks. Before we get into your views, because im sure you cannot wait to give us those, betsy, what does it mean to you that you have federal officials getting really concerned about big tech getting into the Banking Industry and finance . Betsy i think it makes sense that if you are looking to participate in the payment rail directly, you should expect that you will be regulated like the institutions that are integral to those today, so im not surprised. David who is up to doing this . It is pretty clear we are going to go to electronic transfers of funds. Theres no questions about that. Who is up to regulating that, to make sure it works properly . Betsy again, theres a lot in that question. I would say that payment rails is the responsibility of the Federal Reserve, so thats who it is up to. Lisa one thing i am struck by is how big of a competitive threat is big tech to big finance. Betsy i would say that big tech is a competitive threat to a lot of different industry verticals. Fromhas kept big tech being as impactful in finance as in other verticals is, in part, regulation, and i think also the multiples. The multiples of the Banking Sector is a little bit lower than tech sector stocks, as you know. But the regulation is part of it. We can get into the whole debate of doesnt make sense to have this regulation or not, but the reality is the regulation is there, and has kept them from engage thing from engaging perhaps as much as other industries. Autonomousou look at vehicles and electric vehicles, they come from silicon valley, not detroit. Betsy this is the regulatory question. My opinion is that the regulators will require any new entrant into the Payment System to operate under the rules that exist for all of the banks today. Just brass tacks. Antimoney Laundering Bank Secrecy act. The regulators, rightfully so, have spent a tremendous amount of time and attention on these issues with the banking system. Across coverage, weve got banks spending hundreds of millions annually to ensure there is compliance over and above. Now you have Something Like libra, and you asked the question. How does this work, and how is this going to comply with these rules . You cannot have an offramp that enables you to circumvent these rules, especially when youre talking about the worlds was irv currency. Weve written the worlds reserve currency. Weve written a lot about this. Lisa this is a fascinating issue, and we will have to continue it. Betsy graseck of Morgan Stanley, thank you so much for spending time with us this morning. Coming up, retooling worker skills in the era of artificial intelligence. Ckinseys global institutes partner joining us next. This is bloomberg. Lisa this is bloomberg daybreak. A slight positive turn ahead of the u. S. Open. S p futures up a quarter of a percentage point given the positive turn in europe. You are seeing emerging markets off a touch. , you do see classes german yields rising. Prices dropping. Crude gaining more than earlier as people way what a possible disruption from the storm barreling on the louisiana coast could mean. We are getting data. Ppi reading came in strongerthanexpected with a gain of. 1 versus the expectation for no gain whatsoever. 1 . Rior also we have not gotten the revision yet. Interesting to see that without food and energy, the actual came in at. 3 versus. 2 as estimated. David it is one data point but it is consistent with the cpi numbers which came in just a little bit higher than we ought they would. Lisa this goes to the big question. The Federal Reserve wants inflation. Are they already getting it in ways that are not being reflected in the data . We do get another inflation reading above expectations. Till with us is Frances Donald this is your view that people are perhaps underestimating inflation. Another day, another upside surprise to inflation. It is hard for me to say that it will matter because what chair powell told us is i do not care that jobs numbers are better. I do not care that g20 was more optimistic. Off of this summer it is hard to believe that markets will be changing expectations for the next five. What it does change is maybe the perception that they will only need to go two times. 25 versus 50 basis points there are people saying maybe 50 basis points in july. Frances i find it difficult to believe they would agree is a committee to 50 basis points. Weeks prior a lot of them were not looking at any cuts. To move that dramatically over a short time most of the Economic Data has been the same or better it seems unrealistic, unless the fed is changing its decisionmaking function. We talk about inflation, what are we talking about . It matters depending on what will boost the economy. Frances what we witnessed between ppi and cpi is a big diversions. We looked at ppi rising aggressively, that was trade wars, and yet the consumer remained insulated. We will probably look at both of those heading back toward trend. What matters is a bond market and equity market being the pce number the fed watches. We are expecting that to tread upward toward 2 . David toward 2 . Still have a ways to go. Donald Donald Frances will be staying with us. Lets get a look at what is making news outside of the business world. Byiana the production cuts opec and its allies did prevent the return of an oil surplus. According to the International Energy agency, global stockpiles increased the first half of the year. The iea consumption was far weaker than expected and supply exceeded demand by 900,000 barrels a day. In histrump backing down fight you had a Citizenship Question to the census. He has announced a facesaving plan to use Government Data to estimate the amount of noncitizens in the country. It appears no different than the approach the Census Bureau already recommended. Amazon betting 700 million can remake its existing workers to compete in a fastchanging world. Everyone, from Office Workers will be eligible for the training program. Amazon plans to teach new skills to one third of its american workforce. That is roughly 100,000 employees. 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. Im Viviana Hurtado. This is bloomberg. David we will stay on that subjects in the job market. Fed chair powell referred to u. S. Jobs numbers as an indication of u. S. Economic strength, even as he puzzled over the lack of robust wage growth. Issued ahas just report on the u. S. Jobs market, where it is and where it is going. Talks of the future of work in america, mapping the impact of people and places. We all welcome we welcome one of the authors of that report, susan lund. She joins us from washington. Frances donald is still with us. Susan, lets go into your report. Tell us what the most surprising thing was that you saw. Look in this research, we at the impact of automation and future job creation on different zip codes and counties across the u. S. What we see already since the Great Recession there is just a handful of cities that have accounted for a large share of job growth and there are large parts of the country trailing cities and rural areas that lost jobs and never regained them. When we look forward, the impact of automation could make these divergences even wider. Im trying to understand, because we have seen on the margin, younger people moving out of the cities and into suburban areas. Theres been talk about the gaining moreities in terms of workers and real estate prices. How do you square that with your thesis that these areas will lag behind the big cities . Susan when i talk about the big cities, there are 25 of them. It includes places like denver, seattle, austin, texas, and minneapolis in addition to the big cities like new york city, washington, los angeles. There are examples of even smaller tech hubs emerging like provo, utah, and end, oregon. There are cities like ann arbor, michigan that are doing quite well. There are still vast numbers of cities in the midst middle that are growing slowly and their future is not particularly bright. There are 2000 rural counties, many of which are projected to have negative job growth over the next decade. You ini want to turn to connection with chair powells testimony. The congresswoman from iowa had an exchange with the chairman on the subject, saying in iowa we are not seeing it. What are we going to do about it . Is that anything the fed could do . What could be done to remedy that problem . Frances this speaks to how difficult Monetary Policy is as a tool to save america, save the world. We cannot apply Monetary Policy to individual regions. It has to be a blanket prescription. Withinthe diversions is the economy, we see this in europe and other developed markets where we have two or three different economies. You end up with Monetary Policy that is less effective. When all you have is a hammer, everything looks like a nail. Ist is why fiscal policy what policymakers will be focusing on. Lisa one thing i am struggling to understand does automation or the increase in technology hurt the human workforce or help the human workforce . We talked to a lot of executives who say more jobs will be created that lost when trying to implement some of these technologies, get them up to speed, and create new ones. Susan were in the camp that there will be jobs for humans for sure. There is lots of new demand in different sectors like health care. There is need for technology the amazon announcement illustrates something else. Those jobs will be different and people will need different sets of skills. That is true if youre a computer engineer. You need to learn about Machine Learning and ai. If youre working at a fulfillment center, you will be doing more customer interaction and you will need to do Different Things as machines do some of the dull work and the dangerous work in the economy. David i want to come back to your map of the United States because it is quite striking. Perhaps the thing in your report that struck me the most. The white areas are the ones that you are projecting less than 0 job growth for 2017 to 2030. That is an awful lot of the country. The darker the color, the more the job growth. What causes that . Susan it is a combination of factors. Automation will displace workers everywhere because the jobs we are looking at in the next wave of automation are everything from white collar jobs to retail cashiers, fast food. Those types of jobs are everywhere. What is different is the ability of a local economy to create new jobs. What you are seeing in the white parts of the country is those are the rural counties. They have older populations, older workforces. They have less Educational Attainment and they lacked a vibrant engine of job growth. That is why you are seeing this very stark divergence. In many of those places, people are moving out, leaving those areas. Lisa such an interesting issue when you Start Talking about the need for fiscal stimulus. That is basically what you are talking about. Frances we will not solve the issues with Interest Rates. What it screams to chair powell and me as lower neutral rights. These are not economies that can sustain Interest Rates we thought 20 years ago. This is a low Interest Rate environment and we will have to move to different policy tools. Lisa thank you so much. Susan lund of mckinsey and Frances Donald of make life Asset Management. We want to give you a sense of what we saw with the producer prices. The increase in june by more than forecast. Another inflation reading coming in above expectation, rising 2. 3 , matching the prior month. That compares with a median expectation of 2. 1 according to a Labor Department report out just 10 minutes ago. You can see the dollar gaining a little bit after being down earlier and s p Futures Holding in their gains. Coming up, we are going to see Goldman Sachs looking like kkr and kkr looking like Goldman Sachs. We will talk to Cornell Capital founder and senior partner in the last installment in this weeks banking on change. Bloomberg users can interact with the charts shown on gtv. Catch up on the analysis and save charts for future reference. This is bloomberg. Viviana i am Viviana Hurtado in the hewlettpackard enterprise greenroom. Coming up on balance of power, ken jelly come eu is immigration u. S. Immigration acting director. This is bloomberg daybreak. Heres your Bloomberg Business flash. Shipments of personal computers rose 1. 5 in the Second Quarter. Businesses upgrading to the latest Windows Software from microsoft will be increased. Group holds the top spot again above hp. Eric lindblad is retiring after only a year in the job. He has been dealing with the aftermath of the fatal crashes max. E 737 his replacement has been in charge of developing a mid ranged jet. To each a bank is reportedly giving reduced severance to hundreds of staff in london. The bank is trying to limit the cost of the overhaul. Is offering employees a redundancy package required by law plus a onetime payment of less than 10 of salary. Employees are being paid for a notice period that is typically three months. That is your Bloomberg Business flash. Avid time for follow the lead a deep dive into stories making headlines and moving markets with insights from industry veterans and insiders. All week long we are focused on trends in the Banking Industry ahead of Bank Earnings on monday. Today we look at the world of private equity and how banks fit into that world. Joining us with a closer look at the private equity space is taylor riggs. Taylor you are seeing a lot of private equity firms trying to look like banks, banks trying to look like private equity firms. , which ise is kkr growing its Capital Markets division and does put it directly in competition with banks like Goldman Sachs. What we are taking a look at is the Capital Markets revenue now polluting up to 630 million, the highest we have going on back several years and two thirds of this business comes from kkrled investments. Within the Capital Markets division they are trying to diversify. 20 does come from thirdparty investors trying to diversify and focus on asia. Infrastructure within private equity funds and real estate. , we are taking a look at what might be making banks a little bit nervous. The Capital Market business is increasing its revenue as a percent of the total. Does comes revenue from the Capital Market division. His highest contributor to revenue since 2011. It not only makes up about 60 of their total revenue, but makes up 34 of their fees related business. A growing sector within private equity firms might make the banks a little bit nervous as they are seeing increasing competition. Lisa, david . David thank you so much to taylor riggs. Taylor not alix. She will beid back. Joining us are sonali basak and Henry Cornell. At thenell was formerly firm after his tenure as vice chair of Goldman Sachs. Welcome to both of you. We start out with the news today. A new approach to the volcker rule that they were trying to trim back on. How much will that affect your business . Henry i am pure private equity. Im at the top of the capital structure. I think he is looking at the Banking Industry and the nonregulated thanking industry. The volcker rule will affect the big regulated banks rather than the shadow lending group. Lisa the one thing i find interesting when i look at the charts of who is getting the most in the private debt and private equity world, it is Goldman Sachs merchant bank. It isyearold stomping grounds it is your old stomping grounds. While you think banks are trying to get into the private equity world now . Henry if you think of the evolution of the relationships, from a private equity point of view, first you are dealing with Pension Funds and Insurance Companies were matching longterm liabilities and they like the higher returns private equity can give them. When you have this relationship and the capital structure requires debt, it is a natural part of the conversation. I think you have seen this developed over the last 30 years from when i was a much younger person in the industry. It was an outgrowth of having those relationships. Sonali what are some of the the movementd in from regulated banks to private capital . Are the risks embedded in so much private lending . It is an interesting question because you have groups of investors putting their capital into funds in order to achieve the risk profile they are seeking. If you have investments across the whole spectrum of funds, it could be risky. Most of these funds are requiring 30 plus of equities, so there is a huge cushion even though you are seeing deals trade at 10 or 12 times. It could all end poorly in a major recession. The risks are limited that one fun. That is not to say politically important people, Pension Funds, and Insurance Companies cannot have risk exposure. Lisa we are talking about how banks will look more like private equity and private equity wants to look more like banks. How much is this just a food fight for the most popular area in the sandbox . Sonali that is my big question. You have Goldman Sachs consolidating their private. Apital units if you look the charts, it looks like this. Is this the right time to be diving into the private market . Henry i am bullish. Im a vietnam war is when i graduated high school and started college. This is the best u. S. Economy i have seen in my lifetime. There are obviously risks, but there is virtually no unemployment, no inflation, Interest Rates are low and the country is headed in the right direction. There are risks, and durable orders are down. Im pretty optimistic. Sonali Goldman Sachs is the 100 pound gorilla in the room, but of ahave not grown a hell lot since the volcker rule was put into place. What are the expectation of the big banks . Henry all of the banks have requirement they cannot put more of their capital incomes. A lot of the private equity Groups Associated with banks and a much larger commitment to their balance sheet. That put a little bit of a damper in fund raising but frankly they survived that and everybody is back in the market. Lisa one thing that struck me is you have never seen the us economy as good as it is now. Perhaps we will not see a downturn in the future. That raises the question about returns given how much cash is flooding into private markets. You think return expectations have to come down materially . Ofry the sheer weight capital is going to depress returns because prices are higher. On the same token, you great underlying growth. Im not stupidly bullish. At least i hope im not stupidly bullish in the sense i recognize trade wars and political issues between blue and red in the country could unnerve things, and we do have a president ial election. Right now the markets have grown. Private equity is now a mainstream market, whereas when i started in the business many decades ago, it was on the fringe. Still called alternative, but if you think of the growth of the private markets relative to the public markets, it is an accepted asset class across the spectrum. Sonali going back to davids initial question about the volcker rule, we find part of the volcker rule might unwind some of these restrictions for the biggest banks. Do expect the biggest banks to be diving in outside of goldman . Henry everyone is looking to make money. You should look the private banks, which have more flexibility within the big banks. We talked to them all the time. We like having the big banks as backbone lenders. We talk to the smaller guys, too. You have to be nimble in this market. Having one of the bigname banks back you or some of the private equity funds puts a halo on you. Lisa Henry Cornell and bloombergs sonali basak, thank you so much to both of you. Coming up, etfs on etms. How liquid are they in times of stress . That is what i am watching, next. If you are jumping into your car , tune into Bloomberg Radio, heard across the u. S. On sirius radio channel 119 and on the bloomberg app. This is bloomberg. Lisa what i am watching panic sales rekindle the debate over etf liquidity. We did see some of those funds in europe, there oneoff events. This is what people are worried about given the fact that bond etf assets have tripled since 2012, people are wondering if this could be an embedded risk in the market. David call me crazy, but when you say give us your money and we will make a lot of money for you and you can take it out whenever you want, there is usually a problem. Their arguments as to whether this is a canard for other concerns. Im just saying. David we have seen this play before. Lisa we have seen the worries before. David that does it for bloomberg daybreak americas. Coming up, jim caron, Morgan Stanley chief Income Portfolio manager. Live from new york, this is bloomberg. I dont know why i didnt get screened a long time ago. I kept putting it off. What was i thinking . Ok, mr. Jones. Were all done. I told you it was easy. With life line screening, getting screened for unknown Health Conditions is so quick, painless and affordable, youll wonder why you hadnt done it before. 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With 30 minutes until the opening bell, good morning. Heres your friday morning price action. Futures up six points on the s p. Firmer. 2 . As the session grows older, the dollar starting to regain a firmer footing. 1. 1235 andgative at treasury stable. 2. 14 is your yield on the u. S. 10 year. Lets begin with the big issue. Our cracks appearing in the everything rally . We have seen a strong rally. The market rally has been abou