A daunting proposition when the weather is going to turn to 97 degrees later this week. To the day,his is, the anniversary of when it happened in 1997. Questions. A lot of in the meantime, it is a quiet morning ahead of the u. S. Open. Some muted price action. Brent crude reaching the highest level since may. German three year yield dipping a basis point. On theg market currency heels of a less bad that expected gdp report from china. David today we mark the beginning of a big week for bank earnings. At 8 00,with citi tomorrow. Y jp morgan we also get retail sales and Industrial Production numbers. Companies Tech Companies face questions on capitol hill. Netflixy, we get earnings. Thursday, gm unveils its own new made engine corvette. In british open begins northern ireland. That is all coming up this week. We are joined today by Gina Martin Adams and damian sassower. Lets start with those china numbers. I will put up a chart that basically shows what happened. It was the lowest on record going back to 1992. Then in june, it started to bounce back. Gina there are a lot of questions as to how sustainable that bounce back is. So much of it was this boom in commodities production. Is gettings reflected in the stocks. Asian equities have been a big laggard all year. Nobody is really expecting a whole lot out of china expect for the hope that there will be some stabilization, and that is the risk, that we dont see any stabilization and this is sort of a false dawn, and that is going to create a bigger drag on equities. Lisa meanwhile, President Trump keeping very close tabs on what is happening with china gdp. China gdp growth is the slowest it has been in more than 27 years. Tariffs are having a major affect on companies wanting to leave china for nontariff countries. Thousands of companies are leaving. This is why china wants to make a deal. This goes on, just basically talking about how the tariffs are being paid by china, not the u. S. You comment on the degree to which the chinese slow is due to the tariffs . Damian it is all about credit extension and whether or not they can reinflate their economy. We saw Industrial Production betterthanexpected. How long cannot last . Can they really get the domestic economy turning on all cylinders to sustain itself without any negative impacts from trump and the trade war . The verdict is still out of then the margins, all trade data coming in is getting progressively weaker, and it is going to be that much more challenging for them. David but are they playing by different rules than we are playing by . A lot of the borrowing comes from chinese domestic. They are savers, unlike in the United States. They have more flexibility to reinflate . Damian absolutely. Basicallyment is making it easier to invest in infrastructure to make what he in infrastructure to mystically. They are taking a fiscal caret out of their bag in order to basically reinflate their economy, and doing a good job of it. They have a lot more tools than the fed at this stage. Lisa meanwhile, the fed is still expecting to lower Interest Rates. How will this affect the banks . This brings us to the second point we are going to talk about, earnings kicking off with citigroup today. What are we expecting . Gina i think the bank may banksn i think the more broadly are expecting lower earnings. Ipos are down 20 yearoveryear. That is dragging on the overall landscape for the companies. We are going to talk a lot about top line. As much as we want to talk about the fed and what is one to happen with Interest Rate spreads and how margins are going to be compressed, the reality of the Banking Sector and financials at large is this suppression of topline growth that has held back growth for this space. It is bout revenue, loan growth, fees, m a, equity trading, fixed income trading. It is much less about margins because sales are driving sector performance. Citi as itk about is differentiated from these other banks. The the market damian market is looking at anything to paint the picture of International Currency trading. Is it going to be the top line that really drives it, and is it going to be trade . The verdict is still out on whether citigroup is going to meet the bar on that one. Lisa if we are at the point where the Federal Reserve is playing lower Interest Rates, we are seeing easing in credit conditions, the fact that we have not seen an increase in ipo activity, a meaningful increase in bond underwriting, what does that say for the prospects for the banks at a time when the fed is going to stimulate the economy . Gina i think your expectation is a little bit robust. The fed hasnt actually reduced rates yet. We started to try to price this into Financial Market assets, but we didnt even start pricing that in until june. How are we going to see that activity show up in the Second Quarter yet . I think going forward, we have to start to see this come to fruition. That is a really big question going into 2020. If the fed does reduce Interest Rates, how much will that manifest itself in better Economic Conditions . That is when we need to start to see this, third quarter, Fourth Quarter growth. If we are not seeing a pickup in topline growth, we could be in for a bit of an awakening in financial asset prices. But we are not yet there, and i think the market can give a little bit on secondquarter earnings because expectations are already so low. We are hoping better earnings will come, but we are not expecting a lot out of Second Quarter. David lets come at that question from a slightly different angle. Let me put a chart up here. Bond yields have gone down and down, the s p up and up. The s p actually at a record level on friday. Can this continue . This is what i am seeing more and more in the berm group more and more in the bloomberg come of people debating whether or not they have to converge again. Onlyn abigail damian recently have they begun to sort of take back. It is really more at the long end of the curve. If you look at the 30 year auction last week in the u. S. , terrible auction. Maybe it is not about inflation anymore. Maybe is about growth expectations. Lisa i have to wonder, are we in a new normal . There is some believability to that because if the fed is going to cut rates and they are having , thatal reflation increase asset prices to be at a higher place and they have historically . Gina theres a really tight relationship between equity market valuation multiples and bond yields. The question is how much can valuation multiples rise without seeing that subsequent earnings recovery to support that lower rate environment . This is the question we have been in for 10 years running. This is nothing new. It has been 10 years of global bond yields remaining somewhat suppressed and elevating market multiples. Everyone questioning, when are the earnings going to come through to support these higher multiples . It is really a big question in a lot of investors minds as to when this manifests as higher growth. Lower rates mean higher pe multiples. You dont fight the fed for a reason. This is of the stock prices move. At some point maybe we hit recession, but i think people have been suggesting for what for years running that this is four yearsesting for that this is the end of the cycle. David one of the things i had not focused on enough, when we heard jay powell last week saying the curve may well be broken. If it really where broken commode does that change the rules of the game . In this if it really were broken, does that change the rules of the game . Stuff reallyf that brings together unemployment or employment, rather, and inflation. Maybe they are two completely different things. Can the fed have different mandates and live up to them . The short answer is well see, but the right answer is that is going to be a real challenge for them. Lisa the right answer is no, damian. [laughter] lisa both of you, thank you so much for being with us. You can find all of the charts we just used, as well as more great information, by running gtv on your terminal. You can browse all of the charts, dig in, save them. Coming up, banking giants start the earnings phase, leading with citigroup. Founder ofves, advisors, capital joins us next. This is bloomberg. This is bloomberg daybreak. Gilead finances boosting its stake in belgian Biotech Company galapagos. Gilead will pay 5. 1 billion to increase research into inflammatory diseases and other disorders. That raises its stake in galapagos to 22 . Gilead has been hurt by increased competition for its hepatitis c drug. And all stec an all Stock Transaction represent an 80 premium to carusos trading. The boeing 737 max 8 reportedly grounded months longer than expected. American airlines already saying it will keep the plane off its schedule until november. That is your Bloomberg Business flash. Outd this week, we find how the major banks are faring, with citibank Getting Started with its earning report less than an hour from now, followed by golden followed by goldman, but jp morgan, and bike of america tomorrow. We welcome now Michael Purves, founding ceo it is new company just today, Tallbacken Capital Advisors. Congratulations. We are also joined by alison williams, bloombergs banking analyst. Give us the top line of what we are expecting out of these banks. Alison we are expecting a pretty solid quarter, and the bottom line is going to be net interest margins. That is the one margin everyone is focused on. Weve seen the environment worsen and estimates come down over the last quarter. We are expecting contraction this quarter, but of course, the question is the forward look. Lisa citigroup shares, i did not realize this, they have gained almost 40 year to date. This is not a minor rally. Michael, i do have to wonder how much this has baked in a recovery from underperformance for years, and how much this is baking and growth at a time baking in growth at a time of relatively rough Economic Conditions. Xlfael if you look at the is a broad proxy for the sector, look at the tech sector versus the xlf. It is at 2000 extreme levels. It has been soaring. Tech stocks, which are not drunk on optimism as they were in 1999, have been performing. But bank stocks have been so massively underperformed as a sector. The question is, if you are trading back, how do you contextualized this kind of a trap . How do you think about it in the context of what is probably going to be a much less robust, but perhaps recently but perhaps a stable, earnings stream . David what about the stability part . You might make less in interest, but have more loan generation, and that may benefit the banks. Alison the banks are up very strongly, but they had a very sharp selloff in december. Perhaps a little overdone as people were anticipating a recession, which we know was someday,come but might be several quarters out. We recently had the stress test and everyone announcing these big capital payouts. To your point about stability, we saw dividend increases. The Biggest Surprise was from goldman, a sharp increase from their dividend under new management. They are aiming to become more recurring income like, more like a traditional bank, and providing that sort of dividend yield. The other thing is you made the point about financials versus tech. Keep in mind the substantial outperformance weve had, growth versus value. Obviously that is going to impact where investors are looking. That has been a pretty sniff it can trend over the last couple of years pretty significant trend over the last couple of years. Lisa this chart shows trading at the Biggest Discount for banks in years. Steadily coming down. The key question here, is this the correct valuation of banks at a time when Growth Prospects are somewhat dimmer, and really are becoming more utilities that are well regulated . Safer perhaps, but not going to return the same kind of revenues in the past. Michael with the whole year to date rally, you have actual utilities, and then the banks. Utilities have been extraordinarily pushed on their valuations upwards, and banks have been pushed six ordinarily low. So much of this get back to interest. If the 10 year yield fines up to 2. 5 , 3 , a lot of Bank Analysts going to be very constructive on their bank earnings. The rationale for owning utilities is going to come down quite substantially. When you think about the 30 year history of bank stocks, that earnings story is going through a structural change here going forward. You were just talking about the goldman earnings discovery. Think about some of the other more classically commercial banks. David is there at least one bank that might benefit from lower Interest Rates, and that is wells fargo because of mortgages . If rates come down, you might have more mortgage origination. Alison that is one of the things we are looking at this quarter. Theyve brought down estimates a couple of times. Bank of america brought down estimates when an a half times. Part of that is reinvestment related to the long end. However, wells fargo earns relatively more from mortgage banking. They get this offset. We thought it was sort of interesting that the revenue estimates were drifting up going into the quarter versus other banks coming down. Lisa i think it is going to be interesting to hear whether any of these banks talk about getting business from a big european lender. David who would that be . Who are you thinking of . [laughter] lisa im curious. Alison alison i think today is one of the most important ones. A few years ago we had both citi and Deutsche Bank saying we know we have to invest. Fast forward a few years later, citigroup has made progress moving up the absolute relative revenue ranks, Deutsche Bank with this big exit. Is it a bigger opportunity for citi and other peers to gain some share . Michael it will be interesting to see how fixed business does this quarter. We had some volatility in equities in may. How those banks are processing and working through that will be interesting. Alison i think that is a good preview going into the citi report out shortly. You have the banks talking down estimates in late may, early june. But exiting the quarter, we had a big move in treasury volatility. We had credit trading pick up well. Does that set us up for being a lobar . Low bar . Ng a williams,avid alison thank you so much. Michael purves will be staying with us. Sit atup, bond yields multiyear lows. We discuss that next. This is bloomberg. Lisa the divergence between stocks and bonds is continuing to play out in the markets as equities hit fresh records, while bond yields still sit at multiyear lows. Can the stock market continue to eke out new gains, and is there still too much pessimism baked in . With us still is uncle purvis founder ofpurves, Tallbacken Capital Advisors. Are investors too pessimistic . Michael on earnings . No, not necessarily. As au look at it longerterm, multiyear flat aberration in 20 thanks to the acceleration due 2018e tax stimulus in thanks to the acceleration due , that is nowimulus behind us, so we are going back to that more static, less dynamic cycle which is going to generate mid Single DigitsEarnings Growth, not 10 Earnings Growth. I think the markets have been sort of processing this come about yearoveryear, we are going to see some negative growth this quarter. I think that is a little bit of a so what, given how strong q2 of 2018 was in terms of earnings. Right, is the is fed overly concerned . If thats right, maybe they shouldnt be that worried about cutting because we have to prolong the cycle. Michael exactly. One of the fascinating things about how the money markets have been guessing where the fed is going to come to with this very aggressive bid for rates and how that is reflected in the bond market is really fascinating. Lets talk about the 10 year, for example. When i look at the 10 year yield, i cant look at it in a vacuum, when bund yields hit 40 basis points just a week ago. Istainly the bund bid bringing down treasury yields on the backend taylor . Then think about on the backend. Then think about powell. s dovish messaging comes with, well then there is all this bad stuff overseas. It is insurance messaging, if you will. Is that bad stuff overseas already being reflected in the bund bid, which is dragging down the treasury yield. I think the risk here on treasuries is really asymmetric. Ofa Michael PurvesTallbacken Capital Advisors is sticking with us. Coming up, we take a look at the data out of china with brian ma of vontobel. This is bloomberg. Lisa this is bloomberg daybreak. Kind of a quiet morning here. In europe, returning to gains after being down earlier. Some positives out of the automakers, but theres been a decline in telecommunications and banking shares in that region. The u. S. Poised for a slight open that is higher. If you flip up the boards, across assets youve got oil getting a bid at the highest since may. The euro gaining a little bit against the dollar. Gold also getting a bid. Hard to say whether this is risk on or risk off. David it is too soon to tell, its fair to say. We will wait and see what happens with the bank earnings. In the meantime, Viviana Hurtado is here with first word news. Viviana President Donald Trump reportedly may replace commerce secretary over ross commerce secretary wilbur ross, prodded by the administrations loss in the Supreme Court on adding a Citizenship Question to the census. The court said ross argumen for adding the question was contrived. And hong kong, more pressure on chief executive carrie lam. Policeers clashed with in a suburban mall. Totesters have been reacting lams controversial plan to allow extradition to Mainland China. In turkey, president erdogan says u. S. Sanctions are unlikely after the country bought a Russian Missile dissident system Russian Missile defense system. The u. S. Has warned deploying the Missile System could undermine natos military capabilities. 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 thank you. Lets turn to china now. China released economic numbers overnight, and it showed growth in the Second Quarter has grown at the slowest rate since the numbers were first captured back in 1992, 27 years ago, but also showing a pickup at the end of the quarter in june. We welcome now brian bandsma, vontobel quality Growth Portfolio manager, with us from hong kong. Michael purves of Tallbacken Capital Advisors is still with us. Brian, tell us what your take was on these numbers. They were slow in growth, but june looked pretty good. The key point is that china is a 14 trillion economy, so it is just kind of facing a lot of large numbers, and it should be specked at that from a percentage growth standpoint, china is going to it should be expected that from a percentage growth standpoint, china is going to show lower numbers. But retail spending seems to be strong. That is the key for the Chinese Government trying to pivot towards more to domestic consumption and away way for more fixed investment. Lisa the conversation flipped very much from the gdp numbers and the slowing growth to the incredible increase in credit creation in china. Basically, this is evidence that the stimulus the Chinese Government has been engaging in has actually been working. Pboc continue to stimulate the economy and enable this real averaging before this real averaging this releveraginghis before there is a problem . Brian the ability to stimulate through physical means is there. Obviously china has this very tricky condition because they are managing, as my fellow guest was just referencing, this large number. As the growth comes down, how do they manage Deflationary Forces and keep stimulating . Theyve been doing this for the last several years. One of the things that is very weortant out of these prints just got is that white line in the chart david put up. The white line shows retail sales growth. For years, weve been talking about that china needs to evolve into a consumer driven economy. Putting all the trade war stuff aside, that seems to be what they are doing, even if 20 basis points like. David lets delve more deeply snto basis point light. David lets delve more deeply into what they are doing. They are investing less and less, sort of flat on infrastructure. Property develop meant has gone up a little bit. Where are they putting their stimulus to get this economy going . Only real direct way the Chinese Government can stimulate the economy is through fixed Asset Investment or through any sort of construction type of project. I think you are seeing that the government is losing some lending standards to encourage more investment. But there isnt a lot of option for the government in terms of how the can stimulate the economy. Lisa this seems to be at odds with what michael is saying, that basically there is some limit to the amount that the pboc can actually continue to juice growth. What is that limit . Brian its hard to put a specific number on it, but to a large extent it is increasingly getting more difficult because as you invest in infrastructure, whether it is more roads, more etc. , theres a declining return on investment. China is hitting that point of incrementally lower returns. If you look at Railway Construction right now, we are already at that point. The china Railway Construction of dollars inions debts, and a lot of the rail lines they are building to smaller and rural towns where they are not getting the ridership to justify the expenditure. Lisa does that mean you are getting bearish on emerging market, particularly in asia . Brian when you invest in emerging markets, you have to admit that china is the 800 pound gorilla. How goes china goes a lot of the rest of the emerging markets. Othere extent, but the side of that is china is a country that controls its own capital accounts. They have a lot of policy flexibility to deal with some of these issues. For example, in terms of the financing of the rail corporation, they control the roads, the airline industry. So if they want to ship ridership want to shift ridership to the airways, they have a lot at their disposal to force people to use the rails more. The issue with china would be more along the lines of it would be more of a japan type scenario we saw, when japan hit its peak period in the late 1980s. It is something to keep an eye on, but at least at the stage at this stage, i would say im cautiously optimistic. David michael, you referred to the retail Sales Numbers going up. Are we seeing in china a pivot, where it used to be stimulus meant lets build more bridges and roads and buildings, and now it is much more consumeroriented . I will put up a chart that shows auto retail sales. As you know, theyve been shrinking for 13 months straight. Now theyve taken a spike up, the most since 2011, because edit. Did loosen the cr michael i think thats part of what the whole stimulus measures were about. That is in the context of Global Auto Sales not being that great. The china slow down, watching this thing as it used to grow at gdpa year and 20 nominal back in 2009 and 2010, when it was the safe harbor of the Global Economy during those dark days, when you slow down an engine that is that big, it is going to be messy. It is not going to be easy. I think theres a broader question. You are referencing can they keep stimulating and all of that. What kind of tail risks does that present for china and the world . The ecb can be buying Corporate Bonds or debt of whatever it sees, can the pboc do that as well if they need to . Backstop . Timately a the broader china macro condition, the fx reserves, the 2015est rates, it is not tight dynamics where the macro condition is really being threatened. Theyve graduated a little more towards dm status. Lisa what im hearing from you is that we have entered a global releveraging cycle, if you will, although we never deleveraged, really. Youre saying that is being led by china. Michael i think thats part of what this process is. Its one of the reasons why, for all of the may complex and steep structural issues china has, i think they are doing a decent job managing through this. It is sort of a giant tailstock to the world. It is hard to trade that tail shock. David i wonder, if they are can theyleveraging, fully implement their plans on one belt, one road . That is going to cost a lot of money, too. That is going to have implications on all of the countries it can reach to. They havent really let up on the one belt, one road investment. I think that is a really positive thing for the rest of the asia region as western investors have moved away from funding a lot of these projects in other developing economies. China has stepped in and filled the gap. I dont see that necessarily slowing down, but on the other hand, in the last couple of years china is very much aware of the debt problem. It has done a lot to really restrain the growth of debt within their economy. I think at this stage, although things are fairly elevated from a debt level perspective, they are fairly stable as well. China has a lot of policy tools debt youith this typically dont have in western capitalist countries. The borrower and lender are effectively the same entity, the Chinese Government. David thank you both very much for being with us today. Wexner andleslie what he called the most loyal friend of Jeffrey Epstein. Lisa if you have a bloomberg terminal, you should check out gtv. You can watch, check out our charts and graphs, and indirect directly and interact with us directly. This is bloomberg. Viviana this is bloomberg daybreak. Moming up in the next hour, see shah, Principal Global Investors she strategist. Strategist. Chief the ftc will place an unusual ban on the wagering of money separately from investor funds. It was this type of trading that helps sink that helps sink fs global. Peter thiel says the fbi and cia should investigate whether alphabet has been infiltrated by foreign intelligence agencies. He has been one of president biggest Silicon Valley supporters and donors. On friday, ab inbev scrapped plans to take its asian beverage unit public. David not good news for ab invev, as you can see in the stock. Lisa not at all, especially considering that asia was the primary area they were trying to expand at a time when craft beers are gaining more territory. David and they need to get debt off the Balance Sheet. We turn now to wall street beat, where we cover three things wall street is buzzing about this morning. First up, pricing and Research Pricing and Research Pricing in research. Give andrearees to pacelli his bonus after dropping plans to join. And the wechsler and epstein connection. Leslie wexners friendship with Jeffrey Epstein is under scrutiny. Lisa joining us now is so knowledge asset is sonali basak. I want to talk about the overhaul in wall street research. New rules have gone into effect that force investors to pay for the research. How much does it cost . Sonali the biggest banks presumably could charge the least. For jp morgan and citigroup, that is about 10,000. For morgan stanley, 25,000. It is not cheap, but still cheaper than what the smaller firms can offer. Theres a bit of a debate going on on whether the biggest banks can subsidize Research Costs through other parts of the bank. David at the same time, there is a chart that showed the headcount in research, which has really gone down. Lisa the 12th Top Investment banks the 12 Top Investment banks are down 14 from five years earlier, so people have lost their jobs. Based on what some people were saying, this would have been a bloodbath. Is it less than people thought it would be . Sonali we are trying to be optimistic on a monday morning. [laughter] sonali the thing that is interesting is this has also pushed people out of the industry. Weve seen a lot of people move into hedge fund jobs, Investor Relations jobs at firms. The writing has been on the wall for a number of years now. David the real question is, is this going to make trading better . The advocates said this will improve it. Sonali i think so far, theres a lot of criticism that this is not working out as planned. Somebody quoted in the story today that the head of research at Sanford Bernstein is saying this is subsidizing the other parts of the bank. Lisa although there was a quote by a fund manager saying we dont get as many calls. Oneres a report out ubs saying they are going to pay andrea orchild pay orcel his bonus after all. Sonali people have been saying hes planning on suing santander. Lisa if ubs agrees to pay orcel, that means hes effectively out of the business completely. Sonali exactly. David reports suggest he might actually turn down the bonus and just pursue santander. If he gets that money, then he is not banned. David david thats the part that is sonali thats the part that is unclear. The idea here is you give up the money from ubs and then start your own firm, or you go work for another big bank. Lisa it is definitely going to be interesting to watch. This third story is what a lot of people have been talking about. Who is Jeffrey Epstein . Who is his inner circle, when he when heed of using is accused of abusing sexually underage girls . Up in wexner is caught this. Whole. Debacle how is he involved in this whole debacle. How is he involved . Sonali he has very close ties to jeff epstein that will potentially hurt his business a lot. The former cfo of the limited, a says thereompany, relations was not on par, and on says hehat, les wexner severed ties with epstein years ago when he was initially arrested. David so how did jeff epstein make that much money . They say it is 500 million. Wexnerorts are that mr. Gave him this really extensive townhouse. Sonali there was a transfer of the townhouse. It is very blurry, if you look at how that happened. Trail. Nclear money and then also, he also transferred the jet over, a boeing 727. Lisa victorias secret has been under fire for a long time, trying to figure out how to rebrand at this point given the fact that millennials and younger people are not that interested in the same sort of sexpot kind of allure that it really sold for a long time. It raises a question about the whole image of the company, especially because Leslie Wexner and Jeffrey Epstein, in this story, talking about how they were so intimately connected not with the townhouse, but with everything with victorias secret. Sonali whats even worse is the he said the ties were complete lease have her to come up but there are still things going on where both of their names ties were completely severed, but there are still things going on where both of their names are signed. Lisa i think it will be interesting to watch in markets whether there is a guilt by association, regardless of the proof or not. You are right to say theres no evidence linking the two, and yet you did see the l brands shares dipped a bit when reports started coming out. Sonali and dont forget the lawsuit says that a woman was attacked in les wexners home by jeff epstein. David sonali, thanks for being with us. Coming up, the u. S. Government is set to run out of money in early october unless Congress Extends the debt ceiling. More on what im watching next. Lisa meanwhile, if you are heading out to your car, tune into Bloomberg Radio across the u. S. On sirius xm channel 119 and on the Bloomberg Business app. This is bloomberg. David this is what im watching e of debt ceiling again watching, the debt ceiling again. The news over the weekend was Steven Mnuchin called up nancy pelosi and said i dont think we can go as long as i thought we could. Then they go on recess as of the end of next weekend. Lisa heres the problem. Every single time we have a debt ceiling debate, we have this sort of concern, and youve got both sides jawboning. Theres not that much fear being built into markets. The reason why is because any default would likely be for a couple minutes, not necessarily more than that. On both sides, where is the fiscal austerity push . Whos the hawk here . David there are a few. David purdue on friday said theres no way im going along with this. That chart basically says people would rather have a six month bill and a three month bill. Thats why it inverts. So theres a little bit in the bond market. Legitimate. Is how are they going to get a deal when theres a lot of dissonance . At the same time, this happens every time we have a debt ceiling. David and treasury secretary mnuchin has proposed how to deal with this, which policy has not objected to. We may see a compromise. Lisa politically, who does it benefit if the u. S. Defaults . Absolutely no one. Ahead of the 2020 election, this is a liability for President Trump and for democrats, who can be pointed to as obstructionists. David but it is exciting. Lisa it is thrilling. [laughter] malik ofming up, saira h ofen and seema sha printable global investors. 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. David lowest on record. China gdp grows the least on record in the Second Quarter, but then starts to rebound in june, responding to stimulus. Financial earnings reports and with citi, out moments ago. What do fed cuts mean for the banking business . And times may be changing. Bond yields down, with many saying theres no reason for them to climb, but others warning there are some big surprises ahead. Welcome to bloomberg daybreak on this monday, july 15. Lisa we did get citigroup earnings. They beat across the board. Earningspershare came in at 1. 83 versus an estimate of 1. 80. Fixed income revenue really beat , 3. 32 billion versus estimated 2. 99 billion. You have some mixed results when it comes to equity markets. Second quarter equity markets revenue came in 790 billion versed estimates of 800 when he 4 million versus estimates of 824 million. People trying to parse through what this means. David trading goes up, trading goes down, but cost cuts are always there. They beat what analysts estimated on cost cuts, which people are responding positively to because thats one thing they can control. Lisa the theme of the week will probably be how much do the big banks in the United States lean on the consumer . Very good results out of their Consumer Banking unit. It still has room to leverage up their Balance Sheet at a lot of banks, including goldman sachs, looking to get into more consumer lending. David consumers important for the entire economy. Lisa exactly. It will be interesting to see the increase in loan growth. David citi is only one of the banks and one of the only Companies Reporting earnings this week as earnings season gets started in earnest. We welcome now sarah malik now saira malik, nuveen head of Global Equity, and seema shah, Principal Global Investors chief strategist. How important will the role of the consumer be . Q2 earningsnk season is more important than it has been in recent times because we are at a crossroads. You have that big difference between bond markets and equity markets. People are waiting to see if this earnings season is weak, as people expect. If it isnt, we could see risk markets perform well through the end of the year and beyond. As you said, the consumer lies at the heart of this. They have been completely supporting the u. S. Economy. If you see the weakening in the consumer, that would be a warning signal for Global Equity markets. Lisa just to give some actual data to it, citigroup posted its strongest Second Quarter since 2013. Saira, i want to get your take on how much this indicates the consumer still has ammunition to keep driving the u. S. Economy and driving earnings even higher from here. Saira i think the consumer does remain really strong. We had strong employment numbers. Q2 is going to be crucial for the bank stocks. When we heard from them in the first quarter, we werent really expecting rate cuts. How does this impact income for the banks, and in a moderate gdp growth environment, it will be interesting to see how loan growth plays out. While they look cheap on a multiyear basis, given the potential for increment a rate cuts going forward, probably still not as attractive for incremental rate cuts going forward, probably still not as attractive as some other areas. David this is the citi index of people taking down estimates rather than up. They are going down rather dramatically. Are they sandbagging us . You basically come in low with the investors relation team. Seema it is an old trick. I think people continue to do that. We have seen a downgrade in earnings, so you need to see a prig good beat before the markets will take it is a good sign. So much negativity is already baked in that it is going to be difficult for it to be underperforming. I think the leading indicators so far are telling you that q2 earnings season is going to be week. We really need to hear about if there is any negative guidance into the second half of the year. Is the going to tell us, economy slowing, or are we returning . Beauty queen shoots mean that the economy is turning up do the green shoots mean that the economy is turning up . We have people desperate to get back onto buying on the debt, sitting on the sidelines, waiting. If you have a strongerthanexpected earnings season, that could tell you that there is a green light ahead for risk assets. On the other hand, if it is weaker than expected, given that very big difference between bond markets and equity markets, that could be the turning point, which is why i think this is really at a crossroads for equities. Nuveen and malik of seema shah of printable investors, you are both staying with us. Lets get a check of the of Principal Global Investors, you are both staying with us. Lets get a check of the boards now. German yields a touch lower, emergingmarket currencies getting a bid after betterthanexpected secondquarter gdp reading out of china. Lets stick with citigroup because they did just report earnings, for the most part ahead of expectations, really led by the Consumer Banking division. Joining us on the phone, Gerard Cassidy, Rbc Capital Markets managing director of equity research. I want to start with the revenues out of that unit for citigroup, the best since 2013. You saw in particular cardholder spending pickup. This seems to be a good deal of optimism unknown there seems to be a good deal of optimism among consumers. Story ofof this strongerthanexpected earnings . Gerard i think you will see that the consumer is in very good shape. Citi has struggled with their north American Consumer business. I think it is a reflection of the health of the u. S. Economy, the health of the consumer, but also citi doing a better job running the business. This is a good leading indicator for other companies in this business, such as j. P. Morgan chase. David you said they are doing a better job running the business. Those cost cuts came in better than what had been anticipated. How much more room is there to go, though . They have been doing that for some time. Is there still more to be extracted . And thefor citi industry, there continues to be a focus on expenses. With the digitalization of the banking product, you will see continued renewed success, in our view, of the banks maintaining their expenses. The numbers were quite good for citi on the expense line. We think that is not going to run out anytime soon. We expect citi and others to continue to focus on expenses, and with the digitalization, that is going to help contribute to their focus. Lisa before we get on our rally caps too quickly, there were some negative spots, and particular avenue from trading declining for a Third Straight quarter. You have general equity down 9 versus the estimate of 2 decline. Is it just that now Stock Traders dont really care, dont have that big an expectation from the trading unit at this point, and it is less important that it has ever been to determine the path of bank shares . Four is this people saying it is just bad volatility or whatever else . Citi, first of all, along with its peers, gave guidance that the trading numbers were going to be difficult this quarter, so i think that was priced into the stock already. I think what youre going to see is the underlying trading increase ofthe electronic trading makes it more difficult for these companies to make the money the used to make. As you pointed out, there was less volatility. I think when you take a look at the universal banks like citi and jp morgan that have diversity in revenue, the other areas of the businesses, and this case the consumer business, is really stepping it up. I dont think they are turning a blind eye to this business. It is just that it was already priced and was going to be tough for results because of challenging markets. David briefly, weve been spending most of the last two weeks talking about the fed and cutting. Is it going to hurt citi . Gerard i dont think so. I think a fed cut helps the banks because it is going to steepen the yield curve. As you take a look at what the rise in shortterm Interest Rates did for banks between 2016 through the end of 2018, it was very positive. 2018er, at the end of into 2019, the flat curve was working against banks. It will help the banks in general, assuming the yield curve steepens when that happens. All we have to do is look back to 1994 and also 2001. Bank stocks outperformed the markets when the fed was cutting shortterm Interest Rates. David gerard, thank you so much. That is Gerard Cassidy of Rbc Capital Markets. Coming up to markets search for direction. To the s p 500 continued climb as bond yields sit at multiyear lows . This is bloomberg. Viviana this is bloomberg daybreak. Gilead sciences boosting its stake in belgian Biotech Company galapagos. Billionill pay 5. 1 dollars to increase research into inflammatory diseases and other disorders. That raises its stake in galapagos to 22 . Gilead has been hurt by increased competition for its hepatitis c drug. Carizzo oil and gas acquired at premiumremium to its price. The boeing 737 max 8 may be grounded months longer than the company is telling customers. The latest scenario calls for the max to Start Playing again in january. American airlines already saying it will keep the plane off its schedule until november. That is your Bloomberg Business flash. Lisa thank you so much. The divergence between stocks and bonds is continuing to play out in the market as equities hit fresh records while bond yields sit at multiyear lows. Can the stock market continued to eke out new gains, and is there too much pessimism becton . Pessimism baked in . Saira, is there some sort of divergence that needs to be reconciled, or is this a new normal . Saira for us it is Earnings Growth that is going to drive markets higher. We generally see the only case you would have is valuation expansion, and we dont see increment a rate cuts as being off to really get valuations to expand from here. From here out, markets probably going to be in a trading range for a while. You want to look for more of these quality Growth Stocks that are not dependent on the economy. David seema, talk about earnings as they relate to the fed and Interest Rates. It is widely believed they are going to be cutting Interest Rates. What are the steps in between . Seema generally you tend to see 10 to 18 months to really see any cut in the economy and earnings. We are seeing leading Economic Indicators coming down. It tends to be a very close correlation with forward earnings, so this is the point where you would expect q2 earnings to turn pretty negative. Dichotomyind of big youve got between bond markets and equity markets has got people questioning, is the economy as weak as we think it is, or can the fed just keep pushing this extension and keep going . I think thats why this earnings season is so important. I completely agree with saira. We have pe ratios up, but that is a proxy for market sentiment. The fundamentals are pretty weak. I would expect the next two to three weeks you see those figures starting to come in. I would expect them to be slightly weaker. At that point, you see the earnings numbers turned down, and the fed can only do so much. Saira made the point that she expects equities to go on a trading range from here. What is the big bet . As an investment advisor, do you tell people to sit on your hands , keep with your allocations, stay the course . Or do you say now is the time to start rejiggering the allocation to prepare for one thing or another, either down horn downturn or an upside . Seema at this stage i wouldnt recommend increasing exposure to equities, given that we could see a slight downdraft. I dont think theres going to be a very significant downdraft because there are some good things for the end of the year. But this is a time when you really need to be very defensive. I know defenses are already very expensive, and people are cautious about going into them, but they will become more expensive as the economy continues to weaken. Within credit, that is Investment Grade over highyield. Of course, i would also look to be underweight government bonds. At these levels, i think it is a bit too much priced into the market in terms of fed cuts. Changed . Ve the rules as we listen to jay powell testify about the phillips curve , saying he doesnt see it, does that give the fed a lot more latitude than we thought it had to keep rates low . I will put up a chart that shows Inflation Expectations which are actually taking up a bit finally actually taking up a bit finally. I think what the fed is dealing with right now is a couple of things. First, they are incrementally going to cut rates, but are they reacting to slowing growth and are they already too late . Since theyve already used ammunition with generally low rates in the market, will they be able to really boost the economy . Our view is with tariffs probably still in overhang until the election, i dont think this is going to be enough ammunition for markets to move higher. If the fed gets really aggressive, i think inflation will start to pick up and you will see that. Then the economy could overheat and you could go into a recession, but we dont see that happening. It is a you agree that time to start moving into Higher Quality assets . And interestingly, a contradictory move to lesson up on the exposure to government bonds . Seema. Yes, we agree with you have more quality defensive, quality growth. There are a lot of companies out there still able to grow quite nicely, and thats where you need to do your homework and look for those types of companies. Even though cyclicals are at multiyear discounts to other companies, until the economy can grow a lot faster, i just dont see the catalyst receptacles close the valuation cap. David what will you be looking at principally in the earnings calls, and the Forward Guidance . Is it going to be trade . Seema i think trade is a key thing here because markets have almost forgotten that there is a potential trade war which could start at any moment. I feel if we do see negative itnings guidance given that is still uncertainty, that would be a keyword for me. David ok. Saira malik of nuveen and seema shah of Principal Global Investors will both be staying with us. Coming up, why ab inbev needed their get it, can . Listing over in hong kong. This is bloomberg. David its time now to look at three Companies Worth watching this morning. First of all, im watching gilead, now in the process of paying another 5. 1 billion to up its antiand a Company Called ante in a up its Company Called galapagos, involved in research. As i understand it, they are wayg from 12 to 22 as a of them tapping into Research Without having to do it themselves. Lisa exactly. This is the key as they try to diversify away from their drugs that deal with inflammation and things that now have competitors because they have been so successful. Really interesting deal. I am focused on nike. Basically, as President Trump ratchets up the rhetoric against china, a number of companies have moved supply chains out of china and into vietnam, but they had even before, and nike was one of them, as well as lululemon. They exited china in 2016 and went to vietnam. Now they are concerned that vietnam is getting so crowded and overbid that they are looking elsewhere. Has reachednam capacity, and frankly it is more expensive to get the labor they need. President trump says something about vietnam every once in a while that makes you a little nervous. The Third Company we are watching this morning is ab inbev after it canceled its asian ipo. For more, Brooke Sutherland joins us now. This is a big ipo, we thought. Brooke it was meant to be raising as much as 9. 8 billion. Inbevs the banks and ab just had delusions of grandeur of what the appetite was in the market for this ipo. Now they are pulling it because at this price point, there wasnt enough demand. It is easy to understand why. We have a trade war going on right now with china. It is unclear how it is going to affect demand for alcoholic beverages going forward, but at the same time you have competition from mixed drinks, craft beer. The math didnt add up, and i think that reflects somewhat on the banks that led this idea. Lisa what actually changed during this process . I dont recall some massive disruption or change. I just have to wonder, who will bear the brunt of the blame here . Brooke i think it is already starting to hit back on the banks, jp morgan and morgan stanley, that relating this ipo. They said we are going to go in for a bigger chunk here, maybe 8 billion to 10 billion, and they did not get a cornerstone investor, the hallmark of the hong kong market. They did away with that comes the idea that there would be more liquidity in this ipo as it did hit the market, but you also lose that safety net. Good news for those banks is they will be needed. Ab inbev still needs to get their debt down. Assets,they can sell model,inbevs investors were not thrilled to see that happen. Some questioning if they could go back to that platelet that playbook. Lisa and there bonds are trading down today, as you would expect. And they made their names on buying things, not selling things. Can they turn into their other guy into the other guy . Brooke that was the big appeal about the ipo. It was about getting a currency they can use in asia to get deals. They could use that stock to make acquisitions in some upstart growth markets. That was. Deleveraging Brooke Sutherland, thank you very much. Coming up, we bring you Empire Manufacturing data. We are seeing a mixed day in data, but u. S. Equities are up a bit ahead of the open. From new york, 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. Lisa this is bloomberg daybreak. The everything rally sort of is continuing receipt equities indicating higher ahead of the u. S. Open and moving substantially higher in europe and emerging markets after the betterthanexpected chinese gdp data. You can see oil gaining at the highest level since may. You also see the euro flat. Yields lower. The everything rally does continue. Bonds and stocks rally. We are getting the data out of the Empire Manufacturing, and you can see it be dramatically. 4. 3 versus the expected 2 . David which is a tribute to volatility of nothing else. Last month it was down 8. 6 , which was a shocker on the negative side now we have a surprise on the upside. Lisa that said, you are seeing yields on the twoyear tick a little bit higher. Itll be interesting to see how much credence people give these data points because of how volatile they have been. We do not have that many points until the july 31 meeting. David before so concerned about manufacturing with pmis. Hope on manufacturing would be nice. Lisa this complicates the issue further, especially after the betterthanexpected jobs report when they have to decide how much or whether to cut rates. For more on those numbers, sarah shah are still with us. We did get the number higher than expected. As david pointed out, this has been incredibly volatile. How much credence should we give this one number that indicates a healthier than expected view of u. S. Manufacturing . Seema i suspect the market will , givene than it deserves that we are struggling for data points until the end of july. The most important thing is how does it affect the fed. Is it to convince them not to cut rates . I think the fed will cut rates whatever happens of the next few weeks. It is what they do past july. Will there be another rate cut in september . This is where the data becomes more important. David i think chair powell has almost said i will cut rates. It has sounded a lot like that. The question is one rate cut at 25 basis points, what comes after that . Is that one and done . What is the Economic Data indicate . Sarah i think the market will overly scrutinize every number we see until july. If you are in environment where you get a couple of rate cuts, which will probably be what you see, is that going to be enough to resume strong Economic Growth and turn the market around . That is the issue. What you are getting his insurance rate cuts. Does insurance provide a floor for the markets or a challenge of how do you get out of this moderate growth environment and turnaround Earnings Growth . That is going to be longerterm challenge where we do not see a lot of clarity. Lisa one thing i do not see a lot of clarity, what is the feds goal . It was 1. 8 with inflation. To have an insurance rate cut at a time when equity markets are at alltime highs does not necessarily scream of the need for insurance, right . Seema i totally agree. Eye ons they happen the Global Economy outside of the u. S. If anything they have cornered themselves into a decision about cutting rates. Back on that, the market will be significantly hard. They cannot afford to do that so they continue to do this as part of a set. It is telling me make theres a new reaction function in town. Maybe what they are responding to his Financial Markets, with i which i have to say i do not think is the right way forward. Are they going to be data dependent are they going to set a password data becomes irrelevant . David explain what drives or does not drive Global Growth. It feels like we are caught between trade uncertainty and accommodative policy, not just with the fed but something with the ecb. A lot of negative fielding debt around the world. Are those the two determinants right now or is there something also will drive Global Growth or the lack thereof . A coupleof seema of things have been in play for a wild. One is the start of the china deleveraging campaign, which pushed down Global Growth, then you have the trade war, than factors which hit europe at the end of last year. A lot of that is coming off, so you would expect, especially with a dovish pivot, that maybe you could see the Global Economy starting to turn up. For the time being, as long as you have trade uncertainty coming through, for me it feels like the economy will continue weakening until all of those negative pressures have been taken off the market. For me, it is the end of the year we see this weakening. Lisa i have to wonder, what is the risk of bubbles . Sarah we do not see any bubbles right now, which is why were not worrying about a recession. There is no a Consumer Debt bubble, and inflation is pretty benign. We do not see any bubbles, so when the market cycle comes to any and the common it will be your typical inflation driven end of the cycle. Lisa the 12 trillion of negative yielding debt around the yield and the fact that you have highyielding bonds of negative debt in europe, that does not count as a bubble . Sarah we do not see that as a market ending bubble right now, not something where it would be imminently an issue. David does that suggest that we do have a different set of rules facing us . The Balance Sheets can support the markets and the economy because we do not see a risk of inflation, we do not see bubbles. Why not keep it going . Seema i have a slightly different view. I feel there is a problem with bubbles building up. You are building a problem with leverages we know the risks are present, especially if you look at the bbb market and Investment Grade. You have a weakening growth and high Interest Rates, and then we have a problem. We are also seeing the inflation index. I also think inflation may make a return at some point in 2020. A couple of structural factors start doing to diverse into reverse. The market is not set up for that. Their older vulnerabilities building up, not right now. Lisa if there are not bubbles building up, why not take out as much leverage as you possibly can and by the riskiest things possible because you know every central bank be supporting everything and maybe things will pick up. Until they do, it is factory leveraging. Seema the issue is that the central sarah the issue is that the central bank story has been playing out for a while. Our thought is how many arrows are left in this quiver . It starts to get diluted. For us it is looking in areas of the world they have their own story. Instead of thinking about china and is the Economic Data strong enough, there other areas, india, brazil, where you have nice reform stories in place, pension reform, and the structure stories positive, there are areas of the world are you dont have to worry about the bubble. Youre not so worried about what the Central Banks are doing and you comply a country specific reform story. David lets talk about the inflation issue. Is there risk of inflation . Breakevens,at the they have kicked up slightly. How much of inflation is and how many dollars you are chasing and how many how much expectations. Expectations conflict relatively quickly. I think a lot is built into the expectation side. You look at a couple different factors. You have Central Banks which are clearly dovish may well be changing the way they target inflation over the next few months. You have globalization going into decline, and a reverse, and then you have the return of tariffs which is becoming a part of the global toolkit. Those things tell me inflation is going to turn around. And you have unemployment at record lows. Further out, we could see inflation turnaround. Flip andhat suddenly the market is not set up for that. 2020 is when we could see the return of inflation and that is a fear factor. David seema shah, thank you for being with us. Sarah malloch will be staying with us. Now is time to get update on what is making headlines outside the Business World with Viviana Hurtado. Viviana donald Trump May Replace commerce secretary wilbur ross. According to nbc, that is prompted by the administrations loss in the Supreme Court on adding a Citizenship Question to the senses. Argument forid ross adding the question was contrived. In hong kong theres more pressure on carrie lam. Police arrested more than 40 demonstrators. The protesters marching against carrie lam and her controversial plan to allow extradition to Mainland China area china refused carrie lams offer to resign. Beijing wants her to fix the myth she created. 50 poundof the new note will be alan turn. He was a war hero for breaking nazi germanys code. His work on the question of whether computers could think late the foundation for artificial intelligence. 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. I am Viviana Hurtado. This is bloomberg. Lisa thank you so much. A cool exhibit on him which is very cool. It is what some are calling black friday in july. Retailers are fighting to compete with amazons prime day. More how the retail giant is changing retail in todays follow the lead. Users can interact with charts shown on this Program Using gtv. Rows recent charts, catch up with the analysis, and save charts for future reference. Lots of interesting things. This is bloomberg. Viviana this is bloomberg daybreak. Coming up in the last hour, marc chandler, bannockburn chief market strategist. This is bloomberg daybreak. Here is your business flash. The security and Exchanges Commission wants to make sure and new hedge fund does not suffer the same fate as his last one. Legislators will place a ban on the wagering of his money separate from investor funds. It was this kind of training that helps think his former firm, ms global. Crane is dropping efforts to acquire circle or. Fromompany rejected a bid crane. It was called low value, and highly conditional and opportunistic. The Worlds Largest beer maker is looking for an opportunity for a plan b. Is looking to reduce its debt pile and keep shareholders happy. Assetilities in creating set possibilities include asset sales and another shot at scrapped plans to take it asia unit public. That is your Bloomberg Business flash. David time for follow the lead. Today, we are looking at retail. U. S. Retail Sales Numbers out tomorrow and amazon prime day starting today. A bloombergs opinion columnist and sarah malloch. I was reluctant to call it prime day because prime day has turned into a more than a day. Give us a sense of how big this is for amazon. Sarah there is expected to be 5. 8 million in sales that would be an 11 increase in what it saw last year. It is important day for them to satisfied customers and an important day for them to remind people why they have a prime membership in the first place. We reached this moment where walmart and target are starting to match the speed of shipping that has been promised by prime and doing so without a membership. This is an important test for amazon to show why people should be shopping there. Wonder how much amazon has created a new shopping holiday that work for everybody. We have seen other retailers that we are cutting prices, too. Not just shop at amazon. You will have to go to school at some point. Why not start in the middle of july . Sarah h. this has become a rising tide that lifts all boats. 250 retailers expected offer sales today, compared 194 last year. This does into be moving back to School Shopping season into july. Usually august would have been peak. It is now spurring people to buy clothes at this time of year, so all of the retailers, specialty apparel, Office Supply stores, they are trying to get in on the action. At growth, isook this a matter of timing or does it actually stimulate overall retail sales . Sarah m. we think this is going to be a continuing problem for traditional retailers. They will have margin pressures. Then he to reduce prices. They do not have the cost pressure amazon has. They have to keep up with amazon in terms of free shipping. Retailers aury problem for them is a third of their buyers tend to be out of china. From an ecommerce point of view, ledger retail is in much better place and then there is unique retail models, such as cosco, which has a subscription model. The middle section will continue to get hurt by amazon, whether the pie shrinks or stays the same. Amazon does have a competitive advantage when it comes to the scope of it shipping operations and ecommerce sales. , i would love your perspective on the fact that walmart and target have been doing a good job. How much of a competitive threat are they to amazon at this point . Rah in a dollar basis, they are peanuts compared to amazon, but they are capitalizing on the strength they have as brickandmortar stores. They are trying to push customers toward click and collect where folks got up to the stores and have groceries dropped in their cars or walk into the store and pick them up. That is more profitable. Pickup your online purchase, Something Else catches your eye and you buy that. That is a popular model, particularly in the suburbs where folks spend a day in their cars and theyre trying to capitalize on that and grow that and make that an important part of their business. Does to what extent amazon have to worry about being too successful. We have hearings in the antitrust committee that includes amazon as well as facebook. Are they concerned . Is there constraint on these companies to say if we are to successful the government will come after us. Regulatory czar issues to be concerned about, but amazon is out of the center. It has been more of a facebook privacy issue and we say Companies Like amazon and netflix have been more positively positioned versus the other country. Where are we in this progression of amazons growth . One question at this point is how many more people are there who do not have prime memberships that will get them on this day that was started to bring people into the fold . Saira this will be an interesting look into what the Holiday Season and black friday can look like. We think this will give us a lot of information. Even beyond increasing prime membership, there could be Pricing Power with the memberships, increased volume of what people are buying. Theres a lot of growth left for amazon and we are not anywhere near the late innings. David lets talk about the growth left for them. If your jeff bezos or an executive amazon and you look at your dashboard, where you think you are under indexing . Where are you not doing as well that you think theres an opportunity for growth . Sarah fashion and home are areas of opportunity for amazon. They have been good at helping you do your errands and help you restock the same brand of diapers you do for your kid or helping you get the one book you know you need for your book club. They have not been good at helping you discover when you just want a new dress to wear to our friends wedding. The Everything Stores not a good model. It is confusing and overwhelming, the search parameters are not helpful and those are areas where amazon could stand to do better. There are our shul there are also highmargin categories. Profitability has an issue for amazon and that could help them path those margins. Lisa i wonder how much amazon will prioritize its own products above some of the others. What are you expecting today . Sarah i expect we will see a lot of deals in their exclusive product. They have a makeup line with lady gaga that it is becoming clear they will put a lot of emphasis on, and for good reason. Those are the things that make them distinctive and give you a reason to shop amazon versus walmart or target. That is why they are launching privatelabel lines only available to prime members. They have to give you a reason to come to them specifically. We see a lot of deals on their own to gadgets like echo and on their privatelabel on apparel and other items. David what is your take on the state of the u. S. Consumer which is so large a portion of the economy . Saira the consumer will remain strong. Strong housing prices, strong employment numbers, that has been what is holding up this economy and we expected to continue to do so. It is the manufacturing side, capital spending, that is when we are seeing a slowdown. For this cycle to become elongated and pick up, you need to see a pickup in some of the nonconsumer areas. Lisa Sarah Halzack of bloomberg. Pinion and saira malik thank you to both of you. A profit andts mixed earnings beat. I am watching that call next. If youre jumping into your car, check out Bloomberg Radio on sirius xm channel 119 and on the Bloomberg Business apb. From the on the Bloomberg Business app. From new york, this is bloomberg. Lisa earnings kicking off with citigroup. Shares up in the premarket following the earnings beat. Taylor riggs has been listening in. What are some of the highlights . Taylor we are hearing from the cfo. Let me give you an update on what he is talking about, highlighting the big gain in the next business and solid revenue gains in all of their businesses, particularly within the north american card business. They are talking about reducing revenuexpensive was flat on most of the businesses. Youre getting a beat on the bottom line because of the cost cutting down. We know equities revenue was down due to lower client activity and they were saying that even though there was a headline beat, there was a difficult environment given the rate environment for most of the corner. Im going to switch to global Consumer Banking because that is where the cfo went next, talking about continued Strong Performance within the branded card segment, growing revenue of 7 because of interest earnings balance on those cards. Businessthat consumer had its best Second Quarter since 2013. Interest revenue is up 5 in the north american retail bank. You are starting to see citigroup talk about costcutting and talking again about credit cards within the u. S. Those branded cars and highlighting the American Consumer. David taylor riggs, thanks so much. Cuts atnsumer and cost a time when there is not much room for growth on the training side. David that does it for us. Coming up, marc chandler, bannockburn global chief market strategist. Live from new york, this is bloomberg. Jonathan from new york city for our audience worldwide. Im jonathan ferro. The countdown to the open starts right now. Jonathan coming up, earnings season beginning with the biggest names on wall street. The first out of the gate. Signs of stabilization in chinas economy. Factory output in retail sales beating estimates just as the fed is skiing up rate cuts. 30 minutes from the opening bell. Here is your price action this monday morning. Futures positive six points for the s p 500, up. 2 . In the fx market, the euro goes nowhere. 1. 1265 on the eurodollar. Treasuries lower to 2. 10 on the u. S. 10 year. We begin in new york with the big issue. Signs of stabilization in china. The numbers are finally perking up more. It is starting to look like china is not having too much or problem. The retail Sales Numbers were stronger than affected