The day. This is sort of translating over into the equity markets as well. The risk off tone continues after a 3 selloff yesterday. We got some of that tension in the last two hours or so, with china saying we violated the agreement given the 10 tariffs. They are vowing to retaliate. We have a read now on the u. S. Consumer. Walmart earnings are coming out. Let me jump over to that. The risk off sentiment continues. David earningspershare was a beat, 1. 27. Their target comps beat estimates, samestore sales. International sales were down a bit 1. 1 ,. A little bit of a leavening there. Also a beat on the revenues. Good numbers here, and it looks like in the premarket, it is up well, that has it down 3 10. My terminal has it up. Taylor i think it is because they are boosting their fullyear growth target. Analysts were hoping for a beat, hoping for them to shrug off some of the trade concerns and tariff concerns and boost that fullyear adjusted earningspershare growth. Indeed, that is what we are getting. Thatll have to see how price action flows out. Kailey they really are investing david they really are investing in things to improve their productivity and stores so they can keep their profitability up. Taylor as we continue to keep our eyes on walmart, like david said, it is all about the bond market. For our first take today, we are kawa and luke jackie simmons. It is sort of a growth story. This shows japan, u. K. , u. S. , and germany all with flat or inverted yield curves on the twostens. Luke, what is the long end of this yield curve telling us . We are talking, about this inversion of the yield curve, and it is unique in that it is driven more by the long end sinking below the short end. As opposed to the yield curve giving into the message that things are going to be terrible soon, the nature of the inversion suggests things will be very mediocre for a long time. That is the main message i get from the yield curve more than any recession fears. David so jackie, is the 30 year telling us something substantive, or is it more a sentiment . I want to put up the atlanta gdp numbers, and they are not so alarming. Theyve got a little over 2 . Jacqueline if you look at the s p estimates for 2019 on a per share basis, they are revised down for a week ago revised down from a week ago. They are jostling up, a little up, a little down, but recession fears were in the front and center of peoples minds. That is going to call into question investments down the dealmaking. M a, i draw special attentions to the banks. The inverted curve is going to mean less margins. Even though in the last quarter, side doing ok, what does it mean Going Forward . David fairpoint. Banks are affected by the yield curve without a doubt. Lets turn to the question of trade. As if the markets needed anything more to worry about, this morning early on, china said we will retaliate for these new tariffs from the United States. How much of what we are seeing in the bond market is because of trade . This is what he said, in part. At the margin it would help, but it doesnt deal with the deeper impediments to growth. It is a general malaise in both china and europe. These are structural impediments to growth. David he said if you fixed all the trade problems, it would help on the margin, but theres a lot more going on. Reporter luke if you think about luke if you think about all the things that could possibly boost yields, a trade deal, german fiscal stimulus, you get the idea that we didnt boost that we boosted stimulus and get that. The slowing and the Global Economy we saw at the start of 2018 was taking place before we really had tariffs and the trade war accelerate, and then had meaningful impact on growth. There is something underlying this, and it is an aggregate demand story. Taylor jackie, we heard in earnings season that it came in a little better than expected. We were able to breathe a sigh of relief as trade hasnt start to hit us yet. From the companies you cover coming from the strategists you speak to, do you have any idea what sectors are companies have not yet priced in some of these . Who could be hit . Jacqueline i think today and next week we get some retail earnings. We get retail sales today. I think you see marginal growth. I draw attention to macys. Yesterday got really slaughtered. The ceo said tariffs specifically are going to cut our growth rate this year. That is meaningful. They had issues beforehand, to be clear, but that was one very specific issue. One other thing is luxury goods companies. Weve seen lvmh in some companies exposed to china off their peaks right now. It is exasperated by hong kong. David as you said, we get retail Sales Numbers at 8 30 eastern time. Theyve been all over the map a bit. As you say, macys had a tough time yesterday, but is this a story of retail sales or the differentiation within the market . We just saw walmart had good numbers. Is it a matter of sorting the sheep from the goats, as it were . Jacqueline last time i was here, i said weve seen a tale of two economies. You see manufacturing and Industrial Companies showing clear warnings about the outlook. You seen some of the more consumer side you know, its not been as bad. Today has been a real eyeopener. I also say it is a solid narrative. Consumer prices are going up. It will be interesting to see what walmart says about its ability to keep prices down. Taylor i want to reiterate walmart because they are able to boost forecast on rising sales. They seem to be a company that is not only competing against amazon, but is fighting off these tariffs. How much flexibility do they have in terms of passing on increased cost to the consumers versus easing that cost and making sure their low end consumer can still come to the store and a for the product . Luke some recent develop mens in the labor market might kind of support walmarts ability to rate to raise prices. Weve seen a lot of the wage growth recently. Essentially, walmarts Customer Base has seen the improvement in the labor market. That can help pass along some and still not lose too much and volume. Wavid bloombergs luke ka and jackie simmons, thanks for being with us today. You can find all the charts we just used and more by running gtv on your terminal. You can browse recent futures and even save our charts at gtv. Coming up, more on the inverted yield curve and the Global Economy . Mccormick, Td Securities level head of ethics strategy. Head of fx strategy. Taylor lets flip over to chinas consumer sector. Take a look at alibaba. First quarter adjusted earningspershare and revenue is beating their forecasts. Theyve also expanded their user n to 6744 millio million active users. The headline number for me, First Quarter revenue beat and the adjusted earningspershare beat. We had earnings after the bell for cisco yesterday. They were revising their Forward Guidance lower, so they are now off about 9 . They opened to the lowest since january. We also heard on the call from the ceo chuck robbins, given some of the heightened trade tensions in china, they are not even allowed to bid for business in china. I certainly want some more details on that. Cisco not doing well, off about 9 this morning. We will have more next. This is bloomberg. Renita antigovernment protests in hong kong may chase away business. Several companies are rethinking funding plans in the city. Some of those sales could end up in the u. S. Thats an ominous sign for ominousfuture an sign for hong kongs as the gateway to asias biggest economy. Week, the danish be are maker raised its fullyear forecast danish beer maker raised its fullyear forecast. Shares of cisco are falling today after it came out with a lackluster forecast. Its a sign that companies are holding off on updates of their computer network. Cisco is trying to become more of a software and services provider. The majority of sales still come from the machines that are the backbone of the internet. That is your Bloomberg Business flash. Taylor thanks, renita. Yesterday the story was all about that inverted yield curve, and it is going global. The twos tends has been inverting, starting with the u. K. , now negative four basis points. Bitu. S. Has seen a little of steepening, looking at one to two basis points. Japan and germany not far behind us. Joining me on the phone to discuss this is mark cabana, bank of America Merrill lynch head of u. S. Rates and strategy, and with me on set is mark mccormick, Td Securities global head of fx strategy. What is the long end of the curve telling us about where we are for Global Growth . Its telling us that potential growth isnt really rising anywhere around the world. Is telling you there isnt much of a term premium, which means Inflation Expectations are subdued. Mostly what we are seeing are these steepening elements, where what we are seeings monetary policies being repriced to price in the potential of a global recession. Whats very interesting is there are some elements hear people talk about. What is happening with the yield curve is basically a function of qe. This is a global phenomenon, so global yield curves are moving in the same direction, giving way sign the Global Economy is moving into a more negative to sixhen we were three months ago, when things seem to be muddling. Things have intensified now into maybe a global shock. David to what extent are Central Banks helping were hurting helping or hurting . Say emergencyple cut, 50 basis points now. Theres nothing in the economy that justifies a 50 basis point cut today. Im completely it opposed to this notion. That would be counterproductive. David mark cabana, are Central Banks making it better or worse . What can they do, if anything . I think some of the issues facing the rate markets today are unfortunately a bit beyond the Central Banks ability to control. I think it stems from trade uncertainty and impacts across the world. Central banks cannot control that. All they can do is control the Market Perception of their reaction function. This is where i might disagree to some extent with what mohammed was adjusting yesterday. One of the reasons you have seen long dated rates fall and curves flatten, and invert to some extent, is the fact there is a perception that Central Banks are not being particularly proactive. Thats why you are seeing longer dated break even rates, longer growth isates fall as revised lower, and theres a sense that Central Banks may not be adequately responsive to some of the global challenges that able the economy. Again, these issues are not ofessarily be policy monetary policy, but they are not convincing markets that they will do everything in their power acts quickly as they can to try and support longer dated growth and Inflation Expectations. Taylor mark mccormick, you were talking about the long end of the curve and the lower Inflation Expectations. As you wake up this morning, what is more important to you, the twos tens flat or the 30 year below 2 . David i would say it is the i would say it is the twos tens flat. Very conventional. Its something people look at. It has generally a better signal. At predicting recessions. A better signal at predicting recessions. What are Central Banks trying to achieve . What is achieve . To achieve . What is the fed trying to do . The point i would make with what the previous guest was talking about, think about rbc. S cut. Id 50 basis point but if the fed is trying to get ahead of a potential shock from uncertainty around the trade wars, they need to do more faster to get ahead of the market and jocelyn a little bit. That to me is 8 and jostle it a little bit. That to me is a big deal. If they are just kind of moving along, slowly cutting rates, it is not going to have a major impact. David mark cabana, im curious about this trade issue. Whats really changed their . One of the things ive been looking at is the negative yielding debt around the world. We are now passed 16 trillion. The thing is, not even so much the 16 trillion, which would be remarkable, but the rate at which it is increasing. It was 8 trillion not that long ago. What has changed fundamentally that is driving that . There are certainly Global Factors at play here. I think whats contributing to the rise in the total quantity of negative yielding debt outstanding are factors which we just were discussing. Its concerns about how resilient the longer run Growth Outlook can be in an environment in which youve got a large amount of trade uncertainty, and supply chains which may need to be restructured to some extent. You also have unconventional monetary policies around the world. The ecb is largely believed to be cutting rates or growing their Balance Sheet again in the near future. The boj has continued along that path. So you have these Central Banks trying to stimulate their own economies, but at the same time putting downward pressure on longer dated Interest Rates. Its only fueling some of the spillover we are seeing from the rest of the world into the u. S. Rates market. Those factors are helping put down pressure on u. S. Yield, flatten the curve, and lower global term premiums at the same time. Certainly the negative yielding story is spilling over to the u. S. And contributing to flattening of the yield curve. Provide yourou yearend targets on the 10 and 30 year yields . We were expecting a bit of a rally in q3. Weve not yet revised our 10 year target for the end of the , implicit that there would be some type of improvement on trade. With recent develop its we have seen, theres Downside Risks to that, and it is looking increasingly like we will not necessarily get some type of broader trade resolution, which we had originally penciled into our forecast. David that certainly seems fair. Mark cabana of bank of America Merrill lynch, thanks for being with us. Mark mccormick of Td Securities will be staying with us. Withg up, we will discuss chuck grom, Gordon Haskett senior retail analyst. This is bloomberg. David walmart shares gaining in the premarket after reporting better than estimated earnings for the Second Quarter. Joining us on the telephone is chuck grom, Gordon Haskett senior retail analyst. He has a 115 price target on walmart. It looks like a pretty good read. What did you see in it . Chuck good morning. First of all, the comp came into. 8 . That was better than we were expecting came in 2. 8 . That was better than we were expecting. Sales,of that, digital an important component of walmarts growth algorithm, grew 37 . I think when you look back, the Second Quarter was very healthy. Looking forward, not a lot of retailers we think will be raising guidance. Walmart is raising here, basically taking earnings that were expected to be down Single Digits to basically flat. Is a pretty good print being reflected here premarket. Taylor i would argue that the cfo would agree. We are hearing from the cfo, saying that inflation at walmart is pretty benign. Tariffs had no impact on consumer demand so far, and we are using scale to minimize price increases. Scale really starting to benefit them as they slow down the impact of tariffs . Chuck we cant think of a come anymore wellequipped with its scale and size, may be other than cosco, to get through this scenario. One of the reasons we upgraded the stock in spring was because of that. Theyve got a lot of leverage given their size, and we think they will flex their muscle here. If prices are going to move up and creates more opportunity for them to gain market share for the next few quarters. David to what extent does walmart have the ability to pass along price increases to its customers . One of the things that struck me was that earnings remain up even though they are investing a fair money in online and other store improvements. Chuck price Investments Continue to be their biggest ammo, so i think it is something they are focused on. They will probably be selective on where they take price increases, but leading with prices is there secret sauce. Taylor amazing. Chuck grom of Gordon Haskett, thank you so much. Coming up, we will speak with jeff currie, Goldman Sachs global had a commodities research. This as we have seen gold, all sortollar dynamics of heading into the commodities world. That will be a great conversation we have coming up. David particularly as we try to get a fix on whether we should pay that much attention to the yield curve. They might tell us a little bit about Global Growth. Taylor lets get a check of the markets as we take a look now. Been in ave sort of tear. Downturn from china continues to affect us, and it is a european story. Those negative rates do not help Deutsche Bank. This is bloomberg. When you rest on a leesa hybrid mattress, bedtime is no longer simply the time you go to sleep. Its time to switch off and catch up. Enjoy me time, and we time. 40 winks or 8 hours solid. The leesa hybrid mattress combines two technologies to give you deeper rest and rejuvenation. 1,000 pocket springs provide edge to edge support, responsiveness and comfort, while premium foams relieve pressure. Keep you comfortably cool and limit motion transfer. Leesas hybrid mattress is not only recommended by experts, experts choose to sleep on it too. Try it yourself in any west elm store. Or order online and well ship it to your door so you can try it risk free. The leesa hybrid is american made. Built to last. And, because Everyone Needs a place to rest, we donate tens of thousands of mattresses to those in need. Experience the leesa hybrid mattress. Right now, its on sale. Order today. Go to leesa. Com. Taylor this is bloomberg daybreak. Lets take a look at those markets. Two hours ago, futures were in the green. We are back in the green, tiptoeing between green and red as we digest the news about trade tensions, concerns about Global Growth. European markets leading the declines, off about 1 or so in germany. That just means the banking environment printing under a 6. 0 handle, certainly something that catches my attention. Across asset is all about a safe haven play. We are nowhere near the levels we got in december. Gold coming off just a tad. We take a sigh of relief here and ingest the news, but it is all about that 30 year, well under 2 . Twostens holding and slightly positive territory. Its all about bonds. David just to sneak in one more earnings, jcpenney reported samestore sales were down 9 . They had secondquarter revenue of 2. 6 billion. Adjusted loss per share is expected expected,was so they lost less money than they thought come although samestore sales were a disappointing thats were a disappointment. Stocks samestore sales were a disappointment. News fromcted to china. Of Td Securities is its still with us. What our markets telling us about u. S. China trade relations . Mark the dollar has this conflicting there it of driven by equities and growth. Of Td Securities is its still withwhen we look r framework, what we have for the first time is growth signaling to sell the dollar. We have is equity momentum to buy the dollar. When we look at the weight of these portfolio baskets we build over time, we have not seen this in the last five years. Year was trade of last positive equities plus positive growth. This goes to some of the other things you were talking about when it comes to gold. Theres really no other store value, and the dollar is doing well against high beta currencies or some other currencies that are procyclical, which i would argue the euro is. The bid here is for gold, for the dollar, for the yen, for the swiss franc. All of this a function of the Global Equity markets, which to me, they are not pricing in enough of a risk premium. When we look at msci world versus world pmis, msci looks rich compared to where pmis are now. Taylor when it comes to safe havens, lets say dollaryen, euroswissie, is there a key level on those when you start to get nervous about how safe haven a play those really are . Mark the yen is the classic safe haven narrative, but it is driven by japanese fundamentals. Enomics, they have a floyd they have employed all of this excess capital outside of japan. The key element here is most buying is u. S. Corporate bonds and equities. So the more volatility in u. S. Assets, the more the japanese are repatriating that. We had that flash crash level. I think what is critical for the room for dollaryen to move to 95 on a fair value assessment. Think that is really critical because i dont think you will hear boj intervention or discussion of boj intervention unless we get to Something Like 100 President Trump like 100. David President Trump decided be a stocke wants to trader. Can he have it both ways . Mark u. S. Equities are generating the buy signals. U. S. Growth are generating be sell signal. Those things are incompatible. The more the trump team drives the rhetoric around the trade wars, and the more we move from risk on, risk off to a on, terrified off, tariff on, tariff off. Is the element where the markets are just kind of excepting the political economy of what is moving everything right now. So the release valve is going to at some point need some kind of level of intervention to try to smooth all these things out, but theres going to be no room for multilateral intervention, but the problem is the dollar is going to keep rallying the more the Global Economy keeps weakening. David mark, think you for being with us today. The bond market weighed in heavily yesterday on where it thinks the Global Economy is going, but theres more to the picture than just fixed income, im sorry to tell taylor. [laughter] david the world is growing, and it is going to need more commodities to do it. We are fortunate to have with us jeff currie, Goldman Sachs mobile had a commodities research, to help us read the tea leaves. Sachs global head of commodities research, to help us read the tea leaves. As pmis go down, does it do anything to oil . Jeff lets be careful about what pmis are. They are surveyed data, not hard data. So they are sentiment. When sentiment drives things, everything is correlated. Right now copper is at a max short. You cant even respond to news anymore because it cant get shorter. Oil positioning is extremely light. A large portion of this move has really been driven by sentiment. Fundamentally, the picture for oil is middling. Not great, not good. Consistent with a 60, 65 brent price. Lets call it middle of the road. The fundamental picture on commodities, while not great, is nothing like the markets are trying to signal. Taylor is there a level at which Global Growth slows, oil has opec step in again and decide to cut more production . Jeff in terms of looking at the potential for a fallback, you are already seeing it in wti at those levels, where you are beginning to see drilling pullback in the u. S. In the permian. Youve really got that natural stabilizer already built into shale. When we look at saudi arabia last week, they unilaterally went 700,000 barrels a day below their target, which means they are trying to rebalance this market on their own. Between the shale stabilizing force, what saudi arabia has already done, it means your downside is relatively limited, but that does not stop sentiment in the market getting shorter. David let me put up another chart you can explain to me. Yellow and the blue line is rig count and supply. The white one is oil price. In a normal world, if supply is going down, the prices going up. This time you have supply going down and the price going down. What is accounting for that . That is defying adam smith. Jeff when you look at your supply and demand chart, remember supply chart is the one that goes up. So higher price, more supply. Less price, less supply. The reason why you can get that correlation now is the cycle nature of shale. Your drill went well, you can have supply and 14 days. The price goes down, they quit drilling, and the decline rates are quite high, which means production cuts off. Thats what distinguishes shale from all over supply sources. You have a time lag between when prices move and when you have a move in production. Taylor talk to me a little about copper. I think you said short records here on copper. Do you assume further downside along with slowing Global Growth, or is that simplifying it too much . Jeff how much of a growth slowdown has the market priced in . I think it has priced in a much larger slow down then what youre seeing in the Economic Data. I would say what we are seeing right now is export recessions. Those big exporters are the ones being hit. Importers are drawing down their inventories, which brings us to copper. You begin to destocked a lot of these goods because you are waiting for a trade war to be resolved, youre going to have to go in and replace these inventories, which should give you a pop. Fundamentally, we like copper. Nowre trading 5,700 right ,he fundamental picture supply and china used to have the Property Market in the infrastructure markets. Manufacturing is an exporter, so exporters are a driven weakness. The rest of the picture doesnt warrant this kind of pullback. David may be most important discussion over the last 24 hours is recession. Are we headed to one are not . Jeff i like to tell people, explain to me how we get to one. David a lot of people say it will be a policy mistake. Was the 25 basis points last december enough of a mistake . Youve got a phd in economics from chicago. Is it possible to get there just through sentiment . Could we talk ourselves into a recession . Jeff when you look at the markets, they begin to respond. Cut aa 25 basis point response to sentiment in markets, or a response to real data . In terms of thinking about the systems adjust, i think the key is you look at the market, central bank and policy have adjusted around the world. Theylike saudi arabia, took an insurance policy out in terms of cutting production right now to try to rebalance markets. I look around out there, youve got a lot of bullish factors that say go out and buy these markets. I stand by our bullish view right now, and im relatively positive. Taylor copper, we know you are bullish, looking at 7000. Gold surpassed your target at 1475. Jeff beyond just the sentiment issues and concerns about recession, what you also have taking place is the de dollarization story. No one wants to own dollars with geopolitical risk, sanctions risk out there. Second is the etf demand. Its to snow investors are going to have more demand for gold Going Forward. Thats what gets us to our 1600 target. David you raised a really important issue, whether the u. S. Could use the sanctions of the dollar so much that it diminishes the role as a reserve currency. Is that a real threat . Jeff its already beginning to happen in places like russia. They sold 83 billion of u. S. Treasuries. From what ive heard, they replaced 40 billion of it in gold, 40 billion in greenbacks. Essentially it was antimoney laundering laws in the swiss system that give the ability of the u. S. To use the dollar as a sanctions weapon. Taylor wonderful. That was jeff currie, Goldman Sachs. Coming up, bill ackman is buying a big stake in Berkshire Hathaway. The big hedge at fund filings. Go to tv on your terminal. A messageso send us and ask sk question, or reach out to us on twitter. This is bloomberg. Renita this is bloomberg daybreak. Coming up in the next hour, neil montgomery, crate barrel ceo. This is bloomberg daybreak. Heres your Bloomberg Business flash. Warren Buffetts Berkshire hathaway has increased its bet on amazon. Berkshires steak rose 11 in the Second Quarter. Its now valued at more than 1 billion. Still, that is far smaller than berkshires stake in apple, valued at more than 49 billion. Shares of the Worlds Largest shipping line are rising today. Merck delivered Second Quarter betterthanexpected. The Danish Company also reassured investors it can keep its outlook despite an uncertain trade environment. Thanks around the world have announced almost 50,000 job cuts banks around the world have announced almost 50,000 job cuts. Lenders are bracing for a continuation of negative Interest Rates that have eaten into profits for five years. Deutsche bank tops the list. It plans to eliminate 18,000 jobs. Im renita young. Thats your Bloomberg Business flash. David thanks so much. We are joined now by sonali basak, talking about banks. We knew there were a lot of banking jobs. I didnt know it was 50,000. It just keeps growing. Sonali you wonder if more of the american banks are going to follow suit. Taylor we saw the price action go to bank alone below a six handle. Action onow Deutsche Bank alone below a six handle. I dont know that weve seen that. David we turn now to wall street beat. First up, stepping away from wework. Morgan stanley nabbed this years biggest ipo with uber, but is forfeiting its role in what may be the second biggest ipo of the year. The second story is capital one hackers. Prosecutors find there may be more than 30 Companies Targeted by the hacker. Third, hedge funds release 13f. Key takeaways from the Second Quarter findings. Sonali, you had the big story here in wework. Topli Morgan Stanleys Technology Banker did try to get the lead on the deal. We had that story before. People were still talking about Morgan Stanley being in the mix. Then they were very noticeably absent from yesterday. What they were happened was they werent picks for the lead, and after that they didnt want to commit as much Debt Financing as we work wanted, so they backed away from the deal completely. Taylor so perhaps not being the lead, being second or third, isnt worth the risk that they noted in the filing we got. Sonali thats whats happening here. Morgan stanley could still work but wework in the future, it is a risky deal, and if the bank says we cant go that far, they cant go that far. Why some of the other banks have been more comfortable inputting debt capital. David justice this cracked the door on other ipos . Morgan stanley has done well over the years. Sonali it has. Jp morgan has really been trying to crack their way in. They have been doing a put a good job. They were on lyft. The onus is on these banks now to make wework work in an ipo. The 47 billion dollars valuation is a stretch, so it will be interesting to see what people think is successful for this ipo. David to this capital one hacker were now, it is fascinating. We found out when prosecutor said dont release them on bail. There are as many as 30 other companies. Sonali it is scary. Prosecutors didnt name which companies, but before, amazon and capital one said this was a breach in the firewall, so it seems barely pacific seems fairly specific. Shes also tried to kill people. At one point she threatened to shoot up a social media company. On one hand, this is a hack, a cybercrime. On the other hand, is she dangerous in any fashion . Taylor with capital one, she sort of seemed to out herself. She was bragging a little bit. Do we know if she was doing the same to the other companies and we didnt pick it up . Sonali we dont know yet, and we dont know how many were affected. At capital one there were more than 100 million. She told prosecutors she didnt keep the data, but that is a risk, and that is why they wont really let her go. Taylor the third and final story we are watching, i got all excited yesterday around 4 00 or 00 p. M. Over the 13f filings. Warren Buffetts Berkshire hathaway increases amazon. We know he turned around on the stock, and then said but wait, bill ackman has increased his shares in Berkshire Hathaway. Walk me through the highlights. Sonali the funny thing about that, Berkshire Hathaway shares were down quite a bit in the past year, and actually rose just a little bit. I wonder if people worth inking there was some kind of Activism Campaign going on. David bill ackman is going to try to do a proxy. [laughter] sonali that would be the fight of a lifetime. Bloomberg reported this is a passive stake, so maybe he just wanted to reap the rewards of Berkshire Hathaway. My other favorite bet was the ipo stocks, actually. You so all of this poor into her after it had a bad run uber into pour into after they had a bad run this quarter. Taylor you have all of these new ipos that we watch with varying degrees of how successful or not successful they have been. You are now starting to see some endowments going to that space. Sonali a lot of ipos this year were successful, but the big not. , lyft and uber, were theres a search for yield, especially as Interest Rates stay low. People are in the great yield hunt, going for this venture capital, i think. And he took a run at gm, but still says he believes in the company. Sonali and cut allergan a bit. David sonali basak, thank you for being with us. If you are heading out and jumping in your car, tune into Bloomberg Radio, heard on sirius xm channel 119 and on the Bloomberg Business app. Live from new york, this is bloomberg. David heres what im watching, chinese trade and what is going on with various comments back and forth. We heard this morning we are going to have retaliation. Now the Foreign Ministry is saying we want to resolve this through negotiation. So the futures, u. S. Equity futures, went down on the first report, and are coming back up on the second. Taylor it has been sort of a mixed, bumpy ride, as we take a look at futures. I would just note that they are coming out, and you sort of wonder where this is coming from. They are saying their position is consistent, perhaps hoping to make a deal, but we dont have any details other than that. We have the s p rebounding here, up about one half of 1 after we were lower as much as 2 . This is all about the tech sector, such a key gauge for us. You are seeing it underperform a little bit, but still sort of a healthy rebound. It is the european antichina Global Growth story still weighing on the markets. The European Index still off about one half of 1 , and gauge ofbank, just a where european financials have like jeff currie was talking about. David but we are not being helped right now by our world leaders. Mark mccormick earlier was saying it is tariff off, tariff on. We were having that from the United States with President Trump tweeting. We havent had that with china. China been more consistent, but this feels a little bit more like we are really going to go to war with you, oh no, we are not going to go to war. Are still very much trading tweet by tweet on whatever data they get. I wanted to pull up that Second Market board because that was sort of our gauge of risk sentiment. We were talking with jeff currie about where that was standing. You are seeing gold come down again, about 2 10 of 1 . 30 year below 2 . David coming up, Phil Camporeale jv morgan Asset Management. This is bloomberg. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. David how low can you get . Yield on the u. S. 30 year dips below 2 . Real yields go negative at one point, and curves around the world continue to flatten. Investors keep buying bonds. China says it will retaliate to the u. S. Imposing new tariffs, but then says it once to negotiate. And will the consumer bail us out again . Retail Sales Numbers out 30 minutes from now. We will speak with the head of crate barrel about the state of the shopper. Welcome now to bloomberg daybreak on this thursday, august 15. Im david westin, here with taylor riggs. Alix steel is off. We had a bit of a wild ride, because of china this time. Taylor a headline we got around five clock a. M. Or so about china sea in the u. S. Violated the agreement after we impose 10 tariffs, and now coming out with a different response. David it is the council of ministers tariff committee. The council of ministers is like the cabinet over there, saying we are going to retaliate. In the Foreign Ministers said, wait a minute. Taylor so still on the same page. Consistent i think is the word we are going to use. Its folds that into the equity market and the price action this morning. We are back to green on the screen. You are getting a lift in yields yields, still in lower by about five basis points. Weve been hovering around that range or so. About negativel rates overseas. You now have a record again, 67 basis points on the german tenyear. We are not seeing a flight to quality. You are seeing a stronger dollar relative to yang strength relative to yen strength. We are sort of seeing a little bit of a recovery here from the overall risk off that we have seen after those big 3 declines in the equity markets yesterday. David couldnt get much worse. Taylor it couldnt. It is all about the inverted yield curve for me. Come into my terminal here at gtv. Twostens spread, everyone going flatter. The u. K. Inverting at about negative four or five basis points. Joining me over the phone to discuss all of this is Gershon Distenfeld, alliancebernstein cohead of fixed income and cio of credit, and to my right, phil asseteale, jp Morgan Management investment specialist. Chart, andt im trying to get a sense of where we are. What is that long end of the curve really telling us about Global Growth . Phil an alliance with the pmis coming down as well. For us, it was almost inevitable that twostens would get there. For the past six to nine months, weve been very close to inverting. Not quite there until yesterday. For us, one of the things that is really important is will the data in the u. S. Validate such low long end rates . In august, where everything is quiet, we dont really have folks willing to take the other side of that trade right now. It is almost like a oneway trade. For us it is a pause in terms of taking risk because its not the level of rates. Weve been lower than 1. 6 in the cycle. That,more the veracity of just how quickly that happened, that gave us pause. We want to wait for that to stabilize. David we have yet another headline now, that Chinas Ministry of finance has said president xi and President Trump are in touch via meetings, phones and letters. The market is moving as a result of that, so it looks like the Chinese Ministry now is paying attention to what is going on, perhaps, with u. S. Equities. Futures are going higher as we speak. Gershon, is this really because of trade . Is that what is doing it . Gershon i think theres a lot of things going on. This trigger point yesterday where we briefly inverted on twostens, people have been watching that lucky magic signal. That is just not the way it works. We had a flat curve for a while now. I agree that we have seen lower than 1. 55 on the 10 year at this point in the cycle. The big deal is that forward rates back then were much higher. People expected rates to normalize over time. That is not the case. We are flat as a pancake right now. The rate the market expects the fiveyear to be adding five years, to be at in five the market is saying we are going to have a really prolonged era of low rates. Through all of this noise come of the headlines change every few hours on trade, we turn our attention back to the fed pretty soon tos kind of speculate and discuss what they are going to do about all of this. Taylor if you take a look and wonder how the fed reacts, do we assume they are market dependent and not data dependent . Gershon it is really interesting. I think chairman powell at his press conference went out of his way not to use the word data as much. He spoke about just the environment, which implied they werent just looking at the data. I think if you only look at the data, it is hard to justify continuing to cut here. I think they were very clear they wanted optionality around looking at the overall picture. I think they are watching markets closely. Im not sure that is the right thing for the fed to be doing, but they are doing that, and they are watching the trade situation. I think it is really too early. Clearly, the market will be extremely disappointed if the fed doesnt cut in september, but will they . I think the jury is still out. David the market is sure watching the fed. Insofar as this is a matter of sentiment as much as anything else, could they make a mistake by being too aggressive . We spoke yesterday with someone who is not as sure about a 50 basis point cut. This is what he said. You have people say emergency cut, 50 basis points now. Theres nothing in the economy that justifies a 50 basis point cut today. Im completely opposed to this notion of an emergency 50 basis point cut. That would be counterproductive. David if there is an emergency 50 basis point cut, the market would say, wait a second, it is even worse than we thought . I think the fed very simply is not tightening anytime soon, and they are just trying to recalibrate the neutral rate a little bit, which is a support for financial conditions. Taylor if you take a look at the forward curve and said it is flat, how do you extend the ration, or do you pick up credit assuming we dont get another recession for, say, 12 to 18 months . Gershon well, i think it goes back to investors looking at what their longterm goals are, what the purpose of the various instruments are in their portfolio. We were asking that question with yields much higher. Duration is still the thing that is going to protect you if we have downward pressure in the equity markets. Europe, and particularly germany, has taught us that price doesnt really matter. You have a flight to quality, you will see duration rally. If investors abandon all duration, that is not necessarily something they want in their portfolios. Credit tends to be very correlated to the equity markets. It doesnt suffer as much in the downturn. I think investors have to be very cautious. It is hard to protect the shortterm, but it is not just the inversion. Flat yield curves are somewhat worrisome for risk assets in general. That is not just equities, it is credit as well. David how do you be cautious if you are an Equity Investor right now . Phil first, if there is one asset class to play defense, it is u. S. Treasuries. With german bunds 65 basis points, there is no low bound. How low can you go . The other thing, we like credit, but in 2011 and 2015, you just went in and out of high yield because libor wasnt up yet. ,ssetbacked securities commercial mortgagebacked securities with a tilt towards high yield its carry into the portfolio, and we think protects from an overweight to equities. David Gershon Distenfeld of alliancebernstein, thank you for being with us. Phil camporeale of jp morgan Asset Management will be staying with us. Coming up, a middle ground in trade . China says it hopes to meet halfway over its tariff spat, and that President Trump and xi are in talks. More on that next. This is bloomberg. Renita this is bloomberg daybreak. Higher barsettling a for u. S. Retailers. The chain posted strong secondquarter sales and raised its fullyear outlook. That may sidestep concerns about the impact of the trump administrations upcoming tariffs. Alibaba sales beat the highest analyst estimates in the latest quarter. Chinas largest Ecommerce Company was boosted by personalized shopping recommendations and a june sales bonanza. Meanwhile, alibabas Cloud Computing revenue jumped 6 . The company says that was mostly due to an increase in average customer sales. Shares of General Electric are down today. An accounting expert who blew the whistle on bernie made off on bernie made off on schememadoffs ponzi allegedly ge says it stands behind its financials. That is your Bloomberg Business flash. David thanks so much. Chinas state cancel responded to chinas state cancel responded to President Trumps threat of additional tariffs, saying it has no choice but to take additional measures to retaliate. But then, Foreign Ministers said that talks are ongoing with the president. ,oining us now is enda curran bloombergs chief asia correspondent. This seems to be going back and forth. Enda on one hand, china has to send is signal to the hawks in washington that if President Trump goes ahead with these tariffs in september and december, that they have the right to retaliate. The redline has been a question for some time now. They want existing tariffs to be rolled back. The commentary from the Foreign Ministry indicates they are in a parallel process. All eyes remain on just what those talks in september can achieve, if anything at all. Taylor how much of this also comes from the negative Economic Data we got from china earlier this week . Are they feeling a little more pressure . Enda theres no doubt there is downward pressure on chinas economy. Some has been engineered because of their own policy set up, but we are starting to see pain in key indicators such as industrial output, which is at a 17 year low. We are seeing some signs of softness in the labor market and the retail sector, even though a lot of that is because of a historic slump in the car market. Add those together, analysts will tell you chinas economy is feeling pain from these tariffs that the u. S. Imposed on their goods. That is why china is concerned that the imposition of additional tariffs will make the downturn more severe. Taylor bloombergs enda curran, thank you so much. Still with me is Phil Camporeale of jp morgan Asset Management. Given the volatility, each week a tweetadline there, here, headline there, where you go . Phil first and foremost, when it comes to trade, it is an emerging market equity decision. That is how we are looking at this. Earlier in the year, we had a more positive view on secondhalf gross because we felt there would not just be no new tariffs, but also a repeal of some tariffs. That hypothesis we had to put to the side. Now it is about lets try to get to a tenuous truce that allows financial conditions to be supportive of emerging equity allocation. We dont have as much em equity as earlier this year because of secondhalf growth going away, but we still have some emerging equity in the portfolio. Financial conditions globally are so much easier, very different from last year, when you had a fed tightening with trade wars happening. We are looking at that. David what is your projection into the second half of the year . Until the last month or so, people thought the second half would get better, but theres a lot of things going on that are not necessarily positive. Our highest confidence are right on that, Interest Rates on the 10 year treasuries should not be where they are, so that supports a u. S. Equity overweight, a u. S. Highyield overweight, some of those other parts i was talking about. But the Global Growth story in the second half of the year is certainly a challenge. On trade, both sides have proven the point that they cant let it get that bad. I think thats what we saw last december, when things were really heating up, and china and the u. S. Today timeout. Even at the g20, there was a truce there. I think there is kind of a put on the market in terms of trade. 2850 seems like a good floor for us on the s p right now. Taylor ok, so we are at 2840. Ive heard a lot of commentary about fair value 2900. I think hours at Bloomberg Intelligence is around 2900, 3000. So do you buy u. S. Equities if bonds now also look overvalued . Phil we are overweight u. S. Equities. That is our highest overweight. However, i want to be really clear, we have reduced equity by about 10 over the last month. In a 6040 type portfolio, we have roughly 60 in equities have roughly 40 in equities. What would get us back to 60 equities would be stabilization of rates. Time, in that environment, if we are going to get another good look at the u. S. Consumer and a couple of minutes with retail sales, the u. S. Consumer is in the end of two to everybodys depressing mood right now. David we are 12 minutes away from retail sales. Is there an inexorable move curve isre the compared to the 10 year yield . Phil if you invert earnings over price and make mcdonalds bond,look like a mcdonalds stock looks very attractive. I think that is the case for the whole s p 500. What you really need at the end of the day is financial conditions to support the overweight to u. S. Equities. 30 ofat 27 or International Bonds when the s p was passed 3000. What happened is it flipped into what does the bond market know that the equity market doesnt know. You can spin this story into very supportive conditions for the consumer. Taylor how has your cash allocation changed . Are you more in cash to take advantage if and when there is a trade resolution . Phil we are more defensive, more cash late 2018. Not as defensive when it comes to cash, or even Agency Mortgages or Something Like that. What we are using now to protect us on the downside our government bonds. We will employ an overweight to the s p 500 at a point when Interest Rates kind of stabilize. Cash for us is not a way to play defense. You get nothing with that. We want to get something that is negatively correlated to equities, which is duration or treasuries in the portfolio to play defense. We have the ability to deploy more risk. David Phil Camporeale of jp morgan is going to be staying with us. Coming up, walmart sets a high bar, boosting its fullyear outlook. More on the retailer Quarter Results next in todays bottom line. This is bloomberg. Taylor david time now to look at three Companies Worth watchings morning. First of all, a company i didnt know about, fergie about, tofurkey. One state has made it illegal to use words like beef, pork, products that do not contain meat. They have filed a lawsuit saying that it is unconstitutional. Taylor another company i am watching, it is all about cisco. Yesterday they came out with earnings, and it is all about the future forecast. They were saying the Forward Guidance has been a little bit lackluster in terms of sales. A lot of this comes down to trade. They are highlighting some weakness in their enterprise business. Now opening anywhere from about 9 to 10 lower in the next hour or so. It would be opening to its lowest level since january. Again, trade, china headwinds hitting cisco. Seeing how they deal with that Forward Guidance that, for now, is a little lower than expectations. David the third story we are going to turn to his walmart. They came out with earnings a little less than an hour and a half ago. We are joined by brooke sutherland, Bloomberg Opinion columnist. If walmart has anything to say about it, this is going to be pretty good. Brooke this is a Strong Quarter from walmart on all fronts. Samestore sales coming in ahead forecastce, raising for the full year. They are not seeing any type of slowdown in demand, a big contrast with the manufacturing world. One thing i thought was interesting was they were saying in terms of price increases, they were able to use their scale to mitigate the impacts of that and avoid price increases on things like food, where people are more sensitive. That contrasts macys comments yesterday, saying they had difficulty pushing their price increases, specifically in housewares. Taylor the ceo said inflation for their consumers was benign. Ly if that consumer doesnt feel those infection or pressures yet. Brooke thats the question, can we keep any slow down contained to manufacturing and industrial sectors . Of course, manufacturing is a much smaller part of the economy then it was even 10 years ago. I think that is really the debate. Does this ultimately bleed over into the consumer, or can they stay relatively protected . David it is a bit of a trifecta here. Samestore sales were very robust, earnings were really robust, and at the same time, they are investing in their business, whether it is online or improving productivity. They managed to do it all at the same time. Brooke they see earnings now will be slightly up for the year potentially, after earlier forecasts were down. It does reflect some of that investment push. Ecommerce sales up 37 for walmart. They really established themselves as the reg a seemly as the legacy retail counterweight to amazon. Taylor not only the ecommerce. We talk a lot about the grocery, as we take a look at walmart and target, arguably the two Companies Best poised to take on amazon. When amazon got into whole foods, people got nervous, except that walmart and target have a healthy food and grocery business that is not only being delivered, but you now have this curb pickup which seems to be able to success with them. Brooke walmart has made an investment in healthier food as well, and keeping prices low. They are trying to feature different trends as the consumer starts to eat healthier, but also to make sure you are not paying significant lehigh or prices. Whole foods has come down on its price fund, but i think you still have a discrepancy there. David of course, they are hoping to get the samestore sales up. Brooke sutherland of Bloomberg Opinion, thank you for being with us today. Coming up, weve been talking about it all morning long. We are just minutes away now from the latest retail sales data. We get to find out whether the u. S. Consumer will continue to support the economy, despite what taylor riggs yield curve is saying. [laughter] david live from new york, this is bloomberg. This is bloomberg. From the 5am wakers, to the 6am sleepers. Everyone uses their phone differently and in different places. Thats why Xfinity Mobile created a Wireless Network that auto connects you to millions of secure wifi hot spots. And the best lte everywhere else. Xfinity mobile is a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you buy an eligible phone. Click, call or visit a store today. Taylor this is bloomberg daybreak. I am taylor rates in for alix steel. A look at how the markets are positive numbers in china but negative rates earning the german index and the financials. If we take a look at safe havens, you are seeing a drop in the vix, arguably a good thing. Risk on sentiment back. The 30 year down two basis points. Still right there at 2 . David thanks so much. We are looking at the new retail Sales Numbers which are out and retail sales advanced month on month by. 7 . Service. 3 and the yearoveryear i do not see. Auto and gas it is coming in stronger. These are the month over month numbers for july. That was a strong number from the total retail sales,. 7 . David . 1 diminishment of last year, and adjustment down, but only. 1 . This is much better than what was expected. Taylor i want to bring in seema shah, who covers retail. Phil from jpmorgan Asset Management is still with us. Give us your instant reaction. You have five seconds to digest the news. The consumer feels healthy. Seema it was definitely a broad beat and i think a lot was driven by amazon prime day and other holidays we have had. It is not a reflection of the margins of the retailers but i can see why people have stopped up and pushed forward with backtoschool shopping. Taylor how much when you mentioned amazon prime day, how much discounting . We paying more or is amazon helping to create these deflationary trends. Across retail and discretionary there is a lot of pressure on price. You do not know anyone going and buying something without seeing if there is a coupon or to wait for a coupon. For commoditized items, you can check the price quickly. David when talking about the state of the consumer, despite what the bond market has been telling us, this is encouraging given how much of the economy is dependent on the consumer. Phil this is not indicative of 1. 5 10 year treasury. In the lasted segment, the u. S. Consumer is the antidote to everybodys sour mood. Strong youer a are looking at nothing but strength from the u. S. Consumer. 10 year things something ominous is happening or is it giving the consumer a tailwind . I think it is a tailwind. Taylor seema, talk to me about the discrepancy. We have talked about right shopping and discounting. Walmart comes out today. They did continue to own it. Is that the future . Wholesalenter, like a versus a luxury . Seema i think youll see a barbell where you will see discounting for things that people will need every day but luxury still has a place. It is the guys in the middle that may be getting squeezed. That is when you see the price and the on this low end way people change their behavior. It is easier to get amazon and target. You saw that on retail sales. The online month over month was up. That is indicative of prime day and every other special retailers had. David tie this back into wages and employment. You have to make the money to spend the money. Are you concerned we are starting to see softening with the last jobs report, particularly in average hours worked . Philip that is the magic question. Where is the Wage Inflation . If companies can keep their , that is a good story for the stock market. If you spin it into saying people are not getting paid and core pce and cpi are being driven down, that is a backstory. In this environment, that is a supportive story people want to see so earnings can be kept. Taylor as the consumer is finicky and can jump from one to the other, how important is branding . Staples like a procter gamble, kimberlyclark, your branding is key. You need to have that strong brand if customers are going to pay or absorb the hike in tariffs. How important is branding . Seema branding can be important but we are talking about nonstaple items. A lot of it has to do with the experience of buying the item. Is it an instore experience, is it exciting . If i buy online, is it seamless . Then you get into that branding. I think for staples, there is still the branding, but after the stigma of private label has significantly decreased. Private label is the differential for retailers. David we spent so much time talking about recession. It strikes me that one big difference between now and 2006, 2007 is the state of the Balance Sheet of the household. When look at consumers and how much my they spent, in 2007 they were hired leverage. Philip with bull market behavior. David this time not so much. The sales are up. Philip that is Balance Sheets as well, which is the big difference. The three things were looking at on the consumer to prove their resiliency the first is the wealth effect. What is the stock market doing, what is housing doing, what our 401 k s doing . The second is Wage Inflation. The third thing is how affordable is debt . Not only do they not have debt, but they have debt it is so affordable. I keep telling people when youre struggling about refinancing, you will never regret this mortgage rate. That is a strong tailwind for the consumer. We are seeing in the numbers. Taylor we talked about month over month. My job was on the floor my jaw was on the floor because we were talking about taking out q4 given how idiosyncratic that season can be. How are the yearoveryear numbers . Seema they confirm what we talked about already. Very strong online. Deceleration in Building Materials on a yearoveryear basis that matches what you are seeing in the Housing Market and some concern about deceleration. The remodeling, repair market. You are seeing growth in categories you expect. It is a good harbinger of how people might view holidays. Strong backtoschool is a sign of a good holiday. And seema shah, thank you both for being with us. Lets get a look at what is making headlines outside the business world. Renita china is talking tough about trade and is sounding as though compromise is possible. Beijing warns it plans to retaliate for new u. S. Tariffs scheduled to take effect next month. China called the tariffs a violation of the accords reached by President Trump and xi jinping. Still, the Chinese Government has said the leaders have kept Communications Going and it is hoped there can be a resolution based on equality and mutual respect. Hong kong protests have prompted officials there to the growth forecast. Officials now say the economy will grow by 1 at the most, down from previous forecasts of 2 to 3 . Ae government also announced 2. 4 billion stimulus package. Near moscow, a Russian Airline pilot narrowly avoided disaster. He landed in airbus in a cornfield after the plane lost power in both engines. The plane struck a flock of seagulls after takeoff. Everyone on board survived. About two dozen people were injured, but none seriously. 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 renita young. This is bloomberg. David thanks so much. It is sort of like sully in moscow. It was not a river, it was a cornfield. It was similar. , and hehey lost power landed safely in a brutally walked away. Pretty impressive. Taylor instead of miracle on the hudson, miracle on the cornfield. [laughter] david coming up, crate and barrel picks up a new business strategy. Caleb montgomery, great and barrel ceo, joins us next. Taylor bloomberg users can interact with us on the charts shown using gtv. Proust charts and features on bloomberg tv to catch up on key analysis and save the charts for future reference. This is bloomberg. Renita this is bloomberg daybreak. Coming up on balance of power, carla hill, former u. S. Trade representative. This is bloomberg daybreak. Buffett Berkshire Hathaway has increased its bed and amazon. Berkshire stake in the Worlds Largest online retailer rose 11 in the Second Quarter. It is now valued at more than 1 billion. That is far smaller than berkshire stake in apple. That investment is valued at more than 49 billion. Morgan stanley is nowhere to be the year second secondlargest ipo, we work. Back after wed work the relationship became strained when Morgan Stanley would not extend as much Debt Financing as we work wanted. Carlsberg reported a strong first half and result of a increase in craft beer sales. Net profit was up 25 from a year ago. The danish beer maker raised its fullyear forecast. That read to shares rising the most in almost a decade. And that isyoung your Bloomberg Business flash. David time for follow the lead, a deep dive into stories making headlines and moving markets with it insight from industry veterans and insiders. Today we take a look at retail. To set the stage, we turn to our resident retail expert, emma chandra. Emma we also got a number of Earnings Report from big retailers. Walmart rising after its beat helping the stock in the premarket and underscoring walmarts outperformance in what is a top retail environment. Jcpenney missing on that key metric of samestore sales. Tapestry getting punished, jcpenney seeing a pop in the stock after the ceo says changes ahead and they are rebuilding the company. The stock down 45 so far this year. We are still looking at a stock trading below one dollar a share. Many headwinds facing retailers at the moment. Take a look at this chart which shows the share of retail. The blue line is general merchandise, holding steady. The yellow Lines Department stores, now falling below 2 . The white line is ecommerce. We all know the story of the growth of ecommerce. Many retailers building those offerings. Many also dealing with store beads and the dominance retailers face from amazon and walmart. Another headwind is tariffs. We know they have been delayed until december. Theres another 270 billion in tariffs, 160 billion delayed until december but we do have on goods like footwear, clothing, and kitchenware do on september 1. Walmart said they are using their scale to minimize price increases, but a lot of retailers do not have that luxury. , thank youa chandra so much. For insight read on retail, we are joined by neela montgomery, crate and barrel ceo joining us from chicago. I want to touch on a conversation we ended with emma about tariffs. How squeezed are you getting . Neela we are lucky and we have over 42 countries where we source from and china was a relatively small portion of our total imports and trade, less than 18 . Over the last 12 months we have shifted much of that product to other countries in asia or the u. S. Or some new sources in europe. It now represents less than 10 . While it is an impact, it is not as severe as others. David if it is not a direct affect on crate and barrel, are you seeing in express itself in the sentiment of consumers. Our consumers paying attention to these tariffs and becoming more hesitant to buy . Neela we have not seen it as a direct impact of tariffs. Our sales tend to move closely with the stock market. We saw some hesitancy early in the year, january and february, where people seem to be hesitating around larger furniture purchases. Furniture is 50 of our business. That has moderated and we saw quite strong sales in q2. Taylor you talked a lot about the supply chain shifting to other countries in which you already had operations up and running. Where are those . We hear a lot about vietnam and thailand. You mentioned new operations in europe. Where are your operations . Neela one third of our product comes from the u. S. Most of our wall street at crate and barrel is made in North Carolina most of our upholstery at crate and barrel is made in North Carolina. Weve expanded u. S. Operations because of speed because we see more customers opting for Custom Furniture and it is faster for us to produce it in North Carolina. As far as overseas sources, vietnam has been a strong one. We have great heritage in europe, creation of croatia, poland, and some of them have opened up for us. David tell us about the Customer Experience at crate and barrel. You have a thing called people at crate in illinois where you have a restaurant. What is the purpose of that . Have you know if that works the way you want it to . Neela we saw an opportunity. 45 of our sales are online. With that comes the opportunity to use our store footprint differently. At oakbrook mall where we opened crate, we have are great location there with a great outside space and we thought about a new experience for our customers, something much more immersive and authentec, building upon our heritage. We partnered with the local chef to create what has so far been a successful restaurant. It is early days. It is only the first month, but welle moment it is trading above our expectations, it is driving doubledigit traffic to the store, and im sure over time, giving customers a new way to experience our brand. Taylor if youre driving doubledigit traffic into the store, how does that correlate with sales . Neela it does it has increased sales in that store. So far, so good. We see a positive impact. David when you start a new Initiative Like this, one of the things we asked ourselves is in success, how big couldnt get . In continued success with this going to all create and barrel stores crate and barrel stores . Neela we think 10 to 20 stores. You would have to have the physical footprint to accommodate it, because it is quite a large restaurant. We might consider other versions. We would say that at the moment we would think carefully about what else is available in the mall or in that location and how can we create something differentiated and immersive . We may even choose to do that market by market or we would expand this to the top stores. Taylor as we take a look at where we are in the economic cycle, you set a lot of your sales are correlated with the ,tock market, like furniture how you measure where the customer is . Do you stick with your one customer and target there, or if we shipped late cycle do you try to target a broader audience and lower prices . How do you gauge that . Neela one of the things that is exciting about retail is our ability to target digitally has transformed. We now spend more of our budgets on Digital Marketing and personalization than we ever did three years ago because the technology has moved on so much faster. Therefore we are able to personalize the experience for our customers. That kind of highvalue service is critical for brands like ours. Example, we offer Design Services in our stores, and we have done over 10,000 concentrations this year where somebody is coming into a store and interacting with an asos it multiple talk with an associate multiple times to complete a project. We see that as the growth model for brands like ours. Obviously there are continued pressures around promotions and discounts in the market but at the moment we maintain our differentiation through that unique Product Design and differentiated service. David crate and barrel is known for home services. What insights you have into the Housing Market in the United States . Neela what we see a trend for is smaller space. Many more multiunit condos going up. We are having to adapt how we think about our Product Design. Customers increasingly want multi functional products and multifunctional furniture. They are thinking about buying the whole thing for a 2000 square foot condominium. We think differently about some of these urban markets. People are increasingly prepared to tradeoff space or location. Taylor wonderful. Neela montgomery of crate and barrel, the ceo, thank you so much. Coming up, the bond rally chart is on with the u. S. 30 year treasury dipping below 2 . If you are jumping in your car, tune into Bloomberg Radio heard on sirius xm channel 119 and on the Bloomberg Business app. This is bloomberg. Taylor here is what i am watching. David westin hates me already. It is all about the bond market for me for the fourth day in a row. David i love bonds. Taylor it is about the 210. Basis point. One the 10 year hovering at a 1. 59 but is drifting up. The 30 year is unchanged. This is interesting because the 30 year has been fluctuating between a 1. 97 and a 2. 04, trying to find stability. We heard from phil camp rally trying to find where yields have stabilized. David it does not seem to be moving. It seems to be hovering. Taylor very good point. A lot of the commentary we have heard is not the absolute number. 2 is very important, but the rate at which we got here. Jpmorgan strategists were saying they see 0 yields by 2021. That was the key word. David the rate of change it got there fast. It seems to be happening with negative yielding debt around the world. Taylor secretly you love bonds. David i will tell you. That doesnt for us today that does it for us today. Coming up on the open, lori calvasina. She has a lot to tell us about what is going on including u. S. And china trade relations. Live from new york, this is bloomberg. From the couldnt be prouders to the wait did we just winners. Everyone uses their phone differently. Thats why Xfinity Mobile lets you design your own data. Now you can share it between lines. Mix with unlimited, and switch it up at anytime so you only pay for what you need. Its a different kind of Wireless Network designed to save you money. Save up to 400 a year on your wireless bill. Plus get 250 back when you preorder a new samsung note. Click, call or visit a store today. Lisa from new york city for our viewers worldwide, i am Lisa Abramowicz in for jonathan ferro. The countdown to the open starts right now. Up, markets enjoying the return of happy trade talk for a minute. Futures climbing following upbeat headlines out of china. Encouraging news on the home front. A fifth straight increase in u. S. Retail sales revealing a healthy consumer in the face of a trade war. Is the confirming that major retailer jumps higher on earnings, consumers out in force. 30 minutes in the opening bell. We are seeing futures higher after a wild overnight session where they were lower on the prospect of china retaliating against the u. S. , and then terror tweets said tara tweets tarrif suggesting otherwise. Leaving investors unsure of what is to come
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