Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170330

Eking out a ss gain. Gold pretty much goes nowhere nd oil relatively flat, but under 50 a barrel level. House of to the forons introducing the plan brexit. The European Union. E will monitor it for the headlines and bring them to you as they develop. Want to bring in simon kennedy. In the last 24 hours, how has this moved forward in a any shape or y in form . I think the big take away is europeans said before yesterday, they continue to say after it. If you thought there was a the , if you thought europeans werent serious about arious issues, refusing to discuss the tray deal before the divorce was settled, yesterday of a wakeup call. Across the region from angela the Eu Council President the message was, were onna sort out the difficulties first, the divorce, the budget border ow to have a between the two islands. All these issues. Ones were not discussed. Would prefer to discuss them deal. A trade the new trade deal is going to have to wait. Simon, trying to make this approach. A blended approach with trade concerns, security concerns. Trying to get a solution for both at the same time. Hows that going down in europe . Particularly well. Its a reaction. It yesterday ed that basically uk lot of continent. The so if you want the sharing of nformation, youre probably going to have to pay for it in the form of more trade. Insulted some in europe, european parliament, brexit immediately saying there be a trade off in security and trade in this topic. Y was a separate obviously playing down a little this morning. But still making the point that is on the ecurity table for brexit talks. I want to bring in michael oore all joining us from london. Michael, i asked the question yesterday to steven morris. At jp re jamie diamond morgan, what are you thinking . You doing . Right. So i think they have a number of options. Advantage j. P. Morgan, some of the other International Banks in a s they have offices number of these european cities. J. P. Reporting today that morgan is looking at buying another Office Building in dublin. Option they could do. They could also expand in some of the other european cities. Youre going to see a bigger presence from these u. S. Banks the continent. How many people might they move to dublin . The building that theyre in talks on has room for 1,000 employees. Thats yet to be seen how much filled will actually be if they go through with this deal. Diamond inly, jamie talked before the vote about moving as many as 4,000. Other banks have been 1,000 plusso you can certainly see movement. What weve seen so far are banks a small ans to send cohort at first and see how the negotiations play out. Into w does this read back the negotiations . Look at david davis talking to parliament. To what ebb tent does he feel pressure saying were going to ose a lot of people to dublin, we better be good in our negotiating. That was made earlier that everything that britain was told before is starting to come true. Banks have repeatedly said were out of have to move london, move stuff out of london if theres any sign that were hobbled by brexit. Yesterday there was great theresa may making finance part of that trade deal. Time she said that. Real shot to the bankers. At the same time they heard from urope that theres time to negotiate that deal, that a transition is not necessarily in for may. Signs of a show some shift. The more uncertainty they live they e more likely that will enact those worst Case Scenario contingency plans. Good to see you. To focus ink we have in. Lloyds of london is setting up a post brexit line. Fine. Its tens of people. Its not hundreds of people. Tens of people. J. P. Morgan, who knows whats going to happen with them. 1,000 People Potential peu. Talking about desks. Were not talking about filling in ffice with 1,000 people dublin. Practical matter those are valuable jobs. They move people around, i think make its a difference. Im struck by the fact that dublin. Its not frankfurt. It is easier to commute, easier to go there. Labor laws are easier. Right. Back office set up for many of the people moving to dublin. I want to bring in from london, usa economist. Ubs cohead of ethics. Anything, ve learned what is it in the last 24 hours . Much. Havent learned that the letter didnt change the uks position dramatically. Away, you do have a take its that the uk continues to grudgedly snail like move e. U. Position. Remember if you just step back and think 12 months ago, the u. K. Was that e the e. U. Would give up its the u. K. To allow restrict migration. Weve moved from that position essentially the u. K. Giving in saying we understand thats not going to happen. Weve slowly, month by month, moved towards the e. U. Position. Were still not there. We got a bit yesterday. Theresa may talks about allowing the European Court justice, not jurisdiction. It was vaguely worded. Towards allowing more Supreme Court justice jurisdiction over the u. K. Bit of talk about the exit as well. Weve moved a little bit away. Move further to get a deal in the end. That deal will likely not be as good. Thats kind of like the macro look. Ubs eeing more calls from as well as Morgan Stanley that you want to buy the pound. Citi thinking the ftse will rally to 8,000. Distinguish between value . Ise and a potential we are not in the fact that it will strengthen here. Ubs investment banks knew. At the same time theres a lot of knee jerk reaction thats going on because of technical including positioning and different kind of trade related distortions. Going the main thing forward will be the macro outlook. To weaken. Starting as a result of squeezing wages. Will weigh on consumption. Investment is slowing down and will likely continue to slow down. A big issue res with balancing of the economy happen. Eeds to all these things point gradual but steady pace of a decline of pound. Noise,t, given all of the so many people turning to the pound, i think the surprising remains that the pound above 86 through europe. Been weaker than what was expected over the short term. Of ets take the other side the trade, the euro. How are you on that . Ow might that affect the negotiations in brussels . We are bull ourb euro. That its mostly an ssue of price versus fundamentals. Cheap. Euro is extremely multidecade chief. Very very big degree of pessimism priced into the european Interest Rate to the European Assets more broadly. Market is waking up to the that European Data may actually be a lot stronger than people had expected it has been. Surveys. In that direction. I dont think thaf per se is something that we dont think the dollar l get through the roof. Therefore that is mostly market a policy ther than thing. I just want to go back to the financials with jp morgan opening an office in dublin to accommodate 1,000 people. Talk to me about hiring. Who will be doing the hiring . And where is the investment to come from in the United Kingdom for the next two years . The uk. A big issue for the economy has held up for six consumers have capped spending. Its falling, not happenedly, it is falling. You look at the credit flows in the uk yesterday. Businesses. To the growth rate slowed. Where is this investment gonna come from . We have a potential very volatile period ahead. We dont know where the trade end up. Ll will the uk keep capitulating in deal to get a good trade or will it not. There are big risks to deal with this exit bill. Agree to pay it . In that sort of environment, imagine that the fdi is going to boom or the investment will. Thats why im pessimistic. Ook, i have been too pessimistic for six months, but i still think its the right call. Uncertainty. Ot of were going into a volatile period. I dont think that will be uk growth. O how much visibility as an the ukst do you have for economy . How do you provide a forecast gdp for anything beyond 2017 . I can talk to you about tales woe, trying to translate into gdp growth. E have tons of High Frequency data in the uk. What we do know is it is going period. A very volatile bank of england reacted unusually preemptively. Process. Thats our job. I think the really big picture here is theres a lot of uncertainty. We just heard in business investment. Onsumers are facing a big squeeze on their income. Uk se things will slow growth. Not catastrophically, but to where it was in the past. See you. O robert wood of bank of america. Coming up, well be digging into policy. Two fed officials explain why the economy might be calling for series of rate hikes. Tune in tomorrow. You do not want to miss this conversation. Exclusive interview of William Dudley of the srefrb bank of new york. Thats all coming up. This is bloomberg day break. Mazon has come up with a bold new plan. It wants the makers of oreos, heerios to start shipping their product directly to Online Shoppers and bypass chains like target. And bloomberg learned an executive from General Mills and other attendd food makers will a meeting at amazons Head Quarters in may. Of h m fell toward a four year low. The Swedish Company said it may cut prices in the Second Quarter by more than last year o reduce inventory and h m suggested on a Conference Call that reaching its sales target or this year would be challenging. Jp morgan is looking to expand the wake of the brexit move. The bank is in talks to buy an Office Building that would have 1,000h space for more than workers. Jp morgan said other options are the table. Thats your bloomberg flash. David . Thank you very much. John williams warns that equity arkets may have overpriced promises saying i do think the markets perceptions of whats got to happen kind of ahead of reality, close quote. While his boston counter part thought the economic picture might justify as many as four hikes this year. Year would be much less than what we did at the last period that we were coming out of recession. At that time, we were raising it every single meeting, so its fast. As relative to that, this is much more gradual even if we did it every other meeting. Joining us from london is coceo. Rn fund he is with us. You. Me start with im not sure as i listen to these two fed president s talk hether theyre agreeing or disagreeing. Will fed rate hikes be etermined by monetary policy, by under lying fundamentals in the economy or by whats going with fiscal ton stimulus . I think its probably a combination of all three. What you have, you had Inflation Expectations pick up dramatically from a base of elements. Youve had the Unemployment Rate reach the level where youd inflation to come over the fed models. And you have an expectation of fiscal stimulus where the promise needs to translate to reality. Crucial point where the combination of those will determine whether or not two rate hikes this year or four. Because this is not a normal cycle. O were looking for Different Things to normal. You look at the market place, with respect to bonds. The possibilities are waoeuenning out rather than narrowing down. E have a larger range of possibilities for this year because of the uncertainty in washington. Yes. I think in particular youve got next three months are very very crucial. Ofve seen the first failure donald trump to enact the healthcare reform. Reform iss asking tax a bit more complicated in that. Infrastructure spending which easiest to e thing get through due to bipartisan support, that seems to be nowhere to be found. It is a time where you have to see these expectations translate nto reality in terms of meaningful change rather than remain status quo. For me the status quo would three rate to hikes. If you start to see some new olicy hikes come in, youre talking three, four hikes. Look at what william said in valuations being a little foggy. Had the brookings report last researchers who said we could be zero balance forward. E time going at the end of the day is that a yielding y high assets, risky currencies. What do you think about the that . Eck of i think thats a matter im sorry. Going to ask you to get a word in there. So, if you actually think about it a little bit more, we through the maximum kind of we have gone through equities. Rally in we have grown through probably he maximum pressure for now on the pace of inflation acceleration and bond market hasnt slowed off. Expectations of where rates will be in the future is on the igh side if you look five, ten years out how the market is pricing the path for the fed. Know, there are certain risks ahead of us that may show realizations are not necessarily, they may prove to be domestic. At the same time, you have growth that is reasonably stable, so what youre looking is assets that that dont of hurt any more because high waits. A well lates have established market. T the same time, dont require huge amounts of additional growth. Emerging hink about market bonds, whether youre thinking about Investment Grade their assets do well in an environment where bond yields not breaking out stable and at the same time huge mount of additional growth to perform. So are we in a world then where the entire yield curve and we lower for longer could be in a frog tkpweu time . Ation for a very long yeah. I think asset allocate is a very constrained required able. If youre 300, 400 billion 7 return, with a theres only so many things you can do. His isnt like japan which has been at low rates for almost ever. Then they funded the trade lsewhere for high yielding assets. Amount of high yielding assets that can absorb the amount of to meet Pension Fund Obligations is narrowing still. With the d a bit recent ten year move but is still very small. Emad, the reason williams comment is so interesting is because the Federal Reserve, for part, is a reason for the cenario thats led to these valuations. The minneapolis fed said the third wheel of the federal eserves mandated financial stability. What role does the fed have to play . From my view, if valuation equity and it provides very good Growth Capital for the underlying growth. The feds job is not to push up stock markets although theyve deliberately. Their job is to maintain the economic stability or the economy. Ind of u. S. And i think that again theyre constrained in what they can do. Not talking about 4 u. S. Rate. I dont think anyone believes that. Range, in this narrow again. Mostaque, thank you. Altman is going to be right here. This is bloomberg. German inflation data coming well below the Previous Year on year. Well below the previous months reading. Joining us for more emad moustad. Does this take off any hawkish forward . Going first, its important to keep in mine that inflation rates the be coming down on headline level for a number of economies including the u. S. And in the next few months. We have gone through a price significant very role in boosting them higher. Theyre returning back to more ppropriate level in the next few months. Second, when it comes to asset at a s, we are still higher level than we were this last year. When it comes to policy makers, means that they cannot in this inflation environment amounts of eme additional new easing, which in the at at some point second half of the year, the ecb will have to start discussioning it. Having said that, the market has into the idea ay that they may be hiking already 2018. Ear, if not early and i think when inflation starts to come to more normal discussion may prove to be a little premature. This is basically what policy been discussing in overuro area very raoepbly the last week. Themos can you extend that to europe as well. Maybe people got a little too excited. It is lower than many banks thought. And the upset weve seen recently has been driven by energy . Appened with absolutely. I would highlight three more point. To add to your the first one is that by and large the biggest amount of the last rates over few years has been commodities. Always tend to under estimate the upside and downside. The second thing is theres very little convincing globally for many years now. Space of low inflation. Right. Basically youre seeing having less of an effect. Gentlemen, thank you very much. Both of you are sticking with us. Ian pwrepler. , this is bloomberg. From new york city, youre watching bloomberg day break. To speed very up quickly. Down 27 on the dow negative 3 on s p500. We are set up three days into trading week for the biggest week of gains so far at least this month in the states. Euro three day losing streak. Euro weakness again this morning. 02 , south of a dollar. . 008. Reasury, big over the last couple of weeks. Thats the situation. Headlines ou some outside the business world. Thank you. In europe british Prime Minister theresa may will begin the process of taking back thousands of European Union laws. May published proposals to incorporate 19,000 europe based laws. It will then be up to british decide which ones to keep. Chinas president will meet with week. Ent trump next the sum pheult will take place at mr. Trumps florida resort. First time the wo meet since President Trump took office. They are expected to seek Common Ground on issues ranging from trade to north korea. Back for President Trumps revied travel ban. Judge in hawaii extended a federal halt from six muslim nations. The judge ruled that white house religious bias. His ruling could stay in effect overturns gher court it. 120 l news in more than countries. This is bloomberg. David . Thanks so much. Not just that travel ban. He also will be meeting with the secretary of the treasury today to walk through the options open for tax reform. Here to give us a preview kevin cerilli. The do we know about options that will be presented to the president . Treasury secretary mnuchin said he will be the go to point comprehensive tax reform. Hat buys them some time to weigh in and decide on key controversial issues that have ecided policy laws as well as lawmakers on capitol hill. The border adjustment tax has backed by House Speaker paul ryan, but has been opposed y several members of the House Freedom caucus and even bond that, moderates as well. Theres also some movement on the trade front. Here are reports that a draft has gone up to the hill. What do we know about the timing thof . They said nafta would be one agreements they wanted to handle. Gain, there has been no firm timetable in terms of when they ill get to the drawing board but have said nafta would be one of the first ones. You take a step back it comes as the administration continues to have mexico. Lk against clearly mexico they want to bring mexico to the drawing nafta but all on immigration. This would be a way for them to those things together. Little like brexit, theres a daytime period. Once they send the notice they have 90 days. Somewhere in us the summer. Busy summer. 28th when we pril could have the partial government shutdown. Leader xi rd chinese will be in florida next week trump. Resident youre going to be a busy man. Yes. Always. Thank you very much. Staying on the subject about the Trump Administration approach to trade especially mexico. Brings us to our morning muster. He wall street journal said it has a copy of the document sent up to capitol hill by the administration. The journal said the trump signaling to is congress that it would seek ostly modest changes to the north American Free trade agreement in upcoming negotiations with mexico and candidate. Called, resident trump quote, disaster during the campaign. Emad and themos. Question is how important is this to markets, to asset values . Of how tough were going to be with mexico on the Free Trade Agreement . Emerging market assets, its very important. This is the first real trade deal. Emerging markets sailed off last ear because they had trump the disrupter as the key element in terms of we dont know what will happen with the trade agreements. Then trump the deregulator and stimulater. But are ave bounced waiting on the big question mark. How is this trade going to be . Think nafta and president xi, new elments. F they arent and have you dont drive suppliers out of business if youre a new ceo, mexico, a strong strong u. S. Then emerging markets can have nother leg up because a lot of concern of investors suddenly reduces. On a call yesterday. Saying theres more to go. Is this becoming a consensus where do you stand on it . I would say that there is a the bigger increase in emerging market. Favor of the in risk here. Produce in some of those places two thirds of the trade still morene theres to go. We are hedging from other assets in regard to china in the crucial things that have held together starts becoming a little less important. Time mediately but in the ahead. Ere not very much fond of for instance theyre not just china. To been a treasury yield sit at 237. Can you get a yen to outperform yields start s if to reprice again higher . It depends on the leve level. Kind of 3 . In a range, the carry opportunities with some brazil hundreds of raeult cuts coming as inflation coming down are point ofrom a currency view Foreign Policy a stock point of view we saw selling in asia for example and the back end of last year that caught up. t if you look at what china is doing now, exploiting its model massive ng infrastructure ill provements. He potential is there even if we break 3, 3. 5 on the ten year though companies will still keep going. Because the amounts of money coming in is massive. Inia and other countries will act similarly where the rates have dipped lower. Countries like turkey, they will get carried out. Youre not very excited about em currencies. If you look at the mexican peso the last two day, its strengthened against the u. S. Dollar. The dollar was strengthening its currencies. Perhaps because of the reports about the positioning on nafta. Peso more make the attractive . About one currency that we are a lot more positive on. The mexican peso has been up until a few weeks ago actually. Probability. H very significant kind of chart. That is coming up. A factor for bullishness. In general the economic effects have simulated economic effects, border taxes. Concern is a very narrow part if they were even to have. That worry on the peso overblown. Y overall nafta would affect markets substantially. Right that orts are the Trump Administration will soft run, does that reinforce or that part of the reason . Do you anticipate this saying ou were more bullish on the peso . There are many thins that we see. To wait and for now the market has been benefit of the doubt. The marketing. Concern about the downside risk. Coming off now. Donald trump came in saying going to change everything. Lot of bombast. They start thinking what won. Donald trump would like is to be honest, thats not a big deal. And 21 billion for a wall. Raoepbly. Quities, i think that, again, the chance destruction thats the most important. Far more important than even mexico. Ecause if the u. S. And china can get along, then i think a dissipate. Fears emad, thank you. Themos, thank you very much. Coming up tomorrow, dont miss this. Reasons e of the many we had the big repricing in expectations around the federal phafrpbl meeting and the rate hike that came after warsd. It was William Dudley with the of new york. He will be speaking to us exclusively tomorrow. Speaking to us, jim bullard. This is bloomberg day break. This is the hp green room. Coming up roger altman founder 9 senior chairman thats at a. M. Eastern time. Break. Bloomberg day the Insurance Market lloyds of london plans to open a european in brussels because of the brexit vote. They expect the office to be of 2019by the beginning about 11 of the companys business comes from e. U. Outside the u. K. Amazons founder is climbing up list. Ich he added 1. 5 billion to his fortune yesterday as shares of 18 bucks. E by according to the bloomberg billionaire index he has a net 76 billion. Ost that means he passes warren uffet to become the second richest person in the world. Top of the list is bill gates 86 billion. Chosen, n has been Morgan Stanley and hsbc for key roles in what could be the ipo. Est ever according to people familiar with the matter the banks will ct as advisers on the iran colisting. The government run oil company trillion. Valued at 2 thats your Bloomberg Business flash. Alex . Emma. Nk you very much, big press for aramco was cutting leaving some stocks to raise their valuation estimate. Bern steen says 1 trillion. Joining us Capricorn Fund manager. 1 trillion, 1. 5 trillion. Do you buy that kind of valuation . Depends. K it all look, saudi arabia will do everything it can to get above 1 trillion. Number. He magic 2 trillion is a first step, but 1 trillion by the second half next year will be the key number. Fact is what are final tax rate then what the oil prices are. I think theyre looking for a 60 70 oil price by the back end of next year. And then enue from 85 20 of income is going as a tax. Owever, saudi arabia will retain 95 of the company. To heyre giving a share anyone who buys only a couple percent of the total cash flow of the company. Room to move that. They can move to 0 tax and impact the ally bottom line of saudi arabia that much if it will get the valuation up. Valuation up which basically means opec has to cut. If you look at the forward curve at the end of 2018. That is nowhere near 60 at the end of the day. Cut cut cut, then grow grow grow . Exactly. If you look at the game theory aspect, in 2014, saudi arabia cut, shell makes the difference, everyone else cheats. What they were concerned about. Now its changed. Aramco is about to issue a cap, bond. Er 10 billion of saudi arabia issuing bonds as well. Then you have this massive from an ipo. Erage at the same time as the saudi stock market opening up. Audi government is looking at all its Revenue Streams now. So the catalyst of cutting the changed. L revenue has results at the end of april theyre going to introduce short t plus and move from zero to t plus two settlement. Designed to bring as much into saudi arabia as possible. But the problem is maintaining any kind of valuation Going Forward because they cant grow production that hurt ecause that would them on the oil price. Cost cutting not going to move the needle. Efficiency gaines. Has one of the lowest break evens in the entire world. Levers. Gonna run out of i think, again, this comes down to a question of the utures curve is implying 55, 56 oil. Most forecasts are around about oil Going Forward given the cap x isnt quite there. Fill part come in and of that. Youre losing 5 billion barrels year just from natural decline. The assumption of investment stay around erally that unless we see another massive break through here. Key question ts, is youve got the production. Do you have the reserve . Srefrbs. To see the if they are large then International Comparison a uation, you can get to trillion dollars. Even oil prices are around where they are. Apply, a, that you will get full valuation from eserves in the ground and b it will export its oil. Hey still have significant subsidies. They have subsidy. They are being moved to a proper enterprise where by people arent getting things for free. Hey want to make it a well run company. With these tax changes, theyre trying to stay in line with so you can do aw the peer valuations. Saudi arabia doesnt need to bonds yet. Theyre doing this. You can have as many points ional comparison as possible to justify valuations. By not overvaluation but nternational comparison valuation. Great to see you. Thank you very much for your perspective. The conference on Howard Wheeler this week, this is where the at saudi e sidelines aramco ipo. Terminal, check out tv go. You can watch us online. Interact with us daily. Send us a question during a segment, as long as youre nice to us. This is bloomberg. This is bloomberg. Tax reform has taken center stage in washington with the of republicans to repeal and replace obamacare. The president is going over the his lan options with secretary of state later this morn. Our next guest knows the ins and policies from inside the executive branch and legislative branch. Greg jenner was charged with the tax policy under president bush. Tax council last time there was comprehensive tax reform. In 1986. Way back mr. Jenner is now a partner in a washington law firm. Us. K you for joining good to have you here. So a lot of our audience, usiness leaders, people in the financial commune are anxious to know about, are we going to have year. Tive tax reform this whats your simple answer, yes or no . Not this year. Year. T this why is that . You were there in 86 when it got done. Complicated to do all at once. The Tax Reform Act of 1986 took three years from start to finish. You just cant get it done that fast. So, as you look at the plans being circulated, the residents meeting with Steve Mnuchin today to go over a plan. What is doable . Constructive and say, if you were advising, say this is what done reasonably soon. It sort of depends on whether taxot you want this to be a cut or a revenue neutral tax reform effort. Are easier because Everybody Loves them. Tax reform, there are winners the losers nd usually yell a lot louder than the winners do. Healthcare rom the issue the hill, particularly the house of representatives is not increasing about debt. They want to cut debt. You the director of omb who was Freedom Caucus. Back in 86 you did manage to deduction, right and cut the tax rate at the same time. Xpand the base by cutting deduction. Why cant we do that again . You could. 1986 there was a tax cut for individuals and a tax increase for business. Whats driving this tax reform effort is the rate for high, so they o want to bring that down. That becomes much more difficult neutral a revenue basis. So how do you put together a the interested parties, for example among the corporations. Ceos who a lot of have been saying lets get the tax rate down. Nominal higher Corporate Tax rate than anybody else in developing countries. Ow can you put together a coalition among the corporations that say yes, this works for us . You need to identify who the are and get them to be yelling as loudly as the losers, r minimize the number of losers. The real question will be can get r not you individuals on board as well . Or whether they see this as for the tax cut wealthy . Remember tax rate reduction enefits the wealthy more than it does the lower and middle classes. And what about this border adjustment tax . A lot about it. Speaker ryan is enthusiastically supporting it. Adjustment e board tax work . It would make it monumentally ore difficult to get through congress. How it works, we dont know all the ins and outs yet. One of the problems. It is very very complicated, at he same time that it solves other problem. So how you implement it is the open question. People. Scares bordered a justment tax, is it one way to address the inversions . Tax yes. It would eliminate or at least on the inversion problem. Thats corporations moving off shore. It would take care of that problem. Come back and talk about what might be done. What about repatriation . Is that a tax holiday and lets people bring the money back . Is that easy to get done . Yes. Everybody would love that because it raises money at the allows the at it money to come back to the United States. The problem is that which basically means a small tax on money parked off shore is a one time hit in revenue. Do think the question is, you count that as part of the revenue raised when youre doing tax reform, oral do you use it for Something Else like infrastructure. Were going tog, get a tax plan sooner or later. It to us. Sed when they come out with the tax plan, what are you going to be yes this is Say Something that is serious and will take effect where we can some version of this done as opposed to, do you know what . Theres no way, no how. Complexity will be one issue. The other issue i think will be whether or not the president is behind it in a principled way. Remember back in 1984 through 1986, president reagan had certain principles that he anted to see in his tax reform effort. He stuck with them and got it done. Will the president be dedicated . See. L greg jenner thank you very much for joining us. Jonathan . Thank you very much. Coming up tomorrow then, time every on friday. 30 minutes dedicated tomorrow. Buying yones saying european risk. And the quarter in issuance. Potentially a record. Well talk about credit as well. The biggest week in tv is back. Wow, watchathon has netflix . Hey, drop a beat. [ beatboxing throughout ] show me orange is the new black. Wait, no bloodline. How about bojack . Luke cage. Oh, dj tanner. Maybe show me lilyhammer. Mmm, show me last chance u. On second thought, maybe pompidou. Narcos, fearless, cooked, the crown. Marco polo, lost found. Grace and frankie, hemlock grove. Season one of. Show me house of cards. Xfinity watchathon week starts april 3. Get unlimited access to all of netflix and more, free with xfinity on demand. Livestreat the airport. E sport binge dvrd shows while painting your toes. On demand laughs during long bubble baths. Tv everywhere is awesome. The allnew Xfinity Stream app. Xfinity. The future of awesome. Jon the world of finance prepares for a postbrexit london. Jpmorgan in talks to acquire a Dublin Office with space to accommodate 1000 workers. The Federal Reserve on frothy evaluations. The markets perception on what is going to happen in d. C. Getting ahead of reality. And protectionist fears do not materialize. The valve and the Development Market equity is twice that of stocks. Welcome to bloomberg daybreak. I am Jonathan Ferro alongside david westin and alix steel. Futures just a little bit softer earlier on in the session. At the moment s p 500, futures negative two points. The euro weaker for a Third Straight day. Alix out of europe, german inflation lower than 2 . Impact on the bond market. Nearer to the dollar, treading water. We have the german marks inflation rising 1. 5 versus estimates of 1. 9 . Adding into that rhetoric, about the inflation target, it is not going to be consistently over 2 . You wonder if that actually winds taking off the pressure of the market. Jon maybe it is the german dailies that surgeon that inflation is surging beyond the target. 4. 8 ine, for europe,. 8 is the expectation. To keeping policy where it is for a while longer. David we can breathe a little easier. Exactly. Now in washington there are two big issues today and they are tax reform and nafta. Here to take us through them is chief washington correspondent kevin cirilli. Start with tax reform. Treasury secretary Steve Mnuchin will meet with President Donald Trump at the white house where they will craft their policy on conference of tax reform. Secretary mnuchin has said he wants to account budget before the august recess but that is a bullish perspective because it will take quite some time for them not only to craft this policy but also to get all of the republicans on board. They have divided republicans on several fronts with regards to tax reform including the border adjustment tax. David talk about bullish protections. The president said it was going to be two or three weeks, how long ago was that . Four weeks . Do we have any sense of when we actually might see a plan for taxes coming out of this white house . The white house can put forth a proposal but then we are faced with the reality of congress and that is kind of the back story for all of this. The realities of congress. Have not setnities any hearings for this week or next week in terms of putting together some type of plan. They would like to get to that by the spring, later or early summer. It is going to take quite some time and with them having to unify debts with them having failed to unify on health care, it makes them need all their ducks in order. David the white house has to deal with that pesky congress for health care and taxes. It doesnt have to do as much when it comes to trade. It can do a fair amount. Take us through what is going on with nafta . The white house has sent over a nafta representative to congress. In the next 90 days or so they have to. They view this as leverage of mexico. On issues like immigration and the u. S. Mexico border, the potential to renegotiate with mexico on nafta is something that could bring them to the table and immigration. That said, there are no plans as of now for conference of Immigration Reform in congress that in terms of the executive actions we have seen President Trump take on immigration fronts this juxtaposed with that would allow them to bring to another negotiating table and canada. Toid canada has something do with nafta, it is a threeway deal. Think you for keeping us up to speed. Alix joining us for more is Mark Mccormick, bankhead of asset strategy. Local cohead of asset allocation. We want to start with you. Bmo coming out today saying we want a tactical switch out of the u. S. Because we are looking at a lot of issues with the physical trade but then you get the headline that nafta is not going to be as dramatic as we thought. Do we need to rethink u. S. Equities on this . I dont think it is only on that that we are selling u. S. Equities partly because the market has been paying up for a number of weeks and months on tax cuts of local coming through. That seems to be fairly fully valued. It is probably a fairly generous assessment. We are concerned about things like dat. Conciliatory headlines are all helpful but that could help things we are invested in. Alix we will get to those parts in a second. Mark, from where you stand, we had the peso recover over the last few weeks. Do you feel like that is sustainable . More calm nafta . I think the issue is the Collateral Damage you get to canada and mexico. Currencies are heavily reliant on experts from the United States. With percentage of gdp relative to the size and shares of the United States market youre looking at 20 to 30 gdp in canada and mexico so the risk is that some of these are moving too far or too fast. Tax, border adjustment anything that tries to redefine the lines around nafta, i do think the canadian and mexico currencies are definitely at risk for reversal. Jon everything happening in developed markets, there has been a whole lot of noise and very distracting from the big performing asset class which is em. In terms of stocks, returning double. Is that going to continue . What is the bullish case for em currently . Emerging markets. Fantastic opportunities. We have a few challenges around that. In europe the markets have been strong as well. We are pretty constructive on parts of em but not all of it. One of the areas we like right now is the sleeper trade in the form of india which is, sitting aside from all of these developments, much more structural, much more longterm. We look at overall emergingmarket risk premiums. They will be relatively high so there is lots of space for rally if risk premiums as a whole reduce. We could pay up for that uncertainty and earn a little bit more from moderate application moderate allocation. Jon when you look at india, do you get shouts away from the protectionist fear stories of global trade . Is that where you go . It is more that there is a nice and clear structural story contingent on the win in washington. When you have policies in washington there are ways you can get big exposure to that, but india is much more of a threeyear to five year trade. They have been continuing in earnings for the past 25 years. The market continues to reward but it is quite volatile. Lowest hanging fruit in the emerging market. That would be india. That is quite a consensus position but with global something is too small to really be of huge interest. That is why we think it is low hanging fruit. Alix because we are focused on the reflation trade and rising Global Growth, particularly in developed markets, if you take a look at rates even, they are rolling over. Under 2 in the u. S. Is that part of the trade and the Global Portfolio starting to be broken . I think what we are seeing is that Global Financial conditions are still very loose. You see it in the basis markets, that tight compression since the peak of the trump or reflation trade. Abundance ofs an u. S. Liquidity starting to deploy their excess capital. We see an environment generally very supportive of trade and emerging markets, continuing to reform very well. There is a 350 basis point differential between 10 year, developed market and real yields in emerging markets. Lot of the stories are talking about the normalization policy from the ecb and fed tightening, but what we have right now is financial conditions are very extremely loose. Healthy equities, it is helping emerging markets. It is too early to focus on the normalization trade for this quarter. On the back end of q2 or early q3 and absolutely for the last quarter of this year. Alix they are shorting dollaryen because they have real yields compressing and because they have the 10 year stuck it 4. 2 . It doesnt sound to me like a future global reflation trade. I think the narrative around dollaryen and the reflation trade is a bit over alix looks like we have technical difficulties with mark. Wrapping up with you, toby. How do you factor in those equities . Yields thate real continue to fall in the u. S. , particularly the 10 year. It cant get over a sustained basis. How is that a japanese fault . We have been pretty positive for some time on Japanese Equities. Probably the place where he got most of our portfolio. The japanese yen moved in opposite directions and in japanese equity positions. Having that on an unhinged on weunhedged currency basis, are not making that call on Japanese Equities specifically with the yen in mind. There is a whole variety of domestic factors driving a lot of that. But it is something that gets a tailwind with the reflation trade. That reflation trade aspect has come under pressure in the shortterm. There is a point where you look at yourself and say, i think the market disagrees with me. I need to reassess myself. That all now i feel the policy things coming out are actually quite consistent with an idea of reflation coming. The idea of higherlevel stocks end lowerlevel real yields and reflation is ultimately either break or markets saying youre going back to the goldilocks slump. The equity rates dont come true, all the positive updates just evaporate. Some of the earnings people feel what they bought might be at risk. It might be important speaking of context. Alix but then you get the central bank put. You are sticking with us as well as toby nagel. Coming up tomorrow, more fed speak. We have exclusive interviews with William Dudley of the reserve bank of new york and jim bullard of the reserve europe. How hawkish might he sound and set us up for a june conversation . Up next, the fallout and Market Reaction from brexit. Jpmorgan looking at dublin. This is bloomberg. Jon bankers bracing for the Brexit Impact in london as jpmorgan is said to be in talks to buy a Dublin Office which would accommodate 2000 workers. Still with us Mark Mccormick, head of fx strategy in north america and toby wrangell. U. K. ,the story in the this story is going to rumble on for the next couple of years. What i want to get stuck into is what happens to investment and hiring decisions between now and the next two years of negotiations . I think a lot of businesses, Medium Enterprises around the country, will probably try to just carry on. They will carry on until conditions really change. But larger firms, International Firms and specifically financial firms, there are a variety of headwinds that brexit brings. There are a number of major banks making announcements. Companies,aller people who were involved in brexit planning, they are talking about shifting resources away from the u. K. Not necessarily exiting completely although some are talking about that but rather, investment. Ting for Large International firms, the weaker sterling does make the u. K. The place to do things but on the other side we dont know what the nontariff areas will be if we are producing from the u. K. To support other countries to export to other countries. It is not necessarily a clear hiring investment in the u. K. For the next few years but we will certainly weigh on many companies. The companies i am closest to in the financial sector, it is pretty unambiguously negative in terms of hiring decisions. Jon set me up with sterling the nominated portfolios at this point. Sterling denominated portfolios with what objective . Ilt . G equities . Any Asset Classes you like . Your objective is income. Looking from a sterlingbased investor with sterling liabilities, then there are some really good income generating opportunities, commercial property for example. Open in funds last year, they are offering a real incomes which. Much harder on bonds and equities. We are talking about 6 to 7 in net income coming from that. Volatility lowish volatility, a variety of investments for short bonds and then equities which will have a variety of volatility with markets but will get you to that income target you are looking for. David it is easy to see who would be disadvantaged from rex it. They dont want to have to move to dublin if they dont have to. Who is looking at this as an opportunity . . Ither as a company or investor who is licking their chops right now . In the context of business in the u. K. It is a very sticky business. There is a lot of Academic Research showing that there is clustering and hurting around particular industries. What you have in the u. K. Is there is a Global Competitive space that it just created and carved out, its ability to be one of the Global Financial centers. There is scale and cost efficiencies that come around that. But trying to break around that model and rotating around these Financial Centers around the rest of europe and the world does kind of move against some of the research that says this cluster should stick together. Despite the fact that you have uncertainty, it doesnt mean that you cant work through some of the inefficiencies. I think for the most part we will see some pockets shift out of the u. K. And into other countries, particularly new york and other Financial Centers in europe but i dont think there is going to be a largescale exodus from the u. K. I dont think there is going to be a massive detriment. David that is a great defensive analysis. But what is the offense . Is there any way to not try to lose too much . I think what you want to look at is looking at sterling. There is a lot of value in sterling. It is probably on multiple different models, 10 to 15 undervalued. You have the ability to buy Financial Assets that are very if you look at the balance of if you havetfolio, a larger out on the Foreign Direct Investment you have seen a larger out on the equity side. Longerterm investors, there is value in the u. K. Assets. That is one of the things people are going to work through. Will the uncertainty around the political situation and potential trade tariffs and protectionism, could that be outweighed by the fact that there is fundamental value in british accents British Assets . Jon Mark Mccormick of tv bank debts of td bank. Thank you very much. From new york city you are watching bloomberg. This is bloomberg. Im david westin. House republicans are considering another run next week at passing the healthcare bill they abruptly pulled from the floor on friday. We heard speaker ryan this morning on television saying they are still working on this so reports say they might try to come back. Our next guest is not so sure, and there is no real indication that obamacare will be replaced anytime soon. Here in new york is dale mergers, of americas and acquisitions practice. As you assess the lay of the land in washington where you are based, you say dont hold your breath. I am not a policy expert but is actually quite a big challenge, to repeal and replace the Affordable Care act. I think if we look back over the last week at what has happened in the last couple of weeks, we might say that was probably a bit of a goat rodeo. To repeal and replace the afford will care act. I dont see a lot of momentum for making that change. David but a lot of Health Care Stocks like the fact that it didnt go anywhere. They came back robustly. What does it mean for mergers and acquisitions . Does it make it more or less morey that there will be mergers and acquisitions if there is no repeal . You follow the markets every day and you know that uncertainty is the big challenge to a healthy and stable market. The potential for repeal and replace of the Affordable Care act inserted a lot of in certainty uncertainty into the m a market. We can have a conversation about the extent to which the repeal of the Affordable Care act would allow other sectors of the economy to grow but if we focus just on the Health Care Space the potential for 15 to 25 million americans to Lose Health Insurance means there is less capital flowing into provider system, pharma and insurance companies. That uncertainty is really cropping to the health market. Alix i want to know about the goat rodeo. To am i going your kernel your terminal. The red line is the biotech deal count. The yellow lines Health Care Products and the orange line is healthcare services. All of them except for biotech have stalled out. What kicks up, where . How . When . The beginning of this year, the First Quarter of 2017 has been an ok market for health care m a. It is not as big as 2014 or 2015 but the early indications are that it is quite strong. Of continueda lot opportunity for consolidation is in the pharma and med tech space. Weve done a lot of work to establish that the path to leadership and economics and pharma is through category leadership, being a leader in a therapeutic category. The landscape, pharma and med tech, there is a fragmentation. Lots of players have weaker positions, losing positions even in one or two or three or four categories and that creates an opportunity for more consolidation, for people to consolidate a leading position and to jettison losing positions in therapeutic areas. For that reason we see a lot of opportunity as well, not just for integration. There is still room for substantial consolidations. David 15 was a record year and 16 was close to it. There has been a lot already. Certainly for an organization that has done a big deal, it takes some time to digest that. We would expect that for individual companies to do multiple massive deals in succession. There have also been changes in merger rules that make large but ifls less attractive you go back to your basic Business School economics, we dont really see anything like that in pharma. It is massively fragmented. Alix he to get your perspective. Dale stafford, partner at bain and company. We continue our conversation with roger altman. This is bloomberg. Careful joe, theyve got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Something for everyone is awesome. Find your awesome with the Xfinity Stream app. More to stream to every screen. Thank you so much for that down home welcome. Show me female vocalist of the year. Thank you so much. Thank you so much acms, i appreciate it. Show me acm best moments. I could never have wished for, asked for and dreamt of anything more than this. Catch your favorite moments from the acm awards and an exclusive encore performance by Kelsea Ballerini following the show on xfinity x1. The acm awards. Live on sunday, april 2nd 8 7 central on cbs. Jon from new york city to our viewers worldwide, i am Jonathan Ferro. The stage set like this about an hour away from the cash open and about 21 seconds. Futures are down 1 10 of 1 on the dow and the s p 500. Weekd wrap up the after wednesdays close. Switch up the board. Treasuries are in change. Yield on the 10 year, eurodollar traces some of the movement we saw during the softer inflation out of germany. As far as data is concerned, the United States drops across the bloomberg. Gdp on the third quarter, the third reading comes in at 2. 1 . The median estimate was 2 . Personal consumption comes in a 3. 5, a significant upside surprise. We were looking at 3 . Core pc comes in at 1. 3 . We were looking for 1. 2 . Additional jobless claims come to 58,000. Higher than the estimate but lower than the previous month of 251,000. Alix corporate profits up 5 10 of 1 quarter on quarter. A year on year basis, you are looking at corporate profits almost at 10 at the 9. 3 after rising over 2. 3 in the prior quarter. This is now only the third positive outcome in about eight quarters. , is that wind up meaning more cash . Jon lets get to the numbers in the Market Reaction. Gold falling off a little bit of a cliff, down seven dollars on the session so far. To dxy, up 1 10 of 1 . We reclaimed the 100 handle yesterday and we hold onto it. Stever judo is the chief u. S. Economist and michael fredericks. The data in the United States still pretty solid. Corporate earnings as well. I think the economy is going to continue to grow at a relatively restrained rate. Running about 2 is about trade. Of industryncing and corporate profit ability is the big thing. In the equity market although people are concerned about the valuation, it is being driven by underlying macroeconomics. The equity market really isnt as vulnerable as people think. It may be vulnerable to a correction but it is not in any way shape or form in a bubble environment. Alix to get more detail in corporate profits, nonfinancial sector profits were actually down 4. 9 in the Fourth Quarter after rising 5. 7 . The headlines look good. But if you read between the numbers, the increase in the financial industry, that is where the and hiring in essence is going to come from. The issue of hard data versus soft data, the hard data serves to actually catch up and i think the market in general has been largely focused on the soft data which has been incredibly strong. Is momentum in this update off the charts by our measures. It is hard to believe it will continue. That is part of the reason you start to see some of the grind down to the back of the yield curve. Some skepticism about whether that soft data has been the story for the better part of the year so far. It actually comes off the boil of it. Boil a bit. Jon what is the bullish case for risk assets in the United States . Sidethink on the equities we have come to similar conclusions. Favoring european equities and equities, with the reasonable Global Growth backdrop, the e. M. , there is better symmetry in those assets. They are not taking a lot of risks in our income funds. The majority we are taking is actually fixed income. Looking to get most of our return from kerry just grinding out as opposed to equity data. Jon how much longer do you expect to do that . It has worked really well for the last 18 months. The demand for income is almost hard to believe. When we see the flows we are getting into our strategy, we have reached over 20 billion in the last ive years. This will be the best quarter we have ever had in terms of new business coming in the funds. A lot of it is coming from offshore clients, in europe and asia. Potentiallysuance, a record in the United States. I asked yesterday and i will ask it of you. Who has the better deal, the market or the guys vying what they are offering . It is hard to get really excited about the risk or reward in Investment Grade bonds but when we look at markets like nonagency mortgages, preferred stock, these are areas aat are well supported from relative value perspective. There is a lot to like. This is what i dont understand here it is this trunk or Something Else . You say it is fundamental underlying economics. In december you would not have said that. Whythat trump is more does that make it overpriced . We have an economy that is going to continue to grow. Not a strong rate. It is not going to be able to generate rapid or strong process but relative to profits, it is ok. It is not at risk from a major correction. What happens in terms of soft data is trump but in terms of hard data, particularly the deflation in europe, the fairly weak expenditure, and the lack of nonfinancial corporate profitability all show you that we are not going to get an acceleration. What people are doing is they are simply running out and grabbing yields at every category they can. That is still the right trade to do. Equity markets arent vulnerable to a major selloff, a possible correction but they are still branding yields to keep it in place. Have a tendency to buy back shares. People go into the Corporate Bond market and keep up the earnings. But on november 9, we are going to have nice, steady, modest growth. That isty markets said great, we ramped it up 10 . That would not have happened. But there is a ratchet effect. We want to take it back down and say trump might not work as well as we thought. To steves point i think growth is Strong Enough that it is supported by the backdrop. One thing to consider is that some of the extreme left tail risks that we were all focused on over the last year, at least until last summer, that was a big focus of the markets. It was being interpreted in a very literal way. A lot of the extreme Downside Risks to Economic Growth are greatly diminished. That is part of the reason that you have seen a by the dip mentality and we have had plenty times where we had capital we wanted to deploy in market pullbacks and the pullbacks have been shallower than we would have thought. Fieldistribution a left is getting shifted to the right which is a big part of the narrative. I think that is a good comment. Point you have to focus on is what trump actually did. The concept that trump was going to create this great fiscal policy and reflate the economy, im not sure the market ever fully bought into that. Election dayw on as we went from an administration that was antibusiness to an administration that at least wants to be probusiness. That was an immediate onetime adjustment in the markets. Thethe proof has to be in pudding. Can they deliver to get going further . Right now the probabilities of them being able to deliver doesnt look great. David antior pro business is soft data in itself. It is just talk. And that is why you got the ramp up in the soft data and that is keeping people more excited, more confident. But you are not getting it reflected in the real data which is why we have the nonfinancial corporate profits numbers that alex pointed out so quickly in the analysis because we are not getting the followthrough. If you dont get that you do not have the investment extend chairs. You will not have the a growth and you will not get the bullish scenario. Jon stay with us on bloomberg ahead of the market meeting for the Federal Reserve. Theynly economists said wouldnt hike. Should they have hiked . No. We have seen the Inflation Numbers roll. 1. 3 corp. Personal consumption. Nonsubstantial corporate profitability. But he estimates First Quarter gdp is in the 1. 2 environment. Economy thehe Federal Reserve should be talking about. I think they rushed the gun and what has happened since then is we have seen the failure of the Health Care Reform legislation and we have taken markets down the backdrop. Alix on the market fallout, basically at the end of the day. Michael, as he was saying, that was a green light to take on more risks. Them. T a lot of what return are you inspecting . I think it depends on where you are. On the markets you have seen Strong Influence and there has been a lot of refinancing activity. Yields are lower than they were. I think to temper your return expectations, we have been telling our clients for a while that we are at the later stages of the cycle. Valuations in a lot of Asset Classes are elevated. That doesnt mean the floor is about the fallout. You just have to temper your expectations. In our front, given our conservative positioning, i dont really expect much price appreciation from here, particularly in the fixed income instrument that we own. But i think if you can grind y it is a solid results. Jon what is next for the fed . Sit and wait, dont do anything. I think the data will disappoint between now and then. Jon always optimistic, isnt he . Write to have him on the program. Michael fredericks a blackrock. Thank you. Lets get you an update on headlines outside of business. You caught up with first word news. Chinas president will meet with President Trump next week. The summit will take place at maralago. It will be the first time the two leaders meet since President Trump took office. They are affected to see Common Ground on issues ranging from trade to north korea. In europe british Prime Minister theresa may will begin the process of taking back control of thousands of European Union laws. Will publish proposals to incorporate 19,000 european based rules into u. K. Law. Today the country leave the eu it will be up to reduce lawmakers to decide which ones keep. Keep. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. By 5 10 of 1 , spiking higher. You got the better read in terms of gdp out side the gps outside the u. S. Members will include extending cuts. Opec in talks to include all members and extending those cuts. A lot of rhetoric as we get to that meeting. Up next, Steve Bremmer will be joining us. More discussion on brexit as well as nafta and china. This is bloomberg. This is bloomberg daybreak. You are looking at the hewlettpackard enterprise greenroom. Tomorrow, an interview with William Dudley of the federa l bank reserve of new york and jim bullard. Jon signs of populism across Global Politics as the French Elections draw nearer and brexit negotiations begin. Joining us now is ian bremmer, Eurasian Group president and founder. A lot of tension around brexit. The 2017 story, the 2020 story, when does it hit . All of the above. It is nine months since we have had the vote and the pound has taken a hit. The u. K. Economy is generally doing pretty well. Most businesses out there have been delaying what will be the inevitable because they are much more shortterm. But the fact is you could get a we hadrexit deal if a clear process that wasnt interrupted by politics. If we could just get the right economic deal. That is inconceivable to me. The politics are clearly going to interfere. We will see that with the great repeal bill and the fact that theresa may is not a unitary actor. Parliament is going to get in her way. It is only getting harder. Eu. S true with the it is not just the germans and brussels together making sure that we end up in a good place. A lot of countries want upon us the u. K. To make sure that other people dont exit. Ultimately, the risks that they end up with out a deal are substantial. Jon why would Parliament Get in her way given that she has no effective opposition at the moment . They want to have influence over what kind of a brexit you actually get. They have the opportunity to do that before the actual article 50 was triggered. But that would have been, in a sense, under for undermining the peoples will. The only people that were really strong were former bigtime politicians like gordon brown and tony blair. No one in parliament would take such a big stance. Now that article 50 has been triggered you are talking about whether it is a hardcore week brexit. Brexit. Brexit or week that is within the conservative party and the labor side. You have a whole bunch of mps that want to make their wants. It is what kind of a brexit. Havesa may, if you doesnt the strong, unified parliament behind her, it makes it vastly harder to negotiate. In parts of the u. K. , think about what it is on the eu side. Jon the likes of jpmorgan looking at an office in dublin to rehoused some staff. We dont know how many. They have a small office in brussels, potentially, what do you Tell Companies to do that are based in the United Kingdom right now with exposure to changes in the trade relationship . What do they do . I think a lot of companies if you are a bank that focuses primarily on Global Wealth management and high end, i think london is still very attractive for those people. If you are a Financial Institution that relies on passporting with europe, clearly you are going to move an awful lot of people. If you are a global bank and you think of london as the major global center, the ability of Great Britain to become global is going to go down and you will think more about asia where economies are growing and this is an opportunity to make that bed. All of these things are going to be shifting over the next couple of years. On balance this isnt a good story for the u. K. Even if things go reasonably well. We are even talking about the fact that scotland might even be part of that animal at the end of this process. S issues, buty have talk about the effect of negotiating when you have an election in france and germany and potentially italy. How does that affect the position on the other side . Overwhelmingly, frances the election that matters because if youen wins, the idea that have a constructive negotiation on brexit between le pen and the new german chancellor and the u. K. Is inconceivable. If you look at the polls in france right now, le pen does not really have a chance, but turnout is key. Leftacron who is neither nor right and is generally inoffensive to the entire population is not super attractive to anyone. So as a consequence if you get low turnout and there are a lot of reasons you can get low turnout, scandals, whether on the day, news a week or two before hand and the second elections, le pen could win. If you look at social media you see that she has been trading best more than she has in the polls. Or 20 ,f it is only 15 where do you put it . Eurasia group right now says 40. Weree end of the day, some saying 15 that trump was going to win on the day and 15 alix but polls were tighter. 15 means it can really happen. This is not a lottery pick. Because 40 as opposed to 20. The reality is that this is a serious risk that would have immense impact on the European Markets on the future of the eurozone and the transatlantic relationship and on brexit, where the dutch elections were irrelevant. This is one of the populations that was most proeu. Even if the Freedom Party is done 30 than we are never going to get in government. In france it is a real downside to the election. Jon i dont call ian bremmer to the capacity, i get the capacity to execute laws that would actually shakeup European Markets, shakeup the capacity. Would she have to yield any power at all . I think she would not have capacity by herself to get those policies done but couple of things would happen. Input,thout significant her ability to immediately start bilateral negotiations with the onon freedom of movement, market access, would be significant. That is a massive distraction. Also, it means we are not moving towards integration. Plus, the markets will react to a le pen when. Markets do not expect a le pen when. If he does, pressure on the French Economy will be significant. Maybe even sosignificant. Maybe even so far that they need some kind of xit actually put a fre referendum to the french people. That doesnt mean there wont be significant downsides. The interesting thing is if le pen does win, scotland is not going anywhere. Ways, theresa may will politically benefit even though economically the u. K. Will be hit. Of course, putin would be a winner and in many ways trump would be a winner. What i find interesting is that even though trump has pivoted towards greater support of nato as a military alliance he has never done that on the importance of the European Union being strong to support the u. S. In many ways you would say he is interested in the eu for the desk furtherg disintegrating. That is probably the most unorthodox piece of America First policy. We will pick up right on that great tees. When you have all the investors saying they are buying in europe , you are going to listen to ian bremmer. You will be sticking with us. Anything we just talked about with the potential le pen victory in the market, check it out. Click on our charts and graphics and interact with us directly. Even send in email. This is bloomberg. David this is bloomberg. I am david westin. Ian bremmer of the Eurasia Group is still with us. Geopolitics market and direct all the time. Visitingresident xi with President Trump next week. How important is that relationship . The most important bilateral relationship of any two countries in the world. What we have seen from trump so far and his team is that they they arerive ready to drive a harder deal with the chinese on trade or security. National security on north korea or the South China Sea or even taiwan. The fact that he is coming to maralago before he actually has his own Party Congress leadership transition is a fairly risky move. Because if this goes as well or as poorly as the merkel incident, and especially on the back of the trip if trump start saying things like here is how the chinese operate the reaction from china is going to be fairly sedate. Trump so far has been antagonizing allies but he hasnt directly antagonize people that dont really share the interests of the United States. There is a downside here. Maybe goingnt xi over the head of Donald Trumps team. Is it possible that he said, let me have a personal relationship . That is exactly what he is trying to do. , asd kushner in washington soon as the u. S. Backed off of those questioning of the one title policy, they started negotiating this because they know a lot of trumps advisors are hawkish on china. Visit, het an abe does not play golf. Everyone one of his speaking points is improved in advanced approved in advance. Not only are trump speaking points not approved by the committee, not even improved by his brain when he speaks. But we are going to see, nobody knows what is going to happen at this meeting. I expect the outcome is going to be more downside than upside. Jon we will kind of get it. Ian bremmer of the Eurasia Group. Glad to have you with us. House republicans are mulling another Minute Health care. An eightday slump. The world of finance repairs for a postbrexit london. Jpmorgan in talks to acquire a Dublin Office with space to accommodate 1000 workers. Plunging 20 ahead of the open. By the market is so sour. Good morning. Downward dog . Alix dont even. Jon 30 minutes away from the opening bell. Down seven points on the dow. 0. 03 . Call it flat. A massive bid in treasuries over the last few weeks. 239 today. The euro weaker. In germany, much lower than anticipated. That they say euro down for the Third Straight session. 29 minutes and change away from the opening. Alix lululemon down over 20 . Fourthquarter earnings miss estimates by just a penny. Revenue was better but the outlook was truly awful. Firstquarter outlook at . 25 to . 27 per share. The ceos saying the new spring yoga pants the not pop online. They were too bland. A little bit of m a and selling. We have conoco selling some of it Oil Sands Assets to novus energy. The total value of 13. 3 billion. This helps synovus double in size and helped conoco with Debt Reduction and increasing shareholder distribution. It is ramping up buybacks. Andt sale in lower oil prices. Cypress semi down by over 1. 5 . Its at a premium despite lower margins. Trades of 18 times higher than micr microchip makers. David roger altman has been the pinnacle of power on wall street and washington. From the youngest ever partner at lehman brothers, two assistant secretary and deputy treasury deputy treasury of the secretary. Thank you for being here. I dont know the guy youre talking about. David i dont remember a time that the Business Community on has been this fixated on any president. Lets talk about specifically tax reform. How important is that to the ceos you deal with . How fixated are they on whats going on . Brexit unlike frexit where its really carry on for the moment, there is a tremendous focus naturally on what will are one happen from a taxcut or tax of our point of view. Even outside United States there is tremendous focus on that. Part of the reason for that is because it is so murky and so completely unclear. At the moment nobody knows how this will come out. And whether there will be attacked there will be a tax break. Tax bill. 70 they will the ends early percent there will be one at all. The broader the reform that is sought, the less likely you will get a bill or a longer it will take. Ultimately the likelihood is it will be a narrow bill centered around corporate rate cuts. Probably a modest individual tax cut along with it. The core question, and there are many questions, is how to pay for it. We saw through the obamacare debacle the fissures in the republican party, especially in the House Republican caucus. That will play out again on taxes. Be some that are deficit sensitive in care a lot about whether it is paid for and deficit neutral, and another contingent there will be supplyside focused and focusing on dynamic scoring and perhaps higher growth estimates and less sensitive to it. There will be Big Questions as to whether you get democratic votes under some circumstances. You could, especially in the senate. For the approach they will foreclose dimmer petticoats by saying he will be a big tax cut and the way people pay for District Attorney in spending cuts will turn out democrats. I think right now you can say it will take a while. May or may not happen in 2017. Thats about 5050 or less. Yes, Corporate Community is very focused on it but nobody at all knows how this will play out. How long it will take over the final table be. David you have been around washington and wall street for a while. You remember 1986, the less fundamental reforms. Roger took many years to complete. David lets cut the marginal rate and do away with the Interest Rate actions another sort of things so we can pay for that way. Broaden the base. Why cant you do that this time . Roger if he had several years you might be able to do it. The 1986 bill was in a much simpler era from a political point of view, much less polarized era. Bill,ill, the famous 1986 took four years from start to finish. Some of the greatest masters of the legislative game, jim baker, and others shaved it and negotiated it. You could do a broad tax reform bill if he had three or four years. I dont think that is what the administration wants. I dont think thats with the Business Community once. I dont think its in the cards. Thats why i think its a narrow bill in the end. David Business Leaders really are paying a lot of attention. How disappointed will they be if they dont get something fairly quickly or something fairly broad . Roger if there is no corporate rate cut, the central question among all of them democrats and republicans agreed there ought to be a corporate rate cut. The question is how big, how much base broadening will you give the cut and how you pay for it. Everyone is agreed on that. If we dont actually produce a corporate rate cut, he will be a shame. The recent there were so much cash offshore is because the u. S. Rate is so much lower than Comparable International rates. That is not healthy for the country. Alix whats the tax rate that will make ceos optimistic and disappoints them . Expectation the under the Obama Administration was maybe you can get a 25 to 28 rate down the current 35 rate. I think thats likely the ultimate result, or roughly. Republicans talk about the the president talks about the 15 rate. A lot of Congressional Republicans, a 20 rate. They are in the 50 to 20 area. Im dubious because of the question of how to pay for it and the difficulty in paying for it. Parenthetically there is talk about a quarter adjustment tax. In particular a border adjustment tax releasing a letter revenue that would pay for the big taxcut. That taxes likely dead, especially in the senate. That is not going to happen so they dont have a revenue source. Absent that it will be hard to get the rebound of that 50 20 range. I doubt that will happen. 15 20 range. Alix optimism was quite high in the last quarter. Is that reverse . Roger i think you get a rate range, ae 25 to 20 lot of corporations will be happen with that it was accompanied by repatriation and certain other changes that may or may not happen. I dont think that will be disappointing. The question is do we have a meaningful rate cut our dont wait . If we do, i think that will ratify the confidence you were talking about. Jon any of the companies you speak to at the moment, if we get the repatriation story are they going to use it for m a or vivax . Buybacks . All, it willof probably take the 2018 or late 2017 the ca bill. If indeed there is a bill. It is still a ways off. I think it will be casebycase. Not every company is a giant offshore cash position is currently doing large buybacks. There are different views on buybacks. Some people things buybacks do not create longterm value and there are some considerable evidence of that affect. Buybacks are widespread, if not nearly ubiquitous. I think this is casebycase. Some Companies May use it and some may not. Of course it really comes down to whether the company itself absent repatriation is focused on m a are not. Jon , the policy itself the cne asterix that ties to what they can and cannot do with the money when it comes on . Roger i dont know but i doubt it. The more questio interesting question is that repatriation and what the tax rate will be. Will be mandatory . How long will the window be through with you can repatriate . I think those essential thanions and conditionality. David as you talk about possible m a, are they holding off because they dont know its going to happen . And possible things Interest Rate deductions. No, alyssand large, the question repatriation. Unless it is a question repatriation. And earlier guest was saying as hard brexit is concerned most people were dealing with what they know now and making decisions accordingly rather waiting a couple of years to see how the ultimate shape of brexit evolves. That is true on taxes, although the market is assuming a corporate rate cut. If you read the research on any large cap company, you will see assumptions as the corporate rate cap and hammerson effexor doesnt affect the company. The market is assuming there will be a corporate rate cut. I dont think this uncertainty is causing too much hesitation except as it relates to comedies that may repatriate or might not. Alix roger altman, you are sticking with us. Tomorrow, to interviews you dont to miss. The new york fed president William Dudley and saint was fed president jim bullard. Hawkishy reinforce the tilt we have seen from the fed official . Help markets are reacting to britains moved independence. This is bloomberg. Jpmorgan is set to be in talks to buy a Dublin Office that could accommodate around 1000 workers. We spoke to ian bremmer about the Brexit Effect on london at the global center. If youre a Financial Institution that relies on passporting with europe, clearly you will move an awful lot of people. If youre a global bank and you are thinking of london as a global center, the ability of Great Britain to become global. Burden will go down and youre thinking more about asia where economies are growing and this is the opportunity to make that bed. I think all these things are going to be shifting over the next couple of years. This is not a good story for the u. K. Even if things go reasonably well. We do not talk about scotland not being a part of the animal at the end of this process. Altman, great to have you with us on the program. London as a Financial Center in the next 5, 10 years. What is the risk around that . Will i think london remain a strong Financial Center it will it be eclipsed by any european location. But a strong as it is today where it is dominant from a european point of view . Perhaps a little less but it dont think europes fundamental role is going to be changing. Jon the argument out of london is that you need a huge Financial Hub for all these flows to come through. For lending to european companies. To keep borrowing costs low. As that resonate with the continent . Roger i think it remains to be seen. Again, i dont think we will see some wholesale immigration from london anytime soon at all. A new officeay be in dublin that someone has like jpmorgan, but fundamentally our businesses and professionals making plans right now to leave london en masse . I was in london yesterday. The answer to that is not yet, or at least know. No, or are they committing money to london or the u. K. In the next three years . Roger it depends on the business you are in. We are just advisers. We dont trade securities, we just advise. We are expanding in london and i dont see brexit changing that. That is unique to us for think you look plenty of exam companies that are continuing to expand in london. You will have examples of companies of the balance their bets and balance themselves out visavis the continent. I just dont think that wow, london is over from a financial point of view. It is not. Alix ian bremmer talked about brexit being easier to negotiate if german and French Elections were not coming up. What is your feeling europe . Roger i think europe is starting to show a little bit of recovery. But brexit is one of those rare, large things where both sides lose u. K. Loses and europe loses. Widenk there is relatively that will hurt europe. The u. K. Is one of the two largest economies in europe. One of the two anchors from a National Security point of view in terms of europe. It is a big loss. It is also a loss for the u. K. I have seen a lot of interesting estimates as to how much it will cost the u. K. Under some scenarios quite a bit. Im talking about lost growth and so forth. This is a negative for europe, but at the moment ec European Growth pick up a little bit. I dont want to overdo that but a little bit. All the actual brexit is a long way off, the day of exit, i think europe is picking up little bit. Europethis brexit make less attractive for companies such as u. S. Companies . We saw General Motors sell opel. I dont is because of that but it wasnt irrelevant. It becomes somewhat less appealing because its not integrated . Roger perhaps, the core question is really growth and European Growth has been really week. They are stagnant. It has picked up little bit but i think this question about whether there is really growth in europe is a bigger question than the effective brings it, off of the latter is not trivial. The decision General Motors made is pretty generous because they are losing a lot of money for a long time. General motors has not moved at all for six or eight years. General motors is under pressure that way. I think that is which wrote the move, although i dont i have not spoken to General Motors about it. Or question on europe is growth and i think brexit is a negative for that, but it is down the road still. Jon europe is the big thing for equity analystbuy. A sound european story. Personally to obey work with large global multinationals where europe is a part of the business but not necessarily one of the biggest parts. A lot other conversations i myself have are really global rather than centered on europe. There is a think black pessimistic view on europe. It is just cautious because if you just write the parts of the world a growth and growth potential, you have north america, asia, can do have certain parts of the developing world. That is just the reality. I donate there is a black pessimistic approach on europe. It is just cautious. Jon really appreciate your time. Thank you very much. Squares, Pershing Fund management talks about his billiondollar loss. The open is just 10 minutes away. Futures a little softer to the morning. We are flat on the day. Down about 2 points on the dow. You are watching bloomberg. Aculpa comes. The huge mistake cost the firm 4 billion. Its a plane from this judging the companys management and its progressive strategy. Joining as is true armstrong. We love talking about bill ackman and value investing. But you covered the company. Journeypened when the with valeant demised . It may be premature but when youre looking at a 95 loss in the value of the equities since its peak, is probably close to the right word. The fundamental aspect is that bill ackman bought high and sold low. He entered this Company Stock when it was well over 150. Always down to about 4 billion in losses. He was expressing extreme confidence in the companys operations whenever things going wrong. Political pressure, scandals, changes ceo, debt piling up. It was one thing after another for the last year and a half. David why was it so high in so low . Even when it was coming down it really is a valuable company. It may not be worth the money being paid drew the question people are asking is what is the fair equity value . It is is outing going to survive were declared bankruptcy . They do have drugs, products some revenues. Their sales of its trending in the run direction. The profitability of the drugs is trending in the wrong direction but there are assets. There is close to 30 billion in debt. They have bills coming to. They have restructured and refinance some of that. They are trying to figure out the cash flow that will allow us to pay a massive amount by doing that. Alix to illustrate what are talking about, terminal ddis. The blues is just the bond principal. Agency 2020, a huge amount of bond principal do. Another jump in 2023. The model was m a. You basically become the big m a superpower. Thats why the Hedge Fund Guys like its a much. Has a model been completely destroyed . Through drew more or less. Ackman said this companys success depended on the perfect execution by management and walking the as by taking up tons of debt and operating under continuing presumption they could get this stuff, cut costs, cut r d expenses and continue to raise prices. At least until they got to some sort of high exit point where they could get escape velocity from some of the traditional gravity of pharmaceutical developments and economics. Maybe they got close but they did not quite get there. The fall back to earths been pretty dramatic. David they overpaid the acquisitions. Debt is not that he can pay it off. Pointed it to this company. They have not been generating the terms any to out of those drugs. Alix fascinating letter they came out. Drew armstrong. Jon the opening bell is coming up next. Four minutes away. We will bring you the cash open. Slightly softer, dinner at six points on the dow. If the source of the board quickly, its on surprise on gdp which pushes treasury yields a little higher. You are watching bloomberg. Livestream your favorite sport at the airport. Binge dvrd shows while painting your toes. On demand laughs during long bubble baths. Tv everywhere is awesome. The allnew Xfinity Stream app. Xfinity. The future of awesome. The biggest week wow, watchathon has netflix . Hey, drop a beat. [ beatboxing throughout ] show me orange is the new black. Wait, no bloodline. How about bojack . Luke cage. Oh, dj tanner. Maybe show me lilyhammer. Mmm, show me last chance u. On second thought, maybe pompidou. Narcos, fearless, cooked, the crown. Marco polo, lost found. Grace and frankie, hemlock grove. Season one of. Show me house of cards. Xfinity watchathon week starts april 3. Get unlimited access to all of netflix and more, free with xfinity on demand. Jon you are watching bloomberg daybreak. Negative eight points on the dow. Is a flat session as far as futures are concerned. That half of the opening bell, thursday morning after three trading sessions heading for the best week of gains potentially since the start of march. You have the opening bell ringing in new york city. And upside surprise on gdp. The basis point at 239. It just on the screen at the moment. From new york, but the market open. As alix steel. Alix dow up by about 2 points. Nasdaq up by 1 point. This is the first time its have that kind of losing streak since may of 2012. The loss is 1. 4 . Not very material at the end of the day. Goldman sachs has been weighing on the dow. Oil one to watch. Individual names and the macro theme. You had that better gdp revision for the Fourth Quarter. You also had kuwait, a state run newsagency coming out saying all opec members might agree or come together on extending this cuts. Helping at on raise resources exxon raising resources. Conoco the standout over 6 . Synovusake in canada to for 13. 3 billion. Still retaining a 50 stake. It will use the money to pay down debt and return cash to shareholders. The market liking that quite a bit. Talking about the gdp revisions, better growth in the First Quarter but also the corporate profits that came into play. By nonfinancial corporate profit was down almost 5 . Where does that lead the fed . Is market perception. The blue line is the current fed funds rate. Purple would entail three hikes this year. Yellow is to more this year. It is well below that three hike level rose in red in williams. It has not significantly moved that much. The market is still in underestimating the feds fight the fact that some data points continue to come in. And some way will have to reconcile over the next six months. Jon ahead of Global Market strategist joins us now. Is that reason enough for the markets to buy the Federal Reserve story . No, not by itself. When you to see what happens with coming employment reports, particularly with wage inflation. Jon Going Forward from here, it continues to overestimate where it is. It is lower, lower, lower. The you ever expect to see the squeeze in a significant way in the Fourth Quarter . We think wage gains are likely to moderate here but stay above where they have been in the last year or so. 80 between 2. 5 and 3 . Alix yet corporate profits story which is really perplexing. Wages are not material. You would think corporate profits with the strong one conception consumption was s up over 3. 5 . Give will be somewhere else in costs. The Topline Revenue growth is not been great but it should not have been negative. As we look forward we continue to see the economy putting up around the 2. 2 number this year. We think that supports growth and earnings of about 6 . From the goal forward basis most was sectors are you bullish about and most doubtful . Those oriented towards a stronger economy. Cyclicals, industrials. We like financials. We think the fed only hikes twice this year. We are out there for health care, which we think is it badly beaten up and especially now with the postponement in the reform. We think that one will actually pay investors to take a look at. The ones we would like less would be the stables, utilities, the ones that are on the board offensive side. Jon the weekend fall of a looks like nonsense now, which was a policy failure led to correction in the equity markets. It did not last too long. That seems to be the consensus call. Everyone is waiting for policy sell your policy go your. Policy failure. Within 26 industry groups. Market breath is only negative in nine of those. That is pretty average inconsistent with market gains over the next 12 months. Could there be policy disappointments . Yes. Is valuation a little extended on some stocks . Yes, absolutely. Are some data sectors may be underperforming right now . That is a bit of a concern. With Earnings Growth looking forward at about 6 . We think the pullbacks are likely to see buying opportunities and not market corrections of 10 or more. Jon the San Francisco president saying things are looking frothy. Is strangeess call for a lot of people. That is pretty out there. Is the market little expensive . Yes. It is not extreme and could support a pullback. Remember, the rally wasnt all about policy to begin with. Any sort of a pullback weekend will not be all about policy either. The economy is still steady. We think pullbacks will be limited. We are not looking for correction. David urinalysis suggest that small caps are taking it on the chin. Why is that . There are higher data plays. If your overvalued, that might be the first place to go to sell. We think it is late in the cycle and earnings on the street are really overestimating but we think smallcap can do. We expect smallcap to perform. Alix how deep is your conviction right now . In general, about the market. Best saying i the buy it. It will not be a booming economy, but we are not going to have policy disappointment that are going to precipitate a correction. The market was not based on policy to begin with, it is based more on the economy. Steady growth, sixers and Earnings Growth. A little bit of a pullback to correct the valuation. We have a strong conviction the market will finish the year close to where it is now. Looking ahead into 2018, looking for continued gains. Tear longterm out alix what are the counterintuitive demonstrators . The last leg has been driven by retail. Financials had the largest increase in the last three months. According to bank of america. Where do you see a trade getting too crowded . You will see pullbacks of varying degrees. That is where you will see the kind of adjustment, the consolidation among investors. We think the Consumer Confidence has a reason to be strong. Not only is the economy growing steadily, but it has better breath than it did a year ago. Badk about how manufacturing was doing an energy a year ago at this time. It is typical of what you would may 7inningycle, were Consumer Confidence can remain strong for an extended period. We are looking for further gains in the market. Not extreme, a consistent. That is where we had conviction. David talk about how low volatility is. What is causing that and is it going to continue . No, weaving volatility is something historically they can remain low for an extended period and that suddenly pounce fact up. That is consistent with our story for a moderate pullback and some return to more historically average volatility levels. Again, you could have a pick up in volatility consistent with a consolidationn were a more realistic view of the economy, market, and policy. All those are consistent with lbacks alix wti rising for the First Time Since march 10. You also had kuwait saying perhaps opec members will agree to extend the cut. The market will be dominated by shortterm rhetoric. Now under 50 yet again. And lost a lot of momentum. Is a 45 or 55 next . That is where the market is in a clarity. Jon the 1990 handle on the dxy. Now negative of the session by 1 10 of 1 . Soft. Ities we are pretty nowhere on the dow and s p 500. Very negative on the s p by a single point. By the dow, a single point. Tomorrow real yield continue. 30 minutes dedicated for fixed income. From now, you are watching bloomberg. Emma this is the hewlettpackard enterprise greenroom. Tomorrow, takes as it interviews with William Dudley others are bank of new york and jim bullard of st. Louis. Alix a tough day for lululemon. Its worst they so far in eight years. The Company Forecast missing estimate under concern of a demand for athletic gear is wavering. They blamed the new online leggings that did not pop. An extreme reaction. Blockbuster what happened . First, lululemon stock is extremely volatile. It had doubledigit swings in the past seven out of eight quarters. People are worried about this forecast for the First Quarter. The first came out ok, but they were forecasting down sales for the first time in quite a while. Alix what will they do to convince the market it will get better . They started by saying we are taking ownership of this problem. We will have colors that pop. We will increase our online sales, work on store traffic. They are not blaming, and they have a lot to blame. The market is not doing well. There is quite a bit of bankruptcies in the past year. They couldnt come out and set it is a weak retail environment and doing the best we can. They said who will take this and fix it. Alix the stock moves 10. 5 on earnings. It shows it over five years. It looks like it has been nice and steady the last couple of months and then fell off. If you look over five years, it has been lower than this. Why is that . I think its more of a fashion retailer been some of the other sports retailers like nike or adidas. Gets very much people buying it for the fashion, not necessarily just a workout. When they have a great quarter in on trend, people buy it. When they dont, they dont. Alix leisure wear was like the thing. Thats what you had to do to diversify to help your business. Is that somewhat broken or does it need to be streamlined . Thats a great point. I always say whatever are only so many pairs of leggings you need alix not in my closet. Said it was while because of lululemon they were not doing well. But then everyone went into athlesisure. They have been able to keep their margins high and able to increase prices. Thats an interesting point because people are still willing to pay up one edge of us dollars for a pair of leggings. Thats a powerful thing at a time when discounting is the name of the game. Really . 100, people will spend more than 100 on a pair of leggings. Alix thank you, sally. Dont even try. Investors rooting for u. S. Stocks. Equities let the inflation rally in november. s gravitating towards europe. I would to bring in bloombergs josie ellie. Buy europe, buy europe. The valuation case, the sausage is simply cheaper. The s p 500 and a lot of bears will tell you we are near market peak for that. A valuation argument is only as good as the underpaying data and earnings and people are starting to come around on that a little bit. It has long been seen as trailing the u. S. Inple recommending getting the europe might not be as much of a risk when it comes to the data. And it will be people expecting some uncertainty to seep out of the European Market with the French Election results. That will be sort of a relief for them and the lack of uncertainty could help. Investors have a lot of dry powder, a lot of cash holdings. A lot more than in the u. S. Thats a lot of money to unleash in the market. Jon talk to me about what conditions are in europe. The analysts are right appear on europe. What about the actual money . If you look at etf flows, its been like 250 million for europe. And the u. S. , we are in the tens of billions. People have not gone in as much. They may be more tepid about european equities. But with all these cases earningsand with picking up the slack this all the void, some of the money on the sideline will throw the 250 million number. Jon talk to me about a relative trade and investment. I can look at the u. S. And say where we going . Questions probably the of the hour in a not entirely sure. They see as the shortterm trade. They are not telling you to dr. Holdings. People are still bullish on that. If you look at a tactical trade, that is something weve been hearing. May be tested out and see how it goes in pilot on later. David how much is this soft data as opposed to hard data . People are not taking the money at a guest talks and going to europe yet. We have Consumer Confidence for the u. S. At the highest since 2000 on the fact the stock market will continue to rise. The hard data sped up a little weaker. A report last week this is the divide between the two is the widest on record. We do need to see that catch up. The valuations are quite high and would suggest that comments is high. Jon and winning the bullish noise. Like right appear. And then ok. If you get the bullish news for em, and then returns the like this, what is the story . Now everyone is coming around on that. They want to get in on that. All the strategists say its a valuation thing. Its a little simplistic to just look at the u. S. Valuation and say this is a great buying opportunity for em because u. S. Stocks are so extensive. That seems to be the prevailing wisdom. Alix and you have not seen the case of what you would not want to chase yields. 2. 4 ,ve the 10year at why would you buy anything else today . That is a question for sound if you will that manage money on this program. Now myself but i agree with you. If you have a bloomberg terminal, watch bloomberg tv on your terminal. Pretty fun to play around with. This is bloomberg. David this is bloomberg. Back to washington over President Trump and congress are Getting Started on talking turkey with tax reform. We spoke with a minion is the ins and outs of ou washington and wall street. Take a listen to what he had to say. The expectation under the Obama Administration was maybe you can get it 25 to 28 rate from the current 35 . I think that is likely to be the alternate result. The republicans are talking about the president talking about a 15 rate. A lot of Congressional Republicans a 20 rate. I am dubious that can happen kevin, you heard about what he said about numbers coming out. We have a meeting with him and Steve Mnuchin today. When we have actually some numbers. Its is laid the labor how specific this administration will have to get on top of on conference of tax reform. Steve mnuchin says he hopes to have it has five youngest recess. This of the the first of a series of meetings to secure key positions on a host of issues ranging from Corporate Tax rates, but the divisive issue of the border adjustment tax that has divided his Republican Caucus at a time of President Trump seemingly is looking to also highlight some of the division and the Republican Caucus. . The president has been tweeting again this morning. Tweets, one of the Freedom Caucus will hurt the entire republican agenda if they dont another team and fast. We must fight them in the democrats in 2018. The legal strategy. Explain the political strategy. Which we see going to go . The Freedom Caucus, led by mark meadows from north carolina, where the driving force behind the derailment of the Health Care Policy last week. That tweet is also reverberating in washington. I have spoken to several aides and former advisers to President Trump. The mood is split. One former senior a to donald trump said the House Freedom caucus had a chance to lead and blew it. Another former top advisor to senator rand paul said this was not helpful and will only push them away further. This is clearly drawing a line in the sand. When you look at it from a policy standpoint, if the Freedom Caucus did then, they will not work with him in the unique democrats who are also signaling you will not work with him. No, you do not. These are tea party grassroot conservatives who have been behind a lawmakers for quite some time. When they dig in their support only gets stronger. David a lot of those districts donald trump won by a healthy margin. When you are suggesting is he won because of them, that are pressed representatives and not the reverse. President trump essentially telling conservatives you are with me or against me. How this plays out will be fascinating. This is a goblet he threw down on twitter just moments ago. David we will be talking to you again. Alix we spoke to a congressman last week of the Freedom Caucus. And he said look, if you dont appeal obamacare what is your francais. Jon people they dont need worry about getting reelected. Here is how the scene is set at the moment. Equities opening flat in new york city. From new york youre watching bloomberg. In newt is 10 00 a. M. York, 3 00 p. M. In london, and 10 00 p. M. In hong kong. I am vonnie quinn. Never i am nejra cehic. Welcome to bloomberg markets. Vonnie we are going to take you from new york to london, and dublin to doha. Here are the stories around the world. Bouncing around. European shares mixed, with equities hovering near records. Is there value to be had . We speak with an investor who focuses on value stocks. After in europe, a day the triggering of article 50, companies are gearing up for partial moves out of the uks we will tell you why j. P. Morgan is targeting dublin, and why lloyds of london likes brussels. In u. S. Politics, President Trump meets with secretary Steve Mnuchin as the push for tax reform heats up. Where do they stand on getting a deal . Vonnie