Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170503

Yesterday. David time for the morning brief. Apart from the all important fed a. M. Steven 8 00 mnuchin speaks at the independent Community Bankers capital summit. We will get adp Employment Data, the consensus for 185,000 jobs added last month. After the bell, it is earnings watch. Facebook and tesla will be reporting. Alix decision day for the Federal Reserve, the bloomberg surprise index starting to roll over. Sales, week core cpi, week march job numbers. Mckee. Shington, michael how does the fed a dress the weaker data we have seen . Michael they are going to have to mention the fact that the economy slowed in the First Quarter but they do not want to take june off the table and do not believe this will be a continuing problem so they will probably talk about it being transitory. They may mention seasonality problems we had. Tractornta fed, gdp now comes up close to the average gdp numbers we get, shows First Quarters have been terrible for the last couple of years, but look at that line far to the right. That is the first estimate they have for the secondquarter growth. The atlanta fed sees it coming back and that is what they will hang their hat on, the forecast for what will happen, not what has happened. Alix is the bond market reacting to what has happened and what will happen . What is the play out if the fed makes it transitory . They have chased the data lower by reacting with lower yields but i think that would be a mistake. The fed clearly should stay on four june. I think it will be a big mistake if they signal an indication having and lying about june. The atlanta fed, 4. 2, at the First Quarter it was 3. 2 and ended up at. 7. But ity the 4. 2 is high feels like we are running at a 2 gdp rate which should be enough to give the fed the green rate green light. Jonathan they do not call it timing, they call it the removal of accommodation. Is that a farfetched story or is that the reality . The timing would indicate that because their forecast of the consensus of the dot plot is for two more years. If you want to do it at News Conference meetings in june and september, and you could do the move towards reducing the Balance Sheet in december. Or if the economy is growing strongly you could do another move then. At this point it does seem to be on autopilot which is not what the fed wanted. They want to have some flexibility, but given the fact they do not like to move when there is no News Conference that might be the case. Jonathan why isnt the market buying it . Market pricing has dropped since the last meeting. Michael c. because of the Balance Sheet. We are seeing the fed increase in late talk about the foreign a half trillion dollar Balance Sheet and tapering. Our view is they hike in june or september, maybe sometime next year and then they will start tinkering with the Balance Sheet. They have been publishing on their website talking about the tightening impact of reducing the Balance Sheet. If they cut it from foreign a half trillion to three trillion or two and a half, that is the equivalent of three rate hikes. Jonathan when you go through the Federal Reserve statement later today, are we expecting any changes around the Balance Sheet . Michael nobody is really expecting anything because it is still really early. The officials i have talked to say they have not made decisions they need to make. They need to digest what they are going to do, but not something that will move the market significantly. A lot of leaks but nothing in the statement today. David one mans autopilot might be another mans leadership. For themn opportunity to put a stake in the ground and say, we are going to lead and not follow . Relaxing. continually reacting to the market is a bad game for the fed. They will pull back and the fed put will be in place, and i think they want to remove that fed put. They need to be consistent and keep moving along, as long as the data is supportive, and it feels like the economy is solid. Data, getting away from is this really a response from the fed to the concerns that have been raised that the loose Monetary Policy has inflated asset prices and we may be encouraging bad Investment Decisions . Michael that is in the back of policymakers mines. They set out to raise asset prices and get people to take more risk but they wonder if they have gone too far, one of the imperatives of raising the fed funds rate and accommodation. They want to perhaps avoid any Financial Market imbalances. Michael collins was talking about the fed put and the idea they would put a floor. They may want to put a ceiling in the markets and not let them go too far, and react to wall street. Alix how much does it have to do with President Trump, Michael Collins . We did not see the market move up to the fed until he came to office and talked about his big plans. Is the market more a reaction to d. C. Than the fed . Michael c. i think there was a lot of euphoria talking about grow growth pro growth and reform, and it will be difficult to implement these policies so the markets are reacting to some extent to the hard data as opposed to the soft data which has been strong. The markets will continue to look at the data as it comes in as the fed does. Alix this is a problem because when you have some fed officials putting fiscal stimulus in their weecast and others dont, cannot trust the dots anymore and it makes their projection less relevant. Michael you will have a completely new fed next year if janet yellen and Stanley Fischer are gone, so you cannot go too far out on the dot plot and put a lot of stock in what they are saying will happen. Through the end of the year it is clear there will not be fiscal stimulus so you are fairly safe with the projection for two more rate moves. After that, nobody knows. Months ago couple of when we had the big short and the treasury market, you were one of those skeptical about the consensus straight, you were long. Have you changed your view, are you still a buyer . Michael c. we are a buyer on selloffs. , when we gotside into to 17 a couple weeks ago, that was pricing in barely one more hike this year, and that seemed a little too low. I think you are stuck in this range but just over 2. 60 we may have seen the high in the yield already. Alix the guide the bond bears would love to hate. Michael mckee and Michael Collins sticking with us. Be sure to watch our special coverage of the fed decision today at 2 00 p. M. Revenuener earnings and coming in one dollar 56 cents a share 1. 56 a share. There is your year to date open it up over 2 . M brands coming in pretty solid. It is their worldwide cop sales. Jonathan coming up, tom keene will be having a conversation with former fed chairman ben bernanke. Apple topping earnings estimates with Gross Margins and share after sales disappoint. From new york city from our viewers worldwide, you are watching bloomberg. Getthan brexit talks tougher as david davis says he is willing to walk away without a deal if provoked. He also made clear that u. K. Will not pay 110 billion from the European Union. The brexit negotiator warns that time is taking. Taking. Ticking. Joining us is john freire. 100 ande get from 60 to how is this playing out politically . John that is probably the question people are asking in downing street as they scratch their heads over these numbers flying around in the media. None of this has gone down very well in downing street. The mood was pretty grumpy after the leak over the weekend about the dinner that Jean Claude Juncker and theresa may had. The moods coming out of downing not wanting to show and a willingness to compromise and as we saw, david davis coming out saying the u. K. Will threaten to walk away from the negotiations. Obviously there is a certain amount of posturing but the idea he is trying to communicate is the mood in london is grumpy. Jonathan it feels like these numbers have been plucked from thin air. They define the relationship as one of canceling a membership, you have to define the membership. , or view it as a divorce, and separate the assets. How did they settle on the methodology to come up with the actual number . John a lot of these numbers, especially the brits will tell you, read like they are cooked up in a smoke filled room. I think the important thing to realize is this is all part of the negotiation. The methodology and numbers you are talking about, the framework to calculate this number, what will happen in two years time when we final get when we get to the final nittygritty, the headline number will feel most politically expedient to get a deal done. People in the u. K. Said behind the scenes there is a recognition that some money will have to be paid. If the e. U. Side decides to really insist and say, 100 billion euros, talks will not get on the table. All of this will get shelved until the final deal. It looks like the europeans are playing hardball and it is a tough time for theresa may but domestically isnt this to her advantage ahead of an election . John it allows her to have that line that she is a bloody difficult woman, and the e. U. Will certainly learn that. It plays into her narrative that if you vote for theresa may you get strong and stable leadership , which they have been repeating since the action started. Jonathan bloomberg executive editor for international government, thank you so much. The European Union tweeted out yesterday, maybe she needs a strong and stable understanding of what is going on in the brexit negotiations. I watched Philip Hammond launch the campaign this morning and they came out with this 100 billion line. David as an american watching this, i feel like i am in a middle eastern country negotiating over a rug. Alix it is like they are taking a page from President Trump, pr on the front line but the back door is a whole different room. Got skin they have all in the game and they want the u. K. To pay up. Beyond the divorce bill i am not sure where the consensus lies. David remember that canadian consensus. Jonathan we are going to hear much more about that. I want to bring in Michael Collins. Thelook at europe, enthusiasm to buy European Assets is up there but politics look messy. How do you reconcile that . Michael c. i think there has been a lot of pushback on the rising populism across europe. I think the brexit win and trump win are causes of that. We have seen in the netherlands there willce, where be some coalescing around more unity in europe which is why there is more optimism. David as an investor can you take that to the bank . Are you willing to invest on the pushback on populism . Ofhael c. there is a lot reasons to keep the European Union intact, market reasons, political reasons, military reasons. There are few reasons to break it apart and the will to keep it intact is really strong. David is that enough reason to invest . It is a pretty low standard, isnt it . Michael c. the economys over there are also surprising to the upside. The weaker euro and lower rates have spurred growth. Europe is showing its stripes as being a resilient, diversified economy. Jonathan do you want to buy 10 year bonds at 2. 27 . Michael c. it is a very big ds, and that is something we always grapple with. You have got to go down with quality to get that kind of spread, so the underlying credit risk of the country, which seems very high, versus the will to keep the union together. That is a tough one. We have mixed views in our shop. Alix the French Election on sunday, are you playing it . Michael c. it seems like macron will play it. Alix despite his rally monday . Michael c. maybe we have already seen the rally. A lotrkets have priced in of that good news, but maybe you get another pop on monday. David thank you so much for being with us. We will be joined by Marty Feldstein and later, as Congress Tries to move forward on the Health Care Bill we will hear from one of the founders of the Freedom Caucus, jim jordan. This is bloomberg. Emma this is bloomberg daybreak, i am emma chandra. Several private deck receipt firms are taking equity firms are taking aim at Carlyle Group submitted this last week. They have a market value of more than 12 billion and have been working with Goldman Sachs to find a buyer. The biggest investor in Deutsche Bank is a chinese conglomerate. That means they have overtaken blackrock as the largest shareholder. Sold an additional 8. 8 billion worth of shares of capital. Alix apple stock lower this morning, iphone sales. Sees. S what the market you have the fall immediately after the release, apple closes lower, and the stock is down 7 10 of 1 . Joining us is john butler. Stocks holding up relatively fact thatte the guidance disappointed and iphone sales phones iphone sales are down. John it is all about september. It is a 10th anniversary iphone. There has been a lot of speculation about what we are going to see. I think we will get a better screen, camera system, wireless charging, the list goes on and on. Beyond that i think apple has a growth challenge, and this latest quarter and the guidance highlight the issue. Alix the iphone 6 sales, that was the last super sale, they were up 37 . John that was a Smaller Company at the time. Realistic is the increase of this super cycle within the full year . John there really is a raging debate on street. Are saying we will see a super cycle like this six and there is another camp that says the retention rate, the amount of time people are hanging onto their phones is longer and longer and we will not see a super cycle. My guess is we will probably see something in between, and we will have a strong year for the refresh in september. I think it will pull them out of the woods in terms of stagnating growth, but beyond that they need to grow services. With 250 billion dollars in cash they ought to make an acquisition. David they have a goal of doubling services by 2020, but how big a percentage are there services . John they were 13 and lets say they grow to 20 by 2020. The very profitable business, it is very high growth, but if the iphone is falling off dramatically at that point and it is around 60 to 65 of sales you have got to have something to pick up the slack. Jonathan they just increased the buyback by 50 billion. With all the excitement of the repatriation overseas, lets say they got it back tomorrow. Stock, atbuying back tremendous amounts of money. That, but ire doing go back to the importance of a transformative acquisition when you are stuck in a difficult pe riod, where you have a product transition looming or beginning. Jonathan for my perspective and many other peoples, they do not see it, they do not see that acquisition prospect because they keep shoving a load of money from the Balance Sheet into buybacks. John i would agree with that. Seest think tim cook directionally where he wants to take apple beyond the time the iphone. They are out of categories so that leaves content and services, and they are pushing hard on the services. Jonathan john butler of bloomberg intelligence. Next, we will hear from one of the founders of the Freedom Congress Freedom Caucus, jim jordan. Jonathan from new york city, you are watching bloomberg daybreak. Futures are marginally softer. On the s p and the nasdaq is apple itself. Yields are up by two basis points on 10 year treasuries ahead of that that announcement in about an hours time. The rhetoric continues to build between the europeans and the united kingdom. Lets get an update on what is making headlines outside of the bids outside of the business world. Chandra President Trump meets with the palestinian president about his concerns he may have to say no. President trump may ask about halting payments to families of palestinians killed or jailed in the conflict with israel. Israelis consider it a reward for terrorists. The both sides from both sides of the brexit negotiations. The u. K. Will not pay a brexit bill of 110 million. To makeays the eu once a deal with blur with britain, warned that the clock clock is ticking. According to a Government Official with knowledge of the matter who says russia exceeded its daily target of cutting production on monday. The cuts are aiming aimed at firming up oil prices. Dayal news, 24 hours a powered by more than 2600 journalists and analysts in more than 120 countries. The president has said that before he can get to tax reform, congress has to move on Health Care Legislation and to get that, the president needs the support of the Freedom Caucus. Here was one of the founders of the Freedom Caucus is kevins really. We are here with representative jim jordan, the founder of the Freedom Caucus. Everyone wants to know if there will be a vote on health care, this week. Rep. Jordan i hope so. We think we have this bill and a pretty good position. It is certainly not where we wanted it, not a full repeal, but it is a good piece of legislation and lets pass it and keep working on a full repeal. Kevin there are some articles suggesting that there are more moderates in the tuesday group that have concerns and they seem to be the ones who are not on board. What can you tell us about new developments . Rep. Jordan there are conversations going on. This bill has been eight to 10 weeks of debate. We will see how it plays out, but we think it is going to happen. There is talk of a few more dollars going into this safety net provision to deal with the preexisting condition concern. We will see if that plays out. We are real close and hopefully the votes will be there. Kevin the white house is has been pushing for this and everybody in the Republican Caucus wants to get this done, but there seems to be these deadlines. Why are we hearing all of these deadlines and does that help or hurt the process . Rep. Jordan who knows . I want to get it done right and as soon as possible. I know that obamacare has not been good for the American People. 2010,e had elections in 2014 and of course 2016 where it more dr. ,nging in a patient centered plan. We want to get it done as soon as possible, but we dont need an artificial deadline. Because we are on break next week, it makes sense to get it done this week if possible. Kevin lets talk about the budget and keeping the governmentfunded through september. A lot of concessions for the Freedom Caucus in this budget. Are you satisfied . Rep. Jordan we will see that every Freedom Caucus member votes against this budget deal. Dont take my word for it. Kevin why . Rep. Jordan that is a frustrating question because remember, after the election, we did a shortterm funding bill at the end of april. We did that one week extension, but we did it just because we said lets wait for the cavalry to get here. When we have the white house and senate and the house, then we can tackle some of those key issues that we campaigned on. Here is the moment, and we continue to send dollars to sanctuary cities and planned parenthood, but we dont have any border wall security dollars in the bill. President supported trump and us are frustrated. Im like, lets do what we said we would do. I have said this to you, we make this job way to complicated. Our job is simple. Do what you told the voters youre going to do. Kevin President Trump tweeted there might be a Government Shutdown in september or a bigger majority in the senate. What do you make of that . Is he calling for a Government Shutdown . Rep. Jordan the way i view it is lets do what we said. If Chuck Schumer thinks it is more important to shut down the government, to not pay our troops than to make sure our southern border wall is constructed, if you think it is more important to shut down the government, then i will have that debate. We will take that debate. We dont want to shut down the government, but what we want to do is follow through on those specific policies the American People elected republicans to come here and accomplish. Lets focus on that. If it means a shutdown, that is not what we are after. Kevin let me ask you about an interview that Jennifer Jacobs had with President Trump. They asked him about glasssteagall act. Your constituency largely debates with the pelican party. Is glasssteagall something that is a realistic goal that people want . Rep. Jordan everything needs to be on the table when we are thinking about improving our economy. The last eight years, we have averaged about a gross rate of a percent and 1. 5 . The first presidency since one since world war ii cannot hit one year of 3 growth. We need to think about this debt we have. It is regulatory reform, tax reform. All of those things need to happen to create a framework and environment that is much more conducive to Economic Growth. Thats those are the principles that the president rolled out. System. R, fairer all that should be on the table as we are thinking about getting out of this 1 growth. Kevin congressman jim jordan, a busy week on capitol hill, thank you for coming. Back to you in new york. David thank you so much. We are joined by barclays head of we are hoping to get a vote on health care, this week but he admitted it is not a full repeal. We saw that happened with the continuing resolution. Certainly not what the president wanted. Is this setting a standard for the administration that they talk big but they have to compromise in the end . Governing is hard in the in administration is learning that the promises they campaigned on may have gone a little too far. He talked about doing what we said we would do on health care and tax reform. From an investor point of view, i am worried about this health care debate. It is extending longer and and taking away some of the oxygen. David as an investor, you would rather have less sooner rather than wait around for the possibility of more. Shawn tax reform is a huge opportunity for congress. Both sides of the aisle want to see something done with this. I think it will be good for the economy and the longer we spend discussing Health Care Issues where there is clearly not a majority in the congress. The longer we spend on this is the longer is less time we can spend on tax reform. David given the experience, do you have realistic hopes that if they can get past health care, when they get to tax reform, it will be big, or will they have to cut that back . Shawn what was put out a couple weeks ago was a press release. I wrote something in barclays for our clients and i joked that i hoped it was not longer than what the white house would out because they were not a lot of details in the plan. Some of these measures are a little too far. They will have to moderate it back because there is no way to pay for it. The border adjustment tax seems to be something that will not get enough traction in the senate and even the white house has pulled away from it. Alix what about the markets . The markets were excited about the 15 Corporate Tax rate. Does the number matter or does it matter that something gets done . Shawn getting something done is key. You could see a 5 drop in equities. It is important to think through just getting a deal done. Most clients i talked to on the investor side think you are more likely to see between 20 and 30 . Most agree 15 is too far. Gettinghat the price of that deal done is substantially increased deficits . What about for investors . Did they care . Wide range ofa opinions. Economists dont think 3 growth is sustainable. We also dont think you will get a deal as large as what the administration is talking about. David sean goal are shawn go lhar will be staying with us. Steve case will be joining us, next. This is bloomberg. Emma this is bloomberg daybreak. Coming up, david gura speaks at 1 20 pm ross eastern. This is bloomberg. When donald trump was first elected did, he said that the Tech Industry would not be one of the beneficiaries, that the market has said otherwise with the market up 17 . With us now is someone who knows a little bit about tech and the white house. Steve case, one of the founders of aol. Welcome back to bloomberg. Steve good to be with you. David is donald trump and his agenda good for the Tech Industry or bad . It is a mixed bag and still early in the process. ,here has been a trump rally maybe less regulation would be would be helpful to the sector. At the same time, there are areas of great concern to detect industry, including issues around immigration. How do we continue to win the battle for Global Talent . Things like the start up these a visasion start up provision. Now has a trump reality sets in as there is difficulty in getting things done. David lets pick up on tax reform. How important is that for the Tech Industry . Suppose there was a substantial tax reform that went through. Steve it depends on which side of the Tech Industry. A lot of the tax reform debate is on things like repatriation. That is really an issue for the big, Global Fortune 500 companies. If you focus on the start of sector, they are focused more on Capital Gains incentives. Investing in opportunity act encourages more Venture Capital to go to these regions to fund the entrepreneurs in those places. 80 of Venture Capital went to three states. California, new york and massachusetts. When he to level the Playing Field so that everybody, everywhere has a chance. A lot of people around the country do feel left out and left behind. We need to back entrepreneurs, so the tax reform cannot be focused on what the Big Companies want. Any student focused on putting the right incentives in place ,round it around startups not just in a few places like silicon valley. David shawn\, i want to ask say it is onele of the sectors that is reasonably insulated from for from some of the trump initiatives. Shawn repatriation is what is driving a lot of this. Whenever you see tech entrepreneurs or leadership meet with the white house, this seems to be an agenda item. We are still learning this. We are only in 100 days of the new administration. The tax reform debate is just starting. Technology companies, we can still get some big Corporate Tax deals done. The immigration that he issued issue that he mentioned is very spot on. I dont see investors asking as much about that in terms of supply of labor. I do think ceos and tech founders are worried. David steve, what about that repatriation . That looms big with Companies Like apple. Over 250 billion on the Balance Sheet. How much of a difference would it make to apple if they could just bring the cash home . Do they need it home . Steve it does make sense to figure out some way to get it home. It has to be tied with some incentives to drive job creation. The last time there was a lot of repatriation, that did not happen. They have to figure out ways to get that money back and investing. The next generation of companies that will create jobs across the country, it should be a priority. Some of these companies have been reporting strong earnings. The fundamentals of these Large Tech Companies have been pretty sound. That is driving the market as well. Jonathan what is the actual incentive to bring it home in the sense that they are using the money to buy back stocks . Apple announced a 50 million buyback, yesterday. Is it about getting them to use that money to invest, or a oneoff payment to boost the books and had things out and pad things out . Steve i think it is both. A boost to the books that, there does need to be the right mechanism and incentives so some of that repatriated capital does go back into investing in this next generation of startups. Things like the investing opportunity act are the exact kind of things that need to be looked at. There is too much focus on tax reform in terms of what is interesting to the Big Companies. When he to focus on the start of sector, which is where the future and this third wave is going to be. How do we back the next generation of entrepreneurs who are trying to revolutionize health care, education and agriculture . That needs to be a focus of the administration and a focus of the tax debate. Using i think the idea of repatriated money to pay for buybacks or executive compensation is not politically tenable. I think it is a hot potato to go down that path. What congress will end up thinking about is Something Like a repatriation for infrastructure. Repatriation to create jobs in america. You saw Previous Congress talk about this. You are seeing the Current Congress and administration toy with that idea. Jonathan low hanging fruit to get a deal done, is anybody actually going to bring the money home . Shawn you could make it mandatory in the sense that you will be taxed on it, the matter what. Elections, it is a good argument to go out on the campaign trail and say i went out there and brought back 2 trillion. Jonathan you are saying they can force companies to bring their money home and tax it. Shawn the contacts that amount and leave it up to the company to do whatever they want to do. Congress can do a lot of things. David a bold proposal. Has been in the news quite a bit because the announced a series of harder ships on streaming video, including with bloomberg. Mobile video is where it is, right now in the Tech Industry. Is this sort of thing something they could really bring back that could really bring back a twitter . Steve i think twitter has been a great job of trying to position for the future. It is a great platform. It has become a major Media Distribution platform and people are relying on people they follow to carry the news for them. It started as a social service and has become much more they news distribution service. Adding partnerships and video content is absolutely the kind of thing they should be focusing on. David steve case of revolution at bloomberg breakaway. Thank you so much, and also shawn golhar. Alix you can watch us online and check out our graphics and interact with us, directly. You can ask a question. Bloomberg. Jonathan from new york city, you are watching bloomberg daybreak. Lets get through the check for you. Futures are a little bit softer. Applernings from disappointing, weighing on a couple of benchmarks out there. Board, tch of the switch of the board, in about 36 minutes, the 22 second time, the treasury will announce their refunding schedule. They get the ultralong bonds or a signal for their issuance of that later, this morning . Euro, weaker on the session but bear in mind, the intraday high for the day, we are just south of that. We are just off 2017 highs. Lets get to some movers. Alix that countdown clock to 8 30. Away from apple, we do have other earnings to show. Weight watchers jumping 13 . Affect e euro for you are oprah. Pure oprah effect. The Company Named former Home Shopping network ceo Mindy Grossman as the ceo. A big jump. Stock. Ely watch that yum brands. That stock over 2 , earnings coming in at accents better. It was those cops sales that did sales that comp did well. And little bit of weakness in samestore sales over at pizza hut. Rob lowe is going to star as the next Colonel Sanders in commercials. Im excited about that one. Writing it now grinding it out, twilio rounding it out, twilio. It was the outlook that missed, whether you are looking at the Second Quarter or the full year. Secondquarter loss, that range is going to be about . 10 to . 11. The damage that fullyear, the loss could be as much as . 30 on the highend. A big miss for twilio, which is a miss which is ironic because clout supplying is one of the highlights of the market cloud supplying is one of the highlights of the market. You are seeing Earnings Growth of over 10 for the first time in years. The apple launch is out there and we cling to record highs. We are down by about 9 10 of 1 . Coming up on this program, we are joined by Ronald Reagans senior economist, Martin Feldstein. From new york city, you are watching bloomberg. Jonathan after auto sales rollover and gdp growth softens, the Federal Reserve is expected to keep a rate hike in june on the table. The European Union wants the u. K. To pay up. Apple clings to record highs after reporting falling iphone sales. A major revamp you later, this year. Good morning, this is bloomberg daybreak. Lets whip through the Market Action. Futures negative, three points on the s p 500. Stocks down in europe and treasuries treasury yields just a little higher. Alix in addition to the fed Rate Decision at 2 00, at 8 15, adp Employment Data will be released. March was a totally killer number. If we can read the tea leaves after the bell, earnings from facebook and has left. David looking forward to that. Congress is back on the hunt for Health Care Reform with the house trying to do its best to get a majority together behind the bill. Here to take us through the agenda is our chief washington correspondent, kevin cirilli. You just had a really interesting interview with jim jordan, leader of the house Freedom Caucus. He revealed it will not be the full repeal they promised. Kevin he also told me they are still hopeful there could be a vote this week. The sources i talked with on capitol hill are not as hopeful. Suggest the deadline put forth by the white house is not exactly helping the process. Candidly, the more moderate tuesday group, when you look at how they are set up, they are not set up in the same way as the Freedom Caucus. That has posed challenges for this white house in terms of negotiation tactics simply because the tuesday group is more fluid in terms of their readings and they are less rigid and tends to vote more as a block. David one of the themes that seems to be emerging is they talk really big, but then they compromise pretty small. They dont get done what they want to do, despite what jim jordan said, which is they should do what they said they will do. Is that a pattern . Kevin lets look at the continuing resolution. When you look at the cr, the 1. 1 trillion funding bill that will fund the government through september, it is not the film Many Campaign promises that candidate trump had campaigned for. This is a much more moderate proposal put forth that has pleased many moderates, particularly in the senate. It does not cut support to planned parenthood. This is a president that just tweeted out that there might be a Government Shutdown in september unless they can extend their majority. A lot of interesting developments. David thank you so much for joining us. As we wait for the Federal Reserve decision as well as that Health Care Bill in capitol hill, we turn to someone who has interpreted his fair share of data about the economy and tax consequences. Martin feldstein was the chairman of president reagans economic advisers. He is now a professor of economics up at harvard. He joins us from heart from boston. Martin good to be with you. David take us into the question of what is doable and what would make sense on capitol hill when it comes to health care and tax reform. To theortant is this underlying growth of the American Economy . Martin health care is important, but not particularly for longrun growth. Thes important because obamacare legislation raised taxes substantially. It increased spending and it is a challenge to undo both of those in an acceptable way to the congress. The big issue is the tax reforms. The tax reform, particularly the corporate reform is the Administration Strategy for increasing capital accumulation and Business Investment. That is what would drive higher rates of gdp growth. David we have a general outline from the white house, but it did not have a lot of details. It did propose a 15 corporate rate. One of the messages that did come through is they seem to be willing to take on additional deficit to pay for tax reform. When you talk about underlying growth, how important is it that this be revenue neutral . Martin it is important. It is not a question of revenue neutral in year one or years one through three. If the long longrun deficit is seen to go up, that will hurt because it will push up Interest Rates and it means that there is less capital to be available for investing. I think it is important that they find a way of dealing with that, both through the tax reform and entitlement reform. Alix that only is that important to growth, but also how long these tax cuts will last. Are they 10 years . More or less . What is the dynamic scoring of that . Will Companies Save or spend . Assume,companies wont even if it is limited to 10 years, they wont assume that it will die at the end of 10 years. After all, four years from now, they can pass another piece of legislation that extends it for 10 years into the future. It makes it ambiguous and uncertain. Companies will be unable to count on lower Corporate Tax rates for the long run. Alix if we dont get a revenue neutral situation, what is the tax rate we can get . Is it 28 . Martin there are too many moving pieces to be able to answer it in terms of the corporate rate. , and ir, this proposal agree with the way it was characterized, you get much more detail of what is on the deep what is on the table if you look at paul ryans proposals developed by the ways and Means Committee and supported by the congressional republicans. If you look at that, you will see it is not just lowering the corporate rate, but also moving to a territorial system, meaning changing the tax rules for bringing back profits earned abroad. David when you talk about how you will pay for this, one of the things that paul ryan is proposing but we have not seen yet is the socalled border adjustment tax. You have said in general, you are in favor of it. In the president talked about a reciprocal tax. Do you understand what that is and could that generate a substantial amount of revenue . Martin i have no idea what he means by a reciprocal tax. Countries that have evaluated taxes do have a border adjustment tax. They tax products coming into their country, and they subsidize exports from their country. I think what the president may thatis that may mean is we would be putting something in place that is similar to, reciprocal to what these other countries are doing. We would do it through a separate border adjustment tax. David another proposal out of the white house is they would eliminate the deduction for state and local taxes from your federal income tax which would affect some highpriced states. With that generate a substantial amount of revenue that could support fundamental reform . Martin it would support the reductions in the personal income tax rate. Our personal rates were brought down in 1986 in the reagan tax reform. Brought down to a maximum of 28 . Now they have crept back up, jumped back up to 44 . The administration and the congress is talking about rolling those rates back, im doing some of the obama and clinton tax increases undoing some of the obama and clinton tax increases. Primaryor that, the thing would be to eliminate some of the personal detections. State and local taxes would be high on that list, but there would be no elimination of the mortgage interest reduction or the reduction for charitable contributions. Jonathan investors want this quick. Guidance coming from d. C. Is that we can get this done by august, towards the back end of this year. Through your experience, is the government being overly ambitious and are investors being overly optimistic about what can be delivered . Tookn president Reagan Office in 1981. We got an Immediate Tax cut, that the tax cut i referred to, ringing the top rate down to 28 , did not happen for five years. It happened with a bipartisan negotiation since the democrats at that time controlled the house. We do i do think we will see tax for this year. We will see it in 2017. Jonathan why do you think we can see at this year, but its a great in five years . But it took reagan five years . There was a big tax cut in the beginning of the reagan administration. It was right after he assumed office. The second bigger one came after a long negotiation with the democrats. David on this question of taxation, you mentioned entitlements. A lot of people talk of entitlements. Can we get fundamental tax reform in this day and age without addressing entitlements . President trump says he will not touch those. Martin you have to be careful about words like not touching. Does it mean i wont cut them . I wont cut them for current retirees . Nobody would suggest cutting Social Security benefits for current retirees. Doing what president reagan did in 1983, gradually reducing the , spread out over a number of years and after a long delay, but gradually reducing it by changing the age of retirement as we did back in 1983, makes a lot of sense. Jonathan professor Martin Feldstein will be staying with us. Coming up litter, auto sales are warming over. Gdp growth is softening. We will discuss that later. And then beyond, tom keene will sit down with the former fed chairman, ben bernanke. A lot of questions for that man. 12 20 pm eastern time. You are watching bloomberg. Alix this is bloomberg daybreak. All eyes on treasury secretary Steve Mnuchin speaking in washington. The latest headline is a strong believe Community Banks have strength in the economy. Nothing we didnt already know, posted. Jonathan a refunding announcement coming out at about 15 minutes. The headline we are waiting for right this second is the adp jobs report. The estimate is 175,000. The previous number was 263,000. We had a couple of months of blowout numbers. 177,000 is the print out. 175,000 was the median estimate. Service jobs were really what did it, up 165,000. Good producing jobs was only up about 20,000. Jonathan the jobs report so far is looking pretty solid. Lets bring in professor martin , professor of economics at harvard. What are theout cracks appearing in the u. S. Economy. First quarter gdp, auto sales rolling over. What is your view of the current state . I think the u. S. Economy is in good shape. The firstquarter numbers are some kind of statistical aberration. We have seen weak firstquarter numbers in each of the last few years. There may be something wrong with the seasonal adjustment. I think the Second Quarter is going to more than make it up. We are looking at a three plus percent growth rate so that when you take the first half of the year, it will be growth of more than 2 . Jonathan the target is not 2 with this administration. The target is north of 3 . How realistic do you think that is as a goal . Martin it is a stretch. It depends on what happens to tax reform. The best way to increase longterm real Economic Growth is through capital formation. If they are successful in doing that, through lower Corporate Tax rates, through the shift to a territorial system which would bring back a lot of capital, that will help a lot. If they can do that while avoiding larger budget deficits, that would otherwise absorb that capital, then they would be in good shape. David to be precise, do you mean as much as 1 gdp growth has that is what it sounds like they need, to get from 2 to 3 . Martin i would not bet on the 3 , we. 25 . We could still see a significant increase to something that is closer to 3 that it is, to 2 . David people and the administration say dont just focus on tax reform, focus on the regulation. We think deregulation will be a more powerful driver of growth than tax reform. That is what the director of omb has been saying. Do you agree . Martin i think that the regulation across the board deregulation across the board, environmental relate regulation, those things have been a drag on growth in recent years. The kinds of reforms that are being talked about, many of which can happen without congressional action, would help to spur a faster rate of growth. I would not say that would be as big a contributor as an improvement in the Business Investment. Deregulation would be helpful. Alix President Trump wants it to be all about jobs. Martin the actual number is 4. 5 , that is where our unemployment rate. Is higher thanu 4. 5 . It is not about creating more jobs. Its about changing the quality of jobs, increasing the productivity, raising the real wages that people have. That is a legitimate aspiration. Alix is there a risk that that if we end up seeing a significant, that it will put pressure on the fed to raise faster . Martin i dont think they will do that, this year. Hold, thegive us a 325 basis points they have essentially promised. That will leave us with a very low real interest rate. At the end of 2017, even with those increases in the fed funds rate, we will still have a negative real fed funds rate, which is the wrong place to be in an economy that was that is beyond full employment and is experiencing gradually rising inflation. It is too bad that they did not start a few years ago. David Martin Feldstein, thank you for joining us. You will want to watch our special coverage of the decision on 2 00 eastern time. Coming up later, david gura speaks with wilbur cross with wilbur ross at the bloomberg breakaway summit. Live from new york, bloomberg world headquarters, this is bloomberg. Taylor this is blue emma this is bloomberg daybreak. Time warner has found a way to cope with a shrinking subscriber base, it just raises prices. It posted firstquarter earnings that beat estimates. Time warner was helped by the fees it charges paytv providers like comcast. The company is waiting to be taken over by at t. Taco bell is leading a fast food come back. Samestore sales rose 8 in the First Quarter. That boosted earnings and revenue of parent company, young yum. That is your Bloomberg Business flash. We are watching apple trading off record highs we saw before they reported quarterly results. Iphone results did fall shorts of estimates fall short of estimates. Target and your buy rating has to encompass the next super cycle. What is your estimate for fullyear sales for the iphone . It does incorporate the super cycle, but it ends up being a we area misnomer because looking for mid singledigit or maybe even high singledigit growth in units. Maybe in fiscal 18, you are looking at them selling 231 million phones which is a lot, when you think about the 36 growth in phone sales in 2015, and some of the big numbers in prior years, those are not massive hurdles for the company to fill. Pretty astounding given how low the upgrade rates were from some of their largest customers. At t it and at t and verizon had record low phone upgrades and they were still able to of improve the sellthrough. The could be a situation where there is this pentup demand. To get to our numbers, it is not youre talking midSingle Digits, maybe high Single Digits if things really kick in. Alix a far cry from that 37 growth from the iphone 6, but their placement cycle is longer and you have people opting for older, cheaper phones and you have china going for the five consecutive quarters. Why are you so positive on apple . Walter the result there are a lot of peoples that have old devices. There was a huge purchase of the six and the six plus and there has been a bit of a lag. It kicked back again for this most recent phone. One of the big positives for apple is the asp. The average sale price was up 2 . How many years are we into this cycle and people are still paying 650 per phone. They grew reasons revenue was because people are buying these watches and air pods. Even though the iphone might be slacking a little bit in the near term. Jonathan a big thing propping up the stoxx, is it just the Buyback Program the stocks, is it just the Buyback Program . Guidance for the june quarter was where consensus was. The dax asce clears far as any disasters so now we can look at the new products and what growth that may offer. Jonathan thank you very much for joining us. You are watching bloomberg. Jonathan from new york city, you are watching bloomberg daybreak. Here is the Market Action this wednesday morning. Futures marginally softer. Applen the s p waiting on the s p 500, bringing it down. Futures, negative. Treasuries also lower. In a couple of seconds, we will get that treasury refunding announcement. Slightly more interesting given a lot of people waiting to see if they issue ultralong bonds. At the treasuries, selling 52 billion in notes, next week. I dont see anything on ultralong bonds. They will provide an update on ultralongs at a future refunding. They do say fed reinvestment would reduce their borrowing needs. Market participants are all part of that ultralong review. They do say the debt ceiling measures for now, they will maintain their coupon auction sizes option sizes. 62 billion in notes and bonds, next week. More on that story in just a moment. Lets cross over to emma chandra or more headlines. Emma at the white house, President Trump meets the palestinian president. About his concerns, he might have to say no. President trump may ask about to Health Payment to Fund Families of palestinians killed or jailed in israel. Israelis consider the payments a reward for terrorism. Sensible tos it is extend that deal with opec for production cuts for at least six months. Russia exceeded its daily target of capping production on monday. The cuts are aimed at forming firming up oil prices. Europe, some tough talk from both sides of the brexit negotiations. Brexit sector secretary david davis has warned the European Union he is willing to walk away from the deal and he says the u. K. Will not pay a brexit bill of 110 billion. The eu brexit negotiator says the eu wants to reach a deal, but warned that the clock is ticking. Global news, 24 hours a day in more than 120 countries. This is bloomberg. Billion, is it 60 hundred billion dollars . Joining us now from london for the latest in brexit how will both sides agree on a methodology . That number is going to go right down to the wire. It has become so politicized, how much this supposed bill will be that neither side can be seen as sort of compromising. That is going to be one of the many issues that they will try to sweep under the carpet and it will be one of those issues that is resolved at the last minute, three minutes to midnight. Jonathan what is interesting to leverage and the at the moment, there is this unity, pushing out of a 27, pushing up big numbers. Are the giving up the obvious which is that they need the money quite desperately to plug the budget when the u. K. Steps aside . Does that give may a little bit of leverage . John i dont think so. If you are Angela Merkel or the next president of france, there was a lot more stake here than just money and what is at stake is that know the country will have the guts to leave the European Union. The goal is not is to show the rest of the world that the rest of the eu is united against the u. K. Worldust want to show the it will be very difficult. It is playing into her narrative that she repeated that the line yesterday that she can be a bloody difficult woman if need be, a woman who will stand up for britains needs at the negotiating table. It helps at home but she was already on court for this massive majority. The polls have not changed that much over the last week. It does help her, but it helps that she does not necessarily need. Help that she does not necessarily need. Jonathan we always appreciate your time and insight. Execute our bloomberg executive editor for international content. For the market and participants, do you just ignore the numbers and state of politics for a little while . The politics for a little while . Make sure the negotiations are going to be difficult for the u. K. Appearedrly would have. Marks aboutestion what that means for the u. K. Economy. We are seeing some slowdown on the consumer side. The question marks we have about the Brexit Process are not going to be supportive of Business Investment. Creates somehat concerns about the performance of the u. K. Economy. Jonathan at that at this point, output is holding up and at some point, you could see capacity constraints reached in the united kingdom. Is that something you anticipate . Output remained steady but investment has not been made. About there are questions inflation in the u. K. It is still quite weak overall, so you have imported inflation and if capex is weak, then eventually that could create some inflation presser. Pressure. What we see now is that consumer demand seems to be slowing down are startingwages to get hit. Thinkat matter, i dont it is going to be a primary concern for the bank of england. They will look through the nearterm inflation pressure. Jonathan a number of months ago, Philip Hammond talked about it is the reset. Other elements in the market that are underestimating the ability of the government to go into this election, get a big majority and do something quite significant to the u. K. Economy, away from the likes of cameron and osborne . Vince there are some question marks about the fiscal promises that were made, especially if the economy was to disappoint, maybe there would be some room. Aboutare question marks the engagement of the tax, so there are concerns about potential tax increases. Outlook on that front. Will bethe government reflective more so depending on how the negotiation goes. They have used that threat before. European partners were getting too tough on the negotiation and they threatened to cut taxes and make the u. K. Very attractive for companies to work. That is another element in that equation. I dont think we have a great clarity about the fiscal outlook in the u. K. Alix lets move over to the u. S. When the fed and three investments, their borrowing needs are going up, so they are studying the cost benefits of ultralong bonds. What is the possibility of getting a ultralong bond . Call,t it is a close that we think they will have to pay a premium. At the same time, yields are very low. Real yields are still very low. It makes sense now to pay a to lock longterm rates as super low. It is a tough call. Our bias is toward them not doing it in the near future, but there is clearly that risk. If you consider that risk of ultralong supply, if you consider the fact that apply is going to increase because the deficits will be larger, and that is before we get anything done on the tax front from the trump administration. If you consider that the fed is going to taper the reinvestments, which we think will be announced in q4, this year. There actually thinking supply demand balance is going through a number of shocks that will push the the term premium to the side. The more they will have to pay a premium, but if you consider all of those factors, that supports memorization of the longterm real rates and some pressure on treasuries. That is what we have in mind for the next few months and quarters. Alix what is that premium . You said the funding gap is going to hit them hard. 4 is what i would buy that but i would pay to buy a 50 or 100 year. Pay to buy a 50 or 100 year. Vincent it is dependent on the Market Conditions but already we think the head tapering could be worse worth something around 40 already. Progressivelyar over the next couple of years. If you had the ultralong issuance, you will add to that premium. That causes some number rise a shin of the long year causes some of the long year. David thank you. Are joined by the former u. S. Deputy secretary of health and Human Services under george w. Bush. Why from new york and from washington, this is Bloomberg Live from new york and washington, this is bloomberg. Emma this is bloomberg daybreak. Coming up on bloomberg markets, david gura speaks with wilbur ross, live from the bloomberg breakaway summit at 1 20. Now to your Bloomberg Business flash. Electric cars and self driving technology. The company will split off its powertrain unit that supplies autonomous driving and come vehicle computing systems. The our time says the First Quarter was its worth best. Ver since subscriber growth digital ad revenue was up 19 . The times revenue grew 5 , overall. Alix oil trading around 47 and barrel. Atlook at the doe him report 10 30. The struggle as you see gas inventories beginning to build as crude inventories come down. Is this a case of the crude inventory build moving into the gasoline market . A lot of bad and the fact that you are seeing refinery pick up well above seasonal levels. We are at 17. 2 in refinery runs and demand itself is not come in as much as people expected. Thoughtple have gasoline demand would come in like last year. We have seen gas prices have averaged around 20 in the last quarter. Gasoline demand has pulled back. We dont expect that to happen, Going Forward. If you think about the differential between gasoline prices versus last year, they were a lot tighter, so demand should edge of higher. On, refineries coming back you have that crude being refined into product and we are not having enough demand and so you are seeing gasoline build. Alix when you see demand coming back in the early summer, is that enough to draw down gasoline inventories or are we going to have a backup and then you have a backup in crude inventory . Right now, i think refinery margins are going to taper off because of refinery mass margins. We had gasoline, so much, margins are looking not as great. In the First Quarter, they were very good. If you remember last year, we had sometime in june where Product Sales were very high and people were concerned. This year, we dont think that is going to be the case because in the second half of the year, we saw large amounts of demand that took us well below the five year average. We think we will see the same thing this year were you will see demand coming in. As the data is coming in, we will see emerging economies are doing well. They are actually meeting expectations. Where we are seeing former demand is fromor developing nations. Alix we got word that potentially President Trump is looking eric at a gasoline tax. Put a tax on it, what is the risk we will see demand come off . Obviously higher prices would affect your consumer. It depends on how high. Price is something you can see shocking, but a price moving at about 5 does not cause that big of a difference. Right now, it is hard to say with certainty which way it is going to go. This is something we have heard in the marketplace and has a lot of details. It looks like the administration is considering all options. For now, it is hard to say. Potentially on demand, and then pivoting to the longer term, looking at may 20 in that wrote in that opec meeting with russia. What is your base case . Where do you stand and how much output would be reduced . Right from november of last year when they said they were going to have a cut, they said it was six months. We look at our Balance Sheet and said it was no way six months was going to be enough to reach their goal. The goal is not market share, it is inventory mobilization. We were not sure if russia would agree or not because having opec cut was something that we had a 5050 chance of happening. Now that we have seen russia on board, i would say it would have to be another six months. If you look at the trajectory on what they are focused on, they need six months. Alix what is the downside . The market seems to have fully priced in an extension. In the last 10 days, opec has come out. It was very successful 15 months ago, but the last 10 days, it has done nothing but gone up. Alix 40 possible . I think it is. Alix thank you very much, ebele. David coming up, we will be joined by alex a czar alex azar. That is next. This is bloomberg. David this is bloomberg. You are looking at the white house as we turn with all of washington back to the question of health care. Congress is trying to redo obamacare and we talked with a key player, ohio congressman jim jordan. We asked whether we would get a vote as early as this week. Jordan i think so, i hope so. We have this bill in a good position. It is not a full repeal, that it is a good piece of legislation and lets pass it and get it to the senate. David alex azar has seen this debate from both sides. He was in the government as deputy secretary of the Health Department of health and Human Services health and Human Services, and then he joined he served at eli lilly. Lets pick up where jim jordan left off. After all this talk about repealing and replacing obamacare, is the bill they are talking about a repeal . Alex it is sort of repealish. Lets not underestimate how big this will is. This is the single largest rollback and reform of entitlement programs in the history of the republic. You are capping off this medicaid expansion. You are rolling back this massive individual market subsidy. That is unprecedented in the history of the welfare state. This is big, whether you call it a repeal or not. David what does that do to the states . Does that leave the States Holding the bag . Alex a really interesting position for states to be in because they are going to be, whether it is block granting or future, thein the amount of increase in medicaid is going to be caps off. It is not that medicaid is being pulled back, it is the amount of the increase will be capped off. Flexibility toes run the medicaid programs, something we have always been loads to do, let them run that loathe to do, let them run that program, i think it could be an incredibly exciting time for state legislators and governors to come up with local, creative marketbased solutions. David what about the subsidies that will roll back . Can that save the government a lot of money and will that get a lot of constituents unhappy . Alex it saves a massive amount of money. Even democrats think the subsidies up to 400 of the federal Poverty Level were surprising in obamacare. It pulls those back. Anytime you take money away from somebody who is getting free money, they will not be happy about that. Republicanit, the bill in the house is a starting point. I dont know where this will end up in the senate, but it will get more generous on the subsidy side. Ant they are doing is advance of old, refundable tax credit of 2000 or 4000 to people to buy insurance with. That goes too prematurely with an income cap. Goes to pretty much everybody with an income cap. Can we direct more of that money to people who actually need it to get access to individual insurance, raising that and pulling it back from others . That is my suspicion as it goes to a more moderate caucus in the senate. David you did serve at eli lilly. If you are running a big company in the health care business, how do you plan for the future with all of this going on . Alex you dont know what the rules are. Frommpact is fairly minor a big pharma perspective except for the possible benefit eating ready getting rid of the pharma excise tax. A repeal some of these obamacare taxes they have had to pay. Jonathan after auto sales roll over the Federal Reserve is expected to keep a rate hike in june very much on the table. Consumers wait for a major rebound later this year. Key catalyst for stocks are over for now. Further strength should be faded. The author of that report will be joining us. Im Jonathan Ferro alongside david westin and alix steel. Futures a little bit softer. Heres the situation across asset treasuries lower. A stronger dollar emerges against the euro and the pound. Lets get you some movers. Alix we have a bidding war players like verizon and at t need for the five g network. Unnamed better rumored to be verizon has come in with a bit of 135. 95 a share. Straight path a month ago was trading at 36 a share. Another big move comes from weight watchers. Thats the oprah effect. Last year you had subscribers rising. Their office searched by department of justice investigators looking into collusion overpricing over generic drugmakers. We are looking for more details. Jonathan heres one taking a dip. Shares of apple trading just off their record highs. After the Company Posted disappointing revenue forecast. It are to take us through the Apple Earnings report is paul hickey and Michael Olson. Target 158. Im looking at the average 12 month consensus price target. You are banging in line with consensus right now. We wasnt a flawless corridor. It was good enough. Iphone was a little bit low plan. Key metricss far as Like Services growth were either inline or above land. We would be nervous if the iphone noniphone related metrics were week. Awareness is growing of the next iphone and we are seeing a slowdown in iphone purchasing in the near term. Its a good thing for the September December march quarters. Our numbers for fiscal 18. We feel good about the iphone launch. As far as Growth Potential is going to come from the change in form and function related to the iphone, continued services growth. 20 over the next few years. Ultimately as we look at the potential for the iphone we are expecting theres going to be about 330 million users of iphone on a version two years old or older. Gives us a lot of confidence that that number may be slightly conservative. Much of that growth in services is going to be in the United States . China is a challenging one. China is tough because not only do you have higher awareness of you also have, significant localized competition with companies that are creating great devices that can really compete from a features perspective. We think china will bounce back as the new iphone comes out. India is another market opportunity. The opportunities in india are probably even more favorable for apple given less localized competition. David there is a price point issue certainly in india. They are getting undercut on peopleand a lot of buying them cant afford the iphone. Question is whats the penetration going to be of that market. The penetration rate is going to be lower. News about india is its all incremental to the companys existing financials. China is a different story because a falloff in china could be more negative given a larger percentage of revenue for apple. Do think a iphone eight will likely solve a lot of those problems. You have Earnings Growth coming in over 20 . Sales about 7 . Whats the quality of that versus the rest of the s p. Earnings. Beating it is consistently beating estimates more than the rest of the market. Whether thats a function of playing the game better or growth in the sector. You have the upgrade cycle. China and services. Services is growing strong. The upgrade cycle is a potential worry. We are finding the number of People Holding iphones more than two years has increased from the mid40s percentage range to the low 50s. Thats going to add up. Its going to slow down the sales cycle. Alix im one of them. Is when you have apple, microsoft, Google Facebook and amazon supporting the nasdaq rally right now, a little but of softness is a trickledown. Theres all this talk about a strong longer a small number of stocks driving the market. Historically it is not far out of the norm. The idea of the just a handful of stocks are really driving the market i think is not borne out in fact. Made of much has been a repatriation tax. Look at the capital returns strategy are you pricing in any incremental growth in the capital return strategy based on regulation change that might come from the same d. C. . We are not. Number ofn is the cash offshore that could be repatriated. Haso have what the Company Guided through so far built into our numbers that we dont have anything beyond that. If we see a favorable tax situation that could increase the Share Buyback and increase our eps. Jonathan how much of that cash has already been allocated . The Share Repurchase program is absolutely enormous. Have they spend some of that already . I dont think they have. I think the key question is if they are able to repatriate some or all of that at a more favorable tax situation does it result in increased acquisition or m a activity or does it go all the way to capital returns. Unlikely that we would see apple doing anything with a significant acquisition. It hasnt been their strategy in the past to do significant acquisitions. I think that will be the key question. The strength of an apple or amazon as a company, another question is what the demand is. To what extent are these Companies Really sensitive to consumer spending. There is some softness in consumer spending. Its in different areas. People place different emphasis on their phones. You could make the case that apple is a Consumer Products company. The valuation isnt stretched by any means. David if the stock goes sideways what will you be looking at . I think it would be a function of the iphone cycle not playing out as expected. Thats what investors are more focused on today. If we see a significant delay in the highest end version of the phone and i am talking not just. Few months we dont expect that obviously. Beyond that we really dont see much in the way of significant risk. The other thing you could look at would be if Service Revenue started to decelerate more rapidly. Thats a big part of the story right now. We are not seeing any signs of that. Alix thank you, Michael Olson and paul hickey. Coming up, janet yellen has decided to keep rates unchanged. Will her guidance revealed the feds intention for june . Six warningnts out signs for stocks. This is bloomberg. For the decision day Federal Reserve. The latest policy decision at 2 00 eastern time with economists expecting no change in rates. The treasury watching as they are studying the cost of benefits of ultralong bonds. Still with us is paul hickey. When the statement comes out today they forgot to tread the fine line to his knowledge the weaker data we have seen and keep june alive. Thats going to be the most interesting part of the statement. You have odds being priced with the hike. Officials suggest some of the weakness is temporary. That there iss some transient element to it. We will have a couple of data points. End of have payrolls the this week and on may 12 you will have cpi and individual sales. Jonathan there is a narrative that they are on autopilot and they are not data dependent at all. They give us the Balance Sheet at the end of the year. What will stop them from coming on autopilot and pulling back from that . I dont necessarily agree they are on autopilot. The bar for them to move away from that plan is somewhat high. Convicted quarters of week data that is sufficient. On friday we are expected to earn 10,000 in payroll. If you get another 100,000 print it will give them some pause. It was quite bad last month. We will see what happens may 12. David whether you call it autopilot or leadership to what extent does the fed have some luxury right now because of what is going on globally . That the that long ago u. S. Had problems in china. In europe youre seeing a lot of strength. Chinas latest pmi data wasnt particularly strong. We will have to see what happens in china. I think the longerterm picture suggests the economy is on firm footing. Its not uncommon to have weak auto sales and they cant go up forever. Its not uncommon to see a pause in sales. David what are the factors you are looking at. Is that merely Employment Data . Jobless claims are still at extraordinarily low levels. Upward is showing an trend. There is so much pentup demand that should be a longrun tailwind. We have the ratio of leading indicators just hit a new high. Whenever a recession comes that rolls over well in advance of a recession. I dont think the fed is too concerned. There has barely been any talk about this meeting this month compared to prior ones. Jonathan if you wrap up wednesday and friday, payroll is on friday. Is good news good news now . I think so. If you somehow markets took the march high equity markets did pretty well. I dont think its an issue if they did go in june. If they are on autopilot and they hike even if the data is not good, that wont be taken well. David paul hickey . If i remember correctly march historically has been a week seasonal adjustment. Think the key one, gdp. We have talked about how it is consistently weaker than expected. Nowink the timeline right is accurate. If they see weakness they are going to change what they have done in the past. Tendency toown the alter course. Alix in the refunding statement they said they are still looking at the ultralong bonds. Thats the big topic of conversation. The longeing buying at end. You may see the curve flattened because of it. Isy say a hundred year bond not worth considering. What is your base case . I think theres a political push to get it done. Feedback from the Dealer Community is there is not regular and reliable demand for maturities greater than 30 years. It seems there is a political well to get that sort of thing done. If it happens our view is it should be somewhat small. If they try to do a long issuance there will have to offer significant yield concessions. The idea is they have a funding gap they need to fix. If they dont do in ultralong bond they have to do something. Do they start with the short end and move up . Whats going to be there cap funding strategy . Playbook is start at the front end. We had money market reform last year. Into marketey went funds. They can increase we think bill issuance and there is captive demand for that. We think they start with bills and short coupons and then move further on the curve. David you just said something i never thought i would hear you say. There is a logical will to go to a longterm bond. Where does that come from . Isant believe donald trump going to a rally and said, i made America Great again. We have 50 year bonds. Where is the political will coming from . A lot of it is coming from the treasury secretary and his economic advisory. David why . I think its his economic advisor. The believe is there is significant captive demand from pensions and insurers. Youou look at the u. K. Might come away with that impression. There are differences which its as to think different set of objectives they are optimizing. That sort of demand is not actually there in the u. S. I think some of the estimates of how much demand there is i think is widely wildly overstated. Thank you. Paul hickey will be staying with us. Our specialatch coverage of the fed decision today at 2 00 eastern time here on bloomberg television. Later, we will have wilbur ross live from the breakaway summit just before the 2 00 special. The opening bell is nine minutes away. Futures a little bit softer. Down. 1 on the dow. From new york city, youre watching bloomberg. Alix another big name on the streets growing cautious on the reflation trade. Scott miner,om guggenheim partner cio. You also see disappointment over washingtons progrowth policies and its pessimism spreads to equities. Where definitely scaling down. We havent taken all of the money out of our accounts where we have discretion. Goes and we make new highs in stock like facebook its an opportunity to lighten up and take some cash on. Paul hickey, do you agree . Every three months or so we get this big warning sign that the bull market is over and its time to sell. It hasnt come to fruition. You have to give the bull market some credit and presume innocence until its guilty. Every new high we have seen in the last year we have seen lowits spreads hit a new and the percentage of stocks making new highs increase. That tells you there is broad participation. Idea. Ting refuting the theres broad participation here. Until you see a divergence its just trying to throw darts. The argument is being made that the market should go down now could have been made a year ago as well. Jonathan lets get to the argument coming from the Merrill Lynch survey. Institutional clients, the largest of any week. Private clients net sellers for the first time in seven weeks. Significant weakness in that survey. Does that resonate with you . The trend of institutional money has been for the last nine years. You are seeing outflows. Does that tell you there is unbridled optimism in the markets that individuals are pulling money out of the market . We continue to see the market hold in. We are within 1 of a new high. Its a little bit of a pause in consolidation. Alix one asset class has more upside. You want to focus on cyclical stocks and companies with international exposure. Jonathan paul hickey, thank you for joining us. The opening bell up next. Theres the state of the markets. Futures down 21 on the dow. You are watching bloomberg tv. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Ways wins. Especially in my business. With slow internet from the phone company, you cant keep up. Youre stuck, watching spinning wheels and progress bars until someone else scoops your story. Switch to comcast business. With highspeed internet up to 10 gigabits per second. You wouldnt pick a slow race car. Then why settle for slow internet . Comcast business. Built for speed. Built for business. Jonathan from new york, youre watching bloomberg daybreak. Im Jonathan Ferro. Heres the state of affairs. Futures down 18 points on the dow. 2 on the s p. Apple down by 1. 35 . Heres the situation across asset treasury. Yields unchanged. The dollar a little bit firmer. The situation in crude, we bounceback by. 25 . Heres alix steel. Alix a little bit of softness in equities. The nasdaq taking a breather from its record closes. Six of the last nine days. Apple weighing on that potentially. Movement see a lot of after the adp number. Not a huge reaction in the market. Earningsa lot of coming out today and thats going to dictate where markets go. Taco bell sales coming in eight percent. It be its highest estimate for firstquarter earnings. It also sees three dollars and . 75 in annual earnings from 2019. Chocolate sales rose over 5 . Apple a little softer. It was deep earlier in premarket. Nonetheless still down. Iphone sales are down. The second guidance for the corridor also coming in light. About thisn talking all morning. Whats the breath of action in the markets . This chart shows the percentage of members that move in a day for the s p and the nasdaq. White line is for the nasdaq. For the s p the breath is a bit larger. Over 45 for the nasdaq. You are seeingut more broadbased movement for the s p versus the nasdaq. We have amazon, facebook, microsoft, google and apple. Is that a risk Going Forward . Andthan market Lehman Oliver renick. Lets begin with you. Its an easy story to tell. Five stocks on the nasdaq. The conclusion is its a problem. The history books tell us what . We have a story out about this today. Has been more and more research and people questioning the idea of how rare it is to have this type of leadership. When stocks move the entire market is not necessarily a new thing. We did a similar type of research and looked at where the s p 500 would the if you recalibrate the index. Amazon. , apple, basically whats happening is they are contributing quite a bit to the market. To be in stocks that do lead the market. Historically this happens every year. The skewness that exists across the market is just a fact of market. For investors it is important. You also have to realize this is something you are going to have to deal with every year. Acronym got alix steel so excited. Thousands of dollars worth of terminals. The story with bread, a lot of people looking at Something Like the nasdaq and indicating it is a problem. How do you look at the situation . Issue isoncentration something people do worry about. The herd mentality people fear is happening. What i have been saying for some time is internet economics lead to monopolies. I hate to say this. This is may be different. This internet economy has accelerated the ability to go think about what facebook and amazon and others have done. More people have amazon prime then have a landline at home. Theres 2 billion people who check their facebook a month. That has happened in the last decade. That could not have happened without the economics of the internet. Might behis time it quite different. The question is what do you pay for those stocks . Stocks . Hat are these we group them together but they are very different companies. Relationshiperent with their customers. Different business models. Apple right now is largely a one trick pony. Facebook every time you turn around they have a new part of their business. Have laid out a conference what they do in the near term. They have added one million advertisers since september. Millione added 100 instagram users sequentially. That is extraordinary. Apple is the phone. The hind it is an ecosystem that is becoming tethered to our lifestyle. That probably accelerates over the next three to five years. You on them. Where apple is up 30 this year. On this program at the end of last year. Theres lots of things going on behind there. Investors got to figure of yourfact that part portfolio, the economics of these companies is not changing. Alix how owned are these stocks right now . These are very large companies. They are household names. Tox everyone says they want buy banks but banks are actually under owned. Tech has emerged as a leader in the market. That can be a read through into what people are looking at. It is kind of interesting to look at the fact that tech has pasted as a leader in the week. Perhaps part of it is turnaround in the assumption that theres going to be a u. S. Driven growth that is going to lead the world when a lot of other countries are looking a little bit better. Arhaps this is going to be country that export to countries that are growing. Each of them individually respectively dominate the industry they are currently in. I wonder whether the investments made in these countries just divorced from what may or may not happen down in d. C. Apple are doing their thing. Amazon i am one of those people without a landline but with a crime account. Is that why . Theres tax policies, other things that go on globally that i think will affect them. I think the Core Technology is accelerating globally and the amount of peoples lives they touch is accelerating. Look at tesla. I dont think a lot of people auld have predicted under Trump Presidency the stock would be up in the first six months. This tech explosion is usurping some of the ability to legislate. Chatter. Ad lots of we havent had lots of results. These companies are marching their policies internally down a path that is void of policy. Companiesee these touching peoples lives. You cant not own these stocks. They are accelerating. We have seen the tech sector dominated by individual countries Dutch Companies before. They were called ibm and microsoft. Where should investors be looking for the next big thing . Its a great point. Microsoft was a company that was dead for 15 years and they have done a wonderful job of reinventing themselves. Jeff bezos has a great point that people who are right change their minds a lot. Companies thatd are finding new ways to engage the consumer and continually innovate. Some of these Companies Make a lot of mistakes. Amazon has made their fair share of mistakes. They continue to prosper. People are looking at snap. They are engaging a demographic including my three kids constantly. Have they found a way to monetize it . Every time some political storm jonathan was just checking his twitter. Have they found a way to monetize . I dont know. No one has really figured out to break that conundrum. David thats a very important point. Look a lot different. Especially when you think about why investors want to be in them. Even a company like microsoft, they almost look more like a Growth Company as they continue to expand the business. Just launched a laptop that will be targeting a new sort of audience for them. There are a lot of these valuations that are getting pretty lofty. In the late 90s microsoft and theymarket share let amazon get created, google, facebook. They have reinvented themselves. Youve got to keep reinventing yourself like we do in life. You. Han thank 10 minutes into the session, bringing up the board. Stocks are low in the united dow. S bite. 2 on the apple shaving off 20 points. Off two. Shaving the biggest loser on a point spaces on the dow and the s p 500 is apple stock trading lower by about two percentage points. Youre watching bloomberg. This is bloomberg daybreak. Im emma chandra. Sits down tom keene with former fed chairman ben bernanke. David this is bloomberg. Im david westin. Says keyguest catalysts are over for now and risk reward upside in equities is deteriorating. Joining us now is Mislav Matejka. You have gone through a little bit of a yellow on equities. Tell us why. The first issue is markets did white well. The s p 500 is up. You had many people who were unsuccessful in calling for a correction for a while. The problem is there is no further catalyst from here. All of the good catalysts have played out. Earnings were great in q1. You have this problem with commodity prices. Bpi in china. Greatlleagues use this gains as a opportunity to lock in. David take some risk off the table. Take some of your profits. What do you do with them . Last week went back to record lows. Its not great to commit more capital. Maybe the bond yields go down a bit. You want to be in bonds. Pockets inave air the final demand. Momentum is peaking in the u. S. And china. Then you want to reenter the market. A number of people come on the program and say this is time to buy the debt. Is that wrong . This is wrong. S p 500 is up 7 on the year. Market is up to a high. Cyclicals are up 400 basis points. The financial stocks in the u. S. Didnt do that well. From here the question is what do you do. Where is the biggest complacency in the market . Say the whole of the bond yield complex story will have complacency. U. S. Should be flattening. The fed is likely to not do anything apart from stay dovish. The yield sensitive financials probably take another hit down. Another complacency has to be capital goods which have done fantastically well. The whole european complex was up strongly into the greater earnings. There are expensive. Construction materials. These stocks are the expensive ones. We have seen some kind of position adjustment. Financials not necessarily over owned. As the positioning already started to take place . Thatthink its fair to say u. S. Is a little bit different to europe. U. S. Banks are down on the year. In europe the eurozone banks are up 12 to 13 . In theair to say that u. S. Some of the trump trades are down and financials are down. Markets are high, cyclicals are high. In your note it said we should be overweight. What are the catalyst that you dont see in the United States . In terms of regional location we are comfortable with staying cautious on japan. Eurozone and we still like emerging markets. This might the little bit different because normally there is a risk of dollar going up. This time around to view is the dollar goes down. The interestse rate differential between the u. S. And the rest of the world narrows and as the dollar goes down for the emerging markets this is actually great. Typically if you want to be bearish you want to sell eurozone. Take some risk off the table for global equities. We think you still want to stay long. Regionally eurozone and the emerging markets. , thankn Mislav Matejka you for joining us. Slight warning coming from jpmorgan. Looking at the activity in the economy, the final rating for market u. S. Services pmi. Up froml rating at 53. 1 the previous rate of 52. 5. The individual break down beneath the headline number. The employment and input prices for both of those. The expansion for a 14th straight month on the headline number employment. The rating falling to the lowest level since 2010. The highest rating since july 2015. The employment rate coming down and input prices the highest since june 2015. What do you make of that . Alix who saw Services Employment stronger but goods employment coming weaker at 12,000 workers. Us online. Interact with us directly. Just go to tv on your terminal. This is bloomberg. Jonathan youre watching bloomberg daybreak. Im Jonathan Ferro. Coming up, the isn nonmanufacturing for the month of april. The fomc Rate Decision. Here with us is carl riccadonna. Give us the guide for the next days activity. The only thing we see changed on the statement is going to be the first paragraph which is the economic assessment. They have to make modest tinkering to it knowledge the growth low in the First Quarter. The strange composition of growth where Business Investment had a much larger contribution that consumer spending. Probably a little bit of a nod to the recent Inflation Numbers which show a little bit of lost momentum in moving toward the fed target. Everything stays the same. Obviously they are not raising rates. It looks very calm on the surface. There will surface be frantic paddling as policymakers given the easy list of minor economic tweaking have a lot of opportunity to advance the Balance Sheet. Jonathan may be the most interesting part of this meeting will be the minutes. We wont get anything on balancing in the official statement. Jonathan the First Quarter most people imagine is going to brush it away. Maintain the line there is some kind of seasonal discrepancy. Move forward to june. Is that the right approach . It looks like an economy that is still strong but is losing momentum. It continues to meander along at a 2 pace. The animal spirits post election are not necessarily showing up in faster Economic Growth. I think the fed is very much of that view. They have a light lift in terms of managing expectations for the june meeting because sense on futures are anticipating 70 on the rate hike. Has beene fed signaling three rate hikes this year total. Been talkingave about 1. 5. What will happen after today . I dont think it moves significantly. Markets are broadly anticipating that june meeting. The fed doesnt have much to do in terms of a Communications List on that front. Year end the fed lets the data do the talking. December odds are roughly 5050 at this point. The fed can let the data speak for itself. Alix that we see a repeat of the last two years . There were some special exceptions in past years. A few years back it was the china currency developments that through things off course. Last year was brexit. That certainly means there could be something that throws them off course this year. Maybe this is finally the year where they can stick to the plan. Have President Trump, grexit, French Elections, german elections. The moreve to remember resilient the economy is to these exxons exogenous shocks. The economy can take a lot of beating before it succumbs. Jonathan fast forward to friday. The lowest rating since february 2010 on the pmi here in the United States. On services, the lowest rating since july 2010. Ofthat a concern ahead payrolls friday to get those softer reads on the pmis . We had so many misleading signals last month ahead of the jobs report that pointed to a relatively robust report that there is some fluctuation and statistical noise we shouldnt read too much into. If we look at the moving averages on the pace of hiring, things have been decelerating. You have lessues income creation in the economy. Jonathan im convinced there is an economics textbook somewhere for sitting on the fence. Carl riccadonna, thank you very much. Much more than a commercial break. From new york city youre watching bloomberg. Vonnie it is in the clock a. M. In new york, 3 00 p. M. In london and 10 00 a. M. In hong kong. I am vonnie quinn. Mark i am mark barton. Welcome to bloomberg markets. Vonnie we will take you from hour andto london this cover stories outside of south africa and iran. We have breaking economic data. More for the fed to ponder over although, they were not have much time left. Asie nonmanufacturing index measured services in the u. S. Economy coming in at 57. 5, higher than the estimate. This is for the month of april. This is an important economic measure because it measures the biggest part of the u. S. Economy, services versus what we see in terms of manufacturing. Again, this is an expansion, more than projected. Is part off order this reaching the highest level since 2005. That gauge of orders at 63. 2