Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170509

And finally, 1 00 p. M. Time, the u. S. Treasury is set to auction 24 billion in three year notes. Jonathan thank you very much, david. And an uncomfortable market. The s p 500 finished yesterdays session unchanged on a record close. Joining us from hong kong is sean darby. And of course, allen russ kin of fx research. Much has been made on the vix and the s p s. Give us your thoughts and your initial takeaway. Weve got a period where real bond yields have been turning negative in most of the developing markets. Thats been accompanied by a fall in the dollar and the background got a resurgencing global trade. So its a pretty Perfect World for the economy and for equity markets. I suspect why weve had such a low reeding on volatility measures over the last couple of weeks. Jonathan whats interesting about this is people often come out and say this is a sign of complacency but realize its also very low. So isnt this just a case of the market being right . I think the markets have actually taken quite a bit of time to realize that things were nowhere near as bad as the real economy as as some of the geo political factor that were appearing in the headline overs the last six months and the kospi has been breaking out into almost new highs in dollar terms and yet that country has seen an impeachment of the president and north korean issues, a spat with china and its not at all affected the equity markets sentiment and the real economy. So i think geopolitical factor have mask what had has been a really good resurgence in the lobal economy. David it has quieted things down. Im not sure i give him credit for it. Back in 2006 and 2007, we had policy has been telegraphed. I would be cautious to give them redit at this point in time. Six months out, it is deep everybody curve in terms of volley. Velocity volatility. And fx vol is low and bond market vol is going to be the key to all of this and what you mentioned earlier is the idea of this uncomfortable low volatility, underneath lurking there is commodity vol and thats what youre seeing. David lets go to the china story. Will you give the president any credit . There was a crime when china was all over the place. Theyve been pretty consistent now. Yes. Its blowing hot and cold, uncomfortable. You went from way too much volatility and equity market seems to be out of control there. And thats shifted to some extent. And not always in good ways. I dont think necessarily its a good thing that dollar china volatility is contained. A little bit of volatility in essence is a good thing. Jonathan low vol means a weaker japanese yen from here. Do you chase the momentum and the story right now . What youre seeing is this tension between the chinese story and a commodity story which is meaning that things like the aussie are not doing terribly well and at the same time, youve got something of an Interest Rate story that is also bubbling beneath the surface. And youve got u. S. Interest rates backing off. 10year yields coming off from 2. 16 and were at 2. 39. That backup has taken dollaryen up and it will be affected. Jonathan shawn, how do you reconcile that story over the last month or so and the calm that you see elsewhere . We have to sort of step back to august 2015 when chinaed by a small appreciation in the r b. You look at export prices now globally in particular in the northern asian area, they are all rising in sync. So essentially, china has been exporting inflation into the system. And weve found ourselves back into some sort of equilibrium in north asia and thats been part of the reason why we havent had anything upsetting what has actually been a big turnaround in the global trade particularly for manufactured goods and as i said, the hearts of that has been in china. David so coming back to china, shawn, how much of this are we concerned about with commodities . Because commodities has been down. Wove seen the metals down some and its attributed largely according to many experts to china. How much of that could generate volatility Going Forward . Well, i think weve slightly disagreed with that on some of the commodity story because the account for china sort of influence on things like coal and iron. In oil particularly, the futures Market Positioning became incredibly bullish, we thought, post the opec deal in november. And we think gradually unwinding that over the course of the last five months. So theres still a very large open bullish position on crude oil futures in the United States. So thats been more of the story for the oil market. The background just being that actually imports into china have been reasonably strong. So again, its not necessarily that chinas been necessarily cooling demand too quickly. Its will be perhaps markets become a little bit overboard in some over the commodity theme on the back of the china reinflation story. Myspace seems to be more foreign exchange. The oneyear vol is very low. The one year one year vol is extremely low. China may be getting through the communist party Fourth Quarter meetings, etc. , its all calm but 2018 t going to be much more trial yield potentially, a tougher year than one year one year vols seems to be very cheap ed in at least for currencies like euro dollar. David thank you. Both of them will be staying with us. We want to report on the polls in south korea. We have exit poll results now. Moon j earksin leads in south korea. Jonathan if you look at First Quarter adjusted, that comes in 861 million dollars. The meeting estimates in a Bloomberg Survey was 854. 9. They said they reduced debt by 1. 3 billion. That was a big issue in the company. Thats the story in the market today. The stock up over 13 . Coming up, oil holding on once gain ahead of u. S. Data. The head of Energy Commodities research joins with us his outlook. Youre watching bloomberg. David this is bloomberg. Im dave day. Jeff goodluck normally deals in bonds. But he had a word in equities. Still with us are sean darby and allan ruskin. Where are you in the trade of e. M. Versus u. S. . On the surface, it makes sense. Certainly the Earnings Growth in e u. S. And the e. M. Is quite different. Youre going to see an acceleration in Earnings Growth and there are some room for the asian currencies to appreciate. And the main problem with the argument is not all of e. M. Is really that great of shape and some of the e. M. Economys and countries like south africa, perhaps turkey and even parts of latin america might not necessarily fit the best of health bill. So i would sort of have a caveat about being too long e. M. And probably quite selective about some of the countries along the u. S. At the moment but the base effects are working on the side of e. M. , given this depressed position on some of the economy and equity markets in 2016. David sean, be selective for us. You told us the ones that you are dubious about. What are the ones that you are more confident in . I would be looking at places like for example taiwan, korea. I would be positive on russia in the oil price. And again, you could probably still fit india into that bill as well. So its to say its not a bicase for of e. M. Ts a mixed bag. And this big upside in earnings numbers. Jonathan currencies have not been weak. If you bring up bloomberg, the function e. M. Versus the dollar yeert yeartodate has ripped against the dollar. Can that performance keep up 2017 . Its tough. You wonder if this kind of price thin . Youve go. A commodity cycle that is turning up against them. And that Global Growth story is going to be key. Because europes been fine. The u. S. Has been fine. Lets see if china is headed to the real boom in money supply growth. That slows, weve got a bit more problems in the economy but right now, you can clip coupons. You can effectively buy brazil. Youre not going to get much from the currency side but you can get something from the rate differential style. Jonathan if you ask many investors why it was so long this year, it wasnt because that thought that treasury yields were stable. They had a fundamental view on Global Growth and china was at the epicenter of that. If you have reservations about china through 2017 now, how do you stay long emerging markets . For us, its not necessarily entirely being built op a commodity story. Food prices globally have been extremely weak which is given a lot of policymakers a lot of room in terms of managing inflation. For us, its really been the key that were getting some sort of evidence that the cap cycle starting to emerge particularly like the Philadelphia Fed over the last month coming up with very bullish expectations. So if thats correct, weve got more of the theme of the late 1990s where inflation was quite low. The commodity story was on the back burner but a big tech cycle emerged as a really big boost to growth, particularly as corporates begin to spend. Thats the evidence were seeing in the headlines at the moment. David you think that the Global Growth has peaked. A lot of people. Saying that right now. What causes you to believe that . I think the china story is starting to roll over. I think thats for sure. The u. S. Side of things, i think the trump reflation story has lost a little bit in the momentum. The u. S. Economy can still grow. Its not bad at all. The european economy, i think is not necessarily rolling over per se. After the french elections and the Political Uncertainty might accelerate slightly. So its not really as if were going to slow down sharply but its the beginnings of a deceleration. You see that a little bit in the global p. M. I. s already. David sean, do you agree with that . Not really at the moment. I think the thing for us is we would have an open mind. Global traders only just revived back in into positive territory. It was in recession for two years. Weve seen were starting to see a resynchronization of countries like brazil and russia tarting to grow in 2017. From our point of view, were still reasonably optimistic that were in for a higher highs on some of these p. M. I. Cease and some of these hard data points going into the second half of the year. Jonathan it wasnt about forecasting a drop for the s p 500. Just a final word very quickly on u. S. Equities, where do you see them in terms of values . Its more the fact that value is really on the side of the investor, particularly with ford returns. If the yield curve were to steepen, theres some room for the financials to do quite well. But at encouragement measures, a lot of optimism on the earning stories have been built into share prices and there are some really spectacular opportunities and most notably, of course, just south of the border in mexico where, again, currency appears cheap on our measures and the equity market has quite bit of upside as well. David coming up tomorrow on our program, sam zell. Real estate investor talks about an awful lot of things. Live from new york, this is bloomberg. David South Koreans voted today in replacement of moon jaein. Moon jaein is leading in the race. Coming to us throw seoul is our Bloomberg Bureau chief bloomberg seoul bloomberg chief, peter pay. With a can you tell us about the scene today . Well, an amazing turnout even though it was rainy. It was a tough day to be out there but were expecting record turnout with an hour to go, actually, at 7 00 p. M. And now before the polls close, they were looking at 75 to 80 turnout. A lot of vest. And as you noteds the exit polls just came out and noted that moon jaein was leading by with 41 . Second was around 23 . We have live pictures right now. I was told that was parliament square. Im not sure. So tell us a little bit about moon jaein if we havent been following closely. Were concerned about north korea here. He seems to be a little bit more accommodating to north korea than perhaps his predecessor. Right. He has definitely been less of a hard liner towards north korea. He has talked about engaging in dialogue with north korea. Obviously he has placed some caveats including some conditions that they met but hes been more open to resume what his pred ceder mentor has done which is something called a sunshine policy it. Did not work at that time. But he may be reconstituting that policy. And so that was a campaign issue. That seems to have appealed to the Younger Generation that dont remember the korean war or the animosity with north korea. David peter, thank you so much. D jonathan joining us from hong kong is alan ruskin. The breakdown of reception is different. In the u. S. And europe, a little understanding of what that situation means for investors. As you think about it in asia, how do you approach a situation like that . Alan i think people in asia live with this problem for the last decade and at times the rationality has spilled over particularly into sentiment but never with an outright fear that things would go for a military outcome. And they really dont want to provoke any form of sort of military sort of outcome. I think the key thing, really, has been that there wasnt a political spat between south korea and china over the deployment of the missiles which was a precursor to some of the more rationality of the but thats gone of the back burner. South korea and china do not want to see things actually deteriorate any further on the north peninsula. Show bottom line is well go back to a regime over the next six months for north korea. David weve seen those headlines. I guess outside of asia, they see those headlines and the japanese yen is going up. Is there going to be that safety bid, that haven bid on things like the japanese bid . Alan no when its bubbling around, its fine. You can buy the yen on a safety story. Its highly questionable whether app and the yen is the right place. I think the dollar would benefit. But right now, went those stories do evolve and people donkey dont think its going to come to a military end that might be bubbling under the surface, then yes. The yen would find a little bit of support. That hasnt been the story of late. Jonathan alan ruskin and sean sean, both of you sean darby sticking with us. Coming up, crude expected to show. Michael cohen, the head of Energy Commodities research will be joining us to bring us his outlook. Youre watching bloomberg. Jonathan let me whip through the market. Futures firmer. Positive about. 1 on the s p 500. Threeday winning streak at all time highs. The dollar index treading water at 113. 78 on dollar yen. We approach 100 handle on the d. X. Y. The treasuries a lot of supplies, 62 billion worth. We get 24 billion of threeyear note today. And then the tens and the 30s come later on this week. President trump, senior advisors are calling for a shift in military strategy in afghanistan. It would expand the militarys role in fighting the taliban, the pentagon and not the white house. President trump and plane leader met last week at the white house. Now abbas said the two would meet again in bethlehem. He has accepted his invitation during his visit to israel in two weeks time. And in south korea, voters are selecting a new president. Former president is ousted as a result of a Corruption Scandal setting the stage for a special election. The returnup to pak five years to s moon jaein is going win. Im emma chandra, this is bloomberg jobs. Jonathan commodities have declined even in some banks. Theres more perspective and joined by Michael Cohen, barclays hid of energy. You know how this works. Price shakes narrative. You get a rollover and even the fundamentals havent. What is your view over the last week or so . Michael there are a couple of things that are behind that. The first thing is that last friday, we actually saw from e. I. A. A reaffirmation of what happened over the course of the last several weeks in weekly datas. The weekly data was showing that Oil Production was up over 400,000 barrel a day and monthly data confirmed it. Thats one incremental thing. The other thing was we got p. M. I. Indicators from china saw libyaneak and we come back. That gave people concern. And then of course you had these doubts about opec. A couple of weeks ago, we said look, given where positioning is, prices could move down the 40 range if doubts emerged about that. We had all these catalysts come together at once and bring oil down. Jonathan youre maintaining the shortterm stocks. Backing into the 50s . Michael right. Theres a couple of things that are behind that. The first thing is that theres a bit of a lag in terms of data. So what weve seen over the course of the First Quarter is that our supply and demand shows a draw in inventory. So at the same time observeable data showed Oil Inventories had built. But the issue is that those q1 inventories were a result of opec step hoping gas pedal in december and november. And we should see that draw coming into the Second Quarter at least the second half of it. David how much of this us just technical . People playing with oil as a commodity to make trades on, to make money rather than the underlying consumption . Michael that definitely drives it into short term. But our fundamental view is that theres a lie and demand fundamental that drives the price over the longer term. As we look into the balance of this quarter, opec exports are going to be cut positionally by another million to million and a half barrels a day compared to where they were last year. And that will have an impact. Its just arguably have an impact to an even greater extent because those countries demand about a Million Barrels more in the summer than they have over the course of the last four to five month period. So well have a greater impact Going Forward. David another one will be perhaps driving greater shale production on the market which will negate whatever price it has on the market. Michael right. His opec policy has provided a floor and shale has taken enter account for this year. Incrementally, i dont know if it makes a difference whether they add additional rigs or complete at a higher rate. Its already basically being priced in. What matters now us the details of this deal that we wont see until may 25. Jonathan it is priced in the opec rolls over because i wonder how many members of opec rate now look at the situation with saudi arabia and say the games up. Youve good big i. P. O. And we dont want a part of it because were not going to see any part of the money. What is the risk . Michael right. That is a concern. Youve got the issue with syria thats drawing a wedge between saudi arabia and iran. Youve gat lot of different geopolitical events but at the same time the social structure continues to need that higher oil price. Shot that will keep them in this Market Management mode. We suggested they could be in this mode through 2018 but theyll have to deal with the impact of that in terms of less tight oil. What matter is at last quality issue too. So youve taken out a whole bunch of media and medium light crude and this is light type of oil that is spurred on into action. So theres that matters when it comes to the broader global market. Its not an apples to apples comparison. David we want to include iron and orr now. Ore in asia. Still with us is sean darby and alan ruskin. So let me go to you, alan. Because goldman has a report out within the last 24 hours saying if you look at rates they correlate with commodity rates. If the rates go up, the commodities over time has gone up. Is that right . Alan which rates are we talking about . David u. S. Interest rates. Alan i would normally expect that their natural relationship would be twofold that rates go up and Commodity Prices go down. This is an asset sort of story but just as a dollar story. The rates going up, the story of stronger dollar and commodities coming down. Now, you know, when you start look at it on the longer term and thats where theyre looking at it, rates are going up with growth and thats where theyre coming from. David maybe thats right, sean the marker for overall sean, its the marker for overall growth. Is that your attitude . Sean i think part of the problem in china is there has been marginal tightening not only by the ppoc but by some of the regulators which have seen quite significant flows of money going to Asset Classes which was not really intended. And this has had quite a lot of an impact on the policy decisions. The way we would look at it is we would say perhaps some of these measures introduced by the chinese has been heavy handed and that have forced a lot of the contracts to be liquidated and theyve come in heavily on the financial and equity markets in trying to curb a lot of the speculation. Ultimately, its got to remain loose. Theyve got to deal with a large credit bubble and even though that weve seen some of the data, some of the hard data points for all over, you have to bear in mind that the base effects have started to work against some of the chinese numbers offer pretty good second half of 2016. So i dont know. Dont fear too much from a big rollover in china what is we would say. Jonathan looking at the commodities action, coal down 10 . All roads lead to china . Michael yeah, its a big concern. I think its an even more outside concern for some of those base medals than metals than it is for oils. And of course from the market observer perspective when say see weve seen this kind of leading indicator of either copper iron or prices fall down, then it undermines the confidence in the demand story for oil. Jonathan michael, talk to us about the cost structure of each of those commodities. When we talk to the likes of rio tinto they look at iron ore towards 50 and lower. And we look at the Big Oil Producers the exxons and the b. P. s, they can live with 50, 45. Seems quite leslie. Easily. Michael broadly speaking, the industry and the Industrial Production has generally seen a lot of cost saving measures over the course the last two years during this commodity downturn and theyve been able to standardize, attentive been able to ploy employ new technology. They ket less costly to produce those commodities. So at this point, weve got were in this Inflection Point for the amount of cost per use or labor over the course of the summer. We will get back up to a period of time in the fall where cost inflation does begin to matter again and people will have to think again about what is the level of shale production. David Michael Cohen of barclays, thank you for being here, michael. And sean and alan will be with us. Disney is reporting earnings after the bell today. Benjamin has an outperform rating on the stock. He will be joining us next and this is bloomberg. This is the hoo hewlettpackard enterprise groanroom. Investments founder joins us rom 8 00 a. M. Eastern. Emma toshiba is warning its u. S. Investors dont derail our chip unit. They won around of a legal action. It is certain that it has the unit. O sell the a surprising Earnings Report from the german utility eon. It missed estimates of the first report thats split from last year. Eon was hurt in the and u. K. Germany. A former bond trader has said he was trained to lie to customers to boost the funds commissions. He testified that he learned to lie about when they bought or sold bonds. Two former colleagues are accused of lying to customers of mortgaged backed securities. David the Walt Disney Company reports earnings after the bell and its warned that the beginning of this year may be soft because of increased sports rights costs and some tough year over year comparisons for its movies. But as always, much of the attention is going to be focused on espn. Here to give us a preview is benjamin swin burn who covers disney for the banks. Thanks for being with us. Welcome back to the program. Benjamin thank you. David you listening at the earnings and you listen to what bob iger has to say today what, do you have focus on . Benjamin i think as you point out, theres none sort of hotter than espn right now and the consensus view is that the melting ice cube and the debate our upgrade is based on the fact that we have a lot of any products coming into the market like fube tv the hulu service that was launched last week all including espn. And this has the opportunity of potentially expand the market for pay tv and slow down the sub losses at espn which would be pretty powerful not just for earnings but also for its valuations in the marketplace. David they understand whats going on at espn but they think there are opportunities with other digital distributions or direct to consumers. What in these earnings could give us whether that strategy is starting to work . Benjamin its early days. We need to keep that in mind. Disney does report affiliate Revenue Growth and subscriber metrics in its 10q. So well get that. The numbers will show improvement from the december quarter. But we havent had enough time, really, for these new bundles to be in the marketplace yet. Youtube launched in april and hulu just last year, more of a 2q event. Directv was in the december quarter but was pretty small out of the gate. So these things will build through the year. The bigger thing will be what are the underlying metrics on traditional distribution which will accelerate from the december quarter. And then what does the company have to say to scommurems . We dont know what theyre thinking from a content price in perspective. David what about the rest of the company . Can it pick up some of the slack from espn . Benjamin yeah. And i think we talked about it less at the risk of it taking it for granted how well that business is performing. Nonespn is the majority of the companys operating profit by a large stretch. Look, i think the theme parks operating at a at a high clip. The markets have been surprisingly strong. That continues here through the rest of this fiscal year. Obviously the movie business had another Strong Quarter last quarter with beauty and the beast and last weekend with guardians volume 2. And on the licensing side, theyre very bullish and probably with good reason for cars and spiderman coming later this summer. So at last lot of stuff going on there. The vast majority of which are good. And disney stock is trading at or below the s p right now which is a big discount where its traded historically which is why we think you have espn moving in the right direction. David the shareholders are not particularly eager to see bob iger go. Do you think we will get any indication of the process which theyre picking a successor for bob iger for two years out . Benjamin i thought we will get more than a general overview of the board. This is a process as you know as been going on for a while. I daughter we will get any inside look. I would imagine this is just my own guess that they are trying to groom and develop an internal hire given skies and complexity of the company but were not going to get a lot of additional clarity on that tonight. David and finally, ben, heres one thats unfair to ask you. They could make another substantial acquisitions. Do you think bob has one more in him . Benjamin well, look, i think the company has built a nice track record on the mna front in general in particular in the i. T. Area. Powerful brands are available or intellectual property that could nefit from a modernization perspective, im sure he will take a hard look at it. The other area is digital distribution on whether the company will own its digital distribution. On that front with the baseball investment theyve made, theyre probably done with at least sizable technology and digital distribution acquisitions. But we can always be surprised there. David exactly. We will find out from the earnings poll today. Thank you, benjamin. Later, we will be speaking with chairman and c. E. O. Bob iger after those earnings come out. All week, Bloomberg Technology is live from the tech hub of boston. Thats daily every day from 5 00 to 6 00 p. M. Eastern time. Live from new york, this is bloomberg. Jonathan the u. S. Markets could be found in the u. K. As well. The 10 year yield has been dropped to prebrexit load. I think there will be a pretty hard exit at the end and thats with a very negative repercussions on europe, on both the continent and on the u. K. And it would spill over into market volatility. Jonathan and hes not the only one with a bearish view. The c. E. O. Said investors should short u. K. Rates ahead of brexit. Yields are falling today pushing them higher by four basis points on a u. K. 10 year. Still with us is sean darby and alan ruskin. The brexit situation, the politics getting a little more volatile. Will the market follow to some extent . Alan it is getting a little clearer. Wins. Is pretty much with a solid majority. And then she has the freedom to negotiate in a way which one would presume would steer on the side of soft friday and the issue is on the other side. What does she get back . Is there willingness to push back on that or, you know, the incentive unfortunately are in favor of a harder brexit when it comes to the european side of negotiation. David the e. U. Commissioner apologizing for leaking the details of the dinner with a Prime Minister is said after a a bit of a slap on the wrist . Alan it was a flatout mistake. Jonathan have things got clearer on the other side as well . Alan no, they arent. Thats obvious. The one element is the french election. That could have been clouding everything completely in this sense. Theres more clarity there. You have to get through the german election as well. But i think you are still going to see theres no obvious incentive to move rapidly and or give the u. K. The deal that they want. And thats a problem. Jonathan we shaked about a we talked about asian based investors thought about that. How are they thinking about europe right now . Coming into the french election, are you seeing a similar situation the other way around . Does that risk diminish somewhat and now investors looking at europe in a more bullish type of scenario . Sean i would concur with alans view about brexit. Its going to be a lot more prolonged and not necessarily goes as people in the u. K. Might think. I think really the point for Equity Investors is that theres quite a lot out there, particularly in Continental Europe now to sort of go over to buy and we looked at the equity markets at the oached the First Quarter and france, italy, netherlands, there was well over 30 of the stocks trading below one and a half times price to book. So it was a Value Investor dream and there is still a lot left on the table. Theyve got this big sentiment shift. The good news is that at least for the first stage, you dont necessarylessly to spend too much time or devote too much time on the u. K. Jonathan sean darby of jefferies, thank you very much. And alan ruskin of deutsche bank, thank you. Alan we have to 130 on the cable. Jonathan alan, good to have you. Next, chief global strategist will be here. We dedicated to the fixed income from new york, youre watching bloomberg. Sound u. S. Stocks by u. S. Equities. Chinas crackdown on leverage ripples through markets. Lookout, commodities. From new york city, good morning and welcome to doom bloomberg daybreak asia. I am Jonathan Ferro. Here is the tone of the market for you this tuesday morning. Futures up about 1 10 of 1 on the s p 500. Some brought Dollar Strength out there captured against the euro. Down about 130 kent state dollar. David time now for your morning brief. Fed president speaks at the minnesota conference. Later, we will hear from the u. S. Fed president and the dallas fed president. At 10 00, they report make it was a sense of what might be behind those job numbers in march. We will get a report on wholesale inventories. At 1 00 this afternoon, the u. S. Treasury is scheduled to have 1. 3 billion in notes. Jonathan an uncomfortable come calm. Now is michael, chief global strategist and be a mow Capital Markets fixed income strategist, michael. That begin with the idea this is some kind of fear gauge. Can you read that a part for me, looking at volatility and what that actually means . Michael the vix is a judgment from the market about what expected volatility will be Going Forward. This calm hasif to be so uncomfortable. If you look at realized volatility, it can go much and what you found was in 1963 and 1964 and 1965, you in theday realized threes on the fourth. By comparison, today were 7, 8, or high six. In 19631964, i do not think there is an immutable law that 9. 5 has to be bought. We may even make history in the jonathan that was the problem a historical range to really look at is quite narrow. 24 years and everyone simpson on iod. One per loads. It explodes. Theres not much between valuation and vix movements. The vix can move up to 20s easily as it is off 1820 times. Timeframe, to this which i am obsessed with, there are similarities. You have the stress stretched equity cycle, high teens and low 20s like we do today, and we also had very low and very stable inflation. What was interesting to note is they ended that low volatility period with inflation starting to rise higher on yields with that. Whate extent we still have i would call a gradualist centralbank environment globally to the fixed income keepssion, that will help equity balls and check here. What is the fix really tell us . Is it a fear of inflation . Is that what it tells us . For us, we do not see the vix as a fear of inflation. How we read it especially on the fixed income side. On the inflation side, this comes in from how aggressively think the fed will be. I does not always reflect that unless there is a view of a big change or uncertainty in the market. Delete what do we make of the fact that the vix is so low right now . The market has seen this twice and does not see any negative effects. We have got a debt ceiling that. Ill not fall jonathan the market has been looking would be low by and say no thanks. After the trump election, multiple points on the various trump factors, if you take the view the u. S. Equity market between the fed and what i would call the trump call, if the trump call is falling further they will kick the giveback can be a very gradual process. Be volatile. Ave to reserve the federal made a move and it was to say to shaking off the shackles of being seen by the market at some kind of michael in this case, it is some kind of a degree. If the fed pushes their luck ended hikes too much or too fast, i think that will changed that will change. They bought themselves some rule a some room. What does this do in terms of an opportunity . Michael in the marketplace, the parts of the curve you would him is five year. Because everything has been so good, the results is they will start to take out the future hikes priced to the curve. Treasuries further out to the curve do very well in those cycles because of the following risk off moves. Had a conversation yesterday as to why the fed should be moving so fast when so fast. Th is going despite that, they said look at asset bubbles. Should they be worried about the Financial Stability . They are going to be whether we like it or not. They adopted a strategically dovish approach and we will see what happens when yellen is swapped out or someone else. That is another big variable down the road to sort through. But i think they in their counterparts in europe and japan have adopted a strategy. They do not want to shock the markets there. They will signal as aggressively marketscan, making sure are empty stabilizers, that is the reason we have low volatilities throughout markets and not just equities. David both are staying with us. Ramsey, wheaton c i o. Like the new york city, this is bloomberg. This is your Bloomberg Business flash. He latest shot rejecting pbgs 29. 5 billion takeover offer. The firm has asked a dutch court to take away the vote. The offer is flawed and filled with risk. Big increases in the cost of obama care plans next year. Connecticut, the premiums would rise more and 20 on average. Instability in the coverage markets compounded by the trump administration. The chairman says he has no plans to step down. Against re urged we are currently broadly in line with guidelines with the davis report which says you have to have. 5 on the board. We have met the guidelines on diversity. Shareholder pressure has been minimal and that is your bloomberg is missed flash. Are back inies fashion and yesterday, jeff good luck weighed in. He said his trade of the days go long on emerging equities and short on the s p 500. Read you you have agree. 100 . When you turn to the s p side, it is starting to look over more extensive. Take the view that we are not theo get tax release valuation goes up to the 100th percentile. If you look at that, the valuation relative to the s p is down to the 15th percentile of all valuations going back that far. If you believe Global Growth is on, which i do, in you to get to where valuation is and growth to be most obvious. That is emerging markets. It is not only take for tech. Insaw a glance of this back 2000 15. He really saw that weighing on corporate macros and emerging markets as well as sovereign macros macros. Is a big factor there. In my analysis, i do not know if i see a dollar surging Going Forward. That is something to look at. I continue to be in the nonbullish dollar camp. I think it is right around 100, that is where i am. It is interesting. That all overg here with commodities. Lifted higher perhaps because of bond yields lifted higher. That is putting of the upward pressure the u. S. Him that is a reason to the euro has not exploded. In my analysis, longterm real rates are key and i have a hard time seeing real rates getting too much higher than they are now. I think the dollar will be pretty much range bound. Jonathan lets take a part you picked out a couple of things. Yields climb lower than the start of this year. The third thing you didnt mention was commodities. A stabilizing factor in the end trade. Now we have got in the commodities market. Without running a parallel long commodities as well. Disparate a lot of fundamentals. If you look at china macros, when you see iron or rolling the broader China Economic guess the question is to what degree are commodities going to keep rolling over. You have a guest rolling over oil saying, i think he was bullish oil. Again, it comes to the volatility of these. Of thesee stability moves, it is different than a crackdown. Most of the guys say that. He is saying etf. Blanket e. M. Trade. You look at the bond markets and you look at the blanket e. M. Trade come along will rip higher. Back to a lotgoes of details mentioned here. Oil has been a barometer of emerging markets debility and that is not doing well. You have got a lot of debt and these markets. Of gdp, it does not count a lot of what we know is already there. It is not to say you can have a. Uarter they mix it hard to service unless you have the growth to back it up. Geographically, what do you find more and less attractive . Michael we really like owning u. S. Yields, especially on the long end. Especially a trade where you benefit from a lot of these concerns. Theme especially later this year. Jonathan inflation risk is not the concern for you guys . Michael i dont think so. On the long end, its seems fairly insatiable. A lot of money out there. It,he fed starts to drain it has got to come out of those riskier assets. Staying with us. Coming up tomorrow on the program, Equity Group Investments founder will join us right here. This is bloomberg. Is peter. Ning us now peter nine years of conservative role. It looks like based on the exit poll conducted by the three willst broadcasters here, likely be named to the new president to 41 of the new votes. The second is a conservative candidate. It is likely, as opinion polls have indicated for at least a month now, that he will be the next president. Jumping forward, lets assume what do we know about what he will mean for markets . Reaction had been mixed. Willanalysts believe there not be much impact to the markets mainly because the parliament isnt very fractured. Of party has 40 parliamentary lawmakers. He does not have the majority to the question is that dominate the business here in south korea and some analysts on the other hand, because of the stimulus package, he wants to pump in 8 billion and create tens of thousands of jobs particularly for the youth. David thank you so much, peter. Jonathan david westin is the only guy i know on the planet who has been to north korea, the only guy i know. That is it. Dollar want is the kospi is up over 10 . I think that, to the earlier discussion we were having about Global Growth, korea has leverage that despite the geopolitics of the north. Jonathan is it too early to conclude you should fade the noise and go to fundamentals at this point . If you take south korea as an example of the case study, just chase the growth and the data 2017, thatthrough has been the story, that has been the real news. I think that is what investors will key off of in the next quarter or two. The broader risk to the story, the growth story, is really the amount of debt and asia. If you look at a 30,000 perspective. For a lot of people, they look back and say all of iss, the experience so far just a last response push into the economy through last year. We see china starting to tighten things up a little bit. I think we have to step back fedttle bit and think the has that in their perspective and they are aware of what happens a yearandahalf and a half ago when the dollar was rallying and all of that. The fed does not work in a vacuum. They have effectively given themselves a mandate that they have to be dollar sensitive and therefore rest of the world sensitive. There is not met not much to be gained in the u. S. By having the e. M. Blowup. Sticking both of them with us. From new york city, you are watching bloomberg. Jonathan alltime highs in the equity markets. That is a headline you will be familiar with in the last 24 hours. That uncomfortable calm, michael says it is not that uncomfortable. Classes, yields continue to grind higher even as the commodity complex looks a little softer. Yields up to 40 on a 10 year at the moment. Space, broad Dollar Strength out there. We are up zero dollars lower. That is the story. Lets get you up to speed. Voters select a new president and south korea after months of turmoil. A Corruption Scandal set the stage for a special election. Of to 20 to 45 refugees and migrants are dead after two shipwrecks in the mediterranean. 260 people were rescued. The u. N. Said or operating the vote the boats. A major shift in military strategy in afghanistan. The changes would expand u. S. Military role. The pentagon and not the white house would set troop numbers members and afghanistan. Dayal news 20 24 hours a global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. John. Jonathan emmanuel macrons party prepares for elections in june. The party will base parliamentary direction elections with a new name and in the formerter interior Prime Minister. More from paris, we are joined by gregory. Greg not everyone is welcome in the party. They must they may find him a little too much a reminder of the old. Hem not really sure whether will be welcome. We will see. It underlines the challenge he faces. He has got to get a majority parliament. Political movement is brandnew. He just created it in the last year. No policy track record. They may have been very weak and in the president ial elections, but they are still the establishment party. It is not clearcut that he will get a majority in parliament. Jonathan potential he it could be ungovernable. The very idea he wants to be associated with the movement, does that tell you it is valuable at the moment, whether you are with another Political Party or not, to be a part of this . Not. Ybe it probably says more about the socialist party then macrons party. They are caught between a moderate social democratic wing personified by all their voters left, there are still serious socialist people, and a lot of them went to vote because they just saw him as more credible than the socialist partys own candidate. It tells you a lot about socialists and little less about macron. Side, seeing on the right seeing people on the republican party, the need to work together, i think theyre looking forward to the parliamentary elections and whether they will have to form a coalition. This is not italy or germany or the netherlands, Coalition Parties of the norm. Toward such aing fractured parliament this time but the french might have to learn how to do coalitions. Jonathan we had a guest on this program yesterday. We talked about the Prime Minister and who would be the Prime Minister of france. He thinks an individual yet on the plane in d. C. And fly over to paris and that individual, he said was mad dam lagarde. Where is that rumor coming from . Probably started with a list of all the people if i started with a list of all the people, we would be here until midnight. They come from all over. Some people are saying it will not even be a politician. It could be from his right, that could make more sense. It could be from his left. There are all sorts of possibilities. Christine lagarde is disliked by some people in france but she is probably the french person, the most Important International position, and that comes with a credibility to it. She is a woman, a box to check. Out, but i rule it would not at many guesses either. Jonathan thank you very much. Did she come from . That might be a rumor. Thinkinggoing around who could be the next Prime Minister. Maybe we will talk about exactly that in about a week that i have no idea. Stay with us, michael anaren. A little earlier, we talked about north and south korea and you just missed the game. I wonder if the same applies to europe. You look at what happens with the gains for the equity markets, all up over 10 year to date there and about. Politics and you miss the gains. Is that the can and the story here . Gettingnduring theme of to the trade superfast and more slower moving money to be allocated into that. In the the ripest fruit process. I still think you can be long european equities here from a topdown perspective based on where the relative momentum is. Trade, theret the is a five each rate as well to go along with that. Long european equities paired against u. S. Equities. There is arguably less Political Risk in europe with france behind us. Mean there is a lot of of theal risk in terms Corporate Tax relief we will be getting the infrastructure we may or may not be getting it we dont have this ability on that right now. Risks now off the table. That is another factor in europes favor i think. We dontis risk and know what exactly will happen in washington, but in europe, it seems like there is a question we had greece before, the problem of the italian banks. It seems like every time you look around, there is some discount here it will it keep going . It is a great question that comes to the heart of the matter. Were trying to run economies that are completely different at a single speed which is supposed to work for everyone and it never does. We have memories of the Great Depression in the u. S. But think about what germany has in its rearview mirror. Hyperinflation of those days. You have got a fundamentally different response function. The notion that you could keep this thing together forever is likely to be tested and there is no way to know what will test it, which election or economic problem. But you are right that periodically, we have had these problems. Jonathan a look at the beauty e. On the bloomberg, a classic function. It has not changed for a number of years that it compares the ratios from region to region and i think it is what a lot of people are looking at. Looking at this line here and saying current year estimates on the s p 500, 18. 5. 1617 on the s p 500. There is a story out there that the cap can close, that it has room to close and there is still oxygen left in the trade. Considering what was just ainted out, the very idea of permanent feature now within markets, whether you like it or not, that gap will remain. Wellur points are very made. Italy around the corner. Im not trying to be dismissive about european issues. We have been struggling with these for some time. When you think about consensus earning on the s p 500 being at 140, there is probably 15 of that that is Corporate Tax plan, that people, analysts like myself, were jumping on back at the trump election. Happen, you not will get back 12 or 13 of corporate earnings. Europe does not have that issue. Jonathan i will put you on the spot. Tell me what this picture will look like at the end of the year with the dax where it is yesterday, with the ftse where it is yesterday, look at the gains on the right side. What does that look like at the end of 2017 . Your point is well made. I think right now economic momentum is much more obvious in the eurozone than it is in the u. S. Broadly speaking. France, think about which is really considered to be such a reform free country for if Christine Lagarde does take the job, the upside is tremendous. Jonathan we will give you a call the day it happens. Thank you very much for joining us. Coming up, the Worlds Largest entertainment Company Reports after the belt. Theght into the health of cable business. That is next. You are watching bloomberg. Coming up in the next hour, global strategist at 9 00 a. M. Eastern. A company says it is making progress selling assets in bringing in cash. Shipping away the 30 billion debt load. All of that has the surging in the trade. Acquisition of a fat reducing procedure. In germany, it bank posted its First Quarter net income that the estimates. The Bank Benefits is from a rise of income trading securities. One business it plans to shrink. Includes 9600 jobs by the end of 2020 and also to sell the equity markets and commodities units. David thank you. They always do, will be closely watching what happens with espn. Joining us now is paul sweeney. Deserves the attention given how big it is and how much revenue it generates. The Networks News continues to be the number one growth driver and espn is the engine for that. They have got a couple of issues here. Is thet notable one decline of subscribers to years ago. That is a real problem for them because it tensions there ever Revenue Growth. Theres is a business with a really high level of fixed costs with sports programming. Billions of dollars. That is a fixed number with revenues coming down. Softnesswill be some towards the beginning of the year specifically on the sports rates targets. They will take a hit on that. The big package they have with skinny bundles and other packages and others, is it too soon to see if that is working . I think it is. They are on skinny bundles. There are also places that have not been because of high costs and network. The real question will be do you have the strategy to take espn direct to consumers over the internet much like hbo and hbo and bypassing distributors direct to consumers. A real challenge because they make so much money off the cable bundle that it is difficult for them to win themselves off consumer. A fine line about when and how they will do it. Investors are saying we need a strategy. Their partners to quickly. People charging think you go around them, you lose some. Thatare the other parts could pick up . The other areas are the parks and resorts business. Thingas been a phenomenal for them. Up at the oneyear anniversary of shanghai disney, the big foray into china. Investors want to see how that is progressing. They also have the entertainment business where every year, they churn out three or four or five huge franchise pictures at or above a billion dollars in global box office. The acquisitions they made of pixar and marvel and lucasfilms paid off. Historically a hit driven business, hit or miss. Not for disney. It has been very consistent for them. It is also not just what they get at the box office. That files for some time afterward, theme parks and developments like that. No one has done a better job taking intellectual property and expanding it out through other parts of the company, whether it is merchandise or theme park and a lot of other Companies Like comcast and the universal business, they are trying to do the same thing. A tremendous amount of success leveraging characters and their franchises across many platforms. Up now, they are opening up an avatar theme park segment and that should be another driver for growth in that market. Whenever we have an earnings call, some attention focuses on top himself. He is very successful. Until 2019. At some point, there would have to be someone who comes after him p what will we learn if anything about the process by which a successor will be chosen . Almost a spotless record. The one big miss in his watch has been a Succession Plan and it has not worked out the way the board wanted to. They are clearly on to plan b, and i do not think they originally had a plan b. We need to see some kind of movement, direction, and sense of timing of whether they will go internally or externally. Investors will push on management to get feedback on that. David paul sweeney, great to have you with us. He will be joining us later in the show before the market open. Today, we will sit with the walt disney chairman himself. A quick programming note. Bloomberg technology all weeks life in boston. Talking to startups and venture capitalists every day 5 00 to 6 00 p. M. Eastern time. Live, this is bloomberg. Jonathan a ton of spit fed speak today and through the week as well. You will hear from minneapolis fed president neel kashkari. Hightech conference this morning. Later in the day, we will hear from the fed president , new york fed president that was boston fed president and dallas fed president robert. Joining us now is the bloomberg. Nternational it economists later in the week, we will hear from fed fed president bill dudley as well. Consensusittle more compared to maybe the years previously and a lot more so now. Quite see probably have people coming together on the via that they will continue the process for normalization which might mean to more rate moves this year and they cage out when those could be, june is a logical time because it is meeting with a press conference and then you dont have another one until september here that is where we are at this point. There is not much dissent on that. Data seems to support that. You have the speech acidifying not a whole lot that the market has not priced in. This time isent rate policy looks predictable at the moment, dare i say. In a way, they did not want that here they wanted to be more predictable but they are locked into these press conferences policy, which does not give them a lot of other options. They could do it at another meeting to prove they can but there does not seem to be a lot of a point. It will not surprised the market that the fed is raising rates are the markets are more interested in what is the plan for reducing the Balance Sheet. Jonathan what is the plan . That is what they are debating. You would be a good thing, could put out a long statement, the market gets the chance today just it. But you dont have to do an immediate trade because you have already priced in no movement. Jonathan is it dependent on getting a few more hikes in first or is it dependent on them coming up with a plan and even towards the end of the year to get one . The they the above want to get closer to 2 . They would all like to have 2 . They do not think they will get their because politics comes into this. They want this to be in the way when Stanley Fischer are no longer with them. And get other rate hikes in, but they have to decide how they will do it, whether they will taper or cut off investments, or if they will taper by what amounts over what time. That depends on the final question of how big the Balance Sheet will be when they are done. David how much help will the markets be if they take half a course . Figure out with to how other economies are developing, but when we do it, we do it evenly between the treasurys and a mortgage securities, you know, or we will not be actively selling the marketplace, things like that they could adjust, but when it happens, that is what it looks like . The idea is they want to say that early enough before they begin the process, that the markets can price it in. The goal is you move the fed funds rate very little because it will be such a gradual process. They are at 4. 4 billion right now. If you spread that over five years, as some of them have suggested, it could be a little each month and they dont get a big reversal in the fed funds rate or big upward pressure on the long end. Jonathan this is a business with the ceo coming out with a beforetructuring plan they step down . You go back to barclays, and that happened. But it is a different kind of situation. Normalization has to happen and the markets will operate in a matter who is the fed chair. Continuity and making sure you do not disrupt Financial Markets becomes more important than who is actually in charge. Jonathan you hope. Up, a global strategist will be joining us. From new york city, we are county you down to the opening bell with futures a little firmer. You are watching bloomberg. Indexan the volatility for the lowest since 1993. The s p 500 and an alltime high. Coming up after the bell, it is disney. Investors look for positives in espn subscriber trends. From new york, good morning. Welcome to bloomberg daybreak asia i am Jonathan Ferro, alongside david westin. We had 30 minutes bloomberg daybreak asia i am Jonathan Ferro along with david westin. After closing at a record in yesterdays session, we switch up the boards. The picture is as follows, Dollar Strength is story in the g10 space in the fax. Been fx. In fx. Here is abigail doolittle. Abigail lots of movers. First, we are looking at hertz down about 15 . The company missed top and bottom line estimates. Car rental revenue is down 1. 4 me, year over year at 1. 4 billion. Prices fell, there is an unfavorable mix. That is dragging on avis, as well. There is a high, bearish Short Interest of about 40 . Walgreens and right aid said they did comply with a second information request. Now, there is too much to decide on whether to approve the deal between these two companies or block it. This has been ongoing since october 2015. Are down riteaid about 20 since that deal was announced. Finally, looking at two pharmaceutical Companies Trading higher. Endointernational international and allergan, they are looking at this Pharmaceutical Company down and then allergan looks like the m a strategy is paying off. Their shares are up. Jonathan the opening bell is about 28 minutes away. Summarized by the front page of most newspapers, the vix decreasing nearly 8 , while the s p 500 finished onterdays session unchanged a record joining us is steven wieting. He joins us from his office in new york. Talk to me about those two headlines. They are on a lot of peoples minds. Andequity market is so high volatility celebrate walk me through it. Stephen volatility so low. Walk me through it. Catalysthere were no that could have turned up negative. Risks from the french election, with one candidate campaigning for the breakup that the main two partners of the eurozone and it did not occur. Inc. About the next part of your question in terms of markets trading high. U. S. Ratings have grown about 15 from one year ago. Some part of that will not follow through in every single quarter, but this is going to be a year where the United States and eps can grow to double digits. In asia, for example, International Trade indicators are picking up, which tend to lead earnings. This is a strengthening lead environment. We can think about what happens next and the summer months are known to have short, it am very, corrections. Jonathan we have had guests come on this program saying, by volatility low. Buy volatility low. I think you have to take advantage of the fact that times that it someone is going to offer you an insurance policy, you do not hope that you are going to have to have some disaster and claim it. That is one of those times now where it is at a low level and the seasonal period we are going into, this middle point of the are, tend to be periods where spikes are more common. When you give a spy, it comes down even faster than asset markets rebalanced to the upside. High, oney is volatility is high, it is an opportunity to generate income. That is usually for u. S. Equities. David i wonder if we are misunderstanding volatility. If we go back 11 months, we have brexit, the election of President Trump, the french elections, and the bond did not react too much to those events. Maybe it does not trigger geopolitical or political events as it does like central banking. Steven take a look at what happened to asset prices. Investors had been trained to Political Risks. Im not sure that is always going to work, but you saw asset markets calm down quickly. Volatility did a swell. I think this issue on central a volatility driver at some point. I do not think the Federal Reserve is going to give up its aims on Monetary Policy in order to shrink its Balance Sheet. The Balance Sheet is a secondary issue determining the right course for Monetary Policy that is first. Each time the Federal Reserve has moved from one regime to the other in terms of easing or tightening campaigns, there have been temporary spikes of volatility and that could come this year. David the very size of the Balance Sheets, is that in itself suppressing volatility . Steven i think you could make the case for that in the case of europe and japan, where Balance Sheets are larger as a share of the economy and markets outside of Capital Markets are in many cases smaller. Beinge banking activity important there, so much smaller Capital Markets with a larger central bank Balance Sheet. In europe, and inability to purchase all the bonds they plan to, these are the issues where it is more of a barrier. Jonathan talk to me about how you set up the next months with this in mind. What kind of portfolio are you trying to construct . Steven in the absence of the shocks, we have raised their equity weighting some great we have taken down some bond weightings. I have pointed out in emerging markets, you could buy sovereign bonds for about seven times the yield then you could in european corporates. So we are gradually increasing facing a nonus dollar investments across equities and bonds. I think a fully invested position still is warranted in u. S. Equities and if we were to volatility spikes pretty common, we would allocate more to Global Equities on weakness. We are happy to be fully invested, even facing a bit of volatility ahead. Jonathan where do u. S. Equities fit in . Steven u. S. Equities are stable but more lower return investments on a longterm basis. Recovery, extended where earnings are high, valuation is above the global average. If we look at the best valuation measure we use of cycle adjusted earnings, emerging stocks are at a 45 discount to the United States. That doesnt mean you will not get more volatility in american markets and when the u. S. Goes down, you could get them down further. The longer term opportunity is increasing their. That is truly the case now that the u. S. Dollar has rallied one third, holding back returns of the u. S. Markets and other equities. David we have people saying this was a time to be rich and cash and to find that when happened with these events. As you look at the marketplace, are people more fully invested today than six months or 12 months ago . Steven i think investors have moved into markets to a certain extent. Forg very high in cash portfolios has been the case changed08 and has little. There has been the volume rallies. A lot of financial assets, a tiny change in circumstances, prices, but there is not been a lot of volume the last few years. I think dedicated investment portfolios have high cash allocations. David what accounts for that . Steven i think it is fear of another 20082009 event. We have been to a bunch of known catalyst and they are always negative that are not warranted. When i think of how much coverage there has been on the auto loan market or the student loan market, looking for the next subprime event and you say, i can see problems that i cannot make this another subprime crisis. You can see everyone is more guarded and optimism has picked up and that makes me a little more worried by nature. You see a lot of bullish strategists, so those are concerns, but i do not see a case where we are dramatically overpaying for equities. Bonds, maybe. David maybe that is a more accurate fear index. Steven wieting will be staying with us. Coming up, doug ramsey will be joining us. This is bloomberg. Ivid this is bloomberg and am david westin. Emergingmarket equities are a better bet than stocks, so his thought is to go short and the counterpart. Still with us is dividing. Is steve whiting. It sounds acute agree with dundl gundlach. Where are the biggest opportunities . Bloomberg daybreak steven i would start by looking at asked income. When local sovereign bonds have an average yield of 7 and they are Different Cases of logan high yields, and you compare that, put germany, japan and switzerland together and for 10 years, the yield is nearly zero and there may be some currency risks. Plenty of people had to but it is not worth doing for zero. You can see relative value in em fixedincome rather than relative markets area if we look at Market Street if you look at equities, you see, particularly against the United States, emerging markets of had a hard time. They have had a lousy six years. I think that will lead to longer term returns being better in emerging markets, to clearly the areas with Exchange Rates particularly the areas with Exchange Rates that are depressed. David how do you account for the risk on fx . Steven it is important to diversify Global Investment and take fx risk outside of the u. S. Dollar. Bull have been three big markets and they have distinct bear markets that follow. We have been to a period where the u. S. Dollar has risen one third and nominal returns. That meant International Equity returns lost more than half of their return to u. S. Daughter appreciation u. S. Dollar appreciation. Bad typically report that typically reverses over time. Why . The dollar has risen to a high level and you Interest Rates in the United States are not going up as much as they have already in emerging markets. Jonathan it has reserved reverse against em. You have the peso up, the up, all against the dollar. Fives wrist over the last to six months. Are you going in and hedged on the currency side . Steven the important thing is to consider is you want a broad portfolio that takes many risks. You are not going to have the majority of your money in emerging markets local currency bonds, but you can have 15 of your assets for an average risk portfolio in emerging markets if you look at fixed income and u. S. Ies, and you can have dollar bonds, as well as local currency bonds in the portfolio. We are now overweight all of these segments because of relative value and what has transpired over the last years. We started to add to markets like brazil when youre ago and the oil price fell to 25, when 11 year ago, the oil price fell 25. It has been a lousy 6 one year ago, the oil price fell to 25. Jonathan everyone is pretty much long here up. Talk to me about the rhetoric versus the money that has been put to work. Talk to me about where the flow has been over the last year and tout under allocated some of the portfolios are. Steven emergingmarket flows has picked up at one statistic i heard is that equity portfolio is globally. Something slightly more than 3 of portfolios were specifically overweight emergingmarket equities, or example. Risks to going to be the broad asset class of equities. There are going to be times when all equities will sell off and went emerging markets are down within that. This is a time after the dollar has had a sixyear bull market and these other returns have been weaken valuations and low, where u. K. s in and take greater international risk. That is one of the things you recommend for portfolios after a long period of overweight dollar assets. David that is the blue team. Play red tape, if you are wrong about e. M. , why . Steven it would be a highly disruptive u. S. , it would be the United States has a tremendous ,ise in real Interest Rates that it displaces growth on the rest of the world, u. S. Plantsng replaces and the ability to borrow in emerging markets, commodities get crushed, the u. S. Dollar rally further. 1980ss around the early as an example, in particular having ronald reagan, having a new republican president now, but that was a time when u. S. Inflation started at a doubledigit rate and plunged. Real interest in the United States rose to 9 in the early 1980s and we are seeing nothing like that now. The dollar is not at a generational low, so different fundamentals for me to see that risk. David hence your call. Thank you. That is steven wieting. Coming up tomorrow, equity group will bent founder joining us in the markets. Jonathan futures up. Positive on the s p 500. When we add some weight to those positions out there . You are looking at futures of about. 1. From new york, you are watching bloomberg. Twothan to headlines headlines, one is that the except a 24 year low, and the s p 500 at a high. Nine minutes away from the opening bell. We are up 31 on the dow. 1 and a decent session emerging in europe. If you look at the ftse and on the dax, too. Treasuries, yield high by a marginal basis point at 240. Again, atding lower 46. 26. At the fx market, Dollar Strength is story. 114 on dollaryen. Euro weakness. We are down by about. 3. David it is a big day in the media because walt disney. They will be reporting their earnings after the bell today. We will look closely, investors will be, at espn. People are concerned about the loss of subscribers. To explain whether they should be, we have paul sweeney. Take me into the espn story because they have lost something north of 10 over some years now. Is that trailing off . Is it losing subscribers at that rate will be learned something today . Paul i think we will learn more today. Declines look like the are continuing. Discovery communications reported this morning and they talked about losing subscribers across the portfolio. Cord cutting is real. It is impacting all the Cable Network ecosystems, including the giant espn. Espn arguably has the most to lose because they get paid over six dollars per subscriber, per most for any the Cable Network. When they lose subscribers, 1 to 2 you, that hits the top line and that is the issue. David where are those people going . Netflix . Amazon . Paul they have lots of choices they did not have five years ago, so they are going maybe to the internet, completely free, youtube, or some of these skinny bundles, whether sling tv or that areable networks popping up out there or they are going to hbo now, which is a direct to consumer over the top app. There are lots of places for consumers to go. Sports is different. Espn owns all of the sports rights, but on some of these skinny bundles, people are saying, i may not be a sports fan, so why am i paying six dollars a month for espn . David if you are a sports fan, you really are a fan. What about rivals . Are they taking anything out of espn . The foxs of this world are going after the sports business. Paul fox has probably been the most notable competitor to espn. They have some distribution not nearly as much as espn that would the 20 trade box and Rupert Murdoch behind that network use, you expect that to be a longterm player for them. They will bid for some of these big sports rights over the next years. Now, espn owns all of the valuable rights and that allows them to be the king in the marketplace. However, they are under threat, as is the whole cable ecosystem. Sinclair made a big deal yesterday to buy the tribune stations. We talked about whether that was an issue and there was concerned that they might try to put together a conservative network to rival box. Paul now that sinclairs spine tribune, they will have coverage of over 70 of the u. S. Is buying tribune, they will have coverage of over 70 in the u. S. Typically have a conservative editorial and the challenge is, or they try to create a network Type National News Organization . I suspect they will continue to be aggressive and growing. There is more room to grow. If President Trump and sec continues to deregulate television, we expect to see the television business, expect sinclair to create more original programming, use programming, which typically has had a conservative bent all of fox a la fox. David even abc would not clear some programs for political reasons. Paul and david smith, the founder of sinclair, and remains the chairman, has been clear about that. They have a pronounced conservative bend and they are in favor of the White House Press secretary. They get good coverage. We will have to see what they do at this platform from a retransmission perspective, original programming, use perspective, negotiating with various networks. They have a big seat at the table for every network they said down with. David paul sweeney of bloomberg intelligence. Later, an interview with the disney chairman. Jonathan i looking forward to that. The opening bell up next. About four minutes away. Teachers positive. Futures had. Futures positive. You are watching bloomberg. City, i from new york am Jonathan Ferro. About 30 seconds, 20 seconds away from the opening bell. Futures up 30 on the dow. A threeday gain in the s p 500 and closing unchanged at a record high. Record high as on the nasdaq. The opening bell in new york, equities firmer on futures, treasuries a little lower. We approach the 100 handle on the dxy, up. 5 crude. 5. Crude rolls over. 20 seconds end, he was abigail doolittle. Abigail we are looking at small gains for the averages. Nasdaq,s p 500 and the that means youre looking at you record closes. A bit of a bullish stretch even though the moves have been small. The s p 500 has moved on the close, less than. 2. Ets see if today breaks that lets look at movers on the open on earnings. We have area trading by nearly marriot beating bottom line estimates and raised the year forecast and looks Like International growth is driving the strength. We have office depot up 6 after the company beat earnings estimates. Investors are focused on that burning speed of more than 30 . They put up 16 Cents Per Share on cost cuts and Valeant Pharmaceuticals up 18 on the open. They must First Quarter estimates that investors like that they boosted the forecast double at thep to end of the year. The couple has had problems except investors might he seeing a light at the end of the tunnel. We are nearing the end of the First Quarter session. Companies s p 500 have reported an eight is a Solid Earnings season. We are looking at about 14 year over year Earnings Growth. The best we have seen since the end of 2011. This seems to prove we are out of that earnings recession we had for a few quarters. Awesome investors and strategist are saying it is a Solid Earnings season that has up to claim record high for stocks. Jonathan the focus should be on the earnings and it has been on politics. Whether you look at mexico, the United States, the mexican peso against the dollar, a 7 move this year. You worry about north korea, the equity market advancing 13 , a french election, you must the 11 rally on the cac 40. Should you carry on and faded the politics and missed the fundamentals . Joining us is doug ramsey and frank appel larry frank, internet executive director. Delve into that story, the you should continue to fade the political talk and focus on earnings and data. i agree with that. Doug i agree with that. After growth in the First Quarter, you have marked down economic hopes. We watched the Citigroup Index closely. That is down all the way blue 0 that is at a high level from a low level of zero. The economy emerged following the president ial election. It sets the table for some upside surprises in earnings and for the economy, which i think we will see over the next months. Jonathan is that why when you look at the technicals we have seen an uptrend on the s p 500 . Far, duringnk so what we saw during brexit and the u. S. Election, there was a pullback in the weeks of march to middle of april to the first round and french elections, we have not seen the emphatic rake in the upside but i think we will have a target shortterm. I think we have to remind ourselves looking at the chart that all of this is occurring in the confines of upward sloping channels that began in february 2016. I think that continues. David what is behind it, frank . This bull market has run its course is what they say and now we have a new leg up. To the newseaction is more important than the news itself. There is example that can prove this. I have a pop quiz, over the last 12 months, with date do you think the us give hundred had its biggest the s p 500 had its biggest advantage . Jonathan the day after the election. Frank the day after. The market was up. David i did not remember that. Frank it is interesting the market anticipated a different result. David i think it was largely interested in being over. There was a lot of uncertainty and people said, just get it over so you know what we are dealing with. Frank the market showed it can absorb news. Cannot doe market that forever, but as long as it is, we have to respect it. Jonathan doug ramsey, two headlines, one is an alltime high equity market, and the other is the 24 year low in the vix. What do you think of those and how do reconcile them Going Forward . Doug it is hard to reconcile the they ask against other things we see. There is confidence in this reconcile the vix against other things we see. There is confidence in some of the measures we monitor and subjectively, there is quite that much complacency surrounding it. If you look at the 10 day put to call ratio, another option derived indicator, that is showing exciting showing anxiety after the weakness we have had been to we broke out last week. I think sentiment is a little maybeorried maybe then that banks would indicate. That has been of you. You can look at the uptrend and the downtrend in the vix is pronounced great what are those stories at the moment . Rank i think frank there are other indicators and volatility we can look at. When simple is subtract tracking how many large moves we have had for the s p. In 2017, there have been three 1 moves and compare that to last year, this time, there were 31 moves. I think that shows there are currently some indifference. It tends to be boring every day. David is the volume holding up . Frank volume has been low but if it came back in a major way, that would show emotion is back and that is something that tends to end up trending. Jonathan we had a conversation earlier about how it was introduced in 1993 and the sample is so small that often we draw the wrong conclusions about what will happen next area a lot of people to get this back to 93 and focus on the middle of the chart, which is the middle of the 3000s and conclude bad things usually happen when the fix is this low, is that a big mistake . Is this low, is that a mistake . Doug i think that is. There is a little more history there to study. We had created a synthetic vix based on one month trailing actual or realized s p volatility and that she is up quite closely with the vix. Almost every sentiment is much better at market bottoms then tops. Massive spike up often, that is indicative of a spike bottom in the market, where you can get down to not necessarily record low like recently, but at low levels around 10 to 11 and remain there for lengthy periods while the market is marching higher. I do not read too much into that. To me it is a reflection of the lowball we have had of late more so than a prediction the ball is ready to strike up dramatically. Perhaps this fall but i think we are good for a summer rally of 4 to 6 . David i was out for the Berkshire Hathaway meetings and Warren Buffett asked about these numbers and said there was only one number. It is were Interest Rates were going to be over the longer term heard we have a caller from goldman today on the 10 year, to do point out, where are you in projecting that . Doug i think there is a good shot that we have had a nice rally here. It is this marking down of economic expectations, economic surprises. I think we are set for a rate higher but i think it will be higher, but i think it will be contained. I do not see us pushing through three this year. I do think it is time to trend back on bond durations. David what about the 10 year . I see it at the same level in terms of resistance with doug. It was hit the day around the fed hydrates and december and march height rates in december and march. Hiked rates in december and march. It could be there by the middle of june. Jonathan frank, great to have you. Doug ramsey, you will be sticking with us. We are about 10 minutes into the session. Bit higher,a little a little bit higher, another record high on the s p 500, the dow up nine points. And the nasdaq this morning grounding out another record. It is falling in terms of the. Rice action you are watching bloomberg. Emma this is bloomberg daybreak. Coming up, in and to be with bob iger at 5 45 p. M. An interview with bob iger at 5 45 p. M. This is bloomberg. I am david westin. It is the Top Performing sector of 2017 and Goldman Sachs says the rally has more room to run. Amazonostin says apple, and facebook will gain an average of 19 over the next 12 months. Oliver renick joins us on the set. Doug ramsey is still with us from minneapolis. All of her, what is going on with what is going on with tech . Oliver i think this is the belief in the cyclical rally there will be a rebound in earnings that will be driving this. I think there is also the notion that perhaps there is growth and the rest of the world, if not in u. S. Lected equally projections and i think the gdp number from a couple weeks ago put the brakes on the idea the u. S. Economy is going to start surging just because of the talk of fiscal policy. These are going to be companies that benefit multinational he. Trumpk after the election, there was a focus on domestic shares in the u. S. , financial shares, but when you look at the broader picture, there is growth that can be seen in other markets around the world and Companies Like apple, google, microsoft, they will benefit. If you follow trade, they have been meeting the markets. Too. Is a big part of it, doug ramsey is long on this group, as well. David how about that, doug . It says cyclical on one hand, and international on the other, does that sound right . Doug i agree with that. On top of that, in a market that is otherwise expensive, i think tech valuations are intriguing. We like to look at a measure broad sector valuations. We will take a look at median. Its a get away from distortions caused by the megacaps that have run so much. The medianto price ratio on the sector now is 15 times, the sector never traded below 15 2002 toring the entire 2007 runup. The old valuation for has become the ceiling and that would not be surprised to see stocks breakout above that. The sector was 60 times cash flow, that was a to bubble. David there was not much cash flowing, if i recall. [laughter] best of Bloomberg Technology doug no. Jonathan you have been looking at where we might be in the bull market. I believe you said recently it is more like 97 than 1997 than the late 1990s. Talk to me about market and tech . Talk to me about market and tech. Doug tech valuations a reasonable. They are priced about where they were at the beginning of the runup, the sector is. Late 1994. Tech out of all the sectors relative to its history looks interesting. Made, thatomment you really came from looking we just did a simple historical analogue looking at multiple valuation ratios and the s p and when did those hit those same thresholds during the late 1990s . It cyclical, conditions remain positive, economy continues to grow, inflation pressure is good in a gradual pace of bed tightening, there is room for the markets to melt up. I am not saying it is cheap, but we are not near bubble valuations. Valuations,ues in and this is where it is a mirror image of the late 1990s, is defensive stocks, low volatility. It has become popular, all sorts of white papers, new funds capitalizing, those stocks are expensive, elected utilities and consumer staples, in particular, at near record high valuations. I would not call it a bubble but there is an up session with that type of stock in this slow growth environment. Oliver when you look at low volatility stocks, i would challenge to one point when you look at what has driven them up until the past six months, it was the search for the safety, but i am on board when you look at valuations. They are elevated. When you look at the day today moves, it seems there are sectors tied to rates. When we have rates that move downwards, we seem to have investors that have appetite the going to those low volatility sectors. Is that going to be a day to day trade that could outweigh the Valuation Case . A short while for longer. I agree with that. We looked at the correlation between bond total returns and the total returns for that lowball group and they are tight. Over the last year, it has been correlation. 15 years ago, there were periods in which there were zero correlation, where that group is not regarded as a bond trade. That could happen again, especially with the Group Trading at 23 times trailing earnings. David to wrap this up about the tech sector, we tend to talk about the big bang, plus apple, are they dragging up the rest of the Tech Companies . We tend to talk about only four or five major companies. I work shows broad attractiveness across the sector hurried we do a ranking of about 115 Industry Groups each month heard there are 14 tech Group Straight out of the 14, 11 month. There are 14 tech groups. Eitherof the 14 are attractive or high neutral, which means we would hold them in high neutral. It is broad. It is those top four getting the headlines. We are more invested in the Semiconductor Investment stocks, tech disagreed to be does, that sort of thing. Not tech distributors. Not the ones that are getting pretty expensive, but that issue is not broad market overvaluation, it is concentrated expensive valuation, nowhere close to a bubble. David [laughter] not like 2000. Doug ramsey of leuthold group, thank you for being with us. All week, Bloomberg Technology is live in boston. They are talking to regional innovators, startups and venture capitalists. That is that that 00 p. M. Every day eastern time. P. M. That is at 5 00 every day, eastern time. Live from new york, this is bloomberg. From new york city, you are watching bloomberg daybreak. Lets go through the markets. Equities about 22 minutes into the session. Up. 1 on the s p 500, but the price action really rather muted. About. 1. If we switch the board, treasuries up, yields up, internet supply coming up. Supply coming out this week. That at 1 00 p. M. Eastern time, 6 00 p. M. Over in london. In the fx market, a story of Dollar Strength. 114 was how we traded earlier. You see that Dollar Strength against the euro. Down by about. 25. On the dollar side of the trade, sabr at the end of the week that said safer at the end of the week. The minneapolis fed president will speak at some point this morning. Later, we will hear from Kansas City Fed president , boston fed president and dallas fed president area joining us is bloombergs International Economics and policy correspondent, michael mckee. Typically, we hear this that speak and are confused about the messages. It seems like the market is more comfortable with their message, at least on rates. Sheet,ity on the balance where is the focus . Michael there is general agreement on rates. They will go a couple more times this year in june is probably the next. Everybody wants to know when they will come out with their description of what theyre going to do to reduce the Balance Sheet. Some people say that is a treatable event as people said up for how that is going to happen, whether they taper by how much each month to we are not expecting anything today on that subject month. We are not expecting anything today on that subject. Jonathan talk to me about what they have to do it this issuance. Suddenly, there is going to dependence on the there is code into dependence on the two. They have to find out when the fed what the fed is going to do with the Balance Sheet. Michael they buy alongside the regular auctions, so if they are replaceng, they have to that demand from someplace else and it raises their borrowing costs, probably because the private sector may want more to be able to absorb that, and plus, we do not know if the fiscal situation of the u. S. Is going to be Going Forward and how much more the treasury will have to borrow. David we do not know what the budget will look like, so we do not know how much money they will want to borrow. How does that coordination happened . The treasury this not know how doesit needs to borrow, it . Michael no, the fed has to make the best estimates when they decide how much they are going to start tapering. The whole fed idea has been we do this slowly. They will keep reinvesting but not as much. They are calling it a taper. We do not know if it will be a dollar amount, a percentage of their holdings because it is a different amount of debt each month, so it is hard how they plan to do it. Jonathan we do not know who will be running the Central Bank Next year and the competition is whether you are a ceo and you make a restructuring plan, just as you pass things over, but david, the point you make david if it were me, i would say, i am going to assume i am here. Jonathan when are they going to staying . Whether she is michael ordinarily, it is made in advance if you months. If theyre going to make a change, that person has to be confirmed. That will take time. Jonathan michael mckee, thank you. 26 minutes into the session. To price action but alltime highs on the s p and nasdaq. You are watching bloomberg. It is 10 00 a. M. In new york. I am vonnie quinn. Mark and i am mark barton markelcome to barton. Welcome to bloomberg markets. Koreas election and more this hour. First, some breaking Economic Data in the u. S. He was julie hyman. Pere we are seeing a month month increase of wholesale industries by 0. 2 . That is compared to the negative percent that came in the first read here. It is an interesting number to look at. We also just got a jolt. Job openings are coming out roughly in line with what has been estimated. We have seen that stocks rise this morning. It is a similar playbook yesterday in that we see the s p and nasdaq touching new highs while the dow fa