Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170530

Criticizing germany. He says the u. S. Has a massive trade deficit with germany and the germans pay far less than they should for nato. President trump says it is very bad for the u. S. , but it will change. In berlin, indias Prime Minister says his country has made a quantum leap in economic ties with germany. He spoke after meeting with Angela Merkel. He says the two leaders are made for each other. Global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. David donald trump called his first foreign trip a home run, but some in europe saw it differently. In europe,ion rally Angela Merkel suggested that europe might not be able to rely on its stead fed you steadfast United States. She returned to that subject today. Ourur chins anemic transatlantic relationship and the statement i made recently is due to the fact that in the face of the present circumstances we have additional reasons for us to realize that we have to take our fate in our own hands in europe. David joining us from berlin is tony teach cap, bloomberggermany bloomberg editor. You must a sense from germany. Are we overreacting in the United States because we will go to news that germany is thinking maybe to have to go their own way . Tony it depends on what you mean with going their own way. Strengths isys its global trade relationships and that was sort of the context andthis statement by merkel i think there was an important clarification which owners which is in the clip we saw, she talked about the current situations. To my mind, she is not saying we need to throw out the transatlantic ties, but we do need to look, in so many words, at the person who is currently in the white house. David as far as we know, what gave rise to this . Was it the thing that specifically happened at the g7 or the nato meetings or was it President Trumps remarks that were quite separate from that . Tony i think it was a buildup of things that came to a head at last weeks nato and group of seven summits. It has been building for a while and i think it is fair to say there is a tone of exasperation for now in what merkel isnt saying. It is about trade, its about climate, the paris climate pact which President Trump is hesitating on, and sort of a range of other things. You could say that merkel has kind of said i have to put my foot down at least for the time being. Jonathan if you read some of the headlines in the United States you would less believed denouncement of the postwar consensus by chancellor merkel. If you look at the german press and the pictures that went with us with it, this was a campaign. My question is whether the chancellor would have made these comments if she didnt have an election in a couple months time. Tony jonathan, i think it fits into a kind of narrative that is developing in germany about the Trump Administration, which is that precisely what merkel is that these old certainties we had about the u. S. Which is basically since 1945,otector the defeat of not see germany nazi germany are no longer certain and i feel like a lot of people are feeling that in germany. A lot of voters for yes, it is an Election Year and merkel has done very well. She has been in office for almost 12 years. She has done well being this anchor of stability for germany and german voters through her conduct of the chancellery. Jonathan thank you very much for joining us. Around the table with us in new and fromason schenker london, Chris Watling, ceo and chief Market Strategist of longview economics. Chancellor merkel has been criticized some any times in the past for not being bold enough and for failing to make any real waves on the diplomatic stage. She is doing that in a significant way. How important is the Transatlantic Alliance . Central andnk it is sort of at the center of the Global Trading system along with connections in asia that really sure up the with the Global Economy works. I would not over read what she is doing. I think she is probably negotiating. Has obviously been quite strong tour germany on the trade deficit and paying for nato and i think this is a little bit of pushback from Angela Merkel to address the balance as she sees it. Jonathan i think the president in the minds of many people brings up some valid points. The president tweeting this morning that we have a massive trade deficit with germany and they pay far less than they should on nato in germany. On the trade deficit, is it the approach of the president that is wrong here . The idea he fails to recognize Something Like comparative advantage and the reasons behind the trade deficit. Deficit istrade widely misunderstood by this administration. It is clear to me that they are focused on the supply side of the economy and forget the demand side. You need to understand that there is much more of a consumer culture in the u. S. Than in germany and that i think is based on the way to credit markets are set up in the way the Mortgage Markets are set up and the way the Consumer Credit markets are set up which encourage consumption more than they do in germany where you get a higher savings rate and a low occupation lower occupation owner occupation. I think thee administration is wrong in focusing solely on the supply side and ignoring the demand side of the equation. With connect all of this the vid business of financial worlds. Of drama,like a lot but it may just be a negotiation. Doesnt really affect markets and businesses . Jason i dont think of the end of the day that it is really going to affect that much. His is a lot of posturing it is a lot of puffing up at the end of the day. Something tony said a few minutes ago was that the u. S. Was the protector of germany. Germany is one of the biggest armies in the world and it was during the cold war that they needed protecting. I dont think too many germans protect the russians are going to roll across the continent anytime soon the way they did during the cold war. I think that now this might be about things like Climate Change trying to be a consensus. David is what is going on right now between the u. S. And europe going to affect any investor today . Does any investor wake up and say i am going to change my investments because of this . Chris on a day by day basis, not at all. We are in a bull market and we will remain in a bull market whilst money is cheap and the economyd continues to expand. What you are seeing is this very slow chipping away at deglobalization that we have had over recent decades which underpins a lot of the Earnings Growth trend and a lot of longterm Earnings Growth. It is important. It is one tiny step in the whole puzzle, but it is a move in the wrong direction. As jason said, it very well may blow over and come to nothing. Clearly, trump is causing friction in the global set up. Jonathan Chris Watling, you will stick with us along with Jason Schenker. On the diplomatic stage, it raises questions because it is not the condition of the pros. You make a speech in nato and article 5. They did not do it. People, that is what they voted for. Coming up, we discuss that, the old world order is alive and u. S. Allies are in damage control mode. We are joined by nick burns of the Harvard Kennedy school and the former u. S. Ambassador to nato. Live from new york. You are watching bloomberg tv. Emma this is bloomberg daybreak. China Investment Corporation is a front runner to buy according to a person familiar with the situation, the company could fetch 13. 4 billion. Blackstonened by group. In the eurotiment area fell for the first time this year. The measure of executive and Consumer Sentiment remains higher to the remains close to the highest level in a decade. In germany, commerzbank sent out early retirement offers to about 3000 employees. People familiar say the offer includes a 34,000 they wanted cut 9600 jobs over four years. David the honeymoon period just may be over. If president bullard says the markets are to maintain gains, washington is going to have to deliver on policy expectations. Business confidence numbers shot up after the election. The president was perceived as more probusiness than the previous administration. Washington does have to deliver at some point and i think that is a concern Going Forward whether the honeymoon period would end at some point and maybe the reality of american politics would settle in. We will see if that happens or not. I think the jury is still out on all of that. David still with us is Jason Schenker of prestige economic and Chris Watling of longview economics. We have talked a lot around this table of whether or not the s p staying where it is is because people expect the trump to deliver something or on the contrary, whether there are fundamentals supporting the market regardless of the Trump Administration. I would go for it regardless. I remember the day when we used to say it was terrific when Nothing Happened in washington and now we say if things dont happen, it is terrible. Markets move up because money is plentiful and cheap and economies are expanding and results are growing as a and we had terrific First Quarter earnings and the fed has been really slow in terms of raising rates. Money is loose, all is good and that does not mean we wont get volatility. Ce in generally, i would not be concerned about trump. I think there is far too much prescribed to his ability to move the market inq4 and his inability to move in q1 or q2 if you like. David is it just a coincidence and these things would have kicked in anyway . Jason if you look at a graph of technicals, the 120day moving average, closed above that level the day before the election which was a strong buy sign and clipped losses. We havent gone below it since. I would disagree with chris because i do believe there is a lot hinging on these tax cuts. Most of my clients are corporate and they expected it back in october. They expected a recession by the end of this year. At the beginning of april, only 11 expect a recession and it is not a reflation trade i think we are seeing, i think it is a theluation trade because lower Corporate Tax rate affects private Company Valuations in a discounted cash flow model and this is something that valuators are currently doing. We think of Corporate Companies , theres of market cap are also dcf models that analysts use and they have to put in lower tax percentages to account for the probability of these tax cuts. That lower tax rate boosts the value of every company in the entire economy. Jonathan Chris Watling. Ofis it is a great point course, tax rates help, but there is no correlation between valuation and returns in the stock market over the last hundred years. Two lu valuation is the key is not what it is describing market, it is flows and liquidity and that is the bottom line. The marketrgue that is expensive today as you would have argued in 1997 or 1998 and it would have gone up another 40 . Help,rse tax cuts particularly so unfunded, but liquidity is the key in my opinion. Jason i think the most important equation is and if we are looking at historical peuations or looking at ratios. I think it is expectation minus reality equals disappointment and if we dont get tax cuts, you are going to see selloff. I really think so. Jonathan we will have to enter in that new equation in the textbooks. Chris it sounds interesting. Maybe that is right, but the s p is at a record high, so how much disappointment is priced in there . There is struggling with pricing tax cuts so we should already be off the highs and we are not. Jonathan Chris Watling, you will be sticking with us and Jason Schenker of prestige economics. You know what you need after a long weekend, just the guests to talk to each other. David sit back and do nothing. Jonathan Michael Oleary will be joining us. If you have trouble getting from london to you nor new york and this man was this man smiling over the weekend with the woes of British Airlines in london . You are watching bloomberg. David this is bloomberg. Opecs agreement to extend yet to impress the market. All prices falling with crude dropping below 50 a barrel. Jason schenker is here to explain why. Explain exactly what is going on with opec because the markets dont seem to be buying it. Jason this is a surprising thing and i think at the end of the day that they are not really looking at some of the most important data. There was a big buildup ahead of the meeting and i think what you what might have seen is profit taking on this decision i dont know if people were expecting a more robust decision, but you saw a rollover of production cuts involving 24 Different Countries rolling into what is going to be the biggest driving season in history in the United States through march, miles total miles driven on is up 1 year over product inventories have been falling. I would be very careful about this drop in prices. There is a lot of upside. David have they effectively created a floor . Jason it is difficult to talk about where exactly a floor is, but i would say there has been a supported trend generally since ofil of last year, april 2016 where you have seen almost an unbroken trend of lowers of lows roca in a little bit back earlier this month after that weak chinese manufacturing pmi. Solid this week a little bit better than the april number which dropped sharply, i think that will be a good sign for the Global Economy and supportive of prices. It will be critical for indicating global growth. If those are ok, you are likely to see Oil Prices Rise especially with summer demand. Jonathan lets get into the supply side of the story. We have almost fully recovered the plunge we saw in the count and production in the United States. Does that cap out anywhere . Is that something you need to look for . Jason there are a couple of things going on. They are up over 125 yearoveryear for oil. There is a lot more shale on. Ling going we saw relatively steep decline curves so i think we will see this continue and this is one of the things that at the opec meeting in vienna was a big discussion. There were analysts and delegates and ministers debating what are we going to do about opec production as we look at shale oil ramping up . I think there is still more upside to production in the u. S. David what about compliance because it was remarkable compliance in the first agreement, but it was a time of the year when they were going into maintenance and you have the russians who were at least slow to comply if they are complying. Should we be more concerned about compliance under this new agreement . Jason i would be less worried about it because we are going into a period of peak demand. Earning a period of peak seasonal demand, that should be easy to get compliance because you are going to see likely the revenue rise so there is less of an incentive to cheat because revenue will rise. During winter months, i think that was a bit more of a challenge because Global Demand could be weak and that weighs on prices. If they want a total revenue number, they have to sell more barrels even at the lower price point. If we see prices remain supported and trend higher as the Global Economy accelerates modestly this year and next year, there will he supported oil price. Rebalancing quickly never seems to happen. It seems to be six months off. Do you see it this time . Jason i think you will see it later this year or the beginning of next year. A gradual rise in oil prices is what we have seen since april of last year. We have had more than a year of rising prices and i think they will continue rising in europe, but i really think the demand side those chinese manufacturing pmis, those of the numbers to watch. You sound like the governor of the bank of japan, it is coming, inflation back toward the target, dont worry about it. Opec skeptics point to the saudi aramco arabian ipo. What do you say aramco, what do you say to that . Jason i think this speaks to compliance because saudi arabia is bearing the brunt of production cuts and they have a toy explicit incentive adhere to their cuts because they need to prioritize Balance Sheet over income statement and if they keep with those cuts and that supports the forward curve than when they go to to do their ipo, that will support their valuation. What happens after that . It will probably depend more on where the Global Economy is. If we cbs economy strengthen over the next couple of years, i dont think we will be worried about 50 oil falling into the 40s and lower. That will not be the story if we see the economy accelerating even modestly on a global basis over the next two years. David where is oil at the end of this calendar year . Jason i think we will be in the bid 50 range. I think we are a little higher than that lack next year. Jonathan Jason Schenker will be staying with us. Coming up, we will be speaking to nick burns, the Harvard Kennedy School Professor and former u. S. Ambassador to nato. A man with a lot to say about the fracture that has seemed to appear in the last couple of days between the United States and europe or germany, to be more precise. , michaelright here oleary will be in new york city around this table in about an hour. From new york as we get back to work, here is the pitch for the markets. Futures down. 2 on the dow. , Michael Oleary willnegative 45 points p 500. 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. Jonathan from new york city, you are watching bloomberg daybreak. Marketsth through the quickly. After a week of gains in new york, we kick things off softer. We are down by. 2 on the dow. From alltimeack highs. If you switch up the board quickly, in the treasury market, this incredibly tight range. Yields lower by a basis point on the 10year. He a little bit softer at 111. 50. A little biteuro softer at 111. 50. Lets get you up to speed on what is making headlines outside the business world. Emma north korea says the latest Ballistic Missile test involve the new rocket with precision guidance. The dictator was said to have overseen yesterdays launch. Japan says the missile may have splashed down in the economic zone. There is a report Jared Kushner has been advised to lay low in the wake of the pressure related media stories. Nbc news sites a source familiar. Kushner is said to have perceived a secret back channel to the kremlin before President Trump was inaugurated. Tiger woods has medication and not alcohol led to his arrest for driving under the influence. He was arrested in jupiter, florida. He spent four hours in jail before being released. He has not played golf for four months. Global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. Jonathan thank you very much. In the fx market, the british pound claimer for a second day a preelection polls begin to shrink a little bit. Isning us from london bloombergs u. K. Government reporter. Talk to me about how we are set up in this election. Has come forift conservatives that seem to have lost momentum in this election. They started from the 20point lead and everyone thought it was a done deal and all of a sudden that gap with labor has narrowed and Jeremy Corbyn seems to be gaining a bit of mention. That is not to say they are , butcting a corbyn win some steam has come out of the torrey operation. People outside maybe the United Kingdom not familiar with the individual, he is a tough interviewer going back decades for the bbc. When he questioned the prime ands or comic he said you back to down on social care and social insurance. If i was in russia, i would think you were a blowhard that collapses at the first sign of gunfire. The idea that if you vote for her you are getting strong and stable leadership, is she struggling to get that message across . She certainly is because so far, she has shown to be failing on both of these points. She made a uturn on social care and she consistently denied she intended to hold a snap election and then she did. People dont really know what theresa may stands for. I think the bigger problem is that a large part of the conservative strategy has been to demonize Jeremy Corbyn, to paint him has either this ima synthesizing her rent is choice for britain feel a most voters will little bit short for that. Jonathan looking at what this means for brexit negotiations, what happens if the conservative party does not get a big majority . What happens and is it something we should discuss if you and up with a Hung Parliament end up with a Hung Parliament . I think we are a long way away from a Hung Parliament. Youve got to look at other questions they are posing like who would make the best leader. Theresa may still comes out on top. It is looking like theresa may will get not as good a result as she expected. Hungis not to say a parliament, but maybe not the majority people were predicting. A lot of people are seeing this as potentially not so bad for brexit because the expectation was 100 majority pushing for a hard brexit and that may be a little bit tempered. Jonathan thank you very much. A month ago when this was called and you spoke to people about it. If you asked them about Jeremy Corbyns politics they would say what are you talking about . Lets just talk about brexit. David it meant theresa may didnt have to worry about losing members of her own party. That calculus may change even if she gets the majority, which still seems to be likely. Jonathan you just wonder whether this could be the biggest political mistake in u. K. History. David you mean the calling of the referendum . Jonathan maybe the second one. We want to bring in Jason Schenker and Chris Watling. You are in london. Our use a prized the developments over the last couple of weeks or did you see this coming from a mile away . Think sterling has certainly had a good run up until a couple of weeks ago. It is not so surprising it flatlined since getting to 100 39. I think the big mistake on theresa mays the half was the launch of the social care policy withoutmanifesto consultation and it hasnt gone down well free i think that contributed to the reduction of her lead in the polls. Also, i think corbyn is probably a better campaigner. He looks better whether or not i dont personally think much of his policies, but i think he seems to have i think he seems to have that energy and passion. If you are a negotiator in europe, you are feeling pretty good about what you are seeing in the u. K. Arent you . Chris if the polls stay way they are stay where they are, she will and up with teen 20 and 50 and realistically she needs to get closer to 100 to have the full mandate she wanted and to be able to negotiate without the euro skeptics of her party influencing the decision to much. And to give her a free hand, if you like. If i am in europe, i think that is working well for them and the Hung Parliament would work even better, i think. David it might work well for them, i am not sure how it would work for businesses involved in the u k and europe. What are the consequences here if theresa may does not have a strong position negotiating the brexit . Jason i think there are a few different ways we see this can shake out. I think if investors are looking at the u. K. And in europe, they probably need to be looking simply beyond this kind of policy squabble and they probably need to be looking at the important Economic Data. Has been strong and you have seen the british pound strengthened. Despite what mario draghi has assured today, i think we could be seeing rate hikes in the future because inflation increased in the eurozone and the german that came out last week was at an alltime high. The highest level in history and that is a leader of Economic Growth in germany and the leader of the eurozone manufacturing pmi. David mario draghi came out and said he thinks lets play what he had to say for that real needing continued support in the economy. Overall, we remain firmly convinced that an extraordinary amount of Monetary Policy support, including through our Forward Guidance is Still Necessary for the present level of underutilized resources to be reabsorbed and for inflation to return to and stabilize around levels close to 2 within a meaningful mediumterm horizon. David that doesnt sound like a mario draghi that agrees with your view of european economy. Jason dont forget, for two years he said we will do whatever it takes to support Economic Growth before they actually pulled the trigger on quantitative easing. There is also incentive to saying these things because it keeps your currency week which helps your growth and your without necessarily doing anything. The truth is the European Central bank is still the prodigy of the bundesbank. It has a much bigger weight in its mandate toward containing inflation and where ac inflation has been rising, we need to keep in mind the European Central bank raised rates in 2008. They will do it if inflation becomes a threat because of high preponderance. Is an ecb that has rates in the negative territory and a Balance Sheet bigger than the Federal Reserve. It is a different story. I have a pretty good idea of where you stand. Rate hikes anyway anytime soon from the ecb . Chris i dont think so. Ofio draghi loves the idea loose money and they needed to keep the European Union together. There is very little credit creation in the eurozone if you compare today, 3 or 4 at best. The high of 11 at the good time. The economy is very dependent on global trade and i think it would be a mistake to raise rates at this time and it would bring a lot of pressure on the weaker parts of the eurozone, which they probably do not want to do. David when did they start cutting further on the bond buying . Chris great question. I would push late into this year and maybe the beginning of next year. It probably depends on how fast the fed moves, but no time soon. David thanks so much. Jason schenker and Chris Watling will both stay with us. Coming up on Bloomberg Markets later in the day, and inclusive interview with former Hedge Fund Manager phil. He is back and he is putting his money to work. We will find out where he is putting that money to work. He will come on bloomberg tv at 1 00 in the afternoon eastern time. A live from new york for all of our viewers worldwide, this is bloomberg. Emma this is bloomberg daybreak. Coming up in the next hour, nicholas burns, Harvard Kennedy School Professor and former u. S. Ambassador to nato. Now to your Bloomberg Business flash. Citigroup agreed to sell its 6 analyst income business to the the price, 85 million in cash. Rose 6 inings europes Biggest Discount airline. They project a rise in profit in the current fiscal year. They have cut cost and slashed prices to undercut rivals. Rivals are cutting back on capacity. Ryanair ceo Michael Oleary joins us in the next hour. Former u. S. Attorney general eric holder is expected to present his report on ubers workforce issue tomorrow. That is a growing to a website that says a meeting is scheduled for next week. That is your Bloomberg Business flash. Important u. S. Economic data will be released this week starting with numbers for personal expenditures. That will be less than an hour from now and culminating in non farm payroll numbers. With you, chris. Give me a sense of your priorities about which numbers matter the most to you. Normally we say nonfarm payrolls. Chris they are all terrifically important because we cannot deduct the question other than it is a big week for u. S. Data. I am particularly interested to. Ee what the pmi and the ism do the ism seems to be more of a coincidence indicator. They will be watching the chicago pmi and manufacturing ism. Inflation will be important as well. We want to see how strong the consumers are on the weight side as well. David give me directionally where you might expect this to head. We have First Quarter gdp that came out terribly weak and that was advised last week. It is nothing to write home about. Do you expect these to get us back on track . Chris i think we had our wobble. Q1 gdp the latest i have seen for the sort of nowcast are running at the 4 number. At the moment, the numbers are at a good bounce back in q 2 q2 and i would expect that to be confirmed. Some take up tick up in Wage Inflation. Jonathan you have done well in the past cutting through and ripping up economic on orthodoxy. When unemployment goes down, wages go up. What is happening there . A good point. The phillips curve is not doing terribly well at the moment i suppose is the point. Is a really we had big rise in unemployment in the Global Financial crisis and we have been soaking up all of that onrather than the typical u3 employment. Interestingly, if you look at that i6, it is at a level if you look at that u6, it is at a level it is tended to be trending. I think wage pressures should start coming through and there is a bit of anecdotal evidence to support that. Median wages is supporting that trend as well. I dont think the model is completely broken, i just think it changed a bit because of the depth of the Global Financial crisis and the recession we had. Jason i think there is a few things. The most important data to watch this week are u. S. Auto sales which took a big hit in the First Quarter. They have been weak. We look at what happened to the durable goods number in that First Quarter gdp report and it was terrible. I think we need to continue to watch that. Think we need to watch the ism. The china number took a really big hit at the beginning of may. Oil prices and industrial metal prices were hit in a big way. If it bounces back, those will rise. If eurozone manufacturing came out critical, an alltime high in the german ethos should come out show wrong. Should come out strong. Jonathan i havent been to a dinner or a month for the last two months where it hasnt come up. What you think about auto sales . David it is the consumer which is 70 of the economy and people have been waiting for that to turn down in the question is, has it done it . Jonathan what do you think about auto loans, maybe just not the sale . Reallychenker, we appreciate your time. In london, Chris Watling of longview economics. Coming up on this program, nick burns, the Harvard Kennedy School Professor and former u. S. Ambassador to nato will be joining us. You are watching bloomberg. Jonathan from new york city from that for our viewers worldwide, lets get you up to speed on the market action. Futures a little bit softer, down about 41 points. Six points on the s p 500. We are down about 0. 2 after a week of marginal gains. If you switch up the board quickly, here is the situation across asset. Remarkably stable in the treasury market. We came into last week at around 224 on the u. S. 10 year. Anchored around 223 through the week. We are down about 2. 3 . Euro dollar, a tale of two stories. On the one hand you had a dovish president mario draghi. At the open we were softer. We firm up on the back of a report, not confirmed by bloomberg, but sources from the ecb that maybe they changed the easing bias around the Forward Guidance next week when the ecb meets. So much attention on the European Central bank just a week away from its meeting in frankfurt, germany. Full coverage here on bloomberg. We want to get you up to speed with the Bloomberg Business flash. Here is emma chandra. Emma thank you. China and Tencent Corporation is the front runner to buy european Logistics Business logicor. The company could fetch about 13. 4 billion. Logicor is owned by blackstone group. Two other firms are still in the running. Sentiment fell in may for the first time this year. Of Consumer Sentiment remains close to the highest level in a decade. The decline was led by weaker readings in the services and retail sectors. In germany, Commerce Bank sent out early retirement to about 3000 employees. People familiar with the matter say the offer includes a 34,000 they want to cut 9600 jobs over four years. David thank you so much. Jonathan i have sympathy for emma chandra because sometimes they put in those reads across the newsroom and she has to get into position. David very impressive. Jonathan fantastic job. If you were trying to Fly British Airways over the weekend, the airliner left thousands of passengers stranded after a computer outage on a busy Holiday Weekend resulted in 600 canceled flights and many asking how this could happen. The airline issued a statement saying our i. T. Systems are back up and running and operation continues as planned with a full flight schedule. We are extremely sorry for the frustration and inconvenience customers experienced and we thank them for their patients patience. Tanding and understanding how much patience or understanding there was. It is kind of the classic pr talk that comes out of a National Like British Airways. How are they going to clean up this mess . It is a good question and one that i think they are still really grappling with. If you look at what everybody is really asking, which is what caused this, we still do not know and the company has not come back with a definitive answer. They talk about a power surge, but it isnt clear who is responsible. In terms of the passenger response, many stories coming theythe airport saying were not pulled what the options were in terms of what flight you could catch. These things start to build up and i guess the question is what the Lasting Impact is on the brand that is already going through a big restructuring already coming to the media for charting things like meals and increasing legroom on flights. Jonathan the question for the why isg is white alex cruz the right man to lead the airline. He denied he was going to do that. He made cost cuts to i. T. And a lot of people raised questions at the time and now it looks like a mistake. Has he handled this well . I think it is a difficult thing to draw a connection to only because you need to kind of understand the urgency that in which British Airways needs to respond to the market. They are really suffering in terms of overcapacity, fair price, declining rapidly. Ryanair is really positioned with their lower cost base. Alex cruz really didnt have a choice. He came in to restructure the airline. British airways would not have existed in its current form if he didnt take the steps he had to. Jonathan Benjamin Katz, we appreciate your time. It seems that the only thing that matters is price and they dont really care about Customer Service anymore. We talked to ryanair ceo Michael Olearyabout that. Jonathan the transatlantic comes out of the weekend. Must take europe destiny in its own hands. Whether policies can meet the optimistic expectations and pricing and ecb president mario draghi worries about the protectionist in the United States and reaffirms his commitment to stimulus. From new york city, good morning. Warm welcome i am Jonathan Ferro. Alix steel is away today. There might be a fracture between United States and mexico or china. Germany . It would not have been on my top list. Jonathan we will get you set up for the day. Futures a little softer peerage treasuries anchored around the 223 level throughout last week and this week. 220 30 yield on u. S. Tenure. That is the story. Lets get you up to speed outside the business world. Islect the Islamic State claim response buddy for a deadly car attack in baghdad. Outside a Popular Ice Cream shop. Muslims fast during daylight hours. Baghdad attoday near least 12 people were killed. President trump is criticizing germany again today. On twitter, the president says the u. S. Has a massive trade deficit with germany and the germans take far less than they should for nato. He says it is bad for the u. S. That will change. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Reaction continues. A campaign rally, she came away from the president feeling that europe needs to take their future and their own hands. Longterm student of u. S. Europe relations having served. S a pastor an ambassador welcome back to the program. Good to have you here. As we look at the News Coverage including the aftermath of the i wantisit, the question to start with is is this fundamentally changing isationships with europe or this a matter of a new president with a new approach, not talk in way diplomats normally talk . It is a bit of both. President trump has a different style. A bull in a china shop. It is something europeans have not seen in an president. In europe, it is politics. Donald trump is unpopular in europe. It is good politics for her to say what she did over the weekend, which is that europe needs to go its own way. There is a deep substantive disagreement on trade, on Climate Change, on russia, where perceive President Trump to be the weakest president since the second world war, not defending rush against russia. Europeans perceive that President Trump personally is not supportive of the European Union. To a lesser extent, nato. Is theopean Union Primary institution they have built since the second world war. As for the tweet this morning, President Trump is describing germany as a competitor economically and not an ally. In American Fork policy. David he said we have a massive trade deficit with germany. Plus they pay far less. Very bad. President obamas of menstruation advocated larger countries as well. He is he . No. President trump is right that most europeans are not paying much. Theyre supposed a floor of 2 Gross Domestic Product on defense spending. 20 of 28 countries are below. He has got a point. The question is how are you effective with europeans question mark is the most effective way to isolate and humiliate them . Probably not. Better off fory king with them behind the scenes. If you try to embarrass them publicly especially in an Election Year for uncle of merkel Angela Merkel, that will not be effective. Jonathan you keep bringing up a fact that it is an Election Year in germany. If you were going to put forward that is not really the way you choose to do it especially Angela Merkel, would he have would she have made these comments if there were not an election . There is a series of disagreements and i listed them change. Climate new continue, but i worry as an american that our leadership of Nato Alliance and the credibility since harry truman in europe will diminish if President Trump does not begin to talk as respectfully to the europeans as he is talking to the saudi king and the israeli Prime Minister. The trump trip to thought he did well but he did not show the respect and deference to the european leaders that he certainly showed to the authoritarian leaders leadership in the gulf. It is a strange way to act because these are our best friends in the world, europe, and we need them on a lot of issues. As a matter of self interest and leadership, i do not see why the United States would want to diminish in europe. David does Vladimir Putin wake up this morning and see this as an opportunity for him to drive a wedge here and perhaps have advantages, commercial or strategic that perhaps he did not have yesterday . Cunas trying to get the sanctions lifted, Economic Conditions over the ukraine issue, he is making some inroads and is certainly trying to divide the European Union but the verio and interest inexperienced president of france shows us how to deal with putin. He complained publicly to putin thet russian interference, role of sputnik, and he also took after putin over human rights violations. That is the way to deal with russians, openly and clearly, disagree when you have to. Quite a contrast from President Trumps kid gloves treatment of the russian government. Great importance to businesses and financial markets. About tradek deficits, when the European Union has a trade deal with the United States, it is not done country by country and similarly, mario draghi runs policy and has more effect over the strength of the euro than on uncle Angela Merkel does. Certainly, merkel is the most powerful politician in europe from the most polished deaf powerful country, but you are right. On behalf ofe and all measures all members. The Trump Administration dance to have a deal with eu directly on those matters. The president and his team may have learned from his experience and may have some course correction. Certainly the National Security adviser will understand he we need but theisolate iran nuclear deal. Just three examples. It is our largest trade trade partner and investor. President needs to understand how to motivate them. He is right on some of the issues but has not figured out how to deal with them effectively. What is the objective and what is the system . If you look at what President Trump said in sicily and brussels, it prioritizing brussels and trade specifically. He is diminishing the role of europe as a military partner visavis containment of russia. He describes europe in a way that is quite harsh in terms of its trade advantage with the United States. Will the Trump Administration thatis very tough they want the kind of free trade wanted,t barack obama to come together to lower barriers of trade. Thank you. Coming up on this program, putting expansion ahead of profit. Shares are heading to an alltime high. Concerns ining brexit. We speak to a ceo, Michael Oleary, coming up. Jonathan climbing for the second day, the election polls begin to stabilize a little bit. Out there be bad news for some hoping for a big leverage. Nd more big under two weeks away, a one. Give me how things have changed in the last week or so. Labor is narrowing the gap. The campaign started with a 20 point lead. It narrowed to six points. Looking at what this means, anyone looking at the fx market and sterling trying to extrapolate to miss what it means for brexit negotiations, what does it mean . Is whatig question here does it mean for the Prime Minister. Unreliable in the last couple of years. She is no longer coming across as a strong and firm leader. She had to backtrack on a couple of issues. The election may even damage her credibility. If you are about to start off in pretty touched tough negotiations, you want to take advantage of that. It may mean she is facing a tough fried in the talks ahead. Jonathan we really appreciate your time. Weaker ratings while unexpectedly, the highest level in the decade in a decade. Lundberg, joining us around the table. The election may well happen at the end of this year. How do you think about politics in europe at the moment . They are interesting in my interest is not so much on the internal politics but external relationships forming. Anglotching the rise of dutch Angela Merkel and her taking a leadership role taking europe possibly in a direction with china and the United States. Jonathan what does any of this mean to you . A weekend full of political news and the volume turned up all the way . Im making a big shift in my tectonic plates. Ice the year up listening to , i expect europe to bond more with china. It opens up 4 billion consumers to trade with europe. More market for european exports than we will see trade with the United States. Investors to look at central asia, look at the emerging economies. That is where i think the growth of the world will be moving forward longerterm. Shorter term, the european economy is a mess. That will not change. Anything beyond, i think there is more optimism. Europe, notee it by the United States. Ertainly courting eurasia do you see a longterm strategic shift . Most of the growth in the world is from asia and china and india. These are the drivers of growth or we can sometimes lead ahead here. Will be a long time before we see any type of trade protectionism. In nato, we have had a lot of talk with donald trump trying to push more spending. It is an incredibly strong alliance. The move is toward asia. Angela merkelare right now and you are saying the things she is saying, what you want out of the United States . What you want to change in what President Trump is doing or saying . I think you want him to back down or show support to his allies. Trump puts a firm initial offer into a negotiation and that appears to be what he is doing here. And is undermining allies think merkel really needs to take the lead in europe. Macron has given some support. Strong ando show stable leadership in europe, ironically. Jonathan im not sure that will work. Deutsche bank, calling it a real keynote that the merkel speech recognition that europe must pull together. Is this more than a domestic stories just saying i am a leader, and to push to the side ahead of that election for look and she do that she has failed to do over the past decade in europe . That is tough. Unifying europe has not been a short answer. We have to recognize it was decades before the consent confederation of states started working together as a union, Monetary Policy, unified different colonies into one nation. A nationbout europe as under construction and she has to supervise that process as clearly as possible. There will not be a shortterm solution. If you will look for a 10 or 20 year horizon, i think she has the opportunity to rally europe behind her into a movement that opposes grassroots nationalism and supports pulling it together. You will be staying with us. Coming, oil slide as investors wait to see about extending opec. Live, this is bloomberg. David several countries agreed last week to extend production. Was this simply a case of buying the rule buying the rumor and selling the fact or were there deeper concerns about the effect of the agreement . Carl weinberg of High Frequency economics. Lets start with you, answer the question i just post. Is this a question where the market is builtin and therefore they sold off or is there some underlying concern about whether it really can support the price of oil . A little bit of both. Into theitions dropped agreement. See things through. Now i think you are seeing real fear in the market as they look the question is is this all they have and have a basically done all they can . Oil can fully long way and you are seeing that with the downgrade consistency consistently. To what extent is their concern about compliance . Will the russians really comply . It is a little easier for russians to comply because they did not have the issues with oil in particular. , it has gone back to normalized levels. Pec members, incredibly high they have done everything they can. If one breaks away from the deal, opec would be in a bind. Jonathan i will cut back with you a little bit. The deal is irrelevant. The economics of crude oil and thentories are so high, countries have 480 Million Barrels of supply above normal. If you chip away at 200,000, 300,000 barrels per day, you are year years away from getting excess oil in them and is back down to normal levels. Excursion, that oil is coming to the market even if oil drops tomorrow. It is still in the pipeline. We are looking at a 50 range may be for oil and we will overshoot that way down. Jonathan are you optimistic they can aaa away in a more significant way . The oil infantry letter levels going back by the and of the year, they need to do more. Cuts need to be in the 4 million barrel range. They have to move up to 2 Million Barrels. Is natural decline. It is more printable. Opec needs to do more. Moving average, is that the right part to shoot for . The 20 year moving average or more, a reasonable objective to look for if you want prices up again . I agree with you. It is just the moving average is. He stated aim at the moment it is the first barrier you need to go under. That has increased over the last few years by inventories. If they cannot even manage that, i think oil prices are in trouble. Jonathan great to have you with us. Kara will be staying with us. Coming up, michael will be joining us to talk about his company. You are watching bloomberg tv from new york. Jonathan lets whip through the market action. 20 seconds away for some Economic Data in you new york city. Up 2 on thedow, s p 500. The trust treasury market, 224 and yields down on the tenure and the euro unchanged. 11168. Across the bloomberg terminal as i speak. Personal income comes in line with expectations, 0. 4 for the month of april. Bang in line with expectations, 0. 4 with a significant revision to the number is. As well. 0. 2 emphasis on the little from 0. 1 . That was the median asked to in the survey. A little softer year on year, 1. 5 . Allies in thef expectation with the numbers. Us, fund managers, Carl Weinberg of high frequently aside from whether it was right or wrong, what does it tell us isut where the u. S. Economy at this point . There is noise coming in with all of these distortions we know about. Is relevant for policymakers is not where we are but where we could go if we continue on current trends. That is the dominant theme of discussion for the fed and should be for the markets. The labor force only grows by 1 and we will not have a lot of immigration. Then we will have a problem at some point. David why arent we seeing the Wage Inflation we would have . Unemployment,of it would have predicted a higher. Ate of wages i mean look, this is the 100 billion question. Why arent we seeing the inflation given we discussed this in the last hour. From my perspective, we had a change in workforce and a where it is completed. I am bearish on the potential should the u. S. And the core inflation drivers. If we are going to see a picked up inflation, it should be the next six months given Economic Data. Jonathan walk me through specifically wire you are bearish and the markets more generally. From my perspective, we have a massive change toward more of a parttime economy type of element. Weve also seen a continued shift away with a little recovery right now. Oil prices taking away key growth drivers, but i think in the next few years the biggest impact will be the health sector. I do not see that perhaps in contrast to the rest of the market but i think that will be. Big drag do you share that story . That is right. The lower inflation rate of what you believe wages dont start to rise until you actually go through the minimum rate of nonaccelerating unemployment. We just went through that a few months ago. In the early days of being below takes time for pressures to build up. They do not start up instantly. The feds job is the worst possible outcome. To act now to make sure that does not happen. People refer to it as the underemployed. Definitely, a big indicator of the entire labor market coming down in line. One of the key problems is predicting where inflation is coming through, were looking at the past 20 or 30 years, it is. Ncredibly difficult as karl indicated, something where the fed will have to be very nimble, it could hit at any moment if you still believe in the model. Months, three to six this is the most crucial data. Especially now with the oil you excludelity, that impact from here. Jonathan you use the word nimble and the Federal Reserve in the same sentence. When the fed becomes nimble, the interpretation is they lost credibility. Can the fed become nimble . This is ok. It is solid coming out this morning. Fed if it the nimble comes forward . I they are maintaining the steady pressure in the economy and most important to keep expectations. Lower oil prices and so on have lower expectations. That is ok and it buys a some time, but i think slow steady community of, that is what they want for us. He thinks the inflation just , are youere, if not with polar . I am. You would see the 10 year follow from where we are now. Again, it is why we are i think we are entering an important. Important time. If we start to see a slowdown and the economy slowing down, inflation not really being where meant to, what would it be im in theke camp that we will not see full rate hikes, i think we will probably see one or two more. Jonathan we really appreciate your time. , thank you very much for your insight. A quick update outside the business world. In germany, inflation slowed more this month. Consumer prices and annual rate of 1. 4 , down. Still means the unprecedented monetary stimulus. Speculation that President Trump was going to shakeup up his white house staff. The Communications Director quit. Lesson three months, he has been working totally with press secretary sean spicer. Tiger woods says medication and not alcohol led to his arrest for driving under the influence, arrested close to his home in florida he spent four hours in jail before being released. An unexpected reaction to prescription medicine. Underwent an operation on his back. Global news 24 hours a day powered by journalists and analysts in more than 120 countries. This is bloomberg. We will talk airliners with a chief executive officer in new york city 30 dont want to miss this conversation. You are watching bloomberg tv. This is the enterprise greenroom. Coming up, chief Market Strategist at oppenheimer. Now, eric holder is expected to present workforce issues to the company tomorrow. That is according to a website which says a meeting is scheduled for next week session harassment and discrimination. Billionaire Steven A Cohen plans to raise 28 alien dollars when he is clear next year to manage money. Most of all of the 11 billion managed by the firm would be part of the new hedge fund operation. Agree to a twoyear ban to manage outside money to settle claims. Shares of aig are falling today. It will run full flight schedules in london after a weekend computer outage grounded hundreds of flights. The da says there is no evidence the problem was caused by a cyber attack. It would cost the airline 130 million. David british air may have had a tough weekend but ryan air is trading at an alltime high after reporting full year earnings this morning. E ryanair has cut costs thank you for being here. Welcome. Give us a peek into your earnings. What are you looking for next year . We did well. Europe had a lot of security issues. Profits up 6 , earnings per share, this year is slightly more benign. We grow traffic probably by 8 . Costs will be down. We are saving on fuel. Fares this year down 5. 7 . David how does it look from your point of view . Our low price is 94 , a record high. People are moving around to get events like over the we can only be good for our business. We dont expect to have the kinds of ip issues over the weekend. You have to wonder where the disaster he program was. Was it a better weekend than it usually is . Cover we like that certainly seeing a buildup yesterday and today between july and august. These events befall all companies. Jonathan what they meant was putting the emphasis on cost and away from Customer Services. Give the guy some advice. Can you get cost down and neglect Customer Service in your experience and what you have learned . We have the lowest fares and the Getting Better program now. All the Service People expect. We dont expect that you trade off Customer Service with cost. Problem for someone like they talk about cost but they never cut the airfares. The fares are still high. Hold in theshort u. S. And europe has become commoditized. The lowest cost wins. The fact is the lowest cost is ryanair. It went down by five points. Now we are up two or three. David is it taking more market share within europe . You have got a long haul. For example, the United States. In europe. The opportunities, they will come out smaller. In germany, it will come up smaller. With ryanairmpete on price and cost. In if youre out of open skies, the only way you can go to europe is do with the europeans in the next 80 months. There is no possibility they will negotiate the bilateral in 18 months. One of the ways of taking a stick to the british economy is after march 19. They will start putting pressure on theresa may here there is a flights to and from the u. K. Jonathan have you stopped investing in the u. K. To the extent you otherwise would, and you look at italy to pick up assets . We are not any new aircraft in the u. K. , any for the next 12 months. We can pivot those away from europe. We need it and we need it quickly. Talk about how much that has changed and what is the objective overall to get 10 or 20 and how likely is it . It was in order for six secondhand aircraft that boeing could not get rid of. We showed up like the peasants we are and thankfully boeing had no home for them so we got them. But i think we bond well. We place another big order two years ago. That would be 600 aircraft. Were taking 60 aircraft per year which is enough capacity for us to grow on 20 million last year to 200 million pastors annually, which means we will push out across europe, and grow markets across europe. Who do you have an eye on and would it be more of an upstart starting from scratch or a Discount Airline . All our competitors in europe, they are much higher cost than we do. I do not see an opportunity because ryanairs foot print across europe, who will start under nine dollars . But i think we have to be cautious and continue to it here to the model of low craft. Ircraft lowcost aircraft for the next year or two, it looks like italy, germany, poland, and spain. Whatng down prices is established huge leadership across europe. Jonathan you bring of italy a couple of times now. When you look at that situation at the moment and how it might play out . A significant expansion for us in italy. Emerges, itght means we do they will be small on short hold. Hey cannot compete the future needs to do more long hold. They are constrained by the partnership agreement. They have a Bright Future but need to find much more and not ridiculous a agreement they had with france. Jonathan when does my mom get to fly to want from london to new york . A couple hundred dollars . Probably doing it now but i would be cautious. Setting up level, which seems to me to just be a way to sit on , now sitting down on top of norwegian. Do it at 10 at ryanair, take it to italy and spain and portugal, who needs the u. S. . New aircraft, 30 inch, brilliant boeing aircraft. Really great to catch up to you. Thank you very much. Coming up, an exclusive interview with the Holding Chairman and chief executive officer. From new york, you are watching bloomberg. Jonathan President Trump blessed germany over defense. The bond is the bedrock of european relations. We spoke with nick burns earlier about trade. This is deep disagreements on trade, Climate Change, where the president has not committed to russia. S accord, and on i think the major problem here is the europeans perceive President Trump personally is not supportive of a European Union. Jonathan joining us now is michael mckee. There are two areas of disagreement. One is on Foreign Policy and more specifically the Transatlantic Alliance, and then trade. The deficit has been on the minds of a lot of people for a long time now. It will not help at all. Criticizing the germans might constructed in a fashion. Talking about them manipulating the currency is ridiculous because they cannot affect the euro by themselves and cannot negotiate a bilateral trade in the eu. It does not really get us anywhere. Classes this a lot of sound signify nothing . Will be in terms of what will happen. It could damage the alliance on a Foreign Policy basis. One thing to keep in mind is that it is true as donald trump has argued, that germans and most of the rest of the eu do two usn2 of gdp in day. The u. S. Spends almost double that which gives the countrys more money to spend domestically rather than in their own defense. It gives them a little advantage but we are still growing at the same rate. We could put more money into it. Assume if they did spend that money domestically, maybe it would solve the other problem in germany that they would loose to mastech spending. Is it something they can do more of . They certainly can. They could cut taxes if they wanted to. And get germans to spend more money on retail. It is the kind of thing we pressed china to do for a long time. They could bring down the trade deficit if they imported more from the rest of the eu. It could help italy and greece and they need help right now. Germans to have a responsibility here. Jonathan that is the irony. It is just a way of going about this. More on this story, fascinating coming up. From new york city, youre watching bloomberg. Jonathan chancellor merkel says europe must take its destiny in its own hands. Fed presents as the jury is out on whether the party can meet expectations on pricing. And markets return with a vengeance as volatility across asset classes. Im Jonathan Ferro alongside david westin. 30 minutes away from the opening bell. Futures are little bit of gains. 0. 15 . If you switch up the board to 23 on a u. S. 10 year, the eurodollar is rather stable. Get you up to speed on movers ahead of the open. Abigail doolittle. Good morning. Action and more than 28 . Both of these are offshore drillers, paying 10 per share, 33 premium. Drillsar, more than 100 and working on two more. Be giving the entire thing a left. Also trading higher, and upgrade on goldman sachs. Toy raised the rating evaluation last week. A rare fiscal on thirdquarter earnings miss. Rallying a little this morning and analysts saying it is a nice bounce back opportunity. Lower, analysts there seized more than 20 Downside Potential citing deteriorating fundamentals and interests. 9 bearish it seems the and neil it analyst sees a continuation of that sort of selling action. ,onathan joining us to discuss intelligence chief equity strategist. The situation over the weekend looks fractured and dramatic. Ans it matter there is ongoing spat between the United States and allies . I dont think so. Sign of seem to be a the times and transitions occurring in washington and around the world. This is a highly transitional environment with an unconventional presidency. At the needlooking trade is addressing treaties that may be anachronistic if we consider and happened of technology the process of globalization. Jonathan the big fear was protectionism, that something would happen with the United States and mexico. Not expect the United States and germany to be a big focus. Tweets to be followed up by policy and rhetoric to be followed up by changes in policy . By necessity there will be an incremental change but generally speaking, the size of the trade between the u. S. And germany is something beyond politics and various interests involved in tied to job growth and the prosperity of corporate interests, and they are likely to outweigh the political risks. David on one hand, trade, and on the other hand to mastech issue such as tax reform. Is there a relative weighting in your mind . Down, younarrow it are looking about a 7030 split. Domestic issues are much more important here in the s p 500. You are looking at global issues and the tagus and most important driver will be the dollar and that has been following over the last several months. The dollar is down your today and that inherently is creating youpport system so until have had real change in policy as jonathan suggested, markets will trade on what fundamentals are telling them and they are pretty supportive. Has the dollar come off so much . The fed said it would keep raising rates as mario draghi over the weekend said not so much. You would think that would strengthen the dollar. Is this an anticipation of the fiscal side in the United States . May be but i think it is a more monetary question. Change is not that the fed will continue the interest rates. We have known that for two years and the fed has been on a tightening path. But may change this year is the ecb stops continuing to inflect their Balance Sheets. It is a matter of what we priced in. Have struggled to maintain the rally. A lot of strength in the United States early. The weak euro has given a massive boost. Euro,f her mind to the the United States as well. The euro is off its perch. We were big proponents of the dollar falling this year. We thought it was way over priced last year with the bond market oversold. When we looked at the situation with the rally in the bond market, it is not surprising, rather the decline in the dollar does not surprise. We have to think it is all a aogression that is part of huge transition occurring and it is a mix of good and bad stuff but the good stuff is outweighing the bad stuff. Do you think the dollar will continue to weaken from here . Classic will moderate some. I do not think we will go down another 4 from here considering the dxy. I think those are going to remain and rotate withinis as well. I think it will moderately , globalen Going Forward Asset Allocation happening now. The trend is the friend. May be more than the market, the hit line the market has gone too far. Not very helpful for the rest of the year. In reality, the market has priced out expectations for anything happening since at least february and march of this year. We have moderated these expectations. Futures. S better than moderated a lot over the spring. Nonetheless, there is something underlying the earnings streak. That is irregardless of what happens in washington this year. There is a bit of economic momentum and a lot of that is coming simply because we have seen stabilization of commodity basis. A little bit better growth this year then you then last year. Story. Ot the entire weekhould that is a comparison to last year and cannot continue . Some of it is attributable to a week earnings trend. The quarters have been positive the set about 11 companies this week. The effects of a cheaper dollar roboticsainment algorithms as well as additional thisg beginning to occur, International Economic recovery, expansion of the u. S. At 2. 5 annualized, it looks good. No boom, no bubble, no bust, we will take it. Higher. Rather grind jonathan you will be sticking with us. Lets get an update. President trump is criticizing germany again today. The u. S. Has a massive trade with germany. Says this is my bet for the u. S. But it will change. There are indications President Trump will shake up his white house staff and his Communications Director has quit her he served in the post for less three months and has been working closely with press secretary sean spicer. Signals apending Second Quarter rebound is on track. 4 . S reach for in december, and roast the same amount. 2 . S below global news 24 hours a day. This is bloomberg. David. Curve continues to fund it with that means for the Financial Sector next. This is bloomberg. David tech has been for supporting the s p 500 wife while financials are softening. The question is whether these trends are likely to continue. Oppenheimer in june of bloomberg intelligence. John, you have a contrary in view here. Getting out of tech and more into fighter truth financials. You need to stay in your position in technology and not decrease it. For thehe of performers year. Just because of investments going into a multitude of sectors. Have been abandoned here for a while and expectations the Net Interest Margin would ride in widen significantly the effects of the economy being rather sluggish compared to what some people expected initially. While theyancials are cheap rather than chasing them higher later. I recall the tech sector is right 23 of the s p 500 now in that is pretty rich for anybodys portfolio. Quite slow does the yield curve invented what is the yield curve embedded . We will go through time especially in the front end of the curve where we see yields rise in part anticipation of further yield hikes. It is not good for banks, but we think as we progress further, the market will be discounting next year with expectations if we get some wage growth in here, which we have not seen a heck of a lot thus far. They might begin to tweak higher. We do not think it is so much the fed will raise, it just. Ight go every time jonathan gina, you have come out front of this program and said financials will go nowhere until the 10 year yield starts to rise. Is that still the story for you . On a relative basis, it matters where the tenure goes. If we get a reinflationary stimulus, that could impact the 10 year and improve the importance of the relative performance of the Financial Sector. For now, financials are cut and until the 10 year can push out above 2. 4 , probably caught along with the 10 year. You talking about fiscal stimulus . Lets you can get it in a number of ways. Get consumers feeling a lot better about the economy, you can get wage growth and spending. Get ae got to somehow reinflation going. Does it come from . From my view, it will come from the economy, from the Global Economy. It is ultimately the biggest theyll out, the economic recovery on an international basis coupled with the expansion we have here in the modest base in the u. S. It remains the accommodating nature. Ofticularly in the area infrastructure, you just have to take a cap up the drive some time. We really feel like you drive on a running farm road after a deep rain storm. I will paint a picture for you. You talk about the United States, this is the economy in the United States. You try to reconcile the direction of the economy with what is happening supply and demand and how some of these banks, basic ranking, will get done in the next couple of years and what it means for the autumn line. The bottom line. Be,ne of them may very well when they are allowed to begin , because ofends some advance in prices. In terms of getting back to the loan origination, it is a big question when that happens. The problem with the entire Recovery Project process since 2009 was we are heading in the right direction but were not going to arrive overnight. If we were having this conversation three or four months ago, it would be about the deregulation of the banks and a lot more loan origination. It is just that never was a possibility. We did go through postelection were confidence just sort. Consumer confidence, expectations soared. Cinch since mark for march 1, the economy is on a slow but bumpy path. There is a bright spot john pointed out. International conditions approved appear to be improving especially in europe. There is emergingmarket joining some china negative signals, brazil and turmoil again. What is happening does seem to be some sort of sustainable recovering pyramid we dont need to as much as in the past. Past 2 rd to get growth. Jonathan from an index level, help me out. You have painted a picture of a really strong europe. Why do i want to buy the United States based on that . Multinationals, something derived by revenues some p 500, and in sectors, individual companies, substantially more. Exposed and also it is the accountability, relative transparency in the. S. Versus other areas consider the difference between the recovery and the u. S. Banks over the last eight years and the Recovery Process much slower in europe. Ultimately, the u. S. Is both consumer as well as exporter, primarily export driven, more balance between export and consumer. Coming up on Bloomberg Markets, a little bit later today. An exclusive interview. The ship chairman and ceo. You are watching bloomberg tv. Jonathan welcome back after a long weekend. County udell counting you down from the open. About one of the traits going into 2017. We now go into the trade on may 30. Give me the why. Request a lot of people have rotated out and moved into technologies and some moved into health care and gave it a nice bump. Consumer discretionary became popular. Utilities that one point here. The thought was people maybe had boosted materials and industrials up on the trump bump expectations. Expecting some kind of infrastructure overnight but that did not materialize. But is the time to own them as i mentioned earlier, the infrastructure looks like the likely stimulus package that will come to fruition. It was something Hillary Clinton planned that trump had planned on a larger scale. Both sides of the aisle can come together on that. What do you see . Updated our Sector Allocation model last week. It has been defensively name toward health care with a lot of tech. We view tech as a Defense Sector here. Last week, industrials and materials toward the top. It is not on the for structure spending. It is on the reality of earnings seasons, very bright for these sectors. More companies actually guided for better growth. A lot of it is coming from europe. It is here in the United States. They are seeing stabilization in commodity areas and they are seeing the flow improve. Bouncing off oversold levels from the spring, that is supporting the technical as well. Jonathan can you be long without being bullish as well . You can be. It does not help to be positive buthina but bullish on it, the consumer growth is around 10 , the necessity of government in china to keep the economy rolling based on its mandate and try to avoid social unrest at all costs. We cannot help but think that waiting for a hard landing in china has been like waiting for the last 15 years. So we look at it and we cannot help but think it feeds and. It is the International Story and we have also got m a within materials. It does not make a lot of headlines but it is there. Classy can be long without being like it feels it is an interesting point you make. You have to distinguish between commodities as well. There is a different trend between metals and oils right now. Jonathan 7 31. The corner, youre watching bloomberg tv. City,an from new york you are watching bloomberg daybreak. I am Jonathan Ferro. About 21 seconds away from the opening bell. Futures are negative, down about. 1 on their dow, up by almost. 21 s p 500 after a 20th record closing high on friday. We did put another record and closed out the week for a marginal week, as well. A marginal pullback may be as you hear the opening bell in new york city. Equally tight range on 10 year treasuries, anchored around 220 something, though 20s. The dollar goes nowhere. Crude a little softer. That is the story across assets. The price action muted. Here is Abigail Doolittle with the cash open. Abigail on the open, this follows seven days of gains for the three major averages with the dow gaining 2. 3 and the nasdaq, 3. 3 from a couple weeks ago, and the s p 500, if it can finish higher, it will be the ace gain in a row. Game in a the eight row. Looking at some of the drillers, we have at would up 24 on a takeover. These are good offshore drillers. 72 cents per share. And theyhave 11 drills are rented for up to 600,000 a day, not so bad. It seems to be giving the space a left. Those seven happy days days for the major averages, you would not be surprised seven up days for the major averages, you would not be surprised by the volatility. This is the Merrill Lynch cross asset look at risk. It has been below normal, adjusting or confirming what we have seen with stocks trading higher. From a contrarian standpoint, you have to wonder what this means ahead. Maybe some of that anxiety or risk will be coming back to the markets. Jonathan thank you. About two minutes into the session. A little bit softer on the margins. Oppenheimers very own is joining us and bloomberg;s stocks reporter bloombergs stocks reporter. There is an absence of anxiousness and the chart makes sense in some ways. I think it does in the sense that now, its fundamentals are driving the market higher, as the pe an expansion of thisple by the virtue that year and last year, if investors who it stayed on the sidelines for years are finally getting market,o the equity even though this year, growth has outperformed value. The master, value outperformed growth and you have a baby boomer generation in america going into that Fourth Quarter of life and the functionality and the ability to find companies that can pay dividend that is more attractive than a 10 year treasury, as well as per capita appreciation to help that might beon ahead, it looks like a good idea. David is it the fundamentals or at the fundamentals demographic . That is an interesting point. That almost sounds like the lack of alternatives pushing people into equities to some extent. I would wonder, we need to look at the allocation breakdown. This is something you guys put together and i like to look at every week. February, you guys took some f cas out of cash and no surprise that search for yielded not extend into an extension of allocation of bonds for you. Bonds, we stayed at 20 and increased equity exposure to 60 to 68 , which is hyper us. With which is high for us trade with the realization that at this time, you have a where greater risk in bonds then there is an stocks near term. It doesnt mean things will not go back to a more normal environment at some point. Right now, theyre very fact of the matter is if you raise rates, existing bonds, especially governments, tend to have a problem with prices. Would 60 to the bigger risk . John i would say u. S. Treasuries at the bigger risk. Jonathan why . John just because of the depth of the market and the way that it is played, the speculation involved, trading for currency positions. Jonathan by definition, the depth and breadth of the market should mean, it is less risky. John you would think so, but it brings in huge players, and when bey make moves, they can pronounced. In 2013, considered the fed suggested they were thinking of tapering the monthly buying program. We went on the 10 year from 3. 02 on may 2, 2013, to percent. Interest rates not just go up because inflation is rising. They go up because it could be credit risks, less likely that, but most likely anticipation of inflation, timing, projecting the cost of the deficit, what the fed is doing with its Balance Sheet and that can create interim volatility that makes the u. S. Bond market particularly treasuries less attractive to us. To 16 you said from 60 in equities. You like help care. Why did you move toward health care . John because it had been decidedly abused by the market last year on reasonable concerns that political risks are risks tied the government attitude toward pricing. Somewhat good sense they were looking at it of profitability of health care, but we got valuations looked attractive, so early this year, we moved into health care and we wasted from a market performer to our performer. Jonathan amazon just minted 1000 this year, a record high. Lets go there. Oliver lets go there. Bifurcatedt of the things happening. On one hand, we have seen a pretty good quarter for earnings, which had kept valuations at bay. The chart i am looking at is an index of the bloomberg track that looks at this valuations for the stock market, minus companies that do not have positive earnings. You can see the difference. This is basically what you have, the spread between the two indexes, where companies do not post positive earnings. You can see the valuation gets higher. That is a function of more companies not putting forward earnings. What do you make of this chart and what it means for valuations are you see more companies that are either zero or negative earnings . John some of this reflects transitions occurring in Many Industries that are tied to technology and globalization today. In many cases, emerging Market Companies can become on a much faster track to become competitors of established he was companies because of technology and globalization. On a large scale, inc. Of alibaba. Of alibaba. Who had heard of it when amazon was in its holidays . It can happen was in its solid days . It can happen. Consider the mergers occurring in the chemical space, much of it in selfdefense. David alibaba is a pretty good investment. The jury is out on Something Like snap. To what extent does that chart indicate irrational exuberance . John i would have to think, especially in the markets that have performed as well and climbing a wall of worry, you are bound to have pockets of international exuberance. Theaw it with bitcoin in last month. It is bound to happen. Some is the speculation that begins to occur on the fringe of the market as it gets larger. In addition, you have people desperate to catch up because they doubted the major equity rallies we have had and relative strength of those markets, so related to this, the other side of it is as the u. S. Economy gets stronger and international gets stronger, you may see more companies that become profitable. Jonathan John Stoltzfus, thank you. About nine minutes into the session. Utures marginally softer s p 500 negative about. 1. Almost 30wn by points. Amazon making the headlines, eight day winning streak, alltime high. Briefly, printing 1000 on the stock, up by over 30 year to date. From new york city, you are watching bloomberg tv. Emma this is bloomberg daybreak. Coming up on Bloomberg Markets, and interview with the ceo and at 1 00 of acc holdings p. M. Carol British Airways left thousands of passengers stranded after an outage resulted in 600 canceled flights and many people are asking how this could have happened. Joining us to take us through what happens next is bloombergs Benjamin Katz from london. Does British Airways know what happened . Regimen not yet at the moment benjamin not yet. We are told there was a power outage that triggered the outage over the weekend. They willsaid continue with an investigation and try and nail it down. There is a lot of Unanswered Questions and a lot of people drawing, including the unions, drawing connections to cost cutting restructuring that British Airways has been pursuing. David we have Michael Oleary who was on earlier, and he asked where was their Disaster Recovery plan . Did they cut costs on things like i. T. And Disaster Recovery . Benjamin we are not entirely sure. It is one of the things for dish airways, even the spokespeople, have not been able to clarify. Whether or not it is a costcutting issue, it does not help with the brand. They had done a few things that their british customers, asking to pay for food on flights and decreasing the legroom on the flights across the atlantic, so it is a brand issue that may be the most part. Personally, the business did not get to take it vantage because so many of their claims were sold that ahead of time, but we talked about whether you could offset Customer Service with getting cost down and neglect one for the other. Take a listen. We have the most ontime flights, the lowest tears, and the lowest fares, so we do not accept that you trade off Customer Service would cost. Jonathan is that a challenge for British Airways . To get cost down without losing Customer Service . Is the program like the one they run an advantage in keeping people on board, whether they like the service or not . Benjamin it is a great question. What is really core to answer it is the idea of where British Airways started. British airways started essentially with a luxury carrier compared to what we had today, free food, drinks on flights, and now they are trying to downsize that. On the other hand, another Company Started with victorious with notorious Customer Service and they treated their customers badly. Oleary, michael i mean when you really see this is a divergence of British Airways trying to catch up with other companies and them saying, we throw you something as small as a second bag in the cabin and suddenly, other companies are seen as more charming. Jonathan you flew ryanair and everyone did not appreciate the Customer Service, but a parade of journalists try to question Michael Oleary about this. Why dont you sort it out . He did not care. He did not care, but this morning, that changed. The stocks are on record high. David they did not make a pretense to be a luxury airline. They said, we will give you cheap theres cheap fares. British airways on the other hand said we are luxurious. I had a bad experience flying out of geneva or luxembourg, getting back to london, and i was stunned by the way they treated passengers. I am being candid trade they will probably throw me off , but i do recall saying to my assistant, next time, no ba out of geneva. Jonathan that is what happens, we could have had any other airline off the back of it because so many have had difficulties. Benjamin, we appreciate you joining us from london. John, i want to get final thoughts on the transports. In the United States, lets talk about that specifically. We are still a bit oldfashioned when it comes to airlines. We always suspect and remember their days in the 1980s and 1990s. We recognize that one of the few bad choices was years ago was an airline pick. You arelem with it is beginning to see increases in labor cost, i think it was paying theirtarted pilots and flight attendants more. I fly united a lot. I will tell you it was a great idea, but the point is, it is a highly competitive this mess. They have been successful algorithmically figuring out the way people travel and make money, but the reason is a lot of costcontainment. We are getting to this point where Michael Oleary, a sharp guy, he has timing to shift attitude. Jonathan famous line, if you want to become a millionaire, the biggest ways to start a billionaire and buying airline. David but he was back in the full . Warren buffett read he said, we believe in this, charlie and i think it will work. John he is following the algorithms. They know when the Business People fly, when momandpop fly , even when the slackers fly, and they fill those planes. In the process, they have to remember to have human beings on board, even if we were cattle, they should treat the cattle better. David [laughter] ok, thanks to John Stoltzfus of oppenheimer. Coming up on Bloomberg Markets, ceo of Murray Energy will be joining us at 2 30 in new york. This is bloomberg. David this is bloomberg. I am david westin. President trump has to confront the reaction to his right the ashes largely ridiculed budget. Mr. Hunt wrote the proby. Ueller is deadly serious the only limit to his investigative power is trumps authority to decide he is a threat and fire him. Republicans recognize trump has made dangerous enemies. Al hunt is the expert in all things trump, so welcome back to the program. I do not know where to start, the president had this nine day trip and he has a lot of things to conference. Al he does. Lerrarching is this muel investigation. It is huge and will dominate the Trump Administration for the stable future. It is an dangerous territory for the white house and republican party. We do not know where it is going to go, if criminal acts of been committed, but we have a respected and experienced special counsel. As you read from that column, bob mueller has such standing that he basically is a free agent. David reports already over the weekend that he is wasting no time. He put together a budget, brought a couple of years colleagues, brought a couple of colleagues and has office space. Al do not forget, theres no one on the face of the planet who knows the fbi as well as bob mueller. He knows where to go, what resources to draw on, we can trust, who is good. There is no one that has the kind of background for this task that equals or comes close to bob mueller. David one of the first things he did was tell the fbi, do not send those documents to capitol hill. I would like to see them first. When of the issues percolating over the weekend is Jared Kushner and his status and investigation as it may pertain to him. Al that i think took it to a new level on several fronts. First, it is affected trumps former campaign manager, security advisor, attorney general, but this is family, this is probably his most important white house advisor. With Jared Kushner reportedly did was confirmed by other tooknts was before they office, while the Obama Administration was in office, he tried to secretly set up to the russians a back channel. It would be communicated through the russians. Whether that was done because he did not know anything, that in itself is alarming because he has an amazing portfolio, and for someone who is this naive, that is worrisome. Whether it was for some various reason, which is more problematic, but Jared Kushner, his stock has tumbled in the last couple days. This is really serious. David dont president s sometimes have back channels to foreign governments to can make it with them . Why is this different . Al different on at least two levels. They usually do not have back channels before they take office. It was the Obama Administration, sanctions were imposed on the russians. Jared kushner also met with putins banker. Which he did not disclose until it cannot. And secondly, when you have back channels, it is not done through government. This story said they reduced the russian embassy. That is unprecedented, and people like michael hayden, john mccain, they just said they had never heard of anything like this. David al, tax reform, is it dead . Al it is on life support. There may be a tax cut this year. There were not be a big tax reform. David thank you. It is always great to have you. You know washington like no one else. An extraordinary story. Is, and the really question quite significant for investors is it kushner stock tumbles and the president distances himself professionally, who fills the void . Mr. Bannon . Where does the leadership come from and who will get closer to the president . Question. T is a great he does have some people around him. Jonathan many Market Participants hope kushner would take the reins and bannon would take a step back, specifically on trade. That is one day before tomorrow. Thank you very much. Jonathan ferro, alongside david westin, inside the market session. Down about 29 on the dow, down about 2 on the s p 500. Vonnie it is 10 00 a. M. In new and, 2 00 p. M. In london, 10 00 p. M. In hong kong. I am vonnie quinn. Mark i am mark barton. Welcome to Bloomberg Markets. With makings start Economic Data in the United States. We have personal income and spending and now consumer confidence. Here is julie hyman. Julie in terms of consumer confidence, we are seeing a theing up 117. 9, lower than 119. 5 estimated, and also worse than the 120. 3 that was recorded in the prior month in the april. Consumer confidence is weakening to some extent is still remains at a relatively high level. 117. 9 from 119. 4 from 119. 4. We did see a rise but at a lower rates, someone to compare them. We do see some correlation. It has tightened si