Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170612

Flanneryw ceo jeff as the new ceo. I love the job, the company. Andink today is confusing, on the other hand so interesting. Iran gen 2008. I ran ge in 2008. It was bad every day. David joining us now is a bloomberg as dus analyst for intelligence. Why now . Jeff immelt had been getting pressure from all sides. Theystepped it up when initially bought into the stock. Would be passive investors, and when the numbers did not come through, they stepped up the heat. That was part of it, but it had been coming from a lot of different directions. David why hasnt jeff immelt been able to get the stock up . 2009, he did get a nice bounce as he started to redirect the company. Is a questionat among a lot of people. Shrunk ge capital, went back to the industrial base, started a major Digital Strategy , but the numbers have not been coming through and people have been upset about the cash flow. It is one thing after another that has led to the frustration. , that decided that immelt it is time. That pressure have been building. Jonathan bottom line, not every day, but for investors, it has been. John flanneryut and what he has done it ge and how important that will be for the overall business. He wasr to health care, in a strategic role. In shrinking ge capital. A Business Development looked at the portfolio and has been inside each of the businesses. He did get the organic growth going. Margins have improved. Bloomberg just met with him several weeks ago, and i commented on the impressive job he had done on Getting Health Care going again. Health care is a big question. Hek that will be looked at it before he took on the role and said this is a business we looked at and are keeping. So that has been another question on peoples minds. I think that will come up as a question as well. He helped to remake the company. I think he is a good guy for the role. David into what is my question . Where is it likely to go. You have a more traditional industrial part of the company, oil services, as well as capex investment, and then you have immelt saying we will go into the internet of things. Is this more a tech company. Is putting oil and gas armslength and simplifying the Company Another step. Chance thegood ownership and baker hughes will be spun off because of the way they have structured the new country any company. I think digital is the longterm strategy, but will not be a driver for many years. It is just too small relative to the size of industrial. It will stay industrial and have a digital kicker. David thank you very much. Great to have you. What is next for the fed . Economicanleys chief economist will join us with her outlook. This is bloomberg. Set ton theresa may face furious lawmakers following last weeks parliamentary loss pledgedris johnson has loyalty. George osborne has had a good time of the last week or so, labeling the Prime Minister dead woman walking. Signs of stabilization across the channel. Emmanuel macron expanding his control as voters put his party on track for a sweeping majority in the National Assembly. Joining us now to discuss both relativestories, the stability in europe compared to instability in the u. K. Lets talk about it. How long can the Prime Minister hold on . It is a tricky one. We heard from a number of voices of the last 48 hours. In public, they are saying they support her. Fromard from graham brady within the tory party. He said there is no appetite for a leadership contest. Liam fox, david davis, other prominent brexiteers back the Prime Minister. There does not seem to be an appetite to overthrow her. George osborne saying she is it dead woman walking and how long she remains so is the question. A reshuffle of her top team over the weekend. She had to leave a number of managedn her team, but to bring on favorites and had to bring in some more brexiteers that she had sideline previously. Jonathan it has become more interesting with george osborne. I wonder if she regrets having fired him . Jonathan im not sure she would fire him again. It was the middle of april. Into the question after the president ial election is how would he perform in the parliamentary elections. How tough was it . It wasnt that tough. We were all very anxious one month ago. Now after this first round, it looks like Emmanuel Macron could get three quarters of the seats in the National Assembly. Would be the strongest majority we have seen in more than two decades since 1993. The opposition parties are in disarray. Socialists who had been governing over the past five dead less than 10 in the first round. They were only get 2030 seats. The National Front, 10 seats in parliament, but Marine Le Pen could get a seat. Weather. The david the view. Jonathan it is tough in westminster. , nick burns and mark chandler. April, if i put to you french politics would be more stable and u. K. Politics, what would you have said . I would have said you are wrong. I think this is an extraordinary revolution for Emmanuel Macron. There has been a large majority in the lower house. What he would like to do is take a big run at labor, pension, and tax reforms to get the French Economy going, then link up with Angela Merkel and france and germany forming this center to get the european economy going. This is an auspicious moment now. Last two french president s have also tried to reform the French Economy and then defeated by unions, students. He will face that pressure, but has a lot of momentum. Jonathan there is significant optimism behind him from investors. Talk to me about the nature of the conversation and negotiations and how this has changed . The conservatives got the elections wrong. They have been significantly weakened. Theresa may can survive politically, it is not clear she can survive for the next year or two. These negotiations are very tough. Understands that this negotiation is theirs to dictate right now to britain. A strongerthey want negotiating partner on the other side of the table . There is such disarray on the u. K. Side. They do. They have time to do that. If you are in brussels now and negotiation,is youre looking at and negotiate partner who were not be at the table in theresa may 19 months from now. The first time this has happened. Anything is possible, including another British Election before the end of these the negotiations. This is a country badly divided. The conservatives did not do disastrously. The percentage was higher than it was in 2015 under david cameron, but significantly weakened. I think the british people are divided about the wisdom of leaving the european union. Jonathan nobody really saw it coming. Mark chandler, if you had do pick a europes trade, does the politics holiday that now . The fivestar movement had a big defeat and local elections, so speaks to the resilience of the system, wendy body politic has been attacked, the antibodies strengthen. Proeu sentiment is on the rise in every country in europe. Nationalist moment seem to be restricted to the u. K. And the u. S. Jonathan the irony is that when the referendum was put forward, some people argue to get out of europe, and now the situation has done a complete 180. I do feel like the optimism is going to far in a country like france. It is difficult to execute reforms in a country like france. Matteo renzi did a good job in italy, then had a really difficult time as Prime Minister. Is that what we could see from Emmanuel Macron . David he is young. He is untested. This group he has put together, his cabinet is untested. He will face some opposition in the streets. What we are seeing in europe is a reaction to donald trump. There is great concern that he is treating germany and europe as economic competitors more than Strategic Military political partners. That reverses 70 years of american foreignpolicy. The disastrous meeting at nato has worried european leaders and galvanize support for a stronger europe, and for some europeans, they dont want to see this great experiment that goes back seven decades fold right now. I think trump is fueling some of this togetherness in europe, to kerley germany. The youth vote stands out in my mind. And inr Emmanuel Macron the u. K. , i tend not to play up the u. S. Role and a reaction to the u. S. , i think europe is on its own evolutionary track and this is a response to the inability of the elites to deliver the goods. About highl talking levels of unemployment among young people and an uncertain future. David a great point. When we began this story, it was about reform of the eu, not france, the eu. A lot of people thought they were justified in that. Is anything leading to fundamental reform . Is there a structural problem with that union . A lot will depend on the other elections in germany. Returns comekel they have to think about a fiscal union, strengthening and rationalizing brussels. She will finally have a french partner in Emmanuel Krahn who can be that other leader to push that with them. They may not have produced the results of the elections, but if you are Angela Merkel and are lookingron, you at an unreliable partner in the United States. She has started to talk about that at political campaigns. In bavaria of all places. We welcome friday morning, and there was debate as to whether the u. K. Would shift towards a hard brexit or softer brexit, and that we can coverage has been cherry picking and narrative, pick a new member of does new burns said on that now about where Prime Minister may needs to take the negotiations . I dont think they know right now. It is a shock to the system. She will hold onto power for the next couple of months. Im not sure the conservative party can answer that question. If i ask you who will last longer, Prime Minister may or janet yellen, everyone said janet yellen. Notn the uks case, im sure hard or soft soft brexit is in their hands anymore. The initiative is in the eus hands. I think soft brexit, hard brexit, not in the u. K. s hands anymore. Jonathan an important point. You will be sticking with us. Coming up, the tech selloff shows no signs of easing up today. Shares are lower in the premarket. Another analyst and cuts the stock to neutral. Be man behind the note will joining us at 9 00 a. M. Eastern time to reveal what is behind this market move. You are watching bloomberg tv. David the Trump Administration healthng to get back to care reform this week, but james comey in the Investigation Continues to lead the news. I believe sunday, the james comey leaks will be more relevant than ever thought possible. Cope where are we with this rushing investigation . Kevin still ongoing. Several sources still dont know whether Jeff Sessions will testify publicly or privately tomorrow when he is on capitol hill. Deputy attorney general rosenstein will also be on capitol hill this week testifying in the house of representatives, so the backandforth continues as the Trump Administration tries to move on. Worth noting that the russians sanctions bill will be up for debate on the senate floor beginning today. David in the meantime, the world goes ahead and we have qa tar having a little difficulty with the gulf states. What is the president and Rex Tillerson trying to do . Discrepancy some whether there was space between the secretary of state and the president. President trump on friday having tough talk for qatar, saying they will have to make amends to ease the relationship with saudi arabia. Not only send a jolt to the middle east, but also to the Business Community and political observers in washington. Tillerson calling on the nations to ease their diplomatic ties and come to some sort of resolution, saying it is a business crisis, and also at crisis that could lead to instability in the region. One person familiar with all this who was hoping that the business pressure will help to bring about some type of resolution quickly. David thank you so much. Still with us are nick burns and mark chandler. There are so many things we can talk about. Lets talk about the middle east and the extent to which donald trump and the United States played a real role. This is an unusual moment in american diplomacy. I cant remember when an american president and secretary of state have been at so much variance publicly. Rex tillerson is trying to tamp down this conflict and build some bridges because the larger issue is we need a united sunni world to be effective in syria, which is very dynamic right now. Unity, have to have turkey, the gulf states, and effective policy, but the president keeps pointing the , very muchatar aligning with saudi arabia. It is tough to be secretary of state when your boss is undercutting what you are trying to do. The president cents foreignpolicy come always has come up at think about successful president s, george w. Bush had a relationship with james baker, even Richard Nixon and henry kissinger. You are not seeing that. It is very important in diplomacy that tillerson has the backing of the boss. Jonathan does Rex Tillerson laugh. Is it too early to have the conversation . The president is not really running the foreignpolicy of the nine it states. He is running the statements of the United States and seems to be disconnected from the actual of ao day diplomacy country, which is worrisome to say the least. David bring this back to the world of investment. What effect does this have on market,nts from the oil risk on versus risk off assets . At the margins, it has some impact. We have three Central Banks meeting this week. The politics is important to the extent people are concerned it will interfere with the economic agenda of tax cuts, infrastructure programs, deregulation. We saw the house passed a bill last week on financial deregulation, so those issues are more important and the politics is important only insofar as it disrupts the economic story. David how much of this is just the media, which is often criticized these days, hyping what is going on . How much of this is undermining president trumps ability to lead . I think the administration is in turmoil. Is no consistency between public statements and what they are trying to do. They are trying to stick to certain themes every week. Attorney general testifying tomorrow before Senate Intelligence. James comey story is continuing. This investigation could last a year or more, so the russian story is not going away. The heart of the story is we have russian interference in our election and the president never raised it with james comey, does not believe it is a problem, that is coming back as a major issue in american politics, his unwillingness to defend our country from russias gross interference in our election. David it was loud and clear. They asked cam if the president ever asked him about the underlying issue, and he said, no. An extraordinary day. David at the same time, by the way, we try to do it for the russians too. We have never had a country use technical means to try to innovate voting polls and local constituencies and redirect the theme and the quality of the election. Happen tover had that us before we are a democracy and they are not, so they are not separable to this. We have to defend ourselves. The markets have just moved on from the story. Couple of months ago, a very different market reaction. Thank you for joining us. Lets get you up to speed on Market Action this monday morning. Two hours from the cash open in new york, future softer, down 31 on the dow. A soft session in europe as well. The leading losers is the tech selloff as it goes global. Higher, yields grinding a ton of supply in the market from the treasury this week. 30 year later in the week. Ge, here is the big stock story. Up by almost 4 , a change in the top after 16 years, stepping down as the ceo. That is the story in the markets. Lets get to up to speed outside the business world. Emma theresa may meets of lawmakers from her own conservative party who blame her for the catastrophic Election Results last week after they lost the majority in parliament. In france, president Emmanuel Macron had a big win in parliament. Track for a on sweeping majority in the National Assembly in the first round of legislative elections. Go through thes second rounds, they are projected to win as many as 477th seats in the lower house of parliament. A warning from north korea who says its close to developing a Nuclear Missile that could reach the United States. Its said north korea is not far away from testing and icbm. The u. S. System was tested last week to intercept and icbm. This is bloomberg. Meeting wasb policy notable last week after they change communication strategy saying theyraghi could do something in the near future and they lowered their forecast for inflation. A was in frankfurt earlier. We are still not seeing inflation where we would like it to be. We have not seen the criteria of being met. Francine how much of a nightmare is stronger gdp customer thats the good news. Its unqualified good news. [indiscernible] adapt our why we strategy. It also shows her Monetary Policy measures are working. Also jobs being created in the eurozone over the last three or four years, a lot of them have been created thanks to the accommodation policy. Thats working well. Mandate soinflation when it comes to the next step, we have to focus on inflation. Francine why was tapering not discussed last week with mark its too early to discuss it. We discussed a lot of the economic situation. If you look carefully, youll see inflation is less dependent on policy measures which is a step in the retraction. Too soon to discuss tapering, we are there yet. Francine , when do you think it is appropriate . I dont want to give dates. Where driven by data so we will whenever the situation is right for discussing it. A perfectdo you have idea of when tapering should be discussed and what it would look like . Again, that will depend on the economic number and inflation. We have to discuss it before the end of the year. That is what we have said about buying bonds and later, if necessary. That discussion will take place but it will take place when its supported. Francine is july a live meeting given that theres low volatility in the market and you are not actually doing any new forecasts . We do work in july. As i said, the discussion last week was very much about taking stock of the progress in the economy, taking stock of the progress that will support inflation and thats a discussion we will have again and again. A lesson from what we decided last week is we want the for guidance aligned with reality. A meeting in july . Come on. Francine joins us from frankfurt. I guess its hard to reconcile an executive board member of the ecb saying they made progress on inflation when a couple of days a differentd forecast. How was he doing that . Francine hes saying that it improved a little bit compared to the forecast they had to cut. This is a conundrum for the ecb. Gdp is actually better than expected, inflation is not as strong as they expected so what do you do with all the qe . Because it on to it would be terrible to take it out too quickly . The point is, if you dont do anything in june, why would you do anything in july . Jonathan as we approach the end of the year, people will ask when will you give us the communication as to what will happen with qe. It runs until the end of the year and they will have to give some guidance eventually. Has he given you any idea what the guidance will be based on . Francine he said the guidance will be based on data. He used the word tapering which was significant which would be by the end of the year. It depends on how much bonds they have left to buy. Its getting trickier but i believe the ecb is hoping the outlook will be easier to read. Not gety inflation will cut down further and it goes up a little bit. A sense of he have why they are getting Growth Without inflation . Its a nice problem to have but why is that happening . Francine its a nice problem to have except if you are trying to normalize. It becomes trickier to normalize. At all thes not same as in the United States. They think that inflation is coming down because of employment. Employment is Getting Better which is feeding the gdp but they still have temporary workers which means wage growth is not there. Wage growth inflation problem. Other academics say it may be a little like in the u. S. Because of the shared economy. Overall, its because we are not creating quality jobs, creating jobs but they are temporary on shortterm. That means a lot of people especially in Southern Europe have to work two jobs to make ends meet. Much, ahank you so really good interview. Last week it was the ecb and this week we will hear from the fed, the bank of england, the bank of japan. Mark chandler is still with us. Is it that different in the United States and europe . You have the fed looking at the economy and the ecb looking at theirs. We have not seen as robust a wage growth your either, have we . I dont think we have seen it in any country that has full employment. Germany, the u. K. , this seems to be an international development. Its country specific so i think that has been a weight on inflation and Core Measures of inflation which seem to be correlated with wages as opposed to headline inflation. Translate that back into the fomc who are meeting this week. Everyone expects them to raise in june but what happens after that . Where should they be headed . The u. S. And ecb are in the same boat. We have to depend on the july and august Inflation Numbers to tell us what will happen in september. I think thats when the ecb is expected to make an announcement about its tapering decision, to scale back its 60 billion to maybe 30 billion next year and the fed has to make a decision about the Balance Sheet as well as whether they deliver the third rate hike. The images that fed hikes in june and this week and then a december destin in september as well and then december they give the announcement about the reduction in the Balance Sheet. Jonathan it feels like they are on the Federal Reserve and the ecb and i dont know many people who think we will get to the end of the year and the ecb will remain with qe at 60 billion euros. Regardless of what the data will be, do you believe truly that the ecbs next move is data dependent . A it is, does it have to be substantial move away from the current should directory . Raise a good point, inflation remains low. The ecbs point last week was its not so much that inflation is going up, its just the downside is deflation and that has gone away. Thats why i think the ecb is committed to normalizing but gradually as the data permits and creates those opportunities and the same for the fed. I think governor brainards comments are important. Three declineybe three months of decline so im not sure this is a done deal for either bank. 2014, Governor Carney delivered a speech during the summer and talked about Interest Rates. Quite a lot of people would have said the bank of england would have raised Interest Rates first. Wirp on bloomberg has been enhanced. Market still expect the ecb to raise rates before march of next year which is still before the bank of england. Jonathan coming up, apple recordeds biggest drop in nearly seven weeks friday and is no sign of relief. Coming up, we will talk about why there is a neutral at 9 00 later,stern time and where there is the most upside around the world. Beautifuld the world, new york, summer has arrived. Futures are softer. You are watching bloomberg. Bloomberg is daybreak. Coming up tomorrow, a conversation with germanys finance minister. Thats at 7 00 a. M. New york time. From leader to laggard, technology sold off in a big way friday leaving leading the nasdaq to its biggest decline in nearly four weeks. The biggest story is facebook, amazon, apple, and alphabet. Still with this is marc chandler. The surge of just a few stocks in the s p 500 got everyone talking about fundamental growth in the u. S. Economy and why the focus was just on these handful of companies. What is your view on that . I look at the percentage of s p 500 and the 50 Day Moving Average on looks like the stock doesnt have as much participation. The idea that u. S. Stocks are lagging has really changed. Of thepproach the end first half, despite everybody talking about how the emergingmarket stocks are and they have come about a 10 this year, the u. S. Is holding its own with europe. The u. S. And europe are up roughly about the same percent. Im not sure we see an outperformance but currency makes the difference. Jonathan 62 companies ahead of the selloff. About companies surging 30 , we are used to turkey talking about penny stocks. You look at who has been buying. Its not reais its not u. S. Retail so much. They have sobanks, many reserves, they are among the large for to suspense. They aremarket among the largeest participants in the tech sector. David we had a warning friday. Tony dwyer warned about this. Of s p 500nday, 44 Information Technology stocks made a new 52week high. That has only happened twice historically in a both occurrences, you had more followthrough which we are seeing. We have more upside but then you have a 20 drop. Our sector strategy adopted about three weeks ago was a thele early was to favor trump trade, the banks the financials, the energy and materials and industrials and cut back on overexposure to technology. We would say if you have access position in technology, just take some off the table. Wasd it sounds like he predicting the future. Is this a matter of the tech sector getting overstretched . Will there be a slight retrenchment or is something broader happening . Im not so sure. One of the big stories this year is how low u. S. Yields are. You look at the dax, you look at a 3 dividend. Thats compared to less than 2 of the s p 500. Much capital out their relative to the Investment Opportunities as well as some Sector Development favoring stocks over bonds. We have to bring up goldilocks. , and ecbok at the ecb is going nowhere fast. Is that good for the european economy compared to the u. S. Where growth is kind of stable . It looks like europe is the better opportunity. Almost all of the major investment houses and the media are promoting buying europe and emerging markets. There is a little bit unwinding of some of the winners as you approach the end of the first half. Dont fully buy that all of europes problems are solved. Thank you so much for being with us today. You can watch us online. You can interact with us directly. Go to tv go on your bloomberg. Live from new york, this is bloomberg. City,an from new york futures are a little bit softer in the United States, down by 6 10 on the dow. The loss on friday in the United States and a conversation about tech and the followthrough clear in the european section with down ps tech stops tech stocks down 3. 7 . Board, supplythe is kind into the market with yields grinding higher for a fourth straight session. Tech may be down but General Electric is not down. Jeffrey immelt is stepping down. Health care that head John Flannery will assume the role of chairman on august 1. We have they had of Global Industrial research who has a positive outlook. Thanks for joining us. Was this expected . I think it was expected six months from now but certainly not today. End of august at the earliest but this seems accelerated to me. Succession always happens in companies but there has been a lot of rusher on jeff immelt to get the earnings up. There has been a lot of pressure on jeff immelt to get the earnings up. Wasts clear that trian unhappy as a shareholder and other top shareholders were unhappy. The company has not put up the numbers the last year or so. As you mentioned, the last 15 years have been tough. We needed a change here and i think the ge board was listening and we got a change. Jonathan what about the flannery . Ihn think he can turn around quickly because i dont think anything is broken here. We need a new messenger and we got that made somebody to take a fresh look at the portfolio. To ave long advocated breakup here. The traditional conglomerate model does not work anymore. Ge has great businesses any ability to create shareholder value if they do the right things. Breaking up the company, lay that out for me and tell me how realistic that is. I think the most logical first thing that flannery would consider doing is to spin off the Health Care Business. Its a great asset and it would trade well in the marketplace and create value. After that, they have the ownership stake in baker hughes and thats an ownership stake you want to monetize as soon as you can. Yet have not bought bigger so it takes time to do that. After that, we would love to see a standalone Aerospace Company and a standalone powergen company. Four distinct entities. If we cannot get four distinct entities, we would love to get three. We would love to have aerospace and power remained together but health care gone an oil or gas gone. To that world,ot what with the multiples be for that company, how would a trade . Aerospace companies tend to pay around 18 times forward earnings. This would be a premier asset come a highmargin, high return asset. The crown jewel of this portfolio. Its a fantastic business thats run by a leadership and they have done a great job. Theyre are positioning for nextgeneration aircraft. I think would trade quite well. With the position of the , are theying bought being set up to be bought . The standalone ge businesses that would remain would be pretty big. The entities seem a little bit of a stretch but it still possible. Jonathan coming up, whats next for the fed. City, counting down to the market open and futures look like this. A soft session on the continent, down by almost one full percentage point on the dax. You are watching bloomberg tv. Good morning. Goeshan the selloff global, what started in the u. S. Friday spreads across asia and europe on monday. Its definitely a story of two europes. Emmanuel macron condensing power losing hers and jeff immelt is stepping down from General Electric. In new york city, good morning. This is bloomberg daybreak. The tone of the market is Something Like this futures of 1 on thet 1 3 pound is weaker against the dollar. There is a ton of supply and potentially a fed hike. The big mover this mornings General Electric with shares rising as the company was morning named Health Care Head John Flannery to be its new chairman and ceo and jeff immelt is out. Now is with Financial Partner cio. Welcome and good to have you here. What caused this now . Words stock prices. The ge stock prices underperform the market and dramatically underperformed its peer group since its low of 2009 and pretty much during jeff n. L. s tenure. N. L jeff in melt immelt. Melt are hard to run. They focus on whats not doing well. When conglomerates were built in the safeties and 70s, it was designed to be recession resistant but now people want pure plays and focused companies and if you are in more than one business, they want all the business is doing well. David so will i have to stop conglomerates . I think so. Off of the the spin the Aerospace Business would be positive. It would get away from the oil is where oil prices are down and should continue to decline. Jonathan looking at the value of the company compared to other the multiple, applied to ge is not bad. Its actually pretty decent. Whats the appropriate multiple . Theyre peer group is United Technologies and honeywell. Both of them are up significantly for the year. Also for the past five years and off of their 2009 lows. Are conglomerates that can piton many levels with ge and seemingly, the majority of the business in honeywell and United Technologies are doing well. Jonathan what does the future ge look like . If they want to stay as a conglomerate, they should get out of the oil services business. I think focusing on aerospace and Power Generation and getting out of oil is important. David if the decision is to break up the company, why is John Flannery the right person to get that done . Do we just need a new face . In aem has a background and finance and has been with ge since 1987. Hes knowledgeable about Financial Engineering and thats positive and the Health Care Business is a very important business. I think thats a key driver. Even though health care does not go well, Power Generation and aerospace and aerospace, those three businesses would do well going forward. David we tend to focus on a company like ge when it changes hands but they have competitors and it creates opportunities for competitors. Who stands to benefit from this today . Boeing iny honeywell, the aerospace area. The apple stock was up a ridiculous amount through the year. Alltime highs and then friday happened. A 30 billion market value dropped from the company with downgrades to the stock and cautiousness about tech. Divorced from the optimism, talk to me about the fundamentals of the company and what you expect through the year . I still think apple is very cheap and will continue to do well. They have a lot of positives coming out is that the new iphone eight will be very strong. In the sectors has been technology and people are nervous and looking for an opportunity to take a profit. I think the trend in tech is very strong. I think any pullback in apple and any leading tech stocks including google is a buying opportunity, a significant buying opportunity. Jonathan maybe some on last year wouldve said it was cheap. Most people say the optimism around the next iphone cycle is in the price. There was a huge halo effect. This is the first step to home automation at that apple is getting into because a lot of the home automation alarm systems, locking systems, entertainment systems, all work on that basis. Plus the commerce application. David does the market think that apple is a tech stock question ma . It has a lot of cash in a does not have the growth rates of some of the other tech stocks but they still have that cash and continue to buy back stock. In continualest research and development. David you think apple is a good buy. Do you decide based on it being a growth stock . What to look for . I look at return on capital and apple is very strong in that area. Theontinues to dry increasing return by contracting their Balance Sheet and investing in positive return drivers. David many thanks for being with us. Coming up, whats next for the fed. Her zentner joins us for outlook. Tomorrow, an exclusive conversation with the german finance minister. Live from new york right now, this is bloomberg. Emm this is bloomberg daybreak. A changes are coming in the wake of an investigation into the unber culture. The board discussed a leave of absence for the ceo. People say uber will name a new independent director. Its another sign of the impact Online Shopping is having on brickandmortar. Childrens clothing chain gymboree has filed for bankruptcy. They will reduce its debt. Economists predict the Federal Reserve will raise Interest Rates twice more this year according to a survey. Bank willhe central start shrinking its Balance Sheet before the end of the year. Atnomists expect a rate hike the end of the next fed meeting and again in september. David the Central Banks of the developed world have played a major role in Market Investments for years. How long will that continue question mark we heard first from the European Central bank last week and a member of the banks Management Board spoke with bloombergs short time ago. The discussion last week was very much about taking stock of the progress in the economy, sticking talk of the taking ofck of the progress improving inflation we have that discussion again and again. What we decided last week is that the governing body wants to keep our guidance aligned and that will continue. David Ellen Zentner as well as now. We also have the jpmorgan Global Market strategist. Its from Morgan Stanley, you are dangerously unsupervised this morning. David lets make it clear, andn is with Morgan Stanley or other guest is with j. P. Morgan. Do we have this straight . You got it. Week the ecb went last and we have the fed this week and bank of england this week and bank of japan. Lets put aside bank of england for a moment. All in thetral banks same quandary . They want to move back toward normalization, whatever that means and there being held back by data. Yes, for the fed in particular, soft data is nearterm weakness in inflation. They are pretty certain its transitory. Its a lovely word, that it will be temporary. All of them are hedging their bet. We know they will raise rates this week. It happens beyond that will depend importantly and whether the incoming inflation data gives confidence that the weakness is just nearterm. Outside of that, the data is not that soft on the economy. Its in the pocket of their growth forecast which is amazing. They will not have to revise downward their growth forecast at this meeting. And that the second meeting in a row which is unprecedented. Jonathan has been asking if they are on autopilot at the fed . They have a bias toward raising . I think they are pretty much data dependent. We have been surprised since the beginning of the year. There is a First Quarter curse in the u. S. The fed should remain vigilant. We see the u. S. Is still operating at full employment. From their perspective, even though we see this soft patch, us expecting one rate hike forward. Governor brainard delivered a speech earlier this week and talked about navigating inflation and wage growth. Moveoal was told to Interest Rates higher. If thats where the bias is, whats coming up on the frontend of the Treasury Curve . That so far fed this year, they are delivering exactly what they said they would yet the market is saying we dont believe you will do anything further. Thats very frustrating. It feels wrong. Head of rate strategy has noted that the market historically at this point in andcycle is underpriced typically under prices the fed. Is there a snap where the market wakes up and says you are going to deliver the three hikes you promise this year . Guess what, you will continue hiking next year. As aat wakeup call comes slap across the face, that could be a lot of volatility and markets. Far, the investors are just approaching each meeting and finally pricing in each meeting when the fed will go but saying thats one and done or show us if you will do more. Jonathan then send, will the market get a slap in the face . Im not so sure. The market is pretty much ready for a rate hike. If you look at june, its pretty much priced in already. The market prepared itself for this outcome, maybe not at the start of the year but over the last month. That should jacked her he of the thing you are using is quite surprising. We accept we expect that the Interest Rate will grind higher in the u. S. When i look at the Financial Condition in the u. S. , its still pretty easy which makes any rate hike not being disruptive. Up on rates pick hikes not being disruptive. Financial conditions have loosened so what accounts for that and can the fed expect that to continue as a goes through continuous hiking . 2013 when we to were tapering longerterm assets are late 2015 when we were raising rates for the first time off of zero, weve got a different fundamental economic that drop today, globally. It says we need tighter rates. The fed has raised rates and now they are about to deliver their third hike at a major meeting in a row. Financial conditions need to keep easing. This would tell the fed to move a differentthis is cycle. As they are raising rates, they low inflationling and expectations moving in the wrong direction. That would tell the policymakers that things need to remain easy as you hike. Toid you said they need raise rates. Given where the data is, why do they need to raise rates . If am looking through the lens of Monetary Policy makers, admittedly, i dont know exactly where full employment is. I think its 4. 7 and i think they bring that down at the next meeting but the four point 3 Unemployment Rate is starting to get uncomfortable. My growth forecast has been met, nothing wrong there so its really only the inflation side that is missing. If you are a good Monetary Policy maker, you got growth above trend and within your forecast. On a planet rate is lower than full employment, that will always make you believe you can hit the 2 inflation target sometime over the medium term. They dont have to do it tomorrow or the end of the year, sometime over the medium term and that will keep you on a tightening bias and you will believe its appropriate to continue to raise rates. Jonathan you worry that maybe the Unemployment Rate is misleading . You can look at the Unemployment Rate and look at the lack of strong wage pressures and say maybe full employment is lower than my rethink it is. Maybe its 4 , maybe its 3. 9 . When you look at the data at the weight janet yellen does, there is not a lot of discourage workers left to attract back into the market. There is not a lot of slack left as we continue to create jobs. We will have to be satisfied with that. Looks goodo the fed with its forecast. The bulk of the officials at the fed did not incorporate any d. C. Stimulus. It actually looks pretty good. Indeed, and there is no reason to revise the forecast down. We expect the fed to keep their forecast in line with previous ones. The u. S. Is operating at full employment. You have a country operating at full employment and not increasing wage growth. We face an aging population and most of the developed world. A lot of wellpaid baby boomers are leaving the market giving way to new entrants who are less pay. I do not expect much change in the forecast but we should continue to debate this question of wage growth. Maybe thats not the might metric given the aging population. David it may not be the same maybe because of demographics or technology but given that, should that fundamentally change the Central Banks approach . When they look for inflation, they say inflation will remain lower. Probably. The question might be whether the low Economic Conditions project a raise rates. There is any for normalization and rebuild. We need to prepare ourselves for the next recession which remain far away in our view but which will happen at some point. Thats the reason why the fed will fuel asset bubbles and when he to avoid that by all means. Youthan great to have on the program. Great to have you both. You are our supervisor today so do the tease. Coming up on tuesday at 9 30 a. M. , dr. Ben carson housing and urban development secretary. This is bloomberg. David still whether this is s and never of Morgan Stanley. What will happen with the fed . Forhis week, little change their forecast with the exception of the inflation forecast coming down a little bit but still ending 2019 at their 2 target. Janet yellen will get grilled on inflation because that is the fly in the ointment, the nearterm weakness. Do you believe its transitory . All so the Balance Sheet are they still thinking this year versus later this year with makes people think it will be the september meeting and said that of december. Things these are the questionnaires the Michael Mckee in the room will concentrate on. Off of threeng major meetings and row where they hiked rates, they will take a pause in september to give the Balance Sheet is due course, put that on gradual autopilot in the background and then go back to hiking in december and follow it up next year as they keep hiking in every major meeting. David when the fed did not raise a couple of years ago, is there a danger of missing a chance again . When i talk with clients and market participants, they are that the fed will skip hiking at the september meeting because they will think the idea of june and done will be locked in. Once you stop that train, youll believe hard to start that but i have not gotten that from policymakers but certainly there is a risk of their. Jonathan good to have you with us this morning. Coming up tomorrow, and exclusive conversation with this , the german finance minister. That will be at 7 00 a. M. Eastern time. Next, we go live to paris where president Emmanuel Macron is tightening his grip on french politics with a sweeping majority in the National Assembly. You are watching bloomberg tv. Jonathan from new york city this is bloomberg daybreak. Here is the market stocks are off of their lows. In london, we are just pushing into positive territory. Board,ng out the treasuries has supply. A Federal Reserve could give us a rate hike. Yields are pushing higher ahead of that by a single basis point. Looking at the euro over the last three days, its been a story of weakness and today it is strength. We are just off the high for 2017. Thats the story so lets get you up to speed on the headlines outside the business world. Emma Boris Johnson in the u. K. Is asking for theresa mays resignation. He is calling for calm within the conservative party after disastrous Election Results last week. She is being blamed for the majority leaving her and it could be the end of her time in power. In france, voters have given a resounding victory to president Emmanuel Macrons year old party. It was the first round of parliamentary elections. His backers are projected to win as many as 455 of the 575 seats in the lower house of parliament which would put him in a strong histion to enact probusiness agenda. Attorney general Jeff Sessions in the u. S. Has volunteered to testify in front of the Senate Intelligence committee. It likely to appear tomorrow before the committee which is the same committee that questioned james comey last week. President trump yesterday called james comey cowardly. This is bloomberg. Jonathan its a tale of two europes. Theresa may is facing her new cabinet after a devastating majority parliamentary lost and Emmanuel Macron is getting a sweeping majority in the National Assembly. Lets go to westminster and also paris. Bastiony in paris, the of political stability, no one predicted that 68 weeks ago, run us through it. Storyis a very different than what we see in the u. K. We have the new french president Emmanuel Macron to get through a in the lowery house of parliament. The result of the first of vote will hold on until next sunday after the that until the next round. Of the seats. The republicans are on track to get less than 100 seats. The National Front were not even get 1015 . The largest majority for the french president in more than a decade will allow the french reformst to put through. Investor that every has been waiting for this which is major labor market reform. We will see if it holds fast when the strikes actually start. French politics look strong today but u. K. Politics look anything but. Prime minister theresa may has to find an agreement with the ecb and the Northern Ireland. Im not sure we have seen that yet. Within hers payoffs own party. How will this play out this week . Questions, first of all, you have been talking about Emmanuel Macron and we hear that theresa may will travel to paris tomorrow to meet with him. She said the main focus will be on Counter Terrorism but rex it is a big question looming over everything. Thedup which was one element of the chaos over the weekend when we heard they had been an agreement reached only hours later, saying a final agreement had not been made. What anyich any coalition would have on brexit. Brexit. Wants a softer they want a frictionless border between Northern Ireland and arland and how can you get that while being out of the Single Market . You also asked about her own party. We had a flurry of activity here. The scottish conservative leader just arrived. Has been a bit of a cabinet reshuffle. Theresa may need to reconcile those pushing for the stop to brexit within her ministers and those pushing for the hard brexit. Jonathan thank you both. They say the brexit deal is buying a house, you will get through to the other side of you are prepared not to walk away. Is that what its all about . Every deal i have done, you have a walk away price. Jonathan im not sure what that would be. Now is a chief economist. If i said the political stimulus would be in france and not the u. K. 68 weeks ago, we wouldve had a different conversation than this morning. Why is a critical and what does it mean to the economy . How does it shape the view at the moment . Of the election in france was important because it will strengthen the capacity of Emmanuel Macron to push through his reform from and agenda. Always given the majority to the presence of a would have been surprising not to have it. Given the fact the Political Party of Emmanuel Macron was quite new, that remains a question mark. If there was one common line between all president ial candidates its that france inds reform in some areas terms of fiscal aspects. Thats a positive side. We should have a parliament agreement which can move forward from that perspective. On the other side, brexit negotiations are more uncertain given the outcome of the British Election. That will be a challenge for the coming months. It was a great challenge but we have lost almost three or four month so it could be more challenging. Europe is a big story to get that exposure to european entities and risks. How important is the political story to that . These countries need reform . It is very important. ,ver the past couple of years the ecb was pretty much the only game in town who supported the european economy. We knew that we needed the political extension to reform europe, investigate in europe, and the victory of emmanuel , the possibility of having a more proeuropean agenda and pro economic agenda is good for the economy. Ice economist revising their forecasts up for the region. Europe and upgraded they are looking at the first season. David i guess the perceived is you would go along europe and short the u. K. In terms of assets . Is there something we are missing there . I would bring it back to Monetary Policy. Stuck where the fed was a few years ago. There is no reason for the policy to be where it is but they are having a hard time extricating themselves from an easy policy with negative rates plus ongoing qe. Qe inticular, the end of europe would be a positive sign for markets around the world. In my opinion, its an essential source of instability. Good news for france on the political side might be helpful in getting the ecb where they can level off rather then continuing to ease. David if the ecb could move off where they are and start tightening Monetary Policy come with that make European Assets more attractive as an investment to you . Definitely some part of the market. We like value stocks in europe. I believe we will have those higher rates in europe. The german bund is already creeping higher. I believe that a normalization of ecb could be beneficial to some parts of the european economy. Like the ecb, i believe its not time yet. The european it connie is not at the right velocity yet the european economy is not at the right velocity yet and when he to reduce it substantially to bring it close. We need more enter evasion, more intervention, more reform like Emmanuel Macron wants to do in france and we have seen in many countries like belgium and the netherlands. Thats where you will improve conditions of the labor market and hopefully improve wage growth going forward. That is critical. David many things. Thank you so much for being with us. Tomorrow, we will be joined by the former philadelphia fred president and wednesday, a special report on what the fed decides to do with u. S. Monetary policy. Live in new york, this is bloomberg. Emma this is bloomberg daybreak. Coming up tomorrow cannot an exclusive conversation with the german finance minister. Thats at 7 00 a. M. New york time. After almost 60 years, there will be a new ceo at General Electric. Eff immelt is stepping down he rish if one of the Top Manufactures but he struggled to win wall street approval. He will be replaced by John Flannery, the 30 year be ge veteran who now runs the health care division. Ge has been under pressure from activist investors. Shares were down 12 this year before the announcement. There is a new partner for lyft. Jaguar land rover is working with lyft and self driving technology. Jaguar disclosed it invested 25 million in lyft in a funding round the close in april. Coresoft is targeting hard gamers with this new version of the exploits of the xbox. 7 will be released november four 499. Its designed to work with a new tv sates and 4k games that have more realistic scenes. Thats your Bloomberg Business flash. Thats what we need is a new xbox. I hope my son is not watching this. Lets go back to the fed as we focus on their meeting. That will take place later this week but theres an underlying question of who will be making business going forward. There are three openings on the board in question looming about whether the president will nominate john janet yellen for another term as chair. We will talk about where the fed is likely headed. People being mentioned is marvin goodman. You worked with him. What to you think he would do if he were a fed governor question mark i would say hes a wellrespected monetary economist, most everyone would agree is wellqualified to help make Monetary Policy. In terms of his views, coming from the richmond fred, fed, there is a term there is a trend to be more hawkish than dovish. He is not the one who is incredibly hawkish. What distant is him are two onas he is very focused the feds credibility, hitting a target like an inflation target and what it takes for the public to really believe that the fed will hit its inflation target. Right now, that may lean him the other way given that the fed has been missing to the downside. More important for help policy gets derived, is he is very much sympathetic to the idea the fed should have a systematic work rulesbased way of developing policy, not that it rigidly at adheres to a rule, but a benchmark. Gooduld need to have a reason as opposed to the purely discretionary type of policy janet yellen likes. David that may play well on capitol hill with republicans. Is likely to be his attitude on the Balance Sheet . How does he feel about the stored about the stringer efforts being taken by the fed . He was pretty skeptical of qe. He is one of a number of economist of feels like the fed should not be involved in markets other than the treasury market. If they want to buy treasuries to add liquidity the system, thats the traditional Monetary Policy the when you buy mortgages or any other assets, you are effectively a la getting credit and picking one sector over another and hes pretty skeptical of that. If we were to get in at them margin, it might be an argument for unwinding that part of the fed Balance Sheet. Jonathan on wall street and whend for Global Markets, isse nominations are made, the person making the nomination they are hawkish or dovish or they want a rules driven individual . Are they coming out differently . There is speculation with president. He is hard to decipher. A lot of folks in the market are saying he was a real estate tycoon and he likes low Interest Rates but it does not feel like thats the way the nominations have been coming forward. It andrtant part of maybe not as closely focused by the market is not just Monetary Policy but also the other responsibilities of the fed and in particular regulatory policy for the financial sector. The administration is sympathetic to loosening up financial right regulations and it feels like the people being put up their people who would be sympathetic to that agenda. David that takes us to randall corrals. Hes a lawyer the way dan was but is more experience in investing having been with the carlyle group. What do we know about him question mark he was in the Bush Administration the treasury department. He certainly has experience on the regulatory side. His views thatd he is sympathetic to the idea that we could probably loosen up a little bit in terms of some of the aspects of doddfrank. In terms of Monetary Policy, its similar to marvin. He is somewhat skeptical of the fed holding such a large Balance Sheet and probably would be interested in seeing if we could wind that down sooner rather than later. I dont think we have a welldefined view of him as a hawk versus a duff but i think hawk versus a doubt but i think he would be less dovish. David thats before we get to janet yellen. Juliejonathan if i think that chances of her getting renominated are fairly low. I think donald trump was to put people in place were sympathetic to the overall agenda. Forgetting about Monetary Policy, someone who is at least sympathetic to the taxcut strategy. Its easier to be loyal when you agree in the first place. Logic wass i do ideologically far from republicans so i think they want someone was more sympathetic not necessarily politically but ideologically. David maybe honest loyalty. Weve got our own issues here. David Stephen Stanley will be staying with us. Check out tv where you can check us out live. Go to tv on your bloomberg. Live from new york, this is bloomberg. Anathan breaking news Hedge Fund Firm is returning 8 billion to investors. The cio is to parting to his own this is anterest and billion dollars of the 30 billion total from viking. In the hedgeory fund world so lets look at the markets. Futures are off session lows this monday. We are a little bit softer by of 1 and the dax is off the lows but still down on the day by about 8 10 of 1 . Stocks,at the european you dont have to guess which is the biggest loser this morning. Its a Tech Industry selloff through asia and europe as well. Market, a lot of auctions from the treasury. A Federal Reserve meeting as well. Big story for General Electric, jeff it melt is stepping down. Is that a surprise . David apparently not. He has had a rough go of it. Jonathan with the stock price as well. And he has had a lot of pressure to get the stock price up. Weekve an interview last saying they would not make the target. They said they would not get to two dollars per share. Jonathan that never goes down well. David he did a lot of good things for ge. Forthan at a tough time the Company Since 2008. More on that coming up later in the program. Robert buckley will be joining us. City, for our viewers worldwide, we continue the cacheour down to open in new york which is 34 minutes away. You are watching bloomberg tv. Jonathan change at the top of General Electric. Melt is stepping down as the ceo. Textile spreads through the ages asia. Theresa may loses hers. Still intact. E from new york im Jonathan Ferro alongside david westin. Alix steel is off today. Futures a touch softer. The dollar weaker against the euro even with the firmer yield story. Two basisield up by points. The Global Markets have all been about tech over the last couple of days and this morning apple softer again. This man behind apples losses coming shares. We will hear from the man himself. Heres abigail doolittle. We have a shares down 1. 8 in the premarket after on friday. Off by 4 downgraded shares to neutral with analysts thing that the iphone a super cycle coming up is already priced in with the stoxx huge move this year. Apple is now technically below its 50 Day Moving Average. Are seeing tech selling is adobe systems. Down more than 3 . The first cell on the street out of 33 analysts. Singh fundamental is a good year. The stock has gone up too much too fast. Lets end on a great spot. Ge higher after the ceo is stepping down. What is behind this move it could be the stock prices. And investors probably wanting a bit of a change. Everybodys favorite sector, tech until maybe friday. Leading the nasdaq. Sachs onfrom goldman friday, the biggest story in our view is facebook amazon Apple Microsoft and alphabet. This has created positioning extremes factor crowding and difficult to decipher risk narratives. A lot of jargon in there. Cell of has spread globally with europe and asia markets tumbling as well. Joining me is jpmorgan Global Asset Management strategist. Positioning extreme. Lets dig into that. Im not sure its extreme. Seen against a relatively lackluster macroeconomic backdrop a lot of people move into the tech sector because they have had the ability to generate earnings and revenue growth. Im not sure positioning is necessarily extreme. Jonathan if you look at these companies it in isolation you would vehicle to paint a pretty good picture. The tale of the last couple of days there is too much optimism in the price of these stock relative to what they can do this year. Still somethere is upside for these names. Im not sure we are necessarily at the point where things given to roll over. A world very low inflation and everyone is trying to figure out how companies are going to continue to grow their earnings. The tech sector has proven to be very good at dealing with the deflationary environment. I think we are due for a pause here. Numbers are going to end up being pretty good at the end of the day. We think there is still upside and we like tech financials broadly. We think there is still some room to run. David you really highlight the possibilities. One is that this is just a shortterm technical issue where it got a big a bit overpriced. Earnings andut revenue growth. Is there any change in the environment that might bring into question whether tech can continue to grow earnings and revenue . Our view is that it will still be a main contributor to earnings growth. I think we cannot escape the role that technology plays in our everyday lives. Its still going to really make a difference. We are at a point where it may make sense to question what some of these companies are doing. Lastw a lot of enthusiasm year around some ipos that have not turned out to be the angels that everybody thought. David there is a question, where is the sky for these tech stocks . The trumptent does phenomenon really affects where the sky is for the tech companies. I think they are somewhat. Nsulated given what we have seen over the First Six Months of the year people are starting to pull back on policy expectations and the fiscal stimulus and infrastructure spending. That could be a very Good Environment for tech. People were going into these growth names because the economy wasnt lifting all ships. Jonathan last year we saw extreme valuations. The death of the reflation narrative. In some kind of counterintuitive sense tech stocks have become defensive plays for growth. Its very strange. Highink about those really cyclicals. You have the income producing assets. Sandwiched in the middle you have tech which participates when the cyclical stuff rallies. It also plays better defense when things roll over. Something that needs to be in investors portfolio. It captures a decent amount of the upside. It provides protection on the downturn. This is what he had to say about the rotation away from text to other sectors. 500s of monday 44 of s p Information Technology stocks made a new 52week high. Historically that has only happened twice and in both occurrences you had more followthrough prett. Sector strategy which obviously was a little bit early was to favor the trump trade. The deeper cyclicals. The financials, energy, materials, industrials and cut back on overexposure to contact. Tech. If you have access position in tech, take some off the table. Thethan that was ahead of pullback. Does the opportunity still exist to rotate into the beaten up sectors . I think it does. Evaluation should be and should be valuation an investors primary guide. We think some rotation makes sense. We also think the Global Economy looks pretty good. The fed is going to raise rates this week. If we see Interest Rates move back to where they were earlier this year thats going to be very supportive of these deeper cyclical sectors. David it also depends on where you are in the lifecycle of the industry. How do you know when tech reaches maturity . Interesting. We think of technology as being at the forefront of everything we do. One of the indicators that we have and spending a lot of time thinking about is whats happening in terms of the way they price their goods . Theres massive deflation in tech which is a sign of this industry maturing. Newe will always be companies popping up and doing stuff thats different. A lot of the incumbents are relatively mature companies. We still think the earnings they generate will be positive which is why we are not completely turning around our view. David is what you are talking about Pricing Power . Do facebook and amazon have Pricing Power or not . I think they do. We have seen it come down. A goodompanies have done job of dealing with deflation in their industry and they can continue to deal with it going forward. Thats going to generate earnings which push their stock prices higher. David David Lebovitz will be staying with us. We will discuss the rotation with robert buckland, citi chief Global Equity strategist coming up live from new york. This is bloomberg. David this is bloomberg. Im david westin. Jeffrey immelt is stepping down as ge ceo 16 years after succeeding jack welch. Shares of General Electric are up in the premarket on the news. With us now, karenyearold covers industrials and David Lebovitz is still with us. What message should the markets be taking from the move . That ge is ready for a fresh look and investors certainly want a fresh look. This guy who is taking over has done a good job in three years at health care. Will he get the operations moving a little quicker. He has also been a guy in strategic planning. Just a fresh face is the biggest method. Up with a newcome plan or is it one thats been kicking around . Has think it is one that been kicking around. They have done some mega acquisitions. They distanced oil and gas from the company. There are some that think health care is next. Be guy that is going to running julie took the deep dive on health care and chose to keep it. Im not sure. Whod we had an analyst said the days of conglomerates have essentially passed. Does General Electric need to well honed a very welldefined core business and get rid of health care as you suggested . There is a wave toward fewer businesses. Honeywells Aerospace Business is a terrific business. These Companies May have to simplify because the multis. Getting credit for diversification. We have waves. Conglomerates are good. Conglomerates are bad. Right now they are bad. The ease with which they talk about breaking up a conglomerate. How quickly can you do it . Lot of spinsen a done in the industrial business over the last couple of years. It takes a year, a yearandahalf, two years to actually execute this. They are close on oil and gas because they are doing arms length doesnt happen fast. Jonathan if people are really pushing to realize value in a company usually its because the overall sector is not doing too well. There are struggling to generate topline growth. Looking to maximize the value in a company. Is this a really tough time in u. S. Manufacturing . There has been a lot and Companies Across the board. There is definitely room there. If you look at their individual businesses the margins are not really that bad except oil and gas. Operationally i dont think they have done a bad job. Industrials they have been cutting costs really aggressively for the last two years. Much they canow continue to eke out. David Capital Investment has not been growing robustly in this country or globally for that matter. Can they really fight against that trend or do they need Capital Investment to come back . Theres enough room globally. Been decentally has growth. Asia is a big part of that and it is accelerating as well. I think there is enough growth for Capital Goods Company not led by the u. S. 16id Jeffrey Immelt had years. What will his legacy say . I think it should say he remade ge. It will probably say he had the worst performance in the stock in a long time. You mentioned the link into manufacturing. We have noticed that outside of the u. S. Manufacturing activity looks pretty robust. The industrial sector overall is very sensitive to the u. S. Dollar. Pullback could give the industrial sector a little bit juice because the fundamentals are beginning to turn around. All those companies had such a tough run from mid14 to mid 16. It feels like the valve is being released and some of the pressure is coming off. David lebovitz of jpmorgan will be sticking with us. Coming up tomorrow, the interview. A conversation with germanys finance minister. Do not miss that conversation. From new york, counting down to the open with futures treading water. Is bloomberg tv. Jonathan from new york city lets get you up to speed on the Market Action. 10 minutes away from the open. Futures are a little bit softer. The tech selloff started on friday and spread through asia. Went into europe as well. The dax in frankfurt down by. 9 . The story elsewhere a little Something Like this. Treasury yields grind higher. Some supply coming into the market 30 years coming tomorrow ahead of the said decision. Most people expect a rate hike. The treasury is a little bit softer. The euro keeps firming up. A stronger euro story against the dollar approaching 2017 highs. For Global Markets the conversation of the weekend very much about the tech wreck and apple leaving the decline yet again. Securities analyst abhey lamba downgraded specifying apples strong Upcoming Product cycle already being priced into the stock. The stock has been fully outperformed on a yeartodate around thenthusiasm Upcoming Product cycle is fully capped at current levels. Abhey lamba. W is lets begin with you and talk about the research you have put out. It just got too expensive . Where theook at enthusiasm is for the iphone eight cycle we still think the cycle is going to be good. At the same time we think estimates have gone to the place where we feel there is probably not much upside. If anything there could be some risk to the downside. The multiple at a sevenyear high right now. That does not have much upside given those factors we feel the stock is probably towards the upper end of the range we can expect. Jonathan we had an investor on the program and we talked to him about the story. , still very cheap. Talk to me about the Downside Risk to the company. Your own outlook. Thats what makes the market. Difference of opinion is always going to be there. When we look at the downside on this name especially if the multiple rewards over the last seven years. Much we aret look looking at downside on the stock to be 135 to 140. We think they need to expand their installed base for the fundamental value to go up. Its going to be stale to existing customers. David you referred to the multiple. ,f you were running apple today it doesnt trade as a tech stock at all. It trades is a computer product stock. Is there retooling that company by going into services and getting the multiple up substantially higher than what it has ever traded at . Absolutely. If they can actually get Services Revenues to grow materially from here that becomes a much better contributor to profits. That is a scenario which can to theaterial upside stock. When we look at the estimates that exist today the average revenue over the last twominute half years has gone down from 100 to 50. What people are looking at expected to expand to 65 in the next two years based on consensus. 30 growth in a metric that has been declining over the last seven years. David what about Virtual Reality . Absolutely. If you want to give them the benefit of the doubt, yes. Have we seen anything from then that gives us comfort that these are the elements they can outperform and do well . We need those data points to give them credit for that. In theat we have seen home automation front they have been left behind by amazon and google. They need to get their game up. Once we see some data points. Rom them we will go back they need to show that. Jonathan thank you for joining us, abhey lamba. David lebovitz will be sticking with us as we cant countdown to the open. Futures are a little bit softer. Switch of the board very quickly. Treasury yields grind higher by a couple of basis points. The euro stronger. The opening bell up next. Youre watching bloomberg tv. These days families want to be connected 24 7. Thats why at comcast, were always working to make our services more reliable. With technology that can update itself. And advanced Fiber Network infrastructure. New, more Reliable Equipment for your home. And a new culture built around customer service. It all adds up to our most Reliable Network ever. One that keeps you connected to what matters most. Jonathan from new york city, for our viewers worldwide, this is bloomberg daybreak. We are looking at the dow up almost four points on the s p 500. A stock rally in the tech sector. This is the top of the look at the as we new week. Yields are higher, roughly 50 basis points. We continue to pull away from the lows. Looking at the dollar, it is a little bit weaker though. The dollar is weak or primarily the cause of what has been happening with the euro the last couple of weeks. This is a conversation for this program through the week. Futures, throughout the morning, lets take a look. Much, jonathan. We are looking at followthrough from fridays selloff. The dow is down fractionally, but the first down day in four days. We have to follow through for that tech selloff. Lets consider whether it will follow for the rest of the day. Right now, it does seem that investors are taking that big drop for the nasdaq seriously with more selling today. Lets look at the individual movers. Apple, down 3 , four percent on the open after dropping 4 , this of followthrough, but we have ratings got to a neutral saying the upside from the iphone eight is largely priced and and lots of apple suppliers down also. In the case of serious logic, 80 of its revenue from apple. So, a lot of red there. Theres something very interesting happening on friday. This is also a style rotation. At 99, it dropped. Valuevestors outperformed. Gina adams, the strategist, told me it has to do with energy and utilities. And then 2009, the beginning end of 2015, growth was outperforming. Dotin said that that had to with investors chasing growth, a scarcity of growth. And then for the first time in decades, they saw a little bit of growth. And we saw that same thing on friday. Yes, and a special program with the Federal Reserve decision coming out later in the week. The nasdaq is taking a bit of a beating again. Points,own off by two that kind of level over the last two sessions. We hold that, essentially the biggest twoday loss we hold that at. 9 . To discuss this, from london, robert buckman, global chief equity strategist. Robert, always good to see your face on bloomberg tv. Thank you for joining us. Lets begin with the egg synaptic did we have the egg synaptic bid we have seen. Talk me through it. I think theres a little bit of a reinvigoration of the trump trade we saw after the president ial election last year. The market got a little more excited about stronger growth and rate hikes. Financials did well. I think theres a little bit of that going on, revisiting the growth in the trump trade since last year. There a chance that this becomes selffulfilling and people get nervous and that the gets more selling and more selling . Is there a risk of this . Yes, these things can become more selling. I would point out our u. S. Equity specialist is underweight financials and underweight tech, so to him, this makes sense. I think the question all of us are asking is this a shortterm limited retrenchment or is there something more fundamental going on . And the last 13 were attack, so is this having steam in the marketplace . . So is thisck having steam in the marketplace . You know the old saying bowl markets narrow and bear markets broaden . This is a bit of an unwind of the narrowing. It does not mean the trend is over completely, but it may have gotten over extended in the shortterm. David does this tell us anything more broadly about equities at this point . Is the bloom off the rose . They have been up and up and up no matter what happens. You look at the 10 year treasury yield just about 2. 2 . Yes, we think that the fed will hike rates this year, but we think there will continue to be a bid for equities. Guests point,r im not sure this is something bigger. One of our themes is the turn beneath surface. The market is climbing a wall worried at a certain point. It was the same last year, was in it . There is no alternative. Are we there again . When we look at technology, we had this conversation earlier. There is growth elsewhere. Sus but we have to think about equities as an asset class. In a world where everything is expensive, wherever we look in it is below, we know that house prices are high. Equities are the last fairly valued asset class left. It does not mean they are cheap. Other Asset Classes are more expensive. That is part of the narrowing complex. It has narrowed into equities and Asset Classes as well. Its the last vaguely reasonably class left. Robert, you put your finger on it. I will give you an alternative to tina. Theres an alternative the worst mistake you can look at this, i am going to top myself with these equities being worth it. Do we really think the valuations are out there. The valuations are out there . I would not say absolute valuations are particularly cheap. Historic level. So we are 10 expensive against that relative to other Asset Classes, still fairly cheap. Relatively they make sense. Absolute, they look a bit pricey. Jonathan looking at capital redistribution, some of them are big cash cows. We look at the recent researches. One of the things that we have been talking one of the things were been talking to clients about is how the u. S. Tech sector has become increasingly capitalized. It allocates more of its capital to shareholders, less capital to making things. Apple designs iphones. It doesnt really make them. What that does, of course, is free up the all is to shareholders. They canhings price that into the share price. That is important to emphasize. The cash richness, the ability layate a floor under to a floor under the share prices. You determine prices . You can determine excess capacity and whether that is deflationary . How do you measure that for a tech company . Was to zero really and you can expand instantly with very little incremental expenditure. Absolutely. This is part of a broader conversation about protec unity and are we measuring productivity correctly. You can look at things like revenue per employee, which confirms these businesses do a lot without a lot of input, whether it be people or actual investment. The key thing is the tech sector continues to sit in the middle of that technical, sector divide and as the rest of the world accelerates, the tech sector has the Largest International exposure, so i do not think this is a sector you can really ignore. Perhaps things are a bit long in the tooth. We think it is an important part of the investment. Jonathan the dollar story being part of that. Vitz great to have you with us, robert joining us from london, our european head quarters. Thes get you up to speed on Market Action. The dow goes nowhere, the s p 500, the damage, the selloff, the rally continues. The nasdaq off by one percentage point. The leaders in the market getting deep enough. From new york, youre watching bloomberg. Emma this is bloomberg daybreak. I am emma chandra. There will be a david this is bloomberg. I am david westin. The biggest laggard in the dow is leaving the gains today General Electric. It is having is vested day of gains since 2015 but that comes after the news that the ceo will be replaced by John Flannery as ceo and chair. Reports are out today that Travis Kalanick is in trouble with his investors in the board after a series of misdeeds by employees. In an ugly video of Travis Kalanick himself having a heated argument with an uber driver. With the potential market cap of 70 billion, the stakes could not be much higher for bloomberg to get its leadership right. Joining us, a specialist in leadership issues who studies Technology Companies and he is author of the book strategy professor,nk you, for being with us. Lets talk about Travis Kalanick. Talk about the challenge in front of Travis Kalanick and the uber board today. They are trying very hard to enact a wide range of actions to correct what is perceived to be a deep cultural problem inside the company and those problems stem from a culture that is extraordinarily unfriendly to women to doing things that are marginally legal. They all understand this. How directlyis actually do it . The leadership challenges in most companies would have been to fire the ceo. That does not work in this case ick has, in effect, a controlling share of the voting shares of the board. That leaves a lot fewer options for management to figure out how to solve this problem area david this problem. Unique or rare or is this more general in the startup sector where you have the Small Companies get big, very, very fast and you have leadership that is relatively young i dont mean chronologically, but in terms of the business world. Knowing how you can get in trouble, knowing how to protect yourself . Relatively rare. There is only a small number of companies that have the number of controlling shares that mr. Kalanick has. Snap. Google. Facebook. The problem of a relatively running aced ceo Large Company because of fast growth is a relatively common problem in the sector. What is different, the Successful Companies like google and facebook figured out early on, the ceos did, they were not the right person to run the company at that time. Mark zuckerberg brings in sheryl sandberg. You have eric schmidt coming in to google to provide some mature management and leadership, and the challenge here is mr. Kalanick did not do the same thing. Lets turn that on its head and go to a very experienced ceo. Jack welch is out with a statement saying that he wishes jeff hamels the very best, but flannery,shes that the incoming ceo, will bring Strong Operational focus to ge. So, how does that set of leadership challenges differ from what Travis Kalanick and uber are facing . Different. Very ge is known to be an extraordinarily wellrun company. It is wellmanaged. There have never been issues of sexual scrimmage nation, the culture pushing the edge of the law. Sexual discrimination. Ge is the opposite. Ge is a very mature, wellrun organization, but it is a company where the ceo faced an extremely difficult problem. He comes in right after 9 11. He has to face the 2008 crisis, and it is a very mature company, so it has not been able to sustain the kind of growth and likengs that Companies Uber are able to do. As a consequence, we see the stock price has floundered. The company has done ok. It just hasnt done great. And that is what puts jeff into situation and i think thats one of the reason why the board and even he thought it was time for a change. David, to wrap this all up, it seems you almost have to choose between a young, creative, innovative, daring withny, the risk you have uber right now, or an established, wellrun company that cannot innovate as much. Can you have the best of both worlds . Think you can, but it does require extraordinary leadership. You think about what ge did under jack welch. They were able to grow. They were able to do extremely things. Jack was and is in his mid40s when he took over the company. He was not a different age then but he was more mature, more seasoned, equally creative. Its possible even in a big company like General Electric, you can do some of the wonderful things we see a Companies Like uber. David ok, professor. That is david yoffie from Harvard Business school. If you have a bloomberg terminal, you want to check out tv. You can interact by sending out messages we will read. On your tvtv terminal. This is, after all, bloomberg. David this is bloomberg. I am david westin. Attorney general Jeff Sessions was supposed to be going to l tomorrow to talk about the Justice Department budget, but he needs toays address the Russian Investigation and james comeys testimony so he will go before the Senate Intelligence committee to do that. In his testimony, comey said that they have learned something about sessions that would make his continued investigation into a Russian Investigation problematic. He said he could not discuss the matter publicly. Joining us our chief washington correspondent. Theres a lot going on in trump world, but lets start with this Jeff Sessions investigation. What is going to happen tomorrow . Sources i am talking with are thel unsure whether attorney general will testify publicly or privately. Comeys say that james saying in a closed briefing that perhaps the attorney general not disclose all of his meetings that he had with russian officials. That, of course, makes it a bit particularlyted, since the attorney general has recused himself from any russia investigations, but it also, of course, just further adds to the intrigue of how this administration is struggling, david, to put this behind them. Yeah, exactly. Lets talk about what they would like to get to this week. Whats on their agenda from their point of view . Week wasst infrastructure week, at least in the news, but this is Workforce Development week. President trump is working with a team of advisers particularly on things like apprenticeship programs. He will be in wisconsin later this week with Governor Scott walker to again tout a series of reforms a series of reforms, trump, thehat ivanka president s daughter, has been working on. We will hear several congressional tweaks like perhaps paid maternity leave. Having a key role in that particular regard. At the end of the week, a host of Top Republican lawmakers will be meeting at the white house to discuss un dun dun u. S. Cuba relations. David kevin, forgive me if i feel overwhelmed. Toseems that he keeps adding the agenda. Should i ask what happened to tax reform . What happened to health care . Or member those . Its interesting. We talk about this and theres the frustration with the lack of proposals on policies like tax reform dont exist so congress is having to take the charge all of those fronts. A feelingin, i have we will be talking with you a a lot this week. Thank you so much. China, trying to catch up how did infrastructure week go . Clearly jokes are being made on wall street. Did it happen . David he went to ohio, gave a speech. Jonathan comey happened, to you well, so perhaps it got lost somewhere. They carry through wages today. The nasdaq the last two days, off by 3 , for percent. You look of the nasdaq the last two days, but that selloff in perspective. We were off 15 coming into friday. The last two days, 3. 5 . We hold these levels. Lets give you a feel for what is happening. Julie hyman joins us on set. Jewels, what is happening jules, what is happening . We saw this spike in selling on friday and is never a good sign if you are a bull to. Ee this selloff right now the volume on the nasdaq is double the 20 day average per its just astonishing the volume we have seen. Its all over the egg cap names grid goldman sachs, facebook amazon, microsoft, google alphabet. That were atthings records or near records before this now coming down. You just said symantec was off 15 for the year. Its not like we have wiped away all of the gains, but now that it has entered the second day, more people are struggling to make ends of it make sense of it. Apple taking a beating. These Big Companies are getting really enough after surging 30 . Julie hyman taking us through the markets for the rest of the day, the rest of the session. , stocks are down in the nights youre watching bloomberg tv. Vonnie its 10 00 a. M. In new york, 3 00 p. M. And london and 10 00 p. M. In hong kong. Mark welcome to bloomberg markets. Vonnie here are the top stories we are covering, u. S. Markets open lower with them nasdaq getting pummeled once again. European stocks are also taking it dive and we will examine the driving forces. In london, the u. K. Prime minister theresa may met with her conservative collects since losing her outright majority in parliament. We look at how any looming partnership is still ongoing with the Northern Ireland dup may impact brexit. Jeffrey immelt will leave as at the end ofe the year and investors are applauding was shares rising the most in 17 months. We look at how the incoming ceo John Flannery may change one of Americas Industrial icons