Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170706

Basis points. The sale is not escape in the u. S. He vix, 6 the fed warning about assetg bubbles. Gold pretty much flat. David President Trump addresses the people of poland in Krasinski Square. Then he will leave for germany for the g20 meetings. Adp Employment Data pointing towards the friday payroll data for the United States. 15 minutes after that, a national jobless claims for may. The fed governor jerome paul will speak about post Housing Finance reform. Said vice chair Stanley Fischer speaks on government policy and Labor Productivity in massachusetts at 7 30 p. M. Eastern. Alix it is good to see you. Split on the timing of the Balance Sheet unwinding on inflation but agreeing over concerns of asset bubbles. Some suggest increasing risk tolerance might be contributing to elevating asset prices broadly. The market volatility coupled with a low equity premium could lead to a buildup of risk to Financial Stability. Noining us is the morgan i want to start with you. Are we assuming the fed could than Economic Data warrants because of the financial conditions and instability . Saw moreinitely concern about the inflation outlook in the minutes. We saw a pivot towards Financial Stability concerns. It is a clear that is going to be a convincing argument for some of the more traditional economists on the committee, like janet yellen and charlie evans. While we are getting more noise in the minutes, it is not clear that will have a major impact on the rate outlook Going Forward. We will see. Alix if the fed strays from the basete where their models for that and they go with more Financial Stability, what is the risk of a policy mistake . They have been teetering on the edge of the policy mistake for a while. People thought they stayed low too long and should have started raising in 2013 when the economy was stronger. Now that the economy is weakening, it looks like they are on the edge of a policy mistake. They need the short and higher. It should be around nominal gdp growth, but then they risk the long end contracting and you end up with a recession. Jonathan you have any understanding about what addressing financial conditions means for risky assets . Speak is very challenging. You are trying to interpret it every morning, something i dont envy. Financial conditions, they created the financial conditions they are talking about, the asset bubbles. We had the tech bubble in 2000 when everyone said the market would never go down. Then the housing bubble, and housingid the could never go down. Then the bonds in europe, housing again, Financial Assets is overvalued. They are on a tight rope. Jonathan financial asset prices, it just wasnt secondround effects, they were targeting Financial Assets. It was the channel they were focusing on in many ways. Have they abandoned that in a significant way, and are they beginning to target financial conditions is saying we need to tighten things up . Matthew they mentioned concerns over low volatility and the idea low unemployment could breed instability. This is what usually see low market volatility associated economic volatility. It isnt clear if that is the underlying fundamentals where volatility is so low what the appropriate policy response should be. If you are the fed and you will make this part of your reaction function, you are going into uncharted territory. That might be why it may not be easy to build a tightening Campaign Around that at this time. David another way it is uncharted is Financial Assets up. On the other side, youre not getting wage pressure to the extent the fed would have expected. Whether we are getting to full employment, white we are not getting inflation at what is the proper response when you have Financial Assets up without wages coming up as fast . Mark they have a policy mandate which is inflation and economic stability of employment. They have achieved employment. They have Employment Unemployment down to a level they are comfortable with. They have had no success, as has no central bank around the world , no one has had success in generating inflation because it doesnt work. Qe doesnt generate inflation. Inflationrom economic. Theyre not going to fix that. They could not make us younger from the people dropping out of the workforce, and they cannot make the millennials older. They are stuck. I call it fed in a box. Theyre not going to create inflation. The inflation we saw earlier this year was Oil Price Recovery last year. That is moving out. You never want to be on the far end when that comes out. Policy, in the minutes there is discussion if they should slow down or stay on their course. Most people think we should stay on the course. Given what you said, that no matter what they do on Monetary Policy they wont affect inflation, why wont they keep going . Mark i have said for over a year they should have gotten back to 3 quickly. The only people that borrow fed thes is banks here are reason fed funds were so low were to really cool five the fy bank funds. They should continue on the short end. The risk is you will have an inverted yield curve because the long end will not be above 3 then we will be close to or in recession and we need a cleansing recession to let some of the bad businesses go away, strong businesses get stronger, banks readjust their Balance Sheets themselves. We have a recession every six or seven years, and all of a sudden everyone thinks it is the bogeyman. Alix underpinning the conversation is low rates is worrying the fed about financial instability. Asset bubble in 2007 funds08 with fed higher. Is it a given . Matthew it is not. Inflation targeting worked really well when Central Banks were trying to bring inflation down from high levels. It isnt clear it is working when you try to bring inflation up. They think maybe the curve is so flat there is no relationship between unemployment and inflation. You wonder what should the central bank be doing if that is the case . It takes away their main reason for existence. Towardsu see a pivot Financial Stability issues, maybe that is something we should be doing. We are in the early stages of that discussion and it isnt clear where that will go or how much they will be able to embrace that in formulating a policy path around it. Coming up, we will talk with the executive general of can expectwhich we on trade coming out of the g20 meeting in hamburg feared we are awaiting President Trumps remarks to the polish people. We will bring that to you live. This is bloomberg. Bloomberg, i am david westin. President trump is in poland and will shortly address the people of poland. We are joined from warsaw. What we know about what the address will save from the president to the polish people . The white house is billing this as a major speech to the polish people, europe, and the west. The president will ask if the west has the will to survive. He will cast the challenges facing europe in the western community as an existential crisis. Immigration,om trade, and a number of challenges facing the west at this time in history. The president will side with the polish people. The polish government has taken a much more populist tone and type of government as they have tried to restrict immigration, cracked down on the free press hear the president will not side with other countries in europe who have criticized that. With theesident trump first lady taking the stage in Krasinski Square with the president by his side. There is talk about a war for the soul of the west. Who is the war with. Toluse a number of different actors. World have of the waged a war on the soul of the west and western community. The president will side very much with the polish people who have tried to push back some migration and block some of the migrants that have come over who same level ofhe success immigrating in poland. The president will say countries have the right to establish their own borders and be sovereign nations. Something the polish government will be happy to hear. Jonathan the mutual defense clause, has the president committed himself to that on this trip and do we expect him to . Big question. S a the last time the president was in europe he gave a speech to nato and did not mention article 5. Is not clear if he will do that in this speech. A lot of people that are closely watching this president are watching to see if you will make that ironclad commitment. He did that when he was speaking with the romanian president , but it will mean more if he does it here in the next few minutes. Going to the middle east and meeting with leaders there, finding himself in a more tense environment with western leaders, does he have anything in common with his polish counterpart on this trip . Toluse he does. You can see that with the large numbers of people there to witness his speech at we saw people wearing make America Great again hats. The president is seeing likeminded individuals and a government that sides with his populist spin. That is something he focused on when he chose to come to warsaw before visiting more traditional european allies. Alix what is next for President Trump over the next few days . Thise he will go from speech to homburg, germany where he will meet at the g20. It will be not quite as much of a positive experience for him, because you will be facing questions on his stance on Climate Change, trade, he will be meeting with the leader of germany, the leader of china, he will have to deal with north korea and the syrian crisis. It will be a tough situation where he is meeting with so many different World Leaders. Seems tosident trump do well when the focus is on security. Does that help change the conversation a little bit . Toluse the north korean issue upended the president s goals are he wants to sit down with china and he wants china to take a tougher stance against north korea. That is one of the goals he has when he goes to the g20. Alix you are watching melania trump. He hasnt left behind the things in washington. There was a presser with addressedduda, and he maybe for the first time that he thought russia might have had something to do with the interference in the elections here. Toluse the president said he believed russia was involved with the meddling of the 2016 election, but said that other countries may have also been involved. He said we may never know. That is in contrast with the Intelligence Community who said russia did order the meddling in the u. S. Election. He said he did think that russia did it, but also that other countries did it. There is blame laid by the current president on the former president because he did not do enough . Toluse President Trump said that is the real question, not that rush of meddled but what obama did and did not do about it. That the Obama Administration meddling russia was and did nothing about it. What the Obama Administration knew in the decision whether or not to take action against russia. President trump will face questions about what he will do with russia. He will meet with Vladimir Putin tomorrow. There will be a lot of questions about what the president decides to do with that meeting and if he will bring up the issue of russian meddling in the election. David were watching the first lady addressed the people in Krasinski Square. Lets listen to what President Trump has to say to the polish people. thank you, very much. The United States has many great diplomats, but there is truly no better ambassador for our country than our beautiful first lady. Thank you, that was very nice. We have come to your nation to deliver an important message. America loves poland. America loves the polish people. Thank you. Have not only greatly this region, but polishamericans have greatly enriched the United States, and i was truly proud to have their support in the 2016 election. [applause] it is a profound honor to stand in this city by this monument to the warsaw uprising and to address the polish nation that so many generations have dreamed of. That is safe, strong, and free. [applause] and your duda wonderful first lady have welcomed us with a tremendous warmth and kindness for which poland is known around the world. Thank you. I sincere, and i mean sincerely, think both of them and the prime minister. A very special thanks also. That the former president , so famous for leading the solidarity movement, has joined us today also. Thank you. Thank you. Behalf of all americans, let me also think the entire thank the entire polish people in the generosity you have shown in welcoming our soldiers to your country. They are brave defenders of freedom and symbols of americas commitment to your security and place in a strong and democratic europe. We are proudly joined onstage by american, polish, british, and romanian soldiers. Thank you. David we have been listening to President Donald Trump in Krasinski Square addressing the people of poland and europe praising poland for its role in Central Europe and how far it has come. Also, the leader of solidarity. It whenget back to appropriate and follow closely with anything you need to know yet were joined by a senior fellow in the Global Economy program from chape. Let me start with you. Put in context not only this appearance, but the g20 meetings and homburg. How are these meetings different from prior g20 meetings . Amar it is a meeting of the important 19 economies of the world and European Union. The focus is on european and financial cooperation. The g20 was forged by crisis, established in 1999 after the asian crisis, and at the leaders crisis. Ter the 2008 the g20s focus is the global thatmy and global order supports strong, sustainable growth. In that context, there are a few issues that everyone will be watching for. What is the agenda with respect to Climate Change . What is the agenda with respect to trade . Most of the issues of the g20 have been set, because the meeting of the leaders is the combination of a culmination of a large process of discussion. What President Trump put on the table are issues of Climate Change and trade are subject to discussion. David you used the word cooperation. Whether it is Climate Change or trade, President Trump has set a course that is different from the other 19 leaders. Cooperationope of is greater than is commonly recognized. Trumpsce of president u. S. Wasthe g20, the focused on recess the dating Global Growth on recess reviving Global Growth. When you look at the agenda, what is happening, Monetary Policy has lost steam. Everyone agrees tax and fiscal policies need to be more growth investment, particularly in infrastructure, is a common challenge of across the world. There are many areas where there is tremendous cooperation. There are issues with respect to trade and Climate Change where there are differences of views. It is safe to say the rest of the world has a different view than President Trump on those issues. Jonathan investors and Market Participants used to hang on. Very word as we approached this g20, is this of more interest to secretary tillerson dan secretary mnuchin . It has the potential to go there, but the primary issue for everyone is a Global Growth. Global growth is declining. It looks to decline more. Talks of things like trade war is never a good idea. Smoothawley. Boundaries on trade and tariffs have never been a good idea and have been disastrous in some situations. For this administration to go opposite of the primary goal of other members of the g20 would be a big mistake. The trumpited about trifecta, decrease regulation and taxes and increase this goal. Ofecta. W we have the n no progress on any of the issues. Jonathan for the last several months it was negotiation. Do you see that risk materializing over the coming months to some extent . I think there is a material risk, and therefore a meeting like this is important so President Trump can hear directly from his fellow leaders that it cool operative world is better than a confrontational world. In the area of trade, for example, there are mechanisms to deal with unfair trade practices. We have the wto. One thing about the wto is the u. S. Has been successful in bringing other parties to the table and getting a fair resolution. The u. S. Has a very strong interest in the established trade system rather than of upending it. Case whenbase President Trump was elected was we would have a trade war, then it went off the table very quickly. It is something we are keeping an eye on. We have been very suspect of the progress that was going to be made this year on all of the lofty goals. The thing that we were the most concerned about was the threat of rising trade tensions and a trade war. You saw an interesting glimpse into that at davos where trump was absent and president xi said you cant turn your back on globalization. The genie is out of the bottle. We need to focus on increasing collaboration and work towards a more global trade, not less. Jonathan great to have you with us on the program. Thank you. The president of the United States addressing the people of poland. You shouldng line, never be held hostage to a Single Energy supplier. The u. S. Is committed to diversifying Eastern European energy. A slight acknowledgment to the russian involvement in interfering with the election, thean acknowledgment on overdependence on a Single Energy supplier. For those people wondering if this is going to be a tense meeting between President Trump and president putin even the decision to start with poland is not an accident and it is not what poland did, but its energy with russia. The best way to help the trade deficit. In the u. S. Is export energy. Lets get you up to speed. We will bring you more updates throughout the morning. We are down about 64 points on the dow. German bond yields through 50 basis points. The euro getting a little bit of traction. 63 of the 10th of 1 . Lets get you across the headlines now. Hasresident trump acknowledged russia meddled in lassers election. The president spoke after meeting with polands president. Mistakes have been made. I agree, i think it was russia, but probably other people and or countries and i see nothing wrong with that statement. Nobody really knows for sure. President trump also said president obama was told about russia in august, the did nothing about it because he thought Hillary Clinton would win. The u. S. Ambassador to the United Nations with countries that continue to do business with north korea. Venezuela, on the opposition controlled national assembly. Dennis will it is in the midst of three months of daily to start a trying dictatorship. Im emma chandra, this is bloomberg. The European Central bank it is kind of like the fed without detail. Dont through it, just to give you some of the headlines, the governor is an agreement the Current Study is inappropriate. The not to overestimate impact of editorial cycles. Some tightening to be expected. Essentially is unchanged. If thebe reviewed outlook improved, but that line in the concern around the small medications changes could be misperceived. Joining us now great to have you on the program. Every central banker in the world is fearful of repeating the episode four 2013. I think that is influencing the with markets now. Some of the core Central Banks have been boosted in italy. I think the relevant point month, we the last have heard from for Central Banks. Joined thes have Central Banks talking about the of level. After multiple years following aggressivelyery using Monetary Policy to support economic demand, the fed started bitie look back and little and everyone else was still pursuing aggressive monetary conversation. Bankslikely a point worth are focusing on financial conditions in the need to bring some of the accommodation down. Clearly ayria sense of nervousness and you can get a move of about seven basis points. Complacent are some of the market right now not so much in treasury, but much more in bonds . There is leverage in the system. It is lower than it has been historically. Market can move seven or eight basis points in a day. Part of the challenge is the starting level is so low. It is a bit of an artificial level to begin with. As you add potential position online combined with central ofks very gently, thinking aggressive levels of accommodation, you have to allow for some rise and yield. Does that scenario play out and is that sustained over in europe . The interesting thing from began draghi was easing for the same level of Monetary Policy which allows Central Banks to pull back on Monetary Policy because overall conditions remain very accommodative. Thefed has been focused on same thing as yesterday. Central banks seem more focused and aregate conditions half anytime in last eight or nine years. If you take a look at the they are still tighter in comparison. Does this mean draghi has less amenability to tighten Monetary Policy and is that recognized by the market . Yes. Think the answer is it has a much trickier problem than the fed faces. The ecb is going to face a challenge allowing shortterm Interest Rates to escape the negative regime, but not allow the market to regain the price setting mechanism mechanism for preferable debt. That is a really tricky combination that they need to pull off over the next couple of years. I wonder if this is a communications issue. And we had some concern about the in plaintiff prices. It you say you have to take it down. Thet least here in the u. S. Fed is moving towards a more normal stance and the economy is giving them an opportunity to do so. Unemployment is 4. 3 . They are easier than they were despite three tightenings in june. 62 6 r has declined to 7 . As it moves from a dozen it necessarily affect the price of bonds . To have to come down. Presumably, your rates go up, especially when the fed begins to allow the Balance Sheet to run off. They have not yet given us a the feds reinvestment framework that they have set forth. If employed, later this year, it trillion to roll off over the next three years. That was a fair amount of supply into the market. We will keep monitoring that and bring you any highlights as they come to us. Coming up, director of the world trade organization. Live from new york, this is bloomberg. This is bloomberg daybreak. Coming up later, chief bloomberg chief strategist. This is bloomberg. A fascinating speech by the president of the United States. Week, webit later this heard something on energy. They should never be held andage to a single supplier in this line right here. The president of the United States calling russia to end destabilizing hacks in ukraine. Technology and at least subtly of russias interference in the united in the election last year. Over in europe, Deutsche Bank is fromg postbrexit plans london to frankfurt. Frankfurt isw from stephen from bloomberg news. What have we learned and how significant is it . It is pretty significant i think. It is not going to concern people right away, but it is a clear there thinking about moving of hundreds of people europe. Ontinental areas are we talking about . Also, is fine emerging as the toce for many of these banks get that certainty within the European Union . Terms of Deutsche Bank, were mostly talking about backoffice in the eu. Theyre looking to implement these things over the next 18 months. Frankfurt is deathly emerging as the brexit winner. We are talking about a couple thousand jobs moving to frankfurt. Some other names have announced they want to make it a hub. That is deathly a thing we are observing us the moment. Staggering numbers coming out of the latest ecb report. North of 40 . North of 40 takes place in london. When you look at the city of london, there are still big things Going Forward that arent necessarily going to disappear in march 2019. I think that is something that is being negotiated. Much. Ainst moving too would incurost because of an efficiency so i really dont know at this point how much it will move. Thank you very much. Jeremy corbyn is set to meet week. Hief negotiator next corbyn spoke to johnson in london. We did not win the majority of the we put on a large majority of votes. This government doesnt have a majority. So you think things could change quickly i think change i think things could change quickly. Im ready for another election. Are many unknowns in british politics at the moment. The great unknowns is where Jeremy Corbyn stand on the of brexit. Im curious as to why you are being as big as you are on the subject. Of brexit. Funneling fundamentally we want to make sure there is free europeaness to the market. Half of our trade is with europe. Secondly, we do not become an offshore tax haven on the shores of europe. Universitytain connections across europe and we maintain a broadly similar level of regulation of consumer products. It would be a partnership because we have accepted the results of the referendum. Is single marker compatible with the brexit . Trex the Single Market is a constant that requires membership to the European Union so we are looking for us hair free access. We have a Good Relationship with socialist parties across europe and i will be in brussels having an extended meeting with Michel Barnier. That was Labour Party Leader Jeremy Corbyn speaking. Ack to the Deutsche Bank story John Mcfarland says he is confident much of the trading activity involving the euro will remain centered in the city of london. Right thing is to retain a significant portion of that in the u k and that is what we are looking for a freetrade agreement. Was John Mcfarland speaking. Mark, when you look at financials across europe, much has been made about frankfurt and dublin. It is certainly not going to disappear. The Network Effect when you have one cell phone is viable, but more a little more viable. Same thing happens with financial hubs. When you have one financial institution, not really tough to move. I think it is going to be very difficult and suddenly all shift frankfurt. Nd still ramifications are unknown when it comes to the u. K. Economy. We have seen the bond market as rid expectations have risen there. I think asset values are very high globally and i think one of the big stories this year, everybody was holding the breath on all of the european referendums and when the French Election went nonpopulist, now, every little negative news having this many selloff reaction and i think that is going to continue. Highe got a challenge of valuations. Creates heightened tension and if everyone is trying to do the same thing, that is usually the time to do something different. Could that spread more broadly. Because of that, is it limited to that. One of the challenges of this whole process of brexit is no one really knows what is going to happen because it is all a year out, two months out. Known for the nose when you start the snowball down the hill. Does it pick up speed or take innocent bystanders along with it. One little shift suddenly turns the half a dozen groups in next thing you know you have all the peripheral support services thinking about relocation and what it really has to do is can they actually negotiate a tariff Free Trade Agreement when it seems to me when you look at the ratios and the relationships, the eu has a much better hand when they Start Playing poker over the next 18 months. Is there a particular problem in europe for raising capital as opposed to Capital Markets in the United States . And other important point. One of the challenging things about the european Banking System as opposed to the u. S. Banking system is it is much more integrated. They dont have the big Mortgage Companies like they do in the u. S. Everything is dependent on banks. These banks are very large and they are very multinational because they dont have the true unions. They dont have a financial union. Great to see you. A we have us directory at tv. This is bloomberg. Youre watching bloomberg tv. We are about one hour and 34 minutes and some change away from the futures. The bond market was a big move over in europe. The magnitude of the move may explain some of the nervousness there. Next, Merrill Lynch global head of economics from new york. Youre watching bloomberg. Whoooo. Youre searching for something. Like the perfect deal. On the perfect hotel. So wouldnt it be perfect if there was a single site where you could find the right hotel for you at the best price . There is. Because tripadvisor now compares prices from over 200 booking sites. To save you up to 30 . On the hotel you want. Trust this birds words. Tripadvisor. The latest reviews. The lowest prices. The consensus grows over financial conditions. From your of city, good morning. m Jonathan Ferro to get you up to speed, it is morning. G into a risk by nine basis points. A soft french auction in the mix. 1 are of the third of against the dollar. Jobs 15 minutes later, you get weekly jobless claims all ahead of jobs friday. Fed governor jerome helpful speak on housing reform at the American Enterprise institute and later today, government policy and labor pitch labor policy in massachusetts. Meantime, we are looking for to the g20 meetings. We know many are Photo Opportunities with limited opportunities for making real news. It may be different with the president at odds with many of his leaders. We just heard from President Trump getting remarks among other things, he at a message for Vladimir Putin. Its bestussia to earn seats ceases destabilizing activities. Instead join the community of responsible nations in our fight against common enemies and a defense of civilization itself. Here to take us through the issues, bloombergs editor reporting from hamburg and bluebirds shes washington correspondent. John, let me start with you, one of the Big Questions is can these 20 leaders come together because right now it seems like theyre going in different directions. I think they will continue to go in separate directions. It is going to be very hard even with someone with diplomatic skills. Changeing from climate to trade. The one thing to look at his you probably cash interesting is going to be donald trump meeting on friday. As you choose s, Angela Merkel is the convener of this and hamburg journey. The we have a sense of what her and is . Handthink she on the one does not want to end it acrimony. Is anou are going to see alliance between germany on free trade and im a change. They might not call it that, but you are going to see a very scene. Message behind the you have America First on the one hand and on the other side, you have two of the worlds rpower give us the perspective from trumps point of view. I completely agree with john. Or two interesting points. Irst, his position on russia perhaps we dont hear that enough. David say he wants to nations to pay their fair share. He drew applause for his positions on both of those points so clearly this is a very different President Trump and will be saw on the First International trip. He continues onward with this second trip. Finally, many of these meetings are concerned with economic issues. Is it a step forward rcep back when it comes to trade . Everything you have seen for now, i think you see a lot of agreeing. Trade is obviously very important. We are in hamburg which is one of the worlds capitals and trade. I think in this g20, it will be politics. It will be present Putin Meeting for the first time. That will draw huge attention. The g7 was nominated by Climate Change. Many thanks to bloombergs kevin cirilli. Geopolitics takes center stage, it is really world trade that has the potential to lift gdp. They track each other pretty well and global trade has taken off recently. Same . Obal gdp do the if we see some derailment in world trade, what is it mean for growth . What does it mean for growth. . Reform tradepts to agreement rather than blow them up. If this whole thing ends with tariffs and counterterrorist, that would be quite negative for the economy. Do you feel the u. S. And china are in a collision course when it comes to trade with . Orth korea in the mix i think there will be complex there conflicts there. Decadesicymakers for have been concerned about the bending of the rules around free trade by china so this is an area where there is a common agreement among economists and policymakers in the u. S. That trade relations with china are not completely fair. Pressure between the u. S. And china grows over time. To the point you touched on, much has been made around this administration, but as far as relationships are concerned, economic relationships for many people have not been fair. Like a said, this is not new. Last reportshe from the obama and reservation, there is a laundry list of concerns around china and i think some of the key things are protection of International Property rates. Theres focus on Champion Industries supported by local governments and subsidies that sell cheap products. Theres a whole host of challenges. These are not going to be easy things to change because china to move away from their old trade model and have a more efficient economy Going Forward, but it is very hard to transform the chinese economy so period ahead. Ough is that a good thing for those out there who want to maintain free, global trade . If you look at the Republican Party and the white house, there is a populist wing that really wants to be aggressive and trade and there is more traditional method wants to reform. Vying forey are both attention. This is the big question we all have on trade. Which of those forces will be heard . Moreete actions have been the camp of reform in dealing with specific issues, but again the concern is that the protectionist stuff really takes over at the end. I would not call them and . Wilbur ross has been front and center. The persons they do services. Nancial clearly the u. S. Is very good at delivering services, whether it is financial or other services so we want to promote trade as a winwin situation. U. S. Ould not be the focusing on manufacturing that requires heavy labor input. That is the ruby want to go down. It doesnt concern me from a macroeconomic point of view weather seems to be elements of unfairness and on trade. My biggest concern is around whether there are tariffs or other these kind of negotiations i view as a healthy development. Up, we will be talking about global trade and the man promoting it. R live from new york, this is bloomberg. Lets get you up to speed on the market action. 63. Res down call it down for 10th of 1 . Bonds, yields, higher. We are up by five basis points. We get some breaking data here in the United States. 158 k. The estimate 188. The number comes we come. Hrough at 158,000 jobs the estimate, 188 and from a revised 230,000 in the previous months. A negative surprise, alex. Joining us from boston is Michael Mckee. We made a lot of numbers and they were huge. What is your base case for friday. With a 185going in on payroll so when you get a soft baby adp number, like many economists we have been burned in the past. Is to say there is a downward by or risk to our forecast. To oneet something close of you 5000, the labor market is still in great shape. Other labor markets look good if you look at all the measures. I would not take this to seriously. I think the labor markets are in great shape. That only goes to the fact of. Hy you are in boston you have tech and health care which is on. What can you tell us about what thatave learned and how is it is a problem here because you have so much demand and not enough supply. You see it on the lower end of the scale. Issues is if the robots are taking everyones jobs. He says it is sort of a question and both at this point. We are going to destroy more jobs as we create more technology and ways of producing differently, but i think all of is exaggerated at some level, the on the other hand, we should be thinking much more about how we adapt to these new technologies. You look at the breakdown today in you see support for what he was saying. The real lack of hiring was in the Small Business sector. A gain of 4000 and manufacturing. It looked like this month at least is your question suggests, there are two questions here. The total number of jobs and do we had the right people with the. Ight jobs you need as many people in this world . That is one of the debate. He pointed to the development of the automobile. Hundreds of thousands of jobs were createdyou need as many pes world . That is one of in the Auto Industry and you had jobs like , so down therepair road he is optimistic. He thinks over the long run we will see jobs created that we aboutt even thinking right now. Give me a big reason to hike rates. T is that a story for tomorrows perils . I think so. If you look at what is happening in the economy, the fed is still short on its projected to. Eceiving 2 on inflation unemployment down to 4. 3 . It looks like it is going to continue to drop Going Forward so as long as the labor market look strong, i think it is hard to stop the fed exit. Sheikh equity strategist will be joining us. This is bloomberg. Longterm apple analyst the electric car may change the world in the way the iphone has. Themodels could accelerate sale of electric vehicles. According to people familiar , they have not made a final decision. That is your bloomberg is flash. Deutsche bank is making plans and moving its from london to frankfurt. All according to people familiar with the matter. Them to gol fit for home. Easier forrtainly them. You are not just talking about job security youre talking about assets in putting things through. You have seen a lot of the banks through frankfurt. So that has certainly shown some appeal for the bigger banks. They would say lets see how things pan out. Do we have an idea they were not wait around and will move what needs to be moved ahead of time i think they have started their plans. The clock is ticking and they know they have less than two years at this point. I think at this point they are keeping some optionality that if things start to look better, they could scale them back. They could see people moving towards the end of the. Period. F the what is going to happen to brexit and is ranked depends on who you are going to talk to i guess. The right thing for the eu and the u. K. Is to retain a significant proportion of that and we are looking for a Free Trade Agreement. When you speak to John Mcfarland, why are they so much more optimistic about the future of these negotiations and clearing than the other banks . It andink they believe every bank is talking to some extent. Barkley has had some access and underwriting debt for european corporate. They have risen in those rankings. I think they would like to see that continue and they have an advantage in a way that is currently set up and also, they have positioned themselves at a as a british bank and they have been more positive in the negotiations. Assume went trump i dont see them yet. Various boarding a plane from poland. No doubt front and center. Much will weis how. Ee i think you will see a significant amount of real and thereng bought up will be competition. , it can these capitals be a little tight in terms of real estate. Great to have you with us on the program. Youre watching bloomberg. Youre watching bloomberg daybreak. Risk across equity markets. By ures off. Now by six basis points. Pointster 50 basis earlier in the day. In terms of ecodata, here it is for you. We now get initial jobless claims, climbing from the previous rate of 244. The last number of years just multidecade lows. This off the back. A little take higher an initial jobless claims. As you say, large line. Rateng us now, he is u. S. Strategist from bloomberg intelligence. Welcome. Good to have you here. We just got these numbers in. We were off a little bit, but not dramatically. What do they tell the fed is a look at this economy . See isink what you people are not getting laid off. Ofre are certainly not a lot labor markets. I think on the other side is the hiring part. That is why you have seen a why t labor market and it was 30,000 lower and i think that might actually change some of the numbers you might see tomorrow and clearly the job market is one of the two pillars that the fed has focused on. They have to try to keep full employment and as we get closer to full employment, it is likely that you will see slightly lower job gains each month and the fed will look at that and say, are we getting less job gains, but higher wages . The payrollumber is tax comes out tomorrow. I think everyone would agree. The summers tell us anything about that in an particular, what about the mystery of we are not getting as much given where we are in the employment cycle . The fed has been asking has the paradigm changed in such a way that we are not going to get a wage push unless we change out very hightech economy where you want of seeing jobs inflations. Ge also, the lower end where labor market is a very tight, but his cut of the middleware you dont see a lot of wage inflation. Without 70 of are currently being service, it is hard to see how you get inflation was above some are really concerned about overheating the economy. The more nervous some get. What kind of number is going to help the markets reprice a faster rate hike or a higher terminal . I think for both of those committees need to see the wage numbers pick up. You need to start to see your on urine wages growing in you have not seen that over the last decade so it is really that wage number as well. X it is going to take time to bear fruit and see significantly a rateexpectations for hike. A big story today as you look at things currently, is it the bond market and driving seat as to what happened globally question mark i think it really is. Highlights of the over the last couple of weeks. The real risk to treasury markets is the lack of duration and demand from places like europe. As european yields get incrementally higher, u. S. Yields are going to follow. Six basis points in the u. S. If it holds, you wind up seeing a dramatic increase in u. S. Yields following germany. Report ont with their a german tenure. Your 20s. Ow we have doubled in a very short. Of time. How aggressive does this need to get before people start calling get what it is. Draghiuld call it the taper tantrum. The started a few weeks ago when there was a speech by the president stating we might be tapering sometime within the next 612 months. This is the type of reaction you get when you talk about buying a lot of bonds. It is much different of the runoff the feds are going to do with their Balance Sheet because the fact is they are buying a lot of bond market risks. If they cut the back intermittently, you see a lot of yield. Joining us on the breaking news and that they check up on the bond market as well. Heres emma chandra with some first world news. Morning aboutp their dependents on Russian Energy to buy u. S. Natural gas. We are committed to securing access russia has sometimes cut off gas shipments. Leaders from japan are hailing the Free Trade Agreement. To tell onrying President Trump protectionists sense during his second trip. Doctors treating republican Steve Scalise are worried about the chance of infection. The say he will need multiple operations effort bullet pour through his pelvis. This is bloomberg. Azevedo. Up, roberto he will be here to talk about the g20 meetings starting tomorrow. Live from new york, this is bloomberg. Hour,ing up in the next this is bloomberg. Wewill always welcome welcome to those who share our values and our borders will be close to terrorists. That was present trump inaking in hamburg before warsaw before heading to hamburg for the g20 meetings. Wouldsident trump knew he get a warm reception. Did you get a warm reception and message oldest people hurt . A warm he did get quite perception. He came here because he wanted tour in a goods light and he was able to tell the polls what they wanted to hear including that the united gas tois ready to export present from very specifically said you dont need to be as dependent on moscow for your energy needs. You can rely more on the United States. Explain why that is so important. Is Russian Energy accounts for post needs. of what poland is doing as well planned court in correction would be able to flow throughout and curve its been dependence on Russian Energy. Another thing you mentioned was ukraine. How important is it to poland that they know they had the United States backing them up as opposed to russia, who made encroachments into ukraine . was quite concerned last year after trumps election because it wasnt sure what policy towards russia will be and these kind of statements along with trumps statements today that he fully endorses sets well. E of data many thanks. Trade is first on the agenda for talks and hamburg. Lets hear from the organization. Much. You very there has been some very when it comesions to free trade create what are out ofing to come hamburg . I think this will be the first opportunity that all these leaders have to really have a conversation of their concern and problems facetoface and and more than 11. Right now, what we need is to talk. To listen at each other. There many concerns. We cannot just ignore and say other concerns are unreasonable. We all have to understand and figure out solutions. I think that is the value of this meeting. Your responsibility is to monitor and promote mobile trade. Card. S your report we heard some things that there has been talk about reducing trade. I think the trade globalation evolved problems. All these are very global and the other way only to fix global problems is everyone sitting around the table. Of course, a facetoface and isation is important think we have to explore all avenues because those concerns are not easy to fix and that is something we have to bear in mind. Say to people about the organization you represent . I have had a few meetings about bob lighthizer. We had excellent conversations. They do have concerns about the organization. They are concerned about certain. Imits imposed by the rules that affects everybody, but we have to understand what they expect from the organization. How can the organization help address. Many of the things i hear the u. S. Say is there are tools that can be used to help solve these problems so i think we need to explore that. Theres many people in the United Kingdom that believe britain might be heading back. Or a hard brexit why is it considered a negative that the u. K. Would come back to wto rules . Is not really going back to wto rules, it is going back to a base relationship with the eu. Preferences. Ng if they go back, they will pay toies like every wto does put their services into the eu territory and vice versa and that of course, is a loft loss. Favorable and they want to avoid that. Potentiallyric is higher deals. If the wto has a problem with ignores President Trump that ruling come up where does that leave the wto in the u. S. . The wto has a number of rules and discipline that allow for countries to adjust their markets. For example, antidumping duties. The tools are there. This is not exceptional. How would wto think of Something Like that . They can do it in a perfect manner or the creative. In that situation, other members are going to challenge the measures they feel are incompatible. Isnt there a problem that people have which is basically a dont believeople in the problem both free trade . People on the street dont feel the are getting the benefit. What is the failure of the organization or more broadly to communicate the benefits of free trade . This is a problem not only in the United States, but everywhere, especially advanced economies. Structuralng changes. This is not going to go away. These structural changes affect the labor markets significantly because people are losing jobs to new technology and new innovation. Eight out of every 10 jobs are lost to these things. Theyre not lost to cheap imports. It is easier to finger point trade and say trade is a problem. That is a Fair Assessment because trade is part of that, but it is a minor part of that. What we need to do is figure out what is causing the root of that and address that in that has to do with education, improving the labor skills. These people are being left behind, but they are not being left behind on trade, they are being left behind by the 21st century economy because we have and have to be ready for that. Thank you so much. If he missed anything, you can check out tv. You can watch us online and interact with us directly. Click on acid question on the lower left and we will do so. This is bloomberg. Jeremy corbyn will meet with Michel Barnier next week. We did very well in the elections. We do not wednesday majority of seats, but we put on a large number of votes. This government does not have a majority. You think things could change quickly . I think they could change and at some point we have another election. I dont know, but we are ready for it. Unknowns in many british politics at the moment. Unknown he great great unknowns is were Jeremy Corbyn stands on brexit. We hear this all the time. You areous as to why being as big as you are on the subject. Fundamentally, we want to make sure there is free trade access to the european market. That is crucial. Half of our trade is with europe. Secondly, we do not come in offshore tax haven on the shores of europe. Europe. Thirdly, european nationals guaranteed unilaterally right to citizenship. I think that is crucial and, we maintain that connection across europe and we maintain a broadly similar level of regulation of consumer products. Consumer products of workers rights. Is Single Market compatible with brexit. The Single Market is a concept that requires membership of the European Union and so what we are looking for is tariff free access. Weve had many discussions with eu officials can we have a Good Relationship with socialist parties across europe that want to work with us. That was Jeremy Corbyn speaking to bloomberg earlier on. This is bloomberg tv. Central banks point of a continued that they 2079. United states has a message for russia. The president urges the country to end destabilizing acts in ukraine. Deutsche bank is set to be preparing to retreat from london back to frankfurt in response to the british exit from the European Union. From new york city, good morning. This is bloomberg daybreak. Im Jonathan Ferro. 30 minutes away from the opening bell in new york. Futures are negative. About one third of 1 on the s p 500. A datebo a big move in the stock market. Exacerbated by nervousness about the direction of travel of centralbank policy. Yields are up by basis point. 055 percent. That is a 2017 high. The move in the fx market on the back of highyielding europe. 113. 90. Acrossse of movers now over to alix steel. 3 , tesla down by almost adding to the 7 decline we saw yesterday after goldman said sales at plateau. World, may change the like the iphone did. We will be talking to gene munster in that comparison later on in the show. Cosco up by 2 . Sales beat estimates. Almost double what the essence of what the estimates were. Missdquarter revenue did estimates. Sales were slightly better but it was pizza hut the real culprit bring yum china down. After years of payroll growth, somewhat disappointing so far this year compared to the previous months. Companies complain they cant find of workers. On the eve of the june payroll report, Michael Mckee joins us from boston with more on what people are calling the skills gap. Michael. In with you, the message in the data, the signal from what we have seen over the last couple of months . Michael its interesting. The government is forecasting tomorrow that 177,000 net new people were hired in the month of june. That can be a lot higher. Let me show you a chart. Job openings have been rising all year. They are now at a record level in the u. S. Look at how hiring has lagged. Business leaders say there is a skills gap out there. People that were laid off from jobs in factories dont have the skills necessary to move up into tech employment. Jon put that into the wage debate. Michael wages are not rising. That is an interesting question that people have. They say that makes the skills gap something more of a myth than reality. Here is another chart that would show that. The average Hourly Earnings against turning technology earnings. Over the past few years they have been rising at approximately the same rate. If tech jobs were so scarce that they were forcing wages of, you would see that in the chart. Why are earnings for tech workers rising faster . According to Chris Anderson of the Massachusetts Council of high technology, there is a skills problem but it has not yet translated into wage gains. There is a skills gap in a supply and demand component as well. Software, i. T. , a lot of the biosciences. High demand. It is a combination of not enough supply. In some courses not enough capacity in the domestic skill set. We go into talent access questions, which is a talent pipeline. Education still needs to catch up to where our peers around the globe are. That contributes to the skills gap. For the rest of the day we will be focusing on the skills gap issue. Here in boston, a city with an unappointed rate of 3. 8 , and five worldclass universities. Yet a big gap between the demand for workers and the skilled workers who can fill the gap. Rapid into your base case for the report tomorrow. Bob we think the job Growth Numbers will continue to be good. Not as good as they were. The real question is wages. The conundrum about the Skills Shortage and low unemployment rates and still pretty low wage rate increases. My thinking is we will come up with higher wages at some point. Given where we are in the cycle alix everyone talks about wages, inflation being the issue. Can you make a case for actually becoming important as members of the affected more concerned about it overshooting unemployment . That would force their hand regardless of wages in inflation. Bob i think that will watch the way december closely to the extent we can add 150,000 or so per month without a lot of wage increases. That is good news for the economy. We have not talked about it but it all relates to it. Its the productivity number. Relates the skills and the ability to transfer technology and making workers more productive. It is one big complex subject that does not quite square at the moment. David come back on this skills question. Is people that are parttime like to be fulltime and have more work and better wages. Why arent the people getting training . Why is that not fixing the skills gap problem . Training isnt always necessarily available or easy to get. That providests Government Training for people who were displaced i trade, very hard to get into the training programs. That is something people in congress have said they need to change. There is also a problem with perception. People who are laid off and have been in bluecollar jobs alter lives dont think they can do this. They would have to go back to school, take math courses, and they dont even try. I talked to some tech leaders who say there is a pool out there but it will take real work to get them into the labor force of tomorrow. David doesnt feed off itself where you cant find the skill workers . Theres a workaround for the algorithm so you have fewer workers because you cant get trained ones . Michael that is starting to happen as we see more automation taking over. Its because Companies Want to lower their costs, but they are finding ways to do more with fewer people. That is in part because they cant find the people. We should have started years ago. A loters we would make more money these days. Yields higher across the curve in many big bond markets. At what point the you look at the backup and yield in yields and start to think that is how people risk or appetite the market . Bob a lot higher than where we were. We were at 262 not long ago. There was a big whoosh down in yields and now we are going back up. It is kind of in a context from 137 last summer to 262. That was a big move up. We had the correcting move down and yields and i think the next one is up. I think we are going noticeably higher in yield, surpassing 262 over the next couple of weeks. Jon is there a broader message for Global Central Bank at the moment . Lose financial conditions. They are worried about a build up of risk. When you look at the equity market in here that kind of thing from Central Banks worldwide, are they concerned about the build up of risk and the high tolerance to Risk Appetite . What you think about your own investments . Bob certainly that concern exists. Weve been running so hard for so long. I think its about economic growth. To some extent. Nonus growth was slow and now you have the perceived pickup. Now is coming back on. I think yields are moving up. Earnings, we can breathe a sigh of relief. We will be just fine. That is why stocks remain high in some peoples minds. Alix in the past when you have a selloff in the bond market that would rotate in equities. That correspondent has broken down. Where does the money wind up going into . I think some people are just moving to the sidelines and saying im not sure what to do, as was just mentioned. Equities, locale expensive they are. A lot of people say people are moving to the sidelines. Clearly some money is coming into equities. We would argue that these prices stocks generally around the world are cheap relative to bonds. David biggie so much to michael bob will beboston, staying with us. Cofounder and partner will be here on tech is transferring to everything from carsick groceries. This is bloomberg. David this is bloomberg. As leaders from the worlds top 20 academies gather,. One things they tackle his trade with chancellor merkel eager to reinforce the original g20 statement in favor of trade. President trump dispersing skepticism. For the latest on his remarks in poland today, we are joined by chief washington correspondent kevin and d. C. He has wilbur ross. They must of author with her plan was. What is their plan when they go to the g20 on trade . Kevin Steve Mnuchin also along for the ride as well. We heard from President Trump speaking in warsaw that he reaffirming his commitments to article five of regards the nato. Also drawing a fine line with russia, saying russia probably meddled in the 2016 election. That will be nothing to ease concern of his critics who have pressed him on that. Now all eyes are going to be on this attentional meeting with Vladimir Putin. This will be the first time two World Leaders meet since President Trump has become president of United States. It comes as the investigation into his administrations connections the rush are very much continuing. The administration tried to put this behind them, but there is no question every second of any interaction he has a Vladimir Putin will be highly analyzed. The backdrop to all of this is the rising north Korea Nuclear threat. And clearly while the administration wants to talk trade and bilateral trade agreements with people like cantaloupe Angela Merkel of germany, north korea definitely on the minds of all the people at the 20. G20. Alix joining us now is the Eurasia Group rector of global research. Great to see you back again. What did you make a President Trumps comments concerning russia for urging them to and destabilizing ukraine, and that a strong europe is a blessing to the west in the world . Vladimir putin has to be here he thinks he is not happy about. Tomorrow will be an opportunity for putin to take measure of trump the man in person. He is walking a very fine line. He cannot be too tough with russia because the reality is its hard for the United States to meaningfully change russias behavior in ukraine. The u. S. Does not have enough skin in the game to press the issue. Its very difficult for him to be tough with russia. Its also difficult for him politically at home to be seen to be making too many concessions to russia. Any jovial moment with putin will play into the idea that trump is too close to russia and the russia investigation at home. He is somewhat in a ratty guy. Alix what would be a win for trump and prudent in this meeting . Alexander some kind of anodyne statement about cooperation on syria. I think this probably the extent of what we can expect. Alix is that a win for both sides . Alexander i dont think there is a winwin for both sides. Willtrumps perspective he be trying to lock this fine line between trying to appear just tough enough of the russia without exposing himself on the fact the u. S. Cannot change russias behavior, and not being too kind to putin to influence the investigation at home. Jon when you talk to the wasanyies companies, the big question . Alexander this is the first one in the age of trump, in an era where the United States has deliberately rejected or decided it is too burdensome to play the role of global guarantee your of securities, trade, Climate Change. The big question is does that one to a g19 versus situation, for one where no one can fill the gap. I think you are starting to see some movement for the germans and the chinese trying to replace the gap and leadership of the u. S. I thinkonship people are looking for any world where the u. S. Is not playing the role were it played before. Whether thats a good thing about thing. And who will fill the gap and how . Jon multinational corporate concern. Confidence in this country was sky high. Has the concern diminished . Alexander the question of trade. How will a potentially more architectureade affect supply chains. As a new bilateral and regional trade agreement takes the place of multilateral agreements, what is the content of those agreements . Architecture to the deal with goods and services . Double standards differ in different parts of the world how will standards differ in different parts of the world . Cannot all come together and say we believe in free trade . Being better off of them silent on trade or with 19 saying we are for free trade and donald trump off on his own . Alexander you are already seeing the other 19 doing their own thing. In japan are about those cited on. Big deal the chinese say they are in favor of free trade, but with some caveats. Ask a u. S. Tech company how open the Chinese Market is. That is what we are going to see, which is what i mean by this greater fragmentation. You will see bilateral pairings and other trade agreements coming up, but its difficult to navigate. David you mentioned this is the first for donald trump is president. How important is it he comes across as strong . Whether you like him or dislike him, we had an earlier summit with brandy president s going in when people like them and the soviet union treating them is not a strong. Ander trump team act strong, but what effect will his strength and projecting certain values have on u. S. Relationships with other countries in the world. Not only with adversaries, but equally and perhaps more importantly with friends and allies. The big question is not, is there going to be a falling out between trump in north korea or trump in a ron or the other states the u. S. Considers adversaries . Longtime friend of the u. S. Like germany in particular, what are we to make of that relationship . Strength is good, for what values is that strength projecting. Jon the g20 is usually fairly boring. The market like that in many ways over the last decade. Look at this one. Is the g20 this friday material, significant . Bob it is because of the trade issue we have been speaking about. We have grown up in a world of globalization, which means the multilateral organizations. I will forge a trade agreement with you and someone else will do with someone else. These Bilateral Agreements could leave some people out in the cold over time. We have to watch that carefully. The market cares about trade. A cares about north korea and the russian thing, the trade is front and center. That was as better trade. Does that come into focus it were looking at trade issues around the globe . Bob i think it does. Not only for the currency reason, but how open are the borders. Are they open everywhere, forward me and you and not anybody else . It gets far more complicated. You have to have the companies you honor thinking about owning. Where do they trade in what is our relationship with the country . Alix that he so much, alex and bob. Coming up later today, an interview with Irelands Foreign Affairs minister. Their take on brexit and so much more. This is bloomberg. Jon 30 minutes dedicated the fixed income. This is real yield. Levers is in building up over the last year or so. Alix we are seeing a bond moment. Yields are at multiyear blows. Multiyear lowes. S. The cyclical trait may be getting longer. \ alix the bond market selloff has yields higher in europe and the u. S. Take a look at this. The 530 yield jumping. The spread about 96 basis points. You can imagine that is welcome news for banks. You can see what happened in the last few days as it spikes higher. Joining us now is michael moore, credit bloomberg u. S. Finance team. We dont see a steeper yield curve. What is it now . Are we in a trifecta environment for buying banks . We think the green light is back on. The three conditions necessary for banks to continue to do well are rising Interest Rates, better economic growth, and three, less regulation. The third seems to continue to happen. The bugaboo was that rates are moving down and the yield was the yield curve is flattening out. They gave up some of what we enjoyed since the election. Now they are back on again alix they are really moving higher over in europe. U. S. Premiums continue to come down. Of european banks over the u. S. . I think they are both going to be fine in the environment we just described. Particularly given the cheapness of the banks as qualities of issued. The u. S. On average of by quality Balance Sheets than the european banks. I think you can on them both in this environment. David when we try to figure out how cheap the banks are, where are we now on the price of book . What does it indicate about how much further they can go . On the u. S. Side, you have most banks trading at least book. Some little higher. Question is what is the relationship to profitability Going Forward . You are you are at 50 , at 1. 5 times book. That linear relationship. There is some thought now investors will reward banks more forgetting about 10 than these two four getting a book 10 more than they used to. On europe, a lot of still below book. There is more chance for them to close the gap. They have to prove they know they are doing on the strategy side and have a firm strategy. I think most u. S. Banks have that. David there they can prove profitability, with it have a premium to book . Yes, i think that is not out of the question. Some higherquality banks have gone there already because they have gotten more profitability. Cheapness can be measured a lot of different ways. It is obviously the regulatory issues and the capitalization of thebanks has improved ability to raise dividends and buyback stocks, which we have not seen for some time. Thats another plus for the valuation move higher. Jon you look at what happening in the europe, significant regulatory issues. And then whatever happens with the brexit negotiations. Deutsche bank is sent to the preparing to spring from london to frankfurt. Do have an idea of the cost over the next several years . We dont have a great sense that i think it will depend on that scale. How many people are moving. What kind of infrastructure has to be built. Costs that are tens of millions, but not incredibly material to the whole group. That could change based on how severe brexit is. Jon when you look at individual banks, out we have a story about what it means for banks to catch a bid, the geographical footprint of these companies in the and the businesses they have. Is there a preference among investors . For everyone else, what is the ideal geographical footprint currently . Dependings to change on who is preferred. A lot of the banks are looking at asia. Some that have been rewarded had been once it kind of stronger footprint, that are not trying to be everything to everyone at. His point or focusing on areas asia, despite some hiccups in the past couple of years, and thats the area for most banks are focusing their growth. Hear a lotep about not a lot of spending and they let the wind of putting money to work. What do you see will be the cap x figure across industries . Is athink cap x function of my confidence in being able to go forward. He the cash in the Balance Sheet to do it, but there has been a lot of tentativeness and back to our about productivity and hiring. Inevitably as people get more expensive and scarcer, i have to x the get a return on it. The base is low so it does not take much to look at. David when they talk about productivity in cap x they are talking about tech. Iq seeing that kind investments from banks are you seeing that kind of investments from the banks on the coasts . I think the Financial Sector was probably behind other sectors in doing that for their catching up fast. They are finding technology is a better use of their capital than hiring the next person for many lines of banking business. How i was always surprised far u. S. Retail banking is fine europe. It is shocking. You go to a bank branch in the u. K. , and even then there, its hard to find a person to help you. It is just machines, machines, machines. Why taking the u. S. Along the catch up . Consumers were willing to accept it in some of it were on the regulatory front. Growth of a lot of syntax companies, that will spur them in action. David amazon. That is where they will take it. Jon think it is became a musician. Shocked by this. Alix i wouldnt even know how to do that. Jon michael moore, they do very much. Bob will be sticking with us. You can hear the opening bell ringing in new york city. 49 points on the dow. It started with a french fortune exacerbated by nervous is in the european and global bond markets and di they continued removal of accommodation. You can look at the communication coming from the fed and the ecb. The dollar just a little bit weaker, getting a bigger push up in the eurozone yield, giving europe the ability to way down on the dollar. Across asset stories. Alix the nasdaq up by 7 10 of 1 . As youoned this earlier, have the global bonds selloff in yields rising, you are not seeing a huge reflection in the equity market. You think there are risk parity funds that on stocks and bonds. If the box it hit, the equities would. Softer, another route we expected eight months ago. Percentage point away from its record high. It will be tech in banks. We are seeing weakness spreading off the board and those banks. Apple, google, facebook and amazon. This group is still the best in 2017. Weakness fundamental that we discuss later on in the show. And considering we are seeing the steeper yield point, wells fargo the strongest on the day. Of my cans of 1 . Up by 8 10 of 1 . Guess what. Earning season for the second quarter. That is coming next week. Will Earnings Take Center Stage in being a fundamental driver for the the . Here is where we are in terms of expectations. The white line is trailing 12 month earnings per share. He blue line is forward wanted to 30 a share versus where we were the last 12 one ofich is 100 your 13 a share. 113 per share. They are paring down the earnings estimates. Some strategists had to take off when we would wind up seeing tax reform or any kind of stimulus from President Trumps of menstruation. Administration. Jon lets get straight to it. Rennick. Li can we liver another round of doubled in its doubledigit percentage growth . I think yes. They are not all that difficult. Were going to look to energy for it easier yearoveryear comparisons. Technology, a good topline and bottomline growth. Health care can contribute. Financials should contribute. We should be pretty good. I dont think we will get the surprise factor to the significance of the First Quarter. Firstquarter earnings for the best versus expectations and about 17 years. We dont have to have a that could for the market to be ok, but i think we will have another good quarter. Behind the scenes, noticeably higher than the First Quarter and that should help as well. Jon the optimism for Earnings Growth relative to the optimism authority in the price. If you get another round of doubledigit Earnings Growth, is enough to justify . The stock market is up nicely year to date, but it is up weston earnings year today. They had to multiple depreciation. I suspect more of the same. It will most likely not lead to double digit stock price growth. We need the strong earnings for the sox to stay ok. Alix oliver. Typically in earnings season we see people ratcheting down expectations. How has that set us up . Basically for something you dont want to miss. There is a certain historical trend that happens. About a quarter of seven to the year, they go back and look at the Economic Data and all these other extenuating circumstances. That gives you the overall picture for the macro element of tkets. Frankly it has finally moved that much. Earlier expectations remain where they are. Lori tells you there is perhaps one, an overhang of uncertainty to make it difficult to assess for those earnings are on the go, or perhaps analysts have not gone through and really calculated raleigh goes. I think that does hearken back to what we saw in the postelection, by three months or two quarters max. They are hesitant to give alex and is probably an effect as well. Fewer and fewer Corporate Executives want to discuss for they saw their plans going. I think that might be a flying over to them that might be a hangover for them. Jon a trend emerges. Arein the actual narrative, we expected to say europe outperforms. Your growth strong. Europe looking good. We have the dividends from a Global Growth pick up yet to the bottom line for some these companies. The answer is yes. We saw that in the First Quarter. I think we will see it again to a greater degree in the second quarter. As you know, high percentage, nearly 40 of u. S. S p 500 revenues comes from outside the u. S. Europe is a big part of that. This is an important issue and i think it will be a generally green light. Oliver, what will be spec the here on Conference Calls . Was tons ofe cash and optimism. Will that still be there . If not, it will be somewhat tapered a little bit. There are a lot more questions i think are out there in the further you get away from that election, we keep talking about it but it was a move in the marketplace. It is hard to talk about it without addressing it. Because there are so few that come policies out of washington that will affect things like financial regulations or things like industrial spending and all that. There is still a lot of overhead and i think of like a difficult for the executives to really give a clear picture on that. Guys. To catch up with you lets get to the market action. About seven or eight minutes into the session. The dow off by 30. Afterbe down by 0. 37 three Straight Days of gains. Dax up by three quarters. A lot of this happening in the bond market. Treasury, yields higher by five basis points. Bund yields aggressively higher. Still feeding into the europe strength. Up by about 131 . One third of 1 . This is bloomberg. Emma coming up, an exclusive interview with Irelands Foreign Affairs minister. This is bloomberg. 3 , shares of tesla id. At adding onto a selloff from yesterday when it was down by 7 when Goldman Sachs said potentially sales of plateaued for the company. Deliveries best expectations. Not all analysts are negative on the stock. Gene munster says teslas model 3 has the potential to change the world like the iphone and accelerate the adoption of electric and autonomous vehicles. Gene, take is why do analogy between the model 3 and the iphone. The stageiphone set for what smartphones could be. The model 3 has the same opportunity. Not just for electric vehicles, but autonomy. If you think about cars today, think about horses Walking Around on the road. That is essentially what the technology is today. This will be a radical change similar to the iphone where we went from a flip phone to a computer in your pocket. That is the loose analogy between the model 3 and the iphone. Alix you make the distinction of tesla being a technology company, which is what you are saying versus a car company. Has the market make that distinction yet . Geene i dont think so. I talked to a lot of investors and they think about the market cap of tesla relative to other automotive companies. Teslas biggest division is to accelerate the growth adoption to renewable energy. They even have a master plan, even bigger than automotive. That has not set into the minds of investors. Investors understood were tesla is going longerterm, all the negative news this week would not be having the impact its had on shares. Jon there is a lot of misinformation about this company. One is the cash burn in the other is this idea of negative margins. Can you give me context around that . Gene they are burning cash. They will have about a 4 operating margin this year. Street models should gravitate to just above 1 . They are not making a ton of money here. That is the general concern from investors. Ultimately they will need to go back to the markets. As far as the opportunity for margins, the components, ultimately they can have a 50 to 20 operating margin. I think this gets to one of the other key misunderstandings about the company, what the longerterm profitability is. Its more like an electronics covering than an automated company in terms of possibility. David tesla loses money on every vehicle it sells. As it sells more, doesnt lose less money per vehicle or my money per vehicle . Gene less because you essentially get leverage in the production. This is one of the negatives thais week. Index investors concern about what they can ram. We believe they will be successful in ramping the model 3. They are talking about 500,000 annual shipments over the next three years. 3 they scale, model production, they will become profitable in each car. Alix thats the biggest sacred big distinction. None of the things tesla really has. Why are you so confident they were yelled to reach this scale . Gene we are confident because there is a paradigm shift coming. Tesla has a huge lead that almost impossible for traditional automotives to close the gap. The gap is about every mile of tesla has driven today and picks up Artificial Intelligence that makes autonomy even closer. Tesla believes in two or three years they will fully autonomous car. We think that is a paradigm shift in will fundamentally treat greater market for tesla. We see that as a parallel to it happened with the iphone and being a pioneer. Huge ibility is a between the two companies. Believe profitability will follow. David we will stick with the subject of electoral vehicles. Bloomberg Energy Finance is out and it says within 20 years more electric cars will be sold in those with internal combustion engines. Alow. Ng us now is ian sig welcome back to the program. Ian thank you for having me back. David you invest in these things all the time. Ian we dont invest electric vehicles, probably invest in the software that runs on top of platforms. The talk about how important tesla is for our ecosystem, you look over the last 10 years and i that 90 of all returns are related to the iphone. Either it is over or snapchat or facebook or whatsapp. Vcs are looking for another platform. Can the car with a platform of the Software Companies to piggyback on . What your last speaker talked about as pertains the tesla is a moat around the business. If we enter a world where tesla becomes because they have more data and more driver information, therefore their products are better. They work better. He basically have a single platform like the iphone that is a huge percentage of market share. That is good for investors. David what about the moat . I believe there are more nissan leafs on the road and teslas. There are other manufacturers in that space. Ian price disparity is notable. I think the model 3 is the first midlevel market entry product and aleppo better share. David you have the chevy volt and leaf. How will a new Startup Company rather than Traditional Company moving into the space . Ian oh, boy. The existing guise for the nissan leaf and chevy volt, the demand latent in the market for those products is a lot less significant than the demand for a midlevel, lowpriced tesla vehicle. You can survey the u. S. Population get a sense of how many people would purchase a test what if there was one available for 30 to 40,000. Jon how important is the branding here . Happily not have a history of making mobile phones. History. Want the you want something new. Ian to history is an albatross. You can think back to all the back cars associated with that brand. Tesla has a blank slate. The only produce cars and a wonderful thus far. I think the model 3 will be wonderful. We will see how it sells. David and if they can make enough batteries. They may have a big problem if they sell too many and can deliver them. Ian that is vendor problem historically. Technology is losing i dont think we will be in a listing world in the next year. There are a lot of things going on with forms of Electricity Generation and storage i think will be very interesting. Drivenis it going to be out of the United States or out of china . Ian the chinese are investing heavily in lithium production. The question is whether or not you think the future. Personally dont think is from a design and engineering standpoint, the u. S. Has a distinctive and its right now. David ian will be staying with us. Alix to his point, you dont want to bet on that. I want to research lithium. If you have a bloomberg terminal, check out tv. Go to tv on your terminal. You can go back and rewatch. This is bloomberg. David this is bloomberg. The world of groceries was fraught with the announcement amazon would by whole foods for 13 billion. Ian says he always anticipated amazon would by its way into groceries. I wish you had told us at the time. Ian i folded partners. I was terrified they would by kroger buy kroger. The distribution. Kroger has got 10,000 stores. Look at the distribution difference. They would have been in every town in america. Now they are just a couple of east coast and west coast cities. David did they make a mistake not the way bigger . Ian i think they made a calculated that. I bet they do not anticipate kroger lose 10 billion in market cap. In hindsight they probably shouldve gone for the bigger asset. I think the have a lot of issues to work through with whole foods of the neck position. The company is struggling. David what happens to the rest of th industry. What happens with the rest of the industry now . Market are in thrive with provides organic products. We are in box. We are in ship. We are in inflated. All the companies are direct to consumer. They go online and they dont assuredly retail. I think the future of this categories multichannel. All of our companies will go between direct to consumer and brickandmortar. I will order groceries and goods from a smartphone. I will not order meat or dairy. Ian a hot dog . Jon i know many people that would undo the same because they dont trust certain brands available to do that with. I wonder if that was what amazon was trying to address. A highend Premium Grocery store more and more of this goes online and the consumer cannot get a product they are purchasing, they cannot see the meat, they need to trust the brand. Ian i think its unique. Not know hest sit was unique in this respect. Jon so maybe will do exactly the same. I can go to the Grocery Store now and meet so many people looking at the meat. Is not the same buying cereal. Ian a generation ago, it was the butcher shop. They wanted it cut. That the world is changing. Where to go from here . Order your ship, you brushes to the application and they deliver it to you. Instacart does the same thing. People have no problem buying meat. If you dont like the quality, you pick prime, choice, the cut, the thickness, the number. If you dont like the service, its was coming out of kroger or publix or whole foods on the other end. You take the brand you shop at. That stance or a certain level of quality. The intermediary just goes in picks up the food for you. Jon it is the brand that is important. They will buy it, but the brand needs to be important. The point is about brand recognition. Ian i think that is true. Whole foods clearly has a high quality brand. Other highendn brands that are similar and is not a winner take all business. You think about where elsie and shop and there are a lot of opportunities for the customer. David jonathan, i think thats the president landing in hamburg on air force one. Jon i promised tomorrow we will not talk about me. We will talk about ford global relations four and closer relations forgeign global relations. From new york, this is bloomberg. So we need tablets installed. With the menu app ready to roll. In 12 weeks. Yeah. The world of fast food is being changed by faster networks. Data, applications, customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Fast connections everywhere. Thats how you outmaneuver. So new touch screens. And biometrics. In 574 branches. All done by. Yesterday. Banks arent just undergoing a face lift. Theyre undergoing a transformation. A data fueled, security driven shift in applications and customer experience. Which is why comcast business delivers Consistent Network Performance and speed across all your locations. Hello, mr. Deets. Every Branch Running like headquarters. Thats how you outmaneuver. Vonnie we are going to be covering the g20. There is the airport hamburg. Lets get some working Economic Data. Here is abigail doolittle. Abigail we are waiting for the data for the nonmanufacturing composite index. Pointrvey calls for 56 five. Anything above 50 represents economic growth. The prior month was 56. 9 and the data is not showing up quite yet. Lets take a look at the majors. Intoe looking at declines the trend. Unless there is a big surprise on ims services, we do not see much of a reaction. It is looking like a bearish start for stocks. Vonnie all right. There it