Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170815

The states haven safe haven and you mentioned the dollar index up by. 3 and you have retail sales and potentially more support for the dollar in the next couple of hours. David its time for the morning brief and we will get the retail sales that alex referred to alix referred to. Nafta talks and Missile Defense talks get underway. Walmart reports secondquarter results. York, today wew have President Trumps returned to trump tower for the First Time Since his inauguration and the chief washington correspondent has come to new york with the president. Kevin cirilli joins us from midtown manhattan. Welcome to new york. Let me ask you, why is the president in new york today . What does he have on his agenda . Events. Ot much public later this afternoon, President Trump will be signing some sort of executive order and action regarding infrastructure. According to a white house official, he will be establishing discipline and accountability in the Environmental Review process. No other details regarding infrastructure will wrote were released. There has not been much talk on capitol hill of any type of broader economic stimulus bill in shortterm term. When lawmakers head back and return from august recess in september, they will have 12 legislative days to address the debt limit and pass a government funding bill. Talk has turned from health care to tax reform. Bigd in the meantime, the news yesterday was the president losing three different ceos from various is this councils. The ceo of merck, intel, and under armour. You can see merck and intel did just fine. Under armour has been struggling for some time. Does the president really care about losing these ceos . Does it matter to him . Joinedthese three ceos three additional ceos, elon musk, bob iger, and the former ceo of uber of resigning and cutting ties of this board in the administration. Following President Trumps remarks at the white house in which he denounced neonazis, kkk, and other hate groups, he then went onto tweet another criticism against ken frazier, the ceo of merck criticizing merck for essentially what he argued was sending jobs overseas and high drug prices. I would suggest these other ceos took a look at all of this the tone and the rhetoric coming out of 1600 pennsylvania avenue and ultimately decided it was best for their business and their own autumn line to cut political ties with this white house. David reporting from midtown manhattan outside trump tower. I think it bears some time to look at why these ceos did what they did. Lets start with ken frazier, the ceo of merck. Americas leaders must honor our values by rejecting expressions of hatred, bigotry, and Group Supremacy which run counter to the american idea that all people are created equally. He said this was a matter of conscious for him. Kevin other hand, we have plank of under armour that had a different approach to the whole thing. He said it was a matter of sports rather than politics. We are resolute in our potential ability to improve american manufacturing. However, under armour engages in innovation in sports and not politics. That doesnt sound quite so much a matter of conscience. This is about business for him and i think at the beginning of this, the ceos wanted to be on the council because it was a business decision. They wanted to be around the table part of the negotiations and now they feel it is a political decision whether you remain or go and for him, what was happening quickly was his brand is becoming associated with the movement he wanted no part of and before he knew it very clear that could spiral out of control and he had to take a step back. People people have some pictures have people wearing under armour products. It wound up having an impact on the pr front, different than pfizer for sure. David he has to think about his customers as well. Remember with Travis Kalanick when he had trouble after the travel ban and he had to back off because of social media. Alix the interesting part was what the stock didnt do yesterday. If you look at the terminal, it will traverse the trump impact on merck. Here is the sigh of relief that we will not hear debate over growth pricing, here is trump talking about drug pricing coming down and merck stock took a hit. This is where trump came out against the merck ceo and talked about drug pricing and moving jobs overseas and thus stock did nothing the stock did nothing. It was higher on the day. Andthan it is just words you saw that in the mexican peso and the fx market because words have remained just words and they havent developed into policy and you saw that in the drug case as well. Yes, get drug pricing down, but where is the policy . David the more words, the less effect. At some points the market say, i dont believe you anymore. Alix Anthony Scaramucci jonathan Anthony Scaramucci is the man that put together sky bridge. He was on the late show last night and had a few things to say about mr. Bannon and his future. Take a look at this. Who is leaking now . Is it steve bannon . I have said that. I have been pretty open about that. Is steve bannon a leaker . I said he was. I have no problem saying that. Is he going to be gone in a bit . What does the mucc think . Is not up to me. If it were up to me, he would be gone. Jonathan steve bannon could be on the ropes and if you think of the of the fallout, if bannon goes and the nationalistic core of the white house dissipate and diminishes, you wonder what that means for policy . Alix and is it a good thing . Can you get things done if you have all members of the administration on the same page . It is possible. David on the other hand you have to ask yourself if it is a matter of politics where the president would be concerned he would lose part of his base if he got rid of steve bannon or is it really what the president believes. Is he there because that is really the president s worldview. . Jonathan what a week already just two days in. Lets think about how policy could involve if economic nationalists win the white house and begin to leave and the gary cohns of the world take the lead in a significant way. How would you think about that as far as markets and investments . I should mention i deal with innovation in sports and not politics. I think, generally speaking, if you are looking for a referendum on policy, you dont have to look further than a dollar. It is down 9 year to date, that is the broad dollar index and that reflects fiscal policy, trade policy, Monetary Policy and so on the first two, trade and fiscal, i think its fair to say those have been much less dollar positive than people thought coming into the beginning of the year and if the rest is Monetary Policy, these big divergences within the u. S. And europe and the u. S. And the rest of the world in terms of their policy stance, they are no longer moving in opposite directions like they were in 2014 and 2015. All the major Central Banks are moving in pretty much the same direction and they are all tightening to a certain degree and those divergences which drove Dollar Strength are no longer as pronounced. Jonathan lets focus on policy and get away from the d. C. Noise. What is your base case for help policy will evolve through 2017 into 2018 . Benjamin we have a fairly neutral view from the outside outset. I think there are risks to the upside and downside. Whether you think there will be whether that happens or not, its probably not going to happen this year. I think at a minimum, markets have deferred the extent to which those are being priced in. David you said you thought this cycle will continue for a while and we are still on a positive uptick. Is there anything that can happen in washington that would bring that to an end prematurely . Or at this point is it just baked in . Benjamin this is a long, benign, flat, business cycle. We are entering probably what looks like the late stage of the cycle, but that could take a year or two or maybe more to play out. Alix if we lived and died by trumps tweets over the last six months. Benjamin i would recommend that. Alix and we no longer do whether it comes to Political Risk or tax on companies, how do you then factor . Do you change allocation at all . Benjamin thats a great question. Bringing the question back not just to tail risk around policy, but around north korea, around other geopolitical events out there, i guess what i would say is that affects the size of your positions in your portfolio and not necessarily the direction. Your direction is based on the big macro factors like the cycle, economic growth, etc. If you are skeptical that the current environment will persist or there will be volatility from geopolitical factors, that means you size your factors a little bit lower all else equal, but you do not change the direction. Willhan Benjamin Mandel stick with us on the program. Countew york city as we you down to the market open about two hours and three minutes away, futures are positive up big gains yesterday. The sentiment continues to be solid in the United States and europe, too. You are watching bloomberg tv. Alix the dollar found support yesterday. The news hit around 2 00 p. M. Talked about Monetary Policy normalization of the dollar found support. The reason why i think you would want to continue to gradually remove Monetary Policy accommodation even with inflation somewhat below target is that Monetary Policy is still accommodative and financial conditions have been easing rather than tightening. Still with us is Benjamin Mandel of j. P. Morgan asset management. To stickpect the fed by the three hikes in 2018 and a hike in december . Benjamin i think they will hike in december, but inflation is the linchpin here and thats a function on the political economy. You have two factions with countervailing views. The one is behind the curve viewon, it is a hawkish that we are running into trouble by not raising rates and containing inflation and there is the show me the inflation faction which is the dovish counterpoint that needs to see it. These are tools used to forecast inflation like the phillips curve. I believe those tools are not working in the current environment for whatever reason and those two factions lined up at the end of last year and the xiaomi inflation voices were show me inflation voices were silent. I think the somewhat hawkish tone dudley took yesterday that hike will be possible if inflation does not show signs of rebound. If that is the linchpin, for sure. Alix do you think yellen or fisher would yield more toward benjamin i dont big it is a matter of any individual. Alix are they in the inflation camp or in the more hawkish camp . Benjamin i think they are somewhat in the middle and the center of the committee has been sort of not taking an extreme view on either of those. The committee will all align if inflation does that. Jonathan here is my take away. At the very beginning of the interview he says his outlook has not changed since the beginning of the year and i found that interesting because the Inflation Trajectory has kind of rolled away. It has rolled off. What do you make of that comment . Inflation is a puzzle, thats what i make of that. Nobody understands why we have had five months in the row where the cpi came in a disappointing matter manner. We moved on from there to it is noneconomic and maybe Health Care Prices or rent, things that are not very timely indication indicators of demand. None of those are individually sufficient to explain why inflation is weak and then you get a host of other factors, slower moving, structural explanations. Is it demographics . Is it globalization . The fact that there is some equivocation on race is the fact that we are really know what is driving inflation right now. Jonathan i cannot work out how much time we waste every week about which data matters and what is data dependent. How can you be dependent on something which isnt dependable . I think they have taken a couple of steps away from that and i think thats a good thing. Jonathan have they backed away from that . The data dependency . Benjamin in part, they have backed away from data dependency. The conversation on the Balance Sheet happened and now it is over and thats no longer a data dependence it to decision. They moved toward the Balance Sheet september or october wherever it is, the data dependency is now squarely placed on the path of the fed funds rate. All the negative news about the real economy and inflation is going to be absorbed in that path. David you gave a careful answer about december, but you didnt answer alex question about about 2018. Ion theres a big disagreement between the market and what the dot plot says, the fed says. Benjamin i think thats absolutely right. The Market Pricing of a hike in december is even 30 and that path is very different than in 2018 and that is realized inflation. We have seen that change in the past when the data pick up and the fed ultimately a line. Jonathan the wage growth will come and the jobs game will roll off little bit and we will reach full employment and things get tighter and things will play out in the way we always thought they will. Benjamin so we were told. Say dudley didnt even that. Thats what i found interesting about it. David Benjamin Mandel of j. P. Morgan will be staying with us. Coming up next hour, andrew sheets, the chief of cross asset strategists of Morgan Stanley. He will join us live from new york. This is bloomberg. German gdp growth was wrong, but not as much as economists expected. Or have been lags in the past couple of months in construction are the issues of Consumer Spending that held it back from the 0. 7 number we were looking for. We got 0. 6, that is relatively healthy and should be good for Angela Merkel although air for bankruptcyg in this is the kind of issue the chancellor pulley doesnt want to deal with. Jonathan is there a much bigger thing at play here . The air berlin issue is small although they have thousands of employees that will be out of jobs if they dont get taken over by lufthansa. It doesnt compare to the much bigger issue in germany, which is the diesel problem and obviously the automakers employ 800,000 germans and if this issue doesnt go away and merkel doesnt look like she is pushing it that hard, her challenger could really jump on it and make a bigger deal out of it. Jonathan a big deal out of this smooth sailing toward the fourth term for Angela Merkel although she faced some boos in western germany. Many people think it is smooth sailing and a oneway bet. How big is the opposition at this point and how significant is it that the immigration issue actually hasnt gone away and is still front and center . Matt keep in mind it she let in 1. 3 million refugees and although it has gone smoothly, there was an incident in cologne a year ago, a Sexual Harassment issue and the terrorist attack at the Christmas Market last december. Other than that, these immigrants have been absorbed fairly well. It was fairly surprising to a lot of us to see the afd polling so strongly. Thirdot 10 , at the Strongest Party and before the greens. The we havent thought of it as a concern, but there are 6 weeks to go before the election. Jonathan matt miller joining us from berlin. Still with us is Benjamin Mandel. If you want to put the optimism around europe and the pessimism nd the u. S. Close to 2017 highs right now. I look at the positioning around the u. S. Dollar. We have gone from aggressively long to aggressively short and you fold in the fed debate as well. When you look at the currency pair and the transatlantic divide that emerged over the last 6 months from now, do you change your views of where we go from now . Benjamin fundamentally, europe continues to outperform. Is an example of that. Stillndamental picture is there and we were talking earlier about policy convergence insofar relatively good Economic Data in europe has been pushing the implied policy stance up and has been pushing the euro up, so our favorite framework for organizer or quantifying that is the taylor rule where you take the Interest Rates and the Unemployment Rate and the inflation rate and you plug it in and it gives an implied policy stance for the central bank. If you were to do that for europe and the United States over the first half of the year, the u. S. Taylor rule did nothing because inflation was going down and the Unemployment Rate was going down as well. The implied stance in europe went up for 140 basis points. All the action was there. You can think about the euro move we saw in the beginning of the year as reconnecting with the fundamental drivers. Looking ahead, if we were to plug in what a reasonable forecast not even heroic ones in terms of inflation for the u. S. And europe, its a much closer race for the end of the year. There are some additional economic pressure on the euro to get stronger versus the dollar thingsbably some other risk sentiment in particular pushing the other direction. Its more of a balance view on the eurodollar pair. What we dont see as being a likely outcome is a big reversal and strengthen the dollar. Jonathan benjamin dan Benjamin Mandel is sticking with us. Coming up a little bit later,. Eborah leah from new york city counting down to the market open about two hours away, lets get you up to speed on market action. The biggest oneweek drop since march and dusted it we follow that up with the biggest oneday pop and yesterday we followed that up with the biggest oneday pop since april. The bullish sentiment ftse 100 up. 6 . You are watching bloomberg tv one hour away from the u. S. Retail sales data point. Here are the scores cross asset. Futures up pop up positive after gains of the s p 500. Up. 25 . Get to the other board quickly. 120ling is weaker by. 7 at 8. 70 seven. Inflation data a bit softer than expected perhaps weighing on the risk for some of the people on the at the bank of england to raise Interest Rates. Maybe that will not happen anytime soon. The euro at 1. 1747. Treasury weaker for the last couple of days and that continues. Yields higher by about three basis points, 2. 25 on the u. S. 10 year. Jonathan north korea maybe taylor north korea may be signaling it wants to defuse the crisis with the u. S. Kim jongun said he would watch what he called for less and stupid conduct of the yankees a little bit more before deciding whether to go ahead for the launch. The ceo of intel has become the third executive to quit panel of trumps business leaders. He said he is quitting to call attention to the serious harm the divided Political Climate is having a critical issues. Merck ceo Kenneth Frazier and kevin plank resigned from the president s panel. 10 is signaling it will aliate as necessary after china is signaling it will retaliate as necessary. The president directed the u. S. Trade representative to look into chinas policies, especially the practice of forcing Companies Operating there to transfer economic knowhow. Global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. To talk aare going little bit more about that long anticipated first step toward possibly sanctioning china over intellectual property issues. We are talking with a person that knows the subject terribly well. See she is deborah lehr. She negotiated with china under the Clinton Administration on intellectual property. Of the is vice chair Polson Institute and has her own company, she is the ceo of a Consulting Firm and joining us from washington. Welcome back to the program and we have Benjamin Mandel of j. P. Morgan asset management. Start with the significance of this step. President trump said again and again whether it is china or mexico or summer else, he mainly cares about the balance of trade deficits. Or somewhere else, he mainly cares about the balance of trade deficits. A signal tosends the chinese that the Trump Administration is prepared to take action, but essentially, it is just investigating whether to start an investigation. The accusations are that china is stealing up to 6 billion worth of intellectual property annually and it is in the most competitive industry. Its content, software, technology, and that will make a big difference if they can get the chinese to abide even by their own laws and enforce them. Negotiated with the chinese and you some sense of how they perceive things. Are they perceiving this as a nuanced approach on the president s part . You are saying this is lets take a look if we are going to do an investigation on a narrow aspect of trade. Is this a way of starting the investigation but signaling we will not go all out right away . Benjamin in the years went ideborah in the years when was doing to negotiation we had a narrow relationship. We were rebuilding and the good thing about the relationship today is it is very broad. Ceos travel to china to meet with leadership on a regular basis and we should essentially be able to walk and chew gum at the same time. We should be out defending our own interest and if china is taking our intellectual property we need to protect our companies , particularly if they are going to use it to share with their own companies to compete against us. I think its important we take this step, but we can have a broad and conductive and conducive relationship of the same time. David we want to have that relationship. Why did the president decide to go this section 301 route. It is a fairly hostile act rather than going to the wto. That is the more normal course. The United States did that on intellectual property back in 301 deborah prewto we did intellectual Property Rights negotiations in a fiveyear time span. When china joined the wto, the resort was to litigate. We have been litigating and have not had a single bilateral negotiation with the chinese that has been concluded and there is a sense from the administration that we are not make making the kind of progress that we should be she seeing. China is a much bigger country than it was in those days, but thats more reason for us to be strong in protecting our companies and pushing for our companies have greater market access. I think the wto was a good thing and it gave us that ability to use it as a place for litigation. We havent seen the same kind of progress in these global trade rounds that we hoped to see coming out of the wto and theres a sense of frustration that the deadly too is not reflective of what is necessary in todays modern economy and there is a need to try and pursue our own interest on a bilateral basis. It raises a question for what this means off the future on the future of the of eto. 32. X 301, section 3 it is pressuring china on trade deals with north korea. Is that kind of implicit threat doing to china when they look at their trade policies . Deborah you are absolutely right and because what they have done is make a linkage that appears that a political solution can be brought about for progress on trade and for the chinese, they care about continued access to our market and continued access to european and other markets for their companies to be able to export and their economy to beginning to be able to grope if we are willing to trade off on progress for north korea on trade, that can be concerning. View youve the different in terms of trade . We talk about the issue between the u. S. And china, but the you feel like a trade war is imminent as the market thought it was in november . Benjamin thats exactly the reason from the perspective of an investor we care about trade policy because it might lead us down the road to a broader conflagration and something that has a bigger effect on economics and the markets. Here is that that is actually very unlikely at this point. If you are going to look back historically, thats theres a lot of inertia in trade policy and you would be hardpressed looking at globally you look at all the trading partners in the products to find a big, widespread, and persistent increase in trade barriers over the last 20 years. Theres a lot of inertia in trade policy in the second part i will make is theres a pretty high bar for discontinuity under the Current Administration relative to the previous one. Obama was no lightweight when it came to enforcing trade policy. Looking picking about the number of antidumping cases, they win up to an average of 35 per year under obama compared to 21 per year in the second george w. Bush term. We are already enforcing trade. We already have triple digit tariffs on certain chinese goods and canadian goods, for that matter. Full disclosure. Thosee very deeply about products, but it is not leading us down that road would be my take away. David is there a possible ramifications that it falls short of a trade war, but more of a discouraging trade. We have seen a ramping up even under mr. Ross, the secretary of commerce under potential trade actions against china. We just had a counter duty case just yesterday. Deborah there are broad ranging discussions going on across the whole range of topics on trade. The steps the administration has taken, its only an investigation to start an investigation as i said. Theres a possibility they can work out some kind of deal before it even moves to 301. Alix thank you so much, deborah lehr of Polson Institute senior fellow and Benjamin Mandel. You will be sticking with us. Two retailers i want to highlight, coach and Dicks Sporting Goods getting hit in premarket. Whoppingw off by a 18 . They lowered their forecast and coach is having a harder time than expected integrating kate spade. When you miss if you are a retailer, you get hammered, thats the take away. Ed morse, city global head of Commodities Research will be joining us. His take on the dynamic of trade between the u. S. And china when it comes to steel and aluminum. This is bloomberg. Taylor this is bloomberg daybreak. Sheets,p next, Andrew Morgan stanley chief cross at asset strategist. Across asset strategist. This is bloomberg. Jonathan in the united kingdom, the government released a series of portion position papers to the European Union saying it wants to maintain tariff free amocracy, light trade, for period after for two years after brexit. Joining us now to try and make sense of it is londons very own bloombergs guy johnson. Still with us is regimen mandela regimen mandela of jpmorgan Benjamin Mandel of jpmorgan. Is seen aseen a victory. John hammond has been in favor of a soft brexit and the fact that he has got the u. K. To this point is seen as a big, huge feather in his cap. What this means remains to be seen because we do not fully understand what the other sides response is going to be. The e. U. Warned the u. K. It will not be able to cherry pick the best advantages that operating within the Customs Union provides an within the Single Market provides, but the uks trying to push on. Ideas we have a transition period and after that we have a special trading relationship or we have a frictionless border that will allow trucks and everything to go through without much hassle. The problem with this is it does not represent services and that is a big portion of the economy. This point, i think a lot of people are frustrated with the way these negotiations are going. We are talking about life after 2019. How many months i put and this is on months because they dont have years how many months do they have to go around to speak to all the parliaments around europe . Guy they have the twoyear period. The issue really is surrounding whether or not you can start to negotiate the trade arrangement before you negotiate the exit thathe e. U. Sees the idea you negotiate the exit and then the trade arrangement after. Positionncing of the papers coming out is interesting, but the u. K. Is trying to communicate with them. The u. K. Is releasing the customs paper today and it will produce the paper tomorrow. In the e. U. s isaac, you do that the other way around, youve got to solve how we do with the harlem border the u. K. Is signally in order to solve the ireland border, you have to figure out customs and you have to figure out that beforehand. The u. K. Is basically signaling that you cannot do these in sequence, youve got to do them in parallel, so time is short and that is an issue. And the sense in brussels at the moment is this is the e. U. Negotiating with itself rather than the e. U. Jonathan the other thing absent from all of this is aside from the bill, when are they going to agree that . You this is something that wants it done sooner rather than later. The you ks position is we should not agree on the size of the bill until we agree everything else. We got a process problem in the in terms of the way this is going to work, but the sense seems to be the e. U. Has a with hand and will determine that. Theres also talk in one of the u. K. Papers this morning, the telegraph talking about the telegraph, will not ruled out the u. K. Could pay for some. Orms of assess access the bill could come in and exit bill, with the payment or access bill, all kinds of bills that ultimately have to be paid. All of those how those are timed out remains to be seen. David reading all of this, my head hurts. I cannot figure out anything you are saying. How do markets work this out . How do you price this in what is going to happen or to the market say lets wait until they figure out whats going on . Benjamin i think it is factoring into economic outcome. The u. K. Economy turned after a period of resiliency following the brexit vote. Measuresre down, other of hard Economic Activity have been weaker so i think thats the best indication that latent uncertainty about the process is having some economic effect. Our things moving in the right direction . Probably a transitional agreement, some debate about is apricing in some sense positive innovation and so far as it moves the debate from a yes or no question to how much and over what period. We view that as good, but theres a lot of uncertainty and we are not waiting in in either direction. Cpi in the u. K. And that was down month on month. 1 . I thought the whole deal was you were going to have this huge inflation dump because you jump where did that story go . Benjamin its in the Rearview Mirror to some extent. You had a pop in inflation and now we are stabilizing at a higher level. Story was there. When you talk about translating that to an equity view, what do you think about the u. K. Equity market . It is in large part a currency play. Given that we are somewhat neutral, we see twoway risk on the currency and we are not taking a big view on equity. Jonathan its amazing to me how optimistic people are about the u. K. The bank of england has 1. 6 in thep at u. K. Next year and the ecb is projecting the forecast of the eurozone gdp at 128. Im not sure the conversation indicates a 20 basis point spread for next year. To your point, the u. S. Is at 2 and that is no good. 1. 8 percent is awesome for europe. There you go. And europe is growing at 2. 5 compared to 1. 8 . One of those forecast will their outcome and the other one wont. Jonathan my point is on the base case of each and every one compared to the rhetoric around the economy is remarkably different good alix good stuff. Thank you so much, guy johnson joining us and Benjamin Mandel sticking with us. You can watch us online, click on the charts and graphics and interrupt interact with us together. A guest aick on ask question. This is bloomberg. Taylor this is bloomberg daybreak. Home depot is on the hot streak. The biggest homeimprovement chain posted earnings that beat expectations for the 13th straight quarter. They also raise the annual forecast. They are cashing in on the price of the airline plans to keep flying while it is restructuring. Lufthansa is in talks for buying part of air berlin. That is short Bloomberg Business flash that is your Bloomberg Business flash. David an fcc filing told us bill gates gave away more of his fortune than any time in the past 20 years. We dont know who got the money, but most of his donations in the past have gone to the bill and Melinda Gates foundation. Mr. Gates won the prize for the largest charitable donation for the year beating out Warren Buffett at over 3 million and odell this is amazing in terms of history what is going on right now in donations from Warren Buffett and bill gates, this Gates Foundation is huge and remind you of the Carnegie Organization and the robber barons of old. Jonathan jeff bezos will join this. He was asking ideas and a lot of people have given that man criticism about his a lot his lack of involvement on things on that scale. David at the same time, Warren Buffett sat on his fortune for a long time and then made a huge donation. Alix we also talked a lot about how fiscal stimulus is needed from d. C. It could also be the game changer and that privatepublic partnership. I know i would spend it, you want those retail sales to go up. Speaking of, we have retail sales in about half an hour. The deal is they have fallen three months in a row and the expectation is them for to rise. 4 . That will be the strongest monthly rise since january. Benjamin mandel is still with us. Do we get that kind of jump . Benjamin it is setting up to be a good print. We have auto sales that will contribute positively, gasoline prices were up and that will contribute positively. What i say about the u. S. Consumer is the consumer is in decent shape, but its not as if the engine is firing on all cylinders. Real incomes are holding up. Household Balance Sheets are in debtshape, the amount of relative to earnings and disposable income is low and that looks good. Consumer sentiment, your own Bloomberg Consumer comfort index is at an expansion high. It is setting up for a relatively good environment. On the negative side, i think when he looked at house prices, they have been coming off a little bit. You look at other measures, there are a few crack in the foundation, but generally good. Alix take a look at this bloomberg terminal. The white line is retail sales backing up oil and gas. The orange line is aggregate income. Basically aggregate hours toward aggregate Hourly Earnings and thats a good estimate of how much people are generally making. We have seen a divergence and in most cases we see a payback of retail sales in early 2014. What kind of move higher can we see . Sustainably in retail sales . Benjamin in retail sales it is going to follow real income. This over lining of negative inflation data is real is holding up relatively well. Nominal alone can be misleading. On the real side, consumer is in good shape. David what about disposable income, where is the trend line on that . Benjamin its following the trend of late rate of the economy. Think about how much americans are earning and the savings rate and what is left over. The u. S. Economy is growing at about 2 . We dont anticipate big deviations from that. The savings rate is somewhat stable pretty coming down a little bit and that is freeing up money to spend, but we dont anticipate further big decline in the savings rate to free up more credit more. Credit growth is the other thing that has come off a little bit. Thats not an independent engine and at them end of the day you are looking more and more likely to present economy. Alix thank you very much, then mende ben mandel. 17 . S Sporting Goods down coming up next, we have andrew sheets, Morgan Stanley chief cross that asset across asset strategist. Talking oil and trade wars with u. S. Jonathan three more ceos quit the White House Business Council after the president is criticized for not condemning racism quickly enough. William dudley signals another rate hike this year is very much on the cards. The journey the German Economy spends its surplus. From new york city, good morning. This is bloomberg daybreak. I am Jonathan Ferro alongside david westin and alix steel. The dollar is stronger and treasuries are lower. Futures are firmer by about a fifth of 1 . Treasury yields higher by four basis points at 2. 26 on the 10 year. Pound now closing at a 2009 hi. The calls for parity keep getting stronger and stronger. Dollar index getting a nice move. Retail sales in half an hour, could see some strain in the currency. David u. S. Retail Sales Numbers less than 30 minutes from right now. Missile defense talks get underway in washington and we get to see the minutes from the fomc meeting, last month. Walmart reports secondquarter results. President trump off his working vacation to visit the white house and his residence here in new york and managed to lose more members of his ceo council when the mercks ceo said he needed to withdraw as a matter of conscious. Mr. Fraser was followed by the ceos of intel and under armour and here to discuss the possible consequences are Senior Executive editor marty schenker, reporting from washington. What does this mean to the president if anything at this point . Marty bloomberg report this council was not functioning at all. They have not really done anything. It is more symbolic than anything else. Business and the white house have already have always had a uneasy relationship. Barack obama was criticized as being antibusiness and now down trump having a very complicated relationship with business for very different reasons. David President Trump came to office on the back of reported some reported support from the business community. He spoke to ceos and trotted out these ceos every morning in the early days of the white house. I dont know that he necessarily needs them. He has their support on tax reform and deregulation. What it does do, this whole controversy just deflects momentum in washington from what is really his agenda. Tax reform, infrastructure, things he wants to get done, but this is distracting the narrative and saps the momentum. David another potential distraction is steve bannon. He is thes the chief Strategic Advisor for the president. He may have a short tenure, left. Reportedly, Rupert Murdoch is advising to get rid of steve bannon. What effect is that having in washington . Marty we are all watching and getting ready. We have heard these reports before about bannon, about previous and others about pr eibus and others in the white house but it has not happened. Donald trump,from himself, steve bannon is there butthere is no evidence that could be proven wrong in 10 minutes. David thank you so much for joining us, marty schenker. Jonathan the other big situation is what the companies do in terms of the pr story. Stock is down by about 35 this year. They have been hammered. Kevin frank made a decision on behalf of the business and i think the merck decision was a lot more personal. David he has a lot of problems with this company, but it did not help that he got associated with these business councils. President trump beecher these councils prominently getting with foti photo ops and referring frequently to support he was getting from the business community. Deciding to withdraw brings up a host of difficult issues for the leader of a publicly traded company. Joining us on the phone is scott galloway. Welcome back to bloomberg. Calculus ofugh the what are they thinking about as they make these decisions . Scott the calculus is simple, the president is radioactive and there is little downside to walking. As you pointed out, the calculus was different from the ceo of mark because this is more personal for him and he has more credibility in this type of statement. With kevin plank, when you have a somebody saying at a commercial level, a kind of wipes the premise or any lack of condemnation of White Supremacy and under armour is trying to appeal to a younger consumer with a lot of disposable income and those tend to be progressives, so right now we have someone who is radioactive from a brand standpoint. Executives are going to one from are going to run from the white house at this point. This ato what extent is matter of the shareholders . To what extent is your Employee Base going to react . Who are the constituents that a ceo is going to Pay Attention to . Age, the a digital team with the best players wins, push awayt want to your workforce. This is a huge problem for a ceo and a ceo does the countless right now and says what do i lose from walking, and it is losing the support of a president that is becoming increasingly irrelevant and i get some mean tweets the following day. For is a small price to pay sending a clear signal to your Customer Base and your employees that we will not in any way be associated with an individual and organization that does not immediately condemn the type of violence we saw enstar leaksville we saw in charlottesville. Pichai kilis is a nobrainer. Alix we have not seen boeing and dow chemical and Johnson Johnson walk. Why not . Scott because it has been 48 hours. Some of them are going to hope to remain silent and just slowly but surely, you will find a lot of these individuals are going to decide that at this time, it does not make sense to serve on the council or you will see the council disbanded because it was largely put together for photo ops. It has had little meaning in terms of what was what it was actually assembled for. You will start to see this thing implode. Some will make political statements, some will even issue press releases. This council is officially moved officially moot. We saw protesters wearing under armour and it had a lot of pressure when it came to under armour on twitter. You wont have people saying i am not going to buy your plane, bowing boeing. Scott you might have a mobile app developer or engineering students saying i dont want to work for an organization that in any way supports or does not condemn this type of behavior. There are very few things that rally 98 of americans around an issue and one of them is the condemnation of White Supremacy and this sort of blatant racism and violence. It is as if the presidency literally said lets take a gun in our mouth. This is from a brand standpoint. It was a incredibly tone deaf move and you will see the people on this counsel drop like fleas. Some of them, more explicitly than others but whether it is your employees, your consumers, this is a nowin situation. Jonathan i am intrigued by this. This,lly with issues like as time progresses, the kind of diminish, even if they are as tragic as the ones over the weekend. What is in the tea leaves that makes you think that this issue is going to get bigger . Scott because a lot of people perceived that there is a white supremacist in the office whispering in the year of the most powerful men in the world and as long as you have this type of theme, as long as you have this notion of White Supremacy, even a hint of it, even if it is unfair to label steve bannon that way, as long as he is consistently seen walking across the west lawn, people associate this presidency without. A fairly safe statement to say that steve bannon will not be at the white house there along. People very long. You asked me why this will not diminish. Ofy constantly have the ping White Supremacy every time there is a picture of steve bannon in the white house. David i dont want to take anything away from the severity of this issue. At the same time, let me put forward what quite a few ceos have said in this context and that is, we dont agree with everything the president is saying. We may disagree, but it is more important for us and our companies that we have a seat at the table so we have an opportunity to try to persuade him. Do you discount that alternative to zero . Scott i think that talk track is wearing thin. In an age where corporations take on a personification and people want to be associated with people and corporations who share their values, it is going to be increasingly hard for these companies, and especially the consumer ones. Was ahoice with boeing interesting one because they are so dependent on geopolitical concerns that you cannot that you can see them you cant see them making excuses to stay on the council. If you are Johnson Johnson, for me doing the calculus, if i am advising the ceos, little downsides to making a statement about the importance of inclusion and supporting American Values of diversity and walking away from this thing. You are literally seeing this start to unfold. David scott galloway, nyu professor joining us by telephone. Coming up later, we have a great lineup of guests. Live from new york, this is bloomberg. Jonathan the u. S. Dollar is getting a boost after the Federal Reserve bank discussed Monetary Policy normalization. Dudley favors another rate hike in 2017. The key event to watch now is the release of the july fomc minutes that come out tomorrow. With us to discuss is andrew sheets of Morgan Stanley. Dudley, it does not seem like they are. Your view . Andrew i think they still are. It is important to remember that policy is still extremely accommodative. The fed policy rate is still negative in inflationadjusted terms. There is still an argument to keep rate raising that rate modestly simply to make it a little bit less extremely accommodative. Jonathan i find that difficult to understand. The removal of accommodations should be data dependent. If the inflation story is weaker and not stronger, than why are they carrying on the same projections and why are the likes of William Dudley saying that his projection for the year has not changed from the one he had eight months ago . Scott there are two elements of this. The first is that inflation is part of the story, but not the entire story and other data has been stronger. Measures of industrial production, things like isn have been quite strong. There is this other element that policy works with a lag. Even though inflation is low right now, we expect it to pick up as the effects of current dollar weakness start to leak and move into the inflation data. The fed has to be somewhat anticipatory. It has to move ahead of what it actually thinks Economic Conditions are because of that lag in policy. Alix the question is how much . A disconnect between the market and where the fed is. The green line is the fed and the white line is where the market is. The market is underpricing three, four rate hikes. How much should they rerate and what is the Market Impact . Scott that is a great question andrew that is a great question. The market repricing will be relatively modest. The fed will hike once in september but the market will never fully price in that hike by the end of this year. Next year, it becomes much more interesting because our economists expect the hike in fed to hike four times 2018. It is really in 2018 were there is a much larger gap between the type of policy that we expect from the fed and what the market expects that is one reason why we are relatively sanguine on equity markets and risk, this year and we are more concerned about 2018. David we have not seen financial conditions tighten. What accounts for that, because i assume that will largely influence the fed as they go into 2018. Andrew that is an extremely important point. Here we are in the midst of hiking cycle and because the dollar has been weakening in the dollar has been weakening for a number of factors, but primarily because of a loss of confidence in the president and the administrations policies, that you have a loosening of financial conditions thanks to a weaker dollar and lowering Interest Rates. One reason why we think that the fed does more in 2018 is because we have had this big easing, this year and there is certainly a lot of hiking needed next year to offset that. I think it is an important driver for why we are expecting more rate hikes. Alix great stuff, andrew sheets, sticking with us. Breaking news, amazon planning a u. S. Dollar bond sale for its whole foods purchase. How much of a going to issue and what coupon are they going to pay . Investment grade bonds have risen about 3. 6 in 2017. About 968 billion worth of bonds have been sold. Tesla cani think if borrow at 5. 3 , amazon is going to be ok. David i think amazon is getting a better deal. Alix we will continue to monitor those headlines. Mike ryan, ubs Wealth Management americas cio is with us. Alix amazon is going to come to the bond market to raise money to buy whole foods. What does that mean for credit . Morgan stanleys andrew sheets is with us. What can amazon borrow for . Rate. an extremely low this is identity a dynamic you see across the market. After we are well into a fed hiking cycle, the bonding cost for u. S. Corporate and european corporates are still near the lowest they have been. This still remains a very good time from a cost perspective for corporates to buy money to buy to borrow money. Just not getting compensated for the leverage and the risk you wind up taking on as the investor. Where are the bubbles in the bond market . Andrew there is a very logical argument that when conditions are good for borrowers, they are not good for lenders and vice versa. Given how low these yields are and how freely available they are, given that this easy availability of credit is also confidence, we dont see this as a great environment for creditors, especially highyield ones. This is a triedandtrue pattern. You start to get central bank tightening, equity markets go up but often, Corporate Credit starts to underperform and that is the part of the cycle we are in. Jonathan to what extent are you worried about exposure to various sides of the market through things like gps and when you actually need to reach for the exit, it is not going to be there. Andrew those are always concerns. If im honest, i am less concerned about those factors. Our emergingmarket team has done indepth work on emerging market etf and the fact that there is a smaller part of the market than people expect, and as you compare those dynamics relative to the types of leverage you had in the last cycle, they are still nowhere close. The problems the credit markets face are more classic problems. They are not about any Flow Dynamics or new product. They are problems are relatively tight spreads, high leverage and management incentives that encourage adding debt more so than looking after bondholders. David we may well be late in the credit cycle. How will we know when it is going to break . We are seeing it in terms of defaults and delinquencies. Andrew that is the hard thing about credit, defaults are usually a lagging indicator. They are a badly lagging indicator. I dont think that is what we can look at. What we can look at is the performance of credit versus equities. Our credit spreads showing signs of having troughs . That is consistent with late cycle behavior. Are we seeing more corporate decisions that seem to be benefiting stockholders at the expense of bondholders like aggressive share buybacks, debt funded m a, those are the things we are looking for because you can never time these things as precisely as you would like to, but often, the gap between when credit peaks and equity peaks can be six to nine months. Alix thank you so much, andrew sheets of Morgan Stanley. The news is that amazon is going to come to the debt market to get some cash to buy whole foods. What will the yield be for amazon . Coming up, we have ed morse of Citigroup Global markets joining us on oil and trade relations between the u. S. And china as a relates to alumina manned steel as it relates to aluminum and steel. Track your pack. Set a curfew, or two. Make dinnertime device free. [ music stops ] [ music plays again ] a smarter way to wifi is awesome. Introducing xfinity xfi. Amazing speed, coverage and control. Change the way you wifi. Xfinity. The future of awesome. Jonathan 26 seconds away from that retail sales in the United States. Stocks positive after two days of gains on the s p 500. 41 on the dow. The story in the bond market, treasuries lower, yields climbing higher, up by three basis points. The dollar stronger for a second day. Atodollar up and cable 1. 2881. An upside surprise if you strip out on those autos. At 0. 5, the estimate 0. 4, so positive to the previous month and solid numbers compared to the protections estimates for the month of july. David lets bring in lara rhame , Fs Investment Solutions chief economist. I want to turn to you. You are seeing these on the bloomberg as i do. This is a pretty positive number. This is a volatile number, so it is sort of on consensus. We need that reminder that the consumer is still there because they have been the workhorse of this economy throughout the expansion. So goes the consumer, so goes the economy. David what factors do you anticipate . Be interesting to strip out the nonretail store spending numbers. We have seen a lot of online spending, especially in july. We had amazon prime day. We are still trying to figure out how to adjust for that. We keep hearing such bad news about retail and the reality is, activity is activity. What we need to see is that the consumer is still a positive horse positive force. Alix retailers up 3 on month on month. Department stores up 1 . That was surprising because we have seen a negative print two months in a row for Department Stores. Lara we have all the right fundamentals supporting fundamentals supporting the consumer. Strong jobs, consumer Consumer Confidence at a high. Everything is there for the consumer. What we need is income to help compensate consumers who are continuing to dip into their savings. Alix what do you make of the Market Reaction . Fed president bill dudley said we can look past the inflation. The fear has been that inflation was going to start to continue to slip and you wind up with a disinflationary environment and these retail Sales Numbers are just what the fed needs to not worry so much about that. When you continue to have Consumer Spending at this pace, which is looking like it is going to catch up with the survey data, then you can have a scenario where the Federal Reserve will start to taper its Balance Sheet. Taper its Balance Sheet. Particularly on the inflation sign. David how important is this data to the fed . Is this more a matter of we want to hike and this gives us an excuse . By itself, that one number is not going to move the it is one of the requirements for the Federal Reserve to be back into the market. The implication of your statement that the fed once the hike but are reluctant to do so when data is starting to move lower. This type of data and especially with the upper revisions are important because you have not seen a lot, lately. That is just enough to bring them back into the market. You saw some of it today. For 10 year treasuries, we are probably still in this years range. You can see short end treasury start to move higher in yield. Lara one of the problems i think the fed is having is if you look at past rate hike cycles, they want to get to this place where they are on autopilot where the market expects them to raise rates and they can just do that. We have not been able to get on that, this entire cycle. The market has been right throughout 2016 and 2015. I think the fed would like to raise rates, but they need to consistently puts the market to get there. Alix especially because the gap is so wide. 2018 is a real risk. With bill dudleys comments, how prevalent do you feel like his comment is that we can hike because financial conditions are still loose, the dollar is still on the down foot and that is where we can hike even though inflation is at 2 . Lara at the same time, they are trying to talk the market into it and that has been hard. You need to see them all out in force. No question, these are good numbers. This is retail sales, this is dollars brought in, this is not profitability. Jcpenney was down because they are selling a lot of things and discounters are closing stores. Selling a lot of things at discount and are closing stores. Lara what the economy is missing right now is business investment. This revenue recession we experienced in 2016, we are coming out of it. We need to see businesses. The consumer is there, the investment is there. Look at this productivity numbers we just had. We need to see investment kick in. Alix thanks so much. Good to see you. Talking about retail, take a look at what is happening to Dicks Sporting Goods. That is getting hammered in premarket. It slashed its full 8 fullyear earnings preview. The average surprise rating move on and earnings state like , why is itike 6 getting hit so hard on its earnings downgrade forecast . I think you hit it with your opening. Components,o big one was a weaker than expected q2. Itscompany really slashed guidance for the balance of 2017. Isboth cases, the guidance probably the bigger factor, but in both cases, it is a significant surprise to the downside. Alix what is the followthrough for that . Is this a Dicks Sporting Goods store specific issue . Lara in this case, i think it dicks. To dekes a number of Sporting Goods Stores Closed and dicks benefited. There were hopes that these market share gains would persist for a while, for more than a year and as i look at these results, my initial that it was basically a oneyear phenomenon because they capture the market share from Companies Like sports authority, but now as we have lost those, it is been difficult to put their sales growth on top of the game at a had a year ago. From a business perspective, the business is basically has basically returned to where it was. There a read through to some of their suppliers . Can we read through to those areas . Brian that is fair to do. I dont cover those companies close, but when you have the largest Sporting Goods retailer post week numbers, that is a pretty weak numbers, that is a pretty easy read. At the end of the day, it is a pretty easy read through where it is probably weakness throughout the channel. Future for this business, the sort of large mega sports store . Is there a future for growth in this business . Brian i think there is a future for it. What is happening right now, and there are a lot of factors at play, ecommerce is intriguing to this. 10 of theirlmost sales are online, but you have other ecommerce players as well and that will be ongoing pressure. We are probably going through dislocation in that category. There are areas of weakness within those stores. Weakness. Ome spotty is there a future . Yes, but i think this weakness will persist for some time. David thank you so much, brian. Lets get an update on what is making headlines outside the business world. Taylor north korea may be signaling it wants to defuse the deepening crisis with the u. S. Kim jongun was briefed on the military plan to launch missiles into water near guam. He said he would watch what he called the stupid conduct of the yankees before deciding whether or not to go on with the watch with the launch. Said he is quitting to call attention to the serious harm the divided Political Climate is causing critical issues. Global news, 24 hours a day powered by more than 2700 journalists and analysts in more than 2700 countries. Morsecoming up next, ed will be joining us. Oil, aluminum, steel. We got you. Taylor this is bloomberg daybreak. Ng up in the next hour, jonathan a big upside surprise for u. S. Retail sales. Givinghese markets these market some shield some fuel. Yields are higher by six basis points, 2. 28 is your yield on the u. S. 10 year. The dollar is stronger for a second session. Eurodollar almost at 1. 17 flat, soft or about 1 10 of 1 . Alix the struggle between opec and shale, International Energy agency warning on Bloomberg Television that opec will not clear the global glut anytime soon. It seems likely that if they wish to achieve the reduction of oil stocks down to the fiveyear average, theyre going to have to dig in for the long haul. We said in our report that rebalancing is a stubborn process and is taking time. Alix there is a chart that shows the potential why. The mecca of oil now in texas. Joining us now is ed morse, the citigroup head of global Commodities Research, continuing the opec versus shale conflict. Ed the opec conditions position even with russia is not sustainable. They are losing revenue by doing what they have done. They may be having higher revenue than they otherwise might have, but the u. S. Produces hedging 32017, pretty much into 2018 and they can survive at a lower price. Alix i was talking to some bankers yesterday and they said the huge shifting of money is over and we are going to see more of a value play. We saw a mix of what was in the wells change and we saw production estimates come down. Is the premium we expected six months ago still the premium we are going to expect . Ed absolutely. The gor number which was alarming for a couple companies is the gas oil ratio, a little more gas than people had thought about, but gas is going to be valuable and put into pipelines to export to mexico or other parts of the u. S. The other little problem was a hiccup in terms of utilization of the service sector. We think it is going to grow at a hefty rate. Alix then the question becomes hedging, the Higher Oil Prices go, the more hedging you take. You have oil prices, the white line oil price is the yellow line and net commercial positions is that white line. The oil prices rise, it is short position coming in, which means you are shorting more and you are hedging. How much is going on . Ed the better curve to look at is wti versus brent. If you look at where they are, it is the same type of crude. They should be in parallel and there is a breakaway in the last ande weeks where wti widens it is pretty much flat at 50 a barrel through the middle of 2015. They are locking a price they are comfortable with. Not all shale is the same, but the permian is quite different. Shale has brought down the cost of extraction. Where are we with that curve . Ed there is a battle between a technological change creating greater efficiencies and the cost of services. The cost of services has had to go up. It wind down because there was a services,ance of drilling rigs, labor crews. Now we are moving toward a higher level of utilization and the inflation is there. We expect from the lows, the inflation of the cost side to rise maybe 30 or 40 and that rise is not only hold drilling picture. It is less than half of it. On aboutmuch as 40 35 of the total cost of drilling. It is a much lower number on the inflation side that might be worrisome and it is still the case that we are in a 40 to 45 barrel world. Alix ed morse from citigroup, you are staying with us. If you missed anything from that conversation, check out tv. It is like shameless plugs for commodities every day. Alix steel is not the only metal in the hot seat between the u. S. And chinese trade war. Subsidies forate the domestic industry unfairly advantage american producers. Sound familiar . Aluminum rallying to the highest in three years. Joining us now is ed morse from citigroup. Dependent onhat is the trade war between the u. S. And china, when it comes to these metals . Ed i would call it a trade friction and the underlying reality from an objective perspective, looking down the what is happening, we have actually seen chinese exports of metals declining. Steel exports were down 35 from where they were, a year ago. The picture is a little more clearer in aluminum. You have to look at the relationship between the price of the export from the china side and the price of average imports on the u. S. Side to see whether the arg is open. It is just not open, partly because the dollar is weak. Currencys a stronger and the Chinese Government is in the process of undertaking steps and measures to curb their export levels. On aluminum, it is different because china happens to be the most efficient aluminum smelting country in the world. Alix we did see Steel Production up like 10 . Take a look at the Profit Margins that we have seen for Steel Companies in china. That is the bottom panel, up the charts. How sustainable is that . Ed there has been a speculative rally and that has brought up a lot of other metals but when you have metals like that, it is not going to be sustainable. Part of it is what kind of processing they do when they have a seasonal effort to bring down the missions bring down emissions. We think a lot of that hype in the market is going to come off and with it, the profitability of those come of those companies. The china isr getting serious, perhaps about production and that they are shutting down facilities because they are simply polluting too much. Is that likely a real constraint on the capacity in china . Ed it is certainly a big constraint and we have seen it in spades, in aluminum. They are being much more aggressive about chatting down the capacity and that certainly is part of the reason that the price has gone up higher than people would have otherwise expected. We are looking for those prices to tail off, aluminum less so. Showedbove 2000 as you and will probably be lower than that by the end of the year. Copper and the prices will both tail off a lot more. Alix what about iron ore and rebar prices . When does that turn . Ed soon. In iron ore, the potential is great. Plentiful. Just too discoveries in australia and brazil. It makes the production of iron ore cheaper and cheaper. Chinese consumption of iron ore going to tail off as they use more scrap in the process of steelmaking. Alix great discussion, ed morse of citigroup. Coming up, mike ryan, ubs Wealth Management americas cio. We are going to talk about the fed and amazons big potential bond offering. This is bloomberg. Joanathan fed rallies. The rate hike is coming in 2017. Amazon is said to be tapping the bond market for the first time in three years. It will finance the acquisition of whole foods. Three more ceos quit the White House Business Council after the president is criticized for not condemning racism. From new york city, good morning. This is bloomberg daybreak i am alongside david westin and alix steel. The cash open is 30 minutes away. Futures are up five points after a couple of days of gains. This is following that really strong retail sales print in the u. S. That you leads to more losses for yields. 228 is the yield on the 10 year field lets see some movers ahead of the open. Alix we have really interesting moves happening and home depot. The stock is down. That harkens back to macys last week, where you get punished if you miss. They are seeing the fullyear , disdain the samestore sales beat the annual forecast. The numbers keep going in a positive way. 1. 5 million customers go through home depot every year. 20 of theal to worlds population. They are down. 3 . Another conversation with advanced auto parts. Thats all about the week used car market. The ceo is seen a lot of headwinds. Sales are falling flat. You have tax refunds and mild weather hurting company. Wrapping up with financial getting a nice pop. Warren buffett put his weight a 520the stock, taking million stake in the company. He is now the number 10 shareholder. He bought into this. They sell privatelabel credit cards for retail. Joanathan great work. Thank you very much. Retail numbers show widespread gains for Department Stores and Building Material outlets, a robust start to Consumer Spending in the third quarter. For reaction, we are joined i the Wealth Management cio. An interesting point was made. We talked about the data dependency of the Federal Reserve. He said im not sure how dependent we did is. There are considerable upward revisions. What idea have about where the u. S. Economy is at . I think the economy is on firm footing. We see a higher level of Consumer Engagement. We see is this investment spending accelerating. These are the critical points per the fed arid i think there focused on with happen in terms of inflation data. We had another disappointing trend with bpi. Until we see some progress point, i think its going to be hard for the fed to raise rates at the same pace until we have some projects. Joanathan maybe thats where they should be focused. From the speech as we have read, the latest in an interview with ap, they are not concerned about the inflation misses. Mike they talk about them as being temporary. There are parts of that. We need to not just a mess dismissed them. I think the next two or three months of inflation data is going to be important. That officials may say they are going to raise rates, we have seen that in the past. Is the fed has to respond to the facts on the ground, not with their expectations are Going Forward. David the fed has hiked, we have not seen a tightening of initial conditions. ,s long as that doesnt kick in they have something in their back pocket or the inevitable downturn. Mike one of the things we look that was the inflation data and the primary conditional driver, financial conditions. As long as we see overall market rates and bank lending accommodated and Financial Markets stabilized, those to the fed will take into consideration. David do they have to take into account the dollar . One of the reasons the financial conditions have not tightened is because the dollar is lower. Mike they will. The expectations were coming up to the election that we would see a stronger dollar and that has not materialized. The dollar has weakened. What happens over the next two months with the dollar. If it continues to trend lower, there are more accommodations to raise rates in rates. Its a green light to continue the process of normalization. I think the pace is dependent on the Economic Data. Once more important is what they do in september. This is where they start to focus their attention. They have to but in the process. Joanathan this is a case among investors at the moment, that its going to be boring and the financial conditions wont matter much where you sit on that debate . Mike i would not dismiss anything on the Balance Sheet is a nonevent. This is just going to be something the market will jan at. The way the fed is doing this, we consider it a targeted on sheet reduction. They are not rolling discriminant lee. They target a certain amount each month. We think that is the right way to manage Market Expectations. We will see what happens in the fed start to contract and draw the Balance Sheet down. Joanathan the question we brought up was that throughout qe, there had to be a significant influence on the direction of the fx channel. At things we are consensus with the fed, ultimately the Balance Sheet not matter much. The you think thats true . Mike when we had it qe, it was a massive intervention that happened quickly. That contributed to the currency. We are talking about something that will take several years or decades to complete the process of Balance Sheet normalization. Will have the same implementation. Alix how do you rejigger your port olio western mark portfolio . The economy iss on firm footing. This economic expansion as long by historic measures. It does not mean the expansion is running out of desperate we see more and more contributors growth. It has broadened in terms of jake ethics. As long as the expansion continues, we are posturing for it. We are taking on the risk in global equities. We had been explicitly overweight in u. S. These. That served us very well. Weve neutralized that. We are neutral in terms of overall allocations. To bring this back to the retail numbers, lets talk about the u. S. Consumer. Consumerroom for the to continue to expand when we dont have the wage pressure western mark to the have the money to spend . Erosionere is always an with inflation. What you see is labor markets are tightening. You are starting to see wage growth pickup. You are starting to see evidence that personal income is expanding. Consumer Balance Sheets are the best theyve that in 30 years. The wherewithal to spend money is probably at a high point. David are we seeing wage growth pickup western mark pick up . Mike its happening at a moderate rates. The more evidence that it is broadbased. There had been a question or all of the wage growth was coming from the top. We do see some lower wage pressure. That matters more for conception. Joanathan when the retailers are how do you play that story outside amazon . Mike we are neutral on retail in general are in we think there is a trend toward a high level of Consumer Engagement did this is not going to be a super cycle. We dont think this is going to be in 80s type catalyst. We think brickandmortar retailers will still be haslenged because amazon come on to dominate so much of the digital space. That is where future growth will come from. A lot of the companies that we brick andraditional mortar retailers, are going to struggle until they find a way to compete effectively. Evidences shown little that they will give quarter anywhere. Alix thats a different kind of story. Mike bryan is going to stick with us. Coming up, a big laugh of guest. This is bloomberg. Alix hedge funds are releasing their findings. Many were on the list. Sold hedge fund dump it in the second quarter. Join us for more is mike bryan from cio. That was kind of the theme. What do you do with that asset class . Mike we are going to continue to hold tech. We dont think its a cyclical story. Ongoing it is the evolution of mobile computing. Its the evolution of dramatic transformation of the product. The what we see in terms of securing information data. Those are secular forces. Focus one have to where is the longterm secular growth. Mentioned data cloud. The big names, the power players like apple and that links and facebook, are you interested in them now . Mike we are. Our positioning is we are focusing more on the value within the highfliers. When you have such large bellwethers, they dominate performance. Those who choose to underweight them because theyve done so well, you have to careful about doing that. Going tech is dramatically. What do you do with the rest of the economy . We see a lot of pricing power. How much of that is because tech is taking over. You can go to scale with very little investment. Mike there are two things that generate upward price. One is access to information. Pricing onhas given all sorts of things. There are alternative conduits. Technology is not just transforming space. There can be utilization Tech Knowledge he in terms of rices. What does that do for m a in the space. The we want to see high equities . Mike i would be careful. I dont focus a lot on m a activity. What we will look for is partnering where there is explosive technology. There are going to be a lot of losers along the way. Its a neat idea that is hard to commercialize. I think we could see m a pickup. There is going to be some separation between those who burst on the scene and the business model. David is there space for mediumsized Tech Companies . We have these behemoths. They just take it over. You have some small players. It seems like the mediumsized guys get wheezed out. Mike three things are essential. First, they have to have a really good idea. They have to be well enough funded to endure and they have to execute. If you cant execute, you are going to be on the radar of the really large players. If you cant execute, you will be assimilated really quickly. Alix lets happening in terms of china versus the u. S. In terms of trade. We have the intellectual property issue. Will china retaliate western mark apple has supply chains in china. The you think about that at all in the tech space . Mike we do. We look at Foreign Policy engagement. It happens on many fronts. The one you noted was trade policy. We have to be careful. So far, the reality hasnt matched the rhetoric. It will be interesting to see what they come up with in terms of their faceoff with china. In every instance, there has been an explosive headline and then a very pragmatic course major there was no damage. Do you wind up ignoring tweets from donald trump . It. we dont ignore washington has been like staring into a bright light for too long. When you look away, you cant anything. We still have the focus on washington, but not exclusively. We have to look at other fact on the ground. Alix someone called the clown show yesterday. Tell that reminds us to our viewers not to look at the eclipse on monday. Alix im excited about that. David weve been staring at washington too long. Mike bryan is staying with us. Coming up, the deputy director. This is bloomberg. David i am david westin. Bloomberg is reporting that amazon is about to go to the bond market the finance the acquisition of whole foods. The bonds with the longest could yield as low as 1. 6 above treasuries. This is private at the present time. There is a back drop of new corporate issuances this year. We cover credit research. Still with us is mike bryan. What do we know about this on deal. That and thelot of rains are going to be attractive. Is relativelyket robust. Between where rates are overall, we are looking at attractive financing. We will see where it comes. It looks like we will have something in the front and. End is veryback attractive for 30 or 40 years. Thats pretty compelling. David can you put this in a broader Historical Context . How does this fit into a larger Historic Context in terms of what the spread is for this kind of money . Mike we talked about the broader market, we are not at we arec lows are it pretty close when you look at the leverage the corporate marketplace has these days. Ats is something we look near historical lows. Itself, 164 aazon company and it dynamic industry, you dont the a lot of it ended pieces. That is pretty tight. What stands out to me is 40 or portion of it. Inspired howard marks question. How to we know what the world of technology is going to look like in 40 years . Youre going to get paid back in 30 years. Youre going to get paid act by amazon. What does the world look like in 40 years . David there is a little bit of good faith there. Thisarkets are focused on ongoing demand for yields. This processlector of slow down. Its happened in such a delay shell pace. There is still extraordinary demand. Joanathan i imagine they dont want to hold 40 years. Note arent my words and implying anything. Beden Goldman Sachs will long highyield. They came on recently and said we are backing away. Are you thinking the same way western mark way . Have been overweight for a amount of time. We thought this would be a business cycle. We thought the ongoing improvement in corporate Balance Sheets would lead to lower default rate. We thought you would see this demand for income continue. We have reached the point where we no longer think the opportunities are as bright as they were. We took down our highyield waiting. That means we think Going Forward from here the prospects for changing the spread are more symmetrical. We thought it was a very asymmetric view. Now, its more symmetrical. David you are not entirely alone in your view. He had some concerns about Corporate Credit as well. Mike i think this is a dynamic across the market. Even after we are well into the hiking cycle, the borrowing costs are still near the lowest they have ever been. This still remains a very good time from a cost perspective. David are the bond markets properly priced . Mike i think they are. I think the market represents the pace of the fed increases and Balance Sheet normalization. Thats going to need to be written and pragmatic. Theyre going to have to respond to progress we see on the ground. I think the markets are properly priced if there is an indication the fed hasnt victims pace because they determine inflation is hotter than it is right now, that could certainly change expectations in the market. Its really unreasonable for bond market. Joanathan fascinating story. You do wonder how many of these deals wouldve gotten done out amazon if yields were in the slow. Werent the slow. David i could guess. Joanathan special thanks to mike ryan. He will be sticking with us. The opening bell is about four minutes away. Futures are up firmer. The story in the bond market, a really solid retail sales grid. The dollar is stronger. Watching liberty tv. Bloomberg tv. Joanathan futures are up a quarter of a percent. We have the biggest weekly drop since march of this year. A couple of days of gains, will we get three . The story across assets dominated by a decent resales in the United States. We followed up with revision for the previous month. The dollar is stronger. Anothereld fueled by rate hike in 27. 2017. Treasuries are off. We are lower on treasuries for the second straight session. Get the market open. Alix it feels like good news is good news. If you have a fed that can normalize, that gives some support to equities. The dow is up 33 points. The nasdaq is up. 1 as well. You has the nice followthrough rally in europe. That is feeding through two u. S. Equities. Sales, the strong retail we had earnings that were awful. Dicks Sporting Goods was the worst of the bunch. Change thelly had to forecast. Isnt structural or cyclical. The leisure trend is over. That spells good news for Dicks Sporting Goods. Under armour gets 10 of its revenue from dix. Nike gets 3 . Lululemon is up by 1 as well. You have Dicks Sporting Goods getting a boost from consolidation in that space. Now they have to grow. How do they do that . Point, i stole this chart from our chief equities strategist. Check it out. It goes to show what happens when you miss on earnings and revenue and on both. So far, if you had a beat, it was flat. You were up. 2 if you missed on estimates. For sales, you got hit i 2. 5 if you missed on your estimates. If you missed on earnings and sales, you got extra pummeled, down 3. 7 on average. You can see this in the retailers, even the guys that did well get hurt. Joanathan that looks furious. With Sporting Goods. Statesoutside the united , this is a 3 billion company and its down 17 to that is a monster move. Retailers are still taking a battering. Why . Gina its kind of amazing. Analysts are still overestimating how much the retailers can earn. What we saw with earnings seasons, it plummeted. We see some misses. Someught we might see beats from retailers and maybe we will yet see some beats. Just considering the structural changes are so rapid quick, analysts are having hard time catching up to it. Joanathan theyre having hard time working out why they are not dumping it all and the kitchen sink, saying this is how bad it is in this is what lead to do. These are the stores we are going to cut and the it jobs that will be lost. We are going to work her way through it. Gina some of that is what the consumer is spending right now, that is two different things. There is some momentum in consumer earnings. They are not spending it at retail. I think if you look at any traditional model, it suggests income is accelerating. They will spend a certain amount of that at retail, and they are not. They ares ending it on internet retail and allocating spending in a different way. Some of these ceos are slow to catch on to that. They are hopeful they may revert act to normal. Lets hope they do to some degree. The july retail numbers would. Lets take it for what its worth. This is word looking data. David jonathan has a great question. Me, doesnt make sense to if you write it down, the stock will go up. Do we not know where the bottom is . Jcpenney announced shutting over 100 stores. Ability to have the see how far down to go . Street willthe accept breakdowns, they a poor misses. What happens is the bar was set much higher than people expected, coming out of a q1 earnings season. When you start to see impact going positive, this goes right into consumers ending. Joanathan the Banking System in europe made the same monster mistake. The bank of italy did not clean up the banks. They sat there and did this and thought economy would improve. They thought that would take care of things for them and they wouldnt have to make changes. Are we sitting here saying some of the retailers are just hoping the consumer makes a comeback . Gina i think they are migrating to a different reality. You have seen some significant adjustments. There are lots of stores closing. There is plenty of change. There is a question about whether they are changing rapidly enough, considering how the consumer is behaving. Its very clear now that consumers are spending more on services than they are on goods. Getting the consumers attention to purchase those goods is an incredible challenge. Migratingre they are rapidly enough. Joanathan how bad can it yet for some of these retailers . Macys is down 50 . Has the reality caught up with the boardroom yet . Gina talked about how slowly they could be moving. Mike when you sit in the sector, you are trying to balance your structural changes happening in the industry and the cyclical expansion. It you have to strike the right balance. What they are going to focus on is going to be what we need to do for the next 12 months to make sure we got our business right sized in terms of the brickandmortar any digital side. You have a couple of dominant players in the digital space. You dont just immediately switched to the digital channel. You have to have a way of doing that. Alix this is like the brexit conversation. This is going to go on for years. We can record it and play it back and it will still be relevant. Alix we talk about the revisions downward and how the stocks of. Net, if you miss on retail, you missed. Consumer discretionary has been revised. Is that pessimistic enough . Mike we will know when we are there. Its hard to gauge these things. Every earnings profile is different. A lot of it is on what expectations are. Its not just the earnings power, its about where the bar is set. I think what you will see is the analysts setting the bar lower for the third order. David thank you so much to mike ryan and gina. Despite all of this talk about retail, american spent more freely in july. 10 of major retail categories showed gains. Some earnings were cap home depot topped estimates. Senior us is the consumer analyst. Give us a take on what happening in retail sales western mark they were very positive. A lot of the strength came i think from nonstore retail. July is ao remember, heavy sale clarence month. There were also going back to school sales. You cant just retail into what it means for retailers. You need to think about what margin impact may have hit and happen. How did you get the sales . So far, earnings have not been that great. Home depot is very strong today. I was not surprising given the strength of what they are facing. David we thought maybe homeimprovement and auto repair my the insulated. Might be insulated. Department stores came back. They were less bad. Consumer behavior changes. Defensibleme categories that become less defensive. Homeimprovement is a large ticket. Its hard to analyze online. If youre looking at flooring, how do you tell the color . You really need to go in see it. That is what is protecting them. David to what extent is the online making up for what we are losing in brickandmortar mortar western mark i think the highest getting smaller. Really have what is compelling to get the traffic to go into the store. Thats why people are going online. Alix looking at home depot and lowes, do you prefer home depot to lowes . What would you need to see western mark i need to see a better entry point. They are both quality retailers. We just need to see better entry points for the stocks. That has been our focus now for quite some time. Professional investors that they could hide from some of the problems in the retail world. They are less vulnerable to ecommerce. They have been the places to hide. They have been a great place to play the housing recovery. They have been quality companies. The popularity has made the price down the. Thank you very much. Thank you for much for joining us. We are about 12 minutes into the session. After a couple of days of gains, we have to wait on the s p 500. The dow is up by about. 1 . From new york, you are watching bloomberg tv. Taylor coming up, steph curry of the golden state warriors. This is bloomberg. It joanathan the International Monetary fund with its report on china. Warning they need to speed up or forms to become less reliant on debt and investment Going Forward. Joining us is the deputy marcus. Markets its great to have you with us on the program. 300ve read the report did and. By 2022. Dp that is the debt load. Give me an idea of how big that is compared to other countries. Marcus thank you for having me this morning. Its a great pleasure. A country raising its that level to 300 of gdp, these have not in the dwell. Many countries including advanced economy countries that have gone through this experience have had a sharp slowdown eventually or a financial crisis. The negative events start on the funding side. There will be a breakdown of confidence. We have some bank retrenchment. Are,ding on where loops its back into growth. That has been the general experience. We have to recognize that what ultimately plays the key role is the credit of the government to stand behind the Financial Sector, which comes into play. Hide, china is still quite strong. The government is very strong. The control of the government over the economy is very strong. That might a disadvantage in efficiency, in near crisis, that comes in handy overall. What is your advice to china to make sure that number is in a huge problem . we have seen them come together and decide Financial Stability and risks in the Financial Sector as a matter of concern. I think thats the first thing. Theyve taken the first steps in raining and it credit cards. We have seen it slowdown. The economy is strong right now. A tightening of financial supervision to sustain a few years. Slowdown, somea credit events come as a result of the tightening. Despite becoming more and more difficult, the second more important thing is china has to find growth. It can bring the economy back, but in a new way. From private sector growth, that the huge addenda we have outlined in the report. Very restrictive in state controlled. Authorities will address the issue. Progress nt, your projection said it will not able to do what they said what happens to your growth projection . Did would happen if they what they say they are going to do in curtailed reddit . Do, what we want them to the economy with slow. We might not see 7 growth next year. Happens, i think we should welcome it. The second thing that comes in is what i said before, what happens is dependent on how politics does new things. They will run up against interest in the public sector. They can come back and grow safely 6. 5 over the medium term. Growth suggesting financially tightening. Jonathan how severe is the role down . Mark can you say that again . Jonathan the additional dollar of that, at some point its going to flatten out. It what is that going to happen . Mark i think it has already happened. By four. To gun down this growth declined a lot already. That is going to continue Going Forward. We will see less bang for an additional dollar of debt. They will have to double up the debt and more. Current most of expanding debt is not sustainable. It will sooner or later break down. Nobody can predict. Drinking the chinese economy is different than others. They can keep going longer than other countries could do that area there is no doubt that eventually the game will be up. Its great to have you with us on the program. Thank you for joining us. Joanathan i really love my new name. I am dominant. Onlineou can watch us and check our charts and graphs. You can click on the interview if you missed any of it and rewatch. It this is bloomberg. Alix up next, the fed minutes will be released. To even care now after retail tales . We care. Lets bring these issues together. Dudley is a dublin the policy committee. When Market Expectations have been pushed out all the way until june of next year and you hear a dove pushing back, that is a meaningful signal. He lost the communications counterinsurgency yesterday. He signaled that they will flatten the dot plots. Not of the mindset they are going to flag things. I think you could see a flatter profile. They will not be clearing the decks. That, if a dove pushes the thats one thing, retail Sales Numbers out earlier this morning, i think we may have hit the low tide mark for expectations. We saw stronger than expected july results. If consumers are on a stronger trajectory, we could hit growth trend or something above we dont need to see the Inflation Numbers rebounding. We will know the Inflation Numbers will eventually follow suit again. That could be enough to give policymakers the confidence to pull the trigger once again. Alix what about the consensus in terms of alan she . It came across as consensus. Minutes,back to the the inflation assessment is that could be a noteworthy development. We are just 26 minutes into the session. We are gaining across the board. It was the biggest oneday pop since april. From new york, you are watching bloomberg tv. Got you outnumbered. The dinosaurs extinction. Dont listen to them. Not appropriate. Now im mashing these potatoes with my stick of butter. Why dont you sit over here. Find your awesome with the Xfinity Stream app. Included with xfinity tv. More to stream to every screen. In new york, 3 00 p. M. In the. From new york on vonnie quinn. Welcome to bloomberg markets. Here of the top stories we are covering from the bloomberg and around the world. Turning their backs on the president. The chief executive of under armour and intel leaving the president. Charlottesville continues to swirl. Than the investigation into china. Talks are set to start tomorrow. The u. S. Retail picture is starting to heat up this summer. July. 10 of stronger than home depot seeing another strong quarter. Were 30 minutes into