Transcripts For BLOOMBERG Bloomberg Go 20160519

Stronger dollar story. People are still going shopping in the u. K. Retail Sales Numbers really strong in the u. K. Yields up by around two basis points. Much more on that in just a moment. Most the yields rose the it almost a year. Abn egypt air an egyptair flight has gone missing over the Mediterranean Sea. We have the latest with riad hamade in dubai. Please tell us what we know at this point about this egyptair flight. Unfortunately, we know very little. It took off from paris, disappeared around 2 30 a. M. Egypt time from the radar. Airbus 320. Is an it was given to egyptair in 2003. It is not a very old airplane. The pilots were very experienced. Right now, the militaries of egypt and greece are searching forn any debris. David weve heard president that no causeris has been ruled out. Was it at cruising altitude and what was the weather like . Riad as far as we know, the weather was good. This is from the air traffic controllers. It was at cruising altitude come a sudden disappearance from the radar screens. The pilot had been in touch with greek airtraffic control. Just shortly before. When they tried to reconnect not raise they could him and disappeared from the radar. David thank you very much, riad hamade. Lisa i want to shift to the u. S. Withrt beating estimates First Quarter innings beating estimates. We have shannon pettypiece. This is positive news. What do you make of it . Shannon weve seen one dismal retail earnings after another. Target missed expectations. Where are people spending their money . It looks like they are spending it at walmart. Traffic was up, sales were up, up. Store sales theres been some rocky quarters for walmart but this looks to be one of the good ones. What about projections for the future . Shannon they did not give any changes to their fullyear guidance. They did change secondyear guidance secondquarter guidance. We heard target yesterday saying they felt the Second Quarter was not going to look that good, walmart sees good momentum going into the second odor. Secondquarter. Maybe consumers are looking more to the discount retailers. Down. Ers trading we saw jcpenney do well, macy struggling. Macys struggling. Comp up 1 . Ales i talked to an analyst yesterday after seeing target who really bought walmart was going to be bad. That was a surprise for many people. The big story in Financial Markets is that said. The fed. Those kooky officials speaking. Key officials speaking. Lets bring in carl riccadonna. The big three will be speaking in the next couple of weeks. Why was the tone in these minutes so different to the tone from the statement from the very same meeting . Carl you do not expect that dramatic change of course. Some change to their description of International Financial risks. Nothing beyond that. Clearly this week, we had a couple nonvoting fed president s talking about june being realistically in play. The minutes and by sizing this now emphasizing this. With thes not happy dovish sentiment in the marketplace. When they do move, they dont want to rattle the markets. They dont want to go into the meeting with the market saying theres a 15 chance of raising rates and then actually raise rates. The fed wants to tiptoe and move smoothly. Recourse ult to reverse course on policy. Fed funds probability hovering between 40 and 60 and 70 going to these meetings. Jon we are getting to the sweet spot. What would stop them . Look at the front end of the yield curve. A remarkable change in just over a week. 89 on a twoyear is not a big deal. Carl uncertainty will stop them. Financial conditions could rattle them. Uncertainty they could truly sound the all clear. The glaring headline, june is a realistic possibility. The next two sentences were very clear in saying there is a range of views on the committee as to whether the Economic Data will actually cooperate. And there is also significant doubts as to whether we will have enough information to believe the economy is cooperating. It shook the markets by the lapels to say wake up. Also clear in zyngas real reasons why june will simply be saying there real reasons why june will simply be too soon. In july, they will send a clear message to the markets. Jon a lot of traders taking a lot of late nights for that china fix, u. N. Fix. The sense of international risks was downgraded a bit. Atshing orange, not read this point. Is holdingsche bank their annual Shareholder Meeting in frankfurt. Matt good to hear you. John krein did a really good job. His german is very good and that is important for shareholders that come to the agm. He also had a tough task. The bank is in real crisis mode. Every shareholder i talked to has expressed serious concerns about Deutsche Bank. He summed up plans to turn it around and gave a vision for the future. He will stick with the moneymanagement business and the global moneymanagement business, more importantly. Headcount,ng focusing on fewer clients. They deliver 98 of the revenue. It sounded like he won over shareholders. Krein, theke john new ceo will get through that. David he was talking about the need to perhaps raise new capital. Was that discussed . Matt that has definitely been discussed. Every shareholder who has held a is askingspeech questions about the need to raise capital. This is a bank that has raised in thelion of capital last three races and has a market cap of only 20 billion because the shares have fallen by 50 . That is a real problem any real comment on previous management. With john krein appointed by the chair, some of the investors appear to have more stake in the future. They know the dividend has been cut, bonuses have been cut, but they are not sure yet about how capital should be raised. Matt miller reporting on the annual Deutsche Bank Shareholder Meeting. Jon a bit of a route. Global stocks falling to a sixweek low. A lot of red numbers. Commodities joining in today. We look at the opportunities in the selloff, next on bloomberg. Jon this is bloomberg. A little bit softer looking at u. S. Futures. Walmart numbers coming out a few moments ago. , u. S. Mber to watch samestore sales up 1 , double what analysts had estimated. It is still Slower Growth then target experienced. 2 . But target missed analyst estimates. Did walmart just manage the expectations better . The stock is higher this morning come especially amidst the negative forecast. Of thewatching a lot travel stocks this morning in the wake of the disappearance of this egyptian airliner. Before that happened, thomas cook cap come out with his earnings and the company had said it was unable to sell toernative vacations customers on willing to travel to turkey and belgium. Shares were already down, slumping even further. Thiss is little changed at point. We have the latest on beyer and monsanto. Unsolicitedn takeover offer for monsanto. Bernstein said it is a big financial stretch for bayer. Perould have to be 125 share. Out after the close yesterday, sales exceeding analyst estimates. Company has been trying to overhaul their product line fast enough to stay ahead of changes in the networking industry. We will be speaking with the cisco ceo in just over two hours. David a lackluster earnings season. Have p companies that reported so far come on average, their earnings were down 8. 2 . Joining us now is david joy. Corporate earnings have not been great. If the fed is thinking about raising rates in june, what will that do to earnings . David that depends on what happens with the dollar. If rates go up in the u. S. , you will find certain segments of the market will struggle again. Manufacturing come industrials will be under pressure. To get stronger domestic earnings coming need a stronger domestic economy. Be welcominghould the conditions that will result in an Interest Rate hike. David a lot of people were expecting the second half of the year to be much better for earnings. Is a rate hike enough to change that or is that still the case . David it is still the case. If the fed feels as though the anditions are correct conducive to a rate hike, that should give investors a little more comfort. We know what of the big changes is going to be yearoveryear, the price of oil. That alone is going to flip the switch and give us a real chance at positive earnings in the second half. If we get real traction here and get towards a 2 growth rate, earnings in general will get stronger. The market needs it. Jon blackstone weighing its sale of 11 million a warehouse 11 billion logical warehouses. Earnings have been weak, but so much pessimism has been baked into the market. Where do you think is poised to rally the most if people change expectations . David the financials are the most attractive in our view. If you started to get more economic activity, lending will be higher. We are starting to see that a bit. If you also have Interest Rates moving higher come in and interest margins can move a little higher. Net interest margins can move a little higher. That would include insurance companies, credit card Payment Companies looking poised to do well as well. Lisa what was the worst . David the biggest sector at risk right now would be the industrials and materials sector if the dollar starts to gain strength. They will be ok if the dollar stays in the range it has been in. If we see a big day virgins divergence once again, it will be under pressure again. David is this a topline story now . We bought a lot of stock up. We have to get topline growth. David a nice rally up the february lows, that was multiple expansion. There was no Earnings Growth driving that. Yes, we absolutely have to see the dollar growing for the reasons you mentioned. If we dont get it, the markets might do nothing with the linguist. The language. Lisa have you seen any signs that will be a dynamic Going Forward . David the bullish percentage of individual investors fell to a low since february. February was a 10 year low. That has been eight contrarian indicator a contrarian indicator. Potentially bullish indicator up as ms. Him in the markets indicator of pessimism in the markets. David joy is staying with us. Coming up, put it in the bank . Financials led the day yesterday. One of the worstperforming sectors in 2016. Is it about to break out . David you are watching bloomberg. Paris toir flight from cairo with 56 passengers and crew dropped off the radar off the greek island of crete earlier this morning. Saidh president hollande theres no hypothesis being ruled out at this point. We will have much more on this story as it develops throughout the program. Lets get you up to speed. Futures soft in the u. S. , down by about. 1 . For ures negative minus four. The Deutsche Bank agm is the one to watch over in frank for. Inattled executives over frankfurt. Europe has settled around 112. The pound has gone through 146 now. Move weve had in the bond markets. Lisa bank stocks are rallying, possibly because of this move in yields. The most in a month amidst expectations of higher rates. Could they hold on to the gains . David joy is still with us. There is a story out this morning about how Equities Trading revenue fell 28 at the biggest banks. Fixed income commodities and currency trading down another 12 . How can you be optimistic . David that is reflected in the price of these stocks. I expect the conditions to get better in the second half. Maybe not so for bond trading, but certainly for equity trading. The business side of the economy is not the most robust. It is the consumer that is in good shape and likely to carry the day. Equityl see a bigger environment in the second half. Jon who benefits the most from that . Revenue trading is huge at Deutsche Bank. Money clearly the big banks like j. P. Morgan chase. I suspect also you will see good strengthen the Credit Card Companies strength in the Credit Card Companies. Morgan stanley, golden Sachs Goldman sachs. Lisa Deutsche Bank had to come out this morning saying we are committed to our securities business. Do you think they do have options to improve their revenue . David all european banks are in top shape, quite frankly. Tough shape, quite frankly. They have been slower to fix the Balance Sheets and adjust their strategies. Some are a little further along than Deutsche Bank seems to be. They can fix their business. It will take a little while. Is it not in the price at Deutsche Bank . David there are better opportunities and other places where you will get rewarded. Ubs is better positioned in the european marketplace. They have done a very good job of taking out costs. , at their earnings announcement, they talked about the same thing. They are on their way, but ubs is further along. Jon david joy, thank you very much. Coming optimistic and with banks. Deutsche bank agm underway. We go live to frankfurt, next. Jon this isjon bloomberg. Heres the picture on global wall street. Dow futures, 28. Switch up the board. What a move in the bond market. The Federal Reserve aftermath, u. S. Yields creeping higher. Stronger dollar story with the euro at 112. Stronger pound story. 146. 22. An egyptian airliner has disappeared on a flight from paris to cairo. Saysh president hollande authorities are refusing to rule out the possibility of terrorism. The flight was at 37,000 feet when it disappeared from radar. It was at 120 miles from the egyptian coast. It was carrying 56 passengers and 10 crewmembers. There was no distress call from the crew. In cairo, egyptian age asian officials egyptian aviation officials are holding a press conference. House Speaker Paul Ryan says the lead small may businesses to eliminate salary positions. Employers will have to pay workers 47,000 before they can be classified as managers that are in eligible for overtime. Says the brexit boat has already harmed the british economy. Vote has already harmed the british economy. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. Jon it is the chart, the u. S. Twoyear, the front end of the yield curve and that temperature gauge for the Federal Reserve and expectations of rate hikes. 70 basis points last week all the way up to 90. To discuss a sea change in the last 24 hours is tom keene. A real turn in the bond markets. Tom we did the chart earlier but more long term. We have three times recently come down to that. 7 level and then bounce right off it. I would suggest there is not a complete buyin to june yet, with a lot of people tossing over to july. One thing you do so well is go inside the charts. Weve gone from 70 basis points to 90. Critical . Tom in the narrowness of the review, yes, it is a brutal move. Within the scope of 18 months of this game, it is a bunch of noise looking for further data. I was just going to vice chairman fisher at columbia. Oday the idea of michael woodfords interest in prices the noise will only be solved by real data. Jon you listen to dudley, fisher and yellen. Two of them speak today. Tom we will need to see more data as we go to june. Oneid two weeks ago of the themes here is the idea of the market doing the lifting for the fed. We get rates come back after tightening. Meetinggo into the june , potentially to the july meeting. What do you look for in the markets . Is at the dollar that pushes back, the bond market . Vonnie it is too broad tom it is too broad a question. To pure u. S. Analysis of what our Central Banks will do. Im just not there yet. Theres too much International Noise within economics. Keene, how many junes . Tom you know the phrase june is busting all over . Do you know what that means . Over is busting out all we want to go to germany. Deutsche bank pulling his annual Shareholder Meeting in frankfurt. We are now joined by matt miller. Give us a sense of who is attending this meeting. Matt the biggest shareholders in germany and the smaller shareholders in germany attend this meeting because you get a free sausage and potato salad for 15 euros. I want to bring in ingo speich. Speechu happy with the the new ceo gave . His german was very good and i thought the tone was very good. Ingo overall, the people were quite happy about the situation. About what he said to the investor. Matt compared to last year, booing. S doing this year, we heard john cryan referred to germany as his homeland. The mood was calm compared year. T a pick last yea last year, there was an aggressive mood in the auditorium. New. Ryan is he plans to clean it up, what management did wrong. Hes in the beginning. Matt does he need to raise capital and in what form . Ingo the banks have to consider the allocation of capital. From which business do we need the capital . Step depends on the litigation. We dont know yet whats going to happen. Therefore, it is too early. Matt he did say he would bring an end to the biggest cases this year. That got a loud round of applause. So sorry. We have lost matt miller. He was speaking to ingo speich in frankfurt. At the Deutsche Bank annual meeting. We want to bring you uptodate again on the egypt air situation. Starteds a flight that in paris, was on its way to cairo, disappeared overnight over the Mediterranean Sea. They are searching for debris. Right now, there is a press conference going on with the egyptian air ministry. You can get this on top live on the bloomberg. David this is bloomberg. Hour, dougn the next ramsey says you better brace yourself for higher volatility. Taylor here is your Bloomberg Business flash. A deal that would create the biggest supplier of farm chemicals. Bayento with an offer from r. They have a market value of 42 billion. There is more consolidation in an industry battered by the collapse in oil prices. Companiesrvices have agreed to merge in an all stock deal. The company will be based in paris. Both lost a quarter of the market value over the last year. Investment banks will take a big hit in secondquarter revenue. That is according to a new report from jpmorgan. Fixed income commodities and currency trading revenue is expected to fall 20 . To the commodity market now where opec strategy to defend market share appears to be working. Kuwait according to the acting oil minister. Share theory was coming down from 2014. I believe the theory has been working well. Now, we see a better price in the market. Production in canada, libya, nigeria and the shale oil with 3 per day havels been cut already. You have to have strong investments. Years, 30 oftwo this has been never did or canceled. Ted or canceled. Demand will be picking up. Markets stabilize stabilized markets. Would you agree that the market is rebalancing . Would you use the phrase rebalancing . Clearly. Is aof the production temporary thing, of course. It helps us now. I think the forecast everybody has been talking about heading towards the end of 2016 should be the balancing of markets between demand and supply. It came early only because of these fires in canada and the issues in nigeria and elsewhere. Manus cranny, thank you for joining us. We are spinning forward into june and the opec meeting. Do you see anything . Was aange enough, there whole conversation leading to the sitdown. Discerning ont this everybody is on board. Kuwait, they want to go to three to 4 Million Barrels over the next couple of years. New deputy Prime Minister. He wants everybody on board. That is the real sense i got as i walked away. He really does like his counterpart in russia. Whethersure he trusts the russians will stick to the freeze. Hes also the chairman of the Sovereign Wealth Fund over there. Anus very rarely do we find he is putting money in or out, he is doing both. He is focused on global infrastructure. She said we dont go for trophy assets, we go for assets that deliver real growth in real return. I dont know who he could possibly be referring to. 600 billion, number seven in the world. When they move, the markets listen. A lot of these gulf nations under a terrific amount of economic pressure. We are going through the bad times now. A look to saudi arabia and the real prospect they could use ious to pay for contractors. What is it like there . How does he plan to balance the books . Manus he says he will balance the books in five years. Look up his bio. A u. S. North western educated man. He wants to cut the fat. He has a sixpoint plan. Enacting change and he plans to balance the books by 2020 and spend 60 billion over the next four years of upstream assets. He doesnt want to have the same problems that europe had. Stagnation, zero inflation and no way out. If you have to balance the books come of there is a way to do it over the medium term. , this guy ise have on the board. Three ministries and one. I like the guy. Jon manus cranny getting me to do homework to research your guest. A minister that is comfortable with crude around 50 . Manus ive never seen anybody as relaxed at 50 in my life. Abus and i would be dhabi saying that is worth considering. They are happy with that, for now. Would a freeze take it to 70 . He did say the disappointment belowoha did not take it 40. Dy you break out to 70 what would it take to break out to 70 . We talk about brexit. You can catch it all on bloomberg markets. David a story weve been updating throughout our program about the egypt air flight that went missing over the Mediterranean Sea overnight. This press conference going on in egypt, egypts minister of Civil Aviation giving a press conference. This started in paris, was on its way to cairo. It went missing off of radar. And the heads of france egypt say we cannot rule out any possibility at this point. We will keep updating you on this. You can go to top live for constant updates there. We will have much more for you on bloomberg. Jon this is bloomberg. There is the beautiful city of london. The pound is stronger. 146. 21. Features a little softer throughout much of the session in the u. S. , down about seven on the dow. Futures negative two. Off by almost one full percentage point. Yields going a little bit higher again. Last month, we were testing 1. 7. A real turnaround on the back of that hawkish tilt in the Federal Reserve minutes. Stronger dollar taking crude down to 47. 30. Walmart, u. S. Retailers in focus. Yesterday, target with a not terrific outlook for q2. Walmart, big beat with earnings this morning. One to watch ahead of the cash open. Lisa time now for off the charts. The turnaround plans not working what happened . , this is at of all record for the largest chart we have ever used on bloomberg television. I need a step stool. The companys latest earnings were not good. Comparable sales down 7 in april. The rating was cut to junk over at fitch. The ceo had promised a turnaround by spring of this year. It is not materializing. You are looking at the bonds of the company, the debt of the company. The bonds they do have trading at a much deeper premium. Lisa the biggest loser this year. Youve though there has been recovery with other retailers. Julie the sentiment is very, very poor. Gap does have something in its back pocket. This is the differential between gap and competitors in terms of bonds. Have the degree yields increased this year compared to the mostly the clients declines. Other brands all doing ok. Not gap. Tjx and ross have done ok. Back pocket,aps it is still controlled by the fisher family. It does not have as much debt as some of the other retailers. Said theycompany that have the confidence of the fisher family. That was recently talked about at the board meeting. Jon how long can they limp along . There were supposed to be a recovery in banana republic. Old navy was a big support of theres. It has not been. What will keep them going . The support of the founding family. We are not talking about a company that is collapsing. There have been a lot of companies that have gone on for a long time. Jcpenney, sears, etc. American apparel declared bankruptcy recently. Time. Go on for a long lisa this divergence of underperformance, the white line is the yields on retail bonds, green is comparably rated bonds. Retail keeps underperforming and keeps disappointing. Julie it is supported by the fundamentals. The sales just arent there. David i love these big charts. Time for bloomberg trends come a look at the top stories on the bloomberg. These are the top five up here. A story we keep coming back to, we dont cover a lot, but it china and the u. S. Another flyby of a spy plane within 50 feet of chinese fighters. Geopolitical risk of those islands in the south china sea. There is this tension boiling in the south china sea. Adding japan to the mix. On top of iter come of it, the economics. You have this tension in the sea and the trade war. China is emerging as a dominant force around the world. Teslaoming up shares of edging higher. Salemusk announces a big of shares. Wall. Against the anyway you cut it it has been ugly for walmart. Earnings this morning giving the Worlds Largest retailer a needed boost. Jon after going nearly a decade without a hike is the fed ready to raise rates for the second time in seven months . A hawkish tilt in the central bank minutes. Lisa search crews try to solve the mystery of egyptair flight 804. 37,000 feet, disappearing from radar. We give you the developments as they unfold. David welcome to the second hour of bloomberg go. We have a lot to cover. Will come back to that egyptair situation. We will talk about tesla. Jon that is the stock to watch. The resilience of u. S. Equity markets. Ets get to the scorecard equity markets jumping around but finishing the session largely flat. Futures on the session have firmed up. Down 1 10 of 1 on the s p 500. Dow futures down not even 1 10 of 1 . The loss you see dominated by what is happening in europe. Ftse 100 down by 110. Dax is down by about 50 points. Junk ryan goes in front of investors today. John cryan goes in front of investors today. 1. 1191. At stronger inetting todays session on the back of a. Trong u. K. Retail sales print the story of the last 24 hours of the last week has been the bond market. We discussed a flat yield curve. You saw treasuries across the. Urve start to sell off we are up a basis point of a 10 year to 1. 86 . That is the situation. Lets get the julie hyman for stocks. Julie lets start with walmart which is seeing a big towns in premarket up by 8 . It is a retail earnings we have gotten over the past couple of weeks sentiment going into this report was poor. Walmart shares were down 4 yesterday along with target its disappointing numbers. Walmart looks like even more of a surprise. Earnings share beating by . 10 versus analyst estimates. Report to say the least from walmart. That. Ares are reflecting we have a number of deals and potential deals to talk about this morning. Officials unsolicited takeover offer from monsanto. Details of this deal are not being made public but monsanto does have a market value of 42 billion and said it is reviewing the offer. Did not disclose the terms of this. Bernstein research saying it could be 120 to 125 per share to get this deal done. Monsanto is only at about 105. A done deal in the energy industry, the second in a weeks time. Mergechnology agreeing to in an all stock deal. A 13 billion oil services company. Fmc is the largest provider of subsea equipment. Shares are up 4 in premarket trading. Technique shares are up i 10. 5 . A church and dwight a potential takeover offer. Os is saying it will not be Procter Gamble making this proposition. Planning to offer 23 billion next week to buy the company. Unconfirmed reports. This seems to be relatively speculative yet church and dwight is reacting. Benckiserk at reckitt jon call the whole thing. We will be there all day. Lets check out a commodity market. Oil down from a sevenmonth high after the fed meeting minute shows policy makers could raise , causingrate in june the dollar to surge. Oining us now, doug ramsey looking at the equity market, incredibly resilient. I wonder what did happen in the next couple of weeks if those Federal Reserve rate height expectation start to build, if this dollar continues to firm up , what it means for a few the sectors in the equity market. Doug within the commodity arena im more concerned about basic materials. Nonenergy commodities. Its really from i a supply perspective. Rig counts are down in the u. S. And globally so much cap spending is trenched tremendously. Youre seeing a lot of bankruptcies. A lot more of a cup our sister gone on in the energy sector. Catharsis that has gone on in the energy sector. If you do see a rebound in the dollar based on this change in federate expectations i think it is the material stocks that are more vulnerable. Energy could sell off in sympathy but i think the outlook for oil prices is more solid than the rest of the commodities sector. Jon taking a position in Building Products i believe. What is the justification behind that . Doug it is quantitative. We run a quantitative model on about 100 industries each month. That is the first group from the commodity arena to have ranked positive. I thought with the valuations we have seen and this washout in energy that we would have more Energy Groups appear on our attractive list. It is a quantitative industry. We dont really have a great fundamental thesis behind that other than the Home Remodeling market is very strong. That group tends to be more tied to remodeling then to the new purchase the new home purchase business. Lisa i want to shift to the resilience of u. S. Stocks even in the face of a likely rate hike coming up sooner than later. You think this is going to give the fed confidence that the market will not selloff dramatically if they do raise rates . Doug i certainly think that is possible. ,his fed more than any other very market sensitive for a couple of decades. This one more than any other desires not to surprise the stock market. I certainly think that factors into their thinking. We have often said the fed is not data dependent. It is dow dependent. Very focused on the market. I think the stock market bounces. Still up 14 off february lows. Thicket does give them confidence. Lisa do you think it is justified confidence . Do you think the market still has the potential for a dramatic saloon if the fed does raise rates in july . Doug all along, aside from a this is such a cautious fed. How many times have we seen the pitch straight down the middle . Probably beginning in september 13 when rates could have been jacked up and deferred. We have been through this so many times. I dont think they will lift in an off meeting. From a broader perspective, this market has been exhibiting topping characteristics for coming up on a yearandahalf. Dating back to when the transportation stocks and deep cyclicals peaked right at the end of 2014. We still have this series of declining highs and lows. Even the s p which has been stronger than anything else. If you look at secondary indices, a small cap, the value line, still broader talking action in place. Blamede the fed will be if we do lapse into corrective mode or into a cyclical bear which we have been calling for. That would be sort of the final grain of sand on the pile of sand that causes things to topple over. David just winding up a poor earnings season i would say. Average down 8 in earnings. He kept hearing the problem was the dollar and once the dollar came down we are going to be ok. Sort of a dog ate my homework. Now the dog is going down area do we go back into the battle days the bad old days of earnings going down . Thing,he interesting earnings are down but if you look at margins earnings are not depressed. We prefer to look at the gap numbers. Im just astounded all these adjusted earnings numbers that come out. Analysts take them at face value. Cap earnings on the s p 500 on a trailing 12 month basis are only 8650, down from a peak of a little over 100. I know that is at odds with the Forward Operating earnings. Figure everyone likes to focus on. Trailing, margins are still historically high. We have been fond of saying earnings are down but not depressed. Margins are still cyclically very high. It is the high margins along with sluggish topline growth that are presenting challenges to Earnings Growth. I dont see a lot of relief in the next few quarters on s p earnings. Lisa a dose of pessimism on this morning. Doug ramsey. Lets go to first word news. Here is taylor riggs. Taylor greece has come out with more details off the final moments of that missing egyptair flight. Authorities say the planes were left the plane swerved left and right before plunging off radar. Flight 804 was at 37,000 feet when it disappeared. At the time it was around 170 miles from the egyptian coast. The plane was carrying 56 passengers and 10 crewmembers. It was no distress call from the crew and egypts Prime Minister has refused to rule out terrorism. In the u. S. , the rates americans pay for obamacare are going up. Insurers in new york are among those seeking rate increases are it they want to raise the amount the customers pay for individual Health Care Plans by an average of 17 . This could cause political problems for the law and supporters. In another month another temperature record broken. The earth experienced its hottest april in 137 years of recordkeeping. The 12 consecutive month to set a new heat mark. A better than 99 chance this will be the hottest year ever recorded. Global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. Riggs. Lor jon thank you very much. And itith some big goals needs cash to meet them. 1 billion in shares to meet the stronger demand for its model 3. This is bloomberg 1 la shares are up around this morning after the Company Announced a 2 billion public offering. The carmaker will sell about 1. 4 billion worth of new stock. The rest will be sold by ceo elon musk who is exercising his options to buy more back. The money is raised meant to pay for production. On tesla at this point. Colin, this is not a total surprise. Were you expecting this level of the Capital Raise . Olin we expected about 2 billion. The company is raising 1. 4. From a Capital Raise us is very much in line. I think that is why you are seeing trade up slightly. It has been down since the q1 result. I think a lot of this expectation is priced in. David a couple of mysteries about the stock. A market cap around 47 billion. 4 billion in revenue. Time r mistry, every the other mistry, every time they dilute the stock, it goes up. Have you seen other stocks this works with . Colin not in the auto sector for sure. Every time they do a Capital Raise it is driven by reasons. In this case the model three order demand being strong so there is hiked into it. A lot of higher growth expectations. I think following this Capital Raise there is a lot of concerns ahead. The next year and a half you s may see the model demand challenges as the model three will be coming and people may want to get the model three instead of the s. There seems to be other limited positive catalysts. Lisa there was interesting news saidast night that tesla 12,200 model threes were canceled. They still have amazing backlogs of orders for this vehicle. What is your take . Is this concerning or is this less of a cancellation rate that you expected . Colin about 8000 were canceled by customers for people who ordered more than two vehicles. We have been concerned about cancellations since the orders came out. I think the number is a little disappointing. Mid april they said they were all most at 400,000 to it means they have not seen an uptick since that point about a month ago. We are seeing a slowdown order rates. A good order rates i dont want to knock that. Delivery thereto might be cancellations as people dont realize maybe they will not get the full credit and the price of the vehicle may be more than the 35,000 they are expecting. David its one thing to order a car, another to get it delivered to you. They have put big targets up for production area far beyond anything done in the past. Much ofh of how yourself recommendation is based on a disbelief that they can come clo to those targets . Colin i think one of the key challenges for people bullish on the stock is those targets are difficult to achieve. As one of many concerns we have i think storage expectations are also very hyped. This time last year we were talking about stationary storage a net business has not taken off. I think the question is when they sell the model 3 how much money of the going to make on it. Clearly the production targets coming out of q1 were aggressive and another reason to be cautious. Lisa what is the one thing you have to see coming out of tesla to make you more positive on the stock . Colin one key thing is going to be a better understanding of how theyre going to sell the model three profitability. Even if it goes up to the mid40s with options i think given where battery cost are today that is a challenging economic opposition and that is where one of the main drivers of why we are cautious on the stock. David ubs analyst colin langan. Jon the stock to watch ahead of the open. The Worlds Largest retailer, walmart, reporting positive comparative sales for the seventh straight quarter. Can the company when the online battle against amazon . Walmart up almost 8 . David you are watching bloomberg and want to bring you uptodate on the egypt air situation. The minister of aviation is speaking in cairo about this incident. This is a plane that took off from Charles De Gaulle airport last night, on route to cairo. Disappeared off of radar. A Washington Post report that says it swerved before falling 37,000 feet. We will keep you updated. Bloomberg ifour you want to see what is happening. Lisa walmart shares are up around 8 after reported earnings that beat analysts estimates. Joining us for more is joe , who has a market perform recommendation on the stock with a 65 price target. Do you change a recommendation to overweight . Joe we are contemplating it. My recommendation has been they have been doing a lot of investment spending. At this year was going to be a heavy investment spending year and we thought as you get to where the second half of the year maybe closer to 2017 that might be an interesting time to look at the stock in terms of purchasing. Maybe that is happening sooner based on the results we are seeing. Lisa what surprised you the most from earnings . Joe the traffic at walmart u. S. Was strong. Of 1. 5 . That was terrific. It more than drove the calm because the cop was one. The comp was one. To get foot traffic into the stores that is everything from walmart. And companies were reporting earnings blaming the strong dollar for weaker earnings. Could that be the wind behind walmart sales at this point but dont want to say it . It helps on the gross margin from their purchasing power that they have. That has helped. Their International Business actually fell shy of my estimates. I think some of that is the Currency Exchange rates. Its always hard to model that out. We are not fully seeing it there. When you look at local currency International Businesses were healthy for walmart. David you mentioned investment spending. Last fall when the announced that the stock took a hit i recall. They actually took down the forecast for the next couple of years. The investment spending was raising wages for employees as well as online. You see any connection between those investments and this beat on earnings . Joe online sales were up 7. 3 or so. That was a decent number. That certainly helped. The other part of it is, as far as the wages it definitely helps drive sales. Their employees are their customers so it does help to fuel some of that. Its not to say that they are just recycling it. I think wage growth in general has been picking up at that lower to middle income consumer level. I think that is helped to translate at walmart. A big part of what they are doing in stores, they have been making them look nicer. They are having good value in the stores. A lot of that investment spending is starting to help. They have been driving positive traffic for now about a year. Lisa broadening out, just to expand to the broader retail segment, we saw target report to supporting disappointing earnings. Stocks fell more than 7 . Is this a signal that u. S. Consumers are shifting from a target from a higher price store to a walmart which is a more budget focused operation . Joe yes and no. The Dollar Stores will probably do fairly well this earnings season. We are seeing it with walmart. Target actually put a pretty good numbers. Sales did decelerate. If you look across the board, even home depot and lowes that put up terrific numbers this quarter saw the trend through the quarter did slow toward april. It definitely feels like theres something going on with the consumer right now whether it is the weather, pulling back a bit on spending, higher gas prices, Higher Health care costs, there is still something going on that is broad. In those types of markets walmart wins. Walmart often doesnt win when wine walmart often does when there is pressure. David we talk about these companies but as i look at the revenue, 480 billion as opposed to a target which is 17. How much does it affect the entire sector . Joe its a prebig impact. Compalmart to put up a 1 i think in the quarter they did 116 billion. The 1 com is bigger than most retailers do in a yearp. Walmart is a driver and i think they have been competing effectively. Online business has improved and there is a lot more room to go. They are positioned to compete with amazon. Lisa a very optimistic look. Joe feldman, telsey advisory joblesson initial claims. Plus 420 billion worth of advice. Aberdeen Asset Management head of equities, his top picks, next. Show me top new artist. Ah, ha ha. Show me top male artist. My whole belieber fan group. Its not a competition, but if it was i won. Xfinity x1 lets you access the greatest library of Billboard Music awards moments, simply by using your voice. The Billboard Music awards, live sunday may 22nd, 8 5 pacific, only on abc. Jon we are just about 25 seconds away from getting Economic Data throughout the united states. Dow futures down by about 1 10 of 1 . S p 500 futures negative around about three to four points per session. The losses piling up in europe with the ftse down. Stronger dollar story if you look at the euro. 111. 90. And it claims out of the united 278,000. Ll to looking for 200 75,000. Slightly higher than expected. This down from a previous month. , real surge in initial jobless claims come in from new york. People try to get their hands on that. We have come down and touch to about 278. Looking at initial jobless claims coming in at 278,000. The survey, 275,000. Previous number, 294,000. David lets bring in ralph basset, head of north american equities. He has about 420 billion in assets he has to manage. Lisa not bad. David as we look at these jobless numbers, how important are they to you as you make Investment Decisions . Ralph they are very important in the long run. The job market has been very strong for a while now. These incremental data points we are hanging on now are more symptomatic of where we are in the labor cycle than anywhere else. We dont pay much attention to weekly numbers. Lisa what you Pay Attention to . Ralph investors constantly focused on the fundamentals of our businesses which are mixed depending on what sector you are looking at. Lisa looking at small cap stocks versus largecap stocks and we noticed an interesting divergence both in europe and england in particular but also in the u. S. You see that divergence in performance. Small caps considerably underperforming large caps. Ralph some of it is the sector makeup of the indexes. Health care was very weak the back half of last year and early this year in small cap and that is a predominant part. Similarly Energy Companies within small caps were very levered so that the magnification of low Energy Prices impact of the stocks more meaningfully. Large portion a of the small cap. This uncertainty over Interest Rates has impacted those stocks as well. David youre in charge of north american equities. Tell us what you see for north american equities for the rest of the year. Ralph we see a lot of volatility. We are being selective, more so than we ever have been. We have not seen this many opportunities in a long time. The volatility in the market is great for active managers like us so while some companies are doing phenomenally well we are more intrigued by areas of the market where value might be uncovered over three to five year periods Going Forward. Jon where has the value been [laughter] ralph certainly sectors you can look at and think about, whether it is energy, industrials or other places. Realizing the value might be harder because it is contingent to some extent on macro events. We have some companies on our portfolio where they are taking restructuring action. Lisa like who . Ralph Gibraltar Industries is a company that for a long while in our opinion was under managed so they have a new ceo who came from itw. He has cleaned up the management organization. He is going down the path of 8020, focusing their business on areas where they are profitable and improving profits along the way. That is a company where the Housing Market is supported but we think even if that were to tail off that they have a lot of internal efficiencies that can continue to drive Profit Growth over the next several years. David do you look at it sector by sector as you make decisions or is it company by company . A look for special opportunities . Ralph coming by company. We love being unconstrained. We have material over weights and under weights to certain sectors. It is driven by where we find opportunities. Lisa david joy was saying a good contrarian indicator is the lack of demand for equities particularly by retail investors. Do you think we will see a broadbased grind higher because of that base in pessimism . Ralph the markets move higher with fairly low participation. Outflows from equities for the better part of five years absent some periods where we did see modest inflows. We hope that is the case. We will have to say. Jon lets talk about financials. The big headline is the prospect that we get maybe one rate hike from the Federal Reserve. Does that change your view of the rate sensitive sectors or is that a move in degree . Theh the fed is signaling markets should be prepared for rate hike whether that comes in june, july, or later im not sure, they wanted to reignite the possibility. We have taken the view that over a fouryear window Interest Rates will move higher but at a slow pace. We are patient and understanding thats going to work through as we digest a lot of macro noise which is what has put this on pause. If you look at financials or one of the less expensive sectors of the market, we have been adding to our Financial Holdings over the past year. Lisa any names jon any names . Ralph w fs financial based in wilmington, delaware. A small bank that has been phenomenal at taking market inre in a market that delaware in the midatlantic was fragmented. Glacier bancorp based in montana. A unique bank because customers are generally agricultural or farming in nature. Very separate from the typical bank you would think of. Jon these are very specific names in isolated areas. What i thought was interesting, First Quarter earnings came from big banks like jpmorgan. Deposits. A lot of is that not a threat to Smaller Banks . Ralph its always a balance. What we have seen from a larger from larger institutions, they are more focused on commercial lending. On the retail side it is much more driving business from existing customers but the Smaller Banks im talking about are going after market share from the banks in 2008 or 2009 have disappeared. I think what we are seeing from the banks we own is they are not loosening terms or pricing. Banks are you say poised to do well with a rate hike, volatility earlier this year, they did not do well. Could the volatility in markets on the heels of a rate hike offset the potential benefit from extra 25 basis points . Ralph i think its less about the next rate hike. It is more about the pace but also the direction more so of the Interest Rate cycle. At banks thatg have been starved of Interest Income for the better part of eight years now. Once we get out of 75 or 100 basis points, the interest margin will expand. David ralph basset, Asset Management head of thank you for joining us. Jon what to cross over to our morning meeting. Gold falling to a threeweek low after minutes policymakers may raise rates. Gold mining stocks also fell on the news. Chris lafemina joins us now. Great to have you with us. The conversation around the Federal Reserve and the process of the prospect of stronger dollar versus scarcity in some metals in the Mining Company exposed to that, with all that noise, what matters you most . Going torrencies are matter a lot in the shortterm. If the fed is raising rates because of the Global Economy and the u. S. Economy is Getting Better that should be better for demand for metals. Scarcity in the Metals Market is several years away. We are still coming off a big hangover effect from chinese demand which is weaker now than we anticipated. Supply growth accelerated as Mining Companies invested capital in new mines. A lot of that is unwinding. Mining comedies are cutting back on capital investment, trying to pay down debt. A lot of them has put themselves in a stressed situation. Gold maybe is different but in terms of Industrial Metals it looks like we are still a few ways away from a demand driven price recovery. Jon a lot of people are looking at the likes of zinc where a deficit could be building. Do you look at specific metals and look at some of the names around that metal . Is that a strategy worth pursuing . Chris absolutely. Different fundamentals from commodity to commodity. Copper is a commodity we like a lot but probably not until 2019 and beyond. The issue with copper, coal, even zinc and pretty much every mining commodity is that the industry built may 2 much tilt way too much of new capacity and other capacity is coming online. One more big wave of copper supply coming this year into next year. After 2018, global copper supply starts to decline. 10 years to bring a new coppermine online so the industry want be a will to response to better demand. Prices can go much higher. The problem is we had this next wave of supply growth. Most commodities, it is true. Zinc is already declining. The supply side of the equation and zinc is encouraging. It indicates somewhere near bottom right now. Jon what are the names associated with that . Chris in copper its going to be freeportmcmoran. Some cup a specific problems that need to be addressed. Some Company Specific problems that need to be addressed. For now, freeport is about asset sales and deleveraging. Longterm, freeport will give you good exposure recovering the capital price. Jon special thanks. Thank you for joining us. Jeffreys Global Metals and Mining Equity research analyst. David stalling iphone sales way on shares of apple this year. An analyst on how the tech giant can become a 1 trillion company. Jon coming up in the next hour, black rocks chief investment officer, rick rieder on where he sees opportunity in the bond market. David this is bloomberg. We want to bring you up to speed on this in egypt air situation. A flight that departed last night from Charles De Gaulle airport on the way to cairo. It disappeared over the Mediterranean Sea. Withss conference going on egypts aviation minister. There is at least one report it may have swerved, disappeared off the radar. 66 people on board. We will give you up to speed on this as development happen. On your bloomberg it go to top live. In todays tech go, were looking at apple. The stock has been down after reporting disappointing earnings three weeks ago. Sandra bernsteins toni sacconagghi believes the company has the potential to double its market cap. Im eager to hear about this area you think he could be a 1 trillion market cap but its going to require a fundamental change. Tell us about the change. Toni apple today is half 1 trillion in market cap and its mark and its multiple is very low. Our perspective is the challenge for apple is that in sales it sells hardware products. The challenges that over time people keep those products for longer and prices go down. Apple has such a low multiple. Our thought is that apple needs to begin to sell its products as a service. The notion would be much like you pay for Cable Service or Television Service you can create a family bundle of apple products where you might have three ipads in three iphones and you pay a Monthly Service fee and ultimately apple would bundle other services into that package. Lisa like what . Toni those services might include apple music. They can include its current offering today where it might offer some kind of video. An overthetop Television Service which apple has been long rumored to be offering. Applecare, which is its warranty program. All of those things could be part of a bundle that ultimately might be attractive to consumers. Lisa how much demand with her be considering so much of the services you can get in piecemeal fashion for fairly cheap right now . Toni you can always put together piecemeal things. I think the challenge for companies today is can you create Attractive Service bundles. Amazon is a great example that has put together prime. Prime has gotten better and better over time and they had been able to raise price because they have added more functionality. Initially it was really music and the added video, instant shipping etc. Consumers value those things. The challenge for apple would be could you create a bundle that is worth more than buying the constituent parts. The advantage to apple is you would then have someone on a subscription model with much more predictable replacement cycles and as you added value to that bundle if you came out with new services you might be able to charge more. Thats a totally different and much more predictable revenue stream. Loves producible revenue streams. Thats why we think the multiple would be better. David you admit this is a fundamental transformation and their possible hiccups but one of them i wonder about is right now you buy an iphone and you own an iphone until you get a new one and then there are Service Providers that you get access to three two through your iphone. How would it work for apple to provide its own services . Way give a preference would it give preferences to its own service . That is a tricky position for someone to begin. Toni it would largely be the same i think. You would go to the apple website, walk into the apple store, much like if you were signing up for verizon or at t service and you have a combination of choices. You put together a bundle of products that suited you best. Do you want extended warranty or applecare . Do you want apple music how many i do you want apple music . Howley iphones do you want . , do you wantsk at t, the want tmobile and you could have a separate subscription. You would ultimately have a separate subscription for that. Once you had your phone you could download apps as usual. To challenge for apple is, continue to develop more of its own services that consumers like so this bundle will ultimately be attractive. One of the services that has been long thought about at apple , could they come out with an overthetop Television Service where you pay 30 to 50 a month and you have access to network television, espn, potentially hbo is an option. That is something consumers are used to paying on a monthly basis. That could be part of one of those options or menu bundles that apple could offer as a service offer. Lisa sort of like netflix producing their own content. Is there any sign that they are moving toward doing Something Like this . Have you seen enough to make you convinced they could do this . Toni apple has taken a baby step in doing this. Apple has some point today called the upgrade program. It started about a year ago. What it allows an individual to do is to buy an iphone and pay 32 a month as a subscription forever and you have an opportunity to upgrade that phone every year. Instead of going out and buying a phone discreetly every second or third year apple is saying pay us 32 a month and you can upgrade your phone anytime after youve had it for a year. That is the beginning of a subscription model. What we believe apple needs do is broaden that basic offering to include a sweet and add more capability to it. So that it could be compelling so that there will be incentives for consumers to say this subscription model makes sense for me. I ultimately want to buy that david . I remember when they announced the program but i have not heard much about the success. Toni the challenge with the program was it was only available in apple stores. Most phones are sold through carriers, verizon etc. It had limited availability. In the last couple of months it is now available on the apple website. We think there are a few Million People on this plan, which is small potatoes compared to the iphones apple sells. A lot of that has been constrained by distribution. David toni sacconagghi, Senior Research analyst at bernstein. Jon some headlines for fed watchers. Michael mckee sitting down on Bloomberg Radio speaking to richmond fed president jeffrey lacher. Jeff lacher said the market took the wrong signal from the fed. He sees a strong case to hike rates in june. There is a was an asterisk on these conversations. Lacher said rights it might be grounds for the fed to wait until july. The market reaction, the dollar index higher over the last 20 minutes or so. We are up about 4 10 of 1 on the dollar index. The move at the front end of the treasury curve. The dollar and 95. Twoyear yields higher as well. That has been the trend over the last week or so. The last party for hours come a quite intensely. U. S. Twoyear yields pushing higher and that has taken the dollar with it. 1185 atw at 100 111. 85. A lot of fed speakers coming up as well. Lisa momentum building. Here. There is a theme jon the chorus gets louder. Much more on go and battle of the charts is next. David i want to make a correction about something i said earlier. I said target cost total revenue was like 70 billion, i meant to say the gap. Targets is over 72 billion. Now it is time for battle of the charts. Julie hyman taking on laura keller. Walmart versus amazon. Are first. Retailers. King about we have been talking so much about retailers and the negative. Even though market cap is larger than that of walmart, walmarts revenue still dwarfs still aboun globally. Retailers. We have been talking so much about retailers and the negative. For amazon we are talking about a little over 100 billion. The growth rates are very different. Walmarts yearoveryear revenue, now sort of small. In some cases, negative. Walmart remains more or less stable, amazon in theory would catch up with them within a decade or so. At this point, still much smaller revenue wise. David a timely chart. Laura here im going to bring it back to banks. What we have got is a chart that shows us something positive in the banking world. This is our investmentgrade index showing what the different banks have put out in a year. It goes back for the last year and a half. What it shows is steadiness. Thats what we care about here. About 122 billion of issuance in the last couple of weeks. Back here, pretty much the same. The reason we are excited about this chart is because we have been talking about compensation being so bad for banks and we want to talk about something brighter. A report from jpmorgan, 24 down we expect Investment Banking to be for next quarter. Might actually be one of our bright spots. Jpmorgan thinks so too. Lisa i love investmentgrade bond issuance. This puts into perspective something we have been talking about so much today. Ive got to go with the perspective on amazon still being dwarfed. Jon im going to put david on the spot. Im going to go with laura keller. That trading is such a big thing. David laura, i want you to come back but i vote with julie. Come back, please. Cio blacklock black rock , next. Hiim here to tell homeowners that are sixtytwo and older about a great way to live a better retirement. Its called a reverse mortgage. Call right now to receive your free dvd and booklet with no obligation. It answers questions like. How a reverse mortgage works, how much you qualify for, the ways to receive your money. And more. Plus, when you call now, youll get this magnifier with led light absolutely free when you call the experts at one reverse mortgage today, youll learn the benefits of a governmentinsured reverse mortgage. It will eliminate your monthly mortgage payments and give you taxfree cash from the equity in your home and heres the best part. You still own your home. Take control of your retirement today david after a slew of disappointing earnings from retailers, walmart shares are soaring. Chiefhe Deutsche Bank says he is unreservedly committed to improving business. Rate expectations after the fed minutes show a june rate hike increase is likely. Jon 30 minutes from the opening bell and a warm welcome. We are counting you down to the dow futures are down 44 points in the s p 500 are of 1 and int 1 3 the europe, the losses are holding. The bond market, what a move in the last 24 hours. Basiseld is up about one point. The dollar is stronger and cable is that one dollar 45 . 86. A lot to get through in these markets. There is nobody better than rick reader to talk about markets. Egyptian and french officials are scouring the Mediterranean Seas were in egypt airplane that vanished early this money with 66 people on board. We go to dubai with the latest. There is a press converts in cairo but what have we learned . That thee learned french want to wait until they actually find something to find out more. They said, if anything, a terror attack is probably more likely than a mechanical failure. At the same time, he said lets wait until they find something and the investigation is completed so they can say more. David it is too early to speculate but it strikes me that the response from egypt is very different from the flight that took back that that took off from october and went down. The egyptian officials spent days saying they would not consider terrorism and they are saying already this is a real possibility. Is this quite different . I think you are right. There is a clear difference. In the previous incident, they steadfastly refused to say it was a terror incident. The russians says it was a bombing attack. Are sayingptians that while we wont exclude the possibility of a terrorist attack, there is a real possibility. Maybe lessons were learned from the last time. The plane came from paris. Egyptiansow why the are changing the way they are communicating this. They want to wait until the investigation is completed. David thank you very much. N we will be on top of that story all day. Open,of the market joining us for the hour is the blackrock ceo rick rieder. The top story on the play today is a potential rate hike in june and a proposed deal for monsanto. What about the potential for a rate hike in june . The fomc minutes released yesterday, fed officials indicated they would like to raise rates next month but it would be dependent on the data. The fed vice chairman Stanley Fisher will speak later. William dudley will also speak on the Federal Reserve. Mr. Lacher of the richmond fed sat down with michael mckee. Was thatinterpretation the threshold we have for what it takes to get us to pause on rate increases, in december, we expected to see the the prospects this year and they said it too low. I think they overestimated how likely we were to pause for the rest of the year. Rick rieder, the federal said the bondent market needs this. As you got a constant stream of going 2 times in the minutes confirmed that. The minutes were more hawkish and you would have thought even with that commentary. Its exactly as you described. It will still be data dependent but i think jim will yard to go. I think july is a likely theye but they said mentioned june couple of times. The odds have to be higher that they will go in june but its hard. Black hawk has been saying that we will see higher rates and the lower rates are penalizing everyone. Is now a good time to hike . Nature tos a nuanced that. The front end of the yield curve is not that important for the Financial Trends mechanism meaning youre hurting the cash markets and hurting people who have money in savings. You can let the front end of the yield curve move up and it will not affect the economy. The back end a significant and thats were mortgage financing and corporate takes place. We have been saying the window to move for the fed has been nevertheless couple of years and the data has been pretty good. Its a pretty good economy and Global Financial conditions were not as stressed. You have done terrific so far because you played the flattening of the yield curve. Do you stay committed . We still think the curve should flatten. It has done a fair amount of work. If the fed is going to be moving in, it couldt two shift the curve up. You could get a higher moving rates when the curve flattens and thats a logical conclusion. Do you have a bear flattening for us . Julie i was looking at the other effects of flattening. On the top, we have the flattening yield curve. Down here on this blue line, thats the likelihood of priced in futures. Sharp movement upwards yesterday going from less than 10 to now more than 20 being priced in. The other lines are the pricetoearnings ratio of utilities and staples, consumer staples. Inverselyen the movie to yields generally. Those are a couple of the groups you want to watch as well as telecom that tend to move inversely with yields. It was a remarkable move upward and those fed funds futures and the wake of the minutes yesterday. David could this throw them off course . Today than it harder it did a year ago and thats the data is trending down. We had a weaker payroll number. If you take things like the leading indicators which is forward payroll growth, that is slowing. Temporary hiring a slowing significantly. Between now and june, the big piece of data of major significance as the payroll report. Thats part of why i think july is more logical. And you get aexit series of retail sales. It makes sense to wait. There is no press conference in july. Nonpress conference meetings are live. In june, you did say it brexit does not happen jon you can have a news conference. You could have had it in advance in june to lay out the parameters. Is likely its a nobrainer in july. David people show up for the news conference. There are many numbers coming out that are negative. One that was positive is walmart. Its earnings were incredibly impressive to the market after growing concerns about retail. Things are not so bad for them. . 98reported a profit of per share beating analyst estimates. Samestore sales increased in this sense shares soaring. Does this give you confidence in the consumer . Not just this number. We are going through an economy that is very its crestingy and coming off the boil. The Manufacturing Sector isnt difficult shape. We are moving from a good economy to a Service Economy and we have a consumer doing externally well. He is deal ever to a large wages are jobs and picking up. What will keep the economy out of recession for this year is youve got a consumer in solid numbern the retail sales and continued housing numbers that are land, the consumer is the shining light in this economy. That, why buy a bond of a company like that . Why have by their shares question mark you could have real confidence in their growth. Where do you own in the Capital Stack . Walmart will be around for a long time. Buyur portfolios, how do i safe yield in a portfolio . Walmart is one of those names. Bonds or stocks . I have not looked at the equity valuation of walmart but why not by the carry. At an aggressively rich level. A lot of the issuance from investment greater good Quality Companies like walmart that people are looking to buy today. Municipals are the same and i just want safe carry in my portfolio. David there is an unsolicited takeover offer for monsanto at 42 billion. Ayer shares are plunging on the news. There is speculation there would have to be a significant premium here. Part of the reason that bayer shares are down is because of the leverage and how much leverage there would be. How difficult would it be for them to finance a deal of this sort . I have not looked back closely at this transaction but there are a couple of things that are important. I dont think it will be so hard to finance it with a company with that market capitalization and credit quality and table is asian of cash flow. The markets are rebelling a little bit. Companies are putting on more and more leverage. Yer is one that markets would accept. If you can buy stable Cash Flow Companies at a lower price, thats a good thing. Not knowing this one in particular, im sure the reason why they are doing it is partly synergies. Whether youre in the chemicals or manufacturing goods business, if you can create synergies and bring the cost structure down and sells across your businesses, its an interesting paradox. We go to walmart and then this deal and think about where the economy is going because they are euphemistic of what is happening in the world today. David those of the stories that matter right now. Julie lets take a look at some of the stocks moving. Other retailers are rising. American legal and Urban Outfitters are rising after that came out with numbers that the estimates. American eagle is benefiting from samestore sales. It is very retailer specific in this environment. It is not a rising tide. Salesforce. Com is out with its numbers and sales rose 27 last quarter and forecast revenue for the Current Quarter that is ahead of analyst estimates and you see strong spending from corporate customers toward productivity software. Out with numbers that Beat Estimates and forecasting sales and earnings that beat analyst estimates. The Company Numbers are being driven by security and conferences and those arent newer units. David thank you so much. Speaking of cisco, we will speak with the ceo in under 30 minutes. More of bloomberg coming up next. There was a flight that left last night from paris en route to cairo and disappeared off the radar over the mediterranean. We have greek officials telling us they have found debris from presumably the airplane but we dont know that for sure. There are greek people in the water searching and president obama has been briefed by the head of Homeland Security on the issue. There was a press conference in cairo where it egyptian officials specifically did not rule out the possibility of terrorism but say its too soon to tell. They said it was more likely the result. You can follow this on bloomberg. Start to theuggish year for bond sales, companies are back in selling debt. We are now on pace for the biggest volume of u. S. Invest in great issuance for may on record. How long can this feeding frenzy last . No better person to tell us than blackrock ceo of fixed income. Is this a sign of the market . Sold 20 million of bonds pretty easily. Petrobras did and argentina did and we are in an incredible time where people are desirous of yields. Revenue eating softer and profits being softer, this is a way to keep your return on equity. You can create more leverage in your capital structure. The markets are pushing back a bit. If its a company that order line that is leveraging the Balance Sheet. Good Quality Companies post financial crisis, parties were pretty conservative with cash flow and cash on hand. Now youre putting leverage on businesses that are not that scary. You can still do a bit more leverage. You have to look at the type of company and the industry they are in. More is coming and we will have a heavy year of invest great issuance. 30 year bonds . We think there is a good runway for this company and the spread is right and the yields are right for that company. Talk aboutecifically our positions but we think it was priced attractively. Self in theour place of a corporate treasure and given negative Interest Rates in some locations and quantitative easing, it has to do change your decision about your capital structure because you go more into debt in equity. Is there a moral hazard in what the Central Banks are doing that will cause companies to go too far . 100 . Keeping rates low as what you are trying to do and create companies that term out there dad and get their debt and a more stable fashion their debt in a more stable fashion. Can Companies Put too much on our Balance Sheet . Yes. Generally particularly for big multinationals, youre at a good starting point where its not that scary today in terms of where the leverages. When you think about where the levels are historically and ,ould you issue debt or equity the debt is incredibly attractive. Why wouldnt you issue more . Markets are drifting lower so its hard to sell i will hard to say i will sell some of my stock at these levels. Jon coming up, its about the global exposure and white Bond Investors should not limit themselves to u. S. Debt. We go live to frankfurt and the latest on Deutsche Bank. Jon u. S. Investors should increase their investments globally according to the blackrock cio who manages just over 1 trillion in assets. You go of broad and play the super long and theres tremendous monday money to be made on the 30 year. If i look at the spanish auction, the report and the treasury, not just the typical pension fund buyers. If you are buying the long and for capital gain, could things get more volatile . There is no doubt there is money behind this. There was Hedge Fund Buying as well. I think the long and of the curve is part of what i think mario draghi is doing which is brilliant. He is trying to get issuance into the Capital Markets and the Banking System is not lending as much as it has been. The long dated issuance, the way you should finance in a country is the long dated issuance. Go into the Pension Insurance industry. It has to be priced right and as long as it is priced right, there is demand. We are seeing the Pension Insurance industry in japan and europe are looking for long dated assets insignificant size. Are the yields going to be higher . Yes, longer term you have to match a liability stream particularly in new production. I think it makes sense for long dated issuance to go through that channel and is the right thing for the economy. Bayertalk about m a looking to buy monsanto. Over the past two years, it has been of whom that rivals 2007 the crash. Are all of these deals and the debt being incurred to finance them a signal of the market getting a little [indiscernible] that isnk the m a different this time is not leveraged buyout by necessarily or sponsor driven, its Big Companies. The debt is cheap but its Big Companies that are coming together because they need the synergies and they are looking at cost efficiencies across their business. I think that will keep going. We talk about technology and the Traditional Industries will create more oligopolies across industries. Createbecause you can Pricing Power that way and you can bring down your cost price. I think it is more of that to come. Is the debt efficient in the negative Interest Rate environment . It certainly makes it an attractive opportunity. What i generally dont understand is when you talk about longterm maturities in a negative Interest Rate environment, if you are a pension plan, you dont plan to hold those to maturity. Will have yourou pensioners paying you. You have less money than what you started out with. Tend to berves steeper in the negative rate tends to be in the front and. You are buying assets in the back and the curve that have yield and hopefully our creative and match your liability effectively. It is not make any sense for a pension fund to buy negative rate assets. You have seen the tremendous demand for investment grade. If i am in japan and europe and looking at no rate, this is something that gets me to where i need to go in terms of hitting my liabilities. Thats why you will see things like mortgages and investor grade credit and i think that paradigm continues. Why i think negative Interest Rates dont make as much sense as quantitative easing you are actually creating more mala fax than benefits. Youre not taking money from savers and getting it to borrowers. Thats an anticonsumption benefit. Jon always a privilege, thank you so much. The opening bell is next on bloomberg. Jon we are moments away from the opening bell. Futures are negative with out futures up life 54. S p futures are down. As wex in germany is down roll into the close in the opening bell rings right here in new york city. Treasury yields are now unchanged on the session. Compare that to a week ago or a month ago. Its a real change in that curve in the last 24 hours. Its a stronger dollar story. Lowerust starting to turn and eurodollar at 1. 12. Crude oil is over 47. We are about 25 seconds into the open so lets go to julie hyman. Julie we are seeing a small decline across the board. The stocks are holding up relatively well yesterday in the face of this increasing perception that june is on the table for a rate increase. Rieder thinks july could be more likely. On theross the board heels of the declines we have been seeing in european trading. Walmart is not declining. The dow is not behaving better considering the outperformance of walmart. The stock is having its best single day game going all the way back to october of 2008. This is after it Beat Estimates whether youre talking about earnings or sales or comparable sales in the u. S. Which rose by 1 , double which was estimated and flying in the face of other retail news. Looking at potential deals, an unsolicited takeover offer for monsanto but are not releasing the details. Ofsanto has a market value 42 billion and bayer shares have been falling sharply on concern of how to finance it. In terms of dealnews, we are looking at another Energy Purchase crossborder. It will be a merger in an alls dock deal and the resulting company will be 13 billion dollars. That one is one to watch as well. We have been looking at travel stocks this morning in the wake of the disappearance of this egyptair flight. Most of the u. S. Airlines to most of their business in north america but a lot of the Hotel Companies are international and they are under pressure this morning particularly helton. David we turn now to cisco who posted kirk Quarterly Earnings that topped estimates and were joined by the companies cio Chuck Robbins from san jose, california, welcome back. Good to talk to you again. David you are leading cisco through a transition from largely a hardware business into more of a software or Services Business. How far along in that transition are you at this point and how much are we seeing in the earnings reported . First of all, we had a very good quarter. I am pleased with our ability to execute and what we have described as a uncertain macro environment. We have a vision to help our customers told out the neck wave of this massive internet Iot Initiative thats underway. Devices andons of that will require a combination of both hardware and software. There are a lot of applications that will be software driven. What you saw this week in our announcement was three great examples of our security portfolio, our collaboration portfolio and cloudbased networking where redrove growth in those businesses but also saw significant deferred Revenue Growth on subscription and software. I would say we are in the early days of this transition but i think we have proven of those businesses that we can make this transition and we now have a plan underway to take that methodology across the balance of our portfolio. Let me talk about security services. That was a bright spot in the earnings. Wheres the demand coming from and what specifically are the services most in demand . About thethink buildout of the internet of things, we are connect ring 7 million vehicles across the iot platform and adding one million connections per month to this platform. Is becoming increasingly critical not only in the connectivity layer but in providing the insight the customers need from these devices. Most importantly also around the security has to occur. The area where everything is massively distributed, we have to provide security at the network layer. Our customers are looking to us to create this architecture. This is every customers number one priority to secure their infrastructure. That resulted in our 17 growth. N security and 31 could it become the major portion of revenue . Security is going to continue to grow for a very long time. I have challenged the team to build an aggressive plan or the next few years. I think we should continue to see growth and i believe it will only continue to be a greater percentage of our business. We will see if it will be predominant which would be great but we will see multiyear growth in that business. David i know your goal is to restore cisco into doubledigit growth. How close are you to that and how much of a drag is your hardware business on that goal . If you look at our switching business, it falls into two different categories. We have our campus switching which is the bread and butter. Of the business and that is driven by Technology Refresh cycles. When you see uncertainty in a macro environment, it customers tend to pause on that. If you look at the other 1 3 data switching business, our orders this past quarter grew in double digits. Our security revenue grew 17 and the collaboration business which is over 4 billion grew 10 and the Services Business grew 11 so we had some bright spots. In the switching in particular, i think datas went a test center switching performance shows customers buy into the notion of a hybrid cloud world which means they take advantage of Public Cloud Services but continue to build out private Cloud Infrastructure as well. The data growth has decelerated. If you look at our data center switching portfolio, it has accelerated over the last few quarters. If you look at our computer which is ourh ucs compute in the data center, there is a transition going on there that we are addressing with new technologies over the next few quarters. Our switching business in the data center has been accelerating over the last few quarters. You cite weaker growth globally as a headwind. Where is this coming from . That there are lots of geopolitical dynamics going on with brexit coming up and in certainty that exist in brazil and russia. We have seen great strength in china and india and mexico over the last few quarters. You got the Interest Rate discussion you are having earlier. Dynamics thatt of our customers are trying to digest. We see customers that are actually moving very Strategic Initiatives because they know this Technology Transition that is occurring is not going to wait for anyone. They all believe that the technology will laugh will allow them to service their customers better and they will know more about their customers and give them the ability to have tighter relationships with their customers and give them a competitive advantage. On the Strategic Initiatives, they are still moving but there is a lot of caution in the system based in these dynamics. You talked about uncertainty and ask you an unfair question if you had to pick one macro uncertainty, what bothers you the most . I said it was unfair. Its not unfair. As i look at the dynamics come i think the overall, the Global Economy in general and the growth rate of the global gdp is probably the singular issue. That has been impacted by many things. I think that is the issue. I said on the call that we executed well in an uncertain environment but we are also nicely positioned to be a beneficiary of any recovery in the Global Economy. Thank you so much, Chuck Robbins. Its the global concerns. Deutsche bank is in the news its annual calls Shareholder Meeting and we are joined live by matt miller who was at the meeting. Matt they are in the question and answer session. Seeseo says he still either a small profit are a small loss in 2016. Its important for shareholders but the statement earlier was the most important story for global wall street today. Deutsche bank is reaffirming their commitment to global Investment Banking. That means they will not tear down their bank like you have seen others do like credit suisse. They will not cut back drastically on their focus on trading or the advisory business. And if they cut costs headcount and have frozen on of the dead bonuses and the dividend, he saying their dedicated to the Global Investment bank is ms. Which i think is the key. Thats the most important story for global wall street today. Jon the key question was is this a team that can avoid raising capital over the coming years. Did they dismiss the potential for that . Matt absolutely not. I dont think that is a question that anyone can answer today. As far as the shareholders i talked to, and the answers i hear from the chairman and the ceo, they still need to understand this go but the legal problems they are facing. They already paid out 14 billion in legal fees and fines since 2012 but there is more to come. That something everyone is aware of. They cannot answer yet if they will be able to come in under the wire without having to raise capital. They have raised 22 billion euros in the last three years but this is a question that will have to be answered the rest of the year or maybe the next couple of years as they see how high their legal bill climbs. This was the time last year and looking at how investors have taken this, its not nationalized but is germanys jewel in the friend and show crown. In the financial crown. Do they like this ceo . He speaks very good german. Matt you are right, historically, german shareholders want to see a german ceo. They were not happy when joseph and he wass the ceo swiss. Ryan talked about germany as the homeland and that made it positive impression on the shareholders and he struck a positive. Town while not making any excuses of the mistakes made by his predecessor. There has been a lot of applause from more positive healing the horrible angry Shareholder Meeting that happened last year. Jon great work, thank you so much. We miss you a little bit over here. We are looking at the possible monsanto deal next. That is next on bloomberg. David this is bloomberg. Coming up in the next hour, sallie krawcheck. Go to Abigail Doolittle live from the nasdaq where she is looking at two retailers rising in early trading starting with Urban Outfitters. Yes, we have Urban Outfitters soaring with the company talking the bearish trend that has plagued retail recently. They posted record firstquarter sales and con sales were up 1 . It looks like fewer markdowns and better marketing boosted the results. One analyst says they are doing exceptionally well at their expanded stores with everything from jewelry to home goods and apparel. They will open more of these. Is down sharply, about 40 from the peak last year. One analyst says a turnaround is finally underway. Story is perryr ellis. It beat firstquarter earnings. The ceo attributed the success to the companys focus on highermargin platforms. The stock is largely recovering on the year. Jon thank you very much. David always good to talk to you. Up butuities are firming they opened low. The Federal Reserve is in focus. The richmond fed president said the recent donald trump comment that he would not reappoint janet yellen is problematic. Policy to get to the fed but the politics jumped out at everybody from this interview. Politics is like the skunk in the yard for central bankers. Michael they hate to get into the middle but donald trump drag bunt and we talked about the us ability u. S. Default and the idea that jenna yellen is not on the same pages him when he comes to Interest Rates. He has been somewhat all over about her but he seems to have a problem with her keeping rates too low. I asked jeff lacquer about it and he said that would be problematic. If you had a president replacing a fed chair because they disagreed of monetary policy, that brings politics into it and that would hurt the feds credibility. One thing i found fascinating from your interview was the fact het jeff lacher said predicts for rate hikes. Suddenly the fed is getting more hawkish. What was your take . Michael i dont think he is going backwards. Plot. Dots on the dot he has not seen the American Economy change a whole lot since they put those forecast out in december. What he said that was interesting is they have enough information now to raise rates. Would say he supported a rate in chris but he does not think it will be an issue in june and there will be enough information we dont and he said need to see inflation go significantly higher. It just will not go down. If it doesnt go down, it will lead us to the right track and that will give them the reason to move. Away from your interview, there are important fed speeches like stanley fischer. At this speech and theres no specifics about current policy but he talked about the equilibrium Interest Rates falling to low levels. Away from the academics, does that tell you the rate hikes they are pursuing, they will not get as high as they may have otherwise done several years ago . Michael its kind of what the fed has been saying all along that they can go on a shallow path toward a terminal rate because the rate at which inflation would start to accelerate or the economy would start to contract is the neutral rate and thats much lower than it has been in the past partly because the economy is growing more slowly than it has in the past. He is suggesting that thats the case and his research and Michael Whitford supports that view. Other fed officials have said this and it suggests that even if they raise rates june 15, the markets should not to worry about how high they will go. David thanks very much. Bayer is looking at monsanto in a quest to become the Worlds Largest supplier of harm chemicals. The company would have to sell off some of its assets. Hammond whoow is ed is our deals reporter. If this deal goes forward, bayer would have to sell assets . What specific assets . I dont think they have determined what they will do yet in terms of that but what we think are likely is they would get out of their Animal Health business which is worth about six ilya and dollars. They also have a big stake in a plastic is nice business. We think the plastics is nisource their stake might be another piece to go but they will also have to raise a lot of money. David what is the plastics business roughly . How much is it worth . We think their stake could be worth 5 billion euros. Say you have 6 billion for animal and another 6 billion or so for plastics. Monsanto trades at 42 billion right now. Dollars doeson not come close to what they need. There is an expectation of equity raising. Bernstein Analysts Expect they will pay a price of 125 per share which is a 3540 premium. How does that compare to other recent takeover offers . Largestwould be the german takeover of all time. For a country that is relatively conservative when it comes to bigticket m a, this is a huge step of the goes through. The premium is not wildly out of line with other deals. Its difficult to compare a was the subject of so much takeover talk. False lore under the shares. Jon great to have you with us and thank you. Lets get to the markets quickly stocks are just turning lower just a touch. Bloomberg continues next. David i want to take you inside what we do. There are headlines that come up and some of them are red. One came up the caught our attention. It says that phil mickelson, the famous golfer, has now been named as a relief defended in an sec case. If they think somebody has ill gotten gains, they have an injunction saying dont go anywhere. This comes out of an investigation thats been going on for some time into possible Insider Trading involving the former chair of dean foods and another individual. The allegation is that he may have gotten a tip and traded on it. Story is if you wanted proof that a Federal Reserve still has a grip on these markets, many people are questioning and saying the markets not listening and the minutes came out and a market is listening. They are communicating and building on that we expect more communication from fed officials later today. It will drive home the message that they will hike. David it seems to be pointing in one direction but its a matter of when. Jon youve got the payrolls number coming up. That does it for bloomberg. Thank you very much. Bloomberg markets is next. Iaaem from new york, i am betty liu. Mark this is bloomberg markets. Betty we will take you from new york to london to paris and tower. Bayer aims to dominate the feed industry making an unsolicited it for monsanto which is a market value of 42 billion. Shares of bayer are plunging on concerns that such a Large Purchase could weigh on their credit rating. Mark the latest on the investigation into a missing egyptair jet. It was en route to cairo from paris with 66 people on board when it disappeared from radar over the Mediterranean Sea. Betty walmart is bucking the retail trend. The shares are surging after its firstquarter results Beat Estimates providing a note of optimism after week numbers