Transcripts For BLOOMBERG Bloomberg Go 20160720

The lowest Unemployment Rate in over one decade and wages rising. This morning, i had meetings others inagues and addition to my duties in this house i shall have further meetings later today, this afternoon, i will travel to berlin to be chancellor merkel to discuss how we implement the decision the british people took any referendum and i expect we will cover a number of other pressing International Issues and tomorrow i will visit paris with similar discussions with their president. Can i warmly welcome the Prime Minister . Minister,the prime given her unwavering commitment to deliver economic stability and National Security in our United Kingdoms interest, that she welcome mondays vote in this house for the program . That ensures economic stability and National Security remain the Guiding Principles of her tenure ship tenure ship . Can i think my honorable friend for his kind remarks and can i join them in enthusiastically welcoming the vote that was taken in this house to renew our Nuclear Deterrent on monday evening . That vote show the commitment of this house and show that we have not only committed to our own National Security but also consider the security of our european and nato allies. Weekend get on with the essential job of renewing our Nuclear Deterrent and can i think those 140 labor members of parliament who put the National Interest and voted to renew the Nuclear Deterrent . Jon the house of commons, the new Prime Minister, her first question session. Berlin to goes to meet with Angela Merkel and tomorrow she meets with her french counterpart. So much to get up to speed with, lets get straight to the markets. Futures positive, dow futures up 66 points on an eightday winning streak, the longest since 2013, a record high closing on the dow yesterday, a footsie positive and a rally in European Equity markets. A lot to discuss. The bloomberg dollar index at a six week i. Six week high. The repostthe repost brexit came bank of angry englands Agency Report, no sharp downturn since the brexit vote, anecdotal evidence but a little bit to go on as the pound is stronger off the back of those things. The yen firm. Treasury yields climbed two basis points. Watchingock we are across the board, Morgan Stanley and microsoft, lets check in with our Bloomberg Team for indepth coverage. Morgan stanley earnings out a few minutes ago. Microsoft rallying. Politics, John Heilemann in cleveland on the third day of the gop convention. Morgan stanley earnings, Dakin Campbell joins us, it looks pretty positive across the board, earnings and revenues and fixed trading stronger than estimated and equity trading as well. A strong result for Morgan Stanley, questions coming into ,his quarter about their ceo his strategy and whether he could meet the expense cuts he laid out. They looked good on expenses and very good on revenue. Fixed income trading was up by 300 million overestimate. Very strong in early look. Profit in terms of the total revenue down just 6 . Where is the negative . We were concerned about Bank Profitability heading into this quarter, not a big issue. If there is a negative it may be in the trading results, gorman had said they are scaling to they had cut 25 of traders in the fixed income business. When analysts look at this number, they will discount the trading numbers, he said he wants 1 billion in revenues a quarter in that business, this is 1. 3 billion dollars, last quarter i figure was 600 million. That you want to see the stock move higher, you want to see some stability in the revenue. That may be one that to pick nit to pick. A. 3 , an amazing number for Morgan Stanley, thank you. We have microsoft. Bring our Senior Analyst for software and i. T. Services. Profits topping estimates, cloud revenue looking good, walk us through it. The company was very good, the surprising factor was the legacy products, the server products which saw a downturn in the last quarter, saw a rising this time and their pc related project dust products, windows related revenue with commercial personal computers. The consumer personal computers related to that, accelerated. Those were the big surprises that the legacy products are also doing well in addition to Cloud Computing. In june, they agreed to bite linkedin for 26. 2 billion, where are we there . The deal was supposed to close in the next few months, the big question will be, are they doing any new product launches with this combination or a segment on the side . Much,hank you very joining us. Numbers out of microsoft, up 4. 5 . Earnings,ides all the all eyes on cleveland where the republicans are having their national convention, we are joined by John Heilemann. He is a coanchor of with all due respect. When we left it yesterday, the first day off to a bumpy start for mr. Trump, did they get it back on track last night . A difficult day because the first day had the areas difficulties, they seem to get it back on trump track with and thenrumps speech the plagiarism scandal, they try to get through the date by claiming there was no scandal, no one took responsibility or got fired, donald trump did not address it. Coverage, lastia night, the rollcall always a big story moment, the fact of donald nomineelikely to be the being consecrated as the nominee is a big moment. Donald trump junior gave a pretty strong speech. Chris christie gave a very prosecutors oriole speech prosecutors oriole speech. By the end of last night, they turned the page although one morning television, we are still talking about Melania Trump and try to unpack the mystery of how that plagiarism thing took place, not fully in the clear. ,avid one thing that struck me how much is being spent, time spent on Hillary Clinton, typical but you talked about the prosecutor like speech by Chris Christie, mitch mcconnell, they spent more time talking about Hillary Clinton than they do about donald trump, does that strike you . Very striking. There are a number of things there is the, party, if you just measure enthusiasm in the room, talking to delegates and republican regulars, no doubt the party is slowly coming together behind donald trump. At the same time, you hear more expressions of this dexia, tepid than i for donald trump have ever heard in any Convention Since 1988, the hall empties out quick. I 10 45, still prime time, the hall is empty both nights. Lot of people like mitch mcconnell, paul ryan, others, who, because they are not that enthusiastic about donald trump, they focus on the think they can focus on safely, beating Hillary Clinton, that is than, weg cry and more are really enthusiastic about donald trump, they are picking the one thing they agree on, we do not want Hillary Clinton in the white house. David a unique president to race. Thank you, John Heilemann, live in cleveland, watch him and Mark Halperin at 5 00 p. M. Eastern time everyday. Lets go to the stocks that are moving. Two big stories in the man group shares are down almost 4 , this is an interesting move, a hedge fund lead pimco, when he went to man group, they were struggling with volatility and client withdrawals and that idea and those lessons he learned could help pimco who is struggling with the same sort of thing. The other big mover is the ibm 4 , atany, that stock up point an eightmonth high now what an eightmonth high but at one point at its highest level since 1998, a huge mover to keep a watch on. They did really well, all about the cloud, new contract signings up by about 10 , we got a little bit of color on brexit and Business Opportunities in europe, the ceo spoke about it. , the good news about s. A. P organically we are growing fast, we have made major m a moves in the past two strengthen our conversation with customers. Now, in a position where we can be opportunistic on the m a site and look at that from an opportunistic talk in perspective to simply complement an already High Performance machine. I think that is a good place to be. Brexit, they side more europe contracts despite the eu kate leaving the eu. Interesting business perspective. Jon thank you. Coming up, the ecb, the first schedule Monetary Policy meeting since the brexit, how likely is mario draghi to expand his , we will break it down next. Currently, live pictures of theresa may posting her first Prime Minister questions with the leader of the opposition, Jeremy Corbyn asking questions in the house of commons. From new york city, this is bloomberg. David this is bloomberg. Mario draghi and the European Central bank gearing up to make the first position since the brexit vote tomorrow. We will carry that live during our program and joining us now is the head of global rate strategy. What he and his colleagues will be looking at tomorrow, what other options and what are they likely to do . Qe. Hey announced massive the bar for them to do anything additional is high, partly because they do not have that many tools left and they have not seen enough data for brexit to see what the impact on the u. K. Is. The eu it will be a boring meeting. It will stay like other central banks. They stand ready to act but they do not have enough data. David they have a lot of projections and they seem to point in one direction, the u. K. Is the worst antieu behind it. And the eu behind it. Already struggling to get to their goals, with a weight or try to anticipate will they wait or try to anticipate . We do not know when article 50 is triggered or how long the process will take. Do they go down the norway model, the economic ratifications death ramifications they will not get that because that involves free mobility of labor. I think the conviction level to do a lot will be lower, because they have done a lot. They say they are ready to act but it is clear that they we forecast more easing. From the ecb and the bank of england. Buying,t they have been over 10 billion of corporate debt, and others. A lot of people in europe are sitting on trading floors wondering how on earth the monetary transmission mechanism over the ecb, how does it . From their standpoint, if all they do is buy bonds, does that transmit in the corporate sector . The hope is that more companies go out and invest an issue more debt and not how it can transmit into the real economy. I would argue the Banking System in europe never recapitalized. Ofyou go the normal route lower Interest Rates, youre getting stuck, corporate debt, they have bought stuff which you do not necessarily see that as being economy positive but Going Forward we hope more companies will say this is a great opportunity, let me issue ecb buys and invest. Europe areies in financed by the banks, not by the debt markets, this process would take years. Not a sudden boost to the economy. Be multiplying effect is much lower. What europe needs do is on theas to monetary side, they can buy government debt. They can potentially change the gap, if they buy more italian debt, not beneficial. I do not think it is easy for them to do this politically. Alix germany will not love that. Talking about more ecb easing and more stimulus in europe, the fed is a different story, look at my bloomberg, this happened overnight, basically, this green line is where the implied fed curve is. The yellow line was on the 24th, afterthe brexit the market said we are out, no rate hike by the market rerated within days and we are back, are we looking at the sion monetary policies now divergent monetary policies now . U. S. Economic data is better than we were prebrexit. The june payroll report was stronger than before. Nervousere getting about u. S. Momentum, that has been taken away, i will argue the fed whether they hike, we placed the fed out into the middle of next year because we see the market having a harder time to price brexit, not a crisis, not like 2008, a slow uncertainty shock which i think over time will affect growth in the u. K. And eu, the fed in that case will be nervous to rate but we do not have enough data, the meeting next week they will keep options on the table. When push comes to shove, do they hike if they are looking at any data deceleration in the u. K. Is where we think there will hold off. David thank you. Will have the ecb Rate Decision on thursday, that is tomorrow at 7 45 a. M. Eastern time and carry Mario Draghis News Conference live at a 30 eastern time. Eastern time. You are looking at a live shot of theresa may taking part in her first Prime Minister question, we will bring you the headlines as they unfold. To watch full coverage come always so liberally in the u. K. , go to bloomberg. Com. More go is next. This is bloomberg. Alix Morgan Stanley shares moving up in premarket trading. Second quarter profit was down for percent but coming in 1. 3 billion, to take a closer look at the numbers, into the quarter, it felt like bank disaster, profitability issues, will we have another crisis for the banks. . Now, are we at an Inflection Point . Good question, look at the big banks coming into this morning, tough to say that. They had strong earnings. I think there were people pretty cautious that revenue was not ramping up. Morgan stanley put a next point,n exclamation hard to find anything about this that is a negative, little pieces. David the return on tangible equity, that is how we monitor the health of banks, well above estimated. I think 8. 3 . Their target for next year is 9 to 10 . Does that indicate they are in stronger shape than we thought . For this quarter, certainly didnt goal for this quarter, certainly. We like to look at roe on a longerterm, over several quarters, this is a good quarter for Morgan Stanley, there are a e showss it their ro it. Great numbers especially in fixed trading across the board, is this sustainable over the next year . I do not see how it can be sustainable, they cut 25 of their traders and they said we are a 1 billion a quarter one rate revenue business, now they pull a 1. 3 billion. I have a question how they did that. Will be happyts with that number but they will say hold on, i thought you were scaling that business back. Alix lots of questions but a solid report for Morgan Stanley, up 3. 5 . Thank you for joining us. Jon coming up, we head to cleveland and a look at how donald trump tries to gain the momentum after monday was marred by controversy. This is bloomberg. Hohes woiithongestc . Estc. Thlais hotas hkeca hyson at y llseg ca hke cwistomin biness te fid , p cth bou e. Juais hotas hkeca hyson at y ddstus azetomid ag y wiourofiar eie esr a adylr onheesev. Or upde its restn i, w c elanowp r ynebuss. U doe t eth dveryay oding uc pwiwiro fi hthatelroui alix this is bloomberg. A check on some of the big 5 of over , the first of earnings will be better than expected, they will rise 7 . It excludes charges from the emissions scandal. The market welcoming that news. P. , think of it as the ibm of germany, all about the cloud, at one point, the stock was rising at the highest level since 1998, a huge jump in the stock, new contract signings up about 10 . U. S. , the premarket story is computer, the personal is not dead, they are killing it when it comes to cloud, revenue more than double the 12. 1 billion, their ceo wants to hit the 20 billion mark in the next fiscal year. It is one dollar away from a 16 year high. It would think it could get there after three years of him trying to transform that company. , 33. 9 at future sales billion, huge numbers from microsoft. Jon fascinating. Thank you. The Broader Market, a beautiful eight today run on the doubt towards perfection. Up to an alltime high. , dax up equity markets 1. 32 , the footsie up a tent of 1 . 1 10 of 1 , equities have done ok in the u. S. The dollar has been stronger. The bloomberg dollar index up 1 10 of 1 . A stronger dollar and stronger stocks, that story a conversation for later in the program. Sterling, keep an eye on that, labor market data strong in the u. K. And the bank of England Agency report, the postbrexit sterlingmove, conversations with businesses, no sharp downturn. In the commodity market, a softerr dollar move, a session of commodities over the last couple of days, crude near a twomonth low. Brett up one third of 1 . Yields and market, little bit higher, up for basis points. Four basis points. Lets check out the headlines outside of the business world. Almost no one gave him a chance one year ago when donald trump said he was running for president , now his he is the republican nominee, his older son made it official from the convention floor. Top inld trump over the the delegate count tonight, which 89 delegates. Another six for john kasich. Congratulations, dad, we love you. The convention nominated indiana governor mike pence for Vice President. President meeting with his top Security Officials for the First Time Since the attempted coup, he is promising to make an important announcement, in the last five days, turkey has to think, suspended, or strip the professional credentials of 60,000 people. The hollywood writer and director behind the movie showty woman and the tv happy days Gary Marshall has died at 81. He also crated mork and mindy and laverne and shirley. This is bloomberg. Jon thank you for thank you. The new ceo of pimco replacing Douglas Hodge later this year. He took over leadership of man group and a time of volatility and client withdrawals. That experience may translate well at pimco which has suffered management of people and lost about 25 of its assets since 2013. Keene joins us to break it down. The soap opera of personalities at pimco, and the market moves that have made returns very difficult. Significant that pimco has turned toward the Hedge Fund World. You nailed it. The discussion of germany, they want somebody to step in and stabilize profitability, forget about it, none of it matters, stabilize the ship. There, themcos out exit of gross gets press a lots of other active managers figuring out what the new cactuses. The backdrop to this is the market with low rates of return, low yields. Starting to make a move. That but noto with with the idea that a hedge fund over traditional long only management because you have one world, absolutely has turned very versus one where every institutional consultant is looking at relative returns, pimco lives in a relative return reality, radically different from other people you talk about. Jon you know bill gross. Things changing even more . Call, he is that janice capital, you wonder, what you are saying, where the new perspective takes us. What thesure i know open ended investment happening perspective will look like in five years. We do know, the idea of index funds winning, winning, winning, winning. Two things come at relative performance. Two things, relative performance, the other is management fees. Retail is massively a where of the annual fee differential aware of the annual fee differential. A big difference is a conversation we need to have what are youco, seeing . Tom a massive noncorrelation. I got a note, something has happened on the screen and equities and bonds are in a normal world relatively if you call anything normal. Fx is in its own discrete world. Of interesting noncorrelations. The what you capture in bloomberg dollar is more waiting toward the japanese yen and away from the euro, are we seeing a more yen story . Tom clearly the last week it was clearly. Last week it was weak. A test of the euro in the last couple of days. A mystery. It is a jumble is the way i would put it in for a change. To tom keene will try untangle the jumble. Tune into bloomberg surveillance. David if there is one thing Hillary Clinton and donald trump agree on, the economy needs fixing but they couldnt be more different when it comes to their plans for doing something about it. To talk about their plans, the give us ant overview about the difference between donald trump and Hillary Clinton and their prescription for the u. S. Economy. A both candidates have similar agenda, looking to grow the u. S. Economy and create jobs and boost income for working americans. , morehe Hillary Campaign of a social agenda of fairness, from the perspective of increasing the tax burden on the investor class, growing the government and one of the key variables of the clinton plan will be raising the minimum wage, potentially to a level of 12 an hour. Raising the minimum wage would help boost millions of americans above that poverty line but what we see is increasing that cost burden on businesses would lead to nearly one million jobs cut from the current economy. On the donald trump side, he is focused on the tax plan, he wants a simplified income tax plan, three buckets reducing the income levels the tax level across all wrongs and to lower the Corporate Tax level, get rid of the gift and death tax. And have a tax holiday to repatriate over 2 trillion back to the u. S. Economy. Reducing atr worse, such a dramatic rate in the tax code would lead to a reduction in receipts for the government. He claims his tax plan would be net neutral for the deficit. We would expect sizable cuts to. Ffset that reduction we have not heard the specifics of where those cuts would be but for better or worse we would expect to see a sizable reduction in the government balance sheet. David another difference of them is Hillary Clintons campaign has said how they will pay for this, we have not heard from donald trump about that and tenderly and dollars over 10 10 trillion over 10 years, that means you would have to cut 10 of the u. S. Budget. Much of the u. S. Budget already allocated, not variable, how could you possibly have those deep of cuts without hurting the u. S. Economy . That is right. Your analysis is assuming that nothing else has changed. What we would expect is with that sizable reduction in the tax burden for businesses, there would be an immediate positive impact for the economy in terms of Business Investment, job creation, income growth, organic income growth, a good portion of the difference between the two plans is an immediate offset versus an organic underlying momentum or growth coming from other sectors of the economy. David i love it when you talk latin. Has been vocal about trade and its affect on china and universal tariffs on chinese trade, wouldnt that damage the u. S. Economy . He is focused on bringing jobs back to the u. S. , when we talk about damaging the economy or damaging the trade relations, he is talking about offsetting that potential negative with the benefit of bringing back manufacturing jobs and Technology Jobs to the United States, have more of a nationalistic focus on the domestic economy in order to continue to spur some of the growth he is anticipating. Help offset the reduction in tax revenues for the u. S. Government. David have you crunch numbers, i know there is vagueness, have you crunch numbers to say the difference between growth patterns under these two regimes . Under the most utopian scenarios for both plans, looking for an increase of 1 to 1. 5 on the donald trump side if we did see trickledown economics lead to a significant increase in Business Investment and job creation. Need to see,we do that is one of the missing components for the recovery in post Great Recession time, this businesses are not putting those dollars back to work, they remain on the sideline and are hesitant to invest in employees and equipment and structures, 17 consecutive months of negative illness investment. If we did see that type of positive growth and business development, we could see 1 , 1. 5 to gdp. David thank you. , going over the ocean, theresa may finishing her first session fielding questions in the house of commons, up next, all the highlights at her next move to lead britain to independence. This is bloomberg. Lix this is bloomberg preview thee will big tech earnings remaining on the calendar, google, amazon, his take on those names. Dont miss it. Jon this is bloomberg. Prime minister may finish her first session as Prime Minister in front of the house of commons. In response to new Labour Party Leader Jeremy Corbyns question on worker behavior, she is not afraid to joke. Theresa may she referred to the situation of some workers may have some job insecurities,otentially unscrupulous bosses i suspect many members on the opposition benches who might be familiar with and unscrupulous boss. [laughter] a boss who does not listen to his workers. Ive also require some of his workers to double their workload. Bosses wholous require some of his workers to double their workload and exploits their work to further his own career. Remind him of anybody . [applause] i do not know about you but it was a dig at Jeremy Corbyn and reminded me of margaret thatcher. A very commanding performance, especially how she delivered at that does that line on Jeremy Corbyn. How she delivered that line at Jeremy Corbyn. This was an easy one. She had a lot of time to prepare. It will be different when she is dealing with a crisis. But it was a commanding debut from theresa may as Prime Minister. Jon a real test may be outside the house of commons, she heads to me with her german counterpart, what will that conversation look like . What is the initial discussion ahead of what could take several years to sort out . A getting to know you meeting. The same goes for her with france wall along tomorrow. With the french president tomorrow. No formal beginnings to negotiations to until the u. K. Triggers article 50. It will be two leaders getting to know each other, personal relationships are very important when it comes to these negotiations. David cameron thought he could persuade Angela Merkel to give in to his demands when it came to the negotiations in the runup to brexit and it did not work out for him. Angela merkel is very cordial in person and she will be very businesslike, she will be very keen to get along with theresa may. She is a tough negotiator. Today will be about optics. It will be a press conference between them, quite symbolic to see them sidebyside but i will not expect hard news in terms of policy agreement on brexit. Jon immediately after the vote to the u. K. To leave the european union, Global Investors had to figure out the course of politics. Formal negotiations, the other is informal discussions, the european said there will not be informal discussions, from what you have heard, where are we and why is that important . Some people say informal discussion, i will say noise as another way to look at it. There will be discussions in cafes and latenight discussions over dinner between prominent bureaucrats where they scope each other out in terms of what is possible and what is not possible. , youis limbo we are in will see politicians, especially british politicians, filling that vacuum with noise and people giving the sense of they have more than they do in the banks. About freeom trade agreements that are being discussed. When you talk to people in other capitals around the world, clear about the fact that they cannot open free trade negotiations with the u. K. As long as it is a member of the european union. There will be a lot of spin with this limbo time we are in. It is fair to say we will see people scoping each other out and get a sense of where the red lines are. Up the politics, domestically in the United Kingdom, Rating Companies moved to downgrade outlooks and Credit Ratings of United Kingdom, the center of that debate was over a constitutional crisis that could emerge in the future, where all where are we with the scotland debate, the relationships . Edinburgh may went to and we are in a phony war situation. Scotland has walked back from which they seem to be pulling their cars from the table. From the table. After a meeting last week, there is more of a willingness to look at the options in front of scotland. Scotland playing political tactics or whether there Prime Minister is reconsidering her position remains to be seen, probably more of the later. She needs to be careful to not demand too much of a price now but the pressure is on her and that will be consistent to think hard about going for a second independent referendum if brexit happens. Jon thank you very much. It matters. David i think it is fascinating. , lower yields mean the ecb will have to adjust the parameters of its 1. 7 trillion euro qe program, a preview next. This is bloomberg. Alix this is bloomberg. Tomorrow, the ecb Rate Decision and the future of on purchasing program is the main focus. This is off the charts. The ecb buys 80 billion euros worth of assets per month, they are running out of assets to buy , this red line is negative for best negative. 4 . This is german debt and this is french debt. This is a italian debt. Anything below this, they cannot buy and it is running out of assets to buy. You could do something by lowering this meaning they could bite more german debt or you change the criteria of how the ecb can buy. They now buys with a capital t. Based on theonds countrys population and contribution to gdp of the eurozone. What if they change that to a debt key. These bars are what they have to buy per month of german and italian and french debt based on the capital key. Over 25 for germany. Going to debt, the amount of sovereign debt a country has, that moves down to 50 , 60 . Italy 15 , 16 . Italy, up to 27 . Will that happen . Probably not. Is there are solutions that could solve issues that the ecb is up again. Jon two years ago, debate whether they would do qe. More markets, the dow added tight and the longest winning streak since 2013. E stanley tops estimate on the top and bottom lines and this gives new life to shares that have underperformed the market sprint jonathan pimco names Emmanuel Roman as their ceo. Climbing andare the dollar reigns as it sets another record following an eightday winning streak as the dollar index hold an eight week high. Jonathan from new york city, a warm welcome to the second hour of bloomberg. David we have seen Prime Minister theresa may in her first session in the house of commons and now she will meet with Angela Merkel. They are so much more feisty in their politics. U. S. Futures are pointing to another positive day and Morgan Stanley is up by 3 . We will dig deeper into those results in a moment. First, a look at the markets. The longest winning streak since 2013 with futures firmer. In europe, the rally continues with the dax snapping back. The ftse 100 is looking good as well. The equities march is gone. On the u. S. Side, stock markets are performing at a time when we get a stronger dollar. The stocks are around a six week high. Dynamic in the fx market and the equity market. The correlation you would expect is not there. I stronger pound story, the labor market data was drunk at the bank of England Agency report about regions around the United Kingdom with no sharp dropoff yet postbrexit. The dollar marched on. Wti is down about 1 10 of 1 . Fiveyeard market, yields are up around four basis points. At 40 basis points and can only buy down to that level. They are 50 basis points in germany. Alix the issue for the ecb when they meet tomorrow will focus on that. Lets look at coverage of all of our top stories. About Morgan Stanley earnings. We will talk about the new pimco ceo. Lets start with banks. Everything seemed great with Morgan Stanley. Fixed trading was great. Was 8. 3 . What was the biggest negative . That would be compensation costs. Analysts were expecting 3. 8 alien and i came out at a little over 4 billion. Know, Morgan Stanley announced plans to cut 1200 workers including 25 of their trading staff. Analysts thought we would see that cost come down. It just didnt. Picture in ar quarter when this looks good, maybe thats not a huge deal. Fixed trading came in at 1. 3 billion, equity trading at 2. 15 billion. Are these gains sustainable . There still is a probability issue within banks . Certainly, year over year, revenue at Morgan Stanley declined for the third out of the last four quarters. The industry still has a revenue problem. Results, weding talk about how sustainable they are from one quarter to the next. This does not give us any more insight into this. I think analysts will discount this. The bank has been pulling back. Alix revenue was down by about 6 and profits were off by 12 . Earnings. s stay on microsoft after the close yesterday announced earnings and they did extremely well. We will bring in our Technology Executive editor. Give us the top line. Is this all about the cloud for microsoft . It is very much about the cloud and about the adverts to change the scene at microsoft over the last couple of years. Nadella came into focus much more on software delivered over the cloud as well as Computer Services and he is starting to deliver on that effort. Yesterday, we saw cloud revenue up. They have doubled their revenue from azure. This is the division that delivers Computing Power over the internet to small and mediumsized businesses and growing businesses. Ura says you will see Cloud Computing over 30 at microsoft by 2018. Thats a profound transition. David another transition was announced and that is the acquisition of linked in. How does that fit into the Cloud Strategy . We are not even saying that yet but what he wants to do is what the intelligence that microsoft is gathering through all of its Computing Services and make the linkedin product better and smarter. With you go into a meeting someone, we will deliver everything we know about that business to you through linked in. It will make the linkedin product better and he wants to take linked in and make microsoft products smarter and better and more applicable to your day to day life as a business person. And wea big acquisition will see revenue from that in the coming quarters. David thank you so much. Microsoft is indicating to open less than one dollar away from a 16 year high. Pimco turns to the Hedge Fund World to get a new ceo. Lets bring in our Hedge Fund Reporter from london. Theis the man and why does Hedge Fund World affect pimco question mark he has had a long and successful career in the hedge fund industry. He came in as ceo of anchorage and was previously coo when he started in 2013 and then he saw assets increase by 1 3. The share price doubled in about two years. It was a company under pressure and he did a great job at taking it to the next level. Pimco is a different animal. Thatll have to replicate and taking this company and restoring it to some of its former glory. About hisis this experience managing assets or a hedge fund . You wonder how pimco transforms in the coming years. Itl gross used to call burger and bonds. Will things change at pimco in a big way with this acquisition . That is the big question. Manny roman has experience in Hedge Fund Strategies and has the experience and bonds which is what emco specializes in but he has more than that. This will see pimco move into new things. He is a big proponent of computerdriven trading. Crucial in the takeover of glg. That takeover is now seen as being a success. Whether this leads to more m a activity, pimco will be interesting in the next few months. Jonathan thank you so much. Thats the story in market so lets get to the headlines. Taylor . The donald trump longshot campaign has paid off. Got the number of delegates from new york to win the president ial nomination. He will formally accept tomorrow night in cleveland. His son says he wont take no for an answer. I know that when people say it cannot be done, that guarantees he gets it done. I know that when someone tells him that something is impossible, thats what triggers him into action. The convention nominated the vice residential candidate indiana governor mike pence. Authorities in germany say the whogrant who attract attacked train passengers was inspired by Islamic State but a bubbly act alone. The attacked or wounded five asters before he was shot and killed i police. Global news, 24 hours a day, powered by 2600 journalists and more than 120 countries, this is bloomberg. On 10coming up, it yields to really of sovereign debt have fallen below zero. It sent the 10 year yield down to 1 and we will discuss that next. Jonathan will the u. S. Election keep the fed on hold until next year . We will look at how the president ial race will impact the fed. From new york city, one hour and 20 minutes from the cache open in new york with futures positive and stocks at an alltime high. This is bloomberg. Alix it is the question of the year. How low can they go . Falling below is zero so will the 10 year yield go down to 1 in the rush to the global bond market . Joining us is the jpmorgan Asset Management and fixed income strategist. What is your call . If only i had the perfect answer. Everyone has been wondering for a number of years. Year to date, we have seen a continued stampede into bonds. 60 billion by some estimates. We are seeing this tremendous flow into the bond space at a time when the risks are unprecedented. I think its important for investors to realize three things about the bond market today. First of all, the fixed income space is becoming somewhat commoditized. Youre now in a space that has no income and trades essentially based on what someone else will pay for it in the future. You may recall that Warren Buffett said the problem with commodities is a trade based on what someone will pay in the future. There are government bonds trading at 130 above par which is crazy because it amounts to Something Like 70 basis points for the next 30 some years. David we have a chart for that. Yes, the ones maturing in 2039 is a standing. There it is, 133 above are. Thats fantastic value. Central banks have essentially lost control of the situation. Onre is a lot of pressure banks that they have to bring rates low. The reality is that they cannot do anything about bringing market rates up even if they bring policy rates up. Banks are istral they can continue to crush the Financial Sector by bringing rates lower, even lower than they are right now, which does not help your economy or they can bring policy rates up which may not do anything for market rates but may start a bond panic in the market. There was a great article that said the fed can raise shortterm rates but the yield curve will continue to flatten. They will have to sell it elongated commodities to raise rates. What they have been trying to do is they have been led by Market Sentiment as opposed to Economic Data. U. S. Ve seen the fed in the have the same stream of constructive Economic Data and look at it differently depending where Market Sentiment was. Behind us and the economy is not falling off a cliff in the near term. We had relatively resiliency in the market relative to political events and the fed is looking at the possibility of a september hike should the markets experience jitters, they will back off of that again. The third thing that i think is important is that the u. S. Market is being viewed as a highyield market. You dont have negative yields here. The 10 year yield is fluctuating but the reality is that global rates in the developed world art trading to essentially are trading to a one person 28 1 rate. Some no arbitrage, essentially. If you are buying u. S. Treasuries, the trigger mechanism is currencies so there is no free lunch. On a real basis, youre not buying something of tremendous value. Explore thatant to the central bank has the mandate to get inflation up with the yields are so low that if we get inflation, they have a problem on their hands. They will have a bond market rout. What does that look like and what is the policy response to that . We do have inflation already. It has been picking up if you look at headlines. It is crossing 2 . Pce is what the fed focus on and its on track to hit the 2017 target by the end of this year at the rate its been going. There andion issue is i may eventually forced the fed. What issue does that create in the market and i think that is significant because you have no liquidity makers or providers in the market today. My message is that you have to rely on not just bonds traditionally to provide stability but strategies that are more tactical and exploiting the value in the bond land. David its pretty clear its not if but when. It could turn into a rout. What is the best trade to make now . How do you protect yourself against that risk . You have to redefine whats risky. To be in parts of the market that can absorb the Interest Rate risk as well as the credit volatility that comes. Ith a change in sentiment one area remains highyield but outside of that, there are pockets that may look interesting but the reality is that there are there is no tremendous amount of bargains out there. Your best bet is not a pacific a specific sector but one that looks across a number of sectors. You are giving up liquidity in the private market for better return. A strategy that will be opportunistic about putting her money to work where you are getting paid and sidestepping or sitting on the sidelines when there is no value. People want the capital returns. Are we at the danger point . Not there right now, we are very close. That bond is not an exception. This type of thing is quite rampant. Exists is that price because everyone who has ever owned it believes they can flip it back to the ecb or someone else. The reality is that whatever the yield is on that bond, on a realize return basis, that is not going to be your experience if youre left holding the bag when that chart gets turned upside down. A huge bucket of cold water thrown on the global bond market. Thank you very much. Coming up, day two of the Republican National convention is in the books and we will recap what has been an eventful rally from cleveland. Later, could gold be losing its luster . We will return from new york city. This is bloomberg. David this is bloomberg. A three of the Republican National convention and day to broad donald trump the official nomination. Ted cruz and marco rubio will speak along with newt gingrich. We go to cleveland live. Give us a sense of what you are seeing at the convention. How unified is the party becoming . Yesterday was a big step or donald trump. He was nominated and got the republican nomination. This is the moment he has been working for and what we saw afterward was day two of the convention night, there was a lot more engagement. There was more participation with the delegates in the audience. People the sense that are starting to get excited to be here and that was not something we were feeling earlier this week. David what is the attendance of like in the hall . Maybe the evening gets longer and people are leaving . Thats true. Particularly monday night, we saw that towards the end when joni ernst, the senator from iowa, was speaking. They are trying to cater to a nationwide audience. Things dont really start until 8 00 p. M. Here. They are not really wrapping up until 11 00 p. M. That might be good for west coast audiences but late for people on the east coast. It starts to thin out. David it is a tv event in the end. What should we look for tonight . Tonight, you will see more of Donald Trumps children. Eric trump will speak. They are trying to give a little bit more bio and personality that is different from the donald trump everybody knows. ,ou saw some people last night some of his kids talking about the dad they know. Eric trump will do that tonight and youll hear from ted cruz and marco rubio, two former opponents, who have eyes on 2020, we thing. David you have a piece out reportingt ted cruz that they have started planning for 2020. If they are thinking about running him for president , that does not say much about Donald Trumps chances in 2016. Ted cruz is in town. He has met with some delegations. Many people do that so thats not strange. Folks tell us he is planning to spend about 100,000 on some events in outreach this week. He is not really talking about donald trump. I am told he does not mention donald or talk about winning in november. He is talking about why he thinks he lost and the journey forward. Cruz wasg time, ted comparing himself to Ronald Reagan in 1980 and now he is comparing himself to Ronald Reagan in 1976 when he lost. Pretty interesting, thank you. Alix coming up, find out why a strong year inm a will get stronger and how about 1500 gold . We will look at a call on gold bullion. This is bloomberg. Alix this is bloomberg. We have some big movers this morning. Abbott labs reported earnings and revenue that beat and the best sales game was in the medical device area. Targeto had a merger which is reporting better sales. Volkswagen stock is up today. 7 ands will rise about will be much better in the back half. That does exclude charges from emissions scandals. Volkswagen still has some issues. There are some big lawsuits from settlingen after federal charges and eu consumer groups will put pressure on the company as well. We are wrapping up with nintendo. Check out this drop. The worst oneday drop since july of 2011. A related launch in japan. Had a delayed launch in japan. 93 stock is still up since january. A reality check for the bears because the numbers on the corporate side art good in the Economic Data is solid in the u. S. And equities are at an alltime high. The eightday winning streak is the longest since march, 2013. In europe, you mentioned volkswagen. Decent numbers out of big companies. Is gaining. S dax its at 1. 83 . Earnings, the citigroup economic supply index in the United States, it is a series of upside surprises, better than economists had estimated so that means a stronger u. S. Dollar. Thats one of the forces creating that in the effects market. A stronger sterling story as well with labor market data solid in the bank of england agents report, we have not seen a sharp dropoff postbrexit yet. In the bond market, you are seeing a selloff. Still 50 basis point so far. Lets get to the headlines outside the business world. Teresa maylondon, answered questions for the first time is premised are was asked whether the conservative government longterm plan is dead. We have not abandoned the intention. I have said we will not be addressing that at the end of the parliament. But iks about austerity call it living within our means. Taylor she said there is no going back from the vote to leave the european union. The president s meeting with top Security Officials for the First Time Since last weeks attempted coup. He is promising to make what he calls an important announcement. In the last five days, turkey has detained, suspended, or fired or checked out the credentials of 50,000 people. The u. S. Is counting on winning commitments for 2 billion in a conference on helping iraq. Helponey will be used to refugees. Are takingountries part and the u. S. Says it plans a substantial contribution. News, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Jonathan lets get to todays morning meeting. Director inmanaging small and Midcap Research at citibank and joins us now with a bullish outlook on an mende m a. The earnings have been ok, better than expected. Economic data has been pretty solid. The consequence of this is a stronger dollar. How long can the indexes march on with a stronger dollar in the backdrop . It comes down to Earnings Growth. The salient feature of this market over the past couple of years as a pertains to small and midcap has been a scenario where we look at Earnings Growth that are terrific. They are low relative to history and more typically at levels around recessionary conditions. While we are looking at valuations in the small and midcap space toward the upper end of the past 20 years, that puts an actor burden on earnings from here. The setup going into q2 results has been one where expectations have been muted. They were looking for smallcap earnings to be down but the story should be unfolding Earnings Growth inflection as we look to the second half of the year. That becomes the key Decision Point as to the direction of small and midcap Going Forward. Jonathan going into the second half of the year, looking at the wow at an alltime high, the vix is around a one year low. What do you make of that divergence and do you see complacency . Im not sure if you would call it complacency. You could call it as being accustomed to the type of global angst that has unfolded. Rvx, look at the vix or you had a spike around the brexit results but it quickly retracted. If you compare it to 2011 when we were looking at similar eurozone concern around the greek circumstance, nowhere near the concern with the market at that time. Identifiednship lowered volatility that corresponds with higher markets and that seems to be the circumstances at this point. We have an looking at the postbrexit timeframe as a safe haven opportunity for smallcap more inherently domestically focused but thats not the case with a quick 10 index run following the brexit vote. Jonathan lets get to the work you have done on small and midcap m a. The m a beingbout expensive. M a you expect to see, is it largely defensive than we have seen elsewhere . I think a lot of it is about growth or lack thereof. When we typically look at the Broader Market from an m a context, the headlines are around smaller megadeals that there is a different dynamic across small calves. Its a very different rationale. Or thebe innovation opportunity for a Larger Company to rationalize its own internal infrastructure. When you look if the opportunities and small cap, the larger players are coming in to augment growth. It makes sense in a sluggish economy. Jonathan lets talk about financing. We talked about the impact potentially of a strong dollar but what about a low rate story . Will these Companies Find some growth . Most cfos have gotten the drill over the past couple of years looking for a alans year. Where can you augment growth . M a, oh where can you ensure that you ensure that your taking advantage of your capital structure. In some cases, you can issue equities as the appropriate means to grow. The key thing is what the Interest Rate environment does is it provides a bit of a cover in terms of deal financing. Many companies are still in strong precash flow conditions. Jonathan great to have you with us. That strong dollar story is your world as well. Alix it matters to the Commodity Markets and gold is down by 15. What about gold at 1500 . Lets bring in the head of Commodities Research at hank of America Merrill lynch. I feel you have one of the more nextcalls, 1500 in the 612 months. What is your reason for that call . Thank you for having me again. Pressure on Interest Rates is going to remain. Thats the main driver of gold. Gold in the about past, it used to be more driven by the u. S. Dollar and by movements and Commodity Markets like oil. In this day and age, its a new world. 3 of government bonds are yielding negative. That is starting to attract a lot of people into the gold market. What i define as a portfolio rotation trade. Alix we have the perfect chart to illustrate that. Its a correlation between the u. S. 10 year yield and gold prices. The correlation is now hold on reset there we go we are looking at the half ation is about percentage on a negative correlation and we have seen that at other times. If we get a 1 yield on the 10 year, do you have to revise up your Gold Forecast . Its possible but i dont think we will get there quickly. On chances of getting a 1 the 10 year are still low. There is Political Risk building into the gold market as well. We have an italian referendum coming up. We have the u. S. Election in november and we have french and german elections. You will have effectively more than half of the g7 going through elections and we had to events on the political have that happen bullish for gold. The u. K. Brexit story has been bullish. Japank the election in with the possibility of also paints aey positive outlook for the gold marketing yen. David geopolitics of come to the forefront after the attempted coup in turkey. What sorts of decisions could raise the price of gold . Certainly, more protest votes in france and germany would be positive for gold prices. It would probably lead to lower Interest Rates. Election wills. Bring of certain amount of uncertainty to the gold price. There are diverging policies here. We are still trying to figure out what each party is going to say and do. Point, if we had proposals to increase the u. S. Debt or proposals to maybe take a stab at the independence of the central bank and we have as toifferent opinions how much power the executives in the u. S. Should have, that it all affect gold prices. The politics are complicated but i am more effected by emerging markets and developed markets. The gold is more of a developed market game. Its about populist politics and all the stuff that goes with it. Was an eyeopener when it comes to gold. This is altering the landscape so it should be pretty negative for Interest Rates and potentially good for gold. Alix i have to ask about oil. If you have lower 10 year yields, you have gold at potentially 1500 and the dollar index. This is the time spread for brent. The more lower, negative it can be for oil prices. What do you see . Oil is a different story. G7 are aest rates in good thing for emerging markets for the time being. Investors are looking for yield and looking to buy brazilian bonds and russian bonds and mexican bonds. Is propping up demand for oil in emerging markets at a time when supply is set to decline. You have this weird dynamic where the monetary aspect of it, japan is moving to do potentially helicopter money with the idea of issuing perpetuals. Time, you have the emerging markets that want to grow that still have yield and investors still want to place money there. Had a massivey crunch on the supply side by reducing 1 4 of a trillion dollars per year in the oil and gas sectors. That combines for relatively constructive outlook but we are looking at 70 per barrel next year. Alix thank you very much. Always good to get your perspective. Up, we willming look at amazon. Weve got a preview next on bloomberg. This is bloomberg. David this is bloomberg. Coming up later today, we will have live coverage of the theresa may Angela Merkel joint News Conference. The stock to watch today is microsoft. 85 andel to watch is 56 that would be a 16 year high after the company had betterthanexpected earnings. Ie pc market is not dead and made roughly 1 billion in its Cloud Division and trying to make 20 billion over the next fiscal year. Been setition that has three years ago seems on track. David joining us now for this weeks tech go is mark mahaney. He joins us from San Francisco ,nd analyzes netflix amazon, and microsoft. We are looking for amazon earnings coming out next week. What are you looking for in the cloud revenues for amazon . Amazon isud for amazon web services. Its singled digit, maximum 10 of their total revenue. Its half of the amazon profits so its a key part of the story. We refer to it as a single most influential Business Model shift across technology today. Youve gone from a low margin Retail Business to a high margin Cloud Infrastructure business. That has been the real reason why you have seen Inflection Point which is positive in the amazon financials over the last year and a half. We expect continued growth momentum for amazon and rising probability out of the cloud. David what sorts of numbers are you looking for when we hear from them next week afte . They are doing 60 approximately revenue growth. They are doing a 10 million run right on that. You cannot sustain those growth rates for too long. That 60 level, that is beneficial for amazon. Willhave announced they roll out new data centers to support aws. The impact that has on margins will be something the Investment Community will look at. What about their core business of selling people things and developing quickly . What are we seeing there . That is the secret sauce. Its hard to know how that influences the business. We know it is but the single biggest driver of the acceleration in the core Retail Business over the last two years has been prime. The growing number of subscribers, almost 80 Million Worldwide that are annual prime subscribers. Start seeingill that in International Retail growth. International japan and western europe and starting to grow nicely in india. Acceleratinghow international growth, it will prove the thesis that prime works in the u. S. And will work overseas. David let me turn to yahoo with earnings we got a couple of days ago. They had losses but whats going on with selling the company . Who are the buyers likely to be . That was a key question that came up on the Earnings Call. The final bids were do the same day they announced earnings but the final bids were not in at the time of the Earnings Call. They refused to comment on that which is understandable. We would guess that is a week or two long process. Bids isf those attractive enough and the number of hitters out there and the prices we are talking about, i think we are close to a final solution. The lastwell have them public Earnings Call you will have heard from yahoo . David one thing that was not covered much is the right off. Whatrsstrategy, is left of her legacy . Im not sure there is a lot left. About 1 billion. That pales in comparison to the facebook purchase of whats app for 20 billion. When the history is written in yahoo , it made him it did not make impressive enough that. In terms of the overall opportunity and what they needed to do, they should have been more aggressive. They bought this asset and had written off over 60 of the assets. Its hard to know why that is. Mixture but was a did not work out the way the bowls on the stock wanted it to. David dont pick between your children but of all the toxic of all the stock to cover, which you have the highest hopes for . Names, welargecap are cautious on yahoo and you mentioned ebay where we are cautious as well. The most controversial but the best risk reward is probably netflix. Second is priceline and the third is probably alphabet. David thank you so much. Time for battle of the charts. Alex steele versus joe weisenthal. Alix this chart is for you. Index ofcally an formula that helps to explain whether the fed should or should not raise rates. It takes into account core pc and it has just turned positive for the First Time Since 2007. It indicates the fed should actually be raising rates right now. We get more data about august 2 and more core pce and fallout from the brexit but it is a trajectory. You saw the big jump of above the zero line. Oe im looking at u. K. Versus u. S. Unemployment because got that strong u. K. Jobs number. It was interesting that u. K. And u. S. Are now both at 4. 9 . If you just look at the headline figure, its a confusing story. I plotted a third line. This is the u. K. Threemonth inactivity rate. Its the percentage of primary workers completely out of the workforce. One of the huge stories in the u. S. Is that more and more workers have been leaving the workforce and nobody is quite sure why. In the u. K. , is going the opposite. It continues to plunge to new lows. The underlying labor Market Dynamic in the u. K. Is arguably much stronger, not the same level of Participation Rate. There are fewer people totally out of the workforce. Identical 4. 9 percent on opponent rate in the two countries does not really tell whats going on. The underlying story is arguably very different. David thats interesting. Jonathan i will go with joe because thats an important distinction. The Participation Rate is key. This is prebrexit. It shows how the economy was set going into the vote. We have the bank of england summary report that says there has not been a sharp slowing yet. I wonder in what shape the economy is question david i will go if alex because so much rating of athe ret new rate. I think alex wins. Joe if it hadnt been for brexit. 30 minutes away to the u. S. Open with the dow on a streak in stocks at an alltime high. The open in new york is 30 minutes away and we will count you down. This is bloomberg. Jonathan the dow is on an eightday winning streak. Andave the Economic Data economic earnings which is driving the game. The dax is up by 1. 4 . Futures are a little bit firmer. May be key dynamic is what is happening with equities and the fx market. Its a stronger dollar market. Bloomberg dollar index is at a six week high. Not great in the belly of the curve on the bond market. Germany year yield in is about four basis points at 50. Five year treasuries are up 2. 5 basis points. The open is 30 minutes away. We will count you down on bloomberg. David we are just under 30 minutes to go to the open. Worldlets go around the and check in with our stock reporters. We will look at whats moving ahead of the open and we will go to the nasdaq. The dow was at its longest winning streak since 2013 but the s p 500 was not as happy yesterday. Julie Johnson Johnson reported earnings. We are watching earnings once again. Morgan stanley was the latest in the last of the large banks. Following the trend we have been seeing which is an increase in bond trading. This is as Morgan Stanley has cut that. That is something the company and analysts are pointing to as a victory for the company. It is commenting on some of this on its Conference Call with the cfo saying the bond staff cut it not constrain profits. Morgan stanley shares are rising 3 this morning. We are also looking at earnings from abbott labs, medical device maker buying two of its rivals. They are also topping analyst estimates because of rising andnd for medical devices generic medicines. Profit from operations fell but still came in above estimates in revenue rose by about 3 . Staying with health care, we are watching valeant. Its an fda approval for a new drug to treat digestive problems for folks taking opioids related to chronic noncancer pain. Begin sales of those tablets in the Third Quarter and though shares are bouncing by 4. 5 . Now lets go to the nasdaq. Its all about microsoft this morning. A great quarter beating top and bottom line estimates by 19 . Its huge driven by strength in the cloud. Ce in the pcgen business. Saw strong sequential growth there. It is providing a nice bullish tailwind. Also Intuitive Surgical put up a great fiscal Second Quarter beating estimates as Worldwide Growth was up 15 yearoveryear. On companies raised guidance a stock that is already up 23 year to date making it one of the best stocks in the nasdaq. Lets go over to london. The past few sessions, we have seen the stoxx 600 alternate between gains and losses and today, we are on gains. 1 goinglmost 7 10 of toward a fourweek high on betterthanexpected earnings announcements. It is technology and carmakers leading the rally. These shares have hit their highest level this year since 1998. Results topped analyst estimates on the company put a week stop to the year behind it. Is vw rising the most in three months after they exceeded market expectations. The car brand shows signs of recovering from the emissions cheating scandal and will benefit from cost cuts. One of the decliners is anglo american. Copperual target for output was cut so the shares have slumped of the most in three weeks from the second last performer on the ftse 100 this year. Every now and again, i get an email that gets by interest. This was an outlook for markets. Executiveg in the Vice President of equities for federated investors. Break this down for us. One dollar, one euro, one pound, 1 on the tenure and one and done by the fed is the five ones. Its an ok world where valuations can expand but earnings will continue to be difficult. To dxy. lets go what does this mean for stocks . Its not good for earnings for u. S. Companies because part of the earnings recovery we see this quarter, this is the First Quarter in six where we look like we might just cross into positive territory on yearoveryear earnings. The market is reflecting that inflection. To get to the numbers that people are forecasting for the back half of this year and next which is a significant improvement in earnings, to get there, you need the dollar to stay weaker. That has started to reverse postbrexit and we think it will get stronger as brexit drags on. You need oil to continue to strengthen. Oil is going the wrong way. Energy companies of their underlying dynamics that we think slow this market down. Alix a few weeks ago, most analysts said earnings drop in the First Quarter because oil prices have stabilized and the dollars not going up so you take that out and this is what happens. David the earnings we see the us far seem to be encouraging. They are beating reduced expectations. They are starting to turn on a yearoveryear basis. It has been an ok earnings season. The question is where we go from here. Analysts are forecasting that this is the beginning of an acceleration in earnings going into 2017. If you look at bottomup 115 this yeare at but analysts are at 118 and they are talking 134 next year so thats a big jump in the s p 500. Take your five ones approach, what does it tell you about investment westmark where to you invest . Alix i want to go to gold. Itgold is difficult because has no return. We think you stay defensive. David and equities . Lines areties, top not cyclical see you dont have to worry about the economic slowdown and they have yields north of 3 . You get the benefit of a low Interest Rate environment on valuations. Its really a valuation move. You want cash flow. Defensivest the fully valued . On any are high priced historical basis but relative to bonds, they are not. Investors will be facing a world with continuous up evil. We will see yields go to new lows. Where you will get return youve got equities now in many cases providing a higher dividend yield and their underlying corporate bonds. If that pans out, morgan , theyy with their call say a 40 chance of a recession. Do you have a recession call . We think we can get through without a recession. Will not beone, it a deep recession from a financial crisis. The Banking System is relatively stable and well capitalized. We are around the zero line. Have a hugeng to negative effect on the economy. Jonathan with yields that low, thats not great for financials high,th the dollar that thats not good for oil. A lot of european banks are trading well below pricetobook value already. We are not big fans of the financials. We would stay defensive and i not you chance fans of the energy stocks. We would state nonslip google. You are pointing to areas we are noncyclical. You are pointing to areas that are cyclical. Your to verizon and why you like that. It has 4 yield and has a great position in the wireless market. There is more competition than i next few years but they have a very stable Business Environment that is unlikely to be affected by slower economic growth. Trading at 14. 5 times earnings. Some of the utilities have gone of 20, you can still find it dividend yield stocks trading in the mid teens which we think is attractive. Its good to have you on the program. We want to look at news around the world. Taylor almost no one gave him a chance more than a year ago one donald trump said he was running for president but now he is formally the republican nominee. His oldest son made it official in cleveland yesterday speaking for the new york delegation from the convention floor. I am here to throw donald trump over the top of the delegate count with 89 delegates. And another six for john kasich area congratulations, dad, we love you. Taylor the convention nominated indiana governor mike pence for Vice President. The u. S. Government has launched a huge asset seizure involving immolation sovereign wealth fund. Prosecutors are seeking real estate, art and proceeds. They say they were legally required acquired from money diverted from the fund. There are several investigations into alleged corruption and Money Laundering by public officials. Global news, 24 hours a day, powered by 2400 journalists and analysts in 120 countries. Jonathan thank you. And hsbc official is said to be charged by u. S. In an fx rigging probe. The head of currency trading is facing a concern a currency charge and will be arrested tuesday. He is said to be the first person charged by the United States in an ethics probe. And hsbc official is said to be charged by the u. S. In an fx rigging probe. Mark johnson was said to be arrested tuesday and was the first person charged by the United States and an fx probe. Alix the stock is taking a leg lower. Jonathan we will bring you more news on that raking story. Coming up, a change at the top at pimco. They have appointed a new ceo. Fox news is undergoing its own shakeup after Sexual Harassment claims are costing roger ailes potentially his job. About 17york city, minutes away from the market open with futures firmer. This is bloomberg. Alix one commodity to focus on his wheat. This white bars are russian wheat exports in the blue line is it u. S. Exports. The first time ever, we now have russia overtaking the u. S. As the top wheat exporter in the world. Their market share is now about 16 . You have a week ruvell and good weather and more investment helping the wheat export story. American farmers were the biggest wheat sellers for five decades. Its an historical transformation happening in the wheat market. More on commodities. Joining us from the cme is bill baruth at ii trader. The other big story has to be the stronger dollar. What is the knock on effect for Commodity Prices . Is at the highest level since march and we have had strong u. S. Economic data. Its important to keep things relative. We have an ecb meeting tomorrow and the bank of japan and the fed next week. I believe the markets are front running what the anticipation is. , dovish retort from the ecb new stimulus package from bank of japan, they call it helicopter money, the fomc will have a hawkish tone. Thats what we see here as momentum in the currencies are taking place. They have heard the Energy Sector and the metal sector but now there is more fundamental news in the Energy Sector. Down and oil gold weaker and you can blame that on the dollar but we have inventory out today. Its the first time in history where you dont see the oil market priced in now. Its not, if we get a tilde this week a build this week, my target at crude oil is 41. We saw production pick up 47 million per day this week. We are looking at a draw of about 2 million per day. If we build on that number, this market has a clear path of least resistance lower. The oil rigs continue to pick up. , months ago we were talking about 40 and the market blew past that. 40 is the new 60. Production can still pick up at this level. I think crude oil will work its way down to 40 even if the dollar weakens. There is a more fundamental picture in crude oil that is bearish. Alix despite the inventory draws being bearish you look at the currency market, what is the number one commodity you look at as the dollar fluctuates . We are seeing the metals take a hit. Copper is at the high end of its reach. It has a lot of weakness that cannot come through here as the dollar stays strong. If the dollar stays strong, i think gold can hold ground. Gold is taking some heat as u. S. Economic data has come up that are than expected. With gold, you have to look at yield. Treasury yield will be going lower so i expect the tenure u. S. Treasury to make its way toward 1 . That will be the story for gold. It can hold ground at the 1300 level. That is a good possibility gold could be at 1400 by the end of august. Alix you are bombing is out today. Thank you for being here. Coming up, more on the breaking news. Fx traders had to be arrested yesterday which is the first charge in the fx probe. This is bloomberg. David this is bloomberg. A person familiar with knowledge of the matter says that roger ailes who built Fox News Channel into mostwatched u. S. Cable network is in negotiations to leave his job. This is after accusations of Sexual Harassment and the lawsuit filed against him. Joining us now is brett harris. Gamco owns over 7 million shares of fox. Is fox news to 21st century fox is a company . Foxnews generates about 1. 2 billion dollars. Roughly speaking, its about 20 of the operating income. Ailes is a visionary and built fox news over the last 20 years one of the leading News Networks in the country. Its unfortunate he is leaving butt eating said, that being said, the channel has been operating for 20 years and hopefully they have institutionalized much of the operation, the programming, what makes fox special. Roger ailes perhaps more than any other News Executives personifies that channel. It was his brandon a higher the people and created the stars. He has been the face for foxnews. Is this more important than another ceo just leaving . Morethink it would be important than perhaps another leader of a cable channel leaving. There is likely a deep bench around him. Schein is the head of programming and he has been with the company for 11 years. Fox does have a brand that resonates with a number of viewers. That are 3 Million People sign on to watch fox news on any given day. They may be aware of roger ailes but there is a certain amount of customer captivity. They know the programming and they know the brand more than him. I dont think him leaving will materially change the viewing habits of the 3 Million People that have been chile watch fox news. Ailes apart from roger and his difficulties, this is a basic cable channel with all the challenges in an industry that is maturing. We heard about it with espn. Dont they have more challenges if he stays on . There are secular challenges in general. You have seen a slow but steady shift of viewers away from traditional cable channels to overthetop alternatives. In and change in the u. S. Landscape of subscribers declining by 1 2 each year. These are challenges that the rest of u. S. Business faces. David thank you very much. One commodity on the move is oil taking another leg lower, 43. 89. Its breaking slightly below its 100 a moving average. Does crude oil represent a risk off . Is it specific to crude . It specific and we think it is stuck in the 30 50 range for an extended time. We are getting what is thought is a pullback. People got excited about the production decline in the u. S. Have seen that the s p 500 and oil were moving in tandem. The s p has felt so has that correlation broken down . In the last two weeks, for sure. Oil has been trending down the last couple of days. We have seen the s p 500 go up. Thats unlikely to continue. Need oil to stay high for the u. S. Earnings recovery to continue. Jonathan great to have you with us. Open is four minutes away. From new york city, this is bloomberg. [hip hop beat] olympics 2016, let me get you on my level. So you never miss a moment, miss a minute, miss a medal. Why settle when you can have it all . Soccer to wrestling. Track and field to basketball. Fencing to cycling. Diving to balance beam. All you have to sa is, show me, and boom its on the screen from the bottom of the mat, to the couch where you at . Show me the latest medal count xfinitys where its at. Welcome to it all. Comcast nbcuniversal is proud to bring you coverage of the rio olympic games. Jonathan from new york city to our viewers worldwide, this is bloomberg. We are moments away from the opening bell. Its an eightgame winning streak on the dow jones. The dow is up 53 points. Looking at futures markets ahead of the cash open. Almost a quarter of 1 . The rally in europe continues with the snap back from yesterday with the dax up 1. 5 . Believing stocks are vw. Upside on Economic Data as well. But the economic surprise index at a higher, yields are starting to creep higher again, up the basis points. That is the yield on the u. S. 10 year bond in the United States. The dollar yen is firmer. A stronger pound story out there as well. Off the back of decent labor market data and the suggestion that the boe Agency Report that the economy has not fallen off the cliff just yet. , pledginghe big mover 1. 63 in the matter of 10 minutes. About 45 seconds in, lets go over to julie hyman. Lie new records on an intraday and a closing basis. Earnings are part of the equation as we have gotten somewhere numbers. We will see if that drop in oil holds back stocks to any extent. That is sure to affect prices as well. Lets get to the earnings movers. Microsoft is one of the most important was shares up by 5 . Profit and sales topping analyst estimates. Many legacy tech companies, microsoft has been trying to push away from its slowing businesses software, in this case, and into the future. Revenue from azure, the companys corporate cloud platform, doubling in the quarter. It is helping matters is what. Europepu competitor in closing more Software Deals despite everything that has been going on in europe. The shares of their are up by 4. 5 . Getting back to the u. S. In the earnings, we have st. Jude medical, a company in the process of acquiring abbott labs. Also topping analyst estimates with revenue up 3. 2 . Saint jude earningspershare in line with what it was slightly above what analysts expected. Morgan stanley shares also trading higher. You can see why stocks overall arising. We saw the continuing trend of fixed income trading beating estimates. David we are going to stay right there with Morgan Stanley. When they reported earnings today, that means we have now heard from all six of the major banks. Joining us to review what we have learned is christine harper. Welcome back to the program. Give us an overview now of the six banks. Was did we learn and what the common themes. . Christine it was not bad as expected. In most cases, they beat estimates, so people were happy with that. Overall, it was not a good quarter as in most cases profit revenue was down, just not down as much as expected. The fixed income story was good for a lot of firms. Lisa abramowicz had a great column yesterday explaining why they were high volumes in the quarter and very good moves in the bond market. , which isn stanley strong on the side of its trading business, was able to post much higher numbers. The question is whether that is sustainable. Another business important to Morgan Stanley is equities. It did not have a good quarter. Another thing that is important is costcutting. Cut veryion has been dramatically at a lot of these firms, Morgan Stanley included. If you look at the first half of the year, which is how they grew over the year to pay year end bonuses, goldman was down 28 from the first half a year ago. That is not a picture of growth and health. That is a picture of shrinking and cutting. David where was a divergence . Who stood out . Christine jpmorgan. One thing that investors understandably look at very closely is return on equity. Jpmorgan had a very strong industry leading return on equity. Wells fargo disappointed some people because it is so highly regarded that the fact that its Net Interest Margin was lowerthanexpected disappointed people. It is in many metrics better than the others. There was still very disappointing return on equity. Goldman was probably the most disappointed because people had gotten used to them posting doubledigit returns on equity. They are down closer to Morgan Stanley now. That made people feel like they are not as special as they used to be. Alix the question for us was lack of probability for banks. In the cycle of lower for longer Interest Rates, hows it possible for banks to ever beat the same kind of profits that used to . Change the story or are we going to go back to the same story in three months . David they are not become utilities. Christine i think that really is the question. They are in the business of basically selling money. Money is free and really cheap, so its hard to earn a return on that. There is an interest margin really striking. Shrinking. It is very hard for them to earn a return on interest income. Theyre looking for fee income. In some cases, that is helping and not growing as fast. David what about overall with the size of the Loan Portfolio and how facets growing fast it is growing . Christine jpmorgan, while increasing their loans, increased their provisions for credit losses. Even though the revenue was up, they had a shrinking of profit overall. Loans are going up, but i think there is a risk associated with that. You are seeing some provisions. One thing that is interesting Morgan Stanley is the institutional loan book a higher percentage of it was not investmentgrade. I think that is something investors are going to be focusing on. Alix what does that wind up meaning . Rates are if interest as low as they are, you have to look where you can earn some yield. I think there are a lot of questions about what is happening in commercial real estate and what kind of risks they may be taking there. They know about the energy risks so they are setting aside money against the. At. Down the credit spectrum seems likely. Is thechristine Harper Bloomberg news executive editor for global finance. Hedge funda former executive will be the new come come ceo. What does that tell us about the companys future . This is bloomberg. David this is bloomberg. Im david westin in the hewlettpackard enterprise green room. Stacy smith on his companys earnings. From new york city to our viewers worldwide, this is bloomberg. A story that broke a little while ago, two people familiar with the matter says a senior manager at hsbc was arrested in new york for his role in a conspiracy to rig currency benchmarks. We are joined by wendy o kelly. This is really breaking in the last 30 minutes or so. What have we learned . Mark johnson, head of global , was flying into jfk and was apprehended and arrested. We are expecting charges shortly and is expected to be wire fraud and is related to the foreign currency investigations the department of justice has been working on for three years now. Has been hard to bring charges against individuals. Hsbc was not part of that settlement. At the moment, i do not know. One of my questions was if he had any idea he was being targeted. That is what we are looking to find u out. Jonathan these issues take a long time to play out. We have had a few settlements and now we have one personal one. Winnie how much effort does the department of justice put into this . Charges against people who are foreign traders is hard in the u. S. Bring evidence back to the u. S. , this guy was working out of london. In london, prosecutors have had a hard time making cases against individuals. What will happen here, were not really sure. If theres more to come, that is up in the air. Just this week, the fed barred everone else from working in banking because of his role in these activities. Jonathan the stock dropped initially on the back of the news and then snapped back. It is in the stage of the investigation where its less about the company and where individuals. Winnie thats generally whats true. David thats usually because the company has turned state evidence. Alix there has been some corporation. Winnie the Company Still has to reach a resolution with government. Jonathan fantastic to have you here a bloomberg. Alix pimco naming a new ceo. Many roman is currently man groups chief executive and he will take over on november 1, replacing Douglas Hodge. The Bloomberg Contributor and editor joins us now. This was a really interesting appointment. You have a Hedge Fund Guys running pimco. What does that say about the strategy that used to be bill gross . Manny has a distinctive style. Him, he had met come in with man group sorry, lg, and he was the adult in the room at glg. When of the partners had done all things and was barred from the country. He came in and sort of gave them credibility. Out andthat business was bought by man group. He then spearheaded a series of acquisitions. I think that is where this is going. I think they want to see the ever syndication away from fixed income diversification from fixed income. They certainly has got someone can by shown they folding companies. They brought about the asset base and took it away from just ahl at man group. The question is his management style and how may work with the germans. Jonathan from up here Talent Acquisition perspective, they have not hired many roman the hedge fund, but manny roman the executive. They will get a guy who will clean things up and run things very friendly. I will tell you one story. We went into a breakfast meeting with him and we were talking about the investment in glg. The topic came up of his hedge fund out of chicago. I asked as peers how it was going. He said i went to visit last thursday and the was nobody there. Within a week, they were gone, all of them. Pimco may have a fairly collegial investor. And there is no doubt there is a sheriff in town. Hes as charming as it comes, but he will get things done. Can you diversify your way out of where pimco is . Will it German Insurance Company actually let you do that . Theres nobody there at 8 00 a. M. On thursday, they are all gone the next week. Jonathan at 5 30 a. M. , this news comes out. We are trying to discuss what is the story. You take the headline and tried to discuss what is the story. They played the stocks game before and it didnt work out. What is next . Fabio i think hes going to be looking at much more discipline. One of the things that can code announced was the decline of staff. From my brief exposure and having seen him over the years, he is not a fire 3 kind of guy. If something needs to be done and youre going to cost your way down to where you want to do it, if youre going to do it by below the line work, it is not going to be a 3 reduction in pimco. What this really does is that we had Mohamed Elerian and bill gross, it was an Investment Management run firm and the Investment Managers fought it out to the death. When you lose one of those guys, t not justos management talent but your investment team. This will be a serious and strong money manager at the top who does not pretend to be a money manager. It is a global view, but he does not determine rates and this will be a bifurcation between church and state. Pimcowhat we have seen at is a lot of money flowing out after bill gross left. Does he have the credit to get that back in . Fabio im a fan of his as a manager. I do not know that he would have the credit because i think part of it was the loss of bill gross. Alliance, produced a book of owning pimco and the cover was bill gross face and the back of it was zooming the back of his head. When i received the book, i thought this was the dumbest thing ive seen in years. This guys going to retire. Do not make it multimillion dollar business about one guy. You knew people would have a habit of doing that. You do not make a bul multibillion dollar business about the front and back of one guys head. Jonathanalix can you imagine . Fabio he had a small ball spot. Jonathan in a way you might not expect, it was the asset manager at pimco that had this driven story. I want to look in terms of talent. L is a remember that ah quantitatively driven strategy. We have got the most amazing cool slick coder. There is not much for him to be on tv and give interviews could its not like bill gross or mohamed who has to make his case to the public eye and influence results. That is also going to be different. They have various other managers and a very did tightly control their exposure. Jonathan just a final question on compensation. We know what he did get paid from man group. The salary was 4. 1 million with a cash bonus for 2016. Weve heard about 100 million bonuses coming out of pimco. Are we about to see a very different pimco in terms of compensation . Famously cap the bonus levels, which did not raise the joy levels. Most of his money wouldve come from the glg takeover. He got a lot of equity at that point. I would have to say that i notices compensation level. He could easily certainly be adding a zero once he joins pimco. That is surprising, but its a subsidiary of the german company. How much money can he get sent from frankfurt . Asked, one ofo i our reporters earlier how much he would get paid. And they said enough. Heres the session for you. Equities pushing higher. The dow jones up to another alltime high yield. Equities in europe marching higher as well. Just a quickly, heres the other asset classes. Three basis points on the u. S. 10 year. A stronger dollar story and fx market. Up for tens of 1 . Alix dragging down crude as it goes. The latest from cleveland as mike pence set to speak later today. This is bloomberg. David this is bloomberg. The Republican Party moved past missteps at the beginning of the convention and goes on the offensive now, attacking Hillary Clinton. Here was Chris Christie last night. A chief law make enforcement officer of the United States someone who has risk americas secrets and lied to the American People about it day after day after day. Here it is, everybody. We did not disqualify Hillary Clinton to be president of the United States. The facts of her life and her career disqualify her. David we are going to be joined by bloombergs Washington Bureau chief megan murphy. One of the things that struck me is that this is as much a convention against hillary as it is for donald trump. Is that what is playing in the hall . Megan it is absolutely playing in the hall and that is what his advisers say. This is not actually a referendum on donald trump. They say the referendum on the state of america and Hillary Clinton and obamas two terms as president. They want to put direct focus on her record and what she has done. Theyre constantly emphasizing again that this would be a third term essentially of what they like to call the obamaclinton tenure. That clip did not include Chris Christie really going through with the crowd last night and judging her on a variety of Different Things from benghazi to emails. Crowd,y saying to the guilty, not guilty, and the crowd saying guilty. It was as much of an audition for Chris Christie to be attorney general under donald trump after losing out on the Vice President shall nomination. David this might be a smart strategy for unifying a party that might otherwise be divided. How many times have people won because people did not want the alternative instead of voting for a vision and for a person . Megan this is the argument we make both the time about these candidates. Theyre not putting forth a positive message on what voters want to hear in terms of what im voting for. That is why you see such high on favorability respects. They have unprecedented levels of people saying, guess what . I dont like either of them. Whether they will be able to put forward a positive message that American Voters can get behind is yet to be seen on both sides of the fence. Donald trumps message so far for the past tonight has been a large part about bringing down Hillary Clinton. Come outtch mcconnell with a heavy attack on Hillary Clinton. We are moving to the last few nights and mike pence speaks tonight. Donald trump with everything to play for is he going to set up an affirmative case of where hes going to take this country and what direction in which the Movement Toward or whether its going to be focused again on the shortcomings of Hillary Clinton . David looking forward to tonight with mike pence, governor of indiana. He is a very different person in the way he presents himself to donald trump. What is his job tonight . What does he need to do . Megan he needs to do what they want him to do, which is positioned himself as a safe pair of hands, a secure pair of pants, and a law and order Vice President. He is going to be focused and taking the message home to the conservative base. That is what they want him to do and thats what they need him to the. Do. David that is megan murphy reporting from cleveland. Alix definitely looking at the rnc later tonight. What is on today is that we will have live coverage of theresa may and Angela Merkels joint News Conference at 12 30 p. M. Eastern. Dont miss that. We also have the intel ceo stacy smith. Intel reports after the bell. We also have ebay and american express. A good consumer read and earnings. Jonathan a lot of conversation on credit cards the last month or so. Looking forward to getting that data in those earnings as well. It has been a decent stas session. The dow is marginally higher, up to another alltime high. A nine day winning streak, the largest since march 2013. The rally continues in the mainland with the dax up 1. 25 in the dollar strictly stronger as well. A stronger pound in the fx market as well. For myself, alix steel, and david westin, this is bloomberg. Vonnie it is 10 00 a. M. In new york and 10 00 p. M. In hong kong. From new york, i am vonnie quinn. Cehic i am a and this is Bloomberg Markets on bloomberg television. Vonnie we are going to take you from cleveland to new york to london covering stories out of turkey and germany in the next hour. Heres what we are watching coul. A Strong Quarter for mornings damning for Morgan Stanley. Roman pimco names manny as its next ceo. What it means for the next generation at one of the largest bond firms and the biggest public we traded hedge fund. Vonnie donald trump officially becomes the report and for the 2016 president ial election. Republican nominee for the 2016 present election. What he has to do to avoid the missteps