Consumer price data as well as retail sales ecodata. Noon, federal fed president Patrick Harker gives an Economic Outlook street speech. 12 45, the president has his annual physical exam at Walter Reed Military Center. Emma chandra has the first word news. Emma lets get you caught up on the headlines. The United Nations calls President Trumps remarks about immigrants shocking and shameful. He is said to have used foul language speaking to lawmakers about why the u. S. Accepted immigrants from haiti and africa but not places like norway. President trump will not say whether or not he has spoken with kim jongun. He refused to comment but says he probably has a very Good Relationship with the dictator. A germany, there is preliminary agreement and four months of political stalemate. According to people familiar with the discussion, chancellor Angela Merkel and the Democratic Party have attempted to form a new government, using more government involvement in education and changes to Health Insurance but no tax hikes. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. David it is our top story right now, Bank Earnings. Jpmorgan just came out with their results and it is a little bit complicated because of the tax law. To help us do all this, we are joined by megan greene and Alton WilliamsAlison Williams. It came up just a short time ago so i do not know how much time you have had to look at them, but what can you tell us question mark alison the tax rate is 19 and that is a key thing investors were looking for. We talked about the positive impact to m a and Capital Markets business. Trading coming in weaker than expected, but there was some noise and those numbers. Out therading, if you x mark to one customer, it was better than expectations on a core basis. Fixed income trading worse but there was some noise and that number. Alix it was still much deeper than we thought it would be. David there was so market to market problem with equity trading. It was just flat. Alison i think there will still be questions around that. We never hear about the one off i guess we do sometimes hear about one off gains that make the numbers look at her. In terms of market to market, it is still a loss in trading net coming in weaker than expected. Thed you mentioned effective tax rate of 19 which sounds attractive to us. They do not expect to repatriate much cash. Is that a surprise . A are taking a two point 2. 4 billion hit. Alison my understanding is you have to take the hit regardless. David is that on taxdeferred assets or the all equivalent . Alison it is basically, we are going from 35 to a lower tax rate so you need to take a writedown. With repatriation, it is more the assets you have overseas. There is one wait for cash assets and one for liquid asset. David they said there would be about 2 billion and out they say it is 2. 4 billion. Is that for repatriation . Alison if we think about how the banks performed during the crisis, where were the big losses, they were at Companies Like citigroup is why they have a big Deferred Tax Asset. Jpmorgan said about 2 billion in early december, so it is not surprising it is a little bit more. It is repatriation, Goldman Sachs same thing. Alix i want to highlight with jamie dimon said in the press release. Even in always invested difficult times in our employees, customers, and communities, and as a result of the tax plan we will be increasing and accelerating some of those. Is that priced into your outlook . But we will have some increase in investments, and this is one of the most interesting pieces pieces, the loan growth. There is a lot of optimism about a huge surge of loan growth on the back of this tax bill, and we will not get a surge but we will get some. We will get some polls from future years as well. We are not creating new investments or loan growth but just borrowing it from the future. Alix it is a key point, because as you take a look at the numbers, there is a distinction between the equity trading, the ficc, and the loan business numbers appear to be solid. Core loans were up 6 . Losses fell substantially. With those ideas, it feels like we are in a better place. Overall provisions were lower. And you help me make the distinction between the two . Alison provisions and lower loan growth will translate into lower provisions. 6 is healthy, but that was a target that was lowered throughout the year. Alix you do not like the 6 . Alison it is good given the environment, but maybe not a year ago. The other thing to keep in mind, there is an offset to lower loan growth to the Capital Markets. Keep in mind, they have been making money from companies borrowing but just on a debt Capital Markets sides. Very strong underwriting. Equity underwriting also very strong, and jpmorgan bullish on the outlook. The other thing to highlight, what is the outlook . I think we will probably get more detail at their investor day in late february they will probably be hesitant to set all of their target today, and save some for them. Alix so you are seeing color . The positive m a advisory and Capital Market business, a negative for the debt Capital Markets business, but overall still positive. It could be a small negative because home prices appreciation maybe even lower. David we are watching all of this on the terminal live. Basically, we dont know yet. Had,ver benefits you whatever they competed away, we do not know. It varies from different aspects from businesstobusiness. The banks are facing this new environment with the tax bill megan the banks are facing this new environment with the tax bill. Will the windfall for the Corporate Tax rate be passed on to workers or not . Alix when the fed winds up hiking rates, banks should wind up paying more to customers. We have not seen that and that is why their net margins have been so awesome. What signs do you look for to see if that is changing . Megan we are going to look alison we are going to look at what happened to jpmorgan in the quarter and wells fargo that reports later today, and bank of america and Morgan Stanley which saw an uptick in their wealth businesses last quarter. We are expecting to see a little bit of a catch up this quarter, given the rate hikes we have had. We talk about all the positive effects about tax reform. You are going to want to think of what are the risks and the negatives. One could be that some competitors could use this extra lift to price more aggressively. You will not hear those announcements from jpmorgan, bank of america, wells fargo. You might hear it from rivals or see it over the next six months. Alix love earnings and banks. Thank you very much. Alison williams, thank you. Megan greene is sticking with us. Merkel making progress in germany, the euro getting a nice boost over the next last two days to a threeyear high. Emma this is bloomberg daybreak. I am emma chandra. A Surprise Development involving t. Boone pickens. Texas oilman is closing his energy focus hedge fund. He writes trading oil is not as intriguing to me as it once was. He cites the week performance and his own deteriorating health as reasons. Majoruckerberg unveiled changes to the social network and says it may mean people spend less time on the site. To focus is shifted back posts on friends and family and away from businesses and media assets. A plan to cut financial risk is gaining traction. Money growth posted the slowest pace on record. Last year, china was on track for its full acceleration and Economic Growth since 2010, but measures to rein in risk may have slowed that down. David thank you very much. Time for our daybreak first take where we discussed the top three stories of the morning. First, the euro moving higher on the news that Angela Merkel will be moving forward in talks for a coalition with social democrats. We will go over the Bank Earnings that started earlier with jpmorgan. In investors more interested 2017 or 2018 . We are waiting for more important ecodata in 30 minutes. Alix joining us is Michael Mckee and megan greene. I want to kick it off with eurodollar, threeyear high over two days had a nice klein. Is this a juror in had a nice climb. Is this a German Coalition elevation . Michael germany does not have a new government yet. Have reached a tentative agreement but all three parties have to vote on this, and it will probably be midmarch before the spd votes. You are looking at the emd of march before the Coalition Government is in place. Alix the rally really started yesterday. What was your interpretation . Did you buy that we would have a hike in december 2018 . Megan not really. I do not think markets should be surprised by that. Announcing that qe would last until september gives the ecb time to figure out what happens in the italian election, and they can figure out how to respond to that, signal to the markets in q2, and they will know their plan. It was never clear they would continue qe to the end of the year. I think they will go until september and stop and if they go to the end of the year, it will be a marginal amount. We will still have to wait for next year for rate hikes. Inflation in spain and france is incredibly low, and the ecb is watching that. David i want to turn to those Bank Earnings. We just heard from jpmorgan and we are told the stock has turned to the positive. I want to come back to what we were talking about earlier about loan growth and how important that is. What we are expecting not just from jpmorgan but from all the banks perhaps as a result of the tax cuts. Decelerated over the past couple of quarters, so we might see that turnaround this year because of the tax bill, but not as much as some people are expecting. A few Companies May be waiting until the tax bill to finally go ahead and borrow, and more importantly the expensing piece which will sunset after five years, will pull investments from the future forward. Capital andding old not encouraging new capital expenditures, but from a Growth Perspective it is not great but loan growth should be better this year. Michael jamie dimon basically says they think over time it will be supportive for longer, but it may be a negative in the short run for Mortgage Loan growth because the housing industry may take a hit. A little bit of a qualification. The story on jpmorgan that everyone will be talking about is a footnote to the equities trading. Loss margin loan on one trade. Everybody wants to know who that was. Alix it was sort of like Goldman Sachs natural gas bet. Overall what is happening in the u. S. In terms of treasuries, it will all be about the 10 year. This is Financial Performance versus the s p, the white line. If we turn around into a flatter curve world, how do you buy bank stock . Michael that is the question. Megan you are still alix you are still buying it even though it goes flatter. Michael people are looking at the tax benefit to the banks and as the fed raises rates, the net Interest Rates should rise so they can make more profit. A lot of people will look through this Earnings Report because they had to take the big cuts right off, and see what happens in the first quarter. Alix megan . Megan i think the yield curve will remain flat and that is not good for banks. Higher rates by the fed will be positive. I think that these kind of remains stable and other aspects are net positive for banks. Alix data dont at dont at at 8 00 this morning. Retail sales, what is the most important number . Megan cpi is more important. The fed is looking at core pce. Core cpi can give us some indication, and most Central Banks look at cpi so we are different. Looking at cpi around 2 , which is where it has been, that will not be a game changer in terms of policy. David ppi was a little disappointing. Michael that was mostly in services, and the interesting thing about retail sales is it does not include services spending. Pastmists tend to look that at the income and spending numbers to see what we are really spending, but the number to watch in cpi is apparel prices. November. in everyone thought they were going up. Does that turnaround and could that be an upside surprise . Alix bloombergs Michael Mckean and megan greene, sticking with us. Oil briefly climbing above 70 a barrel yesterday. Francisco blanche will join us. Can he help me understand how 70 brent makes sense . Jp morgan turning slightly higher now we are turning negative down sing around as investors swear off benefits of the tax reform versus a messy quarter. Alix oil steadying after hitting 70 a barrel for the first time in seven years. The longest series of winter declines in a decade. On the phone is francisco blanch, bank of america global head of commodities research. Can these numbers stay the same . That weo i do think are getting towards the top end of the range in terms of price action. Could we be a little bit higher . Sure. Could prices be sustained . We would need to see continued demand momentum for the whole year. It is pretty unlikely we will 70 plus ant around barrel. Last year, prices only reached 54 so that would be a 16 rerating over the course of a year. It is hard to see how prices can average these high levels we have today. What what i am curious, are u. S. Producers doing right now . This is the time they decide their Capital Budget for 2018 and firm that up. What are they doing in terms of hedging this year and 2019 . Francisco hedging is of course picking up, and what is interesting is maybe we are going to start to hear some discussions around multiyear hedging. Normally, producers just do one year of hedging, that obviously if prices were to move any higher, we could see not just 2019 hedging that maybe 2020 and beyond. This is where i think opec has to be careful. Inyou look at prices for wti 2020 and 2021, they are trading at 53 and 54 a barrel, nowhere near close to the levels of the mid60s we are seeing on wti for the spot price. The curve is steepening backward. Obviously, that is going to discourage some from hedging. Here is the big dilemma that opec faces. If they keep squeezing the market higher, if they enable an artificially tight market of the prices are five dollars or 10 higher and they jack up the forward price, that may lead to a multiyear upswing in u. S. Production. That is the risk that opec faces. David is that based on the market saying, we expect supply to be coming online, especially from shale . Francisco there is some of that, but remember at the end of the day, the term structure of a commodity market spot versus forward is defined by the inventory cycle. Orn inventories are rising high, the spot prices are generally encouraging. Uggla being encouraged to take oil out of storage and consume it. That is what is going on. Obviously, producers are very active hedgers, and what we have not seen is the Consumer Community coming in and aggressively buying oil forward, and lifting those prices higher. That part we have not seen yet. Francisco, the range that many were looking for was somewhere between 50 and 60. Have you revised the trading range you are expecting . We just heard that t. Boone pickens does not like trading oil because there is no vol. Did that story change . Francisco i do not think it most it will change dramatically and vol will stay low. We have a big example on natural gas. He is very knowledgeable of the gas market so maybe he is getting some linkage in his mind that oil might be a little bit linked from outgoing shale reduction production and natural gas, which he knows very well. The bottom line is that oil could move higher potentially, but opec will either have to extend the agreement, so we have to see russia and saudi coming together to extend the agreement through 2019 and 2020. A second option is geopolitics pushes it higher. A third option, maybe we have this wrong and maybe demand is way too strong and supply in the u. S. Does not respond as advertised. I do not think this option is likely, so that is why i am saying, i think we are getting toward the top end of the range. Alix it is going to be an interesting day with cpi coming out at 8 30. Francisco blanch, thank you. David you just got oil, i got cars. Alix it is the perfect show. David Autonomous Vehicles, we will talk with daniel a man. Ammann they will have a car without Steering Wheels or petals, writhing around San Francisco driving around San Francisco. Alix this is bloomberg daybreak. We are two hours to the cash over the u. S. And s p futures up by four points. Jpmorgan results knocking a little bit of steam out of the rally, but the market belongs to the rally in the euro. 1. 21 and itlar is started yesterday with the ecb accounts grinding higher and jumping higher after we hear potentially german will have a Coalition Government. 2. 55 is how we print on the 10year and crude is a touch weaker, down 7 10 of 1 . We are watching what is happening with banks. Jpmorgan all over the place and now down by 3 10 of 1 . Its a story of the haves and the havenots. Investmentcomes from banking revenue or loan growth, the havenots with a messy quarter. You had a big