Yesterday thanks to fed chair Credit Suisse jay powell. 4 , euroities down dollar goes nowhere, but it is a safe haven bid. ,he 10 year yield nearing 3 the lowest level since midseptember. Asch that, especially European Economic confidence is falling. Crude up. 5 . There are 50, but significant issues for producers in the u. S. The could have bigger ramifications. This is getting real. David we made it all the way to 50. , data for core pce and personal income for october and last weeks jobless claims. Pending home sales data for last month. 2 00, the fed will release minutes from its november meeting. Also at 2 00, the week of the thanontinues with no fewer five fed president s participating in a Panel Discussion at the boston Federal Reserve. Now it is time for the bloomberg first tape. We are joined by gina martin adams. And timothy. Timothy obrien. You can see what has happened to the stock. This has been a stock that has not gotten a break. I remember when we went below 10, now eight dollars. It has been a sequence of errors contribute into broader risk off for the german shares in general. That is disappointing, because germany was the strong man of europe, right . Gdp prints,had weak the risk to the Automobile Industry at of germany, so it is joined now with u. K. , italy, the it is players, and creating this downdraft in european confidence, almost a spiral we cant find a recovery from. David it has been 10 years since the great financial crisis. We knew the banks were taking too many risks come up but how long does it take them to clean up house . Deutsche bank is a unique case. They went on a Global Shopping street that did not work out for them. They have been beset by a libor wreaking scandal, laundering money for russia clients. I think this makes Deutsche Bank a takeover target. I cant see them coming out and argue against the logic of Commerce Bank taking them over. Commerzbank taking them over. These could be random incidents, or it is chronic, in which case it is not manage well for either is not good. Alix 18 billion set aside for legal issues. It keeps getting worse. Who is running that show . Oil, a 30day of prices. It gets worse and worse and worse. Transition transmission mechanism, oil prices under 50. It is negative, but not as negative as the 2014 to 2016 experience. It was devastating when prices fell from 125. Your natural responses to look back at that time. You look back at that time and 75 and theell why Energy Sector was a huge portion much biggerd a portion of the market cap of the s p 500. It is still a negative impact, but less of a negative impact. Capex was just but itg to get its legs, is not rising as fast as it was. A portion sector as of the economy is less. You have to balance. Went through 2014 and 2016, the Energy Shares are already discounted relative to the s p 500. It is not as negative, but it is a downdraft. We have to go through a series of negative estimate revisions to absorb the shocks. Capex. Nd also it feels like whether it is trade, a catalyst for oil, but trump, mbs, and putin. That could decide oils fate. Who thought there would be this much drama at the g20 meeting. Putin saying he liked oil where he is. He means 60 a barrel, not 50. Ou have mohammad bin salman you have trump, who has to be listening to what the senate is saying right now about how unhappy it is with the interaction with saudi arabia over the Jamal Khashoggi murder. If he is too cozy or talking to mbs, that will send a negative signal to the senate. David oil and Deutsche Bank may be the big news this morning, but this goes back to yesterday, jay powell who spoke at the economic club. We put up what he said on october 3, extremely accommodative Interest Rates, a long way from neutral. Yesterday, a different tone. He said just below the broad range of estimates of a level that would be neutral. People read this has dovish. The twoyear was bought. Treasuries are below 3 and you have a global bond rally in the wake of that. The other question is whether jay powell is stepping back where he was on rates because of jawboning from trump. In ank jay Powell Administration that is not populated with toptier people, jay powell is an impressive person. We met with him in washington. He is his own person. He is insightful, well spoken. He is trying to chart a course that is complex given the range of other factors he has to consider. Alix if you are a portfolio manager, is this a signal to take on more risk, especially when you pair it withhe is tryie that is the Financial Stability assessment . Is this what we learned . We learned the fed is flexible. Hawk,s not a perma eight permanently hawkish state of tightening. This is someone who will take account of the data as it changes. We did learn yesterday the fed is acknowledging the fact that there was some weakness in the Global Economic out look over the fall. September, we had a massive meltdown in asset prices. The decline in oil prices removed some inflation presser. Pressure. You will not import any inflation likely. You have a lot of trade risks. The fed is cautiously approaching the out look, that withing the fact one more hike, they would be close to that range that they consider neutral. Alix the markets seem to forget there was a range. Thanks so much. Great to see you. You can find all the charts week used and more at gtv on your terminal. On oil struck. What it says for inflation and growth. This is bloomberg. This is bloomberg daybreak americas. This is your Bloomberg Business flash. Unilever on the new years day. He is the head of the beauty and personal Care Division and used to run the companys china operations. The Worlds Largest Automaker Alliance will continue despite the arrest of carlos ghosn. Renault come in nissan, and mitsubishi have reaffirmed a deep commitment to the lines. Arrest hasns exposed divisions between nissan and no. Chinas experiment with peertopeer lending is heading for a painful and. Authorities plan to cloak more platforms because of an increase in the faults, fraud, and investor anger. The mood suggests china is not done clamping down on the shadow banking industry. That is your Bloomberg Business flash. Alix oil getting rocked by russia wti below 50 for the first time in more than the year. Vladimir putin said 60 will be just fine. Joining us now is our chief energy correspondent. About g20 and three men deciding the fate of oil. We have opec meeting next week, but you are right. It will be decided in buenos aires. We are expecting a meeting between Vladimir Putin, the american president come and the crown prince of saudi arabia. They have been managing the oil market and need to decide whether they can cut production. The other key persons donald trump, who made it clear to the saudis that he wants Lower Oil Prices than 50 a day on west texas intermediate. Days, we willtwo know whether opec can cut production. Alix are they able to separate geopolitics from the oil market . We have seen saudi arabia and russia able to separate politics from the oil market. On saudi and russians were opposite sides of the syrian war, but able to collaborate in the oil market. Can trump put geopolitics aside. I dont think he would whatsoever. And sayo to the saudis i am your last friend because im supporting you after the killing of Jamal Khashoggi. I think politics will get mixed in oil in buenos aires. Alix who has the leverage . Trump has the leverage, and the saudis have few options. They can anger or disappoint trump, or they can see prices going lower and suffer a big blow next year. Those options are bad for the saudis and we will see what mohammad bin salman decides, but he does not have good options. Alix thank you so much. Joining us now is alex of dryden alex dryden. Do you buy the debt in oil . Its gone up like an escalator and down like an elevator. We are thinking prices will get stability around 60. The stomach for another round of Super Low Oil Prices is limited here. They have already drained the sovereign wealth funds. Im not sure they have a lot in the tank to go another round. In the meantime, 60 is 100, so what is the transmission mechanism and the correlation between Lower Oil Prices and other Asset Classes . What is most moldable . Vulnerable . The energy space. The energy names are probably in a better position to fight low oil. They have undergone the costco to costcutting, pulling back on spending mechanisms, a leaner, meaner fighting machine. They might be able to hold up in the space better than five years ago. David those are pretty low correlations. A. 5 correlation is nothing to write home about. The main effect is the overall headline inflation effects and the impact it could have. The Central Banks say there is not a lot of pressure to raise rates right now. That is probably where it will show up directly in Financial Markets it investors saying there was a tight labor ,arket, a fast moving economy fiscal policy stimulus behind it , and Oil Prices Going to 100 a barrel. Come off,hat has maybe the fed can pause and go only two times. Alix it also has ramifications for value buying. Energy is so heavily weighted there, two months ago, stocks were looking good. Do you change value rotation . When im looking at this and saying there are still pockets of opportunity, any oil company that has come through the 20142016 lowoil saga is a lean, mean fighting machine. There is opportunity there, but i still think i like the energy space over the next three to five years. David what about the flipside . Oil prices lower are not good for energy companies. At a time when we are worried about wage costs and transportation costs, lower fuel prices could help growth. Alix we saw gasoline go below two dollars a gallon. Loses . Wins and who low oil prices in the shortterm tend to hurt Economic Growth because investment slows stand. The theory goes that the consumers who save money at the pump will spend it in the store. That is the thesis. In this postfinancial crisis world, the consumer is reluctant to spend any windfalls they receive from low oil prices, which may mean that boost to Consumer Spending we have talked about from the Administration May need more limited and coming 2019. H in i think it will be at tailwind, but not as big as some people are making it out to be. Alex dryden will be sticking with this. To commodities edge later today. We will be digging in deep on oil. David who is the anchor of that . Alix that would be me. David Deutsche Banks ded asarters were rai part of a Money Laundering appropriate we welcome now our bloomberg market reporter now. What do we know about this. I heard there were 170 prosecutors in farias offices over there various offices over there. Thats right. They are suspecting Deutsche Bank help clients to set up accounts for offshore companies and related to Money Laundering. They said its not related to danske, a separate case where we are waiting to see what happened there. Prosecutors have confiscated files and paperwork. We are waiting to see what will be the outcome of this. Is an ongoing investigation, which means we dont know more than we know. The panama paper situation was more than three years ago. Why did it take them this long . Like those papers were quite extensive. Im not sure the danske wasnt weighing in their little bit. , or they are doing wrong why they are not as tough on Money Laundering as they are supposed to be, so i guess it took prosecutors a while to decide on which steps to take. David we had a report yesterday that Deutsche Bank may be changing Senior Executives dealing with regulators in frankfurt as well. What does the state about their compliance with regulatory a crime ands requirements 10 years after the crisis . Is not ins that it the shape it should be. I guess from todays news, there will be consequences on whichever level they will regulation and the people responsible to take care the bank is complying with the law. One investor said that one not change anything from one day to another, but it is certainly the way to go. David thank you so much. Alix still with us is alex and dryden. In the Banking Sector in europe . Lets not get to carried away. They are under constant watch and surveillance at the stage. Some of these names are getting cheap and maybe it is time to jump in. I am cautious. The european thinking space needs significant consolidation. There is talk of m a coming through, but i would much rather play the debt side than the equity side. They are stable, big cash piles, some debt at attractive yields. Once they are not making huge amounts of money, id rather get away from the equities. David we heard about the need for consolidation and cleaning up the Balance Sheets for years now, but it does not get done. Why dont they have the urgency to get that done . There is a Banking Union and name across the european countries, but it is difficult in practice to get that done. It is hard for a french bank to consolidate into an italian bank. That is one of the challenges you have. Once you have the framework, there doesnt seem to be the appetite for crossborder activity. You see various stories today that makes firms even more reluctant to not jump into one anothers balance sheet. They are not sure what theyre dealing with. Alix where do you like credit . The financials are where we see the opportunities. Some of the industrials and energy names. Financialerms of credit, these are shortterm issues that will get fixed . Exactly. That is the thesis. Alix why do you like industrial and energy debt . If Global Growth will slow and you have the euro higher because the fed winds of pausing come how does that make a case for you . That oil prices will maintain some stability. I dont think we will see it testing 25 a barrel. With the industrial names, i growth, there ist some space for consolidation and investors are being to bearish. That is by sector, but what about geography . Italy seems to be having some difficulties. , there are still opportunities, like spain or Something Like that. Something like spain and the focus there is the banking space. Correlation with emergingmarket performance is important. For us, we see opportunities down the market cap space, names smaller, more exposed to the european recovery and a wage from the large cap benchmarks. The large cap benchmarks are internationally exposed and sensitive to the euro. The thesis is the dollar starts the rolloff and the euro will rally and hurt the large cap benchmarks, so if we move down to small and Mediumsized Companies with more domestic exposure, a healthier european economy. Alix a savage recession will be coming, what do do with the u. K. . I am completely handsoff. It is too hard to see through brexit for the time being. Whilst we think the logical outcome is you will see a brexit through themassing of the politics of the situation is making it difficult to call them a so i am in a holding pattern. Alix that report yesterday was unbelievable. David it was so bad that no one paid attention to it. Alix 10 gdp lost in a year. Parity with cable. The calls were insane. You are sticking with us. Coming up, Global Leaders convene in buenos aires. This is bloomberg. Place, the xfinity xfi gateway. And its strengthened by xfi pods, which plug in to extend the wifi even farther, past anything that stands in its way. Well almost anything. Leave no room behind with xfi pods. Simple. Easy. Awesome. Click or visit a retail store today. Alix this is bloomberg daybreak. You did have a big solid rally yesterday with the biggest s p threeday rally in about a month, getting back some of those gains. Some g20 risk filtering in. European stocks have more Energy Exposure in their index yet they are up by 3 10 of 1 . The ftse having a nice pop weakestcable is the performing currency in the g10 space d12 space. G 12 space. In italy, they had a fiveyear bond auction that was solid. The ecb said they limited contagion from italy. How we print on the italy 10 year yield. If it was not a bright light buy yield signal from powell yesterday, i dont know what is. David it is interesting how crude is bouncing back. Was no immediate headline that came out. It is still going to be about g20. David lets find out what is going on outside the business world. Lets go to the first word news. A rare moment of unity in the u. S. Senate. They are demanding a briefing saudi journalist Jamal Khashoggi and are threatening to punish the kingdom through restrictions. The kremlin assaying Vladimir Putin and the altra will be discussing Nuclear Arms Control this weekend. The leaders will be meeting on the sidelines of the g20 summit in argentina. A kremlin spokesperson says it is not possible it is possible they will President Trump has renewed his threats to slap a 25 tariff on imported cars. A review ofrdering chinese retaliatory tariffs on americanmade vehicles. Global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. This is bloomberg. David thank you. Talk of tariffs on autos was not limited to President Trumps tweets. Preventatives said the u. S. The president specifically asked him to investigate chinese tariffs on u. S. Made automobiles. I spoke with the new head of volkswagen america. You have to be kind is in now. Historically it was less so. Being a manufacturer, we dont negotiate trade deals. They get negotiated and we operate our business accordingly. That said, you are fundamentally aware of what is happening. For north america, if you look in our footprint with our plant in mexico and tennessee, we at least look at the initial feedback, we feel we are in a good position. A majority of cars in the north American Market are made in the north American Market, so we are in a decent position. We have to get into the details of the agreement but we feel we are in a decent position and the truth is it makes sense to sell the cars and make the cars in the same marketplace and for the most part that is what volkswagen does. President trump imposes tariffs on autos being imported from europe, it would not affect your business in the United States provided the nafta 2. 0 goes through . Think 90 ight now, i plus of our sales come from the marketplace, so that would not have a direct impact. Lets go back to the top of the question. We think the conversation of tariffs and trade wars brings instability and unknowns and i think a lack of stability and unknowns is not good for business. We believe in free fair trade, an open marketplace. That is what we need. We make investments that are 20 year cycles and you cannot have the chess pieces moving all the time. Do i feel we are in a good position . Yes but our view is clear. Free, fair, open trade is an absolute must. David that is the new ceo of volkswagen north america. A trump tweet coming in as we were talking, saying billions are pouring into the coffers of the u. S. Because of the tariffs on china. Alix of course it is all about building the usa. A report was out on european auto tariffs saying quantifying the head to the gdp. The supply chain issue takes two to three years. It takes a long time. David the other issue is how much is the government going to be determining supply chains . We have the president saying the reason why we favor trucks in this country is because there is a tariffs on trucks coming in. Alix nothing to do with gasoline below two dollars. Treating keeping with trade tensions, they serve as a backdrop for this g20 summit in argentina. President trump meeting with the president of china. Joining us now with the preview of the meetings in buenos aires is michael mckee. He has not slept in two days. Mark walk us through the events we are going to be watching over the next few days. Michael unfortunately for argentina, the g20 meeting is the least important meeting happening at the g20 meeting. It is all of the meetings happening on the sidelines. President trump and president xi jinping. The president with his auto tariffs tweets, is that a negotiating ploy or can they find a way to ratchet down trade tensions . You would think so because it is not good for either country. We will have to wait and see what comes of that. Another big meeting the president with Vladimir Putin. The kremlin confirming they will meet on saturday. Will they talk about ukraine . What will donald trump say . The third big meeting is Vladimir Putin and the saudi crown prince. Oil andy talk about reached some kind of understanding about production levels ahead of next weeks opec meeting . That could move markets as well. On top of that, we have the nafta signing in theory or friday morning and theresa may coming into town with her eu counterparts, explaining brexit and what that means for the rest of the world. A lot going on on the sidelines of the conference and a lot for the markets to taken. David a lot of subplots going on out there. A lot of thesed summits and historically, the team around the president gives some kind of indication as to where it is heading. What are you hearing from Administration Officials down there and who will be in that dinner with president xi and President Trump . Michael this is a very different kind of administration so it is a very different set up. We dont have a lot of details. They are not telling us where the dinner is or who is going to be accompanying either president. Word is Robert Lighthizer is going to be there. He is a china hawk. The question becomes the question is what becomes of Steve Mnuchin . No word on that. The latest we have been told is in terms of what comes out of this, neither side is going to make a statement after the dinner. You can never underestimate what donald trump might do, but they are not scheduled to make statements. Get two different stories coming out of this. David we will certainly get one on twitter. Mckee,ou so much michael reporting from the g20 in buenos aires. Still with us is alex dryden of jpmorgan. Atuss the trade situation the g20, how does it affect your approach to the marketplace . Alex we are looking for some consolidation between the u. S. And china. The main idea being that at the end of the day, the chinese economy has been hurting in 2018. I am not sure they have the stomach to keep trade tensions escalating. I dont think the u. S. Is unscathed either but the chinese are certainly losing more. Some sort of deal even if it is a kick the can down the road tariffst to get those down the road, that would relieve a lot of pressure and what we might start to see is a rally going on in equities. Alix rbc came out with their 2019 outlook, but they said trade could make them more bullish. How . Does that change on monday . Alex it could very well change on monday depending on the views. All of your outlooks could hinge on a weekend meeting. Are focusing on firms to upgrade their guidance for the next year and we start to see more earnings growth. It does hinge on trade. How important is that compared to what mr. Powell said yesterday . Alex i think what i am looking at this and thinking about where equities are going, i dont think it is just trade. I think it is more about rates. Trade has played its part but i think that we have been seeing is the death of the trade which means there is no alternative. Years, thest 10 trade has been the big supporter of equity markets but now with the 10 year up above 3 , investors have a different place to go. Alix but does it stay there . The market interpretation was powell could definitely have a pause button. Just below neutral and you can see the damage has been inflicted. Alex i think we need to be careful. We have seen such a change in town in the span of seven weeks. When i look back at the october minutes, i think you may have misspoke. Alix was it a rookie mistake . Alex i think so. If you look at the context, it was in response to a q a. It was a fairly throwaway comment comment. I think it was the actions of a fed chair that had not quite realized the power of his words yet. Up a he needs to fuzz it little bit more. Even go back to what he used to say at jackson hole, not exactly sure where these stars are. Alex at the end of the day, nobody is too sure where the neutral rate is. He has been quite specific about not being crazy about using unobservable variables. We need to be cautious. The economic toolbox used for Interest Rate policy was very effective prior to the financial crisis but is not that good going forward. David alex dryden of jpmorgan, thank you very much are being here. Coming up, more trouble for Deutsche Bank. We discussed the banks involvement with a possible moneylaundering investigation. This is bloomberg. This is bloomberg daybreak. Sherri goodman, Wilson Centers senior fellow. This is bloomberg daybreak. Germany, amazon is the target of antitrust regulators looking into the companys double role as the countrys largest retailer in the Biggest Online host for smaller stores. Scrutiny ds germany is amazons largest market outside the u. S. That Blockbuster Telecom ipo has hit its retail sales target. Underwriters have received enough reservation for the bulk of the shares to be sold individual to individual investors. Demand may push up the price range. The ousted chairman of qualcomm is still speaking about taking the chipmaker private. He tells bloomberg the company has had legal problems and has less cash after recent Share Repurchases. Company after a failed hostile takeover attempt by broadcom. That is your Bloomberg Business flash. Alix thank you so much. We turn now to wall street beat. First up, Deutsche Banks paper trail. German authorities raid the bank headquarters, seeking to suspects and information tied to evidence exposed to the Panama Papers. Blackstone welcomes the volatility. The president says increased market vol is good. Disappearing severance. New claims against the former cbs chiefs severance package. David joining us now is jason kelly. Lets start with Deutsche Bank. We dont know what is going on with the investigation but it is not just speculation about the company. If you are working at Deutsche Bank, how are you feeling about your employer . Ason part of the issue is panoply of headaches, commercial regulatory and now legal and this legal issue is not going to go away anytime soon. When this sort of rate happens, it is not like we found a we needed and we will get back to you. David the Federal Reserve had already been on a watchlist. Regulators to not have a lot of faith in Deutsche Bank to begin with. Jason even this morning, i was on the train platform when this came up and the notion that are you going to go work for Deutsche Bank at this point or if you are still at Deutsche Bank and they lost a lot of executives already, are you thrilled to walk into the office today . David it naturally leads to consolidation questionss. Alix but there are still two buys on the stock. Who are you guys . Jason you do wonder when the German Government comes in, and a more meaningful way. Deutsche bank is not going to investigate itself. David the biggest asset is its name. Lets go to john gray, and he talked about volatility and opportunities. This volatility, price is coming down a bit. It is helpful for us as we are looking for businesses. Alix helpful for him and every other private equity out there. Jason more helpful for blackstone because they are coming into this new more opportunistic market, way ahead of their peers. The presidencyed of blackstone earlier this year. He essentially inherited a firm with half 1 trillion in assets under management. Hedge funds and real estate. He described a lot of different opportunities and they can write checks that nobody else can. David and the one challenge is valuation, making sure you get a bargain. That hene of the things did bring up that i found very interesting was this idea of decoupling. Economic growth continues, but at the same time, valuation starts to come down because of rising Interest Rates. Thinking back to jay powells what the depending on fed decides to do, this could be a nice sweet spot for private equity. Alix goldilocks. David lets turn now to that third story. Les moonves, it is really appalling. Nobody comes out well in this report except a woman partner who blew the whistle. It doessing too much, raise questions, does he get the 120 million . It is up to the board and i would be shocked at this point. Jason it is hard to imagine reading this story on its own in thinking we should write that check. David what happens to the company . They still dont have a ceo. There is talks of merging it with viacom. Jason and remember, comes out of the videogame world. The fastest growth growing area of content right now and this is a young guy. Ambition andof certainly has a different take on the media world that some of the old guard media. He at the same time, take two is very successful. Remember back when he was a young man, the first tentative of the first head of entertainment for fox. He knows the entertainment industry, the television industry. Alix and les moonves did a great job in programming at cbs. Many thanks to jason kelly. You want to tune into jason for business week every day on bloomberg. Coming up, lawmakers react to the white houses bid to gloss over saudi behavior after the killing of journalist Jamal Khashoggi. This is bloomberg. David what im watching right now is the senate and saudi arabia. The Foreign Relations committee had a meeting and said they want to hear what exactly happened with mr. Khashoggi. The secretary of defense did not show up did show up and who did not show up was the ca director. She listened to the tape and did not show up. The settlers went nuts, republicans and democrats alike. Bob corker basically said i never thought i would see the day a white house would moonlight as a Public Relations firm for the crown prince of saudi arabia. That is a republican. Said it isnendez who time to send saudi arabia a message. A resolution to say you cannot support the war in yemen anymore. Alix but then trump says what you can give me is lower oil and i will get congress off of that. David that seems to be the deal. Alix coming up, allianz global investment. This is bloomberg. Comcast business built the nations largest gigspeed network. Then went beyond. Beyond chasing down network problems. To knowing when and where theres an issue. Beyond network complexity. To a zerotouch, onebox world. Optimizing performance and budget. Beyond having questions. To getting answers. Activecore, hows my network . All sites are green. All of which helps you do more than your customers thought possible. Comcast business. Beyond fast. I am a techie dad. N. I believe the best technology should feel effortless. Like magic. At comcast, its my job to develop, apps and tools that simplify your experience. My name is mike, im in Product Development at comcast. Were working to make things simple, easy and awesome. Ed in Deutsche Bank raid a Money Laundering probe. The stock sinks. The next risk event, g20. The threeussia most important men for oil to send on buenos aires. Button,eveals a pause opening a door to a possible cause in 2019 rate hikes. Puthis a fed book fed over is the fed chair walking back . David welcome to bloomberg daybreak. Before the president left, he tweeted out and said we are making a lot of money off of those tariffs, saying we win either way. Looking at a live shot of the World Leaders arriving off the canadian plane but going into this, he has a lot of leverage. In any kind of topic you look at, whether it is against china, because china data is rolling , or david china object the economy is growing less than it was chinas economy is growing less than it was. Alix the big tech largecap we areing Better Seeing a little bit of softness today. It is a mixed g10 dollar story. Euro did not really react that much. There you see the filter down. The trade, buy bonds. 10 year yield down by about five basis points. That rotate out risk. Is that narrative changed now . David it will be without a doubt. Time for the morning brief. At 8 30, we look at data for pce and personal income is the last last weeks jobless claims. At 10 00, pending home sales data for the last month. 2 00, the Federal Reserve will release minutes from its november meeting. Also at 2 00, were continuing with the fed with no fewer than five fed president s participating in a Panel Discussion at the boston Federal Reserve. You wonder whether they have time to work. What does that mean . David nellis get an update on what is making headlines outside the business world. First word news. The kremlin says Vladimir Putin and donald trump will speak will discuss Nuclear Arms Control. They meeting the leaders will be meeting on the sidelines on saturday at the g20 summit in argentina. Both sides need to talk. President trump will not rule out a president ial pardon for former Campaign Chairman paul manafort. The president telling the New York Post quote, why would i take it off the table . O bankt was convicted and tax fraud chargesf convicted of rank and tax fraud charges. Prosecutors in germany have raided Deutsche Bank in a Money Laundering investigation. The headquarters in frankfurt were among the locations searched. A probe into the socalled Panama Papers show that Deutsche Bank helps clients set up offshore accounts and the Bank Allegedly failed to report suspected moneylaundering but Deutsche Bank says it is cooperating. Global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. This is bloomberg. David for more on that developing Deutsche Bank story, we welcome from frankfurt, our bloomberg german bank reporter. I have does go questions we may or may not have the answers to. Do know how broadly this affects the which a bank . There are two people under investigation. Is it possible this is just a oneoff and secondly, does this tell us anything about the overall compliance system they have at the bank . The firstt with question, we dont know yet how big it is going to be. The picture looks pretty bad. There was the press release from the prosecutors this morning that said they have 170 Law Enforcement officers at Deutsche Bank premises across the city, getting files. I dont think that is a number you would actually deployed if it was not a serious matter. Said there is more unidentified people targeted as well. There is a good chance this whole thing will broaden. The bank has said it is cooperating with the investigation, so we dont know what is going to happen there. Controls, it has been a weak sore spot for a time. The real the tory officer in charge of compliance has been on the regulatory officer in charge of the lands has been has beencompliance under scrutiny for some time. The developments today will not help her, that is for sure. David thank you developments today will not help her, that is for sure. David thank you so much. Alix a dovish tone from Jerome Powell yesterday. Investors see growing signs of slowing growth. We are paying very close attention to what incoming Economic Data is telling us. The fundamentals are beginning. Tou. S. Growth decelerating just a 1 growth rate in the First Quarter of next year. Investment was almost zero in the Third Quarter and that is what we need in this country to keep the growth high and above trend. One of the biggest problems in Economic Data right now is the failure of capex. 2019, ifing economy in the stock market drops as a result of this, then it is going ,o translate into a recession probably by late 2019 or early 2020. This culmination of Slower Growth and higher inflation is a killer. Alix joining us now in new york is manulifes global head of Asset Management and from dallas, earns mckinney, Allianz Global Investors portfolio manager. There is going to be some slowdowns and i think the fed is in theg to pick up language us today does allude to the fact that growth is the key asset they are focused on. Ands less about inflation it really is, are they seeing some of the slowdowns and howl that impact from a pause perspective . Alix rbc came out and lowered their forecast for 2019. They also said if it resolved itself, they would resolve their outlook. Dog20 happens and tariffs not get ramped up, what kind of upside potential could we see for growth . Case is that the trade and tariff concerns are something that is going to persist through 2019. If you do resolve that, if things dont get worse, then the growth should slow just a little bit after this year. Some of the economists that were noted that we have not seen a pickup in capex. Have the taxng to cuts we have benefited from persist and not just be a one year sugar high, and you need that to spur on productivity, improving Capital Expenditures and we have not seen that. As we roll over those benefits, we would expect Economic Growth tocontinue to be positive, really just gravitate toward the longterm trend which suggests that longterm Economic Growth should be a function of growth in the population and growth in productivity and that is the thing we have trying we have been trying to boost. David what is your view on that tradeoff that burns just noted . On the one hand you have tax cuts and on the other, you have headwinds in trade. Some say President Trump paid for his trade problems with tax cuts. Nathan the trade dynamics are here to say for the next 12 months at least. Even if you get a decent outcome from the g20 meeting, you will still see residual impacts. Tax cuts are definitely going to roll off unless there is subsequent effort through fiscal policy, more spending somehow or infrastructure policy or additional tax cuts. Alix put that into concrete names. What do you buy, what do you sell . Assuming that we do have a continuation of trade concerns, the president said that trade wars are easy to win and they are not. One of the easiest victims is the u. S. Consumer. , thef the biggest victims sectors that are most exposed to Foreign Trade are things like industrials, technology, places that have less exposure, things financials, discretionary, health care and telecoms and utilities. If we look for names to hide out in, health care offers a Good Opportunity to get stability in earnings. David nate, where are you on that . They are a defensive play but they look really attractive to us. Sensitive,ss rate they have defensive characteristics when it comes to spending dynamics. They are a really decent price at this point in time, trading around a 20 discount relative to their own history. There is real opportunity in the health care sector. Alix both of you are sticking with us. Coming up, oil is on the move. Losses butg earlier nevertheless, you look at wti trading around 50. That is going to hurt a lot of producers. This is bloomberg. Earlierl a racing losses on reports that russia will join opec and accept the need to cut production. Ofll with us is nathan manulife Asset Management and burns mckinnney of Allianz Global Investors. Burns are you buying oil equities on the dip . Burns we are certainly seeing more attractive entry points. We are not suggesting we add to positions right now. ,ou still see poor pricing building inventories. Likewise we do worry about about opec compliance and whether russia will comply. For investors with longterm time horizons, we tend to hold stocks for two to three years and we are holding on to the names that we think there are some more attractive entry points. The Energy Sector is far cheaper than it was earlier this year. Looking at the equities in the space, most of these names can sustain attractive dividends with oil at 50 and with any commodity, the longterm price should ultimately gravitate toward the marginal cost. Drilling new wells in the u. S. Requires oil prices slightly above were oil was trading this morning. You are mentioning shell, that is a great place for investors to look for, a name with an attractive 6 dividend yield. They spent a long time last several years cleaning up and they instituted a Share Repurchase plan, so they have been one of the more shareholder friendly names. Avid one of the benefits of lower price is it suppresses headline inflation. Where are we with inflation right now . Germany Inflation Numbers came out, a little disappointing. Nathan i dont think there is much of a risk for inflation. I think the fed, i dont think that is there central focus point. Their focus point is growth. We think about inflation, given the 25 move, a lot of those potential bickering over the 2 versus 2. 2 dynamic, that is a small window and we will see modest Inflation Numbers. David what can they do about it . Trump stepped up and gave us 1. 5 trillion in fiscal stimulus. Is there much they can do other than not wreck it . Nathan the market is turning to recognize it. People backed away about expectations. The fed is still market is still articulating three hikes next year. They will likely pause at some point in time that the growth scares continue to build. Alix burns, when we talked to the committee of the last few months, that was really reliant on financials and energy. Doesnt it feel like those sectors have been able to lead us . Are there better value opportunities to take up the mantle . Burns one of the spaces i named was health care as a place where you certainly are seeing very attractive returns to shareholders, a lot of repurchases. Health care stocks are in line. Financials, we still believe they represent an opportunity. They have not performed as investors wouldnts would expect. They are one of the bigger concerns that loan growth has not picked up to the degree that investors would expect. I think some of the positives are the fact that, just looking at on an earnings multiple basis, loan growth has been slower but these names are not necessarily chasing growth. It is one of the few spaces that could benefit if you could ultimately see a rise in Interest Rates. If you want to be a contrarian investor in the value space, one could look to industrials. Why theyiggest have gotten much cheaper than they were a year ago but industrial Capacity Utilization is very high. What that means is eventually companies are going to have to loosen the Purse Strings on Capital Spending because thing start breaking. If things break, you have to spend. Thatf the things industrials might benefit from with the new dynamic of a Democratic House is you might see more infrastructure spending. And would benefit from that finally defense spending is something that is poised to do well. Investors looking to play defense. I want to come back and challenge the assumption that there is a rotation from growth into value. The s p moved up after powells speech but tech moved up a lot more. Is there a chance that if the fed does back off a bit, that that might reinvigorate the momentum . Nathan i think the answer is yes. There is some good value stocks out there. Valuation is a bad timing tool. In a world where we are starting to have growth scares, people want a certainty of growth and they will return to the areas where they feel the most confident about it and that is tech stocks. You can use both of those tools and given the correction we have had, people are trafficking back there because the certainty of growth is so much better than other sectors. Alix burns mckinnney of Allianz Global Investors and Nathan Thooft will be sticking with us. David coming up, sending shares higher. More on that next in todays bottom line. This is bloomberg. David it is time for the bottom line we look at three companies that are worth watching. I am watching ford. With ford and gm. Gm same era going to lay off 14,000 people and forward saying they can get to where the need to get to without doing all that. David alix how long alix how long is that going to last . David how are they going to restructure without laying people off . I dont know. I am watching dollar tree because that is not getting hammered in premarket. Markets missed missed targets. What i like to talk about is margins, decreased to 32. 3 . How do you get margins when all those things are helping . Does that stay if tariffs go up . David really feeling that pressure across the board. This is a company we are watching. A blend of Bloomberg Opinion joins us to tell us why we are watching it. They are reportedly considering taking a stake in juul, the threeyearold startup that took the ecigarette market by storm. In controls it controls 70 of that market. It has not been able to make a significant dent. What is interesting is that juul has come under a lot of scrutiny given the fda investigation of marketing practices in the ecigarette industry in light of the surge in teen users. They got rid of what they got rid of a lot of their social media promotions. Altria could see an opportunity in taking advantage. The head of the fda has made knows he could of the fact that he thinks there is a big problem with minors with these ecigarettes. That makes you wonder why would you buy in at this point . They see this as a couple different opportunities. They have the shelf space to give to jull to juul. To your point, you do have to wonder, can altria really make a difference from regulatory standpoint . From a regulatory standpoint . They have had to pull their own flavored products. They dont necessarily have any better ideas. They are also really dependent on company on products made by a Sister Company that is still awaiting fda approval. It was looking like the fda might pass that through but now they are raising concerns. Has not sure that altria the key to figure this out. If theylls fargo says can purchase a stake, that is a positive development that could lead to buying the whole company. Vapor is not going away altogether. David it is an amazing brand. Alix even though they will probably have to pay a higher multiple to get it. Brooke it becomes a scale game at that point. Protecting your margins and taking over this market. It will be very highpriced. Even if you just take a minority stake, that is a pretty big investment. Alix Brooke Sutherland of Bloomberg Opinion columnist, thank you for sticking with us. Coming up, the fed preferred inflation gauge. Global senioret advisor will be speaking with us. This is bloomberg. Is bloomberg daybreak. Futures softer after yesterdays rally. The pound continues to get hit. You know i am watching oil. Mr. Novak says russia and opec will find a solution to stable market conciliatory tones. Nice bid. Ing a numbers out. 1. 8 , disappointing versus estimates. September revised down 1 10 of 1 . Income and spending, both solid. Personal income up. Real personal spending of 4 10 of 1 . Solid. Inflation number later. Lighter. That has to be in support of the dovish interpretation of the speech yesterday. David core pc pushing them to raise faster. He has flexibility. 2 10 of 1 , down. Alix goldilocks. David looks good. Alix inflation below forecast and income increased the most since january. David people are making and spending money and inflation is not going up. Alix risk on thesis. Joining us Simona Mocuta economist with us, is this a goldilocks scenario . Simona i would say so. Nice numbers, they vindicated the view we held for some time, that there is no immediate inflation threat on the horizon. Any misgivings about the economy, those do not result with the consumer. Isnsumer isnt strong in a strong state. These are good numbers, supportive for the fourth quarter. David with what you told us earlier about 2019 being a slowdown in growth, if we continue to have personal income and spending going up, can the consumer get us through that . The u. S. Consumer is the hottest area for Global Dynamics now. The one pillar that has held up. These numbers on spending do not surprise me. We just had retail numbers come out long ago. They were pretty good. It does not surprise me we get a beat on the spending side. Overall, if the consumer continues to push, that is great. There is evidence the consumer cannot. You have seen evidence with bigger purchases such as homes, where there is weakness. Good spending overall. Retail sales this winter will likely be good. There is risk. David put this together with tax cuts. People have more money in their pocket. How much of what we are seeing is because of the tax cuts and could it go away on a base case yearoveryear wont keep going up . Simona i am not too concerned about that. I do not think the bulk of consumption has been driven by the tax benefits. Driving strong consumption is the strength of the labor market. It is moderate, not excessive wage gains. This is what is driving consumption. On those fronts, i do not think there is evidence of any impending doom. Rap that into what we heard from jay powell. So much was made from the statement on october 3 versus yesterday. Did you understand that as data is weakening responding to tightening financial conditions or as a rookie mistake backed up by strong consumer numbers, for example . Simona it was not a rookie mistake. We were talking about this before. We have been looking for this rhetoric shift from the fed. Happen,eased to see it not so much because markets wanted to hear it. Clearly markets loved it. It is what the economy needs. It does not need a steady autopilot monetary tightening. All,eds gradual care for careful process, because we are not far from neutral and we are seeing weakness in housing and sensitive sectors. Given what we see in data, given that we have considerable risk on trade fronts, weakness outside the u. S. , it does not seem a bad idea to proceed more cautiously. That is all i took from the speech. It was a great speech. It is what the economy needs. David if it was not a rookie mistake and the data shifted, what is the data they are depending on . What data should they be depending on to make that decision . Nathan the shift is on growth. It is less about inflation or job numbers. They are starting to see signs globally and in the u. S. , nascent signs of growth so down. Slowdown. David what specifically . Nathan housing in particular in terms of big purchases. We are not seeing max capex spending and the Auto Industry is seeing weakness. Bigger purchase items that are interestrate sensitive, are seeing weakness. Alix this leads to divergent views on where banks see rates next year. Goldman sachs and jp morgan seeing four hikes next year versus morgan stanley, two then a pause. Are the Morgan Stanleys right . Will we see markets go up to that . The outcome depends on what happens along the way. After the december hike, it makes sense to see a pause in tightening. We link that with uncertainty around trade. If you get signals of not so much a deal because a deal cannot be accomplished quickly but an agreement to collaborate toward a deal, that lifts uncertainty or reduces likelihood that tariffs increase in january or additional tariffs go through, that could reinvigorate Business Confidence and investment. Continualppens, gradual tightening make sense. At the moment, we do not think four is the baseline. Three, between possibly but more like two. David thanks. We want to recap the economics just in. Personal income and spending were up. Income, five pence of 2 . Spending up 6 10 of 2 . Percent, less a than what the survey said. S p futures up. Update on headlines outside the business world. First word news. Reporter hello. In germany, prosecutors rating the office of Deutsche Bank. Of theties say a probe Panama Papers indicated the bank helped clients set up offshore accounts. Deutsche bank failed to report suspected Money Laundering. Deutsche bank is cooperating. The new chairman of the federal Armed Services committee wants to triple the number of f35s martin. By lockheed he wants to speed up efforts, and says aircraft carriers should be built faster. Theresa may is Warning Parliament rejecting her brexit deal next month is not riskfree. She says the country should be prepared for a no deal brexit, if her plan is defeated. Pound falling after comments. Boe saying sterling could plunge below parity with the dollar if the u. K. Crashes out. Global news 24 hours a day on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. David thanks. For more on boe warning on brexit, return back to Simona Mocuta. Explain this. We had this report from mr. Carney. It was dramatic. What he called a disorderly exit from eu. Gdp would go down 8 . Housing down 30 . Commercial property down 34 . No one seemed to notice. Why not . Simona maybe fatigue. This has been ongoing for so long. The dire warnings are not the first we have heard about the of eu. Of a crash out it is concerning. See how itrating to appears we are so close and yet so far, from a resolution or an agreement on terms of transition. Certainly, major risk. Probably, we have heard this before and it still is a risk in the future. David at this point, do people just not believe it . This is the worst case that mark carney laid out. Theresa may will go to parliament 10 days from now and say, please dont do this. Do the markets not believe they will have this disorderly exit . Simona the market is hanging onto the idea of some remaining ofeat of thread rationality among players who can make the best scenario happen or avert it. That explains the more reticent reaction. That, ithe same view is too damaging not just for the u. K. , a crash brexit, is not good for eu either. It seems like all reasons are there for coming up with some agreement that avoids the worst. Thered be simply could be a hope that rationality prevails at the end of the day. They could be 11th hour, 59 minutes. We have seen this before. You could make a comparison with the nafta negotiations, which until the last second, we did not know whether canada would be in or out. Alix good to see you. Thank you. Coming up, the u. S. And china in africa. More on the competition for influence on the continent. This is bloomberg. Is bloombergs daybreak. Coming up later on balance of power, tim ryan of ohio. This is bloomberg. David time for the weeklong series, the race for africa, a look at the second largest continent. Monday we covered payments. Tuesday, impact investment. Yesterday, the securitization of loans to africa. Today, the u. S. China race for influence. Alix chinas growth means resources. Africa weekly became a key partner with china. China pledging 60 billion in Financial Aid and foreign investments. Falling off in 2017. I want to start here, what countries, Foreign Direct Investment to africa, what countries are most prevalent and why . I would say, mostly east african countries, zambia, kenya, ethiopia. That is in part because of the asian continent on that side and also just countries like zambia and ethiopia have fewer alternatives. That showsve a map distribution of China Investment in africa. Is it the resource play . Drc, i think coble. Alt. Does it resource or Something Else . It started off as resource play. China is the only country that has a consistent africa strategy, for over a decade. It started off as, china Needs Resources to power growth. Aw it is becoming more of stop, soft power influence play. China wants to secure potential markets for goods, exports. China is exporting more to africa than it is importing. It is trying to secure opportunities and jobs for state owned enterprises and chinese people. David to what extent is china exporting ideas to africa . Economist that china is the second most popular place for College Students to go. The first is not the United States. It is france. What challenges this to the United States . Does our government understand the fight over influence . Great point. We do not fully appreciate in the u. S. , the quest for influence that china is making with soft power deployment of educational talent and science and research. The u. S. Used to be the Global Leader in science and technology and education. As you noted, now the chinese are growing universities at rapid pace, deploying scientists everywhere from the arctic to africa. Though students and budding scientists become the next Generation Leaders in both technology and engineering and education and governance. This is critical. They are taking a long view, understanding what the needs of the countries are, whether in reducing Energy Poverty by growing Energy Resources or providing water. They are looking at providing water in the drought stricken regions across much of africa. That will be a lifeline for many nations. We are missing this at our peril. David it is clear china has a strategy. Does the United States have a strategy at all, long or short . We have a view focused on longterm attention to providing humanitarian assistance, whether education, health. We have been great leaders in providing health care and combating the aids epidemic throughout africa. At the same time we need a longer view as to what these countries need. We are focused through the build act of this administration, deploying private sector investment. Which is a good thing. We should be enabling our companies to invest throughout africa as well. We need to do so in a strategic way. We need to not shortchange research and education, science and technology enterprise, where we have been Global Leaders for the last 50 years, and where we are at risk of losing that race. Alix what is africa hitting out of this . Will they get the money pledged by china . The race for africa what do they actually get . I would say, for most african governments, they are welcome alternatives. Alternative source of financing, soft power. It is welcome. You dont necessarily have to go to the u. S. Or a european country that typically has Strings Attached with finance. For most african countries, they welcome the alternatives. What they are getting out of it and clean, frankly is mostly infrastructure. I would caution on pledges. Mostof them never get of them never typically materialized. Our largeem that do, Infrastructure Projects that the african governments would have trouble financing on their own. Bridges, roads, things like that. Ultimately that helps the economies. Note not to end on a down but there have been situations in the past where western countries have loaned a lot of money to developing countries, including in africa, and they have defaulted longterm. Is there a chance china will be left holding the bag . But this is overplayed. Diversionsrising across the continent now. It is not driven by chinese debt. In the major countries like debtia nigerias profile is only 10 chinese. Africa is less than 2 . Kenya, higher, 20 . Zambia, 40 or above. Whichhere are places in the debt burden is driven by china. It is really not across the continent. It is few and far between. Think, to your question about would china be left holding the bag, most likely, they will probably take a creative approach to restructuring and getting Something Back in return. Ana, they are looking at taking certain things. Amaka and sherry, thank you for being with us. Breaking news. Strategicg a major review. They were assessing their options to exiting the Animal Health business. This could include 12,000 job cuts. Coppertone, exit 60 stake. They went through a major acquisition with monsanto. They are taking a hard look with aggressive goals down margin. Bayer up over 2 on the news. They are assessing major strategic reviews. Alix you have to pay at the end of the day. I am watching oil. Russia earlier losses, excepts the need for cuts. 50, perilous level for u. S. Producers. Joining us now, columbia university, jamie, you are a enp company, budget 2019, looking at oil what do you do . This is a scary time. Theyre going through budgets now. At 85. Rted planning timing are at 50, the for the opec meeting, has to be nerveracking. What you will end up seeing is lot more go forward, a hesitation, concern, allocation toward shorter cycle projects, that you can get that return faster rather than longer cycle. This is not a time you will see announcements on deep water or Something Like that. Alix you look at last quarter, trend was your spending more, production is flat, higher, you will also do buybacks. Does that conversation have to change . Theythink the buybacks, recognize the dividends are one of those things that help to amp up all the bull. Once they put amped up multiple. They are loath to pull it back. They are mindful they need to keep investing. Many companies have gone through cycle and it is time to refill coffers and refill the line over next several years. It is a nerveracking time. They madebly wish this decision when things were allegedly calm. Alix and that they had cap hedging. Monthse off hedging, two later we are back at 50. How well protected are the . Shell companies are well protected Shale Companies are well protected. Comespectation is as imo on, we will get out of this rough patch, particularly with the new numbers, where it looks like we might have an agreement earlier rather than later for the meeting next week. Alix great to catch up. Thank you. Tune in today at 1 p. M. For my commodity show. Join us. I will be talking to someone with Orbital Research who tracks storage over the world and we will have a good read on supply and demand. Dont miss it. David it will be geopolitics. You have taken over the world. Alix whether it is trade with soybeans and coppers and the upside or oil and g20, that does it for bloomberg daybreak americas. Coming up, the open with jonathan ferro. Risk off day for u. S. Equity. Nice bid on the u. S. Bond market. This is bloomberg. Countdown to the open, starts now. Jonathan coming up, post powell bond market continues. President trump renewing attacks ahead of the g20. Deutsche bank moving lower. Moneylaundering probe. 30 minutes away from the opening bell in new york city. Futures negative. Down six on the s p 500. Bid in treasuries. Yield lower by four basis points. Investors, the main event. Hearing what they want to hear from fed chair jay powell. Our views have not changed. No surprise. He has confirmed the view. Overnight, they came back to the central view. The view of the fomc, this described in september, we are just below neutral