Transcripts For BLOOMBERG Bloomberg Daybreak Americas 201706

We get adp, weekly initial jobless claims and trickling out all morning, may auto sales. Fracturingsn and you manufacturing results. Jonathan for the last 24 hours its been all about the financials. Declining trading revenues. 3 wall st executives in 24 hours went into inspect haitians expect expectations management road. Mode. Jpmorgans cfo at good the sentiment. Bloomberg spoke with james gorman who is knowledge to he is seeing a similar trend. I think it would be hard to be anomaly. Have similar kinds if not the same in some cases. Theres enormous uncertainty which typically would read tremendous volatility and its not. Its was very passive perspective. The Downside Risk at this point is up weighing the offside risk. Now,han joining us Charles Peabody. Lets just begin with you very quickly. Anr take on what seemed like orchestrated move by 3 wall st executives to come out and temper great expectations. I think the expectation was that we would have some sort of seasonal slowdown. The guidance proved to be much weaker than expected. There were other factors beyond just trading. Bank of america guided down on Net Interest Income and Morgan Stanley talked about some of the catalysts to their Wealth Management losing visibility. The issue was broader than just trading. Its the one thats looking a little bit weaker compared to the others given the client makes mix . Take all the various factors, bank of america was rather disappointing because trading revenues were only down 10 to 12 . They also guided down on their Net Interest Income. Had been projecting 100 50 million increase for the Second Quarter and now they are seeing about 100 million of that increase probably wont happen or that was disappointing. Then they announced to some special charges to consolidate their call centers and for severance. That was really to frontload some expenses so they could meet their 53 billion target next year. Gamesnancial engineering playing. Its disappointing. Approach toality generating earnings. All expected bank of america would benefit the most from rate increases for the fed. The fed is on track. What explains the hit bank of america says theyre going to take . We are at a point of diminishing returns from higher rates. If the fed continued on autopilot with rate hikes we would actually see a negative impact from higher rates. Case theyly in their are being heard by the long end of the yield curve flattening. About 600 billion dollars of mortgagebacked where the premium amortization accelerates as longterm rates fall and that squeezes their margin. Alix do you buy the dip . I think longerterm what you are looking at is an improving economy with improving consumer. The consumer,n almost every metric looks really good. You have to think financials would benefit from a stable consumer thats growing. In contrast to what charles just said, we think a few more rate hikes would actually still be helpful. We would like to see the 10 year yield moving in concert with economy expectations. Alix you have been expecting the downturn in banks. Your call has been because of increased volatility. The warning we heard was lack of volatility. Are you rethinking how you think about banks in terms of why . It has been inactive rather than bad or good. You have had reduced Client Engagement. We are moving from a fixed income commodities currency as the driver of Capital Markets revenues to m a and that transition never goes smoothly. I would pointg out is in terms of a source of revenue, multiples bigger than m a and equity. A 10 drop in fake revenues it you need a 30 increase in equity trading revenues just to stay even on the trading front. Transition from six to equities is a very difficult transition. Back to your question, the comments companies are making are about the Second Quarter. The Third Quarter seasonally includes reduced Client Engagement because of the month of august. Jonathan i want to bring in drew matus. We have been fading the banks for quite a while now. Own 10 or 11 the regulatory story was quite powerful. That we were going to get this evolving regulatory story in favor of the banks to we dont hear much about it anymore. That these policy ideas will become policy realities anytime soon. You have to bear in mind to there is much more leeway for the administration to do what they want on that side. It takes time to get everyone in place. As the administration continues to build out, people in place at the treasury and the fed begin to see more of that. Thats going to be a longerterm story rather than shorterterm and one that probably will continue. Softeninghave had disappointment. Relative value play in europe. Jpmorgan says the risk reward is now in u. S. Banks. Can you make a comparison . U. S. Toest rates in the the point on net interest, think of all of the things that could drive yields higher. You have the Balance Sheet thats going to begin. You have the potential for inflation expectations. Ands are beginning to move thats usually a precursor for slightly higher levels of inflation. I think all the pressures are building on the inflation front. Part of the reason, even though we have had some tepid data as of late, they also see it. David it used to be the case off ofnks made Money Lending money to people and getting paid back. If we are not making money off why isnt as much, bank of america for example making it up on volume . Growth has been decelerating. We are lucky if we are getting 3 or 4 year over year loan growth right now. Thats the problem i have with what the fed is up to. If you look at the commodity we are lucky if we are getting 3 or 4 year over year loan growth right now. Complex or the Interest Rate structures they are all warning and Monetary Policy mistake that is a fed on autopilot with rate hikes. Tohink theyre going to have pull back and i think the bank lift thatstarting to out. It may be the last for the balance of the year. The Margin Expansion story i think comes to an end and if you dont have that and you dont have loan growth how do you grow revenues . David thank you, Charles Peabody of Compass Point research. Drew of metlife will be staying with us. But stringent sebastian from london with first word. President trump will announce whether the u. S. Will remain in the paris climate agreement. That happened at 3 00 p. M. Eastern time. People familiar say hes walking away from the landmark deal. The president has called Climate Change of folks and says the paris accord is onesided against the u. S. Thes pushing to rescind rules on power plants and methane lakes. Subpoenaed President Trumps ousted National Security adviser michael flynn. There are also demanding a number of documents. The president s personal lawyer also was subpoenaed. Cohen has said there is nothing russianhim to a fake conspiracy. In the u, theresa may is getting slammed for skipping last nights televised debate. Leaders of other parties say it shows shes not fit to lead britain. Shows conservatives 20 point lead over labor has dwindled to just three points in the election is a week from today. This is bloomberg. Its aoming up tomorrow, jobs friday. A great lineup of guests to the numbers. Its all going to be about wages. This is bloomberg. Alix 24 hours away from jobs friday. Moderate growth in the u. S. Economy. Jim gorman is a little bit more of the. Upbeat. We hope the administration can pull some of this together. We need progress on these legislative programs. Are you concerned about the u. S. Economy . No. Im very encouraged about the u. S. Economy. The dirty little secret in the u. S. Economy is doing just fine. Chief Market Strategist from metlife joins us. Its it true with the fed or james gorman . I am more in James Gormans camp. The economy is doing fine. We all know there are problems with q1. If you take a longer view on the economy, you see accelerating growth, a consumer thats in pretty good shape, the prospects for more investment Going Forward. All the concerns about administration, i would rather see a tax cut next year than this year. One of thehave longest cycles in history. We can expect that cycle will continue. When it begins to wane you might get a tax cut. Lining up to be a longterm positive growth experience. Companies want to invest. They have the money to invest. Larry fink yesterday said ceos should actually look to europe. To be the trigger for money to actually start being put to work . I wouldnt look for policy certainty to be the driver. If you live in an environment long enough what you find is that people become used to that environment. Policy uncertainty is unimportant. Trend growth in the u. S. Is probably higher than the fed thinks it is. Productivity has probably been restrained by low growth. Level where up to a we can operate on a very efficient operating level. The rpms in the engine just cant go fast enough. If we can spike the engine a little bit we will get the productivity pick up. Thats Economic Cycle expansion. Jonathan what do you make of the excitement about europe when the likes of larry fink are saying its going to outperform the United States and hes not alone . Theres a strong believer across a number of different groups of people that Monetary Policy, quantitative easing are big drivers and they cant help but look at something thats been down and expect it to go up. Is ahole underdog story great story. Everyone loves the underdog. In this case i would bet on the front runner. Jonathan in 2007 people remember wanted to be paid in euros and not dollars. The euro a couple months later topped out. Totballers in the u. K. Want be paid in euros and not in sterling. Alix by far the best story. Jonathan are we approaching that kind of moment where people are getting excited and optimistic about what europe can do for the rest of the world . Premier League Players probably live in europe. Getting paid in pounds probably didnt make them happy. Europe looks better. We have taken up our European Growth forecast for this year. It looks good. We are expecting ecb to begin tapering at the beginning of next year. Eggs are looking better. Just because things are looking better at their doesnt mean things in the u. S. Are looking worse. Part of the reason things are looking better everywhere is the u. S. Growth story is a positive one and a rising tide is lifting all boats. David is find good enough . Ofare about growth in terms two. Historically that hasnt been very exciting. To 3 ,re not going back three. 5 growth rates partly because of demographics. I think we can get above two because the productivity story, theres this argument about structural stagnation, i am not a structural stagnation the lever. We invested in housing which is not a productivity enhancing last 10 years instead of investing in computers or technology. We will begin to see the productivity story improve. Do the ceos have confidence in this economy Going Forward . Rates move higher people are going to lessen the duration of their investments and the way that ceos respond to that is by trying to focus on growing rather than cash return. Alix we are 25 hours away from jobs. I take a longerterm view now. The greatest things about the change i have made. When are we going to see real acceleration as far as lower income workers . You have already seen the lower income earners get the wage boost. The midst of it its just a matter of which weighed you are looking at. Alix hedging the numbers. David will the rate of increase go up or down . The rate i expect to accelerate. David one prediction. Drew will be staying with us. We will continue our conversation on the health of the u. S. And global economies. Merrill lynch head of Global Economics will be with us. And later, andrew balls will join us to explain what he thinks investors may be too complacent. Live from new york, this is bloomberg. Jonathan this is bloomberg daybreak. This is your Bloomberg Business flash. Biggest maker of Farm Machinery is buying a leading manufacturer of road holding equipment. Point 5 million in cash for a germanbased company. It plans to keep the existing brand. Ended its unwanted pursuit of akzonobel. It has withdrawn its proposal and wont make another. It had rebuffed the latest 29. 5 billion bid. Elliott management wants the company to hold talks with ppg. The firm failed in illegal attempt to fire the chairman. Volkswagen may make more suvs at its factory in the u. S. That could be complicated by uncertainty over President Trump and possible trade barriers. Thats your Bloomberg Business flash. Chinese manufacturing maybe contracting for the first time in a year. Thats according to the index released overnight. It dropped to 49. 6. Gormanstanley ceo james tells bloomberg he still bullish on china. Been stable. Has consumption is increasing. Overall gdp growth and liberalization of the capital market. Ofid here with drew mattis metlife. How fast is china slowing down . Think that number is probably pretty good. Its slowing down very gradually. Youre not going to see much more of that. You do have some imbalances in china. Are veryortterm there few concerns or limited concerns. In the longer run there are going to have to be other transitions made like any economy does when they are moving from one driven by exports to one driven by domestic consumption. Avid they still want growth still north of 6 . On the other hand, to date they have been funding their growth to really expanding credit faster than the growth. Are they going to have to give up some on the contracting of credit . Is thenot sure give up right word. You cant have credit expansion forever. Its all kind of the private side of the economy. The transition will have to be a little more Government Debt and a little less private debt. Where you question is are investing it. Are they investing it in productive assets . To they have a problem with the state owned assets getting a lot of money which may not be as productive . The way they are managing the economy and changing the rate structure actually tends to lead some of those investments away from state owned enterprises and more towards the private sectors. They could be trying to solve that on their own. Theyre just doing it in their own way. Jonathan drew mattis will be sticking with us. Live coverage of President Trumps announcement on his decision of the Paris Climate Accord will come at 3 00 p. M. Eastern from the white house. We will bring you full coverage of that decision. Lets get you up to speed on the market action. 3 on the session so far after a number of days of gains including a series of all time highs. Two days of losses on the s p 500. Features stable and marginally positive. The euro pulls back from 2017 highs. Youre watching bloomberg tv. Jonathan this isjonathan bloomberg daybreak. I am jonathan ferro. Futures are going nowhere. Switch of the board very quickly for treasuries, in terms of the data, the adp or comes out in about 1 45 minutes. We will bring you that appetizer before the big main course, the payrolls, that come tomorrow. Eurodollar, the high for the year, 1268. We are down by. 2 abroad Dollar Strength in the fx market. Very quickly, lets get you uptodate to date on the headlines outside the business world. Here is sebastian salek. Sebastian thanks, jon. The president announces his decision today about the paris Climate Change accord. People familiar with the matter say he is leaning toward walking away from the deal. Among those urging him to stay coo border apple tim and teslas elon musk. Two leaders have appeared to leo make amends with leaders last month. Trumbull spoke with bloomberg tv. It is more important than ever as President Trump and i demonstrate that we are together on the uss intrepid in new york. That commitment, a commitment of our two nations, based on our history, taste on our shared values, based on our mutual interests, is stronger than ever. Sebastian trumbull also called on china to rein in north korea, saying it is becoming increasingly reckless. And russias president vladimir countryses his involvement in the hacking. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am sebastian salek. This is bloomberg. David thank you. As sebastian just found us told us, we will find out whether President Trump is in or. Live on Bloomberg Radio and on television. Joining us now is chief washington correspondent kevin cirilli. Varioushearing from sources he is leaning toward withdrawing. Kevin is he in or outkevin . 3 00,l know it today at david. He will be announcing whether or not we will remain in the paris accord agreement. Top ceos, particularly elon musk, coming to the defending of the paris accord agreement. Circulated letter back in early may by the Business Community and big banks prominent groups like Morgan Stanley, Goldman Sachs, citigroup urging the president to stay in the Paris Agreement. They feel like this is the kind of agreement that will help set the course for the world in hopes of reducing Downside Risk<\/a> at this point is up weighing the offside risk. Now,han joining us Charles Peabody<\/a>. Lets just begin with you very quickly. Anr take on what seemed like orchestrated move by 3 wall st executives to come out and temper great expectations. I think the expectation was that we would have some sort of seasonal slowdown. The guidance proved to be much weaker than expected. There were other factors beyond just trading. Bank of america guided down on Net Interest Income<\/a> and Morgan Stanley<\/a> talked about some of the catalysts to their Wealth Management<\/a> losing visibility. The issue was broader than just trading. Its the one thats looking a little bit weaker compared to the others given the client makes mix . Take all the various factors, bank of america was rather disappointing because trading revenues were only down 10 to 12 . They also guided down on their Net Interest Income<\/a>. Had been projecting 100 50 million increase for the Second Quarter<\/a> and now they are seeing about 100 million of that increase probably wont happen or that was disappointing. Then they announced to some special charges to consolidate their call centers and for severance. That was really to frontload some expenses so they could meet their 53 billion target next year. Gamesnancial engineering playing. Its disappointing. Approach toality generating earnings. All expected bank of america would benefit the most from rate increases for the fed. The fed is on track. What explains the hit bank of america says theyre going to take . We are at a point of diminishing returns from higher rates. If the fed continued on autopilot with rate hikes we would actually see a negative impact from higher rates. Case theyly in their are being heard by the long end of the yield curve flattening. About 600 billion dollars of mortgagebacked where the premium amortization accelerates as longterm rates fall and that squeezes their margin. Alix do you buy the dip . I think longerterm what you are looking at is an improving economy with improving consumer. The consumer,n almost every metric looks really good. You have to think financials would benefit from a stable consumer thats growing. In contrast to what charles just said, we think a few more rate hikes would actually still be helpful. We would like to see the 10 year yield moving in concert with economy expectations. Alix you have been expecting the downturn in banks. Your call has been because of increased volatility. The warning we heard was lack of volatility. Are you rethinking how you think about banks in terms of why . It has been inactive rather than bad or good. You have had reduced Client Engagement<\/a>. We are moving from a fixed income commodities currency as the driver of Capital Markets<\/a> revenues to m a and that transition never goes smoothly. I would pointg out is in terms of a source of revenue, multiples bigger than m a and equity. A 10 drop in fake revenues it you need a 30 increase in equity trading revenues just to stay even on the trading front. Transition from six to equities is a very difficult transition. Back to your question, the comments companies are making are about the Second Quarter<\/a>. The Third Quarter<\/a> seasonally includes reduced Client Engagement<\/a> because of the month of august. Jonathan i want to bring in drew matus. We have been fading the banks for quite a while now. Own 10 or 11 the regulatory story was quite powerful. That we were going to get this evolving regulatory story in favor of the banks to we dont hear much about it anymore. That these policy ideas will become policy realities anytime soon. You have to bear in mind to there is much more leeway for the administration to do what they want on that side. It takes time to get everyone in place. As the administration continues to build out, people in place at the treasury and the fed begin to see more of that. Thats going to be a longerterm story rather than shorterterm and one that probably will continue. Softeninghave had disappointment. Relative value play in europe. Jpmorgan says the risk reward is now in u. S. Banks. Can you make a comparison . U. S. Toest rates in the the point on net interest, think of all of the things that could drive yields higher. You have the Balance Sheet<\/a> thats going to begin. You have the potential for inflation expectations. Ands are beginning to move thats usually a precursor for slightly higher levels of inflation. I think all the pressures are building on the inflation front. Part of the reason, even though we have had some tepid data as of late, they also see it. David it used to be the case off ofnks made Money Lending<\/a> money to people and getting paid back. If we are not making money off why isnt as much, bank of america for example making it up on volume . Growth has been decelerating. We are lucky if we are getting 3 or 4 year over year loan growth right now. Thats the problem i have with what the fed is up to. If you look at the commodity we are lucky if we are getting 3 or 4 year over year loan growth right now. Complex or the Interest Rate<\/a> structures they are all warning and Monetary Policy<\/a> mistake that is a fed on autopilot with rate hikes. Tohink theyre going to have pull back and i think the bank lift thatstarting to out. It may be the last for the balance of the year. The Margin Expansion<\/a> story i think comes to an end and if you dont have that and you dont have loan growth how do you grow revenues . David thank you, Charles Peabody<\/a> of Compass Point<\/a> research. Drew of metlife will be staying with us. But stringent sebastian from london with first word. President trump will announce whether the u. S. Will remain in the paris climate agreement. That happened at 3 00 p. M. Eastern time. People familiar say hes walking away from the landmark deal. The president has called Climate Change<\/a> of folks and says the paris accord is onesided against the u. S. Thes pushing to rescind rules on power plants and methane lakes. Subpoenaed President Trump<\/a>s ousted National Security<\/a> adviser michael flynn. There are also demanding a number of documents. The president s personal lawyer also was subpoenaed. Cohen has said there is nothing russianhim to a fake conspiracy. In the u, theresa may is getting slammed for skipping last nights televised debate. Leaders of other parties say it shows shes not fit to lead britain. Shows conservatives 20 point lead over labor has dwindled to just three points in the election is a week from today. This is bloomberg. Its aoming up tomorrow, jobs friday. A great lineup of guests to the numbers. Its all going to be about wages. This is bloomberg. Alix 24 hours away from jobs friday. Moderate growth in the u. S. Economy. Jim gorman is a little bit more of the. Upbeat. We hope the administration can pull some of this together. We need progress on these legislative programs. Are you concerned about the u. S. Economy . No. Im very encouraged about the u. S. Economy. The dirty little secret in the u. S. Economy is doing just fine. Chief Market Strategist<\/a> from metlife joins us. Its it true with the fed or james gorman . I am more in James Gormans<\/a> camp. The economy is doing fine. We all know there are problems with q1. If you take a longer view on the economy, you see accelerating growth, a consumer thats in pretty good shape, the prospects for more investment Going Forward<\/a>. All the concerns about administration, i would rather see a tax cut next year than this year. One of thehave longest cycles in history. We can expect that cycle will continue. When it begins to wane you might get a tax cut. Lining up to be a longterm positive growth experience. Companies want to invest. They have the money to invest. Larry fink yesterday said ceos should actually look to europe. To be the trigger for money to actually start being put to work . I wouldnt look for policy certainty to be the driver. If you live in an environment long enough what you find is that people become used to that environment. Policy uncertainty is unimportant. Trend growth in the u. S. Is probably higher than the fed thinks it is. Productivity has probably been restrained by low growth. Level where up to a we can operate on a very efficient operating level. The rpms in the engine just cant go fast enough. If we can spike the engine a little bit we will get the productivity pick up. Thats Economic Cycle<\/a> expansion. Jonathan what do you make of the excitement about europe when the likes of larry fink are saying its going to outperform the United States<\/a> and hes not alone . Theres a strong believer across a number of different groups of people that Monetary Policy<\/a>, quantitative easing are big drivers and they cant help but look at something thats been down and expect it to go up. Is ahole underdog story great story. Everyone loves the underdog. In this case i would bet on the front runner. Jonathan in 2007 people remember wanted to be paid in euros and not dollars. The euro a couple months later topped out. Totballers in the u. K. Want be paid in euros and not in sterling. Alix by far the best story. Jonathan are we approaching that kind of moment where people are getting excited and optimistic about what europe can do for the rest of the world . Premier League Players<\/a> probably live in europe. Getting paid in pounds probably didnt make them happy. Europe looks better. We have taken up our European Growth<\/a> forecast for this year. It looks good. We are expecting ecb to begin tapering at the beginning of next year. Eggs are looking better. Just because things are looking better at their doesnt mean things in the u. S. Are looking worse. Part of the reason things are looking better everywhere is the u. S. Growth story is a positive one and a rising tide is lifting all boats. David is find good enough . Ofare about growth in terms two. Historically that hasnt been very exciting. To 3 ,re not going back three. 5 growth rates partly because of demographics. I think we can get above two because the productivity story, theres this argument about structural stagnation, i am not a structural stagnation the lever. We invested in housing which is not a productivity enhancing last 10 years instead of investing in computers or technology. We will begin to see the productivity story improve. Do the ceos have confidence in this economy Going Forward<\/a> . Rates move higher people are going to lessen the duration of their investments and the way that ceos respond to that is by trying to focus on growing rather than cash return. Alix we are 25 hours away from jobs. I take a longerterm view now. The greatest things about the change i have made. When are we going to see real acceleration as far as lower income workers . You have already seen the lower income earners get the wage boost. The midst of it its just a matter of which weighed you are looking at. Alix hedging the numbers. David will the rate of increase go up or down . The rate i expect to accelerate. David one prediction. Drew will be staying with us. We will continue our conversation on the health of the u. S. And global economies. Merrill lynch head of Global Economics<\/a> will be with us. And later, andrew balls will join us to explain what he thinks investors may be too complacent. Live from new york, this is bloomberg. Jonathan this is bloomberg daybreak. This is your Bloomberg Business<\/a> flash. Biggest maker of Farm Machinery<\/a> is buying a leading manufacturer of road holding equipment. Point 5 million in cash for a germanbased company. It plans to keep the existing brand. Ended its unwanted pursuit of akzonobel. It has withdrawn its proposal and wont make another. It had rebuffed the latest 29. 5 billion bid. Elliott management wants the company to hold talks with ppg. The firm failed in illegal attempt to fire the chairman. Volkswagen may make more suvs at its factory in the u. S. That could be complicated by uncertainty over President Trump<\/a> and possible trade barriers. Thats your Bloomberg Business<\/a> flash. Chinese manufacturing maybe contracting for the first time in a year. Thats according to the index released overnight. It dropped to 49. 6. Gormanstanley ceo james tells bloomberg he still bullish on china. Been stable. Has consumption is increasing. Overall gdp growth and liberalization of the capital market. Ofid here with drew mattis metlife. How fast is china slowing down . Think that number is probably pretty good. Its slowing down very gradually. Youre not going to see much more of that. You do have some imbalances in china. Are veryortterm there few concerns or limited concerns. In the longer run there are going to have to be other transitions made like any economy does when they are moving from one driven by exports to one driven by domestic consumption. Avid they still want growth still north of 6 . On the other hand, to date they have been funding their growth to really expanding credit faster than the growth. Are they going to have to give up some on the contracting of credit . Is thenot sure give up right word. You cant have credit expansion forever. Its all kind of the private side of the economy. The transition will have to be a little more Government Debt<\/a> and a little less private debt. Where you question is are investing it. Are they investing it in productive assets . To they have a problem with the state owned assets getting a lot of money which may not be as productive . The way they are managing the economy and changing the rate structure actually tends to lead some of those investments away from state owned enterprises and more towards the private sectors. They could be trying to solve that on their own. Theyre just doing it in their own way. Jonathan drew mattis will be sticking with us. Live coverage of President Trump<\/a>s announcement on his decision of the Paris Climate Accord<\/a> will come at 3 00 p. M. Eastern from the white house. We will bring you full coverage of that decision. Lets get you up to speed on the market action. 3 on the session so far after a number of days of gains including a series of all time highs. Two days of losses on the s p 500. Features stable and marginally positive. The euro pulls back from 2017 highs. Youre watching bloomberg tv. Jonathan this isjonathan bloomberg daybreak. I am jonathan ferro. Futures are going nowhere. Switch of the board very quickly for treasuries, in terms of the data, the adp or comes out in about 1 45 minutes. We will bring you that appetizer before the big main course, the payrolls, that come tomorrow. Eurodollar, the high for the year, 1268. We are down by. 2 abroad Dollar Strength<\/a> in the fx market. Very quickly, lets get you uptodate to date on the headlines outside the business world. Here is sebastian salek. Sebastian thanks, jon. The president announces his decision today about the paris Climate Change<\/a> accord. People familiar with the matter say he is leaning toward walking away from the deal. Among those urging him to stay coo border apple tim and teslas elon musk. Two leaders have appeared to leo make amends with leaders last month. Trumbull spoke with bloomberg tv. It is more important than ever as President Trump<\/a> and i demonstrate that we are together on the uss intrepid in new york. That commitment, a commitment of our two nations, based on our history, taste on our shared values, based on our mutual interests, is stronger than ever. Sebastian trumbull also called on china to rein in north korea, saying it is becoming increasingly reckless. And russias president vladimir countryses his involvement in the hacking. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am sebastian salek. This is bloomberg. David thank you. As sebastian just found us told us, we will find out whether President Trump<\/a> is in or. Live on Bloomberg Radio<\/a> and on television. Joining us now is chief washington correspondent kevin cirilli. Varioushearing from sources he is leaning toward withdrawing. Kevin is he in or outkevin . 3 00,l know it today at david. He will be announcing whether or not we will remain in the paris accord agreement. Top ceos, particularly elon musk, coming to the defending of the paris accord agreement. Circulated letter back in early may by the Business Community<\/a> and big banks prominent groups like Morgan Stanley<\/a>, Goldman Sachs<\/a>, citigroup urging the president to stay in the Paris Agreement<\/a>. They feel like this is the kind of agreement that will help set the course for the world in hopes of reducing Carbon Emissions<\/a> as well as a host of regulatory issues. That said, others have really be president to get out of the agreement, most notably the koch brothers. David the man who put together that letter, which is published today, as i understand coming slain to us is there a third way between in or out . Is there a way he can say i will be in parts of it, i will not fully be in . Kevin yes, and this is where could get interesting. Tryld be president assad to to find some sort of middle ground in terms of having a role for congress should the president trying to find some sort of middle ground in terms of having a role for congress in it, giving more foreground in terms of ratifying a treaty they got the congressional overview or oversight, at least some conservatives argue, not many, but some make the case that the Congress Never<\/a> get the ll purview it needed to review the set of agreement, really bolster during the obama administration. So the president has picked a wildcard before. We will have to wait to see the specifics at 3 00 p. M. Today. David adding Something Else<\/a> to the climate builds on like a really good idea. [laughter] david , kevin. Alix dont they go on summer break . Have first solar, arts call, exxon mobil, so if you are solar, coal, oil, or natural gas, a kind of played out as expected. First solar getting hit. Still with us is drew matus of metlife. Also joining us from edinburgh is paul mcconnell. With the Market Reaction<\/a> correct . Is this positive for coal, negative first oil, oil, and natural gas . What is really interesting about president is he does drop out of this Paris Agreement<\/a> as expected, we think it is having less of an influence on the way. Fuel demand, nobles demand will develop over the next several years or so. We have protocol designed to change behavior. Now we have cheaper nobles, cheap natural gas. Those things will have much more of an update in fact on things. Alix at the end of the day, paul, it is a market. Take a look at coal versus natural gas. This tells us a story. Natural gas is cheaper than coal. Why are you going to wind up wanting cold when you can get natural gas for cheaper . It is not going to change the plans to retire, paul. Paul paul that is absolutely correct. Coal has been in competition with natural gas. Looking ahead, you have lowering power demand growth, the rise of renewables, and those things will continue to squeeze the space that cant compete, regardless of what happens in international policy. Us, this isrome at quite an intriguing decision, given those who are not in the decision, one is syria, one is nicaragua. Nicaragua because they wanted something stricter. Many of their Investor Base<\/a>s right now, including the big energy firms, are pushing them in this direction toward the kind of. Climate accord that was agreed upon. Does. Does it push anything in the u. S. . Drew if every Company Keeps<\/a> doing what it is doing, you could argue it does not make much of a difference. Everyone wants something to happen, it should not matter whether it is policy or not. As you noted, they are voluntary agreements. Followingas everyone before this, and how well will everyone be following after this . Whether we are in or out, what really matters is whether the Companies Inside<\/a> the u. S. Continue to move along the path things are on. Jonathan set the story here. You touched on it. I want to know how important market discipline will be to push something in the direction they are going in, a way which the administration and the u. S. May or may not want to see. Paul i think that is the crux of the issue. You saw what happened yesterday with exxon. You saw what happened earlier in the month with occidental, and investors are taking the background from policymakers and driving a specific direction. Maybe the companies do not necessarily want to go down that route. Policyntioned, the component is perhaps weakening, and the Investor Base<\/a> is making things happen and driving outcomes in a particular direction. Fact, call, the that it is not as mandatory as one might like, is there a danger that the u. S. , which i believe is the largest per the world,uter in leads in the other direction and would give an excuse to others around the world to cheat, to fail to comply with what paris is expecting . Paul you are right. The targets are voluntary, but the decision for trump to pull out of harris has been, i think if he does go down that route this evening, it is not going to be a huge surprise, lets be frank. In response, youve got china and the European Union<\/a> announcing a kind of alliance to push forward on these measures, in the cleantech, in a missions. More thannd china has the rest of the world put together, so there is an incentive here for china in particular to push further down that cleantech route. The targets are voluntary, maybe it isill be missed, but not the exact amount of alix commissions. Off of whatgyback paul is saying, if you want to see this flow into more solar, more wind, is the u. S. Going to miss that money and go directly to china, bypass the u. S. . Drew i dont think so. I think the Companies Involved<\/a> in the noble energy will continue to be involved in it. They have made investments alix say in terms of infrastructure, private investment, that sort of thing. Drew you know, maybe on the margin, but i dont think so. I think it really depends on what the Business Environment<\/a> is going to be in the u. S. Moving towards this. I think that will be the main driver. It is mostly companies in the u. S. Trying to move in a direction where they have a minimal impact on the climate. Come other done it companies have done it, you still see ceos coming out and saying this accord matters to them. If it matters to them today, it will matter to them tomorrow. They are going to stay in the game, and that is what that means is the investments will continue. Jonathan tom oconnell, we appreciate your time, drew matus of metlife, you will be sticking with us. An open goal alix here we go. Jonathan yes, we are in, that is a huge win on the national stage. 12 months ago, it was just a given that we are in. Merkel ine angela ceo, this guycore erg,t here, ivan glasenb interviewed by erik schatzker. Look out for the accurate we will bring you that interview right here on bloomberg tv. Jonathan douche sebastian this is bloomberg daybreak. Markets, on Bloomberg Christine<\/a> whitman, the former epa administrator. That is that 1 00 p. M. Eastern time. Bloomberg. Is i am david westin. With everyone focused on whether there will be a continued softening in the month of may, one early indication could come from the performance of sub rhyme auto loans. Here with us is drew matus of metlife. What does the subprime of the bank era tell us . We hear a lot of talk about problems developing there. Drew the first time was when we went to sevenyear auto loans. Part of the reason we did that as we have this fixation on how much you have to pay per month rather than how much does the cost. Car i think there is a subset of americans who are having difficulty kind of making ends meet who are kind of going for these longerterm loans to do not have the credit that they need, and they are the ones who end up in trouble when things turn south. It is something we are watching carefully. We always watch the consumer, but in particular, looking at these auto loans and looking at subprime, to see if it is contained into a certain area or whether it has potential to spread. David does that subset of self tell us about the demand for automobiles . To what extent do Auto Companies<\/a> make the loans together volume up . You know, the main driver for auto purchases tends to be a Pretty Simple<\/a> equation, which is how many people are moving into the driving age, and then how many people have some intent to buy a car . You throw in some credit metrics and employment metrics. On the credit side, it seems like overall Consumer Credit<\/a> is improving. A huget want to make come abroad case, and there are reasons why that might be happening, so you do not want to bet the farm on that one, but you look at the employment situation, and obviously that is looking pretty strong. Contagion . Cause the alix if a loans are going to fund in defaulting, what is the contagion to the rest of the sector . Be if bankssk would take losses in one area, they will pull back in lending to another area. Alix are the loans significant enough that that would be material . Drew in terms of securities, that risk has been dispersed. So on the people who own those banks cut off the their loans come it could be of little more concentrated. I do not think there is a giant concentration risk like we saw in the Housing Market<\/a> in 2008. David if in fact auto loans to go south, does it indicate we may be long in the Credit Sector<\/a> and we may be in search of other loans . Drew i dont think necessarily in the subprime sector. If it spreads, that tells you something worrisome is happening. It is something that does not make sense given Everything Else<\/a> we know about the u. S. Consumer. Pickupld we not see a and other things like housing . It would mean something odd is happening, and we would have to take a second. Jonathan to examine thatjonathan the credit pickup and other things like housing . Cycle, when it starts to turn, isnt that when it starts . Drew what you saw and housing as it began in subprime, and what happens when everyone joined in subprime is a created price distortions, it boosted prices, and then all of a sudden, everyone has to reach to get the house that they wanted. It created credit issues further up the food chain that were a mess by the fact that they were not in fact subprime, but they were more exposed to risk than they thought they were. David as you try to do your arms around the u. S. Economy, how important are the sales . As an indicator more broadly of consumer spending. Drew they are less important to me than spending on services. What always causes a recession is when people look around and they say, i am not going to go get my haircut because i dont want to spend the 20 today or whatever. Other people spend more on haircuts, but the important thing is if you are willing to spend money on a haircut, you are willing to go to the doctor, you are not putting off the visit to the dentist, things are ok. When you begin to question when you should be doing those things , that is when the economy tends to be very sensitive and has the potential to roll self. Alix drew, good stuff. Drew matus of metlife investment. Im helping out the guys. I got a whole new wardrobe this weekend. Check us out on tv , you can watch us online, check out charts and graphics, interact with us directly. Check out the side panel for new data or charts we may have. This is bloomberg. Jonathan formal rights of negotiations are set to begin this month following the u. K. s june 8 elections. It may take as much as five years to leave the eu. Brexit will be an immensely damaging process, powerful to both sides. Most of the damage is felt right now when the European Union<\/a> is in existential danger, but its attention is diverted in negotiating the separation from written. Resist temptation to punish britain and approach the negotiations in a constructive spirit. Brexit as ae catalyst for introducing farreaching reforms. Jonathan joining us now is former finland Prime Minister<\/a> alexander stubb. You were in the room, alexander. Great to have you with us. What are your thoughts on george soros . Mr. Stubb i agree with him. Brexit is a lose lose proposition, and we should certainly not try to punish britain for what is going on. We need to find i think an agreement in the long run. Secondly, i think it will take a very long time, approximately five years. Thirdly, i think this is a wonderful opportunity for europe actually do go for farreaching reform, whether it is the rum, security the euro, security, and we should forge ahead with integration. Jonathan lets talk about those things. The sense of integration is that line, the push for an ever. Loser union there is an argument, alexander, that that push to make fast political decisions over sensible economic once, does that argument apply to the brexit negotiations as well . Mr. Stubb probably not because i think at the end of the line, the brexit negotiations, we try to come up with some kind of common agreement, but we will see fighting on both sides of the channel. Before the british elections, you will see a whole bunch of stuff like no deal is better than the bad deal, and of course no one believes it. Negotiator and i had an opportunity to discuss the matter. At the end of the day, everyone is working hard to find the deal. Political reality we live with it, but it does not have to lead to bad economic decisions. Jonathan looking over the channels in the United Kingdom<\/a> right now, if theresa may decided a bigger majority in the election, how is that being viewed from europe . Mr. Stubb well, it is hard to say. Right now, everything is on hold, and you obviously cannot start the negotiations with the elections going on, but midsummer, they will start. If Prime Minister<\/a> may gets the bigger majority, she will probably have a little more freedom to negotiate in a way which she once. If theres some kind of coalition emerging from these elections and there is no majority, it is a completely different kettle of fish. At the end of the day, these things tend to sort them things out. But we should be sensible and calm and not get into the usual bickering that we have a tendency to do. David he talked about a closer union, particularly you mentioned the euro. Can the European Union<\/a> ever become really stable unless there is a common fiscal policy as well as a common Monetary Policy<\/a> . Mr. Stubb at the end of the day, we will probably need both, but you must remember that there is a sea runs on it, and it is very a sequence on it, and it is very slow. A logical integration in one area is the pressure to integrate in another, as you go from an internal market to a monetary union, and economic union. Paper was put forward yesterday calling for integration in europe, and to be honest, i like quite a few of the ideas for instance, the European Finance<\/a> minister, i think that is what we should have, and thats what we will end up with. Sebastian verbal the political david what will the political influence come from us . Mr. Stubb two things are driving european integration forward right now one is brexit, and one is donald trump, which basically means europe will have to take a little more usednsibility than it is to. The driver for all of this change will actually come from the Franco German<\/a> axis. We will see unity between france and germany, especially chancellor merkel and president macron, who is very proeuropean. We will see a new axis emerging. Leadership will come from france and germany. Jonathan where is the leadership going to come from on a global stage . We have a reluctant one in the u. S. , at the moment at least. Who fills the void . Mr. Stubb the bottom line is you cannot leave the world if you reject globalization and walls. Uilding there will be a power vacuum, that vacuum will be filled. I think europe will take it, i think china will do it in their economy, and russia will be quite strong on the military. If the u. S. Leaves the stage, someone will be on it. Jonathan alexander stub, former Prime Minister<\/a>. Jonathan wall street chief tempers great extra patience. Jpmorgan and bank of america say secondquarter trading revenue may drop 10 . Growth may have already peaked in 2017. Contracting for the first time in a year. And the president seems in favor of pulling out of the paris accord agreement. Syria and nicaragua are the only countries not part of the deal. From new york city, good morning. This is bloomberg daybreak. I am jonathan ferro. Alongside devon weston and alix steel. We are 16 minutes away from the adp report. Futures go nowhere. We are up about a single point. Treasury yields climb higher by andbasis points at 2. 22, 1. 1219 on the euro, up by. 2 . Economic club of new york, the last fed the before the blackout period. Some of the highlights from this speech, a global, brighter picture. The economy is close to full employment, more so than they have been in some time. We are still watching inflation. Later on in this hour, all about the trump beat jobs friday. 8 30 a. M. To get weekly initial jobless claims. We also get may auto sales picking up throughout the entire morning, and 10 00 a. M. , manufacturing for last month. A busy day, jon, in the ecoworld. Jonathan we made it this long alix do we do for elections . Jonathan from meeting to meeting, maybe we only hear from chair yellen at a news conference. Of us will lose our job if that happens. What do they do . They spend all their time giving speeches. Jonathan i think Neel Kashkari<\/a> alix so sad. Jonathan do blocks count . Alix i think in this case, probably. Jonathan this has gone too far. Financials the big story, leading to declines yesterday after announcing decline in trading revenue. Now in expectations management mode. Businessnihan said will be 12 lower. First half earnings should be stronger. Bloomberg spoke with Morgan Stanley<\/a> chairman and ceo who is knowledge t is seeing a similar trend. We are all in the same markets, we help we have similar kinds if not the same kinds in some cases. It is an interesting environment. An enormous uncertainty which would bring tremendous volatility and it is not. Passive perspective investors have and the Downside Risk<\/a> at this point is outweighing the upside risks. People are just not that active. Joe joining jonathan joining us now, bank of America Merrill<\/a> lynch and the head of economics. Three executives, three different banks singing that with the same thing. What is driving it . Exactly. You typically see the big banks coming out. Somethingally reveal and on this occasion, they say hey, it is worse than investors were expecting. Investors didg not know. Always more connected with trading revenues as opposed to other banks. Jonathan when they smack snap into expectation mode, it is usually a price of the individual stocks. There has been since the election, but we dated that since march. Where is the optimism, not just around trading . Is it around deregulation as well . Yes. Of course, you have a little bit of the trade going on, the optimism about the legislative agenda. There is not anything going on but not necessarily any and to theye tax reforms still can get done. More through the regulatory appointments. It plays into these big debt thingsand those kinds of , that is the regulatory side, there is still a lot of optimism around blending. The rates continue to be expected for rising up, that is always good for the banks. When it comes to loan growth, where are they . Is the lagthis effect six to 12 months ago. Part of it is just a slowdown a bit here. I do not think this is a big problem. Still healthy but it is one of the areas of weakness recently. The annual International Economics<\/a> form forum today, i want to go live to the event. Lets talk to the commodities trading and take a listen. Pretty big in the World Trading<\/a> side handling 5 Million Barrels<\/a> of oil a day. What we decided a while ago during 2015, if you bring in a partner and brought in two but partnersanies, who want to grow the business. We needed investors behind us, which we did. Be in most places of the world to really trade agricultural space, you need to be in the coal producing countries in the world. America. Nough in south we wanted to grow in those two countries to really complement our culture part of the business. It is very big in america and south america. We believe it is a good fit. As so often is the case in mergers and acquisitions, responded coolly. We cannot comment. It is a public company. Prove if they intransigent, will you look for another target . The companies in the United States<\/a>, public and private companies, some that are owned by other companies p are there are opportunities, many private and public companies. We will continue looking at all aspects of the business. We will find time to grow. You told your shareholders you want to be more inquisitive. A bigger player in global trade. Beyond agriculture, what do you have in mind . You are not as big a player in oil production. Is that a market you would like to expand in . It is not as though we sit here and say, we have got to grow and want to grow. , we did not have much in the United States<\/a>, we were not big enough and south america. Obviously that is where we want to grow. Otherwise, more opportunistic. What opportunities . Etc. L, nickel, i dont mind where it comes from. As long as it is a commodity we we look at anything as long as it gives us the right return. If a coal mine becomes available , we do it. We may not be as big and nickel but if something comes and not at the right price as nickel, we wouldnt do it. Commodities,over we are the only Mining Company<\/a> across the full spread of commodities. What we like about it, tier one commodities, the first cycle of , that is when countries are developing such as china that eventually, reaches its peak at a bit to her time when the country is being developed. A lot of our commodities are in these areas. We also have a lot of commodities. The bing thing the big thing happening today is electric vehicles. Nickel. Copper and we are big in those commodities. It is not a matter of saying we want to grow there because we want to get bigger. It is more now if it is the right opportunity and the right time to present itself, we look into it. Erik schatzker at the economic forum. You can watch that on your bloomberg terminal. Bank of America Merrill<\/a> lynch head of global at comics, still with us. Let me draw together these are we talked about what is going on with banks and financial spared on the other hand, we are talking about commodities. Tol spirits, what happened them . That is the story of economic recoveries. People have always been a bigs a bit skeptical. There has not been any followthrough. That good dont feel about the world and that is why we have a slow economic recovery. David we will have a great line of guests tomorrow to react to the payrolls report including bill gross. Live from new york, this is bloomberg. Erik schatzker speaking to the ceo blank or. You can check out that interview happening. The big headline it came out to me as a shocker, glencore is looking for acquisitions. Two stories, one is m a. Anything at the right price will be good for us. The question being what is the right price . That is generally true. When you want to see iron iron or at 65 and you want to see oil below 50, you would think there would be a lot of opportunities and yet we not see materials change. It does seem to be Going Forward<\/a>. You go back a few years, they were looking to acquire rio. Think about that for a moment. About a year later, they were talking about what the future of the company would be and now they seem to be in a position where they kenexa talk about acquisitions. A remarkable transformation of one company. Can they survive, that was the conversation. , in a goodto go back way, it gets really persistent. Now were talking about questions about going hostile. Effective ceo in the Business Today<\/a> . I think most people would agree with that. We have got your payrolls report payrolls report. With 180000 and the previous number was 170 seven feared we got used to this over the last several months. Surprises. Any indicator of what the main will bring tomorrow in the payrolls report . Pointsy yields up three on the 10 year. The equitiesfor markets. Lets bring up the futures you. Ds for still stable and not really going anywhere. The reaction you see, yields pushing higher across the curve onto your notes. , couple of basis points now one play to 9, 1. 3, pretty much flat. That is the story of the bond market, across the equities of the bigthe back upside surprise. Ethan harris, bank of America Merrill<\/a> lynch is still with us. Where are the workers coming from . Lets pretend the number plays out with the jobs report. Where is it coming from . The labor market is strong. Why are we adding so many workers . Adding,of what we are that is giving a little more room for growth. We still have an Unemployment Rate<\/a> of 4. 4 . People are out there available for worth and demand for work and demand is strong. Part of the economy that has not slowed down, it looks pretty healthy. We talked a lot about what them happy. What will it be . Will it be a continued growth in the jobs world . You look at what has driven the dollar in the course of the last 12 months, the yield curve more than anything else. The dollarly see higher. You talk about future expectations for growth and for where we will go with inflation, and then maybe that is the story but at the moment, it should be a dollar weaker. Tomorrow, we should see what actual number comes over. Jonathan is the report any kind of indicator as to what the number will look like tomorrow . Burned in the past by taking it too literally and try to translate it straight, but i think when you get a big surprise like this, it creates upward risk to the forecast. Payrolls is 180,000 in. With this kind of surprise, maybe a 200 number appear you have to get a little bit of weight to this. 2017, thery through path of least resistance now, actually north . A stronger dollar story . Be cautious about that you have got to put this into context. Going out essentially for the last half a decade, relatively rare that you see the dollar you go back to the mid 1990s, 1980s, fiveyear trends. Hard to think there are that many people at their desperately seeking yields. They still think he is all there. Major shifting yields lower and higher. It will be a struggle. It will be a fed backing off a little bit, a good new scenario or good news is bad news . Good news will get the fed on track a bit. Doesnt it have to back off until it changes . A slightly hot but not super hot labor market. 200 plus, that is a different story. Right now, though they are likely to hike at the june meeting, they are feeling squishy about the followthrough after that. Getting a good labor market number will calm their concerns and keep them keep them on track for the hiking cycle there talking about. Confusing. To you, it appears we may get to a world where we have modest inflation kicking in on both sides of the atlantic. What does that due to the u. S. Dollar . We really dont have inflation, particularly in wages. What does that do to the dollar . If you look right now between headline inflation and where the fed funds rate is, we ride back to the kinds of levels three or four years ago. Historically, the dollar has never reacted terribly well. We talk about the moderated inflation story, he still have the fed finally getting to territory. Inflation story absolutely does the wordistorically, of the day has been somewhat squishy on these things. You have seen them be extremely about anything with Dollar Strength<\/a>. I think that could be a major issue. If we start to see inflation and the dollar start to rise from here, i would not be surprised. O see the fed back off further jonathan sometimes, things get ridiculous. I have a vision of someone flipping through channels ma and up on a Financial News<\/a> Network Listen<\/a> to a group of people talking about good news, good educated news, and economists turning around and going no, i think it is good news. Do i get paid in euros or dollars . All right. Ethan harris will be staying with us. A quick programming note. Live coverage of President Trump<\/a> us his announcement on his decision at the Paris Climate Accord<\/a>. That is coming in the afternoon from the white house. This is bloomberg. David auto sales will be out this morning with everyone focusing on whether there will be a continued softening in may. Subprime auto loans. Joining us now is ethan harris, head of Global Economics<\/a> Research Bank<\/a> of America Merrill<\/a> lynch. How important are the auto sale numbers as we try to get a sense of where the economy is headed . Auto companies have been very aggressive with leasing and subprime lending and pulled forward a lot of demand. Is the auto sector is peeking out earlier than normal in the business cycle. I do not think it is a sign they do signal youre getting a hold. It seems to me right now to be premature. Skeptical whether that migrates to the other parts of the economy . Broadly through have two sector specific problems. Student loans, very high. Very big growth in subprime lending but that is not symptomatic of a broader problem. How does the household Balance Sheet<\/a> look right now . It is actually quite good. We had a massive rally in asset prices. Incomegrown slower than so the debt to income ratio actually reversed a bit. So it is actually in decent shape. It creeped up a bit in the cycle. Households became a bit more conservative as they should be given the lack of saving for retirement right now. Thanks so much. Jonathan. Jonathan we get your weekly initial jobless claims after a big upside on adp report ahead of payrolls on friday. Alsoust ethan harris but andrew with Global Fixed Income<\/a> will react to that from london. From new york city and our viewers worldwide, youre watching bloomberg tv. Jonathan you are watching bloomberg daybreak and i am jonathan ferro. Futures positive up about 1 10 of 1 . The s p 500, 1. 3 . A big upside on adp report. Higher by two basis points. Dollar strength throughout the morning. The euro is a little softer. Initial jobless claims come up to 248,000. 235 is the revised previous number. 240,000 though historically, even though that is from the previous number, 248, it is incredibly low. Continuing that labor market. Still with us, bank of America Merrill<\/a> lynch, Global Fixed Income<\/a> cio. You are heading into jobs friday, what is your call . Pretty similar clearly to have something around. 85 nothing too different from the consensus. Is there a risk of having more people coming in, and the fed has to pull back, does that play out tomorrow . Overtime, it is good to see if people are coming back to the labor market in the u. S. The labor market has been pretty strong the last few years. A slightly slower pace of job growth is what we should be expecting now. Alix yesterday, you are out with your three to five year playbook, a 7 the session the next few years. You always have something around the 20 chance of a Recession Risk<\/a> if you give them the last 50 or 60 years. We had a long expansion already after 2000 eight. Looking in the next three to five years, youll have to take seriously a Recession Risk<\/a> over that time. The couple reasons it is worth highlighting. You look at risk assets, you are not getting generous spreads or valuation. Is whether wetion should get more cautious given a Recession Risk<\/a> overtime, pretty tight valuations. Event it does happen, you do not want to start from here in federal reserves or global or Central Banks<\/a>, or the room. Hey have to ease in terms of the longterm horizon and secular framework, a little bit of caution and more limited scope for Central Banks<\/a> to respond we think is warranted. See credit risk on our portfolio spirit was still have a positive view on credit and are still overweight on credit and reducing the percent of that given valuations. Andave a similar view now valuations have moved quite a bit. Quality, we go to cases where you have securitize action nec mortgages as an attractive part of the market fundamentals. Ood we will have more of an emphasis adding thetive value real alpha rather than just exposures. Jonathan looking at treasuries, to 63 is the highest 10 year. Have we seen it for the year already . See this as the low end of the range we would see in the near term. Something like 220 52 275 looks like a expectation for the next year or two. The lower end of the range there , some weakness in the u. S. 170 about the fed path and the fed tapering or less reinvestment from the fed and taking a longterm view again, we see to. Rates broadly anchored these levels given expectations the fed make it to a little bit higher. Obviously, significantly higher shortterm rates in the cycle. As you look forward, the u. S. Fed. And will happen to the ecb will there be a diversions . Ecb, a couple of years or two or three years behind the cycle. The fed is moving first. The ecb has signaled they want to taper their purchases at qe next year despite the fact coretion is 1 below inflation. You have an environment where the fed is gradually shrinking the Balance Sheet<\/a>s of less reinvestment in the coupon. Case, we expect theyll finish qe next year, two large Central Banks<\/a> tightening policy. We think that will test valuations potentially. We see more term in particular as you unwind the interventions and we think it will be a long time before the European Central<\/a> bank pains the policy rate. Maybe the end of next year at the earliest. They have given us a strong impression they want to taper the qe. I think he is absolutely right there is way behind the fed. Europe did have a recession in the mid cycle. Thei think Going Forward<\/a>, fed will be much closer than they have been in the past. I think the diversions between the Central Banks<\/a> will grow a little bit. Back in the environment of modestly stronger dollar. Marketshave seen in the in the past year has been an overshooting in the markets due. O excessive optimism that looks unlikely now with fiscal stimulus. Markets are corrected now. Going forward, we are back to the same story. Lagging behind the fed. Bank of japan still paying tendencyrates, and a to have u. S. Bond yields and the dollar. In some respects, we are still in a central bank convergence world. D feel like markets every repriced for the scenario . Are think right now markets trying to process the question of whether the fed will follow through. The foreign market has got the fed hiking in june with near certainty and after that, maybe they hike next year and maybe they dont. I think the market recognizes the fed will continue the exit and we will see some pricing of higher yields in the u. S. About howlets talk the transit len has express itself in the market. It is about 191 right now. Last year coming into 2017, traveling in that spread to close, do we get into a situation where it starts to widen again significantly . U. S. , europe and the u. K. , japan as well, you have to take into the into account the policy rates. Slowdown, itof a is much more potential for u. S. Rates to move lower. Even the low end of the range, the u. S. Looks like a better sort of interest risk than the rest of the world. There is brexit uncertainty, there is a reason for this. Premium toget paid a invest given the u. S. Liquidity. 9 withe wake up on june a parliament or major labor even wins, what does that mean for guilt . It would be a mess, to start with. Hung parliament, a long process of trying to form a government would be difficult when they start designing brexit negotiations of a situation is out of the way, it is pretty a labournderstand what Party Government<\/a> would mean and what they would implement given the uncertainty over their program. Overall, i think this would be a case where the market would be chiefly used with the british pound to express the need for greater risk premium in that context. Technically, i think the underweight, the british pound make sense. In the eventuilt, of Hung Parliament<\/a> and greater more protracted until we get a clearer idea on brexit, i think you could make evenrgument that means lower yields in the short term. But i dont see a lot of value their. Expansion, there is the potential for the market to repriced a little bit more refreshing reflation in the u. K. So higher nominal yields as well. Jonathan thank you very much for joining us. Coming up on the program, i want to get you a quick update on what is making headlines outside the business world. Lets get to london. Corporate executives are pushing President Trump<\/a> to keep the u. S. In the paris Climate Change<\/a> accord. The decision was announced at 3 00 p. M. Eastern time. Among those appearing to the u. S. To stem board, appless tim cook, and dow chemicals is andrew. On capitol hill, the investigations into russian thel and meddling into u. S. Election is shifting. James comey may testify next week before the Senate Intelligence<\/a> committee and will be asked whether President Trump<\/a> pressured him to drop the fbis russia case. He conspired to convey 100 Million Dollars<\/a> in taxes. Of president head trumps committee pair global news 24 hours day powered by more than 2600 journalists and analysts in more than 100 global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. David coming up, the ceo of Shopping Mall<\/a> landlord and washed them prime group here to talk to us about what is going on in retails. Live from new york, this is bloomberg. This is the hewlettpackard enterprise greenroom. Whitman, that is at 1 00 p. M. Eastern time. Jonathan the manufacturing pmi came in the low 50s for the First Time Since<\/a> june 2016. Morgan stanley ceo james tells bloomberg he is still bullish on the worldss secondlargest economy. Consumption is increasing. Overall gdp gdp growth north of 50 . Jonathan china is at the epicenter of the reflation trade and also at the big blanket long we had in most of 2017 as well. How are your views informed elsewhere . Question on it is slowing, and they want iny have been pretty active terms of cutting back the shadow Banking System<\/a> are the baseline is you are seeing Slower Growth<\/a> this year and then for the next few years, the baseline will be pretty stable. Aroundu have clear risks that. There is the upside case this shift ofre you see a better balance growth to china, and more demand growth, good for the world over time. Be, greatde would. Nstability in china they feel they have to adjust the exchange rate, something which would be a big deflationary shock for me and the world. Be cut between the u. S. , the fed timing policy gradually, china, and the uncertainties there. Overall, the baseline is pretty favorable to em, stable outlook, you have these securities around the outlook. China and the currency in particular, a sort of instability for folks and Global Markets<\/a>. Optimism weven the have seen in the emerging market trade already and given the optimism they to the price, the base case is a softer story and a continued downward momentum we have seen in the last couple of months. Can you stay without the backdrop . By seth think you can. Valuations look ready reasonable. Go country by country and sector by sector. In a world where the credit risk in developed countries say it looked pretty tight, you can find good opportunities. Moving your today for the last pick the for sure, right places in the right parts of the markets, and you can find good opportunities. Mexico has moved and we repriced related weakness or local rates look pretty reasonable. There is a number of higheryielding currencies which look pretty reasonable. Or versus a diversify other types of Credit Holdings<\/a> you might have in the portfolio. Ofgo back to your prediction a 7 likelihood in the next four or five years. The recession happens as predicted, doesnt dart in the United States<\/a> or china . Could start in either, it could start in europe as well. A host of risks in the eurozone. All of these are possibilities. A more 2006 when we had negative secular view, you could see a clear imbalance in the Housing Market<\/a>, a reason we. Repared for that it took a little longer than we expected, but for that market, repricing. Today, you dont see clear imbalance is or the risk factors back then. If you look at geopolitics and you look the currency, at europe and the risks in europe, you can see a number of ways we could have greater instability compared to the column global macro picture in the last few years. Great stuff. Check out tv. You can watch us online and check out our charts and graphics. If you miss anything, you can click on it and rewatch. This is bloomberg. David the focus is on the consumer and particular retail sales as a big driver of growth. Here to give us a report is ceo lou coming from chicago. Good to have you here. Good to be here. David a lot of people are sitting at their desks saying Shopping Mall<\/a>s are dead including churches. How does it look from your point of view. The assets that are deemed dead quite frankly should be. Whole host of interesting assets an interesting alternative uses and i can tell you wpg, we are at the forefront of thinking about innovation. I am not here to opine of whether we are retail or not as a country. People use pretty up tos statistics when assessing real estate. 25 square feet per capita. Often, they are whenct to linear analysis it is a little more nuanced. Assets, in many wetances, have real robust assets. Tty interesting david is it clear the use of relativelytate come less than retail and relatively . Ore of Something Else<\/a> we need to recognize there will ferrell in red wedding crashers shouting for meatloaf, we need social interaction, we want to experience things and i think the whole idea of Shopping Centers<\/a> and retail venues become a more experiential, they are probably the most overused terms in our business. That is extraordinarily important. On a related note, you think about, you have a lot of folks looking at watching it as i used of the senior folks running a real estate hedge fund, think about portfolio construction and long short. When something got overly concentrated, and you look at the risk factor, a big red flag went up. We are long certain retail categories and it is incumbent on us, we better diversify. I do not know how much more junior fashion and accessories we need. Do we have tooffs have in our assets . And we have to cater to varian economic and constituencies. Positive viewe a as we would expect. Does the market agree with you . When you look at rates, you see them really shooting up. It looks like the market has gotten nervousness about what you are doing. The reason i left Colony Capital<\/a> as a partner, a principal there, was i thought this was the greatest incongruity between perception and reality that i have ever seen in my entire life. Easy and you really have to have an operational and infrastructure mindset. Is not bullish financial engineering, but this is an again,nity that i think is in congress as i have ever seen before. David thank you for being with us. We really appreciate it. We gotn 45 minutes ago, the payrolls report and it came out with a significant upside surprise. 253,000 for the month of may. Coming up tomorrow, payrolls friday with a great lineup of guests including bill gross, and of course, mohamed elerian. You are watching bloomberg tv. Jonathan the adp report shows to watch and 53,000 workers out of payrolls. Jpmorgan bank of america and Morgan Stanley<\/a> guide all the estimates, a little bit lower. The president may say we are pulling out of the Paris Climate Accord<\/a>. The u. S. Conjoint syria and nicaragua as countries not part of the deal. From new york city, good morning. Alongsidehan ferro david westin and alix steel. The opening bell is 30 minutes away. Up. 2 . Firmer treasuries softer after the upside surprise on the payrolls report. Two basis points higher. The main course comes tomorrow. Comingout the morning, up 3 ,. 6 percent. Autos the auto other less. Number is key. Held buying privately German Construction<\/a> equipment maker. , it is road construction. Overall construction industry. Reportedly it approached the pinnacle to discuss a deal. It says it may be ready to pay a hefty premium for the deal potentially as high as 75 name that number. Really big synergies for the company. Rounded out with tech. Check out the market up almost 13 . Coming inarnings better, next quarter estimates also coming in better as well. You also have the number, the key deferred revenues that number growing 51 percent, price upgrades from analysts as well as peers. It is also relating to tech. That is the story and it wrapped up margin may. Announcing potentially big declines in your and your trading revenue. Snapped into expectation management road mode. Though thel be 10 First Half Results<\/a> should be stronger. Ceo james gorman to it knowledge a similar trend. We have similar kinds if not the same kinds in some cases. It is an interesting environment. In normans uncertainty which would be tremendous volatility and it is not. Passive the downside is outweighing the risks are people are not that active. Discuss, global advisors. I want to begin with you very quickly. Look at what seemed like an orchestrated move to come out and guide the market lower. Have they guided the market lower than what the price is right now . I think it is. If you recall, you had developed very volatile markets at the end of june. The market i think it is now priced in. Jonathan do you see the same thing . Coming in and then we rolled over, now these guys are rolling over and they are saying it is too optimistic. What i feel like it is telling us is 2017 growth is not different than 2017 2016. With deregulation and optimism, that growth would pick up. In some ways, it is not surprising. Part of the broader collective. Too much uncertainty for m a to go through. What are the best positions to whether the struggle . You look at bank of america, jp morgan. You 25 ofkets give their revenues unlike Goldman Sachs<\/a> and Morgan Stanley<\/a> where it is even greater. If you are looking at a less volatile market Going Forward<\/a>, banking should do well. Very strong employment on friday. Consumer is are we basically talking about the banks we wanted . They get lower. Should we just get used to the banks Going Forward<\/a> . There is truth in that. There is one sector were boring is beautiful. You never say that about apple or facebook but in bank land, that is actually a compliment. As they become more forgettable and utility like, look at the valuations of duke energy. Any day of the week. The more protectable and less volatile, it is a real positive and i think we will see more of that Going Forward<\/a>. It would be great if they have that kind of backdrop to lean on. Something david pointed out earlier, loan growth is kind of rolling over. It would be great for these big Consumer Banking<\/a> arms if they and anig consumer boom appetite to lever up. I do not see that from the consumer now do you . A couple of things in the comments are interesting. Capital markets people are passive. It is a headwind. What was said was you will be off on the revenue and we will be fine in our earnings. As i do the math, there is one way to do it, costcutting. Should we look at all of these banks responding to this phenomenon in the marketplace by cutting costs further in the past . A the banks have been doing very good job producing their cost relative to the average assets and the banks understand that. The bank retail channel is accelerating and we have seen the number of branches. Hrank we should expect more Going Forward<\/a> we will find the return of capital, results come out and about three weeks, and that will be a positive for the bank. They are slow growth. If we see the fed start to unwind the Balance Sheet<\/a>, the yield curve will steepen and the banks do not need loan growth to generate greater Revenue Growth<\/a> because it will week it will come from a wider spread of the yield curve. Will thatminute, when happen . That is what im waiting for. That is a bet that makes sense. But can you buy banks without a yield curve that is steeper . I might take issue with the statement that the fed Balance Sheet<\/a>s will steepen the curve. The curve split reflects expectations. It will flatten. Longerterm, the environment was so bad for the past eight years. Someone will make a case there is a great earnings power coming with a flattening curve and, tough to make the case. There is a risk reward for u. S. Bank because we need more earnings upgrades to make that work. What is your call . I might just say if you looked at the message from sovereign yield curves, it is inverted in china and has flattened a lot like a pin take in the u. S. But it is steeped in japan and europe. European specific activity is engthening, and whoever i get the shape of the curve. The front end is negative. They do not care because it is on the front and to anybody. It is a challenge and what we have seen is the negative rates have not helped Economic Growth<\/a> in those countries and as a result, the banks have struggled with the negative rates. It is just the abhisit. As the fed raises rates and they stop buying this daily fix of longterm treasuries, i think the Interest Rate<\/a> over the next 1218 months and get much better for the banks. If we wind up seeing payouts go for banks, a couple of weeks, we get the payouts, if stocks dont react positively, what kind of downtrend could we be in with banks . Be interesting or when you look at combined payout ratios with buybacks and dividend payout ratios, they should bring 100 of earnings for banks under 250 billion in assets. We think some of the biggest banks, him dividend payout ratios which arent limited to about 30 of earnings, we expect them to rise 50 over the next two or three years. See the combined ratio over 20 . I do not think they will if the banks put out good numbers in the next two or three weeks. For joining us. Tom will be staying with us. Now looking forward to tomorrow, a great lineup of guests reacting to the u. S. Payrolls report including bill gross, rick, live from new york, this is bloomberg. David the u. S. Labor market has delivered another positive surprise, to judge 50,000 workers added to payroll. This comes after tomorrow passes jobs report. Joining us is Michael Fredericks<\/a>, welcome to the program, good to have you. Let me draw a distinction from just a couple days ago. On the one hand, jobs seem relentless, adding job after job in the relative lack of which pressure on the other. Trying to puzzle through what that tells us, what do you make of the contrast . Maybe it is where the jobs are coming from. Marketainly tight labor in certain sectors of the economy and looser in others. Not really translated into a lot of Inflationary Pressure<\/a> and that is why when you look at what is priced into the treasury market, particularly the front, a topic next year, the twoyear today, the bond market the at a basis point market is pretty skeptical that we will see sustained and steady rate hikes. What does it tell you in terms of your plan . We talk about three rate hikes total this year. You you are going to light, too heavy, or just right . Bit. R view has shifted a the fomc was they saw no to continue with any sort of rate hike increased. Strongk the data is enough for the base case is to raise. We have got to look for reasons to not raise. The steady course has shifted. With adp report out this morning, it suggests the labor to be tight and the job creation is really impressive and the pressures are really not there. The overall level of output, though we think it has come out in the last several months, still Strong Enough<\/a> we think the base case versus fed hikes. Talk about what the economy is doing, car sales up 2. 3 . Up by 2. 3 . The debate between hard and soft data, financial car sales is the hard data not measuring up, does that conversation start to change . Maybe. I think there is a big chasm between strong confidence readings and some of the actual hard data. The natural intercession is that the labor markets are tight. Wage and flechette a good bet to make but it may not translate necessarily. It does not mean hard data has to pick up either. You guys think it is a payback or is it actually a sign of spending more because the job market is tight . Michael it has been decelerating. Too early to forecast what the actual hard number is. In our minds, a lot of the economic momentum is really tapering and rolled over a bit. There are a lot of regional fed surveys and durable goods are weak last friday. A lot of things to just say markets tend to react to the Second Derivative<\/a> of growth. We are seeing a bit of a rollover whereas we are seeing more positive moments in europe and more recently in japan. Riska regional basis, our is more in those regions at the margin than it has been in the u. S. Typically on the equity side. Jonathan there is always something fashionable to talk about. The spread between soft and hard data. What was really picked up on was the spread between within the hard data and the different signals you get from an Unemployment Rate<\/a> and inflation when you look at wage growth. Give me your thoughts on that. That is more of an important diversions. A big topic on the team is deftly coming off hard. The soft data rolling over quickly come a lot of this is relateds related to policy and the euphoria at the beginning of the year and u. S. Equities that we get something out of washington, i think the sentiment is changing here it is out of the market and you are seeing flows coming out of the u. S. Equity market into european equities. Become at it has consensus. I do not know it is crowded yet but it is well on its way. Rate andmployment headline inflation does not push higher off the back of stronger wages, the stronger wage growth is not there. Cannot reconcile what we see with unemployment and wages. I dont see much Inflationary Pressure<\/a> in other economies either. Close to zero in sectors like retail. Helpful for over all headlines. We do not see a lot of headlines. Why does that still exist. A genuine concern in the direction of travel. Maybe inflation data is a bit soft but the overall level of growth, it may have come off a bit but the overall level of growth looks solid in our judgment and with rates as low as they are, just to build up dry powder, we are late in this Economic Cycle<\/a> and i think for markets, it would instill a lot of confidence if we got to higher fed funds so the next time we find ourselves in a recession, there is a benefit to lowering rates again. I dont think we are at that level yet. Great stuff. Michael of black rock is sticking with us as well p we have the cfo of wells fargos the key at an Investor Conference<\/a> in new york. Some Interesting Data<\/a> on loans. In thegrowth in loans as past. U. S. Politics is not a big of the slowdown we have seen in loan growth and not as we have seen a year earlier. Heard yesterday like bank of america and jpmorgan. Autos, we should pull back. Alix a quick programming note for you are live coverage of President Trump<\/a> has announcement President Trump<\/a>s announcement at 3 00 from the white house. Live from new york and washington, this is bloomberg. Alix take a look at the vix posting its lowest Monthly Average<\/a> level on record posting the Single Digits<\/a> four times last month. It has not happened since december 1993. Of blackredericks rock. How do you play it . Low think low vix means expected volatility, which means a lot of leverage is employed. I think it is easier to play this through the index, i would not make any stock backs bets. Is it a new normal . We talk about the average of 20 or will we actually get to those levels again . You have etfs and investors coming in. It is baffling, right . Is one ofi think it the oddities of the market this year. The expectation that there is not a lot of thought it volatility and maybe it is consistent with spreads being as tight as they are, but as you for leveragereat and great for equities while it is low but we do not know when it will start to widen. A twoyear, you know, it is an easy decision to make that the vix will be higher in a couple of years. Alix is it, michael . You have highgrade supertight. Low volatility equities, the securitized market, equity, most Asset Classes<\/a> are also expensive or really expensive. It is hard to square given the uncertainty out there. It does not seem that rational. If you look at realize volatility, it is coming in under that. Is tough to want to sell volatility in the market like this. Our strategy has really been to that and down the hatches, lower safer carry assets. And then take a vantage of the lower level of volatility and apply foot spreads and try to protect on the downside while it is cheap. You have anything that has to do with trump out of d. C. , the german elections, italian elections in the fall, what do you do with the headline risks . Do you adjust them or put blinders on and ignore them . Again, i think it is cheap to buy protection. I think it makes a lot of sense. But do i think anyone should be withg equities here relative all valuations and credit and volatility where it is, i think it is tough to make a call for buying stocks here. It is noise. Unless it really triggers to the impact on the economy, is just noise. I dont think lowball is going a cfo to greenlight a project. I think it is just noise. Jonathan i dont see that either in a board room. Have you with to a spirit Michael Fredericks<\/a> of blackrock. 1 10 on thetive up dow. From new york city, you are watching bloomberg tv. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Jonathan from new york city to our viewers worldwide, this is bloomberg daybreak. Moments away from the opening bell, lets whip through the market action. Futures up 1 10 of 1 on the dow. Call it a fit. On theus of attention adp report, a solid number. It came in beating expectations. States,t in the united 2. 53. It means yields go higher, 2. 24 on the 10 year. Up by one third of 1 . That is the Economic Data<\/a>. Auto sales coming down, 1. 3 . The estimate was up 1. 3. That was an outlier. Gm is a bit softer. 1. 3 . By 1. 7 . Wn lets get you to the cash open and in the movers as well. Here is alix steel. Alix flat across the board on this first trading day. The nasdaq coming off its longest monthly winning streak since 2013. The nasdaq hit new highs yesterday before pulling back but a little bit of softness there. This might not be updating quite yet but nonetheless, we are looking at a modestly higher open. Look at those auto numbers. Lets look at ford, gm, and fiat chrysler. Now you have stocks higher there. General motors is down by over 1 . By 1. 3 percent, different in for which is up 5 10 of 1 after the may numbers came in. We are still waiting for those numbers from fiat chrysler. Nissan also pairing along with ford. They are up by 3 . June equities over the last month, this is a grr function on your terminal. Look at tech up. Over 4 in may. In may. Performer the longest winning streak since 2014. Utilities and consumer staples, the safety trade doing well. Youve got treasuries on a monthly streak since 2010. Look at the Cyclical Energy<\/a> and financials. Energy getting hit particularly hard, off by 4 . The biggest monthly decline since december 2015. Do we wind up seeing a buy into the single best the cyclical trade . Jonathan 10 minutes until the session, we grind towards another record high. The dow up about 1 10 of 1 . Still with us, and joining us is jenna martin adams, Bloomberg Intelligence<\/a> strategist. One, i think there is a lot of doubt about the future of oil. Just the future demand. Whether it is soft data or tesla and electric vehicles. I think it is a tough group for Portfolio Managers<\/a> to find single stocks. It is ain general, group people want to underway. I totally agree. Energy stocks dont go higher relative to the rest of the market unless oil goes up so that is a primary impediment for investors looking for opportunity and because there is such a high correlation between the tests themselves and the macro environment. There have been a couple about performers. Marathon is in the energy space up on the year but the rest of the space really struggled because oil prices are going nowhere. I love that you brought the lack of volatility. We might see some range trading but if it is range trading, when is speakingle ceo about how hard it is to be in that area. The trading site his lungs you like volatility but not daily volatility, which we are the trade you like, a little bit of trade you like, you would prefer trades. It is a difficult trading environment at the moment, so there is trade data for the trading side. Alix that is because of opec. They are creating price stability and not increases. How do you trade energy when you look at that environment . I think you need to see a couple of things happen for energy stocks. One is you need to see a reinvigoration of Economic Expectations<\/a> and inflation expectations. The peak of this inflation trade that occurred earlier this year coincided with a peak in Financial Performance<\/a> and Energy Performance<\/a> and smallcap performance and value performance and all of that had been intensely correlated overtime. You need to see some sort of reinvigoration and expectation for growth Going Forward<\/a> before these things really improve. Demandbably need some stimulus to create some expectation that oil prices rise. It is not just about supply. Maybe opec can move the needle in the short run by decreasing supply further but in reality, other areas of the world will make up for those shortages. I think that meets expectations now. Jonathan you said this is a buying opportunity. But do you claim that buying opportunity at the stock level . The best way to think of energy right now is it is almost free money. Jonathan you dont want to say that, do you . Because take energy credits, high yield, that is your performing sector. Energy high yields, second or third best. Energy stocks completely divergent from performance credit almost never happens if you look at other sectors. They trade so tight to highyield so what is this divergence telling us . It really speaks to excessive pessimism about the future of oil. The best way to measure real pessimism is how much oil is in continual. A year ago, spot oil was a 40 discount to twoyear oil which tells you the market was so oversupplied you wouldnt want a delivery today. But now it is almost flat. It hasnt been flat. We spread between the spread between the five and twoyear is as flathas that as it has been in two years. We are close and i think the stocks are, again, mispriced. Jonathan you compare quite it credit to equity. The push that will be credit is the reality and equity is the dream. The reality and credit is these are more costefficient companies, more than they were. The basic question in credit is how my going to get paid . The question in equity, are you going to deliver growth . Are these companies on to deliver growth . I think Energy Companies<\/a> have a competitive advantage and a lot of ingenuity and we give a lot of credit to that in the Technology Sector<\/a> and in health care and that is where you see rich multiples. I think that energy has a letting these companies overinvestment prices are high. If that is true, that is the key question. What does production look like . Not how quickly can shall get on, but we were producing 97 Million Barrels<\/a> a day today. We need a lot of investment to keep that production. David do you agree with that . The Energy Sector<\/a> is going to produce strong earnings growth. Tois basically comping negative. Earnings growth this year. The question, is that sustainable or is it a growth number that is off of the negative numbers in your ago . Going forward, there is a strong correlation between Revenue Growth<\/a> and price. It is going to be an acceleration in price or some sort of acceleration in demand to justify expectations for that Revenue Growth<\/a> rate to sustain into 2018. David and isnt what we have seen in opec not getting the prices up, just putting a four under it . In that world, going back to what jonathan said, there is a difference between equity on growth and debt paying the bills. They have enough money that they will be able to pay their bills but it is not clear if they can grow it. If you want to strictly limit the price to be set by opec and shale, then of course we know how the game would play out. But we have to remember there is inflation. There is steady demand growth. Demand grows to 2 million a barrel 2 Million Barrels<\/a>. This is going to great some demand response. Particularly made more attractive, so i think everyone is too focused on just opec and shale not thinking about the effects of inflation, the dollar. In the 50s, labor market tightness flipped into Wage Inflation<\/a> and led to cpi inflation. The only time in the last seven years that has happened. In the past, people tend to focus on it being driven by commodity but labor markets was an authentic driver in the 1950s. If you slip into inflation, i dont think oil is at 50 and i dont think the dollar has weakened. I think there is a lot of reasons oil can surprise you. Alix to wrap it up, where in the industry are you seeing it . Independent, refineries, big oil ips . To improve theng probability just by looking at what has worked in the past when oil flipped. We were really better off sticking with the mps. That is where the beta move would come from if oil has a traction rally. Jonathan great to have you with us. Jenna martin adams, great to have you with us too. We come back a little bit, roughly 1 10 of 1 today. We are up two points in the s p 500. Negative nine points on the dow. From new york city, you are watching bloomberg tv. Jonathan this is bloomberg daybreak. This is the hewlettpackard enterprise greenroom. Coming up on bloomberg markets, christine whitman, former advisor at the epa. Alix auto sales trickling out this morning. A mixed bag. On the one hand, ford and nissan coming in better than expected. Nissan sales up 3 last month. Gms, downside at 1. 3 . The other story is what we are seeing in the auto loan market. This shows what consumers are spending on. The white line shows shifting computer loans consumer loans. Auto loans and credit card loans have really been taking up. Auto loans are passing all of its peers since 2010. Joining us now is the head of credit strategy from chicago and the Bloomberg Detroit Bureau<\/a> chief. What is your take on the auto guys . Starting off as a soft monday. Youve no ford and nissan caved, they have done so with a lot of commercial buyers, especially rental Car Companies<\/a>. Then you have General Motors<\/a> being down and they were predicted to be up. General motors is saying the 16ual adjusted sale rate is million vehicles. Last year it was 17. 2 million vehicles. It is not great, but it continues to be another month of down sales. We have seen that every month this year. Not terrible just continues to soften up. Alix not terrible but softens up. What about in the credit market . Will we see a rise in those auto loans . How many of them are bad . We are focused very clearly on the more recent in subprime. We are looking at loss rates and the language he rate to flatten out. Delinquency rates to flatten out. It is a weak performance, the weakest we have seen on record back to 2005. I think what you are seeing as well, which is probably a little bit under told his recovery rates are very weak. So far, call it 50 or 55 . Down at 40 , that puts a lot of pressure on lenders. Again, the leading indicators we looked at, which would be recent vintage performance, made it onto default. When we see recovery rates, they are still suggesting that there is a fair amount of pressure. There is not a lot of significant improvement, maybe initial signs of moderation. But not a lot either. David is there a connection between these two things . The subprime auto and the Sales Numbers<\/a> . Is there any indication that Auto Companies<\/a> are making loans that wouldnt let you get those numbers up as part of the program . You see that in the finance companies. Sometimes they will dig a little bit deeper into the credit te youto make that happen, but are seeing someone just pulled act. On used car values, that has suffered. That may hurt sales on the margin as some buyers with weaker credit come in and buy a car and cant get financed at attractive terms. Degree, the Credit Finance<\/a> we have seen over the last five or six years has gone away and that has hurt sales. Jonathan the numbers keep coming out in the United States<\/a>. Fiat chrysler, may auto sales down 1 . In isolation, not great that a relative upside surprise. Down just 1 , the estimate down by 3. 9 . I want to pick up on the point of the banks. The banks coming back on auto loans. We had it from the likes of wells fargo earlier. Back in autos is the right longterm decision. Can these guys get the kinds of sales that they have over the last couple of years if the banks are going to tighten up the strings . They have their own captive lenders that do their own. For gm financial, that used to be americredit. Can get strong Sales Numbers<\/a> but this will hurt on the margin. If you see wells fargo and santander pulling back. One of the issues they are having is the noncapped finance companies, the financier is not owned by Car Companies<\/a>, is used car values as collateral are going down so they have to repossess a vehicle later on. The same thing goes for leasing. The car back at the end of the lease and it makes it a tougher proposition from a probability standpoint so they can pull back and we have seen that kid very popular. It is not going to kill it but it is just part of the bubbling cauldron where you see it softening up to where we were last year. David i want to make sure we are being fair to gm. Younumbers, as reported, if read their press release, they are actually up in things they care about. The reduction was in fleet sales but for rental, that was something they wanted to cut back on. Is that accurate . Gm is trying to pull back on low margin fleet sales which improve the profitability and margins and keeps the used cars from going into the market and pulling new car prices down six months or 12 months or two years from now. Those fleet cars and up in the used car market later on and potentially compete with cars on a newer lot on a dealer lot. You bring up a good point. As sales go down, a lot declines have been in passenger cars which are lower margin sales for every car company. People are buying more suvs and pickup trucks and doing well. Consumers have helped the Car Companies<\/a> offset that by buying more expensive stuff. Alix what is the contagion risk like as you are looking at those to follow rates are auto loans fault rates for auto loans . See, potentially with credit cards, we did some proprietary work that suggests the relative overlap between auto loan borrowers was largest in the credit cards based. We talked about the subprime so it is a fraction of the overall auto market. We are looking for more signs of broader and widespread weakness and i think credit cards is going to be a key area to watch. The underlying rationale for a lot of the weakness you have seen in credit performance is fundamental. It is down to pressure on expenses. We also believe pressure on income and the lack of weight growth. Alix thank you so much guys. Good to see you. Nasdaq hit the record yet again on the first day of june. Check out tv. You can click on our charts and graphics directly. Go to tv on your terminal. This is bloomberg. David this is bloomberg. We have just gotten word in the last couple of minutes that President Trump<\/a> now decided he will keep at least for the time being the u. S. Embassy in tel aviv. It was speculated whether he might make the move to jerusalem announcement while he was over there. At least for the time being he will keep it in tel aviv. Jonathan hugely important for the Diplomatic Initiative<\/a> to 1967 middle to the east war. The idea that you have to move the him as a parallel, something we have been talking about since the 1990s. David at the same time, the palestinians will believe that jerusalem was their capital and if you move the embassy there, what are you saying about them . Jonathan the very idea that this was up for discussion tells you a lot about what is going on in the white house at the moment. David a lot of things are up for the discussion. Now we want to move again to washington but this has to do with Climate Change<\/a>. President trump will announce his decision, whether he will remain or leave the court later today in the rose garden at 3 00 this afternoon. Some top executives have been pushing hard for the u. S. To stay in the accord like elon musk tweeting yesterday dont know which way paris will go but i have done all i can to advise directly to potus through others in the white house and via councils that we remain. 25 companies have signed a letter in favor of the climate pact that was published last month. The fullpage advertisement in the New York Times<\/a> and wall street journal. For the president welcome to the program. This is my direct question, bob. Decided wase ceos in their corporate interests, business interest, to stay in the paris accords . I think that is the key. The business interest. Businesses see both opportunities and risks associated with this decision that the president has to make. The opportunities are for job growth and new markets and more certainty as the global effort to deal with Climate Change<\/a> involves. The risks they see our actually directly from Climate Change<\/a> and their facilities and operations and well as well as the risk of uncertainty as things unfold. And the risks to their own markets from potential retaliatory measures by other countries. They weigh both of those things together. David i saw that you had a wide range of companies from different sectors participating. I didnt see any Energy Companies<\/a>, i dont think. Did you try to get any to come on board . Yes and i think your comments about mr. Musk a while ago indicate that companies are using different approaches to make their views known. A week or so before the newspaper advertisement, we also worked with Many Companies<\/a> to send a letter to the president which was publicized, which bp and otherl oil, Companies Like<\/a> walmart. Many companies have expressed an interest and many of them used different venues to do it. David let me ask you why this really matters. Businesss in the best interest of these companies, wont they do it anyway . Why do we need an elaborate accord with 190 countries signing on . Well, maybe what you just said, about 190 countries signing on is a pretty important component of it. It is creating a global framework. If we are not involved with that global framework and how the rules get set up and how it gets implemented, our companies are going to be at a disadvantage. There may be for words that humanize this. Climatendermining the effort, one is isolating the United States<\/a> from the Global Markets<\/a> and global diplomacy and signaling to some of our key allies that we may not be reliable. Seating off leadership, we will see shortly some announcements from the European Union<\/a> and china coming together to look at Climate Action<\/a> that they can work on together in the United States<\/a> is not involved in that, nor are our companies, and you will see the process of dealing with the risk of Climate Change<\/a> will be diminished. I think the companies see these potential downfalls if we are not participating in this agreement. So the agreement is very flexible and gives a lot of opportunities. Alix you sort of outlined the pr issue, but i have yet to talk to a Utility Company<\/a> that says they are going to materially change their Retirement Plan<\/a> due to anything out of the sea. If the companies are willing to make investments, what does it matter what the pr looks like . Levels, again, we need to be clear, we dont know what the president is going to say today, but on some levels, pulling out can be somewhat symbolic although it is going to send these terrible signals to everybody that i just mentioned as well as potentially impede our ability to be competitive. This is what gets the companies very focused. That said, there is no doubt that the Market Forces<\/a> at play, whether it is cheap natural gas, the growing competitiveness of renewable energy, and other corporate commitments as well as see commitments and state commitments are going to continue to see some progress on the horizon. But the effort will be diminished if we are not participating in the global conversation and the Global Market<\/a> on these areas. David what does this say for the competitiveness of the Renewables Business<\/a> . We know that china is making a huge investment. We have heard stories on solar panel generation. We now have the premier in germany talking with germany about what they are doing. Are we dealing ourselves out on renewables, out of the global competition . I think that is the fear. It is hard to predict what will happen there but it is very clear that the chinese production of solar panels has been a strong competitor to the United States<\/a>. We see some companies building manufacturing plants in the United States<\/a>, for instance in buffalo, new york, but the momentum here is what is really important and how will we be able to compete in these Global Markets<\/a> is also very important. Jonathan the center for climate and Energy Solutions<\/a> president , thank you very much. Later in the day, we will bring youthful coverage on that decision by the president of the United States<\/a> from the white house on bloomberg tv at 3 00 p. M. Eastern time. That does it for daybreak. Tomorrow is payroll day. Full coverage right here from new york. You are watching bloomberg tv. Vonnie it is 10 00 a. M. In new york and 10 00 p. M. In hong kong. From new york come im vonnie quinn. Mark and live from london, im mark barton. Welcome to bloomberg markets. Vonnie more Economic Data<\/a> coming out in the u. S. Today. We already have pmi earlier this morning. The Manufacturing Index<\/a> come a pertinent piece of data. Julie it is coming in in a line with estimates at 54. 9. 54 point eight was estimated for may manufacturing. 54. 8. This comes on the heels of other inflation data weve gotten recently that has been lower than estimated even though the overall number, the topline number is indeed in line with estimates here. Little change in that factory index month over month. 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