Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170616

At 12 45, dallas fed president Robert Kaplan speaks. At 1 10, President Trump will be in miami to discuss changes he is making on the u. S. Restrictions to travel to cuba. He is tapping off quite a week for his administration. Here is kevin cirilli. I do not know where to start, cabinet. Why dont we start with the investigations . What is the latest . Should we be focused on it quite as much as we are . Kevin the white house will say no and a democrats will say yes and i think that answers lie in the middle. Isht now, the administration pushing back hard against the notion that a shoe is about to drop in terms of the investigation with the russian probe and they feel adamant there is not enough evidence for that part the president s personal attorney, Marc Kasowitz , is pushing back. There are allegations. The fact of the matter is until the investigation and the probes are put forward and made public month they will keep having these types of problems. Keep havinghey will these types of problems. At 1600 pennsylvania were ceos were gathered, i spoke to them and got their feel on all that was going on with the investigation and impacting their ability to get through their initiatives. Privately, they concede theres frustration that this type of focus on the russia probes and investigations is hurting their ability to use the bully pulpit for initiatives they want. The president s bully pulpit is his twitter feed and is primarily focused on criticizing several folks in regarding the investigation. David exactly. We want to get to tax reform and health care but meanwhile, now he is in miami and addressing the cuba issue. What is it about . Why is that not that high up on his priorities . Kevin first, conservative cubanamericans, they particularly were very much against former president Barack Obamas rolling back or easing of diplomatic ties with cuba. This was something on the campaign trail President Trump said he would do. He will not go as far as they asked on the campaign trail, but it is a fulfillment of source to conservative club you get cubanamericans, an important contingency in florida which is a key to ground. The second thing that i would raise is not all republicans are on board with this especially moderate republicans like the and more the tourism libertarian folks like rand paul have problems very david thank you. We will check in with you later. Jonathan is that what the Global Markets really want . David not traveling to cuba. Jonathan trying to cut through the noise from d. C. , but his voice their concerns over the administrations agenda on tax reform. This one disney ceo bob iger told Bloomberg Television earlier. As a is a priority for us company that there is a high Corporate Tax rate that america gets competitive with the rest of the world and right now, we are not jonathan joining us is bianco. Hanson and john lets begin with you. The prospect of the things of bob iger would like given the amount of noise we are having in d. C. , where are we now . If you look at the trump agenda that has the market excited, it has three legs, full business friendly and that would fall under things idabel would would like iger to see and tax reforms that seem to go nowhere. Relief, are we getting that in spades, the federal register, a log of activity in the United States will follow i almost half and has never done anything like that. The oneef seems to be thing we have going for us in the Business Community that can look at and lose positively. The other two legs of the stool are stuck in the mud. When will it bite . When will i see the relief see through to the general economy . Jim bianco it is starting at least in the financial markets. Weakness of the last few days notwithstanding, it is starting to come to. Regulatory relief is an long tail and more of a 2018 story but we are putting it into place that we should see more relief in that respect. David i picked this out of your notes. You want to the federal register which is the way the regulation have to show up and you tracked the rate of growth in the pages and showed tapering it is easing off. it goes to 1936. When the federal government have to do that, it goes it to the federal register as a number of pages is how active the government is is. Its pace is half of last year. It used to fall 3 or 4 in Previous Year and that was a big deal and now it is down feet percent. It shows you how much relief has come to businesses. Jonathan is it because they do not have the staff . Michael hanson it is some of a both. In the long run process and getting it into the economy. My reading, if you look of what his gotten the most traction is protectionist front and love action on that front. The tax agenda seems to be stuck in the mud and basically because amongst republicans on a lot of of disagreement on how to move forward. David in the debt ceiling and the budget which is coming up that could affect very directly. Michael hanson and the fed. They are not at the end of the world but they can create a fair amount of volatility and undermine the confidence. It is the feeling we will get health care before the recess and that is looking like a challenge. And we will start tax reform sometimes this fall but you have to get past the debt limit your double filled vote before you get it through you have to have a failed vote before you get it through. I do not think you got the clean, early resolution. David if you get a clean later resolution, that we do not shut down the government or default, lets assume that. We may end up kicking the can down the road so the president does not get to make the changes and increase to defense spending and will not get his agenda through. Jim bianco that is true. That would be another problem. Under the Trump Administration, we can introduce payment per organization and that has come up prioritization that have come up. If they shut down the government, they still have money as they can keep the government shut it down before they get stuff that would impact financial markets. Usually, we shut down the government and we default on treasuries and a Nuclear Scenario which is why it never comes to that. They could play that game and really drag it into 2018. David going back to your point it is probusiness, does it make a difference of whether they have none in place or the policy . As long as there are not regulations, does it help us . Us and the it helps short term as in the next couple of years pretty in the long term, if were shutting down because we do not have people in place and saying we are not going to do this or that, it could be detrimental in 2019 or a 2020 story. Right now, theyre looking at the idea of relief unless compliance bills. And that is viewed as a positive. Jonathan and i do not see the legal issues in d. C. Jonathan david everybodys lawyer up. Jonathan coming up, this is Vincent Reinhart and he set the data may be inconvenienced for the fed to do what they want to do. We will speak to him. You are watching bloomberg dubbed the bank divorce talks jonathan divorce talks between the United Kingdom and the eu is so start on may. Theresa may is facing criticism for not engaging with survivors of the fire and other local residents. Simon kennedy joins us from london. Lets begin with you. The heart of europe, where a lot of finance ministers are meeting for what are we learning about the negotiations so far . In terms of these negotiations, i have been here in luxembourg covering the group in terms of greeces a lot. We had Philip Hammond arrived early and i spoke to him on the doorstep and what he was talking about what having a pragmatic negotiation and he talked about cooperation and it was a much softer tone and what has come from. Uk in the past and he was question on the Single Market and if the eu would remain. He said i will not give a blowbyblow account and i asked him given he has been seen as the advocate for a softer brexit whether he thought it would prevail especially with regard to safeguarding jobs. We are about to start a negotiation. We set up a clearly our desire in the speech and the article 50 letter that we sent that it is a negotiation. As we going to the negotiation, my clearview and i view and i believe the majority of british is we should proud torres protecting jobs prioritize protecting jobs and prosperity for jonathan that was Philip Hammond. Simon kennedy, the sequencing of negotiations that began this monday. We understand from the eu that the divorce settlement of eu citizens and how long will it take to get the issue sorted . They arenedy optimistic thinking it will be october and that is what an official said will be the likely date if everything goes to plan. Moving on to trade talks that theresa may wants to focus on would require a unanimity that sufficient progress has been made on those topics such as brexit. Theyd need to deal with those first. Jonathan the bank of england and westminster as well, the dreadful tragedy that occurred on your this week in North Kensington earlier this week and North Kensington and the political divide and has been politicized very quickly. We spent a lot of time of how distracted europe would be going into negotiations. How distracted will the u. K. Be going in . Simon kennedy it is pretty distracting and that is a concern for the eu negotiator who has warned against more time being wasted. It has been a year since the referendum and we only have until the end of next year to sort out a plan for delivering their breakup. Otherwise, it will sneak into 2019 and that is when the european and british problem is need to be rectifying it parliament be to be rectifying it. On a softernd brexit push within the cabinet telling us about a pragmatic brexit. That kind of camp has built momentum in the wake of the botched election. Will it continue . Or will european skepticism rise up again . It will couple kate things and the destruction it will couple kate things in the destruction it will complicate things and the distraction. Does the bank nejra cehic and simon kennedy. A year ago, did you think this . They said it was either brexit or not. Davidagmatic brexit for pragmatic brexit. The european side, saying lets do it. Now, midjune no progress. David cameron made a semiit would happen and negotiations with made it seem like it would happen. I what to bring in jim bianco and Michael Hanson. What have we learned about brexit . Jim bianco we dont know what to do next. It has been such a difficult process that has taken a year to process. Financial markets has largely taken it in stride. Yes, the pound is down over the last year but sonatas crossed off it as one would have predicted. But not as catastrophic as one would have rejected. One would have predicted. David what is going on with the european economy . You have seen a boost from the weak payout, but it is nearterm you have seen a boost from the weak pound, but it is nearterm. It is an and inflationary shock. A little bit of concern about that. David if youre worried about the eu economy, at what point do you take all of the hit you will take and Start Building . We have inflation going up and not growth. It seems to be expressing its way and when to use that we are there now . Michael hanson i think it will take quite a while. It is a lot of lingering. Until he got more certainty, you are looking at a slow deceleration as both businesses and consumers pull back. Jonathan the past 12 months, how stable europe seems to be politically and economically as well. Do you think its the story that continue to diverge, this stability is that Gains Traction . The italianon election is the wildcard in i think the german election is a nonstarter. It has been politics. I would argue, most of the Political Risk has faded for the u. K. And we do not know how long theresa may will stay on as Prime Minister given the discussions ended election did not go her way. I think theres a lot of Political Uncertainty in terms of what type of deal and we do not know what the parties want in terms of hard or soft brexit and there is a lot of uncertainty. In the u. S. , so many people overweight on europe and they want to buy europe. The current reality is you have a new phrase in a place like france and he made turns out to be a Prime Minister renzi, hope is right here. The capacity for change in a country like france, where is the ability to execute on some of the agenda . Jim bianco gave there is ever going to be change in france, this is it. For 70 years, they had one of two parties and they would take turns leading the party. We have invented a new party and the last 12 months and they have elected a president in a majority in the assembly. It has come out of the blue. Can you imagine if the u. S. Created a new party and buchholz president and the vast majority of the house of representatives . If theres ever going to be a change, now is the chance for them to have a change and hope is a powerful drug that can keep markets going and probably will as they think something will turn the corner in france. Jonathan until unions, out. David until they take to the streets. Jim bianco and Michael Hanson will stay with out for it later, we will be joined by Carlos Gutierrez and he will talk about how the president will be change our relationship with cuba and where the trade policy is headed over wall. Live in new york, this is bloomberg. Jonathan from new york city, a quick check on sterling, very quickly. In the fx market, rolling over a touch. Still up 0. 1 . Learned brexit negotiations will start on monday. The sequencing was already important. Andto talk on the one side talks about the divorce settlement on the other. The European Union said that would like to start with Divorce Proceedings first, how do you negotiate that split . It was i the eu side has won. They have thought of the following. We understand the u. K. Has two except to accept the brexit talks. U. K. in england what the is doing, it is different break in greece, its those like deja vu. The creditors have agreed to release new loans for athens. Loans come due next month. Needs not the question, it is a very good deal and a much better deal than what we decided what he your ago the what we decided one year ago. David is it just kicking the can down the road and will we do it next year . It is completely kicking and what it does not do is put greece on a sustainable path. Until to love a situation where you but debt writedown, youre not with have a solution for jonathan the greek debt and you get an idea of how close we are to another doing this all again and in other deal. One maturity to another maturity. David maybe, that is ok . The spreads have come in and not doing too bad and maybe it is not the worst approach. Jim bianco they are Holding Together because greece is small. They are an eu member and cannot the default and set that president. Precedent. There will always be that deal and not having them default and go through pain because they did not meet some target and then that will set what about france, what about germany, why dont they go through the same thing . Jonathan why did it take six years . Has a walkaway option, you cannot walk away. They keep talking and talking. Threatened to throw a fit, here is some money and we will calm you down. Jonathan will it matter eventually . The whole term of the debt, the ecb, the likes on the table, does it matter that they cannot deal with the debt sustainability issue . Only greece, it will not matter. They have been in technical default for the last 200 years but if it is other countries or the threat, it will matter. Jonathan jim bianco will not to be in greece this summer. Michael hanson sticking with us as well. Deutsche bank chief global strategist is part of the diehard bond said who said treasuries have become unhinged from reality. From new york, this is bloomberg. Jon this is bloomberg daybreak. 20 seconds from the cache or. Futures are positive. So far,t over the week with the exception of the nasdaq. The text section rolling over through the week. Treasuries, the year to date low on 10 year. We are up about a basis point on the day so far. In the fx market, the eurodollar, a stronger euro. Tory area that is the story lets get you up to speed with what is making news outside the Business World. Elizabeth andeen sitee william went to a near the disaster, where Community Groups have been gathering supplies. Police say they hope the death toll does not reach triple figures. Russia crane russia claims in may have killed the isis leader. If it is true, killing him would be a Major Military success for russia. The pentagon is taking steps to in afghanistan. Hastop american commander said he does not have enough forces to help afghan troops fight the taliban and. The bait of japan the bank of japan cannot get 02 central level. They will maintain a negative Interest Rate and keep buying trillions of yen. Jon thank you. We are joined by michael hansen. What is the song . All by myself . Is that what janet yellen is singing now . She is pushing a more hawkish tone. How much longer, depending on how much longer she will stay. They are going down that road now. We look at chair yellen. She might not be there that long. There is a bit of uncertainty. There is an an open question there are a lot of questions on that front. I dont think that is what is moving the markets. The candidates we have heard thinkmost people would would not go the other way with rates. Maybe it doesnt make a difference in the long term. Leans a little more hawkish. He has been a backer of negative rates. People have run with that. It is probably misleading. I dont think he is in a rush to stick and go to three or 4 . To what extent is the ecb driving the ship at this point . In terms that they are easing his health in the Global Markets. Interest rates tend to move together. The u. S. Has been holding their Balance Sheets steady, raising rates. The ecb is continuing to ease and buy bonds. That has been a big dennis it to helping depressed Interest Rates. Jon something that has my attention, the forecast for 2018 is about 2. 1 . The market itself, it has 1. 5 rate hikes between now and the end of next year. The fed got 4. They said they are going to raise rates four times. They raised rates once. The market is more dovish than the set has been talking. That is not unusual. Jon if you did not know what was happening in the world and looked at the forecast, it would look like the world has not changed. Why hasnt the world changed in the eyes of the Federal Reserve . The fed is behind the curve a little bit. Maybe ahead of it if you want depending on how you want to look at it. The forecast get ratcheted back. Every other meeting, when they roll out these forecasts, they have to revise them. The fed has been optimistic. The europeans seem to be more realistic. The markets are more realistic. Catch upterm has to with everyone else. We thought this was going to be good for financials. Seen that . What is required if you are running a bank right now . A lot has to play out. I am more optimistic than i have been in the past month or so. Some of the earlier discussion touched on that a little bit. Bank, it isunning a a challenging and a challenging environment. There is good news on the horizon for cap and for capping costs. Of managing the Balance Sheet, the world is probably as challenging as it has been over the past six years or so. Jon since the Federal Reserve started hiking, the Treasury Curve has been bear flattening. We have a conversation about whether the market is pricing something different. The market is either right or wrong. Are they repricing because of the fed, not despite the fed . , butront end is adjusted it is also taking away the potential growth down the curve. This happens more when the fed plays with the Balance Sheet. The market was thinking there would be fewer in the first place. There is a diversions. Market was expecting capitulation on weak inflation. Yellen said it was a series of one offs. There is a disconnect on that front. That is part of that gap. Jon on the rate story, the Treasury Curve is doing a decent job of adjusting. You saw this in the last rate hike cycle. Funds went from one to five point to 5. 5. Andou start raising rates start getting towards higher rate hikes that become more restrictive than the beginning ones, it is not as big a deal as if you go from one and a half to one and three quarters to two. It will keep the long rates down and continue to flatten the yield curve. You go to point, positive yield rakes yield rates. If we get to that point, what does that mean in the economy . To the point where you expect the economy to slow down. They are still catching up in some sense. Given where you should be if you inflation, they still have about 100 basis points of rate hikes to go. Once you get to that point, it becomes a different story. Go back to the previous hiking cycle, you have global demand. I think the story is relevant today. Thank you. Jim, you will be staying with us. We will speak with Carlos Gutierrez. He will talk about the evolving u. S. Policy towards the country of his birth. Reinhart up, vincent at 8 00 eastern. To your business flash. Takata will seek protection in japan. Subsidiary the u. S. Will file for chapter 11 bankruptcy. Have beenlaters blamed for 17 deaths. In europe, car sales rebounded. Among the big sellers, fiat models and mercedesbenz cars. Bob iger called it a first for the largest entertainment company. He spoke about the performance of its theme park in shanghai. We said we hope to break even and we will. The firsthe end of full year of business and we will break even. That is extraordinary. Im not sure we have ever done that with a new theme park. Tohe called on Congress Reform Corporate Taxes. He says America Needs that to remain competitive. Bob iger for president. Have you got the inside scoop on this . We could do much worse than bob iger. Jon thank you. Lets go to the commodity market. Oil on cost, potentially for the longest run of the week. Joining us from london, and analyst. Week offor another losses. Talk to me about the divide that could be emerging with opec. Here. Have some issues the two countries left out of the agreement because their Oil Industries were suffering from huge disruptions are finally coming back. Is having a disruptive effect on cuts made by everybody else. Libya, adding production. Production is higher than it has been for most of the last four years. The agreements with forces seem to be holding. It is fragile. Over 800n is back at thousand barrels a day. We are seeing nigerian production coming back as well. One of the biggest export streams off the market since february last year is now back. Production is ramping up. Its plateau back to level, add another 200,000 barrels a day. The lights of libya were jon the likes of libya were left out of the deal hashed out months ago. Have they have any choice but to keep on extending and pretending . Nd trying to get the story it looks like that. If they are serious about rebalancing the market, they or, if they are prepared to carry on with this gradual process, they can keep extending the cuts. Theyre going to have to do something. We keep hearing they will do whatever it takes. What they are doing at the moment is not what it takes. It is not enough. If you look at the cuts they have made in the past, it is small. Opec is cut 1. 2 Million Barrels a day this time around. 2001, 2008, the end of the 1990s, they were cutting four or 5 Million Barrels a day to get prices back where they wanted them. Jon thank you. Always tried to leave work on a friday and everyone says wait for the count. Volumewatching with the down is watching pretty technical stuff. the dispute between saudi arabia and qatar, they go deep and long. A book tells the story of the last five years in that region. Welcome to the program. Where are things with qatar and the boycott . To broker a trying deal. Rex tillerson is or is not trying to help. The russians are or are not trying to help. The position as they are going to hang tough. They have indicated they have every confidence in Rex Tillerson to mediate. They are not giving up. They will not bend. They will stick to their sovereignty. How much of a byte is it taking . Isnt making a difference . Initially, it did. The turks have established an air bridge to qatar. They have airlifted cattle from dairylia to qatar for purposes. They have a normans resources and money to spend on this. Broaderhat are the ramifications . Resonating. T this what are the potential effects on trade, commerce, investments. Comes three weeks after trump was trying to build a unified coalition against islamic extremism and iran. This fractures that. What it does is, it makes it more difficult for the night dates to pursue those two primary goals the president laid out. Jon do you point to the acceleration of events to the president possibly visit . Case is hard to make that when you understand the history of that. At each others throats since the mid1990s. This is just the most recent event in a number of incidents like this, where the United States has had to come mediate. Jon give us more color. The u. S. Policy objectives that they have, how much more complicated they are now in that region. Of the unitedlies states instituting a blockade on another ally, a place from which the united eight prosecutes the campaign against the islamic state. A massive Forward Operating base for u. S. Central command. David if they want to cut a deal tomorrow, what could they do . Shut down outages, kick out Muslim Brotherhood, what could they do . Going to shutt down out the Muslim Brotherhood and hamas. Iran is a problem to be managed. David thank you. If you have a bloomberg terminal, check out tv. You can watch us online and direct with us. And interact with us. David this is bloomberg. The hottest corners of the market remain under pressure with fang stocks leading. Lets discuss the outlet. In the last tech bubble, wired magazine had a cover story. The bubble was based on this height that tech was going to do wonderful things. Faang stocks will change the Business Model of doing business. David can there be some elements that will roll of revolutionize our world . Look at ford. They replaced their ceo. The market is saying we understand you believe this is the future, but we dont think you can get there. David apples going into autonomous vehicles. There may be a new future there. Virtual reality is another area that seems to be growing fast. These companies, there is the Legacy Companies and tech companies. The markets believe the Legacy Companies cannot get there. Amazon is online, but walmart is money tos pending more get online, but they are not breaking through. Maybe the question is, is the price of the other company too expensive . Jon coming up, bloomberg real yield. 5. 4 trillion in assets under management. Jon donald trump faces a growing headache in d. C. Another inquiry into his firing of james comey. Brexit negotiation talks will begin on monday. The global reflation story continues to stumble. Is chair yellen by herself . She keeps hiking. This is bloomberg daybreak. The tone of the market this cable goesures, nowhere. , yields higher by a single basis point. David at 8 30 this morning, we will find out how many Housing Starts there were in the month of may. Robert kaplan speaks and an evident in texas. Trump will be in miami to announce changes he is making in u. S. Restrictions on travel to cuba. Daily developments about theyve areas investigations into russian interference with the election and the aftermath of the comey firing. Do you want to talk about investigations or the agenda . lets talk about the agenda. The investigations are impacting the agenda. You see that with this Workforce Development week. Talked ceos i spoke with privately about this feeling of how the investigation is dwarfing the attention and the to workings opposed on things like tax reform, health care and infrastructure. President is heading to miami. He will roll back some of the executive orders from the Obama Administration on the relationship with cuba. They feel this is a way to fulfill a campaign promise. He is going to come back, he is going to land at about 3 30 and washington, d. C. , or depart. Every day this week, there has been a new twist and a new turn in the investigation pertaining to whether or not this is going to be an obstruction of justice. We havent heard much about tax reform lately. The last time we left it, there was a small group putting together a tax reform package they were going to try to get through by the end of this year. What is going on . Freedom caucus unveiled a set of principles for tax return. I asked for an update. To have some type of comprehensive plan put forth before the august recess. Meadows is advocating lawmakers should not break for recess unless there is a republican plan. Given the developments and what have you, it is unclear whether or not leadership want to do that. To havingis committed tax reform. There are a lot of differences plaguing the republicans factions on that issue. David divided washington came together, sadly, over the shooting. Was an eventhere where they have the baseball game that the congressman had been practicing for. You were there . This is a tradition, you are looking at images of a group of bipartisan lawmakers taking one knee to pray for those impacted, steve scalise, who is wellliked. It was a rare moment. To see david bailey throw the this pitch, 24 hours after horrific tragedy shooting, it was moving. In the audience, republicans, democrats, consultants, taking a moment to honor the Capitol Police and what have you. I think i can tell you, hopefully a reset on what has been an abrasive two years rhetoric. H vitriol david thank you for being with us. Jon thank you. And trying to cut through the noise in d. C. Bob iger told Bloomberg Television his priority is tax policy. It is a priority for us as a company that pays a high americae tax rate, that get competitive with the rest of the world. Right now, we are not. Jon joining us now, Vincent Reinhart. Talk about the capacity, the ability of this administration to execute him what the Business World and market wants, tax reform. People are less confident now than they were at the beginning of the year. The reality is the capitol dome is very big. A lot of the oxygen inside his a lot ofd up by the oxygen inside is being sucked up by the investigation. That is difficult to make legislation happen. The administration is not organized in putting forward a plan. You have to have something to propose for people to talk to. The reality is, all we have seen is a single sheet of paper. Has almost been a Media Campaign to feel good about the future. Does it matter they had infrastructure week last week and Work Development week this week and no one is talking about it . It matters that nobody has put a number they dont have a specific thing to work on. We are not hearing about , subcommittees are not discussing proposals. You need traction. The administration would always be working on two tracks. The top track is cooperating with the hill to get legislation moving forward. The second track is underneath, operating the executive branch of government. That means changing regulators. When you change regulators, youre going to change the way regulations are enforced over time. We are more doubtful about associated with tax reform, infrastructure spending, military spending, but there is no reason the administration cannot work on regulatory relief by changing regulators. How the markets are processing this information. Was something, it approaching euphoria about the probusiness agenda. Point do the markets move past the Trump Administration . Weekwould go back to the before the election win the euphoria was in its peak. What the neglected what that neglected was Founding Fathers put checks and balances to slow the executive branch and that you need cooperation with the congress and the Republican Party is not one party. Very unified Democratic Party and opposition. What has happened is the reality into markets. People are pricing out the expectation of much of any this year. Your Economics Team has been showing the disconnect between the composition of april of economic surprises. Was surveyit, it measures of the economy were upbeat. What is happening now, surveys come down in the same way. Jon coming up later, Deutsche Bank chief global strategist. He says treasuries have become unhinged from reality. Europe, divorce talks between the u. K. And the European Union are set to start monday. Philip hammond spoke to bloomberg about britains plans. We are about to start a negotiation. We have set out our desired outcome. It is a negotiation. Iswe go into that, my view we should prioritize protecting jobs, Economic Growth and prosperity. Our brexit editor joins us now. Simon, great to catch up with you. Of the sequencing of the negotiations between the u. K. And europe. Talk to me about that. It is an early concession of the brits to the europeans. Europeans want to deal with the divorce first. The financial settlement, what you do with their border. The citizens. S of they have long said they want to discuss those first. Theresa may has said they would prefer to talk trade at the same time as the divorce, discuss the future of the relationship and the breakup at the time. Jon it is a twoyear process. They have lost three months. 27 countries need to ratify whatever is agreed. How quickly are they going to be able to deal with Something Like the divorce settlement, the brexit bill . This buys them a bit of time. Eu Officials Say a sick goes fine, there is no blowups, if everyone discusses details, you could be looking at october for sufficient progress to have been made on those three fronts. Agree that has been made, they can talk to trade talks. They have about a year to get that in order. About a year to talk trade. David i had known the eu wanted to seek once it the way we are talking about and there had to be progress made. All 27ot understand countries have to agree to substantial progress being made. That seems like a nightmare. Than probably sounds worse it is. At you are looking at a classic european situation. Sufficient progress is quite a nebulous term. The theory would be that come october, everyone will be happy to move things along. Jon great to have you with us. A classic european situation. Shows chileans it everything that is wrong with the European Union. We can cross over to Vincent Reinhart. You have the pound that book ended with messy negotiations and a hawkish tilt. How have your thoughts developed in the last week or so . I would not overestimate the shift at the bank. It is more hawkish than the markets were anticipating. One of the members that voted for a hike will not be there next month. It is noticeable that these are external members voting for a hike. Jon i once asked if the vote was seasonal. He voted for a hike in august and gave up in january 2014. Then he voted for a hike in june, i wonder how long before he puts his hand down. The bank ofe england to some extent . Do you assume they are on hold for a while. Just we had inflation data stronger than expected. It is not necessarily a good story. Wage data has been soft, failing to pick up. Consumption will get squeezed. Incomes are not growing as fast as we would like. It is also a question of softening economic data. David one of the issues as they are bound for trade deficit. They have a structural deficit they have to keep filling. Do we see evidence the economy is adjusting to this new world of brexit so they will not be as dependent on Foreign Investment . Not particularly. U. K. Relies on the kindness of strangers for a long time. The bad wayt that they could make that adjustment is have fewer Foreign Enterprises working in the u. K. That is not good for economic activity. My wife and i have done a lot of capital inflow bonanzas. What happens when you get a lot of capital . It tends to be associated with elevated risk of financial turmoil down the road. It is a risk. Fundamentale adjustments. At the end of the day, it is the savings and investment balance. U. K. Citizens have to save more. That is not consistent cyclically with a vigorous economy. Jon is their suggestion the gilt yield is substantially higher than now to attract that foreign capital, the kindness of strangers . The u. K. Has not had much trouble. There are stages where one could be worried about the size of the deficit, but in the low yield environment, even countries with much larger deficits have not really had much trouble at all. It could be a problem further down the line. I am not as focused as the current account position. I am focused on the economic data. The bank of england is unable to raise rates. David they will both be staying with us. Be here toerrez will talk about cuba, nafta, and trump trade policy. This is bloomberg. 9. 5 agreed to release billion in loans. Moscovici said this deal worked out better than they thought it would a year ago. It is a very good deal. It is better than what we decided one year ago. Much better than what we could have done one month ago. Jon one question, there were a lot of viewers out there. Can we forget about greece for the summer . A lot of people have forgotten about greece. If you are worried about whether greece will start blowing up again and become a market story, i dont think they will. Jon what does it say about europe . Byhave so many talking about europe. We have a group of finance ministers to meet to disperse cash. Classic european solution was not a good phrase. This is a classic european solution. At the end of the day, the not extending payments, but rather cutting the amount to be paid. Tradition of year with creditors and extending and pretending. Another example. David is there another issue here that goes beyond greece . As long as they have fiscal union, they dont have one approach. Dont they have to reform the entire experiment . The european project is a work in progress. And opend open borders would nots, you necessarily worry about fiscal policy. If you have different fiscal policies, youre going to get different movement popping up. We talk about it in terms of greece, but we can also say the fact that germany has surpluses, that germany has fiscal surpluses and current account surpluses. Their policies are not aligned with their members. The reality is, if they are going to come together, germans dont want them to come together to lower level. They want to bring everyone up. Jon thank you. Coming up next, Barry Bannister says u. S. Stocks may fall 28 and a 2019 bear market. We will get the view in about an hours time. You are watching bloomberg daybreak, i am jonathan ferro. We are one hour and 23 seconds way from the cash open. ,e are about. 1 on the s p 500 11 points on the dow. Ahead of some breaking data in the United States, we bounced off the today lows without to 10 2. 10 210 two to 18 to 2. 18. Housing is the big one, negative 5. 5 , the previous month also revised lower as well. Estimate was positive for. 1, 4. 1, and is now at 4. 9 . At median estimate here bloomberg was 1. 7. So a big surprise for housing, upanddown, not a surprise for building permits. An initialng reaction, they are both still with us. I will start with you. We just got business these numbers out. They toss around some of it housing as much as housing is as much as 18 of the gdp. What is your initial reaction on whether this is a further data point indicating some softening in the u. S. Economy . Open was right. It is a viable series, you should not read too much monthtomonth, but there were downward revisions in the previous month, so it is the level that matters, and the level is much lower than people expected. I think that is just another reading that is slowly leaking , andf the balloon economists have flag in a bit. Maybe we were too optimistic earlier in the year and are getting back to reality, the reality being that the trend and growth rate in the u. S. Economy is somewhere between 1. 5 and 1. 75 , and we are probably at the right run rate, but it does not feel good being here. I have a chart here i want to put out. What it shows is new home starts and new home sales. New homeetblue is the starts, the yellow is the sales, and this has come up significantly since 2011, but is below the level, going even to 1990. It has not returned to that level. What is going on . There was a big turn down a 2007, 2008, 2009, but it is even not back up to 1990 levels . We have not bounced back from the financial crisis in the way that most economies do after a severe financial crisis. There has been a level shift. Part of it has been them a graphics, where a population is not increasing as quickly, we do not eat as big or as many homes, and part of that is haste. Young people are staying in their parents basement longer. Purchases first home has lengthened in the same home same way in terms of when they first get jobs, how long they stay in college, so part of it is a level shift, and the problem with a level shift is a drive on activity while it is happening. But the reality is part of that we do not know, and i also suggested is about financial mediation as well. To buy at more costly home in terms of mortgage availability. How does that affect the rate in the Federal Reserve as well. This is a crutch for the ecb to keep stimulus available, and there, even though nation inflation has turned low, it seems were a reason for the Federal Reserve to keep hiking rates. You talk to me as to why they keep clinging to this word, transit, when a hard data keep suggesting the same thing. Maybe this suggests they should be hiking . He is absolutely spot on when he said we are possibly too optimistic at the start of the year, market set markets at the whole are too optimistic, but that does not mean the fed should be panicking or reversing its decisions already. If you look at this in the u. S. , we are still around 300 basis points below what neutral might be, maybe a little bit lower depending on where your view of neutral is. So there is still some room for the fed to keep going, but we need to keep in mind that the policy is easy. The fed Balance Sheet is still out there, and it is not shrinking and when it does, it will be at a slow pace. We need to remember there is lot lots of monthly easing in the economy. What could this tell us about the state of the u. S. Economy . The dollar has been on a tear going up, it could be off some now, but is that because of the u. S. Economy or because the euro strengthened so much . Seen aave not really shift in investor sentiment. We go back to the start of the year heading into february and march, there were a lot of fears around european politics and butugh the french election, now the italian election is off the agenda. Investors are looking at the euro more seriously. But i do not think we have seen that top out for now. It is a large move from 106 to one of teen 118, and investors say we went far enough, lets not get carried away. At the end of the day, the fed is still hiking and it will be a long time before the ecb does the same. Onend treasuries are about 87, and we talked out around 220 in december. How do you see that spread evolving . When you look at the fed, clearly there is room for the 10 year spread to evolve in one direct and and the 10 year to evolve in a different direction, and i think that is critical to particularly in respect to other assets. We look at how markets responded to the fed hike this week, and saw twoyear yields going up, near the highs, while the treasuries were writing and yields coming down. So i think that twist and curve is quite a good sign for the dollar, because we should be really taking our cues for the end. And 235 is very top out at the tenure spread. You the eurodollar, can conflict that you talk about that was what you are seeing in the markets at the moment . There is a little bit of positioning, and the fact that we have seen a lot of large investors who were wanting short dollars, short euros for a long time are in winding those positions and some of them getting long euros. That is having a meaningful impact on the eurodollar, and i think the question is really where do we go from here . Now that positioning is a lot more even, that is showed by the mandate, one more subsection of the market, but we are also hearing it from our own anecdotal surveys and client meetings. Now we are in a much more balanced position, and Going Forward i think gains for eurodollar will be much higher. We have all been talking fed, and onor the one hand inflation seems to be softening but they want to be raising. When they raise, financial provisions will loosen, so that will encourage them, but there is a false signal there. Our conditions loosening because of the strength of the u. S. Economy or is it because we have an ecb who is taking a very dovish state and driving dollars and u. S. Treasuries . I think there is a couple parts to it. Good pressfed had when they tightened. Inflation data had been somewhat inconvenient, but they are working on their plan and most of the headlines associated with the typing is the fed is so confident about the economy, it is willing to tighten. As long as that keeps happening they will do it. Financial conditions can be misleading, because financial conditions ease, technically, medically or is everyone gets more confident about the u. S. Economy and the islar depreciates, or europe seen as doing relatively better. None of those are good news for the u. S. So you have to be careful when you are looking at financial conditions. I think Federal Reserve officials will try to look through that, and in that sense a lower 10 year treasury yield is bad news for policy makers, because what it says is they have not managed to foster inflation expectations. That is their goal. Their goal is to get inflation 2 , and ae target, low treasury yield is disconcerting to them. It is great to see you and get your perspective and insight on the u. S. Economy. And now in the heart of the effects market in britain. Thank you so much, so we will see a downside to Housing Starts and a downside to building permits. Not asome point, this is coincidence. We need to talk about that a little bit more. But lets head over to headlines outside of the Business World and say good morning to jessica summer. Trumpa john, president was on twitter again this morning, and the topic was russia. The president tweeted after seven months of investigation and Committee Hearings about my collusion with the russians, no one has been able to show any proof. Sad. This was treated hours after special Counsel Robert Mueller is investigating the business dealings of his soninlaw and special visor, jared kushner. Russia claims they may have killed leader of islamic state. Russian ministries say they are verifying intelligence that the leader was killed late last month in a russian airstrike near the de facto capital in syria. Other commanders of the group are said to have died, still the Russian Foreign minister says there is no 100 confirmation that he is dead. And the pentagon taking steps to break the stalemate in the war in afghanistan. According to the associated press, almost 4000 more american troops are being sent there. The top american commander in afghanistan says he does not have enough forces to help afghan troops fight the taliban. Global news, 24 hours a day, powered by more than 2400 morealists and analysts in than 120 countries. Im just the summers, this is bloomberg. Next, an interview with Carlos Gutierrez, about nafta, cuba, and where the president is headed with u. S. Trade policy. Live from new york and washington, this is bloomberg. Is bloomberg daybreak, and coming up on real yield, the ceo of Global Fixed Income at black rock will speak at 12 00 p. M. Eastern. David this is bloomberg, i am david westin. President trump is on his way to miami, where he will be announcing some scaling back of his predecessors moves to normalize relations with cuba. Carlos gutierrez served as secretary of commerce under george w. Bush, and also is eeo and chairman of the kellogg company. Of therman and ceo kellogg company. Take us into your perception into what has gone on with cuba, what is going on today, and what makes sense. Mr. Gutierrez we went through a process of normalization started by president obama which led to the reopening of embassies in late 2014. That was the first time in over 50 years that we have had embassies, and then opening of economic trade and relations. What i have read so far what the president is going to announce today, it seems like tweaking. It does not signal a major cuba policy or new direction. Tweakingasically is the current regulations, making it of it more difficult to vel a bit more trip difficult to travel. What will be more sticky is if you go to cuba, you cannot spend money at a military controlled establishment, which will be hard to know what his military controlled. Travel will be a little bit more inconvenient, but the cruise lines are staying come the airlines are staying, staying, the airlines are staying, so it is kind of like a policy standstill, but it is not a big deal other than the fact that we continue to yield the others china and to china and others. David a lot of questions americans have is why . Why this tinkering were adjustment . We are told it is in part to give incentive to the cuban governments to release some political predators prisoners and have a freer, more open democracy, but that is not sound like it is they were important enough. We have not been it will do that for many years, why would this cause that . Mr. Gutierrez do you know what is happening . Cuba is as much a domestic issue, and more of a domestic issue than international issue. The president has just made some very important declarations about the way we are going to deal with countries. We will not lecture them, tell country,to run their but cuba seems to fall out of that policy. It seems to be a different policy. It country, but would seem the issue with that is domestic. There is a sense that the president wants florida to think the cubanamerican community, and this is a payback to people like senator rubio, congressman markey oh congressman mario dslr. This would seem that it is not so. The president wants florida because of the panhandle and northern part of the state, and actually lost areas with high cubanamerican concentration. That is what is happening here. It is a tactical payback, it is not a new cuba policy, and i think we are still waiting for overall direction. I hope that direction is not to go back to the past. We need to be looking forward to a new generation of leadership in cuba, how we are going to engage them, this is a country of 90 miles away from our shores. If we strangle the economy to the point where we have 500,000 refugees on the florida straight . Is that what we are looking for . I think we have to be very careful, but the important thing is that my sense of these small. Is that they are they are tweaks, and they are tactical. I think we still have to wait for President Trumps overall cuba strategy. David some of the reporting suggests that nothing will be done by the president that would interfere with agricultural exports, for example, because he agricole the Agricultural Industry is really pushing for exports to cuba. So you think that other countries are ahead of us, right . It is 11 million people, and 11 millionez it is people, and the capital is low but the potential is tremendous. It has potentially punched above its weight. The location of cuba is very a logisticsr being hub, an export hub. It is close to the panama canal, close to the u. S. , so it is a perfect location. And of course, if we think about beyond commerce, stability in the hemisphere, stability and in theean caribbean, cubans are working in the u. S. To fight drug cartels, kidnapping, all of these things that we are concerned with that deal with our national security, cuba is essentially a partner in that. I am not sure that we are helping the broader interest of to country by continuing again, thea, but good thing is that these changes that the president will announce smallstrike me as quite and changing on the edges, a bit tactical. Nothing big. The secretary will be staying with us, and later we will be covering the president are marks at 1 10 pm eastern time on Bloomberg Television. Anyone who is a bloomberg subscriber, get out your terminal and check out tv. You can look at the charts and markets and interact with them directly. Equity marketshe or about tech, you can go to tv on your bloomberg terminal. From new york city, this is bloomberg. It is vital that not only the environment and the United States remain healthy, regulatory in nature, but we have the ability to compete successfully and operate successfully on a global basis. There are so many factors that contribute to that, from , healthyto trade relationships with other countries from a trade perspective is extremely important to multinationals. The Walt Disney Company is a product, ofer of movie businesses, and a great example of that, and maintaining an open relationship with countries of the world. That was disney chairman and ceo bob iger on his views about u. S. Trade policy and why they are so important to the Walt Disney Company. Ofde remains of the center the trumpet ministrations policy agenda, and even as we speak nafta is in the process of being renegotiated. There is one issue that does not was not expected to come up thathat negotiation, but is currency manipulation. Joining us as Carlos Gutierrez, former secretary of congress commerce. Mr. Secretary, talk to us about currency manipulation in nafta. Why would it, then there and what are the broader ramifications for u. S. Trade think . Mr. Gutierrez i this is something that came up during the president s campaign. He did make an important he made an important factor in our , so i think it is a symbolic gesture. Obvious, blatant currency manipulation at mexico, you have a devaluation that happened of the mexican peso floats, and sometimes it does devalue versus the u. S. Dollar. But we just have the opportunity, secretary mnuchin had the opportunity to do the annual review of china, and whether or not to declare china turns you manipulator, and a currency manipulator, and the answer is no. Currency manipulation, in a sense, when you think about it in china, was something going on several years ago, but we have not been in his of that instances of that in the past year, and with mexico, i think it would be probably symbolic, but i do not think there are instances of blatant currency with ablation in mexico. Suggest, is this substantial at altering trade right now or is this a red herring, something we can blame when we are not doing as well as we would like an export relations . Mr. Gutierrez you can always ,oint to currency manipulation you can point to nontariff , but at the end of the day there is one thing we need to focus on, and that is exports. The way to take care of our deficit, to improve our deficit, is not to import less, because that leads you toward protectionist policies. The ways to export more. Take nafta, for example, and the big opportunity there in this socalled renegotiation is an ecommerce chapter. Nafta was written 23 years ago, so a lot has changed. That would be very beneficial to the u. S. , and those are the type of changes that would be positive, as opposed to changes and forceil imports other countries to retaliate. David Carlos Gutierrez, former secretary of congress that commerce. Thank you for joining us today. Jonathan, there is a lot of talk on trade. Im not sure if i have a clear view of the overall approach in the Trump Administration. Jonathan colin jonathan on cuba, i do not get it either. Nobody is talking about this week, but that is the bottom line, really. Coming up later, bloomberg real yield will be live from black is Trading Floor black force Trading Floor. New york, this is bloomberg. President trump faces another growing headache in d. C. , and the global reflation stories continues. Chair yellen keeps on hiking. Strategists remain calm. For the First Time Since 2012, we arrive in june and wall street terms have on average let their s p 500 forecast is from the start of the year very much intact. The marketwn to open, this is bloomberg daybreak. The breaking headlines, right here in new york. Amazon looking at whole foods, to buy Whole Foods Market. Whole looking to buy foods market at 42 a share in cash. Theyre hoping to buy the ,ompany, 42 a share in cash this cannot out in the commercial break. When we found out, i said it was going to be amazon. Jonathan called it. This is a big, big push into the food area. Amazon has made no secret of the fact they want to go into this. They want to deliver on groceries, so this would be a big set up, even as we saw, hit hard. Other groceries are having a tough time. Below whole at 33 33 a share is where we close yesterday, 42 a share in cash is the price from amazon. And walmart has been putting a such big push into groceries. We had someone come on the other day and said that jeff bezos over at amazon would not be happy with a push in to area, and that is exactly what has happened in here, isnt it . It is a war for our groceries . Bezos has shown in the past he has the cash that going to spend and is willing to spend. So whole foods going to be bought by amazon yesterday at 42 a share in a cash deal. John mackeythat will remain the whole foods ceo. This also reflects a premium of 2 15 close. But whole foods is a valued brand. sd this is not usually amazon mo. 9 of theabout premarket coming into this. We closed yesterday at 33 a share. Amazon buying the company for 42 a share, reflecting a 27 premium on the june 15 close. That is a story with the amazon situation. Jeff bezos and amazon buying whole foods at 42 a share in a cash deal, john mackey to remain the ceo. If we get to the broad market very quickly, we are 28 minutes away from open. A look at equity markets here in new york. Are a little bit positive on the down, about dow, about three point, we are going nowhere on the s p 500. That is the story on equities. Abigail, what is the story . Nice call about amazon and whole foods, and taking a look at some movers in the energy complex, the e p trading higher inswerve with oil, about. 8 , low,ing off a some a and this is helping to speak energy and whiting petroleum, after the Company Announced it is opening the first phase of development on one of the biggest oilfields in the world. Bearis is the longest stretch since august 2015. Not taking a look at two relatively recent ipo stops, snapped and square, a tariff to stories here. Snap bouncing off that are the oh price ipo at 17, hitting the price again today. Surprisingly, to be on valuation ist the 2018 sale attractive, but investors seem to be buying it. And snap, we have a downgrade from Credit Suisse to neutral, citing valuation. We have been looking at small gains earlier, but now again it seems that we have a downng repeated, amazon 1. 6 , more so i am guessing on that whole foods acquisition, the look of facebook, netflix, this is, showing that an alltime down, this is said aown, and he pullback here is very healthy, considering we have a slow growth economy, and these are solid, high Growth Companies, and ultimately investors will go back to them, but we are not seeing any of that mentality right now. Lets get back to that breaking news with amazon about to buy whole foods in a 42 a share allcash deal, the from the june 15 close. The Market Action follows, amazon down. 81 , whole foods has not opened because the news pending. The premiums 27 on the june 15 close. John mackey will remain the. Hole foods ceo so it has been tech all week, and now we have acquisition to talk about. 27 premium, a deal valued at 23. 7 billion. Substantially north of that, about 471 billion. Isto talk about this now Deutsche Bank chief global strategist. What you think of this deal . I think it is very positive. I think if you think about the Retail Sector outside of internet, it has been really really beaten up, and the point i would reiterate is that these are stocks, stocks respond, and if they are going to survive they get bought out. And look at the data we have. The seattlebased company has about 25 billion dollars in cash and equivalents at the end of march. Companies with a lot of cash they need to deploy, when you look at where that will be deployed from, are you looking at areas where they have the secular growth stories like the amazons of the world . I would say feature of this recovery has been corporate, like everybody else, have been very, very cautious. We are now at a stage in this recovery, eight years in, where labor has been used up, and companies are going to raise more than anything else, and that is the one trend i would watch that would be a game changer. So of topline is going to grow, you need to raise the productivity of the existing labor hase, because historically not been cheap. When you start to see a big acquisition like this, it triggers consolidation in the sector. I wonder if that is possible here, because it is not clear who beside amazon could we do not know if this is different or what she we should be looking for within retail. I think the trend continues for a little while. I think it is a hard one to call , but at the end, i think that you know that trend will be disrupted. Heard again, amazon is buying Whole Foods Market, at an 8. 7 billion deal, 42 a share that will close on june 15, 32, the premium there about 27 . The biggest acquisition ever for the ecommerce giant. The biggest one before this was back in 2014, and that was twitch. That was 917 million. This one is a big one for the likes of amazon. Not a household name, twitch, unlike whole foods. Unlike whole foods. We have looked to some of these companies, and the bottom line is they have money to end. They will spend it, whether it is offshore or right here in the United States. The case, absolutely and there is ways to access that money offshore, so that is not a lot to ask. Abouts is not so much repatriation, or tax reform at all, is that . Most basic level, it is about the cycle continue, and what the growth is, constructive on both. So no issue for me. Has made no mistake in the fact that they want to move in this area, especially with the instant delivery of groceries and things like that. How revolutionary could this be for the average consumer . It is not stop with groceries. As you know, we have a number of recent developments in terms of the ability to order from a vast number of restaurants. I think the delivery of food is one of the places where we have recently, inange, what i have reported. Deutsche bank will be staying with us. Coming up this afternoon, we will have live coverage from miami a President Trump giving remarks and assigning a new executive order on the companys policy toward cuba. Countrys policy toward cuba. Live from new york, this is bloomberg. Breaking news in new york city, amazon is to buy Whole Foods Market for 42 a share, 42 a share, a 13. 7 billion deal. Looking at the reaction and amazon stock, lower initially in the premarket, but now up by. 9 . Value of about 400 million, 42 a share, and amazon trading higher in the premarket. The premium there, 27 from the june 15 close. David . Now is ivan finds that, who follows amazon. What was your initial reaction . Trex it makes sense in the direction that amazon has wanted to go of combining it makes sense in the direction that amazon has wanted to go of cliffs. G bricks and they have been expanding into food, and amazons expertise is andulfillment and logistics technology, and you apply that to whole foods, and it allows people to order online, get their food delivered from a , and itole foods market helps whole foods improve the Customer Experience and drive customers to the store, the prime membership. Amazon has a highlevel customer loyalty, whole foods have a high level of customer loyalty, so i think it does make it shows how amazon is expanding be on their Online Presence. Expanding, but it is a major strategic shift in this sense . Until now, amazon has sold other peoples stuff, now they will be selling their own stuff in the form of whole foods. They will own a brand themselves and push the wrong product. How does that work . One of the things whole foods did to combat the competition was come out with their own brand of food, the 365 rand come brand, and that has done very well for whole foods. And whole foods is even building out a smaller footprint store called whole foods 365, so i think where amazon has a great brand name, i think they have spoken about coming out with amazon branded clothes, and amazon Branded Products that will sell very well because they have strong brand equity. Lets talk about this deal specifically and what they are actually for here. They have bought some real estate and some prime areas in the United States, and they will be applying in kensington as well. Are these Distribution Centers now . Are they more than just a Grocery Store . I believe they will become Distribution Centers, but amazon is opening up bookstores in prime locations as well, so they are going to wear their target millennials,is even though the market spans across all demographics, and they want people who embrace technology, people who want good quality product, and whole foods delivers that, and amazon has been creating their a lot of closet products, so i think the brand equity extends to many things. So they go into brickandmortar and you look at screen,ation on the grocery stocks are absolutely battered. So how did amazon project itself onto the high street . I believe they will bring , expertise, and logistics to bring a better and more value oriented customer. Xperience and what will the delivery mechanism being . Will they have it so i can order something from amazon and it will be delivered from whole foods right away, or will i need to go into the whole foods store . I think they will incorporate some type of delivery, whether it is an uber type of Delivery Service or some kind of local , something similar to fresh direct. I think amazon has food delivery already, so they will use their food Delivery Logistics platform to deliver food from the local whole foods to wherever the customer is. If we could get walmart stock on the screen, you will see it down hard in the premarket. Whats this mean for walmart, who was sewing some success hing into online sales showing some success pushing into online sales, but not have to be on the high street as well . Amazon is a serious competitor to walmart on many levels, walmart has tried to combat that by expansion into ofine, but making a number acquisitions of online retailers, but walmart has a big warehouse and logistics presence, so it makes them a good competitor. , strong buyingat power. They are the lowcost provider, but on price they compete, but amazon competes on technology and fulfillment and logistics capabilities. We can see across so Many Industries right now, traditional businesses trying to get into digital. Is this an indication that you can see this in automotive, all the places. It almost has to be the digital that reaches out to the traditional rather than the traditional moving into the digital . Technology enables a lot of different things. It enables communication, it enables these companies to mediate, it enables you to sellers, ands and the Better Companies use technology to reduce costs and faith hill demands. The more market share, the more business they will do, and amazon has been a leader in doing that. Thank you very much for joining us. Acquiring Whole Foods Market. Coming up next, we will check and bloombergt, real yield will be live from the black rock Trading Floor. And we will bring you more coverage on a breaking story right here from new york. You are watching bloomberg tv. From new york city, this is bloomberg daybreak. Breaking news in new york, amazon is to buy Whole Foods Market at 42 per share and a cash deal, valuing the company at 13. 7 billion. John mackey, whole foods outspoken cofounder and chief executive offer sir officer will continue to run the business. For a bit of perspective, this is amazons biggest acquisition to date since 2014, when they 900 million in cash buying video grain streaming service twitch videogame streaming service twitch. A 5. 1d about what billion of cash and looking at the data at the end of march, so 13. 7 billion, 42 a share in cash. Amazon buying Whole Foods Market , the premium, 27 . Looking at the story for amazon and the premarket, up now about 1. 5 . They really wanted it, i would say. And joining us now is that analyst for jimmy montgomery. How is this being financed . How are they coming up with the money . We are still getting the information right away, they have not disclosed it just yet. We are eager to find out about the fact that a good portion of it would be through debt, sidering while amundson amazon generates such good cash flows, the debt market would them. T attractive to what is their debt situation overall . The Balance Sheet is a lot stronger than the end statement, you talk to amazon and you say oh, they do not generate that income from a Balance Sheet ,erspective, if you are talking talking here that a company has toilet billion dollars in cash on hand, that is a fairly sizable chunk of change, considering and given the acquisition amount is 30 billion. If they wanted to pay it all in cash, they could. I would suspect, however, that they would not. And normally in a deal like this, the first question you ask is this dilutive of earnings or not, and given the way amazon keeps its earnings, i guess they do not have to worry that much about it. Cracks correct correct. I do not think the delusion factor will be a presence here. We cannot really comment on the stock perspective, but given where the stock has traded it will definitely be felt. Wheel running right now that we are learning right now aat amazon might finance ridgeline with that make sense to you . That makes a lot of sense, that if you finance a large part, it is usually senior unsecured. And the other grossi firms are getting hit quite hard today in the premarket, grocery firms are getting hit quite hard today in the premarket. What does that mean for their Credit Rating . I think some of the names you will see have some movement would be kroger, given the rumor a few weeks ago related to them buying whole foods as well as well as them buying sprouts. Kroger might get a bit more aggressive on the acquisition front. They took their foot off the pedal since a few acquisitions last year, and now they are saying ok, maybe we do not need to be do need to be a little bit more aggressive, especially in the organic market space. Explain that to me, that other Grocery Companies might want to get more aggressive in acquiring companies. How does that work cap of this is not to Grocery Companies getting together, this is a big Online Company buying a Grocery Company. How does it help for kroger to get together with another Grocery Company to compete with this . Correct. Amazon is pushing more into that organic market space related to its prime is this related prime business related to amazon fresh business. They are blending the online and brickandmortar concept, we see things like its a cart coming about that are helping in instacart coming up that are helping streeters get that last mile of distribution. So i think they could be more competitive by focusing on the products that they offer as opposed to the composition competition with amazon is an online retailer from a distribution perspective. So i thinkwhere amazon is missik from an amazon fresh standpoint is that they do not have those physical locations to be able to distribute product that are those fresh products, as opposed to the shelf to table products. With caught up last week with talked totter, and we him about amazon and walmart, and the war that could occur in the coming months and years. This is what he had to say. I am not sure Mark Lawrence particularly competent at building online. He was a at setting up the domain names, diapers. Com, soap. Com, he tried jet and had a ton of money behind him. He had a whopping 1 billion in sales, compared to amazons Growth Market value of 200 denton, so barely making a 200 billion, so barely making a dent in the online arena. Really, we thought death basis jeff bezos was going to get into grocery . But you can see it in the move. Percent 2. 78 percent in the premarket, walmart getting smashed around at 5. 7 . It looks like walmart is getting the message this morning. We are now joined by our Bloomberg Intelligence food retail analyst. Thank you so much for coming, gentler jennifer. What is your analysis of the steal . This deal . The people have already said it brings amazon a physical footprint, gives them a way to stop delivering only to the highly possible related that populated urban areas, and on the foods i they have lacked in technology and their terms to utilize technology to run their business efficiently. What this deal does for whole foods is brings them the expertise that will run help them with pricing, Inventory Management, and distribution. That should actually help the overall operations at whole foods as well. Ask how much has whole foods how much progress has whole foods already made in this area . Are they going to just let amazon taken over for them . They have been making progress, but they lacked things like Labor Management and scheduling hours and all of that, so have made progress in a lot of those areas and were able to cut costs. That has allowed them to fuel their lower prices that they have been pitching for people for quite some time, but there said,eas that, like i with Inventory Management and pricing, they will be able to oh theseent implement practices from amazon sooner. Is amazon being put together with that brand help whole foods or heard it in terms of a brand . In terms of a brand, they are probably going to go together quite well. Types of very similar customer demographics, high levels of loyalty, and people generally have a positive impression of amazon as well as whole foods. I do not think there will be any degradation of the brand name for whole foods as a result of the merger. Beenole foods, if it has having any difficulties at all, it is because they have been a fairly premium brand and they have added other lowercost alternatives come in and try to compete with them in their space. Will this help them get their price point down . Ultimately, it should help them get their price point down, but it really does not change the fact that they competitive that the Competitive Landscape has permanently shifted. Whatever amazon is able to do to help them with that remains the be seen, but amazon does not have grocery expertise. If they are looking at whole foods is a way to provide the grocery expertise, when, and many of the ways, whole foods is like some of their peers, we will see how that sorts out in the end. But the larger Competitive Landscape is very different. Of the first stores they open in the u. S. , and they have a huge assortment of natural and organic items in their stores. Indicative of more changes to come, and the market shows it will be going on for quite some time. Thank you very much for joining us on a breaking story. Opening,ay from the and these three stocks right here, amazon acquiring Whole Foods Market brady a decent sum, 13. 7 billion, 14 to dollars 42 a share, up by 3. 1 percentage points, and walmart is the big victim today, down 6. 8 percentage points. Lets get to where we stand in the premarket. Futures are down about noun points on the dow, nine points on the dow, the second week of losses. Here is the story elsewhere, treasuries unchanged. We kissed a 2017 low earlier in the week. The dollar just marginally softer, down 2 10 of 1 . 20 seconds into the cash open, lets get to abigail doolittle. Abigail we are looking at small declines for the major averages. The s p 500 basically unchanged but it tells us investors remain on pause after the selling we have seen recently. On a weekly basis we are seeing a pretty big divergence. The dow, despite being down, is on pace for its fourth weekly gain in a row whereas the nasdaq is on pace for its second weekly decline in a row. It will be interesting to see whether the growth of the older companies is what is right for what is ahead. Amazon buying whole foods for 13. 7 billion in cash. Here is the space getting decimated in a way, relative to sprouts markets and kroger. Amazon getting a nice bid on this move but we have some decimation here. The 800 pound gorilla moving into this space, investors thinking the competition will destroy an already razor thin margin environment. Taking it macro, as far as what could be next, investors are wondering is the recent pullback for tech the start of a long due pullback or correction . In white we have the s p 500, in blue is the Corporate Bond spread. Low. 14 it hit a then it went higher. We see it going lower again. This tells us investors are taking on risk. The s p 500 is gone to highs and this suggests we could see the Corporate Bond spread go lower yet which means the stoxx could go higher in the mediumterm, but once the Corporate Bond spread spikes that could mean risk off and we could see a big pullback or correction for stocks. Timing is always an interesting aspect. Jonathan joining us now is Oliver Renick and from baltimore, Barry Bannister. Lets begin with you. You dont have to talk about the specifics of the deal, but talk about the nature of it and what it means for the equity landscape in the United States. Barry amazon going into groceries is a little bit like a dog chasing a sports car. What do you do once you catch it . I am not sure groceries are a Good Business. They are highly deflationary. It tends to be a deflationary industry. It is narrow margins, highvolume, low growth. Maybe they have experience but im not thrilled with the grocery business longterm. Jonathan if you are the source of deflation, you are amazon, you have built a business on it. Iizabeth barry like said, narrow margins, deflationary business, lots of turnover, but it is a tough business to grow and how much can you eat . We are all getting older and fatter and it is not the best industry in the world. It is defensive, though. David joining us on the phone is the chairman of debate of its and associates. Let me ask you what we just heard from barry, that this is not a Good Business and it is deflationary. Why is this a good idea for amazon . Is this a question of up selling . Everyone in the country needs groceries. Can they upsell us to more expensive, highermargin products . Howard i think this is a great deal for amazon. Whole foods was in the tank going straight down. It was the perfect time to attack them. Amazon is a market share business. They are taking on walmart. Walmart is by far the largest food retailer in the United States. They are not going to be able to take on walmart and food which by the way is 54 of walmarts business they will not be able to take on walmart without a footprint in food. It is simply impossible. They have been experimenting with their own stores. There is no way to get a Critical Mass unless you buy a company. They will be the best at delivery, and that is a huge part of food now. I think this is brilliant and exactly what amazon should do. If you are in the market share game, there is no other choice. Amazon is king. David it may be a brilliant deal but woodhead have happened without pressure on whole foods . Howard whole foods is in the tank. When you go in the tank and you are a Public Company you start to get your brains fried out by investors. That is the game. If you dont like it, stay private. As a Public Company you get money, you get liquidity, and one of the negatives that comes with it is you get a bunch of guerrillas sometimes who by your start kicking you around and foresee sometimes to do things you do not like. It is part of being a Public Company. It is not all fun. Whole foods has been on a major trend downward and there is a lot of new competition in the organics business across the board. Kroger has been kicking there but, walmart has improved. Ies is building thousands of new stores. , anday they are positioned trader joes is a lot better than whole foods and by the way, a lot cheaper and it is owned by aldi so theres a lot of stuff going on. I think that amazon will clean up the price and value issue very quickly at whole foods, quick. Jonathan stick with us. I want to cross over to our Bloomberg Amazon reporter, spencer. We are talking about whole foods. Year to date and some of the rivals have been hammered. Talk to me about the market story and the opportunity that got jeff bezos excited. Spencer amazon has been working on grocery for about a decade now starting with its grocery Delivery Service amazon fresh that it launched in seattle. It is slowly expanding around the country to a couple dozen grocery just but does not have the online penetration of other categories like books, electronics. It is still languishing in the low Single Digits in terms of penetration. Most people still go to the stores and that is what this is all about. If amazon wants to be serious about grocery, it needs stores. People want to go to the store, see the produce and that steaks, and cap the watermelons. Watermelons. With whole foods, they also get some overlap in the whole foods shopper and the amazon prime member who is a very loyal amazon customer. David barry, i want to come back to you. Are we seeing something that is a much larger pattern that we will see played out in different ways, the marriage of the traditional with the digital . You have got a bunch of Traditional Companies that have to move into that area. Are they all right for acquisition, whether it is in groceries or some other area . Barry if you look at the core personal Consumption Expenditure deflator, it has been under 2 for 80 of the last 20 years. If you look at the core cpi ex shelter, excluding the cost of a home and living and shelter, you are looking at 0. 6. That is incredibly low. It is close to the lows of 20 years and we have spent most of 20 years under 1. 5 . In this borderline deflationary environment the fed is focused on inflation and wants it to get up. Chance of them making a policy error as high. Policyk 2019 is the mistake and we will have a bear market. Jonathan some of these stocks, Grocery Stores in the United States getting absolutely hammered, and what is interesting, not just the stores in the United States but globally. Oliver amazon has that global reach. There are two things from a broader perspective. I am excited about deflation happening at whole foods. Jonathan you arent the only one. Oliver it reminds us what happens when you have a lot of cash sloshing around at corporations around the country. We have talked about high cash levels and companies keeping cash on hand for quite a long time. When a company like amazon has 20 billion in their pocket making go out and do this. Whyndly, there are reasons there are companies that have high valuations within the market because you look at some of these tech companies, it is all about whether or not people are selling these Consumer Discretionary and Growth Companies because they are overvalued. At the end of the day this is about chasing growth and when you have a Disruptive Company like amazon, that is what i think people are paying those high valuations for. Let me ask you the macro question. Is a deal like this progrowth . Does this increase productivity . We need productivity to really have sustainable growth. These sorts of deals pro growth from an economic point of view question mark point of view . That is a complicated question. As is about market share. We are talking about putting technology into what is really a stable company. Company. Taple like the gentleman said, we are not going to start eating more food because emmaline amazon is delivering it so topline growth is restricted. We could get improvement in productivity but i would point out that we are at this stage in the cycle where we should get a pretty significant pickup in productivity, as long as the cycle continues. A necessary condition for productivity growth is full employment and that has basically been met. Jonathan you joke about it, the cost of a place like all foods to shop but i think it is a famous saying from jeff bezos, your margin is my opportunity. Oliver the first thing that comes to my mind is sitting in for the colorcoded weight outs, waiting to get in line. Into industries that have been established and been around for decades if not longer, and saying, there is a better way we can do that. A lot of times that is the operational margin they have. Whether or not there is this infrastructure they can build into their Amazon Prime Services , they have been wanting to go out and deliver. We have talked about them opening up visible stores. A friend of mine in m a data pointed out there is a deal going on with walmart today. It is setting up for a battle where walmart wants to have these sort of online suppliers and amazon wants to actually be on the stores, so i think we are setting up for quite an interesting contention. David we are going to bring in cory johnson. Is this a good day for the west coast, or another war between the traditional and digital . Cory it is always a good day on the west coast. It is interesting that amazon is looking to expand its top line. , thencome statement Balance Sheet, amazon is always looking to expand its top line and use its cash operations to do so. Just yesterday on Bloomberg Radio we had a seattlebased Value Investor criticizing amazon, saying i just talked to a guy at amazon who said the only way it will become a trillion Dollar Company is to win groceries and grocery delivery. It is clearly a big focus for amazon. If you look at the way that amazons business works, its fundamentally works a lot like a Grocery Store. It has very low operating margins, very low profit margins, but it generates lots and lots of cash flow and operates its business and grows its business with cash flow. The grocery business and amazon Delivery Business are very much and analogous in that respect. David traditionally we have thought if you are going to get to profitability you need to get margins up. There is a limit to how much you can take margins down. Is this literally making up on volume . Cory this is not losing money on every sale and making up the volume, but fundamentally, amazon has shown a very consistent thing for 20 years, call it, where they want to grow the top line, they want to expand their business so they dominate delivery of stuff to the house. They are willing to get virtually no margin to squeeze everyone out of the business. Wall street believes that someday they will turn a switch to go from 1 margins, operating margins come up to 5 . I dont know if that will ever happen. They show they have no intention to do so at this is obviously a very rapid move towards expanding the top line to keep that cash flow thing happening. Jonathan i think what a lot of people will be struck by is the breadth of this move, not just in the United States but globally as well. You see the likes of tesco in europe trading lower, much lower on the back of this. U. S. Grocery stores getting hammered as well. Is that a kneejerk reaction or should we be increasingly concerned a big boy is coming in on the turf . Cory whole foods has been in turmoil of late. Their early days of rapid expansion have faced a lot of board room struggles, struggles on the top line in terms of management. But look at the struggles in the grocery business. Look what happened to kroger just this week. Grocery is a very tough business. Amazon can withstand that a little bit and it is a really interesting move by this company. Oliver i think you have also got this idea that there is a , a lot of companies and sectors under a lot of pressure and we have seen that in 2014 post oil. We see that now with retailers. I think the ideal on a macro level is to think about the m a because there are a lot of sectors out there, a lot of companies out there that have been under a tremendous amount of pressure. This is not necessarily an example of that. Whole foods has definitely gone through some rough patches but i think there is other stuff that is more right. This is a refresher that m a is a catalyst for markets. David it is ironic that we sectionly had a scheduled on how tech is on the downswing. Does this say anything about that rotation or is it a one off . Spencer i do not necessarily oliver i do not necessarily think it is one or another. Have cash flow that creates an opportunity for them to do this. Kind of look across the market and seaworld this kind of disruption can happen. We were talking about the tech selloff and the concerns basically. When youuld point out, think about the strong rally in u. S. Equities we have seen post the u. S. Election, and there has been very limited pullback, but that really sort of misrepresents what is been going on one level below. If you look at the sector level, we have seen pretty huge rotations. The first phase through the middle of december is all about the financials and rates going higher, and since then they have been flat. T has really been technology i would argue we are at the cusp of phase number three where we see the next rotation back to more of what we saw in phase one, which is really about rates and financials. Jonathan just to go back to this story specifically between walmart and amazon, whole foods has 450 something stores, walmart has 11,700 something. Is it more than brickandmortar or does walmart have something to counter the logistics that they can really leverage . Is that what this is about . Cory i think what we see really happening here, a lot of people want to compare the Stock Performance and profitability of amazon to every other tech company that is unprofitable, and tesla is a prime example. Investors say, get tesla. The difference is amazon has never returned to Public Markets to sell equity since the first ipo but have cleverly used the stock to do acquisitions and to reward their employees, who get low salaries and have a very tough job, and yet get to get their Stock Options and pay themselves that way. Amazon is very aware of its stock price and the fact that it is succeeding as a stock, even if it is failing in terms of earningspershare. This move shows they continue to pump the top line in order to move the stock and they continue to add value to the stock, even at the expense, if you will, of earningspershare. David lets come back to pumping the top line. Take us through the stoxx, because they are different in that regard. Amazon continue to my favorite expression is, trees dont grow to the sky. Dont they have to consolidate and get their margins up . Cory at least once in the past, amazon has fallen by 90 . Certainly these stocks are vulnerable because they dont have that kind of conclusion. There is no bigger critic of these things than me, but i think it is worth noting that amazon is different than every other barely Profitable Company out there. Fortunately unfortunately, there are so many. It is very clear that jeff bezos, the manager at amazon, looks to grow the top line and not earningspershare, and looks to grow by cash for cash flow. Have built an empire off of that. 10 to 15 yearsl ago when walmart was suing amazon for stealing its employees but it is clear that amazon is an alternative to walmart. Everyone who is watching this has an amazon box probably in front of their house is a testament. Jonathan the 27 move in line with the premium offer, 42 a share. Usually the market doubts the transaction so much. We are up 27. 4 as Whole Foods Market begins to trade once again. A 27 move in line with the premium offered by amazon for the company. David make the next news for us. We now hear that amazon had to have groceries in order to get where it needs to go. What is the next thing they need to have . Is there another must by area in order to have the World Domination . Cory i think the telltale sign of this went back three to four years ago on amazon finally buckled under to the states who wanted to get the sales tax revenue from the company. Instead of saying, we will pale a sales tax in california, nevada, new york, and they decided not just to have a sales tax presence and not just some physical presence, but to completely change their Business Model to move a lot closer to the consumer, to get really in the face of the consumer, to have delivery right at the front steps of the consumer. I think this is the extension of that. They want to be right there in front of the consumer, and with whole foods you are able to buy into a massive Delivery Network of fresh, instant stuff. Might turnant stuff into iphone chargers and books and the like, not just organic asparagus. This is sort of a natural extension of that. Jonathan we are making a deal of what is quite significant because of the fallout elsewhere. The likes of walmart down hard in the premarket and down hard into the market that not down as much as others. Who is looking the best, in the best shape . Who has done the best work to defend an onslaught . Cory absolutely walmart. Walmart is focused in the same area, getting close to the customers, having a big part of this online. Walmart is swimming upstream trying to its bandits already it may have a significant expand its already it may have a significant Online Presence but amazon is growing on the delivery side and in the grocery boersmas business. Also on the tech business which is very different from the rest of their businesses and that it is massively profitable. Amazon web services allows them to show a little bit of earningspershare and operating profit, and allows them to do deals like this. Cory johnson, thank you. A pop quiz. Billion,al is 13. 7 what has been shaved off the market cap of walmart today . Oliver we have walmart down 4 . Probably about an equivalent amount. Jonathan 12. 7. So you can cut off the market cap of walmart by making a similar valued acquisition if you are amazon . Oliver we are talking about all of these Public Companies that will suffer from this. There is a big push within the private market if we think about fresh direct and peapod. If you are a new yorker you have seen them slide under your door, and those will have a lot of trouble. David some ipos might be in trouble. Jonathan it is a deal being financed i get and we keep coming back by debt and we keep coming back to the same story. If they see an opportunity, if they see value they do not necessarily need the big cash on the Balance Sheet. When we talk about tax reform and the big tech players with all of this cash abroad, the opportunity is there and they will buy it. They do not need the tax reform. Ky it would be helpful but it is really at the margin. Oliver in addition to the point i made about cash on hand, this is ultimately still a case where even if you have a raising Interest Rate environment that moves up, it is still coming from a very low down which means money is cheap. You can borrow it and finance and he would rather do that than user cash. David they did not need donald trump. We have spent an extended period of time not talking about donald trump. Sometimes the markets do trump. Y my view is the market would have gone up and then down regardless of who won the election. It creates upside risk if we get the positive policy responses, but we obviously have not gotten closer to getting there. Jonathan 26 minutes into the session, amazon purchases Whole Foods Markets for 42 a share in a rare move. The 27 premium right there on the screen for all to see, 13. 7 billion, that is the value of the deal. It is the ecommerce giants biggest ever, amazon making a push into brickandmortar and grocery. You see how the fallout has really infected the rest of the sector. That is how the stock market is trading but the Grocery Stores in the United States getting absolutely hammered. Kroger down by 31 . United National Foods down by 17. 7. You see the big players, walmart, getting knocked around. For our viewers worldwide, you are watching bloomberg. Vonnie breaking news, amazon is buying whole foods and we are seeing broad Market Reaction not just in the United States but around the world. I am vonnie quinn in new york. Mark i am mark barton in london. Lets get to the markets. Julie overall, markets are pretty sleepy this morning. We are seeing small declines across the board so lets talk about this big deal that is creating some excitement come a some nonpolitics based excitement for a change. When you look at the two parties involved in this deal, amazon is also rising. That is because analysts and investors are looking at this deal, seeing it as a way to give amazon more physical exposure, more of a supply chain as it has been trying to expand into the grocery business. Of course, it is in so many other physical goods and has not been as dominant in the grocery business. Whole foods rising just about to the offer price of 42 a share. The total price of the deal is 13. 7 milli