Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20170725

The grease fiveyear bond should price sometime today. What will that price be . The vix lower on the day. David time now for your morning brief. General motors and caterpillar will release their earnings later today. The home prices for may will be out. And we will get july Consumer Confidence data. Alix thank you. Companies in the s p reporting this week. Here is where we are stacked up so far taking a look at sales and Earnings Growth. Top is sales growth. The bottom is Earnings Growth. Blue is technology. Orange is the rest. Much google today. They are getting hit by 2. 5 after disappointing some investors in terms of revenue. Here is what the coo had to say. We are obviously happy with the ongoing strength and advertisement revenue, particularly in search. We continue to drive user adoption and engagement with mobile devices. Build bettero expenses for users and advertisers. We see increasing contributions from growing nonadvertisement revenue businesses. L trying us is pau google ended up disappointing on money it paid out to some of its partners. If Companies Like google and amazon and apple cannot deliver, what happens to earnings . I think people forget that alphabet is up 25 this year. If you get a 2 or 3 correction, that is not a big thing. Ckerybody wants to see a sto fail. We are not stock pickers. It is really hard to give these things up, particularly when you have the gains you have. You have momentum economy in the u. S. And on a global scale. These guys are beautifully positioned to continue to make gains. If they were to really fail en masse, you have an issue. Look at netflix, are you going to take these guys on . I dont think so. You have linear momentum that is real. Do you agree with Paul Richards that you want to see these stocks fail but it is not that big of a deal . I think the longterm story for google is intact. The company that along with facebook dominates internet advertising, taking about 75 of all internet dollars on display. At the same time we have to recognize that as they shift towards mobile and youtube becomes a bigger part of their revenue stream, they have these traffic acquisition costs that have always been part of the google story and are becoming more of the story. Up a costs are going little bit, putting a little pressure on margin. The absolute revenue story and profit story remains intact at the low. Jonathan a lot of investors are liking the fact sheets there. They cheered her over the last couple of years. Will there be pressure Going Forward to do something about margins or do you accept that this company will increase profits by doing it through volume . I think there will be a push and pull on that. Thehas really garnered respective investors across the board. I think they feel confident that she is on the helm. I think they feel very comfortable there. At some point we have seen with amazon that there is a company that has spent a lifetime sacrificing profitability for growth. I dont think google is that story at all. I think they have a much better balance of generating profits well pursuing topline growth. I think investors are comfortable with the overall story. David this is one question i have had, you said 75 of all Online Advertising goes to google or facebook. Why dont they have Pricing Power . Why cant they dictate the terms . Why are they losing margins as partners demand more of the share . That is a great question. Even though they have a dominant share, there is absolutely unlimited inventory in the marketplace for advertisers to choose from. The question is who has the premium inventory. Google and facebook have a lot of the premium inventory, but they also have a lot of remnant inventory. This is an industry that appears at this stage to be going for market share, taking every last at dollar weather comes from television or print or radio, growing their share, and not focusing on race at the moment. Rates at the moment. The mobile environment inventory is unlimited. Everyone seems to be going for mass advertising dollars. David when you talk about sacrificing margin to gain share, that is a classic description of a monopolist. Someone trying to build a monopoly. That has gotten Steel Companies in trouble. Is there a danger for google . Take a look at this business. You can argue that it is already a duopoly. Facebook and google, and there are countless players in the marketplace, but if you are a facebook advertiser, has said there are only two or three places to allocate your dollars. We have seen twitter and snapchat come along, but they have not gained much traction. In the u. S. There has not been much regulatory concern. Noturope there has been, necessarily on the advertising antitrust issues, but on the overall scale of facebook and google and microsoft. We see the Regulatory Risk for these Big Technology names in europe. Jonathan it is the ultimate doubleedged sword, Big Companies going after market share aggressively, and they dominate their businesses. That is why you like them. At the same time, they get into trouble. They got a big find from the eu. How do you manage those two things . The reason you like them is the reason to be worried about them. Between them, 75 of advertising revenue, i had not heard that until six months ago. That blew me away that it is actually allowed. It is legal. They must be aware of litigation and risks in the u. S. And europe. Europe seems to be more aggressive on that score. The point youre making is there has to be a risk to the stock price in that environment. That is fair. How do you sell a stock like that . Youll always have that overhang. Momentum has to be respected until they failed on earnings. When you have that issue, i think the market has a broader issue. Alix talking about the broader running space, we have seen earnings divisions for em move higher and for the s p stay steady. Where would you play for the best Earnings Growth story . I think in europe still. The move we are seeing in the dollar, i think people are generally investing money, looking at washington, saying i have had a good run on the u. S. , but there is definitive risk for the next six months there. When you look at where european banks are picking up, i think that is where the money has to be. Where the Wealth Management players are doing well, look at ubs, they will continue to do very well because with volatility being benign, Wealth Management is going to do well. David thank you for joining us. Paul Richards Will be staying with us. We will be talking earnings with david ricks and later with chuck stevens, General Motors executive Vice President and cfo. Live from new york, this is bloomberg. David this is bloomberg. It is a big day on capitol hill today as john mccain returns for the First Time Since his diagnosis with brain cancer. He may be critical to republican efforts to bring a Health Care Bill to a vote. To explain how important this is, were joined by kevins early on capitol hill. This is a big day for the Trump Administration as well as mitch mcconnell. It is unknown whether or not a procedural vote to Pass Health Care reform will advance later today. The white house is not taking and chances. Vice president mike pence will reside over the boat in case he needs to pass the deciding vote. Republicans can only lose to republican votes. Susan collins of maine is in the, and it is unclear whether senator rand paul of kentucky will also join that camp. Senator john mccain himself is flying back today to be able to cast a ballot in this procedural measure. David that is simply whether the senate will take up the bill or not, not actually taking up the bill. The present is having trouble with his own cabinet. He was tweeting this morning about Jeff Sessions, saying he is in trouble. He is following up on those tweets from yesterday when Jared Kushner met with the Senate Intelligence committee as the Russian Investigation continues. The president says why isnt the attorney general investigating Hillary Clinton and her use of a private enough server . We remember the campaign when those chance of lock her up were a frequent part of the campaign. The president is expected to speak to his supporters in ohio today. He has spoke out about the attorney general and health care. He says big day for health care, after seven years of talking, we will see if republicans are willing to step up to the plate. David thank you so much. A lot of drama coming down from capitol hill. Jonathan joining us now is Paul Richards. A lot of drama. Does the drama matter . We find ourselves asking that question they after day. Does it . I think it does. I think the market after six months of this presidency is sick of inaction. It is obviously an emotional day for john mccain coming back. It is not actually about health care anymore. I would almost actually Like Health Care to fail. Markets are saying lets Forget Health care. We are focused on the debt ceiling in october and we need a tax deal. You also have the democrats waking up with their better deal. It is game on. The markets can sense the fact that the clock is ticking. If we dont get a text field at the end of the year, i think the markets will take an enormous hit in november. I want you to reflect on the last time you said the votes in the senate and house were important and they failed in the markets carried on. You are in the position we were in a couple of years ago with barack obama in the white house and the status go. Quo. What i have learned last spoke is that 52 senators doesnt really get it done. You really need 60. It is difficult. They need to get something done. Democratsnse the coming through now. It is gametime. From my sense, market is saying you need to get this tax deal done. In november, it will be 12 months since the markets started rallying, if nothing happens, they will say hold on, that wasnt worth it. Where is reflation . The Global Economy is doing well. Need that impetus. If we dont see that by the end of the year in the text bill bill, i think you will get through october ok. When you sit down for thanksgiving dinner, you have to decide about staying on. Jonathan lets talk about profits. Do you think the moves we have seen still need action in d. C. To validate them . I am an old currency guy. Look at Interest Rates and the dollar under trump. That part of the market questioning washingtons effectiveness. The stock market is a global phenomena. We have a lot of carryover from the obama economy anyway. At the end of the day, there needs to be justification about why the stock market rallied on the trunk residency Trump Presidency victory. Needs tot decide whether this is real or not. We have three or four months. Alix what market . No matter what we still have nasdaq around record highs. You have the dollar at a fivemonth low and the Treasury Stock in a band. What markets . For me it is the equity market. Cap . It small it will be the euro through 1. 20 and the dollar yen on its way to 100. You see 10year treasury close to 2 . In thata environment, stocks are going to rally. Basis,ying on a global stocks would take a big hit in december. I would say december into january. We saw what happened with china last year. You dont want the january upset for markets. That could really happen if we get to yearend and would have nothing tax. David momentum exists not only in markets also washington. If health care goes down, there is not much momentum behind the Trump Administration. Does the Business Community get what youre saying . Not so much as ceos, but the plant managers and individual districts going to their senators and saying we need tax reform . I dont know. I would hope so. You would think it is common sense that they would get it. I dont know whether they do or not. I know they need to. I know it is game on. We really look at the situation where it could boil down to who is the next replacement for yellen. If mnuchin gets Real Progress on tax, cohen could be the next head of the Federal Reserve. What makes us feel good and what a lot of investors are telling us, they like mnuchin and cohen. Can they convince these people to vote . David Paul Richards will be staying with us. We will be joined by democratic senator dick durbin of illinois. Live from new york, this is bloomberg. Taylor this is bloomberg daybreak. Ts agriculture business gave an unexpected move on earnings. Pesticide revenue rose 10 . The merger is expected to be completed next month. The new company will be called dow dupont. Michael kors has agreed to buy jimmy choo for 1. 2 billion. The brand had highprofile brands like Princess Diana and Carrie Bradshaw in sex and the city. Jonathan thank you. Greece is returning to the bond markets after a threeyear hiatus. The debt crisis forced them to seek multiple international bailout. The last time they came to the market was with fiveyear money at a yield of 4. 94 . They are seeking 7 billion euros, what sources are reporting. Will this be characterized as a successful return to the market . Is this a success for the Prime Minister . I am sure he will characterize it. I think the market is saying what have they achieved in the last three or four years . 4. 95 , ihing goes at would say the market would say that is not a success. The ecb will probably buy some and lead to an election in 2018 or 2019. They did not convince germany or the eu to back them. In 2014, the fiveyear debt matures in 2019, you can see what a brutal drop it has been. Indrop to . 40 on the euro 2015. We are back above par. That is where they wasted a massive opportunity. They could have done this years ago. Europe could have come through this seven or eight years ago. I would not be gray if we had not gone through greece. We all know they should have written a check on day one and solve this issue. At the end of the day, we are here. The yield is probably going to be 4. 95 . That is just what it is. Do you want to own it . Jonathan are you going to buy it . No. He personally, no. They will go ahead. Like what my money i . No. It . Ill i put my money on no. At the end of the day it is what do you want to put in your portfolio. You might put an element into your portfolio and feel fine. You feel good about europe anyway. Im sure people will justify it. I respect that. What did you achieve the last two or three years . Not a lot. Jonathan are they going to have the market assets they need next year . Thingsck next year, big mature next year. They have the current bailout line expiring. Are they going to have the Market Access when they need it . I think they are testing the waters now. I think they will probably have fair Market Access. I think it is going to be a difficult one at the end of the day. That needs to be taken into account if you are buying these bonds. That risk may just be too much. Jonathan Paul Richards sticking with us. We will bring that price of the greek debt when we get it. Lilly chairman and ceo. These days families want to be connected 24 7. Thats why at comcast were continuing to make our services more reliable than ever. Like technology that can update itself. An advanced fibernetwork infrustructure. New, more Reliable Equipment for your home. And a new culture built around customer service. It all adds up to our most Reliable Network ever. One that keeps you connected to what matters most. New york city, i am jonathan ferro. Lets get started with market action. Futures up,. 25 on the dow, cosseted on the s p 500. In london, a big rally from the minors with copper. What is happening . Alix i have no idea. It is like, more demand, things are great, china is growing. Until tomorrow when we change her mind. A lot of in london, earnings coming over the week in the United States. Gm right now. David General Motors has adjusted earnings per share of 1. 79a share compared to last year. On revenue, 37 billion. There are ongoing cooperations, and europe was already gone, and they are saying this is their second best quarter in their history. Also, margins coming in adjusted at 10 , which was their goal, so based on report. Alix i am taking a look at caterpillar, up over 2 in premarkets. Revenue and earnings coming in as a beat. Over 11 billion in revenue. Always an optimistic sign when beating estimates. They say they were up one billion from one year ago with strong cash flow and they did increase their Quarterly Cash Dividend and raise their 2017 sales and revenue outlook. Jonathan futures up about 60 points on the dow. I am pleased to say we can cross over to Erik Schatzker with a special guest. Erik good morning. I am here with Henry Mcveigh, mcvey. Henry also runs the Balance Sheets. Great to see you. I love it when you come here because you do something constructive, you take us on a global macro chore. In the process, we find surprising, contrary and counterintuitive things you have to say. I want to start with china. Henry our view is china has rd hadits crash, already its crash, per se. If you look at it in nominal terms, which is inflation adjusted, we have already seen a crash. 6 ,nal gdp went from 25 to a massive fall off. It has rebounded 100 to 12 and is settled in. Gdp,economists focus on and it has slowed down. In nominal terms, generating profits and paying your people, we have already seen that. It is more a steady growth trajectory. At a slower pace. Erik in other words, the china bears are looking for a correction in the wrong places. They are looking down the road instead of the rearview mirror. Henry i would argue that, the debt growth in china is growing, approaching probably 300 of gdp by 2018. Erik does that concern you . Henry it does, but if you are looking for a big growth slowed down in a business, that is a significant fall off that has already occurred. Erik this chart helps to illustrate. Gdp, itchinas nominal takes several years ago, and theres the crash beginning to stabilize. Europe, it recently, i think that is why you see better trends from the Global Economy and some is reflecting china coming up the bottom. A surge. T looking for we are saying it is stabilizing at a lower level and you will see that in the revenues of companies. Erik lets talk about europe. In your research, there is this idea that according to the quantitative model, the european economy could grow faster than the u. S. Economy in the nottoodistant future. Henry we try to do both. We also do a lot of quantitative work to see if there is a disconnect or match. Last 1. 5 years, are quantitative models have shown strong growth. The single biggest factor in that is Monetary Policy, and that is what we saw in the u. S. , when janet yellen and pimco were driving monetary stimulus. What you are starting to see in europe right now is that monetary stimulus shifting to the cyclical economic areas like housing, so you will see more lending. There was a mention of copper, those type of things, where it lists the economy. It is this baton handoff, where in they acts as a switch cyclical part of the economy. We have had a more constructive you on europe. I would say germany is the epicenter, a Global Player within a euro region, and they are of all the places where we play in europe are benefiting the most. Chart tos see a illustrate this point. The idea is Monetary Policy in europe has gone from a headwind in 2012 henry i think there are two forces at work, one is ecb and monetary stimulus and this chart you brought up. This is the government going from austerity to becoming a contributor to growth. It is amazing. You had a 150 basis point drag shifting to a positive. That would give you almost 170 basis point list from the government not strangle holding. Over time, you do have to pay devbts and not just have spending, but i think that these. Austerity. Aik you were calling for recession in the United States and a couple years time. What is going to bring this about . People say they are born of any number of things. Typically, Monetary Policy. Is there a catalyst and Monetary Policy or are we getting to the end of the cycle . Henry one is if we have a pullback economically, it will look nothing like last time with massive Bank Leverage and a depthy in that crash equity. From our standpoint, we have a pullback in 2019, where gdp goes closer to zero, more closer to 2001 they 2007. Erik not pleasant but not as painful as 2009. Henry yeah, it is about compression of margins. We have a much more modest forecast for inflation globally, including the u. S. Marginshat, we see compressing and we are most focused on the lower end within the u. S. Consumer, where we see trends not as positive. Erik we had taken care of the macro half. Five specific recommendations. I want to focus on three, d conglomerate station de ization, lets start with that. Drivenwe are seeing one public markets. If you look at the wall street journal of the day, all are on google forcing companies to sell subsidiaries. Selling subsidiaries underperforming or trying to value because activists are driving them. That is a great opportunity for what we do. We are seeing a lot of activity in europe, as well. Yesterday, we announced two transactions in the u. S. , one on activism and the other on a breakup story. Erik is this good for public equities . Henry definitely. You are seeing value created where the cost of capital was so low after the crisis that a lot of firms expanded into areas where they should not have been. Now, as the economy matures, ceos are rationalizing their footprint. Erik we have talked about embracing complexity, so lets focus on what you say now emerging markets over developing markets. Henry we have had a. 5 years of the s p 500 8. 5 years of the s p. 46 ands of expanded you go where you have not had the same benefit of multiple expansion. The second thing in emerging markets, we are seeing margins starting to improve. Some is dedicated on china, and some is the government sector taper tantrums, they got real rates up and inflation is a better backdrop. Erik a lot of investors are skittish in investing markets because of the currency risk. Henry we have been a dollar the dollar is somewhere between fair value and full value, so we spend time thinking through for investors how do we went to hedge that . In aggregate, we are probably not at the same concern level we were over the past 2011 to 2016, tothat goes from headwind tail wind. Currencies are generally 30 of the total return in the e. M. Overall, so you have to get that right. It is embedded in emerging markets, you have to have a macro view. Erik that is your view. The pleasure is ours. That is henry mcvey. Alix thank you. Bloombergs Erik Schatzker. We will talk more earnings with daybreak dave ricks. Later, chuck stevens, General Motors executive Vice President and cfo. The company got a nice boost this bottom line. This is bloomberg. Taylor this is bloomberg daybreak. Coming up tomorrow, special coverage of the feds decision at 2 00 p. M. Eastern. Alix we have gm and caterpillar on the move, outwit earnings. General motors selling more suvs than tracks, and they cut costs. Caterpillar raising the fullyear revenue, beating analyst forecasts. David you know who else announced earnings . Eli lilly. They Beat Estimates on both earningspershare and overall . 11 reporting one 1. 11. It also took off with your overall. Dave ricks a certificate this through those numbers. Is here to take us through those numbers. How did you delivered these earningspershare . You are already beating your peers on earnings per how do you keep them up there . Dave this was a Strong Quarter and a continuation of our topline growth stories. 9 not including currency. Are goingggest ones to continue. We plan to launch 12 more products between now and 2023. Operating expense was basically flat and Gross Margins increased a little bit, so that yield is bottom line picture, 34 reported. I think where the beat happened was on the new product revenue, nickelre upping it by a for the year on a nongap basis. David you mentioned the and diabetes pharmaceuticals are important to eli lilly. You make a lot of money off of this. To what extent will you have to adjust expectations because of competition . Dave we have been competing for decades. They are a strong competitor and we have respect for them and we share the mission of serving patients with diabetes. In one market, we are gaining share and doing well. We expect them to launch new products but that is not a new phenomenon for us. Through competition, patients win. The latest advance in our competitor in the gos growing te passes. Conformation is different and helps them control that for people at diabetes. David you said increased expectations come out of the new products online. What are the ones you expect our most material to your bottom line . Dave we have more coming. I think that is the key message for investors. We continue to diversify that new product portfolio, which will have a long life and are participating in different parts of the health care market. Drug forhould be a Breast Cancer. We recorded the medical data and submitted it to the fda and the granted us a priority review, so we expect to launch it for Breast Cancer in the first part of 2018. Following that, the next drug drug for useful migraine prevention. A new class of drugs people can take prophylactically to prevent migraines. We had a positive readout and we plan to submit this year to the fda and lunch in the later part of 2018, so that continues. That will drive our growth and make the biggest difference for the Health Care System. David talking on new products, there is a new product you said you would delay. I will try one of those complicated words, a drug bronchitis. It will not be 2017 and you will resubmit to the fda, how important is that to you . Dave we had mixed results. The fda issued a complete response letter and we had a meeting to follow up on the details. We understand they do not agree our submission has a positive riskbenefit and they would like us to do more work before resubmitting. We do not agree with that conclusion and neither does europe or japan, who just approved the drug, and where we are launching now. We are committed to get this there aretients and unique features, we just have to work through the regulator in the u. S. I should say the drug also has other indications of interest to us and clinicians in autoimmune conditions and we are committed to pursue those despite the setback of the fda. We should launch in europe and off to a great start there. We are committed to it. It is one of 20 new medicines over the 10 year span from 2014 to 2023. It is david important but not pivotal. You have committed babies important but not it is important to not pivotal. To a you have committed certain number, what is the biggest risk to that number . We are confident we can get to the 5 under a variety. There were two big factors that were outside of what we modeled in that commitment. One was an early patent for a product used among cancer in the u. S. In lung cancer in the u. S. Has occurred and we are waiting for the answer. If it is rolled back, that would affect our ability to get to 5 . The other issue is that the federal government decides to do. If anything happened dramatic on drug pricing, we cannot stand that commitment. Barring those, we have a lot of ways to get to 5 . That is the kind of performance we would like to continue to deliver. David that is dave ricks, eli lillys ceo. Alix i went to know how they come up with those names. Check out tv. You can interact with us directly. Go to tv on your terminal. This is bloomberg. David this is bloomberg. I am david westin. The senate is due to vote on whether it would move ahead with its extended health care session. We are joined by Richard Durbin. Thank you for joining us. Plate out from your point of view, what is likely to happen d today. We have senator mccain coming back and they will try to have a vote on whether they will go forward on the senate floor, what do you expect . Richard i can surmise you would not ask senator mccain to travel 2000 miles unless you had the votes. I am assuming it is some are close to that, so we will go forward with the debate. That is my conclusion. David what will you be debating because there are two different bills. Which are you going to debate . Richard the question. We are in the United States senate deliberating on the basic fundamental changes to the Health Care System of america. We are talking about 1 6 of the american economy. I stand before you completely unaware of what it is about. We do not know what republicans are going to offer. The have not produced a bill, had a hearing, had expert testimony. That to me does no service to the institution of the United States senate us to be in a terrible position. David there is a lot to question or criticize about the republican side but the president once the press forward. I will play 15 seconds of what he had to say. President trump the senate is close to the votes it needs to pass a replacement. The problem is we have zero help from the democrats. They are obstructionists. That is all they are, that is all they are good at, obstruction. David what about this acquisition accusation of obstruction . What iss different the affirmative plan the democrats are putting forward . Richard can i say the republicans have not approached us, asking a democrat to be part of a bipartisan discussion . They have done it in secret, behind closed doors and among republican members, so arguing we will not cooperate, we have not been invited. Let me give you a few ideas, the problem we have is in the individual health care market, 6 of americans. That is where premiums are too high. We have to address that to make sure they are affordable. Secondly, i listened to your lead in about pharmaceutical companies and their anticipated profits. One of the people from eli lilly said it depends on what the congress decides to do on drug prices. I Hope Congress does decide to do something on drug prices. There is no mechanism in place today to regulate the amount that is charged for drugs and the American People know it. Health Insurance Companies know it, and we should do something about it. David we had former number two hetreasury on yesterday, and said the difference between a democrat and republican is a republican puts growth first and constrained second and the democrat does the reverse. Do you put an emphasis on growth . Do you have a plan for growing the economy . And i think it is fundamental. You invest in basics, ensure the workforce is skilled, and you invest in research to make sure the United States does not give up that cuttingedge we have had in modern times. Third, you invest in infrastructure. That is something government can do to help all businesses and the economy. David senator, thank you for giving us your time. Jonathan coming up, check stevens, General Motors chief chuck stevens. Futures are positive, up 74 on the dow, and a big bid in the Copper Market since the miners are searching in london. From new york, this is bloomberg. Jonathan alphabet earnings are good but not good enough. Expectations that high ads will hit profits. The president says there has been enough talk and now is the time for action. The Federal Reserve begins its twoday meeting. Our survey says wait until september first plan to unwind the Balance Sheet. Good morning, good morning. This is bloomberg daybreak. I am jonathan ferro, alongside david westin and alix steel. Upures with a decent bid,. 25 on s p 500 and the euro on a stronger footing. German Business Confidence at a record high, climbing for a sixth straight month. Up withes very much yields around two basis points. Alix the optimism in germany helping the dax with a rally. Still underperforming the rest of europe. Who guessed it . Greece back in the bond market, reportedly 7 billion euros, but the 10 year seeing a selling as yields back up by three basis points and copper futures up by 3 . It could be a twoyear high for prices. Returns. Copper it is time for your morning brief. S and p prices will be out and then we get july Consumer Confidence data at 10 00. At 1 00 eastern time, the u. S. Treasury will sell to your notes. Alix it is a tale of two earnings. And unsettling trend on spending on advertising for alphabet and caterpillar jumping 5 after boosting its outlook. Ise to take us through it bloombergs Global Technology reporters. I want to start with is this a cat specific think or industry thing . Karen Commodity Markets are starting to improve and construction is improving, so it goes beyond cat. All Regions Group of the first time in multiple years for them. They have cut the ends of cost and operating leverage his work extraordinary. The it has not encompassed softness in oil price. How does that wind up cycling through . Is a you equipment replacement . Is a lot of aftermarket parts, although they are seeing replacement. They have not bought money equipment in four years. Commodities are not great but not as bad as they are. The equipment is getting old. It is used intensively and it is time to replace. Is the operating leverage. They have cut so much cost. When you come out of a downturn, margin and this quarter, they have volume, so better than people expected. Jonathan their customers have is that story, over . Karen i think so. You are seeing the turn in aftermarket parts, which it isnt a lot of equipment. They have to use it more intensively and it has been idle for a while, so they have the replace parts, the first sign things are turning and hours of use is rising. When construction is up, the worst is over for energy and transportation. Jonathan we wanted to get the rap on google. We are down in the premarket and they seem to focus on the soft spots with the earnings report. Google, the for results were not bad but not good enough. This is closely watched metric sales plus watched what they have to pay to vendors. Isis going up, so this google sales minus what it has to pay to partners like mobile phone vendors like apple or other websites where google has to place ads. Google ads are shifting to mobile phones and more business is coming from youtube. There is also another type of ad tied into youtube advertising. The cost while it goes up, the cfo says it continues to grow up, and people are worried of it hitting margin. Jonathan there are reports it will be on the volume side of the story. With that get them in trouble with regulators at some point . On there are a couple of different issues. On one hand, there is an interesting statistic, if you look at the growth in mobile advertising, when we look at ads, scooping up the vast majority of this, we noted more of this is going to mobile. Google is capturing this and costing it more. On the profit side, you have this fine levied by the European Union in june, 2. 7 billion u. S. , this is the case winding its way through the eu for years and it has to do with googles shopping sites. There is commentary that is tryingwhether this yesterdays technology, but google has gotten in trouble for mobile shopping and has been hit with a huge fine that it will appeal. David thank you very much for joining us. Just over 30 minutes ago, General Motors reported secondquarter results and Beat Estimates with a 1. 89 per share. Here to put the numbers in context is executive Vice President of gm, chuck stevens. Good to have you here. Chuck thanks. David what drove this beat on the earnings per share . Chuck i would say another good quarter from a north american perspective. There he strong margins at 12. 2 . China Equity Income continue to be strong. We had a record quarter at gm financial, they earned 400 million, and we broke even in south america. When i look at the overall business, i am pleased with topline results for gm, 10 margins, but it was broadbased. The improvement yearoveryear was broadbased and we are pleased with that first half results, which puts us on track to deliver the Business Performance that we guided to earlier this year. David at the same time, north america is a major driver of General Motors at this point. How much of the profitability came from product mix versus units . Trucks,bviously, crossovers, suvs continued to be strong and drive a significant portion of our profit. From our perspective, it is even as we think about the go forward, a better reason to be constructive about continued strength in north america. We are entering the heart of our Product Launch cadence. We Just Launched the equinox. We will launch three new products, the enclave, the terrain and traverse and that we will go into the next generation of tracks. We have a strong product lineup, centered at the strength of the market and where we earn a lot of money. We are optimistic that the continued strength in north america in 2017 and beyond. David where are you on backlog of inventory . That has been an issue that cut production lines already. Where are you now and where do want to get by the end of the year . Chuck we ended the Second Quarter with over 100 days supply, in line with what we expected. We have significant downtime the Third Quarter to transition to the next generation mid crossovers but to start to prepare some fullsize truck facilities. The new inventory built was largely planned in the first half of the year and will deplete in the second half of the year partially through the downtime in the Third Quarter. We have taken specific action on passenger cars, where we see continued weakness and have taken production out in the first half and will continue to do that to align supply and demand. Even within that backdrop, we expect to generate 10 plus percent margins in north america for the year. When we look at our performance through the first half, we are on track from a north american perspective. David we have talked about the importation of steel because it is a big issue in washington now. How close are you following that . What effect could that have on your cost if there is curtailing of steel imports . Overallere focused on commodities and Raw Materials. We have a significant exposure to raw material cost movements and steel is one of those. When i think of the impact in 2017 versus 2016, the first half of the year has been a several Million Dollar headwind on a yearoveryear basis and we continue to focus on that and will work closely with suppliers to mitigate those impacts. The Raw Materials and commodities have been a headwind to the business this year. Jonathan the Justice Department and officials are looking into allegations that german automakers colluded on strategy to gain advantage over rivals. Have you had contact with the regulator over the last week or so . Chuck i personally have not had contact with the regulator. Opel is not part of this. We will continue to monitor the situation, but are opel business is not involved in this regulatory issue in germany. Jonathan in terms of working practices, these working groups across the industry between various automakers, is that unusual or typical of the kind of business that happens in this industry . Appears toertainly me in this case to be unusual. In different forums, there are toortunities for oems discuss issues, but specific to the german issue, based on what i have read and im not privy to information, that would be unusual. Jonathan are you reassessing internal practices following this . Chuck we operate a Global Business under an umbrella a very robust, control policy and compliance perspectives. We operate within that globally and we feel we have a robust process. I would not suggest that we would be revisiting that because we are not part of the situation that is going on in germany now. David talk about stock price. It has been a source of frustration for you and your ceo. It has not risen more than it has, a little above the ipo but not wildly so. You had the challenge of Dave Van Horn and beat that dave einhorn and beat that, you have a lot of cash in your Balance Sheet, what can and should do you to get your stock price up . Chuck first, we are dealing with a sector issue from a view. Ion with that said, we are looking at ways to improve our business, drive to improve Business Performance and Financial Results and efficiency to put capital and drive shareholder value. That is the fundamental basis for the actions we have taken, like the opel transaction and restructuring actions in our international markets. In the Second Quarter, we returned to . 1 billion to shareholders. We are continuously evaluating how we can drive longterm shareholder value and that will continue through driving improved Business Performance, derisking the business and returning capital to shareholders. David thank you, chuck stevens, General Motors chief financial officer. Alix mcdonalds is the latest, it beats on bottom and top line. Cons sales higher, 3. 9 . Caterpillar raising its fullyear forecast, up by 5 . Eli lilly down about 2 , despite that they did boost earnings forecast. Jonathan all things metal and mining today. Alix it is every day. Jonathan not every day do they get a decent did. Tomorrow descent bid. Tomorrow, bloomberg will have a special report of the feds decision. Futures are positive. You are watching bloomberg. David this is bloomberg. I am david westin. John mccain is expected to return to the floor of the senate. His first since being diagnosed with brain cancer. Senate majority Richard Durbin said he would not be coming back if they did not have the votes to move forward. I would surmise you would not ask senator mccain to travel 2000 miles from us you had votes. I assume he is the deciding voter, so he will go forward with the debate. That is my conclusion this morning. David here to explain the drama is kevin cirilli. Dick durbin says they have the votes to move forward. Kevin great interview. Republicans now trying to make sure they do have those floats and theyre taking no chances. Senator john mccain diagnosed with brain cancer will be arriving on capitol hill in time for that procedural vote. Vice president mike pence is set to resign over the boats in case there is a tie. That said, republicans are facing criticism from democrats, as well as within their own party because they are not sure what they are voting to proceed on, whether this is a full repeal bill or a repeal and replace bill of the Affordable Care act, so the politics rapidly changing. The president himself treating t eting this twe is a chance or republicans to fulfill a campaign promise. He will deliver marks before taking off to youngstown, ohio, to deliver a celebratory speech or one where he is criticizing his own party. David that is not the only thing on his agenda. There is a report that the White House Press secretary Sarah Huckabee sanders has said the president has a lot of respect for Rudy Giuliani and is frustrated with Jeff Sessions. Are they going to make a change to attorney general . Kevin there is speculation. The Communications Director said elsewhere this morning that the attorney general and president either need to get on the same page or separate, so more signals coming from President Trump on his top medications deputies say there is distance between the attorney general, as well as the president , himself. David thank you. Jonathan the president of the United States making a statement via twitter, working on a trade deal with the United Kingdom, could be very big. Problem,ere is one they cannot make a deal until after they leave the eu. Jonathan that will be march 2019. In the meantime, have a conversation about it. Joining us is a Portfolio Manager. How do you make sense with what is happening in d. C. , a, and had to make sense of it for you ,b . For you, b . They can be quite confusing to investors. Certainly, to understand the transparency of Business Models and determine their own destinies without relying on politics in defeat in d. C. Jonathan is it time to derisk . We think so. Markets are heading alltime highs, volatility is low and we are seeing with investors a rebalancing of Capital Appreciation with the desire for capital preservation. Given where we are in the Economic Cycle and lofty expectations in eps, a note of caution is warranted. Jonathan one of the three things you picked out is the fact that we are at a record high, while those significant . It has been an extraordinary period since 2008, everything Going Forward, earnings expectations for the s p 500 for the next 12 months or 20 , eps over the last five years and 10 years has been to percent. There seems to be hope in the market as the fed eases off. In notes of caution probably warranted at this stage. Alix where do you derisk . We focus on highquality companies, is with track records and strong competitive and return equities. Companies that can manage their that in their industries and have competitive advantages and strong free cash flow. Alix that sounds like tech and multinationals. We do have a lot. Alix do you feel they will sustain a weaker dollar and the kind of sales growth we are used to . Google case in point today. Absolutely. Within the tech companies, there are Good Companies and less profitable ones. We focus on the companies with stronger advantages. The Global Nature of Companies Like microsoft, for example, are powerful, particularly when they are so strong and a weaker dollar could help or hinder. Jonathan not a time to buy greek debt . [laughter] probably not. Jonathan the nation is seeking its fiveyear bond in its first offering since 2014. In gadfly today, they write greece has decided to break the waters with a new fiveyear benchmark bond, the first fresh deal for nearly three years. Fortune favors the brave but not the greedy. For now, a successful return joining us now, mark gilbert joins us. I want to talk about how we will define success when this issue gets priced later. Mark this issue will not signify success. What success will remain is continued access to the Capital Markets over the next year. According to euros bloomberg news, that is a big book. Three years ago, there were 20 billion euros. Controlsn, capital were introduced and they stumbled with Economic Reforms that they are back. S p upgraded outlook on credit rating. At the pricing, it will be fine. The think it is not to be greedy and they need to have continued sustained Market Access to be able to fund themselves on a regular basis in the market and to become part of the European Central banks Government Bond buying program, probably not until next year, but that will help ease borrowing costss. Costs. Jonathan another thing you picked up on this story is the complexion of the Investor Base. A lot of it went to hedge funds. How important is it to get a stable Investor Base this time . One third of the issue wasnt hedge fund hands. Since the issue is launched, about 1. 5 years later, it was worth about half of what they paid. It was a rocky road. It is back up. Greece is offering to buy back that bond in conjunction with the new issue and extend the maturity for investors to five years. Also, it will be more liquid and trade often. That this bond goes in is key to the performance you seen the next year. Jonathan mark gilbert pointing out that issue from 2014 to 2019 maturity. It has been volatile. How do you expect the new fiveyear issue to price at the moment . I think pricing is key to the longterm sentiment and keeping or opening the market to greece for future funding. Wecome with a falling come with a falling initial price reference. If you look at an interpolated bass, that would suggest somewhere north of 4. 5 is value. Getting as close to that as you can is the wrong way to go. We probably look for it to price around 3. 25. As much of ave table as they can for investor sentiment. Jonathan looking back to 2014 and how this priced and how it rolled over because of politics in greece, happily wasted three years . Arguably, yes. The government has come on board with the Reform Program that Lending Partners have demanded. A bit more austerity and tweaking of pensions and labor market reform. Things it could have done three years ago maybe. Its Privatization Program has been more since then, but the past is the past. We need to move forward. Brexit has helped of it. The mood from germany was maybe greece would leave, and now with the u. K. Leaving, they do not want more disruption. This is a great time for greece to be tapping the market. Alix we cannot wait for that pricing, hopefully soon. Im excited about it or it is it weird . Jonathan a little bit but we are excited at bloomberg. Alix coming up at 1 00 p. M. Eastern, eric cantor will be speaking with us. This is bloomberg. Jonathan from new york, this is bloomberg daybreak. Im jonathan ferro. We are one hour away from the cash open. Dow futures up 99 points. Looking at the s p 500 ahead of fed opened, up by a corner of 1 . United technologies coming through with a beat as well. That is giving a lift on the ftse. We are up by three quarters of 1 . Copper, very strong performance. Market,the bond treasuries higher by three basis points. The euro stronger off of the back of some very good german Business Confidence numbers. That is the story across assets. Lets get you outside the business world. For the second day in a row, President Trump has taken to twitter to take a shot at his own attorney general. There are now multiple reports that President Trump has spoken to advisors about firing session. President trumps soninlaw will be back on capitol hill for more close doors questioning about russia. He will be interviewed by the house intelligence committee. After talking to send it investigators yesterday, he said he did not collude with russia and does not know anyone in the campaign who did. Trump is urging Senate Republicans to move forward on the repeal obamacare. The only problem is, leaders have not decided on which proposal to vote on. There was one dramatic development. Senator john mccain plans to return to washington for the vote days after being diagnosed for with brain cancer. Global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. I am taylor riggs. This is bloomberg. Jonathan the fomc ticks off to meetings of meetings today. The market expects the fed to keep Interest Rates on a gradual path. Here with us now is Bloomberg Intelligence chief u. S. Economist Carl Riccadonna and bob mckeever still with us as well. Carl, your base case . Most of the Economic Assessment that can remain intact, growth is proceeding moderately, the labor market is strengthening. Consumer spending is bouncing back. All of that language should be fairly bulletproof. The big question is on the inflation assessment. We have had further backsliding in headline and core inflation. We are 50 off of where we started the year with headline inflation. They need to talk more about inflation, but still convey the message they are confident inflation will rebound for their target. The other potential uncertainty is this is a fed that this year has deliver things a bit more quickly than analysts anticipated. Im standing by the view that the Balance Sheet runoff starts in october but i think there is a nonnegligible chance they could announce that at the meeting, as opposed to waiting until september. We have the refunding coming up from the treasury department. A fed that wants to give plenty of advanced warning and being deliberate may just make that announcement tomorrow afternoon. Gives time to see how financial conditions play out before the unwind. Net short positions for treasuries. Speculator shorts. Significantly low, yet, you have an environment where investors are more skeptical on how quickly the fed can act. Hsbc sees one rate hike next year. Its an interesting position were in a in terms of the fed move. Job of has done a good essentially supporting the economy over the last eight years. Easing back on the three rounds of easing. That is about 4. 5 trillion of subsidy that the fed has been helping out. That is a lot of money, so no doubt there is a lot of analysis going on in the bond markets. Inflation is under control. What concerns us a little bit is the lack of productivity growth in the u. S. Economy, and the lack of wage inflation. So the fed will have to move delicately to help to continue to support and make sure the messages that it delivers our well heard by investors. David thus far the fed has said they will look through the inflation data. Not sure when it will come. If the fed were to back up at a bit and say, it looks like it is not coming so fast, will the market take that as good or bad news . Rates lowererest for longer, but it also says something about the economy that may be disturbing. Carl the market will begin to question the Balance Sheet runoff. A steady as she goes fed with the janet yellen, they tend to stand by their forecasts. I think they have been very reluctant to acknowledge this backsliding inflation being due to more pervasive measures. They keep writing it up as idiosyncratic and transitory. Mind you, if the economy is growing at two and half percent, which is likely the case, you will get that turn in inflation. I think its too early for them to revise the messaging around that. That being said, the markets are definitely expressing doubt toward the feds expressed path toward Interest Rates. They see maybe one coming in march, if you look at the fed funds future market. Questionable that there would be an additional one next year. The challenge for policymakers is what they are trying to do now, divorce Interest Rate policy and Balance Sheet policy and tie industry policy into economic performance. David the bond market does not believe what the fed is indicating about 2018. What about equities, do they want inflation, will that help them . Rob certainly would help but within reason. Where we are in the current Economic Cycle, inflation is under control. The fed has done a good job there. Investors need to Pay Attention to corporate earnings in the u. S. That is the key as the fed eases back its support. 20 ctations in the market, eps growth in u. S. Corporate earnings this year, 14 exterior. That is pretty lofty expectations. Inflation could help a little bit. Investors need a little more caution. Jonathan a huge amount of attention on the Balance Sheet to the unwinding. What about their reinvestment, once that process begins . There will still be reinvesting. Oney into the treasury market unclear where they will distribute that money. If you really want to unwind the Balance Sheet, it makes sense to reinvest the shorter end of the, as opposed to the longer end. Do we have any idea what the reinvestment policy will be once this process begins . Carl we dont fully understand what that will look like. It seems like it will be on the short end of the curve so as not to influence thinks further out on the curve the fed does not want to be distorting the market. That being said, International Capital flows can largely overwhelm the fed as they are trickling off and trailing off three investments. Agree investments. I am still concerned that we see an appreciation of the dollar as Balance Sheet unwind rants up in speed. That could have some undesirable consequences. Jonathan if that is going to be the reinvestment process, and you could see a backup on the long end, the positioning of the front end, we have to match that with positioning on the long end. Aggressively long further down the curve, people positioning for a flatter curve. Have to rethink that . Guy, not an equity bond specialist, but that makes sense, as a part of advising caution in the equity markets. Bond investors ought to be thinking on the same lines. Alix this is doing with the s p financials have continue to grind higher as the curve continues to roll over. That spread keeps widening. And you still buy as the positioning is still reflected for a flatter yield curve . Any banks. t own they are not consistently profitable enough. Certainly in terms of the opportunities that are there, we see more opportunities with financials like mastercard, indirect exposure. Small margin, huge volume play. Evident andade, the flow of what is going on there, that will be subject to the machinations of washington. David many thanks to rob Carl Riccadonna. Rob mciver will stay with us. This is bloomberg. Mrs. Bloomberg daybreak. Coming up on bloomberg, former House Majority leader eric can tour. That is at 1 00 eastern. Now to your Bloomberg Business flash. General motors new strategy appears to be paying off. Discountedw shunning sales to rental Car Companies and instead focusing on more profitable deliveries like pickups and suvs. The Company Posted secondquarter earnings that Beat Estimates. Its a milestone for mcdonalds after declining store traffic. The restaurant chain is lauren back customers. They saw an increase in diners last summer and posted samestore sales that Beat Estimates. Among the reasons, all day drinks, all day breakfast, and higherquality chicken. And bag maker michael kors has agreed to buy luxury shoe 41 . 2 jimmy choo billion. The brand had high fans like the late Princess Diana and the fictional Carrie Bradshaw in sex in the city. Deutsche bank is considering moving 300 billion euros from the Balance Sheet of the u. K. Entity to frankfurt, according to a person familiar with the matter who says the duct caused joining us now for more from london is ed robinson. Great to have you with us. Give me an idea of the strategy for Deutsche Bank at the moment, how dependent or independent it is from the brexit negotiations that take place currently. Is in the midst of making this shift to friend for it as part of its overall Strategic Plan, increasingly wants to cater more to its corporate clients and being a traitor for institutional investors. Even without brexit, you may have seen some ship from the London Investment banking hub to frankfurt. Brexit amplifies all of this and the lens a lot of momentum to the move of assets and traitors themselves. You spent a lot of time with the chief executive and many of the Senior Management team at Deutsche Bank over the last weeks and months. In the lead to your story today on the bloomberg, john cryan looks happy, maybe too happy. What have you learned . Ed we had a chance to interview all the members of the Management Board as well as the chairman. The feeling we got from them was that the bank, after the very challenging 2016 in which it faced legal woes, questions about its capital, they feel they have turned the corner and its back to business. Eurosave raised a billion in new capital, have a new Strategic Plan in place, reverses some of the older ideas they have been pursuing, but it is back to business now. Jonathan are they conscious of the morale in the people below them . At Deutsche Bank have been through an equally stressful time, they have seen their compensation get battered, they continue to turn up to work, put in the effort day after day. Are they conscious of the situation around them . Think they are. They have conducted internal surveys. Im sure they can feel just how tense and how disappointed so many rankandfile and Senior Executives have been in all facets of the group. Internally,ariness here is another Strategic Plan, another turnaround. They are really waiting to see if it comes to pass. Investors are thinking the same thing. And thesense, investors employees are making common cause here. Jonathan last year, there were stories about an existential threat letter throughout those stories. When the questions came up about analystsbank, we ask and investors what they thought Deutsche Bank would ultimately going to be. If i ask that question about barclays, credit suisse, they would be able to answer it. Are we able to answer that question with Deutsche Bank . Ed Deutsche Bank would tell you what they told us. They want to be a premier german corporate bank. So i think the ambitions of being a Global Investment bank on par with Goldman Sachs, jpmorgan, those have been tempered a bit. There is a retrenchment back to germany, basic principles. I guess you could call it a regrouping, but that is an important part of this turnaround strategy that he and his team have unveiled in the last few months. Ed robinson. Ou, really enjoyed reading that story. If you have a bloomberg terminal, check us out online, check out our charts and graphs, interact with us directly. This is bloomberg. Jonathan futures are bit and the earnings look solid. Here is the picture of Global Equity markets. We are up six on the s p 500. How many beats have we had this morning . Mcdonalds, eli lilly. Alix you said mcdonalds. Raising guidance, too. We have seen a lot of guidance raised. Is the story. Elsewhere in the bond market, lets get to treasuries. Bonds slip, yields higher by four basis points. 2. 29 on the u. S. 10year. German Business Confidence flying for a sixth straight month. German Business Climate index climbing to a record high. Here to take us through what to expect in the next half of 2017 is bob mciver, Portfolio Manager of jensen growth quality fund. I want to get your perspective on the sector rotation. Come inside the bloomberg. This is where we are in the first half of the year, tack outperformance of 20 3 , health care next at 17. The losers, you know them, telecom and energy. You own 27 stocks . Rob we do. We have a very demanding Portfolio Manager. The Company Needs at least a 15 return on equity every year for 10 years. Here are than 20 Companies Meet that requirement. Telecoms, utilities, since we meet those demanding requirements. They are either too highly regulated or to cyclical in the way they operate their earnings. Stop what is another top pick you have . Rob a company like ecolab. Leader in sanitizing and cleaning products. 90 of its sales are recurring annuities, and we like that. More importantly, the company has recently purchased some small specialist companies, which makes them the largest cleaner of water in the energy sector. While we dont like energy, we like the indirect exposure of a company like ecolab, highly profitable. Know to drill a well, you need as much water as seven olympic sized swimming pools . Rob there you go. Jonathan i do have to ask about the performance of the fund. Is that discipline rewarded . Term,t is over the long given we own 27 companies. For investors, we are longterm, looking over the long term to have security investment returns. Less volatility than the market. Current characteristics of the company are consistent, thermal advantages, strong, free cash flow, and the Business Models are reflected in the stock prices. Jonathan give me a snapshot over a put of time of the performance. When some ofs ago, the smaller Cyclical Companies were taking the lead, our performance was not so great. Today, with a return to quality, uncertainty in the marketplace, shortterm and longterm performances are looking better. David i understand the results are high return and equity over a long put two of time. Doere certain trends they tend to be capital light, versus capitalintensive, other attributes you will look into a company . Rob typically, yes, they have a dominant competitive advantage. Number one or number two in their areas of industry. Strong free cash flow, robust Balance Sheets him a manageable debt. Certainly talking about the fed raising rates. Debt may be an issue for investors Going Forward. David thank you very much for being with us today. Aer the weekend, we learned German Cartel office is investigating the possibility that the largest german carmakers may have been colluding for decades on Technology Strategy and parts. Today, bloomberg reports, according to someone familiar with the matter, u. S. Antitrust authorities are looking into the allegations as well. Joining us from berlin is the man who heads up our Auto Industry coverage. Chris, how serious is this . It is a significant blow. Or the german Auto Industry, especially in the face of the Diesel Scandal they been dealing with the last couple of years. The allegations cover a broad range of technology collusion over decades, since the 1990s. The question that needs to be addressed by the regulators, antitrust regulators, to what degree is this collusion, to what point is it collaboration . That is the issue. How much of this is normal industry stop, and how much profit along into something illegal . David that is the question that occurred to me when i read this. It involved hundreds of people over a long period of time. Typically, word of that gets out it is overtly illegal. On the other hand, you have industries that share information, typically, with a lawyer present. Do we know whether the companies had lawyers to revising these . Supervising these . We dont know to what extent people were technicians or if there were legal people involved. We get a sense in one case, one of the other automakers stepped aside and said this is going too far. Identifies mainly a volkswagen whistleblower kind of statement. Daimler apparently has also given some sort of selfincrimination statement to , so whichever company gets the first dibs, they will get some leniency on that. Volkswagen has its major issues that its been dealing with in terms of the Diesel Scandal, which has set them back by more than 20 billion euros. One more issue is the last image of thing the german Auto Industry needs right now. Jonathan what is the German Government saying about this . Not a lot. Merkel has not done much by her party has called on automakers to go public, to say exactly what has happened, the issues involved. Workers which are very much involved in the management and strategy decisions, they are also putting pressure on management to come clean, to identify whats going on, what happened over the last few years. They are under pressure to make statements and come clean with what they have been discussing behind closed doors. Jonathan thank you very great to catch up with you. 34 minutes away from the opening bell. Futures with a very decent tone. Dow futures up around 100 points. Whoooo. I enjoy the fresher things in life. Fresh towels. Fresh soaps. And of course, tripadvisors freshest, lowest prices. So if youre anything like me. Youll want to check tripadvisor. We now instantly compare prices from over 200 booking sites. To find you the lowest price. On the hotel you want. Go on, try something fresh. Tripadvisor. The latest reviews. The lowest prices. Rally, the s pes is poised to post a 28 record close of the year. Results from gm to caterpillar, surprises on the upside. Republicans repair. Preparing to roll the dice again on health care. And the Federal Reserve begins its twoday meeting. Our survey says wait until september for its plans to unwind the Balance Sheet. Good morning. This is bloomberg daybreak. Im jonathan ferro. 30 minutes away from the opening bell. Quarter of 1 on the s p 500, futures up seven points. The euro stronger. German Business Confidence coming out for a six straight month, a climb to a record high. The report solid, the euro stronger. 30 on 10year treasuries. We give up some of the games we have seen through the year. Up for basis points. Bonds very much on offer this morning. 29 mins away from the open. Lets get to the movers with alix steel. Alix 29 Companies Reporting today. 5 . Eral motors off by. There was an issue about higher inventory in north america. Caterpillar up by 5 , raising its revenue outlook. Shares opening at the highest level in five years. United technology down about 1 , raised its fullyear sales view, but that was a little under the street consensus. We will be delving into industrial later in the hour. Mcdonalds up by almost 3 . Samestore cop sales crushing it. Overall sales up i 6. 6 . In the u. S. , up by 4 . They unveiled a one dollar soda credit, and they said that helped to bring customers in. T customer headcount in five years. Eli lilly, proper did rise. Its Rheumatoid Arthritis drug is facing delays. That stock is up 4 . Lots of raises we are seeing for the rest of the year. Jonathan really Solid Earnings reports in the u. S. , thank you. Just earnings also good, not good enough. Shares lower in the premarket amid speculation that profits will be hit down the road. That is a huge chunk of change coming off of the value of the company. Joining us now is paul sweeney. Always great to catch up with you. The numbers were ok. The markets are punishing them. Give me the why. Paul the markets are worried about traffic acquisition costs. That alphabets has to share with some of its partners to bring traffic onto the advertising platform. They came in higher than expected. When you factor that in, revenue missed certain estimates out there for the quarter. The company suggested traffic acquisition costs are likely to continue to increase as more of their traffic migrates from the desktop platform where the costs are lower to the mobile platforms that everyone is consuming content on these days, where the costs are higher. Youtube is another big source of. Evenue growth for alphabet again, theyre on the youtube revenue stream, a lot of those new to be shared with some of their partners on the you to plug form. Net, traffic acquisition costs coming in higher than expected, which brought in revenue lower. People are concerned about the impacts those cost may have on margins. Put it in simple terms. As costs go up and margins get squeezed, can they make it up in volume . Paul the answer appears to be yes. If you look at total paid clicks on the google platform, up 52 in the quarter. That is the highest we have seen. People are engaging with the youtube advertising pop or, the Search Program more than they ever have. That is due to the migration onto mobile devices. People are using them more, they are clicking on ads more, doing more searches. The opposite side of that is pricing is lower. Pricing on mobile searches is lower than on desk top. The cost per click was down double digits as well. When you put that together, you have a Company Rolling its top line 20 per year. This is a company with a total revenue north of 90 billion growing top line 20 plus. That is the longerterm story. Jonathan also the performance this year. We are up 26 . We are doing ok. 3. 17, bought and hold at you are doing ok. We are getting into the earning season now, 127 Companies Reporting now. 87 of them topping earnings estimates. 73 topping sales estimates. Strong earnings from mcdonalds and cala pillar have the s p higher. Scott wren andis alessio de longis. Scott, lets get the view on the earnings. Some decent beats through the morning but the story has been surprised to the upside, you. Ill do ok in the market, part, thatthe most is how it is every earning season and so far. We are looking for 6 to 7 Earnings Growth this quarter when it is all over and done with. We are in that range right now. Certainly, as always, there is a handful of companies that really beat big time, companies that fall short. Overall, this is going to be a far tougher comp in the Second Quarter than it was in the First Quarter of this year. Goldman sachs yesterday coming out saying it would be tech and financials. Tech will lead the sales growth, it will be the big guys like google and amazon. Is that how you look at earning season, continuing to be those players . Alessio yes. We see these strong earnings as what we expected. You still have positive surprises but earnings are a slightly lagging indicator of the Business Cycle. This strong earnings performance is in line with the fantastic Global Growth upswing we have seen for the last year. , if we start looking forward, into the leading indicators, its very difficult to see a continuation of the strong momentum at the aggregate it is son you know concentrated, to your point, in tech. You need the health care reform, Corporate Tax reform, you need the whole fiscal story begin to gain traction again and have the physical side of the economy support the private sector. Likely to see are a number one of these soft patches we have seen time and again. ,s soon as u. S. Growth its 2. 5 without fiscal support come you tend to roll back down to 2 , 1. 5. We subscribe to that story, that it is difficult to see this momentum broadening outside of tech, unless that fiscal and Corporate Tax reform story kicks in. Alix how long can a Business Cycle be extended . Bloomberg caught up with Henry Mcveigh of kkr, talking about the possibility of u. S. Recession. A pullbackve economically, nothing like what we had last time where we had massive Bank Leverage. From our standpoint, we have a pullback in 2019 where gdp goes closer to zero, more akin to 2001 than 2007. Wex is that our fate if dont get anything from d. C. , or anywhere else, helping that fiscal impulse . We have been telling our clients, for the new administration, job number one is to give us some fiscal push. The chances of having a recession between now and the end of 2018, in our opinion, is pretty low. Beyond 2018, you need some fiscal push. There is always another recession out on the horizon. Congress and the new administration have to think, how do we get this expansion to stretch on for a few more years . That is what i need to be thinking about it on a daily basis. In the fxa quick note market, the highest prince its january 2015. I wonder what all that means for the equity markets. Weak dollar, aggressively strong euro coming into the market. Helps thet certainly u. S. Equity story. It is this channel of monetary easing. Been wrong on eurodollar for the first half of the year, we were underweight, closed those positions after the french election. Now we are playing this dollar weakness and european fx rereading story, mostly through Eastern European currencies. Beta,t some of that euro but a little higher, because of cyclicalage and the nature of these currencies. You can see european equities and european fx outperforming in the second half. Jonathan i want to show the audience what you are talking about. You today performance in em. Asia orot come from latin america. It is coming from all of these guys. Year to date, that is on the day year to date. Hopefully, this works live on tv. 15 . The foreign is up 12 . Cannot continue . Trade. we are in the the right way to see this is a spread to the euro. Now. Uro is up close to 10 that is really the proper way to judge the performance of these european currencies. We think it can continue. The check kroner, the central bank has let go of the floor, so they are managing this strength gradually. We think these gains can translate to the turkish lira coming which has been an underperformer, hi carrie, undervalued. Alix we just didnt get to oil, and then it would have been complete. Scott wren, alessio de longis will be sticking with us. Tomorrow, special coverage of the fed decision. Our coverage starts at 2 00 eastern time. Live from new york, this is bloomberg. David this is bloomberg. Im david westin. Mccain isy, john expected to make a dramatic return to the senate, his first since being diagnosed with brain cancer. Whiper, Senate Minority dick durbin said that mccain would not be coming back if they didnt have the votes to move forward. Demise that you wouldnt ask senator mccain to come to thousand miles unless you have the votes. I assume he is the deciding vote or somewhere close to that. We will go forward with the debate, thats my conclusion this morning. Us through what we should expect on a washington today, our chief washington correspondent kevin cirilli. When will we see senator mccain . Kevin later today. Of course, a dramatic return after having been diagnosed with brain cancer several days ago. The news of which become public several days ago. He will return in order to get republicans as many votes as they can muster on this procedural vote to advance health care, but the question is what exactly are they voting on, a repeal bill or a repeal and replace bill . Senator Susan Collins of maine, i asked her yesterday whether she think they have the votes. She says she is unsure and you will have to ask leadership. As for now, she is voting against a motion to proceed. I will be talking to Vice President mike pence later on today. If there is a tie, he would cast the deciding vote on it. David a fair amount of talk coming about Jeff Sessions, from the president , press secretary, everyone seems to be gaining up on poor Jeff Sessions now. The president stopped short of saying you are fired. How long will sessions be able to hang in there . Kevin nobody knows. When he was a senator, he was one of the first lawmakers to endorse him but the administration is concerned about the focus on the Russian Investigation. I asked lawmakers on the Senate Intel Committee about their response to the Jared Kushner meeting yesterday following a closeddoor briefing. Take a listen to what they told me. It is all hearsay, but i understand he cooperated with the committee. One of my priorities throughout this whole discussion , when we set of the original agreement between the majority and minority, was open hearings, the ability to declassify key documents, and use of subpoena power. So this is part of meeting the first step obligation. I believe this is an area where the public has a right to know. Power it is the subpoena coming from the administration, they cannot understand why so much attention is being placed on members of their own party and not of the previous administration. David good luck making sense of all of that, jonathan. Jonathan we are both trying to. Lets bring in a team to make sense of the market. Scott wren of wells fargo and alessio de longis. Give me the psychology of this market. Im an investor, and line drops across, and it is a big, red headline. It says Jeff Sessions has been fired. What does that mean for the market . Noise. For me, there is a lot of noise coming out of washington. You need to figure out what will actually affect the economy and what is just noise. That particular announcement, should it, i would argue that is noise. The stock market is paying attention, lately, to the weaker dollar, Economic Data that has been weaker than expected, and therefore, maybe the fed will slow the pace in 2018 from three to something less than that. The market has done a good job of not getting too worked up, hanging on everything coming out of washington, which is a good thing. Pushhan some people may back and say this is not noise, maybe this is evidence the president is too focused on other things and not the growth agenda. Are you saying that is not the case, or it doesnt matter . Scott i dont believe that is the case, but the market wants some tax cuts here. I think we are going to see some tax cuts. I think it will be sometime probably made 2018 or later. I would like to see them split individual tax cuts away from Corporate Tax cuts. I think Corporate Tax cuts, repatriation emma those are nobrainers. It will get tough when you get down to the individual tax rates. Tax cuts, somes are hopeful it will happen, but not anytime soon. Jonathan how about the guys at oppenheimer . Usually we agree it is complete noise, but the question is a good one at this stage. This market is so extended, you are seeing some signs of exuberance. It is now hanging onto momentum and behavioral. The underlying activity is doing well, but certainly not screaming for incredible outperformance. You are more dependent sentiment can change on a dime. That is the classic sentence. That is how corrections all of a sudden happen, you dont know what the catalyst is until after the fact. Can some of this excessive noise be a catalyst for this temporary correction . That is where we start getting worried. You need to start seeing substance, progress. As soon as the data weakens and you dont see progress on the fiscal and tensor form side, you may use some of these noises as an excuse to take profits, go home, wait for the correction. It is very much a behavioral science these days. Alix we are hearing that these days. Longis,en, alessio de you are both sticking with us. Coming up today at 3 00, we go live to the white house as President Trump hold a joint News Conference with the lebanon Prime Minister. Much more coming up. This is bloomberg. Alix the fed on deck. Fomc kicks up to meetings days of meetings today. Officials plan to discuss how to reduce that for truly dollar Balance Sheet. Scott wren and alessio de longis are still with us. Possibility that we could see an announcement of Balance Sheet reduction tomorrow, what is it . Alessio substantial. I think an announcement later in the year, Something Like september maybe. So to speak,od, setting it up. Will be aink that meaningful market event from a price action standpoint, but certainly, i would say some nod on the Balance Sheet reduction, as well as, i would expect him to continue to strike the balance of upgrading the job growth outlook, as well as showing warning signs of inflation. We started already last week with reynard, yellen, some hints of that. Onwardileen, from here another risk is for a dovish, southern turn saturn turned because of that inflation story. We continue to see no evidence of wage growth really picking up. This concept that the neutral real rate, we know we believe somewhere around zero now, but there is still an expectation that it will be rising in the future. What if that story begins to be phased out and the real neutral rate is there to stay . David how much greater is the pressure on the fed again, given the noise we were hearing coming out of pennsylvania avenue and capitol hill. At a time we thought there would be a handoff of Monetary Policy and fiscal policy. We dont have the robust growth that people would like in this country. How much pressure does the fed have to keep this going . Good the fed has done a job in this after the financial crisis hit. This is not able statement here. I think they may have kept us out of a depression taking rates down to zero. They are in a tough spot, they want to normalize rates. They would love to close their eyes and tap their heels together and have the fed funds overnight rate at 2. 25. The economy would do what it is doing now. But to get from here to there is tough. Somearket is priced in tapering this year for the Balance Sheet, priced in one more hike in the we think will be in december. What the market will Pay Attention to is what will happen, what are the hints that the fed begins to drop in 2018. The yield on the 10year treasury is telling you right now, six rate hikes in two years with a modest growth economy is not great. That yield dropped like a rock since the march fed meeting. David briefly, is there anything in the data that would 2. 25 . Y them going to 2, alessio no. Again, i would agree, it is very hard to make that case. Alessio de longis, you are sticking around, along with scott wren. The opening bell is four minutes away. Futures are very well bid. Up by. 5 on the dow. A good amount higher in terms of points. S p 500 up about nine points. Here is the story elsewhere. Bonds on offer. Yields higher by four basis points. 2. 30. Stronger euro. Jonathan from new york city for our viewers worldwide, you are watching bloomberg daybreak. A kind of earnings coming through, a tennis surprises to the upside and that means the dow is very well bid at 118. In the left side of the screen, daniel levy ringing the opening bell at the nasdaq. That will annoy some fans. It is a north london derby story of football. College football. Help me out. David i do not know. Jonathan it is a big rivalry. Here is the story in the bond market, treasuries, yields are higher by four basis points. 1 . Dollar weaker by 2 10 of it is a euro strength story, the eurodollar 1. 17. Here is alix steel. Alix s p, another record high, up 3 10 of 1 , the dow up seven tens of 1 but not near a record. 3m was a disappointment and that makes over 6 of the dow. Also on a soft foot, pretty much flat on the day. You can pretty much blame google as well as that cash revenues 30 to eat into google and they worry they will have to pay more to their mobile advertisers. Caterpillar up 4 , they crushed it. They raised their fullyear forecast as well and it is sitting right now, not yet at a record high but 116 is the level you want to watch. Ak steel up 6 , same kind of deal. The average selling price of steel was up and shipments fell on lower carmaker demand but earnings rose 256 year on year. Bidport getting a nice because copper is on a massive care. Tear someone got bullish on china, some labor stoppage just stoppages, but it is just sentiment at the end of the day. Where do you want to get that growth, in the u. S. Or europe . Most everybody says europe. Look at what the stocks are telling you, these are the number of stocks in the euro stoxx 600 and the s p above their 50 day moving average, the white line is the s p and the blue line is euro stocks. The number of stocks above their moving average in europe has been falling, to under 40. The s p right around 75. The difference between those stocks above that technical level is now at its highest level in the last year. It is puzzling, because everyone says europe is great and where you want to play it, but earnings revisions are coming down faster than for u. S. Equities, and the number of stocks behind that technical level. Jonathan i am getting a town of messages. Westin. Alabama, david i expected better from you. David auburn i do not follow. Onathan do not watch it earlier in the program we heard from henry mcvey at kkr who spoke about the landscape in europe. What you are starting to see in europe right now is that monetary stimulus shifting to the cyclical economic areas like housing. You will see a little more lending, more improvement. There was a mention of copper, those type of things where it lists the economy lifts the economy. Still with us is scott wren of wells fargo and alessio the strong euro story and the question we explored last week is whether you could be long euro and expect outperform, but at the same time be simultaneously long , favor dax and expect european equities to perform as well. Can you . Is probably dax going to continue to do well overall. The i5 index will probably continue to do fine. I would argue that the emerging market index is a little stretched, but certainly when the dollar is weakening a little bit, the currency situation is not going to be helpful to a u. S. Investor. But of course as i mentioned earlier, i think that at least some of the bid we have seen in u. S. Stocks is on a weaker dollar. Our Currency Team thinks we will see the dollar stronger by yearend, but in the meantime i think that is one of the things helping the dollar. Helping the s p 500, rather. Jonathan Goldman Sachs said you cannot be long euro and european equities. The you think you can . Alessio you can. Talk about moderate appreciation and the euro still being undervalued, or fairly valued, it should not provide basically a headwind to further equity gains. The point made earlier i think is important, we had the Monetary Policy mission, the conditions were very easy through the euro channel and Interest Rate channel. Now you are seeing slow but steady credit creation, easing lending standards, and in the manufacturing, and also you see it in the hard data that the European Growth stayed at story is more selfsufficient. Currency can be deceiving. Correlation isf a metric on a forwardlooking basis. Until the euro is actually overvalued, i think you should not worry too much about the impact the euro may have on stocks at this point. Alix how aggressive do you want to be in playing the cyclical story in europe . Story ory greek debt bigger multinationals . Alessio i think at this stage, you can be quite aggressive, especially if you played the relative value against other markets. Story, we area actually at a neutral level because we see it is fairly good on a Global Growth basis and the risks around the globe are not really materializing. Of course, there are underlying risks but they are not materializing. What we see is europe is the only engine of the world at the stage where the growth momentum is still accelerating. In the u. S. We are seeing deceleration, in china we are seeing a deep celebration. We are starting d celebrate deceleration. I agree with the previous comment, where we have actually after being long em equities for over a year, and the last two months we brought that back to neutral, still overweight em local debt. Europe is where we see the clearest full risk positive picture. At the moment, being aggressive i think pays off but i would play on a relative value basis against the rest of the world. Alix where does that leave the european banks . You have Deutsche Bank coming on friday. Youou were a u. S. Bank, if were not Morgan Stanley it was not the best quarter. Scott i think these european banks, there are still a lot of things happening internally within these banks. You look at the italian banks, there is issues there and issues in other banks whether it is france or elsewhere in europe. I think the bank play, the upside risk due europes economy, that is there and the surprise factor is potentially banks willthe participate but i do not think you want to go all in on european banks. Jonathan you talked about how to play a high beta european story and you talked about eastern europe. Is the greek debt story separate . Is that a high beta european story or is it a risk story isolated in greece . Alessio the letter. It is almost latter. It is almost like it in his test idiosyncratic debt story and i do not think there is a way to tie that to the broader europe cycle. The other stock we are paying attention to right now is google, down 2 as the market opens due to earnings. The real issue has to do with tax, traffic acquisition cost. Traffic acquisition costs are payouts that go to Network Websites and mobile partners, and they took the longer largest chunk from google in a while. A 1070 price target and a buy rating on alphabet. . Hat did you make of tac i guess a couple of things. There is no question the percentage of tac has been going up and that indicates obviously that frankly it is a more competitive environment right now, where essentially all of google need to pay up in this context and also alphabet and google essentially need to pay up in this context. Also, the notion of pricing as it pertains to their search advertising seemed to decline a lot more than most people expected, yet more people shifting to mobile. That means the volumes will go up in terms of clicks but advertisers will be willing to pay less for each click because those types of advertisements are not as compelling in mobile formats. The concern is whether or not this is an Inflection Point that frankly is going to show that alphabet and googles financial standing will continue to decelerate. We do not see that. Heree pricing firming up and we are not overly concerned about this from a one quarter perspective. Alix google is pushing toward 110 billion in Gross Revenue this year. To really move the needle you are looking at 10 billion plus to move it. Does google have the ability to do it and if so, where do they get that revenue . Scott a lot of people are missing the fact that this is a company, no matter how big it is , it increased revenue at 21 of quarter, 23 adjusted for currency. This is still a healthy growth story. When you are looking at growth out a number of years, i think they have a number of levers. I think about youtube, plowed, some of their other bets including what they are doing waymo and nextgeneration Card Technology whether it is ride sharing or self driving cars, a lot of important things they are doing. I think the core fundamentals of the business are healthy and i think this is largely a temporary pricing issue that will be addressed relatively soon. David you mentioned youtube. How much is youtube continuing right now contributing to google and alphabet, and how much Growth Potential . Scott i think that is a question that a lot of us have been asking, and asking the company directly over the last number of years. They do not provide a lot of disclosure as it pertains to you to an my senses that will get big enough or they have to disclose some further details based on sec requirements related to materiality. Nonetheless, we think that youtube has been and will continue to be a healthy growth driver. We are not so enthusiastic about the subscription aspect of the business, that does not seem to have worked for the last better part of a decade, but in terms of monetizing video content with advertising, we think alphabet does that as well as anyone and they continue to be a leader, not only in terms of franchise and volumes but also advertising revenue. David if someone follows this company, ruth porro went there increase the transparency. Are you satisfied with the progress . Scott i have been satisfied. I think you have to look overall. She has been there for a little over two years and we have seen some dramatic improvements in transparency and expenses. It seems the company is better focused and spending on the things that will yield returns, particularly for investors. Jonathan scott kessler, thank you very much. And alessio delong is, thank you very much. 500, a record on the s p we kiss a record on the dow and come back a little bit, but the story is a series of earnings, a surprise to the upside and validating some of the gains from this year so far. From new york, you are watching bloomberg tv. Alix this is Bloomberg Taylor this is bloomberg daybreak. Coming up tomorrow we will have special coverage of the fed decision starting at 2 00 p. M. Eastern. Jonathan lets get you up to speed on the market action, 16 minutes into the session. We begin with equities, the s p 500 trading at an alltime high, up one third of 1 . The dow, a series of upside surprises for the earnings story. A record high on the dow. We are still up by about 122 points as we pulled back from a session high. A big difference from the story of messy politics and enthusiasm and optimism in the world of economics. The u. K. International trade minister is in the u. S. For talks with wilbur ross to discuss the path toward a bilateral trade deal after brexit. Fox made the deal for a strong u. K. U. S. Trade relationship in congress. We have a number of continuity agreements, agreements we are party to because of our membership of the e. U. With the u. S. They cover a whole range of different issues on trade and security so we have mutual recognition agreements, marine agreements we want to transition. It is a technical rectification process, rectifying in law what we have today. We also are looking at shortterm outcomes so we can get liberalization while we are still in the European Union, and potential Free Trade Agreements, working out what areas we want to look at. Finally a working stream on the Global Economy and how we make it work better as britain leaves the union. How do we get those mechanisms to work better not just our mutual advantage, but a Global Trading advantage given that trading has been glaring growing very slowly. An inverted relationship from the normal which gives us cause for worry. Michael you said you are laying the groundwork for a new trade deal with the u. S. After brexit, but since you cannot negotiate until 2019, what exactly does that mean . We cannot negotiate while we are in the European Union but it is in our interest that if we look at the sectors that we want to talk about, look at where we think the gains can be made, what we can do and the Services Economy financial services, for example and we will do the groundwork and Due Diligence so when we leave the European Union we will have a head start on negotiations. Michael how long do you think it will take to negotiate an agreement with the u. S. . It depends on how much progress we make in the initial period. Free trade agreements can take a long time because economies are too far apart. Our economies are in relatively similar shape in terms of services to manufacturing. We have got relatively good trade balance, so there are a lot of areas where we will want to see where we can maximize that. It is a difficult question because we do not know how far we will have got by march 2019. The farther we get, the shorter the time gap between then and being able to complete the negotiations. Is your priority a trade deal with the e. U. Or the u. S. , or do you have the staff to do both at once . We have the government to be able to do both. The Free Trade Agreement with the European Union needs to be done, but if you think about it, never do you begin a trade negotiation with a zero tariff background and 100 regulatory equivalents which is what we have for the European Union so technically, were it not for the politics that would be a relatively simple procedure to conclude. With the u. S. , we have relatively similarly shaped economies. The trick is to go at the same pace. Concessions meeting or agreements on one of those but not the other. Michael you talk about regulatory equivalents. You may have that more with e. U. Than the u. S. , particularly in areas like finance. Is the u. K. Ure, willing to lower any of its standards to get a deal . Lowerare not willing to standards but what we are looking for is areas with a greater overlap. Perhaps like dispute resolution mechanisms, we may have a closer view to the u. S. Whereas in other areas we may be closer to the e. U. That is for us to find our way through. Ultimately we are setting u. K. Conditions, u. K. Standards. We are neither going to be members of the European Union nor are we bound to the United States so we will try to work out what is in our mutual interest. Michael dave davis said today he thinks you can negotiate a trade deal with e. U. By 2019, which is not what you said yesterday. Why is he wrong . That all hope we can do and what we need to do is working out what our contingency would be if we were able to unable to do that, that is simply good planning. Jonathan that was u. K. International trade minister liam fox. Joining us is michael mckee. Did we get a handle of what laying the foundations means and what will come out the other side . Michael they have assigned working groups to identify issues they will have to address. They cannot go much beyond that because they cannot negotiate under e. U. Rules until they leave the European Union in 2019. They are putting an optimistic face on how fast this can happen, but canada recently signed its trade agreement with the e. U. And that took seven years. Jonathan laying the foundation is tough and then there is the complexity of finding a level playing field. Do you have to raise their standards or does the other side have to drop theirs . What are they going to do about the issue of agriculture, and they solve it . Michael agriculture is always a difficult issue and there are some particularly tough issues here because britain has higher animal standards than the United States. There are questions about genetically modified crops, hormones, beef in the u. S. , things we allow and they do not. There is a newsflash that they by, theed and annoyed way the u. S. Treats chickens to prevent bacteria. It is a chlorine wash, not the stuff that you put in your washing machine but many brits are horrified at the idea of selling that kind of chicken in the United Kingdom even though it would bring down their costs. Standards aree, different so a lot of work to be done. David we have learned about this president that when it comes to trade he wants to be able to say, i got your jobs. At this point, he is already claiming credit, tweeting out this morning he is on the verge of a great trade deal with great britain. Obviously that will not happen for a few years, maybe after he leaves office. There is a lot of employment on inh sides, a Million People america employed by British Companies and a million brits employed by american companies. If there is a trade deal that allows foreign direct investment, there is the potential to expand that but it is hard to see and what areas because we do not know the shape of brexit. The u. K. Is becoming like the u. S. , a service economy, much less manufacturing so any jobs we may see would, in that area more likely than the assembly line. David there would be jobs for lawyers because the Senate Judiciary committee has now subpoenaed mr. Metaphor it, the former Campaign Chair for donald trump who has been implicated in various things involving russians in ukraine and other things. Maybe we can get more lawyers jobs. Michael wouldnt you like to see a Senate Hearing where everyone was wearing the wakes the british barristers where wigs the british barristers where . Alix have you got any idea how the trade policy jonathan have you got any idea how the trade policy evils . Evils . Evolves . L michael the president even attacked the germans who do not have their own trade policy. He was particularly hard on mexico and yet we are going to renegotiate nafta and it looks like it is proceeding on a peaceful path. Hard to see how the u. S. Will look at these things. Whatever trade deals you do, it takes a very long time. It is not clear we are going to see any kind of major change in the United States economy because of trade anytime soon. Jonathan michael mckee, thank you. 26 minutes into the session, lets wrap things up. A series of Solid Earnings in the United States, taking the dow and s p 500 today record highs. From new york city for our viewers worldwide, this is bloomberg tv. Vonnie it is 10 00 a. M. In new york, 3 00 p. M. In london. I am vonnie quinn. Mark i am mark barton. Welcome to bloomberg markets. Vonnie we are going to talk the latest on the Senate Health care vote scheduled for this afternoon but we will start with raking Economic Data in the United States. Here is julie hyman. Julie we have the conference for Consumer Confidence coming in at 121. 1 for july, above the 116. 5 economists were expecting. We are coming in still with relatively strong Consumer Confidence, something we have been seeing pretty consistently. I take it we are looking at pictures of Jerod Kushner as we look at this Consumer Confidence index, and to answer questions before a house panel. July Consumer Confidence rising to 121. 1 from 117. 3. As we look at the major averages, the s p and