Transcripts For BLOOMBERG Whatd You Miss 20170728

Freedom of Peaceful Assembly and association. That is something we are repeating now. Situationhugely tense , we want to repeat calls for calm and peaceful protest. Leaders urgingn people to boycott sundays election for delegates to rewrite the constitution. Peacefullyrs ended in jerusalem. Israel he police had been on high alert. The have been at the center of. Rolonged tensions israel installed the metal detectors at the mosque when two Police Officers were killed there two weeks ago. It was a move to expand control over the area. More than 2700 journalists and analysts in over 120 countries. Im mark crumpton, this is bloomberg. Julia live from bloombergs World Headquarters in new york, im julia chatterley. Scarlet im scarlet fu. Joe im joe weisenthal. 30 minutes from the close of trading here in the u. S. Julia disappointing earnings shaking tech shares and the dollar lower on weaker gdp revisions. Joe the question is, whatd you miss . Scarlet north korea fires in confidentialt are north korea fires and intercontinental ballistic missile. It is tesla model three day. Elon musk takes his Affordable Electric vehicle to the mass market today, meeting a critical deadline for his production target. Julia whatd you miss . Intel reported secondquarter earnings, bucking the industrys decline. A gain of 9 . The company gave an upbeat forecast for the Third Quarter and annual revenues, too. I want to hand over to caroline who is in london and standing by intelss cfo cfo. Credit where credit is due, well done. Lets get nittygritty. Talk to me about pc numbers because your numbers showing a 12 increase. This is a declining market, no . Bob it is a declining market and we have outstanding performance. And introduction of new products we are very excited about. In a declining market, what we have found is simply performance cells. Products are increasingly demanded by both and enterprises alike. That is what really drove an outstanding performance from our pc business in the quarter. Caroline is there concern, potentially, about inventory building up . Are is something analysts now floating. Are we seeing matt . Bob as we look into the second half of the year, we characterize the inventory levels is relatively healthy. The inventory levels have been a bit lean over the last couple of orders. But they are Pretty Healthy going into the second half of the year. As a result of that, we raised guidance for the country by 1. 3 company by 1. 3 billion dollars. It is driven by the performance of our pc does this business. A healthy outlook for the second half of the year. Caroline shifting to server chips and data centers, that up 9 . No cigar when it comes to doubledigit growth. Tell us why we are seeing reticence to invest from governments and companies. What is the uncertainty about . Bob we indicated early in the growth. Gh singledigit in the Second Quarter, we were 9 growth. Right on track for what we laid out. Ondly, we launched a very one of the most High Performance scalablecalled xeon for the second half of the year. It has passed benchmarks, the top 50 benchmarks. It has ranked extremely well. We think that will increase demand with higher performance for our clients in the second half of the year. If you look underneath the covers of the growth rate for the business, we saw very strong cloud growth, up 35 . The cons sector was up 17 . Our adjacency businesses within data centers were up 12 . Real strong growth in the quarter. What we saw was relatively low growth within the enterprise sector. As we see more workloads moving to the cloud, we are well positioned to capitalize on that. We are excited for the second half of the year. Caroline is it a shift to the cloud stopping corporate spending or global risks and uncertainty . What are you getting the feeling for . Bob again, we have to put it into context. In the 2 to 3 range, our Data Center Business did grow by 9 in the quarter. That is pretty strong and healthy growth for a business of this size. Again, there is a fairly dramatic shift in terms of how are spending money. With an increased component of their workloads moving to the cloud, we are wellpositioned to help cloud performance drive incremental value for our customers. Caroline wellpositioned, but the second half analysts are expecting a slowdown in your revenue. We are expecting competition coming from amd when it comes to the department of business. Nvidia is on your heels. Can you be pricing confident when you have such competition . The one thing that has been fairly consistent across all of our businesses, whether it is pc, data center, internet of things we are at a stage where performance delivers. The higher performance of your products, the more customers are willing to pay for it. Wewe go to the second half, know that we will continue to deal with competition. We feel very good about product lineup and i would say performance cells and that is why it has allowed us to deliver Strong Performance in the second half of 2017. Beenine you have diversifying, a bit of m a out there. Getting into autos, memory chips. Are there any other areas . Are you still looking at acquisitions . Have done to very exciting acquisitions for the company. One that we completed a couple years ago that got us into the fpga space. It has been a wonderful acquisition for us as it expands our capabilities and what we call a data centric environment. We also announced the roughly a 70 we believe the combination is very well positioned to capitalize on that huge segment. That being said, we have a , focused onrtfolio executing with altera and mobile light going forward. Caroline what about the focus of investors on your share price . You are up 1 over the course of 12 months when the rest of the market looking at the sox index, its more than 40 . Does this worry you . Do investors ask you . Do you feel the need to pay back using dividend . S . Bob we believe we are in the midst of one of the most exciting transformations in corporate history. From a Pc Centric Company to a data centric company. Resultsormance brought that demonstrated our ability to capitalize on that opportunity. We know that we need to continue to deliver. And we expect to continue to deliver. We raised our second half outlook by 1. 3 billion. We increased our etf outlook i . 15 a share for the year. On we are going to focus delivering for our customers. We know the results to our shareholders will follow. Caroline we will see us, indeed, they do. Thank you so much, the cfo of intel. Julia great interview. That was caroline. We want to reiterate some of the numbers in case we caused confusion. The Data Center Revenue was 4. 4 billion and they did eat in terms of the overall revenue, the Second Quarter at 4. 8 million, the estimate 14. 4. Estimate . 68, scarlet . Scarlet dont hold your breath for healthy tobacco stocks. British American Tobacco as well. That is up next on stock of the hour. This i scarlet whatd you miss . Tobacco stock investors drilled at midmorning when the fda was looking to cut cigarettes and nicotine. One of the Tobacco Companies plunged as much as 19 in what would have been its worst day since 1993. It has come back a little bit here. Abigail, tell us a bit about this announcement. The street,estors, and analysts blindsided by the fda. Fda came outhe with an announcement that they want to look into reducing the level of nicotine in traditional cigarettes, possibly to nonaddictive levels. That doesnt make sense, but im not a smoker. There was an absolute panic in these stocks. 8141, thisat g btv is a longerterm chart of altria the 20junction with day moving average. The stock sliced below the 20 day moving average. , absolutely,lly not knowing what going on. There is no precedent or this. Julia we saw some of the stocks bounce back a little bit. What else have these guys been pushing into to diversify their earnings stream . In addition to regular cigarettes, traditional cigarettes, there is sleeping cigarettes. It nicotine with water and they put flavors. It is a slimmer revenue right now. But take a look at growth for these products. This is a Bloomberg Intelligence chart showing lets start with white. This is in 2007. We see traditional cigarettes spiking up. Here are these new bathing apingettes v cigarettes. Even so, the hope is with this growth of the vaping product. Q3 i want to go back to 1980. Just to put into perspective how extraordinary altria has done. It is up about 16,000 over the last seven years. The s p 500 nowhere near there. This is despite all the legal stuff. I remember the lawsuits in the 90s. The settlements have never gotten in the way. Could this ese change . A sea change . Abigail there is a new head named scott gottlieb. When used as intended, cigarettes will kill half of their longterm users. Comparing it to the opioid epidemic. Depends on how hard they go after this and the timeline. There is not a lot of detail on it right now. Incredible. Truly. Scarlet consider the political environment. The lobbyists, where were they . Abigail they must have been blindsided, too. The bloombergr business flash, a look at the biggest stories in the news right now. Moves 56,000 employees from microsofts Business Software to google docs and sh eets. Boards changing to digital whiteboards. A distant second behind microsoft. To sell gained approval diesel pickup truck and sportutility vehicles in the u. S. After the Environmental Protection Agency Approved modifications to the omission control emission control software. And that is your Bloomberg Business flash. Joe whatd you miss . Continue to hit record highs what gdp growth returns to a steady pace of growth. How long will the party last . Earlier this week, i got bloombergs macro strategist to talk about this outlook. I think this goldilocks scenario can continue overall. He might be due for some summer turmoil. This doesnt mean the overall backdrop isnt good. Solid global is growth combined with low inflation. That is it a positive environment for equities. That is combined with the fact that environments around the world are trying to rein in some of the liquidity. There are still massive amounts of liquidity that are chasing too few returns. It will not be easy gains, but there can be gains in equity markets around the world. Joe almost everybody was talking about the socalled trump trade. How thingsory was are looking in europe, asia, and the u. S. If anything, things are looking better economically than they were at the beginning of the year. Do you still think the Global Growth story is underappreciated . Or do you think markets have fully caught up there . Bob i think markets mark i think markets are starting to catch up. The cycle can continue a little bit further. Growth is very solid. The u. S. Is, in fact, probably the big risk. Further, the u. S. Becomes less and less relevant to global trade. To be thato, it used the u. S. Caught a cold and the rest of the world caught pneumonia. Asia and European Growth to continue to drive the economy globally ahead. And therefore, benefit global assets outside the u. S. Joe very interesting about the u. S. Not having as much relevance to Global Growth, or Global Growth impact as it much once did. Talk about china. For asiapacific growth, china very relevant. About chinese deleveraging, hard landing, or slow down. How do you see their economy performing . Have done annese exceptionally good job of handling a difficult situation. The problems are well known. They have a large corporate debt bubble, probably the largest in history. The government has very large fx reserves and is very wealthy. It does not have a big debt pile that the rest of the developed markets have. The private sector is not very leveraged. There is a lot of money invested in real estate, but the ratios are lower than they are in the rest of the developed world. Balance sheetl for china, inc. Is very healthy. When they start sorting the positive of the Balance Sheet against the negative corporate sector overall, china is doing a good job of handling this risk. It will continue to carry on at high levels. We are talking about is slowing down from 6. 6 . Even if it slows down to 6. 3 or 6 , it is still exceptionally strong growth for the world that can largest economy. For the worlds secondlargest economy. The dollar and how unrelentingly week it has been people assumed the Trump Administration would be associated with a strong dollar. The you see anything likely to turn that around . Mark not on the longer term. Not structurally. The reasons for dollar weakness do remain. It is an expensive currency. I know those things dont influence markets week to week or month to month, but longerterm, they do matter. The u. S. Is an expensive country. We have a large debt pile up backed by negative yield. Theop of that, because dollar is the World Reserve currency, when there is global there, it generally means is real every in, investing in the World Economy and selling down the dollar. The first part of this cycle was the narrative about the u. S. Forging ahead. That has been debunked. The world is not correlate that much. Its not the u. S. Leading the way, asia is leading the way. It europe is doing solid. We need to get out of u. S. Assets and into the rest of the world. That said, nothing moves in a straight line. Ofre will be periods sustained dollar appreciation, but we are not going back to the highs of january for years to come. From bloombergre news in singapore. Scarlet check out tv and catch our programming live. Send us a message. We were talking about altria just moments ago. This is york, bloomberg. Scarlet im scarlet fu, whatd you miss . U. S. Stocks keep making record highs, which sounds impressive, but only if you ignore that the dollar has been weakening. The blue line shows the s p 500. The white line shows the s p 500 adjusted by the bloomberg dollar index which is near 15 month lows. It has been flat this month. Go to the far end. It has been falling since early march. Weakens, prices go higher. There has been an artificial look at the s p 500 without a more interested value addition. Euro, i am looking at the the euro swiss here. This with saw the biggest weekly decline in two years. Look at the chart on the righthand side over there and you can these stocks there in euros with euro swiss. Though the reasoning there. Loads of reasoning here. In light of what we are seeing post french election, we could see the ecb retracing him of that stimulus policy before the Swiss National bank. That is pushing putting upward pressure. In the red, risk reversal pressure on the top side here. Joe the swiss a classic safe haven. Another safe haven is gold. Heres another interesting chart. This white line is the ratio between copper and gold. The teal line is the 10 year yield. They track each other quite well. We see copper surging against gold. Perhaps ominous for the bond calls, that what we are seeing in the metals market, the relationship between the industrial metal and the Safe Haven Metal is perhaps bad news for those that think rates are going lower. Julia and china, some confidence there, too. Scarlet connect the dots to equities. The dow heading for another record high. The s p and the nasdaq lower. The dow, poised to close with a record high, the s p poised for the second weekly decline. The dollar weakening after revised secondquarter gdp data. Im julia chatterley. On scarlet fu. Im joe weisenthal. If you are tuning in on twitter, we want to welcome you to our closing coverage every weekday from 4 00 until 5 00 p. M. Eastern. Scarlet the dow has managed to pull off another record high, but the s p and as weekend, disappointing results from amazon that weighed on the nasdaq 100, and of course, the gdp data for the Second Quarter, not enough to give equities much of a lift. Joe not really doing much. A little bit of weakness in tech driven by amazon, but not much. Julia you said it all, joe. Scarlet lots of activity in cigarette companies. Out through you, phillip morris, british American Tobacco, you are looking at some deep losses, particularly in british america altrioa. E of altria. That caused a selloff in these tobacco names. Then a little bit of a paschi and through, and people thought, maybe this is people with companies with ecigarettes. Many of these companies have been making inroads in that direction. Julia 11 of revenues in terms , away from traditional business, and we should make the point that we dont know if this is going to become legislation. Joe lets take a look at the Government Bond market starting with twoyear and 10 year. A little bit lower on the day. Surprisingly given that it was a fed week, it was not an active week for Government Bonds. Julia in currency land, the dollar, weaker. We are following what we got from the employment cost index. As we were saying earlier, what is bad for the dollar here is good for the euro. 1. 1759. The euroswiss, keep an eye on this one for all the reasons we just mentioned. What we are seeing in the options price, risk reversal. Hows an increasing premium i also wanted to point out the sterling versus the dollar as we head into super thursday. We get the quarterly inflation report, the press conference, the policy decision. Barely any analysts surveyed by bloomberg think they will do anything in terms of rate changes, but we see the term the sterling at a 10month high. Joe commodities, oil and gold up today, oil briefly touching 50 a barrel. We take a slightly longer look at gold. We can see its coming back nicely. We were in the lower 40s recently. Signs are emerging of some balance. Inventory data out of the u. S. Shows some draining, so optimism is emerging. Rlet what a jew miss whatd you miss . , closing at ang record high today. The s p and nasdaq, a lot weaker. Joining us now for the equity week in review is peter chung, equity strategist at Bloomberg Intelligence. One thing we didnt add in, the megacaps. You have a chart that highlights that. Tell us what we are looking at here. Peter the markets, kind of mixed for the week. The start of the week was a grind higher on better than expect did earnings, but then use of the weakness turnover on the s p 500. Within there, some pockets of strength and weakness. Scarlet this is the s p 100. Peter the large of the largest. These are the stocks that are 500, andst on the s p on the back of betterthanexpected earnings from boeing, caterpillar, verizon, all Companies Reported earnings that provided some sort of Earnings Growth or guidance upside that led the upside for the s p 100. Joe this week was extraordinarily busy newswise with the earnings and the fed and everything out of d. C. One thing that is interesting is everything going on with the transports. This is a chart that you brought us. The s p in white, the conductors in teal, and then the transports. Thealk about transports in context of dow theory. What is the significance of this . When you look back historically, does weakness in the transports tell you anything . Eter what started with the airlines rolled in to some of the other transport names, trucking, air freight. Typically, the bad signal because of the Economic Sensitivity of this group, the cyclicality of the group. Transports were down 7 over the last two weeks. Would point to another cyclical area and confirm rotation out of cyclicality. That is the semiconductor thing. Boeing beat intel beat on the top and bottom line and provided upside at the guidance. Joe the bottom line is, keep an eye on the teal line. Peter absolutely. Julia the sector that gets the boomy prize is the telcos. Weve been talking about at t, but also verizon with what they announced, their earnings. Talk us through this chart. Peter telcos have been one of the weakestperforming sectors on the s p 500. It has underperformed the s p 500 in four of the last five years. Both companies actually surprised in terms of paid they had for their quarter. They surprised investors with these stocks. I think verizon and at t were up 8 . Julia the question is, is it sustainable . Earnings get revised down and down to the point where a beat scarlet not really the beat it was meant to be. In terms of what is coming up next, weve got apple, and everyone will be focused on that, but after that, it seems like the bigname tech names drift off a little bit. The same names have all reported. Peter there are 132 s p 500 Companies Reporting next week, more than expected of the sectors reporting. You have health care names that are scheduled to report. Joe we talk a lot about tech. We talk about financials, and we dont talk much about the eighth or nine other sectors. Its interesting to focus on these. Where else are you seeing interest stuff you go peter thepeter other really big area we are focusing on is the industrial space. They have had a mixed reporting season, but you are seeing some names that are surprising to the upside. G surprised on the upside and provided upside guidance. Industrials out of the tech space is one of the areas where we see most of the growth. Joe when you talk about transports and semis being cyclically sensitive, do they share more characteristics . Peter it really falls along with the economic sensitivities. Yeah, you will see upside, generally expected growth. Scarlet staying true to form on whatd you miss . Peter chung, you can read all of peters teams research on b. I. Stocks go. Coming up, north korea successfully tests another icbm. We will have the latest from new york. This is bloomberg this is bloomberg. Mark i am mark crumpton. Senate democratic leader Chuck Schumer is praising the three republicans who broke with their party to reject the Gop Health Care bill, especially john mccain. Who have not seen a senator speaks truth to power as strongly, as well, and as frequently as john mccain, the very same courage he showed as a naval aviator in vietnam he showed last night and has shown time and time again. Mark senator mccain is en route home to arizona for another bring Cancer Treatment at the mayo clinic in phoenix. We will have more coverage of the Health Care Vote coming up next with Marty Shanker in washington. The pentagon confirmed north korea testfired its second Intercontinental Missile in a month, a provocation that heightens pressure on the u. S. And china to find ways to rein in kim jonguns nuclear ambitions. The project tell reportedly fired over 600 miles before landing in the sea of japan. The south korean president s office said in a statement he ordered a show of force to respond to the norths actions. Pope francis has offered his sympathies to the parents of charlie gard, the baby who became the center of international attention. Charlie died today a week before his first birthday. Journal isreet reporting the white house is preparing to pick Columbia University law Professor Robert jackson for a democratic slot on the securities and exchange commission, citing unidentified people familiar with the matter. Jackson is being vetted by the white house after being recommended by senator Chuck Schumer. Global news 24 hours a day, powered by more than 24 2700 journalists and analysts in over 120 countries. I am mark crumpton. This is bloomberg. Julia whatd you miss . Lets get more on that develop and story out of north korea launching its second icbm in a month. Marty shanker, our executive editor for International Government and economics, joins us. Great to have you on the show. Kim jongun really does pick his puts moret it clearly pressure on President Trump, the chinese, and the japanese. What do we expect . Marty the same problems with reacting to this provocation every time the north koreans send up an icbm exist now as in the last time. Military options, even though the pentagon said they discussed military options with south korea, have the potential of being disastrous. What they have to fall back on is trying to convince the chinese and the russians to help put pressure on the north koreans to rein in their program, but it has not been successful so far. Its doubtful it will be this time. Scarlet is anyone thinking more creatively on this. People talk about, maybe you should let north korea become a Nuclear State and focus your energy on making sure it doesnt proliferate too much past that and address humanitarian concerns. , butusly, that is one take are there different options being explored . Marty i think especially at the pentagon it, they are trying to figure out, what new thing could they possibly try to get this program under control . I havent actually heard people discussing, lets step back and allow them to get a Nuclear Weapon. I think that would be destabilizing in the region. South korea would then seek a Nuclear Weapon themselves. That would be a risky gambit. There are Creative Solutions being discussed, but as donald trump said, they are not letting us know what they are. [laughter] we will see what happens. There options are truly limited. Scarlet i only bring up the other one because with india and pakistan, there was resistance on the u. S. s part two letting them develop a nuclear arsenal, but the u. S. Ended up just accepting that india and pakistan are Nuclear States. Marty i understand that. The medicaly that systems in india and pakistan are more danced political systems in india and pakistan are more advanced. Joe i want to talk to health care and last nights a vote. A long this process, the attempt to repeal obamacare has died two or three times and come back to life. Does this feel different . Marty i dont think it does feel different. We are getting reports of some bipartisan discussions, Informal Group of democrats and republican senators who had dinner in washington the other night to discuss health care options, but at the same time, youve got people like ted cruz who say theres no way they could possibly work with democrats. There are rumblings. Lindsey graham met with President Trump to discuss health care. There are rumblings. Aroundate is going to be for another two weeks. Anything is possible. It doesnt feel any more final than the other times it has been declared dead. Julia what people saying about Anthony Scaramuccis discussion lets call it with the discussion and any that this is the endgame for bannon and the chief of staff. Ive heard that this is gary cohns moment. They couldnt find anybody else to step into the plate of chief of staff. What are you hearing . Marty i hear that gary cohn is a smart guy, and i wonder if he would think about becoming chief of staff in this white house. Its true from the Anthony Scaramucci tirade yesterday, everybody thought that Reince Priebus was on his way out. During the 24 hours here in d. C. , the prevailing view is, they will all three coexist like cats in a bag, and donald trump likes that kind of organization. Joe trump is loving all of this, right . Marty i actually think he does. I dont know that for a fact, but he is a guy who thrives on conflict. There are certainly people around him who seem to enjoy that, like steve bannon, and he does not take that as a sign of weakness or disorganization. He seems to actually like it and promote it. Julia a divide and rule management style. Joe climbing the ladder of chaos. Scarlet thanks to Marty Shanker, our executive editor for International Government and economics. Have a great weekend. Joe if you havent seen it, here is dramatic video from last night, the moment john mccain walked in and gladiatorstyle turned his thumb down. Look at the republican senators. Theres Mitch Mcconnell with his arms folded, stunned. Everyone, silent. One of the more dramatic moments. Scarlet lets not forget this took place at 1 30 in the morning. Joe here it is again. Theres mccain with the thumbs down. Quite a historical moment. Julia a caesar moment. Something tells me despite what you said, there are going to be other dramatic moments like this over the next four years. Just throwing that out there. Joe i would totally agree. Coming up, at t posts the biggest bond sale of the year. It was the topic of discussion on bloomberg today, and we will bring you the highlights next. From new york, this is bloomberg. Julia i am julia chatterley. Whatd you miss . The third biggest deal in history this week, at t sold bonds in a multipart authoring that offering that is said to have drawn three times as many orders as securities for sale. Jonathan ferro asked the roundtable about the landmark debt sale. The long end is completely dominated by Insurance Companies and pension plan for them, you can see how it makes sense. At t, its pretty well telegraphed. We have had our order waiting for a while. Its now one of the Biggest Issues, if not the Biggest Issue on the index. It is something people needed exposure to. Its incredible how well the deal went given the upside from 15 billion to 22. 5 million. Jonathan and the market wanted more. Look at the comments earlier this week. There was a warning about complacency, and they picked out a netflix issue. He said, this isnt a solid that investment. Its an equitylinked Digital Content investment, and its not for us. The fact that deals like this get done easily should tell you something about todays market climate. His point is, you take the equitylike investment of netflix hes asking the question as to why that should be reflected in the debt, and to some extent, it is. If you take the debt of netflix and look at how it is trading, its trading below the market pricing. You just wonder why. Why is the netflix curve compared to the broader market, and people just get excited about the name. Does that concern you . Overall, we have a positive view of technology, cable, some of the more traditional sectors. We actually think that hnology stocks and bonds these companies are fundamentally, structurally changing with the Way Investors can generate returns and how economics globally are evolving. If you look at netflix or amazon or any of these Huge Technology companies that continue to invest, they are continuing to innovate, and as long as they push the boundaries, we think there is value to be found in technology and these companies that are driving forward growth and change in the way people do business. Jonathan that sounds like an attractive equity proposition. Why is that an attractive debt proposition . If you look at the the equity, and on side, if you look at the s p 500 and the composite from 10 years ago until today, there has been a huge increase in the size of these tech companies, health care, and the like, but in terms of debt, if you like the equity, the debt is comfortably attractive comparatively attractive. We can see the abolition of the consumer continuing to point towards increasing valuations in these types of companies. Jonathan something i want to talk about is high yields. Isyou look at what europe trending towards right now, if you look at the barclays highyield index, its the tightest in 10 years. How much tighter can the index get if the ecb is going the pullback . I think it can get a little bit tighter. We might be talking the hell of the tail end, a couple basis points. His it thing to remember could be possible we are near the end of a trade, but it could still have some duration left. When you pointed out the words howard said in the warning about netflix, part of what was in his e was his admission of oftentimes, you can be early to the right call. It could be petering out, but there is a long process left. Julia that was Jonathan Ferro with his roundtable. Catch the show 5 00 p. M. In london on bloomberg tv. Scarlet its time now for the Bloomberg Business flash, a look at some of the biggest business stories in the news. Tyson foods, rebooting brands in an effort to grab the healthy sales market. Tyson, also looking to extend its taste maker meal kits, which were launched last year. A u. S. Appeals court has ordered the faa to reconsider minimum legroom standards. A Nonprofit Group filed a suit, which alleges seats come from eyes passenger safety. Airlines have added more seats on planes, shrinking the distance for passengers. Tickets for dunkirk will cost you 26. 75 in los angeles, among the most expensive in the country, but Opening Weekend sales at imax theaters with 70millimeter screens pulled in more than double than regular scenes. That is a good sign for theater owners who are trying to lower movie fans away from their home screens. That was a fantastic movie, by the way. Joe i havent seen it yet. Scarlet a lot of pretty boys with great cheekbones. Julia that is the reason, clearly. Pakistans Stock Exchange was on a roll, and now its doubling. Last nights resignation of Prime Minister sharif promises a tumble. We will look at pakistan. This is bloomberg. Mark its time now for first word news. President trump travel to long island to unveil the administrations plan to crack down on game violence, in the particular ms13, an International Criminal and prize with tens of thousands of members in Central America and many u. S. States. The gang is accused of committing a string of gruesome murders, including killings on long island. We are going to destroy the vile criminal cartel ms13 and many other gangs. Ms13 is particularly violent. Mark attorney generals Jeff Sessions was in el salvador to discuss the fight against ms13 and other gangs. He met his salvadoran counterpart Douglas Melendez and congratulated him on Justice Department charges involving strategy against more than 700 gang members, many from ms13. Venezuelas chief prosecutor has raised of the death toll from nearly four months of protest against president nicolas maduros government to nearly 113. The office reported five more deaths, including a Police Officer killed yesterday. The number is expected to climb as authorities enforce a ban on protests ahead of a polarizing vote sunday to begin rewriting the constitution. Pakistans Prime Minister nawaz sharif has resigned. The Supreme Court found a disparity between his familys wealth and his known sources of income. Sharif was tripped up by the panama papers, documents that show his children have control of four offshore companies. Global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries, i am mark crumpton. This is bloomberg. Julia whatd you miss . Political turmoil in pakistan is threatening what was one of last years best performing stock markets in the world. Prime minister no one resigned. What is next for the pakistani government, and how does it affect asset prices . With us now is the head of asian south at our beck grayson. Great to have you here. Explain to us what this means politically. Who steps in for the Prime Minister . Offcamera, for investors, its a problem. I think there are a couple aspects of this. Obviously, it does ratchet up the uncertainty to some extent, but the real center of power in pakistan is always the military, and they control most aspects of the country. The fivemember panel adjudicating on this corruption probe had a couple members of the military. What it does is reinforce establishments. Joe julia mention of that pakistans market is one of the best performing in the world, but it has been one of the best performing for years and years, an extraordinary run since the financial crisis. What was the story that propelled it for so long, and did anything we see really change that story . Scarlet 236 . Joe that is over 10 years. Going the story that led that massive rally and how that changed. There were a couple aspects of this. At the end of the financial crisis, pakistan got extremely cheap. They had to restructure some aspects of the economy, painfully so, and as a result, stocks were very cheap in 2009 and 2010, and it was trading at a tremendous discount to the emerging markets space. After the financial crisis, they were downgraded to front your Market Status instead of emergingmarket, and because of that, it was a most 10 of the frontier market. It was a liquid, reliable way to play one of the frontier market stories, which is one of the big stories in asset prices in the last five years. They got upgraded to emergingmarket a month ago, so eight 15 basisw points. Peoplere bigger clients can focus on. It becomes harder to pay attention, especially with the traditional stuff that is coming to the fore again. Scarlet theres also a policy limbo we need to contend with. Even though the military controls everything, if there is no stable leader, we dont know what is going to happen day today. Theres the possibility of currency devaluation, right . Scarlet that risk is there, and i think it is elevated with these events. For the next year, the government becomes a lameduck government. One of the things i thought they would not do is allow him to step down. I thought they would do something. It is almost an admission of guilt. That means the opposition is going to push for another election. There are a few aspects. Julia you mentioned there were two members on this board of judges basically that decided the vote was unanimous. Had a vote earlier, and two found them guilty. Stated theirblicly opinions. Julia who replaces the Prime Minister . In ties it all together terms of how stable this government is, even if it is just Holding Together until the National Elections . The military is going to take a very neutral role. Theyve taken a lot of policy space from the government already. They control foreign policy. The control a two major to majorons aid institutions. I dont think they will step in unless they see a massive destabilization. They will watch the show and let these guys fight it out, the Major Political parties. Julia we were talking about that major runup weve seen in the equity markets. You are talking about a potential devaluation. How the equity market much of this is in the price in terms of what you are saying, been able to limp on if someone replaces him from his own family . There are some issues. The market dropped after the msci upgrade. Like you said, if you look at the run over 10 years, the currency looks heavily overvalued. I think there is a big risk because the government will not push through energy price increases. I think we are looking at huge fiscal pressure. Wenturrent account deficit to 12 billion this year compared to a 3 billion surplus last year and we have many risks. Scarlet tie all of this together. Now that the Prime Minister has step down. Down, youpped predicted the currency would fall through 2018. Give us an update. I think you might get a bounce, but the currency needs to devalue 10 to 15 to set the floor. Add to that another 10 or 15 decline in the market. We are working through an early stage bear market. I think youll get a bounce back, in the market will go lower. Joe i find it interesting that they move from emergingMarket Status to front your Market Status coincided with the bottom, and the move back to emerging Market Status has coincided. Is that a coincidence . This is not new. Qatarsould dubai and upgrade, a lot of passive money goes in before the upgrade, and a lot of hot money that chases for inflows goes in ahead. Invariably, you see the same thing. It also matched and into the oil cycle. Julia what is the Foreign Ownership of equities versus domestic . In pakistan, its relatively high. Maybe it has gone to 15 to 18 . Its a lot higher than it used to be. That is a risk. Scarlet thank you for joining us today. We have some breaking news. The Trump Administration is considering nominating joe li na mcwilliams of fifth third to lead the fdic. She is a lawyer at fifth third and is said to be a top candidate for the chief position. She is fifth thirds chief legal officer. Prices plummeted in 2014 and have stayed down since. We will take a look at which countries are most hungry for a rebound. From new york, this is bloomberg. Joe whatd you miss . As oil stays in the doldrums, which countries are most vulnerable twoweek prices . At the council on foreign relations, and he discusses his findings. Bread joins us now. In this new research you have done, you point out the way you typically think about a countrys breakeven sustainability is based on a flawed framework. Explain how we typically talk about the oil prices a country needs and how we ought to be talking about them. Brad most people first turn to the breakeven. What is the most that covers your fiscal needs . There is some intuitive appeal. I think everybody understands the concept of a fiscal budget. Joe when we talk about saudi arabia, we say, they need this much oil for this much money to pay this much in salaries and services. Barad correct. Joe what is the way we ought to be talking about it . Brad you are better off looking at the balance of payments breakeven, the oil price that covers the country as a wholes imports. Joe what is an example of a country in which, if we look at the fiscal breakeven, we get a misleading picture about the sustainability of prices because were not using the right measure . Brad theres often a correlation. I dont want to go to far in that direction. I think the best case of an economy that was later capacity to adjust than implied by the fiscal breakeven is russia. It had a high balance of payments breakeven, to be clear, butell over 100 in 2013 because its Exchange Rate was flexible, when the ruble fell along with oil, that stabilize the budget revenue. Even though it had a fiscal breakeven of close to 100, it didnt have to go through a wrenching fiscal consolidation. We joe have a chart that shows overall this relationship between oil prices, and you break it down between current account surplus across these Oil Exporters, and we can see the relationship. Explain why this is a useful chart. Brad it is a useful chart because it illustrates how an aggregate all the Oil Exporters have responded to Oil Price Volatility overtime. One of the problems with budget breakevens is that they are intrinsically numerical. The balance of payments breakeven is intrinsically suitable for aggregation. You can meaningfully speak of Oil Exporters. Joe you mention russia as a country that had more flexibility on the real price in part because of the ruble. But as a country that has the opposite problem were people thought they had a lot of money but because of fixed Exchange Rates, they are vulnerable to these prices . Brad your question answers itself. The gulf countries have given up the Exchange Rate as an avenue of adjustment. The saudis are an interesting example. Sinceudis historically 2000, between 2000 and 2012, the saudis had a low balance of payments breakeven. That jumped up to 70 in 2014 just as oil prices were set to fall, and its been a struggle to get that down. Joe in your paper, you talk about Different Things Oil Countries can do to ameliorate future shocks. One people talk about his economic diversification, but that is easier said than done. Is great flexibility something country should migrate to overtime you go brad many of them. The gulf countries, which had a large stockpile of external assets, most of the Oil Exporters have floated down, and in general, i think that is one of the ways you can manage Oil Price Volatility successfully. Obviously, its a difficult position for the gulf countries to move off that. The explain to people why dollar pegs to the gulf countries. Brad i cant easily explain it. I tend to think Oil Exporters benefit from currency flexibility than the average economy, but it is deeply ingrained in their monetary history, not floated for a long time. World where from a you dont have independent Monetary Policy to one where you are managing your own currency and Monetary Policy, its a tremendous change. Joe oil, right around 50 a barrel, how sustainable is this for the saudis . S ratchetedaudibrad down their imports last year. They got their external breakeven down to the mid50s, but they did so in a way that probably is not sustainable. I think the saudis compared to the average oil exporter face some of the greatest difficulties going forward. Brad, thank you for joining us. Julia thanks very much, joe. Tesla launches its muchhyped model three in california, can the company meet its own production goals . We will discuss from new york. This is bloomberg. Julia tesla is rolling out the sirst massmarket model three with the first 30 units being delivered to employees. The company has an incredibly ambitious path to ramp up production, and its not clear it will meet its goals. Joining us from princetons kevin heinen, senior moto mobile automobile corresponded for bloomberg. A model is 35,000, but if you want a soupedup version, you are looking at 40,000, 50,000, and that doesnt sound midmarket to me. Kevin what we have heard is somewhere in the low to mid 40,000s would be more the way the average buyer would option it. ,he average vehicle in the u. S. Including pickup trucks and the suvs, the average is about 35,000. While that was a target, 42,000, 45,000 moves it into the entry luxury car segment, which is a segment that has not performed well over the last two years. Scarlet we have to cut away for some breaking news. We arent donald trump cutting away for a president ial tweet. He announces on twitter i am pleased to inform you that ive named general secretary john f. Kennedy as white house chief of staff. Hes a great american. The upshot is he appears reince previous is gone via trumps twitter. Joe but he doesnt say anything about it. Bus time, itei appeared he was on borrowed time for a while. Scarlet steve bannon didnt like him either. There were divisions in the white house. Joe he was from the rnc. Julia i think we should wonder what else . If this is the announcement, what does it mean for the likes of steve bannon . We know there are tensions in the white house. This is not just about Anthony Scaramucci and some of the tensions that have risen with the chief of staff. If we know there is concern from those around donald trump, whether it is jared kushner, they have their reservations about steve bannon. This could be just the beginning. I think it is interesting he has announced this today. Scarlet it could be just the beginning, and it could be the state of tension that he prefers at the white house. The president has always run his as a collection of competing fiefdoms. I joe was talking about how this had been just an extraordinary week, and today was a bit of a hangover day, little bit quieter. Scarlet friday, 4 30 p. M. , bang. Joe this is how it gets announced. Pretty extraordinary. Everyone suspected in the last couple days that with the Anthony Scaramucci coming on, that was not good for priebus. Julia apparently, president kellyhas hailed secretary as one of his greatest stars come in there were reports he wanted a general to serve as the white house chief of staff. Hes telling me new york crowd at this event is at, the i want toms13 congratulate john kelly as secretary of homeland security. Donald trump, commenting as we speak. He wanted a general in charge of the white house, and now hes got it. Scarlet amazingly, reince previous is priebus is in new york. It appears he has just been fired and replaced by john kelly. I just refreshed my twitter feed, and it looks like this has been retreated 2800 times. Five minutes after it out. Wasa the New York Times reporting he was telling people around him he had lost faith in priebus. Scarlet theres a live shot of air force one with the present back at joint force enters andrews. Julia marty is joining us. Weekendt get that quite as soon as you were asked acting. What you make of this general in charge of the white house . Marty its raining chiefs of staff in washington. In this white house, you should never dismiss anything. As you looked throughout the position looked tenuous. Mentioned said he wanted a general around him, and hes got his general. Riebus,teresting that p with strong links to the Republican Party, is out. It is a stunning example of disarray at the white house and people trying to rein it in. Scarlet you mentioned hes a part of the republican establishment. Its very close to the house speaker, paul ryan what does this suggest about the president s relationship with the house leadership, Senate Leadership after three rounds of health care seem to have failed you marty marty its not the similar to someone like Jeff Sessions who has strong support and went through the confirmation process. If you were to fire him, i think that would be a political liability. Everybody on the hill recognizes that the chief of staff is serving purely at the pleasure of the president. Was not an early supporter of donald trump as running the Republican Party at the convention. That relationship developed over time, and i think it never fully ripened even after he named him chief of staff. Julia there were also reports of tensions between priebus and jared kushner. Its also broader than the relationship with donald trump, those voicing displeasure about his behavior. I wonder if we can tie anyway steve bannon to this and whether or not the shakeup we are seeing could spread. Marty nothing is impossible. Who knows what we will see on monday in terms of staff. Anhief of staff is normally extraordinarily powerful position. That person provides the venue for people to get into the oval office. There are reports of that priebus would sit there, and members of trumps family would walk by him and into the oval office. That kind of thing in a white house is not healthy by traditional standards, and it will be interesting to see if john kelly who is by all will bara tough guy the door and control Donald Trumps schedule and communication. Joe President Trump tweeted a followup tweet, pointing out that he is a great leader. John has also done a spectacular job at homeland security. He has been a true star of my administration. I find that phrasing to be interesting. For all the talk about the reality show part of this administration, calling him a star feeds that idea, that there is a show element. Marty theres no question about it. Trump, how way people perceive him. That is how Anthony Scaramucci is the communications director. He loves what he sees in terms of his loyalty and the trump agenda. Kelly does enjoy bipartisan respect, and it might be viewed pretty positively by the gop and by democrats that may be donald someonealizes he needs who can control what happens in that white house. Scarlet why do you think it took a this long . Joe and julie and i have been talking about how they seem to have been on the outs for a couple of weeks, if not months, and it took this long for the president to make a change. Even if he were to talk about how things were not smooth, there were leaks, why did the president wait until now to forceout Reince Priebus . Marty me and others here in the newsroom have looked at this , in aeek and said , chaotic trump, this was by far his worst week. It may be that he felt this was the time he needed to change the narrative and do something he perceived as positive in terms of acting to get his house in order. It may be that this was the week that broke the camels back. Joe you mentioned general kelly has the respect of republicans and him. Do we know about his ideological leanings prior to serving in this capacity . He is a general. Men, he isilitary sort of a political. Apolitical. Hes a true patriot, to coin a phrase. Im not sure if he is ideologically right or left. He does believe in a strong military