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tv   Bloomberg Go  Bloomberg  May 26, 2016 7:00am-10:01am EDT

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industry may lose 25% in the next year as performance slumps. vonnie: global leaders convene in japan for the g-7 summit. jon: to our viewers worldwide, a very warm welcome to "bloomberg ." a big three hours ahead of us with stocks inches away from record highs in the u.s. david: we have great guests this morning. capital,s from janus he thinks the fed will be hiking. vonnie: an interview you will only see right here on bloomberg. looking at brexit with the
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referendum rapidly approaching. let's get to the stories you need to know about. in london where oil tops $50 a barrel. jodi schneider in japan. and mike mckee right here in new york with the latest fed talks. the rally continues in crude. brent toppinggh, $50 a barrel for the first time this year. javier blas, talk to me about driving things toward and barrel. alter javier: we are losing some had thousand barrels a day in nigeria. -- 700,000 barrels a day in
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nigeria. in the background is the demand that a strong. everyone is driving a lot in the u.s. that combined with supply outages is bringing us to $50 a barrel. jon: i want to talk about debt supply. a $9 billion auction -- what does that tell you about market conditions? javier: the pain for the producers has been really acute. you see qatar borrowing $9 billion. they have a big production, relatively reduced population. it is not a country you would expect to be in trouble. that at $50,ing us
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the problem is not over. although the markets have rallied, we are up about 80% from the lows, we are only back to the level we were in november. back in november, we were talking about trouble for producing countries in the middle east. yes, the situation is better, but will qatar is telling us is it is not mission a come pushed. $50 crude, there is an obsession with round numbers. reporting $50 is actually quite significant for a lot of producers out there. javier: particularly because we are beginning to see a lot of overselling by shale producers in the u.s.
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rally in distressed that come junk that for u.s. oil producers. bankssignificant for the that were financing these companies. slowdown.ally a breathingovide some space for the banks. wti at $49.86. vonnie: a warning from shins oh on they asked the g-7 meeting gets underway in japan. jodi schneider is covering the meeting. zo abe-- shins o abb
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-- this points to domestic issues in japan as abe has repeatedly said that he will raise the sales tax in 2017 unless a major earthquake occurs. the prime minister was indicating that he wants to postpone the sales tax. the last time the sales tax was raised in 2014, japan fell into a recession. vonnie: that was jodi schneider. she is reporting from tokyo and the g-7 meetings. david: markets are closer to willving that the fed raise rates in july. michael mckee is cohost of "bloomberg surveillance" on radio.
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what do you expect to hear? fed officials are not under communicating their response. tomorrow, janet yellen is likely to be talking more theories and practice. that will be key to understanding her thinking about the economy. bullard and jim speaking -- bullard says growth is slow and inflation expectations are slow, but markets are strong, financial stress has eased. back down to where we were last fall. if a data dependent fed wants to move, one of the headwinds disappeared. david: they are data dependent could we have more coming out this morning. durable goods. keep an eye on the sub index capital goods suspending
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leaving out the defense spending and commercial aircraft, a proxy for business pending. it has been falling. the goal line is higher, business pending is lower. why is business not contributing? to see be adjusting today if that turns around with the more optimistic indicators we've seen recently. that's interesting to see today if that turns around with the more optimistic indicators we've seen recently. wrap of what's been happening, a big two days of gains over in europe. the biggest two-day pop on the stock 600 since february -- since february. the big headline generator not coming from stocks, but right
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here, commodities. .9%. crude higher by many derivatives of this story, look at the credit markets and debt markets, the huge upscale bond issue from abigail: we are watching many stocks moving globally, starting out in japan. a relatively flat asian session. ta shares finished up 21%. the company is looking for a white night suitor. in may have found a buyer kkr. also finishing higher by 9%, mitsubishi. offering investors some uncertainty about how bad the scandal would be.
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we have the southern bank stocks selling off, led by a spanish 2.8 down more than 20% on a million share offering. rallying in europe, the miners as gold trades higher for the first day in seven days. it looks like maybe the huge housing number on tuesday could be helping out copper. the g-7 summit has wrapped up in japan. president obama met with the leaders of six industrialized nations to discuss ways to get the global economy moving. so far, we'vea:
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discussed issues of the global economy and the continued accelerated growth. to use all the tools at our disposal to make sure we are not only putting people back to work, but also helping to lift wages. vonnie: tomorrow, president obama becomes the first sitting president to visit hiroshima. in france, strikes at oil refineries may spread today. the union has called for electrical workers to go on strike. hollande madencois it easier to fire employees. the hedge fund industry may lose a quarter of its 2.9 joined always in assets over the next year. -- $2.9 trillion in assets over the next year. hedge funds having their worst start to a year since the financial crisis.
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global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. coming up next, policy divergence. the fed versus the bank of japan as the u.s. prepares to hike and japan leads to economic stimulus -- and to economic stimulus. his $50 -- is $50 oil sustainable? ♪
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david: this is "bloomberg ." joining us now is anastasia amoroso. aboutt to talk with her divergence among central banks and what it means for the u.s.
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dollar and emerging markets. we want to start with oil. brent crude earlier rose to over $50 a barrel for the first time in six months. the spread on the high-yield energy bond index titans. ens.- tight anastasia: high-yield energy has been the best-performing asset out there. within they high-yield universe. that paves the way for a june rate hike. will a default in the high-yield space continue? yes. a lot of the smaller emp companies took on debt when oil was at $100 a barrel and leverage themselves up thinking oil will stay in at $80-$100 range.
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even though we are at $50, it is not nearly where we need to be. even if you do not have outright default, you will see restructurings. is this the time to go into you high-yield -- into high-yield energy or be cautious? anastasia: i don't think there's any particular value at this point. at the beginning of the year, i would have said yes. are-yield energy spreads falld for that 20% probability. looking at the oil market, are we in a position where we are saying hi crude prices are good financial conditions? anastasia: high, but not too
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high. if you look at the history of markets come every time oil wasies significantly, that not a good thing for the financial market. $26re not on the brink of again. that does help financial conditions. it certainly helps energy companies somewhat. i want to talk more broadly about potential divergence. whatdoes that mean for seems to be a trade that is short the u.s. dollar to go along emerging markets? anastasia: that was the trade for the first half of the year. it worked out very well. the white line here is the u.s. dollar. the blue line is emerging markets. anastasia: a pretty good mirror image of one another.
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the fed is hiking with no one else wants to. if that is the case, we could see a resumption of the rally. the most susceptible part of the market is part of the emerging markets, but not all. oil helps places like russia. that is one thing that is different this time. even though the dollar has been strengthening, oil has not necessarily been falling. oil could move higher from here. we are into a possible seasonal territory here. draop. inventory we are looking for a robust summer driving season. that should drive oil higher. do you see an increase in
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demand for oil in places like india? anastasia: india, china. you have to look at it in volume terms rather than dollar terms. -- they arerms still doing their fair share and u.s. is a drop. vonnie: coming up, time to bank on financials? an upcoming of rate hike. yellen'seans for timetable, next on "bloomberg ." ♪
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jon: this is "bloomberg ." futures in the u.s. looking firm, dow futures up about .1%. if you look at the euro, the gains continue. the dax keeps climbing, this time by 48 points. thatr yen holding on to 110 handle. the story of the session is brent, the vti $50 watch. $50 watch. wti 2128 was the all-time closing high. anastasia amoroso is still with us. can we get there between now
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and june 15? i would not rule it out. it is only a 2% move from this point forward. what hasn't happened is the fears a stronger dollar unraveling. that has not happened. the fact that oil has been resilient and credit spreads are tighter ands points data is improving come all of that could push as higher from this point forward. if you look at fundamentals come if you look at earnings and look , we areple math slightly above fair value. the only thing that changes that is time and better data. as we move more towards this , 2017 earnings, the dismal
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quarter could take as higher. 12you look at the next months earnings, the reason s&p has not gotten anywhere since that middle of 2014 is because the next lowest has been stuck at a 125 number. as we move into 2017 and earnings consensus materializes, it is a $135 figure, that would ultimately move us higher. at 5%e still looking upside plus maybe a 2% dividend. there are some constraints that could play out. vonnie: david: the price-earnings ratio may be not reflective of what has been in the past. what is your yield compared to
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what? when you are getting negative interest rates may be the price-earnings ratio could go higher. anastasia: it does make sense, but you have to have a confidence boost here. i'm not sure what that confidence boost is going to be. one thing that happened from 2004-2006, the last time the fed was raising rates, multiples did not move on the s&p. they actually contracted. the fed is raising rates. that is not necessarily a confidence boost. i'm not sure multiples go higher from here. the other constraints, wages. corporate margins and u.s. have been doing phenomenally well. rise, that does eat into your margins. that means margins do not expand from here. jon: looking at financials, the
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question i keep asking, are they rising on the perception that there will be a transition to the bottom line? anastasia: if we get a 25 basis point rating increase that's rate increase, it would help. about $1 billion to the top line. you have to be somewhat careful within financials. notpure play on the fed is the overall financial sector, it is the banking sector within it. vonnie: have you changed your allocation, percentages at all? investor: if i as an think about where i'm willing to it may not risk, necessarily be in the pure equity space.
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5% upside plus 2% dividend on a , if mysitive scenario expectation for high-yield is that may be a better opportunity. vonnie: anastasia amoroso, thanks. david: coming up, you will hear from the bond king himself, bill gross. find out how he's positioning jenness among that's janice -- janus capital. ♪
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jon: this is "bloomberg ." futures in the u.s. a little bit firmer. --gest today pop in europe
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two day pop in europe -- the higher by a fifth. a stronger euro, up about .25%. gold snapped a six-day losing streak with the headlines generator in the crude market. brent up .9%. we are back through $50 a barrel. vonnie: time now for first word news. two members of donald trump's team tell bloomberg an endorsement by paul ryan is imminent. ryan spoke with trumped by phone last night -- trump by phone last night. airlines and u.s. taking matters into their own hands, spending millions on more workers to
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shorten long lines at security checkpoints. it's expected to be a record summer in the u.s. for air travel. -- sophisticated submarines may be the only hope of finding the egyptair data recorder. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. jon: tom keene joining us now from bloomberg surveillance radio. the big discussion over the last 24 hours is blackstone's view on hedge funds. this from the president of a day of reckoning we face here that will be a shrinkage in the industry, it
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will be painful. pretty painful for an awful lot of places. we've seen people calling the end to the hedge fund industry. we do face a decreasing amount of assets going into these funds. tom: what is fascinating is the different kinds of hedge funds and where is working and not working. do long shortd to in this market. we think of george soros, global macro making big bats -- big bets. very concentrated debts. concentrated bets are hazardous to your future. big forthe industry to these guys to go out there and
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generate the kind of returns 1980's? back in the tom: i had the privilege of talking to julian robertson about this. everybody by definition was smart and they were very few players and the industry burgeoned with a lot of smart people. but also a lot of people that were kind of smart. this 2% and 20% gain -- what is never talk about is the reason you do a hedge fund is for that 20% gain and that is over a hurdle. to get there, you used to have make 21% gross in a low rate environment, in a low terminal value environment."
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two and 20 does not work with that new framework of 15% a year crossing down to 8% a year. the pension funds that dropped $200 million across various hedge funds, they are now pushing for returns. just by cutting fees, getting those fees down. new world, low returns. the idea of absolute return versus relative return, nobody of trying toamic make absolute return in a low yield, low terminal value, low potential gdp environment. it is all new. it is ugly, particularly for those making focused, conservative bets.
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that part of it has really been challenged. it is a little different. -- aa quick disclosure nonexecutive director at blackstone. overwork, tired, but hanging in there. david: now to a bloomberg exclusive. erik schatzker sat down with bill gross who manages the $1.3 janus capital unconstrained bond fund. here's what he had to say. bill: i think they will move in june. the second quarter is looking decent with a 3% kind of
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quarter. jobs will probably be adequate in terms of growth. the dollar has gone down instead of up and the stock market is close to it week. peak. this is their time, if ever, to move. janet yellen is more dovish than some of the governors and presidents. there are presidents and governors that i think are beginning to understand what i just talked about in terms of the effect of low interest rates on this savings pool. erik: the fed, sooner or later, has to make a move. those of the arguments in favor of a hike in june.
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what arguments do you find persuasive against a hike in june? the question of trying to answer what appropriate neutral is. some would argue where we are and whereto zero other banks are now, negative, it is an appropriate rate. aggregate demand and global demand is insufficient, which has been a condition for 15-20 years. erik: that holds some water with you? bill: yes. there's two sides to this. to elevate financial asset prices and tickle down into the --l economy and create jobs
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now, it is becoming very tired. ultimately, financial and small savers are bearing the brunt of policy going forward. it is not an easy answer. upward.e to move bill: what about -- erik: what about the impact outside the u.s. and the feedback loop that comes with it? the chinese are interested in iswing when and what the fed going to do because their concern is about the impact on the u.s. it would be a simple thing
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for the fed to raise rates and the dollar to go up for emerging-market currencies to go down in for their exports to be more productive. over the past five or 10 years, they've borrowed a lot of money in dollar denominated debt. if it is dollar-denominated and the dollar increases, some fear it will crack. erik: how sensitive is elin and the rest of the committee to those issues? isple wonder whether the dog biking the tail or the tail is dog is the dog -- wagging the tail or tail is wagging the dog.
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bill: it does indicate some currency.y to 's mandate is for inflation and domestic growth. but, as we've seen since lehman conditionsinancial and global economic growth have taken on an importance that they never had before. prices seem to indicate a growing level of confidence the fed can pull off a rate hike without provoking a selloff in risk assets. wasn't the market primed for almost 15 months for the fed to move and when it finally did in december, stocks and credit sold off violently for two months. why wouldn't that happen again? bill: it could.
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they will temper the potential with language that butests not only gradual, maybe the next one would be in december. many governors have been open about 2-3. december might allow the markets to stay call him. -- a stay calm. vonnie: we will hear more of that interview later on. sayings from jim bullard that the full payroll report will be relevant and the risk of financial market bubbles are moderate that risk may rise
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later. he has no problems about china asking about the federal reserve's plans. he did note today, want to guess how many fed hikes there would be in 2016, but he favors a rate of normalization. data dependent, data dependent, data dependent. on.oil rally raging highest levels since november. could opec throw cold water on the rally when it gathers next week? ♪
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david: this is "bloomberg ." coming up later, blackrock's chief investment strategist a fixed income will be joining us. jon: the crude rally rate is on. libby toudouze joins us now. i'm sure the stock picks are doing tremendously well. it's really been great. you've seen most of the companies perform well in this type of environment. ,he interesting thing is
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especially for companies in the midstream space, the pipeline companies, it has created a positive feedback loop. these stocks have not seen deteriorating cash flows. their stock price went down and it caused a financing problem. vonnie: they're not rubbing their hands with glee, though. libby: in the producer space, you are right. $50 oil is still on the margin. the better producers will continue to do well at that level. $50he midstream space, oil, six dollar oil is there bona fide that's six dollar oil oil is50 oil, $60 nirvana. i don't think you could say it is enough to bring the marginal producers and, but enough to bring the better show producers and.
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.- shale producers in you will see them begin to lay out some hedges at $55. demand, both of which we are really seeing those trends firmly in place and then inventory. we are coming up on driving season, numbers from last week look like we have an early memorial day, which is great. down, it will be great for everybody. jon: we had supply disruptions across the world. do you think there might be a misread of what's happening here? that's supply disruptions are not going to go away. may was big, 4.3 billion barrels. control, not have the
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political consensus or technological capabilities to the spare capacity they are saying. vonnie: $50 a barrel is far from capital expenditures. on the upstream, producer side of the business, we've seen back-to-back years were they've x. to cut cap they have to have some expenditure to replace that the pleading asset. it is still pretty low. depleting asset. qatar comes to market, $9 billion of debt, twice the amount analysts expected.
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if i'm taking debt to market with oil at $50, is it because i don't think next year is a good time? they have felt the pain of $35 oil. this is much sweeter than that. they see u.s. companies lay as much capital as they can and it's big well received by investors. , high yieldsed debt energy no longer looking distressed. look at where we were with oil at $26. oil and $49, less ugly, but still ugly. how has the cost of capital changed? libby: on the debt side, cost of
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capital has improved. where it has really improved has been on the equity side. never saw their cash flow deteriorate, yet come of their stock prices were taken down with the entire energy industry. now, we are seeing that come back somewhere between 10-12%. that is where the real improvement has been. what are the trendlines on the demand side? libby: india is the new china. india is about to or may have already eclipsed japan becoming the third-largest consumer. india has massive construction projects come massive industrial projects going on. which will drive their demand. they also have a growing population and urbanization that
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will increase demand for the refined product side. give us a few names were we will see consolidation. side, on the upstream smaller producers going to you will see ad lot of opportunity in companies enterprise, and integrated midstream company that has natural gas. vonnie: is there opportunity for exxon and chevron? libby: it is an opportunity for them to scoop up. they have to replace the pleading assets. .- depleting assets david: china's a stock market has now gone quiet.
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we will show you this next in off the charts. ♪
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jon: there is no testing with round numbers, isn't there -- there is an obsession with round numbers, isn't there? both north ofnow a $50. vonnie: it's been almost one year since china's equity market began to decline. nation's stocks have rarely been as subdued as they are now. abigail doolittle is here to show us what is going on. abigail: pretty amazing when we think about august 24 of last year, black monday here in the
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u.s. the shanghai composite going down 50%. more recently, it's been consolidating. at a gauge of volatility in the shanghai composite. right now, at relatively low volatility. all that big volatility is brewing low -- i suspect it is investors regrouping from that huge selling pressure, trying to figure out what is next. ande take a look at copper the shanghai composite index, green is copper cannot we see copper below the uptrend. the two have traded somewhat together.
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we could see the shanghai have more downside volatility. abigail, thank you. fascinating chart. crossingking ego data --34 minutes time it eco-data crossing in 34 minutes time. futures are positive and globally come equities are rallying. the rally continues. ♪
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david: east meets west. china wants know when u.s. policymakers are likely to act. china's reduss flags. jon: the $3 trillion hedge fund
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industry may lose assets in the next year. vonnie: does hillary trump the donald? the history ofat democrats versus republicans. which will be better for wall street? david: welcome to the second hour of "bloomberg ." up, we will bring you sound from sir richard branson. it explains what a brex could mean for europe and the rest of the world. vonnie: blackrock's chief investment strategist for fixed income joins us.
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today, big markets two days of gains. higher,keep pushing another 75 points. features positive, dow futures up 40 points. switch up the board very quickly. a stronger japanese yen. yields at 1.86% on the u.s. 10 year. crude up one full percentage point. -- wti crude up one full percentage point. abigail: we are watching pvh corp. the stock is surging after the company put up a very big first quarter, beating estimates,
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raising the full-year forecast. in ceo is citing strength europe and china. trading nicely higher in the premarket, shares of lions gate. they put up a massive fiscal fourth-quarter beat. beating by 1200%. the ceo says this year is likely .o be better ubs sees a 20% downside. jon: weekly initial jobless claims in the u.s. out in about 30 minutes time. are -- joining us
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is paul hickey. paul: we are seeing jobless claims remain at near their cycle lows. they are supportive of the strength we've seen in the market lately. as they have made new lows in the last year, the market as moved in a sideways pattern. -- has moved in a sideways pattern. the consumer is doing relatively well here. jon: it's it's an economy losing momentum or just topping out? paul: a late stage economy, which does not necessarily mean week markets. -- weak markets.
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, theythere are concerns are showing some signs of rebounding here. the consumer activity in our surveys is showing increased propensity to spend. sales data was strong. muche: why do we have so terrible earnings from target to tiffany's? of the reasons we have gotten stuck in a bit of a rut, toward the later part of earning season, you have the retailers and we are seeing a dramatic shift in shopping patterns. retail sales were strong in april. it is more of a function of consumers changing habits than
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consumers taking in the trench -- digging in the trench. david: if the market keeps going forward, it has to be because of earnings. where do you see earnings growing overall in the s&p 500? barrel.l is at $50 a that should help lessen the impact. sector, wendustrials expect a rebound there. caterpillar machinery orders released late last week. in asia, the three-month average overthe least negative in three years. what is the catalyst of the breakout? eventually, the narrative
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catches up with the price action. the last couple of weeks, especially bearish. we've had a tremendous rally in europe over the last couple of days. isn't this a breakout? paul: it is all about sentiment. we were already in a bit of a rut in the market here. when will the fed ever come out and say meeting is off the table? the market a little over read the minutes there. no one thinks the market can go higher and that is when the , when does go higher everybody is positioned the other way. david: will the s&p 500 react favorably to a rate hike or unfavorably. we've heard both things. my think youow
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would see a bit of a negative reaction in the market. july would be much more palatable. you take a broader step back , looking at the history of the rate hike after a long pause , the market usually runs into turmoil. jon: paul hickey is sticking with us. vonnie: time for the first word news. japan, the g-7 summit turning its focus to american politics for a while today. global leaders had questions for president obama about donald trump. the president said the likely republican nominee was a topic of serious discussion. they are paying very close attention to the selection. -- this election.
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they are surprised by the american nominee. they are not sure how seriously to take some of his pronouncements, but they are rattled by them. president obama becomes the first sitting president to visit hiroshima. fixing puertot may not be crisis passed by the entire congress before july 1. in france, some electrical workers join strikes at oil refineries, causing power outages and gasoline shortages.
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businesses are warning of economic damage if the strikes continue. global news 24 hours a day, powered by our 2400 journalists in more than 150 news bureaus around the world. up, clinton versus trump. which of the two candidates will be best for wall street? if history repeats itself, there is a clear answer. less than 90 minutes until the u.s. open. more "bloomberg " is next. ♪
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david: democrats versus republicans. what is better for the markets? dow returns under u.s. presidents since 1900 had an average annualized return of 8.9% under democrats and only 3.8% under republicans.
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joining us now is paul hickey. this is fascinating. you go back to 1900 and compared the democrats and republicans, the democrats have done a lot better. generally speaking, democratic policies are more geared towards putting middle -- giving thems more benefits and the money is more likely to be spent. policies lead to two more money in the upper class and that does not necessarily -- read to -- lead to more money in the upper class and that does not necessarily get spent.
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if you look back at 2007-2008 my don't think that's what most people would have been anticipating. david: many people today would say he has not been that great for business. jon: is it his rally or bernanke 's? wonder 15 year span, so there will be some outliers. generally speaking, there's only been to democratic presidents were the annualized return of the dow has been down. it was a decline of less than 1%. david: this tracks s&p against the likelihood that hillary clinton is president. for most of the race so far, the s&p has gone up when hillary's
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chances of being president have gone up. it is just in the last month or less, s&p held up and hillary dropped substantially. this is the iowa electronic markets. it is not the most liquid. other markets are showing similar trends. peter outw that rally in late april, that's when we saw the democratic start to rally. on the republican side, you have and some of the party starting to unify behind a candidate and on the democratic side, you still have clinton embroiled in a primary battle with sanders.
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you cannot divorce it from the makeup of the house and senate and the potential for changes to tax laws. , we'vef you look back gone through and look at each makeup of congress. we've all heard that gridlock is good for the markets. a democratic president and some republican control of congress, the annualized returns of the dow are double digits. whereas when you have parties , that's whenoth you get returns that can be weaker than the average returns. correlation, causation. which side are you on? paul: we are looking at 120 years worth of data.
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we would like to have 500 years worth of data. we just don't have that. these are the numbers and we are a consumer economy. when you do get more money into the hands of more consumers and more consumers who need the , if they can keep more money in their pockets, it gets spent. mine once said if you want to live like a republican, you should vote .emocratic david david: there you have it. paul hickey. funds suffering their worst withdrawals since the financial crisis. ♪
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vonnie: this is "bloomberg
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." let's go back to abigail doolittle. abigail: we have shares of both time warner and netflix trading nicely higher after a report from the financial times that apple is looking to buy a media company. apple executive has raised the idea of buying time warner while bankers are saying netflix may be the better fit. apple is just about flat. also trading higher today, shares of ollie bubba -- alibaba. isil record defending shares of core --over
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isi ever core defending shares of alibaba. jon: for me, alibaba, really interesting. are theevenue numbers actual revenue numbers, alibaba has been used as a proxy to see what chinese growth actually is. this kind of blurs things even more. david: how transparent are their accounts? do we really know alibaba?ing on at it raises a larger question about chinese numbers overall. vonnie: jack ma is wonderful and marketing. we knew there was a problem about how they were recording sales during single stay -- .ingles day
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as --funds under scrutiny they may lose 25% of their assets. he said "there will be a shrinkage and it will be painful. that will be pretty painful for an awful lot of savers." joining us now, fabio savoldelli . i don't know whether you think 25% more is too much or whether you think this is just all blown out of proportion. -- five hedge
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fabio: there are people still adding value. vonnie: some managers and value. -- value. you see a relatively strong period of performance. over 1990, they've performed. the white line is the hedge fund performance, nicely above the s&p. in recent times, they've crossed. fabio: negative rates times. i read somewhere that past performance is no guarantee of future results. we've had this negative rate environment since 2009.
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the hedge funds have had some headwinds. this continuous decline in interest rates has made it very difficult to outperform. quarters sincet r009, we've been down only fou of those quarters. the central banks are going to slowly start to distort the market less. the hedge fund distribution models have had a lot of competitors. that didd alternatives not exist. the change in the hedge funds themselves -- they have to change. is it unthinkable that 25% of money would come out
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of these strategies that are not working? fabio: it is not unthinkable in the short run. the bottom line is what is the performance five years hence or looking up the road? if you see interest rates going back up, where else are you going to go? the world is addicted to cheap money. david: the question is how much you are paying for that kind of performance. erik schatzker talked to bill gross. he had some thoughts about exactly how much people are paying for this performance. bill: if markets only provide 3% half ofhey are taking the money the investor gives them in terms of the annual
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profits. things have to change and people have to wake up it is a different world now. david: isn't that right? comeyou are down at 6% there is little left for the investor. 6%, there is little left for the investor. let's wait to see what bills performance is like. that's bill's performances like. when rates go up, what is he going to do? money less you slowly is not a great argument. fabio savoldelli of columbia graduate school, thank
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you so much. jon: coming up, is china sending global markets up for a major setback? jeff rosenberg joins us next. richard branson has strong words about a possible brexit. economic data coming up in four minutes. positive, the ftse unchanged and the dax up .6%. wti.or brent and a ♪
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jon: this is bloomberg "" i am jonathan ferro. allow me to update you on the markets. futures are firm, the dow of 38
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points. feature of 1/10 of 1%. three points to be precise. the dax up 6/10 of 1%. you see that reflected on dollar-yen, down 1/10 of 1%, a stronger japanese yen. yield down one basis point. .oming up 3.4% a survey of 0.5%. , much higher,onth 1.9% from 0.8%. transportation, this is the preliminary number for april. 0.4%, we were looking for 0.3%. coming in at 0.1%, revised higher from -0.2%. 268,000, thes, previous claim to 78. solid on initial jobless claims.
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let's get your market reaction. i will with through some of this. three yields down two basis points, 0.89%. you jurors are firmer throughout most of this session. points stay firmer of 33 on the dow, up three points on the s&p 500. a decent set of data looking at initial jobless claims and durable goods. interesting to see when you look at the fx air, they dropped .8%. i can see why there is money flowing into treasuries. capital goods orders. that is potentially why there is money flowing into treasuries and not so much to futures. on joblessscent claims and durable goods. let's bring in the blackrock
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chief investment strategist jeff rosenberg. capital goods orders, a little disappointment. put it together, you are allocating for the u.s. economy currently? jeff: you get a mixed message between cap and durable goods. the initial jobs claims figure was good. feed into expectations for more important data releases next month, the payroll report. that will set up expectations and janet yellen will have a speech on june 6 that the market will focus on. it will be the summation of this economic data into the june 15 meeting. you put it together, and what we got last week and what the data keeps the momentum towards is raising odds for some kind of action by the fed either in june or july.
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there is a debate as to exactly when. what we are seeing is strengthening market expectation. in the last two-minutes you mentioned the decline in the lastear, but in the two-weeks strengthening expectations for fed action. jon: looking at the treasury policyhow monetary expectations are playing out. the curve shifted higher, but we stay pretty flat. 96 currently. you expect that to change in the coming months? week,we had a move last because going into the minutes the market was not really pricing any likelihood of that action. that turned out to be too much in terms of one direction. , one direction in terms of not pricing in any expectations whatsoever. we brought up the possibilities
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from zero to closer to 40% or 50% across june and july. that is more reasonable. what to expect going forward? not a major flattening trend, a little minor flattening trend, but the major flattening trend only happens if you get that her acceleration and expectations of the pace of the fed's formalization. we are not really talking about increases in inflation. we are talking about inflation and the anticipation of deflationary concerns. you have to get the market to believe the fed is behind the curve and they need to accelerate the pace of normalization to get the fed flatter. jon: do think that will come up again? jeff: that is the goal. the reality has been the opposite. every year the fed has had an
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expectation for economic growth where it would be and they have been disappointed. first-quarter, this year is shaping up like the last five or six. while the desire is to run it hot, and the implication is a very shallow path of fed normalization, the ability to deliver has not been forthcoming. for 2016 we will see disappointment in terms of the economic growth coming above 2.5% or 3%. you will not have the ability of the fed to normalize as fast as they thought they could at the end of last year. jon: the conversation dominating the trading for, china and the brent. wti and $50. growth expectations, term premium, inflation specifically -- talk to me about the oil story and how that factors into fixed income currently. .eff: in a number of ways
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oil is a big impact on headline inflation. it has been pushing down headline inflation. that is dissipating and you are seeing the recovery in oil prices to the recovery in headline inflation. next income markets and market it is offense, and the bed, cares more about core inflation. oil has less impact on core inflation. core inflation measures have been stabilizing. that is helping to stabilize, as i mentioned, increasing expectations for fed action. it impacts other areas, most importantly commodity sensitive areas, oil sensitive areas. we have seen that play out in the high-yield bond market, given the concentration of oil names. a significant rebound in oil contributed to and is the main
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factor behind the significant recovery we saw and the returns we have seen in the high-yield bond market. into thering china discussion, we know about the transmission mechanism's slowdown in china -- the commodity and fx markets. what happens to credit growth and how that feeds back into global fixed income -- what is your view on that? jeff: if you look at what china did in the last corner -- the change from the fourth quarter to the first quarter was a expansion in their domestic credit growth. a return to the old model of borrowing money and spending it in infrastructure. this stabilized growth expectations and led to a prices.in the stabilization of the fear that financial reforms and liberalization would threaten the currency. devaluationa larger
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of the currency. the article in the wall street journal highlighted the pushback on this pace of work warm. -- of reform. while that has longer run negative consequences, the short term consequences are viewed as and ave -- stability choice for stability is better for financial market conditions. jon: i want to bring back the treasury curve. flat, flat, flat. not a trade domestically in the u.s., but a trade on the global economy. will be fed hike in rates? will we go flatter from here? jeff: when we think about the yield curve, we think about it on both parts. all of the conversation had been about fed expectations on the short end of the yield curve. it can flatten from the backend as well. here we see the global contribution to the outlook for the yield curve.
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what are we seeing? cuts in interest rates, more ofommodation, discussion further policy intervention in japan that is more accommodative. you are looking at an environment of zero and negative interest rates. when you look at the long in of the yield curve in the u.s. at 1.8% it looks relatively high-yielding. it is the new high-yield investment from a global perspective of global interest rates. that limits how much the backend of the yield curve can increase, another contribution to the flattening yield curve outlook. jon: supersmart. great to have you with us, jeff rosenberg, rock rock strategist for fixed income. vonnie: richard branson spoke to bloomberg about the prospect of the brexit and the pending sale of air new zealand's stake in australia. on with aions going
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number of different parties. we will watch with interest what happens. whether or not we will end up buying it, we will see. i am a believer in virgin australia. i think the team has done a fantastic job in investing money in making it a far better airline. going after the business market as well as the backend of the plane. it,gin australia has spir which qantas does not have, which the public enjoys. will -- but if there are other opportunities that come up, we will obviously look at them and make a decision. >> if you don't buy it, who would you be comfortable taking that stake instead of you?
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aboved: obviously, we've to have other airlines involved in virgin australia i can bring something to the party. i will leave you to guess which ones that could be. things that we have been approaching from airlines that are considerable and add a lot to virgin australia -- again, those discussions are going on. i cannot go into detail. >> moving on to politics, next month is the june 23 referendum in britain on whether to stay in the european union. which way would you i cannot to go, and why? go,ould you like that to and why? richard: i live in the british
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virgin islands these days. my family live in britain. thousands ofof employees in britain. i would be devastated if we were to pull out of europe. it has been wonderful for europe have written as part of europe. it has been wonderful for great britain to be part of europe. i'm old enough to remember before we were part of europe. if i wanted to export my products to europe, i had to pay a 35% tax. if i wanted to import, i had to pay a 35% tax. the bureaucracy of all of these things going on, we could not take employees from europe. we could not work in europe. we could not live in europe.
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all of these barriers have been taken away. . hope that sense prevails when push comes to shove, people will realize that it will be enormously damaging to europe and great britain if great britain walks away. that was bloomberg's exclusive interview with richard branson, virgin group founder. he is clear on where he stands. many businesspeople are for great britain staying in the eu. of course, there are many that would be happy if great britain left as well. jon: taking a data point, taking what they want from it, personal spending up. the strongest from the year. areconsumer and households not nervous. exports and business investments are down. it will be a grapple over the data over what it means. if you factor in what jeff
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rosenberg was talking about, low growth globally come it will be a momentum loss for the uk economy. you can see that in the data. jon: we have this -- david: we have this vote on the 23rd. it appears they will stay in rather than go out. what happens the day after. you have europe of all of the problems they have now here there is splintering with the refugee problem. you have the eurozone issue. they do not go away when great britain votes to stay. jon: they are distracted by what is happening at home, not globally. the french have issues with strike. great britain has a referendum. is consensus on leave and remain is ultimately there will be damage done to europe. that is why people in the leave
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camp think an appeal will be made. if you get an exit and you do not get a trade deal, that is good for no one. the point is so powerful, it is hard to see du come -- it is hard to see the eu come out stronger even if great britain decides to stay. we will look at the struggle for startups. and one that got a boost in it -- and one school that got a boost in its accelerator program. ♪
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vonnie: you are watching bloomberg "" i am vonnie quinn. camee greenroom, the bond of janus capital spoke with erik
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schatzker. we will hear from that in a moment. jon: i am jonathan ferro. globally, a rally over the last couple of days. equities are higher, futures are stable, the dow up 33 points, futures of 1/10 of 1%. the ftse down by five points. we will go fast. yields lower at the front end following the data. initial jobless claims were solid. capital goods unexpectedly fail for the third month. that is where you have the market, yields lower on two .ears the headline generator is the 50 number on top of the wti contractor. we are up and one full percentage point. david: we will turn to tech startups.
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investors flooded these startups with $60.3 billion in 2015. volatile stock market has led firms to be more cautious. is the start of community in danger? from chicago by the associative vice president of the university of chicago's center for entrepreneurship and innovation. michael paul ski just gave $35 million to expand the center and you run. when you look at schools like stamford, are you late in the game? >> what we are doing is putting together a comprehensive program . if you look at the chicago ecosystem we are helping to accelerate an emerging ecosystem that is becoming vibrant. from our perspective, the opportunity we have and the rich tradition we have of the combined focus around innovation and entrepreneurship started at booth and the polls e center led
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to a new challenge which is a 20-year-old challenge which is a top-ranked accelerator. connecting it to other aspects of the university and the national labs including oregon and formulae of, allows us -- ormulab,g argon and f allows us to put in a position where we look at best practices and build from the ground up at a time when the chicago ecosystem is being formed. we want to contribute and have a focus around this common systematic approach to looking at how we build businesses emerging from the university of chicago and the chicago ecosystem in general. david: will you be an incubator? is that what you will be doing? will you be angel investors, putting money into the startups? menu.we are a whole when you think about building a
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business, raising capital is one component. we are very effective at creating great companies like rubhub.ee and g we are recognizing it is not only raising capital, it is taking an idea from the center, patenting it, bringing in , a 20 million dollar investment fund that invests in ventures we are incubating. there is an incubation approach, but it is about putting together the educational platform that underpins this as people emerge from the platform. david: thank you. vonnie: coming up on bloomberg $50>", crude oil surpasses a barrel, diverging from two assets it normally tracks. we will tell you which 2 in battle of the charts. ♪
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vonnie: this is bloomberg ""
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i am vonnie quinn. it is time for battle of the charts. taking on abigail doolittle. the old hand after a couple of days. you go first. it is jobless claims thursday. this is the chart of initial jobless claims over the last 50 years. the decline is from the december 2008 week. --peak. we are now well below the trough levels over the last 40 years. low can wen is, how go? history might suggest the trend of low claims may not remain in the recession. in the 1980's we got a move down. these coil down almost act as a spring up. it may suggest the fed could have a hard time raising rates or that a rising rate
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environment could be difficult for the economy. there it is stunning that was that historic low, i did not think it was that low historically. abigail: we are matching the early 2000's. charts. 2 we are tracking the price of oil against 2 assets. we have the latin american bloomberg currency index, the bottom s&p energy companies. what has been frustrating investors, look at how the prices have been tracking each other. more interesting, this past month a big spread on the top chart. a spread on the bottom chart. they are starting to diverge. you have the fed, the dollar weighing on these. on the top chart you have political and policy issues. it starting to ease up?
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this chart says it is a possibility. david: this is a tough one. i like them both. four, all 3, you should say. danielle, i would bump to give it to you since it is your birthday, but i'm going to give it to abigail because it is an important question. .on: i'm going with danny it could be explained by federal reserve expectations. a softer dollar, backing off, i love them both. david: it is interesting that the latin american currency is not coming up with the crude. sorry, abigail. it was a good chart. jon: at 9:00, deeper into alibaba's problems with the fcc. ♪
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i'm jonathan ferro. counting you down to the market open. futures are firmer, equities are
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higher in europe, a three-day gain on the dax of over 4%. the front end of the yield curve rallies. to year yield down by three basis points. the headline generator is crude is higher, $50 a barrel and wti is $50 a barrel. we are counting you down to the open in the united states. ♪ david: we are under 30 minutes away from the opening bell. this is bloomberg "" i am david westin with jonathan ferro and vonnie quinn. above $50 aclimbing barrel. durable goods rising in the united states. shinzo abe warning the global economy could be heading toward a shock in 2008. these three stories and more.
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john bellows, thank you for joining us. let's start with oil climbing with brent and wti crossing the $50 per barrel mark. a drop in u.s. stockpiles and production in venezuela, that percentage increase. brent is up from its february lows. the bottom is well in. would you agree, and what it means for other assets? john: it has been positive for the assets of. i is up 16% year to date. it is an extraordinarily big number when in february it was down 19%. a sharp turnaround. the message for investors is you have been rewarded for holding your positions. if you got to the bottom and panicked, you would be making a
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mistake. there is a lesson. vonnie: or you could have sold on the way down and bought the bottom was in. is tough to do. the reality in these sectors is that you will not find the bottom. you need to hold positions through volatility. we have seen that volatility. you would have been rewarded handsomely if you had done that. jon: $50 is great for a lot of companies. we know from pioneer and continental a will bring stock that online if we hold at these levels. fitter based and on what has happened over the last 18 months? john: we need to watch the supply response. we did this last year. we had a bounce in the second quarter. then oil fell in the fourth quarter. youfferent question is, are
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going to see the supply response in the united states that keeps inventory levels low to keep supply down? we are relatively optimistic. you have seen capex plans come down for these sectors. it is to be determined, but we have optimism. that this will not be a repeat of last year. david: we are celebrating $50 a barrel oil. not that long ago we would have thought that $50 was low. we were tracking $100 barrels. is there a long-term structural change because of technology that makes us adjust to a lower high for oil? john: a lot of the shale production in the united states, part of what we are doing in the market is trying to figure out what are the important points for shale? $20 a handle was too low. if you got up to $60 you would get a supply response. with the market is doing is trying to find the range and
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where are the supply response points. vonnie: as value investors, either companies you are looking at that might be attractive. the high-yield energy is a place where it if you had held that through february you would have nice returns. angels,the fallen formerly investment-grade companies downgraded in mid february, specifically in energy. these are investment-grade companies with better balance sheets. sometimes you stay away from the emp companies. these are good balance sheets. we do not think they are default candidates. default candidates when they had a $20 handle and certainly not when they had a $50 handle. the thing that is nice about it was not is that bound. there were investment-grade investors worried about the files that stayed away.
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.hey were not dissipating because that sector was not owned has seen nice performance of 10%. good companies, good balance sheets, oil at $50, we think they are not default candidates. jon: u.s. durable goods out 30 minutes ago rising in april by 3.4%. beating estimates. one disappointing number came from the business equipment, unexpectedly falling for the third month in a row. durable goods, solid. initial jobless claims, solid. capital goods orders, vonnie was right, down for the third straight month. maybe that is what we should look at? john: airlines up with weaknesses we have seen in the manufacturing service. philadelphia, richmond -- you are not seeing a bounce back in manufacturing. i would go further to say this
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is a concern for the economy. two quarters of straight declines. there are people thinking this is transitory, oil, dollar, it will come back. we are not seeing it come back. when you look at the manufacturing sector performance over four years or five years, companies are not doing capex, there is no demand. that is a weak point for the economy. janet yellen pointed that out not only because we want itpanies to invest, but links to productivity. should we focus more on productivity? john: it is disturbing. we have seen productivity increases of .5% over a one to .ive year period it looks like it is becoming in trench if companies are not doing capex they're not building capital. without capital it is hard to
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see productivity moving up sharply. value investor, and technology companies and startups that are disrupt and economy, is that what you want to look at? john: there are two opportunities. as a value investor, you look at low productivity growth. low capex suggesting lower potential and nominal gdp growth going forward. the counterintuitive counter consensus value opportunities that suggests interest rate risks. interest rates are lower because of nominal gdp. everyone is saying interest rates are going back to 3% or 5% , but productivity is not gdp is not nominal picking up, the view is maybe interest rates will stay lower. vonnie: where is interest rate in thee're not seeing it high-yield space anymore in the u.s.? john: you can do two things come
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you can go out of the yield curve, a little bit. .ut to 30-year bonds or you can go the investment-grade sector. investment-grade, extra income, the yield. if we are right that interest rates stay low, that sector has good performance going forward. that is one thing we think about . the counter consensus view is that the value in interest rates is in bonds because nominal gdp is so low. marketshe third story are paying attention to, the g-7 meeting in japan. today, japan's prime minister shinzo abe says he sees the risk of the global economy falling into a crisis on the scale of 2008. is this the boy crying wolf, or do you see that lehman-type risk for the global economy? commentshink abe's
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are unfair. we have seen a correction in commodity prices. that has not led to financial stability concerns. we have not seen concerns of large bank defaults or country defaults. the sector has largely weathered this. i think it is unfair to call this a financial stability crisis. i think the message is fairly clear. he believes that japan needs some kind of easing of fiscal policy. we have a lot of sympathy with that. you will get japan where real interest rates are too high, monetary policy has been pushed far. the diagnosis that they need more fiscal policy help is one we have sympathy with. i disagree with the lehman comparison, but the message is clear. david: does he have fiscal stimulus at hand and not imposing the sales tax?
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john: there is the double negative. by not doing a bad thing it is ultimately a good thing. it is a question of how effective would that be? it is going in the right but onen of our view, thing that has been true is it is hard to beat or exceed expectations. not onlyllenge will be to loosen fiscal policy, which he is on track to do, but to do so in a way that changes the trajectory, which is a tall order. david: those are the three stories that matter to markets. abigail in advance of the open to find out which stocks are moving. abigail: the best names are trading higher, time warner and netflix. the financial times says apple could be looking to buy a media company. i top apple executive has approached the idea of buying time warner. bankers are saying a better fit
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would be netflix. apple is looking to diversify from the phone business. also trading higher in the premarket are shares of dollar capri and dollar general. the retail route has not extended to the low end. dollar tree reported a slightly better than expected fiscal first-quarter and raises earnings forecast. we are seeing a dollar store rally. abercrombie & fitch trading down. .illiams and sonoma higher consumers are not spending on apparel, but they are spending on homes. abercrombie stores sales missed estimates down 4%. williams and sonoma beat estimates, helped by the westbound stores. -- west elm stores. jon: saudi arabia is set to real think currency as the
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strains. you do it in the forwards market . saudi arabia will seek details on the bank's forward contracts. the monetary policy will warn banks on products. the back story is a crude rout of the last 24-months and pressure on the currency pegs for the producers. the idea is you go to a flexible exchange rate to get your domestic currency and revenue denominated in the higher to weaken your currency against the dollar. the speculation and momentum has built over the last 18 to 24 would fall.the peg that expectation in the forwards market, saudi arabia set to probe think currency rates as the ped starts to trade. at 375.the real is
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a check on the first word news, your set up for the day, president obama says world leaders are rattled by the prospect of donald trump as president. he says leaders do not know how seriously to take some of donald trump's pronouncements. president obama: and a lot of the proposals display either ignorance of world affairs or a analier attitude -- or tweets and getting headlines rather than inking through. vonnie: tomorrow, president obama will be the first sitting president to visit hiroshima. an endorsement by paul ryan is imminent. he spoke with the likely nominee by phone last night. s to repair the split
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in the republican party. airlines and airports in the u.s. taking matters into their own hands -- spending millions on workers to shorten long lines at security checkpoints. the transportation security administration has come under fire for the problem. global news, 24-hours a day, powered by our 2400 journalists, in 150 news bureaus around the world. quinn.nnie thed: many are expecting fed to raise rates. my guess is john bellows does not expect one until 2017. we will ask why, next. ♪
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jon: this is bloomberg ""
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i am jonathan ferro with vonnie quinn and david westin. saudi arabia will probe think currency trades as the peg begins to strain. the pvoc, that is what this feels like. brushing out the speculation, trying to at least. david: they have similar problems. currencies that people are trying to use as a portfolio hedge. there are key differences. in china there is capital trying to get out. whether that is retail capital, companies that borrowed in dollars that they are trying to repay. i'm not sure that same pressure is there internally trying to saudi. of generally speaking, absolutely. the classic central-bank playbook is to use monetary policy, then use capital controls on the implicit or
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explicit, to prevent . vonnie: in comparison, how is that what china has? have i think they considerable firepower. if you look at the dollar reserves, the treasury published the dollar reserves two weeks ago. the amount of liquid reserves they have is even larger. in some sense, that is firepower. this is a difference that goes against saudi arabia, they do not have the account surplus that china has. because of how much export they do, they are getting dollars. because the oil prices have fallen and because saudi arabia runs a budget deficit they do not have the incoming resources. that is a big deal for china. with us. bellows the news in the last couple of minutes, saudi arabia set to probe think currency rates as
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strains. there asked lenders to explain why they are offering dollar-real structured products for months after the regulator banned options contracts. this places wages on a currency devaluation. the question came up when the intervene ino their own markets, it is the pressure to do something like this puts the banks under pressure and trying to prevent people from speculating. as an investor i think you are willng the pain and i speculate more. is that what is going to happen? john: the central bank can make it expensive to put on that short. proc haswhat the p done. if you're short on the that is what investors are paying to lesson ishort on the
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that central banks have tools and they can use those to discourage speculation. we have to be very thoughtful about the cost. it can be very expensive shorts to have. vonnie: we have our own saudi arabia assets? john: i do not think we have saudi arabia assets. one thing that is interesting is that the saudis are issuing bonds. they have not needed to issue bonds in the past because they collect so much dollar revenue from oil investments. they've started to issue on's recently. jon: the speculation has increased. last week the speculation from bloomberg was that saudi arabia was paying contractors with ious. are you shop? john: and you have aramco, and there is a general situation that saudi arabia is looking for tools to raise cash.
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they have a cache flow, a future cash flow that is robust in oil flows. they are trying to monetize that . it is an interesting space to watch. euro bond$9 billion sale. them.uge upscale for the story in the crude market and the derivatives around it. john bellows is sticking with us. we are 9 minutes away from the cache opened in new york city. dow futures up 35. , theax in europe rally continues. ♪
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jon: this is bloomberg "" i'm jonathan ferro alongside david westin and vonnie quinn. the fed, minutes from the april
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meeting revealed a hawkish fed and a likely interest rate hike in the summer. janice capital management's bill gross reiterated to bloomberg he believes the hike could happen next month. bill: i think they will move in june. i think that because the second quarter is looking decent at 2% to 3% type of quarter. the firstk from quarter. jobs will be adequate in terms of growth. the dollar has gone down instead of up. the stock market was close to its peak. for all of those financial conditions and economic statistics, this is their time, if ever, to move. i think janet yellen is more dovish than some of the governors and presidents. jon: john bellows, portfolio manager. disagrees with the bond came. he says we may not see a rate
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hike this year at all. you can look at the stock of data or the flow. the headline numbers in isolation looks solid. looking at the flow, you see a loss of momentum? john: on something bill said, the second quarter is looking good. i think it is tracking 2%, following a less than 1% first-quarter. last year we saw a week first-quarter followed by a stronger second quarter. growth in the4% second quarter. there has been a loss in momentum. if you smooth the first half together, you are looking at growth that is not instilling confidence in the strength of the recovery. that is a deceleration. we are cautious on the outlook. certainly not taking a strong signal from 2% growth in the second quarter. i think the signal is more cautionary then optimistic. david: to be unfair, they raised
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in december. they came back. you think it slowed down gdp growth, december? john: i don't know how much the 25 basis point hike slowed growth. the fed has probably contributed at the margin. not necessarily the hike in december, but the dollar has been up, and that has had an impact. jon: the opening bell in new york city from a minutes away. futures, largely stable throughout much of that session. dow futures of 32. s&p 500 futures positive. the rally continues in germany. the opening bell in new york city is next on bloomberg "" ♪
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jon: i am jonathan ferro, moments away from the opening bell in new york city. the dax, the rally continues biggest1% after the
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two-day drop since early spring. futures are firmer going into the cash open. , butures are up 29 points coming off of highs. across the board, assets, the headline in the commodity markets is $50 on wti, another one full percentage point. likewise on brent. interesting moves, down two basis points on the 10-year. a strong rally at the front end of the curve. initial jobless claims and durable goods are good. capital goods unexpectedly declining. a forward-looking indicator potentially. that was the catalyst for the rally in the treasury market. 30 seconds into the open, let's go to abigail doolittle. with thea solid open three major averages trading dayer following the best 2
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rally since march 1. we will see how that plays out. one source of strength is oil. wti is above $50 per barrel. an important psychological mark, and the first time since october. the recovery is helping the energy complex. shares of exxon mobil, trading higher. extending premarket gains are pvh corp., the company that owns tommy hilfiger, calvin klein, and other brands. they beat estimates. the ceo is citing strength in those brands and europe and china. lions gate, shares of the film company best known for the hunger games, is extending premarket string after the company put up a massive fourth-quarter making $.56 per share, beating by 1200% with the
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ceo saying that this year will only be better. nice to have an optimistic view. david: shares of hp are climbing and 11% decline in second quarter revenue. the company was spun off from hewlett-packard enterprises. cory johnson joins us with the challenges. there are declining sales, but they beat estimates. . that might be why the stock is up? is a hit of the restructuring that has been going on since 2001. they started this new company with a restructuring program. they're giving us non-gap numbers. they beat the number, but sales are down 11% year over year. they have always been tied to printing and pcs. pcs are a disaster. printing.ine in
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that has been the bread-and-butter of hewlett-packard for more than a decade. david: they are in a declining industry, which means cost cuts. it is not restructuring anymore. their business is falling apart. there are calling it restructuring charges. the yen moved up. they have competitors in japan in the printing business. they have optimism, making hp more competitive. they have a lot of debt on top of it. sales of ink and paper have been the bread-and-butter for hewlett-packard for 20 years. the declining numbers in printing, and in all of the numbers, the currency dynamics are temporal. the overall dynamics that are hurting the company are worsening. jon: alibaba and the sbc. interestinga is an
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company. the sec has limited ability because they cannot get to the accounting records because they are kept in china and the authorities never release them. a situation for any chinese-listed company. above the is the biggest. they claim to have every person online in china as a customer. a curious number. singularly their single state ,vent with a host big sales they actually take orders for more than a month. right away, it is a funky event and numbers. we don't know what the sec is looking at. david: with the sec said was we want to know why you're not consolidating the shipping part of your business. they had shipping to western china for free and they do not
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incorporate that in their natural's. -- there financials. is this a question on if the numbers are reliable? the: when jack ma was doing tour he was talking about chinese companies having trouble because of the regulatory environment. i don't know how you view that. david: amazon does consolidate shipping. as cautious as amazon is about revealing financial information, they do have shipping issues because a lot of working capital goes into shipping. amazon has losses in shipping they make up for in margins. jon: alibaba, there was concern about various interest enterprises. does that, again because of that story, or is it different? cory: shareholders do not known shares of alibaba. they have no direct recourse with the company.
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that seems to have survived the challenges over the years. they seem to have a legal structure, a funky structure. you cannot actually have the access to the companies, and they don't. david: wall street disagrees saying they have faith in these things. as warren buffett says, we will know when the tide goes out. agree there should be a discount to investment in china because you are not sure about the numbers? john: that is always been a challenge. you have a lack of transparency. the attraction of china is amazing growth. investors have to weigh those two. david: you have to do work in these countries. i advised because i would budget werese companies and they frauds. i'm colored by that experience. you have to do work to know what
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you are owning and know what the relationships are. that is why the sec investigation and others coming see how the market reacts. investigating chinese companies, the sec, they are not even handing it over? >> the sec will be knocking on their door. they are passive honor of the alibaba shares. is thaty understanding although there is an investigation, this is not criminal or fraud. it is routine to ask of the company why aren't you consolidating financials? it just happens to be on accounting and china which is sensitive. cory: there's nothing criminal going on. we have companies that have come before alibaba that have been shady, but it is not typical. it is not usual in the sec to get involved. it happens rarely. maybe it should happen more, but it is want to keep an eye on. david: thank you for joining us.
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vonnie: retail, j.crew so store sales fall 7%. the bloomberg intelligence consumer analyst. doing worse than other apparel retailers for its own reasons, or is it consumers spending on experiences rather than clothing? >> it is a combination here they are doing worse than urban outfitters or american eagle, but results out of amber convery were down -- out of abercrombie were down. we're looking at consumers looking at price points, and not if they were just wants a site -- a fan of the brand. t.j. maxx is doing well. off-price retailers are doing well. urban outfitters and american eagle did well. consumers are not shopping where they used to.
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their shopping where they want to because they have the right fashion, price points, and marketing message. question?hn has a john: this goes to the question we were having earlier in terms of alibaba and amazon. the online component. part of it is going within the sector for online shopping and retail. that is the biggest challenge for retailers. amazon is a disruptor. they will be selling more of apparel and that will change the way consumers shop. you see amazon selling a little apparel, but that effort will be pushed in the next two years with their own label. that could hinder sales of retailers to do not resonate with the consumer. vonnie: more consolidation. beartment stores will maybe moving into more of a real
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estate type space? poonam: your arty beginning to see them whether it is cap, macy's, abercrombie, american eagle, aeropostale. share.is gaining it is the reality and retailers have to face it. vonnie: bloomberg intelligence analyst, thank you. jon: following the hacking probe over the swiss hacking probe. it expands to up to a dozen thanks beyond bangladesh. investigators are examining computer breaches in 12 banks that are possible links to swiss global payments network with irregularities similar to the theft of the $81 million of funds from a bangladesh central-bank, the bangladesh central-bank. this is according to a person familiar with the probe. the security firm hired by
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the bangladesh bank has been contacted by most of the banks, which are in southeast asia. david: the first report of bangladesh came out, they were out saying it is not our problem. the europe identification integration happened. now that it appears there is an issue with swift. if it is, that is vague. vonnie: it is an international payment system. if you have one, you have them all, i would imagine. jon: no indication on if the money was taken. 11-minutes into the session. news out of saudi arabia. 11 minutes into the session, equities of 1/10 of 1%. next, we discuss saudi arabia -- its finances and currency.
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david: this is bloomberg "" i'm david westin in the hewlett-packard enterprise green room. next, john brynjolfsson will be here. vonnie: you are watching bloomberg "" i am vonnie quinn with the latest news flash. the chemical industry, temporary oversight from the eca. president obama will be sent the biggest overhaul of rules governing chemicals in for decades to give the eta more power. companies like how chemicals push for the bill because they want consistent rules. amazon opening a new front in the cloud computing that'll with google. for are making it easier businesses to run artificial intelligence software and
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computers rented from amazon. that is according to those familiar with the situation. deal with has to workers wanting higher pay. many of them demonstrated outside of the mcdonald's corporate headquarters on the eve of the annual meeting. mcdonald's was once the -- mcdonald's, they want them to pay a minimum of $15 an hour. jon: i want to get the g7 headlines. bloomberg news has obtained a copy of the communique. it is not final and could change, but it does not reference the brexit and the economy section. it mentions that monetary policy alone cannot lead to growth. and terror, refugees complicate the environment. we will keep you up to speed throughout the next 15 minutes. equities looking firmer. globally up. let's get to abigail doolittle
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for stocks to watch. abigail: we have the shares of dollar tree surging after they beat fiscal first-quarter earnings estimate and raising its full-year forecast by 7%. strengthening in the mid-atlantic region helped. shares are trading at record .ighs, up more than 10% sticking with retail, cosco trading higher. cosco beat estimates, bucking the bearish trend that we have retail.much in it appears cost-cutting helped cosco's results. shares of the most since august 26 of last year. a bright spot in retail. jon: saudi arabia's monetary agency putting pressure on the country's banks about currency products. we go to dubai. is this about flushing out speculation over the future of
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the saudi currency peg? righthink that is exactly . what we saw happen in january is the central bank banned these of options products, which made it easy for speculators to take bets on the future of the peg. speculation died off a little. what we are seeing recently as some of the banks in saudi arabia are mirroring the options products using currency forward space products. the central bank is going to the banks in saudi arabia it using these products and saying, we want to do describe what these products are, how they work, and the impact this will likely have on the currency. vonnie: is their experience in using these products? is it lack of experience that is a problem, or is it a profit-making issue? is --w: what the issue
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obviously, we have seen speculation on the real pick up again this month. the central bank governor was changed, renewing people th oughts. the central bank discovered that local banks have found a way around the rules. to try to do the same thing they were doing before. using products at the moment are of the rules. the expectation is saudi arabia will clamp down on the opening that has come up recently. david: put this in a larger context. is this simply a matter of saudi arabia making sure they have control over their banks and can hold to the peg, or is something in the markets more broad leaf putting pressure on the -- more broadly putting pressure on the peg?
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the central bank's point of view there is a supervisory role they have to play in watching weather risks are developing in the banking sector. there has been a huge amount of flow going through the currency trades. the central bank has to make sure, it is not part of the agreement, to make the agreement over whether to change the peg, but they have to make sure risks will not create system in problems if something happens to the peg. to be sure the banks are not sitting on billions of dollars of potential losses if they have to suddenly pay out to people who benefit from a reevaluation. jon: forget me for asking an obvious question, why do they still want the peg? the peg well, so far has served very well. the imf continues to say that saudi arabia's peg is best
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suited for the sudis. someeates some a surety -- assurance for the investors into a country. cross saudi arabia is trying to attract foreign investors the peg creates surety. you don't have to worry where the currency will be in five years or 10 years. that is one of the reasons. the big problem is changing the inflation, ande a lot of issues for the country. the vast majority of the country's imports, the vast majority of products consumed within the country, having the peg is very important from that perspective. jon: are you saying that this is actually a central, critical part of the pivot away from crude to more foreign
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investment? forms a obviously, it key part of the government's thinking about how do you go about attracting foreign investment? one thing that we have seen ,round egypt, for example around the currency and movement does meanrency, that that people need much more tonificant investment gains overcome the currency fluctuations they expect. that will be forming a part of thinking within saudi arabia as they push this reform plan towards moving away from a government spending-led a economy type private sector-led economy. jon: right to have you with us on that breaking news. ise on bloomberg ""
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next. what a morning we have had on this program. ♪
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jon: this is bloomberg "" i am jonathan ferro. we are 24-minutes into the session in the united states. marginally lower, one point on the s&p 500, unchanged on the dow. jobless claims and durable goods were good. capital goods unexpectedly fell for third month. is that a forward-looking indicator that doesn't look too great? optimism coming out of the market briefly. in the last 30 minutes we had the draft communique come out from the g7. monetary policy alone cannot lead to growth. japan suggesting a reference to crisis risk. the draft communique -- said wehat is after abe could have a layman-type crisis developing globally. vonnie: using the word
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"disorderly." abe trying to look at us -- jon: whether that will make it into the final draft, if that is their suggestion. it is fascinating not only the pain japan is going through, but saudi arabia. sacredthe peg has been for them. it is an important part of their foundation. they're having concern if people will try to get around it. vonnie: first the currency probing, we will see how that develops. the bank is under pressure with oil prices and the difficulty of retail oil. saudi arabia, seeing a lot of different fronts. david: you don't not want to underestimate the effect domestically on inflation if you go up the peg. they have an unemployment issue, a problem domestically, budget
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cuts, they are having to screw down on gas subsidies. jon: from a very narrow, isolated point of view, you look at oil and you can see why the currency peg has come under pressure. you can see why they may get rid of it. the social stability issue, the idea you want to have stability and foreign investments, is a reason to keep it. david: it sounds a little like china. jon: that does it for bloomberg "" from myself, david westin, and vonnie quinn, she will be on bloomberg "markets" next. that is coming up. ♪
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vonnie: it is 10:00 a.m. in new york and 10:00 p.m. in hong kong. i am vonnie quinn. mark: i am mark barton.
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this is "bloomberg markets," on bloomberg television. vonnie: we will take you from new york to london to qatar. here is what we are watching. oil rises over $50 a barrel for the first time in months. shares of energy and mining companies are gaining, as well as the currencies of oil-producing countries. mark: bill gross is trying to go short on credit, a position he says runs contrary to his instincts and training as an investor. vonnie: and a preview of the grande pre-where some of the world's wealthiest most gather. much more than a formula one race. all right, before we get to

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