tv Bloomberg Go Bloomberg August 9, 2016 7:00am-10:01am EDT
sterling falls for a fifth day, its longest losing streak since may. the bank of england taking further stimulus methods. david: analysts forecast a sixth straight corner of negative earnings growth. alix: and the republican nominee pushes an old-school tax plan and lighter regulations to bring growth back to the economy. jonathan: a warm welcome to "bloomberg ." i am jonathan ferro alongside david west and alix steel here in new york. of much news, but plenty headlines coming from the market with the dax back in a bull market, and politics in the u.s. building momentum. david: sterling is moving, but donald trump yesterday, alix, laid out his economic plan finally. now we have details. alix: what we will be tackling is -- what does this plan due to the debt ratio here in the u.s.? what are the subsequent
knockoffs on that? do we see higher interest rates? david: there are a lot of ideas. he did not say how he would pose those ideas, however. they will cost a lot of money. alix: fair point. lackers will lead the next of rally. cumberland advisors chairman david kotok will be joining us shortly. jon, talk about the markets here. it is very quiet, especially in the fx market. jonathan: the dax back at able market, up 20% from a low, up .75%, the footsie -- ftse present as well. in the fx market, it is the cable rating focus. the pound weaker against everything in the major currencies. it is south of $1.30 now. a conversation for later on in this program. what is happening in the give market as well.
take a look at what is happening to the gilt. it is flattening. the qe market moves continues. the bank of england coming into the market, 16 years plus later on today. the 10-year space is fascinating. 10asuries versus gilt, years, the widest on record. a discussion we will have later. to wrap things up for you, the w-2 i -- the twti up. by .5%.pper also up let's go around the world and check in with our bloomberg team for in-depth coverage for our top stories. guy johnson is in london on the , endathat is sliding curran in hong kong. he will have the latest economic data out of china. governor,ntral bank and also we are in washington. the fx market, it
is sterling shining bright. i want to bring in guy johnson. we have got to talk about the bond market in a little bit, but quite clearly, the fx market and play with a weaker pound. guy: the pound is getting pommel. -- pummeled. there are a number of factors here. you have got some weak data as well. that is helping the user. you mentioned this a little bit , the bank of england has relaunched qe. it hits the back end of a curve with a bit. a little bit more maybe from the bank of england. into the water, and now we will possibly see more action coming through. the market is pricing that in. we have got the bank in the market and weak data. it is not great for the british pound, jon.
bloomfield over hsbc, parenting p -- parroting parity. spreads 10, u.s.-u.k.. we have a great chart we can throw up on this. this is what we are looking at, and it is a long-term chart, as you can see. the record to the right-hand chart is something we have never seen before. you talk about hsbc, this goes to the currency rancor in terms of the individual currency houses. they come in number four. david calling parity, jon. jonathan: guy johnson with a weak pound joining us out of london, thank you very much. the pound costing a lot more money now if you want to go to europe. alix: let's go to enda curran,
chief asia economics correspondent from hong kong. two-week high. what does it have in support of that rally? enda: we see a bit of the turnaround on the side of things. price falls are decelerating, morehe markets had to positive territory this year. that is a changeover china's factories in terms of higher wages, profits, and money to invest. i should say that the improvement has not necessarily been driven by reforms within china such as cutting back on excess supply -- it is more about recovery, especially the oil price rebound, and that has helped turn it around. when you look at the chinese deflationary role in consumer -- andcessionary discretionary, it is a weak story. alix: definitely different than
what we saw at the end of last year. enda curran, thank you very much, joining us from hong kong. to another emerging market, harsha subramaniam joins us from mumbai. decision, thise is the central bank governor's last rate decision. what can we expect? what has been an exciting and adventurous career for the central banker, i think he took charge way back in september 2013. it has been a long ride. ee is put in place to ensure that investors' confidence is in place, and he has brought new monetary policy, an inflation-targeting regime. the search is on for a new governor. the government has not made it official who the new governor was going to be. there have been a couple of
names going around. we will be waiting for that, and that is what the markets are waiting for. alix: thank you very much, harsha subramaniam, executive producer in india. from politics in india -- david: china to india to detroit, michigan. donald trump has laid out details. focused the physically on the plight of small business in america. mr. trump: you cannot ever start a small business under the tremendous regulatory burden that you have today in our country. [applause] mr. trump: it is going to end it. i am going to cut regulations massively. david: we are now going to be joined by marty schenker. he is joining us from the
washington bureau. about he had a lot to say tax cuts, energy, he seems to be focused on small business particularly. marty: yeah, i think he has hit smallruism that is businesses are the jobs creators in the united states economy. they always have been. he is connecting regulation and an absence of regulation as a key point in his economic program. beyond thegoing regulation, there are corporate tax cuts, personal tax cuts, credits for child care. how is he going to pay for all of this, marty? has he said? marty: i think that is thumping he left out of his speech, and there are quite a lot of questions out there on how he is going to pay for it. "the new york times" did an editorial blasting his plan this morning. the debate is coming up in september. that is a great venue for that kind of examination. david: not detroit but
elsewhere, we have a number of gop luminaries who plan on endorsing hillary clinton led by a republican senator. how much what hurt donald trump? marty: it is interesting. susan collins from maine did come out and say she is not going to endorse donald trump. she did not say she was going to vote for hillary clinton, though. just a few minutes ago, the former epa commissioner under administrations that he was going to support hillary clinton, so there are many voices from the republic is establishment -- from the republican establishment coming out to say they cannot support donald trump. david: thank you, marty schenker. now we go to alix for some of the stocks. alix: the name you need to know dominate the premarket is valeant. the headline here is that the company held its guidance for the year. that was the big question despite the fact that product fell yearroduct sales
on year. it will also help their cash flow position. valeant has been totally hammered this year in terms of the recovery and how long it will take in question. medicare recovery -- lending about $81ned to million, earnings was nine cents 56% year to date here we will be following this story closely as well. bp, thisout with committee has hired some bankers to sell a 50% stake in a chinese petrochemical company according to reuters. this is the story of big oil -- sell assets, improve cash flow, pay or vivax. stock to watch. 24 countries of the world out or -- the world's output. uop next, david kotok reveals
abigail: that -- alix: this is "bloomberg ." sterling falling for a fifth day, trading right below $1.30. joining us as david kotok, cumberland advisors cochair. sterlingt low for the dollar, how much downside you think there is? david: jon just had a great discussion with guy in london over the mechanics.
this is a trend, and the trend has only just begun, like the song, "it has only just begun." that is where this is going. nobody knows how far, nobody knows the grief, nobody knows what the final interest rates will be, nobody knows what the qe will be. we just talked about it at the fishing gathering. we are heading for a recession in the u.k., the central bank has flipped the entire policy, the regime has changed, and how far it goes, nobody knows. alix: what you are saying could be the same for bond markets, too. nobody knows what the level is until investors say guys, i do not want to purchase this bond was negative yields. david: we are shortening duration. you have to think about risk. you take a negative interest rate instrument -- the duration of the instrument is longer than the maturity. you can measure it and estimate it, but you have to estimate
reinvestment rates, and then you can price risk profile of assets. when you do the math, it is high. we have never been here before. now, it is a great game as long as the music plays. you do not want to be out of the chair when this music stops, and we do not know when that is going to be. jonathan: let's talk about the fact that a lot of people say you can make money on native rates, and a love people may have made a lot of money this year trading that of rates. -- trading negative rates. the idea is that the music kept playing. when it stops, there is going to be a lot of pain. talk to me about that. david: you saw the backup in japan. here's the headline -- the yield -20.ce from -30 to you would think it would be comedy.
when you reprice those instruments, they are gapping against the holder. now, if you know how to trade that and do a short and time it perfectly, you can make a fortune. institutional an structure with a bond portfolio, the risk is rising. jonathan: the other problem is in a bond market like the jgb market, the volume just is not there the way it used to be with a central bank. you were not sell, buying and holding, and they do that with 1/3 of the market. david: how do you be defensive and still make a reasonable return in that environment? if you go short duration, does that mean you go riskier short the bond? k: we don't because all risk is being price with the influence of these very low and negative rates, and therefore they are contracting spreads. when you contract spreads, you to sucked in to something
try to chase a yield, and you pay a price for it here we shortened duration, give off fields, make a barbell or a hedge because to just be negative in bonds and think everything will be ok is delusional in this climate. alix: if you are looking at a 10-year yield, what part of that yield is part of the policy? what should that yield be a central bank policies were normal? david k: we are tracking those spreads -- great data from bloomberg to do it. alix: thanks. [laughter] david k: you can track the spread between the 10-year bund and the 10-year treasury. that is now influencing, we think, the 10-year yield by 50, 60 basis points. in other words, it would be 50 or 60 higher if you did not have all this nonsense going on. where that ends, i don't know. if you take negative interest
rates from $1 trillion to $2 trillion, you go from $4 trillion to $8 trillion, you get another shot. if we go to $14 trillion -- does that make much difference anymore? are we going to go to $25 trillion? i do not think so. it is $45 trillion, and about 1/ 4 is negative rates. david: if the whole world woke up and concluded this, there would be a rapid readjustment because right now, the markets are not pricing. if we will up tomorrow and everybody appreciated that, is there a soft landing? david k: there is no soft landing, david. the big fear is the abrupt shift, and we saw it in japan with just 30 basis points. imagine what normalization is. that is the terrifying thing for central bankers because they do not want to destroy the recovery and erode capital, and they are
trapped. i do not believe the sale ever goes to negative rates because they understand what this is, and they do not want to put the whole system at risk. jonathan: the bund market had its own shop last year in the spring. snapped back up. who is to say that the next gap so to speak in the bond market moves at the first chapter? david k: we don't know. what do we know about the bund? we know that draghi is confirmed to four years of trtlo. that he is committed to. so you can time in the eurozone several years. going do not know what is to be in the u.k. probably a long stretch. so we used to have a four-legge
d worldwide system -- yen, dollar, pound, euro -- and it was a stable mix. we don't have it anymore. is the next one because japan has to face this. there are only two legs left on the table. he has been crazy, these markets are crazy, david kotok, cumberland advisors, sticking with us. jonathan: coming up, the best returns are now after a big win in utility. is it time to get out and take profits? we will find out what other areas of the market david kotok is buying next. this is bloomberg. ♪
to the market we go, even with the s&p 500 sitting with a record high, a quarter of negative earnings growth. who needs earnings when you have got yields? david kotok is still with us. it has been betrayed by the utilities, regardless of what is happening with earnings. it has kept market stimulated to an extent. david k: we are out of the utilities. we have had a marvelous run. xlu, we started to position it in the 1930's. 30%'s.he we just talked about the lower rate, it is gradually waning, and so we are gone. alix: we spoke with an equity strategist yesterday, when you get the back appeal, it will be a sector rotation.
is that what you are playing, a backup in yields sector rotation play? david k: maybe. but also that most of the power of the lower interest rates is now known and priced in, so our view was it is time to take a profit. you don't get hurt taking profits, my grandfather taught me. [laughter] david k: so the question then of course is where to reallocate. we are overweight housing, u.s. housing, the housing cycle in the u.s. as long, the interest rates are low, the mortgages are available, and we are running out of inventory. you are starting to see that ratcheting up. david: what gives you that confidence in a long housing cycle here? david k: we nearly took the housing sector through gutwrenching turmoil in the crisis eight years ago, and schiller had interesting work about how it was the first andtive effect of housing
half a century, so the recovery basis monstrous. there are 2 million, 3 million, 4 million housing units that have to be built in addition to normal demand to get us back to normal. that is a great cycle affect. it goes for five years. so housing, we like it. david: and all the things that go with it. jonathan: how do you do on housing with your nervousness about the rates market? david k: it is a fair question. does it make a difference whether the interest rate on 3.25% or 4%e is to purchase a house? the answer is no. if it is 6% -- yes. we can stomach a 100 basis point the housingeard market. but utilities are so extended now -- i do not think they could handle an up. alix: the other side of a fear of a bond market has been -- jonathan: we are not in the gold
metal plate. alix: what about hard assets to put your money? jonathan: in the gold market, you have a whole subset of people who are playing it for monetary reasons, but elsewhere in materials, you need demand to get the price up. will we get that robust growth in the world? i am not so sure. we would rather be in a house than a lump of gold. jonathan: david kotok, great to have you with us. cumberland chief investment arthur -- officer. alix: coming up, we are taking a look at valeant and lendingclub. this is bloomberg. ♪
just purchased by a contract hr provider. they are paying a 23% premium over last night's closing for monster worldwide. this just out in premarket. also, astrazeneca and array pharma down big in the premarket. rray is the big deal -- aa sold the rights to a love drug to- a lung cancer answer in a cup. that drug did not make it to trial. struggling cut is out that lung cancer drug now. manitoba in the premarket, the company's sales were down to -10%, now -12%. the crane business in america really took down the sales more -- the sales numbers.
not a lot of movement here in the premarket, jon. jonathan: futures marginally in the u.s., the dax back enable market, up 20% from the lows. /3 on the back of a weaker pound in the fx market. throwing it all out there, euro sterling, parity calls. we look at big moves from the dollar. figuring out a way to get to friday for the real action. that is when we get u.s. retail sales. in the bonds market, a letter supplies committee can survey, a three-year note, treasury, $20 billion worth. in the bond market, the headline is 10-year u.k. versus 10-year u.s., the widest on record. that wraps up the market moves
for now. let's get to the headlines outside. >> china's promise not to militarize. according to the "new york are being built on the island in the south china sea. hangars are in the chinese air force. in northern syria, a hospital run by doctors without borders was struck in an airstrike. the hospital is in an area controlled by rebels. syrian and russian planes have been blamed. olympics, american the worldrussia, champion who was suspended for doping, but was not clear to swim until saturday. the u.s. leads with 19, china
has 13, and japan and russia are tied with 10 each. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am an much andra -- i am emma chandra. this is bloomberg. alix: thank you. u.s. pressure on drugs mounted, however, the stock is up in premarket, and it maintained back in june. joining us now is doni bloomfield, a biotech reporter from boston. valeant retain guidance? doni: it looks like they have real confidence that they will be able to improve their pace going into the second half of the year. if you look at the first half of the year, they are going to have to improve on every single metric, including sales and their adjusted ebitda. they are optimistic that they can turn the struggling company around, despite missing on
earnings revenues alix: for the quarter. sales numbers are pretty ugly, down 14% -- revenues for the quarter. alix: yeah, sales numbers are pretty ugly, down 14%. how many asset sales do we need to see to make up for the lack of sales? doni: i think they're going to have to be doing asset sales primarily to pay off their more than $30 billion in debt that they have, and over the course of the year, they are looking to sell off non-core assets. there will be more information about what they are looking to do there. at the base, what they need to be doing is taking up declining sales. 11% sales and client from the same quarter last year, and they have been seeing really big declines in some of their key areas, 55 percent falling dermatology sales. it is not just about the controversies and asset sales at the end of the day, you need to get back to the drug sales.
alix: the real question is what happens to the debt. much death the company actually has. they had some relief, they had some bond principal repayments, a term loan. how much time do they have before their credit rating starts to sort of feel the pressure? doni: i think that it will really depend again on whether it can turn around sales and for now, if they can meet their guidance, they are skirting the line on their debt covenants, but they should be able to keep paying off their debt. they said they will be able to requirements, and so it really will be a performance story over the next two quarters, the second half of the year, as they try and turn the company around and actually make some of these divisions work and maybe notch through price rises along. alix: show me the sales. you so much, doni
bloomfield, bloomberg's biotech reporting. lending club heading into the other direction. , thewing a quarterly loss cfo stepping down. joining us this michael regan, bloomberg's gadfly columnist. club?is lending michael: this was sort of a messy quarter in part because of the costs to dig themselves out of the mess they got into in the group. there was also something new we did not know about, there was a goodwill write-down after the acquisition of a company called spring stone financial, which was educational and medical loans. byy had to write that down about 35 million dollars. they also had incentives to keep investors happy and keep them engaged on the platform. that was about $14 million off of their earnings. so sort of a messy quarter. the real question is when will they become profitable. it does not look like a third quarter in a forecast.
david: another thing that struck me as they changed their cfo. he stepped down to pursue other opportunities, and they have an interim cfo. what is that all about? michael: initially the stock reacted negatively, and it recovered a little bit today. it is getting close to flat for premarket trading. i kind of headline, and that is obviously what a lot let off of. they took the statements, and in an interview with bloomberg, they said this was planned, the cfo is going to resigned, but lending club story is becoming a soap opera. when you see something like that, you are asked acting drama, regardless of whether it is really there or not. alix: the other part of the story is whether do they do with their loans and securitizations? holding on,s they're not willing to let go. how open and we know the market
is for lending club loans? michael: it is not great right now. i mean, the originations compared to the first quarter were down 29%. 15 of their 20t biggest investors reengaged with the platform a slightly lower levels. the other would a at that would be five of their biggest investors are still china. some of the investors are actually banks. business model -- jonathan broxton of a lot of credit card bills, taking a name out of the blue -- jonathan: don't worry, don't worry. --hael: he will get 13 hurt 13.5% interest rate, they will , the investor. there are not enough alixes in the world. david: there are never enough alixes. [laughter] alix: good to see you, michael regan. david: the delta blues.
for our morning must-read, we take a look at the mess that delta airlines is and. the airline had to cancel thousands of flights yesterday and another 250 today all because of a power failure impacted computer systems. the delta ceo is apologizing. "while the quote, airline said it was giving snacks and beverages to passengers facing extended delays, passenger david at london's heathrow airport said food vouchers ran out. it took two hours for them to tell us what happened after the system went down. then the pilot came and said the flight was canceled because the crew cannot work for more than 10 hours." jonathan: there has been a scramble for the food vouchers at heathrow airport. one, what happened to the backup system, if there was one? if there wasn't, why wasn't there? two, after they sorted out the initial problem, which is
getting the flight going. another 250 canceled today, potentially 1000 yesterday. the only recent benchmark we have is what happened with southwestern's 2300 flights. the difference -- they are a budget airline. you wonder what costs for delta. so southwest is a very different story. david: is there something broader going on here? alix: american airlines also had issues. southwest head two issues with her system, and they said they were looking at tens of millions of dollars after the 2300 flights were canceled. so it is a trickle-down. how much does this cost? you are getting a voucher of $200 if you have to change a flight, that is for food vouchers, hotels -- david: how much does it cost and goodwill down the road to it i do not want to be stuck in london heathrow again if you run out of food vouchers. jonathan: for the investors, it
is kind of like this. not doing much in the premarket today. i think investors are to bring back delta on the bloomberg, having a look at the market cap, $28 billion. $10 million here and there. alix: when you are dealing with an industry that is it does haveprice, a lot of low-budget airlines like a southwest, it can erode market share in the short hauls. david: i have not heard anything coming out -- we hear about it from delta, but not ryanair. alix: excellent point. good thing where not flying. donald trump rolling out his economic agenda and plan for u.s. growth. he is planning an old-school tax plan and a curb for regulation. we will have more details next. this is bloomberg. ♪
alix: this is "bloomberg ." i am alix steel in the hewlett-packard enterprise green room. coming up, speaking with disney ceo bob iger following earnings. ♪ david: this is "bloomberg ." i am david westin. republican presidential nominee outlined his economic speech. it covered everything from tax cuts to energy to childcare. one of the things mr. trump propose was a scaling back of the regulations imposed by the obama administration. here is some of what he had to say. mr. trump: in 2015 alone, the obama administration unilaterally issued more than 2000 regulations. each a hidden tax on american consumers. and a massive lead weight on the
american economy. anchorime to remove the dragging us down, and that is what it is doing -- it is dragging us down. upon taking office, i will issue on newrary moratorium agency regulation. joining us now is david malpass, senior economic adviser to the trump campaign and president of encima global capital. which is that part, about regulation, it speaks to a lot of businesses out there -- small, medium, and large -- you are concerned about regulation. what to you are the key elements in what donald trump laid out yesterday? david m: i'm glad you laid out the regulatory side. a lot of people are talking about tax form -- trade reform, energy reform -- regulatory is critical to every single
business, and not in that clip is one of his proposed -- a key proposal is to have the cabinet work to actually reduce regulations. all of the cabinet will be asked to list regulations that do not benefit the public, that do not benefit safety or growth, so the whole focus of the economic program is to get growth going and wages up. so that is a coherent part of these four reforms. david: if that is the goal, growth, you have got cutting back on regulation. what are the other key elements that would get growth going/ david m: h fortis article. on the tax reform, you've got to bring down the tax rate -- every article is critical. on the tax reform, you have got to bring down the tax rate. mrs. clinton wants the growth rate higher. % over the been 1.2 past year, so this is a failing economy where you need new policy. lower rates, broader base, this is what ronald reagan described
in the 1980's, and it worked well. the growth rate goes up a lot, and business investment goes up a lot when you change the rate to a lower size. david: so the growth rate may -- i'm glad you mentioned ronald reagan. the chart shows the deficit to gdp. going to the reagan years, the red portion that goes on to 12 ronald reagan and george h w bush, then the blue is clinton, you can see reagan cut taxes, no question about it, but the federal deficit went up. how is mr. trump going to pay for this, especially when you have a lot of republicans concerned? david m: circumstances are different. in the 1980's, you were recovering from a high inflation rate, so a lot of that debt that was being absorbed by the federal government was due to the inflation. also, you were at work beating
the soviet union in terms of the cold war. so in our current circumstances, i think you could do a better job on the spending side. one of the critical things that we are lacking right now is the actual debt limit. look at the problems they have had over the last four years. fighting about whether debt should go up, and government wins every time. there is no regulatory process. i have written a lot about the need to redo the debt limit so that we actually have some kind of spending control going on. david: but if you are talking about cutting federal spending -- david m: cutting costs -- it is a big difference between government spending is going up really fast now. if you had any kind of workable youcation of spending, then would get a better result from the fiscal side. we have got to have a stronger fiscal side for the government. david: specifically if you are not spending as much money, if
you have less cost, won't that actually be the opposite of a stimulus? david m: no. business looks of that, says oh, the government is operating more effectively, and so now is the time to invest. it cannot be the case that government spending an attracts private sector spending. we saw that in 2009 and 2010 when president obama did a giant amount of government spending and the private sector reaction was to pull back. david: but that goes to the question of productivity when you talk about business investment. hypothesis,ump's the reason we are not getting the best business right now is that taxes are not low enough? companies can borrow at a remarkably low rate right now. why aren't they borrowing and putting that money in investment? david m: because they do not see growth. they do not see a system of policies that create growth. critical to that is the regulatory morass that the federal government has created.
small businesses do not want to start, do not want to start up. business coronation has been low, and that is costing millions of jobs. really good jobs, entry level jobs often calm from small businesses, but they face a more morass of regulation that they cannot get through. david: have people penciled out how much this would cost, the way the cbo does? are we going to get numbers that say this is how much this will cost, and this is how we will pay for it? david m: i am skeptical of how accurate the scoring can be because we do not know how dynamic the economy can be. i think we are way underestimating america right now because we have been so many years in a slow growth. if you speed of the growth, you are going to get more business investment, more tax revenues -- it is going to make it easier to do the spending reform that you actually need to get done. david: ok, david, thank you so much for being here.
jonathan: for our viewers worldwide from new york city this is bloomberg. 41.3$1.30.rates down at englandhe hawks in saying he sees more coming down the line. a positive in the united states, up 3 on the s&p 500. back to me bull market on the dax. the s&p market rally marches on. a "bloomberg " jonathan
ferro correction, treasury yields down a basis point, they are not the widest on record. that was back in 2000, we were 25 basis points. not quite a record year, alix. alix: what a correction. jonathan: i know, it hurt. [laughter] alix: it is the big day for disney. here are the three charts you need to watch when a company closes after the -- posts after the bell. versusre down to poo 2% the industry average of 4.5%. part of that was new to the timing of college football on espn. remember, espn makes up 46% of disney's operating income. this is a key number to watch. the other big number you want to watch is affiliate growth. it was down 3% in the second quarter. all is how it started at
last summer, you know, september, august. this tells you about growth. how much cable and affiliates are going to pay for that content. if you have lots of september growth of espn, if you have worries of cord cutting, you are not going to get the affiliate fee that disney might be expecting. disney did affirm its high feele-digit outlook for growth, none the less, this is where you get the subscriber growth metric. to be what is really good about disney, and that is its movies. domestic box office was up 55% in the second quarter. you can see here yeah, ok, down from the last quarter, but on a plus, 55% here you have "dory, ," none theamerica less still holding up. you have got ad revenue, affiliate growth, box office growth. david: as you said, affiliate
growth is the one to give your eye on. that is the critical one. jonathan: coming up, can the u.s. treasury yield will close to 0 over the next two years? -- george call this goncalves joins us. in the market, futures are farmers, about an hour and 34 minutes away from the market open in new york. futures up 23 points on the dow, up two points on the s&p. april market in germany. a weaker pound and a cable rates south of $1.30. ♪ e
sterling falls for a fifth day. pileup overas bets the bank of england taking further stimulus methods. stillan: analysts are pessimistic. analysts forecast a sixth straight quarter of negative earnings growth. alix: and lending club and valeant try to bounce back on earnings while disney looks to regain its magic with results after the closing bell. david: welcome to the second hour of "bloomberg ." i am david westin here with alix steel and jonathan ferro. jonathan, as i look at the european markets, the dax is up quite a bit. jonathan: back in april market, the same time we are talking about earnings forecast the sixth street quarter of negative earnings. analysts are now looking for a contraction of .6% in the third quarter, yet we are still at record highs. you have got record stocks earning nowhere near record. david: you know what they say in
politics -- you cannot beat somebody with nobody. you have got to put it some more. alix: we are going to discuss the bond market and just how low yields can go, plus what the surge in bonds means. we have george goncalves joining us in just a moment. let's take a look at the market. high.an: a 2016 just notngs growth is there. futures in the united states, positive. you have got the dax up, the of aup .4 on the back weaker pound, the pound weak against all of the other majors. guy johnson and i will talk about that in just a moment. the commodity markets, south of 40 with the headline only this time last week, the bti trading $43, up 1%. gilt, all-time lows across various spaces on the
curve. england has driven yields down to record lows. the treasury, long game, coming in at basis points at about 2.3%. the three-year note comes a little bit later on. we will be watching for signs of demand and whether it has weakened or not. alix: will we see a bonfire strike? bond-buyer? strike. for in-depth coverage, guy johnson is live on the falling down, steven yaccino on clinton's economic plans. reconcileyou cannot what is happening with earnings. the pound and pound weakness makes a heck of a lot of sense for a lot of people. guy johnson in london, it is pound weakness all over again. when the horses out and you are speaking a little dovish, then the rate is down once again. an analyst not that long
ago was pointing in the other direction, that is getting people thinking there could be much more coming both on the motion side and the fiscal side. the pound is down because of that. we have the bank of england hitting the back end of the curve on the bed. that is the story when he to think about as well. then you have weak data continuing to come through. this thing is a fairly clear picture coming forward from here. this is not looking back great, either. so it is a pretty heady cocktail for the pound, not just against the dollar, which is up against pretty much everything, but it is down, and that is not a great story. thingsom over at hsbc parity is the call on the euro story against the pound four-year-end. jonathan: iran 2017, -- year-
end 2017, bloom making a big hsbc.t overnight, yo u.k. retail sales fell. what is the story? guy: jon, you and i earlier on were discussed for -- were discussing they make monetary policy based on the weather in india. it does have an impact. the brits have been out shopping. there are some things that are more important than the brexit. itathan: the americans call a summer, we called it a warm week sometime between may and august, and it happened in july. people came out spending in big ways. a true story. guy johnson in london. alix: i would not be able to make it. for the other big company of the state -- fei company story of the day, valeant, keeping its guidance said he. elizabeth, what helped it do
that? elizabeth: that is a good question. the guidance as such, they have not changed the guidance, which is certainly a positive thing for most companies, however, looking at the earnings that we have got this morning and also adding to what we have seen in q1, the company is planning to more than double revenue for the rest of the year, so it is certainly a high bar and certainly showing a lot of confidence from management. alix: especially when you had sales were down by about 11%. the other part of the story was that registers -- divesting shares. how does that help their cash flow? elizabeth: there are some assets that were not that big in terms of revenue drivers. that is certainly a positive thing and something that we expected. they had hinted at divesting non-core assets, and that is what these are. we do not expect that to be a major revenue driver.
that is sort of what makes it difficult for this company. can reallyhat they afford to lose is not really something that anybody is going to want to pick up. so it is positive that they were able to get rid of some of the non-core assets. alix: great point. a huge turn on for the valeant of old, which was a big buyer and now seller of non-core assets. elizabeth, thank you so much. i have no way to turn this to trump, but none the less -- david: i was going to say, that is progress right there. now we will turn to donald trump. he shared his economic plan at the detroit economic club. mr. trump focuses his attention on the plight of the small businessman. here is some of what he had to say. mr. trump: you cannot ever start a small business under the tremendous regulatory burden that you have today inour country -- in our country. you are going to end it. i am going to cut regulations
massively. david: joining us now is steven yaccino of bloomberg politics. welcome to the program. this is a major opportunity for trump to turn the page. did he succeed in that attempt to turn the page? steven: we will see. he gave a very serious, scripted speech yesterday, and we saw a donald trump that was able to reassure anxieties, party faithful who have started to have even more serious doubts about his candidacy. he got a lot of messages across, he talked about small government, low regulations, cutting taxes. he embraced the house republicans tax plan, which is seen as a pretty large overture to paul ryan. but we will see. the headlines this morning are the support of the
republican party. that is one he is trying to run away from. david: he really moved toward paul ryan particularly. he has been very active in the tax planning area. to him most attractive and his base, so moving to the mainstream of the republican party? steven: one of the more interesting things about the speeches the republican orthodoxy that he talked about, hugging paul ryan on taxes, small government, things like that. yet he is still challenging hillary clinton to the left on trade. he rolled out this new policy on deductions for child care. of -- see a number another great example of what he talked about on wall street that is similar to learn clinton's position. we see him trying to buck his party where he thinks he can and embrace party leaders where he thinks he can, and the question is whether or not anyone really about the contradictory
nature of some of that. david: one thing is for sure -- he is a fascinating candidate to watch. bloomberg news. now we get to alix. alix: we already talked about valeant, but the other big mover is lending club, down 4% in the premarket. winding $281 million. the cfo stepping down, a fannie mae ceo will be added to the board. a $35 million write-down. lending club is trying to turn itself around. a disastrous start. also looking at gap, same-store sales down 4%. estimates were down 1% year to consumer sentiment holding of gdp in the recovery here in the u.s., but gap not feeling that in its retail stores. also, jonathan talking a lot about the dax in terms of the 20%y we have seen there, up from the february low. you can look at the carmakers to purchase they like the end of you, daimler, volkswagen.
up up almost 18%, volkswagen 33%, so really the carmakers are helping boost the dax. now for what you need to know outside the business world, emma chandra is here with first world news. emma: american airlines is struggling to come back from a grounded strike for several hours. it is reducing its morning schedule so it can reset. that means about 250 flights are being canceled after 1000 yesterday. flights were delayed or canceled. vouchers are being offered. the senate is voting tonight on whether to put -- on trial. they are expecting to lose today's vote, which would give a 2/3 majority. turkeys from minister or to one
has his first trip out of the country since last month's attempted coup. he is trying to rebuild relations with russia. the meeting comes nine months after russia imposed sanctions. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. jon? jonathan: emma, thank you very much. coming up, bunds near 0. goncalves joins us with his call on the bond market. that is next. from new york, this is bloomberg. ♪
alix: this is "bloomberg ." i am alix steel. the yield on u.s. treasuries hit a record low one month ago at 2.8 percent, look at a rally in bonds push it down to zero? a head of rate strategies. 0% on the 30-year in the next two years? is the worst-case scenario. we have seen rates across the world headquarters 0 in europe and japan, and it kind of works the scenario to reverse course. in the system, you could easily see a run towards 1%, 0 obviously catches a lot of headlines. jonathan: for a lot of people, they are thinking crazy, 0, the ecb was trading at 1.4%, they touched 5%.
the question that will be asked and has been asked here at you take hedging costs into account, with japanese investors based out of japan, coming into the u.s., there is not much yield left. the nominal pickup is huge, but the actual pickup is minimal. george: that is true. that is one of the reasons we saw a mad dash into the 30-year. thinkking aside, i do those that employ is hedging strategy, not everyone is hedging 100%. the viewers have upside, they might want to have their hedge misplace. you wash away all of your debt because you are hedging, that is the point of moving everything away. david: one of the things we're watching as the stock market, how far up it has gone. earnings actually are down because of the -- are actually down for a sixth straight
quarter. george: i think they go hand-in-hand. i think you need to see low yields to keep equity returns until you get -- until the economy turns around and fundamentals validate a turn in earnings, and the fact that many equity calls are out there and say they continue to slide, it will be hard for equities to keep running up. jonathan: right now, you have got yield with a nice pickup, it is not guaranteed. you've got a guarantee of sovereign debt -- you hope -- and then in the middle is credit. is that the sweet spot in between the vulnerable side and the dividend yield in equity, and the low that you get in sovereign debt? george: we saw two ways in which credit really goes to favorite. credit has been the darling because it is in the sweet spot, as you say. coming to the end of a cycle,
you have to start taking your spots within credit itself. broadly speaking, credit have benefited tremendously. they are not going into government bond funds. david: where are we on the credit cycle? george: it depends on how you look at things. typically, you would need tighter hedge fund conditions, if the fed tightens faster than what they are doing to really break the credit cycle. we are still at a point where it is easy money in the system, which is still being lent out. most of the corporate mechanism -- not just through the banks, as we would like to see -- but i think closer to the end of the credit cycle, we will see what happens depending on a lot of the change in, presidential election, that will impact fiscal policy. we would love to see more public-private partnerships. maybe that would rejuvenate the credit cycle and get banks to lend again. i think we are closer to the end than the beginning for sure. alix: we are seeing a lot of money going to high yields. what is going to be the trigger
point when investors stop looking for that high-yield? do they go somewhere else? a lot of defaults have mostly been relegated to the energy sector. that will spill out -- alix: they are starting to we are seeing some retail start to move out. george: sure. that is the first tale tell sign. a kind of chases the spread yields, and so far we have not seen that yet. i think that part is not really ending yet. jonathan: a bear case is easy event. we can say it is a search for yield. when i client calls you up and what areere do i go?" you telling them in the moment, and how has that changed in the last six, nine months? whetherwhen you look at they should be partaking in the bond market, there is a huge captive audience of investors --
insurance companies, the banks -- that have to be there for regulatory reasons. but for retail investors chasing the yield of the bond market, you have to be cautious. jonathan: do you think there is a whole lot more given the stimulus in the first half of the year? george: without a doubt. especially given the explosion of the etf's and the easiness of implement them trades, which in the past were reserved for traders on wall street are you have to be cautious on the that's for sure. alix: fair enough. george, thank you three much, george goncalves is sticking with us. jonathan: libor is coming unhinged. up next, how the big move might impact janet yellen's rate hike timetable. from new york, this is bloomberg. ♪
worldwide this is bloomberg. dollarree-month u.s. libor rate is rising again, and out of everybody looking at this challenge, wondering -- what does this mean for the fed's rate hike pass, if indeed they move again? alix: this is how much it costs for banks to borrow from another in the post financial crisis high. we have george goncalves still with us. that itghts -- one is is fundamental. it is getting harder for the banks tomorrow. two, it is more technical. which is it? george: i think it is really the second part. regulations play a big role here. people are scared of this change from money market reform, the from mid-october where the focus is going to be. deleveragingnd of their credit risk, and the money funds, money market investors, it shifts to government money only.
that is reducing the available buyers for cp market, causing commercial papers to rise. lifting up banks overall. the problem, though, is it is happening independent of what the fed's fund market is doing, and what the fed is most likely going to do in september and the latter part of the year. this right could be a factor tightening for the fed, and conditions get tighter, even though the fed is not really move the needle yet. jonathan: so it is not a sign of stress that we have been accustomed to in the financial crisis. this is another example of how monetary policy has been outsourced to markets? george: that is such a great way to put it during the market have obviously done a lot of heavy lifting to the fed, the dollar, how the dollar tightens and has impacted the inflation channel and made it difficult for the fed to hike. now we are seeing libor putting a monkey wrench in as well. know, up until
about where we are now, about 80 basis points, 90 basis points on libor, it is all fundamentals. if it is trying to go to 1%, then we are starting to price in credit concerns. it is still just a dollar funding scarcity thing, and technical response to regulation, but if we get toward 1%, stage three, which i call september, even if it looks great in a report. david: this is one more thing for janet yellen to look into, let's not going to, let's not get back to regular interest rates. is that what you are looking at, and for how long out? george: it is more of a temporary response for regulation that is coming down the road. as we get intoup november, december. do people really change their behaviors after the new regulatory rules are put into place? it also during the election time period. there is a lot of uncertainty and turmoil, which could have challenges for a fed hike in
september, although we think it is more likely than not. all of these things make it more complicated. david: is that the best case, a december hike? george: our feeling is a december hike. every year they will sneak in a hike. we are expecting two hikes max. given that everyone is still easing, it is hard each cycle. but this is a story that will be with us until mid-september, the libor move. a lot of people will wake up next month with higher mortgage reset, andill see a everybody will go, "what happened?" alix: in terms of other factors that move libor, what about the excess reserves? are there other parts that play into libor that can also make it tighter? quite frankly it is
overseas investors -- the dollar markets have been carrying trade for about seven years. we always talk about the dollar carry trade to the yen side. with the reserve currencies, everyone borrows to the yield curve trade. i think that is what is happening here. jonathan: george, it is great having you with us, george goncalves. alix: nice talking libor on a tuesday. [laughter] analysts areup, forecasting a sixth straight quarter of stagnant growth. we will be joined by someone giving a forecast of stocks. this is bloomberg. ♪
2016 due to the terrorism of fact and the brexit effect. also watching this industrial blamingth a sales miss, the business in the americas guiding sales down to -12% and margins are falling. weak margins and lowering sales are not good for that sector. also taking a look at red robin with comp sales falling 2%. fall in guests, it $.4040 systems -- it cuts which is a great correlation. they are seeing a fall in guest count at red robin. those are some of the individual movers to watch but a different story with the overall s&p market? jonathan: the companies want productivity up and labor cost is down but that's not what's
happening. product 70 fell in the united states and labor costs rose. if you are a stock investor, more labor costs to worry about is not good. forecast for earnings is we are set for a sixth straight quarter of earnings contraction. the stocks are at an all-time high and futures ahead of the open are firmer and equity markets in europe are higher. sterling is in focus in the pound is weaker against every single major. qe,he bond market, underperformance on the front. along the curve from 15 years and out, the focus is on the bank of england. they will be buying more debt.
let's get to the headlines outside the world of business. andore business manufacturers are praising the tax proposal of donald trump. he called for the u.s. to cut federal corporate tax from the highest to one of the lowest among developed nations from 35-15%. the national federation of independent business calls the proposal a home run. photos are casting doubts on the chinese promise not to mellow right -- not to militarize the islands in the south china seas. they say airport hangers are being built. the hangers have room for any type of jet in the chinese air force. british by minister theresa may of demands from european union nations when it comes time to negotiate. freedome red lines are and continued protection of
foreign citizens living in the u.k.. news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. jonathan: thank you. the new edition of bloomberg magazine is out today. is one of the hardest jobs in european banking. squeeze andredit francine lacqua spoke with him and whether he thinks shares are fairly valued. the share price is down over 48% so far this year. joining us with more is francine from london. who will be happy with that stock price? we did this interview
in two parts so it was a long interview and i tried to press him on the investment bank. these guys are the rainmakers. a point where he stops and says let me show you the share price. he took over, this is the share price he wanted to show me. pricewed me the share over the last 10 years. he said i apologize for shareholders. is he getsput it beaten up on almost every day because of the share price which is almost half since he was put in charge. this is a man who is hungry for the charge and understands the pressure but he sometimes feels he is not getting the right kind of attention and people are beating up on him too much. jonathan: he's got to start delivering. ask many, if you
analysts who's got the hardest job in european banking, many of them would say the ceo of deutsche bank. number two, they say credit suisse. has he found this to be harder than he thought it would be? he cap telling me in what if someone had warned him about the challenges ahead? he said i came in to this with by eyes wide open and now it's about execution. he knew there were challenges and he knew it was going to be hard. given that negative rates are continuing and the macro environment since he has become in charge are not cooperating. that does not mean he is doing a great job but it means he has to doingsts more than he is and that's something he admitted. it means he needs to put this
bank in a place where he doesn't need more capital and risk has been cut and can finally start growing. anathan: restructuring in soft economy is always tough and special thanks to francine lacqua and you can read more of that interview in this month's edition of bloomberg markets. it makes me want to read it. let's go to the overall equity markets. the s&p 500 is sitting near record high and analysts are forecasting a second straight quarter of growth. why do the markets keep going up? barry dennis by turk, the chief equity strategist from baltimore. welcome back. -- by we are joined by barry bannister. when you have lower for longer interest rates, you cannot elevate the p/e ratio. some of the economic data has been coming in ok.
you have the eye is some indices in the u.s. mostly up year to date and that has lifted the market directly. when you have a flattening see better will earnings comparisons in the second half and the u.s. and chinese growth and inflation data have been better so that's what's lifting the market. david: how much lift can we expect to see because of the dollar? on a the dollar is flat year-to-year basis, earnings should be up for or 5%. at 2044 inst year the s&p 500 so a single digit gain would seem to be in the offing and that's been our view. david: what might take it further? we will have to see some fiscal policy because the central banks are beleaguered and they are almost out of bullets. we have to get through the
liquidity concerns like potential high quality collateral shortages or squeezes. there are structural issues that have never been resolved like the eu lack of a transfer union, how will the central banks exit their easing policy and negative interest rates? we just don't know and there was a lot of political uncertainty so we need clarity there. if we get that next year, i could see higher. you see the s&p 500 hitting 2400 by 2018. you have a flattening yield curve now but if we get the steepening yield curve, what sectors do you need to road -- rotate into? obviously, the liftoff of the short and would not occur hopefully until we had some reflation a retraction on the long end. financials would probably be the
greatest beneficiary of a normalization of the yield curve and i agree we are a long way from the yield curve that would cause a recession. i think the fed would have to get at least a 1%-one point 5% before i would think of a recession risk. do we needhat extent global growth in gdp to get the yield curve's to her? >> when you've got a deeply negative term premium on japanese and german debt, when you have negative interest rate policy, you are dragging down hour-long and. you're keeping the fed anchored at the short end. we need global growth and that's why i watch the overseas data like italian banks with a german ppi data, things like that. david: take us to india because we have spoken about china and growth there. it's still fairly good but it's a little off. can india help drive the global gdp that you need?
india is more of a closed economy and their problems are more internal.they have a lot of -- debt ande state-controlled which is a problem, a lack of investment growth and bureaucratic red tape. they cannot rely on the consumption but they have tremendous strength potentially in certain areas of the tech industry. they have grown and they are growing. india is coming off a low base and that is why but it is i largely closed economy in terms of its global financial impact. david: thank you for being with us today. alix: reflation is the key. disney is looking for that, reporting after the closing bell . will her box office sales offset recent turmoil in orlando and the anxiety from brexit. this is bloomberg. ♪
jonathan: this is "bloomberg ." important a very interview with disney ceo bob iger on earnings. emma: valeant supplies is reaffirming its full-year guidance. second quarter profits missed estimates and they're facing pressure to cut prices and give larger rebates on its drugs. coach reported quarterly profit that beat estimates as the company has been trying to revise the brand by introducing new items and designs. it is also spending money on marketing and remodeling stores. william hill is the target of a
takeover bid. two companies have made an offer according to the financial times. they said there would be benefits to merging their online and in-store operations. david: thank you so much. disney will report earnings after the bell. it's expected to be a strong quarter for the media company. for rbcor media analyst capital has a sector perform rating on the stock with a $103 price target and he joins us now. welcome. approaching 50% of their operating comes off of the media network. what do we expect? expecting around 5% growth this quarter at the revenue line, about 4% at the operating income line and i think that's enough to keep investors sanguine for now. i think the focus on media networks is what the company has
been talking about for the last couple of quarters, trying to get investors back to basics to keep calm and carry on. quarter, we have seen subscriber losses in the pay-tv universe of around 2% which is in line with industry expectations. i expect management will try to circle us back to the idea that things are not changing or accelerating anymore than they have in the past and try to put any incrementally negative fears out of investor mines to avoid what happened last august. david: it was only a year ago when bob iger said we may have issues. it took all the media stocks down. so about 5% on the top line. let's talk about the theme parks. i am curious about what has happened over in paris and orlando with these horrible events. >> i think that is certainly the possibility that could push this stock more negative.
when i think about the narrative itsisney now, it is testing emotional support level of $95 but the parks and resorts is probably the one thing that could be an incremental negative. in terms of how they talk about forward bookings for walt disney world in orlando is the essential point. the overall domestic part has been running successfully. the margins and for capital spending have been very strong. both brexit and zika have the potential to negatively impact forward bookings but we have not seen that yet. ok so the still question is based on what they are seeing today. are they seeing folks less likely to come to the park than they would three months ago? will be a focus point for investors because that may determine whether investor -- earnings estimates need to come down or they can maintain the levels of growth that are currently baked into the forecast. david: since the last earnings
announcement, they opened a new theme park in shanghai but it theire too soon to judge bottom line but we got a better sense of what it cost them. will we get guidance going forward? >> i don't expect to meet guidance. that would be a rarity for disney. they will have the benefit next year of not having the shanghai start up costs which were significant in fiscal 2016 at $350 million. that park is opening well in terms of the customer experience. years before a few we see a meaningful impact to operating income. we get the one-time benefit of not having the startup cost next year but in terms of organic contribution, it is a long game in china. the change for disney has been netflix and amazon prime. how much to those companies help or hurt disney? i think it's a double edged
sword. on the one hand, the marvel inverse is very significant the netflix franchisor disney has embraced those sales and partnerships with open arms. on the other hand, it shifted the debate to the secular trends and how millennials and younger folks will approach consuming cable content as we go forward. it's they do it in nontraditional fashion, i'm not sure how the media sector has addressed how that will look. debate not settle that in a year and that's probably why the 2% subscriber growth, whether that accelerates or not continues to be a key to valuation for the entire media sector. david: how much should we focus on hulu right now. ? that is probably the most important question overall in the media sector. its virtual distributors and how they will impact monetization.
our thesis about the hulu owners including fox and nbc and disney and time warner is that they will continue to put the entirety of their content onto that live streaming service next year. the way we think about that is if we can get incremental cable subscribers on a virtual bundle by hulu, chances are company like disney monetizes those subscribers as well as they do on a current linear cable bundle. we think hulu is more of a positive for the industry as we see that future come to life. they are shooting into the -- we are shooting in the dark as to how things will look in five years. david: thank you so much. after the disney earnings release, i will speak with walt disney chairman and ceo bob iger on bloomberg west at 6:15 p.m. eastern time. alix: always make the marvel movies. steele says don't stop making them. some trending stories
on the bloomberg -- we look at the most read stories. about the bond market which is the classic story of the market moving. the 10 year yield on treasuries hit a record low on july 6. we retraced about 25 basis points since then. the median forecast has fallen to two basis points so we got a situation where the analysts have been cutting aggressively the forecast for year end while the 10 year yield has started to creep higher again. is the classic example of the market behind the trend. the market is not paying attention to what they are saying. callingalyst wind up the top in the bond market. it's the same thing in the battle of the charts so vote for me. david: you are setting us up.
alix: i'm looking at delta because 250 flights were canceled so far so it's been an ugly few days. 1000 cancellations and they have to waive change fees and giving $250 travel vouchers and food vouchers. this a material hit to their bottom line? why didn't they have a backup system and why is this happening more frequently? when it comes to airlines? southwest in a similar situation not too long ago. they want to make sure the planes are flying in the have a computer system. alix: they are dealing with revenue proceeds and are struggling with low-cost carriers. what kind of an argument is an airport voucher for food anyway? next, we will have the battle of the charts. this is bloomberg. ♪
david: it's time for battle of the charts. alex steele would take on joe weisenthal. you already have the vote from jonathan. john was talking about the anomaly taking place in the bond market. is the 10 year treasury yield in the white line at the median year and forecast. for the first time ever, the yield on the tenure is above the median forecast. i found that interesting because you had analysts cutting their 10 year yield forecast to 1% for the end of next year. the lower the cutting went, the higher the yield went. topthese guys calling the and the bond market when they lower the yield?
that almost never happens. we are at the one-year anniversary of that famous yuan devaluation last her and i want to look at what has transpired since then. this was last august. n,e purple line is the yua it's the blue line and it plunged but since then, the yuan has continued to weaken that where is last august, they moved together, the u.s. stock market has ignored it. why has the market ignored the chinese currency weakening question mark why does it not matter? the third line explains it. the white line is you one volatility. down, that means volatility is surging and you one volatility surged during the devaluation. even as the currency has weakened over the last year, we have seen volatility slow down in ase it has been
predictable way. what appears to be the stock market ignoring the you one is actually the stock market moving up with you one volatility. david: pbo in a predictable way. c has gotten better with communication. what was no one knew going on last week so they are not that good at communications. it goes to alix steel. your chart is prettier, joe, but i will go with alix steel. they have been wrong all year. joe: they have been wrong for 10 years. next up, richard turner as we count down to the market open, this is bloomberg. ♪
from the opening bell in new york. this is "bloomberg ." like stocks at record highs and we are looking at another contraction for earnings. jonathan: try and make sense of that story with six straight quarters of growth. it does not seem to matter. it would because of negative interest rates. up butps the valuation the price/equity ratio gets a lot of pressure. bond guys to the start sitting out of the market and when does the yield that cup and what is the fall out? we saw a little in japan a week ago but when will it, and? guests tohave great talk with including richard charnel from black rock. now we will have to talk to you about the markets. jonathan: ahead of the open,
futures are a little bit firmer and the rally continues in europe. in a bull market, up 20% from the february lows and the ftse is positive. againster pound story the g 10. the cable rate is trading south of $1.30. the bond market, the focus is in guilt -- gilt. outperformance on the long and an underperformance on the short end. yields are up almost two basis , we moved toasury the auctions. we will get the three year note auction, over $20 billion worth. a focus on what the demand will be given the retracement in yields after the blowout payrolls report friday. will we see bond buyers
strike? individual stock names debt it's about retail. -- it's about retail. for down 1%s were for the gap. banana republic got hit hard as well. also way fair and this online company sells household goods and lost $.43 per share which was worse than estimates. active customers were up on my brother orders were flat. they got squeezed on top at margins with way fair getting hammered this morning. coaches a mixed bag. much inook was pretty line with estimates. it beat estimates in same-store sales. since 2012 and e-commerce growth was up by about 1% but it's retail store traffic was pretty flat. pervades over retail
names. for more on the markets, abigail doolittle is at the nasdaq. we had some bio pharma names moving pretty big. abigail: we have one small cap biotech company making a big move in the premarket. it's plunging after the company's lung cancer drug --led to meet the primary failing to extend the lives of s -- of patients. it was estimated this would be a 300 million dollar revenue drug by 2021 so it's not clear help models will be adjusted. probably not everybody is surprised by this outcome. winner,to a health care shares are trading sharply higher after vape web a better than expected core beating top and bottom line estimates. helped acquisition
andendo had a difficult time this year. the stock at the close yesterday was down 70% year to date. they are not out of the woods yet. heavy lifting remains a have but lots of pressure on if they can come back in the second half. alix: thank you so much. in europe, we go to london with the dax 20% in a bull market and it's like february never happened. >> i want to show you the stoxx 600 -- it is a green day, up 4/10 of 1%. carmakers are leading the gains. the industry group lagging are commodity producers. i want to highlight one of the biggest losers today, legal in general. profit fell short of analyst estimates as earnings at its
insurance and investment unit declined in the shares are down the most in a month, down 5.5% for the biggest manager of pension assets in the u k. this is the year to date chart, entering a bull market at 10,534. we saw it close at its highest level yesterday and it carried on the gains today. that's something we will talk about later in the afternoon. i want to show you something that has been losing for five days straight and that is sterling. the longest losing streak. five days of losses, the longest losing streak since may. jonathan: thank you very much. how about a six quarter losing streak? the s&p 500 is hitting record highs but analysts are forecasting a six straight courting of earnings growth contraction. this would put u.s. large-cap
stocks for the longest profit slump since the financial crisis. richard turnill joins us now. how long can the equity market we aret the same time forecasting negative earnings growth? >> the market has clearly been driven by significant flows. many investors are sitting on assets with zero or negative yields today. assets, thethose u.s. equity market in particular looks attractive. facing the sixth consecutive quarter of negative earnings growth, there was good news out of the recent earnings season, we so revenue growth, sales growth pickup in more than half of the s&p sectors. many analysts are looking for a recovery and earnings although it will be modest in the second half of the year. jonathan: jp morgan crunched the numbers.
eps growth was -5% year on year. a beat in expectations is not enough to get the momentum for much longer, is it? front loading future returns, the valuation of the u.s. market is now close to 19 times forward earnings. it's a level of valuation which has historically been associated returns going forward. it's very dangerous to extrapolate the recent move up and it's more sensible to assume you'll get low returns over the next -- few quarters from equities. recent move of upward volatility in the broader low return environment means you'll get some earnings growth coming over the next few quarters. not enough to really drivable market but something to keep the u.s. equity market moving north. search for yield, that leads to the treasury markets.
yield in the house compared to germany and japan but there is a great chart that shows the 10 year yield versus the 10 year yield if you add in how much it costs to hedge and that wipes out all of the gains. how does blackrock advise clients to deal with hedging if it will take away gains? you are right, the cost of hedging in the u.s. market has increased significantly. a lot of clients are looking to invest in dollar assets. they like the dollar in an environment in which u.s. interest rates are likely to move higher. a -- at a time when most central banks are easing monetary policy. many clients want to have u.s. assets and want to have dollar exposure. the appeal for the u.s. market applies to the treasury market and equities right now. its global clients looking to get more dollar exposure. how much does the
advantage of the dollar, the appetite for the dollar, inflate the u.s. equity prices? international flows into the u.s. market have been a very material driver of the recent move toward 19 times earnings. the dollar has played a role but in addition, many investors have sought quality and stability and safety. the u.s. market is a source of all of those attributes. while the overall u.s. market is not been growing, within the u.s. market, you have had a number of high-growth companies and sectors and that's a very attractive to international investors. jonathan: the story of the first half of the year was to buy the bond proxies in the story of the last couple of days has been a series of people saying things have gone too far and they will sell off. they want to rotate out of bond proxies and rotate into
discretionary. is that a trade you would subscribe to as well? the expensive bond proxies are very high. not rotate into the cyclicals or -- we are inreas the seventh year of the expansion -- we have taken to quality and dividend growth. we think yield will be very important in driving return going forward. with payout ratios a close to record levels, what will be more important is the sustainability of that yield and the potential for companies not just to pay dividends but raise them overtime. -- with with locating rotating out of those expensive prop -- prospects but we encourage earnings growth. alix: this is my first correction.
assumption that hsbc has a 1% yield call of 2017 what it was morgan stanley. steve major was the first to go bullish on the treasury market back in october. he has a 1.5% 10 year yield call. david: now we have it straight, good job. my correction is for an update in the business world. we go toemma chandra. clinton has agreed to take part in all three presidential debates. there was no supplies. there were complaints from republican candidate donald trump that says the dates for the debate are not suitable. forof them are scheduled both football game nights which will reduce viewership. the turkish president met with vladimir putin today in st. petersburg. the russian president told him
he hope to restore constitutional order in the wake of the failed coup attempt. this is nine months after vladimir putin imposed sanctions on turkey after downing a russian fighter jet that in brazil, the senate votes on whether to put the suspended president on trial. of breaking the budget law and is expected to lose a simple majority. opposed would need a 2/3 majority. day,l news, 24 hours a this is bloomberg. alix: thanks very much. inres of valeant are soaring the premarket and the company's surprising investors by maintaining its full-year guidance. this could be a big climb for the company that saw an 11% drop in sales last quarter. later, the delta woes are heading into a second day, flightsng 250 more today. how much more can this ordeal cost the airline's?
for the white house is heating up. markets point to a solid clinton victory but how would a win for either party impact your investment strategy in the bond market? back with us.l is what would happen to volatility in the next three months questio? >> in the run-up to the last four presidential elections, we have seen volatility star to pick up and we have seen very material outflows from the u.s. equity market taking risk off the table. today withing here
volatility at exceptionally low levels by historic standards and with the s&p 500 at record highs, there is every reason to think it will follow a similar pattern. see the poles leaned for donald trump or a donald trump victory, what could the potential fallout be for the bond market? run, the rising volatility and rising wrist aversion, you typically see -- rising risk aversion, you see it ahead of most elections and you will see that a exacerbated. that's simply because there is so much uncertainty about what future policies would be after the election. the money go? much of it is likely to go into the treasury market keeping bond prices and height yields low in the short run because of that risk aversion. what extent to the markets look through that and project what a donald trump
president would say in terms of by -- borrowing new money as opposed to hillary clinton? marketsrically, the have tended to focus on the next few weeks rather than look the on. once we get beyond the election and once we know the outcome, that's the point that the markets will start to focus on the direct impact of policies. in the event we see a significant increase in fiscal spending, both candidates are pointing toward some increase in focusedpending mainly on infrastructure but much less detail around the campaign for donald trump. we see evidence a be significant fiscal boost. is likely to lead to an increase in the supply of bonds that ultimately will be bad news for treasury holders. you can see on the
currency crosses, if you take the dollar versus the peso over three months, we start to see a little bit of a pickup over the last 24 hours. how would you play the volatility story in which asset class? i think the best hedge right now for those concerned about a rise in volatility would be gold. that has historically performed a very well. performed well in times of rising volatility associated with concerns around higher future inflation and volatility has been desperate and driven by concerns of loose fiscal policy and that plays into precious metals at the same time. where does the protectionist rhetoric of both campaigns lead emerging markets? that's one of the risks for emerging markets which have done very well over the last few months. the fundamentals have started to improve.
the dollar has been more stable, rising recently. many investors have looked for where to find yield and growth in the current environment. the answer they're coming to his you can find that in emerging markets. we are constructive about emerging markets, particularly emerging-market debt. it is a more protectionist stance. to the extent we get a significant shift against global trade, many emerging markets would be adversely affected. my take away is volatility but thank you for joining us. coming up, a big company we are following -- valeant is trying to its past behind us saying it's full steam ahead. -- shares are soaring and we will dig into the numbers next. this is bloomberg. ♪
valeant earnings missed analyst estimates as u.s. pricing pressure on drugs mount but shares are currently trading up in the premarket. it is likely because valeant stuck to the earnings forecast and gave back in june. joining us for more is the senior pharmaceuticals analyst, timothy chang. i think they were down 11%. with drugs in dermatology and ophthalmology specifically. this is nothing to do with the recent scandal so what is going on in that part of the business? >> i think the company is going through a transition. to change their pharmacy arrangement last there and that has had negative repercussions. they struck a new deal with walgreens and i think that will take some time to really start to show benefits on how the company is focused on growth in the second half of the year. i think there is a stabilization
that is potentially happening here but i don't think the judgment onassed the company yet. this is still a work in progress. david: we know about the accounting issues but how intent were they on philidor for distribution? >> i think 100% dependent. you see the ramifications of the termination and dermatology sales were down in the quarter. deal,k the walgreens whether that deal works for the company or not, it will show in the next couple of quarters. david: do they have direct competitors in ophthalmology and dermatology so that they may not be able to get back in that easily? >> valeant is one of the largest companies in those areas. they play against a number of smaller companies. they are a top three company in i care. there are some changes happening thehe volume side for
prescription business overall. volumes are under pressure and heavilye being scrutinized. valeant needs to do a better job growing viands and a better job adding value to patients. say they will make some dispositions and sell some things if they can. what is the nature of what they are selling and will that affect their revenues? non-core assets is what they are targeting. they will try to stick with their key pillars of growth. mentioned five keep pillars, dermatology, i care, gastrointestinal -- anything that is not part of those areas i think they will potentially look for potential suitors. is your sense that they have the ship righted and it's a question as to where to go with it? are they still falling? >> i think this is a ship that has taken on a lot of water. is it sinking further? the magnitude of the drop is
probably being contained to a certain level. can the ship rise and that's the key question. thattors will ask especially as we get into the third and fourth quarter. the new ceo has more time underneath his belt. the third quarter will be very critical. you see this as an opportunity to buy because the market may have overreacted? >> we still don't know. i think there are some signs that you are seeing more stabilization. even the print on the presentation was different. there are small nuances that i think the market will take of you on. i'd think it's still wait and see. david: thank you very much for being here. we are about five minutes away from the open in new york with futures up about
20 points. in europe, the rally continues here in the dax is in a bull market. in the fxeakness market and the cable rate is south of $1.30. dollar-yen is not showing risk sentiment right now. in the bond market, the yields are up across the curve. the three-year auction is coming later with 10 year up by two basis points. we will counter down to the market open right here on bloomberg. ♪
a rally in europe with the dax up by over 100. we're back in a bull market. you can hear the opening bell but this is the situation in the fx market. the cable rate is down to $1.29. dollar-yen is testing $1.02. yields are higher across the curve with supply coming into the market in the next three days. three-year notes are being auctioned with yields coming in two basis points on the 10 year. crude is up firmer. that's the situation across assets. alix: we are putting up against another record high for stocks. recordstill off the highs for the dow jones and the nasdaq but the closing record high, 2182 happened on friday. we are around that level now. shows that issue
analyst revisions for the third ofrter are looking for 6/10 1% decline. this is the sixth quarter that analysts have turned negative on earnings and how high can stocks go if earnings growth does not match up? we are highlighting norwegian cruise lines and the whole group. when it comes to earnings, the company cut its forecast for profit for 2016, looking at a weaker pound and the brexit of fact and the effect on terrorism affecting people travel plans and norwegian cruises is trying to avoid discounting to get customers. not a great read what comes to retail. is getting hammered today with same-store sales down 4% versus estimates of 1%. hitna republic is getting
hard as well and results were worse than gap was expecting. coach is a little bit of a mixed bag. the forecast was in line with estimates. it is in the middle of a turnaround plan but the retail is getting hard week as of the stores. let's take a look at some other companies making news. in dallas, we have the latest on the delta flight cancellations. we'll also talk about lending club's earnings and also a large share offering by u.s. steel. everyone is talking about delta. david: those passengers are again having flights canceled. some headaches they developed yesterday after canceling 1000 flights. it says now 300 will not take off today because a computer failure in atlanta monday.
we go live to dallas. tell us why they haven't sorted this out yet? what happens with the airlines is when you have a large number of flights canceled violetsay, you get your and flight crews separated from their planes. all the connections that plane was supposed to make our missed. there is a big ripple effects and i would not be surprised if delta does not cancel more today. it impacts more and more flights throughout the day. we know about what really caused this? think with an airline of the size they would have backup systems. >> and they do have backup systems. they didn't is why work. delta says they had a power outage in their facility. georgia power says the power was getting to the delta building but apparently there was a
problem with a switchgear and that prevented the power getting to the delta computers into the operations. delta has to figure out why that happened and why their backup systems did not kick in. david: the stock is not being hit by this. how much will it cost delta in the end? >> we don't know yet. the nearest thing we can say is when southwest had a similar outage late july, they canceled 2300 flights and their flights did not catch up to their scheduling for several days and they said the cost would be tens of millions of dollars. there are small cost involved that at up to a lot but we don't of a figure from delta yet. david: this is the second time in the second time in a month we have had this problem. is there a broader issue in the airline industry? does the federal government have to get involved? the biggest problem you have in the airline industry is that all the airlines are operating on fairly old technology.
they have a computer system that has been in there for decades in some cases and then you have airlines that merged over the past 12 years. they have not merge the conspirators systems -- the computer systems so they have this merge and old systems. the faa regulates safety issue so they probably will not get involved in flight cancellations unless there is a safety issue. david: thank you very much. the challenges of lending club are not over. it is trading lower by almost full -- for a full percentage points. they announced that the cfo has resigned. michael regan joins us from new york. before we get to the management, is this a challenge for the theyny specifically that will get out of in the coming quarters or is the business model being challenged?
>> i think the business model is pretty sound but there is a lot of competition. banks havebig ignored these type of loans for a long time. $20,000ant to take out in unsecured loans to consolidate credit cards or something like that, it was tough for a bank to do that. the due diligence on loan officer required to do that would not make it worth their trouble. lending companies are automating that decision process. the key question for the business model is how the big banks react. sites like lending club or co-opted their technology and partner with them? jpmorgan isare -- partnering with on deck that does this for small business owners but goldman sachs is developing its own consumer, personal unsecured loan product. i think it's how the big banks
react to this threat. in may, theck lending club founder and ceo resigned and there was an a botchedrobe into loan sale. we are seeing management change again so what's the story? this is not a force-out of the cfo. she had planned to leave and wanted to transition to a different job. they did not say where but they took effort in their statements and and -- and interviews to say that we got her to stay longer than she had planned. with a company like this after the troubles they have gone catches people's eyes when the cfo resigns. jonathan: thank you for joining us, the stock is down by 3.5%. alix: i am looking at the commodity market. u.s. steel is announcing plans to sell shares in a public offering generating over $400
million. we bring in our metals reporter. it's similar to the oil story with companies opting to tap into the equity market versus the debt market. what created the openness in the equity market for u.s. steel? >> you look at the steel price and's april. there has been a massive spike in price, the spread between steel prices in china is about $200. the trade cases have gone favor of the u.s. still. making company so the timing was right they hit the timing and decided this was the time to do this. is a divergence between u.s. and chinese steel prices in part because the u.s. on high tariffs, 200% chinese steel imports. at what point does that wind up hurting u.s. steelmakers? >> if you think these trade cases are benefiting companies , that maybe you
believe in this. on the other end, people believe we will start seeing imports coming onshore from china in the second have of this year because it is so attractive with prices being higher here. among analystsry and investors. how long do we see these higher steel prices? want at some point you may to import them. when you look at energy equityes, they are using to pay down debt. what will you a still use it for? say they will use of her capital operations and they are going through some cutting. they are trying to make sure their balance sheet is in good shape and they essentially will use this for housekeeping measures. alix: good stuff, u.s. steel stock is down about 1% in the market. coming up, another stock to keep an eye on his disney out with
the dow has more room to run before reaching records. for more on the nasdaq, let's bring in abigail doolittle. another record, another day. abigail: we have another day of record watching. let's see what happens with a small gains. looking at two movers, starting out with a dish networks was shares higher by more than 1%. they have been upgraded to outperform. one analyst says they believe spectrum auction could be a meaningful upside catalyst and she believes they can monetize their spectrum properties and sees the potential for a merger with t-mobile or perhaps a verizon and at&t. she sees a nice upside for this stock and thinks -- network -- dish network is a good stock. another company faring less well is scripps network.
this is the company that owns hdtv and the food network. they beat second-quarter estimates and also reaffirmed butiously provided guidance this is the first quarter of negative affiliate feed growth in the u.s.. . the scripps networks have a neutral rating on a conference call is at 10 a clock a.m. so we may have more information as far as what is happening going ahead. alix: that sets us up for the other media stock we're watching which is disney as they report after the bell. we want to focus on theme parks, movie studios, and tv networks especially espn. let's take further into the last one. cable networks are big profit drivers for disney, making 45% of total revenue last quarter. in this quarter, results may be mixed.
you have cable advertising while expected to rise subscriber losses at espn still weigh on affiliate revenue. according to nielsen, espn lost almost 2.4 million subscribers since the start of 2016. that equals nearly 10 million in 2013.tomers than because of the high demand for sports programming, espn charges a high affiliate fee which is the fee the cable guys went up paying disney for the content, four times its nearest rival. that makes disney vulnerable to people unbundling your cable packages and cutting the cord. those fears triggered the media selloff last august. espn isn the one hand, a great thing but if it starts to get week, then you have real challenges. by paulbe joined sweeney, director of media research for bloomberg intelligence. let's go back to scripps and
compare it with espn. what you see is a version of espn with a weaker cable property. what are you looking for for disney? it's all about the cable network, particularly espn. we were talking a year ago about how espn actually lost subscribers. that brings out the concern over cord cutting, skinny bundles and it goes to the issue if cable television model and of its at risk. estimates butheir they reported a decline in affiliate fees in the u.s. for the first time and that brings a the whole issue if this is bundle at risk and are the cable networks at risk? david: the ceos say they are not just staying with cable. espn is moving into
over-the-top the top and disney has taken a position. quickly can they replace whatever they are losing in terms of growth on the cable side with the over the top? investors are cautious and saying we know the existing bundle is a great economic model. the ecosystem of media for 20 or 30 years but they are less sure about the economics of the digital over the top direct to consumer model. if you are espn come you have the most to lose because you are getting close to seven dollars per subscriber per month in the traditional bundle. bob iger is a smart guy. top is comingthe but he has to protect the cash flow from the bundle. walk. fine line to all the big media executives are trying to do that. david: what is the one thing
that is most interesting today in these earnings? shanghai disney is a $5.5 billion investment and they open the park last june so it's early days. investors are going to want to get early feedback in terms of attendance to get comfort on that investment. david: thanks very much. as a reminder, you can catch my interview with bob iger who was my old boss tonight at 6:15 p.m. on bloomberg west. jonathan: 18 minutes into the session on the stocks are marginally higher. the bond is advancing as well. up, what is coming up on the show? vonnie: we are continuing the conversation about bond yields. we will ask where you can find
yields. areurns out italian yields becoming more attractive and that will be one of the themes of the day. we will continue the discussion on disney. vcpeak about p v ready to offload formula one. jonathan: looking forward to your program. that is coming up on bloomberg markets. coming up, going back to the -- of ronaldogan reagan and what his tax cuts would have meant in today's market. the equity market bounces to record highs, this is bloomberg. ♪
the biggest tax overhaul since ronald reagan. >> i am proposing an across-the-board income tax reduction especially for middle income americans. this will lead to millions of new and really good paying jobs. the rich will pay their fair share but no one will pay so much that it destroys jobs or undermines our ability as a nation to compete. david: this raises an important question which is what would the practical effect be? let's go to megan murphy. we have seen this before. it was reaganomics back in the 1980's. cut the taxes and it will bring in jobs and growth. how did it work then how will it work now? he is drinking the supply-side kool-aid and we cannot underestimate how much comprehensive tax reform on the business and personal and international side has been the
holy grail for several administrations. ,here is support for tax reform making our business rate more competitive. what is fascinating as we have seen experiments recently in states like kansas where the ideas if you print ask rates down that will boost revenue and boost job growth. have not seen that in the states that have experimented with more recently. it's in the -- it's an economic theory but it does not always come through in practice. had an economic adviser to donald trump on earlier and we asked what it did for the deficit? from my experience, talking to some ceos, they will be very receptive coming down for a 15% tax rate for corporations but is affected by whether you bring money back onshore. >> most businesses would get behind this, bring the top right
down to 15% is a huge move and brings us back in to global competitiveness. holidayrepatriation would allow companies that have trillions overseas to bring that onshore back and that has been talked about for decades. elusive been part of an set of reforms. it's coming from a republican candidate. so much of the establishment has been reluctant to support this. david: he has, long way from paul ryan. >> this is right out of the paul ryan playbook. david: what about politically within the congress? president andcted has a republican majority, there are many people in his party who are deficit hawks. could he have the support to get this through? >> we don't know how this will be paid for. bringing the rates down, we don't know how they will allow
for job growth and stimulate the economy but that's the theory. what we are not sure is if he gets elected, it is likely that he would get some type of comprehensive tax reform package through in that scenario. whether that is likely given the recent polls and let's not forget that hillary clinton makes a big economic speech on thursday. it will be interesting to see where she is doing this. david: where is she doing a? >> david: in detroit. thank you very much. solar city and disney are reporting earnings after the bell. solar city profit as opposed to be down 850%. ,esla is buying in and disney bob iger will be interviewed at 6:15 p.m. david: the conversation has to start with espn. jonathan: how will they fund
that deficit? there are auctions coming up. notes, 20 $4 billion worth and we will look for the demand their. in the meantime, we still have stocks grinding a record highs. the s&p and the nasdaq art near record closing highs. an all-time high potentially on the s&p 500 and a rally in europe. all of us, this is "bloomberg ." coming up next is "bloomberg markets. ♪
on bloomberg television. ♪ vonnie: we will take you from washington to london and cover stories in germany and brazil in the next hour. investors,prised naming the latest financial forecast and planning to sell about $8 billion worth of assets. is the second half of the year a little too ambitious? >> when the time comes to negotiate britain's future relationship with the european block, the uk prime ministeradd-on to every of demands from european union nations. where the red line could be drawn. for in and what to watch disney's third-quarter results. the latest on the theme parks, ruby studios and tv networks. a few let earnings and an interview b