tv Bloomberg Go Bloomberg August 12, 2016 7:00am-10:01am EDT
set a record high for the first time since 1999. while european stocks away, there were losses. david: german growth eases. but italy's economy unexpectedly stalled as they prepare for that referendum. alix: and china's recent economic stabilization stumbles in july. retail saless and investment all slows. jonathan: welcome to "bloomberg ." alongside alix steel and david west on. the first time in 17 years, we get to say record, record, record. david: we remember what happened 15 years ago and it didn't work out so well. is this like that or not? alix: and the stock that led the s&p. ralph lauren, retail stocks doing really well this week. retail sales on friday at 8:30. key numbers for g.d.p.
david: and maybe give us an indication whether we can keep that stock rally going. alix: indeed. we have great guests including dan yergin. he will reveal how the outcome of the presidential election could impact the shell business and his outlook for oil prices. and pimlico c.i.o. will join us and take us through the u.s. open. the market really calm today. jonathan: very calm. the d'backs down.1. a quiet turn to friday's trading. the bloomberg dollar index, about a 10th of 1%.
-year gild yields down by 20 basis points. we're turning the upside down a little bit. we're up by about four but coming up record lows on gild. the 10-year treasury note coming in too. a 30-year auction and worth $15 billion worth. a bit to cover which gives you an idea of the demand was low. and we had a sell-off across the curve. commodity market, down. and down about a 10th on crude. w.t.i. had a massive rally as we've seen. but a lot of it on the back of a happy talk on another opec meeting for some stable accusation or production? alix: opec didn't cut when oil was 26. but now at 43, yes. does in the make any sense to me. we will take a look at our top stories.
oliver turns back the clock and talks about owl three major indexes at record. i feel like we're partying since 1999. >> that party didn't end so well. and it ended pretty soon. but here's the other thing. when you go back to 1999 and you go into the late 1990's, they're partying like this all the time. that's a superlative we have right now. it and goes back years because it happened so frequently. valuations, alone and high prices don't kill a bull market and neither does age. you have to find out what's going on. earnings have not been in a very good situation over the past five quarters. and now we're looking at
third-quarter growth turning negative. so you have to look and you have to think about what's happening on the company level and think about what's happening on the macrolevel which is a little more of a positive case for equities and asset because at the end of the day, there's not a lot of place to put your money. alix: we hear analysts have revised down their annual growth to negative .8%. how does something like this not matter as much in the stock market? oliver: throughout the entire past year, whenever you talk, you say things are going to improve next quarter. it does keep getting pushed back and it's getting pushed back again. but the point is yeah, those earnings situations are not good. what people are looking at is the expectation as always that those are going to turn around. we have seen some pretty positive economic surprises. a few misses but overall, the surprise has been climbing higher and that helps stocks as
we go into this rising rate environment. it gives us an idea that equity prices will sustain and that's really important. alix: today point, thank you so much. and david, key will be those retail sells to see if that can help support the stock market. david: exactly. retail sales coming back less than 90 from now for the month of july. one of the most important is how the u.s. economy is doing. for a preview, we turn to rick -- rich. what are we looking for? us? will they tell rich: we're going to watch the details for this to see some of the more discretionary components of this. that will let us know how things are going. without the consumer and is contribution over the last three quarters, we will be in an economic recession here.
we have a capital spending recession. business is not booming as much as we would like. we have manufacturing activity is wake up and exports are not -- waking and exports are not doing very well because of the stronger dollar. and we don't have much help from the government in the way of spending. so we're looking at signs to see whether or not the consumer decides to toss in the towel. we're going to talk about how fine and dandy things are or are not. david: we'll get a top line number. that will include gasoline and automobiles. automobiles we think is up. gasoline is down. so what should we really be looking? rich: you want to take gasoline down. you'll probably see a decline in those sales. and then you're going to see -- but i would watch restaurants.
they're a very discretionary care. that matters the most. the people are not feeling good about the situation, they pull out and tend not to go out and dine out. david: thanks, rich. he's the senior economist. jonathan: a ton of data including g.d.p. data. and many of you have heard this story before. a two-speed europe. germany outperforming and italy underperforming. let's bring in bloomberg anchor caroline hyde from berlin. italy, germany, on two separate paths, it seems. caroline: precisely. that's half of where we had seen the previous quarter. back in the first quarter, and you're right, the decide ver generals, the problem the e.c.b. has, germany, the power house, double what happened in terms of their growth. doing the heavy lifting within
germany growth. italy on the flip side, stagnated, surprisingly, 0% growth. of course the debt that hangs around the loans at the banks really choking off that credit upply. jonathan: imagine in a couple of month's time, the whole of germany, the center of it, berlin will be looking south. looking down for the referendum there. you wonder how a soft g.d.p. printed for the prime minister. caroline: the music is not good for rensi right now. and italy is a country close to your heart, your origin, jonathan. every number doesn't seem to go his way. he's stated his political career on referendums but overall, november, he's going to be calling that vote. it's all about curtailing the
power. none of this is going to give him political support. survive it and of course, we're tackling those all important banks. the loans hanging over his head. it's not looking too pretty. germany, all eyes on italy before they turn their attention close to home for the elections here. jonathan: thank you very much, caroline. in the market, political risks doesn't seem to matter. european loss recover the bricks losses. -- brexit losses. let's go to alix steel. alix: you can thank retail for bringing us to those record highs and nordstrom helping us again up over 11%. it beat on earnings. sales did fall last year but
that was ok because it wind up having a lot of online store sales. so it's up by over 9% despite the fact the brick and mortar ales are down. also checking out wynn. it's a very different story for this company. only got 150 gaming table farce new casino in macau. it had wanted over 400 tables. may get 50 more over the next couple of years. this is 37% of what they wanted. and the video -- you're moving higher in the market. raising its third quarter. sales estimates 16% over what analysts had been anticipating. you have p.c. sales but we're using more video games and it's helping the chipmaker. so the good and the bad when it omes to in a vid ya.
> bombs exploded in two resort towns killing at least four people and wounding 20. foreign tourists who are among those hurt. the thai government doesn't know who is behind those attacks. hillary clinton says donald trump is on the side of the little guy, which is a myth, in a speech in michigan, clinton laid out her economic plans and ripped into trump's. hillary clinton: he called for a new tax loophole. let's call it the trump loophole because it would allow him to pay less than half the current tax rate on income from many of his companies. e pay a lower rate on millions of middle income families.
>> at the summer olympics, michael phelps of the u.s. made history again. he won the 200 meter individual medley becoming the first swimmer to win the same event at four straight olympics. in gymnastic, ceremony biles lived up to several years of expectations and won the all around goal. her teammate won the silver medal. the u.s. is on board with the top. this is bloomberg. john? jonathan: thank you very much, emma. coming up, a slew of economic data out of china and the results are showing a hiccup of the nation's economic stabilization. plus, retail stocks were flying off the rack after some strong earnings yesterday. but will july's u.s. retail sales number show a weaker consumer? drew mattis gives us his analyst
jonathan: from new york, this is bloomberg. i'm jonathan ferro. maybe the one data point you need to look at is china's credit growth slowing to a two-year low. turning away from old growth engines that may need boosting. he joins us from hong kong. credit growth, happening right now. >> that's the big takeaway. we're seeing a big correction.
two ways to read this. you can say it shows weak demand for credit which speaks to self- expansion plans among companies and a weak consumer. but on the other hand, it's the government responding to ongoing or increased fears around a ability in china that the debt is going too big and too much leverage in the system. we know there's a debate going on among policymakers a few months ago that warn us of the three risks associated leaning on chief credit. so i think the jury is out and credit data in china can be hard to read. it can be skewed. but maybe the government is trying to pull back off the el slater a little bit. -- accelerate a little bit. jonathan: where are we now around 6.9%.
it's not an ugly picture looking at this, is it? >> no, it's not and the guys did run the numbers and it's an interesting picture they paint. it's not a hard landing that many people are forecasting and expecting for china. but at the same time there, are plenty of warning signs. the third quarter's clearly off to start. we had misses on the data. retail sales, factory output all came in softer, all weaker than the previous ones. the private investments are the real key because the factory is not spending the money, then the government's going to have step in, keep pushing stimulus into the economy and keep adding to the debt. so it's no disaster but there are plenty of warning signs and it looks like we've started the second half of the year on a very soft note. alix: i feel like we got these data points six months ago but that's not happening. the only place i really see it
is in the copper price today. why is that? >> i think the chinese market have broadly stabilized but there's still a lot of fragile sentiment on there. there's still a lot of government intervention. they're still playing a role on the stock market. but what i would say is that there's a disconnect on what's happening on the shanghai borders and on the economy on the ground. going forward, it would be interesting to see if the market still respond to the worries and fears that china's economy is going to another slow patch. jonathan: thank you very much for joining us. and to your point, alix, if they're going to concentrate on credit growth, base metals, copper, devastating and they're going to get hit big time. alix: exactly. copper is the same in china.
alix: some may say it's the second most important data point in the u.s. retail sales. expectations are for increase of .4% but the question -- can consumer spending be high enough to boost g.d.p. growth to 2% this year? joining us now is drew matus, u.b.s. deputy chief u.s. economist. drew, you have a target of 2.2% u.s. g.d.p. growth this year. what kind of reiterate sales do we need see today? drew: we're expecting the second half to look a lot better than the first. the consensus number will get you into a very healthy consumer-led economy in the second half of the year. and we'll have to watch out for
the downdraft from things like inventorys and obviously some of the weakness in cap x. and our view is inventory will run their course and that should be to the better growth. alix: we still see consumer spending to hold up. but personal income growth annually is at its slowest rate since 2013. how does that make sense? drew: understanding whether or not people are afraid because when people are afraid, they save more. and so we're in a weird environment right now where people are saving more despite lower rates. so that's one of the reasons u.b.s. thinks lower rates hurt the economy. but then on top of that, you do have very low levels of lay-offs. if you like your job, you can keep your job. if you're not worried to lose your job, you don't need to lose a lot of precautionary savings. so even though wages are not growing that much, inflation is
still reasonably low. consumers are seeing their standard of living better. david: what are the indicators that tell you the consumers will be there for the second half? do you look to sentiments because you're concerned about the psychology of the spender? drew: people spend more when they're decompressed -- depressed to be honest to you. off bad day at work and you walk into a chocolate store, do you go in? david: or ice cream. drew: or ice cream. all those different things. if you see your neighbor laid off, you'll get more nervous. i look at bank lending data. that will tell you that people have access to credit. and bigger surveys tell me what c.e.o.'s are thinking is happening with their new orders and employment numbers. because if c.e.o.'s aren't happy, they're going to try to figure out ways to make themselves happy and it usually involves boosting their stock price.
alix: looking at retail sales numbers before, what's the weakness? where are you going to look to find it? drew: that's a great question. you know i will be looking at the relative relationship between online vs. in store and seeing whether that shift is accelerating or what's going on there. because people do spend very differently. i can't remember the last time i was in a store. and i don't ever necessarily need to go back to a store again. you know, i don't think i'm alone in that and if anything, that's accelerating even more for younger consumers. david: if you go back a month to look at what happened, the online was up substantially. the mall stores and the chain stores were actually down in the retail sales numbers. one of the questions off the earnings we just got from pacies and nordstrom's is whether that's coming back from the brick and mortars. alix: does it matter where
they're spending? drew: no, but it can create interesting dynamics. one is how do you understand what's happening with inventories? if the inventory is all held at a warehouse and you're ordering from there, it might mean that you don't have to hold as much inventory. we don't really understand the dynamics of how that all works between retailers having some inventory on hand and being perhaps intermediateuated by some of the online people. alix: and you can see that struggle if you look at person consumption versus actual business spending. there's enormous gap between the two. personal consumption up 2. %. private investment down 3.4%. we're not used to seeing this kind of gap. david: sooner or later, you have to have the businesses investing. drew: yes. businesses should be investing but once again, you know, this is one of the problems with very low interest rate is that it's very hard to drive a company out of business because they can
always refinance at a low rate. if you tell a c.e.o. that there's no cost awaiting for more information, they tend to wait for more information. if the cost of time is zero, you wait for perfect information. it's a natural response. that's why zero is no the best rate to stimulate the economy. alix: thank you very much, drew. jonathan: interest in the cost of time. coming up, us the u.s. dollar on a soft spot? there's been no gains in the greenback. we will debate why. from new york, this is bloomberg. ♪
it gets 54% of revenue from apple. does this call into question what the smartphone lineup and shipment story will look like in the back half of the year? also taking a look at m.n.a. friday, silicon graphics, hewlett-packard enterprises buying the company for $275 million in cash to compete with he likes of dell and lenovo. 30% of sales for silicon graphics. and moving on to comcast, looking at the company to do the olympics. a five-day chart. we're looking at the company is supposed to do a make good right now meaning they didn't meet their target in terms of viewers so now they're going to give the advertisers some space for free on the network. did they have enough? did they hold back enough to provide what they needed to do for those advertisers? hold back enough of their airtime there. j.c. penney also coming out with
earnings right now. looking at net sales coming in at 2.9 billion dollars. that looks light. the company is reaffirming its full year of forecast. boost bang in 2% line with estimates and the growth margins coming in a touch light at about $37.1%. in terms of their stock, it was up earlier by as much as 3% in premarket trading helped by colin's and nordstrom's over the last 48 hours. but now the stock is flat. that's the theme of the day. jonathan: 1999, the last time you woke up and had a record. welcome to 2016. future stable ahead of the open.
stocks soft in europe but the ftse down 1%. and the d.a.x. down about a quarter. this is a quiet churn and a week of gains in europe. in the fx market, we're up on the bloomberg dollar index. for the commodity market, fascinating. happy talk at opec. the potential for production deal. again, we're playing that game. crude the biggest week of gains since april. softer on the day though with w.t.i. down .4%. copper where the story is. down by 1.82%. weak data out of china and a pullback in the commodity segment. here's the story on bonds. 10 year yields come in. we're in by two basis points to 1 p.c. and for the data, this is where the weak climax is. it's about an hour away. 8:30 eastern time as u.s. pay rolls. it's the one you've been waiting for and we'll bring you that right here on bloomberg. the retail sales number,
payrolls friday. it's all happening today. after a week of some strong jobs data friday. we're looking at the retail sales number to see if the consumption story really holds up. that's your business story outside. let's get to emma. >> thank you, john. russia is ratchetting up the threat of retaliation against ukraine. moscow warns the deaths of two russian servicemen won't go without response. in response, ukraine put its troops on alert. russia is looking for an excuse to further military threat. russia seized crimea in ukraine in 2014. the f.b.i. has high confidence that the russian government hacked democratic party groups according to a person familiar with the matter. the f.b.i.'s findings underscore the extent which the agency believe that russia has spied on u.s. elections. security experts believe the same russian hackers hacked
george soros and the top nato general. this will be the most active hurricane season twins 2012. the national oceanic and atmospheric administration says there could be as many as eight hurricanes before the season ends and half of those could be major storms with winds of at least 111 miles per hour. global news 24 hours a day powered by 2,600 journalists and analysts in more than 120 countries. this is bloomberg. david? jonathan: thanks, emma. earlier today, our colleague francine lacqua spoke with italy's former prime minister. francine joins us for our morning must-read which is a must listen. francine, there's been a lot of concern about italian banks. what does he prime minister have to say about them? francine: there has been a lot of concern if we look back to two weeks ago. it's very clear that the italian banking system was one of the weakness.
they have so many non-performing roles. last time i checked, david, it was about 360 billion of non-performing loans. that's low. so i put that question to the prime minister and he said it's not great at the moment but it's a little bit better than what the investment community have brought things. have a listen. system, they do have their problems. they come out of a number of years in which they had onsiderably less problems. - like germany or spain. now, it's different and you've seen them ease and it was a big problem, actually. that was the only case in which during my government in 2011-2013, the state did
intervene. francine: david, it was a fascinating conversation because he also, i guess felt the need to offlittle bit why back when he was in charge as you were saying 2011, he didn't accept the bailout. this wasn't for the banks because he put measures in place that are now considered not enough but he didn't take the bailout that spain did at the time. david: he can't now because of new e.u. regulation. that would make that difficult. but in your conversation, took a little shot at the angelo saxon world. what was that about? francine: he said the italian banks are concerned but not as bad as what people think. this is not lehman. no one really will go pear shaped. no one's about to go fall off a cliff. but it's maybe when you're
inside the country, you feel very differently than when you look at it from the outside. but there's also a perception about a time line that people accept that this could take a longer time. if you're an investor, you don't have that time. let's have a look at what mario monti told me. >> i have the impression that italy's banking system is a problem. but i also frankly have the impression of the especially the anglo-saxon were that problem is being slightly exaggerated, maybe also to inadvertently seek to divert the attention from brexit and other major problems. francine: so it was a little bit of a shot. it has to do with duration. if you're a market, you want to be dissolve now. -- dissolved now. david: this is a fascinating conversation. thank you, francine.
jonathan? jonathan: thank you very much. in under an hour's time, we will have a retail sales number after strong payroll last week. does the strong labor market translate into strong consumption? the dollar over the last three months has done nearly nothing. it is up by 1.82% after three months of pretty solid data. joining us is a strategist. data good. dollar, nothing. why? >> i think the market took the strong numbers as a risk con. the numbers are solid. they support equity and the general risk sentiment but the markets are relaxed about the fed. the fed seems to deliver a cautious message in july. "people" don't expect anything to come out in december. this is a window of opportunity to get back into those high yielding trades. so people are buying high yielding currencys and that's spilling where the dollar is
pending. jonathan: you put out a note last week and it was like divergence between financial conditions and what's happening with the dollar and this spread has started to emerge. can you explain what that chart right there tells you right now? >> it's key because one of the main objection is while the feds cannot tolerate any gains in the u.s. dollar because this will tighten financial conditions but we will see about may, the financial conditions and the dollar have diverged. even the dollar is doing better, financial conditions continue to ease. this is very different from where we were late last year and early this year, where the two really move together. so when the fed talks about the dollar, there will be a point where they look at the broader picture and say we can probably live with a little bit of dollar strength from here and still tighten. so the idea of a fed tighten and
the stronger dollar are not contradictory at this point. alix: we've also seen real yield here in the u.s. move higher as well and that haven't had sort of the disastrous consequence for the dollar and the financial conditions. >> yeah. a lot of it has to do with, you know, whether we can withstand the general tightening in rates. the jury is still open. the main concern we have as investors is maybe focusing on the wrong part of the yield curve. everybody is talking september, december but if you look at 2017 and 2018, this is where we're pricing not very much for the fed at all. if that part of the curve starts to adjust, that's going to help the dollar. it's a bit of an open question. we think the fed adjustment is gradual. we think we can live in a world where the dollar strengthens a little bit. but risk doesn't powerful the
cliff. jonathan: let's explore that more, that part of the curve, that segment. the terminal rate of the fed just keeps coming down. productivity in the first quarter, second quarter, you saw what it was like. it was incredibly soft. and that reconciles with a lower terminal rate. why should i be pricing more rate hikes given what's happening with productivity and given what's happening with potential output? >> those are all valid arguments. have they been pushed to an extreme? there's a view of the world out there where, you know, the yield should be at 1%. we think that's optimistic even given all the headwinds in the economy. alix: do you feel like -- what is your dollar-yen call? >> we think dollar yen is going higher. it is going to be a slower process. there was this moment where we thought that it's back to the again.- b.o.j. it's psychologically very important but for dollar yen to
go higher, you need the u.s. story to work out. and we haven't seen that yet but we think that's going to happen down the road. if you're possess miss, you shouldn't be along double yen. but if you're optimistic, dollar yen should be getting higher. jonathan: a fascinating discussion. there is definitely a market out there. you've got the likes of morgan stanley saying stay bearish on the dollar. alix: the question is you get really smart people saying the opposite thing. that raises the question. >> you need to fire the seller. alix: chairman clinton unveiled their economic policies. we're going to compare the two and tell which candidate will best address the needs of the economy. this is bloomberg. ♪
alix: this is "bloomberg ." hewlett-packard ahead of the greenroom. an analyst joins us to discuss the u.s. dollar and the fed. david: this is "bloomberg ." i'm david westin. yesterday, hillary clinton laid out her economic plan and throughout her speech, she drew sharp contrast with her opponent donald trump. here's a sample of the back and forth. donald trump: just imagine how many more automobile jobs will be lost if the t.p.p. is actually approved. it will be catastrophic. that's why i have announced we will withdraw from the deal before that can ever, ever, ever happen.
hillary clinton will never withdraw from t.p.p. hillary clinton: i will stop any trade deal that kills jobs or holds down wages including the transpacific partnership. i oppose it now. i'll oppose it after the election. and i'll oppose it as president. donald trump: upon taking office, will issue a temporary moratorium on new agency regulations. hillary clinton: i'll do the opposite. we will strengthen those rules so wall street can never rack main street again. donald trump: we are also going to bring back trillions of dollars from american businesses that are now parked overseas. they can't bring their money back into our country. our plan will bring that cash home, applying only a 10% tax. hillary clinton: because it would allow him to pay less than half the current tax rate on income from many of his
companies. he pay a lower rate than millions of middle class families. one non-partisan expert at the tax policy center described this plan as and i quote "a really nice deal for donald trump." of course it's hard to say how nice, because he refuses to do what every other presidential candidate in decades has done and release his tax returns." david: we have an analyst to talk about the candidates. they've laid out different positions as we saw in that video. to whom is each trying to appeal? >> we saw from hillary clinton yesterday. it was surprising. it was a very, very left-leaning speech. there war few centrist things she talked about in the meeting to unleash the private sector. she talked about empower entrepreneurs and get regulations out of their way. but this was something that her
left-leaning fans would be very happy. david: something that bernie sanders would say? > exactly. as donald trump hugs the right on a lot of his economic policies as hillary clinton hugs the left on a lot of her economic policies, you see them both not willing to see this trade ground, this trade policy ground which is an awkward position for the clintons to be in. david: what about the middle that they have to compete for? are they -- which are they going to appeal to? >> most of the competition for the middle, at least from the clinton side seems to be based on character and kind of warnings about donald trump. so as my colleague wrote on bloomberg politics this morning, she's framing donald trump's economic policy to different ways. one, he's just your standard republican ideas. they've been tried before and they failed. and she's also saying he's this
reckless wild new candidate that we can't trust. and these ideas are reckless and we can't afford to try them out. david: so when it comes to the middle t not so much about economics, it's about character? >> a lot of it seems like there's where the competition is. david: this is supposed to be a week about economics. but donald trump seems to wander off and talk about other things. >> as he often does. david: who is the real founder of isis. hat is that all about? >> you would think donald trump would love to weigh into this economic fight with hillary clinton. this is his wheelhouse. and a lot of polls show this is where his strength shows and yet when on the day before clinton's giving her rebuttal, on the day that she is giving her rebuttal, donald trump, all he talks about and doubles down on is on president obama, co-founded isis, he says. he's been -- he was pushed on it yesterday. he continued to say that he wasn't misspeaking, that he was
-- that he needed to say it in this way because this is how it would get noticed which is something he's done before. his point is more nuance that obama created this vacuum in the middle east that allowed isis to exist. but what's interesting today, now he's calling it sarcasm and we've seen it before. he said something provocative. he gets headlines. he distracts news that he didn't want people to pay attention to and he walks it back a day or two later. david: how does the republican party reacting to this? this is not the first time that they wanted him to be in a matter of substance that he gets into something else. how are republicans reacting? >> we're starting to see a lot more anxiety within the republican leadership. there have been reports that there have been some threats in the trump campaign that they might withdraw funding and might turn their focus to say donald trump, you're going to keep this up, you're on your own. donald trump and his campaign dispute those reports. but we do know they've been
trying for a while to script him and get him on message. he does it for a little while and then he goes back to his own ways the question is whether or not he can have it both ways, right? so he can keep being provocative and walking it back and going back and forth and will they be ok with that? >> appears to be all about tax returns. is she going to win on that? >> she is expected in the next day or two, maybe today to release her 2015 tax returns and tim kaine will raise 10 years of his tax return. we've seen republicans pressure trump on this before and that suggests that it might be a message that might pick up with some of the centrist independent moderate republican base. david: something to watch today. thanks, steve. that's steve. jonathan: coming up, we will show you what's behind the s&p 500 record high. that's next on bloomberg. and off the charts from new
david: record high. nasdac, dow and s&p, what are behind these record highs? over $5 billion in the last week. but yet you don't have a lot of stocks making 52-week highs. these green bars show the percentage of stocks making 52-week highs stands at 7%. typically, that and the s&p move in correlation. you got highs, s&p rallies. but ever since the beginning of july, the number of stocks making 52-week lows has dekleined and is bumping along while the s&p keeps grinetting higher. and that does stand in contraction for the stocks stat are above their 200-day moving average.
that number stands at about 80%. the highest level in a year. and i looked sort of deeper to see what were the stocks that moved the market this week. the first stock, ralph lauren. the biggest contributor to the s&p. that stock is over its 200-day but not at the 52-week highs. some of the other stocks, pioneer natural resources, macy's, they did make new 52-week highs and they did bust above their 200-day moving average. so might we see even more momentum in stocks as we might hit more 52-week highs? who's buying? that was my question. these lines at the bar chart here, forget that for a second. this red line are insider buying. number of officers and directors of companies that are buying their own stocks. that is now fallen about 44%ing from a year ago in july to just 316. but the s&p is at record high.
these guys tend to move in opposition, right? when you had a record buying from these guys in february, you had the stock market hitting their yearly low. same idea back in august. when you had a decline in stocks, you had insider buying also very high. so what does this say? does this say we're going to see more buying here or are the insider bias -- buyings calling some type of top? jonathan: fascinating conversation. a gains the biggest since april. coming up of "bloomberg ," dan yergin joins us to talk about oil prices and m.n.a. and the energy sector. from new york, this is bloomberg. ♪
stock averages hit record highs for the first time since 1999. european equities erase brexit losses. jonathan: oil heading for its biggest loss as they may discuss possible action for marketability. weekendina's stabilization stumbles in july. credit and investments. david: welcome to the second hour of "bloomberg ." i am david westin with jonathan ferro. jonathan, we are less than 30 minutes away from retail sales. spending,business soft consumption, we are looking to see that in today's retail sales number. alix: the increase in july, since 2013, if you're not making a lot, how can you keep buying? david: drawing down on savings, i think. alix: we'll have great guests including daniel argan -- dan
.uergen and his outlook for oil prices. and that pimco cio of global credit will join us at 9:00 a.m. to the u.s. open. looking at the market u.s. equities at highs but still calm. jonathan: 29 minutes from u.s. retail sales. 19 minutes from the open in new york. futures marginally positive and stable. on the dax, down by 1/10 of 1%. it is potentially closing out with a week of gains. in the fx market, the bloomberg .ollar index of .01% in the commodity market, here is the action. week chinese data. factory output, credit growth as well. copper, the proxy for chinese
activity and the old engine for growth, down 1.8%. wti may have had a massive week, that that the price gain is more subdued. the fx market to the bond market, 38 gilt yields give up a big week of gains. down 20 basis points. giving some of that up. today's session of life three. the five year yield, coming in two basis points ahead of the sales print. yesterday, we had a 30 year auction to capture how much demand was there. it is the softest and three months. retail sales, the next big indicator. alix: the other options we have had, we have seen stellar demand. let's check in with the coverage of our top is test our top two stories. a preview of sales p or mike regan joining us with all three major stock indices at major sales.
john: let's bring in carl riccadonna for bloomberg. karo, tell us what is on the program. strip autos and gas. tell us what is next. carl: a huge increase in auto sales between june and july that will distort headlines. we have seen a larger than usual in july.asoline prices typically, we have gas prices slide in the back half of the year, but it is larger than what typically occurs. they will be countermanded factors. it is critical for the outlook, the monetary policy, etc.. we have to focus more narrowly on details. retail numbers, autos, gas, that averaged .5 per month in the second quarter. we are looking for .3 today based on the consensus of economists polled by bloomberg.
we will need to see real strength on that front going into the back half of the year. jonathan: the story of the first couple of quarters has been business spending. how strong to retail sales need to be for the coming months and quarters to keep the economic growth and get back to a two or three handle? only consumers are the game in town for the economy. we saw drags in the second quarter, like inventory liquidation and business investment. they will actually firm a little in the second half of the year, but it is on consumers. retail sales popped in q2 and faded in last year's. 4% tod to see momentum of 5% growth in q3 are q4 to hit the target. jonathan: u.s. economist for bloomberg economists. the number coming out in 26-and it's. david: we were looking to see if it would support the stock
markets. all three averages closed at a record since the first time since 1999. michael reagan joins us. we know what drove it in 1999. it was tech. tech companies that went south in 2000. what is supporting this rally? mike: what is similar about the dot com rally is that we are in a stage of aggressive evaluation expansion. earnings and profits are going down. stock prices are going up. literally, i think every strategist and analyst that i have been reading has pointed out that the valuations are getting stretched. this is a surprise to a lot of people. most strategists predicted a fairly flat market. the market s&p is above the year end average estimate of strategist from wall street, which is unusual. they are usually optimistic. the question is, are we overshooting?
stage of theberant bull market where we overshoot the fundamentals, and how high cannot go? we received wisdom from the dot com crisis that people went temporarily insane, and no one expected it to happen again. could it happen again? could we get close to those valuations? how much would that drive the market higher? if you return to valuations at the peak of the do dot com is 50% higher. most do not think that the market will do that. how far above the fundamentals can we shoot? take estimates down on earnings rather than up. one difference is we did not have central banks going to negative rates in 1999. what can we learn from that? mike: that is obviously the biggest support of the market
now. one of the stock market 101 things you look at is the dividend yield on the s&p 500. it is a little above 2%. historically that is low. the average is close to 3%. yield onher than the the 10-year treasury. stocks look attractive because of that yield, even though historically it is low. david: thank you. that is michael reagan. alix: for more on the rally we are joined by the global chief investment officer at columbia thread needle investments. of the last five years, what is going to break the rally in stocks? continuing.tum is i'm getting more afraid of the hurting of investors into both stocks and the search for yields. they are being pushed into corrals by central-bank policy.
we are past the point where that is acceptable. it is becoming bizarre in terms of valuations being paid. i heard your last section on the discussion on the equity market. if equities overall are highly price, you look at utility stocks where there is the old element, it is being pressed. we are pushing too far on some of these measures, particularly where there is a mania for yields. alix: you are not alone in that. many baird risks. if you base your evaluation strategy on risks alone you would've missed out on the rally . how do you square that away when you are looking at risks returns for example? colin: as long as people are where both sides, i agree. if you waited on valuation, and remember that valuation is a central measure. at fair value.
investors need to be aware momentum can carry. measure how far from the fair valuation points that you are, forthat will show you the behind the momentum trade. there is a point where that snaps back. that is when investors get caught out. i do not think the band is stretched, but the elastic is getting stretched, and i am concerned. particularly in certain sectors with a push for consumer staples and utilities is really stressing out valuations. david: if you are concerned about the snapback, and you are an investor, you get out of utilities and staples, where do you put the money? colin: that is the issue, if you can hedge that. we are talking about that at the company, how can we hedge? in thee seen a surge demand for low volatility stocks.
you would say, reduce the beta of the portfolio, but it is the low beta area that is expensive. your normal defensive stance has essentially been removed because that is one of the most expensive parts of the area. -- you usee to derivatives as hedging to provide parameters for the market volatility. not many investors can actually avail themselves of that. it is getting quite complicated. i think areas like munis, although they have performed well, are reasonably attractive, but nowhere near the start of the year. it is really how you create alternatives that people can afford and understand that will come before in the next year or so. they really are so heavily priced and complicated that we are seeing most advisors not putting money into alternatives. alix: we have s&p consumer staples, 2.5%.
rate. an investment officer still with us from boston. the small bank in bavaria -- dan: i've lost the sound if anyone can hear me. jonathan: david, this is a small bank in bavaria in excess of 100,000 euros. 0.4 percentarge you for the privilege of having the money on deposit. something five to 10 years ago would have been unimaginable. while other banks follow suit? what is it due to the behavior of the consumer? if you think they will charge you to hold your money? jonathan: if you are european lender, it is a small case study for you. if you see that money leave, you will say, i will not do this. if the money stays, i'm going to do this as well.
alix: if we see the trickle-down, what does that mean for central-bank policy? do they have to stand back from monetary stimulus and focus on fiscal stimulus, like in japan? jonathan: we will bring in colin moore. the bank in bavaria in parting negative rates to deposits. effecttalking about the of lower bound. the effects of depositors to pull cash away from banks and put it under the mattress or in physical storage. is this the beginning of an ugly story? colin: i do not expect banks to do anything else. i'm not sure what central banks expected as the response to negative rates, but this action by the small bank in bavaria is the beginning of a series that is likely to start. i cannot see any other response. it probably means a move further into other assets. maybe that is what they are trying to do. the previous section on valuation, i'm not sure that is wise.
i would advocate for central banks to step back. the policies no longer stimulate .rowth please step back to something more normal. the end remains strong, but the market rallied aggressively. yields cut in the u.k.. the gilt bracket is driving. what doesep back, that mean for global markets? let's say theoretically if the boj steps up september 21 and says it was a mistake. we will take rates back up, even though they are in negative territory. what signal with that send to global markets? colin: initially there will be volatility because it is a surprise. we are addicted to the policy. like any addiction it will cause tremors. what is in the best interest of the growth of the economy long-term?
not these policies. it has to be more constructive fiscal policy. i do not blame central banks because they have been left alone and there needs to be more response, but they have to realize the limitation of their policy. investors realize that this is better. when we interview over 700 cfos the year and no one is saying that they are not investing in the future because interest rates are 10 to 25 basis points to high or too low. it is their confidence about the future. the central bank needs to change the approach to say we are confident and are seeing signs and's or normalizing. also pay investors a reasonable rate on deposits. jonathan asked an important and relevant question. how will markets react to increased rates? ceos, but
consumers. i wonder if this is having a perverse effect. you are communicating you better not spend your money because things are rough. ironically, if rates went up, they might be more inclined to get into the economy? colin: that is right. people are storing money because the yield is so low that they need to create more savings to .reate the same level of income or, they are being herded into more risky asset classes which look expensive to me. if the markets are supposed to represent what is happening with the economy and corporate earnings, ultimately, it is worth going through the cycle of taking the market all ability it i was talking to jonathan about, seeing improvement in consumer and corporate confidence come through in sustainable growth. the markets should react positively. a lot of people talk about growthevaluations being over interest rates, but it is
interest rates plus risk premium. when low interest rates are going down, the risk premium goes up. i heard someone say the market should be 50 percent higher if we actually took current interest rates. the reason it is not that high is because people are saying there's something wrong in the world. that is what central banks tell us with their policy. it would release confidence if things were normalized. no one can tell me that if unemployment was at this level they would guess u.s. rates would be this slow. -- this low. alix: thank you. global chief investment officer of threadneedle. jonathan: consumption is still strong. retail sales 10 minutes away. we will give you them live on bloomberg. will results indicate a comeback of the u.s. consumer and confirm the story we have seen over the last couple of months? dan yergin joins us to discuss
jonathan: from bloomberg's global headquarters in new york i am jonathan ferro. payrolls were last friday. i know that. i am just excited about retail sales. don't worry, we are on top of things. u.s. retail sales a few minutes away. retail stocks performing well after better than expected earnings of coal .5%, leading the rally in the s&p 500. getting excited about payrolls from last friday. strong payrolls, will it translate into strong consumption and strong retail sales?
dan: we look at payrolls year-over-year. while the absolute number was better than expected, the growth rate is one .7. a deceleration from earlier. o-hum.d say it is h we are seeing acceleration and wage growth in lower income households which gets me excited about walmart. jonathan: the story last year and the trade of 2015 was to go short in energy and long in consumer. it mattered what area of consumer you went after. the consumption story was with amazon, not walmart. why so much excitement about walmart when so much growth is happening online and they seem to be find occurred despite the acquisition. dan: we have to look at what is going on in the stores. com is 3% of their global
sales. improving story conditions, in stock levels, cleanliness and have a bigger impact shorter-term. your point is well taken that growth is online. that is why you have seen walmart invest heavily in their e-commerce business for the last few years. in this quarter alone we saw five important developments. the rollout of the shipping ats, a prime-like passing half the price. the marketplace adding one million skews per month to play catch-up to amazon. they have started to emphasize price more aggressively online with rollbacks and special buys. they are expanding the grocery online and pick up in-store and earnings.les then the proposed acquisition of jet.com. we will see walmart's growth rate accelerate in e-commerce.
david: sometime ago, the senior leadership obama said that we have to move into online and in best a lot of money. they took down their forecasted earnings. doesn't the jet.com acquisition indicate that that plan was not working, and this is a redirection? , $3 billioni think on a website that had been up or less than three months. dan: the price tag was eye-popping for gmv value of $1 billion. what they were really by was talent and technology. i do not think it was about what walmart was doing not working, it was about how this could be complementary. as you know, jet.com, only 1-year-old, was over indexing to millennials and higher income households, urban customers. something that walmart has under indexed to. it is a complementary fit. without knowing the synergy that
they had as they struck the deal, i can only say that not in thegenerally habit of overpaying for things. i suspect when you look at the processes and technology they can apply to their current base and new partnerships with vendors, and the growth of a plan over time, we might look back in five years and say this is brilliant. strategically, they understood that they needed scale. scale gives you leverage. jonathan: good to have you with us. how many minutes away? alix: 3.5 minutes. jonathan: retail sales coming up. alix: we will break down those numbers. this is bloomberg. ♪ ♪ everything is awesome
♪ awesome internet that's super whoa... ♪ ♪ everything is awesome xfinity. the future of awesome. hohey s w'oiit ghong, estcak ?estcak .th hyso wn' aret't ey llseca hotkes? hkeca cwithstomcain business rntean d e.ju ddst aus a czetomimed e y towiour rofi pas splgeh pa an u'd yo 'll yeachstr somer eie esr a adylr -ju ddst aus a czetomimed e y on diresevic pas splgeh pa .or upder . 'it' tstn jui, wif c itelan howp grr younebusiss. odintrg ucin pwifiwiro, fi hthatpselyow usur bs.ines u 'doe t eth dvery.ay ascomcbut .ss t builbufor sssine jonathan: from new york, this is "bloomberg ." i'm jonathan ferro. the markets, 20 seconds from a u.s. retail sales numbers. uterus marginally lower on the
s&p 500. ip d. down three basis points on the u.s. 10 year. 1.53%. a rally at the front end. the dollar softer. looking at a cable rate, a turnaround. the retail number is out now. alix: the number, retail sales .acking out cars and gas, -.1% estimates were for an increase of .3%. the number -.1%. the retail sales is flat. we had a slight revision for june. .hat was .8% it is a surprise for markets and economists looking for strong retail sales to support u.s. growth. jonathan: the rally at the front end, treasury yields down by four basis points. the 10 year down by five.
the dollar weaker off the back of this. the dollar index down by .3%. producer price index, a year on year basis, an increase of .7%. .he estimates were for .2% any inflationary hope come you can blame energy in terms of the overall number, is not being supported. an increase of .7%, backing out food and energy. jonathan: the debate will be of everyone spent money on automobiles last month without money for anything else. i wonder if that is the positive side. when you strip out the autos and gas it is a downside surprise in the markets reflect that. david: we want reaction. the chief u.s. economist for barclay. what do you make of it? >> you had it right. the autos number was solid, but
we knew that with incoming data. expected. weaker than i would say it in context, remember the last several months were strong. sequential improvements are sometimes difficult. .etail sales is a noisy signal for example, stronger signal from outright auto sales data than retail sales data. that said, it is a disappointment relative to expectations david:. there has been high correlation between retail sales and services. that correlation holds. is there something about the u.s. consumer and how much they spend. therel: it doesn't mean is no signaling retail sales, but in terms of durable spending, housing demand, that gives you the true picture of where household sentiment is. the point is that this will make consumption off to a slow start in the third quarter.
we were not looking for consumption to grow at the same pace as the second quarter. we are looking for something around 2.5% to keep the economy and a modest above trend profile . it is not a complete surprise that we will see an ebbing in consumer spending given we were at 4.2% growth rate in the second quarter. jonathan: the early reaction in the market is yields lower, the front end down by five basis points. the 10 year yield below 1.5%. gold rallying, the dollar weaker. it was the last big data point. two weeks from the date speech by janet yellen. if you're writing the speech, what would you put in it? michael: we're going to hear one of two things with this speech at jackson hole. we're going to see the for markets have rebounded, we are
comfortable inflation will gradually move higher, and i will queue markets back up for a rate hike which could come in september or december. the alternative is that, productivity has been week. we are not seeing price pressures. maybe we should shift focus from labor market momentum and wait for actual inflation to improve. you heard this from board members. governor powell, governor tarullo, reserve bank president charlie evans. you might see a shift of the goal posts. labor markets have rebounded, recession risk has come off, but we are not ready. it would be a combination of productivity and inflation data that stay there hand. this data point fits that narrative. david: the same point from a different direction. if you had the 2% magic number for the year, we have been underperforming for seven months
or eight months. what extraordinary numbers would have to make it up to 2%? have we given up on that goal? michael: on the economic growth side? jonathan: yes. michael: you're unlikely to get q4 basis. it is the second half of the year. what has to get you there is a combination of a few things. inventories have been run off for five straight quarters. they have been dragging growth lower. we saw that in the second quarter. manufacturing needs to stabilize, energy needs to stabilize. point two, the consumer needs to spend at 2.5%. that is reasonable. the business sector investment does not have to pick up a lot, but there are awfully soft numbers there. a couple of things have to come together to get you 2% growth in
the second half, but still a sub 2% number as a whole. jonathan: the narrative has been strong consumer, strong payroll, this is one data point. is there anything in this that reshapes the narrative of the last quarter or so? michael: for us, it is about autos. if i'm taking my cue, it will be from that. in terms of what is the highest signal-to-noise content? the employment data, durables consumption, autos and housing. if the consumer is taking a step back, you will see it there first. implement will slow and consumption of durable items will slow. if not, other things will wash out over time. david: thank you. that is the barclay chief u.s. economist. alix: oil moving higher on the back of the weaker dollar. nowhere did trump and clinton
disagree more than when it came to energy policy. donald trump: we will lift moratoriums on energy production . we will revoke policies that oppose unwarranted restrictions on new drilling technologies. hillary clinton: we have to make a claim on becoming the 21st century clean energy superpower. alix: what can we expect in january and how are companies preparing? here is daniel yergin. you need to make his miss decisions for the next five years. how do you buy the ceo make business decisions when you have trump versus clinton radically opposed? to: i think people are going focus on the here and now in terms of business. i hear senior executives talking about the first part of next year in a very crucial time to have a serious dialogue about
energy before things are locked into concrete. they are concerned about the direction it will go and how realistic the choices will be. if you get a congress and the whole u.s. political system moving against trade, you production?t energy is that the direction of travel? daniel: one thing that is striking and different from the first clinton presidency when trade was good, now, everyone thinks trade is bad. on the energy thing, it is very divided. 2 different perspectives, 2 different worlds, yen and yang -- yin and yang. is anllary clinton it missions, for donald trump it is the epa. this requires
congressional approval to get there. the executive branch has within their power to set a lot of energy policies. daniel: that is the struggle in the court, what the epa can do on clean power plant. with hillary clinton's. the one running against bernie sanders who said we are going to put so many regulations that we will stop it. hillary clinton as secretary of state started a global shell gas initiative. her last speech in 2013 a secretary of state was about energy security. it is different. the question is, if she becomes president, which hillary clinton will it be? one more thing. succeed, ending fracking, all oil imports would go up. would go up. price under donald trump's plan, if you open more places for
drilling it would add to production and lower oil prices. daniel: what we saw was the success of the drillers. the u.s. was over success. the result was one of the main things that led to prices where it is today. jonathan: saudi arabia. oil prices being affected by rumors of what saudi arabia may or may not do with production? daniel: it was a very deliberate statement from the saudi petroleum administrator. he is saying financial markets are driving prices below supply and demand. we have seen incredible buildup of bearish sentiment looking at inventories, demand, and so forth. with a few words he changed that .y saying we might do something suddenly, the bearish bets don't look so good. we will see if they will are if they want to. the oil market will be back in
balance. supply and demand is working. jonathan: potentially the biggest gains since april for crude. what is bullish at a record high? daniel: what is bullish is if you are getting into the overall balance of supply and demand. it is record high production for .he saudis u.s. production is lower than the spring of last year. market is balancing. in the game, though they are probably getting d&a limit. iraq is there. aroundents and non-opec the world, it put the brakes on. alix: in the u.s., the oil rig count is starting to climb. we have yet another inflection point. we could see production come back online sooner than we thought. daniel: we are still thinking u.s. production bottoms out early next year, but it will be price driven. management's and boards feel
confident in price. you see the rate count, activity, resilient companies saying we can do well at this price level, too. david: he will be staying with us. up, m&a inoming energy. how much dry powder is on the sidelines and where to put it to work. more with daniel yergin next. from new york, this is bloomberg. ♪
alix: something monumental happened in the energy market. chesapeake energy got rid of the barnett asset, the birthplace of of pipelineout contracts. the problem is a high debt load and negative cash flow for a decade. daniel yergin of ihs markit joins us. do we see more of these deals, getting out of contracts, debt swaps? daniel: the new numbers are that there are 240 billion dollars of upstream properties for sale around the world. some of them, a lot of them, in the united states, but a huge exchange of assets. of thingstting rid they say are not material. there is a debt disposition of property going on. alix: what companies are the most memorable?
is it just looking at that load or more to it? daniel: how do you be more efficient, what is productive and not productive? people were going into areas were only was not productive at $100 a barrel. what is out there is that we put the numbers together. a lot of investment will come from financial players. one third will come from financial players in terms of acquiring assets. alix: how much dry powder is out there? 100el: $80 billion to billion dollars, then sovereign wealth funds and hedge funds. a lot of money. the financial players have invested $245 billion in upstream properties. alix: i feel i've heard we will have the m&a in asset sales for a long time. is there something that happened in the last month or two months that will force companies to sell?
daniel: i remember year ago, people suggesting -- alix: i've been waiting for two years. daniel: they year ago, a year and a half ago, it would happen but it didn't because the gap between buyers and sellers. i think some of that has closed with the persistence of relatively low prices. the pressure is on people. you have seen the budget cuts by company on expenditures. alix: do you feel banks will pull back lending to oil companies that has triggered this? daniel: you started in the spring. people look at the collateral, and you hear about auditors from the government coming and putting pressure on the banks. the banks pressure the company. that is part of the picture. alix: you have the news from chesapeake. by some they say chesapeake should not function looking at the debt load and the negative free cash flow, but the debt to barnett to getnd
out of pipeline contracts and renegotiating with williams, keeps them alive. do you see a lot of zombie companies in the energy market? daniel: i do not want to brand company, but to say survival instincts are very strong. there are different ways to do this. people are looking at portfolios differently than before. in even terms of jobs, the number of people working. people are reacting. we saw last winter the large independents are cutting the budget i 51%. survival instinct is very strong in the oil and gas industry. alix: does that prolong rebalancing? daniel: i think rebalancing is going on, and it took a while for u.s. production to go down, but it is down to 1.2 million barrels a day. alix: no one knows when u.s. oil
production will come back, 50, 60, 65? daniel: 50 is the signal. people will say as they have that 50 isht on 60, probably the stabilization price . some companies say in this range they can make money, particularly if they are in the otheroop plate and the play in oklahoma. that matters where you are. people are more efficient. alix: we are seeing declines in deepwater. non-opec is falling as well. where does the supply come from? daniel: that is a crucial question. looking at our numbers for the next five years, 5 million barrels to 6 million barrels and makeup for decline at the same time, where will it come from? you have have larger projects that take 5-7 years that have been postponed, delete, or cancel. we think it comes from the g5,
canadaf countries, u.s., . we were redoing our numbers and we think russia could at five to six million barrels a day, which no one expects now, but the cost structure has dramatically changed. alix: what price does this need? gulfl: the g5, $50, the countries, that is the highest -- they are mostly competitive that. they have central cost oil. no one is more competitive than saudi arabia. alix: using more declines? scum up or down? do you see more declines? the next price move, of or down? the markets are focused on, financial investors, when it will be is a campaign
against financial investors, against the shorts. think the saudi petroleum minister, that was his message. alix: thank you. daniel yergin ihs markit vice-chairman. up, u.s. versus u.k. equities. both have had big runs, but which is more profitable to invest in? we tell you in the battle of the charts. this is bloomberg. ♪
look at what is going on. i saw a version of this chart from asset management. this is going back. blue. gdp in italian gdp in white. euro-area in purple. i rebased them to q1 2008, precrisis peak. look at the massive divert chance. this is german gdp, up 106 relative to 100. italy down to 91%, a massive drop in economic output. the general euro area gdp, not doing much, but up a little. we saw strong germany and weak italy, but this broader look drives home how wide the diversions has gotten. alix: this was made for john. yieldsking at dividend minus two-year yields for the u.s. and u.k.. the white line is u.s. dividend yields.
dividend yields on u.s. stocks minus the u.s. 10 year, not at a record high, but the u.s. stocks are yielding that much more over the 10 year treasury yield. for england, it is very different. 3.29%re at a record high, . for the u.s., the highest 2008. for the u.k., beating 2008. do you want to buy u.k. stocks because the dividend yield is more juicy over the gilt yield? that is despite analysts seeing earnings contractions for the year, though they see growth in the following years. it looks grim in the short-term. david: by u.k. stocks and sell italy. jonathan: if it was made for me, i'm going with joe. david: alix you have my vote.
control room? alix wins the battle of the chart. jonathan: the reaction for the downside surprise with stephen engle -- steve englander. a big rally across the curve. two-year yields down by six basis points. 10 year yield of a seven. 30 year rallying six basis points lower. is dollar at the front end rallying, the dollar is being sold off. a softer dollar story. the cable rate, 130. new york on global markets, this is bloomberg. ♪
opening bell in new york. this is "bloomberg ." i am alix steel with jonathan ferro and david weston. -.1%. retail sales backing on auto and gas. jonathan: treasuries rallying and yields lower, a weaker dollar. a be the fed will do nothing. it is a single data point. in the same month auto sales were big. david: the half-full part of the class if you are an auto company. alix: if you have peaked auto, what supports gdp growth? can we get to 2%? david: it is unlikely we will get there, you will have to make up so much territory. thisve terrific guests hour. the pimco cio will join us in a few minutes talking about where he thinks we are in the credit cycle. after the retail sales numbers,
how much does the data matter to the fed anymore anyway. we will pose that to the citigroup global market managing director, steven englander. salesan: u.s. retail matter. futures were positive and are now negative. the s&p market in europe, it is muted. the ftse up 1/10 of 1%. the fx market, stronger dollar story. the bloomberg dollar index, the stronger dollar story is not developing, it is down by .5 of 1%. the weaker dollar story is developing in the last 30 minutes or so is emanating from this. the bonds market. the front year to year yield down by six basis points, 6.8%. rallying across the treasury curve. retail sales soft, that is a fed that will do nothing, right? maybe.
two weeks from janet yellen's speech, a lot of momentum building to that event. the commodity market, to wrap this up, soft china data out. the proxy for china, the old engine for growth is copper. .ow by 4.41% the dominant story is u.s. retail sales. the consumption story has been a positive for the u.s. economy for a couple of orders. it is a week data point. alix: in contrast with individual retail names, we did pretty well. you can see that in the earnings of nordstrom and jcpenney. 1.4%rdstrom sales fell year on year, but the discount .tores are up 11% it also raised earnings outlook. getting upgrades from analysts this morning. jcpenney was relatively the same. their loss was better than the loss expected.
you have people ordering online and picking up in the store and buying extra items in the store. a different story when it comes to retail. i want to highlight another czrr, cz are energy -- energy. this is from the new york post. it is majority owned by carl icahn. the last highlight is a food stock. ruby tuesday getting hit hard in the premarket closing. 95 restaurants -- getting hit hard in the premarket. closing 95 restaurants. not bad for retailers, but not great for the restaurant name. abigail doolittle is at the nasdaq. gale: it looks like gamers are really going. they are upgrading to the new product cycle with better than
expected reports hitting top and bottom estimates. earnings for 100% growth year-over-year. 24% growth year-over-year. nvidia is firing on all. turning to a small cap's stock in the premarket, shares of the take server company, a buyout from hewlett-packard enterprise for $275 million, improving the data analytics and boosting profits next year. it looks like we have m&a action on this summer friday. alix: thank you. abigail doolittle. nejra cehic in london. european stocks taking a leg
down along with u.s. futures due to retail sales. you have big movers? nejra: the stoxx 600 overall is soft, down .2%. in terms of movers, looking at the gainers. this is after bank of america raised it from neutral to a buy bit of oil prices playing into this. this is denmark's biggest company. this stock is up 2.9%. this is after it met punishing market conditions with cost cuts leaner business. they reported an 88% drop, they suffered from falling prices, the earnings report was actually a beat. that is why we are seeing shares move higher. the stoxx 600 year to date. yesterday we side recoup post brexit losses, lagging behind
asia and u.s. shares. looking at the stoxx 600 year to date, it is still down more than 5% this year. also, investors are underweight for region shares for the first time in three years. still evidence of trauma lingering looking at options, volume, fun flows. -- fund flows. the picture is not great, even though we have recouped post brexit losses. , this recovered in a few days. not in dollar terms, though. days of gains, we snapped a little today and are softer on the ftse 100. i want to show you sterling over five days. 1e worst performer out of ge -- out of g10 currencies. we are above one dollar. alix: thank you.
david: we will come back to retail sales. the big story of the day. they were out 30 minutes ago, a little more than 30 minutes. from bloomberg economics, we are joined from washington. this was a disappointment given what economists were predicting. is there good news? >> if you are an automaker. car sales look solid, but clothing, department store sales, they look very weak. that is bad news for the fed. consumers have been a bright spot. we are seeing a slowdown that could compound worries about the international growth outlook and bad news for september. david: is this another piece of information about job numbers? does it reflect that the consumer does not feel they have more money in their pockets from their jobs? >> it could. it is hard to tell.
this is only one number, so it is difficult to see what is going on with the trend. this could be a reflection that growth was slow at the start of the year. we had definite downtrend in job gains. that could be playing out in retail numbers. david: how much of the numbers are historically subject to are subject there to revision. we saw that in june. june was revised up. if there is a bright spot it is that. it is important to keep in mind as we look at september the end when janet yellen gives her speech in august, she is going to focus on that these numbers could be a transitory blip that will be revised. david: thank you. economics reporter from washington. jonathan: soft data around the united states and the potential that all three stock indexes that are greater to yesterday, not done since 1999, we could
see a retrace off the back of this. bloomberge corresponded. we put out a story on bloomberg that profits for this quarter coming, even more negative than before. looking for a fall of 0.1% for the year. 0.7%.quarter, down 0.8%. the picture four weeks ago was incredibly positive. what is the turn? mike: the outlook was for 5% growth for this quarter and last quarter. the recovery in profits is pushed out, but the market does not seem to care. the low bond yields, the reaction to retail sales was interesting. treasure yields dropped pretty strongly. a level that 1.5% it has stayed above for the last
month. breaking down again and making stocks look more attractive. question is, when we enter what they call the year for your phase of the rally. i was re-watching an interview with one of the deans of market analysis, and it has been accurate all the. the question is the wind we enter the phase that people do not care about valuations. i just need to get into the market now? i do not think we're there yet because there's so much skepticism. talk note that i read about how valuations are high and future returns on valuation are not good. that suggests there is a lot of skepticism. for contrarians, honorably most investors -- oddly, most investors try to be, it is a good sign. jonathan: london last year, the way they use things, it was
buy that marks the top. i get nervous some people say it is different this time. you have the central bank with a $4 trillion balance sheet. 80 trillion. the ecb doing its thing, that must change things. david: it is a world we have never seen before. it reminds you of 1999 where people were investing without regard to valuation. they did not want to be left out of the tech bubble. we are approaching the bubbles, but still miles away. the s&p would need to be up another 50% for the valuations to look like then. the question is, once bitten twice shy, to we push it that high? i don't think anyone believes that will happen, but there is room to go as long as the yields in the bond market stay low.
one interesting story on bloomberg was about a small german bank that is charging negative interest rates on savings accounts. if you cannot get a positive interest rate on a savings account, where do you have to go? in the u.s., deposit rates are positive, but on an inflation-adjusted basis, they are negative. when you subtract the cost of living, you're probably losing money on your savings. it is forcing people, to some degree, to stay invested or enter the stock market if they haven't been. not only is it different, it is unprecedented. i think those are the reactions of the market. thank you, mike regan. the pimco ceo on where he thinks we are in the credit cycle. after the retail sales number, how much does the data matter to the fed? what will it mean? we will post that to steve englander. this is bloomberg.
jonathan: from new york city for viewers worldwide, this is bloomberg. a down surprise. from lastle change month. treasury yields sliding down seven basis points on a 10 year. joining us with his perspective is mark kiesel the pimco cio of global credit joining us from newport each, california. -- newport each, california. the federal reserve in action all over again? what is your initial view after looking at the numbers? mark: even going into the
numbers, the market was only pricing in a 40% chance that the fed was raised this year. with the data, that will go down more. what is interesting is that 10 year treasuries are yielding less than 1.5%. the hedging costs for foreigners has gone up significantly. for foreign investors, japanese and european investors in the treasury market, when they hedge the currency risk, the yields are less than zero. the u.s. treasury market has become less attractive because .f lower yield also, hedging costs have gone up significantly. the picture, you are looking at low yields across the world. investors will look at other assets than government wants. jonathan: looking at the auction on the 10 year, indirect bidders, there's huge demand. doesn't that tell you demand from abroad is still strong?
mark: some investors buying treasuries just because they are trying to get dollar exposure. it could be a currency play. look at the alternatives. the 10 year rate in japan is nine is 10 basis points. germany, -10 basis points. european rates have come down significantly. u.k. rates down 100 basis points . 10 year sterling government bonds, 50 basis points. the 1.5% looks good on a relative basis. fair point, but looking at the pimco return holdings of u.s. securities and related debt, at 50% of total assets. if you make the case we have had these are options and there's other places to be, does that mean you will be reducing holdings? is it the wrong call for pimco? to deemphasize interest rate risks in developed markets at these levels and tilt the portfolio to taking slightly
more credit risks. opportunity inre credit markets. u.s. credit markets can still offer 3% to 6% yields for investors. we like emerging markets. emerging market wants can offer 5% to 7%. in a relative world, credit and emerging markets looks very attractive. david: does that mean you're backing off of u.s. treasuries and changing allocation coming out of those? deemphasizingbeen rates. our argument is the fed will move higher than what is priced in.the first 25 basis point rate hike is not projected for another year and a half. we think that is too pessimistic . that the fed will ultimately raise rates. because of that we do not want interest-rate risks, particularly at the front end of the curve. we are seeing opportunities in nonagency mortgages, bonds tied
to the consumer, and we have increased emerging market exposure. jonathan: we caught up with the goldman sachs asset manager yesterday. listen to what he said. >> to borrow a phrase from great singers, feeling a little bubbleishious in the market. we think the demand will last it doesn't work anymore. like we saw pre-financial crisis, it doesn't end well. jonathan: the conversation with goldman was not how it ends, but that you cannot take a view on treasuries without the same view on credit. the fate of those 2 classes in fixed income seems to be the same. what is your view on that? mark: that is true. the data is there with rates to spread. but we would say looking around the world, corporate ons are the richest in the u.k.. a sickly, you have a central set set to buy on's and --
to buy bonds. are buying 8ey billion bonds per month, the ecb . the fed is not buying corporate bonds. if you look at the basis between default swaps and spreads, they richest in europe and the u.k.. they're still cheap in the u.s.. if you want credit risk, the u.s. market and emerging markets will be the most attractive place to get credit risk today. david: talk about credit risk and where we are the credit cycle. we hear some say that we are into the cycle, may be coming to the end. mark: our review is the consumer in the u.s. is 70% of the economy. you have wages that are rising over 3%. 2.4 millioned private sector jobs. the unemployment rate is hitting lows. leverage the
significantly. there has been no overinvestment on the business side and banks are healthy. catalyst for recession, domestically, in terms of service businesses, is low. we are tilting exposure more to where fundamentals are the most healthy. we think housing is midcycle. the economy is more late cycle, housing has a runway. significantly under building versus demographics and household formation. housing, the cycle can continue. other areas are focused on the gamingr like telecom and . we are favoring more where fundamentals are strongest and shifting to emerging markets. that is where we think fundamentals are improving. alix: if we see the credit cycle bursting of isn't that a washout across all sectors? matter?damentals
pension funds moving up the risk scale, lots of corporate leverage? mark: the main driver of the credit market will be energy. we saw that at the beginning of the year. energy contributes 25% to 30% of the credit risk. thanrices will matter more what we're talking about in terms of the systemic issue in the overall default risk. with the consumer healthy, it is unlikely you will broadly impact the credit or get. when we have the next consumer recession, you will want to be out of corporate bonds. the fact is with energy prices near term they will be a bigger driver than most factors in the credit market. jonathan: coming back to 50 52 button this up quickly. the story this week has not of been -- has not been about a reach for yields, it is a reach
for supply that isn't there. i am talking about the bank of england and the uncovered operation. what was the first thing you thought with the headline crossed? thing we have been thinking for honestly three to four years. the demand for high-quality income assets in the world exceeds supply of assets. that is why you're seeing support for bonds and credit spreads are tightening. this is a secular phenomenon. the demand from institutional investors. world foracross the income generation is enormous. central banks taking out income producing assets from the marketplace. you have 11 trillion of negative yields in government bonds in developing markets. the dilemma, there is more demand than supply of income producing assets. jonathan: your message for janet yellen would be to take the emphasis off rates and do
something with the balance sheet? mark: no. our message is when you see in slackn head to 2% and come down in the labor market, which we are seeing. we are seeing evidence of broad-based wage inflation. our view is the fed will ultimately move. the market is not pricing the fed to move until the end of 2017. we think that is too far. we are deemphasizing short-term interest rate risk in favor of credit asset. we think the economy is doing well enough the fed will be able to move. mark kiesel fantastic to get your insight after the downside surprise from u.s. retail sales. we hear the same thing, pivot from sovereign to where the yield is in credit. the conversation yesterday was beware of that because the fate of those two things in text income are intrinsically linked.
david: it is pay cure poison come interest rate or credit risk? market saying he would rather have credit risk, but watch out because it can come back to bite you. that and you have those are not typically in the market that need to deliver returns. they need to go up the risk scale and take that on here if the bubble bursts, what happens? jonathan: so many people reach for yields. it is reach for bonds and supply. the defining moment for the bond market was the bank of england i could not find enough supply. there are not enough for them to buy on the long end. david: there's a story in bloomberg today that links these points. the pension plans and the bank of england lying longer-term bonds. when they went to pension plans they said, these are against liabilities down the road. we cannot sell them. jonathan: and if we sell them to you and you give us cash, where
would we put it? momentnear the defining of the session. what it means for stocks. no drama, futures down .1%. 21 on the doubt. the drama is in the bond market. froms retracing the spike yesterday, down seven basis points. south of 1.5%, trading 1.49%. the dollar is a little softer with a cable rate through one -- 130. the attention's shifts to the equity markets where 1999, the doubt, s&p, and nasdaq at record highs. the cash open is next. this is bloomberg. ♪
s&p 500. a softer session is developing in europe. a weaker dollar story of the fx market. you can hear the opening bell in new york this friday. u.s. retail sales are down. there is a stronger yen. the cable rate is getting through 130 replete. it's the move in treasuries that catches my eye. by seven basis points on the day. it there is some disappointing data for the polls out there. let's get the market opened. a clear 25 seconds in. alix: stocks are backing away from that record level they started yesterday. it's not any kind of washout that you might have expect. or a look at the futures
sense of where we were and were we came after that retail sales number. you get the retail sales number. that's a sharp -- #down. it wasn't just the disappointing sales down 1/10 of 1%. foras also disappointing the consumer price index. it there is an increase of just 7/10 of 1%. where is the inflation? both of these data points are having an effect in the bond market. this is your 10 year yield. you look at this and believable drop. -- unbelievable drop. 22%erday, the market was with a rate hike in september. now that is down to 18%. the market does not see a 50% chance of a rate hike until march next year.
that has been reflected across the curve in the bond market. this will have an important impact on a banks. if you look at them, they are dependent on rates were the net interest margin of what they are about and what they went out at. that has an effect. of the prospect of a rate hike is pushed out even further. jonathan: the dollar sinking a little bit as retail sales and housing is down. steve, let's begin with the numbers. : we expected a stronger number. we still need to see what the impact is of week gasoline prices. that spills over into the headline. this is coming after three months of very strong retail sales. this is the 38,000 that we had in payroll.
it was a one-month aberration and it disappears. i don't think it's going to affect decision-making that much. retail recognizes the volatile numbers. jonathan: you could look at the curb. do you look at that is noise where we have traded on the week unchanged almost? the market casts and recast. last week we had bp. then we had the payroll and the lights turned it back on again. there will be some discussion about whether september is in play. we don't think of that is likely to hike then. extrapolating one very volatile number which is out of line with recent numbers and assuming that every number that all is is going to be exactly the same. i think the market has been doing that a lot and has an trip
up by that. fed,: if you are the wide-out you just say i am going to take off my hands until you show me some real growth and some real inflation. there is no reason why i should be raising rates. steve: no one thinks 200,000 jobs as the long-term equilibrium for the economy. what they don't know is what the supply side is capable of producing. they argue that it's week because demand is weak. the evidence isn't strong. you view supply-side is independent of macro policy. what number do you look at that tells you if you're going to go at or above or below potential. from their perspective, the labor market numbers are the most reliable. alix: they are not that the give a deal.
as the dollar declines, those currencies get pushed up and it brings them to lessons. the kiwi was rallying despite a rate cut in new zealand. why is it happening? in central banks only care about the fed? steve: i think they care a lot about the fed and the market was hot to trot going into the kiwi numbers. there was a segment of the market that thought they might do 50. the market read the statement as being lackadaisical. we sort of told you we would give you the ease that is fully priced in. we are going to ease sometime in the future. we did not say it would be soon. we said issues were acute. the market priced in a bit more. that is when we saw
the kiwi weakness initially. for the broader market, the dollar is in the driving seat. the dollar in the driving seat and this perception that if it rallies too much and the fed don't take too much of a big deal about what the dollar means for the fed. are you in that camp as well? fed uses thek the dollar as something to point at to explain the dovishness. the dollar has not done as much damage over the last few years as advertised. let me take issue with something you said before. if you look at markets since the beginning of the year and look at foreign central banks, the problem they have encountered is that because rates are low in many of them are negative, the market does not believe they can ease very much.
you have issues with banks in europe. you have issues with net interest margin. the problem that they have is says we think we would like to raise -- he's more. your rates are so low that you can't do very much. you're forced to be more hawkish in your economy is telling you you should be. that's the reason we see the yen move. ecb is done nothing since march. that was a disappointment. even the comments that you see from the bank of england saying we will not go low zero. they are still in positive territory. the issue they are facing, the market says you don't want the ease as much as normal circumstances you would. david: how do the markets price that?
they are out of ammunition or close to out of ammunition. how do markets price that out? steve: they are trying to adapt to the situation. what you are seeing is because central banks talk about credibility all the time, they tend to argue that they are moving aggressively toward the target. sometimes the target market leaves them. the reality is they don't do as much as the market stop a would do to get to the targets. the markets are still trying to calibrate what they can do versus what you think they are saying they are going to do. december --e a big september month lined up. what is the currency cross that you wake up to every morning to tell you what the next move is going to be? is it dollar yen it? even: there are lots of functions in the market.
sometimes it's waking up to what they've done overnight. and i say thisue with respect to the fed is they have backed away from data dependence. 200000 and we are good to go. now they are talking about how low long-term rates car and implying the other is getting 200,000 is because the yield curve is flat as flat the. is thisy are focused on long-term concern that the economy is going nowhere and they can't afford to raise rates. the market has backed away from thinking all we need to do is get to 845. we would begin to normalize. now the fed implies that normalization is far away. david: i was going to say i wanted to stay. we want to talk about what data
on the back oa weaker dollar, stronger everything. switch out the board. the catalyst is the downsize surprise on u.s. retail sales. what you see is a weaker dollar and yields lower. that is driving low blast that classes. let's get you up to speed on the nasdaq. abigail: we do have the nasdaq slightly weaker as you were talking about. important is the fact that the nasdaq is a airway from being positive on the week. if it can turn hire, it will be the seventh weekly game -- gain in a row. shares are higher on a very strong second-quarter work. revenues doubled. the streak continues with alex henderson.
he says a super cycle in china growth. this is the most robust demand cycle in optical history. there is a shortage of 36%. some of this could be a short squeeze. records, we're watching to see if the nasdaq will put another record in today. there has been a very strong second report, better than expected. earnings were 100% growth. that is 24% growth. they are firing on all cylinders. the stock is up more than 80% this year. that is a very big strength there. alix: the big story in the market is the dollar moving to the downside. steve is back with us.
you were talking about the data dependency of the fed. if all of a sudden we get 2% inflation, it does not mean the fed is going to hike. steve: what they have been implying very explicitly is the target has shifted above 2%. they haven't said that in a formal sense. saidf the speakers have the loss function is asymmetric. they would rather miss to the upside because they feel they can deal with it. they don't want to miss in the downside and be close to zero rates. i would say effectively what they have been sick all he is maybe 2.5, even though the formal target is still too. david: they want to run it hot. is there anything indicating what they have been doing getting in that direction?
gdp has been going the other direction. we get the retail sales today. his or any danger of getting bove 2% this point? steve ultimately we will get there. david: is that right? what we thought was the relationship between labor and inflation doesn't exist the way it used to. steve: the phillips curve has been affected by more than just the labor arc it. labor market is the most important. some of the short-term of factors like food prices or energy prices would cause volatility. what is interesting is when you look at the product to the numbers that came out this week labor costs have been above 2%. there is some sign that the combination of admittedly poor productivity growth which we don't know if they can do anything about and the
compensation growth, we are kind of it that benchmark. jonathan: ben bernanke wrote about this earlier this week. he pointed to low per 70 and potential output damaged. it's been pulled lower. is that the story right now? the story they are emphasizing. if you're growth is less than you think it is, you're getting close to the full capacity faster than you think you are. wherever your equilibrium rate is, you are going to get there faster. that is lost in the discussion. alix: it's hard for the fed to know what that rate actually is? it's hard for them to compare with the rate is now as compared to what it's going to be. i would contrast that with the other rule.
you can argue that inflation is observable. the unemployment rate is observable. you know exactly what you are doing. what fed officials talk about in a dynamicate context, they should give a confidence interval. how wrong it might they be? it is a mile wide. alix: do we want more information from the fed? it's communication they really don't know. alix: we've got to leave it there. thank you so much for coming in. david: coming up at the top of the next hour, it's going to be bloomberg markets. great guests.ome we had all of this talk about slowing global growth.
the u.s. retail sales are stalling. we're going to look at the asset management cio and chairman. we're looking forward to that. he is talking about the challenges ahead for the industry. he is going to talk about navigating the area. we are in an environment where it's harder and harder to find those returns and navigate risk. also going back to those retail sales, we've got the former jcpenney ceo on our show. he will be talking about jcpenney at about the u.s. consumer and what lies ahead for the u.s. consumer. threey, we have those u.s. indices hitting a record yesterday.
we initially perceived. we thought the dnc had been hacked. the e-mails got leaked to wikileaks. that upended the narrative of the convention. the russian hackers who were in have highrk, they confidence it was the russian government behind. this pulls and the political information ecosystem in washington. investigators are following breadcrumbs and found an earlier site that purports to be set up by american hack to this. it looks like they tried an iteration of setting up their own site before they experimented with wikileaks and started dumping a lot of stuff on there. there is an e-mail dump from a high-ranking nato general.
like are small things clinton campaign aid in chicago. there is the soros foundation. they have a bunch of documents there. up over the scoop last 18 months or so. they are looking for ways to see them into the debate. david: what is the motivation it? hack, itt the dnc influences the election. the e-mails from the nato officer, he is the general in charge of nato. was it anything particularly sensitive? michael: it wasn't classified information. it did betray some interesting things. it was his personal gmail account. they have very secure work accounts. accountsing his gmail to reach out to people for advice. in this case, he reached out to:
paola couple of years ago. the obama think administration was paying attention to the security of europe. it created this perception there was a gap between the white house and the lee terry security of europe. -- military security of your russianthere is some intelligence agencies taking e-mails and putting them out there in ways they think the meeting will bite. david: thanks so much. that is a fascinating story. alix: let's take a look at what's coming next. we have sentiment coming out at 10:00. cpi is coming on tuesday. be you miss is going to pretty interesting. jonathan: productivity is down.
the terminal rate is lower. it, they'vet put got to do something for rates quicker. the destination out there is shower. the rate that you get there is faster. david: the per unit cost for wages is going up. jonathan: the market reaction is clear. no drama in the equity market. yields are lower. the dollar is legal -- weaker. that doesn't. thank you very much. this is bloomberg. ♪
we are going to new york and cover stories out of the u.k. in china. this is what we're watching. sales at u.s. retailers were little changed in july. that's not stopping big department stores for making strategic moves in order to boost the bottom line. we will look at the u.s. consumer and results this week from macy's and nordstrom. a tale of diverging economies. germany's economy grew better than expected. that is helping the euro exchange -- maintain its expansion. retail sales at a mass -- missed. its a guestng for weekly advance since april a