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tv   Bloomberg Daybreak Americas  Bloomberg  March 3, 2017 7:00am-10:01am EST

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after a pullrope shows macron taking over for le pen. more controversy in d.c. more questions raid regarding the attorney general's conversations with the russian ambassador. this is bloomberg daybreak. i am jonathan ferro alongside david westin. snapchat. if you like a company that loses money, you will like it. david: a lot of people liked it yesterday. >> follow-through buying as well. it is ranked just a load travelers. initiating. youd: if you are the ceo, are feeling a fair amount of responsibility to justify those numbers. trick --d kerr cap hat david kirkpatrick is coming up. crosss the situation
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asset for you. futures are a bit softer. down 0.1%. the story in europe is a stronger euro. alex: on the short end of the curve, you continue to see the yield grinding higher. a big move. dollar is a little softer. gold also softer but crude on the rebound from right around the moving average. see what has happened in the last 24 hours. snap is still trading. up about 24%. the high was 41% from the offer price. we are now down here. what will it look like today? it will tell us about technical and momentum trading. the real story has to do with the fed. janet yellen today at 1:00 p.m. -- all eyes on what she may say about march. you can see what the market is saying about march. the implied probability of a rate hike is now add 90%.
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-- is now at 90%. what will be the word that signals march from janet yellen today? >> she does not have to prepare markets for march anymore. if she does not like the idea, she has to lean massively against it. if you want to take march off the table. there are various options. say that she would like to see more evidence. we are not quite there yet and all of that stuff. but she has to tell it very clearly to the market that it went a little ahead of itself. even what we have heard in the last three days, since the late tuesday interview. all of the board members are
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aligned saying march looks likely. jon: what were they doing last weekend? harm: it is curious that a committee that has been pounding the table saying we should he looking at the data, has made this u-turn within a couple of days without better data. financial conditions look good things to stocks that the hard data has not improved in the last will -- in the last week. outlook is ok. jon: the big question. may2017 journey for the fed start a little earlier. has the ultimate destination for the federal reserve -- has that changed at all? at the banc of america, we have revised our call so we are expecting a march retype. hike.arch rate cognizance of financial technicians.
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-- cognizance of financial conditions. this has been a key theme for u.s. economists as well. the double whammy of financial tightening coming up with the tightening of policy rates and also the tapering of the balance sheets. we do plead reports will be released in the near term and the risk is somewhat overplayed. david: talking about a balancing act. is their ballots at this point -- is their balance at this point? fmoc were looking at the minutes to give us guidance. after that, it suggested that the march rate hike was off the table. the job of yellen and fisher has been made easier by williams and dudley. the bar is asymmetric. she can either follow through with a confirmation or she can
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challenge the current market pricing where the fed has arathi got it too. feels like they have already had their meeting. they seem to be so much on the same page. they claim that they are not taking into account the trump administration. do we believe them? harm: the stock market is up because of the stimulus indices. we have not seen any details. speech was good in terms of tone but there was no substance. i think the risk is the stimulus will come later than what we have hoped for. in our baseline scenario, we thought we would get something through by the middle of the year and growth would pick up at that point. steven mnuchin and is suggesting that they will get something through in august which puts us to the third quarter.
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indirectly, the fed is already taking stimulus into affect. alex: perfect for the chart i'm going to bring up. q why so much great this is the .loomberg -- thank you so much looking at how the extension has played out. the market can lead the fed. what happens if there is a selloff? does the fed have to back off? view.i will give my we were expecting five rate hikes between now and the end of 2018. maybe we have to pull forward. our call is june. we wanted to wait for yellen in case she threw a curveball. but i am feeling pretty good about saying that we will have five rate hikes. that they will
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want to do more. four hikes.ees maybe the fed wanted to tell a little bit -- want to do tell the market but it was a little bit too cautious. the fed has been burned in the last two years. when they were ready, suddenly, something popped up. right now, the red carpet is rolled out. a say they are happy to take this opportunity. and it gives them some flexibility to give three hikes. i think it is very important that they have this great opportunity right now and they want to take it. jon: looking at the fx market. 215 basis points and the euro was weak you would probably say that we would not see a fed move anytime soon. kamal: the global economy is
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improving. we have animal spirits. the presidency of donald trump is going to overlay that with potential fiscal stimulus. the world looks a much better place than potentially a year ago. china is growing. still some downside risks they are in our view. ultimately, the fed is taking the view that if it hikes in march, or if it didn't, it would have to potentially hike in june where you still have a potential fallout from an adverse political reaction from france. potentially, that is what is driving the position behind hiking in march. only recently have they decided that this is the time to pull the trigger on a rate hike. alex: looking at the dollar index. 102. it is high but not as high as it was at the end of december. is that because the market is not repricing the total retype probability in the next two years?
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kamal: the other thing that is important is the market needs to thisnto the donald trump gold stimulus plan. that is why we have pulled back a little bit. post the -- into the donald trump economic stimulus plan. we thought he was going to lay out a significant fiscal stimulus plan. the market may be waiting for that. trumpll think there is a risk premium being priced into the market. and the broad portfolio of our is looking at the dollar and the yen. david: who is leading? is it yellen leading or the markets? it looks like a combination of the markets and the fed. harm: the easing of the
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financial condition was an important factor in the fed's signaling to potentially shift the rate hike further. that is the sense that the market is leading. but there was a concerted effort by the fed members to telegraph to the market what they were going to do. if yellen conference today. offers, and the fed takes. if the market had not reactive, it would be a much harder job for yellen. i do not inc. there is a clear leadership your. it is both and it is not in balance. our guests are going to stay with us. we want to welcome our twitter viewers watching this when. nowmberg daybreak: asia streaming live from 7:00 until 9:00 every morning. .ou can catch that at bloomberg
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twitter.com. we will have special coverage of janet yellen's speech in chicago today. this is bloomberg. ♪
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jon: more trouble for francois oflon -- over 60 politicians his own party are disowning him with a claim that they can no longer support and when facing charges for embezzlement. first round election voting on april 21. chief joins usau from paris. great to have you on the program. the situation in the last couple of hours. a new poll showing macron ahead of the pen in the first round. talk to me about that. -- mark: aull is
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poll is just a pull. symbolically important though. the pen has been i had in the voting intentions for well over a year. here we are, two months away. this is quite a big deal. that symbolically, macron is pulling ahead. is within the margin of error of the pull but it is showing what strong momentum this independent candidate, who did not even have a party a year ago, has. there is a lot to play for in this election. fillon and the other candidate, how do those two names come together or separate in the coming months? mark: on the center-right come it is just a mess right now. in an defeated jupet primary contest in december.
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he defeated him soundly. and then fillon was hit with this scandal relating to the employment of his wife as a parliamentary assistant and whether she did any work and so on and so forth and now it has been a drip feed of news since january. feel it has been relegated firmly to third place in the polls. -- i do not party say his entire party but a number of important politicians are deserting him saying they can no longer support him if he is in fact charged with embezzlement. his opponent is coming back into the limelight. he has not said anything yet. i think the party needs to sort itself out of the center-right needs to sort itself out but it does not have much time. it is not easy. jon: for in investor base. and the probability of marine le pen. for the opponent to come into the race, what needs to happen
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in the next two weeks? mark: for investors, the thing to keep in mind is that if that opponent and up being the candidate on the center-right, that will widen the possibilities again. he could well take a few points from macron. in this race, a movement of three or four points can move things substantially. of center-right voters. we wrote about this earlier this week. it will not be an easy thing to deal with. the poll out today -- in the --se that this referendum is this election as a referendum of marine le pen and her desire to pull france out of the euro -- i still think things are wide open. we have had no end of surprises every couple of hours. anything could still happen. jon: still with us is harm of unicredit and kamal from merrill
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lynch. when a client calls you up and asks you what is happening in france, in 30 seconds, what you tell them? --what do you tell them? kamal: uncertainty. everything is still to play for. the narrative after the eu referendum in particular was not to trust the polls. there is a large degree of skepticism. pen may be underrepresented which was suggested by the leave campaign. ultimately, this is about an uncertainty environment. the market is on the alert for a potential move in the polls. and that could continue into the march presidential debate. euroon the left, the capturing the uncertainty in france. and on the other side, the mess
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in the u.k. and the relations with europe over brexit. what do you do with euro-sterling through the rest of 2017? kamal: we believe it will come under near-term pressure under article 50ion that will be triggered in the next few weeks. it crystallization of the risk -- a crystallization of the risk. a theresa may version of the negotiating process. the white paper will be readily agreed by the eu. we are looking for the initial response by the eu, the response to this divorce which could bring some stark reality to the market about the gap between britain's negotiating stance and the european union's negotiating stance. we ultimately think it will head higher. pointingerentials are to a higher euro-sterling.
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david: the lesson of 2016 was, black swan will happen in economics and politics. it may not mean as much as we thought it did. could that apply to france as well? -- in the uack swan k, the market reaction was not nasty in the beginning that now there may be a ripple effect. the market took it relatively easy -- easily initially. but now, we are seeing signs that there is pain. as a german who works for a european bank, we have been watching the anglo-saxon skepticism about the eurozone project for a long time and yet we are looking at these polls in germany and france, the two biggest countries in the eurozone, and it looks like we are ending up with a centrist candidate in france and certainly one in germany. merkel or schwartz.
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the extreme outcomes of elections. to -- weill have cannot let you go without that call. 122.30ere we are now -- -- what gets us down to 115? kamal: as much as the u.k. has its redline, so does the eu. the job of the eu is self-preservation. throughave of populism the european union. i would agree with harm in that we have been looking at opportunities to start saving the moves in the euro. the dutch elections could prove to be an important signal movecularly if the polls in a similar manner to what they are now. where getting to a stage the worst of the euro-sterling
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has been seen. alex: is that the most bearish call for the next month? jon: i have heard when hundred 10. alex: -- jon: i have heard when hundred 110. markets, this is where we stack up. as if you futures a little softer on the day. the euro around the highs of the session. across the curve when it comes to the u.s., you see the 10 year --to basis point brent crude up two basis points. crude is having its worst week in two months. this is bloomberg. ♪
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david: this is bloomberg. president trump keeps think he
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is focusing on growing the economy what those around him keep providing distractions. the national security adviser was talking to the russians and now jeff sessions. joining us now for more on the drama is our washington correspondent, kevin. how bad a problem is this for the white house? kevin: they are trying to put it behind them but all eyes will be on president trump's nominee to be deputy attorney general because now that sessions has recused himself, the responsibility to look into these investigations is going to go to his nominee for the deputy attorney general. he has not been confirmed yet and that hearing is next week. said --he president has i cannot get my team together. you will not come from people. will this bog down the confirmation process? tevin coleman the senate judiciary committee next week latestk him about this
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development, particularly, how he himself will investigate his boss, the attorney general, jeff sessions. republicans have said now for quite some time that they want the democrats to speed up the process but democrats of course have argued that they need to take their time. of thisay, the politics will continue and the story will continue. back at the ranch, the ridge being the economy and growing it again, if you watched cable news, you would say that is all they are doing at the white house. jeff sessions and the russians. are they going ahead with plans? kick started an meeting on infrastructure spending creek the president said he wanted to have that $1 trillion infrastructure plan to kickstart the economy. how they are going to pay for it is the big question. there is a proposal in the house
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byrepresentatives led representative bill shuster from pennsylvania who wants to utilize the funds from rate -- the repatriated funds from lowering the corporate tax rate as a mechanism to pay for infrastructure spending. thought youstly were talking about mar-a-lago. here is the situation in the markets. futures are a little bit softer this morning. the dow jones industrial is heading for the the next straight week of gains. morning, stronger this up one third of 1%. you are watching bloomberg. ♪
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♪ city, this isyork bloomberg. here to check the markets for you quickly. yesterday the biggest pop of the year was followed by the biggest drop since january this morning. futures softer on the s&p 500,
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down 1/10 of 1%. the dax in frankfurt germany down by 1/10 of 1%. the bond market, it really theresting week for front-end come with a two-year, popping up at 132. it has meant a stronger dollar story through the week to read the rate differentials collide with a more optimistic view of what happens in the french elections. macron gains in the polls. of persia on second familiar with the matter say there could be an agreement early next week. psa group would create the second largest automaker in europe. the rope's largest advertising company has had a slow start to the year and doesn't expecting's to get better.
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-- the chairman said low inflation, technical logical focus on costsa are having an adverse effect on spending. revenue is expected to grow 2% in 2017. investors gave snapchat a vote of confidence. the company was valued at more than $28 million. snap started with a mobile app to send disappearing photo messages. that is your bloomberg business flash. david: we will stay on the subject. a big start for snap. we are joined by the cofounder. inestigating -- investing huffington post and others. you actually thought they were a $17, a lot ofd at
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people thought it was rich. it is true. i looked at the monetization of the company. david: what kind of numbers are they going to have to put up to justify this? i think one thing to analyze here is the average revenue per daily active user. this in days revenue, not quarterly or annual revenue. for a company like snapchat, when you think about this metric, that is about 1/10 of what a typical free to play at is generating. i think it is completely under monetized for the user basing gauge meant that they have. demonstrated to you that they are taking steps to get that 1/10 up to the full -- >> sure, they had zero advertising 36 months ago. in in app purchases
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and virtual goods that could generate significantly more revenue. david: talk about the growth potential because there has been a lot of talk about the slowing growth rate of users on snapchat. if they aren't going to grow as fast that way, how are they going to grow? i'm not sure they are not going to grow as fast going forward. what is happening in the market now is head-to-head competition between instagram and snapchat. they are fighting over the exact same user base, young millennial's and folks under 30 -- into -- under 30. what is going on is snapchat will invent a feature and instagram will copy it. they are fighting back and forth or filters orries whatnot. snapchat is leading. it is hard to be a leader and sustain that, but as they continue to work on it, a have a chance of stretching beyond the millennial demographic and to generation x and y.
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that could double their users. ok, you offered to get and him when it was still private? ian: well, yes but at a valuation that is not in our best interests. >> when you look at the company then, what was the potential? did you know we were going to see this kind of valuation now? ian: if i had known, i would've invested a billion sure. >> but there was something skeptical about it. what was it? , wheno go back in time they had the offer for 3 billion for facebook, i thought they were crazy not to take that. there is conventional wisdom in the venture capital business broadly that a business like snapchat can't be built outside of san francisco. that is the belief system forever. that is why venture capital dollars are in san francisco.
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outlierhave this company in southern california, the first time a business like that has been built outside of san francisco. their user growth has been tremendous. what it will become. it is too early. david: you mentioned facebook. if they can copy them pretty quickly, don't they win in the long run? they have a lot more people using it and a lot more money. ian: the barriers to entry in the social media business is not about money sincerely. -- necessarily. i think they have more people using them, but they don't deduce between facebook and instagram users. david: i didn't know there were duplicated users. ian: absolutely. they count them separately. they have half a billion users on instagram and a billion on facebook. my guess is they are the same
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users. snapchat has one platform. the real head-to-head comparison is the future of mobile social media. mobile social media is instagram versus snapchat and it is mobile video because if you look at where snapchat is going, they've got a great video product and facebook doesn't have a great video product. those layers of differentiation, the camera and video and the mobile platform, snapchat has a real shot. company orhis a tech a media company? and if it is immediate company, video is mobile. how does that stack up against facebook? ian: i think it is both a tech company and a video company. google is a tech company and media company. face book is a tech company and of media company. it is aity is consequence of both. if you think about their video product of snapchat right now. they have a significant amount -- >> they watch 30 minutes.
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ian: that is across multiple sessions. people go on and snapped their friends, create stories, come off, go on. company about a penny to support that 30 minutes of content and programming for a user, compared to a traditional media business. that is because it is a lot of user generated content. they are onlyide, making about a penny. that penny should girl to $.20 -- growth to $.20 over time. that is why you will see margin improvements in the company. >> that is why you are not worried about cost and revenue? ian: that is why. >> here's a question for you. does the federal reserve look at the valuation of this company and that -- isn't that one of the reasons they want to get a move on? a fair is broadly
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statement. financial conditions have been quite loose. the softness of the dollar since the start of the year has given the fed a little space to move. the strength the stock market has as well. >> i remember the minneapolis fed talking about the third leg, the fifth mandate, financial stability. this raises a financial stability concern at this point? i think the valuations of the u.s. equity markets are mature. i think that is probably different than saying there is a financial stability concern or we can find extreme pockets of frosting us. we still see assets in other parts of the world that look reasonably attractive. you can also provide reasonable justification for why the market has done what it has done. maybe a little overbake. when you think of this all story
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about animal spirits, we have certainly seen it in the data. we need to see the hard data catch up. we have a lot of prospective deregulation priced into the equity market, we need to see progress on that. that is different from saying there is a financial stability problem. >> in your world, when people talk tebow frosting is, you're talking about private markets exclusively. i am not a public equity investor at the core. when i look at the public markets right now i think what they are baking is a trump tax cut in the u.s.. a government is going to go for being a 30% owner in businesses to 20% owner in businesses. -- youses like snapchat say frosty -- it is a one in a thousand, one in a million type is this. they don't come around very often. you can count on one hand the number of these businesses
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formed over the last decades. that is why it trades the way it trades. the value of any company -- the expected value is that it is the next facebook or snapchat. the entire market is buoyed by that. bet will be -- snapchat will phenomenal for the venture ecosystem. all of this will go back to lps, which reinvested back into the venture business. if you look at the vc ownership greater thanit is the total capital inflows of the entire venture capital business over the past 18 months. in one company. >> while. we are getting a lot of upgrades , 2500 doesn't seem out of reach. can you help us delineate what sectors still have sectors and which ones look frothy? soe: i am a macro strategist
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i look more geographically than sectorially? we are probably looking outside of the united states more than within the united states. we can see exciting opportunities in europe for example. once the french election is out of the way and similarly in the emerging markets were you had this acceleration in global trade which has caught everyone by surprise. >> fair, and a lot of analysts come on and say they like europe. goldman sachs this morning said the profit margins in the u.s. are sold huge compared to you up -- europe. if anything, u.s. companies will come down. talk about the profitability in europe and why you don't see that -- still see value there. gene: part of this, you came off of a very distressed level in europe and emerging markets as a
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function of the sharp decline in commodity prices. a is natural for you to see significant bounce in profitability for these companies as commodity prices rise. but more broadly, no one was really banking on a recovery in global trade and i guess it is important to remember that -- we at pimco have emphasized deglobalization which is a secular thing. cycle still matters. no one did the shakeup in the cyclical side of trade. the foundations of that are the recovery in emerging markets. ,urope is a major trading block is well to benefit from that recovery in -- emerging markets. >> you said there are opportunities after the french election. what are they currently? gene: i think it is still far from the french
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elections when you look at the polling between the top two or potentially three candidates in the race, it is still a tossup in terms of who makes it into the second round. we recognize if you have a reasonably unknown, market friendly candidate in macron, crazy things can happen. in the pollsstrust as well. to the extent that you have a slightly higher probability for a good market outcome, but a very fat tailed outcome if it goes the other way, there will be a natural tendency to wait until we get closer, a little more visibility. ian, great to see you. emco's gene freda, you stay with us. coming up next week wednesday, we talked to the ceo of general. you do not want to miss that. job day is friday, a week late
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in my view. some great conversation. this is bloomberg. ♪
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♪ alix: this is bloomberg daybreak. hour, thein the next european commissioner for competition joins us. alix: this is bloomberg: daybreak. lawmakers descend on beijing next week for the national people's congress. politics, the outlook and the u.s. president and the real data will have to come for what the
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growth target is going to be. past 15gdp over the years, the huge spike and the falloff. what will growth be and what about reform? what number are they going to assign to growth? ian: the national people's congress used to be a bit of a snooze fest. it has gotten a little more interesting in recent years because even though we don't necessarily trust the gdp numbers, as a sign of direction of travel, they have become more important. in the last national people's congress, they talked about a target range of 6.5 27. talk to they will something around 6.5 percent. if it were anything lower than that, it would be a genuine surprise. alix: but it would also point to reform. long-term, the market wants reform so they want lower gdp. short-term they want jack -- higher gdp.
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how do you square that? gene: it is tricky. three months ago, we were worried about whether there was enough stimulus in the pipeline to support growth through 2017. why now, we are worried a little about the opposite, they seem to have baked a lot of stimulus into the cake. they tried to slow down the property market which hasn't slowed that much. they have infrastructure spending coming to the fore and a pickup in global trade. the economy looks too hot. the targets on growth are important at least as are the targets on credit and what they signal in terms of willingness to slow down credit growth, leverage growth and how they expect to deal with that overtime. jonathan: when we discussed the fed, we talked about financial stability. when you talk about china, we talked about social stability. can the chinese afford to pull
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back from the six percent growth the economy has gotten used to? gene: that question they can. it requires policies. there needs to be big regulation in the services sector, but the one positive of week demographics is it is easy to employ a lesser number of people coming onto the labor market every year. from that standpoint, they are in a more favorable position and similarly the starting point is at a level of employment we would consider pretty much full employment. david: it is one thinkable back from the growth objectives, but what about credit growth? to get the 6.5% growth, they have 15% growth in credit last time i checked. gene: this goes back to the question of how do you square the desire for cyclical strength in the short run with the structural concerns. pimco were very concerned about structural side
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and the fact that growth is highly credit dependent. it seems like the official strategy is to do a little bit at a time, but we still haven't seen an episode where they are willing to accept weaker growth as a price for reform. i would say we have seen flirtations with it in the run-up to the 19th party congress, which is really the key political meeting in the autumn. then there will be strong expectations that we will find out to what extent this government is reformist are not after the conference. david: we are going to hear the name trump at this conference? i don't think the man's name will be spoken, but i think you can already see how china's strategy is developing towards the u.s. administration and it is one of reciprocity in both directions, meaning that i think there is a real willingness to try to open sectors to u.s. business in return for not being retaliated against in the u.s..
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at the same time, they have leak ifthe press retaliations trade sanctions are made on china. alix: it will be a fascinating weekend. thank you jean freda, pimco strategist. check out tv . you can watch us online, click on our charts and graphics and if it catches your are you can click on a headline. just code tv on your terminal. this is bloomberg. ♪
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♪ jonathan: time for today's trading on the agenda. 9:45 eastern, pmi's and at 10:00, isn. the main event, janet yellen and her deputy rounding out a week full of fed speak. with yellen having the final word before the march meeting.
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1:00 p.m.rg radio on eastern. bloomberg's fed reporter. matt, i begin with a question on everyone's mind. all on the same page, all talking up march. what happened over the weekend? good question. sometimes these things snowball on themselves and become self-fulfilling. -- have had three or four days in a row this week of really receptive environment to the idea of higher interest rates and stocks continue to go up. the fed looks at that end says -- if you look at interest rate markets these -- this week, that march interest rate has happened. stocks go up. pretty much rubberstamping a move sometimes in. matt: i thought it was interesting that he said the
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case for a march rate hike has come together. obviously with the events of the past few days, the markets brought that front and center as a possibility and just last week, he was sticking more closely to that "fairly soon those quote language. jonathan: fed chair and deputy speaking later. what will give janet yellen the confidence that that hiccup we have seen in survey data will mean it hiccup in the hard data in the months to come? matt: if you look at the relationship between how these things play out, usually soft data leads to hard data. there is a question now, does this connection continue? but if past relationships hold up, and we should see consumer spending and more hard data that haven't come through in the data releases just yet. but maybe they are right around the corner. jonathan: have we ever seen a spread that big between hard and
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soft data? seems like a strong political element coming in on top of a cyclical upswing in the economy. that potent combination has led to an unusually sunny outlook at the moment. alix steel, did they go to jackson hole over the weekend? something happened in the lax week but what. the bloomberg financial index, they brought it up and that is what happened. european, the commissioner for competition joins us. don't miss that interview. this is bloomberg.
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jon: the final word belongs to chair yellen ahead of last week.
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a rate hike on the table. risk on in europe after a pulse shows macron over taking the pan. .- overtaking le pen more questions are raised for attorney general jeff sessions over his conversation with the russian ambassador. live from new york city, this is bloomberg daybreak. i am jonathan ferro alongside david westin and alix steel. nine minutes away, is the stage set like this? futures down 2/10 of 1%. grinding euros for a fourth straight week. it is a stronger euro story. alix: want to see what is happening with the rate hike? look no further than the two-year yield. we have not seen those levels in more than eight years. the dollar a little flatter. we are $86 higher than we were. as we head into janet yellen
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speech at 1:00. i'm going to tell you something else. we are talking snapped all morning. this is in the last 24 hours. there was a spike after it opened. now we are up by 25%. we will look at that followthrough today. what does that say about momentum? if we can hold that level we are pivotal. david: we have somebody in the longer term to give us an answer. snap took those nosebleed numbers even higher. put upstion is if we can the numbers to justify all the confidence investors are showing. we are joined by david , ceo, andk, economist media founder. what can we do to justify that? >> they have to become the next facebook and i, frankly, am skeptical. the thing about snap that i really have to say is it is a great company, very different
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than anything that has come before. it absolutely anticipated the needs of millennial's. they will continue to use it and it could grow into a giant video service for millennial's. priced tot has been pay homage to a great recently departed musician. we are partying like it is 1999. this is a crazy way to price this company. david: we will get into whether that is the market or the company but let's get back to snap. 34-year-olds, a very sought after demographic when talking about video. they have an engagement rate through the roof. does that make them unique? >> very unique. they are unique and for millennial's like my 24-year-old daughter, it is a throughout the day experience and if they can succeed in showing as to those people and keeping them engaged, which is not proven, they will have a massive business for serving content to millennial's.
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what is often said in the discussion about snap is that it might at worst be like twitter. i think the comparison is linked in. what happened with linkedin is it was a very well provided company for a certain demographic of business people, all of us -- maybe we don't use it as compulsively as young people use snap but it was a solid business for a certain demographic. to believe that it is worth this kind of money you have to believe it will be for everybody and i don't see that happening. david: can they expand out either the demographic or can they reach this demographic in new and better ways? one of the genius points of facebook is they have instagram, the next thing. does snapped have that kind of capability? >> i don't think it has the capability to justify 84 times revenues. which is what it is being valued at after the trading yesterday.
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alix: we had ian sigalow on. he was saying one of the things is that snap could be a crossfeed for the whole mobile video market. versus facebook where it is what, two seconds or 20 seconds? 84 times revenue, but if you have that kind of potential for diversification -- factocould be the de video distributor for this generation even as they age but that is a big business and it could be a business that would justify a fairly high-priced but the kind of price and gross expectations being built in our for a service -- and really a lot of the discussion is, if this was a service that could truly go global and have unlimited growth potential almost in a facebook manner. there really is not evidence for that but video will be a huge success for snap over the long-term.
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jon: in our story, there was a story of nosebleed valuation. people throw 1990 nine around way too much when you see record highs in the nasdaq. is this a 99 moment, and echo of it? totally. the problem is, for the markets and investors, there were 340 companies that went public in 1999, tech companies, and there have been 20 this year so far so people are desperate for a tech company that has giant growth potential, especially a consumer one like this of which there are so few. comparablee remotely is to stop by and i do think we are going to see really good valuations for a bunch of other internet companies in the coming months and as everybody is saying this morning, a lot of these companies are hungering to go public soon, looking at what happened. jon: this is the green light. i want to bring in david kelly, jpmorgan's chief global strategist. there is a worry about pockets
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and extreme frothiness. what is this to you? >> the market has gone from a situation where people were to pessimistic to one in which they are too optimistic. it was a healthy port this ambling forward, it will be lucky if it can sustain 2%. an individual pocket in the market that can do better than that but they are few and far between. the general enthusiasm is overdone. jon: i wonder what this says about future companies coming to market. look at things like shareholder rights in the future. are the ramifications and consequences of this issue? >> i think it shows the internet is so proven to be the center of the economy, not the center of tech. if you can find a company that seems to symbolize the potential to get in at the heart of what is the center of global growth,
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then you are going to see valuation potential that is almost unlimited. it is a fad. i don't know if my 24-year-old daughter is going to use it 25 times a day in five years but it is also a fad in the market. if you're not trying to take advantage of that, you are crazy. point, if you wind up having a lot of investors who don't have shareholder rights and all of a sudden things go bad, where they don't have the kind of growth they are expecting, there is a rush to be much more powerful and it reminds me of the upgrades we are starting to see on the s&p with retail coming back in. is there a narrative throughout this? >> we are going to have a correction here. we shouldn't try to time it but people have got to be realistic about what we are going to do over the next few years. valuations,'ve got even by relatively liberal methods, running about 10 to 15%
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above long-term average levels. getting back to those average levels is going to reduce returns over the next few years. i would hate to see people put good money into things which are horribly overvalued. that is the perpetuity of earnings. that is what you are trying to price. to give you revenues for a few years and then something else takes it over so i do worry about that. jon: you did say significant corrections. i want to get an idea of what you mean by the magnitude. if you sit there and say -- >> we are 10 or 15% above long-term valuation. if we have that kind of correction, particularly in economics where they are good, then i feel better about long-term returns. david: this raises a fascinating question about something like snap. we have a generation of companies that have never known a downturn. they have never managed that.
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what happens to evan spiegel? what happens to those ceos if they have to start retrenching. >> he really doesn't have a lot of experience as a ceo. i think that is something serious to worry about. people try to compare evan spiegel to mark zuckerberg, which i don't really see. he has brilliant insights for millennial's. but that is not the same thing as having brilliant insights on how to be a ceo in a rocky and busy time. alix: when you take a look at the markets and you see the potential for a correction, where is the biggest pocket going to be hit the most? >> i think the vulnerability in this market of people who buy investors retail don't understand about selling capital gains so we have high-yield and slow-growing stocks which could get hurt as rates rise because the federal reserve is keying up to raise interest rates.
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jon: great to have you with us. thank you very much. david kelly of jpmorgan is sticking with us. welcome to you who have been watching us this morning. bloomberg daybreak is streaming on twitter. later today, i will be joining and launching a new show, bloomberg real yield, each friday at noon, new york time. we will discuss the fixed income market. 30 minutes of debt markets weekly. here's the situation cross asset. one hour and 20 minutes away. futures marginally lower. you are watching bloomberg. ♪
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>> this is bloomberg daybreak. time for other stories making headlines. i am emma chandra with your business flash. the maker of sit from cars is closing in on a bid to buy general motors. there could be an agreement early next week. that condition by a psa group would create europe's second largest automaker. potential cost cuts and who would cover unfunded pension liabilities. caterpillar has gone from favorite to the target of a federal raid. all in the course of a week. hents have rated the organ -- organization related to export in part of a criminal investigation. president trump last week praised the maker of construction and farming equipment.
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-- rate ofber 2 cut a earnings from 7.5% to 7%. that is your bloomberg business flash. i am emma chandra. >> 90%. that is the implied probability of a fed rate hike. janet yellen is speaking at 1:00 p.m. still with us, david kelly of jpmorgan. bloomberg international politics correspondent, michael mckee. we keep talking about what changed in the last week in one chart shows the financial conditions index. here is where we are now. thank you very much. is this why we see a hike in march? >> no. what really happened is people started paying attention to what individuals were saying. and at the same time, to be fair, fed officials started talking more.
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they said mark is an open meeting. what people weren't paying attention to is that they never said that they would delay a move. they have been talking about the fact that the economy -- they are looking at levels now. where the economy is at the moment -- i brought my own chart -- it shows unemployment and bce inflation on the bloomberg. what we are seeing is they are close to their target. they believe that the fed fundraisers should be higher at this point, giving -- given the economic conditions. here's an opportunity. alix: you had goldman sachs this morning saying that the easiest financial conditions index actually sustains. you are looking at a 40 to 70 basis point cut. how do you invest when that is the potential? if the conditions stay so easy? >> i don't think we are going to and thee rate hikes
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outlook for plane investment looks very rough. but you have to be a little more thoughtful. investing requires courage and brains but it requires different times. if you are really in a slump like 2009, it was a no-brainer. now, you have really got to differentiate. within the u.s., steer clear of people buying for yields. consumer discretion do better with rising rates. also, look at europe. it is cheaper than the u.s.. as theven't done as well u.s. in the last few years but you've got to have the brains to say "i am going to take some money out of the u.s. and look at other things around the world for long-term returns. david: do they have the same growth potential as u.s. equities? >> in the next few years they absolutely do. in the next year we see an all-time high in earnings.
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european earnings will have to go 50% to get back to 2011. more than that, they've got nine and a half percent unemployment but we've got 4.8% unemployment. they've got room to grow as an economy. they are in the second inning of an expansion. david: explain that room to grow. normally it's a condition of the size of the labor force and its demographics and productivity. does europe have both of those? >> if you've got a lot of unemployment, you get a few years in which you can put those workers back to work. that is why the u.s. has grown by 2.1% over the course of its expansion. it would have grown less had it not been employing unemployed workers. tortoise but it is a tortoise which has the ability to run a little faster over the next few years. that is a few years away. alix: i love all the narratives. tortoise is your jam. u.s., have the
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markets rerate the potential for more rate hikes this year if we get that much hike? >> nobody has priced in a fourth rate hike this year. there is more agreement that they will the three. but what you are starting to see -- we saw this with morgan stanley -- a fourth rate hike next year instead of just three because the economy has the potential to grow faster if the ministration can carry on and carry through with its fiscal policies and give the economy stimulus that it doesn't need. then you boost rates in the short run and the fed may have to lean against that. this hase fed has -- been the fed talk for years. reason why up until this week people didn't really believe in the market rate hike. but they have to have the nerve -- unless there is a crisis -- i believe every press conference meeting they will raise rates. to do otherwise would make them completely unpredictable going
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forward. also, eventually we have a recession. if they don't get going again and rearm themselves, we are not going to be in a position to use monetary policy to move the economy down the road. i think they will hold firm and we get a quarter-point at every press conference. >> one thing that could stand in that way is the great uncertainty. there is more uncertainty about fiscal policy than what is going to happen down the road. something in march, we might get something in june. as the year goes on, i don't know that you could be really certain because you don't know what is going to come out of washington. david: does all this back and forth change the long-term rate at where they are headed towards? >> you get a few years until something goes wrong. the more chance they have to get up. i don't know that they are going to get something in the three to 4% range but something will happen before then. it will may because the economy to pause.
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jon: this idea that they need to hike so they can cut later -- and a lot of people laugh at that idea. fact, the governor has oh is said you need to tilt policy towards the downside risk. the idea of hiking so you can cut later is not a good one. maybe they have to go hot but do not kill the recovery. what is the deal on that? >> inside the fifth they don't laugh at it but did you say we have to be more aware of what is happening on a short-term basis but they would like to get it higher and they will tell you it would be helpful to have the fed rates higher so we can react more and have symmetric reaction functions. but they are not going to make policies just to do that. week, we cameis more towards the middle on that and said, yes, we could use higher rates. >> it should be said the first few rate hikes won't affect the economy anyway. they have underestimated the stability of this economy. we have been worried about
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doubled its from day one. day one. dips from stimulus, the no economy will likely grow back to two and a half percent. but the uncertainty is mostly on the upside. >> certainly about whether we have a debt ceiling issue or whether we have a government shutdown issue. aboutis uncertainty foreign policy so there are a lot of external factors. >> the republicans won't debt ceiling themselves. david: what i like in this program is when the guests take over. >> [laughter] david: bloomberg's mike mckee, thanks so much for being here. david kelly will be staying with us. coming up, today is the chairs turn. we will have special coverage of that janet yellen speech in chicago at 1:00 p.m. eastern time today. this is bloomberg. ♪
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jon: this is bloomberg. and france, manual micron has taken over marine le pen in the presidential race. a new poll has micron with 27%, leading by less than two points. it shows that alain juppe would lead if he reentered the race. he lost the republican primary to francois fillon who is currently under pressure to step aside after being called out in a corruption investigation. thel is -- still with us is jpmorgan chase analyst of global assets funds. >> this is an opportunity for investors. if you look at the polls in france and the netherlands and things also, everybody we get another populist surprise this year and i just don't think we are. after brexit laugh and after trump.
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but look at this with president trump. average,in the last with hillary clinton leading by 3.9% in the popular vote, she won by 2.1. the lead candidate was actually leading in the last polls before the brexit vote and not by as much as the eventual margin but these are small this -- small missions -- small misses. whether runs against marine le leadould have a 20 point and we are not that far away from election day. people do not want to vote for the front national in france. jon: there is a market bias against marine le pen. that is the consensus in the short-term. the question is, let's not just look at emmanuel macron as the alternative but look at him as the as you were president. does that move the dial for the french economy and european markets?
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>> france leads to some reform -- france need some reform. it does not need to leave the euro or launch its own independent currency or lose the european union. it needs to reform its labor laws and business laws but i don't need france to be healthy for europe to be healthy. france can lie behind if it doesn't want to reform but overall, the european union is actually growing rather rapidly. look at the on employment rate coming down. it is getting better. jon: thank you very much. in the markets, we are four minutes away from the open. futures on offer from new york. you are watching bloomberg. ♪
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jon: from new york city, this is bloomberg daybreak. we are one hour and 22 seconds away from the market open. .ere's the situation futures little bit softer on the s&p 500, down 2/10 of 1%.
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the dow headed for its fourth straight week of gains on a weekly basis. if you switch up the board, the euro falls out there. the centrist candidate, emmanuelle macron gains in the polls. that move in treasuries continues, the yields higher. david: still with us is david kelly from jpmorgan. a week from today, we will have a job report from the u.s. we thought this was critical because it was going to give us guidance on what the fed was going to do. >> i still feel it is important if we get a good report. that is the last green light of the fed rates. i think there is all is the possibility of a shock that could cause people to wonder. as we look at our models, we have the lowest unemployment claims in 44 years. we've got some good numbers. we are looking for 200,000 up to
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be added. the unemployment rate will take down and we will get stronger weight growth. the fed moves on the 15th. david: we are in line with your protection than the fed on course. would one report put them off because we have that market bill with 40% probability in march to 90%. to bring it back down would become all too us. >> it wouldn't just be an employment force and a bad market reaction, but i think you need the employment for something else. the problem is they have been on the edge so many times of raising rates and then pulled back that nobody would want to bet the farm. jon: very quickly, if we get a surprise on payrolls and if letter curve, -- >> i think we do. people will finally start buying into the idea that the fed will raise rates. david: david kelly of jpmorgan. chief global strategist. with us. for being
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president trump is trying to focus on the economy but the russians keep talking with his aides. first it was his national security adviser and now it is his attorney general jeff sessions. for the latest drama is kevin cirilli. have they put this behind us at this point with the attorney general recusing himself? >> no. on march 7, the deputy attorney general will have his senate confirmation hearing before the senate judiciary committee. of course, this is going to be the number two at the department of justice. he is tasked with overseeing the fbi's handling of the investigation into russia's meddling into the u.s. election. david: a lot of people are watching this, in business, they are much more concerned about what is going on with the tax reform proposal and there was a lot of interest in the border adjustment tax. is there any update on whether the white house is for it or against it?
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>> yesterday the texas governor said at a public forum that he believes that the white house will come out against it but that said, in the theory of interviews ranging from treasury secretary steven mnuchin to commerce secretary wilbur ross, there has been no indication about whether or not president trump will agree or disagree with it. i can also tell you there is a heavy effort underway here in washington by the likes of caterpillar and boeing for the white house to come out and be in favor of it but there has been no clear sign of how this will fall. aul ryan argued this would be $1 trillion source of revenue to enable other tax cuts across the board. aside from speaker ryan, and inside capitol hill, there is a lot of division. david: going back-and-forth on pennsylvania avenue. a lot of those are related to the budget plan.
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interest of particular to retailers, joining us now is john kernan. he is a retail analyst. give us your sense, your analysis of what it would mean to retailers if there were a border adjustment tax. >> it will be a total disaster. the sector would go into a bear market. there are big cuts, the retail sector lives off of super low-cost imports from far east asia. border adjustment means big-time adjustments. there is a lobbying effort from retailers to get it back. david: we hear from economists, some economists, that this would all work out because the dollar would adjust. the dollar would go up in value and that would take care of the retailers. is that wrong? >> first, it is difficult to protect financial flows. retailer costs in
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asia are u.s. dollars so it would have to be a whole supply chain of an overhaul because all of your costs are in dollars so your costs are going up as the dollar depreciates. -- as the dollar appreciates. it is very nasty for retailers. it is why you are seeing a massive lobbying effort against --s week as they are all on all hooked on taxing those imports. the probability gets dramatic the cut. >> it is the debate of who is for and against it. wilbur ross in an interview with the mediaset we got something to balance the budget and reiterate that we have a border tax at one trillion in 10 years. but it just seems to me that rhetoric was inching towards the border tax adjustment. what retailers are best positioned to weather that storm?
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>> there is not many but certainly the ones that have bigger international businesses are not getting taxed. and are not on a border just meant. the stock we like the most is adidas because 70% of their business is in north america so that would -- there international business would be fairly offset. nike, which we are not very positive on certainly would suffer less than others because 50% of their operating profits, over 50% of the tax flow is international. those that have international businesses are somewhat insulated but -- alix: walmart is front and center on this because they are obviously a huge importer. they have 307 billion dollars of revenue from the u.s. but also an enormous international business. one of the biggest importers is also the biggest exporter. how do you deal with that dynamic? >> i don't cover walmart but certainly it would be an and or mis-hit to them. we don't know what the price
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elasticity is on these categories. if you had a 20% border adjustment, which is what paul ryan has talked about, and kevin brady, you need to raise prices by a minimum of 20%. we are not sure how the consumer would respond. particularly some of the more discretionary categories. david: you obviously looked at this closely and you said it would be a disaster for the companies you cover. what do you put the likelihood at that it would be a border adjustment tax in the end? >> it has been difficult to handicap. chris krueger in washington, a strategist, has been trying to figure it out but we've got conflicting messages from the white house. there is support from kevin brady and paul ryan. i don't know how you get tax reform without some type of offset like a border adjustment. certainly, passing this and implementing it will be
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incredible he difficult and there will be a lot of pushback. the sector is not priced for this. valuations are not that she can the group. it is going to be interesting. alix: good to get your perspective. john kernan, retail analyst. we are hearing what he banks are looking at and for me that is oil. equity research analysts are covering oil and gas london. i want to look at the oil price. take a look at the terminal right around that 50 day moving average. a lot of downside yesterday. the new companies are ramping up production on shale. now, big oil is getting in on the game. analysts spending five and a half million dollars this year to drill in the permian and the balkans. is the era of big oil over? is it all about big oil and shale? >> you are certainly seeing the integrated companies shifting as much of their capital as they can into what we call short
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cycle plans and that is really primarily shale. they want flex ability in their capital spending and the prices go lower. this really means that those companies should have captured the sale positions like exxon or chevron. they had better leverage. but e&p's are evaluated on their growth and not returns. the oil is really about return on capital. value? diluting their >> i think we are actually seeing places like the permian basin moving into more of a manufacturing type. skill sets you have income is like chevron and exxon are seated towards efficient development that grows maybe not as fast as eng companies but grows sustainably. chevron can grow with their production and still enjoy a free cash flow. alix: how much more value do you think exxon or chevron can pass through shale? 668 barrels per
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day. because of their deep well of access -- their assets, can they maximize that even more? >> we could see --. we are starting to see the industry move towards two mile-long laterals. wells that are averaging 1200. alix: if we do see that, exxon growing by 20% a year over the next eight years, what does that ando the overall oil market oil prices? that is a game changer. >> it is and i think it does mean that the u.s. becomes a more important local supplier of crude oil. there are going to be limitations on how fast the permian can grow but it is a big number. the permian could potentially grow as much as a million barrels a day into 2018 and 2019. demand also grows by a million and a million and a half. and deepthe supplier
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water and other more expensive sources become more challenging. alix: can you rank the big oil companies and which is the best way to capture the trend? >> i think chevron is by far in the best position. chevron has a legacy position in the permian basin that stretches back 100 years and they actually pay no royalties. exxon's entry has been fairly recent. the $5.5 million acquisition, there is no scaling into that position. none of the european integrated companies have a full shale position other than shell. they are smaller than either chevron or exxon. alix: great stuff, jason. great to have you on the program. in my world this is like game changer land. everyone is like yeah, whatever. david: i'm excited. program,ng up on this the lady if you've got a tax
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issue done in europe, this is the person you have to get past. the commissioner competition. from new york city, that is coming up. this is bloomberg. ♪
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>> this is bloomberg daybreak. i am emma chandra. coming up in the next hour, executive director for u.s. equities derivatives strategy at ubs. >> from new york, from u.s. -- to our viewers worldwide, the stocks this morning some thing like this. stocks in the united states do still head for a week of gains. the situation in europe very similar. stocks progressing towards a strong week. switch of the board -- switch up
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the board. elsewhere, the federal reserve further down the line with big prices entering the curve. the 10 year yield continues to reprice higher. u.s. 10 year, in the mix, a much stronger euro. we approach 106 once again. french politics lead to the potential probability of emmanuel macron gaining in the polls. that is the situation. let's get you your other stories. lost aondon, cooper has bid to block a language test for its drivers. a judge ruled in favor of the agency saying it is reasonable for drivers to be competent in spoken and written english. they argued 40% of private drivers could fail the language test. energy going ahead with plans to sell its coal business. the pennsylvania-based company has hired bank of america to find a buyer.
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it could bring $2.8 billion or more. it plans to focus on cheaper and cleaner burning natural gas. milestone for spotify, the world's largest paid music streaming service. it has surpassed 50 million subscribers. apple music. as spotify is still using money. they are expecting the swedish company to file for an ipo soon. that is your business flash. this is bloomberg. hasloomberg technology carolyn in town. >> good morning. i've got a fantastic interview lined up. commissioneron margaret best year. thank you for joining us on bloomberg television. i want to really get to the point of the day after snapchat. we have seen a company just five years old valued at $30 billion. the pace of disruption is quite breathtaking. is it something that
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anti-competition and antitrust regulators welcome or are concerned by? well, i don't think so. i am very happy to be with you this morning. i think it is important we see businesses grow, create value, create jobs. we have success on the contrary but obviously, we need to make sure that we have the right tools in the toolbox in order to ensure competition. >> you wielded those tools with efficiency, it would seem. i am in silicon valley at the moment. as a european, i hear these u.s. companies and at times feel like they are under fire. apple being asked to pay back millions, google being warned of an antitrust richmond -- antitrust breach. do we think u.s. tech giant have something to worry about from
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you? or are we misinterpreting what you are trying to accomplish? one of our basic values is equal treatment. we don't see the flag or the ownership. in europe, we have big publicly owned businesses. what we are looking at is fair competition. also innt to see that successful companies growing big , allowing for others to challenge them. that is basically the content of the now three google cases to allow challenge. as you know, we are still in the process of looking into whether are correct,s taken on board in that procedure. >> talking of google, the search case is now 700 -- is now seven years old.
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we have to realize that things can take up the years. the you have an idea of when the google search case might be confirmed or wrapped up? >> i think that some of my staffers find that i am obsessed with speed. but no matter how much we work on making our process is more we are always held back by the fact that the quality of the casework -- that is what ensures the rule of law, that you have the full right to defend yourself. that can never be compromised upon. sureusly, we have to make we have sufficient time or we are always pushing to make our lean,ures quicker, more to get better access to files and make sure we are working as professionally and properly as possible. it is very difficult to keep many deadlines because something may come up and of course we
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will have to take that on board with the google case. >> talking tax now, it was of course what everyone's gears pricked up to, that is being appealed. that was to do with ireland but there are other companies you are looking at. in other countries like luxembourg, how are these countries reacting to you? do they worry about how efficient or attractive their tech would be if the tech were changed? >> that is difficult for me to say because we have a large degree of autonomy in europe. when it comes to the level of taxation, the one thing we agreed upon which goes 60 years back by now is that taxpayers should not support one company or a group of companies where no one else can enjoy these benefits. that is the ups and downs of this case, this old and
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fundamental principle of selected best selective advantages paid by taxpayers. that is a competition that is specific to europe. i don't think you have anything similar in the u.s. >> talking of the u.s., the sec has plenty on its hands when we look at the amount of m&a coming. on whether oran not he will look at the at&t time warner deal. looking at m&a in europe, many of the telecoms jobs in barcelona, they say they need more m&a in europe and regulators don't understand this. what do you say in response to that? >> what we do is, of course, we look into what comes on are working table. last year, it was the second-biggest year when it control in my office. we have a lot of activity when it comes to m&a.
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to somecoms sector, degree, is special. quite a larget is degree of consolidation on the european scale. but markets are still very national, due to regulatory barriers, due to consumer choice , language issues, that kind of thing. experience is that competition, the best driver for investment innovation rather than a very large scale. >> the european competition commissioner, wonderful to have you live on bloomberg daybreak. alex, to you. alix: caroline hyde joining us there. .o ahead and check tv what is online and click on our chart graphics. you can click on any part of that interview that was interesting for you. you can go to tv on your terminal. this is bloomberg. ♪
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alix: this is bloomberg daybreak. futures a little mixed at this morning. the dow futures up by 11 points but the s&p up by three. here are watching in the u.s. asr in london, down as much a percent. you can see slowing growth as sales are falling in the u k and north america which is its biggest market. banks,a check on china the national people's congress kicks off on sunday and here is how bank stocks outperforming. hong kong financial down 2% and developers are worried about higher rates and that could potentially cut someone demands. we are looking at any kinds of reform coming from china's national people's congress over the next week. go, it will bet the worst day for cosco since december 2012. we've got revenue and earnings missing, raising the membership fees by five dollars for the first time since 2012.
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online orders are about 4% of all those emergencies. those are not holding up. jon: coming up on this program, julian emanuel, will be joining us. his views on a net we market already up with the bank on target just two or three months of the year. later today we will be launching a new show, bloomberg real yield. time, 30ew york minutes weekly hosted by myself. do not miss that. from new york city, we are counting you down to the opening bell, 30 minutes away. futures treading water. you are watching bloomberg. ♪
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♪ jon: the final word lost it chairman yellen.
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it's more controversy in d.c., more questions for jeff sessions over his conversations with the russian ambassador. shares of snap recording the second-best a view among large ipo's since 2012. some analysts already saying sell, sell, sell. good morning from new york city this is bloomberg daybreak. we are counting it down to the open in new york. futures are a little softer on the s&p as a grind towards a full week of gains on the dow. we tread water, up nine points of the moments. up by a single basis point. the fx market dominating by sentiment not run -- not just around the fed. up 6/10oves with him, of 1%. that's the situation. but the use of movers. alix: we will focus on retail for a second. cosco up by 4%.
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if the gains hold, the worst basins 2012. they are going to raise never sent fees. they have not done that since 2012. they get the majority of the revenue from membership fees. about 4%, from online. also taking a look at energy consol energy. year to date the stock off by 11%. here is the interesting part. president trump who is pro-co al, and a company looking to al unit to focus on cheaper, cleaner natural gas. interesting story for console right now. wrapping up with the stock to watch at 9:30, that is snap. up by about 4%. looking at total gains of about 24% so far. a lot of analysts coming out and celebrating. susquehanna, pivotal research.
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what's fascinating is all the companies since 2012 who have actually come out and sold about $2 billion, snap is the second-biggest pop. you have twitter and then snap. what does that tell you about the future potential of the company, david. david: alix told us the story of snap. it started high it went higher. there are still skeptics and we are joined by one of them. we also have with this bloomberg's alex, our very own ipo reporter. what kind of numbers would snap have to put up to get you of your skepticism? paul: they have to generate some profit. when you look at the earnings numbers, they are looking at losing more money this year than last year. cash flow is negative and looking to go even more negative. part of the reason they are going to market for the capital
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raise. they will be a look to develop and get sticky clients. one of the things that benefited facebook was a lot of people joining and's day with him. they will need to do the same type of thing here. different than i think twitter. the analogy is appropriate. snap looks more like twitter than it does facebook. david: a couple of things they have going for them. the level of engagement. it is not just a habit many people coming on, they have a remarkable number of people contribute in content. and also the cost of the content is very low. does that help them? bit, butdoes a little the key will be if they get the clientele, all the users to stay. that's one of the things we want to attract and keep a lot of those people. remember the demographic is generally under the age of 30. that tends to be very fickle crowd. if they move away from that to some other new technology, we can see some problems ahead.
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alex, give us a sense of how this fits into the larger history of the ipo. twitter it is just below the pop on day one for twitter. alibaba was close to 35% on day one. that is kind of the historic of the big deals. it's been interesting the conversations in the past 24 hours. it has been split. if you are a silicon valley person and you look at this as successful, saith the big deal, it's an example of a company going public while relatively younger and the majority of other private companies and it could set the scene for other companies to basically prove themselves in public markets instead of staying private. on the flip side with the public market investors there is lots of concern. they are focused on the longer-term. in terms of looking back at the past ipo's, they are feeding into this idea that you have a longer-term concern. that is where the public market investors and the analysts are
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basically paying attention. alix: who bought the stock yesterday? : they wanted a lot of longer-term investors. that was very important for them. it is important, but they look at it as outsized importance. m -- 50ocated $50 million shares. they basically rewarded them with bigger allocations. that waskind of the -- what the selling was going on yesterday. we saw a lot of shares changed hands. more than 200 million trades happening during the day yesterday. lots of activity. jon: long-term investors, comcast, nbc universal? alex: they invested $500 million at the ipo. her comcast it's a strategic bet. they put $200 million in buzzfeed and box. this is an interesting strategic play.
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if i'm thinking about someone who might want to hold on and not sell, this is probably not going to be releasing the shares fairly quickly. i don't know whether one of the longer-term holders, my gut tells me they will hold on to this for a while. jon: we want to bring in keith parker. about thisg flip between the attitude of those in silicon valley the is optimism around a company like snapchat and investors to sit in say it's not 1999. it's valued at around $30 billion. what is your take on the sloppiness and markets currently? keith: our view remains fundamentals of the strong dollar, particularly sacred eyes turn "grumbly has really underpinned the rally. i think rates have also been relatively well-behaved. risk assets have been supported by the turn up.
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we did get some optimism posed trumpspeech -- post speech but it was consolidated with pmi numbers from china and a strong report in the u.s. with new orders at 65. jon: stimulating broader markets. didthe broader investment, they not worthy valuation for the company? paul: it certainly does. when you look at the ipo market it has been so drive for so long. you have investors that are interested in something new, different. it is held in the private sector for so long. it is true now with a lot of companies in silicon valley. they are able to find good financing from a lot of private equity. they don't really need to go public. now that we have a market that is in very good shape a lot of investors getting excited, is the perfect time to bring companies like a public to get the type of valuation they are
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looking for. david: keith, at what point do animal spirits become reckless? people start making bad decisions, whether they are investors or ceos because they're too ready access to cash. keith: if you're looking back, 2015 we saw a pretty big disconnect between investor sentiment that was pretty elevated in the economic data backdrop which was showing signs of weakness globally. we see no such signs of that now. bid inerpinning and markets is being driven by strong macro backdrop. i think if you're seeing the insized risk exposures markets that we don't necessarily see at this point. we are moving from phase one of a rally driven by short covering into phase two where funds flow from retail foreign sectors really supporting markets. david: this is something we have seen before.
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we are well into this world market. will this get going forever? keith: i think forever is a tough question. i would say we are shifting from that first phase to the second phase where becomes a little less comfortable. i think from a stockpicking perspective it becomes less about data and more about that expertise,area of when you have shares you don't have shareholder rights to, you pile on the stock anyway. snap disappoints, they don't meet their targets, does that exacerbate the selling without about animal spirits, retail coming into the market, is that a risk? partnerwas talking to a this weekend she said that is the downside risk it this goes sideways. people can bring issues formally to proxy. investor will probably
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sell in any other company if it goes down. but with them since it was no other ability to maintain or have a bigger stay, get in there and have more control, have an activist come in, there is no sense of a savior perhaps if the stock does plummet. that is what is driving concern over nonvoting shares. jon: if you're thinking of going public, do you care about shareholder rights? i don't think you do. here's the final question, paul, i will give you one dollar. where do you want to put it? snap or facebook? paul: definitely in facebook. a better track record in a better prospects. i am not a buyer of snap and probably will be for a year. jon: great work over the last few months in this particular issue. keith is sticking with us. the target for the s&p already reached his. what does he think now?
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the ceo will be joining us. on friday it's all about the payroll with mohamed el-erian, and danny blanchflower, expert on the labor market. and a professor at dartmouth university. the market opening is 19 minutes away. the weekend and good for the bulls once again. futures down 1/10 of 1% of the s&p. you are watching bloomberg tv. ♪
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♪ alix: this is bloomberg daybreak. the countdown begins to 1:00 p.m. where janet yellen will speak. will she endorse a march rate hike?
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a look at the bloomberg financial conditions index. the circle is where this condition index was from the fed hack in december. you can see the spike in just a few weeks. toldman sachs says tha is adding as much a 70 basis points. keith and paul are with us. do you change your portfolio when you hear retail coming in? keith: not yet. the momentum is still very positive. the internals look good. the problem we have is valuation, which is a longer-term concern. we can see the markets continue their plot higher over the next few weeks. we are running into some serious headwinds. valuations and higher interest rates among those right now. alix: there was also the potential for the market to prerace the rate hike this year for 2018. if that happens, what will be the impact of the market?
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keith: the impact depends on whether that is company that's accompanied by a solid growth environment as growth is improving. i think from a valuation perspective we have pointed out a recent piece that the long-term growth expectations for stocks matters four times more than the 10 year interest rate. year,y speaking, the 10 2.5% at about three points to the multiple versus historic rates. and average of 15 times pe for the s&p. 3 gifted 18. it just -- 3 gets you 218. 18. david: which sectors are likely to benefit more from rate hikes tidy growth? keith: we have been and remain very positive on financials. he have seen the first increase
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in interest margins and quite some time. that has been very few and far between over the last 30 years. also leveraged to improve regulatory environment and importantly potential for payouts. i think the other is technology sector. we spoke about staff a bit. when unemployment is low and productivity is the slow, corporate's will be investing to improve that labor productivity. the biggest beneficiary is the technology sector. jon: i want to pick up of the financials with paul. we look at this state about the banks. to tends, 117 basis points. topping out north of 130 something. we have rolled over. it has not materialized. why will it? pual: i'm not sure it will. maybe the fed does a rate
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increase in the next two meetings. if they hit their three this year, the backend is controlled more by inflation and the inflation numbers, although they have come up, our low versus historical norms. we don't see the 10-year, 30-year bond going up in yield much. we see a much flatter yield curve going forward. all of that action is at the front end of the curve. jon: the optimism and the price allies with the reality in the bond market. isthere is a flatter curve, enough to keep evaluation of the banks were they are? heath: i think that -- keith: phase one was really trading the rates. as paul mentioned, we have seen a sizable flattening of the curve. one thing to keep in mind is assets% of a bank sitting in cash, whether they are in no rush to raise deposit rates, net you see some of that flow through to the bottom line. secondly from a medium-term
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they, i think it's from redeployment of access capital importantly to shareholders as supporting valuations. jon: just to wrap it up, final question for you both. paul, the situation with the fed, the journey will start earlier in 2017. does the destination change? i will borrow from janet yellen. it will depend. we will be data dependent and taking a look at the numbers. the gdp number seven coming down a little bit. we think it will be a while and we will take a look at the data. jon: keith, quickly do you. ith: i would concur that is stated dependent. jon: come on, guys. [laughter] jon: there's an economist in the building. alix: we have seen this story
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before. it winds of picking up in the back half of the year. do we wind up seeing a stronger rate hike at the end of the year? jon: funny of people sitting on the fence. the federal reserve, the worst communication on the planet. if i was an investor, i would put my repetition on the line. david: keith, paul, thank you very much coming up, we have heard a lot of feds speak this weekend out his janet yellen's turn. 1:00 p.m. eastern time. this is bloomberg. ♪
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♪ jon: from new york, this is bloomberg. just saw $7firms billion in inflows. on fixed income, bonds had the
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10th straight week of inflows. joining us is paul and he is still with us. one of the stats that jumps out is what happens with utilities. let's get some breaking news. alix: deutsche bank said a study options this month the boost collateral for a partial asset management ipo. the board will meet in mid-march. is this like summer all over again? maybecapital, help that, have an ipo to seller business and then they came in and not going to do that. they are also potentially weighing a stock sale. jon: the market in frankfurt reprice potential for cash call in the stock drops. it's been a big question over the last few months. in the last two years if the coming back to the market and cap investors once again to raise capital. david: they keep moving the goalposts. let me know where we are going to end up and have to get to.
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alix: what is that say whether capital cushion, if we thought it was a little bit better and we learned that he to do this. what is that say? jon: in fairness to the chief executive at deutsche bank,'s big challenge was the regulatory hurdle in the fines by the doj. he did not know how much money he needed to raise. would be a partial ipo of the asset management division? how much we need a race run investors? this is where we get the clarity. it will be the real year only get the speech. so far we have not seen it. the regulatory issue is what held them back. you're going to tap the capital market, fine. after that with this deutsche bank look like? i'm still not sure we know that at all. david: no one would say john had an easy job, no one would say that. people like just daily also had challenges and they got it done. the other banks to a larger
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degree seem to have laid out what you are talking about, this is what we want to be. this is the core franchise. alix: the stock has risen 81% since october -- september 2016. the problem is profitability. are you going to see it like commerzbank? jon: i'm not sure that's what the market is bought into. the narrative is a real discussion on the trading floors of frankfurt, wall street about the future of deutsche bank. the idea that maybe the government needs to step in. that has gone all the way out there in the discussion no longer exists. now it's about how profitable the bank will be in the future. the shape of the bank, the business model, but they have to come to the market and raise money. last year we had a subsistence issue. when you have news like this the stock rolled over. this morning you get a capital
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rate potential and the stock is down 2%. the drama around the bank is not the drama that it was last year and the year before. alix: i get would you are saying that this is not buying and john's when. nonetheless, he got things done really quickly. he was able to execute. there has to be a vote of confidence in his ability to do that. david: he certainly improved the capital situation. the two things are linked. investors willing to put a more capital and knowing what the bank is going to be. that is what i have not heard yet. what is the core value? how can it win. came at the barclays the same time john came in to deutsche bank with different challenges. the difference is if you look at analyst investors about the strategy at barclays, they would talk about the investment bank in the heart of that. i think still now we don't quite understand what john wants to do with deutsche bank. he has his reasons for that. last year, the deal at doj with
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such a massive issue for him. david: he has absolute reason for it. but if you're asking for more capital the quest has to be, for what? to keep the bank afloat or do something affirmative. i more liquidity capital if i know where you are going with it. alix: or do m&a because you don't have growth in any other area. an ipo of the asset management division, a partial ipo, a capital rate potentially as well. the stock down around 1.5% to 2%. we will get back in just a moment. futures a little bit softer on this friday morning. you are watching bloomberg. ♪
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jonathan: moments away from the opening. futures pretty much down. we head to a fourth straight weeks -- it's been a decent week
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so far for the bulls. the bell rings in new york city, treasuries up once again. we reprice the potential for a move in march. a little loweres against the euro. this morning is a firmer euro story. political ramifications, a macron win in france. that is the situation across assets. alix: pretty much unchanged. the s&p and the nasdaq are up for six straight weeks and the dow is up for four straight weeks. what's the banks. you have the yield curve move. rates move higher in the janet yellen speech helen hunt p.m.
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europe. bank off in apparently staying options for a potential stock sale or a possible management ipo. in its last quarter, common equity was .01%. the issue is, if you are looking at capital rates, what changed in the last few weeks? jonathan: how much money do you need to raise? for more than deutsche bank, let's bring in our german banks reporter. ubs director. the potential for a cash call his hold over the evaluation. what have we learned? steve: there are certain options on the table.
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what is certain is john cryan still wants to be [indiscernible] he's got many options. he has postbank am a subsidiary appeared he has been -- subsidiary. he has been unable to sell a pair deutsche bank is looking to reintegrate the business. the decision has not been made. but that would cost money. what they are thinking about is either a share sale or floating there is a management unit, floating a partial stake. it's not clear what they will do, but it's likely they will make a decision at some point. jonathan: the magnitude, the potential magnitude of a capital rate, have we got any idea how much deutsche bank would need to raise? steve: it's not very clear. we've spoken with people and estimates range from the low billions to almost double digits.
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it it would be very vague khamenei estimates. it's really of -- but it would be very vague, any estimates. jonathan: the asset management business, stable profits year on year, that's why the banks seem to love that business. deutsche bank wants to keep hold of it. a partial sale of the asset management business, does just -- does john cryan really want to do that? steve: it's a good question. a 25% stake could rake in about $2 billion for deutsche bank. the question is that enough to boost capital? in addition, the business has been losing assets. it's been losing assets over the past six consecutive quarters. is this a good moment now to sell it before the term runs have been achieved?
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david: does it change the risk profile of the bank? what does a due to the capital requirements for the bank? steve: that's a big question really. bankf the big reasons the hasn't announced anything yet is they are still waiting for reforms to be decided. happened yet. the committee has been postponing any deal if it comes at all. the question is when will he come? so john cryan and his team, they don't know what they final deal will look like. and they will have to make a decision. if they make it now, assuming -- making assumptions based on what is known about days at the moment. so it is a big question. they still may have to tap the capital markets to raise
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cash, not to invest in the business necessarily come up potentially or more likely just to raise capital. -- just to raise capital for stop. >> if anything, this is almost a preemptive measure in a manner of speaking because the probability of increased properties -- a greece competition in a.d. regulating washington rises. this is potentially an offensive action. also potential is m&a. lester, it was about a commerzbank-deutsche bank tie up? steve: you can never rule anything out. those talks never went anywhere and they are unlikely to continue now can both banks have
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a lot on their plate and they would want to know where they are headed before they talk about it again, if they ever do. personally, i wouldn't think so. one of the first things they say is european equities are cheap. valuation is much lower than the u.s. and want to go there. is this kind of risk of the european banking system reflected in what european assets are priced at? julian: broadly, that's the case. the issue with europe having underperformed the u.s. since the beginning of the millennium by 60% or more, is obviously an -- in termsystemic of the euro area in general. but when we look at it, we find investors are starting to do a lot more work about europe. they're not ready to get wildly aggressive just yet. there's clearly political risk dead ahead. but there's deathly interest growing because of the valuations. they make a lot of. jonathan: there is a base case
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in the market, the spread exists, but we think it's going to close. will the spread be there permanently now? julian: that is certainly possible to the extent that there are continuing overhangs in terms of the european union. then again, we also note of political risk is rising globally, here, there and around the world. this is the heart of goldman sachs's note. the profit margin is bigger here the u.s. than in european stocks. itst comes down from because inflation is picking up in the u.s., not because profit margins are picking up in your. david: earnings growth is much larger known europe than in a long time. but there is another risk element be a risk. what about financial sector risk? in the sense, europe is more dependent on banks than we are. their capital markets are not as developed. is this a natural limitation on the growth overall in the
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business in europe for the financial sector? julian: there is no question that is the case. that is why essentially this rising optimism we've seen in the u.s. is incumbent that we see followthrough in action that sort of cascades around the world because the math the end of the day, negative interest rates are a very difficult thing for the financial sector to swallow in europe. jonathan: that is the big issue for the ecb. you can drop rates to as long as you want, but if you are bank raising capital, will they lend when the demand picks up? david: no. ?lix: is demand going to pick up? [laughter] jonathan: thank you. up to my next become a huge week. -- friday's jobs day in the united states. did -- guests way
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weighing in. nine minutes into the session, here is what the session looks like so far. you are watching bloomberg. ♪
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emma: stay with bloomberg for full coverage of janet yellen's economic outlook speech 01:00 p.m. eastern. ♪
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jonathan: breaking news in the last 20 minutes around deutsche bank and frankfurt, germany. the bank is looking at options to boost capital. it includes a capital increase in perhaps the partial sale of its asset management is nice. the advisory board is scheduled to meet on march 16 and 17th to discuss potential measures. several unanswered questions. one, how much do they need to raise? and two, if you're looking at options to raise capital, will they be equities or debt? that's something the market was to here as well. david: it is the big story of the morning. but there is another big story today and that is the premiere of snap on the new york stock exchange. this is the biggest tech ipos since alibaba won out at a rich valuation and resume to pass the
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initial price in the first day of trading. gene munster follows tech month -- tech companies like feel the people do you have some for the newly public about it. also with this is julian emmanuel. gene, i saw a couple of letters you have written to the management. be careful what your predictions are -- don't predicting much. gene: keep expectations low. unfortunately for snap, the expectations have run-up dramatically and put that in saying they will do about a billion in revenue. unfortunate, investors are thinking that that number is closer to one point $1 billion. it is hard for them to tap it down, but that is one of our pieces of advice, keep expectations low.
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david: is that implausible number for revenue? apu: it all comes down to growth. facebook is at $22. if they can inch of that arpu. i'm sure it will work. david: that's average revenue per user. gene: that's exactly right. that is the key area they are going after. they are not talking about growing the base. when facebook went public am the goal was to connect other people the world. snapchat's goal is to be a -- camera company. they create more features and charge advertisers for that. so growing arpu is part of how they will grow revenue. jonathan: in your older job, what would you initiate this company at? analysts have come to market and say that it is hard to gauge with discovered he will be in that several years and everybody has two value the company full stop.
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gene: i would probably have it rated at neutral at this point. it is easy does say that because it is up so dramatically. say, when these lockups come off come in about six month commands as a patient of that typically is not good for these ipo stocks. list of really come as we just talked about, expectations, have already accelerated what they would already be comfortable about. what you set up is this next year will be a roller coaster for shares of snap aaron i think there is no urgency to -- first step. i don't think there is urgency to own it today. the on day year come i think snap is uniquely positioned to be one of the winners and cap because of their -- winners in tech because of the focus on the camera. that focus and that piece of augmented reality will benefit the company. dancy your question, it would be
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a neutral rating with a positive longer-term bias. jonathan: thank you. have -- not many people have subscribed to the idea that it is a camera company. isa cap -- it is a best it -- is it a camera company on its own? needs to work closely with the existing cameras, which are samsung and the iphone. they will create links to that and they do that today. that is what has driven their business. they just came out with spectacles. no one really has them. they are pretty silly, but they proven important point. they do one thing exceptionally well, which is great the sap experience. engineers,number of hardware engineers. -- longer-term, the company needs to come up with its own hardware. that will keep people like
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facebook and check. of the an important part story, which is hard for investors to wrap their head around. alix: what does this say about the broader market? are we in some kind of bubble? is this 1999 oliver again? we are also seeing retail come in, of grades -- is this 1999 all over again? we are also seeing retail come in. you have a 2300 rating. will you revise that? did you get sucked into this animal spirits? the market will celebrate its eight the birthday next weekbull good when the fed is hiking and there are questions about where policy is moving in washington, at these valuations over 20 times tend to want to see
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a little bit more. we are taking a balanced approach. we think there is a lot of money to be made in sector selection -- rentals, health care, technology. without being the all in mentality that we see. jonathan: bank of america merrill lynch upgraded to 2450. take me into the room with ubs right now. how difficult is it to maintain discipline when the market is mounting up around you and your peers are all upgrading their forecast? julian: it's always a challenge. you see this time and time again. by seeing araged headline ipo perform as well as it has. but you also see, when this happens, the market tends to take a breather. which is why we think, again, focusing on chair yellen's speech this afternoon and subsequently on the fomc on march 15, eighth there is an incremental aggressiveness in
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raising interest rates, that is a potential sort of slowdown sign for the equity markets. talked aboutn't president trump in the hole hour. which is unusual. : in 1999, a it was clear how the internet was going to play out. the valuations were 100 times revenue. ats is still a big valuation 35 times. this year's revenue. i think there's a difference between the two. david: when you see something like they snap ipo go out, does this have been official -- a beneficial effect on silicon valley or does oppose a risk because people will be too optimistic about the future? gene: i think they will always be optimistic. one of the fun parts of my new role is seeing a lot of these on the doors visit -- a lot of these entrepreneurs.
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they are full of bravado and optimism. this may still got a little bit more, but it is already a 9.5 out of 10. at the out -- at the end of the day, the markets are willing to embrace this future form of communication. jonathan: neutral on snap -- i'm joking. thank you for joining us. gene: if we were going to do it, that's what it would be. you to frank,ake germany for the breaking news. to boostbank is set capital as the supervisory board is set to meet on march 16 and 17. -- a capital increase and the selloff of its asset management business. more on deutsche bank coming up as we push toward the fed chair speech with the potential for a
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rate hike very much on the table. you are watching bloomberg. ♪
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jonathan: large a bank and frankfurt, germany once again in the news. -- deutsche bank and frankfurt, germany once again in the news. plans to review specific options in the coming weeks that included capital increase and a partial sale of its asset management business. it's down by about 2.71% over in germany. moore leads the u.k. finance team in the city of london. this bank, talk to me about the options on the table and how big they need to go if they decide they need to raise capital. michael: sure. at 11.9w, they are
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percent. their goal is to get to 12.5%. -- 11 point 9% mike get pushed down a little bit for some new rules. to sellinal plan was postbank and get a capital boost that way. so far, they haven't found a buyer at a price they are happy with. they're looking at some other options, one of which is a stock sale. another being a partial ipo of the asset management unit. jonathan: a lot of questions .bout this strategic direction a partial sale of its asset-management business, how does that fit into it? , it monetizesinly some of the valley from that unit. we've seen other banks do that. that would be somewhat of a but perhaps not getting all the upside from the future of the business. alix: thank you for joining us.
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we are hearing from janet yellen from one -- from janet yellen at 1 p.m. march doesn't signal a raise her, what will be the effect? julian: minimal. it is a shot to the system that we move from this time last friday, wondering whether march with even on the table to this degree of certainty. what will be interesting for us is not necessarily what she puts her on march. i think we will be left with the same impression that we have now and terms of implied probability. but it's the probability of a june hike some of the next hike after, which is interesting. and if we hear language that doesn't allude to the potential for political uncertainties in france specifically, a juicy between now and then, that tells you the fed actually believes that the economy is moving along.
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the market tends to believe, well, ubs is a 2.4 and i argue is probably higher come around 2.5 or 2.6. jonathan: as we push toward the full coveragech, right here on bloomberg television and bloomberg radio. that is coming up at 1 p.m. new york time. a check on markets for you. futures seeing a softer of them. down by 1.5% on the s&p. from new york, this is bloomberg. ♪
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economy. here is julie hyman. julie: beating estimates. the services portion of the economy is the largest of the u.s. economy, bigger than the manufacturing portion. number.eeing this aam not sure we last saw reading like this, but we will dig into the numbers more. we are not seeing much market reaction because what traders

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