tv Bloomberg Daybreak Americas Bloomberg June 12, 2017 7:00am-10:01am EDT
global, spreading through asia and across europe, emmanuel macron tightens his grip, theresa may loses hers, and changes at general electric. york, good morning. good morning. a warm welcome to "bloomberg daybreak." up tobegin by getting you action. futures softer, down 5-6 points. markets weaker. sterling takes another leg lower. treasury yields higher for a fourth straight session. david: let's get back to that big company story. has named jeffc
>> jeff immelt had been getting pressure from all sides. theystepped it up when initially bought into the stock. would be passive investors, and when the numbers did not come through, they stepped up the heat. that was part of it, but it had been coming from a lot of different directions. david: why hasn't jeff immelt been able to get the stock up? 2009, he did get a nice bounce as he started to redirect the company. is a questionat among a lot of people. shrunk ge capital, went
back to the industrial base, started a major digital strategy , but the numbers have not been coming through and people have been upset about the cash flow. it is one thing after another that has led to the frustration. , that decided that immelt it is time. that pressure have been building. jonathan: bottom line, not every day, but for investors, it has been. john flanneryut and what he has done it ge and how important that will be for the overall business. he wasr to health care, in a strategic role. in shrinking ge capital. a business development
looked at the portfolio and has been inside each of the businesses. he did get the organic growth going. margins have improved. bloomberg just met with him several weeks ago, and i commented on the impressive job he had done on getting health care going again. health care is a big question. -- hek that will be looked at it before he took on the role and said this is a business we looked at and are keeping. so that has been another question on people's minds. i think that will come up as a question as well. he helped to remake the company. i think he is a good guy for the role. david: into what is my question?
where is it likely to go. you have a more traditional industrial part of the company, oil services, as well as capex investment, and then you have immelt saying we will go into the internet of things. is this more a tech company. is putting oil and gas arm's-length and simplifying the company another step. chance thegood ownership and baker hughes will be spun off because of the way they have structured the new country any company. i think digital is the long-term strategy, but will not be a driver for many years. it is just too small relative to the size of industrial.
signs of stabilization across the channel. emmanuel macron expanding his control as voters put his party on track for a sweeping majority in the national assembly. joining us now to discuss both relativestories, the stability in europe compared to instability in the u.k. let's talk about it. how long can the prime minister hold on? >> it is a tricky one. we heard from a number of voices of the last 48 hours. in public, they are saying they support her. fromard from graham brady within the tory party. he said there is no appetite for a leadership contest. liam fox, david davis, other prominent brexiteers back the
prime minister. there does not seem to be an appetite to overthrow her. george osborne saying she is it dead woman walking and how long she remains so is the question. a reshuffle of her top team over the weekend. she had to leave a number of managedn her team, but to bring on favorites and had to bring in some more brexiteers that she had sideline previously. jonathan: it has become more interesting with george osborne. >> i wonder if she regrets having fired him? jonathan: i'm not sure she would fire him again. it was the middle of april. into the question after the presidential election is how would he perform in the
parliamentary elections. how tough was it? >> it wasn't that tough. we were all very anxious one month ago. now after this first round, it looks like emmanuel macron could get three quarters of the seats in the national assembly. would be the strongest majority we have seen in more than two decades since 1993. the opposition parties are in disarray. socialists who had been governing over the past five dead less than 10% in the first round. they were only get 20-30 seats. the national front, 10 seats in parliament, but marine le pen could get a seat.
weather. the david: the view. jonathan: it is tough in westminster. , nick burns and mark chandler. april, if i put to you french politics would be more stable and u.k. politics, what would you have said? >> i would have said you are wrong. i think this is an extraordinary revolution for emmanuel macron. there has been a large majority in the lower house. what he would like to do is take a big run at labor, pension, and tax reforms to get the french economy going, then link up with angela merkel and france and germany forming this center to get the european economy going.
this is an auspicious moment now. last two french presidents have also tried to reform the french economy and then defeated by unions, students. he will face that pressure, but has a lot of momentum. jonathan: there is significant optimism behind him from investors. talk to me about the nature of the conversation and negotiations and how this has changed? >> the conservatives got the elections wrong. they have been significantly weakened. theresa may can survive politically, it is not clear she can survive for the next year or two. these negotiations are very tough. understands that this negotiation is theirs to dictate right now to britain. a strongerthey want
negotiating partner on the other side of the table? there is such disarray on the u.k. side. >> they do. they have time to do that. if you are in brussels now and negotiation,is you're looking at and negotiate partner who were not be at the table in theresa may 19 months from now. the first time this has happened. anything is possible, including another british election before the end of these the negotiation's. this is a country badly divided. the conservatives did not do disastrously. the percentage was higher than it was in 2015 under david cameron, but significantly weakened. i think the british people are divided about the wisdom of leaving the european union. jonathan: nobody really saw it coming. mark chandler, if you had do
pick a europe's trade, does the politics holiday that now? >> the five-star movement had a big defeat and local elections, so speaks to the resilience of the system, wendy body politic has been attacked, the antibodies strengthen. pro-eu sentiment is on the rise in every country in europe. -nationalist moment seem to be restricted to the u.k. and the u.s. jonathan: the irony is that when the referendum was put forward, some people argue to get out of europe, and now the situation has done a complete 180. i do feel like the optimism is going to far in a country like france.
it is difficult to execute reforms in a country like france. matteo renzi did a good job in italy, then had a really difficult time as prime minister. is that what we could see from emmanuel macron? david: he is young. he is untested. >> this group he has put together, his cabinet is untested. he will face some opposition in the streets. what we are seeing in europe is a reaction to donald trump. there is great concern that he is treating germany and europe as economic competitors more than strategic military political partners. that reverses 70 years of american foreign-policy. the disastrous meeting at nato has worried european leaders and galvanize support for a stronger europe, and for some europeans,
they don't want to see this great experiment that goes back seven decades fold right now. i think trump is fueling some of this togetherness in europe, to kerley germany. >> the youth vote stands out in my mind. and inr emmanuel macron the u.k., i tend not to play up the u.s. role and a reaction to the u.s., i think europe is on its own evolutionary track and this is a response to the inability of the elites to deliver the goods. about highl talking levels of unemployment among young people and an uncertain future. david: a great point. when we began this story, it was about reform of the eu, not france, the eu. a lot of people thought they were justified in that. is anything leading to fundamental reform?
is there a structural problem with that union? >> a lot will depend on the other elections in germany. returns comekel they have to think about a fiscal union, strengthening and rationalizing brussels. she will finally have a french partner in emmanuel krahn who can be that other leader to push that with them. they may not have produced the results of the elections, but if you are angela merkel and are lookingron, you at an unreliable partner in the united states. she has started to talk about that at political campaigns. in bavaria of all places. we welcome friday morning, and there was debate as to whether the u.k. would shift towards a hard brexit or softer brexit,
and that we can coverage has been cherry picking and narrative, pick a new member of does new burns said on that now about where prime minister may needs to take the negotiations? >> i don't think they know right now. it is a shock to the system. she will hold onto power for the next couple of months. i'm not sure the conservative party can answer that question. if i ask you who will last longer, prime minister may or janet yellen, everyone said janet yellen. notn the uk's case, i'm sure hard or soft soft brexit is in their hands anymore. the initiative is in the eu's hands. i think soft brexit, hard
brexit, not in the u.k.'s hands anymore. jonathan: an important point. you will be sticking with us. coming up, the tech selloff shows no signs of easing up today. shares are lower in the premarket. another analyst and cuts the stock to neutral. be man behind the note will joining us at 9:00 a.m. eastern time to reveal what is behind this market move. you are watching bloomberg tv. ♪
more relevant than ever thought possible." cope -- where are we with this rushing investigation? kevin: still ongoing. several sources still don't know whether jeff sessions will testify publicly or privately tomorrow when he is on capitol hill. deputy attorney general rosenstein will also be on capitol hill this week testifying in the house of representatives, so the back-and-forth continues as the trump administration tries to move on. worth noting that the russians sanctions bill will be up for debate on the senate floor beginning today. david: in the meantime, the world goes ahead and we have qa tar having a little difficulty with the gulf states. what is the president and rex tillerson trying to do?
discrepancy some whether there was space between the secretary of state and the president. president trump on friday having tough talk for qatar, saying they will have to make amends to ease the relationship with saudi arabia. not only send a jolt to the middle east, but also to the business community and political observers in washington. tillerson calling on the nations to ease their diplomatic ties and come to some sort of resolution, saying it is a business crisis, and also at crisis that could lead to instability in the region. one person familiar with all this who was hoping that the business pressure will help to
bring about some type of resolution quickly. david: thank you so much. still with us are nick burns and mark chandler. there are so many things we can talk about. let's talk about the middle east and the extent to which donald trump and the united states played a real role. >> this is an unusual moment in american diplomacy. i can't remember when an american president and secretary of state have been at so much variance publicly. rex tillerson is trying to tamp down this conflict and build some bridges because the larger issue is we need a united sunni world to be effective in syria, which is very dynamic right now. unity, have to have turkey, the gulf states, and effective policy, but the president keeps pointing the
, very muchatar aligning with saudi arabia. it is tough to be secretary of state when your boss is undercutting what you are trying to do. the president cents foreign-policy come always has come up at think about successful presidents, george w. bush had a relationship with james baker, even richard nixon and henry kissinger. you are not seeing that. it is very important in diplomacy that tillerson has the backing of the boss. jonathan: does rex tillerson laugh. is it too early to have the conversation? >> the president is not really running the foreign-policy of the nine it states. he is running the statements of the united states and seems to be disconnected from the actual of ao day diplomacy
country, which is worrisome to say the least. david: bring this back to the world of investment. what effect does this have on market,nts from the oil risk on versus risk off assets? >> at the margins, it has some impact. we have three central banks meeting this week. the politics is important to the extent people are concerned it will interfere with the economic agenda of tax cuts, infrastructure programs, deregulation. we saw the house passed a bill last week on financial deregulation, so those issues are more important and the politics is important only insofar as it disrupts the economic story. david: how much of this is just the media, which is often criticized these days, hyping what is going on? how much of this is undermining president trump's ability to
lead? >> i think the administration is in turmoil. is no consistency between public statements and what they are trying to do. they are trying to stick to certain themes every week. attorney general testifying tomorrow before senate intelligence. james comey story is continuing. this investigation could last a year or more, so the russian story is not going away. the heart of the story is we have russian interference in our election and the president never raised it with james comey, does not believe it is a problem, that is coming back as a major issue in american politics, his unwillingness to defend our country from russia's gross interference in our election. david: it was loud and clear.
they asked cam if the president ever asked him about the underlying issue, and he said, no. >> an extraordinary day. david: at the same time, by the way, we try to do it for the russians too. >> we have never had a country use technical means to try to innovate voting polls and local constituencies and redirect the theme and the quality of the election. happen tover had that us before we are a democracy and they are not, so they are not separable to this. we have to defend ourselves. the markets have just moved on from the story. couple of months ago, a very different market reaction. thank you for joining us. let's get you up to speed on market action this monday morning. two hours from the cash open in
new york, future softer, down 31 on the dow. a soft session in europe as well. the leading losers is the tech selloff as it goes global. higher, yields grinding a ton of supply in the market from the treasury this week. 30 year later in the week. ge, here is the big stock story. up by almost 4%, a change in the top after 16 years, stepping down as the ceo. that is the story in the markets. let's get to up to speed outside the business world. emma: theresa may meets of lawmakers from her own conservative party who blame her for the catastrophic election results last week after they lost the majority in parliament.
in france, president emmanuel macron had a big win in parliament. track for a on sweeping majority in the national assembly in the first round of legislative elections. go through thes second round's, they are projected to win as many as 477th seats in the lower house of parliament. a warning from north korea who says it's close to developing a nuclear missile that could reach the united states. it's said north korea is not far away from testing and icbm. the u.s. system was tested last week to intercept and icbm. this is bloomberg. meeting wasb policy
notable last week after they change communication strategy saying theyraghi could do something in the near future and they lowered their forecast for inflation. a was in frankfurt earlier. we are still not seeing inflation where we would like it to be. we have not seen the criteria of being met. francine: how much of a nightmare is stronger gdp customer >> that's the good news. it's unqualified good news. [indiscernible] adapt our why we strategy. it also shows her monetary policy measures are working.
also jobs being created in the eurozone over the last three or four years, a lot of them have been created thanks to the accommodation policy. that's working well. mandate soinflation when it comes to the next step, we have to focus on inflation. francine: why was tapering not discussed last week with mark >> it's too early to discuss it. we discussed a lot of the economic situation. if you look carefully, you'll see inflation is less dependent on policy measures which is a step in the retraction. too soon to discuss tapering, we are there yet. francine:, when do you think it is appropriate? >> i don't want to give dates.
where driven by data so we will whenever the situation is right for discussing it. a perfectdo you have idea of when tapering should be discussed and what it would look like? >> again, that will depend on the economic number and inflation. we have to discuss it before the end of the year. that is what we have said about buying bonds and later, if necessary. that discussion will take place but it will take place when it's supported. francine: is july a live meeting given that there's low volatility in the market and you are not actually doing any new forecasts? >> we do work in july.
as i said, the discussion last week was very much about taking stock of the progress in the economy, taking stock of the progress that will support inflation and that's a discussion we will have again and again. a lesson from what we decided last week is we want the for guidance aligned with reality. a meeting in july? come on. francine joins us from frankfurt. i guess it's hard to reconcile an executive board member of the ecb saying they made progress on inflation when a couple of days a differentd forecast. how was he doing that? francine: he's saying that it improved a little bit compared to the forecast they had to cut. this is a conundrum for the ecb.
gdp is actually better than expected, inflation is not as strong as they expected so what do you do with all the qe? because it on to it would be terrible to take it out too quickly? the point is, if you don't do anything in june, why would you do anything in july? jonathan: as we approach the end of the year, people will ask when will you give us the communication as to what will happen with qe. it runs until the end of the year and they will have to give some guidance eventually. has he given you any idea what the guidance will be based on? francine: he said the guidance will be based on data. he used the word tapering which was significant which would be by the end of the year. it depends on how much bonds they have left to buy. it's getting trickier but i believe the ecb is hoping the outlook will be easier to read.
not gety inflation will cut down further and it goes up a little bit. a sense of he have why they are getting growth without inflation? it's a nice problem to have but why is that happening? francine: it's a nice problem to have except if you are trying to normalize. it becomes trickier to normalize. at all the's not same as in the united states. they think that inflation is coming down because of employment. employment is getting better which is feeding the gdp but they still have temporary workers which means wage growth is not there. wage growth inflation problem. other academics say it may be a little like in the u.s. because of the shared economy. overall, it's because we are not creating quality jobs, creating jobs but they are temporary on short-term. that means a lot of people
especially in southern europe have to work two jobs to make ends meet. much, ahank you so really good interview. last week it was the ecb and this week we will hear from the fed, the bank of england, the bank of japan. mark chandler is still with us. is it that different in the united states and europe? you have the fed looking at the economy and the ecb looking at theirs. we have not seen as robust a wage growth your either, have we? >> i don't think we have seen it in any country that has full employment. germany, the u.k., this seems to be an international development. its country specific so i think that has been a weight on inflation and core measures of inflation which seem to be correlated with wages as opposed to headline inflation. translate that back into the fomc who are meeting this week. everyone expects them to raise in june but what happens after that?
where should they be headed? the u.s. and ecb are in the same boat. we have to depend on the july and august inflation numbers to tell us what will happen in september. i think that's when the ecb is expected to make an announcement about its tapering decision, to scale back its 60 billion to maybe $30 billion next year and the fed has to make a decision about the balance sheet as well as whether they deliver the third rate hike. the images that fed hikes in june and this week and then a december destin in september as well and then december they give the announcement about the reduction in the balance sheet. jonathan: it feels like they are on the federal reserve and the ecb and i don't know many people who think we will get to the end of the year and the ecb will remain with qe at 60 billion euros. regardless of what the data will
be, do you believe truly that the ecb's next move is data dependent? a it is, does it have to be substantial move away from the current should directory? raise a good point, inflation remains low. the ecb's point last week was it's not so much that inflation is going up, it's just the downside is deflation and that has gone away. that's why i think the ecb is committed to normalizing but gradually as the data permits and creates those opportunities and the same for the fed. i think governor brainard's comments are important. three declineybe -- three months of decline so i'm not sure this is a done deal for either bank. 2014, governor carney delivered a speech during the summer and talked about interest rates.
quite a lot of people would have said the bank of england would have raised interest rates first. wirp on bloomberg has been enhanced. market still expect the ecb to raise rates before march of next year which is still before the bank of england. jonathan: coming up, apple recorded's biggest drop in nearly seven weeks friday and is no sign of relief. coming up, we will talk about why there is a neutral at 9:00 later,stern time and where there is the most upside around the world. beautifuld the world, new york, summer has arrived. futures are softer. you are watching bloomberg. ♪
bloomberg is daybreak. coming up tomorrow, a conversation with germany's finance minister. that's at 7:00 a.m. new york time. ♪ from leader to laggard, technology sold off in a big way friday leaving -- leading the nasdaq to its biggest decline in nearly four weeks. the biggest story is facebook, amazon, apple, and alphabet.
still with this is marc chandler. the surge of just a few stocks in the s&p 500 got everyone talking about fundamental growth in the u.s. economy and why the focus was just on these handful of companies. what is your view on that? i look at the percentage of s&p 500 and the 50 day moving average on looks like the stock doesn't have as much participation. the idea that u.s. stocks are lagging has really changed. of thepproach the end first half, despite everybody talking about how the emerging-market stocks are and they have come about a 10% this year, the u.s. is holding its own with europe. the u.s. and europe are up
roughly about the same percent. i'm not sure we see an outperformance but currency makes the difference. jonathan: 62 companies ahead of the selloff. about companies surging 30%, we are used to turkey -- talking about penny stocks. you look at who has been buying. it's not reais -- it's not u.s. retail so much. they have sobanks, many reserves, they are among the large for to suspense. -- they aremarket among the largeest participants in the tech sector. david: we had a warning friday. tony dwyer warned about this. of s&p 500nday, 44%
information technology stocks made a new 52-week high. that has only happened twice historically in a both occurrences, you had more followthrough which we are seeing. we have more upside but then you have a 20% drop. our sector strategy adopted about three weeks ago was a thele early was to favor trump trade, the banks the financials, the energy and materials and industrials and cut back on overexposure to technology. we would say if you have access position in technology, just take some off the table. wasd: it sounds like he predicting the future. is this a matter of the tech sector getting overstretched? will there be a slight retrenchment or is something broader happening? i'm not so sure.
one of the big stories this year is how low u.s. yields are. you look at the dax, you look at a 3% dividend. that's compared to less than 2% of the s&p 500. much capital out their relative to the investment opportunities as well as some sector development favoring stocks over bonds. we have to bring up goldilocks. , and ecbok at the ecb is going nowhere fast. is that good for the european economy compared to the u.s. where growth is kind of stable? it looks like europe is the better opportunity. almost all of the major investment houses and the media
are promoting buying europe and emerging markets. there is a little bit unwinding of some of the winners as you approach the end of the first half. don't fully buy that all of europe's problems are solved. thank you so much for being with us today. you can watch us online. you can interact with us directly. go to tv go on your bloomberg. live from new york, this is bloomberg. ♪
in the european section with down --ps -- tech stops tech stocks down 3.7%. board, supplythe is kind into the market with yields grinding higher for a fourth straight session. tech may be down but general electric is not down. jeffrey immelt is stepping down. health care that head john flannery will assume the role of chairman on august 1. we have they had of global industrial research who has a positive outlook. thanks for joining us. was this expected? i think it was expected six months from now but certainly
not today. end of august at the earliest but this seems accelerated to me. succession always happens in companies but there has been a lot of rusher on jeff immelt to get the earnings up. -- there has been a lot of pressure on jeff immelt to get the earnings up. wast's clear that trian unhappy as a shareholder and other top shareholders were unhappy. the company has not put up the numbers the last year or so. as you mentioned, the last 15 years have been tough. we needed a change here and i think the ge board was listening and we got a change. jonathan: what about the flannery? >> ihn think he can turn around quickly
because i don't think anything is broken here. we need a new messenger and we got that made somebody to take a fresh look at the portfolio. to ave long advocated breakup here. the traditional conglomerate model does not work anymore. ge has great businesses any ability to create shareholder value if they do the right things. breaking up the company, lay that out for me and tell me how realistic that is. >> i think the most logical first thing that flannery would consider doing is to spin off the health care business. it's a great asset and it would trade well in the marketplace and create value. after that, they have the ownership stake in baker hughes and that's an ownership stake you want to monetize as soon as you can. yet have not bought bigger so it takes time to do that. after that, we would love to see a standalone aerospace company
and a standalone powergen company. four distinct entities. if we cannot get four distinct entities, we would love to get three. we would love to have aerospace and power remained together but health care gone an oil or gas gone. to that world,ot what with the multiples be for that company, how would a trade? >> aerospace companies tend to pay around 18 times forward earnings. this would be a premier asset come a high-margin, high return asset. the crown jewel of this portfolio. it's a fantastic business that's run by a leadership and they have done a great job. they're are positioning for next-generation aircraft. i think would trade quite well. with the position of the , are theying bought being set up to be bought?
the standalone ge businesses that would remain would be pretty big. the entities seem a little bit of a stretch but it still possible. jonathan: coming up, what's next for the fed. city, counting down to the market open and futures look like this. a soft session on the continent, down by almost one full percentage point on the dax. you are watching bloomberg tv. good morning. ♪
global, what started in the u.s. friday spreads across asia and europe on monday. it's definitely a story of two europe's. emmanuel macron condensing power losing hers and jeff immelt is stepping down from general electric. in new york city, good morning. this is bloomberg daybreak. the tone of the market is something like this -- futures of 1% on thet 1/3 pound is weaker against the dollar. there is a ton of supply and potentially a fed hike. the big mover this morning's general electric with shares rising as the company was morning named health care head john flannery to be its new chairman and ceo and jeff immelt is out.
now is with financial partner cio. welcome and good to have you here. what caused this now? words -- stock prices. the ge stock prices underperform the market and dramatically underperformed its peer group since its low of 2009 and pretty much during jeff n.l.'s tenure. n.l jeff in melt immelt.melt - are hard to run. they focus on what's not doing well. when conglomerates were built in the safeties and 70's, it was designed to be recession resistant but now people want
pure plays and focused companies and if you are in more than one business, they want all the business is doing well. david: so will i have to stop conglomerates? >> i think so. off of the the spin the aerospace business would be positive. it would get away from the oil is where oil prices are down and should continue to decline. jonathan: looking at the value of the company compared to other the multiple, applied to ge is not bad. it's actually pretty decent. what's the appropriate multiple? they're peer group is united technologies and honeywell. both of them are up significantly for the year. also for the past five years and off of their 2009 lows. are conglomerates that can piton many levels with ge and
seemingly, the majority of the business in honeywell and united technologies are doing well. jonathan: what does the future ge look like? >> if they want to stay as a conglomerate, they should get out of the oil services business. i think focusing on aerospace and power generation and getting out of oil is important. david: if the decision is to break up the company, why is john flannery the right person to get that done? do we just need a new face? in&aem has a background and finance and has been with ge since 1987. he's knowledgeable about financial engineering and that's positive and the health care business is a very important business. i think that's a key driver. even though health care does not go well, power generation and
aerospace -- and aerospace, those three businesses would do well going forward. david: we tend to focus on a company like ge when it changes hands but they have competitors and it creates opportunities for competitors. who stands to benefit from this today? boeing iny honeywell, the aerospace area. the apple stock was up a ridiculous amount through the year. all-time highs and then friday happened. a $30 billion market value dropped from the company with downgrades to the stock and cautiousness about tech. divorced from the optimism, talk to me about the fundamentals of the company and what you expect through the year? >> i still think apple is very
cheap and will continue to do well. they have a lot of positives coming out is that the new iphone eight will be very strong. in the sectors has been technology and people are nervous and looking for an opportunity to take a profit. i think the trend in tech is very strong. i think any pullback in apple and any leading tech stocks including google is a buying opportunity, a significant buying opportunity. jonathan: maybe some on last year would've said it was cheap. most people say the optimism around the next iphone cycle is in the price. >> there was a huge halo effect.
this is the first step to home automation at that apple is getting into because a lot of the home automation alarm systems, locking systems, entertainment systems, all work on that basis. plus the commerce application. david: does the market think that apple is a tech stock question ma? >> it has a lot of cash in a does not have the growth rates of some of the other tech stocks but they still have that cash and continue to buy back stock. in continualest research and development. david: you think apple is a good buy. do you decide based on it being a growth stock? what to look for? >> i look at return on capital and apple is very strong in that area. theontinues to dry
increasing return by contracting their balance sheet and investing in positive return drivers. david: many thanks for being with us. coming up, what's next for the fed. her zentner joins us for outlook. tomorrow, an exclusive conversation with the german finance minister. live from new york right now, this is bloomberg. ♪
the board discussed a leave of absence for the ceo. people say uber will name a new independent director. it's another sign of the impact online shopping is having on brick-and-mortar. children's clothing chain gymboree has filed for bankruptcy. they will reduce its debt. economists predict the federal reserve will raise interest rates twice more this year according to a survey. bank willhe central start shrinking its balance sheet before the end of the year. atnomists expect a rate hike the end of the next fed meeting and again in september. david: the central banks of the developed world have played a major role in market investments for years. how long will that continue question mark we heard first from the european central bank last week and a member of the
bank's management board spoke with bloomberg's short time ago. >> the discussion last week was very much about taking stock of the progress in the economy, sticking talk of the -- taking ofck of the progress improving inflation we have that discussion again and again. what we decided last week is that the governing body wants to keep our guidance aligned and that will continue. david: ellen zentner as well as now. we also have the jpmorgan global market strategist. it's from morgan stanley, you are dangerously unsupervised this morning. david: let's make it clear, andn is with morgan stanley or other guest is with j.p. morgan. do we have this straight? >> you got it. week: the ecb went last
and we have the fed this week and bank of england this week and bank of japan. let's put aside bank of england for a moment. all in thetral banks same quandary? they want to move back toward normalization, whatever that means and there being held back by data. >> yes, for the fed in particular, soft data is near-term weakness in inflation. they are pretty certain its transitory. it's a lovely word, that it will be temporary. all of them are hedging their bet. we know they will raise rates this week. it happens beyond that will depend importantly and whether the incoming inflation data gives confidence that the weakness is just near-term. outside of that, the data is not that soft on the economy. it's in the pocket of their growth forecast which is amazing. they will not have to revise downward their growth forecast at this meeting.
and that the second meeting in a row which is unprecedented. jonathan has been asking if they are on autopilot at the fed? they have a bias toward raising? i think they are pretty much data dependent. we have been surprised since the beginning of the year. there is a first quarter curse in the u.s. the fed should remain vigilant. we see the u.s. is still operating at full employment. from their perspective, even though we see this soft patch, us expecting one rate hike forward.
governor brainard delivered a speech earlier this week and talked about navigating inflation and wage growth. moveoal was told to interest rates higher. if that's where the bias is, what's coming up on the front-end of the treasury curve? that so far fed this year, they are delivering exactly what they said they would yet the market is saying we don't believe you will do anything further. that's very frustrating. it feels wrong. head of rate strategy has noted that the market historically at this point in andcycle is underpriced typically under prices the fed. is there a snap where the market wakes up and says you are going to deliver the three hikes you promise this year? guess what, you will continue hiking next year. as aat wake-up call comes
slap across the face, that could be a lot of volatility and markets. far, the investors are just approaching each meeting and finally pricing in each meeting when the fed will go but saying that's one and done or show us if you will do more. jonathan: then send, will the market get a slap in the face? i'm not so sure. the market is pretty much ready for a rate hike. if you look at june, it's pretty much priced in already. the market prepared itself for this outcome, maybe not at the start of the year but over the last month. that should jacked her he of the thing you are using is quite surprising. we accept -- we expect that the
interest rate will grind higher in the u.s.. when i look at the financial condition in the u.s., it's still pretty easy which makes any rate hike not being disruptive. up on rates pick hikes not being disruptive. financial conditions have loosened so what accounts for that and can the fed expect that to continue as a goes through continuous hiking? 2013 when we to were tapering longer-term assets are late 2015 when we were raising rates for the first time off of zero, we've got a different fundamental economic that drop today, globally. it says we need tighter rates. the fed has raised rates and now they are about to deliver their
third hike at a major meeting in a row. financial conditions need to keep easing. this would tell the fed to move a differentthis is cycle. as they are raising rates, they low inflationling and expectations moving in the wrong direction. that would tell the policymakers that things need to remain easy as you hike. toid: you said they need raise rates. given where the data is, why do they need to raise rates? if am looking through the lens of monetary policy makers, admittedly, i don't know exactly where full employment is. i think it's 4.7% and i think they bring that down at the next meeting but the four point 3% unemployment rate is starting to get uncomfortable. my growth forecast has been met, nothing wrong there so it's
really only the inflation side that is missing. if you are a good monetary policy maker, you got growth above trend and within your forecast. on a planet rate is lower than full employment, that will always make you believe you can hit the 2% inflation target sometime over the medium term. they don't have to do it tomorrow or the end of the year, sometime over the medium term and that will keep you on a tightening bias and you will believe it's appropriate to continue to raise rates. jonathan: you worry that maybe the unemployment rate is misleading? you can look at the unemployment rate and look at the lack of strong wage pressures and say maybe full employment is lower than my re-think it is. maybe it's 4%, maybe it's 3.9%. when you look at the data at the
weight janet yellen does, there is not a lot of discourage workers left to attract back into the market. there is not a lot of slack left as we continue to create jobs. we will have to be satisfied with that. looks goodo the fed with its forecast. the bulk of the officials at the fed did not incorporate any d.c. stimulus. it actually looks pretty good. indeed, and there is no reason to revise the forecast down. we expect the fed to keep their forecast in line with previous ones.
the u.s. is operating at full employment. you have a country operating at full employment and not increasing wage growth. we face an aging population and most of the developed world. a lot of well-paid baby boomers are leaving the market giving way to new entrants who are less pay. i do not expect much change in the forecast but we should continue to debate this question of wage growth. maybe that's not the might metric given the aging population. david: it may not be the same
maybe because of demographics or technology but given that, should that fundamentally change the central banks approach? when they look for inflation, they say inflation will remain lower. probably. the question might be whether the low economic conditions project a raise rates. there is any for normalization and rebuild. we need to prepare ourselves for the next recession which remain far away in our view but which will happen at some point. that's the reason why the fed
janet yellen will get grilled on inflation because that is the fly in the ointment, the near-term weakness. do you believe it's transitory? all so the balance sheet -- are they still thinking this year versus later this year with makes people think it will be the september meeting and said that of december. things these are the questionnaires the michael mckee in the room will concentrate on. off of threeng major meetings and row where they hiked rates, they will take a pause in september to give the balance sheet is due course, put that on gradual autopilot in the background and then go back to hiking in december and follow it up next year as they keep hiking in every major meeting. david: when the fed did not raise a couple of years ago, is there a danger of missing a chance again? >> when i talk with clients and market participants, they are
that the fed will skip hiking at the september meeting because they will think the idea of june and done will be locked in. once you stop that train, you'll believe hard to start that but i have not gotten that from policymakers but certainly there is a risk of their. jonathan: good to have you with us this morning. coming up tomorrow, and exclusive conversation with this , the german finance minister. that will be at 7:00 a.m. eastern time. next, we go live to paris where president emmanuel macron is tightening his grip on french politics with a sweeping majority in the national assembly. you are watching bloomberg tv. ♪
in london, we are just pushing into positive territory. board,ng out the treasuries has supply. a federal reserve could give us a rate hike. yields are pushing higher ahead of that by a single basis point. looking at the euro over the last three days, it's been a story of weakness and today it is strength. we are just off the high for 2017. that's the story so let's get you up to speed on the headlines outside the business world. emma: boris johnson in the u.k. is asking for theresa may's resignation. he is calling for calm within the conservative party after disastrous election results last
week. she is being blamed for the majority leaving her and it could be the end of her time in power. in france, voters have given a resounding victory to president emmanuel macron's year old party. it was the first round of parliamentary elections. his backers are projected to win as many as 455 of the 575 seats in the lower house of parliament which would put him in a strong histion to enact pro-business agenda. attorney general jeff sessions in the u.s. has volunteered to testify in front of the senate intelligence committee. it likely to appear tomorrow before the committee which is the same committee that questioned james comey last week. president trump yesterday called james comey cowardly. this is bloomberg. jonathan: it's a tale of two
europe's. theresa may is facing her new cabinet after a devastating majority parliamentary lost and emmanuel macron is getting a sweeping majority in the national assembly. let's go to westminster and also paris. bastiony in paris, the of political stability, no one predicted that 6-8 weeks ago, run us through it. storyis a very different than what we see in the u.k.. we have the new french president emmanuel macron to get through a in the lowery house of parliament. the result of the first of vote will hold on until next sunday after the that until the next round. of the seats.
the republicans are on track to get less than 100 seats. the national front were not even get 10-15%. the largest majority for the french president in more than a decade will allow the french reformst to put through . investor that every has been waiting for this which is major labor market reform. we will see if it holds fast when the strikes actually start. french politics look strong today but u.k. politics look
anything but. prime minister theresa may has to find an agreement with the ecb and the northern ireland. i'm not sure we have seen that yet. within hers payoffs own party. how will this play out this week? questions, first of all, you have been talking about emmanuel macron and we hear that theresa may will travel to paris tomorrow to meet with him. she said the main focus will be on counter terrorism but rex it is a big question looming over everything. thedup which was one element of the chaos over the weekend when we heard they had been an agreement reached only hours later, saying a final agreement had not been made. -- what anyich any
coalition would have on brexit. brexit.wants a softer they want a frictionless border between northern ireland and arland and how can you get that while being out of the single market? you also asked about her own party. we had a flurry of activity here. the scottish conservative leader just arrived. has been a bit of a cabinet reshuffle. theresa may need to reconcile those pushing for the stop to brexit within her ministers and those pushing for the hard brexit. jonathan: thank you both. they say the brexit deal is buying a house, you will get through to the other side of you are prepared not to walk away. is that what it's all about?
every deal i have done, you have a walk away price. jonathan: i'm not sure what that would be. now is a chief economist. if i said the political stimulus would be in france and not the u.k. 6-8 weeks ago, we would've had a different conversation than this morning. why is a critical and what does it mean to the economy? how does it shape the view at the moment? of the election in france was important because it will strengthen the capacity of emmanuel macron to push through his reform from and agenda. always given the majority to the presence of a would have been surprising not to have it. given the fact the political
party of emmanuel macron was quite new, that remains a question mark. if there was one common line between all presidential candidates it's that france inds reform in some areas terms of fiscal aspects. that's a positive side. we should have a parliament agreement which can move forward from that perspective. on the other side, brexit negotiations are more uncertain given the outcome of the british election. that will be a challenge for the coming months. it was a great challenge but we have lost almost three or four month so it could be more challenging.
europe is a big story to get that exposure to european entities and risks. how important is the political story to that? these countries need reform? >> it is very important. ,ver the past couple of years the ecb was pretty much the only game in town who supported the european economy. we knew that we needed the political extension to reform europe, investigate in europe, and the victory of emmanuel , the possibility of having a more pro-european agenda and pro economic agenda is good for the economy. ice economist revising their forecasts up for the region. europe and upgraded
they are looking at the first season. david: i guess the perceived is you would go along europe and short the u.k. in terms of assets? is there something we are missing there? >> i would bring it back to monetary policy. stuck where the fed was a few years ago. there is no reason for the policy to be where it is but they are having a hard time extricating themselves from an easy policy with negative rates plus ongoing qe. qe inticular, the end of europe would be a positive sign for markets around the world. in my opinion, it's an essential source of instability. good news for france on the
political side might be helpful in getting the ecb where they can level off rather then continuing to ease. david: if the ecb could move off where they are and start tightening monetary policy come with that make european assets more attractive as an investment to you? >> definitely some part of the market. we like value stocks in europe. i believe we will have those higher rates in europe. the german bund is already creeping higher. i believe that a normalization of ecb could be beneficial to some parts of the european economy.
like the ecb, i believe it's not time yet. the european it connie is not at the right velocity yet -- the european economy is not at the right velocity yet and when he to reduce it substantially to bring it close. we need more enter evasion, -- more intervention, more reform like emmanuel macron wants to do in france and we have seen in many countries like belgium and the netherlands. that's where you will improve conditions of the labor market and hopefully improve wage growth going forward. that is critical. david: many things. thank you so much for being with us. tomorrow, we will be
emma: this is bloomberg daybreak. coming up tomorrow cannot an exclusive conversation with the german finance minister. that's at 7:00 a.m. new york time. after almost 60 years, there will be a new ceo at general electric. .eff immelt is stepping down he rish if one of the top manufactures but he struggled to win wall street approval. he will be replaced by john
flannery, the 30 year be -- ge veteran who now runs the health care division. ge has been under pressure from activist investors. shares were down 12% this year before the announcement. there is a new partner for lyft. jaguar -- land rover is working with lyft and self driving technology. jaguar disclosed it invested $25 million in lyft in a funding round the close in april. coresoft is targeting hard gamers with this new version of the exploits -- of the xbox. 7 will be released november four $499. it's designed to work with a new tv sates and 4k games that have more realistic scenes. that's your bloomberg business flash. that's what we need is a
new xbox. i hope my son is not watching this. let's go back to the fed as we focus on their meeting. that will take place later this week but there's an underlying question of who will be making business going forward. there are three openings on the board in question looming about whether the president will nominate john -- janet yellen for another term as chair. we will talk about where the fed is likely headed. people being mentioned is marvin goodman. you worked with him. what to you think he would do if he were a fed governor question mark >> i would say he's a well-respected monetary economist, most everyone would agree is well-qualified to help make monetary policy. in terms of his views, coming from the richmond fred, -- fed, there is a term -- there is a trend to be more hawkish than dovish.
he is not the one who is incredibly hawkish. what distant is him are two onas -- he is very focused the fed's credibility, hitting a target like an inflation target and what it takes for the public to really believe that the fed will hit its inflation target. right now, that may lean him the other way given that the fed has been missing to the downside. more important for help policy gets derived, is he is very much sympathetic to the idea the fed should have a systematic work rules-based way of developing policy, not that it rigidly at -- adheres to a rule, but a benchmark. gooduld need to have a reason as opposed to the purely discretionary type of policy janet yellen likes. david: that may play well on capitol hill with republicans. is likely to be his attitude on the balance sheet? how does he feel about the
stored -- about the stringer efforts being taken by the fed? >> he was pretty skeptical of qe. he is one of a number of economist of feels like the fed should not be involved in markets other than the treasury market. if they want to buy treasuries to add liquidity the system, that's the traditional monetary policy the when you buy mortgages or any other assets, you are effectively a la getting credit and picking one sector over another and he's pretty skeptical of that. if we were to get in at them margin, it might be an argument for unwinding that part of the fed balance sheet. jonathan: on wall street and whend for global markets, isse nominations are made, the person making the nomination they are hawkish or
dovish or they want a rules driven individual? are they coming out differently? there is speculation with president. he is hard to decipher. a lot of folks in the market are saying he was a real estate tycoon and he likes low interest rates but it does not feel like that's the way the nominations have been coming forward. it andrtant part of maybe not as closely focused by the market is not just monetary policy but also the other responsibilities of the fed and in particular regulatory policy for the financial sector. the administration is sympathetic to loosening up financial right -- regulations and it feels like the people being put up their people who would be sympathetic to that agenda. david: that takes us to randall corrals. he's a lawyer the way dan was but is more experience in investing having been with the
carlyle group. what do we know about him question mark >> he was in the bush administration the treasury department. he certainly has experience on the regulatory side. his views thatd he is sympathetic to the idea that we could probably loosen up a little bit in terms of some of the aspects of dodd-frank. in terms of monetary policy, it's similar to marvin. he is somewhat skeptical of the fed holding such a large balance sheet and probably would be interested in seeing if we could wind that down sooner rather than later. i don't think we have a well-defined view of him as a hawk versus a duff but i think -- hawk versus a doubt but i think he would be less dovish. david: that's before we get to janet yellen. juliejonathan: if - >> i think that chances of her getting renominated are fairly
low. i think donald trump was to put people in place were sympathetic to the overall agenda. forgetting about monetary policy, someone who is at least sympathetic to the tax-cut strategy. it's easier to be loyal when you agree in the first place. logic -- wass i do ideologically far from republicans so i think they want someone was more sympathetic not necessarily politically but ideologically. david: maybe honest loyalty. we've got our own issues here. david: stephen stanley will be staying with us. -- check out tv where you can check us out live.
anathan: breaking news -- hedge fund firm is returning $8 billion to investors. the cio is to parting to his own this is anterest and billion dollars of the $30 billion total from viking. in the hedgeory fund world so let's look at the markets. futures are off session lows this monday. we are a little bit softer by of 1% and the dax is off the lows but still down on the day by about 8/10 of 1%. stocks,at the european
you don't have to guess which is the biggest loser this morning. it's a tech industry selloff through asia and europe as well. market, a lot of auctions from the treasury. a federal reserve meeting as well. big story for general electric, jeff it melt is stepping down. is that a surprise? david: apparently not. he has had a rough go of it. jonathan: with the stock price as well. and he has had a lot of pressure to get the stock price up. weekve an interview last
saying they would not make the target. they said they would not get to two dollars per share. jonathan: that never goes down well. david: he did a lot of good things for ge. forthan: at a tough time the company since 2008. more on that coming up later in the program. robert buckley will be joining us. city, for our viewers worldwide, we continue the cacheour down to open in new york which is 34 minutes away. you are watching bloomberg tv ♪.
general electric. melt is stepping down as the ceo. textile spreads through the ages -- asia. theresa may loses hers. still intact.e from new york i'm jonathan ferro alongside david westin. alix steel is off today. futures a touch softer. the dollar weaker against the euro even with the firmer yield story. two basisield up by points. the global markets have all been about tech over the last couple of days and this morning apple softer again. this man behind apple's losses
coming shares. we will hear from the man himself. here's abigail doolittle. we have a shares down 1.8% in the premarket after on friday. off by 4% downgraded shares to neutral with analysts thing that the iphone a super cycle coming up is already priced in with the stoxx huge move this year. apple is now technically below its 50 day moving average. are seeing tech selling is adobe systems. down more than 3%. the first cell on the street out of 33 analysts.
singh fundamental is a good year. the stock has gone up too much too fast. let's end on a great spot. ge higher after the ceo is stepping down. what is behind this move it could be the stock prices. and investors probably wanting a bit of a change. everybody's favorite sector, tech until maybe friday. leading the nasdaq. sachs onfrom goldman friday, the biggest story in our view is facebook amazon apple microsoft and alphabet.
this has created positioning extremes factor crowding and difficult to decipher risk narratives. a lot of jargon in there. cell of has spread globally with europe and asia markets tumbling as well. joining me is jpmorgan global asset management strategist. positioning extreme. let's dig into that. >> i'm not sure it's extreme. seen against a relatively lackluster macroeconomic backdrop a lot of people move into the tech sector because they have had the ability to generate earnings and revenue growth. i'm not sure positioning is necessarily extreme. jonathan: if you look at these
companies it in isolation you would vehicle to paint a pretty good picture. the tale of the last couple of days there is too much optimism in the price of these stock relative to what they can do this year. still somethere is upside for these names. i'm not sure we are necessarily at the point where things given to roll over. a world very low inflation and everyone is trying to figure out how companies are going to continue to grow their earnings. the tech sector has proven to be very good at dealing with the deflationary environment. i think we are due for a pause here. numbers are going to end up being pretty good at the end of the day. we think there is still upside
and we like tech financials broadly. we think there is still some room to run. david: you really highlight the possibilities. one is that this is just a short-term technical issue where it got a big -- a bit overpriced. earnings andut revenue growth. is there any change in the environment that might bring into question whether tech can continue to grow earnings and revenue? >> our view is that it will still be a main contributor to earnings growth. i think we cannot escape the role that technology plays in our everyday lives. it's still going to really make a difference. we are at a point where it may make sense to question what some of these companies are doing. lastw a lot of enthusiasm year around some ipos that have
not turned out to be the angels that everybody thought. david: there is a question, where is the sky for these tech stocks? the trumptent does phenomenon really affects where the sky is for the tech companies. >> i think they are somewhat .nsulated given what we have seen over the first six months of the year people are starting to pull back on policy expectations and the fiscal stimulus and infrastructure spending. that could be a very good environment for tech. people were going into these growth names because the economy wasn't lifting all ships. jonathan: last year we saw extreme valuations. the death of the reflation narrative. in some kind of counterintuitive sense tech stocks have become
defensive plays for growth. >> it's very strange. highink about those really cyclicals. you have the income producing assets. sandwiched in the middle you have tech which participates when the cyclical stuff rallies. it also plays better defense when things roll over. something that needs to be in investors portfolio. it captures a decent amount of the upside. it provides protection on the downturn. this is what he had to say about the rotation away from text to other sectors. 500s of monday 44% of s&p information technology stocks made a new 52-week high. historically that has only happened twice and in both occurrences you had more followthrough prett.
sector strategy which obviously was a little bit early was to favor the trump trade. the deeper cyclicals. the financials, energy, materials, industrials and cut back on overexposure to contact. -- tech. if you have access position in tech, take some off the table. thethan: that was ahead of pullback. does the opportunity still exist to rotate into the beaten up sectors? >> i think it does. evaluation should be and should be-- valuation an investors primary guide. we think some rotation makes sense. we also think the global economy
looks pretty good. the fed is going to raise rates this week. if we see interest rates move back to where they were earlier this year that's going to be very supportive of these deeper cyclical sectors. david: it also depends on where you are in the lifecycle of the industry. how do you know when tech reaches maturity? interesting. we think of technology as being at the forefront of everything we do. one of the indicators that we have and spending a lot of time thinking about is what's happening in terms of the way they price their goods? there's massive deflation in tech which is a sign of this industry maturing. newe will always be companies popping up and doing stuff that's different.
a lot of the incumbents are relatively mature companies. we still think the earnings they generate will be positive which is why we are not completely turning around our view. david: is what you are talking about pricing power? do facebook and amazon have pricing power or not? >> i think they do. we have seen it come down. a goodompanies have done job of dealing with deflation in their industry and they can continue to deal with it going forward. that's going to generate earnings which push their stock prices higher. david: david lebovitz will be staying with us. we will discuss the rotation with robert buckland, citi chief global equity strategist coming up live from new york. this is bloomberg. ♪
david: this is bloomberg. i'm david westin. jeffrey immelt is stepping down as ge ceo 16 years after succeeding jack welch. shares of general electric are up in the premarket on the news. with us now, karen-year-old covers industrials and david lebovitz is still with us. what message should the markets be taking from the move? >> that ge is ready for a fresh look and investors certainly want a fresh look.
this guy who is taking over has done a good job in three years at health care. will he get the operations moving a little quicker. he has also been a guy in strategic planning. just a fresh face is the biggest method. up with a newcome plan or is it one that's been kicking around? has think it is one that been kicking around. they have done some mega acquisitions. they distanced oil and gas from the company. there are some that think health care is next. be guy that is going to running julie took the deep dive on health care and chose to keep it. i'm not sure. whod: we had an analyst said the days of conglomerates have essentially passed. does general electric need to well honed a very well-defined core business and get rid of health care as you suggested? >> there is a wave toward fewer
businesses. honeywell's aerospace business is a terrific business. these companies may have to simplify because the multis. getting credit for diversification. we have waves. conglomerates are good. conglomerates are bad. right now they are bad. the ease with which they talk about breaking up a conglomerate. how quickly can you do it? lot of spinsen a done in the industrial business over the last couple of years. it takes a year, a year-and-a-half, two years to actually execute this. they are close on oil and gas because they are doing arm's length doesn't happen fast. jonathan: if people are really
pushing to realize value in a company usually it's because the overall sector is not doing too well. there are struggling to generate topline growth. looking to maximize the value in a company. is this a really tough time in u.s. manufacturing? there has been a lot and companies across the board. there is definitely room there. if you look at their individual businesses the margins are not really that bad except oil and gas. operationally i don't think they have done a bad job. industrials they have been cutting costs really aggressively for the last two years. much they canow continue to eke out. david: capital investment has not been growing robustly in this country or globally for that matter.
can they really fight against that trend or do they need capital investment to come back? >> there's enough room globally. been decentally has growth. asia is a big part of that and it is accelerating as well. i think there is enough growth for capital goods company not led by the u.s. 16id: jeffrey immelt had years. what will his legacy say? >> i think it should say he remade ge. it will probably say he had the worst performance in the stock in a long time. >> you mentioned the link into manufacturing. we have noticed that outside of the u.s. manufacturing activity looks pretty robust. the industrial sector overall is very sensitive to the u.s. dollar. pullback could give the
industrial sector a little bit juice because the fundamentals are beginning to turn around. all those companies had such a tough run from mid-14 to mid 16. it feels like the valve is being released and some of the pressure is coming off. david lebovitz of jpmorgan will be sticking with us. coming up tomorrow, the interview. a conversation with germany's finance minister. do not miss that conversation. from new york, counting down to the open with futures treading water. is bloomberg tv. ♪
the tech selloff started on friday and spread through asia. went into europe as well. the dax in frankfurt down by .9%. the story elsewhere a little something like this. treasury yields grind higher. some supply coming into the market 30 years coming tomorrow ahead of the said decision. most people expect a rate hike. the treasury is a little bit softer. the euro keeps firming up. a stronger euro story against the dollar approaching 2017 highs. for global markets the conversation of the weekend very much about the tech wreck and apple leaving the decline yet again. securities analyst abhey lamba
downgraded specifying apple's strong upcoming product cycle already being priced into the stock. the stock has been fully outperformed on a year-to-date around thenthusiasm upcoming product cycle is fully capped at current levels. abhey lamba.w is let's begin with you and talk about the research you have put out. it just got too expensive? where theook at enthusiasm is for the iphone eight cycle we still think the cycle is going to be good. at the same time we think estimates have gone to the place where we feel there is probably not much upside. if anything there could be some risk to the downside. the multiple at a seven-year high right now.
that does not have much upside given those factors we feel the stock is probably towards the upper end of the range we can expect. jonathan: we had an investor on the program and we talked to him about the story. , still very cheap. talk to me about the downside risk to the company. your own outlook. that's what makes the market. difference of opinion is always going to be there. when we look at the downside on this name especially if the multiple rewards over the last seven years. much we aret look looking at downside on the stock to be 135 to 140. we think they need to expand their installed base for the fundamental value to go up.
it's going to be stale to existing customers. david: you referred to the multiple. ,f you were running apple today it doesn't trade as a tech stock at all. it trades is a computer product stock. is there retooling that company by going into services and getting the multiple up substantially higher than what it has ever traded at? >> absolutely. if they can actually get services revenues to grow materially from here that becomes a much better contributor to profits. that is a scenario which can to theaterial upside stock. when we look at the estimates that exist today the average
revenue over the last two-minute half years has gone down from $100 to $50. what people are looking at expected to expand to $65 in the next two years based on consensus. 30% growth in a metric that has been declining over the last seven years. david: what about virtual reality? absolutely. if you want to give them the benefit of the doubt, yes. have we seen anything from then that gives us comfort that these are the elements they can outperform and do well? we need those data points to give them credit for that. in theat we have seen
home automation front they have been left behind by amazon and google. they need to get their game up. once we see some data points .rom them we will go back they need to show that. jonathan: thank you for joining us, abhey lamba. david lebovitz will be sticking with us as we can't -- countdown to the open. futures are a little bit softer. switch of the board very quickly. treasury yields grind higher by a couple of basis points. the euro stronger. the opening bell up next. you're watching bloomberg tv. ♪
we are looking at the dow up almost four points on the s&p 500. a stock rally in the tech sector. this is the top of the look at the as we new week. yields are higher, roughly 50 basis points. we continue to pull away from the lows. looking at the dollar, it is a little bit weaker though. the dollar is weak or primarily the cause of what has been happening with the euro the last couple of weeks. this is a conversation for this program through the week. futures, throughout the morning, let's take a look. much, jonathan. we are looking at followthrough from friday's selloff. the dow is down fractionally, but the first down day in four
days. we have to follow through for that tech selloff. let's consider whether it will follow for the rest of the day. right now, it does seem that investors are taking that big drop for the nasdaq seriously with more selling today. let's look at the individual movers. apple, down 3%, four percent on the open after dropping 4%, this of followthrough, but we have ratings got to a neutral saying the upside from the iphone eight is largely priced and and lots of apple suppliers down also. in the case of serious logic, 80% of its revenue from apple. so, a lot of red there. there's something very interesting happening on friday. this is also a style rotation.
at 99, it dropped. -- valuevestors outperformed. gina adams, the strategist, told me it has to do with energy and utilities. and then 2009, the beginning end of 2015, growth was outperforming. dotin said that that had to with investors chasing growth, a scarcity of growth. and then for the first time in decades, they saw a little bit of growth. and we saw that same thing on friday. yes, and a special program with the federal reserve decision coming out later in the week. the nasdaq is taking a bit of a beating again. points,own off by two that kind of level over the last two sessions. we hold that, essentially the biggest two-day loss -- we hold that at .9%.
to discuss this, from london, robert buckman, global chief equity strategist. robert, always good to see your face on bloomberg tv. thank you for joining us. let's begin with the egg synaptic did we have -- the egg synaptic bid we have seen. talk me through it. >> i think there's a little bit of a reinvigoration of the trump trade we saw after the presidential election last year. the market got a little more excited about stronger growth and rate hikes. financials did well. i think there's a little bit of that going on, revisiting the growth in the trump trade since last year. there a chance that this becomes self-fulfilling and people get nervous and that the gets more selling and more selling? is there a risk of this? >> yes, these things can become
more selling. i would point out our u.s. equity specialist is underweight financials and underweight tech, so to him, this makes sense. >> i think the question all of us are asking is this a short-term limited retrenchment or is there something more fundamental going on? and the last 13 were attack, so is this having steam in the marketplace? ? so is thisck having steam in the marketplace? >> you know the old saying bowl markets narrow and bear markets broaden? this is a bit of an unwind of the narrowing. it does not mean the trend is over completely, but it may have
gotten over extended in the short-term. david: does this tell us anything more broadly about equities at this point? is the bloom off the rose? they have been up and up and up no matter what happens. you look at the 10 year treasury yield just about 2.2%. yes, we think that the fed will hike rates this year, but we think there will continue to be a bid for equities. guest's point,r i'm not sure this is something bigger. one of our themes is the turn beneath surface. the market is climbing a wall worried at a certain point. it was the same last year, was in it? there is no alternative. are we there again? when we look at technology, we
had this conversation earlier. there is growth elsewhere. sus but we have to think about equities as an asset class. in a world where everything is expensive, wherever we look in it is below, we know that house prices are high. equities are the last fairly valued asset class left. it does not mean they are cheap. other asset classes are more expensive. that is part of the narrowing complex. it has narrowed into equities and asset classes as well. it's the last vaguely reasonably class left. >> robert, you put your finger
on it. i will give you an alternative to tina. there's an alternative -- the worst mistake you can look at this, i am going to top myself with these equities being worth it. do we really think the valuations are out there. -- the valuations are out there? >> i would not say absolute valuations are particularly cheap. historic level. so we are 10% expensive against that relative to other asset classes, still fairly cheap. relatively they make sense. absolute, they look a bit pricey. jonathan: looking at capital
redistribution, some of them are big cash cows. we look at the recent researches. one of the things that we have been talking -- >> one of the things we're been talking to clients about is how the u.s. tech sector has become increasingly capitalized. it allocates more of its capital to shareholders, less capital to making things. apple designs iphones. it doesn't really make them. what that does, of course, is free up the all is to shareholders. -- they canhings price that into the share price. that is important to emphasize. the cash richness, the ability layate a floor under -- to
a floor under the share prices. you -- determine prices? you can determine excess capacity and whether that is deflationary? how do you measure that for a tech company? was to zero really and you can expand instantly with very little incremental expenditure. >> absolutely. this is part of a broader conversation about protec unity and are we measuring productivity correctly. you can look at things like revenue per employee, which confirms these businesses do a lot without a lot of input, whether it be people or actual investment. the key thing is the tech sector continues to sit in the middle of that technical, sector divide and as the rest of the world accelerates, the tech sector has the largest international
exposure, so i do not think this is a sector you can really ignore. perhaps things are a bit long in the tooth. we think it is an important part of the investment. jonathan: the dollar story being part of that. vitz great to have you with us, robert joining us from london, our european head quarters. thes get you up to speed on market action. the dow goes nowhere, the s&p 500, the damage, the selloff, the rally continues. the nasdaq off by one percentage point. the leaders in the market getting deep enough. from new york, you're watching bloomberg. ♪
emma: this is bloomberg daybreak. i am emma chandra. there will be a -- david: this is bloomberg. i am david westin. the biggest laggard in the dow is leaving the gains today -- general electric. it is having is vested day of gains since 2015 but that comes after the news that the ceo will be replaced by john flannery as ceo and chair. reports are out today that travis kalanick is in trouble with his investors in the board after a series of misdeeds by
employees. in an ugly video of travis kalanick himself having a heated argument with an uber driver. with the potential market cap of $70 billion, the stakes could not be much higher for bloomberg to get its leadership right. joining us, a specialist in leadership issues who studies technology companies and he is author of the book "strategy professor,nk you, for being with us. let's talk about travis kalanick. talk about the challenge in front of travis kalanick and the uber board today. >> they are trying very hard to enact a wide range of actions to correct what is perceived to be a deep cultural problem inside the company and those problems stem from a culture that is extraordinarily unfriendly to women to doing things that are marginally legal. they all understand this. how directlyis
actually do it? the leadership challenges in most companies would have been to fire the ceo. that does not work in this case ick has, in effect, a controlling share of the voting shares of the board. that leaves a lot fewer options for management to figure out how to solve this problem area david: -- this problem. unique or rare or is this more general in the startup sector where you have the small companies get big, very, very fast and you have leadership that is relatively young -- i don't mean chronologically, but in terms of the business world. knowing how you can get in trouble, knowing how to protect yourself? relatively rare. there is only a small number of companies that have the number of controlling shares that mr. kalanick has.
snap. google. facebook. the problem of a relatively running aced ceo large company because of fast growth is a relatively common problem in the sector. what is different, the successful companies like google and facebook figured out early on, the ceo's did, they were not the right person to run the company at that time. mark zuckerberg brings in sheryl sandberg. you have eric schmidt coming in to google to provide some mature management and leadership, and the challenge here is mr. kalanick did not do the same thing. let's turn that on its head and go to a very experienced ceo. jack welch is out with a statement saying that he wishes jeff hamels the very best, but flannery,shes that
the incoming ceo, will bring strong operational focus to ge. so, how does that set of leadership challenges differ from what travis kalanick and uber are facing? different. very ge is known to be an extraordinarily well-run company. it is well-managed. there have never been issues of sexual scrimmage nation, the culture pushing the edge of the law. -- sexual discrimination. ge is the opposite. ge is a very mature, well-run organization, but it is a company where the ceo faced an extremely difficult problem. he comes in right after 9/11. he has to face the 2008 crisis, and it is a very mature company, so it has not been able to sustain the kind of growth and likengs that companies uber are able to do. as a consequence, we see the stock price has floundered.
the company has done ok. it just hasn't done great. and that is what puts jeff into situation and i think that's one of the reason why the board and even he thought it was time for a change. david, to wrap this all up, it seems you almost have to choose between a young, creative, innovative, daring withny, the risk you have uber right now, or an established, well-run company that cannot innovate as much. can you have the best of both worlds? think you can, but it does require extraordinary leadership. you think about what ge did under jack welch. they were able to grow. they were able to do extremely things. jack was and is in his mid-40's when he took over the company. he was not a different age then but he was more mature, more seasoned, equally
creative. it's possible even in a big company like general electric, you can do some of the wonderful things we see a companies like uber. david: ok, professor. that is david yoffie from harvard business school. if you have a bloomberg terminal, you want to check out tv . you can interact by sending out messages we will read. on your tvtv terminal. this is, after all, bloomberg. ♪
david: this is bloomberg. i am david westin. attorney general jeff sessions was supposed to be going to l tomorrow to talk about the justice department budget, but he needs toays address the russian investigation and james comey's testimony so he will go before the senate intelligence committee to do that. in his testimony, comey said that they have learned something about sessions that would make his continued investigation into
a russian investigation problematic. he said he could not discuss the matter publicly. joining us our chief washington correspondent. there's a lot going on in trump world, but let's start with this jeff sessions investigation. what is going to happen tomorrow? >> sources i am talking with are thel unsure whether attorney general will testify publicly or privately. comeys say that james saying in a closed briefing that perhaps the attorney general not disclose all of his meetings that he had with russian officials. that, of course, makes it a bit particularlyted, since the attorney general has recused himself from any russia investigations, but it also, of course, just further adds to the intrigue of how this administration is struggling, david, to put this behind them. yeah, exactly. let's talk about what they would like to get to this week.
what's on their agenda from their point of view? week wasst infrastructure week, at least in the news, but this is workforce development week. president trump is working with a team of advisers particularly on things like apprenticeship programs. he will be in wisconsin later this week with governor scott walker to again tout a series of reforms -- a series of reforms, trump, thehat ivanka president's daughter, has been working on. we will hear several congressional tweaks like perhaps paid maternity leave. having a key role in that particular regard. at the end of the week, a host of top republican lawmakers will be meeting at the white house to discuss -- ♪un dun dun
u.s. cuba relations. david: kevin, forgive me if i feel overwhelmed. toseems that he keeps adding the agenda. should i ask what happened to tax reform? what happened to health care? or member those? it's interesting. we talk about this and there's the frustration with the lack of proposals on policies like tax reform don't exist so congress is having to take the charge all of those fronts. a feelingin, i have we will be talking with you a a lot this week. thank you so much. china, trying to catch up -- how did infrastructure week go? clearly jokes are being made on wall street. did it happen? david: he went to ohio, gave a speech. jonathan: comey happened, to you well, so perhaps it got lost somewhere.
they carry through wages today. the nasdaq the last two days, off by 3%, for percent. you look of the nasdaq the last two days, but that selloff in perspective. we were off 15% coming into friday. the last two days, 3.5%. we hold these levels. let's give you a feel for what is happening. julie hyman joins us on set. jewels, what is happening --jules, what is happening? we saw this spike in selling on friday and is never a good sign if you are a bull to .ee this selloff right now the volume on the nasdaq is double the 20 day average per it's just astonishing the volume we have seen. it's all over the egg cap names grid goldman sachs, facebook -- amazon, microsoft, google/alphabet.
that were atthings records or near records before this now coming down. you just said symantec was off 15% for the year. it's not like we have wiped away all of the gains, but now that it has entered the second day, more people are struggling to make ends of it -- make sense of it. apple taking a beating. these big companies are getting really enough after surging 30%. julie hyman taking us through the markets for the rest of the day, the rest of the session. , stocks are down in the night's you're watching bloomberg tv. ♪
vonnie: here are the top stories we are covering, u.s. markets open lower with them nasdaq getting pummeled once again. european stocks are also taking it dive and we will examine the driving forces. in london, the u.k. prime minister theresa may met with her conservative collects since losing her outright majority in parliament. we look at how any looming partnership is still ongoing with the northern ireland dup may impact brexit. jeffrey immelt will leave as at the end ofe the year and investors are applauding was shares rising the most in 17 months. we look at how the incoming ceo john flannery may change one of america's industrial icons.