tv Bloomberg Daybreak Americas Bloomberg June 22, 2017 7:00am-10:01am EDT
brussels to face eu 27. d.c. gets ready for a big health care reveal good the obamacare replacement will be unveiled today. after crude dropped into a bear market, a wave of energy analysts downgrade stocks. good morning. this is "bloomberg daybreak." up for theset session this thursday, let's get you up to speed on the market action. features are stable, marginally negative. down a single point on the s&p 500. a classic summer's morning in new york for you. treasuries up by a single basis point. crude ate side after $42.70. alix: now getting a bit of a bid. the energy stocks still getting hit. this is the worst performer in
the euro stocks. gold not catching that much of a oilin the commodity rout in -- david: at 8:00 a.m. eastern time, european leaders begin a two-day summit in brussels. they will discuss security, defense, migration and jobs. at 8:30, we get data for jobless claims in the united states. powell speaksme on fostering economic growth. later today, the federal reserve releases the results of part one of its annual bank stress test coul. jon: prime minister may is set to meet eu leaders in brussels for the first time since her disastrous election.
expected to outline how britain will treat eu citizens after it leaves the block. walk us through the orchestrated theater of this particular summit. at this summit, they will be talking about a lot of issues that won't be the main focus. security obviously is a huge issue for the eu. they are all waiting for theresa may to propose exactly how she plans to deal with eu citizens that live in the you can post march of 2019 -- the u.k. 2019.rked of 20 march of give free access to the single market to the u.k. theresa may has insisted no one inside her country should fall under the jurisdiction of the european court.
she doesn't want to give european citizens more protection than the british citizens who live there post-brexit. it is a difficult conundrum and a difficult strategy that she will have to come up with. jon: try to work out where she will feel more comfortable. abroad or at home. some people saying maybe abroad. after the dinner, she will be told to go away and the eu 27 will have a big discussion about where they stand on proposals from their side. where are we in the current negotiations and do we consider today negotiations? come in some sense everything now that is said either publicly or privately will be some kind of negotiation. she may not feel very comfortable here. hisitalian pm has told people that the prince come with a much weaker hand. -- the britons come with a much
weaker hand. ally is telling anyone that she has less authority than she thinks she has . why should we negotiate with your government since your government isn't going to necessarily stay in power for the entire two years anyway? she will have to answer those questions. matt miller joining us from brussels. great to see you. i want to bring in bob michele . bob: lots going on this week. jon: let's begin with the negotiations and the authority that prime minister may may or may not have. bob: obviously, her base is quite weak.
. we are hoping for some form of there can beere some forward pass on bilateral agreements between the eu. it just doesn't feel like that's going to happen. that is a bit too optimistic. david: we are hoping for a soft brexit. it's a hard way to see how you get from here to there right now. miller justue matt identified some the treatment of european citizens in the u.k. bob: that was one of the tenants that brexit was based on. too hard and things like that. harden up the border and things like that. is moving away on its own path and one of the things we are saying is try to build a base to move baking to the
continent. david: is there one point of potential leverage, money? the u.k. has contributed a lot to the european budget. they need that money to keep going. could they pay their way out of this problem? bob: i suppose that is a possibility. some form of revenue share on businesses that are cross-border , some form of tax. we don't know how receptive the u.k. government will be to something like that. and: you do currency commodities and fixed income. what do you do with guilt? how sensitive will they be two headlines? bob: very sensitive. initially, there was the downdraft and then a bit of recovery and then everyone talked about sterling had gone through the classic adjustment and that should lead to more consumption and things like that.
now, as that is fading, you start to look at property prices. especially in london. it is concerning. jon: when you take a look at what a soft brexit might mean, what would be the indicator that tells you it is soft, it is good from i want to go along with sterling? bob: you see the u.k. crafting bilateral trade agreements with different countries in the eu. it doesn't necessarily have to agree to a single package with central command of the eu. you start to hear the negotiations with one country at a time. that would be very positive to us. you are not hearing that. it still sounds very hard. jon: what could be realistic in the immediate term would be the european free trade association and the european economic association. wouldn't that be the kind of soft brexit idea that would make you fundamentally go along
sterling? bob: it would. the problem with those broader associations are they have so many constituent members, it's hard to get them to all agree at once. there's no doubt that if something could be crafted there, it would be very positive. everyone hopes for soft brexit. when you sit there and try to work through how it could occur come it doesn't seem realistic at this point. jon: tina fordham joins us now on the phone. we are talking about what a soft brexit could mean, what kind of scenarios we could see. what kind of scenarios do you envision? i think, first of all, we have to appreciate that these terms are being thrown around and even the british public isn't very clear on what they mean. , davidson won a lot
of seats on open brexit. by that, she met a focus on jobs and the economy. soft brexit, hard brexit come starts tot, it all sound semi-pornographic. outcomeimportant in the of last week's election here in the u.k. is that nobody understands what the will of the british people is. there's no longer a parliamentary majority for so-called hard brexit. i'm sure you've already discussed the fact that soft going to be pretty difficult to pull off without allowing freedom of movement. we have to tear ourselves for a -- we have to prepare ourselves for political disarray. let's talk about the
political dealings you have to read. typically, you're looking at the parliament trying to pass 20 a year. what does that tell you about the authority by minister may doesn't have at this point? it would have to focus more on the disarray in westminster still? bob: absolutely. tina: investors need to distinguish between the desired outcomes for the conservative may to stay is for on as prime minister and to avoid a time-consuming and destabilizing leadership challenge as we had last year. it's also clear that she needs to have authority both with the party as well as in order to conduct these very time-consuming, very technical negotiations.
i'm not sure she has it. mrs.pectation for how long may can stay in office, it is shorter than the consensus. i would look to sign posts the conservative party conference in september as well. there are many factors to consider and i don't think you need to be inside the white calls bubble to appreciate them. the front runner for replacing mrs. may, boris johnson, just crashed and burned yesterday in a television interview. alix: bob michele and tina fordham sticking with us. coming up tomorrow, we have special coverage for you, marking one year since the brexit vote.
david: republican senators have doorsorking behind closed to come up with a replacement for obamacare they can agree on. joining us for a preview is kevin cirilli. what can we expect to hear today? the senate health care bill put forward by mitch mcconnell will revolve around a couple of points. out the acae medicaid expansion and provide
tax credits for people buying individual insurance as well as protections for people with pre-existing conditions. it is a bit more slow dated than the house version. the house version would force folks to adopt by 2018. this would only begin repealing parts of obamacare by 2020. it faces a very uncertain future in the senate with both conservatives and more moderate members uneasy about its fate. david: the president might say this bill is a bit more heart. what are the two conflicts coming up? kevin: conservatives feel this is not conservative enough. they would rather stick to the house plan. people like senator rand paul and ted cruz. they've campaign for quite some time on repealing parts of obamacare -- a full repeal.
then you have people like senator susan collins and rob portman who are much more moderate and they feel this could potentially pose political problems and policy problems. i spoke with senator portman yesterday about whether or not he is satisfied with the process of how this has been negotiated behind closed doors. sen. portman: i'm hopeful we will take our time and get it right. we will insist on a congressional budget office report. i believe it is required. the numbers so we would know what the impact is. i haven't seen the proposal yet. i don't know. kevin: a senator portman served -- mostudget chairman people believe you have to have a budget score before this has brought to a vote. there are some procedural
hiccups they could use to avoid that. david: still with us is bob michele of j.p. morgan and over in london, citi's tina fordham. tell us why this is important to you in terms of fixed income and foreign-exchange and commodities. is it within the four corners of health care it's all for what it says about the larger agenda? bob: what it says about the larger agenda. if we look at how the markets reacted postelection, there was a lot of optimism on structural reform coming through. that is largely faded. it feels like we are starting to see some of that optimism built again. maybe it was getting past the comey testimony, maybe it was the expectation that if we can clear russia and the molar investigation -- robert mueller
investigation by the summer recess, trumponomics will gain some momentum. it seems there's an intraparty mediation and that is somewhat positive. david: do you see some of that optimism creeping back into the marketplace? much of it has to do with health care getting through the senate? see some of that optimism starting to creep back into investor sentiment. it is just not very well-founded. this notion of republicans working together again overlooks the fact that there's a great deal of fragmentation going on. part of the reason markets are more optimistic is a result of the outcome in georgia. and a sense that after the summer recess, the party agenda
can get back on track. there are a number of reasons to be cautious about timing on the aspects of the pro-business agenda. alix: it's not just what we are seeing in the senate, it's the senate versus the house. even if the senate is able to pass something, where are the key areas of disagreement of the house versus the senate? tina: that's not even how i would look at it. it is very difficult to take benefits away from people and it is politically unpopular. that's why the bullet dodged in a reda, georgia remains state indefinitely, dampening democrats' hopes for taking more seats in the house. put that to one side. if members of congress think
it's going to be politically costly for them to take benefits away from people -- there's no history of doing that in advanced economies -- this will make the process of getting this legislation passed difficult. they know they need a victory to go into the fall session. and to get other things on the agenda. we also need to solve the israel-palestine peace process. point we have seen this story play out before. something will be unveiled by washington. we may or may not have something past. headlinesd to ignore from d.c. than a few months ago because the optimism never translates into anything? bob: absolutely. i agree with what tina has said. there is some hope and optimism. i'm not sure how much of that is working its way into the market. the markets are highly cynical and skeptical now.
i mentioned to see come at what point do the politicians go back to thinking about the midterm elections and abandoning the negotiation going on currently? jon: a special thanks to tina fordham. coming up come up troy gayeski of sky bridge capital -- coming up, troy gayeski of sky bridge capital. you're watching bloomberg tv. ♪
to buy staples. the deal could be announced next week. staples and sycamore aren't commenting. a plunged by more than half today. people familiar with the matter say they plan to file for bankruptcy as soon as this month . that is your bloomberg business flash. jon: it feels like a sleepy summer friday. alix: shares of oracle popping 11% in premarket. it closed at a lifetime high yesterday. revenues of 58%. sales completely exceeded estimates. watch that stock as we head into the open. we have another potential deal in the works. >> don't is said to portman and position group to buy part of a company from platform specialty products.
the newaccording to york post. elliott management owns about 4%. this company's revenue is split drillingtween ag's and chemicals. celestial up 2% in premarket. mr. earnings widely across the board, but the strategic review for the company was able to raise fourth quarter outlook above consensus. -- missed their earnings widely. it named a new cfo. not as bad as one had expected, but not awesome either. along with hammered the rest of retail. jon: coming up on this program,
thomas michaud on the annual bank stress tests. this is how we are set up on wall street. futures marginally softer. we go nowhere on the dow and s&p 500. a weaker session in europe with a ftse down by .2%. the oil industry stocks the leading losers. switch up the board, some stability in crude after we fall into a premarket. -- bear market. from new york city, this is bloomberg. ♪
a move to the downside by one third of 1%. the energy crisis across the continent really underperforming after the action we have seen in crude prices. a slight bid on crude. in the fx space, just brought up the g10 and took a quick snapshot. euro-dollar and cable really stable but the price change can be seen in the currency commodities. after taking a little bit of a beating, the norwegian krone, .iwi, are back-to-back let's get you up to speed on what is making headlines outside of business. there could bels the first battle of brexit negotiations. british prime minister theresa may will outline how the u.k. plans to treat e.u. citizens after the breakup. the u.k. stands on the 1.4 million citizens is expected to
fall short of the you expectations. on capitol hill, republican leaders are working on a bill to replace obamacare. it would cut hundreds of billions of dollars to medicaid over the next decade. the congressional budget office has yet to review the sonnet bill and it would lead to 22 -- 22illion americans million more americans without health insurance. trump aides want to replace janet yellen after her term ends . they want to install their own person, however one positions as president trump likes yellen and feels no sense of urgency in the matter. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. voting from opec members is kicking up. the kuwait oil minister saying
opec, non-opec compliance was 160% in may -- 106% in may but they need to do more. brent getting a break today but it has been a brutal year for the commodity this year. joining us from our european headquarters is our bloomberg news network strategist. have we seen capitulation? itif not, something close to . i think those comments tell us all when he to know about this deal. we have got a group of countries more than fully with the agreement they have done and yet we still have oil prices tanking. clearly this deal is not big enough. we said it before the last opec meeting that they needed to do more and cut further. they extended the cuts as they are and i think that the market is reacting as we have seen.
it is simply not enough. people are worrying about not only the second half of this year but next year as well. alix: i was talking to jeff currie a few days ago and he brought this to my attention. a tale of two time spreads. the blue line is prices in december 2017 versus 2018, a long-term oil spread. completely fallen off the wagon. the white line is current month oil prices versus a second month oil prices in another month. they are pretty stable and holding pretty firm. is the market tightening and we are missing it? julian: i do not think it is tightening very much. it is tightening of it and we would expect that this time of year. we are in the peak driving sinners and desk season in the u.s. and peak refining -- season
in the u.s. and peak refining season. arepec and its friends really serious about bringing inventories back down to a five-year average level or something close to that by the end of this year. alix: $35, do we see it? julian: some are saying that. numbersring increasing of people saying we are going to be printing prices in the 30's before we get a recovery. alix: thank you very much, julian lady. i feel like if that had happened a year ago, remember what happened a year ago. everything else fed it out of -- fell out of bed. bob michele is still with us. this is the normalized yield for the high energy index, high-yield, and ig, and the energy index is the white line. we have seen a spike but not a lot of reverberation. bob: we have to remember that
the collapse in energy over a year ago was so severe that a in thesempanies indices either restructured or default of their way out so you have a much cleaner environment. the market did not expect this. we are not supposed to be here. draw where period of supply is supposed to be much longer than demand and that was supposed to last through the end of the year. i think what is concerning everyone is it is not only coming from the u.s. and shale producers but from libya and nigeria and iran, and there's too much oil around. jonathan: how much upside is left in the crude supply, live and that we have almost completely recovered the losses to production in the united states? what upside is left in terms of the supply story? like theres not feel is a lot of upside and one of the things we are talking about, if you want to estimate where
crude should trade, try to figure out what the cost of shale production is. as that keeps drifting lower, that will tell you how it incentive the shale producers are to produce and get supply out onto the market. jonathan: when you look across the curve, where is the big mispriced, $43 at the front or 2020 at $51? what is the story in 2020? feels thistainly week like 2020 is the mispricing , that the expectation in a world where money is flowing into alternative energy investment again, and you look at the efficiency of cars and where we are moving in the amount of oil production coming out on the market. it does not feel like this supply-demand will get back into balance and that will lead to much higher prices. david: that is not good news for the oil industry but it has not
really trickled into the rest of the economy. how much is because of the reason of what is happening with oil is not because of china? they are not cutting back their demand. as long as china has demand for oil that sinks the global economy. bob: this is something we debate a lot because at some point in time you have to look at energy prices at a rather muted level. let's take $40 for arguments sake. where is the tailwind for the economy we are going to see from that? we will see consumption pick up because of lower spending on gasoline at the pop. where are we going to see corporate profitability pick up because of the lower input cost? when will we see china be able to increase its stockpile of oil and go back to a higher rate of infrastructure? badare right, it is not all
why is itserve, hiding whilst inflation is weakening? something the central bank is running a major risk and other saying we are one major shock aainst a major distillation desk deflationary -- deflationary share -- scare. the strongest argument in favor eating a concern about asset bubbles, do you share that? bob: absolutely, and i think absolutely -- i think, i know him, he is a friend and a smart guy, but i think the fed is focused early on asset bubbles and that is what you are hearing. they are talking about commercial real estate lending, auto lending, highlighting the tech industry. i think they are miles away from
normal. i think they start that journey now not only with rates but with the balance sheet well they have the bank of japan, ecb, and bank of england to help cushion some of that normalization. jonathan: the horse has bolted, hasn't it, if you worry about asset bubbles and risky loans? bob: you are not going to let the bubble inflate to a larger degree, and i think right now if it is done properly, we have never seen such a gradual period of raising interest rates and such a process as this. we have not lived through a balance sheet normalization. if yellen -- and i know history books and she is an academic, and history books 20 years from now will look back -- you do not want a bubble that has inflated and burst on your watch. she is an academic. jonathan: is that the plan, low
it up? bob: they do not have to blow it up but if they get to normal in the past they have laid out, i think there are good chances things can deflate. david: is it working? a have already raised three times and it has not tightened .onditions, which is good news have we seen asset values come down? bob: it is absolutely not working. you can pull up financial conditions, the bloomberg financial conditions index. they are significantly easier than when they started raising rates, and i think that is why they are so determined to still go every other meeting and i think that is why they have rolled forward the balance sheet normalization almost a year from what we expected. we think they have doubled the size from what we thought they were originally going to do. david: there is a bloomberg report out today that there are
some in the trump administration are not happy about janet yellen and the president says he likes her. , who thetant is it replacement, if there is one, is? and the fed,itical over the next couple of years is going to change. whoever takes control of the fed and what they are thinking about is certainly not only going to drive policy it also the markets. what if you get the next volker who looks at this and says, stop the madness, let's get to something that looks normal and get the balance sheet down sooner than later, and that bursts whatever bubbles there are. pointsn: about 137 basis , the traditional way of looking at that would be a flatter yield curve and troubles ahead. the real story and the bond market is the front end has reacted properly to raising interest rates and the long end penned down by what is happening with global central banking.
the fed has taken away the globe just growth reflation story -- growth reflation story. could we get a dead flat yield curve and no sign of a recession at all, in your mind? bob: i don't think so. i think what is going on now is fairly normal for fed tightening. the marketplace estimates the terminal rate. the curve will flatten around that and the fed will stop because they realize they have gone too far and then you will have a recession. that is the normal path. what is different this time is running down the balance sheet so in our view, you are unlikely to get the flat or inverted yield curve you have seen in the past. you will see something that is a bit steeper. alix: bob michele from jpmorgan sticking with us. , you can watch
alix: credit spreads are tight and there is plenty of capital, that was the theme of goldman sachs' financial leverage conference. one meaning was more leveraged loans. loans, 200 $83 billion and there is still more -- 200o put into that $83 billion and there is still more money to put into that. -- >> to put that number into context, the entire leveraged loan market has about $900 283 billion is up year-over-year.
we have had about five dollars -- $5 billion year-over-year pricing -- the market has been really busy. think that will continue throughout 2017? >> we do because a tremendous amount of capital is flowing in year to date. the high-yield market that has had a negative year to date outflow, there is still cycling of capital going on. what we hear from investment clients is bring us interesting transactions and they are pressing us, why is private equity not busier? why are they not doing more transactions? toy would say, we would love do more transactions but it is very hard to buy. most people want to take advantage of the valuations and sell, so there is a dearth of supply. alix: where is the best opportunity and what feels the most overvalued? >> i think health care is a
place where i spend a lot of my obviously with what is going on in washington and the changes, there is a lot of disruption. you can take a look at the payer space and other providers space and in between in the services, there are some very interesting themes but you have to be prepared to take some risk because there is a lot of unknown. is some really interesting opportunities in health care, technology as well, but priced very high. you were talking about health care, is it hospitals, is it insurers? >> where do i see the opportunity? there is a lot of opportunity for focus. hospital evaluation is at an all-time high. many of them are very levered. well-capitalized
company but they saw a lot of private equity activity, and with this unknown factor in washington, there is a pause. i would say those valuations could look attractive but they are also ones that need to be focused on understanding the fundamentals. there would be a lot of activity in terms of deals getting done, that in terms of things being so expensive, of -- companies are trading in the single-digit ebita. there is so like much money in energy and they were so levered. are they still as levered as they were before? >> there has been some ups and downs. i think a lot of the companies have used the mirror -- the more favorable market windows that we have seen to deliver their balance sheets, do liability
management, and give themselves more runway. energy has underperformed this year. high yield has returned 5% overall but if you exclude energy it is north of 7%, so energy has widened a bit. what you have seen with crude oil does not help. alix: what about code light? it is still there and there have been some corporate's that availed themselves of code light. even now we see corporates dipping their toes in and i think it has pretty much become the norm. alix: does it change investors' desire to take on risk? will there be a breaking point? become very have sanguine with understanding how these businesses run without financial maintenance.
understanding credit and making sure that credit can service the debt. i do not see any real resistance right now. it is the lower middle market, that still carries the covenant. it is pretty rare that businesses that are 30 million -- wants one financial covenant. alix: that is the theme we have been talking about and you can see that in the repricing market . companies can say, we want loans for cheaper and investors say, ok, even though they may be taking on more risk. explain that. >> getting invested is a responsibility for these investors. loans have returned to percent positive this year but there is an upside. when you think about the repricing environment, the investor's decision is do they want to come out of paper and work on crash -- cash?
repricing,rms of part of it is only so much money. >> a lot of the transactions we have done recently, the original investors, even if they love the credit they basically decide from a return perspective they cannot roll into the repricing and we are easily able to fill that effective hole with a demand, and that is how so much repricing has gotten done in the past six months. alix: still with us as bob michele of jpmorgan. you have clo, average loans or high-yield. which would you own? bob: high-yield because i want the credit can brexit he -- convexity. we would like much wider credit spreads but default rates are under 1.5%. jonathan: high, everyone wants
wider spreads. there is usually a bear out -- are peoplele still being too greedy? bob: absolutely, because default rates are going the other way on them and the money that is piling up and coming in from overseas is searching for anything. until you see the probability of recession going up a lot and you continue to see default rates decline towards 1%, that is going to encourage that money to go into high-yield or levered loans or clo's. isathan: how much rate risk in the credit market from a central bank called the european central bank? bob: probably a bit more than everyone is pricing in, so there is definitely some upside to rates. you are hearing the ecb talk about his own plans for normalizing and running down its balance sheet. alix: high yield, we have seen
so much money in triple c's. bob: it is true, and everyone is grabbing for yield. when i heard christine talk about some of the things she liked and did not like, she did not cover retail. alix: no one likes retail. bob: there is still a lot of restructuring yet to go there but i would avoid that. there is probably some opportunity in energy, probably some opportunity in health care. jonathan: bob michele of jpmorgan. coming up next week, an all-star lineup. alex gorsky, johnson & johnson ceo. you are watching bloomberg tv. ♪
heads to brussels for the first time since her disastrous election. it is time for the big health care reveal. the big replacement for obamacare will be unveiled today. a wave of analysts downgrade dozens of stocks. good morning. this is "bloomberg: daybreak." let's get you up to speed on market action this thursday. futures go nowhere. s&p 500 futures negative, a single point. the fx space moves pricing action outside the commodity currency. commodity currencies get a boost today. we are up .5%. alix: brent is trying to recover from a bear market. oil stocks are coming down. is the lowest level this stock has seen since the end of november. goal getting a bid, up by .5%.
copper is not participating recently in the oil slide we are seeing, and interesting divergence in the commodity space. david: republican senators in washington are due to unveil their plan for the replacement of obamacare in about 90 minutes. it is a complicated puzzle. now tochenker joins us lay out the challenge. how big a challenge is this for the republican senators? marty: is a huge challenge because they do not even know if they have the votes to pass it in the senate. it is so different than the house version, there is a question whether they can get it done at all at any time. there is a conflict between the conservatives and the moderates, right? to please the conservatives and the moderates get upset. no one has really seen the bill yet, so it is going to take a few days for that to clarify. david: we are watching that because of what it might mean for tax reform. what else is going on? wety: one of the stories
wrote about today is the process of whether to reappoint janet yellen as fed chair. -- this is use here beegacy pick, and it will interesting to see whether donald trump to put his mark on the fed chair. thiss not engaged in discussion yet, but people around him have, and there are some people arguing janet yellen should go and they should pick their own fed chair. this will play out in the next couple of months. is that on the merit because of her policies, or is it because she was not picked by donald trump? marty: i think it is more the latter. gary cohn and steve mnuchin are careful in their public comments to say that they are in sync with her policies, but you will only get a chance to name a fed chairman once every six years, and it is hard conceive of donald trump passing that chance
to name his own person. we will watch that carefully. david: my favorite subject, the supreme court of the united states -- they go out of session by sometime next week, and we may hear from them on the travel ban. marty: that's right. they are in conference, so that leads us to think that it is possible we could get a decision on the travel ban as soon as this afternoon. ask for anouse says expedited decision, and they may get it. they may not be happy with it, but they may get it as soon as this afternoon. david: thanks to our man in washington can marty schenker. capital'ssky bridge senior portfolio manager joins us. lets from them how wrong everyone got it last time around, that larry summers was going to be the hawkish fed chair and that the market would selloff whenever we got close to the idea that might identify.
are we dead wrong about what kind of fed chair the president of the united states wants? >> if you look at the various candidates, it is hard to argue they will be materially looser in monetary policy than janet yellen. if you look at the general going,on the fed is yellen has become more hawkish than she was three to six months ago. whoever is there, you have to wonder how material and impact it will have over the next six to 12 months. it could have more of an impact on whether they follow more of a rules-based monetary policy. it seems that janet yellen is moving toward more john taylor style rules-based monetary policy than six or 12 months ago. the conversation is not about whether they or a that they are a hawk or a dove -- they are a hawk or a dove? troy: everyone agreed that qe1
was necessary and effective. the discourse started with qe2 and qe3 -- was it necessary? was there any efficacy behind it? when you see forward in the near-term, it is about the balance sheets and how much you are going to hike. longer-term, it is what type of monetary response we will have in a recession. with someone like taylor versus yellen sticking around, there will be a little bit less of a will to go into qe2 and qe3 if we get another protected -- another protracted downturn. and someone says, what is up with d.c.? what is the conversation at sky bridge about donald trump? troy: the biggest question for investors is how much of his agenda will be implemented. alix: that is still the focus? troy: we talk about it. it looks like things are moving
forward very well. the bottom line is all of the hope -- we had regulatory reform, tax reform, infrastructure. regulatory is moving forward. we will talk about banks later on being one of the beneficiaries. tax reform, no one knows what it is going to look like. one of the issues with health care, they need to pass something in order to have savings to offset particularly corporate tax reform. we do not know what it is going to look like. until we get more clarity, it is hard to extrapolate from and investor's standpoint. alix: is it more interesting for financials, less for health care, less for companies that have high tax rates? troy: the key here is you want investments with good fundamentals that should do well on their own. but if you get more muscular regulatory relief, and perhaps
if you get muscular tax reform, they can do them better. you look at the financial service sector, that is one area that has already started. the regional and community banks are a good place to be. we are going to get improved tax flow, and, you benefit from regulatory relief and potentially tax reform. jonathan: i want to get to breaking corporate news in the united states. american airlines says qatar -- the cutter airways indicated that the qatar airways said they would be on the open market, so a 10% stake in interest to purchase. interesting. qatar airways wants to buy a 10% stake in american air. david: a lot of the talk was
whether qatar air was in trouble because of the boycotts in saudi and the other gulf space. right now the president is not a big fan of qatar. jonathan: making a significant investment, qatar air wants to ivanka -- or is interested in buying -- qatar air wants to buy or is interested in buying a 10% stake in american airlines. what does president trump think? to think about that a little bit more when that kind of deal crosses the wires potentially. now you think about what the administration thinks about that? troy: it is not a controlling stake or anything that would be strategically challenging to the u.s. obviously looks -- obviously it looks like a potential political motive. but we have not thought that went through.
let me take the other side. let's go back to health care. a lot of uncertainty about health care. it could be really damaging to the hospitals depending on what comes out of this legislation. market isock investing in health care. at this point, is the market largely disregarding what is going on in washington? troy: health care had a very challenging 2015 and 2016. obviously there is growth particularly in biotech. if you think about the path of the markets in the last six months, coming in, you had a lot of the trump agenda being priced -- the last four months, there was growth in bio care and health care. assuming the trump agenda will -- asve forward at fast fast as they would like in driving though stocks higher.
about are you talking janet yellen and the fed, or the trump administration? troy: 100% more focused on the trump agenda. doubt we expect more regulatory relief and it looks like we are getting it every day. we expect some degree of tax reform and cuts, but there is much less clarity on that. happen, you will get creamed. troy gayeski from sky bridge, thank you for being with us. qataran airways -- airways is interested in buying a 10% stake in american airlines. also lifting other airlines, delta and southwest getting a bid premarket as well. coming up, we will look at the bank stress tests. this is bloomberg. ♪
emma: this is "bloomberg: daybreak." shares of the largest cable writer in the unit -- of the largest cable provider began trading today on the u.s. stock exchange. it was the second-biggest ipo of the year. largest maker of iphones is preparing to invest $10 billion in the u.s. foxconn will begin next month with a decision on where to build a $7 billion display making prompt. the chairman has name seven states where the faction can be built, most of it in the midwest. the comedy could end up increasing tens of thousands of american jobs. for the first time in five years, boeing has beat out
airbus at the paris air show. they had twice as much in dollar terms as ever. maxng got a boost from the 10, the newest version of the 737. jonathan: i want to give you -- get you up to speed on the news from a few minutes ago. qatar airlines expects to make a significant investment in regulatory filings. airwaysirways -- qatar wants to make a significant investment in american airlines, a 10% stake. the pitch you see on the right of the screen is an event in brussels. the prime minister of the united kingdom, theresa may, arriving at the european summit in brussels to face off with the e.u. 27, her first summit after her disastrous election earlier this month. she is set to unveil how she
will outline the u.k. proposal to treat blocked citizens after released her let's listen in. am grateful to be here following the constructive part of our negotiations for the united kingdom to leave the european union. that was a very constructive negotiation, but it is also how coalition with our friends and allies in europe. today i will step out from the u.k. plant on how we propose to protect the rights of the e.u. systems and the u.k. systems as we leave the european union. there are important issues such as terrorism. one of the things i will be calling on with other european leaders is that we do more working together to ensure that we stop the threat of extremism online, that we prevent terrorists from moving safely online. >> are you ready to compromise?
theresa may: we will be going into negotiations. what i am setting out today is how the united kingdom proposes to protect the rights of those living in the u.k. that has been an important issue. we have wanted it to be one of the early issues considered in the negotiations. is starting to we will be setting out how we propose to ensure the e.u. systems have the right to be protected in the united kingdom. that is u.k. prime minister theresa may, her first summit since the disastrous election earlier this month when the conservative party lost their majority. david westin, they are talking about proposals to treat the block citizens. -- the blocked citizens. a trade dealget
before the two years is out. that is all going to go to the individual parliament in 2027 to be ratified. david: there were 40 different statutes that have to be changed just on the one issue. jonathan: we go back almost a year to the day, a year tomorrow, and the idea was after the exit, david cameron gets on a plane or a train and goes to brussels, triggers article 15, and this all just happens. they talk about it for two years, and here we are, the negotiations have just started. clear they did not think it through in advance. i think it is fair to say. jonathan: the mistake of prime minister david cameron personally. david: you do not ask a question unless you know what the answer is. i guess he thought what -- i guess he thought he knew what the answer was going to be, and he was wrong. it cost him his premiership. jonathan: it cost may be hers, too. gayeski, what is your
best case as to what happens with brexit now? troy: it is going to be a messy divorce. the surprise is how little impact it has had on continental europe. there is going to be some drag in manufacturing, but in the focusedrm markets are more on relative strength, expectations coming into the year, and the fact that you have -- not a crowded space after liquidation that you had last year. understand itterm will be a very messy process, and are must -- are much more -- alix: if you wind up having a better european economy and it is more integrated after macron won in france as well -- is that a good or bad thing for brexit? troy: it is easy to get painful negotiations done when the
economy is doing well and people in happy than when people spain are at 25%, 26% unemployment. there is never a good time for negotiations, but this looks like a much better time than 2011. jonathan: let's be clear, the economy looks ok. the beige book, fewer people actually read it. things are ok. david: before brexit, it was predicting there would be a recession, and then never came around. troy: part of that is that the pound has weakened substantially. you have a much stronger growth in emerging markets, and i do not think anyone expected the eurozone to grow this well on the continent. there has been a of external tailwind for the u.k. that helped perhaps mask some of the domestic issues. -- troy: troy j ascii
david: this is bloomberg. i'm david westin. one of the things president trump has promised is less regulation, especially easing regulations on the banks, such as the stress tests we will hear results on later today. to hear where we stand on banking and regulation, tommy ud joins us.m micha i know what bloomberg things is going to happen with the stress test, that everyone is going to pass. what do you think? tom: one come on the
quantitative side, everyone is going to pass. the banking industry has the most capital it has had in 70 years. the interesting part will be the banks having the qualitative investment from the fed, and that is harder to know. wells fargo has some regulatory issues recently. that is one that folks are watching. today possible results are going to be another mile marker in how strongly the banking industry has recovered from the crisis, and it sets us up for the consequent -- for the conversation next week. david: is it a matter of the banks becoming stronger, or is there some effect from the trump administration's interest in deregulation? we would hear from the trump administration today saying that we do not have to have so much volcker, thank you very much. tom: the first reaction following the crisis was more capital at banks. that has gone into the banks and stayed there for the biggest banks. most industry observers -- and i believe there is a lot of surplus capital in these banks.
the next question is the regulatory machinery in washington is still stuck in post crisis mode. anye really has not been easing, and i do not think any real fair examination of all these changes that were made. that examination is just happening now. i think the treasury report that came out last week was a great roadmap for what can be discussed and what amendments can be made going forward. we have j powell speaking to the senate today. i do not think anybody wants reckless behavior or wants to take a risk with the american banking system. the question is, can you just move the pendulum a little bit and get into a more neutral position. alix: i'm glad you brought that up. is this the worst stress test we are going to see? the most strenuous stress test? tom: it is going the other way. i would give the fed credit that they have listen to the industry's complaints. a lot of the prior stress tests were maybe too stringent. the fed has shown a little bit of modification.
powell that from j the fed is going to be more transparent, which is a very good move. alix: the reason why markets care in part is because of the dividend ratio payouts. forhat enough to make up weaker trading payout? troy: with regionals, there has been weaker growth than people thought, and a substantially flat or yield curve. you have had said hikes, which has been good. for banks to move meaningfully higher, we would like to see confirmation of loan growth that is sustained. alix: -- jonathan: any evidence that the loan origination story was a demand side story and not a supply side story?
troy: i think it is coming from those -- tom: i think it is coming from two reasons. banks can only grow so much faster than the gdp growth in the nation, so that is number one. also, we get more certainty on the administration's enactment of their plans. businesses will become more likely to invest. it is more of an economic story. even in some segments, auto --ding, for example, auto banks are getting a little more cautious. gayeski is going to stick with us, from sky bridge. you are watching bloomberg tv. ♪
on the dow, negative two on the s&p 500. call it .1%. against the majors, sterling and the euro and the yen, pretty stable throughout the day. you did price action on those currencies. -- the initial jobless claims report drops. and marginal upside. 241,000 is the print. the previous number was revised higher to 238,000. the indicator for the jobs market pre-much as follows. on a headline basis it looks tight. jobless claims that low, you have to go back to the 1970's for these kinds of numbers. the print is 241,000, no the highdeviation, in
low 240,000's. we are joined by terry simpson, multi-asset investment strategist for blackrock. terry, tell us about the u.s. economy. first of all, do you take any information out of these initial jobless claims? terry: it is hard to tell when you look at this. we try to look at the four-week moving average. number,een a very flat as jonathan mentioned. at this point, we are trying to look for other indicators they give us a picture of how much has been eroded. pull toothink you can much from the weekly jobless claims now. david: some sort of inflation with wages -- are you struck by the fact that we have such an apparently tight job market, yet we are not seeing the wage growth we normally would say? terry: if you think about no one
a wages, it is definitely a function of inflation, also definitely a function of productivity. inflation is still subdued below to thinkl -- we have about that. broadly what it shows is that it leaves markets slack in the economy. one of the things i try to look at is beyond the you three number, which is what the median number talks about -- look at what janet yellen talks about. if those people were to come back on the labor force, you reduce labor supply, we would eventually start to see the wage inflation we are trying to get so desperately. jonathan: are they losing faith in their traditional markets? at amazon, whole foods, saying we have to take notice of some of the technological changes happening, and maybe our traditional models. that very old view with the labor market and what would happen with headline inflation because of it -- maybe we need to reflate -- rethink them.
unemployment is going to need to get push lower than what the fed was thinking initially. the number on the nehru may be 4.5%, but getting back to numbers they are comfortable with, we probably will need to of more thanlower 4%. would not be unprecedented, but i think we still have opportunities to push that. to your point about technology, when you can arbitrage labor and move it so easily across different geographies, that is definitely an influence. we talk about u.s. domestic inflation, you need to account for our domestic inflation is very much a reflection of what is happening globally in terms of inflation but also global employment. you still are relatively
optimistic about u.s. growth. if there is not tax reform and regulatory reform, do you think 3% is possible? does that square with the wage market? logical given is the consumer balance sheet. last year was unusually low for a variety of issues like manufacturing, the collapse in oil earlier in the year. we always thought this was a 2.5% year. the question is, can we do better? regulatory relief helps a little bit, but in order to ever have any chance of getting to 3% or better, you need a substantial tax reform package. infrastructure can help, too, but it is all about tax reform. if you do not get tax reform, you cannot get better than 3% cycle. inflation is going to be
about oil. the big question on the market is how we see capitulation in oil. we have brent with a bear market, and energy analysts are running for the exit. big oil is getting hit with downgrain spirit you can see oil stocks getting hit as much as crude. there could still be some downside. joining us from london -- terry and troyaro -- terry are still with us. can big oil company's money at these prices? got the benefit of downstream and integration, they got the benefit of having gas businesses as well. at $50, $55 per barrel, in that range, the majors can make money. $45 anly romney $40, barrel range is a sustainable
oil price. the majors have cost reduction they can deliver. they talk about soft close to their programs going forward. alix: which major is best available to whether the prices prices?eather $45 to $55, i guess in terms of -- we like a substantial guess business. that will come early in the game in terms of trying to reduce costs. they are taking benefit from this market. they are bringing on, committing to new projects. and with exxon in this market, it is the gorilla in the room, and you saw even as late as last friday they are committed to the project of guyana.
jonathan: there is also a massive downstream business, too. you mentioned the diversification of some of these companies. terry be -- thehe area can market can be an area of free cash flow generation. you possibly may see some revisions to the upside from the downstream business. jonathan: looking at the credit trade, going into the second quarter it was really strong. energy come is in there as well. who is getting a good deal here? or to buyers. it is curious to us why people keep throwing money at energy producers. because ofry adroit
where oil is in this lower for longer environment. one of the things we point out, you talked about this with a guest earlier, there has not been as much carnage here in -- this -- there has not been as much carnage this year in high yields. it is about 12%, 13% versus 26%, 28% in 2014. if oil hits the 30's, you will see triple c's crackup. back ind they reified the day. they cannot find a great deals. it feels to me that in terms of private equity and all that money floating in the space is still there. do you agree with that? terry: there is a lot of value in the energy space, but has -- but it has been very hard.
investors, we would not be pulling out in a bear market or any kind of 20% decline. if investors want to try to find comfort, they would be looking at the fundamentals. what we are seeing across global inventories, we are starting to see reduction. however, on the other side of that, the reduction in inventories are not very large. we will have to see how this plays out. fundamentally markets would dictate a higher price than what is happening right now. brendan warn, thank you for joining us come alongside troy gayeski and terry simpson. the au summit, the e.u. 27 meeting with prime minister may in the united kingdom. you can see the chancellor of germany, angela merkel, walking past reporters. she manages to speed to them in a moment. today there will be a dinner. is going the way this
arrived in brussels. she spoke earlier to lay out her vision for negotiations. going intobe negotiations. what i am going to be setting out today is clearly how the united kingdom proposes to of citizensrights in the u.k. and those citizens living in europe. matt miller joined us. i imagine you saw angela merkel. one of the first lines that she futures that e.u.'s takes priority over brexit talks. talk about how this is going to go today, the orchestrated theater of the next 12 hours. matt: she says that she wants to 27 over the e.u. brexit, not being sidetracked by that two months. she wants to focus on european growth. much ofa point on how
an advantage the e.u. has over the u.k., they are in a good place in economically, and the u.k.a loss of hurts and all the leaders here are saying how much better it would be if the u.k. would just turn around and reverse the brexit decision, they would be welcomed with open arms. they want to focus on terrorism issues, working together on security, and most important, future growth. listen to european -- listen to the european council president giving the u.k. maybe one more chance to come back to the fold. >> some of my british friends have asked me whether brexit could be reversed. and whether i could imagine that outcome, where the u.k. stays part of the e.u. i told them that, in fact, the european union was built on dreams that seemed impossible to achieve. so, who knows?
you may say i am a dreamer, but only one.he britainoting a famous there. the dutch prime minister said, listen, everybody has this ring, but basically saying it is not a reality. what we need to aim for is to try to get the u.k. to remain a part of the single market. the question is, how difficult will that be? jonathan: how difficult will that be? let's talk about what will be discussed later today, the you k's proposal -- the u.k.'s proposal here is how contentious is that issue already echo matt: it seems most impossible, frankly. the e.u. has said they will not
accept anything less than the free movement of people if iftten wants complete -- britain wants complete and total access to the single market. all would include allowing the e.u. citizens who live in the u.k. to stay there and keep all of their e.u. rights. theresa may says that is a redline she is not willing to cross. will give her proposal tonight at dinner. she will be asked to leave directly after she gives that proposal. then the 27 remaining e.u. members will debate or discuss that proposal. andwill come back tomorrow then continue the summit with the rest of them, and we will find out exactly what that proposal is when she releases it to the u.k. on monday. interesting how the diplomacy works, that you have a dinner of 20 people and you ask one person to leave after you propose. david: you have to wonder if
there is a certain awkwardness to that dinner, you know? alix: there has to be. us, terrystill with simpson of black rock, and troy gayeski of sky bridge capital. terry, the brexit stuff gets reversed. we have heard it from wolfgang schauble, from emmanuel macron. now we hear it from donald tusk. is that just a dream? jerry: -- terry: there is no precedent for this. what thehink about negotiations will be going forward, the negotiations seem tough. you are going to try to violate one of those four freedoms of the e.u. -- services, capital, and labor -- with the last one being the most important. it appears to be a sticking block. here is athe story nightmare for the 52% who voted
for brexit this time last year. i just wonder whether it is a dream for them for more than one reason, not just for the european project at something david touched on earlier -- the money, the budget that needs to be filled, the gap that needs to be filled. is that still a position of leverage for the united kingdom? >> if you look at the amount of money they of the e.u., it is a substantial piece of leverage. has been a core of why they voted to leave. answer in the short-term to how they are going to bridge that gap. we hope they are creative but unlikely, because once again, once they opened the door to the u.k., what about poland or some of the eastern european countries that have been reluctant to take in migrants. something outint here. six or 12 months down the road, at some point theresa may resigns or is forced out. what do you do?
troy: frankly, we do not do much because we have very little if any u.k. exposure. one could theorize is that -- one could theorize that if you are long on assets, you would hope the u.k. can remain in the e.u. but she could very easily be replaced with someone who is going to have even a harder line and make for a messier divorce. it is too tough to call. alix: thank you so much for joining us. if you have the bloomberg erminal, check out "tv ." interact with us directly. this is bloomberg. ♪
american airlines says that qatar airlines is interested in buying a 10% stake in the company that would be valued at more than $800 million. american airlines did not solicit the proposed investment, and it will not change competition or management. shares of american airlines are higher in premarket trading. shares in takata plunged by more than half today. bankruptcyxpect behind the biggest recall in automated history -- in automotive history. tesla has signed a preliminary agreement for production in china. the electric carmaker reached a deal with shanghai or it would move tesla a step closer to lowering its manufacturing and shipping costs in the world's largest auto market. david: for more on breaking news about qatar airways trying to bank a big chunk of american airlines, let's bring in
benedict. he joins us from berlin. good to have you. what do we know about the deal at this point that just broke a few minutes ago? benedict: this across the terminal just a short while ago. we were looking at the headlines and thinking what is going on here? this is a strange one because qatar is not unfamiliar with buying stakes and other airlines. they own a stake in british airways. wanting to buy a stay in an airline in the u.s. is a very different thing. it is rife with political pitfalls, the relationship between america and qatar in particular has been difficult over the last year or so, and the accusation that qatar is using massive state subsidies to push its expansion into the u.s. the question is, is it just a business move, whether trying to expand in the u.s., or is there a political move behind this?
this is what they are relying on for savings. it reads fairly chilling when you read it. it says this was unsolicited. they had not formally requested in writing the way they are supposed to do. on the open skies agreement, it changes nothing. is this something to benefit qatar more than america? >> you are absolutely right. i think chile is the word that comes to mind. we do not really want this for you have come to this -- we have nothing to benefit. as you say, this does not change anything for us. of kicking the hornets nest and moving some of the issues that they have to the u.s.? you have to bear in mind that qatar is in a very difficult space right now. the laptop band that was initiated a couple of weeks ago -- there is the country that has
isolated regionally. business is not what it used to be. they are not coming to this from a position of weakness, plus the entire issue of the u.s. carriers wanting to push back on expansion. , theybe by owning a stake think that the u.s. will take a softer stance on qatar and the other carriers. maybe that is ultimately the gamble. david: finally, is this sort of a geopolitical hedge? we just came across the -- we just came off the paris air show . is this a way of saying if things do not go well for us in the gulf, at least we have an interest in american airlines that is not subject to that? >> that could be it, and that might be the reason they bought that state in the british airways parent, iag. is a state-owned company. they have always been a prolific investor.
that might be one more way, but it is difficult to discount the political dimension in this. it will be interesting to see how that goes down in the trump administration in particular, and in broad political circles in the u.s. david: thank you very much. jonathan? jonathan: coming up next, as we count you down to the opening bell, crude back in the bear market. big downgrades to oil industry stocks. companies from barclays, morgan stanley, making big cuts to companies like bp and shell. from new york, for our viewers worldwide, you're watching "bloomberg daybreak." ♪ . . .
the big reveal. the obamacare replacement will be revealed today. after a drop into a bear market, stuck.of oil industries and these that determines whether the largest u.s. bank can survive an economic downturn. good morning. this is "bloomberg daybreak." i am jonathan ferro alongside david westin and alix steel. futures largely unchanged throughout the day. s&p, negativee two points. crude gets a bit, up by .5%, $42.73 on wti. let's get across to alix steel now for market movers. alix: we have big market movers today. look at oracle.
cloud revenues in the fourth 58%, andaround software licenses revenue falling 5%. that is the point. they want to switch into the cloud and out of the software revenue model. headway against salesforce, soybean win for oracle. -- so a big win for oracle. here is the latest -- sycamore is an advanced talks to buy the company after it beat out cerberus for staples. over $6 billion in an ldl, if that happened, staples would be more geared toward corporate office material versus consumers. theican airlines -- really interesting story of the morning -- that is up over 5%. qatar air is reportedly interested in buying a 10% stock
in the company. they are not going to seek a board seat, but never the less, interested in shares of the company. t. rowe, berkshire some of it all also own 10%. jonathan: great work, alix steel. a conversational traitor around the world, crude down today, down from a three-day skid, 810-month low, with energy stocks tumbling to their lowest level in 14 months. barclays and morgan stanley gave estimates of the sector today. joining us now to discuss is burns mckinney, allianz global andstor portfolio manager, ,- did it change your view
burns? burns: we feel they were definitely constructive. a lot of these companies are still able to support various dividends at current levels. pe multiplesook at are a little bit elevated, but the energy sector is trading at 60-year, 70-year lows relative to the market. in the near term, commodities could pull back a little bit. i saw this morning opec compliance has been over 100%. alix: that is what they say. they are going to say it. they like that. occidentals for example can achieve neutrality at 40, but they do not achieve a lot of growth. burns, what wins for you -- growth or surviving at 40? , but theires are low
costs are being bring in. -- reined in. a have the ability to grow their dividends. that is one thing we look at. burns points out compliance has been very high. is that good news or bad news? try it, and it does not work. does that make us more worried? guest: in terms of the broad stock market, energy is less and less of an impact. even though oil prices are havewing, even the we supply glut and oil prices are under distress, the broad market is able to approach that with a great deal of likely. david: is that why we are not seeing it radiate to the market? this time, it does not seem to be happening. "bloomberg daybreak i think she had the -- burns: i think she hit the nail
on the head. energy makes 5% of the broader market, down from over twice that just a few years back. it has the lower impact, and likewise, there are certainly some positives to that, the fact that lower energy prices is almost at it the equivalent of 2%, 3% tax federal consumers. there are some positive effects from the lower pricing. alix: can you give us some specifics of what you like? at mentioned dividends, but some point, prices of $30's, $40's, what is your-based case? names,we are looking for and can you support this dividend, names like royal shell, they have been selling off assets, which really gives them the ability to pay those dividends, or if you want to go down something that has a little more long-term leverage to oil
prices, and e&p like apache. they have been in a position where they have better production growth than a lot of producers. in this case, you look for name with apache, they have an alpine high gas play in west texas that gives them, without being priced in by the market, a call option i could provide substantial future growth you are referring to. is there a chance, not just a chance for a risk that it is being encouraged by cheap money and the energy sector? that we have some sorting out of the weak guys are right now, this is money really cheap. gina: that is a good point. they did come off of a pretty great distress event last year, so relative to where we were last year, i think we look better. i do think energy companies are increasingly funded because this is a source of growth within the united states, and that is something new, something very new that really only started 10
years ago. we were not a supplier of oil to the world, you know. now we are. it is a growth industry in the last, and that has changed the dynamics of little bit. i do not know about the --ision-making progress process. this has historically been an area with that has been historically got funded, and decisions are made based on the prospects for growth. i mean, you know, it is a cowboy market, to say the least. [laughter] gina: that is sort of how the sector works. i would not say it is worse today ban and has been in the past, it is just a different sector than it has been in the past. alix: gina, you may be point that it will not be be spread to the rest of the market that we have seen, but what shape will that take? e.m. currencies, if you want more fiscal tightening, kuwait, iran, iraq, nigeria, venezuela,
they will not hang on if you have oil in the $30's. gina: there are certainly areas a at risk. here in the u.s., we are getting very close to a capitulation point within the energy sector. we are maybe not there yet, but just for some perspective, we are at less than 6% of the s&p 500 in the energy space now. in the late 1990's when oil , there wereat $10 more. so investors have really beaten down the stocks in the energy space. thinkl price, you know, i it is pretty negative, but they are getting pretty close to it burns, you refer to the positive effects house of it -- outside of energy, if you go back 20 years ago, saying we will be energy dependent, the american economy will be in great shape, are we seeing those effects?
are we seeing the market economy getting the most we thought it would? burns: it is getting a buzz. --- boost. headwinds,ographic lower levels of capital spending, but in the near term, lower interest will benefit in the same way housing booming has been something that kept us sort of above the new two percent mark for gdp growth. alix: you know what i will say -- we are more of an exporter then in at the end of the day. david: it should be great for us. alix: but i will not say, "oh, yay, my gas prices are lower, i will go spend it." david: there you go. and i will listen sooner or later. burns mackenzie -- burns mckinney of allianz and our own gina martin adams. coming up, david haro of paris
jonathan: from new york city for our viewers worldwide, you are watching bloomberg tv. i am jonathan ferro. 18 minutes away from the open. futures pretty much slams. -9 points on the dow. europe, --sessor in a stock secession in europe. the biggest losers on the stoxx 600, down 10% on the year. crude does catch a bit, up .5%. as we enter a bear market, we bounced back to $42.75.
as well.hat plan out euro and sterling pretty much unchanged on the day, but the commodity currencies outperforming in line with the bounceback of crude prices as well, alix. and: american airlines qatar airways is interested in buying a 10% stake in the country valued at more than $800 million. american said it did not solicit the proposed investment and will not change the composition border management. joining us from atlanta is bloomberg's aerospace reporter michael sasso. why? michael: they have not really said yet, and that is the question of the day. these twohing is airlines have been it odds -- in fact, qatar airlines has been at odds with all airlines, particularly delta. they have been accused of basically flooding the u.s.
markets with flights, with generous subsidies from the middle eastern government. one would wonder if perhaps qatar is trying to well some of the controversy between the u.s. and the middle eastern airlines. perhaps they are trying to have some influence in the process. the u.s. airlines are trying to lobby the trump administration on curbs and restrictions the growth of the middle eastern airlines, so are they trying to influence that? you have to wonder. alix: american put out in their filing saying they do not allow anyone to buy over 4.5% think or more of the -- of theock after company's stock after a written request has been approved. they have not received a written request. michael: we do not know, but certainly based on previous statements, you would think that is pretty good. american has been one of the
leaders in the charge against the middle eastern carrier. i would say delta has been the largest opponent of q qater. qatar delta. helda rally yesterday to talk basically about the threat of middle eastern airlines. michael, had he felt the regional tension in the middle east in this particular deal, and how complicated does that make it potentially? michael: i do not know the u.s. are that deeply involved in this. i do not know for sure. i think the qatar situation is still in flux. obviously complicates it some. jonathan: to be more specific am i talking about the situation in the u.s. where qatar has been isolated by the neighbors. does that make this more interesting? michael: it certainly doesn't
your you are right. i am aware that they are somewhat cut off from the other middle eastern countries. does that play into this? it certainly could. there is no indication of that, but i'm not there how that might play into this just yet. david: ok, thanks to bloomberg's michael sasso. so with this is burns mckinney and gina martin roberts of bloomberg intelligence. where are we right now on mergers and acquisitions activity? u.s. globalgina: m&a and m&a are both at their peaks. we've seen the global m&a over $4 trillion, which would put it back over the former peak. what is interesting about u.s. acquisitions specifically is most have been overseas opportunities. i think that can change in the air ahead where you can see some companies actually acquire smaller companies, you can see
u.s. companies continue to acquire overseas, but this is a unique case because most company valuations are pretty steep, and global companies have a hard time paying those prices. within the u.s., i think you will see a lot of activity. i think the regulatory body, the trump angle also will post more of the domestic m&a market. it gives us more focus on a more nationalistic tendency. but globally, there is a lot of opportunity for m&a, especially after the energy decline we had that really took out a lot of m&a options. this is a particularly textured story, but when it comes to emerging acquisitions, when you hear gina say it has been internationally, u.s. acquire overseas, is that all subject to slowing down given the anti-globalization trend, not just the donald trump administration, but also you see in europe? are we going to see less cross-border m&a? burns: you might see at a little bit less because there is the
increasingly negative sentiment toward globalization. we feel with respect to globalization, the train has left the station -- it may slow down, but it will continue going forward. certainly something investors might focus on if you do see a pickup in m&a is m&a cycles tend to go hand-in-hand with demonstrating value stocks. so these tend to have a very strong performance from those areas of the market when you do see a pickup in m&a. sticking you are both with us. coming up tomorrow, special coverage marking one year since that brexit vote. joining us from london, david a win, from new york, this thursday, we are counting down to the market open right here in the u.s. this is bloomberg tv. ♪
david: this is bloomberg. i am didn't -- david westin. we turn to our chief washington correspondent kevin cirilli. we are expecting to hear from capitol hill in 10 minutes. kevin: republican senators are going to huddle together privately with senate majority leader mitch mcconnell. they are going to go over what exactly is in the bill, and then we are anticipating that following the meeting that could last about an hour that it will then get released. let's pull up a screen of what we know was going to be in the bill, david. we know they're going to phase out part of the medicaid cuts. they will also have tax breaks proposed for those who are buying the individual insurance and will provide protections for people with pre-existing conditions. phasing oute saying
the aca medicaid expansion is really going to hurt low income folks as well as a host of other folks who have benefited from obamacare. governments are pushing back on my is accommodated. earlier this morning, i caught up with -- pushing back on that criticism, david. earlier this morning, i caught toomey.congressman pat according to democrats, this has been negotiated behind closed doors. take a listen to how he refuted that criticism. mr. toomey: you know the story about the person who killed his parents and and pleaded for mercy because he was an orphan? the reason i had to go this way because if we had gone through the ordinary process, the democrats would have bottled it up, brought it to a grinding halt. we have seen them do this. they do not show up to a committee vote so we would be denied a forum. that was their goal, for us to be unable to conscience, and that is not acceptable.
kevin: so senator pat toomey suggesting it will not be -- but have all raised questions about how this has been negotiated behind closed doors. alix: all right, kevin, a busy day for you on capitol hill. -- staying with us, ianz andkinney of all gina martin adams of bloomberg intelligence. burns, what do you see? burns: i think with the market lost in the shove shuffle is wht they lost his tax cuts, and why do you want to get stuck in the past? unity budgetary offsets from health care to pay for substantial cuts in taxes. it is something that you have to kind of put the cart before the
horse, so to speak, in this case, and likewise, what we have really been focusing on our companies that can benefit from deregulation because that is something that regardless of what takes place here, a lot of those deregulations should impact, for example, the drug term.ies in the nearer jonathan: it is interesting to me, wherever you go, you face investors and health care, tax or form, that is all they care about. it seems to be this complacency. 1/5 of the u.s. economy is going to get changed, potentially radically, and all we are thinking about its potential tax reform off the back of it. are we missing something here? burns: oftentimes what is happening, you go back to when they passed the informal care act, and the health care rained income and they suffered a little bit, and it ended up being one of the best-performing sectors coming out of it because a lot of what washington is changed, it ended up being a bit more a criminal than what folks expected it to -- more
incremental than what folks to.cted it likewise, what we are looking for with respect to stock picks are companies will be able to drive regardless of the health care environment. but you are right, it is something that perhaps investors overseas maybe disregarding to a degree. david: gina, whether it is tax reform, health care, or infrastructure, is it all up sides because of a discount of the of sites so much that if anything came through, it would actually give them a leg up? gina: i think it illuminated a lengthy hope in the market. i would not go for as far as to say it is all upside. with health, for example, this is quietly the best performing sector over the market. nobody is talking about this. the health care sector grew 6% over the last month. so there is something going on in the broader health care sector. there is still a lot of interest in the health care sector by investors. some of that may be the prospect of reform.
i do not know that is the entire story. an awful lot of this is from biotech. so it could be generalization of the laggards from last year. there is something going on in health care nobody is paying attention to. jonathan: financial is outperforming as well. gina martin adams sitting with ,s, burns mckinney of allianz they give her a much, you will be staying with us as well to we are counting down to the opening bell right here in new york city. we have been there all through the morning session. dell futures up, the s&p 500 going pretty much know where. from new york city, for our viewers worldwide, the opening bell just around the owner, you're watching bloomberg tv. ♪
futures unchanged. we have been slammed throughout the morning. dell futures unchanged, the s&p 500 futures pretty much unchanged, likewise on nasdaq. you hear the opening bell ringing in new york city. the leading losers -- oil fromtry stocks, big cuts some analysts in the last 24 hours. that could take the weight out of the european session. looking at the fx market, the dollar has been looking for some commodity currencies, the canadian dollar, the kiwi, the norwegian, those are off the back of a bid in crude. we went into a bear market and bounced up .6%, $42.80. on, yieldsy back lower by two basis points. asset your cross picture. here is alix steel. alix: flat, flat, flat, that is
how we opened today. not seeing that kind of weakness necessarily reflected yet today. the dow and slightly positive territory, but not a lot of movement either way. the nasdaq has not had a record close in, like, nine days. individual names you will be watching today is what happening -- what is happening with the airlines stocks. american airlines popping over 3% as qatar is interested in a 10% stake in the company. they want to invest over 8 million -- 800 million dollars. they also want to buy it on the open market. a fun fact for you -- warren buffett owns american airlines, southwest, delta, as well as united, so he is also getting a boost today as well cured he is like a new profit of $2.5 billion. always fun to hash those numbers out. gina martin adams is saying
look, we have had a rally in health care, and no one has noticed. this chart really tells that story. this is a valuation of health care versus the s&p. you can see it really shot up here in the last few days, virtually come in essence, not a lot of news. health care companies have really illuminated the valuation discount. they are now trading 16.6 times projected month earnings than the s&p looking at 17.7. that discount is the marriage we have been seeing in about 16 months, sort of a reversal we have been seeing ,jon. jonathan: what is the famous line about becoming a millionaire, start with a billion dollars, and then by an airline -- buy an airline? david: exactly. for years, warren buffett was against buying an airline. he has changed his position. jonathan: we will bring you around the table, burns mckinney and ginaz global
martin adams of bloomberg intelligence. gina, you touched on it, the quiet rally in health care stocks when maybe there should not be a quiet rally in health care stocks. why? gina: [laughs] it is hard to say. part of it as the source of stability. the story of the last month has been the growth versus value transition and will it be financials or tech, but there is a constant stability in health care because of the consistency of the earnings stream with no inflation ties. it is an area that flies under the radar, and i think that has ann a relative appeal in environment where there has been so much volatility elsewhere. and there is a lot of macro. inergy zika music got to see the oil side move. over five valuations too high? i think that is part of the reason investors have rotated
injured part of it may also be the regulatory environment. it is hard to ignore the fact that you might see some scale back on pressures, regulation, and that is pretty good. , thehan: the isolation insulation you get from the macro factors in health care. burns? burns: you definitely do not have the same impact you have with energy prices or higher interest rates, but at the same time, the one thing you do have is a lot of dependence on what the regulatory environment is. you do depend, not that he saw the biotech get crushed late last year when you have the president as well as hillary clinton talking down those areas of the market, and likewise, i think one of the things, aside from the fact that they started off this year cheap, it led to health care rallying this year has been a you see, for example, in the drugs space, you see increasing levels of regulatory
approvals. that is one thing we like about an sector, but you also have to keep in mind what the market or the regulatory's are. david: so you like this sector, but how do you reconcile the war between two things? on the one hand, you have the demographics who favor health care. we are getting older. on the other hand, things like price regulation or even competition over prices, certainly what the republicans really want to do is take a. of money out of the system. . thesems of $1 trillion, are real dollars. you cannot take that kind of money out of that sector without it affecting valuations, can you? cory: no -- burns: no, you absolutely cannot or does demographically speaking, it is a great place to be. it is a lot cheaper to treat someone with drugs than it is to have them in the hospital. the second point, you really do have to kind of pick your
points, pick your battles, and be choosier within health care rather than just buying a health care etf. alix: fair point. one battle -- what will happen with medicaid and how the expansion will wind down. gina, some have a of exposure if medicaid rounds down quickly. what is your base case? gina: nothing happens. i think you have to have the base case that nothing changes until the likelihood that something does change. otherwise, you get a lot of price movement in the health care just related to noise. instead, you keep your base case that nothing changes at least until a bill gets into the senate. i mean, it just seems so unlikely that anything actually changes yet. i think it is unwise to try to forecast change especially based on policymakers. as much as we want to suggest that this is huge and could be a game changer, the reality for health care is overtime the performancesector's
is incredibly dependent on the health care sector percy earnings. -- health care sector's earnings during the reason it peaked in 2015 -- part of it was sentiment, part of it was hillary clinton talking about price change in regulation in the health care sector, the election coming up, but a much bigger part of it was that was the point in time in which health care earnings shared the index growth, peace, was at a point now where the health care sectors earning growth may start to accelerate. i think this is part of the story -- we are so caught up in policy, but the reality is some of these long-term transition trends mean a lot more. alix: tell us about it. you know it. burns, do you play both? the long-term that gina is talking about, but also go short if the house bill is going, do you play it like that? burns: we tend to hold stocks
for two years, three years. of whatly echo a lot gina says. you will get risk off if you play that trend. normally what we like to focus on his low pe, deep-value stocks. they tend to price in a scenario -- they do not tend to be as that is what is priced in. you can find a low pe, for example, a drug name like a pfizer when oftentimes you do get surprises. even if you don't, you get a dividend yield while you wait. david: one of the stocks you like his johnson & johnson. we have reports that the ceo is coming in on monday to do some of our work for us. what do you like about johnson & johnson, and what are the them?ial risks for burns:burns: one of the things to like is its valuation and the fact that it is being valued purely like a drug stock. it is getting valuable along the likes of pfizer, even though they have a consumer segment. if you compare it to a letter
consumer comparables, you do not get any of that. to some degree, you're getting that side of the business for free. we like that. we like the fact that you have to have one of the highest rated balance sheets if not the best rated balance sheets among u.s. equities. those are things we really like about j and j. that said, if you have to have concerns, probably some of the primary ones are you do have the solid balance sheet to rest on, but none the less, it gets back drug andmiliars, the medical device portion of the business does face increased regulatory scrutiny and increased competition. jonathan: burns mckinney of allianz and bloomberg's gina martin adams will be sticking with us. goinge flat, flat, flat into the cache open on futures, pretty much dead flat coming out of it. we are nine minutes into the session, and we go nowhere. down about 10, 11 points on the dow, -4 points on the nasdaq. if you want some action, get to
the other board, american airlines is the story this morning. qatar airways interested in buying a 10% stake. buffett'sabout warren recent venture into airline stocks. high capital group, which of course is the embattled canadian alternative, which is actually near flat, berkshire hathaway agreed to acquire 400 million canadian dollars worth of stocks, 38.4 percent. that is the size of the state, and a $2 billion credit line and canadian dollars as well. pointsentage thereabouts. the market continues. from new york city, you are watching bloomberg tv. ♪
emma: this is "bloomberg daybreak." i am emma chandra. coming up later today, an exclusive interview with the bank of mexico governor. this is bloomberg. ♪ the federal reserve will take the first step in determining what the bank should do in increasing shareholder dividends and buying back stock when it releases findings from its annual stress test today. are anticipated to pass today. earlier, we spoke with the ceo of -- guest: on the quantitative side, i think everyone will pass. the interesting part will be the 13 banks that get a qualitative assessment from the fed, and that is harder to know. us, burnsstill with mckinney of allianz and gina martin adams.
is it a story investors wait for? do they go to lunch? is it something people even think about? i think they do pay attention, and it is part of the reason why the financial stock decouples from the 10-year story in the short-term. the news that comes up next week, apparently the banking system is still in tact, and apparently they are passing all andfed's stress tests, importantly, they will probably increase the deployment of cash they have on balance sheets for shareholders. they have reasons why the sox have been performing as well as the have -- there has been very little share buyback this year. maybe the financials are that source of ah, a little buyback news, maybe we will get increased dividends out of the sector, and that will help to stimulate interest. jonathan: burns, is that what matters to you as well, the capital distribution? burns: absolutely. jamie dimon came out last week
and said the banking sector is in the the shape it has ever been in. the big fix u.s. banks are sitting on $100 billion or so of excess capital. once we get the opportunity to deploy that to shareholders -- obviously a letter that is being priced in, but it is never fully priced into the market, so as a result, investors should focus on the news coming out next week. likewise, you want to see the purchases, and also dividend growth is one of the keys for the space going forward. david: so it is good for shareholders and so is the price of stocks. bigope they will reveal a shot in the arm for the economy because there's only so much more money. it turns out people do not want that much money. isn't that troubling ultimately for the banks? burns: that is probably one of the things that has been raining and economic growth for quite some time now. if you look at the types of stocks that have been rewarded by this market over the last 5, 6, even 10 years, it has been those that have grown dividends,
grown repurchases versus those that have been redeploying even into other companies, to their own, capital spending. as a result, you might not see quite as much of it actually seeping into true mainstream economic growth. --x: that is the question you need to have a dividend payout ratio that will behind have to offset the loss of revenue. on theou have been program before, and you hammered the yield curve. you need banks to do well, but that is not the case currently. that is the 530 yield curve, the blue line, completely hammered. the white line, financials, is still holding up. how good they have to be to make a story play out continuously? gina: if you dig deeper into a weekory, they peaked ago on the s&p 500, so this is a pretty short-term rally that we have had that coincided with the ecb and the fed in which investors may have gotten a little bit excited that interest rate increases will help the
financial sector, and then it lastof faded over the week. i think the onus is on the companies themselves to make those announcements. if you are in such fantastic positions, will you give us the cash, will you increase your dividend payout, will you increase your share buyback? that is really up to the company, not necessarily the test but the fed's companies themselves responding. alix: as long as the companies can't pass those tests later with the evidence. i know you like the dividends and the payouts, but at the same time, a report of a 30% drop in equities was better and with debt underwriting, that was really terrible. that relates in some ways to the big banks. how confident are you in big banks' ability to make money in a low-lying environment? burns: a lot of the big banks have been in transition since the financial crisis.
you have names that would previously have been more dependent, names like, for example, a morgan stanley. once my time you thought of high banking and trading, but they spent the last decade really transitioning to other types of business like wealth management, something that is stable. again, you need to focus on two things really -- a, terms that are misunderstood like a morgan stanley and b, just a valuation. one thing that can drive a sector of forward, for a value investor like us, right now on a forward pe multiple basis, with the exception of telecoms, financials are the cheapest sector of the market. jonathan: someone just wrote to the stress discount test or a, discount the distribution story, as we approach the stress tests results. once the fundamentals reassert themselves, the yield curve, the results become the new story.
when you think about the performance of the banks and the kind of things alix touched on, we have negative guidance. pretty much everyone in the streets a couple of weeks ago, and now we are discounting that altogether? gina: it is a situation point for these companies to beat expectations. two weeks before earnings, without fail, the company's guide lower, and then the companies beat their earnings season. i would suggest that you have got this confluence of a few events that should impact financials in the short-term, most of which may be pretty positive, but i totally agree -- in the longer term, if we cannot get the yield curve to receive momentumou cannot some behind the long and he'll come it will be tough for financials to maintain any outperformance. alix: thank you so much. a real pressure to have you on -- pleasure to have you on set, burns mckinney of allianz and
jonathan: from new york city for our viewers worldwide, you are watching bloomberg tv. this is "bloomberg daybreak." largely unchanged, the s&p 500 and the dow as well, but some interesting moves in terms of sectors, the airline, the sector of the biggest any for the s&p 500, following that news from american airlines that qatar airways is interested in buying a 10% stake.
biotechare, outperforming as well. once again, the s&p 500, even with the big health care debate is set to take place down in d.c. today, the story, switching up the board very quickly, not much of one. sterlingand likely stable against the dollar. the commodities outperform, the loonie in the kiwi as well. ,ccrued catches a bit, $42.88 but that is not break a yield in treasuries, $2.14 on the u.s. 10-year, david. david: republican leaders are going to be unveiling a closely held plan to replace obamacare today in washington. here to tell us what we can expect is bloomberg's health care reporter zach fisher. what can we expect? zach: we will see a bill that will be the senate take on repealing and placing obamacare come across strokes similar to what the house did.
you will see the medicaid expansion phasing down, some kind of subsidies to buy insurance, maybe a little bit different, more like obamacare, actually. broad strokes will feel similar. david: abc news is now reporting that mitch mcconnell is speaking at 11:00. we should here today more about it. whatever we do, it will be taking essentially a fair amount of money out of the marketplace in the medicaid reductions. zach: that is right. david: that has to affect the business of the health care companies, doesn't it? zach: that is right. insurance is that cover low income people have been somewhat vocal about this bill, whatever exactly comes that will be a big cuts to medicaid, and that is a problem for them, a problem for the low-income people they cover to something like $830 million in cuts to medicaid over a decade are what is expected. david: what about beyond just insurance providers?
what a hospitals where people do not have insurance and they still have to cover? what about the pharmaceutical providers that? do not get as many drugs but under medicaid doesn't this affect a lot throughout the health care industry? zach: that is right, and there were expectations that the house 23 millionlead to people losing health care coverage. as you point out, people show up at a hospital, they have to be treated. the hospital may not get paid for that if the person is not insured, so it is really a problem for hospitals. american hospital association is pretty vocal in opposing this bill along with folks like the doctors, the ama, for instance. alix: what is happening when it comes to insurers in the private market for obamacare? we have seen a time of them -- time of them leave. do they come back? zach: the number one thing insurers want is certainty. [laughter] david: don't we all? zach: they are saying, look them
if you tell us what the rules are, we can play by those rules. we can figure out if it is profitable under that new plan. tracer ofzach bloomberg, thank you for your time. that does it for "bloomberg daybreak." 23 minutes into the session, a session that looks like this we go nowhere on the majors here in the united states. the dow is flat, the s&p 500 as well. beneath the surface, airlines and biotech outperforming today. tomorrow, a full lineup, a brexit special, one year from the brexit vote. a whole host of gusts as -- guests as walter from new york, you are watching bloomer to be. ♪
welcome to bloomberg market. ♪ >> here of the top stories we are coloring -- covering from the bloomberg and around the world. senate republicans are set to toeil their legislation replace the affordable care act. we take a look at the key differences between the legislations. american airlines is getting a big investment from one of its big investors. how will this impact the ongoing bad blood between u.s. and gulf carriers? and there are reports that some trump administration officials do not want janet yellen to get a second term as fed chair. will any uncertainty affect fed policymaking? and what do markets exactly want aheadhe chair? that's all plus more, we are 30 minutes into the trading day in the u.s..