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tv   Bloomberg Markets Americas  Bloomberg  October 20, 2017 2:00pm-3:30pm EDT

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we are live in a bloomberg world headquarters in new york over the next hour. here are the top stories we are covering on the bloomberg and from around the world. completely unacceptable, that is how the new ge ceo john flannery ascribed the company's disappointing earnings in its outlook. shares of a 6% drop earlier today. washington, the u.s. senate oks a budget resolution, taking another small step towards considering trump's tax cut program. withxclusive interviews the chairman of citizens financial group what is driving climbs to the capital markets business. we have u.s. markets closing in two hours time. it has been a record run this week, and it continues today. julie: all three major averages hitting records again today. there was a hiccup yesterday,
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but we still saw a higher climbed by the end of the day. that run is continuing here. it is being fueled in part by earnings we have been seeing, being fueled in part by higher rates. it is a positive week for the s&p 500. in fact, not just this week, but it has been on a six-week run of gains. some of the game, as you can see, have been modest. this is the longest streak we have seen in about three years. a streak of weekly gains that we have seen in about three years for the s&p 500. some of the movers we are watching today include materials companies, building materials specifically. we have seen lumber prices and prices for other types of building materials rise recently. we also have existing home sales data today that came in ahead of estimates. mark arrieta of eagle materials , eaglein marietta
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materials, and vulcan materials company's dating today. proctor and gamble is leading the way downwards, after the company came out with numbers that sales beat forecasts, but numbers met expectations. organic sales were up about 1%, and they were talking about their grooming, baby, and family care divisions. those shares down. kimberly-clark shares down as well, not downgraded from underway to neutral by jpmorgan. there is more aggressive png competition, and png is in a better position with the involvement of try and -- triad with the battle -- with the battle there. jurrjens dwight being pulled lower as well with clorox. as i mentioned, -- church and clorox being pulled lower as well. and finally, the mystery is the process continues were finding a new chairperson of the federal reserve. the dollar has been bouncing here. that is the white line, and so
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has the two-year yield. that has been feeding back into some of the gains we have been seeing for the financial stocks. julia: not a lot of mystery around that, julie. let's get a check on the first word news this afternoon with mark crumpton. mark: president trump says the united nations has "tremendous potential," but it has not been used over the years as it should be. the president spoke with a secretary-general, antonio guterres. -- praiseotect antonio guterres's leadership in the. iraqi forces are gaining -- glaring victory over forces in the city of raqqa. it is a major defeat for islamic inte, who captured raqqa 2014 but has seen its territory steadily shrink since last year. in kenya, police say four people have been killed in opposition demonstrations this month.
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officials say they are concerned about the potential rise in violence as the country's presidential election approaches . earlier this week, human rights watch and amnesty international accused police of killing 67 people in opposition protests in the days after the august election results were announced. in demands -- in japan's monday, results on shinzo abe's party is expected to lose the majority. the biggest impact would be that shinzo abe would find it difficult to revise japan's pacifist constitution. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am mark crumpton, this is bloomberg. scarlet euro -- scarlet? scarlet: coming up, citizens financial group continues to execute on its priorities of improving growth and profitability. -- bruce sam sawn, chairman of the banks, joined us
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an exclusive interview. from new york, this is bloomberg.
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♪ julia: this is bloomberg markets. i'm julia chatterley. scarlet: i'm scarlet fu. julia: let's put the spotlight back on general electric. today, ge posted earnings that fell well short of the mark and slashed their profit forecast for the year. court, theyngs signal that ge's turnaround is about to gain steam. >> the company has many areas of
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strength. it is also clear from our current results that we need to make some changes with urgency and a depth of purpose. our results are unacceptable, to say the least. joining us now is scott think you for joining -- great to have you on the show. this was a real reality check as far as the forecast. nailed hisflannery first big day on the job. i thought he did a fantastic job . any employee of ge who does not like him tomorrow, a bit afraid just are doing that extra work -- just doing that extra work will probably be gone soon. that -- scarlet: that indicates some changes. there are note sacred cows. what does that mean to you? archaics:: this is an structure of conglomerates that
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do not exist anymore. there are some great underlying assets, but it is hard to manage something that they. this is not just in power generation, but there are other things in there that are struggling. julia: $20 billion of asset sales -- scarlet: in two years, no less. julia: on the business side of things, that is not that much. julie: he needs to do more. julia: how much are we talking about here? mr. davis: maybe 50%. julia: 50%? scarlet: will this added next urgency or desperation to that? mr. davis: maybe some desperation here. if what an activist on their board, and -- they put an heivist on their board, and has a reputation for being a killer. there is desperation. it has been 15 tough years. a tough stock. julia: talk about the cash flow, because their goal was $12
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billion to $14 billion. now they are talking $7 billion for the entire year. the dividend is $8 million. are the dividends at risk here, because they have been buying back far less shares than they planned to? mr. davis: you can argue they bought back as much stop as they did, but i think the debate around the dividend is a moot point. scarlet: is priced in already? mr. davis: i think it is somewhere in the neighborhood of a 20% or 30% cut, but more importantly, this is a company that should be cash flowing $14 billion a year. they are underperforming to the tune of really generating about half the cash they should be generating. julia: and we are looking at the business as it stands right now, we just readjusted the forecast from $1.05 to $1.10, you say the underlying earning power here is --e like one dollar 70 cents $1.70, one dollar $.80. not monetizing what they have.
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mr. davis: there are a lot of investments may that have not panned out. you have the whole predicts investment-- pre-dix , it global investment center that did not yield the products it was supposed to, and i think you will do it for structure around a higher revenue base that never came through. you have the cost structure of a bigger company, but it is not generating the revenues that it can. scarlet: it cannot support that. the company does have to reduce by 50%, what does it keep? mr. davis: i have always pitch that there is room in the s&p for the strong global infrastructure company. they have a strong space access globalt, a strong infrastructure assets. they have a good health care business that should probably be spun out, probably a $60 billion
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industry. scarlet: it has been held back right now? mr. davis: held back a lot. julia: and you pitched as? see.avis: we will i told flannery you could either kill it, break it up now, or fix it and then kill it. but there will not be a third option of a $135 billion company in two years. scarlet: what did he say? mr. davis: he kicked me out of his office. scarlet: so he listened? mr. davis: i am not on the board, i cannot tell them what to do, but i think he knows with the right things are. talent: what is the there like? is there a brain drain going on with the outlook not as rosy as it should be your code is ge have the right people in place to execute on all of these major changes? mr. davis: i think the company decides at ge, if they cannot good talented executives, they are in trouble. scarlet: but they like to home
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grow their talents. they like to promote from within. should they be looking outside? mr. davis: they have brought in outside people, like in digital. so they have brought in folks. the new cfo came from price waterhouse. she was an auditor. they have brought in people where they need to, but we will have to see. he is a new ceo, he deserves a chance. i think he has good people around him, but we do not know yet. julia: and the cfo transition looks pretty seamless as well. forecasts look pretty indefensible we saw this latest july. mr. davis: six months ago, we were talking about two dollars of earnings power at the company, and it has already degraded and spend. julia: how long do investors give him? mr. davis: six months. julia: is that all? mr. davis: in today's world, you do not get two years. their previous ceo had 15 years, but it was a terrible 15 years.
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scarlet: what is the most immediate way to engage -- to gauge if flannery is doing what he should be doing? mr. davis: you have to make the difficult decisions now and pull off the band-aid, shut down these facilities and the operating at a level that is profitable. that to not take more than six months to plan out and really get moving in the right direction. you should start to see cash flow improved. i think there will be things he is doing that are more immediate. and the spinoffs -- the stock is acting great today by the way, it opened up at 6% and now it is thinklash -- flat, but i if it is six months and things have not perked up, he is going to be under term it is pressure to spend less and do more. scarlet: how much would you pay to sit in the boardroom? mr. davis: a fortune. he will stand up and say no, we are not talking about those things. we are going to talk about why you have not done your job in 15
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years. why this company is underperforming. there generating half the cash and happy earnings out of a set of assets -- half the earnings out of a set of assets, that is a massive drain. julia: look at how the stocks performed over the last couple of days. have we seen the worst in ge? mr. davis: i think we have. six months ago, nobody was calling on ge. julia: look at that. my davis: i left, started own firm, and now all of our phone calls are on ge. people are afraid to be shorted, first of all, and it has been such a huge underperformer that if you can show some progress moving forward, they can go from $223,000 -- $227, $228 really easily. julia: scott davis, thank you for that.
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scarlet: we will move on here, because we will be speaking with the ceo and chairman of citizens financial as well. in the meantime, let's get a check on the markets. julia? what are we doing right here you looking at record highs. julia: we are. the gains have been a little bit more sizable. we are at the best level of the session right now, with the dow up by 6/10 of 1%. ofia: and a little bit softness in the nasdaq gone, showing a strong finish to wrap up the week. scarlet: all in the back of earnings as well. up next, we will speak with , the chairman and ceo of citizens financial. this is bloomberg. ♪
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♪ scarlet: this is bloomberg markets. i'm scarlet fu. julia: i'm julia chatterley. news,t: in banking
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citizens financial group to the new target set its ipo. in a statement, the chairman said our leadership team has demonstrated a consistent ability to execute well through varying market conditions, and delivers improved shareholder returns as we continue to run the bank better. joins us now from connecticut. thank you for taking the time. i wanted to look specifically at the capital markets part of the business. it is notable that there is a 53% jump in the third quarter, and you contract that with some of the lackluster numbers of the bigger banks. why is there such a bigger divide between you and those banks? mr. van saun: i think part of it is we have been investing in our capabilities, so we have a bigger effort in the capital market space. littlea merger, we got a m&a boutique out of cleveland, which brought some m&a skills to the platform.
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we have also been hiring in debt capital markets, and frankly, the bond market was on fire in the month of september. so we fired on all cylinders across loans litigation -- loan syndication and capital markets. scarlet: and that shows the results. to what extent are those parts of the business doing well that they can sustain that strain in the third quarter and 2013? thevan saun: we joke around shop that 50 is the new 30. so last year we were doing quarters in the 30's, now we are doing to in a row in the 50's. . i think the capabilities speak for themselves. we are going to franchise, hiring coverage bankers that are bringing in new clients to toizens, and that allows us keep pushing higher. obviously, some of that is appended on market conditions, but if market conditions they favorable, there is no reason we cannot continue to do well. julia: i want to talk to about the balance sheet optimization
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measures you were talking about, a remixing of loan composition. what we have heard so far is an increase in provision, some concerns about the credit quality and where we are in the cycle here. what are you seeing, and is there anything that gives you pause for thought, if not caution? mr. van saun: we have had a nice run on the consumer side by finding areas that are fairly unique to us. what do i mean by that? first off, in the education loan space, we have pioneered the education refinance loans, so really a debt consolidation place for young graduate from school. it really works to save them money. competed atheavily this point. we have had some nice running room there. we have also had partnerships on installment credit with folks and apple and the event -- an alarm company. there is some good growth there, and there is a good thing we do in those programs.
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we have been able to achieve some growth. we are not stretching from a credit risk appetite standpoint, and that has been solid on the consumer side. on the commercial side, because we are hiring bankers and growing the numbers of clients, we have seen a growth that is a bit ahead of our peers. although the market has slowed off a little bit in the third quarter, we have backed off a little from the growth rates we saw earlier in the year. scarlet: i want to pick up on what you said about hiring more bankers. can you give us more specifics? just to give us a sense of how much or how quickly you will be ramping this up? will you add 200 people to the underwriting in the next few months? mr. van saun: you will not see numbers that big, but don mccree, who runs commercial, ind we added about 40 folks the overall commercial franchise that are senior-level people over the past six months. it is a blend. some of those folks are on the coverage side, some of those folks are in the product capabilities. you have to scale both up at the
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same time. we have hired some great people in new regions, we are pushing into the southeast and midwest, and a real focus on metro new york, where historically we were thesed on new england in mid-atlantic states. we have also been adding to our industry vertical expertise, a lot of senior banker -- a senior banker brought in from citi, and on the product side we are adding to the capital markets and also the global market, our interest rate and fx management areas. julia: what will this allow you to return with your 10% target in the ipo? what are the targets in the common quarters? can you tie it down for us? mr. van saun: we are just going to relax year and feel good about getting to our 10%, and work on the budgets for next year. but i think we have hinted those things that got us this far are still part of our plan, and growing revenue stocks within expenses has been our mantra, having this mindset of
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continuous improvement that we can find ways to run the bank better and take care of customers. there is no reason that if we keep executing a discipline we should not be able to propel ourselves to better returns. scarlet: we have talked about what your bank is looking at specifically. i want to get in the overall environment here. as we talked about the prospect of tax cuts, banks are likely to benefit more than other companies because the banking industry tends to have fewer deductions. what do you see is a potential -- as a potential impact on citizens united? mr. van saun: when you look at the banking space, the regionals are domestic players. there is very little we can do in terms of the global companies in the s&p, make sure the revenues that there -- that are jurisdictions, so they have lower effective tax rates. we take it on the chin. the blended rate for regional, mastic/regional is 31% or 32%. tax -- few taxew
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programs we invest in, like low income housing credits. if you saw the rate actually reduce from something like 35% that is 20's, say 25%, a meaningful change in terms of our after-tax cash flow, eps, and return on tangible equity. not only are we in favor of that because it benefits us directly, but i think corporate america is waiting for that, and that will help unlock some analysts bureaus and pick up the economy and long demands. we would also benefit in that regard as well. ,carlet: bruce van saun chairman and ceo of citizens financial. thank you for joining us today following your third-quarter results. white house press secretary sarah huckabee sanders addressing the president's plan for leadership of the federal reserve. moments ago, she said a trump announcement on the fed will still be coming soon.
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we have been hearing on that. it will be in coming days. julia: and weeks. scarlet: and weeks, but now in coming days. placing johnlk of taylor and jerome paulo -- jerome powell at the fed. she says several options also remain for the federal reserve. we will keep you posted as we get more headlines erie it --. julia: -- headlines. julia: and a slowdown in north america. we will discuss in today's commodities clause. from new york, this is bloomberg. ♪ retail.
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near or far covered. leaving every competitor, threat and challenge outmaneuvered. comcast business outmaneuver. ♪ from bloomberg world headquarters in midtown
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manhattan, this is bloomberg markets. i'm scarlet fu. we have commodity markets closing in new york, so let's get started with gold. the precious metal posting another weekly loss after a senate vote on the budget gave renewed momentum to president trump's tax plan. this indicates a possible new chair for federal -- the federal reserve continues to be under discussion, also pressuring gold this week. it is scheduled to two and the week 1.8 percent. and crude prices are rebounding from another earlier slide. at a session high up 710 1% -- 7/10 of 1%. the geopolitical risk rally as opecld -- fizzled sent its strongest signal yet, julia, that it's cuts will be extended. oil, and two of three of the biggest oil companies kicked off shares today, warning that north america's growth engine is slowing. whomberg's david west
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covers this, joins us from houston. the is frombdued the oil companies here. the north american concerns are raising. >> what is interesting is that north america has been the only sort of growth around the world. there have been a few pockets internationally, but as far as the size of north america is, that is where growth is happened this year. for the oil industry around the world to have its only growth engine showing down is not good for the service companies. but it is good news for the oil market overall to see some fraudulent -- throttling back a little bit. it is some of that -- julia: it is so that optimism coming into this year, where we thought there would be a meaningful increase in the capital commitments from customers, and it has not happened. is the bottom line we have simply overestimated the u.s. shale boom, perhaps?
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david: it could be that, but it could also be realizing that we really do need to police ourselves here in north america. back,m not going to dial my competitor's not going to dial back either, and we are going to keep growing. that ends up hurting oil prices in the long run. what you are hearing from investors of the expiration companies more than service companies, we want to see you live in cash flow, do not spend out righted, returns a money to shareholders, but do not grow for the sake of growing, but try to live within your means. scarlet: live within your means. these are for some of the smaller players. we have halliburton reporting results next monday. what will they tell us that can shed some new light on this part of the oil industry, that perhaps we did not know from today? get a you are going to lot more finely detailed precision on what is happening in north america, because this
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is more than half of halliburton's business. they are the world's provider of racking services, in every basin around the u.s.. this is not what halliburton is, this is their home turf. expect them to be a lot more granular about what is happening but they could, also probably be a little more asa soothsayer, where is baker hughes and slumber -- schlumberger are. scarlet: and you have the big oil companies reporting themselves as well. what can we extrapolate from the oil services company's results as to what the big oil companies are likely to say? david: at least look in the areas of europe, the middle east, africa as well for pretty flighte main sources of
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growth internationally. africa and other parts of the much, but that is where schlumberger said are the biggest areas to watch for growth internationally. a ceo was talking about their results, and he said another wave of investment in u.s. shale is expected to reduce in part because of the accelerated head to by emp companies on the back of the recent uptick in oil prices. i read the same thing in schlumberger's results as well. what you make of that? it means that the money keeps coming back in. as long as the money is there, it is hard for the emp's to turn down the opportunity to keep drilling. when they walk in those hedges and take advantage of the higher prices, that gives them more breathing room so they do not have to shut the drilling rigs down. so watch for the mp's, for as long as they have the money in their pocket, to keep drilling or give that back to investors. scarlet: we will be watching out for that. david west the reporting from
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houston. let's get you a check on the headlines on bloomberg's first word news this hour with mark crumpton. mark: house speaker paul ryan says the republican tax overhaul plan includes a fourth income tax bracket for the wealthy. it has not been decided whether the top bracket will remain at the 39.6% rate. speaker ryan says the tax bill will be finalized in "a number of days." president trump says he wants the middle class to benefit from the overhaul. been a month since hurricane maria devastated puerto rico, and only about 20% of the people on the island have power. the governor is pledging to get that to 95% by the end of the year. the hurricane struck at a bad time. the puerto rico electric power authority filed for bankruptcy in july. it has put off badly needed maintenance and has just finished dealing with outages from hurricane irma in september. french president and 90 despite the positive
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signals coming from the european union summit on brexit negotiations, "we are far from having reached the necessary financial commitment before we can move to phase two, and start talks on a future trade relationship." resident a cron told report -- president macron told reporters that it would be impossible to walk away from the eq without -- place -- any deal in astronauts when spacewalking today to do some repairs of the international space station's robotic arm. the crews replace a blurry camera on the new robotic hand that was installed during a spacewalk two weeks ago. early next year, astronauts will replace the hand on the opposite of the robot arm, which is showing wear and tear since the arms launched in 2001. global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries.
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i am mark crumpton, this is bloomberg. julia? coming up, tax reform has cleared one hurdle on capitol hill. but what does the rolled ahead -- road ahead hold for the keystone of donald trump's agenda? we will explore. from new york, this is bloomberg. ♪
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♪ this is bloomberg markets. i'm julia chatterley. scarlet: and i'm scarlet fu. let's look at our stock of the hour. skechers, up more than 35%, on pace for its best day ever. abigail doolittle has been checking it out, and this is not a typical move for skechers. it is it just -- is it just earnings? abigail: i was wondering if the company has been bought out?
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this is typically the kind of move in a company has taken out a big premium. they beat earnings by 37%, put up $.59 per share. a tiny number, but also beat revenues by 2.5%, more than $1 billion in revenue. but the outlook was also great. they are casting 14% growth for the quarter. the holiday season will be strong, but the composition of the revenues is also important. their domestic business has been falling off of a cliff recently, but the international picked up. if we happen to the bloomberg the bloomberg to here, this is one of the dashboards on the apparel makers. we see the revenue percentage growth, overall, 16.2%. pretty impressive. domestic, 1.4%. international, up 26%. it has been a bit of a turnaround, because international had been lagging, % growth you can call 16
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lagging. but investors are liking it. scarlet: and one thing about these companies is it depends on where expectations were set. we just saw eeg be as you are talking, just to get a sense of whether analysts had been giving -- bring down there -- the estimates, and they have been. there is the stock price. it is a pop today, which stands out. but in the context of what we have seen over the past two years, it is barely registering. a great point,s because that shows that expectations had been relatively low. management that the team is managing expectations well. but one thing could be an inflection point for the company, because i think of them shoe, sneaker, casual stew maker -- shoemaker. scarlet: they are not behind the ones with the sneakers and the wheels? abigail: that, i do not know. but they are going global.
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they have lots of different operations, an upgrade on the industry, saying they are performing on all cylinders. susquehanna is talking about the fact that china could be a $1 billion market, so it looks like they are hanging on all cylinders. julia: kind of re-rating or , that would make sense. but to put today's move in perspective in terms of valuation, what does that mean? it is shocking to me, because when i put in the relative valuation potion for the year, i expected it to be a 70% premium. 3% premium. but there is still room for investors to get in, and if we take a look at this chart in the bloomberg, this is a long-term chart we will be seeing here. this is out of the 2009 recession, we see the up trend is in place, chopped, there have been periods better than others. the reset you are talking about still holding that uptrend, suggesting that the buyers are going to support this thing back up to the record highs and
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beyond. it looks like a bullish story, even after today's 40% higher move. scarlet: some thing to keep an eye on. thank you, abigail. julia: turning to washington, some former presidents -- president trump's agenda adopting a budget resolution, passing the next step in large-scale tax cuts. reform, not tax cuts, but they face the challenges the tax overhaul is expected to face in the coming days. heaven, great to have you with us. they narrowly managed to pass this budget. it unlocks the special -- now, but we will hopefully see the tax reform in the senate. but in terms of defeat, the nonbinding amendment have to make to get this through, the array of different opinions this deal feels incredibly tough. kevin: late nights and early
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mornings were lawmakers in the senate, just getting back from capitol hill, i can tell you that i'm talking to a lot of sources who think this relic -- reconciliation process will be a lot less controversial than we thought, and the support from the senate is narrowly squeaking by, passing that budget, is likely a very good sign that tax writers on the tax-writing committees can begin to get to work as early as the next two weeks, and those hearings, we could see them begin to start. the $6y will pay for trillion tax plan? that is world the attention is right now. the lobbying industry for the big banks as well is on the is focused ase well. the removal of sorts is definitely controversial, but i can tell you that whether or not money going into 401(k)s and when that get's taxed, if there is a tweak to that, as a potential source of revenue, at $200 billion is also being discussed. a lot of asset managers like blackrock do not like that. reform, in terms of tax
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how much progress do we know that the house ways and means committee has made thus far? when we spoke with the chairman of the subcommittee on tax policy writing, he was saying we need to get the budget sorted out before we can hit that and reveal much about the effort in the tax-writing part of it. are they going to play close to the test -- chest and not diebold a lot once again -- ge a lots a lot -- divul once again? kevin: that was with the health care debacle, they received a lot of criticism for not doing this publicly. they are trying to correct the little bit in how they are doing that. most notably, they will hold hearings on the various committees. so you will hear from chairman hatch as well as congressman you are also seeing an all effort, all in approach coming from the administration. president trump -- get this, he
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will be having lunch with republicans on tuesday. that very same day, gary cohn will be meeting with top numbers of the republican study committee, has some top aides over there. , nowf this early next week that the budget is seemingly on a path to getting officially through congress, means we are in the crunch time for tax mode. kevin, i want to ask you about janet yellen reports this atning was that she was back the white house, having been interviewed by donald trump yesterday. sarah huckabee sanders taking comments in the press briefing today as well. scarlet: yeah, about how trump's time with janet yellen is the reason he has warmed to her. it is a new phase in the relationship, perhaps. what does that suggest? [laughter] kevin: you can never tell the president -- who the president will like or not like. only if senator corker had as --h time, we might have charm, we might have a different
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story. this is coming down to the wire. president trump -- showed in the past couple of hours that he is considering having jerome powell , as well as john taylor in the fed chair and the vice fed chair positions. we do not know what combination we would get, but look. a lot of republicans on capitol hill -- janet yellen is the bottom of their list, but president trump, according to communications director -- press secretary sarah huckabee sanders, they did have a very positive meeting. julia: we'll have to keep the speculation going. [laughter] kevin: yes, it is fun. it is friday and it is fun. julia: exactly. kevin cirilli, chief washington correspondent. thank you for joining us. scarlet: and it is friday, z you never know what could happen in the afternoon. it is time for a look of the bloomberg business flash, with some of the biggest business stories in the news right now. procter & gamble posted quarterly profits better than expected. formaintains its forecast
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the year. still, they reported weakness in the grooming and baby, feminine, and family care division. and open to a potential spin off of a landline network. that is according to people familiar with the matter, says governmentuld regard concerns over an asset that italy considers in an national interest. is telecom italia's biggest investor, with over 24%. and a little-known chinese startup is now the world's most -- fourth most valuable private company. tos pushes valuation up $30 billion, ahead of airbnb. the latest funding round raised $4 billion, led by tencent and priceline, of the u.s.. that is your business flash update. julia: coming up, we will hear from luke ellis. why he trust technology over
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humans. wow. from new york, this is bloomberg. ♪
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♪ julia: this is bloomberg markets. i'm julia chatterley. scarlet: and i'm scarlet fu. wall street is entering a new era. algorithms are starting to encroach upon the work by money managers, traders, and analyst. luke ellis spoke about the technical changes sweeping across the industry. >> what we try to do is have smart people, or very dedicated to running money in a very professional way. is a management professional business nowadays. it is not a masters of the universe business. we like people who are -- you can think of it as being our --. we like people who would do this if they had no money doing it, because it is their passion. or people who come in every day, desperate to spend time looking at talks or creating models --
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stocks or creating models or quantitative techniques. we do not care as long as they are passionate. >> i believe you were the guy who had the runtime track for the wild lady -- royal navy. if you were to run out right now on the active-passive debate, how much run what active managers be taking? it is bloody out there. passive is that a high ground. what can be done to rebut the passive onslaught? ellis: having a monopoly is always a good business. there is no monopoly to run anymore. x that is a to valence -- >> that is a surveillance rake from luke ellis. monopolies are good. mr. ellis: governments do not like you doing it. the interesting thing on the active-passive debate is this year, with this low index volatility we have seen, we have been talking about how low fixes, risks volatility indexes
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are. individual stock volatility has been perfectly normal. you have the discretion going on in markets. that creates a great opportunity for active management. if you have companies on a good earnings roll, going up a lot, that is a challenge. if you know what you are doing to make money, we are seeing badks were they had earnings get really punished. the short side of the equation is good. active management this year has actually had a fantastic opportunity. you can get it right or you can get it wrong. right more often than we get it wrong. so you get very good performance , and it justifies your existence. if you do not make out performance, active management has no place. >> is there a danger, because the market is composed differently to what it was 10, 15 years ago? and because hedge funds are playing a much bigger role in it , it skews, right?
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away withet central-bank policy, you are left with a market that is not function properly, or functions differently than the way people think it does. mr. ellis: i do not think hedge funds are playing that much of a big role in it today. a think the number of hedge funds -- i think the number of hedge fund strategies play a big role in the noise around the trend. if they go around meeting the cios of large pension funds in the world, the amount of money they are moving, we are not just going to increase their allocation by 10%. that is much more important for equity market that anything individual hedge funds or collective hedge funds do. i think they have a very important place in getting .ecurities to their fair value it happens relatively quickly today, because the only people really putting up capital, risk capital is in that market. the banks that put risk capital up -- you do not see banks put
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risk capital up anymore. >> what are your concerns about brexit? until the last minute, we did not know what the thing looks like? ellis: that sums it up. in a normal negotiation, regarding the european union, they are used to deciding things at five to midnight. for something like this, we cannot run businesses on the assumption of a decision of five to midnight. i think probably, we will get a decision at 3:00 in the morning on this one. i think -- i am worried once the realization comes that you cannot find consensus in the u.k. on anything, consensus in europe does not require just consensus in the european union, but 17 -- 27 different people to agree. i think there is a high chance of a patch march -- that's we passed march 19 and nothing is agreed. we have how many months it takes for the politicians realize they have to do something. >> when you say you cannot run a
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business like this, do you believe that business people in charge of planning for the worse? can they reverse the decision or will it be too late? mr. ellis: i had a meeting with youew bailey, and he said had to announce your contingency plan, because we cannot promise you what the outcome is. >> contingency as in crashing out? mr. ellis: you have to work out what your plan is. that does not mean we move everybody out of london. clearly not. but we do have to enact the right entity within the european union to be able to run on short product, the same as lloyd blankfein and franklin. they will move something there because they have to, because we do not know whether london will be able to trade europe. . .
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in new york,3 p.m. 12:00 p.m. in san francisco and 6 p.m. in london. i am julia chatterley. scarlet: i'm scarlet fu.
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♪ we are live from bloomberg world headquarters in new york over the next hour. here are the top stories we covering on the bloomberg and around the world. the race for janet yellen's job may be coming to an end. front runners emerge for fed chair. set favorites on the fed and meaneach of the candidates for the future of the central bank. hoode go to the robin conference. bohli.k with rudolf let's get a check on the markets with julie hyman. julie: it looks like we are ending with a up note for the
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week. at the records. tech and financials the two top-performing groups. i do want to look at declines. this has to do with earnings or at least her earnings related, have implications for earnings. biotechnology company, halting a trial for a crohn's disease drug. analysts had expected this drug to gain as much as $1 billion of revenue by 2023. but the results of the trial benefitd a lack of from the drug. incter & gamble, largely line with estimates, but slow revenue growth is what traders are focusing on, and schlumberger as well -- the ceo call saying that
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consensus estimates for the fourth quarter could be on the high-end. also, the investment appetite by exporters in north america, i.e. its clients, would not be moderating. when we look at gains in today's session, we have paypal shares rising to a record in the wake of that company's report. it gave a strong forecast for the end of the year. athena health, more reassuring on the conference call, according to an analyst at oppenheimer. and skechers soaring after the company reported better international growth and wider .ower -- profit margins and we have this from our stocks team at bloomberg and they are looking at the forward earnings yield for the s&p 500 and the gap between that and the 10-year yield. looking at the relative attractiveness of stocks versus
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bonds and what they are yielding. the current spread -- the blue line here -- 3.2%, well above the 10-year average of 2.2 5%. this implies that the stoxx potential he more room to go. and interesting topic for this earnings season. scarlet: absolutely. thank you so much, julie hyman. when we look for the contest for fed chair, it has never been closer and the stakes have never been higher. >> leadership matters. >> i think there are a lot of good names on the list. i don't think the president can make a bad choice. the political considerations may outweigh the current economic situation. a new administration often just wanted some people on board. is thisnteresting part discussion is coming when there is a so-called mystery about the low level of inflation. the interpretation is actually
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white important. >> i think they would view jay powell as someone likely to be more continuous with the policy of the last several years. not, we willy than have a very accomplished economist as the chair for the federal reserve for the foreseeable future. earlier today, white house spokesman sarah huckabee sanders says the president lands to announce his choice in the coming days. it is a decision that will likely jolt markets. toping us to debate the contenders, omair sharif. latest.art with the he is saying that he might bring john taylor and jay powell together as a team at the fed? is that something that would please markets? : i think so. you have continuity with jay powell, but you also have john
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taylor, someone who can shake things up, which conservatives want, especially in the house. i think this up eases everybody. the question is, if you bring in the chair and the vice chair, who gets the chairman job? will it be john taylor or jay powell? if you brings someone like powell in with taylor in the vice chair spot, and historically they have supported the chair. you could have powell talking about the rate path is correct, and john taylor saying, we should hike the rates much, much more. i think that could suggest questions about who we should be listening to? julia: is it the chair the person in charge? is, but it isir hard to find someone with greater academic chops and john taylor. more recently people have been
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saying, isn't this guy a little more dovish and we have been expecting. he was in boston last week. it he seemed open to the ideas that rates could be lower. if you go back a couple years, lester, he made the case that he does not think the neutral rate is too low, therefore it should be higher. julia: but do you think he went into that meeting with donald trump and mentioned any of this, donald trump would be, like, yeah, no. that: i think he would say we should be flexible, but the fed should have rules. i do not think he would insult to the president pro ability. i think he went in and said exactly what he felt was appropriate in terms of his views on the economy. scarlet: and because of the white house push for regulatory reform, there are concerns he might not uphold the federal
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independence. do you think this administration want someone who will uphold the fed's independence or pledge loyalty to the white house agenda? he thinks the rules-based approach makes the fed more independent. we have this rule. here is what we are doing. here is why we are doing it. even if you are cutting taxes, we are raising rates. rules say we should be. it gives him ammunition. he feels like having a rules-based policy would make the fed more independent rather than not. there is pushback from jay powell against the conservatives. he was appointed by barack obama. wasr: possibly, but he confirmed with 74 votes in the senate. there may be pushback, but if he pairs someone like jay powell with someone like john taylor, that makes things easier. julia: that gives you the chair-vice chair -- scarlet: that's a good point.
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you talk about how john taylor has the academic chops. how important is it to investors that the fed chief is a trained economist? has academic chops? it's relatively important. i think a lot of us just want someone extremely competent, not necessarily who will outline on the phillips curve all day long and right white papers. i think they want someone who understands all markets work, but has some understanding of the force of the economy and can debate these big issues. i believe one of your commentators mentioned earlier low inflation. what is happening? you need someone who understands how that process works as well, i think that is valuable. budgetthey passed three last night that opens the door to the negotiations process. what you thinking in terms of -- what you are promising in terms of tax reform in the coming quarters? we came in with 65%, 75%
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odds it would get done this year. i think that is where people think it is going to be. it certainly went down after health felt the summer. there are certainly hurdles. this is the easiest part of the job, passing the edge of resolution. you have majorities of both houses. this should be a piece of cake. now that they have done it, it opens the door. this is something paul ryan has been working on for most of his career. beenis something cohen has working on. they are not coming into this blind. the details will still be very difficult. but i think at least a have more consensus in the party on how to move forward. julia: yes, awesome. thank you for that, omair sharif . let's check on the headlines with mark crumpton. mark: julia, thank you. two more government workers have
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been confirmed possible victims of attacks in cuba. embassy workers and have an a and their families have been harmed by unexplained, mysterious incidents affecting their health. officials have not identified a weapon or a corporate. 24 people have been harmed, officials say, nearly half of the government workers stationed in cuba. british prime minister theresa may says there is still some way left to go on brexit talks. after little apparent progress at the european union summit heard speaking in brussels, she said that both sides were nearing an agreement on citizens' rights, but still have work to do. prime minister may: i am positive and optimistic about where we can get to with a future partnership with the european union, because it's not just in the interests of british people. it's in the interest to the people across the remaining members of the european union as well. mark: and european union
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partners agreed to begin discussing the joint position on future relations and trade so they can be ready when what they ism "sufficient progress" made before the next formal summit in december. damage from california wildfires is rising. officials say 7700 buildings have been destroyed by the blazes. the number has gone up as crews assessed the damage from the series of fires that broke out earlier this month. those lasers and have killed 42 people and caused -- those blazes have killed 42 people and cause more than $1 billion in damage. florida was hardest hit by hurricane irma. lost were ins restaurants, hotels, and construction. the labor department says hiring should ounce back in coming months. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries.
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i am mark crumpton. this is bloomberg. scarlet? much,t: thank you so mark. credit suisse on the receiving end of pressure from a capital investor. he will be joining us live from the robin hood investors conference. this is bloomberg. ♪
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scarlet: this is "bloomberg markets." i am scarlet fu. julia: i am julia chatterley. recentlyrudolf bohli called for a breakup of credit suisse.
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he has just announced he has been in talks with hundred -- 150 potential investors in his breakup push. our erik schatzker joins us with more from the robin hood investors conference. erik? erik: scarlet, thank you very much. bohli made his case today. he is here with me now. there is a reason they do not push for the breakup of banks. that is because the chances are somewhere between a long shot and a cap shoot your it is this , orng shot, a crapshoot something else? >> i think it is something else. it's very clear nowadays that wealth management and the investment bank, they should not be together. haro,as you know, david credit suisse largest shareholder has come out against
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your proposal. who is behind your proposal behind you? have you talked to the other credit suisse shareholders, including china's hna or saudi arabia's olein group? a little correction here. david came out against, and then he corrected himself. so, maybe he will appreciate now as more information is out. listen, i think now is prime time, so we want to engage with the large shareholders. the people we having gauged so far are predominantly new investors into credit suisse shares -- erik: these are the people from whom you think you can raise $1 billion? rudolf: exactly. erik: that would still give you 3% less of the shares
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outstanding. is that enough to wage a proxy battle if you have to? rudolf: this is not about a proxy battle. this is about convincing the majority of shareholders this is a great plan and giving the management the opportunity to discover this plan. it is a big planned. so, i think management probably is more willing to do something than the boards. usually the boards are a bit more conservative. but i think with the support of some significant shareholders, i think this could work. erik: what discussions have you had with the current ceo? rudolf: they were actually very friendly. he's a great guy. i think he is very smart. i think really, the good thing is he is neither an investment banker nor a private banker, so he does not have an attachment to either side, and i think he is going to choose the best solution for shareholders. erik: you believe he is going to
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go with what you propose? rudolf: ultimately, i believe so, definitely. does, in fact, what is the right place for him under your plan? of one of the three companies postbreakup? what does he do? rudolf: look, this is not about the people, right? it is about the plan we want to discuss. and i think the individual people who are best suited to do the jobs for these positions, i think that comes at a later stage. erik: what if he rejects your proposal? is there a place in one of these three companies for a ceo who does not support the activist plan? rudolf: we are a small shareholder, right? this is a great plan. now is the time to first have a discussion about the merits of the plan. i think the large shareholders will embrace it, and i think -- a deephe reason i take
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breath is because you identify structure as the problem here. you want to break up the company, unlock value, have each 's asose three units -- 2.0 you call it, the wealth management, the swiss bank, effectively double the current share price. but banks are about people, too. how can it only at the about structure -- only be about structure and not about management and not be about governance? rudolf: if you start with the structure first i think you get a little bit of the emotions out. i think if you immediately start talking about people, i think that starts to be a bigger problem, right? i think has to want to get the structure right. this is not about this is the chief executive or about the chairman. this is about the right solution for the shareholders and to create maximum value, and not
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like whether, you know, this is the right position for this guy or that guy. i think the company has been for too long a time just been talking about that, and that is not the issue, right? your point, it's not like credit suisse is not consider these options before. the ceo has been there for june after years, whereas the chairman of the board has been in place since 2011 and under his chairmanship, the value of has gone up by global bankand structures and aggregate is up by 20%. how can you have any confidence he will make the right decision given the past decisions he has made? rudolf: i think is a smart man and i think he has the opportunity to prove it now. erik: you don'trudolf: the board needs to be overhauled? rudolf: no. no.b: rudolf:
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erik: what i want to know is this. what will you ultimately be satisfied by? it is not an easy trade, if that is your question. we want to make a contribution here. i think it is a great plan if shareholders in aggregate and say, this is a stupid plan. fair enough -- erik: you will walk away? stage. of course at some we are a small shareholder. we don't have control of anything. if you waste people's time, that's also not the purpose. we think it is a great plan and it has a lot of merit. that it is up to decide ultimately. how are people to take you seriously and your level of commitment seriously if, as you
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just said, if the board and management rejected, you are prepared to walk away? why not fight to the finish? said iflook, i shareholders say no. we have not had that discussion yet. erik: can't that ultimately be -- erik: can't that ultimately be discussed in a proxy battle? rudolf: not necessarily. if a large number of the shareholders offer a different opinion and they want change at the board level, right, but that is not the case right now. erik: well, rudy, i would say this, it it is at least exciting you have proposed this breakup of credit suisse. i hope we have the chance to talk about this again. rudolf: thank you very much for having us. erik: looking forward to it. julia, that is rudolf bohli. the robin hood
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investors conference in downtown manhattan. julia: thank you very much, erik schatzker. it is time now for options insight. scarlet: it is. let's go to julie hyman. julie: joining me, kevin kelly from kelly & co.. great to see you. you are looking at the leadership in today's session. we were talking about this on-air as well, the financial and technology stocks. what kind of actions are you seeing behind that? kevin: it's interesting, going into technology earnings next week, you are seeing a lot of bullish action. you're seeing lots of calls two-putts in the technology section, the apples, microsofts, googles. it does not include amazon. julie: right, that's in retail. financials, everything is
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baked into the cake. those are the two largest sectors. those two really moved the market and you are seeing three to one. what is interesting though is the industrials. if you look at the xl i -- xli, you see everyone getting bearish, six and a half times the number of puts to calls. analystsls, there are who are extremely optimistic on industrials, except ge, but it's remarkable. you are seeing six and a half times question mark that is pretty telling. julie: and ge has actually turned around now. kevin: but not the financial performance. just be share price. let's clear that up. julie: yes. you are looking at jd.com. so you're looking at china, although obviously, it trades in the u.s. you are comparing j.d. with alibaba. kevin: what is interesting, they
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are the number two retailer over there, but they are more of the higher-end retailer. people will get the goods they know and trust. they also do very well on the logistics tied of their business. so, they can actually do what amazon can't, and they have the last mile segment down. that is really be play here. amazon wants to be the j.d. of which isd states, pretty interesting, given that online sales in china are already larger than the united states, but growing at double the rate, and they have a different type of delivery and logistic situation over there because everything is so close. so they do not have a hard time doing that. amazon has that over here. is thelook at amazon, jd play. all the way to january 2019, you can buy this, it is already in the money. you're getting a 30% upside, but you can make double what you pay
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for it, and that's $4.40. and that is the most you can lose, with the implied volatility of a stock like jd, this is a great, cheap way to play it. julie: that was a great sales pitch. back to you guys. julia: thank you, julie. the still to come, amazon is going shopping for its second home. the governor of illinois is joining us on "what'd you miss?" to tell us why he thinks the city has a good shot. this is bloomberg. ♪
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mark: i am mark crumpton. it's time for first word news. president trump says the united states has, in his words, but itdous attentional,"
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has not been used -- his words -- "as it should be." praised the leadership of the organization. mariana lowboy -- spain's prime is ready to crack down on catalonia. meanwhile, catalonia is looking at how they may stage declaration of independence from spain. ofqa has been declared free extremist elements. it is a major defeat for the islamic state, which captured raqqa in 2014, but has seen its terrace story -- its territory shrink since last year.

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