tv Bloomberg Daybreak Americas Bloomberg April 12, 2017 7:00am-10:01am EDT
president ump north korea must be solved by dialogue and not military confrontation. a showdown over syria. amid increasing tension, rex tillerson begins talks with his russian counterpart sergey lavrov. and investors want to wait for the french election. why a candidate is reaching the market. from new york city, good morning to our viewers worldwide. this is bloomberg daybreak. i am jonathan ferro alongside david westin and alix steel. as we counted on to a three-day weekend, we continue to do that. in the markets this morning, futures in the united states largely stable. down two points on the fed. muted price action friday, monday, tuesday, likewise today. looking at the fx market, stable on the euro-dollar. risen by that yen stretch and that bid we have seen the last couple of days. treasuries stable.
francine: safety in havens. the dollar-yen, 109.61. we are now rolling over just a bit. the vix still steady but over 15. that has be fixed -- the vix breaking the 15 level. gold softer after a big move yesterday. oil on the front, 5/10 of 1%. wrappedt is the markets up. coming up on the program, guests including the eu commissioner of the economic financial affairs. larry summers, the former u.s. secretary and a ceo. david: geopolitics continue to take center stage for business and markets today. secretary of state rex tillerson meeting with the foreign minister in moscow and saber rattling over north korea. we are joined now by our national security adviser. in new york, we have our chief washington correspondent kevin
cirilli. starting with nick, as i understand, the secretaries meeting with rex tillerson right now. what are we looking for? >> the u.s. has low expectations for these meetings what they are hoping for is for russia to say "we will think about it." the u.s. proposal is that washington wants moscow to reconsider its support of the syrian president bashar al-assad. there are some opening remarks this morning for both sides and things did not look very good in the diplomatic language. he said that "your position makes no sense." he said, you want better relations and now you have done this. they have a lot of work to do. >> we are hearing, don't back a sod anymore in syria. the russians have always been told, absolutely not. >> that is right. what you see is two sides having
different conversations. syria has been a russian ally since the late 1940's. the u.s. has taken this position for years. john kerry basically staked his entire credibility on the idea of the bargain with russia over syria. he never got that. rex tillerson appears to be doing the same. they are confident in their hard-line approach backed up by the threat of missile strikes. that can have an effect but it is anybody's guess right now. david: not to kevin cirilli on north korea. both kim jong-un coming out with a statement and then a conversation between presidentxi and president trump. who initiated that? >> he called president trump to discuss north korea which is a hefty threat regarding the potential for using nuclear weapons, should anything develop between the u.s. and north korea. obviously, there are questions about whether or not that could follow through but look.
everything happening in syria is clearly sending a signal to the chinese and to the north koreans that this administration is perhaps a bit more unpredictable. david: about foreign policy and economic issues, these things seem to be getting linked both between russia and possible sanctions issues but also here, with the president saying the , if you don't help us on north korea we might have trouble on trade. >> the not only the sanctions, but also the policy, particularly natural gas and oil. , in termsue of trade of everything that is going to be coming up with secretary ross -- sorry, secretary mnuchin in the next couple of weeks, again, these trade agreements are on a host of issues and whether or not they are going to be labeled a currency. a ton of developments. the governor just
confirmed that to the ambassador of china. david: thanks so much. thanks for your reporting. jon: running us now from london is then morris, senior investment strategist. pray to have you on the program. before the presidential election, i'm going to tell you the following things. be president, that will president trump and then around april 12, he will talk about sending our motto to north korea. >> these geopolitical risks are always a factor. beyond that, we have the sense that markets don't necessarily react over the long-term to them. they make this economic connection, the application on geopolitical tensions and we don't generally see that. it is more likely in the mid east. but like we have had so far, to be honest a years long
relationship, it shouldn't directly have an effect on the market. jon: it is blurring the lines between foreign policy and economic policy. that is enough of a key development to get into on that program. if the french stop toying with trade deals and associate them with addressing north korea, how do you see that? >> it is a new way of approaching that. we have questions about how exactly trump is going to address the concerns. and what we have seen subsequently, we know trade is an important issue to them. also, for example, discussions we had about dealing with mexico. what we have seen subsequently is less than the rhetoric suggested. on the one hand it seems like tensions have lowered. a be an attempt to deal with this within the framework of the deputy negotiations we have already had, but if on the other hand as you suggest, you start to put in foreign policy, it is unclear what the implications are.
>> we heard from russia they just want to know what foreign policy is here in the u.s. markets over the the last six months has been domestic policy, tax reform, stimulus, infrastructure. focus on foreign policy. is that bullish or bearish for the markets? >> the markets are going to want to see some more on the domestic policy front. that is in the rally on the s&p 500. we are it feels like taking a little bit of a pause. they are willing to give the republican party a bit of time to come up with a better plan. something that is maybe a little bit more thought out. when it comes up to the congress. there is a question of how long that patients will last. that isget into 2018, probably when they want the markets to sustain what they have. republicans are going to be successful, proof that it is
coming. >> when i complain about the vix below the 15, what kind of opportunities do you see in the last 24 hours in markets. >> it was too low, it was obviously too low. whether that necessarily is suggestive of complaints about the risks ahead, i don't necessarily think so. investors are aware of what could happen. we haven't seen much volatility and nothing is really reflecting that. on the one hand we had an opportunity, we were worried about the markets to buy some protection and a cheaper price but now that it has moved in europe as well,and in the french elections, that opportunity may be passed but that opportunity will represent itself. >> currently, treasuries, dollar-yen with a 109 -- with the 109, basic trades risking a
little bit, and how much of that is driven by the two political couple ofn the last weeks? couple of weeks -- >> if we had success in health care reform for the republicans, and you had at the same time as these now, it might not have mattered because we had been more optimistic on the u.s. that on the one hand, a little bit more cautious and skeptical about republicans and what they will be able to do. now you have this increased geopolitical concern, which i agree is pushing down treasuries. also potentially s&p. from here it is the question of, do you come up with your list of potential positive catalysts or potential negatives? right now, you have a few more things on the negative camp. for the time being we would treasury yields. we don't see them backing up in the near term. if we get through the next month
or so, we also start to see some are movement -- some more movement on the republican front. >> try to be more concrete than the situation warrants. when you said was markets will be nervous in 2018 instead of 17. withhappens to coincide what gary cohn and steve schwarzman talking about. are they really saying we got to get it done by the end of the calendar year? done,t exactly has to be i think on one hand we need to look at tax reform from what can actually change in the tax code and what markets are going to be looking at. how much stimulus really will there be? is infrastructure spending net reductions? obviously the related is going to comeat the same time but they are actually two separate things. they have different implications. see that itts
doesn't take place until 2015, -- 2018, but there is no movement sooner that is the decision we are trying to make. how far in the future will the markets look? in terms of progress that could be sufficient. alix: you are sticking with us. the eu commissioner for economic and financial affairs will be joining us from brussels. later, larry summers, former u.s. treasury secretary will be joining us. all live out of the sea this morning and president trump response to north korea and russia. from new york and washington, this is bloomberg.
ceo jeff staley. the u.s. justice department has joined british regulators investigating him for repeatedly trying to reach out to whistle blowers. they have recommended -- recommended him -- reprimanded him. of mercedes-benz, mercedes earnings were up from a year ago. there are rising demands for the e class sedan. that is three times the growth rate of her cities rivaling the luxury market. the ceo of united airlines is pledging to review the company policy after a passenger was dragged off a flight in chicago. the federal department of transportation has begun its own review as the senate commerce committee told united. that is your bloomberg business flash.
i am emma chandra. this is >> bloomberg. over the last few days, the movement has been about gold. look at bloomberg here. level, stilhat with us is dan morris, part of the see -- the senior invest in strategists. do you buy it? >> we probably wouldn't be that bullish at this point. certainly we do have to get through the french elections before you see a real reduction. but it is a fairly natural reaction. medium-term, it doesn't necessarily look all that positive. on one end we anticipate rates going up in the u.s. it is increasing for gold. secondarily, it is not that we see significant inflationary pressures globally, but we are strong in gold. in the medium-term, it is not all that attractive.
alix: what is the risk premium? >> i am not sure if i have the exact number in mind. we are just going to see how the polls evolve. we are looking at political risk, whether we see an increase or decrease around north korea. the marginal change is really going to drive it. lex another strange thing has been oil. butntories are drying still, wti is at $50 a barrel. does that anticipate over the next hours? why is that? >> how markets evolved since trump's election is the correlation. whether they are going to reassert themselves is a question we are asking. one we had previously between inflation expectations and oil at the same time with growth expectations. i think there is really a change in how investors are perceiving the market. they see it as a positive or negative impact.
particular,oil in the rally on the one hand is certainly supported by the reduction in production from opec. shale production in the u.s. is going to increase. it is a bit of a battle on the supply side. increasing production from the u.s.. we are real getting a trier here inhe dolla if you sewe strengthen the dollar, that is probably the biggest threat for oil prices. jon: let me from the question another way. treasury at 229. the yen at 109 against the dollar. which one is sure? >> i think treasuries are probably in the medium-term most at risk. even though we had a bit of a disappointment, you still got to believe that they are going to continue to address their agenda for the most part. circumstances, they are probably positive for
inflation. you see that coming back, so unless you have the entire agenda off the table, where you actually see treasury yields going back to where they were before the election, if that is not the case, consequently it is just a bit of a disappointment. but the check is still there. i see treasury yields going back up. david: did morris will be staying with us. coming up, the eu commissioner for economic and financial affairs will join us from brussels. later, larry summers, the former u.s. treasury secretary will join us to talk about the economy, china and more. this is bloomberg. ♪
the most well-known commissioners in charge of the one thing that investors and markets are most worried about. he is in charge of economic and financial and taxation affairs. thank you commissioner. as always, thank you for giving your time to bloomberg. how will brexit go? are we going to see an eu that wants payback from the u.k.? who has more to lose? >> let'not jump tthe conclusion because what will happen next is there will be a european council in brussels and then the recommendations, then the negotiation. with the spirit to find a deal no deali think that would be bad for both parts. u.k. will remain a european country even if it is not a eu member.
the aim is not to punish the u.k. but still, when you are a member of the club, it is tough to be out. it is clear that the situation after brexit will be worse for the u.k. or not as good as it is today or was before. >> give me a blueprint. i don't want to jump to conclusions, but let's say there is no deal. what industries will suffer the most because of this? >> frankly i refuse to speak first ifdeal, because you start talking let your plan b it means you don't believe in your plan a. and third, because i'm convinced that we can make it. if we negotiate on principles, what are the principles in ever but his interest? the freedom citizens, the movement, there are 4 million
people from the eu working in the u.k. london is among the 10th biggest , so there is the financial aspect we will discuss and then we will be able to discuss the future of our relationship. it appears to be very close. we will have a trade deal on therves, in japan, and fight against climate change. i would say it is not that i am optimistic -- >> you are optimistic. just reassure me is there a plan b in case the plan doesn't work? >> if there would be such a situation we would have a plan to think about. but really, here, everybody is mobilized. the negotiation will be frank and difficult at times, obviously. it is complicated.
we have so many linked together in some the interests there. everything is mobilized to succeed. everything is a clean brexit and we want a strong relationship. >> have you had reassurances that they would not lower taxes to actually a -- a tech investments? >> the insurances -- the assurances i have is that the haven,n't act as a tax given that they want to expect that respect the global .tandards, act in the g-20 i am confident in that. another issue is to be competitive on tax rates. it is possible inside the eu. we have one country that is competitive and it is ireland. if the u.k. wants to diminish that it can. to problem is that you need test it costs a lot of money.
i think that is not preferable. i think we should be in a cooperative move but that is not the point. together in the framework of the fight against tax evasion, it is very important for us but it is also important for the u.k. so, to be ato do prominent member of the g-20 and to be attached. >> for talking let the french elections, how much the you worry about those? >> as a frenchman, when i see the rates of madame le pen, the weight of these anti-european speeches, but at the same time i am not. will be 50% of the people in my home country who would be crazy enough to vote for the f rexit. the french are attached to 72%
of the euro. this is madame le pen's project. afraid that it would mean there is a depression in france. we need to deal with that. i am convinced she won't be president. >> what happens if she runs against the far left candidate? you mentioned being behind him. >> i don't think this would happen. on comment.only be we must be in action. i hope there will be another candidate against madame le pen or that there will be two. what i know is that 70% of the people are pro-europe. .ith very different views i am mainstream, some are more committed, uncommitted, but others are less committed or less mainstream.
that is the way the french people are. >> so you were a politician for how many years? >> decades. 20 years ago. >> what changed? politicians need to talk in a different way? the center has to think about what they need to do next to focus their attention. >> i think it can be explained mostly by the fact that asbalization is seen by some a chance for them and buy some others as a threat or a problem. there are too many people in our countries that feel themselves as losers from globalization and our policies need to address at this is why a mention first protection. we need the policy that protects the people. but also social security, economic security. second, we need new forms of democracy, we need to democratize europe.
here we are in this wonderful place but i feel that people see me as somebody distant. >> reform? controle must take back on the institutions. that is what they expressed. third, we would need to remember that economic policy has low growth with a strong recovery now. but i am quite confident with the eurozone, all countries now are growing. 1.7.hat is only by 1.5%, that is not enough to stay in the lead. that is not enough to reduce unemployment. that is not enough to reduce the equation. i think we need a deeper economic and monetary union. >> two questions. first on greece. will the imf the part of the
program? with madame lagarde. i am convinced they are now on board. we found a deal which i think is good for greece, good for the euro. we need the imf for that. >> as you look at the region, do you worry about brings it, greece, france? >> i am optimistic about europe. that we watchntry closely. i were constantly with the italian government that i am confident that they will make the necessary efforts to have better public finances and also to strengthen their banking sector. the commission is working under very constructive relationships withhe italian government. is very important. >> you started by saying we're
not optimistic. >> optimism on the will. not optimism of, i don't know what, kind of feeling based on facts. >> i like that. thank you so much. good to see you. the eu commissioner for monetary and financial affairs. jon: you can -- thank you very much. markets, cross assets starting with features in the stock market. some really muted price action. downone tense, up 1/10, 1/10. this morning, futures down 1/10 on the s&p. switch up the board. the treasury markets, lower yesterday. on the 10 year, we settle at 2:30 in today's session. in today's market, the dollar weakness joined by the yen strength. no price action to be seen really. the table 1.25. the euro just creeping low.
now senior investment strategist, still with us in london. dan, i want to propose an idea that you wake up on april 24 and you got a far left candidate in the second round in jean-luc melenchon and a far right candidate in marine le pen. what do you do with your portfolio when you see that? i think this comes down to basic principles of diversification. at that point, there will be significant uncertainty about what the applications are for the french economy and europe as a whole. did have, that you parliamentary elections following the presidential how tons, determining implement these policies. i think diversification at that point will be the key. on one hand there is going to be the uncertainty about the outlook in france but we have fundamental economic growth locally which is still good. we can forget the numbers we have in europe couple of weeks ago. the u.s. outlook is still actually good. china is doing better. there are alwaysgoing to be pockets of uncertainty but if
you look at the broader scheme of things it actually is more positive than negative. who is the most risk friendly candidate? understanding, economic policies are not as dissimilar as you might think. remember theve to fourth's -- the fourth of parliament in all of this. just like how the u.s. has to be passed by the congress. in france, the president will have his or her own program supported by the parliament. more than anything, you're going to see uncertainty as opposed to the market taking a view on, this is going to be a policy that they implemented. i think it will be far too soon. going into that, we're seeing the selling in the periphery. the french coming under a lot of pressure with the exception of today. the euro one-month ball versus
one-week ball is very high. . if we do get that outcome, le pen and macron for the second round, what unwinds that? france, youthin would expect to see it tightening in france because the concern right now is as much as anything else, the fact that most of the landscape for their. the idea we have for future fans policies is it is going to be different from what we have seen in the past. candidateswinning could be from one of the main traditional parties in france. that is something the markets will have to deal with. something where at least generally speaking policies or more in line with what you have seen recently in the risk of moves that we have had. up moves we have had. theier, we caught up with imf managing director christine lagarde and she sounded more optimistic about economic growth. >> protectionism is a threat.
aliz, it to be would really be a break on growth. it would be a break on productivity. it would be a break on investment. we are seeing that both innovation and trade are conducive to productivity, and productivity is the engine for growth and better allocation of resources. , clearly, the risks protectionism is one. the political uncertainty that we see around the world, particularly in the european region, is also high on our agenda. the potential for capital flows moving from emerging market economies as a result of the reinforcement of the dollar, and a rise of interest rates in the third one, those are the risks
that apply to a situation which is quite positive at the moment. believe the trumpet ministration to be less protectionist than we feared just at the beginning of january? think thati don't any economy would actually prescribe limited growth, limited productivity, limited investment, limited innovation. if they want that are growth, more investment, more innovation and productivity , trade is part of the solution. then you go into the question of what kind of trade. is it trade with restrictions? is it trade with assorted measures? i think everybody i hope would agree that we do not want distortion. we do not want friction.
, thatt trade that is open is fair and inclusive in order to facilitate opportunities. that was christine lagarde speaking with francine lacqua. now, senior investment strategist over there joins us now. when the imf peaks, does dan morris listen that much? certainly to do. research in lot of the economy is behind that. we evaluate what we think the opportunities are. we think what that might suggest for us. of christinenews lagarde come out for protection? is she a global free trader? situation, at the the risk you see is a possible trade war. it has gone down since the election. we are concerned about that but
now, she seems to be doing ok. they have sort of slow things down. are you less concerned about this issue than you were? >> absolutely. it is important to keep in mind, even with that, with the republicans health care legislation, when you go back to from selection at one hand, you look at the republican agenda the markets see that as progrowth. then you have a rally in the s&p 500. we are worried about potential trade restrictions. it is interesting. we have had some disappointment on both sides. far asve not gotten as they would've liked at this point. but on the other hand, you are probably less concerned about trade. -- you seem to have a more cordial relationship, so i don't think we want to minimize the risk. at the same time the ministration is looking into the
trade relationships. those relationships are fair, we need to find it. we are concerned about what might be limited in the future. it might be a little more modest in terms of rhetoric than we might have anticipated. >> there is a question about whether this is a shift in policy. or maybe it is just they don't have everybody in place yet. i don't have their full trade team there. pr navarro has a substantial again. >> it is possible but when you see the discussion about the relationships the u.s. has with its trading partners, one of the worst that comes up a lot is fair. that can mean market access and really the authorities say the trumpet ministration is going to increase market assess -- market access. arguably it is a positive. they are putting up barriers to imports to the u.s. would you would assume his negatives. there is a lot of different interpretations. we really just have to wait and see how the administration actually interprets them.
>> with a reflation trade we have been betting on over the past few months, you can blame a lot of the market action recently on safe havens but if you look at the 10 year breaking even under 2%, you have china's pci becoming a little bit softer month on month and then you have christine lagarde saying it is springtime for growth. is the reflation trade really stalling out. what is going to boost it again? one thing people have not anticipated quite as much as they should have is what is going on with oil. we have the comparisons, compared to the oil last year, we are going to be looking around the time and you see inflation figures in the u.s. and germany. higher inflation rates. that sets into the inflation spectrum we have had recently. the markets really should have seen those effects coming. you have seens, the markets somewhat surprised by this. on one hand it is partly what has been happening with oil now that we have had recovery.
that will come back. partly what we have is how much growth are we going to see out of the u.s.? what does that mean for the fed? how much do they raise interest rates? jon: dan morris, invest strategist, thank you very much. headlines outside the business world, here is emma chandra. >> if get you caught up with first word news. tillerson got a chilly reception today. russia's foreign minister sergey >> three explosions went off
near a bus carrying one of the country's top soccer teams. authorities are not saying what is in the letter. one player was injured. the scheduled champion quarterfinal match was delayed until tonight. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. david: thank you, emma. coming up, larry summers, former u.s. treasury secretary will be here with us and later we will talk with mark fields. ford motor president and ceo. he will be coming with us to the new york auto show in new york. this is bloomberg. ♪
>> this is bloomberg daybreak. this is the hewlett-packard enterprise greenroom. in the next hour and interview with larry summers. former u.s. treasury secretary. alix: this is bloomberg daybreak. i am alix. looking at emerging-market stability. it is there despite the turn we saw in the last 24 hours. the volatility index at jpmorgan. it moved up a little bit but it is well off the level we saw just in the beginning of the year. still with us, dan morris, senior investment strategist. what do you think of the stability despite the fact that we have had two rate hikes and that safety? >> it hasn't been a bit interesting. if you thought about former
markets following trump selection and the reflation trade, higher on the dollar, generally speaking, conditions for emerging markets, the less emerging markets have assets presently well. one asset is the dollar, given a big appreciation prior to the election, 6% relative to the jpmorgan emerging markets index, they priced in. not that much more there. on the other hand you do have markets seeking more stability in emerging markets than you might have anticipated. china doing better than expected. confidence in the emerging market outlook despite what happened to be conditions that could have been negative. alix: i want to drill down to that inflation data. year on year, week or month on month. we did have consumer prices which means at that event was weaker, we are going to see weaker corporate profits in chin what is the effect on the region. >> we talked about china before.
exporting the inflation, that was a big concern during the crisis. we never got to a point where china was exporting inflation. so i think the outlook for china, really the key issue is the credit growth. it is something we have been talking about for a long time. even though growth seems to be better in china than expected, that is ultimately not sustainable. i think at least ahead of the congress in november, you're going to see the chinese government, to win over the stability, it is a question of what comes after that. >> is that what the trade really is? is it the u.s. reflation story? >> i don't know if it is that clear-cut. if you do see an inflation story play out, generally speaking it is going to be better for say latin america. if it is less in the commodities, it is better for asia. hopefully, not contradictory trade. we will hopefully see better
growth within asia, better intra-asian trade. even at the same time we see things improving in the u.s. and europe. >> what is the east asian trade story? with tpp in the united states, is china expecting the day in asia? >> it is interesting to see china promoting itself as a real defender of free trade. it seems to be an opportunity for them to reorient trade around china. they are taking advantage of that. i think you also may see an increase in trade between nature and europe. but overall, if we get more trade that should be good for the world. that will benefit europe. there may be quibbles about the orientation, between countries within regiol bls or trade agreements bugenerally speaking more trade is going to be better.
fundamentally, it is going to promote growth. which is better than it was a few years ago. alix: when i talked to a lot of people investing in emerging markets it is all about latin america. in asia it is all about brazil, argentina and central america and mexico. do you make that distinction as well? >> i guess it comes back to the point of emerging markets, where we have this extremely diverse universe. with latin america, several different stories, different factors, different outlooks, differences between the region. it is important to differentiate. that is why we go back to actively managed funds because we need to get to emerging markets because of the opportunity to avoid the risks. alix: thank you very much. and now i want to go to emma chandra with your bloomberg business flash. taking another step in its challenge to amazon. the world's largest will take count of online owned items if customers pick him up at stores.
walmart says customers should share in those savings. influential investors are pushing tesla to add two more directors who don't have ties to ceo elon musk. it is a sign that questions about his corporate governance remain. five of his board members have personal or professional links to him. the daily mail has retracted the story about money up front and agreed to settle two more. the story in the british newspaper question her work as a model, claiming she provided services beyond simply modeling. the first lady says it caused tremendous damage to her reputation. they will pay damages and legal costs. this is bloomberg. alix: if you have a bloomberg terminal, check out tv . click on our charts and graphics and interact directly. if you missed any of the interview with francine lacqua, you can go to it and check it
>> this is bloomberg. i am david westin. yesterday i got to speak with blackstone group chairman and ceo, cofounder stephen schwarzman about his expectation on tax reform from the company administration. and the president's recent meetings with china's president she. here is what he had to say. >> i am not sure about that because it is very complicated. if the numbers were easy, somebody would have printed it and sent it to you. but to a compass something in that area, there has to be something taken away. for other people to have the revenue to finance the tax cuts. there are a lot of different ideas, a lot of different people on capitol hill as well as in the white house. they are all thinking about what the trade-offs are.
so i expected much more approache, logical than trying to pass health care in 17 days. david: so you have spent time with the president more than once. the you come away with this meeting with a sense of optimism? we talked to gary cohn and he said at the end of the calendar year, maybe not august, we could get tax reform. do you have optimism that we could have something through congress? >> you will probably have something. knowingst a handicap of how comprehensive and aggressive that would be as opposed to just a tax cut. so we will see when we see. david: so one of the things you know a lot about and you care about is china. you have the schwartz and scholars. you have that invested in china. did you come away with a sense
of how things went with .resident xi saturday is the deadline for the possible the nominating of china as a currency manipulator. the you have a sense of that? >> i would doubt that that would happen. i think the meetings in florida at mar-a-lago were good meetings . i was there r some of it. president -- president xi and president trump established a good relationship and that is important because a lot of issues need to be decided. by both parties. i think the chinese have a perspective on this that they are aware that this is important. it is important to the united states. there are other important things like north korea and two countries are inextricably bound. we have to come to good
outcomes. to do that, we need to have tiebreakers in each of the two countries. that is delegated to the president of those countries. despite whatever system gets used to get to the final set of trade. if the two individuals have a sense of trust and understanding each other better the chinese system -- that is very important. in our system, as we have learned, it is also important. david: that was like stone group's chairman, ceo and cofounder stephen schwarzman. the white house is really managing expectations now. we have gone from big, bold fast. we don't want to make a same mistake we made with health care. jon: speak to the investor, most of them will say that the important composition of this package is when they get done in august.
that is not what matters. to achieve the essential composition they want to achieve they got to get health care done. that is going to be the big issue. alix: in terms of actual numbers, when you talk to investor participants and private equity, big names like roger altman, they don't say it is the number that matters. 28-15% corporate tax rate, it doesn't matter. what matters is they get it done. david: also they want some fundamental reform. jon: tax cuts the easy stuff, reform is that is where it gets difficult. up next is larry summers, the former u.s. treasury secretary. right here in new york. you are watching bloomberg. ♪
president trump north korea must be solved by dialogue. geopolitical risk puts the bid under haven assets. a showdown over syria. secretary tillerson begins talks with his russian counterpart. the analysts keep saying bye, bye, bye europe. from new york city, good morning. good morning. a warm welcome to "bloomberg dareak." i'm jonathan ferro alongside david westin and alix stee the price action rather neutral on global equities. 0.1% here, there, everywhere. the dollar flat against the euro. treasuries, big bid yesterday. yields have been the lower end of the range for 2017. alix: it was a safety move over the last 24 hours now taking a break. dollar-yen now inching a little bit higher.
it was a deep move to the downside. the vix solidly over 15. we spent a couple days below the 15 level. gold flat after a big safe haven bid. zero point 4%, the longest winning streak since december. david: on a day when we are looking at north korea, russia, syria, we have someone with us who has seen his share of geopolitical tension, larry summers. he served as secretary of the treasury under president bill clinton, president of harvard university, and continues there as a professor. larry: good to be with you. david: we saw overnight this telephone exchange initiated by president xi about north korea with president trump. apparently, according to reports, president trump said, you know what, if you don't help us on north korea, we may be tougher with you on trade. there is a linkage between foreign policy, geopolitics, and
economic policy that strikes me as somewhat unusual. what is your experience with that linkage? what are the opportunities? and dangers -- what are the opportunities and dangers? larry: i think it is unusual. we will only know with the passage of time what its wisdom is. i tend to be nervous when people start conflating a major nuclear proliferation issue and a bid of commercial action. i'm not sure of the wisdom of threatening china on trade and i'm not sure that the threatening china on trade is likely to be terribly availing with regard to north korean policy. we saw a version of this movie before. the president-elect put up for grabs the one china policy in an attempt to get leverage on trade.
and he just ended up having to back off that move completely. i'm not sure we have enough degrees of freedom on north korea that we can link that to steel exports or something. so, i'm surprised by that development. i think we are going to have to be very careful in managing the north korean situation. , i'm note major risks a geopolitical expert, but one of the major risks is that you precipitate an uncontrolled collapse in north korea and while some might regard that is victory, others would regard esat as a major loose nuk problem. the challenge of managing north korea is a very, very complex one. i'm not sure that president xi,
a few months before his party congress, is likely to be responsive to anything that has the character of a suggestion that he is being publicly thered by threats from united states. so, i was surprised by, in particular, the explicit public character of the linkage. but, you know, david, i think it is important in these things to be fair and one of the things i learned when i was in government was that there were things we knew that people did not see on the outside that we could not share and that led them to be very critical of what we were doing in ways they would not have been if they had been seeing the same information we are seeing. so, i want to be very careful to say that while i did find it surprising, i do think north
korea is risky enough on its own without linkage -- i do think trying to create the appearance of public linkage is particularly problematic in terms of creating a dynamic where president xi can move without family -- can move. without familiarity what is going on on the inside, it is difficult to judge negotiating tactics. david: one problem is that it just might not work. ofm president xi's point view, these are very different issues and the north korean issue could frankly be existential. it may not be for us. what could mean for our economic policy? we have the largest and second largest economies in the world trying to get along in the world having enough difficulty without the geopolitics. larry: i think we've got to get some perspective here. american economic growth has disappointed.
it is disappointing, it is important that we accelerate growth and that we make its benefits more equally. that is not dominantly about policies involving trade with china. there are a set of manufactured products that china exports to us. if those products were not coming from china, they would not be made in ohio, they would be coming from the vietnams for the indonesias or the thailands or other countries. there are a set of corporate interests that u.s. companies have in china. some of them are about the ,bility to produce in china what the president refers to as and get treated more fairly. if we got the corporations what they wanted, they might outsource more, not less, to china. so the suggestion that the president makes and that frankly
secretary ross makes with huge frequency, that there is some kind of low hangg frt in improving u.s. economic performance from some kind of stronger trade diplomacy with china, seems to me very misguided. we had an experiment of that kind during the obama administration. motivated by these kinds of concerns, we slapped some sort of duty on tariffs coming from china. on the optimistic calculations, we saved 1000 jobs at a cost of consumers of $1 million per job and when you recognize what actually happened in terms of displacement to indonesia and the like, we did not even save that many jobs. so, i think we have to be careful. i guess what i'm worried about is the president has blustered on one china, he backed off.
the president said extremely strong things, dozens of times, about currency manipulation. it looks like they are going to back off. so, i wonder whether this talk of north korea trade linkage is going to be real or is another bluster.it of and i think when great powers , they areout things not in a position to follow through on, they make a mistake. that was the challenge with the obama redline statement on syria, that it was a statement made by a president weather was not follow through. i don't think we should necessarily follow through, but i think you have to be very careful in calibrating your
statements. i was surprised by what i heard. in essence,ou said, growth is the issue, u.s. domestic growth and it is disappointing. larry: inclusive growth. david: is disappointing. the president has set out as his goal greater growth. no question about that. what would be satisfactory growth in your view for this economy? we have a number of people now saying the growth is not great, but pretty good, it is 2%, and that is not very disappointing. what disappoints you about the growth level? larry: 2% growth with the existing trends is not enough to produce much at all. for middle income households. what disappoints me is its lopsided nature toward the high-end and we are seeing the slowest productivity growth we have seen in a long time and we are seeing large numbers of
people, particularly lower skilled workers, who are giving up on the search for work. that at at imagine time of low wages for less skilled workers, a time of still extraordinarily low interest rates is a time when we should continue to have so low and infrastructure rate. i'm disappointed that, so far, the administration seems to have attempting to take health insurance away from 20 million people with repeal of health care and attempting to channel tax cuts to those with very high incomes through tax onorm ahead of a major push public infrastructure investment, which i think could make a meaningful contribution in two senses.
i think it could accelerate growth in the short-term, medium-term. it takes the burden off our children. deferred maintenance is just as surely a burden on the next generation as debt. there is just one difference. our debts compound and our ,nnual average borrowing rate which is like 1%, and are deferred maintenance liabilities cumulate at a rate of 7%, 10%, something like that. liability for this inordinate deferred maintenance liability we are building up on our bridges, our water that has lead in it, our inadequate cell phone infrastructure, and the like, i think we would be setting the stage for more prosperity in the future. alix: so, that is still and if. in the meantime, you are looking at the 10-year in 2.29%. is that fair value? larry: look, that is for every
investor to judge for themselves. alix: which they do. the overwhelming idea is that short bonds have been the way to go and that has been the pain trade. based on your outlook, is this fair? larry: i'm not going to make a near-term prediction on the 10-year. as i've been saying for several years now, there are some very fundamental features of our economy, rising inequality means more saving, a higher saving , morely coming from asia corporate profits, which means more corporate saving, capital goods like our computers, cell phones becoming much cheaper that lead to more savings, less investment. that means normal interest rates are going to be much lower than we have been used to. while that has been taken on board to some degree, i still think there are many people who think in terms of the old financial world and that we are
going to return to that. maybe it will happen us some point, but i think it is a long way off and that has got implications for how much the federal government should borrow and it also has implications for investors. we are not going to see numeral 8% returns pensions are used to. jonathan: you spend a lot of time talking to investors and when they make the case for bonds and the talk about the reflation trade, do you see them consistently underestimating the structural forces that have driven much of the 30-year bull market we have seen in bonds? larry: i think there is a substantial risk that that will be the case. certainly, that has been the direction of error for a very long time now. obviously, at some point, it will turn out to be wrong. but i think it is a risky world and i think the normal, i think
people have an idea that if we just get back to normal somehow we are going to see a 4% 10-year. i think that is a misunderstanding of the way the world appears today. jonathan: what kind of initiatives would you need to see from d.c. to get us back to "normal"? larry: i'm not sure we are going on real gdpr-handle growth anytime in the near future. need more harde infrastructure, physical infrastructure, and infrastructure repair. we need more soft infrastructure at a time of unprecedented possibility in science. why should we be imposing the most akoni and cuts in science cuts in science budgets that anybody has ever seen? it is crazy. first investigators in the biomedical sciences are getting their grants when they are in their mid-40's. jim watson discovered the
sequence of dna when he was in his 20's. we don't have resources for the most brilliant investigators at the most creative stages of their lives because of the way things are working. look, we need to cut through a traditional education debate. progressives are right about the need for more resources. conservatives are right about the need for much more accountability. both of thosee things. there is no reason why we need to be fatalistic. secular stagnation is not something that is inevitable. addressed by policy, but if we attemp policy that is directed at peripheral issues and we don't succeed in getting that policy, we are not going to
still with us is the former secretary of the treasury, larry summers. there have been a lot of fiscal stimulus proposals coming out of the white house. they have had a little trouble getting it through. the markets reacted on the election of donald trump very strongly to these promises. did they overreact? at one point, you said it was a sugar high. are they still on the sugar high? contrary to what you sometimes read in the media, it is not all about donald trump. there is a data flow from the actual economy. the data flow from europe, where significant parts of europe have picked up and that is what well. markets as so, i understand why there is a little more encouragement about the economy. in the sure i see what economy would justify a market move of the magnitude we have .een in the last months so, it would not surprise me if people look back and see that
there was a bit of a sugar high we are of the valuations seeing. callinmarket@ tops is impossible. to say there may be a sugar high element is not to deny the that the sugar high could get somewhat higher. so, i don't want to be heard as giving people near-term investment advice, but i think look at be hard to things and not be a little struck by the magnitude of the move. and i think a certain amount of apprehensive this, given all the various politics in europe, what is happening in asia, uncertainty about the capacity of those governments to move
legislation, there seems to be probably more room for downside surprises at this point then there is room for upside surprises. david: there have certainly been some downside surprises for the president when it comes to congress, but deregulation is something we hear about from business leaders and financial leaders, particularly in the financial institutions area. we hear that they really want to come back desk cutbacks is digitally on dodd-frank. they say maybe glass-steagall will come back. that set ofthink of proposals being developed in terms of what they would do for growth in the united states? larry: glass-steagall was a 2500-page piece of legislation developed in the year in the midst of a major crisis. dodd-frank. excuse me. it is inconceivable that there should not be changes made to dodd-frank. it is surely much too burdensome
on a set of community banks and smaller banks. there are other provisions that are probably having some perverse effects. i'm worried about what has happened to liquidity in t bond market as a consequence of some of the changes that are contained therein. hopefully, we can go about it in a rational, thoughtful kind of way. it was only a few years before the financial crisis that you had an in ministration that was doing -- an administration that was doing photo ops were they would take books of regulations and they would take saws and all the major officials would be pictured taking saws to the books. that seems to be very much the wrong philosophy toward financial regulation. it is kind of a mindless deregulate for the sake of deregulate philosophy and, in
some of the statements i hear from the administration and from some of its supporters, i worry we might go back to that and that would be a grave mistake. the glass-steagall thing is kind of a wildcard. i don't really see where that is coming from. glass-steagall had been agoctively repealed decades . brothers and salomon were combined before there was glass-steagall repeal. jpmorgan was underwriting trading, doing everything that investment banks do before there was repeal. if you look at most of the institutions contained in the crisis, lehman brothers, bear bank,s, pure investment fannie and freddie, neither , and nor investment banks
so forth, it is pretty hard to see glass-steagall as having much to do with the financial crisis. so, i don't know quite where -- i understand the impulse to substantially hire capital, to liquidity requirements, i even understand though i don't support the impulse to much more rapid, stronger size limitations on institutions. but where the impulse to glass-steagall is coming from, except for some kind of desire to protect the investment banks from competition from some of the people who were also in commercial banking, i don't really see what that argument is. jonathan: on the regulatory burden, we had jamie dimon sitting to the left of me, he would say it holds the investing, new cast yana --where
is larry summers on that debate right now? larry: people think there is overwhelming evidence that creditworthy borrowers are get credit, so i don't see -- i think if you look at the surveys of why small businesses are not expanding, the lack of access to credit is not high up among them, but i think jamie has a point that some of these restrictions are imposed one after another without thinking about what their cumulative impact is. so, i think we need to move debate, moreoolish regulation bad, more regulation good, to move to the significant content of regulation and if we can do that, we can find our way through.
there is not so much of that in the rhetoric. it is a little painting with a very broad brush and i think that is unfortunate. maybe when we see a regulatory blueprint, it will get better. anathan: four take a book to -- or take a saw to a book. [laughter] larry: that seems to be a misguided approach during the bu administration and i don't see that repudiated. david: an unfortunate photo op. larry summers, think you very much. jonathan: i want to get larry back in the treasury with a sword. [laughter] jonathan: you are watching bloomberg. ♪
global equities, it has been a market going nowhere anytime fast. inis like watching paint dry the run-up up to easter. futures go nowhere. we are down about 0.1% on the s&p. treasuries much firmer yesterday, yields much lower. we tested the end of the range for 2017. we just dropped below the 1.06 handle on euro-dollar. one place they are not watching the paint dry is moscow. secretary of state tillerson is meeting with his counterpart in moscow to talk about syria. president trump was on the phone with president x of cna to talk about north korea. we are traveling -- talking to nick watt. what do we know about what is happening right now with the talks? where do they stand between the russian foreign minister and rex tillerson?
what do we expect to come out of this? halfway through a working lunch and then they are going to do a question and answer session with reporters a bit later today. what we are seeing is the u.s. presenting rusher with a choice. either join the full with the rest of the international community and try to usher syria's president for the exit or continue to align itself with syria and iran and back that regime. russia is really pushing back saying, listen, you just launched a cruise missile strike against a sovereign state, so it is two adversaries having fun delete -- fundamentally difficult conversations. tough to see how this resolves well before rex tillerson heads back to the u.s. tomorrow. david: is it all stick or some carrot? could we sweeten the deal by backing off?
that the trump administration's linking foreign policy increasingly to economic policy. nick: they are doing that. in this case, the administration in aalked -- boxed itself little bit. rex tillerson said to nato that we see no reason to lift sanctions against russia regarding ukraine. that is not really on the table. that has been one of the big challenges that has bedeviled the u.s. for years over syria. have you induce them to make this change? russia has a warm water port in syria, it is a huge strategic ally. they are really just escalating the tough talk right now. david: thank you so much. alix: i love it, bedeviled. good word at 8:30 in the morning. opolitical risk on the markets. what is it? stability reigns today. joining us for more is suzy wong. and neil dwyane.
, we want to start in your world. the average premium is the orange line over the last five years. deal count is significantly lower. premiums are up. what is the result of something of the last 24-25 days in regards to russia, syria, and china, what is the impact in your world? >> there has been a lot of talk about 17 being lower. the first quarter of 2017 is equal with the first quarter of 2016. obviously, 2016 had a lot of activity in the second half of the year. you would have to see some pickup for them to equal, but it is actually not behind. in terms of what has happened recently, i guess i would have to say that there has been policy uncertainty before the geopolitical with respect to tax and regulatory, but frankly, the conversation in the board room that i'm hearing is still
focused on what is facing the specific company. companies are concerned about growth. they want to complete portfolios. they want to make sure they have a strategy going forward. that is what i'm hearing in the board room. when you are talking about specific businesses and areas, that is where you might see some of that conversation. alix: is the growth going to not be the huge mergers like a time warner at&t deal? is it going to be more about building infrastructure, building out smaller businesses in our larger businesses, like apple making chips in-house? is that what we are going to see? susie: i think there is going to be both. i would not count out big deals for the year. i think timing on tax announcements and so forth matter. i think people are looking at two types of deals. one we talked about his growth, part of that is about consolidation. i think scale does matter. companies are still thinking about, what is my dream deal?
if you look at unsolicited more aggressive activity, that continues. i think that people are still focused on getting their first choice deal and that is part of the consolidation drive. also, as an example, i will use tech conversions. we are very active in tech. when i look at my clients in consumer, in industrial, they are all thinking about where into my business, so they are making bold moves. you look at the sale of service max to ge and they are looking at the future with consolidation and making sure they have the right toolkit. alix: ceo's don't have the luxury of looking at the last ane days and changing investment strategy, but as an investor, you can. what change for you? >> the last two or three weeks, i would echo some of the ceo comments.
we are waiting to see what happens in the fiscal arena. if you are making investments overseas as a u.s. ceo, it could change the base effect of your calibration on the price you would pay for the deal or how keen you might have been on it. from a u.s. perspective, there is uncertainty about quite how much of a game changer trump and congress may be in the next 12 months and also the tax issue. ,f we don't get the tax return maybe the u.s. will put the money outside to work, where as if they could bring it home, they may be encouraged to do so. at the moment, we don't know. with trump being lower and slower at the moment, one could argue that that uncertainty will remain in the board room until they get clarity. europe is starting to do what i've always wanted it to do for the last 10 years, which is start to restructure. you are starting to see a lot of industry mergers that the u.s. did in the 1980's and the 1990's. there is a self-help fueled ironically by the cheap money
from the ecb. some of the big german companies are buying fairly choice assets in the u.s. guess who is funding it? programs. i think europe is in a different place. i would say when you look at the relative valuations and the strength of the dollar, it is a no-brainer for u.s. corporate to be looking overseas and, therefore, i would expect to see more craft-type initiatives -- -type initiatives because the assets look quite attractive. susie: if you break down the volume for the first quarter of 2017 and annualized it, the one region where it is flat with last year is europe. i think activity is up there. if you look at the cross-border flows between the u.s. and elsewhere, last year was the inflow and right now it is in the outflow. jonathan: business is very different than calling up your
broker and making a trade. -risk for the de next cple months as an investor? neil: certainly feel the u.s. has outperformed short-term and longer-term by a significant margin. i think there is a lot of optimism on trump and what he can achieve and i think that beingsm is now questioned. if that is the case, you either stay in equities, but maybe look overseas and i recognize everyone who said that for the last five years has watched that recommendation underperform, but equally, with the political risk, when i'm talking to clients, i hear more about what type of return can i get for as little risk as possible? i still let you hunt for income, whether that is from an international perspective on u.s. high-yield or you go to asia to buy sovereign bonds. jonathan: you travel a lot, neil. from the regional perspective, is the risk different? neil: yes, i think the culture
in the u.s. is very equity-oriented. volume isme of the built into the stabilizers of the investment base. in europe, they are very fixed income. we are about to see the second quarter of negative returns in european bonds. one more quarter and a whole , "ip of individuals saying just lost money for three quarters, fiscal income is not looking -- working for me." then, the great rotation is not going to happen in the u.s. because everybody owns equities, but the great rotation could happen in europe because everyone is about fixed income and credit. ceod: if you are a cfo or looking for another position, one is where is your top line, the other is cut your cost. has there been a shift over time? it was all about cutting costs. has there been a shift in the motivation of the ceo's when they are looking at m&a?
susie: i think those two things are still both drivers. one thing about the policy situation is that everyone expects that antitrust and other regulatory issues may be more business-friendly under the trump administration, but there is the other focus that is it ing to be that easy to achieve synergy and cost reductions? the focus on jobs has some effect. it gives people something to think about, but i think that can be very industry-specific. alix: let's get into industry specification. where are we going to see the most deals and 2017 in tech? susie: we have already seen fairly active sectors in consumer and energy. i think you see some restructuring of assets in the energy sector and you see consolidating in the consumer sector. i think health care is usually busy. i think biopharmaceuticals was a little less busy than i
anticipated, but that is always a focus. the other side of that is managed care. people are going to see what is going to happen in terms of policy. then i think industrials is somewhat overdue for activity. alix: in terms of funding, is it going to be issuance, repatriation, money from corporate tax cuts? corporate tax cuts, i think people are probably moderating how much money is going to come from that. people are expecting something on repatriation. it is unclear how that will work. that is going to be a source of funding, but people focus a lot on bringing that money back and how that is going to spur activity, but when you get it back, you have to have a logical strategy for spending it, so i think having the money back is the first thing, but the second is you really do have to have the right deal to spend it on. david: thanks so much to susie. neil will be staying with us. coming up, we have the audi of america president.
great to have you with us. the conversation has shifted to the far left candidate going up against the far right candidate, marine le pen. 24 andu wake up on april the second round is going to build up to, what does neil d wane do? neil: i think you would see a much more significant pricing of real euro and french bank risk. marine le pen is talking about moving out of the euro, which is ironic because 70% of the french want to keep the euro. she is going to have to change your tactics on the euro even if she wants to introduce a new french franc. i think the issue is she won't have control over government. she would be gridlocked like your president is. candidate, because attract thele to centerleft to some sort of cohabitation, he could be really dangerous. he is anti-euro, anti-europe, he
could enact to that with the national assembly behind him. jonathan: it could be seen as a contrarian call. the market from the candidate comparatively out of the two would be marine le pen? neil: yes. however, our central case, we are almost certain that you will get marine le pen in because the big issue is going to be turnout and come a bit like the brexit vote, the brexit people who wanted to leave voted and those who were marginal did not vote. so, we know that marine le pen's support will get up to the polls. the question is how many of the notided, i know one does trust the polls anymore, but 50% of the french do not know what they are going to do and quite a few of them are saying they may spoil their ballots. there is a concern, which has been emerging in the french equity market in particular, that this is a risk that is now much higher than people felt. jonathan: in the sovereign debt premium, isnsurance
90 basis points a big enough insurance premium? -- has note is not got quite the same debt problems as italy, but it has as slow of growth. anything that rips up more fiscal control that we have seen under hollande is going to see the bond markets get a lot more supply. you would see the spreads continue to rise. left-wing candidate wants to tax anybody at 100% -- know what he is going to move -- nobody is going to move french banking out of london to paris. french debt should head to more like italy. jonathan: great to have you with us. david, who is going to move from the city of london to paris with a 100% tax over what? there you go. that is not going to happen anytime soon. [laughter] .avid: now we go to autos
the new york international auto show is underway and we had to talk with the president of audi of america. thanks for being with us today. >> my pleasure, david. david: what has you most excited out of the lineup you are debuting? >> you know, last night we did a big event. we introduced audi sport, our performance brand. behind me, the beautiful coupe. currently, that has me excited. david: you are redoing dealerships, correct? to introduce the sport element? tell us about that. stores, asr existing you know. dealers have invested $2 billion in facilities over the last couple years. growth anduccess.ivested within the dealerships will be an audi sport section. we will have a dedicated person selling these cars, they have been to germany, knows about motorsports. we feel the real enthusiast
wants to speak to someone in the know and that is what we are trying to do. two people in the know buying a great car. david: you have a coupe behind you, but isn't this the year of the suv? that is what we hear from the automakers and sales numbers. scott: it cannot be denied. the luxury business used to be around 35% suv's. if i look at it year to date, 56% suv's. you are right, in the volume, suv is driving the business. you know, there are enthusiasts out there. there is still a piece of business where you can get these magical, fun cars, but the volume and the action is definitely in suv's. david: we are showing the audience one of your suv's. a nice blue one. sorry. scott: i think, for us, it works quite well. we have the q7, brand-new in the marketplace. the q5 just launched in april.
we are well-positioned to jump on the suv curve. david: overall, vehicle sales are soft or down in the united states. audi seems to be growing. who are you taking market share from? scott: you know, a little bit of everybody. in my mind, it is a simple philosophy. this is not a business where you get success moving one or two levers. we are number one or number two in csi. consumer reports, we are number one. best cars in the industry. our dealers are investing. we have a fresh wave of products coming. when you put those things together, you are going to get some success. we are of 9% year to date. the luxury market is up 2%. we want to continue to outperform the market. i think we closed the gap to bmw by 40,000 units last year almost. a lot those brands are coming to audi and we welcome these great customers. david: scott, thank you for
alix: in the markets, the conversation on the sidelines when it comes to autos is the debt. what to make of the big jump we have seen in the u.s. how do you factor in auto debt? neil: our key concern is that basically the car companies have been able to borrow cheaper than banks, so they are providing the finance to their customers. i don't think they have anything like the experience of the credit checking and the worthiness of the loans they are making and many of the cars particularly in the u.s. are being done for seven years. i think we would all agree that
the lifespan of many cars is not seven years. i think the consumer is being rolled into making -- lulled into making purchases of these big suvs and five or seven years down the line, the residual of the car will not be what they have to pay and they will have to store -- will have stored up the debt that they will have to default on. david: we saw this story earlier with the bankruptcy of gmc and a lot of the car companies. are you worried that that may leak into other areas of the economy? neil: i think there is no doubt that at the margins, the u.s. or u.k. consumer has been lowering their savings to keep their spending going. wageut we'll -- real rises, that eventually has to stop. the u.s., in terms of industrial production, cars is a very big part of it and i think where we ,eel -- if the fed raises rates the finance becomes less attractive, the marginal buyer
does not by, therefore you produce less, we are at record high inventories in the u.s. at some point, you could find ford or audi say, well, everyone can have a eight-week holiday as we got to work through the stops. david: how do you can -- see consumer spending more broadly? neil: i think it is dull and i can't see any reason why it is going to get any better. unemployment is low. if there is evidence of some wage inflation, but most of the people, their bosses not giving them a sign they will be getting a pay raise. i think people are making do. the low level of interest rates has allowed people to maintain their lifestyle. jonathan: in the market space, how do you express all of this? is it the auto-related loans, the debt specifically related to these companies, or is it the securitized stuff you are more worried about? neil: i would say it is both. there is an inherent credit risk
inside the car companies because they have built huge loan books they have never had in the past. i don't think they would argue they do all the right credit checking, but we looked at it and said it is one of the unintended consequences of central-bank policy that they can borrow cheaply and then they can hand that on at a nice spread. in the u.k., it is cheaper to buy a car and finance than to buy a car with cash. when i hear that, i immediately worry that the incentive structures are misaligned. thing ishe car indicative of the commercial -industrial loans slowing, i don't see much momentum. jonathan: the bear case from neil dwane. you are watching bloomberg. ♪
north korea'sthat vacation.t be sold by if the u.s. secretary said rex tillerson begins talks with his counterpart sergey lavrov and one of the biggest automakers just reported the biggest monthly decline in over a year. questionse will ask very shortly. good morning to you. i am jonathan ferro and we are watching "bloomberg daybreak." markets look like this. you did price action over the next couple of days. s&p 500 futures are negative for. if you switch up the boards, a treasury with yields lower. lower again today. and the bottom end of the range for the 10 year treasury.
the fx market, muted price action. the euro is keeping hold of the 1.06 handle. let's get to the movers now. alix: this is a micro look of where we are shaping up to the markets. -- that is in royalty payments of qualcomm stock. whole foods continues to have the rumor mill going on up by over 1% with bloomberg reporting that amazon is considering making a it for the company. the 8% stake they reported monday afternoon. others could be kroger. either way, for amazon in particular, it would read more than 10 times the size of any other acquisition. jpmorgan is less confident, saying that whole foods problems may be hard to fix. and delta airlines, earnings coming out. , that was a$.77
beat. revenue was in line. and march's revenue for passengers has the first gain since november so we are starting to get pricing power back to the airline. relatively similar yesterday from united air. withll cost the company the second quarter earnings. toid: geopolitics continue take center stage for business and the markets today with rex tillerson meeting with sergey .avrov joining us now with the latest washingtonf correspondent, kevin cirilli. so this conversation overnight between the chinese president and president trump involving north korea? out thatdent tweeted he had "a very good call" with the chinese president? kevin: this is about north korea.
they prefer that the u.s. years political options in negotiating with north korea. the trump administration is saying, wait a minute, china. we could tie trade and economic issues to foreign policy. with a senior political operative who said that this is "deja vu." in the sense that this is the administration trying to have it both ways in terms of negotiating with the chinese and with the russians. david: this is a very different situation than the syrians and the russians. has been saying they are headed towards nuclear war. he literally said nuclear war because of this aircraft carrier group off the coast. what is the auction? kevin: the messaging that the administration is sending with
syria, they hope that will channel a message towards north korea. is second point i would make that in the last 24 hours, trump met with general h.r. mcmaster, who has since emerged as one of the top the spokes of the centralized administration folks that have -- that has the president's ear. arguing that perhaps by putting that theon the chinese north koreans will be able to argue that they are now facing pressure from two allied powers. the chinese and americans right now are not speaking from the same political playbook. problem, indeed. that was kevin cirilli. jonathan: vix rose to the highest level since the u.s. election yesterday. joining us now is the dimensional fund advisor and co-ceo -- good to catch up with
you. let's start with the geopolitical risk. what we do is we look at it in the way that it factors intoe the amount of uncertainty. and there doesn't appear to be uncertainty. if you look at the vix a few months ago, a short-term measure of the expected volatility, and you actually look at the price volatility since then, it has caused a line.
so they have been managing volatility well. alix: the strategy is, you are overweight in the market that it has assets that are proven to outperform and you underrate the ones that don't. so it seems it is a huge random and this type of investor. where do you see the asset classes shaping out right now? >> if you look at valuation ratios and that sort of thing, th are typically a little bit high. relative to future earnings. there is quite a bit of evidence about the predictability of equity returns. there are some indicators that when the stock returns are expected to be high versus when they are expected to be lower. at the trouble with those measures is that there is so much variability around them that it is hard to forecast using those. at all ofy much look the distributions and outcomes that we think could happen and
then we set an investment policy and the policy doesn't change much. alix: that doesn't change but value is changing. 1.5 millioneturning dollars to investors because of what you just spoke about. they say prices -- typically high corporate margins, and a risk-free rate that stays near all-time lows. ifse are potentially big how do you factor things like that in and you look at valuations? david booth: we basically assumed that the market gets it right. alix: so go long in bonds? , we haveth: typically a fixed asset mix.
they seem to have done a better job in trying to adjust. but the market could be stressed down. they would have to get back to even. -- we counsel people to consider all of the risks and stick with that. that is our notion of a robust in our view, if you have a robust philosophy, you shouldn't have to be making a lot of changes day to day or month to month or year to year. david: you don't make a lot of changes but you do make changes over time. what are the external factors change?ld cause you to for example, the election of
donald trump russian mark and the experience of government? a fundamental shift in central banks around the world? are those things that could change you to alter your policies? david booth: in general, no. it beforeo forecast the information becomes available. that is the tricky part. for example, otherwise you look at the change in the fed rating and the discount rate and by the time they end up doing it, there wasn't much reaction. you have to act faster than the market does. a lot of people are jumping on the back of the data and are doing the same thing. does it, katie your ability to do what you used to build to do? booth: no, if you look at
the smart data, it covers a wide range of strategy. the diet -- the idea itself, the forecast for those, if you will, that is easy to do. getting it into the portfolio. -- we areen't had wecerned about issues but haven't had any problems thus far. david: david booth will be staying with us. .oming up, mark fields we will talk to him about how his company is doing. and later, special coverage of ump athe white house. this is bloomberg. ♪
alix: the move in the commodity markets over the past few days has been in gold. this is gold futures breaking above the 200 day above average. as well as the levels we have seen this and last november. joining us now from austin is the chief economist. jason, what do you do with gold right now? there are a couple of things. it was already on the rise before the syrian military action so there are a few different thing supporting gold rises. if you look to the euro, there is a trend of higher lows and that is directionally the same reason -- the dollar might have thereo much of a bid so is upside risk from where we are right now. so you will see that we have is an above that and it
bullish indicator for the market. alix: how much more upside? jason: our average price for this quarter is between 1250 and above 1300. this is a market that tends to trend for amount of time. so it could trigger additional you seeor weeks before a pullback. that being said, the data to watch this week will be the cpi to see if there is a level of inflation that is being expected. expectations are modest for the month of march but if there is an upside surprise to the inflation numbers, people could get more hawkish, fed wise and it could weigh on the gold as the dollar strengthens. alix: you say the dollar is giving a boost to gold. is that why we see oil and gold moving together? aipac -- sincee
opec just him out with a report saying they see production picking up? jason: not at all. oil has been rising for as long as gold have. a number of different things have been pushing the prices of. one of them is the product inventories. drawdownst seven-week in a products. the stuff we actually use like gasoline and diesel. totalggest seven-week draw since november 2011. we have seen over 55 million barrels the drawing down there in just the last seven weeks. that is a big deal as we go into the phase where we actually need this stuff to put in our cars. profit is why we have margins for the refineries and now they are buying bigger and they need the oil because they have a wider margin they can get when they sell the products. so that is what is behind oil. not just opec.
but the project margins that are so large, they are making the product before the driving season. the opec story just supports them further. david: thank you so much for being with us. david booth, i want to come back to you. we have a lot of people involved in this industry -- are we just going to replace this industry? david booth: i don't think so. i think the move is kind of a shift in the way active management is done. david: but you know lots fewer people in active management? david booth: yes, fewer people. many fewer people. that's true. david: we saw black rock two weeks ago with a lot of equity. $5 trillion, or
whatever they have, they need a lot of people regardless. oldthey need us, the advisor analysis pouring over financial statements. most of that now is to computerized. believend if you really in the efficient market, which you do, you want to be smarter than the market -- does not mean we will automate the whole thing? --id booth: as an industry you go to the marketplace every day. and you look at stock prices. let's say you see the markets where you bid and offer for $10 and it makes a difference whether you buy it at $10 or $10.05 and those small margins and differences, they can somewhat be automated but at the end of the day, algorithms can
be great but a human plus an algorithm does better. andd: how do you regulate out the rhythm? what does that mean for the regulation of financial markets? david booth: that is one of the difficulties. some of the difficulties we have they werehe markets, done by algorithmic traders. so that is kind of the point. ultimately, humans are the responsible ones. they cannot blame it on the algorithm. david: david booth, thank you very much for being here. coming up, we are live at the new york international auto show. mark fields joins us. this is bloomberg. ♪
markets. nine minutes way from the cache open in new york. the price action is muted. investors are looking calm. future stocks up on the s&p. down 10 points on the dow. yesterday, firmer. yields are lower by a basis point. the fx market is rather stable. we are flat on the currency. david: the new york international auto show is underway and we had there now to talk to mark fields. great to have you back on the program. thank you for joining us. mark: always good to be on. david: i think you have a navigator behind you? tell us about the new navigator? is the new navigator. the most luxurious and spacious navigator we have ever brought to the marketplace. it is the flagship suv for
lincoln. and it combines modern luxury with advanced technology wrapped around great experiences for the customer so we are excited to present that. david: and it has a lot of electronics in it? it is amazing. technologys advanced but importantly, we started first with the customer experience so what we asked our engineers to do was to think about what experiences the customers want and then what's the technology that will deliver that. very intuitive. it isn't technology for technology's sake. david: this does seem to be the year of the suv. suvs and trucks are picking up the percentage of total sales. there is a higher profit margin here. how important is the suv line to forward? mark: the lincoln navigator is very important to forward. it is important to lincoln.
when you look at the transaction prices, it is obviously a contributor to the profitability and it is a growth opportunity for us. because this is the first new navigator we have done in quite some time and i think we have an opportunity to grow because the segment grew last year and we expect it to grow this year, as well. and wi the new product we can we have the opportunity to serve customers. david: growth in the auto business now in the united states is a challenge. softer than last year after a record year a couple of years ago. is the hope here that you will make up in a profits which you may lose in numbers? industryhave seen the plateau. we started calling that midyear last year. it intol, putting perspective, they are at a relatively healthy level. you are seeing pricing competition get a bit more competitive and that is why for us as a business, we have really
been focusing on our costs and structural costs and doing things more efficiently while offering products like this, which have the opportunity to grow the revenue on a per unit asis. so that is how we are approaching this in terms of growing it profitability in country in a market that has plateaued. ,onathan: the big conversation being worried about auto related debt. the value of them and what it means for credit. what are you saying back to investors when they bring up those questions with you? mark: we have been very transparent with our credit company in terms of what has been happening in the marketplace. and you are right. we are seeing more leased vehicles come back into the marketplace. thanis why we lease less the rest of the industry. because you want to make sure that we are conservative during any kind of reduction in the values of those vehicles.
and we have called our credit operations this year, operability is down somewhat because of the supplemental depreciation but we have been prudent in how we are managing our portfolio, understanding the dynamics of more used cars coming on with reduced visual values. isathan: the other question your ability to test the credit worthiness of the people that you lend to. what do you say about the crit worthiness of the people you have built up? : i'm side. i didn't get the question? banks have experience judging the credit worthiness of people they lend to. ford have not. so what you say about the credit worthiness for the people you have lent to and how can you be confident you will get the money back in the way you anticipate? off, i disagree with
the fact that we don't have experience with this. been init company has business for over 50 years. and when you look at the credit losses as a percentage of our base versus other banks, we have a very good track record of making sure that we minimize those as that we are adequately vetting the consumers. and you can see that from the performance of the credit loss particularly versus other banks and competitors. , thank you so much. i'm coming over to take a look at the navigator, shortly. that was mark fields. david westin is not allowed to leave the desk at bloomberg ever. we count you down. this is bloomberg. ♪
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the dow futures are softer by almost .2%. oner a couple of quiet days friday, monday and tuesday. switch up the board. whippings, it has been the last few days. yields are lower. stable inng, we are the treasury market. the dollar is just a touch softer. the feeling for the past few days has been a weaker dollar story compared to what happened with the yen story. let's go back to the fx market. give me something with the stocks. alix: i don't have that for you. by 19 seeing the dow off points with stability in the s&p 500 is barely changed. nasdaq flat on the day. down two points. a notable difference today is the lack of movement in equities. they have not moved in 10
sessions. yesterday, at one point they they really20 but recovered from that and the dow today change is now net one percent so not a lot of movement. only more -- only one more day for trading equities this week. we do want to highlight is based on the analyst call. this is the upgrade at city with a 52 week high. his clay saying that shipment data is better than expected. rent-a-center up over 2% which was rated strong. the company has two activists involved n. and lululemon getting an upgrade when they say stocks could double in the next two years. this is a buying opportunity. i think that is a relatively bold call. vix,we saw yesterday, the
100 four days below 15 on the vix but it changed yesterday. basically, the yellow line is the volatility of the vix and the white line is the vix in itself. a big jump or both. we leave it day having it the most movement of all. it is the volatility and is it here to stay? is this just a short-term move and now calm will come back to the markets? in --an: we want to bring the market has done a pretty good job at predicting volatility. because realizing volatility has been really low. last 24 make at of the hours? with the shift higher? entry point.s in the 2400e price of call on the s&p on june 17. i call it the price of hope.
that it isf hope is on sale right now. so even though the vix has come up and volatility is part of the call option to go up in price, the call is down near the interim lows. come with a off. so what we're seeing in the markets over the last two months is that all the cyclicals have come in and even with the vix bouncing, people are using it to buy goods on the market going down, not on the market going up. searching me, i have so many catalysts coming up. you have earnings here. the banks are part of the hope trade. if you look at the earnings on time ofs, after a long being down and down, they have started to turn up. and usually
when that happens, you get more upgrades. and i would say that is where you will see it this week. right there. jonathan: if you want to -- guys who is the rally and are waiting for to come back, the prices there right now. the price of hope is cheaper and you should buy it? steve: forget the index. the cyclicals, the financials, they have come in. and the market is consolidated because the defensive names have come up. alix: jason, do you agree with that? concerned about the fact that on balance volume had increased so much in february with the big surge in the dow and that was in the second week of february until the middle of march. we were at record levels and now we are 60% lower. that is a measure, technically of the crowd in the market.
and the little kid's team have into equities going through february and beginning in the middle of march, the unbalanced volume is now 60% lower than where it was just a few weeks ago. and that makes me nervous. was piled in and now it is quietly going out the back door. and i think people might be missing that. that, to me is a cause for concern. another cause for concern is the risk and i work with corporate clients who are heavily invested in expecting corporate tax cuts to come through. and if they don't come through, there will be a lot of disappointment and a pullback in investment. and business investment spent most of last year in a recession. those things do make me nervous. how do corporate's respond if the reforms don't go through and if the crowd has left the
building and we didn't notice. what happens when the trade goes down further? alix: we have seen resale piland. more optimistic on stocks. how do you factor in those risks when you buy? enterst of all, i like to buildings when the crowd has left. so i think of this more of a ladder. we do recommend a modest overweight in equities. 30% of max. if we go lower on bad news, i am piling and even more. think you hold this until you at least go into the earnings. the earnings will be positive. and all of these catalysts could work together way. the republicans are highly incensed. there back in their home district getting pounded for not having passed this thing. let's take the french election. we are all worried. it won't take very long
for people to figure out -- i think you has already have done, but france has a different political system then we have. the government is run by the prime minister and the parliament. the parliamentary election is in june. there is no way for an extreme candidate to win the parliamentary election. a more gerrymandered election system then we have in our commerce. so keep facing the fear over the next couple of months? fax i think so. the whole economy and earnings are projected higher now and if you get some fear, you buy it. leaveansari, we have to it there. jason, thank you so much. we want to take a look at apple. 2017, top performer in the dow. shares are up by 20% so far this year. but investors have been getting
skittish and they are now entering on a five-day losing skid. they haven't seen five down days until the may of last year. is this a fundamental or is this a burn off after a big run? >> i think it is more of a burn off. a hugeral, we have seen uptick today. we have a lot of anticipation around the next iphone. we have services revenue growth. so i do think you periodically get a pullback like this and i don't think there is any concern that i've heard specifically related to the upcoming quarter or anything of that nature. alix: goldman out talking about about a -- talking modest beat. how do you play the stock into earnings when it will all be about iphone sales and the service revenue is what they want you to look at. next you want to own it in the quarter, regardless of the q2 guys.or the q1 and
investors will be focused on the iphone eight launch later this year. so as long as the numbers are held together by some degree and we have solid iphone units and decent services revenue and the guidance is somewhere close to where the consensus is, that'll be enough to keep the stock going into the iphone 8 launch this year. alix: take a look at earnings. tech has had the most of great in earnings. where do you stand on tech and earnings? it is part, i think of the etf trade. 6% of the index. jonathan: bottom line, the caps on versus small caps. >> in the non-index names. stocks, we the tech think they're are ok. apple is not expensive that
there is a lot of money in apple and it is a phone company. alix: they want you to be a service company. >> we will see. we like google here. we think that is attive. apple, less so. alix: you also look at amazon's i want to get your thoughts on the fact that they could be making it did for whole foods? what is your take on that? everyzon is going into market, essentially, and it is just another market they are focusing on with the latest initiatives. i wouldn't be surprised to see them have more of a physical retail presence. i don't know if it will be whole foods or something else. they are obviously working on the amazon go stores and i guess i would be more expecting them to do this on their own and not make a big acquisition in this space.
but fresh food is a big push. a huge market that they are currently not in in a big way. jonathan: i am on the smartphone right now and i can see that my amazon prime order has been delivered. that was five minutes ago. it is so easy. david: it is scary. the right area. it is so hard for anyone to catch them. how do you get a anchor to finance building a warehouse to be with that business? jonathan: good luck. thank you very much. in the markets, 11 minutes into the session, let's get you updated. futures were software. we are down .1 percent on the dow and the s&p 500. a beautiful week so far in new york city. this is bloomberg. ♪
emma: this is the hewlett-packard enterprise green room. coming up later today on bloomberg, special coverage as trump at the white house. alix: get ready for earnings season. angst among with earnings tomorrow. here is where we stock up in terms of the earnings revision. take a look. for 2017. the outlook it did slowly grind higher over the last few weeks. the yellow line might tell you why. the spread between the five year movingnd the -- has been
higher as well. does it matter what they say and do tomorrow when they start reporting? is it all about a field curve? >> it is part of what they say and do. there will be whispers. but i think that will be the first -- of the market consolidating it here. that theyed to prove can already move based on what has already happened. based on the hard data. it is important. alix: what you think they do? jefferies had a killer quarter that jpmorgan on the investor day went to downgrade in expectations.
>> analysts have started to pump up numbers. they are trying to manage those. markets are better. and generally, long conditions are better. we started hearing about this a lot more. basically the chunk of change of they are passed over starts out small and progressively gets bigger and bigger and bigger. when does the real competition for the deposit start with the bank? we are still a ways off. it is still the idea that the early fed hike are actually throwing gasoline on it. raisee as they eventually the deposit rates, as the raises higher,
suddenly, they have a big increase in what they're making on their deposit. so the early rate hikes that we are seeing are actually helping the economy. and i think we're probably six months out. we get to put hundred. by december. that is where we will search to see it. actualn: given the stocks and fundamentals of the banks? asked at the time it happens, we will see nominal gdp growth pick up. in our view, they would offset whatever the net interest margins, 12 months over 12 months will be better even with the higher deposit rate. alix: do they get topline? because loan growth rate is depleting. that sounds like a turn. >> i don't see it. isn't going ton
put in their forecast -- i talked to all of the wall street analysts and they are not going to put in their forecast the number four 2018 of 3%. jpmorgan isn't betting on that and i don't want them to. right? you always want the management of the company to have a conservative outlook so they don't have to expand. is a positive, in that they will not overbuild capacity. will approach it conservatively. but i have gdp numbers higher. jonathan: once you start this with the yield curve and the numbers that come out tomorrow, you are not going to pass on the rate hike to the deposit rate with the curve is flat, that is not going to happen. and at year end, even if the fed is at 100 basis points, ultimately the shape of the curve is what will matter to the story you laid out. >> right. andif europe is picking up
we do believe they will get through the french election, they are almost back to the old lows on the yields -- it doesn't come out and it lifts the pressure on treasuries and you get 3% on the 10 year. alix: talk to me about earnings and what whittlesey. potentially weaker growth for earnings when it comes to industrials. energy is unpredictable. what is your playbook for the earnings season? beatingve financials and we have energy beating and contributing, significantly. cyclically, it is early. but we will see what happens. i think the big tech names will do ok. alix: -- >> if we get further weakness, we are heading more. alix: great to see you.
jonathan: you are watching "bloomberg daybreak." let's hit you up to speed on the market action. a session looks like this. -26 points down on the dow. the united states, the price action is muted in europe as well. on both the ftse and the dax. if you switch of the board quickly, talk about muted dissection. the dollar weakness over the last couple of days driven to some extent by what has been happening with the stronger japanese yen.
we struggle to make moves this morning. yesterday we made a big move lower. 30 year bond skied issued and sold this morning. $12 million of them. we wrap up the cycle super late this week. alix: equity buying isn't terrible today. blackberry, highest move since 2016. they were rewarded arbitrations follow a suit with qualcomm. royaltyhat over payments. lululemon also popping. staples says that shares could double in two years. it says the product output that we saw was a temporary event and a buying opportunity. we only see a little bit of the .ovement earnings came in better than estimates and revenues coming in in line. we also have the first gain since november.
this is all about the pricing capacity. and what will early -- what will airline pcing capacity be in the short term? was really curious toear what the eu commissioner said about france. >> i am a frenchman. when i see -- the populist ideas speeches, andean at the same time, i'm not. because i'm sure they're only be 50% of the people in my high country to vote for the french exit. that is pretty frank. but i might've heard the same things about president trump in november. jonathan: we make up this morning with a big conversation over the last couple of mornings with a binary outcome between buton and marine le pen
melenchon and marine le pen. and trying to work out who is the most market friendly candidate if those to go to the second round. melenchon because of what he could initiate and marine le pen would be the more market friendly outcome on the french election. take a listen to what he had to say to us earlier. >> melenchon, he may attract the left wing and the centerleft, to , he type of cohabitation could actually be very dangerous. because he has anti-europe and enacturo and he could that with the national assembly behind him. jonathan: there is a narrative out there that so long as macron gets into the second round, it because he will win,
and i think people are trying to make new calculations now. and it has become a much bigger issue than it was a few weeks ago. ofx: it reminds me a lot president trump. we see people saying we have a 10% decline in the s&p 500. we have hit a record high after record high and record high. jonathan: 26 minutes into the session in the united states on "bloomberg daybreak." .1% across the board and on the s&p 500. switch up the board. treasuries have a safety bid through the week. one of six is where we are on the u.s. dollar. from new york city, it could be another beautiful one. ." this is bloomberg. ♪
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welcome to "bloomberg markets." ♪ vonnie: we will take you from new york to london in this hour and cover stories out of washington, d.c., moscow, and brussels. here are the top stories we are following on bloomberg and around the world. the pressure builds on the trump administration to produce results. we hear from noted economists austan goolsbee and douglas holtz eakin on the tax reform, immigration policy, and more. risk on markets, is it or risk off? the stoxx 600 is on pace for again today, with the french election and geopolitical tensions in syria and north korea. come outey inventories this hour. will it be enough to sustaie