tv Bloomberg Markets Americas Bloomberg July 25, 2017 10:00am-11:00am EDT
latest on the senate health care vote scheduled for this afternoon but we will start with raking economic data in the united states. here is julie hyman. julie: we have the conference for consumer confidence coming in at 121.1 for july, above the 116.5 economists were expecting. we are coming in still with relatively strong consumer confidence, something we have been seeing pretty consistently. i take it we are looking at pictures of jerod kushner as we look at this consumer confidence index, and to answer questions before a house panel. july consumer confidence rising to 121.1 from 117.3. as we look at the major averages, the s&p and dow trading at records.
the nasdaq has been the weak link, trading lower in has just flipped into the positive but is flirting with the unchanged level. a lot of the action has to do with earnings as we get into what i believe is the busiest a of the week on the earnings front. on the strong side and what is helping the dow, stocks like mcdonald's and caterpillar beating estimates. taking up,traffic that is something the company has been struggling with after years of declining traffic. it is on increase in the u.s. and same story, sales of 3.9% domestically. analysts were estimating 3.2%. caterpillar has been struggling but pulling out a stronger quarter, forecasting its first annual sales increase in five years thanks in part to construction in china, replacement of spare parts, and shares touching a five-year high.
what is responsible for the nasdaq weakness? it is about alphabet and it is pulling down facebook as well, down nearly 3%. even though much -- most of the metrics looked strong, the traffic acquisition costs are accelerating. that is enough to send the shares lower. a check on hospital stocks today as investors are watching the outcome of the vote on whether to begin debate on health care legislation. also, hca, the hospital company cutting its full-year ebitda forecast. at stake for these hospitals in particular is what is medicaid coverage going to be like? are they going to get more uncovered people entering the doors of their hospitals that will result in increased costs? mark: we are up for the first day in for european stocks.
banks rising along with the yields of european government bonds, autos continuing their decline. let's talk about it as well because autos a big constituent as exporters of germany's index, the deck 600. -- the dax. the dax index, this chart shows very clearly, the white line, it's difference in performance relative to the msci is becoming quite stark and lagging global equities for the first year since 2011 because of the strengthening euro and that cloud over the auto sector in germany, allegations of collusion over emissions cheating technology hurting shares of carmakers for the last two to three days. the german measure falling six for the last eight sessions, advancing to less than half the gain of the blue line.
-- lindt, itd, expects a slowdown in full revenue growth. sales growth will be slightly lower this year than 2016 when it was six sports -- one with 6%. operating profit rose by 6.7%. the outlook shows that while the global chocolate market has begun to recover, north america remains difficult, shares down 3.5% today. a big m&a in the u.k., michael kors agreeing to buy luxury shoemaker jimmy choo. 230 pence a share. 32 times ebitda based on the bloomberg consensus x -- consensus measure.
by, among famous other people, carrie bradshaw. tell me a bit more about her. vonnie: it is hard to remember, distant memories. i am sure there are plenty of them. agenda the congressional and president donald trump keeping up the pressure on republican senators, urging them to vote on a health care bill. earlier tom tweeted -- big day for health care, after seven years of talking we will see whether republicans are ready to step up to the plate. a vote is scheduled and the senate this afternoon, despite knowing what exactly they are voting for. let's get some details, kevin cirilli is following all of the developments on capitol hill. it looks like this motion to proceed will pass even though senator susan collins is a definite no.
we think that rand paul and probably mike lee will also vote to pass so therefore there are the votes. kevin: yes, that is the situation on capitol hill, the president himself tweeting out yesterday and this morning to urge republicans to move forward on this motion to proceed. he will make remarks later from the white house before he heads to youngstown, ohio to deliver what he hopes will be a political celebratory speech. all of that comes as democrats are pouncing on the notion they are not sure exactly what republicans are voting to proceed on, a full repeal of obamacare or just a repeal and replace plan. meanwhile, the russia investigations continue. headlines suggesting paul manafort, the former campaign manager to donald trump has been since -- subpoenaed by the senate judiciary committee. oned kushner arriving
capitol hill for day two of meetings with senate intelligence committee officials in the house of representatives. vonnie: a fascinating day on capitol hill and it will be a fascinating week. thank you to kevin cirilli. joining us to discuss how he is navigating the twists and turns .s brian belski welcome. brian: good morning, bloomberg. micro: you are a more fundamental guy and think we should not be too focused on washington but how can you not be whenever a client is asking you what is going on? brian: we were in europe four weeks ago this week and the number one question, if you have an hour-long meeting with an institutional client you are probably spending 45 minutes talking about policy and things that you actually do not have a lot of quantitative or analytical substance to because
it really is about conjecture at this point, went and if. -- when and if. we believe that if the majority of our clients are position for nothing to happen, there remains a lot of negativity with respect to the u.s. in years past investors were negative on the u.s. because they were better they missed the rally. now we have seen a big move in european stocks over the last three to four weeks, a big move in emerging-market stocks so that -- the consensus is to be there. we have seen u.s. earnings come out pretty good. investors on a near-term basis are taking profits in those areas that have been excessively strong. the as since -- essence of fundamental investing has begun -- continued. the economy and the fundamentals of the companies within the stock market drive stock prices. vonnie: how are they changing?
we saw great results from caterpillar, great relatively speaking. from mcdonald's as well, some caveats. the banks did ok. how would you characterize the health of u.s. corporate now? butn: it is the yeah, rally. with respect to mcdonald's, a $.99 pop as we call it, but how much further can the stock go up? many talk about industrials. a year ago we were talking about an industrial led earnings recession and a lot of investors were caught behind the eight ball because they were not fully invested in industrial because they were so negative on overall global growth. now we have seen a distribution and diversification with respect to growth in the industrial space, not just the internationally focused but the domestic focused industrials
look pretty good. that is why the stocks continue to go up. mark: you have talked about the declining stock performance correlation. what is the impact on the investment process? that wehe impact is one think investors need to focus more on intrinsic stock fundamentals and less about that grow. we have seen such a reactive marketplace still. there is three phases to weibo market -- reactive -- to a bull market. we are still reacting to every macro data point and are failing to see the forest from the trees. we had consumer confidence today, that is great news, but the forest is the fundamental attributes of these companies continue to do well. when you are a stock picker you have to realize that companies recover on a fundamental basis at different rates so we would implore investors to focus less on indexing and etf's and more
on more concentrated 35 to 40 stock for folios. vonnie: a point you made -- mark: a point you made which leads to the euro question, its highest level since january 2015 against the dollar. what sort of hendren's will this have on -- hindrance will this have on european equities? brian: that is why you have seen a little bit of a pullback on a relative basis of european stocks relative to u.s. stocks. number two, there is this broadly consensus opinion that europe is excessively cheaper than the u.s.. you can basically say throughout and that price of sales price of cash flows are almost always less expensive in the u.s. with that euro strength, how is that denominator going to grow? how is cash flow going to grow in a stronger euro environment
where these companies a fundamental basis are in the beginning stages of their recovery? their market is better -- the market is better. vonnie: are you concerned about an ever softening u.s. dollar or is that more reason to celebrate? we have so much investing habits and strategies focused on the macro and we believe a year from now interest rates will be higher. three years from now, they will be higher. in many near-term opinions interest rates going lower are throwing near-term money into these interest rate proxies like utilities and telecom, and away from the banks and implicit growth companies when we think of a value led market. investors will be in the lurch in terms of being too defensive for the interest rates being low. vonnie: what about the dollar? brian: the dollar is reacting to
the notion that interest rates will remain lower. vonnie: they are in other areas. brian: the united states of america is the world's strongest economy, the most diversified economy in the world. as the economy continues to recover -- and maybe we see something out of washington. recovery is understated. mark: we have surveyed 30 finance professionals and ask about the next bear market in stocks. the consensus seems to be late 2018. what do you think, have you got a date when it will come to an end, this bull market? brian: that is a trap, i love it. that, stopo tell you reading textbooks. this recovery since 2009 has nothing to do with history or textbooks. what happens in a macro dominated investment culture, we
go back to the textbooks and say, time for a recession. this is the slowest, lowest economic recovery in the history of recoveries. 2009ppened in 2008 and happens every 70 to 80 years. we are not going to have a recession until we see growth and capex being led. we recess from higher levels of growth. stick: briefly, do you with the sectors that have been working? brian: we are overweight health care and financials. we think financials over the next five years remain the biggest bet you should make because most investors are under exposed financials. industrials is one collectors can own from time to time. health care continues to be a contrarian type that. -- bet. vonnie: brian belski, great to
let's start with gold, how should we be positioned prior to the fed meeting? dan: it feels like a lot of gold traders are neutrally positioned. i can tell you, we had a nice ounce off the 1210 level, pushing around the 1055 -- 1255 level. it is felt the fed will not change the language or structure -- itime around, and then is holding at 1255. mark: it was all about saudi arabia yesterday, it's decision to promise deep cuts to crude exports next month. how big a deal is this when it comes to the market? theme continues to be something traders are pointing at and currently, the market has not had too much of an impact on the price of oil, holding from the 42 to 47, 48
range, but there is a trend building with the weaker dollar. if these cuts are monitored and complied with we could see oil push up to the 58 level. mark: one of the great stories on the bloomberg today is about hedge funds which is a hold in these large, bearish bets against oil. at the same time, traders and refiners buying and selling actual barrels, say it is starting to look bullish. which side should we lean on? dan: i tell you, it does feel that there is a little bit of a bid building under the oil market, and considering the fact that we have tailwinds, shale production team -- seems to be platform towing -- let towing in the united states, and exports being reined in. it feels like the potential to break 58 what signal the trend higher. mark: dan deming joining us with
futures in focus. vonnie: paul ryan, house speaker and gop leaders, are holding a news conference right now, speaker ryan making comments about health care and russia sanctions. he says the house will work on is a needtrol, "there for a physical barrier on the border." paul ryan holding a conference with gop leaders. this is bloomberg. ♪
stellar run. with me is eric balchunas who covers etf's at bloomberg intelligence. at smart into flows beta etf's this summer and found a shift toward momentum. is this a matter of stocks going up so people are trying to chase it? eric: performance chasing is really what smart beta etf flows are about except the vanguard value is like a cash vacuum cleaner that will take in money regardless. up 20% this year, double the s&p. here's the thing, when you take a look back under the hood, it is not exactly the academic definition of momentum. lowballalmost like a version of momentum -- low vol
version of momentum. ,hat you end up with is stocks a lot of large caps and large caps have been outperforming small caps, and it rebounds semiannually, not monthly. the devil is in the details. when it works, it works. if the thing is up, the formula is working but it is not exactly technically the academic definition of momentum. julie: momentum with a different screen. there is some low volatility etf's on the list which is surprising, given how persistently low volatility has been so what has been driving that flow? eric: the two on their, -- on there, that area is on fire. is stilln low vol taking in money is because it is tying the indexes. , the ties, all else equal
reason they tend to take in money is because there is such a great -- they are easy to sell for an advisor. what retiree or client does not want the market with less edge? you see these slowly taking cash unless they severely underperformed, and right now they are tying their parent indexes and taking in money. julie: dividend growers on the list, this is another one where you would not think in a rising rate environment the dividend growers would be as attractive. eric: this is not just going for yield, this is an etf. this is looking for companies that will grow their dividends in the future so it looks at roa earnings expectations. a forward spin on the growth etf is only 1.8%. it is holding and it outperforms the stocks that they think will hold. julie: thank you so much, eric
all tunis -- eric balchunas talking about some of the hottest low volatility etf's. vonnie: still ahead, the fomc's two day meeting gets underway today and concerns of inflation will be top of mind. we will check the health of the u.s. economy. today, stocks just a little higher, the dow is up about one half percent. the nasdaq is flat. stay tuned, this is bloomberg. ♪
courtney: the you -- the new director says president trump is likely looking to fire attorney general jeff sessions. the president is obviously unhappy. mr. trump went after sessions on twitter for the second day in a row, calling him week. a dramatic turn of he thence -- republicans. senator john mccain will return to washington days after being diagnosed with brain cancer. today's know is whether to begin to debate on that issue. republican leaders haven't decided which health-care proposal to vote on. they have promised for years they would repeal and replace obamacare. the house is in -- prepared to impose more sanctions on russia. it also imposes more sanctions north korea. expect democrats to join the republican majority in voting for that bill.
investors will go for the story to the country is returning the bond market five-year bonds are expected to be priced today. the government is looking to exit from its current bailout program. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. vonnie: courtney donohoe, thank you for that. while congress debates all so it's of things, including which bill to vote on, companies are preparing for also its of scenarios including drugmakers like indianapolis based eli lilly. shares of falling today. the ceo, david ricks, spoke to bloomberg and what is driving it. have key messages for investors. a strong growth and we continue
to diversify the product portfolio and are participating in different parts of the health care market. drug for breast cancer that we reported a lot of medical data. the fda granted us a priority review. we expect to release this cancer drug in a freddie -- first part of 2018. fornext will be a new drug migraine prevention. a new class of drugs that people can take prophylactically to prevent migraines with a positive readout. we plan to submit an launch in the later part of 2018. that is what will drive our growth and make the biggest difference for health care system overall. >> tell me about new products. i want to try a complicated word.
it is the latest drug. what is going on with that? you are going to delay? how important is that to you? david: the fda issued what is called a response letter. we had a meeting to follow up on that. we now understand they do not --ee are submissive and submission has a positive effect and want us to do more work area and we don't agree with that conclusion and neither does it europe or japan who approved the drug and where we are launching now. we will work with the fda. we are committed to get this drug to patients with ra. it appears to have some unique features. we have to work through the regulations in the u.s. there are many other indications to us and clinicians in autoimmune conditions like lupus and atopic dermatitis.
we are committed to pursue those despite this setback. we have launched in europe and are off to a great start. we are committed. it is one of 20 new medicines over the ten-year span from 2014 to 2030. it is important but not pivotal. you have committed more or less to have 5% revenue growth annually through the next several years. what is the biggest risk to that number? if you didn't make it, what would keep you from making it? model a range of us go. we are confident we can get a variety of those. there were two big factors that were outside of what we model in that commitment. polentaa product called ta.len there was a review hearing on wet which is 30 occurred and
are waiting on the answer. if that is rolled back, that would materially affect the 5%. the other issue is what the federal government decides to do and if anything genetic happened on a drug pricing, we could not stand behind that commitment. barring those two things, we have a lot of ways to get to 5% growth or more. and that isng an 8% the performance we like to deliver. vonnie: that was eli lilly onirman david ricks bloomberg early. the fed says the u.s. economy expected in its policy decision tomorrow. central bank will lead rates as it waits for inflation to inch up. chief let's bring in economist linda. -- lindsey piegza. expectations were better than forecasted.
does this mean the fed can breathe a sigh of relief after a run-up weaker data? based onit will be soft inflation data. certainly any step in the right direction instant -- in terms of the consumer or manufacturing will help support their argument. motivation comes from the mandate of stable prices. they are really looking for inflation data to reverse course, which unfortunately it has not as of late. you have clear and ongoing signs of domestic disinflation in the u.s. continuing to basically follow consistently to use your words and accurate and biased forecast? is difficult to say.
at this point, the fed is not entirely dismissing the recent soft inflation data. they are saying it is likely to be temporary. they are focused on a longer-term expectations for inflation. the fed is basing current monetary policy on the anticipation that prices will reverse course and continue to move toward the target longer-term. in the near term, if we don't see that reversal, the fed is left with a little at on their e egg on theirleeg face. vonnie: i want to have viewers look at chart 6914. it shows positioning in the two-year. it is much bigger than it has inn in a long time, way back
2007. what does this signal to you about how the market is viewing markets? isdsey: i think the market expecting it to move forward with additional rate increases by the end of the year. up to the march and june meeting, they positioned oneselves almost promising additional hike in the remaining months of 2017. the market is looking at the current conditions and sing they are more on the moderate stage at this point. it may be enough to continue to support the fed rosie -- fed/'s expectation -- fed's expectations. that will focus on the more lackluster reality. vonnie: one of the main question you posed is, what will the fed do with reinvestment? have a look at the chart we have. the fed expanded
accidentally. now it will eventually start tapering down the balance sheet. what is your answer for how the fed will reinvest? keyword ise eventually. the fed has acknowledged they would like to begin shrinking the balance sheet. calendared unspecific language. by the end of the year is what we have heard as of late. layer ofe a second monetary policy adjustment. first and foremost, the fed wants to get the rate back to a normal rate at a gradual pace. economy maintains this more moderate pace, it may be enough to justify additional rate hikes by the end of the year. it is going to be increasingly difficult a -- difficult for the fed to adjust the 7 -- two justify the second layer.
the fed has remained intentionally vague, giving us them theving opportunity to push the adjustment of the balance sheet out to 2018 should they need it if the economy fails to improve as expected from a growth and inflation standpoint. mark: on the subject of economic growth and other factors such as janet yellen stipulated in her congressional testimony was that economic cycles don't die of old age. let's speculate. when could the next recession happen? ? what are you forecasting -- what are you forecasting? lindsey: recovery is getting a bit long in the tooth. that will put limitation on the fed's ability to wind down the balance sheet. at this point with the economy treading water at a tuition -- -- at a twoish rate
, it will go into negative territory. we are really only looking for a another couple of years maintaining positive growth before we see the recession coming into play. innie: if we have a change leadership at the fed early next year, does monetary policy take a completely different turn at that point, or is the fed locked into something now? could take a little bit of a different path depending on the leadership and additional vacancies that are filled going forward. at this point, the market would be unjustifiably jarred if we saw the fed take a 90 degree turn in terms of a change in monetary policy. i do think i'm coming leadership may have the potential to tweak that pathway.
at this point, the intention is to unwind the balance sheet and continue to raise rates at a gradual pace to a much more normal level in the little time we have left as the economy continues to bleed up momentum. vonnie: oh my gosh, what a way to end. thank you very much for joining us. that is lindsey piegza. we were going to have live coverage -- we are going to have live coverage of the fed's decision tomorrow. mark: big day ahead. coming up on bloomberg markets, shares are lower and we look at why investors are starting to worry about costs. that is next. this is bloomberg. ♪
♪ i'm mark barton. along with vonnie quinn. this is "bloomberg markets." vonnie: time for the bloomberg quick takes. today we are looking at the controversy and the promise of self driving cars which could be the next frontier in technology. the auto industry seems to be into an area where cars drive themselves. it may sound futuristic, but it is already here. cars can break for you or steer you back into your lane, while others coming shortly will change lanes automatically and allow you to drive hands-free. some people nervous and there is no end to the legal questions yet to be settled. there is little doubt the robot
drivers day will come. this month, a u.s. house panel approved a measure that would allow thousands of automated vehicles to hit the road while standards are developed. developingies are autonomous vehicles. all driveso have with self driving possibilities. is coming with intel and mobilized. gm is investing in lyft and developing taxis. tasteers got there first of autopilot back in the 1990's when toyota, and mitsubishi began developing cruise control as the sensors and costs have funds, autonomous technology can be found.
here is the argument along with the regulatory challenge of they are turning over decisioning to robots. automakers have yet to design a whichat cannot be hacked, obviously raises concerns over security. u.s. regulators and others of drivers will -- driverless cars sincesave driver error driver air is named in 94% of crashes. you can learn more about self driving cars on the bloomberg. mark: let's stick with technology. of the bit surging costs spell trouble in spite of strong revenue growth. fallingf the tech giant and it raised concerns about rising costs of expanding its advertising business. for more, let's bring in
bloomberg editor cory johnson. how worried should we be about this trend of a rising costs as it spends more on advertising is this? cory: i don't want you to worry. there is nothing to worry about because of business is going fantastically. it is also changing. if you look at the revenues and growth rates, you can see how the decisions made to change the company are paying off. you have one of the largest companies in the world growing at a 21% clip in the last quarter because of conscious decisions of change in business. you can see it looking at a 17% growth 18 months ago and now at 21% and 22%. there is a change. the change is to mobile. mark, i bet your phone is as close to you as mine is to me. we are all on mobile devices and
google knows this and is trying to get the advertising space. they are paying for the traffic and the rising cost of crying during -- acquiring that. vonnie: clearly the fundamentals are still very intact and there is lots more innovation to come from the company. buying and selling stocks and what i will say is it is important to how it works. vonnie: the people that are selling, do it fundamentally believe to sell the stock? cory: there is not a massive move in the stock. you have to look hard to see it. i spent some time with the models trying to illustrate this. looking at acquisition costs and costs as a percentage of a revenue has been gently ticking up. the cost of traffic is increasing ever so slightly, but
it is increasing massively on a year-to-year basis. 20% growth year over year is a lot. you also had 21% growth in overall revenues. the other way to look at it and that is the number to look at with wall street saying the number was going to go up, but it is really going up. if you look at the percentage of revenues, it is much more gradual. you can see increasing traffic law spared we have a chart that shows that information. it is up to 19.6%. that is an increase, but it is a sizable increased -- increase. you can see the change in the business model because they're going to companies like apple and paying for the time to send ads, but it is working. they are pulling back avenues and getting -- revenues and getting a lot of profits. record and aa
couple of probes in the background in europe. changes on the business from the regulatory probes? how big a concern of a worry is that going forward? cory: it is worth worrying over. they took a lot of money in a charge in this quarter. they did take a charge this quarter for a fine. more disconcerting is the fact that this company might have to change its business model. the model that worked so well in the u.s. that is putting their own content on top of search results, whether it is shopping or airfare, that has worked in the u.s. it has worked on a revenue front. they have to change their practices. mark: thank you for joining us. cory johnson from san francisco. vonnie: still ahead, shares of
♪ mark: in new york, i'm mark barton. .onnie: and, i'm vonnie quinn it is time for the business flash. theral motors is warning second half of the year will be tougher. both production and earnings will slip between now and the end of the year. gm wants to bring inventory back and line. the company is preparing a new
pickup and suv model. it is a milestone for mcdonald's. the world's largest restaurant chain is luring back customers. they had an increase in diners last quarter. among the reasons, cheaper drinks, all-day breakfast, and higher-quality chicken. agriculture gave an increase with the dow chemicals paired sales are up 6% spare pesticide revenue was up 7%. the merger is continued -- expected next month. pulling business out of london in the wake of the brexit results. amazon is expanding. the company is adding 450 jobs and plans to occupy all floors in its new london building. amazon wants to boost its prime video service in europe. google and staff are also increasing their presence in the
united kingdom. that is your latest bloomberg business flash. mark: check out what is happening on the european we are less than 35 minutes away from the end of the two state session. stocks are up. we are better than expecting earnings. metals are driving company is higher. check out the currency market. your against the dollar, highest level since -- euro against the dollar, highest level in months. i will leave you with the bond board as we a coach -- approach the close. this is bloomberg. ♪
this is the european close on bloomberg markets. ♪ mark: some stories covering from the bloomberg and around the world, after seven years of talks, it may be now or never for senate republicans. president trump putting new pressure on as the senate gets set to take a vote on obamacare. u.k. for a secretary is in the u.s. -- pray secretary and the u.s. saying business is great as he tries to woo washington and a post-brexit trade deal, we will hear from the secretary. grease marking his return to the international bond market, issuing the first new bond since 2014, so far demand is strong. is greece worth the risk? where european equities are