tv Bloomberg Daybreak Americas Bloomberg February 26, 2018 7:00am-9:00am EST
warm-up act. bond bear versus gold. morgan stanley says by bonds. xi forever. the chinese party could limit term limits. david: welcome to "bloomberg daybreak." i am david westin right here with alix steele. welcome to fed week. and little italian election -- and a little italian election. alix: the market feels like pretty much by everything. a euro-dollar a little bit stronger. it underperforms most of g10 currencies. market.y the bond 10-year yields moving down by 1.8%. a little softer. david: time for the morning brief. at 8:00 this morning st. louis fed president will be speaking in washington on the u.s.
economy. at 9:00, mario draghi speaks to the european parliament. at 10:00, will get the data for new home sales. alix: we will take you through the top three stories. xi forever. also we have a bond bear, bond cold situation. morgan stanley says by. david: to go over it all, we are joined by lisa abramowicz. xiant to go into thisx forever. the committee announced that it proposed -- that is limited the president to two terms. this is in vance of a parliament meeting. -- this is in advance of a parliament meeting. -- that is growth not that growth of gdp but the
rate of growth of gdp. blue line is the shanghai composite. that is level. he hasn't done to better job. lisa: they love him and he is trying to cement his putin like status. he is in a second five-year term. he is in his mid-60's. there are a lot of questions. he has a heart attack ahead of him last month -- a lot of -- he has a heart attack ahead of them right now. stocks and bonds in china are rallying because of political uncertainty is viewed as a good thing. as we saw and what we will see is china is willing to go into some of the overleveraged companies and demand that they changed the policy. alix: this raises a good point because if you're investing in and thehe upside is xi downside is you get xi.
>> we like to think of china is there able to pull all these policy levers and do whatever they want. this is already signaling that. work to dos a lot of on every thing he has wanted to do for a while that trade-off between giving people employed in keeping people on rest down. keeping markets ok and deleveraging. david: the contrast for the united states is quite stark when you have somewhat stability in china and here there's so much indecision and uncertainty. visibilities that is a democracy. -- lisa: that is a democracy. the issue with china and the reason why people are paying so much attention is because if china catches a cold, emerging markets get blown out of the water. people are counting on a stable china for the long-term.
people know there is political turmoil in the u.s. but the u.s. is going to blow up. most people don't think that is the case where china has a pretty dangerous situation with a dangerous desperate danger situation with the amount of leverage. luke: not much. by large i think that people have stayed away from china just because -- ever since the 2015 run-up in collapse. that's moved a lot of investors. -- that spooked a lot of investors. a lot of people remain underinvested in china. alix: let's take a look at what is happening in the bond market. come inside the bloomberg. goldman said stocks have plunged 25%. this is a chart that will show that call. you could see equities ahead of a big dip. luke, walk me through it.
luke: how do we get to 4.5%? i have tried to diagram this. yield,ot to 10 year real 0.75%. we need a taper tantrum like shock. take us another wanted to 50 basis points up and get wti. -- another 150 basis points up and get the pti. that is a shock on both levels. we are going to get inflation pick up in the fed is going to respond more aggressively. lisa: i was thinking a lot about this last night, how do we get to 4.5%. it matters a lot to determine what happens with stocks. there. matter how we get i was thinking about -- this is a big week for trade negotiations. curvee potential, still
that president trump will be talking about, nafta renegotiation. there is a lot of discussion around these things they can make prices in the u.s. go up. that changes the scenario. you have the ecb that may announce some kind of tapering this year. they could do it in at ungraceful manner. you can get to 415% in a way that doesn't -- get to 4.5% in a way that doesn't mean commend his growth in the u.s. david: jay powell detested by congress tomorrow and thursday. the report was a little bit of presage about what will come out. early 2018arket in appears to be near or a little above full employment. this really struck us, lisa. lisa: it it means --
means how much more the federal reserve can do by holding reserve -- holding rates lower. what he thinks the end inflation rate is. how close are we to the goal? how far can they raise rates ultimately. these will be important points. luke: you look of the sentence and you read the rest of the report, invalidates the concept of full employment. however they don't see wages rising very strongly. they see employers where the market is still tight still able to get them. what does it mean to be at full employment question mark -- employment? if this is the backdrop we are facing. learn that the staff is coming out and saying here all the inflation models, which one do we like? luke: we've got a lot of different things in terms of
e-commerce pricing. trade in power among employers that are potentially structural downside forces on inflation that may not be captured. david: to come back to jay powell. -- it has been marching up and up. alix: this is going to be quite a test for him this year he has quite a challenge ahead. lisa: i like the fact that we think tomorrow he is gone to say something. i don't want to attribute the climb higher to jay powell. that said, jay powell is a much planar speaker than janet yellen was. people -- he will answer a question. she talked for a long time about something but not say much. david: he has not been fed chair yet.
the goal tomorrow is not to make any news. lisa: it will be interesting to see what he says. i wonder how much he's to bring up robot. bernanke -- ben when did ben bernanke set off the taper tantrum? alix: thank you so much. coming up, powell on capitol hill. the dollar slides, 10 years -- 10-year yield whole steady. this holds steady. -- hold steady. this is bloomberg. ♪
taylor: this is "bloomberg daybreak." i am taylor riggs it samsung is coming out with this response, apple's iphone's 10. the galaxy s nine has augmented reality, camera upgrades in stereo speakers. they are hoping the new phone calls concerns about the new president -- deutsche bank has kicked off the initial public offering of its asset management, the bank announced its intention to seek shares in the business. deutsche bank is expected to sell a 25% stake for $2.5 billion. the scandal plagued weinstein company is set to fire bankruptcy protection. partners have been pulling projects from weinstein in
recent months. that is your bloomberg business flash. bitcoin is been a big week for the -- david: it is been a big week for the federal reserve. here is what we have coming up pit we have james bullard who will be speaking to us today. jay powell both on tuesday and wednesday. he is going to talk once in front of the house and wants them from the senate. --are joined by bob cinch sinche. we are anticipating jay powell. what are you anticipating? question,ey asked the it would be launching pad for bernanke or before him, greenspan are yellen to participate -- to pontificate. jay powell has a different background. we have seen in some of his confirmation testimonies he is not afraid to answer yes or no it we may have awkward moments
where there are some that air to fill because the answer is so quick. the code can he avoid sounding hawkish. david: can he avoid sounding hawkish? bob: at these testimonies, the chair is supposed to represent the committee. we have a pretty good idea of the committee and the staff's view from the report we got last week. i think he is going to be off this path of continued moves fed funds. there is no reason at this stage of the cycle are the fed funds rate should not be sightly positive in real terms. inflation is headed to around 2% so he ought to think about his rate being in the 25 -- 2.5% range. that is where they expect to get. they are on a good path and there's nothing we can see right now will get them off that path. his yet -- he has got a steady as you go message.
he is the first time chair testimony that gets a few mulligans. yellen needed if you. just needed a few. -- needed a few. i think he is going to be pretty direct and has a good story to tell. alix: let's talk about the report the camera friday. they said while the uncertainty around the normal trend in all of these variables is sustainable, the labor market in 2018 appears to be near or beyond full employment. with strange -- it was strange to hear the fed categorize we may be beyond full employment. what do you make of that? bob: i think there was important because of the dual mandate. the fed wants to make it clear that they have achieved the employment aspect of their mandate. now it depends on inflation and pressures. the labor market is a domestic
market. the inflation market is a global market. some of the reason we have not seen wages pick up in a normal phillips curve since is we are dealing with more of a global phillips curve than a domestic the lives curve. we get this anomaly where employment, particularly in a lot of the domestic sectors, construction, services, are getting pretty tight, but you still have a globally competitive market which keeps wages more restrained given this level of the domestic labor market. i think they want to establish clearly, we have done what we can do on the labor market side, and we need to normalize. 2018, in many ways, is going to be the year over normalization. normalization of rates, asset purchase program's, etc.
markets are going to learn to stand on their own without this central bank support. this is the big part of normalization. alix: the big question what it means for yields? take a look at the bloomberg. the goldman's call. the white line is the s&p and the blue line is the 10-year yield. that is not there best case. how do we get there? bob: how you get there is pretty straightforward. if you look at long-term history in the united states, 10-year yields have averaged around the level of nominal gdp growth. it is pretty certain -- i think it is pretty likely we are going to have 2.5% real growth. growth 4.5% nominal gdp and in this environment like that with large financing needs, large budget deficits, could you
get toward a normal relation ship between -- relationship between gdp and nominal yields? i think you could. we expect to 10-year yields by 3.5% which would be abnormally low given where we are in the cycle and where nominal growth is. that seems more realistic all the time. eventually getting toward something like 4.5% doesn't seem at all outrageous, critically given the financial needs we are going to have here as we go forward in terms of larger deficits. alix: no checkouts for further asset classes? .ob: it depends on timing we saw an abrupt move at the end of last year in yields. we did get a repricing. if we get 3.5% at end of the year, you will have some wobble stille earnings outlook look pretty good. the spillover effects will be
limited, because of the rest of the world continues to grow. david: thanks so much, bob. great to have him with us. socialgain, corporate responsible the is a hot topic, especially in the wake of the tragic florida high school student -- high school shooting. back in 1999, paul newman got together with business leaders encouraging corporate philanthropy. pat, welcome. let's talk about what corporate social responsible team means in this new world. we tend to think of it in terms of environment. it seems to be broadening out. adco there is no way to predict -- pat: there is no way to predict the level of sustainability corporate responsibility goes. you've got both employees and clients, and they both have
particular issues and needs that concern them. any company that is forward thinking realizes that both employees want to engage in this but so do the clients. david: your and meetings right now -- you are in meetings right now. to what extent are you talking climate question governments question mark -- climate? governance? gun control? pepco you have any number of yous depending on -- pat: have any number of areas depending on what the industry is. what they do is dependent on their own strategy. they will be interested in those things that mean something. all the areas you touched on, those are going to be brought up in today's discussions. david: talk about hsbc. what are most important to your clients? pat: we have a whole range of
things we are interested in. one example, who are we? we are the largest trade bank in the world. with his network that reaches asia, europe -- we have this network that reaches asia, europe. we have companies that are concerned with where their supply is coming from. likewise, you got a lot of buyers that are interested in understanding the network. that is the value we can bring. if there is one single thing that we are focused on is that. alix: what you and your clients be willing to pay more for social responsibility? if you wanted to buy cobalt, which be willing to buy 300 times more than buying it in the grc? -- i have clients that have expressed an interest in getting specific result.
they are willing to pay full price for the reason they believe their clients at the user and are going to pay for it. use the apparel industry as an example. a lot of the clothing manufacturers realize their brand is directly tied to the social responsibility that they have to make sure the product is brought to market and this is something they can stand behind that supports their brand. we've got a number of clients that are pursuing this. it is not that they want a 300 ex multiple but they are very interested in it and they want to figure out how they can get this information to users. david: one of the ways he gets talked about his private sectors stepping in. is that fair? private sector's stepping in because governments have not been able to protect these issues? pat: private enterprises
looking longer-term. you are seeing a shift in the way this is happening. this will be one of the topics we discussed today. the are many companies that are tried to think beyond what are my results? what is my long-term strategy? am i going to attract a certain type of investor to my company? that is getting a lot of play today. alix: listed about china -- let's talk about china. , his term could be extended. what is tenure has done for gdp growth. not a lot of movement but very much stable. for ever world look like for hsbc? pat: i would say remember this, in the past number of years, china has been very successful at opening up its markets p even though we will read a lot of criticism
about how the markets in china are not as open as they are in the u.s. excited that is true but what you do have is a very steady movement. you had a number of different openings in bond market, equity .arkets, currency with the rmb with bloomberg's help we have obtained a clearing mechanism in the united states. alix: thank you for the plug. -- you thinkhat about that, that is a very steady progression toward more open markets. also remember the west has been in this type of market game for much longer. origins are hong kong shanghai. as you say, do a lot of trade work. continuing health at work? does the trump administration
rattling a sabr about china interfere with that? pat: i wouldn't characterize either of them as positive or negative. what people want to understand instability. what kind of certainty can i get. what you are talking about is typically long supply chain contracts. clients really want to know if i start to source from a certain place, particularly china, is that going to exist in the long-term? anything that supports that is helpful. alix: what about a competition? everyone is going there. pat: everybody wants to get their. just get there. -- get there. pursuituniversally a for most companies. with that, the backdrop, we what you're looking at is how do i do it and what is the right way?
that is what hsbc does well. course you have a lot of large chinese banks of the market. they tend to be more domestic in nature. you have a number of foreign banks and hsbc is the largest foreign bank in china. lots of people are going to want to come in and compete. you are looking at growth rates of 6% plus for gdp. alix: pat, it was great to catch up with you. ofid: and ongoing wave consolidation in the health care industry. we will talk to the vice chair of ubs. this is bloomberg. ♪ mom you called?
oh hi sweetie, i just want to show you something. xfinity mobile: find my phone. [ phone rings ] look at you. this tech stuff is easy. [ whirring sound ] you want a cookie? it's a drone! i know. find your phone easily with the xfinity voice remote. one more way comcast is working to fit into your life, not the other way around. alix: this is "bloomberg daybreak." about 30 minutes until the cash open here in the u.s.. there is a rally over in europe and in particular, the ftse, up
.5% and sterling is also up. a couple of things going on. you have the more hawkish rhetoric out of some of the members of the boe. jeremy corbyn in his labor speech seem to apply a softer brexit. all of that helping equities and sterling. we take a look at the next board, you can see that rally underway. a broadly weaker dollar story on the g10 space. buying bonds. the 10 is down by one basis point. i wanted to point out aluminum. the outperform or when it comes to metals. part of that could be some steel tariffs coming down. that could also be good for some curves as well. the coat it is now time for an update for what is making headlines outside of the business world. taylor: china is on the verge of using ping grip on power -- xi
jinping grip on power. -- that would remove the only barrier for him to stay in office indefinitely. house has taking a wait-and-see attitude when it comes to talks with north korea. kim jong-un indicated he is going to hold discussions. a white house spokeswoman responded. in the u.k., the labour party, jeremy corbyn is putting pressure on theresa may on brexit. he wants a new customs unit with eu after the -- who want a similar deal. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. david: consolidation and health wee industry continues --
welcome now jim forbes, you best investment bank vice-chairman who in the last 12 years has been involved in raising georgia hundred $25 billion in financing and participating in over m&a transactions it also with this is drew armstrong. welcome back, jim. you said this would be a good time for health care m&a. jim: i want to say i am a mind reader but we talked about the cocktail that, in terms of low interest rates, the corporate tax rates was a plan. it was a law people we see is enacting a tax plan which is lowering tax rates significant, we have relatively low tax rates. we have 10 to 20 years, very low rates and we have ceo confidence
. those three things together create that cocktail that sets the stage for m&a. david: how much of it was the tax cut? did your phone ring off the hook? jim: it wasn't that. was a combination of that. you have to think about we have had to attempts by the trump administration to adjust around the edges the affordable care act. both have failed. there have been some fine-tuning but no significant repeal and replace. framework where you know the regulatory framework looks like. nothing significant is likely going to happen. alix: just to picture what we're looking at in terms of m&a. go, productst ma are the yellow line, services are the white line. .alk me through
drew: what we are most curious about is looking at the interesting deals in health care delivery chain, where we had -- you guys flesh of the cbs/aetna deal. at different parts of the supply chain. this really ambitious way to try and change the health care system. we are expecting this anymore these. in this talk of a walgreens merger which is more supply-chain consolidation. asp what we know about deals, piece of the health care system that could be combined. that is something we have been fascinated about. big disruptive players like amazon or amazon like that may end up coming in their. affect,hink the amazon we have seen it across industries.
now the whole foods acquisition. as we talked about last time come health care is a most 20% of gdp. i think that amazon looks at the -- -- at the distribution and the margins are checked if. if they can intervene, it is another industry they can get market share hold. david: the market hold make sense. you don't want the price to be too high. warren buffett said he complained about the prices. this is a part of the quote. >> -- isis seemed almost irrelevant to an army of optimistic purchases. our prices too high? jim: overall health care, not necessarily. the impact of the affordable care act was a drag on health insurance prices generally.
you have president trump saying let's drive down drug prices. i don't think when you look at health care you're looking at exorbitant prices. distribution has been dragged down by the amazon affect. services companies have low ebitda. biotech, we may not even have profitability where you are seeing very high prices. drew: jim brings up something very important. we have seen biotech creek echo. just creep back up. we're close to the highs of 2015. get express scripts under immense pressure. people that love them as a possible combination. groupody who is in this that jim mentions is feeling tremendous pressure. they seem incredibly honorable
right now. we talked about the need for partnership. david: is this vertical integration? irregulars are not going to be too concerned about it? goinghe regulars are not to be too concerned about it? tim cook it is people trying to move higher up the food chain -- jim: it is people trying to move higher up the food chain. you want to move up that food chain, perhaps where you get engaged with issues with the margins will be higher. a lot of the larger combinations we have seen in the data that we will see will be those vertical combinations. there will be not be that antitrust challenge. alix: what you call it? jp berkazon? [laughter] what they areows
what that partnership -- no one really knows. is this going to be a large purchasing group where there pooling all of their employees together and go out to seek lower rates? are they going to redesign a health plan? i find it difficult they would get into the delivery of health care for the insuring of employees. to set up anstates insurance plan is not done in a matter of six months. drew: what is happening is incredibly important and we don't know what it is. this thing doesn't have anybody in charge of it. you have three extremely well financed players. they don't have a deep interest in health care already from a business standpoint, other than the hr department. this is a really ambiguous thing with this is going to end up being.
david: look at this from a different point of view. you have large employers that have been complaining about the rise in health care costs. there is waste and next to money floating around. is this a trend more toward large employers going toward insurance companies? jim: we have seen them entering the group arrangements so that is something new. if they set up a large cap and are able to attract other employers, then becomes a different ballgame. alix: who are the main buyout targets? question.is a loaded the role of activists, we talked a little bit about it just a little bit about it, we have seen two of your announcements where you have an activist management who owns a considerable amount of stock that is pushing for change.
in vision health care in a fairly large company where you have starboard capital, i think we are going to see -- given the lower multiples we're seeing in distribution that we are seeing across the surfaces and dissolution sector, more activists are coming in. these are perfect buyout targets. two.nations the you are going to see more of that. alix: how do buyout get paid for? jim: let's talk about a company going private. even with the rise in interest rates, it is still a very attractive high-yield market. i am old enough to remember when buyouts were being done at 14% coupons on bonds. we're still relatively low. in terms of public, even with the rising interest rates,
companies can issue at 4.5% if spreads have not widened. drew: d.c. a lot of competition for cash with your companies? -- do you see a lot of competition for cash with your companies? what do you hear from your clients in terms of capital? tim cook really what more companies are focused on -- jim: really when more companies are focused on is investment in capital. yet activists pushing just you have activists pushing, how do you allocate? when companies are able to bring back cashmore sees, that is a buy back. longer-term, that means for m&a. back $20ringing billion, not all of it is going toward buybacks. alix: drew armstrong, a to expert. coming up, private equity has come roaring back with more deals than ever since the financial crisis. more on that next.
now to your bloomberg business flash. qualcomm shareholders let broadcom by their company for cheaper price than they would like. a shareholder vote will help design the fate of the bed. one fund manager said investors are not happy with the price but they are ready to throw the towel in. china, -- over food delivery. according to persons familiar, alibaba has agreed to buy the .hares of the startup the e-commerce giant already had a 20% stake in the company. valued up to $6 billion last year. black panther keeps packing them in. the disney marvel superhero movie has become the only the fourth film to earn $100 million
or more in its second weekend in theaters in north america. worldwide, like cap has taken in more than $700 million. that is your bloomberg business flash. david: we are going to turn to wall street heat will recover three things wall street is buzzing about. bain report around private equity that shows there are more deals since the financial crisis. number two, john cryan storage bank is moving away -- is moving toward an ipo. mckenzie, the new boss succeeds dominic barton. now.son kelly joins us i love this been report on private equity because it told $180 billion in private equity deals last year which was the largest since 2007. is up from 94 the previous year and the biggest since the financial crisis. these are very specific type
deals, public to private deals. presumably andte they fix them and sell them for more money. what is interesting about public the privates is there is a very clear valuation for them. they are seeing some value or seeing some value in 2017 which is interesting given how much valuations have run up. that is one of the constant refrains we hear, we want to buy more but prices are pretty eye. david: you look at that chart, it either there's a lot more opportunity that we didn't realize was out there or money is burning a hole in people's pockets. jason: that is an important point. $1.7 trillion in dry powder. that is more than there was in 2007. people do worry about some overpaying happening. we will get a lot more context this week.
this is a big week for private equity in berlin. who doesn't want to go to berlin in february every year? its -- we haved reporters reporting in. alix: what is the expected return on these deals? jason: what they hope for is a couple of times what they put in. that is what people pay have equity for. what you have seen, the other measure that you know is an irr which they want 15% to 20%. are they going to get that? that is what remains to be seen given all the volatility in the markets. what they are hoping for, a little bit of a downturn. for is theye hoping got all this money, maybe the economy goes a leg down, prices
go down a little bit. they swoop in with money and sell it five to seven years later. they are getting in their. jason: it seems like we talk about deutsche bank all the time. their moving forward with a partial ipo. we have a chart showing deutsche bank lost money though it has come back a little bit. jason: it has come back and it is a highly profitable business. that is one of the reasons they are leaning into this. we talked a little bit about this last week with hsbc. the asset management businesses is something that big banks are tried to figure out what to do with, especially in this active versus passive world. these are profitable units but they have to find a different way to monetize them. this is following a couple other
folks who have found a way to sell a piece. david: does he just need to capital? jason: he would probably say it is both. he needs to capital. "strategery" involved here, as george dubya bush would say. if all these guys are doing and all of a sudden they're rotating because -- boom -- active actually matters. jason: they are not selling all of it. this could be a smart way to keep a big chunk of it. their only selling 25% of it in the case of deutsche bank. hold on to it because it is a pretty profitable these of business.
david: mckenzie has a new leader. kevin steele he replaces dominic barton. -- so manyimate people came out of mckenzie -- mckinsey. jason: it is one of these things like harvard business school. it is a position that is look toward for thought leadership that the reality is it is in the boardroom, there is a lot of the most important places around the court of world as you say and they are -- that alumni are everywhere. it is an amazing network. one of the things that was to have a global ceo who has done extent in asia. it will be interesting to see how he makes it -- makes his
mark. david: double the revenue at mckinsey. -- double the revenue at mckinsey. alix: not leaving mckinsey. david: this is one we could've covered today. kelly from bloomberg. coming up, a self-made chinese billionaire has become the top shareholder in germany's daimler auto manufacturers. alix: check out tv . interact with us directly. click around. this is bloomberg. ♪
david: alix, this is what i'm watching. this is a big announcement. there is a man who owns and runs geely. they bought volvo auto and is but a big chunk and now he has taken the largest share in daimler, 10%. it is a big deal. he is on his way over to meet with angela merkel to talk to her about it. alix: this is about ev's. david: you see this around the world because there's going to be a huge investment made in ev's. also what he talks about his we are competing not with only other auto companies so we need other partnerships. he is very successful. xo the irony is if you talk in the community, a lot of the rhetoric is china is driving more electric vehicles. 20% of their sales in 2020 five to be electric
vehicles and battery-operated vehicles. they are really putting their money behind it. david: he is paying cash. he doesn't have to raise money. alix: disney had the biggest battery giant now. just doesn't he have the biggest that we giant now are to mark -- founder and principal. your looking at a market that is climbing its way higher. still up by triple digits. euro rallying as well. the ftse up all in a softer brexit additional scenario. more hawkish ecb. buy all treasuries. this is bloomberg. ♪ mom you called?
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mario draghi on deck to speak. the communist party could repeal presidential term limits for it. warm up act to jay powell's testimony to congress. david: welcome to bloomberg daybreak. market relatively calm -- s&p futures on a by 11 points. it is a weaker dollar story with the exception of the canadian dollar. euro-dollar hanging in. 10-year yield not moving lower by about to post this dust two basis points. david: it is time for the morning brief. iseral reserve president speaking at the federal reserve in washington dc. mario draghi is going to be speaking to the european parliament. get an update with
taylor riggs with first word news for it -- first word news. taylor: china is taking steps to make sure the communist party will repeal the presidential term limits from keeping the head of state for more than two consecutive terms. rule.fter a chaotic supreme court could have arguments today on labor unions and politics. the issue, whether the cost of loss would cuthe into the money the union donates to political campaigns. u.k., the labour party's jeremy corbyn is putting more pressure on prime minister theresa may over brexit. he says he wants a new customs union with the eu. at the mercy of revels in her own conservative
parties who want a similar deal. global news, 24 hours a day powered by more than 2,600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. alix: the focus is on the fed this week. jay powell is the -- -- here is onee quote that caught my eye. uncertainty around the normal trends in all of these variables of unsustainable, the labor market in early 2018 appears to be near or a little beyond full employment for -- full employment." how does jay powell go to congress and say totally near full employment but we are not going to go really fast raising rates? >> just because we are right does not mean we need to change the forecast. remember, the fed has one goal
in these hearings. that is to go in and tell congress what they are thinking and make no waves in the bond markets. alix: fair. will you do that? -- will he do that? this will be a fairly scrutinized appearance because it is his first one. the fed is not going in there to make any news. >> i think one point some mike's point is that the fed is becoming less important in the markets, right? alix: what? >> i know i am not supposed to say that. the real issue is that we have the best global growth economy the last decade or more bumping heads with a 30 year bond bull market. crisis,e the financial
the fed and central banks are becoming less important. what is more important is the global growth story in the fixed income world. -- this is aas sideshow. the issue is a supply versus demand. that is going to be a challenge. there is still lots of demand for longer durations of save assets around the world. we the u.s. are huge debtors. either we have to make it more attractive by letting rates go , orer and enticing buyers we have to cheapen our currency. we are going to have some price adjustment. it is much more on the dollar side than the rate side. thend 3% as we have seen in last week, people are going to buy bonds. david: does not all say higher rates? if we are getting back to
normal, normal is not where we are right now with rates. >> in theory, it should be. that is one of the great conundrums that the wall street journal's was writing yesterday. why is the dollar going down when rates are going up? exceeds to come back to the idea of these higher deficits. it seems to come back to the idea of these higher deficits. one interesting aspect that jay was saying is if there is an area the jay powell wants to be really careful in sounding too optimistic because it is the fed's job to watch our problems and if the fed says, all clear, you might see markets take off. alix: a lot of full employment but conversation. big calloldman sachs's over the weekend, a four and a 10-yearcent -- a 4.5% yield and you could see a follow-up in equity markets.
that is the risk, yields get too high, equities reprice -- >> i am a morgan stanley guy. kind ofu are a bond guy. -- it is extremely likely. what is in my comments. i think the great bond-bull market is probably over but i do not think it is going to collapse and bleed all of us out. it's going to be much more of a back-and-forth. equities are going to do fine. for jay powell, the markets moved closer to where the fed has been going. the fed has been directing people to three rate hikes in the market is now there. we have adjusted and now we have yields on the 10 and 30 that we have not seen in three or four years. they are much higher than the rest of the world. in outsidering
capital, stabilize the currency, and we are able to have a decent your. david: -- decent year. david: possible assets valuation. as that gone away? -- has that gone away? >> it is not gone away. we are seeing valuations that investors may be putting too much faith in some areas of the market. powell probably what jay would say tomorrow if asked about the markets but it definitely is a less concern. i am looking for is what powell says about them on buying in the future. we hear from dudley and rosengren last week. if we had to zero -- is there a fed push? >> i've asked people and they all say no. we are not here to prop up
equity markets. markets doequity something that threaten the economy, we have to react. we saw the after the chinese meltdown in early 2016, the temper tantrum in 2013, but that would argue that it was driven by data rather than their fear of the markets. presented onaper friday argued that qe did not work well. they got a lot of pushback. alix: do you operate under a fed put? >> not really. the fed put so far away from where we are today, it is not meaningful. what sustains me as a muddy that is optimistic on equities -- as somebody who is optimistic -- what sustains me as somebody who is optimistic on equities is supporting equity markets. to 10% correction and s&p at the same time that you had an 8% increase in
earnings expectations for 2018. the domination is roughly a 50% to 20% reduction in the multiple. that is very compelling. -- a 50% to 20% reduction in the multiple. 15% to 20% reduction in the multiple. that is very compelling. that how do you interpret the dividend process has held up and how do you then allocate? >> that is excellent insight. when i look at what is happened from the correction, to sectors -- two sectors have done well in the u.s.. technology and utility. i am a fan of utilities. i think technology is risky. it is interesting that those two sectors are the ones that did the best. david: 2019 earnings, that has a 18 months ahead
but are we getting to peak earnings? >> 19 for the u.s. is more likely. one reason i like markets outside of the u.s. as they are behind u.s. recovery. world outparts of the there that benefit from the continuation of this global recovery in the u.s. come in many instances, is at the far end and less attractive. , i wouldp rallies back encourage folks to take profits and reallocate other parts of the world. david: mike, thank you so much are being with us. jay polaski will be staying with us -- jay pelosky will be staying with us. gun control and trade talks, coming up. this is bloomberg. ♪
♪ >> this is bloomberg daybreak. i am taylor riggs. is a clear sign that qualcomm is open to a takeover by broadcom. qualcomm has rejected a $117 billion offer. isugh weinstein company filing for bankruptcy production. it was rocked by harvey weinstein's sexual misconduct and they've been pulling project from weinstein in recent months. samsung has come out with its response to iphone x. has upgraded
speakers and is hoping to the new phone will calm concerns ability toeo's manage the company. that is your bloomberg business flash. david: congress has a lot behind it with tax cuts and a budget deal but there is a lot on its plate. a key republican leader on all is senator rob portman of ohio. before taking his current position, he served united states trade representative and is director of the office of management and budget. we welcome him. >> good morning. david: let's start with tax cuts. lookhat it is over, as you at ohio, are you surprised by the reaction of employers? sen. portman: honestly, i am encouraged. i am surprised by the fact that it has happened so quickly. i spent a few days in ohio talking to small business leaders. i was in a roundtable discussion with a bunch of guys who brew be
er. they are talking about media expensing, the lower rates, what it means for them being able to expand. is offering health care insurance and you hear it all over the state. there are a number of companies that have announced big changes including bonuses and pay increases and contributions to 401(k)'s. more input into investment and productivity of workers, but the smaller companies are the ones we are not hearing from. they are out there and that is making a huge difference. long-term, that is going to make the biggest difference -- investments mueller business. david: that out -- investment in smaller business. david: is there a part of you that has a little bit of ambivalence about you? deficit --a very big does that give you a pause. sen. portman: it does not. i knew would lead to growth over
time, but i did not know it would happen so quickly. the long-term effect of this is substantially more investment here are rather than elsewhere. this leads to higher productivity which economists will tell you is a lagging indicator over the last decade or so. wages are starting to go up. it will result in more revenue. increase in gdp is $2.7 trillion more. we are going to see an increase in revenue to growth. it also gives the stronger position of the economy growing at 2.5% to 3% rather than 1.5% to 2%. alix: it seems you agree with secretary treasury mnuchin last week is that we get wage growth without inflation. the majority of people we spoke to said they do not agree with that. they say it is not a given that productivity is going to pick up. if it does not happen, we could
be looking at a big-time inflation. what do you think? sen. portman: we will see. productivity can be driven by technology. i am seeing it. in small business, here is a machine that was built in 1986 and here 31 years later, we are going to replace it with another 1.5. million machine. those workers will be able to be more productive and be able to compete better. that is productivity. each worker in that place will be more productive. i think productivity which has been a lagging indicator is going to increase because of this tax bill. our competitive position relative to a global economy is going to be better. david: let's talk about trade. you are a trade representative. we have nafta negotiations resuming today. as a senator, what are you
hearing about how those negotiations are going? how do you think we can move forward with nafta to reform it? as a former: negotiator, no always looks darkest before the dawn. -- it always looks darkest before the dawn. we had touched gloves and hopefully going to make progress on some specific issues that all three countries should care about. .e have got to keep it this an agreement that is critical in ohio. 25% of our manufacturing workers are now exporting workers. we send half of our exports to canada and mexico. performers pricing which is a big issue right now in rural areas of ohio, we have to keep those exports up. we do not want those countries to look other supply chains. it is hard to call back those markets once you lose them. yes, we can improve it and we
walk awayt let's not from an agreement that is critical to our economic future. terrace and aluminum tariffs -- what is your base case to how they will be implemented? all countries are targeted countries? sen. portman: we'll see. who knows, i've heard all sorts of different things. alix: would be the most beneficial? sen. portman: targeted. area, we haveel one manufacturer left -- they have told me that there is a productincrease in that last year alone. they are going to be forced to go out of business. that is an example of that we need to deal with some of the areas.
have had is essential an increase in imports the last year and a lot of pressure coming indirectly from china. capacity --'s 14 years ago, china was 50% of the global manufacturer of steel , now it is more than half of the steel produced in one country. they do not need it. they are pushing it out. subsidizedof it is which is illegal under international trade deals, so we do need to address this issue but we've to make sure it is targeted so we are not increasing these costs on the economy. inid: given what has gone on this country, we have to talk about gun legislation. you have been a staunch defender of the second amendment. you've got a lot of support from the nra. are you rethink your position --
rethinking your position? should congress rethink its position? sen. portman: congress will act -- i support background checks and i think that will happen now. when you look at what happened in the tragic incident in florida, there are so many mix,missed signs. law enforcement missed and what the fbi missed -- you need to tighten up the enforcement side as well. david: 21 years old? sen. portman: i think raising the age is something you should look at with regard to these rifles. there is an opportunity here to find bipartisan consensus. it is a deeper issue. it doesn't to do with mental health. have to do with mental health.
♪ in and a half hour, ecb president mario draghi will be speaking to european parliament. .till with us, jay polasky what are you looking for? >> not he'll law i don't think central banks -- i do not think central banker all that important in europe. not a whole lot. the ecb is behind the fed. take itss going to
time to tighten so that is good for equities in particular. you have a strong currency which is pretty critical at the u.s. base i in tha -- u.s. based investor. importantly, you're really strong earnings and attractive valuations. europe has roughly the same earnings growth going forward that the u.s. does. alix: there are the headwinds and that is coming up this weekend. we have potential coalition for germany, and italy. take a look at the chart here on the terminal. this is the italian 10 versus the german 10-year yield. we have seen it blowout -- is it a buying opportunity? >> i've been impressed. it has been a really stellar story. the fixed income investors pay attention to the politics in the equity investor so i like to look at that for guidance and
i've been impressed by how italian bonds have doene. what the market is expecting is no change in italy and they could do with some positive change to really grab the handle of reform and reform their economy aggressively, but a lot has been done particularly in the banking sector in italy, and that is what people who have not paid attention have not recognized. reallyking sector has been dealt with pretty effectively and italy. when you look at stocks, italy is up 5% year to date. us.: we'll be sticking with this is bloomberg. ♪
part of it is more hawkish rhetoric out of the boe. jeremy corbyn, labor leader, coming out for some kind of customs union with the eu. possibly a softer brexit for the labour party. in the u.s., the 10-year yield moving lower about three basis points. ji foreverve a potential in china. you also have steel and aluminum pipe incoming down the the u.s. david: let's turn to taylor riggs with first word news. taylor: china is on the verge of maintaining xi jinping's grip on power. they would remove any formal burial to him -- barrier to him
remaining in office indefinitely. taking a waite is and see attitude when it comes to talks with north korea. kim jong-un indicated he is willing to have discussions with the u.s. a white house representative responded they will see if this leads to the first steps of north korea dismantling its nuclear program. president trump's changes to obamacare will boost premiums by double digits. the cost for obamacare insurance plans will go up by 43% in several states. day,l news, 24 hours a powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. alix: thank you. xi forever, securing his indefinite role. since he took the reins, the growth rate in china, the
shanghai comp has been very stable last few years. the china growth rate coming in at 6.8%. to break it down is francisco blanch at bank of america merrill lynch, head of global commodities and derivatives research. good to see you. francisco: thank you for having me. alix: what does his continued role mean for commodities? francisco: i think it means steady growth. if you look at growth recently, in china, there has been a strong appetite for oil. one thing he has put a lot of emphasis on is a transition out of the oilfield dependency. smartalso a international political strategist. he does not want to live china with a growing foreign fuel dependency.
i think we will see even more push for ev's and transformation of the chinese economy. alix: what do you make of iron ore at a 10 month high and perhaps aluminum getting that shut in? does that continue to be part of the story? francisco: i think it obviously is part of the story. elm, you willthe h see some of side pressures in markets like aluminum. i still think this is not a broad trade war. it is very specific. no one wants to start a proper trade war. it is more on a political basis. the longer story for china is positive from a growth standpoint. it is one where modesty dependency is going to come down -- commodity dependency is going to come down quite substantially. china is starting to veer away
and make it more difficult for people to produce things like thermal coal and reduce chinese oil production. that has declined by the most in the world in the last three years. the chinese don't want to spend $100 a barrel to produce $60 or $70 a barrel oil. group with a lot of what francisco said. there's not than the demand for commodities in the last decade. there has been a lot more supply. supply forins in -- i like commodities a lot. commodities are a great play. sentiments are very depressed out there. i have a lot of friends that
were in the commodity hedge fund business, but they are no longer. sentiment is horrible. it is a great diversifier as well. when you think of a global, multi-asset portfolio, you tend not to have commodities in there for several years. i think it is becoming a lot more interesting. david: five years ago when he first came into power, it was all about reform. this last congress, there was no mention of that. it was almost all state control. is he really going to rein in state owned enterprises? >> i think he is going to do it in a way that does not object to his move. it is a long game, which is typical of the chinese. in my way of thinking, he is trying to bring more private sector activity into the soe's. the bottom line is china cannot
produce commodities the way it has over the last few years because the effect of the environment has been so negative. china is all about making a better life. he is talking about making a better life. part of a better life is less pollution. part of this pollution is less coal. francisco: there is also the issue of geopolitics. china is the largest oil importer of the world without the military means to ensure energy supply. china imports on a net basis 2.5 times more oil than the u.s. does. the u.s. will no longer import oil with shale production growing. china will be out on its own. it is not just the environment, but they also need to wean
themselves off of that foreign fuel dependency. get are is that, and also lead in the clean energy and renewable space, which is where things are going. it is a very sophisticated strategy, which allows one to be bullish on china. alix: last week, we go into electric vehicles intensely in china. is china turning more to electric vehicles for all the reasons you stated, we will call that peak oil demand sooner than we thought? >> in the u.s., i don't see that many electric vehicles, and they are expensive. remember, china sells $30 million -- 30 million cars a year, which is twice what we do. whatever china does, the global car market is going to do. that is an important point to understand. the chinese have said they are keen on this. the technology is not quite there yet. we will need three or four more years for technology to bring
prices down to make electric vehicles comparable to internal combustion engines after subsidies. see why the trend we have seen would not continue. -- piece, our peace, 2020, global demand for oil will probably stay the same, demand risk to the upside. ev's become beyond, a real portion of the demand side. david: is china ahead of the u.s. in terms of electric vehicles and infrastructure? are there things we can learn from china? let's put it this way, the u.s. has a great electric vehicle company called
tesla, china has about 50 of them. likehinese really do industrial policy. it could be a around us -- a horrendous bet. it could be that ev's never pan out, but it is clear the chinese are pushing for this in a major way. alix: just to get your final thoughts, in terms of china, how do you like their equity market? jay: in china, i think it is broad-based buying. a little away from the technology. i focus more on etf's that are tech heavy. in general, i am concerned about tech. i am interested in state owned enterprises, the banks, the infrastructure. equities are cheap. the market is still 30% off its highs of a couple years ago. that is hard to find in the
global market. alix: just come inside the bloomberg real quick. the white line is the second and third month oil price for brent. higher prices today than they will be in three months. we have been losing a little steam. barclays says they are much more bearish in the back half of 2019. francisco: i think one of the reasons to be strong commodities is not just rices may go up, but ahead ofspoke price is 2016,rey price, since there has been a drag because you're buying high and selling low. now you are buying low and selling high. you are being paid. i think this stays and will stay for multiple years, not just a
few months because of opec. opec wants this. alix: the downside is u.s. supply coming online. that was barclays call. what is your counter to that? francisco: at this price point, demand is still very robust. we don't have to worry about ev's. we saw demand growth at 1.6 day.on barrels a keen onpec is very keeping inventories tight. the secretary-general has been very clear, the objective was never a price. opec collects more money up front. alix: thank you so much. purchase of land, bank of america merrill lynch, good to catch up with you. -- francisco blanch, bank of
alix: james bullard speaking in d.c. having interesting headlines coming out. they see a rise in inflation expectations. that is welcome. inflation expectations in the u.s. have moved up some. they expect inflation expectations to move up under appropriate policy. this is important because it was really entrenched to the downside. the concern is if you have breakevens below 2%, how will the fed ever be able to raise rates? that shift in one of the most dovish of the community is significant. david: if those actually start trending up, that changes the posture, sets up jay powell tomorrow.market --
alix: he says to keep the policies somewhat fluid. the market reaction is not attend. you are seeing strong buying coming into the market across the board. the dollar index is off the low of the session, but we have been grinding higher. the euro-dollar grinding higher. we expect maybe a little hint of a inflation expectation coming up. david: we turn to energy. for most of us, we don't think of how may be connected with waste in any good way. there is one company that takes a different view. we welcome stephen jones, ceo of covanta, dedicated to turning waste into energy. explain exactly what your business model is your what do you do and how do you make money? stephen: we operate about 40 facilities around the world. inputs, taking in waste,
processing about 2 million tons per year, best 20 million tons per year, producing enough power to light up about one million homes per year. we also reclaim a lot of metal. hears interesting to during your segments, all three of those revenue streams will be impacted by different items talked about. for example, waste contracts, the price increase association with them is pegged at inflation. extent that there is a more inflationary environment in the u.s., we will see higher prices. it is a good time to be a waste company. places like china are looking for opportunities to use energy from waste for renewable energy. on inuntry we are focused -- two is ireland countries we are caps on are
ireland and the u.k. we reclaim about 600,000 tons of metal per year. that is enough to build six new golden gate bridges per year. we reclaim 2 billion aluminum cans. that earlier segment about aluminum prices going up quite frankly warms my heart. david: you make money off of selling the power you generate, and off of selling the metal you reclaim. in his audi's pay you for taking waste off their hand? stephen: not only municipalities, because the alternative is the landfall peeled -- landfill. they will take it either to a landfill or energy from waste plant. energy from waste plants are more sustainable.
when you take your waste to a landfill, it decomposes over the next 50 million years, and it produces methane, a greenhouse gas. new york city wants to take their waste away from landfills and put it in waste from energy plants. david: how much co2 do you generate from the reclaiming? what is the environmental effect? stephen: it is interesting. we create a net reduction for co2. when the epa does their lifecycle analysis, when you put it in the landfill, because it creates such a large greenhouse gas footprint, when you put it in the waste reclamation, you get a net. we reduce co2 i about a ton. david: this sounds wonderful, but a lot of communities don't like waste plants near them.
stephen: that is still an issue. if you look around the world, island nations where they are running out of lance, and they want to use their lands for other activities. we just built a plant in ireland. it takes about 40% of the waste in ireland through that plant. our next island nation will be the u.k. we just signed a joint venture to undertake a number of waste plants there. it tends to be those countries that are running out of waste space. in the u.s., we have a lot of land, so there tends to be a lot more landfills. david: how many competitors do you have? who can do this well? stephen: not a lot. in the u.s., we are about 70% of the market. what drives our business in the u.s. is companies.
about 80% of the s&p 500 has some sort of sustainability goal. those companies generally have a waste goal. one of their goals tends to be waste toss of their landfills. new york city has that goal. if they want to take their waste to a different disposal outfit, they will most likely go with covanta. david: how big can you get? stephen: we are expecting to grow by about 50% over the next five to seven years. if you look at where the next set of energy from waste plants will be russ, that will be in that will be in the u.k. our next plant will be 70 miles north of london, about double the size of the dublin plant. david: how much has the tax cut package affected you?
has that benefited you, hurt you? stephen: because a lot of the waste from energy projects are outside of the u.s., bringing money back to the u.s. will be a benefit. we have a large tax asset. it will impact the u.s. economy, and as the economy grows, more waste is generated. that will help the waste portion of our business. david: real interesting. thank you. i did not know this at all. alix: spectrum brands will be combining with hrg group. spectrum is a consumer and customer brand company. hrg is a holding company that has shares of spectrum brands. they will enter that definitive merger agreement today, which will combine spectrum brands and hrg. spectrum sees about 3.6 billion
growth proceeds in total on the shoale. hrg will expect a reverse stock split on this merger. they are combining in a $10 billion transaction. parliamentary testimony is less than an hour from now. i will take a look at the balance sheet over at the ecb and why ben walker sounded more hawkish over the weekend. this is bloomberg. ♪
principle was you can pare back on buying as well as you communicate well on rates. we will see the private sector come in because they hardly on any severance. they own like 10%. they will be a natural buyer, unlike in the u.s., so we can actually pare back bond buying. david: that is the theory that you can do it gradually, but they will have to do it sooner or later. with the taper tantrum, there was a lot of supply out there. this will be the difference here for the ecb. coming up on bloomberg markets, the open. paul richards of medley global advisors and nick bennenbroek of wells fargo securities. this is bloomberg. ♪
coming up, it is the main event of the week. investors waiting to hear from chairman powell in his first semiannual testimony. looking for a huge deal, the pressure to deploy capital increases. president xi jinping two rule for decades. the chinese party prepared to repeal term limits. a week of losses swings to a week of gains with a strong finish on friday. that positivity following through to monday. futures up about 10 points. in the fx market, a weaker dollar story. the euro-dollar up to 1.23. treasuries will get through the session with yields lower about two basis points, and that takes us to the main event this week, jerome