tv Bloomberg Daybreak Americas Bloomberg February 27, 2018 7:00am-9:00am EST
part where the central banks will have a problem getting it right. >> operation do no harm. ray dalio says central banks have to be perfect as jay powell faces the financial services committee for the first time as fed chair, with the one goal of don't roil markets. and prime minister theresa may is caught between her own party, jeremy corbyn, and brussels as the eu draft to brexit tree. and comcast challenges rupert murdoch and bob iger with a cash offer for sky. >> welcome, i'm david western. almost in march. , my god, really? have before we get the senate remarks from j power. a little softer down seven points but we had the monster riff, and it is selling all
across the curve in the u.s.. we also have some powerful services in europe, bunds one of the biggest underperformers, yields higher. we also have jpmorgan and we are getting some headlines that i wanted to highlight, net to $55t income of 54 billion. they are also targeting, if you take a look at the pretax income compared with 40 in the last year. david: it looks pretty good. and that return on tangible capital, we are all projecting broad numbers. alix: and we see them benefit from tax reform. david: and in the meantime, discover communications came out with their earnings,
636th-quarter adjusted is over the projected 612. , so it beat estimates looks like they are having it good day. alix: yes, indeed. they are also looking for some doj clearance and are looking for that information. david: it is now time for the morning brief. jpmorgan's investor day begins with remarks from the ceo, no doubt about the things we just talked about. also 8:00, macy's will release earnings. and then we will get the prepared remarks of jay powell in advance of his life testimony -- his wife testimony. alix: first we want to get to our first take. operation don't hurt the markets, and reaching for the sky. david: joining us now to discuss
it, a bloomberg said and economy reporter, with bloomberg intelligence fixed income strategist. i want to put up a chart -- oh, you have it for me, thank you. this gives you an indication. it tells you where the markets are going into jay powell testimony today. the yellow line is the dollar, weakening quite a bit. the blue is the 10 year yield. white is s&p. alix: this is also showing that monster risk on rally. you wound up having the dollar a little stronger, then weaker. a rally in stocks, yields moving higher. will that be disrupted today? david: i guess jay powell's main job is not to roll the market. >> absolutely, and that is a challenge, because jay powell has a real communication hurdle to pass, which is he has to take
into account how fiscal policy changes that have come into place since the fed last released projections back in december, how those fiscal policy changes, tax reform and the lifting of the spending cap, will affect monetary policy. he has to thread the needle pretty carefully. alix: and ray dalio said as much earlier. here's what he had to say. >> what i am concerned about is, as we go into the later parts of the cycle, the challenge of central banks will be to give it perfectly. perfection, something we always see. what are you looking for specifically as it relates to that asset class? >> jay powell -- he is a little more direct relative to bernanke are yellen. that in and of itself has the potential to rally markets, but with the mandate of full employment i think that is what he will try to communicate, not
to rattle them. the chairman, supposed to be reflecting on his testimony, and their economic projections were made in a different era. >> absolutely, and what we have seen as the tax reform and this listing of spending taxes. together those things are putting a foot on the accelerator and that the same time the fed is trying to gently tap the brakes. i think that will create this challenge for him as he has to explain how monetary policy makers are viewing this changes and how they will react to the fiscal stimulus. alix: that is great, but we will not increase the fed hike. u.k., a bigk at the line of the things we are watching. liam fox is speaking today in 10 minutes time. the eu draft of the brexit tree, 100 pages of what they are looking. 10 theresa may speaks on friday. we haven't seen
hedging against risk pay off of the market. can this be an exception? >> definitely. it depends which market, right? emerging markets, i would argue that the cost of hedging has gotten so inexpensive, it is one of those things a lot of people are looking to do, take advantage of the risk reversal, etc. but as it relates to brexit, for me, they could get a bit contentious, and that has the ability to rattle markets. there are a lot of events in europe, like italy for example, that will be higher on the total all. david: haven't we had this since the day of referendum? it has been turmoil and things have not gotten much clearer. questions one of the is how this all plays out because it remains to be seen, we are still in the process of seeing how it evolves and i
think we will get a lot of detail. david: and markets can't react to day-to-day negotiations. >> absolutely, especially in something as volatile as this process. there are so many uncertainties, it would be foolish for a longer-term investor to react in a knee-jerk way. alix: let's talk about the battle over sky. a potentialu.k., bidder, $31 billion. you know this industry, bob iger, rupert murdoch, who are you betting on? >> i will bet on -- i won't bet on anyone, i know them all. this change has made sky such an thattant asset, and asset it is really valuable and has a great technology platform, direct subscriber relationships. go there with to espn, comcast wants to expand into europe, and this has made
it a new digital world. alix: analysts are looking at comcast to have the least amount of regulatory hurdles. >> the problem with comcast is a tried to bid against bob iger, and they picked bob iger because -- comcast said we will take care of it overseas because the problems are here domestically. overlaphas virtually no and they have taken care of the regulatory problem. everyone expects there to be a counter offer. alix: what do you think? >> i think we are at the end of a nine year bull market. what have we seen -- time warner, at&t -- 4.4 trillion over the last 10 months, a signal that we are getting to the end of the cycle. alix: let's bring it back. go. cycle oran prolong the a hard stop. >> exactly, and this underlines
the importance of being perfect, because the fed loves to say expansions don't die of old age. i think that is what jay powell and his committee members are aiming for with this. david: we will see how they do. our bloomberg intelligence fixed income strategist, great to have you. chair is, the new fed set to deliver his first congressional testimony today, as we may have mentioned. andake a look at inflation what that might mean for his tenure. alix: taking a look at jpmorgan, the strategic report is out, investors day kicking off. here are the headlines. medium-term rotc has a return on tangible common equity, targets now at 17%. the longer-term target was 15%. they are also looking at nice pretax income.
alix: this is "bloomberg daybreak." apple is looking for a way to boost mobile phone sales after the iphone x missed expectations. according to persons familiar with the matter, they are planning to release three new smartphones later this year, including the largest iphone ever, and upgraded device the same size as the iphone x, and a less expensive model. and there are signs that standard charter is getting the banks back on track. they have restored dividend after a two-year suspension. they also came close to analyst forecasts for revenue and profit.
liberty media has emerged as a potential white night for the struggle radio station operator i heart media. they would link some of the biggest names in music and entertainment. it would chapter -- it would sponsor them through chapter 11 bankruptcy. and that is your bloomberg business flash. david: thanks. when jay powell testifies before congress for the first time in his new role, one of the two things everyone will focus on is inflation, what is coming and what the fed response is likely to be. here is what the colleagues have been saying. wesome people are saying should raise our inflation target. i'm not in favor of raising our inflation target. i want us to hit 2%. if we can hit 2%, that will be a positive development and will give us a little more room to respond. >> we have been moderately depressed, i think, from where i
would like to see them. i see the inflation expectations as having come up for something that is more reasonable and more consistent with the inflation target in the u.s. >> inflation dynamics right now are still not clear. i am glad we are seeing some firming, but it is not obvious that inflation, even all the other dynamics going on, will reach 2% target and go past it. i don't know that for sure. david: joining us now, peter scheer, head of macro strategy, and our bloomberg economic chief u.s. economist. we have the issue inflation, how it is connected with jobs. you just saw before that, anything above full employment. meanwhile the treasury is saying don't worry about it. >> productivity can certainly help to accommodate the rising wage pressures, but we are not really seeing the wage pressure forces into the inflation pipeline just yet.
one jobs report had a surprise, average earnings are not the beginning of some nasty wage price spirals. david: so when jay powell is asked about inflation, where is he going, what is he going to say? >> i think the dialogue is going to be similar will be to chair yellen, minutes indicating that for lack of better framework policymakers are still sticking to some sort of phillips curve trend, so they are waiting to see a sustained cut in labor costs before they can see a pickup in consumer prices. now the variable is productivity so even if you do start to see that pick up, you don't necessarily see it coming down the pipeline. the fed can afford to be fairly relaxed about the inflation outlook but that being said the economy is accelerating with fiscal tailwind from budget
agreements and tax cuts and reforms. also a less crisis oriented stance is warranted in they will continue along at a gradual pace. i don't think the fed is looking to accelerate the pace of tightening, rather they can keep the pace in 2017 and carry it into 2018 and maybe 2019 and beyond. alix: do you understand the relaxed on inflation being and overshoot? >> yes, i think they are happy to let it shoot above 2%. i think they can run ahead. what is not discussed enough is not only are we talking about hikes, but reducing the balance sheet. that switches to $30 billion a month come april. then they will be reducing the balance sheet by $50 million per month. to bek they can afford
very casual and slow on the rate hike front. bloomberg,inside the this is our positioning for treasury tenure futures. the blue bars are 10 year spec positions and the white bars are asset managing. >> right now we like being long. , ithought 3% would be max think we will go back to 275 on the 10 year. squeezeds have to get and the other part that didn't get enough attention is we are seeing a lot of pre-funding. corporations can invest in their pension funds and when they get to the deductions that tends to be positive for the long end of the bond market. david: there are republicans in the majority who will like a relaxed approach to inflation, 2% or 3% plus growth. how does jay powell address that a commitment to come
back later and say i was wrong. >> the way around that is to say we don't fully understand how the tax reforms will impact the economy in the long run. we know there's a short-term fiscal stimulus but if you are giving a transitory growth then maybe you don't need to recalibrate policy. if it is impacting growth in the longer run, that maybe you lean more forcefully on the infrastructire. much -- we may need to move more aggressively but we need to wait and see. and inflation is still undershooting. peter brings up an excellent point, we have very few examples and almost no examples of balance sheet unwind from a central bank of the scope we will see. it is impossible to model what that will look like and we don't
know what the economic consequences will be. alix: i thought he wasn't an economist. he'll give a plane yes or no answer. >> you need to be a little less cautious than chair yellen, but there's a lot of fuss over this -- he's not a phd economist. we have had lots of successful fed chairs who have not had a phd. for politicians answer is similar to an economist's. alix: are you treating the testimony? >> we have had a nice balance, so i think we want to wait and see how it plays out. i think it will come across as more dovish which will take the pressure off. people realize he will not be that aggressive and we set him up for the first time since june for the fed to jump on us. ability so it think he spent the last few months with powell getting away
with it. historically, congressional testimony can be market moving chairman bernanke use testimony that started the taper tantrum, those are definitely relevant. alix: what is your question? if you were in the committee. him on theneedle balance sheet issue to see what he's thinking. it will take the pressure off the fed. trade-off,ad to do a will you do rate hikes are balance sheet? that would be my big question, because i think that will drive the bond market. alix: good stuff. david: they will be staying with us. here is some news on comcast just across the water. sky is responding, saying there is no firm offer, but right now they say they don't respond at all until they get a firm offer. bob iger earlier this morning
alix: eu warming up, set to challenge theresa may on their key speech on friday to outline her vision for the uk's future. the european union will release a 100 page brexit draft that ignore some of her most important to man's tomorrow. last 24 hourse have really heated up the conflict in the u.k. how are you understanding what is happening? >> we are largely ignoring it. it is a battle between europe and the u.k. and people are accepting that it is probably not globally market moving. it is important for the u.k.,
but as a whole it is fascinating that people have become comfortable with. many companies have already made transition plans. alix: talk about investors taking it on the chin. it's the [speaking italian] and bundd -- the italian spread, no one seems to be thinking out -- to be freaking out. >> you have all these bad outcomes and yet the spread is down. they are responding to hawkish statements, and italy is ignoring the risk. year, the ability for europe to act as a cohesive unit with the central bank remains very high. alix: how do you plan? >> i will not let it interrupt. right now we are largely based on what we are seeing with powell, i just think there's not going to be enough to roil the system and european bank spreads have been widening.
people forget they have now have five years of balance sheet on weaker banks, i don't see the problems. david: compare and contrast europe with the united states -- more bullish where? >> more bullish on europe, because everyone hates europe. i'm not quite sure why especially when so many companies are global. take away the euro and i think you will see higher percentage trade with european stocks. alix: let's take a look at the s&p earnings yield versus the 10 year yield. the blue line is the dax earning yield versus a 10-year bund yield. they have been holding up better which means there could be some re-rating. what would you like? >> i don't get into region, but one thing we are seeing in the u.s. is i see get one year bills come to 2% you can get some
return whereas in europe you still have to be in equities. that is part of what i like. alix: peter scheer will be speaking -- will be sticking with us. coming up, the uk's biggest pay-tv company says no from offer has been made, and holders are advised to take no action in response to the $31 billion bid from comcast. you will break it down more. this is bloomberg. ♪ mom, dad, can we talk?
that's a good one. seems a bit long, but okay... set a memorable wifi password with xfinity my account. one more way comcast is working to fit into your life, not the other way around. 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. i am alix steel. about one hour before we get remarks from jay powell's testimony. s&p off by four, but we had that
risk on rally yesterday that felt like the old days of 2017. european stocks on the back to out of information out of germany. the dax down .4. i want to point out, it is down against the dollar as political drama continues in the u.k. thess the board here in treasury market, yields higher by one basis point in the u.s. i am watching the spread. a touch deeper. we won't see what happens at 8:30, when marks come out. david: that's given update on headlines outside the business world with taylor riggs. taylor: a proposal to heighten background checks has run into a roadblock in the u.s. senate. republican senator mike lee has blocked fast-track consideration of a bill. president trump and the nra have indicated their support. attorney general jeff sessions
is ending the obama era policy that led legal recreational marijuana. it will reverse the policy that set up guidelines for prosecution for marijuana. states where it is legal can now prosecute cases were they see fit. in germany, the top administrative court has refused to overturn diesel car bands into cities. a judge said lower court rulings ordered them to cut pollution levels that were mostly corrupt, making the future of diesel cars in germany questionable. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. david: thank you. it seems that everybody wants to buy sky. fox owns 40% already and once the rest. disney has offered to buy much comcasto get it, and no is offering millions. it was premature for anyone to do anything a few days ago. still with essays peter tchir,
academy's head of microstrategy and now joining us is new -- let's start with you. explain why all of a sudden it feels like everybody wants sky. >> i think for a start, we will see the bid on a table for some time from fox. regards toges with the authority in the u.k. suggest there is more action to go through. their risk is less. if you look to disney and comcast, the asset itself provides an opportunity to diversify internationally and there is traction from both companies for different reasons. for comcast, they want the revenue stream subscriptions,
and for disney, they are making et on directb consumer-based media and sky is a great example of that success in europe, which they could utilize and the same in the u.s. david: this is not the first time comcast has taken a run at cardiff sky. they made -- run at skype. they made a run -- run at sky. is this an attractive offer to sky shareholders? at a practical matter, someone will have to bid higher or they might lose it. neil: i think there will likely be a higher competing bid for sky shareholders themselves. they had gone through transitions with a have seen and theurn rates english premier league rights did extremely well for the next
three deal by paying a smaller amount per game than the previous deal. we say that is the end of hyper content inflation. i think it takes further risk off the table in regards to sky. david: think of the dynamics within sky. if you had the company that one person own 40% of, it would be hard to sell the company. is that true here? 10 comcast make the deal work if they get to 60% and leave fox out of it? neil: without getting into my new details, there is a rollcall 2.4 in the u.k. code for a possible offer rather than a formal one. it means they have gone hostile to the market rather than approaching the mirabaud family, etc. 50% are looking for share, and at that time, there is a situation where he could end up in a situation where
comcast owns the majority not the entire asset and it will be fox or ultimately disney as a partner in the asset. they had media assets before, like hulu, that were shared ownership, and it did not work necessarily well. i do not think that is the outcome either party once but it raises stake in the ground that comcast wants this asset, as well. it is a key asset. as of going to fox asset silvio, it could end up with hurdles in the u.s. david: more generally, we have been talking about europe and the united states. does this tell us anything about it? this is denominated in pounds, and that euros. peter: that is why it makes a difference. we think the tax reform will unleash new m&a activity. it does typically happen once you see a few deals and more pop-up.
we had a decent amount last year. i think that will continue. right now, credit spreads her type, bond yields are low, so you can finance these deals easily. debt has been of rising and capital not as much, like 10 basis points. how do you feel these deals will be financed going forward? either: if you look at the i.t. space now, you could probably issue 10 year bonds for reasonable companies that the .5%, pretty low compared to historical standards. if you are looking at a 10% to 12% return on equity, it is still pretty cheap. while front ends of the yield curve's move back, we have seen flatter ones, so long-term debt has remained lower in terms of relative debt. david: neil campling, thank you. peter tchir, head of microstrategy, will stay with us. alix: let's talk about jpmorgan,
kicking off with a return on equity of about 3%. profite looking at potentially increasing 7 billion dollars. jamie dimon will make brief remarks at 8:00 a.m. and then he will handed over to the cfo. joining us is alison williams, bloomberg intelligence senior financial analyst. what was your takeaway? alison: so far, so good. analysts were looking for higher people and i think most hoped for 17%. so far what we have learned are basically in line with optimistic expectations. alix: why is the stock down? n: because you are in line with optimistic expectations. up 12%,k so far is financials up 6%, and the market 4%. that is here today, and not thinking of outperformance we have seen. -- that is year to date.
when we look at other targets, i think it was widely expected. last year's investor date came down to an 11.5% range and the 100% payout, again, if you did the math based on any number they gave you last year or throughout the year, it was something they could easily do. 55% optimistic versus the to 75% ratio target they had in the past, but i think people saw that coming. again, stocks trading a little bit after a good run. david: going below topline numbers, do we know what is driving it? is across the board? or is there a particular part of the business? alison: looking below the numbers, the overall number looks higher. it is hard to tell, so we will want to hear more from management, but the cost ratio is in line with what they have. the car business will focus
investors, something we focused on doing earnings because it has come in at the higher end and the range is higher than they had previously, so they had been 3.25%, buthis 3% to they had already sort of guided to that. 67% might be the other thing, and we will see how that progresses. investors will like to hear more. and then passing the benefit to consumers. alix: it said more intense competition will mean some tax benefits to consumers, this that mean we will see deposit data back and play? alison: that means it could. it is consistent with jamie dimon's message, which is when he made the argument for tax reform last year, he said it should benefit the economy as a whole. that is highlighting the fact this is a key focus for investors because now that we have tax reform, we know a lot of the benefits, and how much
will get impeded away? david: we keep hearing about this deposit beta. matter, if one bank offers more, it will compete away the advantage. ison: you will not hear about breaking ranks that see it in the numbers. we have seen it in the wealth business. we have seen it on the commercial side. i do not think he will -- you might get some announcement -- you have heard some consumer companies talking about the more competitive, -- consumer finance, excuse me. you might not see it in this quarter but over the next couple, do we see that? i think when quarter you will see it less. alix: do you like u.s. banks? peter: i do. full disclosure, jpmorgan mentor it at academy securities, so we have a close relationship with them. i like banks as a whole now. one thing not picked up on enough this week hearing a lot
of anecdotal evidence that small and medium-sized companies are doing well with tax reform and that would create demand for long growth. demand for product that banks benefit from. that will be the real ticker that got lost in the last month of volatility, small and medium-sized companies that will report phenomenal growth. david: i am glad you raised that because i'm hearing this from different sources. andave had rob portman on, he thinks small companies may be benefiting from the income tax in ways not showing up in big numbers yet. peter: i think that is true. numbers are capturing large data, but as we see it, we were will see how good it is for the economy. alix: as long as they get productivity, alison williams and peter tchir, thank you very much. coming up, calling out morgan
now to your bloomberg business flash. high-tech trial six years in the making in san francisco. opening statements are made in economy and hewlett-packard. prosecutors say economy could a value to write down of a $.8 billion a year after buying the british company. defense lawyers say the cfo is a scapegoat. consolidation in the semiconductor business. microchip technology is in advanced talks to buy microsoft a, a market value of $7.6 billion. more than one year ago, hasbro predicted that the movie black panther would be a monster hit. it did that by asking kids what they got in the results have brought in more toys for black panther than any other marvel character in a first full-length movie. the company said demand has led it to ramp up production.
that issue bloomberg business flash. david: we are going to turn to wall street beat, will recover cover three things wall street is buzzing about. number one, sallie krawcheck. she is calling out morgan stanley for the lack of women in recent promotions. number two, goldman sachs is not million trading days in had in the past. number three, italy, super wealthy with a big tax break. kelly.oining us is jason we want to kick it off with calling out morgan stanley. she basically posted a photo, posting 46 names of financial advisors and said, what is missing? jason: it was women. sallie krawcheck clearly wanted -- clearly one of the most well-respected voice is about women in wall street, one of the most senior in wall street when she was that bank of america, builts this platform
around women invest in, and the other interesting thing is the forum she used was linkedin. she posted this on linkedin and it engaged huge amount of people and they started talking with some and agreements, some quibbling with her, but the numbers do not lie. there were three out of 46 were women. david: in fairness, morgan stanley said 40% of all people had more promotions. alix: this goes to our point of equal pay. european banks do that. if you have women in lower positions, your pay gap will be wide. jason: it is important to note what you said, i think sallie krawcheck, if she were here, she would say for a while she has been a voice in the wilderness on this. what we are seeing is a systemic look at this because of this u.k. effort to pull out the data. david: we have seen it in all different ways. there is a study done over time
where you have more women on the board in the senior management with steadier returns. alix: duh. david: nordic countries tend to have more women on the board. alix: because they wound up having a mandate you have to. no offense,y duh, we are more organized, a different breed. jason: that is why daybreak america has worked so well. david: we are balanced. alix runs it, that is why. [laughter] alix: jason: senior management. let's talk about goldman sachs. normally, they get $100 million revenue trading days. he only had four last year in 2007 -- 2017. i was shocked. jason: this is the wall street this,n you looking at in 2009, they had 131. david: they had 131 days of $100 million? jason: pretty good deal. alix: basically, the spread
seems to narrow so much because they are getting so much competition. there could be waste they could ora trade and not get a fee make money just to keep the business. 2009: let's remember that was a very difficult year for the markets. the economy is not doing great, and we had talked about this since the start of the year, especially with massive up-and-down swings in the market, thanks drive on volatility. so it will be interesting to look at this number when you're 2018 thered see of are a couple more $100 million days. david: at the same time, it is interesting whether etf's may have changed this. we have a lot more algorithms trading. and other non-banks participating in the business. alix: sure, but also no volatility. no one is trading. you need to scramble for the four people who want to trade.
we will see how it pans out. jason: we have seen those numbers layout in goldman and other places with low revenue and profits. david: let's go to italy. alix: which people. david: i missed -- alix: rich people. david: i missed this. jason: what are rich people doing today? david: they have a provision that says you can move to italy and play -- pay a flat tax of 100,000 euros no matter how much money you make. that would not be a break for me, but it is for a lot. jason: this quote from the story is from the minister of economy and finance, same we have people from u.k., switzerland, the u.s., the usual suspects, and also norwegians and dutch, some women who have come to wealth. some of those people are art collectors. we are talking a very, very rich people. david: no doubt.
countries are basically competing for capital. i think of monaco, formula one drivers move there because there are no taxes but portugal has been doing this. jason: portugal has done this and this is a big move for italy. maybe people want to go and get with george clooney. alix: their gdp is growing at 1.6%. if you look past the headlines of the election, their underlying economy is good. once they get past the election, they will be a pro eu field because they will realize the economy is doing better. jason: you had to make an economic. [laughter] let's talk about the economy. david: that is not too bad a place to live either. thank you, jason kelly. coming up, and ra boycott -- nra boycott backlash. more on what i am watching, next. if you have a bloomberg terminal, check out to be . you can watch us online, and
♪ david: a beautiful day in new york. this is what i'm watching today. it is the nra, the gun control issue. they have gone back and forth with company saying, we are not sure we want to deal with the nra. delta and united airlines said we will not give you a discount to go to the convention. well, lieutenant of georgia said that isn't a great idea. he said, if you will do that, delta, then we are going to
tickle your tax break. this is what he had to say -- i will kill any tax benefits at delta unless they change their position in reinstate the relationship with the nra. corporations cannot attack conservatives can expect this not to fight back. alix: the first that i have this, does he have authority or is this just a tweet? david: as lieutenant governor, he cannot do it. they would have to take action, so the answer is no. alix: the other issue is, delta is pulling a hub and moving somewhere else is a bigger issue for georgia then it would be for higher taxes for delta, right? that is a huge operation there. david: it would hurt georgia a lot and the people would be hurt. at the same time, it shows in a broader sense to the extent that which people use their commercial relationships to effectuate with the government has not done. people are getting together and saying, we will boycott. people also say they will
boycott delta and not use them anymore because of this. a real issue and nra is getting more publicity than ever in its existence. alix: i'm interested in who will be the non-mover, if other states will be like, here is a big tax break we will give you. david: or it went the other way when texas said we are not sure we want the nra convention and the governor of nebraska said, we would love to have you. alix: coming up, lord mervyn king will be joining us. his thoughts on brexit in the political drama unfolding, as well as the potential head of the next ecb, and jerome powell's first testimony on capitol hill. this is bloomberg. ♪ mom you called?
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. sure. momwhat's up, son?alk? i can't be your it guy anymore. what? you guys have xfinity. you can do this. what's a good wifi password, mom? you still have to visit us. i will. no. make that the password: "you_stillóhave_toóvisit_us." that's a good one. seems a bit long, but okay... set a memorable wifi password with xfinity my account. one more way comcast is working to fit into your life, not the other way around. ♪ >> we are going to be in a part
where the central banks will have a problem getting it right. alix: operation do no harm, jay the house financial services committee. and mission impossible, theresa may compensate her own party, jeremy corbyn, and brussels as the eu draft say brexit treaty. and jamie dimon speaking on investor day. r.o.e. has been up 3%, profits up 7 billion and investors are unimpressed. david: welcome to bloomberg daybreak. i am david westin alongside alix steel, jumping for jamie. alix: we are half an hour away for the prerelease testimony of downowell, s&p 500 futures . in the currency markets, a proud the stronger dollar emerging in the markets. euro-dollar flat and selling across the bond markets, higher in the u.s. the german bund yields much higher, as well.
prolific in europe and crude on the back foot. i want to highlight macy's. the company reporting earnings coming in $2.82 a share, but 1.4% -- comps up up 1.4%. this is surprise rise for their 1.4%in comp sales, up overall with basis of comp sales coming in at 3% and sales are in line with estimates. jumping nicely in pre-markets. david: wow. to me, that was a surprise. alix: the gross margins were up, too, because i was worried about discounting, but inventory was over $5 billion. we will break this down. david: you wonder what that means for retail. to jay powell. investors will be clinging to every word of his first public comments later this morning.
what will they be listening for? here is what some fed presidents had to say recently. >> some people are out there saying, we should raise our inflation target. raising it favor of from 2% to 3%. i want us to hit our 2% target. if we can hit it, that would be a positive development and give us a little more room to respond to futures. they have been moderately depressed from what i would like to see them, so i see inflation expectations as having come up toward something more reasonable and consistent with inflation target in the u.s. >> inflation dynamics now are still not clear. i am glad we are seeing some for mean, but it isn't obvious that inflation, given other dynamics .oing on, will reach our target david: joining us is matt boozer
of bloomberg news. do i want more inflation or do i not want? the markets are in the tailspin and now we are concerned about whether we can get to inflation. matt: as you said, the interesting thing we will hear from jay powell today is his views on some of these topics surrounding inflation. the interesting one is the fiscal stimulus we have gone recently and how it will affect and how he for jay communicates that. it seems the question is becoming more politicized. you had steve mnuchin the other day saying policies of the trump white house were going to raise wage growth without raising inflation, and then they say, do not worry, they will do a good job managing inflation. the fed has not taken a stance either way on will this fiscal stimulus be inflationary or increase supply-side potential of the economy and not be
inflationary? wherever jay falls on the debate will be an interesting question. alix: the subtext is, what does that mean for inflation overshoot? what would be the verbiage used to look at weather not the fed is already operating on it overshoot inflation scenario? matt: they will probably be a discussion about your comfort level of inflation going about 2% for a time, something more fed officials have been trying to communicate they would become to bullet because they have been running under 2% for so many years and maybe it makes sense to let it run above it. that gets us into another discussion, which is the framework, should 2% be the target? should they go to a regime where they make up for past under shoots and get more aggressive on that? we had not heard jay's stance on that thomas of that could be an interesting program today. david: matt boesler, thank you. we welcome now a man who knows well the role jay powell has
taken on, board mervyn king, governor of the bank of england for 10 years, including during the financial crisis in 2008. he joins us today from the national economics association meeting in washington, d.c. ervyn: very nice to be here and escape the balmy weather on the east coast. david: let's pick up on what jay powell is confronting today because you understand, how did he thread the needle, on one hand, giving useful information to congress, and on the other hand, they will want to pin him down to where he thinks inflation and productivity mark --s going question going? mervyn: i'm sure he will want to reiterate his commitment to the inflation target and will mandate, the one thing than changing. what he might want to do this presummit himself to a specific
part of interest rates. it has not served well those people in the past who tried to do it. david: looking forward, forward guidance is of great good value to the markets, businesses, people running the country. they have to give some sort of forward guidance for where they are heading, depending on the data. mervyn: yes. the fed makes forecasts and publishes those, but the market will sometimes have its own view upon how the economy he hates. the most important thing for the fed to communicate is its own is hown assumption, that it will respond to data as it comes in. there is no doubt that interest rates has to reflect what is happening in the economy, all kinds of unexpected events can occur and hit the economy from time to time are you there's no point pretending that is not the case. alix: who is jay powell's audience today? mervyn: he will want to speak to
congress and also to a wider public. today is about congress. it is only the first of many testimonies that he will get. i do not think we should exaggerate and overemphasized the importance of this area and it is the first time we will see the dynamics between him and the committees with which he will say it. his communications to the wider public will be ball. there is no one speech that central bank governors ever give for these turning points, or setting out something in concrete. i think you will want to emphasize his own personal commitment, both to his inflation target, but also to the independence of the fed. i think for him, the biggest challenge over the next four years is to ensure that the wider public, especially congress, understands the reasons for an independent fed and try to protect the fed from
any further encroachments on its independence. david: you might be facing that talent today. you have the house and senate who want to hear growth is coming. do have a president who is not too shy about expressing his views. how difficult is it likely to be for jay powell to stay to his central course and not be pulled off by republicans who want to really get into the midst of the growth issue? mervyn: he will know that many of the republicans on the committee will be grandstanding, and it is not his role to play into that. the only sensible strategy for a central bank governor and for jay today, is to tell it sec sent and be honest. if you do anything other than that, you get in trouble. alix: one of the questions to wrap this up, talk about fiscal stimulus, as well as paring back bond buying, how does powell
address this? mervyn: i think the right strategy for him will be to say that when policy is gradually tightened, as one would expect it, he will went to focus on raising interest rates and then later on, to think about drinking down the size of the fed's balance sheet. i think that is the right sequencing. there's no need to rush to reducing the size of the balance sheets. it will be a question of interest rates, at least because central banks around the world are concerned that if there were to be another downturn in the next two years or three years, they would like to confront it from a position of where interest rates are at the level they could be reduced. we are not there yet. alix: lord mervyn king, former boe governor, you will be sticking with us. european central banks guidance on interest rates is "rather vague," he said, speaking to the
vucevic -- speed to neighbor vucevic. he also discussed how the central bank can communicate he potentially could be the next ecb president. >> this could probably be one part of our discussion, whether it is to complement any decision on the purchase program regarding the purchase program with a bit more specificity with respect to interest rates guidance. nejra: what kind of specificity? a time frame beyond the words? jens: the words are rather vague. time to mention, so it could be hard specifying what it means. this is the debate we will have to have and we are not anticipating that. nejra: what time frame are we talking about? three months, six months? rate rise, before march 2019?
jens: i think this is not giving any new response in a sense i am not speculating about our future rates, but i can tell you market expectations that have gathered given the reputation we are observing, given previous communication, expect interest mid-2019, and given this environment, this is not unrealistic. nejra: is there a possibility that the tapering beyond september because there are some on the governing council talking of a short taper. could it be extended to avoid the guidance on the rise in interest rates? jens: this is also discussion we will have to have in the council, what does the end of it mean? do we have a quick and, or -- end or prolonged it it tapering?
as you might know, my position on the purchasing is rather skeptical, so you can guess my noterences from that i am second-guessing future decisions. nejra: do you feel others on the governing council are listening more to your preferences? jens: i think we listen to each other. nejra: responding? jens i think: we are discussing is a governing council. we have changing views and it is reflected in our monetary policy decisions. that a broad shirt view the economic situation is rather good. we had not seen such high growth has been the expansion broad-based, and the perspective toward monetary policy normalization. has happened since the ecb last put together projections, a german wage deal,
volatility in financial markets, how is the inflation outlook changed since then? jens: it has been rather confirmed by incoming data. it leads to wage negotiations in germany. they are rather in line with the assumptions that we fed into our forecast. i would say they confirm the conjectural picture that we have drawn before. i would say they also raise the confidence that inflation will rise according to our forecast. nejra: i want to talk a bit about the bunds care issue. with almost all private investors squeezed out of bunds, isn't that a dangerous position to be in? will ecb be able to get yields back up again fast enough when it wants to exit? jens: i think that isn't our main concern at this juncture, but it has been alluded to changes in the market structure
that are program has induced. aspect it is a positive on this in mind, arguing it could dampen relativity that you must expect in a time of normalization. i think the main point to make is that this is a policy factor in the sense that it helps us orchestrating a policy normalization that is not steering too much market relativity. nejra: i understand you like to climb tall flights of stairs up to your office to keep it. i understand keep fi -- to keep fit i understand mario draghi. has 45s, are you trying to get fit for a future will? jens: i am always trying to remain fit, so it has nothing to do with any future personal decisions. weidmannat was jens and we want to look at reaction
in the marketplace. the euro-dollar and how it reacted, and the euro went down. alix: it started lower after germany inflation came out, the lowest since november 2016. that was also a surprise for estimates. some week as had been expected but this is weaker. plus, you end up hearing from jens weidmann that the future is bright, but the combo is looking at the euro lows in the session. david: we went to bring back board mervyn king -- mervyn king, thank you for listening to jens weidmann. let's talk about what he talked about and there are two related things, one, possible rate hike, have not beeny specific enough in their guidance and it has been vague. to you agree? -- do you agree? mervyn: this guy is having to be big because none of us know what the position in the middle of 2019 is. we do not even know the position
in the middle of 2018. the central bank cannot decide interest rates for the future today. they can do it one meeting at the time. they can set out what they can see to be lagging parts of the economy that it is only a guess. it is no more than that. this pretense in forecasting can be dangerous. inflation can remain low for a long while and before you know what you are, it can be above the targets. it is dangerous to get precise guidance about the timing of interest rates when none of us know what the world or domestic economy will look like when you had. david: we certainly have seen that in the past in history, where inflation has gotten ahead of us. do the same paradigms apply today as it did in the past? increasingly have questions about models being used because inflation is not reacting the way we would have thought. do we need to rethink how we look at that question? mervyn: no. there is always a question about
the data, what is happening in the economy, the labor market, that we do not need a new paradigm. a paradigm -- search for a new paradigm is basically someone who would like to have a new idea but cannot think of one. i think it is important for people to stick to the basic truths that we know and understand. away.ion has not gone it is that guy. it will come back at some point depending on monetary policy. monetary policy has been successful. look at the big picture. it steered us away from high inflation in the 1970's and 1980's to a stable, low-inflation environment. that is the most important thing to hang onto, whether inflation is 1.7% or 2.1%, does not matter. what matters is it is not above 5% or encroaching on double-digit levels we saw in the past. that broad picture is what central banks need to aim at. -- u.s. the u.s.
inflation expectations have picked up, in europe, they have not. why? mervyn: one of the challenges to needs forrea is then different economies cannot be satisfied by a single interest rate across the whole of the euro area. it is striking that in germany, where demand has been running rapidly in recent years, what they need is not an expansionary some, thatcy, which they need a higher exchange rates. in countries in the south, they need a lower one for exports to compensate the weak domestic demand. putting these together turns out to be difficult. as a result, the euro area economy, although growing faster this year than it has for a decade, nevertheless, we are seeing the consequences of a long, prolonged period of we gross with substantial spare
capacity in many euro area countries. alix: the rhetoric from the ecb was spoken about, that the ecb can pare back bond buying if they can forecast their rate guidance because the private sector will step in and by sovereigns because they don't have that many currently. do you think that is viable that could care back qe, see a rate low, and everything is hunky-dory? mervyn: if they pare back the bond buying, that is another way of gradually tightening monetary policy. that is seen as a substitute for interest-rate increases. that is a potential path to follow, yes. i think the big challenge for the ecb, and we have seen this through mario draghi's office, is that their sole objective has been to hold the euro area together. to get any other objective, that has been the objective. there has been no other institution in the euro area there to help them. mario draghi has done a good job
in meeting that objective, holding the euro area together. at present, the pressure to engage in more sovereign bond buying has been reduced, and it may be that the private market will step in. the risk is, and i think the ecb and others in the euro area are conscious of this, that that sentiment can change quickly, as the data different points in the last years. and the ecb will need to be ready to step in again. people in germany have made clear, the underlying structural problems of the monetary union have not been resolved. that will require a move towards the fiscal union but there is not any democratic political support for that. that is the problem they face, how to square the move towards a fiscal or transfer union on the one hand with him aquatic legitimacy on the other. i do not know if there is an answer, but they have not found one. david: they have made every
effort and been successful at pulling the european union together. one of the cost of having a single currency with multiple fiscal plans is a distortion in exchange rate. you said the north really wants a higher needs, deserves a higher exchange rate. does that cause trade distortion? this is something we have heard out of the trump administration, saying effectively, germany has cheaper exports because they are part of the single currency, and if they had their own, they would eat an adjustment. mervyn: there is no doubt not just germany, which has a massive surplus now between 8% and 9% gdp, but the euro area as a whole has the biggest trade surplus in the world, far bigger than that of china. that is a problem i think. i think the euro area needs to confront that because they are exporting some element of deflation to the rest of the world.
this is not a sustainable position. something that's going to have to give over the next five years to 10 years and it is unclear what it is. the ecb has gone out of its way in the last two years to three years to ensure the euro has been weak in order to support french and italian economies. again, they feel there is less pressure not to do it but you can see from their reaction recently that they are sensitive to exchange-rate movements in the dollar against the euro. alix: last question, moving to the u.k., what is your assessment of the u.k. economy and how close is it to overheating? well, that is a judgment i would prefer to leave to my former colleagues at the bank of england. they have all the data in knowing that. one thing we should not forget -- one thing we should not forget is that the measure that people will look at the judge, whether there is any short-term inflationary pressure, will be
the rate of increase of earnings. that will be the main variable to focus on. in the longer term, total output, not just in the u.k., but u.s. and most of the industrialized world, is still well below where it would have been having not had a financial crisis. i think that is a big question mark about the future. it is a sign for optimism. there was a real chance of the next 20 years, we could see above trend growth with continuing low-inflation if managed properly. king, formerervyn bank of england governor and nyu professor, thank you. alix: joining us now is tv securities head of global rates strategy, listening to the conversation. what is your base case you on europe and how do you express it? >> europe or the u.k.? alix: let's do both are you >> for europe, i think -- alix: let's do both. >> for europe, i think how much bund yields have backed up is a in part of the entire season
global interest rates. our view is the ecb is likely to taper the end of qe, so by the end, they will stop. the market is done, and we saw this with the u.s., the end of qe typically marks that marks are forthcoming. the fed did a brilliant job by separating them, saying that you are tapering, we cannot hike. i think the ecb is struggling because of that guidance. markets i think repriced the hikes a little too aggressively in our view. we think that even though they will end qe this year, they will look at the inflation dynamics, which are not great now, and potentially hike extremely slowly late next year. so among the front-end of europe against the u.s. with this idea they will be able to separate this. ,p until the end of next year
so it will be hard for the next ecb president to start increasing rates right away, even if you have a significant shift in leadership. it is a gradual normalization but i think bond buying is done because you are getting synchronized growth globally. this is a chance for every central bank to pay back a little trade we have seen it with the boe. i think that is why qe is done and bund yield can continue to rise. david: when you talk of inflation data, will they get there with the strengthen the euro? it is a practical matter. priya: the question is, is the legal market type enough? some have almost closed, at least in germany, at least to the extent they can run and accommodative policy for longer. you can get some of cyprus, but we are talking about immeasurable's. these are things you cannot really measure. we only know the benefit of hindsight. that is why policymakers have to be careful.
are we seeing this information staying though i may be they never get to their target? that does not mean they don't remove accommodations because they made some ammunition. that is right just do it gradually. it has worked. alix: that is what all the papers of, does qe work -- let's talk about that. all rights, priya misra staying with us. romans away, jay powell's first testimony -- moments of a, jay powell's first testimony. and as we head to break, investor day. marginalon save the cost of trade approach zero with a trading. -- with e trading. this is bloomberg. ♪
stance. in other asset classes, it will get interesting in terms of the dollar, now emerging as the strongest g10 currencies into the release of powell's testimony. yields continue to move higher. joining us from d.c., michael mckee. reporter: this is one of the shortest and most upbeat testimonies and a long time, just for pages doublespaced. the powell era begins with the economic outlook strong, he says, and the fed planning further gradual increases in the right to keep it that way. powell says "the robust job market should continue to support growth and household income and consumer spending. solid economic growth among our partners should lead to further gains in u.s. exports and upbeat business sentiment and strong sales growth will likely continue to boost business investment."
any reference to the markets, he said "financial markets have tightened a bit in recent weeks, but remain accommodative. some of the headwinds that have faced to the economy in recent years have now turned into tailwinds, particularly new stimulative fiscal policy." he discussed whether that should to overheat,omy but says policy will "continue to strike a balance between avoiding an overheating economy and bringing inflation to 2%." inflation did begin to edge up a little bit last year, and i should continue this year and eventually should stabilize around the fed target. wages, he says, should continue to increase at a faster pace. all in all, economic outlooks are generally balanced, powell says come although he didn't really discuss any. no comment on budget deficits or how fast growth might be.
no direct comment on the stock market, the yield curve, or where interest rates may end up kamala things he is certain to be asked about by the committee may end up, all things he is certain to be asked about by the committee today. no indication from his paired testimony which way he would be leaning one way or another. alix: listings look at market reaction. it is a -- let's take a look at market reaction. the dollar continuing to gain some strength here as the best-performing currency. you're still seeing selloff in the bond market yields on the 10 and 30 year by about two basis points. in terms of the curve, again selling as you wind up seeing steepening their. in terms of the markets, we still wind up having a pretty call market -- pretty calm
market. we will see us equities can continue to hold up at all if we get a hawkish feel syrupy morning -- feel this morning. he's really noncommittal here. is not taking a strong stance that he's not taking a strong stance -- he's not taking a strong stance. he's not taking out any positions. optimistic,usly so if you are expecting and is a ver best to say he is very -- expecting him to say he is very worried, that is not happening. suspense -- for market participants, he is going
to continue to watch the data come in and respond to it. is one of the shortest ones and as dataing to say look, comes out that is how we will respond. >> i am struck by the question of who the audience is for this. the people he is going to be facing today in that hearing are basically going to like what he has to say, particularly republicans. things are going just find. he's -- just fine. he's really playing to that audience, isn't it? reporter: he does seem to be a bit. one person described it as the fed outlook is mildly hawkish, so he is basically giving them what they want. they are getting the economy they are looking for, and the fed isn't going to get anyway. they will watch the data. if they have to move may be will, but at this point no commitment either way.
jay powell leaves congress pretty happy going into the q&a part i would think. >> is there anything on the deficits? how much more do we have to borrow any markets? interest rates rise a lot on the long end, what is the effect on the economy? i think you will get some pressing on the deficit for sure, and that will be interesting. he's going to get a lot of pushback from republicans who just passed a lot of adding to the deficit policies, so you can't really say that is bad, but he might say they want to see a supply-side comes in. i think you will also get questions on inflation. from the democrat side, if inflation picks up, are you going to let it run above target? i am curious how much he stresses on the symmetry of the target. with have been running below target for so long maybe it is or is it above target,
that the more you get to 2% the more we have to press? having the markets will be extremely sensitive to any talk around inflation. >> we have the secretary of the treasury just last week saying we are going to make it up in volume activity increase. reporter: is nothing in the testimony about that. it is certainly something he will be asked about, how much investment will be needed to raise productivity and keep inflation under control. something priya was saying, it will be interesting to see the committee pick up on it. you had some fed officials talking about the need to go over 2%, to run inflation hot a little bit to make sure that inflation expectations rise to the 2% level. will they ask him how far does the let inflation run? will it get above 2%? how hard would you push back against the fiscal stimulus and
whatever it is adding to growth and inflation? alix: to point, it would be amazing if someone asked that question that directly and if he answered that directly. ,ut reading between the lines does that imply a willingness to overshoot their inflation target? guest: it does if you think the long run outlook has not particularly changed. one way to thread the needle could be i think long-term growth is likely to be higher because of the tax plan. productivity is going to pick up. so i'm going to let us run a little bit hot because long-term we are increasing potential output of the economy. then it doesn't imply that he's going to let inflation run. if he's more cautious, and in the past he's been more cautious, there may be long-term not responding to stronger growth that would imply he's letting inflation run. the yield curve was absolutely
respond to what side he takes. >> how likely is it they will press him today, specifically on how long this growth will continue? we just had last week the white house cannot with their economic assessment, and as you know, we are going to have 3% plus well into the years. reporter: no doubt that question will be asked for in ways by embers of different parties. republicans will want how old you say we are going to see strong growth without inflation for a long time thanks to the tax-cut. democrats are probably going to hammer away at the deficits and say interest rates are going to rise whether you do anything or not. does that mean the growth rate is going to slay down and we did eat -- going to slow down and we productivity,et but inflation? alix: what is the trade? guest: i like steepness here. global growth looks strong. inflation has started to come
back, at least from the very low levels. it is hard to say with great conviction that rates are in decline. where i feel strongly that the curve here is going to steepen because i do you get positive long-term growth potential, and which case i think the fed would probably run for a trial -- for a while, or the fed could say we don't want to respond to short-term growth because of the tax stimulus and we don't want to hurt the economy. higher than three hikes seems like a bit of a stretch. i think the front end is now anchored and all the pressure is centered around trade patients. i think the spread is going to
keep whitening -- widening. they can effectively widen conditions more much more than the fed hikes, but that is not because of credit. in the past it was because of bank credit. this is because of a lot of supply coming into the market. that is creating a competing product for money funds. this also repatriation. if i was a massive corporate dollar cash portfolio, all of my investments were in bank paper. now that money is coming back to the stock market, that money is not getting invested in bank credit. it is a question of dollar funding being priced higher. we are seeing this in the credit market. for fundinging more because this method investor base has stepped away. i created a little bit of a structure event, nothing to do with credit. it is just the cost of funding as it goes up. i think libor is going to
continue to rise. i don't the get really hurts the economy. it just means, depending where you are, is going to affect your p&l. i think it generates a much more impactful growth in the credit markets, etc. >> many thanks. coming up later, former federal reserve chairs ben bernanke and janet yellen will be speaking live together at the brookings institution in washington dc. j.p. morgan chase and the days going on today -- chase investor days going on today. taylor riggs has been listening in. taylor: we are still waiting to hear from jamie dimon. they have dedicated these first 30 minutes to talk about have digitally savvy they are. they got left behind from some some of thehts --
smaller ones. they are really working on being integrated in a customers everyday activities. the best way to do that is through digital and payments. they announced a $300 million gap to close out where they were when they felt they were behind. they are on the rita doing that. they are working quickly to get a real-time services and payment to get better, faster, better, and cheaper. they say their digital advice rollout is planned for later this year. more coming up still on digital and payments, the focus for now. alix: thank you so much. slip inp, macy's shares the market after earnings. we talked to ceo michael gold about the state of retail, not as bad as we may have thought. after the break will tickets with -- break we will take a quick check on the markets.
this morning's macy's. shares are surging after the company posted a surprise sales gain last quarter and says it sees that lasting into 2018. joining us now is michael gould, formally bloomingdale's ceo. tell us about macy's. they are having a good day. guest: i guess the number was about 1.4%. considering that is the first quarter in 12 quarters they have beaten scores from the your before, that is good. of the lastuarter two years i think they've been 1.4 on eightt is a over a two-year trend. from a psychological point of view, as i was working at macy's, i would feel better. ism a point of view of this
the answer to the problem of department store retail, not at all. >> in all sounds like it is technical. are their strategic things they have done that would actually sustain this growth what going forward? guest: i don't now. the department store model is broken in my mind from the men's macy's.sachs to the fact of the matter is when you look at the macy's numbers and see the cash flow they spin ,ff, this is a viable business but is it a viable business with a real growth pattern? can it compete with amazon and tj maxx and those kind of businesses? at this moment i still don't believe so, but i still believe it is a great brand and the new ceo baby has an opportunity to look at some things differently. alix: coming out of the earnings season, which retailers are best positioned to weather?
guest: i'm a great believer in walmart. i know they got whacked last week because the internet was off. i think that is very shortsighted on the street because i think that is 3% of .heir business the things they are doing come of by online, pick up in-store, 90% of american citizens live within 10 miles of walmart. think about the impact that has where amazon has 40% of the amendment can best american population lives within 20 miles of a distribution center. i think home depot, cosco, tj, burlington, ross, that whole mill you -- it will be interesting to see what happened this they go private. i think the department stores are the strongest of the
independents with a future that is going to be needed. alix: you look at tax reform to these companies come what do you think they should do with the money? should they compete each other in terms of discounts? do they raise wages? was the most likely scenario for this group? guest: the easy way out is to buy back stock. the next thing is reduced debt. the more complicated thing is they are really going to put interesting or serious money behind building the brand. that will be number three. take a look at what macy's did over the last number of years in buying back close to $7 billion worth of stock at very inflated prices. think that you can grow this business, but the model has to change. what is going to happen is an interesting question, but the real key is are you going to put enough in to really change the template of the store over time.
when you think of what walmart has done over the last two or three years with a new ceo, you have the biggest ship in the harbor that can turn the way they are turning. i really do believe it. people use amazon as the issue. i think amazon is a false issue. i think amazon has enormous impact on the market, but amazon is not the reason department stores are suffering. there's a statistic i saw the other day that of the 26% of macy's shoppers in the last three years, less than half of those have migrated to amazon. the rest of migrated to kohl's, target, tj, and walmart. that is really an important issue. david: thank you very much. thank you very much. they can distribute some
r&d costs. we are joined now by paul sweeney of bloomberg intelligence, director of north american research. everybody wants sky all the sudden and once a pretty badly. what is going to happen here? i think disney and fox are going to have to think hard about coming back to this asset. the comcast bid is a full weightedbig -- full bid. there were some problems with the 21st century fox assets. has comcast essentially found a way to get around this problem by just going at sky? reporter: i think so. one of the key points for 21st century fox is to increase their international exposure. sky does that for them.
the thing i found a distressing -- i found we need to buy them to be able to get their interactivity with their viewers. sure there's a lot more due diligence than that, but clearly they recognize sky is a unique brand and it is not just such a great growth business, but certainly better than what they are seeing in the u.s.. they successfully done already what bob iger is trying to do with espn. million --ave a 23 they have 23 million direct subscriber relationships, but everything we set about comcast also applies to disney. disney clearly once this asset.
is going to be a question for bob iger of what price. alix: coming up, we just got headlines from jay powell's first congressional testimony. what will happen during the q&a? if you have a bloomberg terminal, check out tv . charts andr graphics, and wrecked us directly, scroll through and check it out on your terminal. you can also contact us on twitter. this is bloomberg. ♪
"strong sales growth will likely continue to boost business sentiments." david: as you say, it is all about the q&a. it is four pages doublespaced, pretty darn short. alix: a totally different world than janet yellen. the key, how will he categorize inflation going forward? growth is good and they are keeping the set pass, what is that mean? how does fiscal stimulus weigh in on that? what the excitement coming up in about an hour's time. "bloomberg daybreak, the open." this is bloomberg. "bloomberg markets, the open." this is bloomberg. ♪
coming up, federal chair -- federal reserve chair jay powell gives his remarks. to takesets the stage over sky, challenging 21st century fox and the walt disney company with a $31 billion offer. the market just 30 minutes away from the open. days on the s&p 500, we are lower about 1/10 of 1%. yield onstable, the jay powell saying the fed must strike a balance to avoid overheating the economy. bridgwater's