tv Bloomberg Markets Americas Bloomberg May 16, 2018 10:00am-11:00am EDT
vonnie: here are the top stories -- a rash of economic data out of , we will examine it in moments. d.c. withrise in headlines in the senate judiciary committee, and north korea is threatening to bail on a meeting with president trump saying u.s. demands are one-sided. from the white house just ahead. that and lots more with plenty of stocks moving already, 30 minutes into the u.s. trading session and abigail doolittle has been keeping and i on things. abigail: this is following yesterday's solid declines after leslie's big rally so this year's theme for stocks is volatility. with theome upside
bulls in charge. one sector doing really well is consumer discretionary. 6.4%, onght is up track for the best day of the strong first a quarter and beat metric estimates across the board. sales were gaining for a second consecutive quarter and they boosted the outlook for both the top and bottom lines. it looks like the ceo turnaround plan is working and investors want in, they are actually bidding up other department stores. jcpenney and nordstrom are off the highs closer to the open and both of these companies report tomorrow. it will be interesting to say if it's a secular story for department stores. some outperformance for chip stocks, up 1%, being helped byamd as susquehanna upgrades shares to a neutral from negative citing a solid first-quarter.
higher ass trading it's been to close that there was a 2.1% stake in the company and macron is up 3.5 percent as rbc has launched additional coverage saying that even if the memory cycle of going into a downturn, they see upside despite that has ability of a trough. the big driver this week has are noting rates which happening now. the 10 year yield is down slightly. rallying ever so slightly for the third time in 12 sessions because yields have been rising to such a degree in that's causing the volatility for stocks. today, not a lot happening across asset classes which explains what we have those small gains for stocks. we are struggling for direction. 600 has been stoxx
flip-flopping this week, struggling to gain traction after seven weeks of gains in europe. i am looking at the miners pushing on the upside but banks are dragging is lower. struggling for any direction. i want to focus on a couple of key movers. banks and these two stocks, hsbc and rbs will be trading higher except for the fact that every single bank is trading lower but they are actually outperforming the market. a deal could be done in saudi arabia to form the third biggest lender in the middle east. hsbc is looking to buy the rbs unit in saudi arabia for $5 billion. red,though they are in the they are outperforming the rest of the banking sector in europe on that deal that looks to be done. one of the key laggards today is
the biggest papermaker in the world might not be looking to make any sort of approach. it's an irish packaging company and the world's largest international paper company. there potentially looking at a percent of the company but have ruled out any sort of hostile of roach. down goes that stock at a particular underperformance today. the story of europe today is one of italy. check out italian assets. of the stock market, it's underperforming significantly and bonds are selling off with yields spiking above two percentage points. that's the first time since march for italian bonds. the reason is it's all about the populist party potentially talking about right down to the tune of 250 billion euros in terms of a government debt write-down. we understand one of the to best parties is going
looking to ask the ecb to freeze and cancel government on payments. no wonder we are seeing a slight selloff and the reality of whether they gets done is the sending someit is shivers down investor spines so there is a selloff in italian debt which is affecting the fx market. the euro is down at the lowest we have seen in the whole of 2018, striking a new low. the reason has been one of concerns about geopolitics and concerns about what's happening there areut also april inflation numbers coming in lower than expected. that is all building into the next dispense on when it comes to the euro versus the dollar. vonnie: we want to zero in on one of the major market moves of yesterday and that's the 10 year yield. really, the whole curve was moving yesterday. top outedicts it will this year at 3.5% and other
players can go as high as 4%. we can have as many forecasts as we have major bond investors. sydney, thet in head of asia-pacific said these how yields will become an impediment for growth but they are an opportunity for investors over a longer time horizon. give us the impact on the economy of these higher yields. >> i think yields will rise but if they get above 3.5 and close to 4%, that would be more problematic for the economy. year, if wef the get to 3.25 which i think is more reasonable in our forecast, i think that should be absorbed double for consumers. -- that should be absorbedable for consumers.
we are getting a lower tax rate in that should provide some cushion for their spending power as well. i think consumers are still in very good shape to spend more this year even with higher interest rates and a higher energy costs. vonnie: this move yesterday from all of your reporting, was it a grind higher or some kind of panic move? do we consolidate here? >> it seems like we are today. it was a move that was driven by futures so there was a lot of key levels that people have been watching for weeks. we have gotten close but have not quite gotten there. it was a clear move higher for the rest of the day. from a fullk at it market perspective, there was concern about deals being the end of the stock market. people would get freaked out and start selling equities that we did not see that. the market was down yesterday but it seems to be holding today
and people are getting used to these higher rates. as we move higher, is there a tipping point or more consolidation and getting used to this as a new normal? that there was a bigger outflow out of em then during the taper tantrum. it seemed like armageddon had broken out. is a very interesting focus. from a global perspective, that is where the cracks may be in the market. as far as the u.s. is concerned, it seems like people are getting used to the fact that we have 3% or higher on treasuries one less than two years ago, it was less than 2%, even 1.3%. it's a very quick recalibration and i think the market is maybe short minded in some ways and the fact that they can get used to this and look beyond to em or
elsewhere. think --hy do you where'd you think the yields will cap out? where does the supply commit to all of this? >> the supply is a concern. we are concerned is for us how well the markets absorbed all that additional treasury issuance but also the fed rolling up its balance sheet and treasuries that were held overseas under the new , it's anion rates unprecedented supplies of that is something to worry about. i think 4% is maybe a bridge too far. range ofewhere in the 3.25% is more reasonable by the end of this year. it's certainly a bigger risk given the huge influx of supply. let me broaden this away
from u.s. debt and talk about geopolitical risk. i am focused on italy in particular where a big move is happening in terms of yields. they are spiking at 11 basis points. caroline: where do you see the geopolitical risk in europe when it comes to 250 billion euros of a debt write-down? >> i think that's the big question. she geopolitics play in when you have a future focus on the market on monetary policy between the fed and the ecb? that therehuge idea is a global unwind taking place right now. i think the markets are trying to figure out exactly where geopolitics and these traditional risks fit in to an -- easingted unwind that we have unseen in the wake of the financial crisis. vonnie: what do you foresee for
the u.s. economy given that number of uncertainties we face? ofthere are an awful lot satellite risks for the economy. given our outlook for the risk that will develop like an energy crisis that we have seen and further rising interest rates, we still see united states growing close to 3% this year and approximately 2.8% next year. if we look at the rise in interest rates and compare that to americans working who have an income of $100,000 and below, they will receive a little bit less than $70 billion in a benefit from lower taxes. those are people likely to spend that money. you can look at the impact of higher in just rates and that will be more of a marginal and ifnt to that figure
we look at higher energy prices, that should shave about $40 billion. even with that there are still a good from lower tax rates, higher income from their jobs, and a little bit stronger wage and salary growth. it's all about consumers and consumer debts are in good shape. corporate balance sheets are in good shape and they are likely to start paying down there debts now that the repatriation rules have been implemented. i think the outlook is good in that should alleviate some room for the additional treasury issuance that obviously is coming down the pike. vonnie: your forecast? three .5% this year and 2.8% next year. later, anming up exclusive interview with st. louis fed president james bullard. that's at 1:30 p.m. new york time, 6:30 p.m. in london and he's always a fascinating interview.
let's check in on first word news. haskell - haspel is one the caa.er to many democratic senators and two republicans oppose her. i cite her role in supervising waterboarding and other terror -- interrogation techniques that others called torture. the white house as a warning of its own for north korea. threatening to pull out of next month's summit north u.s. insists that korea surrenders nuclear weapons. a white house spokeswoman says it there is no summit, the u.s. will consent -- will continue with maximal pressure campaign on north korea. talks in italy are said to be winding up. the head of the anti-migrant against the five-star moment are in the final stretch. thatwo parties may demand the central bank right off 300 billion dollars in debt.
included that russian lawyer. kevincerilli.y will be some time to go through but is it expected that anything new will come out of these transcripts? morning, the transcript of donald trump, jr.'s meeting from 2017 where he met with senate judiciary committee stay for being made public this morning, more than 2500 pages. at the core of this is a june, 2016 meeting that donald trump junior talk with then campaign chairman paul ryan apart and a russian lawyer. according to this meeting, donald trump junior told investigators on the senate judiciary committee that she had proposed that she might have political dirt on democratic presidential nominee hillary clinton. but he told investigators that i
did not allude with any foreign government and do not know of anyone who did. he was skeptical of the meeting and told investigators that later turned out my skepticism was justified. i spoke with a spokesperson who appreciate the professionalism of the committee. he is raising chairman chuck grassley as well as senator dianne feinstein. democrats are also responding to this news. they suggest there -- this further suggest that the trump campaign tried to get in touch with russian intermediaries in order to somehow get political intelligence on former secretary clinton. this comes at a time in which bob mueller's investigation which is separate from the congressional investigation is still ongoing. don junior is saying i never spoke to my father about
the meeting before it happened. are we learning anymore about the motivation for having the meeting and the first place? the trump political orbit is in full force this morning saying there is no evidence of collusion with any type of foreign government. thatd trump, jr. is saying as well as committee staff. they said there was no collusion and the president has said that consistently. meeting,s specific it's been a focus of bob mueller's investigation and has drawn criticism from democrats and certain republicans about the nature of that meeting. the president's son testified that he did not tell his father about that meeting which would, again further suggest that there is a difference between candidate donald trump and this meeting. says he didt's son
not collude with any russian officials. looking at another meeting, the one between the leaders of donald trump and north korea, there is talk that perhaps north korea is pushing back on the outlook for that meeting. what are you hearing from the white house? more time and distance from a delayed meeting with the north korean dictator might not be a bad thing. or is a lot of caution in terms of any talks with the north korean leader and that will continue but it's up to him if he wants to isolate himself. kevin cerr thanks to illi. more on this coming up. today, a portfolio manager that no one has ever heard of from vanguard who oversees more than a trillion dollars.
caroline: welcome back to bloomberg markets, live in boston with my cohost vonnie quinn in new york. day, taylorme of riggs. robert amedeo is head of municipal's at asset management. it's great you are here because the big news of the week was the supreme court ruling that now allows gambling. new jersey brought the case and they seem to be a clear winner. how does that affect the credit profile and how much spam -- can they benefit from the tax revenue? >> i would say the sports
betting marketplace is new and potentially very large for the united states and it's one where there is a lot of optimism about the potential economic benefits especially at the state level. runners likefront new jersey and nevada which already has of hook up and running but when you look at the numbers behind the headlines, they are less robust. when you look at the state tax revenue that comes directly from ofbling, it's around 2.5% the total budget so it plays a very minor role. picks uphat significantly or even doubles, it will not play a significant role. more importantly, the level of competition will be severe. many states are going to try to enter into this market place with offshore, onshore, rick and mortar versus online alternatives will surface so this has a lot of facets that will unfold over time.
taylor: you say revenue has outperformed on every different timetable so are you still optimistic about the sector or is the out performance overvalued? >> municipal bonds have asked -- have performed externally well in a challenging marketplace with rates rising as inflation has turned there is an it's ahead of the actual inflation data that's out there. the fundamentals in the bond market are solid. you would have to go back more than decade to find stronger fundamentals in the public finance marketplace. one of her favorite trading strategies is bonds over debt. we had been talking about puerto rico but they are not cash flowing bonds. it's a distressed situation or look at the virgin islands with bonds backed by revenues that come from the sale of rom - rum. those bonds are up 25 points.
the dow jones industrial average is slightly underperforming today. of 1%.ly up1/10 all eyes are on the you is yield and when you look at the european majors, you have to keep an eye on the ftse and it's all about the italian issues are looking to do a cut to their debt over all. let's look at other breaking news. vonnie: crude oil inventories are coming in about as expected. we were looking for a drawdown of 1.30 5 million barrels so little bit more than forecast. wti crude is off the lows of the session. gasoline inventories are much larger drawdown. almost 3.8 million barrels last week and that's another week in a row.
downery utilization came to the positive. it was negative last week and went positive this week. once again, wti a at $71.12 per barrel which is at rates that most of us have the klein. speaking of oil, crude trading is just a little down today with rising supply. e has forecast higher demand. let's talk to an airline ceo for mexico city. of aeromexico and thanks for joining us. have you hedged for the cost of fuel? >> as you mentioned, it's likely good news that prices are coming
down a little bit but still, they are well above last year. saw was the last time we these $80 brent prices? that was four years ago. the airline industry was different for years ago and the other variables were different. peso wasn, the trading at 13 and now it's close to 20. there is pressure on yields so it's a challenging environment versus four years ago. there are macro concerns surrounding mexico united, one of the major u.s. airlines retreating a little from mexico. is that a sign of concern about the broader u.s. -- mexico market? , in my view, after open
we have all 2017 with a new agreement between mexico and the u.s. areas that were adding capacity. happens that their expectations on the reality is different than the expectation, they change their plans. going forward, i think we will continue to see the reduction in capacity but it has nothing to do with the dynamics of demand. transportand and the market and better trade figures in the last year and during 2018 even in the context of the new nafta negotiations. we have to do more with the capacity rather than weak demand. airline stocks in the
best of times are very volatile. plan to ride the prices higher and the weakening fair environment? >> it's a challenge. provide better prices of your stock and more value to the company is to provide good results. we have been doing that. we just raised our first quarter numbers. we were the only ones in the mexican industry who provided a profit. for 32 consecutive quarters, we have been providing positive numbers. that is a very good a competent for the airline industry and we will continue to work hard to improve our margins.
i think we have the best value proposition. we think the market will bring additional value and everything we are doing in the domestic market with our dreamliner's and her widebody fleet, we are working great with them and now we can provide only dreamliner routes.in our long that has provided positive results. let me ask about your domestic marts as far as politically. you have elections in a few weeks and there is concern the anti-establishment leader will come into power. of a key business in the country, how do you deal with the political uncertainty? this electoral campaign, commerce has been in the center part of the debate and we are a major player in mexico. mexico's flagship
carrier. in this particular case about the uncertainty, this is not a political position. mexicoposition that needs a new direction. if we want to be at the center of development going forward to constitute the hub of the americas, we need a new airport that should have the best connecting times and it's efficiently operating with low costs. that's a challenge and we will and with the new president the party that he represents to make the case that this new airport is needed and it will be good for the economy and the airline industry and good for job creation. to work we will be able
in the airline industry in contribute to further growth but bring the country forward. caroline: so focus on the airport, on infrastructure -- let me ask a you navigate the mexican peso. amid the election uncertainty, there has been a reverse in the fortunes of the mexican peso which was one of the best performers of the year, down about 9%. have you been hedging that? how do you navigate currency volatility? have a veryse, we diversified business. roughly, 60% of our revenues are non--peso currency, mostly in dollars but we have yen and euros. 2/3of our costs, around
are linked to the u.s. dollars. we have a natural hedge. in financiallyve hedging our exposure. oil we do is hedge against but not against the exchange rate. that's the positive of our business model. peso forward, if the continue to depreciate, it will have an impact on demand and real activity and that will have an impact on her business and the rest of the business in mexico. vonnie: you have been a big boeing customer. you were thinking of maybe switching. what is the position of aeromexico now? >> at the start of the year, we were analyzing the possibility of modernizing a regional fleet. in the main line, we have a boeing fleet. in the connecting routes, we
have a bombardier fleet. in the context of the trade of exports to the u.s. which was resolved, after the resolution of that, it opened a window of additional time to analyze the decision so we are currently analyzing whether to bring the e-2 oreries and the staying as we are with a relatively modern fleet of 10 years. we will hopefully make those decisions in the second half of the year. vonnie: before we let you go, the best destination in mexico this year? >> even though it's been tough , we have european consul
-- consolidation working with asia and we see lots of traffic not only to the traditional but alsoestinations solid numbers in the center of mexico. we continue -- we just opened in theght between bahir center of mexico and detroit and it's working great. that thisthe benefits is bringing to the bennett -- to the business. vonnie: our thanks to you. let's check in on first word news. house sayse president trump is ready to meet kim jong-un despite north korea's threat to scrap the summit. pyongyang warned kim jong-un would pull out if north korea is in's -- is pressured to give up their nuclear program.
the hamas led organizers of the palestinian marches along the gaza border have rejected a shipment of medical aid from israel. they are refusing eight tons of supplies even though there is a widespread shortage following the deadly protests. hamas says the palestinians would not accept medicine from the murderers of our people. housing starts fell in the u.s. last month, residential starts fell 3.7% an apartment construction this -- declined more than 11% which offset a modest increase in single-family homes. day, news, 24 hours a powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. vonnie: thank you. here's what's coming up in the next hour -- federal reserve in focus as we hear from incoming new york fed chief john williams on his rate predictions, i cannot wait. we are live in rome, italy where populist leaders will meet in a final push for a coalition
caroline: welcome back to bloomberg markets. we have been shining a light on some of the key companies and one of them is raytheon. you may know it as a defense company but it also has a key tech part of the business. it's big in cyber and i had a chance to sit down with tom kennedy, the chief executive, in a rare tv interview, take a listen. >> let me go back to the foundation of how we got involved in cybersecurity.
it was about 20 years ago and we noticed an uptick in attacks against our systems. we did not find anything out that was in the open marketplace for us to use to protect ourselves. we had to figure out how to secure ourselves. we went off on a program to develop cybersecurity for our company first and then develop that cybersecurity to support our customers and their products and solutions. caroline: how is that scaling? you are so broadly based in terms of countries. is the same level of demand coming around the country? >> everyone is connected today so we have significant demand globally and domestically for our products and solutions from the government side all the way down to small companies. caroline: do you think governments offer enough in this area? are they helping spur private solutions? >> we have to ensure that a
connected world is a safe world. we need to ensure that we are providing the cybersecurity for all of our networks. we also have to be very concerned about the operational side, the factories, the infrastructure. there is a big push for us to get into the vehicle to vehicle marketplace. those vehicles will have to be otherwise one corrupted vehicle will corrupt of them all. caroline: are you finding the level of security threat is on your missile guidance systems or is the level of threat consistent? >> we see about three major threats. one is nationstates coming to attack us and get her information or try to alter the information we have two forces to make wrong decisions. the next threat is criminal ,ctivity to steal information intellectual property that they can sell on the dark web and the third area is the employee. and theyood employees
have good cyber hygiene so it's a process to make sure they have the right hygiene to operate in our networks. there is the potential that harm youthat wants to so we provide cybersecurity products to protect against all those threats. caroline: what things are you seeing being built? >> machine learning come artificial intelligence and how you apply them to product solutions -- a new wave of capability we are looking at and putting those type of products into our solutions we provide customers. caroline: 3-d printing? we call it additive manufacturing with opens up a door for companies relative to their supply chain. can they build those product in their company or done outside so it's a new dilemma. additive manufacturing will change the way we do manufacturing in the future. ipoline: you talked about
and the fact that that is a concern. do you feel the focus at the moment in terms of the u.s. versus china is the right way to look at it? >> i think we have to protect our ip. you have to be able to protect your inventions, new technologies, compete in the international marketplace. if folks are stealing that ip and replicate the technology and other places in undermining you in the global marketplace, it totally impacts the business. when your presence is in the middle east, what about geopolitical risks? >> we operate worldwide. becoming atly geopolitical expert relative to what's going on in the world. impacts day to day business activity so i have to be aware what's going on in different
parts of the world. that's part of our business. caroline: how do you react to it? >> i make his decisions but now we are heavily invested in europe and the middle east and invested in asia along with the united states. caroline: how do you see raytheon continuing to grow? where do you see these parts of the business going? solutions, the solution that make the world a safer place whether that's the cyber domain in terms of cybersecurity or providing a system like the patriot system to protect against ballistic missiles being launched at a country -- we want to make sure we protect the sovereignty of nations and freedom of their people and safety of their people and we want to make sure we do that with products they can trust the first time and every time. the endgame is really to make the world a safer place. caroline: that was tom kennedy.
epicenter oft the withlitics based in boston 64,000 employees. the weather was a little bit better there. glimpse insidea that mammoth company, great interview. it's time for a stock of the hour and that's macy's, shares up more than 8%, the best performance of the year for that stock after earnings and abigail doolittle has more. abigail: they beat earnings by slightlyosts were up what they boosted the full year view for the top and bottom line. this goes to the question whether the ceo's turnaround planned is working. by a betters driven shopping experience for customers through specific products and personalization.
the technicals may suggest the stock has hit an inflection point. chart and itg-term shows the stock is holding support breaking a down trend suggesting the stock could continue to climb higher. vonnie: there were some interesting moves in and out of the likes of other department stores. : is this for the department stores overall? macy's is doing specific things for the company and have launched the shops were they have higher end products and have the expansion. they of closed a number of stores so it's not clear whether or not the structural issues in retail like declining mall
novartis says the move came in the context of talks with the contract with michael cohen. china's most popular social network posted quarterly earnings been beat estimates. 621% from aumped number of users exceeding one billion for the first time. they own the giant we chat messaging platform. that is your latest bloomberg business flash. caroline: let's have a quick check on the markets. almost an hour into trading and united states with gains like consumer stocks. we talked about macy's outperforming at the moment. across the u.s. indices and we are tentatively trying to hold onto gains in the european stock market. it has been out performance of miners and an underperformance of the banks but all eyes on italy with concerns surrounding the particularlyairs,
as the antiestablishment party is trying to form the government. they are potentially discussing of 250 write-down billion euros. that's a significant move and that's being seen as a key laggard and italian bonds are selling off significantly. all of that is starting to come down on the euro as well, hitting a new low of -- for 2018. we will cover all of this in the european market close coming up. this is bloomberg. ♪
quinn. this is the european close on bloomberg markets. nejra: deal dilemma. european leaders debate the future of the iran nuclear accord. angela merkel saying it's not right to walk away. to walkrea threatens away from meeting with president trump saying the u.s. demands are one-sided. and italian bonds bashed. populist parties seek a debt write-off of billions of euros. let's take you through all the market action in europe. we are just under 30 minutes of the close. but have a look across asset at what's happening. it is up .2%.