tv Bloomberg Daybreak Americas Bloomberg March 22, 2019 7:00am-9:00am EDT
weaker market. germany faces negative yields. global bonds rally. german bund yields hit a two-year low. in the eu gives prime minister toresa may two more weeks get her deal passed. --e alix steel carol massar alix steel was carol massar, and for david. pleasure to have you with us. carol culkin -- carol: one of his favorite targets is the federal reserve. here's what he had to say. pres. trump: i hope i did influence, but i don't care. i think i was right. and they tightened. they did $50 billion a month, so
?hat are we doing here carol: the president going on to say he was right when he chastised the fed when it was still being aggressive when it came to interest rates and saying i was right about this. maybe president trump was right the whole time. alix: in the markets, definitely a risk off day. it is a huge rally in global bonds, the two things you really need to know. s&p futures off by 4/10. euro-dollar is taking the cake here. the outperformance of the bond market in europe a big one to watch. carol: for the bloomberg first take, we are joined by gina martin adams, chief equity strategist for bloomberg intelligence, and rachel evans come our bloomberg etf reporter. we thought we may be ending the week on a quiet note, but we are not. let's start with news out of
europe. we continue to look at the euro zone. the bloomberg, you've got a look at the euro zone pmi. we did see a contraction coming in for the region. the weakness again mirroring sentiment we've heard from the european central bank's this month. we continue to see weakness in the european economy. gina, when we talk about what is going on the global economy, we talk about this synchronized global slowdown and contingency data out of europe. ina: europe is the weak spot the global economy, and this seems to have taken investors somewhat by surprise. six months ago everyone was focused entirely on china. what is going to happen in the trade relationship. carol: and now we are just focusing on europe.
gina: we talked about this as a major risk to the earnings trade going forward because analysts were marking down expectations for companies exposed to china at roughly five times the pace. at the same time, stocks in the s&p 500 that are exposed to europe are trending at a very big premium to their long-term average, whereas those exposed to china were trading at a very big discount. we had priced in china weakness, but still have not seem to capitulate on european weakness. i'm not sure what the reason for that is. maybe because these stocks are traditionally a lot more defensive. nevertheless, clear that the economies in europe are the week like. -- are the weak link. alix: you have a margin here in european equities. rachel: when we look at the etf flows, i was really taken this week looking at a fund launched
by jp morgan back in june. there has been a steady inflow of funds over the last nine that has so, but actually started to stop. in the last couple of weeks we've seen the first outflows from that fund. that suggests maybe people are taking a pause on thinking europe might pick up. alix: interesting. that leads us to a huge rally in the global bond yield world. yields really sinking to two-year lows in japan, as well as germany. thisdnesday the story was is going to be great for risk parity. now the story is are we worried about global growth. diversion'sis this that's been going on for several -- divergence been going on for several weeks. that historically has led to some disturbances.
the 52 week rolling correlation between these asset classes is still positive, but if it continues over longer periods of time, it becomes disruptive for any allocation strategies based on the concept that stock prices and bond yields move together because that has not been the case. you are also seeing interesting divergence in the equity market, in which the leverage portfolio is still outperforming. the companies with high leverage tend to perform in line with the yield curve. the yield curve continues to flatten come of the leverage portfolio is outperforming. the last time we saw this is 20, telling you stocks are anticipating an improvement in the yield curve spread -- saw this was in 2016, telling you stocks are anticipating an improvement in the yield curve spread. carol: we look at the difference between the six month and the 10 year, we've seen a similar reduction in yield. should we see this as an indicator for what might come in
the economy? should we be nervous we see the spread reduced? gina: i think you get really nervous when it is reversed. this is the primary indicator the new york fed uses in recession probabilities. it now suggests there's greater than 25% chance of recession as a result of this flattening in the tenure spread. we use a two-year, tenure spread. -- two-year, 10 year spread. it is an indicator, but a really consistent leading indicator of economic growth. alix: rachel, exactly how much money went into bond funds in the last week? rachel: we have really been seeing a shift. a lot of people have been rotating from longer space into the short space. you can get the same yield for buying short data debt. a staten watching bil, street fund focusing on the very short end of the curve. that saw its biggest inflow this
week in a month. that tells me people are starting to move back into the short end of because you can get the same yield. carol: another when we got to talk about his brexit. prime minister theresa may getting another couple of weeks to try to get a third vote through on her referendum. here is what theresa may had to say. pm may: i hope we can all agree we are now at the moment of decision, and i will make every effort to make sure we are able to leave with a deal and move our country forward. carol: that is day two of the eu summit in brussels. she has gone back to the u.k. to try to get this through. gina, i don't even know how to price this at this point. gina: neither do the markets. you see it in currencies and the u.k. indices in the equity market. it has just been this coiling into a very narrow range because the market doesn't know how to price this either.
ultimately this is more uncertainty for longer because we just don't know. we don't know if there is going to be a deal, a no deal. there is still a remote possibility there is no brexit. carol: it is the same questions. gina: and it persists. the longer the uncertainty go on, the longer the economic suppression goes on in the u.k. the longer the lack of business investment continues. the result is much lower growth for a longer period of time. alix: it is like a teenager getting an extension on a term paper. [laughter] alix: bad idea. gina's point, everyone is sat on the sidelines waiting, but we did finally see ewu, which focuses on the u.k., volume spiked yesterday. obviously the biggest impact has been in the pound.
we are not seeing that quite so much in the u.s. etf side of things. there's a little bit of impact in the domestic market. alix: we are off and running. thank you so very much. a reminder, you can find all of the charts we used and more throughout the next few hours on g tv . coming up, from best-performing worse,t, journeyman -- german manufacturing debtor slumps. this is bloomberg -- manufacturing data slumps. this is bloomberg. ♪
apparel company delivering strong third-quarter earnings, but it came up short on north american sales. nike beat expectations in other regions, including europe, china and the middle east. the new york stock exchange weaning what could be one of the five biggest listings of longtime -- of all time. uber is expected to publicly file for its offering in april. to listing could value up billion -- $1200 billion. according to jp morgan, the problems affecting the boeing may affect business investment and growth exports. that is your bloomberg business flash. alix: thank you so much. what is interesting is not only the competition gdp, but production was halted for a a level offuld take
of gdp, so there is an impact. carol: they continue to manufacture at this point, but if the situation continues to go longer and if they stop production, you're talking about something significant. aircraft orders are about 10% of global goods. alix: noisy data. deutsche bank is promising to end years of revenue declines, but the bank says it will depend on solid economic growth. deutsche bank among a growing group of banks. talk us through what deutsche bank is inspecting in terms of revenue. reporter: the revenue expectations are diminished, and have been for a very long time. we've been seeing signals from other investment banks, jp morgan, ubs this week that the first quarter is going to be very tough. there was some optimism in the statement here. "it is important to
acknowledge we operate in a challenging market." still seeing positive growth at some point going forward. reporter: that's been the refrain for some time, that they are very hopeful there will be some type of revenue growth. they've been doing a lot of cost cutting on the investment banking side and the retail banking side. i think at this point with deutsche bank, it's very must the proof -- it is very much a proof is in the pudding situation. should take any statement on growth from the banks with a grain of salt. carol: for several years, it's not been good at this bank. why should we trust what they are saying in terms of their understanding of their outlook? do we really feel like they have a grasp on what to come? arerter: i think skeptics certainly the ones to listen to when it comes to deutsche.
the new ceo came in last april and did have a pretty good full-year result. they delivered the first profit in the last couple of years. i think he's built some credibility in the marketplace, but this is deutsche, and it's been quarter after quarter of revenue to measure spent -- revenue diminishment. alix: yes it has. thank you. carol: europe's outlook was thrown into doubt following weakness from france and germany. take a look at euro zone pmi data this morning. a disappointing number, particularly when you come to manufacturing. the slowdown in manufacturing we are seeing in germany really impacting the overall european zone. germany's bond yields are hovering just above zero for the first time since 2016, after the many factoring industry shrank. joining us to talk about this is rob walter, invesco's fixed
income strategist, and our own michael mckee, bloomberg's international policy correspondent. ina martin adams earlier said am surprised we are not talking about this. what does it say to you? guest: i think it is very disappointing. industrial production is the lifeblood of germany, the lifeblood of europe. to see that continued weakness, german data was down in the euro area. i think it calls into question the ability of europe to recover from this weakness we've seen. we've expected to see a recovery back up towards potential this year. isaac this calls it into question. we've seen this bond rally continue today, and bunds are just breaking below zero right now. let's break this bond rally down. i think it is important to be clear what is going on, which is since the fed a month and a half ago started talking about doing this new framework, we had a bond rally, but it's been almost
all in real yields. gone upakevens have since then, and real yields have gone down. that is not a terribly bad bond rally in that it is telling us the fed is not going to try to slow this economy. the market is pricing that in. ultimately lower real yields should be supported for growth. mind,he fed being more to -- more benign, that should be supported for growth. it is not a harbinger of worse to come. carol: mike, do you see it that way, too? seeael: we are starting to a real slowdown people did not anticipate. the fact that we are not recovering as quickly, in the u.s. maybe around 1%, we have a problem normally in the first quarter of seasonal adjustment and the first quarter comes in weak, and we rebound, but we are
starting to get questions about whether europe, china, the united states are slowing down, and that will feed on itself. alix: what you are saying is, from your point of view, did you want to be buying into the safe haven rally, or things like corporate debt? guest: you want to be buying rescue assets. the fed has said they stay easy. they are not going to kill this experience. they are going to let the expansion run. in our view, that will continue. what would get the fed back to the rally is large value risky assets or some big jump in inflation. we would stay overweight risky assets. carol: it is kinda staggering to think where we are in terms of just late last year, when the fed was much more aggressive. we are seeing this around the world in terms of global central banks backing off any kind of aggressive stance. wehave a lot of -- michael:
have a lot of caution out there right now, feeling the global economy is rather fragile. that is a problem going forward because if we do fall into another recession anywhere in the world, there isn't much central banks are going to be able to do about it. the u.s. is at its highest. this chart shows the fed has almost nothing left in its toolbox because they've only got 2.5% as their target. you can see that they have been much higher from the past going into recession's, and were able to cut about 500 basis points or more. you get down now to 2.5%, what do you do after that? when you get to 0%, where do you go? qe is a possibility, but they already own so many bonds, is that come to work anymore? what would the ecb do if the europeans fell into a recession as well? they are at negative rates. it is a cross your fingers type
you are looking at volatility in the market. >> and it is unprecedented. what we saw in the last three months of last year was something totally unexpected. the fed was raising interest rates. you can see why people would be nervous about that. but when you take away the fed, the volatility is still here. so february, it was at an all-time high. this is for companies that normally come up with the economy is -- we've got unemployment at 50 year lows, no inflation, last year 3% almost gdp growth -- and yet corporate america is completely at odds with this. that is the volatility, and that is what's kind of unsettling. alix: what's interesting is there's distinctions. are talking about individual stocks, individual sectors that
have been roiled. reporter: and i am also talking about the s&p 500. main street wall street, everything. big and small companies alike. the russell has gone through enormous volatility, and it hasn't left the market yet. that is what's really something we have not seen at this stage in an expansion. we are really close to being the longest expansion in u.s. history. everything is going great. why should caterpillar have the most volatility in seven years? that makes no sense. apple, there's a reason for that. if you look at these companies' where they are growing the most come over the world is growing the most, asia. and guess what? that is where the tariffs are. they have clearly seeped into investor psychology, and it has manifested in volatility. carol: when i thing about
volatility, i also wonder that we are now in a market environment where activists were social media, things hit the marketplace much quicker than it used to. so we see stocks react very quickly. the company comes out maybe in response to something, and then the stock kind of recovers. we are kind of in that environment as well. reporter: right. so that is the noise. but the signals are these companies have already made decisions now to say i'm going to shift production out of china to cambodia. i'm going to ship production out of china to mexico. those are very vital signals. there used to be a time when even democrats and republicans alike agreed on global trade. you know what, free trade is a good thing. let's keep it going. now it is a completely different world, and that has finally caught up with investors. guest: one thing i would add, last year we put in historic fiscal stimulus into the system.
the impact of that was not clear. coming out of it, the impact is not clear. your earnings really boom, now people are talking about an earnings recession. some of that is due to the fact we really boosted this economy last year, creating volatility and some of the underlying indicators. alix: meanwhile, let's go buy bonds and there's no volatility. [laughter] alix: thanks very much, matt winkler. rob waldner will be sticking with us. buys two, theresa may more weeks to get a deal on brexit. that's coming up. this is bloomberg. ♪
closed yesterday. european stocks lower. the dax lower. weakness in germany and france in terms of their manufacturing pmi drove european pmi lower and weighing on sentiment in europe. when it comes to bond yields, huge moves here. at zero on the 10 year german bund yield. that is the lowest level we've seen since october 2016. there were repercussions in the u.s., also a rally, and the spread continues to flatten. now at 10 basis points, almost around the record low we saw last year. crude also seeing risk off, down 1/10 of 1%. it all has to do with the strength of the global economy. how much worse are things that and we think they are? carol: we just continue to see more and more weakness. let's get an update on what is making headlines outside the world of business. viviana hurtado is here with first word news. viviana: good morning. bloomberg has learned president trump's advisors are encouraging
taiwan to submit a formal request to buy more than 60 f-16 fighter jets, a policy u-turn by the trump of been astray should come one that is certain to provoke china. the u.s. hasn't sold fighter jets to taiwan since 1992. president donald trump says it is time for the united states to finally recognize israel's over an area in a break of u.s. policy. concerns today italy is getting closer with china and president xi jinping. tomorrow italy will sign up for project, the first of the g7 to do so. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700
journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. alix: thank you so much. british prime minister theresa may buys herself another two weeks. the eu gave her an extra 14 days to avoid a no deal brexit. agree: i hope we can all we are now at the moment of decision. >> we have done our best. we have done our best. here.e solution is >> this is the conclusion. there is no more we can give. >> i believe everyone must be and is aware that this is an event of his direct significance, so we must proceed carefully. >> it is a democratic and political crisis, but this crisis is british. in no way must we become stuck in the situation. pm may: i will make sure we are doe to deal -- i will
my best to make sure we are able to leave with a deal. alix: any word on how theresa may gets this done? negotiation, negotiation, negotiation. this is the same deal parliamentarians refused to vote on twice. the difference is first, it seems the option on the table is either a very long extension that hasn't so far focused their mines, or she strikes some kind and go torough labour fresh elections, or if she strikes a deal with her own tory party, may be giving something to the hardliners, saying if you strike the deal, i will step down. parliamentarians are probably against the prime minister, so it is quite
difficult to see how will she will get her deal through next week. carol: can we figure out whether or not she is going to get it done, or is it more likely we will look at the deadline being pushed out potentially for many more months? francine: what we heard yesterday from the eu is they are reaching out to parliament almost directly because they didn't listen to what theresa may wanted. they said it is really up to parliament to tell us what they want. there's basically these two extensions. one is a very technical extension. if parliamentarians vote for the deal, there will be an extension to may 22 just to put the laws in place for this brexit deal that has been negotiated. if we don't have a solution, then by april 12, theresa may or the government of the u.k. has to come back to brussels to find another step forward, and this is what we are trying to figure out.
if theresa may enter government were faced between a choice of either a very long extension, a one or two year extension, or no deal brexit, which one should we choose? it ise know is that unlikely from the eu side to keep granting these two to three week or month extensions to the u.k. carol: thank you so much. on top of brexit, populism in europe and elsewhere is also rising threat to growth. almost 70% of the world's most important economies are under the control of populist governments, very different from a few years ago. joining us now from washington is tom orlik, bloomberg's economic chief economist. tell me why you want to look into this. reporter: of course, populism and the role of nondemocratic
regimes china in the world economy is a key story for our time, and we see the impact in the economy everywhere, from trade protectionism to the blow up in the italian budget, which saw bond yields spiking last year. what we were curious to do is run the numbers and see how much of the major economies in the world are actually being run by populists in nondemocratic regimes. the results are pretty striking. gdp under 33% of g20 their control. fast-forward to where we are now, and that number has gone up 67%, 68%. that goes a long way to explain the sense of uncertainty and unease, and some of the challenging policy decisions that have been coming through in the last year or two.
rob, you do wonder, especially in this slowing global environment, what populist leaders might do. will they be singing about the best at home front? are they thinking about the global environment? rob: thinking about volatility, populism clearly will call for a whole new set of policies which will create changes in the market structure. i think this move really is calling for continued market volatility if populist governments get fully entrenched. alix: which brings us into the broader conversation about mmt. the government is financing itself to spend more. the theory was that you were going to wind that having higher yields because of that. how do you understand why that is not happening?
is that a sort of structural change? rob: the thing that drives treasury yields because the u.s. is a reserve currency is expectations around structural growth and inflation. you can get supply and demand around that. t yet. haven't gone to mm .f we do, i don't know what -- i don't know what to tell you. carol: if we don't see the world economy stabilize, what is the impact potentially? you might need a coordinated move to help stimulate the global economy, but was the rise of populism, that makes it much more difficult. tom: i think that is right. more broadly than populism, you've got governments around the world who are really looking
more inwardly, focusing more on national priorities then international cooperation. you've got very different regimes in place in the world's major economies. if you go back to the dark days of the global financial crisis, it was really a coordinated response by the g20 and the world's major central banks that help stave off major collapse and lift to the world off of its slump. if we look at the state of international cooperation, our view is the world economy isn't going to go into a tailspin. we think q2 will be a bit stronger, but if we are wrong, if bunds continue to slide, it seems the chances of a farsighted international cooperation to list the economy out of its slump would be rather low. alix: in addition to that, you
already have global trade slumming anyway. do you take on risk long for term, or is your risk really shorter for term? tom thatgree with growth should improve. the swing to what we got in march is remarkable. in our view, economies don't just go to recession. they usually get killed in some way. the fed has just told us they are not going to do anything, so that gives us a time rise. it is always difficult to say. we are 10 years into the cycle. to say we can forecast how much longer this is going to go is definitely difficult, but we have a couple of quarters an hour you. -- ofyou might expect
quarters in our view. i think the trade story is part of the global economy where we can see the impact of populist policies most clearly. here we have a global economy that continues to expand, a u.s. consumer that continues to do very well on the back of tight labor markets. but what is happening, global trade is slumping based on the numbers out of the netherlands, who've combined all of the numbers to give a global picture on trade. at the end of 2018, global trade was actually contracting. why is that? clearly it is the impact of populist policies which are passing through, partly to tariffs, but more importantly i uncertainty,he
which is causing manufacturing firms to pull back from their focus on exporting. rob: the other thing we haven't talked about yet is the china slowing aggressively last year. we know policymakers are stimulated now. they are trying to get the economy going. our experience as chinese policymakers is they have a good hand on the economy and the levers of the economy. understand,lways but that is an argument for global trade stabilizing. china is global trade. carol: i would almost argue there is some coordinated move around the world from various different central banks to prop up their economy or china -- china setting similar standards. thatl like we are seeing kind of protection of a global economy.
i'm viviana or cotto with your bloomberg business flash -- viviana hurtado with your bloomberg business flash. failed towedbank address a number of key issues surrounding money laundering allegations. the report said the ceo will continue in her job. we spoke with her. >> we've done this internal investigation, which we do. we do many of these every time we see signs. way it told me is that the that we make decisions and swedbank, i am very confident about that. that report confirmed that. there is nothing in there that we had missed out on. viviana: deutsche bank promising to end years of stringing in its annual -- of shrinking in its annual report. at the same time, deutsche
warned the market environment is weaker than expected. the bank published to the outlook as the ceo explores merger with rival commerzbank. that is your bloomberg business flash. alix: thank you. poolche bank's bonus shrinking, but you know most of their money? the u.s., apparently. carol: well, it kind of makes sense, does it not? in terms of what's been going on, i don't know. i wonder about what is the future of it. there's talk about a merger. i just find it, we don't know what the final chapter is here. alix: we are going to split it off, we are going to keep it, we are entrenching. it is sort of all over the place. carol: i find it staggering that anyone is getting bonuses. they are cutting costs, so i am kind of amazed that anyone is still getting any kind of bonuses. alix: on april 1, dow chemical will split off from dow dupont,
and will be the first large comedy with an openly gay chief executive officer and the only public comedy with an openly gay ceo -- public company with an openly gay ceo. this is a really great article. walk us through the reporting of it and what you learned. reporter: i started noticing several years ago that jim vetter ling -- jim vitterling openlyng to be the first gay promoted to ceo. out, was when he came already ceo. we sat down and talked relatively soon after he was promoted. we've been watching his career, and he's been kind of a symbol for the lgbt community in general as an indication that corporate america is a little
more woke than they used to be. carol: this is a cool story any magazine this week. what is fascinating is you've been covering this company a long time. you understand this company. it is an old-fashioned industrial company, so it is kind of, let me get my head around it that they are so advanced when it comes to embracing diversity in the lgbtq community. reporter: 25-year-old jeff would have never believed this story. i started noticing the dow was at the front of the fight for lgbt rights. i get apple and the walt disney company and marriott. i did not get dow. i had to uncover some of my reporting roots to dig this out. it was sort of time travel for me and an interesting look at what a conservative town can produce when the company fights against the current. is havingmuch of this an openly gay ceo, and how much is this part of the immunity
culture and hiring and practices? reporter: it is definitely part of the company culture. this is a company that was built on the idea of a maverick ceo more than 100 years ago. it has been part of the culture to try new things. they were in early hirer of women and minorities, and always going against the grain, and a little but of a controversial company, napalm and the things that come up. they've kind of had to go their own way even when people didn't agree with what they were doing. carol: how did they do it? as you put in your story, midland is trump country. the politics of dow chemical is very different than the politics of midland. we are not talking about silicon valley. we are talking about the heartland. reporter: this is a global company. a lot of the leadership are coming from all over the world. even though it is based in midland, its philosophy is being drawn from all over the place. people come in with differing
views and cultures and backgrounds. you are used to having already a potpourri of views and backgrounds, and lgbt is just one of those. they had an early employee resource group representing them. it is not always welcome outside the company. there have been letters to the editor when the company flies the pride flag and such. it is not like the community doesn't notice this is going on. they are kind of like an embassy of rights wherever they happen to operate. when we do a story like this, i wonder about the broader message in terms of corporate america, watching what dow did, or the world at large. reporter: the interesting thing is i always get the impression there's a lot more lgbt out ceos than there are, even at private companies. there's only a handful. this is still a real rare thing to see happen. he's maybe on the vanguard for this. tim cook did it in silicon
valley, but jim vitterling did it in the midwest. carol: thank you. jeff green joining us from detroit. you can read his story in the latest issue of "numbered businessweek -- "bloomberg businessweek." uber is said to pick the new york stock exchange in what could be one of the biggest listings of all time. more coming up on this friday. this is bloomberg. ♪
there's a look at what we've seen in terms of performance. you can see, this is the renaissance ipo etf, along with the spider 500. the sermon's -- the performance is not dissimilar. alix: pinterest saying they might be interested. levi's did really well. there's been some questions about ratings on lyft. they are still coming to market. carol: that is interesting what i saw about the pinterest. a $12 billion market cap with pinterest. but with levi's investors have been waiting. alix: in the u.s.. warned basically what is strong is investment picking and m&a in the u.s. elsewhere is a different story.
carol: we have a guest later on, the rent the runway cofounder and ceo. they just did another capital raise. they are at the $1 billion mark. we will see what she has to say about going public. what is fascinating is there is so much money out there that these comedies can say private for much longer. alix: also in the next hour, mike wilson, morgan stanley's chief u.s. equity strategist. he is still interested in getting defensive. we will talk to him about the global bond rally and what it means for the equity market. this is bloomberg. ♪
global bonds rally after european pmi's slide further into contraction territory. the eu gives u.k. prime minister theresa may two more weeks to get her brexit deal. and we speak to rent the runway's ceo later this hour. welcome to "bloomberg daybreak." happy friday. david westin is on assignment. isol: what is interesting right now we've got a bunch of comments coming from the president. we've been trying to make some sense of it. he talked about the federal reserve, but also about trade, which has been one of the big macro issues we've been focusing on. take a listen to what he had to say to fox. pres. trump: a lot of people are waiting for the deal with china. i think that is going to have a very big impact, may be bigger than people know. as to whether or not it makes it, i think it will. i think we are getting very close.
carol: i feel like old -- alix: i feel like a week ago we would have seen an equity rally on that. just not today. carol: sentiment has changed in that it seems like a deal has been pushed off, so investors are on hold. alix: on hold and a little scared this morning. look at what is happening in the market. s&p futures off by 12. the overall story is the monster rally in the global bond market in the dollar on that safe haven bid. the euro down by 7/10 and the 10 6/10.ield down a real powerful move in the last 12 hours. european outlook was thrown into doubt this morning following weakness in france and germany. right now hovering above zero for the first time since 2016. joining us to discuss is john agnew, bloomberg news european bond reporter.
talk us through the market reaction. that the key thing was german manufacturing took a hit from these pmi's. it goes to show europe is really the problem child of the european economy -- of the global economy at the moment. it's gone the way of japan, a world of low inflation and low growth. that could be a real concern for ecb policy makers. december, german manufacturing pmi was the highlight over eight europe, and now it is the worse. german officials have said this is going to be more of a transient kind of thing. what is the word on the street? john: i think a lot is depending on how relations between china and the u.s. materialize. the problem isn't just with german manufacturing. we are also seeing that inflation is struggling to pick up. that is after the ecb has pumped 2.6 trillion euros into the euro area economy, so there are some concerns.
alix: thank you so much for joining us. carol: let's continue the conversation. joining us is mike wilson, morgan stanley chief u.s. equity strategist, and bank of america's head of u.s. rate strategy. heard our associate in the u.k. talking about what is going on in europe. how worried should we be about the eurozone right now? >> i think of the lot -- i think a lot of the slow down has to do with uncertainty with trade. carol: you look at the pmi chart, and it is so dramatic. >> i agree, and it is quite sobering, and should be worrisome for investors. if we do see stabilization on the trade front, if you see troughing in global growth concerns, i would hope some of these fears comedies these worst-case scenarios of a global recession, are paired back. that is our baseline.
deal willk the trade help as the president does suggest, and overall that should help stabilize bond yields. carol: do you see a similar worst?etting near the >> it started overseas. china has seen the brunt of the trade concerns, plus their economy is slowing. part of the slow down in germany is directly related to china because of auto sales. auto sales have been terrible in china. that is now turning. not so sure about the u.s. economy, where that is going to drop. we think first quarter will probably be the worst. carol: which is something we've seen before. >> where does the path look from their? earnings are definitely a different story than the economy. they always are, but particularly because of the tax cuts. they got boosted last year because of tax cuts.
that is one thing investors are looking past now because the fed has pivoted so quickly. show werlier on the talked about how much risk we want to take on. >> you want to be buying risky assets. the fed has said they are going to stay easy. they are going to let this expansion run. that is quite a ways out. agree -- alix: mark, do you agree? >> we do. generally speaking, what the fed is doing is trying to stimulate risk assets. they are hoping that improves confidence and spills over to the data. it seems the fed is quite
comfortable giving themselves a long runway to see how far risk assets can go, and they are hoping that also supports inflation along the way. we have a chart looking at the yield spread. i do worry about the runway. are we running out of time for the fed to do anything that will mean anything difficult change? >> i actually don't think they are concerned given that financial concessions are arguably at the easiest point since the fed started tightening rates in 2016. so that is the runway i am referring to. the flatness of the yield curve is a concern for the fed. it signals they might have made a policy mistake in december. it certainly seems like they want to avoid were saying that mistake. if the market signals to them that concerns of the global growth outlook are a problem, they will see pressure to respond. carol: jay powell was so negative and so dovish.
do you feel like there is something else we should be worried about, whether it is consumer credit, auto loans? >> i think the markets have been worried about that for a while. the growth slowdown is not a mystery anymore. first of all, i think the fed did their job last year. they had to react to fiscal stimulus that was massive at the end of 2017. nobody knew if it was going to pass. they had to move deliberately since the first -- for the first time since the financial crisis. we had a big selloff in the fourth quarter. now they are reacting in the other way. to your question, growth is slowing a lot faster than people have acknowledged in corporate profits. i think the fed understands that. what they are potential he worried about is if companies start missing numbers, they are going to do something about it, meaning cut costs. they may start firing people. that is what the fed is probably concerned with.
consumer confidence it did drop in the fourth quarter, so they are trying to recover because it is a fragile thing. i think they are taking out insurance on this. i don't think that's a bad thing. alix: a headline crossing, to your treasury yields falling below 2.37%. what do you do with bank stocks? >> right now they are dead money. there's no doubt about it. cycle,nd of cycle, late and bank stocks typically don't do well in that period. now, it will change quickly. if the fed moves to a cutting policy, which i think they are telling us at some point, the curve will steepen quickly. the front end will collapse in the bank stocks will work quite well. we overweight bank stocks because we do not know when that will happen. we think a cut is coming sometime. back backa for 2020? -- half or 2020?
>> we think 2020. i think the ending of qt is a rate cut. i think that is an easing policy that was unexpected six months ago. alix: mark, do you agree? >> it is certainly stimulative because it reduces the rate at which the market needs to hold, so yes. -- from where market expectations were and what the fed signaled with the balance sheet, it is a pretty large ease. our house view is similar, that they are going to go one more time this year, likely in december, and be done after that. i think the market is telling you that they have already gone too far. the market believes the fed really doesn't have a lot of capacity to keep raising rates. i would say if you get an improvement in the data due to anticipation of uncertainty, largely related to trade
concerns going away, and you see that try thing -- that troughing we were talking about before, andif you see 10 year rates risk assets quite easy, the fed could potentially follow through with one more hike. but you need a lot to go right in order for that to happen. up, prime minister theresa may gets two more weeks to fight for her unpopular brexit deal and get it through parliament. more on that next. this is bloomberg. ♪
lower in premarket trading. the world's largest sports apparel company delivering strong earnings, but it came up short on north american sales. nike beat expectations in europe, china and the middle east. the new york stock exchange won what could be one of the five biggest listings of all time. will publiclyber file for its offering in april. the listing could value uber at up to $120 billion. ceo delivered a 30% raise to $12.7 million. a large part of that increase was to compensate him for a pay cut in 2017. this was designed to calm shareholder objections. carol: thank you.
british prime minister theresa may buying herself another two weeks, the eu giving her an extra 14 days to avoid a no deal brexit. that removes the possibility of the u.k. crashing out of the bloc next week. pm may: i hope we can all agree we are now at the moment of decision. i will make every effort to ensure that we are able to leave with a deal and move our country forward. carol: joining us from brussels is bloomberg's maria tadeo. no prime minister wasting time to leave the eu summit to head back to the u.k. what is the next thing we are watching for out of the u.k. parliament? yesterday was a very long summit, and the prime minister decided to head back to the u.k. a realrning, there was sense on both sides that they took a step back and averted that no deal moment that was due in just a week's time.
she has more time to come up with an alternative plan in the eyes of the eu. the problem is the prime minister remains defiant. made clear she still thinks this deal can get through the parliament. big no mistake, there is no indication to believe that a third vote, which is also unclear whether the house speaker will allow it, will clear the house. she lost this vote twice by triple digits. nothing in the context of the deal has changed. in the eyes of the eu, it is clear as day the negotiation has ended. it really comes down to the members of the house of commons and the prime minister to come up with a compromise. delayed, buteen the eu will tell you now it really is down to the prime minister. alix: thank you very much. the one-month volatility for the cable rate picking up, still
below levels we saw in december. with us on set, mike wilson of morgan stanley and mark a bohne cabana of bank of america merrill lynch. >> policymakers have tried to ease quite dramatically and indicate they don't have a high tolerance to see equity markets fall materially, that they don't want to surprise bond markets in any material way. on a more global perspective, currency volatility is low because it seems like all central banks are trying to out-dove each other given concerns about the global growth about drop -- global growth backdrop. you're going to need to see clearer signs the cycle has turned. if that is the case, you will be in an environment where the fed is going to cut rates. you will see very large movement of short-term interest rates in particular and have the market really try and recalibrate to the new regime that the economy
seems to be in. alix: on the flipside, it seems the fed is prolonging the cycle in the short term because of that. if we take a look at a recovery of earnings in the back half of this year, where is it going to be legit and where is it going to be papered over? >> there's no doubt that the comparisons in the united states are very difficult. we've heard about this for over a year. one of the reasons we've been more negative than most is we think there is an earnings recession right now. some of that is technical because of the comparisons, but some of that is real. top line is slowing and there is margin pressure because of this output gap. the output gap is now above zero, meaning they ran the economy hotter than they should have last year because of fiscal stimulus at the end of the cycle, and that has created cost issues for corporations. we think this earnings recession could last two or three quarters, and it will be deeper than what most people are anticipating. while i agree with their move, i think they absolutely should have pivoted.
i think investors are taking a little too much comfort in that right now. carol: you think they should have pivoted to a more aggressive stance? >> no, i agree with what they did in january. financial conditions got extreme in december. exactly what they did last year is what we thought would happen. that is their job, basically. they have moved aggressively because they see the same thing we see, that growth is slowing, and at the end of last year credit and equity markets shut down. carol: if we get an earnings recession for a couple of quarters, is that opportunity for investors? >> absolutely. we think that 2850 in the s&p 500, that risk is no longer priced. people have looked past it a little prematurely. in january we were having to buy stocks at those prices -- we were happy to buy stocks at those prices. >> that is what is in the
consensus numbers. where we disagree is we think that the revisions will continue to be negative in this quarter, the first quarter coming up, and possibly the second quarter because the margin pressures. there's no doubt that in the fourth quarter, the margins were disappointing. i see very few people acknowledging that fact. corporations will tell you that, and i think they are going to react. they are going to cut back on capex and op x. they may start to hire fewer people. we saw that from the payroll number, which i was a little surprised was brushed off. reason why jobs numbers are lower, is because wage costs are up and companies are cutting back. i am not that bullish on the hiring rate until the corporate margins start to stabilize. alix: mark, for the best positioning if you want to take on a little more risk, what you
buy? steepeners,urve particularly at the long end of the curve. it is well protected in case you do get a pickup in inflation, and it is also well protected in case the economy shifts and the fed starts cutting more rapidly and materially. we also like being long breakevens. this is a view the fed is clearly trying to stimulate. they want to see higher prices overall. we think that the conference they will have in the middle of this year is going to really focus on the inflation framework and try to shift to allow for inflation to run hotter than it has previously in order to stabilize longer-term inflation expectations. for investors that may be are a little more skeptical on the growth outlook, real rates is probably the best protection. the fed cannot tolerate particularly high real rates given where we are today. if the economy really does go pear-shaped globally, real rates
alix: time now for bottom line. first up, i am watching nike, the worst performing stock in the premarket for the s&p. third-quarter earnings were pretty good, but they missed on north american sales. they've been trying to push prices and run merchandise, and apparently that didn't quite work. u,rol: i've got to tell yo we saw the stock taking a hit and were like, i don't really understand it. these are pretty good numbers. maybe just the expectations have been so high. maybe it is just a case of
reality not as good as everyone was expecting. that stock is down. so is tiffany, down about 4.8%. this stock has had a great run, up about 24% this year. again, a challenging holiday season. this is when this retailer obviously brings in a lot of it sales, but a little bit of a disappointment. sales were flat on a constant currency basis. they were looking for about 1/10 of 1% gain. not a big move. the company is forecasting slight growth for the year ahead as things get better from here, but this morning, investors not looking what they heard. alix: and a rally in gold kind of hurts. [laughter] alix: the third story, deutsche bank. joining us now, bloomberg's taylor riggs. walk us through what we learned. taylor: i think there are some
macro and micro issues. the macro backdrop, the european environment for banking isn't as favorable as in the u.s. financial indexes are only off 7%. deutsche's and commerzbank are off 36%. a lot of their problems are because of their own doing. a lot of the big concern is it is the merger between two big banks tryingweak to come together. sometimes bigger isn't better. in the deutsche bank case specifically, they are trying to cut their way to growth. you had years of revenue decline. the decline has been slowing, but it is still decline. i was curious. they talked about wanting to maintain 4% return on tangible equities. roe, bank ofat 16%
america 15%. deutsche bank and commerzbank in the 4% to 5% range. carol: it is so tough because they need more profitability so they can take riskier bets to increase profitability. it is a vicious cycle, but they can't do that. taylor: no. they have -40 basis points for the ecb. alix: thanks so much. coming up, new york's most stylish unicorn. read the runway's -- rent the runway's ceo will join us on the company's $1 billion valuation. this is bloomberg. ♪ ♪
the dax trying to hold up. weaker european pmi that drags down all of europe as well as a united a rally in the global bond market. switch up the boards. the dollar and bonds. the 10 year yield in germany now negative territory. lowest level since 2016. the 210 spread goods to doing -- continuing to flatten. the dollar in the treasury market continued to be beneficiaries. crude getting wrapped up in the negativity. an interesting week. carol: fascinating how we are finishing on this friday. let's get an update on what is making headlines outside the world of business. viviana: another two weeks for theresa may to avoided no deal brexit. european union leaders telling the british prime minister if
british lawmakers do not endorse or deal next week, she will have until april 12 to select does go options. an is to leave without agreement, the other is a much longer extension. if parliament does pass proposal, britain could stay in the eu until may 22. -- a policy u-turn by the trump administration and one that is certain to provoke china. the u.s. has not sold fighter jets to taiwan since 1992. and the trump is downplaying chances of an imminent trade deal with china. steven mnuchin and robert lighthizer are heading to beijing for talks next week. officials say it is unlikely there will be a deal until president trump and president xi jinping meet. that may not happen until april. over a portugal, where the national airline is preparing to go public.
the ceo says it is hard to determine when the airline will of shares. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i am viviana hurtado. bloomberg. carol: chip stocks are in -- are within points of hitting an all-time high. taylor riggs has more. quite a bounce back in this group. taylor: whereabouts four points off from a record high. there are macro and micro factors at play. the macro backdrop looks more -- as industry executives are starting to see inventory levels bottom out and some of the pricing pressures start to turn around in the second half of this year. all of this means the stock has rebounded more than 35% since
the equity market bottomed out in december and has exceeded all of the gains of the s&p 500 sectors we've been seeing. some of the individual best performers we looking at our advanced micro devices. march of 2018 as last time we got a record high. going all the way down, you have companies like broadcom up only 22% but they have much more exposure to 5g technology than they do to pricing. one company we cannot ignore is micron technology. we heard from their executive yesterday. very interesting. here is the share price. it has started to recover despite some of the week pricing we are seeing. 64% ofnow dram makes micron sales. if we do expect that pricing to bottom out and demand returns, that should be a good boost for
the shares. executive starting to forecast that out in 2020. part of the reason you're seeing a rebound. let's bring back mike wilson of morgan stanley. do you see opportunities in the chip sector? mike: we do. last year we were negative on semiconductors. we were absolutely looking to buy these things in january but i think it has gone too far. this is a classic example where there is a hope of a second-half recovery. my guess is they will be disappointed. these stocks will retrace. we would probably buy a retracement. i think they give up half of their moves over the next quarter. alix: overall tech? mike: we are still underweight because we think capex will slow. we think there is an earnings recession happening now. companies react to that by cutting back.
the fiscal stimulus begin last year. inex started to pick up 2017. we had a two-year boom in capex. we think that cycle has turned down and these stocks are expecting too much growth in capex. they need to come in. it has done extended. we think there is risk in the tech space, mainly in the software space where the valuations have gotten a high. carol: in terms of the chip sector, doesn't tie you something about the economy? we look to those things -- we have chips and everything we use. mike: semiconductors are canary in the coal mine. they told us the global economy was going to slow. we agree with the idea the global economy is bottoming. we talked earlier in the first quarter. nothing goes up in a straight line.
we like the stocks in january. we do not like them as much now. we agree that it is signaling things are probably dropping out globally and chips are obviously of global industry. alix: i just one update you on headlines crossing at citigroup. the company is said to oust eight traders after hong kong stocks broke. the probe looked at the best execution practices in hong kong cash equity market and it appears they will be ousting eight traders for that. carol: it looks like personal conduct that the not meet their standards. i will take a quick look at what citi is doing. the backdrop is more risk off trade. we are seeing citi trade lower. we will continue to monitor the story at any more headlines we will bring to you. alix: apparently it is not just
european banks. it is new york's newest unicorns. rent the runway. hyman, us is jennifer rent the runway cofounder, and ceo mike wilson of morgan stanley. $1 billion. did you ever think you would reach that? jennifer: no. in growing 10 years the market and pioneering dynamic ownership. we have seen -- we have completely changed consumption. we have our music in the cloud, entertainment in the cloud and rent the runway is trying to build the physical world and put it in the cloud and give customers unlimited choice and be able to have your clothing, your stuff on rotation. your business has evolved. talk about that evolution.
jennifer: we were renting outfits for special occasions. three years ago we launched a subscription to fashion which enabled our customers to get dressed for their everyday lives. we have seen this unbelievable adoption in this behavior overnight, where customers are using our service 120 days in the year as a substitution for the closet in their bedroom, and using it not just to get dressed for work, but also for vacations and maternity, casual weekends. every time we had a new product category, the engagement goes up. we are benefiting from the tailwinds of the millennial actration customer being so to think about sustainability -- they know they are not using 80% of the closet, and also they are renting everything in their ,ives, from their office space to calling an uber were looked go. lyft.you brought up
do you have an ipo? jennifer: this round gives us control over our financial destiny and we can out time the strategic decisions which are best for the company, which are the ball. after 10 years of feeling like you have to fuel your business with fundraising, we now don't have to do that anymore which is wonderful. customer, getting they sign up, how long to they stay with you? that plays into the kind of visibility you have is a company. jennifer: what is been amazing about rent the runway is that for 10 years 95% of our customers have been driven via word-of-mouth. that has accelerated since we launched our unlimited subscription program. you shop at work, you have a subscription, and you are a walking billboard for this behavior.
people are benefiting from the fact their colleagues and friends are using it. you can see her colleagues merchandising the outfit. you can figure out whether you think it will look good on you. stickiness increases when people are doing this in groups and their off-line benefits to the behavior. carol: when people come on, to hold onto them for years? jennifer: yes. alix: talk about the overall capital market. mike: the ipo market has been quiet. that is now picking up. lyft is going public. that is the first marquis deal. there is a host the hide it. that is a positive for the stock market. the lack of supply. wenticipate the next month, have a dynamic between supply and demand is changing. more supply the ipo market could put more pressure on the other stocks.
if i want to buy these exciting new companies, i have to sell something. i think the supply demand dynamics will be a little bit of a head wind in the next month. carol: jennifer, you do not feel any pressure? jennifer: i do not feel any pressure because of the business model we have set up and being financially disciplined. what is interesting about all of the companies that are slated to go public over the next year or two, it is the companies that have thought about this new consumer behavior, this new customer and her shifting values . all of these companies are feeding into a completely different way that millennials and generations the are living. -- and generation z. they are valuing sustainability. all of those values sets rent the runway as much as they benefit airbnb and lyft. alix: it also benefits other
sectors. traditional retail sales models have been struggling but there are pockets that have been strong. have you play something like that? mike: amazon has been the lead dog but there are many others. this will continue. shopping, the sharing economy, these are trends that are here to stay there be tremendous opportunity. jennifer: the old model of how we used to consume, if you think about the department store model, it is not customer focused. in 1990 the average american was buying 40 articles of clothing per year. in 2018 the average american bought 68 articles of clothing with the same dollar spent on the sector. you're buying more items at cheaper prices, because what you value? friday. why you value that friday? perhaps because -- that variety?
perhaps because of social media. people have been demonstrating with their pocketbooks. it is why amazon and purveyors of cheaper cost clothing have in on fire for the last 10 years. ishink that rent the runway a substitutional product for that and much higher value and quality and much more sustainable. alix: you do not have the creepy stalkers on the sales floor that i flee from what i going to stores. thank you very much. water is, the epa says a bigger threat than climate change. the global water crisis and how one company plans to solve it. that is next. this is bloomberg. ♪
viviana: this is bloomberg daybreak. coming up later today on balance of power, the president of the afl-cio. alix: markets on the move this morning. a global rally in the bond market. taylor riggs has more. taylor: it is all bond yields all the time. i want to start with the german ten-year. earlier this morning on bloomberg surveillance we did break the news that the german , theear had dipped to 2% lowest since 2016. this is also as you're getting some of the bonds out of japan falling to their lowest is 2016. centralglobal dovish bank story pushing all of these yields lower. we saw that in new zealand and australia as well. then i want to look at the u.s. market. the 10 year hovering around the 2.50 range.
we heard from our strategists saying the 10-year could go to a 2.40 and you are seeing a close conversion on the three-month tenure spread. that is the indicator the fed usually measures. the three-month tenure is a better indicator -- 10 year is a better indicator. flattening their that has some market participants perhaps concerned. a look at global equities. we are seeing a little bit of softness this morning. a good day in the equity markets yesterday. softer this morning. within euro a lot of weakness from the weaker pmi numbers we saw driving their indices lower. that was pushing the yen stronger, as well as weaker relative to the dollar. you had all of those manufacturing pmi's in germany and france start to go into contraction territory, creating a bid for some of the safe haven
assets. appreciate bloomberg's taylor riggs. time for follow the lead, a deep dive into stories making headlines with key insights from industry veterans. today we recognize world water day. the head of the epa said there will be some who say this stems from climate change. the truth is water challenges have been around for generations and are causing death annually. joining us is columbia water center director and xylem ceo. xylem is one of the largest providers of palms to transport water. -- of pumps to transport water. if you look at what wheeler was talking about, he said it was worse than climate change. we have climate change aggravated emerging water issues around the world.
if you look at the united states, this is not a place where people think there are water issues, yet we have a large population being exposed to lead in water. we have dams that are 70 years old. we have a problem. talk to the mayor of flint or the folks in florida. patrick, come in on this. you've been on air with us before. when we look at the clean water problems, this is something you guys are dealing with front and center. what are the biggest issues and problems you are dealing with? patrick: i would agree that all of these issues are interrelated. we start with the issues of scarcity, affordability, and building resilient structures against climate change. all of these go hand in hand. on the issue of water quality, contaminants is an issue we see working with the epa and other regulators.
when you think about what is being dumped into the water the good news is there is research being done in practical solutions rock forward. what i love about world water day is every day should be water day. we have the opportunity to create awareness on these issues and we spend a lot of time talking about the challenges but we would love to talk as much about the solutions. technology exists to solve these problems. alix: it does not matter where it comes from. it is -- is an emerging countries? is it the scarcity? what is the biggest issue? >> i think it is all of the above. the approach is needed to address these issues across the board, and as patrick said the technology is there. it is the question of how to we deploy them. how do we deal with regulatory
structure and pricing? carol: who is responsible for getting it right? i can go back 10 years and i remember bringing up in a newsroom water being the next commodity we have to be thinking about and here we are today having this conversation. i think there is growing awareness, albeit through tragic events, there is more awareness. -- i do thinkever the younger generation has a deep passion, as long as we educate them, on making a change. not just to make it affordable but they feel responsible. i think as long as we move beyond the politics of fear around the water issue and talk about what can we done -- what can be done about that, i think the role be played his public and private.
the approach we are taking is and other with people academic institutions and also regulators to get at the business model we are talking about. it always comes to the affordability issue in the economic. carol: i can talk about this forever. alix: i wish we had more time. we will have you guys back again. coming up, the risk off takes hold in the market. german data shocks the market. more on what i am watching. this is bloomberg. ♪
alix: here is what i am watching . the surge in bonds. yields dropping like a stone. joining us on the phone is david riley. walk me through your setup on the bond market. david: i think it is not surprising we see bund yields turning negative but it is extraordinary and we think the last time that happened was in
the middle of 2016. that was a time when the ecb was still buying 80 billion euros of bonds every month. i think it does underscore the concerns around global growth, in particular growth in europe. alix: talk about those concerns. how worried we need to be? david: we are right to be concerned. investors are right to be concerned. europe is very much tied in to global trade, manufacturing, and china. i think the chinese policy authorities are going to do enough to put a floor on growth in china. i do not think we will see evidence of that until later and of the second quarter. i do think this is going to be an ongoing concern. alix: do you want to buy into
the rally today? theinteresting -- david: adjusting thing is despite yields being so low in europe, you are getting a positive carry relative to cash, more so than you are getting on u.s. treasuries. the u.s. treasury five-year is below the cash rate. you're getting a negative kerry, even a zero in bund. a positive carry over negative cash rates in europe. still have some risk on, still carried but selective. alix: david riley, thank you very much, and carol, it was a pleasure. coming up, bloomberg markets -- the open with jonathan ferro. this is bloomberg. ♪
jonathan: growth worries hanging over global markets. german manufacturing slumping deeper into contraction territory as trade tensions continue to weigh on the european economy. u.s. officials playing down a quick deal with china. german ten-year yields dropping below zero for the first time since 2016. 30 minutes away from the opening bell this morning. .53% during the dollar stronger and euro weaker. 1.1306.lar a big bit into the treasury market. yields lower seven basis points. that is where we begin with our top story. investors looking for bond yields to stay lower a lot longer. >> interest rates probably aren't going up anymore in the u.s.. >> low interest