tv Bloomberg Daybreak Americas Bloomberg March 27, 2019 7:00am-9:00am EDT
yields in germany, the applications for the market. u.k. prime minister theresa may takes a backseat as the house of commons prepares to control brexit for a day and vote on new proposals. and a baird analyst says risk is already priced in for boeing shares. the faa answers to congress. welcome to "bloomberg daybreak." i'm alix steel, alongside lisa abramowicz. lisa: this is quite a day for bonds. an interview says the fed should immediately cut rates by 50 basis points. the market thing is agrees with him. wirp,if you come inside
the orange line is the probability of a cut. 80% chance of a basis cut by the end of the year. at onewo-year yields point today following the most since may 2018. you are getting a real repricing of how quickly the federal reserve may cut rates. really interesting to see this action, and of course, german unds with negative yields for the first time since 2016. alix: the futures market now turning negative as yields continue to move lower. as it -- it is all about the bonds driving the action. get a five-year auction coming later on today. it will be a really interesting for the market to digest. lisa: absolutely. yesterday's two-year auction went surprisingly well, so we will see if it is the same story for five year yields.
at 8:30 a.m. eastern we will get the u.s. trade balance for january. at 1:00 p.m. the u.s. will sell five-year notes. kansas city fed president esther george speaks at new york university. this has been the week of fed speak, so we will be getting more of that. alix: now let's get the bloomberg first take with gina martin adams and michael mckee. on the political agenda, it is going to be brexit. we have this sort of revolt in parliament for 24 hours where they will vote on all the things. can you walk me through what we will actually expect today? michael: they will vote on a number of indicative auctions to see if they can get -- indicative options to see if they can get enough support for anything. will be the suspects you would think. a second referendum, a softer
brexit like norway or something like that, a customs union. they are going to vote a little differently. instead of one by one where they get up and walk out of one side or the other, they will have a piece of paper and you can vote for as many as you want. that way you won't be voting against one in order to promote another. you can vote for as many as you want. this afternoon they will announce which ones have gotten more support. alix: you've lost me already, by the way. [laughter] lisa: you've lost me, too. michael: i've lost the viewers! lisa: gina, we are looking at flatlining.asically action is getting increasingly muted because people might be numb to all of these potential options. gina: there is so much uncertainty, you don't know how to trade.
there's so many different options that investors are generally saying, where do we? what do we do with -- where do gowhat do we -- where do we ? what do we do with this? it could imply a loss of faith in the economic recovery occurring in the u.k., some loss of some durable economic growth as a result of the ongoing brexit uncertainty. what is really interesting is over the last month, investors have started putting money into mainland europe. it is materially avoiding the u.k. and going right to europe and saying, if there is recovery, it is going to be in the mainland. let's wait and see. alix: if they think there's going to be some sort of recovery, you have to wonder why germany was able to sell bunds at negative yields today, currently about 1/5 of the entire investment grade global bond market. the rise in negative yielding
debt surging. you can see it is the most since late 2017, which raises the question what this is saying about markets, especially as yields across the board absolutely plummet. michael:michael: we have nothing to fear but fear itself, maybe. the fed is saying we are not going to move, we are not going to cut rates because we don't know what the data are telling us. the government was shut down. we are only now getting data from january. we will see what happens. mondays going to be a very interesting day because we get the purchasing managers index is from around the world, from china to europe to the united states. we will see if it gives us any kind of signal. basically, the fed and others say we are slowing. we are slowing from unsustainably high growth to trend growth. that is not a recession. we don't need to react immediately.
alix: regardless of why, it is having some whipping action in the s&p for dividends and financials. gina: first, i just want to reference the fact that we have been here before. we've been in a negative yields situation in the euro zone. and things were really bad. we were there in 2016. but i want to stress the fact that negative yields are not a leading indicator for equities. they are actually a lagging indicator. if you look at what happened to come equities bottomed, and three months later yields suddenly crashed into negative territory. coincidentally, the same thing is happening again. we didn't have a yield curve inversion, but you had similar behavior. the yield curve followed the early market in the initial stages of that advance, and then flattened materially, and there was a bit of a freak out. equities consolidated.
there was a spike in volatility. finally you got to brexit, and that created the bottom, and ultimately we moved higher. lisa: i love that the equity strategists are saying that bonds are following equities. [laughter] gina: i appreciate that, but that's not what i'm saying. bonds are a leading indicator for equities, certainly. a very large leading indicator in some ended's is -- some instances. michael: at this point we don't know what a leading indicator is. gina is the expert here, but we don't know what is a leading indicator because we don't have the data. we don't know exactly where we are. the first quarter has always been slow, but where do we go from here? that is the question. the fed believes we are not getting anywhere near recession even though we are slowing down,
so we are going to wait for the data. we will hear that for more people this week. alix: let's get into our third story, which is boeing. the faa is going to talk to congress. you will have boeing facing the media and consumers. china now talking about the 737 max 8 orders. what is the most critical statement you feel like is for this company? gina: where your orders are going to go. this is what the equity market is going to worry about. can you show up confidence to the extent that the existing order flow will sustain into the next year or two? that is what is really consequential for earnings. there are a lot of issues throughout the entire supply chain, and we have a lot of news out of southwest this morning guiding for lower capacity, talking about a potential impact on the end market. that is a big question for the airlines, which have
underperformed other industrials over the last months. the big question for boeing is what are you going to do to stabilize and keep those orders sticking. michael: one of the things they have to do is play to the american people and people around the world because airlines really don't have a bad feeling about boeing. they've worked with boeing for years. they think this can be fixed. but if you won't get on a 737 max 8, they are not going to what your plane. they have to reinsure not just congress, but numbers of the -- that theseese planes are going to be safe. alix: thank you for joining us. we have a bloomberg scoop coming out right now, saying that the sta chief is saying that the chief is the fda saying that the agency is planning to change drug verification rules. an article in bloomberg's outlining the proposals that they may actually seek to change. lisa: and underlining this is a
concern about the potential contamination of pharmaceuticals that people use commonly, and that is going to be a big issue. we are going to have more on that coming up in the show because this does seem like it is an interesting revelation given. also, some of the fight over pharmaceuticals and the industry. alix: coming up, more on today's brexit vote and be possible market impact with -- this is bloomberg. ♪
nissan. it will involve a bid for both companies for fiat chrysler. believes it would allow it to compete against global players like volkswagen and toyota. twitternew chair says has become part of everyday business for many executives. they think musk uses social media wisely. they come days before elon musk is scheduled to face off with the sec in u.s. court over his use of twitter. some international crude buyers are having trouble with imports from the u.s.. confluence in the american supply chain risks contaminating shipments to asia. rejectingrs
impurities. that is your bloomberg business flash. alix: parliament prepares to conservatives may be warming up to theresa may's brexit deal. softer exite for a from the eu or even no deal altogether. what are they going to be voting on today? reporter: they are going to be voting a lot of things. givene going to be indicative votes to indicate which of the brexit options they .ould vote for they will be given time to peru's various options. we don't know all of them yet. we've got 16 on the list so far that will be narrowed down by ercow sometime
after lunchtime. eight confirmatory vote, something like norway plus, a managed no deal. there are all kinds of options on the table. remember, this is not legally binding to the government. lisa: it does seem like some conservatives are starting to back theresa, right? anna: yes, some who have held out in her party. trying to bring her meaningful vote on her deal back to parliament. that could happen tomorrow. we just don't know yet. some mps who have been holding out have suggested in the last 24 hours they might be tended to if she names a date for her departure.
this, theresaf may be meeting for those who have been calling for her to go. lisa: thank you so much, bloomberg's anna edwards. joining us to discuss brexit and all thing markets, j polasky -- jay pelosky. i am wondering how much from your perspective brexit is dragging down sentiment over europe and u.k. markets. guest: it is hard to say what is going on. it is a mystery. all of those types of things. one of the things that is not a mystery as the market reaction. the pound is one of the strongest currencies in the world year to date. british equities are up 12% year-to-date, outperforming the rest of the world. markets are not worried about this at all. markets are saying very little is going to change, anything that is not priced in is any kind of crash out, any kind of hard exit is going to be a disaster for u.k. financial assets.
anything else is already priced in. this is a market where you buy the numeral and sell the news. if we have a crash out, they are going to fall hard. otherwise, they will basically move on to something else. alix: so how do you explain this huge move and bonds this morning, especially germany selling negative yields? guest: germany has been very close to negative yields for several months. we've had uncertainties of her growth. coined a phrase over the last months or so called the for risk, rap, rap assets, and prices. then they are looking for confirmation. the confirmation was going to be rising rates at the long end in europe, china and the united states. we have not had that, and
therefore markets are selling. by the way, this is a healthy pullback. we had a massive move. people are buying some bonds so they can show their investors they have bonds in their portfolio, and we go from here. the thing to remember is lower for longer can work for growth as well as for interest rates. not a bad thing. more on thatot coming up. you are sticking with us. have some news on the car sector. alix: this is nissan. the nissan board chairman will become an independent outside director. you are looking at a news conference right now. lots of headlines coming out here. they are going to set up a governance system by the end of june, and the directors will be independent. much more coming up on this as well as we talk about nissan and
renault, what that means for nissanrysler, how gets its house in order to move on from the carlos ghosn scandal. lisa: also talking about boeing and the faa trying to restore faith in the 737 max 8 area regulators head to the hill today. we will talk to an investor who says to aggressively buy boeing. this is bloomberg. ♪
aircraft many factual or that they will probably have up and running in the next three years. how much is this a precursor to what is to come for boeing? guest: the duopoly i think will remain very much intact. airbus is not swimming in capacity, and the chinese competitive offering is still quite a ways away from being able to even remotely satisfy any sort of demand, so i think the duopoly between boeing and airbus will remain very much intact. i do think the 737 max, what , once this max solution is done, will probably be the safest aircraft in the sky. i think this fix will get done, and then it is a matter of what is the financial impact here, and is this priced in, and we believe that is the case. think?ay, what do you >> i just wonder, is boeing at pawnpoint, in your mind, a in trade negotiations between the u.s. and china? i think about china being the first one to ground the planes, the airbus deal. i see your point about capacity and production, but if the
u.s./china trade deal doesn't get done, does boeing suffer? >> i think that is a fair point. we expect chinese authorities to be the last to approve whatever fix is going to take lace -- to take place. i'm sure the faa would love to see a joint approval globally between europe, china, and the united states, but i think we will see more of a ruling approval with the faa moving forward, the europeans eventually to fall, and the chinese will be last. that could get into the realm of the political argument, which does create further headline risk. but we don't think at the end of the day china wants to use that. they are obviously moving forward with building out a tremendous amount of infrastructure, and the 737 max is a big part of that. can: to your argument, you make that case with any stock. >> but boeing is a different animal. it is a huge company, very
dependent on china. if china said we are not buying anymore caterpillar, caterpillar stock would suffer, and he would have to wait until china said we would buy it again. i think the issue here is an investor, peter's last comment is a little bit worrisome. on the first, 1/3 on the second. alix: thanks so much. great to have you joining us. jay will be sticking with us. coming up, 10 year treasury yields extend their drop. bond bulls take full control. this is bloomberg. ♪
the european auto sector fighting back on that risk coffee, up by 1% on the possibility of a renault -- on that risk off feel, up by 1% of the possibility of a renault/nissan merger. inative five basis points -- on the fives and 30's. lisa: this is all due to the fed surprise policy shift. , bondields in the u.k. yields in germany plunging, as you were saying, below zero. bond selling below zero for the first time since 2016. why are bond yields dropping so much, so far, so fast? ky ofus still is jay pelos
tbw investment management. guest: as we talked about earlier, the market was looking for confirmation of a growth bottom in china and erupt, and didn't get it -- and europe, and didn't get it. there's not a lot of sellers because that's the thing to be in at the moment, and therefore we've had this move. i've been surprised at the move. we still expect to see confirmation of growth bottoms in china and europe, and we think we are closer to it then we were several months ago. lisa: is this a positioning thing more than anything else? guest: i am not sure it is can pitch elation. germany has a big surplus. one really happy camper out of all this is the u.s. treasury. this week is the second-biggest treasury auction in the history of the united states. if there is one person or one
group happy with where yields are going, it is the u.s. government because we got to sell a lot of debt, and we are selling it at much lower prices. closer towe are much the bottom of growth concerns. i am not a recession believer. for equities, we need confirmation, and once we get confirmation we are going to see reallocation. different from the mario draghi that we heard speaking today. here's what he had to say. >> if necessary, wean to reflect on possible measures that can preserve the favorable implications of negative rates for the economy while mitigating the side effects, if any that said, low back profitability is not an inevitable consequence of negative rates. alix: really? guest: banks have definitely
struggled in this environment in europe. we all know it's been a tough position to be in. but to me, there's a huge amount of attention on manufacturing. anytime there is a manufacturing number, people sell. what people are not talking about the consumer consumption. it is a consumption led economy were 60 to 70% of the economy is due to consumption. fine.nsumer is unemployment rates are the lowest in decades in europe. wage growth is 3% to 4% in europe. revenue growth in the stock market is going at 5% to 6% per annum. the composite pmi's are still fine in europe. i believe that as we have the consumer going to be fined, we are approaching a growth bottom, europe has fiscal stimulus this gdp, we are.5% decelerating towards potential growth rates. potential growth rates in europe is roughly 1%, and the united
states roughly 2%. that is what people have to get their minds wrapped around. we are not in a 3% to 4% growth rate environment. interest rates have to reflect that. they are going to be way lower than we have historically been, and therefore we have to adjust our mentality around that. lisa: yes, but perhaps they don't have to be negative. i think the real question is are negative yields hurting more than they are helping? mario draghi was really defensive, saying not necessarily. a lot of people point to japan and say, you think? that this is hurting more than it is helping. guest: the counterargument is that japan is doing perfectly fine. the thing to remember, six months ago or a year ago we were worried about italy being able to issue debt. italy 10 year isn't 2.4%.
so if the peripheral concern of have $10 trillion in negative yielding debt, the debt that does yield something in a lower for longer growth economy is going to be very attractive. that is european periphery debt, emerging-market debt. i think we are on the cusp of a global easing cycle. the fed has made it clear they are done. the ecb is done. the pboc is easing. think next we will see interest rates cuts in latin america and asia. thate at the beginning of easing cycle, so there is opportunity in places that offer yield. people don't like it, but i continue to like u.s. high-yield. we are not going into recession. you can get five to 6% yield with a little carry. that is going to be very competitive with equities
because there is no multiple expansion in this market. equities are going to do what earnings are going to be, 3.5% to 7%. european and earnings growth forecasts this year are the same as the united states. once we get done anticipating the bottoms, we need confirmation. when we get that, we are going to have reallocation, and the things that are going to be bought are going to be european and japanese equities and not u.s. equity. alix: if you take a look at this chart here, the earnings chart for the s&p versus the 10 year, it is 3%. why wouldn't you want to buy this? earnings yield is 3% higher than u.s. treasuries. why doesn't that make a good investment? guest: well, it has. equities are up 10% globally. it had a huge move in risk assets.
everything is up. so if you participate it in that, you are happy to take a little bit of profit. we caught this -- we called this the pause that refreshes. we think it is healthy. i think we have a minor pullback. there's a lot of cash on the sidelines that doesn't participate in this move in december and january. that reduces the risk of a hard selloff, and i think we seen it here. there's a term it this amount of movement in the fixed income space. that's ok. alix: let's turn to another part of the market, and that is oil. crude is on course for its best quarterly gains since 2009 after opec and its allies curbed production to clear excess inventories. ceo of to the bp's upstream. --prices thereof about
prices are up about 1/3 since the beginning of the year. there's a lot of political risk out there, but if you break it down, if you look at demand, demand is strong. we are still above the 10 year average. prices are still less than they were last year, $71 a average. is increasing supplies as the months ago on. saudi arabia certainly doing a lot. and then the geopolitics. venezuela's humanitarian crisis, what is going to happen with sanctions in iran. is $60 to $80 fair? guest: i think it is fair for producers, fair for consumers. we try to concentrate on the things we can control. ,lix: that was bernard looney
bp ceo of upstream. , do you like oil here? guest: commodities are up 1% for the month, 10% year to date, and it is not just oil. it's also been copper. so if you believe in copper as an outlook on the economy, up your to date. we have the tussle between commodities, which still seem ok, bonds saying the world is ending, and equity saying things are pretty good. if you are an investor, you have to have a point of view. you have to make a decision on how to allocate. our allocation is on the belief that we are approaching bottoms in china and european growth. lisa: what to people in the commodity sector say? how much are they counting on
this demand being strong? alix: they are pretty constructive. they are not looking at bond markets. [laughter] of the demand picture, everyone seems to be holding up just a bit. lisa: if you look at the high-yield space, there are the haves and the have-nots. to $60 ait oil fades barrel, it will not be enough to give these guys alive. opposed to 2016. lisa: there's no confirmation of some bearish tilt, but you have to wonder how much this is driven by the demand side and how much by the supply disruptions in various places and a whole host of other factors. it seems like one of the most confusing areas, which is probably what people are also confused about inflation and inflation expectations. guest: i think we can forget
about inflation. china has been stimulating over the past year. a sellererous to be here, i think. lisa: let's get an update on what is happening outside of the business world. viviana hurtado we with first word news. viviana: the u.s. and china sent to resume high-level trade talks thursday and friday. u.s. trade representative robert lighthizer and trey ticket terry secret -- trade secretary steven mnuchin will visit. u.s. negotiators are voicing concern china is backtracking on earlier pledges. a southwest airlines boeing 737 max 8 airliner made an emergency landing in orlando, florida tuesday. southwest saying pilots reported a performance issue with one of the planes engines. no passengers were onboard. the engine problems appear unrelated to the control software problem that contributed to a pair of recent
crashes. the is investigating. houston's refining industry may be on the verge of a crude supply shortage because for a fourth date, safety concerns are still restricting traffic on the houston ship channel. a chemical fire spewed toxins into the air, and you can see this plume of black smoke. that prompted the coast guard to step in. the key waterway connecting local oil refiners and chemical companies to the gulf of mexico. 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. lisa: coming up, kindergarten admissions in new york city is now kitty play. nextorld of baby ivies is in today's wall street beat. it is real. this is bloomberg. ♪
viviana: this is "bloomberg daybreak." coming up in the next hour, an billsive interview with ford, general atlantic ceo. ♪. viviana: this is "bloomberg daybreak." somel investors rem -- global investors are reevaluating their relationship with saudi arabia after the killing of jamal khashoggi, but the king keeps pouring money set to add new saudi investors wants uber completes its acquisition of dubai-based rival careem.
donald trump once federal banks to cut interest rates by 0.5%. stephen moore making the comments to "the new york times," saying the december rate hike angered him, calling unthinkable. meals kirk claiming a senior investment taking official told him "you are old and set in your ways" before dismissing him as part of the bank's restructuring. that is your bloomberg business flash. alix: there you go. there is age discrimination. this has been happening forever. lisa: banks trying to reduce costs and push out people are the higher cost employees. alix: a woman on tv.
i don't think i know anything about being pushed out. [laughter] alix: we now turn to wall street beat. first up, citigroup is said to be facing as much as $180 million on losses after it bet big on the turkish lira. then a ceo puts his foot down on allegations of a culture of misconduct and acting lifetime bans for inappropriate behavior. in the pricey world of getting your kid into kindergarten in new york. alix: we are lucky to have -- lisa: we are lucky to have peggy collins with us. let's talk about this. to aroup, the prime broker hedge fund, made some bets on the turkish lira. therter: it looks like in hedge essentially moving out on
doing marketd derivative. they made a big bet on the turkish lira. in august it hit an all-time low because we were experiencing a lot of tensions between turkey and the u.s., as well as runaway inflation in turkey, so it looked like they had huge losses. alix: and now you have erdogan being like, you can't short the lira. our second story has to do with lloyd's of london. 18 woman describing an atmosphere of persistent sexual harassment ranging from sexual assault to unwanted touching, and then got a response today. here's what he had to say. >> whether one of these incidents occurred 10 years ago or 10 days ago, i don't care. it is not acceptable in this day and age that any will much not
feel safe. alix: yes, obviously. i think the question now is enforcement. peggy: it seems like they are trying to rapidly change their culture, but this is deep-seated and long-standing. it is essentially about 300 years old, but this sounds like a culture that has been long-term, and basically trying to say this is no longer acceptable. alix: how much is lloyd out of the norm? there's a question of how much is idiosyncratic to this bank versus what people should expect in the city or on wall street. peggy: that's right. we've been doing a lot of reporting in terms of me too and how companies are trying to address the fact that there's more women in the workplace and these executive roles, but there standardsdifferent
for women and men, and how do you deal with the backlash? lisa: meanwhile, people are dealing with the backlash of trying to get their kids -- alix: different story. lisa: -- by deciding where your kindergartner goes to private school in new york city. this story really struck me, particularly some of the acceptance rates at some of these high-end private schools. 10% except -- 10% acceptance rates, for example. what do you make of this? peggy: terrific reporting from our colleagues. it is one of the things that really jumped out at me, the line in the story that says this is really about the haves and have-mores. essentially, we've gone through a lot of change in this country in terms of wealth disparity, but these stories about college admissions and admissions to
nursery school and kindergarten is showing there is a disparity growing between the middle class and the upper-middle-class, and the upper class and the upper upper class. alix: exactly. i know someone who used to work for steve cohen, and his kids now go to marymount, and they feel poor even though you retired at 36. the discrepancy is so wide. look --lin if you peggy: if you look at some of these, it is understandable. lisa: it also goes to the story of the ivy league and emissions scandal, how clear a admissions league scandal. how clear a path is it from some of these two getting into the top schools? i went to sacred heart, which would be considered
ingredients, the key ingredients in your pills that basically make them work. what they've been finding as they target their inspections more and more is that there are contamination and impurities in these that should not be there, that the companies should be finding and stopping from going out to the american public. instead, there are often cases where they are hiding those , andts or destroying them at the very least overlooking them, and they are still coming out to american pharmacy shelves for patients to take. what they are looking to do is revisit the rules so they can get more stringent and rigorous, and hope to nip some of these problems in the bud. alix: what kind of companies is this most detrimental for?
anna: a lot of these companies that have ended up having problems, the cells to a lot of the big pharmaceutical companies with names you've heard of, and then put them into finished pills, and that is what gets sent out to patients. alix: anna edney, thank you so much. coming up on this program, art hogan, a national holdings chief market strategist. his strategy when you have a continued fall in global yield. that is the story of the day. commodities just kind of confused. this is bloomberg. ♪
asitive on trade with china u.s. trade representative robert lighthizer and treasury secretary steven mnuchin prepare for talks in beijing tomorrow. u.k. prime minister theresa may takes a backseat as the house of commons and trolls brexit for a day to vote on new proposals. bond bulls back in control. germany sells debt at you negative yields. welcome to "bloomberg daybreak." i'm alix, alongside lisa abramovitz. westin out this week. lisa: stephen moore, the nominee trump's for the federal reserve, in an interview saying the fed should cut rates by 0.5%. you are not hearing anyone suggest this, but bond markets
are basically saying you're right. alix: the rhetoric for last week was that patients did not mean cut, but the bond market didn't listen. a function under terminal. the 25 basis point cut by the end of the year, that is what the market is pricing in. but: not just that, frankly, the fed has capitulated more to markets than the other way around. alix: let's take a look at where we are stacked up. this huge rally and bonds putting pressure under equities. you have a risk off feel permeating here. 10 year yields now the lowest level since december 2017, 2.39%. another for basis point decline. commodities kind of wrapped up in it, but the action truly only in the bond market today. lisa: time now for your morning briefing. we will get the u.s. trade balance for january.
at 1:00 p.m., the u.s. treasury will sell five-year notes. so much fed speak and so little actual content other than we are patient and hanging in there. after the scribble to safety, the said surprise in policy shift is still shaking the markets. taylor riggs has more on the perspective we see. taylor: after the big rally and bonds, what does that mean for some other asset classes that might look attractive, particularly equities? we are looking at the spread between the earnings yield and the 10 year yield. with data going back to 1962, typically when this breaks 3%, equities are almost bound to pause. if you coming here, we are taking a look at the dividend yielding stocks in the s&p.
that is the white line that have started to turn positive, and the 10 year yield has gone down. . we know the interest rate sensitive sectors like utilities and bonds which have a negative correlation don't look as good on a relative strength index. , now near thendex oversold levels going back to 2017, so perhaps this rotation continues. alix: thank you so much. ,oining us is art hogan national holdings' chief market strategist. germany is selling negative yielding bonds for the first time since 2016.
the merge plunging the most since last year. what is going on to make this move so sudden and violent? guest: i think what we seen is a massive pivot, not just the january pivot where they went from an autopilot hawkish tone to this really patient, dovish town they just stepped. really patient, dovish tone. they just stepped it up. jay powell has never liked forward guidance, and he wants that to go away. the reason is because the fed wants to be data-dependent. data-dependent and have forward guidance come one of those things doesn't make sense. one of the things was to eliminate any guidance for us, and now we think there they chance they could raise or lower rates this year.
i think the economy is getting to a point where it stabilizes in the first quarter, so i think the fed funds rate looking at the potential for a cut this year is probably overstated. i think when you look at what that means in terms of investing, what of the things i am most concerned about is this rush into the dividend darlings. utilities have been screaming this year and are trading less than 3%. alix: barclays just upgraded real estate utilities, downgraded banks. i think financials are very oversold and utilities are overbought. if you want to look at trade in the short term, i would pair those off. i think financials have a better chance of bouncing. lisa: if the fed really is data dependent, is there so i chance for a rate hike in 2017?
guest: absolutely, there absolutely is. it is dependent on what happens with the u.s. economy. we averaged about 2.9% gdp growth last year. low point actually sees us accelerate in the second half, they will probably have to raise rates one more time. it is not a likely scenario, but there is as good a chance that they will raise rates as a cut in 2019. lisa: i have to wonder whether stephen moore is factoring into the market calculus today, nominated by president. trump to the federal reserve he theaying -- to .ederal reserve thet: he's the new kid on
block, so obviously he's going to get a lot of attention with whatever he says. i think he is coming in, but i don't think one person changes policy. you can say anything you like and be outside consensus, but you are not going to change policy on your own. alix: this is a great indicator if you want to buy risk assets. nope, that is the wrong one. basically, if you take the s&p earnings yield and the 10 year, you will go been by the s&p. .t is kind of like i thought guest: agnostic of what happens in the economy, these two have steady cash flow. cash flow is almost as if technology has gone back to that a defensivebeing play. you are not dependent on the
economy for most large cap stocks. lisa: dan curtis of bloomberg television pointed out a chart he did to me that is at anating, looking out much slower pace. i find this really interesting there is nocally alternative, right? guest: that is one of the things holding the s&p 500 where we are right now. we don'tink about it, see this kind of volatility in the fixed income market or treasury market almost ever, which tells me this is probably an inflection point. this probably happen sometimes and -- sometimes in the first half of this year. twice, oncerises us in january, once from march. there's a greater chance that the stability of the fixed
income market settles in the first half of the seer and we don't overreact -- half of this year and we don't react. hogan will be sticking with us. we have our wednesday prime minister questions. withsa may is speaking none other than jeremy corbyn. i know, a big surprise. continuing to defend her deal, saying the government is post-brexit policy. this is bloomberg. ♪
daybreak." boardrity of nissan's will be comprised of mostly theide directors due to company, saying it should create its own committees to oversee compensation, audits, and future nominations. apple dodged one import ban in its fight with qualcomm. it still faces one more. the u.s. international trade commission invalidated a battery because of a patent problem. salesforce is being accused of profiting off of online apps for sex workers. 50 women say the company --wingly supported the knowingly financially supported the web portal meant to promote
prostitution. describing themselves as survivors of sex trafficking. that is your bloomberg business flash. alix: taking a live look at -- jeremy corbyn trading barbs with prime minister theresa may. he promised her saying other brexit options would bring delay. she is trying to get a third meaningful vote through. joining us is anna edwards. from what we can see later today, how many realistic votes will we be looking at? : we embark on this fairly unprecedented procedure of indicative votes after these prime minister's questions have finished that you see on your screen right now. the start of the process will be a conversation about the way that the indicative votes will work. at 3:00 london time or
thereabouts they vote to proceed with the process. around plenty of debate the 16 options at the moment that will be narrowed down. one of those will be presented by the labour leader, a customs union. theresa may says the customs union -- says the government is committed to doing their own deal. what we will see here is a process of trying to establish what it is mp's in the house behind me have the appetite for with regards to brexit. it is not legally binding on the government. they don't have to listen. they say they take the process seriously, but amidst all of that, theresa may is trying to get her deal through. we could still see the deal she come through in a fairly unprecedented move. lisa: what are the dropdead
dates? chief exit negotiator telling the european parliament that all options remain on the table until april 12. that is a key date for u.k. part -- for eument parliament. what is the date for u.k. parliament? anna: the agreement was that the government had to use this week to establish a way forward and vote for theresa may's deal. if they voted theresa may's deal , the deadline moved to the end of may. that is when a relatively smooth process, one suspects, would take place and the u.k. would 22, avoidingn may conflict with the european elections. but if they don't pass anything this week, then decision time, essentially, and they have until
april 12 to make those decisions. going into the european elections was controversial. some of these options they are talking about voting on today set out whether they want to embark on a new negotiation around brexit or whether they will have to go with no deal. we are back to having those conversations again. alix: lisa wants dates, anna. come on. [laughter] alix: anna edwards, thank you for joining us. still with us, art hogan of national holdings. is there any kind of clear way to play this for you? guest: no there isn't. this is a disaster that has been going on for two years, and it has always become binary. we will have some type of deal or no deal. think it is 50-50 right now. , a year from now
we will talk about it u.k. that never left the euro zone. that is probably the best economic result. a second referendum vote where everyone knows what they are voting on and actually says we are better off this way. lisa: you are bringing up the uncertainty sending a lot of investors into mainland european union assets and trying to avoid the u.k., not necessarily because they want one of these binary options come about because they don't want to take that chance -- options, but because they don't want to take that chance. what other options are there for the mainland at this point? guest: right now they have a slow economic growth rate, and that has gotten slow. china is inflicting higher right now, so the trend is getting better, but it will be much better for europe getting strong. say the nextcould
move might be a cut, you could have some kind of easing. would that be a reason to be interested? guest: no, i would rather see growth than monetary policy stimulus. the organic growth is coming from an important trade relation ship with china. lisa: do you think negative yields are more helpful than harmful at this point? guest: i do. lisa: you disagree with mario draghi. guest: he said, actually, banks can be profitable. alix: you think that is a make sense. guest: no. there's no case to be made for negative rates at all. do using the ecb will ever be able to raise rates? guest: absolutely, but it is not going to happen in the next two years. there economic growth is very dependent on a trade ,elationship with china
♪ alix: time now to look at three companies worth watching this morning. apple and qualcomm, crazy day yesterday. apple won one case on battery patent, and lost another one. there was a ban on the imports of older iphones. i have an old iphone. lisa: a lot of people care. it is actually being viewed as a positive for apple and a negative for qualcomm. head of the open, you can see
the shares responding. definitely interesting. casesare, what, 80 out there like this pending? it could potentially be a huge liability or boone, depending -- or boon, depending. meanwhile, potential consolidation in the auto sector. aiming -- renault is aiming to restart merger talks with nissan, going to bid for fiat chrysler. this echoes what carlos ghosn was trying to do back in the day, push all these together to compete with bigger automakers. it is interesting to see how things are rearranging in the car manufacturing space. it will be interesting to see what kind of valuation they could particular get in this type of deal. saying not going to
happen unless you change management for nissan. joining us is brooke sutherland of bloomberg intelligence, and still with us his art hogan. that is a 30% premium to where wellcare was trading before reports started to emerge. if you look at stock over the past year, this is coming in at a pretty big discount to where it was trading just in october. this is reflective of how much uncertainty there is in government paid health care plans and what exactly these programs are going to look like five or 10 years down the road. ofs is coming on the heels the trumpet administration decision to try to repeal most of the affordable care act. it will be interesting to see how that fight plays out in the context of this deal. lisa: presumably this was long in place before president trump's move there.
what is the case for pushing these two companies together? guest: the uncertainty -- reporter: the uncertainty around the affordable care act is nothing new, but there's always safety in numbers. , andave more policy wellcare does have a significant medicare advantage business. that has been a big growth driver for the health insurance industry, one the u.s. government has said they want to increase funding for. those are medicare plans run by private companies. that should be a relatively protected area, so to get more exposure to that would be attractive. alix: do you like the space? if you do, how do you like it? guest: it is difficult now, and it is a political football. democrats are trying to save what they can of the affordable care act, and the trump administration has long said
they wanted gone. you have a lot of things to look at until it gets fixed. --st: there is a lot of reporter: there is a lot of overlap in a couple of key states. previous health insurance deals that have gotten voted down will be because of overlap of commercial and government insurance. this, you are really talking about overlap in the government insurance field. in some cases the government has been supportive of consolidation to bring costs down. withmight be an easier fix investors. some big health insurers are looking to pick up policies, and they really can't do mna, so to this would befrom in their interest. lisa: centime shares down more than 8%. do you agree with the market that centene is not a great
deal, wellcare not that bad? reporter: they had to take some losses on policies they acquired, so i don't know that they have the best execution record. the interesting part of this is ceo. alix: thank you very much. art hogan will be sticking with us. coming up, january trade numbers. how u.s./china tension weighed on imports and exports. we also speak to u.s. representative tom reed of the ways and means committee. this is bloomberg. ♪ this isn't just any moving day.
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simple. easy. awesome. stay connected with the best wifi experience and two-hour appointment windows. click, call or visit a store today. alix: this is "bloomberg daybreak." i am alix steel. risk off. we have the trade balance coming out very equities under pressure in the u.s.. european equities manning to flip in the positive territory.
in other asset classes, it is still the reign of the bond bull. $41 billion of five. notes coming out later today. how much steeper connectable steepener -- how much steeper than the bull steepener wind up getting? the actual trade balance for january coming in. tighter than estimated, which was supposed to be -$57 billion. december revised a little bit higher. not that much. we will take a while to dig through the details, but not terrible. is that we can take away from this? lisa: the takeaway is how this will pleaded to trade negotiations which are ongoing. president has made the trade balance a key issue. people say it is one that is misguided, but from an economic
perspective and certainly from a headline perspective. does this reduce the pressure to make him say we are making some progress? that is her the trade balance comes into play. alix: absolutely. wanting to dig through the individual countries and find -- u.s. good exports to china the lowest since september 2010. part of that will be the trade issues. that is a headline you can imagine no one will like. u.s. exports to china falling to the lowest level since september 2010. still with us is our hogan -- is art hogan. when you look at these numbers, what is legit and what can be changed and what is sticky? art: we had an overshoot in december so we had to make up for that in january. in terms of how much this can change, it is a very difficult process.
we are a developed economy we do not export a lot. to the extent china is developing and they export a lot, it is hard to make those numbers up. that is what we saw. january soybean exports quadrupled. we are starting to see some buying. the interesting thing to me is january imports for the united states from china fell 2.6%, showing the u.s. is trying to move away from buying chinese goods. i have to wonder which is more painful? the reduction in exports from china or the reduction in exports from the u.s. to china. which country has more at stake? hogan: china does. that is the case. you have complex supply change that have second source things from outside china.
that is a process that does not happen overnight but we are starting to see that reflected. alix: hang on one second. as you have u.s. and chinese officials resuming high-level trade talks tomorrow, both sides wanting to reach a deal. joining us now from washington is republican representative tom reed of new york who met with president trump and other house representatives yesterday. thank you for joining us today. we just got the headline you good exports to china fell to the lowest since 2010. what did president trump say about a trade deal yesterday? ed: we were discussing the mexico canada trade deal. it looks like the summer will be a realistic time to get this done and it is up to nancy pelosi to schedule this vote and let's get mexico and canada done so we can use that as the gold standard for negotiating with china. how did president trump
categorize the negotiations between china and the u.s.. he is optimistic we will be able to reach a deal and our trade representatives are going to china as we speak. that is a good sign that we are still at the table negotiating. one of the things that will give us a position and that negotiation is to get mexico and canada done so we can negotiate from that gold standard level and hold china accountable. as this goes on between china and the u.s., the u.s. trade with mexico has increased and they have been importing more from mexico. there's a story on the bloomberg that the u.s. and china got into a trade war. mexico one. do you agree? rep. reed: i do not agree. i'm seen manufacturing come back to life. we are seeing the u.s. steel industry come back to life. mexico and canada and the u.s.
have to approve this updated agreement. this is not a choice between going back to the status quo. this is a choice between repealing nafta and going back to pre-nafta standards and canada and mexico as well as the u.s., it is not in our interest to do that. putting that aside in moving forward to china, what did president trump say is the biggest sticking point from where he sits on getting a deal done quickly? rep. reed: it is congress in regards to the mexico/canada agreement and the speaker making a decision whether or not she will schedule a vote. the biggest issues there are the enforcement mechanisms in the law to approve the agreement. what can be done to make sure this is not just a list of paper items. this has substantive enforcement tools there. lisa: you think it is congress's fault and yet robert lighthizer, a member of trumps negotiating team has disagreed with trump's
approach. -- howthe internet is an to the internecine disagreements factor in? rep. reed: i heard we are all now the point where mexico and canada have been agreed upon. lisa: i am talking about china in particular. rep. reed: as we going to china, this is the first time that china is at the table negotiating and we're going to have to use all tools. is beingdent aggressive against china in regards to negotiations and rightfully so. thank god he is not just talking the talk like presidents have done for decades about china, he is holding them accountable and now china has to respond and it is the first time you showing movement to do that. alix: how do you feel about the current tariffs? do you think they should be removed on day one or to keep them in place until there is firmer commitment? rep. reed: i think that is part of the toolbox of the enforcement mechanisms.
those tariffs have to be deployed and if they are taken off, there needs to be recognition they will be put back into place if there is shenanigans or lack of enforcement or violations of the agreement. you have to make sure you're not just talking the talk, you are deploying tariffs when necessary to hold countries like china accountable. lisa: tom reed of new york, thank you very much. still what this is art hogan of national holdings. how much is the market relying on getting some deal between the u.s. and china on trade and how much does it matter how substantive it is? if it goes beyond agricultural goods and gets into intellectual property. art: i think the market is dependent on pricing and getting a deal done this year. i have a little trouble of congressman reed talking about getting nafta 2.0 approved and the summer. the market thinks we are adding a deal in april or may.
that timeline does not make any sense. i'm concerned the market continues to be ok with the push out. we will have a meeting in april and if they are not going to approve the gold standard nafta 2.0 until the summer, that means the deal negotiation will drag on. the market will like that. the market once a deal. -- the market wants a deal. largely more important that tariffs get removed. leaving those hanging out there is not something the market will applaud. of nationalgan holdings, thank you so much for your time. alix: coming up, and inside perspective on investing. bill ford will be joining us in today's fall the lead. do not miss this interview. this is bloomberg. ♪
alix: -- viviana: this is "bloomberg daybreak." coming up, deutsche bank chief global strategist. alix: time for follow the lead. a deep. and the making headlines and moving markets. today, our focus is on global growth equity firm and how much competition there is in this space. how much dry powder is in the market and what are the opportunities. who better to help us than jason ford,joined by bill atlantic ceo. jason: so excited to catch up with bill ford. you and i have known each other for a few years. you've been in your job since
2007. the firm goes back to 1980. let's set the stage for what you do. a couple numbers to help our audience get their arms around this. about $30 billion of assets under management. 300 plus employees, 100 portfolio companies and names people know. ,igh-tech, airbnb, uber torchy's tacos, joe and the juice. growth equity, we talk about it, but what is it and what is it versus what we typically think about with private equity? bill: thanks for having me today. growth equity sits between venture capital and buyouts. we get involved with companies that are post revenue state, 20 to $50 million in revenue and before they hit the majority stage where the buyout guys get involved. these companies are growing 30% or greater and are at the
steepest part of their growth curve. these are the companies that have the most difficult challenges in scaling their businesses and dealing with growth. venture capital is pre-revenue stage. aboutasset class, we have $600 million of capital and growth equity. despite the fact that venture capital grabs most of the headlines, it is growth equity that delivers the investment returns by backing companies like uber and airbnb and others. jason: i want to get to where some of those companies are because unicorns are charging into the ipo market. where does it sit in terms of the return structure? we basically target returns in the high teens and have been able to achieve that on a net basis to our investors with a low loss ratio. our loss ratio has been below 4%. the cost for investing in
profitable revenue generating companies, we do not have the hits and misses the venture capital industry has neither. we also do not use leverage which is the difference between us and buyouts. buyouts are driving their investment returns by employing leverage and operational efficiency. we are more about driving growth. our company set a meeting growth rate of 20% or 29%. it is growth driving the investment returns. jason: the buyout guys and other investors have taken notice of this. $600 billion in the aggregate in this strategy. competition usually makes it harder to do your job, right? jason: always -- bill: always. people have discovered the space. we do have competitors. venture guys have built roads platforms that have come up market and buyout firms have created growth platforms to come market.
recognized this is a great source of growth, secular growth and secular return that fits well into an institutional portfolio. it is a big space, it is global in nature, 60% of our activities outside the u.s.. we built platforms in china, india, latin america, and southeast asia. we are seeing the globalization of entrepreneurship. when we talk unicorns, they are all over the world. jason: let's talk unicorns. ipo's on the deck for lyft, uber, others may come out. what is the market going to be like for them? hotly anticipated. is setting up2019 to be the most excited ipo year since 2012 for a couple of reasons. you have wonderful companies --
uber, lyft, and airbnb will introduce investors to the sharing economy and the large rideshare market. then on the enterprise software space you have palantir, crowd slack, next-generation software companies. you have to go back to 2012 when facebook went public and introduced investors to the social media space and when we have a great crop of clout software companies. it is setting up to be a great year. the other thing about the ipo market we have observed is that when you have a constructive equity market like we have had over the last several months combined with moderate volatility, the market not too hot or too cold creates the best conditions for a good ipo market. we have them now. we have seen levi strauss, i think lift -- i think lyft will be successful. jason: nice conditions to exit.
what about getting in? how much to worry about valuations bill:? private market -- valuations? bill: private market valuations are up. you've always had to pay for great growth. the keeper us is to discern companies that can emerge as market leaders and serving very large markets. when you get that right, history tells you can get the investment terms and pay full value. where you get into trouble is companies serving relatively small markets relative to the enterprise night you're being asked to pay. jason: the firm came out of a family office type situation. duty-free is underneath all of this. have a wonderful history i feel fortunate to be a part of. 1980.e founded in
he built a shopper business into a successful company and we formed to manage his capital. between 1980 and 1990 we were a family office. he gave away all of his wealth to philanthropy -- to causes around the world. we will get to some of your philanthropy in just a minute. to that, you are also involved in the partnership for new york city, your co-heading it. , especiallyinvolved on the back end of that decision by amazon not to come to new york city. where do we stand on that? the heads of the
partnership have tried to turn around amazon's decision. stayed engaged with the local community and local politicians as well as well as amazon to see if we can turn this around. we worry the sense of negative signal to business globally about doing business in new york. new york has great momentum in the tech space. facebook has the campus, google has the campus. we have our share of leading companies. square space, our unicorn ipo's. getting amazon would only distinguished new york as a leader in technology. also media, given amazon's move into media, new york is a great media hub. it would've been a catalyst for further development. we hope we can turn it around. if we are not able, we still want to send a strong signal to the global business community that new york wants them to operate here and build their business. jason: you feel like it is working? are they listening? bill: we know we have to elevate
our voice. we have a great group of people who are part of the partnership and we say we need to be more active and vocal and engage our employees. we did a survey in new york and 70% of new yorkers so they wanted amazon to be here. we are not activating that voice loudly enough. jason: have to talk hoops. brackets for a cause. you've been involved. you're a past winner. you split the prize a couple years ago. you are in fifth place right now, in good company. back in the day you road unc all the way. this year you have duke. how are you feeling? bill: i feel great about duke. it is one of my favorite times a year. brackets for a cause that bloomberg is great. congratulations to dwight anderson forgetting 16 of the sweet sixteen. rightam got 15 out of 16
and we are hanging onto fifth place. this is a super competitive field. we think coach k combined with the best college basketball player in zion williamson is hard to go against. we think they have a good chance to win. shunning helper communities as your charity. what is that about? runs schools and some of the largest slums in the world in kenya. they sent their first crop of graduates to college last year. it is a wonderful organization. that is where the proceeds went. hopefully we can get money to them again this year with a come from behind victory. jason: a group effort to get this bracket together. a good team working on this. bill: terrific associates at general atlantic. regions ande of the we used private equity decision style, lots of conference calls and debate. jason: sigrid to catch up with
alix: here is what i am watching. today it will be about bonds. you're taking a look at yields in the five-year. $41 billion of supply coming out later on today. the takedown for the two-year was good and i wonder they will be ok of buying yield. lisa: when you say pretty good we are talking about low to year treasury yields, the lowest since early last year. you saw the greatest indirect bidder participation in a year. you saw investors clamoring for these bonds, even though yields are so low. alix: i will watch what is
happening with the 530. bit, what doesod that mean? lisa: the idea that if the fed holds out, you are seeing a curve inversion that people are getting worried out. the gap between three-month and 10 year treasury yield inverts further. is the indicator that the new york fed look set to indicate recession. that will be continuing to make people nervous. alix: tying it into what we have seen overseas, in japan as well as korea you say the 10 year yield now below the official central bank rate. thenis happening and germany selling debt over 10 years at negative rates, the first since 2015. the stats keep coming. idea is bond markets globally are saying central banks are going to have to cut rates in the near future. is rates, even as row
are, we are done with tightening and back to loosening. that is going to be a global phenomenon. when you get the yield curve inversion, that is what it is telling you. alix: inverting for how long and at what pace. a lot to watch for. good to see you. thank you for joining us. coming up, the deutsche bank chief global strategist will be joining jonathan ferro. that wraps it up for bloomberg daybreak on this kind of risk off days. s&p futures and the dow kind of flat. european equities moving into positive territory despite the fact that the bonds continue to rally. this is bloomberg. ♪
jonathan: coming up, the president's greatest fed nominee calling for a rate cut. stephen moore once rates slashed. draghi says the ecb is ready to soften the impact of negative rates. slowlyinister mays deal winning over brexiteers but the price might be her job. 30 minutes away from the opening bell. a session that improves with age. futures positive by a single point. treasury yields down three basis points at 2.39 on the u.s. 10 year and the euro former. 1.1270.lar strategists pushing back against the indians the cycle narrative. strategiste has -- pushing back against the end of the cycle narrative. >>