tv Bloomberg Daybreak Americas Bloomberg May 22, 2019 7:00am-9:00am EDT
may have slightly overdone it with our december rate hike. president says the right hike may have been a mistake. and tech cold war gets colder. and target hits the bull's-eye, bucking the gloom, kicking off the year with strong sales. investors wait on what it will say about the impact of tariffs. david: welcome to "bloomberg daybreak." target really beat on earnings-per-share and revenue, and took up their forecast as well. alix: same-store sales 4.8%, so that coming in superstrong. web sales rising 42%, also better than we thought. it also shows that on a beat, you can really crush it. david: one thing i thought was interesting was most of
same-store sales is number of and 0.5% in the value of those transactions. but they had a really great morning. alix: you told me they didn't blame the weather, right? david: very specifically they did not blame the weather. but they are still down a little under 9% in the premarket. they missed on their earnings. they took down their estimates. they are struggling with their professional turnaround at lowe's. alix: i've heard that story about lowe's and home depot for over 10 years now. it is going to happen at some point. in the markets, you have a little bit of no action here. s&p down by about four points. we had retail carnage yesterday, yet markets were still able to climb into the green. it will be interesting to see digest these diverging
retail numbers. you are seeing a little bit of buying back into the curve, but again, not a lot of movement. crude off by 8/10 of 1%. that is sort of idiosyncratic. we get the inventory numbers out today. mabel that will be good for the come -- maybe that will be good for the commodity market. david: for bloomberg first take, we are joined by michael mckee and romaine bostick. we want to talk about chinese tech once again. it turns out that they are not quite done yet, the united states. it appears there are other chinese companies beyond huawei that may be put on that blacklist. the top two are publicly traded. as i understand, the top three are really having to do with surveillance. michael: this is an interesting development because it takes us past the development on trade.
case for theong administration to take action, but it is confined with all of this other stuff going on and creates the potential for a very long trade war between the two countries and what some are calling a new cold war, which may be kind of the wrong name, but it kind of gives you an idea of where the countries are going. david: i also wonder if a little bit unfocused or diffused. we've never heard president trump talk about civil rights, human rights in china. that is getting added maybe to the agenda as well. national security, human rights, trade. michael: it does get down to the idea that the trump administration sees the chinese as a strategic threat in official u.s. planning documents, and they want to pare ability to compete,
and that is what is driving all of this. alix: xi jinping said earlier we are here at the starting point for the long march to remember the time when the red army began its journey. priced is the market for that? no, and this has gone beyond a tariff. this is about having access to very specific component, whether it is u.s. companies having access to certain things or chinese companies having access to certain things. a lot of companies in the u.s. have a lot of indirect sales, selling to other countries that others thatg to were packaging for chinese companies. now wherehis logjam you are not going to have that direct business. that is going to have an effect on a lot of these electronic
component makers, and i think you are going to see those stocks get a little bit hurt if this doesn't get resolved. alix: it brings up the question of the fed versus the markets. last night we heard from the st. louis said president. here's what he had -- st. louis fed president. here's what he had to say. >> if anything, we are a little bit constrictive. i am a little concerned that we may have slightly overdone it with our december rate hike, but i was pleased that the committee pivoted. alix: this brings up the point that on the one hand, the markets priced in rate cuts. on the flipside, the market hasn't priced in a full on trade war. something doesn't make sense with that. isaine: right now the market completely -- i mean, there are so many disconnects. expectations seem to be decoupled with what we are
seeing. at some point it either has to be resolved or we have a fundamental breakdown in the market. either the fed is going to solve the problem for the market, or the market is going to solve it for the fed. alix: mike? ichael: jim is a very smart man, but he is on the curve there. the they are on the fringes of the policy debate at this point, so markets would be wise to not pay too much a tent -- too much attention to what they are saying, although james bullard is a voter this year. you've got 3.2% gross, 3.6% unemployment. inflation is a little lower than we want it, but we still believe we can get it up as the economy continues to expand, so why would we do anything at this
point? they are worried, to bring romaine's point back in here, that if they cut it creates the dental for a financial bubble because it starts elevating stocks like crazy. david: let's go to the third story now, which is retailers. we had lowe's and target out this morning. it has been really idiosyncratic. kohl's is the standout who has done very well. nordstrom's down. jcpenney unchanged. on same-storet sales and earnings-per-share, but had some projections at that were a little disappointing. romaine: i think the good aspect of this retail season is a lot of these details seem to be company specific. you didn't really hear as much talk about china and trade.
there was a few mentions of it, primarily prompted by questions by analysts, but a lot of the questions don't seem to be focused on that too much. they seem to be focused on the to domestic aspects like you saw with target and walmart in tjx. they are very specific to their stories. but none of these are really broader economic stories. these are very company specific stories. alix: and i wonder how long the margin story is going to hold up. at what point does a tariff delay compression? -- tariff deal a compression? michael: that is a problem for them down the road. we won't see a real impact on margins until that happens.
if the president goes ahead with the $370 billion of tariffs that haven't yet been levied, that hits them hard because that is -- mostlysumer de consumer goods. but for the market, the one consistent thing you do hear from all these retailers is the consumer seems to be just fine. they may have problem with costs or their organization, but they think americans still want to spend. and if that of the case -- and if that is the case, they are in a good place. alix: thank you very much. you can find all the charts we just used and throughout the next two hours at gtv on your terminal. check it out. david: in the meantime, we have prime minister's questions underway. that is jeremy corbyn, the leader of the labour party. theresa may has just been talking about education. it seemed like everybody remediate -- she had a new plan
for brexit, and it seemed like immediately everybody rejected it. alix: now prime minister boris johnson. that seems to be what they're looking for. david: he to be interested in that job. alix: he's pulling really well. david: at qualcomm, there's been a dispute over these patents. they pulled a dispute with apple, but there is a dispute between the fcc saying that patents did misuse its in a competitive way. their stock is down almost 10% right now in premarket. this is something we've been following carefully. alix: i feel like it is an entirely new antitrust world at this point. david: there's a big dispute between the fcc and justice department on whether you should forfter patent use
against the u.s. goldman sachs estimating a chinese ban on the sale of apple products could cut earnings by 29%. goldman cut its price target on apple shares from $184 to $178. on u.s. may widen its ban china -- ontext to the sale of tech from china. that is your bloomberg business flash. alix: thank you very much. president xi jinping telling a cheering trout, "we came to the -- a cheering crowd, "we came to the start of a new come along march and we must start all over again." joining us is medley global advisor's president. how do you price that
the jp morgan showing the bull and bear case for the s&p. what do you do with that chart? guest: right now, you don't do a lot. when that tweet came out, my view at the time was you could see 4% to 5% on the downside. now we get stability. i think you've got five weeks to go. it doesn't surprise me that this rhetoric -- alix: until the g20. guest: correct. i think you got to get the big boys in the room. it is going to be about xi and trump sitting down the same way they did in buenos aires. you need those two to look at each other face-to-face. you've got five weeks to go. it is going to be really easy to have negative headline after negative headline. withinsense is that about two weeks, we will see some falling, and if we don't -- some thawing, and if we don't
that will be a real problem come june. david: they could always say we will keep talking. we are not going to keep the tariffs off -- going to take the tariffs off. how do markets react to that? guest: i don't think that will be enough for the markets. we take the fed out of it hopefully for now. this will be about pricing this risk. it is a one year battle. these tariffs were put in place close to 12 months ago. this market cannot withstand 25% tariffs. in today looking at truck after truck on the highway. the u.s. economy will not withstand it despite all of the bravado, and the global economy won't either, so this needs resolving. so we are now in a five-week timeline. david: if it really is make or break in five weeks, hasn't it gotten that more difficult? they put the sanctions on
huawei, looking at five other companies. it is hard for president trump to climb back off of that. paul: it is a very tough one. you've got the risk of apple, the risk of the currency. there's the ongoing talk about the treasuries. this will just keep elevating, and my opinion, but there will be a point where they have to give. the other way i would look at it is when you look at president trump, if he wants to get reelected, he needs this thing getting resolved. i think preferably by labor day, but ideally for the market, it needs to be done by the end of june. alix: i think we are talking onet the u.s. come about bloomberg opinion piece wrote about china. everyone talking about that seven handle for the dollar-yuan.
is the bigger risk in china? paul: i don't necessarily agree. i think the stakes are high for both. the u.s. is coming from a position of strength because the economy is so good. the economy won't feel good if we get another q4 meltdown in the stock market. to me, that is the reality. we are sitting right now in a weding pattern, but we think are being loaded into a -- place ofled into a false stability. david: one of the things that isms to be happening, it sort of like counterparties and derivatives. alix: and goldman with apple's potential downgrade. issue ishink that this a lot behind the fact that europe is really struggling to get those green shoots rolling
again. look at the fact that new zealand cut interest rates recently. even the bank of australia is hinting at cutting next month. that supply chain affect israel, and it is global -- affect is real, and it is global. david: thank you so much. meanwhile, prime minister theresa may has restated her opposition to a second brexit referendum after remarks --terday where she thought where it was thought she would say we would have a second referendum, with the condition that they vote for her deal. she is stating now she is against a second referendum. alix: that is like my daughter, you can have chocolate after you brush your teeth. [laughter] alix: the cable rate down 4/10 of 1%. david: coming up, the haves and have-nots of retail. target delivers an earnings
♪ david: lows cut it earning outlook for the year -- it's earnings outlook for the year. more now with taylor riggs. taylor: home depot was able to maintain their guidance yesterday, but they are citing tariffs as well. home depot said 25% tariffs will cost them about $1 billion this year. lowe's citing tariffs hitting their margins. ugh, homengly eno depot saw same-store sales rise, and lows saw a rise of 3%. beating out home depot
for the first time in a few years. pinchedonsumer gets from perhaps some of these tariffs, it is really these discount retailers that were get a big benefit. sales beatsame-store and reaffirmed their guidance after t.j. maxx boosted their guidance, and kohl's was on the others of that, but we are looking at today's action. kohl's rising today after they cut their forecast yesterday, citing those tariffs. we are seeing a divergence here between some of these discount retailers of who was able to pass through some of those tariffs and cost pressures down through the bottom line. alix: thank you so much. still with us, paul richards of medley global advisors. there are some statements of what retailers said yesterday about tariffs, anywhere from autozone looking at inflation, kohl's planning conservatively. how do you literally quantify
it? paul: i don't think you can. this is what the fed is trying to face as they meet in june. nobody really knows. but the fact is i think the market was going to level 10%. trying to quantify 25% is so difficult. as a ceo, you are going to have to be conservative in your guidance because no one knows, but i don't think the consumer will like 25%. david: how much can the retailers redo their supply chain so they are buying from southeast asia or other markets? consumer can the absorb 10% because the economy has been doing so well, but i think 25% is enough of a sticker shock to put the brakes on the spending. particularly in the summer, i think they will just say i'll see where this thing goes. i think the consumer and the voter understands this war and the effects of what 25% will be to their bottom line, as well as
people are doing in terms of having a job and earnings. that number might be too much, particularly when you are seeing your 401(k) go down. alix: waiting for that conversation this weekend with my parents and mother-in-law. to that point, some areas feel like that has been priced in. s versusrt is the faang' the s&p. they raised all of the outperformance and 2018. where has this been priced? where has it not? from aooking at faang's basic perspective, looking at the impact that if china were to take on apple, just look at qualcomm with their issues overnight. you are seeing the fact that faang's, if this went into a full-blown war, particularly with huawei being from the tech industry, that is probably not priced in terms of a full-blown
war. i think the market is understandably nervous about it. interestingly, the s&p is really stable, and you have seen the fractures coming into the nasdaq. from a tech perspective, there's a lot of nervousness, and understandably. alix: paul richards is staying with us. to that point, goldman saying earnings will fall 29% if you have to re-diversify your supply chain if china cuts off apple. much more on that. paul will be staying with us. coming up, president trump preparing a new round of aid for farmers. we will talk with senator purdue of georgia. this is bloomberg. ♪
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europe. factorsctor -- auto getting hit in europe. bmw a factor there. whenind theresa may -- the theresa may resign conversation coming back up. in the u.s. you are seeing a little bit of buying, but nothing like in the u.k. when now it is a matter of she is going to resign, right? david: that is what they say, but it seems like it is shorter and shorter. she had that cabinet meeting yesterday. they thought she had a plan. the plan didn't work out. everybody turned on her right away. it didn't take long. alix: even those that were for her plan before. now,an see pmq's starting a little about brexit, like she opposes a second referendum, but nothing concrete. david: what i thought was really surprising, she said the
parliament lacks a consensus on how to deal with customs relations. i think we've figured that out. alix: it is sort of like, by the way, we are divided on brexit. ok, good. great. [laughter] david: we want to turn back now to trade in washington. rdue is theid pe only former ceo of a fortune 500 company to serve in congress. we welcome him now. great to have you with us, as always. let's focus on trade with china and talk about the farmers, which are hurting across the country, not just because of trade. it looks like we are in for a long, hard slog. how can the farmers survive this? sen. perdue: first of all, i think my farmers in georgia have been very supportive. they are taking the brunt of this because of the retaliations from china, but they also understand that in the long-term, but the president is trying to do, they fully support
it. that is to try to get equal access into china. i think they are going to stand with the president. they've known worse before. they've got some flexibility. but right now they are supportive of what the president is trying to do with china. the usmca is another one. i think this will help farmers, and that has been a major step forward in terms of overall negotiations with the rest of the world in terms of trade. david: before we come back to china, yesterday there were some reports we are pretty close to a deal getting through. is that true? sen. perdue: i think that is true. what we heard from ambassador lighthizer is this adds about $70 billion to gdp, 100 to many 6000 jobs. it is the strongest piece of negotiation i've seen in my lifetime. it is more than what nafta was, and it is a great step forward. we still have some issues. you saw the president released tariffs in terms of steel and aluminum.
that is a huge step forward, but we still have further things to negotiate, as secretary mnuchin mentioned this week as well. david: when you did run a big company, it was in retail. we are getting a lot of retail earnings intraday -- earnings in today. they are really going to be hurt by the tariffs. how would that have affected your business when you were there? sen. perdue: with dollar general, our goal was to help people get from payday to payday. tariffs get passed through to consumers. we all know that. the question now is the american people know that we have not gotten a good deal with china. they are forcing transfer of technology, violating the wto, they don't give us equal access. i think most americans i talk to around the country understand what the president is trying to do. there's going to be pain because of tariffs, but i think china is going to have more pain than we will, and we will see how they
react. right now,ged that secretary mnuchin and ambassador lighthizer continue to have ongoing conversations with china. i used to live over there. i understand how long-term these to go see asian's can be at times. i am still hopeful that we will get to a conclusion sometime this year. alix: what would change your mind? what would you start hearing from companies that you would start to say, we need a deal now? sen. perdue: well, we need a deal and we need it now. alix: but you think the public will be patient, but that will start to turn. sen. perdue: what is the alternative? the alternative is to go back to what the past five presidents have done and ignore the unreasonable relationship in terms of trade, especially since we helped them get in the wto. it is time somebody stood up and required them to comply with trade rules like the rest of the world.
it is time they come back into the real world in terms of compliance with normal trade practices. i think this is a fight that is worth having. the alternative is to go back to the existing election ship, and that is not acceptable to anybody. david: certainly you hear that from both sides of the aisle, that china either needs to be reformed -- that there needs to be reform in the relished up with china. don't we make it more difficult as we add issue after issue, with huawei, which is not trade at all, and now five more companies having to do with monitoring. we are making it more difficult for the chinese to say yes to us. sen. perdue: you can do that, but i think what we've done already, what the president did by giving this offramp -- and we talked about that with the president personally when he first talked about putting tariffs on china -- is you need to find offramp's that help both
sides save face and make concessions without losing faith. that is what this is all about, and i think we will get back to that. huawei is an entirely different situation. in many cases they are a bad actor. there are many things we need to do to stop that. this is a national security issue, and there will be other ones as we open up what we now know about some of their practices. david: not just chinese trade that you have to deal with. we had these devastating storms that hit the southeast, including georgia. it hurt the farmers and others. you are the sponsor of the bill to try to bring relief. where does that stand? it's been almost eight months since hurricane michael came through the southeast. we had fires in california, earthquakes in alaska, floods in the midwest. eight months. the longest it took a recess to relief, these were mostly
bipartisan bills, was two and a half months. it is time to get this done. i think we are very close to getting this done. senator mcconnell has said we will vote on something this week , so the pressure is on in both the house and the senate to get something done this week. david: thank you so much. good to have you with us, as always. alix: still with us is paul richards of medley global advisors. what was your reaction to what we talked about in terms of trade and national security? paul: i thought it was british italy positive. he was -- it was relatively positive. i would like to see that a little bit more public. i think we need to have some kind of forum. therobably need this within next three weeks, or the market is going to start to get very concerned. but that was a more positive interview, and i think the market would take that resident of lipa literally -- would take
that relatively positively. david: at some point the market once a deal, not just more happy talk. hardered to be getting and harder rather than simpler. paul: i don't disagree, but at the end of the day, with something this complex, surely you will get to the point where we think it is all over. that is when a deal typically takes place. and we've got time. i like that we have five weeks because i think both parties needed time to save face. i don't think we will get that deal done in washington 10 days ago because it was just soon after. that would have been china stepping back and relenting to the u.s. you've got time now for both to appear strong to their party, and to the public in the case of china and the u.s., and then you get your deal done. that's why this is to the markets advantage and why the s&p is not panicking right now,
but there will be a point where even the market runs out of time on this one. alix: based on all of that, what are you doing for the next five weeks? that makes me feel like you are going to be in cash. what are you going to be doing? >> talking to my friends at the golf club, investors, et cetera. they believe something is going to happen, and i think the market is giving you the same view. otherwise the s&p wouldn't be pushing 2500 right now. but i think investors managers are going to have a very big decision because he won't quite know, and it is going to make you feel very nervous. this isn't one is there is again. this is gametime. i could see the market start to get dislocated. if we were to see some kinds of blip on optimism, i think
investors will start to pare back. that is when you go back into cash. , theyou sell a rally outcome is probably 10% in a way. this is binary. alix: thank you so much for being with us. david: it is time now to find out what is going on outside the business world. viviana hurtado is here with first word news. viviana: british prime minister theresa may reportedly facing more pressure to resign within days. senior government officials were new brexit's proposal was rejected so quickly. there is little chance parliament will approve her plan. a memo from the internal revenue service reportedly exposes its agreement on president trump's tax returns. according to "the washington post," the memo says returns must. out of complying -- the memo says returns must be submitted.
way of note only complying is through executive privilege. on subwaysnt system and buses will begin on a limited basis at the end of the says 80 of the top 100 u.s. retailers are also using cap to pay. p -- using tap to pay. the adaption will start to take off. hardest,t 10% is the and after that there is a snowball effect that really takes off. 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: thanks so much. i'm all for it, but i can't imagine my mother trying to be like, wait, which card is it. she can't find anything to begin
with? david: my reaction would be the other way around i'll believe it when i see it -- the other way around, i'll believe it when i see it. there are some and he that don't work in the subway. alix: that's right. nonetheless, things need to be fixed. david: meantime, infrastructure coming up again today. we will check with their meeting. watch. $2 trillion. they said we will meet with the president and he will tell us how we are going to pay for it. alix: perfect. david: i'm looking forward to it. alix: if you don't want to live here, don't live in france. coming up, more of an unspoken
cuts and inefficiency drive to restore profit margins. his successor takes over at a time of unprecedented upheaval in the auto industry. the three biggest airlines in china want compensation from boeing over the grounding of the 737 max 8. air china, china southern, and china eastern filing formal claims. 53 of thers operate planes that are lying idle. nordstrom reported lower earnings and cut its full-year forecast. that is your bloomberg business flash. alix: thanks so much. we turn now to wall street beat. first up, barclays cutting a dozen jobs in the equity division as the bank seeks to
reverse a 20% plunge in equities and trading revenue. a sharper strategy for commerzbank. the ceo entertains the possibility of another deal after the collapse of merger talks with deutsche bank. and it is a little-known rule from geneva's private bank. bankers encouraged to stay in switzerland, discouraged from living in france to risk exposing sensitive data. i wish we had that problem. david: that you have to live in france? alix: whatever. david: we welcome now soon ali bassett -- we welcome now sonali basak. is this really out of the ordinary for barclays to let 12 people go at a time? sonali: not really. morgan stanley also cut a bunch of jobs in equities. also, the places that we have seen cuts, not so surprising. what it does ask is are there
going to be more cuts ahead, especially in fixed income? david: and barclays particularly focused on the investment bank because that is the thing shareholders have been after jes staley on, and jes says we are going to keep it. sonali: this has been more of jes staley's problem after the exit of one of his longtime deputies. there is reshaping at the top, so you have to wonder if there are more changes to come. alix: commerzbank had their annual meeting today, and the ceo said many things. i favorite is he said they may need to sharpen their strategy. good to know they are on that. but about mna, he obviously -- about m&a, he obviously did not rule it out. sonali: we have deutsche bank tomorrow, commerzbank today. german regulators are worried about both banks and what they will look like, especially if
the economy continues to turn. does that leave a window for somebody else? david: most m&a, you have to grow the top line or cut the cost, but cutting cost is the people, and they say they don't want to cut any employees. alix: i'm sure. a bank if you inherit with issues, you inherit all of their issues. [laughter] david: exactly right. let's turn to a story that actually has alix's attention. theirbanks encouraging bankers to live in switzerland and not france. there are some tax issues here. sonali: geneva has three to four price for condos as there are in france. but something that is on the
record fine in france, other banks are worried about the crackdown. we will see if the same goes for the other borders of switzerland. alix: they are also worried they're going to take state secrets. i use that loosely. that they will go to france and it will be a headache. before, anseen this i.t. worker handing over documents to the french government. we seen homes rated also -- also, in germany, for example. david: so it is not don't money launder, just don't get caught. alix: hey new yorker, you can't move to new jersey because we have to keep your taxes. [laughter] david: many thanks to bloomberg's sonali basak.
david: this is what i'm watching, bmw. surprisinglythere young ceo, harald kruger, his job is on the line. as this is up as early month or next. they are not entirely thrilled with his performance. he was brought in to oversee fundamental change as they move toward electric vehicles, as well as autonomous, ridesharing,
things like that. this got some softening, but he also sort of inherited brexit. the real challenge is making that transition. part of the issue is has he made enough partnerships. a lot of people are moving quickly into partnerships. the companies have to invest an enormous amount of money in electric vehicles and autonomy, and a lot of them say we cannot do it alone. alix: you are having all of these parrots and team ups. david: exactly right -- these pair ups and team ups. david: exactly right. others are going at the higher and gmc. porsche
alix: if you talk to anyone who is pro subsidies, they are just like, we need a lot of different choices on the market. then it can take off. so we really need these guys to make these cars. david: and they need to make them. china has said we are going in that direction. meantime, there is also a change at daimler. plan, buta secession he has been a real institution there. alix: you said that was in the works. was this a different situation? david: i think it is a changing of the guard. at the same time, all of these auto companies are going through such transformation. in overalloftening auto demand, including in china. they've got a lot of pressure on them right now. alix: i would also argue the same for the governments. david: china and the u.s. are
rolling back certain subsidies. you also have card sales slowing. -- car sales slowing. david: and that puts pressure on tesla, for example, because they are losing subsidies from the government. alix: and you need better and cheaper batteries that don't blow up. david: and where do those get made? china. alix: full circle. the biggest battery maker in the world is in china, and they also own the majority of nickel and cobalt in the world. coming up, is the trade war a binary risk? this is bloomberg. ♪
bull's-eye. target kicks off the year with strong sales. investors wait to see about tariff impact. and the u.k. prime minister presents her fourth new deal today as she comes under pressure to quit and scrap devote. apparently there is something for everyone, including the hint of a second referendum. david: welcome to "bloomberg daybreak." i'm david westin, right here with alix steel. we have retail sales coming out here in the united states. target did really well, surprised with their earnings. same-store sales were good. they say the consumer is strong. they are doing well. alix: their margins were a touch on the lighter side, gross justns coming in 29.6%,
shy of what was anticipated. that is something to watch throughout the call. and lowe's -- david: not as happy a story. they also blamed the weather and took down their full-year earnings estimates. they are down over 7% right now. alix: they raised their expectations in late february because the season started off well, so that is not so good. david: you said this earlier, you've been covering this for years, and they keep saying they are going to catch up with home depot. it is coming, it is coming. not so much. but they did say we think the consumer is strong in the future is bright. it is going to get better. alix: but nonetheless, you have to get market and equity market, credit default swaps up. clearly there is a longer-term fear in the markets. david: it doesn't help that home depot did pretty well. home depot was out earlier this
week. lowe's always gets compared as a practical matter. alix: as it should. i do want to get to what is happening within the equity market overall. a little bit of saltiness. s&p few -- of saltiness. s&p futures down tenths of 1%. it doesn't seem like there is any overall factor. a little bit of buying on the back end of the curve. 2.41 on the 10 year. crude is moving on its own, down 1%. trade drama is obviously part of it, but the other part, inventories coming out later today at 10:30. that is definitely going to be a big swing factor. if you get any sign of inventory build, that will be a big negative for oil prices given that opec was already a little iffy on production. david: treasury secretary steven
mnuchin mo testified before the house financial services nguyen ---- steve testifynuchin will before the house financial services committee. at 2:00, the federal reserve will release minutes from the fomc meeting from earlier this month. isx: going on live right now prime minister theresa may speaking to parliament in her usual pmq's. she says a compromise is needed on all sides of the brexit debate. guy johnson joins us now from london. thank you for joining us. i feel like i've heard that headline thousands of times. what is going to be different in the next way for hours -- in the next 24 hours? guy: what could be different is it theresa may is under significant pressure to step down. she offered the idea of a second referendum that has pretty much been roundly rejected by
pre-much everybody. the pressure this morning is for her to go earlier and not put that vote to parliament at the beginning of june. the pound is trading lower as a result of this. the expectation is that we could be heading towards a boris johnson prime minister and the possibility of a general election. the market does not like this. alix: no it doesn't. the cable rate hitting a four-month low. how did she lose backing so quickly and mis-play this so much to lead us to a potential boris johnson prime minister schip -- prime ministership? guy: the pound initially spiked on seeing a referendum in the headline. once people started to dig through the detail of what she was actually offering, i.e. you need to vote through my withdrawal agreement and then we will allow the possibility of an amendment that would include the possibility of a second
referendum, once people realized that was actually what was on offer, and it may not even be a free vote for conservative mps, people realized this wasn't what the initial headline suggested. it was something a little less, and as a result of which, people have basically said you are done. time to go. alix: we will leave it there. guy johnson, thank you for joining us. david: i guess we are going to find out the answer to that question soon. for headlines outside of the business world come of evian art otto is here with first word -- business world, viviana hurtado is here with first word news. viviana: st. louis fed president james bullard says it is premature to talk about a rate cut. he's argued against raising rates without evidence of clear inflation pressure. the u.s. may widen its ban on the sale of american tech to china. the trump administration is
deciding whether to add five chinese video surveillance companies to the blacklist. u.s. officials are concerned about their role in helping beijing repress the minority. u.s. chipmakers are preparing for a trade fight with china. the emerging consensus is the price will be high. smaller manufacturers are already warning of the impact of the ban of sale to u.s. -- sale to chinese company huawei. 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 the vienna art otto. this is -- i'm viviana hurtado. this is bloomberg. alix: china digging in its heels as well, as china's xi jinping told a cheering crowd, "it is a new long march now, and we must start all over again." joining us now is deutsche bank chief u.s. equity and global
strategist and head of asset allocation. it seems like we are leading to a prolonged battle. is that binary for you for the markets? guest: i wouldn't really use the word binary. i think it is really about how long it takes to work itself out. if you look at the u.s. equity market, today we are sitting basically 3% from the high. keep in mind, the equity market pulls back 3% to 5% every three to five months. we are at a pretty mild pullback place. far, the equity market is really saying nothing is out of the ordinary. this will work itself out. whered argue that, given -- and everybody knows this -- we have gotten to a point where things have to get worst, so there has to be some other catalyst i can't think of, for
things to really make progress. basicallyld argue is things are likely to get worse because equities are about growth, and i would argue that near-term growth in the u.s. is about to get slower. at august of last year, we are talking about 61 all the way down to 53. orders,ook at export they are very strongly for theed with the ism last few years they have been leading the ism. new export orders are basic and seeing the ism will fall. david: you say it is a mild pullback, 3% or so, that could
happen for a number of reasons. is that because the trade issue is really not that jermaine, or because the market is not properly pricing in the possibility? 3% to 5%am saying that pullback happens every two to three months, and that is very normal. david: trauma over trade. to be thede proved catalyst. it could have been anything else. theuld argue that, given fact that trade has not been resolved, there's no reason to believe that the ism's are going to stop falling or growth is going to stop falling, which is what the leading indicators are telling us. that argues for another 5% to 6% down in the stock market. is there astion of trump put in the market. if i look at previous reaction
-- first of all, i would say the surprising breakdown of talks at the weekendute, on after the u.s. stock market reached a new high, i don't think it is a quinn said in's -- it is a coincidence. alix: fair, but you still need to look past the noise. you've done the analysis that shows earnings growth backing out those things, even backing out the tax cuts. what do you see if you are able to look through the noise? binky: i would argue another 5% to 6% down translates to the s&p 500 down to about 2650. we should then get a blank, some sort of agreement. then growth starts to come back and the equity markets come back. it is sort of playing out like a repeat of what happened in the last quarter of last year, where the markets went down. we got widespread expectation we
were going to get agreement, and the markets came right back. i think rather than binary, my baseline view is we are going to get another further pullback then the typical 3% to 5%, and the source of the slowing is not going away. things really need to get worse before they get better, but my baseline view is that they will get better. chadhaikki chad -- binky of deutsche bank will be staying with us. the latest is that theresa may will put the brexit build to a parliament vote. build to arexit parliament -- brexit bill to a parliament vote. really? david: i don't understand. [laughter] david: to what end? she's been told that they will not vote for it. alix: very valid point. david: who is president trump going to meet with when he goes
of what they are doing. guest: i'm sorry, i lost some of the last part of what you said. it really troubles me that they do these special deals and then sell out so quickly. that is true. you would think their forecast engines are better than that. david: but there target numbers were quite good today. would you agree? waya: notwithstanding the they do these partnerships, overall the stores have what people want, and they've got their mojo back. alix: on the conference call, target's ceo is concerned that tariffs will lead to higher prices. they are developing contingency plans to me to get the impact. what have we learned about how retailers are positioned for tariffs? loses?s and who
paula: i've been saying for years that the dependency we have on china is unhealthy. whether tariffs are the wrong or right thing to do, it is really important for retailers to hedge their bets. there is no reason they can't source some of their products from the americas, but they just haven't. we are really in for a rocky road if these tariffs continue. the department store sector is already troubled, and they are going to get clobbered. there is no question about it. david: lowe's had a more difficult time this morning. what is going wrong there? i think they are in the middle of a turnaround. they just brought their ceo back, and his focus is much more on stores then on prior ceos. i think some of it is just waiting for the turnaround to take hold, and some of it is we might be reaching the end of this economic pop we've had for the last eight or nine years. alix: who is best positioned for the next 12 months?
paula: you always have to like t.j. maxx and the other off-price retailers because it is a treasure hunt. you are assuming there is a bargain. you always have to like them in an uncertain economy. often because they are buying in the aftermarket, buying vendor overages, they will be a little less impacted by the tariffs. alix: good point. david: who is most protected from tariffs is it t.j. maxx? paula: probably. they are not protected, per se. they've just got margin to use if they have to, and the tariffs are likely paid by the people who brought them into the u.s. as opposed to t.j. maxx themselves. alix: who is most exposed? paula: pardon? alix: who is most exposed to tariffs? gettingowe's should be a hit now because some of the tariffs have already kicked in. alix: it is going to be interesting.
paula rosenblum of rsr research, thank you. chadha of us, binky deutsche bank. if you look at overall margins, you are more optimistic. then you've got to weigh in tariffs. binky: tariffs are going to have an impact, but i think it is an important thing to keep in mind. the equity market is going to look ahead, but the impacts take a while. i think the outlook for trade at this point and what exactly happens in three months, six months, 12 months is very uncertain. in the meantime, i would argue underlying strengths in the u.s. economy, underlying earnings are pretty good. so we are going to stumble along and then think about what the next shocked as.
-- the next stock does. david: if there were a time to really move china, is this a good time for the u.s. consumer? can the consumer withstand it better now than at other times? binky: in my view, yes. it is a good time, but i would point out and argue that the general narrative of the last nine years has been about how dismal and poor growth has been. the last time we had the equity market go into a range for 18 2014, earlyate 2015, early 2016. the narrative was really about secular stagnation. if i look at the federal reserve, real interest rates are two percentage points below the
lowest estimate for gdp growth in this recovery range, so i would argue it is probably the worst time ever to have done this rather than the best. but the correlation between the timing of new peaks in the equity market and escalation from our side on the trade issues, in my view, is unmistakable. i would argue it is probably overestimating this trend in the u.s. economy and u.s. equities. alix: all right. coming up, qualcomm is falling premarket. a u.s. district court judge siding with the ftc on charges that the company violated antitrust law. this is bloomberg. ♪
he is coming up on about four years right now, and reports are they are not entirely sure he is the right guy to taken to the future with the big conversion to electric and autonomous vehicles, which is something they need to do in the midst of a downturn, softening demand, and brexit. alix: i'm looking at some breath -- at some breath -- at sempra, an lng export company. saudi aramco is taking a 25% stake in the plant. the reason this is significant to me is there are a ton of lng jects waiting for a final investment decision. definitely -- there is definitely a cry from the hopefuls, pick me. saudi arabia is huge in that. david: our third story, brooke
sutherland is going to tell us about qualcomm. there is a big patent ruling. brooke: the company has really been mired in antitrust litigation. of course, that lawsuit with apple over its royalty business. it charges royalties for its technology, which underlies most modern smartphones. it did settle with apple, which drove up qualcomm shares. it turns out a judge is siding with the ftc, saying that qualcomm unfairly competed and charged excessive royalties, and that it needs to change its ways. this is really interesting because the doj actually tried to intervene in this case and said we don't really want to harsh penalties on -- want too harsh penalties on qualcomm because the country is trying to hold up qualcomm as this harold d of 5g tohis heral
get them to turn away from huawei. essentialthe anti-competitive act is how they are charging, will a judge start setting the price? brooke: what she said is they need to go back and renegotiate their existing royalty agreements, which creates all kinds of questions about the integrity of qualcomm's business model and revenue. she also said they need to be willing to license their patents to other chipmakers, which is something qualcomm has -- [no audio] brooke: -- based on the value of the handset. you are talking about a total revolution of qualcomm's business model, something it has been fighting for a very long time. so i would expect this to go to appeal. david: does this mean apple gets
a break now? they cut a private deal. alix: also a lot of power in one judge's hand for how a comedy is going to be run with its patents -- for how a company is going to be run with this patents. brooke sutherland, thank you very much. as european parliamentary elections kickoff, we discussed the petitions for the future. is calling foryn a general election in the u.k. to break the deadlock. this is bloomberg. ♪
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to go to beijing yet. that bringing futures to lows of the session. european auto stocks also 1% lower in the last hour. you see that also reflected in different asset classes. dollar-yen around the lows of the session. you are having more money coming to the bond market, whether you're in the u.k. or the u.s., yields down to basis points. crude to the lows of the session. funny it is not too because the chinese say we have nothing to talk about. alix: everyone is looking to june 20, but you never like to hear we are not talking. david: they said repeatedly we are open to talking. the chinese ambassador to the united states said yesterday we are still open to talking but the message out of beijing is there is nothing to talk about. alix: are they talking about trade deficit, national
security, or spy equipment and human rights? what are we talking about? david: the chinese would say that. we're not sure what you are talking about. we are watching maxine waters prepare for hearings scheduled to begin at any second. alix: steven mnuchin saying there are no plans to go to beijing as he walked into the house financial services committee. david: you can watch us on live go if you like. let's find out what is going on outside the business world with first word news. viviana: a memo from the internal revenue service reportedly exposes the disagreement within the u.s. treasury department on donald trump's tax returns. according to the washington post, the memo says returns must be turned over to congress if requested. it says the only way out is for the president to claim executive privilege. the treasury has refused congressional request. robert mueller does not want to
testify publicly in front of congress. he iserg learning negotiating with house democrats for a closed-door appearance on his russian investigation report. robert mueller telling the house judiciary committee that he does not want to be dragged into a political fight. theresa may facing more pressure to resign within days. bloomberg learning senior government officials were shocked may's new brexit proposal was rejected so quickly. mais allies says there is note -- her allies say there is little to no chance parliament will approve her plan. 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'm viviana hurtado. this is bloomberg. david: elections for the european parliament begin today. tomorrow, i think it is. the 23rd. a reluctant united kingdom starting off, along with the netherlands. michael mckee, bloomberg
international policy correspondent, is here to set the table. european parliament would not normally be a risk off event for the market, at this year we do not live in ordinary times. the parliament is an elected body of 751 members from the 28 eu countries. it has been around since 1952. it can amend, approve, or reject legislation, but members cannot propose legislation, that has to come from the european commission. it has influenced but it does not push europe. this time we may see the center-right and centerleft coalitions that have governed the european parliament for decades in -- fall away in favor of populist movements, including french president macron's desire to unite the europeans more -- or the our
italians falling away from eu budget rules of the populist takeover. it is not just a -- it is a job selection. the european union has a number of positions and a to be filled including the european commission president, the leader of the executive branch, the leader of the european council, which is all the heads of state, and mario draghi. markets want to know who will follow him. it will take a while to find out. it will depend on who gets what job based on who controls the parliament. to the germans want to run the european commission or the european central bank. which job to the french want? that sort of thing has to be orchestrated once we know the outcome of the election. as i mentioned, there are the individual state issues, including france and italy. now we are seeing real risk for the united kingdom. they do not want to participate in outlooks like the brexit party will get the largest number of votes.
that would be a big defeat for theresa may if that happens. she may not last through the vote the way things are going today. traders are saying sterling takes a big fall going forward and that has implications for the u.k. economy. a lot riding on a vote that ordinarily would be sleepy and people would not pay a lot of attention. alix: michael mckee, thank you for that roadmap. joining us to discuss is pearson institute senior fellow coming to us from washington, and still chandrais binky shauna of deutsche bank. what kind of world will we be living in tomorrow? >> we will see a whole lot of uncertainty resolved. in expectation, the change will not be dramatic. even though the populists will gain votes there will still be a stable center-based coalition.
a center-right all the way to centerleft. it is more likely to include a third-party grouping that was in the past. you're going to see a polarization of the european parliament with populists holding around one third of the , the, perhaps a bit more rest being held by pro-european parties. there will still be a majority for a european commission but it will include more parties than was the case in the past. politically it is not good, but in terms of stability of government in europe, it will not be a disaster by a long shot. david: it may be stable, but is it inclined toward reform? we've heard from mario draghi and others on the need for european reform on any number of fronts. you justve the result described, does that make that less likely to happen? jeremin: i would say it would
not be a great program form environment. i do not think it will be dramatically reverse from what we have seen over the last year. the fear of the populists has been a break on reform already. to have this uncertainty resolved, to say what is the status quo we will live with in the next five years, there is some benefit to that. any european commission starts and i would think simply by the virtue of being a new european commission, you will see significant proposals at the beginning. the political room for those proposals to go through are not better. i would expect a greater chance on the non-euro area reform proposals. common security policy, common foreign policy, that is where there is going to be the emphasis and where there is still a chance france, germany,
and some of the other countries might come together. alix: when do you buy europe? of whatt is a question is growth going to turn around in europe. the question about growth turning around in europe is unusually, the question about when his german growth going to come back? if you look at a cyclical point of view and look at manufacturing, lowest pmi's are in germany. it is a bit of a mystery as to why they are still where they are. there are a number of disconnects which i would argue suggest this is temporary and will work out. the glaring mystery of why german manufacturing pmi's are below 45 -- it is striking. when the german pmi moves up to the italian is when to buy europe. [laughter] binky: that would be a
three-point move up. the popular narrative has been the slowing in germany and --ecially in manufacturing chinese pmi's have come back but germans have flattened. we have a lot more information tomorrow. david: what about that correlation between german and chinese pmi's? how much of the german problem is tied to trade? barclays made a direct connection. listen to what he said. >> if you think about the potential for a trade war, it will hit those countries that rely on manufacturing and export. countries like germany will be impacted more than the u.s.. david: is at the root of the problem? reasons we have three why manufacturing has been hit in germany. one is related to china and
trade uncertainty. the other was related to a trout last year, and the third -- to a the thirdst year and was related to week production in the car sector, partly to diesel and partly to the introduction of a new standard. all of these factors are temporary and all three have subsided to some extent because we have seen china come back. there is a little bit of a puzzle. is the come back of china might be temporary because the trade war will hit it. even though germany is trade dependent, this is not an senseelming effect in the that it cuts both ways. there is the lack of demand from china.
there are tariffs imposed on chinese goods that also induced switching of expenditure toward chinese and german products as long as the trade war does not expand into europe. for me, the important thing is germany is not in recession. the first quarter was much stronger than what was expected. the fear that the weakness of production in germany will drag down the german economy and the european economy, that has not happened. alix: where does this windup leading angela merkel? jeromin: in a reasonable position. she has no desire to step down as chancellor. the question is whether she will be pressure to step down. the only source of that could be a majority within her party.
a third majority does not have an alternative to her as chancellor within the current parliament. there might be a desire to see her go and replace her by the current president of her party, but there is not a majority in .he parliament to elect the road to getting rid of angela merkel would go through new elections, and with her party polling at a historic low, the incentives are not great. i would see her carry-on beyond the european parliament elections and perhaps all the way to the end of her term. david: thank you so much for being with us. binky chadra of deutsche bank will be sticking with us. you see the house hearings. as steve mnuchin when in he said he has no present plans to be going to beijing. not a big surprise. everyone is looking for some
encouraging signs in the u.s.-china trade negotiations. alix: if you want to hear all of go> you can go to live < for all of the exchanges you will hear. qualcomm responding to u.s. district judge ruling from yesterday. they will seek an immediate stay in appeals that says they did violate antitrust issues and that qualcomm seeking expedited appeal. for much more on qualcomm, this is bloomberg. ♪
this is "bloomberg daybreak." the man who ran mercedes-benz parent daimler is stepping down today. will be costhere cuts and an efficiency drive to it restore -- to restore profit drivers. retailer plans to challenge supermarkets by opening bigger food stores. the company is planning for an alliance with on line grocery of cotto. again but it was still slightly ahead of expectations. the three biggest airlines in china want compensation from boeing for the grounding of the 737 max 8. air china and china eastern filing form are -- formal claims. the carriers operate 53 of the
max planes lying idle in china. alix: time for all of the lead, a deep dive into stories making headlines and moving market with the insights from industry veterans and insiders. today we want to take a deep dive into coffee. crop varieties are soft by many roasters. we are joined by the chairman of the coffee enterprise, which sells products in 100,000 bars and restaurants in 140 countries. so i'mommodities person looking at coffee prices and 13 year low. what does that do for your business? >> it creates a lot of anxiety. in our case it does not hurt because we worked with direct trade since 1991. we buy 100% of our coffee directly. we do over 50% of long-term contracts.
prices are offsetting the stock is de-riskingh the volatility and mutual advantage for growers. this is good for the future of the market because direct trade allows you to have a perfect -- and also be able to -- direct trade is great but then you are also looking for trade disruption? how are you affected by the rerouting of trade flows? andrea: coffee prices are not so much related to the fundamentals any longer because the price of the stock exchange is dependent on other variables, other commodities, like liquidity in the market, like which market is one.1 in -- is the buoyant
in this market phase. it has happened many times in the past that there was real disconnect between the fundamentals and the coffee prices, which is becoming more and more unsustainable for anybody in the supply chain. this is why everybody is looking for new strategies. the quality differentiation upon the consumer can command a higher premium price like in the wine industry. david: to that point, as you look at growth for your company, is it from expansion into new areas, is in market share, or is it up selling? we have seen all sorts of things like nitro group and new beverages, cold beverages. is that part of your growth strategy? andrea: absolutely.
illy is the most global market brand. the main market outside of italy is united states and the fastest-growing is china. we are there to increase penetration by strengthening our brand like we are doing by fine-tuning all of the marketing time with our new campaign and our wonderful ambassador, andrea bocelli. we are launching new products, relevant ones. we are just launching the new -- and the cold brew you mentioned. we are rolling up with this new product. alix: going forward, the state of the industry, how much consolidation do you see and participate in? andrea: in the growing part?
there is a general consolidation because although there are 70 countries producing coffee, the two first go over 50%. i would say this is a structural factory. this is a problem for the market due to the competitiveness which is shrinking to a few countries. the chief ones are brazil and vietnam. on the other side, there is also a big consolidation in the roaster industry since the last five years, nearly $40 billion u.s. has been invested to consolidate the most important brands. guys,u have the two top the groups which are nearly 50% of the coffee volume, which is also substantial. for us, we have a strategy which
allows us to be independent, not only because of our strategy of quality leader but also the business model. there is a battle in the markets. alix: as you look to the rest of the year, what is the biggest worry you have? andrea: my main concern is beyond coffee. coffee is also part -- it is climate change. we've been working in the last five years in order to develop a model to help growers get access to finance for making coffee farms resilient to climate change, which is more and more impactful. work is also a significant to do in the mitigation. we always have to remember that we need to be carbon negative in the next 50 years in order to save the planet, literally.
25% ofture accounts for the greenhouse gases emission nowadays. we need to become carbon negative in every culture. illy, thank you very much for joining us. we have news coming out of the u.k. theresa may saying a no deal brexit would hold dangers for the uk's future and parliament will face no deal brexit or no brexit if her bill winds up failing. yet again, the binary solution as she tries to get a vote, not even get it passed. david: this has been the case for some time. i'm not sure they're going to get a deal or no deal with theresa may. alix: exactly. the cable rates off the lows of the session and down .4%. in the market we're looking at qualcomm because shares are
plunging. the company seeking an immediate stay in appeals. joining us is a bloomberg intelligence senior semiconductor analyst. then you walk us through what qualcomm will want to do to fix this? fcc issues with qualcomm was on the separation of the host: businesses. separation of the businesses. contention was that it is using one business as leverage for the other and it is saying if you do not pay me royalties, then i will not supply my chips to you. the judge's findings are in favor of the ftc saying you have not been a good player over last several years. we are going to monitor your practices to make sure that in
that you do what you claim to be doing, which is clearly separating the chip business and the royalty business. is you would license your technologies to rival chipmakers such as huawei and samsung. that is another piece of this puzzle. the last piece was the exclusivity of modem chips. you cannot go to apple and say you will consume only my apple chips. key elements to this, we think that the interpretation of this is onerous. there will be continuing legal, with the ftc, but i think overall the business model of qualcomm is not broken. much.thank you very at the same time, steve mnuchin.
david: steve is before the house financial services committee. he says he has no plans to go to beijing. they will ask him a fair share of questions including trade and what the position is with china. alix: i think he also spoke to walmart about tariffs and the situation there. that would not surprise me. david: i think that is encouraging. i would hope they would talk to people in the business world who know what is going on on the ground. alix: he is the dove compared to everybody else. david: does he have authority compared to robert lighthizer? alix: coming up on the open, scott mushkin. this is bloomberg. ♪
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♪ coming up, the u.s. considers blacklisting chinese surveillance firms, widening efforts to cut off technology to china. trade tensions taking a toll on risk sentiment, pushing u.s. futures and yields lower. looking ahead to the fed, one member expressing mixed feelings on december rate hikes. 30 minutes into the start of the session. a softer tone across the board as we do see those trade tensions picking up and we begin with that big issue. rising concerns about an escalating trade war. >> things are getting more heated up. >> not moving the right way. >> further escalation. >> a lot of confusion. >> a sobering moment, a serious risk. underneath there is a big story. >> bigger and deeper. >> this long-term struggle for dominance. >>