jonathan: good morning. here is the tone of the markets. futures are up 89. we have a huge upside on treaty revenues. jpmorgan is listing those. janet yellen's speech is a little bit later. yields are up for basis points to 178. alix: this is what you need to know. ap. morgan chase posted profit as bond revenue rises. we will hear from wells fargo and citigroup in just about our. we will get the september read on retail sales. janetl be followed by yellen is speaking in boston this afternoon. we are 25 days away from the election. donald trump goes on the offensive. david: let's dig deeper into this j.p. morgan's chase

earnings. joining us is christine harper from bloomberg. we are joined also by allison williams. christine: barclays and some of the banks around the world are up. post-brexitthe trading and money market reform is coming into play today. that drove up client act timmy. rates in particular. the fixed income trading is not really anything. nobody was expecting that. allison: estimates started to come out and people felt better. we knew it was strong because of exit. august was a typical seasonal slowdown. saw, inm things we

general when things are accelerating, that's only 10 to get some of these beats. christine: it's interesting. thatd the first quarter was terrible for a lot of banks. the third quarter which was summer was really good. it's up 48% year on year. on the money market reforms, how much of that is a one-off due to that figure we won't see again in the next quarter? there is always a number of things that we are not going to see in the next quarter that we will hear analysts asking on conference calls how things are going. we are only a couple of weeks into the quarter. for the rate business, it's going to be the fed. will togoing to be help volatility to the extent that there is uncertainty around the fed position. banks of been talking for a long time about the convergence in monetary policy with the downward bias

and how that is affecting volatility and volume. we have seen some pickup and some of the activity we saw the tomer and these are related rising uncertainty. but we continue to get that's uncertainty? as we are heading into both december and next year. that banksere a risk short-term funding will increase in the short-term longer term they will make more money? >> that is the big risk. why jamie dimon said he wanted the fed the start raising rates. they are trying to find other ways to make money. jpmorgan has done a good job of that this quarter. that is there existential question. david: the trading success they are having is not a one-off. these are two quarters in a row

that they have done well at this. his is telling us something fundamental? , we weren'tforms making much money off trading. >> it's not the same return. when we look at these trading numbers, we are not looking at traffic. a lot of what has changed in the trading business is how much capital they have to set aside against. the work done a lot of on investing and creating more efficiencies. we have written about how things are getting more computerized the banks. jobs are down. the personnel numbers are mostly flat to up. cut not a big sign of the next to j.p. morgan. trade revenue is the highest in 3.5 years. jonathan: we're on the blogger. it's fantastic embers coming out. one of the numbers that comes

out in this is the retail side of the banks. they are taking more deposits and making more loans. talk to me about the retail side of the business of wells fargo in the spotlight. can they step in? >> the credit card business is something banks have been investing in. it's been a focus. citigroup is going to be an interesting data point today. that is the start of one of two businesses they have been investing in. ist we see with the consumer generally fundamentally healthy. consumer growth is starting to accelerate and cn i growth is starting to soften in the quarter. pushing goodmorgan loan growth in the quarter. >> they have that sapphire products. we have written a lot about the

popularity of the product and they give credit to the success of that. it rose a little bit in the credit card space. >> that is something people are going to be focusing on. we had such an extended time of credit. oft is one of the focus bank. david: david: thanks so much. she is executive editor for the finance. they will be back in the next hour. let's get an update in what's getting headlines. anna is here with first word news. emma: donald trump is pushing back against allegations of sexual assault. or met he doesn't know some of the women accusing him of misconduct. he denied the claims made by

multiple women made in a rally in florida. he is back on the campaign trail today with rallies in north carolina. delivered ana emotional rebuke to trump over his boasts in a 2005 video tape about groping women. she campaigned in new hampshire for hillary clinton. what she offered was anything but a standard stump speech. this as every day locker room talk is in insult to the city men everywhere. -- decent men everywhere. the men that we know don't treat women this way. they are loving fathers who are sickened by the thought of their daughters been exposed to this type of language about women. emma: the first lady said his words have shaken me to my core.

beginning its year of mourning for the world longest reigning monarch. he died yesterday at the age 88. his only son will send it to the throne. his been ill for many years. he made limited public appearances. he spent most of his time in the hospital. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. alix: thank you so much. futures are pointing to a higher open. let's dig into some of the openers. china may merge cam china with dino tim. jeopardy their purchase by cam chen. -- cam china. you have a lot of things going in this area.

?hat will happen is syngenta look at yahoo!. it was down 2% and is now inching higher. verizon may reopen some deal terms after the latest discovery on that data breach. over in london, take a look at man group. listed hedgeargest fund. it has an asset under management that grew $1.3 billion. that stock is getting a boost today. david: it's your favorite. oil. it's been in the news this week. we have an opec deal that could extend it to russia and iran. we will talk to the man who wrote the book. this is bloomberg. ♪

jonathan: this is bloomberg daybreak. let's get a check of the markets for you. jpmorgan is up almost two full percentage points. they smashed it out of the park on fixed income trading revenue. one liftedyou this all boats. futures are positive across the board. futures are up 88. this one listed berkeley stock as well. the ftse is higher by almost 9/10 of 1%. there is a speech from janet yellen. yields are up higher. is retaining handle. rude fors a huge crude. -- rise for crude.

we have the opec secretary-general who weighed in on the potential agreement. was a decision the iran. >> even the russian production at the plateau in february. you wouldn't know until you got into april or may whether or not anyone is going to it here to these agreements. >> they are probably going to resemble some sort of curtail. they may freeze production. greaty have made progress. this could end up in an agreement around christmas. >> the high level of production is likely. not a step in the right

direction. it is a step to nowhere. alix: joining us is daniel juergen. soundingopec confident. everyone we talked to had a different reaction. thing that is striking is this is the first time in two years opec has stepped forward. the second thing to note is it's already work. the price would be $10 a barrel lower than it is. they have had some success. over theing to see next six or seven weeks a lot of up and down as they try to put them thing together. it may not be the mega agreement. it's probably more likely going to be a freeze that i cut. alix: you have a lot of opec countries pumping at record highs. what is this going to do?

as the saudi petroleum minister said, a gentle hand on the wheel aimed at the market rebalancing. it's noteworthy that you have two of the really big players on the same side of the table, saudi arabia and russia. vladimir putman in has put his prestige on the table. alix: maybe he has said we would be with the freeze. in reality, if you had russia pumping 11 billion barrels, who cares? one guy is in charge and russia. he will have the final word on what happens. it's going to be a freeze. arabia have added 3 million barrels a day. they have leveled off. it is a question.

there are going to be doubts about it and people will say it's not working. think on balance at the end of the day, they will come up with something that kind of restores confidence. there will be the argument that production is this and not this. they will argue about that over the next six weeks, what is our real production? jonathan: we are talking about state versus private. you incentivize me to act. shale will come back into the market. daniel: i think it's not going to be what we saw. i think they have acclimated themselves the this will bring it shale back into the market. we have seen in u.s. she'll $60ucers were they needed during now they can operate in the $40 range. the decline is starting to turn up again. david: saudi arabia has some real physical needs to satisfy.

they have a bond flotation coming up. what do they need out of this process at the end of the day? what do they need? daniel: i think they would like to see stability and they want to see the price above $50 a barrel. they hinted above that. look what they've done. this is already up $10 a barrel. that makes a difference. they feel a lot of pressure that they weren't in the past. david: it's not going to stay up there unless they do something. that is a very key thing. he is the former head. he has a lot of understanding of what needs to be done. alix: i love that you believe what they have been pumping out.

by how much more they are estimating their product to be. take a look at that huge to bar jump. 500,000those, that's barrels of oil a day. if they freeze at that level, that's a very different level. theyl: in previous times argued reserves. now it's how much you are producing. i think we are among the secondary sources and we're white skeptical of the venezuelan numbers. the iraqi numbers are probably overstated. alix: when you take a look at the bargaining chips, is there a potential for the shell dealers to get in and hedge? they don't care if oil as at 40. they just had debt 51. daniel: if they get a price they can hedge, they will go ahead. i think around this price.

the other thing that has happened, if you see the short of going on strike in the market, they are not there. they are not doing anything until the end of november. we have seen a real change in the financial markets on this. alix: it is basically a floor. that is the positioning over the next six or seven weeks. david: that is something to look forward to. this is a cartel after all. they have to enforce their agreements. daniel: it's a messy oligopoly. i don't think they have any enforcement. i think there is the feeling that what you are saying they will be cheating in arguing about it and there is not a lot of trust here. i think one thing that you do ,ave an you had them on the air opec hasn't had a secretary-general for years. this is an energetic guy out there campaigning. alix: what does an opec failure look like? you have a big fall in

the price. alix: what would it be at this point? daniel: not coming up with anything. you have a big fall in thei think the pressure on them, the financial pressure is so great that they will come up with something to try and hold this floor above $50 a barrel. alix: is there a risk that opec comes in and freezes their production and prices rise. we are looking at another cut, meaning that what opec does no longer has the price swing? daniel: it is true. cartel, thereyour are the big three. the united states isn't part of this game. there is not going to be a final solution here. this is going to be an ongoing process. they are buying time.

like it's going to be more balanced. backownside, we could be into the 40's again. then they will have to start again to do it. the financial pressures of mounted on all of them. alix: that's pretty grandma. daniel: it depends on which angle you were looking at. i think we're going to see this volatile range. graham would have been $40 a barrel. jonathan: it's great to have you with us. the hershey ceo is set to retire. the company reaffirms its the big story at the moment for the market's jp morgan earnings. trading revenue is up 48% on the fixed income side of the business. the stock is up as well in the we will run you through the numbers as we count you down to the media that

begins at 8:00. it's a jpmorgan story. ♪

alix: jpmorgan out with earnings. they made a $6.3 billion profit. let's take a look at the bank in the numbers don't lie. this is the big picture for you. estimates combine income at the six largest lenders. it could fall 16%. one potentially big reason is persistently low interest rates that are crimping lending margins. jpmorgan, botho are falling with rates heading south in the past two years. there is a slight up ticket last

few weeks. betweenill a disconnect the equity price over the next few months. this is the correlation between the two year yield, which is the most sensitive and jpmorgan. it turns out rates might not have had that big of an impact as for earnings and revenue, this marks the first time in six quarters , both rise year on year. you have net revenue up by 6%. one of the drivers behind this is fixed income trading. of 48 sent.ain that is a huge rise in trading. line is also rising as well. the story on banks during this growth, it still continues to be cost cuts. you're looking at annual growth

for users for jpmorgan. according to bloomberg intelligence, you have banking services reducing the number of branches. you see huge mobile growth there. was jpmorgan surpassing wells fargo as the world's most valuable bank. nonetheless, it was a boon for jpmorgan. we already had outperformance in high data sectors in europe. the bank session highs, this is strong across the board for banks worldwide. up next, the fed. ♪

when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call, a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. great, that's what i said. so your business can get back to business. sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. this is bloomberg daybreak. it is 12:30 p.m. in london. jpmorgan shares rose. the bank posted a profit. you've got on revenue rising and

we will hear from wells fargo and citibank. in an hour, we will get the september read on retail sales. the forecast is 6/10 of 1%. the keynote is speaker at the economic conference hosted by the federal sir bank of boston. that's what you need to know at this hour. thethan: futures are up on dow positive. there is outperformance from jpmorgan. that is taking bank stocks higher. upkeley stocks, the ftse is 9/10 of 1%. is 104.ar yen it is a weaker. yields are grinding higher by three basis points. bring in the politics with the fed. we are 25 days away from the election. the result could weigh heavily

on the fed. leaders have been speaking up ahead of the meeting. patrick harger address the issue of politics and the federal reserve. i am worried about the dependent on the outcome of the election. there are policies that would have affects we would have to respond to. careful lineg a here. in more, we will bring michael mckee join us from boston. it's great to have you with us. let's begin with you. regional fed presidents are looser with their tongues. this speaks to the market story. is he right to acknowledge that? normally the fed

doesn't talk about politics at all. belief, theyopular have raised then cut rates shortly before elections. a week before an election, they've never done anything. the thing to keep in mind is the november meeting does not have a press conference. there is a natural bias against it. we have never had an election like this where the possibility of a market reaction is so severe the fed would say we might want to wait. were not sure what's going to happen. >> i think november is off the table. the december hike is in the cards. i think there is a 100% probability of a hike in december. the only chance they don't hike in december is if something significant the rails them. the markets are pricing in 70% in december. there flip that around,

is a 30% chance of something bad happening between now and december 14. david: what might happen? >> the political situation. it's teams at this point the election is not going to upset the apple cart. what's happening in europe is probably more significant with brexit negotiations. china, all eyes are on the reserves and the growth. that seems to be moving markets. today they have good inflation. yesterday they had bad exports. .he economic data, the markets i think things seem stable enough that the fed should have a green light to go in december. alix: you have a fed decision in december and then the election and a really thinks it's a december rate hike. the matter who wins, you're not going to see the affective any policy. there will still be uncertainty.

can you make the case that december should also be in -- off the table? michael: if you have a new president to is rational and doesn't cause a market collapse and you look at what the policy is going to be, it would be months before anything could have an effect on the economy. the fed doesn't want to wait that long. they are looking at the data now. you need to be prepared for inflation rising. we will likely see that. a 25 basis point range is not going to really change things. they can take it back if they have to. if anything happens positive, it's going to be to stimulate the economy. the fed is going to have to raise rates again. jonathan: we sat down with a lot of fed presidents are in typically, they come in with an objective. yellen's objective?

michael: i haven't read her speech it. i think what she is going to do is keep everybody on course, keep the possibility of the active contractor the futures market. they did not get anybody off course grade she is what you promise at this point that the atket wants look backwards the recovery and whites been so slow, the markets want to look forward. they will be disappointed if they want a promise. if they want to walk away from this saying they are still on track in december is likely move, that's what they will get rid alix: we looked at this yesterday. congress has given the fed the mandate of maximum employment. confidence, we are achieving maximum employment

if we don't understand what's happening beneath the surface. we look at the headline on unemployment. 5% sounds pretty good. there are lot of americans who left the labor force. a lot of americans are still outside the labor force. if you just look at 5% unemployment, we know we are missing a lot of important details underneath, people who are not captured by that. alix: the fed is looking at one set of numbers. where do you stand? >> i think the labor market is solid. unemployment is steady. claims, if yout continuing claims, they are at the low part historically. i think the labor market is strong. you start to see wage pressures start to build up. i do think the labor market is something that should derail the fed. david: i would to talk about the

deutsche bank bond issue. it is unusual. investors were clammy to buy the bond. was prudential in that? >> i can't comment on specific issues. withinly, from talking people in the past, we like the big money center banks. they have done a really good job recapitalizing. deutsche bank needs to raise some incremental capital. if a big german investment back offer debt in the private market, you did you did? >> there is decent value there. if you don't think you're going to default in the next 10 years. david: are big bonds under pressure right now? >> they are cheap. i think they are really attractive. you can look at the subordinated debt of the big u.s. banks, they

are trading over treasury. i think that is really attractive. and we don't think they're going to default continues we don't think they will. alix: forget the trade, go by bank that? >> that has been the trade for a long time. even the bank debt is safe. the have pristine credit quality. the exit he has been challenge. we have seen this for the last few quarters. fundamentals have stabilized among the big banks. people are clamoring for an inflection point. when you look at the superlong that we had out of australia. demand is rock solid. is the duration trade still on for you? michael: we like the backend of the yield curve in the u.s..

big insurance companies, pension plans are under duration. they don't have enough high-quality bonds in every time rates back up, the debate comes back in. alix: thank you so much, ties. later, we will have special coverage of janet yellen speaking before the federal reserve bank of austin. that is 1:30 p.m. eastern time. i want to update you on j.p. morgan shares. they are up over 1% in the premarket. the big headline is you had profits. that is fixed trading of 40% are its at the highest level in three and a half years in we have city and wells fargo coming out in 20 minutes. you've got oil and opec this morning. another commodity is getting a

lot of traction. that is natural gas. we will discuss that next. in this is bloomberg. ♪

emma: coming up in the next hour, we will dig into bank earnings. jonathan: this is bloomberg. the big story in the last couple of hours is jpmorgan earnings. there is a big up side surprise. the spill into the market is as follows. the stock is up in the premarket. futures are firm. board ifup across the

you look at u.s. futures. european equities are up as well. switch up the board quickly. the other asset is important. yields grind higher by three basis points. the dollar is firm. they're taking the rate down. the dollar-yen is up. crude is wrapping things up. we tried this earlier. up 1%.il is another commodity is natural gas. it is up 69% since may. he take gas out of the pipeline and freeze it and liquefy it and ship it. destination,to its you put it in a pipeline. the demand is huge. the big suppliers are the u.k., australia, the u.s.. china demand is growing by 20%.

in order to catch in on this, the u.s. started exporting it. it's the first export terminal in the us. that is changing the market dynamic. if you take a look at lng prices. it is six dollars and $.47 to ship to the u.k.. that is what you pay anyway. many contracts are long-term. cheaper u.s. natural gas has been a stock market for the commodity. you can buy cheaper in the u.s.. joining us is somebody who has a real inside look at what that winds up looking like. thank you for being here. it's great to see you. you had a very particular place in this process. >> what we do is provide our customers with an import terminal and it's a floating import terminal. it is floating storage.

this market has developed from nothing only a few years ago until today. inhave 20 terminals operation around the world. we have four at the moment. let's put this in perspective. alix: they had to build infrastructure. they spent williams of dollars over 10 years to build these pipelines. what do you do to cut down that? >> what we have done is to take the traditional way of building transformednals and it into a floating terminal on a ship. it looks like a ship. it is an import terminal. it reduces the amount of time from five or six years. we can do it in six months. weston half of what the

land-based facility does. if anything happens, you can move to a new site. it is a fantastic improvement of a very rigid system that was there previously. alix: you can see the china demand is up 20%. , where is thesit demand going to be in the next three to five years. >> you mentioned the exports. this is going to be a transformer of the energy market. the energy market typically has been very conservative and very rigid. notexports from the u.s. much longer than that. the energy from the u.s. would on a short-term basis. it would be sold to countries like south america where we also operate. south america, the middle east, southeast asia, that is the

market area that is the market that is really growing. you mentioned china. india is up 40% compared to last year. is it'son for that available in large volumes in the years to come at very competitive prices. tos is where we come in, access the world market for natural gas. terminals.e floating alix: you really take advantage of that burgeoning stock market that is happening. the rhetoric now as we have too much supply. you've got australia and the u.s. dumping in the market. are we in that oversupplied world? >> i don't view it as oversight by. -- oversupply. buyer, they smile every morning because gas is

available and it's available at very affordable prices. the gas will clear the market the price. maybe the market is a bit long right now. that will change over time. the demand is there. we see new markets open up almost every day. a few days ago, the ivory coast in west africa. the demand is there and it will continue to be there. alix: where is the infrastructure? areas that still need to be built out. still need a pipeline. >> we bring the floating terminal. it's a relatively safe thing. intoplaces we go straight a power plant.

for example, we are doing a project with should here. they bring of the gas and energy. they are building a powerplant. it's a 20 year contract. we have a 20 year contract with the project. we would produce on kid -- electricity. crampso you think that demand for our gas here in the united states? >> i don't think so. not at all. that price means the commodity is feeling very competitive. that is a transformative event taking place in the lng market area,: here are some other stories read this is your business flash. hershey ceo is stepping down by next summer. that is bringing upheaval to a company.

they say he will continue with nonexecutive chairman after he retires july 5. a committee will look for new leader. shares troubled 14%. erickson's reddit rating has been slashed. this after the swedish phone network revealed that demand means it won't meet the profit does it set for itself. be lowered even further. the spotlight cofounder is consolidating power at the largest music streaming service. he is taking on the role of chairman. cofounder isthe stepping down from his role as chairman after 10 years in he will become vice chairman. spotify generated $2 billion in revenue last year. that is your business bloomberg flash. jonathan: one story is

dominating things. jp morning -- morgan's out with earnings. there was a surgeon bond revenue. next up, we will hear from the banks on wall street. i will dive deeper and what to expect coming up. from newark, this is bloomberg. ♪

jonathan: the trader who has been accused of contribute to the flash crash of several years ago must be extradited to the u.s. for trial. he lost his final appeal in a u.k. court.

he must be extradited for trial. anticipating earnings. alix: what will the scandal have done to wells fargo best and mark this comes to us from ubs. it tells an interesting story. this is deposit growth in excess of the industry. how much more is there the posit growth versus industry peers. you can see a steady rise of 4% in 2013. this question is are the deposits sticky? will they see some customer return it to two that scandal. one possible way to look at it is cap downloads. this shows the downloads. steady. usually pretty you can see on the far left of the chart, a big it decline. the gap between wells fargo and peers in terms of out downloads

is at the widest level since 2014. the idea is for not downloading the app, maybe you left the bank. question is then what does it mean for the stock. this is wells fargo performance versus its peers. the difference is about 12%. that's an unbelievable shift. take a look at what jpmorgan did during the london whale. this was about a few percentage points. this is the biggest it ever got. even as little as about 7% three months later. is idea is the market punishing wells fargo more than a dead jpmorgan for its loss. the question is why. does this have a broader affect for the company going forward. we might not yet those answers in five minutes.

lookhan: three things to out for. next up, we will bring you earnings from wells fargo. u.s. retail sales are coming up next. we will show you the figures that come out of wall street decks. we will count you down to a speech from fed chair janet yellen. are 94markets, we minutes away from the cache open. this is how we trade. across a strong bid europe. from new york, this is bloomberg. ♪

jonathan: a very warm welcome to bloomberg daybreak. here is the tone of the markets. futures up across the board, 78 points on the dell, 8 on the us and you 500. the bond market, a cell left on treasuries and gil getting hammeredt. story in the last hour or so is earnings from j.p. morgan. wells fargo, citigroup. a surprise from jp morgan on the trading side as citigroup drops in the last 15 seconds. alix: in terms of how it compares to jp morgan in trading revenue, it is on the light side. fixed income $3.47 billion. in line with the second quarter. equity markets revenue was light coming in at $653 million. those are the standout numbers. revenue down 8% year on year

coming in with estimates. in terms of eps, if we can trust it, it looked like $1.24. it looks like investment banking -- fixed income number coming in at $3.47 billion. perd: wells fargo earnings share one dollars three cents, compared favorable with what was predicted at $1.01 with revenue 3.3 billion dollars as opposed to $21.2 billion. revenue is mildly up. alix: the stocks in premarket, citigroup seems to be up by 1.6%. in terms of wells fargo, that stock is up 1.3%. you can argue, boosted by j.p. morgan as well. david: let's did he bear into the j.p. morgan chase and earnings, as well as wells fargo and citibank. we are joined by alison williams

christine harper. they both beat estimates, but not as much as j.p. morgan? christine: citigroup looks like it is a race business like j.p. morgan that helped them outperform. they were lower on the equities trading business and missed estimates. the investment banking business did well. it looks like it beat overall. one thing to look at deeper is the consumer business. that was the highlight for j.p. morgan. wells fargo does not benefit from trading. the consumer business is where you have to look to see how they are doing. i have not looked at deposits or retail business. alix: we are looking for that as well. credit costs, the lower the better. it rose quarter on quarter coming in at $1.4 billion.

what can you learn about the credit quality? alison: for credit quality, we will want to see more of what is behind that. for thehave been seeing last couple of quarters has been an improvement in energy, the driver of higher credit cost and concerns earlier in the year. however, we saw a tick up for j.p. morgan, growing across some of the u.s. banks. citigroup said they will be taking increasing provisions due to the acquisition of cosco and growth. it'll be interesting with the credit trends are across the consumer alix:. citigroup saying they have a billion,serve of $176 different from a relieve in the second quarter. alison: they had 150 million due to cosco and a little more do to growth. reserves will reflect your view growth asand general

a portfolio, because you want to set aside something for future losses. david: looking at the headlines, some news is about mr. s tumph and what they gave up. there's overhang with the scandal. some forfeited $41 million of bonuses he received. also, terry hosted who ran the consumer banking is nice and retired or was semiretired has left the company and forfeited the invested equity rewards. -- they arelly reiterating that. jonathan: taking in a little following the top life -- life block. the global consumer banking revenue is up 7% to $5.2

billion. contributing that to a branded portfolio with revenue increasing 15% to $2.2 billion. talk about the competition, not only with citigroup, the j.p. morgan. christine: that is business the banks have been investing in. we are seeing this quarter and industry trend coming into the quarter and early looks at the banks tells us we are seeing more acceleration on the consumer side than the industrial side. commercial and industrial growth has been the driver since the recovery of the loan growth in the overall portfolios. on the consumer side, which we aftereen is divestitures they have made non-portfolios running those off. for the last year or two you have seen innovative products. citigroup has focused on the double cashback card. jp morgan has the sapphire card.

they are focused on growing products and shares across the core customer versus some impact we have had from non-core runoff. david: also the cosco account which they referred to as being a boost. thank you. alison williams, senior banking analyst for bloomberg intelligence and christine harper, editor for finance. multi-asset class cio. great to have you with us. who would've thought it would have been the markets business helping banks on the bottom line. you see that continuing? >> what we have seen in earnings this order are highlighting key at.es we are looking what is baked into the earnings growth in terms of what wall street is expecting is optimistic 13% to 15% growth. you are seeing disappointments

that will highlight current evaluations and assuming earnings are hard to achieve. that is why we are reducing exposure to equities. on the bank side we will recover from the growth of the consumer. another key thing we're focused on is the changing behavior of central banks. the banks we think of reaching the limits of traditional monetary policy with rates drifting up. be a challenge broadly as investors think about how that changes the equation. it could give relief to banks over the next 12 months. jonathan: be a challenge broadly as investors think about how that changes the how does that e the equation where you are concerned? erik: not just geopolitical, the elections are coming up. the fact that investors need to change how they think about the global environment as uncertainty increases in developed markets. we cannot count on central banks to keep underwriting risky assets from here. david: as you think of risk,

there are two ways to invest, debt and equity. different risks associated with each. at this point, u.s. banks, the risk must be low. is it a good bargain to buy debt? erik: we are reducing equity exposure looking to go up the cap spectrum. we like high-yield. even in high-yield, we prefer think loans for you can get 6% yield. we are at the point with bible we have the potential -- with liable for we have the potential with these securities the float. you can get even more than you are expecting from equity returns on the credit side. we like alix: the income. the banks, what is the difference in wells fargo and everyone else? erik: wells fargo has to get through bad aura. appealing for the longer-term in the scenario, or do you need to stay hands-off?

will probably be value at some point, we are not ready to go in yet. we need the dust to clear on wells fargo. jonathan: outside of what is happeningjonathan: in the united states u.s. banks look solid. , not sopean players much. will they pull back and the rest banks will say "thank you very much, we will take that business." erik: you saw deutsche bank and the italian tank, in global allocations we are reallocating from european equities, under waiting the unnatural sector. multinationals, consumer-oriented companies operating in an environment with a tidal wave of liquidity and the opportunity to improve margins. the equity risk premium is extraordinary. issued areo stocks

out yielding the bund. used to be the tent-year, now it is -- jonathan: i will let you have that one. david: we saw with deutsche bank there was a rush to get into lending money to deutsche bank. on the bond side, it seems to be attractive. erik: mood other play that up on the credit side rather than the equity side. david: thank you. you will be sticking with us. we will go to alix. big investment banks, morgan stanley and goldman sachs popping higher. jp morgan fixed trading up. citi of 40% pure jp morgan seeing the best fixed trading revenue in 3.5 years. voting well for goldman sachs and european banks. outside the banking sector, hp is planning to cut 4000 jobs

over three-years on a pc slump. the accelerated a 2015 plan to cut 3000 jobs this year versus 2018. we will take a charge of $300 million depending on the size of the counts. infosis cut is forecast. down by 4%. the indian outsourcing industry has been hurt as u.s. corporations tighten their belt and spend less. jonathan: coming up, janet yellen speaking in boston in a few hours after u.s. retail sales cross in 18-minutes. her insight into the strength of the economy in the united states and more clarity on the next rate hike. that is next from new york. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg daybreak." david: i'm jonathan ferro. surprise from j.p. morgan. similar story from citigroup. the trading business performing well, up 2.3% in the premarket. wells fargo, unchanged. net income down to 5.6 4 billion from 5.8 4 billion. it is still on the beat on the margin, but the stock is unchanged. the wider market, we are one hour 15 minutes from the cache open. the dow is positive eight points on the s&p 500. we are counting down retail sales in 15 minutes. you have yields of four basis

.oints to 4.78% a dollar stronger with dollar-yen with a 1.04 handle. outside the world of business. flash crashsh trader accused of making $40 million boosting markets from his bedroom will be extradited to the u.s. for trial. his final request was to repeal his extradition was rejected today. he must be sent in 28-days where he will face 22 counts of charge and market manipulation. republican donors calling on the republican national committee to disavow donald trump according to the new york times. they believe allegations of sexual misconduct by donald trump threaten to inflict lasting damage on the party's image. several big donors have defected, including one who is backing libertarian gary johnson

now. callingh warren on president obama to replace the massachusetts democrat. demote quite. saying that she has not disclosed political contributions. bermuda's government is expecting infrastructure as the island tries to recover from hurricane the category three storm battered the island with .eavy rain and wind overnight schools and government offices are closed. the bermuda international airport is expected to reopen. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. alix: thank you. janet yellen will speak at the boston fed annual economic conference at 1:30 eastern. this after u.s. retail sales are out in 15 minutes.

it could paint a better picture for a december rate hike. the fed dissent is what to make of labor flags. the bank of minneapolis president spoke in minnesota weighing in on labor flag and if we are ready for a rate hike. >> my view is let's let the economy and create jobs, bringing workers off the sidelines as long as it doesn't create inflation. we are undershooting the inflation target, we have been undershooting for four years. i don't see urgency. alix: and multi-asset class cio, how much do you think the fed will let the unemployment rate overshoot? erik: i think they're willing to let it overshoot. we think they will raise once in december. we are in a one to two year. it is clear the fed, whether it

is three rate, headline inflation, core inflation, they will let things overshoot. that is what we think is a change in markets. kingdom, in the united and the bank of england, that was an overshoot with inflation of 5%. what are we talking about here? erik: two percent to 2.5% inflation. over 2 for core inflation you get with a fed is looking for. headlines at 2.4%. way.is going that we think inflation insurance is cheap. reaks below the headline number. we think that is a good hedge. david: that sounds solid and stable. you are said you are trying to get to more conservative asset allocations. chance of aere is a

severe fall in the u.s. stock market because of risk. how bad is the problem? erik: we're not projecting a major selloff. we are going slightly underweight for the first time this cycle, but not a major selloff. we are saying there are better opportunities in europe and emerging markets in credit. even in this context, with big elections we do not think a properly priced in the market, we are reducing overall good folio risk with equity risk down and maintaining hedges. we are swapping treasury exposure into tips. you have something liquid that buy assets ifto there is a selloff and you get inflation hedging. jonathan: elections are not priced in? which ones? erik: elections in general. we are not rejecting an outcome

in november. until this week it was the 12 to 14 not pricing in adequate uncertainty. i was in london on the thursday or friday of brexit and you saw the degree of surprise and disconnect between what the experts were saying and what happened. odds of ahink the democratic sweep or trump surprise have been priced in. keeping the risk low or reducing equity exposure, keeping tips moving into return to take advantage of volatility when it spikes. we think we will see more of the air pockets. david: surprise is the buzzword of this election, on this side of the election as well. thank you for being with us. we dig in earnings from jpmorgan and wells fargo as well as citi. this is bloomberg. ♪

david: this is bloomberg. i am david westin. taking into j.p. morgan chase and wells fargo with paul miller. he joins us on the telephone with an outperform rating going into the earnings today. did you hear anything that changed your mind? paul: we were very cautious on things like long growth and are looking for decent guidance about 2017. on the top line, i think both companies came out with decent loan growth than we anticipated and are holding in the interest margin come the spread on the balance sheet. this fee revenue did well, especially j.p. morgan. their fixed income trading debt our our numbers out -- blew numbers out. david: you said it looked like

it held up well, it didn't go up or down a lot. do you anticipate relief if the fed moves up? paul: definitely if the fed moves up you will get some relief on the margins because you have some commercial loans that were repriced up. we are concerned about the shape of the yield curve that continues to flatten. it has balanced a little, but it is still relatively flat. until the yield curve steepens it will put earnings across the board into the future. jonathan: regulations for wall street would help the top and bottom line, talk about the rate business and change to the money market. will that continue for the market side of the business? paul: it probably continues. the risk is coming back into the system helping trading desks. over the last couple of years, there has not been a lot of volatility in some of the trading lines.

we're seeing that some of which has helped the lines. jonathan: headlines coming from reviews in saying the wake of wells fargo, looking at the banks with consumer arms, is the discount being applied because of the wells fargo scandal? paul: not yet. for wells there is a discount, but it has not bled out. theyregulators are deep find a something. we are coming after the banks to aggressively, and finding things that are not really there. j.p. morgan has done a great job on their cells culture with good checks and balances in place. wells, we are shocked that the compliance did not have a lot of checks and balances. we hope other banks did a better job at this. alix: thank you.

head of financial institutions research. we are the september rating on u.s. retail sales. will it give the fed more ammunition for her hike? this is bloomberg. ♪

jonathan: this is "bloomberg daybreak" i jonathan ferro. dow, eight 77 on the points for the s&p 500.

gilt getting hammered. the yield is up three basis points at 177. with alar-yen is higher stronger dollar story. old enough to a 1.04 handle. ding onto a 1.04 handle. up without auto and gas. we also have dpi numbers that are a little better than expected. .3%. month over month, close to 2% forecast, .2% up, a little better than .1%. retail sales on the mark. alix: the dollar is holding on to highs of the session. the key moving higher.

up .4%. watching the two-year yield, as they continue lower. themore reaction, joined by chief u.s. economist michael gave been. we have solid retail numbers . does that put away a december retail hike for you? >> it is in line with expectations the fed will move by the end of the year. markets have a two thirds probability price tag 10. we likely have some gasoline component. we knew the motor vehicle sales component would be strong. the reading at the core is consistent with tracking estimates of private consumption at 2.7%. the ppi data looks good. most of the dollar pass through seems to be fading. this points by action which will come in december.

back tois encompasses school? what do we learn about the consumer considering back to school can be a blockbuster time? >> since august, back to school shopping picked up in september. the first numbers in september, one of the stronger categories driven byl transactions. there were likely promotions that pushed transactions in clothing. and building material, the home building centers probably also benefited. david: is it time for a sigh of relief after the august numbers were negative? >> it depends which retailer you are talking about before you feel comfortable. strippingil sales, out auto and gas, it is now flat rather than down. moving higher. michael, looking at the idea

that supply was growing and demand was slowing, what data do you need to confirm that is not happening? we are in confirming expectations mode. there is a view that the industrial site is stabilizing. we do not need manufacturing and trade to add to growth, we just need for them to stop subtracting. anything suggesting the dollar factor, which has hit trade and manufacturing hard, that that is trading is good. it doesn't need to be added. we have evidence of inflation ticking higher. evidence of general labor market improvement, and that the there.r is labor markets and the consumer will track each other. most of the data today is consistent with that.

a sequential balance in activity in the third and possibly fourth quarter will aid toward 2% into next year. -- will fade toward 2% next year. it should be better as the industrial side stabilizes. david: you are looking at core sales to calculate gdp. that came in at 0.1%. driven not see a tick up by the consumer based on the numbers this morning? if that will fade next year, what is the fed doing thinking about hiking interest rates? growth is still above potential. the fed is thinking we will get one in by the end of the year and go gradually next year. 2% is where we have been for the past five-years to seven-years. you gradually create scarcity in resource and product market. inflation will edge higher.

a reasonable baseline. june and december you get external shocks, maybe they do one. you have a difficult case giveng for more than two the constellation of slow growth and gradually firming inflation. good 1.5% to 2% growth, but not great. where's the danger in retail? >> home furnishing, anything like amazon. the pie has been shrinking and retailers are scrambling to become second to amazon. september was slightly boosted by iphone sales. david: apple is always in their somewhere. thank you very much. us.ks for being with before the retail numbers came out we spoke with one of the

best known retailers in the business about the challenges faced. >> retail and the macro environment is tough. many things are affecting retail, whether it is traffic is down. customers are shopping online. different things like tourism. your company,ft atch is what we did, to look the future and understand the macro and changes, moving forward to make retail and incredible experience for the customer. david: tory burch. to see where retail is going next. what is your view going into the holiday season? positive. the view is we had a difficult first quarter. the second quarter improved, confirming first quarter difficulties were mostly weather-related.

business is picking up in the fall. leanave inventory very going up against the warmest winter on record. we will see sequential acceleration for companies and better than expected margins in the fourth quarter as we go up against the record warm winter from next year -- from last year. david: what about bricks and mortar? i have seen numbers that the first week in october that traffic was down 7.9%. does that give you pause? shiftthere is a channel that is a long-term headwind from all-taste retailers. most retailers are shrinking. in ave a big opportunity near-term trading perspective retailers to do better in the third quarter and fourth

quarter because of the easier comparisons. the long-term trend for malls are not great. david: what about competition for the consumer dollar? retail is only one component here and we have entertainment, travel, and experiential. is that putting pressure on retail? randy: consumers are buying and doing other things, like travel, etc. we look at durable goods and how that impacts nondurable goods, like apparel. people have been buying cars. we had a peak. that is tailing off. experiences are trending up, but we think over the near-term, the next to quarters or so, we will have a shot in the arm for apparel-based retailers givien that car sales are slowing and

we have a fashion cycle for the first time in a decade. denim and the fall of athletic apparel. david: we will head to alix for stocks. alix: it is about the banks, the big investment banks. jpmorgan and citigroup leading by up over 1% of fixed trading. currency and commodity trading. 35% year on year when it comes to citigroup. think of america rising in empathy due in part to libel moving higher and more trading opportunities, as well as the fallout from brexit. wells fargo, up .2%. on earnings and revenue they beat, at the highlight was the bank set aside money for bad loans. money they will not get back,

$800 million. in europe, we had a bank on the move, deutsche bank, raising $4.5 billion in bond sales. bost from an infusion of capital. basis pointy a 300 yield premium on some bonds they sold. retail sales, under armour and of graded.zumi they did surveys and liked what they saw. under armour is making progress. theez got high marks in specialty guys. futures inch higher. jonathan: never heard of it. alix: me either, but we are old.

campaign underp pressure. what does he need to do to close the gap between hillary clinton and himself? that is next. this is bloomberg. ♪

>> this is "bloomberg daybreak." coming up, pimco and credit picks. ferro.n: i'm jonathan jp morgan announcing earnings, less than an hour ago, beating estimates. listening in on the call is the citi market reporter, julie hyman. showed an increase in

fixed income in the wake of brexit. the cfo on a media call is speaking to analysts on a separate culture the q and a has not begun. i will bring you an update later. she said there was an uptick following the u.k. decision to leave the e.u. that there was an uptick in the ficc business. she said it is too early to tell if that will continue. something to note is that jamie dimon wasn't on it. said, hesomething they was traveling in california. he said "be surprised if i'm not on future calls," but then he was on future calls. this is the first time in some time he has not joined. last time he had a cold and said

he would not speak too much, but did speak. it is something to note. something else is that on the media call, blake was asked about wells fargo and if jp morgan has done more internal reviews of the cross-selling practices in the wake of the scrutiny of wells fargo and that openingmployees unauthorized accounts. she said those have not been found at j.p. morgan. there are isolated incidents of selling abuses, and the bank does an ongoing review. they are dealt with when they are found out. in the wake of wells fargo, they are doing a deep dive review. we will keep monitoring the call and give you updates. jonathan: stocks in the free market of 3.1%.

futures are firmer. david: politics, 25-days until the election. we will talk about the election. andld trump spoke in ohio north carolina, up 1% in ohio. only narrowly behind in north carolina. in north carolina, what is his strategy? are important because he cannot lose of or north carolina. if he loses, there is no path to the 270 electoral votes he needs to win. the trump campaign is looking at those and saying, they could be worse after the week, the two weeks, that he has had here the fact he is leading by one in ohio and only trailing by 4 in north carolina is a big deal. north carolina is a place that trump needs to work hard.

there are a lot of military homes there. my colleague did a story there really looked at military households in for genia, north carolina, the eastern seaboard. we found that while military households make up 10%, give or take in the states of registered voters, among the republican 25%.it is more like 20% to in this election, what is bizarre, is hillary clinton is running to that right of donald trump on a lot of issues. there is the possibility she could take some of the military households from him. north carolina is one of the only states, the only state, that flipped. 2008 and lost in 2012. david: how is the clinton

campaign responding, especially on the issues with women? >> hillary clinton is not saying too much. she will be on the ellen degeneres showed today. she has already taped it. she relies on her surrogates. david: she has a surprisingly light schedule. she has taken things off of her schedule. >> donald trump does not have the surrogates that she has to defend him. ce, he isn mike pen doing the defending himself. she sees that as a train wreck. let donald trump make news himself. david: one of the big surrogates is michelle obama. obama: to dismiss this is an insult to decent men everywhere.

the men that you and i know do not treat women this way. they are loving father's second by the thought of their daughters being exposed to this vicious language about women. to make matters worse, this is not an isolated incident. an example of how he has treated women his whole life. it is disgraceful and intolerable. it doesn't matter what party you belong to -- democrat, republican, independent, no woman deserves to be treated this way. david: this is powerful not because she is just a powerful speech giver, she is a woman and can say things that neither hillary clinton nor bill clinton can say. >> it comes off so genuine and heartfelt.

that was so powerful because she was able to say things -- it was a political speech, it was. it did not come out that way the same way it would if it was the president, hillary clinton, and that is the point i was trying to make. hillary clinton can lean on people like michelle obama. she can lean on the surrogates to stay out of the news and prepare for the debate. let donald trump defend himself in person. david: thank you. our politics reporter. alix: not only big banking, but new money market rules taking effect. we will see how that will impact going forward. this is bloomberg. ♪

david: from new york city, i'm

jonathan ferro. the trading diary. it is 10:00 a.m. we will get the anticipated conference call. after that, we will have more economic data and the latest reading on businesses and the university of michigan sentiment. janet yellen is the keynote speaker at the economics conference in boston. mr. rosengren is also there. as theyment on the fmc get ready for the conference. alix: a big day with banks and retail sales ahead of janet yellen, and what is happening with new rules taking effect for prime money market funds. they must have more liquidity buffers and use floating any be -- neb asset values. there is a spike if you bring over the libor chart.

basically, what it means is you have a prime money market that they do not buy short-term debt from banks. they buy short-term debt from government tanks. you can see the libor move higher because of that. pegged to$7 trillion libor. this change has used implications -- has huge implications. this will show the rush out of the prime money market funds. look at what happened in the last few weeks. on average, prime funds lost $6 billion per week in september. last week, they lost as much as $110 billion. the assets are below $500 billion for the first time ever. do notes that do if you have a lot of investors into it? yields are rising. government yields versus money

market yields in the last few weeks. white is prime any market yields. basis points for the government yields. that spread is intense. what does that mean for banks? if you are big bank come away you get funding? the shift could be non-us banks get cash.hey tap to short-term european paper market up over 350 billion euros. brawlea is they will and swap to get dollars. the question is, come monday the 16th, what will happen with libor? will they continue to rise and create distortions that we have seen in the markets? will it pause or come down. over 1%, ande rise

that changes things. david: we have known this has been coming for months. every year. our colleague has an -- has a piece saying there are dramatically different predictions of where labor will go. by 2019 we could be a 3.7% libor. jonathan: it is interesting how this has been captured. a massive shift of $1 trillion from prime money market funds into government money market funds. they made a lot of money. the rates business, a surge in trading. david: it all came out of lehman. jonathan: regulation helps banks make money, who would have thought. ♪

jonathan: good morning from

new york city. ferro with david westin and alix steel. futures up 89 points, the dow up .0 points on the s&p 500 surprises from the bank earnings on wall street. the other asset classes, here is the story. that is not the story. bank stocks up across the board. wells fargo up .9%. alix: here's what else you need to know. retail sales climbing by the most in three months in september, showing american travelers are spending after shying away earlier in the quarter. janet yellen is the keynote speaker at an economic conference in boston this afternoon. as part of the government overhaul of enterprises, china is planning a merger between china national camcorder and a group that will provide $1

billion in assets. david: jp morgan announced earnings earlier beating estimates. bloomberg senior markets reporter julie hyman has been on a conference call. we will check back in. what do we know? julie: right now the cfo is taking a question about libor and the moves we have seen. and whether that affects the company's p&l. their earnings in the quarter going forward. the rate at which banks lend to each other, she says it does not have that much of an effect. since they were changes, that helps the bank with an increase in fixed income. talks abouthat, she the company's credit card business which increased in the

quarter. some of that is the new sapphire card. card toigher-end compete with the likes of american express. she said the bank will continue pushing into that business and increase market shares. that has been another win, besides the increase in the fixed income trading revenue. reader rate, jamie dimon is not on this -- to reiterate, jamie dimon is not on this call. there was speculation that even though he was traveling, he would still we on the call, but he has not. solo.s on the call there were questions about wells fargo and if jp morgan has seen issues in its branches. she says they have not. there has been isolated cases of selling abuses, but no unauthorized accounts opened. jp morgan is conducting a deeper

view of those practices. jonathan: thank you. bloomberg city markets reporter on goldman sachs, winning the lawsuit. sued for $1.2 billion. the london judge issued a verdict spirit goldman sachs wins the libya fund lawsuit. deutsche bank, bond market $4.5 billion in a private offering, a two-part sale. there has been concern about this capability, but they can to access the market for sizable funding with a decent premium. the cio for global credit market, can you confirm that for us? cannot comment on what we are buying or selling. he would say that you can see from the u.s. are earnings that the banks are very profitable. that is the case in the u.s.. looking at the big 4 u.s. banks,

they are on target pretax and pre-provision to produce $130 billion. in the banking universe, we like some degree will not comment on what we like specifically. in global banking, we definitely like u.s. banks. jonathan: to navigate this carefully, a german investment bank issues that 300 basis points over benchmark, is that something you are interested in at pimco? >> potentially, based on valuations. our remark is clear. in banks we are looking for high capital and companies that can build capital quickly through organic earnings power and high net interest margins, and organic profitability, management teams writing banks through crises -- guiding these banks through crises. u.s. banks have doubled capital in seven years. they are some of the most profitable outside of brazilian banks. we would look at it, but it has

to stick with our framework. jonathan: i'm wondering what you do with it? you look at underlying capital appreciation or the coupon? for goodare looking income producing assets and downside risk protection or do went from a market at the beginning of the year where investor should have owned the market because it was a beta trade. we are in a range-bound world. it will take a lot of active management and out for. a. and alph it will come from the bottom up in housing, consumer, and emerging markets, select energy names. the overall market is not as attractive as the beginning of the year. alix: back to deutsche bank, they did not upsize the first sale on friday.

3 billion on friday, 1.5 billion on tuesday. what you think about it? are: when these companies in trouble, we saw this with the u.s. banking industry in a 2009-2010 crisis, they want to establish access as a vote of confidence. it comes at a price. with deutsche bank, labor plus 300 and security is a huge premium. the reality is it is a sign of confidence that investors are -- into theap int t company and take of you they will improve over time. david: bank debt in general, underpriced. given that regulations have required them to have capital on hand. mark: i think that is a good point. witholders have won

banks. equity has had to wait. regulation required banks to retain capital. the organics earning profitability has been forced to be retained in the bank. regulators are not allowing aggressive by fax or dividend increases. they are requiring more liquidity. the positive is that they are building capital quickly. nowhere is that more apparent than the u.s. banking industry where it has doubled. from the bondholder perspective it is great to invest. with negative rates in europe, it has been a severe headwind. alix: the capital structure for banks, like subordinated bonds? mark: we will do it selectively. we have done it in the u.s. and swiss banks. we will do it when you are looking at a company with the organic earnings profitability to build capital through a relatively or challenging

environment. what is amazing about the u.s. banking industry is they will make 130 billion pretax pre-provision in the big 4 banks. there are 5 banks in brazil controlling 80% of the market. they made money in the worse economic prices in 50 years. in europe, they don't have the capital or earnings power that these in emerging markets and the u.s. have. alix: the pimco cio for global credit, you are sticking with us. let's get an update outside the business world. pocketed republican donors calling on the committee .o disavow donald trump that is according to the new york times, who says the donors believe allegations of sexual misconduct threaten to an clicked lasting damage on the party's image.

several big donors have defected, including julia robertson who is now backing the libertarian candidate. ministers in theresa may's are opposed to increasing powers of the 12 member bloc. it could be a sign the pm is planning a clean break from the european union. it includes 6 members of may's cabinet to campaign to leave the eu, including boris johnson. the british flash crash trader accused of making $40 million boosting markets will be estimated to the u.s. for trial. his final request to repeal his extradition was rejected by judges in london. he must be set to the u.s. in 28 days where he will face 22-charges of fraud and market manipulation. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg.

alix: thank you. here is where futures stand. a half-hour until the opening bell did you can think banks for eliminating the way higher. the nasdaq rallying up .5%. banks leading. citigroup up over 2%. wells fargo losing a little ste .m, up by less than 1% retail sales at 8:30. better than estimates, but downside followthrough in department store names. here is why. clothing stores have zero growth. department stores down .7%. car dealers and furniture companies did well. ak.artment store sales are we jcpenney is the best, unchanged. david: the next, pimco going for 2-3 rate hikes from the fed.

we will hear why. ea -- on thet he earnings from j.p. morgan, wells fargo, and citi. this is bloomberg. ♪

david: from new york city --jonathan: from new york city, i'm jonathan ferro. jpmorgan at one point x 4%. citibank up. a surprise for all three. especially for jpmorgan. a huge surprise. asset classeshe is as follows. the dollar is stronger. the dollar-yen, one .04. the bond market ,gilts hammered.

the yield prime much higher on the 10-year. yields driving higher up three u.s. points to 1.77 on the 10-year as we are counting down to a fed chair speech later. david: all eyes on the banks this morning, this afternoon all eyes on janet yellen as she speaks to the boston economic conference. what comes after december? cio fromd by the pimco newport beach, california. emco is predicting two to three rate hikes? we see an economy which is operating near full capacity. growth is picking up. we look at the u.s. economy and .ee growth of 2% to 2.5% the consumer is doing very well, producing over 2 million private sector jobs and wages

rising. from the bottom up basis, it is more difficult to hire. we are seeing the wage trend broaden in terms of the pace of wages picking up. importantly, inflation is picking up. services inflation running 3%. commodity prices, oil specifically, almost doubled in eight months. the global uncertainty has come down. financial conditions are easy. the market is pricing in 66% chance. we think it is slightly higher. when the fed goes, they will get into-three hikes by next year because inflation is next year. david: it sounds goldilocks -like, a perfect situation. inflation kicking in, what does that mean for the bond market? mark: you want to run more

defensive portfolios. we were running more risk at the beginning and brought risk down. we like inflation protection under price here looking at the break even 10-year inflation rate it is 1.65 over the next 10-years. we think inflation will go to 2 or higher. we think it is very cheap. we are more selective in credit with more opportunities. we like housing and to think nonagency mortgages are attractive. a lot of it you'll have to find for the bottom of perspective. -- bottom up perspective. alix: there are still skeptics on if you want to keep selling treasuries. >> directions are only going to go so far. the market has been trained to identify events that could create volatility. let there occur some selloff or

ackup and use that as opportunity. alix: why not buy? mark: one thing, and we were on your program 122 months ago and talked about this -- 1-2 month ago, and talked about this. it is less attractive with libor moving up. what has happened is the concept of global yield convergence. there's not a pickup between jgv in japan or boons in germany. it has made treasury rates less attractive. move thefed set to rates will probably rise. or investors, this means to savor non-interest rate sectors where fundamentals are healthy. i would highlight emerging markets, non-agency mortgages,

and tiffs for inflation protection. jonathan: we will get more hikes than the market anticipated, is there an argument to go long duration with 3 options this week? we have had jgb's and treasuries. it has picked up with the demand back in the market. if you're expecting the front end the selloff, isn't that the trade to make? mark: as the fed raises rates with the hedging costs going up, even long the charity treasuries are less attractive on a hedge basis. influencing the long in the u.s. global qe brought these to where they are. many would argue below fair value. ehe risk premium out the curv was extraordinary low due to

global monetary policy. the effectiveness of global monetary policy is being questioned. it brings to light the term premium risk. i think the premium risk could go back into the market place. , would stick with tiffs emerging markets, nonagency mortgages. david: when you loan money you want to get it back at some point. talk about the credit risk and .redit cycle are you being selected and who you are loaning money to? mark: we are being more selective. at the beginning we said that it .as a 9 on a scale from 1-10 now it is a 5 or 6. we are in a world with lots of 2's and 3's. you do want to go up the capital structure appeared we're favoring housing and building materials. we are favoring consumer sectors like cable, health care, and telecom. .e like piplines

with oil up to $50, you'll get reduction volume growth. -- production volume growth. the market is not pricing that in. 4-days andazil for there is a significant political change. many management teams have changed. turned in a more positive direction. alix: thanks. pimco cio for global credit joining us. this afternoon, janet yellen will speak at the boston fed annual economic conference. we will hear her at 1:30 p.m. eastern time. coming up, not just oil and opec investors are keeping an eye on. talk about your rally. this is bloomberg. ♪

david: this is bloomberg. i am david westin. jpmorgan, julie hyman has been listening to that call. julie: the call just wrapping up. what we have not talked about, a couple of updates, marianne lake , speaking on the call. jamie dimon did not speak. we're told he is traveling in california. she did talk about rates and the effect on banks. she said if the federal reserve keeps rates flat for 2017 that the bank can boost net income by $1.5 billion. numbercreases would that further peerages is not expect rates to be unchanged, implying a larger number. she talked about jp morgan trying to keep expenses under control, and commented on auto lending under pressure that jp morgan is the number one prime

lender in autos with the lowest share of the subprime market. she expects reserve to rise in that business. david: now, natural gas. alix: putting oil aside and natural gas as the future in focus. natural gas over the past few weeks, 69% since the end of may. the green line is the natural gas curve four weeks ago. the orange line is now. look at this huge relating. over-rating as prices are $3. lot about oil, but what to do at $3? with the hostue that all eyes should be on energy, specifically natural gas.

we are seeing tremendous volatility. we had a 13 handled move up yesterday, up 4%. natural gas is up over 15% since set timber 21. -- since september 21. pullback..5% we are seeing some take gains off of yesterday's range at $3.32 did not hold. we are reversing back. much gustore is too put into that by traders. -- the that the ten 10% adjustment was overbought. i think you are seeing a pullback. alix: what is the floor? >> i believe that floor is three

-- $3.23. the trend is higher. alix: thank you. bloombergnext on daybreak, four minutes and 10 seconds away. the dow up 11 points. the s&p 500 after a series of surprises from some of the big banks on wall street, including wells fargo, citigroup, jp morgan. u.s. retail sales, no surprise. janet yellen, the speech later. yields rising up for basis points on the u.s. 10 year as we trade. the dollar trade higher with dollar-yen at 104. the cash opens next run new york. this is bloomberg. ♪

this is bloomberg daybreak. here's the story in global markets, equity, batting off a

three-month low. 500 -- think earnings helping us get there. the other asset classes, the bond market, check out today's session. up higher by four basis points. 500 down potentially on a second week of losses. looking at crude, a four week of gains on the card. book about one third of 1%. demo we are opening with a triple digit gain on the dow. the s&p around the highs of that session up about 10 points. still down about 1.7% for october.

let's dig a little bit deeper into the individual banks. two.ave morgan stanley up brookshire hathaway also writing on the coattails come up for tenths of 1%. they also own goldman sachs, bank of america, american express in their portfolio. the financial index is down yesterday, it was hard to make the case for banks owning earnings. that narrative turning around today. and look at the equity fixed trading year-over-year. equity trading higher as well. relatively flat. not as much movement when it comes to equity trading. fixed income currencies and

commodities, you have more volatility and brexit. money market rules all helping the trading revenue. the question is does that last? we bring in jonathan, head of u.s. equity strategy and investing executive editor. you were on the program a couple of days ago. she came in and said -- perhaps a little less instructive on the retail. >> that is what people were starting to say. starting in turn around and something definitely beats on revenue. wells fargo, which hasn't built is kind of the laggard. goldman sachs is up in the premarket and probably now with

the markets open. i think one thing people are going to be looking to see are by a big gains driven rising market overall? was there winning some share from this we can europeans? who knows? >> there is no margin or return equity. are they making more money off of this business? three tanks reported a decline years ago. we talked about the $2.2 billion tax gain. equity trading is down. year ago there was big trading in asia. you had all this activity in china. a better necessarily earnings environment, but there are signs of optimism and

consumer credit and obviously trading up. >> the citigroup cfo giving it little bit of an indication. got a wait for the number. even a situation involves the u.s. banks at the moment. earnings are down but it is an upside surprise. >> i think you could say that. earnings out of the s&p 500 for four quarters in a row now. i think we are starting to get outside of that. maybe the banks are giving a little signal the earnings season will be ok. we are little less focused on what is going on specifically this quarter and a little more on the long-term positive things going on.

rates are a big thesis. we do think interest rates are going to go up. -- we arething we've focused on is company and sectors that have the ability of dividends and booster buybacks. growth out potential of financials. >> take a look at what the credit quality is like. banks puten some money away. where are we in the credit cycle? >> a year ago mortgage was an area where they have new issues. things like credit cards, auto loans, those things are not showing any signs to danger. you have to be prepared for more losses going forward.

there is a renewed focus on what happened to the credit quality of the consumer. one of the things that is going to be good for the market is the sense that the u.s. consumer is doing well. >> you have two very different stories with city and jpmorgan. do we have a sense for jpmorgan? i know the conversation was up. >> i think they are in the cfo who handles the call. not appear on the call this morning at all, which is rare. said the riveting treads -- the revenue trends continue -- you look at the number of branches jpmorgan has, they have been shrinking the number of mobile users.

if that continues, that could be quite a tailwind for the industry, they are able to do more business for the technology. has actually been falling when you compare to bank of america. what is the number one thing you want to hear from that? >> all the interest is what is happening with the retail business. there was some slowdown in that business. that they think it is going to be tough for a little while. people willconcern have is during this period when the are not necessarily most respected retail bank, how do their competitors take advantage of that? will jpmorgan start winning business?

obviously trading, which we talked about earlier. >> thank you very much. we are going to slowdown what a buyback in dividend growth actually means for equities and where you will see that growth. this is bloomberg.

i am here at the hewlett-packard enterprise greenroom. coming up live coverage of fed chair janet yellen.

>> we are 11 minutes into the session and stocks across the board. the s&p 500 up about 12 points. the banks outperform for series of surprises. the nasdaq is up about 29 points. bloomberg's abigail doolittle can love -- can run us through. : shares of the chipmaker are on pace for the best a sense the 19th. they did reach a deal with alibaba to have amd used in alibaba's cloud services. very lucrativea data center. forng a comeback and truly

a stock of 140%. this has been an i.t. consulting firm. are down today. having the worst day in three months. they once again guided the full sales out. with the banks and financial services, bloomberg intelligence analyst says he has been watching the slowdown and expecting it for quite some time. as to whether or not it leads into the software or hardware companies, we will know within a few weeks as the length of microsoft and other big tech companies begin to report. >> abigail mentioning we are getting into earnings season. out inans a black buyback. top $1uld actually trillion this year, lending a lot of support to the s&p.

with us is the head of u.s. equity strategy. what is your forecast for the payout ratio? >> we think it is coming down. pluse estimating dividends buybacks are going to reach $1 trillion this year. ofthink that has been one the main drivers the stock market has done well. if you go back to just 2010, buybacks and dividends are back one million per year. the growth rate has been 20%. you have this incredible tailwind of 20% growth. 2017 thatdicting in all disappears. >> growth and payoffs that note -- but not growth in earnings. >> companies cannot afford the current level of dividends and

buybacks. ratios are over 100% and they have been that way. it has never happened three years in a row where you have payouts exceeding earnings. payouts are exceeding cash flow. the measure we use is theributions in relation to cash flow companies are generating. the two of you are saying how could that be? it is the debt market. >> you cut buybacks. what dividend stocks and buyback stocks have done. white line smp, balloon line dividend index. you can see the buyback index walltarted to underperform the dividends and smp can hold up.

>> if you do better as a company in terms of dividends versus buyback, or are the company is doing better to begin with? >> that is a great way to look at it. we have definitely seen a shift in terms of what seems to work. to 2013, even 2015. clearly that has shifted now. now it is dividend stocks that are outperforming. companies had a period where they could basically grow their buyback to boost prices. they wanted income to get what they wanted. now we are moving towards orlando. now they need to choose, are you going to boost your dividends or

are you going to push your buyback higher? we think that is the direction companies are going to go. >> which equities, which stocks to you by? >> what we are saying is you want to look for sectors and theanies that can push buybacks higher. what you are saying is it is going to be harder and harder to find companies to give them real growth -- real growth of dividends and buybacks. the one that really stood out is health care. still of the ability to boost their buybacks, to boost their dividends. >> they are expensive. why are you willing to pay up when you can make the argument that the debt market is more

than a company keeps borrowing. is theyay we look at it have been underperforming for the better part of a year now. and we like to use the standardized p/e ratio. health care pes are two standard deviations below where they have been on average for the last five years. we have a different measure, which makes me think health care stocks is good. why aren't companies going to just keep borrowing money to fund these payouts? we think ratios have gone too high. hadof the great things you is when you go back to 2009, 2010, companies have low payout ratios. leverage fund. they are able to boost leverage ratios.

payout ratios are now high. we don't think they can go up from here. >> if they go to hard they will lose the rating and other issues? >> companies in the s&p are overwhelmingly investment grated companies -- investment rated companies. a financial to keep profile consistent with that rating. hugh cannot continue to push leverage ratios higher unabated without having consequences for your rating. we don't think of these in the s&p 500 want to have those ratings consequences. payouts continue to grow the way they have been, the leverage ratios continue to go up. >> thank you very much. the stocks of across the board. the big move on the dow is goldman sachs. a lot of people think -- let's

keep it on the market. bloomberg markets with mark barton and vonnie quinn. >> paul hickey as the cofounder of the investment group. he says analysts going into the reporting season tends to perform well. global strategist at j.p. morgan asset management. areaid u.k. equities extremely cheap. and erik schatzker is going to listen in on the wells fargo conference call. screamingly cheap. the equity market on high. >> i'm not going to spiel it paid -- i'm not going to steal it. >> you're the person to cover

that story. coming up next we're going to look at janet yellen's speech to boston over this afternoon. this is bloomberg.

jonathan: here's a story of the markets come equities are high, we are 22 minutes into the session. jpmorgan of 9/10 of 1%. citigroup eating estimates of what is happening in the bond trade. 35% jump for citigroup. .0's -- 40% year-over-year a lot of people thinking this is happening elsewhere. goldman sachs one of the big movers on the dow. david: we are going to turn to the fed. specifically janet yellen,

speaking at boston at an economics conference. editorjoined by politics mike up in boston and economics reporter. what is she going to say and why? know exactly what she is going to say but my best that best guess is she will try to open a december rate increase. nothing has changed on the economic data. she will want to commit to a rate increase because of they could go wrong between now and december 14. not going to do anything at the november meeting. is we don't want the markets to move, we want the markets to price in a possibility of an increase. >> is it more important you get up to 70? or is it more poor you don't get up to 90? >> you want to keep some option

analogy. it doesn't necessarily reflect the sentiment on wall street. will talk to people over wall street and get a real feel for what the sentiment is. they will be looking at the yield curve. >> i love the idea that mario draghi is checking the chart every now and then. my question would be as follows, the politics, quite clearly the market has made an assumption. somehow scare the politics and the situation there? >> there is no press conference after the november meeting and they have never really been looking to move that one of these meetings. it also happens right before an election and people have different views on how important that has been. november wasn't a good chance to

begin with. they disagreed on labor force and participation rate. and they disagreed on inflation. how janet yellen address those points? >> there are all these interesting papers about why the have -- why the recovery has been so slow. we may hear more from her on that and trying to thread this needle and explain why things are the way they are. is it more important to talk to the hawks or the doves today? >> i think it is more poor and to talk to the markets. i have talked to a number of people at the fed who say we aren't as far apart as people think we are. descendent,k at the it is really a question of timing rather than exactly what they want to do. all agree we can stand for a fed rate increase.

she will probably be fairly circumspect on that. >> thank you very much, thanks economic and political editor mike mckee in boston and that those in new york. do not miss fed chair janet yellen speaking at the annual economic conference. been 26 minutes into the session. it is a story of wall street earnings and upside surprises. we bounce off a three-month low in the euros. counting down to the fed chair janet yellen's speech. better luck for the best of the trade of the day and have a great weekend.

>> it is 10 a.m. in new york, 3 p.m. in london and 10 p.m. in hong kong. live from london i am mark barton. --come to bloomberg markings

bloomberg markets. vonnie: we are taking you from new york to paris and cover stories out of italy, and washington. the big u.s. banks out with earnings. jpmorgan and city, wall wells fargo takes a hit. , getting the earnings any insight on the scandals. >> we are covering banking out of city today. an investigation over allegations of falsified accounts and markets. >> and getting the week started with a new frisky atf be at the fund looking to capitalize on the 15% growth rate.