daybreak." in the markets, it is the trump train desk features -43. three --ures negative dow futures -43. a weaker dollar. alix: the trump trade unwinds. treasuries gain after donald trump's news conference send a wake-up call to the markets. big pharma bust. the sector losing $25 billion in 20 minutes after donald trump said pharma companies were getting away with murder when it comes to drug pricing. trump's secretary of state nominee rex tillerson saying china must be denied access to artificial islands built in the south china sea. create tensionld

between the world's biggest economies. the president-elect made it pretty clear from the outset that his focus is and will remain on jobs. >> we will create jobs. i said i will be the greatest jobs producer that god ever created and i mean that. i will work very hard on that. david: we are now joined by kevin from washington. he certainly took on pharma. there is a fair amount he did not say about his economic plan. the markets are not reacting particularly well today. kevin: a lot of uncertainty about the lack of specifics on economic policy. things like infrastructure. how will he get the tea party to support an economic stimulus plan? even tax policy. what is the timeline for passing tax reform on capitol hill?

trade policy. what exactly will he do in terms of renegotiating the transpacific partnership? on capitol hill, rex tillerson saying he perhaps likes tpp. signals, not a lot of specifics with regards to economic policy on that front. all of which leading to that market uncertainty. david: what is going on with the confirmation hearing today? kevin: today, we have dr. ben carson. he is the nominee for the secretary of housing and urban development. he will face a lot of tough questions from democrats about whether or not he has the experience. of course, he is a well-respected doctor. but not so much a lot of experience in terms of housing policy. which has huge financial implications, especially with fannie mae and freddie mac oversight. i anticipate for him to get some

questions on that. a lot of people in the business circles in washington will be to seecareful attention if they can glee many answers on where he stands. for the broader market outside of pharma, it is very much what donald trump did not say. the dollar slumping, bonds rallying as the president-elect specifics,rovide sending a wake-up call to markets. the 10 year yield touching its lowest level since november. with us now is bob doll. great to have you with us on the program. socgen in london capturing this story perfectly. the combination of an erratic president-elect in united states and the market which leads to conclusions with manic

enthusiasm is a recipe for mayhem. the markets looking to the theident-elect as if he is fed chair with this group did read on economics. bob: we know we elected this guy, things would be interesting. i will not get carried away by yesterday. there is no question that things went differently from where they gone. health care is still one of the best performers year today. markets are a little tighter. they are up 25% since last february. jon: the squeeze coming into this year, record longs for futures and treasuries. treasuriests for an inflection point at some point in your mind? bob: the direction of four rate

is up. but, they have gotten a little ahead of themselves. -- the direction for rates is up alix: 10 year yields are falling. bob: it is still early in the year when the technicals can make things very confusing. we are getting a little more inflation, a little more real growth. hopefully with a tax-cut, more nominal growth moving up. that means interest rate are moving higher. amount of paper outset of the u.s. selling a negative interest rates continues to decline. david: how much of this was the economy before donald trump got elected? there were a lot of positive indications before the election. bob: thank you for mentioning that. a lot of people calling this the trump rally.

the pmi my sm's, retail sales all began to do better in october. m's, retail sales all began to do better in october. alix: short-term, when is it going to stop? with further to go down site on yields. to 260 andt, 130 a couple of months. should be no surprise. two'she spread between and 30's has completely rolled over. we have rolled over since the middle of november. why are we missing that story? we are getting a flatter yield

curve. bob: from here to the end of the cycle, the yield curve will continue to narrow. short rates led by the fed will go up -- the fed kept rates so low for so long, some would argue behind the curve and the short end will move up faster. isn't that a message to the fed, not so fast? bob: we have a dovish fed. they will take their time. don't forget come along rates could go up, too. my guess is for every basis point come along rates go up my short rates go up two basis points. jon: bob doll is sticking with us. let's cross over to taylor riggs. taylor: obamacare is one step closer to repeal to early today, the senate approved the budget resolution instructing congressional committees to

start work on legislation to repeal the biggest portions of the affordable care act. republicans have not announced yet what they will replace obamacare with. u.s. prosecutors have charged six volkswagen executives in connection with the diesel emissions cheating scandal. to plead guilty and pay $4 billion in penalties. british bankers making a fresh push for a special brexit deal tailored to their needs. theresa may signaled she will not make any exceptions for the financial industry. the u.k. and the eu should also agreements that allow mutual market access and transitional arrangements. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. alix: with equity futures off the lows of the session but still negative on the morning.

inta just out with earnings the last 15 minutes, up by 1.5% premarket. revenue did become earnings was in line. that's revenue did beat, earnings were in line. the revenue per available seat mile was down 2.7% for the fourth quarter. flat to up in the first quarter. the other stock to watch, talking biotech and pharma all morning, but merck getting higher on upgrade. now up by 1.5%. could be approved, the first lung cancer drug that it will be key for that company -- the first lung cancer drug could be key for that company. a risk for apple.

they have price increases locally, but the stronger dollar , that theme starting to seep into the earnings season. big pharma losing $25 billion in 20 minutes after donald trump said he would take action to bring down drug prices. that is next. this is bloomberg. ♪

david: trump takes on pharma.

yesterday, he was not shy about what he thinks about the industry. >> they are getting away with murder. pharma has a lot of lobbyists and a lot of power. there is very little bidding on drugs. we are the largest buyer of drugs in the world and yet, we don't bid properly and we will start bidding and we will save billions of dollars over time. david: shares of pharma did not react well. big pharma lost $24.6 billion in 20 minutes. joining us with more is anna from washington -- why were they surprised? the first time the president-elect has addressed the question of drug prices. anna: it is not. there's been a bit of time since the last time he did and so there was some complacency starting to creep in. they thought there was probably a lot of talk on a lot of issues

that he wase happy pro-business and thought there might be something in that for them in the long run. david: was this the first time we heard about the idea of negotiation with the pharma companies? anna: it is not the first time we've heard that. biddinglked about price , that the government would bid on drug prices. we have heard him before say that things in support of allowing the medicare program to negotiate prices. has come up before and it's not the first time that trump has said it, but it was the first time we heard it on him as president-elect and so strongly, even though we don't have details on exactly what he wants to do. david: this is the president-elect. resistance, some

both from capitol hill because the house republicans have been most resistant to this negotiating prices and also pharma has a huge lobby. spending more money than anybody else in washington. might he have a little trouble getting this through? anna: for sure. pharma will be a huge sticking point. this is their number one priority to fight against something that been battling for a long time and are willing to spend a lot of money on. he will come up against a powerful lobby group. forblicans usually are not something along these lines of allowing the government to intervene in pricing because it doesn't adhere to their free-market principle. it will be curious to see who comes down on what side. particularly his nominee for secretary of health and human services who also in the past has come out against proposals

to allow medicare to negotiate drug prices. david: i thought free-market had to do negotiation. we will save that for another day. more, we are still with bob doll. you are an investor. yesterday at 11:00, you get pummeled, you were not expecting this. what do you do after that trump announcement comes out? kellyanne: health care was the worst performing sector last year. -- bob: there's a lot of concern in the health care stocks. this was not the last time the president will make negative noise. health care was the best performer your today. they were going to pull back when anybody through some stones at it. overall mother is a lot of corrected in that overall, there is a lot of correction. -- overall, there is a lot of

correction. alix: how do you distinguish them from the fundamentals that can hold up versus ones that are just beaten up? congress iscan unlikely to go along with that. that does not mean there will be a sacrificial lamb somewhere. we had people cheating on drug prices. part of the reason why stocks did not do well over the last 18 months. reasonably good pricing, good demographics and cheaper stocks. jon: there's two parts to this story. he also talked about the employment as well when producing these drugs. the employment, the talent, that is part of the pricing. bob: that is not a positive. if you assume he can do that.

he cannot tell merck to bring workers from wherever they are to the united states. david: i wonder if there's a different kind of trump trade here. if you look at general motors or the sharesyou bought a day after he came out and criticize those companies, today, you would be well in the money. bob: that's right. there's just going to be more volatility. 11:00 is in a, we do not know what was going to happen. the shares sold off. my guess is they will balance like jim and boeing. thus gm and boeing. -- my guess is they will balance like gm and boeing. is unpredictable.

he will play the tweet game, the bully pulpit, that will cause noise. if you are a ceo, you hope donald trump doesn't know you exist. he will find a way to pick on you at some point. jon: your long financials and health care. january 12, which one is more shaken? bob: i can only own one, it is the financials. if regulation gets rolled back --e committee answer is there's no sector that benefits more than financials. a big theme and donald trump's speech yesterday, china. that is next. from new york, this is bloomberg. ♪

alix: china is a big focus for the incoming administration. 's senaterson confirmation -- ,> is bruton likes donald trump i consider that an asset, not a liability. russia can help us fight isis. this administration created isis. by leaving at the wrong time. >> we are not likely to ever be friends. our value systems are starkly different. there is scope to define a different relationship that can bring down the temperature around the complex we are having today. >> russia and other countries, including china, which has taken

total advantage of us economically, totally advantage of us in the south china sea by building that massive fortress -- russia, china, japan, mexico, all countries will respect us far more than they do underpass demonstrations. >> we are going to send china a clear signal that the island building stops and you are asked to those idols is not going to be allowed. -- and you are not allowed access to those islands. >> we will have a war of words. let's hope it doesn't get worse and become a trade war. exportsnt of chinese that come to the u.s., 7% rely on us triple what we rely on

them. china gets hurt more and i think the president-elect knows that. jon: political credibility is a big deal in china. that party will be restructured to some extent. the president has consolidated power. taking him on in the south china sea, some would argue rightly so because they are disputed islands. the president has enough reasons to not back down. bob: this will not be pretty. the president-elect is not a man of patients. he wants things to happen quickly and he wants people to listen to him. this could get messy. jon: over the last couple of months, we've talked about the economics of china-u.s. relationships. we are talking starkly foreign policy.

that is a huge collision of interests, the economics and the foreign policy as well. is that a new addition that you were not quite expecting? bob: when we elected the sky, china -- think about the campaign. he bashed on china, bastad mexico. -- bashed on mexico. it's only words. if trade slows with china in the u.s., that affects trade in asia. you shut down the south china sea, you cannot transport goods anymore. we are a long way from shutting down the ability to move things around. foreign trade is an important part of global growth. from a the problem foreign trade has not been happening to a normal degree and this will exasperate that. alix: thank you so much for

being here, bob doll. coming up, trump sets the tone. we look at what his term could mean for markets and u.s. economy. we will speak with kellyanne conway, next. this is bloomberg. ♪

jon: from new york city, this is bloomberg. defined by many as the trump trade, squeezed on the margin. futures negative, down 50 on the dow.

over in london, the ftse way down by format getting absolutely battered in the last 24 hours on the back of president-elect trump's comments on drug pricing. squeeze that positive yields lower. dollar and the g 10 space. david: the markets are laser focused on the incoming trump administration and what it will mean for business and the economy. kevin is back with us now with a very special member of the trump team. kevin: i'm joined by kellyanne conway, a senior advisor and special counsel to the president-elect, donald trump. .hank you for being here yesterday, president-elect

announcing how he will separate his incoming administration from the trump organization that put the issue to rest for most republicans but has drawn criticism from democrats. lay what senator elizabeth warren told me yesterday. i am more concerned now than ever because he is not moving where he needs to move. we need to have him divest. he needs to get rid of his business interests and put them in what is called a blind trust. what do you make of that? kellyanne: that is difficult rhetoric from senator elizabeth warren who is very hostile to the free market -- typical rhetoric. he has significant assets and holdings across many continents. great responsibilities to his employees and children who own part of the business or soon will one day.

what donald trump did yesterday, it was all announced transparent for the bloomberg audience to see, what he did yesterday was extraordinary. he said any deals already in the pipeline have been terminated. even if they were close to being completed or in negotiation. that new deal will not be pursued. new foreign deals will not be pursued at all by his successors . he has already sold off things that are easily sellable. things that are easy to liquidate. publicly held stocks. selling real estate is not like selling a stock. they will be put in a trust, cash and other holdings. that heit very clear will not have any type of say on anything that is going on with

respect to the trump organization. the talk of the deals, no talk of the profits, etc. this is the next ordinary move are accustomed to having presidents who are who move from political job to political job. there's no consideration having to move around billions of dollars in assets kevin:. kevin:i want to ask you specifically about turning the company over to don junior and eric. you know how close the trump family is. is it realistic to think you can build a chinese wall through this family that is so close and they will not talk about these business deals in the trump administration? partisans will never be convinced. they will always have their fake political concerns. we cannot do anything about people who just don't want to look at the truth and the facts.

for those who want to see a transparent and open process, they need to look at the fact that donald trump will talk to us children but not about business. that's his children but not about business. butk to his children not about business. don junior and eric have been wildly successful executives for a number of years already. this is not on-the-job training, this is not new for them. this is what they do every single day. they will be doing it without their father there. be negatived not and skeptical and just give it a chance to really sink in. it is an enormous sacrifice. an ethicsre's also

advisor who has to be overseeing all those deals. will we have a name for that advisor before inauguration? when will that be announced and laid out? kellyanne: not in a position today to share the name of that ethics advisor. buildso important to independence and third-party stewardship within this new structure. they have done that in terms of the ethics advisor. that should make people feel much more comfortable that you will have an independent person in their in addition to his sons and employees of many years -- e, in addition to his sons and employees of many years. david: i want to talk about the economy for a bit. this is at the center of donald trump's campaign for the presidency. is it he mentioned the fact that jobs were the number one priority.

at the same time, the markets are waiting to hear, what is that plan? they are somewhat disappointed this morning. when will we be getting some details of that plan? trump has itnald as part of his 100 a plan, the contours should be very much the same as that. you see the trump effect. any fracturing jobs are already coming back to the u.s. or staying here that's manufacturing jobs -- - are alreadyg jobs coming back to the u.s. or staying here. the stock market loves the fact that he was elected. we have had record highs over a number of days. his job creation plan includes a number of things. it's just rolling back some of

these corrosive regulations. we hear from business owners and aspiring business owners bailey that it's the regulatory framework that is suffocating that. he will create 25 million jobs over 10 years and he will reduce taxes across the board. middle-class tax relief. those who don't pay taxes will -- we have been pretty hostile as a nation to energy investment. we hear from people all the time, they complain that nothing is made in america anymore. you know what is made in america? our energy sources. we have presidential leadership that will help develop it in a profitable and responsible way for all of us so we have less dependence on foreign sources of oil and we can create jobs and stimulate the economy right here at home. we hope we can have what ,resident george w. bush had

passing his tax relief package because the constituents like it. david: let's take one or two issues and be specific about it. and researchers spending. when will this be the top priority? -- infrastructure spending. kellyanne: it is a top priority .er the 100 day plan people can pull that up and look at that. we also have to work with congress. takinge the senate concrete steps towards repealing and replacing obamacare. those who have been hurt by the and affordable care act -- unaffordable care act will have more access to health care. their premiums are rising, their choice and quality are diminished.

yet, we are guaranteeing those without coverage will have coverage. infrastructure, we have gotten some joyful noises about and for center from democrats and a public and the like. that's republicans alike. from democrats and republicans alike. this at the right person to be stewarding and putting this as a major priority in the first 100 days. david: during the campaign, we heard that it elected president, donald trump would declare china a currency manipulator. when will we hear that announcement? when he becomes president, he will make clear what his positions and what his priorities are on specific

events as they happen. we are very respectful of one president at a time. yet, we want donald trump to pronounce presidential policies now. people know he will keep his promises. he means what he says and says what he means. withready see it happening plans to repeal and replace obamacare, build that wall and and bexico pay for it tougher on people around the globe that just have not been called to account by this administration. that would include china. kevin: it is not just foreign countries. yesterday, we heard him talk about big pharma. he said that they are getting away with murder. traditionally, it has been republicans who have been a bit uneasy about regulating big

pharma. how will he get republicans on board? are the days of big pharma getting away with this type of stuff over? the markets are reacting strongly to that. all of that will be unfolding in the next couple of weeks and months. to repeal and replace obamacare and not have a conversation about drug pricing seems not like a reasonable prospect. time, i think the president-elect will bring along republicans and hopefully democrats the way he has in these last couple of weeks. they wanted to totally overhaul and ethics office and he tweeted about it and they changed their minds. keepinglking about manufacturing jobs here and our factories here.

private industry is responding to that in a positive fashion. you can see the trump effect already. if you apply that to drug pricing come if we can talk to private industry and bring along , it is ac-sector healthy conversation to have. thatar from people daily they feel crushed by the costs of the drugs they need. we should at least have that conversation. , specialllyanne conway counsel to president trump and the philadelphia eagles fan. david.ne: thank you, thank you, kevin. , commodity come back. oil extend its biggest gain in six weeks after saudi arabia said it would cut production by more than its target level.

we talked to francisco blanch for his outlook. this is bloomberg. ♪

taylor: this is "bloomberg daybreak." , trump's impact on investments. david: this is bloomberg. time for our morning must-read. one of the hottest topics surrounding the economic policy of the incoming trump administration is how he will handle trade and specifically whether it will pose a border tax adjustment that we reward exports but increase the price of imports.

wrote about the advantages of such a tax, writing a border tax adjustment that exams exports and taxes imports would give the u.s. the other countries obtain from a value added tax but without imposing that extra levy on domestic transactions. it strengthens the value of the dollar, raising revenue that helps to reduce the fiscal deficit. when we spoke with adam yesterday, he had a very different view. >> on the economics, it is a terrible idea. it is a huge revenue sink, it goes with the other tax cuts. lowdynamic fx will be very -- affects will be very low for allocation. david: we are joined now by martin feldstein. what is your response? martin: i don't think he

understands how the tax actually works. the great advantage of the tax is that it will lead to substantial increase in u.s. tax revenue but will do it in a very clever way. will not raise prices to american consumers or hurt american businesses. willet effect of the tax be to raise the value of the dollar. the stronger dollar will help american imports. he doesn't believe it will have a significant impact on the dollar because the trade dynamic is only one component of what drives the fx market. martin: basically, the effect of this order tax adjustment -- border tax adjustment depends on init starts with a reduction the price of exports and

increasing the price of imports. that would have a big effect on our trade balance. the only sense in which we are going to get a change in our trade balance is if there is some big change in savings and investment and that is not a result of this border tax adjustment. adjust to have to maintain the same trade balance that we otherwise have. you do that by a stronger dollar. and the economist who has analyzed this in the past concludes that the net effect is going to be a stronger dollar and therefore no net change in the prices to american buyers and sellers. jon: he is saying the effect will not be a stronger dollar. you are saying what needs to happen is get a stronger dollar. martin: i think he is wrong. , as this lawipants

becomes clearer, will say yes, this will lead to a stronger dollar. financial investors will start bidding up the dollar. david: what are retailers missing? they think prices will be going up. this will be a tax on imports, a subsidy on exports. that is not going to last. we will have the offsetting effect of the stronger dollar. is going see is there to be a tax on imports but the net effect is going to be too upset that by the stronger dollar -- offset that by the stronger dollar. how much stronger? put 5%. -- 25%. alix: why don't we get what we had under reagan? martin: other countries around the world got burned by having the wrong kinds of external

debts before. they don't do that now. they will not be heavily indebted in dollars. those who made the mistake of being heavily indebted in dollars will be hurt by the stronger dollar. in general, we will not see those kinds of adverse effects. this would ramp up inflation and would reduce gdp growth. martin: that is because they don't get the dollar effect. they are just wrong. if you say, what is the effect of putting a tax on imports? it raises prices and pushes up inflation. at the same time, what is the effect of a stronger dollar? it lowers prices of imports and stops the inflation affect. it is a complicated impact. proposalnow any tax that has been as misunderstood as the border tax adjustment. martinmany thanks to

feldstein. a two-day slump for the u.s. dollar, given oil prices a boost. there's a 22saying month low -- with are very hopeful that timely implementation of the landmark and historic agreement, we will be able to bring forward this rebalancing. by the second quarter of this year, you will be able to see stocks go down, moving further towards the five-year average. this is our target. alix: with us now is francisco blanch. great to see you. do you ascribe to the timeline? francisco: i think opec is

making a strong effort to rebalance the market. aty have a one-shot rebalancing the market. they will really try to bring down interest. they want to have inventories down by 300 million barrels. they have a window that will last about 6-12 months. the objectives should be met within a 10 month time frame. the real risk goes back to the point that martin feldstein was making. it may affect some markets, but that is their problem. that is a big problem for a lot of emerging markets out there. of demand growth in oil is coming from emerging markets, which are the same markets that

could be negatively affected by a border tax. much does it have to slow to materially impact the opec cuts we are seeing? for asco: we're looking deficit of 600,000 barrels per day this year. number is 1.2wth million barrels per day. if demand growth drops in half, we will see little effect of opec cuts. and no inventory declines. have we had these growth rates before? absolutely. not in recent years. but we had been back in the 1990's. back in the 1980's. with a fragile emerging-market outlook, that's where i think the view that we have which is oil will rally to $70 because of this reflation pressure and outlook for

and the opecth cuts, that is where the outlook could change. it seems that the incoming administration may not be necessarily pondering of the effects that the words are having on this emerging-market. look at the mexican peso and the turkish lira. this gets me really anxious. thats why i wrote my piece i saw it in the 1990's very closely. i don't think emerging markets pressure of athe 25% appreciation in the u.s. dollar. alix: what about the internal issue? what happens to wti prices in u.s. if we do get that vortex adjustment? -- border tax adjustment? up --sco: prices will go

alix: a 25% increase in the mystic oil prices? -- domestic oil prices? francisco: i think prices globally will go down. the bti -- wti me not go down as much. this may not go down as much. wti may not go down as much. onehe pressure from day becomes a focus on trade and emerging markets that we've already had a big run-up in the dollar. higher interest rates in u.s. led to the run-up. if we have on top of that all these trade barriers, you will have dislocations that persist for a number of quarters. in the long run, everything is fine. in the short run, it will be

painful. alix: what would be the downside target? francisco: we don't really have a downside target. we are talking about emerging-markets potentially going into recession here. every time i wake up and look at the emerging-market currencies , itping another 5% or 10% makes it hard for me to sleep. issue. the alix: great to get your perspective. , head of blanch commodities research at bank of america merrill lynch. --the next hour this is bloomberg. ♪

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jonathan: from new york city, a

good morning to "bloomberg daybreak." i am jonathan ferro. the markets. the unwind of some of the crowded conviction traits. call it trump squeeze. health care getting a little bit battered on the ftse. switch out the boards very quickly. yields are lower by 4 basis points. dollar, a weaker dollar against the euro and the pound. alix: what you need to know. trump trade unwinding. a dollars slide in treasury after donald trump's news conference and a wake-up call. more questions about fiscal stimulus and the scope of policy. big pharma bus. losing $25 billion in 20 minutes after donald trump said they were getting away with murder when it comes to drug pricing. south china sea showdown. rex tillerson saying china must

be denied access to artificial islands. a move that would raise tension between the world's biggest economies. that is what you need to know. david: a to the trump news conference. the president-elect and made it clear he is talking about jobs. here's what he had to say. president-elect trump: i said i will be the greatest jobs producer that god ever created and i mean that. i am going to work very hard on that. dave: we are joined by kevin cirelli. to got a chance to talk kellyanne conway. she ran forth what her boss had to say. the marketou look at reaction following yesterday's press conference with president-elect trump, there was a bit of a richard reid, uncertainty because of a let -- there was a bit of uncertainty. conway: his plan includes a number of things. he will first of all, rolling back some of the regulations.

we hear from business owners and aspiring business owners daily it is a regulatory framework suffocating them. he has a very ambitious, durable tax relief program. he will create a 25 million jobs over 10 years and reduce taxes across the board. clearly,roline -- marcus careful about tension weather in the pharmaceuticals industry where we have seen the impact after yesterday's press and infrastructure and these manufacturing companies. a lot of focus on boeing and lockheed martin and uncertainty the also tea leaves to be read from the press conference yesterday. david: such robbie fact, the mark -- the trump effect, the markets have gotten ahead of themselves. they have to get real specifics besides what is on the website. do you have a sense from reporting that they have a real

feeling for how eager the markets are two hear -- to hear and they will be disappointed? kevin: on capitol hill, you see more lawmakers getting into the specifics specifically the agenda for the first 100 days for it treasury secretary just had dinner earlier this week with house financial services committee chairman. last night, vice president elect mike pence also taking the meetings on the hill previously, a huddling of the economic minds, paul ryan huddling together a tax reform. the second point i would raise regarding specifics is you take a step back and talk about the potential for a stimulus economic plan on infrastructure spending. there is some dissent within economic circles, including on the federal reserve board about whether or not that is what this

economy needs right now. i would anticipate those conversations are only going to get louder, if you will, and the divisions having louder as we inch closer as we trend closer to the first 100 days free david: you have had quite our run. congratulations. keep it up. kevin: busy times and washington. david: thank you. kevin cirilli. joins us tannenbaum from ceo of 5th street. in 107 countries, all of them domestic. len, we have the dollar at a one-year low. in the truck rally or reversal -- trump rally or reversal? savings will not be stable. he says the dollar may be a certain way if savings are

stable, that is not possible. you have had zero interest rates a you could get money in your savings account. you could on money. ameritrade can earn because they can charge a fee. financials are doing better. savings and investment get stronger and people put money in the bank, things change. economy slows. we traded little bit better are investing and saving rather than spending so much. you have an offset to a lot of the things he talked about. interest rates will go up. rents are rising. it is reported about consistently. i think 2.9%. they are a major component of inflation. what else is happening? you have costs raising above the 2% target. about there rising, 2% target, as it happens, what

happens? interest rates go up. savings happen. and things change, especially for our sector, financials. alix: how do they change? len: we lend money primarily in floating bonds. people think the stock market is the biggest and that is not true. the bond market is much bigger. [crosstalk] len: not to you guys. there's the focus of the stock market. the dow is up or something. jonathan: keep going. [laughter] len: i went the bloomberg swat team with this. anyway, the bond market come the floating bonds, they are 1%. as it crosses 1%, libor, floating bonds go up in value. bbc's and other investment vehicles do really well. that is our sector.

we are pretty excited about it. else that is fixed rate goes down. that may really trigger a dramatic decline. the launch you have already made and potentials to make new ones. has been talking about it. off of last week, very big. what does it tell you? trades well. they cut to the price and it trades well. you can trade out of it. everything is treadwell. it is very frothy. your former guest is right about that. the market is frothy on the bond market and stop market. a lot of liquidity and that will be joined by a couple of innings. april and inching, the qe, that is what they said. the amount of bond buying. our interest rates have a 6-9 month rate to slow.

the three factors in the first year presidential usually will result in the slower economy, maybe a stock market decline, bond market decline. jonathan: a little smaller. len: we are leveraged. we're happy all of our stuff is doing -- marked up because of that. you are right. for new investments, it is challenging to find good returns. david: back to alix's question. the frothiness because people may be concerned that tomorrow that interest rates will be higher than today. they are going to be higher if in fact the market anticipated comes to pass. to go back to the question, are we seeing a turnaround or is it up pause before it -- in the trump trade. expansion, a brighter horizon. reinstallation around the world. len: trump's policy is good for the economy. the domestic and small

businesses. what i will say everything in washington takes longer than people expect. a lot of people are drummed up for this great stuff to happen and want to hear it it is not happening as fast as everybody things. that's not how the machinery of washington work. alix: is is stagflation? is that what you are dissipating? the next year, that is right. the infrastructure which i think is a positive, you have heard economist that we've waited, it is a bipartisan bill, is important. go drive in new york city. it is better for the efficiency. that stuff will drive the economy in later years, maybe. next year, a bit of stagflation. david: thank you per great to have you with us. len tannenbaum. us for a ing with beg your pardon. an update on what is making headlines. taylor riggs is here with first word news. the big hurdle in the

campaign to repeal obama care. in a partyline vote, they tapped into a budget resolution album allow them to repel most -- much of the act. republicans have not agreed on a replacement. soldiers are now on russia's doorstep. about 3500 u.s. soldiers and vehicles are been deployed in poland. they wanted a u.s. military presence. the chrome and called it a threat but did not say how they would response. that number two leader in hong kong has resigned. tomorrow.will leave there's speculation she may run for the top leadership post. hong kong is rocked by turmoil over perceptions of china's interest does chinese interference. the chief executive has decided not to run for second term. -- chinese interference. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor riggs, this is bloomberg.

alix: thank you print u.s. equities falter off the lows but negative. we have movers. on three of grace. analysts are cited expectations for fda approval of a first-line lung cancer drug after merck hit during donald trump's press conference. also apple. a different story. rbs cutting estimates because of unfavorable issues for the december quarter. it is partially offset by local pricing increases. a short term does see the risk to the market. twitter getting a downgrade. coming up is a there are five reasons to sell. unprecedented leadership changes and negative ad revenue and fourth quarter valuation issues. the nfl agreement they set will not be that great. more reasons to not want to buy twitter.

david: thank you. biotech bust. the former loses $25 billion in 20 minutes after donald trump said he would take action. until he said that, they had been enjoined their best start to the year. we will talk about that next. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg daybreak." the ftse 100, 10 straight record days consecutively, day after

day after day and then with snap in today. a little bit lower. unchanged. as unchanged on the session. health down about 1%. 10% of the ftse 100. that story is going on the ftse. futures are down. the s&p 500. on david: yesterday, donald trump took on pharma. he was not shy about way things about the industry. when we spoke to kellyanne conway, she made it clear it is important part of his approach area approach. >> they are getting away with murder. has a lot of lobbyists and the lobbyists have a lot of power. very little bidding on drugs. with the largest buyer of drugs in the world and yet we do not bid properly. we will start bidding and we will say billions of dollars. david: for those of you paying attention, that will not kellyanne conway. that was david chu -- that was

on trial. kellyanne conway did come on and said he has success with the automakers and she said we will see what will happen with form a -- pharma. max, welcome. max: thank you for having me. >> why shouldn't they be surprised? >> the kind of policy that trump advocates. one can assume it is medicare. also mentioned this on the campaign trail and back in he mentionedn and more vaguely he wanted to bring down drug prices. the thing that is worrying is he seems to be escalating rhetoric and pointed at specific policies. he is not giving up on it. he is pursuing it. we saw what happened with pharma stocks. the markets took it seriously. it is not as easy as going in and signing a piece of paper.

you have a congress of that is resistant. a pharma lobby that is spending more money to anybody in washington. max: it is difficult because of public opposition. that export of the negative reaction that the industry came in assuming he would be friendly to pharma and his cabinet would make policy. from aly is not easy political perspective, policy perspective. in order to bring down drug prices, you have to have a goalie -- negotiating leverage. being willing to say these drugs are too expensive and we will not pay for them. david: when congress decided to pay for these drugs under the george w. bush administration, they put in the law we will not negotiate for a lower price for wide did they do it -- price. why did they do it? max: it is lobbyists. the sector is terrified of.

when you have it driving down prices, it affects the private sector. this is what happens in europe where prices are much lower. alix: marketing. three of grace because of the lung cancer drug in the fda approval. does it hurt companies a possibility to innovate? company line.drug one i tended to be skeptical of. if you look at pharma and biotech compared to other industries, they're absolutely extraordinarily, gilead, absolutely nuts. [laughter] if you rack is the price down unless it is something extreme, companies are not going to spending on r&d. jonathan: more test what about where r&d happens?

more the research happening in the united states? and they want to drug prices lower how do you model that? max: they are going to keep in mind the united states already pays for the r&d, the largest market in the world for pharmaceutical. the price difference is a massive. there's leverage negotiating already. isid: a lot of the r&d coming from taxpayers' dollars. does the president let's have a point about policy? would win acting to this legislation paying for prescription drugs, it was wealth transfer. max: the president-elect has a point here and that is why you see democrats like bernie sanders agreeing with him. some of the research is publicly funded and such a huge price of gap. j-roll pricing units are broken. not just the public sector can

not negotiate but the private sector, there is no regulation whatsoever. you have a system where because of the way it is set up with rebates going to manufactures, there signifies to raise price -- incentivized to raise prices. is pretty badly broken the alix: good stuff. sen nie china's red flag. the potential implications. this is bloomberg. ♪

jonathan: this is bloomberg. i am jonathan ferro. a look at the markets. the find by many as the trump trade squeeze. quarter ofwn about a a percent. the ftse, its head above water. very quickly in the last 10 minutes.

after being weighted down by health stock in that index. switch off the boards. treasuries, record shorts into this year. three basisower points. though shorts are getting squeezed. 234 is how we trade. the dollar, all about dollar strength. dollar strength in the in, -- and then bang, weakness. alix: up on a crude. go figure. the other big topic of the administration is china. between secretary of state nominee rex tillerson hearing and the news conference yesterday, china, front and center. putin likes donald trump, i consider that an asset not a liability. we have a horrible relationship with russia. russia can help us fight isis which is number one tricky. i mean, this administration created isis by leaving at the wrong time. others have noted our

value systems are starkly different. there is scope to define a different relationship that can bring down the temperature around the conflicts we have today. >> russia and other countries and other countries, including china, which is take a told advantage of us economically, total advantage was in the south china sea by building their massive fortress. total. russia, china, japan, mexico -- all countries will respect us far more, far more than they do under past administrations. >> we are going to send china clear signal that your access to the islands are also not going to be allowed. alix: earlier we spoke with counselor to the donald trump, kellyanne conway, who said the president elect is sticking to his word. kellyanne conway: people know he

will keep its promises and he means what he says and says what he means. with plans to it repeal and replace all obamacare and have mexico pay for it. to your point, be tougher on people around the globe that have not really have been called to account by this administration. that would include china. alix: at distinction we have to keep making between trade with china and in a grand political and geopolitical risk. jonathan: the conversation dominated by the economics and trade relationship. what rex tillerson said about the nine them axis to disputed isl -- about what he said about denying them axis to disputed isles. david: much easier said than done. what you also know, it is like a tie one issue which the president-elect has gotten cross with. this is not about trade within. this is how they see their

country. like rex ceo's tillerson in donald trump, it is business of but not in this sense. whilerencies getting hit recording their biggest rallies in 10 years. snapping the five-day skied per emerging opportunities. skid.e-day emerging opportunities. this is bloomberg. ♪

david: this is bloomberg. breaking news. learned the at&t executives are made with the president-elect donald trump to talk about the time warner deal. yesterday, the cento

company said they had productive talks. they are talking about the merger deals. now it is at&t/time warner which is a real break for the president. notwhite house is usually into revealing merger deals. jonathan: we will come back to that. initial jobless claims. atic at 2 -- coming in 200-7000. the previous number lower than that at 237,000. a revision. up to two injure 47,000 but below the expectations. not the biggest move. -- up to 247,000 but below the expectations. it is a tick higher. we will whip the rethinks ahead of the open. features a little softer down. a bit of the squeeze some of the

crowded conviction trades. one has been sure treasuries. treasuries are up a bit. yields are lower. down by three basis points at 234. sure treasuries go along with the dollar. a weaker dollar. the cable rate is at 122.84. emerging markets. turkey central-bank is trying to prop up tumbling currency forcing banks to borrow at a higher rate. the liberal, first-day -- lira, first day of gains after worst streak. increasing pressure potentially on the central-bank. joining us now from is double is isabel -- from istanbul is is double -- is isabel. step in and hike interest rates. you are reporting, are they stepping in and tying liquidity? report: they stepped in this morning in the most decisive weight they have in months.

optionnceled daily repo and instead offering funding to banks at a liquidity rate and that will pitch -- push-up average funding by zero point 2%. it does not sound like a lot but lossesto stem the lira's and again to 2%. jonathan: the former governor has wilma under pressure with what to do with rates. kenneth bae hike interest rates -- can they hike interest rates? let's listen to the headline from the president. central bank has ability to write this game. is that the green light for the governor to do more? it -- thisel: well, is the fundamental question of what is important is not how we in turkey have been interpreting this. we found it quite ambiguous.

how the markets have interpreted and most have taken as a positive signal to open the way for the central-bank to do something when it meets on the 24th of january for the official meeting later this month. in the same speech, the president called upon them to iral the dollar and buy l which is one of his favorite methods which has not worked up to this point. it suggests it might be a possibility of further central-bank action. jonathan: we have gone from three, almost to call tro -- to 4, when does it by two more generally? when does it make it here on the economy? isobel finkel: the economy is already suffering with the liver ofthem bout of --lira bout

weakness. the comic attractive for the first time in more than seven years. the economy isng in paris slow growth, inflation. it does not want to hike rates. the market seems to be expecting that and hoping for that in order to stem the lira. jonathan: isobel finkel, great have you with us. a stronger lira story. we have not been able to say that. alix: or that turkish stocks climbed the most in the world in 11 weeks. a reverberation. more on turkey, we will bring in team debt senior strategist. he joins us now for the morning meeting where we hear what key banks are looking for. we are talking about turkey. a huge current account deficit in turkey and really needing their foreign investment. what would make you want to invest in turkey? >> we need to get clearer signals on the part of the central-bank that they really

mean they are targeting inflation. over the last year, a miss on top of this and monetary policy has really been only slow growth and not looking into the inflation containment. the other important story on the political side and there have the attack last year, a significant shift in the direction of policy, on politics and we need to see whether it samples. we still have an environment where the drivers we look at in turkey are continuing to the negative. we have potential for higher oil prices for turkey. we continue to have an economy that is suffering the effects on terrorist attacks, plus lower tourism. we have a policy that is unclear. we need to get a couple of been

sorted out before we feel more a bid on turkey. valuation wise, things are starting to get cheaper. we might look at tactical positions per is structurally, there are things that need to fall into place. is in stark contrast to brazil that have the -- cap hold the inflation -- tackled the inflation problem. how does it create opportunities for you? pablo goldberg: real rates in brazil were significant higher. of having result forgotten about inflation target for while. bet is why there has to significant overshooting of rates in brazil and that brought two years of recession in the brazilian economy. we are having some sort of monetary policy convergence in emerging markets. some countries that have managed to contain inflation and inflation not only in brazil but in russia, chile and columbia

are going to be someplace where inflation either because they have failed to really contain inflation in the past or because inflation is rolling back from very low levels like asia. jonathan: we have been talk about some of the domestic pressures. there seems to be what will happen with the dollar. the little bit earlier point is made a 20% plus risk of the dollar if we got what they are discussing which is essentially a border test. what would it mean for e.m.? pablo goldberg: obviously, something that leads to overall across the world the direction space.dollar is emerging we are basically looking at currencies that the depreciate against the dollar. looking at a relative valuations not trying to fight more for structural and that code come --

that could come and there's a lot of debate of whether there will be a full adjustment or partial adjustment. selectiono look at here. here is where we have been doing most of our work looking at which places that could fare better in the case of these kind of policy shifts we are getting to the u.s. it is about the dollar, higher rates in the u.s. very important selection process to be done and that is where the offering will be coming. jonathan: talk about the selection process and maturing for some of the countries. again and again, this year, 10% small,ging markets, medium size enterprises, dollar dominated. which order this year, how difficult will it be to roll that over? pablo goldberg: we are now worried about the ability to fund but conscious about this

funding will happen it higher rates. it will still be significant scars of the dust depreciation. whatdifferent of 2013 emerging market fundamentals trend. in improving trend. we are now worried about funding rollovers, but we are obviously mindful of that could comment higher cost for you the selection process can fund better than others. alix: what is your biggest conviction for this year? pablo goldberg: basically, our view of how to structure portfolio is at the same. we like a high-yield and commodities space. we do not like the low yields countries that will be affected by trade restrictions. we continue to have long currencies right now. david bank pablo goldberg, great

have your thoughts. blackrock. breaking news. speaking over in pennsylvania, couple of headlines. he said three hikes are appropriate for the coming year in line with the median estimate. considerable strength on the job situation, he said. he calls the labor market at full staff. david: that is good news. we look at all of the firm has to offer with paul hamill, head of fixed income. that is next. news crossing. isn't this of at&t will meet with the president -- executives other at&t will meet with the president-elect about the deal with time warner. we will provide the details as it they come to us. this is bloomberg. ♪

taylor: this is daybreak. i am taylor riggs. coming up -- mike mayo, bank analyst. he said america on his outlook on financials. david: this is bloomberg. one of the outspoken defenders of the dodd frank act. now, it's market making arm is looking to expand is a business to compete with the big banks. let's go to erik schatzker who is here with paul hamill.

erik? erik: good morning. people go outside of the united states and do not know there is more to the name than a hedge fund preceded dell is a market make -- citadel's market maker. you provide liquidity in what and where exactly? paul hamill: we are a global market maker and interest rates and dollars and in euros and we are present outside of the u.s. cbs indiceses, in and fx. erik: you got a huge business in the shadow of the banks, how? with amill: we started simple premise of was there an opportunity were investors look for different experience, looking for new sources of liquidity in a new and innovative ways of getting that liquidity. we tested the that with interest rates and improved very quickly

there's a huge demand for that. erik: thanks 10 to be defensive of their market share. they like to protect what they have. after banks tend to be defective nd todefensive -- banks te be defensive other market share. was it changing rules or growth of electronic trading? what? paul hamill: a combination. there were structural changes in the market to make it safer and stronger, central brink, more electronic trading. you saw banks given away. deked pivot away. that was customer driven business and we know we had to have a great product. erik: let's give people a sense of the scope and scale of the this is your built because far. what is the best way to measure it? paul hamill: ranking. platforms like the bloomberg trading as one the biggest

trading platforms. dareive businesses on a print credit business in the top three on is there. our treasury is a top 10. that is measured by the true risk transfer on the platform with customers. erik: let's put a dollar value on it because it helps people. traded on average daily is what? we trade a trillion dollars come a very large number. over the course of the year. -- $8 trillion, a very large number. erik: do close books at the end of the day? : our customers ask us of the question. that's what it means have a good product. transfer risk, not possible in swaps to be in a now auto the time. we have those wrist. we do it effectively. -- we house those risks. havew bit of a book do you

-- big of a book do you have? : it's competes with the same size a a global bank would have. erik: how would you define your ambition? the ultimate objective? what does it to delve want to the? -- citadel want to be? and the same breath of jpmorgan or bank of america? think were are ready mentioned and truthfully, in some areas, we are the benchmark to compete with. that is not true in everything. those are very strong platforms. we are the benchmark. yeah, we want to be the number one global market maker. erik: how do you get there? you are ready and markets. into which markets do you plan to expand? paul hamill: the biggest expansion this year will be off the run treasuries.

very meaningful step for us, that is an area of heavily dominated by the banks. much more focused on relationship driven, true transfer and balance sheets. much of bigger commitment. -basedas is to he burnt clients per -- it gives access to deeper based clients. erik: what else is coming? let's get into details. credit swaps, for example? more of a spoke like swaps? european, anything more in europe or globally? other than currency? paul hamill: the first thing is we believe we have the best people in the best technology and the general belief we can go anywhere. it will be driven by the customer demand and if we can have edge. clear, i tell investors all of the time, if they do not think we can be a top-five

provider for them, there's not much point of of the getting started. erik: the biz opportunity is what, credit? paul hamill: rates, continues to be rates. europe.expand in with not got started in europe. deeper into swaps. erik: packages with swaps. what is next on currency? paul hamill: gtn is the ambition. erik: the thing people might wonder. if regulators take a lighter touch approach with banks under the trump administration am a what happens? i was at a conference in san francisco were jamie dimon said banks should have more leeway to make markets. you have heard from him and blankfein and others. does it present a risk for your company? paul hamill: certain things present risk. we have a high degree of confidence in one key permits and that is i talked to customers.

i have not met a single one who wants to go backwards who wants less transparency, less competition. want to see more systemic risk back into the market. no one i know once that were we advocate for those things. we think it makes the market better and we will advocate. erik: great have you with us. thank you. paul hamill at citadel securities. david: terrific to have him. time for other stories making headlines. here is taylor riggs. that mcdonald's is inviting bids for stake of as much as 30% in the japanese business. wall street journal said bids are due next week and a number of firms may make offers. sold to carlisle. wall street firms are expected to boost their biggest fourth-quarter numbers since the

recession. according to analyst estimates, fixed income and stop trading biggestin the five investment banks and 20% from a year ago. americans are drinking less milk but demand is rescuing gary prices. prices. products like the grilled cheese stuffed crust health slumping milk prices. less milkdrink 1/3 and then they did in 1980. up.: the s&p animal spirits are denied it. we will check in on sentiment. this is bloomberg. ♪

jonathan: this is bloomberg daybreak. coming up today -- a ton of fed

speaker we her for philadelphia fed and we will hear from atlanta fed. and dallas fed coming up as well. all leading up to fed chair janet yellen at seven 5 p.m. we will bring it to you live. -- at 7:00 p.m. will select people were this interested? alix: i do not know. i harken back to the day. 5, 10 years ago? the s&p. three signals you have to be attention to two c if the rally can really continue. this has to do with short position. shorts have dropped on the s&p to the lowest level since april 2015. an enormous decline. following for the first time in 2016 in about seven years. -- managers are holding the fused bearish bets on stocks

on record. they have more money to add four more long. is it a sign there is too much animal spirit in the market or we have recalibrated market as well? another issue you want to look at is the sentiment indicator. i will take a swing around here. but the s&p one up by 18%. this is the sentiment, investor intelligence survey showing the proportion of optimistic market 60%.cipants exceeds we had similar readings over the past two years right around here in 2014 and earlier in 2014 as well during which the s&p suffered 2 10% selloffs. you also wind up seeing correlation break apart. that makes stop picking on fundamentals more important as a particular catalyst. sentiment reflected that. the next extreme? thing is what happened to flows at the end of the year?

monthly flows for equity mutual and etf's, the flow's website over $20 billion and $30 billion in december. it is not enough to reverse the massive amount of which draws in 2016 -- withdrawals in 2016. we saw a $9 billion in outflow. then $77 billion. a lot more too, back. jonathan: really interesting stuff for in the next hour -- we will talk about the financials that let the way since the u.s. election. we will have a look ahead with mike mayo, if and analyst. -- a bank analyst. he joins us. this is bloomberg. ♪

jonathan: from new york city for

our viewers worldwide, a warm welcome to "bloomberg daybreak." and alongside david westin alix steel. the market has been characterized by the trump trade squeeze. we are softer on futures. negative five on the s&p 500. we lookset classes, like this. we talked about crowded conviction trade. 233 with the yield on the u.s. 10 year. a weaker dollar in this space. squeeze.e trump trade the dollar slides and treasuries gain after a news conference sent a wake-up call to the markets leaving more questions than answers. big pharma bust. millions of dollars in minutes after donald trump said companies were getting away with murder when it comes to pricing. rex tillerson saying china must

be denied access to what he claims our islands built in the south china sea. this is a move that would raise tensions between the world against economies. now, we go to alix steel. alix: we take a look at the stocks making big moves. i 1.5%.t one is -- up it got hit yesterday but it did get three of rates today. analysts are citing expectations for fda approvals for the first line cancer drug. on the downside, check out skyworks solutions off why 3%. got a downgrade. the price target lowered to 79 dollars although still higher than where sky works is trading right now. a limited upside with losing market share to broadcom. talking about downgrades, take a look at apple. getting two downgrades from cls

say and rbc. cls say is fighting lower ill plans and slowing growth and a crushing growth in china. thes looking weaker from december quarter because of the stronger dollar we have seen. yes they have fx hedges and pricing in mobile markets but the dollar headwind will be a key topic of conversation for the fourth quarter and for ceo outlooks as we kick off earnings in full tomorrow with banks. two more classes of equities are on the move. they have since given back some of the gains. -- joins us now with his cautious outlook. good to have you. the thing we have been discussing now is that what we are seeing in the markets is a momentary pause before it continues increasing? or is there something more profound going on in the wake of

the conference yesterday? how does it look from the small and mid-cap point of view? >> you hit it on the head. a cautious outlook. you got paid an awful lot last year for the small and mid-cap stocks. and right now, we are trading at 20.5 times the earnings. pullback.k you need a and you need to see what it will look like for the earnings of 2017. earnings have an week but you did have a big explosion of performance. i really do think you have to look at what the outlook for earnings are and then, you really have to focus on the policies and what is actually get done over the next 12 months that will influence earnings. seem like it doesn't anything is really going to influence earnings for quite a while. and so the estimate is way too high at this point for small

cap. what is influencing multiples is politics. and for our viewers familiar with this -- a beautiful morning note written every day in europe and it captures the sentiment. markets,ically driven the combination of anorectic president and a market that to conclusions with manic enthusiasm is a recipe for mayhem and anarchy." to that, as an investor, you know the multiples rlp or for a reason. it is because you are expecting something to come from the president-elect -- tax cuts or fiscal stimulus. do you really want to adjust your portfolio after every news conference? steven: when they talk about mayhem, you think it will be reflected in market volatility. and yet the vix index remains low.

intraday volatility has picked up a little bit but it is still below historical averages. and so the way we think about it lastat we had the big run year and i would be citing more on the fact that i would be up market cap and larger small caps would probably hold off a little bit at her. i will want to own quality. our viewpoint is that the dollar will appreciate. i want to state domestically focused in the sectors that are domestically focused, and hope that we can ride out the storm. i think it will be reflected in volatility at some point and i mean, you haven't seen anything substantial that is going to change the earnings picture for 2017. and again, earnings growth has been week as of late. alix: i keep hearing that volatility is the story for 2017. let's talk about the performance we can expect from the small cap. 2000 on ae russell

normalized basis. you can see the small cap outperforming smp by 5%. was outperforming by 10% before the election. what is your prediction for where we are in the next 12 months? steven: you are going to get single digit for basically equities in general. probably not a lot of difference between large and small. i think it is the trajectory. i think that small cap was very overheated in the fourth quarter. that $12 by the fact time.n came in six weeks capitalizing on the euphoria around donald trump's victory. that is quickly as the money comes into the etf, it can come out. so i think you have a rough first half of the year, recovering in the second half. and it is more like single-digit

performance. not much difference between large and small but it is the trajectory of how you get there that will be the bigger issue. let's talk more about the difference between large and small and that has to do with the policies you mentioned earlier. which are the small and ms. cap equities vulnerable to the upside or the downside? favor the small caps because they pay 35% tax rates. but i think the euphoria is in that you have border the other thing --that donald trump's policy

typically, the viewpoint is that a smaller dollars better for that. and that is not true. when the dollar is strengthening, small caps tend to underperform. and it sounds like i'm talking out of both sides of my mouth but with a stronger dollar i want to be more domestically focused. it will be more at the sector level. david: what about deregulation? are they disproportionately affected by deregulation? steven: that comes down to banks and financials. we don't have nearly as many capital market exposure but it definitely helps the banks that we have actually seen a pretty banksun for the small-cap since the fourth quarter here. i do like banks. but i'm more neutral on the financials. morenk we had to see behind the policies here. alix: as everybody does.

steven desanctis, joining us from jeffries. we have breaking news concerning amazon. the company saying it will create 100,000 new full-time full benefit jobs. that will create added jobs in the u.s. over the next 18 months. it plans a u.s. based workforce of over 280,000 workers by mid-2018. what is interesting to me is that amazon was in the drain the they tookx because the hammer to it and you feel like this is getting out in front of the unavoidable scenario. didn't they say that they wanted to put donald trump on a rocket and sent him up to space? jonathan: do you want to go there? [laughter] amazonhave analysts from from rbc on and pointed out that it is a huge employer here in

the united states and it is set to be even bigger. globally, now, not quite a walmart but certainly, it is important in this country. alix: these are blue-collar jobs, warehouse jobs. full benefit, full-time. go tore news, let's taylor riggs. taylor: donald trump's nominee to head the cia will try to convince the senate he can be objective. a confirmation hearing will be held today for mike pompeo. he is likely to be questioned about the president-elect's repeated criticism of u.s. intelligence agencies. the kremlin says it hopes that trump and putin can get along. but it doesn't expect them to agree on everything. a spokesperson said that today the u.s. military deployment in poland is a threat and it doesn't agree with rex tillerson's comments about russia taking land that wasn't theirs.

and the soccer team has been -- 60,000 seats. one third more than the other one. they hope to build the stadium by 2021. news, 24 hours a day, powered by more than 26 hundred journalists in more than 120 countries. this is bloomberg. jonathan: anyone who has been to be stamford bridge knows that they need a new stadium. coming up, it is called a library for a reason. the financials have led the way since the election. we will trade ahead of the numbers from one of the top analysts on the street. coming up next, mike mayo. this is bloomberg. ♪

alix: today we put oil as the future and focus. surging over 2% and this tells you why. a study came out saying saudi arabia cut production to meet opec production targets. this could also cut production below 10 million barrels a day. we haven't seen that since 2003. there has been a lot of speculation that if we see compliance out of opec, how much will we see? the bulls think that saudi arabia will be front and center to do whatever it takes to help cut and balance inventories. you want tohat

watch as we get production data. so let's turn to the trade. joining us now is tim evans. we continue to get headlines from kuwait. >> in terms of looking to cut production, what will matter most is the evidence. i think here in the second half of january, we should begin to see evidence in the global supply of crude oil that will show that it isn't just talk. and the total supply that we see, it is reflecting what they're talking about now. alix: one of the issue is that oil has going above and sustaining prices over $55 a barrel. why is that? oil is not going

to be able to break through the $55 resistance level that we touched until the market sees hard evidence that all the opec that are part of the deal are, in fact, complying. once the confidence is in the market, that is happening. i think then we will head closer to $60. alix: what is your trade, short-term? tim: short-term, a look at the volatility aspect. a little under $33 right now. is a verynk $42 achievable target here in the next 2-3 weeks. so finding strategies to get involved in a volatility of oil. alix: what do you see happening with oil volatility? can bestrong argument made on either side of the market. there are bullish factors during

bearish factors. if you look at the deal from yesterday, that was a pretty big bill. and it is a $900,000 cut. at the highest level since 2010. i think the implication and price action that we saw yesterday following the release of that data, the market is expecting strong demand moving forward. so if we don't see that moving -- alix: tim evans, great to see you, think you for joining us. banks will take center stage tomorrow. bank of america, wells fargo -- all out with results. this is bloomberg. ♪

jonathan: from new york city, this is bloomberg. county a down to the cache open. a big day for banks tomorrow. and could america, jpmorgan wells fargo will report. with us now is mike mayo. he is a banking analyst who has a list outlook on the banks. he comes on with one of these -- i have to get you a picture of what this looks like. this is the mike mayo outlook for 2017. a little bit of an ac/dc thing. i'm not sure what to say about it. what do you have to say about it? [laughter] mike: before the crisis, banks were on a highway to hell. they are still depressed and now, we think banks will be back in black. when we say that, we mean that banks, for the first time in a decade, should transition from value destruction to value creation. banks will learn the cost of capital. and if they earn the cost of

capital, which we think they will, bank stocks have another 50% to increase over the next three years. back in black is a good place to be. let's start with maturity transformation and the shape of the yield curve. thatof the financials -- story, do expect that to materialize this year. that banks will make money? mike: i was a we'll may have 100 basis point increases by the fed through 2018. even with the subdued outlook, banks get back in black and earn the cost of capital in 2018. there is a trump bump. and that could move the expectations of faster economic .rowth

they could restore cost of capital and then banks will be restored higher. alix: we have seen some downgrades. downgrading the big banks. but there is so much optimism and now priced into the earnings that they will not be able to deliver. what do you see? mike: i think that is a wrong position to take. alix: even for the short term? a 1-3 yearve outlook. it is a big day tomorrow. $2 trillion of assets each. know what i say to that? who cares. you are on the doorstep of going from value destruction to the you creation for only the second time in 25 years and when that the case, the bank industry or any industry, that is the egg is change in valuations that you could see. and if it gets to that level, the valuation should be one third higher than where it is. and the mistake that i assume

others are making when they downgrade stocks is a look at the valuations for the last decade when banks have destroyed value. you need to look at when they have created value, a lot higher than they are today. jonathan: i wonder, you talk about the dow. and the change of the outlook from the chief executives. the things you are expecting, why are they putting that in the outlook of earnings? will say that we think the environment is better for the banks. they reinforce the bounce sheets to the best they have been in a generation. confuse theit don't bull market. the first thing is that you need to be conservative with the outlook. a you get a trump it would be 20% increase in earnings. that they can't rely on that. they need to be vigilant. they need to control risk. but that will be the main question for the bank

management. you are seeing an increase in animal spirit. if you type in animal spirit in google you get 10 million hits. the greatest number of searches last month in six years. the animal spirits translate into additional growth and market activity, it will be nice to see that. david: so where does that come from? you are talking about animal spirits, deregulation is another possibility. so what is really creating the value? have and can still become more efficient. branches, 87,000 downstairs from here you have a wells fargo branch. and then five blocks away you have another wells fargo branch. what are you doing with 6000 branches? branches, that should declined by 10,000.

banks are using a lot of paper. the potential to automate processes is another big expense saving option. and then you have the option to optimize the balance sheet. a paper six up with months ago where they said banks are more at risk. because bank stocks are more volatile and therefore, banks are more risky but we take the opposite view. we think that is an opportunity because it should come down. the three methods to sum up why banks are less risky -- in the have increasedc. tangible equity by 700 billion dollars, they increased cash by $1 trillion and increased core funding by $3 trillion. inc.'s have the most resilient balance sheet in a generation. other part of this is the cost of capital should go down because they are more resilient. alix: your favorite bank? yearsthe first time in 20 that we have recommended all of the largest banks.

citigroup, jpmorgan, morgan stanley, goldman sachs. every single one. we were on your show and the stocks were up 15%. we think there is another 50% to go in bank stocks over the next three years. david: wow. jonathan: mike mayo, very excited. alix: it makes you want to read it, i'm not going to lie. jonathan: great to have you. coming up next from new york city, this is "bloomberg daybreak." likethe markets looking this. negative five on the s&p 500. it is a squeeze in the treasury market. yields are lower with a weaker dollar. this is bloomberg. ♪ with the xfinity tv app,

anything with a screen is a tv. stream 130 live channels, plus 40,000 on demand tv shows and movies, all on the go. you can even download from your x1 dvr and watch it offline.

only xfinity gives you more to stream to any screen. download the xfinity tv app today. i've spent my life planting a size-six, non-slip shoe into that door. on this side, i want my customers to relax and enjoy themselves. but these days it's phones before forks. they want wifi out here. but behind that door, i need a private connection for my business. wifi pro from comcast business. public wifi for your customers. private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. jonathan: from new york city, this is "bloomberg daybreak." moments away from the open in new york. futures and stocks are down. negative six on the s&p 500.

up the board quickly, you can see the situation like this across the assets. the opening bell is ringing in new york city at the dollar is on offer down .7%. broad-based dollar weakness, weaker against every single g 10 currency. some of the crowded trade coming into 2017 was with the treasury short today, yields are lower by four basis points. 2.33 on the u.s. 10 year yield. and crude back up to the $53 handle. alix: a huge move on the opec cuts but not helping markets at all. and a similarn story when it comes to the s&p 500 and the nasdaq . the nasdaq did close at another record high yesterday, despite the fact that the biotech stocks were a hit. that was the fifth day of a record for the nasdaq so taking a breather today. in terms of individual movers,

delta opens this morning, up by .2%. it as -- it was up earlier this morning. they also forecast the first quarter growth for passenger revenue for available seat miles to 2%. that would and two years of decline in the metric for the delta which is now going into the positive territory. net income did fall 35%. .teelmakers taking a hit here is why. they got a downgrade at credit suisse. there citing -- in the u.s.. they don't think that the structure bill that will be immaterial boost for supplies of steel here in the u.s.. steel stocks have been on a tear because of a down from chinese dumping of imports. take a break today.

heading into the earnings season in full swing, we get three banks reporting tomorrow. googleyo says if you animal spirits, everyone is looking at it. you can see that in terms of the short position in the s&p 500. falling for the first time in 2016 in seven years. we have seen this extreme deceleration since 2005. you have a long short for the hedge fund managers. also at the lowest bearish position on record. so on one hand there is more money that could go into the long position but have we squeezed out all of the short? what will propel jonathan: the s&p higher? jonathan:time to get bearish? joemore, let's bring in weisenthal to have a look at what is happening here at bloomberg. so many conflicting signals in this moment. if you look at the yield curve, the elephant in the room is the

flatter yield curve. at the same time, we are long on financials. joe: there is a crisp chart showing the divergence here on the bloomberg. it is super simple with a 10 year yield in the white line versus the etf. obviously, they both shot up after the election and they happen moving together. the bull case for financials has been twofold. one, higher yields with steeper curve is good for financial earnings. and expected record tory rollbacks. we have seen yields come in significantly. back to november levels on the 10 year yield. but bank stocks have held up right well. it is still in tact but there is a divergence here that people should be paying attention to. david: there may be a lag in that with the rollback. is: and the crucial thing that trump hasn't talked about it at all. everyone imagines this is high on the agenda but all he talks about is slamming companies that manufacture in mexico.

so while there may be regulatory rollback, there is no indication that this is a high-priority. jonathan: nothing like a story to make you feel comfortable about an uncertain future. >> that is a great point. he hasn't gotten into the specifics of the legislation, what it would do in terms of financials, we base that around the people who he is surrounded himself with which is taken a populist hone, talking about wall street guys. jonathan: let's talk about a sector he has talked about. talking about pharma issues. listen. donald trump: they're getting away with murder. they have a lot of lobbies and lobbyists and a lot of power. and there is very little reading on drugs. we don't bid properly. i keep hearing it. this is a surprise but it shouldn't be a surprise. too much bidding is

going to be one of the words he gets hung up on. look at the chart. i'm looking at the flows in and out of the defense etf's. it is the second-biggest for both of the sectors. this guy is not your typical republican. not only has is red ticket -- not only has the rhetoric shown he isn't going to toe the line, he potentially could change people's minds on whether or not they want to be in the sectors. the drawdown there, we have seen outflows with defense being flat. so who knows what kind of volatility the skies will bring up, it is a perfect example. david: there is also a bureaucracy in washington, not to speak about congress, that has something to say in this.

>> it is very true. there is a short-term play at a long-term play. the long-term is trying to figure out what he can actually get done through congress. alix: if we take a look at just actually, they can rally after that. >> the initial reaction tends not to be indicative. but i find it hilarious all of the quotes i'm seeing from people today saying, we were disappointed about the lack of details in infrastructure. is contingent on details in a donald trump press conference? that is madness. if you have a position that was based in expectations, what is wrong with them? jonathan: some of them are looking towards trump as if he will deliver. but it is not going to happen. to is itis speaks

breaking down. on and forors based -- t of people alix: thank you, so much. that was oliver renick and joe weisenthal. pharma extending losses to a .econd day donald trump, coming out and attacking biotech stocks. what do you do in that circumstance? do you want to buy? >> yes, i think we should. the lead into the segment, you talked about the lack of specificity but i don't think there is anything that donald trump said yesterday that was different from his campaign rhetoric. i do think it highlights what biotech and pharma have been under which is under pressure.

they are highlighting expensive products and so the reality that it has been dealing with, an issue going forward, but to wholesale legislative provision based on the comments that came out yesterday is premature. alix: is is a way to separate the winners from the losers? underlying fundamentals that are stronger? michael: i think -- our view of the world is that innovation is what ultimately wins. and whether you are talking about hepatitis c or drugs or amino oncology -- the drugs that move the needle are the ones that are going to offer real value. i think the political rhetoric that has been around, not just by trump, has to do with the markets rally effect. that is not what biotech is all about. biotech is talking about fundamentally changing the

disease and getting compensated for the value that those changes ring. todaywe could see that when -- was upgraded because of the lung cancer drug that is approved by the fda. jonathan: under pressure on pricing. i wonder, comparing what we might have had, we might have had a president-elect tillery clinton talking about drug pricing, and maybe why we had the longs on health care is it isn't going to be the issue that many people thought it might have been? michael: exactly correct. a clinton administration with a potential bias towards a democratic senate would have been a lot worse for the sector. the reality was that we may have seen some kind of formal or informal price control. but groups like express scripts are doing a good job handling price increases with expensive drugs like you just mentioned. mentioned express

scripts, what is your strongest conviction trade for 2017? we like celgene. we think they will continue to raise guidance. they have other data coming out later this year which could expand the utilization of that drug and other blood disorders. , it will have key face read it in for a rare disorder in the middle of 2017. jonathan: michael king, thank you very much. we opened 10 minutes into the session, down across the board by about .5%. dow.at 95 points on the the ftse is up its head above water. coming up, is the incoming commander in chief taking on the role of chief merger approver?

at&t executives spotted at trump tower moments ago on their way to meet donald trump about the time warner deal. this is bloomberg. ♪

taylor: this is "bloomberg daybreak." janet yellen will host a town hall meeting with educators from across the country. catch full coverage tonight at 7:00 p.m. eastern. jonathan: from new york, this is bloomberg. let's look at the markets. 13 minutes into the session. we opened lower across the board.

.6% on the nasdaq. a rare down day on the nasdaq here in the united states. let's get to the movers and say good morning to abigail doolittle. abigail: dragging on the nasdaq today, iowa tech. yesterday, we have the biotech index selloff severely. this is the five-day chart. down nearly 4%, the worst plunge since the brexit. all of this after trump said he thought the drug companies were getting away with "murder alative to drug pricing" and process could be put in place. this is a bit of a surprise. we also have read general on down sharply. also go to the bloomberg, this charge may give us reason to think that the weakness will continue. this is a peek into the biotech market. hillary clinton tweeted about

drug pricing and everyone thought she would be a bear but it is now turning out to be donald trump. and this is now extended to a 40% decline. we have seen a range of uncertainty since that time. the lastoving average, time this happened it was very bearish. so it's a we may see more weakness ahead for biotech. from a macro standpoint, the question is whether or not this is a tell on what's ahead for the broader equity markets as well. david: thank you. to at&t.rn top executives, including the ceo, arriving at trump tower half an hour ago. they were going to have a meeting with the president elect to discuss the proposed deal for time warner but we don't a what they are really talking about. purchase att announcement, shares have traded well below the offer price of $107.50.

trump previously blasted the deal. an example ofas the power structural, at&t is buying time warner and cnn, a deal we will not approve in my administration, because it is too much concentration of power in the hands of too few. david: with us now is winnie o'kelly. as you know, i am a recovering lawyer so you have to be careful with me. but this is not the way merger review has ever been done the congress passes a law, the sherman act, this is what violates the law and then they enforce the law. we don't have the commander-in-chief deciding it was too much power. winnie: right, the question is, what will happen now when he becomes president? there iserceive that antitrust concerns, they will conduct a review. now this deal may not touch other antitrust concerns.

toald trump is still opposed the deal, as he has made clear. he treated a little bit ago with the irritation with cnn, we are not really sure what fits conversation is. but it does clearly go to the appearance of a problem. itid: as a lawyer, if filings the sherman act, they have to stop it. if it doesn't violate the sherman act, what authority does the president have to say no, it doesn't violate the law but it is too much concentration of power. we don't know what he would try to do. but job creation is a big deal. with mergers, jobs are created and lost, typically lost. that is one thing and administration could oppose. think this is a real problem. a lot of problems with the president putting pressure when it comes to the jobs. those are one of the kinds of considerations that could be a

table. something different than just antitrust reviews. david: to go back to the nixon of ministries and, we have seen a version of this before. the itt deal where they challenged a merger and they pulled back the lawsuit because there were contributions made to the convention. and that was a huge scandal at the time. and it is generally assumed that was not a good way to handle that. i agree. and this make sure that the justice department looks independently at the case of these reviews. an example was the big airline merger a few years ago. there was a lot of lobbying going on to block the deal or let the deal go through. we don't really know exactly what happened but clearly, the justice department tried to be independent. i think their position now is that they do their own thing and trap has his own conversations but they will work it out themselves. last point. apart from the constitution of the law, how much time is he

going to spend on this? if people think that is the way you get a deal done, go straight to the president, he has a long line. big deal.at is a this doesn't look like it is just a one-off. it looks like it is part of a process. is he concerned about job loss? we may no more in a little bit. david: that was winnie o'kelley, thank you very much. jonathan: we are 29 minutes into the session. and we see the biggest one-day loss into the session. the first one-day loss on the nasdaq so far this year, potentially. coming up at the top of the next withis "bloomberg markets" mark barton and vonnie quinn. what signals the end of the bond bull market? we hear from the global head of fixed income strategy at jpmorgan.

and then the aberdeen asset management chief executive -- $491 billion of the management after brexit. how about the deal going on? then, the head of multifaceted investments at schroeder. $472 billion. .here are numerous ricks ahead lots and lots of money managed by our guests today. you better be watching. i'll see you intend minutes. watching.i'm always coming up, the banks have been top performers. jumping nearly 20%. we will reveal why mike mayo says there is room to run. this is bloomberg. ♪

jonathan: from new york city,

this is bloomberg. we are into a session that looks like this, the potential for the biggest one-day drop since 2017 but no drama. a bit of a squeeze in the crowded position according to many of our guests this morning. equities are now lower. 11 points on the s&p 500. the dollar is pulling back towards a one-month low. a broad-based dollar with weakness captured by the euro cable rate. and the short squeeze is looking at treasuries. sinces the lowest november. we have had auctions so far this year. the demand is solid. coming up later today, we get $12 billion with a 30 year debt. take away for me from today's program, we asked kellyanne conway when we could expect the president-elect to declare china a currency manipulator. she said the pledges he made during the campaign are ones

that he is going to keep. kellyanne conway: we need to take him at his word. when he becomes president, he will make clear what his position and priorities are on specific events as they happen. david: let's take a look at the day ahead. alix: i am looking at the said speaker. saying what you mean. we have six or seven speakers through the day. and it all: it's with janet yellen addressing a town hall of educators at 7:00 p.m. eastern. we hear how we will have more hawkish rhetoric from the fed but it hasn't come up yet. six months ago, if we had the fed chair speaking at 7:00 p.m., how many of our guests would have come on the show? live, for whatou it's worth but we are not talking about how it is incredibly important.

tomorrow, a big day for banks. bank of america, jp morgan, wells fargo, all due to report earnings. we will have full coverage for you here on bloomberg. a big rally so far after donald trump won the election. more to come, apparently, if you listen to mike mayo. mike mayo: for the first time in a decade, banks to transition from value destruction to value creation. when we mean is that banks are in the cost of capital. if they are in the cost of capital, inc. stocks, which have increased 50%, have another 50% to increase over the next three years. that in black is a good place to be. jonathan: he is excited about this. he is excited on the front page of this. david: 50%. quite a big call. alix: in terms of the short-term, are we getting

something tomorrow? and he said, i don't care. this is based on the last 10 years and he is looking at that much longer. david: it is good news for banks but a lot of analysts are backing off. they are as uncertain as everybody else. they don't have more clarity than we do. david: it is a theme through the day. jonathan: i think it might be a theme through the next four years. stocks are lower across the board. it is the trump trade squeeze. that is what it is being called this morning. -11 on the s&p 500. the squeeze continues in treasuries. the dollar is on offer. this is bloomberg. ♪

>> 10:00 a.m. in new york, 3 p.m. in london. >> welcome to bloomberg markets.

♪ we take you from washington to london and cover stories out of germany, italy and china in the next hour. steps to repeal the affordable care act. after a razor thin senate vote showed contentious efforts we have the latest on what may go in this law as all eyes moved to the house. for a big cashng call. shareholders in italy's largest that is key a deal to implementing a proposed turnaround plan. vonnie: with treasury yields -- lots to talk about in the next four hours. so far in the u.s. come up roberge julie hyman it's with