worldwide, good morning. on friday, january 14, i'm jonathan ferro alongside alix steel. futures moderate, the do you up. 14-day record streak. the dollar poised for the biggest weekly drop since the election, the cable rate 121.85, alyx. alix: banking on trump, earnings on the first election are underway with jp morgan, wells fargo all reporting this morning. bank of america's profit up 43% and goes nowhere in the free market. tepid trade. the trump battle looms and the trade surplus decreases for the first time since 2011 and china is said to put more restrictions on banks to help stop yuan outflows. all clear. janet yellen saying the economy faces no short-term obstacles in a speech thursday. and a slew of officials talking about how to had sink the --

shrink the fed's balance sheet. david? david: we're goined by mr. campbell who covers banks for bloomberg and alice williams. she was a banker for morgan stanley and u.b.s. let's start with the numbers because they broke 15 minutes ago now. they're basically up across the board according to estimates and last year. mr. campbell: that's right. really what this is about is the expense story. it looks like that's our initial read, noninterest expenses are lower than analysts had expected so bank of america did better on that. credit cost provisions are ower than analysts expected. that's a good story. people may have questions on revenue growth. bank of america came up short on net interest income with interest rates rising a bit during the quarter. there's interest there. bond trade chg was going to be -- there were a lot of good

expectations for bond trading this quarter. bank of america came in short on that. david: focus on the trading because it came in low. as you point out the fourth quarter was the quarter of the election and so much was on the market and thought that would be conducive to trading. dakin: that's right. today, if you read the analyst reports, bond trading, very high, high expectations. volumes were up to the extent we can see that sort of across the board. xpectations were quite strong. bank of america didn't match up and we'll have to see what jp morgan does, the biggest investment bank in the world. if jp morgan falls short we have a story on our hands. jonathan: revenue up modestly and e.b.s. group up 18%. it's an expense story. you wonder how leaner this bank

can get given how much moynihan happen done. where is the revenue growth coming from in 2017? alison: two questions, the revenue side and cost side. i think on the revenue side what people are looking for is help from interest rates. bank of america may be the most sensitive of the larger banks so we did get the one hike in december and that will take time to filter through and you wouldn't have seen it this quarter but a lot of questions will center on the outlook, the sensitivity and the extent and help of those rate increases. on the cost, they did introduce a $53 billion cost program in the second quarter. it looks like costs came in right in line, maybe a touch better, so i think investors are going to feel better about that because there are still so many questions around the rate environment. the costs are something the company can control so to the extent you can keep those costs in line helps to give more comfort and support to the earnings outlook. alix: for more color on that in

terms of the rate hike, in the presentation said 100 basis points shift and interest rate yield could benefit the income by $3.4 billion. they said the n.i.m. will be better in the first quarter. do we have an idea how much better, when does that start to trickle through? alison: one of the key things we'll be watching and most bank investors will be watching will see how much that filters through is what happens with deposit pricing. so far in this rate cycle it has come in better than expected, meaning that banks are sort of keeping more of that to themselves. again, we're going up from a very, very low level. but in terms of what happens with deposit rates and what happens with competition, that will help determine how much help for the margin. jonathan: they've done a great job of capturing deposits and bank of america isn't the only one and have to balance the sheet. in terms of small businesses, when you spoke to moynihan, the

big boom in business translates to loan growth. did you see that? dakin: we did see some of that this quarter and i think this he had $20 billion in additional loans and that's year over year. that's a good sign. we have seen some talk in the industry in general, loan growth coming down a little bit from a stronger trend earlier this year. so there's some questions it what happens in 2017 with loan growth for the industry and whether bank of america can capture more of that. alison: and credit loss was down slightly. alix: to your interview you did with brian moynihan, consumer banking was up 11% and the deposit growth was up 10% and the idea is they can reflect the benefit of the higher yield because a lot of that deposit is interest-free? david: a third of their deposits. they have use to that capital and they're a huge deposit taker. the real question is how are they doing compared to stock?

they're up across the board. they're up 12% and doing better but their stock has been up 3 % this year. -- 33%. the question is can they sustain that? alison: the stock is up a lot and yet they're announcing accelerated share purchase in the first half. bank investors are looking for a signal, what are banks thinking about the future and i think that's a signal. jonathan: we caught up with mike mayo of cisa and he has big plans for the future and sees big rallies down the road. listen to this. mike: banks for the first time in a decade should translate from value destruction to value creation. what we mean by that is banks earn their cost of capital. if they earn their cost of capital as we think they will, bank stock which is have increased 50% from their lows have another 50% to increase over the next three years, back in black is a good place to be. jonathan: that's mike mayo, clsa. dakin campbell, let's get on top of the press release and

bring in holly renick. the rally we had seen, what does q-4 need to do and this is just one hint of what will come on wall street in the next week or so. what do we need to see from these earnings that validate what we've seen in the last couple months? holly: it's a good question because there's little we'll see that possibly could validate what we've seen in the market the past couple months since the election. it's interesting. i'm hearing people talk about how basically this is an earnings season that doesn't matter and is cynical but the moves we've had in the market, we're based on things speculative and forward looking and don't think there will be a ton from the earnings standpoint to justify those moves. what we could get is something to sort of continue those sort of positive sentiment going into the year, a good start to earnings obviously would be solved especially given we have a lot of expectations for what we're supposed to get to. alix: talking about expectations, financial is supposed to be the biggest grower of earnings. 12% expectations.

do we get to that kind of growth? oliver: here's the thing. when you look at the market overall and look at where the earnings are supposed to go, there's a lot of things that have to fall in place, getting a big part of the market roughly, really the second biggest part of the market are financials, getting those to rally and do it without getting the p la e to move too high to get -- p/e move too high is important. oil has to fall in place and we will continue to see oil price maintain where it is and have the year over year comparables and a big part for the consumers. things need to fall in place because expectations are high for earnings. when you look at the forward p/e on that and people obviously are making strategy based on that it banks in a solid earnings growth. david: i want to come back to jonathan's question of cost cut at bank of america. it's not just bank of america but a microcosm for the entry and wonder if cost cuts get in the way of revenue.

is it time for the banks to take a toward back towards taking a risk where they got used to taking risk off. alison: cost cuts are scaling back front office but now the cuts are focused on back office, how can technology cut costs? you think of the transaction in the branch versus a mobile transaction, there's huge savings there and i think a lot of programs are more focused on improving efficiency. in the back office and some of those front office allocations. jonathan: we'll hear more from alison williams of bloomberg intelligence and a special thanks to oliver renick. the bank up .5%. let's get your headlines outside the business world with taylor rigs. taylor: on capitol hill, republican leaders predict the house would approve a measure allowing a quick repeal of obamacare and the vote expected to take place today. some republicans are skeptical about the it replacing the affordable care act. and there are new questions whether f.b.i. director james

comey will keep his job. the justice department has opened an investigation into comey's handling of hillary clinton's views of a private email server and the probe will focus whether the f.b.i. failed to follow appropriate procedures and improperly released information about the clinton case. and a new study following working hours among low paid men are contributing to inequality in the u.k. 20% worked part-time in 2014 and 5% did so two decades ago, according to the institute for fiscal studies. global news 24 hours a day powered by more than 2,600 journalists and analysts in more than 120 countries. i'm taylor rigs. this is clerling. john? jonathan: coming up on this program, trump taps goldman again after criticizing goldman sachs as a symbol of wall street greed in the campaign. the president elect adds another employee to the administration, joining four others. we'll head to d.c. for the latest in another look with bank of america out with eengs, profit up 43%.

largely in line with the estimates on the street. the stock up .6% in the premarket. jp morgan and wells fargo results coming up in 50 minutes' time. this is bloomberg.

jonathan: from new york city, this is "bloomberg daybreak." bank of america out with earnings, 43%, profit up on bond trading, largely in line with the stipts on the street. jp morgan coming up in 47 minutes' time. and the market futures bid, up about 20 points on the do you -- on the dow, 1% across the board. if you switch up the board quickly, treasuries at the moment, yield down a basis point to 235. the f.x. market, the dollar

headed for the biggest weekly drop since the election. the cable rate 121.79. he you're is north of 1.6. david jirgee the president david: the president is adding to his staff. deana powell, the global partner and head of global engagement would go to the white house as an economic assistant and senior counselor to the president. there are reports out today mr. trump will announce shortly anthony scaramuchi, founder of sky bridge capital will also take a spot. that would bring the total number of goldman alums serving mr. trump in the administration to five. kevin sorelli is our political reporter from d.c. the first question people are asking is what are these jobs? everyone seems to be an assistant to the president. do we know what dina powell ll be doing and what anthony caramuchi will be doing if

elected? >> they're going to collectively be crafting economic policy for the entire administration. talk about things like tax reform, repealing dodd frank, infrastructure spending, economic stimulus, what have you. with regards to dina powell, there are some reports she perhaps will be influential in trying to bring in corporate organizations and engage with them a similar role she played in the goldman sachs and she will also work on things like women's issues, trying to again engage corporate relations with fortune 500 companies and bring them in the sector. a hony scaramuci has personal relationship with donald trump by sources i talked with and is someone well liked by trump himself. david: dina powell won the 10,000 women for goldman

initiative. as you describe their jobs, looks like they'll be working closely with gary cone putting together the economic policy. that sort of gary cone's job. kevin: he's top dog with the economic team being assembled. everybody else i would argue, according to my reporting is reporting specifically to gary cone and he's someone i would expect to be the architect of a lot of the economic relingt -- regulatory agenda as well as the economic partnerships that are going to be coming out of this white house. i spoke with a senior aide to speaker ryan's leadership office and he said that, you know, we look at things like tax reform and things like deregulatory policy and they're already engaging with cohn specifically. jonathan: is this necessarily a problem? are we surprised the best candidates come out of harvard and why are we surprised the

best candidates for the job come from goldman sachs, one of the elite companies on the planet? kevin: goldman has a long reputation of knowing how to work not only with wall street but also with washington. and if you look at administrations previously on both side of the aisle, whether it's the obama administration, the bush administration or the clinton administration, a lot of these economic advisors came from goldman sachs. that has drawn, by the way, criticism, as we all know, from the more liberal left, people like senator elizabeth warren frequencyly chide this type of revolving door, what have you. more of the moderate, pragmatic progressives and republicans say they have the experience to know what to do. david: kevin, thanks so much. bloomberg's kevin sureli reporting from washington today. coming up, no help from a weak currency. china's exports fall victim to

subdued global demand as overseas shipments drop more than 6% in december. we'll dig into mounting challenges for the world's largest exporter and talk the future of china relations with nick burns, harvard professor. that is next and this is bloomberg. ♪

david: this is bloomberg, i'm david weston. overnight data out of china showed an uptick in imports, 3.1%. exports didn't do well with overseas shipments falling 6.1% year over year. within those export numbers, chinese experts of the united states continue to rise. with the softness coming mainly from trade with europe, perhaps reinforcing donald trump's claim he needs to take action to rebalance u.s.-chinese trade

relations. joining us from boston is nicholas burns, a professor at harvard's kennedy school of government. earlier he had a distinguished career as a u.s. diplomat, having served as an undersecretary of state and ambassador to greece and nato. thanks for being with us. and let's start with those economic data and what kind of pressure they put on both the chinese government on the one hand and on the incoming trump administration on the other. nick: you heard president-elect trump has made china a particular focus not just during the campaign but during the transition and even during this week when several of his cabinet nominees have been testifying for confirmation, you heard from rex tillerson, some very pointed criticism of china and the administration that's coming in is clearly pointing towards a tough-minded policy, they wanted to send very tough messages on trade, on currency manipulation but also on south china sea. a lot of people are wondering can they back that up because the more immediate challenge is

the administration appears to be on russia. they'll have to decide how they sequence what we come in china as well as russia. david: pause on that currency manipulation point. because we talked to kellyanne conway and asked if he'd follow through on his commitment to declare china a manipulator. what would be the consequences? nick: that would be about as harsh a measure as we could take. it would back the chinese into a corner. it comes on top of what president-elect trump has done and that's question the one china policy and that's the policy that's been in place for 44 years where the united states recognizes the people's republic as the sole representative of the chinese people. -- are ex-o extensionily existential issues and they'll have to calculate do we really want to start off with china in crisis mode, or are there other things that we need to do, for instance, in europe, that are more immediate? and if you look, david, at some

of the confirmation hearings, you've seen a succession of cabinet secretaries coming in who essentially have been walking back donald trump's positions on major issues. i'm not at all convinced they're going to start off with currency manipulation or attacks on chinese imports into the united states or to continue to even question the one china policy. jonathan: the approach here as we've spoken about is a businesslike approach towards china but wonder where the sensitivity lies outside of the xf -- fx market. at do you think they'll be more sensitive to, as a manipulator, taiwan or the south china sea, what will push their buttons the most? nick: taiwan will be the issue they're most sensitive to. when i say existential, i mean this is the identity of the chinese state, the fundamental american understanding of china from president nixon's time that we recognize beijing, so i think that will set them off

the most, the phone call with the taiwanese leader and president-elect trump's subsequent statements. south china sea we have a legal difference but i don't think there's an imminent crisis between the united states and china and the south china sea. david: nick, you spent your career as a diplomat. have you seen business people come in at senior levels and be successful or is it something of a blind spot where they see it all as a matter of trade and they don't understand the sensitivity of something like the one china policy or what the chinese claim are islands in the south china sea? nick: david, in the past we've had people come in with business experience, george shultze, reagan's secretary of state for six years and had a significant business career at the top levels of a big multinational firm but he had previous government experience at the cabinet level. here you have a president and secretary of treasury and secretary of commerce and secretary of state with no prior business experience, it doesn't make them unqualified. in fact, a lot of the skills from the private sector do translate but i think what it means is you'll have some

startup costs and there will be a couple of weeks or months where they're going to have to search for the right way to try to move this big government in the united states but also deal with others. and so i think that's what you have to watch for. and i would caution, because of this relative inexperience, you don't really want to start off with a major conflict on trade, on currency manipulation with china. you want to be tough with china because china hasn't been playing by the rules and as well, david, the administration is going to have to figure out what's their message on trade because right now the chinese are capitalizing on the fact that trump has repudiated the t.p.p. alix: that brings us to the opposing views between rex tillerson and donald trump. how do you square that in the administrations? nick: it's very difficult to know. in a normal administration, the cabinet secretary in these hearings would be closely aligned with the president, but donald trump took positions that were so extreme during the

campaign and even the transition that some of these people had to walk back their statements are else might not have been confirmed and that's still in the case of tillerson an issue, as you know. david: thank so you much, nick, harvard university professor in international relations, nick burns joining us today from cambridge. coming up, the fed speak in focus. three fed presidents say the central bank should start discussing how to unwind emergency era measures while janet yellen sees the u.s. economy facing no serious short-term obstacles. the future of the fed and what it means for futures. that's next and this is bloomberg.

jonathan: from new york city this is "bloomberg daybreak." a lot of earnings to discuss it. futures as we wrap up the week and the dow positive two. and if you want a record

winning streak, look no further than the ftse, 14 straight days of games in a minute sponingsly. the longest ever in london. switch on the board, potentially also the biggest weekly drop post election. the euro north of a dollar in six cents and the weaker dollar and treasuries bids lower at 2 .35. that's a squeeze. alix: here's what you need to know at this hour. banking on trump, wall street's first earnings after the u.s. election underway with bank of america, jp morgan and wells fargo reporting this morning. bank of america profit up 43% and the stock fluctuating between gains and losses in the free market. tepid trade. china's exports are subdued. the banking increase for the first time in 2011 and china put more restrictions on banks to help stop u.n. outflows.

janet yellen says it faces no obstacles and a slew of officials looking to shrink the fed's $4.5 trillion balance sheet. that's what you need to know this hour. staying on janet yellen and the future of the fed, she spoke yesterday in a town hall meeting with educators across the country and briefly outlined the mission of the fed in responding to questions. the takeaway, she sees no serious short term obstacles for the economy and touched on the labor market and inflation saying unemployment reached a low level. the labor market is generally strong and wage growth is beginning to pick up. inflation has moved from a very low level but is a little bit under our 2% objective but pretty close. with us w, george is and matt bosler. if you were to tell us six months ago the fed officials would be in agreement over something and they all had the strategy of a rate hike pass i would have called you crazy. matt: amazing, they're definitely trying to continue to push the focus away from the

fed especially with the new coming administration and put the focus more on what's happening in the fiscal sphere where the baton needs to be taken at this point. alix: what they don't agree on is fiscal stimulus. when will we get more ability to have details on that? matt: they say they're waiting for the details like everyone else. it's interesting here to talk to them about how they go about doing this. right now they have their forecast for the next few years they have to submit every quarter, they just submitted in december but they don't know what to put in them. so for the moment they're kind of making up an assumption, sticking it in the model to sort of offset some of the financial tightening that they've gotten since the election with the rise in interest rates and the dollar that would otherwise be restrictive and cause your forecast to look a little weaker. alix: the fed can't factor in fiscal stimulus, how do you factor in what fiscal stimulus does to rates? are we in a short squeeze or reversal? george: the market has been trying to discount what sort of fiscal impulse we'll have and what it means for level rates.

i think you largely had that first wave take place in q-4 but i think to your point earlier, it's interesting to see the fed starting to sound like they're on the same page but let's see in the march meeting if they converge. because for the longest time they had die bolically some expecting 4% rate or no rate and they truly are getting on the same page as a consensus building and projecting they're on track for a more consistent message, then i do think we should start to see that sort of information delivered in march and at that point, i think that would also be at the same time hopefully we'll have more details of fiscal policy and that starts to trickle in. jonathan: can we get to the elephant in the treasury room at this point, and it's the balance sheet and they keep talking about it. yesterday was the fed official that listened to this quote, the federal reserve should begin to shrink the massive bond holdings once the overnight into bank lending rate hits 1%. we're not far away from that.

from a bloomberg professional clients out there, debt go is a function you can really capture where the fed is on things and go to the far right tap to the fed holdings and you can see the number of maturities and then you can see the amount that's going to mature in any given year. next year is $400 billion of treasuries. now, you can let them roll off fine. i'm going to scroll all the way down to 40, 41, 42 where the longer data stuff starts to mature, 107, 121. if you want to wind down the longer end, you can't wait until 2040, you've got to sell, you've got to reverse engineer q.e. are we talking about reverse engineer g.e.? george: ultimately you have a slug of bonds and we're at a sign you stop reinvesting these large proceeds over the next two or three years, they'll have to be financed by the u.s. treasury market and those new bonds are historically longer

duration, longer term maturities anyhow and you'll see more 30-year and 10-year bonds and maybe new ones, we'll see. the new calendar going forward is you have to take that heavy load, $400 billion spread across the various options weighing on the market. jonathan: this is incredibly difficult to do, matt. they're talking about it. when does the market start to actually take it seriously, if at all? matt: that's a great question and i find it interesting they're all starting to speak about this more loudly in the past few days because one thing that it's not clear that they or anyone else knows yet is what size balance sheet they actually want. it's kind of funny to imagine them sort of starting this process without knowing where they're going, kind of feeling their way around with the balance sheet the same way they're doing with interest rates right now. it seems like kind of a potential explosive cocktail. so you know, i would be surprised if we actually see that start to get underway before we have a more defined roadmap on where to go. alix: how does the market wind up interpreting that, george?

what are we in for here? george: everyone complains rates are low and premium is low and long term rates are low. one way of actually pushing things up would be to let the balance sheet roll off. selling i think is a stretch of the imagination at this point. but perhaps we could get to a point later on this year as we're contemplating who will be the next fed chair, as the trump administration starts to focus on the fed itself, at that point might be when you start to see a discussion of fed balance sheet unwind. but i think we'll quickly go back to the realistic viewpoint as who will be buying all these treasuries if the fed has to unleash their old holdings. alix: japan. george: no. just not enough buyers out there. jonathan: you say it's a stretch of the imagination but the reality is it you don't become a seller and you just let things roll off, all that's going to roll off is the front end and the curve is going to move against you. if you want a steeper curve, then you're not getting that if

the federal reserve sets out new policy to allow things to mature. that's just going to be the front end selling off. if you're just going to sit on the long end, how does that work? george: i don't want to bore your viewers with technicalities. jonathan: please do. george: at the end of the day you have to think about it, it's all about announcement. we shouldn't expect an unwinding of the fed's balance sheet or slowing down, trickling in a similar light as a q.e. announcement but all policies for the central banks work from a signaling perspective. so if they signal it they'll be reducing their balance sheet taking away duration from the marketplace and should push up rates. jonathan: talk about the signal, 2013 we got signal, didn't we? how did that work, it was the reduction of pace of buying, can you imagine the signal they'd get if they came out and said just maybe, you know what, new policy, we'll let things roll off. maybe become a seller. david: maybe even sell. make it simple for me. i'm sitting at the central bank with a couple weapons at my disposal. one of them is to raise rates. the other is to tighten through rolling off or selling.

what are the consequences of those two? is that the short end versus the long end? am i basically trying to shape the slope of that curve? george: i'm not sure they're trying to micromanage the yield curves. they were trying to introduce easing and credit easing and was all fair but at this point it would be just operationally speaking, there's a lot of reserves in the system, trying to figure out what is the right mix there. but i'm with matt. i think it's going to be very difficult to get this down right. short rates getting them higher and using these new tools like the ioer and irop was designed to work with the large balance sheet and i do think they'll continue to rely upon those tools. but i think at some point they'll look up and say ok, if we do have downside risks, what do we want to do, have short rates high enough so we can ease? and also now with the trump administration more inclined to provide fiscal stimulus on any wnturn it's truncated or

trumpcated the downside risk and the fed has taken that into account and will rely on the short rate policy. jonathan: i don't think anyone thinks this will happen tomorrow but the potential to do it is incredibly difficult. we've been talking about levels, treasuries three years and do you believe the second tier money manager or bond king won't go there but guggenheim's scott minor did yesterday on bloomberg and gave his outlook on prolonged high yields. scott: it's basically the beginning of the end. long term trends like this don't reverse quickly. i think there will be anothers -- as the business cycle ages and in 2019, 2020 when we could anticipate we might have another recession, that there will be another deflationary burst that will bring rates down if we do get above 3%. but we haven't violated that trend yet. jonathan: scott says 3% is the beginning of the end. jeff goodlack says 3% and

thereabouts, bill gross says it's 2.6%. where do the numbers come from and why do they matter? george: they come from our observation of trends and how rates have been progressing the last 35 years but we have a similar bogey around 3.5% and is a function of the debt load and the need for refinancing on a go forward basis. so we know as rates rise in a leveraged society and levered government we are, it will impact and crowd out other potential investments and things like that. i do think the 3.5% would be a material number which would hurt both the economy and the equity markets, not just the bond market. i do think that's the high water mark and generally think it's fair. alix: matt, what happened in the last few weeks really has been the unwinding of just that. now you'll go in and buy the long end but something really odd is happening in the market. look at this bloomberg here. the white line is a normalized basis and a 10-year yield versus a 10-year break even. what i find interesting is

you've seen buying come in the 10-year but break-evens hold up. are we in a world this is a technical short squeeze or is there something fundamental u.s. break evens have to adjust to now? matt: that's a great question. i've been looking at the five-year rate because it's around zero and has been going up, above and below zero the last several weeks and we haven't been able to get above zero in the positive territory at the five-year real point. i think that's a major question, can the u.s. economy, can financial markets actually handle positive real rates. they haven't been able to prove that they can over the last several years when we've briefly breached that to the upside and yesterday and since donald trump's press conference on wednesday, we've seen a real drop in real rates so it's not at all clear the market is confident in the ability to handle this at the moment. alix: with that uncertainty, what's the strongest conviction, how do you deal with this? george: ultimately, we are kind of skimming the bottom of rates and have been doing that the

last year or two, the real rate story matt is mentioning is critical. because real rates is the former real tightening so if we don't have real rates rising then it won't actually impede things. our view is that you have to really watch the spreads. we discussed the fed's balance sheet before but even touch on mortgages and that's the real elephant in the room and what sort of g.s.e. reform we get in the future and how the fed's balance sheet gets and we think spreads are poised to be wider and careful on spreads, credit process here, be careful. matt: talk about positioning. we come in the year with record shorts and futures on treasuries but given where we were six months ago, i'm trying to work out where the paint trade is, is it high yields or lower yields from here? george: i think at this point the tactical pain trade would be 235 in the 10-year and we'd rush the 2% and people are like why are we here and probably then is the best short to get short again but then it's the closing out of these positions. a lot of it was done between 220 and 240 we're sitting

there. alix: great conversation. appreciate your time. matt boesler thanks for joining us and george goncalves, great to see you. bank of america has started the conference call and talking about rates saying the fed didn't raise short-term interest rates until late in the quarter so the effect was small and offset by an accounting issue in the net interest margins staying in line with the third quarter, 2.23% over bank of america and does expect internet interest margins in the first quarter. more coming up from bank of america's conference call. coming up, the year on pace to its fourth weekly advanced versus the u.s. dollar, the longest winning streak since 2014. the short term bets unveil a market skeptical, further gains. talking effects next. this is bloomberg. ♪

taylor: this is bloomberg daybreak. coming up the next hour, the chairman on china and the u.s. economy. jonathan: from new york this isberg. time to get to the market. we have a strategist joining us from new york with his eye on the dollar getting weaker and heading for the biggest weekly drop since the u.s. election. brad, how do you view this, a trump disappointment, a squeeze of the excessive longs, what's the framework for your thinking currently? brad: it's a little bit of all of those things. the number one question i'm getting from clients is how much of the trump trade is priced into the dollar, and my argument is in fact very little for trump has actually been priced into the dollar and what we've seen this week, fueled by disappointment related to

trump's press conference we didn't get any information on fiscal or tax cuts or anything like that out of trump and that disappointed the market. what we've actually seen is a technical washout. a lot of the dollar momentum the last couple weeks and months even has been largely driven by leveraged traders, c.t.a.'s, momentum traders, that sort of thing and you see that in the commitment traders report which showed very big dollar longs and very big short treasury futures, that sort of thing. i think once trump didn't deliver on his message, didn't give us more information, the market was frustrated, we triggered some technical levels and had basically a technical washout. but in terms of how much are we pricing in for trump now, i would argue we're pricing in very little if anything at all. jonathan: that's interesting, brad. there's a huge consensus about being long in the dollar but wonder how fragile the conviction is and annalist in london said shielded by the consensus and the idea you

can't be fired for having the same trade as the rest of the streak we get a prediction of shorter conviction and longer than see the term better than anyone else does and seems to be the story when we start the year. you have a huge consensus about convictioning and a fragile position that breaks down a month into the year. why will it be different with the dollar long trade for 2017? brad: i think i agree with everything you just said. it's exactly what's been happening. this is in my view a very healthy consolidation in a lot of ways. we had a big run-up from 100 in dollar yen up to 118 and that's a large move so consolidation is necessary, it's healthy for the trend. the trend is by no means broken at all and if anything, i think what's going to happen is the fed is still looking at three hikes for this year. the fed is not incorporating anything related to trump in the fiscal policies and tax cuts is what they've told us at least. and we don't know what trump will be able to deliver on. so, you know, the dollar still has a lot of work to do, even

the catch up to the fed and also to catch up to what might be coming out of trump which is still very much unclear. so i think this time is different from last year. last year this time we had obviously the china effect and the rolling of the markets and dialing back of fed expectations but dollar yen if you look at it is actually where we were in q-1 of last year, right around those levels, maybe a shade above. so i think the dollar is kind of missing things right now and it's a little weaker, a lot weaker happen it should be in my view. jonathan: it's hard to read the political tea leaves and what struck everyone is how political this fx market has ultimately become but if you're trying to read the political tea leaves, never mind the news conference for president-elect donald trump, look the a the focus down in d.c. brad, are you concerned if you have the dollar long ultimately the attention at the moment of congress is what to do with health care, not to do with the fiscal stimulus plan? brad: absolutely. that will be the key and where the rubber hits the road the next couple quarters is how

much focus is the administration going to put on the fiscal side, on the tax cuts, on the deregulation on those things, those themes that are going to be dollar positive, are we going to get mired in health care or stuck on other things? will we deliver on only 10% of what the market would hope for, you know, that's really where the rubber will hit the road is on timing. jonathan: great to have you with us, brad bechtel in new york, and the f.x. market a weaker dollar through the week and potentially the biggest weekly drop since the election. that's the story in the fx market, let's get to you the other stories making headlines with taylor rigs. taylor: another automaker is being investigated over vehicle emissions and republican how and paris officials -- renault officials have started an investigation. it's not using software to cheat on emissions. boeing has won an order for 205 planes from india's budget

airlines. the order for 737's and other models is worth $22 billion at list prices and discounts are usually given for large purchases. it's the largest order ever placed for an indian airline for boeing jets. and it's an underwhelming start for nintendo's new switch gaming console. the tablet sized device will go on sale march 3 with the price of $300, higher than rival consoles. investors aren't convinced the it will be a hit. the company's shares fell almost 6%. i'm taylor rigs. this is bloomberg. alix? alix: coming up, diamond in the rough no more. jp morgan has been the second best dow performer since the u.s. election. i'll show you three charts you need to know. this is bloomberg.

alix: we have breaking news.

jp morgan earnings, $1.71 a share. we don't know if it compared to the estimate of $1.43 cents a share and would be up more than 2% year on year. other details we're getting out, investment banking revenue at 1.49%, a billion dollars, slightly lower than estimates and also lower than the third quarter estimates as well. it's a similar story coming to net interest income and was modestly -- it will be modestly up in the third quarter versus the fourth quarter. we saw something similar in bank of america saying interest margins will improve in the first quarter. jonathan: it's remarkable because q-4, does it matter? it's all about 2017 and what's coming. for the guidance, jp morgan saying it may be building momentum. and bank of america and merrill lynch, revenue growth was modest and managed to control expenses to the support of the bottom line but it's about 2017

and who can capture what coulding coming down the pipe from d.c. david: the thick trading was more than estimated. alix: in the third quarter we're over $4 billion. better than estimates but lower quarter on quarter. equity sales and trading revenue is a similar story. lower than estimates at 1.15 billion. however, that is lower again in the third quarter. so that strength we saw is deteriorating a bit but stronger on the margin. david: we expected fick to be way up. there was a lot of trading going on and people expected banks to do well and are trading as a result of that. alix: we heard on the bank of america call trading was softened in the last two weeks of the year but overall the strength will be continuing. we're looking at stocks and just like bank of america, this is interesting, flat on the year and this goes to your point and mike mayo, who cares

about this quarter, it doesn't matter. jonathan: so long as q-4 wasn't early and they were pricing in what was coming beyond. if the fed officials can't give guidance for what is coming how can you hear other guidance coming down the line. the u.s. economy might be building momentum. david: and one of the things they're fighting are expectations. the market built so much in the financials and expect such great things to come out of them and may have to wait a while. jonathan: and stock up 2.1%. full coverage of the bank earnings, jp morgan and bank of america out. wells fargo up next. this is bloomberg. ♪

jonathan: good morning, for our viewers worldwide, a one welcome

on this january, friday 13. in the markets, it is about wall street earnings season kicking off. positive four points on the s&p 500. call it .10% with all eyes on these stocks -- dow jones, jpmorgan, wells fargo. wells fargo up in the premarket by .9%. david: earnings-per-share and $.96. it was estimated at $.99. it is off what was expected. they do not have to make as many provisions for credit losses. they are a little off of their earnings-per-share if it is comparable. they have high -- $5.3 billion in net income. it is a beat on revenue. alix: i just wanted to point out the net charge-offs -- $905

million, higher than estimates. it is money that is not likely to be recovered. interesting to track with wells fargo, a big consumer bank. jonathan: credit losses -- what we can use to see what is happening across banks, wells fargo below estimates. $8.5 million -- $8.5 billion. david: it is interesting, the revenue did better than expected compared to bank of america, which actually was off a little bit in the revenue. can see wells fargo is off 1.3% perhaps on the miss on earnings-per-share appeared i want to bring in allison williams, senior bank analyst for bloomberg intelligence. she has also done this for other people like morgan stanley and ubs. welcome. what you make of these? allison: looking at bank of america, the buyback is a positive signal. cost-cutting, also great, coming in right in line.

these are important because shareholder capital return -- they are boosting up the payout ratio. and class cuts are important in terms of underpinning the earnings. the ficc was disappointing. jpmorgan better than expected. bank of america, a little worse. the optics would tell you is jpmorgan in insurance, think of amount of money -- losing shares. the reality is that has to do with where the strength was. jonathan: brian moynihan, if he were watching bloomberg, would the screaming at the tv. looking at the move, is it more about where we have come from versus the lack of appreciation of a buyback? allison: i think it is. 60% move in a 50% to the bank stocks since the low.

talk about the stock mean down to we're still up on the year. coming into earnings, there are high expectations. david: i'm sorry to interrupt -- i want to clarify, it is not clear if a accountable. wells fargo says earnings-per-share was $1.03 if they exclude an accounting effect. the number may not be comparable to the estimates or what happened last quarter. alison: four wells fargo, people are not going to be looking for necessarily the bottom line, but how did they get there and what is happy with their retail business. the account scandal has dominated the story or wells fargo -- four wells fargo. they have given out monthly metrics. we have seen new account openings. we have seen more closings. we saw the trend improving november, october. people want to hear about what happened in december. they also came out and

introducing new compensation package according to news reports. investors will want to hear more about that on the call as well. alix: let's talk about jpmorgan -- some of these numbers are enormous. full-year net income, $27.4 billion. that is a record for this company. tell us the single biggest key in helping that number and what that means for 2017. alison: i think the one key is that they are a leader in four beautiful businesses -- i think jamie has referred to them -- and doing well in those businesses. they are the biggest in ficc, and yet a very strong results. it boasts well for them. alix: it was down sequentially. ficc even though it was -- alison: even though it was down sequentially. everyone is excited it was the best fourth quarter in a long time, but still down from last quarter. what is interesting, fourth 4q in a, strongest

while. we started with one of the worst 1q. in like a lamb, out like a lion. the opposite. jonathan: what is unique is we're not looking for the numbers to validate the moves in the market we have seen, but this kind of guidance, and what i keep hearing is 4q doesn't really matter. how do i know about what does matter, what is coming? alison: for earnings, it is never the past that matters. it is always about the outlook, the future. for banks there is more focused given the stock move, the movie and evaluation. investors and analysts are looking for more support in this move. how will we see that translate into earnings going forward? i think we may get more questions and answers because a lot of the answers will put -- take time to play out. david: another benchmark is the return on tangible equity. if you compare bank of america

were jpmorgan, jpmorgan looks like 12.2%, well above the 9.9 at bank of america. are they making of money to justify the capital they are using? alison: that is always been the focus in terms of return on equity. jpmorgan is a leader across the industry. for bank of america, that is a focus, how can they improve the return on equity. the cost program is a big part of that. i think that is why it was a focus that i was speaking about before. alix: joining us on the phone is paul miller on the banks. bank of america, wells fargo, jpmorgan -- what is your biggest take away so far question mark paul: -- so far? paul: for bank of america, it is the guidance. this quarter is not going to be what will drive the stocks higher. what will drive stocks higher -- can trump get his policies done, do we get a tax cut, do rates go

up? this quarter was probably expected given where we are in the economy. alix: you have outperform on jpmorgan and bank of america, a market perform on wells fargo. will you see out of these things to justify the rating and increase years in the last few months? paul: what we really want to hear is what are they hearing from business customers? some banks are being very positive on the pipeline -- the robust pipeline coming down the road. now, business confidence has to turn into loans or dollars and cents at the bottom line. we think you're going to see some very confident ceos talk this morning. jonathan: they will be very confident, but i wonder who is in the best position to turn from defense to offense, so to speak. take brian moynihan, the head of bank of america, this is a man that has gotten used to play defensive roads -- role, become meaner, leaner.

who is set up to turn from if we get offense euphoric optimism that translates into gdp growth in a big way? jpmorganhink that if -- they are one of the better banks to take advantage of any different move or bigger movie in the economy. however, the bar for bankamerica is so low. they do not have to hit a home run for the stock to move. one of our favorites is bank of america because the bar is so low, and they have been playing defense, or so, more so, as you say, than anyone out there. the big thing with bank of america -- there are we into the double-digitacvw terry -- there ves into the double-digit territory. jpmorgan is the best position right now. for bank ofo low america, we think that is where the biggest upside is. david: how much could rates help

them do that? they say they did not get much benefit from the rates this quarter -- this last fourth quarter, but they are looking forward to this coming year. are they the most sensitive to the rates uptick? paul: they are the most sensitive to rates at the low end. that is working the government is really going to move more than anything else. mark.ng-and is a question that has to deal with the global environment. we think the fed is going to take the rates up. this will help bank of america the most. what happens at the long end is a wildcard. alix: what happens in the short-term? we have seen a run in the -- since the election, stocks have been going nowhere -- fluctuating around neutral. what will be in play? paul: everyone wants to your commentary from ceos, but the big move has been in asset allocation. this group is investable again. you have seen guys get caught under-owning these names. the next thing is they want to

see how things play out in the trunk administration -- do we get tax cuts, higher rates in the mr. trump:. -- in the fed. we have a lot of room to run, but it will take more time. alix: what about job losses -- we had a report morgan stanley was lowering their comps, laying off workers. with us continue to be a theme, and for how long? paul: i think these banks need to become more efficient. they have too many employees across the board, and the need to work on their structure. i think you will continue to see layoffs coming out of this space. alix: paul, thank you very much for joining us. paul miller and alison williams, thank you. let's get an update on what is making headlines outside of the business world. taylor: president-elect donald trump says he will have a full report on hacking within 90 days. in a series of tweets he said a report that russia had

compromising information on him was put together by critical opponents and he called the allegations phony. the house approved a measure that will -- a vote in the house would approve a measure that repeal ofte on the the informal care act to take place. onthe space of two minutes october 6, sterling fell more than 6% against the dollar to the lowest level in 31 years. the bank of international factorsnts suggested reggie from time of day to the lack of expertise of staff as reasons. global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. i am taylor riggs. david: markets may be wondering about the specifics of donald trump's policies, but the presidential's nominees may not

be that clear either. we talk about the apparent distance between mr. trump and his team on issues like russia and iran. this is bloomberg. ♪

jonathan: from new york, this is "bloomberg daybreak." i am jonathan ferro. wall street earnings season officially begins. jpmorgan up in the premarket by about .10%. bank of america is interesting -- revenue is a mess, profit is a beat. the concern is where will you get the topline growth and how is bank of america position to turn from defense potentially towards office? -- you cannot judge

gave moses out looking at the longer-term moves. we will do that throughout the morning. big rallies in this space. if you switch up the board quickly to the wider asset classes, bonds very well bid. bid throughout the whole of this week. also throughout the whole of the week, the dollar -- potentially the biggest weekly drop since the election. the euro stronger at $1.06. david: this week, as you know, we have seen several of donald his cabinetnees for go before congress as part of the nomination process. several have taken positions that at least up here on their service to be at odds with the president-elect. one of them we heard about yesterday -- a nominee for defense secretary, james mattis, general james mattis. he in a testimony before the senate armed services committee talked about iran and said he would support the iran nuclear agreement. "whens what he said -- america gives her word, we have to live up to it and work with

our allies." the president-elect has criticized the deal calling it "one of the dumbest deals ever." it is around, it is geopolitical, but he could have consequences because american businesses often into business with iran, and a candy allocations for -- and there can be allocations for opec if iran is excluded. alix: iran has a majority of oil and they have released a majority of that oil to the markets. the decline rates are so bad. they need the foreign money to help them do that. without it, what kind of production can they deliver? if we broke, there are mechanisms for the yuan to trigger sanctions -- for the u.n. to trigger sanctions. alix: rex tillerson spoke on regulations during his hearing. he said we are not likely to be friends. our value system is different.

there is scope to define a different relationship. the president-elect spoke about his own relationship with the russian head of state. he said if putin >> donald trump, i consider that an asset, not a liability because i consider that an asset, not a because we have a horrible relationship with russia. using economic sanctions has not worked over the last few years. is it the right approach to say we need a reset? david: there are many that take the position that they have not worked. historically, they really have network. even rex tillerson himself has expressed doubts about economic sanctions. jonathan: isn't it interesting the former ceo of exxon who has said to always put the company before the state seems to be the harshest on russia between the two of them. alix: they have ties with russia

-- over 63 million acres, a 30% stake in the field offshore. they have 1.5 development wells. this is a significant development -- investment for the company he had it. david: you have european allies be onay should we still russia anymore? jonathan: one of the biggest flashpoints was not a disagreement, but an agreement -- the similar stance on u.s.-china relations with rex tillerson saying wednesday we will have to send china a clear signal that the island building starts -- stops, and your access to those islands is also not going to be allowed. the president-elect spoke out on this wednesday year is news conference. -- wednesday you in his news conference. you look at the

comments on the south china sea -- i was so surprised by these. traditionally, all we have heard is comment on the trade relationship. to delve that deeply into foreign policy -- never mind taking a call from the president of taiwan, but to go that directed to an issue they asked him about. if you talk to chinese officials -- this is serious business for them -- it is not business, it is personal. they view this as an existential threat to the country. alix: we will discuss that. steve rattner will weigh in on the china-trump trade battle and the geopolitical battle. that is next to -- next. this is bloomberg. ♪

david: this is bloomberg. i am david westin. there was overnight economic data out of china showing imports were up, exports were down, but if you look inside the export numbers, you see in fact their exports to the 90 states were up.

it was really europe they had problems with. we are joined by steve rattner to talk about exactly what is going on in our trade relations with china, which are very much in the news these days. welcome back, steve pearce steve rattner: thanks for having me. david: we are trying to sort through what the trump administration might do with respect to trade with china. how do numbers like this impact? steve: there has been impact in the u.s. i do not make any serious person could relate that. getting to the bottom line, my guess is it will be less rather than more. i do not think the practical realities of putting tariffs or trade verizon china will end up being very appealing to any number of people here. can you climb back up? we had kellyanne conway, and we asked her about labeling china a currency manipulator, which he

said he would do in his first day in office -- they are trying to keep it from getting too cheap. i think they are three years out of date on that issue. they can do a few things that would be more symbolic. this was done in the bush administration to some respect, to put tariffs on a couple of products to send a message. i go to china fairly often. there is no question china does not play fair, but it is not a currency manipulating thing -- it is preferred access, state-owned companies that receive subsidies. they can take a shot, but they will not close the border or put 30% tariffs on them. jonathan: conversations about china are dominated by tariffs, but they are also talking about using the one china policy as a bargaining chip for trade. beyond that, issues in the china sea is a bargaining chip. willett --

steve: i am not a foreign policy guy. ae one china policy thing was clever idea to try to get them to the table. on the south china sea, speaking as a layman, i think we are in a weaker position, not a stronger position. they are building airfields. the archimedean solutions there. there is not a lot we can or have been doing about it. alix: as an investor, you are looking at china -- the rhetoric from china as well as president trump. you are looking at cabinet picks that are by far more protectionist, anti-china. would you do if you have a business in china -- if you have investments in china? all, asirst of important as everything child is saying about china, what is more important is what is going on -- everything trump is saying about china, what is more important is they are the biggest recipient of funds in the world. people on both sides of the world think china will continue to be a engine of growth.

there are people think it is a bubble machine that will collapse any day. what trump does is not a -- not irrelevant. it is important, but the bigger picture is the macro question about china. david: how do you decide which part of the investments are fueled by the debt, as you suggest, and are artificial, and how much is real growth, real opportunity? steve: we spend a lot of time visiting china, which i go to once a year, more or less, and we are on the optimistic side of the line. we nothing china is going to collapse in some mountain of debt. we think there is real growth occurring there. we think there are interesting opportunities there. you try to stay away from the real estate -- state-owned companies, things like that, but if you go to china there is enormous on numeral activities, a drive to succeed. -- entrepreneurial activities, a drive to succeed. jonathan: as people look at the currency in the management of it, and extrapolate from that

china's ability to engineer a soft landing -- if they cannot manage this, how can they manage a multi-trillion dollar economy? would you say to that? steve: i would say they are managing the currency in a reasonably effective way. it is not perfect. there are days when they have to keep the flight of capital out of there. they have been trying to stop it. the problem is can -- currencies all around them have been depreciating. jonathan: coming up on the program, the health of the u.s. consumer -- a big market-moving data point after payrolls, of course, u.s. retail sales. joining us is steven ricchiuto. from new york, this is bloomberg. ♪ with the xfinity tv app,

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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: this is bloomberg daybreak. i am jonathan ferro. by 13es up marginally points on the dow, positive one point on the s&p 500.

the bond market -- it has been a squeeze on. yields lower by three basis points. treasuries bid at 2.34 on the u.s. 10-year. a flatter yield curve. itoughout the you -- we get has been a weaker dollar store it is potentially the biggest weekly drop since the election. the retail sales number drops with a marginal surprise. the median estimate, .7. previous month revised higher, .1.oint to from exports and gas, it is a significant downright -- downside surprise. the survey was 0.4. the median estimate was 0.4. it comes in at 0% flat. the market reacting to that number at the moment. treasuries were bid throughout the day. they remain bid. if you're looking at the dollar, i will bring that up for you on my bloomberg.

the dollar reacting to this was a little bit of a bounce -- up .10%. we are now -.10%. the number, a significant downside surprise if you strip out autos, strip out gas. alix: for more on this, we would bring in steven ricchiuto and steve rattner still with us. the number that caught my eye, the control group for retail sales. do we see a weaker consumer here, or is it about online sales versus brick and mortar? steve ricchiuto: there is online sales versus brick-and-mortar going on. the biggest -- the disappointment in retail sales here in the control room is one of the things till new fourth-quarter growth will be decidedly lower than third quarter growth tended to be, that it will be up to look into the average of the year. alix: is it about the consumer overall slowing, or the consumer having to buy time until you have wages and income having to pick up? sure ricchiuto: i am not

people are going to spend the money people think they are going to get. if you remember the bush tax cut, for example, the tax cut, most of that money was saved. there is a need for people to build up savings balances. there is a conservative drive that has developed in terms of a reduction in housing demand and things like that keeping spending down. there are controls on credit that are dominating the story. david: the other thing that the numbers suggest is how much .utos are holding down numbers the auto industry, after having a record year last year, continues to hold up the retail sales number. autos, as we: in know, we are still trying to work our way back from a number of years when we had sales below $10 million -- sales well below the replacement rate. the average age of the fleet is still aging. there is a reason why people continue to buy cars, but i have always felt at the end of the day people have to have income to buy anything, and at some point if the income does not

appear, the sales in autos will fall off. alix: one of my favorite measures, eating and drinking -- if you feel good about the economy, you will have a beer and a burger. i love the read on the consumer there. david: the animal spirits do not seem to be registering this far with ordinary retail buyers. steve rattner: they don't, but it is one month, and i do not we can set our hair on fire over one month. i think the animal spirits thing is of limited efficacy, personally. i understand keynes thought it was essential, and he was totally right, but at the end of the day when substantive policy that will create growth, and that will have to wait and see. alix: we have seen the markets in love with trump and potential policies -- will we see the same followthrough from consumers? steve ricchiuto: consumer optimism is up because everyone is feeling better as a result of

the election in terms of certain areas of the economy. going back to what david mentioned with the auto component -- the only reason the automobile component is up is because automobile manufacturers are giving cars away. anybody and their brother can go out and get a car. people are trading up to new and better cars over time. where there is available credit, people spend money. where there is not available credit, they can't. that is why people are overstating the amount of rebound and growth. jonathan: beyond autos to you expect the credit availability story to develop in a positive way here? steve ricchiuto: that becomes the key to what the top administration does going forward. everyone is folks on the tax cut, obamacare, and trade policies. i am wanted to see what a guy like steven mnuchin does in the mortgage market, change the components of dodd-frank in the volcker rule that limit the growth of mortgage liquidity and

mortgage credit to the economy. if they can get that going, they can get the economy moving. steve rattner: there is a limited amount he can do on those two items without congress on without the support of democrats because of the 60-vote rule in the senate. steve ricchiuto: there are things they could do they do not require a lot of changes that would have nice and tax at the market -- margin. if you really want to fix fannie and freddie, reform dodd-frank, you need to have legislation. steve ricchiuto: i think they do not need to change fannie and freddie, but change some of the components required to the deposits required on homes. one of the big problems millennials have with student loan debt -- they do not have the ability to looking at 20% down for a home. there are movements taking place to reduce that toward 10%. that can be done and it does not need congressional authority to do that. back in stimulate enough housing. jonathan: funny rap of retail sales -- the month of december

comes in at a downside surprise pick the previous month revised higher. the market anna martin seems to be reacting to the upward revisions. the dollar bouncing off the dollar a little stronger after these numbers drop, and treasuries move from rallying to be on offer just a little bit at the front end of the yield curve. clearly, a contentious debate around the table, but another thing that is a contentious debate is the border tax adjustment. we spoke with many experts including marty feldstein, adam pozen. here is what they had to say. marty: what is the effect of the stronger dollar? it lowers prices of imports, and it stops the inflation affect. so, it is a complicated impact. proposalknow any tax that has been as misunderstood as the border tax adjustment.

the great advantage of the tax is it will lead to substantial increase in tax revenue, but it will do it in a clever way because it will not raise prices to american consumers or heard american businesses. the net effect of the tax will be to raise the value of the dollar. adam: on economics, it is a terrible idea. it is a huge revenue sink. it goes with other tax cuts. it is not enough to pay them back. it is not pro-investment. it is pro-reallocation. --it goes back to the point it may affect some markets, but that is their problem if we put a border-adjusted tax. that is a big problem for a lot of emerging markets out there, and remember, 100% of demand growth in oil is coming from emerging markets that are the same market that could be negatively affected -- very negatively affected, actually,

by border tax. alix: steve or should know, way in -- steven ricchiuto, weigh in, which cap are you in? we've not ofto: the full details of the policy, but i think we will go after companies that are already importing goods from overseas. we'll go out to companies that decide they will transfer production overseas to try to keep the jobs in america. stopping the bleeding of jobs would be enormously positive. that is what their goal is -- to stop the bleeding of jobs, and the border taxes the threat to get that done. alix: can they make that distinction -- is that even legal? steve rattner: first of all, there is a question on whether the border tax is compliant with wto rules, and second, they will not stop the flow of jobs must be literally shut the borders and going to a trade wars. there are fundamental reasons why it is cheaper to produce in mexico and the u.s., and that will continue, and mr. trump will not be able to browbeat

everyone of these companies from the movie more jobs mexico. time, mr.the same trump has said he wants to renegotiate nafta, mr. pena tell has said he is open to that. is there a deal to be made that would give donald trump enough of a victory without shutting down the border? steve rattner: first of all, of all the companies that have been accused of violating good trade practices, mexico is not one of them. i have not heard anyone say, unlike what we talked about with china -- that mexico does anything of that. they have lower costs able to produce low -- goods at lower cost. alix: is it weird that i love talking about border tax adjustment. it is one of my favorite things to talk about. a pleasure to have you here. ricchiuto, steve rattner, always a pleasure. three major banks out with quarterly results. julie hyman has been monitoring the bank of america media call. she joins with the headlines. what were the highlight? julie: the media call has wrapped up.

brian moynihan is speaking right now. to bring you the initial comments he has made here, he talked about the economy achieving growth against the backdrop of a slow-growth u.s. economy. bank of america did see an increase of 42% in profit year-over-year, although revenue did this profits. he said the bank has been winning customers from the competition, but he is emphasizing expense reduction at the bank. he said they had a record slow net charge-off rate. that is something he has been trumpeting. he said the rate increase that we saw last year from the federal reserve was too late in the fourth quarter to benefit his net interest income. the bank should see an increase in that measure of $600 million in the first quarter of this year. now, for some of the highlights from the media call, paulson off real conducted the call, and talked about the interest -- increased in the first quarter. as for what was behind the

shortfall in revenue, he talked about trading activity, particularly in fixed income currencies and commodities slowing and it had an strong, and dipped at the end of the quarter. on regulation, he said it is still way too early to determine what impact if any the new administration is going to have on banking regulation. thanks very much. julie hyman, senior market correspondent. we will check back in with you later in the show. coming up, trump will take the presidency next friday during his inauguration, border -- but what is the outlook for deals ahead of the uncertainty? that is next. this is bloomberg. ♪

taylor: this is bloomberg daybreak. i am taylor riggs. coming up in the next hour, julian emanuel, director of u.s. equity and derivative strategy. david: this is bloomberg. i am david westin. we now look at what the trouble administration could mean for mergers and acquisitions. erik schatzker is here with blair effron. erik: david, think you very much. good morning. blair: thinks will have me. wek: change is upon us -- are kind of figure out what the trump presidency means for america, corporate economy, dealmaking -- you are kind of

figure out the same thing. what is the mood of your client? are they stop this stoked about -- are they stoked about taxes? blair: question of the day -- the ceo --what is his or her mood today? i would say it is as optimistic for january as i have seen it over several years. yolook at some of the commentary -- jeffrey immelt from general electric, the have talking optimistic ways. the point, this time of year, imf, they, with estimates. growth it is 2.2%, 2.4% in the u.s., 3.5% globally. for the first time you talk to a ceo, he or she will say there is an opportunity to be that. a good environment on market. labor, good. wages rising. retail, good. investment, good. obvious like, optimism is a great -- obviously, optimization

-- optimism is a great influence. now on trump -- it is easy to say tax reform is a good thing. the fact is we do not know what it will look like. we do not know what congress will say it ought to look like, and we do not know the timetable. i think, for the most part, m cross when it comes to war being transformational, needs to get these data points before we go on to the next leg. erik: if things play out the way they are expected to -- and there is a range of expectations, but there is a direction -- what kind of deals become more attractive, what becomes less attractive, or perhaps less doable? blair: great question. the deal environment is driven by two factors that is much more general. one, every sector is undergoing rapid change on a global basis, whether it is technology, competitive threats --that is the biggest factor driving m and

a. combined with if you think you have a stable, global, economic backdrop, can become -- more coffee book that the first 12, 18 months -- more comfortable that the first 12, 18 months will look that way. that is the biggest factor. trump basis,a obviously it is cross-border. obviously, it is consolidation. what with the regulatory regime say on continued consolidation? this is a big data points. erik: what is your expectation? blair: the expectation is it will be lumpy, and it will not necessarily be a policy that at least through 2017 you can see there are enough data points that you know how it will play out. every situation will have to be examined carefully. erik: do i interpret lumpy as inconsistent? blair: we need to know more. i think inconsistent -- maybe your word. you need a body

of deals to go through the pipeline to fire out where we rely stand. erik will the president-elect, once he is in fice, bully companies into doing different kinds of deals, the way he has started with offshore and trade, for example? it is veryink difficult for anyone outside the company to holy someone in holy someone into doing -- bully someone into doing something. when erik: about -- what about what we have seen --h ford and toyota an toyota? blair: that is not mergers and a conditions. erik: so it is difficult to bully companies on deals why? blair: because you are spending shareholder capital, and you want to do something that is smart strategically for the

long-term, and make sense short-term. out: the ceo has to tune the president or the administration? blair: you are not turning out policy framework. you are tuning out anything that is directed at a particular company, and we already see that going on. erik: do those trade policies affect the rationale for some deals? blair: absolutely. for example, china -- we want to know what happens -- they are the biggest trading partner. what does that mean if there is a cooling in the relation ask the trade war -- relation. ? my does that impact bottom-line business if i have exposure that -- there. blair: -- erik: do you think trump kills the merger of at&t and time warner? blair: i never let's talk about a particular deal -- but i will say from faraway look for it will pass muster. hard to get into the details. erik: are any other deals will?

-- vulnerable. blair: many are vulnerable. erik: how does eliminating the deductibility of interest, which is part of the tax reform plan -- how does that change the map on m and a? on the side and a of everything i have heard, that is the piece i am concerned about. the fact of the matter is it is such an ingrained part of our economy, and such an ingrained part of capital structures, that to do away with it, i think, has a potentially very serious, unintended consequence to the negative. erik: sure, but let's talk about it as it concerns m and a. if you eliminate the deductibility of interest payments, is there such a thing as a leveraged buyout? blair: the finance industry is pretty smart as -- at adapting.

i would always in the financial industry will figure things out. i am much more focused on what it does for investment in the country, creating jobs on a broad-based in this country, and making more. that will have an impact. erik: but it would be a game changer. blair: of course it would be. erik: that is blair effron. he is the cofounder of centerview partners, one of the last several years, by far one of the most successful boutique investment banks. alix: we have opec headlines -- oil is off today, halting a four-week gain. the question being will opec follow through on their cut? can they be verified? bloomberg caught up with opec secretary-general mohammed barkindo. he says the opec supply deal has only been in effect for two weeks. it is premature to discuss compliance. cut compliant in

january. the analyst call for bank america is under way. and ceo brian moynihan fielding questions about the president-elect. we will bring you the headlines you need to know. this is bloomberg. ♪

jonathan: from new york, this is bloomberg. wall street earnings kicked off -- let's get you up to speed on where we are premarket. bank of america down .7%. digg share repurchase program boost from that bank today. revenue is a mess. .rofit a beat jpmorgan chatting water, but a big rally over the last couple of months. -- beatingwaters estimates. they are set up well for 2017 according to many analysts to turn from defense, potentially,

to offense. call, monetaryat and has been julie hyman. what is the update? julie: the company talked about the buyback that you mentioned, and also talked about the increase of $600 million in net interest income care that is expected in the first quarter as bank of america benefits more from the increase we have seen in interest rates. the company cfo is now speaking on the call. he is talking more about the consumer banking division. he says the company is focusing on consumer relationship management, and noted the company enrolled 1.2 million clients in it preferred rewards program in 2016 as a whole, which is a 42% increase year over year, and he said the retention rate is very high for those individuals. in terms of hiring, the company said its overall employee base fell by 2% in the fourth quarter versus the fourth quarter of 2015, but they are adding people in some segments, including in

sales. in the first quarter, bank of america is going to book a $1.3 billion cost for the entire book -- retirement eligible cost. we are getting some forward-looking commentary here, sort of getting into the nitty-gritty of what the companies first quarter could look like. think you. julie hyman, listening in on the bank of america call. more from her later. coming up, we discuss what the bank earnings meet for the future of financials, and debate what the donald trump white house means. we will do that with julianna manual. the countdown to the u.s. -- julie in the manual. the countdown to the u.s. open. this is bloomberg. ♪

city,an: from new york for our viewers worldwide, good

morning. welcome on this friday, generate 13. -- january 13. the stage set like this -- of 1/10 of 1% on futures. the ftse, a 14-day winning streak. switching of the board, the datapoint running through. the cross asset check, u.s. retail sales with a marginal downside surprise. despite that, treasuries on offer. yields up. the dollar a little stronger off the back of this. towardo coming back $1.06. david: here's what you need to know at this hour -- bank earnings extravaganza. three of the biggest bank -- names in banking out with quarterly results. we will take you through the numbers and you the headlines from the conference calls. cap the tray -- china exports -- china tempted trade export your main subdued. the trade deficit decreases for

the first time since 2011 and china is said to be premorbid section on banks to stop the outflows. all clear -- janet yellen saying the u.s. economy faces no short-term obstacles in a speech thursday, and a slew of fed officials started to talk about how to shrink the $.5 trillion balance sheet. that is what you need to know at this hour. we go to alix steel. alix: thanks going nowhere on the earnings. bank of america coming in light. we will dissect the numbers in a moment. facebook, grubhub, netflix -- let's start with facebook, race --ace drawn by it rain raised to a strong buy at raymond james. grubhub made the top pick in the small and mid-cap space. i sure restaurants being added to the company, driving faster growth. netflix up by almost 1%. deutsche bank says they see subscriber growth as a catalyst for the company.

on the downside, gamers, gamestop is -- gamestop is up by 8% -- off by a percent. 90% for thened 18 to holiday period. that is also dragging down activision. nintendo set the price of the new console system, the switch, at $299, higher than analysts estimated. nintendo is trying to invigorate the platform environment. those are some of the non-bank movers. david: joining us once again is alison williams. welcome back. thanks for your work here today. looking at these three sets of earnings now, if you were going to give us one headline what would it be? alison: i think the most important thing i have seen as the share repurchase from bank of america. as we have discussed going into this earnings season, the stock

has had a huge run. investors are looking for signs of optimism. i think that is a signal from bank of america toward the future. looking at the fourth quarter numbers, everyone is focusing on ficc, one of the more volatile items. it tends to help setting the run rate going into next year. in general, i think the conference calls -- bank of --rica's call is right now there are so many more questions and answers because we do not know some things with regulations, tax policy, interest rates. those are key drivers, not just 2017, but over the next two years. david: we have some of what brian moynihan has been saying. brian moynihan: we had a couple benefit from that the resolution of tax matters that were partially offset by the combination of smaller charges for revenues from debt hedge ineffectiveness. this improvement in year-over-year results was driven by expense reductions as we lowered cost by 6% from

fourth quarter 2015 to the fourth quarter 2016. david: i want to pick up what you said about the stock buyback and put it together with costs revisions that brian was talking about. the good news is they have the money. they can buy back shares. they were making more money than they were. on the land, as jonathan was saying -- on the other hand, as jonathan was saying, this is a defensive move. this is not growing the top line. is that a challenge for bank of america? this acrossave seen the banks. even though there is optimism on revenue, it is still uncertain, right? so, cutting costs is saying i am going to control what i can control, and when you look to the top line, that will really, sort of, be upside, if you will, especially for interest rates, because that is a macro move that can flow through to the bottom line. detaildetail -- in some on the call earlier, some of the increase you will see in the first quarter of 2017 that is

related to the rate hike that we have already seen. on the cost side, it is building a base, building support for the earnings going forward. jonathan: on balance, we had a reflation story that began last summer. we have a trump rally that field the next leg up. on balance, which bank is better set to capture the story? there are two sides -- the more nimble jpmorgan, and that bank of america, with a huge deposit base ready to take advantage of a steeper yield curve. which one is on balance? alison: in general, for my real estate perspective, bank of america is more interest rate sensitive on that front, i think. if you're looking at the overall picture -- if you look at the overall oh -- r.o.e. -- return on equity, jpmorgan is still leading peers. wells fargo has focused on sales culture, but the banks are still earning relatively higher r.o.e.'s. alix: jpmorgan was about 10%

last year. if you have the issue, when do we shift -- what kind of interest rate move do we need to have them go from being defensive to offensive? alison: part of it is interest rate, and part of it is regulation will see from trouble. that is what people are looking for. on the interest rate, we saw the one move from the fed. most banks are geared toward short rates that will relate to fed policy. tax policy could be a driver of capital return. it varies bank by bank. regulation has been the biggest head winds for the bank since the financial crisis, and any swing in that in what transpires will be important to watch. jonathan: a lot of maybes. nowere joined yesterday with ifs, no babies and what he thinks will happen -- listen to this.

banks should transition from value destruction to value creation. what we mean by that is banks are in their cost of capital, and if they are in cost of capital, as we think they will, bank stocks, which have increased 50% from their lows, have another 50% to increase. back in black, a good place to be. jonathan: back in black, a good place to be. the numbers sound crazy -- another 50%, great. when you look at the price to book ratio of jpmorgan at 1.35 times books, to say they have more upside, it is probably not a stretch, is it? alison: it goes back to the r.o.e. discussion. price to book will be dependent on the r.o.e. to the higher the r.o.e., the higher the multiple you will get. when we look at r.o.e., what can we get in terms of upside? either better earnings -- we have discussed some of the drivers on that front, or, sort of, the balance sheet out of the equation -- there are some hopes

in terms of capital relief for the banks, but if you listen to our regulatory analyst, you know, less rules might mean more capital. policy may to trump not be a game changer for the capital ratios for the bank. david: there is another start of the rate -- part of the rate story -- bank of america has taken one-third of them to zero cost. they do not have to pay anything. will there be a point where they say i would like a little money and that increases their costs? alison: that is a key question for all the banks and key for all the assumptions. banks talk about here is the benefit we expect to get as rates rise. baked into that is what will happen to my deposit as rates rise. deposits on lower cost is important because they tend to be stickier, where lager

institutional deposits go out the door and get less benefit. it is a question of how fast with those deposit rates rise? so far, this cycle, that has been positive for the banks. a lot of that will depend on competition, and that will be a factor in terms of how much margins benefit versus the expectations. let's talk about expectations versus the headcount. it was down 2%. there were reports yesterday morgan stanley was going to lower bonuses by 50%, firing 20 managers. is this the end -- does it get better, or does this signal the beginning of the year will not be as great? alison: it is not just the level, it is the mix. your point,er -- to bankamerica headcount is down, yes, but they are increasing sales staff and pulling back and operations. this is a continuing trend of technology meaning bigger cost savings, but less people. on the front office side, we did

see those reports -- morgan stanley lowering the equity bonus pool by 4%. revenue was down 4% year to date. that is right in line with what you would expect. on the front office headcount, we have seen a huge reduction. we are starting to see stabilization within the quarter. this is the third quarter of better-than-expected fix. while that could be fleeting, if we get a bottom, we might celia -- stop seeing reductions on the front office. the last part is the compliance piece of the puzzle. what we have seen so far over the last several years is an increase in compliance people, decreasing the front office. perhaps that reverses. jonathan: more business with fewer people -- how much have we heard that? mike mayo also pointed out the mobile business of bank of america is the equivalent of 820 branches. david: and it is growing, adding new mobile customers at a remarkable rate. alix: 90% of deposits right now. jonathan: it is amazing.

on williams, thank you. for nothing on his outside of the business world, let's -- for an update on news outside the business world, let's head to taylor riggs. taylor: the house is expected to take up a measure that would allow swift repeal of the afford care act. several pelicans plan to oppose the measure. cominge concerned about up with a relationship -- replacement. president-elect donald trump says he will have a full report on hacking within 90 days. in a series of tweets, trump says reports the russians had compromising information on him was put together by political opponents. he called the allegations phony. says 20% of men worked part-time in 2016 could just 5% did two decades ago. global news powered by more than

2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. david: coming up, it is feared chrysler's turn -- the automaker reported its biggest day of declines after the epa accused him of using emissions cheating software on cars, and features show that selling is not easy today. ofer, ubs executive director derivatives research, julian emanuel joins us. this is bloomberg. ♪

alix: one stock we are watching is fiat chrysler -- the u.s. equity is down 2.5% in the market. the environmental protection

agency accusing them of violating emission laws. epa reports they put software in cars that allows them to receive pollution limits. the fiat chrysler ceo reacted angrily, saying the situation is different than volkswagen. let's get more from david welch. describe how it is different from volkswagen. welch: the epa is not saying they are cheap devices. it is based on the performance of the car. in cold weather, cars run different, so use electronics to control those developing you have to disclose that. that is what the epa is not happy about. not chrysler they did disclose they have these devices. that theyo suspicion are cheap devices. that is where fiat chrysler is

saying they are not cheat devices. it is a penalty, but not the kind of penalty that gets you a $4.5 billion fine. if it is a cheat device, it would be $4.5 billion in penalties just for the fact they have the devices in that many vehicles. alix: if it is not, what is the penalty? david w.: if it is not, it would be much smaller than that. where it would get really big is if it is a cheat device, not owing to you have the fines, but then you need some sort of consumer settlement. you have to repair the carson there is a big cost there. volkswagen got hit hard because they did not have a fix. they are buying many of them back, which is hugely expensive. they are buying them back at a premium. that is why their total gets as high as $23 billion. they also had to buy the dealers out. this can get ugly really fast if it is indeed an emissions cheat. david, sergio

marchionne called it hogwash. the stock got hit hard. investors are taking this seriously. we were down hard in italy by as much as 20% at one point. talk about how this company stacks up compared to volkswagen, and their ability, in case something is much bigger than it is at this point? david w.: volkswagen was hit with a $23 billion tally, but that is a much bigger cost. fiat chrysler has about $22 billion in cash, but that is not net cash. their goal was to get to about 3 billion euros -- not quite $4.5 billion. if this is a $4 billion hit, it would wipe away the net cash. that doesn't mean they have no cash. they have money on the books. they just have a lot of debt to go along with it. it would hurt their balance sheet. it, would be able to pay

but it weakens a company that is already one of the weaker players in the auto industry in terms of having money and having scale tool for the new technology everyone needs to stay competitive and meet regulations today. david: that is a critical point, where they are positioned within the industry and the consumer right now. this company is not one of the most vulnerable with its brands. it does not need investors to look at whether they want to be in the stock. david w.: that is right. they really have a lot of questions going forward, and sergio marchionne flag that a couple of years ago when he said openly they were looking for a merger partner and he was pressuring general motors to do it. when he was saying is we do not have the scale, psychological expertise, or the cash to driving cars and hybrids. we need a bigger partner. if you were to layer on this massive bill for a cheating scandal, they would really need to do something -- they would

really need to find a partner. things could get very dicey. again you have scott pruitt leading the epa, so this might not matter in a few months. david watch, good to see a. a top performing sector since the u.s. election taking center stage. the headline, the numbers he to know, and the trade next. this is bloomberg. ♪

jonathan: from new york city, this is bloomberg, counting you down to the opening bell. and the focus on financials. a slew of earnings from wall street, including bank of america, jp morgan, and wells fargo. bank of america, a revenue miss against estimates. j.p. morgan, ficc outperforming. the premarket, up across the board. wells fargo doing decently, up

.7%. joining us now is julian emanuel. ubs. with he came out with a note that said it is time to hedge. julian emanuel of ubs, the story in the financials, doesn't validate the call to take out the put options on that sector? julian: we have been nervous, frankly. we think it is a good long-term story, and honestly, the way the stock is performing today, it is causing us to breathe a sigh of relief. given how much was priced in and how strong a run the sector has had, the expectation was they backed off, and now we are seeing results generally pretty good. very encouraged by the fact that stocks are flat to hire. jonathan: it was not a conviction call. looking at the rally we have had, how much can they continue, and what actually are we pricing in?

we have tried to grapple with that. it is certainly not q4 if something is coming in 2017 and beyond. ofian: no, it is the wave optimism that has replaced and eight-year wall of worry, that can be a challenge because we are building an high expectations on the economy, high expectations on earnings in general, and high expectations in terms of what is going to be accomplished legislatively. for financials, however, it is going to be different because a long time, very embedded bearishness going back to the financial crisis is something that takes, you know, really, months to work its way through. we still think there is demand for these stocks. david: the one thing you did not mention is rates and what is it to be expected with rates. you have talk about to rate hikes, three rate hikes -- how much of the uptick is because of the? julian: a reasonably good amount, but there is also the element of the expectation of

the regulation. so, while certainly the rate story has been well factored in, we are actually encouraged by the fact that even as the yield curve has flattened incrementally over the last several weeks, as rates have stopped rising over 3%, that the stocks themselves have gone sideways instead of falling off. had mike mayo with strong words about the banks -- they used to be value destroyers, now they will be value creators. if that is the case, how do you value the bank starts right now? julian: the difference between valuing the financial sector and valuing the broad market is very much a conundrum. if you look at it, financials, precrisis, traded at much higher price to book on the order of, you know, 50% higher, where is the broad market as a whole is actually trading near multiples that we associate with prior bull market peaks. what, in effect, you could have

is if you get the deregulation and support from interest rates, that these stocks could go 10%, 20%, 30% higher, even if the rest of the market doesn't move higher. david: you keep mentioning the regulation. we have not heard much out of the trunk cap about the regulation. -- trump camp on deregulation. i am not sure where that is on donald trump's priority list. julian: it is actually possible. if you look at measures of confidence, consumers, small business, ceos -- in small businesses, they are spiked, multi-your highs, the alleged increase on record. those are times when hope tends to be something that holds stock prices back. jonathan: you could be optimistic, but you might be waiting for some to happen before you execute. the optimism from the small business -- the kind of thing that you have had the conversation about -- will they

wait for something to happen before they act? julian: they are waiting here there is no question they are waiting. expectations are -- waiting. there's no question they are waiting. expectations are we think the number is something like 2.8%, 2.9% gdp is exposed as -- as opposed to 2.4%, 2.5%. jonathan: the opening bell moments away -- futures up 31. positive three on the s&p 500. longtse, and all time winning streak of 14 straight days in london. the ftse up about 30 points. the opening bell in new york -- that is next. this is bloomberg. ♪ wow, x1 has netflix?

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show me house of cards. finally, you can now find all of netflix in the same place as all your other entertainment. on xfinity x1. 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. jonathan: this is "bloomberg daybreak." i am jonathan ferro. futures up 29 points on the dow, three to four points on the s&p 500.

the potential for a week of losses as we open in new york and close out a trading week. u.s. retail sales are out this morning. dollaries were bare, the on offer, then a downside surprise. around.urned treasuries on offer up three basis points on the u.s. 10 year. the dollar is stronger against the yen with a 1.15 handle on dollar/en. the market is open 60 seconds and. let's get to alix steel. alix: we are seeing the dow jones up .1%. the nasdaq is up .2%. the s&p is three points from another record closing high if we close at this level. oil is softer, but you have banks fluctuating. let's look at how financials are

trading. relatively flat. you can see morgan stanley, goldman sachs, black rock. they are up .3%. they missed on revenues but beat on earnings with record financial flows. morgan stanley on tuesday, goldman sachs out next week. to we sawptimism due jpmorgan and bank of america. both companies coming in strong. up 12% for bank of america, 30% for jpmorgan. the other one for bank of america was the buyback of 1.8 ilion dollars. an upside for financials. it feels directionless today. in this marketht -- are we overbought in this market? you could say yes. for the s&p you can see a decline in short positions. 1.3% of the float.

finally, outflows of short positions. in the first time in 2016 seven years. is the rally long fundamental buying or short covering? is that finally going to end? jonathan: great work. every time julie man u well comes on he has a message on the bloomberg saying i have to look at this chart. this is the one he wanted to look at. the final bears finally capitulated. david: the reason it concerns us is when you have high short interest it is a source of demand for stocks. an area where you will not count on demand over the near-term. an element of capitulation. when you get to the beginning of the year with the typical tendency for january, which we didn't have last year to be a

positive month, and the desire for active managers not to be caught under performing, it is easy to see. jonathan: it is cliche, but it is used on the street that when the final bear capitulates it is time to get bearish. are we there yet? think we are.t this year looks like it will be difficult to make upside progress because we priced in so much. into any 16 there were two very opportunities in february during the pricing of the recession that never happened. after the u.k. referendum when sentiment was apocalyptic. the fact that you have so much of the political plate, so many expectations for the economy, we are looking for sentiment to come off this euphoria to give us a buying opportunity later in the year. alix: down 20,000, it is around

number, and no one cares. the fact we cap.net door and couldn't break through -- the on thatt we tapped dorrit couldn't break through, what does that tell you? julian: we will make another run at it. we are close. a positive, that is message. the focus on earnings will only last for to five days. next ride a, january 20, we will worry about politics and macro once again. jonathan: we're not worried about politics and macro now? the level of last year, what is the lesson? the idea is maybe we will get a rollover and a u.s. recession. fast forward, the concession is gdp growth and a four handle in 18 months. julian: that is the lesson in the stock market. nobody was a buyer in february.

that was, retrospectively, the time to own stocks. the best case outcome would be to divest more earnings, see what not even the first one hundred days, the first 100 hours what happens, and hopefully stocks will take it in stride. alix: we seem rotation and stocks. small caps take the lead with the rotation into the cyclical stocks, energy, industrial, financials. what happens? julian: if you think about it, small caps are sensitive to the potential for legislation and a .ising dollar the rising dollar trade seems to be pausing. we have come a long way. for us, we prefer of the stocks that have lagged in 2016, health care, which many deemed on

investable for most of last year. the press conference a few days care stockslth down, but they bounced back. we think there is value there as as software. all of which lagged the election rally. alix: julianna man u well -- julian emanuel, thank you very much. defiedthe epa has keeping greenhouse gas standards intact. they have a determination the 2025 goals they agreed to will be final. interesting drama in washington. in 2011 carmakers agreed to a deal to limit greenhouse gases. they wanted a midterm review to be done no later than april of 2018, next year. in detroit i asked the ceos. they said we are hopeful there will be relief under the trump administration. the barack obama administration

said we will decide now and keep those standards in place. carmakers are saying this is premature. a finalhas issued determination on greenhouse gas. we will see if it survives the trump administration. jonathan: they're warning of high price. have aexactly, but we new sheriff coming to town, though it is not easy to do these things. alix: financials having their sinceear, their best day, december 20. jp morgan and wells fargo with numbers. bank of america missing revenues with fixed trading revenue up 12%. jp morgan profits of 31%. wells fargo profits falling 5.4% . julie hyman is monitoring calls this morning. julie: on timing, bank of ' call is stills

going on. we are seeing jp morgan media call began. .- begin they just started taking questions. jamie dimon and the ceo are on the call. on has been intermittently on earnings calls. he said he would not consistently beyond. that is something to note. he said the u.s. economy may the building momentum and there is the opportunity for good, rational policy decisions. he may be getting questions about what the policy decisions may the. -- may be. j.p. morgan shares have been trading higher out of the gates. we have not seen a strong performance from bank of america yet. hasally, bank of america turned around and is higher as those executives good color on that call.

bank of america has been emphasizing the strength of its consumer business and its expense reduction. the company got questions about the number of branches. it has been reducing the number of ranches. it is talking up its customer relationship management. bank of america has also been talking about the expected increase in net income of the first quarter of $600 million as it sees benefits from the increase in interest rates as the federal reserve interest up from december. also the reaction to the election working through the various treasury markets around the globe. that is what we are hearing. the wells fargo call. .e will be updating you on that the j.p. morgan analysts' call at 10:00 a.m. a lot of commentary this morning. goldman and jpmorgan, the

two best performers on the dow today. let's go to this senior research manager at robert baird. on have a neutral rating jpmorgan and bank of america. does this make you rethink that call? >> not really. the quarters were relatively good at we got up i back announcement from bank of america, helping the stock. all in all, we think the optimism about ranks and the trump administration potential in theses are reflected valuations. jpmorgan on a core basis did 148 to 150. a year ago, the expectation in 2015 was for $1.55, up 35%. it is more of an issue of price in valuation than anything else. jonathan: on the numbers from j.p. morgan and bank of america,

what do we want from the other numbers? >> the rate across on the credit quality side his credit is benign. that has positive implications for regional banks. long growth was ok in the 4% to 5% area. capital markets, largely expected, was quite strong. david: there was some disappointment in the pic trading. tell us about the numbers from goldman and morgan stanley. numbersge: jp morgan's were up in the mid 20's. the of a was up in the 10% area was up in the 10% area. i wouldn't be surprised if they were in a bad trade in the last of the quarter, but nothing that changes the story from our perspective. jonathan: we talked about which bank would be better positioned to an upturn and pivot

offense. j.p. morgan expects to comment on whether they have interest in buying european banks. how offensive could we see lenders get? mr. george: from him in a i would expect -- from m&a i would expect jpmorgan to do little. we get a more benign regulatory environment there could be benefits on the cost side as well as the trading side and revenue opportunities in other businesses. morgan at an all-time high. it seems the market disagrees with your assessment about what is priced in. why do you feel there is too much optimism when numbers are solid? jp morgan making a record. george: no question. we were fans of jp morgan for many years with stock.

we are to separate the fundamentals in the stock. many times those are different things. just like the financial crisis fundamentals were different that stocks were cheap. the bank index is at the 97 percentile from a valuation perspective historically. we prefer to be buyers when there is more fear in the market and the risk reward is more in our favor. that is not the case here. jonathan: great to have you on the program. 13-minutes into the session. really outperforming, jpmorgan trading at all time high on the session. track forerica, on the highest close since 2000 eight. 1.9 percent for bank of america. 1.99% on jp morgan stocks right now. more coverage on the banks throughout bloomberg's coverage. u.s. retail sales accelerating

in december thanks to strong demand for motor vehicles. what retail categories aren't faring quite as well. this is bloomberg. ♪

taylor: this is "bloomberg daybreak." i am taylor riggs. coming up, and the new york 2nd avenue subway.

jonathan: from new york, this is bloomberg. i am jonathan ferro. state of play like this looking at equities up across the board. .3% on the doubt. the nasdaq at an all-time high. jpmorgan, intraday all-time high trading up .3%. on pace for the highest close since february 2008. let's go to abigail doolittle for more. bucking one stock is the bullish trend. trading down after the company put up disappointing holiday .ales, down 18.7% they missed fourth-quarter sales. the company says this has to do with an industry downtrend plus promotional pricing and in-store traffic. this had been weighing on activision blizzard, but now they have their worst day.

one consumer discretionary stocks trading higher is netflix up 1.5% after deutsche bank at grade -- deutsche bank upgraded sales. a change in posture with the firm saying they're looking for international subscribers for the upcoming fourth quarter report wednesday. what is ahead for netflix could be on this chart. this is a five-year chart within uptrend. last year's disappointing quarters, a number of disappointing quarters, the up trend started to reverse. netflix seems to be unable to have an all-time high. this chart suggests we could see netflix trade back below $100 at some point this quarter. david: which would be big news given the importance of netflix. u.s. retail sales picked up in december, supported i stronger

demand for autos. here is the ceo and chief chelsea officer for the advisor group. welcome to the program. >> thank you. happy new year. david: how disappointing are these numbers when you take out autos? ofwe had gotten the flash the holiday sales as retail companies reported holiday season sales. it was definitely a disappointing holiday season. differentoking at categories. department stores coming in weaker than expected means that some of the discretionary goods, consumers are shifting. autos, homes, or experiences, that is what is working. david: numbers indicate wages are up so people should have more money to spend. why are they not spending more,

particularly around holiday time? to thee had the race bottom with a pricing. we had people focused where they are spending. health care is going up. you also have people spending on autos. that is part of the change. luxury goods benefit from rising international tourism. you are not seeing that at the .ame pace as years passed inventory levels are being lean. margins have more opportunity in the near term than sales increases. the weaker sales story but a job in credit card debt. increase.llion help us distinguish between the winners and losers in the retail stock. dana: overall the winners and losers come down to where is the growth? lululemon, children's place, does medics continues -- cosmetics continue to be solid, like elf and ulta.

when we think about who is being impacted, we are seeing apparel names. companies like urban outfitters continue to be challenged in sales. we are seeing guests have a hard -- guess have a hard time in the americas. i think that will set companies apart. managed inventory levels and product innovation newness. lululemon drove with new product introductions. american eagle introduced a sport line before christmas. that is what consumers are looking for. secular orhe problem cyclical? people are spending on cars and experiences. does that turnaround? it is a secular problem. the cadence of the integration of the physical and digital we think is key in order to help

companies perform. multitenant shoppers spend three times more than single channel shoppers. both channels of distribution need to be open and available. telseaceo of the advisor group. advisory group. the best performers since the election, coming up. this is bloomberg. ♪

jonathan: from new york city this is bloomberg. i am jonathan ferro. let's wrap up the early part. equities open higher .2 5%. the dow up .3% on the s&p 500. financials.he look at some of these moves.

bank of america 1.67%. jpmorgan up. an intraday high. q4, butt stellar in nothing to take off track from a rally, an epic rally, since the election results. look how we perform coming into today's session. the s&p on the financials were 18%. today, gains of 20% to 25% for individual names. quite of mourning for some of these banks. it is about what is coming in 2017-2818. david: they may have been disappointment for the analysts, but not for the banks. jpmorgan is the highest ever. alix: we had tepid asian coming in and analysts downgraded because of the expectations based off to high heading into earnings. we met and in some cases beat,

and you had to move forward as analysts were proven wrong. david: we heard the same name again and again. jp morgan, jp morgan. position to go from defense to offense. is he set to go from a defensive position to an offensive position as quickly as he might need to? made it clear he does not want to go much further. jonathan: that does it for "bloomberg daybreak." stellar, butword the rally continues. from the team, good morning. happy friday. ♪

vonnie: from new york, i'm vonnie quinn. mark: i am mark barton. welcome to "bloomberg markets."

vonnie: we will take you from washington to tokyo, and covers stories out of london, paris, .nd wall street first, u.s. economic data. consumer sentiment coming in estimates. still a strong reading, but it was supposed to come in at 98.5. we have stronger confidence readings in the wake of the election and the rise of the dow here at risk assets doing well to consumer confidence and talk of jobs. how markets are reacting, as well as other economic data. abigail doolittle has more. abigail: we have the dow, s&p trading higher.