"bloomberg daybreak." in the markets, some trade rally started as far as equities are concerned. if you switch up the board and get to the fx market, it looks a little something like this. sessioner dollar brexit's nextix: step. prime minister theresa may must seek the permission of parliament. dollar dilemma. steven mnuchin says excessively strong dollar may hurt the u.s. economy. trump had to meet with ceos of detroit's big three automakers as he looks to persuade manufacturers to keep production in the u.s. jon: for more on the countdown

to brexit, we are joined by anna edwards in london. two significant pieces of news. one really against the government and scotland and northern ireland will not get a say on the process. a: this is a 97 page judgment handed down by the supreme court here in the u.k. around 2.5 hours ago. 97 pages here. the government will be trying to put something short and sweet in front of the u.k. parliament. the lost their appeal at supreme court which means they have to put a bid in front of parliament. they will try to make it short so there is as little to object .o as possible heard from various parties in the houses of parliament that they will be looking to introduce amendments. that will delay the process.

i just caught up with hillary from the labor party opposition. the timetable is still possible. that is what this is all about now. the timing and the softness and hardness of exit. -- brexit. how many of the amendments will be able to influence just kind of brexit we get? the parliament in scotland and the assembly in wales and the northern ireland assembly, this will be a disappointment to the scottish nationalist party. judges in the supreme , it could have led to a constitutional crisis. it is not likely they would have done so. that has gone in the

government's favor. jon: prime minister may had a goal to critical article 50 five by the end of march. is that still the goal? the government says it is still the goal. and 30 minutes whether thatetary is still the timetable they are sticking to. reaction plain and simple. 124cable rate dropping to .53. joins us comegis for you,h david kohl what is most important at this

point? hard brexit, soft brexit? definitely what is important is how to conflict into currency drivers. interest rate hikes come -- how wille cuts investments in the u.k. be affected? we have seen that m&a flows are weakening into the u.k. this will be the name of the game going toward. -- going forward. we think the parliamentary vote .ot change much on that we are monitoring what are flows flowingg are they quickly or stretching over time?

this is negative for the pound going toward. jon: you would expect it to be negative or guilt as well -- for guilt as well inflation is biking and picking up aggressively. is spiking and picking up as aggressively. alessio: you have enormous demand or inflation globally. are priced yields off each other. out yields do not look that of line. you have this conflict between inflationary forces which may be temporary database effects -- the bank of england is not tightening policy. au have easing of policy and

risk aversion bid for guilt. you know how markets operate. bad brexit is a scenario. uncertainty and delay can be an even worse scenario or markets. -- for markets. the possibility of a hard brexit may allow markets to move on. really keepstoday these markets in this hold phase without a new driver. alix: i'm curious as to what this means for ceos. if you are looking to make an investment, what do you do after today's decision? on the decision in the see little drivers for

the markets. is somethings is happening on the interest rate front -- we don't think so. whether foreign money is still floating into the u.k. jon: look at the data and get rid of the policy for a moment. the pmi in europe was solid, the hiring was good. out of the u.k., the data is pretty solid as well. if you strip out the politics and look exclusively at euro sterling, how would you formulate any kind of thought on where to go from there? david: both economies are doing remarkably well. the u.k. economy did not fall into a recession as many people feared the euro zone economy is doing quite well.

have reluctance to tighten monetary policy on both eyes of the channel -- both sides of the channel. the dynamic has very little differences. thatthe politics is messy the economies have held up -- but the economies have held up. emma: president donald told members of congress in a private reception that he believes he lost the popular vote because millions of undocumented votes for cast hillary clinton.

mike pompeo is the new director of the cia. the former kansas congressman was sworn in last night by vice president mike pence. the senate confirmed donald trump nominee to run the cia. australia is leading a push to salvage a pacific trade deal without the u.s. australia's prime ministers said he discussed the deal on monday night with japanese president shinzo abe. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. alix: u.s. equity futures going nowhere. apple up i .6% in premarket. barclays.al weight at no meaningful upside potential

commencing the iphone that potential -- no meaningful upside potential, saying the 8 cycle -- earnings trickling out before the bell. verizon off by 3% in premarket. revenue was a bit stronger but earnings was a mess. the real number is the net ads coming in at 591,000. they are still trying to assess the deal with yahoo!. j&j off by 1.5%. earnings were better than estimated. they may make strategic changes to its diabetes operation. we will be speaking to the ceo later in the hour. david: treasury secretary

nominee steven mnuchin warns that an excessively strong dollar could hurt the u.s. economy. we will talk about the dollars next move. that is next and this is bloomberg. ♪

alix: this is "bloomberg daybreak." the dollar catching a break after falling to a six week low yesterday. said "thechin strength of the dollar has historically been tied to the strength of the u.s. economy and the fate investors have been doing business in america. and excessively strong dollar may have negative short-term implications for the economy."

and us, alessio de longis david kohl. is that the right interpretation? headline, you naturally get the pullback. if you actually look at what the statement says, it did not say anything new. it did not say the administration has a weak dollar policy. i don't think these statements alter the overall outlook for the dollar. has.ee the dollar s gains.ns -- paired it's gain it's all based on headlines. it's all based on the anticipation of certain policies . need concrete action. david: there was a distinction

between a good dollar rally and a bad dollar rally. which one are we in right now? david: we are in a good dollar rally it is not so much about euphoria about from policies. it's all about inflation and the reaction of the fed to that. for taxake the case cuts or physical stimulation be good for the economy -- fiscal stimulation being good for the economy. all these other negative points from trump's policy spectrum, they are inflationary in the first place. that means the fed will hike rates more aggressively. this will drive the dollar. it is not so much that everybody likes the policy of donald trump .

it is interest rate differentials which we expect will drive the dollar higher in the next few months. jon: for anyone watching the when they see comment after comment on the dollar, doesn't matter what they think -- does it matter what they think? doesn't matter whether steve mnuchin inks the dollar is excessively strong? david: it will matter when the policy message would be much more clear-cut against the u.s. dollar. this message doesn't tell anything new in terms of politics. trump is concentrating on the domestic economy side, on the domestic production side. the stronger dollar doesn't matter that much overall.

alessio: we are focusing a lot on the proposals from the new administration, including the border tax adjustment. fundamentalm driver, we are seeing a potential macro backdrop of fiscal coupled with tight monetary policy here in the u.s. while in the u.k. and japan, we have the exact opposite policy mix of tight fiscal and easy monetary policy. this type of fiscal and monetary policy diversion show they provide a powerful recipe for large currency move its in this case favoring the u.s. dollar. the dollar is already overvalued but dollar cycles

tend to extend to 25% overshoot. jon: great to get your thoughts. thank you for joining us. coming up, an important conversation with johnson & johnson. came7 profit forecast that a bit low. caruso joins us next to discuss the results. ♪

david: this is bloomberg. johnson & johnson kicked off the fourth quarter earnings season for format and med tech companies this morning. the company reported results slightly better than forecast earnings per share to slightly worse next by good on revenue. in expected revenue.

joining us now is johnson & johnson cfo dominic russo. yourminic caruso earnings-per-share better than forecast. at the same time, revenues were a little off. your projections for the next year were less than what the street was expecting. we dominic: we had strong earnings results, topline growth accelerated over the prior year. very pleasing result. fore look at the top line our fourth quarter and our outlook for 2017 come it is clear to us that not all of the analysts have updated their models for recent currency impacts. we have done so. with theght in line street.

this is a factor of analysts not yet updating for currency movements. dollar andstrong week developing currency -- developing market currencies account for the difference. dominic: that is right. david: explain to us how you did so well on the earnings-per-share. how are you doing that? dominic: we had very strong results in earnings driven by the top line and good cost control. beenojected we would have -- we of 200 basis points deliver 330 basis when improvement. -- we delivered a 330 basis point improvement. david: where does that put your profit margin for the year? dominic: the overall net income margin is 26% for the year. they are slowing growth

-- what is going on with the bio similar competition? dominic: bio similar from pfizer was launched in november. so far, we have not seen much impact. we defend our intellectual property. we believe we have a strong immunology franchise and strong solaris this -- a strong underlying immunology business. we will look at the bio similar impact over the air. -- overated that would the year. be.stimated what that would h if a dealategically,

went forward, would it fit into that category? will not comment much on any particular transaction. always look atwe growth enabled by strategic acquisitions in addition to organic growth. we are in exclusive discussions with them. we will continue to look for ways to improve our growth outlook with strategic acquisitions that creature overvalued. that withr boss president trump yesterday at the white house. did he give you any sense of what was talked about? dominic: he said it was very productive. it was a discussion about trade and tax and economic stimulus and job creation in the u.s. we are very excited and pleased to be working with the administration on advancing all policies in that regard. david: if there's less coverage

under a revised obamacare, would that affect johnson & johnson? by theout the talk president of having block negotiations to get the prices down? we did not see much of an impact in our overall business. coveragetion in that would not have any particular significant impact on her business. -- our business. ofadvocate for expansion access to health care for all americans. 12-14%icing represents of overall health care costs. we are responsible in the way we price our drug. our drugs deliver real value and improve health care and the lives of millions of americans and people around the world. david: thank you for joining us

today. that was johnson & johnson cfo dominic caruso. jon: coming up, trump protectionist vision. an executive order pulling the u.s. out of the tpp. we will discuss with michael gapen, coming up next. futures positive four points on the dow. largely flat throughout the across the board and throughout 2017. a stronger dollar session developing in the g 10 space in the fx market. this is bloomberg. ♪

jon: from new york city, this is bloomberg. looking at european equities or u.s. equities, the stoxx 600 or the dow, the trump trade has

stalled somewhat. look at the bond market, we yields up to basis points. -- two basis points. a little softer on the session. -- billion alix: brexit's next step. yothe u.k.'s highest court saying theresa may must seek the approval from parliament. steven mnuchin says and excessively strong dollar may hurt the u.s. economy. the dollar paring earlier losses. trump said to meet with the ceos of detroit's big three automakers at 9:00 a.m. eastern today as he looks to persuade the manufacturers to keep production in the u.s. david: the president yesterday

met with ceos and made it pretty clear that he intends to impose a border tax on any company that moves its jobs offshore. >> a company that wants to fire all of its people in the united states and build some factory someplace else and thinks that product will just blow across the border into the u.s., that is not going to happen. they will have a substantial border tax. -- we we are joined by will hear from the auto executives. what will they be talking about with respect to this border tax? >> president trump talked about the border tax yesterday. we can expect him to talk about the same tax today. he is trying to pressure u.s. automakers to keeping jobs in the unites states. this united states.

we are expecting him to say the same thing. if they keep their jobs here in the u.s., they can expect to see regulatory reform and tax cuts. if they ship jobs out of the country and try to bring products back into the u.s., they can expect a border tax of as much as 35%. david: the president has also said he doesn't really favor a border tax because it is to complicated. is this just a border tax if you move your jobs offshore? it very trying to make clear and have a simple fight version of what paul ryan is doing. if you have jobs currently in the u.s. and you send them over or any other country products backp and u.s., you have a specific border tax for those products. he wants things to be simpler

than what we are hearing out of the house. it would've been better to move jobs offshore before the president got into office. what we have seen from a number of companies come up with number of company's, they have tried to repurpose job announcements even before trump was elected and bring them up once again and saying we are creating all these jobs in the u.s. and trying to get president attention. some of them have received praise from trump for those very plans. david: thank you very much. cross over to the u.k. parliament now where the brexit secretary is speaking. >> we will shortly introduce legislation allowing the toernment to move ahead invoking article 50.

received a judgment if you hours ago and government lawyers are assessing and carefully. this will be a straightforward bill. it's not about whether or not the u.k. should leave the european union. that decision has already been made by the people of the united kingdom. we will work with colleagues in both houses to ensure this bill is passing in good time by the end of march of this year. this timetable has already been supported by this house. let me go through the issue step-by-step. the government's priority following the referendum was to ensure it is delivered in the interest of the whole country. this house voted by six to want to put the decision in the hands of voters and that bill passed unopposed there can be no going back.

the government has also always been clear that we must leave by following the process saidet out inarticle 50 -- set article 50. process or to the invoking article 50. was thatnment's view it was constitutionally proper and lawful for the government to begin to assess the decision of today, the supreme court has agreed with the high court's judgment that the prerogative power alone is insufficient to give access under article 50. that legislation is required in order to provide the officer authorization for this step. on this, the supreme court ruled

with the eu and other foreign affairs matters parliamentd for when not to involve institutions. the legislatures do not have a veto on the uk's decision to withdraw from the you p need eun union. the government has been given careful thought to steps we would need to take in the event of the supreme court upholding the high court's view. in and value the independence of our judiciary. thefoundation upon which rule of law is built. of course, we will respect this judgment. this judgment does not change the fact the u.k. will be leaving european union.

-- we willob to it within days introduce legislation to give the government legal power to trigger article 50 and began the formal process of withdrawal. it would be separate from the deal bill introduced later this year. this will be the most straightforward bill possible to give effect to the to sit of the people and to respect the supreme court's judgment. the purpose of the bill is to give the government power to invoke article 50 and begin the process of leaving the european union. that is what the british people voted for and it is what they would expect. i trust no one will seek to make a vehicle for attempts to thwart the will of the people. our timetable for invoking

article 50 by the end of march still stands. that timetable has given valuable certainty to individuals and businesses across europe. it is understood by european partners and provides a framework or negotiations ahead. this backs that timetable by a majority of 373 in december. we look forward to working closely with colleagues in parliament to ensure that the legislation article 50 is passed in good time to allow us to invoke it by the end of march as planned. finalvernment's fifth and judgment is to continue to ensure that we deliver brexit in the best interest of the whole of the united kingdom. while this provides welcome clarity, it in no way diminishes our commitment to work closely with the people and the administrations of wales and

scotland and northern ireland as we move forward with our withdrawal from the european union. let me conclude with a word on what today's judgment means for democracy. importance,of such this has not been without controversy. the court was asked a question. a thorough process was going through and it has given its answer and law. we are a law-abiding nation. we will build on this and are many other strengths as we leave the european union. we will once again be a fully independent sovereign country you to make our own decisions. -- free to make our own decisions. the prime minister has already set out a comprehensive plan. she has been clear that we want a new, positive and constructive partnership between the u.k. and the eu.

today, we are taking the necessary steps to respect this supreme court's decision by announcing a bill it will be up to this parliament and respect the decision in entrusted to the people of the united kingdom. i commend the statement to the house. david: that was the secretary of brexit after the u.k. supreme must ruled theresa may seek an act of parliament to trigger article 50. the government still plans to trigger article 50 by the end of march. this is no reversing of decision. breaking news on the side of the atlantic -- president trump will name a supreme court nominee early next week

according to abc news. the opening left by the sudden nd theof antonin scalia a nomination of merrick garland went nowhere. up, the road ahead for u.s. automakers. president trump will meet the heads of gm, ford and fiat thesler later this morning possible impact on the economy, the auto sector and trade relations with mexico and canada. that is next. this is bloomberg. ♪

shillerming up, robert joins us.

this is bloomberg. we've been talking this morning about the possible border tax. the president says he is set to impose one. the incoming treasury secretary an excessively strong dollar may have negative short-term implications for the economy. we are joined by michael gapen take ussio de longis through what the implications of the vortex could be. michael: there's two things there. the border tax is really a tariff. ryan talkseaker about it, it is part of comprehensive corporate tax reform.

what house speaker ryan is talking about is we need to reshape the whole corporate tax code. as part of that, we have a vortex of light to all imports. -- border tax applied to all imports. that plan would be very dollar positive and that is what the treasury secretary is speaking to. david: it's one thing to charge imports coming in. is that part of ryan's plan? michael: the corporate tax code is a point of origin system. corporation,u.s. no matter where the transaction takes place, you pay point role texas -- federal taxes. exportersncentivize or benefit exporters at the expense of importers. alix: what happens to the dollar? alessio: the paul ryan version

of the plan is more supportive of the dollar in the long term. it creates an incentive to relocate production onshore. it would change the long-term dynamics of trade flows and most importantly for direct investment flows which are traditionally one of the largest , most persistent drags in the dollar. a simple tariff on the border would generate more inflationary consequences. on the growth side, you don't get anything because look at what happened with the mexican peso. the peso has already depreciated .0% if this is just a temporary inflationary shock, will the fed accommodate it or tighten against it? one for one?

yep to keep the savings and investment ratio consistent. michael: in theory, yes. in practice, probably not. the models are very simplified and the move in the dollar would offset the border tax. in reality, there are a lot of things that affect where the dollar goes. there would be at least adverse consequences in the short run on activity in inflation. whether it reorients activity back into the u.s. over term could be a medium-term gain. sell retail, by uy small-cap?

alessio: the outcomes we --cribed either long-term they do require a dollar rally in the near term. the clearest implication for us come underweight duration and long dollar buys in the portfolio, particularly against market -- developed market. on stocks, it is more of a sector rotation than an outright bullish equity market environment. we were seeing a secret eyes growth rebound globally before the election. -- synchronized growth rebound locally before the election. we still believe equity markets are going to rally from here michael. alix: thank you so much.

pleasure to have you both here. michael gapen and david kohl. -- michael gapen and alessio de longis. ma: amazon.com set to dodge antitrust fines in europe. amazon agreed to change controversial clauses that required publishers to offer -- theterms and good ads pledge would last five years and the love publishers to add contracts on other e-book stores. saudi arabia plans to sell less than 5% of the energy company, raising $100 billion. among the banks, goldman sachs and hsbc. the up yet was expected in the second or first quarter next

year. shares of bp pledging this morning. -- plunging this morning. after a probe found more faulty accounting and inappropriate behavior than the company had first identified. that is your bloomberg business flash. this is bloomberg. executives of the big three automakers had to the white house. president trump looks to persuade car manufacturers to keep production within the united states. from new york, this is bloomberg. ♪

alix: the chief executive of gm, fiat chrysler and ford will sit down with donald trump today. ceo attending a meeting

at the white house yesterday saying this. >> i know i come out with a lot of confidence that the president is very serious about making sure the u.s. economy will be strong and that we have policies to drive that. that encourages all of us as ceos as we make decisions going forward. alix: joining us now, michael mckee. we know what trump is going to want them to do. what will you have to give up ? you have to lower taxes enough on these companies that it would offset the cost of making the cars. the reason these companies moved to mexico and canada is because the cost is so much lower for the kinds of cars they are ere.ding thei they've announced expansions of plants in the united states. we have had announcements from the big three already.

toy're expanding plants build pickup trucks and suvs. they cannot afford to make the smaller cars because the margins aren't big enough. david: is donald trump really preaching to the choir? the kinds of cars they are are sellingxico less in the united states to begin with. michael: theater. this is not actual policymaking. he has threatened to impose taxes on companies that move overseas and import their products back in. he doesn't have the power. he can impose tariffs on a country or on a sector like every small car brought into the country but he cannot say chrysler, you moved jobs to mexico, so i will text your cars. -- tax your cars. as long as gasoline prices stay

low come american spy bigger cars. uy biggerans by bigge cars. at this point, they could negotiate different ways of bringing in imports. supplyow come of the chains between the countries have become so intertwined that 40% of all mexican imports that come in the united states are u.s. made products. and getssed the border inserted into something and brought back over. the auto industry imports from mexico are a small part of all this. , it showse blue line the number of total car sales, 18 million, we are importing 105,000 mexican cars. it is not a major contributor to

the trade deficit at this point. jon: michael mckee. --is not policy, it is peter it is theater. coming up come of the new hurdles facing the u.k. prime minister theresa may. will lawmakers constrict u.k. split from the european union? futures unchanged. 2017 flat, flat, flat in the fx market, it is the dollar strength session. the cable rate at 124.35. this is bloomberg. ♪

.

jon: welcome to bloomberg

daybreak on this tuesday, jonathan 24th. in the equity market, the donald trump rallies has stalled, futures flat, flat all year, on the doubt and on european equities. other asset classes, a stronger dollar session and treasuries -- a ton of supply. brexit's next set, the uk's highest court says theresa may must get permission of promote guys parliament to trigger a countdown, government will introduce a straightforward article 50 bill. nomineeasury secretary says that excessively strong dollar may hurt the u.s. economy with the dollar peering earlier losses after falling on those remarks yesterday. donald trump set to meet with the ceos of detroit big three automakers at 9:00 a.m. eastern as he looks to persuade manufacturers to keep production in the united states.

jon: thank you. the supreme court ruled that theresa may would need to pass an act of parliament before opening negotiations with the european union to trigger article 50. her timeline is the end of march. we heard from the brexit secretary on what he thinks will happen from here. take a listen as he addresses parliament. >> this house voted to put the decisions on the house -- any hands of voters and it passed unopposed, no going back, the point of no return was passed on june 23 last year. was the point of no return in 2016, we can cross over to our brexit correspondent. the point of no return, the end of march, the timeline, how realistic is the government timeline given what we learned a couple of hours ago? >> it all depends on the

amendments that get attached to this bill. ,e heard from david davis confirming the government has this target of triggering article 50 by the end of march. a lot of process to go through before that. this bill needs to go before the house of commons, five stages of approval there, then the house of lords which could be unpredictable, the government, the conservative party does not have a majority in the house of lords, the unelected upper chamber in the u.k. the government said its target is still the end of march which is why they will bring forward a bill that will be very straightforward, the simpler they keep it, the less there is to object to any fewer amendments can be attached to it is the way the logic works. jon: the supreme court ruling against the government but maybe bright thought is the government does not have to consult northern ireland and scotland to

trigger article 50, talk about the appetite for amendments to slow down the process and restrict the government ability to trigger article 50 by the end of march given there are representatives of scotland and northern ireland within the parliament and liberal democrats in the margins could be making noise. >> we have heard from the various parties with the amendments they want to bring, the scottish national party, the third biggest in the house of westminster said they want to bring 50 amendments to this bill and we heard from the labour party who wants to bring an amendment around access to the single market, talking about trade. the liberal democrats cap a handful of members of parliament and they want an amendment that talks about another referendum on the final brexit deal when that comes to -- two years after the triggering of article 50. a lot of debates possible, up to the speaker of the house to decide how many amendments are allowed and this could get very procedural before we get closer to the end of march deadline.

on the scotland question, as necklace of the smp said she is disappointed about the supreme court decision, it does not give her a veto over the decision being made in london, does it move us closer to another independence referendum in scotland, something to be debated. in: as if domestic politics the u.k. wasn't complicated enough, theresa may will come to the united states, what does she expect to achieve and take home after a visit with donald trump to i don't know, gain some leverage with european partners as negotiations are set to begin in a couple months. able tod, she is not enter into trade negotiations, she can have talks but not do any trade deals because the u.k. is still part of the european union and has not article -- trigger article 50. she cannot do a trade deal but she wants to do talking about

trade. voice in favor of free trade that theresa may has become, going to speak to donald trump who is not a big fan of globalization. how they will square that circle will be interesting to see, she will be looking for something on trade, details of the banking sector, migration conversation, access to work permits may be something that is talked about as she makes the transatlantic visit. alix: if the talks with donald trump go well, i mean they make advances towards the things you talk about, what leverage does that give her to go back to the european union as a look at the deal i may get, now it is your turn? >> i did not quite get all of that. i think you were asking whether they would be the possibility of going back to the eu another time.

we heard that most of the lawmakers in the house of parliament, even if they voted or wanted to remain previously have come around to the idea of leaving the european union, of brexit happening, there is not a suggestion that we will prevent brexit through this parliamentary consultation process but it could delay it. there is a man behind you, cannot tell if he is protesting or selling morning newspapers. it is a process she tells me, thank you. , great toth brexit have you with us. from what you have learned over the last couple of hours in the united kingdom, less certainty or more uncertainty, what is it? >> i am not sure, what i know is that the market yesterday was getting a little bit carried stakes thems of the

court could impose on the government and what we learned today is that it will not make the process so much difficult for theresa may. the parliament will have to vote, the court did not impose anything in terms of the length of the bill. the court also did not say the regional parliaments would have to vote and therefore we do not need the ok from scotland. all in all, the conclusion from the market is that it will not be a major obstacle on the way to brexit. that is why we have a little bit of pullback today. jon: it has been choppy for the fx market, the pound has traded on the politics comes the economics ok, fast-forward to the end of march, does that story change, does the fx market

take more notice of the cyclical data we are seeing? >> it might, you are entirely right, if you look at the rate market, the rates market has been starting to price the possibility of a hike. in the coming year. that has not been reflected in the fx market, if you look at the link between the interest rate differential, u.s.-u.k., europe-u.k., euro -- cable, euro coupling, yousee see that based on the dynamics of the rate market, euro sterling would have to pull back a bit more. i see room potentially for a new term correction but i think the decoupling shows the politics really remains quite a strong negative for sterling and that will limit any game you will see -- any gain you will see. david: volatility has been

bouncing around all over the place, a longer-term trend come visit simply correcting for the balance in the u.k.? >> we have a massive selloff in sterling following the brexit vote in june. it has stabilized at a much lower level, we will see some action around that. occasionally up and occasionally down. we will not sell the rebound in sterling because there is the structural weakness coming from the talents of payment but also because of the uncertainty of the brexit process. they will trigger article 50 in march but i am afraid that the negotiations will be very slow at the beginning, we will wait for a new french government, we will not have a new german government before autumn, the first six months will be very slow, that will cause uncertainty. the big you is sterling will haven weak but you will

occasional rebounds, especially because the market is short, in euro-sterling, there is room more than cable for a correction. we will be selling sterling on bounces. david: you will stay with us. now, coming up with the dollars while ride, steven mnuchin warns that an strong dollar could hurt the u.s. economy here the greenback paring losses today after touching its lowest level in seven weeks, the future of the u.s. dollar is next and this is bloomberg. ♪

jon: this is bloomberg daybreak, let's check out the markets quickly. features largely flat throughout the morning, equities up. sterling is weaker as you might

expect given what we see on the ftse 100, 124. , stronger dollar session treasures off and yields up for basis point, later we will get $26 billion of two-year notes auction. billion, five-year notes and after that, the day after that $20 billion of seven-year notes. let's move to the big story of the day which is the dollar. it is it is moving higher after falling to a six-week low yesterday on a statement by treasury secretary nominee steven mnuchin who in a response to a hypothetical 25% rise in the dollar said the strength of the dollar has historically been tied to the strength of the u.s. economy and the fate investors have doing business in america and from time to time and excessively strong dollar may

have negative short-term implications on the economy. markets interpreted this as dollar negative -- was that the right call? >> yes, it has happened twice, there has been some talk, negative talk from the incoming administration about the u.s. dollar which is becoming a little bit of an issue. the market is long the u.s. dollar and when you have those repeated comments about the damage that excessive dollar strength could cause, it is making a number of players a little bit uncomfortable. eventually, actions and the economy will be speaking stronger than words. if the economy continues to be strong, if the fed tightens more quickly, the dollar will be strong but the long positions that are exposed to such talk. alix: is it action or

differential rates -- rate differentials, there we go, with sterling, here is what someone had to say about the dollar. >> it is mainly based about interest-rate differential, for euro-dollar for example, we expect parity by the end of the year. on monetary policy is that the fed it needs to normalize and will normalize, whereas the ecb and the bank of japan could keep policy easy for a long time. alix: actions do not matter, all about interest-rate differential, do you agree? >> yes, we see euro-dollar going down to parity, dollar-yen going towards 120. we sure that you but i am concerned this view is a bit consensual and crowded and therefore you will have occasional correction, especially if the new

administration talks the dollar down but i think the fed will eventually, the economy will be driving rates into the spring because he euro-dollar going to parity. from there, a stretch, buying the euro again. david: concerned about the consensus trait but at the same time if you look at other risk some of the upside of the dollar going beyond the emergence in monetary policy, you have a possible corporate tax reform, lower taxes, repatriation, deregulation possible, all of which would push the dollar higher, wouldn't it? >> i agree and this is a little bit of a contradiction we face. the incoming administration wants to push that policy agenda that would be bullish for the u.s. dollar but they actually talked the dollar down. that will create a little bit of volatility. i believe the dollar view which is a bit crowded is more exposed to such talk from the

administration than the bond view, the bond view also will be crowded from the speculative side but i believe that eventually if you get more growth, more inflation, a tougher fed, that would be pushing yields higher. i am more comfortable about that you with the dollar view a bit more exposed. jon: i want to push back on the euro, short, the data out of europe is solid again if you hiring ise pmi's, the solid, the price pressure to be seen, the ecb on hold through the rest of your but you talk about rate differentials and tell me how they will develop europe -- europe versus the u.s. , given the economic data in europe right now. >> i agree that the data is quite strong and for that matter, we are of the view that one inflation could surprise, and also that could very possibly change the stance of the ecb, we believe that the

middle of the year we will be talking about tapering from the ecb and that is when the euro isld get some support, that where i am saying parity will be buying the euro. in the near-term, you have a lot of political risk in europe, we will hear about the court in has to makeurogroup a decision about whether the nps rescue is compliant and the french election coming up with potential elections in italy, that political agenda is going to probably be a negative for the euro. eventually, later on, especially if the ecb changes, i agree, and i think it will and the euro will recover. david: thank you very much. that is the global head of rates at society general. whatg up, we will look at -- about corporate management and what they should be doing any donald trump era.

♪

larry fink is not shy about telling other ceos what to do, that is his job, other ceos listen because he is the head of the largest money manager, in his letter to ceos out today, he says companies must respond to the forces change in the world or else, quote a long-term approach should not be confused with an infinitely patient one, when blackrock does not see progress despite ongoing engagement, we do not hesitate to exercise our right to vote against incumbent directors or misaligned executive compensation." erik schatzker knows fink well and brings insight, these are fighting words. erik: if that sounds like a

threat, it is a threat. do what blackrock wants, they will take matters into its own hands and with $5.1 trillion under management as the largest shareholder in many if not most s&p 500 companies, larry fink and the firm behind him wield in the norma's amount of power. i see three things in this letter, it is a threat, and a warning, this is where we put donald trump populism into context, just because we have entered the donald trump era does not mean it is a green light for unfettered capitalism. that comes through very clearly. thirdly, it is a reminder that companies do not just answer to the president, we have seen them jump, right, when donald trump said jump? they are responsible to their shareholders and no bigger shareholder them blackrock.

i take this letter it erik:.ot ignore he addresses it specifically, he says what a company does on esg says a lot about the way it's management thinks, if management is interested in the well-being of its employees and sustainability of its business model in the environment, it is my definitely -- find definition thinking long term which is what blackrock wants, he has railed for years against the disease he calls short-termism. jon: what do you do with the money? isk: a good point but there a world of companies and went blackrock can invest. let's be clear, larry does not say that if blackrock is displeased, it will sell, that is the ultimate threat and i suppose implicit when you are a

shareholder, he says we will vote against the boards and the executive compensation plans that we see as detrimental to the long-term interests of the companies in which we are investors. alix: what does he want to see, if i am a ceo of a company that blackrock invested in, what does he want them to do? toi --erik: he wants them pivot. he says they are looking to see how your strategic framework recognizes the impact of the past changes in the year in the global environment, how high these changes impacted your strategy and how do you plan to if necessary in light of the new world in which you're operating, companies must be responsive, they cannot look at is what happening with the donald trump election and grexit and the rise of populism in western europe and ignore it. they have to understand what it means and adapt. word, pivot is a favorite he talks about

globalization and says it has been beneficial but not evenly distributed, if you are a ceo, i want to even the distributed, what do i do? erik: four secrets to winning blackrock approval that come out in this letter. number one, the question of sustainability, have a sustainable business model and sustainable operations. two, page attention to environmental risks, not so much as they pay attention to the societal at large, could you for example, if you were to throw environmentalism to the wind, find herself the target of a lawsuit later on by the people in a community whose water or air you may have polluted? number three, engage with the community. number four, think locally but act locally, that reminds me in a way of what we saw in -- on inauguration day, donald trump promises to dispense with environmental regulations during the obama era, then california

raises or at least toughens its climate change plan, imposing much greater standards on people and companies through 2030. jon: a fascinating letter, i'm sure you will tweak it and it is on the bloomberg. more later, coming up, the future of trade between china and the united states, donald trump blasted previous deals with china and we discussed the fallout of a trade war next. desk prettying water in the united states and equities in the united kingdom up of -- of 2/10 of 1%. treasuries with yields higher. ♪

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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. 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. let's have a quick check of things cross asset. futures are stable.

1%, noe up about 1/10 of real drama to the upside or downside. let's go to the fx market, fairly straightforward, it is a strong dollar session in the gtn space. treasury, yields are up 10 basis points. step, uk'st's next highest court rules theresa may must seek parliament for the countdown to brexit. david davis says the article 50 bill will be straightforward and will come soon. anven mnuchin says excessively strong dollar may hurt the u.s. economy. in the drivers seat, donald trump set to meet with the ceos ,f detroit big three automakers as he looks to persuade manufacturers to keep production in the u.s. that is what you need to know. it is generous over u.s. trade.

the 11 nations and the ttp represent 45% of exports in the u.s., 38% of imports. this is a great chart that shows the difference. the u.s. is running trade deficits with six of the tpp countries, the largest mexico and japan. the nike ceo and chairman spoke about the tpp. are committed to bringing u.s. manufacturing into the forefront. we think if ttp can pass, and we are hopeful it will, we will accelerate our efforts around advanced manufacturing. as thell in service consumer, giving them a better product faster, more personalized. this will help us accelerate those efforts, and we are hopeful. alix: joining us now is michael mckee. hopeful, did not happen.

can you help quantify what companies are going to lose. michael: they are going to lose access to markets. a little bit less in terms of tariffs and more in terms of nontariff barriers. in terms of what other countries paid to manufacture goods and things like that. it is a lost for u.s. companies but the bigger strategic loss is the countries involved in tpp have one by one started to come out and say, we are going to try to make this deal happen even without you. the australians would like to go ahead, the japanese are talking about going ahead with it, so it could be this free trading bloc that does not help the united states. we have seen the impact of this with a country like mexico, which has free-trade agreements with 44 countries and a lot of manufacturing has moved to mexico, not because things cannot be made in the united states, but because they can be

exported from mexico cheap. this is a problem going forward, along with the issue of whether china will drive trading rules in the future by putting together its own trade package. david: is there a deep irony here when the new president is seeing a rivalry with china and ironically one of the first things he does may actually put china and the captain seat? absolutely, and the interesting thing about donald trump, he keeps referring to things that happened in the past. he talked about how the yuan is no longer being pushed down by the chinese. look what has happened to the chinese trade balance and chinese imports into the united states over the last 18 months. they are actually going down. he is attacking the problem that is getting better instead of getting worse and there are questions about why. nike, theyu take

source about 40% of shoes from vietnam, part of that in anticipation of tpp being passed . if you are nike, what do you do? you cannot wait for individual trade agreements. michael: you can move your production around to the lowest cost producer, which is what we have seen happening. the bottom line is they raise prices to americans. that is the real effect of tariffs. if trump imposes tariffs we will see prices go up in the united states and we will see how much profit margins can absorb that, and how much the average american person will have to pay for it. jonathan: let me go to megan greene, there is two issues, , go off to china and try to do something about tariffs. it is almost the contradiction with a free market set up in mexico. is this about countries you have a trade deficit with or trying

to establish freer markets? megan: i think it is mainly about countries which you have trade deficits with. if you are looking at current account balances and capital accounts, that is what matters to that is why trump is mainly focused on x ago, china, -- japan, andna, germany. alix: how cheap -- jonathan: how cheap will it be to deal with germany? they came out and blamed the ecb about the euro. what are they going to be able to do? michael: they are not going to be able to do anything. the president has some power to impose tariffs on some countries but would have to certify there is a state of war or national emergency. then he can only impose them for a certain amount of time. congress will have to come in and that will be very divisive. the thing about exports and imports, we have trade deficits

with these countries but that is because we are using what we import, the money that we spend on those imports to save us money to buy more stuff from overseas. that is a benefit to american consumers. alix: donald trump is unpredictable, and that we know. how realistic is any of this to get done? what will be a timeline? megan: i think we could end up seeing tariffs faster than anything else. there are other ways of getting anything that is tariff like that will take well to negotiate but will have the same effect in practice. i think tariffs, and first. trump has talked about border tax. that i think will be his .riority, a border tax because it fits into his narrative that we are losing all of our jobs to other countries, which is not true. we are losing jobs more to automation. jonathan: what can they possibly

achieve with nafta? megan: i think they will make some cosmetic changes that might include some aspects of tpp. i do not think the implications will be huge, but the trump administration can claim that as a major victory since that was one of their priorities. david: one thing we have not talked about the section 301, the statute that says if the president of the united states determines another country is violating trade agreements, he can take fast and severe action. what is the chance of that? that usually triggers a trade war. michael: what he can do in that case is impose a 15% tariff 150 days. if he really wants to do something quickly, that is what he could do. most of the other trade impacts require a finding by the international trade commission. that is probably going to trigger a trade war, particularly with china.

partyesident has a congress at the beginning of the year -- the end of the year and does not want to be seen as weak. alix: china's response has been very much more conciliatory than you would have thought, with the exception of taiwan. it seems they do not want to shake the cages. what kind of retaliation might we be in for? megan: they might impose tariffs on us or a border tax adjustment, depending on what we do. we shocked our economic model today. a 35% tariff on mexico, we do not think will happen. the worst-case scenario did not include retaliation and reduced u.s. gdp to zero in 18 months time so that could have a huge impact on our growth. taiwan,: bringing up they have actively linked a foreign-policy issue with an economic issue.

those two worlds are going to collide. michael: one china is very important to the chinese, and they are seeing it differently. we see it as keeping the peace where as they see it as a fundamental aspect of their country, and they are not going to give up. the other dispute will be over the south china sea and that will be an interesting negotiation for rex tillerson. alix: we hear about the stimulus, infrastructure, tax reform. is this the trade war, taiwan, going to be what set this test sets this off? megan: i think it will take a lot longer than people are fearing, and the geopolitical risk is much higher but no one knows how to base that into a forecast. alix: thank you so much, megan greene and michael mckee. coming up, the future of net neutrality under donald trump. the president taps and fcc

republican member to head the agency. we are awaiting the arrival of the executives of the three big automakers to meet with trump at 9:00 a.m. this is bloomberg. ♪

>> this is bloomberg daybreak, i am emma chandra. , yale up, robert shiller university professor of economics and finance joins us. david: this is bloomberg, i am david westin. we are awaiting for the arrival of the executives of the three big automakers to the white

house. donald trump has asked them to come, particularly about employee manufacturing jobs in the united states as opposed to overseas. now we want to go to the morning meeting where we hear what is on the line of key banks. we are joined by benjamin swinburne to take us through the implications for the cable industry. let's start with the sec. he has just said he will name agent high as the new fcc chair. what does that mean with net neutrality? benjamin: yesterday we put out our outlook and as you know, we have overweight ratings on charter and comcast. one of the things we have been warming up to is the regulatory outlook for that sector since the election. the commissioner becoming chairman i think puts an!

exclamation point on the outlook. we have to see which way that goes formally, but directionally i think players in the cable sector should feel good about the sec outlook for cable. david: for those who may not follow cable and satellite, take us through the net a trolley issue. does this mean someone like -- net neutrality issue. does this mean someone like charter comcast -- and does that mean the consumers pay more? benjamin: i do not think we can go there yet. my expectation is you are not going to see isps charging content providers, like youtube, to access the consumer. that has not happened anywhere, even where net neutrality was not as robust as it was or currently is. i do not think we will see that.

the big benefit is around the terminal value of these businesses. cable is taking over 100% of the growth in broadband in the united states compared to competition. that keeps growing and under net neutrality there would be a risk that the government would start as aregulating broadband futility. i think the risk of price regulations go away if we get any legislation, and that should make cable investors feel better. david: even if there is not discrimination among isps? benjamin: i think prices are going up either way. we have been able to remove the risk the government comes in and stops those prices from going up. the real driver of broadband is the utilities are going up. think of all the streaming you are doing at home, all of the devices connected to the internet.

the value of the consumer is going up. that gives cable pricing power and net neutrality being rolled back enables them to push the prices up over the long term. david: where are there other areas the new administration could benefit the cable/satellite business? for example, tax reform. looked atthe way we tax reform is a reduction in the andorate rate between 20% 25%, but probably offset by the removal of interest the duct ability. the cable sector includes leverage, but they are all domestic businesses for the most part. we think comcast can benefit materially from tax reform. the net impact is something like $.60 to 70 sense of earning power added to comcast earnings. the other things cooking around on the tax side that are less clear, border adjustments,

things like that, but we think those two net to positive payouts. david: we hear about cord cutting and skinny bundles. when you take a charter, a comcast and you think they will do well, what are they not being pressed in terms of pricing power? benjamin: really because of the broadband business. both have more broadband customers than video customers to while we call them cable operators, it is a bit of a legacy title. they are more isps been paid tv writers. a tv is likely declining but cable is taking share back. i have been losing shares in satellite got in the market in the mid-1990's. really starting in the last two years, cable has invested enough in consolidated enough to start growing and taking back share. it is growth in a melting ice cube, and the debate is how fast

that melts. i think the cable position is better than their competitors. david: that is been swinburne of morgan stanley. time for other stories making this hour, emma chandra is here. back theont has pushed expected closing of its $60 billion merger with dow chemical. the transaction is now expected to be completed in the first half of this year. it is being examined by antitrust regulators. yahoo! is delaying the sale of its main web operations to verizon until the next quarter because they need more time to meet closing conditions where recovering from the disclosure of massive hacks of user accounts. they revealed as many as one billion accounts may have been compromised. verizon is exploring a price cut or possible exit from the $4.8 billion deal. itsates is about to wrap up dispute with u.s. air carriers.

battle fuel to the whether persian gulf allies are unfairly flooding the skies with flights to the u.s. that is your bloomberg business/. i am emma chandra. alix: u.s. equity futures going nowhere, but there are some individual movers. alibaba up almost 4% in premarket, raising its forecast as china -- chinese consumers keep spending. mobile sales up a giant 73%, some huge numbers. dupont taking a tiny leg lower. it is pushing its merger to the middle of the year, and travel is up slightly. there are some losers in premarket. but theyings beat 2% missed by 100 million.

verizon net additions were disappointing. lockheed martin down over 4%, cutting its outlook for 2%. quick peek on a easyjet, down 9% in europe, hurt by a weaker pound and higher fuel costs. it will cut next quarter earnings by about $44 million. they also are limited by travel threats, so getting a read on what travel issues are in europe on potential terror attacks. david: you are looking at a live shot of the white house, where executives from the big three u.s. automakers are expected to run -- arrive any moment. donald trump is hoping to persuade them to keep their operations in the united states. what that could mean, that is next. this is bloomberg. ♪

david: this is bloomberg, i'm david weston.

the president will be meeting at the white house with the ceos of the major auto companies and tweeted this -- will be meeting at 9:00 with top auto executives concerning jobs in america. i want new plants to be built here for jobs -- cars to be sold here. >> i know i come out with a lot of confidence that the president is very serious on making sure the united states economy is going to be strong and have policies, tax, regulatory, or and thatdrive that, encourages all of us as ceos as we make decisions going forward. david: we are joined by david welch, who covers all things auto. give us a sense from the automobile company side, is this extracting something or is this a negotiation with a look to get something as well? both.w.: i think it is

donald trump loves the publicity he is going to get. things he can very easily give, lowering tech -- corporate tax rates. atmay be a tense negotiation one point or another if he wants a lot more investment, but i think he wants them to succeed and that is the bottom line. he wants them to keep creating jobs and employing people so he will not do anything to damage the company's. alix: we talk a lot about how the cars they make here are big suvs, more gas guzzlers. if the epa rules are stymied, does that mean they can afford to bring mark production back? david w.: they could, or at least they could keep making proper vehicles. profits arex rates, better, all of these things would make it easier for them to increase more production here. the other thing to bank, if

trump is going to do things that help the economy and keep these record auto markets going, and they keep renting money, which they are -- printing money, which they are, and they can invest in the u.s. david: in the waning days of the obama administration they finalized and order prematurely. does that tie their hands at all? david w.: it just means anything he wants to do in terms of relaxing those regulations more onerous. they put those into rule-making so he would have to start from scratch. he cannot just adjust what is out there. everybody with an interest gets to speak, and you go through this whole process of, here is what is a reasonable fuel economy role, and that stuff takes a long time. you are looking at probably a year before he could even do anything, so he could adjust those and it would take them

sometime. the carmakers are probably ok with that because they have been planning on making their vehicles more efficient going out to 2025, so if there is a change made that takes 12 or 18 months, it still makes the timeline and the long-term future easier. welch, thank you so much, as we await for some of those automakers to meet with the president. robert shiller joins us to discuss narrative economics and alternative facts, and why they should matter to your economic forecasts, maybe. 34 minutes away from the market open. futures treading water all morning. from new york, this is bloomberg. ♪

jonathan: four viewers

worldwide, live from new york city this is bloomberg daybreak. i am jonathan ferro alongside david westin and alix steel. we are flat. we tread water and go nowhere on futures, all morning up about nine points. up two points on the s&p 500. on the bond market, yields are up for basis points, and some dollar strength in the g 10 strength -- space. brexit, thestep to uk's highest court rules theresa may will have to get parliament's permission before triggering a two-year countdown to brexit. theresa may'sys government will introduce a straightforward bill in days. u.s. treasury secretary nominee steven mnuchin says an excessively strong dollar may hurt the u.s. economy.

the dollar fell on the news but is coming back. donald trump set to meet with ceos of detroit's big three automakers as he looks to persuade them to keep manufacturing in the united states. alix: you mentioned the auto executives meeting with donald trump. we wanted to take a look at what the stocks are doing premarket. fiat chrysler up 4%. tesla pretty much going nowhere as well as general motors. you had trump tweeting earlier that he wants factories here. he wants taxes, regulation, and trade. elon musk was part of monday's manufacturing meeting, so interesting what comes out. i do want to take a look at what autos have done since election. be chrysler the breakout performer, up 40% -- 45% followed by tesla.

canceling $1.6 billion plant in mexico. gm is going to invest $1 billion in the u.s., and fiat as well. up by and verizon, yahoo! over 2%. arising down by almost 4%. some of those gains for yahoo! came from an accounting charge. it is sort of less bad for yahoo!. verizon, a different story. it did miss the lower estimate of it earnings that it's subscribers were well underestimated. they basically gave up some profit for higher ad spends, and the question -- when is this deal going to go through? david: we are going to go to the white house, for what is expected from our new president today. he is about to meet with auto executives. what else does he have besides this meeting? >> right after that meeting we

are expecting him to go into a meeting with his chief of staff, and after that to sign a number of executive orders in the oval office. he signed a trio of executive orders yesterday and will continue that process today, sign a new executive orders. he will speak with the indian prime minister by phone and will have meetings with top members of the senate, meeting with senate majority leader mitch mcconnell to talk about the agenda for capitol hill. david: just as you were speaking, we got a redhead across the bloomberg says trump is expected to sign orders prohibiting the keystone pipeline from going forward. alix: this is basically connecting canada to cushing, and they have been trying to get it done for quite a long time but it has been delayed lot. technically the secretary of state needs to be the one to weigh in, so i wonder what the logistics are.

you can imagine tillerson would not have an issue. the decoder pipeline has gotten a lot of heat from native americans. -- dakota pipeline has gotten a lot of heat from native americans. david: he does not even have a secretary of state yet. alix: canada is obviously going to be happy with this. they really needed that pipeline to get their oil out. david: this is in anticipation that one of the important developments in the trump administration would be freeing construction. i am sorry we interrupted you but we had to break that news. what else are we expecting? tolouse: on the energy side, the president has a lot of leeway and power over those pipeline decisions. we saw president obama when he was in office, he stopped those used theects and pa

dakota access. our president has the chance to change the energy process of the united states, and later today we are expecting him to meet with senator mitch mcconnell to talk about health care, taxes, the large agenda he has for his first 100 days. david: thank you so much. thank you for joining us from the white house. jonathan: navigating the trump trade, yesterday we spoke with bank of america merrill lynch -- who said the bounce has shifted. >> the market has shifted from this mentality of a fed put where the fed will bail us out if growth disappoints, two more of the mentality of a trump put, which is the idea that if the economy starts to a, we will see in a fiscal stimulus to prop up the economy. as long as there's expectations remain in the market, a lot of

the smaller cap riskier companies could have room to run. jonathan: joining us now is the head of equity portfolios are morgan stanley. great to have you on the program. is there a new floor in the market? alix: that is what we are -- dan: that is what we are seeing, so market expectations are pretty embedded that we will see better fiscal policy after a seven or eight year run of having no fiscal policy. jonathan: talking about a reactive fiscal policy whereby the economy slows and they step in. stimulus,ive fiscal how much of that is already in the price? dan: it is in certain areas of the market. industrial areas have had a pretty nice run over the past two months. i think it depends on being selective in different kinds of bottom-up opportunities. alix: are your clients falling

to get into just calling to get into a trump portfolio? dan: some are saying a trump portfolio and some are saying antitrust. alix: how would you distinguish? ago you just heard a moment about energy pipeline regulation getting expedited. we have been talking about the energy recovery for six or seven months, and we saw the open decision last fall. we think energy and the regulatory tailwinds we will see. financials, financials have done well over the past does go months but lagged over the last five years -- past two months but lagged over the past five years. david: how do you advise your clients coming given the uncertainty? what could happen, it all sounds good. i talked to a senior government official yesterday in the economic area who said, we do not know, we cannot predict.

how do you take advantage of the upside but not expose yourself to the risk of the downside? dan: the basic tenet is to say diversified. we really advocate having diversified profiles. incomeo have some fixed exposure, high-yield exposure as well and to stay diversified across asset classes. i think a key benefit that we will see for active strategies this year going forward is the drop in correlations we have had , a really key point since the election. correlations have come down to a low, meaning the opportunity set for asset allocators is set quite high. jonathan: talk about the lack of correlation because if you set up a portfolio the middle of last year, you will be pretty flat because you would have whacked on the bond side and done well on the equity side.

talk to me about the balance split between fixed income and equity, and the risk rotations between the two asset classes. dan: we were overweight equities versus bonds, so the moderate risk portfolio was up about 8% last year, a pretty good outcome where a lot of folks how to -- had difficult outcomes. yes,e later in this cycle, but often times you see some of the best returns in the late stages of the cycle. alix: given the uncertainty, the need to look elsewhere in the u.s.? dan: i think in the u.s. particular you should focus on stocks in transition. one of the things we do on my team is look at bottom-up stock opportunities. one name we have been advocating is ibm. stodgy, noider it a

growth story but what people are missing is that it is transferring to a high growth story. timese only pain 12 earnings for that type of growth story going forward. paying 12 times earnings for that type of growth story going forward. jonathan: dan is sticking with us. but get some headlines from outside the business world. emma: a defeat for theresa may as the supreme court rules the government cannot formally begin the brexit vote -- process without a vote by parliament. that is likely to delay the timetable. the majority in parliament ,upported the remain campaign and could slow down bills by attaching amendments. senate democrats have an a student debt and infrastructure plan of their own. they have a proposal to spend $1 trillion in transportation and other infrastructure projects for 10 years in an attempt to

engage president trump. republican leaders who have said previously they are waiting for trump to offer his own proposal are unlikely to embrace the democrat plan. it is -- the oscar nominations led withand la la land 14 nominations. global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. treasuryming up, secretary nominee steven mnuchin warns that an excessively strong dollar could hurt the u.s. economy, but the greenback is edging back up after touching his lowest level in seven weeks. we will talk about what the dollar's next move is. this is bloomberg. ♪

jonathan: from new york, this is bloomberg. the fx market, the dollar moving higher following a six week low following a statement from steven mnuchin. he said the strength of the dollar has historically been tied to the strength of the u.s. economy, and the faith investors have in doing business in america from time to time. an excessively strong dollar may short-term effects on the economy.

what it means for the economy, the market reacts. should it? dan: probably not. i think it is unclear whether some of these policies and proposals that have been put forth are going to be realized, so we are not sure what the relative growth profile of the u.s. look versus other parts of the world. you can mind, other parts of the world are in recovery mode. you are seeing better earnings in japan and europe and we think that will have a rebalancing effect. alix: it is uncertain to the dollar, that you mentioned ibm in the last segment. revenue half of its outside the united states, so how do you factor in the uncertainty versus betting on overseas stocks? dan: it comes down to being diversified. he did not want multinationals and a portfolio. you want a segment growth that , butposed to some of those

you also want to consider small caps and mid-caps that will benefit from domestic tax return. that will be the area of the market that will benefit the most from tax policy changes. jonathan: we have talked about the dollar and normally we talk about it almost exclusively how the federal reserve will react. this seems to be all about the fiscal stimulus. dan: i think market expectations this year are for two rate hikes . if you look at what has been going on, we have been tightening since 2014. we think removing that qe that was such a massive stimulus program was in effect the start of this tightening cycle. markets and the economy have been able to absorb that tightening. the dollar started rising two years ago so we think we artie have the lion's share of movement in the dollar. david: you were talking about a balanced portfolio.

what about a tax issue, where does that divide down among companies? how do you make sure you were on both sides? dan: it is unclear what will happen with taxes. we just heard the president a few days ago say the border was to complicated, so it is uncertain what is going to happen without and will be unclear. david: what about repatriation? dan: i think you probably have a higher probability of seeing some action, and there is something like a trillion and a half or 2 trillion walked overseas, and that could be a boon for the multinationals to have dollar exposure, to offset that risk. want to make a mid-cap and small-cap call, but so has everyone else. how do you make the case for paying the multiples that you do when everyone is also saying the same things? dan: that is a great point and that is a scenario where i would

advocate buying on pullbacks. 15%, 20%000 is up almost. i think that is an area where you probably do want to buy on pullbacks when you see further volatility. alix: where is the biggest risk as you see, as you look at your portfolio holdings? dan: one of the biggest is geopolitical. we have updates of developments going on in the middle east, russia, and it is unknown's that shock you. you wake up and read the bloomberg headlines and the some type of military update, that is one of the things we cannot factor in because it is the unknown-unknown. last year we have political effects, brexit and the trump presidency, but you knew they were coming and there was some way to hedge. everyone and their brother was wrong, but it is the unknown unknowns you have to worry

about. alix: kind of like megan greene said, geopolitical risk, you cannot factor that in. coming up, dow and out. we will dig into the biggest laggard ahead of the open, verizon. this is bloomberg. ♪

david: this is bloomberg, i am david westin. we are getting news coming out of that meeting between president trump and the auto executives. he has told them he is to a large extent, an environmentalist. i am not sure how the automakers will receive this, this on the news he is about to sign orders to prevent the keystone and dakota pipelines going forward.

we will keep you updated as we get more news. now we want to turn to verizon, the nation's largest wireless carrier added fewer wireless customers than expected in the fourth quarter and shares are trading down in the premarket. is that right? did not see it. profits by sacrifice cutting prices in the fourth quarter. ultimately, this was not enough to learn customers -- lure customers. we are joined by wells fargo analyst jennifer fritchey. there is quite a story on their core business of wireless and their new businesses, tickets to their core business first because it does not sound ready. -- pretty. jennifer: it is getting harder for verizon. before sprint and t-mobile stood

up, it seems like they are now all being more than ankle bit by the smaller guys. verizon does not have an unlimited offering and the narrative is hard with the consumer. david: they added 600,000 roughly last quarter whereas t-mobile added 1.2 million. t-mobile, are they cutting prices more? jennifer: t-mobile is offering more of a simple plan. it is unlimited for one price. what we pay attention to is the phone ads. 930,000 added over whereas verizon reported over 160,000. that is the big delta that people want to focus on. david: it did not help verizon that much on the profitability because earnings-per-share missed estimates. jennifer: some would argue they actually had to buy growth, and that hit them in terms of wireless margins. we were low on the street in terms of wireless margins and they came in below estimates by

about 3% or 300 basis points. alix: what do we know now about the deal? jennifer: we do not know much. yahoo! said it is going to take longer. what verizon said is it is going to take longer, we are still evaluating. clearly the risk profile of the yahoo! asset has gone up, and even if they get it for a lower price, which i believe they will , yahoos problems today once they become verizon will be verizon's problem. a concern that verizon is taking seriously. david: you could take that into account for the price. the yahoo! deal was directly pertaining to the troubles they are having in wireless. this is their new verizon they are trying to get through with advertising sales. when a race -- when are we going to start seeing results in terms of cash? jennifer: it is not just them. i believe in the strategy.

wireless is pretty saturated right now, but the problem is it is not a needle mover yet. it is only 3% of the revenue. so that hurts them. until we see more investment, you really will not see that as an asset. david: thank you so much, jennifer. she is wells fargo's analyst. we are taking a look one more time at the white house where president trump is meeting with the ceos of the three big u.s. automakers. he says he is to an extent an environmentalist, that was the first thing he told them. we will be getting more result's -- more reports of what he is talking about with the ceos as it develops. the opening bell is up next on bloomberg daybreak. ♪

david: we are breaking and to show you breaking news. this just recently happened, the president meeting with the three ceos. mr. trump: it is happening, it is happening big league. we had whirlpool up talking about reconstruction facilities -- three construction facilities . it is not the construction i want, it is the long-term. we are bringing manufacturing back to the united states where we see taxes substantially, and we see unnecessary regulations. we see -- we want regulations that we want realistic regulations. we are going to make the process much more simple for the auto companies and everybody else who wants to do business in the united states. i think you will find this to be very inhospitable to extremely hospitable.

i think we will go down as one of the most friendly countries, and right now we have friends that cannot get their environmental permit. it is absolutely crazy. i am, to a large extent, an environmentalist. we are going to make a very short process and we are going to either give you your permits or not give you your permits, but you will know very quickly. generally speaking we will be giving you your permits. we are going to be very friendly . it is an honor to be with you today. maybe we will start with mark, because we got to know each other yesterday. would you like to stay a little longer? you're not supposed to ask questions.

[laughter] there is always one, jonathan. much.you very thank you. we are just watching the president donald trump meeting with the ceos of the auto companies. you can see mary barra on his right, sergio marchionne on his left. mark fields was across from him. he met with a bunch of ceos yesterday including mark fields. the main thing i heard is there will be less regulations, much simpler, and we will be very friendly, is the word he used. we will go to david welch. what is going on from your point of said. what is going on

from your point of view and from the auto company ceo point of view in the roosevelt room in the west wing? i think they are starting to establish a pretty friendly rapport with each other. he is saying the environmental regulations are out of control. that means he will give them what they want, which is relaxing those rules. maybe that means a lower standard by 2025, maybe the same standard by 2030. either way of handling that would make their lives easier. he has tweeted saying he wants new factories, not just expanding existing ones or securing jobs. he wants investment. they will see if they can come to some sort of agreement. it will be tough for them to do so because the car market is at or near its peak. adding more factories now would capacity and do the kinds of things that got them into trouble a decade ago. david: the video we are watching that just happened moments ago the president shaking hands.

we can see gary cohn there as well. i saw mine's previous at the -- reince prebus at the end of the table. this might go on between the auto companies on one hand and the president of the united states on the other. >> right. they need to see it will be a better place to do business in their eyes in order for them to invest more in the u.s.. that is the bottom line. maybe trump was getting wise to the fact that that stuff will be coming anyhow, revamping plans to do future vehicles. some of the jobs they were at a would be replacing retirees and that sort of thing. it was not a big expansion. that is what he wants. he wants more jobs in the u.s., not just securing the existing plans they have. david: one of the ironies for some is this president is seeking a lot of positions that

the labor unions were warm to. these are things they were arguing for some time. >> that is true. we all met with the uaw president a wild back. he endorsed hillary clinton. most of the union members voted for hillary, but he said he agreed with trump on trade. he agreed with the 35% tariff to mexico. the union hates the tpp. they see that as nafta to asia and sending more jobs there and making it easier for jobs to be exported overseas. the union really does like this. trump has not been a traditional republican in a lot of worries. i think trade is probably the not been a republican in a lot of ways. i think trade is one of the biggest ones. david: what about the consumer? what is the chance that the price we have to pay for automobiles will go up as the

automobile companies and unions have a good time? >> well, that could be the downside to this. are talking 3 million vehicles or so coming out of mexico to the u.s. or close to it. if you start to tax them on a high level, the barclays will not go away. they are big investments that have been made. they will get more expensive. if you have to build more vehicles here, wages are not a huge portion of cost, but they still at cost -- add cost. david: we have had two record years of vehicle sales in america. are we looking for another record, or could it cut into auto sales? >> we are looking at being near a record. most analysts think we will be under that but at a healthy profitable level. we probably would not see the cost ofof cars hit in the first

year. it will probably not have an effect this calendar year. new factories would make cars in the u.s. with more expensive american worker wages, you will not see those. could hit immediately. we hear that he wants to tweak nafta, not rewrite it. coming in theects next couple of years as a lot of these things start to take place. whether it is new union wages or tariffs. david: thank you very much. u.s. stocks are open for trading. alix: just want to see where the automakers are moving now that the market has opened. take a look. not seeing a lot of huge movement. fiat is up. the last time the big three met with the president was 2011. remember, they are starting to put their money where their mouth is. ford canceling a mexico plant.

gm and fiat investing $1 billion in the u.s.. in the overall market, a real snooze fest. dow completely flat. nasdaq up by 3/10 of a percent. the longest streak since 2006. jonathan: quite a statistic. for more on the markets, it is steve. you called the outcome of the election, the response we would see in the markets as well. the trump train stalled to some extent. what next? >> i think it is a really healthy stall. the market moved up very quickly. you reduce the possibility of a big downgrade if you can hold here for a while. i like the fact that the market is more or less holding. we were down a couple percent.

telling our investors we will be much higher by the end of the year. jonathan: you see the image on the screen of a bunch of ceos sitting down with the president. is it something fundamental or theater? steven: i talked about tone at the top. when you are trying to change the direction of a giant ship like the federal bureaucracy, the tone at the top matters. it is important that he has been meeting with ceos of businesses. he is saying government is here to help these businesses grow the economy. he is trying to encourage that cooperation.it is important . it's just the right tone. it is completely on message with what we expected. david: when you were with us before, you talked about tax reform versus taxcutting. as we get into the details, it is also congress he has to involve.

how difficult will it be for them to get that tax reform? steven: it is cumbersome. the republicans have been working on this for a why also have a plan in place. trump does not agree with all elements of the plan. it will take a few months. this will not be easy. even in your last discussion, you're talking about the increased costs by having more american laborers. if you cut taxes to 20% and make depreciation of capital investments immediately expressible, that lowers the cost of auto production. i think the president is a deal guy. he is a carrot and stick guy. he will get there one way or the other, but he is offering carrots to everybody. he is not just patting them over the head. he will cut taxes, cut deregulation, make it easier to do business here. the comeback is you have to hire more american workers, which grows the economy. maybe the growth makes up for

the lost revenues from the tax cuts. alix: it is a positive for the market.--p pause for the what is on your shopping list? who will benefit the most from this uncertainty? steven: one reason i like the market here is i have trouble figuring out what is not on my shopping list. that is a good sign. they are in the crosshairs of this in a positive way. the regulation helps them. tax cuts help them. the improved interest-rate outlook is good for financials. higher economic growth at a nominal level. obviously, the financials. they move very fast. the evaluations on these banks are so depressed after eight years of being the whipping boy for everything that was wrong with the economy, even my own bank analysts say these things cannot trade 10 or 11 times the earnings. why not?

i think financials are certainly on my shopping list. i am glad they are pulling in a little. jonathan: let's talk about financials and valuations. 1.2 times booked on the goldman. where do you think that goes? what is the fair evaluation? steven: it can go higher. goldman is interesting because it is just now re-approaching the 2007 eyes. you may have had someone on yesterday saying that was an interesting level and they should roll over here. when jp morgan was reapproaching highs back in 2014, that is what everyone was saying. the argument was this thing is going to break through 2007 highs. there is unlimited upside almost. with goldman benefiting from the activity,conomic

higher stock market, better trading, goldman should break through these levels at some point. it will take a while. when you approach a multitier highlight -- jonathan: you mentioned quite a few things what will emulate financials -- stimulate financials. listening to president trump over the last couple ofweeks, i have not heard him talking about financials or helping the banks. i heard a lot about helping automakers and trade. financials of base does not seem to be on the priority list. it is early days but at least we have heard so far. steven: yesterday he said he will cut regulations by 75%. he has a tendency of engaging hyperbole. jonathan: of course. steven: directionally, if you added up all of the regulations that have been added in the last

eight years, i have not done this, but i would just guess 40% of them are in the financial sector. the banks have got to be beneficiaries of the deregulation. jonathan: a couple of guess is going on there. [laughter] jonathan: great to have you with us. coming up on this program, don't miss this conversation. discuss his us to most recent paper about how popular narratives change through time and the impact it might have on the economy. that is coming up next. this is bloomberg. ♪

alix: this is "bloomberg daybreak."

i am in the hb greenroom. -- hp greenroom. 10:30 a.m. eastern time. jonathan: from new york city, this is "bloomberg daybreak." 14 minutes into the session. let's get you up to speed on the market action. marginal moves to the downside over 2017. percent. of a white house press secretary saying thertain inauguration size saying it was the largest inauguration audience ever. >> this was the largest audience ever to witness and annihilation, period -- witness an inauguration, period.

's top eightump responded to the criticism, saying spicer offered alternative facts. do the narratives matter? do the alternative facts matter? what impact will it have on the economy? robert, yale university professor, says this considers the ideology relative to economic fluctuations. bringing him now, professor robert shiller from yale. this is a very early stage of what could be something really important for economics. walk me through what you found so far. realign. am trying to

economists are the leak likely profession or finance people to discuss narratives. they are just as important as they are in political science and other psychology and other fields. by stories driven and sometimes my people predicting the reaction of other people to stories. ultimately, i think it is mostly storytelling. jonathan: at this point, the storytelling goes as follows. we can pick out a labor market. economists say it is healthy. wages are starting to pick up. things have gotten better over the last six or seven years. someone from the trump administration would tell me that is not the case. does the data matter? is it the dominant narrative that ultimately matters to consumers's ability to go out and spend and have the

confidence to do those things? robert: the thing is if we want to understand what makes consumers spend, what is it? are they reacting to data? are they looking at interest rates? some of them are. i think it is other things. it is like the example that some people set. some people look at other people. donald trump sets a consumption is example. large.ig, live that becomes a mood or atmosphere. economists tend to neglect that. they think it is not serious, but it is serious. alix: what is donald trump's narrative if you had to put it in one sentence? robert: donald trump spent a lifetime thinking about derivatives. tha-- about narratives. he does not think about economic policy. the apprentice tv show that he

led for years, that is a powerful narrative of a business mentor. tough guy. spurs creativity. makes deals. that is one of his story. the other story is the example of his lifestyle. beautiful women, fancy cars. these actually affect people's decisions on their own life because a lot of narrative psychology is about following a script you have seen examples in another person. jonathan: by highlighting some of the negatives in the u.s. economy, it is one of the sources to get the support he got to win the election, but the slogan that just said make america great again, how powerful cannot actually be? robert: i think that was a good slogan for him. i think a lot of people like the trump narrative because he is kind of a down-to-earth guy in

some ways. he is not a snotty type. speaks in plain language. appeals to people that feel there might be success. in his make america great again, it was reaby most peop as i will make you great gain, whereas hillary clinton looked too many people lik someone who will tax the successful people and give it to you like a charity, which did not appeal to a lot of people. david: this is triggered by what is going on with donald trump. your paper goes well beyond donald trump, back in time and more broadly. you suggest that no company can afford not to engage in manipulation as you describe it. you describe phishing equilibrium with a certain equilibrium acceptable level of dishonesty in order for companies to survive.

regulationsknow, are not altogether unpopular with business people because business people do not want to be forced into a race to the bottom. businesspeople will urge people regulations on people because they do not want to have to compete against somebody who is doing something terrible. they want a level honest playing field. the idea that business is against regulation is really an exaggeration. they want good regulation. jonathan: we really appreciate your time. it is a fascinating point of research. we will get you back again to talk about it as other economics up the bet on it and do a little research. we will go to the white house to recount the latest action, plus set you up for trump's cabinet confirmation at the top of the hour. from new york city, this is

bloomberg. ♪

david: this is bloomberg. we go now to the white house, where president trump just met with automobile heads. he took the opportunity to outline his plan for job creation. >> is not the construction we want, although it brings jobs. it is the long-term jobs. we are bringing manufacturing back to the united states. we are reducing taxes substantially. we are reducing unnecessary regulations. we want regulations, but real regulations that means something. david: white house reporter is with us now to join u take us th what is expected. doing away with regulation and dealing with long-term it actually jobs. >> this is the second meeting he has had with the same tone. edged he would reduce

regulations by as much as 75%, something he is focusing on, something he talked to the automakers about because he wants to create more jobs in the u.s. and believes cutting regulations is the way to do that. we expect him to go into the oval office & a couple of executive orders, specifically reducing some of the regulations in the energy sector that could pave the way to the keystone xl pipeline and the dakota access pipeline. those are two pipeline projects that were halted by the obama administration. trump says he wants to make those projects move forward. david: as far as we know, the meeting was over a while ago. i believe the ceos have not come out of the white house yet. do we know what is going on? are they knocking heads here, for example? >> trump is a very unconventional president. yesterday after he met with the manufacturing ceos, he left the meeting, took a call, and then

called the ceos back an into the oval office. not sure what the auto executive's are doing right now. they could be taking a tour of the white house, checking out the oval office. president trump seems to be charming the executive to create more jobs in the u.s.. alix: the narrative yesterday was about the tpp and trade. today is all about jobs in the u.s. and automakers. what happens in the next 20 hours? with these auto executives, he will sign is incident orders and meet with the cia director. he will have a call with the indian prime minister, also focusing on trade and the relationship there. he will meet with leaders of the senate. the senate will be incredibly important for president trump if he wants to get his agenda through. he will be democrats and republicans to be on board so he will be with leaders on both

sides of the isle. he will meet with mitch mcconnell to talk about getting his agenda through. david: thanks so much. he would have seen the pmi numbers coming in for manufacturing if he had his bloomberg sinai. the highest rating since march 2015. the highest since september 2014. there is confidence emerging considered to accelerate in that sector. that wraps up this program. 26 minutes into the session. futures trading more than they were all morning. equities a little firmer. from new york and at a great team, this is bloomberg -- and the daybreak team, this is bloomberg. ♪

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>> from new york, i am vonnie quinn. mark: welcome to bloomberg markets.

vonnie: we will take you from theoit to amsterdam and u.k., turkey, and washington, d.c. in the next hour. first, breaking, u.s. economic data from existing home sells for december coming in at 5.9 million cut just below the estimate of 5.5 2 million. the average in the survey. it is down 2.8% month over month. we should caution it is a volatile series in the previous month was resides -- revised upwards from .7% to a gain of 1.4%. the previous month was double the initial estimate. this month it is lower, but we will see where we get. due out.acturing index it was supposed to come in at 7:00 for january. that is the estimate of analysts in our su