chaos. we are not currency manipulators. ecbo draghi defending policy. march is life. the philadelphia fed president joins a hawkish course next meeting. welcome to "bloomberg daybreak." in the market, stocks go nowhere. 62 days without a one percentage point move. futures positive on the session. the dollar is stronger, the euro .75%.in once again down alix: lower against the yen. yesterday, it was bonds in europe. now, it is the euro. not a lot of safe haven movement. cold hovering around those three-month highs and oil down .3%. david: the trump administration

is facing a bit of uncertainty today when it turns to a federal get immigration policy reinstated. joining us now from capitol hill is kevin's really. -- kevin cirilli. how one certain are the results? kevin: pretty uncertain. at 6:00 p.m. later today, we are anticipating a rolling. they willhouse says fight this tooth and nail if the ruling does not go in their favorite. this has transcended politics. large swath of these silicon valley community has come out against the president's executive order. this has gripped national attention. david: the larger point here is that this is a question of the president's constitutional

authority. how could that spill over into other policies? your: already coming seeing a direct result of how this administration is handling -- executive orders following implementation of this executive order. they have since tweaked how president trump those about ruling on executive action. you are seeing a new strategy inside the white house to communicate effectively how to go about enacting president trump's executive orders. david: the white house also has that critical vote in the senate for the nominee for education secretary. , vice president mike pence could have to cast the deciding vote after senator collinskowski and susan have come out against the

president's pick for the department of education. if democrats are able to convince one more republican to go their way, they effectively kill this nomination. the fact that it has gotten this that perhapsal there's cracks in the senate for president trump. alix: political uncertainty and markets continue to stay calm. we have not seen anyone present move since december 7. tied for the largest streak since 2009. a 1% move since december 7. joining us now, mihir worah in london. why the political uncertainty? why are markets so calm?

sean: that is the real -- mihir: that is the real mystery to us. we see markets pricing and positive moves. the equity market is up and we think it's pricing in a 10% corporate tax cut. the dollar is up. meanwhile, volatility has not moved. that is surprising to us. we think it is an opportunity. this administration is determined to break things. things could go welcome, but things could go badly, tubing. the volatility markets is an opportunity to protect from the downside or get upside exposure. buying the vix is a complicated way to do it. in general, buying downside protection, buying upside

exposure to the markets through calls, both cheaper than what we think volatility in the market is likely to be. is one of the opportunities we see in the market. i want to try to build a case as to why calm is the right way to play this. we have the trump put now. why isn't it the right way for things to be? -- we'vee fed puts just come through these last four or five years when there was one factor, liquidity injection by central banks driving all asset prices and lowering volatility across all asset prices. now, the fed and central banks and you have fiscal

policy targeting certain sectors, certain countries, even certain companies. we think volatility goes up and opportunities for active management commanding outlook alpha, protecting against downside risks should be going up. the seamless handoff from monetary policy to fiscal policy, maybe the prospect of that in the united states -- we have two days of $15 billion worth of bonds bought. that is an incredibly active boj . that handoff from monetary to fiscal, it is only going to happen in the united states, isn't it? mihir: it will happen more in united states. you should see it in england as well post-brexit. you are seeing a bigger

in europe -- i don't think this will be entirely smooth. in theng you could see u.s. where upward gaps are closed and fiscal policy and administration policies are likely to lead to higher import prices is greater inflation. think the probability of higher-than-expected inflation coming from either fiscal boosts or trade tariffs come i don't think the likelihood of high inflation is being priced in either. gradually getting better -- mihir: the underlying economy is getting better both in europe and in the united states. part of the lack of volatility

you are seeing is the fact that dispersion has gone up. some companies are doing well while others are doing less well. at the index level, that leads to less volatility. we are still in the early stages. underlying economic growth is healing. there's the likelihood of mistakes, the likelihood of trade wars and geopolitical events. i think volatility is underpriced and markets. david: does that mean the market is discounting things like a trade war? mihir: we think so. you see that in the volatility markets and you see that in .nflation linked bond markets inflation executions in united states have gone up from 1% to 2%. r iphones made in china cost 10% more than they used to, that leads to the likelihood of high inflation and

the markets are not pricing that yet. alix: the volatility will pick up. in terms of individual markets -- we have seen the small-cap stall out. everyone is making the kind of statements you are and making those kinds of traits. are we in a situation where we will get a crowded trade to the other side where you don't get that fiscal stimulus? financials have done welcome a small caps have done well. well, small caps have done well. you need the tax cuts to come in, you need fiscal stimulus to come in for these traits to continue to perform. those are traits that have done well. they are fully priced. the two big traits that are cheap, volatility is cheap and inflation protection is cheap.

trades that are cheap. david: the biggest tax overhaul in three decades, that is what some people are calling the house gop tax reform. we will hear from the chairman of the house ways and means committee, u.s. congressman why the border taxes so important to him and who is against it. -- tax is so important to him and who is against it. ♪

jon: this is "bloomberg daybreak ." let's get a check of the markets for you very quickly. -- its up on the margin amongst the chaos on

the s&p 500. to go back to early december for a one percentage point move -- you have to go back to early december. the euro with the biggest two-day drop so far this year. one full percentage point and some change over the last 24 hours or so. look out for treasuries. you do get more supply throughout the week. three-year notes coming later today. emma: philadelphia fed president says he will support raising rates if job markets hold up, growth continues and wages rise. prices failed to -- gas and oil

production down more than 5% from a year ago. down the valueng of its u.s. shale assets. that is your bloomberg business flash. jon: last week, the meeting with business leaders, president trump put the fx market on notice saying we know nothing about the valuation come everyone in other countries lives on devaluation. japan plays the devaluation market. and we sit there like dummies. yesterday, president mario weigheweyden saying -- d in. >> we are not currency manipulators, first and foremost. , our monetary policies

cycle of theiverse eurozone. jon: a global ethic story with china at the center. -- these accusations don't just affect the likes of president draghi, the effect china as well. this morning, dropping below that $3 billion level. what makes this debate currently? >> this issue is one of the most sensitive for us. a bit more complicated now than it would have been five years ago. china is spending its thereational reserves -- is the view that the china story is a bit more complicated than it was five years ago.

japan is in a tighter spot given their bond market. accusation is against germany. china can say look at the data. we're propping up our currency. abe leads with trump later this week. , theyy will make it clear will explain japan's monetary policy. japan doesn't complain when it's it's mucholicy is -- more these days about weak an bonds.mand th is the united states turning into a currency minute later? >> when you listen to the language in asia, they accused the u.s. of debasing installer during qe.

-- debasing its dollar during qe. jon: they were weakening their currency so much -- david: is donald going to be happy with that result? thehe world does not need currency sold off overnight we have a rush at the destabilizing pace. alix: i want to focus on japan in light of that meeting coming up on friday. the issue is the yield curve targeting. you have to stay in the market and buy. the issue is the market keeps testing the boj. will they have to raise their to go into target the meeting with donald trump and say we are not try to do this? >> we saw this friday. -- theyields shoot high

were buying bonds at an aggressive pace. the market will test them. whether or not they want to live that target, as global yields rise, you will see -- jon: president trump has made a lot of sense. the g-20 made this ridiculous agreement they were not going to intervene in the currency market. everyone in the market would come on this program and say that means absolutely nothing. the ecb wants a weaker euro and the bank of japan once a weaker weaker yen. a it was a silly statement. you are seeing weaker currency does not mean stronger exports. in reality, it is not necessarily translating into demand.

there are expectations that the g-20 discussion will be much more likely this year. -- will beh more much more lively this year. alix: slightly more exciting. thank you for joining us. --ing up come investors --ing up, investors in bnp this is bloomberg. ♪

david: this is bloomberg. bnp paribas announced earnings short of estimates today and its shares fell 5% to four they came back a bit. -- before they came back a bit. we sat down with the cfo and asked about the potential effect of trump's deregulation agenda. >> we will have to see.

, they go back to the g-20 said that any new regulation should have no material impact. we will have to see if that unfolds. it should be manageable. david: carolina joins us from paris. it certainly did not affect these earnings because the market was not happy with what it heard. bnp paribas had been outperforming last year all the european banks, but this quarter --ms to be more concerning , if though revenues are up you look at the fixed income, revenues rose 23%. that was below estimates. the concern also comes from the manytic front, just like european banks, bnp paribas has

been affected by the low interest rate environment. french consumer banking earnings fell 36% in the fourth quarter. the cfo told me he does not expect a peak this year. david: this bank is a retail bank at its core. what are they looking forward to in terms of rate hikes that could help them? >> it is not something they are seeing in the short term. the low interest rate environment could remain for this year. we have another executive this morning saying he doesn't expect returns to revenue growth until 2019 at best. jon: it is the french banks facing uncertain political commentaryhat is the

coming out of this company on that? it looks incredibly complex of the last couple of days. >> i tried to ask the cfo. he did not want to tell me whether he has a continuanc cony plan. if you look at the french bonds over the past few days, everybody minds the strength between the french tenure and -- 10rman tenure bonds year and german 10 year bonds. saying they do .ot see a breakup of the euro alix: the commentary coming from investors that they are going in and buying banks in europe --

the political risk in germany and france is really overdone. talk about the analyst commentary around french banks right now. of course, bnp paribas has a big domestic banking front and they are impacted by their big unit in italy, bnl, which is also impacted by the political they arety in italy very focused on these political risks going ahead. david: thank you very much for joining us today. calm amongstp, the the chaos. the price volatility remains contained. we discuss with sean darby. yen bills his outlook for global markets amid rising political risk. -- he unveils his outlook for global markets amid rising political risk.

futures up .3%. the dow up about 64 points. strength the story in the g 10 space against every single d10 currency in today's session. dollar-yen back up to 112. -- every single d10 currency in today's session. -- every single g 10 currency in today's session. later today, $24 billion of three your notes. of 10s., $23 billion this is bloomberg. ♪

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in europe, positive across the screen as well. in london and in frankfurt. dollar strength the story in the fx market. marginals, and downside. ,lix: you have the vix calm political uncertainty rising in washington, d.c. this is the chart that tells that story. the spread between political uncertainty globally end of ane vix. joining us now am a sean darby -- joining us now, sean darby and greg peters. david: jim earnings for the fourth quarter and the full year the fourth quarter for gm. beathe full year, they

with $6.12. their margin for the are was 7.5% as opposed to last year, 15 with 7.1%. we will talk about the balance of cars, whether they are selling passenger cars or trucks and what's going on in china. alix: joining us now, sean darby and greg peters. i want to start with you, sean. every single guest that comes on the show says we will see a pickup in volatility, there is too much uncertainty. is the smart trade betting against a rising volatility? over the lasty is six months, the global economy has been getting better. markets confused what was a

period of low pricing for goods and services at deflation. all we had in the background was a big infantry overhang which is being liquidated. we've seen a pickup and emerging-market exports, a pickup and german exports. the global economy is re-synchronizing. it is not just u.s. economic numbers that are appearing to be good, but a lot of other economies as well. one of the reasons the vix has been so low as we are getting a better set of growth numbers, a sense of resynchronization. alix: you don't think volatility will pick up? what i suspect will happen is that we probably will find the bond market will wake up to seeriod in which they will much higher inflation rates and better growth rates.

since july of last year, we have seen yields moving up almost on a daily basis. you've seen these bond yields moving ever higher. the straw that breaks the camel's back is eventually real rates in many of these economies and we get a sense of a tightening. but that has not been the case over the last six months. in the u.s. and japan, real rates on the short end are still negative. that has been quite stimulative for the global economy. jon: the big crowded consensus trades -- buy stocks. you don't buy it. will we meet that inflection point? greg: what sean described was a consensus trade everyone believes that rates have to move higher because growth is exhilarating and inflation is accelerating. i'm much more skeptical around that.

what is really interesting about this time, it is so uncertain but optimism is also equally high. those two things rarely ever happened together. people are really optimistic around the global economy. there is signs the global economy is strengthening, but maybe not to the same degree that many are forecasting. are you skeptical about the story or skeptical about the prices being paid for the story? greg: david of both. -- a bit of both. there's been big moves in the market, post election, a lot of really good news. you have to see delivery of these items talked about down in washington. increasingly, yet to be a bit more cynical and skeptical. there's so much optimism in the u.s. and in europe, there is so much pessimism.

i see a little too much as him is him in the prices in europe around the french election and other things and too much optimism in the u.s. david: do you believe the markets have overreacted? is it so bad? we were growing before trump got in office. to say it's been a consensus trade that yields have been moving up is eating quite for bonds.n unusual they been losing money for two consecutive quarters. the irony is sentiment will change because it will be difficult for mr. trump to economic a lot of his policies. structures will be very complicated for the corporate sector to digest. i don't think the pain trades will be in europe or e.m. or japan.

the problem for equity markets will be delivering in the united states. we are still living with the tillman from the previous administration which produced a second half of decent economic numbers in u.s. if you look at the implications for the tax changes in the , whetherates accelerated depreciation or tax amnesty or the border tax, this is all dollar bullish. you could potentially see the dollar moving 10% higher. would be pretty nice for bonds because it would take a lot of the inflation pressures away and do a lot of the work for the fed as well. trade fora sort of a strongd states is

dollar that hurts the bulk of the s&p national earnings -- jon: the pain trades so far has been for the dollar bulls. it has been a squeeze the other way. look over in europe and put it all together. will the same thing happen with europe? we will get a squeeze on peripheries that many people aren't set up for? greg: that is quite possible. the markets are leaning a definite direction. that is towards higher yields, higher dollar. the pain trade is a reversal of that. that is quite possible. talk, take all the consensus forecasts for u.s. growth is largely unchanged this year. coulde it up .2%

look at the unemployment report this friday. better employment numbers but no way to inflation. -- no wage inflation. i think the markets are set up for a one direction trade. there will be disappointment. alix: the hard data versus soft data conundrum -- the gap between the two the whitest in idest in six w years. i'm curious as to how that ends up reconciling. you have rising inflation break evens. if those start to get pared down and they wind up meeting the data, what area is most horrible to that -- vulnerable to that? if indeed this sort of the

balls over the next quarter and we get this convergence, i suspect the fed's hands will be pushed into raising rates much faster than people have implied. hikes showing quite a degree of complacency. if we had a much faster rate if the short rates moved up much faster than long tightening would be difficult for equity markets and pretty difficult for global equity markets as well. alix: do you think that is a possibility? -- u.s.has more runway real rates falling again. this is not a totally implausible scenario. greg: absolutely not. there's a lot of uncertainty around this. it is quite plausible.

the fed has a difficult job ahead of them as they have to wait for this policy in d.c. to formulate as well. there's a lot of moving parts, there's a lot of uncertainty. arescenarios you described quite plausible. and sean darbyrs , you guys are both sticking with us. coming up, trading political risk and navigating that global uncertainty. us.michele will be joining this is bloomberg. ♪

emma: this is "bloomberg daybreak."

coming in the next hour, g.m. tops earning expectations, we speak to the cfo. jon: let's get you up to speed quickly on market action. this is how the day is set up. green across the board. the s&p 500 up .3%. a similar move on the dow as well. the ftse in london, up .6%. the story in the fx market as follows. dollar-yen at 112. .6%.dollar coming in we are up one basis point on u.s. 10 year. an update on headlines outside the business world.

emma: the trump administration goes to a federal appeals court today to get immigration policy reinstated. the white house has broad authority over national security -- they maintain the u.s. bases great peril without the travel ban. vice president mike pence expected to break a tie today when the senate votes on betsy there has never been a tie-breaking vote on a cabinet nomination. democrats are speaking for 24 hours on the senate floor to create one more republican to vote against devos. funds as the greek budget surplus will rise to 1.5% over the long run. that's half of the forecast for european creditors. considered making a

new loan to greece -- global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. jon: in china come we have broken the $3 trillion mark. the yuan cap its steepest decline in two decades. the rate of change is not as dramatic as it once was. how much of that is a concern for you? i think you are point about the rate of change is important because of two or three things to consider -- china has very low foreign ownership of its debt markets. liabilityhe dollar has been shrunk. haveest rates in china

started to rise because they've had a sense of inflation -- i --nk that steep the scent the scent is -- dissensi , the chinatypically proxies have come under pressure. there has not been a story of the last couple months. what will happen now is with the authorities getting inflation back in the economy 6.7, we will go into some sort of physical tightening. the money markets are tightening well ahead of anything that bpoc is going to do.

i don't think the authorities are too concerned about it. they have met all their targets. the worst of the news is behind us. the reverberation not felt in global equities. china could insulate what their moves are in response to the global markets. where does that leave the relationship between donald trump and teaching paying -- jingping?teachinxi what i worry about ultimately is the tool that they toe to change that dynamic take control vis-a-vis trumps policy is there currency. -- trump's policy is there ir currency. you have to watch what happens with their currency as that is the major tool they have.

alix: they can get in there and devalue. greg: much more than people are expecting. alix: we saw them selling down there treasury. some say that was a deliberate selling. will that be a tool as well? greg: i think that is less of a tool, frankly. the selling of treasuries is to make the outflows in the reserves. i don't see that as nearly the same type of policy towards the currency itself. as thepolicy tool currency itself. sean: the problem for the authorities is if they continue fall, they will get back much more inflation than they expected. the tightening process will be a lot more aggressive than they probably want. the good news for the authorities is the rate of

appreciation of the dollar has abated quite nicely for them. aerefore, they will not face defense of the exchange rate. provided that that doesn't raise rates to dramatically -- our view on trade wars is between --na and the united states it has been a relatively soft landing for the exchange rate and for the economy. the worst-case scenario would have been something we saw in august of 2015 when the economy had deflation and authorities were in a position of having to strengthe shrink their dollar liability. there was no spillover effects. david: how much of an issue is the credit growth situation?

they are growing their credit faster than that. sean: that is where the story does evil for this year -- does eve all for this year. they will have to slow down the property sector -- does eve olve for this year. the good news is they have achieved the growth rates they want, but it will be a tightening this year. these threecribed wheels driven by europe on the one side and the u.s. driving things from the rear. -- how me up a portfolio did you gauge those three things? greg: the change over the course of decades is quite dramatic.

a lot of comparisons to the 1980's with reagan. the u.s. is much less of a growth engine today than it was back then. china is critical here. we see value in the u.s. marketplace vis-a-vis other places in the world. europe to value in buy european debt and bring it back. there's opportunities, but it's dancing between the raindrops in this market. it's not the same kind of asset allocation we saw a year ago or two years ago. it's much more technical in nature and you have to be much more vigilant around the risks. david: greg peters and sean darby are staying with us. coming up, chuck stevens will be joining us. gm earnings and how he will liquidate all that

auto inventory he has in his books ♪. ♪

alix: you have uncertainty, you have a low bigs, so, how do you trade it? -- you have a low vix. i would be long 50% european stocks and 50% japanese stocks. at least 40% of these equity markets trading 1.5 times, below good free cash flow, a lot of cyclicals in there must say you only need a small change in asset turnover and pricing power and there a multiple re-rating story for the european and japanese forces. french, italian, netherlands stocks should do well over the

course of the next 70 months. -- seven to eight months. i definitely feel strong -- i still like high yields, u.s. high still has some spread to it that we like. gm. upside surprise from david: how will he manage his inventory? they are building up a lot of inventory in passenger cars. will they cut back on production? what: what is the -- alix: is the relationship with donald trump? david: it could jack up the price of your car. in the next hour, chuck stevens.

you down to the market open, let's get you up to speed very quickly. futures in the united states, up .25% on the s&p 500 and the dow. the dax up .5%. a single basis point. three your notes coming to market. a lot of supply. -- three-year notes coming to market. a lot of supply. live.ich is from new york, this is bloomberg. ♪

without a one00

percentage point move. we are not currency manipulators. president draghi defense ecb policy -- defends ecb policy. march is live. the philadelphia fed president joins a hawkish chorus at the fed's next meeting. this is "bloomberg daybreak." the markets set up like this. we are up .25% on the s&p 500. in europe, a decent .5%. the dollar stronger. we might get a fed rate hike. i'm looking at the measure of political risk in europe. down .2%. the political risks reverberating in the euro versus

bonds. the next goes nowhere. -- the vix goes nowhere. the bulls not giving up yet. oil relatively flat on the session. announcederal motors its fourth-quarter earnings over 30 minutes ago in shares are up 2%. joining us now is chuck stevens, gm's chief financial officer. welcome. you had a record year. ck: a very solid fourth-quarter, capped a record year from a financial standpoint. record revenue, record profitability, record margins, record free cash flow, record earnings per share. a very strong year. north americaby which had another record year of profit.ion of pop

we are very pleased with the overall results. david: you've given some guidance earlier sing you will maintain or increase that profitability into the next year. you will maintain or increase. you have inventory building up here. how will you maintain that profitability unless y? chuck: we've already made several announcements, addressing that inventory. and we will remain committed to balancing supply and demand. what leads to pricing discipline and the results we've seen over the last number of years. that will not change going forward. david: what does that say in terms of your number of overall manufacturing jobs in the u.s.? chuck: we have 100,000 people employed in the united states today at 41 facilities.

the u.s. has been and will continue to be very important to general motors. have enoughyou extra people making trucks and suvs to make up for what you are losing on the passenger side? chuck: what we are going to do is have a very strong launch cadence in 2017, including several compact and midsize crossovers. we are confident we will build on strong performance in north america based on our launch cadence, continued focus on the customer and continued focus on costs. david: and he continued shift into trucks and suvs? chuck: we have seen that trend over the last number of years. ensuretaking actions to we are balancing production capacity along with the trends in the market. we are confident we will have

the products that customers want to buy. report aboutwas a what a border adjustment tax might mean for the auto industry. it's just a there would be a $2500 per car increase cost. examined that from the general motors perspective and you have a position on that? chuck: the border adjusted tax is one component of tax reform as it is currently being discussed. we believe the border adjusted taxes too complex. when we look at overall tax reform, we want to work with the administration to ensure that change, that reform is beneficial to the united states because that leads to growth and that leads to jobs. we want to be part of the solution going forward. david: the border adjustment tax might hurt gm but you might make

up for it with the other forms of tax reform and tax cuts? chuck: it is too early to speculate on how this plays out. we favor and support tax reform. is best fornsure it the u.s. economy and best for the manufacturing base. it is good for jobs in the u.s. david: you having discussions about the border adjusted tax? chuck: we are engaged on many different fronts with the administration on a number, a tax array of regulatory reform and other issues. we want to be part of that discussion and be part of the constructive solutions. david: we've seen several times now with president trump -- as the chief financial officer, you

plan into the next year, to what extent are you adjusting your plans to respond to what president trump has urged? that the's important manufacturing footprint is one piece of the equation when you think about sourcing and product placement. this is a long lead decision. you don't just change footprint overnight. we look to make the best decisions for our employees and our shareholders when we make a print decisions. -- footprint decisions. it is long lead. david: are you taking the president and his administration into account, changing your plan? chuck: we have not changed any plans from a product allocation standpoint. we have 40 facilities in the united states, we employ 100,000 people in the unite states and we've invested $21 billion since

2009. the united states is important for us. it's important from a manufacturing perspective and will continue to be on a forward basis. david: with brexit and the elections in europe, what are you projecting for 2017? other automakers see a soft 2017. chuck: when you look at 2016 results absent brexit, we would have achieved our breakeven objective. brexit is a reality. it will be a headwind in 2017 for us. as we look at the overall environment, moderate growth, pretty challenging environment u.k.,he currency in the we would expect to see flat performance from the profit standpoint. david: we really appreciate you being here. that is the gm chief financial officer.

reconstituting the board with five new independent directors -- star board owns and 6.7% of para go shares. -- perrigo shares. coming up, the chairman of the house ways and means committee. from new york, this is bloomberg. ♪

jon: this is "bloomberg daybreak ." three-day winning streak, we broke that yesterday on the s&p 500. a marshall moved to the downside. we have snapped back, maybe. -- a marginal moved to the downside. risk in the driving seat is peripheral yields. that gave a haven bid to treasuries. on theup a basis point u.s. 10 year. euro-dollar comes in almost .75%. dollar-yen about .5%. will volatility ever picke up? this is the volatility for fx, the white line.

stocks in the u.s. the blue line. a purple line is volatility for the treasury market. all pointing lower. the treasury index volatility has moved much lower. joining us, bob michele. where is the risk under priced? bob: when you look at what is under priced, it is hard to know march should be live. we have to stop living in this fantasy world that with u.s. gdp coming in close to 3% and inflation coming in at 2.5%, that .5% is the right level for the fed funds rate. they have a lot of ground to cover. waiting until june doesn't make sense. jon: many people have been conditioned by federal reserve

to move nowhere fast. we've heard this one before. why is it different this time around? had a chart up a couple weeks ago that looked at the stop short position. it is at a very high level but offset by a long duration position. selling,rs have been money managers have been buying. calmre due for some and we are getting that now. as we start to see some of the policy stimulus take shape and form, that will get yields moving higher. you heard it from chuck stephens. he doesn't know what to do. border adjusted taxes paid it. if there's a cut in corporate taxes at the backend, that is very favorable. he supposed to wait it out and see which way things break. core of the fed's

particular dovish -- particularly dovish. if you will bet on the march rate hike come how do you also hedge the dovish risk? bob: you look at other things in the market and maybe you don't go at it from government bonds. you look at it from corporate credit instead. you can still buy high yields. the 4% option adjusted spread. when you listen to the administration and all the policies they are talking about, you listen to chuck stevens, they are very corporate america friendly. you should see that in acceleration earnings growth. inflation is picking up in the emerging markets. if you look at 10 year tips, they are around 2%. they belong at around 2.5%. you mentioned chuck

stevens, he doesn't know what to do in this environment. why is janet yellen going to be any different? bob: they can sit back and say why should we be more aggressive, why shouldn't we wait until things will accelerate and then we can step on the tightening? if they pass on the march meeting, they are behind the curve. they are intentionally behind the curve. it will be good for all risk assets. they are over accommodating for longer, that means everything should go up. the yield curve should steepen quite a bit. david: chuck stevens has to be thinking about the dollar. fx --ave adverse affects fx effects.

bob: i don't know that too much would happen. the dollar has moved a long way. it is consolidating. if you look year to date and for at the brazilian real the russian ruble, they are up 4% year-to-date. there's already been some of the -- the dollar has come off and you are seeing the emerging-market currencies start to pick up a little momentum. david: if you look at the markets, they are not pricing in -- they are more dovish than the fed is. there has to be some adjustment in the markets. bob: you are right. but they have moved from one to two hikes to two to three hikes. why isn't march on the table? there's a lot of time to pass. there's a month to go before the

march 15 meeting. we will get more employment data, more corporate earnings. it should be a live meeting. i'm not saying they are going to go, i think they should go. we need the fed to be the fed again and get to a normal level of interest rate of four all this dust before all this policy stimulus does take form and it gets away from them. alix: you mentioned opportunities in high-yield. how do you invest in high-yield with this kind of backdrop? bob: you can look into the loan market. there's been pretty good flow into floating-rate securities and bank loans are a good place to be. you can look at credit spreads of 400 basis points and say if you get a backup and yields, how much of that will be absorbed by the credit spreads? i think about a half to two thirds.

you can also point to the fact that you have average yields on some investment-grade .otes about 5% why are you so convinced you are getting paid to take on that kind of risk? bob: because i'm looking at the credit spread. if you look at the total yield, 6% or so doesn't really strike you as high-yield. underit spread of just 400 basis points, you could hedge out the interest rate sensitivity and capture that credit spread. they usually come through 300 basis points. i think we are going to 250 this time. .avid: that is bob michele coming up come a chairman of the house ways and means committee, u.s. congressman kevin brady. why the border tax is so important to him and who is against it. ♪

jon: this is "bloomberg daybreak ." equities about an hour away from the open in new york city. futures are up .25%. positive five points on the s&p. positive 57 on the dow this morning. a stronger dollar story. the political risk a story that dominated the european sovereign debt space yesterday, that has come off a bit. yields up about two basis points. some individual movers for you. at bpi'm taking a look come up 2.5% in the u.k. oil prices are not good enough yet to generate the kind of upstream revenue that the market was expecting. refining margins continue to grind lower as crude rallies.

in a not so good sweet spot. taking a look at bnp, that is up 3%. falling short of estimates, you did have fixed income revenue up 23%. unit, a consumer banking profit held back by those record low rates. anhael core is reporting hour and a half ago -- that stock off 10%. sales down 4.6%. estimates for 5.4%. watch his capto is teva. , two monthsing

after the generic medicines cheap also resigned. forecastreduced its twice. one stock to watch as we head towards the open. on: in today's trading diary the u.s. economic agenda, the trade balance comes in a in seven minutes. joining us now to preview the numbers in new york is carl riccadonna. has become aance little more important now. be a majorwill indicator that folks are watching over the course of 2017 given all the political discussion and rhetoric over border adjustment taxes or tariffs and all of this. today's data a bit backward.

it will help round out q4 estimates. it will be of high in significance this year. -- heightened significance this year. that seems to be where this administration is focused -- before the big pop in 2014, what did the trade balance look like? pushed the bernanke he monetary policy lever to influence the currency and enacted a weak currency policy. we saw a big take off in imports. the trade balance narrowed. that was a big positive for gdp. when we had the chinese d evaluation, the big move in the take we saw strong dollar

off that had a significant impact on export demand in foreign markets and that feedback mechanism moved the needle on gdp growth and led the fed to move more gradually. the labor market was a different place as well. talk to me about the significance of that given what we learned on friday. surgewe've had this big in sentiment -- we have not seen a real pickup in hard economic data. we've seen the semi soft metrics like the ifn surveys and whatnot. you have not seen it in job creation and consumer spending and business investment to any significant degree just yet. i want to watch the openings ont we got a head fake friday.

temperate weather conditions led to unusual seasonal adjustments in retail and construction. the added 80,000 jobs. had there been more normal seasonal adjustments, you would have seen a much smaller contribution. the trend for hiring is probably still below 200,000. a good number, but not as heavy as what we saw in the headline print. it.: looking forward to you cannot talk about trade without talking about border tax adjustment. chairman of the house ways and means committee, u.s. congressman kevin brady on tax reform. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg daybreak." let's get a check of the market quickly. about an hour and 21 seconds from the cash open, cash and futures up.

a third on the dow. and thet up quickly dollar index on a five-day winning streak at the moment, the longest since november 18. we've added a full percentage point over the last five days and you see that dollar strength on the board as the trade data comes in. alix: it is at negative $44.3 billion, slightly better than estimates. -$45stimates were billion. this continues to paint the pictures of less exports and more imports. the stronger dollar part of that story and we saw that in particular with the fourth quarter gdp data. you are seeing the dollar grind its way higher and you are seeing the selloff across the board in the treasury market. here to take a closer look at his michael mckee and terry .ands

when you look at the number off the top, does this change the rhetoric at all from trade balance and trade wars with president trump? because not at all, they're coming into office believing that a negative trade balance by itself is a bad thing and that is something that most economists would disagree with . we should be buying things from other countries if they provide something we can't. that is essentially what happens here. the trade deficit for the united states has gone down significantly. in 2005, it was 5.5% of gdp and now it's 3% where little less. it is in a huge problem for the country, but the administration sees it that way. you can expect rhetoric along those lines. alix: terry, the trade deficit was at the highest level since 2012 last year. we talk about exports needing to improve. you are arguing the problem is stimulating domestic demand even more. terry: sure, that's very much a

part of it. following on michael's point, one thing the administration clearly sees is that the vast majority of the country believes that trade and jobs are inextricably linked and they are devoted to improving both. that is one of the leitmotifs of the administration. i would consider that to be important that their focused on continuing. david: congress thinks that come up with a solution on that with the border tax helping our exporters. what is the white house stance on that as of now? terry: the white house stance is most recently expressed by gary it isast week and that is one of many solutions they're looking at. about how chairman brady on next and he will give a defense of the provision. is that it is

important to understand what the house is proposing, which is an entire consultant based tax system, one component of which is border adjustability, and that ought to be looked at holistically. david: as a practical matter, do they have to do the border adjustment tax in order to pay for the cuts they want to do? terry: one great advantage of the system they are proposing is that it is a page for system. therefore, it can meet the budget requirements. it's an advantage in that respect. if you are going to do a more conventional tax reform with an aggressive low top rate like that, which both republicans and the president are talking about, there's a possibility of steering -- staring higher deficits in the face. david: michael, where our economists on the effects of a border adjustment tax? michael: generally, economists do not believe it will work based on how it is proposed. just the math -- if you do a 20% border tax, you need 25%

appreciation in the dollar for it to even out. there are some of the things that affect the dollar that they do not think it will get there. even if you do, it hammers foreign companies with dollar-denominated debt. you could have some massive defaults around the world if the dollar were to appreciate 25% in a short time. jonathan: think about this very simply, you take growth and the administration further work best for their word. -- you take the initiative for their word. of the things in that mix and is influencing the trade balance probably the hardest one to actually do? terry: i would say that's fair. there are so many more factors than just government action. demand, of course, is the biggest one of them. so yes, i think that's true. jonathan: with that in mind, how

realistic are the goals of the administration? terry: realistic? i think they are very realistic. they want to be aggressive about pursuing those. as you say, there's a mix of these things. without sitting in the white house, what i can tell you is go after all these as aggressively as possible. they are likely to have the most positive results. giving up on any one of them is making their overall job harder. alix: we have been talking about this all morning -- the risk in d.c. versus the risk we see in the markets. based on the conversation we have been having, what do you think the risk premium should be in treasuries? terry: should be? i am a macro policy and political person. i'm not going to address that directly could . i really can't do that. what i can say is there is one other factor that's relevant as well, which is the opportunity

to present has to reshape the federal reserve to some extent. that will certainly affect all those things. jonathan: let's try to put it in another way. when you speak to clients and they want to engage with you with what the political system is going to deliver for them, from your view versus bears, where is the widest spread? terry: where is the widest spread? investors are all over the board, i would say. the widest spread is there concern about the fear of precipitous trade action coming out of washington. our view has been all along that the president can contribute to increasing trade tensions, but a lot of the talk that comes out of washington that the president has got unlimited abilities to start a trade war or something like that is much overblown. alix: good to see you, michael mckee and terry haines. he played a critical role in grading the oil futures markets.

we will speak with what the president for later on border tax and adjustments. it's my favorite topic and a little nerdy come up and i love it. -- but i love it. this is bloomberg. ♪

emma: this is "bloomberg daybreak." i am emma chandra and this is the hewlett-packard enterprise greenroom. coming up, the chief u.s. market strategist. david: this is bloomberg. i'm david westin. markets have reacted strongly to the election of donald trump as president. experts tell us much of that reaction is to the prospect of tax reform and reduction. wereng us now is the

presented kevin brady. he serves the chairman of the house ways and means committee. rep. brady: david, thanks for having me. david: we know you are an ardent supporter of the border adjustment tax, which we have been talking about on the program here. a practicalas matter, have to get that as part of the package to pay for the cuts you are looking for? rep. brady: the answer is absolutely yes but not for that reason. we know what our competitors are doing globally. we know how china, canada, mexico, europe taxes and the reason that we are so far behind them right now is because they have lower taxes dramatically. we are going to beat them on that. we're going to do the same. import taxd a major on our products going into their country and take it off of theirs coming into the u.s. today, the made

in america products are at a tax advantage -- disadvantage here and abroad as well. the reason for doing that -- well, two reasons is to eliminate the advantage of foreign products over u.s. products. a 20% rate is the right thing not just for the economy but for consumers. maybe the most important reason for doing this is to eliminate any tax incentives to move u.s. jobs, research, or headquarters overseas. we are determined not only to eliminate the tax reasons to go , but actually reestablish the u.s. for a magnet of business investment in the 21st century. david: i respect that that is your primary motivation, but there are revenue consequences. i've seen estimates as high as $1.1 trillion. the brady: that is roughly number on it, but the reason for going this bold is knowing where our competitors are at.

as a result, we are crafting an for lowere print expensing and first time in modern history, eliminating the state tax, and you see a growth of 9% in the u.s. economy. you are able to limit the rate significantly as you do that. it is a critical component of progrowth tax reform. it is staying in our tax reform effort. david: i'm sure in your calculations that you have to take into account what would happen to the dollar for this to make sense. are you concerned about the knock on effects for that? rep. brady: our goal is not to strengthen the dollar. our goal is to strengthen the u.s. economy. there is no question that finally ending the made in tax on our exports will grow our exports. we know from history that every time our exports grow substantially, the dollar appreciates. the benefit of that -- trade flows balance. you can find more imports with

those dollars. from a trade standpoint and economic standpoint, we know it rebalance is, but from a jobs flow and investment flow, it changes dramatically. it reverses the incentives to move offshore and actually creates solid incentives to access u.s. markets from america and access the world markets from america. david: you are an ardent supporter of this approach. there are a few people who have raised some questions. i would like to ask for your response to them, starting with u.s. businesses, particularly in the retail area and refiners. what is your answer when they say you are going to hurt my business? rep. brady: we're listening very carefully to those concerns. look, we are going bold. these are some of the biggest changes in 30 to 50 years in some cases. businesses toct change their business model overnight. this is why we have invited them to the table to engage on the

design of this provision. it's the mechanics. we have to get that right for businesses. ,nd the transition of it because we know doing that can allay a number of those concerns. i want to be a clear here. if any industry is asking congress to keep in place the tax advantage of foreign products over made in america products, that's not going to .ork it they are going to ask to keep in place incentives to move jobs overseas, that will not succeed either. we have very successful businesses and they do not need tax breaks over foreign products over made america products. it's good for consumers and clearly for the economy. david: you are saying no exceptions but maybe we would phase it in. rep. brady: i'm not anticipating any exceptions. the design of it, the transition of it, we are listing right now. when we unveil the blueprint in june, we made the same

invitation across the board in our blueprint. because tax reform became real and a very good way the day after the election, as this is our engaging -- businesses are engaging. we have a number of leaders engaging in a constructive way and making sure we get the mechanics right and the transition right. by the way, i listened to the bound concerns -- not the hyped up once, but the valid ones. i'm more confident that we can design this in a positive progress way. david: there are some members of congress who have raised concerns. senator hatch and purdue have raised questions. president trump has some concerns about the complexity. where are you with the white house? are they going to back you? rep. brady: i do not want to speak for the white house. thingsnt trump's

we should tax competitively with our foreign competitors. we like these questions being raised whether it's in the house , the senate, or the business community because i think most people never dreamed we would go this bold. is used byprovision all of our competitors frankly to beat us, it is new to the united states. those questions are healthy. as we go through discussions and we learn competitors are already doing this, i america is an outlier and getting beat because of it. we will see support for this growing. david: talk to me about timing. platter,a lot on your including obamacare, which are committee has to do with as well. can you address tax reform before you deal with obamacare? rep. brady: we are running parallel tracks right now. in a few minutes, i will speak to bloomberg not only about the historic boldness of this tax reform plan and what it means to

the economy, but the timing as well. the bottom line is that we are pointed toward tax reform in 2017. we think this is the first opportunity and 30 years and may be the last opportunity or another 30 years. we have got to go bold. backve to leapfrog america as one of the most progress countries on the planet and we are determined to do that. david: you expressed tax reform in 2017. that means legislation signed into a 17. when are we going to see a bill? rep. brady: we are working on the final draft of this. part of this is listening again to those looking at the broader picture, bring yes ideas and solutions. we want to incorporate those in there. we are looking at a final draft and a bill i would imagine in the first half of this year. we are not set a timetable on it. we're going to do it right. david: kevin brady is the

chairman of the house and waste committee. alix: a border tax will have huge applications on the global oil refinement. we're going to dig a little president ofhe implications of the border tax on markets. this is bloomberg. ♪

jonathan: new york city, this is "bloomberg daybreak." we are 40 minutes away from the cash open in new york. let's get you up to speed and the stage set like this. up a third of 1% on the dow. caught a quarter of 1% on the s&p 500. we snapped a three-game winning streak on the s&p 500. a decent they globally for equities markets. treasuries selloff their haven bid from yesterday. yields up 243 on the u.s. 10 year. the rally in the dollar continues.

it's the longest streak since november 18. it is along the street so far in 2017. you see the strength against the euro and the yen. alix: how much of a border tax adjustment is being pressed into the dollar right now? ipr now, we are joined phil verleger. we talked to representative brady and he said i do not want a stronger dollar, but there will be a stronger implication if we get al border tax. philip: thanks for putting me right after congressman brady. it was very interesting to listen to him. by domestic price will go up initially 25%. it could come off a little bit afterwards. producers will turn to selling within the united states because most of these domestic producers will pay no tax under the border tax. it is pretty common knowledge that independent producers like

yield and continental resources spend more than they take and in their revenue. people find them spending 30% more than their revenues. they will have no tax obligation under the tax. they will want to sell within the united states. we will see a dramatic change in the flow of oil. they will be trying to push their oil on u.s. refiners to get 25 or 20% more. alix: will they get that price? you know they are lobbying in d.c. what kind of pricing power can the refiners have? philip: the refiners will have some pricing power, but the refiners largely be able to recover most of it because imported products will go up. on the east coast initially, product prices will go up 25%. refiners will have an umbrella to lift the offers for their crude. that will spill over into the midwest. if the refiners down on the gulf coast begin shipping up to the east coast and displacing the

refining products that come in from europe and canada, the refiners will be able to pick up much of it. terrace onl see our the colonial pipeline go way up and we will see jones act rates go way up and we will see construction activity and shipping. alix: that jones act is that you have to use u.s. manned ships to ship products around the u.s. to that point, you have been front and center on this. you have been looking at opec interest in u.s. inventory and merchant law. they are over 1.1 billion barrels. it's really quite huge. we have seen a huge rise there. what does that tell you and what is the potential for oil price moves? u.s. plus you look at europe, we are over 5 billion barrels. when i was on the committee when we started the thing, there was 100,000 contracts. buying,s have been

refiners have in buying, speculators have been buying in anticipation of the opec action and anticipation of this tax. companies are trying to bring in inventories so they will not be taxed if the tax goes into effect. refiners are buying ahead, worried about this. if the tax stumbles or opec stumbles, we are set up for probably be h the hugest selloff in crude in history. interest has come up 11% since election. we are on track to having almost 8 million contracts by the end of the year if this rate continues. i don't think it will, but it is a bubble that if opec or the ways and means committee fails, it will pop. alix: what is the level we get to and how deep is the selloff? philip: it's always hard to predict how far down it goes, but i think we'll go below 40, down to 35.

this is a game where they have built the confidence. opec has doubled or tripled down. alix: what are the odds than? we already have refiners prepping for it. where do you put your odds for this? philip: i put my odds at very high. i call this the trunk put, like did green -- like the greenspan put. i'm sure the president uses action, which is permissible under section 232 of the trade act, to impose a fee on imports. ket in oil ended january 20. for the border tax, i think we'll follow up to 50% because they're so much question. there's a good deal of question in the senate. many house republicans don't like it. the fact is that it does at 13% or so to the price of gasoline as the study i did in december shows. higher gasoline prices are very

important to the members of congress and the members of the senate, particularly republican members taking a lot of pressure on the obamacare from their constituents. if they are seen raising gas prices and taking away obamacare, they are in a lot of trouble. alix: thank you very much. it's interesting that it has implications for the price and oil flows. it's not just about jobs in the u.s.. jonathan: it's about the commodity markets as well. coming up in the next hour, jonathan golub as we count you down to the open. this is bloomberg. ♪

♪ jonathan: from new york city to our viewers worldwide, a warm

welcome to this "bloomberg daybreak." i'm jonathan ferro alongside david westin and alix steel. the markets looking like this. 30 minutes and seven seconds away from the open, we are a quarter of 1% on the s&p 500. up a third of 1% on the dow. it is the calm amongst the chaos since a 1% move. dollar strength in the fx markets. we are up two basis points on the 10 year to 243. let's get you some movers as we count you down to the open. alix: we are seeing big movers with an underlying equities. michael courses off by almost 12%. earnings came out and it was brutal. sales to department stores were down 18% and it's cutting even more discounts in order to raise their margins. news lot of good coming out of michael kors. eva has the ceo resigning and

the head of generics leaving two months ago. this has now led to earnings downgrades. archer daniels midland down by 2.5%. execution.me poor on their trading debt. they cannot get the execution up to par.those of some of the names heading into the open. jonathan: the question out still has been asking is where's the vault? shown signsade has of cracking after the protectionist policy. it is the calm amongst the chaos. it has been two months since we have had a one full percentage point move on the s&p 500. matchingy tight ranges the longest streak of the current bull market. joining us now as jonathan golub .

remarkably calm if you're looking at that chart right there. when you wake up and see that chart, does that make any difference in the way you see the markets? jonathan golub: to make a huge difference. if you were a trader, you would be looking at the vix rather than how long it has been since we had a 1% move, but when you have low volume, stock valuations go higher. i think this is something that supports this market. what is so interesting as everybody thought trump would be the guy that sends volatility off the chart by his 2:00 in the morning tweets. the market is seeing this in a bizarre way as a common backdrop. jonathan: you have been looking lately and your latest research report digs into it. does he go to the high dividend yield or the low volatility stocks? a lot of people think and sit around and say i want to avoid the high dividend yields at this point. that is not the story for you though. jonathan golub: no. if you step back and look of the big picture, it's really a reflation story. the economy is doing well.

we have unemployment well under 5%. it has been under 5% for a year. interest rates are up 110 basis points since midyear. people would think that's a really bad environment for dividend yielding stocks, but that's not what's happening at all. dividend yielding stocks are actually outperforming the market. what is getting beaten up his safety stocks, utilities, staples that seem super secure. when you have a reflate market, you actually want to go toward lower quality names. jonathan: let's get into that. whenever anyone says to me, look at these high yields and stocks and buy it. i would say clearly the price they have to adjust or the dividend is going to get cut. your message is to buy junk. how hard is it to sell that message? jonathan golub: it's interesting.

if you talk to the hedge fund community, they realize they are buying stocks and not companies and you have to look at them separately. very often though, individuals when they buy for their own portfolios, they look at these and fall in love with the company themselves and they want that stability. there are times when stability is the play and there are times like now that i think it's not the right time for stability. do youhat kind of yields need to be compensated for taking that kind of risk? jonathan golub: i do not know if it's a yields story per se. if you look right now, a lot of the higher-yielding stocks are in the energy sector. basically mature industries, old tech companies, have reasonably high dividend yields. i don't say they are junk because that's not the right way to describe them. they are more economically sensitive. as a result, they tend to jump more when the economy improves. that is what we are seeing -- an improvement in the economy. alix: consumer stocks have

actually stopped reflecting. yes, we have a better jobs picture. inflation expectations are pricing higher. look at on their armor for example. -- under armour for example. the brand is. getting beaten up the stocks are not keeping up with the overall macro picture. how do you explain that? jonathan golub: if you asked me if i would be buying those kinds of names, but over the next 12 months, i would absolutely be buying those names. wages are going up. the unemployment rate, because it's so low right now, confidence and the ability to find a job if they get laid off or do not like their boss is rising. i think you will see even in housing that people even with rising interest rates, they will say a house cost more, but i'm confident in my job and getting a raise. as much as they have not been winners in the last few weeks, i would be pretty confident. jonathan: would it be great if

the quit rate was that forensic? onathan golub: it's a great job's with people voluntarily leaving their jobs. it's a massive sign about confidence. we have seen that statistic rising recently because confidence is so high in the job market. david:. the s&p is very calm. what is going on below the surface? below there's a lot of turmoil going on. if you go by sector, there's a lot more volatility going on. jonathan golub: you may me realize an interesting collection -- question. there are two things that drive overall volatility. if you have one thing going up and one down, the market seems plastic, but there's a lot of movement. most important story is that the correlation between stocks has been collapsing because certain things look so much more attractive than others. the one group that has really taken off since the election or

midyear is the financial sector. you're talking about less regulation, rising interest rates, a pickup in business activity. all those things help the financials. on the flip side, though safety names have been selling off. that is your biggest rotation. you also have names in the energy where oil prices are higher. those are optimism trades as well. seem to be offsetting the zags, . jonathan: what is the difference between having a message of loading up on beta and you are saying load up on high yields? what is the difference between those two things if any at all? jonathan golub: first of all, it's a little bit subtle. if you played the beta trade, you probably went. here is going to win in this environment. smaller companies that tend to be riskier and economically sensitive should win.

value stocks which have not done well over the last several years but have done well recently, i think they continue to do well. companies that are more dependent on it and improving economy are going to get an economy that helps them out. alix: before we wrap up, i want to focus on real earnings yields. as real earnings yields start to the road right now, we were over 8% not too long ago. what does that do? how do you play that? jonathan golub: when you say earning yields, that is the pe flipped upside down. about it would think is how high can pe go in this environment? right now, they are 17 times on that sears earnings. i think you're going to be in the very high teens before the cycle is over. i think the market is expensive compared to history, but we will be complaining that's more expensive and a year from now. jonathan: great to have you with us.

coming up on this program, tony dwyer will join us. as we count you down to the market open in new york city, this is how the stage is set. futures up a quarter of 1% on the s&p 500. up a third on the dow. from new york, this is bloomberg. ♪

alix: this is "bloomberg daybreak." at the end of the week, 75% of the s&p will have reported earnings. this is ea go. the top line average sales surprises for the corner and the bottom panel is average surprises for earnings coming in at 3.5%. the average sales surprise is under half a percent.

lub.l with us is jonathan gool some have come out and said that earnings are more impressive than the surprise. do you agree? are earnings better than we think? jonathan golub: earnings are pretty good on two fronts. first of all, the growth rate right now not only for this quarter but what is likely to be in 2017 is almost smack in line with historical averages. you are at earnings around 8.5%. that makes people feel as if this whole idea of an earnings recession or economically fitnes weakness is behind us and that's a really big deal. you're right, alix. it's a smaller be than normal, but you get this beat off a depressed number and you had no dip going into earnings seasons. the net was kind of pretty average. alix: nonetheless, we're looking

at 12% earnings growth for the s&p at 131. can we actually get there? it seems like we are still too optimistic in the market. jonathan golub: that 12% is still pretty unlikely to happen. what happens every year is analysts start really gung ho in their estimates. alix: this is in every year. we have a trump administration and a potential stimulus. jonathan golub: if you look at the normal pattern, there's always a lot of optimism going into the year and the numbers ratchet lower. what is interesting about the way those estimates have been moving since election day is that they have not drifted lower. they have remained stable. we could get a surprise, but the estimates right now have zero in there for the potential program policies being put forth the administration. until the market discounts what they think is going to happen, analysts wait for the details. we were talking about this off air. the analysts are saying until i

know exactly what the plans are going to be or i get guidance for management, i'm putting a zero and for program policy. all the risk is that things are better on the upside because none of the optimism is in the earnings estimates. jonathan: let's look at the policies that come out of d.c. you have the likes of the federal reserve and they are waiting and seeing. you have the c suite very much e if you areguis running a hedge fund. d, you don't need to wait and you can load up on risk. for conversations that you have on a daily basis with the various different constituents of the market, tell me about how these conversations are different from institution to institution. jonathan golub: let's first start with the fed. what the fed sees is a labor market that is very tight. we can debate what the right measure of employment is, but wages are rising. they are celebrating. there is a reason they are

teleportin telling you they wane three times this year. there's is a reason we may have a potential march move and the reason is this is running a bit hot. thathina to project underline -- they are trying to project that underlying trend and they see the risk to the upside. our job as investors is not to have full information to act. we are handed a piece of swiss cheese with big holes in it. we have to guess what are in those and we have to make decisions. there are some investors comfortable with lots of holes and their story and there are others that one it tied down. that's different whether you have been in the market and writing of the wave or sitting on the sidelines and waiting for just a little more news. david: let's comes on the 15,000 feet. we got a note out yesterday based on an earnings report. i'm curious about where the growth is and where the surprises are in the intersection. it surprised me a little bit.

worried you see the biggest growth and the biggest rise? jonathan golub: as we look forward, the egg is potential for surprise are going to be the financials. there's a whole variety of things they have going for them, but this whole discussion of reevaluating whether it's the department of labor role or dodd-frank, gives them a boost. the interest margin gives them a boost. they are not seeing as much of that this quarter as they will going forward, but that is likely where they will see it. you will see other areas cyclical in town. david: it was interesting to see what numbers were like with and without apple. jonathan golub: you have a similar story in biotech where the majority of this recovery cycle, it was a couple of biotech companies like gilead along with apple that drove a huge part of the growth and the surprise in the market. they are now detracting from that story. the market would probably be better off without them as

opposed to what we have seen the last for years. david: that is jonathan golub. coming up, banks lead the way. financials are the best performing sectors since the election. is it because of the promised deregulation and when will it all come? jason goldberg joins us next. this is bloomberg. ♪

jonathan: from new york city, this is "bloomberg daybreak." it has been six or two day without a one percentage point move on the s&p 500. the, missed the chaos -- the

calm the missed the chaos. the dow up eight and a third . it's a dollar strength story for a fifth straight day. the dollar-yen up half of one percentage point. just on the margin, treasury yields higher by a basis point to 242. david: united states banks have led the way since election and by a wide margin. joining us now is barclays bank analyst jason goldberg. jason, let me start with you. let me talk about the big jump in equities. how much of it was the promise of deregulation? jason: it was certainly a portion. we have seen for drivers and the first was higher interest rates could you see the backup in the treasury yield and the fed hike in december. increased interest rates has

certainly helped. we think the prospect of lower corporate taxes certainly helps given the majority of banks earnings are generated in the u.s. progrowth agenda coming out of the administration certainly helps things like long growth and potential capital markets activity. the one you alluded to was the prospects for deregulation. years, they eight have faced higher regulatory costs and constraints. now we are finally potentially going to been that curve a bit and see relief. david: on friday we saw two executive orders coming out of president trump. how much of a down payment were those two executive orders on the prominent of ds -- promise of deregulation? jonathan golub: they set the tone. jason: gary cohn, his economic advisor, sets the tone. you read the executive order and thought a lot of

people would roll back dodd-frank. it doesn't mention dodd-frank. we should see regulators regulate less. as president trump gets to appoint with new heads of the fcc, which he will get to do over the next we should see regulators regulate less. 18 months or so, we do think his ability to regulate less even if you do not get an actual change in law. alix: what's in r.o.e. we could see if we see the rollback? jason: if you out of the four points i began with in terms of higher interest rates and a little more growth and less regulatory environment as well as lower corporate taxes, we think you can get a 300 basis point lift and r.o.e. for the industry. that is absent for a one-time boost and absent for the growth the contention that we get -- you could potentially get from there. alix: we were talking financials earlier. much more upside the think that there are? do you like financials on this?

jonathan golub: i do. i think the point about higher r.o.e. cannot be understated. atyou ran a chart and looked higher r.o.e. for the financial sector, which is what they are allowed to earn given the regulatory environment, and the pe is what you pay for the stocks, it looks like they are perfectly matched with each other. this could be resetting the stage for the kind of environment it could be operating in. the other thing is banks, when there is no interest rates and they're close to zero, they have no ability to make money on a loan. their whole business model reflects like an empty balloon if we get higher rates and deregulation. we have seen ipos picking up. all that activity is also a big benefit for some of the larger banks. david: we are seeing right now even today that the president of the medassets does not also always necessarily get what he wants -- the president of united states does not always

necessarily gets what he wants. even if the white house wants to deal regular banks, they could face litigation challenges. jason: there's a lot of uncertainty with this, but the laws are subject to interpretation. appoint already had him a nominee for treasury secretary out there. he named gary cohn as his economic advisor. clearly these people have bank experience and understand some of the constraints that the industry is operating under. there's that ability to relax that without actually getting the senate to change the law was 60 votes. david: you also have the issue of who's doing the regulation. it is not just the miniature, but you t have things like the vice chair. how important are those positions as opposed to changing the letter of the law? jason: it's quite important. the fed has been operating without a director of supervision since it was created by the dodd frank act.

it has been very stringent particularly with the largest banks with respect to capital and liquidity standards. what trump appoint someone different to the role? there's potential for things to get easier for the industry and maybe the handcuffs loosen up it so they will increase the ability to lend. alix: your pending a bullish picture when it comes to banks. in ao you hedge nonaction sector that has had a huge run since the election? jonathan golub: i would love to get jason's read on this as well. i do not think analysts have fully put in their numbers. the earnings estimates do not reflect the potential upside from this regulatory change. is slower to come or in a smaller small way, i'm not sure the earnings estimates get slashed. a big part of this is the general environment that has

been more favorable for a while. alix: no hedging that risk basically. david: i want to think jason -- thank jason goldberg. jonathan will be staying with us. jonathan: in the markets, we look something like this. as we count down to the opening bell, the stage is as follows. the dow is up by a third. switch up the board very quickly. elsewhere, it's a stronger dollar story. yields are up a basis point to 2.42 in the euro well south of a dollar seven cents. the market is opening up in a few minutes. this is bloomberg. ♪

jonathan: from new york city to our bureaus worldwide, this is "bloomberg daybreak." we are moments away from the opening bell. futures up a third of 1% on the dow and on the s&p 500 as well.

we travel north by quarter of 1%. we did snap the three-day winning streak in yesterday's session. we are on the front foot in terms of risks. yields are up a basis points on the u.s. 10 year. it is dollar strength dominating the fx market. the dollar index up six cents of 1% as you hear the opening bell rang. about 10 seconds into the session, let's head over to alix steel. alix: we are still right around record highs for the dow and s&p. the dow coming up by 64 points and the s&p up by four points. wasrecord close for the s&p 2998. we are right around those levels now. this is the s&p coming off its first loss in about four days. keep in mind this is a stat we have been using all morning. if the s&p does not close up or down by 1%, it will tie the longest streak in this current bull market. he did have some gains in the future market rally as we had the trade deficit coming in a

little narrower than estimated. the nasdaq opening up by 2/10 of 1%. general motors off by almost 3%. had its of the session originally rallied by as much as 2%. the cfo was issuing warnings about the border tax adjustment. the gm worker profit-sharing program is at an all-time high, so the expense conversation coming in. gm is behind vw and toyota. fiat chrysler not being spared come off by 3%. they are deal with and omissions case. we have been talking about this all morning. where's the risk? where's the volatility? seeing ite not and this is another chart explaining that phenomenon. this is bullish phenomenons on u.s. equities. the cost on betting on a 10% increase in the s&p etf in the next month is at the highest since july 2014.

right here is the cost. it has come down on the last few days, but that cost has been the highest since 2004. if you do not want to buy the s&p because it's too extensive, if you buy a bullish option, that's another way to play the bullish sentiment, not reflecting the underlying risk we are seeing from newspapers and the white house and d.c. jonathan: the price for the move to the upside getting a little more expensive. we are of a third of 1% on the dow. close here at another record high. the s&p 500 snapping the record streak yesterday. dwyer, thehis tony cohead of u.s. equities research could still with us is jonathan golub. i want to talk about optimism and enthusiasm and various ways of gauging the sentiment. there was something that you came out with about a correction in the near term. do you stand by that call? tony: i certainly do.

the odds of that are much higher. the next 5% should be on the downside but not the next upside. i think it's more of a tactical over by correction. the fundamental cause for it may be that expectations for what the fed is going to do this year are really overly conservative. the market has only priced into fed rate hikes. the median forecast is calling for three. i think you could have maybe three or four based on the economic data. that good data could readjust to expectations for what the fed is going to do. that could cause a correction, but you have to buy it because we are so far from a recession. jonathan: i want to bring jonathan into the conversation. the basis of this conversation, before we get into it, i really want to question it. it's the idea that this market is overbought and owned across the board and everyone is loaded up on risk.

is that the story as you see things? jonathan golub: i don't. when i'm talking to large institutions, i'm surprised with this discomfort with the combination of rhetoric from the administration and the lack of clarity on how things will play out. there are a lot of folks yet to get in this. i want to get to a point that tony was making. when we look at this, it's not one the fed raises rates that markets selloff, it's actually when they stop raising rates that they realize they have done too much damage and they need to back away and things go badly. i'm wondering whether tony sees that. is there any reason why the market doesn't blow through that and surprise everyone and do really well? tony: if you're talking about a major decline, you are 100% right. if you're talking about a recession driven bear market where you have a 15-25% or greater decline, that is always caused by a recession, caused by

an inversion of the yield curve. the fed raises rates so much. you invert the curve. every recession since the 1950's has been led by an inversion of the yield curve and shutting down credit. when i'm talking about is a reassessment of how many they are going to do. for example, there was a on how the bank of england may have to raise rates because the economy there is hot. this whole story, we but love to make it about trump. it makes for great news and headlines. the reality is prior to the trump collection, you are seeing a significant and sustainable increase in global economic activity as seen in the global purchasing managers indices or the manufacturing and services. that matches what has been happening in the u.s., so the story is not about donald trump and tax cuts and regular show. that helps and may have told forward gains, this is about better economic growth.

over the next two years, that will lead to significantly higher prices. corrections are only normal and healthy until you get them. once you get them, investors 10 to sell into them. i want to be looking into a correction to the risk as equities come down for that movement. jonathan: the difference between you both is jonathan is talking about the ingredients for the death of the bull market in your talking about the ingredients for a near-term correction. where i see is a distinction between this over optimism in the market. you see the marginal bar is not everybody. the marginal bar or someone specific and there's more people that can join in the rally . jonathan golub: i think so. the house the biggest difference between us is if you are looking at this in the next 6-12 month horizon, how cute do you want to beat to play for a near-term 3% or 4% dip or get him where your eyes are for the end of the year

and things are going to be better, i'm buying in, and if i miss a couple percent so be it? tony: jonathan and i service the same clients. knows as wellhan is me that if you take the market down 2%, we start getting .he calls co you start to see it feed on itself. coupled with algorithmic trading, i think it used to be the fear would be up. so what? every time we get a correction, once it's down a few percent, people think it will be the 10-15% kind and they start to the risk. derisk. i would not sell here, not with the earnings and the trajectory they are in. unfortunately, many times that is not the case. they say they are going to do it. when they get it, they started derisk.

alix: where do you read risk? rates, when itun starts to go higher, the sectors that have done the best have , materials, and telecom. there are three areas that over the last two rate hike cycles, when he had the real fed fun lifting on the low and started to accelerate, over three and six months, those are the areas that should do the best. alix: you're not alone in that. a lot of people come here and jonathan said financials are great. there's not any rollback of dodd-frank from d.c.. are you worried about a crowded train when we make these one-way bets on reflation? tony: we upgraded the market from market neutral three days before the election and sector neutral on december 19. our call is not that you overweight them now. our call to the institutions is that if you are an aggressive hedge fund or a partnership

trading, ud risk by lowering your net exposure. we have been suggesting you scale back to a market way. and advisement to institutions is don't get hurt. as the market pulse that, you want to be in a position to get offensive. you can't get offensive if you are already offensive. while we love the financials looking forward, right now, i would just be neutral on them so i can buy them on in the kind of weakness. jonathan: speaking of getting offensive, the dow could close at another record high. the optimism and enthusiasm is there. i want to wrap things up with you guys. the trade on financials and the calls on the federal reserve -- what is more important, tony? a more aggressive fed to be bullish on financials or just to speak to yield curve. ? you can get one without the other. tony: steeper yield curve. jonathan golub: i wish i could

disagree, but i can't. tony: we look at the same stuff, so we better agreed. jonathan: thank you very much. as we wrap up the first minutes of trading in this program, nine minutes in, this is how things are playing out currently. the dow is up for tens of 1%. the s&p is up by a quarter of 1%. we close on the dow on a record high. the s&p up five points. coming up on this program, disney reporting earnings after the bell today. we will tell you what to look out for when those numbers come out. from new york city and all over the markets, this is bloomberg . ♪

emma: this is "bloomberg daybreak."

i'm emma chandra and the hewlett-packard greenroom. coming up, we will be discussing opportunities in distressed debt. ♪ jonathan: from new york city, this is bloomberg. the markets in the u.s. are looking at little something like this 13 minutes into the session. let's get you up to speed. equities on the front foot in new york with the dow up for tens of 1% and the s&p 500. it'd snap the longest money streak so far in 2017 for the s&p 500. we are back on the front foot today, of a quarter of 1%. if the dow closed here, it would be another record high. david: now we're going to turn to media stocks. twice for century fox announced earnings after markets closed yesterday and they were better than estimates based on

advertising and their sports and clinical programming. -- it overcame tough times. joining us now is our senior analyst covering the media space. tell us about 21st century fox and what happened to the stock as a result. >> i think the report last night a lot of the fears that have overcome the sector. they showed you can have good growth in advertising, good growth in future tv networks when you have content that is working. the content that is working for them is fox news and sports where they had game seven of the world series and they had the super bowl, which will show up in the third quarter. these guys did better than what we were looking for on earnings. i think the stock was up after hours and is down a little bit today. overall, i think it was a constructive reason. i would not go too far in

reading any reaction that is negative. right if you have the content, but they had a seven-game world series and probably the most extraordinary presidential election in memory. that cannot keep up. does this fight against the overall decline or leveling off of basic cable? barton: i think it shows it is possible to grow. an as diress is not straits as bears were arguing last year. it fits into the theme for the groupware sentiment has want up toward the group. a fox are not a scared and disney and cbs of the world. am i completely comfortable? no. i do think there are secular concerns that could hit the stocks again. cost nextave tougher year against everything working in this past quarter, at least on the tv side. in my mind, to me this says you can own stocks in the group.

my preference right now is for cbs, which is cheaper and more exposed to the retransmission growth story and industry, getting paid for tv stations, which we think has got a better bankable gross story than other things and tv. fox set the helpful backdrop for the group. david: you mentioned disney and we will hear from them after the bell today. what will you mostly focused on as you look at disney earnings? barton: disney is one of the stocks like fox that was thrown out last year because of fickle investor reaction to fears about the sector we thought were overdone and it has become beloved this year. i'm a little bit cautious going into the print. looking longer-term, i think disney can be able to grow a little bit next year, but they have to fight to grow. their movies are at all-time people levels. network business is performing brilliantly, but i think it will struggle to grow

from the high kind of fees they are collecting on espn. a lot of growth is really resting on theme parks, but they are a minority of what disney has. i think i would be a little bit cautious of disney don't into the headline. longer-term you have better growth for the money at other names like cbs. david: one of the big questions facing disney and its ceo, as espnr, is that levels off subscriber growth, what will replace it? what are likely candidates to replace that growth for disney? barton: you talk about replacing growth and i thought it was a question about who replaces bob iger. david: that's the next one. [laughter] , they like foxn and others are banking on putting their networks into some of the skinny bundles that are merging from hulu. espn is prominent on sling.

you have fewer channels and are focused on the bigger channels that consumers are more interested in. back in offset some of the court cutting of the traditional pay-tv ecosystem. you can do some direct over the top networks that cater to niche interest. yes ben could give you couldn't see on the networks if you are an enthusiast for niche things in college like cycling or things like that. they will pick up some extra money there. it's a very big number. these guys get seven dollars per month from every pay-tv household in the country. you lose a couple million of those and it's very tough to replace with these other things. it's not huge growth. david: i want to get to your question. the ceo, bob iger, there's a lot of question that he might extend yet again. will the market love that given his track record? barton: everybody loves bob

iger. if you decides to stay around longer, he is very welcome, but you cannot stay forever. see that the process is working smoothly. we cannot have a repeat of the ugly cisc questions -- successions at disney. having a qualified name cued up as a successor will be helpful for that equity and i do not know when that will happen. david: i was there for one of those ugly successions. barton, thank you so much for being with us. barton crockett is sbr capital markets senior analyst. alix: we're going to walk you through today's highlights, including our conversation with chuck stevens. trump's about president complicated border attacks and working with the trump administration to create jobs. take a look at shares of twitter. that stocks up 4%. the company announcing new plans

to make abusive tweeters less effective. in a blog post, they go over how to prevent them from making extra accounts and disrupting tweets. they were under a lot of pressure and now they are taking some action. this is bloomberg. ♪

david: this is bloomberg and i'm david weston. time to talk about takeaways from this program and it is checked stevens for me. we talked about his earnings and estimates on the border adjustment tax and his views on it. i think it's fair to say he had a mixed view. chuck: we believe it is too complex, but when we look at overall tax reform, what we really want to do is work with the administration to ensure that change, that reform is beneficial to the united states, to the manufacturing capability, and competitiveness in the u.s. because that leads to growth and it leads to jobs. david: i think this illustrates

the plight of ceos right now dealing with the trump administration. they don't want to throw it all out. they want that tax cut, but they don't necessarily like the border adjustment tax. alix: no, definitely not. it has huge implications. you're basically picking winners and losers at the end of the day within the s&p. i've been pounding the table on volatility for the last couple of weeks. where is it? we asked sean darby and here's what he had to say. that over they is last six months, the global economy has actually been getting better. i think markets confused what was a period of low pricing for goods and services as deflation. all we had in the background was a big fan that has been liquidated. we are certainly seeing a pickup in emerging markets exports. we have seen the pickup and german exports. the global economy is reisinger

nothing. it is not u.s. numbers that are appearing to be good but a lot of economies as well. one of the reasons the vix has been so low as we are getting a better set of growth numbers and it is re-synchronization. alix: i thought the idea was really interesting that you had to look beyond the headlines and what you are seeing in the newspapers. you look at the fundamentals and that means a lower fix the has we have stable growth. jonathan: i think a lot of people have been pounding the table. it's not the prospect of stimulating the markets from the administration. the data in europe has been good. china is looking stable. whether that is field by credit, it's a much more stable environment compared to this time last year. the data has been solid as well. david: you want to find the volatility -- look at the front page of the newspaper. it's not the underlying from the metals of economies or the markets.

alix: you have consumer expectation and inflation but the hard data doesn't match up. do the expectations roll over and does? not have implications on what they buy does that have a trickle down into the economy and stocks? jonathan: here's another for you. if the consensus now is that volatility is going to pick up, the consensus is we're going to get a near-term correction. the only consensus is that we will get a correction, but everyone wants to buy. i don't know what you do with that. alix: we have had everyone come on set and say we are going to see volatility pick up. that makes me nervous because if everyone saying is the exact same thing, some thing has to give. david: where would we be without donald trump? the economy was already growing and things were picking up, but things have been getting hyper. jonathan: the conversation continues on blaber. that does it for "bloomberg daybreak." coming up on bloomberg

television's mark barton and vonnie quinn with "bluebird markets." the s&p 500 did snap a three-day winning streak yesterday. we are of a quarter of 1% on the s&p 500. if the dow did close here, it would be another record high. we are up for 10 to 1% on the session. a lot of treasury supply coming throughout the week. the three-year note is coming today. treasuries have been on offer throughout the day so far. 2.42 on the u.s. 10 year and the dollar strength has five straight days of dollar strength. a weaker pound and a weaker euro. from new york, this is bloomberg. ♪

vonnie: it is 10:00 in new york, i am vonnie quinn. mark: live from london, i am mark barton. ♪

vonnie: we are taking you from new york to london, to washington, d.c. and cover stories out of paris and mexico. here are the top stories we're following. the dow once again hitting a record along with the nasdaq. do we have more room to run? siegel bringsemy up his new productions. mark: is now the time to put money into european banks? we look into opportunities. in politics, the trump administration is facing a key day from a confirmation for cabinet secretaries to the legality of the presidents travel ban that resident's travel ban -- president travel