with first direct communication since election that -- the probability of brexit. stock markets go nowhere and treasuries complete the longest rally since june of last year. this is "bloomberg daybreak." the markets looking like this. futures positive this morning. up .2% on the s&p 500. a decent session on the stoxx 600 in europe. after six days of dollar strength, will we get a seventh? alix: twitter out with earnings. coming in a bit light in terms of revenue. $717 million. $740stimate was for million. earnings were better than estimated.

monthly active users coming in at 319 million. slightly better than it was in the third quarter. the users picking up, but not able to monetize it. david: the big question for twitter, how to get money in the door. president trump has put u.s. china relations near the top of his agenda. rather than talking with chinese jingping vianxi telephone, he wrote him a letter. he looks forward to working with president xi. much does this matter that it's a letter? >> someone described it as called me maybe. standard diplomatic language.

that is quite an improvement from the rhetoric we had from mr. trump during the campaign. warm uphe wants to those relations with china. there is still some much uncertainty out there. -- so much uncertainty out there. david: what is being received? how is the chinese government reacting to this? enda: we saw them ultimate overnight. -- welcome it overnight. there is still so much uncertainty around what the u.s. administration will do towards china. david: what may be going on behind the scenes? trump is reaching out to ambassador in d.c.r i

important is very the forward for warming relations. look for the confirmation of mr. mnuchin. he may add clarity to the language around trade. also pushes ahead to shinzo abe's meeting with donald trump. china does have some leverage, but i fail to see the leverage that abe can go into this meeting with donald trump tomorrow. enda: they are not targeting the currency. with all ofng in

branches around infrastructure spending and close reliance on other job creating issues. abe put a lot on the line. --y are putting so much remaining strong on trade. japan wants trump to play by the rules of the game in the g-20. it is harder to gain support pick up japan and bilateral relations. japan will offer to import more u.s. lng pick we will buy this from you. we will help the trade surplus. that seems very granular at this point. enda: the trade deficit is quite sizable. ,f they were to make a move

that would be a welcome step. trade --n japan u.s. made demands on the japanese -- we have seen some of this before. jon: twitter down in the premarket. 6% on the week. the stock market situation. the fx market situation with the horrible.s the most vulnerable.ll th beingin terms of

politically sensitive to the u.s. dollar, china is spending its own money to support the currency. that gives it more weight than japan. japan has to convince washington that it is not deliberately trying to debase the currency. that will be a harder task for japan to get that message across given what they are doing in the bond market co. kitd: we are now joined by juckes from london. we are talking about china on one hand and japan on the other. how important is the u.s. china relationship to worldwide growth? kit: it's important in the sense the two biggest economies in the world in a world which is interlinked, we need that relationship to be harmonious. they don't need to be friends, we are we are distracted by

people putting in tariffs in a big way or not doing business together or getting in the way of global projects, that one help -- won't help. you don't need everyone to be friends with everyone all the time. if we are distracted from the exercise of trying to create jobs and happy lives for everybody, we can do a fair amount of damage. david: there's been a fair range of possibilities -- you had a canada being christopher is about china -- being vociferous about china. he hasn't taken any specific actions. what are the markets pricing in? kit: very little at this point. so far this year, we've had nervousness at the end of last year, but if you look at what happened to the mexican peso, we have not seen that repeated at all. is stronger this year,

markets are calm her this year. year.mer this there's not much priced in. people see china as the -- they their currency don't think there's much you can do to attack them on that front right now. to: how brave you need to be shore up the yuan right now? kit: quite brave. dollar-yen has come back down take for tech with the drop since late december. brave as i would be short

tenure notes. -- 10 year notes. is he going to do something to weaken treasuries? you get good economic data out of the united states, we will get treasury yields higher and a n come may.calm david: kit juckes will be staying with us. alix: twitter continues to get pounded in the premarket as traders disappointed in that revenue miss from twitter. $717 million. u.s. revenue down 5% year on year. international sales were holding up. monthly active users up 3.1% year on year. the election of president trump did not have an enormous impact

on twitter users in the u.s. btig upgrading twitter the other day in light of that. who will step in and buy it? jon: someone who can monetize it. i don't know if they can do it. if the leadership cannot monetize this, it's a significant problem. alix: everyone wants to know what donald trump is tweeting. strong earnings from leading therale stoxx 600 to a two-week i. high.a two-week howard marks will be joining this program. how is he navigating today's macro environment?

this is bloomberg. ♪

boeing has won an --er from singapore airlines the first of the plants will not be delivered for four years. societe generale reported fourth

quarter earnings that beat estimates. one reason camesa price jump in profit. -- one reason, a surprise jump in profit. germany's commerzbank says fourth-quarter profit fell 5% because it satisfied money for risky loans -- they've announced plans to cut jobs to fund dividends and shrink securities trading. this is bloomberg. earnings.e awaiting we will bring you them on this program. kit juckes is a global strategist there. he is still with us. joining us now is jacopo ceccatelli. great to have you with us on the program. let's begin by talking about italian lenders. is the worst over? jacopo: we don't know yet, i guess.

nationalization is a step forward in a way. it is progress because it is moving on words -- on wards. the 20 billion that had been earmarked by the government and approved by the european lenders are enough to cover monte paschi and the other troubled situation. but not enough to subsidize the whole banking sector. we would need three times as much. it's a step forward. we are solving a specific problem and diluting it into a bigger problem, more long-term problem. for the time being, it is good news. jon: the bank of italy saying the bad loans amounts to 200.9

billion euros as of december. enoughe banks raise capital and have to come back later this year once more come are they supplying the cash? clearly,rly -- jacopo: the banking sector need more capital. situationsbe other in the next year or two years, for sure. the economy is moving forward too slowly to include the situation. the situation is not easy. the willingness of the investors to put money into banks is after soery, very low many issues that have gone badly wrong. , monte least of those paschi down three in a row. jon: this is reflected in the

share price of european banks. can see how demolished the european bank stocks have been in relation to u.s. banks. the you think the worst is over for these names or is the trough not yet still in? kit: i don't know about bank share prices. what we are beginning to see is enough good news on the european economy. there's enough better news coming through bank credit provision coming up, bank lending is getting better that you are likely to see the mood improve. we can't just be more optimistic about the u.s. economy without becoming more optimistic about euro at the same time. in terms of the macroeconomic environment, the worst is passed us or now. us for now.

do you think the trough is in? if the progress keeps going, there could be an opportunity in terms of european banks. not too sure about italian banks. the situation is patchy in europe. we have different situations in different countries. italy has seen a lot of uncertainty. i would wait for unicredit to go forward before having a positive .pinion on the banking sector david: how should we feel about the european economy given the european banks? how much of a headwind is the overall european economy on the european banks?

you need a healthy banking system to get your economy growing. that has been a headwind for a fair amount of time now. we've had credit creation that has been liking behind economic growth. we have seen multitude that multitudes -- multiple reports of this. things are getting better. europe is not about to rip open the champagne and start celebrating, but this is no longer the biggest headache in front of the european economy. it is not a barrier for the european economy. this won't be the driver. you'll probably see the rising u.s. bond yields reversed, the euro recover once the

.nvironment is clearer things are turning. it's not as bad as it was. what about some of the elections coming up? kit: this political risk in plenty of countries. the u.s. political risk is still there. we have relations around europe that could be a big problem -- we will have to see how the remainingffect -- extremely nervous about the uncertainty particularly around the french election. after that, things begin to be clearer. it's not the united states, we populistringing in

, but we have to get through those problems. we have uncertainty for several more weeks. jon: a lot of uncertainty will be frontloaded. then we move toward the triggering of article 50. the playbook is to try to european elections come i want to be long the euro at the lowest level possible as close to that as possible. euro as close to the french election as possible.

global risk, i would like to buy that when i'm pretty sure i have seen the peak in real yields in the unites states. -- united states. we have such a confusing picture, you can see markets are shopping around without much of a direction. jon: we appreciate the shopping list of when we get there. alix: our thanks to jacopo ceccatelli and kit juckes. coming up, a legend of the credit market, howard marks. how is he navigating this uncertainty in the macro environment? check out shares of twitter. the good and the ugly. is it really good or just ugly? plunging today on disappointing results. more on their earnings, next. this is bloomberg. ♪

alix: twitter down over 8% as revenues come in light for the fourth quarter and monthly active users barely grow in the fourth quarter. walk us through the negative the market is reacting to write out. that's right now. >> sales growth was only one present in the quarter, a dramatic slowdown from the 48% gain a year earlier. having aly missed quarter revenue decline. which is quite scary for twitter as revenue used to be a bright spot. twitter has had trouble persuading advertisers to spend more money on their social media platform. it has not been able to increase the user base. that is the single biggest concern for investors right now.

despite the amount of time we have seen twitter in the news over the last few months with donald trump using it so frequently for his own communication, it has not had an effect on the company's growth. that would really drive the stock -- it clearly has not made a dent. wise, averageive price change for twitter is 11 or 12% on earnings. you lose actively quite a bit. can we make that much of an eight or 9% move? >> this is a very volatile stock. look at the performance of our this year, it has been pretty decent. people have been looking forward twitterearnings as putting the pieces back together and showing it can go it alone after a failed sale process in

the fourth quarter. this company reorganized its , lost its chief operating processor, lost its chief technology officer. it has been trying to reshape itself but it laid off 9% of its workforce. it is a top order to keep the advertiser relationships and make sure that they can get strong. -- it is a tough quarter. traditionally, fourth quarter is a great quarter for advertising. the christmas shopping season. evidencenot have much and even though we had the presidential election in the fourth quarter. it has not done much to move the david: in the great hope

for twitter was the founder coming in and taking over as ceo . >> he's also the ceo of square. we wrote a story last year showing that he's not having as much control over the vision of twitter. you expect them to have the .oral authority a lot of the driving is going on by the former cfo who is now the coo. he's the one driving the video strategy for twitter, doing these tv licensing deals to make advertising revenue off things like nfl games and other sports events. they even have deals with bloomberg tv, for example.

that was supposed to bring in an audience that was a little broader, not the journalists or politicians who use twitter all the time because of their personal brand, but the average user who would come on to see an nfl game. david: how much of it is an audience problem and how much is a content problem? .here's always been a risk >> there's a bit of that and they are trying to clean up twitter right now. had as a company that has big problem with abuse and harassment on its platform. that has been a top priority of jack dorsey. we have not really seen a lot of moves on it until recently until this quarter. those clearly have not had their blood effect yet.

-- their full effect yet. it came into focus when we reported at the end of last year that disney backed out of its bid in part because of the brand issues with being around all of the trolling and harassment and hate that does go on on twitter because of the anonymity of the user base. jon: the stock is down 9% in the premarket. platformte, the getting more attention than ever. in light of president trump's tweets. unable to get the growth wall street wants to see. there needs to be a leadership change. someone who can take advantage of the attention. >> jack dorsey is the strategist. there was a call for dick

costolo to step down and be replaced. there was a six-month search. they decided to go with a cofounder. plan.on't happen of the -- they don't have another plan. there has not been a call for jack dorsey to step down. a lot of investors are concerned that he runs twitter and square inc. at the same time. seebigger reaction we will resulting out of this is twitter needs to sell itself. they had a sales process that did not quite work out. they've been doing layoffs, divesting businesses, sold their fabric developer business to vine., shutdown they are trying to streamline things, focus things. they are aiming for profitability this year.

the user growth is an issue. revenue is an issue. no one wants to buy a deteriorating asset if they think it will get cheaper. david: let's get an update on headlines from outside the business world. emma: a day after the northeastern u.s. embraced a spring with temperatures in the 60's, winter has returned. some areas make it up to 18 inches of snow. school has been canceled in a number of cities and airlines have canceled several thousand flights. senator jeff sessions will be sworn in today as the next u.s. attorney general. sessionse confirmed after a contentious debate that included republican silencing elizabeth warren.

theresa may's latest victory on brexit may cost her down the road. the house of commons has approved her original draft order to -- parliament should get an early vote on the final agreement. the question now is whether that could potentially derail may's brexit strategy. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. alix: joining us now is erik schatzker with a special guest, howard marks. the cochairman of the $100 billion credit manager 03. good morning. tree is a is -- oak conscious firm. what concerns you? what is different? howard: very little has changed.

years, we haveve --t that the world prospective returns were very low. asset prices are on the high ofe of fair or beginning rich and investors are engaging in pro risk behavior which makes the market a risky place. the only thing that has changed over the last year has been the political environment. unusual unpredicted occurrences. erik: trump come in other words. .oward: brexit is another trump is the outstanding one. erik: how does that change the environment, the kinds of decisions you and your colleagues at oaktree make? howard: there's no doubt in my mind that trump intends to be an extremely pro-business president. workse does, whether it

are it up in the air -- are up in the air. what will he do in the other where the outlook is less clear? what will it be like to go after continual controversy and upheaval? the market fastened on the pro-business aspect. now, it starts to worry about the rest. mantra, movented a forward but with caution. we are investing, we are not afraid to invest. but with caution. with caution means more caution than usual for us. erik: i will return any moment to the questions and issues you just raised. moments ago, we had a sudden selloff in greek debt, yields

touched 10%. i know sovereign debt is not specialty, but we think about what is going on in the world and the unpredictably, the conversations taking place, the standoff between greece and the imf, how does that affect the way that you think? howard: unpredictability is generally undesirable. the more predict ability there is, the more you should build and caution. unpredictability does not necessarily -- is not necessarily bad. sometimes things go unpredictably well. 2016 was an unpredictably goodyear. it exceeded everyone's expectations in terms of market performance. the people at the beginning of the year -- i was on here a year andand things looked dicey everyone was saying the market

is collapsing. i ran back to my office and wrote a memo entitled what does the market know? we should take our signs from the market. when the world is highly goodtain and unpredictably or bad things can happen the next day, we have to prepare for that by raising a level of caution. in each of our strategies, that is done a different way. erik: don't freak out when we see greek yields hit 10%? howard: don't freak out. you cannot be a good investor are emotionally stable. most people are wired with every bone in their body to do the wrong thing. when things have been going well for a while and his that forings have gone

a while -- badly for a while. less spreads are more or at their narrowest in a decade. how do you explain such rich prices at a time when there are so many unanswered questions? issues that will almost certainly affect the performance of bonds. howard: the explanation is that the central banks of the world .ave lowered interest rates as a consequence, people have run out to do things where they can get a higher return. most people don't want to take one or two on treasuries or three or four on hike rates. that's high grades. they give you five to six and money flows and win money flows in and prices come down.

everyone says lowest in a decade in terms of spreads and highest of best then terms most important thing is the adequacy of the spread. the spread is an insurance premium. sit in safe treasuries but we take credit risks and we get paid to take it. the premium is the spread. the question is the adequacy of the spread. if the spread is 400 basis 400 basis points of yield of that we don't get in treasuries and we take the risk of high yields. i don't think there's ever been a year in which we lost 400 basis points. sometimes 100 basis points. 400 to taketting

that risk, we are being overpaid. we should keep doing it. erik: now is not a time to be risk off? howard: i'm not crazy about that expression. when you say risk off -- it means less than yesterday. less than usual. we are taking less risk than usual. when the spreads break hundred a bit ago, we took more risk because the conversation was more. erik: it doesn't mean on investing. it just means being much more selective? howard: yes. it does. everybody has money. your viewers have money, the sovereign wealth fund has money, the pension funds have money, they can't not invest. doing nothing is doing something. where does that money go? that is the question.

said investment is the discipline of relative selection. what is the best you can do today? you have to pick something. when you say not invest, most people don't want to sit in the money market and makes zero that make zero.nd erik: why do you care about the rise of fake news enough to write about it? howard: it's interesting as a general phenomenon that people experts butsight to it's very important that people , whatn mind that experts they say is only their opinion.

what i care about is how that affects the markets and investor behavior. -- we investment business have two kinds of forecasters. the ones who don't know and the ones who don't know they don't know. our business is full of people who think they know or think it's essential that they act as if they know to do business. i think it's very important that we recognize the limitations on opinion and the limitations on andcasts and forecasters don't run around in response to what they say. erik: are you accusing everybody out there of -- howard: there aren't that many exceptional non-shmo's.

forecasting should be taken with a grain of salt. with we are all wrestling an environment that is changing at an accelerating pace. whether it is because of technology disruption, instability, uncertainty, doesn't require a new investment process -- does it require a new investment process? people should have always known that the experts are not experts and should always have taken forecasts with a grain of salt. it comes from having 24 hour financial news. somethingave to say in you cannot have six guys a row per hour times 24 hours a day coming on and saying i don't know.

tv are theo get on ones who will come and tell you what to do. ,rik: of the following things what do you think is going to be most important when it comes to investing in credit markets? the collapse of retail, the rebound in oil prices come of the coming rewrite of obamacare, border adjustability tax or the potential loss of tax-deductible he on interest expense? howard: those are all areas of great uncertainty. is there one i worry about more than the other? the rebound in oil prices will tell me something about the bigger of the economy. , oile economy strengthens prices will probably strengthen.

a lot of people in your business worry about the last one. howard: i made a list of the things that i was worried about. you know what the last one was? something else. the thing you have to worry about is the thing you haven't thought about. the market tends to adjust to market expectations with regard to the things he knows about -- it knows about. you have to worry about the unknown unknowns. in 2006, very few people were talking about the dangers of subprime mortgages. in 2014, nobody was talking the precarious level of oil prices.

it ain't what you don't know that gets you into trouble, it's what you know for certain that just ain't true. the possibility that all of your expectations in all of those subjects are wrong and then the fact that you will get bit in the butt by something else. erik: inevitably. thank you very much. that is howard marks, the cofounder of oaktree. alix: thank you so much. saying yous have to worry about the unknown unknowns. he is more cautious than normal. uncertainty in 10 year notes. if the present yield.

that's a 3% yield or as low as 2%. this is illustrating that dynamic. this would be the downside to larry fink's call. who will be right? of societe juckes generale. no one knows how to position this market. what is your take when it comes to the u.s.? kit: i think we are supposed to c 3% yields on treasuries as the next place to go. that would be a one percent real yield with a 2% breakeven inflation rate within a 2% inflation target. we are in a much lower real yield world.

i think we are supposed to be moving to the top end of a north of 1% real yield range. that is the level that will be consistent with a peak in the dollar. hoping that he's right on 3%. jon: a lot of people have been looking at this chart. we have rolled over. not the direction of travel many expected. what is the story of that chart? kit: in terms of where we are going overall, what i think we are expecting is that we saw far bigger jumps in the second half of last year than expected. we will move sideways. if you believe we will get past the populist message from president trump and into the tax

and continued better economic news, i think that will push real rates, real yields and nominal yields higher. jon: a lot of people questioning what to do with duration and a lot of questions about the long thisf the yield curve -- by political risk, we have seen several issues come from the likes of belgium, the what does that tell you when the consensus as one thing but the issuance tell to another? kit: in this super low interest rate world, investors still have money they need to put to work. people have been pulling money out of emerging-market assets

and putting money into u.s. -- that money is earning partly little. thus far too little, looking for somewhere to go. the second thing it has done since the start of this year is slowly reaching out into slightly riskier assets. money is looking for somewhere to go. 10 yeart just drive yields lower and lower. at some point come in goes out into supporting more risk assets and dragging 10 year yields higher again at the same time. we are either hunting for yield or not hunting for yield. if we are committing your treasuries are the things i want to buy. if we are, 10 year treasuries are not the things i want to buy. david: what does that tell mario

draghi right now about where he needs to go? he has the germans already pressuring him to raise rates. kit: he will have a problem all year. the big problem this year will inflation coming up with a slight strengthening in credit growth we've already seen. the pressure can only build from the middle of the year onward. if he gives in to that pressure come of the danger for him is he gets too much of a euro rally in the second half of the year. timenot clear to me at a when he will get slightly higher will resistat he the pressure to further reduce the pace of bond buying all the way through this year. end upwhy i think you'll with a stronger euro in the second half of this year. thed: what does that do to disparity, the premiums versus

italy? we will t see how the italian policy comes back. within europe, we have political risk priced into the fixed income market and we've also got a general level we've been squeezing investors out. we crowd investors back in, we will find it a bit clearer. you will get more euro up then spread widening. ,avid: that is kit juckes societe generale global strategist. another unwanted market milestone. we will discuss with willem buiter. from new york, this is bloomberg. ♪

jon: this is "bloomberg daybreak ." six-day winning streak at the close yesterday. the euro retreats by .1%. big shortcoming into 2017. we just completed the longest streak of daily rally so far this year. four straight days. we are up two basis points. this get you up to speed on the stock movers. alix: twitter picking up some steam to the downside in premarket come off by almost 11%. revenue coming in like. sales up 1%. daily active users rising 3.1% in the u.s. the hope was that a very active donald trump would change

twitter's popularity and help them monetize. that did not happen. does it help twitter put itself up for sale? commerce off by 3%. that company won't profit fall by 5%. that's wound obscene profit fall by 5%. -- that company wound up seeing profit fall by 5%. is thellem buiter citigroup chief economist. he joins us for the hour. that is next. this is bloomberg. ♪

letterpresident tends a

in the first direct communication since inauguration. in the face of rising political risks, french banking and what expectations lend to bloomberg for the probability of brexit. and it is a challenge consensus. stock markets go nowhere fast and treasuries complete the largest rally since june of last year. from new york city, this is bloomberg daybreak jonathan ferro alongside alix steel and david westin. for the markets, a decent bid this morning. equities one half of 1%. the s&p 500 up by almost 2/10 of 1% but that dollar strength continues for a seventh straight day. alix: what doesn't continue is the lack of volatility you have with this european stocks up by 6%. bold goes nowhere. the volatilities are not present yet in market. 1%.8/10 of goldman sachs says don't worry

about rising inventories. david? david: back to that letter to president she. sean spicer took to the podium to talk about a letter that mr. trump has sent to his counterpart in china. president trump stated that he looks forward to working with president shi. we are here with chief economist willem buiter. >> the u.s. and china are the two elephants in the global economy. china is more important to trade and financial transactions. their relationship is essential to global prosperity. if there were a major fallout -- it is a risk -- global recovery would grind to an end. so it is good that 11 days after

the chinese new year this letter went out. david: how do the markets track the development of that relationship? candidate trump was posted for us about what he was going to do to china. do we read anything into that? >> absolutely nothing substantive has happened since to call during his candidacy the premiere of taiwan. there has been absolute silence. not even any saber rattling in the background. i expect they are simply thinking about what kind of lateral renegotiations and reciprocity to demand. and by itself, that need not be dangerous that it could easily misfire if there is a lack of mutual understanding. globally, a lot of conversation about trade wars. what do you say about bringing up to the suspect -- subject? >> become petition is all but certain. but the scale of it is unlikely

to rival the 30's or something globally disastrous. beware to be where -- the insistence on reciprocity, concessions left right and center that does not regenerate that or else a pulling of the treaty. there are risks but at the moment, renegotiation and confrontation is not conflict. jon: how do you draw that conclusion given the amount of uncertainty? how is that the case versus the trade war? what do you base that on? clearest area of potential conflict, by the date of the campaign, would be china. >> there was a tariff on chinese imports. beenin mexico, which has at the receiving end of the trump administration messages.

there hasn't been any real damage done yet, it is just the fear of the renegotiation of nafta that is hurting mexico. but nothing has happened yet. david: president trump has made it explicit that he wants to go bilateral when it comes to trade. is he on the right side of history in that sense? are we inevitably headed towards more bilateral arrangements and what does this mean? >> bilateral currency trade makes for better capital control. andsed to go to regional, recently, we will be keeping in with multinational bilateral nationalism. >> and when prime minister abe meets with trump, can we get back to multilateral, with g7 and g-20?

>> on currencies this is basically hogwash. the currency manipulator stuff in markets, they are popping up the currency in foreign markets but there is no intervention at all. the holman regulation has been largely meaningless but it is something to rattle cages with. to get the prime ministers to show up here, carrying a jar of putins. jon: are we saying japan does not manipulate its currency and that the bank of japan does not manipulate the yen? minimizee than the fed the dollar. jon: this is the argument of 2017. >> get used to it. is stringent to currency. there is currency all around.

there are consequences for certain actions that are protectable. assist then doesn't debate and discussion in any meaningful way. >> but this is a new administration and whether we think it is one thing or not his administration thinks it is and the evidence against japan is pretty clear. they are in the market, trying to press yields down. they are spending a lot of money to do that and every time the japanese yen strengthens the finance minister comes out with something to say. to d.c. -- me over >> they're in inflation is well below target and consistent with the market policy, they do it when they can to get up to target and it probably means it weakens the currency further. this is not a crime. it gets some excitement going in countries where policymakers don't understand the difference between real and nominalist. trade.

-- nominal experience trade. even if the country were to be -- japan doesn't meet the technical criteria, because not actually convening is one of the criteria. even if he didn't meet the criteria, being a currency manipulator, the u.s. treasury has no direct sanction complications. david: you suggest that prime minister abe believes he needs to come. what is he trying to persuade trump to do with the jar of cookies? >> japanese firms are engaged in u.s., creating jobs. david: and therefore the president will not what? trade to either restrict with the rest of the u.s. or have the treasury change its

criteria so that they can put japan in the dark. it is largely a symbolic gesture but in the far east, symbolic gestures matter. alix: i get the fact that you believe that currency manipulation is total hogwash, but at some point the reality of a trump administration verbally intervening, in some ways looking like it is trying to hawk the dollar down, the reality, does it even matter? it is the optics, the twitter feed, the trading off of that that has bigger repercussions. >> no matter how hard the trump administration rattles the cage to talk the dollar down, the market participates in stimulus in the u.s.. shorts there may be in the u.s. dollar, it only goes

one way relevant to most other currencies. alix: how does president trump reconcile that. inossible, it would be theory making a bigger surplus. how does that catch 22 come into the conversation? >> how you reconcile that>> is it would do well to look at basic economics. and that you cannot have anticipated fiscal expansion and monetary tightening while the rest of the world is in a monetary loosening mode still and expect their currency to weaken. so just live with it. alix: i think that is a boom from willem buiter jon:. the economics from yale a coming up on the fx market. greeceup, the future of and its membership in the eurozone in jeopardy once again. this two-year yield is touching above 10% with this dispute triggering another unwanted

market milestone. later on the stocks to watch on twitter, yet another block. where the shares are headed next. from new york, this is bloomberg. ♪

>> time now for other stories making headlines at this hour. i am emma chandra with your bloomberg business flash. twitter shares are falling today, the struggling social media company posted fourth-quarter revenues at missed estimates. sales growth was just 1% compared to a 48% gain a year ago. twitter had trouble persuading advertisers to spend more money well fewer people joined the network. nissan handed out more incentive to sell cars in the last three months of the year and as a result the japanese automated

highest in thehe industry behind bmw. earnings beatrter estimates, a surprise jump in profits as a banking unit. stock in announced plans for an ipo. that is your bloomberg business flash. this is bloomberg. jon: let's get to europe. the uncertainty surrounding the region. from morgan stanley, joining us on the program, he gave us his take on politics in the european union. populistance about government coming to power remains very low in the european constitution made after the second world war exactly for preventing this kind of outcome. let's see if that works out. i feel ok about europe, relatively bullish about europe and european equities.

jon: still with us is citigroup chief economist and joining us now is bloomberg markets reporter paul dobson from our european headquarters in london. let's begin with you, willem. if you look at the politics it screams ugliness. you have the data that says things are ok. which do you look at more? >> the politics are pretty ugly but it is very unlikely that the single party, left, right, center or populist would ever of the majority of control both houses of parliament in a european country other than the u.k. systems with ae large amount of proportionality built-in. at the main risk of populist victory, it is probably france. miss le pen is likely in the first round. -- toe is likely to use lose in the second round. but that was before brexit

happened and trump was elected so there is a risk. but even if elected she won't have control of both houses of parliament. her ability to do anything drastic is limited because europe has clever paralysis built into its institutions. jon: you have been looking at the data itself. point 6, 1 .7 throughout much of the week but based on the data pool, where would we be if we didn't have the series of elections in 2017? >> i think that is the question. it feels like the euro is being held back at the moment. and not just the euro, the rates markets in the euro region as well. also, we had stocks jim for example today. "were itgement saying not for this election, we would be a lot more optimistic." in the run up to it, the hope is

that once we are over that hump, they can really start to come back in the market and that confidence will start to build, pushing towards a stimulus through 2018 or 2019. jon: as you say, you've got to look at the politics as well. the in ministration in this country -- it is not difficult to include that there may be something within that administration that would like to see a divided europe. what have you concluded in the last couple of months? >> first of all, i think that clearly mr. trump's statement about the wonderfulness of brexit did not go down particularly well in the rest of those int i think that the in ministration, that any active attempt to undermine the eu further would not be undertaken. if the eu is to unravel further it will be due to a turnout -- internal developments.

but notions are there likely to materialize for the next couple of years. >> which brings me to my favorite question. volatility. how is it reflected in the european market? look at the bloomberg trade. the orange line is the fix for euro stocks and the green line vixhese six -- is the for euro stocks. the volatility comes down relatively soon right after that. in your words, does this accurately reflect the risk in the market and some people are talking about uncertainty in the short-term but long-term it is not going to hit for a while? >> i think what the market is pricing is the risk and probability of an election win for le pen. we have had surprises with brexit and the trump win.

-- now people want to be don't want to be left completely naked going into the election. you see it in the currency markets and the risk reversals. you see it in the stock market and you see it in the rates market at the moment. jon: looking at the sovereign debt market it feels like 2011 or 2012. you wake up with an inverted yield curve in greece and you know how the conversation goes. we have a breakup. if you look at an inverted yield curve in greece now, it is back and forth with the imf and the european countries, what do you include now? >> imf disagrees with the rest of the eu and greece is internally divided. it is a chronic mess that will probably be continued, extended funds, but european

there is a short-term funding gap that needs to be closed. is not just as a technical expert in the program to finish it. be with money, there could the prolongation of this office grudge until europe does their that permitsve-in greece to survive for another year. alix: i spoke to an economist yesterday and said when do i need to start caring about greece? she said july. that is racy the bond rollover. >> domestic developers could, of course, bring things forward. if they have expected elections, it is expected to be just a big funding gap that doesn't materialize until the summer. last year was 2015.

jon: the answer was seven years ago. that was the last time he needed to worry about greece. alix: i will get you back in july. paul dobson, head of bloomberg markets and willem buiter, you are speaking with us. another breakfast how well at the white house. top airlinesca's will sit down with president trump to talk security and regulation relating to the pending travel ban. this is bloomberg. ♪

alix: european banks in the spotlight. commerce banks profits falling 5%, stocks and earnings up 41% from last year. is there a risk in the market? joining us is willem buiter of citigroup. you can see the distinction between that and the health of u.s. banks. what risks to the u.s. banks impose over in europe? >> in countries like italy and portugal, where the banks are on

my support and need major capital injections, but they are only getting piecemeal, that remains a risk. outside italy and portugal, we suspect still significant capital shorts but it is hard to be sure because of the opacity in the data. but it is heterogeneity as well. yes, they have never been capitalized properly. it will become a drag on growth if growth is designed to be as buoyant as we now hope. issue ind be a real countries like italy and portugal but nothing has been resolved yet. david: does the president of the european -- does the presence of the european union in the eurozone helped or hurt in recapitalizing these banks? --clearly, the italian banks

would be recapitalized by their government if it wasn't for the european union. they worked to put their government at risk of instability itself, so the european union is on balance in establishing a framework for the resolution of banks and the recapitalization of banks for the pockets, but it is painfully slow. thes now eight years after great recession, right? the u.k. financial crisis. that is japanese-style sluggishness. jon: is this a chronic problem that will not go away or will they grow out of this? >> no. it will have to be addressed or growth will remain slow. too slow to grow their way out of it. look then when you take a at the recapitalization, i know

you said they were not recapitalized like they should be but when we see deutsche bank, that is the expensive possibility. how do you have a bank that grows alone when you are too worried about raising those capital requirements? >> you have to recognize that if you are short of capital and you have to recapitalize yourself, they are going to be an unhappy crowd. alix: but at the same time, u.s. bank are capitalized and some are hiring and they are concerning the probability. >> the line profitability depends on manufacturers in the u.s. is in manufacturers, like the eurozone, which is still flat. u.s. banks do not have this legacy of trouble. alix: we spoke about the 10 year budget yield moving up to 9/10 of 1%. you are laughing but that is a slow increase. what is the material feedthrough

to that? >> it could be helpful. although a lot of the transformation profitability could actually be swept away by european banks, mostly on the investment side. companies in the pension funds. a positive slope in yields curves has to be good for finance. alix: he was a little skeptical over there. david: he is the citigroup chief economist and you are staying with us. coming up, economic data coming up. jobless claims and unemployment benefit claims. those are coming up and this is bloomberg. ♪

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private wifi for your business. strong and secure. good for a door. and a network. comcast business. built for security. built for business. jon: from a snowy new york city, this is bloomberg daybreak. let's get you up to speed on the market connection. as we await data out of the united states, futures are positive up 1/10 of 1%.

there is the s&p 500 and the dow, a decent bit. the dax in positive territory. the dollar strength, six days of it continues. euro-dollar down by about 1/10. but it is dropping in the u.s.. claimsnitial jobless coming to 234 thousand, that is down by about 12,000 the week before. the idea of a stronger job market eroding continues to hold up. jobless claims coming in at 234,000. for more, let's bring in correspondent michael mckee. and here is willem buiter at citigroup. job market data continues to come up. we're talking about the possibility of a hike. >> i think that two are more likely than three. while it is possible to interpret the robust payroll a rather modest

earnings growth, there is a lot which still has it significant. they present a simple continuation of the decline in labor shares. it leads to a price market -- mark up rising. be higher than-based inflation because of continuation of the erosion of labor share national incomes. and low fundamental forces could reinforce that because globalization has not had a meaningful way yet. so i am stuck between them but my bet is two. >> so it is a joint -- a coin toss. the boe lowered its estimate of 4.5%. the fed hasn't bought itself more time. how do they do that? how do they even pretend to model their forecast? >> they are not pretending to model it. they are saying that we, in december, they said in the

forecast we see going forward from this point it would call for three rate increases by the end of 2017 and that is always good and bad news. i don't know what your call was it may have15 but changed based on the circumstances. so they don't get to continuously update as the markets do. but what they have been doing -- you mentioned patrick harker and john williams last friday. we will hear from charlie evans later today. to say that we are going to raise at a certain month at a certain time. they want to have the possibility in their mind that they could raise in march. you could make the case that if you deserve the rate increase in december nothing has really changed and you think the rate is too low, you could go through march. so keep that as a live auction. because it is a great time for missing opportunities.

we see inflation go up and the labor market continues strongly. in march, they want to take that out. david: how many would there have been if hillary clinton had been elected? >> two. david: exactly. there is no variation. what would have happened without donald trump? >> 3-wood has been slightly more likely under hillary because the future stimulus is related to currency and the deregulation, that is positive supply shock. that is output positive but inflation negative. in combination of stronger currency that would have been negative. in deregulation i would have seen lower inflation impressions in the u.s. for this year once it kicks in. next year you will get high inflation. >> the fed has to react to the markets and february 28, we will hear from donald trump -- you are right, but they look at what

is going on in the markets. going toump is release, in theory, some sort of budget proposal, something he is going to do on the physical side on the 28th. on march 15 you are going to have some reaction to the possibility that we are spending by horizon investments -- verizon investments. he will say we are going to try to cut but not cut enough to make up for it. if the markets are sending yields higher because there is a deficits, what does the fed do? do they ratify that? alix: do you think the fed is outsourcing monetary policy to the markets? >> they have done so for years. the fed is the most oversensitive to high-frequency market indications and financial conditions of volatility. clearly, you have to respond to how you expect the economy to benge but you should not

taken by the hand by the market and led where the market wants you to go for fear of disappointing the market. occasionally, disappointments for the market when the market gets it plain wrong are appropriate. there is a large fiscal stimulus, it hasn't heard much on the infrastructure side at all. fed, forhink the fundamental reasons, want to do more. jon: thinking about this year, the market forces will more than offset the potential fiscal stimulus this year and keep a lid on how far the fed can move. apply that to 2017 or 2018. if you look at 2018 you expect that to become a reality. we get a more aggressive move in the dollar. are you going to see the lesson in the fed more than any people anticipate? >> we will have the demand stimulus coming from the materialization of the fiscal stimulus, presumably some

infrastructure, tax cuts, i think there will be personal tax cuts aimed at lower income workers to get the rest of the package through so there will be a significant effect that will put pressure on inflation despite the fact that it will further sanction the dollar. ratesmetimes you raise even as the dollar is strengthening despite the strengthening of the dollar. alix: how much can monetary policy truly diverge? financial conditions have been user -- been looser in the u.s. what they have more room to hike if they wanted to. can they endure a substantial rate hike? they might say i don't mind waiting now and hiking more later but is that the reality? >> they can wait, partly based on how far off they are from where they need to be. alix: it is not that much, 100 basis points. >> others may say it is less. certainly there are others that

feel it is more but if you talk to anybody on the fed, they will basically tell you that given current economic conditions, the setting of the policy rates is too low. how fast they get up and how much slack they take out of the economy by doing that is an open question and open to debate. if they think they are too low, and they would like to have a asymmetricn response mechanism depending on how the economy looks, you can see why they continue to go up. the question is how fast you get there. there are externalities to the trump fiscal side that they don't know about. a are on a pass to raise rates because they want to be higher. david: as you suggest there are alternatives. let's talk about taxes. you talk about tax cuts. a lot of people say it will be tax reform, by which i take it it will be simpler with lower rates but it will take away deductions.

what effect will that have on u.s. growth? >> if only. tax since the occasion, the doing a way of exemptions, allowances, deductions, it will for corporate and personal. it is deeply dysfunctional and distortionary. i think what you are going to get may be some certification with the most exemptions, which has a claimant, a lobbyist for every exemption. most of the stuff will take a form of net tax cuts. it will go over the horizon by future tax increases. david: that is 10 or 20 years out. did something like that happen under the reagan administration? why are you confident it won't happen this time >>? i see the ability of this

congress and this administration to get consensus on a deep reform of corporate and personal income taxes is to be politically the minimum. >> we have a huge deficit now, bigger than when reagan was in office and he deepened the deficit. most of what they are proposing would do that. >> but reagan didn't have both houses of congress. >> and he also didn't propose deep spending cuts as david stockman likes to remind us. going to, trump is propose spending cuts but he can't get enough to offset it out of the discretionary budget and he has said the entitlements are off the table. entitlements are also a big impediment because spending on those is going to go up. this is not just republicans versus democrats, it is republicans versus republicans. the tea party crowd, will they go along with something like

that? jon: talk about how he is going to fund this deficit because the federal reserve has a big conversation about the balance sheet and how that strategy is going to evolve. if it is going to fund the deficit? >> ultimately the markets are funded at higher rates. alix: domestic or foreign? >> both materialized relative to maybe the fiscal stimulus. but it is all guesswork. we don't know how much there is going to be in tax cuts, tax reform or spending cuts or spending increases. again, the federal deficit rises in 2018. and the federal debt rises, and then we will get a higher market yield, possibly reinforced by a more aggressive defense. jon: let's talk numbers. currently, we have been around 240 on the 10 year. we had significantly high funding costs. what is significant we higher? we got 100 or 200 basis points.

>> by the time you get to 2019, probably 200 basis points extra on the longer-term. it is still modest but given the unsustainability of the u.s. alreadyosition it is set >> for significant. that is important. talking about the fiscal position of the united states. how does that evolve? what is the endgame? >> that the recovery ends. either because the fed responds before the market does to inflationary pressures created by the fiscal stimulus or the markets themselves stay triggered by the debt ceiling kerfuffle or panic and send yields up to the point where the recovery comes to an end. all recoveries come to an end.

jon: but if you think the market gets to a position where it questions the fiscal position of the world's largest economy i just want to understand how that ends in a mild recession or something worse. >> it all depends on how sensibly the authorities respond. when reagan had to correct his fiscal excesses, it was done moderately brutally but not catastrophically. i think we are going to see, probably, a regular recovery. i don't see a crisis. it would help if they were to rein in the credit trough in the u.s. economy, especially in the corporate sector. in the long term, the fed rates increased more than 2%. they do need it for financial stability. but assuming that doesn't blowup, they could have the recovery.d short-term growth rate for the u.s. and in 2018, when do you

see that in the play? >> in 17 and 18, good. plus, 18, two plus plus. in 19 the downturn starts. towards the end of the year, you get into recession territory which would be very low. jon: it has been great to catch up with you. and a bloomberg's michael mckee, thank you very much. citigroup chief economist willem buiter. credit delivery delivering things. quarter loss at 11.8 billion euros. that is the four-year net loss. we will take you to the markets now with a quick look at what is happening elsewhere. abouts are positive up by 1/10 of 1% on the s&p 500 and the dow. decent bid on the ftse and the

dac. we will get to the other asset classes. the dollar on a seven-day winning streak against the yen and the euro has some dollar strength. treasuries on offer still in the market. coming up next on this program, investors feeling antisocial. shares of twitter plunging on earnings. the latest, which is winding down right now. this is bloomberg. ♪

>> this is bloomberg daybreak. i am emma chandra and this is the hewlett-packard enterprise green room. in the next hour, investment chairman ceo and cio richard chilton.

alix: twitter shares getting hurt in premarket as the social media company reported quarterly revenue that fell short of estimates. also, monthly users of 3.1% in the fourth quarter. paul sweeney was on the company's earnings call. what really stood out to me was the cfo saying the use of trump on twitter has broadened the awareness of how the platform can be used but they can't quantify the impact at this time. how come? isi think the real issue monthly active users didn't grow that much. a lot of investors were hoping that the higher awareness of twitter brought about by president trump and others might lead to a surge in users and that is what this companies -- what this company really sorely needed so they can be relevant to advertisers. we did not see that. the one green shoot they continue to focus on is that even though the audience isn't growing the audience is becoming

more engaged and they measure that by daily active users and daily active users come back to the surface every single day. it grew 11% every year. thinkir perspective, they that their daily active users are growing and becoming more engaged. that might be a way for them to go back to advertisers and present a better option but we just haven't seen it. we don't see it in their guidance so we have it down the today. alix: when you are on the call, you hearing? a plan for a company that is trying to grow or a plan for a company trying to address itself up to sell itself? >> probably a little bit of both. they are focusing on the fundamentals of the business and trying to make their platform a more viable alternative to advertisers. it hasn't proven to be. most advertisement dollars go to google and facebook. in the last couple of days they have issued policies to clean up the twitter platform, to reduce

some of the abuse that goes on on the platform to make it both easier and a experience for users and advertisers. but also to address concerns of potential buyers of the company who the disney company, recently backed away because they were concerned about the content on the platform. you are seeing a little bit of both. let's focus on trying to improve the fundamentals of the company and focus on making our company a cleaner company. david: in a nutshell is there a fundamental problem being a lack of money or a lack of ideas? they don't get as many users so they don't make as much money so they can't get users. is that the problem or is it that even if they have the money to spend they don't have an idea on how to spend it to grow their business >>? kind of the latter. they have been trying to change the platform, make it easier for users to get onto the platform so they grow their user base. they have been on that road for

the past two years with no success to point to. and when you're ceo only works there have the time, a lot investors are concerned about that. it looks like they haven't been able to create a platform that can attract more than a core and highly engaged route of users. in the world of social media platform or's, where facebook has 1.8 billion users, instagram is growing and snapchat is hasn't been able to establish itself as a viable alternative to advertisers. david: how much time does jack dorsey have to turn it around? >> i don't think he has much time. what they laid out on the call is our daily users are growing and becoming more engaged. time, we could translate that into advertising or revenue growth. i'm not sure they will stick around. alix: great to talk to you, paul sweeney of bloomberg intelligence. toing up another breakfast

the white house. ceos of america's top airlines sit down with president trump to talk about how security affairs. competition and regulation of according to the travel ban. this is bloomberg. ♪

david: this is bloomberg. i am david westin. a big merger in the health care industry was killed yesterday. a trial court in washington agreed with the government that anthem should not be allowed to go forward with its $48 billion proposed acquisition of cigna. more on what went wrong with this deal. what is the answer? hopingem and cigna were to combine and create the biggest health insurer in the u.s. the judge said that is going to reduce competition, it is not going to help consumers and you guys don't get along so even if in some of the world this would help consumers, in this one where you guys are fighting, i'm not going to let this happen.

david: there was a lot of overlap between these companies. a situation where a judge said if you are going to have a lot of efficiency, you are never going to have efficiency because you hate each other. >> judge jackson called this the elephant in the courtroom. anthem and cigna did not get along. before the deal they didn't get along and during the negotiation -- ultimately, their lawyers didn't agree in court. one of your big arguments is deficiency and if you're not getting along how do you deliver that? david: this could come as a big surprise to the markets. there has been a lot on this deal for some time now. what is next? >> not a surprise at all. and them has said they will appeal so we will see over the next few days, and some works that angle. they are weighing their options. it is not clear how they would participate given the hostility. david: they are pretty asymmetric for anthem if cigna

goes away. >> so anthem will go cigna a 1.8 million dollars breakup deal. if this ultimately goes down in flames. jon: what does this tell us about consolidation in the health care industry? >> we have seen both of these huge mergers blocked. at humana a couple of weeks ago and now and some sigma. this is not good for consumers or raids -- raise prices. david: what does it tell us about inter-trust enforcement under the trump administration? >> jeff sessions was confirmed last night, so now he will get e.me of his deputies in ther i think you are seeing maybe a little bit of consistency between administrations on this issue. david: to be clear, the justice department people who argue for this were left over from the obama administration. >> the obama administration chose to challenge these and some of the top folks are from that administration but there are a lot of career staff that

are looking at these cases based on the law and the merits. david: does this help the consumers? >> it is probably good for consumers. one of the big issues was letting these companies combine hurt the options and raise the prices. david: that is bloomberg health reporter zachary tracer. >> shares at twitter are taking a plunge on earnings. we will dive into the month -- into the numbers with michael pachter, managing director of research. s&p futures are up by two points, the dow up by 23 as the dow rises for a seventh day. this is bloomberg. ♪ ♪

jonathan: a warm welcome. not so warm in new york city.

this is "bloomberg daybreak." i am jonathan ferro alongside david westin and alix steel. let's get you up to speed. good morning. futures up .1% on the s&p 500 and the dow. 30 minutes away from the open. in the fx market, seven straight sessions of job -- dollar strength. you can see it on the screen against the euro and the yen. treasuries -- the longest winning streak over 2017. that is your cross asset check. let's get you some movers. alix: futures may be flat, but we have movers under the surface. cup down by almost 2%. there continues to get hammered in free markets, slashing the first-quarter guidance. viacom is a different story, up

by 6%. upgraded wells fargo after estimates came in better. earnings beat the highest estimate also seeing growth in the prescription benefit manager unit of cvs. non-earnings related movers, we have tesla up by over 2%. suppliers will begin building be cheaper model 3 later this month. dojal up i almost 1% as the issued a subpoena questioning at anti-money laundering program. jpmorgan came out and said the subpoena is just a headline risk more than an actual threat. david: we will talk to airlines now. president trump is set to meet with the ceos of top airlines. with security and regulation related to the travel ban on the agenda for the meeting.

kevin joins us from the white house. we are all focused on the immigration ban, i am sure that will be discussed. what else is on the agenda? kevin: the immigration ban will be discussed as well as job creation and subsidized financing. it is worth noting that ed bastian walked into the white house a couple of minutes ago. he has been on the opposite side of the policy fight with boeing in terms of aircraft financing. president trump has yet to name someone to lead that bank. david: there are also questions about international competition and whether we want to expand that. kevin: that goes directly to this idea of subsidized financing when you talk about particularly how and which airline companies are able to get subsidized financing at the xm bank. politics are brewing within the republican party.

david: our viewers are seeing airline executives arriving. this was filmed a short time ago. i want to turn to a different subject. judge gorsuch is very much in the news as first mr. blumenthal came out and said he told me it was disheartening what the president had to say about the judges and president trump to tweeid -- president trump ted back and they are going back-and-forth. kevin: senior advisers inside the white house have reiterated to me that they feel confident that they will not get any flipped votes against gore since -- gorsuch as a result of president trump quitting about the"so-called" judge in circuit. -- all of president trump's appointees will not always agree with him. they are echoing a consistent argument -- democrats are

pouncing on this. you can that he will be asked about this during the confirmation hearing. it has already been a topic of conversation. david: whether it affects the confirmation process or not, there seems to be a pattern. you could say it is healthy because he has people around him to disagree. on the other hand, if you are an investor in the markets doesn't it create confusion? kevin: it does create the level of confusion about who exactly is calling the shots. president trump will say it is always him. kellyanne conway as well as trump's spokesperson boris epstein were on capitol hill meeting with staff of various lawmakers in order to smooth over the confirmation process for judge gorsuch. we will have to see whether or not this is able to smooth over. the rapid response team surrounding the -- with judge the mosts candidly

elaborate one we have seen with any of the nominees. david: they have a full-time job right at the moment. that is kevin reporting from the white house. jonathan: just getting to headlines from the st. louis fed president jim bullard. alix: don't expect a rate hike in march. he did not say that, but it feels like a dovish statement. relatively low policy rate continues to remain appropriate. he also talked about the fact he does not see inflation picking up this year and that the government is unlikely to drive state interest rate higher in 2017. lightrd a lot of marches and we do not know what will happen, lower rates for longer. may be in ae fed better spot to allow reinvestment to end. how they use the balance sheet will be interesting.

i think this is the most polite way of saying we do not need fiscal stimulus. countercyclical. if you done -- if you run a countercyclical policy when the economy is down, it is fine. another message after years of going in front of congress yellen it was chairman or -- alix: it does not count as cyclical, but we will take rates for longer. it is puzzling to me how you square those views together. need --aying we do not to get to full employment. jonathan: we are joined from a man from morgan stanley joining us out of chicago. great to have you, andrew. you have confusion around the administration of what will or will not come and then you have the federal reserve on whether

they will or will not -- and what they will or will not do. you have to put together a portfolio. how do you doportfolio. how do you do that? andrew: it is great. there is a pull between the economic agenda of the administration and everything else and when the market rochus is on the economic -- when the market focuses on the economic agenda it goes up and when the news is about the other things, the market goes nowhere. i think the risk is that we get overly focused on the non-economic part of that and that creates the opportunity set for investors. i think. jonathan: what is the story? political news comes through the market and the market acts up. is that the approach? andrew: the market really hasn't reacted to the political noise. look at yesterday. i really think versus last friday when we had discussions of dodd-frank reform, the oar, but when it is

non-economic the market trades sideways. i think this is positive for the market. the market is focused on the economic deregulatory parts of the new administration. jonathan: let's be more precise, the equity market is yes. the treasury market is doing something different. in a face -- in the face of a lot of supply, it has been incredibly well bid. what do you make of the action in equities or elsewhere which signal something different? true.: you know that is i am an equity manager so i apologize, that is what i focus on. fedjust reported on the member speaking about -- that is very bullish. if they are not going to raise rates, that keeps the lid on the dollar. if i look back at 2014, what really hurt earnings was the

dollar rally 27%. if we can keep the dollar from levitating too much, that will help earnings and i think that supports valuations because i just don't see valuations on the s&p based on 2000 17 earnings. the market is not very expensive. alix: the trade at the end of 2016 was cyclical and it was ono small caps, that stalled both fronts. what is the opportunity set now that you see? andrew: a very simple rule is that it takes about 10 years for the previous bull market winner to go through purgatory and then it breaks out. the nasdaq did in 2010 after being the winner of 2000. financials were the winner at the end of the last bull market and i think we are at a point now that we have gone through this long period of purgatory due to the breakdown and i do

not remember quarterly calls as more positive than what i heard on was quarter calls coming out of banks in regards to loan growth, better economic growth, potential for deregulation. these companies have been cutting cost for a very long time, so you get any better topline growth, you are going to see big, strong earnings. we had a big move up in financials after the election. consolidated,ave but i think people talk financials of the data suggests people are very underweight still. in the banks, that is understandable because every time banks have rallied in the past 10 years they sell them and run back into growth stocks. alix: what is a cyclical trade overseas you are looking at? andrew: it is fascinating. one of the reasons why the s&p has at -- has outperformed europe especially in japan over that s&pfew years is

is more of a growth index. technology is a much bigger waiting --weighting and therefore, the european stock market is more highly correlated to the direction of the 10-year than the u.s. market is. when the 10-year goes up, it says the economy is strengthening and when that happens, europe tends to do well, especially better than the s&p. that is why the s&p has dramatically outperformed europe for the last few years. i think if we have better economic growth, that will be reflected in some of these non-us developed markets and it is coming at a time when i hear more and more people say why should i invest anywhere but the u.s. because nothing has worked but the u.s.? that is true in a 2% gdp environment if we get better growth. jonathan: you are going to stick

with us. andrew slimmon at morgan stanley. coming up, no-trump bump for twitter. the user base in the u.s. remains flat and the stock down by more than 9% in the premarket. is it time for the ceo and -- under, jack dorsey, this is bloomberg. ♪ ♪

alix: this is "bloomberg daybreak." at the end of this week, 75% of s&p companies will have reported earnings and it is the first quarter in 8 that profits will rise fast enough to brown's and end to the earnings -- to pronounce and end to the earnings recession. ndrew, take a look at ea

,. what kind of growth and you need to see to justify valuations? andrew: right now wall street 12% earningsabout growth. that puts the market about 17 times forward earnings. here is the big part of that, none of that reflects fiscal policy reform coming out of washington. all of that reflects better recovery in the energy sector, financials, and materials. that is the big inflection we have seen. reformad any type of tax -- have any type of tax reform, that number potentially could be higher, which would bring the multiple lower and that is the big upside for the market. i think the market has already

started to price in the 11% or 12% earnings recovery. david: how much of the growth in earnings is topline as opposed to bottom line? andrew: that is a great question. one of the things we have to keep in mind is with the 10 year -- 10-year, where it is, the fair value of the stock market should not be trading at a above thepoints longtime averages. it should be trading substantially higher because the the 10-year is a lot longer than the long-term average. the fair value is substantially higher than where the s&p is trading. one of the markets the market -- reasons the market is trading at below fair market value is because they have been figuring out that a lot of the earnings growth has been manufactured, stock buyback, margin improvements, think like that, and -- things like that, and the if we get better

topline revenue growth, the market will pay more for topline revenue growth that leads to bottom-line revenue growth then anemic revenue growth that leads to decent earnings growth. that is what we have had the last few years and that is why i think the market is not paying its fair share for these earnings versus where the 10-year is. david: are we sending to see a turnaround on capital investment -- starting to see a turnaround on capital investment? andrew: that is exactly right. the confidence index has gone up andy cfo optimism index has gone up -- this is what we heard on quarterly calls. companies are starting to think about spending money because they are more confident they can get revenue growth. if they do not think they have revenue growth, that is when they buy back stock.

i do not think the market pays its full multiple for that kind of manufactured earnings. jonathan: listening to the way you speak, the contrary him -- is maybem move something people are not expecting. do you think that will happen and have you positioned to capture it? -- bears all's sound smarter than bulls. i haven't heard anyone say that there is a chance that we get substantial tax reform and earnings are a lot higher. i do not put it at over 50%, but i think there is a chance that ife -- that that happens and that happens you get better economic growth and a strong market this year, but it is dedicated on making sure the fed does not get too aggressive in the dollar doesn't go up too much. i am heartened to hear that the

becauseeing more dovish that is important to getting a lift off in the equity market. alix: andrew slimmon at morgan stanley staying with us. coca-cola reported earnings this morning and the cfo said political tension to -- could result in macro changes. issueshave political that will affect macro changes and your business and you cannot manage that, how do you mantle anything? -- manage anything? david: coca-cola is a bellwether political risk. alix: next, twitter plunging on disappointing fourth-quarter results. we will get the trade from one of the top street analysts. this is bloomberg. ♪ ♪

alix: twitter shares plunging on disappointing quarterly results. we are joined by michael pachter , the managing director for research. he has a neutral rating on the stock. your initial -- reaction to the quarter? michael: i think they are addressing some things that matter and more things that matter more are not being addressed. there are five things that should matter to investors and twitter is addressing two of them. they are doing a great job on frequency of visit and duration of the visit. they are doing very little to attract new users. they are very -- doing very little to convince advertisers of the proposition and acknowledging at rates are going down. i am not sure this management team is ready to address the most important thing, which is attracting brand-new users. they never talk about it. they just talk about making the experience better for existing users.

david: the one thing you would expect from jack dorsey is to give you exactly what you asked for. where is the plan? where is the vision? where is the narrative? michael: i think you should not have put my name in there. i do not expect that from jack dorsey at all. i think he is a very proud parent and looks at this platform he helped to build and thinks it is perfect in every way and i think he lacks introspection. i did not see him looking at twitter as having a problem attracting new users. somehow they think that just because the media reports on trump's tweets that will attract a lot new -- a lot more people and we saw evidence that did not happen. flatusers were sequentially. that is shocking. the idea that twitter is sitting by and letting you guys do their work for them to promote the site -- they are not doing it. they are not reaching out to cfo's and explaining that

everyone in their organization should be tweeting real-time. if you were tweeting and real-time you would have more viewers and more people following on twitter and twitter with benefit. they do nothing to encourage that. jonathan: let's call the bloomberg -- it's called the bloomberg terminal. michael: you have a competing business, i get it. he would rather have us get news from the bloomberg terminal. david: where is the board? michael: i apologize for throwing everyone in this category. areink toward -- boards largely irrelevant. they tend to be hand-picked and they believe in the founder/ceo and every once in a while you get a visionary founder/ceo like mark zuckerberg or steve jobs who actually do the right thing and more often than not, you get a founder/ceo that has no idea

what they are doing like jerry yang and i would say may be jack dorsey gets put into that category. ability to see that. they do not look at themselves in the merrier -- mirror and say what are we doing wrong? what they are doing wrong is not convincing your mom to use twitter. alix: that is a whole other conversation. you make a very strong case against twitter, but still have a neutral rating on the stock. why? michael: i have two cells that have not -- sells that have not worked out well for me. it is something you should consider lightening up on until he gets below 14. my target says more about it than the rating. this is all acquisition premium. some holes out there think that -- some fools out there think that bob iger is dumb enough to

buy this company. i don't think so. i do not think they would take the dilution that implies. alix: if it gets to 14? , does it get bought out? michael: i do not understand why anyone other than facebook would want to own twitter. it is not a strategic fit. it makes no sense for disney at all. i could stretch why it makes sense for sale force. jonathan: the opening bell is coming up soon and the producer is screening up -- screaming in my ear. it is the opening bell this is a morning and futures are cleared. this is bloomberg. ♪ [ alarm clock beeping ]

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and s&p 500. this week, dead flat for the s&p 500. will we find direction? did you here the opening bell ringing as we switch up the board and this is how the stage is set. in the fx market, six straight days of dollar strength. will it become 7? we just rolled over. up twoies, yields are basis point after four straight days of gains for treasuries. let's cross back over to alix steel. alix: the s&p and nasdaq not moving that much although literally points away from record highs. intraday high, same deal for the s&p. record highs we saw a earlier this year, but still up .1%. there are individual movers

having a big move today. anthem unchanged, cigna up -- off by .8%. cigna might get a breakup fee as anthem and the cigna deal gets killed by a federal court. do they turn to humana or well care? eyeeneral on -- the key disease comes in weak. stock that we are all watching this morning is twitter. this is the track of twitter over the last few hours. this is when earnings came out and you had twitter down by 7% immediately and continued to grind lower, now twitter off by about 10%. you had quarter one sales slashing the forecast and fourth-quarter sales rising just 1%. there -- erage users

stock allching that morning. investors fascinated by this as well because he is not just -- donald trump is not abouteeding -- tweeting random things, he is tweeting about companies. today he meets with airline ceos as well. still with us is andrew slimmon of morgan stanley in chicago. with that in mind, as he goes from sector to sector and ways in, what do you make of that as he injects himself into the boardroom of nearly every company in the united states? andrew: look what happened with the drug stocks. when he had the meeting, they all rallied.

i think the expectation is probably more negative than what we are seeing when it pertains to these companies. these companies do not really go down that much after these meetings. the financial rally and the pharmaceuticals rallied. i think it is more of a business agenda. notthan: the stocks do often move in the direction you think they will move. yesterday was the tweet about nordstrom and his daughter, mp being treated unfairly, and the stocks rallied. how do you react to that? >> i think this is a different president and it is breaking glass drum what has happened historically. is it presidential -- breaking glass from what has happened historically. is it presidential historically? no. when he came out taunting lockheed martin late -- lockheed

martin, the stock took a hit. greatw the f-35 was a plane and this was just a negotiating tactic. he creates opportunity. david: so there are immediate hits. is this just a lot of sound and light signifying nothing? >> yes. smoke and it is just it presents good opportunities to buy stocks that you know well and it should be disregarded. i believe overtime -- we have four years -- over time we will get numb to it. jonathan: should it be disregarded? typically we think of a republican government as a smaller government. once again, another sector and ceos sitting in front of the president at the white house, that does not feel small government. what is your framework for

thinking about it? andrew: i am not sure the administration is necessarily typical republican administration. it is progrowth and i think the stock market likes progrowth. typically, the market has performed better under democrats than republicans because they tend to be more progrowth. this sounds like a progrowth administration. --x: the other questions question becomes where do you find opportunity? richard: it has been priced in and it happened very quickly in the world where you can push a button and gain explosion -- gain exposure to certain industries. i think president trump seeing business leaders is healthy because we are off eight years of not having any love for business or respect for business and trump has seen more business leaders than obama did in eight years. where you see optioning --

opportunities, financials may be going higher, but they are up a lot. industrials, the same. where you find them in -- is in areas that are more consumer-oriented because consumer stocks were beaten down last year. some of the consumer stocks i whereare very attractive we like the housing names a lot because we think housing has a tremendous opportunity over the next three to five years. some of those names have been left. alix: you like whirlpool and home depot. this is where the company and the policy intersect. you wind up having the 30 year fixed mortgage now at 4%, and enormous jump from 3.4% since president trump was elected. that matters when it deals with the housing market. richard: let's not forget where we came from. alix: that is still 300 to $400 more. i did the math.

richard: it is more about the affordability index. when we pull the plug on housing because we got a lot of information about the affordability being at the worst affordability levels in history. people couldn't afford homes based on their current income and today it is the reverse. there is a lot of people whose incomes are rising with tax cuts we think will come and more people coming back to work with higher wages. at the same time, that extra few dollars with respect to interest rates really the affordable index is very low and there is a lot of pent-up demand. progrowth, but it is not a magical incantation. one of your colleagues was here yesterday and the only way you really grow is for demographics of more people in the labor force or increased productivity. can this president get blood out

of a turn up -- turnip? andrew: that is the real risk is that the data hasn't turned up. if you look at a typical value rally which tends to last two or three years, you get very substantially higher gdp growth than we are seeing currently. the last time of a cyclical rally in 2012 they quickly petered out because we didn't get validation in the economic recovery. i think the risk to this is we need to see validation of better growth. i am heartened when i listen to quarterly calls with companies because they are talking about greater investments than what they have seen in the past. i think this feeling of less regulation and the regulatory environment is going to help on the surface, but you need to follow through -- you need follow-through in fiscal policy reform.

david: thank you so much andrew slimmon and richard chilton. you are looking in a moment at wide -- live pictures of the white house where president trump is sitting down with america's top airline executives. we will bring you the latest. this is bloomberg. ♪ ♪

anna: this is "bloomberg daybreak." this is the hewlett-packard enterprise greenroom. brand ceo.young

-- greg creed, yum! brands ceo. ♪ david: you are looking right now at live pictures of the white house where president trump is sitting down with top airline executives to talk about security and regulation. joining us is george ferguson, the senior airline analyst. what is goingut on in the white house right now between the president and these executives. what is on the agenda from the president's side? george: my sense is that the president has been meeting with industry leaders to get their view on their different industries and how things are going and maybe what he can do to help make things better. i think it is probably the airlines that are pushing an agenda today. david: what is that agenda? what do they want out of their

president? george: i think the big international carriers are still looking for some resolutions -- that is probably not the right word, some push forward on this challenge from the middle east carriers from their flights into the u.s. i think one of the big challenges in front of them is in the atlantic market is one of the most lucrative markets and it is seeing more competition. some even from the middle east carriers flying from greece and italy into the u.s., it is seeing norwegian and low-cost carriers. i think they are probably discussing those kind of issues as well as maybe air traffic control issues. have expresseds an interest in seeing more efficiency in the air traffic control network. we need to do upgrading there. that was on the table during the obama administration. david: those transatlantic

flights are some of the most probable. are the airline companies of a single mind about whether they want more protectionism because it could come back and bite them? george: they are not. delta lead the charge on the middle east carrier issue. i think they are all lighting -- fighting to make flights possible into africa because of the middle east carriers. delta kind of push to that. the low-cost carriers -- i don't think they care. they don't seem to be interested in engaging in that battle. in some ways, flights from the big middle east carriers and other international carriers help them because they are very domestic-focused airlines, but if they are landing and taking off from an airport where emirates is landing or norwegian is landing, they can enhance the schedule by -- with them without

flying overseas routes, so they are not of the same mind on this discussion. alix: as they go into meet with president trump, they have different agendas. do airline companies have the same shrug all, the same tension that other companies do? george: i think they have a lot less for a couple reasons. airlines especially united, delta, american, southwest just finished a round of pilot contracts and cabin crew and maintenance. most of those labor agreements came at double-digit increases because they are so profitable. for sure, when they talk to president trump, they could count that -- tout that they are increasing wages to the labor group. they are in pretty good shape and they typically use a lot of

u.s. domestic labor. i think they are focused on shareholders right now. thed: take us back to situation with norwegian airlines were they created a company is ireland. will the president be sympathetic to their arguments of the union breaking? george: it seems he isn't. from his comments from his spokesman, spicer, the white house soon to be happy they are flowing boeing products and new region -- norwegian said they would use u.s. cruise as well. recently they talked about using rews in advanced networking, now they are talking and itsing u.s. crews seems like the president would be open to that. it didn't seem like his spokesman talked down about it. that may be concerned because there is a lot of capacity coming across the atlantic. it used to be a very lucrative market for european and u.s.

full-service airlines and it is quite competitive now. david: that is george ferguson, the senior airline analyst for bloomberg intelligence. jonathan: let's bring in the state to play for u.s. equities significantretty levels. we are very close to breaking that, the closing high was 2298.37. if we closed there today, it new record high. a marginal move upside after a boring week. coming up at the top of the next hour, full coverage with mark barton and vonnie quinn. vonnie: we will speak with yum! brands ceo. more earnings are coming out this week. greg will join us. -- greg creed will join us. there are difficulties getting

sales numbers up so we will ask greg creed what he can do and if there are any conversations in the works are if he had any conversations with the trump administration about jobs or anything else, especially that the incoming labor secretary is if you like.lum we will take a look at the greek yields and problems in europe. jonathan: looking forward to that. coming up with mark barton at the top of the hour with "bloomberg markets." equities are pushing higher in europe and the united states. up to 20,000 clean by a full .1% . we add to the move we saw at the close on the s&p 500. really interesting session in the treasury market. selling off a little bit more aggressively. up at a basis point of 235. jim bullard willing -- weighing

into the debate of ending reinvestment. we will talk about that from new york. this is bloomberg. ♪ ♪

new york from a wintry city. you will hear that a lot today. this is bloomberg. about 21 minutes until the session. a decent session for bullish global estimate -- equities. the s&p 500 close to breaking an intraday high. we are just south of 2300 currently. i think there is an interesting session in the bond markets. the long end of the yield curve is up more aggressively than up -- elsewhere.

30-year treasuries are lower. you can see it on the 10-year as well. it was the theme in today after four straight days. to thelard weighing in debate, speaking at washington university and a couple of comments i think that a lot of people's attention about ending balance sheet reinvestment. fed may be in a better position to allow reinvestment to end or otherwise reduce the size of the balance sheet. it is more color and noise to a debate that began the back end of last year. alix: some say the fed can target rate better if they end reinvestment and let that rolloff rather than hiking rates and wind up leaving the economy having more room to wiggle that way. other interesting comments from

james bullard as well. it seems like he is reiterating this lower for longer rate environment. that seems much more dovish to me. he says the low rate regime unlikely to change and doesn't see fiscal policy adding to inflation. is not inthe economy a recession today so these policies should not be viewed as dr. cyclical. this is very diplomatic from the head of the st. louis fed. david: when in doubt, don't rake glass -- break glass. alix: president trump meeting with the ceos of airlines. the airlines do an amazing job under foreign pressure, but foreign airliners are supported by their government. he tells airlines and airports he wants to take care of them. headlines are starting to come across. you were talking earlier about the dynamic between the foreign and domestic and how they are supported in a way that doesn't help opposition. david: that is not a the

regulatory -- the regulatory -- president.y alix: with the uncertainty whether from the white house or due toket, what is the growth here? the middle to the end of the year, you get into recession territory which would be very low with negative growth for a year. alix: kind of playing out how the biggest -- business cycle will end. inflation will pick up next year. david: it was sobering when he said that. a recession and it would go to the very integrity of the fiscal situation in the united states. always listen- we

to what he has to say. he was on the program earlier commented on his current investment strategy. howard: we have appointed a mantra, move forward, but with caution. what that means is we are investing, or not afraid to invest. we are trying to be fully investment where we can -- invested where we can find things to buy. with caution with us means more caution than usual. david: he doesn't want to say risk off, he says risk is always on, you are just taking a little bit off the table. is where real question you have those opportunities available. i thought that was relatively interesting. jonathan: the real question to me is what on earth happened to the twitter stock. 12%.by almost if quarter for was not going to

be good for this company, when is? david: what shocked me was what a darling this company and jack dorsey was not that long ago. alix: twitter had big moves on a day of earning, a 12% move is not that unusual for twitter when they report. david: so far, he doesn't have a plan. jonathan: a market check, futures indicating a higher rise and the margin moving to the upside. the s&p 500 approaching potentially an intraday record. treasuries are lower and we are on offer. yields up 3 basis points and dollar strength in their as well. this is bloomberg. ♪

vonnie: it is 10:00 in new york and 11:00 in hong kong. i am vonnie quinn. mark: and i am mark barton, welcome to bloomberg markets. ♪

vonnie: we are taking you from new york to london, to frankfurt in the next hour, and we are covering stories out of washington and paris. in politics, president trump meeting with executives from the airline industry, right now, planning to roll back regulations and pledges infrastructure investments, saying many u.s. airports are obsolete. mark: european banks are reporting results, today from commerzbank to socgen to italy's monte dei paschi. we look at how healthy these banks really are. vonnie: we are speaking with the ceo of yum! brands, greg creed. the giant reported solid earnings and we hear about his