jon: the politics of d.c. test the patience of high expectations of wall street. the republicans failure to tax -- at the health care bill could impale tax reform. treasuries rally and commodities rollover. and why negative rates and messy politics me no easy rates for banks in europe. ubs has charges extended to more of its customers. good morning and a warm welcome to bloomberg daybreak on this wednesday. i am jonathan ferro alongside alix steel. david westin is away today. let's get straight to the board. futures are softer in the united states. -1/10 of 1% on the s&p. a drop since october. the euro, giving us some of yesterday's gains going south by 1/10 of 1% and europe treasuries, down. dollar-yen, 1.11. down seven days, the longest losing streak in two months.

it hase last two days been up by 15%. gold goes nowhere, just $12 in two days. you might have thought that. crude continues to roll over -- one and at 15 half percent. the republican health care plan is running strong opposition ahead of thursday's vote. joining us for more is kevin cirilli, our chief washington correspondent. where do we go in the next 24 hours? do the republicans have the vote? >> know they do not. the sources i am talking about inside of the house freedom causes -- house freedom caucus tells us there was a fight yesterday with president trump who arrived on capitol hill and single-handedly pointed to the chairman mark meadows and said "you've got to get on board with this bill." the senior aide says he is not on board. the key numbers 21.

that is the number of house republicans that this administration feels like they can have to set and oppose this getstration and then still this bill through. now they do not have it. alix: the issue in the market is if health care cannot get through the house it will put off tax reform and that is with the markets are betting on. if it doesn't happen on thursday what happens to the rest of president trump's agenda? >> at is all delayed in this will be a devastating policy below on the same week that james comey testified. he said his previous campaign liaison with russian officials and meddling in that regard -- so, look. if this doesn't pass and this is a big if, because the administration is whipping into high gear to say the least and they are working relying on budget director mick mulvaney and vice president mike pence and others to get this through. if it doesn't pass, no tax

reforms. alix: kevin cirilli joining us from washington. no tax reform. that was a threat the market was under yesterday. you had banks having their worst day since brexit. health care index off by 1% and small caps really kicking it on the chin -- really taking it on the chin. ,ere with us now is zach apoian allocation strategist. it is easy to blame the latest tax reform for yesterday but dollar yields and commodities were already rolling over. what do you attribute it to? lex i think you hit the nail on the head. in part it is more of an economically levered tax cut and infrastructure, being delayed or possibly compromised. pay high taxes. health care obviously would suffer from the uncertainty about health care reform and small caps also pay high tax

rates. context,ng things in disconcerting what we have with little volatility in the market, this was our first down 1% day since october. to put things in context, yields have really been well behaved. spreading 2.3 to 2.6. that was since the election. we are still smack in the middle of that range. overall,his correlations are so low, implied bonds are so low and the dollar, even though it is giving back, everything is still well behaved. really it is one bad day. alix: when i saw the markets yesterday, i thought where was the opportunity? but can you make the case to buy the debt when we are only 2.2% below the all-time high? 2016think the lesson from was you cannot take political risk in the context of markets

to seriously. in the end, these stories dominate the headlines, they are very important for our country and for policy but in the end, markets will work through and ultimately it is about earnings. the bottom line is that data is still very strong. earnings continue to be revised up. q1 looks up 10%. the backdrop is so favorable that we think we will construct -- we are construct of and long-term. jon: with the bias towards d.c. taking up more time, you used the word compromise or that it was not going to get it done. . i think compromise is the base case. remember, before the election, both hillary clinton and donald trump were promoting tax reform, were promoting infrastructure

spending. it was just in different forms for different plans. it behooves both sides to get this done. trump has been very strong recently about trying to get something passed, not just for health care reform but for the health of the party in the next election. jon: it is one down day of 1%, and it took a long time to get there but let's say we have a few more. 2016, 2014, you had a series of down days, and then they back away. we now have what many people are referring to as the presidential put. how does the ministration respond if you get a series of down days? when we do not get excited about all-time highs anymore? what does it look like then? --in the last three years first of all, we didn't have dips, they were very short-lived

and even looking back first quarter of last year with a severe recession, we recovered in a matter of a couple of months. since as it has gotten 2014. today, the presidential put is fiscal policy. if fiscal policy is too expensive, the fed is going to have to be more hawkish to maintain inflation. they are acting hand in hand. if fiscal policy has to back off, so can monetary policy. you get this interplay between the two. the fed will be reactive to fiscal policy, and we think because of that they will help each other out. jon: isn't that a lucky scenario for the bulls? >> we are positive right now. we think the most important thing here is just that the economy is strong. yellen said it in the last

conference. we believe it. this is simply in anticipation of these policies taking effect. if fiscal policy turns out not to work out, the fed can be more dovish and we have a similar market to those last couple of years. alix: is it also helped by the fact that we have yields low and the dollar rolling over? we have that that is going to wind up offsetting. >> it has tightened marginally but they are still extremely accommodating. alix: what do you look for to add? the trade of values? cyclical? is that the flavor for right now? >> we are still in the camp that it is time to be more cyclical. growth has done better in the u.s.. we think the trade is the catch up of the cyclicals internationally just has not been priced as fully in the cyclical sectors internationally as it has been in the u.s. it is very important to be global and to own your international exposure which

structurally tilts more towards value. >> great to have you with us. the appointment with us. -- zach apoian with us. coming up, he now runs the bank of cyber. it is john harrigan. -- john hourican. and coming up, from new york city, you are watching bloomberg. ♪

>> this is bloomberg daybreak. i am emma chandra with your bloomberg business flash. rejecting a takeover bid from ppg industries. europe's largest coatings

company turned down. ppg's offer was too low and not in the interest of shareholders. it also said that the takeover would lead to job losses. airbnb is changing its name in china and doubling its investment. the home sharing company cost new chinese name -- translates to "welcome each other with love." it is offering customers in shanghai a new service of restaurant reservations and concert tickets. ubs has become the latest bank to pass on the euro region's negative interest rates. it has introduced the change at a chart of 6/10 of 1%. clients who don't agree have to close their account by the end of april. that is your bloomberg business flash. this is bloomberg. population eurozone, -- populism has been sweeping. first with brexit and other elections at stake.

we spoke with a former prime minister of italy about the prospect of the european union. >> for me the fundamental factor which will decide whether the euro will one-day unravel or not is whether national politics in member states will continue to drift towards short-term nationalism, populism, or whether we will go back to a sense of historical responsibility because the eu has been a historical faction. .> still with us is zach apoian messy politics and a bank in the eurozone. talk to me about that. >> i think the ecb is still finding a space. the average is the keyword. that is a struggle. the national authorities were able to balance fiscal stability

and financial stability with micro regulation and that causes tension. jon: ubs out this morning extending charges on deposits to some of their biggest clients. how difficult is the negative rates story for you? we talked about it and what it means for bond markets but to actually run a bank with the deposit rate at -40 basis points, what does it mean? >> there is a high correlation between bank valuations and an industry curve. there is a cost of money in the eurozone at an all-time low. in an investment-based economy so i have some room but if you are in the eurozone you have to pass that on sunday you start charging. jon: is that going to shift towards the view that the banks want us to finance the economy by doing something with rates? >> the underlying problem is we are struggling to create growth in the eurozone and a very accommodating on a trade policy

is fined during the crisis but what do you do afterwards? there is a lot of work to do. alix: all things considered, we it quite a bit, but it did outpace what happened here in the u.s. the driverng to be of markets? is it not the fed, or the curve but that curve over in europe? >> it is going to be significant at bellwether for what happens next. the banking secretary is struggling to create profitability. if you can't create value, you have no source of capital so you create risk in the system. there is a lot of pressure. hungarylk about risk, is an emerging market and was able to sell bonds for -.1 -- negative one basis points. that was lower than the u.s. did yesterday at 73 basis points. surely has to be

the decision-making parameters for anyone investing in government bonds. jon: look at cypress. banks, you'vee got someone who used to run deutsche bank and you worked with wilbur ross, you have a massive team to address the issue but it has still been difficult. how long does it take to turn that around? >> when we last spoke week were a stabilizing situation but since then we have had one billion euros in cyprus is 6% gdp and we moved 20% gdp off our books. credit is just under 2%. we're making progress. jon: but i think everyone looking across europe and seeing this, we are about redenomination risks in france, we have had capital controls in cyprus, capital controls and greece, and at one point one euro in cyprus was not the same as one euro in germany. do you look at the system and say it has failed or that it would still be a success?

>> during the greek crisis, a chapter of cyprus has gone down and come back up. we have the economy growing at 3%, second-fastest in the eurozone. we have a broad-based recovery underway. i think cyprus is an example of how to get the economy back up. alix: like the european banks? a we do, but certainly devalue section of the market. conditions are tough as you here in the headlines. but equities have made great progress in the last six months. you have played very well into the reflation story. up,growth data has turned and at the same time the positive inflation data out of the u.k. yesterday -- u.s. is looking better and china is looking better, and worldwide inflation has improved. this, ultimately, we think, will lift rates in the biggest head winds to the european banks right now.

alix: do you buy the -- do you buy the reflation? >> i think we've got time for it to take. alix: so what is the biggest risk that you see? john kind of lay them out. what is the biggest headwind? excess of there is an regulation, there is a concern for the whole experiment across europe, and i think that causes people to create excess caution rather than create the conditions. jon: but when you look in the politics, the campaigns of marine le pen, the members in italy, do you think that caution is justified? people not being happy with their lot in general and the superstructure across europe not affecting those in action. we heard the greek crisis trundle on for a decade. action that ise too small for a crisis to crisis keeps going. that is the repeat formula for many of the actions taken by the eurozone.

is: but on the spot, what the ultimate solution for greece? >> i am not a politician and this is a private view but not a but i think we need to socialize debt, draw a line under it and move on. alix: talk about value and potential risk. are you interested in the peripheries in that way? >> i think greek equities is such a small component of emerging markets at large. alix: and bank debt? greek bank debt. >> in the wealth management business it is not appropriate for the majority of our clients. the best way to play this is straight brought emerging equities levered to the relations going on. >> zach apoian thanks for joining us. and john hourican from the bank of cyprus. you will be staying with us. head of u.s. economic will be here and later, republican congressman tom mcclintock on

the health care debate. do the republicans have the votes? this is bloomberg. ♪

jon: the big date is today. in one week's time, prime minister theresa may will trigger article 50. still with us a man who know something about u.k. banking, john hourican, bank of cyprus ceo. you know that industry inside out. now, weat the situation are talking about the u.k. losing passporting rights in negotiations with the european union? how significant is that? >> the starting point is the u.k. has already handed much of its prowess to the united states. the majority of global capital flow actions now happen outside of the u.k. some still happen there. the passporting issue is as much

an issue in europe as it is for the u.k.. there are many companies in europe passporting into the u.k. we need a more mature conversation. we are going to have trade is the center of prosperity. we need to have a more grown-up conversation than some of the rhetoric in recent days. jon: around the issues in greece and cyprus. it didn't necessarily follow the course of logic. why not this time? >> i'm not sure it will. if 70 million people leave a trading block, that is a big deal. it suggests there is something wrong with how things are being worked. we need to get back and have a cold drink and actually talk about how we are going to work together rather than how we are going to separate. jon: in london at the moment, how do you see industry coming out on the side of two years of negotiation? >> sense will prevail at some point because it has to. majorty of london is a

place where capital requirements meets capital provision. that will continue post-brexit. we have to make sure that europe is advantage from that continuing relationship rather than this avenging itself. jon: are you confident the u.k. can make that argument you just may down? financial services? them at my time at the rbs and they are very smart people. i think when we get down to the real basics of how this works we will find a sensible solution because it is mutually assured self-destruction -- it is not an option at all. jon: in london, do you think any advantages are there to do that? >> we are preparing for premiums at some point in the future. we would like the index to be included at some point in the future. -- cyprus is is certainly dislocated in terms of its performance than greece and that should stick and investors minds.

we are seeing better volumes, not necessarily better price actions. jon: was that a bank casting it's about in confidence for london at the mobile financial hub for the years to come regardless of what happens? >> unquestionably. london is a major center and we think it will exist no matter how difficult the negotiations maybe. jon: it benefits both sides to come out of this with a deal around passporting. your basic case at this point, what is it? going to have to be a sensible retention of the majority of the issues around passporting for both sides because otherwise you damage both sides and that can't be right in the negotiation when it is a lose lose. jon: john hourican, bank of cyprus ceo. alix: we are still seeing banks wanting to move their workers out. frank for and paris are the big winners. a can't wait.

>> that is also some kind of negotiation as well. alix: so do it. robert shiller, macro markets cofounder and chief economist will be joining us later with the s&p had it 1% down for the first time since october. he was warning about this a few weeks ago. chiefrbc capital markets strategist will be joining us. two hourse markets, and four minutes away from the open, the dow down 2/10 of 1%. the s&p 500 on a four-day slide. lowsuries are big, yields on the 10 year. from new york city, you are watching bloomberg. ♪ the biggest week in tv is back.

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grace and frankie, hemlock grove. season one of... show me house of cards. xfinity watchathon week starts april 3. get unlimited access to all of netflix and more, free with xfinity on demand. the dinosaurs' extinction... got you outnumbered. don't listen to them. not appropriate. now i'm mashing these potatoes with my stick of butter... why don't you sit over here. something for everyone is awesome. find your awesome with the xfinity stream app. more to stream to every screen. jon: from new york city to our viewers worldwide, this is bloomberg daybreak. let's see the markets. two hours away from the catch of -- the cash open. -39 points on the dow, -32 point

on the s&p 500. down 1/10 of 1% since the biggest one-day drop. if you switch up the board, traits continue to unwind. treasuries are bit down by one basis point. yesterday, a big pop for the euro-dollar. the closing print, the highest so far this year. this morning, the dollar taking some of that back. down by 2/10 of 1%. that is the situation cross asset. let's get you up to speed on headlines across the business world. >> the u.s. and south korea have pledged to punish north korea after kim jong-un's regime conducted another missile test. it failed with u.s. military officials saying the north korean rocket appeared to have exploded within seconds of launch. south korean and american authorities have reaffirmed their commitment to push him to drop his nuclear weapons program. president trump's former campaign manager reportedly worked for a russian billionaire

to advance the interests of russian president vladimir putin. according to the associated press, paul manafort wrote a study in 2005 that he said could be of benefit to putin's government. it was an annual contract with a russian billionaire. he says his work has been unfairly portrayed as inappropriate. turkey has asked the u.s. to remove it from the list of places covered by the new ban.tronics passengers from those muslim majority countries will no longer be able to carry electronic devices on flights to the u.s. according to a turkish news agency, turkey says it shouldn't be part of the restrictions because it complies with international security rules. global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i am emma chandra. this is bloomberg. alix: thursday's vote in the house floor, it is nearing. publicans are racing to find votes for the gop health care

bill. joining us for moore is an edney. on the one hand the moderates want increased bending for lower income older individuals while the freedom caucus will want less. >> we saw an interesting change that tried tot get at both of those things. there is a pot of money that has been set aside that might come or 85th about 75 billion billion that would allow the senate, when the bill gets to them, to work on that idea that you mentioned, moderates want to be able to get more financial assistance to older and poorer americans. that helps out with getting it over there and making promises to the moderates in the house. the conservatives had some concessions they were able to win from the leadership, including some medicaid requirements that might limit those who can enroll in the

program. their small government ideals re. able to be met the scoring may not make the freedom caucus happy. alix: how resistant is the freedom caucus still to the health care reform? >> the freedom caucus, at least as of yesterday, there were enough members to block a vote and there are several other members who have said they are against it as well for similar reasons as the conservatives who morea repeal obamacare and of the insurance regulations to go away, which leadership says they are not able to do in this bill. so once we see what the deficit is lower number is than the 337 billion over 10 years in the original bill, that might cause problems for

conservatives. that was their way into this, to be able to say "at least we are saving money." alix: we have tax reform and infrastructure on the table. does that get pushback and how far? , howat is a great question long it takes them to get obamacare repealed and replaced. they want to do that very quickly if they are able to. then you are looking at a loss of political clout which is rough on infrastructure and tax reform. at the same time, when they want to do tax reform, they can't get the health bill done and they are looking at a lot more taxes to take care of the republicans repeal and replace plan. it has $880 billion in tax cuts. it is a large tax cut in its self. and if they can't do that now they have to look at it.

that just makes it all that much harder. alix: a great perspective. thank you very much. that infrastructure number is getting pushed back. now talking to a man the trenches of infrastructure investing. private capital has raised $62 billion for infrastructure projects in the past year and kkr is one of them. kkr has $8 billion in equity capital management. and mark runs the fund and he joins us now. i have been trying to get you on the program for a year. thank you for making it. >> thank you for your persistence. what has happened in the last six months? it is grabbing all the headlines. >> the secretary of , sea and the a ministration are focused on the right things, focused on bringing infrastructure to the forefront. i think we all agree american infrastructure is ready to be rebuilt. i just took the train in from boston yesterday, and it took me

over three and a half hours to get here. from london too brussels it goes under being less channel but it is also roughly 200 miles and it takes under two hours. americans have invested in infrastructure, but some of our peers are investing 4%. it is time for infrastructure to be rebuilt. alix: you were investing in these projects before president trump was even a thought in our minds. did you change our investment strategy? how much are you dependent on that in the structure program? >> we are not dependent. it is an opportunity for further growth as opposed to dependency. we have the capital, and we have been investing for over a decade. we have, in the last five years, just as an example, invested in the water sector where we are improving the environmental quality by reducing leakage in pipelines as well as improving

efficiency and conservation of water. we have invested in the telecom broadbandre he bring to rural communities, bringing quality of life and jobs in the energy sector where we are helping to bring -- helping the american energy independence in bringing the skills to the market. we have also invested in rubles. and distributed energy. we are investing in the $8 million in assets, less than 5% in public-private partnerships. it is opportunity for growth. jon: let's talk about how that fits with the administration's agenda and where it doesn't. on renewables you don't hear this in ministration talk a lot about renewables. does that worry you? >> having met with the secretary they are taking an expansive view on what infrastructure is. it is not just roads and bridges, it is really about improving the quality of life

and improving safety and reliability, jobs and environmental access and even national security. the secretary talked about a multifaceted approach with many departments involved who actually think energy is a big part of the of the structure. but it issecurity is not renewables we're hearing about. with the conversations you have had do they talk about renewables? >> nothing is being excluded at this time. has been one of our largest areas of investment and that will persist whether or not the a ministration makes its focus. an advisor on the public partnership and he said the government is going to have to borrow $500 billion. that leaves 500 extra billion. how easy is it to get?

>> it is not a heroic is something at all. $62 billion of private equity capital was raised. that is just equity capital. when we invest in infrastructure we marry that with debt. if you do one for one, that is $60 billion a year, $120 million over the year, that is the potential of investment in the private markets. , that 10 year period comes from private capital alone. that is assuming no growth with a significant amount of capital. >> we heard what you are investing in. number one priority for the administration after the administration -- >> i think they are trying to get their feet on the ground and all their placement spills. they have not come up with a priority. alix: pick a schedule, number one. what kind of returns do you target annually? generallytor targets anywhere from 10% to 15% of

returns. i think you are buying very long-term low risk assets. these are not private equity returns. they are not private equity risks. they tend to be longer than private equity in the 10 year on average. jon: just a final question, we had a big conversation about how long health care and tax reform would take. how long will it take them before they get this in place? i believe a great way to do this would be to try to get some quick wins. they are going through 40 years of historical regulations, figuring out which ones have the biggest pressure points, what can we cut early to really push projects through the big focus which can be done in a short timeframe in another two or three or four year waiting timeframe. jon: give us an example. >> one of the things that could change on the local community level, today if i wanted to do a privatization i would have to

spend a year to negotiate the deal and have it come up for city council at the end of that process. why not, upfront, say within these parameters we approve the deal and that brings a lot of certainty to -- as long as i can get there the deal is approved. jon: great work. global cohead of infrastructure. coming up on this program, joe meyer, -- michelle meyer. in up later, tom mcclintock on the health-care debate. from new york city, you are watching bloomberg. ♪

>> this is bloomberg daybreak. i am emma chandra. coming, robert shiller, nobel laureate and professor of

economics at jail. -- at yale. alix: in the markets, crude continuing to get hit, off by one and a half percent. oil is a two-day slide, under 48 for wti. kurt wallace joins us now. ed in the last five days that led us to wti trading at 47 west and mark >> it starts a couple ofbeing weeks from the oil producers extending the cuts in the second half of the year. a lot of noise is about how inventories are not coming down as fast as anyone expected. not just globally but specifically in the u.s. production is rising. a series of unfortunate events culminate's in the u.s. talking about a four and a half million barrel build in the u.s. inventories.

that is the real problem. what we are waiting for the moment is the reform for the u.s. government that will confirm or refute that number. we will take it from there. there is no doubt we are trading at thea couple of cents moment. obviously, tir he went through that. alix: we know this story. we know about the supply in the u.s., the inventory draws getting pushed back. what is different yesterday is you wound up having copper, you had nickel, you had copper today, you had steel rebar, iron ore reaching a bear market. what is that indicative of? that aheadthe market of itself. there is no doubt there are positive reasons why these should have risen in the first place. oil, you had a supply cut. but they went too far too fast. in the moment, people are

pulling back from their long positions in these markets. but there is still stuff out there that people are expecting to go higher. custom has a record at the moment. zinc has done very well. but if you think about it over the past year it is up 16%. that is a big jump. alix: bringing in cotton, i love that. thanks so much. that raises the question of what is dictating what. jon: straight in the barrel today. let's bring in dollar stress time. the senior director for china research. if you want to know about china, donna is one of them. of of the largest consumer commodities, china, we are not talking about them this morning that we are going to do something about leveraging. >> they have been saying this for five years. it is a structural problem that they need to address. but first things first. we had our election year in

2017, 2017 is china's selection year. new leadership for the next five years. president she brings -- president xi gives way to president xi. in the process between that and beijing, how does that play out? i worry about a couple of cities. beijing, i am comfortable with, pyongyang, no and washington, no. there is an increasing belief -- i think awareness -- that washington is unhinged, disjointed, it is not obvious what the economic priorities are , this health care situation is just simply symptomatic of this broader lack of focus. jon: but is that good for china or bad for china?

>> anything that is bad for the u.s. in a significant way, which this is, is that for china. jon: in many ways people have been surprised by the campaign rhetoric we heard about china and the policy or lack thereof we have seen from this administration of the past couple of months. the campaign rhetoric was hard-core that now we are seeing softer tones towards china. will that last? >> i think the surprising 2017 is how little washington does to punish china. not how much. alix: so what kind of leverage can beijing find? , the southe problem korean company that has had a golf course resort area, taken , andfor the missile system the missile system has been completely run out of business in china because china does not like that whole and ever. can't punish companies

from america or elsewhere -- can punish companies from america or elsewhere if they so choose in a way that is not anti-trade action, it just makes your business unmanageable. jon: you said 2017 is secure because they are in whatever it takes mode. but what does it mean for china over the next 5-10 years when it is not going to solve real of it in the room which is the leverage they keep talking about? >> this is the most important issue of all, which is they are now still in this whatever it takes mode. year, november of this president xi will have a new five-year term in office. think of that as the second term of the u.s. president if that person is ever going to have a time when they can make big changes. that would be it. he couldsome chance

turn to a real reform mode which would be a giant difference between what we have seen in the past. jon: taking the risk potentially with social stability as you start playing around with the economy and it forces layoffs, unemployment to climb. do you want to take a risk dealing with leverage? >> i don't think so but in the u.s. i think we have this tale distributional outcome, this terrible outcome. this is one in a thousand. this is a black swan event. in china it would be eyes wide open, short-term pain for long-term gain, except a couple of years of lower growth to address the dinosaur state on enterprises. address the excess leverage in the system. that is something that a strong president could do if he chooses to. i don't think he will but i

would put the probability at maybe .2 and that is too big a probability to ignore. you, donaldo see straszheim. if you have bloomberg terminal, check out tv . check out our charts and graphics and interact daily. check out that china conversation if you missed any of it. this is bloomberg. ♪

this is bloomberg daybreak. alix: just how tight is the u.s. labor market? you have the hawks in the fed but a research suggests it is not as tight as you think. that blue line is the rate sitting under 5%. they have created a new model, a demographic adjusted rate because the unemployment rate is actually little over 5%. joining with us for more is the chief economist carl riccadonna. join us and tell us about it.

>> we say each cycle looks different and has a different fingerprint whether it is the composition of drivers or whatnot but the same is true for the composition of employment in various cycles. going back to the tech boom of the late 1990's, a lot of computer programmers were part of that. in the last economic cycle, construction employment was booming. in the san francisco fed, they take about a dozen smaller demographic groups and try to adjust for secular trends. the three they highlight in this paper are number one, the aging of the baby boomers, number two, 20 topeople in the 25-year-old demographic are showing an increasing propensity to go into college so they are not entering the labor force. the third factor is women basically showing stronger attachment to the labor force.

so over time there has been a secular trend that they have been less likely to dropout for various reasons, presumably childcare. it is less likely coming back in and counting in the ranks of employees. to make a long story short, what we can see in that chart is after they apply these adjustments -- this adjusted unemployment rate is about 1.5 to two percentage points higher. >> people going to college you can't count them in the on employment rate because they are not in the workforce yet. is that the right way of looking? >> i think it is a very valid case. time and time again, we say the unemployment rate does not completely convey the picture. trump anddent candidate trump and fed chair yellen, we heard that as well. there are problems with the data and we have tried to adjust for these problems. another way of looking at this is estimating full employment,

dayunemployment rate minus rate and we show that versus average hourly earnings. unfortunately this is a bit of a lagging relationship but it is something we have heard time and time again from members of the fed. you only know you're at full employment when you see out the rearview minnow -- rearview window. you only know your rifle implement when you see average hourly earnings increasing forcefully and as we see that is not happening yet. jon: great to have you with us on the program. coming up, next is robert shiller, lobo -- nobel laureate. you are watching bloomberg. ♪

♪ >> the politics of d.c. test the

patience on wall street. republicans health care reform could imperil tax reform. the biggest one-day drop this year, and treasuries rally. continuing to unwind. crude reality for commodity reducers. losses of $50 per barrel. good morning. live from new york city to our viewers worldwide, welcome. i'm jonathan ferro. alongside alix steel. let's get straight to the pictures this morning, softer after the biggest one-day drop so far in 2017. 0.68% on the stoxx 600 and treasuries treading water after the last couple of weeks. dollar-yen 111. overnight, the lowest level since november. continuing lower today. the vix moving higher but still up only 15% in the last two days.

gold pretty much goes nowhere but that is your check, brent. do we roll over? i have to think volatility will pick up. >> domestic u.k. politics. the scene right now in there in that room. facing questions, facing a quick -- a squeeze from the north, >> in negotiations are set to begin next week today. we will bring you highlights. the republican health care plan trying opposition in the vote. kevin, do they have the vote? no.n: that is what everyone is talking about, whether or not president trump and house speaker paul ryan can just manage 21 votes here in the house. the vote has been delayed again. it will be tomorrow night at midnight and it will be an all

nighter event, i can tell you. house freedom caucus members are the ultimate conservative members and female he oppose this. a midnight vote? joe: -- jonathan: the s&p 500 declining 1% yesterday, the largest drop so far this year. us now is the president of medley global advisors and michelle, head of bank of america merrill lynch. bit of price action. >> i love it. we have got democracy. what happens when democracy kicks in. a whole new ballgame. we have had four months of a linear market. only 1%.

the difference is we could go 10% or this is an opportunity to buy. narrativeprice shapes the way to annoy up, on the way down, it just feels the optimism and then everyone changes the narrative to suit where the price is currently an them the way down, we do the same thing? >> this is important because the market has downgraded. i think we've given up on border, etc. he has got a really serious issue from my market perspective. a serious andt is major test of the trump presidency. bake thismuch do you into your forecast? >> only modestly. been monitoring how this

could potentially change the real economy. for 2018, it becomes potentially more of a story. it filter into the economy? we see a stimulus and that will generate stronger for us but there are a lot of risks around the forecast. >> we have seen optimism baked in to the survey data. not shown up in the hard data. the narrative is at the heart data will catch up. the story was changed yesterday. >> in a way, i think the policy elements matter particularly for confidence measures. for the confidence measures to theyn consistently high, need evidence that we are seeing these changes that have boosted to the extent they have. harder data is a slower moving process. if confidence is remaining high, -- we see the q1 gdp tracking

low. sales, the actual investment in spending data has remained. be changed inuld the last 24 hours when you think about it. what are you excited about? what is the trade? >> i do not think there is one. most traders will say i just my portfolio yesterday. if you look at today, are you going to adjust your portfolio ahead of a cliffhanger? just sit on your hands and go have a nice lunch. >> how significant is the vote tomorrow night? >> from a risk perspective, if he fails tomorrow, 5%. >> what time? >> a week, 10 days? this is significant. it is about 2% risk on.

you have got to look at four and this is the first major test from a market perspective. jonathan: a potential 5% move from the downside and 2% move from the upside. investors would be hands-off for the next week. >> this would be the test. don't negotiating or paul ryan did not want to take job because of the tea party. reason i feel confident about tomorrow, i am an optimist. trump working with paul ryan, i think paul ryan knows how to play the game. if he does not, we will see that at midnight tomorrow. view, aif you take my positive outcome, you will get linear moves in a low ball environment. funds, downside action

but the market will be already pricing that so you probably already missed it. i think you have got to wait. alix: do you see the same in the markets? economy, it is not that simple at all. the evolution of how the policy changes are eve all thing. for the data to change, you need to see the confidence measures significantly lower, and then you're talking about later in the stage of the business cycle, them what is actually left, because you think about business investment and the cycle turns down in the last few years. we are seeing better growth and that can be field if confidence is stronger but we need to see the policy changes delivered. jonathan: would you have believed in the middle of december yields would be lower about 50 basis points of hiking

from the federal reserve? >> what happened around the fed was difficulty with communication shall we say. the fed wanted to communicate theymarch was in play and wanted to communicate they were likely to hike in march. very hawkish and or to lead the market into a march hike. the reality is a faster hiking cycle which i am not sure they are ready to deliver. to me it is a rethinking in the market of what the fed is really doing and how convinced they are that is a stronger. jonathan: how do you view what is happening in treasuries, flashing that things are not all good in the economy? >> if you look at the treasury market and went back 24 hours ago, i think the fed nailed it. ago, we worried about three dots. in espousing for a

while, save the dollar, it actually sets you up for june and then you can sit back. i think what the fed has done is put the may playbook back in .lay which was thrown apart they are back in the game again. from that perspective, treasuries are at a fair price. on friday, given the outcome, 220, 250 again. it is a risk on, risk off racist. we will talk about the gain a little bit more. that is coming up. coming up also, irrational cofounder andh chief economist nobel laureate. plus, a chief u.s. markets strategist. as far as policies are concerned in london, question time in the united kingdom, one week to the

day before they pull the trigger on brexit negotiations. you can follow the remarks, live on the bloomberg. you are watching bloomberg from new york city. ♪

>> this is bloomberg daybreak. projecting an improved takeover bit. ton $2.4ny turned on a billion after they said the offer is too low and not in the interest of shareholders. result passes state oil company posted its biggest profit in two years.

crashre recovering from a in oil prices to shares are up 60% from a year ago. the world's largest wealth manager introduced -- clients who don't agree had to close their accounts by april. you'ven: that's how far -- far across you have got to go. calling for the u.s. central bank to continue with financial rate increases and strengthening this year. tothe economy continues improve, she spoke yesterday at the university of richmond. >> i would become people changing our reinvestment policy this year. -- i view this as

consistent with our statement that we anticipate continuing reinvestment's until normalization of the level of the fed rate is well underway. jonathan: a real conversation about normalizing the balance sheet. this was 2013. backup on hundred base points in the yields. several members of the fomc talk about normalizing the 4.5 chilean dollar balance sheet. >> it is a question around timing. the taper tantrum, which caught the markets completely off guard, there was no mention of it, they have not had a strategy laid out. i think the fed now has outlined a strategy. talk about dealing with the balance sheet, and there is an understanding that it will be a low profit.

that the fed ultimately is not .nclined they are still in a normalization process. they are not fighting significant upside, so they want this to be slow. perhaps market participants believe they are able to execute a slow normalization. you believe that? paul: i don't, with all respect. the fed had talked about this to the market. the 15 basis points to the 10 year, i think it could be a lot more and we have had internal debate thinking that the logical impact for what you're talking about -- reinvestment could be the third hike. think about if they go in june, for example, and that comes on the agenda in september and october, that could be the third or the fourth hike. it is on the agenda. i think we have to wait to see were janet yellen has to go -- wants to go here.

i was really surprised in the press conference -- michelle: an important distinction is the fed has made very clear the interest rates, that is the primary tool. the balance sheet is subordinate. for the balance sheet to be the third hike, i think that is early. they still want to normalize rates where they are much more comfortable, i think that is part of the conversation. ultimately setting the stage dealing with the balance sheet but it seems the priority is to continue to move interest-rate higher. i would be surprised. is what willstion derail that. let's walk you through this. financial conditions got a lot looser and in the fed started talking about expectations they hike. now, it is rolling over a little bit.

does this change the conversation? michelle: financial conditions are always so funny in terms of thinking about fed policy. input and output out of fed policy. they clearly influence to the fed to hike in march because conditions were favorable and the markets were able to take it. -- then ultimately i think it is a bit challenging and that is why it is maybe easier to focus in the medium-term on the data and as you approach potential hiking, you start looking more closely at financial conditions. before june.them earlier this week, it was said they should lay out a description of how they normalize the balance sheet, look how markets react and then they could actually hike. the markets do wind up in that scenario dictating what the fed does. >> it is quite idealistic.

when things are happening. look at the ecb in september last year, look at the markets did then, central banks no markets. they are astute. they discuss with market commentators all the time. they know more than perhaps -- jonathan: my question would be how can you still have a bullish dollar view around the federal reserve where the biggest repricing with senior to date has not been on treasuries. .n aggressive repricing that is the german 10 year 21 basis points and year to date, you have seen the shift we have had in september. negative territory at one point. 0-50 over the last five months. how can you maintain a bullish dollar view when the treasury in

the bond market is doing that? >> i have not been a bull on the dollar. i have been vocal on this. listen to the ecb. mapping out aully process of normalization, probably two or three years behind. look at the fact the markets are so worried, the latest poll has them hitting the first rap for the first time ever. i think the ecb is waiting to get the french election out of the way and then they will take out in june and discuss in october and that is why the bond is doing what it is. you look at the fed and the fed is hiking but the ecb is matching them in rhetoric every step. ultimately, they will hike, they will taper, and ultimately hike. that is why the euro could probably go to 120. alix: i was thinking about this

yesterday. we talk about the fed at nausea and the ecb will rule the treasury markets. that is where we need to focus our time. >> i always counter that and say listen, 57% of that is the euro here you have got to look at the ecb and how europe is likely to do. if we could get through tomorrow and what looks like a good thing and france and may, things look good in europe in the second half. this is affecting global markets. if we have a hiccup in washington, this will affect globally. the dollar just does not do as well as the euro. >> it just hangs out there. >> that is probably a buy in around 111.

alix: thank you. coming up, cofounder and chief economist, we asked him about the 1% down move on the s&p. this is bloomberg. ♪

alix: joining us on the phone from denver, petri partners chairman. is something else going on here? it is more about what else is going on, brought economic concerns, the question of how failure to get obamacare past, the tax cut timing issues that might be isected by that, all of that

turning into, will opec stand up to the test, that is really the question. >> a fair point. will they? >> they have powerful incentives to do that. the price correction we have got has put us back in territory that is more appropriate. the quick run to the mid 50's is too much too soon. sure that to make becomes recognized, maybe. it will depend on the next round of inventory levels. >> they had to sweeten the terms of the bond sale. 10.5% on the high-end. during theessed determination season? >> i think so, yes. i also believe it is not easy

now to issue equity in this market with the pricing impact as well. stresshe overall market leading oil? >> i think it is the latter. get lower prices, the cuts like you are saying, moore show production comes online and it loses market share. there is no good way out of that circle. >> know except that when you have a poor hand on the price of in all likelihood, the rate and show production will be diminished from what people were thinking a year ago. >> you have oil prices below all moving averages. >> i think it is 43-45, somewhere around there. those talking about breaking 40.

>> is shale ok at 47? >> the best at these prices, but 42-40, peopleelow do a reassessment of how fast they want to go at it. >> great stuff. 43 and then we have got to worry. program, up on this cofounder and chief economist and what -- and nobel laureate. strategist.arket from new york city, you are watching bloomberg. ♪

jonathan: after the federal , -- yieldsu lower lower. quite a turnaround. the euro yesterday, stronger. about .2%. say good morning to emma chandra. >> planned to punish north korea after another missile crash was conducted. the test failed say north korean rocket agreed to have exploded within seconds of launch. commitmentrmed the to drop the nuclear weapons program.

president reportedly works for a russian billionaire to advance the interest of russian player said it -- russian president vladimir putin. he could enjoy politics and need -- news coverage in the u.s. he claims his work has been unfairly portrayed. traveling from several muslim majorities will no longer to -- be able to take electronic devices onboard flights to the u.s. and must be stored according to the turkish news agency. global news 24 hours a day power by more than 2600 journalists and analysts in more than 120 countries. >> prime minister may commonsng, the house of

primitives are taking questions from the opposition. across europe, you know the story, the brexit negotiations to officially begin just next week. we caught up with the bank of separate site -- ceo. we asked him about the importance of britain's relationship with the eu says the city of london is a major place were capital requirements meet capital division. we have to make sure europe vanished rather than disadvantaging itself. >> still with us is paul. great to have you on a program to talk politics. idea that europe and the u.k. , to you think

logic will dictate the outcome? there are 27 eu member states that need to come to the agreement. the council president said the emphasis would be on making the do forth as less painful as possible. this political logic is sometimes lost. interestt the national , to keep the eu together or main train -- maintain the free trade agreement? >> absolutely the political imperative with the remaining eu member states and the european exits,to prevent other

to come to terms with britain and establish a positive working relationship and not to allow advantages that might encourage to the same. >> you said one of the biggest risks is the rising populism in europe. we saw it with the u.k.. not seen the fallout you would have expected. does that make you rethink populism? >> we have to have another national election due by 2020 but it could come earlier. timewe have set for a long is that the trench -- the trend in the rise of support is not linear. it is jagged. that new forces rather than simply a right-wing or populist versus could benefit.

we saw this in the netherlands with the rise of the green party which did very well compared to the last time and we have seen emmanuel started the new party and then will be benefiting something new and not just something populist per se. >> a centrist candidate becomes the french president, -- >> we think it is marginally more likely. presence, with the fact that it continues to be under pressure from scandals and we are in a tense time in france two recent terrorist attacks having been oiled. the coming weeks will be quite sensitive.

>> i think it is just too tainted and the other thing i think is everyone this so robust on may the negotiating something, it is a german election. the way schultz is coming through, we could potentially have an access the have not seen since the 1980's. and that could make it tough for her to negotiate the kind of exit she is promising. ultimately, we could see quite a fight in the second half of the year to the point where the market might start to price less .avorably for the u.k. i'd rather feel on the euro in the second half. inthere are two outcomes france and germany. didn't make a difference when

you speak to them and say the favorite in your mind, >> not really. our most recent view has in there is a benign political scenario in terms of the thinkons this year so i either outcome would be generally market friendly. merkel, the two most likely candidates in france could intohe a little fresh air the axis, but italy is still a concern, pulling strongly and really losing out following that loss in the italian referendum. that in your, is mind what is most likely to materialize in italy? >> yes. have a combination

of a systemically significant economy, a population which is the key to of politics and the major political parties, and an opposition party that seems to to capitalize on the discontent on the political spectrum and has an openly eurosceptic platform. eux: on the flipside, if the and particularly germany and the u.s. become more confrontational when it comes to trade, that will force germany to hone down and cement leadership in the eu and particular nicer terms, do you describe that kind of narrative? >> i don't really think so. i think you have rhetoric between the u.s. and europe that is not likely to amount the kind -- to the kinds of measures we see targeted to other countries frankly. i do not think there is a lot to

be gained from the trump administration other than making occasional threats about nato. i don't see germany stepping back from its role as the reluctant super parol -- superpower in europe. >> i want insight into your conversations. once we get past the french election, so long as the winner is not marine le pen. conversations with clients, that they are ready to put the money to work? the first hurdle is getting through elections this year. , thehe ongoing evolution risk of a scottish referendum, italian elections, is continue to weigh upon sentiment. it may be a sort of a threshold

once we get through german elections, but they continue to have this risk -- these risks. outcomes,round the you're looking at fragile coalitions and that means continuous snap elections are likely for years to come. >> she is basically saying it ain't over. thank you for speaking with us. coming up, talking about health care in the u.s. joining us from capitol hill on the health care debate, they currently don't have the votes. this is bloomberg. ♪

>> this is a hewlett-packard enterprise greenroom.

coming up, yellen economics professor. time now for other stories making headlines at this hour. sears is warning there are substitute -- substantial doubts about whether it can stay in business. she has added going concern language to the latest annual report. they say they will initially close 402 500s goals. doubling its investment fair.

they will triple the workforce shanghai, -- this is bloomberg. breaking news for you. modifying target after target, and you can see the stock is moving a little higher up 1/10 of 1%. ge modifies management, performance target here. further aligning incentives. permeatingsting through. that is the stock side. midnight --e neared near midnight, your date to watch. , he sits onor more the house budget committee and

he spoke yesterday about the american health care act. you don't have the votes, you get them by midnight tomorrow. cannot read minds or tell fortunes, but i know the bill moves significantly in the right direction and is essential for the advancement of the trump policy agenda. i have confidence when push comes to shove, they will recognize that. >> you wanted change in the bill, a lot more money for lower income old people. more debtwant is reduction which could be lower because of things you wanted in the bill. how do you square that? such thing as a perfect bill. it has many defects i object to. when you bring a large group together, you will not have a

perfect bill for any single individual or group. you will have the most acceptable bill that could be passed. benjamin franklin told the constitutional convention, i don't like this, it is not perfect, but it is pretty darn good and in order for it to pass, each of us has to doubt a little of our own infallibility and i hope members of the freedom caucus will take the advice, doubt a little of their own infallibility and realize this is a major advancement in policy that will give americans the beginnings of a highly competitive market where they have the widest choice of plans and the lowest possible cost. is presidentearing trump yesterday saying do it or you lose your seat.

is the strong-arming resonating in the freedom caucus? again, it is not strong-arming. there is a lot conservatives like in this. i'm a solid conservative but the best vote for taxpayers in two sessions in a row, i will compare my conservative credentials with anyone. we don't always get everything we want. we get most and that is what is in the bill. >> what happens to your seat? is a lot of pushback in california about the bill. 13 million enrolled in medicaid with the result of the expansion, 4.6 million funded under obamacare. you have seen protests in california. >> some people have done very well under obamacare and most people have done badly.

it was the most prominent issue in the last four election cycles. the american people are expecting us to repeal it and replace it with a system that works here and we will be judged not on talking points or promises, but on individual experiences people have in the new market. overall a bad experience with the obamacare market and that is why republicans were elected. we have to be sure we have good experience with the new market and i believe they will. >> when you make the uninsured rate interstate, seven point 4%, and governor brown is saying removing obamacare would be devastating, how can you go back and make your case to the constituents and get them to vote for you if you are taking away insurance and not giving an immediate replacement? >> no one is taking away insurance. quite the contrary. youxpanded under medicaid, can say they will lose their

insurance. all, for those who are on expanded medicaid, they are grandfathered in and the system is preserved through locked grants that preserve the perpetuation of the program in these states. the administration then shifts the state. no one will lose coverage over that. and we just beefed up the tax credits to ensure that no one as newsticker shock policies come online. we have done everything we can a assure that this will be functional it or competitive market, and we will see a positive improvement in the choice of plans and in the quality of health care. >> so to be clear, they keep it? side, theyubsidy will see a tax system supportive

of their ability to access the sick plants. >> midnight is the vote tomorrow. it does not get through and it throws off tax reform and infrastructure. can you walk me through a timeline of what actually happens in congress if you do not get a pass tomorrow? it essentially breaks the momentum that the trump going intoion has the vote and calls into question the ability of a republican conference and the house to get its act together and come to fruition on major legislation. timeline of to the future legislation, i cannot foretell but i know it would be a bad thing for credibility in advancing all of these other issues. would that get pushed into

2018? not handle the schedule for the house. i think a copy everything, securing our borders to dividing our economy. >> thank you very much. , and you can watch us online. interact with us directly. to recap, she is modifying performance markets. they have had talks with senior management and will review framework to further align incentives. this is bloomberg. ♪

>> still with us, an important vote on the house care bill. i want to understand that people are getting way too excited, or whether actually it matters that much. >> i believe it matters that much. this is also a major test for paul ryan. when you put it with president trump, this is the test. through, tot get it your previous guest, you see a situation where everything gets pushed out. market innce in anything with fiscal reform. it is big. toit is very different things not getting done for the next four years. what will it be? >> midterm is coming up and obama had -- obamacare has been an issue and i think president trump was right in that statement that it would be a major issue for republicans in the midterms next year. the agenda just will not work

and they elected a modern agenda and the market reacted to the agenda here what more can we give the guy? we have given you the white house and the hill and you have got to get something done. >> i am told it started in the beginning of the summer last year and this administration does not really matter so much to it. this reflation trade still something i want to play? >> i just -- i disagree. reflation trade to me is probably 10% of stocks for november. it is confidence and real positivity about a global effect. we're thinking about the u.s. side of it. this would have a global impact were it not to pass. you think they rollover if we get a defeat tomorrow? advisor mightial

say it is fine, but what is that look like next week if you are down 5% in the last week? that is different on your confidence. the sentiment was be the key. great to have you on the program and we appreciate your time. laureate on ael rational exuberance. plus, rbc capital markets chief u.s. markets. you down to the open. 34 minutes away, you are watching bloomberg. ♪

>> the politics of d.c. testing patience on wall street. the u.s. equities are coming up. trade, hopesation for growth, treasury yields back in 2017 highs and commodities rollover and stumbling ahead of the opening after details. good morning. from our viewers worldwide, i am jonathan ferro. david westin away today, we are counting you down to the opening bell. points, -10 to 1% on the s&p 500. we have to wait a long time for. week,ries on the last 241, the dollar taking stocks >> another by rating, two

by ratings for the stock. company says snap is a platform for the imagination, a fun place to spend time. on the downside, sears and nike. a substantialg doubt about the company'future about its ability to keep operating. members lost more than $10 million in the last few years. ,ike sales trailing estimates losing competitors like adidas and under armour. it missed analyst estimates and growth margins narrowed by 1.4%. the macro state in d.c., the fate of the american health care act hanging in the balance. kevin joins us with more. i just spoke with the congressman from california who

says there is nothing better. what is the vote count telling you? >> we don't know how this will actually be voted on. 21 is the amount of house republicans that could see vote against the legislation ended it could still get past. the past couple of days, from the white house, into overdrive. they are trying to achieve -- that this does to level -- too little for senior citizens but also conservatives who feel this is not conservative enough of a bill. they have had to walk a tight political tightrope. that meeting with president and tassel liaisons clearly sending a message they are all in on this.

if this fails tomorrow night, this would pose a seat -- a huge policy setback for the white house as it looks to get other key legislative items on the to do list. they cannot get the tax reform let alone ever structure or regulatory policy unless they first pass health care. some extent, the market will be a judge of the outcome. i want to understand how high the sensitivity is to let his prized in equity markets. the president talks about it a lot. are the other congressmen and senators talking about it? >> they are talking about how all of this to get reshape the narrative heading into the president's year in office. a couple of days ago, james comey testified before a republican-controlled house intelligence committee and raised serious questions about this at ministration's wranglings with russia and the relationship with his former

campaign officials and russia. ,ll of this is coming this week this would be a week and president should the bill not get past. it would in bold and him if it does. >> 39 hours to go. ?> we have to get a clock investors beginning to question trump's ability to enact progress pop -- progrowth policy. declining 1% yesterday, largest drop since october. nobel laureate and professor of economics at yale university, great to have you on the program. let's begin with you. how we stood before yesterday, ?ive us a little perspective i get -- you assume it was justified? >> it was down to 13. in the bottom of the

market in 2009 and now it is almost dirty. does not tell you what it will do in the next few days. havest says maybe it will a correction down. not a great time in the stock market. not a great time to buy into the equity market? >> i think he raises the most important point. it is not a good indicator of where that stock market is going. hedge funds or mutual fund companies, forward stock multiples, 17.5, that number is but itmpared to history, has gone to substantially higher levels, and to me, you are not seeing indications that would tell you there is risk in the

near term that this thing will rollover. yes, expensive and likely to be more expensive. >> if you take a look at where it has an and you compare optimism in the market today versus where we were in 2000, the ratio there was near 45 at the end of the day, a very different story. >> i agree. i have not really sold my stocks. competing real estate and fixed incomes are not so great either. correct expectations are high under trump and according to my own surveys, i find evidence of that. confidence in the valuation of the market is low. it still sounds like the 1990's and could still go way up, i agree. >> one big difference between now and the late 1990's, was the company's really expensive than

were companies that have massive hope in aol or tech companies with no earnings or a promise of something in the future. if you look at the growth amazon, theyogle, are maturing companies that are very different. companies are the really stable companies in consumer staples and the bond -- that the market is putting a higher valuation. while there is optimism in the market and i think they should tonehere is a different than it was in the 1990's. >> leverage has been building up in credit but the push back i etc. better cash flow,

to that thesay back quality is better? >> are you asking me? >> yes. 1990's,back in the there was a gold rush mentality. the idea then was that companies should not be focused on earnings. times a stake your claim with the internet just coming in. obviously the internet would be very important. we are now back in a normal environment. we're talking about companies founded 27 years ago and i don't hear it so much that companies should not worry about earnings. we now expect earnings. >> except maybe places like make amay be, but do you distinction between certain sectors that have a higher ratio

than others? >> yes. i work with barclays bank on this. we have consumer durables, health care industrials, and technology. we are correcting for technologies. >> does that lineup with what you would be investing? interesting, if you look at technology, you have to look at it relative to growth rate. they seem extraordinarily attractive event though i think we are in agreement, expensive but in this case, i think it is worth it given the opportunity. there are clearly areas where the evaluation is reasonable. you find throughout the market, health care is another where the growth park -- both market, crowd overpricing. really attractive. quickly, what is the

risk that the price starts to set the narrative quite same wayely in the after november? >> we talked about this during the break. look at theeople price movement and try to come up with a narrative that fits the story. people were saying for months, when did we get a day with a 1% correction? people said it will be healthy when the market has a cooling off for just a moment and people fall,he thing is about to as opposed to, it is normal. if you invest in the stock arc it, expect a couple of times a month that you will lose 1% of your money on a general move up. we have to be careful not to over emphasize what will happen. >> coming up on friday after a repricing on the equity market, we had a big repricing in the

next week. yield, dedicated to fixed income. television.mberg futures just a little softer. 49 on the dow. ♪

>> really took it on the chin, they closed lower with over 2%. with us is robert. rbc capital markets chief u.s. strategist. bullish, 2500, and i am assuming

you bought the different banks. not buying anything on one day's move, but i think the most positively exposed to this reflation trade you have going on. they win with a weakening of regulation. a lot of that just through executive order. up, withrates going debts they win when consumers are spending more money and housing is good. the environment should be ripe for them to do well. anyar the cheapest of sector, off the charts, and they are still the cheapest of any sector. >> there were two headlines that were industry specific. tightness in terms of what banks are lending. and not just significant in -- pick up in fixed income, fundamentals were weighing on the markets yesterday.

>> one thing was all the data coming in positive about industrial activity and jobs, i would love to see better loans. i agree with that point. i believe if you continue to see improving job markets, the net interest margin -- margin they make, you since -- should see lending pick up. it is one thing the federal reserve hike and interest rate, another thing, the curve staying flat. what are the consequences? >> we have a 2.5% 10 year treasury, historically been below. curve is not sloping -- i am a believer in the banking sector, it has been around for 2000 years and it is

recovering from a handicap now because of the financial crisis. things are in utter shape because of regulation. i don't know. might he weakened henceforth. i do not know if that is good in the long run for the banking sector. >> is it, jonathan? >> absolutely and it is good for the economy. if you did not have a robust banking sector, you would not have people using credit cards for purchases, you don't want banks to lend in a fervor it -- frivolous matter. that is not what the businesses are in. tocurtail the ability provide investment capital role for the economy is not good for either the banking profitability or the economy at large and i

would argue one of the reasons we have had a weak recovery is you made it difficult for banks to facilitate the recovery this time around. i get why regulators want to make sure we never have a financial crisis. no one ever wants to go through 2008 again. we have to be careful these prescriptions has substantial side effects. >> your overall earnings estimate is 128. how do you model in a low back in regulation? banks,ou look at the big numbers are high single digits if you probably, if you -- you continue to have the short end of the curve, if the fed raises rates, that makes it more profitable for banks because rates have been suppressed so low that ranks, even if they are giving you zero interest rates thehe loan, they still have cost to maintain their atm machine and all this other stuff.

they lose money and the problem goes away as rates begin to rise. we should have upside to those kinds of numbers. >> it has really been a hurdle for the market, not getting above that. narrativechange the for banks? >> i don't know that is the way i would look at it. you have under 1.4 on the yield on the 10 year in july and now you're look at something substantially better. issue.ot only the u.s. germany and japan are negative. they are substantially less negative than they were in july. i would expect in the next year or two, we would continue to see them push higher. we would see rates well over 3% and that will be healthy for all kinds of folks. >> you'll end up with a flat curve. pretty much everyone i speak to

is looking at year-end flat curve. there seems to be a disconnect between the analysts on wall street and equities and what they are hoping for for banks and what those in the bond markets are saying. why? between the three month treasury and the 10 year, 180 basis points. on average for the last 50 years, it has been 150 basis points. the yield curve is steeper than average. the idea that it is flat because it is low is not true. futures market, you can say what does the market believe it will look like and the market believes it will still be at the end of 17 and 18. enough that it will be quite supportive. i will bring up 530's. down to 108.

>> do the one year to the 10 year. jonathan: if you want a. shot of the curve, a rate risk throughout the curve, it is a flat curve. >> again, we can look at different parts of the curve. you end up with above average stock returns. is the long end of the curve suppressed, absolutely. flatter than a year from now? yes. worked has to do a lot of before the short end of the curve. a spear: sticking with professor bob, thank you for joining the program today. tomorrow, the deutsche bank chief international economist

will join us and on friday, pimco global strategic advisor. 10 myths away from the open. you are watching bloomberg. ♪

jonathan: from new york city, financial markets with a key vote. a lot has been made about this vote on the health care -- health care bill. how significant is it actually for the equity market? >> there are a few ways of looking at it. you have to separate it away from everything else. impact of thetual and the u.s.ts,

economy more broadly, much more small than we think. we make this a referendum on donald trump, a rough shot on washington, get everything he wants done right away, all the promises done. is gettingy clear legislation through congress is a rough process and none of this will be as fast. >> to extract rate -- to extrapolate, when we priced in the tax reform and several months after the election results? >> i think the right way to look at this is all of this will go than wend be smaller think. the company's most exposed to these trump policies, the ones that would win if we got a sweeping tax reform, will roughly performing in the broad market.

the market is discounting as much as people make it out to be. globale better economics, higher interest rates, higher inflation interest rates. i don't think the market is so fragile that if you don't get one of these things through, that the market falls apart. >> the call struck me. 75 points of that was on the hope of fiscal stimulus. how much is baked into your 2500? what is the icing on the cake? >> i have nothing this year because i did not expect it would happen this year and if it did, it did not have been retroactively. they are putting way too much emphasis on the legislation and a lot less confidence on the market. look at the jobs data.

we are generating one million more jobs than there are new entrance in the labor market, likely to do the same thing again. investors have really held off putting it in the market as much as we are talking about. >> the market open is four minutes away. u.s. equity markets looking a little soft once again. down on the s&p 500. from new york city, four minutes away, you are watching bloomberg. ♪

city for from new york our viewers worldwide, i'm jonathan ferro. 22 seconds away from the cash open. jones 3.

more int 1% drop and the year. futures a little softer on the market. as you hear the opening bell ring in new york city, switch up the board. cross asset. some of those consensus trades coming into the year, long the dollar, short treasuries, the unwind. 40 is your yield on a u.s. 10-year. the commodity story continues to roll over. by over one full percentage point. the story in d.c. -- senate judiciary hearing committees for neil gorsuch getting underway for a third day with day two of questioning coming up and more. we will continue to monitor those events. that is the story in d.c.

here is the story on wall street. here is alix steel. alix: you have the dow jones off by 0.1%. will we see some follow-through selling? 2300 take a look at banks. banks got hit so hard yesterday. a little bit more follow-through here. the president warned yesterday that the q2 trading revenue would be slightly better than last quarter. goldman sachs off by 1%. american airlines getting hit harder. down by 2.5%. downgraded on cyclical leverage and its mix. overall, morgan stanley taking a hammer to the u.s. airline industry, saying domestic supply is increasing and that will be a headwind for the industry. the real question of the last one he four hours was was the 1%

selloff in unwind of the trump trade? here is a chart that says maybe not so fast. this white line is international stocks versus domestic companies . when the line goes down, the domestic companies are outperforming. , which meansing up international stocks are doing much better. the blue line is a similar story, the buyback index versus the s&p. if you have repatriation money overseas, you might use that money to buyback stocks. now it is rolling over after being up following the election. high tax rate companies versus low tax rate companies, that is the yellow line. severely rolling over from mid february on. the idea that the trump trade was still in the market is a little bit of a misnomer when the top trades have already started to roll over. jon: i want to do bring in jonathan golub.

the cracks were already showing, weren't they? mr. golub: i don't know if they are lined up. after first three weeks the election, there was an assumption that u.s. stocks were going to demolish non-us stocks, that everything that was a beneficiary of tax policy was going to way outperform. that trade rolled over really quickly. way before it looked as if the tax deal might be dead and these other deals might be dead. thatarket is really saying more importantly, we are anchoring on something different, it is better economic news. with trumpnamored and the media. we are forgetting boring economics driving the market. the domestic story is still solid year. why have small caps still underperformed? mr. golub: i think they will outperform the rest of the year. i think you are going to see

value which led right out of the gate, which was a big winner right away. date, fors year to the rest of the year, i think you will see that value is going to win, that small caps are going to win. that those companies levered to economic health are going to do well. emerging markets have done well year to date. international. why? those companies are more economically sensitive than u.s. companies because they have less intellectual property, lest brand -- less brand, they are more commoditized overseas. alix: what about europe? on that argument, the european cyclicals should provide much more than the u.s. mr. golub: they do and they have outperformed and they should continue to outperform. you have more backs, more industrial companies, less intellectual property, and all of that actually allows them to

do better in an economy. jon: you've got to get back to the office, but 24 hours away itm the health care vote, if fails, what will you be looking to pick up in the aftermath? mr. golub: the market is going to be most acute in financials. you saw that yesterday. that is where i would be focused. jon: thank you very much. this session looks at little something like this. softer by about 0.1%. not even a single point on the s&p 500. nike is the biggest lag or in the dow today, responsible for more than half of the losses in the index so far and headed for its biggest decline in five years. it is losing market share to adidas and under armour. sam, great to have you on the program. talk to me about why nike is still a by.

sam: i think a lot of the headlines are misleading. matter the fact of the is, everyone was worried about the domestic business, which ended up being up more than people anticipated it would be and with gross margins improving and so on. there is a big difference between losing share and not running -- not driving sales increases. i would argue that this quarter likely is a sign of the worst is behind the company. i think a lot of people are looking backward. i think they have a very strong product. strong innovation cycle coming up ahead of them with the air vapor max launching this weekend. they are taking over the nba sponsorship later this year. inventories are getting cleaned up. the retail environment is definitely tough out there and i think nike, where they missed it was probably about two years ago

, but a genius was making a big move and they did not act as quickly as they should have, however they are well aware of that now and making appropriate moves. jon: these midterm concerns of gross margin pressure, talk to me about the levers that nike can pull to deliver upside in the coming quarters? you've got to put this all in perspective. a lot of the headwinds are fx related. that pressure is going to remain. that does not affect the domestic business and the gross margins went from bad to less bad there. but we expect that to get much better with a lot of these issues they have going forward. two, under armour does about $4 billion, maybe a little bit more right now. nike's demand creation expense is over $3.5 billion.

then if you take the other expenses, that puts their number way up there. they could cut $500 million if they so desired and honestly, the outside world would never notice. given the efficiencies they are going through, i think it is better for investors to look at how well they are running the overall business and look at the situation until the fx pressure goes away. we think they are managing what they have exceptionally well, they are getting the growth, and they have new stuff out there coming from a product perspective, from a speed to market perspective, from a consumer engagement perspective. a portfolio perspective, why would i want to buy nike when i could buy do this? -- adidas? sam: because nike is never satisfied. if you listen to them on the earnings call they said, we are

pleased we got through a tough , but wen pretty well are not satisfied with where we are, where we need to be. is doing a great job. i don't want to take it away from them. however, if you look at the market share situation, even if nike loses a little bit of market share to adidas, it does not mean they will not be driving very good increases. so, i don't cover a deed us, so i can't really speak to them. jon: who has the most upside potential? when i ran my program in london, when you look at the upside for a potential company and you want to take nike or ids -- adidas, the likes of adidas has more upside potential than nike. when set against the other, is that important? sam: it may be, but i think

again when you look at nike and you look at basketball, running, the sportswear products across the board, what they are doing in soccer and other sports, what they are about to do in the nba, they have a huge breath of things that are working. with adidas, it is all being driven out of their originals, be at the superstars, stan smith , boost technology, there is not the breadth of strength. nike has the new stuff and they continue to do very well with updates of things that have been within their lines forever and it crosses into the lifestyle sportswear fashion, as well as into performance. adidas is probably a little more one-dimensional. they are doing great, but a

little more one-dimensional than nike. jon: great to have you with us on the program. 10 minutes into the session, nike down 5.5%. the market looks a little bit like this. 11 minutes into the session and some change. futures a little bit softer. the dow down 0.2%. the s&p 500 off by 0.1%. performer to the top this year, apple. a slew of new products hitting the stands. is it enough to keep shares moving higher? you are watching bloomberg. ♪

emma: this is bloomberg daybreak.

coming up on "bloomberg markets," tim groth. alix: apple in focus after releasing new products on tuesday. among the biggest lacquers, but to be fair, it hit a record high on monday. the stock inching its way higher. analyst has an outperform recommendation and joins us live. we are going to get that, but it is a failing industry, a shrinking industry, why was that a positive move? >> on the ipad side, it is fairly to minimus in revenue -- us in revenue. maybe the price curve will re-stabilize.

the continued growth rate in the high cycle. but still means that apple is completely dependent on an iphone replacement cycle. kulbinder: at the moment, that is correct. with apple, you have to look at them over the next 2-3 years. they have the major iphone upgrade. the other thing that is being slightly priced in now, the service business is 20% of gross profits and it is compounding growth. when this years out new product cycle everyone is excited about starts to wear thin, you would almost of one third of gross profits that come from the services business. services is a higher-quality business, higher-margin, more recurrent. in dynamic toge

make it less dependent on the iphone. alix: apple is the top performer in the dow and s&p today. what is apple currently being rated as? when does it get re-rated as a service company? kulbinder: is priced as a legacy i.t. hardware company in my view because every mobile phone company in the last 20 years has gone wrong. it is always dangerous to say this is different, but what is different is apple retains 90%-90 5% of their users. when they get an iphone user, they stay with them. you get entrenched into the services. it may take two or three years from now, but if one third of gross profits is coming from services, fundamentally, investors see that in less volatility quarter to quarter and more recurrent revenue stream. when we look at what the company has come a $13 and earnings power and they are training just trading at that number, the way

it gets three rated when the market starts paying more attention to service. manyquarter, they had so negative gross margins and they still produced a gross margin going forward and that is because services is offsetting the pressure of the businesses. this re-rating will take time, that the hard to argue stock is being valued as a services business. alix: estimated pe is 15. what is the appropriate pe for the company? kulbinder: we look out three years. earliest goal is eight dollars and change to $13. we talk about repatriation. that is about $15. i think it is a fair pull to looking for yourself to get there. fully taxing the cash. it may be tax-free repatriation.

that is a reasonably conservative estimate. we can make it worth up to 160 as a result of that. alix: when the news comes out that they should be doing more innovation, that is not the right conversation? kulbinder: i think some of that will be don't with with the new iphone cycle. yes, one of the things is as the business transitions more to services, it becomes a different business. my argument would be what we think we know about the new iphones coming out in september, there are going to be three iphones, three devices, one of charging have wireless , no home button, laser autofocus, that is a reasonably meaningful upgrade to their product portfolio. that is innovation. great stuff, great to get your opinion. is a topapple performer on the dow and s&p.

jon: coming up, bloomberg with vonnie quinn and mark barton. mark: correction. what we will be asking our guests today. head of short-term investment opportunities in ubs. we also have oppenheimer's chief market strategist. then we are going to rounded up with the pimco cio. pimco boosting its global growth madeok, highlighting gains in europe. has the trump trade hit a brick wall? jon: looking forward to the program about 19 minutes into the session no real drama. alix steel, a move over 0.1% on the s&p 500. the dow pretty much dead flat. alix: check out tv if you have a bloomberg terminal. send us messages during the show of questions we can ask.

we would love to hear from you. ♪

from new york city, this is bloomberg. i'm jonathan ferro. the session looks like this. the drama that was yesterday. the s&p 500 closing with its biggest one-day drop in 2017. this morning, a drop on the margin, but not much really. elsewhere, if you switch up the board quickly, a cross asset check. treasury is where the action is. yields lower by 3 basis points. 2.39 is the yield today.

last week, north of 2.62. yields are rolling over. the dollar is a little bit stronger today. this morning, the euro comes down 0.1%. by aable rate prices third. the vote on the health care bill tomorrow. if you truly believe there was a significant amount of optimism, that tomorrow matters. if you think we have this eagerness global goals -- growth story, it kind of does not matter. a hard time understanding how the reflation global growth story is going to continue with the 10-year trading under two point 40%. -- 2.40%. a week from now, are we going to hear people say there is weakness in the global economy? in, we have a lot going on d.c. and the u.s., but it is also european politics front and

center. what it means for the ecb. >> our most recent view has been that there is a benign political scenario for europe in terms of the elections this year. i think either a fillon or macron outcome would be market friendly. alix: sure, but does it also mean growth? are we going to see gdp explode? we going to see more reflation? of political bit risk premium built into the market, you get relief. to your point, are you going to see a fundamental pickup in growth in france if you get the as you were candidate macron come in? i think the consensus is no, but that the broader region is improving anyway. maybe you even get the ecb that can remove some of that accommodation and the financials get a higher rate, as well. alix: i have to wonder if the

ecb is really going to set the tone for next year. ,he market reacted so slowly there was a big market fallout that the fed cannot compete with. , wherever weo date seen the biggest repricing in the bond market? it has been boones -- bunds. we caught up with the bank of cyprus ceo. we asked him about the upcoming brexit negotiations which begin officially a week from today. prevail because it has to. logic says that britain and europe have to work together. the city of london is a major place where capital requirement me capital provision. that will continue post-brexit. we have to make sure that europe is advantage from that position. officially, they can begin a week from today. europe is already pushing back the first brexit summit by a month. logic would dictate we

get a sensible outcome. not dictated the outcomes in europe as far as the political sphere is concerned in the last six or seven years. alix: cable 124? i don't understand. you are totally right. we are still doing it. the short several that. i can't imagine political risk is still effective. jon: an overshoot, the big move over the last week. we have ourselves a bit of a market. we have price action. 26 minutes into the session, this is what it looks like so far. a five-day good the skid, the longest since november. from new york him are watching bloomberg. ♪

vonnie: it is 10:00 a.m. in new in hong kong.m. i'm vonnie quinn. mark: i'm mark barton to "bloomberg markets."

♪ vonnie: we are going to take you from new york to london in this hour and cover stories out of australia and ireland area we will get to those in a moment. we have breaking economic data. existing home sales. here is abigail doolittle. abigail: for existing home sales, we are looking at 5.5 million. that was the survey. the actual number came in at 5.4 8 million. it turned out to be a 2.7%. this is not entirely surprising to the bloomberg intelligence team. they thought there was some downside risk based on housing scarcity, plus we have had rates rising. this number coming in a little lighter than what the survey had been calling for. not entirely surprised. it does not