with auto sales, not enough to shake the optimistic growth. for the riskwait to fade. french presidential candidates take aim at macron in the debates and shaking off political uncertainty. political uncertainty hangs by a thread. the threat remains strong. good morning. a warm welcome to "bloomberg daybreak." up. is how we are set futures here are down five points on the s&p 500. the euro is weaker. but a big target is coming up .rom geoffrey yu alix: he also wants to buy sterling. i have your check for you. you are having a safety bid against the german bund curve. down by three basis points. the 200 dayund

moving average but oil is not getting sucked into the nervousness. : last month, trump said he would tell automakers he will return the u.s. to the car capital of the world but last month we got sales numbers that point to the other direction. with us now is matt miller from berlin and from d.c., kevin cirilli. to starter, i want with you on the cars. how bad are these numbers? matt: they were bad, for sure, especially compared to the expectation. we were looking for 17.2 million and really got 16.1 million. so that -- i'm sorry, 16.6 million. it is about the vix. if you look at this chart have this you can see that isn't something new. tracks have been trending up. meani say a truck, i even

the big station wagons. the blue line are the cars and sedans. this is a 17 year chart. this is one of the big problems here is that automakers are not adapting quickly enough to this new mix. the other thing i want to point out quickly is that the yellow line here is student debt. the blue line is car debt and the white line is credit card debt. it is turning up and that is a big problem. david: it is a big problem with sub prime auto loans which are getting in trouble. but the significance of that is how much profitability there is. it wasn'tle sales, profitability, and they make more money on the suvs and the trucks, right? matt: absolutely. they make a lot more money on the suvs and trucks. now they have to offer more incentives to get the inventory off the line. another chart here.

the big spike is 2009 when they had a real problem. they are getting back up to eate levels so they have to into the profitability. david: great to have you. heaven, i want to turn to you. what can the president do about this, if anything? we have talked about things like tax reform. he has problems on capitol hill. kevin: i am told on thursday and friday, the auto industry issue and tariffs will be one of the key points of discussion when trump heads down tomorrow lago to meet with the chinese president. and in fact, this administration feels that they might have leverage with china automakers as a look to extend into the united states. here at home, the president is also facing several key issues.

regarding his legislative agenda. trump will meet with the secretary this afternoon at the white house on a host of issues including, as you mentioned, the supreme court pick, judge neil gorsuch. david: thank you very much to kevin cirilli and matt miller. jonathan: joining us now is in geoffrey yu. great to have us -- great to have you on the program. spark athat this could big bid for treasuries. what is the signal? geoffrey yu: it is an ongoing concern. the reflation on trade, is it working? and secondly, it is the realization that it will be hard to get things up.

there is greater risk of ahead. there are lots of reasons but ultimately, don't be too defensive. jonathan: but don't discount the u.s. yet. how are we set up yet? is the start of the year coming off? geoffrey: i think this is pretty blurred. i think you could lump these categories into a safe haven. because if you look at the positioning elsewhere, when there are overweight global equities, their conversation saying you need to invest right -- holding u.s. assets.

that tells us a lot about positioning. u.s. centric, dollar centric. alex code a deeper into that call. in in safety bid utilities or is it in financials and energy? bidfrey: i think the safety is the other way, going into energy in particular right now -- that is a sector that we would save her. financials, effects of that should be more contingent on how reform will happen. but that will happen. we just need a bit more patience. but patients doesn't quite running for the hills, either. alix: how do quite for that with the s&p energy stocks? to the dollar? is the dollar different when you look at it? geoffrey: i think the dollar is different from you look at things. if you want the u.s. reflation

trade, you don't want to be overweight with the dollar. u.s. companies taking the cheap recycling it and investing overseas to try to diversify somewhat. -- it is anthing excessively strong dollar. david: if we look at the trade and whether the u.s. will momentum, one question is, the leverage on the balance sheet as a consumer, i do want to put back of this chart which shows this growing substantially, particularly with student loans and auto loans, how big of a risk is that in terms of forward momentum? geoffrey: i'm glad you brought up this chart. on and ask what basis, it looks like it is rising but you have to look at it on a relative basis. and a few countries were really deleverage on the private sector. during the financial crisis. .t is the u.s. and the u.k.

so you can afford to leverage in the u.s. but the question is the distribution. households can afford to leverage with auto loans and the if it goes to the less prime side then we have an issue. and in scandinavian countries, there is -- rising and the government can't do anything about it. hand, studentone loans and auto loans -- just yesterday we had said president dudley saying that student loans are really a drag on the economy and are really keeping down -- because they are not as productive as the auto loans? geoffrey: that is correct. there are not as productive in two ways. students, especially after they graduate, are they going to limit their choices in the labor market?

i went to college in the u.s. myself, and if you exit college with substantial amounts of debt, it in habits your future leverage ratios and your ability to invest and spend, of ahead. i think he is very right to talk about that. but this might materialize more in the longer term. a sign ofu.s. sees short-term demand. jonathan: we are talking about the hard data and soft data story. but the levels with the gdp, at a four handle. and then, what you just discussed with david. what does it lead to? more of the same? geoffrey: we always have to bear it is not a one to one gdp number. we have tonk acknowledge that. and i think the fed acknowledges it too.

ended us at five. i think that is the realization but at the same time, it doesn't mean we have to head for the hills, either. , the new circumstances u.s. economy still has the capacity to support and hope right now is that reflation and demand in the u.s. -- if that can lift demand globally, that will translate into stronger spending power and investment demand, it will feed back into the u.s. alix: the hope. we get the jobs data on friday. where is the asymmetric risk? geoffrey: i still think it is what we would call a bad recovery and still we get the robust job numbers but the wage growth numbers -- that is really starting to come off. it gives the u.s. household story. wage growth in real terms, really certain to come off, they will have to reassess. the fed is still quite confident

about the labor market. jonathan: geoffrey yu is staying with us. coming up, alan ruskin will be joining us. he says, do not change the market. geoffrey yu says euro-dollar is going in the opposite direction. 1.20 in the next 12 months. the dow this morning -- futures are softer with weak auto sales and induced nervousness that have affected the risk buying. the dow futures are softer. s&p futures are down by .2%. this is bloomberg. ♪

emma: this is bloomberg daybreak. boeing has agreed to sell 30 of iran airlines.to

airlines generally get a discount on big orders. in december, iran and boeing agreed to a deal. the world's largest luxury carmaker and the biggest auto component producer want to put driverless taxis on the street in the next decade. mercedes-benz has teamed up for the project. they will compete with self driving car programs at bmw, google and alphabet. buckshot the way has eliminated jobs at the newspaper groups. more than a third of the jobs are the positions that are suffering from the same industry. that is your bloomberg business flash. i am emma chandra. france's 11 presidential candidates prepare for a new tv debate.

macron and marine le pen -- the first round of elections. be 10 versus one later today? be 4ll, it will certainly -1. those are the top candidates and they will be gunning for macron. the other six, it is just a question to be noted. many of them are way down in the polls. so six will be trying to get noted. at the top of the ticket. macron has to decide, does he just play out the clock or does he fight back and go for the kill? all eyes will be on macron. jonathan: the others have to make the big impression later today. how important is the debate today? greg: it is their last chance, in some cases. a few months back, francois fillon was the frontrunner to be

the favorite. jobs --the local legal the socialist candidate was running high in the polls. he has completely faded. a very pale performance in the first debate. fillon, theyois holland have to pull out the big performance tonight. jonathan: if macron came out of the debate unscathed, if it was seen as a win for a lot of people -- or marine le pen, what does a win look like? doesn't have to worry. she has 25% of the polls and that is not going to change. she has her supporters. her supporters are the most committed out there. frenchother hand, most people reject her. so she has very little upside and very little downside. she way, she just has to --

will probably try to soften her image a little bit. picking up some of the undecided voters. but there are not as many of those as you might imagine. so i don't think the focus is on her. it is much more a question for macron. , wethan: greg viscusi appreciate your time. alix: we talked to analysts who say you will want to buy if marine le pen doesn't win at certain areas continue to price the political risk. the english law protects against redenomination risks and it has been moving higher. still with us is geoffrey yu. where are we in pricing in the political risk? geoffrey: it depends on what asset classes you are looking at. if you are looking on the analysis has a 40%

chance that marine le pen will win but i think the market is there yet. it is all relative. where our markets pricing versus where we could be -- it will only take one or two polls, heading into the second round, which is expected to show things around. nonetheless, there will be the opportunity in europe for the euro. alix: you mentioned one point 20. is that based on marine le pen not winning? geoffrey: it is mostly the european reflation call. the strong valuation argument. if you don't worry about eurozone integrity on the valuation side, the euro is up to value. it is headed in the right direction. and then i go back to what i said about too much money being in the u.s. there is very little positioning relative to benchmark -- that flow, heading into the euro, that could be very powerful. that is what we are targeting as well. jonathan: if you are targeting

1.20 in the current spread for two years, what does that imply? that the spread will be in 12 months? geoffrey: so we are not putting a number on it. but that spread in flies that the market will be underpricing the upside potential in european yields, which translates into expectations for european policies, ecb policies, over the next 12 months. on the flipside, there is the dollar as well. we see the dollar as being a bit too strong. the march decision has promised a bit of a shakeup. there are some technicals that could drive europe. what about the fundamentals? typically you talk about gross, real growth. the combination of democrats and republicans but i don't see the change in either of those. are they driving growth? geoffrey: trend growth is a separate issue. and i think that is probably the

outlook for a lot of the places around the world, getting it more challenging. on the secular level right now, the eurozone is more trading oriented but that will hinge on how emerging markets are doing. there will be going to be global reflation with a cyclical uplift and the euro is in a better position to benefit. should euro currency start to price this value. start hiking rates in the future, but it will depend on the price outlook. again, we think the market is underappreciated with what could happen in europe right now. jonathan: all of the analysts are lining up to say by europe, by europe, by europe but the money isn't going there yet. is getting over this french election hurdle, if we do that and end up with a candidate macron, is that enough for the money to follow the analysts call? geoffrey: i think some will have

to set in. on earnings growth in the eurozone. we are really starting to surprise the upside to the revision. that performance could be too strong to ignore. and with the german elections, italy could be back on the radar at some point. if they choose not to invest, they will always be able to be found. one risk is that the mentality is going to be around some time. alix: i want to talk about the sterling. geoffrey: a similar argument based on the fact that sterling is very cheap and also, the euro-dollar will help performers. we do want to appreciate a bit more into the longer term over where the differentials will be. not absolute growth. but we do see that you can growth could start to surprise to the upside.

trend could be helping the dollar. corporate earning a repatriation of earnings and that is happening in the u.k. as well. david: geoffrey yu will be staying with us. coming up, the u.s. air force responsible for moving our troops around the world wherever they are needed -- general carlton everhart is here to discuss the presidents additional request for spending. this is bloomberg. ♪

jonathan: new york city, this is "bloomberg daybreak." let's get you up to speed on the markets. you have weak auto sales that induces a bit of nervousness as far as the long position is concerned. two days of losses coming in and we are down by 51 points on the

dow. negative seven points on the s&p 500. two hours away from the cash open. if we switch up the board, there is a nice dollar did against pretty much everything in the g10 space apart from the yen. the euro is backing off by .2%. geoffrey yu said earlier that 1.20 is on the cards. we are just grinding down towards the low end of the range through 2017. it is risk off everything in the last 24 hours. alix: here is the why. weaker auto sales in march in the u.s.. march was supposed to be better because january and february was soft. daimler is off by almost 2% and bmw and vw. fiat is muted but that stock fell 5% in the u.s. session. and we are also seeing a ripple

effect through the japanese automakers as well. nissan off by 3%. we have the yen rising for a third day that is hurting autos and banks in japan. and wrapping up with kind of a car story. by 3% with cuts underway. they are talking about the need to transition to diversify away from videogame so we are watching that stock as we head into the open. jonathan: coming up, carlton everhart joins us on president trump's budget. up next, we talk about emerging markets and how the yield shakes off political risk in south africa. this is bloomberg. ♪

jonathan: from new york city to our viewers, worldwide, this is "bloomberg daybreak." futures are soft. losses on the s&p

500. weaker there. down one third of 1%. we switch up the board. the dollar is stronger. treasuries had a big big yesterday. we are at the bottom end of the range so far. reversible -- what a reversal. we talk about that in a moment. let's take you up to speed on the headlight outside the business world. good morning. in st. petersburg, a radical islamist is suspected in the subway bombing that killed 14 people according to the government. a say the suspect was born there but became a russian citizen. was aals believe it suicide attack. in the u.s., senate democrats appear to have enough votes to block neil gorsuch's nomination. that may force republicans to use the nuclear option. votes touire 60

confirm a supreme court nomination. republicans could make the controversial move to require only a simple majority. trump is beginning to deliver on a promise on the crackdown of the visa program that benefits silicon valley. it will make it harder for companies to bring overseas tech workers to the u.s. and the warned department employers not to discriminate against american workers. global news, 24 hours a day. powered by our more than 2600 journalists and analysts, in more than 120 countries. i am emma chandra. this is bloomberg. downgrading the south african investment grade rating for the first time in years. -- hanging by a thread. that is what the investment grade rating is. what is the response from the government so far? minister saidance

that s&p communicated their thursdayto downgrade and he only found out about that on friday, a few hours after he financeinted on minister. he also says his department will continue to engage with rating agencies. however, it is critical to note that s&p has cut the rating but kept the local currency rating at the investment rate which is significant because south african has it nominated in rand terms. so it is not a catastrophe but it is sending a strong signal about the fiscal validation to reduce the deficit. and also to political leaders to eradicate some of the political turmoil that we have seen. this ideai love that that this was made after the

political association was made. president?t for the if the pressure building for him to make a move? pressure is certainly building. we know that one of the country's biggest labor toerations came out today say that it is time for him to go. they're asking him to resign. they are also meeting with some of the members to discuss all of -- it seems like the pressure for him to resign is mounting. jonathan: thank you. we want to bring in geoffrey yu. would love it at nine and that was the story this morning. five times the bid of the target. it is a resilience story. it is a resilience

story. we're talking about cash ratios around the world. this has moved quite some ways in some favor. jonathan: stockton out this morning saying you want to buy this. is this a story? do we equate this with the dollar weakness story going forward? do you want to go in there and hedge and by the local currency? on an evaluation basis, that is an interesting proposition. the currency tide of things is part of the allocation. view on the currency underscores that. in south africa specific case, it does depend on reflation, globally. you know, how the chinese demand

and the falling commodities, how that plays as well. right now, i think it is more favorable. alix:'s this is south africa's 10 year yield. 2.3%. not where we saw at the end of 2015. what point are you adequately compensated for the risk? are we there? that is what you will end up returning at the end of the day. geoffrey: when it comes to political risk rather than -- if 90% of your debt is local currency denominated then it actually buys you a lot of time. they're focused on holding down the inflation. you don't have to worry much about the global policy differentials whereas turkey, they are forms currency .enominated they have the reserve currency ratios.

i think south africa is in a better place right now. e.m., looking broadly at how much his push and how much is pulled? how much of this is growing confidence in a global reflation trade. is it really sort of a carry trade? isffrey: in this case, e.m. the global growth story and the inflation story that has come into play. the two match up quite well. there have been upgrades in global growth expectations. asian growth is excited to outperform, once again. is, right now, the fact that they are trying to contain it shows you the demand that is still there. so now we have this opportunity, a window of opportunity to reform, i hope emerging markets take the opportunity. is the sensitivity

now? what could turn this around? what should an investor be concerned about? geoffrey: three things. one, if we get a genuine high-level u.s. reflation story, the dollar being 10%-15% higher is justified and we get an unwinding of the e.m. financial trade, that is something to be concerned about because then, the fed will say they will think about more and that will be the biggest risk. was in 2015 and 2016. and domestic conditions if china has a credit shakeup. that could give us more issues globally. the outperformance in e.m. in the first quarter was stunning. twice the return. in 2013, when you had been

the rebound was clear. treasury yields bursting and e.m. had the floor ripped from it and rolled over. talking about normalization of the moment, is this a bullish call for next year? geoffrey: the balance sheet normalization is a bit different. it isn't a price transition. so i think e.m. is in a better abouton in the interim normalization, especially the combination of reducing the size , thate u.s. growing starts to soften as well. so i think that is less to worry compared to a much more aggressive fed trajectory. i think what will devastate the fit -- devastate the e.m. is if the fed hikes and -- with the balance sheet. that double where me would be really problematic for e.m. if

they don't have a better growth model. alix: we have transition growth models for the e.m. but what about the ecb and boj? if you have 30 year going at 1% and the ecb coming off a negative deposit rate, is very trickle-down to emerging markets there? geoffrey: i'm worried more about japan's transition across asia. because that has been holding down japan with the domestic yields. and that goes into emerging markets. but if japan has no longer contingent liability but if that were actually to start to dry up, i think it would affect a lot of asian countries. especially south east asian countries. less of an impact on the flow angle. could see a positive case as well. in both japan and europe. reflation in these countries,

the growth story in these countries, driving the e.m. as well. that could help e.m. as well. we have to see what happens and what is the trigger. david: in geoffrey yu, thank you so much for being with us. markg up, i speak to royce. we call him the car guy. they are unveiling a new version of the buick l'oreal. can a turnaround the dramatic shift from sedans to truck and suvs? this is bloomberg. ♪

emma: this is "bloomberg daybreak." i'm in the hewlett-packard enterprise greenroom. coming up, and interview with general carlton everhart. ♪

david: this is bloomberg. since trump took office, he is continued that the myth his andaign to promote jobs advising committee not to ship jobs overseas. but there are issues in the united states. how do the policies affect them? joining us now is barry eccleston. run others like him who -- willcompanies with be presenting their case today. he joins us now from the d.c. bureau. welcome to the program. let me start with the basic question. what is the investment in airbus? how may people do employ in this country? barry: we have full-time employees in the usa. investing in the facilities for many years. we have a helicopter factory.

we a couple of weeks ago recently announced we are investing in a factory in florida. david: as you meet with steve latern and his colleagues today, what will you be telling them? barry: basically, we will be asking them to consider the foreign direct investment and the benefits of it as they develop the agenda and economy of the usa. direct investment right now accounts for 4 million u.s. jobs. two .5 million are in manufacturing. those jobs provide salaries that are 30% higher than the average u.s. salary. those jobs provide exports for the usa, it 24% of all of the experts come from businesses in the u.s. and 70% of private research and development in the usa comes from those foreign countries. so foreign direct investment is a significant part of the u.s. economy today and we hope it

will remain so, as we go forward. presidenthink the would say, that is very nice. we like the jobs. but we can do better. what can we do in the united states, what policies could be furtherthat would allow investment in the united states and not take as much business offshore? the first day we need is some kind of certainty. business is not good with uncertainty. certainty with the trade agenda, tax agenda. we like the idea of tax reform, naturally. we like the idea of regulatory reform. that there are some parts of that that we do not consider to be tax friendly. the border, adjustability tax which has come out in the house blueprint. that would not necessarily be good for investment. and the certainty that we look for in that investment. the committee for investment in the usa, their

images being broadened which ordinarily would be a good thing but it might detract from the real purpose which is to look for the less attractive deals to make sure that the defense business is protected and at the same time, there are a lot of other investments that are open to a high degree of scrutiny. so tax agenda, trade agenda. we would like to see more trade agreements. we like to see more tax agreements. all of this leads to certainty and a positive approach. jonathan: talk to me how complex the supply chain is at moment? sometimes, the wings could come from one country and the engine could come from another place. when you put a helicopter together in the united states, where did the components come from and how complicated this like become if they do something like a border adjustment tax or taking measures elsewhere? no more global industry than the aerospace industry. our supply chain is completely global and it has been for many

years. the airline customers, their job is to fly people on a global basis and passengers promote global trade and, of course, international business. globale is no more industry. we are totally intertwined. 40% of all of our airplanes come from the usa. aerospacethe u.s. industry largest export customer. if we look at the competitors that boeing, 40% of towing airplanes come from global suppliers, from japan, italy and from the u.k. so the global aerospace industry is very intertwined and it is going to be very difficult to unwind that. jonathan: do you see more pressure coming from this administration? barry: we are not sure yet. pressure. seen the we assume we will be seeing that pressure but we have not seen it yet. it appears that the administration does understand the global nature not just of aerospace but of many businesses

and will have many businesses representatives from business and finance today as we meet with secretary steve mnuchin. jonathan: if the pressure does come, what will you do on the margin side? will you suck it up and take a smaller margin? will you do something on cost? barry: we are not ready to take a smaller margin. we are always addressing our cost. we are always looking to be more cost competitive. do be willing to soar some components in the u.s. for exchange of no back tax? already have 40%. alix: but would you be willing to do more? if you said in exchange, we would source a, b, c from the u.s. -- is that a possibility? barry: only go to our supply chain, we look for the best deal, the best quality and the best price with on-time delivery. so we are not prepared to trade

that for the border adjustability tax. in addition to, maybe not getting the 20%? if you are the 20%, margins do wind up getting hit. we have those discussions yet to have and i will not predict how it will turn out. do you have a problem when you go to capitol hill because you do represent an overseas company? it is one thing for retailers, u.s. retailers, to go out there. but how can you influence that decision without a backfiring on you? reason we very started off at. we make a huge foreign investment. not just myself but other countries represented here today. we represent $3 trillion worth of foreign direct investment in the u.s. we represent 24% of all of the jobs in the usa through the supply chain. and so the huge economic influence with foreign companies exert mean that we do go up on

capitol hill and we get a very response. alix: but about the corporate tax rate here? the border tax adjustment, there are some estimates it could be 25% or 28%. what has that difference for you? barry: this is an area that we have explored. what else could be in there to help reduce the corporate tax rate? we would like it to be as low as possible. 20% is a low number. we are prepared to see it a little bit higher if we could afford the -- if we could avoid the border adjustability tax. david: there was a lot of concern when the president was elected about the possibility of trade sanctions, the trade war -- the possibility of this really hurting their business. every more concerned about this today? we are less concerned.

we had anticipated there would companieswords about and trade wars with aerospace but none of that has transpired so we are feeling a little bit more comfortable. of course, we are always looking for the potential signs there. just as we look for potential opportunities. but right now, we think they are based much more reasonably. us,: think you for joining barry eccleston. on the online, click charts and graphics. interact with us. this is bloomberg. ♪

david: this is bloomberg. last night, north carolina beat gonzaga for the championship and that can mean only one thing. we know who won be bloomberg brackets for a cause. here to announce that is jason kelly.

jason: it is a tie. no.: jason: the ceo of landry's and bill ford -- they tied. points.h had 145 they both had north carolina winning. so we talked to them yesterday and what they have agreed to do is, instead of going to the tie-breaker, they are pulling the first place and second-place money and splitting it among their charities. so 161,000 dollars to each of their charities. --lman was playing for the foundation in houston and bill ford was playing for the shining hope foundation. david: as we look at the longer list, there is a story of local interest. our chairman. alumnus so he was rooting extra hard. $57,000 is going to the college of devising core, a group that

advises students and get them into college. david: who is that guy at number eight? jason: he did ok this year. we had some big names. came in forest, just out of the money. i can tell you, having been part of a lot of the email chains going back-and-forth, these guys are great. david: how much total? $380,000 to charity. we said we would help them split the money up among the three winning charities. david: a great project. our executive producer was not part of this for the money. and rachel came in number four? alix: i thought it was number three? david: three?

i'm sorry, three. alix: and there were a lot of big upsets. jason: a lot. people were watching this game last night. this is something that drove people's interests in part because gonzaga had been a team that had been threatening to get to the final stages of the tournament for a long time but unc, a big win for them after the heartbreaking loss last year. jonathan: i have no idea what just happened on the show. [laughter] jonathan: something i want to get to. credibility in south africa is set to depart -- that is according to those familiar. more news in south africa is coming up. you are watching bloomberg. ♪

>> weak u.s. auto sales are

enough to shake forecaster growth in united states. the money waits for the election risk to fade. offreach for yield shakes political uncertainty. the man for debt remains strong and resilient. good morning. we get you set up, this is the score. as follows. futures are softer this morning. the euro is weaker. the treasury, unchanged. that is the bottom end of the range we have tested. alix: dollar-yen moving lower, down 5/10 of 1%. 10-year bund yield is down four basis points. gold, right above it.

watch that for safety play. oil not participating in risk off feel. let's get an update on what is making headlines. emma: the trump administration -- to signo persuade onto to a new version of the health care bill. one member of congress says it sick people to be charged higher rates. the extreme vetting may apply to travelers from a 38 countries that take part in the visa waiver program. in st. petersburg, a radical islamist is suspected in the subway bombing that killed 14 people.

investigators believe it was a suicide attack. global news, 24 hours a day. this is bloomberg. alix: car sales helped the market yesterday. take a look at bloomberg. this is u.s. auto sales. they seem to track each other relatively well. you see u.s. auto sales rollover. york, the in new chief economist. our auto sales going to affect the market? sales are rolling over a little bit. we had a strong year last year. the sector is kind of plateauing.

alix: how many shorts are really left? >> not as many as there were a few weeks back. more short covering, my feeling is the 10 is going to be solid. suppressed in the context of the economy, where we are going, where fed policy is going. does not seem to speak to continuation of the rally going beyond. >> you get weak auto sales numbers and it rolls over. seeing, the world over, in foreign exchange, this

positioning is so suppressed. triggered when you get positioning squeezes in the 10 year sector. this has been a rush for home. you come into 2017, everyone is super long on the dollar. you don't want to chase this market. not much conviction in the way i may have thought it would have in with you three or four months ago. >> things have changed. the border tax, which will be very positive for the dollar. slowly getting some sort of fiscal stimulus, some sort of

tax cut. we have trimmed down our expectations. we have not trimmed down much in the way of said policy. there is a disappointment factor here. the dollar has not performed as strongly as one might have expected. alix: you have been hawkish. it was hard to find true negative in the report. market getting tired of the reflation theme? much fear with , the dollartening was going to rip higher and it has not happened. that has been one of the big surprises so far. says -- david: are there

other indications that make you wonder the leverage in the consumer household, student loans, it is ramping up substantially. should we start to get nervous? the consumer is in good shape. you look at the gdp forecast, it is the consumer dragging down the gdp in the first quarter. this happens every year. you start to get that soft estimate and people start to question the recovery. david: what are you projecting? >> at least 2.5%. may be better than what we saw in the last couple of years. after a soft q1, we will see a

solid q2. jon: why will the fed reconcile lower towards the market? the experience of yesterday and right?n the market being is the market going to play catch-up in a way it has not? to look at what is focused on. markets are changing their view. you look at the relationship that seems to be working in the currency market. in the 10 spread, euros have been important. alternatively, with the the -- versus is the 30 year yield in the u.s.. those relationships are holding up well. it is predicting those relationships that is hard.

if the 10-year find some sort of flaw at 225, and we have a lot of things to come here. pressures, an unusual set of circumstances. the price index was going up. commodity prices are quite subdued. commodities suggest this is more than a commodities story. the back end of the curve is not safe. when you think of the external factors, the japan story, the a --there is plenty to put in the bond yield and give the dollar a bit of a kick. it is not what we thought it was. alix: if you strip out the

headline noise and you take into account what the set is saying, what should dollar-yen be? is a case of how the markets respond in terms of the bond market. the market is not just focused on short-term rates. you need some acceleration beyond what the market is pricing. that is the bare-bones, the minimum to expect. people are saying look, if it is all about the fed, let me trade fed fund futures. on november 1, this is what you ask people. when did the market expect the funds rate to be?

the market believed the current funds rate would only be reached by december 2018. there is a story there. >> i have asked that question to numerous people. quicklyto show how expectations can shift and we can rethink things. >> the market has gone from hike to 2.5.a rate there has been a big adjustment. there will have to be more. the 10 year yield has not moved much. it was at the end of year, it has not moved. we alluded to policy things going on. the japanese are targeting long and yields and it is tough for

whenuries to rip higher these other central banks are going the other way. david: coming up, carlton would be responsible for spending the extra money president trump is asking for the defense budget. could the fight and congress bring the government to a halt? this is bloomberg. ♪

another twist and turn to a developing story and south africa. the director general has been asked to leave his post a year

before his contract runs out. now, our reporter. let's get the latest. >> according to people close to the source, the head of the treasury could be resigning at the end of april. is bringing major concerns about a possible exit this by officials in key government structures. jon: the issue with the credit rating agency is policy continuity. how much of a concern isn't a going to be for them? >> a major concern for them. they have spoken to good governance. especially the treasury.

they have spoken about political turmoil. it is possible his resignation was brought about by political interference. they were to meet with investors and other agencies. reasonsot sure the behind his resignation. it is a major concern for the rating companies and investors. jon: a remarkable story. minister withance the department of treasury saying by south africa and you are called back home and in the financethe former minister, you are going. alix: it was the second-highest opening this year. that is not scaring anybody. more, allen and stanley. is the trade alive and well?

it had a pretty good run. a year in some respects. currencies, the south african rand, turkey, mexico is far from stable. you are having to earn your carrie at this point in time. the global growth story has plenty of run in it. if global markets behave -- global bond markets behave themselves, that is crucial. global growth is ok. financial conditions are generally well-behaved. , theyok at other elements are rolling over. would make this point. in general, when you look at carrie currencies, not many are seriously overvalued.

throughas you diversify the top six or seven, you will probably be ok. jon: it are you saying the top-down story is the only thing that matters? a favorable treasury market? is that the trade at the moment. the top-down story is 80% of the story. is where we are at at this point. is changing and quite flexible and moving around a lot. you have to be flexible in terms of which basket to use. reflation going to hit next? where does it go now?

thing people are worried about is europe. the are we going to get inflection points? they have been critical for the markets. to me, that is where markets are looking most intently right now. >> what changed? the central bank finally kicking in? what got global growth going again? >> i am not sure there has been a dramatic change. you look at the fed and the way they are doing things, they were

spooked by everything. now all of a sudden, they have grown more comfortable with the situation. more about a shrinkage of downside risk. >> don't underestimate china. alix: as long as that stays. you are both sticking with us. defensep, you have the and a budget deficit. we speak with a general later in the hour. this is bloomberg ♪.

jon: this is bloomberg.

in france, unleavened presidential candidates begin to prepare for a tv debate. macron and le pen taking the top spots. be a manualeems to macron. what is his job tonight? the clock play out since he is favored to defeat le pen or does he go in for the kill tonight. he will probably just try to survive. this time, there are 11 people, including six minor candidates. of thell diffuse some pressure on them. my sense is he is going to play out the clock. jon: the two below, what do they have to do to get themselves back in the race?

below represent the two fading parties. back -- their backs are against the wall. the front runner has been bogged down by all sorts of legal problems. jon: thank you. the bond market follows two-year ds, iss, bones -- bun there enough risk premium baked into that? a lot of people think it will be a disappointment if macron does not win.

>> it is tough to tell. closely,ok at it most when you look at the first vote , it coversond boat the two specific events. volatility looks low. seems the market has complacency. maybe some of it is coming out. anything, there is a little complacency there. i would guess you haven't got there.base in the big worry the market has is in the first vote, you get this -- my vote does not count. for a nervous.

-- a nervous period between the first vote and the second vote. you probably have about two big figures on euro-dollar. can we get back to 108? absolutely. happen?t do we need see is no positioning story longer there. to think in those terms. you have to curtail the fed tightening. very good against everything else. despite the denials from the ecb, they get into rate hiking cycles.

jon: i cents one 20 is not his base case. coming up later this week, bloomberg real yields. it has been big days for the treasury market. had of the market open today, and four minutes away. the s&p 500 down. treasury yields grinding down to the bottom end of the range. this morning, unchanged. from new york, you are watching bloomberg. ♪

[ engine revs ] [ screams ] [ shouting ] brace yourself! this is crazy! [ tires screeching ] whoo!

boom baby! rated pg-13. [ screams ] [ [ screams ] ] [ shouting ] brace yourself! this is crazy! [ tires screeching ] whoo! boom baby! rated pg-13. [ screams ] jon: you are watching bloomberg daybreak. futures are softer. down on the dow. if you switch up the board, in

the fx market, a decent bid for dollar. some byn the opinion of auto sales. we get the read on the trade balance. more narrow than anticipated. the 44 .6 billion number was a medium estimate. we come in slightly narrower than expected. improvement there. alix: alan ruschel and stephen stanley, we are getting hard data.

>> we are starting to put a ribbon around our gdp forecast. the trade number is going to tensor two. i think this is part of this recurring pattern. alix: u.s. imports up 1%. u.s. exports up 22%. us up forhat set friday's conversation? >> a one month of the data and all of that, but certainly trump is going to put pressure on the chinese to try to even out the

bilateral trade balance. we will see how that goes. the u.s. sounding protectionist and the chinese it being the global defender of free trade, which is ironic. the policiesok at in each country. the actual barriers to entry are massive. the president made a mistake? it is a marketing thing now. the chinese president is using against the president. has he made a mistake? >> the natural instinct is to say yes.

this imbalance is unusually large. there would be some desire to address it. way.ss it in a blanket is dubious at best. david: it is not because china is free trade oriented. it is not that they embraced this mantra. alix: are only getting set up for interesting conversation on friday? the focus is going to be on taiwan, north korea. are they going to have two different conversations? side will not be eager to spend time on the things that from wants to spend

time on. --on't think the chinese are they would rather move on to other topics. that is the nature of these summits. their time onpend what they want to talk about. jon: the president called them the world-class championship winner of cure -- of currency manipulation. >> i want to go back one step. i would love to think currencies are the same around the world. they are not. north korea takes precedence. they can come to some agreement there.

the u.s. does not want to see the chinese currency depreciate substantially and neither does china. enoughnomy is strong that they don't have to manipulate the currency weaker. they could come to an agreement to keep this fairly stable. broader philosophy , that could take place. alex is does the president care about the rhetoric? >> i think so. it is probably not just rhetoric. there is a stick behind the story. >> you know the retaliatory elements are going to be proportion area. you want to redirect production taking place in china.

the same way you brought japanese auto production towards the united states over time. how you nurture that is tough. the u.s. would look at certain things. certain materials you can say this is general distortion and you have anti-dumping tariffs. david: anti-dumping says we are going to have homegrown industries make things. happened with automobiles was different. subsidiaries started investing in kentucky. is that something that makes sense for the president of the him on totes to press get jobs back in the united states?

is different. from the chinese perspective, with the government values above all else is the mistake and social stability. they need lots of jobs in china. china is not going to be eager to talk about the outsourcing of chinese jobs to the u.s. it is amazing we would be raising that topic. analogy fits that given where each economy is now. david: thank you for being here. an update on what is making headlines out side the business world. in st. petersburg, in russia, investigators believe an islamist radical

detonated the bomb in the subway. the bombing is believed to have suicide attack. a second device found that station wasay disarmed. senate democrats appear to have enough votes to block neil gorsuch's nomination to the supreme court. require 60 votes to move a senate vote. program will benefit silicon valley. it will make it harder for them to use the h-1b visa. applying for the visa is not to us from an eight against american workers. this is bloomberg.

alix: the other thing happening this weekend, it is jobs friday. wantve a lineup you do not to miss. this is bloomberg. ♪

emma: coming up later, david westin interviews mark royce and .e speak to tim david: trump has said in his new budget he will ask for a 10%

increase in defense spending. first he has to get a continuing resolution through congress. if he does not, the government could shut down. joining us is robert levinson. to the continuing resolution. what is the president asking for? >> he is not asking for too much new. for a supplemental spending request, money to be added on to the 2017 spending. about $30 billion for the department of defense. david: what are his chances of getting that $30 billion extra? he has had trouble with the freedom caucus. the chances of the that isntal request,

probably going nowhere. he wants to offset that 33 billion increase with money from social programs this year. there doesn't seem to be much appetite on the hill to entertain that at all. was sequester that was going to be imposed on the department. does that suspend or include sequester? >> of the bill for defense they have is within the limits, so it sequester.rigger a he has to raise spending caps. you have to raise the spending caps. raising those cap's is why congress is not interested in entertaining the supplemental

request. david: thank you. movethe military needs to troops and supplies around the world and fast, they turned to air mobility command. the man in charge is general carlton everhart. welcome. good to have you. let's continue with this discussion. the money being asked, the supplemental or the $54 billion increase for defense. why do you need it? gen. everhart: the reason i need readiness and my modernization program and weapons system sustainment, the things i need to keep airplanes viable. aircraft that is 55 to 60 years old. if i don't have the money to keep it in the air, it affects

and our fighter aircraft. about 25e fleet is years old. money to beve the able to do the things i need to do to execute when the nation calls me to do so. david: have we not been investing enough over the years? is that why you have such an old fleet? everhart: it is a balancing. when you have a continuing doolution, you go a day to contract shortly. if i can only go day today, this is what it is going to cost you now. as we go through the process, it affects the entire system. sequestration,

this has been years in the making. moreplaced the oldest with modern things and it is a balancing act. it is an irresistible force in terms of the deficit on one hand and the need for expenditures. you look on capitol hill, how would you solve this problem? gen. everhart: it would be a balance. i do not have a crystal ball. the priorities of the nation, i would have to say -- g want the greatest airpower we have, the greatest military power to support the nation's needs? it is a balancing. is no easy solution. david: of national security is your mission, we talked with , who said, for his

navy, he would love more ships, but he is concerned about the deficit. about thencerned health of the country, financially, in terms of national security? gen. everhart: i am always concerned. we look at this, it is a balancing act. where do i need to supply the money to keep our security where it needs to be and go forth from there. your what would be baseline? what would you need minimally to replace the equipment? gen. everhart: where you stand is where you sit. for me, that is a different number than what you would see over the entire defense department. growth% real increase over the next few years good? yes. it fixes our readiness and

modernization issues and helps me bring new aircraft online. you borrow money? we may be heading towards a government shutdown. i would have to leave that to the experts where that money would come from. it be ifw bad would you don't get the money? would havert: i crews i would have to sit down as i execute the missions in wartime, in syria, iraqi, afghanistan. you talk about air responsibility, i am around the globe. i support the national science foundation in antarctica. does that go away? it depends on the priority. i have to wait. i had to shut down crews, delay modernization, i have buildings

i need to replace or close up. that takes money. it is a cumulative affect across the board. it goes down that spiral, it is hard to pull it back up. on's put a permanent fix where we can get it going in the right direction. alix: we have bloomberg terminal i.t. tech on tv . go to tv on your terminal and ask the guest a question. this is bloomberg. ♪

david: this is bloomberg. both --well introduce

oath. newsrmstrong announced the on twitter, saying the unit will oversee more than 20 brands reaching over one billion consumers. oath, i will not repeat some of the things i have read online. is this replacing yahoo!? >> that we are launching like berkshire hathaway. -- we can promote huffington post, movie phone. reaction you see is short-term thinking. we are a long-term company. brand and avers in huge believers in long-term commitment to talent.

david: you are pretty good at marketing. people are saying how much did they spend on this? we developed the brand in-house. gotten $50bably million worth of brand marketing for it. when we launch our brand campaigns, we will be free and clear. david: how is it going? how is this merger going to work? ownyou run up against your shop of google and facebook? >> verizon has a long-term strategy in the media space. we were the first acquisition they did. yahoo! will be the next one. we are in a good position to launch the largest house of trusted brands.

google, facebook, amazon are all partners of hours. i have done advertising for 20 years. i see and open lane in the advertising space and that is where we are going. alix: is marissa mayer going with you? marissa, me, we are planning and the leadership, which we will announce in q2. marissa will stay through the next phase. twoill be a mixture of the executive teams together. alix: how long does the transition phase last? >> that is something we are still discussing. is, in june, we will the brandith structure and leadership

structure. mentioned trusted brands. how do you guarantee an advertiser they are in an environment they want to be and they are getting -- for a period of time. >> the advertising business has changed, where measurement has become super important. the natural tension point is starting to run advertising. over time, the software will get better. we are in the early crawl, walk, run stage. you will have some of these issues pop up. theseyears from now, when networks are reaching billions there are going to be some issues in the short-term

term, but they will get worked out. i think advertisers are getting smart and directed about where their ads are and what the value of them are. was not closely measured. today, it is transparent. you are seeing 15 to 20% growth rates. it is an amazing opportunity. david: thank you for being with us. you are watching bloomberg. ♪

♪ jonathan: futures point to a

third day of losses as investors surge to confirm the boom in american sentiment. auto sales were enough to shake some optimistic forecast. -- whilemocrats republicans debate going nuclear. how will this administration get things done? a warm welcome to bloomberg daybreak, i am jonathan ferro alongside david westin and alix steel. softer, down 45 on the dow, negative eight points on the s&p 500 after a two day slide. treasuries with a big bid yesterday. yields up one basis point on the u.s. 10 year. past 24 off own of the hours, dollar-yen grinds lower to a 110 handle. let's get you some movers ahead of the opening bell. is the micro in the

market, nsc network up over 10%, potentially looking at some kind of buyout. the new york post is saying they have potential suitors that could be at&t or verizon. they own broadcast for the next, -- and connect just collect five dollars a month per prescriber. kate spade down by about 12%. talks may require several more weeks and the worry is that the price will be lower. it could be below the current billion, said$1.9 to already have a bid from coach in hand and waiting for one for michael course. bank of america down. the outperformance since the election has closed the evaluation -- valuation gap with jpmorgan. says this is fully valued

at this point. david: drama in d.c. this week, --d it -- senate democrats as republicans debate going nuclear. joining us from washington is bloomberg's kevin cirilli. kevin: republicans have said consistently they are going to go nuclear get ready -- getting rid of the potential hurdle. the democrats that i have spoken whensay they remember back administration's when republicans used to do this , so this is political payback. david: let's go back to things like tax reform and some things that require support for the president in congress. is this the president saying, i do not need the democrats, i will have to make do?

kevin: i think he is trying to make up his mind over whether it will be easier to negotiate with the house freedom caucus or chuck schumer. stephen mnuchin meet with president trump at the white house. president trump has a series of ceo meetings at the white house and then he will go to speak at the washington hilton to deliver remarks and front of the building association. he is more comfortable when he is talking about things like tax reform, infrastructure, but if he does not have anybody to negotiate with or cannot negotiate with them it is a lost cause. by measuring set -- mentioning secretary treasurer mnuchin, what happened to the tax plan? in an over the weekend interview with the financial times, president trump backing off of the timeline saying he does not want to announce when he wants to have the tax plan

released. folks in washington are looking at this and saying, what is the next major legislative item on the to do list? if it is tax reform, when will it come out? david: kevin, thank you so much. jonathan: let's bring in ben mandel. callme in with a consensus and then you get something like a weaker sales print and all of a sudden people are shaken. ben: it raises a broader question -- is that reflation trade dead? are we approaching a high water mark for equities and global bond yields? butink the answer is no, you have to a knowledge the significant cross current at play. global growth is accelerating so if you think about real global growth is having gone from something like 1% last year to 3% this year, significant increase. andation has been improving

nominal growth went from about 4% last year to 6%. that is a pretty big delta on a global economy. the global environment is simply doing better. you have layered onto that working in the opposite direction, political uncertainty . you have the fed repricing, fiscal policy as you are discussing. aheadou look 12 months you will see the real story is about growth and not all about that political business. jonathan: is that reflation trade deflating? they kind of give you the data points to say why the reflation trade is still there, but you do not see it in the process. what is the story? ben: i think probably fixed income is where you see at the most, the challenges for the reflation trade. last month, global equities more or less flat, global bond yields

down a lot. that is where you see the policy uncertainties manifesting. after the march fed meeting, bond yields took a step down. after the health care reform went through and exited, bond yields went down. if you think about where is the biggest distortion across asset classes coming from that political uncertainty, it is in the bond yields. when we think about, what is a reasonable range for the 10 year treasury this year? we are thinking somewhere -- and what we are thinking has been pushed to the bottom end of the range. not to mention the fact that central banks, the pendulum is swinging to become more tight so it is not just the fed going forward. by the end of this year if the economy stays on track you will

have the fed, the boj and ecb rate examining their balance sheet policies at the same time so you are looking at a potential repricing of the term premium. alix: one story says we will have some kind of room to -- the other one is we still have the trump put and the fed put, by the dip. which one are you one? the dip.y we buy we are invested in the global reflation theme. i think they have a pretty clear reflationary signature so we are overweight risk assets, equities, and credit versus government bonds, underweight durations. we are capturing a pretty broad improvement in global fundamentals where we have had a pretty broad exposure across equity regions. overweight in emerging markets and japan, which is our highest

in terms of ranking. neutral europe. we have a pretty diffuse exposure to the deflation trade -- reflation trade. alix: you are so used to saying deflation. david: diffuse is one word, diversified is another. is part of what we are seeing here a little bit of the heat coming out of the u.s. driver and spreading around the world? you have mentioned global reflation several times. does that suggest there should be a reallocation away from u.s. allen -- assets into the less developed? ben: that is fair to say. you want that exposure, higher beta exposure to global growth which you typically find outside of the u.s. so part of it is capturing the exposure to the global fundamental. builta diversified, you internal hedges against out first outcomes when you spread

your bets out evenly. one is on u.s. policy. if you buy into the america first policy, that is one thing. if you don't, having a more broad exposure keeps you insulated from any setbacks in that area. , wesecond i will identify have a simultaneous exposure to japan and em so we are hedged against the dollar moves. when the dollar appreciates you tend to get japanese equities doing well because they are dependent on the yen. when the dollar depreciates, the yen rallies. david: e.m. covers a lot of different countries and areas in the world, political risk situations. how do you protect against that? do you pick and choose or go with broad-based indices? blocke look at e.m. as a so thinking about msci e.m. that puts a little more emphasis

on what is going on in east asia, but overall it is, we are looking at all the different regions at once. jonathan: ben mandel of jp asset just jpmorgan asset management will be sticking with us. bill gross will be joining us friday alongside a big lineup. from new york city, looking ahead to d.c. this week with payrolls coming up friday, you are watching bloomberg. ♪

♪ alix: the calls to buy europe continue to grow louder. take a look at the bloomberg, this is a normalized view at the sp why versus the bg k, e.u.

equity index versus the u.s. equity index. europe, sharess issued have risen in the last few weeks where in the u.s. it has made a big move down. as mandel is still with us, flows have not even been to billion dollars this year. where are we in this rotation? ben: the u.s. economy is a 2% economy this year, which is as good a forecast as any. it has been that for about eight years and we expect that to continue. where you see the upside risk in the global economy is an yournational develops, so see big side upside surprises in europe and japan, and the european economy is growing well above trend. i think if you extrapolate that out, and it is fair to say that will be a persistent phenomenon this year, it will not be unusual for more folks to go to europe. do youtrust alix: --

trust the equity flows or are you looking at the flow between the 10 year german bund versus the basis points? i am not suren: it is about the spreads. alix: something is not about the spreads? ben: the problem is there is a countervailing force, which you have this weight sitting on side -- on top of european risk assets which is the french election. without taking a stand on what you think will happen, it is fair to say that european equities have not reflected to a great extent the better economic news you have seen over the last few months. i think that builds in a lot of to weigh risk. there is downside risk if the election goes one way and it creates fundamental, existential risk for the euro, and there is upside risk the other way. jonathan: a postelection

relative value trade or a real investment to hold for the longer term? ben: it is both, actually. the european fundamental story ,s well above trend right now but it is also an area where we do not see a mortal threat or tailwinds coming from brexit and things like that. above trend, because the trend has been dire, is it going to carry on improving in a sufficient way to compare to the recovery we have seen in the united states? ben: these of the equity performance, i am not sure that is a fair comparison. economy a half percent and that has not prevented equities from doing well and potentially re-rating as you get small improvements. david: europe is not a country as britain is in the process of proving.

different parts grow at different rates and they had different unemployment rates so when we talk about europe, are there places where you are seeing higher potential for growth? -- it think there is complicates things for the policymakers in the way that different u.s. states grow at different rates and it is difficult to make a policy for each of them at the same time. when you look at core europe, it is growing very strongly. economy, you see where there are pockets of inflation in europe it is germany. pockets of strength in the real economy are in core europe. alix: the stories are that inflation is not up to snuff and it is all about oil? in europeinflation has been disappointing but is trending upward. when we think about how to forecast inflation we build on several layers, simple inertia

given that big moves are unusual , and you build on top of that labor market tightening where you have seen in europe the unemployment rate falling pretty quickly. oil prices stabilized since last year and the oil price will build in a little bit of do notity, but we also expect a 50% decline in the oil price this year which would roil that. the big x factor is the currency, what happens to europe because of the election. just thinking of the fundamental core inflation, it is grinding upward. jonathan: outside of politics, what is the biggest headwind to define europe's consensus straight of the last couple of months? ben: when you think about europe , it is the existential threat to the euro. when we care about the french election perhaps more than other regional elections, this is the

one that has the potential to reintroduce that risk. when we think about the balance of risks of the global economy, some political risk coming from the french election. ,onathan: if that bias exists why would it go away after the french election? after the election you face the prospect of having an italian election which would put redenomination risk on the table again in a similar light. .en: i will disagree you do not see italy as being a mortal threat to the euro area in the same way as france. if you have that momentum building against what you characterize as antiestablishment politics, and france would be a big step forward in that debate, then i think actually the momentum swings. we know from polls that the euro area, people in the euro area favor keeping it together so it is an uphill battle for the

existential threats. that is not a core view. jonathan: ben mandel, thank you for joining us. bloomberg real yield, we talk about the bond market at noon every friday, a 30 minutes dedicated to fixed income. counting down to the market open, you are watching bloomberg. ♪

♪ from new york city for our viewers worldwide, you are watching bloomberg. counting down to the market open. the markets, an risk off theme permeating through some of the asset classes including equities. the board,ch up capturing the risk off theme in the fx market is a stronger

japanese yen story. be treasuriesmay and also yields up two basis points, but in the last 24 hours a big repricing, yields lower. as you know, yesterday at this time we were getting big news about the auto industry. global stocks slipped on news about the american consumer and they are powering financial growth. is the us on the phone partner and cio at tigers financial. thank you for being here. we got numbers yesterday at mgm that were growth numbers, not as much as expected. ford was down, chrysler fiat was down. is this expected? ivan: i think it came as a surprise because we have had a strong trend in auto sales but

the overall auto market is strong. occasionally you get a pullback. it could be weather-related. people not able to shop, or pursuing other things, that overall i am still bullish on auto sales. david: we have been expecting a flattening or a downturn. the markets had the question, or the car companies prepared for a flattening out or downturn, are they ready? have very they all strong financial positions and strong balance sheets so i think they could whether a downturn. based on thet average age of the car on the road in the u.s. being 11 years still is going to drive a lot of sales based on pent up demand. david: not just the total amount of vehicle sold but what kind of cars they are, sedans versus suvs and trucks, there has been a big downturn in sedans which are less profitable.

is this something that will continue? ivan: i think trucks will remain strong because of two reasons. people preferred the features and utilities of sports utility vehicles and second, gas is on the lower end of where it has been. gas prices are stable so that is a big factor for bigger tracks. the auto manufacturers make significantly more on the larger trucks than smaller sedans. if they are in the market with the right product, it is what people want, and the economy and oil prices are supporting the sales of big trucks. alix: auto stocks getting hit yesterday and continuing today. what companies are in the best position to manage this? ivan: we have a strong by on gm. we also have the strongest product line and they are doing well on all levels.

they have one of the best lines of large suvs and trucks. they have a great lineup of luxury cars with cadillac and buick, and they are doing well in small cars from chevrolet. they just introduced the new chevy bolt, which is a zero emission electric vehicle that i think will do well. david: do they make money on the vault? ?- volt> ivan: no, they are making money. gm has the highest margin. david: where are you on fiat chrysler? ivan: i do not follow them that closely. we do not currently rate them, however the dodge ram pickup line does well. a couple of their minds like the challenger and charger are desirable cars, but overall they are ranked, as far as sales and product lineup, way behind ford

and gm. david: thank you very much. it is good of you to join us. gm'sgoing to speaking with executive vice president of global product development, mark royce. they will be unveiling a new buick. jonathan: the opening bell coming next on bloomberg daybreak. after a couple of days of losses, kick in of q2 on a little bit of a bum note. negative five on the s&p. you are watching bloomberg. ♪

♪ from new york city for our viewers worldwide, i am jonathan ferro. let's get you up to speed on where we stand. the biggest first-quarter we have seen since the end of 2016.

q2 started on a softer tone, a day of losses yesterday. -- dow negative five points the s&p 500 negative five points. yields down toward the lower end of the range. up twoies -- yields are basis points. 100.60 is how we trade on the dxy. up almost 1/10 of 1%. really helping stocks, the dow jones relatively flat. the nasdaq down 14 points. the dow is down 13 in the last six days. oil is seeing a nice pop, regardless of the mushiness we are seeing in the equities market. we continue to sell treasuries

as the yields move higher but a little more downside in equities. , kate a look at retail spade off a whopping 14%. the deal perhaps to sell it to coach or michael cores is taking too long and they suspect the price could be lower. sales may be down by mid-single digits at urban outfitters. ceo, choosingew the former kmart ceo. not getting a boost in the equity markets. citi shares are around a 52-week low, the price target cut by 30%. as we continue to see equity prices grind around these levels you have got to talk about valuation and where we are. it depends on where you look. for the s&p, it is priced to

give it and this is priced to sale. both are at the height -- priced to ebitda and this is priced to sale. growthy if you factor in we are fairly priced, some saying we are overvalued, and that dictates how you will end up investing. is then: joining us chief portfolio strategist at wells fargo. with us also, gina martin adams. how important is a yield on the 10 year to the valuation case? gina: it is very important because real yields mean everything to valuation. almostelds have moved lockstep with valuations on the index. the fact that they are falling again over the last month is part of the reason why stock prices have stalled. they have not been able to sustain the valuation because we

are not seeing their reflation theme continue and we are not seeing the yields rise. jonathan: brian, do you see the same thing, --? brian: gina makes a good point but i would not say i would hang my hat on real yields falling to push valuations higher. it is also about credit because when you do an analysis you will not be using just the treasury. ,ou will use opportunity costs and what you have seen with the credit spread, if you compare the high index to the 10 year treasury, you have seen the spreads come in. to me a good question is whether or not those spreads will continue to compress or whether they will expand. have expanded over the last few weeks and i think that is reflecting some of the listlessness we have seen in the equity market. inx: how do you factor

individual sectors with valuation? -- howe the utility s&p do you distinguish between individual sectors? brian: i think you have to pick the right valuation metric for each sector so if you think about historically, when you look at financials priced to earnings or priced to book, it is more reliable. for utilities it is asset intensive so price to book may be more indicative valuations, and in i.t. you would be looking more at expected growth rates. rightve to it -- pick the growth rate for the right sector. they might not be very productive of where prices are going to go. it is much more driven by sentiment so if you are thinking about allocating over the next three to five years, look at the valuations and you have to look

at the correct valuations depending on the sector. jonathan: the sentiment versus valuation story, is sentiment more important? gina: for a short-term timing mechanism, absolutely. valuation is one of the worst timing mechanisms in the market. we were there and moving up was 1996, we had four more years of gains before we peaked so can you arbitrarily say 18 times is too much? valuations have shown a tendency to trend over years. meaningful forry a returns on the equity market, it is just a poor timing mechanism. alix: the job number is coming on friday. with valuations high end yields treading water, where is the eighth metric risk if we do not get a crazy awesome number? not: it depends on how

crazy awesome that number might be. alix: status quo or little bit weaker? gina: i think that is pretty good for stocks as long as you have the wage growth continuing. if you have consistent job growth and wage growth continuing, that is the goldilocks scenario that stocks love. stocks do not love a shock so if you get weak growth start to question our optimistic stance and if you get strong growth we have to contend with the fact that the fed may have to raise sooner rather than layer. -- later. jonathan: treasuries have been stable, yields have been low and jobs gains have been stable as well. 200,000, we see that again and again. we were expecting more than goldilocks. are we saying that story will not evolve in the way that a lot of people post election thought it would? brian: i think it is cracked

that right now people are questioning whether the future will look as good as the past -- correct that right now people are questioning whether the future will look as good as the past. think one of the biggest risks , if we do not see that tax reform or if it does not look like it is likely within 2017 to 2018 you could get decent pullback. if you are a bull or a bear depends on your view on how things will play out in washington. david: how much to is because of the fed has written a $4.5 trillion insurance policy? if things go wrong, i will be there. if that starts to come off, what could that due to valuation? gina: it is tough to say. we have had this balance sheet expansion cycle that we have not seen in the past so we do not know what the outcome will be. the good news is they are not

allowing it to contract yet. david: but they are talking about it. gina: they are talking about it and it is a risk. on a terry policy impacts the stock market through the yields and through the dollar. those will trade off of fundamental drivers if the balance sheet starts to change and yields rise rapidly. that will impact the stock market, and similarly the dollar. idea --: no one has any on a hill trying to get out of neutral, that is what he compared it to i think that is quite apt. balance sheet normalization of the fed, said sheet minutes out tomorrow, which is that due to equities? out, whatgina pointed

the fed does matters for equity markets, not just the fixed income. wasident harker said he talking about supporting balance sheet contraction by the end of the year and that is something people will be looking at, indicators or hints as to whether the fed is inclined to hike two more times this year and maybe tee up balance sheet contraction by the end of the year. the fed is aware that what they are doing as experimental and they are going to tiptoe through this landmine have effectively created, because they do understand their balance sheet is very large. they do not have to allow it to contract quickly. i think they will take it slowly and gradually, and they can calibrate policy on the basis of how the market and economy react. alix: the third mandate, was the s&p does.

breaking news, staples is said to be an early talks with buyout firms. jonathan: we are down 1/10 of 1% on the dallas morning. a third day of losses on the s&p . you are watching bloomberg. ♪

♪ emma: this is bloomberg daybreak. coming up later today, david westin interviews mark rice, executive vice president of global product development. david: this is bloomberg, i am david westin. jamie dimon will release his annual letter to shareholders today. last year he took the opportunity to warn about emerging political risks, and explaining why he is standing by certain types of trading. joining us now to take us through what we think we can and stillura keller with us is gina martin adams. let's speculate together, what

will we get from jamie? i think it comes out at 10:00. gina: we think it will be a little later. in this letter, which was last year about 50 pages, we are thinking about tech, policy, regulation. jamie dimon has been a big complainer about certain things on the regulation front, so maybe he will talk about those. maybe he will talk a little bit more about president donald trump. there could be some things he talks about on taxes and regulation changes. he willoes that mean pull his punches when it comes to donald trump? the expectations are somewhat less than they were 50 days ago. laura: he could use his pulpit as the premier banking to say we should give donald trump more time, this is what we want to see, and perhaps he has a chance

. by pushing that optimism maybe he is able to engender some goodwill for the president. david: he is chairman of the business roundtable which will be taking on a significant role on capitol hill trying to get these policies through. do you think he will speak in that capacity? laura: he may. i heard he will be spending more time in d.c. and that could be something to effectuate more change. jonathan: more change and more regulatory change. how much do the banks and financials need the regulation story to move as well? gina: i think they need the 10 year to move their way more than anything else. matters is financial growth and yields continuing to rise. the deregulation story will only boost that case so what helps financials, but i think the 10-year is the most important.

jonathan: has he got a message for the regulator? laura: he should. if he has a message this is the time to bring it in. taxes is a big thing for him. banks could use the reform, and looking at yields is another good thing. lending is something else he has talked about, and what capital the company needs to set aside for any catastrophe. jamie dimon has been a proponent of scaling that back. yes, so therowth, yield is important for how much you charge but the yield -- where are we? gina: if you are looking at consumer and residential loans we are seeing a significant slowdown. cn i loans and industrial loans are starting to see a pickup so it is a mixed message. alix: which is more important? gina: it depends -- depends on the bank.

at this stage in the cycle it is very normal for cn i loan growth to accelerate while consumer loan growth decelerate. inid: we have not heard much the past months about liquidity problems. i have not heard about that in quite some time. laura: i think it is probably because of trading. we have not seen trading lockup like several times last year and that is when people complain about liquidity. generally things are moving well in the markets. equities are down but that market is much more liquid than debt. bank of america got cut to neutral this morning. sincetperformance election day is one of the justifications by analysts to pull back on the financials. it is that question and equity analyst like you hates, a much

optimism is priced in and where are we? variousen we score the sectors we look at achievability , expectations relative to the fundamental drivers and financials falls in a risky zone because expectations for pretty significant growth, pretty large expansion in the yield curve spread are relatively high so financials looks risky. on valuations, it is one of the few sectors in the s&p 500 trading below its long-term average price-to-book and below the peaks on price-to-book. , we probablyrnings did get to optimistic. thishan: cut by citi morning and the yield story plays into that. have so much retail deposits that they do not want to pay higher yields for.

what about the revenue growth? you wind up having yields go nowhere but valuations still look good. revenue growth has to deliver. looking at low single digit revenue growth across the index for the year. is consistent because it is sensitive to long-term gdp growth in the united states so unless they can get real optimism to drive growth the improvement will be happen for that happening for the banks between the top and bottom line. baby that is something jamie dimon will be talking about today. -- maybe that is something jamie dimon will be talking about today. thank you so much, laura keller and gina martin adams. i want to re-at a rate from staying --w jones saying staples is in talks with eye out firms.

-- buyout firms. they will close 70 stores in north america in 2017. staples in a transition to sell business services and connect with consumers and businesses online. potential he somebody trying to come in and take advantage of that, we will be tracking that closely. if you have a bloomberg terminal, check out tv . interact with us directly. you can talk to us during segments. this is bloomberg. ♪

♪ looking at the dow off 17 points, the s&p off three. u.s. equities are a safety play. geoffrey yu spoke about that

earlier in the program. >> i would probably like treasuries and the s&p into the same category as a clause i save haven, because if you look at , it is one elsewhere of the conversations with clients to say you need to be invested. you need to move out of cash given the reflation wave globally is still happening but it seems people are more comfortable holding treasuries, the s&p 500, and assets, and that tells us a lot about positioning. u.s. centric, dollars centric. alix: he said energy could be one of the safety plays. his is a counterintuitive call from geoffrey yu. david: now it is a safe haven? alix: if you need to be invested, that is where you have more predictability versus more of a reflation push in europe. sterling.

now we are going to go down to washington and take a look at the ceo town hall, where president trump is supposed to speak around 10:45 today. ivanka trump and senior officials will discuss policies to create a pro-business climate . we are watching more with gary cohn and elaine chao. we are going to go to kevin cirilli. you and i talked about this, we have seen quite a few meetings with ceos with the president. what comes out of them? kevin: not much, but i think the administration enjoys them because they feel this is when president trump and the administration are at their best. the main topic of discussion from this morning has been infrastructure, with secretary elaine chao saying she defaults to gary cohn in terms of which

type of policy, and guiding that policy on infrastructure will be. they are still bullish on infrastructure. we have not seen specifics or a timeline, but by talking about it they feel they are getting into the zeitgeist. corbyn a citibank was just asking a question of elaine chao. why is ivanka trump playing a prominent role? kevin: also jared kushner. the have emerged as two influencers within president trump's inner circle. jared kushner was in iraq over the past couple of days but also ivanka trump meeting with ceos, women business leaders, and her assurance of dena powell into the administration is something that should be noted. clearly this is someone whom the president trust and relies on, and someone who has his year.

david: the deputy of national security, we will listen to what elaine chao is saying. >> fcc, broadband, environmental protection agency. we all have to work together and exert an influence. that is where presidential leadership is very important, and the department of defense is involved. the army corps of engineers is involved in huge amounts of construction on land and on the season ports. that is so essential to infrastructure. the short answer to your question is yes, we are very much aware of the need for engagement at the local level, and we have to do it through a partnership where your delegation an effort in new york will be essential in working with us to influence and

help motivate the right kinds of productive movement toward the president's infrastructure initiative. thank you. secretary chao and director cohen, thank you for being with us. my question is a little more specific to new york city. as you know, superstorm sandy did a lot of damage to the city and guardian life was displaced for about nine months, as were many other companies in lower manhattan, not because of damage to our building which was easily repaired, but because of the infrastructure damage caused by the storm to the infrastructure under the street. the storm damaged the tunnel under the hudson river between new jersey and new york, and if you are from new york, that tunnel is sometimes not very reliable. it costs my company $40,000 an

hour when that tunnel is down and costs new york city employers about $6 million for that to be down. verycing it will be a large project that requires a lot of cooperation, as you were just suggesting. is, what kind of support can we get for infrastructure projects in new york city like the title and the hardening of the coast -- tunnel and the hardening of the coastlines that will keep our businesses from being disrupted in another storm? >> i am very much aware of the project and i have one designee on that authority board. that goes back to the decentralized nature of infrastructure. as we are working on our legislative package, and that will probably be in may, late may or something like that. we are very much aware of the need for legislation but we also

need to deal with some of the corporate governance. i am not suggesting we change it, but that is where citizen action is important because you would have influence with the governors of both states, new york and new jersey, and also the port authority. , butnot have a good answer it is a priority and we are trying to work on that. >> thank you for making that a priority. >> our final question. >> thank you. i just want to make one brief isment, and that is that it great to hear that this administration is trying to unleash about $1 trillion worth of opportunity to heal our infrastructure. we all know that $1 trillion is just a drop in the bucket, and the great opportunity is to take withmoney, leverage it billions of dollars of private

investment which is sitting on the line. i think there is a couple of ways to do that. issues ofrd permitting and that is extremely important. there still are states that at the policy level, political level do not allow the unleashing of private sector dollars into public-sector projects, and federal agencies that do not allow private-sector investment into federal. finding a way to leverage federal dollars in a way that mandates or allows us to change those policies, you have to get through the policy level before you can get to the permitting level. there are a few programs that work well and i would encourage as you draft the infrastructure program, that you look at the programs relative to public --ivity bonds and to the program that worked well.