new communication problem. what does it mean for rate hikes? currency manipulation and north korea -- president trump welcomes the chinese leader to the united states. taking thinking back to the old days. bringing back glass-steagall. it warm welcome to "bloomberg daybreak." good morning. thehe equity market with federal reserve weighing in on valuations. what do you think about that? futures up .1%. treasuries on offer on the margin. alix: time for the morning brief. at 8:30 eastern, initial jobless claims. 9:30, john williams is speaking on a panel in frankfurt. what will he say today? 6:45 tonight, president trump

and president xi jinping having dinner. -- herearkets reacted to take us through the market reaction, michael mckee. what is at the fed had to say that got the attention of the market? mike: they did talk about the market. they are watching valuations. the fed's job is to keep financial markets stable. they are a little concerned at the way things are going. there isn't much they can do about it at this point. this may just be a verbal warning shot to wall street. aboutd went into detail its balance sheet program and where they will start reinvesting. by the end of the year, they want to get a couple more rate increases in and then the open question is how they do it once

they start going. david: nobody quite knows the answer to that. rate hikes on the one hand and rolling off the balance sheet on the other. mike: there was not a tied to that in the minutes, but there was the interview with bill dudley. qe lowered interest rates. if you start removing it, you will start raising interest rates. what seems to be going around the markets is this idea that the fed starts normalizing the a move sheet, you get upward in rates, they don't have to move the fed funds rate for a couple of months. play ifuld come into janet yellen and stanley fischer are removed from their jobs next year. plus, three more governors. it could be a disruptive time and you have monetary policy on automatic pilot. jon: the continuity of management at the federal reserve. if you initiate a new plan and then get new leadership next year, who is to say this is going to carry on?

mike: nobody is. it could be changed by a new fed. the presidents will all still be in play. a responsible economist would want to do what the fed is talking about doing, putting this on a path, rolling off in the background, not used for fine-tuning policy. alix: this is where fed fund futures will be. january of 2018. january of 2019 the blue line. this year, we are still at two rate hikes. next year, just one rate hike at the end of the day. is that the right interpretation of what the fed said yesterday? mike: the balance sheet reduction will serve as a possible rate increase. alix: enough to take out to more rate hikes?

mike: it's hard to say. as we've said, donald trump is getting nothing done right now, but he's not stopping his effort. if he does get some sort of fiscal stimulus going, it will fall into 2018 and you would see the fed move faster and further than it otherwise would. that will get is a rate increase or two, but we could see a violent change in the fed fund futures. jon: a communication problem. who would have thought? during is from princeton is bob doll -- joining us from princeton is bob doll and mark cabana. how do you calculate how many -- and normalizing the balance sheet? bob: getting the number right is

going to be hard. the context is obvious. the fed is slowly going to raise rates. and then slowly address the balance sheet. for years, we've had the fed as a tailwind for the stock market. they are turning around and eventually becoming a headwind. , running thisna policy passively, how do you do that when the maturity profile is so lumpy? mark: the fed will inevitably live with the variability in do off theat to treasury portfolio and what the payments look like. todon't think they will want actively manage this too much because it will jumble already a complex comedic asian problem. they will look to eventually phase out there reinvesting. -- complex communication problem. in order to help the market gradually adjust. david: doesn't that suggest it is going to take a long time? mark: if they involve the

treasury portfolio, they can pay down the portfolio pretty rapidly. they have 135 billion or so coming due next year. 350 billion for 2019. if you add that on top of what our mortgage strategists think, we will roughly see 150 billion or so in mortgage prepayments, you are looking at a pretty sizable reduction. david: what effect would that have on the market? bob: the important variable beyond what were talking about is what the economy is doing. the fed will move based on conditions. if the economy is doing fine, earnings are doing fine and that prescription for the fed going the other direction make sense -- makes sense, markets will handle it ok. stocks do best when the fed is lowering rates. the easy money in the bull

market is in the rearview mirror. we are moving past the skepticism phase. phase, the mature fed is beginning to normalize rates and earnings will tell the story. alix: what happens to the curve? it is pretty steep over the last few days. how much is a balance sheet reduction worth to the curve? mark: it is very difficult to estimate because it largely depends on how treasuries adjust their issuance of strategies. we will likely see the belly of the curve steepen a bit. term premiums will likely increase and move a bit more normal levels. thought by allowing the portfolio to roll down over the course of this year's worth 15 basis points.

-- you could be talking about a 50 basis point increase. it is a highly imperfect estimate. a lot of it will depend upon what the treasury does, but you could see rates moving higher as a result. as the fed continues to discuss incorporate -- i don't know about dump and run. the fed is wanting to give the market a fair amount of lead time to adjust accordingly. jon: a quick question. they talk about balance sheet normalization. yields were lower on the 10 year. ism, the was the economic indicators have been pretty good for the last month or so. now, they are more mixed. , markthank you very much

cabana. bob doll is taking with us. we want to welcome our twitter viewers. "bloomberg daybreak" is a streaming live. -- is streaming live. up next, we go live to palm beach, florida. president trump and president xi jinping will meet later today. golf may not be on the agenda. this is bloomberg. ♪

alix: president trump with two days of meetings with president xi.

north korea testing a ballistic missile and trade. joining us from palm beach, cummin kevin cirilli. look like forn president trump? kevin: he has to get something across on national security. the administration feels they might be able to find some common ground on dealing with north korea. he will be flying from andrews air force base to florida in west palm beach at around 2:30, he will land. sean spicer will speak to reporters, trying to set the parameters of this two-day summit. they will head into private meetings with top administration officials, including wilbur ross , steve mnuchin as the begin to talk about things like trade and

whether or not they will be able to find common ground. it may be more difficult on that issue. later this evening, president trump will be accompanied by first lady melania trump and they will join president xi and his wife for a private dinner at mar-a-lago. alix: that is the agenda. , you have party members watching this meeting closely. da: chinese officials have described this meeting as a fresh starting point. they have been very restrained in terms of responding to trump's tweets and rhetoric on trade. they see this as an opportunity to build up a rapport for xi jinping. this meeting coming so early in the trump administration allows china to gauge trump's style and attitude. this will lead to a symbolic deal on trade going forward.

i don't think there are expectations for a major deal at this meeting china has their own domestic political considerations back home. this meeting will be about setting the table for bigger talks down the road. david: is president trump ready for this summit? the chinese have been preparing for years, if not decades. trump doesn't even have his staff together yet. is this a disadvantage for him? with: and the shakeup steve bannon being removed from the national security council. the issue of why they are not at the white house come reportedly mother there was concern from chinese officials they were going to mar-a-lago as opposed to the white house. should be noted. at the white house,

reportedly, there was concern from chinese officials. north korea will remember that the last time president trump was at mar-a-lago with japan's prime minister abe, north korea did have a ballistic missile test. earlier this week, they did the same type of action. president trump has publicly said that he feels he should be able to work with the chinese administration officials in order to address north korea. that is where they are looking to find common ground. likes president trump optics. the big announcement on buying a lot of boeing planes. enda: trump does need a symbolic win. i'm sure the leader of china will be more than happy to deliver on those optics. there's conversation that they could go the japanese route. increasing investment in

infrastructure in the u.s. be concessions -- you might announce procurement contracts. deal.pectations are a big china will put something on the table to placate trump. china understands the meaning of giving face. jon: have they already seen components of globalization abroad? policy -- are they already seeing what they want to see ahead of this meeting anyway? da: they are trying to be seen as a champion of globalization and trade.

-- we know they are not intervening to weaken the currency. the are legitimate complaints with regards to dealing with -- china is making notress in some areas, but the champions of free trade just yet. david: thank you for joining us today. still with us is bob doll. let's take a look from the market's point of view. how did the markets react? where will we see it show up in the market? bob: i don't know if we will see anything big immediately.

there's no more important trade relationship in the world than that between the united states and china. if they can show cooperation some and we can see national security statement around north korea they agree on and i would love to see them shaking hands and show cooperation. symbolism is important. david: that did not happen with angela merkel. what if the summit goes that way? bob: that would not be good. underlying all this is the concern about global trade. it is not growing like it was because there's not as much cooperation. we need to trade globally in both directions. a bad a summit would not be great news. alix: bob doll is sticking with us. coming up, tim wentworth will be joining us. this is bloomberg. ♪

joining us now is michael moore. glass-steagall written all over it. how realistic is it? mike: there's been idea for support for a new glass-steagall from both sides of the aisle since the financial crisis. the question is how big of a legislative priority that would be. another is how strict it would be. been --the u k, there's a softer split then you had under glass-steagall, which gave us morgan stanley.

alix: is it surprising that gary cohn when in favor of this? mike: it is a little surprising. the expectation was that the banking regulations would not be a top priority for the administration. their banks have dealt with so much new regulation since the , there would be a willingness to step back and let banks adjust to regulation. laying something on top of this would be a little surprising. jon: i will propose a story and then you can talk to me about how to manage the following story. advantage ofve goldman sachs against j.p. how would they manage that kind of story if it does emerge? mike: that would certainly be a

story going forward. jpmorgan would certainly have a relative disadvantage from this compared to a firm like goldman. depending on how it is structured, it could be a headache for all the banks. that is something that would point out. certainly, there are winners and losers on a relative basis if this were to go forward. how would these separated investment banks be regulated? would it go back to something like we saw before the crisis where they were much more light noth or would they be getting as big of an advantage? jon: thank you very much for joining us in london. bob, another takeaway of how unclear it is what the policies of this administration will be around things like financial regulation. caseis the bob doll best

scenario? bob: this is a bit of a surprise that this dialogue is shaping up now. the banks have had so much on their plate and they need to digest. we need a healthy banking system. that is good for wall street and also really good for main street. , lettinghings digest banks get back on their own feet makes a lot of sense. we throw in this and it is another headache that will the banking system. glass-steagall doesn't do that, does it? thisi don't know where glass-steagall conversation is coming from. i agree with you, those things don't have a whole lot to do with one another.

david: gary cohn announced he had a deregulatory commission -- where is that? bob: i don't think it is a very far at all. there's a lot of things the trump administration talks about. they are ideas. they don't have the time or personnel to put a lot of this together. a package like that on the surface sounds like great news, but what are the details? alix: how do you factor in banks? we've seen a lot of flows coming into that sector. knowing we have the regulatory issues and still overhanging the banks, knowing the yield curve can't stay steeper, what do you do with them? bob: i'm still of the view that like the back part of last year, we will get a little more growth, little higher interest rates and less regulation. there's no sector that benefits more than the banks. the backeld curve at

and keeps coming down, that will be good news for the banks. we need more reflation in this is the man that trade has some question marks around it. a big group of people who aren't surprised by this news. david: coming from gary cohn. whether fairly or unfairly. jon: check out this lineup. payrollsnt you down to -- what is in store tomorrow? from new york city, you are watching bloomberg. ♪

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switch up the board quickly, treasuries look like this this morning. year. the u.s. 10 a bit earlier, president draghi making some headlines on forward guidance and drawing a line. i wonder if that is going to change anytime soon. >> from today's of standpoint, i deviate. cause to jon: the ecb agreed to discussion on normalization warranted in the future. they discussed the downward rate pledge. that forward guidance did come up.

rates will remain at present or lower levels for an extended period of time and will pass of the horizon of asset purchases. president draghi says that will remain. it is clear that the ecb is having a discussion about it. joining us is james athey. that line that rates will remain low until well past of the asset purchase program, are they going to have to rethink that? james: you would think so at some stage. to be honest, ecb communication has become a bit of a challenge for them. there is some pretty wide disagreement among the council members. mother -- theoday today -- if you

believe that stock is what makers, you could easily the argument that stopping purchases is no way of tightening. it is stopping the further easing. the bar for that should be a lot lower. jon: rates remain at present or lower. do they change the sequencing? the deposit rate could rise before the asset purchase program ends. or, do they change the time that rates could rise amelia after the asset purchasing program ends? after the asset purchase program ends? james: they could indeed change the sequencing. since then, there's been a lot of backtracking on that. the most straightforward thing to do is stop the purchase is

first and foremost. that would follow the plan set out back in 2013. alix: rates could rise before qe ends. ecb members saying they are open to having that discussion. how large is that camp? james: difficult to say. the communication has been inconsistent. some of the centrists flip-flop a little bit. certainly the northern europeans. we know what the germans think. putting them firmly in the hawkish camp. be that, it will depend on what the data looks like. test beyond that. -- beyond that, it will depend on what the data looks like.

try tod, how fast they roll back some of this stimulus. alix: rate hike expectations continues to retreat. this is what happened after the last ecb meeting. a lot of ecb members sounding a lot more dovish. how much more do we have to price out? euro?es, bunds, the james: this is all about the asymmetry. we talk about the forward guidance telling you there's an asymmetry to their reaction function. it is rational that the market looks towards tightening a policy. the yield curve at the front and to be up we have seen the

czech central bank. dovishness being rolled back again jon:. we had a conversation about federal reserve normalization. balance sheet normalization and what that would mean for the treasury market. let's talk about the bund market as the ecb tries to recalibrate, their communication over the coming months. there's a self-correcting mechanism that comes from the nature of the european government bond market. the biggest beneficiary has been the italian government bond market. if we talk about stopping thehases, the first call is least competitive nations, italy is front and center of that, out -- the dynamics

are somewhat different. it probably means volatility in bunds. not necessarily a 100 basis points a lot been a straight line. alix: how do you want to set yourself up for the french election? james: there's a similar theme. the french election to some degree is a bit of a head fake. i don't think there's a particularly good outcome for the french. there is degrees of adjustment which will be destabilizing in the short-term. i'm happy to sell on strength, not because i think marine le pen is going to win -- the work that needs to go on in france and the french economy should

see the fair value of spreads wider when you see the ecb moving to the less dovish stance. i'm still happy to be short spread their. -- there. alix: i want to wrap up with bunds. ones: there's so much going this week that speech trying to give some indication -- that covered all bases. there's a lot going on, a lot of buying from the bundesbank. all leading to a bid for the front end of the german curve. -100 -- ittionalize wouldn't surprise me if we get there periodically when these

events and influences joined together. jon: we appreciate your time . james athey joining us from london. : the senate is set for a showdown over the supreme court nominee, neil gorsuch. democrats will try to block a vote with a filibuster. the nuclear option would change senate rules and make it possible to confirm gorsuch with a simple majority vote. the white house working with hauser publicans to revise the obamacare repeal proposal. there will be rules committee boat today. they will take up the legislation when congress returns from a two-week recess. maye minister theresa meeting with donald tusk in london.

may wants parallel talks on the exit -- after the u.k. leaves eu.e global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. i'm emma chandra. this is bloomberg. baucus.oming up, max later today, david gura will have the first interview with jack lew since he left office. catch that exclusive interview at 1:00 p.m. eastern. this is bloomberg. ♪

emma: coming up in the next hour, tim went with matt -- tim

wentworth, the ceo of express scripts. that is at 8:20 eastern time. here's the bloomberg business flash. unilever taking steps to ensure independence after fighting off a takeover bid from kraft heinz. examining ao spreads business filled with growing brands. >> we have more cash generation now. we will be looking at continuing m&a activity to stability growth. at the same time, we recognize that we have the capacity to do a share buyback with a 12% increase in dividends. emma: kraft heinz withdrew its takeover offer after only two days in february. investors are liking to buy the

deutsche bank shares being offered. more than 95% of the shares have been spoken for. the shares sale is a centerpiece of'the ceos turnaround plan. the owner of 7-eleven buying many sunoco retail shops and gas stations. will add 1100ny gas stations and stores in texas and across the u.s. president xihinese meets with president trump in florida to date, it will be two men seeking common ground between two very different countries. miss emanuel has been an investment banker, lawyer and

she worked for the state department on major international negotiations. mikejoining us on set, mcdonald -- jon: i'm trying to get michael on the program all the time. riccadonnasends carl . david: can we get back to president xi? soyou went back a month or and talked about something like this, you would say it is all about trade and commerce. as kim jong-un hijacked this summit? hijacked the summit, but he will cast a big shadow over it. i just beat the conversations will be about trade and north korea and the south china sea. this used to be a problem for

asia. now, as he's developing longer-range missiles and getting closer to a real nuclear program, this is becoming a real problem directly for the united states. behind the scenes, he will have some tough talks on north korea about what the united states might do unilaterally, but publicly, i hope we have a smooth space for the summit. is the trump administration ready for this? they have a lot of open positions. it takes a lot of preparation. we know president xi is ready. his president trump? anja: i think he is. he has a strong national security team. this is not a traditional summit where you would prepare for months in advance. this is a get to know you summit. that is incredibly important. foreign leaders should come early and come often and get to

know president trump and learn to work with him and his team. that is very important. jon: the conversation about currency manipulation -- mike: it depends on who is advising trump for this meeting. that is important. what we really need to see is -- you will not get a lot out of him. hopefully, we can get some sort of agreement that there won't be a trade war. notional some sort of agreement on north korea. we will see. when it comes to the economic point of view, trump at one rhetoric campaign indicating 45% tariffs on china. that's not a viable option. there's not going to be any big trade decision.

hopefully they are smiling and they get a nice picture and that since a good signal. david: can president trump agree to know trade war? if he worked as a no trade war, it would be perceived by his base that he backed down. that's absolutely right. i don't think he can say no trade war publicly. you will see a lot from what statements come out after the summit. need. what the chinese congress is coming up this fall. they can't have a big blowup with the united states. president trump badly needs a win. so, both sides want this to go smoothly. behind the scenes, folks will establish this reduction or -- the structure of the economic dialogue. who will lead it from the chinese side? on the u.s. i come and will likely be wilbur ross.

-- on the u.s. side, it will likely be wilbur ross. alix: what would be the options that president trump would have to address the tariffs issue? michael and there's a range of options from putting tariffs on to the nuclear option of tariffs on all chinese goods. a that would be viewed as bear option. to come out going and explicitly say there's not going to be a trade war. you will be reading this thing like a fed statement. anything that indicates that is the right direction will be positive for markets. of the pillars is no disruption to international trade. anything that signals that might not be the case, you could see a

reaction in the market. alix: westinghouse -- chinese companies want to get in on that. the trump administration is against that. where does that fit into the negotiations this weekend? anja: it might be on the agenda. there may be difficulty there. there's been cyberattacks on u.s. companies, there's been stealing of technology of u.s. companies. the chinese are doing a lot to try to take over american technology companies, especially semiconductors. it's reasonable for the trump administration do not want to hand over our assets to the chinese. this will have a strong role in that. say we willd abe invest in the united states. if china invests, it may be for state owned and a prices. -- enterprises. anja: there are a lot of areas

where we could use chinese investment. in california, the chinese are the fastest-growing foreign direct investment in california. real estate, tourism and tech. we should welcome chinese investment. on are more sensitive technologies, i would be more wary. alix: thank you very much. check out tv . interact with us directly. go to tv on your terminal. this is bloomberg. ♪

jon: time now for today's trading -- initial jobless claims. a.m., thet 8:30 payrolls report. joining us to preview those numbers, carl riccadonna.

the adp report, big upside surprise. then, we do this with the estimates. l: the consensus forecast is 180,004 nonfarm payrolls. for nonfarm payrolls. we could see a stronger number, but not nearly as strong as the upside surprise in adp, smaller businesses with 1-50 workers. it won't be captured as well in the nonfarm payroll survey. storm one big winter the east coast really during the payroll survey week. depresses thethat headlight numbers and secondly, but it will impact hours worked, curtailment of hours due to weather reasons. there will be weird anomalies

beneath the surface. jon: what is the economic framework, the thinking about the labor market? 200,000 jobs every single month. that screams a tight labor market to me. carl: where are those workers coming from? we don't have the excess capacity to sustain a piece of 200,000 plus for the duration of this year. the economy accelerating says the pace of hiring would likely accelerate as well. either, you get a big flareup of which pressure or you start coaxing these people off the sidelines. how much will that work? the i was told that at start of last year, 18 months ago, the pace of hiring would have to slow. carl: you will know when you get there. microeconomics have dirty fluctuations we can operate in.

you will know full employment when you start to see the wage pressures. it looks like we are getting close. not seeing it in the hard data. -- fed has this approach wait until we see the whites of the eyes of labor inflation to be aggressive in terms of hitting the brakes. jon: the headlight numbers are starting to fade -- headline numbers are starting to fade. to really get a boost to inflation, you need diminishing capacity and wages to kick in. i look at the wage estimates on friday that's what underpins it? back at past major disruptions due to snow storms and whatnot, you tend to get a spike. you see things are moving in a favorable direction, but not

overheating or boiling over. jon: when the narrative is questioned, blame the weather? that or thedo tomatoes will come flying at you. jon: we count down to payrolls friday. alix: can we not blame the weather? bill gross will be joining us. we are looking at an s&p climbing a bit higher up the lows of the session, but up by just one point. the ftse a little softer as well. a broader move higher in the dollar. a little bit flat on the day. this is bloomberg. ♪

jonathan: the federal reserve has a new communication problem. sounds sheet norm -- balance sheets of normalization. north korea was little to agree on so forth, president trump welcomes the chinese leader. baking a back to the old days. david cohen set to bring back spiegel. -- banking back to the old days. i am alongside david westin and alix steel. board'ske a look at the very quickly. futures in the united states a little former up by a single point. to 235ries, yields up per alix: your morning brief. we will get weekly initial jobless claims. a.m., john wayne's will be speaking at a panel in frankfurt. he said he did not rule out four rate hikes. tonight, president trump and xi

jinping will be having dinner. jonathan: the reduction of the fed's balance sheet dominated markets yesterday. however, to minutes, officials from the central bank did not discuss how it will shape future rate hikes. joining us is an equity derivative strategist and the fed reporter, michael mckee. what did we actually learn about a balance sheets yesterday? that confirmed what a bill dudley told us friday, the fed is considering ending balance sheet operations by the end of the year. we knew at some point as they would have to a dress but the question was, when? the key is getting a couple more increases and they will start to stop reinvestment. i say start to stop because it was an open question from the minutes pretty do they taper or stop them altogether at a given

point? there is no question. jonathan: amy, did you learn anything? another thing which makes me question where the volatility has gone per a lot of uncertainty and things that will get in the way that got the markets up, another hurdle. when you actually look at the volatility in a ban the market, extremely low. no concern. do a balanceu sheet rollout, they seem to want to do it in the background. is it possible you get of rollout with treasuries and do not see a pickup in volatility? amy wu: i think the fed is cognizant of the market. i think the problem is when investors look to price these thegs, they do not have righteousness of time and the fed gets it. when you do not have this will happen by this time or that, we

cannot really bake in the volatility. to cross overnt to london where the prime minister is meeting with the eu president. the first face-to-face meeting since president may signed article city -- 50. the meeting as a mate -- at may 's office. we will bring it to you later. michael, back to be sad and a balance sheet. are we clear now where we are at with the sequencing? and al to the fed balance sheet. michael: we are clearer. they would like to start by the end of the year, get a couple of rate hikes and then decide the process for ending the reinvestment with security rolloff of their portfolio and get the profits. do they do it immediately or spread that out over time?

the question becomes if you let it start to rolloff, do you do it in the sense we let what matures rolloff or do we have a process, a certain amount each month is being allowed to rolloff but will reinvest to keep it at a percentage basis? that is a question yet to be decided especially on the mortgage side. david: why didn't we have a taper tantrum? wouldn'tanke said we think about not buying much. they said we will sell. the market in our -- we as nearly as much. because we will have instant growth, i guess. i have been skeptical about what we have seen and what is priced in in terms of tax and infrastructure. i am very surprised we have moved that much on it. we are going to a really quiet session. easterer him it will be

and when we get back, four days until the government shutdown. saying itaul ryan will be fine because he has been so right so far. it is something to watch in terms of events. david: speaker ryan came out and said the reason we took on health cap first was because it was easier in contact reform. they had a lot of problems. amy: that scared me. the bottom cut fallout. alix: we saw a reversal day yesterday. the biggest since february 2016 because of what paul ryan said or because of the said -- the fed? amy: they mentioned the valuation of the equity market. i think it was more related to that. even though we have seen a selloff in the baskets related to try them tax reform -- trump

tax reform or infrastructure, even though, that are still up with them since the election. i think there is more room and you do not have an option of markets that is pricing that. jonathan: is im an investor, why should i care what the federal reserve thinks? i would haveast, said it was the most important thing but because all we were looking at was monetary policy. bernanke took the options to keep it at a certain level. i would say the fiscal policy matters a lot more. even though the fed is crucial and will send the market, the fiscal side is much more important than what they will do with the government shutdown and however makes the rest. alix: it was not only equities but real estate and a lot of different parts of the market for charles peabody was more negative. he said of that are quite high and wanted to camp down animal

spirits. do you buy that? a little bit. they want people to be aware because you do not want unstable markets but they do not have any tools besides job owning. you mentioned the list where we saw a reactions. we did not see it in the mortgage which is what the fed wanted to see. , andforest to treasuries they do not react -- in this spread to treasuries and they do not react. they are getting what they want from the communications, understanding where they are going with it. they want more detail but no room blowout in that market compared to others. jonathan: is encouraging to them, isn't it? michael: some said bank presidents come out talking about the market is absorbing the idea it is what is going to come out. jonathan: michael mckee and amy

wu silverman, thank you. elsewhere who have been watching. daybreak is streaming live 7:00 until 9:00. coming up on this program, max is the former u.s. ambassador to china. we discussed the meeting of the 2 leaders of the 2 biggest economies on the planet. that will be a palm beach florida, you are watching bloomberg. ♪

david: this is bloomberg. president trump begins today's of meetings -- 2 days of meetings with chinese president,

chief japan and florida. president trump has pledged to be tough on xi over trade. joining us as kevin cirelli. what are you expecting out of the leaders? and viceesident trump president mike pence top administration officials, including wilbur ross and steve mnuchin will head to mar-a-lago in west palm beach. and they will land at about 2:30 and had into a series of private meetings with chinese officials and will have dinner at 6:30 with the chinese president xi jinping and president trump and respective wives. they are going to all about national security, particularly north korea and trade policy. david: will we get a good idea of the body language to 20 the leaders? -- between the two leaders?

we will not have a news conference? kevin: no news conference as of now. the white house spokesman, sean spicer, will be on the plane. there was concern from chinese officials about why the meeting would it not to be at the white house. they have let go and noted that this is, of course, the winter white house as been described as president trump and left private meetings over the 2 days summit. david: we are hearing health care is back on the agenda. where are they? a seniorspoke with aide to house speaker ryan who tells me the rules committee will meet tomorrow to mark of a bill, an amendment to the health care policy introduced by gary palmer, republicans from alabama and arizona.

respectively say the memo would create a new risksharing fund and that they are working to a final agreement and progress has been made this week. they are trying to show they made some progress coming into the recess next week. they've: thank you. amy wuoining us is silverman and the dean baker. dean, are you going to make a distinction between what we hear on twitter and what we might learn behind closed doors? is a good question. i am not sure whether twitter is our best source of not. i would probably go with behind closed doors. i pay attention to twitter like everybody else these days. alix: we have seen things relatively stable going in the meeting and it can relieve tension. what we hear from the rhetoric

from trump on twitter could be different and does that affect volatility? >> it deftly does. one thing that has happened since the beginning of the election is the options market is a little bit more it mean. -- immune. every tweet was met with volatility and now that has changed and we are more muted each time there is reaction to your other guest's point, what happened behind closed doors is important. when it is a market that does not have some sort of timing, they will say, ok, a trade war. it is difficult. alix: is it about easing tensions or coming to an agreement of chinese investment in the u.s.? that works best for both countries and in terms of what the u.n. will do? dane: president -- dean:

president trump dorcas campaign casted china as a villain that they do not provide access and on and on and the currency area when he sits down at this meeting, he will have to decide what his priorities are. i do not know if he will make his commitment go to the workers who lost their jobs, not that we can get all of them back but we could that the trade of the down by have china raising the currency valuation. he cannot do everything. jonathan: tell me about the back-and-forth about compromise. can the president give them foreign options that they can agree to? and receive economic that appeases him? foreign policy for economics? dean baker: the question is, what would they be? fairlynt trump has said

belligerent things in terms of foreign policy and saying he does not accept one china policy and he is backed away. the issue about the islands in the south china sea is unacceptable. he wants china's help in north korea. he does not walk in from a position, it seems his looking to make concessions on foreign policy and that could come into play. david: we both know they will not come up with an overreaching trade deal, it is too early. sittingthe advantage of down and saying we need to talk about the trade and the process we will do it, is that a major step? dean: he has raised the threat of having a trade war. he was talking about 30%, 40% tariffs. press obama race anti-dumping issue and that is why there is a wto process and that's part of the rules of the game. trump. by randomly imposing tariffs.

if he says we will not do that and we are concerned, we are concerned about the currency. trump was talking about randomly imposing tariffs. it is extraordinary that you have a cruncher -- country growing 6% a year and 2% gdp and you would expect a trade deficit of 2% and that is happens ordinarily were. that would be reasonable. i think of be a great step forward. david: instead of an abrupt action, we agree from xi's standpoint there is agreement and we will talk about back-and-forth rather than act? amy: our starting point was so hard aligned that anything even moderate from there will alleviate the markets. what we were really be watching our vstoxx that would be impacted that have the highest -- are these stocks that would

be impacted that have the highest evaluation. those are went to show up how much the market is buying. alix: what about the fx market? dean said they courageous to -- said they could agree to raise the value of the yuan. amy: is possible. and watchedch etf the fx market to see what what happen. david: thank you to dean baker and amy wu silverman at rbc. thank you for being here. tim wentworth expressed concern. david gore will have the first of an exclusive interview with former treasury secretary since he left the post. catches on bloomberg at 1:00 bloomberg. ♪his is

david: this is bloomberg. drug prices on the national agenda. off, president trump said he wants to put pressure to address the issue more aggressively. joining us is the ceo of a company that plays a major role in drug pricing as the largest manager. scripts.express tim, thank you for joining us today. you really are at the heart of a major issue. let me put it to you from the point of view of a lot of people , they think there's a lot of layers. a lot of people with their hands out to drive up the cost in general. they put your company probably in that category. another company taking is fair

share of profits. respond to that. tim: sure. appreciate a chance. it cannot be further from the truth. if you look at what we do, an important role. a manufacturer says the job. as muchis to create competition for the drug against other drugs and generics. we work directly with those payers that you mentioned, the health plans, state governments, department of defense for the drug in it is possible and there is a line of doing it and the drugs the raise their prices without any value would blame the middleman while at the same time we demonstrated we have a sixth toe one return. it is just a red herring. and weout the currency do not know how much it all works. and it is that beneficial to the system and the patients,

shouldn't there be more transparency among them? >> there's a great deal of transparency as it relates to how we work with those health-care plans. that is a very important piece. the part we have more work to do and a lot of investments is helping consumers understand the best choice and price of the choice and the channel and the drug and working with those consumers to create digital tools and let them navigate the system especially in the context of these consumer driven plan designs is something with taken on as a challenge. a great do could do to help the members navigate to the lowest cost solution and that is something we think there is more work to do on. david: one of the things that's a real puzzle, these huge rebates. familiar with another industry that has as many rebates. what is the purpose and why do we have them?

the way rebates work is they are discovered that are passed through the payers. 90% pass through 100% time and they have gotten very large and drug companies have raised their prices of drugs. we have gone in. i think about our 3900 clients, none of which could achieve what all together can achieve in driving down the cost. as a way to get the net cost lower is rebates. that is the way they have rewarded movement and preference. for us, a simple challenge, get the cost. last year, we did that. david: that lowers the net cost if you belong to a short or fully insured. if you are not, you can have a high co-pay or deductible. we spoke with a new company.

try to put together a union for the people underinsured to try to take advantage and listen to what he had to say. and and thea price retail and that is what lily pays or gets paid by the pharmacy to stop the medication. -- stop the medication. there are deep it -- it are rebates paid that actually have the net revenue that they are referring to could be something like $250. though pharmaceutical company does not make $500. david: is that healthy in your business, making get better or competitor? >> what blink is doing, i was like to blink. it is helping a class of consumers that do not have insurance for whatever reason or finding themselves with a product without coverage and provides a useful service. we are looking at it for those

small population of folks who you hear about. they pay full cash. if you think about the bigger and thousands of people. the rebates using smart plan designs and beyond patience knowing. and one of the problems is for patients. david: thank you so much. express. jonathan: thank you. max baucus, the former ambassador to china. all onublican senator bloomberg. from new york, you are watching bloomberg tv. ♪

jonathan: from new york, this is bloomberg daybreak. that's how the market is set up. positive up 16 points. four points on the dow.

yesterday, the fed officials, high valuation and we rolled over on the back of the fed minutes. them's sheet normalization. -- bounds sheet normalization. 235 on the 10 year. 234 is the jobless claims down from 259,000 in the previous month. , a median estimate was 250 k surprise, a downward surprise but positive that it is good for the labor market. joblessis the initial claims. i want to bring in paul and investmentk rock strategist. paul, let's start with you. initial jobless claims making the market look tighter. what do think about payroll on friday? may be revised up

somewhat. the labor market looks robust. jonathan: we go back to the question, initial jobless , they cannot00 continue and that tells me there is more to go? to go.e is more we will putting with a strong labor market. we will see the unemployment rate fall maybe two levels that will make so many -- some people uncomfortable. >> how much lower? we think the low 4's. you think we will overshoot. alix: or we can handle it? >> i think it will cause inflation. a number of people on the fomc's were read. if you want equilibrium, it is a fact. --eard -- i heard bill doug bill dudley say it. from the lows, there is always a recession.

roaming down the hill, you cannot stop it. dave: how do you invest? ft and people hide out in high yields, a pretty worriedry, if you're about rising rates, you might want to carry a buffer. 36 billion dollars into fixed income this year alone. we see investors wanting fist income to cushion against the volatility and equity markets. david: it is fair to say there's a flood of money of every sort. is that exuberance? are seeing a fundamental shift for efficient ways to handle portfolios from retailers investors, etf has grown up as a pool to navigate more efficiently. david: we hear there is a stock british market. it is essential you pick stocks. >> we are seeing the separation

between out for and beta, people ha and beta, people want to pick. jonathan: how to invest around it and a lot of people talking about saving deflation, do you see it in the data? see it in the data. the data looks robust. job creation is good. is,worries that people have will the administration deliver on the tax reform? the way things are shaping up to him a it is the end of this year before we will see it. we may see people lose more faith. jonathan: on friday, the wage 2.8 once2.7, down from on a month. not quite bubbling away hot, hot, is it?

>> wages are going slowly. a steepd slope but not one and that is encouraging the doves on the fomc that you do not need to rush. alix: where are we seeing tightening? there were contacts of that the districts are finding difficulty finding qualified workers or rate their wages. where can we look for that again? >> all sorts of different businesses. tech is one area. construction is another where if we got infrastructure imitations on immigration, that will be a key area of titan is going forward. alix: -- a key area of tightness going forward. -- alix: we got softness. loans were softer. confidence has not lived up. when do you see that turning? think the downturn in some of the long growth is puzzling

why that has happened. i think that is because of the cycle is a little bit old, maybe some of the big profit opportunities are not there. a danger of running out of steam and that is why the fiscal stimulus is important to give this economy a shot in the arm and keep that going every and live in advance. jonathan: the fed minutes, for the fed, they are about stock evaluations. what you make of that? they do not base the want to burst the bubble. they want to make sure they are doing in a gradual and measured way. that is the balance they try to find. how do we not tip the economy into a slow growth or no growth and keep things normalized? jonathan: we have something from the federal reserve should be weighing in. >> it is something they messed up in 2004 and 2006. the references to the stock market yesterday tell us why

they moved the rate hike to march because of stocks. .hey are very sensitive how will they hurt stocks if they are so predictable? a very predictable fed gives low volatility and high valuation. like a cat chasing his on tell. i do not think they cure evaluations in this way. do not see that as a window to move but the federal reserve trying to push back against exuberance? >> i do not think they are trying to push back but they will say the stock market isn't super it and maybe we should go -- is exuberant and maybe we should go sooner. in fact, they eased it. jonathan: explain it for me. [laughter] >> a rate hike out of the way. people take the point of view they will not go for another three months. they are reluctant.

given that how they are about weres, if the stock market to fall, they would back off. they would backpedal. stories freerent us stocks on the hope of deregulation and stimulus and now the markets wanting to see it in the data, questioning that. >> we tend to talk about the united states, there's a global market that goals on. what we are seeing globally is the rest of the globe taking off, growing for the first time. does that affect you by saying we should rotate out of u.s. etf's into international? going to people feel more encouraged about the u.s.? side, we seeity people have hidden stocks because the currency is so long that the currency volatility that you have to have a view. for the bond market, for an

interest in u.s. fixed income because of the one place to get a yields. they are accessing it because it is an easy way to do it. alix: ok. karen schenone and paul mortimer-lee, upgrading his job forecast. >> 190. alix: emma chandra is here. emma: a showdown over the supreme court nominee, neil gorsuch pretty democrats will try to block of vote with a filibuster and republicans said it will force them to use the nuclear option that would change senate rules. the white house is putting house in a revised obamacare replacement bill. the changes will create a new risksharing fund for the seriously ill. the committee is making last-minute plans to consider the amendment before the spring break. it is unclear when the overall bill would go to the house

floor. a asia, south korea tested ballistic missile. a news agency said it has a range of 500 miles. it is capable of reaching anywhere in north korea. the military is not commenting, it could raise tensions with china. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am . david? david: jobs friday. all-star lineup including the bill gross and rick rieder all right here on bloomberg. ♪

emma: this is the hewlett-packard enterprise greenroom. common go up, david gura will

have the first exclusive interview with the jack lewin since he left the post. catch it on bloomberg television and radio at 1:00 p.m. eastern time. ♪ emma: time for your bloomberg business flash. the white house economic adviser david cohen is supporting a policy that could reshape wall street's biggest firms according to people familiar. the former goldman sachs president said he liked a separate wall street this is his from investment -- businesses from investment banking to bring back glass-steagall which was repealed in 1999. marcus backing of bullishness toward china. investors said chinese stocks traded offshore are too expensive and a 20% jump in tech stocks and that chinese index at the highest level in a six years. he told bloomberg he believes president trump may be able to

climb a victory after his meeting with presidents china, chi jen pink. -- xi jinping. >> china has the same trump because of the health care. i think they will will be positive for trump. he have to announce something positive and the chinese have to give them something positive for his constituents. i am reasonably optimistic. xi's intention is to build a positive relations with the u.s. david: as we prepare for the summit later in florida, where fortunate to have the past ambassador to china, max baucus. before his too in duty, he served his home state in montana center under 36 years. he joins us in montana. welcome. glad to have you. your voice.ear

david: i do not know if you hurl walmart t -- if you've heard say.mark toibus had to he said president trump needs china to save him from his at a couple of setbacks with his ban on immigration and health care. can china, ken president trump count on china to really put his administration back on track? >> it is an interesting comment. china is very well prepared for this. they have spent months and months and they are good at this. they have an agenda. that allows them to maintain their stability and their main goal which is to be not too far down the road is to be -- and they are very focused. and they have championed a lot of their homegrown industries and that's oneweb a lot of trade

barriers. that is why -- and they have a lot of trade barriers. china may see an opportunity and maybe we can help president trump at a little bit and keep the relationship on a stable basis. and maybe announced investment projects in the united states, something specific that president trump can tweet about and take credit for and that is that. that does not get to the heart of the matter. it is the fundamental structural problems we have with china and trump will have to work to address is that. david: you suggest is something interesting. china things in decades and centuries and not 30 second sound bites. the president seems differently oriented with his twitter approach, is there a way to threaded that needle? off trackot getting strategically, but at the same time have the president clue away with winds.

journaling -- boeing jet, dennis they would purchase bone the jets? -- they purchased -- they announced they would purchase bone with the jets? -- boeing jets? >> the president said he would impose a 30% tariff and they said we will not buy boeing will we will purchase airbus's. china is the second largest economy in the world, rising power and they have an agenda and a form of government that is , very, not transparent, very different challenge the united states faces. and what to show that we are not going anywhere, we will maintain our. privacy president trump about america first and the problem is, american leadership, not american only but american a leadership. we have to maintain our

leadership. president trump have to show it to president xi, we know what we are doing and we are calm and we're not going anywhere and we are not going to let you bully us. jonathan: there was an issue policy andchina one that seems to be a dressed. is their strategy here --

david: this is bloomberg. i am david westin. as president trump meets with president xi jinping, congress at the center with the fights over the confirmation of neil gorsuch. speaker ryan that

as hard as health care was, tax reform could be harder. on the phone is john farrell. thank you. -- thune. speaker ryanbout and where you think things are with health care and tax reform. we were focused on those two subjects. where do think we are headed and what is the timetable for these initiatives? >> it depends entirely on how quickly the house can get the health care debate to restart sprint it had discussion at this week that the vice president was involved with as they did not lead to a result. it sounds like they are getting closer. the house will have to figure out what they want to do with that and how to get to 216. does the health care debate is important for many reasons and one is in excess of tax

reform. we want to do health care reform first because it frees up about $1 trillion and the baseline to do tax reform. as for the ryan pointed out, it will not be easy. ryan pointed out, it will not be easy. to perform the tax code and get the rated them from the house proposal from 35% to 20% would be huge. we are committed to doing that. when it comes in remains to be seen. david: can you get it through without the democrats? that is thee: question. a function of to get 216 they have to get democrats or makepeace between the moderates in the house and conservatives in the house and in the senate, if they use the reconciliation vehicle as debbie republican only exercise, i am a fan to do it in a bipartisan way. that is the best outcome.

david: we have neil gorsuch up there in a filibuster, is the nuclear option going to be invoked tomorrow? senator thune: i think will have a series of procedural vote to get an up-and-down vote on judge gorsuch sometime tomorrow. we think it is the way it should be. we wish we do not have a democratic filibuster to deal with. we will beter today, on a way to his confirmation at some point tomorrow. david: will it be an affront to democrats which will make it difficult to go along with health care or tax reform? senator thune: it is baked in. they expected it. they announced that if hillary clinton won, they was set it up like this and they moved the threshold to 51 for an executive branch nominees. i think everybody knew this day was coming.

everybody's anxious to move on and to deal with legislation. david: the last time we spoke, we had steve mnuchin said he thought that will be tax reform in august. do you still think it's possible? senator thune: it will be a heavy lift. things would have to really line up well and depends on health care and how health care goes and if the baseline dollars are available and whether we use reconciliation or not. i think it could be end of the year exercise. david, thank you senator john thune. jonathan: we are counted you down. you are watching bloomberg television. ♪

jon: the federal reserve ways in

on a floppy market. trade, currencies and foreign policy. president trump welcomes the chinese leader to the united states. taking banking back to the old days. gary cohn said to support bringing back last eagle. -- glass-steagall. a warm welcome to "bloomberg aybreak." 30 minutes away from the opening bell. on theed over yesterday back of those federal reserve minutes. , yieldsreasury market higher by a single basis point. euro,rginally weaker stronger dollar story emerges. payrolls friday. alix: a lot of movers to the upside.

revenue beating estimates as well as eps. restaurant margins rose by 3.7%. retail coming up with same-store terrible.hey weren't bed bath & beyond beat its earnings estimates for the quarter. most of its sales came from online, up 20%. of onlinea lot acquisitions. that is paying off for the company. ands sees april just down by low single digits. pictorially secret hurting them on the sales side. 's secretioua hurting them on the sales side. whiskey sales -- the computer dividendsaising

5%. david: the federal reserve released its minutes from its march meeting and the markets reacted yesterday. mike, there's been a lot of talk about the balance sheet discussion. they also talked about the valuations in the stock market. mike: some thought they were getting away from fundamentals. the san francisco fed president saying that is a concern, something they are watching. if you see big corrections, maybe people pulled back on spending a little bit. they're big concern is any kind of systemic problem. big concern is any kind of systemic problem. the two things are connected. the whole fed balance sheet has been designed in a way to boost

the stock market by making bonds more expensive. crisis had the financial and the markets tanked, the feds started up qe and they've risen almost in lockstep since. if the fed starts pulling back on qe, does that have an effect on the stock market? david: if they are concerned about froth in the equity markets, that might confirm their instinct to start rolling off on the balance sheets. mike: they don't want to support as much as they have been. then, how do they do it without causing the markets to tank? they want things to settle down, but they don't want to cause a correction or any kind of crash. david: everyone seems to agree they don't know yet. i haven't heard anyone suggesting the mechanics, how they are going to do it. mike: they are looking at their models. with treasuries, you can pretty much figure out what is going to happen and they can set a pace.

mortgages are the real problem because you bring in prepayment -- you don't really know what's going to happen there. do you set time limits? those are things to be decided. an: i want to bring in my first advisor -- question is whether we are witnessing the slow death of a central bank put. >> definitely. they are taking a step back. is economic momentum sometimes a bit overlooked. everyone seems focused on the political shenanigans in d.c. or even europe, the french presidential election. there is a global economic recovery touching all parts of the world. jon: why with money flying into e.m. yesterday? why were treasuries so well bid yesterday? investors are listening to

the fed when they're talking about the equity markets, but not when the fed is talking about the fixed income market. we still have a lot of investors in this mood looking to profit. we are seeing inflation grinding higher everywhere in the world. we are seeing the momentum accelerating in the rest of the world. that is calling for a lot more active management. a lot more selectivity than just seeking that dimension. jon: what we have to see european growth pick up that much more than u.s. growth? jean: there's a gap between the u.s. and the rest of the world that is reducing. and doesn't mean japan europe are going to grow faster than the u.s., but the gap is going to shrink.

the inflation number over the last 12 months -- the gap trunk. gap shrunk. alix: the output gap is closing more effectively here then europe -- than europe. jean: this is calling for the acceleration in the rest of the world. one of the biggest risks for the u.s. economy would be to have a poorly contracted stimulus program which would be too strong, too big at the state of the cycle when the u.s. economy is close to full employment. all the discussions are concentrated on this to me was program. they are missing the big picture. jon: you actually think we will get a big stimulus program? --n: they are much closer you are much closer to this than i am. canway i think investors

to factor some segments of the market where you are not just year to work this to mills program but also geared -- geared toward this stimulus program, but also geared toward more credit versus dennis payments -- debit payments. you have this big underlying thingsf internet payment investor, you are not taking a directional view based on only what is happening on the political front. it might not even be the best offer. david: in the last 24 hours, we've had views from the ecb and the fed about respective economies in europe and the united states.

there was some divergence there were the fed was relatively more bullish. the ecb is fairly cautious. you think the difference in the growth rates are going to close. who is right and who is wrong? jean: it is going to shrink. david: which one right and which one is wrong? jean: every central bank is looking at their own area with regards to specificity. i don't think that that has a real view on the global economy. ones who are very global and can have a global view. , what we are talking pronounced inflation -- the fed had the luxury of already starting normalization programs. the ecb still has to communicate

and decide on its exit strategy. they are forced to be a lot more cautious with regards to that. when you look at the wage increase in the eurozone, obviously, it is not a very high number. it shows you that things are going in the right direction. the momentum is favoring additional pressure on the ecb to start normalizing at some point. , economics sayt sell french debt. the politics say sell french debt. why yields at 90 basis points on the 10 year? jean: there are two reasons which are linked to that. where the german yields are staying right now. the french debt being part of core europe tracking lower because of the german rates.

maybe it makes sense for the german rates to be at 0.3% with the growth in europe. you are seeing this strong correlation between the spread of the french debt and german debt versus the french presidential election. that puts a lot of linkage between what's happening in terms of the coming election and the spread, which is wrong. nhis remains a uncertain election. we have a high number of voters who are still undecided. the question for french investors is to ask yourself, this is something i have limited visibility on, how can i build a portfolio to whether this event -- weather this event?

japanese yields at six basis points this morning. coming up tomorrow, jobs friday. an all-star lineup. big adp upside surprise yesterday. initial jobless claims grinding ever lower today. when 80 -- 180,000 the estimates in our bloomberg survey. ♪

david: this is bloomberg. later today, we will start the summit down at mar-a-lago between president trump and president xi. a wide range of things from north korea to trade.

we have our chief washington correspondent down in west palm beach. kevin, let's focus on trade for a second. that's what brought us to this dance. candidate trump was adamant about trade, particularly with china. we have wilbur ross and robert litan heiser. kevin: a hefty portion on trade. this will significantly be all about trade. , thenn the campaign trail candidate trump was quick to say that china was a currency manipulator, even before he was running for president, he would trade andt about currency manipulation that he feels is one of the central issues that propelled him to the white house. he has since backed off of that labeling of calling china a currency minute later. s manipulator.

president trump called on administration officials to review the relationship that the united states has with other countries, including china, where there are trade deficits in order to work to correct those trade deficits. the specificsnto of nuclear energy or the auto industry, these are the specific areas that people like treasury secretary steve mnuchin and commerce secretary wilbur ross, who will be accompanying the president on this summit trip, that they will bring up during their meeting. david: you've covered the transition. from your reporting about the president and the people around him, has there been a fundamental shift away from the unilateral approach to a more measured approach? you mentioned wilbur ross. is there a likelihood they will shift to that rather than a

one-off grand gesture? kevin: yes, we've seen reports publicly and privately that they are looking to target more specific countries one at a time. they have not issued any specifics on a timeline of which countries. they have said that perhaps the u.k. might go first or a renegotiation of nafta with canada and mexico. chinese and u.s. officials are saying this is just step one. this is just laying the groundwork for future meetings. david: you have a good time down in west palm beach. kevin: it is very nice. i want to broaden this out a bit to talk about putting together a portfolio in this world. after the election, people were very bullish about tax reform and fiscal stimulus but nervous about trade. portfolio together a

today, to what extent does the possibility of aggressive u.s. trade action influence which companies you invest in? jean: trade negotiations do influence the way we invest money. when you look for example in the u.s., if you want to capture acceleration come a sector like u.s. airlines is much more insulated then the auto sector -- than the auto sector. moren't know what form the -- whether there is incentive for companies to relocate. obviously, this will happen impact. to the overall trade question, the misconception is what could be the loser -- people are talking about china. regardsmind, trade with

to the overall size of the chinese economy, it is a relatively small part of the chinese economy. they have a vibrant domestic market. in two or three years, the chinese have been gradually gaining market share. jon: this concern about trade that i wonder how much you are sacrificing potential performance. em ripped through the first quarter and we were worried about trade. you would have missed out. how do you do that? jean: it is a perfect example. canway to do that is you cherry pick your sectors and stocks which are relatively insulated from these kinds of trade worries. at the same time, capture the upside potential. you can go into more domestic names in china.

therefore, not being exposed to the trade worries. equityot just an em story. story. also an em bond in particular in latin american local debt like brazil, argentina or mexico. jon: are you encouraged by the bottom-up story or just the dollar story? jean: what you have now and it is a pretty strong story for a country like brazil is a virtual cycle where you have unorthodox monetary policy, inflation collapsed -- we were beyond 10% just a year ago. easing cycleng an from the central bank, which is giving more juice to the

economic momentum. em is not just about equity. it's also about fixed income and picking the right sectors and stocks which are relatively insulated from those worries. alix: what kind of dollar do you need to support that? jean: a much stronger dollar would be a weakening factor for the e.m. trade. be --llar strength will the rest of the world is catching up with the u.s. one of our ideas at the start of the year was actually to believe that rather than seeing the dollar strengthening, we should see the dollar may be weakening a bit worse than where it is. -- or staying where it is. alix: coming up, jack lew. his first interview after leaving office. it is exclusive here on

bloomberg at 1:00 p.m. eastern. this is bloomberg. ♪

alix: a shakeup at unilever. the ceo announcing an overhaul ,f the consumer goods giant cutting advertising costs and boosting buybacks. this comes after the sale of a $130 billion takeover bid from kraft heinz. deborah aiken joins us. to do a bigbig push shakeup and maybe's been off its food versus personal care business. why didn't they go that route? >> that is something being looked upon the last 10 or 15 years. -- company will always say

when the kraft heinz deal first came on board or surfaced, we look more deeply at the food business and it has strong margins. it is a cash cow for the company. alix: what they did today, isn't enough to fend off another bid from kraft heinz? deborah: the stock price is telling us that. the company is top 30 shareholder return. it just had some areas that were dragging the spreads business. out.is being pushed it's looking at shareholder returns, a share buyback. the shares rallied 20%. when there's a lot of movement and a lot of

reorganization within these sectors, it's doing a lot in -- that will help, too. jon: they were the target. have they become the acquirer anytime soon? >> they always have been. before, there were a lot of decent sized big deals and premium personal care. they are spending $3 billion on acquisitions. this could go to $10 billion. jon: the big consolidation story -- people start looking at the value of that. do you expect big consolidation in this space? >> we are obviously seeing it happen. if we look at what's happened in food a couple of years ago, we had a huge amount of acquisition. that has taken place in the beverages space.

we still have the integration of coke -- proctor and gamble being more standalone. a huge amount of deals taking place with revlon and others. jon: great to have you with us, itkin.h ia 500.ur points on the s&p a session in the bond market, treasuries unchanged at 2.32. from new york, you are watching bloomberg. ♪

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up four points on the s&p 500. here's the other asset classes. treasuries unchanged at 2.32 on the u.s. 10 year. we hold on to the 100 handle on the dxy. that is how you set up this morning. let's cross over to alix steel. alix: the dow jones is off by about two points. s&p unchanged. the nasdaq slipping into positive territory, up .1%. -- flipping into positive territory. day sincet reversal 2016 -- nymex crude up over $51. at&t and verizon and t-mobile -- all off by 1-2% at the end of the day.

net neutrality is unlikely to get a rehearing in adc circuit court and would lead to a potential change with the sec -- they can charge more. that's why you are seeing the stocks move lower. getting hit harder than the rest, but marginally. they see more competition on unlimited data plans this year. u.s.ery pleasant for wireless carriers. what prompted the reversal in the s&p yesterday? tax reform could take longer than estimated. this white line is those companies that have a high tax rate. the blue line is the s&p. we have seen an outperformance of those companies that have a high tax rate ever since the election on the potential of a 15-20% corporate tax rate.

seeing them either trade in tandem with the s&p or underperforming s&p. the timing, the goal is august. take a listen. >> that will be a heavy lift. things would have to really lineup well. it depends on how health care goes and whether or not the baseline dollars are available and whether we use reconciliation or not. ,on: joining us from pittsburgh the chief investment strategist -- tax reform. even say it is 2018, maybe 2019. this that change anything for you? -- does that change anything for you? mark: it does. market participants put a pretty big down payment on cortex reform. corporate tax reform.

having something to do with the fact that it could have been a potential windfall to corporate profits. some estimates being another $10 and earnings. -- in earnings. , earnings will have to do the heavy lifting. that is a tall task given the low economic activity around the world and the fact that profit margins continue to be squeezed by rising wages. jon: the bulls out there will say the earnings will do the heavy lifting. earnings will deliver. what you say back to them? mark: that is my base case. i am in line with consensus. the other side is perhaps some of the stimulus we saw in terms of low interest rates here in the u.s. and what china put

forward at the end of 2015 -- we have done a round-trip on the stimulus. that is set to fade here in the second half of 2017. if that's the case, perhaps a higher interest rate costs puts additional friction -- and debating and pulls of china into the emerging-market complex and falling commodity prices could be unsettling for investors. alix: we have not seen that reflected in earnings estimates at all. the white light is 2017 earnings revisions. the blue line is the five-year average. the yellow line is the 10 year average, it has normalized. we'll be see those revisions come down quite a bit -- will we see those revisions come down quite a bit? mark: we see expectations for 9.1% for q1. there hasn't been much in the 42017, whileons --

it continues to see some degradation in terms of the total earnings for the s&p 500 to just $130, maybe there's a chance they get marked up ultimately as some pessimism was built into those earnings. were expecting something on the order of mid-single digits, should we not get that kind of windfall from fiscal initiatives, that's a set up for the market to go more sideways. -- ifthe fiscal argument you play those cards recently, you would have missed the boat. what is the right play, then? mark: i think you are right. on balance, stocks are still poised to outperform bonds and cash going forward. even if it is not as parabolic as we've seen postelection.

00 inarch 1 high of 24 the s&p 500 -- we will cds and earnings growth. -- we will see these and earnings growth. -- decent earnings growth. that is where stock prices will fall, better than the bondsative given that will come under some pressure by year end in terms of higher interest rates and percolating inflation. cash will continue to yield zero on an inflation-adjusted basis. david: what is the canary in the mine shaft? is it cap x? when will ceos open up their check books? mark: that's what we are all weting for, the moment --

see contracting business investment over the last three years. if you look at sentiment surveys , they are off the charts. confidencence, cfo motherduke measure what t small business optimism, company leaders are raising plans. -- cfo confidence by the duke measure, the small business optimism, company leaders are raising cap x plans. that confluence of factors will lead to business investment. , loadingcyclical trade up on beta, what are you most cautious about? cyclical trade as it relates to industrials and materials stocks.

forward a lot of expectations on global activity and infrastructure spending. we are going know to see -- as it relates to equity markets that are beta on which alreadyts outperform the s&p 500 by 200 basis points on the year-to-date basis. i expect that margin to continue to persist if not expand. i think europe relatively speaking is in better shape than the u.s. alix: thank you very much. gary cohn says he supports the policy that could radically reshape wall street's biggest firms. s&p financials index is the second worst performer so far this year. , the rbcs from boston capital managing director. what would be the 2017 version

of the glass-steagall act? >> they want to take away the investment banking activities from the consumer banking part of the universal banks. i'm not convinced that is the best strategy to go with, but that's the idea being kicked around, so-called glass-steagall 21st century. alix: which banks benefit the most? >> goldman sachs. they don't have a very big commercial banking entity. the universal banks and investment banks, goldman sachs and morgan stanley, for them to support this, they will need to see less regulation in the investment banking world. they are not that interested. david: we have breaking news. house intelligence chairman nunes is stepping down. this is the republican heading up this probe.

an amazingly strange exchange where he went over to the white house commitment with unnamed officials and got access to the documents, came back and went back to the white house to inform the white house of what he learned the day before from white house officials. concerns about the relationship between the trump campaign and the russians. jon: he says charges against him are entirely false. conway will temporarily take charge of the russia probe. david: the interesting thing for have a senate side, they joint committee doing the same investigation and they've been holier than thou saying we are not partisan on our side. the main point of this is distraction -- no one knows where this all ends up. when you are spending this kind figuringn capitol hill

out the context between donald trump and the russians, they are not working on tax reform. alix: you have democrats and republicans agreeing they want to have more of an investigation. does it actually give them a unifying factor to jump off of? does it wind up being beneficial for health care or tax reform? david: if this can get it behind them. jon: away from the soap opera of the russia probe and the seriousness of it, the health care issue in the tax reform issue. the potential for the white house to reach across the aisle and try to get democrats on board. if you got this going on in the background can what's the potential to reach across the aisle to achieve absolutely anything? given the starting point was already difficult. david: tomorrow, you will use the nuclear option and override

the democrats. it really raises questions about getting anything done if you cannot get democrats to go along with you. the chinese premier coming down to florida to meet with united states president. we questioned the former ambassador to the chinese -- questioning the organization of this administration. you don't have a team to go down to talk to china -- things are getting difficult. david: people are treating bad motives. it's just incompetence. people attribute all kinds of conspiracies. people make mistakes. jon: let's get you up to speed on the session very quickly. higher.ities up a bit you are watching bloomberg. ♪

emma: this is "bloomberg daybreak." coming up at 1:00 p.m. eastern today, an exclusive interview with former treasury secretary jack lew. this is bloomberg. david: this is bloomberg. breaking news in the past few minutes. house intelligence committee chairman nunes will be stepping down. this is devin nunes. he's been in charge of the joint committee probing the question of the russian connection with donald trump's campaign. joining us from palm beach, florida is kevin cirilli. you didn't go to palm beach to

cover this one. how big of a distraction is this for the administration? kevin: president trump hasn't even taken off from washington to come to florida. already, the fallout reverberating down here as well as across the beltway. he's blaming left-wing activist he says they have filed complaints against him, politically motivated attacks. sure what exactly is in those filings. this will lead to several questions about who will take over for him and whether or not there will be a special prosecutor, something some republicans and virtual all democrats have called for. nunes hasgressman said the charges against him are "entirely false." we've already had an attorney general recused himself from any

investigation having to do with us. now, we have the republican of thesman in charge investigation on the house side is stepping down as well. where does this all end? kevin: when you put it in the broader context of what the admin's ration has done this week in targeting former an essay advisory susan rice and raising questions about rice's involvement in the previous administration, they will look to see who the replacement would be. nsa advisor former susan rice. tweeted outump several weeks ago addressing the so-called wiretapping. there's no evidence to suggest formal wiretapping. administration officials backing was --that, saying it

this will lead to more questions about who exactly will take over the investigation. if you look at public polling and talk to folks in west palm beach or washington, people want answers. they want a bottom line on what exactly happened during the previous election. answers onicans want susan rice. democrats hammering for questions about previous trump campaign officials. jon: house speaker paul ryan sends out his response. trustnunes has earned my over many years -- alix: he continues to have that trust. however, he doesn't want this to be a distraction for the house intelligence committee. a paper statement from paul ryan. he has confidence in the new chairman, mike conway.

he says he will oversee professional investigations into russia's actions. start this really did saturday morning with tweets from the president saying he had evidence that president obama had wiretapped him at trump tower. was there any evidence of that? goingss been nunes oddly up to the white house to review documents and coming back to the white house saying there's documents i've seen -- this started with a tweak the president. -- a tweet from the president. gave achairman nunes press conference on capitol hill trying to walk that political tightrope of being someone who would be impartial to investigation that his committee recusing himself from

-- they are interviewing jared kushner and paul manafort. they have again tried to have those interviews. i asked chairman nunes the other week whether or not he would call other officials to be interviewed by the committee privately and publicly. he said he didn't want to have a political witch hunt. that illustrates the position that he was in. facingend of the day, intense political pressure from within his own party. that should be noted here. it was also within his own party. people like senator john mccain. he is recusing himself. jon: stay with us. we take a look at what we are expecting over the next 48

hours, we were expecting potential news between president trump and president xi. this now seems to be front and center. >> this is a perfect example of why washington has taken none of these anti-china trade actions. washington is distracted. it is obamacare repeal and replace, north korea, intelligence, obama wiretapped me -- on and on, a long list. and washington doesn't know what to do. these things have left him a stone cold dead in terms of any progress. alix: we are getting house speaker paul ryan speaking. he is stepping up to the podium. coming up with a paper statement that he does support congressman nunes. conway, whoorts mr. will be taking the helm of the

house intelligence committee on russia. there is bipartisan support for both. speaker ryan taking the podium right now. speaker ryan: this has been a very productive week in the house as we continue our efforts to repeal in her place obamacare. this promise is just too important and the consequences of inaction are too dire for american families for us to give up. that is why over the last few weeks, we've encouraged members to comeoss the congress together to try to find consensus. i want to thank kevin brady and greg walden for being so engaged in these conversations and talks. we have made some real progress this week. that's why we are all here today. we have come together with a new amendment we all believe will -- this brings us

closer to the final agreement we all want to achieve. this idea was offered by our two most conservative members. it has been embraced by a broad spectrum of our conference. as you can see by just a few of the members here today. i will let the authors speak more about it. this amendment would create a new federal risk sharing program. a high risk pool that would the work costs for people with pre-existing conditions and lower costs for everyone else. i've asked the house rules committee to mark up this amendment and add it to what we were considering before. there are amendment makes this a much better built. makes this andment much better built. -- makesch better bill this a much better bill.

this will help us build momentum for delivering on our pledge to the country. i would like to ask the majority leader to speak. >> thank you all for being here and good morning. the result of the past couple of weeks have been progress, valuable progress. that shows in who is standing behind us. a microcosm of our conference from every aspect and every caucus and every group. each and every day, we've moved closer and closer to finding agreements in the best way to repeal and replace obamacare. you can already see some of the results. the rules committee is going to meet to add and a movement to the american health care act. amendment to the american health care act. the risk sharing program will lower premiums for the american people. improvement on our

bill that will bring the american people closer to our ultimate goal of repealing obamacare and replacing it with something much better. the work throughout all three committees has been tremendous. , working alsod with other elements and everybody throughout this congress, that there are a lot of great ideas. thank the chairman -- i want to bring up mr. palmer. thank you. i want to say how encouraged im with the progress we are making on this bill. keeping our promise to the mac people to bring down premiums and make sure we take care of people with pre-existing conditions. we have a model for this in the state of maine. they have this risk sharing arrangement that has worked very

well there. it has increased the number of people who are insured. alix: members of congress speaking about the health care law. find ae trying to consensus on the health care bill and real progress was made this week. no mention of devin nunes stepping down from the house intelligence committee. jon: more coverage on that throughout the day right here on bloomberg television. here's the state of play across assets. futures firmer come equities firmer as well. we are up 32 points on the doubt. bloomberg markets up next. you are watching bloomberg. ♪

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we will take you from new york to london and beijing. chineseics, the resident is due to touch down in florida and just about an hour for a critical meeting with resident donald trump. we will outline what they could discuss and their first ever meeting. vonnie: and finance, gary cohn ys