the political tea leaves. the french election becomes a four-way race. fed officials talk about the sheet, and the exit plan is less clear. barclays ceo will be reprimanded, the bank will cut his pay. regulators begin to investigate how they try to unmask a whistleblower. from new york city, good morning, good morning. i'm jonathan ferro alongside david westin and alix steel. a short-term trading week. let's get you up to speed. futures on the s&p 500 in the united states, stable, unchanged. treasuries bid on the margin, 238 on the u.s. 10 year. alix: time for your morning brief. 10:30 a.m., rex tillerson will attend his first working session of the g7 were in ministers meeting in italy. this time, it might be different. we will get $24 billion, will

there be the demand? and fed chair janet yellen speaks of the university of michigan. we will bring that to you live on bloomberg television. balance sheet clarity. david: meantime, geopolitics have been front and center the past few days, with the u.s. missile strike at syria escalating with russia, and moving a carrier group near the korean peninsula. markets have not reacted strongly, although the credit suisse sphere index indicates that the cost of buying protections on equities have reached their highest level. before that, it was the election that was low. joining us on the television, ian bremmer, president and founder of eurasia group. ian, take us through what's going on. what is the most important thing in geopolitics of the last several days? >> well, the market is not reacting much in part because everything that has happened by itself is big -- the question is

it all moving together. the u.s. could get it self-involved in morass of a war in syria, con front directly russia and iran, but a one-off strike against the base is already flying missions again. it's a big deal because it comes from nothing. the u.s. had its summit with xi jingping, and it wasn't a great meeting, it didn't make any headlines, they didn't move the needle much, still problems on trade and north korea. now they are moving a straight group into the korean peninsula. thatly there were warnings the u.s. might engage in direct military strikes against north korea, but so far, unless that happens, what we have is a lot of bluster. i think what we have is a lot of geopolitical confrontation, but so far the action is limited. rate into what the

trump administration is doing with respect to syria and moscow, that they are trying to walk it back? rex tillerson said specifically they are not changing the fundamental strategy in syria. >> i think russia policy from trump has depended on who you have listened to. you had nikki haley, the ambassador to the u.n., who sounds just like obama's ambassador, talking about regime change, assad must go, the russians are supporting him, that's unacceptable. tillerson's relationship with the russians has always been strong, and he will be the elder statesman anywhere in the world. you would expect it would be with the kremlin. you would expect them to be going after boris johnson, who canceled last minute. the meeting he was opposed to have with putin was taken off the agenda. russians and arabians just past their own redline and they said they would see direct military pushback from the russians and the iranians. where the relationship with the

u.s. and russia stands now, it is worse than we have seen in decades, including under the obama administration, not what anyone expected. david: which is more than a little ironic, considering the concerns when he came in. turning down to china, no big -- turning now to china, no big headlines. although they did agree they would have a 100 day period to negotiate trade terms with agriculture and financial services. does that an indication that the trump administration has changed its approach to trade with china? >> look, i think the approaches that trump was never going to make a negotiation with china himself. men now have a direct relationship they can count on. that happens off the headlines, you didn't have the media saying how did the handshake go, scrutinizing every possible move like they did with angela merkel. it's to his credit. but you saw him tweet the

following day, where do we go to trade, that remains to be seen. they have 100 days to kick the can. but wilbur ross and others in the trump administration on the economy are anywhere from moderate to extremely hawkish on china. the chinese definitely have the ability to negotiate with the u.s., but they will not capitulate, and a lot of u.s. corporations are quite unhappy with the level of access, something that the trump administration has said is the chinese eating our lunch. it's a long way to go from here to 100. still, it is much better than direct confrontation between two leaders. david: ian, thank you for joining us. ian bremmer, eurasia group founder and president. jonathan: we want to bring in the amherst pierpont global strategist. great to have you. let's start with geopolitics. america first. that we were informed there would be fewer foreign policy

entanglements, and then this. what do you make of it? >> reality often gets in the way of the best laid plans, and i think this is the situation where the administration came in, wanted to focus on america first, wanted to focus on job development, etc., and international developments got in the way. now there is a reassessment going on as to what the priorities are going to be, how they are going to respond. whoooks like steve bannon, was really the driver of america first, is a little bit on the outs right now, a reality of international pressure. jonathan: so you genuinely sense a real strategic shift within the white house? think the white house had hopes and expectations as to how they could drive the process going forward. every incoming administration has that. i think that's what we are dealing with right now. how do we respond to these developments on multiple fronts? as ian said, there is not one

clear driving force, but a lot of little ones going on. jonathan: here is a question, then. we wake up this morning, market participants struggling to grapple with what this means for them. do you sense the bleed across from the collapse of america first? does that bleed into other policy areas? >> i don't think it does at this point. i think the administration and congress will be moving forward on tax reform. i think the health care debate gets pushed to the side. tax reforms with the markets in the u.s. have been focused on, and i think they will move on that going forward. the question is can they move on that, or are there going to be more international entanglements that distract the administration away from that. i think congress is really pushing on the tax reform process. i think they can continue to do that even if the nutrition gets pulled into other areas. alix: the emerging-market

currencies -- how do you factor in the geopolitical risk? >> if anybody belongs in the rowboat it is a good time to be taking some progress. can wes is an issue of drive forward with rational policies to enable growth? we have had a good pickup in global growth, or are we going to get slumming in growth because of the geopolitical uncertainties? i think there's a risk that these uncertainties begin to impact markets around the world. we have seen a solid momentum already. alix: but on that company level, glencore have that stake -- there was that interpretation, that they saw less sanctions, that is why they did that. does that now change from a company level, investor level, to say maybe we aren't going to look at the company, to think about allocating capital to russia? >> i think things that made sense three months ago don't make sense now, and i think that

is one that may have been in the works for months and made some sense of the time, but i think going forward we are going to see -- we have already seen capitals fly from south africa. i think we are going to see continued uncertainty in the emerging markets, and probably some capital, international capital flows slow down in the next couple months. david: these are bilateral tensions developing, but i think the larger issue is whether this ends up being a domestic presidency are international presidency. that is not the first time we have set a president would be domestic. johnson wanted to do the great society but ended up with vietnam. at what point to they have to say, we will get back to domestic? >> you know, events overtake every administration, and i don't think that they are going to be able to get back to the point where they can ignore the rest of the world. i think with interesting is that the administration has responded so forcefully, so quickly.

i think we may be in a situation where the president is willing to let some of his senior strategic advisors, a lot of generals, in those roles, plan how to respond to these things, sign off on the policies, and then keep his focus on the domestic front. one of the issues coming into the administration is how much delegation would there be. clearly one area where i think the president needs to delegate is in the international policy arena, and so far it looks like he is willing to do that. alix: and we aren't even at 100 days. i want to welcome our twitter viewers. bloomberg daybreak is now streaming live. you can catch it at bloomberg daybreak.twitter.com. coming up, janet yellen speaks of the university of michigan. we will bring it to you live. and as we head to break, php saying it is in talks with elliott management, but says

that the proposals for spinning off its u.s. oil and gas business without way the potential benefits. that stock moving a little bit. and we have a merger for you. a knight transportation and quick transportation are joining forces. a truckload carrier and a logistics transportation company highining, $6 billion, the end of $.27 per share. this is bloomberg. ♪

alix: what we have learned about the fed in the last 72 hours. james bullard weighing in on the importance of balance sheet normalization. >> one of the issues i felt was important about the balance sheet is that it is putting downward pressure on the medium

and longer end of the yield curve, well the increases in the policy rate are putting upward pressure on the short end of the yield curve it's a kind of a twist operation, and i'm not quite sure that there is any theory that says that's the right thing to be doing in this situation. what you'd like to do is allow the entire yield curve to adjust to the rate increases in a more natural way, and i think one way to do that is to begin allowing some of the balance sheet to run off. alix: adding to the rhetoric on friday, bill dudley said some people misconstrue what he said, he said a little pause, and i think that would be shorter than that when referencing whether to normalize and hike at the same time. jonathan: this is one of the smartest guys on the fomc, read that paragraph again. what is a pause? that's what it has come to?

alix: talk about understanding rhetoric. luis -- lou,bob and what is a pause? >> look, it's clear dudley was doing a reset on friday. after people interpreted his previous speeches. it's a period when they would start the process of letting the balance sheet rolloff. the presumption was there would be an extended period when it would stop the rate hike. clearly dudley was resetting that on friday. at most you are talking a meeting. alix: and meeting. ok. what's up with the dollar than? where our yields? where our market expectations? >> we talk about longer-term yields, obviously you have two other factors. one is that they are talking about normalizing the balance sheets, but they haven't started that yet, that is still six to

nine months down the road. second, we have international yields that are very low, and u.s. still look attractive on a relative basis. i think those factors are the same, and what the markets are trying to grapple with is how soon they have to start dealing with winding down the balance sheet and how quickly that is going to come. so far i don't think there is tremendous concern that it will be big or fast. context, there is some expectation that things will change. but the fixed income markets have discounted said hikes and -- fed hikes a couple times in the past, and i think they will wait and see how things unfold before they discount to watch. jonathan: what's interesting here is the first time around, they got what they wanted. it was a steeper yield curve and people started moving away from rate hikes. talked aboutard how what they are about to do would get the steeper curve. when dudley spoke on friday, he shot the other way again. >> i think people are

misinterpreting it. they had some active policy toward a stable -- is pretty muchd an outlier. he has always been on one extreme or the other. i don't think he represents where the center of gravity is. the other thing that's an issue is how strong is the economy going to be, and i think there are questions about that. you look at what's price in the market, it's as much about that as anything. jonathan: what you make of the communication so far? the more they talk about it, the less i understand. >> one observation i would make is in 2013, when we went through a similar period about tapering, it was quite a shock. obviously a generated a big market reaction. it's clear to me that they have learned something from that experience. sometimes i suspect yellen is the last person we will hear from on this, and they are going to roll this out in a different

way. if you look at how much volatility there has been in the market, you have to argue that it is more successful than it was in 2013. i think from that perspective, these are complicated issues. i don't think there's a full consensus on a plan. i think we are going to have to deal with some of those. but i think in some sense, to be compared to a 2013, it's a better outcome. lay outo me need to a plan enough in advance so the markets can react? >> i don't think they, themselves, have decided on a plan yet. it will be interesting this afternoon because yellen is speaking, taking questions. i can't imagine one of those questions won't be about the balance sheet. the question is how she wants to response now that there is more information on the table. i think when they get to the actual period of implementation, they probably should have a plan. it will probably involve not rolling over existing securities, and all the analysts

on the street can go and look at what's on their balance sheets, what is maturing. in effect, that will be the plan, to see what is maturing. david: do they need to give advanced notice so the markets can react, or can they announce a date? this is the plan and when we implement. great, come: that would be on. [laughter] if theyuld be one thing had to go out and sell securities for the plane to the implement it. in this case i think they will have enough maturing that they can probably let the plan be determined by what is maturing, and decide whether they want to let it mature or not. it's a pretty straightforward process once they get to start the process. alix: and the question is what is it due to premiums. >> that's obviously an important question but one of the things i would stress is what is uncertain at this point is not the initial step. it is clear they will start to let stuff rolloff.

the bigger question is what is the endpoint? how big is the portfolio in the long run? are they going back to 2008 status quote? the answer to that is pretty clearly no, but exactly what that is is unclear. you need a certain size portfolio for the short run operations, and then the question is do you have more than that? in some sense, the debate about the strategy is about that. but in some ways, they can start this without having clarity on this question. jonathan: this stuff is important, the end game is important. you look at what's rolling off goesyear, the bulk of that through the belly and read out to the longer end. is that where we will see the most pressure? >> the current strategy is as stuff rolls out they buy back with the existing structure of the auction. they have tried to do that the other way. they will reduce that slightly.

the duration of the portfolio is continually declining because of that structure, and that has its own pressures that we are seeing already. i don't think they are huge. i don't think they have to be huge. i think in general they have managed this process pretty well. to me the big question is what is the long run. that is what they are debating. is do we the issues really want yellen and fischer to give us their view of the long run when they are not going to be determining what happens in the long run? i think in one sense, you left the process starting, and then you really wait for the next round of leadership, for the fed to come in and make the longer-term determinations. these people are not going to be running the show -- bob, lou, you are both going to be staying with us. coming up later, century janet

yellen will be speaking to university of michigan. we will bring you that live on bloomberg television and on the radio. jonathan. jonathan: thank you. in the markets, two hours and nine minutes away from the open, futures flat, dow futures up, s&p 500 futures up. you are watching bloomberg. ♪

jonathan: jes staley is in hot water. the board will hand him a formal reprimand and a significant pay cut after he tried to unmask a whistleblower in 2016. joining me now with the latest is elisa martinuzzi. thanks for joining us. talk to me about the general story, and then we will get into the details. >> this is a breaking story. of what we understand, in 2016, jes staley try to unmask the identity of an anonymous was a lower, and that

came to the attention of the board. the decision was that this was a violation of policy, it was an honest mistake and therefore the conclusion has been that a reprimand and -- lower pay, that will suffice, as far as the company is concerned. but so far we only have barclays account of the fact, and we understand that regulators are looking at it. jonathan: how serious do regulators take this? thed it ultimately mean likes of jes staley would have to step down? >> it is too early to say. the share price and reaction has been rather mute, which is an indication of the fact that for now, they believe the current management will continue. it will depend on what the regulators find out in terms of the intent and how serious the

obstruction was, but it's clear that there could be a decision by the regulators that he violated policy. jonathan: bloomberg's managing editor. much more on this barclays story throughout the morning. coming up, toyotas big investment. will the manufacturing president -- the manufacturing president will join us from new york. let's get you up to speed on the market actions. futures are stable, going nowhere. if you switch up the board, the auction cycle picking up. treasuries are stable after giving sore on friday. and your yield on the u.s. tenure. you are watching bloomberg. ♪ anting a size-six,

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week of marginal losses, down by .3%. switch out the boards, , yieldses whipsawed .own 6-7 basis points 2.38 on the 10 year. the euro weaker this morning. let's get you headlines elsewhere. the president of egypt has declared a state of emergency after church bombings killed 43 people. islamic state claimed responsibility for the explosion. explosion.

in sweden, people are questioning back countries open immigration policy in the wake of the truck rampage that killed four people. the driver allegedly went underground and eluded authorities trying to deport him. a second person has also been arrested. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. . am emma chandra jonathan: a four horse rates, left.eks of campaigning we are joined now from paris. walk me through it. some people would say we are .ot in a four horse race

fillon is not gain that much. melenchon is gaining. he has taken votes away from the .ocialist candidate voters seem to be throwing their lot in with melenchon. jonathan: thank you for your time.

our guests are still with us. question, what does it mean for marine le pen? >> the uncertainty is whether surprise. major the polling would suggest no. i don't think it is an issue that is on the radar screens very much. if there is a big surprise in the second round, that could have unsettling impacts across the eurozone. to figure outrd how the markets are spreading it in. , and i keepas risen

hearing different interpretations. this is only good news price stand? this is only good news price stand? a lot of things are called into question. one thing i would say is that if it is not marine le pen, who is it, and does it matter? if you think about the positive is ario for the eu, there positive case there. it matters who the alternative is. there are some fundamental questions for the eu at stake there. alix: there is stress priced in?

>> i believe so. alix: does it matter how much macron might win? i think most of the polls to just that marine le pen has the support she is going to get. fillon and melenchon go straight to macron? >> what we are seeing in the a smallis probably probability that marine le pen wins come and that means the french spread lows out to over 100 basis points. the base case it doesn't happen

come the spread comes in by 10-20 points. seeing in the market is awaited probability of those willing to take positions before the election. in the favor of france staying in and these issues settle down. the french economy is doing well now, probably growth in excess that is good by eurozone standards. the economic momentum is probably positive, and that argues for status quo rather than radical transformation. assume emmanuel macron becomes president. what will the position of marine le pen mean for the way he governs? votes thanot more before. it is a mainstream party now. take thatuel macron

into account as he governs? le pen has some support right now. some of the same issues, the immigration issue, the drove brexit, so she has a lot of support, but i would question intoer she has made a dent the mainstream. buts still a french party, i'm not sure there is legs and durability to it. the issues driving this, immigration, slow growth, all of the challenges the eu has gone through in recent years are still there. the pens of strength reflects that. the election will not solve this one way or the other. ofwhoever the next president

francis will have to do with those issues, and there are big issues. jonathan: the party may not take parliament, but she is leading in the first round of polls for a lot of people. that has to be significant. >> 24%. you think on whether the core support is greater than 24's opinion. none of the alternatives have stood out. the expectations were that françois fillon would be well above 24% at this point, but his own political issues are dragging him down. these are core issues and would not go away anytime soon, but the question is is leaving the eu the solution? what we have seen in france is different answer than the u.k.. jonathan: the question for the electorate is electing the same kind of guy we have had over the last couple of decades. many people are just saying no. i we going to have more of the

electorate turn around and say no? what will emmanuel macron do for the french economy that president hollande has not or to try to do? >> le pen is not new. this is not a new thing. the electors reaction is new. >> i would question how new that is. the challenges are new, but the question for the french is different than the british. it is a different choice. starts french, again, it with the relationship with that means for europe, and everything else is built on that. i think it is a different exercise, and the notion breaking that it's a positive thing becomes a different thing. more debating in the break . you will be sad you miss that.

report byo, 113 page a panel of independent directors delivering the results saying managers did not heed warnings and treated thousands of fired employees as rogue and downplayed mounting terminations as the board began to question it. criticismost of the on the former consumer banking chief. a very interesting development, harsh words from that panel. ,avid: we start bank earnings and today bank misconduct. not a good start for banks. invest $1.2 billion in kentucky. we are joined by the man in

charge of spending all that money. he will tell us why he is doing it. this is bloomberg. ♪

next coming up in the hour, janet yellen speaks at the university of michigan. we will bring that to live from bloomberg tv. ♪ emma: this is your bloomberg business flash. independent directors at wells fargo say senior managers

struggled shrugged off a scandal and treated thousands of fired employees at his rogues. report that monfils will look for a replacement ceo. the company has retained executive search firm. the journal says they will determine the timing of the succession. swiss transportation and knight transportation have agreed to merge valued at $6 billion. combinedny say business will have 5 billion in revenue. u.s. autoping

manufacturing jobs onshore has priority of the trump administration. toyota has followed through with a $1.3 billion investment in kentucky. james, is wilbur president of toyota manufacturing. >> thank you for having me. youd: it's not every day get the president of the nine to include a statement in your press release. eell us what you will b investing this $1.3 billion in. >> we are pleased to get that comment from the president, but in georgetown, $1.33 billion will be invested to his start the new toyota global architecture program. this is toyota's largest manufacturing plant in the world

from over 500,000 vehicles, and the best-selling car in america the camry. david: we have a good shot of it there. the president went out of his way to say this is a great investment that reflects confidence in the economy. how long has this been in the planning stages? is this something that has happened since the election? >> the program for two or yard is not brand new. onlyrth america, there are a couple of of plans and vehicles on this new platform. we are honored to be the first one in america able to get this program. we have been working on this camry for three years. this is not something that is just brand-new.

announce we will be investing $10 billion over the next five years, and this is the first installment. is this $10 billion over ordinary? out of the ignore this is the largest single investment we have had. of 100 mainshy dollars every year in the course of normal business. -- $100 million every year in the course of normal business. had the vehicle numbers come out a couple of weeks ago. was soft for all manufacturers, including toyota, down about 2%, but up in suvs

and light trucks. is there really a robust future for the camry given sales? >> we think so. suv and truck the market is doing well. camry, we willew more back toing the market. it is an industry trend. david: is that causing you to reevaluate your capital investments and directing it more towards suvs and trucks and less towards sedans? moving moren towards suv and trucks, but this program will allow us to beat more flexible and give us more options in terms of the vehicles we can produce here as well. david: one of the president's big emphasis is on jobs.

when you look at this $1.33 billion you are investing, what does it do to jobs? jobs it potentially reduce ? it talks about new efficiencies. does that mean you will have fewer workers? >> we are at 8200 employees right now. brought past year, we in an additional 700 to introduce this new program, so we see this as not so much as a job growth program as a job retention program that allows us to maintain the high volume of vehicles and engines we are able to produce on site in georgetown for the perceivable future. david: thank you for joining us today. that is wilbur james. alix: thank you. .heck out tv interact with us directly. ask a question of a

guest and we will ask it for you. that is tv on your terminal. firmer, maybe s&p futures up by two points. weakness in europe, but the dollar story continues to justgthen as bonds's a lot a touch after that huge selloff on friday. this is bloomberg. ♪

alix: bhp jumping to a three-week high after being targeted for an overhaul by elliott management. the risks would outweigh any potential benefits. , what doesto discuss elliott management do with

their proposal? >> bhp has said the costs and risks of the proposal would outweigh any benefits. it will be interesting to see what elliott come back with. they detail three proposals they have put to the board to consider, some quite complex, but they want to unwind bhp's dual listed structure. they want to deem merge the oil and gas business. at $22 billion. a third element is policy consistent with capital returns. i want to get back to that

spinoff. to bet then trying farm on its u.s. shale assets. bhp is the largest overseas owner. how do they all of a sudden change that? >> if you were to imagine bhp without an oil gas business, that is a very different proposal. listing when oil prices are below 50, some investors would question the timing of that, but .his is not a new idea bhp has constantly been somecized by investors investors want to spin it out,

so this idea has been proposed many times over the past year. it will be interesting to see elliott bring that up again. u.s. production will be .ow-margin what does bhp need to do to convince management that is not the way to go? they have started that today with this letter. clearly they could be under pressure going forward. the most interesting part will be whether other investors come out and back elliott on this front. would gainse ideas the traction, so that is critical part of the story we need to keep tabs on. thank you.

what is interesting is how hard it is for a big mining company to do shale. it requires a lot of pivoting to do technology. big oil is not necessarily set up to do that. be a continued issue we will keep hearing from these guys going forward. up, oxfordoming university chartered associates joins us. chair janet yellen speaks at 4:00 p.m. eastern. we will bring that to live on bloomberg television and radio. this is bloomberg. ♪

fed officials, the lessthat way in, the latest clear. , goodew york city morning. good morning. a warm welcome to "bloomberg daybreak." how we are set up. the stronger dollar story and fx whipsawed by payrolls and fed speak. yields up on friday. rex tillerson will attend the first working session of g7 in italy.

1:00 p.m., $24 billion in three janetotes auctioned off. yellen speaks at the university of michigan at 4:00 p.m. eastern. we will bring that to you live on bloomberg television. david: president trump has spent the last couple of days on .eopolitics this week, he is sending rex tillerson to moscow. latest is now for the

our chief washington correspondent. we heard about this america first doctrine, which some people interpret it as isolationist. this is not isolationist. look at what happened in syria. this is unilateralist. >> look no further than the congressional response. here is where it matters, lindsey graham, john mccain. they have hit this president hard. they were praiseworthy of how this administration acted, but then you look at the statements put forth. the libertarian wing of the

movement put out a statement that they wish this administration would have sought congressional approval. the majority of response has been this is the appropriate response, but we are seeing some dissenters in the nationalistic wing of the conservative movement. david: we went into this with president trump ring belligerent about china. what is his position now dealing with trade and china. he didn't call president xi jinping a currency manipulator during dinner yesterday. he is taking this one on one approach. when you look at executive orders where we look at the upcoming strategy with regards to agriculture.

he is looking to one off certain issues in order to negotiate instead of that rhetoric we have seen. it was agriculture and also financial resources. if president trump could deliver and investment, would that be a win for him? have ay branstad will big role here. services,f financial i would make the argument that in terms of the global economy, president trump is much more akin to steven mnuchin and and ohn. c david: great to have you in new york. joining us now is

george magnus. he is black rock portfolio manager for emerging markets. >> it seems in the last week or strife orhat ever issues are going on within the white house staff, they have favored the pragmatists as opposed to the ideologues. bit wary about rushing to .onclusions as you said, the balance has been removed from the national security council, so it seems on the front foot really, the

pragmatists seen to have been calling the shots. that seems like a good thing. what has been the biggest beneficiary for emerging markets ? is this good news for china? >> absolutely. basically, you look at property related activity, investment, infrastructure, everything is picking up. china,nd taiwan going to so china has been driving some and that's whys,

this meeting was so important to get a sense of what that bilateral relationship will be. , and was thatting difficult for china to acquiesce to, and what did they want in return for that? >> it wasn't difficult at all. before the presidential election, the obama administration and the chinese had agreed the ban on beef exports would be lifted and that onre would be some movement the treaty conditions that affect financial services firms, so that went into cold storage during the election campaign and the election itself, and then when president trump came to the white house, it stayed in cold

storage until now. some none of this is particularly new. it was not difficult for the chinese to give anything on either of these two scores. what the chinese will want in return, we will see during the course of the coming year or so. own shoppingir list, which we don't really know where it of the most expansive reports of the summit meeting a news service, but it wasn't clear what china wanted. they don't want the united states to review as possible executive orders that this is

the way they may go to review complaints about unfettered trade practices, unfair subsidies, dumping practices and so on. think anything of great substance has happened. china is sort of the dog that did not bark. leadership change potential coming up. he also has huge credit he is taking on. not reforming state owned enterprises. china is a risk to emerging markets medium-term. we know that is not sustainable. episodes,en similar and it has never ended well. the case of china is different because over the lack of reliance in savings because of

the huge domestic savings. what we have seen over the past good,ys i think is very moving from extreme rhetoric to going back to things that had been negotiated over the past few months in terms of access to trade comments so that is very good. it is a fine balance that the u.s. needs to strike with china, because china has been byefiting disproportionately the western-led trade order. one could argue they haven't gotten that much back in exchange, so they need to press china to improve standards for market access, people who want to do business from outside into thea, say consumer goods to chinese people, but at the same time, china is front and center,

and we don't want to derail that, so how do you strike a good balance between these items? that will be one of the most interesting things to watch going forward. the story after the election was the u.s. would pullback internationaly, get rid of tpp. is that story still holding true with syria and the rhetoric over north korea today? >> i think it is a gross oversimplification. , and we areasy naturally inclined to look at individuals, whether senior individuals, not so senior individuals in the united states and china, and assign huge to their moves, but if you look at history from thomas jefferson to president , america has always had

strong interest in the pacific and it is not about to give them up. what is different over time is sometimes the american position is to encourage other countries to be receptive to american commercial and political interest. sometimes the united states tries to prevent the rise of powers to exercise hegemonic power come a say in the last century. i don't think we should assume that president trump's withdrawal from tpp, and even if he has lack some of the aggressive trade rhetoric, it will't mean america wit withdraw from asia. thank you very much for

joining us. we want to welcome our twitter viewers. bloomberg daybreak is now streaming live. speaksup, janet yellen at the p.m. eastern time university of michigan live on bloomberg tv and radio. this is bloomberg. ♪

alix: jim bullard weighing in on the importance of balance sheet normalization. >> one of the issues i have felt it is important on the balance

sheet is that it is putting pressure on the medium and longer end of the yield curve while the increases in the policy rate are putting upward pressure on the short and the is a twist, so it operation, and i am not quite sure there is any fear he that says that is the right thing to be doing in this situation. what you would like to do is allow the yield curve to adjust to the rate increases in a more natural way, and one way to do that is to begin allowing some the balance sheet to run off. idea?the flat, flat, flat. notconomic expectations are that strong, whether growth or inflation, and that is a major reason why you see so much flatness in the yield curve. the fed present in the market is a

contributing factor. if you want the economy to improve, you need easier credit conditions and one thanks to feel more inclined to lend, and when they see that flatness and that signals to hunker down, not expand credit. from all the extra supply the treasury will come at the short end. things will get flat no matter what the fed in subduing. is 5-7 yearsration on the treasury portfolio holdings, so you don't clobber the short end. itx: what do they need to do until we get the next rate hike? what do we need to hear for them? needs to hear details of wind it is coming and what it would look like. alix: how can they do that if they are data dependent? >> they can be data dependent,

but they have to get parameters on what the unwind will look like it one of the biggest concerns is what the monthly or quarterly unwind will entail. they will probably tread on a careful path, meaning a modulated unwind of the balance sheet. they can't just end reinvestment, because then you have this lumpy unwind that is noisy and not consistent with .conomic conditions the fed does not want this to be a volatile, cumbersome project. they want this to operate in the background. about thetalking passive aspect of the policy. that means x amount per month or theter that runs slowly in background, then they can use the fed funds rate to be the active tool to deal with fluctuations in economic output. jonathan: jonathan: what is that 10 you

about the communication, and as until the whole board to stop talking about balance sheet normalization until they decide what they're going to do? i think they put the market on warning, but all they are doing is causing volatility in treasuries that does not need to exist. >> this is an open discussion. they still have not finalized the plans, see you get this natural noise which may be healthy because it invites feedback from market participants as well. i think she will have ample opportunity once they figure out what this will entail to have those discussions. they have the may fomc meeting, then the june press conference. a midyearave

semiannual testimony before congress in mid-july, then if she speaks of the jackson hole congress, that would be late august, so there will be lots of opportunities to finalize the plans clearly. david: thank you for that. for more on the fed balance by head ofe joined macro strategy at green capital. george magnus is still with us. there are two different kinds of securities, treasuries and mortgage backed securities. it is unclear what the plan is, but some fed governors saying we treat them all the same. are they all the same? >> no, they are not the same. newfed lies 20% to 25% of mortgages. reinvestmentat come at there could be a problem in the mortgage market and we could see spreads move higher, which then has a knock on effect

that is bad for banks. it may also slow down the housing recovery. not is a significant part of the u.s. economy. >> right now, we are 4% on the 30 year mortgage. to 4.5%, that becomes a big damper. they have to be careful with it. jonathan: we can talk about the maturity profile, but how difficult would it be to manage the rolloff of those securities? >> it will be difficult. the timing of the payments is not known. they will have a lot of difficulty managing this whole process. the fed temperend volatility by manipulating this so we don't get that big jump in volatility? >> i think a lot of it will

depend on other things like what the federal reserve is doing with its policy rate, whether these two tools become substitutes for one another. we could get another rate increase in june and september, but it may be from the policy rate standpoint that the fed soft petals that during the last half with a late months of 2017 into 2018 as it basically substitutes with balance sheet wayction phased in a gentle as outlined before. there is no question that there will be an impact. it is extreme to call this but itative tightening

is something the federal reserve wants to do. if the economy is ok i think there will be volatility, but they can deal with it. jonathan: great to have you on the program. up, bmo cio joins us from new york. you're watching bloomberg. ♪

alix: one of the movers it is oil, now of over 1%, the longest streak of gains this year. why? libya, another oilfield suffering and outage. that moving oil much higher.

some bullish calls coming out today. here is how the scene is set, futures up after weaker marginal losses. some dollar strength in the g10 space. a one month low for the euro. treasuriesity in compared to the whipsaw on friday. you are watching bloomberg. ♪

.onathan: i am jonathan ferro a shorter trading week as we approach easter. positive,e stable and

up .1% on the s&p 500. no real drama. whipsawed by a downside on payrolls, then a load of fed speak. we are 2.38% on the 10 year. we stayed there. some dollar strength against the euro, a one-month low for the single currency. that is the story of across assets. let's get you up to speed on headlines. emma: let's get you caught up. president is ramping up the fight against terror some after bombings of two christian churches. people were killed, islamic state claiming responsibility. emergencynth state of was declared.

rex tillerson's mission to moscow became more complicated. the u.s. secretary of state will bring a tough message following the missile attack on syria. is likely to get a tongue lashing from the foreign minister. there is no plan for president putin to meet with tillerson. in france, the presidential election has he come a four-way race. hasll out last night melenchon taking 18% of the vote. leanuel macron and marine pen are tied for first with 24% apiece. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. alix: we want to update you on some breaking news. a t buying

wireless licensing business. david: 73 majors he played in without winning. jonathan: unbelievable. we get to france. japanese investors offloading debt. year yields spiked by the most in four weeks. george, let's begin with you. thekrock talked about

obsession with the shark nearest ,he boat, the french election how concerned should that be over the next month? >> by definition we should be concerned if we think or if we thought that marine le pen for example would become president the otheror if any of candidates representing the extreme views in the election were to achieve power. it would be worrisome because obviously -- i'm not saying france would then suddenly ceased to become a member of the yeaeuro or leave the eu. that would be a complicated process that might not succeed, but managing or governing france would become difficult, and the prospect of a political spoiler

gratifying a economic improvement for europe would be bad news to we will see what happens. bunds 23 basis points. where would they be if there was not a french election? >> they would be much less negative. that that is still that safety bet. market is the biggest safety bet. we are looking at bunds to lead the way. think there is a 25 basis point premium? >> at least that with all the uncertainty in france. if we can get through the french elections, that pushes global yields higher. david: but not a lot of volatility, why?

>> that is a good question. we have been range bound, and until we rake out of the range, people will continue to trade it. 2.30 rangeough the briefly, so i think people will start looking towards 2.60. people are selling volatility much more than in the past. it is the one trade that has worked really well. is vol world. alix: we are off the low for bunds. that makes it more attractive for investors who want to dump treasuries and come over here. has that started to happen yet? 25 basisis a strong points where people will put their money to work domestically rather than buying treasuries

are doing an fx hedge. anything that pushes yields above zero will take away demand for treasuries. david: i just saw something on the bloomberg, $3 trillion that had been in negative yield has gone above zero. that is a major shift. what is mean for markets? the negative yield world has been quite exceptional, certainly in most of our mercifully wed have a global economy that may not be great, but in most places, i referred to europe and we talked about china, which is performing as the government wants it to perform, and the rest of the world is picking up . little bit there are questions about the

weather impact on u.s. to gdp, but that is really noise. peopleare looking up and are expecting a little inflation to come through bit by bit. the deeper expectation about federal reserve policy has taken root, so i don't think we will see a major bear market in bonds , but the idea that we will be moving away from this negative yield world, it is plausible and will gather momentum. jonathan: let's talk about the idea we can move away from this populist political risks in europe. the mainstream always trying to simplify the populace story from 35,000 feet. in france, two categories, identity politics and economics. to address the economics, let's macron takes the presidency. what does he need to do to make

sure those who are economically misaligned will go to the polls and not vote the way they might this time? to get some members of -- a political movement. he does not have any members of parliament, so there will be elections in france in june for the national assembly, and if he wins the presidency, then i imagine it will have a coat tail and get supporters, but he has to win and form a consensus in the french parliament for his program of economic reform. that, were able to do then i think it would be encouraging and investors would be heartened by that, particularly since it would make

for a different franco-german relationship when everybody is writing off the eu as a spent force. i think it would give some new platform to it. thank you both very much for being with us. coming up on wednesday, an interview with christine lagarde live from brussels. that is at 6:30 a.m. eastern and will be here, and this is bloomberg. ♪

alix: i am emma chandra. coming up in the next hour, chief investment officer at bmo private bank joins us. ♪

emma: and now to the bloomberg business flash. industry,rucking swift and knight transportation have agreed to merge and an all stock deal valued at $16 creating a trucking giant with annual revenue of five been dollars. toerman drugmaker has agreed a takeover from private equity. it is one of the last independent generic drugmakers in europe. it represents a 49% premium. wall street's top regulator eliminating dozens of contractors hired to root out fraud. they say job cuts raise concern that the pace of enforcement

actions will slow down. bloomberg is this flash. business and financial markets remain firmly fixed on policy reform. said this is his top priority. number one agenda is taxes. we are coming up with a cohesive plan. is august orif it not. getting it done well and bright is more important than getting it done soon. we are committed to getting it done this calendar year. you will see much more out of us on taxes when the congress comes back from the recess. david: joining us now is at mills.- ed

welcome to the program. they have to keep the government going. they have a deadline coming up. would the odds of the shutdown? >> i think it is relatively low. there is always a level of ainksmanship that wit comes wih government bill, but the things you want to see are starting to come together. if you try to shut down the government, it is over partisan issues, policy disagreement, and you have seen the president signing a bunch of executive orders. that takes the pressure valve riders that they want to add to these bills. those of the types of things it would make it difficult for democrats to support this and

overcome a possible filibuster in the senate. with that policy valve loosened up and some other votes and a strong desire to not have another failed vote in the house or senate, i think the onstar that we have some partisan bickering, but the government gets funded right up against that deadline or a one-week extension and hammer this out in the first week of way. -- of may. david: what about tax reform. said they will have one comprehensive plan. will they have comprehensive support and congress for it is the question. thence you get through government funding bill, all of the attention in may turns to taxes. the big question i have had is often, legislation only passes when there is a crisis or deadline. ath taxes, there is neither

this point, but quickly we will have a political crisis for the trump administration and congressional republicans, and there is hope that can get folks to coalesce behind it. later this year, you could have economic crisis because of the uncertainty. , i want to know what that company is worth under the new tax regime and what capital gains i might pay should i sell the company. matchespolitical crisis with the economic crisis, that is what gets us over the finish line. david: thank you for joining us today. health care was first on president trump's agenda even before tax reform, but congress did not go along with him. to taxthan move on changes, congressional leadership may take another shot at repealing and replacing obamacare.

kathryn baker is a professor of health economics at harvard university and is about to become dean of the harris school in chicago. welcome back. good to have you here. care.go back to health it did not work the first time. do they have a realistic shot of getting it through this time? issuese are a lot of that have to be addressed in terms of who will pay for care, how many people will be covered, and you simply can't cover a lot more people without spending a lot more money, and that is not an issue they have properly wrestled with. money can they save the by cutting back on grants to the states? >> it may give states flexibility if you move to block grants, but if there is less money, that will translate into fewer people being covered. state, if you are a

that gets blamed on politicians, not the congressman. >> there will be a a lot of blame to go around of millions of people are suddenly uninsured because medicaid eligibility is doubt back or subsidies for exchanges are cut back. david: one of the things you are not a fan of is limiting the border limitations on sur insurance. why are you against that? >> it is not so much i am against it as i am not optimistic about what it would do to lower health insurance premiums. it is a great idea to have markets,on in-state and it will drive more efficient health insurance policies, lower premiums. it is just that health insurance is about your doctor in your

area. it is about how insurers contract with hospitals and dark doctors to provide cost-sharing for patients, and that is hard to do nationally. it is down to the local network. david: the trump administration go,said if they let the aca it will go out of business and one not work. are they right? has been effective in some dimensions and not effective in others. we have seen millions more insured, and the medicaid markets are pretty stable. the question is what is going on with the health insurance exchanges. premiums have been unstable and enrollment is not as high as hoped. that is a small segment of health care spending in general. most people who have private insurance have it through their employers. then you have medicare and medicaid, and the exchanges are

a small segment, but an important one for people who don't have options to get health insurance from other sources. we have to get the cost down on health care. that is he only way to do it. isn't a single-payer approach the only way to get that done? to be said something for administrative simplicity for data sharing, enter operability of electronic health care records. we have not seen much success from a single-payer system. medicare is not known for innovation in insurance coverage. it took medicare decades to introduce a basic drug benefit. where we have seen medicare excel is with medicare advantage by offering innovative benefits come so simplifying the finances could go a long way, but it is important to have competition between plans to ensure we get

high-value services delivered across the country. david: thank you very much for joining us today. and: check out tv watches online. interact with us directly. send us a message on the show and we might ask it on air. this is bloomberg. ♪

barclays, the ceo jeff

daily under investigation and he will be handed

jonathan: treasuries battered on friday. yields lower by a single basis point. down .1% on the single currency. let's get you some movers. at&t buying straight have

communications. the premium is 162% for the close on friday. that stock jumping huge. merger.ransportation swift transportation merging with knight transportation. the combined entity will have a presence in cross-border trade to mexico. acorn up 12%. this is a generic drug maker. presence in cross-border trade to mexico. potentially, a german drugmaker admitting to holding talks with the company. the share price is below those levels, but the premium would be 50%.

the combination would be the largest maker of generic injectable drugs. potentiallywhat is it mean for d tell us about where we are in the cycle. another fed official weighing in on the importance of the balance sheet. >> while the increases are putting pressure on the yield curve, it is a twist operation. i'm not sure there is any theory that says that that is the right thing to be doing in this situation. what you would like to do is allow the yield curve to adjust to the rate increases in a more natural way. one way to do that.

one way to doone way to do thate balance sheet to run off. seems to many people that the more they speak, the less we all get it. the exit plan look like right now? >> you think dudley was giving night,guidance, and last you had gains on the size of the balance sheet, something like in train dollars we should in.t the market understands normalizing in. the balance sheet

cannot be done in a rapid manner. for thead one question fed chair, what would you ask? >> would you look at the balance sheet as an additional tool to rate hikes or not. of theicular, this idea difference between hikes and normalization. getting it from her ultimately is a key answer for markets. substitutes,y are the pluses the pluses and minus of using one rather than the other. >> this overall idea of normalization. , we have hadties quantitative easing and the fed has expanded its balance sheet. low quality stocks

low quality stocks outperforming high and trading at a big premium, so for equities, this

>> joining us now for the latest is bloomberg's chief. what have we learned about the president as a decision-maker over the last few days? >> i think it was important that he was with the chinese president when he was launching a missile strike. he then moved his ships off the most of -- coast of north korea. sending a signal that this is going to be a very different administration that the type of political global strategy that we have seen from president obama. he can just make a decision,

given order, and it gets done. can he bring other people along, for example congress, when it comes to tax reform? >> when you look at tax reform there arepolicy, different disagreements that have boiled over, articulately, he is having more troubles with republicans in his own party and democrats have been decidedly against him. libertarianat leaning on foreign policy, they have been wanting congressional approval on foreign policy. policy, they're hammering conservatives all across the country to oppose tax reform. he is going to have to play -- political referee on the movement. you look at the grassroots communities he was able to win

and they are still hoping you will tap into some of his more conservative ideas. the geopolitical news, the markets really have not been reacting all that much. the "fear index" there is more here than any time since last november. are there places we are not seeing in the markets that really are reacting to all this geopolitical news, and is not, why not? sections of some the market where markets are sensitive to this political outcome. euro, and the the risk reversal, it is around the second runoff in the french election was very negative.

it is one example of where there outcomeling that this could be very different. i want to note that the political uncertainty index that is out there is really elevated and yet volatility is low. also in play and suggest the market is complacent on one hand and on the other hand a fair amount of uncertainty building and what the geopolitical events we are witnessing any french deluxe and really mean. if the french election had a different outcome, then it would be quite negative for markets. >> let me ask you a version of the same question. pick up on that. normally, when you have a lot of geopolitical, you will flee risk assets, yet it is not affecting the markets at all. why is that? geopolitical events can cause different outcomes, but what we

found geopolitics are not a marker for the market. bigger geopolitical events, you can to they see a 5% or 6% selloff, but obviously the that last not do week. some of the risks that we see in the french election and other geopolitical events could bring volatility to the market. we do think it could be hiv ride to that -- a choppy ride. >> one of the positives that has come out of the last week or so is if you asked somebody tell the meetings went, they would have come out with a list of things that that really wrong. is it it foolish to risk what we got away with less week with no news whatsoever?

in theink with trump campaign, there were fears around protectionism and what you would do with china. haven'teven though we seen changes, we have not seen anything concrete in terms of the negatives inks were worried about. as we go forward, we will have to wait and see what gets done on these initiatives and that could drive the market further. >> how do you decouple what you see as headline risk that does need to be priced in versus the underlying fundamental that will be impacted by the risk? how do you deal with that? >> this morning season they may not be a huge driver if we are focusing on the other big events. >> is it all about earnings? >> it will be important this share because it will be the first year. going to bearter is

important because we are seeing a couple positive signs. one is that we are getting further away from the earnings sessions. where expecting the earnings will come in better than analysts are expect it. we are expect and 12%, which would actually be the best quarter for earnings since 2011. there are positive signs in this could drive the markets, but with everything else that is going on, you can see choppiness. they dominate the headlines in the next couple weeks. >> it could be. anht now we are looking at environment where analysts are expecting 9% growth and we are expecting 12%. we are seeing positive signs that lead us it will be better. level since highest 2012. we're seeing good signs from the early reports from companies that have reported so far, even though it is in a pew sectors. -- a few sectors.

>> we have jp morgan out later on. what other sect nurse are you positive on? what other sectors are you positive on? >> financials and tech look like the two. on the tail end of that, consumer staples in a sector that where provisions have been week and has not seen good numbers in the past couple of quarters. >> thank you very much for joining this program. coming up a little later today, fed chair speaking at the university of michigan. fomcabout every single official out there is waiting on the balance sheet. miss that. it is on bloomberg tv and on the bloomberg radio. from new york, just nine minutes

away this monday morning, futures positive. you are watching bloomberg. ♪

♪ monday. transportation teaming up. check out what we have seen so far. this is on the terminal orange line. white line is going to be moving lower. will breakxecutive it down. is this the start of a take-up gekko --? ande have a new president the regulatory landscape does not look as daunting. when it announced the deal, it was going to get blocked. a lot of deals got push off

until this year. it is nice to have a.m. active -- an active monday. employees?e >> someone told me they had 72 years ago, so they are growing -- seven two years ago. ofs is a company that a lot access to the wireless airways. driving and your you can get your garage doors open, heated, or what have you. if you have a medical device, you can talk to your doctor. they are getting into that. it has not been the 2017 so far for m&a. ?> what is the pipeline then the most important thing in

2017, is the 2016 deal, at&t and warner. , ceo's ares dropped going to say they're not doing deals where a number one is buying and number three. that deal has to be approved. until that gets out there and gets ok'd, a lot of the big sidelines forhe multiple months. if it is a u.s. company buying into europe, that will be fine. >> we do not know what the tax rate is going to be here. >> we do not know what the tax rate is going to be. i had a lawyer and we were talking and the biggest concern victim of ahere a tweet. they are worried donald trump will say something about them or their company and they are concerned. when you are buying a company, you usually get rid of jobs. it is always synergies. i'm sure they will be very clear

. the headlines will play down the overhead, which often gets eliminated. >> capitalism, dead? >> no, it is just on hold for a little while. >> thank you very much. from get you up to speed our beautiful new york city. it is going to be a warm one. a 10th to 1%. you are watching bloomberg. ♪

jonathan: the shortened holiday week in new york city. let's get you through the trading week as quickly as possible. futures up five points in the dow positive two points.

a very marginal losses, a limited move to the downside of about a third of 1% as we close out the week last week. that is how the stage is set and stocks. switch up the board, treasuries are really with the on friday. sword with a big downside surprise on payrolls. big on the margin this morning, down by a single basis point. we hold on to that one-to-one handle with a little bit of softness by not even attempt to 1%. crude up one full percentage point. here's alix steel. alix: we have equities pretty much flat on the day. volume is light on this very shortened holiday week. individual movers have not been moving that much either. the nasdaq weekly changes up 6/10 of 1%. not a lot of movement within the day as well.

individual stocks we are watching, wells fargo up 1/10 of 1%. here are the wise. for wells fargo, flying back seven $5 million from executive s. the head of the retail bank also losing a lot of money there. they really put the blame on the chief executive in terms of hiding things from the board. for barclays, a bit of trouble here. losing a significant pay over whistleblower and he calls the effort and honest mistake could thought it wa. thought it was allowed. should've gotten compliance to handle matters. stock owners not taking issue with this, but he is underinvested edition of u.k. as well. the market says he is good for now, but does that wind up continuing? mondo lease up 3/10 of 1% to looking to replace its ceo.

they are looking to replace her. earnings season is kicking off this week with jpmorgan on thursday the big bank to watch. the white line is overall and year 2017 earnings revisions now down by 710 to 1%. the blue bars are revisions upward for tech. that is up almost 2%. the orange bars are revisions downward for energy by 4.5%. what are the expectations going in? how do you position yourself when you wind up having the overall geopolitical risk in the market? jonathan: joining us now from ginada is jack apple and martin adams here with us in new york. kind oflly engineer this upside surprise by doing these analyst estimates and cutting them a bit more. how does that shape up this quarter compared to quarters gone by? gina: we have had a slightly

smaller revision than the last several partly because analysts are getting a better handle on what is happening with energy. we have had a lot of stabilization in the energy sector. this sideways directional price trend helps a little bit, but nonetheless, analysts are still cutting estimates for the index at large. when you scaled down beneath that headline, you do see some really interesting trends at the sector level. energy is still the least predictable. you still see some big upward revisions and some downward revisions. consumer discretionary shows up as an area of weakness at the same time, which is interesting because energy prices have been stable. that seems to be a weaker environment for the consumer than many had expected. at the top end of the scale, tech has been very strong. sectork across the tech and for the top 10 industries in the index for eps growth in the first quarter are expected to come from tech, so that's pretty broad-based strength could

jonathan. jonathan: overall are analyst getting better at their job or increasingly als optimistic? jack: it remains to be seen. with energy, oil prices are up 100% over the last 12 months. that is a nice boost for that sector. it is a commodity sector and earnings are kind of a reverberation of the commodity itself. i can understand why that is going to be subject to high revisions. banks and finance, we expect them to see some kind of regulation rollback coul. we expect to see some kind of incentives and higher interest rates. we have not gotten them yet, so i think that's going to be a wait and see also. jonathan: talk about a hope for the future, tesla surpassing gm as the top u.s. automaker by market capitalization. what about that, david westin? david: they just pass forward

and now they are passing gm as well. a lot of cars. alix: didn't they wind up last week where they did pretty well? david: it got to produce the automobiles actually. the model three is that they claim to fame. jonathan: you think about the future any bring up the consumer. i would never thought i would see a market when risk off on the back of auto sales. what does that tell you? gina: auto sales are one of the leading indicators of consumer sales at large. you typically see a cycle in the consumer housin. housing leads the trend, housing slowdown. after the auto slowdown, then the broad consumer slowdown starts. it is a trigger point. the question is whether or not we may have overreacted to a one-month number, which is certainly a possibility always with the equity market. in general, autos is a pretty good indication of consumer appetite for loans, consumer thatite for spending, and

deterioration in auto sales could be a signal of slower consumer than we were hoping for for the year. david: we talk about that deterioration in auto sales, we have to be careful. what deteriorated was the number of units sold. beenand trucks have really keeping the dollars up even if the numbers are going down. does that give us some encouragement? jack: it does. keep in mind that consumers bought over 17 million cars last year. i think from that perspective we are in good shape. you're right. the mix now is two thirds suvs, one third regular vehicles. amongs great for profits the automakers. one of the metrics that we track to look at the consumer is how many miles can you drive on an hours worth of work? even there, we are still in very good shape. we are over to 30 miles on an hours worth of work. account average hourly earnings, fuel efficiency, and gas prices. we are still in very good shape

there. alix: the real rhetoric is consumers feel really good, but have actually spent the money while they feel good? are we going to learn this earnings season where the survey data and the hard data truly matchup? gina: i think that's part of what the earnings season will be about. if you break down the index by industry for example, the weakest growth in first-quarter earnings should come largely from the consumer areas. likel got consumer staples food and stable retail that show up on some of the weakest earnings growth among sectors. you have multi line retail which thehe worst grower at industry level among sectors. there are a lot of uighurs in the consumer numbers. some of this frankly is comparison, but the consuminer discretionary sector led the s&p 500 for years. now we are in growth that favors industrials and later cycles of the index.

you have to take this with a grain of salt, but generally the is not this powerful growth engine that we think we would hope for to drive very strong growth in the broad index. david: we go back a couple of months and we are expecting a real uptick in the equities because of the trump administration and fiscal reforms on the web. it appears at the very least that those may be delayed or diluted as well. how does that express itself in the equities market? jack: it is to the point that gina was making. the stock data is great in anticipation of all these promises and all these policies and so forth. the hard data remains to be seen. i think that's part of it. we are looking to try to shift to more of an industrial focused and more of a business focus. i'm going to pay attention to the outlooks of companies like ibm and others, maybe a ups, that tend to do business with other companies rather than retailers and consumer discretionary companies this

time around. jonathan: if you are a ceo of a financial firm, how would you provide any kind of guidance in any shape or form about the next couple of quarters and what they are going to look like? gina: it's a tough environment to your point. we have had such volatility in the financial stocks just based upon the potentially changing regulatory landscape and the direction of the yield curve. i think the important thing for financials frankly is talking about that topline growth. talk about that topline growth and how sustainable is topline growth. one of the really interesting things going to happen in the first quarter earnings season is i think we are going to see pretty big divergences in the financials details between earnings and sales. earnings across the board for financials are expected to be very strong, but sales are not expected to be that strong. i think the companies that can provide that context on sale sustainability and increasing sales and gathering market share are probably the companies that perform best through the earnings season. alix: to that point, jack, yet jeffries coming out with great

earnings, yet you wind up having some big banks sounding a little bit cautious. jpmorgan saying charge-offs for credit rates are higher. the underlying fund a metals from some of the ceos have not been that amazing. jack: we saw it last quarter, too. bank of america had a good earnings number, but it was all on cost-cutting. is really kind of tepid right now. the fact is that baby boomers are retiring with more debt than any of their predecessors. demand for taking on more debt among households certainly is not there. now we are starting to see demand for business debt languishing a little bit. we do need to see that flow. i would like to see topline growth. jonathan: appreciate your time, and a special thank you gina martin adams. she will be sticking with us. 10 minutes into the open, let's round this up. futures up 41 on the dow.

to s&p 500 up by 0.025 0.25%. you are watching bloomberg. ♪

emma: this is "bloomberg daybreak." i'm emma chandra and this is the hewlett-packard enterprise greenroom. later on bloomberg, janet yellen speaks at the university of michigan at four clock p.m. eastern --will bring you that live janet yellen speaks at the university of michigan at 4:00 p.m. eastern. we will bring you that live on bloomberg telogen. ♪ alix: it is a trump bump. last week's missile strikes on

syria brought the tomahawk missile maker to its best day in three weeks. here to discuss his bullish call on stocks is richard safran. still with us is gina martin adams of bloomberg intelligence. how much of the move we have seen in defense stocks is due to the increase in the defense budget this year? richard: you have had increases in defense stocks this year due to trump policies on tax, things like the border tax adjustment, etc., but part of it is also the fact that we are looking at substantial increases year-over-year in defense spending. as you mention, the $54 billion we are going to see. we have two defense bills coming right now, one that just passed the house, the fiscal 2017 bill. hopefully we get that before the end of the month. alix: but that was key -- hopefully. if we don't get this kind of budget and that defense spending passed, is there risk for downside? richard: you always have to say there is a risk. i think you have to say the risk is pretty small right now.

one thing that the recent events demonstrate to us at least is i think the world is still a pretty hostile place. we have a lot of bad actors on the stage out there. there's a little genuine need for defense spending. that is part of my bullish thesis for defense. underinvested in defense and that bill is coming payable now. we are seeing an ever escalating threat and art administration -- are in ministration is looking at a more assertive foreign policy. all that is going to spell a lot of support for subsequent increases in defense spending. david: we have the u.s. air force general responsible for the aircraft that transports everyone around the world. he says he is flying kc 135, for example, takers that are 60 years old. he has no choice. he has got to replace them. richard: you are right. we have trainers built in the 1960's. we were going to buy f-22's. we were going to buy almost 700 of them to replace the ones

built in the mid-1970's. i think that is exactly the point that i'm making. we have a lot of obsolete equipment that needs replacing and it's getting work very hard by military services. i think there's a real genuine need to replace the defense hardware. that underpins my bullish call on defense. jonathan: that is the volume story. we keep coming back to the question on this program. do these companies have to accept the skinnier margin? are they going to accept more pressure from this administration to get the cost down and the price of the planes down? richard: that was the fear. initially after president trump one, he had tweeted out that there were concerns about the air force one program from boeing. martincently, lockheed was able to sign a contract for the f-35 with double-digit margins. it just doesn't seem right.

from president trump's perspective, i think, as all this as taxpayers, this is what we want. we want the best value for our defense dollars. hand, i think in a trump administration, he understands you need to have a good business environment. you want to spark innovation and you want your companies to reform -- perform. generally know i do not think you are going to see a significant amount of margin pressure, and i think that is exactly what we saw with lockheed martin on f-35. alix: this brings front and center the problem with u.s. stocks right now when they are , not just to dc in terms of tweet and rhetoric, but literally revenue. had you understand that dynamic? gina: for aerospace and defense as a segment in particular, it has always been there. if you look at a chart of airspace relative to the industrials and broader market, that segment of the market has been outperforming since the middle of 2014. this is not something that happened with trump.

this is something that happened with anticipation that the budget would no longer s continue contracting for defense spending in 2015. that was the trigger moment for aerospace and defense to. outperform. it is only gathered momentum since. this is a sector within industrials that trades very defensively. aerospace and defense is defensive for a lot of reasons. one of those is that it is slightly less exposed the major volatile ships in oil prices. it has been outperforming while oil prices have been under some degree of fire as well. ,nless the budget contracts this segment probably continues to do well or oil prices start to on trend rise pretty quickly, because that helps other segments of industrials to outperform the segment. alix: one word -- favorite stock to take avenge of this? richard: l3 technologies or l3 lockheed martin. alix: thank you very much,

richard safran. turning to wells fargo now, that stock back in the news. the bank board clawing back dollars from former ceo john and canceling around $47 million of the former bankhead. for more, laura keller joins us now. still with us is gina martin adams a bloomberg intelligence. laura, is this done now? laura: that's a great question. i think wells fargo's board would hope that it's done now. witht got off the phone the chairman of the board and he confirmed to me that indeed the company is still talking and doing investigations. certainly there could be more actions happening on the mid-level managers. this was a report from the board looking at very senior managers. as we are seeing from the report, a lot of actions being taken on former ceo john stumpf. also this former community

banking head, carried still had, clawing more money from her as well. alix: how much of a black eye is this for banks in the u.s.? gina: broader banks are trading away from this issue at this point. it is more of what is happening with the yields curve. alix: i'm talking more about the overhang of scandal and overhang of that payment. gina: i think the sector has contended with it for so long that it's another bullet point in a long list of bullet points for the banks. i don't want to minimize the issue at all, but when you look is traded,sector wells fargo underperformed on issue, but the sector at large didn't. the sector at large bounceback regular t relatively quickly. there are other issues driving bank performance. for banks specifically involved in a scandal or headline risk, it's an issue, but for the sector at large, i'm not sure that's what's driving trading. alix: think you so much, laura keller for wrapping that it.

if you have bloomberg terminal, check out tv . interact with us directly. just go to tv on your terminal. this is bloomberg. ♪

david: friday we going to get the u.s. retail sales and cpi numbers. joining us to take us through the week is the economics and policy number mike mckee. you think one of those that is not important is china. mei: could the chinese pdi numbers have been very interesting in recent years because a lot of people see them as a proxy for their industrial production. you go inside the bloomberg and

you can see over the last six months that chinese ppi has risen significantly in the chinese economy seems to be growing at a faster pace. the question is how long do they keep that up. we also had that big drop in exports in january and a big rebound with her golden week. jonathan: ask anyone about the reflation trade and you say i don't see it in the prices. they will say i see it in chinese ppi. why is that so critical? mike: it's just what they are able to charge for what they are doing. at this point, they are able to get more cash for it. everyone is watching how much commodities they use. alix: it's also a see-through in terms of goods that come into the u.s.. it's going to feed inflation here in the u.s., too? mike: we get import prices this so people don't pay as

much a attention to them. the big week of the markets will not even be traded on because comes on friday. janet yellen tonight is probably going to be telling us much the same we've heard from other fed people to the extent that she says anything. probably not going to be about the details of the balance sheet because they're not decided on it yet. maybe her views on where they go with rates, but friday retail sales is going to be really important. david: the big question is where is the consumer? is the sentiment going to trigger through the people parting with the cash in their wallets? anotherbrought along chart that compares retail sales who growth. we had that big plunge in auto sales for the month of march. the docket reflected in the rest of consumer -- did that get reflected in the rest of consumer spending? jonathan: the big question is

why friday? only the stock markets and bond markets are closed. not an official holiday. jonathan: michael mckee encouraging himself to come back on friday. [laughter] minutes into the session, let's get you up to speed on the session. here's the market reaction for you. 26 minutes in and futures are positive. we are now up on the market. if you switch up the board, some calm and treasuries for once. yields are up by about a basis point. whippyafter friday's session. you are watching bloomberg. ♪

vonnie: it is 10:00 a.m. in new york, i am vonnie quinn. mark: welcome to "bloomberg markets."

vonnie: we take you from new york to london in the next hour as we discussed stories out of moscow and milan and washington. in politics, members of congress are back home for a recess. where does this leave trump's agenda? laffer hear from arthur who still sees an economic boom under the trump administration. mark: saly is coming under fire. the board will cut his pay, this is over news that he violated whistleblower protection rules. vonnie: and in geopolitics, geopolitics, rex tillerson stripper broad got