states flexing its muscles abroad as the economy shows signs of weakness at home. vice president pence visits the north korean border. the economy accelerates for a second quarter, does much of the heavy lifting, and turkey shifts away from the european union. president carter him -- president erdogan's referendum win gets him power. good morning, "bloomberg daybreak" after a long weekend, i am jonathan ferro alongside david westin and alix steel. this get a before for you morning. treasury lows, sub to 20, we are down by three basis points, futures just a little bit softer . alix steel, rolling over by .8%. 8:30 a.m., look for data, datahen 4:00 p.m., tick will be released, who is buying and selling u.s. treasury's?

vice chairman stanley fischer will be speaking at columbia university. after the bell, to tea and earnings, united after the debacle over the last few weeks, and netflix. david: something of a horse race between geopolitics and economic data. to take a look at both, we're joined by hong kong by bloomberg's chief asia correspondent enda curran, and from washington, we have bloomberg's chief washington correspondent kevin cirilli. we have the gdp numbers out overnight. what were the main numbers you look to? enda: it was a pretty good result, david, back to over seven years. in 2012.ly rose that is pretty important for the debt story and china. we saw strength across the board really, housing, exports, infrastructure spending, and of course the all-important construction, the rebounding story. a lot of it remains to be

credit-fueled investments. some data will need to be reined in. of course on the background draw tensions and the geopolitical tensions have not gone away, and those are some of the things that could trip up the story in china as it goes on. credit, itmentioned continues to grow faster than the economy. when is someday? enda: that is why i would say to you the pick a nominal growth that we saw in 2012 is very important in terms of getting a handle on the overall risk. i mean, it decompresses the extent of that problem, however, nonetheless, total credit has surged over the last decade. it is now 260% of the overall economy side. we have a major political reshuffle toward the end of the year. have calledothers for reform, so perhaps maybe next year, we will start coming in hard.

so kevin cirilli in washington, that is the economic data came out overnight. we also have a lot going on in asia with respect to geopolitics good atop to us about vice president pence and his visit to south korea. kevin: yes, david, clearly this is a sign of the administration trying to utilize some of their economic policy to influence foreign policy. here is why -- over the last couple of days, we learned that president trump will not be labeling china as a currency manipulator, but they are hoping that the chinese will pressure north korea in order to address some of the military usage in the region. they are hoping this is a point of leverage, not labeling them as a currency manipulator. over the weekend, of course president trump tweeting that out. vice president mike pence facing his first asia swing and what will be a several-day tour through the region, meeting with top diplomats in the area. again, they are hoping that

this, in combination with house speaker paul ryan's tour through europe with nato allies this weekend, will showcase that there is a united front, at least on foreign policy, for president trump. david: a united front is greatdavid:, but president trump really thinks china is the way to get north korea to change its behavior. by the way, the president has been saying that for some time. what happens if we find out china cannot actually influence north korea? the chineseand it, after to visit pyongyang, they were told, "no, thank you very much." kevin: one senior adviser within trumps political orbit told us that is where it matters, that is where the chopping of the mother of all bombs matters, they are hoping to signal that is china won't do it, that the u.s. can thastep in. david: thanks so much, enda curran and kevin's really. jonathan: joining us is michael purves and libby cantrill.

why what i call china a currency manipulator when they are working with us on the north korean problem? we will see what happens. what do you make of the blurred lines between foreign policy and economic policy? have usedy presidents economic policy to advanced economic goals, maybe not as explicit as this. president trump talks about china as a currency manipulator many times, so many people thought this was going to be a day one action. i think this is just another data point in the evolution of president trump as the president. as we talked about, governing is very different from campaigning. many first-time president have a learning curve, and they do change their policy from the campaign trail. this is yet another apple. -- another example. jonathan: using foreign policy, using economic policy to achieve foreign policy, what do you make of that? libby: again, it is the reality of governing. the office of the president is a massive office oftentimes it

affects the person more than the person affects the office. again, this is an example of that. alix: michael, jpmorgan cannot buy equities because it shifted foreign policy from president trump has underlying issues, credibility issues, lack of domestic agenda. do you agree with that kind of call? michael: you are talking about u.s. equities. the upward momentum is not evident. in the charts, there is still growth a room for catalysts, earnings season is unfolding come and we will see how much good news is there. in.uch is priced i tend to agree. i don't know if you have to sell u.s. equities, but i cannot see a case of fighting them right now. alix: you have to hedge more smartly, and where do you do that? the brusselstracks 2000, of course the trump trade, which has outperformed since the election, and i think -- if you look at the market is really being formed between the fed's

put and the trump called, the trump coal is falling further out of the money. how much does the fed put come back into play over the last few years? we are starting to see that. david: libby, this is not be first man who ran for president and ended up different than who was voted four. george w. bush did not anticipate 9/11 .obama did not anticipate the great recession . we had a man with a domestic growth plan who is now turning into a foreign policy president. what about the markets depending on this? libby: geopolitical issues can be a destruction for the president, and in terms of advancing his own agenda -- again, the realities of governing are manifesting in the fact that you have to work with congress on domestic issues, so if you take your eye off the ball, it means congress can be even more delayed than they certainly have been to date. david: business investors like

some stability, predict ability. when you have had change in the direction of the presidency, how do you react as a business leader, what do you do? libby: something's that have happened over the course of a couple of weeks will give investors comfort, and one is the fact that some of the escalation of a potential trade role with china, it looks i it is not necessarily going to happen -- at least not in a for seeable future. another is the fact that he is reinforcing conventional foreign policy. that should also give some comfort to investors, but of course, again, this is domestic agenda here, the fact that he is going to sort of focus on these geopolitical issues could again preclude him from advancing his agenda as quickly as he would have wanted. jonathan: his form policy involves dropping bombs, but there we are. michael purves, the lead, is that the signal from the weekend? michael: it is interesting to

see how low the treasury yields are going. i think of a lot of us have been now, to 3% on the 10-year treasury equates to $110 on the $12.50 on goal. this in the chinese economic data posted last night, you're seeing the tale of two different trends. the lead traction right here, having said that, when you talk or thehe weak cpi, disappointing cpi, let's not get too excited about that. it is only one print. there are some basic coming into play, a year ago, the deaths of the deflation. some are adding off with the commodity bounce starting to fade. nonetheless, i still think it is hard to get too excited about the short treasury. been on bowli have

treasury gold pieces for some time now. jonathan: for when you wake up this morning and log into the bloomberg, and you see 10-year yield coming into a basis point, how much of that is the day on friday -- michael: and how much of that is purely technical because there was a huge air pocket below 2.3%, arguably to 1.8% or so. of -- the terms reason i do not think it is purely geopolitical is because you're not see in confirming signals elsewhere. people not seeing massively selloff in assets directly related to asia. you are not seeing the vix, the bp and why -- bpny spiking. but is having a nice move, it is distracting from real rates. they are not necessarily off a frantic bid for geopolitical insurance. alix: take a step back. here's a chart that shows

what you are talking about. the gtx spread, you can see for the year, the projection is an emerging market growth will pick up and outperform develop market growth. what do you do with this kind of chart an investment strategy when you have the geopolitical overhang? michael: if you are talking about the e.m. catch-up trade, which basically you can sell at butaction by e.m., recognize that a lot of the emerging-market equities are not necessarily any more exposed to ane geopolitical shocks, the some of the other countries are, where is the geopolitical stress? go to warat, if we with north korea, that will be that for everything. more, beta will sell off that is a scaled scenario, but there is more political risk in france right now than, say, brazil on a relative basis. i think that is one of the

things they are struggling with. if you step back and think about valuations, the relative valuation of a lot of emerging-market equities relative to the s&p 500, it is sort of a no-brainer to still belong on emerging-market equities. alix: good stuff. michael purves of weeden and libby cantrill of pimco. both of you are sticking with us. still ahead, global economic head of research, and the director of ubs derivative strategy, one of the biggest bears on the street. happy morning from a beautiful new york. i hear it is nice out. we are in the studio. this is bloomberg. ♪

bloomberghis is

"daybreak," i am taylor riggs spirit of randy quarles will be the fed's top regulator according to politico, which is a sign that the administration does not want an ideologue. toldnths ago, quarles bloomberg's views on changing the dodd frank act. i think you can see significant changes to dodd-frank. there are many aspects that i think in some ways dodd-frank was not ambitious enough, and in other ways, it was overly ambitious, and i think there are lots of ways to refine dodd-frank and other forms of regulatory policy that will be beneficial to the economy. qulor: politico says still needs to meet with quarles still

needs to meet with the president. saudi aramco's ceo says the market is moving closer to balance. that is the bloomberg business flash. alix: thank you so much, taylor. it was the story of friday when we were having mimosas at brunch. of .1%, thecline first outright decline since january of 2010 and the largest since 1982. mr. was is is michael purves, chief global strategist at co., and libby cantrill of pimco. michael, you said you have rental inflation. a rollover there would be very dangerous. michael: yes. i want to make clear that i was -- the one-off flips are not necessarily sustainable of a whole new trend. you talk about wireless pricing. thatn, trump or anyone for matter cannot necessarily change these huge a structural trends.

technology has really taken the inflation story to a different place than it had before. you take things like airbnb, fixed assets, make buildings much more efficient, increase capacity, and that is ultimately deflationary. a hotel charges less for the hotel room as a function. wireless pricing, that is more of a regulatory-induced form of inflation. it is there. these types of trends are to my mind, what is interesting, it is not so much -- are we going to go into a deflationary spiral? but more -- are we going to go condition? two, two alix: libby, what we learn from china is the inflation theme is alive and struggling, but here we are struggling. it does that mean we absolutely need infrastructure stimulus for a soft data hold up? libby: in order to justify some

of these valuations, that is in fact the presumption, but come and you saw this with gary cohn admitting this, tax reform is going to take time. we were talking during the break -- especially if they revise health care first. there are a lot of reasons they want to do health care first, it decreases the so-called baseline, it addresses tax cuts if they do want to dres addressx reform, and their is politics behind it, but bottom line, if they decide to do health care first, tax reform is going to be early 2018, may 2018, the closer you get to midterm elections, however, then you might actually see it slow down. so the bottom line -- tax reform is important, but i think that we are skeptical that it will get done by the ending of the year. david: they have been saying they want to get it done by the end of the year after initially saying august. if it does get put into

mid-2018, and also, will they at what point it, do those valuations become unrealistic? libby: you can talk to our portfolio managers in terms of the actual valuations, but again, it is a 10 to think that once you get closer to the midterm election, you probably package.e scaled-back we talk about a border adjustment tax. that looks unlikely to go. border adjustment tax, that means you have a smaller tax package. at the end of the day, you will see tax reform like. you will see tax cuts with some reform elements, but not the big , bold text form package that speak or write or even donald trump has said they want. jonathan: michael, do you see a reality check that kicks in later this year -- chemchina continue-- can china to show what we need to continue pressing on the pedal to stimulate the economy? michael: there are a couple things in your question to unpack.

the recovery of china, only a year and half ago or so that china was driving the vix up to 46 and keeping it at elevated levels for several months. but what is very important, when pointlk about libby's about tax form and contextualize the u.s. equity rallies, it recognizes that this globally synchronized growth that we have been seeing over the last several months is a huge reason why the s&p has not given back these multiple gains since the election, right. emerging-market equities continue to be one of the classes.orming asset with respect to china and what we saw last night, which was very encouraging, of course, let's step back and put a reality check that a, it is china data, and 2, any of these prints can be not necessarily sustainable as a whole new trend. the structural issues in china are not going to go away just because they have tightened the output gap a bit. there is an enormous amount of

debt in china. it will continue to hover as a sort of dark cloud. so getting a new bold taste in china is one thing. jonathan: for the crowd, 10-year , disappointing in a significant way, that has got to be disappointing. michael: without question. if you tie together relatively attractive valuations into the backdrop of globally synchronous growth, it should not benefit e.m. as much as anyone, if not more. with the dollar and a 10-year and the real rates in the u.s. behaving themselves, that is a recipe for further gains, without question. david: libby, if we're going to and tax reform light lighter, within financial institutions more broadly, cannot help the growth situation? libby: yes. we are a little bit more skeptical of that narrative as well on the because in terms of

really changing dodd-frank, in terms of really rolling back -- there is no political appetite to do that in congress. that means what you are going to see in terms of regulatory -- is at theat the 00 actual agencies. janet yellen is the head of the federal reserve your there are over the appointees that many of these independent agencies. until donald trump gets his we will not see the big regulatory rollback at the agency level. someyou will see regulatory relief, but again, this is more of a 2018 story than a 2017 story. david: libby cantrill of pimco, thank you. michael purves of weeden will be staying with us. after a crude -- a crude reversal after a big rally. will join us with his outlook for energy and oil markets. from new york and from washington, this is bloomberg. ♪

jonathan: from new york city and the reviewers worldwide, i am jonathan ferro. a weak yen dominated by geopolitics on a friday with some disappointing data with the markets closed. this morning, futures a little bit softer, down 15 points on the dow, treasuries a bid with a on the u.s. $6.20 10-year as the bond market gets open again. about two hours away from the open, here is alix steel. alix: we want to pay attention to insight and eli yele lily, both getting hit -- and eli lilly, both getting hit, and arthritis drug now rejected. eli lilly self growth -- will bey's sales growth lowered. it is rivaled only flip side by

pfizer and others because they do have the arthritis drug. you can see that popping as well for the co-conspirator sash for the competition, actually doing much better. i want to wrap it up here, money gram is getting a bit, $18 a share. company top the , so onebit of $15.20 stop to watch into the open. jon? i have got too many. jonathan: coming up on the program, we will be talking emerging markets. we take you to turkey as they away to a one-man rule and from the european union bloomberg. from new york city, you are watching bloomberg. ♪

jonathan: from new york city, i'm jonathan ferro. let's get a check of the market. after wall street gets back to work, here are what equities look like.

down 1% on the dow. losses, theeks of data faring on friday. being bid on treasuries in the last 24 hours. a little bit earlier, if you look at the fx market, it is a stronger yen story. let's get you up to speed on the headlines. erdoganrkey, president is taking aim at opponents. he narrowly won a referendum they gave him our power and warned opponents not to bother challenging the legitimacy of the vote. the results should be canceled because of the irregularities says the board. in asia, vice president visited the demilitarized zone to take action against kim jong-il's

nuclear program. he repeated president trump's warning that the u.s. would act without china if necessary. minister hopesgn that the u.s. will not take one-sided action. the state has been set for the trial of their ousted president indicted on charges of abuse of power, and accused of coercion and leaking secrets. of chargeso indicted of getting $6 million in bribes. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus across the world. i'm taylor riggs. you will go back to the important story out of turkey. is -- us from istanbul help us understand why this was so important?

what whether nature -- what was the nature of the changes? >> there was a lot at stake third these were the biggest changes to the turkish republic in history. it would give president erdogan additional powers to cement his position and now he will be able to appoint ministers, dismissed judges come and extend his stay in power all the way up into the lake 20 20's. 2020's.the late ultimately, the naysayers which lost the vote were arguing that the checks and balances are being ripped out of the system and putting too much power in the hands of what is now an executive presidency. theill have to wait and see legislative effect. david: the markets in turkey seem to have liked it.

lira was up and the stocks were up it one of the markets reacting that way? expected a close call, but no one at the close this -- a vote to this close. nonnegotiable risk of an earlier election that raises the sector of further political uncertainty in the near term, which is not really what the market was looking for. this means that domestically, the doubts of how the referendum is coming your hearing international voices and reactions from the likes of european union saying they will look into how the vote went forward. but ultimately, some people were positive on the turkish story. the folks at j.p. morgan are one of them saying look, look at where emerging market index is

trading in turkey stocks are trading, a 30% discount and a good time to get in. jonathan: you said sufficient checks and balance is are not the silly prerequisites. -- what people want to do with continuity. when you consolidate things in the hands of one man in turkey, what does that say about policy continuity in turkey in the next coming years? that was exactly what the market was looking for. a relative disability -- a relative ability of -- situation where the markets are reflecting this. they have given back some of that initial really. his is government going to get serious about issues surrounding -- is the government going to get serious about issues surrounding this?

they depend on foreign capital to finance the current account deficit. there is a lot at stake economically and politically. president erdogan will have to tread cautiously. jonathan: thank you. they're saying policy continuity, forget about it. it could get even more erratic heard the chance for the death penalty could make a comeback. wave goodbye to the european union. purves.ing in michael the news out of turkey overnight -- how does that shaped her views of turkish stocks right now? not spend a lot of time focusing on turkish assets. there is one thing that we were talking about earlier in the show, china gdp in the case for him -- one thing that is interesting is when you start

seeing significant countries go through its various political evolutions, it does not translate to this offset. the lack of correlation and the ability for other countries to be resilient to these types of changes is really pretty impressive, and lowers the discount rate for emerging -- for broader emerging market asset classes. right at the bottom of the turkish lira. that is where the underperformance has been. but for the whole of europe, this is been a big story for the last decade, the idea that turkey would move toward the european union. we assume that they move away from the e.u.? think thatcertainly is where the political momentum seems to be. someu step back come at

point, -- if you step back, at some point, it will have to circle the wagons fighting berries battles with england -- fighting various battles with england. there is got a be some sort of rationalization there. seems like that would be the path of least resistance is to disconnect from turkey. alix: i am wet you brought up your because it seems like we have seen a power consolidating with one leader. you have seen that with her to one and with vladimir putin -- you have seen it with president erdogan and with vladimir putin. you may be seen that with president trump. how do you as an investor look at that power consolidation when you choose where to invest? --hael: talk about the u.s. talking about the u.s. is very different from turkey, of course. this is a key theme that has come out of nowhere over the

last by month is this emergence of the strong man-type of political leader. the question investors have to be looking at constantly is how good of the checks and balances in the rest of the system? in the united states, they seem to be alive and well. but the processes by which this democracy created and run seems to be doing fine. when you get into other ,ountries like turkey obviously, it will be a very different set of situations. yes to be careful about what discount rates you are assuming if you are thinking long term. france is a tricky one. jonathan: in your view on e.m., the idea that you have not had the bleed through, likewise with france, ably through to the better markets has that happened outside your. you look at the polls right now, we have a forced rate for the first round.

do you expect we threw at some point? michael: his election, everybody has known about it for some time, right -- and mark -- sometime, right? if you look at marine le pen's poll ratings, it almost rivals president trump's numbers. takeis interesting, if you marine le pen and -- together, you are around 37% aggregate possibility. that is pretty significant. if you look at the spread on the 10 year, you are not seeing a panic.h my god, it is one of these confusing things for investors. why are you have seen more stress there? that is a huge applied probability.

but if you step back and you realize that if marine le pen wins, the process that she affects change is a slow process. it will be more dates to be considered in such. of course, people look at brexit and say no harm, no foul. vote hard to necessarily just on a.p. or headline, like -- to vote just on a pure headline. david: there are other data points as well. see it in places like hungary where you see a strong man come forward and in other parts of your. you get into the eastern parts of europe, what extent does that put real stress on the european union that it could affect investors? michael: to my mind, what really is important is what happens in the core of europe and germany, france, italy, spain for that matter. but tends to happen in those countries is if you have the

wings flareup, it almost reinforces this gridlock condition because for everyone on the far left, you will get a far right moment him. it could be weeks, days, or months later. it reinforces the get nothing done condition. that is not necessarily saying that europe is horrible in the gdp will fall. david: what does it mean for mario draghi? day,el: at the end of the he has to -- he will keep his foot on the gas. generally, he is supposed to do political risk of this nature, this is something he will be parsing through very carefully. how to the germans responded this especially if we get followthrough with inflation? these political issues continue

to rise. let's wrap this up with a couple of etfs. which one will you buy and hold? michael: that is a great question. doht now, i would probably emerging markets. alix: thank you, michael purves. coming up, we had the head of global economics research angelina manual -- and julian emmanuelle. this is bloomberg. ♪

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alix: this is bloomberg daybreak. i'm taylor riggs. coming up, the muddy waters founder at 11:00 a.m. eastern. >> this is bloomberg daybreak heard let's get your bloomberg business flash. the pentagon's approval for the marine corps to abide keep martin news helicopter came up a surprise. the total cost has risen 7% to $31 billion according to a memo obtained. each helicopter will caused $138 million. and universal's fate -- the fate tap to beious is on the biggest opening ever.

the movie did not do as well as expected in the u.s. that is your bloomberg business flash. jonathan: anyone surprised? david: my son love this stuff. alix: there are eight of those. jonathan: big numbers on friday. inflation took a step back in march and retail sales drop for a second month. joining us with reaction is carl riccadonna. thank you for being here. for the inflation rate to hold, businesses need pricing power and consumers need a higher price tolerance. i do not see either. carl: we certainly did not see that in the march data. q1 not ending with a whisper. my team is forecasting 3% gdp growth in the first quarter you

are downsizing the risk in light of the retail sales numbers in particular. jonathan: we move past q1 and everybody says it will be ok, and then we bounce back and bounceback. what is the story as to why we bounceback? carl: since the great recession, there seems to be anomalies and economic eta meaning that q1 starts with a fed and then we recover later in a year. there has been a lot of analysis from agencies trying to sort out why that is the case. my own theory is housing has been on such a softer trajectories sense the housing bust, which led up to the great recession that that is a major computing factor. every year, we have counted on consumers to get us back on track in the subsequent quarters. that is a bit, located. the unemployment rate is at a low level and household income growth seems to be solid, but consumers ending thunderbolts -- durables could mean

the bounceback is on the softer side. the fed will have less of the confidence to keep on this aggressive timeline with two more rate hikes in the start of balance sheet unwind. sometimes economic developments get in the way and that is a considerable risk or chair yellen wants to get the balance sheet unwind before her term ends. it could be a complicated path. one of those rate increases or the start of the unwind could be in jeopardy. gdp spending,our where's the money going? more people are employed, wages are up 2% year-over-year. there is more money, but there is more disposable income? where is that money going? carl: a lot of the money is going into services and wents --

and rents. if we look at inflation throughout the cpi, the rent hot sector has been -- the red-hot sector has been rent. we have seen a lot of spending on durables. . talked to many analysts the view is that we have reached peak autos. so you will not get a boost to growth of spending of durables. alix: the market repricing very quickly. one of my favorite charts of the day encompasses what the rate hike is going -- what the rate funds will be january of 2018. marketspasses what the think about rate hikes for the next two years. if you take a look at the blue line, we are almost at zero for rate hikes next year, and one

more for this year. carl: you can see it reflected in the 10 year treasury yields coming down as well. the market is not buying the fed's -- that and we keep talking the market will come up to the fed this time. maybe not. carl: maybe not. down tomay have to come the market. it will depend a underlying growth in the economy. economists are willing to overlook the weak q1 because of the income creation appears to be there, but you have to have the underlying gdp growth to generate income. there are question marks on that. thathan: have you heard this is data dependent? carl: absolutely data dependent. if the economy is not stepping out of this sluggish 2% growth rate that we have seen year in and year out since the great recession, it will be very complicated path to get three rate hikes and balance sheet

unwinds. we are looking at effectively quadrupling the pace. alix: all right. thank you carl riccadonna. if you have a bloomberg terminal, check out tv and check out our charts and graphics and interactive us directly. send us a question during an interview. this is bloomberg. ♪

♪ alix: u.s. markets added 11 oil rigs last year. don't look at this, it is a bad chart. larger stretch of games. can u.s. increase --how long can the u.s. increase oil production? is closing a deal to buy 77 energy making at the top two land drillers in the u.s.

here is tom siegel. how quickly are they putting rigs back to work? tom: thanks, alix. we are pleased to see the recount more than double since the lower last year, which was the lowest point ever hit. we feel that we have and able to quickly ramp up. hit itsen does capacity limits? how long as he was capacity? mark: we have running room in terms of additional rigs we can put to work. the biggest constraint becomes the super spec rigs, and there are a limited number of those. we have quite a large number of fleets for those rates. alix: how much runway? a year? a year and a half?

when does the oil rig market get tight? mark: it will get tight in certain spec rigs quickly. there are plenty additional rigs that can be put to work that are not friday -- that are not quite the same quality. more than a year worth of rigs to put to work. alix: wow. we have runway there. we have good insight into the public market. we do not know what the private guys are doing. can you give me a perspective of how quickly the are ramping up? mark: surely. the interesting thing is that they privates use -- move for quickly than the publics. the price of oil and gas goes up, they start to activate rigs very quickly and take on the drills and completed wells. alix: what does that do for pricing? all we hear that you're going to

get your pricing back cannot deliver those low pricing gains. will you get it back this year? do you still have a year of backlog? mark: we are starting to see prices move in our business, that is very clear. it will take time until we get back to the highs were achieving in 2014. we are definitely moving in the right direction. alix: how much competition in your space, which means you don't have the pricing power you would like? quite a lot of competition in the u.s. industry. in our space, we are one of the dominant players. we are the number two player in drilling the dominant position. alix: actually with there, mark. good to see you. this is bloomberg. ♪

♪ >> the united states lexus its muscles abroad.

vice president pence visits the north korean border. china is the one that provides a feel for the reflation, the economy accelerating for the second quarter. president erdogan's referendum wins getting him new executive powers. good morning. i'm jonathan ferro alongside david westin and alix steel. this is "bloomberg daybreak." futures a little softer earlier on, and now we firm up by a 10th of 1%. a stronger yen. alix: time for your morning briefing. we get empire manufacturing data. 4:00 p.m., my favorite is kept. who is buying and selling u.s. treasuries? p.m., the vice president of the fed speaking at columbia university. and we have netflix and united

after the bell. jonathan: joining us is david rosenberg. great to have you with us. you have a weekend of geopolitics in a friday a very disappointing data. think to some extent the geopolitical risks are a rouse that they are not real threat to the marketplace. but what is important that it has taken the white house's eyes of the what investors are looking for some of which is deregulation and infrastructure. they have shifted focus in the white house to a foreign-policy agenda unexpectedly, and away from the domestic growth agenda. agenda, has athe composition changed? the idea that we were going to get a lot of good stuff from d.c.? thought that --

i was one of the few out of the gates questioning the extent to which investors were pricing and all the good stuff, and that it would happen so quickly without understanding history. even the most effective president historically, including ronald reagan, and it took him five years to get tax reform through, that even the most effective president historically barely get half of what they campaigned on through congress. whether it is democrats or republicans, or one party, that is a fact. i think investors at the initial outset got out of the gates too quickly. theyou can mention about timing, well, i think the question is how long does the market have? you get past this year, and mixtures the midterm election year. it could take years to get a lot of the things through the legislature at the markets of price in out of the gate. david: do you think the white

house is distracted, or is it believed? itgot -- distracted, or is relieved? as it has gotten into washington, it is a lot harder to do. , they heorge bush 43 get elected on being a war president? no. he got elected on a small government. insulated, domestic policy. what happens -- and i don't understand why people don't look at their history books to see that every president gets overtaken by events. and quite often, it could be international events. these numbers are coming from politicians. there was not a snowball's

chance in hell that we were going to see those numbers. but with that but what we are seeing is what historically happens. on a brady campaign on tax cuts in 1980. he got them through -- ronald reagan campaigned on tax cuts in 1980. he got them through in 1986. people tend to forget when they looked at the reagan pregnancy -- people tend to forget when they look at the reagan presidency that the -- tripled. but it took years. because of tax reform, does the soft data wind up falling? will attract the markets down with it? david: and will follow the hard data lower. for the people that thought somehow the confidence indices

were somehow leading indicators, they were only reflecting what the stock market was doing at the time. it reminds me of the post-9/11 reconstruction hopes. if you go back to the first half , hopes were abounding that we were going to get a strong post-9/11 economic growth phase. the isn and consumer confidence numbers ripped off the post 9/11 flows come and look what happened. in 2010, ben bernanke is restoring hope in the confidence. economic growth relapsed. and will not be different this time around. the first quarter data is telling us what we have known all along. it goes down at the weakest recovery on record.

the view that the political change in washington was going to evoke immediate change, i always thought was way off base. it is note 7 segments of reality can look at historical records. -- it does not have any semblance of reality if you look at historical records. jonathan: treasury shorts will continue to bleed. what are you advising right now? as one of my mentors told me my first entered the remains, until it page-one news, you stick with the trade. thehe wall street journal, reflation trade was on page b10. change.is 16 and the 10-year note has reversed the vote 60% of the postelection

run-up in yields. thee is still room for de-risking phase. i do think there is still room to run in terms of this reversal from this trump economics. jonathan: i don't see it sizzling. -- fizzling. david, we have a tips option on thursday. as we see rates falling, what you think the demand will be? david: i think this in some delay in terms of the domestic progrowth, in terms of the heightened geopolitical risks, my sense is the bidders will not show up. keep in mind, we have only reversed a very small portion of

the run-up in yields from last year's lows and only reversed just over half of the run-up since the election. i do think that looking at the transformation, anybody who was looking at it could see we could trade down at 2% on the 10-year note over the course of the next couple of weeks. demand should be pretty strong. alix: aside from buying treasuries and tips, what is the best other way to play falling rates? the best way if you're in the bond market is to go long duration for the time being. zero coupon bonds would be the riskiest, but the most ample reward if we are right on this that there is still more room for long-term make to head lower. in the stock market, everybody focuses on the nature -- the knee-jerk, which is utilities and telco, but the homebuilding stocks have been behaving very well in this past couple of weeks.

weekend d.r. horton reporting on thursday before the close. with housing starts in home sales this week. hasplace you can hide that quite a bit of upside performing very well is in the s&p homebuilders index. jonathan: david, great to have you on the program. it you are sticking with us. 2300 -- that is what you will need on the s&p 500. will be joining the program. good morning to you. you are watching bloomberg. ♪

♪

trump'sne of donald commitments was to regulations. hisre waiting for some of appointments to back them up on the promise, and now we are hearing he is going to make an important appointment for supervision. we talked to -- views on dodd-frank. repeal isy dodd-frank politically difficult, but you can see changes to dodd-frank. there are many aspects of dodd-frank that i think in some ways, dodd-frank was not ambitious enough, and another ways, overly ambitious. there are lots of ways to reform. frank -- there are other ways to reform dodd-frank. david: we are joined by mike mckee that knows all things fed. he is a fed aficionado. he is more of a mainstream

republican. what does that tell us about the regulatory approach towards the bank. mike: moore pragmatic than ideological. george h.w. bush and has a long record. in the h w bush administration, he took the lead pushing for regulation of fannie and freddie , and then went on to push again in the first of the bush administration. .orked in various posts he knows a lot about the ends and outs of these businesses. david: and he has done a lot with international finance .anking coordinating better which is different what we thought might happen. mike: he knows the whole area worked at the carlyle group and has its own investment bank in salt lake city. he is somebody more likely to focus on regulation rather than dodd-frank rules. , has a veryf course

legislative component that would be hard to change, and he will not advocate breaking of the big banks. much more discretion and much more practical rules' making. you will not find a lot of opposition to that at the fed. they realize changes have to be made. he may fit right into -- he may fit right in. alix: did the banks like practical? they i would say that probably would like practical look, we're going to be heading into a phase that will be gradual. where the banks will be re-rated it is are restarted as more related utilities are from a positive aspect, what investors will be looking for parts of the market that have dividend growth and dividend yield.

i think via laura will be rising over time -- i think the allure of the rising over the time. jonathan: what if we learn from this potential moment? sure do not know for randall corals'monetary views. rules-basedin policy, which nobody on the current fed believes and. they point to the taylor rules. is that a good idea? it would be interesting to see what influence he has. he will not change janet yellen cost mines, but you may see changes. seeing a we wind up rules-based head of the fed or a rules-based vice-chairman the are replaced? >> we do not know because we do not know what donald trump

thinks of all of this. house republican seven pushing for a rules-based fed for a long time. no rule covers all situations. that rule to suggesting we have much higher interest rates. donald trump said he liked low interest rate. david: it is fair to say that the big banks, here in new york, we are not a fan of debtor low. was a davis paul representing the companies. it is more likely they will find this a friendly phase -- family face? mike: they are more likely to look at him with a friendly face. how don't -- the question is how far does he go for the big

banks? most of the problems that you find the dodd-frank that everybody can agree on fixing is with smaller banks. how far does his influence extend? that remains to be seen. is itnot like jamie dimon making record-breaking profits. but they would like to see their lives made easier in some of the rains cash and some of the rules laid back a little bit. alix: taking a look at composition of the fed -- had you look at monetary policy when we do not know who the chair and vice chair will be. once again, we have a president saying things during the campaign, and when it is time to govern, most closer to the center. that may be an extreme example, but we have seen that before, and we do not know who the next

chair or vice chair will be. but my sense is the argument going to a rules-based fed to me is completely high in the sky. unless you go back to the gold standard. monetary policy will not be run in the united states on autopilot, especially when they have a dual mandate on two statistics -- low and stable inflation and full employment. we cannot even agree on what full employment is. is it 6%? 9%? mike mckee is talking about john taylor's taylor rule. 5% is completely ridiculous. -- that would throw the economy into a recession. the taylor rule is subject to assumptions. based on where the real unemployment rate is, you have a fed funds rate equilibrium that is not far above where it is

today. we willess is that always have a monetary policy no matter who the fed chair is that will operate based on a lot of judgment. that is the way it should be. jonathan: david rosenberg, thank you for joining us. bloomberg's michael mckee, always enjoy your reporting. if you get to the boards very quickly to set you up -- futures firming up, 20 on the dow. switch of the board reflate us treasuries remain -- the yen stronger. we come in by 2/10 of 1%.

from a beautiful new york city, you are watching bloomberg. ♪

♪ alix: this is bloomberg daybreak. uber has opened up about his finances and is still losing money. the company should financial information with bloomberg and shows that uber's growth -- to was $6.5 that revenue million. the company said sales growth is outpacing the losses. the pentagon's approval for the marine corps to start buying lockheed martin's new helicopters came as a surprise. to $31t has risen 7% billion according to a memo obtained by bloomberg news. each helicopter low-cost $138 million. and financial is trying to win a

bidding war for money gram. . euronet worldwide has a competing offer for money gram a table. that is your bloomberg business flash. jonathan: thank you. the people in turkey are waking up with a different political future as president erdogan won and referendum giving him more power. yusef, what kind of future to the people in turkey with up to this morning? yusef: they voted for a man who and be -- their beliefs ideals bringing security and stability back to turkey. 51% voted for this yes vote. this gives the president more power and looking at the ability to dismiss judges.

he could stay in power to possibly 2029. i am watching the domestic opposition crying foul, and the other criticism we are hearing from the european union side with doubts about the legitimacy of this vote. this raises political uncertainty. you are also looking at possibly early elections. and finally, what about the state of emergency? the decision will be made before april 20. that is what investors are watching. jonathan: the kind of consolidation of power are we about to see what this branly --with his brand-new executive branch they did not happen for? will be a major consolidation. we are already hearing that he is moving into the direction of retaining leadership in the ak party that brought him into power in early 2000.

he will move quickly because he will try to capitalize on the momentum he currently has. it is not the kind of margin you would have hoped for because it paints a picture of a divided turkey. that is the sense i got walking into some of these --walking on the ground. concern that the checks and balances have been ripped out of the system, and that could have a bearing on long-term policymaking, because ultimately, you will try to the that populist sentiment from one base to the next. and what comes in sacrifice will become economic growth. alix: where does that leave monetary policy? yusef: that is the other critical pillar. at the end of the month, we have been meeting from the central bank. they will have to fight for the credibility and reassert themselves because they are already under political pressure from the executive presidency. then they have to try to find the balance.

inflation is already projected to be as high as 10% in 2017. they have been behind the ball and raised it 300 basis points. we have to see how they handle that. back to you. david: thank you. reporting on houston bowl today. coming up, we will be joined by crew -- a true critic of -- mark no one of the peterson group. ♪ this is bloomberg.

♪ city,an: from new york let's get you up to speed on the market. futures were softer earlier in the session, now they are firmer.

if you switch up the boards quickly, we are awaiting the data point in the united states for net fine financing. yields are lower by a basis point. dollar-yen comes in by a 10th of 1%. company hadacturing significant down sizes to prices. 16.4. expected number. 15.0. not surprised. alix: the new orders really got hit coming in at seven versus 21. prices paid still higher. employment index still higher. that new orders really dragging on the empire manufacturing index. harris.et's go to ethan

what is your reaction for those empire and affection numbers that just came out? is is a part of a pattern of soft numbers coming in? numbers -- is mean, jobs numbers. is this a pattern? pattern. is a the data in the u.s. has been on the disappointing side for the last couple of months. and it is quite noticeable. we have seen much weaker numbers. it part of the story today with -- part of the story today with this report, this is a measure of business confidence. my assumption here would be they of looked at the problems and getting tax reform through. they look at the delays and talking about infrastructure spending. there is a little pulling back going on in business confidence.

actually see policy changes, and then we will become a bit more optimistic again. david: that is a pretty substantial shift because the soft it has been so bullish since donald trump has been elected. if the soft data comes down to the hard to do, that could spell trouble for the markets and businesses. i expect some of that to happen. the soft data was built up with a lot of hopes for big policy changes. and now the markets have adjusted to some disappointment. now, i think that he will see that in the surveys. this is not a disaster. economy still healthy. the sum of that exuberance is coming out of the soft numbers. alix: and coming out of expectations for the fed. give to theunition doves when the market is only

looking at one more hike next year and will more hike this and one morerk -- hike this year? data flowthis continues, i don't think they will hike at the june meeting. alix: what is the shakeout for markets? how much more can be trained out if you have the 10 year and 2.3%? ethan: the 10 year has been reacting as expected. the markets got very built up with the tax reform and infrastructure spending. priced. market is down the risk is more the equity markets, which is behind bonds and recognizing that maybe the big goal in the economy isn't coming.

bonds are reasonably priced right now, but there are risks to the equity market. david: what is realistic to expect on tax reform at this point given what you have seen? we saw president trump saying that maybe we do health care game before tax reform? ethan: we need to recognize that the agenda before congress right now is massive. these are very complex legislations. the tax reform they put forward is very complex. health care reform is always tough to do. it took obama 13 months to get his health care plan through. but we are looking does i am looking for, at what point do leaders in congress start to scale back these bills, and try to be a lot less ambitious and what they are trying to do? on tax reform, if you go back a year ago, people were not talking about comprehensive tax reform. there are talking about international corporate tax reform. that is fixing this problem where we discourage companies

from locating in the u.s. were we have higher corporate breaks. that should be the focus. that is where the biggest problem in the tax system is right now. that andan pivot to simplify the bill, i can see significant progress in tensor form. if they continue to push for border control, then it becomes a very difficult road ahead. david: if you had that tax light, how much help if that be because the underlying economy is doing pretty well. taxou could tack on modest reform, wicked that do for investors -- and mark -- what did i do for investors? bean: doing something would quite helpful and put the expectations back on track. we do not really need to change the tax system in the many different ways that you have seen in the current bill.

the pressing need is international tax reform. if you combine that with the fact that there is been deregulation, you got some modest tailwinds to growth for an economy that was doing ok. it seems to me that a little bit of scaling back in dictation system best thing good -- is the best thing. ahead of thefrance first round this sunday, the one -- how doorse look at that one in france right now, and how does it shape your for 2017, 2018. ethan: our team in europe is still worried about the election. there was a growing concern that we would get a moderate winner in the election, and therefore, put aside the political risk for a while in europe. it does look like there are market ine you get a

growth and friendly outcome. that is a risk scenario. we get -- we think we get through this ok and europe continues to grow at a decent pace. but we are not out of the woods yet. jonathan: as an investor, they can be convinced that the likes of macron would be an investor-friendly outcome. that?u explain a guy that will open up policies coming to the economy. the main question in europe is whether you can hold together the union itself, selling with the marine le pen victory, they will be a lot of talk for therendum using -- losing european union. on the other hand, from a growth perspective, and i'm not trying to talk politics, but just growth, you do not want a

government that imposes new kinds of restrictions on the economy and markets. be so, i think macron would a centrist kind of person. and maybe that is what he needs -- and maybe that is what they need the economy right now. david: it seems to me that we are managing down expectations. if you go back, we would go month after month with mario draghi saying we need fundamental reform coming out of the likes of france, italy, and spain. now you are saying if you can hold the unit together, that would be better. those are different worlds. always had this do that long run concerns are going to stay until we get major reforms. but in the short run, it is kind of a period by period thing. both things be ok? you can check yes and remain optimistic. theyey are looking like are going in a dangerous

direction, you become negative on the markets. right now, we are another one of those testing points. but the longer run issues are not being fixed. i would agree with you there. there are big things that need to be done in europe. jonathan: ethan harris from bank of america/merrill lynch. let's get an update outside of the business world. asia, vice president mike pence visited the demilitarized area. day after north korea's failed missile test. he repeated trump's warning that the u.s. would react if necessary. this raises questions on how china has much power over kim jo ng un. tensions mounted with the u.s.. the north koreans ignored a

request meetings with the chinese prime minister. has endedhe president weeks of speculation. he will seek a second term. he is a moderate pushing for the new their deal with the west leading to the lifting of sanctions. he joins an election field of hardliners including his predecessor. global news 24 hours a day part by more than 2600 journalists and analysts in more than 120 countries. i'm taylor riggs. alix: thank you. in the market, you got crude rebounding $53 a barrel and still down to tens of 1% on the day, but it big spike in a few minutes -- in just a few minutes. this is bloomberg. ♪

♪ alix: this is bloomberg daybreak. coming up, michael cohen on north korea. alix: oil prices over $53 a barrel. last time at this level, net position was at record highs. take a look at this chart. the blue line is the oil price. last time, we had record length. cohen. us is michael here?il tap out we see: our view is that further upside. in the short-term, given the alignment of a opec rollover or

extension of the cuts, we think there is an opportunity to see a correctiondownside just because everyone believes they are going to rollover. so any doubts around that by any of the opec ministers or saudis could lead to a correction lower. our analysis shows it could be in the middle low 40's given the extension in the lengthen market. alix: what happens if we get something in the middle like a three-month extension, like a rollover deal? say in ait is hard to sense given where the appointment of use is right now. for the most part, opec ministers are trying to just ensure that they protect the floor under the market going into the summer. line for the peak time of the year in terms of refinery runs, at least in the

next month to month and a half. you know, it is hard to see prices stay at a low level in the mid 40's, but it is something we could see for sure. all time. alix: there seems to be two issues extending the cut. seefirst is that they inventories dragged down in march. but down in march, and russia theyt get the price boost might have wanted i have been hearing chatter about that could do those two things make a rollover more difficult? michael: there are a couple things that were critical back in november. the first thing was that a another non-opec producers were going to be involved just so the saudi another opec member countries do not have to carry the burden all by themselves. the distanceng is to the five year average in terms of inventory levels. and so, yes, it is likely we will see a little draw in a march to april time frame. in our view, we will see a sharper draw in the april and

may timeframe, but under the most optimistic scenario, it is likely to be in excess of where the averages. but the problem is that it is also a subjective measure. atentories -- you can look petroleum inventories, crude, you get a different story for each one of those. alix: that makes more confusion in the market. what a surprise. if the markets wind up getting wind of this data and betting heavily in the market, that may create more entanglements. how does opec break out of that cycle? michael: it is going to be very difficult and i think a lot of this in south being price-dependent. if we go into that opec meeting in prices are at $62 or $63, that is going to make it much harder to say, yes, we will

extend this deal for six months. that is why we think there will be some changes around the edges. they are either going to have to take into account that nigerian production is higher than it was before and take into account the unwillingness of russia to continue to stay involved in this kind of deal for another six months. as we move into the summer timeframe, they are going to start to see what is going to happen a year or two years from now in terms of their market share by keeping prices elevated. that is why we think the deal days are numbered. alix: which brings up the relationship of usn opec. i was talking to the nigerian and heister thursday says he was talking to the secretary of energy. how realistic could something like that even be? michael: i don't think that is realistic in my view. u.s., we have hundreds

and hundreds of different producers with different constraints around their production levels in their willingness to spend capital. -- theyl do what it is will do what is in their best interests. they are happy to thank the opec ministers for doing what they are doing, but they will not be involved. [laughter] alix: fair enough. michael cohen, good to see you. at the bloomberg terminal, check out tv and click on our charts and graphics and interact with us directly. send us a question during a segment, and we can ask a guest for you. this is bloomberg. ♪

♪ david: this is bloomberg. i'm david westin. there is no country in the world morning the world more industries in north korea. since the division of the north and south, it has separate itself building a unique ideology. is that we are

expert on north korea having written books on the subject and serving in the white house on the consul of economic advisers and is now in exhibit a vice president of the institute from washington. welcome to the program, washington -- welcome to the program, marcus. what is the likelihood of a true armed conflict at this point with north korea? marcus: it is very low right now. what is happening is a game of nerves in which the target is not so much north korea as it is china. the united states is trying to demonstrate to china that there is real danger here, in china should act more forcefully to bring north korea to the negotiating table. --id: what does cam jong un what is kym johnson -- what is cashohnson really want

-- what does kim jong un really want? marcus: the development of nuclear weapons and development -- delivery systems are the their reliability. they are developing second strike capability so the united states and south korea moved against them, they will still have some capabilities of inflicting nuclear damage on the united states, and/or its allies in northeast asia. that is what they are aiming for because they feel once a have that, the survival of their regime is guaranteed. david: we saw general mcmaster sayinge weekend essentially, we are taking away first try from us and we will not preemptively strike. is that your understanding of where they united states is? sure.arcus:

that is where the united states is, but there is debate that policy is sustainable. that is not take away from the fact that north korea is aiming for its second strike capability because in their thinking, that is what will guarantee the regime's survival, and that is there goal -- and that is their goal. the real target for the united states has been china. it is the milosevic for years that of china wanted to, they could influence north korea. is there a risk that we will find out that they cannot? i noticed that the chinese asked to visit --and they did not respond? marcus: relations between china and north korea are difficult. more than 90% of north korea's trade is with china, particularly china supplies north korea with oil and is a marginal supplier of grain as well. china has enormous influence on

north korea, both economically and of a medically, but the problem is the united states will be ratcheting up the pressure trying to get china to act. the chinese may take a while to act. in the meantime, south korea is holding an election. it could elect a candidate who would have a much more kind of relaxed posture towards north korea. and undercut this effort. it is a very complicated game you're playing that is likely to last weeks if not months. david: at the same time, we are talking about an economy in south korea that is a large part of the global economy. what are the possible ramifications for the global economy? marcus: historically, north korea nuclear tests and missile test have had very little impact on financial markets and south korea or japan for that matter. this time may be different because we seem to be heading towards some sort of collision

down the road if it is not possible to get back to the negotiating table, and try to reach some sort of accommodation, which will not be what any of the parties really want, but will at least be a way of sustainably reducing tensions. if there was a major operative military action and northeast asia, obviously, this could have tremendous implications for the global economy. david: finally, marcus, is is the hottest you have seen this problem in some time? marcus: it is not the hottest, but the stakes of the highest because the north koreans are making relentless progress in their missile technology, and are developing submarine and the size of their nuclear tests are growing with each test. the north korean capabilities

are getting much more formidable , raising the stakes in all of this. david: marcus noland from the peterson institute. thank you so much. the of so little insight on what is really going on. jonathan: exactly. times does this happen on a weekly basis? coming up, talking about geopolitical and clear risks. julian emanuel is joining us. we will counter down to the opening bell to new york and pick up a new trading week after the long weekend. wall street gets back to work with futures firmer up to tens on the dow. you are watching bloomberg. ♪

>> the united states flexes

muscles abroad as the economy shows signs of weakness at home. vice president pence visits the north korean border. the hard data comes in weaker than expected. will the optimism and soft data egin to bleed? netflix looks for another record. results after the bell. from new york city, good morning. his is "bloomberg daybreak." the morning progresses. futures are firm up over 0.1 on the s&p by a fifth on the dow this morning. switch out the board. treasuries very well earlier on. yields now by just a basis point. sub 220 at one point and sub 223 at the moment. listen to this. the next stop 2% and we could test 1.5 in a year or so. let's get some movers. >> over at hsbc, 1.6% for the

whole year. good call there. interesting to see in the individual names. straight path up by 16% and 151% gain last week. but now verizon might be interested in bidding for the company. remember at&t had a bid in for the company as well. this of course comes from reuters. straight path owns one of the largest positions in two spectrums. which is huge for 5 g. makes it very attractive to verizon as well as at&t. a current bid is $95.53 share. next up take a look at abbott, wn by 1% but alair up by 15% abbott agreeing to pay $51, original $54 a share. the reason the original deal was threatened because alere was getting a fed subpoena over some sales practices. now, both sides agree to drop the lawsuit so a little relief rally for alere. negative for abbott labs. money gram you're continuing up

by over 7% premarket. the bid was upped to $18 a share because of competition coming in for the company. the new bid is up 36% from the original bid. however, anything would still need congressional foreign investment review approval. not a done deal here. the competition still heating up. david: as vice president pence continues his visit to south korea most of the world is focused on north korea. with an unsuccessful missile launch over the weekend and possibly talk of another nuclear test. vice president pence has used tough talk on his visit. what is the theory behind the administration's position? kevin: two things. first and foremost, hoping that by not labeling china a currency manipulator that will force china to work with the u.s. and put pressure on north korea in order to address this issue. the second point i would make, david, is they are also hoping the messaging that they're sending regarding what they did

with syria will also put some -- send a signal to north korea that this is an administration who was not afraid to use any type of force. and of course when you have the vice president of the united states making that to asia and juxtaposed with house speaker paul ryan leading a bipartisan coalition through the nato allies, again, all sending a signal that this is an administration taking a much more aggressive approach than we have seen from the previous one. david: when it comes o to china, kevin, we've had at least two conversations between the president of the united states and president xi. are there further negotiations and pressure going on behind the scenes between china and the united states? kevin: yes and no. from the standpoint of a currency manipulator label that of course not happening is a reversal from candidate donald trump on the campaign trail but on the flip side we've seen this administration consistently say that they are going to be perhaps walking away from some more traditional

deals with the chinese than in the past. now, all of that said, he has had a much more reciprocating relationship and much more friendly relationship than many folks would have predicted. when you have folks like gary cohns of the world rising and peter navarra in dissent, that again sending a signal that this administration is perhaps taking a more traditional approach than previously thought. david: thanks so much. jonathan: let's bring in the market team. just very quickly, a bit on the havens. that started to fade. >> i think you guys have been talking a lot about the soft versus hard data this morning. that is the big question out there. i'm not sure whether we should necessarily be focusing on the economic data. it makes more sense to focus on the earnings data. that is really the first quarter data point we'll get

which either proves or disproves this rise in the soft data and whether the hard data can catch up. if businesses look like they're making money it is going to give the market confidence. >> well, i think expectations are pretty high for first quarter. this is going to be a tricky balance. earners are always sort of the fundamental basis. so we want to watch what is happening with earnings data. the question is can companies substantiate expectations? and that i think is what the first quarter earnings season is about. so far so good. we've only had a handful of reports out of the financial sector but nonetheless so far so good. earnings expectations have been pretty stable. first quarter has been beaten. can we continue that this week with tech earnings and industrial earnings and a little more diversification of stories out of the market? it remains to be seen. i do think earnings are incredibly important. >> what we've heard is that c.e.o.'s are ready to put money to work but waiting to see what happens in d.c. if the waiting becomes longer and the soft data starts to roll over i guess the earnings numbers matter, david, but you can't ignore that fact if

c.e.o. optimism sinks and starts to roll over. >> changes to policy is definitely a risk in this environment. when we think about where earnings are headed this year coming back to the fundamental driver of stock prices i still see earnings growth for 2017 without any sort of political change. even if we don't get tax reform until next year we're still looking at an earnings environment which is far healthier than what we went through from mid 2014 until the middle of 2016. i think that is the key thing for investors. yes, if c.e.o. confidence begins to roll over that may hurt the cap x story and expectations but the fundamentals are there to support risk assets. >> do we wind up looking at these differently if you are valued well? do you get more rewarded than if you have a big beat and over valued? >> it's more than that. it's about what does your guidance say? that supports your whole soft data theory. if the soft data is becoming better economic activity it shows up in company revisions or guidance for the rest of the

year. it is not as much about first quarter. valuations are pretty high. we expect pretty decent earnings in the first quarter. it is going to take guidance that suggests that the outlook is improving to really get us moving. >> where does the basic economic growth show up? ultimately earnings will be driven by demand, by people wanting to buy things whether services or goods or wherever. where is that coming from? is it the 2% or so increase in wages? >> i think the first thing we need to establish is the first quarter economic data is looking very weak. our expectation is for about 1% g.d.p. growth. if we get earnings growth on top of that, it pays a -- paints a better narrative around the hard data. we'll get give back in the second quarter. we think consumer spending will tick up a little bit. inventories have been a drag. the stage is set for an acceleration in growth into the second half of this year. the first quarter obviously just having a little trouble. >> the numbers we got on friday and then today give you any pause at all? we have retail sales numbers, c.p.i. numbers disappointing, now empire manufacturing.

it seems like it is going in one direction, which is not good. >> the inflation number i will admit was a little surprising. we expect it to roll over as year over year comparisons for energy prices became more normal but a relatively substantial miss particularly on the core measure which gives us a little pause. retail sales, there isn't a terribly strong relationship there between retail sales and actual consumption as measured by the bureau of economic analysis so we'll put that in the middle bucket but there are warning signs, cracks beginning to form. i think this is what we've been talking about for the past three months. there was a lot of expectation priced into the market and unfortunately we're not seeing that come through in the way a lot of people expected. >> we'll go into that later on in the program as well. taking a broader step back what is the one geo political risk that makes you say, gina, all bets off the table. i need to rethink where i stand. >> it's not a geo political risk but a market risk. it stems from geo politics. that is the 10-year treasury bonds.

rallying off the 2%, 3% level continuing to move lower, it is really tough for stocks to move higher in that environment because it takes out the entile financial -- that's pretty troubling for stocks. i think eventually you get to a point where stocks are over sold in that environment and it creates a really strong buying opportunity because we don't see the economic data sort of deteriorating as a result of geo politics. i think that is not likely to be the case. your long-term bull trend is still intact but the short term could become much more painful if the 10-year treasury keeps rallying. >> i am not sure there is a single geo political risk but the combination of risks, if it begins to dent sentiment that is the biggest risk out there. right now investors are still worried about missing out on further upside not worried about taking a capital loss. if that dynamic begins to change i think it spells rouble for the equity markets. >> thank you very much. coming up on this program we

bring you out one of the bears. the biggest one, the u.s. executive director of u.s. equity and derivative strategy, a target of 2300. that gets gets you an idea how bullish the analysts are still from out there. from new york counting you down to the market opening 20 minutes away with futures a little firmer up 0.2% on the dow and almost spoy 2 on the s&p 500. you're watching bloomberg. ♪

>> empire manufacturing out early this morning with a big miss. new orders still coming though much below consensus.

you had employment and prices moving higher. typically the bloomberg here, the u.s. economic surprise index, you can see rolling over. joining us the bloomberg u.s. as lligence chief economist well as david still with us. we expected the economic surpus index rolling over. is this something fundamental going on with the economy? >> i don't think there is a significant fundamental shift taking place. i think what we're having is a return to reality, so all of the soft economic data which had been on the tear since election day, that tear continued throughout q 1 and now seems to be moderating back in line with the hard economic data and everything is kind of back to consistent with where we were before the election where we're plodding along at a 2% pace and this is telling you there is no real trump impact in the data to this poin. i think market participants are very excited at the prospects

of tax reform and infrastructure spending but as you highlighted earlier those expectations are watered down more and more and you see it reflected in the 10-year yield, in stocks, and in an array of indicators and now you see the surprise index moderating lower as well. >> kind of. now you're seeing futures higher, 10-year yield off the low of the session. is this the core daa in retail sales wasn't as bad as we thought situation? >> i'm not going to say the numbers are terrible but they are certainly not good numbers. so retail sales not only not good in march but february getting a big down ward revision as well. so it tells you consumer spending is really going to be on the soft side in the first quarter and that's dragging down overall growth. that is problematic because when we look at the contribution to growth over the last four quarters, eight quarters, 12 quarters, consumer spending, which is 70% of g.d.p. but has more than 70% of

the growth numbers we've seen. it has been single engine propeling the economy. if that engine runs into trouble, then we've got much bigger problems. i'm not saying it is running into trouble yet. however, looking at the last employment report if we look at the three, six, 12-month moving averages for the pace of hiring, it has not inflected post election. in fact, it is starting to decelerate. >> whether you look at the market or the data itself the sentiment indicates it is soft data on one side and the market on the other. disappointing -- disappointment around washington delivering pro growth policies potentially could take us down to 1.5% on the 10-year this summer. what kind of economic slowdown, down side shift would you need to see to get the 10-year down to 150 again? >> i think, one, you'd need to see a pretty significant down shift. our view is that the second quarter is actually going to look pretty good. we think more rebound to about

3% real growth in q 2 of this year. that headline may have nothing to do with the economy. this is still a slow growth world where people want income. if people aren't feeling optimistic about equities the way that they were it could drive investors back into fixed income particularly investors who need to be invested. now we're having the conversation we had six, nine, 12 months ago about demand being the biggest driver. >> what does that mean to the federal reserve as they get to hike again and again? >> the market is telling the fed something that the markets are not prepared for that type of aggressive, normalization or tightening of policy. you ask how we can get to the low yields. i think we get there through stubbornness. right? through the fed not backing away from the current rate schedule and the second stubbornness, the republicans in congress and the administration stubbornly refusing to back away from the health care issues and move on to tax reform and stimulus, which the markets are so focused on. we thought we were done with

the health care wrangling in congress and now more and more comments from the white house suggesting, giving it another path. if we get to some kind of refunding the government toward the end of the month with government shutdown issues, looming on the horizon, if we stubbornly and clumsily get through that, stick to trying to deal with health care when there doesn't seem to be enough popular support for a repeal, and then the fed doesn't back away from trying to start the balance sheet unwind in q 4 you could have a series of problems for the markets, which drive yields even lower. >> i was told we've reached 260 not because of trump trade but global reflags. why do we get down to 150 because d.c. fails a little bit? >> i think a big component of the theme of reflation was the inflation component. there is a big difference between reflation and topping out at a more healthy global economic growth level.

we still think global growth will be faster this year than last year. we just think the period of acceleration is over. i'm not sure the theme of reflation has run its course but the structural drivers of the economy ent real growth from meaningly accelerating and inflation has taken a bit of a pause as energy prices begin to normalize. >> it feels like we're going lower for longer. are we going to go back to search for yield? here do you put the money? >> in that kind of environment we still like high yield bonds. growth is fast enough to prevent it from spiking but the fed will keep a lid on how high rates will go. investors are also focused on the u.s. and we should be thinking about what is going on outside the u.s. hard data in asia looks very good. very good numbers out of china over night. i think investors would be well served thinking about european equities and emerging market equities and branching out a little bit from what has worked so well for the better part of this bull market.

>> thanks so much, guys. good to see you. we have breaking news this morning coming from the spin-off from alcoa. this is the product part of alcoa. not the raw materials but the services product part. the c.e.o. will be stepping down. he heralded the company's split to two and now klaus kleinfelled will be stepping down by mutual pact with the board. arconic does multi dimensional products. that is really popping in premarket. 5%. klaus kleinfeld stepping down. >> thank you so much. julian emmanuel coming up. he'll be joining us. what happened to the trump trade? this is bloomberg.

david: this is bloomberg. one of donald trump's big commitments when he took office was deregulation. we've all been waiting for some of his regulatory appointments to back up his promises. now we are hearing he is about to make a very important appointment for vice chairman of the fed for supervision. we previously spoke with him about his views on dodd frank. >> probably dodd/frank repeal, i think you could see significant changes. there are many aspects of dodd/frank that in some ways it was not ambitious enough and in other ways overly ambitious. there are lots of ways to reform it in ways that would be beneficial to the economy.

>> mike, i think what is on a lot of peoples' minds this morning is what does this mean? if this appointment goes forward what does it mean for the people he will be regulating? >> probably that he will take a more practical approach. he has said in the past he thinks dodd/frank does lot of good but a lot of things could be changed as opposed to what the president has said about doing a number on it and getting rid of it and completely repealing it. i don't think he'll go after things like capital levels and things like that but more the require more spending on compliance. perhaps stream lining the stress tests which the man he is going to replace as top regulator but actually take a job not filled yet also said could be done. >> more likely it will affect what i call the behavioral regulations rather than structural ones. things like reserve requirements? >> well, reserve requirements

are a different thing and that is part of monetary policy. probably not get into that as much as the kind of micro management of what banks can do, can say, how they have to report what they're doing, how they're lending, that sort of thing. the banks find it very onerous and expensive. >> i want to bring in the executive director. julian, the earnings coming from wall street so far and the repricing we've seen, valuation adjustments since the election, how much is linked to the kinds of things we're talking about, changes in regulations? >> particularly on the financial front there is an expectation of deregulation. and again, i don't think anyone was sort of naive or pie in the sky enough to think that dodd/frank would be fully rolled back but part of the case particularly for financials again is an expectation that conditions are going to be easier and i guess perhaps the best way of evaluating that is, you know, has the bull market for

compliance personnel in the financial industry perhaps topped? >> which has been quite a bull market. the evaluation cost has been based on high treasury yields and a steeper curve and right now 2 to odd basis points on the so year. how much does it push back for the banks and the bulls out there? >> it certainly does to a certain extent which is why i think you've seen those names really sort of go side ways to lower the last month or two but when you look at the bigger picture and at this point eight years into the bull market, and valuations in general being as high as they are, the bigger picture is very important. banks are still relatively inexpensive because there's been 10 years' worth of bear sentiment that needs unwinding. >> i wonder to what extent this is an important appointment potentially because you have somebody who is actually, has actually sat on the other side of the desk from regulators. you haven't had that before. i'm not sure anybody in the fed has done that. >> we've had people, i think of

kevin worsh who was an investment banker. there have been people in the banking and investment banking industries who have come to the fed but i don't know that we've had treasury regulators come along. >> or part of a very major new york law firm who represented these banks. >> that is part of his background that will be very helpful for his new job because we haven't had somebody in the business who's been a lawyer other than dan --. >> but he didn't practice. he was an academic. >> thank you very much. julian emanuel is sticking with us. the opening bell is four minutes away. you are watching bloomberg. ♪

>> from new york city and u.s. worldwide you're watching bloomberg daybreak. moments from the opening bell about 21 seconds to be precise. this is how the stage is set this monday morning as wall street gets back to work after two weeks of losses and a long

weekend. this monday morning futures positive up 36 on the dow. positive three, four points on the s&p 500. call it 0.1%. switch up the board. the story of the treasury market, some of that fades as we approach -- yields lower by a basis point. 223 on the 10 year. the dollar stays weaker by a third of one percent. crude bouncing off session lows with a 53 handle on wci. let's get you up to speed on the market action 20 seconds in. >> so the bouncing crude helped futures move higher and seeing follow through buying as the session opens up the dow up by 57 points and the s&p up by 0.2%. the nasdaq shaking off the worst weekly loss so far up by 0.2%. the level for the s&p is 23.51 the 50-day moving average a critical level you want to pay

attention to into the trading session. individual names, breaking news just moments ago by the stock up 6%. klaus kleinfeld the c.e.o. will be stepping down. he was c.e.o. of alcoa, spun off the two, arconic provides the products. elliot management has a 13% stake in arconic and in january urged the board and klaus fine felled to resign saying he under performed against every relevant benchmark during his tenure. he fought back and did not resign but now he has. the stock continues to move higher. drug makers front and center today, down hard by a combo of about 16%. the joint drug they wanted to bring to market for rheumatoid arthritis did not get approval by the fda and now will be another eponingsly. the fda wants more information on dosage as well as safety. that hurt the growth rate of 5.1% over at eli lilly.

the competition relatively flat, a little bit of support though because their rheumatoid argue right is drugs have less -- arthritis drugs have less competition. julian emanuel the biggest bear on the street. here's how he stacks up. these are the median s&p estimates for 2017. the high is actually now 2700. boost it a little higher thanks to morgan stanley. mike wilson over at that shop. the low around 2300 which is julian emanuel and where we trade now is much closer to his bearish call than the bulls. the bulls have been upgrading the s&p targets over the last few weeks except for julian emanuel. jonathan: the biggest bear on the street. can't believe all it takes is a target of 2300. he is still with us. the story on thursday the bank earnings roll out. you pointed this out. they come in solid. pretty decent. then the price actually just kind of does this. what is the message in the price action? julian: the message is when you look at the month of april and especially the last three days and you think about all the hot spots in the world the

potential for the government to shut down on april 28, obviously the french election, there is a wait-and-see attitude because there is a lot of potential pressure points that could break the wrong way. they could also break the right waiting eople are just and seeing. >> how much of it is about the potential head winds and how much about the fact that a lot of this is in the price already? analysts have slowly adjusted but for investors to put the money to work the valuation proposition was already made before the earnings came out. >> we would argue the banks are still reasonably valued. they certainly had a run. o question about it. particularly when you look at the rest of the market where it is valued we still think there is value there especially given washington is likely to be friendly. >> what about looking at what jpmorgan did on thursday, the actual numbers were pretty good. the core alone growth was at risk but the stock did nothing

and might have ended lower. how do you factor that in? >> again, that was sort of just one day before a three-day weekend where we knew there was lots of geo political --. >> does it say anything about the quality of the beast we have to feed to get the momentum going in the stock market? >> what it says is that investors are going to be much more discerning. if you're a company, say, a consumer staple company, for example, only expected to grow earnings by 1% and what have you and you beat that number, your stock price isn't going to be rewarded. you need a place that is reasonably valued, a place that shows it can grow earnings over the course of the year. we think investors will have a second look at banks over the course of the next few days and probably reassess. it's a good spot to be buying. >> revisions have been battered for energy, lifted up for tech. so the over all s&p, they're only down by about 1%. where is the expectation game going to fall out when we get tech earnings this week? >> look. people expect a strong year.

pardon me. a strong quarter from tech. fourth quarter was actually much stronger than expected. we think that trend continues. tech has had a very good run so it is an open question. as to whether the stocks will respond in kind. when we look at the course of the rest of the year there is still a compelling valuation case for a large swath of technology given the fact that late cycle tech tends to trade at a premium to the broad market and you've got the repatriation tail wind potentially. >> you said companies are looking for a friendly or friendlier washington. how friendly does that washington have to be? are we talking tax reform or just less regulation? earnings that if come in the way they have been, a 9% quarter, the fed is correct about the first quarter being weak and thinking that isn't going to continue over

the course of the year that less little bit regulation will be fine with the promise that eventually there will be tax reform. >> which sectors will feel the friendliness the most? >> definitely financials. no question about it. again, i think this morning's appointment tells you that you have to watch what they do and not what they say. if you put someone in the position who has a critical sort of helpful view toward dodd/frank as opposed to the talk of potentially rolling back glass/steagall it's just talk right now and that is going to be positive for financials. >> on the financials i'm just wondering where does the bearish view come from relative to the rest of the market right now? >> you still have -- essentially the barbell effect that you had coming out of the first quarter of last year where in an environment where

the fed is going to hike the defenses continue to be very fully valued and then more. and on the other hand, the more deeper cyclicals the energies, the materials, parts of industrials are reflecting an economy that's closer to 3%, which the fed and everyone else, weird 2.4% growth, we just don't think those kinds of valuations are justified either. >> what would you say go short and how would you capture the story? >> we continue to think that interest rates again are going to move higher. the fact that the fed hasn't been concerned about this first quarter is definitely body language that is worth recognizing and ultimately trading close to 18 times earnings. a sector like utilities that really has, you know, a very reduced growth profile because of the nature of the business is likely to be a source of funds. >> you buying ball? >> we are. you know, after the run you've

had over the last week, you may not want to be buying too much more but look. there's a lot, a lot of geo political risk out there. and, clearly, when you look at france, there was a thought that we knew which two people were going to get into the run-off. now it looks like it is any one of four that could get into the run-off. but again, what we would say, there, is that even if you had volatility post the french election that likely creates a buying opportunity for stocks. >> do you want to buy the five doir tip option coming up on thursday? >> i would be careful there. okay? the fact is that inflation expectations have come in, look, and justifiably so, looking at c.p.i. last friday while we were all out for the day, but ultimately the story of reflation is not yet fully written and we do think that's going to support things going forward.

>> julian emanuel of ubs securities is sticking with us. the markets about eight or nine minutes into the session. the session shaking up like this. futures up going into the cash open then a little higher up by a third on the dow up by 0.27% on the s&p 500. just very quickly the haven trade this morning, continues to fade. yields are lower by a sing am basis point at 222 on the u.s. 10-year and dollar/yen keeps creeping a little bit higher. from new york, you're watching bloomberg. ♪

>> this is "bloomberg

daybreak." coming up, carson block muddy waters founder at 11:30 a.m. eastern. >> all eyes on netflix reporting after the closing bell today. first quarter earnings cannot live up to the record subscriber vote the end of last year. here to preview the bloomberg intelligence director of north american research. still with us is julian emanuel of ubs. subscriber numbers, international and domestic, what can we expect? >> the street is looking for a strong quarter in subscriber vote which is really the driver and we're focusing on international subscriber growth. very soon this year the international subscribers will eclipse the u.s. market. this is becoming a global, online streaming video story. it's not just a domestic story. investors are focused on the international subscriber fwroth which was very strong last quarter. even the quarter before was

very strong. it looks like the stock is reflecting it. the stock is up 30% over the last 12 months. >> so far up 17%. it is not just about subscribers but potentially profit. if they turn a profit internationally it'll be the first time ever. >> that's right. this quarter should be the time when they throw a little profit on the gross margin here in the quarter and that is really key for the story because reed hasting the c.e.o. has said 2017 will be the year when the international businesses will turn profitable and will actually be a significant driver of profitability. you take a look at the street consensus numbers of earnings over the next two to three years, you see a big hockey stick up in the eps and that is being driven by the fact that the international businesses which had been a profit drag are turning profitable. >> the profits are also dragged by costs. so to what extent are they buying these subscribers by paying, maybe over paying for the content? >> right. you kind of see that concern in two areas. number one is their long-term programming liabilities last

quarter were over $14 billion. those are liabilities that they have to pay over the next several years. that is a huge number. and the second number is free cash flow. the companies project they will have a negative free cash flow of $2 billion here in 2017. so this is a story that really has to grow into itself and that has been the story really for the last three or four years and how do you grow into positive free cash flow so that you can pay down your long-term programming liabilities? continue to add subscribers. >> all my bad tv comes from netflix. i need that. julian, you take a look at netflix stock right before the election, up 44%. classic momentum play. how do you factor in momentum plays right now? >> you have to be careful with stocks like that in the near term. because again, what typically happens is, you know, even a good earnings report unless it is absolutely not the cover -- has absolutely knocked the cover off the ball and there are things people were not expecting the stocks may not react the way one would hope. but you look at a long-term

story like that, the true innovator, i think about it in terms of the fact that the, you know, the corner video rental store is a thing of the past, a thing of the long buried past that, you know, a company like that would still have room to grow. as it grows into itself. as it has the last several years. >> i should point out the average percentage price change for netflix on earnings days is like 13%. let's keep it in stride. thanks very much. david? david: another company is reporting results today and it is united continental a company this's been in the news for all the wrong reasons. they've now changed their policy and have said they won't actually put their own employees on the planes until 60 minutes before they take off. joining us to preview the number we expect after the close today, bloomberg industrial and air space reporter is joining us from atlanta. michael, what do we expect from

united today? michael: i think you'll hear the expected report earning is about 38 cents per share, lower than they've had in previous years but they've had a lot of high expenses. they have some recent labor contracts. in a good way they've struck deals with their pilots, with their flight attendants, with their mechanics, putting them all under contract. so while that will weigh on earnings, it is good over all for the company and they've had higher fuel costs. you know, fuel costs are up 25% over the year. david: to what extent could they be affected going forward with the real scandal they've had? as i understand it there is a lot of competition on the international flights from nonu.s. carriers who are willing to cut their prices. if people start switching over to other carriers, how could that affect their profitability? michael: well, it certainly could. they've got a lot of competition. in fact, ultra low cost carriers, these are deep discounters particularly out of

europe, are really flooding the u.s. with flights lately. that could certainly impact united if they do win more of that business. i will tell you that analysts have suggested this is not going to be a big factor in united's earnings going forward. they really don't think people are going to switch airlines. they think people are married to united or american or delta because of frequent flyer points. and because of business contracts. >> if you had a list of earnings for this week and you could pick an earnings call to listen to for entertainment value it would be united. >> that's the one. >> julianne, do you fly with united? >> we fly whatever makes sense to fly. that is the point of the airlines. when you look at this, you really don't have a ton of choice all the time at the price you want and without layovers. so there is an element of being married whether it's the points or otherwise. >> but however it comes out

-- he says ece, once the airline volunteers, those willing to respond would form a consultive group that would assign one passenger to miss a flight then agree to hold out collectively until the airline meets the $so,000 refund and then distribute the funds. sounds good. michael sossa, very quickly, what are they doing on the exeation -- compensation side of things? do all the airlines need to match what they've done in the last couple weeks? >> that is a good question. united hasn't said. they didn't come out directly the other day after delta made the announce temp-tation would pay people up to $9 -- announcement it would pay people up to $9,950. united did some other things. like they knew they weren't going to put their own crew,

bump people for their own crew within 60 minutes. but they didn't come out and talk about exen sation. i do expect them -- they didn't come out and talk about compensation. i expect them to say something in the next couple weeks potentially earlier. >> could you make a career of booking cheap united flights d then being taken off and being paid for it? >> i'm game. >> thank you very much. alex: check out tv go. watch this online. click on our charts and grisks and interact with us directly. tell us if you would be the full-time united buyer. this is bloomberg.

>> from new york city for our viewers worldwide after two weeks of losses, this monday morning after a long weekend with wall street getting back to work potentially the best day for stocks nearly three weeks. we're up a third of one percent

on the dow and up a quarter on the pea s&p. switch out the board very quickly. in the treasury market we have this mixture, this recipe for a bid on treasury, geo politics on one side and weaker than expected data on the other came out on friday. then a weekend dominating the news flow of politics this and politics that. yields up a basis point at 223 on the u.s. 10-year. the japanese yen down by 0.against the dollar, a 108 handle on dollar shsh yen. >> take a look at the vix lower through first day in six versus last week when it hit the highest level since november. julian emanuel of usb securities is still with us. the idea is vix is up. correlations pick up because the macro theme is persisting versus the micro. what is wrong about that? >> well, that is the way it usually works. but in our memory there are so many events over the next several weeks that there is the potential now for volatility to

actually pick up if something goes right. and by right i think we call it or w volatility in theory perhaps defusing tensions in north korea. that is because of the reflation theme to gain traction again and you move much higher simply because of a lack of sellers in the market of stocks as well. we think it worked both ways. the theme of the last few months has been the reflation theme. the price where we're at right now with the dollar weaker and treasury yields all the way back to 2.20 is that an entry point to build the positions back up? >> we totally think it is. particularly on the financials if you look at it the two areas, the yield curve, and the financials, have been the ones that have come in the most after the initial sort of burst of confidence. and we do think that this is the right time to start nibbling.

>> i keep hearing with the french elections that european stocks are going to have a huge rally if we wind up seeing a nonla pen victory but i keep hearing the s&p 500 will fall with euro stocks but nothing is going to rally. why the negative feed through to the s&p but not the positive? >> well, if you look at it over the last five or six weeks, the retail investing public has been very slowly taking money out of u.s. equities and putting them international primarily europe. if you look back at the last time that something like that happened, was the first quarter of 2015, and europe was up very strongly on the order of 15% or more. the u.s. didn't fall. we wouldn't expect it to fall. we think the gains will be muted just because the valuation proposition is not as attractive in a place where there's going to be perceived to be less political risk. >> this has been written over the last year. the market and the consensus view amongst analysts got the outcomes of brexit, the presidential run, they got those wrong and also got the

outcome of the outcome wrong as well because brexit happened then everything ripped in terms of risk and the same thing happened with president trump. just thinking about things in reverse order, say we get the outcome right in the sense that you get what we expect but then why would we get the rip when we didn't get the down turn on the previous two outcomes? >> well, there is definitely in our conversations with clients pent up interest in owning your -- owning europe because of the valuations. factually europe has under performed the u.s. by a hundred percent since the end of the financial crisis. and you're also at a point in time where things like inflation stabilizing, emerging markets picking up, those are tail winds for european companies more so than in the u.s. and to us it's a story -- in the fullness of time it could be that there are other things that develop that temper that optimism but there is pent up

optimism the way there was after the u.s. election. >> can you be long u.s. trade and long europe as well? >> i think you can. when you hear the president of the united states trying to talk the u.s. currency lower, you know, there are mixed messages. >> yeah. >> but ultimately, you know, that is something that's going to cause reflation. >> julian emanuel of ubs. he flies with whoever is cheapest. thanks very much for joining this program. 26 minutes into the session let's wrap up bloomberg daybreak and get you up to date on the markets as well. from new york city, you are watching bloomberg. ♪

vonnie: it is 10:00 a.m. in new york. "bloombergome to markets."

vonnie: we are live at bloomberg world headquarters. we will cover stories out of turkey and moscow and south korea. here are the top stories we are following. president trump plans to what will he bring to the fed? what will his appointment mean for wall street? bank earnings season continues. beatings estimates. well solid numbers continue when goldman and bank of america open up their book? we look ahead with mike mayo. and the turkish president declares victory in a referendum to expand his powers. we will get and investors take on whether it is time to jump in.