continues to bleed. suffering from election fatigue. if you are, look away. prime minister may looks for a snap election. morgan stanley wraps of earnings on wall street with a big beat. good morning. i am jonathan ferro alongside and alix steel. let's begin with morgan stanley. alix: it is hard to find a negative in earnings. $9.7 billion. trump to higher than last quarter and highlights goldman's miss. equities coming up big about $2 billion. 10.7%, high in target for the end of the year is 11%. jonathan: the stock is up. this wednesday morning, up to

speed on the market action. futures are a bit firmer. 0.3%. market,tion in the fx the bullish dollar call. the euro is a touch solid -- softer. yesterday, massive repricing. 220 on the 10 year. alix: time for your morning brief. we get weekly crude inventory for the u.s. trading at a one-week low. watching that later. speaking gothe fed a conference. 2:00, the beige book, survey of regional economies, what does it say about the reflationary theme ? jonathan: do you read the beige book? david: i do not. alix: i will skim it. jonathan: it is a reason it is beige.

prime -- jonathan: prime minister may will take questions and later, over in the u.k., as they will debate the call for a snap election. it was not meant to happen until 2020. two thirds need to vote for the snap election that prime minister may would like. david? david: morgan stanley was not the only bank reporting results. blackrock posted better than estimator earnings. it is the cover story of "markets" magazine. the ceo, larry fink, sat down with our erik schatzker. we are fortunate to have larry us for shorter version of that interview. k: i will not submit larry

to that revealing q and a. as david mentioned, black rock poster earnings. adjusted earnings per share, five dollars and quarter. looking for $4.89. perhaps, you have had long-term inflows of $80 billion, as david mentioned, revenue was short of expectations and so did operating income. there are people who wonder if it is a red flag. larry: i do not think so. and an fees, in line operating income, we had special charges where we prepaid a bond we noted was a $14 million expense in the quarter. charge we took that

we pronounced with a restructuring of the equity area. we were very excited about the quarter. in anllion in inflows industry there predominately had outflows. what was great about the quarter was pretty broad-based. $44 billion in inflows in equities. $33 billion in bonds. both multi-asset and about $1.5 billion in alternatives. it was a pretty broad-based inflow, it was global. and i would like to have every quarter like this one. of speak numbers kind for themselves and they always do. they are backwards looking. let's talk about the quantitative asset of business. how would you describe the state of your business right now? larry fink: probably in the best

position we have ever been in. ever. erik: why? 29 years of hard work of building relationships worldwide. erik: do people know that part? larry fink: no. every year in week, we are growing. the consistency and it is expanding our presence across the globe and in different products. as you know, i travel continuously through the year. i am very happy and proud of the relationship building. clients are seeking our information, our opinions more so than ever before. erik: $80 billion of inflows, well ahead of last year's, is is sustainable? would never say that. i would never predicted that future. i do not know what is in the future. we saw huge inflows in the

fourth quarter. it carried on to the first quarter. we always talk about the wall of cash. some of it has been put to work. marketplace, a little pullback now. are waiting to see corporate earnings for this quarter and see if there is objective of the significant rallies especially in u.s. stocks. the u.s. economy is not growing as fast as people would have thought in the fourth quarter. to assert we will grow at that rate or higher -- i do not ever make forward estimates and predictions like that. is the dialogues are greater and deeper than ever before. aladdin sales are moving at 12%. erik: technology? larry fink: all of the components of the organization are doing quite well. erik: let's go back to the flows for a moment.

predictable, but they do say something about what clients want and what their appetite is. you have -- you do have your finger on the pulse right now. larry fink: we do. erik:: have flows slowed? not necessarily, it is too early to tell. no, i do not talk about this current quarter. i would say flows are still quite strong. opportunities are still is robust. our conversations with clients are just as deep. erik: there were more outflows this past quarter, almost $7 billion on top of $20 billion in 2017. a business you are already trying to fix. larry fink: we were in the process. billionw much of the $7

and $20 billion is unique to blackrock and how much of the industry? larry fink: some is unique to blackrock and much of it is industry. we are still seeing very large outflows as an industry and equities into passive we have been a big beneficiary of that. we are seeing the many more active managers using the an asset class. those trends are continuing and then you have many financial advisors moving even before we knew what to the regulation outcome will be moving toward advisory relationship. advisory relationship, using one more etf as an instrument. we are seeing that. as you know, we announced a big restructuring. we have mr. wiseman running our platform. the initial reaction has been

strong. our performance in year to date is good, especially current equity team. we have had tremendous performance in the first three months and two weeks. erik: how low do you think it will take until you see positive inflows into equities -- active equities? -- i would i would not even been to estimate that. --efully, probably -- well hopefully come early next year. erik: it will take a year? nothing happens overnight. that is the beauty of our industry. investors not sure would agree that nothing happening overnight is a beautiful thing. larry fink: i don't agree with that. what we have done is we have

been more prescribed in strategy , developing and re-creating what we are doing on m&a strategy. when we announced the merger, most people hated it. that was -- most people did not think about it. we did all of that stuff. our growth in factors, factor based analysis, our growth in fixed income. our unconstrained growth. we are seeing pockets that is not because of one quarter's action, but over years of action. erik: was saying we touched on, the idea that blackrock should now, more than ever before, what you deal with $5.4 trillion in assets? how is size and advantage?

larry fink: size has been an advantage area we are reinvesting in the business more than any firm. we are using size and scale to make acquisitions in technology. our scaling technology is a really differentiating ourselves with aladdin, future advisor and aladdin for wealth. erik: what else? probablyk: we'll actively looking at three or four companies now. so, nothing large-scale. nothing like we will merge into another big financial institution or anything like that. scale is been a unique opportunity for us and will continue. we will use scale to continue to help our clients. we will use scale to offer a great value proposition to everybody. erik: one of the ways you were

able to use scale to your vantage is by cutting scenes. -- two advantage is to cut fees. : 52 billion dollars in inflows in those categories. you cane implicit bet make up in volume that you lose revenue? larry fink: it is working beyond plan. erik: you will cut further or extend a dell fees? -- extend the fees? larry fink we will look at ways: to bring scale and differentiate blackrock and we will do that. fees? up on -- erik: on larry fink: we will drive our position. i will also say one thing related to will we do this perfectly, yes. , i things people are missing

would say that most people in the community believes that absolute returns will be systematically lower in the next five years than 10 years ago. and if so, the problem we have today with the returns being largeower, fees are a component of the overall expense profile. clients are saying how do we have a better expense profile? what can you do about it? across the board, we read how persia is doing in hedge fund and many other clients are looking at it. this is where skill will be a real advantage. erik: squeezing vendors? larry fink we have done that before. :our custodial assets to another bank. we will do that. will continue. not just with what you are up to but what i am of two.

larry fink, we will continue. jonathan: that is coming gulf. morgan stanley earnings came out with a solid beat on revenue, fixed income, $1.7 billion. it raised more questions about goldman sachs. coming up on this program, prime minister theresa may taking to the house of commons and we will look for updates and she looks to get a vote of 2/3 of parliament to get the snap election in early june. the cable rate pushing higher. you are watching bloomberg. ♪ \

jonathan: from new york city, a

focus on the city of london where prime minister may is taking questions. the unexpected, if you are suffering from political fatigue call you do not want to see this one. -- fatigue, you do not want to see this one. that vote will come up in a couple hours time. erik schatzker and larry fink, blackrock ceo and chairman joins us. larry, great to have you. how do you factor in the political risk in europe with the broader question of the breakdown and globalization? what are your thoughts? oury fink: i would say from and fourthhe third

quarter into the first quarter, the fears have abated somewhat. we still have -- [no audio] and until we understand what brings it means in relation to your and one of -- europe and people have not talked about the europeans have been discussing items like we want you to manage all european liabilities in europe. london ast firms use their platform for that, if they can find a way to force their you have tonge that manage so you have to have traders, portfolio managers in continental europe, that is the key element. if we have to move to europe to manage it, the banks will move their trading desks to europe and custodial and everything can be quite disarming. and difficult. -- it iswe know where pretty anti-trade, it is a real severe issue. that is the pivotal issue for

institutions in relation to being in the city of london. for me, brexit is wait and see issue. i think the prime minister is .oing a very aggressive think the popularity of the party is very strong. obviously, if the polling is correct and there's an overwhelming win that solidifies herself as a pm of the party, i look at this as more of a gesture of strength than anything else. we have a french election this weekend and, i don't know. we still have a strong view that it looks like monochrome -- macron can eke it out. everyday's a different day. we have seen an incredible horse race. the market is anticipating a probable, good outcome.

jonathan: why is macron a good outcome? larry fink: well, i think they are more fearful of the two. outcomeink a fillon would be perceived to be good. the marketplace is looking at a more centrist outcome that has the french government wishing to stay within the eurozone, more pro-trade and so, we will see. i think it would be a very difficult thing if we had one of winning and the market will probably reverse. >> can we draw a contrast between europe and the united states? there are risks. of course, there are risks. the question if the risks are in assettely reflected values.

you are among the people, and there are many, who were surprised the u.s. equity market rallied as hard it did after the election and furthermore, consolidated those gains. so, paint as a pitcher. how does the future look for you as assess the european assets?' : the u.s. is probably the market for most expensive relative. this is earnings season is probably the most important issue for the markets today. the marketplace had higher expectations on quick actions out of our government related to andreform, infrastructure then deregulation. those were the very things the marketplace looked at. it will take more time. do not havee earnings validated in these

higher pe's we can adjust downwards. the administration does succeed in some of the items, the market will reassert itself going higher. you make it seem as u.s. stocks have nowhere to go but down unless -- a validating picture? larry fink: that is true all the time. if the market moves up, it has to be validated. i do not look at it as different from any other time. pe's are relatively high. pe's of u.s. are higher than europe or asia. it has to be validated one way or another. we have had since the third quarter, synchronized global growth. the slowest economy in the g7 is the u.s.

so, you are seeing china growing much faster. remember a year ago, we will worry china was going into recession. they are growing at close to 7%. we worried about japan. they will profit is growth. to 3%.s growing even france is 1%. and canada. we are worried about north america, canada will go over 2.5%. the market has been validated by a synchronized global growth, not just the election. more importantly now, for the market to have another leg up, we need to see the validation of these policies from the trump administration and validation from the earnings. my worry is it is going to be a harder picture. we since there is more certainty because there is uncertainty

related to tax reform and the time of deregulation, we are seeing more and more businesses holding back. you are starting to see that in different at 1 -- economic numbers. i will say there are warning signs that are getting darker because we have seen some pullback, you have seen that in car sales. you are starting to see a slowdown in m&a. , peopleseeing things are taking a policy. -- pause. valuations are high. alix: and 2.2% on the 10 year. larry fink: that is one thing i am calling. alix: how low do we go? it infink: i said december and a few weeks ago, a 51% probability that the 10 year treasury can go low tempers

sent. i believe there is great uncertainty. -- can go below 2%. it was the most crowded in the u.s. reflection a trump or forward buying? larry fink: i never called reflation trade. we are seeing weakness in energy again. a lot of signs that inflation is not picking up. we are at of pivot point, we are starting to see full employment in many places. u.s., we areof the having a harder time hiring qualified workers. you will see wage pressure. maybe it will happen but may be delayed six months or a year. we are not seeing spiking inflation. we are seeing consternation by executives running companies. , consumeris optimism

confidence, that is not translating into retail sales. you know, this is why earnings are so important to validate this rise or the market will have to adjust downward. lot ofe's been a consternation about the trump administration. -- reform, in frustration researchers spending -- infrastructure spending antiregulation. this president likes to be unilateral. is it enough to balance the market? larry fink: i would argue that is harder to do. most of the context of a global reregulation. i were to say if we do know our -- unilaterally changed our banks to have more liberal thelations relative to europeans, that is a trade policy issue. easynot think that is as

as you said, david. most certainly, just changing the tone of regulation will ease some of the issues. we doankers are saying not want to regulations. many saying we need to amend components of dodd-frank and of the vocal world. and many of those things are valid. -- the vocal role. --vock one of the big issues that many banks complainedle r andu there isl a lot of consternation is the qualitative analysise. that regulators give. one qualitative approach could be differ from another one. i do not think anyone is as where about the quantitative analysis in terms of reporting. david: there is what is written

down on the piece of paper and how they implement it. something the president has a lot more influence of it. could it spur real economic growth? larry fink: probably not. i am not a believer that regulation really inhibited loan growth. i think, again, i believe bankers all wanted to growth, but i do believe with votto scores are more relaxed -- fight the scores are more relaxed. to eight years, the time bring down fica scores? i do not believe we had a reduction in economic activity because of regulation. -- everybody -- i feel that is, everybody, the leaders of banks, financial

institutions will do anything to drive growth and i believe when there was a demand for a loan, demand for a mortgage, in most those.they drove scorese clear -- fica did change so the homeowner may be able to get a mortgage in 2007, that was an inappropriate loan in many cases and we do not want to go back to that. if you are providing enough equity, if the appraisal is right. many mortgages were created in 2007, one injured 2% of appraised value. we do not want to go back to those type of things. -- 102% of appraised value. haveof these institutions hired a huge amount of lawyers, auditors and if there's a better atmosphere, a more -- a better

relationship in terms of with a regulators, that will save money andwe are still talking about to big to fail. maybe that will drop. we will see how that plays out. >> you have raised a number of growth,ncies concerning donald trump's agenda. what do you expect? with the dollar as strong as it companies going to be able to extract enough earnings power out of this growth? sortthe republican party out its differences and pass legislation and not find itself in the same situation as the obama care repeal of her? get appropriate

tax reform. look at a need to investment. i know as much as you do related to this. i am a pretty good student of the markets, of washington. thisld not predict how would come out. i believe some of this will get through. some of it will not. has expectation grown too large? yes. we are starting to see more reasonableness to what can happen. i want to see this administration successful. we need these changes.

we need this relative to our positioning worldwide. our corporations need it to be competitive. for investorsish to be in the market. i am not smart enough to know how these outcomes are going to be. we have the most innovative economy in the world. we will continue to drive growth. the headwinds can be worked out. that george osborne will quit as the mp. futures this morning a little bit firmer. morgan stanley with a decent beats across the board.

if you switch of the board, a big price in the treasury market. we breached to 20 and went lower than that. in the fx market, 24 hours of capitulation. this morning, the cable rate, 128 point -- 1.2850. emma: in georgia, a democrat narrowly missed winning a congressional seat outright. he won 48% of the vote that was seen as a proxy fight. the seat was previously held by tom price, who is secretary of health and human services. mike pence issued a fresh

warning to north korea. all options are on the table two and kim jong un -- on the table jong-un's -- >> japan, you are our friend and ally. we will face the future on that foundation. >> the u.s. aircraft carrier task force was not sent to waters off north korea. trump said and our motto was being sent to the region. sailed south to exercise with australia's navy. authorities say aaron hernandez has killed himself in his prison cell. a life sentence,

acquitted of two other murders. the richest person in the world spoke to bloomberg television. >> he is pragmatic on a lot of things. talking to him, giving him some background he might not have had through his past work. he wants to be a leader. he wants to have things he has actually accomplished. is confident the president's proposed cuts will not completely make it through congress. this is bloomberg. jon: in london, it was called the fixed term parliament act.

that might change this morning. singling sher may, wants one. the debate around the election begins now. the vote will take place in about 90 minutes. london, nejra. assuming she is going to win a bigger majority. can you run me through the risk, the potential that she does not? that is the big assumption because we have had labor and the liberal democrats thisg they do support election theresa may has called for. we are expecting that election to happen. the reason there is the

assumption she will win a greater majority has to do with the polls and the lead she has over labor at the moment. as we know from brexit, what happened in the u.s. elections, you cannot predict what voters will do. in terms of the impact of the brexit negotiations, that is what investors are watching. not going to impact when the negotiations start. they were due to start after june 22. the worst-case scenario would be theresa may does not get the greater majority she wants. eyes saw that this morning. a lovely story about a progressive alliance.

fantastic to have you with us on the program. guests,o bring in our who join us from london. the consensus right now is that she gets to unite her party, maybe she moves towards a softer brexit. is that the reality? i would not suggest that implies the mandate moves the debate off towards brexit. it will allow the prime minister to be allowed to not be held hostage. that context, there is some truth. the issue as far as the process is concerned, by voting against the parliament act, there will not be the next election in 2020.

it does give room for aneuvering in terms of transitional deal, so you can avoid the cliff edge. jon: how much of yesterday was a ?hort squeeze with that in mind, what is the , thetial upside, the limit ceiling on cable? if we had not had the election announcement yesterday, we may have seen sterling rallying. spending was reasonably encouraging. aggressiven the short squeeze.

ultimatetill be the end game. still on the predication of a hard brexit. back towards the levels we close on september 30, that is ahead of the prime minister announcing we were heading towards a hard brexit. that would suggest we are going to find it difficult to get towards the figure. we have seen the majority of the rally. would not necessarily want to buy sterling on this news. jon: i called my mom yesterday and said another election and another one.h, when we talk about tail risk, how me people are going to be energized?

does suggest or suspect the turnout levels might not be as low as they are for local elections. we normally get in more election periods. we are seeing politics now in the u.k. through brexit. it suggests traditional party loyalties are being stretched in a number of circumstances. alliance.ned that i don't think that will happen. we may get more tactical voting alongside low voter turnout. that could provide surprising results, but not enough to suggest theresa may will not get the mandate she wishes. he had to be an editor of a newspaper, consult the black

rock. david: it was never going to work. move the -- on brexit negotiations for you? >> this is clearly being called as a result of the consort -- the conservative party having a massive lead. the margin, and probably does mean more is a clear path to brexit. getprime minister likely to a clear handle on her country and leadership. potentially, it clears away uncertainty in the negotiation process. opportunity inan the u.k.. >> coming up tomorrow, michael

mckee interviews robert kaplan. ♪

emma: coming up tomorrow on bloomberg, robert cap one live from the dallas fed at 7:30 a.m. eastern. >> the mover was about treasuries. coming down two point 2%. today, a bit of a reversal. this chart tells a story.

the two-year in particular down to 1.4%. is the reflation theme dead? >> it is looking ill. it has implications for all aspects. struggle if the yield curve flattens. is not actingmy particularly well. europe is acting ok. japan is acting ok. we have an upswing globally, but it is muted. alix: three weeks ago, things were good, did something change or is this capitulation of the treasury market? is both.k it sales were disappointing, inflation was disappointing. thate are starting to buy

the inflation was oil related. we are coming out of the great recession. we are not operating at full capacity. there is plenty of slack. you get a little pickup and a littled you get inflation. it is being called into question. there is slack all around the world. unemployment rates are low in the u.s., but there is labor not in the statistics that can be brought in if demand is there. is unified growth around the world, including the united states. maybe the numbers are not as good as we have hoped, but is it enough to make up for some of the softness we are seeing? >> we are not relying on one engine in terms of driving global growth the way we have of 2008,e the crisis 2009. we are not reliant on the u.s.

to power the global economy. we are in a better trajectory in that regard. there are concerns about the spare capacity in the system. there may be signs of modest wage growth coming down the track. the 10ertainty about year of employment is precluding employees from demanding higher wages aggressively. it is a case of a short squeeze being witnessed in the treasury market over the last few days and weeks. case ofe classic investors putting on the case of assumptions that we will see an upswing in growth and inflation. the short squeeze is underway at this point. david: is it technical or fundamental? to an earnings

season people think will be robust. >> it is a little bit of both. a broke through, it brought lot of people in. i go back to a couple of things. retaillation myth and sales myth brought people's attention to the fact that we are not going as well as we thought. resolvedrity is being in lower treasury yields. jon: the conversation has been ludicrous. bill gross was saying if you breached to 60, we are done. we have breached to 60 and we have rolled back around. everyone get the bond market so wrong? growth iswant to feel coming back. we have had a president who is boning ang -- jaw-

better economy. the u.s. economy was about a fiscal stimulus, to stimulate economy and unfortunately, what we have seen with the health care debacle, tax reform and a fiscal stimulus will probably not happen. therefore, you have to cut back growth expectations. you have to look at a world where, if the u.s. is going to grow, a 10 year treasury is probably reasonable. what does that mean for earnings and banks? of thise a big part stock market move. it is tough for banks and other issues. highere yields must go to dominate programs like this.

people should be divorcing their emotional -- away from the market. have robo why we advisers. we have to dispel the emotion. people who are emotional animals. we know about behavioral intelligence. when you look forward and you like the treasury isretary saying tax reform probably not going to be, i think that is the message. people have to recalibrate. seen the bond market respond, does the stock market respond? the earnings picture is what is going to be critical to holding economy.

it is priced for 2.5% to 3.5% growth economy. alix: i don't know. it changes. one point 5% of the 10 year seems to be the lowest call. do you see a? it?o you see >> we macy's a lower yield, but i don't see the justification getting towards the 2% threshold. i am not so pessimistic that they will see 2.25. the retraction we have seen and yields will be a temporary phenomenon. alix: thank you. good to see you guys. , click ontv

charts and graphics. send us a question and we might ask it for you. this is bloomberg. ♪

alix: the mover in free market comes from market -- morgan stanley. 2%.stock is up almost number, coming in double that year on year. it stays the leader in equities coming in at $2 billion. it highlights the goldman sachs miss. let's look at how the other banks are reacting. lacquer of thehe

big five. ibm, it was its 20th consecutive quarter of the downed revenues. a cannot offset the decline in its legacy business. a tough quarter and future therefore ibm. we will continue that conversation. jon: i imagine that is what most ceos do not want. david: if you are a shareholder, you -- profits. jon: coming up, earnings from morgan stanley with a big pop ahead of the open. you are watching bloomberg. ♪

jonathan: reflation trade bleeds. the bond forced to retreat again. jes staley's larry fink -- s larry fink said there could be a downside. suffering from political fatigue? you shall look away. prime minister may in parliament to invoke snap elections. good morning. i am jonathan ferro alongside david westin and alix steel. 24 hours the pine -- defined by capitulation. is, conviction about at the start of the year, you fold in the last 24 years. up for basis points. features, a little firmer. -- up four basis points. the result is wednesday morning. alix: 10:30 a.m., u.s. crude oil

inventories, one-week low. speaking.sengren 2:00, the beige book. does it confirm the lack of reflation in the last with four hours? morgan stanley did much better than predicted with fixed income trading a beating goldman sachs. -- beating goldman sachs. joining us is allison williams. what are we missing? allison: it is good. as far as fixed income, a little into better than goldman, only the third time it has happened in the last decade or so based on the numbers were looking gap. david: because they did so good and goldman did so bad? allison: a bit of both. , in 2015,mparison

there restructured, coming out of that last year, still beating the number. p showingse gameseers -- all of those peers showing gains. doing well and that this is despite the weaker environment, down a little year over year but still a good result in context of solutions. the only thing is there was margin has been key goal for them better than their expectations and this quarter. bank of america's wealth business hit a record margin yesterday. that's another way we are seeing the impact of higher rates. david: what happens to return on equities? allison: pretty good for morgan stanley and the banks. the strongest quarter. i will not extrapolate that for the full year. is of the underlying trends

cost. the cost on a dollar basis and little higher but as a percentage of revenue, better line.xpected, right in the dollar expresses will be higher if compensation is expected to be higher. it is another key target for morgan stanley and another keeping investors will be happy about. alix: joining us is jumpstart -- jeff harte, he has a hold rating rating on said a buy bank of america. rank who did best. rate at for us. jeff: morgan stanley had a good quarter, especially of wake of goldman sachs yesterday. oldman'-- goldman's fix revenue was down. jp was up 32% sequentially.

mix but up 70% sequentially -- 70% sequentially is a good number. as mentioned before, we reached subtle digits for the first time in eight quarters. it is on the first quarter so you can not extrapolate. there is not a whole lot not to like. as far as ranking, you would have to put goldman probably at the bottom of the list for the quarter. training can be volatile. i would not sell their franchises short. as you work your way up, you have to look at probably bank of america or morgan stanley is having the best quarter followed by j.p. morgan and citigroup. jonathan: you talked about client mix. fixed income was supposed to be an area for many of these areas. talk to me about the client mix and how that will evolve the

rest of the year. jeff: when you look at client mix in a quarter like we had, the big issue is whether investor clients, hedge funds and things like that or if you have more corporate clients that or hedging things. tend to haveey more corporate clients and that is where activity levels were i that's how we saw better trading relative to goldman sachs. also contributing to goldman having a bad for her was by far the biggest commodities franchise of the big banks. it was a really tough quarter in that this is. -- a bad quarter by far the biggest commodities franchise of the big banks. andare committing capital it applies goldman did not position around the flows, but a bady shows whoever has trading quarter, things tend to bounce back.

i will not be struggling that into a goldman sachs franchise issue. they has the toughest trading quarter. jonathan: it was a failure to maintain expectations. how premature is in a are missing gary cohn? jeffery harte: i don't think so. i like gary and him leaving is a loss. it seems since they have been public, a senior manager leaves, the person who steps into their shoes are really good. i do not think that plays into it. this of volatility of the way the market plays out. you cannot overemphasize commodities. they are one of the only full-service guys left. add is inhat i would terms of goldman, was a unique about goldman is the consistency. when you think about management,

building a culture that is a port in foreign investment firm -- and that's important for an investment firm. consistent management and not affirm bill to through acquisitions unlike other large bites and they have consistent leadership bull for the crisis and after and that helps to build. and said they are downgrading u.s. banks and they said the improved profitability in the u.s. may take longer than we say -- and then we think. was it reflected this season? jeffery harte: it depends on how you do find banks. when i look at universal banks that have operations, we have not released the results out of europe but the results out of the u.s. has been pretty strong and the trend we have been ,eeing especially in a trading investment banking, the u.s.

banks gaining market share over non-us peers. when it comes to companies i am looking at, i what not agree with that call. i would stick with the u.s. bank. some a lot of gainers and being in the non-us markets. banks are concerned about cost control. should we because told about headcount? byk of america was up a quite a few people. because they are doing better, they are building up headcount and costs? : yes, it has have to be on the radar but the less of an issue than a prior cycle because technology is some of the trading businesses are letting them do more with less people. the headcount increase like a boj, the important thing to note is in the shifting back off of

processing people into sales and client base roles as long as that what you are saying and the revenue, it should be good news. -- seeing in the revenue, it should be good. probably not to the extent we have seen prior cycle, so much more can be done electronically than in the past. itsson: i would add important not to look at the overall number but the mix of headcount. bank of america talking about cost efficiency and increasing front office and that extra revenue and is another key thing. jonathan: great to have you with us for he allison williams. -- going to have you with us. allison williams. deal said he did something they had not done, hiked interest rates for the first time -- as he said he did something they had not done, hiked interest fed did- and the

something that had not done, hiked interest rates. from new york city, you are watching bloomberg. ♪

emma: i am emma chandra with your business flash. posted first-quarter earnings that beat estimates. was also boosted by the stock market rally. blackrock manages 54 $4 trillion. more of interview with larry fink later. $54lackrock manages

trillion. andffer from ppg industries the company will split of the chemical division. the company says the spinoff will be carried out within a year. a long arbitrary dispute between the u.s. and canada over lumber is heating up and home builders could be the losers. a trade agreement expired in october contributing to 20% prices. in wood homeowners may pay more for canadian lumber. that's euro bloomberg business flash area i am emma chandra. jonathan: we started 2017 like almost a year for year the past five years, yields must go higher. yesterday, they posted 216, the lowest since the election. we are down to 221 in today's session. where a we going from here? let's bring in a guest.

i went to begin with you, december 2015 and yields were 2 .2. the fed hike and hiked again. what is the signal coming out of the treasury market for the federal reserve? >> a couple of things. we would expect with the rate hike will do for the 10 year higher than it is now. that can happen during the course of the year. is a goodrch 2017 lesson that we can start with low expectations and the med can market it will be higher the geopolitical risks around the world has caused investors to going to treasury given they are relatively cheaper compared to other sovereign bond markets compared to the world. that is bringing treasury yields down.

jonathan: they have to the dollar had capitulate. yesterday was goldman sachs. rathercapital -- technical. we will go with you. have we seen most of the big would drop out of the market? >> we are not capitulating yet. i think clearly the market came in to 2017 with a low dollar position. the short treasury has been more significant and we are starting to see that clear out and it means different things to different people. to an extent, the inflation trade and the way it was conceived as fiscal stimulus trade, yes, it will have a hard time coming back. if inflation trade means generating some inflation,

better global growth, then we are seeing get. reflation trade is not dead yet. alix: what is fundamental? futures had some in short positions on that you had to reverse of that and put a pressure on yield an dollar no matter what the fundamentals are. vassili: the position is crucial here. there is always a tendency to come up with the fundamental stories, but with the positioning is what yields and the u.s. dollar earlier in the year. the lack of fiscal stimulus in the u.s., yes, it is a negative. when you look at the front end of the u.s. curve, we only pricing in 2 hikes and even if you assume that will not be a lot of his stimulus. this positioning is getting us to a point where the dollar are starting to look a bit cheap in the front end of the yield curve

is probably not pricing in enough fed hike. alix: a little constructive. what would you say to that? now is the time to accumulate positions. : i think a couple things. we would agree that inflationary pressures in the u.s. are not completely turned around while there is a pause and the dollar and the selloff of the treasuries, a lot of wage pressure and global growth pick up, pick up and services, e.m. ndm. the world, things are looking stronger and hotter, you are going to see inflationary pressures pick up -- should orport rise in u.s. yields slighted bear market and u.s. treasuries. i would say now is not a time to be reversing those reflation trade and watch them take a pause and buy in. what the fomc things

about inflation. look at bloomberg, it is striking how it has come down the probability of rate hikes. is that driving what is going on or is jonathan right, it does not matter because they keep raising rates? : i think it is the latter. using march of this year as an example, not a time when the fed was completely listening to market. fed isated to say the waiting for the market to match them. they will do what they will do and we expect 2 more rate hikes. the market will have to catch up despite the swirling and waiting for data to make or go a bit higher. i think we will see that in june and september and december for perhaps the final rate hike. are talking about a potential discussion on the palate -- balance sheet.

david: what drives the strength into the dollar? we have had top steve mnuchin and the president himself. we have great sector by the fed. what is driving the dollar? vassili: over time, the fed belt will prove more important. that desire view. the markets have been tuned into what the treasury has said. damage control from secretary mnuchin. the back-and-forth continues, the less markets will listen over time. as long as the fed is independent, i am not saying that is a different, but i do not see a significant push, as long as the fed is independent, that is driving the dollar. we have had a strong dollar policy for a couple of decades and did not prevent a weak dollar or a strong dollar. jonathan: we have had pessimism

and the pendulum swung to peak euphoria and settled down around here. is now not the time to make big calls except we will establish at a new level another tight arrange for significant period of time as well done over the last six months? vassili: it is better to be a little too late then too early. if you are too bullish on the dollar, probably wait and see the closer we got to the june meeting, the more interesting it will get for the dollar. i think the overall levels are starting to look attractive. ,atabank nandini and vassili both of them will be staying with us. coming up tomorrow, michael mckee will be interviewing dallas said about president robert kaplan -- fed president robert kaplan. this is bloomberg. ♪

david: this is bloomberg. i am david westin. manus cranny sat down with a -- with bill gates. among other things, he talked with working with president trump and possible brexit. the microsoft cofounder had this to say about the u.k.'s exit from the european union. whether it the u.k., is for microsoft where they have a huge lab that does amazing work next the cambridge or the foundation where we have over $1 billion of active grants to institutions in the u.k. to help ,uild new tools for us, it after the united states is by far the number two place was a

huge distance to number three. and so maintaining that tie of excellent will sometime involve foreign-born scientists joining teams and having the right type of collaboration which is part has been athe u.k. huge recipient of scientific are indeed dollars. i have been very pleased of both the chancellor and the prime says scientific leadership, creating good jobs, having the strength that is really fantastic and the u.k., they will work to maintain that because it would be a huge loss for the world and the u.k. if that was not done. it can be done. as haven't made it a bit more consultative by not being part of the eu -- complicated by not being part of the eu. some people are getting

concerned about that. be foundation is going to here 10 years from now, 20 years from now, we can become. -- it be calm. i'm sure we'll be asked, how do you keep that momentum? whether in scotland where livestock is unbelievable, the traditional universities like imperial oxford. the uk's strength is there. they are careful to make sure they are not dropping off on that. david: that was bill gates discussing brexit with manus cranny in geneva. he had his foundation has on. , when you start curtailing people going across borders, it can have an effect on research and technology and developing new companies. alix: and end of the day margins.

pay for workers less qualified in some areas or put more money in education, how do you go around? short-term, it will crimp silicon valley's ability. dave: or not that the work done. alix: or if you have to hire people without the same skill set. we are four hours away from the cash open. futures are up 49 on the doubt. sessionyesterday defined by a new low for treasury yields in 2017. this morning, a little softer. up four basis points. you are watching bloomberg. ♪

jonathan: from new york city, you are watching "bloomberg i am jonathan ferro. futures looking firm. up 45. s.a.p. up nine.

morgan stanley with a big beat. losses, i use that literally, comic in below estimates. there were no losses. -- coming in below estimates and that fuel some of the losses and the broader market yesterday. the treasury market, yields are higher by three basis points. up to 2.20. the fx market, cable rate is pushing higher for another session to 1.28. the store rick ross assets. the headlines outside of business. here is emma chandra per emma: caught up with first word. to u.s. said iran ties terrorism could scuttle the nuclear agreement. if there are complying to curb nuclear program, but in a letter to congress, he said iran is a leading sponsor of terrorism and a review will determine whether

suspending sanctions are vital to u.s. interests. authorities in massachusetts say ,ormer new england patriots aaron hernandez has killed himself. serving a life sentence. last friday, he was acquitted of two other murders. aaron hernandez was 27. in georgia, a democrat narrowly missed beating in an election. joel osoff won 48%. he will face republican cameron .andel due to -- karen handel global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, i am taylor -- emma chandra. this is bloomberg. jonathan: thank you. the united kingdom, the parliament usually on a morning like this, that chamber is

emptied out and they are long gone and that have gone to lunch with a lot of beer. right now, they are in the chamber. why? they're debating something that prime minister may raised is to , not fixed parliament act scrap it entirely but have a 2/3 with george to vote to have a snap election in early june. -- the volt will begin to take place in 30 minutes time per prime minister may spoke in this way she had to say. prime minister may: what the people voted for last year was for the u.k. to leave the european union. we have started a process in motion. there is no turning back. it is clear from statements made by the scottish nationalist and others, they want to use this house to try to frustrate that process. i will be asking the british people for a monday to complete brexit and make a success of it.

is ourn: joining us bloomberg correspondent. the prime minister wants a mandate. parties, what kind does this will they take on that issue and the negotiations -- what kind of stats will they take on the issue of the negotiations? >> the is interesting you say it is a one mandate issue but what prime minister may made clear in her campaign, she is not going to give more details because she already did that when she triggered article 50. what she wants is clearly that mandate to go for the brexit she wants. she said at the vote on june 8, the general election would be in the country's national interest. previously when she said she would not hold any sort of snap elections, she said it was and national interest.

the opposition is saying how can you trust her when she you turned on this? that's what she is asking from the british people's trust to go ahead with the exit as she sees it. we are likely to get this vote on the snap election in a half an hour, maybe an hour's time, if she wins two thirds of the house to vote for that for june 8 is looking likely she will get that because both labor and the democrat said they will support it. jonathan: you lou -- you use of the word "opposition," and for lots of people, there is not. she will go out and crush it. what is the labour party saying about the brand of brexit and how they would take on the conservative party in six weeks time? nejra cehic: that is a good point. a lot of the reasoning for theresa may calling for the snap election right now, according to a lot of people, is the fact her

party is so far ahead in the polls. 21 points percentage a lead of the main opposition party, labour. shelley has a working majority has a workingly majority of 17. if the poll does right, sheila possibly increase it to 115. , they have labor welcomed this election and jeremy corbyn has talked about the economy and that might be to place growth labour tries compete. thaty corbyn might warn of to come in his campaigning. jonathan: thank you. i want to bring in our guests, do you wantvassili to give your thoughts of sterling at this level? vassili: you have to be patient.

the market held onto the short sterling position longer that some of the other positions but that it is the high conviction trade. was at thehat we saw big positioning. a lot of explanation for why it will lead to a better brexit story. i am not finding it convincing yet. it could be in the u.k. and taking a hard stance of the exits and that is still in place. what we would expect to see is areould see 130 to we waiting for positioning and once it happens, there will be an opportunity. weakness into the french elections and inflation trade going up or he is in more than a story than u.k. specific -- or is it more? that story the u.k. specific nandini: we see is strong at 120

levels today. again, we can question the validity of some of the arguments that u.k. will do better off of this. it was like the market, theresa may will have more say. sterling move on the u.k. election call for june. -- over the weekend, they euro weakness while it has not moved significantly in the past few weeks, it has been much lower than levels previously in 2016. we are watching what is a four-person race in a friend print david: we do not know what it means. a harder brexit would softer brexit. does this election make a likely there will be a deal of some sort? real talk of a may not have any deal at all. better than no deal,

does that make the sterling move justifiable? nandini: yes. that is the point. we do not know hard soft or what. wouldct that theresa may have a larger number of mp's to rely on for support in parliament and that number could be of the most disinterested view or closer to her view makes it better for her in terms of negotiating with the eu. that comes into play. whatever policies are harder or softer, anyone knows as much as i do. the fact, if we trust the conservative lead in the polls right now, should go very well a much stronger hand in parliament against the eu and that is what we are seeing in the markets. we aretoril has risen, seeing -- just as sterling has risen, we are seeing at in the bond market. alix: you brought up the french elections. let's take it as their.

-- let's take it is there. ecb is to say that the very, very serious about former guidance and the balance of risk is by and large balance eurozone is not skewed to the downside. vassili, if we got a macron or fillon and we are hearing about the big pop in the euro, will the ecb taper in the fall? vassili: we think they are getting closer to tapering. the announcement may come in late 2017, probably december. we do nothing that will start tapering until march of next year. been movingslowly in that direction, a lot of discussion of headline inflation. core inflation is pretty low. this is where we think they will be more comfortable. jonathan: less divorce the market enthusiasm to get into fundamentals.

macron going to achieve in france? what is this party called and what kind of situation will he have in parliament, what kind of reforms? courses that in about a years time, he does not have the same approval as mr. hollande? early to says too much about that. let's wait until the first roundabout. the markets with little risk and a u.k. and adding in election does not help here. our sense is that once the euro gets to the political season and remember, elections in germany and italy probably in february. a very congested political season. once we get through that and if we get through it without particularly disruptive

outcomes, we fall back on the ecb. we believe 2018 will be a great story. change and monetary policy combined with a very strong structural position that europe has in terms of -- and administration has a few questions about that. germany runs the largest, in europe, the biggest current circles in the world. this usually positive for currency. that is a pretty good story for the euro next year. alix: focused on the next seven days. are you expecting the big rally that goldman sachs or jpmorgan is expecting with le pen or macron in the second round? nandini: if the results or sunday or monday morning allows us to see a potential victory that is more market friendly like macron or fillon versus versus theock --

right or left, there should be more of a boost. data offers very little in terms of being able to predict who will win in the second round when we see it against a le pen or melenchon candidacy. i do not think we're out of the woods until past the second round. just been great to have you with us. nandini and vassili. -- jonathan: great-nephew with us. both of you will stay with us. -- great to have you with us. a new low on the 2017. we will discuss fixed income for a solid 30 minutes at 12:00 p.m. in new york. 5:00 p.m. in london. really, a friday night in hong kong. you should not be watching this but if you are, we are available. ♪

emma: i am emma chandra and this the hewlett-packard enterprise greenroom. comic up, dallas fed president robert callan -- rubber, live kaplan, dallas fed -- live from the dallas fed. ceo larryckrock's fink spoke with us earlier in this is what he had to say. larry fink: the market has to be validated. it moves up and needs to be validated. i do not look at that as different than any other time. the pe's are very high on a relative basis in the u.s. the pe's are higher than europe

and asia. so, it have to be validated one way or another for. we have had since the third quarter synchronized global growth. the slowest economy in the world are in the g7 is the u.s. seeing china growing much faster. remember, a year ago, we will work with china was going into recession. growing a close to 7%. we will board about japan. japan will have a positive growth. spain is growing at 3%. france growing above 1%. and canada. we are worried about north america. canada was estimated at 2% and grew over 2.5%. the market has been validated by a synchronized global growth. not just the election and more , for thely now, we

markets have another leg up, we need to see the valuation of these policies from the trump administration and validation from the earnings. my worry is it will be a harder picture. we since it there is more uncertainty because there is uncertainty related to tax reform and the timing of the regulation, we're seeing more and more businesses holding back . you are starting to see that in different economic numbers. i was say there are warning signs here that are getting have seen somewe pullback. you have seen that in car sales. you are starting to see a m&a.own in starting to see things that are now, picture -- people are taking up pause. valuations are high.

alix: that was larry fink. still with us is nandini speaking from london and vassili still with us. you followed more negative economic data, you would have a list on a huge rally over the last eight years. climbing a wall of worry. are we still on the wall of worry? : i think one of valuation basis, that is the key for a multi-aspect an, where can i find the cheapest or most attractive i wish and that will give me the best return? the u.s. does not look to be the economy. we like the europe as we discussed. have very muchs a better structural fundamentals than they had in 2013 making them quite attractive. we are recommending looking away from the u.s. to broaden equity exposure based on good of

valuation and macro changes that they help certain patches of the global economy. alix: as yet the gap between earnings between the 10 year, that cannot sustain. either the 10 year will have to come up or equities will have to re-rate, outperformance. where do you stand on that? : we expect the 10 year to get higher during the course of this year not just the market dynamics of we rating but because of the federal reserve policies. he is earning season in the u.s. , if it does not meet as quotation, it will be difficult for investors who have piled in. season tostrong justify and keeping the momentum going through the course of the year a giving us 12 to 24 months of gains before a drawdown. alix: vassili, e.m., we keep

hearing that. vassili: the only kind of area of activity, the main area in fx market has been buying high-yield. turkey, russia, brazil. it has been the area where investors feel like they can -- they have this been performing quite well. if you look at the treasury market, it looks like a risk environment. if you look at some of the cm blocs, not much risk. some other trades are getting crowded. i worry if we get another pick up in treasury yields, some of the will suffer little bit. the idea of global growth which i think is happening, that's going to support his view. alix: great stuff. nandini and vassili, great to have you. the bloomberg

terminal, check out bloomberg go. if you miss anything, click on it and watch it again. this is bloomberg. ♪

david: this is bloomberg. trading slightly higher in premarket after the ceo told bloomberg he would take off on call from a content provider for all possible merger to reset down the path he has started on. is a bloomberg associate recipes out. and on weight to go about -- an odd way to go about matchmaking. is that to get something going? so. think verizon is looking at the stock prices and the other companies and the ones either involved in deals like at&t and time warner

or the room a of deals are doing really well. verizon realizes as that. -- or that deals that are doing well. my charter, shareholders did not like that. out, cbs, the names thrown maybe he is thrown them out to see how investors. distribution by content and that's what you had one nbcu.t bought in bc -- disney would be a big bite. what is their market cap? about $180 billion. david: what does verizon's balance she looks like? tara: a deal of that size would have to involve a votto stocks and that makes a the numbers -- would involve a lot of stocks. that makes the numbers

difficult. it would have to involve stock. dave: les moonves said he would not rule out selling for the right price of a distribution. what is ruling this? tara: they're mobile video is so important. star thatt&t's sparked a that. -- sparked that. comcast idea and verizon is not just content, also all of these cable subscribers and comcast wants to go to the wireless business. they complement each other. david: verizon has taken steps in this direction before. why did they need to do more than that? those deals do not really. they are relatively small. ofhave not seen the pay off

them yet. the yahoo! has not closed yet. people want to see something big. that is the theme. they what does it to building. dave: thank you. ppelle.cha everybody wants to get into show business. now without opening up your checkbook. it costs a lot of money. altuve you do it on t -- alix: you do it on tinder? marketinga chief strategist joined the show. you are watching bloomberg. ♪

♪ jonathan: a tale as old as time should the consensus view takes

a beating. once again, bond is forced to retreat. morgan stanley crushes estimates. posting while merits -- posted wall street's biggest increase in bonn revenue. larry fink says there could be five percent to 10% downside on the market. if earnings do not hold up. good morning. this is "bloomberg daybreak." i am jonathan ferro alongside alix steel. are firm, up. if you switch up the board very quickly, treasuries and yields are higher by three basis points. 220 on the tenure. on the margins, we are just a little bit softer. >> i'm looking at morgan stanley up about 3% on the premarket.

it is now up by 2%. it has beaten on every measure. they are talking now about regulations. visit any tax break below 30% will be very good for morgan stanley. that some parts of financial regulation could really be set to be rolled back. is relatively flat. they have had record shares into inflows. missed, and that is why you see some softness in that stock. ibm earnings -- speaking of down earnings, ibm is down 5% in the premarket. you have new sales in cloud not yet offsetting its business. growth margins and operating margins are getting tighter. itsmate helping to lift peers in the premarket. john? jonathan: the big question over

in london is who wants another election? prime minister theresa may seems to think she can crush the labour party. if the chamber votes two thirds of majority, they can bypass the parliament act to get the snap election in early june. the prime minister seems to want a good reason. david: there is a method to her madness. morgan stanley back in the u.s. did significantly better in the first quarter. it's fixed income business did better than open sacks. joining us now is laura keller. laura, how good was this news for morgan stanley? laura: they are really relishing it. there has always been this rivalry between morgan stanley and goldman sachs. when you get to be morgan a business yous, restructured, that is great. if you look at trading on either

side either fic or equities, goldman trending higher. david: what happened to goldman on fixed income trading? you have the fixed income part of it that was ok. they said some type of freight, mortgages, were all right. the commodities in currencies were bad. it is so interesting, because -- i was listening to a call before coming here, and morgan stanley was saying that claim activity was pretty great. yesterday, golden sachs was saying -- goldman sachs was saying client activity had slowed. morgan stanley deals more with institutional organizations and with hedge funds? laura: that is the feeling. ask goldman sachs

yesterday, and they did not really get a clear answer. they tried reported with the market yesterday. they asked if they saw institutional clients doing better than 80 hedge funds -- then maybe hedge funds? bankamerica said everyone was doing well. we're bringing in michael now for more. >> i was talking about the 10, to spread and why it has flattened so much with the bond market having this massive rally in the post election. the spread went from 100 to 135 basis points. the goldman sachs stock being down yesterday still up 27% since the election. you have the market still not punishing someone for underperforming. there is another interesting dynamic while we are on goldman. we spoke about steve mnuchin and gary cohen in the white house, and they are talking about a new last diesel separating --

glass-steagall separating investing in commercial banking to some extent. that is goldman's signature hand here. is gary dimon going to wish he had taken the executive job? maybe that is why oldman is acting so well. -- goldman is acting so well. the inflationnow trade means something different for everyone on the planet currently. treasury yields have rolled over. do you need to see banks consolidate lower the way that treasury banks have? >> i would say yes after the move we have had. lot of the trump trade starting to unwind here. trump agenda has somewhat derailed or at least it will take a longer timeline than people expect. financials need to come back to earth a little bit and consolidate the gains they have garnered since the election.

alix: you mentioned evaluation. you mentioned goldman -- you mentioned evaluation. you mentioned goldman. on a valuation basis, why would you not by goldman sachs -- not buy goldman sachs? ,> you are correct that it is in the financial sector, the most attractive in the market. i cannot deny it is an attractive sector from a valuation perspective, but earnings estimates are not realistic for the entire market. $106.60., we did i think it were hoping the tax regulation would come through in a lot of different sectors that they are realizing now will not happen. alix: we're seeing a lot of earnings revisions with the banks. are we going to continue to see that after this quarter?

laura: i think the analyst try to keep those estimate revisions in a pack. they do not like to do them one by one. i think as they get a chance to make that -- bank of america gave a figure for guidance. doing better over last quarter. is that really going to be seen? i think there will be a changes to happen if we get a june rate hike. i also want to bring up -- the thing we look at the banks for beyond that interest income, but also on the trading aspect, is flow. we see these banks and goldman sachs says they are seeing declining client activity, those things are helpful in engaging -- in gauging with the market is going. david: you are talking about two very different things here. one is the yield curve with net interest margins which really affects bank of america a lot. a loan money, and they get back with interest. then, you talk about a trading

company like golden sachs. it really is depending on where the economy is going and who will benefit more. laura: before we even had goldman sachs and morgan deming reporting, we had these -- goldman sachs reporting, we had this main street versus wall street. wall street was doing better than main street listed at -- main street which was kind of waiting for these trump policies to take off. now we have a different story once again. >> i am a bear on the market. i think it all has to do with the monetary policy. we are nine years into this bull market now. there are a lot of risks out there you have to be careful about. we are a very expensive market overall. that is where the risk lies. jonathan: you said that with such it is yes him and pride. -- with such enthusiasm and pride. alix: that was laura keller.

thank you so very much. michael will be staying with us. coming up, michael mckee will interview robert kaplan. that will be at 7:00 a.m. eastern time. ♪

♪ jonathan: you are going to have a great summer vacation. another election intentionally in pilot -- another potential election in june. parliament is debating it right now. the prime minister really wants a snap election. the debate over there continues. we will bring you the imminent

results right here on bloomberg. we are looking at a live picture from parliament as that vote will get underway. we will have live coverage on bloomberg tv and numbered radio. radio.mberg in the bond market, here's a headline for you. treasuries on offer. yield at 220 on the u.s. tenure. weighedk ceo larry fink in on where he thinks yields are heading. larry: i said in december and january, i think there is a 51% probability that the 10 year treasury will go below tempers -- 2% -- the 10 year treasury will go below 2%. jonathan: around the table, we have michael rourke still with us.

joining us now is also michael mckee. so, what does this tell you michael? .> not a whole lot jonathan: all right, i guess we are done. [laughter] >> the question is what exactly is going on here. once you understand what is going on, then you can understand what it actually means. here we have the 10 year note yield. after the trump election, yields shot up, and then they kept moving higher in fits and starts. they peaked on the day of the fed meetings, and then they started coming back down once the health care bill was pulled. a lot of have enthusiasm for trump in the markets, but there seems to be something going on with the fed at this point. people do not to be pricing in continue a higher fed -- in continually higher fed moves. this brings a question of what is inflating?

-- deflating? if you look at the 10 year note yield, it has gone up and is now coming back down, but the two-year is now moving higher in has stayed there. you see a yield curve flattening which is what you would expect in a rate rise environment. maybe, things are happening much as they should with the added little bit in there with what is going on with fiscal policy. maybe the markets got ahead of themselves, but you can still see that price can something. alix: fair point. chartl, to you, this shows maybe this is what is supposed to happen. >> it is true good you are seeing a flattening in the curve because the short income is going up. the market was pricing after the election we would have a stimulus package, deregulation, and this great economic growth. then, as you see this trump agenda take a pause, and it

looks like derailed at the time being, it seems like expectations are coming back down. so, we are back down at the slow growth environment we have been in. york fed at new 2.6%. i think your consensus is 1.5%. this number is going to get reported next friday. there is a wide range, what the new york fed number comes out at 2.6%. q1 gdp is not going to look as great as people expected. that is a big part of the rally and reflation. alix: but we do know that, that is why tech staples and real estate have been the best-performing sectors on the s&p in the past few months. is now the time to start thinking about rotating back in? know, and i think that is the hard part here. what seems to me to have occurred in the last week, the

president cannot with this platform that he was very strong about. as soon as he came into office, he started acting on that platform whether popular or not. kind of sticking with his core policies. what you see with health reform being stalled, he definitely pivoted more towards a moderate view. janet yellen was someone he was ready to fire four months ago, and last week he said that she might keep her job. those are some radical shifts in policy perspective. i do not think people know what to expect yet. so, you are still dealing with a market that is expensive and placing a lot of upside expectation. i think people are more likely to move to the sidelines into composite to watch how things play out. david: is the market discovering that he cannot do it by himself? yes to bring in the congress and the courts. that means the long-term risk comes down, and that flattens the curve. the question is will the fed

raise the short and or back off? >> those estimates have come down. i think it is a balance. the market is still trying to figure it out. i do not think they have any real clarity on the situation. >> i did bring along another chart. at first quarter gdp for the last three years. this is the fourth year in a row. we have a first quarter slump -- first quarter slump that we are seeing again today. markets are looking at this, the gdp number, and they are taking out some of the long-term inflation possibility. if you look at the other chart i showed you with the trump reflation trade still in there, maybe we see a market that got ahead of itself in time and. it is still looking for taxthing to happen on reform, but anyone who knows anything about tax reform is saying that this will take a

year or longer, and the market was hoping it would happen a lot sooner. are starting to question timing and composition now. that is something more significant than what could push is down the road six months or more. >> it is very difficult to deal. everyone comes out of the woodwork. you do not know what they are going to end up with. you will see a lot of volatility based on the reporting around the tax reform process. david: it is not just timing versus content. the two are intermingled. the question is in order to get it through, do they have to dilute tax reform? >> that is what hundred percent correct. i could not agree more. the border adjustment tax was supposed to generate revenue for the government. that is a structural change to the way that was his nest is done. -- that is a u.s. structural change to the way that u.s. his nest is done.

a beasley it will definitely change the -- u.s. business is done. changely, that will estimates. face a changeill because it is drilled over here compared to crude overseas. you have to think of those details, and the devil is in the details. the composition is critical. back -- i will push back on that. roger altman was on here saying that the tax reform did not as matter #not matter as much as long as they got it done. we do not need quite percent or 15%, if it is under as long as it gets through that is enough for the equity market. next i would agree it is a positive, -- >> i would agree it is a positive, but i would say it is not enough. do not forget, most of these large mega capital companies

that drive the weight of the s&p 500 are using tax arbitrage strategies around the world. so, i do think those details are very important depending on how you make your investment decisions. david: michael mckee, thank you for joining us. michael o'rourke will be staying with us. verizon is looking to dialogue new sources of growth, or at least having them dial into verizon. they are looking for potential merger candidates. the potential deal could transform the telecom landscape. that is next. this is bloomberg. ♪

♪ alix: verizon entertaining a big merger to the energized the company. it got shares jumping on tuesday after the ceo told bloomberg he's open to merger talks with comcast or disney or cbs. is --o talk that merger

we are going to talk about that merger. who is the most likely candidate to tie up with verizon >? >> disney has great content. rising has great connectivity. i think they would go hand-in-hand. apple could be interested as well as verizon. alix: do they want to be saddled with yahoo! and aol? how do they shake off that? well and yahoo! brought to verizon is content and customer bases. unique content to maximize the value of your customer base. david: typically, ceos do not just give an interview and say call me up if you want to merge. is this a serious overture? verizon has great cash flow, but they have no growth. they need growth.

they need a growth engine. so, verizon has customers, they have connectivity, but they need content to maximize their value. content. they need what does disney need from verizon? >> they need distribution. david: they could play distribution partners against one another. why do they need one of them? >> disney does not even. -- pay au have to play lot to disney to get them to use you. ask yes, i think there is a huge amount of value there. everyone has been so focused on the decline in viewership for espn, but the value of their other properties is unbelievable. alix: what about the timing here? does this have anything to do with the trump administration? you could argue a deal between disney and verizon would not happen to years ago.

>> the keeping about this administration is that trump is more business friendly. he is more open to seeing what business leaders want with all these meetings he has had in washington with the ceos -- it shows he is very pro-business and a business friendly president. david: the we have to see what happens with at&t and time warner to see just how business friendly he is. he made a lot of noise about it. >> yes, he originally said he did not like the deal, but he eventually did say he liked it. we just have to see. you do not want at&t to get ahead of you. verizon does not want at&t to get ahead of them. for: talking about the debt a second with verizon, what does their debt profile look like? what kind of cash are the reserving and why are they not spending it? >> they may not be spending it to use it on a major acquisition. today, i do not think any major acquisition is out of reach. the ability to issue stock,

their cash flow ability to pay debt, i think they could make a significant acquisition and acquire disney. david: it would be very significant. it is a big market cap number. a big number. jonathan? jonathan: let's get you set for the opening bell. futures up early this morning. wednesday, we are up 30 on the dow. sachs'ay, goldman earnings fueled some of the loss for the u.s. equity market. morgan stanley is up in the premarket. you are watching bloomberg. ♪

♪ jonathan: from new york city, let's get you up to speed in the markets in new york city. futures board looking like that. up a points on the s&p 500. about a third of 1% on that

index. the index -- that headline that can edit treasury market yesterday, 10 year yield at 216. it is rise the little bit higher by three basis points. backup to 220. you can turn yesterday's price action on its head, and it would get the same result though the market -- the magnitude would be more muted. crude with a marginal bid. some confetti, david westin. let's get to the market open. upsidee see some modest after yesterday's down move. at one point, a 113 drop on the dow. the fact that we are getting better earnings from morgan stanley and the yields are back up on the tenure is helping the dow jones. the s&p 500 up seven points. the nasdaq up about 0.4%.

surgical up 6%. a big earnings move. earnings eased -- earnings beat outlooks. it is the first report after it acquired its heart device maker, saint jude medical. it boosted earnings above consensus. pharmaceuticals up most 8%. they got fda approval for a blood and kidney drug that could help with anemia and alcohol. popsve those biotech stock on the fda. getting into earnings, the five big banks are done. here's how we stack up with earnings surprise. the bottom panel is average surprise on earnings. in terms of average sales apply, we are up just about 0.5%. in terms of earning supply, we are up about 5%. what is interesting here is that we did not see the big time earnings revision into the

quarter that we typically do. that makes this surprise a bigger beat injury. our earnings going to be enough to hold up valuations at this level? it was a big question coming into earnings season. they have to be good to validate the price and optimism we see in the markets in the united states. we asked that question earlier to larry fink. he spoke about how critical the earnings season is to the markets. >> this earnings season is probably the most important issue for the markets today. the marketplace had higher inectations on quick actions relation to tax reform, infrastructure, and deregulation. those are the three things the marketplace look for. that will take more time. if we do not have earnings validating these higher pes, we could adjust downward 5% or 10%

from here. alix: -- jonathan: for more, let's bring in bill, and michael o'rourke is still with us. bill, we will start with you. while theng we said trump trade was going on, we did not think it was actually underlying fundamentals and not just expectations. admittedly, it was the soft side for pmi's. global pmi's moving up a lot. it was the final -- the fundamental backdrop as to why stocks moved up. now, you have to get the money through. that is important. jonathan: the hard it is important for two reasons. one, the earnings has to validate the price in the equity market. these companies have to go out and spend, invest. any ceos talking about doing that on the back of what is the talked about in d.c. anytime soon?

>> i would like more. ex. would like more cap it is not clear to me that that is not needed yet. as an investor, i am ok with a lot of cash flow as long as you pay to me. jonathan: you want buybacks and dividends. for long-term investment, do they need the investment? >> i think they need the investment. if it goes when hundred percent right -- we are talking about the auto industry likely peaking here. however, inventories are up. we are just not at a point where we have that organic growth. all the changes in the policy that we have talked about are going to take time. it is amazing, because you just think that six months ago or so, the federal reserve was very much worried about secular stagnation. the sentiment has shifted with the election. it is a lot of optimism. the reason the earnings season is so important is because we

are on a trailing basis. the earnings need to grow more than 10% year for the next three years to get us back to a 16 times multiple. within a percent over the next four years either. that is why it is really important. i just want to file a complaint about the buyback. ibm, there was a segment this morning talking about 20 straight quarters of declining revenue. the company has bought back stop hand over fist. the earnings-per-share held up to some extent. the is one of the reasons policy environment has rewarded companies that are not growing. five years of not growing. that is pretty scary. if you look on your bloomberg, you can see that the total return over the past five years 7%a loss of 70% -- a loss of despite declining revenues. it does not relate

reflect fundamental underlying growth. at some point, you need real growth. cap ex.l come through ,f you do not see growth coming that cannot be good in the long run. >> you are right. in the end, we would love for the global economy to catch fire on fire is a overstatement, but the europe pmi's, if they get better, they could pick up some excess capacity there as well. alix: if you look at a sort of normalized basis, dividend by that is way below cap ex spends. what is your take back on this? work on ano some

dust on it dividend growth companies that are expected to grow dividends over time, part of the thing is that dividends come from having a growing company. ibm is a cover one where they have had that many straight quarters of difficult revenue. david: there is a self selection here. the companies buying back stock want to do better with their money. people who are investing it think they have a business. >> with the netflix and the amazons, they have had that organic growth out there. people are paying a higher premium of those type of companies than they are for the rest of the market, because they have that organic growth going forward and investors can see that. alix: michael, what is your downside for the s&p? what do you see? a lot thing is -- it is of it evaluation call. i do not think we can sustain the valuations. you had a great story last night about the central bank balance

sheet and the unwind. combined, they are probably about $4 trillion. you do about $9 trillion of asset management of the next decade or so. that is taking supply over the market in the past eight or nine years. again, we just have to look at where we are at. i will not say we are going to go down 5% or 10%, but larry fink who is the largest -- the largest asset manager in the world says we will have to go down by 5% or 10%. that, i think, speaks volumes. jonathan: he does think the earnings will hold up. >> it will take multiple years of earnings to validate where we are today. the growth agenda needs to get back on track quickly. david: the measure could be off is because not cash -- because we have not really had these low interest rates. >> that is fair, but i talk about something called the reverse fed model. is that of taking the earnings

yield from the s&p 500, you add them together. most of the market -- most investors think of the market as the s&p 500 in terms of treasury yields and bond you. that measure of the past 60 years only jumps to lower it is today -- the only time he jumped lower than it is today it was this time last summer. the bond yields were low, and you had pes very high. talking about both assets being very expensive, so it is hard to make that relevant comparison. alix: you are a talked about the dividend grower. if you had to put money to work today, what are the three biggest convictions you have? >> we actually think yield will move up again. maybe does is a good timing, because they were pretty much plumbing recent lows. we like the financials certainly, you have goldman sachs, but on the whole earnings have been good, because we expect yields will continue to move up. that is a positive there for economic growth.

get at we do believe we least corporate tax cuts. i have not sure we get reform, but we will get cuts. they are the ones that benefit the most. lastly, we like your. -- europe. that is even despite the political worries over there. jonathan: bill, thank you for joining us. up next, we have the result of the vote right here. the u.k. parliament debates the snap election. the result of that vote should be coming up shortly. that is next in new york. with our eyes on london, you are watching bloomberg. ♪

♪ alix: this is --

emma: this is "bloomberg daybreak." i and emma chandra. coming up, we will have interview -- tomorrow, we will have interview with robert kaplan. that will be at 7:30 a.m. eastern time. jonathan: theresa may would like a snap election in june. these guys in that chamber will decide if they will have one. two thirds of them need to agree to it if they are going to get that election. it would have meant we would get the election in 2020, but if we get in june two thirds of the members in that room have to say aye. david: it is not totally fixed. jonathan: no, not exactly. david: it is fixed unless we change our minds. jonathan: the result will come up very shortly. we'll bring you those results on bloomberg tv. alix: ibm doing the biggest decline since last june.

quarterly sales are falling short of estimates. you have revenue down for the 20th consecutive quarter. are you concerned about the debt -- the dip? >> know, we are not concerned about ibm. it is just a company that is buying back stock. they have declining revenue and declining profits. david: what do you know that were buffett does not know? -- that warren buffett does not know? he has been rather stubborn with his stock in this company. >> we focus on capital. the return on capital has been declining. he focuses on cash flow. ibm trades also on a cheap multiple to book value. alix: what about margins? they expect a margin pick up to

the end of the year. what you see? >> we do not look at gross margin for sale. watson does have a lot of promise in its function and a big dataa -- and analytics. unfortunately, they have not maximized the value of what's in yet. they do have great commercials for it. david: they seem to have missed out on the cloud. today have the next big thing? >> i think the internet of things will be dominated by apple, microsoft, and google. make aso, they need to better offering than those three which is a tough thing to do. however is internet quite big and encompasses many different areas. i think there is an opportunity. jonathan: we're going back to the house apartment right now to hear about the vote for the snap election. let's take a listen.

[laughter] the ayes to the right, 522. the ayes have it. >> we now, to motion number three. to motion number three. jonathan: janet yellen winning back election for a snap election in june. ninganet yellen win that vote for a snap election in june. why did they vote overwhelmingly to give her what she wants? >> yes, you did hear it there. of parliament giving

those overwhelming results to a theresa may to hold the general action on june 8. that is three years before it was meant to happen in 2020. theresa may has said she wants this election to happen. theresa may is of the conservative party. she wants to unite parliament and strength in her hand as she goes into the brexit negotiations. she has said that she just wants the strength and stability going into negotiations for the u.k. with talks with the eu. in terms of why the labour party and democrats supported it, for them, they probably see this as some kind of opportunity to put their campaign forward and get their version of brexit through to some degree. whether that will happen or not is up for question. theresa may still hasn't that working majority of 17 in parliament at the moment. the way polls are looking, she

has a 21 point lead ahead of the opposition labor party at the moment. if she was to win the election, she would have the mandate to go ahead with what she wants for brexit. jonathan: i do not want to get into the politics too much, but crushing the opposition seems to be the game here. how many members of the labour party voted with that in mind? >> that is a very interesting question. as of yet, we do not know who exactly voted which way. it is a question -- as you know, jeremy corbyn did lose a know in terms ofote being the leader of the labour party. that is something the labour party will have to look internally and question what happened if theresa may does get a majority. polls are saying she

couldn't win a majority in the house of parliament. that is still up in the air. elections,m the u.s. you cannot really predict where voters will go. it could be very unexpected. we had the vote for exit itself, it was 52% to 48%. in terms of how situate these layout, that number does look a little different as you break it down by specific constituencies. the big question is how this will affect the brexit negotiations. theresa may has said clearly she will not give any more details on how she will approach brexit. she has already done that with article 50. the eu says this will not affect the timing of the negotiations. onethan: i think that is problem in the labour party themselves. they have grappled with no effective opposition. wonder what they will end up getting. yes, a mandate from the british people, but will she get an

effective opposition in the years to come? david: even if the labour party does lose big time in this election, it does not mean that corbyn will be replaced. the labor mps have not been particularly supportive of corbyn already. it is all the members of the labour party throughout the country. jonathan: i guess it depends on market participants. the question is if you do get a bigger majority in the house of commons, other you shift to a softer brexit like the market think they will, or she will go ahead with the hard, hard brexit? alix: you think with a majority in congress, you would get healthcare.gov that is a whole different story now. you can check this out more on bloomberg online. you can go to tv also under terminal. this is bloomberg. ♪

♪ david: this is bloomberg. i'm david westin. the world's largest money manager be its earnings estimate. we spoke with larry fink earlier today. despite revenue missing estimates, he says those misses are not red flags. larry: if you dissect where the revenue misses was, it was on their income. had verying income, we special charges. we prepaid a bond issuance which we noted was a $14 million expense in the quarter. had the charge that we took and preannounced ahead of the restructuring of the equity area. we were very excited about the quarter. david: joining us now on the telephone from new york is craig, credit suisse senior

equity analyst. greg, it was in this on the revenue. where these overall pretty good numbers for blackrock? >> i thought the numbers were great. you had strong, record, first quarter flows. it is against a very challenging backdrop. 7%the eps basis, you had a beat the consensus. i thought revenue trends were ok. you had strong performance fees. just remember, fourth quarter the quarter one, it is always tough on a seasonal basis. you lose two days, and you have lower performance. i think this is an issue where you should have expected more revenues on a seasonal basis. maybe not everybody did. david: how great is blackrock's dominance in the etf market? largest sharehe of flows in any major market.

cheapo not do the sort of course of etf. they have precision etf. their makeshift has some high products, too. you can see them really do everything. you can see in the flows in the numbers. they are really leading the world in etf growth. david: does that size create a motor on that business? if you want to compete against them, what do you do? >> in the etf market, you want to be big, first, and differentiated. they kind of have all that. if you go first with that kind of ticker like adg, it is a simple etf where there is brand around the ticker. when you are first, you aggregate a lot of a u.n.. you get a lot of -- lot of aum. you get a lot of liquidity. david: greg, think you for joining us.

you want to be a dominant in a growing part of the business. everyone is going past it. they are going in at the right time. jonathan: 26 minutes into the session. the doubt, one of the biggest losers is ibm. they are down around 5% on today's session. goldman sachs passing the dow --es spanking to ibm spanking paddle to ibm on today's session. treasuries on the board, and big bid -- a big bid. the pound at 12823 against the dollar. you are watching bloomberg. ♪

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

vonnie: we will take you from new york to london in the next hour and cover stories out of paris and beijing. here are the top stories we're following. yields on u.s. treasuries hit their lowest since november while equity markets bounce around. from angles with tom lee --of pimco joining us this hour. mark: in politics, the u.k. politics has overwhelmingly approved prime it is her theresa may's call for a snap election in june. the results triggered the intense campaign with brexit, negotiations, -- brexit negotiations a key topic. vonnie: morgan stanley rides the bond wave for the biggest increase and revenue.