jon: the eu braces again. the bond market finds some stability. the treasury secretary said the tongue for a risk rally. deutsche bank takes first position in the race no one wants to win. the bank hit with the fed's first major fine for failing to comply with the volcker rule. the markets, let's get you up to speed. political risk in europe colliding. the euro a little softer. the treasury market is stable. futures a little firm. continues,ed speech 9:30. neel kashkari and a q&a session. killer pmi's in europe. will the u.s. follow suit? 10:00, existing home sales for march will be out.

sunday march the first round of one of the most tightly contested presidential elections in the custody -- in the country. carolyn.s now, great to have you on the program. what is the latest? minister is speaking on the investigation. attackingrently france while -- attacking cran francois. we will hear more from him in two minutes. press conference from the independent a few minutes ago. will be to priority protect the french and the

congregates, saying he wants to collaborate with united dates and russia in the fight -- the united states and russia in the fight against terrorism. penie le pen -- marine le the first day of her election. jon: how will the polls capture this story? how difficult will it be in the next 24 hours? >> very uncertain. probably the most unpredictable french election we have seen since the second world war. coming out from opinion way, showing support for the republic candidate might be slightly going up, 21%. for -- slightly

going down to 18%. we have to be cautious. a proportion of this was conducted before the attack. if we have more indication on how the attack is playing people's mind and it people are playing on emotions. jon: thank you very much. coming up on sunday, we will bring you special coverage of the first round vote in the french presidential election. i want to start things with the base case on sunday. what is it?

>> it will be a le pen and off.n run we are prepared for a number of different eventualities. especially with the momentum behind -- in the polls may next four weeks. jon: as long as macron gets into the next round -- >> it will probably be euro neutral unless his share of the vote is substantial. be a bit morebly euro positive. our overall outlook is negative. euro,nk the rally in the the overall presidential election will be tepid as best.

the eu is in need of serious reform. annual cpi inflation is below 2% . italy has problems when it comes and total factor of productivity over the last decade or so. it is at the bottom of the table. there are a lot of structural problems. we don't believe there is a taper trade in store for the euro. stephen painting the picture. this might influence the trade. is longer-term investment something very different. do you take that view? >> i agree. the question is micron. -- is macron.

i don't think we are going to .ee a huge recovery it seems to be unlikely that le pen makes it through. we have seen positive recovery the last couple of days. question, wets a don't know how strong that impact will be. we know how many people were not confident, expressing their real views. that could count for three to 5%. you don't know if the anti-europe sentiment will make it through in the french election. not only have a

short-term impact, but that would happen and have a substantial medium to long-term impact. david: you talk about fundamental reform, what are the realistic prospects. >> if macron wins, i am not sure but if macron wins, substantial, brussels-based reform is lower than if we have a melenchon or le pen victory. you need an upset politically to force a different speed of reform for the eu. at the end of the day, the reason melenchon and look on- pen are risk is because of reform. the one size fit tall model, it

does not fit anymore for the eu. david: you would have thought brexit would have been a message to brussels they have to reform. do you see movement in that direction? >> no. the euro is lowered from the outset. step back, when you have the range of economic zones in countries that develop differently, you look at greece, the currency has devalued a substantially before the euro was put in place. that mechanism does not exist anymore. you cannot assume the economics in these countries will adapt to the economics and france and germany. a huge problem that the monetary and fiscal policy does not manage to tear this economy. if you have one currency that

countries have to give up, it is a lot of sovereignty. they do not do that. we need a parliament that is elected by the european people to make an economic fiscal policy for europe and not for the bigger member states. where the problem lies. the problem is not only france, but it is predominantly germany. she is doing a german-oriented policy on all fronts and that will not work. alix: how do you hedge in the next three days? >> since you don't know the outcome, ultimately you have to off.your beater risk i am not sure it is that bad as it is with the brexit and the u.s. election, where the outcome was so close to 50-50. i don't think we have a 50-50 situation here. make itchon does not

through, i don't think we will see an impact into the market. if you are concerned about that, take the beater risk off. decrease equity position. jon: if we get the squeeze over the asian session and we get the risk rally, and a significant chunk of the vote share, what are you looking to fade? be worth looking to fade the rally in the euro-dollar and the sterling. given the recent performance of sterling, the rally in euro gdp will be tepid. , if we get there, it

would be a good near-term selling opportunity. if you had to put in risk of going into sunday, you could do worse than be short a little bit of euro sterling because we are sellcell the rallies -- the rallies mode anyway. program, thein the eu commissioner for economic and international affairs will join francine lacqua. this is bloomberg. ♪

david: markets moved on secretary mnuchin's promise to -- on this calendar year. >> simpler tax code. will be the most significant change to the tax code since reagan. david: why is steve mnuchin confident he can get this done this year? on getting this done by the end of the calendar year. earlier they said they wanted to get it done by august. they have extended that to the end of the calendar year. do next weekot to when lawmakers return from the congressional recess. they have to pass some type of government funding bill to avert a government shutdown. yesterday, we were hearing from

trump that he is bullish on health care reform. i am hearing there's a big meeting monday night with the house freedom caucus, where they will be whipping to see if the votes are there. could be some major breakthrough early next week. david: they have to keep the government going. 100th day ofe the the administration is when they might shutdown the government. the wall may play a big role in this. want it ands don't trump is insisting on it. could that shut down the government? peel: if the democrats can off the conservative members who have other concerns. in order to bolster u.s. security, the wall, they have to pay for it. that is a funding mechanism. keeper or not trump will the government open over the

funding for the wall remains to be seen. are going tobers deflect and shut down the government. that would not be a good thing. david: we will check back in with you later. still with us, carsten schroeder. there has been this ongoing debate. -- it is more the fiscal policy. on it.uld be my view david: do you share the optimism they can get nothing done this year? as u.s. politics go, i have seen a lot of surprises. the track record of the last couple of weeks, i

should be pessimistic. i hope they get something done. alix: hope, and not investment strategy. .ou are weak on the euro how much of that will be based into the fiscal plan we may or may not see? our base case is there will be some dollar positive fiscal policy coming out of the united states, but not wholesale tax reform. there may be a small token cut in the stated corporate tax rate. there may be repatriation amnesty. the timeline may be long. it may not be expected to have a significant impact on the dollar. the balance will be dollar supportive, but nothing major.

more appreciation of the broad traded dollar by the end of the year. of the euro,ption because of the risks i highlighted earlier, but largely because of a wider fiscal deficit and a larger trade deficit. it going to be more fed rate hikes? stephen: basically, in terms of the fed telegraph message of two more rate hikes this year, it is reflected by the fx markets. we don't expect that to have a major impact on the dollar. to belk of it is going what calms out of congress and major central banks out the u.s. balanced handing their

sheets. jon: you delivered returns up over 29% last year. are you anticipating the same thing to happen this year? will it be policy failure led out of volatility people are looking for? stephen: -- karsten: geopolitical risk is not appropriately priced. faces more situations apart from the french selection. fromve continuous pressure other countries in a political perspective. gets into power, that is not the end of the story. we have a destabilizing situation in syrian. we don't know how it will play out. it is horrific.

you have these geopolitical situations that are not reflected. the inflation rally continues. .e see it on the stock markets is this fueled by central bank activities? banks are most likely to do so, but this is the bubble that hast to burst. there is potential for massive correction on the market. jon: we have repriced. baked in? enough risk the trump seen

administration unwound. the current setup of the dollar, they reflect the fact that the global outlook is better. alix: great to see you guys. up, the outlook on global growth and potential for fiscal tax reform. this is bloomberg. ♪

emma: general election posted first-quarter earnings that the estimates. ge is looking to gain momentum after a sluggish economy. the company has agreed to cut accessfter talks of

manager. the federal reserve has imposed its first major fine on a bank for failing to -- on risky market bets. that is your bloomberg business flash. alix: shares of -- walk us through what the fines relate to. are two elements. one is for not having the proper procedures in place to follow the vocal role -- the volcker other is related to chats among currency traders. alix: whose fault is this? where does this lie? is complex --ole the volcker rule is complex.

not get thosedid in place to the fed's likings. deutsche's has had problems in the u.s. before, whether it is with the stress test, keeping some records. they have had issues with .ompliance alix: does this fall at the feet of john cryan? >> this is something that goes back a couple of years. it extended into 2016. that was under his watch. they have been trying to clean ofthis bank, get past some the legal issues, but it seems to be one thing after another. alix: is it over? is the new york department of financial services looking into

it? >> you have other regulators looking into this. the department of financial to be stricttended on the fine art. there could be more to come. alix: it is just not over. john is at least the fines -- jon: at least the fines are smaller. lipton.p, david he joins us from the imf summit on global growth and whether or not the imf is too pessimistic. later on, pierre moscovici. ♪

jon: you are watching bloomberg daybreak. let me get you up to speed. 1/10 of 1% on the s&p 500.

we are close to major tax reform. that set the tone of bit for risk yesterday. treasuries coming off the back of a five-week rally. u.s. 10 year. sovereign debt, french bonds outperforming. strongolliding with economic data. the euro staple at one dollar, seven cents. >> the shooting on the streets of paris is having an impact on the election. marine le pen want islamic radicals to be detained or expelled.

would ask for more than 10,000 police added to the force. the attacker was killed by police. the islamic state has claimed responsibility. story involving a bomb attack involving a soccer team. arrested a suspect. he hoped to benefit. one player was wounded in the attack. in the white house, republicans put upodds in whether to another vote to repeal obamacare. global news, 24 hours a day, powered by more than 2600 journalists and analysts.

david: sometimes lost in this talk about tax reform and help care changes is trump's promise to invest in infrastructure. >> we have been working on infrastructure since the beginning. i don't think you will see specific things to say vote on until the fall. when you see details on our , it is a five to one leverage ratio on that. michael, we lost track of infrastructure. they want to come back to this.

he kept his $1 trillion number. is this realistic? it's a possibility, not something democrats embrace. everybody thinks infrastructure spending is a good idea for the country if you do it right and invest in the right kind of infrastructure. there are a couple of problems, this public-private partnership idea does not mean we are going to build things that people cannot make a profit on. you need more bus lanes, that sort of thing. that doesn't work for most private partnerships. if you're going to do infrastructure, where are you going to find the workers? this is hard to read because you there.kes it is not seasonally adjusted. look at the circles. that was last summer, 4.5%. there are not a lot of workers to do infrastructure work.

that has to be addressed. republicansrats and say we need to have infrastructure spending. won't that give momentum to this? are going to push for funded rather than this leverage idea. you might get the leverage to work in some tall roads, but it won't necessarily build a new internet, it will not build something you cannot charge for. you have to be able to charge people for services. there are a lot of things we need that will not be profitable. it is hard to get those bill. alix: what is the rate market doing? on tax reform, the conversation around infrastructure has toned down dramatically. market expectations have come off.

they have, off of for infrastructure. infrastructure was never as the egg of a market -- infrastructure was never as big of a market mover idea. when it comes to macro markets, that is going to be something that is significantly could move the prospects of gdp. the difficulty on infrastructure, with the leverage and the public, private partnerships, there are few areas of infrastructure that are profitable from a cash flow perspective that can draw that an impact and make when it comes to limiting financing. alix: look at utilities. they need a lot of help.

letazy idea -- if you companies repatriate, they can siphon off some of that money to buy infrastructure bonds. of that look possible? >> ideas like that could he possible. it is an older idea, taking repatriation, it is a variation of taking the savings and putting it into infrastructure. from a political perspective, it is not just democrats. it is republicans, for which there is more lukewarm. the idea of how much this is going to have an impact in what we finally get into the budget, it is very much unclear. uncertainty, market impact is not the big story. is big story on this area regulatory reform. the regulatory initiatives.

that is where you can have bigger impact. older idea of repatriation -- part of the problem they will have, companies don't spend money on infrastructure or investment. sharepend tax savings on buybacks or dividends. you have to create a mechanism to funnel the money to infrastructure spending. they may need the money for tax reform. ,he plans, what we know of them blow a big hole in the budget. there may not be a lot of extra money for infrastructures ending. strangesounds like a version of calculus him version alculism to me.

>> we have a lot of experience with longer dated issuance. maturitygh the final looks long, the interest rate sensitivity is not that much longer than the existing thirty-year debts. from a financing cost perspective, even though the government is locking in financing for longer, the price they have to pay for that is lower. a person like mnuchin understands that. historically low interest rates, doing what everyone else has done, corporations, individuals with mortgages in terms of locking in longer rate, that has some appeal. off of the 30 year. when you are building a new bond

market, there will be some liquidity premium for that. premium asme term well. the term premiums are exceptionally depressed. the best opportunity to be issuing into that market environment because of the lag effect. not just because what the fed has done. globally, central bank balance sheet activity has compressed term premium and that makes the spread lower than it would be. david: if this were a corporation, you might be borrowing long. the freedom caucus you think would be resisting it. mick mulvaney said there are different kinds of darling. borrowing. -- of he said borrowing for infrastructure might be possible. it is possible. do it ina push to

terms like that. that might satisfy the tea party republicans. at this point, you would see the republicans say that is an .nvestment rather than a debt they would characterize it that way. it might be more palatable to voters back home. alix: would you buy a 50-year-long bond? >> absolutely. it would be about the term premium and whether the term premium is fairly priced. jon: of course he is. is an issue of not having enough debt out there in

terms of investor need. issue if there is a healthy premium, the treasury would have no problem winding buyers. jon: -- no problem finding buyers. jon: you are watching bloomberg. ♪

>> this is the hewlett-packard enterprise green worm. coming up, mohamed el-erian. that is at 2:00 eastern.

janet yellen should be terrified by u.s. stocks. rates areow interest at a level not seen since 2000, right before the nasdaq plunged 75% in a little more than 2%. elon musk is only a few milestones away from collecting a $1.4 billion windfall from his tesla electric carmaker. a proxy statement said he has achieved all but six of them. he has until 2022 to reach the goals. billionaire wants to sell 49% of the brooklyn nets. been able to find a buyer yet. they had the worst record in the national basketball us so's the

nation this season. in looking to unload his russian assets. this is bloomberg. alix: a big week coming up for central banks. the boj kicking off their policy meeting on thursday. an exclusive interview with francine lacqua. he did issue a warning for fx. timing could be -- and if exchange rates depreciate, the could be earlier than thought. trend is toward 2% in the gradual amount, reflecting going through --.

alix: also with us, jeff rosenberg. has his way, it will keep appreciating. where are we in the story now? story is rolling over. part of the story, you have a week first quarter data. you have hard data that is moving in the direction. about whether the soft data is about to roll over. growth,hronized global the reflation story, it is still with us. it is challenged because of this idea that momentum on that is eating challenged. -- momentum on that is being challenged. of that policy uncertainty globally. what is the next move in terms of the ecb. global flexion point on

monetary policy, we are out of expansion from central banks. we don't need as much as that. certainly, a softening in that. alix: pmi data out of japan. a three-month average, it is a cycle high. where is the rollover? it says the u.s. is weaker than the rest of the world. where do you put pmi? it is survey data, intentions to spend. that is where we see strong data. there is an expectation when you talk about survey data, these are measurements of momentum. as you get enthusiastic, it is

hard to keep your level of enthusiasm up. you are at high levels in terms of these surveys. if they stay high, you will not be able to keep going higher. if you have any kind of disappointment around what you'll's your expectation, --itics, policy intervention behind the move from having hit a peak of 260, there are a lot of things in that. is the rollover in the hard data and the expectation that soft data will follow. we have a backwards bond market in europe. data has been better. yields have been pushing hard. way of a backwards thinking about that. the data is good, should mean yields go higher. politics is bad, should mean

yields go higher. the way people think about a going into the election is that yields will go lower if macron wins. the economy is improving and the outlook improves. be a great dayd for us to talk about french bonds and only talk about the economy. right now, we are in the thick of the political uncertainty driving bond market valuation. we have a daily meeting where we have a topic of the week. last week, it tried to get away from politics. were hijacked by theresa may, the french elections. for bond yield to separate themselves in the short run from the political uncertainty. run, we will

converge back to the economic fundamentals. shoulda of reflation point to higher yields from a fundamental economic point of view as opposed to higher yields from credit risk and dissolution risk and political risk. jon: i want to get your thoughts ahead of the election. what are benchmark rolls on french 10-year debt? stable, but french bonds have rallied going into the event on sunday. pointing in are favor to a more market favorable .utcome the yield and yield premiums over german yields have compressed. you get this thing where you have had this behavior where pollsters want to make their polls converge to the outcome.

you get a bit of momentum on that view. that has proven wrong in many past elections. careful on that. bond markets are reacting to that. lower french yields. still prices a significant premium. we are currently around mid to high 60's. the outcome is still skewed. if there is a negative outcome, the market is not pricing that in. outcome,is a positive the momentum will continue. david: we have talked about the global growth picture. diversion'sa between the equity markets and the bond markets? we don't believe we are going to have that much growth, but the

equity markets say we will have it. which will win? the bond market appears to show a greater pricing in of the deflation -- not the deflation, coming off the boil on reflation. there have been a lot of sectorial movements. when you look at sector performance and relative the money stayed in the equity market, but it has been switching in terms of relative performance that is on par with the kind of pull back you see in the bond market. what has not broken is the overall levels. levels, you have seen that come off, as well. alix: thank you. and watch us online. interact with us directly.

this is bloomberg. ♪

jon: you are watching bloomberg daybreak. futures firm. after yesterday's risk rally. of a big tax plan. a real plan that will come to you soon. morninges this unchanged. 224, you're yield on a 10 year. earnings not terrible. $.21 a share for ge. , beatinger backlog analysts estimates. boost on sales.

last quarter, industrials were soft. atustrials so far holding up -- as the earnings season is underway. up, david o wins it as we go liveg us to paris for the latest on the french elections. the unpredictable, we have learned a lot about that. the potential to alter the future of europe's second-largest economy. ♪

jon: the eu braces.

it is decision time in france. the treasury secretary sets the tone for a risk rally. steve mnuchin says the administration will present an ambitious tax plan sin. the bank is hit with the fed's ine.t major f good morning, good morning. this is "bloomberg daybreak." setting you up for friday, futures on the margin, up 1/10 of 1%. .25%.ro softer the treasury is stable at 2.24. alix: the minneapolis fed q&a.dent has a the u.s. do? and existing home sales for the month of march. begin in france.

marking the first round of one of the most tightly contested presidential elections in the country. a deadly attack in paris has helped the front runners. carolyn,s from paris, it is nice to have been with us. what is the latest? >> we heard from the prime minister who is accusing 2 candidates of promoting the attack two days before. fillon andfrancois necklace sarkozy. of -- he accused the far right-wing candidate marine le pen of opposing every fight that terrorism

has been led by francois hollande. seems to beket facing the prospect of the tail risk materializing. the euro has been stable throughout much of the week. say the same story that the market is spanning out? markets -- a runoff between marine le pen and marcon. poll today, macron is losing points. this is benefiting the other candidates who have focused their campaign on security, such pen this coulde

benefit not only marine le pen, but the republican friends well fillon, which is why did the market is paring down for a runoff. same story, isn't it? can you trust the polls? the amount of undecided -- david: i don't know what to make of those numbers. 30%. if they are undecided, what happens if they don't have strong convictions? there are signs of volatility. looking at one month and one week implied volatility or euro/dollar. the one week is really topping 518%. joining us from valley forge, pennsylvania, the global head of chiefincome and the

income economist. we have one month implied volatility moving eric. do you think the risk is overcome monday? >> no. it is too close to call. the market is a three-horse race . it depends on the combination. is the risk that we get the worst-case scenario. marc alongside marchand. markets are fairly calm. it is too close to call. the case given what we saw with brexit or donald trump. we don't rely too much on opinion polls. agree with you.

$1.1 trillion in fixed income assets, you will not have a short-term trade. what is your view on europe? >> at this point, it is too close to call. as previously stated. if there is disruption in the marketplace, look for opportunities to add values in places that push down when the spread widens. what we have been doing in our active funds is running risk at a lower level, given the fact that valuations book relatively tight. looking for opportunities if we see spread widening to jump back in and get more involved from of risk standpoint. jon: for many, the base case is the macron gets through to second round. 59 basis points on the 10-year. how much tighter can that get,

and how much premium is baked into that spread now? 30 basis ago, that was points. it has widened 35 basis points from a year ago. if the election settles down and youet a centrist candidate, will see spread compression back to the levels we saw a year ago. does the ecb need to smooth the fallout if you don't get the base case scenario? will be twofold. you have the election, first round and second round. if you have a far left or far right candidate, how much in terms of their desire from moving away to being in the euro can they implement given there has to be parliamentary approval and parliamentary process? depending on how that plays out, they can dictate how much the ecb will need to stabilize the market place. standing, the markets

or are people reluctant to involve the markets? you have a range of possibilities. we will not have long to wait until we know the result. i'm going to asia. it will be interesting if japanese investors move back into france if we get a result everyone is comfortable with. after the trump election last year, japanese investors became sellers of french bonds. italy.old france not they cometeresting if back into the market. core inflation stops below 1%. we get more inflation data of friday next week. the ecb on thursday. they are hoping next year they can taper.

the issue on the macro side is is inflation going to pick up, will wages respond? these matter more than the election in france on sunday. what happens the next week or so will be determined by that election. jon: italy, past france all eyes on italy. btt after sunday, after the second round, you get macron, will btt still be under pressure? risk.hink there is you have to get through this entire election cycle. what we have realized is that polling data can be difficult. it is not 100% accurate. the second piece is that ultimately even if the candidate you think will not win ends up winning, we are not sure of the

complete market reaction comment because there are multiple steps involved in implementing policy, or how long it would take to exit europe if there is a desire to leave the eurozone i one of these countries. alix: i understand the obvious outcome in italy and france. i don't understand the negative outcome we thought we would see in italy, the u.s., and brexit did not happen. why do you think we would get that pop if the worst-case scenario is avoided? >> when you get stability back in the marketplace, because we have seen spreads widen, with stability they would be a spreadspresence to get to tighten. there is a lot of uncertainty regarding the upcoming elections. that uncertainty typically causes risk assets to widen a touch. we would expect some reversal of that if we have a more mainstream candidate win the

election. jon: i know that you are looking well beyond the second round. .he june parliamentary election how hamstrung is this president going to be? what capacity will they have to do anything went half of the candidates have never heard of their party? >> absolutely. if marine le pen were to win, push for aeve referendum about france's membership to the european union? votes in parliament in france look unlikely now. france, we think spreads will come in. issue of france is whether we will get a eurozone recovery, which comes through in the data and underlying inflation. spreads are converging. next week, spreads between france and germany.

you have italy hanging out. jon: always appreciate your time. good to see you from london. coming with us on the program, the commissioner for economic affairs will be joining francine lacqua in d.c. a big weekend for the bond market. 30 minutes dedicated to fixed income. if you are in hong kong and it better tot, something do. from new york, you are watching bloomberg. ♪

david: this is bloomberg. i am david westin. david trump's economic team was led by steve

mnuchin, who was bullish on tax return. the mostill be significant change to the tax code since reagan. david: to take us through what we learned, we are joined by our chief washington correspondent, kevin cirilli. it was mnuchin, mulvaney, they were laying it out. it was big and bold. kevin: they are out. scum of but no direct statement on where they will weigh in on the more -- but there was no direct statement on where they will weigh in on the more direct sides. this is a walk back of sorts. originally they wanted this done by the august recess. now they are pushing it to the end of the first calendar year. it will take a minute or two for them to get this done. their legislative priority list

continues to grow. next week alone, the white house is bullish on health care reform and taxing a partial government spending bill to keep the government open one day before the 100-day marker of president trump's first 100 days on april 29. there is a meeting on monday night with the house freedom caucus to see if they have reached a deal on health care that would give the momentum in the republican-controlled congress. david: the president says he will address health care. if he can get something through the house, does the deal with the freedom caucus, can he check that box and save it doesn't get to the senate, it's not my fault. can we move on to tax reform? kevin: he's likely to say that, but many in the conservative wing of the republican party say they are not sure if they can trust negotiators, because when it gets to the senate, in a plan

that comes out of the house will be moved back toward the middle to attract centrist republican or democrat's, but i don't think any of the democrats will go for health care reform at all. david: thank you for being with us. after president trump's election the bond market really bought into the reflation move that we would have fiscal reform. they have come off of that some, the bonds have. what are they saying about steve mnuchin getting the job done? >> the market had optimism baked in. the one thing the market has realized over the last month or so is that getting things done in washington is more complex than you first believe. it is a complex issue when it comes to health care reform, complex when it comes to tax reform.

the bond market isn't lying into that we would see 3.5% growth that many were hoping for post-election. our trend has been growth is 2% in the u.s., with optimism may be 2.5%. the idea of 3% or 3.5%, we did not think that was realistic. or 2.5 percent, assuming that is for 2017. what about 2018, fiscal reforms that we aren't seeing this year? >> you might to get a 50 basis points boost depending on how it plays out. the devil will be in the details and we will have to wait and see. jon: investors, are they step keeping their money -- stuck the keeping their money in rotation? is it giving up on trying to get any high returns at all? >> what investors have realized

as aaving bonds is diversify her, it is valuable regardless of the environment. telling investors keep an allocation of bonds to provide balance when there is market uncertainty. in an environment like today with low yields and low expectations, what you pay for your investments is critical. in this environment, investors are focusing on costs, what they're paying for an investment services, low-cost and index products have been the beneficiary. jon: ted vanguard, where is the money going? where has the enthusiasm been? the first quarter, 53 billion dollars to fixed income products with $40 billion to

indexing and the balancing split between active and money markets . in the indexing side the areas have been when it comes to the and thesed mandates short-dated and intermediate corporate products with somewhat of a higher yield associated with it. alix: how much more upside is there in high-yield index? ig, sprintwe look at are in the 36 percentile long-term. even valuation's seem stretched seem stretched to us. the duration exposure is .5 years longer than historically. that you have valuations that to feelht, it is hard good about having a significant overweight to credit at this time. we have been on a defensive positioning standpoint, and waiting for better opportunities to add risk. alix: what about the argument that we will see lower yields in

the u.s. because of mushy growth, and bad bond markets where we had yields too low? greg: if you look at what is revenueg in ig, we have growth in the industrial space has been declining. leverage ratios rising. of ratiosoverage declining. some of the fundamental factors in ig are showing deterioration. looking at valuations, some of the fundamentals in the ig space, they don't look as attractive to us at this time. david: looking at your business in the next five years, how much flows into your bond funds because of demographics? does that continue? does it limit the yield as a practical matter? greg: when you look at the popularity of target retirement funds and things of that nature,

the investors, as they age, those products become more conservative. you have the natural evolution of money moving from equities to the bond side. the other thing that will put it dampener on yields in the u.s. is that the u.s. market looks relatively attractive compared to opportunities when it comes to japanese and european investors, both on a hedge and un-hedge basis. .lix: thank you so much coming up, david the all go -- ,avid bianco will be joining us saying the s&p should be chair janet yellen's worst nightmare. this is bloomberg. ♪

emma: this is bloomberg daybreak with your business flash. general electric had first-quarter estimates that beat estimates. ge is hoping to gain momentum after a sluggish economy. the company has agreed to cut costs more after talks of activist investors. in a u.k. retail sales for the first decline in seven years. down 1.4% in the first quarter than the previous three months. it suggests consumer spending is slowing as inflation picks up. deutsche bank the first lender busted for raking a rule. the first major fine on a bank for failing to observe that there on traders making risky , $157 million. alix: moving on from the earnings they, visa up after

.lying back visa europe tracking above expectations. the company $.86 a share. doing pretty well. the company repatriating one point $3 billion of foreign cash to the u.s. who says they can do more. mattel getting hit, down 6%. sells were awesome. holiday sales were not awesome. that hit to the stock losing 32%. truck ofhave a big barbies when i was a kid. the first ever one point billion dollars sales quarter. retail sales over 12% year on year. also getting an upgrade, another

retailer posting $1 billion versus mattel really struggling. it is that the economy of the retail world, the have and have-nots. jon: i learned so much. ofx: it was a huge basket barbies until i was 16. the imf managing director joins us from the imf spring meeting. we will be live in d.c., new york, and paris. markets impact. you are watching bloomberg. ♪

jon: we are pretty close to major tax reform is the message from the treasury secretary. i am jonathan farro. this is "bloomberg daybreak." futures up .1%.

on the dow. treasuries finding stability after five weeks of gains. yields grinding lower, lower, lower. 23 on the u.s. 10-year. broad strength against the pound and euro. euro, $1.07 flat. let's get you up to speed for headlines outside the business world. : in france, the shooting on the streets in paris is impacting sunday's presidential election. some candidates ended their campaign a day early. marine le pen once in islamic radicals and france to be detained or expelled. fillon wants to support the least the attack happened on the champs-elysees.

one police officer was killed, one police officer was wounded, as well as a bystander. the gunman was killed. the islamic state claims responsibility. the suspect who bombed a german soccer team saying he wanted to gain profit from the team's share prices. one player was wounded in the attack. iran, the former hard-line president has been disqualified from running in next month's election. told him noteader to run to avoid polarizing the country. his disqualification is seen as a boost to the current president. he is expected to win the moderate vote. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. bloomberg. on the above of the

summit in washington, the international monetary fund released the forecast for global growth. washington ism two.tine lagarde's number thank you for being with us today, david. take us through the numbers. the united states did not drive the numbers. ?hat did david l.: it is significant. for the first time since the crisis we are revising our forecast up. we saw a broad pickup in industrial production indices made last year before the election. europe, in the u.s. or in advanced economies, it was

broadened and continuing. we raised our u.s. forecast a bit. i think that this is a sign that the recovery is gaining momentum. that is good news. it is the setting for the meetings where the finance ministers and central bank governors are coming together. david: we talk about the difference between hard data and soft data. the election has been a rise in sentiment in the united states and the world. how much of your forecast is soft to data: sentiment, surveys, as opposed to real economic data? david l.: we need to acknowledge there is more uncertainty around s than usualt because many policies are undecided. it is not risk, it is uncertainty. our forecast, 2.3% growth for

the u.s. this year, 2.5% next year assume tax cuts have a positive affect and that the fed's normalization is reasonably gradual. the upside risks for example is an infrastructure program that is meaningful. you can see from the reaction the markets have fled secretary mnuchin speaks about tax cuts, people are trying to gauge what to think about when the tax cuts come and what they will be. there are downsides that come from if the fed were to normalize more rapidly, and other factors. there is an extraordinary amount of uncertainty. that is providing such a range of estimates at this moment. jon: one of the downside risks the imf has talked about is protectionism. what are you looking at that informs you that could be on the

horizon? david l.: the g-20 has been calling for all of its members to avoid protectionism. 3000 neween protectionist measures put in place since 2008. it could cover a narrow or wide range of products. the percentage of global imports protected by protectionism has gone from 2%, 5.2% last year, over 6% last year. 5.2% in 2 -- year whicheeded next made increasing interconnectedness. we believe that in the face of

this recovery, they need to avoid having impediments to trade interfere with the recovery, everyone should live up to their promises and avoid protectionist measures. that is not to say there could not be discussions about leveling the playing field when it comes to trade. no one believes all trade agreements are perfect. i think all three partners in nafta believe it is time to arrangementsisting and ask if there can be improvements. we hope that can be done in a cooperative way. david: cooperative is the operative word. the president started a process under u.s. law that hasn't been invoked in a long time to look at steel imports, it is fair to say from china, on whether it is damaging national security and our domestic economy. it was an aggressive move and

unilateral. david l.: i'm not sure this is final. i've seen preliminary reports this is under consideration. i will stand with what i said. our view is it is important that trade be supportive of recovery, not have restrictions undermine recovery. it is fair to have discussions with trade partners if there are impediments. if trade partners are behaving in ways that are inconsistent with the wto or bilateral understandings and agreements. we hope those discussions should be cooperative. free: imf has been for trade and widespread trade for some time. that message has not dated route the portions of the populace in the u.s. and europe. where is the failure? these leaders would not be

talking about these actions if it wasn't popular with some of their voters. david l.: we are for free and fair trade here it we have been saying that globalization has negative side effects. it is giving rise to discontent in the united states and europe. we shouldn't do some all of the institutions and practices are perfect. we should listen to the discontent of people, complaints of government -- all of the ministers and governments are here this week. they can have discussions. to preserve globalization we should be open that we need, from time to time, to make improvements in the system. backdropt is the macro to the french election. how do you look at the election now? david l.: it is another uncertainty. we are dealing with a period

where there are political and geopolitical uncertainties in many places. we will see what the sentiment of the french people will be, and we will have to adjust and react as europe takes that in. the markethetoric in is that if we get a market friendly win we will see a rally in european equities and bonds. into yourtranslate growth forecast? you anticipate a market-friendly outcome meaning you will have to ramp up your forecast? david l.: our french and european forecasts are presuming there is a continuation of the approaches that have been taken in the past. continued progress in france in managing its economy well,

continuing cooperation in europe. if something upsets that, we will have to take that into consideration. if there is a market rally, we will take that into consideration, but it is not foremost in our considerations. david: his china less on the agenda this year than in prior years? david l.: i think he's still be focused on the question is chinese growth is sustainable. we don't think there will be an abrupt change in chinese growth for various reasons. that will be subject to consideration. the main subject, the thing everyone came to talk about, -- everyone is optimistic. everyone sees growth momentum is picking up. the question is if the uncertainties, economic, political, geopolitical, if they will undermine this recovery,

and what can we do to limit the chance that happens? joining us. you for imf first deputy managing director. jon: coming up, pierre moscovici joins francine lacqua. and later olivier blanchard will be joining us. live from new york city with our eyes on paris. countdown to the french election . france decides. you are watching bloomberg. ♪

emma: this is the hewlett-packard enterprise greenroom. mohammed al arian at 2:00 p.m.

eastern time. now, to your bloomberg business flash. investor warning janet yellen she should be terrified by u.s. stocks. jones said years of low interest rates bloated valuations to a level not seen since 2000, right inore the nasdaq plunged 75% two years. he made the comments at a closed-door goldman sachs conference. one of the largest mortgages in the u.s. have been rocked by allegations it is legally foreclosed on homeowners. regulators have blocked them from requiring new business and they have lost half their value. is unfounded. only a fews milestones of way from $1.4

billion windfall from his tesla electric carmaker. stock markets tied to tesla targets. he achieved all but 6 of them. he has until 2022 to reach the goals. that is your bloomberg business flash. going long, the u.s. dealers asking primary about the potential demand of 50 and 100 year bonds. scott, great to have you with us. if you are asked, what would your response be to the treasury? >> the reasons for issuing the debt, whether massive infrastructure, ambitious infrastructure spending bill, tax reform, health care, gdp,

reasons peer group would work off the 30 year treasury around to 90 and see with the potential implications are for gdp and inflation to come up with premium to add to the 30 year. it will be united states treasury security. our expectation for incrementall -- yield is modest. jon: the amount could change with the fed set to normalize the balance sheet, or begin that process. the average maturity could change as well. but you think of those two stories colliding over 12 months? defensive onit interest rates because there is the uncertainty about the fund structure of the u.s.. the past decade or so we have coupons, ands, low standard issuance. the average maturity of the bond extendeds expended --

into the credit index pushing a seven-year duration. we have seen that phenomenon they can to the rketplace. alix: what about foreign buyers? the dynamic between foreign buyers and credit buyers. ownershipa whole the factor has changed. the bond market used to be entirely institutionally owned. through the growth of domestic retailthere is a 40% component into the u.s. bond market before factoring in foreign ownership. as long as you see the differentiation where you have corporate bonds issued out of europe at fractions of what you can get in the u.s. market, we will see the substitution where people will accept the u.s. currency risk to boost yields in their home market. year,2.2% on the 10 guggenheim 1.5%, that is not a

comment on u.s. growth? does that still hold? scott: there is rising geopolitical risk. execution risk in u.s. fiscal policy has been weighing on the marketplace. it is a comment on other factors. our view is the brexit scenario is fairly unlikely. stillhe reach for yield, the story, isn't it? to be it will continue the story as long as interest rates are below what we, everyone, forecasts. a pension fund, endowment, whenlity-driven investor, you are earning interest below your target it will continue the press for yields. bond marketovereign with the central banks getting invested in a large way. it appears they will come off. we talked about the balance sheet with the fed, but the boj and ble will come out.

as a bond investor have to anticipate that fundamental change? scott: look at how we are positioning our core plus fund here to have allocations to u.s. security mortgage-backed securities. even though the fed will be lightening up on purchases. we think the fed will be very incremental. look at the words the fed are " or "modest"ate growth. they're trying to get back to neutral. , youu're the fed, boj, ecb look at he wrote in modest growth to put you into declining growth. continue to hold assets and slow off on reinvestment, not risk expanding the supply of security in the marketplace at a great rate. david: how does it affect volatility?

they have to reduce volatility. even if it comes off gradually, sooner or later you won't have been playing the same role. .cott: we agree central banks are aware they need a healthy credit market. if you push volatility to high or it gets too high above historical ranges, you threaten the credit market, where growth has been coming from. one of the things they have engineered is lower volatility. not just government bonds, but also credit. alix: are we going to see issuance pickup because the demand is there? scott: a lot of the issuance is refinancing, not m&a type issuance. a lot of people are looking for policy. as we think about policy aspects, if we get a clue there could be friendly tax incentives up m&a, it could

accelerate towards the back half of the year. we don't think he will have the blockbuster type issue this up r than in past years. jon: what about credit risk in the following sectors, consumer staples? what is the story? montreal,the bank of what we like to do is find pockets of these sectors that we think larger managers might not be able to grab certain issues. our management team says in the auto sector, consumer sector, thencial sector, here are big issuances and secondary opportunities or we could add value by picking out specific opportunities on what the market sentiment is. jon: fascinating stuff. .hank you very much, sir if you have the bloomberg terminal, check out bloomberg . interact with us directly. go to bloomberg on your

terminal. you are watching bloomberg ♪.

city to ourw york viewers worldwide, you are watching "bloomberg daybreak." pmi the best since 2010 looking at the eurozone aggregate. this is how we set up at if the first round of elections in france on sunday. equities are solid in europe. european bonds outperforming treasuries throughout most of the data. 2.23 on the u.s. 10 year. a weaker europe by .1%. one dollar seven cents on that currency pair. let's get you up to speed. alix: the story of industrials last quarter was weakness. this week we're seeing a little strength. general motors up.

it's order -- general electric up. orders rose by 10%. the company expects the cash flow to improve for the remainder of the year. the industrial operating margin was up. well.ell up by 3% as factory warehouse automation business lead those games. also recovery in oil and gas business. they raised the low end of their guidance. winds up rebounding. the u.s. steel, mattel, cliff natural seeing a pop of 2%. gettingtentially aggressive on chinese steel imports. we have anti-dumping tariffs, but we could get more from the wto. you know so much about this because you work on anti-dumping

cases, this could be a huge, aggressive move. david: for the first time since beenid-1980's this has invoked. he is claiming national security reasons. coming up next, the eu commissioner for economic and financial affairs will be joining francine lacqua. and olivier bill in chart -- olivier blanchard will be joining us as well. you are watching bloomberg tv. ♪

jon: the eu braces again.

it is decision time in france. stability ahead of faye anertain vote -- ahead of uncertain vote. steve mnuchin says the administration will present an ambitious tax plan saying. a billionaire hedge fund investors says there is a message in the stock market for janet yellen. .he very, very afraid i am jonathan ferro with david westin and alix steel. people afraidny this morning. up 1/10 of 1% on the s&p 500. board,ng up the treasuries largely unchanged. settling down at 223 after five weeks of gains going lower, lower, lower. this week, we are dead flat. marginally softer, $1.07 on that trade. that is the story on the broader

asset classes. alix: earnings trickle out. the set up by 2%. the first report after buying back visa europe. it is tracking of the expectations. a cross-border payments up 11%. the company reprieved heating -- free patriot and billions of dollars to the u.s.. cybersecurity software company earnings beat outlooks. they gain your seeing a short squeezed because the stock was dragged down so much after showrade, but the earnings a 10-gain market share. rbc says that their argument is going up in smoke in this quarter. wrapping it up with e-trade, up 3%. they did announce rate cuts last

month, but it did not affect the quarter. david: the imf spring meetings in washington this week. francine lacqua is there with a special guest. francine? pleased to speak with the eu commissioner for taxation and financial affairs. one of the most a miss frenchman in europe. let me leave the economic side to one side at the moment. you think the attack on the champs-elysees will impact the presidential race? probably the climate has changed in paris. people feel like they have been attacked themselves. they support the police forces. i have 2 convictions. the first that the vote on sunday must go on normally and be protected. the second is that people must

choose their president on a wide range of issues. security is one, but fear isn't the issue. the issue is how france can be proud of its value, strong in europe, listened to in the world, and modernize its economy. i hope the campaign is not totally wiped out five this attack. i think it won't be the case. it probably won't change a lot. it was not an attack, but somebody who had been wounded, an old man, that change the course of the election. francine: why are so many undecided in france. is it because there are too many candidates, they are angry, or can we say goodbye to the old political parties? pierre: i don't know if you can

say goodbye forever. we will know that on sunday. anger, on satisfaction, and the campaign was not totally unconvincing to the people. the people jews by default sometimes. chooseues -- the people by default sometimes. there is passion for politics in france. i'm confident people will vote and they have a clear choice when they look at the european vision. a clear choice when they look at policy issues. a clear choice on economic policy. you have candidates that are ani pro-eu.d francine: two of them are anti-eu and anti-schengen.

she is a candidate that wants to destroy the eu, get france out of the european union. francine: machon is not anymore europe friendly. his plan is to change the course of europe. his plan b is not a good one. his spirit is market marker 10. this is why i make a difference between madame le pen and the others. it is true 50% of the people vote now. they tend to vote for candidates who are not widely pro-european here that proves that not that french are anti-eu, but they are disappointed by europe. they want us, as commissioner, they want us to change the

course of europe. they want a europe that is more protective on security issues. they want a europe that is more democratic. transparency, clarity, and they want a europe that is more efficient economically. we are in a recovery. 1.8% this year. we are creating jobs more than ever. it takes time for people to be conscious of that. we need to do more. optimism i know your that you have always had. pierre: it is not optimism, it is about doing more. francine: the numbers are looking at ok, but what happens if we have a second round with le pen and marchon. impact if i look at the of the attacks, i think it is

good for strong candidates. i'm not fearful that we will have the second round. was always in the polls, but not both of them. the second round, if you have madame le pen, i hope she will be eliminated, but i don't know she will be, she will be defeated by the other mainstream candidate. i am sure that the french will not elect madame le pen as the president. they won't choose the exit from the eurozone. they are attached to some values, democracy values and a vision of europe that they want us to be more efficient on the european side. francine: if something goes wrong with the election, will central banks act? pierre: there is no plan b. if there is a plan b, you don't

believe in plan a. is a franchise democratically chooses a president who is a reasonably, or very, pro-european and capable to relaunch europe alongside with germany. i am confident this will happen. frankly, 40% for populism is too much. we won't have 50% for populism. that is not france. it has never happened in any election, regional elections, it is not there. francine: i understand. pierre: let's not be afraid of things that won't happen. francine: let me ask you about brexit. pierre: 50% is too much. she can never have 50%. francine: talk about the snap

elections. this has changed with brexit. is it a good thing if we have snap elections in the u.k. that would give theresa may more legitimacy? pierre: it is a wise move politically, but i don't have to comment on that. what i am hoping is we will have a pyramid date from madame may to have a cooperative approach towards the eu and discuss brexit, which will be clean, but .rderly, and hopefully friendly one thing that must be avoided is there are new promises made to people that there is a brexit plus. we need to stick to the letter that madame may sent us on article 50. with government -- i don't know who has legitimacy to negotiate, but in a way that

is cooperative again. francine: thank you for your time. that was pierre moscovici, the eu commissioner for taxation and economic affairs. david: our coverage of the imf will continue. we will have olivier blanchard. he will talk about politics and france, the united states, and global growth. he will be live from washington. we're live from new york. this is bloomberg. ♪

jon: an uncertain election with the potential to dramatically reshaped the political future of france. the bond market remarkably stable. french bonds unchanged. yield 0.9% on the 10 year. joining us is the former imf chief economist, olivier blanchard. begin on sunday, the first round vote and the issue of populism, which has 2 drivers. an election in france were almost half of those polled are going to vote either extreme left or extreme right. what can europe due to address that in coming years? olivier: it is important to understand populism, which is growing in many countries, has different sources depending on the country. in some it is inequality. that is not the case in france. inequality hasn't increased.

it isn't even immigration in the middle east. it is with the integration of second and third generation people originally from north africa. .t is the divide -- it is asue in different issue and the u.k. and in germany. in france the issue is to reduce the divide. the unemployment rate is incredibly high. we have to work on this, or more precisely the french government will have to work on this. that is the priority. jon: the whipping boy seems to be the eurozone. what do you say to people who use that for a rise in populism, be it france, italy, the netherlands, etc.? olivier: the government's have pleaded that way and are largely

responsible when they did something that was needed, but unpopular, they blamed brussels. brussels has to change its image. it has to come with the help of the government. they have to say these guys are doing something good. the governments are paying for taking the easy road earlier and saying "it is not me, it is brussels." essential., it was an element. in france, it is also there. it is too easy to pick on brussels. david: how much of the dissatisfaction is a lack of growth? if people were getting more money in their paychecks come they wouldn't be so dissatisfied. is there any result in the election that would give more growth to the french economy? olivier: growth is good, but i -- if you are%

realistic and you take structural measures to increase by 1%, an enormous amount given that we don't know how to do that, that would make some difference, but not a lot. some people feel excluded from the labor market. it isn't an issue of income inequality, they get bad job job. bad clearly everyone wants more growth, but it is more important to make sure the kids get a job, get a better job. to me, that is the essential issue. david: where will the jobs come from? we won't reinstitute manufacturing. we won't employ people on farms. what will those jobs the? olivier: there is a fallacy that there are no jobs for number of people. in some cases minimum wage might

be too high, so you have to give a break to the people willing to hire them, but there are jobs and you can improve the skills of these kids. the education at the college and high school level, using the european term, is dismal. training them to have some skills. i don't worry about the lack of jobs. i worry about the lack of basic skills. alix: i feel like the heart of it is the inability for countries to implement fiscal stimulus. domestic demand, how can eurozone countries implement fiscal reform when they still have the eu rules weighing down on them? olivier: i missed part of your question. process to political

resolve the problems? clearly, i have pushed, and many have, for the notion that more public investment, more investment in education would be good, even if it led to larger deficits. it should be treated differently from the usual public spending, which doesn't. there are many things you can do within the budget. it is clearly harder, but i don't think you can blame brussels and say we can't do anything because we can't spend more. there are margins where it can be done. blaming brussels and fiscal austerity goes too far. the what does it say about european project is still talk about redenomination risk? think there ist any danger of redenomination risk as a result of the elections in france.

even in the worst scenario, and you may want to come back to it if it is between macron and le be, either of them would unable to get france out of the euro. it would take a complicated set of circumstances. by francerom the euro is a very small risk. the other countries where the risk is much higher. ,on: many would say that france anyone in the president's seat that wants to make that move, would be restrained by parliament. could we be asking that question about italy in the coming years? think there ist political will and italy to exit the euro, either. if investors have doubts about what politicians in italy will do, they may start asking and

selling stock. the people in charge of france and italy are fairly clear that they want to stay in the euro. ecb would be able to control that. i'm not worried about an exit from the euro from italy. jon: olivier blanchard, really appreciate your time. speaking of redenomination risk, what does it mean for the bond yield? 30 minutes dedicated to fixed income at noon in new york this other friday, at the same time. tout down to the opening bell. nine minutes and 40 seconds. you are watching bloomberg. ♪

alix: the rally in the u.s. yesterday led by steve mnuchin saying the trump administration will produce an overhaul to the u.s. tax code. amazing treasury staff

has been working hard day and night, and we are close to being able to bring forward what will be major tax reform. from imfvier blanchard chief economist still with us. can you help me quantify what tax reform we need in the u.s. to get us out of the 2.1% gdp world? olivier: i don't know the answer to this. some tax reforms would be good. are we going to get any of those? no, is the answer and short. what else can i tell you? alix: corporate tax rate for example. paul ryan saying 20%. others saying it doesn't matter the number as long as we get something. from an economic standpoint, what really matters? olivier: we will probably have the corporate tax, which is too high with too many loopholes. whether we will see it or not, i

go back to my previous answer. we will see a small decrease in the corporate tax rate, not something that will make a major difference. i don't know how clean it will be. david: in u.s. economic growth, what is more important? or growth?ax cuts, slower: i don't think potential growth rate in the u.s. comes primarily from two high corporate tax rate or two high personal income rate. cutting taxes will increase demand and lead to more growth, but that isn't sustainable. with the u.s. needs to do to increase growth, growth comes from innovation. it comes from implementation of innovation. that is where we have to look. doing everything we can to help silicon valley and firms

implement what silicon valley has discovered. that isn't tax policy. taxes are a mess. but i don't think it extends to much higher. david: is there something to do with the tax code come a for example extending investment which has been proposed? isvier: in general, the idea a good idea. it would help. the effect it has on innovation and growth, i cannot tell. that seems to be one of the directions. my final question, what do you make a president trump's emphasis on trade deficits and current account deficits? is that the right way to manage our economy? , it definitely doesn't make much sense.

the positions seem to be changing from day to day. what is completely wrong is to focus on trade deficits. the other point that many of economists have made from the accounting is the deficits reflect a lot of deficits relative to savings. that is not a particularly tough issue. jon: thank you for your time, sir. market zone, here are your ingredients. optimism around a tax reform plan. steve mnuchin said it is coming soon. uncertainty around a french election. future stable, the euro a little softer. you are watching bloomberg. ♪ . . .

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♪ from new york city, for our viewers worldwide, you are watching "bloomberg daybreak ." let's get you market ready this morning, this friday morning.

mnuchin'sround steve tax plan colliding with the uncertainty of french politics. futures go nowhere, we are unstable. board, some the remarkable stability for once in the treasury markets for much of this week -- on the week at least. yields down at $2.22. the dollar index up about .1%. that is the story. market action for here is alix steel. alix: the dow jones up 16 points, s&p pretty much flat. we had comments on treasury secretary steve mnuchin that tax reform will be in the cards. the nasdaq, however, hitting nother record high, up by about 1.30 it closed at record level yesterday -- it has surpassed that already today. we are getting earning some industrials like ge and honeywell. ge up by .24%.

better and its backlog is now 2.7 years of revenue $344 billion. honeywell also delivering a very nice surprise today, up by 2% in the market. and recently purchased a warehouse automation unit, and telling forlly been honeywell 30 amazon, now the number two customer after the u.s. government, a umberger, story, schl they were not able to capitalize on the resurgence of oil drilling that we have seen. international exposer down by about 7%. the economy between u.s. shale and the rest of the world. fromarket call comes to us all tudor saying that janet yellen should be very afraid if the value of the start market should terrify -- stock market should terrify central bankers.

this is what he is talking about, the ratio of market cap to s&p 500 to u.s. gdp, coming in at just over $1 billion. we hit that level back in 2015, by the last time we hit it was 2001. the nasdaq tech bubble. at the end of the day, what does he say? i don't know know what will happen, but don't short now cure denies that could have more upside. note aggression oil move -- no directional move. a pretty bullish call. david, assetgo to market strategist. how useful is it? david: it is not useful. it has not been useful for a long time. it is conceptually flawed. you can se equity market to the gdp, we have had more companies go public, particularly over the long-term, and this metric is really ringing up an old debate, what are sustainable margins of

the s&p? they are higher than history. can it be higher than history when interest roast -- interest rates are lower than history? yes, they are. i do not worry at all about this metric. take it with stride. warreneat investors like buffett has said, they like to distance themselves from the importance of that metric. jonathan: record funds, $28 billion in february. how significant is that? includeargin debt does short interest. margin debt is something that needs to be scaled relative to the side of the equity market. i don't think you have investors buying equities and a wild, aggressive way with a lot of leverage. there is some use of leverage to buy a lot of bonds to substitute stock, and those stocks will probably be fine so long as you don't have a jump up in interest rates. i don't think you have got a leverage problem in the u.s.

economy or in the equity market in general, but one area where i do have concern about leverage is still in the energy space. energy is the area where balance sheets are really -- they have room to improve. alix: the oil price last quarter was not enough to help them, so for this quarter, with the xle trading so far below oil, does oil have to remain lower, or do in inergy stocks remain where they are-- energy stocks remain where they are? at $60, $65 priced -- alix: really? david: yes, and we can debate how they can or should be, but i believe energy has more downside to it have some tough years ahead for the commodity space because we have ample supply, and we have got ample potential supply. david: you may not be that impressed with the metrics that

paul tudor jones is using, but he is not alone. we had larry fink on earlier honest,k, and let's be really it is a question of future growth in earnings and whether it will be there or not, and the bond market is suggesting we will not see a lot of growth. the equity market is in a different place. david b: you can use a pe metric make the argument that history is richly valued -- it is. i think some of that reflects the expectations of eventual corporate tax reform, adding $10 per share, as much as 10% earning. but it is still a 10% premium, and as long as the 10-year treasury yield does not last above three percent, that is easily justified. alix: there is another piece you made that the yield gap between s&p earnings yield and then you is going10-year yield to close, so the 10-year is

going to come up, or the s&p has to come down, the premium has to come down, which is good for stocks. david b: that is true. climb,rm yields just without an improvement in growth , but it is not positive. then there is the thought of -- what is good for what parts of market?ty a lot of bank investors have been disappointed that the 10-year yield has come back in the prospect of the flattening curve hike spirit i think big banks are more sensitive to a short-term rate, i like big banks, i am a little cautious on smaller banks, but yes, what you have seen in more recent weeks, utilities have a nice rejuvenation and climb to new highs on the 10-year treasury yields falling to 2.3 and lower than i feared i do believe the market is range-bound. unlikely it is 2400 or above at

the end of the year, and that is dependenon corporate tax reform. i don't believe the market will have a correction or even a 10% fall back. tohink it is vulnerable envision something in the high 2200's of the s&p, down from here, particularly if the continued disappointment and let's watch the french elections. there is risk, but probably not as much risk for a u.s. investor as we are all talking about. jonathan: you bring up the french election. outcomes. on the buy europe side of things, it could mentor -- materialize on the back of the french election. is that what goes into the u.s. equity market? how does that play out? something we is are wrestling with ourselves. the s&p has high valuations. we are trying to find out where the low hanging fruit is. i believe this will be a moderate expansion of moderate growth.

mega cap, large cap come amid cap, i like oil, text, i like health care, and i like big u.s. things. after that, i would look for the value opportunity in europe -- i prefer european industrials over u.s. industrials -- and then on emerging markets, it is very cheap, let's stay away from emerging markets commodity producers and look for some more growth spots in emerging markets. jonathan: the bottom-line come is the big blanket pass it by the s&p 500 trade done? david b: we are range bound this year. it is true that there is not a whole lot of upside to this year , but maybe that is missing the big picture-. the big picture in my year is that the s&p still has 5% to 10% total returns per annum available for the next few years. we are always trying to time how to get into the market, but i think the next two years are still constructive for the u.s. story, if it is le pen

lenchon, weon -- me will see european stocks go up. doesn't trickle over to the u.s. in the same way? david b: it is true, but i think the downside risk in the upside rally from a positive outcome -- i wish i could vote in this election -- but i do not think there is a huge rally immediately, but i don't think there is a whole out of downside, either, particularly for the u.s. equity market. i would agree with the idea that, you know, on monday, france is not going to get taken off the map or the eurozone breakup. i think we have to remind ourselves of these elections are important, but change comes slowly. jonathan: david bianco, always appreciate you, sticking with us. in the u.s. equity market, we go nowhere. futures are flat going to the cash open. we stay down there.

we are down about 1.5%. from new york city, you are watching bloomberg." ♪

is "bloomberg daybreak." this is the hewlett-packard enterprise greenroom. european commission vice president -- ♪ this is bloomberg. i am david westin. general electric beat analysts' to ceoes, giving a boost jeffrey m l after some investors have grown anxious about recent results. can youus on cell is

will heart and still with us is david bianco of deutsche asset management. good news for mr. immelt. guest: organic growth was better than expected pretty much across the board, and oil and gas is not as bad as it has been. four quarters are pretty negative. it looks like sales are accelerating. david: and power and engines are good. up.n: yes, power is it is actually apples to apples, i power is picking up, but think the other surprise was that oil and gas prices were not as bad as they have been pure to sales were down 9%, may be down 21%, so that is a good. himselfid: jeff immelt says that is all about the internet of companies. muchyou think about how

progress they are making on that site come on the tech side. karen: we get sales and orders, and they are all growing 15%, 20%. they are not making money in it yet or this could be the year that they are spending less than they are making, so it is an important here on that front. 130 $4 billion is hard to see, but the way it is growing, i estimate you could see it by 2019, probably, because the margins are higher than other businesses. alix: what about honeywell? again, organic growth was better than expected, business was growth positive. it came out about 2%, but every business with strong, and margins were scrawled. -- were strong. they had a little bit of slippage and margin toward the end of last year, and they have been partially a margin story, but that has started to pick up as well. alix: what is interesting is they both highlighted oil and gas. you were pessimistic, david, on energy stocks. how do industrials perform when

it is still wishy-washy? david b: i have been underweight energy, i remain underweight energy, i remain underweight industrials. these are well run companies that have passed the worst of the intercession and the crushing oil prices and this year's super strong dollar. however, what you have got going on in many industrial companies, benefiting from long cycle, aircraft, it is difficult to see -- they do not have the emerging economy growth story. exports are still weak. , am underweight industrials and you're probably better off looking at european industrials rather than u.s. industrials. you have high-quality industrials in the u.s. looking will things like -- there be the internet of things, but the question is -- well, whose things? there are so many companies that

are clearly well-positioned. jonathan: let's get breaking data in the u.s. the pmi coming through for the month of april, the marketing u.s. manufacturing pmi coming in estimate waser, the 52.8, previous reading 53.3. just a little bit lower than the previous month as well. that brings the competent down to 52.7 from 53.0 previously, the lowest reading since september 2016. the story, alix steel, you know it well. alix: it really strikes me also that new orders are falling come output is falling as well, both of those lower since 2016. this is a really nice three to pair with the industrial conversation, karen. industrials are very overpriced right now, they are overvalued. earnings have to come in super solid to justify valuations. then you get readings like this.

can you connect the dots for us? karen: i would agree that they stocks have a lot of anticipation, and i was a little concerned about how stocks would react in this quarter. those that have had this up appointment like -- have had disappointment like distributors, sales are getting better, and they are real-time companies. msc, fasten all, they all got really lacks. is pricing in. remember, they were down a lot, so we are going up from a really low base. --are not at orders where levels where orders will make real money. these guys do anticipate. alix: fair point here they have anticipated quite a bit. david, when you see is starting to roll over, when there is a lot of optimism, what areas are the most vulnerable?

david b: i believe it is industrials. alix: besides industrials and energy. where else do you see vulnerability? david b: you have the steady improvement in the economy, in the labor market, the fed does continue to hike, even if the result is a flattening curve, so i think financials are fine, i think tech is fine, and i think a lot of these better manufacturing's and reports we're getting, i think a lot of that traces back to the tech. the 1990's butke finally coming out of the doldrums for so many years. investors come again, if you have the comparison, q1 this year versus q1 last year, where is the growth? i do not see a lot of need for additions. david: exactly, where is the growth? if you look at general electric, these are global companies. they have invested a lot around the world. honeywell, for example, can depend on china.

china's growth is continuing, stabilizing come in better shape than it was last year. is that really hope for the future? karen: companies are talking about a pickup in asia, definitely, and china is way up. for most of these companies, and cannot drive it because maybe 40%, 50% international, but they are more like 20% asia. they really do need north america, and most of them make their margins in north america, but there has been a pickup in asia. alix: what about europe? europe is in cyclicals, we hear industrial in europe are a better play. karen: it is getting better there, too. the pmi's in europe are getting quite better. david b: it is strong globally. the hard data is equally as good if not better, actually, for the short-term and places like europe and japan than the u.s. for the first quarter. karen: the other thing you cannot measure is optimism, and i can tell you the companies are more optimistic, and optimism

kind of matters. you know,saying, their customers are the most optimistic they have been since 2014. you are seeing it in the orders. david b: i think there are additional pieces for the administration, something slightly corporate tax-cut reform, the deregulation promises, kind of allowing that patients, but we will be running out of that patients if we get through the whole summer without clarity on the tax reform. alix: fair point. thank you so much. of bloombergt intelligence, david bianco, you will be sticking with us. like on our charts and graphics, interact with us, you can also send is a question. this is bloomberg. ♪

alix: this is "bloomberg daybreak." the trend of the fears of our

has been value over growth stocks, but that is turned over the last couple weeks. take a look at the bloomberg. fmv value index versus the growth, values are outperforming at the beginning of the year and have now rolled over. joining us as david bianco of deutsche asset management. david, is a trade value or growth? david b: it is growth, and tech has been a big part of the market rally. i think that growth phenomenon -- sorry, the growth stocks, i think tech performance is going to spread out not just from large-scale slid down into the small caps. that is who we are sticking with, sectors of growth, areas that tend to do well, and long-lasting expansions like tech, like health care, and we are looking at asia for opportunities. jonathan: where in asia specifically? david b: everywhere outside of japan. [laughter] david b: there are many countries like korea where there are well-established companies,

but really where i see players, really comparable in terms of quality, leadership, innovators, that is china, whether it be internet services, financial and tech opportunities. i think you've seen some real innovation coming out of those companies. they are huge, they have a big market, and they are becoming globally competitive. jonathan: how do you balance that kind of investment? you balance that against -- is in a stable equity market? david b: you have to balance uncertain things like the ability of they company to do well in that environment, how do you feel about the currency, and so forth. i think you are managing those risks well when you're not buying the banks in those buying ones that are dependent upon commodity reduction and rather try to find the emerging, successful, independent businesses that are doing well. david: so that is the regional

call, the sector call on tech. how much of that is because tech is relatively in play from whatever goes on in washington? david b: i think the tech sector is waiting for a corporate tax repatriation. it would be a disappointment if we don't get that for the sector. tech is still sensitive, geopolitical issues through foreign exchange rate, but i would agree. when i look at the economy, i think myself, if the u.s. goes to 1% or 2%, i am pretty confident that most tech companies, these broadly, will do mid to upper level single earnings growth. alix: where do you stand on buybacks? david b: i think it makes sense to move the pale policy from buybacks -- payout policy from buybacks to a dividend ratio. that is what investors want. jonathan: david bianco, david asset management. who are you voting for, david?

just joking. 26 minutes into the session, futures this morning flat, the cash open flat as well. -10 points on the doubters we go nowhere. switch up the board, the conversations in the bond market, the stoxx data looking soft, the pmi's come in with a marginal slide. in europe, the french bond market is very stable ahead of the first-round vote on sunday. the euro a tough softer by .1%. from new york city, from the "daybreak" team, thank you for a much. a full weekend for you at home. this is bloomberg. ♪

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

vonnie: we'd take you from new york to london and cover stories from washington, d.c. and paris. first, breaking economic data. here is abigail doolittle. abigail: for the month of march, we are looking at a beat in existing home sales. month over month basis, this represents 4.4% growth relative to the month of february, where we saw a decline at 3.7%. perhaps, this is a reflection of what we saw that pending home sales is a beat because of warmer weather. but it will be interesting to see whether the strength for existing home sales proves to be a blip. not a lot of reaction to existing home sales from