special counsel to oversee the investigation in some russian melding. the volatility in washington grips wall street after the s&p 500 suffered its biggest drop in ight months. this is "bloomberg daybreak." the sun is up but the markets are lower once again. futures softer. quities lower across europe. yields down four basis points at 219 on a 10 year. alix: unbelievable move. dollar-yen continues to grind lower. that is a 200-day moving average one to watch. the vix extending its gains from yesterday.

47% in about two days. gold catching a minor bid. crude getting killed. david: we will break those earnings but let's turn to washington. puty attorney erroneousstein appointed a special counsel between ties between the trump campaign and the russian overnment. marty shanker is here with us. what is next? >> well, i think as soon as he gets on the job, he's going to scope out where his investigation should go. it's interesting. i think rod rosenstein just by this appointment has cemented his standing and his power within washington. the only way that any influence the white house can have would be to fire him and that would be

worse than firing comey. and mueller is known to be a straight laced case maker and he's going to take this investigation wherever it leads including into the white house. david: a lot of praise from capitol hill about the appointment of mr. mueller. does this take it away from congress? does this take a lot of the wind out of the sails and say let mueller handle it? >> i sort of intellectually it seems to do that but there were comments made overnight that the congressional investigations will continue. but and mueller has a reputation of no leaks. so you won't get anything out of that until he's done. so congress will probably try to continue to keep this narrative alive by holding those hearings. so as of right now, there's -- they're still on course to do that. david: last question. a lot of people in the markets in business want to know does this speed things up or slow things down? because they want congress to

get things pack like to tax reform? >> it probably slows things down. from a standing start, he's going to have to get up to speed on the f.b.i. investigation. and he's a meticulous investigator. so he will take his time and he will do it right. david: marty, thank you so much. jonathan? transform to the turmoil in d.c. ead of g.t. fx in london and eiffel is here with us. the conversation dominated trading floors yesterday was why was yesterday so different after shaking off episode after episode of b.c. drama that suddenly, things break? >> i think if you step back and pretend none of this, you know, horrible news flow we got out of d.c. over the last week and a half have happened, where will the markets be?

with a lot of the technical indicators on -- confirming upper momentum, we're really starting to fade away. and in the absence of any of this bad news flow, we probably see markets go through a digestion process, probably not as violent as what we saw yesterday. but sometimes the markets just need to do this anyway irrespective of the news flow. and the harder work is interpreting, you know, what does all this d.c. news flow really mean going forward? so that's really the heart of it. i don't really read too much into the markets were down yesterday. jonathan: yeah, you saw risk. that's the knee-jerk reaction. why the episode of the 24, 48 hours is different or if it's different at all? >> the fact that at least for

some investors, the prospects for lower taxes, corporate taxes in the u.s. has become even more distant whereas a few weeks ago, talking to client, they were still expecting some more clarity on the trump agenda on the tax reform. this time around, intentionally yesterday, especially yesterday, that particular prospect has become quite distant. by imcase, there's some questions about what could then justify the current stock market valuations presumably the earnings justifying those valuations has been partly based on the expectation of lower corporate taxes. so with this latest development attracting more and more attention, you would think those valuations may be increasingly doll justify. so that's really what the real risk is from here as well. to what extent we're dealing with a temporary dip in the s&p and to what extent we're going to see a more meaningful correction lower. jonathan: so futures negative. we're down 99 on the dow.

follow through important here that we close yesterday a session lows. selling into the close. and the question i want to ask you, michael, is whether we're selling into the close or are we selling to the close because we're worried about the headlines after the close? >> i think it's both. no one knows what the headlines are going to be over the next few days. we had some very jarring ones. at the end of the day, you know, momentum gets momentum. if your risk managers are tapping on the shoulders, you don't want to be the last guy holding the bag after a very strong rally, a very strong yeert -- year-to-date rally. and let's see how this dip settles out. is it a 3% dip or is it a 10% dip or, you know, a 1% dip? alix: right. >> should be confirmed.

alix: the move was unbelievable hitting here from nine to 10 you just saw buying picking up. yields just finding lower. now we're down below 2.2%. was that short covering or was that real fear buying? do you have a real good read on that yet? >> at the moment, it does feel that a risk aversion may be the key. positioning is playing a role and it does feel that the markets are long stocks and presumably, they were still short. some of the treasury market. that said, what could potentially decide to the market outlook from here is how the fed is going to go about it. ultimately what we are seeing at the moment represents tightening in the financial conditions and they choose to ignore that, and proceed with hiking rate or maintain its rhetoric, fact is that could indeed lead to further underperformance, especially in the stock market.

because at the moment as it is, rates are historically low and they've been grinding lower. so that's the main reason why the equity investors could argue that the stocks are fairly priced and it still makes sense to invest all the extra crash. t if the fed doesn't respond in kind by imindicating and maintain its relatively hawk irk rhetoric, that could mean that the stock markets no longer looks as attractive as it seems really not so long ago. so the worry is maybe the beginning of the deeper correction. and by implication for the dollar, that may be the second leg of the unwinding of the so-called deflation trade. the first was the shorts and the treasury market. that seemed to. unwound morals. but the other leg could be the u.s. stock market. alix: michael, you've come in at a day that tech was off 3%.

materials getting hammered. huge bias -- buyings in yield. what do you do short term that ould potentially get ugly? >> if you say you look at a month, -- the vix has been very low as we've talked about extensively. it's not too late to be buying protection. vols are still low. the vix is at 15, 16, it's just not crazy by any stretch. so i think you can do a little bit more of the same. you may be sort of jumping on the herd but momentum is a very powerful force. you're going to have momentum all the way up and momentum all the way down. if you're not using options, you can just shift into more defensive sectors. with this very strong bond bill as we're just discussing, that's obviously going to be very

supportive for the yield sensitive equities but also, this is also sort of a judgment about the trump trades, right? the industrials, the -- anyone exposed to sort of aggressive cap x expansion, infrastructure, all those types of names are going to be hit. banks are going to be tough here. there's no question with that yield curve doing what it's doing. that's going to continue to weigh in banks. david: in a nutshell, what factors will be -- will you be looking at? >> if you're talking about the fx market, the dollar will takes it queue from the markets today, tomorrow and in coming days. that's really the one support that the dollar could have and that's inherent link towards the fed is going to do in june. the fed's decision depends on the financial conditions in the

u.s. if those conditions remain at ease, then the dollar will ultimately find some support. however, if the sell-off does intensity and -- intensify, then the fed may have little choice but to delay any tightening and that should work to the detriment of the dollar. alix: we'll dig more into the fed in the next hour. you're sticking with us. we do some earnings. wal-mart, the biggie. so beating on earnings coming in light on revenue. earnings coming in at $1. but the big headline number was u.s. comp sales backing up fuels at 1:4% 11 straight period for the company. online sales rose 69%. the stock was down more in premarket. they also seek their second quarter comp sales at the high end of 2%. john? jonathan: alley barber is the top story. better than expected.

revenue growing 60% in the three months ending march. a buyback at $6 billion over you -- two years. coming up, we have two guests to debate on tax reform ahead of today's hearing on capitol hill. from new york city, you're watching bloomberg. ♪

>> market expectations have falm

on the risk off route and the financial conditions tighten but the real damage has been on the outlook for next year and a half. this is where the market expects fed fund futures to end 2018. thaths white line. prices have been hiked over the next months. now we're up one hike. the blue line is where we expect fed fund futures to be at the end of 2018. no hikes. the market sees no hikes now next year. so with us is two advisors. this makes the fed's job extraordinarily difficult. if they cave to what just happened, then you know you can't trust it. if they done, it's they risk more financial tightening. >> we've seen this movie before, a little bit with the bank of england after brexit where they were there to backstop political risk and the e.c.b. has been tchiningt as well. d sure, it's a very relevant

factor for the fed to consider but particularly since one could take the view that they've been frankly trying to get rates up as much as they can over the ext couple of years. if that is dead in the water because of all the political noise, maybe the fed can actually get away with it there. but i completely agree. i think their credibility here is going to really put to the test. their job is always complicated. it just got a lot more complicated. alix: if they do still want to go in june what, are we going to have to hear out of the fed in the next with to three weeks to get that market expectation back to 80%? >> they have to down play the latest political investments. the way for them to do that would be to highlight the latest improvement in the data.

if they get lucky, they will have a rosy expectation. so that's forward looking. the comments could front loading of rate hike expectations. that's set of the flatness of the treasury yield highlighting the fact that the markets has been pared by long-term rate hike expectation. historically, the spread of the front of the curve really has been the more significant driver of the dollar. and i'm not sure what the fed can do to in kind of mitigate. the damage has been done. so they have to try hard to get those expectations going again. jonathan: i spoke to someone yesterday who serves on an investor advisory committee for the new york fed.

that's very natural. that's normal for a process over the federal reserve. the market reaction is one thing. what we do know from them, they've told us many times is they haven't banked in any kind of reforms, any kind of regular story agenda in d.c. they haven't done that then the forecast isn't going to change, have they? >> right. jonathan: even if it goes to two months because they're not responding to the sentiment survey data. so you can have your opinion on the hard data but for them, they've kept their forecast as follows. through more hikes throughout the year. is this an overreaction from the market at this point? >> the bond market bid has been very aggressive as we've seen and that's probably a little bit of a reflection of the fact that the fed is going to back that political risk here. the most obvious play is to be buying bonds right now. your point is very well made. if it's about the hard data here

and if the soft data gets softer and the hard data is going to do whatever the hard data's going to do, maybe the fed can get back to its core mission here and go into some sort of gradual replacement from the extraordinary measures it's had. david: what about this? is the fed backed in a corner? it's not -- they said we are not going look at the trump trade in our decisions and that hasn't changed. >> indeed. it is the case. we're still expecting two rate hikes this year in june and september. however, one thing that may change and that is the real risk for them. the timing of those hikes in a sense that any tightening in the financial conditions in the u.s. on the back of what's happening in washington, d.c. may indeed force their hands and make them have to wait before they want to have any ongoing tightening in he financial conditions.

they are not necessarily that bad. it's one of the best performing economies of the world. from that point of view the fundamental support for the dollar should be there. but at the moment, the key risk here is that any potential sharp risk is an extension of the move we saw yesterday could lead to cause more damage, right? so one, it could trigger unwarranted tightening in the. conditions and, two it may dampen business and consumer sentiment from here. so from that point of view, it's going to be very interesting to show how the fed is going to respond to that. if they are lucky, the political issues will subside before long potentially next few weeks so there will be plenty of time to regroup before the june meeting. if that continues, i think that is going to be a very tough call to make to hike rates in june. david: you're both going to be staying with us. coming up, we're going to have

an exclusive interview with a man who will hold the first hearing on tax reform. and mark warner of virginia will be here. this is bloomberg. ♪

jonathan: brazil has plunged back into another political crisis. the president was involved in an alleged cover-up scheme with the house of brazil's congress. the office denies the allegations. brazil's bonds and stocks trading in europe tumbled in europe. michael purvis, let's see what's happening in e.m. they should be pretty resilient in the market. >> sure. lower rates, lower dollar here. until this morning, a generally

benign political macrobackdrop for e.m. as it relates to the brazil situation, you know, i think some of these a.d.r.'s are trading off 10% or more this morning there. but for the e.m. class, let's not forget that brazil has a pretty small wait. the e.e.m. are in there in the top 15 holdings but they're small ones. jonathan: we've got a lot of investors to say buy brazil, buy brazil. >> sure. >> a wake-up call for you? >> yeah. brazil is not exactly, you know, having scandals in brazil is not new news here. and i even have been exactly what these tapes have been revealing. and since he got the job, it's always had a sort of several questions about that as his car

wash process has been unfolding. i'm a little bit surprised by the market reaction. i would point out yesterday, emerging market equities were a relative safe haven. you didn't see it really in emerging market equities. david: where are you seeing e.m. effects? it is the case that the inflation trade has been unwound in months. the up with trade that most clients, if not all clients have is the carry trade. they're happy about it. point being that along those currencies, and if anything, sentiment may claim more victims than the high yielding emerging markets currency could well be among them.

onathan: petrol absolutely bassed in the market. alix: and copper down as well. proper prices in china falling. there's that issue as well. are they going to have to do reform, tight monetary conditions? here's that rhetoric playing out today. jonathan: and they have to do impeachments down there. alix: i thought we were going to have all the risks. jonathan: political risks still remain. valentin, thank you for joining us and michael, thank you as well. coming up next on this program, caroline harris of the u.s. chamber of commerce joins us to debate tax reform out ofed to's hearing on capitol hill. ♪

jonathan: flow,, this is "bloomberg daybreak." let's whiff through the mrkt reaction. the unwind continues. futures soft, soft. negative .2% on the s&p 500

after the biggest one-day drop on the benchmark since september 2016. we close at an april 21 low. the selling continues by three quarters of 1% and the treasury market is lower by two basis points. the lowest on april 18 which is four basis points away from that. everything counts in the fx market. the dollar was weak. now showing some strength against the euro. that is the story in the markets then. let's get you an update on what's making headlines in the business world with emma. >> president trump has insixers there was no collusion between his election campaign and russia. now a former f.b.i. chief is going to find out. robert mueller is going to investigate possible coordination between the president's associates and precaution officials. mueller will prosecute any federal crime he uncovers. president trump was told of the

decision just 25 minutes before it was made public. donald trump's transition team knew weeks before his inauguration that national advisory advisor michael flynn was being investigated. the "times" said he was the subject of an investigation for secretly working as a paid lobbyist for turkey. despite thrkts mr. trump named him to the security advisor's position. the u.k. prime minister admitted her conservative party to a hard brexit outlining the manifesto promising british voters she would develop a clean break and warned no deal with the e.u. was better than a bad one. i'm emma chandra, this is bloomberg. david: conk hold its first hearings on tax reform legislationed to. ere to help us see the agenda,

caroline harris. good to have you here. hi, david. good to see you. david: we spoke with senator hatch and we asked him are they going to get distracted by what's going on with comey, the president and things like. he-and-he said it is a distraction. how does it look from your seat? >> absolutely. the chairman said it was a distraction. but i prefer to focus what the house side said which is you see the secretary and mr. comey come to the hill. i think that it is a distraction but we're capable of ignoring that distraction and continuing to move forward. david: go to the question of timing. we've heard different things, chairman brady of the house ways and means said he really wants to get it done this year. we talked to michigan mcconnell d he said -- what does the

timing look like right now? >> the senate will have to move health care out and get that budget done and they can move on those quickly because we would like to take chairman brady's point of view and think we can get that done this year. david: it is a priority to have the house, the senate and the white house all together in a common approach but they're not quite there yet. do you know what are the issues that are separating them and how can we get themry solved? >> right now, the biggest issue is being separating is revenue neutrality. and the house and the senate feel differently. so they're going to have to overcome that. we should do tax reform in a fiscal manner and they're going to have to come up with how to fix that and it's doable though. david: how important is the revenue neutrality. chairman brady said it's important because otherwise, you can't have it be permanent whatever the reforms are and businesses can't invest from the chamber's point of view, how mportant is that permanence?

>> i think you have to be permanent. businesses need certainity. they need the ability to know what the tax code looks like to make the proper investment decision. so we're going for pro growth and permanent. david: it's interesting that you put it in order. if you had to make a choice, you put pro growth over permanence? >> david, i love when you make me negotiate with myself. i think that pro growth should be our metric. and we can worry about the rest later. david: and is border protection just gone? >> yeah, and i think the leader said that. he said i don't think that border adjustment is viable in the senate. so just judging from that and judging from the amount of republican opposition in the it is it is safe to say an uphill battle. so that will be very interesting to see how that plays out. and where it goes from there. that will be a real benchmark and a a turning point to see whether it can go forward or falls to the side.

>> in the border adjustment tax fits in with the revenue neutrality. senator hatch said he's not sure he can get dawn to 15% and revisiting things like mortgage deductions or charity deductions. >> it raises a trillion dollars of bore adjustment. so if you pull $1 trillion out, you're going to have replace it. find something else and you start to touch those third rails and that's challenging. david: explain to those of us who don't come from your neck of the woods. what's going on with this hearing today? is this a show hearing? is this going to do any business or just to go through the motions? are they really behind closed doors to figure out what the legislation is going to say? >> staffers have been working for months to put it into luggage. today is absolutely hearing from executives and corporations to talk about what we need to hear, which is we know tax reform to have a pro growth impact on the economy and what that impact can

look like. as i started this conversation off, i said you see secretary and many. cone anyone on the hill. david: if this gets resolved behind closed doors now? from the house and the senate side, who is call the shot? >> you're going to have chairman hatch and mcconnell and speaker ryan and chairman brady along with the white house folks. and i think that's kind of going to be the folks who are sitting at the table negotiating the deal. david: carolyn, thank you for coming back with us. alix? alix: coming up, republican senator pat toomey of pennsylvania will be joining us ahead of today's hearing on tax reform and in the markets. the safety bid comes back just a little bit. dollar-yen still lower but neutral on the day. we are down by about half a percent earlier in the market. the vix flipping negative. gold down by $1 an ounce.

crude still getting hit. this is bloomberg. ♪

>> this is the how let packed enterprise green roope. coming up, the crowe of cisco at 9:45 eastern. shares of alibaba are lower today. the company say the highest tax bills and splurge on entertainment and cloud computing. alibaba announced the $6 billion share buyback. the justice department is ready

to sue chrysler over allegedly breaking clean air rules with its diesel fuels. a lawsuit could be filed this week. authorities claim that chrysler used illegal devices to pollution control. and wal-mart's picking up steam in its sight against amazon online sales at the world's largest retailer rose 69% in the first quarter. sales at wal-mart are at 1.3% and that was still better than expected. and that's your bloomberg business flash. alix? lix: a columnist joins us now. did wal-mart say to every other retailer, we did it and with about you twice? is that what happened? >> we saw weeks of down earnings from all the other retailers. alix: how? >> that's a great question. the number one thing that i think is driving this is prices. prices, prices, prices. they have been just taking town

their prices across the country. but very surgically going right up against kroger, going right up against target to the point where this change between a target price and a wal-mart price is quite something to pay attention to. alix: so what's the knock on more jenkins? >> margins did come down a little bit. they've been compressed for wal-mart. and this is a different game for wal-mart. this is a different world for wal-mart of old. they used to really be focused on keeping that earnings growth. and you know they are doing a respectable job on that but at the same time, they're investing now to get people in their stores through prices and also e-commerce,. david: with a about this online growth? 69%. most of it appears from the website. >> you don't just come up with 69% out of nowhere after 20%,

10% years of force. so you are definitely seeing the impact of jet. and then also the other acquisitions and then as you said, a lot of it came from wal-mart.com but a bunch of it comes from online groceries. they are expanding online groceries all around the country and that is really impacting. david: they took mark lori and put him in charge of online. is it possible he's that good? >> that's the question that he seems to be answering so far. everyone was saying is he just really good at building companies and then sell them to bigger companies or does he really have something going there? and so far, it seems like he's doing pretty good job. alix: you mention this is not the wal-mart of old, right? why are investors so willing to go along with this wal-mart where you have margins flatter but you wind up having comp sales better?

>> a few years ago, they came out and they said we're not going to have earnings growth for a number of years. and their stocks tanked 10% in 20 minutes. it was unbelievable. and so this is kind of a -- they've come along for the journey and the stock has gone up. and people have been trusting wal-mart and as far as we've seen so far, that they've been delivering. david: when they say it's -- one is invest in online which they seem to be doing and raise the pay of our employees. they were early out of the box saying we want wal-mart employees to make more. >> that's exactly right. and it seems the wage increases have ended up helping wal-mart on the sales side but not so much on the profit side which is to be expected when you're going to raise wages. alix: so the story out of the retail season has been the discounters like a target, wal-mart doing well, not in the case of t.j.x. what was your biggest takeaway in retail? >> i think people are fickle. consumers are fickle.

they're going to go to where is best to go at that moment in time. it's unbelievable what happens when you put a new grocery store in where you used to go to your old grocery store and suddenly, your habits completely change on very quickly. so wal-mart is finally putting in the time and effort and money into getting to where consumers need to go and they're getting rewarded. you're seeing the same thing at places like home depot. t.j. maxx was the biggest surprise of this earnings season. for retailers because they were the ones that were just the star of retail. so do they go the way in department stores? do they go that way or do they go the way of the discount? we'll see in quarters to come. alix: my mom would be crushed if something happened to t.j. maxx. she wouldn't know what to do with her time. thanks, shelley. david? mr. trumbo is working this -- mr. trump is working this morning. david: he said with all the illegal acts, there was never a

special council apoint. clearly, this is rankling our president. alix: yesterday morning, he didn't tweet at all. i was waiting for it and it didn't happen. and you felt like that was a good thing for the markets. you can watch us online, click on our charts and graphics and interact with us directly. click on us. this is bloomberg ♪

jonathan: the scores are as follows. negative 65 on the dow. down .2% after the biggest one-day drop since september 2016. we pull back to april lows at a rate through may. and if we switched up the board and the fx market, the dollar making the headlines over the last couple of days. the post election gains. the dollar find some stability

today against euro dollar. the euro weak and the dollar strong. the treasury market, the grind lower continues. yields lower by two basis points, $2.20 on the u.s. 10 year. so 2.2% on the u.s. 10-year treasury. david: many in the financial community were -- believed he should bring tax and regulatory reform to washington. now, some are wondering whether his administration will be able to deliver on those promises. joining us now is one of the early strong advocates for president trump's policies. he is senator pat toomey, a republican of pennsylvania. and he is a member of the senate banking committee. welcome to bloomberg, mr. senator. good to have you here. >> good morning, guys. thanks for having me here. david: let me talk to what senator hatch said. we have robert mueller appointed to independent counsel between

the russian government and the trump campaign. how big a distraction is this to those of you trying to do things like changing dodd frank and getting tax reform through the congress? >> i hope it won't be a big distraction. i'm trying to not to let it distract me very much. i never thought we needed a special counsel or a special prosecutor. that hasn't gone well in the past. but robert mueller has just an outstanding reputation. my democratic colleagues can't complain about his appointments. i'm hoping that this allows us to move on and get to the work that the american people elected us to do which i think get this economy moving again. david: and i want to talk about getting it removed. should this in your view mean that the house and the senate don't have to spend as much time on their own investigations which are pending? >> no, i don't think it does mean that. i think the house and senate has to continue their investigations in part because their investigations include aspects that are separate from what the

f.b.i. is investigating. robert mueller is going to be investigating whether a crime was committed. it's important for both the house and the senate to look at other aspects of this. what kind of judgment was exercised. what kind of response should there be to russia? we in congress could impose sanctions. so it's still necessary to continue a somewhat parallel investigation because it will be different. david: let's turn to the hearing that you will be later today. you have been a proponent of deregulation. what are the prospects of fundamental changes in dodd frank at this point? >> it's going to be tough. we're going to explore that. i would like to touch on some of the issue. i think dodd frank is badly flawed. so we're going to have a

discussion in part with the fresh secretary about where there's a commonality. i will tell you that the secretary has been extremely available and engaged with congress, with the senate. i've had multiple meetings with him across a wide range of issues. it won't be so much exploring new territories but rather discussing for instance, this terrible process by which the stock has historically been designating these two big to fail firms and what the consequences are of that. i hope those days are behind us. tinge the treasury secretary agrees with that. but that's one of the things i want to discuss. david: there are some who suggest it's going to be doll and a wholesale revision of dodd-frank but there could be agreement on the limit up for the fi standard. is that something you think you can get through congress in the uture?

>> it's possible. the past legislation like that generally requires 60 votes in the senate. we have 52 republicans. and so far, very few democrats who are interested in visiting really any of the major provisions of dodd-frank. so we hope to bring some out. there are some other procedural options that might be available to us, for instance, the budget mechanism that allows us to pass tax-related policy with 51 votes in the senate could conceivably be used for other issues including parts of dodd-frank. so we need to explore all of these options because that legislation is contributing to the lack of robust economic growth we should be having. david: how hopeful are you even without legislation changing dd-frank that -- >> i think that's exactly right and that's very important. that's a big part of the way the

markets responded to the trump election is the awareness, the realization that there is a new cast of characters who are not out to be so hostile to people who are earning an honest living. it is have been unlikely that the f-sock under this treasure secretary will be designated non-bank financial institutions. i hope that's the case. and that would be good. it would, you know, lift the oud that's been over the designation. that only last as long as this administration is in office. the way they changed the legislation, a subsequent administration could revisit all of this and that's why it's important to change the legislation. >> finally, let's turn to tax reform for a moment. you are on the finance committee. we have hearings on the house side to start tax reform. how realistic is it to have fundamental tax reform through this year? we heard chairman brady on the

house saying that's his hope. >> still my hope. and it can be done. the sequence we're hoping for is to get a health care bill done sometime before the august break which i think is going to be difficult but the house prove that it is possible. we get that done, then we need a new budget resolution to give us the procedural ability to pass tax reform with a simple majority in the senate. that also will be a challenge. and by then, i hope that we have a consensus on tax reform. and we are working towards a consensus. senate republicans who are engaged in this, members of the finance committee, the administration, the leadership in the house, we're all meeting and discussing and talking about it. we're getting closer, i think. to a consensus tax reform. can get it done this year? it's still possible. it's going to be tough but that's my goal. david: whenever it gets done, is it critical that it will revenue neutral? >> no.

david: senator hatch said exactly that yesterday. go ahead, sir. >> no, it is important that it not be. if we do this right, if we lower marginal rate, we brodin the bakes we simplify the code, we fix the international piece so we're not penalizing our multinational corporations today, we will get a tremendous surge of economic growth that will last for some number of years. it's unlikely that the scorekeepers here in washington will acknowledge that, will give us credit for that in the reform package. so if we hold ourselves to this standard of saying well, every dollar of revenue we lose from lowering marginal rates needs to be made up for with the tax increase somewhere else, then we're not going to end up with a really pro-growth tax reform. my higher priority is to maximize economic growth, get the best tax code we can possibly get, let the economic growth, allow the revenue generation to catch up. that's the better way to go. david: briefly, and in conclusion, circumstances does that mean it has to be a

reasonably short-term tax cut if you can't meet the requirements? >> it's a great question and the answer is no, it does not have to what the budget law allows us to do is as long as we specify in the budget resolution, we can have a revenue-losing tax reform within the budget window. the problem is if that's 10 years, what happens after that? david: right. >> the answer is it doesn't have to be 10 years. there's nothing about the budget act that limits us. david: ok. great, senator pat toomey, thank you so much for joining us. jonathan? jonathan: thank you. coming up on this program, much more on that hearing on tax reform with several guests lined up as well. futures soft, soft, soft. ♪

♪ jonathan: moore d.c. drama, now

a special counsel to oversee the investigation into russian meddling. volatility groups wall street, global equities extend declines after the biggest one-day drop in eight months. odds plunge. aunts plunge morning. good morning. it is risk off this morning. i am jonathan ferro. futures, negative, deeply negative, down .8%. we come off the lows on s&p 500 futures. as wesk off mood progressed towards the cash open. alix: dollar again pretty much flat on the day after that dramatic move -- dollar-yen flat on the day

after that dramatic move. david: markets continuing to react. the latest came with the appointment of robert mueller and the investigation into the trump campaign and russian government. president has tweeted once again. he says, referring to the investigation by robert mueller, this is the single greatest witchhunt of a politician in american history. here to explain what is going on and the possible ramifications is professor of law at the university of michigan. she was a former united states attorney for the eastern district. good to have you here. take us through what this means to appoint an independent counsel. what is this scope of his investigation? >> it is rare, but this can be

when it appears the department of justice may have a conflict of interest. it permits that the pity attorney general to appoint an independent person, someone not in government to come in and have all the same powers as a federal prosecutor. investigate to interference in the campaign by russia, and any other case that might arise directly from that invest geisha in. david: would that extend potentially to the question of whether in fact the president suggested at least to the fbi director that he back off the investigation into general plan? thats, you could say matter would come under the scope of the investigation, but it appears from an opinion by the office of legal counsel of

the justice department in the watergate era that a sitting president cannot be criminally indicted. the vehicle for removing a president is impeachment, but it does say a president could be indicted after he leaves office, so all of those matters are fair game as part of this investigation. david: this is an important point because the independent counsel is given the task of come if any, criminal prosecutions. we have seen in the instance of ken starr that led to impeachment activity. prepare ak is to would be submitted to rod rosenstein to decide what to do with it. there are other individuals who could be charged criminally. michael flynn would be and the scope of the investigation.

there could be other individuals charged as part of the mueller investigation, but if it reached high crimes and misdemeanors, that would be turned over to rod rosenstein to decide what to do with it, which could include turning it over to the house of representatives to begin impeachment proceedings. david: i want to ask you to appetite onhere is capitol hill to have mr. comey testify. likely he will testify while this investigation is going on? or more likely that mr. mueller was say please hold off. i would like to talk to you first? >> that would be a likely strategy and request by robert mueller. this case was already being investigated. we have read that subpoenas have knowissued, so i don't

this changes anything other than the public perception of independence, but nonetheless, every time a witness talks about these rings, it could potentially compromise investigating other individuals imagineents, so i can man i that robert mueller would prefer the crack at james comey and other witnesses. david: thank you. emerging markets improving, political risks improving. unless cover-up scheme, michelle tamer has denied the allegations. stocks than 10% on the open. that is real fallout in brazil. david: the eurobonds were down a lot. alix: we had many emerging and

investors saying not so fast, not so soon. jonathan: the nine at states is not emerging market. political risk is not anymore and emerging market. brazilian futures getting hit pretty hard. joining us now are our guest. let's talk about the market fallout. do you see this as an inflection point? tois it a knee-jerk reaction significant news out of the capital? are trying to disentangle the economics and political risks from what fundamentally drives stocks. that trump trade has driven stocks. there has been a lot of excitement about what has been

said. the market is risk off. we are trying to figure out through that noise where is the fundamental value. the market is trying to figure out what is going on at this stage. what action will be taken? the election, we are told that is when the risk rally started. financials were the poster boy for the trump rally, so what was behind the rollover coming into the news of the week so far? we have had the mood for a number of months. is a greate headline. the work we have done over the last six months and the last 3-4 weeks since the trump announcement and the 50% rate,

we have always said you have to think about it in terms of the context. 15%s not a 35% rate down to to do have to think about what companies are effectively paying. 15% is ans that opening salvo in a negotiating process. we believe rates will settle between 20% to 25%. question is can markets go higher without tax reform and fiscal stimulus? can the economic data hold up without those two things? has beenonomic data good. we have not had tax reform yet, so i don't think that is having an impact. i think the economy is fine. we get sustain momentum or do we flat out here if we don't get that stimulus? i think that tax reform speculation is a bigger factor for the stock market than the economy.

i think the stock market has are discounted some significant relief there. alix: where is the money going to go if it leaves the u.s.? it has gone into safe havens for last few days, and i think this is getting back to the point that the economy is good , fundamentals are still there, companies are capable of generating good cash and reinvesting back into the business. the markets will let this blow over subject to what happens in the next couple of weeks. we are confident on the u.s. economy. projecting strong , so it is aor q2 question of weathering the storm and then have the tax reform go through.

maybe not 15%, but an opportunity there. theme,n: the bond-euro why are european stocks down harder than what we see in the united states? i was told, the narrative around the europe story, is that it was insulated by what's happening in d.c. if you want to pick up the pieces come would you be looking at europe and not united states? >> i guess europe is not sitting on as firm a foundation for economic growth as the u.s. we have had a fairly tough time over here. exposure european stocks have to the u.s., that is where the reaction comes from. off situation places europe and a fragile position compared to the u.s. alix: thanks a lot. both of you are sticking with us.

coming up, more on the developments out of washington. later, democratic senator mark warner. we are watching brazil as brazilian stock futures are down 10% as they open up. this is bloomberg. ♪

isa: the justice department ready to sue fiat chrysler. according to people briefed on the matter, a lawsuit could be filed this week. former executives at torture bank will help pay for fines imposed on the lender.

the bank is close to an agreement with managers. he did not mention any names. autsche bank completed settlement over its handling of mortgage backed securities. walmart picking up steam in its fight against amazon. online sales rose 69% in the first quarter. walmarts brick-and-mortar stores were up 1.3%, better than expected. alix: with us to discuss consumer confidence and health of the u.s. economy are our gas still with us. it was a confusing retail season. some super bad comes some better, and retail sales were sought for april. what is your general take away from the consumer? in prettysumer is good shape your the first quarter was not a good quarter for the consumer. the labor market is strong,

balance sheets are clean, confidence are high, so the consumer will be fine. the data is noisy because there is so much structural change in the industry. alix: amazon, online, etc. that brings me to the chart of the last two days, hard data versus soft data. we have a boost in soft data and hard data has been rolling over. if you have a crisis in d.c. that impacts confidence in the soft data, does that pair down the hard data? you see that as a risk? >> sure. if there is enough of a crisis and d.c. that it impacts consumer confidence, then you have to worry about knock on effects to the economy. and confidence did not seem to have accelerated things come so unless there is a serious issue in washington, and that remains to be seen, it is not clear we are supposed to be paring down our growth estimates just yet. what happens if the soft

data do start to come down? does the soft data start to drive down the hard as well? ,> i think if it rolls over ultimately the economy is strong . we see that power there. there are second order effects at the company level, and that is what we are focusing on. incomes in that 20% to 25%, we see companies having cash flow to release into ,usinesses, a pickup and capex m&a could uptick. if that consumer confidence is driving through the top line, there is a pickup and equities go higher maybe. david: we talk about capex a lot

because it can drive productivity. is that a supply or demand problem? moneys have been cheap. if they wanted to invest, would they have not done it by now? >> it is a question of what happens with that cash. billion, 100 $87 billion overseas. if repatriation allows the cash to come back in, what where apple do with that cash? if they return it to shareholders, it will drive growth good or will they put it back into the company? people are asking if apple will go on some sort of m&a spree. so it is the key question of what will happen to the cash. the cash has to be spent in a good way. you have to make sure you are generating returns that cover the cost of capital.

that is the big question, what companies do it that cash, because it is cheap and if it does not get allocated, there is a question whether it will move the needle or not. jonathan: there is clearly oxygen left in the tax reform story. you said the data is strong. is deep into 2018, but should the market be fading the rate hike odds for june? >> personally i think the market is overreacting. i don't see the story of the last couple of days having an impact on the fed in the short ,un, and less things blow up which is anybody's guess. in most scenarios in my view, this will not have an impact on the fed the on the next few days. jonathan: both of you are sticking with us. coming up, the cisco ceo joins us to discuss the company's latest earnings. , you're york city

watching bloomberg. ♪

jonathan: from new york city come up for our viewers worldwide you are watching bloomberg. ♪ found a firmer footing for five minutes, then rolled over again. at april lows.ng stocks deep in the red across europe as well. switch out the boards. yields grinding lower by three basis points. that is the story in the treasury market. the dollar did find some stability and strength against the euro.

about an hour and 38 minutes, we will have the senate banking committee with treasury secretary steven mnuchin. to give us a preview, we are joined by michael mckee. this be consumed with the drama of james comey? >> a lot. tax reform, health care, and maybe even infrastructure spending come all that on the back burner as washington deals with this crisis. is theng to remember business of government has to continue. there are other issues. the debt ceiling has to be dealt with. and the budget possibility of a shutdown september 30, so i'm sure those will be at the top of the agenda. we also had senator to me

-- >> the need to be changes come up degree for the lower capital who havee small banks .heir lending affected that would not be an easy lift. bank reform in general pompey easy this year. regulatory is easier. banking, thet currency come fdic, most will have new heads by the end of the year and in theory a new vice-chairman for supervision at the fed, so they can do some regulatory paring back, which

will be easier than getting anything through congress. to put out is regulations, you have to go through public comment, so these things won't the immediate, but they can get done, whereas legislation is tough sledding. jonathan: is it a story pushed deeper into 2018, or a story people start to erase and coming weeks? extent, theain addition of a special counsel in the trump case takes some pressure off congress. brian can go out and say no more questions about this. we will leave it up to the special counsel and can get back to doing some legislative work. it is possible they could do negotiations on the key issues like the 2018 budget and the debt ceiling and things like that without the distraction that come from every day having to answer questions about the latest trump tweet.

the banks got hit the hardest yesterday. the s&p financials were off 3%. deregulationt through, is that positive? our markets not factoring that in because they are overwhelmed by the rhetoric? >> when you look at the pullback in the equity markets come you have to realize they are pulling back from an elevated level that came after the election when people thought a lot of things were possible. you are coming back to more realistic levels based on what is possible, higher than it was because of deregulation, but not as high as people thought. you will not see major changes in capital levels. the volcker rule that looked like it might get adjusted will now be a heavy lift. is it regulation or what will happen to interest rates? >> that's an interesting one.

i not sure the pessimism about the fed is justified at this point. 2%, thatw was that at justifies to more rate increases, and nothing has changed in that outlook. it is just that we won't get higher than 2% without the fiscal stimulus. jonathan: great to have you with this on the program. coming up, an exclusive interview ahead of that hearing on tax reform legislation. up forw york city come our viewers worldwide, you are watching bloomberg. ♪

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off by .4% on the s&p 500 after the biggest one-day loss since september last year. , 2.19% onields lower a 10 year. dollar weaker against the yen, stronger against the euro. the story continues for jobless claims. we grind lower. it is a high frequency piece of data, initial jobless claims, but the story has been this grind lower, lower, lower. several decades you have to go back to see this number. it is a remarkable story. jonathan: the philly fed business survey, 38.8, double what we were expecting. is gettingata stronger, not rolling over, and

the hard data also holding up. steve, does the fed look at the data today and say, thank god. we can focus on the hard data? this will not be one of the five most important things, but the labor market has been rock solid for a long time. the levels are phenomenal. below 300000y been and are continuing to grind further away from that mark. in thek at the rhetoric last fomc statement, we had gotten a lot of week data in advance, and they brushed it all off, gdp, payrolls come inflation. they did not seem to be phased in the least, so the confidence level about the economy and resilience is higher than a year ago. jonathan: if you wrap that into what we will hear from the fed. going to have to see a

germanic re-rating of market expectations that the fed stays on course and looks at that hard data? >> i'm not sure about dramatic, but the date is good and strong. decent climate numbers, i think they are still below the 2007 pre-crisis levels, but that is certainly nearing full employment. the question is where is the economic growth going to come from. people can work smarter, work harder, but getting down to tax reform, if it does go through, a possibility the pan will -- plan will pay for itself. it is a question of how do we actually get that growth and driver, so we will see. , peoplehese numbers don't think about what happens with jim comey or the

president's last tweet, business owners are looking at their business, but when they higher, are they thinking about tax cuts, longer-term reforms that gives you the growth you described? >> from a situation -- i run a business, and if i can get a release of cash flow, i want to see how i allocate that cash. i would be thinking about that certainly in terms of running my business. it gives back to a comment we had earlier, if we run this tax cut with a deficit, it is whether these rules will sunset within that time. where is the wage growth? what areent this low, we doing around 2.5%? >> it is a good question.

if you listen to the flow of anecdotal data on the ground, it sounds like wages are rising faster than what the aggregate data is showing, so maybe we will get something more as we go along. is the lowthing productivity story create a lot of people are missing the link between that and wage growth. the rays you give someone is a function of how much more real output they are giving you as well as the cost of living adjustment. if productivity is low, wage growth will be slower than what it should of been otherwise. alix: there is a great article on fracking. they are productive and wages are out of hand. people are leaving contracts to get double the price at a different company. jonathan: it is something to think about. as an equity analyst, where'd you want to be positioned geographically?

where there is huge labor market slack and a huge availability of resources like europe, or in the united states where things are tighter? great question for our strategists. from our perspective, my team, we have been focused on the u.s. because of that robust economic growth the u.s. has. full employment is encouraging. it is an inflection in the story. great,unemployment is but creates other issues going forward. we have been focused on the u.s.. europe has been more fragile for us, but ultimately this tax cuts certainly provides a boosted to the economy, and the release of cash we are looking for. david: i wonder if there is a constraint because of globalization. even if there is tightness, you can't racial prices because there is so much competition. it's reported that the u.s. trade representative office will

renegotiate nafta on thursday. as alization acting constraint on prices and keeping down wages? >> to a certain extent. the companies we are looking at our bank global companies. if something happens in one economy, it is felt and another economy. was somethingorm we look at a good few months ago. that put fear into the market. if that has impact, not just u.s. companies and the u.s. story, so i do think it is something we need to think about and be aware that this is a complete global economy for a lot of companies. what is your base case for two more rate hikes this year? >> i think the market might see a little late in its timing of the balance sheet is the fed has the fomct, not only in

remarks, but individually, the officials have noted they would like to get started before the end of the year, and what the market seems to be pricing in is a december announcement for cany 2018 execution, so i see that getting pushed up by maybe a quarter. alix: if you wind up seeing political risk heat up, how does that affect the timeline? does it put off the balance sheet more or do they substitute that for a rate hike? >> my guess, and it is only a guess, is that the balance sheet plan is less sensitive to what is going on in washington than the rate hikes. want to getme they started on the balance sheet because they are concerned about the impact in terms of providing artificial liquidity into the economy or into the markets i should say. they arek to me if

going to sacrifice one or the other, it might be to delay rate hikes as opposed to delaying the balance sheet. alix: he is the hawkish guy here. jonathan: great to have you with us. thank you. there is a scotch if you can just guess who canceled their bond auction today. >> brazil. jonathan: there you go. i want to get you an update on headlines outside the business world. emma: president trump calls it the greatest single witchhunt in american history. the president tweeted about the naming of the special counsel to investigate possible links between his campaign and russia. he said there was never a special counsel to investigate the clinton or obama administration. the justice department has named to chief robert mueller

coordinate. it is the first major test of president trump's plan to work out better trade deals. to start theeady three-month count down to read negotiate nafta. trade representative robert light heiser has been meeting with lawmakers to prepare for the formal notification. in the u k, theresa may has committed her conservative party to a hard brexit. she promised british voters she would deliver a clean break from the european union. global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. i am emma chandra. david: coming up, an exclusive interview with peter roskam before hearings on tax reform legislation. later, senator mark warner of

virginia live from new york and washington. this is bloomberg. ♪

next coming up in the hour, cisco's ceo chuck robbins on earnings at 9:45 a.m. eastern time. ♪ shares of china's largest e-commerce company lowered today. alibaba reported quarterly earnings that missed estimates. the company faced a higher tax bill and splurged on

entertainment and cloud commuting and announced a six in dollars share buyback. it is a disappointing forecast from cisco. it says revenue may fall as much as six are sent from a year ago. it said it is cutting 1100 jobs. cisco and other hardware providers face challenges to cheaper software-based networking. there are reports that the brazilian president michel temer was involved in an alleged cover-up scheme. the office the nice the allegations. that is your bloomberg's newsflash. alix: brazil totally pummeling markets. futures plunging 8%. real futures plunged 6%. the brazilian central bank is calling for an fx swap. gettinge present etf's clobbered. isning us now from new york

black rock emerging markets portfolio manager. great to get your perspective on the call by mexico, argentina, brazil, then this happens. what is your take on emerging markets right now. an event like today reminds you of why emerging markets are cheap. one of the reasons is volatility and uncertainty. this is for brazil itself a major shock. the context through which we are anding is quite positive quite constructive. the fundamentals are improving. undervalued and there are pockets of value, though you get a shock and it reminds you of the volatility to live through when you own

emerging-market assets. went to buy brazil, how steady is your hand? you don't want to take on the risk or you say awesome and double down? >> we need to assess the fundamental shock. there are two damages. the first is an important piece of legislation, the pension fund reform. the whole story was predicated on the passage of that legislation. anything that delays it changes the story. the economy has finally started showing signs of a green shoot. a shock like this will likely reverse it and throw the economy back into recession. the most important thing is political uncertainty. if we can deal with the quickly, then the positive story comes back. for passive investors, is there a trickle down to the rest of the emerging-market landscape?

>> in principle, not. there are linkages between brazil and countries in the neighborhood, but elsewhere, no. the linkage is not there. these are the kinds of things that we as long-term investors will look through and by. alix: where will you be buying? you have healed flow and the as., a u.s. dollar lower, and fed hike being priced out of the market. and one more thing. finally we are seeing growth recovery taking shape in emerging markets and finally starting to see the external imbalances that have been at the core of weakness in the emerging markets reversed. there are good stories. argentina, mexico, so

there are stories that we are looking at and like. alix: what happens if the reflation theme gets priced out of the u.s. and , how doess up slowing that make you recalibrate your call? ourt the core of bullishness on emerging markets is a story of global reflation, sustain growth with low inflation that keep central bankers that they. if that story shifts in a radical way and the reason why , then the story shifts and becomes problematic. we don't believe that. it is not our view. our view is that it is a continuation of the reflation story with moderate growth and central banks that are gradual. indonesia.ike where else, local debt, equity markets? that in theheme is

context of global reflation, we are seeing paradoxically lower inflation in emerging markets. the currency weakness has come to a stop, so pastor inflation has been coming down. so rates that have been raised to kill inflation have succeeded,. so local markets are where the value is. alix: you mentioned indonesia. isindonesia is one, russia another place where the central bank is reacting to an economy that has rebalance, the leverage. we think the central bank of russia will cut interest rates. , rates are too restrictive. to comexpecting rates down. argentina is a repricing story. great stuff.

good to get your perspective as brazil falls out of bed. good to see you. thanks. david: some breaking news from fox news. fox news is reporting that founder, chairman, and former ceo roger ailes has passed away. fox news and left under controversy because of sexual harassment allegations. political adviser to president nixon, president reagan, and george h.w. bush. he started as a talkshow producer in cleveland. once again, according to fox news, roger ailes passed away at 77. ♪

jonathan: from newark city, for our viewers worldwide, this is "bloomberg daybreak." nowhere near as

dramatic as yesterday's session. we are down .3% on the s&p 500. the data pretty solid. initial jobless claims grind lower. if you switch of the boards. treasuries softening as well. points,own 3-4 basis now down 1-2 on a 10 year. the story yesterday and last week has been weaker, weaker, weaker. the dollar has shown strength in the last hour against the euro and yen. a company not showing weaknesses walmart. they announced first-quarter earnings. they reported earnings per share that beat estimates, driven by increased same-store sales and a 69% increase in online sales as the company is taking on amazon.

welcome to the program. take us through the top line. what are the biggest headlines? >> good morning. the biggest headlines were the online sales growth of 69%. that is outpacing on line growth in the industry at 15% and the growth that amazon is posting, so they are making some headway there. we think they used to be reacting to everything amazon did. they are doing much better. 1.5% infic growth of u.s. stores is the 10th consecutive quarter of positive traffic growth. there are only a handful of retailers posting positive traffic growth. they were able to leverage expenses in their stores. longer-term, there is a lack of earnings growth. earnings grew to 2%.

it will be difficult to grow faster than three percent to 5% long-term. while agoy said a that they would not have much for 2-3 years because they were investing in online and salaries for employees. are those investment starting to pay off? >> i think so. they started this journey two years ago and cut the guidance, and we are starting to see it a off. it is outpacing retail with same-store sales growth. e-commerce is growing rapidly. we think longer-term they will have to continue to invest in e-commerce and that will be a they arerofits, and not making money on e-commerce. biggermmerce becomes a part, it will be difficult to grow earnings longer-term. how did they manage their costs to keep their margins? they've cut a lot at

headquarters. they have paid attention to that. to do a solid job of managing the stores in the payroll and having people in at the busiest times and it the times they don't need many people, those are some opportunities they used to manage expenses as profits come down from the online drive in growth. aboutit is kind of walmart, target, home depot, tjx , what is your biggest read through on the retail industry? >> it is difficult. i would say online is rapidly changing the entire industry. it reminds me of 25 years ago when walmart came on the scene and started adding supercenters, the change and the companies driven out of business. it is difficult unless you are offering a specialized service

or product that is differentiated. there are a few standouts. home improvement is doing well. ok,price seems to be doing and then automotive parts, but otherwise it is difficult if you are competing head to head with amazon. jonathan: we appreciate your time. thank you for coming on the program. coming up, and exclusive .onversation with peter roskam from new york city, counting you down to the opening bell, futures softer, the drama draining out of the market a little bit. you are watching bloomberg. ♪

jonathan: the d.c. drama deepens.

former fbi director robert mueller oversees the investigation into russian meddling. volatility in washington groups wall street. futures continue to soften after the s&p 500 suffered its biggest drop in eight months. the market begins to question whether the deepest crisis of trump's presidency so far can throw janet yellen off course. just five months in? this is bloomberg daybreak. this thursday, here is the state of play. futures are softer. the biggest one-day loss in september 2016. will we find a firmer footing in today's session? . switch up the board. treasury yields, the low for the year, 2.16 on the year. yields are up two basis points. the dollar firming up through the morning.

story. the the open is 29 minutes away. looking atow was triple digits lower. walmart up by 2% in premarket. earnings came in better. it was the online sale number of 69% that got a lot of attention. traffic is rising, but margins were light as to how much people spent when they were there. cisco on the down foot, off by 7%. they forecast a larger than expected sales drop. revenue could fall by 6%. they are also adding more job cuts. they are transitioning to a software company. the resident optimism in stocks like cisco and apple that have a lot of cash overseas and potential repatriation. stories,ne of the top

this is the adr for brazilian stocks. plane company down by 11%. the reform agenda is now threatened by potential evidence that the president bribed another official and there could be tapes related to that. that could hit brazilian stocks very hard. the receiving government dropping sovereign bond options because of the volatility. a very dramatic story throughout the day. jonathan: d.c. on steroids. david: i'm not sure which one is the more definitive. markets around the world are preparing to react. take us through the latest, we've got marty schenker. you noted that the president had not tweeted yesterday. well he is making up for it,

today. in the first week, we have. talking about hillary clinton's campaign, not bill clinton's presidency. he then tweeted this is the single greatest which hand of a polyp -- witchhunt of a politician in history. what is the likely affect of this kind of activity? marty: it is wave -- it just waives a red flag in the face of the new special counsel. if he did not before, is going to make sure that he goes down every avenue and even if those avenues lead to the white house, that's where he's going. emboldens thet various investigations to get going and figure out exactly what happened during the selection. have investigations going on, on the hill, the house

side, the senate and now there is a independent counsel. do they go on simultaneously? marty: you have seen comments thatvarious chairmen they would like to see the congressional investigations continue. i think mueller is the driver. he says if you continue with these investigations, it will impede my investigation, then i think they will step aside and shut it down. to gets a way for them going simultaneously, as long as there is communication between the committee chairman and the special counsel jackie office. -- special counsel's office. david: you have experience of seeing these special prosecutors in washington. as a practical matter, how much of the oxygen does it suck out of the room in washington? can other legislation be going

on? marty: it probably does allow more room for things that -- for instance, mitch mcconnell wants to get done in congress. if they do wind down some of these investigations, and would allow for congress to do some work, which i think they are desperate to do, both on the democratic and republican side. it gives people a chance to breathe a little bit. it may leave room for congress to do some things. jonathan: joining us to get the market breakdown and the reaction is the chief u.s. market strategist. meeting, youorning saw futures being negative. what is the kind of conversation you were having? you see the market responding to the news we were talking about, but the question you have to ask if you are making a decision on stocks is, is this

going to change the fortunes, or going to be buying less iphones, are going to be using less electricity? is this going to cause a recession? is or something this will do fundamentally to change the market and if is -- if the answer is no, then this is a fantastic buying opportunity. in the near term, the market is trying to handicap it, but it matters a lot less in the longer term. jonathan: what do you like right now? >> the real story is that the economy is getting better. the fed is going to be forced to move, jobs are being created. a 4.4% unemployment rate. if you look at where interest rates have been, they are up meaningfully because there is more pressure upwards on the economy. i think you want to go into risky assets in the face of

this. that would mean small caps and banks and industrial companies. play it safe when everyone else is really excited about the world and you want to -- when people are nervous, that's when you want to extend risk in the market. alix: how do you buy financials at 2.2%? >> the question is where our interest rates going and if you have a labor market that is this type. we are on pace -- alix: they seem to be reacting to d.c. and overseas buying. the line is not as clear. >> if you said to me on a day where you have bombshells coming out of washington, the market is focusing on the news flow, but if you look at history and you talking aboute when there were other presidential scandals, what happens is a flight to safety, yields go down and unless they are going to cause us to go into a recession or cause a

derailment, even like war ends up not having as big an impact on markets in these 10 -- these things tend to be fleeting. if they are, then what happens is that only does the market pickup, but interest rates we normalize -- re-normalize. alix: financial start to roll over before the bombshells in the last 48 hours. you have had softer data. where is the conviction? there is a lot of discussion on the data. if you look at the expectations on the economy, they are up to in 2017 versus 2016. probably the biggest incremental driver is the data coming out of china, broadly stronger in terms of their own domestic economy. , which iseing pmi's what corporation say they are doing, giving you green lights

in every developed economy. it is not like a u.s. excess story. prices, we went from 110 to 26 and now they are picking up. that is a big benefit, not only to the energy and materials sector, but it gives the banks a lot of leeway to lend money because they have big low losses and those losses are now being a racist -- now being erased. when banks are more willing to lend, good things happen elsewhere in the economy. david: is this just an overcorrection or overreaction, or is this being used as an thate by people concerned things are overbought, including the expectations of trump policies and people said they had some nervousness anyway. >> this has nothing to do with

the market being expensive. this is the market trying to look at the potential of a presidency which appears increasingly at risk. whether we are talking about legal action being taken for the loss of his agenda or just disarray in the whole discussion or the investigation clouding everything. ultimately, you want to have a function -- functioning washington. we are still the most important government and economy in world -- in the world and at that comes to a halt, that is not good for anyone and that is what the market is discounting. they are not wondering if they were too excited before this. history tells you that these are buying opportunities. jonathan: the rest rally has done ok oh with the last seven years without d.c. can it be ok without d.c. from here? wayhe big mistake -- the

the press has played into this is that the rally because of donald trump and if you look at where the rally and stocks started, they started post-brexit last year when everyone thought that hillary was going to win. ofyou look at the basket trump stocks, the companies that would win the most if trump got every policy he wanted on taxes and different sectors, that basket is exactly in line with the market since election day. this is not about donald trump, so i don't think there is a risk on that. jonathan: what channel are you watching at tc trade? you are sticking with us. coming up ahead of that hearing, harassment peter roskam joins us -- congressman peter roskam joins us. volatility down in d.c. breaks the calm on wall street.

cunning is down to the opening bell. you are watching bloomberg tv. ♪

david: this is bloomberg. the0:00, the house takes up question of tax reform when it holds its first of hearings -- first of many hearings on possible legislation. representative peter roskam will be holding those meetings as the chairman of the house subcommittee of the house ways and means committee. it is good to have you here. peter: good to be with you. david: let me start with the question of the moment. how big is the distraction is the whole situation involving comey and the russians, how big is that for you and your

committee as you try to get to tax reform. peter: it is not helpful, but if it's not that issue, it will be some other issue. that is the nature of washington, d.c. my preference would be have a easy pathway where everyone is talking about tax for warm all the time. that is completely unrealistic, so while we know it is a challenging environment, let's not moan and groan about it, let's do the work. david: do you welcome the appointment of mr. mueller in the sense that it might be getting it behind you? peter: i think it is helpful with a man that has the confidence of the american people. his reputation is outstanding. he will be able to deal with this in a way that is satisfactory, all the way around, rather than having it boil and roil and so forth. it can be disposed of and is in good hands at this point. david: we have heard from the senate majority leader and from

your chairman and senator hatch, that there is an attempt to put together a unified approach with the house, the senate and the white house. how far along are you in that approach? peter: it is hard to give a straight answer in terms of the when question. we have a blueprint in the house that we think is comprehensive and you have discussed this a lot over the past several months. the white house has sort of recapitulated or recharacterize some of the campaign themes that they talked about a couple weeks ago. we are hoping and waiting for more activity on the senate side. that is to say that everyone involved in this recognizes that there is a real premium for unity. the house is sort of a foundational document that is the blueprint, but we are really driving towards consensus because he result we don't want. we don't want a house bill, white house language, a senate

bill that has to go through and be hodgepodge together. let's have these debates and discussions up front and learn some of the lessons of the health care debate and not repeat some of those mistakes. so those mistakes for full fed lines which don't create much activity and the other is sort of competing pieces of legislation. let's avoid that and come up with a holistic plan. david: one issue here about is whether it is revenue neutral. your chairman said it has to be. senator hatch said it would be nice but does not have to be and then we had senator toomey saying it does not have to be revenue neutral at all. where will you end up? peter: here is where i think we should end up. i think it should be revenue neutral, but not esoterically so. revenue neutral means this is a permanent tax policy. permanence is the goal. we have a situation in the

united states where we have temporary tax policy that expires periodically and is unpredictable and not helpful and permanent spending policy. that should be switched. we should have permanent tax policy. if you have permanent tax policy and in this case, we are trying to induce corporate behavior to breathe -- to bring research and development facilities back home in the u.s., the way that happens and it's up most to get the most potential out of tax changes is to make sure they are permanent or if you have a tax code that is expiring in 10 years, what board room decision is going to say let's reshore that manufacturing up -- operation. david: we have a friend from rbc ask youwho asked me to a question, which is given where we are with the labor market, is this a good time to have substantial tax stimulus?

could we overheat the economy? peter: we are at a once in a generation inflection point as it relates to tax policy. we have a serious problem in that if we don't move, we will see companies in the base erosion become more and more significant. area, anom the chicago iconic chicago company leave -- leaves and headquarters in london has a huge impact. when burger king left to the u.k., these are companies that are not going to tax havens. they are going to our best friends and closest allies because they have a more competitive tax environment. i would look at 2017 as the year that this either comes together or it doesn't end there is an urgency to this. i would describe this as an inflection. nobody is defending the status quo, take it manage of that and move forward for a tax plan that

is sustainable and permanent. ways the househe hopes to pay for this is the border adjustment tax. the senate has made it clear that it will be very clear -- very difficult. are you willing to put things on the table like the terrible contribution deduction and the mortgage seduction to mark peter: i'm not willing to start having a discussion about what the senate can't do. i'm interested in saying what is holistic and how does this whole thing work together, and i think i'm speaking for a lot of folks on the ways and means committee. where senatorsme play some version of american idol and say i don't like this and i don't like that. let's instead look at a holistic plan. the border adjustment issue is not just a revenue issue, it completely eclipses the whole question on base erosion. you are not incentivized if

there is a border adjustment situation, to put manufacturing operations outside of the u.s.. this fixes that problem. david: i know you are a loyal republican, but as you look at it, is the president of the united states helping you get tax of warm or his he -- or a hissy -- or is he a hindrance? peter: we are clearly on a multitasking mode right now, there was steady work happening on tax reform during the health care debate. network is continuing and we are having a tax hearing this morning at 10:00. that is happening notwithstanding all the other drama around town. the name of the game for people like me is keep your eye on the ball. we have an opportunity to do this, once and for all and let's take advantage of it. alix: you do have that -- david:

you do have that hearing coming up and we wish you well with it. alix: trying to get back to work. drama and distraction. in the markets, take a look at the vix, up 50% in the last three days. we saw it, of the highs of the session. yesterday was a big day for those finally waiting for a jump in the next. you were constructive on buying typical stocks. does that mean you would be selling right now? jonathan: absolutely. i can't tell where it will be in a day, but if you said to me in a month from now, will the vix be closer to 10 than 15, i don't think there is a question. there are a couple of things that drive the vix. it really is a comment on the economic environment. the biggest risk to the economy is when you are going into feed --n and this news

this news flow doesn't really change any of that alix: brazilian stock exchange tumbles 10%. e.m.'s doing what they're supposed to do. between a distinction low volatility there and high volatility elsewhere? jonathan golub: places like brazil that are whole different stories, but i was here on election night in the middle of 1:00 in the morning, when the market was falling apart, the market actually stopped trading down 5% and two days later, it made all that up and the right .nswer is to sell the news flow jonathan: when you spoke to clients, were they freaking out? jonathan golub: no, they were calm.

when you havem low volatility is the market does not have all backs -- fullbacks -- pullbacks. by 2% or 3%,back but the market is only moving, a vix of 10 means the market moves 20 basis points a day. you don't get those entry points. i hope those people say i got it, take advantage of it, because when volatility falls again, the entry points will melt away. jonathan: they want to buy, but they want to achieve a price. jonathan golub: the number of guys who say that it's healthy for markets to get a bit of a pullback, the market is off by 5% and all of a sudden, they are freaking out. you are 100% right. -- lesswe respond to

than a 2% pullback. jonathan: a record high. -- twon golub: two point and a quarter percent off the all-time high. is this a big deal? sure, but it is something. alix: what about passive investors when you look at the headlines? does that change the game? jonathan golub: i don't think so. i look at the way my parents might choose to invest on their mutual funds, whether it is a passive fund or a active on. are they calling their stockbroker and saying i'm out of the market. we talk about points, it is almost misleading. it is the same reason we use chips in vegas.

they seem like they are bigger or smaller than they really are. you can say to someone you lost 1.8% after the market was up 17%, how do you feel but -- and they would truck their shoulders but 300 points -- shrug their shoulders but 300 points. 90 plus percent of the time, when you have the market pulled back like this, it is a buying opportunity as long as nothing changes the economy and nothing is wrong with this economy. jonathan: jonathan golub. the opening bell is up next on bloomberg daybreak. the drama draining out of the market. futures down 2/10 on the s&p. you are watching bloomberg. ♪

jonathan: from new york city, you are watching bloomberg daybreak. moments away from the opening bell. d.c. drama continues to dominate sentiment.

futures stabilize as we move toward the cash open. s&p 500 futures down four or five points. switch of the board as you hear the opening bell, the biggest one-day drop on the s&p since september of last year. treasury yields continue to grind lower. yours your -- 2.21 is yield on the u.s. 10 year. that is the story across assets. alix: we are seeing a little bit of selling, today, but not a lot of movement. the nasdaq is off by 2/10. the s&p off by 110. -- 1/10. will today beat that day? this is the only -- only the second day were we had a 1% move before the s&p.

individual names, i want to point out what happened. halliburton getting a new ceo. u.s. steel getting hit. you price out steel and that will wind up hitting the seal stocks. freeport off over 1%. that is a copper story. property prices are quite high in china. lumbar liquidators also down by almost 2%. this trends into a brazil story. brazil is the number one -- number two would supplier -- number two wood supplier. , the adrlian side note is getting hammered, bringing down commodities. the question is, when do you buy? what is the opportunity? jonathan: there is the

follow-through about one or two minutes into the session. the dow is down by 2/10 of 1%. 01.0 --500 off by 0.13%. let's get the katie stockton from btig. an unsuccessful test of resistance at that march high, which is roughly 24.01. a widely followed level. related the last hurdle -- really the last hurdle to new highs. the pullback is helping to relieve short-term overbought conditions. they never feel good. sentiment was somewhat bullish and now it is already affected by that one day. jonathan: what are you

expecting, now? you see the fast and furious move like we saw yesterday, it is more indicative of a bull market. it is the slow grind lower you worry about. you want to get a bit of a flesh out. broken, ted is on expect on a closing basis, 2280 becomes the next port. i think we want to always keep in mind with the prevailing long-term trend, which is higher for the market. marketwatched the internal measures. extremes torsold suggest that we have a buying opportunity. we did not get any of those oversold extremes coming yesterday, but we are getting closer. a couple more days and we will start to see them. it will look from an uptick in him -- in momentum.

alix: what about an uptick in the momentum? it was a crazy day. 216,: i'm looking at about based on the 200 day moving average. the levels tend to hold importance. i do think we will see the 10 year treasury yield hold up above in that support range. alix: when can we get there? katie: days, not weeks. alix: a fast move. do we reverse up from there? how does it play out? katie: the resistance is around 2.4. the prevailing trend for yields is higher. things like the monthly max the indicator are supportive of that indicator arec d supportive of that trend. jonathan: we so what happened

with treasury yields. the dollar weakness story has been factored in over the last couple of. -- capital -- last couple of months. it is not short-term momentum. when we saw the dxy takeout 99 support, that was an issue. the euro got above its 200 day moving average and now it has seen significant followthrough. we defer to those trends. that, i think we just follow the momentum. alix: s&p slipping into positive territory. -- flipping into positive territory. the vix was also the huge story, having that date cap up higher -- having that huge cap up higher. katie: for the vix, we will see

another spike with volatility picking up. i look at it as a gauge of sentiment. hovering to me is somewhat insignificant. as a component of sentiment, i think it can be very telling. we are not quite there yet, but i expect a lower high in the vix. alix: a complicated day. katie stockton of btig. walmart getting momentum in its fight against amazon. online sales growing at its fastest clip in over five years. the e-commerce that just killed it, 69% volume up in the last quarter. shelly banjo is joining us. you are going to go back and dig within that 69 increase -- 69% increase in income or sales. sales.-commerce

this was something walmart really shied away from. they did not do it for years and this is where the new e-commerce chief really excels because that is how he built it. alix: where are they, in their transition and in trying to boost earnings? earnings in sales. they are now starting to build back earnings, but their profits are still low, they are still -- profits have been down for quite a few quarters and they are not really recovering. a lot of old-school metrics that walmart used to be really good at, return on investment, dividends, share repurchases, those kinds of investor friendly things are taking a backseat. but we are seeing now is they

are investing in sales growth. they are so big, it is hard to do both at the same time. david: do we know what the margins are on sales -- online sales compared to brick-and-mortar sales? slower, andne is walmart is trying to convince more people to buy online but pick up at store. one thing they are focusing on is groceries and that is where they have seen the most success. people placing the online order and then coming to pick it up. walmart is part and parcel to the food deflation because they are lowering prices and everyone is responding. david: making it up on volume. margins, food, smaller margins. up, butthe traffic was what was down was the average ticket should -- average ticket

size. alix: what does this mean for the rest of the retail sale or -- retail sector? shelly: they are definitely hammering grocery stores across the board and that is bad news. the online sales is also bad news because walmart is grabbing more of that share. they do not pose any kind of danger to amazon, but they are certainly starting to fight again. jonathan: shelly banjo, rate to have you with us. walmart start -- stock up over 2%. nine minutes into the session, positive territory after the biggest one-day drop since september of last year. the tao of the s&p 500 in the green -- the tao and the s -- the dow and the s&p 500 in the green.

from new york, you are watching bloomberg.

emma: this is bloomberg daybreak. coming up, we speak with anthony's durham the g -- anthony sarah mucci -- anthony s caramucci. announced its quarterly earnings yesterday that beat rest -- that beat estimates, but the stock move down because the sales forecast going forward grew cautious. joining us now is ceo chuck robbins.

chuck: it is good to talk to you. david: i want to start with what we have been talking about, which is what is going on in washington and how it might affect cisco. they are starting tax reform discussions, today and you have a fair amount of cash overseas. if they did not get around to fixing that issue so you could bring it back, with that affect your business materially? chuck: we fundamentally believe that tax reform is needed. we have been active in discussions in washington about how that should be structured. they were two key things. tax reform for lower corporate tax rates are needed, to make u.s. corporations more competitive and repatriation is important for those of us who have cash overseas so we can bring it back and make the investments in the united states. we are working with various groups in washington to try to help move that forward. impact, to the business

we are focused on a few things aret now and number one, we transitioning to more of a software and subtraction business. secondly, we are leveraging our ability to innovate, both through inorganic and organic capabilities. we are finally working with our customers to help them prepare for billions of new connections that are going to come online in the next generation of cute abilities with deep embedded security that they will need. from the perspective of tax and repatriation, we don't run our business on the assumption it's going to happen. if it did happen, it would be positive for us. david: you mentioned this trend -- this transformation you have been taking cisco through. as you look at that transformation, part of the reason your stock did not do so well was because you said going forward, it is looking soft in terms of purchases. are there mergers and i

positions you can do to help fix that problem -- mergers and acquisitions you can do to help fix the problem? chuck: we have more than doubled the amount of dollars sitting on our balance sheet from software and subscriptions in the last eight quarters. it was up 57% last quarter. that transition is moving. we put $500 million on the balance sheet in the last 90 days. we are accelerating. as we look at it, technologies we have built that are contributing that balance, we have acquisitions that we closed last quarter that will also contribute to that. there is an opportunity for us to drive m&a. as well as our own internal ability to innovate and drive more of our technologies to this model. this will be the strategy we deploy, going forward. jonathan: cisco has had some

pretty big buyback programs over the last couple of years. -- whygle to understand do you need to wait for tax reform when you show you have access to all of this cash anyway to execute big buyback programs? it is not stopping us at all. we have been very active in the m&a front and we have been increasing our dividend. we have been driving buybacks. i would suggest that the fact that our cash is overseas has not stopped us from doing the things we need to do. if the cash was here, it would make it a little easier and perhaps allow us to accelerate some things. it is not stopping us from doing the things we need to. jonathan: what would you accelerate? bigger buybacks? chuck: if you look at the

strategy we are trying to deploy, then we would do continued commitment and acceleration of our capital return strategy with our shareholders. we are committed to returning more than 50% of our cash flow and we have been well ahead of that. we are looking at potentially investing and we have talked about innovation centers in the united states to drive entrepreneurship and things that could be done as well as accelerating that cash for other m&a opportunities. there are lots of things we could do, and we will put that cash to work. alix: are you more or less optimistic about the trump agenda than six months ago? chuck: great question. about theistic commitment in washington. alix: more or less?

--ck: then six months ago than six months ago. clearly there are lots of dynamics that have to play out. i would say i am at the same level of optimism relative to the tax reform in washington. i have a pragmatist, but an optimist. jonathan: i can see the pr out of the corner of your eye smiling. chuck: they are not even in the room with me. [laughter] alix: thank you, chuck robbins, the cisco ceo. we are following developments out of washington. at the top of the hour, treasury secretary steve mnuchin testifying in a congressional hearing. up next, senator mark warner joins us. this is bloomberg. ♪

david: this is bloomberg.

washington suddenly seems awash in investigations with the justice department appointing independent counsel to look into possible connections between russia and the trump campaign. one of the senators at the center of it is mark warner, vice chairman of the select committee on intelligence. good to have you here. we have asked others and i would love your opinion. hasn the fact that mueller been brought in, does that mean you and your intelligence committee should be pulling back a little bit on the investigation to let him have his opportunity to investigate? mark: first of all, i think he was a great choice. he brings the kind of bipartisan and prosecutorial expertise to the table and independence that i think the justice department investigation need. in a sense, that will not in any way slow down our investigation.

they are looking at criminal activities, we are looking at what actually took place. there are different standards involved. we still have the former director of the fbi, comey come in and testify. we are full speed ahead. if you look back historically, there are have often been times when you have a congressional investigation and a justice department investigation going on at the same time. we have to make sure that we de-conflict. we have to make sure we don't do anything to mess up their criminal investigation. i look at that commitment again from deputy attorney general rosenstein. david: as you say, this is not the first time we have had this situation going on with simultaneous investigations.

in the past, it has really been the case where the prosecutors doing the investigation would ask you to defer, but as not calling former director comey up for testimony. if they do, would you be inclined to go along with that request? sen. warner: we want to make sure the justice department investigation is able to do its work appropriately. but, we also have a different responsibility in terms of we are further along in our investigation. haveve proven the russians intervened massively. we are pretty far down the path in terms of our interviews. we will obviously look 2-d conflict -- to deconflict. there are criminal standards they are going after and there are plain facts that maybe don't rise to the level of supposedly in, but those facts would still be relevant in terms of our

report to the american public and the rest of congress. david: there was a report from another organized -- and other news organization that there were 18 contacts between the presidential campaign of donald trump and the russian government between march and november. without revealing classified information because i don't want to ask you to do that, can you confirm that? sen. warner: i cannot confirm that. i have not seen that report. it has been evident in the news and other reporting that there really were a series of contacts , whether eunice: -- whether you want to call it dots that need to be connected or a whole lot of smoke. this is why it has captured the imagination of the american people. i cannot go anywhere without people asking me what is going on and when will you get to the bottom of this? this is the only investigation that is completely bipartisan. we have had some bumps, but we

are working closely together and we will get to the bottom of it. david: one of the things that has puzzled some people, the blockbuster report from the new york times that the president had suggested to the fbi director then, comey, to back off of the investigation of michael flynn. if that is true, why would the fbi director have not taken that forward? if would he have sat on that he felt there was something that could be construed as an attempt to obstruct justice? sen. warner: that is a fair question, which is one of the reasons we want both director andy to come in and testify we have written the fbi and requested comment -- copies of any memo or memos that exist. i don't want to weigh in on any implications until we get the fact. we are trying to be fact-based. that is a very valid question. david: can you walk and chew gum, the senate i mean, can you

do tax reform while this is going on? sen. warner: i think the president is obviously a bit distracted. his daily tweets are going to cause some concern coming out of the administration. secretary mnuchin is going to appear before us. my fear is the white house has put together a wish list of tax cuts and that is not tax reform. david: thank you so much, senator mark warner. jonathan: that's it for us from bloomberg daybreak. thank you very much. the coverage continues with bloomberg markets. this is bloomberg. ♪

vonnie: breaking news, steven mnuchin will be testified before banking committee. this is his first congressional testimony since being sworn in as treasury secretary.

it will cover issues from tax reform, the rollback of dodd-frank and china's role as currency manipulator. mark: we will be watching to see if steven mnuchin addresses the latest from administration -- latest trump administration. we will bring good in his testimony as it begins. vonnie: that is him taking his seat right there. open statements set to begin in a few moments. first, the markets fell off in the u.s. yesterday. bloombergs julie hyman is here to bring us up-to-date. julie: it is moderating to some extent and that isn't unusual. we looked at the last 10 times ofsaw stocks fall 1%, eight the 10 times, stocks are covered and closed higher the following day. the stock market in the u.s.